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As filed with the Securities and Exchange Commission on September 18, 2003
Registration No. 333-85848

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 
POST-EFFECTIVE AMENDMENT NO. 5
TO
FORM S-11
REGISTRATION STATEMENT
Under
The Securities Act of 1933

 
WELLS REAL ESTATE INVESTMENT TRUST, INC.
(Exact name of registrant as specified in governing instruments)
 
6200 The Corners Parkway, Suite 250
Norcross, Georgia 30092
(770) 449-7800
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 
Donald Kennicott, Esq.
Michael K. Rafter, Esq.
Holland & Knight LLP
One Atlantic Center, Suite 2000
1201 West Peachtree Street, N.W.
Atlanta, Georgia 30309-3400
(404) 817-8500
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Agent for Service)

 
Maryland	 	58-2328421	
(State or other
Jurisdiction of Incorporation)	 	(I.R.S. Employer
Identification Number)	

 
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨
 
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨
 
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨
 
If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.  ¨
 
Approximate date of commencement of proposed sale to the public: As soon as practicable following effectiveness of this Registration Statement.

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[The following is text to a sticker to be attached to the front cover page of the prospectus in a manner that will not obscure the Risk Factors:]
 
SUPPLEMENTAL INFORMATION—The prospectus of Wells Real Estate Investment Trust, Inc. consists of this sticker, the prospectus dated July 26, 2002, Supplement No. 1 dated August 14, 2002, Supplement No. 2 dated August 29, 2002, Supplement No. 3 dated October 15, 2002, Supplement No. 4 dated December 10, 2002, Supplement No. 5 dated January 15, 2003, Supplement No. 6 dated April 14, 2003, Supplement No. 7 dated May 15, 2003, Supplement No. 8 dated June 15, 2003, Supplement No. 9 dated August 27, 2003 and Supplement No. 10 dated September 15, 2003. Supplement No. 1 includes descriptions of acquisitions of buildings in San Antonio, Texas; Houston, Texas; Duncan, South Carolina; and Suwanee, Georgia, updated unaudited financial statements and certain other revisions to the prospectus. Supplement No. 2 includes descriptions of acquisitions of buildings in Irving, Texas; and Austin, Texas, description of a lease of a build-to-suit office building in Chandler, Arizona, declaration of fourth quarter dividends and certain other revisions to the prospectus. Supplement No. 3 includes descriptions of acquisitions of buildings in Holtsville, New York; Parsippany, New Jersey; Indianapolis, Indiana; Colorado Springs, Colorado; Des Moines, Iowa; Plano, Texas; and Westlake, Texas, description of a build-to-suit office building in Chandler, Arizona, audited financial statements relating to acquisitions of buildings in Austin, Texas; Holtsville, New York; and Parsippany, New Jersey, and certain other revisions to the prospectus. Supplement No. 4 includes descriptions of acquisitions of buildings in Washington, D.C.; Glen Allen, Virginia; and Nashville, Tennessee, audited financial statements relating to acquisitions of buildings in Washington, D.C.; and Nashville, Tennessee, updated unaudited financial statements, declaration of first quarter dividends for 2003 and certain other revisions to the prospectus. Supplement No. 5 includes descriptions of acquisitions of buildings in Fishers, Indiana; Glendale, California; and Mayfield Heights, Ohio, description of the second transaction under the Section 1031 Exchange Program, audited financial statements relating to the acquisition of the building in Glendale, California, updated unaudited financial statements, and certain other revisions to the prospectus. Supplement No. 6 includes descriptions of acquisition of a building in Detroit, Michigan, declaration of second quarter dividends for 2003, updated financial statements and prior performance tables, revisions to the “ERISA Considerations—Annual Valuations” section and certain other revisions to the prospectus. Supplement No. 7 includes descriptions of acquisitions of buildings in Englewood Cliffs, New Jersey; Minneapolis, Minnesota; Chicago, Illinois; and Auburn Hills, Michigan, updated status reports on three build-to-suit properties; description of a new unsecured line of credit, audited financial statements relating to the acquisition of the buildings in Minneapolis, Minnesota and Chicago, Illinois, updated unaudited financial statements of the Wells REIT for the first quarter of 2003, and certain other revisions to the prospectus. Supplement No. 8 includes description of a notice received from the NASD relating to an enforcement action and declaration of third quarter dividends for 2003. Supplement No. 9 includes descriptions of acquisitions of buildings in Reston, Virginia; Atlanta, Georgia; Rockville, Maryland; and Bridgewater, New Jersey, updated financial statements, revisions to the “Management—Executive Officers and Directors” section, revisions to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section, revisions to the “Plan of Distribution—Underwriting Compensation and Terms” section, a description of the Settlement of the NASD enforcement action and certain other revisions to the prospectus. Supplement No. 10 includes descriptions of acquisitions of buildings in Pasadena, California; Brea, California; and Lyndhurst, New Jersey and certain other revisions to the prospectus.

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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
Up to 300,000,000 shares offered to the public

 
Wells Real Estate Investment Trust, Inc. (Wells REIT) is a real estate investment trust. We invest in commercial real estate properties primarily consisting of high grade office and industrial buildings leased to large corporate tenants. As of July 1, 2002, we owned interests in 53 real estate properties located in 19 states.
 
We are offering and selling to the public up to 300,000,000 shares for $10 per share and up to 30,000,000 shares to be issued pursuant to our dividend reinvestment plan at a purchase price of $10 per share. We are registering an additional 6,600,000 shares for issuance at $12 per share to participating broker-dealers upon their exercise of warrants.
 
You must purchase at least 100 shares for $1,000.
 
The most significant risks relating to your investment include the following:
 
•	 	lack of a public trading market for the shares;	
 
•	 	reliance on Wells Capital, Inc., our advisor, to select properties and conduct our operations;	
 
•	 	authorization of substantial fees to the advisor and its affiliates;	
 
•	 	borrowing—which increases the risk of loss of our investments; and	
 
•	 	conflicts of interest facing the advisor and its affiliates.	
 
You should see the complete discussion of therisk factors beginning on page 17.
 
The Offering:
 
•	 	The shares will be offered on a best efforts basis to investors at $10 per share.	
 
•	 	We will pay selling commissions to broker-dealers of 7% and a dealer manager fee of 2.5% out of the offering proceeds raised.	
 
•	 	We will invest approximately 84% of the offering proceeds raised in real estate properties, and the balance will be used to pay fees and expenses.	
 
•	 	This offering will terminate on or before July 25, 2004.	
 
Neither the Securities and Exchange Commission, the Attorney General of the State of New York nor any other state securities regulator has approved or disapproved of these securities or determined if this prospectus is truthful or complete. It is a criminal offense if someone tells you otherwise.
 
The use of projections or forecasts in this offering is prohibited. No one is permitted to make any oral or written predictions about the cash benefits or tax consequences you will receive from your investment.
 
WELLS INVESTMENT SECURITIES, INC.
 
July 26, 2002

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TABLE OF CONTENTS
 
Questions and Answers About this Offering	  	1	
Prospectus Summary	  	10	
Risk Factors	  	17	
Investment Risks	  	17	
Real Estate Risks	  	22	
Section 1031 Exchange Program Risks	  	25	
Federal Income Tax Risks	  	27	
Retirement Plan Risks	  	28	
Suitability Standards	  	28	
Estimated Use of Proceeds	  	30	
Management	  	31	
General	  	31	
Committees of the Board of Directors	  	33	
Executive Officers and Directors	  	34	
Compensation of Directors	  	38	
Independent Director Stock Option Plan	  	38	
Independent Director Warrant Plan	  	40	
2000 Employee Stock Option Plan	  	40	
Limited Liability and Indemnification of Directors, Officers, Employees and Other Agents	  	41	
The Advisor	  	43	
The Advisory Agreement	  	44	
Shareholdings	  	46	
Affiliated Companies	  	47	
Management Decisions	  	49	
Management Compensation	  	49	
Stock Ownership	  	53	
Conflicts of Interest	  	54	
Interests in Other Real Estate Programs	  	54	
Other Activities of Wells Capital and its Affiliates	  	55	
Competition	  	55	
Affiliated Dealer Manager	  	56	
Affiliated Property Manager	  	56	
Lack of Separate Representation	  	56	
Joint Ventures with Affiliates of Wells Capital	  	56	
Receipt of Fees and Other Compensation by Wells Capital and its Affiliates	  	56	
Certain Conflict Resolution Procedures	  	57	
Investment Objectives and Criteria	  	58	
General	  	58	
Acquisition and Investment Policies	  	59	
Development and Construction of Properties	  	61	
Terms of Leases and Tenant Creditworthiness	  	61	
Joint Venture Investments	  	62	
Section 1031 Exchange Program	  	63	
Borrowing Policies	  	64	
Disposition Policies	  	65	
Investment Limitations	  	65	
Change in Investment Objectives and Limitations	  	67	
 
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Description of Real Estate Investments	  	67	
General	  	67	
Joint Ventures with Affiliates	  	71	
Description of Properties	  	74	
Property Management Fees	  	99	
Real Estate Loans	  	99	
Selected Financial Data	  	101	
Management's Discussion and Analysis of Financial Condition and Results of Operations	  	101	
General	  	101	
Liquidity and Capital Resources	  	102	
Cash Flows From Operating Activities	  	102	
Cash Flow From Investing Activities	  	103	
Cash Flows From Financing Activities	  	103	
Results of Operations	  	103	
Property Operations	  	104	
Funds From Operations	  	105	
Inflation	  	106	
Critical Accounting Policies	  	106	
Straight-Lined Rental Revenues	  	107	
Operating Cost Reimbursements	  	107	
Real Estate	  	107	
Deferred Project Costs	  	107	
Deferred Offering Costs	  	107	
Prior Performance Summary	  	108	
Publicly Offered Unspecified Real Estate Programs	  	109	
Federal Income Tax Considerations	  	117	
General	  	117	
Requirements for Qualification as a REIT	  	119	
Failure to Qualify as a REIT	  	124	
Sale-Leaseback Transactions	  	124	
Taxation of U.S. Stockholders	  	124	
Treatment of Tax-Exempt Stockholders	  	126	
Special Tax Considerations for Non-U.S. Stockholders	  	127	
Statement of Stock Ownership	  	129	
State and Local Taxation	  	129	
Tax Aspects of Our Operating Partnership	  	129	
ERISA Considerations	  	132	
Plan Asset Considerations	  	134	
Other Prohibited Transactions	  	135	
Annual Valuation	  	136	
Description of Shares	  	137	
Common Stock	  	137	
Preferred Stock	  	137	
Meetings and Special Voting Requirements	  	137	
Restriction on Ownership of Shares	  	138	
Dividends	  	139	
Dividend Reinvestment Plan	  	140	
Share Redemption Program	  	141	
Restrictions on Roll-Up Transactions	  	142	
Business Combinations	  	143	
Control Share Acquisitions	  	143	
 
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The Operating Partnership Agreement	  	143	
General	  	143	
Capital Contributions	  	144	
Operations	  	144	
Exchange Rights	  	145	
Transferability of Interests	  	145	
Plan of Distribution	  	146	
General	  	146	
Underwriting Compensation and Terms	  	146	
Subscription Procedures	  	150	
Supplemental Sales Material	  	151	
Legal Opinions	  	152	
Experts	  	152	
Changes in Principal Accountant	  	152	
Audited Financial Statements	  	152	
Unaudited Financial Statements	  	153	
Additional Information	  	153	
Glossary	  	153	
Financial Statements	  	154	
Prior Performance Tables	  	210	
Subscription Agreement	  	Exhibit A	
Amended and Restated Dividend Reinvestment Plan	  	Exhibit B	
 
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QUESTIONS AND ANSWERS ABOUT THIS OFFERING
 
Below we have provided some of the more frequently asked questions and answers relating to an offering of this type. Please see the “Prospectus Summary” and the remainder of this prospectus for more detailed information about this offering.
 
Q:	 	What is a REIT?	
 
A:	 	In general, a REIT is a company that:	
 
 	•	 	combines the capital of many investors to acquire or provide financing for real estate properties;	
 
 	•	 	pays dividends to investors of at least 90% of its taxable income;	
 
 	•	 	avoids the “double taxation” treatment of income that would normally result from investments in a corporation because a REIT is not generally subject to federal corporate income taxes on its net income, provided certain income tax requirements are satisfied; and	
 
 	•	 	allows individual investors to invest in a large-scale diversified real estate portfolio through the purchase of interests, typically shares, in the REIT.	
 
Q:	 	What is Wells Real Estate Investment Trust, Inc.?	
 
A:	 	Wells Real Estate Investment Trust, Inc. is a non-traded REIT formed with the intent to provide investors the potential for income and growth through the acquisition and operation of high-grade commercial office and industrial buildings leased long-term to high net worth companies (typically having a minimum net worth of $100,000,000). The Wells REIT was incorporated in the State of Maryland in 1997.	
 
Q:	 	Who will choose which real estate properties to invest in?	
 
A:	 	Wells Capital, Inc. (Wells Capital) is the advisor to the Wells REIT and, as such, manages our daily affairs and makes recommendations on all property acquisitions to our board of directors. Our board of directors must approve all of our property acquisitions.	
 
Q:	 	Who is Wells Capital?	
 
A:	 	Wells Capital, as our advisor, provides investment advisory and management, marketing, sales and client services on our behalf. Wells Capital was incorporated in the State of Georgia in 1984. As of June 30, 2002, Wells Capital had sponsored public real estate programs which have raised in excess of $1,795,000,000 from approximately 65,000 investors and which own and operate a total of 78 commercial real estate properties.	

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Q:	 	What are the specific criteria Wells Capital uses when selecting a potential property acquisition?	
 
A:	 	Wells Capital generally seeks to acquire high quality office and industrial buildings located in densely populated metropolitan markets on an economically “triple-net” basis leased to large companies having a net worth in excess of $100,000,000. Current tenants of public real estate programs sponsored by Wells Capital include The Coca-Cola Company, State Street Bank, AT&T, Siemens Automotive, PricewaterhouseCoopers, Novartis and SYSCO Corporation.	
 
To find properties that best meet our selection criteria for investment, Wells Capital’s property acquisition team studies regional demographics and market conditions and interviews local brokers to gain the practical knowledge that these studies sometimes lack. An experienced commercial construction engineer inspects the structural soundness and the operating systems of each building, and an environmental firm investigates all environmental issues to ensure each property meets our quality specifications.
 
Q.	 	How many real estate properties do you currently own?	
 
A.	 	As of July 1, 2002, we had acquired and owned interests in 53 real estate properties, all of which were 100% leased to tenants. We own the following properties directly:	
 
Property Name

	  	Tenant

	  	Building Type

	  	Location

	
ISS Atlanta	  	Internet Security Systems, Inc.        	  	Office Buildings	  	Atlanta, GA	
 	 	 	 	
MFS Phoenix	  	Massachusetts Financial Services
Company	  	Office Building	  	Phoenix, AZ	
 	 	 	 	
TRW Denver	  	TRW, Inc.	  	Office Building	  	Aurora, CO	
 	 	 	 	
Agilent Boston	  	Agilent Technologies, Inc.	  	Office Building	  	Boxborough, MA	
 	 	 	 	
Experian/TRW	  	Experian Information Solutions, Inc.	  	Office Buildings	  	Allen, TX	
 	 	 	 	
BellSouth Ft. Lauderdale	  	BellSouth Advertising and Publishing
Corporation	  	Office Building	  	Ft. Lauderdale, FL	
 	 	 	 	
Agilent Atlanta	  	Agilent Technologies, Inc. and
Koninklijke Philips Electronics N.V.	  	Office Building	  	Alpharetta, GA	
 	 	 	 	
Travelers Express Denver	  	Travelers Express Company, Inc.	  	Office Buildings	  	Lakewood, CO	
 	 	 	 	
Dana Kalamazoo	  	Dana Corporation	  	Office and Industrial Building	  	Kalamazoo, MI	
 	 	 	 	
Dana Detroit	  	Dana Corporation	  	Office and Research and
Development Building	  	Farmington Hills, MI	
 	 	 	 	
Novartis Atlanta	  	Novartis Opthalmics, Inc.	  	Office Building	  	Duluth, GA	
 	 	 	 	
Transocean Houston	  	Transocean Deepwater Offshore
Drilling, Inc. and Newpark Drilling
Fluids, Inc.	  	Office Building	  	Houston, TX	
 	 	 	 	
Arthur Andersen	  	Arthur Andersen LLP	  	Office Building	  	Sarasota, FL	
 	 	 	 	
Windy Point I	  	TCI Great Lakes, Inc., The Apollo
Group, Inc., and Global Knowledge
Network, Inc.	  	Office Building	  	Schaumburg, IL	
 	 	 	 	
Windy Point II	  	Zurich American Insurance Company,
Inc.	  	Office Building	  	Schaumburg, IL	
 	 	 	 	
Convergys	  	Convergys Customer Management
Group, Inc.	  	Office Building	  	Tamarac, FL	
 	 	 	 	
Lucent	  	Lucent Technologies, Inc.	  	Office Building	  	Cary, NC	
 	 	 	 	
Ingram Micro	  	Ingram Micro L.P.	  	Distribution Facility	  	Millington, TN	
 	 	 	 	
Nissan	  	Nissan Motor Acceptance Corporation	  	Office Building	  	Irving, TX	
 
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Property Name

	  	Tenant

	  	Building Type

	  	Location

	
IKON	  	IKON Office Solutions, Inc.        	  	Office Buildings	  	Houston, TX	
 	 	 	 	
State Street	  	SSB Realty LLC	  	Office Building	  	Quincy, MA	
 	 	 	 	
Metris Minnesota	  	Metris Direct, Inc.	  	Office Building	  	Minnetonka, MN    	
 	 	 	 	
Stone & Webster	  	Stone & Webster, Inc. and
SYSCO Corporation	  	Office Building	  	Houston, TX	
 	 	 	 	
Motorola Plainfield	  	Motorola, Inc.	  	Office Building	  	S. Plainfield, NJ	
 	 	 	 	
Delphi	  	Delphi Automotive Systems, Inc.	  	Office Building	  	Troy, MI	
 	 	 	 	
Avnet	  	Avnet, Inc.	  	Office Building	  	Tempe, AZ	
 	 	 	 	
Motorola Tempe	  	Motorola, Inc.	  	Office Building	  	Tempe, AZ	
 	 	 	 	
ASML	  	ASM Lithography, Inc.	  	Office and Warehouse Building	  	Tempe, AZ	
 	 	 	 	
Dial	  	Dial Corporation	  	Office Building	  	Scottsdale, AZ	
 	 	 	 	
Metris Tulsa	  	Metris Direct, Inc.	  	Office Building	  	Tulsa, OK	
 	 	 	 	
Cinemark	  	Cinemark USA, Inc. and The
Coca-Cola Company	  	Office Building	  	Plano, TX	
 	 	 	 	
Videojet Technologies Chicago	  	Videojet Technologies, Inc.	  	Office, Assembly and
Manufacturing Building	  	Wood Dale, IL	
 	 	 	 	
Alstom Power Richmond	  	Alstom Power, Inc.	  	Office Building	  	Midlothian, VA	
 	 	 	 	
Matsushita	  	Matsushita Avionics Systems
Corporation	  	Office Building	  	Lake Forest, CA	
 	 	 	 	
PwC	  	PricewaterhouseCoopers	  	Office Building	  	Tampa, FL	
 
We own interests in the following real estate properties through joint ventures with affiliates:
 
Property Name

	  	Tenant

	  	Building Type

	  	Location

	
ADIC	  	Advanced Digital Information
Corporation	  	Office Buildings	  	Parker, CO 1/8            	
 	 	 	 	
AmeriCredit	  	AmeriCredit Financial Services
Corporation	  	Office Building	  	Orange Park, FL	
 	 	 	 	
Comdata	  	Comdata Network, Inc.	  	Office Building	  	Brentwood, TN	
 	 	 	 	
AT&T Oklahoma	  	AT&T Corp. and Jordan
Associates	  	Office Buildings	  	Oklahoma City, OK	
 	 	 	 	
Quest	  	Quest Software, Inc.	  	Office Building	  	Irvine, CA	
 	 	 	 	
Siemens	  	Siemens Automotive Corporation	  	Office Building	  	Troy, MI	
 	 	 	 	
Gartner	  	Gartner Group, Inc.	  	Office Building	  	Fort Myers, FL	
 	 	 	 	
Johnson Matthey	  	Johnson Matthey, Inc.	  	Research and Development,
Office and Warehouse
Building	  	Wayne, PA	
 	 	 	 	
Sprint	  	Sprint Communications Company
L.P.	  	Office Building	  	Leawood, KS	
 	 	 	 	
EYBL CarTex	  	EYBL CarTex, Inc.	  	Manufacturing and Office
Building	  	Fountain Inn, SC	
 	 	 	 	
Cort Furniture	  	Cort Furniture Rental Corporation	  	Office and Warehouse Building	  	Fountain Valley, CA	
 	 	 	 	
Fairchild	  	Fairchild Technologies U.S.A., Inc.	  	Manufacturing and Office
Building	  	Fremont, CA	
 	 	 	 	
Avaya	  	Avaya, Inc.	  	Office Building	  	Oklahoma City, OK	
 	 	 	 	
Iomega	  	Iomega Corporation	  	Office and Warehouse
Building	  	Ogden, UT	
 	 	 	 	
Interlocken	  	ODS Technologies, L.P. and
GAIAM, Inc.	  	Office Building	  	Broomfield, CO	
 	 	 	 	
Ohmeda	  	Ohmeda, Inc.	  	Office Building	  	Louisville, CO	
 	 	 	 	
Alstom Power Knoxville	  	Alstom Power, Inc.	  	Office Building	  	Knoxville, TN	
 
If you want to read more detailed information about each of these properties, see the “Description of Real Estate Investments” section of this prospectus.
 
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Q:	 	Why do you acquire properties in joint ventures?	
 
A:	 	We acquire some of our properties in joint ventures in order to diversify our portfolio of properties in terms of geographic region, property type and industry group of our tenants.	
 
Q:	 	What steps do you take to make sure you purchase environmentally compliant property?	
 
A:	 	We always obtain a Phase I environmental assessment of each property purchased. In addition, we generally obtain a representation from the seller that, to its knowledge, the property is not contaminated with hazardous materials.	
 
Q:	 	What are the terms of your leases?	
 
A:	 	We seek to secure leases with creditworthy tenants prior to or at the time of the acquisition of a property. Our leases are generally economically “triple-net” leases, which means that the tenant is responsible for the cost of repairs, maintenance, property taxes, utilities, insurance and other operating costs. In most of our leases, we are responsible for replacement of specific structural components of a property such as the roof of the building or the parking lot. Our leases generally have terms of eight to 10 years, many of which have renewal options for additional five-year terms.	
 
Q:	 	How does the Wells REIT own its real estate properties?	
 
A:	 	We own all of our real estate properties through an “UPREIT” called Wells Operating Partnership, L.P. (Wells OP). Wells OP was organized to own, operate and manage real properties on our behalf. The Wells REIT is the sole general partner of Wells OP.	
 
Q:	 	What is an “UPREIT”?	
 
A:	 	UPREIT stands for “Umbrella Partnership Real Estate Investment Trust.” The UPREIT structure is used because a sale of property directly to the REIT is generally a taxable transaction to the selling property owner. In an UPREIT structure, a seller of a property who desires to defer taxable gain on the sale of his property may transfer the property to the UPREIT in exchange for limited partnership units in the UPREIT and defer taxation of gain until the seller later exchanges his UPREIT units on a one-for-one basis for REIT shares. If the REIT shares are publicly traded, the former property owner will achieve liquidity for his investment. Using an UPREIT structure gives us an advantage in acquiring desired properties from persons who may not otherwise sell their properties because of unfavorable tax results.	
 
Q:	 	If I buy shares, will I receive dividends and how often?	
 
A:	 	We have been making and intend to continue to make dividend distributions on a quarterly basis to our stockholders. The amount of each dividend distribution is determined by our board of directors and typically depends on the amount of distributable funds, current and projected cash	
 
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  	 	requirements, tax considerations and other factors. However, in order to remain qualified as a REIT, we must make distributions of at least 90% of our REIT taxable income.	
 
Q:	 	How do you calculate the payment of dividends to stockholders?	
 
A:	 	We calculate our quarterly dividends on a daily basis to stockholders of record so your dividend benefits will begin to accrue immediately upon becoming a stockholder.	
 
Q:	 	What have your dividend payments been since you began operations on June 5, 1998?	
 
A:	 	We have paid the following dividends since we began operations:	
 
Quarter

	 	Approximate Amount (Rounded)

	 	Annualized
Percentage Return
on an Investment
of $10 per Share

	
3rd Qtr. 1998                  	 	$0.150 per share	 	6.00%	
4th Qtr. 1998                  	 	$0.163 per share	 	6.50%	
1st Qtr. 1999                  	 	$0.175 per share	 	7.00%	
2nd Qtr. 1999                  	 	$0.175 per share	 	7.00%	
3rd Qtr. 1999                  	 	$0.175 per share	 	7.00%	
4th Qtr. 1999                  	 	$0.175 per share	 	7.00%	
1st Qtr. 2000                  	 	$0.175 per share	 	7.00%	
2nd Qtr. 2000                  	 	$0.181 per share	 	7.25%	
3rd Qtr. 2000                  	 	$0.188 per share	 	7.50%	
4th Qtr. 2000                  	 	$0.188 per share	 	7.50%	
1st Qtr. 2001                  	 	$0.188 per share	 	7.50%	
2nd Qtr. 2001                  	 	$0.188 per share	 	7.50%	
3rd Qtr. 2001                  	 	$0.188 per share	 	7.50%	
4th Qtr. 2001                  	 	$0.194 per share	 	7.75%	
1st Qtr. 2002                  	 	$0.194 per share	 	7.75%	
2nd Qtr. 2002                  	 	$0.194 per share	 	7.75%	
3rd Qtr. 2002                  	 	$0.194 per share	 	7.75%	
 
Q:	 	May I reinvest my dividends in shares of the Wells REIT?	
 
A:	 	Yes.    You may participate in our dividend reinvestment plan by checking the appropriate box on the Subscription Agreement or by filling out an enrollment form we will provide to you at your request. The purchase price for shares purchased under the dividend reinvestment plan is currently $10 per share.	
 
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Q:	 	Will the dividends I receive be taxable as ordinary income?	
 
A:	 	Yes and No.    Generally, dividends that you receive, including dividends that are reinvested pursuant to our dividend reinvestment plan, will be taxed as ordinary income to the extent they are from current or accumulated earnings and profits. We expect that some portion of your dividends will not be subject to tax in the year in which they are received because depreciation expenses reduce the amount of taxable income but do not reduce cash available for distribution. The portion of your distribution which is not subject to tax immediately is considered a return of capital for tax purposes and will reduce the tax basis of your investment. This, in effect, defers a portion of your tax until your investment is sold or the Wells REIT is liquidated, at which time you will be taxed at capital gains rates. However, because each investor’s tax considerations are different, we suggest that you consult with your tax advisor. You should also review the section of the prospectus entitled “Federal Income Tax Considerations.”	
 
Q:	 	What will you do with the money raised in this offering?	
 
A:	 	We will use your investment proceeds to purchase high-grade commercial office and industrial buildings. We intend to invest a minimum of 84% of the proceeds from this offering to acquire real estate properties, and the remaining proceeds will be used to pay fees and expenses of this offering and acquisition-related expenses. The payment of these fees and expenses will not reduce your invested capital. Your initial invested capital amount will remain $10 per share, and your dividend yield will be based on your $10 per share investment.	
 
Until we invest the proceeds of this offering in real estate, we may invest in short-term, highly liquid or other authorized investments. Such short-term investments will not earn as high of a return as we expect to earn on our real estate investments, and we cannot guarantee how long it will take to fully invest the proceeds in real estate.
 
We received approximately $132,181,919 in gross offering proceeds from the sale of 13,218,192 shares of common stock in our initial public offering, which commenced on January 30, 1998 and was terminated on December 19, 1999. Of the $132,181,919 raised in the initial offering, we invested a total of $111,032,812 in real estate properties. We received approximately $175,229,193 in gross offering proceeds from the sale of 17,522,920 shares of common stock in our second public offering, which commenced on December 20, 1999 and was terminated on December 19, 2000. Of the $175,229,193 raised in the second offering, we invested a total of $147,192,522 in real estate properties. As of June 30, 2002, we had received approximately $1,148,480,414 in gross offering proceeds from the sale of 114,895,413 shares of common stock in our third offering, which commenced on December 20, 2000. Of this additional $1,148,480,414 raised in the third offering, we have invested $627,067,589 in real estate properties and, as of June 30, 2002, we have $344,269,118 available for investment in properties.
 
Q:	 	What kind of offering is this?	
 
A:	 	We are offering the public up to 300,000,000 shares of common stock on a “best efforts” basis.	
 
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Q:	 	How does a “best efforts” offering work?	
 
A:	 	When shares are offered to the public on a “best efforts” basis, the brokers participating in the offering are only required to use their best efforts to sell the shares and have no firm commitment or obligation to purchase any of the shares.	
 
Q:	 	How long will this offering last?	
 
A:	 	The offering will not last beyond July 25, 2004.	
 
Q:	 	Who can buy shares?	
 
A:	 	You can buy shares pursuant to this prospectus provided that you have either (1) a net worth of at least $45,000 and an annual gross income of at least $45,000, or (2) a net worth of at least $150,000. For this purpose, net worth does not include your home, home furnishings or personal automobiles. These minimum levels may be higher in certain states, so you should carefully read the more detailed description in the “Suitability Standards” section of this prospectus.	
 
Q:	 	Is there any minimum investment required?	
 
A:	 	Yes.    Generally, you must invest at least $1,000. Except in Maine, Minnesota, Nebraska and Washington, investors who already own our shares or who have purchased units from an affiliated Wells public real estate program can make purchases for less than the minimum investment. These minimum investment levels may be higher in certain states, so you should carefully read the more detailed description of the minimum investment requirements appearing later in the “Suitability Standards” section of this prospectus.	
 
Q:	 	How do I subscribe for shares?	
 
A:	 	If you choose to purchase shares in this offering, you will need to fill out a Subscription Agreement, like the one contained in this prospectus as Exhibit A, for a specific number of shares and pay for the shares at the time you subscribe.	
 
Q:	 	If I buy shares in this offering, how may I later sell them?	
 
A:	 	At the time you purchase the shares, they will not be listed for trading on any national securities exchange or over-the-counter market. In fact, we expect that there will not be any public market for the shares when you purchase them, and we cannot be sure if one will ever develop. As a result, you may find it difficult to find a buyer for your shares and realize a return on your investment. You may sell your shares to any buyer unless such sale would cause the buyer to own more than 9.8% of our outstanding stock. See “Description of Shares—Restriction on Ownership of Shares.”	
 
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In addition, after you have held your shares for at least one year, you may be able to have your shares repurchased by the Wells REIT pursuant to our share redemption program. See the “Description of Shares—Share Redemption Program” section of the prospectus.
 
If we have not listed the shares on a national securities exchange or over-the-counter market by January 30, 2008, our articles of incorporation require us to begin selling our properties and other assets and return the net proceeds from these sales to our stockholders through distributions.
 
Q:	 	What is the experience of your officers and directors?	
 
A:	 	Our management team has extensive previous experience investing in and managing commercial real estate. Below is a short description of the background of each of our directors. See the “Management—Executive Officers and Directors” section on page 34 of this prospectus for a more detailed description of the background and experience of each of our directors.	
 
 	•	 	Leo F. Wells, III—President of the Wells REIT and founder of Wells Real Estate Funds and has been involved in real estate sales, management and brokerage services for over 30 years	
 
 	•	 	Douglas P. Williams—Executive Vice President, Secretary and Treasurer of the Wells REIT and former accounting executive at OneSource, Inc., a supplier of janitorial and landscape services	
 
 	•	 	John L. Bell—Former owner and Chairman of Bell-Mann, Inc., the largest flooring contractor in the Southeast	
 
 	•	 	Michael R. Buchanan—Former Managing Director of the Real Estate Banking Group of Bank of America	
 
 	•	 	Richard W. Carpenter—Former President and Chairman of the Board of Southmark Properties, an Atlanta-based REIT investing in commercial properties	
 
 	•	 	Bud Carter—Former broadcast news director and anchorman and current Senior Vice President for The Executive Committee, an organization established to aid corporate presidents and CEOs	
 
 	•	 	William H. Keogler, Jr.—Founder and former executive officer and director of Keogler, Morgan & Company, Inc., a full service brokerage firm	
 
 	•	 	Donald S. Moss—Former executive officer of Avon Products, Inc.	
 
 	•	 	Walter W. Sessoms—Former executive officer of BellSouth Telecommunications, Inc.	
 
 	•	 	Neil H. Strickland—Founder of Strickland General Agency, Inc., a property and casualty general insurance agency concentrating on commercial customers	
 
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Q:	 	Will I be notified of how my investment is doing?	
 
A:	 	Yes, you will receive periodic updates on the performance of your investment with us, including:	
 
 	•	 	Four detailed quarterly dividend reports;	
 
 	•	 	An annual report;	
 
 	•	 	An annual IRS Form 1099;	
 
 	•	 	Supplements to the prospectus;	
 
 	•	 	A quarterly investor newsletter; and	
 
 	•	 	Regular acquisition reports detailing our latest property acquisitions.	
 
Q:	 	When will I get my detailed tax information?	
 
A:	 	Your Form 1099 tax information will be placed in the mail by January 31 of each year.	
 
Q:	 	Who can help answer my questions?	
 
A:	 	If you have more questions about the offering or if you would like additional copies of this prospectus, you should contact your registered representative or contact:	
 
Client Services Department
Wells Real Estate Funds, Inc.
Suite 250
6200 The Corners Parkway
Atlanta, Georgia 30092
(800) 557-4830 or (770) 243-8282
www.wellsref.com
 
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PROSPECTUS SUMMARY
 
This prospectus summary highlights selected information contained elsewhere in this prospectus. It is not complete and does not contain all of the information that is important to your decision whether to invest in the Wells REIT. To understand this offering fully, you should read the entire prospectus carefully, including the “Risk Factors” section and the financial statements.
 
Wells Real Estate Investment Trust, Inc.
 
Wells Real Estate Investment Trust, Inc. is a REIT that owns net leased commercial real estate properties. As of July 1, 2002, we owned interests in 53 commercial real estate properties located in 19 states. Our office is located at 6200 The Corners Parkway, Suite 250, Atlanta, Georgia 30092. Our telephone number outside the State of Georgia is 800-557-4830 (770-243-8282 in Georgia). We refer to Wells Real Estate Investment Trust, Inc. as the Wells REIT in this prospectus.
 
Our Advisor
 
Our advisor is Wells Capital, Inc., which is responsible for managing our affairs on a day-to-day basis and for identifying and making acquisitions on our behalf. We refer to Wells Capital, Inc. as Wells Capital in this prospectus.
 
Our Management
 
Our board of directors must approve each real property acquisition proposed by Wells Capital, as well as certain other matters set forth in our articles of incorporation. We have ten members on our board of directors. Eight of our directors are independent of Wells Capital and have responsibility for reviewing its performance. Our directors are elected annually by the stockholders.
 
Our REIT Status
 
As a REIT, we generally are not subject to federal income tax on income that we distribute to our stockholders. Under the Internal Revenue Code, REITs are subject to numerous organizational and operational requirements, including a requirement that they distribute at least 90% of their taxable income to their stockholders. If we fail to qualify for taxation as a REIT in any year, our income will be taxed at regular corporate rates, and we may be precluded from qualifying for treatment as a REIT for the four-year period following our failure to qualify. Even if we qualify as a REIT for federal income tax purposes, we may still be subject to state and local taxes on our income and property and to federal income and excise taxes on our undistributed income.
 
Summary Risk Factors
 
Following are the most significant risks relating to your investment:
 
 	•	 	There is no public trading market for the shares, and we cannot assure you that one will ever develop. Until the shares are publicly traded, you will have a difficult time trying to sell your shares.	
 
 	•	 	You must rely on Wells Capital, our advisor, for the day-to-day management of our business and the selection of our real estate properties.	
 
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 	•	 	To ensure that we continue to qualify as a REIT, our articles of incorporation prohibit any stockholder from owning more than 9.8% of our outstanding shares.	
 
 	•	 	We may not remain qualified as a REIT for federal income tax purposes, which would subject us to the payment of tax on our income at corporate rates and reduce the amount of funds available for payment of dividends to our stockholders.	
 
 	•	 	You will not have preemptive rights as a stockholder, so any shares we issue in the future may dilute your interest in the Wells REIT.	
 
 	•	 	We will pay significant fees to Wells Capital and its affiliates.	
 
 	•	 	Real estate investments are subject to cyclical trends that are out of our control.	
 
 	•	 	You will not have an opportunity to evaluate all of the properties that will be in our portfolio prior to investing.	
 
 	•	 	Loans we obtain will be secured by some of our properties, which will put those properties at risk of forfeiture if we are unable to pay our debts.	
 
 	•	 	Our investment in vacant land to be developed may create risks relating to the builder’s ability to control construction costs, failure to perform or failure to build in conformity with plans, specifications and timetables.	
 
 	•	 	The vote of stockholders owning at least a majority of our shares will bind all of the stockholders as to certain matters such as the election of our directors and amendment of our articles of incorporation.	
 
 	•	 	If we do not obtain listing of the shares on a national exchange by January 30, 2008, our articles of incorporation provide that we must begin to sell all of our properties and distribute the net proceeds to our stockholders.	
 
 	•	 	Our advisor will face various conflicts of interest resulting from its activities with affiliated entities.	
 
Before you invest in the Wells REIT, you should see the complete discussion of the “Risk Factors” beginning on page 17 of this prospectus.
 
Description of Real Estate Investments
 
Please refer to the “Description of Real Estate Investments” section of this prospectus for a description of the real estate properties we have purchased to date and the various real estate loans we have outstanding. Wells Capital is currently evaluating additional potential property acquisitions. As we acquire new properties, we will provide supplements to this prospectus to describe these properties.
 
Estimated Use of Proceeds of Offering
 
We anticipate that we will invest at least 84% of the proceeds of this offering in real estate properties. We will use the remainder of the offering proceeds to pay selling commissions, fees and expenses relating to the selection and acquisition of properties and the costs of the offering.
 
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Investment Objectives
 
Our investment objectives are:
 
 	•	 	to maximize cash dividends paid to you;	
 
 	•	 	to preserve, protect and return your capital contribution;	
 
 	•	 	to realize growth in the value of our properties upon our ultimate sale of such properties; and	
 
 	•	 	to provide you with liquidity of your investment by listing the shares on a national exchange or, if we do not obtain listing of the shares by January 30, 2008, by selling our properties and distributing the cash to you.	
 
We may only change these investment objectives by a vote of our stockholders holding a majority of our outstanding shares. See the “Investment Objectives and Criteria” section of this prospectus for a more complete description of our business and objectives.
 
Conflicts of Interest
 
Wells Capital, as our advisor, will experience conflicts of interest in connection with the management of our business affairs, including the following:
 
 	•	 	Wells Capital will have to allocate its time between the Wells REIT and other real estate programs and activities in which it is involved;	
 
 	•	 	Wells Capital must determine which properties the Wells REIT or another Wells program or joint venture should acquire and which Wells program or other entity should enter into a joint venture with the Wells REIT for the acquisition and operation of specific properties;	
 
 	•	 	Wells Capital may compete with other Wells programs for the same tenants in negotiating leases or in selling similar properties at the same time; and	
 
 	•	 	Wells Capital and its affiliates will receive fees in connection with transactions involving the purchase, management and sale of our properties regardless of the quality of the property acquired or the services provided to us.	
 
See the “Conflicts of Interest” section of this prospectus on page 54 for a detailed discussion of the various conflicts of interest relating to your investment, as well as the procedures that we have established to resolve a number of these potential conflicts.
 
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The following chart shows the ownership structure of the various Wells entities that are affiliated with Wells Capital.

 
Prior Offering Summary
 
Wells Capital and its affiliates have previously sponsored 14 publicly offered real estate limited partnerships and the Wells REIT on an unspecified property or “blind pool” basis. As of June 30, 2002, they have raised approximately $1,795,000,000 from approximately 65,000 investors in these 15 public real estate programs. The “Prior Performance Summary” on page 108 of this prospectus contains a discussion of the Wells programs sponsored to date. Certain statistical data relating to the Wells programs with investment objectives similar to ours is also provided in the “Prior Performance Tables” included at the end of this prospectus.
 
The Offering
 
We are offering up to 300,000,000 shares to the public at $10 per share and up to 30,000,000 shares pursuant to our dividend reinvestment plan at $10 per share. We reserve the right in the future to reallocate additional dividend reinvestment shares out of the shares we are offering to the public, if necessary. We are also offering up to 6,600,000 shares to broker-dealers pursuant to warrants whereby participating broker-dealers will have the right to purchase one share for every 50 shares they sell in this offering. The exercise price for shares purchased pursuant to the warrants is $12 per share.
 
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Terms of the Offering
 
We will begin selling shares in this offering upon the effective date of this prospectus, and this offering will terminate on or before July 25, 2004. However, we may terminate this offering at any time prior to such termination date. We will hold your investment proceeds in our account until we withdraw funds for the acquisition of real estate properties or the payment of fees and expenses. We generally admit stockholders to the Wells REIT on a daily basis.
 
Compensation to Wells Capital
 
Wells Capital and its affiliates will receive compensation and fees for services relating to this offering and the investment and management of our assets. The most significant items of compensation are included in the following table:
 
Type of Compensation

	 	Form of Compensation

	 	Estimated $$ Amount for Maximum
Offering (330,000,000 shares)

	
 	
Offering Stage	
Selling Commissions	 	7.0% of gross offering proceeds	 	$231,000,000	
Dealer Manager Fee	 	2.5% of gross offering proceeds	 	$82,500,000	
Organization and Offering Expenses	 	3.0% of gross offering proceeds	 	$49,500,000 (estimated)	
 	
Acquisition and Development Stage	
Acquisition and Advisory Fees	 	3.0% of gross offering proceeds	 	$99,000,000	
Acquisition Expenses	 	0.5% of gross offering proceeds	 	$16,500,000	
 	
Operational Stage	
Property Management	 	4.5% of gross revenues	 	N/A	
Initial Lease-Up Fee for Newly Constructed Property	 	Competitive fee for geographic location of property based on a survey of brokers and agents (customarily equal to the first month’s rent)	 	N/A	
 	 	 	
Real Estate Commissions	 	3.0% of contract price for properties sold after investors receive a return of capital plus an 8.0% return on capital	 	N/A	
 	 	 	
Subordinated Participation In Net Sale Proceeds (Payable only if the Wells REIT is not listed on an exchange)	 	10.0% of remaining amounts of net sale proceeds after return of capital plus payment to investors of an 8.0% cumulative non-compounded return on the capital contributed by investors	 	N/A	
 	 	 	
Subordinated Incentive Listing Fee (Payable only if the Wells REIT is listed on an exchange)	 	10.0% of the amount by which the adjusted market value of the Wells REIT exceeds the aggregate capital contributions contributed by investors	 	N/A	
 
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There are many additional conditions and restrictions on the amount of compensation Wells Capital and its affiliates may receive. There are also some smaller items of compensation and expense reimbursements that Wells Capital may receive. For a more detailed explanation of these fees and expenses payable to Wells Capital and its affiliates, please see the “Management Compensation” section of this prospectus on page 49.
 
Dividend Policy
 
In order to remain qualified as a REIT, we are required to distribute 90% of our annual taxable income to our stockholders. We have paid dividends to our stockholders at least quarterly since the first quarter after we commenced operations on June 5, 1998. We calculate our quarterly dividends based upon daily record and dividend declaration dates so investors will be entitled to dividends immediately upon purchasing our shares. We expect to pay dividends to you on a quarterly basis.
 
Listing
 
Our articles of incorporation allow us to list our shares on a national securities exchange on or before January 30, 2008. In the event we do not obtain listing prior to that date, our articles of incorporation require us to begin selling our properties and liquidating our assets.
 
Dividend Reinvestment Plan
 
You may participate in our dividend reinvestment plan pursuant to which you may have the dividends you receive reinvested in shares of the Wells REIT. If you participate, you will be taxed on your share of our taxable income even though you will not receive the cash from your dividends. As a result, you may have a tax liability without receiving cash dividends to pay such liability. We may terminate the dividend reinvestment plan at our discretion at any time upon 10 days notice to you. (See “Description of Shares—Dividend Reinvestment Plan.”)
 
Share Redemption Program
 
We may use proceeds received from the sale of shares pursuant to our dividend reinvestment plan to redeem your shares. After you have held your shares for a minimum of one year, our share redemption program provides an opportunity for you to redeem your shares, subject to certain restrictions and limitations, for the lesser of $10 per share or the price you actually paid for your shares. Our board of directors reserves the right to amend or terminate the share redemption program at any time. Our board of directors has delegated to our officers the right to (1) waive the one-year holding period in the event of the death or bankruptcy of a stockholder or other exigent circumstances, or (2) reject any request for redemption at any time and for any reason. You will have no right to request redemption of your shares should our shares become listed on a national exchange. (See “Description of Shares—Share Redemption Program.”)
 
Wells Operating Partnership, L.P.
 
We own all of our real estate properties through Wells Operating Partnership, L.P. (Wells OP), our operating partnership. We are the sole general partner of Wells OP. Wells Capital is currently the only limited partner based on its initial contribution of $200,000. Our ownership of properties in Wells OP is referred to as an “UPREIT.” The UPREIT structure allows us to acquire real estate properties in exchange for limited partnership units in Wells OP. This structure will also allow sellers of properties to transfer their properties to Wells OP in exchange for units of Wells OP
 
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and defer gain recognition for tax purposes with respect to such transfers of properties. At present, we have no plans to acquire any specific properties in exchange for units of Wells OP. The holders of units in Wells OP may have their units redeemed for cash under certain circumstances. (See “The Operating Partnership Agreement.”)
 
ERISA Considerations
 
The section of this prospectus entitled “ERISA Considerations” describes the effect the purchase of shares will have on individual retirement accounts (IRAs) and retirement plans subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA), and/or the Internal Revenue Code. ERISA is a federal law that regulates the operation of certain tax-advantaged retirement plans. Any retirement plan trustee or individual considering purchasing shares for a retirement plan or an IRA should read this section of the prospectus very carefully.
 
Description of Shares
 
General
 
Your investment will be recorded on our books only. We will not issue stock certificates. If you wish to transfer your shares, you are required to send us an executed transfer form. We will provide you the required form upon request.
 
Stockholder Voting Rights and Limitations
 
We hold annual meetings of our stockholders for the purpose of electing our directors or conducting other business matters that may be presented at such meetings. We may also call a special meeting of stockholders from time to time for the purpose of conducting certain matters. You are entitled to one vote for each share you own at any of these meetings.
 
Restriction on Share Ownership
 
Our articles of incorporation contain restrictions on ownership of the shares that prevents one person from owning more than 9.8% of our outstanding shares. These restrictions are designed to enable us to comply with share accumulation restrictions imposed on REITs by the Internal Revenue Code. (See “Description of Shares—Restriction on Ownership of Shares.”)
 
For a more complete description of the shares, including restrictions on the ownership of shares, please see the “Description of Shares” section of this prospectus on page 137.
 
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RISK FACTORS
 
Your purchase of shares involves a number of risks. In addition to other risks discussed in this prospectus, you should specifically consider the following:
 
Investment Risks
 
Marketability Risk
 
There is no public trading market for your shares.
 
There is no current public market for the shares and, therefore, it will be difficult for you to sell your shares promptly. In addition, the price received for any shares sold is likely to be less than the proportionate value of the real estate we own. Therefore, you should purchase the shares only as a long-term investment. See “Description of Shares—Share Redemption Program” for a description of our share redemption program.
 
Management Risks
 
You must rely on Wells Capital for selection of properties.
 
Our ability to achieve our investment objectives and to pay dividends is dependent upon the performance of Wells Capital, our advisor, in the quality and timeliness of our acquisitions of real estate properties, the selection of tenants and the determination of any financing arrangements. Except for the investments described in this prospectus, you will have no opportunity to evaluate the terms of transactions or other economic or financial data concerning our investments. You must rely entirely on the management ability of Wells Capital and the oversight of our board of directors.
 
We depend on key personnel.
 
Our success depends to a significant degree upon the continued contributions of certain key personnel, including Leo F. Wells, III, Douglas P. Williams, M. Scott Meadows, David H. Steinwedell, and John G. Oliver, each of whom would be difficult to replace. None of our key personnel are currently subject to employment agreements, nor do we maintain any key person life insurance on our key personnel. If any of our key personnel were to cease employment with us, our operating results could suffer. We also believe that our future success depends, in large part, upon our ability to hire and retain highly skilled managerial, operational and marketing personnel. Competition for such personnel is intense, and we cannot assure you that we will be successful in attracting and retaining such skilled personnel.
 
Conflicts of Interest Risks
 
Wells Capital will face conflicts of interest relating to time management.
 
Wells Capital, our advisor, and its affiliates are general partners and sponsors of other real estate programs having investment objectives and legal and financial obligations similar to the Wells REIT. Because Wells Capital and its affiliates have interests in other real estate programs and also engage in other business activities, they may have conflicts of interest in allocating their time between our business and these other activities. During times of intense activity in other programs and ventures, they may devote less time and resources to our business than is necessary or appropriate. (See “Conflicts of Interest.”) If Wells Capital, for any reason, is not able to provide investment opportunities to us consistent with our investment objectives in a timely manner, we may have lower returns on our investments.
 
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Wells Capital will face conflicts of interest relating to the purchase and leasing of properties.
 
We may be buying properties at the same time as one or more of the other Wells programs are buying properties. There is a risk that Wells Capital will choose a property that provides lower returns to us than a property purchased by another Wells program. We may acquire properties in geographic areas where other Wells programs own properties. If one of the Wells programs attracts a tenant that we are competing for, we could suffer a loss of revenue due to delays in locating another suitable tenant. (See “Conflicts of Interest.”)
 
Certain of our officers and directors face conflicts of interest relating to the positions they hold with other entities.
 
Certain of our executive officers and directors are also officers and directors of Wells Capital, our advisor and the general partner of various other Wells programs, Wells Management Company, Inc., our Property Manager, and Wells Investment Securities, Inc., our Dealer Manager, and, as such, owe fiduciary duties to these various entities and their stockholders and limited partners. Such fiduciary duties may from time to time conflict with the fiduciary duties owed to the Wells REIT and its stockholders. (See “Conflicts of Interest.”)
 
We will be subject to additional risks as a result of our joint ventures with affiliates.
 
We have entered in the past and are likely to continue in the future to enter into joint ventures with other Wells programs for the acquisition, development or improvement of properties. We may also purchase and develop properties in joint ventures or in partnerships, co-tenancies or other co-ownership arrangements with sellers of properties, affiliates of sellers, developers or other persons. Such investments may involve risks not otherwise present with an investment in real estate, including, for example:
 
 	•	 	the possibility that our co-venturer, co-tenant or partner in an investment might become bankrupt;	
 
 	•	 	that such co-venturer, co-tenant or partner may at any time have economic or business interests or goals which are or which become inconsistent with our business interests or goals; or	
 
 	•	 	that such co-venturer, co-tenant or partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives.	
 
Actions by such a co-venturer, co-tenant or partner might have the result of subjecting the property to liabilities in excess of those contemplated and may have the effect of reducing your returns.
 
Wells Capital will face conflicts of interest relating to joint ventures with affiliates.
 
Wells Capital, our advisor, is currently sponsoring a public offering on behalf of Wells Real Estate Fund XIII, L.P. (Wells Fund XIII), which is an unspecified property real estate program. (See “Prior Performance Summary.”) In the event that we enter into a joint venture with Wells Fund XIII or any other Wells program or joint venture, we may face certain additional risks and potential conflicts of interest. For example, securities issued by Wells Fund XIII and the other Wells public limited partnerships will never have an active trading market. Therefore, if we were to become listed on a national exchange, we may no longer have similar goals and objectives with respect to the resale of properties in the future. In addition, in the event that the Wells REIT is not listed on a securities exchange
 
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by January 30, 2008, our organizational documents provide for an orderly liquidation of our assets. In the event of such liquidation, any joint venture between the Wells REIT and another Wells program may be required to sell its properties at such time. Our joint venture partners may not desire to sell the properties at that time. Although the terms of any joint venture agreement between the Wells REIT and another Wells program would grant the other Wells program a right of first refusal to buy such properties, it is unlikely that any such program would have sufficient funds to exercise its right of first refusal under these circumstances.
 
Agreements and transactions between the parties with respect to joint ventures between the Wells REIT and other Wells programs will not have the benefit of arm’s length negotiation of the type normally conducted between unrelated co-venturers. Under these joint venture agreements, none of the co-venturers may have the power to control the venture, and an impasse could be reached regarding matters pertaining to the joint venture, which might have a negative impact on the joint venture and decrease potential returns to you. In the event that a co-venturer has a right of first refusal to buy out the other co-venturer, it may be unable to finance such buy-out at that time. It may also be difficult for us to sell our interest in any such joint venture or partnership or as a co-tenant in property. In addition, to the extent that our co-venturer, partner or co-tenant is an affiliate of Wells Capital, certain conflicts of interest will exist. (See “Conflicts of Interest—Joint Ventures with Affiliates of Wells Capital.”)
 
General Investment Risks
 
A limit on the number of shares a person may own may discourage a takeover.
 
Our articles of incorporation restrict ownership by one person to no more than 9.8% of the outstanding shares. This restriction may discourage a change of control of the Wells REIT and may deter individuals or entities from making tender offers for shares, which offers might be financially attractive to stockholders or which may cause a change in the management of the Wells REIT. (See “Description of Shares—Restriction on Ownership of Shares.”)
 
We will not be afforded the protection of Maryland Corporation Law relating to business combinations.
 
Provisions of Maryland Corporation Law prohibit business combinations, unless prior approval of the board of directors is obtained before the person became an interested stockholder, with:
 
 	•	 	any person who beneficially owns 10% or more of the voting power of our outstanding shares;	
 
 	•	 	any of our affiliates who, at any time within the two year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of our outstanding shares (interested stockholder); or	
 
 	•	 	an affiliate of an interested stockholder.	
 
These prohibitions are intended to prevent a change of control by interested stockholders who do not have the support of our board of directors. Since our articles of incorporation contain limitations on ownership of 9.8% or more of our common stock, we opted out of the business combinations statute in our articles of incorporation. Therefore, we will not be afforded the protections of this statute and, accordingly, there is no guarantee that the ownership limitations in our articles of incorporation would provide the same measure of protection as the business combinations statute and prevent an undesired change of control by an interested stockholder. (See “Description of Shares—Restriction on Ownership of Shares” and “Description of Shares—Business Combinations.”)
 
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You are bound by the majority vote on matters on which you are entitled to vote.
 
You may vote on certain matters at any annual or special meeting of our stockholders, including the election of our directors or amendments to our articles of incorporation. However, you will be bound by the majority vote on matters requiring approval of a majority of our stockholders even if you do not vote with the majority on any such matter.
 
You are limited in your ability to sell your shares pursuant to our share redemption program.
 
Even though our share redemption program provides you with the opportunity to redeem your shares for $10 per share (or the price you paid for the shares, if lower than $10) after you have held them for a period of one year, you should be fully aware that our share redemption program contains certain restrictions and limitations. Shares will be redeemed on a first-come, first-served basis and will be limited to the lesser of (1) during any calendar year, three percent (3%) of the weighted average number of shares outstanding during the prior calendar year, or (2) the proceeds we receive from the sale of shares under our dividend reinvestment plan such that in no event shall the aggregate amount of redemptions under our share redemption program exceed aggregate proceeds received from the sale of shares pursuant to our dividend reinvestment plan. Our board of directors reserves the right to amend or terminate the share redemption program at any time. In addition, the board of directors has delegated authority to our officers to reject any request for redemption for any reason at any time. Therefore, in making a decision to purchase shares of the Wells REIT, you should not assume that you will be able to sell any of your shares back to us pursuant to our share redemption program. (See “Description of Shares—Share Redemption Program.”)
 
We established the offering price on an arbitrary basis.
 
Our board of directors has arbitrarily determined the selling price of the shares, and such price bears no relationship to any established criteria for valuing issued or outstanding shares.
 
Your interest in the Wells REIT may be diluted if we issue additional shares.
 
Existing stockholders and potential investors in this offering do not have preemptive rights to any shares issued by the Wells REIT in the future. Therefore, existing stockholders and investors purchasing shares in this offering may experience dilution of their equity investment in the Wells REIT in the event that we:
 
 	•	 	sell shares in this offering or sell additional shares in the future, including those issued pursuant to the dividend reinvestment plan;	
 
 	•	 	sell securities that are convertible into shares;	
 
 	•	 	issue shares in a private offering of securities to institutional investors;	
 
 	•	 	issue shares of common stock upon the exercise of the options granted to our independent directors or employees of Wells Capital and Wells Management Company, Inc. (Wells Management) or the warrants issued and to be issued to participating broker-dealers or our independent directors; or	
 
 	•	 	issue shares to sellers of properties acquired by us in connection with an exchange of limited partnership units from Wells OP.	
 
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Payment of fees to Wells Capital and its affiliates will reduce cash available for investment and distribution.
 
Wells Capital and its affiliates will perform services for us in connection with the offer and sale of the shares, the selection and acquisition of our properties, and the management and leasing of our properties. They will be paid substantial fees for these services, which will reduce the amount of cash available for investment in properties or distribution to our stockholders. (See “Management Compensation.”)
 
The availability and timing of cash dividends is uncertain.
 
We bear all expenses incurred in our operations, which are deducted from cash funds generated by operations prior to computing the amount of cash dividends to be distributed to our stockholders. In addition, our board of directors, in its discretion, may retain any portion of such funds for working capital. We cannot assure you that sufficient cash will be available to pay dividends to you.
 
We are uncertain of our sources for funding of future capital needs.
 
Substantially all of the gross proceeds of the offering will be used for investment in properties and for payment of various fees and expenses. (See “Estimated Use of Proceeds.”) In addition, we do not anticipate that we will maintain any permanent working capital reserves. Accordingly, in the event that we develop a need for additional capital in the future for the improvement of our properties or for any other reason, we have not identified any sources for such funding, and we cannot assure you that such sources of funding will be available to us for potential capital needs in the future.
 
You will not have the benefit of independent due diligence review in connection with this offering.
 
Since Wells Investment Securities, our Dealer Manager, is an affiliate of Wells Capital, you will not have the benefit of independent due diligence review and investigation of the type normally performed by unaffiliated, independent underwriters in connection with securities offerings.
 
The conviction of Arthur Andersen LLP and recent events related thereto may adversely affect your ability to recover potential claims against Arthur Andersen in connection with their audits of our financials statements.
 
In June 2002, our former independent auditor, Arthur Andersen LLP (Andersen), was tried and convicted on federal obstruction of justice charges arising from its involvement as auditors for Enron Corporation. Events arising out of the conviction or other events relating to the financial condition of Andersen may adversely affect the ability of Andersen to satisfy any potential claims that may arise out of Andersen’s audits of the financial statements contained in this prospectus. In addition, Andersen has notified us that it will no longer be able to provide us with the necessary consents related to previously audited financial statements in our prospectus. Our inability to obtain such consents may also adversely affect your ability to pursue potential claims against Andersen.
 
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Real Estate Risks
 
General Real Estate Risks
 
Your investment will be affected by adverse economic and regulatory changes.
 
We will be subject to risks generally incident to the ownership of real estate, including:
 
 	•	 	changes in general economic or local conditions;	
 
 	•	 	changes in supply of or demand for similar or competing properties in an area;	
 
 	•	 	changes in interest rates and availability of permanent mortgage funds which may render the sale of a property difficult or unattractive;	
 
 	•	 	changes in tax, real estate, environmental and zoning laws; and	
 
 	•	 	periods of high interest rates and tight money supply.	
 
For these and other reasons, we cannot assure you that we will be profitable or that we will realize growth in the value of our real estate properties.
 
A property that incurs a vacancy could be difficult to sell or re-lease.
 
A property may incur a vacancy either by the continued default of a tenant under its lease or the expiration of one of our leases. A number of our properties may be specifically suited to the particular needs of our tenants. Therefore, we may have difficulty obtaining a new tenant for any vacant space we have in our properties. If the vacancy continues for a long period of time, we may suffer reduced revenues resulting in less cash dividends to be distributed to stockholders. In addition, the resale value of the property could be diminished because the market value of a particular property will depend principally upon the value of the leases of such property.
 
We are dependent on tenants for our revenue.
 
Most of our properties are occupied by a single tenant and, therefore, the success of our investments are materially dependent on the financial stability of our tenants. Lease payment defaults by tenants would most likely cause us to reduce the amount of distributions to stockholders. A default of a tenant on its lease payments to us would cause us to lose the revenue from the property and cause us to have to find one or more additional tenants. If there are a substantial number of tenants that are in default at any one time, we could have difficulty making mortgage payments that could result in foreclosures of properties subject to a mortgage. In the event of a default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-letting our property. If a lease is terminated, we cannot assure you that we will be able to lease the property for the rent previously received or sell the property without incurring a loss.
 
We rely on certain tenants.
 
As of July 1, 2002, our most substantial tenants based on rental income are SSB Realty, LLC (approximately 6.3%), Metris Direct, Inc. (approximately 5.6%), Motorola, Inc. (approximately 4.7%), and Zurich American Insurance Company, Inc. (approximately 4.6%). The revenues generated by the properties these tenants occupy are substantially reliant upon the financial condition of these tenants and, accordingly, any event of bankruptcy, insolvency or a general downturn in the business of any of these tenants may result in the failure or delay of such tenant’s rental payments which may have a substantial
 
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adverse effect on our financial performance. (See “Description of Real Estate Investments” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”)
 
We may not have funding for future tenant improvements.
 
When a tenant at one of our properties does not renew its lease or otherwise vacates its space in one of our buildings, it is likely that, in order to attract one or more new tenants, we will be required to expend substantial funds for tenant improvements and tenant refurbishments to the vacated space. Substantially all of our net offering proceeds will be invested in real estate properties, and we do not anticipate that we will maintain permanent working capital reserves. We also have no identified funding source to provide funds which may be required in the future for tenant improvements and tenant refurbishments in order to attract new tenants. We cannot assure you that we will have any sources of funding available to us for such purposes in the future.
 
Uninsured losses relating to real property may adversely affect your returns.
 
In the event that any of our properties incurs a casualty loss that is not fully covered by insurance, the value of our assets will be reduced by any such uninsured loss. In addition, we have no current source of funding to repair or reconstruct the damaged property and cannot assure you that any such source of funding will be available to us for such purposes in the future.
 
Development and construction of properties may result in delays and increased costs and risks.
 
We may invest some or all of the proceeds available for investment in the acquisition and development of properties upon which we will develop and construct improvements at a fixed contract price. We will be subject to risks relating to the builder’s ability to control construction costs or to build in conformity with plans, specifications and timetables. The builder’s failure to perform may necessitate legal action by us to rescind the purchase or the construction contract or to compel performance. Performance may also be affected or delayed by conditions beyond the builder’s control. Delays in completion of construction could also give tenants the right to terminate preconstruction leases for space at a newly developed project. We may incur additional risks when we make periodic progress payments or other advances to such builders prior to completion of construction. Factors such as those discussed above can result in increased costs of a project or loss of our investment. In addition, we will be subject to normal lease-up risks relating to newly constructed projects. Furthermore, we must rely upon projections of rental income and expenses and estimates of the fair market value of property upon completion of construction when agreeing upon a price to be paid for the property at the time of acquisition of the property. If our projections are inaccurate, we may pay too much for a property.
 
Competition for investments may increase costs and reduce returns.
 
We will experience competition for real property investments from individuals, corporations and bank and insurance company investment accounts, as well as other real estate investment trusts, real estate limited partnerships, and other entities engaged in real estate investment activities. Competition for investments may have the effect of increasing costs and reducing your returns.
 
Delays in acquisitions of properties may have an adverse effect on your investment.
 
Delays we encounter in the selection, acquisition and development of properties could adversely affect your returns. Where we acquire properties prior to the start of construction or during the early stages of construction, it will typically take several months to complete construction and rent available space. Therefore, you could suffer delays in the distribution of cash dividends attributable to those
 
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particular properties. In addition, if we are unable to invest our offering proceeds in income producing real properties in a timely manner, we may not be able to continue to pay the dividend rates we are currently paying to our stockholders.
 
We may not be able to immediately invest proceeds in real estate.
 
Until we invest the proceeds of this offering in real estate investments, we may invest in short-term, highly liquid or other authorized investments. Such short-term investments are not likely to earn as high a return as we expect to earn on our real estate investments, and we cannot guarantee how long it will take us to fully invest the proceeds of this offering in real estate investments.
 
Uncertain market conditions and Wells Capital’s broad discretion relating to the future disposition of properties could adversely affect the return on your investment.
 
We generally will hold the various real properties in which we invest until such time as Wells Capital determines that a sale or other disposition appears to be advantageous to achieve our investment objectives or until it appears that such objectives will not be met. Otherwise, Wells Capital, subject to the approval of our board of directors, may exercise its discretion as to whether and when to sell a property, and we will have no obligation to sell properties at any particular time, except upon a liquidation of the Wells REIT if we do not list the shares by January 30, 2008. We cannot predict with any certainty the various market conditions affecting real estate investments that will exist at any particular time in the future. Due to the uncertainty of market conditions that may affect the future disposition of our properties, we cannot assure you that we will be able to sell our properties at a profit in the future. Accordingly, the extent to which you will receive cash distributions and realize potential appreciation on our real estate investments will be dependent upon fluctuating market conditions.
 
Discovery of previously undetected environmentally hazardous conditions may adversely affect our operating results.
 
Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the cost of removal or remediation of hazardous or toxic substances on such property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Environmental laws also may impose restrictions on the manner in which properties may be used or businesses may be operated, and these restrictions may require expenditures. Environmental laws provide for sanctions in the event of noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. We may be potentially liable for such costs in connection with the acquisition and ownership of our properties. The cost of defending against claims of liability, of compliance with environmental regulatory requirements or of remediating any contaminated property could materially adversely affect the business, assets or results of operations of the Wells REIT and, consequently, amounts available for distribution to you.
 
Financing Risks
 
If we fail to make our debt payments, we could lose our investment in a property.
 
We generally secure the loans we obtain to fund property acquisitions with first priority mortgages on some of our properties. If we are unable to make our debt payments as required, a lender could foreclose on the property or properties securing its debt. This could cause us to lose part or all of our investment which in turn could cause a reduction in the value of the shares and the dividends payable to our stockholders. (See “Description of Real Estate Investments—Real Estate Loans.”)
 
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Lenders may require us to enter into restrictive covenants relating to our operations.
 
In connection with obtaining certain financing, a lender could impose restrictions on us that would affect our ability to incur additional debt and our distribution and operating policies. Loan documents we enter into may contain customary negative covenants which may limit our ability to further mortgage the property, to discontinue insurance coverage, replace Wells Capital as our advisor or impose other limitations.
 
If we enter into financing arrangements involving balloon payment obligations, it may adversely affect our ability to pay dividends.
 
Some of our financing arrangements may require us to make a lump-sum or “balloon” payment at maturity. We may finance more properties in this manner. Our ability to make a balloon payment at maturity is uncertain and may depend upon our ability to obtain additional financing or our ability to sell the property. At the time the balloon payment is due, we may or may not be able to refinance the balloon payment on terms as favorable as the original loan or sell the property at a price sufficient to make the balloon payment. A refinancing or sale under these circumstances could affect the rate of return to stockholders and the projected time of disposition of our assets. In addition, payments of principal and interest made to service our debts may leave us with insufficient cash to pay the distributions that we are required to pay to maintain our qualification as a REIT.
 
Section 1031 Exchange Program Risks
 
We may have increased exposure to liabilities from litigation as a result of our participation in the Section 1031 Exchange Program.
 
Wells Development Corporation, an affiliate of Wells Capital, our advisor, is forming a series of single member limited liability companies (each of which is referred to in this prospectus as Wells Exchange) for the purpose of facilitating the acquisition of real estate properties to be owned in co-tenancy arrangements with persons (1031 Participants) who are looking to invest proceeds from a sale of real estate to qualify for like-kind exchange treatment under Section 1031 of the Internal Revenue Code (Section 1031 Exchange Program). There will be significant tax and securities disclosure risks associated with the private placement offerings of co-tenancy interests by Wells Exchange to 1031 Participants. For example, in the event that the Internal Revenue Service conducts an audit of the purchasers of co-tenancy interests and successfully challenges the qualification of the transaction as a like-kind exchange under Section 1031 of the Internal Revenue Code, even though it is anticipated that this tax risk will be fully disclosed to investors, purchasers of co-tenancy interests may file a lawsuit against Wells Exchange and its sponsors. In such event, even though Wells OP is not acting as a sponsor of the offering, is not commonly controlled with Wells Exchange, and is not recommending that 1031 Participants buy co-tenancy interests from Wells Exchange, as a result of our participation in the Section 1031 Exchange Program, and since Wells OP will be receiving fees in connection with the Section 1031 Exchange Program, we may be named in or otherwise required to defend against lawsuits brought by 1031 Participants. Any amounts we are required to expend for any such litigation claims may reduce the amount of funds available for distribution to stockholders of the Wells REIT. In addition, disclosure of any such litigation may adversely affect our ability to raise additional capital in the future through the sale of stock. (See “Investment Objectives and Criteria—Section 1031 Exchange Program.”)
 
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We will be subject to risks associated with co-tenancy arrangements that are not otherwise present in a real estate investment.
 
At the closing of each property Wells Exchange acquires pursuant to the Section 1031 Exchange Program, we anticipate that Wells OP will enter into a contractual arrangement providing that, in the event that Wells Exchange is unable to sell all of the co-tenancy interests in that particular property by the completion of its private placement offering, Wells OP will purchase, at Wells Exchange’s cost, any co-tenancy interests remaining unsold. Accordingly, in the event that Wells Exchange is unable to sell all co-tenancy interests in one or more of its properties, Wells OP will be required to purchase the unsold co-tenancy interests in such property or properties and, thus, will be subject to the risks of ownership of properties in a co-tenancy arrangement with unrelated third parties. (See “Investment Objectives and Criteria—Section 1031 Exchange Program. “)
 
Ownership of co-tenancy interests involves risks not otherwise present with an investment in real estate such as the following:
 
 	•	 	the risk that a co-tenant may at any time have economic or business interests or goals which are or which become inconsistent with our business interests or goals;	
 
 	•	 	the risk that a co-tenant may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives; or	
 
 	•	 	the possibility that a co-tenant might become insolvent or bankrupt, which may be an event of default under mortgage loan financing documents or allow the bankruptcy court to reject the tenants in common agreement or management agreement entered into by the co-tenants owning interests in the property.	
 
Actions by a co-tenant may subject the property to liabilities in excess of those contemplated and may have the effect of reducing your returns.
 
In the event that our interests become adverse to those of the other co-tenants, we will not have the contractual right to purchase the co-tenancy interests from the other co-tenants. Even if we are given the opportunity to purchase such co-tenancy interests in the future, we cannot guarantee that we will have sufficient funds available at the time to purchase co-tenancy interests from the 1031 Participants.
 
We might want to sell our co-tenancy interests in a given property at a time when the other co-tenants in such property do not desire to sell their interests. Therefore, we may not be able to sell our interest in a property at the time we would like to sell. In addition, we anticipate that it will be much more difficult to find a willing buyer for our co-tenancy interests in a property than it would be to find a buyer for a property we owned outright.
 
Our participation in the Section 1031 Exchange Program may limit our ability to borrow funds in the future.
 
Institutional lenders may view our obligations under agreements to acquire unsold co-tenancy interests in properties as a contingent liability against our cash or other assets, which may limit our ability to borrow funds in the future. Further, such obligations may be viewed by our lenders in such a manner as to limit our ability to borrow funds based on regulatory restrictions on lenders limiting the amount of loans they can make to any one borrower. (See “Investment Objectives and Criteria—Section 1031 Exchange Program.”)
 
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Federal Income Tax Risks
 
Failure to qualify as a REIT could adversely affect our operations and our ability to make distributions.
 
In order for us to qualify as a REIT, we must satisfy certain requirements set forth in the Internal Revenue Code and Treasury Regulations and various factual matters and circumstances which are not entirely within our control. We have and will continue to structure our activities in a manner designed to satisfy all of these requirements, however, if certain of our operations were to be recharacterized by the Internal Revenue Service, such recharacterization could jeopardize our ability to satisfy all of the requirements for qualification as a REIT. In addition, new legislation, regulations, administrative interpretations or court decisions could change the tax laws relating to our qualification as a REIT or the federal income tax consequences of our being a REIT.
 
If we fail to qualify as a REIT for any taxable year, we will be subject to federal income tax on our taxable income at corporate rates with no offsetting deductions for distributions made to stockholders. Further, in such event, we would generally be disqualified from treatment as a REIT for the four taxable years following the year in which we lose our REIT status. Accordingly, the loss of our REIT status would reduce our net earnings available for investment or distribution to stockholders because of the substantial tax liabilities that would be imposed on us. We might also be required to borrow funds or liquidate some investments in order to pay the applicable tax.
 
Certain fees paid to Wells OP may affect our REIT status.
 
In connection with the Section 1031 Exchange Program, Wells OP will enter into a number of contractual arrangements with Wells Exchange that will, in effect, guarantee the sale of the co-tenancy interests being offered by Wells Exchange. (See “Investment Objectives and Criteria—Section 1031 Exchange Program.”) In consideration for entering into these agreements, Wells OP will be paid fees which could be characterized by the IRS as non-qualifying income for purposes of satisfying the “income tests” required for REIT qualification. (See “Federal Income Tax Consequences—Operational Requirements—Gross Income Tests.”) If this fee income were, in fact, treated as non-qualifying, and if the aggregate of such fee income and any other non-qualifying income in any taxable year ever exceeded 5.0% of our gross revenues for such year, we could lose our REIT status for that taxable year and the four ensuing taxable years. As set forth above, we will use all reasonable efforts to structure our activities in a manner intended to satisfy the requirements for our continued qualification as a REIT.
 
Recharacterization of the Section 1031 Exchange Program may result in taxation of income from a prohibited transaction.
 
In the event that the Internal Revenue Service were to recharacterize the Section 1031 Exchange Program such that Wells OP, rather than Wells Exchange, is treated as the bona fide owner, for tax purposes, of properties acquired and resold by Wells Exchange in connection with the Section 1031 Exchange Program, such characterization could result in the fees paid to Wells OP by Wells Exchange as being deemed income from a prohibited transaction, in which event all such fee income paid to us in connection with the Section 1031 Exchange Program would be subject to a 100% tax. (See “Investment Objectives and Criteria—Section 1031 Exchange Program.”)
 
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Legislative or regulatory action could adversely affect investors.
 
In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of the federal income tax laws applicable to investments similar to an investment in shares of the Wells REIT. Additional changes to tax laws are likely to continue to occur in the future, and we cannot assure you that any such changes will not adversely affect the taxation of our stockholders. Any such changes could have an adverse effect on an investment in shares or on the market value or the resale potential of our properties. You are urged to consult with your own tax advisor with respect to the impact of recent legislation on your investment in shares and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in shares.
 
Retirement Plan Risks
 
There are special considerations that apply to pension or profit sharing trusts or IRAs investing in shares.
 
If you are investing the assets of a pension, profit sharing, 401(k), Keogh or other qualified retirement plan or the assets of an IRA in the Wells REIT, you should satisfy yourself that:
 
 	•	 	your investment is consistent with your fiduciary obligations under ERISA and the Internal Revenue Code;	
 
 	•	 	your investment is made in accordance with the documents and instruments governing your plan or IRA, including your plan’s investment policy;	
 
 	•	 	your investment satisfies the prudence and diversification requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA;	
 
 	•	 	your investment will not impair the liquidity of the plan or IRA;	
 
 	•	 	your investment will not produce “unrelated business taxable income” for the plan or IRA;	
 
 	•	 	you will be able to value the assets of the plan annually in accordance with ERISA requirements; and	
 
 	•	 	your investment will not constitute a prohibited transaction under Section 406 of ERISA or Section 4975 of the Internal Revenue Code.	
 
For a more complete discussion of the foregoing issues and other risks associated with an investment in shares by retirement plans, please see the “ERISA Considerations” section of this prospectus on page 132.
 
SUITABILITY STANDARDS
 
The shares we are offering are suitable only as a long-term investment for persons of adequate financial means. Initially, we do not expect to have a public market for the shares, which means that you may have difficulty selling your shares. You should not buy these shares if you need to sell them immediately or will need to sell them quickly in the future. In consideration of these factors, we have established suitability standards for initial stockholders and subsequent transferees. These suitability standards require that a purchaser of shares have either:
 
 	•	 	a net worth of at least $150,000; or	
 
 	•	 	gross annual income of at least $45,000 and a net worth of at least $45,000.	
 
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The minimum purchase is 100 shares ($1,000), except in certain states as described below. You may not transfer fewer shares than the minimum purchase requirement. In addition, you may not transfer, fractionalize or subdivide your shares so as to retain less than the number of shares required for the minimum purchase. In order to satisfy the minimum purchase requirements for retirement plans, unless otherwise prohibited by state law, a husband and wife may jointly contribute funds from their separate IRAs, provided that each such contribution is made in increments of $100. You should note that an investment in shares of the Wells REIT will not, in itself, create a retirement plan and that, in order to create a retirement plan, you must comply with all applicable provisions of the Internal Revenue Code.
 
The minimum purchase for Maine, New York and North Carolina residents is 250 shares ($2,500), except for IRAs which must purchase a minimum of 100 shares ($1,000). The minimum purchase for Minnesota residents is 250 shares ($2,500), except for IRAs and other qualified retirement plans which must purchase a minimum of 200 shares ($2,000).            
 
Except in the states of Maine, Minnesota, Nebraska and Washington, if you have satisfied the minimum purchase requirements and have purchased units in other Wells programs or units or shares in other public real estate programs, you may purchase less than the minimum number of shares set forth above, but in no event less than 2.5 shares ($25). After you have purchased the minimum investment, any additional purchase must be in increments of at least 2.5 shares ($25), except for (1) purchases made by residents of Maine and Minnesota, who must still meet the minimum investment requirements set forth above, and (2) purchases of shares pursuant to the dividend reinvestment plan of the Wells REIT or reinvestment plans of other public real estate programs, which may be in lesser amounts.
 
Several states have established suitability standards different from those we have established. Shares will be sold only to investors in these states who meet the special suitability standards set forth below.
 
Iowa, Massachusetts, Michigan, Missouri and Tennessee—Investors must have either (1) a net worth of at least $225,000, or (2) gross annual income of at least $60,000 and a net worth of at least $60,000.
 
Maine—Investors must have either (1) a net worth of at least $200,000, or (2) gross annual income of at least $50,000 and a net worth of at least $50,000.
 
Iowa, Missouri, Ohio and Pennsylvania—In addition to our suitability requirements, investors must have a net worth of at least 10 times their investment in the Wells REIT.
 
For purposes of determining suitability of an investor, net worth in all cases should be calculated excluding the value of an investor’s home, furnishings and automobiles.
 
In the case of sales to fiduciary accounts, these suitability standards must be met by the fiduciary account, by the person who directly or indirectly supplied the funds for the purchase of the shares or by the beneficiary of the account. These suitability standards are intended to help ensure that, given the long-term nature of an investment in our shares, our investment objectives and the relative illiquidity of our shares, shares of the Wells REIT are an appropriate investment for those of you desiring to become stockholders. Each participating broker-dealer must make every reasonable effort to determine that the purchase of shares is a suitable and appropriate investment for each stockholder based on information provided by the stockholder in the Subscription Agreement or otherwise. Each participating broker-dealer is required to maintain records of the information used to determine that an investment in shares is suitable and appropriate for each stockholder for a period of six years.
 
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ESTIMATED USE OF PROCEEDS
 
The following tables set forth information about how we intend to use the proceeds raised in this offering assuming that we sell 165,000,000 shares and 330,000,000 shares, respectively, pursuant to this offering. Many of the figures set forth below represent management’s best estimate since they cannot be precisely calculated at this time. We expect that at least 84.0% of the money you invest will be used to buy real estate, while the remaining up to 16.0% will be used for working capital and to pay expenses and fees, including the payment of fees to Wells Capital, our advisor, and Wells Investment Securities, our Dealer Manager.

 	  	165,000,000 Shares

	 	 	330,000,000 Shares

	 	
 	  	Amount(1)

	 	 	Percent

	 	 	Amount(2)

	 	 	Percent

	 	
Gross Offering Proceeds	  	$	1,650,000,000	 	 	100	%	 	$	3,300,000,000	 	 	100.0	%	
Less Public Offering Expenses:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	
Selling Commissions and Dealer Manager Fee(3)	  	 	156,750,000	 	 	9.5	%	 	 	313,500,000	 	 	9.5	%	
Organization and Offering Expenses(4)	  	 	49,500,000	 	 	3.0	%	 	 	49,500,000	 	 	1.5	%	

	

	

	 	

	

	 	

	

	

	 	

	

	
Amount Available for Investment(5)	  	$	1,443,750,000	 	 	87.5	%	 	$	2,937,000,000	 	 	89.0	%	
Acquisition and Development:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	
Acquisition and Advisory Fees(6)	  	 	49,500,000	 	 	3.0	%	 	 	99,000,000	 	 	3.0	%	
Acquisition Expenses(7)	  	 	8,250,000	 	 	0.5	%	 	 	16,500,000	 	 	0.5	%	
Initial Working Capital Reserve(8)	  	 	(8	)	 	—  	 	 	 	(8	)	 	—  	 	

	

	

	 	

	

	 	

	

	

	 	

	

	
Amount Invested in Properties(5)(9)	  	$	1,386,000,000	 	 	84.0	%	 	$	2,821,500,000	 	 	85.5	%	

	

	

	 	

	

	 	

	

	

	 	

	

	

(Footnotes to “Estimated Use of Proceeds”)
 
1.	 	Assumes that an aggregate of $1,650,000,000 will be raised in this offering for purposes of illustrating the percentage of estimated organization and offering expenses at two different sales levels. See Note 4 below.	
2.	 	Assumes the maximum offering is sold which includes 300,000,000 shares offered to the public at $10 per share and 30,000,000 shares offered pursuant to our dividend reinvestment plan at $10 per share. Excludes 6,600,000 shares to be issued upon exercise of the soliciting dealer warrants.	
3.	 	Includes selling commissions equal to 7.0% of aggregate gross offering proceeds which commissions may be reduced under certain circumstances and a  dealer manager fee  equal to 2.5% of aggregate gross offering proceeds, both of which are payable to the Dealer Manager, an affiliate of our advisor. The Dealer Manager, in its sole discretion, may reallow selling commissions of up to 7.0% of gross offering proceeds to other broker-dealers participating in this offering (Participating Dealers) attributable to the amount of shares sold by them. In addition, the Dealer Manager may reallow a portion of its dealer manager fee to Participating Dealers in the aggregate amount of up to 1.5% of gross offering proceeds to be paid to such Participating Dealers as marketing fees, or to reimburse representatives of such Participating Dealers the costs and expenses of attending our educational conferences and seminars. The amount of selling commissions may often be reduced under certain circumstances for volume discounts. See the “Plan of Distribution” section of this prospectus for a description of such provisions.	
4.	 	Organization and offering expenses consist of reimbursement of actual legal, accounting, printing and other accountable offering expenses, other than selling commissions and the dealer manager fee, including amounts to reimburse Wells Capital, our advisor, for all marketing related costs and expenses, including, but not limited to, salaries and direct expenses of our advisor’s employees while engaged in registering and marketing the shares and other marketing and organization costs, technology costs and expenses attributable to the offering, costs and expenses of conducting our	
 
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 	educational conferences and seminars, payment or reimbursement of bona fide due diligence expenses, and costs and expenses we incur for attending retail seminars conducted by broker-dealers. Wells Capital and its affiliates will be responsible for the payment of organization and offering expenses, other than selling commissions and the dealer manager fee, to the extent they exceed 3.0% of aggregate gross offering proceeds from all of our offerings without recourse against or reimbursement by the Wells REIT. We currently estimate that approximately $49,500,000 of organization and offering costs will be incurred if the maximum offering of 330,000,000 shares is sold. Notwithstanding the above, in no event shall organization and offering expenses, including selling commissions, the dealer manager fee and all other underwriting compensation, exceed 15% of gross offering proceeds.	
5.	 	Until required in connection with the acquisition and development of properties, substantially all of the net proceeds of the offering and, thereafter, the working capital reserves of the Wells REIT, may be invested in short-term, highly-liquid investments including government obligations, bank certificates of deposit, short-term debt obligations and interest-bearing accounts or other authorized investments as determined by our board of directors.	
6.	 	Acquisition and advisory fees are defined generally as fees and commissions paid by any party to any person in connection with the purchase, development or construction of properties. We will pay Wells Capital, as our advisor, acquisition and advisory fees up to a maximum amount of 3.0% of gross offering proceeds in connection with the acquisition of the real estate properties. Acquisition and advisory fees do not include acquisition expenses.	
7.	 	Acquisition expenses include legal fees and expenses, travel expenses, costs of appraisals, nonrefundable option payments on property not acquired, accounting fees and expenses, title insurance premiums and other closing costs and miscellaneous expenses relating to the selection, acquisition and development of real estate properties. We will pay Wells Capital, our advisor, acquisition expenses up to a maximum of 0.5% of gross offering proceeds as reimbursement for the payment of such expenses.	
8.	 	Because the vast majority of leases for the properties acquired by the Wells REIT will provide for tenant reimbursement of operating expenses, we do not anticipate that a permanent reserve for maintenance and repairs of real estate properties will be established. However, to the extent that we have insufficient funds for such purposes, we may apply an amount of up to 1.0% of gross offering proceeds for maintenance and repairs of real estate properties. We also may, but are not required to, establish reserves from gross offering proceeds, out of cash flow generated by operating properties or out of nonliquidating net sale proceeds, defined generally to mean the net cash proceeds received by the Wells REIT from any sale or exchange of properties.	
9.	 	Includes amounts anticipated to be invested in properties net of fees and expenses. We estimate that at least 84.0% of the proceeds received from the sale of shares will be used to acquire properties.	
 
MANAGEMENT
 
General
 
We operate under the direction of our board of directors, the members of which are accountable to us and our stockholders as fiduciaries. The board is responsible for the management and control of our affairs. The board has retained Wells Capital to manage our day-to-day affairs and the acquisition and disposition of our investments, subject to the board’s supervision. Our articles of incorporation were reviewed and ratified by our board of directors, including the independent directors, at their initial meeting. This ratification by our board of directors was required by the NASAA Guidelines.
 
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Our articles of incorporation and bylaws provide that the number of directors of the Wells REIT may be established by a majority of the entire board of directors but may not be fewer than three nor more than 15. We currently have a total of ten directors. Our articles of incorporation also provide that a majority of the directors must be independent directors. An “independent director” is a person who is not an officer or employee of the Wells REIT, Wells Capital or their affiliates and has not otherwise been affiliated with such entities for the previous two years. Of the ten current directors, eight of our directors are considered independent directors.
 
Proposed transactions are often discussed before being brought to a final board vote. During these discussions, independent directors often offer ideas for ways in which deals can be changed to make them acceptable and these suggestions are taken into consideration when structuring transactions. Each director will serve until the next annual meeting of stockholders or until his successor has been duly elected and qualified. Although the number of directors may be increased or decreased, a decrease shall not have the effect of shortening the term of any incumbent director.
 
Any director may resign at any time and may be removed with or without cause by the stockholders upon the affirmative vote of at least a majority of all the votes entitled to be cast at a meeting called for the purpose of the proposed removal. The notice of the meeting shall indicate that the purpose, or one of the purposes, of the meeting is to determine if the director shall be removed.
 
Unless filled by a vote of the stockholders as permitted by Maryland Corporation Law, a vacancy created by an increase in the number of directors or the death, resignation, removal, adjudicated incompetence or other incapacity of a director shall be filled by a vote of a majority of the remaining directors and,
 
 	•	 	in the case of a director who is not an independent director (affiliated director), by a vote of a majority of the remaining affiliated directors, or	
 
 	•	 	in the case of an independent director, by a vote of a majority of the remaining independent directors,	
 
unless there are no remaining affiliated directors or independent directors, as the case may be. In such case a majority vote of the remaining directors shall be sufficient. If at any time there are no independent or affiliated directors in office, successor directors shall be elected by the stockholders. Each director will be bound by our articles of incorporation and bylaws.
 
Our directors are not required to devote all of their time to our business and are only required to devote the time to our affairs as their duties may require. Our directors will meet quarterly or more frequently if necessary in order to discharge their duties as directors. We do not expect that our directors will be required to devote a substantial portion of their time in discharging such duties. Consequently, in the exercise of their fiduciary responsibilities, our directors will be relying heavily on Wells Capital. Our board is empowered to fix the compensation of all officers that it selects and may pay compensation to directors for services rendered to us in any other capacity.
 
Our general investment and borrowing policies are set forth in this prospectus. Our directors may establish further written policies on investments and borrowings and shall monitor our administrative procedures, investment operations and performance to ensure that the policies are fulfilled and are in the best interest of the stockholders. We will follow the policies on investments and borrowings set forth in this prospectus unless and until they are modified by our directors.
 
Our board is responsible for reviewing our fees and expenses on at least an annual basis and with sufficient frequency to determine that the expenses incurred are in the best interest of the stockholders. In
 
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addition, a majority of the independent directors, and a majority of directors not otherwise interested in the transaction, must approve all transactions with Wells Capital or its affiliates. The independent directors will also be responsible for reviewing the performance of Wells Capital and Wells Management and determining that the compensation to be paid to Wells Capital and Wells Management is reasonable in relation to the nature and quality of services to be performed and that the provisions of the advisory agreement and the property management agreement are being carried out. Specifically, the independent directors will consider factors such as:
 
 	•	 	the amount of the fee paid to Wells Capital and Wells Management in relation to the size, composition and performance of our investments;	
 
 	•	 	the success of Wells Capital in generating appropriate investment opportunities;	
 
 	•	 	rates charged to other REITs and other investors by advisors performing similar services;	
 
 	•	 	additional revenues realized by Wells Capital and Wells Management through their relationship with us, whether we pay them or they are paid by others with whom we do business;	
 
 	•	 	the quality and extent of service and advice furnished by Wells Capital and Wells Management and the performance of our investment portfolio; and	
 
 	•	 	the quality of our portfolio relative to the investments generated by Wells Capital and managed by Wells Management for their other clients.	
 
Neither our directors nor their affiliates will vote or consent to the voting of shares they now own or hereafter acquire on matters submitted to the stockholders regarding either (1) the removal of Wells Capital, any director or any affiliate, or (2) any transaction between us and Wells Capital, any director or any affiliate.
 
Committees of the Board of Directors
 
Our entire board of directors considers all major decisions concerning our business, including all property acquisitions. However, our board has established an Audit Committee, a Compensation Committee and various advisory committees so that important items within the purview of these committees can be addressed in more depth than may be possible at a full board meeting.
 
Audit Committee
 
Under our Audit Committee Charter, our Audit Committee’s primary function is to assist the board of directors in fulfilling its oversight responsibilities by reviewing the financial information to be provided to the stockholders and others, the system of internal controls which management has established, and the audit and financial reporting process. The members of our Audit Committee are Messrs. Bell, Carpenter, Carter, Keogler, Moss, Sessoms and Strickland.
 
Compensation Committee
 
Our board of directors has established a Compensation Committee to administer the 2000 Employee Stock Option Plan, as described below, which was approved by the stockholders at our annual stockholders meeting held June 28, 2000. The Compensation Committee is comprised of Messrs. Bell, Carpenter, Carter, Keogler, Moss, Sessoms and Strickland. The primary function of the Compensation Committee is to administer the granting of stock options to selected employees of Wells Capital and
 
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Wells Management based upon recommendations from Wells Capital, and to set the terms and conditions of such options in accordance with the 2000 Employee Stock Option Plan. To date, we have not issued any stock options under our 2000 Employee Stock Option Plan.
 
Advisory Committees
 
The board of directors has established various advisory committees in which certain members of the board sit on these advisory committees to assist Wells Capital and its affiliates in the following areas which have a direct impact on the operations of the Wells REIT: asset management; new business development; personnel supervision; and budgeting.
 
Executive Officers and Directors
 
We have provided below certain information about our executive officers and directors.
 
Name

	  	Position(s)

	  	Age

	
Leo F. Wells, III	  	President and Director	  	58	
Douglas P. Williams	  	Executive Vice President, Secretary, Treasurer and Director	  	51	
John L. Bell	  	Director	  	62	
Michael R. Buchanan	  	Director	  	55	
Richard W. Carpenter	  	Director	  	65	
Bud Carter	  	Director	  	63	
William H. Keogler, Jr.	  	Director	  	57	
Donald S. Moss	  	Director	  	66	
Walter W. Sessoms	  	Director	  	68	
Neil H. Strickland	  	Director	  	66	
 
Leo F. Wells, III is the President and a director of the Wells REIT and the President, Treasurer and sole director of Wells Capital, our advisor. He is also the sole stockholder and sole director of Wells Real Estate Funds, Inc., the parent corporation of Wells Capital. Mr. Wells is President of Wells & Associates, Inc., a real estate brokerage and investment company formed in 1976 and incorporated in 1978, for which he serves as principal broker. He is also the President, Treasurer and sole director of:
 
 	•	 	Wells Management Company, Inc., our Property Manager;	
 
 	•	 	Wells Investment Securities, Inc., our Dealer Manager;	
 
 	•	 	Wells Advisors, Inc., a company he organized in 1991 to act as a non-bank custodian for IRAs; and	
 
 	•	 	Wells Development Corporation, a company he organized in 1997 to develop real properties. (See “Conflicts of Interest.”)	
 
Mr. Wells was a real estate salesman and property manager from 1970 to 1973 for Roy D. Warren & Company, an Atlanta-based real estate company, and he was associated from 1973 to 1976 with Sax Gaskin Real Estate Company, during which time he became a Life Member of the Atlanta Board of Realtors Million Dollar Club. From 1980 to February 1985 he served as Vice President of Hill-Johnson, Inc., a Georgia corporation engaged in the construction business. Mr. Wells holds a Bachelor of Business Administration degree in economics from the University of Georgia. Mr. Wells is a member of the International Association for Financial Planning (IAFP) and a registered NASD principal.
 
Mr. Wells has over 30 years of experience in real estate sales, management and brokerage services. In addition to being the President and a director of the Wells REIT, he is currently a co-general
 
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partner in a total of 27 real estate limited partnerships formed for the purpose of acquiring, developing and operating office buildings and other commercial properties. As of June 30, 2002, these 27 real estate limited partnerships represented investments totaling approximately $347,154,000 from approximately 28,000 investors.
 
Douglas P. Williams is the Executive Vice President, Secretary, Treasurer and a director of the Wells REIT. He is also a Senior Vice President of Wells Capital, our advisor, and is also a Vice President of:
 
 	•	 	Wells Investment Securities, Inc., our Dealer Manager;	
 
 	•	 	Wells Real Estate Funds, Inc.; and	
 
 	•	 	Wells Advisors, Inc. (See “Conflicts of Interest.”)	
 
Mr. Williams previously served as Vice President, Controller of OneSource, Inc., a leading supplier of janitorial and landscape services, from 1996 to 1999 where he was responsible for corporate-wide accounting activities and financial analysis. Mr. Williams was employed by ECC International Inc. (ECC), a supplier to the paper industry and to the paint, rubber and plastic industries, from 1982 to 1995. While at ECC, Mr. Williams served in a number of key accounting positions, including: Corporate Accounting Manager, U.S. Operations; Division Controller, Americas Region; and Corporate Controller, America/Pacific Division. Prior to joining ECC and for one year after leaving ECC, Mr. Williams was employed by Lithonia Lighting, a manufacturer of lighting fixtures, as a Cost and General Accounting Manager and Director of Planning and Control. Mr. Williams started his professional career as an auditor for KPMG Peat Marwick LLP.
 
Mr. Williams is a member of the American Institute of Certified Public Accountants and the Georgia Society of Certified Public Accountants and is licensed with the NASD as a financial and operations principal. Mr. Williams received a Bachelor of Arts degree from Dartmouth College and a Masters of Business Administration degree from the Amos Tuck School of Graduate Business Administration at Dartmouth College.
 
John L. Bell was the owner and Chairman of Bell-Mann, Inc., the largest commercial flooring contractor in the Southeast from February 1971 to February 1996. Mr. Bell also served on the board of directors of Realty South Investors, a REIT traded on the American Stock Exchange, and was the founder and served as a director of both the Chattahoochee Bank and the Buckhead Bank. In 1997, Mr. Bell initiated and implemented a “Dealer Acquisition Plan” for Shaw Industries, Inc., a floor covering manufacturer and distributor, which plan included the acquisition of Bell-Mann.
 
Mr. Bell currently serves on the Board of Directors of Electronic Commerce Systems, Inc. and the Cullasaja Club of Highlands, North Carolina. Mr. Bell is also extensively involved in buying and selling real estate both individually and in partnership with others. Mr. Bell graduated from Florida State University majoring in accounting and marketing.
 
Michael R. Buchanan was employed by Bank of America, N.A. and its predecessor banks, NationsBank and C&S National Bank, from 1972 until his retirement in March 2002. Mr. Buchanan has over 30 years of real estate banking and financial experience and, while at Bank of America, he held several key positions including Managing Director of the Real Estate Banking Group from 1998 until his retirement where he managed approximately 1,100 associates in 90 offices. This group was responsible for providing real estate loans including construction, acquisition, development and bridge financing for the commercial and residential real estate industry, as well as providing structured financing for REITs.
 
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Mr. Buchanan is a graduate of the University of Kentucky where he earned a Bachelor of Economics degree and a Masters of Business Administration degree. He also attended Harvard University in the graduate program for management development.
 
Richard W. Carpenter served as General Vice President of Real Estate Finance of The Citizens and Southern National Bank from 1975 to 1979, during which time his duties included the establishment and supervision of the United Kingdom Pension Fund, U.K.-American Properties, Inc. which was established primarily for investment in commercial real estate within the United States.
 
Mr. Carpenter is a managing partner of Carpenter Properties, L.P., a real estate limited partnership. He is also President and director of Commonwealth Oil Refining Company, Inc., a position he has held since 1984.
 
Mr. Carpenter previously served as Vice Chairman of the board of directors of both First Liberty Financial Corp. and Liberty Savings Bank, F.S.B. and Chairman of the Audit Committee of First Liberty Financial Corp. He has been a member of The National Association of Real Estate Investment Trusts and formerly served as President and Chairman of the Board of Southmark Properties, an Atlanta-based REIT which invested in commercial properties. Mr. Carpenter is a past Chairman of the American Bankers Association Housing and Real Estate Finance Division Executive Committee. Mr. Carpenter holds a Bachelor of Science degree from Florida State University, where he was named the outstanding alumnus of the School of Business in 1973.
 
Bud Carter was an award-winning broadcast news director and anchorman for several radio and television stations in the Midwest for over 20 years. From 1975 to 1980, Mr. Carter served as General Manager of WTAZ-FM, a radio station in Peoria, Illinois and served as editor and publisher of The Peoria Press, a weekly business and political journal in Peoria, Illinois. From 1981 until 1989, Mr. Carter was also an owner and General Manager of Transitions, Inc., a corporate outplacement company in Atlanta, Georgia.
 
Mr. Carter currently serves as Senior Vice President for The Executive Committee, an international organization established to aid presidents and CEOs to share ideas on ways to improve the management and profitability of their respective companies. The Executive Committee operates in numerous large cities throughout the United States, Canada, Australia, France, Italy, Malaysia, Brazil, the United Kingdom and Japan. The Executive Committee has more than 7,000 presidents and CEOs who are members. In addition, Mr. Carter was the first Chairman of the organization recruited in Atlanta and still serves as Chairman of the first two groups formed in Atlanta, each comprised of 16 noncompeting CEOs and presidents. Mr. Carter serves on the board of directors of Creative Storage Systems, Inc., DiversiTech Coporation and Wavebase9. He is a graduate of the University of Missouri where he earned degrees in journalism and social psychology.
 
William H. Keogler, Jr. was employed by Brooke Bond Foods, Inc. as a Sales Manager from June 1965 to September 1968. From July 1968 to December 1974, Mr. Keogler was employed by Kidder Peabody & Company, Inc. and Dupont, Glore, Forgan as a corporate bond salesman responsible for managing the industrial corporate bond desk and the utility bond area. From December 1974 to July 1982, Mr. Keogler was employed by Robinson-Humphrey, Inc. as the Director of Fixed Income Trading Departments responsible for all municipal bond trading and municipal research, corporate and government bond trading, unit trusts and SBA/FHA loans, as well as the oversight of the publishing of the Robinson-Humphrey Southeast Unit Trust, a quarterly newsletter. Mr. Keogler was elected to the Board of Directors of Robinson-Humphrey, Inc. in 1982. From July 1982 to October 1984, Mr. Keogler was Executive Vice President, Chief Operating Officer, Chairman of the Executive Investment Committee and member of the board of directors and Chairman of the MFA Advisory Board for the Financial Service
 
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Corporation. He was responsible for the creation of a full service trading department specializing in general securities with emphasis on municipal bonds and municipal trusts. Under his leadership, Financial Service Corporation grew to over 1,000 registered representatives and over 650 branch offices. In March 1985, Mr. Keogler founded Keogler, Morgan & Company, Inc., a full service brokerage firm, and Keogler Investment Advisory, Inc., in which he served as Chairman of the Board, President and Chief Executive Officer. In January 1997, both companies were sold to SunAmerica, Inc., a publicly traded New York Stock Exchange company. Mr. Keogler continued to serve as President and Chief Executive Officer of these companies until his retirement in January 1998.
 
Mr. Keogler serves on the Board of Trustees of Senior Citizens Services of Atlanta. He graduated from Adelphi University in New York where he earned a degree in psychology.
 
Donald S. Moss was employed by Avon Products, Inc. from 1957 until his retirement in 1986. While at Avon, Mr. Moss served in a number of key positions, including Vice President and Controller from 1973 to 1976, Group Vice President of Operations-Worldwide from 1976 to 1979, Group Vice President of Sales-Worldwide from 1979 to 1980, Senior Vice President-International from 1980 to 1983 and Group Vice President-Human Resources and Administration from 1983 until his retirement in 1986. Mr. Moss was also a member of the board of directors of Avon Canada, Avon Japan, Avon Thailand, and Avon Malaysia from 1980-1983.
 
Mr. Moss is currently a director of The Atlanta Athletic Club. He formerly was the National Treasurer and a director of the Girls Clubs of America from 1973 to 1976. Mr. Moss graduated from the University of Illinois where he received a degree in business.
 
Walter W. Sessoms was employed by Southern Bell and its successor company, BellSouth, from 1956 until his retirement in June 1997. While at BellSouth, Mr. Sessoms served in a number of key positions, including Vice President-Residence for the State of Georgia from June 1979 to July 1981, Vice President-Transitional Planning Officer from July 1981 to February 1982, Vice President-Georgia from February 1982 to June 1989, Senior Vice President-Regulatory and External Affairs from June 1989 to November 1991, and Group President-Services from December 1991 until his retirement on June 30, 1997.
 
Mr. Sessoms currently serves as a director of the Georgia Chamber of Commerce for which he is a past Chairman of the Board, the Atlanta Civic Enterprises and the Salvation Army’s Board of Visitors of the Southeast Region. Mr. Sessoms is also a past executive advisory council member for the University of Georgia College of Business Administration and past member of the executive committee of the Atlanta Chamber of Commerce. Mr. Sessoms is a graduate of Wofford College where he earned a degree in economics and business administration, and is currently a member of the Wofford College Board of Trustees. He is a member of the Governor’s Education Reform Commission. In addition, Mr. Sessoms is a member of the Board of Trustees of the Southern Center for International Studies and is currently President of the Atlanta Rotary Club.
 
Neil H. Strickland was employed by Loyalty Group Insurance (which subsequently merged with America Fore Loyalty Group and is now known as The Continental Group) as an automobile insurance underwriter. From 1957 to 1961, Mr. Strickland served as Assistant Supervisor of the Casualty Large Lines Retrospective Rating Department. From 1961 to 1964, Mr. Strickland served as Branch Manager of Wolverine Insurance Company, a full service property and casualty service company, where he had full responsibility for underwriting of insurance and office administration in the State of Georgia. In 1964, Mr. Strickland and a non-active partner started Superior Insurance Service, Inc., a property and casualty wholesale general insurance agency. Mr. Strickland served as President and was responsible for the underwriting and all other operations of the agency. In 1967, Mr. Strickland sold his interest in
 
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Superior Insurance Service, Inc. and started Strickland General Agency, Inc., a property and casualty general insurance agency concentrating on commercial customers. Mr. Strickland is currently the Senior Operation Executive of Strickland General Agency, Inc. and devotes most of his time to long-term planning, policy development and senior administration.
 
Mr. Strickland is a past President of the Norcross Kiwanis Club and served as both Vice President and President of the Georgia Surplus Lines Association. He also served as President and a director of the National Association of Professional Surplus Lines Offices. Mr. Strickland currently serves as a director of First Capital Bank, a community bank located in the State of Georgia. Mr. Strickland attended Georgia State University where he majored in business administration. He received his L.L.B. degree from Atlanta Law School.
 
Compensation of Directors
 
We pay each of our independent directors $3,000 per regularly scheduled quarterly board meeting attended, $1,000 per regularly scheduled advisory committee meeting attended and $250 per special board meeting attended whether held in person or by telephone conference. In addition, we have reserved 100,000 shares of common stock for future issuance upon the exercise of stock options granted to the independent directors pursuant to our Independent Director Stock Option Plan and 500,000 shares for future issuance upon the exercise of warrants to be granted to the independent directors pursuant to our Independent Director Warrant Plan. All directors receive reimbursement of reasonable out-of-pocket expenses incurred in connection with attendance at meetings of the board of directors. If a director also is an officer of the Wells REIT, we do not pay separate compensation for services rendered as a director.
 
Independent Director Stock Option Plan
 
Our Independent Director Stock Option Plan (Director Option Plan) was approved by our stockholders at the annual stockholders meeting held June 16, 1999. We issued non-qualified stock options to purchase 2,500 shares (Initial Options) to each independent director pursuant to our Director Option Plan. In addition, we issued options to purchase 1,000 shares to each independent director then in office in connection with the 2000, 2001 and 2002 annual meeting of stockholders and will continue to issue options to purchase 1,000 shares (Subsequent Options) to each independent director then in office on the date of each annual stockholders’ meeting. The Initial Options and the Subsequent Options are collectively referred to as the “Director Options.” Director Options may not be granted at any time when the grant, along with grants to other independent directors, would exceed 10% of our issued and outstanding shares. As of the date of this prospectus, each independent director (except for Michael R. Buchanan, who was recently appointed as an independent director and will be awarded 2,500 Initial Options) had been granted options to purchase a total of 5,500 shares under the Director Option Plan, of which 3,000 of those options were exercisable.
 
The exercise price for the Initial Options is $12.00 per share. The exercise price for the Subsequent Options is the greater of (1) $12.00 per share or (2) the fair market value of the shares on the date they are granted. Fair market value is defined generally to mean:
 
 	•	 	the average closing price for the five consecutive trading days ending on such date if the shares are traded on a national exchange;	
 
 	•	 	the average of the high bid and low asked prices if the shares are quoted on NASDAQ;	
 
 	•	 	the average of the last 10 sales made pursuant to a public offering if there is a current public offering and no market maker for the shares;	
 
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 	•	 	the average of the last 10 purchases (or fewer if less than 10 purchases) under our share redemption program if there is no current public offering; or	
 
 	•	 	the price per share under the dividend reinvestment plan if there are no purchases under the share redemption program.	
 
One-fifth of the Initial Options were exercisable beginning on the date we granted them, one-fifth of the Initial Options became exercisable beginning in July 2000, one-fifth of the Initial Options became exercisable beginning in July 2001, one fifth of the Initial Options became exercisable beginning in July 2002 and the remaining one-fifth of the Initial Options will become exercisable beginning in July 2003. The Subsequent Options granted in connection with the 2000 annual stockholders’ meeting became exercisable in June 2002. The remaining Subsequent Options granted under the Director Option Plan will become exercisable on the second anniversary of the date we grant them.
 
A total of 100,000 shares have been authorized and reserved for issuance under the Director Option Plan. If the number of outstanding shares is changed into a different number or kind of shares or securities through a reorganization or merger in which the Wells REIT is the surviving entity, or through a combination, recapitalization or otherwise, an appropriate adjustment will be made in the number and kind of shares that may be issued pursuant to exercise of the Director Options. A corresponding adjustment to the exercise price of the Director Options granted prior to any change will also be made. Any such adjustment, however, will not change the total payment, if any, applicable to the portion of the Director Options not exercised, but will change only the exercise price for each share.
 
Options granted under the Director Option Plan shall lapse on the first to occur of (1) the tenth anniversary of the date we grant them, (2) the removal for cause of the independent director as a member of the board of directors, or (3) three months following the date the independent director ceases to be a director for any reason other than death or disability, and may be exercised by payment of cash or through the delivery of common stock. Director Options granted under the Director Option Plan are generally exercisable in the case of death or disability for a period of one year after death or the disabling event. No Director Option issued may be exercised if such exercise would jeopardize our status as a REIT under the Internal Revenue Code.
 
The independent directors may not sell, pledge, assign or transfer their options other than by will or the laws of descent or distribution.
 
Upon the dissolution or liquidation of the Wells REIT, upon our reorganization, merger or consolidation with one or more corporations as a result of which we are not the surviving corporation or upon sale of all or substantially all of our properties, the Director Option Plan will terminate, and any outstanding Director Options will terminate and be forfeited. The board of directors may provide in writing in connection with any such transaction for any or all of the following alternatives:
 
 	•	 	for the assumption by the successor corporation of the Director Options granted or the replacement of the Director Options with options covering the stock of the successor corporation, or a parent or subsidiary of such corporation, with appropriate adjustments as to the number and kind of shares and exercise prices;	
 
 	•	 	for the continuance of the Director Option Plan and the Director Options by such successor corporation under the original terms; or	
 
 	•	 	for the payment in cash or shares of common stock in lieu of and in complete satisfaction of such options.	

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Independent Director Warrant Plan
 
Our Independent Director Warrant Plan (Director Warrant Plan) was approved by our stockholders at the annual stockholders meeting held June 28, 2000. Our Director Warrant Plan provides for the issuance of warrants to purchase shares of our common stock (Warrants) to independent directors based on the number of shares of common stock that they purchase. The purpose of the Director Warrant Plan is to encourage our independent directors to purchase shares of our common stock. Beginning on the effective date of the Director Warrant Plan and continuing until the earlier to occur of (1) the termination of the Director Warrant Plan by action of the board of directors or otherwise, or (2) 5:00 p.m. EST on the date of listing of our shares on a national securities exchange, each independent director will receive one Warrant for every 25 shares of common stock he purchases. The exercise price of the Warrants will be $12.00 per share.
 
A total of 500,000 Warrants have been authorized and reserved for issuance under the Director Warrant Plan, each of which will be redeemable for one share of our common stock. Upon our dissolution or liquidation, or upon a reorganization, merger or consolidation, where we are not the surviving corporation, or upon our sale of all or substantially all of our properties, the Director Warrant Plan shall terminate, and any outstanding Warrants shall terminate and be forfeited; provided, however, that holders of Warrants may exercise any Warrants that are otherwise exercisable immediately prior to the effective date of the dissolution, liquidation, consolidation or merger. Notwithstanding the above, our board of directors may provide in writing in connection with any such transaction for any or all of the following alternatives: (1) for the assumption by the successor corporation of the Warrants theretofore granted or the substitution by such corporation for such Warrants of awards covering the stock of the successor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices; (2) for the continuance of the Director Warrant Plan by such successor corporation in which event the Director Warrant Plan and the Warrants shall continue in the manner and under the terms so provided; or (3) for the payment in cash or shares in lieu of and in complete satisfaction of such Warrants.
 
No Warrant may be sold, pledged, assigned or transferred by an independent director in any manner other than by will or the laws of descent or distribution. All Warrants exercised during the independent director’s lifetime shall be exercised only by the independent director or his legal representative. Any transfer contrary to the Director Warrant Plan will nullify and render void the Warrant. Notwithstanding any other provisions of the Director Warrant Plan, Warrants granted under the Director Warrant Plan shall continue to be exercisable in the case of death or disability of the independent director for a period of one year after the death or disabling event, provided that the death or disabling event occurs while the person is an independent director. No Warrant issued may be exercised if such exercise would jeopardize our status as a REIT under the Internal Revenue Code.
 
Employee Stock Option Plan
 
Our 2000 Employee Stock Option Plan (Employee Option Plan) was approved by our stockholders at the annual stockholders meeting held June 28, 2000. Our Employee Option Plan is designed to enable Wells Capital and Wells Management to obtain or retain the services of employees considered essential to our long range success and the success of Wells Capital and Wells Management by offering such employees an opportunity to participate in the growth of the Wells REIT through ownership of our common stock.
 
Our Employee Option Plan provides for the formation of a Compensation Committee consisting of two or more of our independent directors. (See “Committees of the Board of Directors.”) The Compensation Committee shall conduct the general administration of the Employee Option Plan. The
 
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Compensation Committee is authorized to grant “non-qualified” stock options (Employee Options) to selected employees of Wells Capital and Wells Management based upon the recommendation of Wells Capital and subject to the absolute discretion of the Compensation Committee and applicable limitations of the Employee Option Plan. The exercise price for the Employee Options shall be the greater of (1) $11.00 per share, or (2) the fair market value of the shares on the date the option is granted. A total of 750,000 shares have been authorized and reserved for issuance under our Employee Option Plan. To date, we have not issued any stock options under our Employee Option Plan.
 
The Compensation Committee shall set the term of the Employee Options in its discretion, although no Employee Option shall have a term greater than five years from the later of (1) the date our shares become listed on a national securities exchange, or (2) the date the Employee Option is granted. The employee receiving Employee Options shall agree to remain in employment with his employer for a period of one year after the Employee Option is granted. The Compensation Committee shall set the period during which the right to exercise an option vests in the holder of the option. No Employee Option issued may be exercised, however, if such exercise would jeopardize our status as a REIT under the Internal Revenue Code. In addition, no option may be sold, pledged, assigned or transferred by an employee in any manner other than by will or the laws of descent or distribution.
 
In the event that the Compensation Committee determines that any dividend or other distribution, recapitalization, stock split, reorganization, merger, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of our assets, or other similar corporate transaction or event, affects the shares such that an adjustment is determined by the Compensation Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Employee Option Plan or with respect to an Employee Option, then the Compensation Committee shall, in such manner as it may deem equitable, adjust the number and kind of shares or the exercise price with respect to any option.
 
Limited Liability and Indemnification of Directors, Officers, Employees and Other Agents
 
Our organizational documents limit the personal liability of our stockholders, directors and officers for monetary damages to the fullest extent permitted under current Maryland Corporation Law. We also maintain a directors and officers liability insurance policy. Maryland Corporation Law allows directors and officers to be indemnified against judgments, penalties, fines, settlements and expenses actually incurred in a proceeding unless the following can be established:
 
 	•	 	an act or omission of the director or officer was material to the cause of action adjudicated in the proceeding, and was committed in bad faith or was the result of active and deliberate dishonesty;	
 
 	•	 	the director or officer actually received an improper personal benefit in money, property or services; or	
 
 	•	 	with respect to any criminal proceeding, the director or officer had reasonable cause to believe his act or omission was unlawful.	
 
Any indemnification or any agreement to hold harmless is recoverable only out of our assets and not from our stockholders. Indemnification could reduce the legal remedies available to us and our stockholders against the indemnified individuals, however.
 
This provision does not reduce the exposure of our directors and officers to liability under federal or state securities laws, nor does it limit our stockholder’s ability to obtain injunctive relief or other
 
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equitable remedies for a violation of a director’s or an officer’s duties to us or our stockholders, although the equitable remedies may not be an effective remedy in some circumstances.
 
In spite of the above provisions of Maryland Corporation Law, our articles of incorporation provide that our directors, Wells Capital and its affiliates will be indemnified by us for losses arising from our operation only if all of the following conditions are met:
 
 	•	 	our directors, Wells Capital or its affiliates have determined, in good faith, that the course of conduct which caused the loss or liability was in our best interests;	
 
 	•	 	our directors, Wells Capital or its affiliates were acting on our behalf or performing services for us;	
 
 	•	 	in the case of affiliated directors, Wells Capital or its affiliates, the liability or loss was not the result of negligence or misconduct by the party seeking indemnification;	
 
 	•	 	in the case of independent directors, the liability or loss was not the result of gross negligence or willful misconduct by the party seeking indemnification; and	
 
 	•	 	the indemnification or agreement to hold harmless is recoverable only out of our net assets and not from the stockholders.	
 
We have agreed to indemnify and hold harmless Wells Capital and its affiliates performing services for us from specific claims and liabilities arising out of the performance of its obligations under the advisory agreement. As a result, we and our stockholders may be entitled to a more limited right of action than they would otherwise have if these indemnification rights were not included in the advisory agreement.
 
The general effect to investors of any arrangement under which any of our controlling persons, directors or officers are insured or indemnified against liability is a potential reduction in distributions resulting from our payment of premiums associated with insurance. In addition, indemnification could reduce the legal remedies available to the Wells REIT and our stockholders against the officers and directors.
 
The Securities and Exchange Commission takes the position that indemnification against liabilities arising under the Securities Act of 1933 is against public policy and unenforceable. Indemnification of our directors, officers, Wells Capital or its affiliates will not be allowed for liabilities arising from or out of a violation of state or federal securities laws, unless one or more of the following conditions are met:
 
 	•	 	there has been a successful adjudication on the merits of each count involving alleged securities law violations;	
 
 	•	 	such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction; or	
 
 	•	 	a court of competent jurisdiction approves a settlement of the claims against the indemnitee and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the Securities and Exchange Commission and of the published position of any state securities regulatory authority in which the securities were offered as to indemnification for violations of securities laws.	

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Indemnification will be allowed for settlements and related expenses of lawsuits alleging securities laws violations and for expenses incurred in successfully defending any lawsuits, provided that a court either:
 
 	•	 	approves the settlement and finds that indemnification of the settlement and related costs should be made; or	
 
 	•	 	dismisses with prejudice or there is a successful adjudication on the merits of each count involving alleged securities law violations as to the particular indemnitee and a court approves the indemnification.	
 
The Advisor
 
The advisor of the Wells REIT is Wells Capital. Wells Capital has contractual responsibilities to the Wells REIT and its stockholders pursuant to the advisory agreement. Some of our officers and directors are also officers and directors of Wells Capital. (See “Conflicts of Interest.”)
 
The directors and executive officers of Wells Capital are as follows:
 
Name

	  	Age

	  	Positions

	
Leo F. Wells, III	  	58	  	President, Treasurer and sole director	
Douglas P. Williams	  	51	  	Senior Vice President and Assistant Secretary	
Stephen G. Franklin	  	54	  	Senior Vice President	
Kim R. Comer	  	48	  	Vice President	
Claire C. Janssen	  	39	  	Vice President	
David H. Steinwedell	  	42	  	Vice President	
 
The backgrounds of Messrs. Wells and Williams are described in the “Management—Executive Officers and Directors” section of this prospectus. Below is a brief description of the other executive officers of Wells Capital.
 
Stephen G. Franklin, Ph.D. is a Senior Vice President of Wells Capital. Mr. Franklin is responsible for marketing, sales and coordination of broker-dealer relations. Mr. Franklin also serves as Vice President of Wells Real Estate Funds, Inc. Prior to joining Wells Capital in 1999, Mr. Franklin served as President of Global Access Learning, an international executive education and management development firm. From 1997 to 1999, Mr. Franklin served as President, Chief Academic Officer and Director of EduTrek International, a publicly traded provider of international post-secondary education that owns the American InterContinental University, with campuses in Atlanta, Ft. Lauderdale, Los Angeles, Washington, D.C., London and Dubai. While at EduTrek, he was instrumental in developing the Masters and Bachelors of Information Technology, International MBA and Adult Evening BBA programs. Prior to joining EduTrek, Mr. Franklin was Associate Dean of the Goizueta Business School at Emory University and a former tenured Associate Professor of Business Administration. He served on the founding Executive MBA faculty, and has taught graduate, undergraduate and executive courses in management and organizational behavior, human resources management and entrepreneurship. He is also co-founder and Director of the Center for Healthcare Leadership in the Emory University School of Medicine. Mr. Franklin was a frequent guest lecturer at universities throughout North America, Europe and South Africa.
 
In 1984, Mr. Franklin took a sabbatical from Emory University and became Executive Vice President and a principal stockholder of Financial Service Corporation (FSC), an independent financial planning broker-dealer. Mr. Franklin and the other stockholders of FSC later sold their interests in FSC to Mutual of New York Life Insurance Company.
 
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Kim R. Comer is a Vice President of Wells Capital. He is primarily responsible for developing, implementing and monitoring initiatives to further the strategic objectives of Wells Capital. He rejoined Wells Capital as National Vice President of Marketing in April 1997 after working for Wells Capital in similar capacities from January 1992 through September 1995. In prior positions with Wells Capital, he served as both Vice President and Director of Customer Care Services and Vice President of Marketing for the southeast and northeast regions. Mr. Comer has over 10 years experience in the securities industry and is a registered representative and financial principal with the NASD. Additionally, he has substantial financial experience including experience as controller and chief financial officer of two regional broker-dealers. In 1976, Mr. Comer graduated with honors from Georgia State University with a BBA degree in accounting.
 
Claire C. Janssen is a Vice President of Wells Capital. She is primarily responsible for managing the corporate, real estate, investment and investor accounting areas of the company. Ms. Janssen also serves as a Vice President of Wells Management Company, Inc., our Property Manager. Prior to joining Wells Capital in 2001, Ms. Janssen served as a Vice President of Lend Lease Real Estate (formerly, Equitable Real Estate). From 1990 to 2000, she held various management positions, including Vice President of Institutional Accounting, Vice President of Business/Credit Analysis and Director of Tax/Corporate Accounting. From 1985 to 1990, Ms. Janssen served in management positions for Beers and Cutler, a Washington, D.C. based accounting firm, where she provided both audit and tax services for clients.
 
Ms. Janssen received a B.S. in business administration with a major in accounting from George Mason University. She is a Certified Public Accountant and a member of American Institute of Certified Public Accountants, Georgia Society of Certified Public Accountants and National Association of Real Estate Companies.
 
David H. Steinwedell is a Vice President of Wells Capital. He is primarily responsible for the acquisition of real estate properties. Prior to joining Wells Capital in 2001, Mr. Steinwedell served as a principal in Steinwedell and Associates, a capital markets advisory firm specializing in transactions and strategic planning for commercial real estate firms. His background also includes experience as the Executive Vice President of Investment Banking at Jones Lang LaSalle and as Managing Director for Real Estate Investments at Aetna Life and Casualty. He graduated from Hamilton College with a B.S. in Economics. Mr. Steinwedell is a licensed real estate broker in Georgia and is a member of the Urban Land Institute and NAIOP.
 
Wells Capital employs personnel, in addition to the directors and executive officers listed above, who have extensive experience in selecting and managing commercial properties similar to the properties sought to be acquired by the Wells REIT.
 
The Advisory Agreement
 
Many of the services to be performed by Wells Capital in managing our day-to-day activities are summarized below. This summary is provided to illustrate the material functions which Wells Capital will perform for us as our advisor, and it is not intended to include all of the services which may be provided to us by Wells Capital or by third parties. Under the terms of the advisory agreement, Wells Capital undertakes to use its best efforts to present to us investment opportunities consistent with our investment policies and objectives as adopted by our board of directors. In its performance of this undertaking, Wells Capital, either directly or indirectly by engaging an affiliate, shall, subject to the authority of the board:
 
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 	•	 	find, present and recommend to us real estate investment opportunities consistent with our investment policies and objectives;	
 
 	•	 	structure the terms and conditions of transactions pursuant to which acquisitions of properties will be made;	
 
 	•	 	acquire properties on our behalf in compliance with our investment objectives and policies;	
 
 	•	 	arrange for financing and refinancing of properties; and	
 
 	•	 	enter into leases and service contracts for the properties acquired.	
 
The term of the current advisory agreement ends on January 30, 2003 and may be renewed for an unlimited number of successive one-year periods. Additionally, the advisory agreement may be terminated:
 
 	•	 	immediately by us for “cause” or upon the bankruptcy of Wells Capital or a material breach of the advisory agreement by Wells Capital;	
 
 	•	 	without cause by a majority of the independent directors of the Wells REIT or a majority of the directors of Wells Capital upon 60 days’ written notice; or	
 
 	•	 	immediately with “good reason” by Wells Capital.	
 
“Good reason” is defined in the advisory agreement to mean either:
 
 	•	 	any failure by us to obtain a satisfactory agreement from our successor to assume and agree to perform our obligations under the advisory agreement; or	
 
 	•	 	any material breach of the advisory agreement of any nature whatsoever by us.	
 
“Cause” is defined in the advisory agreement to mean fraud, criminal conduct, willful misconduct or willful or negligent breach of fiduciary duty by Wells Capital or a breach of the advisory agreement by Wells Capital.
 
Wells Capital and its affiliates expect to engage in other business ventures and, as a result, their resources will not be dedicated exclusively to our business. However, pursuant to the advisory agreement, Wells Capital must devote sufficient resources to the administration of the Wells REIT to discharge its obligations. Wells Capital may assign the advisory agreement to an affiliate upon approval of a majority of the independent directors. We may assign or transfer the advisory agreement to a successor entity.
 
Wells Capital may not make any acquisition of property or financing of such acquisition on our behalf without the prior approval of a majority of our board of directors. The actual terms and conditions of transactions involving investments in properties shall be determined in the sole discretion of Wells Capital, subject at all times to such board approval.
 
We will reimburse Wells Capital for all of the costs it incurs in connection with the services it provides to us, including, but not limited to:
 
 	•	 	organization and offering expenses in an amount up to 3.0% of gross offering proceeds, which include actual legal, accounting, printing and expenses attributable to preparing the SEC registration statement, qualification of the shares for sale in the states and filing fees incurred by Wells Capital, as well as reimbursements for marketing, salaries and	

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direct expenses of its employees while engaged in registering and marketing the shares and other marketing and organization costs, other than selling commissions and the dealer manager fee;
 
 	•	 	the annual cost of goods and materials used by us and obtained from entities not affiliated with Wells Capital, including brokerage fees paid in connection with the purchase and sale of securities;	
 
 	•	 	administrative services including personnel costs, provided, however, that no reimbursement shall be made for costs of personnel to the extent that personnel are used in transactions for which Wells Capital receives a separate fee; and	
 
 	•	 	acquisition expenses, which are defined to include expenses related to the selection and acquisition of properties.	
 
Wells Capital must reimburse us at least annually for amounts paid to Wells Capital in any year to the extent that such payments cause our operating expenses to exceed the greater of (1) 2% of our average invested assets, which consists of the average book value of our real estate properties, both equity interests in and loans secured by real estate, before reserves for depreciation or bad debts or other similar non-cash reserves, or (2) 25% of our net income, which is defined as our total revenues less total operating expenses for any given period. Operating expenses includes all expenses paid or incurred by the Wells REIT as determined by generally accepted accounting principles, such as (1) real estate operating costs, net of reimbursements, (2) management and leasing fees, (3) general and administrative expenses, and (4) legal and accounting expenses, but excludes (A) expenses of raising capital such as organizational and offering expenses, (B) interest payments, (C) taxes, (D) non-cash expenditures such as depreciation, amortization and bad debt reserves, and (E) amounts payable out of capital contributions which are not treated as operating expenses under generally accepted accounting principles such as the acquisition and advisory fees payable to Wells Capital. To the extent that operating expenses payable or reimbursable by us exceed this limit and the independent directors determine that the excess expenses were justified based on unusual and nonrecurring factors which they deem sufficient, Wells Capital may be reimbursed in future years for the full amount of the excess expenses, or any portion thereof, but only to the extent the reimbursement would not cause our operating expenses to exceed the limitation in any year. Within 60 days after the end of any of our fiscal quarters for which total operating expenses for the 12 months then ended exceed the limitation, there shall be sent to the stockholders a written disclosure, together with an explanation of the factors the independent directors considered in arriving at the conclusion that the excess expenses were justified.
 
Wells Capital and its affiliates will be paid fees in connection with services provided to us. (See “Management Compensation.”) In the event the advisory agreement is terminated, Wells Capital will be paid all accrued and unpaid fees and expense reimbursements, and any subordinated acquisition fees earned prior to the termination. We will not reimburse Wells Capital or its affiliates for services for which Wells Capital or its affiliates are entitled to compensation in the form of a separate fee.
 
Shareholdings
 
Wells Capital currently owns 20,000 limited partnership units of Wells OP, our operating partnership, for which it contributed $200,000 and which constitutes 100% of the limited partner units outstanding at this time. Wells Capital may not sell any of these units during the period it serves as our advisor. Any resale of shares that Wells Capital or its affiliates may acquire in the future will be subject to the provisions of Rule 144 promulgated under the Securities Act of 1933, which rule limits the number of shares that may be sold at any one time and the manner of such resale. Although Wells Capital and its affiliates are not prohibited from acquiring shares of the Wells REIT, Wells Capital currently has no
 
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options or warrants to acquire any shares and has no current plans to acquire shares. Wells Capital has agreed to abstain from voting any shares it acquires in any vote for the election of directors or any vote regarding the approval or termination of any contract with Wells Capital or any of its affiliates.
 
Affiliated Companies
 
Property Manager
 
Our properties will be managed and leased initially by Wells Management Company, Inc. (Wells Management), our Property Manager. Wells Management is a wholly owned subsidiary of Wells Real Estate Funds, Inc., and Mr. Wells is the sole director of Wells Management. (See “Conflicts of Interest.”) The principal officers of Wells Management are as follows:
 
Name

	  	Age

	  	Positions

	
Leo F. Wells, III	  	58	  	President and Treasurer	
M. Scott Meadows	  	38	  	Senior Vice President and Secretary	
John G. Oliver	  	53	  	Vice President	
Michael L. Watson	  	59	  	Vice President	
 
The background of Mr. Wells is described in the “Management—Executive Officers and Directors” section of this prospectus. Below is a brief description of the other executive officers of Wells Management.
 
M. Scott Meadows is a Senior Vice President and Secretary of Wells Management. He is primarily responsible for the acquisition, operation, management and disposition of real estate investments. Prior to joining Wells Management in 1996, Mr. Meadows served as Senior Property Manager for The Griffin Company, a full-service commercial real estate firm in Atlanta, where he was responsible for managing a 500,000 square foot office and retail portfolio. Mr. Meadows previously managed real estate as a Property Manager for Sea Pines Plantation Company. He graduated from University of Georgia with a B.B.A. in management. Mr. Meadows is a Georgia real estate broker and holds a Real Property Administrator (RPA) designation from the Building Owners and Managers Institute International and a Certified Property Manager (CPM) designation from the Institute of Real Estate Management.
 
John G. Oliver is a Vice President of Wells Management. He is primarily responsible for operation and management of real estate properties. Prior to joining Wells Management in July 2000, Mr. Oliver served as Vice President with C.B. Richard Ellis where he was responsible for the management of properties occupied by Delta Airlines. Mr. Oliver previously was the Vice President of Property Management for Grubb and Ellis for their southeast region and served on their Executive Property Management Council. He graduated from Georgia State University with a B.S. in real estate. Mr. Oliver is a past President of the Atlanta chapter of BOMA (Building Owners and Managers Association) and holds a Certified Property Manager (CPM) designation from the Institute of Real Estate Management.
 
Michael L. Watson is a Vice President of Wells Management. He is primarily responsible for performing due diligence investigations on our properties and overseeing construction and tenant improvement projects including design, engineering, and progress-monitoring functions. Prior to joining Wells Management in 1995, Mr. Watson was Senior Project Manager with Abrams Construction in Atlanta from 1982 to 1995. His primary responsibilities included supervising a variety of projects consisting of high-rise office buildings, military bases, state projects and neighborhood shopping centers. He graduated from the University of Miami with a B.S. in civil engineering.
 
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Wells Management is engaged in the business of real estate management. It was organized and commenced active operations in 1983 to lease and manage real estate projects that Wells Capital and its affiliates operate or in which they own an interest. As of June 30, 2002, Wells Management was managing in excess of 8,800,000 square feet of office and industrial buildings and shopping centers. We will pay Wells Management property management and leasing fees not exceeding the lesser of: (A) 4.5% of gross revenues, or (B) 0.6% of the net asset value of the properties (excluding vacant properties) owned by the Wells REIT, calculated on an annual basis. For purposes of this calculation, net asset value shall be defined as the excess of (1) the aggregate of the fair market value of all properties owned by the Wells REIT (excluding vacant properties), over (2) the aggregate outstanding debt of the Wells REIT (excluding debts having maturities of one year or less). In addition, we may pay Wells Management a separate fee for the one-time initial rent-up or leasing-up of newly constructed properties in an amount not to exceed the fee customarily charged in arm’s length transactions by others rendering similar services in the same geographic area for similar properties as determined by a survey of brokers and agents in such area (customarily equal to the first month’s rent). Wells Management will also retain third-party property managers or subcontract manager services to third-party property managers as it deems appropriate for certain of our properties.
 
In the event that Wells Management assists a tenant with tenant improvements, a separate fee may be charged to the tenant and paid by the tenant. This fee will not exceed 5.0% of the cost of the tenant improvements.
 
Wells Management will hire, direct and establish policies for employees who will have direct responsibility for each property’s operations, including resident managers and assistant managers, as well as building and maintenance personnel. Some or all of the other employees may be employed on a part-time basis and may also be employed by one or more of the following:
 
 	•	 	Wells Capital;	
 
 	•	 	Wells Management;	
 
 	•	 	partnerships organized by Wells Management and its affiliates; and	
 
 	•	 	other persons or entities owning properties managed by Wells Management.	
 
Wells Management will direct the purchase of equipment and supplies and will supervise all maintenance activity.
 
The management fees to be paid to Wells Management will cover, without additional expense to the Wells REIT, the property manager’s general overhead costs such as its expenses for rent and utilities.
 
The principal office of Wells Management is located at 6200 The Corners Parkway, Suite 250, Atlanta, Georgia 30092.
 
Dealer Manager
 
Wells Investment Securities, Inc. (Wells Investment Securities), our Dealer Manager, is a member firm of the NASD, Inc. (NASD). Wells Investment Securities was organized in May 1984 for the purpose of participating in and facilitating the distribution of securities of Wells programs.
 
Wells Investment Securities will provide certain wholesaling, sales promotional and marketing assistance services to the Wells REIT in connection with the distribution of the shares offered pursuant to this prospectus. It may also sell shares at the retail level. (See “Plan of Distribution” and “Management Compensation.”)
 
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Wells Real Estate Funds, Inc. is the sole stockholder and Mr. Wells is the President, Treasurer and sole director of Wells Investment Securities. (See “Conflicts of Interest.”)
 
IRA Custodian
 
Wells Advisors, Inc. (Wells Advisors) was organized in 1991 for the purpose of acting as a non-bank custodian for IRAs investing in the securities of Wells real estate programs. Wells Advisors currently charges no fees for such services. Wells Advisors was approved by the Internal Revenue Service to act as a qualified non-bank custodian for IRAs on March 20, 1992. In circumstances where Wells Advisors acts as an IRA custodian, the authority of Wells Advisors is limited to holding limited partnership units or REIT shares on behalf of the beneficiary of the IRA and making distributions or reinvestments in such units or shares solely at the direction of the beneficiary of the IRA. Well Advisors is not authorized to vote any of such units or shares held in any IRA except in accordance with the written instructions of the beneficiary of the IRA. Mr. Wells is the President and sole director and owns 50% of the common stock and all of the preferred stock of Wells Advisors. As of June 30, 2002, Wells Advisors was acting as the IRA custodian for in excess of $373,442,000 in Wells real estate program investments.
 
Management Decisions
 
The primary responsibility for the management decisions of Wells Capital and its affiliates, including the selection of investment properties to be recommended to our board of directors, the negotiation for these investments, and the property management and leasing of these investment properties, will reside in Leo F. Wells, III, Douglas P. Williams, M. Scott Meadows, David H. Steinwedell and John G. Oliver. Wells Capital seeks to invest in commercial properties that satisfy our investment objectives, typically office and industrial buildings located in densely populated metropolitan markets in which the major tenant is a company with a net worth of in excess of $100,000,000. Our board of directors must approve all acquisitions of real estate properties.
 
MANAGEMENT COMPENSATION
 
The following table summarizes and discloses all of the compensation and fees, including reimbursement of expenses, to be paid by the Wells REIT to Wells Capital and its affiliates.
 
Form of
Compensation and
Entity Receiving

	  	Determination
of Amount

	  	Estimated Maximum
Dollar Amount(1)

	
 	 	 	
 	  	Organizational and Offering Stage	  	 	 	
 	 	 	
Selling Commissions
—Wells Investment
Securities	  	Up to 7.0% of gross offering proceeds before reallowance of commissions earned by participating broker-dealers. Wells Investment Securities, our Dealer Manager, intends to reallow 100% of commissions earned for those transactions that involve participating broker-dealers.	  	$	231,000,000	
 	 	 	
Dealer Manager Fee
—Wells Investment
Securities	  	Up to 2.5% of gross offering proceeds before reallowance to participating broker-dealers. Wells Investment Securities, in its sole discretion, may reallow a portion of its dealer manager fee of up to 1.5% of the gross offering proceeds to be paid to such participating broker-dealers.	  	$	82,500,000	
 
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Form of
Compensation and
Entity Receiving

	  	Determination
of Amount

	  	Estimated Maximum
Dollar Amount(1)

	
Reimbursement of Organization and Offering Expenses—Wells Capital or its Affiliates(2)	  	Up to 3.0% of gross offering proceeds. All organization and offering expenses (excluding selling commissions and the dealer manager fee) will be advanced by Wells Capital or its affiliates and reimbursed by the Wells REIT up to 3.0% of aggregate gross offering proceeds. We currently estimate that approximately $49,500,000 of organization and offering costs will be incurred if the maximum offering of 330,000,000 shares is sold.	  	$
 	  49,500,000
(estimated)	
 	 	 	
 	  	Acquisition and Development Stage	  	 	 	
 	 	 	
Acquisition and Advisory Fees—Wells Capital or its Affiliates(3)	  	Up to 3.0% of gross offering proceeds for the review and evaluation of potential real property acquisitions.	  	$	99,000,000	
 	 	 	
Reimbursement of
Acquisition Expenses—Wells Capital or its Affiliates(3)	  	Up to 0.5% of gross offering proceeds for reimbursement of expenses related to real property acquisitions, such as legal fees, travel expenses, property appraisals, title insurance premium expenses and other closing costs.	  	$	16,500,000	
 	 	 	
 	  	Operational Stage	  	 	 	
 	 	 	
Property Management and Leasing Fees—Wells Management	  	For the management and leasing of our properties, we will pay Wells Management, our Property Manager, property management and leasing fees of up to 4.5% of gross revenues; provided, however, that aggregate property management and leasing fees payable to Wells Management may not exceed the lesser of: (A) 4.5% of gross revenues; or (B) 0.6% of the net asset value of the properties (excluding vacant properties) owned by the Wells REIT, calculated on an annual basis. For purposes of this calculation, net asset value shall be defined as the excess of (1) the aggregate of the fair market value of all properties owned by the Wells REIT (excluding vacant properties), over (2) the aggregate outstanding debt of the Wells REIT (excluding debts having maturities of one year or less). In addition, we may pay Wells Management a separate fee for the one-time initial rent-up or leasing-up of newly constructed properties in an amount not to exceed the fee customarily charged in arm’s length transactions by others rendering similar services in the same geographic area for similar properties as determined by a survey of brokers and agents in such area (customarily equal to the first month’s rent).	  	 

 

 

 	Actual
amounts are
dependent
upon results
of operations
and therefore
cannot be
determined at
the present
time.	
 
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Form of
Compensation and
Entity Receiving

	  	Determination
of Amount

	  	Estimated Maximum
Dollar Amount(1)

	
Real Estate Commissions—
Wells Capital or its Affiliates	  	In connection with the sale of properties, an amount not exceeding the lesser of: (A) 50% of the reasonable, customary and competitive real estate brokerage commissions customarily paid for the sale of a comparable property in light of the size, type and location of the property; or (B) 3.0% of the contract price of each property sold, subordinated to distributions to investors from sale proceeds of an amount which, together with prior distributions to the investors, will equal (1) 100% of their capital contributions, plus (2) an 8.0% annual cumulative, noncompounded return on their net capital contributions; provided however, in no event will the amounts paid under (A) or (B) exceed an amount equal to 6.0% of the contract sales price when combined with real estate commissions paid to unaffiliated third parties.	  	Actual amounts are
dependent upon
results of
operations and
therefore cannot be
determined at the
present time.	
 	 	 	
Subordinated Participation in Net Sale Proceeds—
Wells Capital(4)	  	After investors have received a return of their net capital contributions and an 8.0% per year cumulative, noncompounded return, then Wells Capital is entitled to receive 10.0% of remaining net sale proceeds.	  	Actual amounts are
dependent upon
results of
operations and
therefore cannot be
determined at the
present time.	
 	 	 	
Subordinated Incentive Listing Fee—
Wells Capital(5)(6)	  	Upon listing, a fee equal to 10.0% of the amount by which (1) the market value of the outstanding stock of the Wells REIT plus distributions paid by the Wells REIT prior to listing, exceeds (2) the sum of the total amount of capital raised from investors and the amount of cash flow necessary to generate an 8.0% per year cumulative, noncompounded return to investors.	  	Actual amounts are
dependent upon
results of
operations and
therefore cannot be
determined at the
present time.	
 	 	 	
 	  	The Wells REIT may not reimburse any entity for operating expenses in excess of the greater of 2% of our average invested assets or 25% of our net income for the year.	  	 	

(Footnotes to “Management Compensation”)
 
(1)	 	The estimated maximum dollar amounts are based on the sale of a maximum of 300,000,000 shares to the public at $10 per share and the sale of 30,000,000 shares at $10 per share pursuant to our dividend reinvestment plan.	
(2)	 	These reimbursements will include organization and offering expenses previously advanced by Wells Capital with regards to prior offerings of our shares, to the extent not reimbursed out of proceeds from prior offerings, and subject for the 3.0% of gross offering proceeds overall limitation.	
(3)	 	Notwithstanding the method by which we calculate the payment of acquisition fees and expenses, as described in the table, the total of all such acquisition fees and acquisition expenses shall not exceed, in the aggregate, an amount equal to 6.0% of the contract price of all of the properties which we will purchase, as required by the NASAA Guidelines.	
(4)	 	The subordinated participation in net sale proceeds and the subordinated incentive listing fee to be received by Wells Capital are mutually exclusive of each other. In the event that the Wells REIT becomes listed and Wells Capital receives the subordinated incentive listing fee prior to its	
 
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receipt of the subordinated participation in net sale proceeds, Wells Capital shall not be entitled to any such participation in net sale proceeds.
(5)	 	If at any time the shares become listed on a national securities exchange or included for quotation on NASDAQ, we will negotiate in good faith with Wells Capital a fee structure appropriate for an entity with a perpetual life. A majority of the independent directors must approve the new fee structure negotiated with Wells Capital. In negotiating a new fee structure, the independent directors shall consider all of the factors they deem relevant, including but not limited to:	
 
 	•	 	the size of the advisory fee in relation to the size, composition and profitability of our portfolio;	
 
 	•	 	the success of Wells Capital in generating opportunities that meet our investment objectives;	
 
 	•	 	the rates charged to other REITs and to investors other than REITs by advisors performing similar services;	
 
 	•	 	additional revenues realized by Wells Capital through their relationship with us;	
 
 	•	 	the quality and extent of service and advice furnished by Wells Capital;	
 
 	•	 	the performance of our investment portfolio, including income, conservation or appreciation of capital, frequency of problem investments and competence in dealing with distress situations; and	
 
 	•	 	the quality of our portfolio in relationship to the investments generated by Wells Capital for the account of other clients.	
 
Our board of directors, including a majority of the independent directors, may not approve a new fee structure that is, in its judgment, more favorable to Wells Capital than the current fee structure.
 
(6)	 	The market value of the outstanding stock of the Wells REIT will be calculated based on the average market value of the shares issued and outstanding at listing over the 30 trading days beginning 180 days after the shares are first listed on a stock exchange.	
 
We have the option to pay the listing fee in the form of stock, cash, a promissory note or any combination thereof. In the event the subordinated incentive listing fee is paid to Wells Capital as a result of the listing of the shares, we will not be required to pay Wells Capital any further subordinated participation in net sale proceeds.
 
In addition, Wells Capital and its affiliates will be reimbursed only for the actual cost of goods, services and materials used for or by the Wells REIT. Wells Capital may be reimbursed for the administrative services necessary to the prudent operation of the Wells REIT provided that the reimbursement shall not be for services for which it is entitled to compensation by way of a separate fee.
 
Since Wells Capital and its affiliates are entitled to differing levels of compensation for undertaking different transactions on behalf of the Wells REIT such as the property management fees for operating the properties and the subordinated participation in net sale proceeds, Wells Capital has the ability to affect the nature of the compensation it receives by undertaking different transactions. However, Wells Capital is obligated to exercise good faith and integrity in all its dealings with respect to our affairs pursuant to the advisory agreement. (See “Management—The Advisory Agreement.”) Because these fees or expenses are payable only with respect to certain transactions or services, they may not be recovered by Wells Capital or its affiliates by reclassifying them under a different category.
 
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STOCK OWNERSHIP
 
The following table shows, as of June 30, 2002, the amount of our common stock beneficially owned (unless otherwise indicated) by (1) any person who is known by us to be the beneficial owner of more than 5% of the outstanding shares of our common stock, (2) our directors, (3) our executive officers, and (4) all of our directors and executive officers as a group.
 
 	  	    Shares Beneficially Owned

	
Name and Address of Beneficial Owner

	  	Shares

	  	Percentage

	
Leo F. Wells, III	  	698	  	*	
6200 The Corners Parkway, Suite 250
Atlanta, GA 30092	  	 	  	 	
Douglas P. Williams	  	None	  	N/A	
6200 The Corners Parkway, Suite 250
Atlanta, GA 30092	  	 	  	 	
John L. Bell(1)	  	3,000	  	*	
800 Mt. Vernon Highway, Suite 230
Atlanta, GA 30328	  	 	  	 	
Michael R. Buchanan	  	None	  	N/A	
1630 Misty Oaks Drive
Atlanta, GA 30350	  	 	  	 	
Richard W. Carpenter(1)	  	3,000	  	*	
Realmark Holdings Corporation
P.O. Box 421669 (30342)
5570 Glenridge Drive
Atlanta, GA 30342	  	 	  	 	
Bud Carter(1)	  	8,373	  	*	
The Executive Committee
100 Mount Shasta Lane
Alpharetta, GA 30022-5440	  	 	  	 	
William H. Keogler, Jr.(1)	  	3,000	  	*	
469 Atlanta Country Club Drive
Marietta, GA 30067	  	 	  	 	
Donald S. Moss(1)	  	80,717	  	*	
114 Summerour Vale
Duluth, GA 30097	  	 	  	 	
Walter W. Sessoms(1)	  	40,243	  	*	
5995 River Chase Circle NW
Atlanta, GA 30328	  	 	  	 	
Neil H. Strickland(1)	  	3,285	  	*	
Strickland General Agency, Inc.
3109 Crossing Park
P.O. Box 129
Norcross, GA 30091	  	 	  	 	
All directors and executive officers as a group(2)	  	142,316	  	*	

*	 	Less than 1% of the outstanding common stock.	
(1)	 	Includes options to purchase up to 3,000 shares of common stock, which are exercisable within 60 days of June 30, 2002.	
(2)	 	Includes options to purchase an aggregate of up to 21,000 shares of common stock, which are exercisable within 60 days of June 30, 2002.	
 
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CONFLICTS OF INTEREST
 
We are subject to various conflicts of interest arising out of our relationship with Wells Capital, our advisor, and its affiliates, including conflicts related to the arrangements pursuant to which Wells Capital and its affiliates will be compensated by the Wells REIT. (See “Management Compensation.”)
 
The independent directors have an obligation to function on our behalf in all situations in which a conflict of interest may arise and have a statutory obligation to act in the best interest of the stockholders. (See “Management—Limited Liability and Indemnification of Directors, Officers, Employees and Other Agents.”) These conflicts include, but are not limited to, the following:
 
Interests in Other Real Estate Programs
 
Wells Capital and its affiliates are general partners of other Wells programs, including partnerships which have investment objectives similar to those of the Wells REIT, and we expect that they will organize other such partnerships and programs in the future. Wells Capital and such affiliates have legal and financial obligations with respect to these partnerships that are similar to their obligations to the Wells REIT. As general partners, they may have contingent liability for the obligations of such partnerships as well as those of the Wells REIT that, if such obligations were enforced against them, could result in substantial reduction of their net worth.
 
Wells Capital and its affiliates are currently sponsoring a real estate program known as Wells Real Estate Fund XIII, L.P. (Wells Fund XIII). The registration statement of Wells Fund XIII was declared effective by the Securities and Exchange Commission (SEC) on March 29, 2001 for the offer and sale to the public of up to 4,500,000 units of limited partnership interest at a price of $10.00 per unit.
 
As described in the “Prior Performance Summary,” Wells Capital and its affiliates have sponsored the following 14 public real estate programs with substantially identical investment objectives as those of the Wells REIT:
 
  1.  Wells Real Estate Fund I (Wells Fund I),
 
  2.  Wells Real Estate Fund II (Wells Fund II),
 
  3.  Wells Real Estate Fund II-OW (Wells Fund II-OW),
 
  4.  Wells Real Estate Fund III, L.P. (Wells Fund III),
 
  5.  Wells Real Estate Fund IV, L.P. (Wells Fund IV),
 
  6.  Wells Real Estate Fund V, L.P. (Wells Fund V),
 
  7.  Wells Real Estate Fund VI, L.P. (Wells Fund VI),
 
  8.  Wells Real Estate Fund VII, L.P. (Wells Fund VII),
 
  9.  Wells Real Estate Fund VIII, L.P. (Wells Fund VIII),
 
10.  Wells Real Estate Fund IX, L.P. (Wells Fund IX),
 
11.  Wells Real Estate Fund X, L.P. (Wells Fund X),
 
12.  Wells Real Estate Fund XI, L.P. (Wells Fund XI),
 
13.  Wells Real Estate Fund XII, L.P. (Wells Fund XII), and
 
14.  Wells Real Estate Fund XIII, L.P. (Wells Fund XIII).
 
In the event that the Wells REIT, or any other Wells program or other entity formed or managed by Wells Capital or its affiliates is in the market for similar properties, Wells Capital will review the investment portfolio of each such affiliated entity prior to making a decision as to which Wells program will purchase such properties. (See “Certain Conflict Resolution Procedures.”)
 
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Wells Capital or one of its affiliates may acquire, for its own account or for private placement, properties which it deems not suitable for purchase by the Wells REIT, whether because of the greater degree of risk, the complexity of structuring inherent in such transactions, financing considerations or for other reasons, including properties with potential for attractive investment returns.
 
Other Activities of Wells Capital and its Affiliates
 
We rely on Wells Capital for the day-to-day operation of our business. As a result of its interests in other Wells programs and the fact that it has also engaged and will continue to engage in other business activities, Wells Capital and its affiliates will have conflicts of interest in allocating their time between the Wells REIT and other Wells programs and activities in which they are involved. (See “Risk Factors—Investment Risks.”) However, Wells Capital believes that it and its affiliates have sufficient personnel to discharge fully their responsibilities to all of the Wells programs and ventures in which they are involved.
 
In addition, certain of our executive officers and directors are also officers and directors of Wells Capital, our advisor and the general partner of the various real estate programs sponsored by Wells Capital and its affiliates described above, Wells Management, our Property Manager, and Wells Investment Securities, our Dealer Manager, and as such, owe fiduciary duties to these various entities and their stockholders and limited partners. Such fiduciary duties may from time to time conflict with the fiduciary duties owed to the Wells REIT and its stockholders. (See “Risk Factors—Investment Risks.”)
 
In addition to the real estate programs sponsored by Wells Capital and its affiliates described above, Wells Capital and its affiliates are also sponsoring an index mutual fund that invests in various REIT stocks known as the Wells S&P REIT Index Fund (REIT Index Fund). The REIT Index Fund is a mutual fund which seeks to provide investment results corresponding to the performance of the S&P REIT Index by investing in the REIT stocks included in the S&P REIT Index.
 
We may purchase or lease a property from Wells Capital or its affiliates upon a finding by a majority of our board of directors, including a majority of the independent directors, not otherwise interested in the transaction, that such transaction is competitive and commercially reasonable to the Wells REIT and at a price no greater than the cost of the property; provided, however, if the price is in excess of the cost of such property, that substantial justification for such excess exists and such excess is reasonable and the acquisition is disclosed. In no event may the Wells REIT:
 
 	•	 	loan funds to Wells Capital or any of its affiliates; or	
 
 	•	 	enter into agreements with Wells Capital or its affiliates for the provision of insurance covering the Wells REIT or any of our properties.	
 
Competition
 
Conflicts of interest will exist to the extent that we may acquire properties in the same geographic areas where other Wells programs own properties. In such a case, a conflict could arise in the leasing of properties in the event that the Wells REIT and another Wells program were to compete for the same tenants in negotiating leases, or a conflict could arise in connection with the resale of properties in the event that the Wells REIT and another Wells program were to attempt to sell similar properties at the same time. (See “Risk Factors—Investment Risks”). Conflicts of interest may also exist at such time as the Wells REIT or our affiliates managing property on our behalf seek to employ developers, contractors or building managers as well as under other circumstances. Wells Capital will seek to reduce conflicts relating to the employment of developers, contractors or building managers by making prospective employees aware of all such properties seeking to employ such persons. In addition, Wells Capital will seek to reduce conflicts which may arise with respect to properties available for sale or rent by making
 
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prospective purchasers or tenants aware of all such properties. However, these conflicts cannot be fully avoided in that Wells Capital may establish differing compensation arrangements for employees at different properties or differing terms for resales or leasing of the various properties.
 
Affiliated Dealer Manager
 
Since Wells Investment Securities, our Dealer Manager, is an affiliate of Wells Capital, we will not have the benefit of an independent due diligence review and investigation of the type normally performed by an unaffiliated, independent underwriter in connection with the offering of securities. (See “Plan of Distribution.”)
 
Affiliated Property Manager
 
Since we anticipate that properties we acquire will be managed and leased by Wells Management, our Property Manager, we will not have the benefit of independent property management. (See “Management—Affiliated Companies.”)
 
Lack of Separate Representation
 
Holland & Knight LLP is counsel to the Wells REIT, Wells Capital, Wells Investment Securities and their affiliates in connection with this offering and may in the future act as counsel to the Wells REIT, Wells Capital, Wells Investment Securities and their various affiliates. There is a possibility that in the future the interests of the various parties may become adverse. In the event that a dispute were to arise between the Wells REIT and Wells Capital, Wells Investment Securities or any of their affiliates, separate counsel for such matters will be retained as and when appropriate.
 
Joint Ventures with Affiliates of Wells Capital
 
We have entered into joint ventures with other Wells programs to acquire and own properties and are likely to enter into one or more joint venture agreements with other Wells programs for the acquisition, development or improvement of properties. (See “Investment Objectives and Criteria—Joint Venture Investments.”) Wells Capital and its affiliates may have conflicts of interest in determining which Wells program should enter into any particular joint venture agreement. The co-venturer may have economic or business interests or goals which are or which may become inconsistent with our business interests or goals. In addition, should any such joint venture be consummated, Wells Capital may face a conflict in structuring the terms of the relationship between our interests and the interest of the affiliated co-venturer and in managing the joint venture. Since Wells Capital and its affiliates will control both the affiliated co-venturer and, to a certain extent, the Wells REIT, agreements and transactions between the co-venturers with respect to any such joint venture will not have the benefit of arm’s-length negotiation of the type normally conducted between unrelated co-venturers. (See “Risk Factors—Investment Risks.”)
 
Receipt of Fees and Other Compensation by Wells Capital and its Affiliates
 
A transaction involving the purchase and sale of properties may result in the receipt of commissions, fees and other compensation by Wells Capital and its affiliates, including acquisition and advisory fees, the dealer manager fee, property management and leasing fees, real estate brokerage commissions, and participation in nonliquidating net sale proceeds. However, the fees and compensation payable to Wells Capital and its affiliates relating to the sale of properties are subordinated to the return to the stockholders of their capital contributions plus cumulative returns on such capital. Subject to oversight by our board of directors, Wells Capital has considerable discretion with respect to all decisions relating to the terms and timing of all transactions. Therefore, Wells Capital may have conflicts of
 
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interest concerning certain actions taken on our behalf, particularly due to the fact that such fees will generally be payable to Wells Capital and its affiliates regardless of the quality of the properties acquired or the services provided to the Wells REIT. (See “Management Compensation.”)
 
Every transaction we enter into with Wells Capital or its affiliates is subject to an inherent conflict of interest. The board may encounter conflicts of interest in enforcing our rights against any affiliate in the event of a default by or disagreement with an affiliate or in invoking powers, rights or options pursuant to any agreement between us and any affiliate. A majority of the independent directors who are otherwise disinterested in the transaction must approve each transaction between us and Wells Capital or any of its affiliates as being fair and reasonable to us and on terms and conditions no less favorable to us than those available from unaffiliated third parties.
 
Certain Conflict Resolution Procedures
 
In order to reduce or eliminate certain potential conflicts of interest, our articles of incorporation contain a number of restrictions relating to (1) transactions we enter into with Wells Capital and its affiliates, (2) certain future offerings, and (3) allocation of properties among affiliated entities. These restrictions include, among others, the following:
 
 	•	 	Except as otherwise described in this prospectus, we will not accept goods or services from Wells Capital or its affiliates unless a majority of our directors, including a majority of the independent directors, not otherwise interested in the transactions, approve such transactions as fair and reasonable to the Wells REIT and on terms and conditions not less favorable to the Wells REIT than those available from unaffiliated third parties.	
 
 	•	 	We will not purchase or lease properties in which Wells Capital or its affiliates has an interest without a determination by a majority of our directors, including a majority of the independent directors, not otherwise interested in such transaction, that such transaction is competitive and commercially reasonable to the Wells REIT and at a price to the Wells REIT no greater than the cost of the property to Wells Capital or its affiliates, unless there is substantial justification for any amount that exceeds such cost and such excess amount is determined to be reasonable. In no event will we acquire any such property at an amount in excess of its appraised value. We will not sell or lease properties to Wells Capital or its affiliates or to our directors unless a majority of our directors, including a majority of the independent directors, not otherwise interested in the transaction, determine the transaction is fair and reasonable to the Wells REIT.	
 
 	•	 	We will not make any loans to Wells Capital or its affiliates or to our directors. In addition, Wells Capital and its affiliates will not make loans to us or to joint ventures in which we are a joint venture partner for the purpose of acquiring properties. Any loans made to us by Wells Capital or its affiliates or our directors for other purposes must be approved by a majority of our directors, including a majority of the independent directors, not otherwise interested in the transaction, as fair, competitive and commercially reasonable, and no less favorable to the Wells REIT than comparable loans between unaffiliated parties. Wells Capital and its affiliates shall be entitled to reimbursement, at cost, for actual expenses incurred by them on behalf of the Wells REIT or joint ventures in which we are a joint venture partner, subject to the limitation on reimbursement of operating expenses to the extent that they exceed the greater of 2% of our average invested assets or 25% of our net income, as described in the “Management—The Advisory Agreement” section of this prospectus.	
 
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 	•	 	In the event that an investment opportunity becomes available which is suitable, under all of the factors considered by Wells Capital, for the Wells REIT and one or more other public or private entities affiliated with Wells Capital and its affiliates, then the entity which has had the longest period of time elapse since it was offered an investment opportunity will first be offered such investment opportunity. In determining whether or not an investment opportunity is suitable for more than one program, Wells Capital, subject to approval by our board of directors, shall examine, among others, the following factors:	
 
 	•	 	the cash requirements of each program;	
 
 	•	 	the effect of the acquisition both on diversification of each program’s investments by type of commercial property and geographic area, and on diversification of the tenants of its properties;	
 
 	•	 	the policy of each program relating to leverage of properties;	
 
 	•	 	the anticipated cash flow of each program;	
 
 	•	 	the income tax effects of the purchase of each program;	
 
 	•	 	the size of the investment; and	
 
 	•	 	the amount of funds available to each program and the length of time such funds have been available for investment.	
 
If a subsequent event or development, such as a delay in the closing of a property or a delay in the construction of a property, causes any such investment, in the opinion of our board of directors and Wells Capital, to be more appropriate for a program other than the program that committed to make the investment, Wells Capital may determine that another program affiliated with Wells Capital or its affiliates will make the investment. Our board of directors has a duty to ensure that the method used by Wells Capital for the allocation of the acquisition of properties by two or more affiliated programs seeking to acquire similar types of properties shall be reasonable.
 
INVESTMENT OBJECTIVES AND CRITERIA
 
General
 
We invest in commercial real estate properties, including properties that are under development or construction, are newly constructed or have been constructed and have operating histories. Our investment objectives are:
 
 	•	 	to maximize cash dividends paid to you;	
 
 	•	 	to preserve, protect and return your capital contributions;	
 
 	•	 	to realize growth in the value of our properties upon our ultimate sale of such properties; and	
 
 	•	 	to provide you with liquidity of your investment by listing the shares on a national exchange or, if we do not obtain listing of the shares by January 30, 2008, our articles of incorporation require us to begin the process of selling our properties and distributing the net proceeds from such sales to you.	
 
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We cannot assure you that we will attain these objectives or that our capital will not decrease. We may not change our investment objectives, except upon approval of stockholders holding a majority of our outstanding shares. (See “Description of Shares.”)
 
Decisions relating to the purchase or sale of properties will be made by Wells Capital, as our advisor, subject to approval by our board of directors. See “Management” for a description of the background and experience of our directors and executive officers.
 
Acquisition and Investment Policies
 
We will seek to invest substantially all of the offering proceeds available for investment after the payment of fees and expenses in the acquisition of high-grade commercial office and industrial buildings located in densely populated metropolitan markets, which are newly constructed, under construction, or which have been previously constructed and have operating histories. We are not limited to such investments, however. We may invest in other real estate investments, including, but not limited to, warehouse and distribution facilities, shopping centers, business and industrial parks, manufacturing facilities and other types of real estate properties. To date, we have invested primarily in office and industrial buildings located in densely populated suburban markets. (See “Description of Real Estate Investments” and “Prior Performance Summary.”) We will primarily attempt to acquire commercial properties that are less than five years old, the space in which has been leased or preleased to one or more large corporate tenants who satisfy our standards of creditworthiness. (See “Terms of Leases and Tenant Creditworthiness.”)
 
We will seek to invest in properties that will satisfy the primary objective of providing cash dividends to our stockholders. However, because a significant factor in the valuation of income-producing real properties is their potential for future income, we anticipate that the majority of properties we acquire will have both the potential for growth in value and providing cash dividends to our stockholders. To the extent feasible, we will strive to invest in a diversified portfolio of properties in terms of geography, type of property and industry group of our tenants, that will satisfy our investment objectives of maximizing cash available for payment of dividends, preserving our capital and realizing growth in value upon the ultimate sale of our properties.
 
We anticipate that a minimum of 84% of the proceeds from the sale of shares will be used to acquire real estate properties and the balance will be used to pay various fees and expenses. (See “Estimated Use of Proceeds.”)
 
We anticipate purchasing land for the purpose of developing the types of commercial buildings described above. We will not invest more than 10% of the net offering proceeds available for investment in properties in unimproved or non-income producing properties. A property: (1) not acquired for the purpose of producing rental or other operating income, or (2) with no development or construction in process or planned in good faith to commence within one year will be considered unimproved property for purposes of this limitation.
 
Although we are not limited as to the form our investments may take, our investments in real estate will generally take the form of holding fee title or a long-term leasehold estate in the properties we acquire. We will acquire such interests either directly in Wells OP (See “The Operating Partnership Agreement”) or indirectly by acquiring membership interests in or acquisitions of property through limited liability companies or through investments in joint ventures, partnerships, co-tenancies or other co-ownership arrangements with developers of properties, affiliates of Wells Capital or other persons. (See “Joint Venture Investments” below.) We may invest in or make mortgage loans, junior debt or subordinated mortgage loans or combinations of debt and equity, subject to the limitations contained in
 
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our articles of incorporation. In addition, we may purchase properties and lease them back to the sellers of such properties. While we will use our best efforts to structure any such sale-leaseback transaction such that the lease will be characterized as a “true lease” so that we will be treated as the owner of the property for federal income tax purposes, we cannot assure you that the IRS will not challenge such characterization. In the event that any such sale-leaseback transaction is recharacterized as a financing transaction for federal income tax purposes, deductions for depreciation and cost recovery relating to such property would be disallowed. (See “Federal Income Tax Considerations—Sale-Leaseback Transactions.”)
 
Although we are not limited as to the geographic area where we may conduct our operations, we currently intend to invest in properties located in the United States.
 
We are not specifically limited in the number or size of properties we may acquire or on the percentage of net proceeds of this offering that we may invest in a single property. The number and mix of properties we acquire will depend upon real estate and market conditions and other circumstances existing at the time we are acquiring our properties and the amount of proceeds we raise in this offering.
 
In making investment decisions for us, Wells Capital will consider relevant real estate property and financial factors, including the creditworthiness of major tenants, the location of the property, its suitability for any development contemplated or in progress, its income-producing capacity, the prospects for long-range appreciation, its liquidity and income tax considerations. In this regard, Wells Capital will have substantial discretion with respect to the selection of specific investments.
 
Our obligation to close the purchase of any investment will generally be conditioned upon the delivery and verification of certain documents from the seller or developer, including, where appropriate:
 
 	•	 	plans and specifications;	
 
 	•	 	environmental reports;	
 
 	•	 	surveys;	
 
 	•	 	evidence of marketable title subject to such liens and encumbrances as are acceptable to Wells Capital;	
 
 	•	 	title and liability insurance policies; and	
 
 	•	 	audited financial statements covering recent operations of properties having operating histories unless such statements are not required to be filed with the Securities and Exchange Commission.	
 
We will not close the purchase of any property unless and until we obtain an environmental assessment, a minimum of a Phase I review, for each property purchased and are generally satisfied with the environmental status of the property.
 
We may also enter into arrangements with the seller or developer of a property whereby the seller or developer agrees that if during a stated period the property does not generate a specified cash flow, the seller or developer will pay in cash to the Wells REIT a sum necessary to reach the specified cash flow level, subject in some cases to negotiated dollar limitations.
 
In determining whether to purchase a particular property, we may, in accordance with customary practices, obtain an option on such property. The amount paid for an option, if any, is normally
 
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surrendered if the property is not purchased and is normally credited against the purchase price if the property is purchased.
 
In purchasing, leasing and developing real estate properties, we will be subject to risks generally incident to the ownership of real estate, including:
 
 	•	 	changes in general economic or local conditions;	
 
 	•	 	changes in supply of or demand for similar or competing properties in an area;	
 
 	•	 	changes in interest rates and availability of permanent mortgage funds which may render the sale of a property difficult or unattractive;	
 
 	•	 	changes in tax, real estate, environmental and zoning laws;	
 
 	•	 	periods of high interest rates and tight money supply which may make the sale of properties more difficult;	
 
 	•	 	tenant turnover; and	
 
 	•	 	general overbuilding or excess supply in the market area.	
 
Development and Construction of Properties
 
We may invest substantially all of the proceeds available for investment in properties on which improvements are to be constructed or completed although we may not invest in excess of 10% of the offering proceeds available for investment in properties with respect to which construction is not planned in good faith to commence within one year from the date of their acquisition. To help ensure performance by the builders of properties that are under construction, completion of properties under construction may be guaranteed at the price contracted either by an adequate completion bond or performance bond. We may rely, however, upon the substantial net worth of the contractor or developer or a personal guarantee accompanied by financial statements showing a substantial net worth provided by an affiliate of the person entering into the construction or development contract as an alternative to a completion bond or performance bond. Development of real estate properties is subject to risks relating to a builder’s ability to control construction costs or to build in conformity with plans, specifications and timetables. (See “Risk Factors—Real Estate Risks.”)
 
We may directly employ one or more project managers to plan, supervise and implement the development of any unimproved properties that we may acquire. In such event, such persons would be compensated directly by the Wells REIT.
 
Terms of Leases and Tenant Creditworthiness
 
The terms and conditions of any lease we enter into with our tenants may vary substantially from those we describe in this prospectus. However, we expect that a majority of our leases will be economically what is generally referred to as “triple net” leases. A “triple net” lease provides that in addition to making its lease payments, the tenant will be required to pay or reimburse the Wells REIT for all real estate taxes, sales and use taxes, special assessments, utilities, insurance and building repairs, and other building operation and management costs.
 
Wells Capital has developed specific standards for determining the creditworthiness of potential tenants of our properties. While authorized to enter into leases with any type of tenant, we anticipate that a majority of our tenants will be large corporations or other entities which have a net worth in excess of
 
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$100,000,000 or whose lease obligations are guaranteed by another corporation or entity with a net worth in excess of $100,000,000. As of June 30, 2002, approximately 95% of the aggregate gross rental income of the Wells REIT was derived from tenants which are corporations, each of which at the time of lease execution had a net worth of at least $100,000,000 or whose lease obligations were guaranteed by another corporation having a net worth of at least $100,000,000.
 
In an attempt to limit or avoid speculative purchases, to the extent possible, Wells Capital will seek to secure, on our behalf, leases with tenants at or prior to the closing of our acquisitions of properties.
 
We anticipate that tenant improvements required to be funded by the landlord in connection with newly acquired properties will be funded from our offering proceeds. However, at such time as a tenant at one of our properties does not renew its lease or otherwise vacates its space in one of our buildings, it is likely that, in order to attract new tenants, we will be required to expend substantial funds for tenant improvements and tenant refurbishments to the vacated space. Since we do not anticipate maintaining permanent working capital reserves, we may not have access to funds required in the future for tenant improvements and tenant refurbishments in order to attract new tenants to lease vacated space. (See “Risk Factors—Real Estate Risks.”)
 
Joint Venture Investments
 
We have entered into joint ventures in the past, and are likely to enter into joint ventures in the future, with affiliated entities for the acquisition, development or improvement of properties for the purpose of diversifying our portfolio of assets. (See “Description of Real Estate Investments—Joint Ventures with Affiliates.”) In this connection, we will likely enter into joint ventures with Wells Fund XIII or other Wells programs. We may also enter into joint ventures, partnerships, co-tenancies and other co-ownership arrangements or participations with real estate developers, owners and other affiliated third-parties for the purpose of developing, owning and operating real properties. (See “Conflicts of Interest.”) In determining whether to invest in a particular joint venture, Wells Capital will evaluate the real property that such joint venture owns or is being formed to own under the same criteria described elsewhere in this prospectus for the selection of real estate property investments of the Wells REIT. (See generally “Investment Objectives and Criteria.”)
 
At such time as Wells Capital enters into a joint venture with another Wells program for the acquisition or development of a specific property, this prospectus will be supplemented to disclose the terms of such investment transaction. We may only enter into joint ventures with other Wells programs for the acquisition of properties if:
 
 	•	 	a majority of our directors, including a majority of the independent directors, approve the transaction as being fair and reasonable to the Wells REIT;	
 
 	•	 	the investment by the Wells REIT and such affiliate are on substantially the same terms and conditions; and	
 
 	•	 	we will have a right of first refusal to buy if such co-venturer elects to sell its interest in the property held by the joint venture.	
 
In the event that the co-venturer were to elect to sell property held in any such joint venture, however, we may not have sufficient funds to exercise our right of first refusal to buy the other co-venturer’s interest in the property held by the joint venture. In the event that any joint venture with an affiliated entity holds interests in more than one property, the interest in each such property may be specially allocated based upon the respective proportion of funds invested by each co-venturer in each such property. Our entering
 
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into joint ventures with other Wells programs will result in certain conflicts of interest. (See “Conflicts of Interest—Joint Ventures with Affiliates of Wells Capital.”)
 
Section 1031 Exchange Program
 
Wells Development Corporation (Wells Development), an affiliate of Wells Management, our Property Manager, and Wells Capital, our advisor, intends to form a series of single member limited liability companies (each of which is referred to in this prospectus as Wells Exchange) for the purpose of facilitating the acquisition of real estate properties to be owned in co-tenancy arrangements with persons (1031 Participants) who are looking to invest the proceeds from a sale of real estate held for investment in another real estate investment for purposes of qualifying for like-kind exchange treatment under Section 1031 of the Internal Revenue Code. We anticipate that Wells Development will sponsor a series of private placement offerings of interests in limited liability companies owning co-tenancy interests in various properties to 1031 Participants.
 
Wells Development anticipates that properties acquired in connection with the Section 1031 Exchange Program will be financed by obtaining a new first mortgage secured by the property acquired. In order to finance the remainder of the purchase price for properties to be acquired by Wells Exchange, it is anticipated that Wells Exchange will obtain a short-term loan from an institutional lender for each property. Following its acquisition of a property, Wells Exchange will attempt to sell co-tenancy interests to 1031 Participants, the proceeds of which will be used to pay off the short-term loan. At the closing of each property to be acquired by Wells Exchange, we anticipate that Wells OP, our operating partnership, will enter into a contractual arrangement providing that, in the event that Wells Exchange is unable to sell all of the co-tenancy interests in that particular property to 1031 Participants, Wells OP will purchase, at Wells Exchange’s cost, any co-tenancy interests remaining unsold. (See “Risk Factors—Section 1031 Exchange Program.”) In addition, Wells OP may enter into one or more additional contractual arrangements obligating it to purchase co-tenancy interests in a particular property directly from the 1031 Participants. In consideration for such obligations, Wells Exchange will pay Wells OP a fee (Take Out Fee) in an amount currently anticipated to range between 1.0% and 1.5% of the amount of the short-term loan being obtained by Wells Exchange. (See “Risk Factors—Federal Income Tax Risks.”)
 
Our board of directors, including a majority of our independent directors, will be required to approve each property acquired pursuant to the Section 1031 Exchange Program in the event that Wells OP has any obligation to potentially acquire any interest in the property. Accordingly, Wells Exchange intends to purchase only real estate properties which otherwise meet the investment objectives of the Wells REIT. Wells OP may execute an agreement providing for the potential purchase of the unsold co-tenancy interests from Wells Exchange only after a majority of our directors, including a majority of our independent directors, not otherwise interested in the transaction, approve of the transaction as being fair, competitive and commercially reasonable to Wells OP and at a price to Wells OP no greater than the cost of the co-tenancy interests to Wells Exchange. If the price to Wells OP is in excess of such cost, our directors must find substantial justification for such excess and that such excess is reasonable. In addition, a fair market value appraisal for each property must be obtained from an independent expert selected by our independent directors, and in no event may Wells OP purchase co-tenancy interests at a price that exceeds the current appraised value for the property interests.
 
As set forth above, pursuant to the terms of these contractual arrangements, Wells OP may be obligated to purchase co-tenancy interests in certain properties offered to 1031 Participants to the extent co-tenancy interests remain unsold at the end of the offering. All purchasers of co-tenancy interests, including Wells OP in the event that it is required to purchase co-tenancy interests, will be required to execute a tenants in common agreement with the other purchasers of co-tenancy interests in that particular property and a property management agreement providing for the property management and leasing of the
 
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property by Wells Management and the payment of property management and leasing fees to Wells Management equal to 4.5% of gross revenues. Accordingly, in the event that Wells OP is required to purchase co-tenancy interests pursuant to one or more of these contractual arrangements, we will be subject to various risks associated with co-tenancy arrangements which are not otherwise present in real estate investments such as the risk that the interests of the 1031 Participants will become adverse to our interests. (See “Risk Factors—Section 1031 Exchange Program.”)
 
Borrowing Policies
 
While we strive for diversification, the number of different properties we can acquire will be affected by the amount of funds available to us. See “Description of Real Estate Investments—Real Estate Loans” for a description of our existing loans and the outstanding loan balances.
 
Our ability to increase our diversification through borrowing could be adversely impacted by banks and other lending institutions reducing the amount of funds available for loans secured by real estate. When interest rates on mortgage loans are high or financing is otherwise unavailable on a timely basis, we may purchase certain properties for cash with the intention of obtaining a mortgage loan for a portion of the purchase price at a later time.
 
There is no limitation on the amount we may invest in any single improved property or on the amount we can borrow for the purchase of any property. The NASAA Guidelines only limit our borrowing to 75% of the value of all properties unless any excess borrowing is approved by a majority of the independent directors and is disclosed to stockholders in our next quarterly report. However, under our articles of incorporation, we have a self-imposed limitation on borrowing which precludes us from borrowing in the aggregate in excess of 50% of the value of all of our properties. As of June 30, 2002, we had an aggregate debt leverage ratio of 1.76% of the value of our properties.
 
By operating on a leveraged basis, we will have more funds available for investment in properties. This will allow us to make more investments than would otherwise be possible, resulting in a more diversified portfolio. Although our liability for the repayment of indebtedness is expected to be limited to the value of the property securing the liability and the rents or profits derived therefrom, our use of leveraging increases the risk of default on the mortgage payments and a resulting foreclosure of a particular property. (See “Risk Factors—Real Estate Risks.”) To the extent that we do not obtain mortgage loans on our properties, our ability to acquire additional properties will be restricted. Wells Capital will use its best efforts to obtain financing on our behalf on the most favorable terms available. Lenders may have recourse to assets not securing the repayment of the indebtedness.
 
Wells Capital will refinance properties during the term of a loan only in limited circumstances, such as when a decline in interest rates makes it beneficial to prepay an existing mortgage, when an existing mortgage matures or if an attractive investment becomes available and the proceeds from the refinancing can be used to purchase such investment. The benefits of the refinancing may include an increased cash flow resulting from reduced debt service requirements, an increase in dividend distributions from proceeds of the refinancing, if any, and/or an increase in property ownership if some refinancing proceeds are reinvested in real estate.
 
We may not borrow money from any of our directors or from Wells Capital and its affiliates for the purpose of acquiring real properties. Any loans by such parties for other purposes must be approved by a majority of our directors, including a majority of the independent directors, not otherwise interested in the transaction, as fair, competitive and commercially reasonable and no less favorable to the Wells REIT than comparable loans between unaffiliated parties.
 
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Disposition Policies
 
We intend to hold each property we acquire for an extended period. However, circumstances might arise which could result in the early sale of some properties. We may sell a property before the end of the expected holding period if, among other reasons:
 
 	•	 	the tenant has involuntarily liquidated;	
 
 	•	 	in the judgment of Wells Capital, the value of a property might decline substantially;	
 
 	•	 	an opportunity has arisen to improve other properties;	
 
 	•	 	we can increase cash flow through the disposition of the property;	
 
 	•	 	the tenant is in default under the lease; or	
 
 	•	 	in our judgment, the sale of the property is in the best interests of our stockholders.	
 
The determination of whether a particular property should be sold or otherwise disposed of will be made after consideration of relevant factors, including prevailing economic conditions, with a view to achieving maximum capital appreciation. We cannot assure you that this objective will be realized. The selling price of a property that is net leased will be determined in large part by the amount of rent payable under the lease. If a tenant has a repurchase option at a formula price, we may be limited in realizing any appreciation. In connection with our sales of properties we may lend the purchaser all or a portion of the purchase price. In these instances, our taxable income may exceed the cash received in the sale. (See “Federal Income Tax Considerations—Failure to Qualify as a REIT.”) The terms of payment will be affected by custom in the area in which the property being sold is located and the then-prevailing economic conditions.
 
If our shares are not listed for trading on a national securities exchange or included for quotation on NASDAQ by January 30, 2008, our articles of incorporation require us to begin the process of selling our properties and distributing the net sale proceeds to you in liquidation of the Wells REIT. In making the decision to apply for listing of our shares, our directors will try to determine whether listing our shares or liquidating our assets will result in greater value for the stockholders. We cannot determine at this time the circumstances, if any, under which our directors will agree to list our shares. Even if our shares are not listed or included for quotation, we are under no obligation to actually sell our portfolio within this time period since the precise timing will depend on real estate and financial markets, economic conditions of the areas in which the properties are located and federal income tax effects on stockholders which may be applicable in the future. Furthermore, we cannot assure you that we will be able to liquidate our assets, and it should be noted that we will continue in existence until all properties are sold and our other assets are liquidated. In addition, we may consider other business strategies such as reorganizations or mergers with other entities if our board of directors determines such strategies would be in the best interests of our stockholders. Any change in the investment objectives set forth in our articles of incorporation would require the vote of stockholders holding a majority of our outstanding shares.
 
Investment Limitations
 
Our articles of incorporation place numerous limitations on us with respect to the manner in which we may invest our funds, most of which are required by various provisions of the NASAA Guidelines. These limitations cannot be changed unless our articles of incorporation are amended, which requires approval of our stockholders. Unless our articles are amended, we will not:
 
 	•	 	borrow in excess of 50% of the aggregate value of all properties owned by us, provided that we may borrow in excess of 50% of the value of an individual property;	
 
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 	•	 	invest in equity securities unless a majority of our directors, including a majority of the independent directors, not otherwise interested in the transaction, approve such investment as being fair, competitive and commercially reasonable;	
 
 	•	 	invest in commodities or commodity futures contracts, except for futures contracts when used solely for the purpose of hedging in connection with our ordinary business of investing in real estate assets and mortgages;	
 
 	•	 	invest in real estate contracts of sale, otherwise known as land sale contracts, unless the contract is in recordable form and is appropriately recorded in the chain of title;	
 
 	•	 	make or invest in mortgage loans except in connection with a sale or other disposition of a property;	
 
 	•	 	make or invest in mortgage loans unless an appraisal is obtained concerning the underlying property except for those mortgage loans insured or guaranteed by a government or government agency. Mortgage debt on any property shall not exceed such property’s appraised value. In cases where our board of directors determines, and in all cases in which the transaction is with any of our directors or Wells Capital and its affiliates, such appraisal shall be obtained from an independent appraiser. We will maintain such appraisal in our records for at least five years and it will be available for your inspection and duplication. We will also obtain a mortgagee’s or owner’s title insurance policy as to the priority of the mortgage;	
 
 	•	 	make or invest in mortgage loans, including construction loans, on any one property if the aggregate amount of all mortgage loans on such property would exceed an amount equal to 85% of the appraised value of such property as determined by appraisal unless substantial justification exists for exceeding such limit because of the presence of other underwriting criteria;	
 
 	•	 	make or invest in mortgage loans that are subordinate to any mortgage or equity interest of any of our directors, Wells Capital or its affiliates;	
 
 	•	 	invest in junior debt secured by a mortgage on real property which is subordinate to the lien or other senior debt except where the amount of such junior debt plus any senior debt exceeds 90% of the appraised value of such property, if after giving effect thereto, the value of all such mortgage loans of the Wells REIT would not then exceed 25% of our net assets, which shall mean our total assets less our total liabilities;	
 
 	•	 	engage in any short sale or borrow on an unsecured basis, if the borrowing will result in asset coverage of less than 300%. “Asset coverage,” for the purpose of this clause, means the ratio which the value of our total assets, less all liabilities and indebtedness for unsecured borrowings, bears to the aggregate amount of all of our unsecured borrowings;	
 
 	•	 	make investments in unimproved property or indebtedness secured by a deed of trust or mortgage loans on unimproved property in excess of 10% of our total assets;	
 
 	•	 	issue equity securities on a deferred payment basis or other similar arrangement;	
 
 	•	 	issue debt securities in the absence of adequate cash flow to cover debt service;	
 
 	•	 	issue equity securities which are non-voting or assessable;	
 
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 	•	 	issue “redeemable securities,” as defined in Section 2(a)(32) of the Investment Company Act of 1940, except pursuant to our share redemption program;	
 
 	•	 	grant warrants or options to purchase shares to Wells Capital or its affiliates or to officers or directors affiliated with Wells Capital except on the same terms as the options or warrants are sold to the general public and the amount of the options or warrants does not exceed an amount equal to 10% of the outstanding shares on the date of grant of the warrants and options;	
 
 	•	 	engage in trading, as compared with investment activities, or engage in the business of underwriting or the agency distribution of securities issued by other persons;	
 
 	•	 	invest more than 5% of the value of our assets in the securities of any one issuer if the investment would cause us to fail to qualify as a REIT;	
 
 	•	 	invest in securities representing more than 10% of the outstanding voting securities of any one issuer if the investment would cause us to fail to qualify as a REIT; or	
 
 	•	 	lend money to our directors or to Wells Capital or its affiliates.	
 
Wells Capital will continually review our investment activity to attempt to ensure that we do not come within the application of the Investment Company Act of 1940. Among other things, Wells Capital will attempt to monitor the proportion of our portfolio that is placed in various investments so that we do not come within the definition of an “investment company” under the Act. If at any time the character of our investments could cause us to be deemed an investment company for purposes of the Investment Company Act of 1940, we will take the necessary action to attempt to ensure that we are not deemed to be an “investment company.”
 
Change in Investment Objectives and Limitations
 
Our articles of incorporation require that the independent directors review our investment policies at least annually to determine that the policies we are following are in the best interests of our stockholders. Each determination and the basis therefore is required to be set forth in our minutes. The methods of implementing our investment policies also may vary as new investment techniques are developed. The methods of implementing our investment objectives and policies, except as otherwise provided in the organizational documents, may be altered by a majority of our directors, including a majority of the independent directors, without the approval of the stockholders. Our investment objectives themselves, however, may only be amended by a vote of the stockholders holding a majority of our outstanding shares.
 
DESCRIPTION OF REAL ESTATE INVESTMENTS
 
General
 
As of July 1, 2002, we had purchased interests in 53 real estate properties located in 19 states, most of which are leased to tenants on an economicly triple-net basis. As of July 1, 2002, all of these properties were 100% leased to tenants. The cost of each of the properties will be depreciated for tax purposes over a 40-year period on a straight-line basis. We believe all of the properties are adequately covered by insurance and are suitable for their intended purposes. The following table provides certain additional information about these properties.
 
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Property Name

	 	Tenant

	 	Property Location

	 	%
Owned

	 	 	Purchase
Price

	  	Square
Feet

	  	Annual Rent

	
ISS Atlanta	 	Internet Security Systems, Inc.	 	Atlanta, GA	 	100	%	 	$	40,500,000	  	238,600	  	$	4,623,445	
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.	 	Houston, TX	 	100	%	 	$	22,000,000	  	103,260	  	$	2,110,035	
 	 	Newpark Drilling Fluids,
Inc.	 	 	 	 	 	 	 	 	  	52,731	  	$	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	
 
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Property Name

	 	Tenant

	 	Property Location

	 	%
Owned

	 	 	Purchase
Price

	  	Square
Feet

	 	Annual
Rent

	 	
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	 	
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	 	

	

	 	

	

	  	

	 	

	

	

	
TOTALS	 	 	 	 	 	 	 	 	$	1,053,500,964	  	7,951,248	 	$	110,025,835	(5)	

	

	 	

	

	  	

	 	

	

	

	

(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)	 	Total annual rent does not include $4,225,860 annual rent for Nissan Property, which does not take effect until construction of the building is completed and the tenant is occupying the building.	
 
As of July 1, 2002, no tenant leasing our properties accounted for more than 10% of our aggregate annual rental income. As of July 1, 2002, our most substantial tenants, based on annual rental income, were SSB Realty, LLC (approximately 6.3%), Metris Direct, Inc. (approximately 5.6%), Motorola, Inc. (approximately 4.7%), and Zurich American Insurance Company, Inc. (approximately 4.6%).
 
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Geographic Diversification Table
 
The following table shows a list of 53 real estate investments we owned as of July 1, 2002, grouped by the state where each of our investments is located.
 
State

	  	No. of
Properties

	  	Aggregate
Purchase Price

	  	Approx.
%

	 	 	Aggregate
Square Feet

	  	Approx.
%

	 	 	Aggregate
Annual Rent

	 	 	Approx.
%

	 	
Arizona	  	5	  	$	86,655,000	  	8.2	%	 	638,722	  	8.0	%	 	$	9,023,417	 	 	8.2	%	
California	  	4	  	$	40,924,206	  	3.9	%	 	320,336	  	4.0	%	 	$	5,047,615	 	 	4.6	%	
Colorado	  	5	  	$	63,010,058	  	6.0	%	 	483,334	  	6.1	%	 	$	7,180,677	 	 	6.5	%	
Florida	  	6	  	$	83,452,854	  	7.9	%	 	582,591	  	7.3	%	 	$	8,243,917	 	 	7.5	%	
Georgia	  	3	  	$	70,600,000	  	6.7	%	 	439,894	  	5.5	%	 	$	8,086,981	 	 	7.4	%	
Illinois	  	3	  	$	121,905,940	  	11.6	%	 	738,779	  	9.3	%	 	$	11,566,529	 	 	10.5	%	
Kansas	  	1	  	$	9,500,000	  	0.9	%	 	68,900	  	0.9	%	 	$	1,102,404	 	 	1.0	%	
Massachusetts	  	2	  	$	81,305,274	  	7.7	%	 	409,253	  	5.1	%	 	$	10,501,699	 	 	9.5	%	
Michigan	  	4	  	$	76,015,000	  	7.2	%	 	443,731	  	5.6	%	 	$	7,503,567	 	 	6.8	%	
Minnesota	  	1	  	$	52,800,000	  	5.0	%	 	300,633	  	3.8	%	 	$	4,960,445	 	 	4.5	%	
New Jersey	  	1	  	$	33,648,156	  	3.0	%	 	236,710	  	3.0	%	 	$	3,324,428	 	 	3.0	%	
North Carolina	  	1	  	$	17,650,000	  	1.7	%	 	120,000	  	1.5	%	 	$	1,800,000	 	 	1.6	%	
Oklahoma	  	3	  	$	33,504,276	  	3.2	%	 	286,786	  	3.6	%	 	$	3,261,402	 	 	3.0	%	
Pennsylvania	  	2	  	$	20,291,200	  	1.9	%	 	211,859	  	2.7	%	 	$	2,296,864	 	 	2.1	%	
South Carolina	  	1	  	$	5,085,000	  	0.5	%	 	169,510	  	2.1	%	 	$	550,908	 	 	0.5	%	
Tennessee	  	3	  	$	53,900,000	  	5.1	%	 	987,460	  	12.4	%	 	$	5,600,433	 	 	5.1	%	
Texas	  	6	  	$	186,829,000	  	17.7	%	 	1,305,443	  	16.4	%	 	$	18,101,357	*	 	16.5	%	
Utah	  	1	  	$	5,025,000	  	0.5	%	 	108,250	  	1.4	%	 	$	659,868	 	 	0.6	%	
Virginia	  	1	  	$	11,400,000	  	1.1	%	 	99,057	  	1.2	%	 	$	1,213,324	 	 	1.1	%	

	  	

	

	  	

	

	 	

	  	

	

	 	

	

	

	 	

	

	
Total	  	53	  	$	1,053,500,964	  	100	%	 	7,951,248	  	100	%	 	$	110,025,835	*	 	100	%	

	  	

	

	  	

	

	 	

	  	

	

	 	

	

	

	 	

	

	

*	 	Does not include $4,225,860 annual rent from the Nissan Project, located in Irving, Texas, which is not yet completed.	
 
Lease Expiration Table
 
The following table shows lease expirations during each of the next ten years for all our leases as of July 1, 2002, assuming no exercise of renewal options or termination rights:
 
Year of
Lease
Expiration

	  	Square
Feet
Expiring

	  	Percentage
of Total
Square Feet
Expiring

	 	 	Annualized
Base Base Rent
Expiring(1)

	  	Percentage
of Total
Annualized
Base Rent

	 	 	Wells REIT
Share of
Annualized
Base Rent
Expiring(1)

	  	Percentage
of Wells
REIT Share
of Total
Annualized
Base Rent

	 	
2002	  	8,074	  	0.10	%	 	$	104,408	  	$	0.09	%	 	$	3,874	  	0.00	%	
2003	  	64,223	  	0.81	%	 	 	1,040,723	  	 	0.95	%	 	 	372,232	  	0.37	%	
2004	  	123,430	  	1.55	%	 	 	2,207,263	  	 	2.01	%	 	 	916,348	  	0.92	%	
2005	  	280,537	  	3.53	%	 	 	3,768,626	  	 	3.43	%	 	 	2,069,308	  	2.08	%	
2006	  	52,587	  	0.66	%	 	 	1,354,184	  	 	1.23	%	 	 	1,354,184	  	1.36	%	
2007	  	742,700	  	9.34	%	 	 	11,108,693	  	 	10.10	%	 	 	9,197,835	  	9.26	%	
2008	  	837,973	  	10.54	%	 	 	10,490,790	  	 	9.53	%	 	 	9,244,256	  	9.30	%	
2009	  	513,359	  	6.46	%	 	 	7,235,244	  	 	6.58	%	 	 	6,599,857	  	6.64	%	
2010	  	1,329,000	  	16.71	%	 	 	19,026,036	  	 	17.29	%	 	 	17,847,500	  	17.96	%	
2011	  	2,868,456	  	36.08	%	 	 	39,494,347	  	 	35.90	%	 	 	38,680,622	  	38.92	%	
2012-2021	  	1,130,909	  	14.22	%	 	 	14,195,521	  	 	12.89	%	 	 	13,088,150	  	13.17	%	

	  	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	
Total	  	7,951,248	  	100	%	 	$	110,025,835	  	 	100	%	 	$	99,374,066	  	100	%	

	  	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	

(1)	 	Average monthly gross rent over the life of the lease, annualized.	
 
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Joint Ventures with Affiliates
 
Wells OP owns some of its properties through ownership interests in the seven joint ventures listed below. Wells OP does not have control over the operations of the joint ventures; however, it does exercise significant influence. Accordingly, investments in joint ventures are recorded for accounting purposes using the equity method.
 
Joint Venture

	  	Joint Venture Partners

	  	Properties Held by Joint Venture

	
Fund XIII-REIT Joint Venture	  	Wells Operating Partnership, L.P.
Wells Real Estate Fund XIII, L.P.	  	AmeriCredit Building
ADIC Buildings	
Fund XII-REIT Joint Venture	  	Wells Operating Partnership, L.P.
Wells Real Estate Fund XII, L.P.	  	Siemens Building
AT&T Oklahoma
Buildings
Comdata Building	
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
Building
Sprint Building
Johnson Matthey
Building
Gartner Building	
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 Building
Ohmeda Building
Interlocken Building
Avaya Building
Iomega Building	
Wells/Freemont Associates Joint Venture (Freemont Joint Venture)	  	Wells Operating Partnership, L.P.
Fund X-XI Joint Venture	  	Fairchild Building	
Wells/Orange County Associates Joint Venture (Orange County Joint Venture)	  	Wells Operating Partnership, L.P.
Fund X-XI Joint Venture	  	Cort Furniture
Building	
Fund VIII-IX-REIT Joint Venture	  	Wells Operating Partnership, L.P.
Fund VIII-IX Joint Venture	  	Quest Building	
 
The Wells Fund XIII—REIT Joint Venture
 
Wells OP and Wells Fund XIII entered into a joint venture partnership known as the Wells Fund XIII-REIT Joint Venture Partnership (XIII-REIT Joint Venture). The investment objectives of Wells Fund XIII are substantially identical to our investment objectives. As of December 31, 2001, the joint venture partners of the XIII-REIT Joint Venture had made the following contributions and held the following equity percentage interests:
 
Joint Venture Partner

	  	Capital Contributions

	  	Equity Interest

	 	
Wells OP	  	$	17,359,875	  	68.2	%	
Wells Fund XIII	  	$	8,491,069	  	31.8	%	
 
The Wells Fund XII-REIT Joint Venture
 
Wells OP and Wells Fund XII entered into a joint venture partnership known as the Wells Fund XII-REIT Joint Venture Partnership (XII-REIT Joint Venture). The investment objectives of Wells Fund XII are substantially identical to our investment objectives. As of December 31, 2001, the joint venture partners of the XII-REIT Joint Venture had made the following contributions and held the following equity percentage interests:
 
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Joint Venture Partner

	  	Capital Contributions

	  	Equity Interest

	 	
Wells OP	  	$	29,950,668	  	55.0	%	
Wells Fund XII	  	$	24,613,401	  	45.0	%	
 
The Wells Fund XI-Fund XII-REIT Joint Venture
 
Wells OP entered into a joint venture partnership with Wells Fund XI and Wells Fund XII known as The Wells Fund XI-Fund XII-REIT Joint Venture (XI-XII-REIT Joint Venture). The XI-XII-REIT Joint Venture was originally formed on May 1, 1999 between Wells OP and Wells Fund XI. On June 21, 1999, Wells Fund XII was admitted to the XI-XII-REIT Joint Venture as a joint venture partner. The investment objectives of Wells Fund XI and Wells Fund XII are substantially identical to our investment objectives. As of December 31, 2001, the joint venture partners of the XI-XII-REIT Joint Venture had made the following contributions and held the following equity percentage interests:
 
Joint Venture Partner

	  	Capital Contributions

	  	Equity Interest

	 	
Wells OP	  	$	17,641,211	  	56.8	%	
Wells Fund XI	  	$	8,131,351	  	26.1	%	
Wells Fund XII	  	$	5,300,000	  	17.1	%	
 
The Fund IX, Fund X, Fund XI and REIT Joint Venture
 
Wells OP entered into a joint venture partnership with Wells Fund IX, Wells Fund X and Wells Fund XI, known as The Fund IX, Fund X, Fund XI and REIT Joint Venture (IX-X-XI-REIT Joint Venture). The IX-X-XI-REIT Joint Venture was originally formed on March 20, 1997 between Wells Fund IX and Wells Fund X. On June 11, 1998, Wells OP and Wells Fund XI were admitted as joint venture partners to the IX-X-XI-REIT Joint Venture. The investment objectives of Wells Fund IX, Wells Fund X and Wells Fund XI are substantially identical to our investment objectives. As of December 31, 2001, the joint venture partners of the IX-X-XI-REIT Joint Venture had made the following contributions and held the following equity percentage interests:
 
Joint Venture Partner

	  	Capital Contributions

	  	Equity Interest

	 	
Wells OP	  	$	1,421,466	  	3.7	%	
Wells Fund IX	  	$	14,982,435	  	39.1	%	
Wells Fund X	  	$	18,501,185	  	48.4	%	
Wells Fund XI	  	$	3,357,436	  	8.8	%	
 
The Fremont Joint Venture
 
Wells OP entered into a joint venture partnership known as Wells/Fremont Associates (Fremont Joint Venture) with Fund X and Fund XI Associates (X-XI Joint Venture), a joint venture between Wells Fund X and Wells Fund XI. The purpose of the Fremont Joint Venture is the acquisition, ownership, leasing, operation, sale and management of the Fairchild Building. As of December 31, 2001, the joint venture partners of the Fremont Joint Venture had made the following contributions and held the following equity percentage interests:
 
Joint Venture Partner

	  	Capital Contributions

	  	Equity Interest

	 	
Wells OP	  	$	6,983,111	  	77.5	%	
X-XI Joint Venture	  	$	2,000,000	  	22.5	%	
 
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Table of Contents
The Cort Joint Venture
 
Wells OP entered into a joint venture partnership with the X-XI Joint Venture known as Wells/Orange County Associates (Cort Joint Venture) for the purpose of the acquisition, ownership, leasing, operation, sale and management of the Cort Furniture Building. As of December 31, 2001, the joint venture partners of the Cort Joint Venture had made the following contributions and held the following equity percentage interests:
 
Joint Venture Partner

	  	Capital Contributions

	  	Equity Interest

	 	
Wells OP	  	$	2,871,430	  	43.7	%	
X-XI Joint Venture	  	$	3,695,000	  	56.3	%	
 
The Wells Fund VIII-Fund IX-REIT Joint Venture
 
Wells OP entered into a joint venture partnership with the Fund VIII-IX Joint Venture known as the Wells Fund VIII-Fund IX-REIT Joint Venture (VIII-IX-REIT Joint Venture) for the purpose of the ownership, leasing, operation, sale and management of the Quest Building. The investment objectives of Wells Fund VIII and Wells Fund IX are substantially identical to our investment objectives. As of December 31, 2001, the joint venture partners of the VIII-IX-REIT Joint Venture had made the following contributions and held the following equity percentage interests:
 
Joint Venture Partner

	  	Capital Contributions

	  	Equity Interest

	 	
Wells OP	  	$	1,282,111	  	15.8	%	
Wells Fund VIII	  	$	3,608,109	  	46.1	%	
Wells Fund IX	  	$	3,620,316	  	38.1	%	
 
General Provisions of Joint Venture Agreements
 
Wells OP is acting as the initial Administrative Venturer of each of the joint ventures described above and, as such, is responsible for establishing policies and operating procedures with respect to the business and affairs of each of these joint ventures. However, approval of the other joint venture partners will be required for any major decision or any action that materially affects these joint ventures or their real property investments.
 
The XIII-REIT Joint Venture Agreement, the XII-REIT Joint Venture Agreement, the XI-XII-REIT Joint Venture Agreement and the IX-X-XI-REIT Joint Venture Agreement each allow any joint venture partner to make a buy/sell election upon receipt by any other joint venture partner of a bona fide third-party offer to purchase all or substantially all of the properties or the last remaining property of the respective joint venture. Upon receipt of notice of such third-party offer, each joint venture partner must elect within 30 days after receipt of the notice to either (1) purchase the entire interest of each venture partner that wishes to accept the offer on the same terms and conditions as the third-party offer to purchase, or (2) consent to the sale of the properties or last remaining property pursuant to such third-party offer.
 
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Table of Contents
Description of Properties
 
ISS Atlanta Buildings
 
Wells OP acquired the ISS Atlanta Buildings on July 1, 2002 for a purchase price of $40,500,000. The ISS Atlanta Buildings, which were built in 2001, consist of two five-story buildings containing a total of 238,600 rentable square feet located in Atlanta, Georgia and 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 upon a 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 guaranteed by the parent of ISS, Internet Security Systems, Inc., a Delaware corporation (ISS, Inc.), whose shares are traded on NASDAQ. ISS, Inc. has operations throughout America, Asia, Australia, Europe and the Middle East. ISS, Inc. provides computer security solutions to networks, servers and desktop computers for organizational customers, including corporate customers and governmental units. ISS, Inc. reported a net worth, as of March 31, 2002, of approximately $435 million.
 
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. In addition, ISS has obtained an $8,000,000 letter of credit from First Union National Bank to guarantee payments under the lease.
 
MFS Phoenix Building
 
Wells OP purchased the MFS Phoenix Building on June 5, 2002 for a purchase price of $25,800,000. The MFS Phoenix Building, which was built in 2000, is a three-story office building containing 148,605 rentable square feet located in Phoenix, Arizona.
 
The entire MFS Phoenix Building is leased to Massachusetts Financial Services Company (MFS). MFS is a Massachusetts corporation having its corporate headquarters in Boston, Massachusetts with offices in London, Tokyo and Singapore. MFS is an investment management firm which offers annuities, institutional products, insurance services, mutual funds and retirement products. MFS reported a net worth, as of December 31, 2001, of approximately $440 million.
 
The MFS Phoenix lease is a net lease that commenced in April 2001 and expires in July 2011. The current annual base rent payable under the MFS Phoenix 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.
 
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TRW Denver Building
 
Wells OP purchased the TRW Denver Building on May 29, 2002 for a purchase price of $21,060,000. The TRW Denver Building, which was built in 1997, is a three-story office building containing 108,240 rentable square feet located in Aurora, Colorado.
 
The entire TRW Denver Building is leased to TRW, Inc. (TRW), a global technology, manufacturing and service company that provides advanced technology, systems and services to customers worldwide. TRW reported a net worth, as of March 31, 2002, of approximately $2.24 billion.
 
The TRW Denver lease is a net lease that commenced in October 1997 and expires in September 2007. The current annual base rent payable under the TRW Denver 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.
 
Agilent Boston Building
 
Wells OP purchased the Agilent Boston Building on May 3, 2002 for a purchase price of $31,742,274. The Agilent Boston Building, which was built in 2002, is a three-story office building containing 174,585 rentable square feet located in Boxborough, Massachusetts. Wells OP assumed the obligation, as the landlord under the Agilent Boston lease described below, to provide Agilent $3,407,496 for tenant improvements.
 
The entire Agilent Boston Building is leased to Agilent Technologies, Inc. (Agilent). Agilent is a major producer of measuring and monitoring devices, semiconductor products and chemical analysis tools for communications and life sciences companies, such as Internet service providers and biopharmaceutical companies. Agilent reported a net worth, as of January 31, 2002, of approximately $5.4 billion.
 
The Agilent Boston lease is a net lease that commenced in 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.
 
Experian/TRW Buildings
 
Wells OP purchased the Experian/TRW Buildings on May 1, 2002 for a purchase price of $35,150,000. The Experian/TRW Buildings, which were built in 1982 and 1993, respectively, are two two-story office buildings containing a total of 292,700 rentable square feet located in Allen, Texas.
 
The Experian/TRW Buildings are both leased to Experian Information Solutions, Inc. (Experian). Experian is an information services company that uses decision-making software and comprehensive databases of information on consumers, businesses, motor vehicles and property to provide companies with information about their customers. TRW, the original tenant on the Experian/TRW lease, assigned its interest in the Experian/TRW lease to Experian in 1996 but remains as an obligor of the Experian/TRW lease.
 
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The Experian/TRW 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.
 
BellSouth Ft. Lauderdale Building
 
Wells OP purchased the BellSouth Ft. Lauderdale Building on April 18, 2002 for a purchase price of $6,850,000. The BellSouth Ft. Lauderdale Building, which was built in 2001, is a one-story office building containing 47,400 rentable square feet located in Ft. Lauderdale, Florida.
 
The entire BellSouth Ft. Lauderdale Building is leased to BellSouth Advertising and Publishing Corporation (BellSouth Advertising). BellSouth Advertising is a major provider of print directories throughout the southeastern states and markets served by BellSouth Corporation, which is the parent company of BellSouth Advertising.
 
The BellSouth Advertising lease is a net lease that commenced in July 2001 and expires in July 2008. The current annual base rent payable under the BellSouth Advertising lease is $747,033. BellSouth Advertising, at its option, has the right to extend the initial term of its lease for three additional five-year periods at 95% of the then-current market rental rate.
 
Agilent Atlanta Building
 
Wells OP purchased the Agilent Atlanta Building on April 18, 2002 for a purchase price of $15,100,000. The Agilent Atlanta Building, which was built in 2001, is a two-story office building containing 101,207 rentable square feet located in Alpharetta, Georgia.
 
Agilent leases 66,811 rentable square feet of the Agilent Atlanta Building (66%). The Agilent Atlanta lease commenced in September 2001 and expires in September 2011. The initial annual base rent payable under the Agilent Atlanta lease is $1,344,905. Agilent, at its option, has the right to extend the initial term of its lease for either (1) one additional three-year period, or (2) one additional five-year period, at the then-current market rental rate. In addition, Agilent may terminate the lease at the end of the seventh lease year by paying a $763,650 termination fee.
 
Koninklijke Philips Electronics N.V. (Philips) leases the remaining 34,396 rentable square feet of the Agilent Atlanta Building (34%). Philips is one of the world’s largest electronics companies and is a global leader in color television sets, lighting, electric shavers, medical diagnostic imaging, patient monitoring and one-chip TV products. Philips reported a net worth, as of March 31, 2002, of approximately $16.47 billion.
 
The Philips lease commenced in September 2001 and expires in September 2011. The current annual base rent payable under the Philips lease is $692,391. Philips, at its option, has the right to extend the initial term of its lease for either (1) one additional three-year period, or (2) one additional five-year period, at the then-current market rental rate. In addition, Philips may terminate the lease at the end of the seventh lease year by paying a $393,146 termination fee.
 
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Travelers Express Denver Buildings
 
Wells OP purchased the Travelers Express Denver Buildings on April 10, 2002 for a purchase price of $10,395,845. The Travelers Express Denver Buildings, which were built in 2002, are two connected one-story office buildings containing 68,165 rentable square feet located in Lakewood, Colorado.
 
The Travelers Express Denver Buildings are leased to Travelers Express Company, Inc. (Travelers). Travelers is the largest money order processor and second largest money-wire transfer company in the nation, processing more than 775 million transactions per year, including official checks and share drafts for financial institutions. Travelers is a wholly owned subsidiary of Viad Corporation, a public company whose shares are traded on the NYSE.
 
The Travelers lease commenced in April 2002 and expires in March 2012. The current annual base rent payable under the Travelers lease is $1,012,250. Travelers, at its option, has the right to extend the initial term of its lease for two additional five-year periods. The annual base rent for the first three years of the first renewal term shall be $19 per rentable square foot and the annual base rent for the last two years shall be $20.50 per rentable square foot. The annual base rent for the second renewal term shall be at the then-current market rental rate for each year of the renewal term. In addition, Travelers may terminate the Travelers lease at the end of the seventh lease year by paying a termination fee of $1,040,880. Travelers also has the right to expand the Travelers Express Denver Buildings between 10% and 20% by providing notice on or before May 1, 2004, subject to certain limitations and potential acceleration.
 
Dana Corporation Buildings
 
Wells OP purchased the Dana Corporation Buildings on March 29, 2001 for a purchase price of $41,950,000. The Dana Kalamazoo Building, which was built in 1999, is a two-story office and industrial building containing 147,004 rentable square feet located in Kalamazoo, Michigan. The Dana Detroit Building, which was built in 1999, is a three-story office and research and development building containing 112,480 rentable square feet located in Farmington Hills, Michigan. Wells OP purchased the Dana Corporation Buildings by purchasing all of the membership interests in two Delaware limited liability companies each of which owned title to one of the buildings.
 
The Dana Corporation Buildings are leased to Dana Corporation (Dana). Dana is one of the world’s largest suppliers of components, modules and complete systems to global vehicle manufacturers and their related aftermarkets. Dana operates approximately 300 major facilities in 34 countries and employs approximately 70,000 people. Dana reported a net worth, as of December 31, 2001, of approximately $1.9 billion.
 
The Dana Kalamazoo lease commenced in October 2001 and expires in October 2021. The current annual base rent payable under the Dana Kalamazoo lease is $1,842,800. Dana, at its option, has the right to extend the initial term of its lease for six additional five-year periods at the then-current market rental rate. Dana may terminate the lease at any time during the initial lease term after the sixth lease year and before the 19th lease year, subject to certain conditions.
 
The Dana Detroit lease commenced in October 2001 and expires in October 2021. The current annual base rent payable under the Dana Detroit lease is $2,330,600. Dana, at its option, has the right to extend the initial term of its lease for six additional five-year periods at the then-current market rental rate. Dana may terminate the lease at any time during the initial lease term after the 11th lease year, subject to certain conditions.            
 
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Novartis Atlanta Building
 
Wells OP purchased the Novartis Atlanta Building on March 28, 2002 for a purchase price of $15,000,000. The Novartis Atlanta Building, which was built in 2001, is a four-story office building containing 100,087 rentable square feet located in Duluth, Georgia.
 
The Novartis Atlanta Building is leased to Novartis Opthalmics, Inc. (Novartis). The Novartis lease is guaranteed by Novartis’ parent company, Novartis Corporation. Novartis Corporation, a public company whose shares are traded on the NYSE, is a world leader in healthcare with core businesses in pharmaceuticals, consumer health, generics, eye-care and animal health. Novartis Corporation reported a net worth, as of December 31, 2001, of approximately $28.1 billion.
 
The Novartis lease commenced in August 2001 and expires in July 2011. The current annual base rent payable under the Novartis lease is $1,426,240. Novartis, at its option, has the right to extend the initial term of its lease for three additional five-year periods at the then-current market rental rate. In addition, Novartis may terminate the lease at the end of the fifth lease year by paying a $1,500,000 termination fee.            
 
Transocean Houston Building
 
Wells OP purchased the Transocean Houston Building on March 15, 2002 for a purchase price of $22,000,000. The Transocean Houston Building, which was built in 1999, is a six-story office building containing 155,991 rentable square feet located in Houston, Texas.
 
Transocean Deepwater Offshore Drilling, Inc. (Transocean) leases 103,260 rentable square feet (67%) of the Transocean Houston Building. Transocean is an offshore drilling company specializing in technically demanding segments of the offshore drilling industry. The Transocean lease is guaranteed by Transocean Sedco Forex, Inc., one of the world’s largest offshore drilling companies whose shares are traded on the NASDAQ. Transocean Sedco Forex, Inc. reported a net worth, as of September 30, 2001, of approximately $10.86 billion.
 
The Transocean lease commenced in December 2001 and expires in March 2011. Transocean, at its option, has the right to extend the initial term of its lease for either (1) two additional five-year periods, or (2) one additional ten-year period, at the then-current market rental rate. In addition, Transocean has an expansion option and a right of first refusal for up to an additional 52,731 rentable square feet. The current annual base rent payable under the Transocean lease is $2,110,035.
 
Newpark Drilling Fluids, Inc. (Newpark) leases the remaining 52,731 rentable square feet (33%) of the Transocean Houston Building. Newpark is a full service drilling fluids processing, management and waste disposal company. The Newpark lease is guaranteed by Newpark Resources, Inc., which provides drilling fluids services to the oil and gas production industry, primarily in North America. Newpark Resources, Inc. reported a net worth, as of December 31, 2001, of approximately $294 million.
 
The Newpark lease commenced in August 1999 and expires in October 2009. The current annual base rent payable for the Newpark lease is $1,153,227.
 
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Arthur Andersen Building
 
Wells OP purchased the Arthur Andersen Building on January 11, 2002 for a purchase price of $21,400,000. The Arthur Andersen Building, which was built in 1999, is a three-story office building containing 157,700 rentable square feet located in Sarasota, Florida. Wells OP purchased the Arthur Andersen Building from Sarasota Haskell, LLC, which is not in any way affiliated with the Wells REIT, our advisor, Wells Capital, or Arthur Andersen, LLP, the tenant at the property.
 
The Arthur Andersen Building is leased to Arthur Andersen LLP (Andersen). In June 2002, Andersen was tried and convicted of federal obstruction of justice charges arising from its involvement as auditors for Enron Corporation. There may be a substantial risk that events arising out of this conviction or other events relating to the financial condition of Andersen could adversely affect the ability of Andersen to fulfill its obligations as tenant under the Andersen lease. The Andersen lease commenced in November 1998 and expires in October 2009. Andersen has the right to extend the initial 10-year term of this lease for two additional five-year periods at 90% of the then-current market rental rate. The current annual base rent payable under the Andersen lease is $1,988,454.
 
Andersen has the option to purchase the Arthur Andersen Building for a purchase price of $23,250,000 prior to the end of the fifth lease year. In addition, Andersen has the option to purchase the Arthur Andersen Building for a purchase price of $25,148,000 after the fifth lease year and prior to the expiration of the current lease term.
 
Windy Point Buildings
 
Wells OP purchased the Windy Point Buildings on December 31, 2001 for a purchase price of $89,275,000. The Windy Point Buildings, which were built in 1999 and 2001, respectively, consist of a seven-story office building containing 188,391 rentable square feet (Windy Point I) and an eleven-story office building containing 300,034 rentable square feet (Windy Point II) located in Schaumburg, Illinois.
 
The Windy Point Buildings are subject to a 20-year annexation agreement originally executed on December 12, 1995 with the Village of Schaumburg, Illinois (Annexation Agreement). The Annexation Agreement covers a 235-acre tract of land that includes a portion of the site of the Windy Point Buildings’ parking facilities relating to the potential construction of a new eastbound on-ramp interchange for I-90. Wells OP issued a $382,556 letter of credit pursuant to the request of the Village of Schaumburg, Illinois, representing the estimated costs of demolition and restoration of constructed parking and landscaped areas and protecting pipelines in connection with the potential construction. The obligation to maintain the letter of credit will continue until the costs of demolition and restoration are paid if the project proceeds or until the Annexation Agreement expires in December 2015. If Wells OP is unable to restore the parking spaces due to structural issues related to the utilities underground, Wells OP would then be required to construct a new parking garage on the site to accommodate the parking needs of its tenants. The cost for this construction is currently estimated at approximately $3,581,000. In addition, if the interchange is constructed, Wells OP will be required to pay for its share of the costs for widening Meacham Road as part of the project, which potential obligation is currently estimated to be approximately $288,300.
 
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Windy Point I building
 
The Windy Point I building is currently leased as follows:
 
Tenant

	  	Rentable
Sq. Ft.

	  	Percentage
of
Building

	 	
TCI Great Lakes, Inc.	  	129,157	  	69	%	
The Apollo Group, Inc.	  	28,322	  	15	%	
Global Knowledge Network, Inc.	  	22,028	  	12	%	
Multiple Tenants	  	8,884	  	4	%	
 
TCI Great Lakes, Inc. (TCI) occupies 129,157 rentable square feet (69%) of the Windy Point I building. The TCI lease commenced in December 1999 and expires in November 2009. TCI has the right to extend the initial 10-year term of its lease for two additional five-year periods at 95% of the then-current market rental rate. TCI may terminate certain portions of the TCI lease on the last day of the seventh lease year by providing 12 months prior written notice and paying Wells OP a termination fee of approximately $4,119,500. The current annual base rent payable under the TCI lease is $2,067,204.
 
TCI is a wholly-owned subsidiary of AT&T Broadband. AT&T Broadband provides basic cable and digital television services, as well as high-speed Internet access and cable telephony, with video-on-demand and other advanced services.            
 
The Apollo Group, Inc. (Apollo) leases28,322 rentable square feet (15%) of the Windy Point I building. The Apollo lease commenced in April 2002 and expires in June 2008. Apollo has the right to extend the initial term of its lease for one additional five-year period at 95% of the then-current market rental rate. The current annual base rent payable under the Apollo lease is $477,226.
 
Apollo is an Arizona corporation having its corporate headquarters in Phoenix, Arizona. Apollo provides higher education programs to working adults through its subsidiaries, the University of Phoenix, Inc., the Institute for Professional Development, the College for Financial Planning Institutes Corporation and Western International University, Inc. Apollo offers educational programs and services at 58 campuses and 102 learning centers in 36 states, Puerto Rico, and Vancouver, British Columbia. Apollo reported a net worth, as of February 28, 2002, of approximately $559 million.
 
Global Knowledge Network, Inc. (Global) leases 22,028 rentable square feet (12%) of the Windy Point I building. The Global lease commenced in May 2000 and expires in April 2010. Global has the right to extend the initial 10-year term of its lease for one additional five-year period at the then-current market rental rate. Wells OP has the right to terminate the Global lease on December 31, 2005 by giving Global written notice on or before April 30, 2005. The current annual base rent payable under the Global lease is $393,776.
 
Global is a privately held corporation with its corporate headquarters in Cary, North Carolina and international offices in Tokyo, London and Singapore. Global is owned by New York-based investment firm Welsh, Carson, Anderson and Stowe, a New York limited partnership which acts as a private equity investor in information services, telecommunications and healthcare. Global provides information technology education solutions and certification programs, offering more than 700 courses in more than 60 international locations and in 15 languages. Global has posted a $100,000 letter of credit as security for the Global lease.
 
Windy Point II building
 
Zurich American Insurance Company, Inc. (Zurich) leases the entire 300,034 rentable square feet of the Windy Point II building. The Zurich lease commenced in September 2001 and expires in August 2011. Zurich has the right to extend the initial 10-year term of its lease for two additional five-year
 
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periods at 95% of the then-current market rental rate. The current annual base rent payable under the Zurich lease is $5,091,577.
 
Zurich is headquartered in Schaumburg, Illinois and is a wholly-owned subsidiary of Zurich Financial Services Group (ZFSG). ZFSG, which has its corporate headquarters in Zurich, Switzerland, is a leading provider of financial protection and wealth accumulation solutions for some 35 million customers in over 60 countries. Zurich provides commercial property-casualty insurance and serves the multinational, middle market and small business sectors in the United States and Canada.
 
Zurich has the right to terminate the Zurich lease for up to 25% of the rentable square feet leased by Zurich at the end of the fifth lease year. If Zurich terminates a portion of the Zurich lease, it will be required to pay a termination fee to Wells OP equal to three months of the current monthly rent for the terminated space plus additional costs related to the space leased by Zurich. In addition, Zurich may terminate the entire Zurich lease at the end of the seventh lease year by providing Wells OP 18 months prior written notice and paying Wells OP a termination fee of approximately $8,625,000.
 
Convergys Building
 
Wells OP purchased the Convergys Building on December 21, 2001 for a purchase price of $13,255,000. The Convergys Building, which was built in 2001, is a two-story office building containing 100,000 rentable square feet located in Tamarac, Florida.
 
The Convergys Building is leased to Convergys Customer Management Group, Inc. (Convergys). The Convergys lease is guaranteed by Convergys’ parent company, Convergys Corporation, which is an Ohio corporation whose shares are traded on the NYSE having its corporate headquarters in Cincinnati, Ohio. Convergys Corporation provides outsourced billing and customer care services in the United States, Canada, Latin America, Israel and Europe. Convergys Corporation reported a net worth, as of December 31, 2001, of approximately $1.23 billion.
 
The Convergys lease commenced in September 2001 and expires in September 2011. Convergys has the right to extend the initial 10-year term of this lease for three additional five-year periods at 95% of the then-current market rental rate. Convergys may terminate the Convergys lease at the end of the seventh lease year (September 30, 2008) by providing 12 months prior written notice and paying Wells OP a termination fee of approximately $1,341,000. The current annual base rent payable under the Convergys lease is $1,248,192.
 
ADIC Buildings
 
Wells Fund XIII-REIT Joint Venture purchased the ADIC Buildings and an undeveloped 3.43 acre tract of land adjacent to the ADIC Buildings (Additional ADIC Land) on December 21, 2001 for a purchase price of $12,954,213. The ADIC Buildings, which were built in 2001, consist of two connected one-story office and assembly buildings containing a total of 148,204 rentable square feet located in Parker, Colorado.
 
The ADIC Buildings are currently leased to Advanced Digital Information Corporation (ADIC), which lease does not include the Additional ADIC Land. ADIC is a Washington corporation whose shares are traded on NASDAQ having its corporate headquarters in Redmond, Washington and regional management centers in Englewood, Colorado; Böhmenkirch, Germany; and Paris, France. ADIC manufactures data storage systems and specialized storage management software and distributes these products through its relationships with original equipment manufacturers such as IBM, Sony, Fujitsu,
 
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Siemens and Hewlett-Packard. ADIC reported a net worth, as of January 31, 2002, of approximately $335 million.
 
The ADIC lease commenced in December 2001 and expires in December 2011. ADIC has the right to extend the term of its lease for two additional five-year periods at the then-current fair market rental rate for the first year of each five-year extension. The annual base rent will increase 2.5% for each subsequent year of each five-year extension. The current annual base rent payable under the ADIC lease is $1,222,683.
 
Lucent Building
 
Wells OP purchased the Lucent Building from Lucent Technologies, Inc. (Lucent Technologies) in a sale-lease back transaction on September 28, 2001 for a purchase price of $17,650,000. The Lucent Building, which was built in 1999, is a four-story office building with 120,000 rentable square feet, which includes a 17.34 acre undeveloped tract of land, located in Cary, North Carolina.
 
The Lucent Building is leased to Lucent Technologies, whose shares are traded on the NYSE and has its corporate headquarters in Murray Hill, New Jersey. Lucent Technologies designs, develops and manufactures communications systems, software and other products. Lucent Technologies reported a net worth, as of December 31, 2001, of approximately $10.6 billion.
 
The Lucent lease commenced in September 2001 and expires in September 2011. Lucent Technologies has the right to extend the term of this lease for three additional five-year periods at the then-current fair market rental rate. The current annual base rent payable under the Lucent lease is $1,800,000.
 
Ingram Micro Building
 
On September 27, 2001, Wells OP acquired a ground leasehold interest in a 701,819 square foot distribution facility located in Millington, Tennessee, pursuant to a Bond Real Property Lease dated as of December 20, 1995 (Bond Lease). The ground leasehold interest under the Bond Lease, along with the Bond and the Bond Deed of Trust, were purchased from Ingram Micro L.P. (Ingram) in a sale-lease back transaction for a purchase price of $21,050,000. The Bond Lease expires in December 2026. Construction of the Ingram Micro Building was completed in 1997.
 
Fee simple title to the land upon which the Ingram Micro Building is located is held by the Industrial Development Board of the City of Millington, Tennessee (Industrial Development Board), which originally entered into the Bond Lease with Lease Plan North America, Inc. (Lease Plan). The Industrial Development Board issued an Industrial Development Revenue Note Ingram Micro L.P. Series 1995 (Bond) in a principal amount of $22,000,000 to Lease Plan in order to finance the construction of the Ingram Micro Building. The Bond is secured by a Fee Construction Mortgage Deed of Trust and Assignment of Rents and Leases (Bond Deed of Trust) executed by the Industrial Development Board for the benefit of Lease Plan. Lease Plan assigned to Ingram its ground leasehold interest in the Ingram Micro Building under the Bond Lease. Lease Plan also assigned all of its rights and interest in the Bond and the Bond Deed of Trust to Ingram.
 
Wells OP also acquired the Bond and the Bond Deed of Trust from Ingram at closing. Beginning in 2006, Wells OP has the option under the Bond Lease to purchase the land underlying the Ingram Micro Building from the Industrial Development Board for $100 plus satisfaction of the indebtedness evidenced by the Bond which, as set forth above, was acquired and is currently held by Wells OP.
 
Ingram Micro, Inc. (Micro) is the general partner of Ingram and a guarantor on the Ingram lease. Micro, whose shares are traded on the NYSE, has its corporate headquarters in Santa Ana, California.
 
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Micro provides technology products and supply chain management services through wholesale distribution. It targets three different market segments, including corporate resellers, direct and consumer marketers, and value-added resellers. Micro’s worldwide business consists of approximately 14,000 associates and operations in 36 countries. Micro reported a net worth, as of December 29, 2001, of approximately $1.87 billion.
 
The Ingram lease has a current term of 10 years with two successive options to extend for 10 years each at an annual rate equal to the greater of (1) 95% of the then-current fair market rental rate, or (2) the annual rental payment effective for the final year of the term immediately prior to such extension. Annual rent, as determined for each extended term, is also increased by 15% beginning in the 61 st  month of each extended term. The current annual base rent payable for the Ingram lease is $2,035,275.
 
Nissan Property
 
Purchase of the Nissan Property.    The Nissan Property is a build-to-suit property located in Irving, Texas which we purchased on September 19, 2001 for a purchase price of $5,545,700. We commenced construction on a three-story office building containing approximately 268,000 rentable square feet (Nissan Project) in January 2002. Wells OP obtained a construction loan in the amount of $32,400,000 from Bank of America, N.A. (BOA), which is more particularly described in the “Real Estate Loans” section of the prospectus, to fund the construction of a building on the Nissan Project.
 
Wells OP entered into a development agreement, an architect agreement and a design and build agreement to construct the Nissan Project on the Nissan Property.
 
Development Agreement.    Wells OP entered into a development agreement (Development Agreement) with Champion Partners, Ltd., a Texas limited partnership (Developer), as the exclusive development manager to supervise, manage and coordinate the planning, design, construction and completion of the Nissan Project. As compensation for the services to be rendered by the Developer under the Development Agreement, Wells OP is paying a development fee of $1,250,000. The fee is due and payable ratably as the construction and development of the Nissan Project is completed.
 
We anticipate that the aggregate of all costs and expenses to be incurred by Wells OP with respect to the acquisition of the Nissan Property and the planning, design, development, construction and completion of the Nissan Project will total approximately $42,259,000. Under the terms of the Development Agreement, the Developer has agreed that in the event that the total of all such costs and expenses exceeds $42,258,600, subject to certain adjustments, the amount of fees payable to the Developer shall be reduced by the amount of any such excess.
 
Construction Agreement.    Wells OP entered into a design and build construction agreement (Construction Agreement) with Thos. S. Byrne, Inc. (Contractor) for the construction of the Nissan Project. The Contractor is based in Ft. Worth, Texas and specializes in commercial, industrial and high-end residential buildings. The Contractor commenced operations in 1923 and has completed over 200 projects for a total of approximately 60 clients. The Contractor is presently engaged in the construction of over 20 projects with a total construction value of in excess of $235 million.
 
The Construction Agreement provides that Wells OP will pay the Contractor a maximum of $25,326,017 for the construction of the Nissan Project that includes all estimated fees and costs including the architect fees. The Contractor will be responsible for all costs of labor, materials, construction equipment and machinery necessary for completion of the Nissan Project. In addition, the Contractor will be required to secure and pay for any additional business licenses, tap fees and building permits which may be necessary for construction of the Nissan Project.
 
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Nissan Lease.    The Nissan Property is leased to Nissan Motor Acceptance Corporation (Nissan), a California corporation with its corporate headquarters in Torrance, California. Nissan is a wholly-owned subsidiary of Nissan North America, Inc. (NNA), a guarantor of Nissan’s lease. NNA is a California corporation, with headquarters in Gardenia, California. NNA handles the North American business sector of its Japanese parent, Nissan Motor Company, Ltd. NNA’s business activities include design, development, manufacturing and marketing of Nissan vehicles in North America. As a subsidiary of NNA, Nissan purchases retail and lease contracts from, and provides wholesale inventory and mortgage loan financing to, Nissan and Infiniti retailers.
 
The Nissan lease will extend 10 years beyond the rent commencement date. Construction on the building began in January 2002 and is expected to be completed by December 2003. The rent commencement date will occur shortly after completion. Nissan has the right to extend the initial 10-year term of this lease for an additional two years, upon written notice. Nissan also has the right to extend the lease for two additional five-year periods at 95% of the then-current market rental rate, upon written notice. The annual base rent payable for the Nissan lease beginning on the rent commencement date is expected to be $4,225,860.
 
IKON Buildings
 
Wells OP purchased the IKON Buildings on September 7, 2001 for a purchase price of $20,650,000. The IKON Buildings, which were built in 2000, consist of two one-story office buildings aggregating 157,790 rentable square feet located in Houston, Texas.
 
The IKON Buildings are leased to IKON Office Solutions, Inc. (IKON). IKON provides business communication products such as copiers and printers, as well as services such as distributed printing, facilities management, network design, e-business development and technology training. IKON’s customers include various sized businesses, professional firms and government agencies. IKON distributes products manufactured by companies such as Microsoft, IBM, Canon, Novell and Hewlett-Packard. IKON reported a net worth, as of December 31, 2001, of approximately $1.43 billion.
 
The IKON lease commenced in May 2000 and expires in April 2010. IKON has the right to extend the term of this lease for two additional five-year periods at the then-current fair market rental rate. The current annual base rent payable for the IKON lease is $2,015,767.
 
State Street Building
 
Wells OP purchased the State Street Building on July 30, 2001 for a purchase price of $49,563,000. The State Street Building, which was built in 1990, is a seven-story office building with 234,668 rentable square feet located in Quincy, Massachusetts.
 
The State Street Building is leased to SSB Realty, LLC (SSB Realty). SSB Realty is a wholly-owned subsidiary of State Street Corporation, a Massachusetts corporation (State Street). State Street, a guarantor of the SSB Realty lease, is a world leader in providing financial services to investment managers, corporations, public pension funds, unions, not-for-profit organizations and individuals. State Street’s services range from investment research and professional investment management to trading and brokerage services to fund accounting and administration. State Street reported a net worth, as of December 31, 2001, of approximately $3.8 billion.
 
The SSB Realty lease commenced in February 2001 and expires in March 2011. SSB has the right to extend the term of this lease for one additional five-year period at the then-current fair market rental rate. Pursuant to the SSB Realty lease, Wells OP is obligated to provide SSB Realty an allowance of up to
 
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approximately $2,112,000 for tenant, building and architectural improvements. The current annual base rent payable for the SSB Realty lease is $6,922,706.
 
AmeriCredit Building
 
The XIII-REIT Joint Venture purchased the AmeriCredit Building on July 16, 2001 for a purchase price of $12,500,000. The AmeriCredit Building, which was built in 2001, is a two-story office building containing 85,000 rentable square feet located in Orange Park, Florida.
 
The AmeriCredit Building is leased to AmeriCredit Financial Services Corporation (AmeriCredit). AmeriCredit is wholly-owned by, and serves as the primary operating subsidiary for, AmeriCredit Corp., a Texas corporation whose common stock is publicly traded on the NYSE. AmeriCredit Corp. is the guarantor of the lease. AmeriCredit is the world’s largest independent middle-market automobile finance company. AmeriCredit purchases loans made by franchised and select independent dealers to consumers buying late model used and, to a lesser extent, new automobiles. AmeriCredit Corp. reported a net worth, as of December 31, 2001, of approximately $1.2 billion.
 
The AmeriCredit lease commenced in June 2001 and expires in May 2011. AmeriCredit has the right to extend the AmeriCredit lease for two additional five-year periods of time. Each extension option must be exercised by giving written notice to the landlord at least 12 months prior to the expiration date of the then-current lease term. The monthly base rent payable for each extended term of the AmeriCredit lease will be equal to 95% of the then-current market rate. The AmeriCredit lease contains a termination option that may be exercised by AmeriCredit effective as of the end of the seventh lease year and requires AmeriCredit to pay the joint venture a termination payment estimated at approximately $1.9 million. AmeriCredit also has an expansion option for an additional 15,000 square feet of office space and 120 parking spaces. AmeriCredit may exercise this expansion option at any time during the first seven lease years. The current annual base rent payable under the AmeriCredit lease is $1,336,200.
 
Comdata Building
 
The XII-REIT Joint Venture purchased the Comdata Building on May 15, 2001 for a purchase price of $24,950,000. The Comdata Building, which was built in 1989 and expanded in 1997, is a three-story office building containing 201,237 rentable square feet located in Brentwood, Tennessee.
 
The Comdata Building is leased to Comdata Network, Inc. (Comdata). Comdata is a leading provider of transaction processing and information services to the transportation and other industries. Comdata provides trucking companies with fuel cards, electronic cash access, permit and licensing services, routing software, driver relationship services and vehicle escorts, among other services. Comdata provides these services to over 400,000 drivers, 7,000 truck stop service centers and 500 terminal fueling locations. Ceridian Corporation, the lease guarantor, is one of North America’s leading information services companies that serves the human resources and transportation markets. Ceridian and its subsidiaries generate, process and distribute data for customers and help customers develop systems plans and software to perform these functions internally. Ceridian Corporation reported a net worth, as of September 30, 2001, of approximately $1.1 billion.
 
The Comdata lease commenced in April 1997 and expires in May 2016. Comdata has the right to extend the Comdata lease for one additional five-year period of time at a rate equal to the greater of the base rent of the final year of the initial term or 90% of the then-current fair market rental rate. The current annual base rent payable for the Comdata lease is $2,458,638.
 
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AT&T Oklahoma Buildings
 
The XII-REIT Joint Venture purchased the AT&T Oklahoma Buildings on December 28, 2000 for a purchase price of $15,300,000. The AT&T Oklahoma Buildings, which were built in 1998 and 2000, respectively, consist of a one-story office building and a two-story office building, connected by a mutual hallway, containing an aggregate of 128,500 rentable square feet located in Oklahoma City, Oklahoma.
 
AT&T Corp. (AT&T) leases the entire 78,500 rentable square feet of the two-story office building and 25,000 rentable square feet of the one-story office building. AT&T is among the world’s leading voice and data communications companies, serving consumers, businesses and governments worldwide. AT&T has one of the largest digital wireless networks in North America and is one of the leading suppliers of data and Internet services for businesses. In addition, AT&T offers outsourcing, consulting and networking-integration to large businesses and is one of the largest direct internet access service providers for consumers in the United States. AT&T reported a net worth, as of December 31, 2001, of approximately $51.7 billion.
 
The AT&T lease commenced in April 2000 and expires in August 2010. AT&T has the right to extend the AT&T lease for two additional five-year periods of time at the then-current fair market rental rate. AT&T has a right of first offer to lease the remainder of the space in the one-story office building currently occupied by Jordan Associates, Inc. (Jordan), if Jordan vacates the premises. The current annual base rent payable for the AT&T lease is $1,242,000.
 
Jordan leases the remaining 25,000 rentable square feet contained in the one-story office building. Jordan provides businesses with advertising and related services including public relations, research, direct marketing and sales promotion. Through this corporate office and other offices in Tulsa, St. Louis, Indianapolis and Wausau, Wisconsin, Jordan provides services to major clients such as Bank One, Oklahoma, N.A., BlueCross & BlueShield of Oklahoma, Kraft Food Services, Inc., Logix Communications and the American Dental Association.
 
The Jordan lease commenced in December 1998 and expires in December 2008. Jordan has the right to extend the Jordan lease for one additional five-year period of time at the then-current fair market rental rate. The current annual base rent payable for the Jordan lease is $294,500.
 
Metris Minnesota Building
 
Wells OP purchased the Metris Minnesota Building on December 21, 2000 for a purchase price of $52,800,000. The Metris Minnesota Building, which was built in 2000, is a nine-story office building containing 300,633 rentable square feet located in Minnetonka, Minnesota.
 
The Metris Minnesota Building is Phase II of a two-phase office complex known as Crescent Ridge Corporate Center in Minnetonka, Minnesota, which is a western suburb of Minneapolis. Phase I of Crescent Ridge Corporate Center is an eight-story multi-tenant building which is connected to the Metris Minnesota Building by a single-story restaurant link building. Neither Phase I of Crescent Ridge Corporate Center nor the connecting restaurant are owned by Wells OP.
 
The Metris Minnesota Building is leased to Metris Direct, Inc. (Metris) as its corporate headquarters. Metris is a principal subsidiary of Metris Companies, Inc. (Metris Companies), a publicly traded company whose shares are listed on the NYSE (symbol MXT) which has guaranteed the Metris lease. Metris Companies is an information-based direct marketer of consumer credit products and fee-based services primarily to moderate income consumers. Metris Companies’ consumer credit products
 
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are primarily unsecured credit cards issued by its subsidiary, Direct Merchants Credit Card Bank. Metris Companies reported a net worth, as of December 31, 2001, of approximately $1.14 billion.
 
The Metris Minnesota lease commenced in September 2000 and expires in December 2011. Metris has the right to renew the Metris Minnesota lease for an additional five-year term at fair market rent, but in no event less than the basic rent payable in the immediately preceding period. In addition, Metris is required to pay annual parking and storage fees of $87,948 through December 2006 and $114,062 payable on a monthly basis for the remainder of the lease term. The current annual base rent payable for the Metris Minnesota lease is $4,960,445.
 
Stone & Webster Building
 
Wells OP purchased the Stone & Webster Building on December 21, 2000 for a purchase price of $44,970,000. The Stone & Webster Building, which was built in 1994, is a six-story office building with 312,564 rentable square feet located in Houston, Texas. In addition, the site includes 4.34 acres of unencumbered land available for expansion.
 
Stone & Webster is a full-service global engineering and construction company offering managerial and technical resources for solving complex energy, environmental, infrastructure and industrial challenges. The Stone & Webster lease is guaranteed by The Shaw Group, Inc., the parent company of Stone & Webster. Shaw Group is the largest supplier of fabricated piping systems and services in the world. The Shaw Group reported a net worth, as of February 28, 2002, of approximately $612 million.
 
The Stone & Webster lease commenced in December 2000 and expires in December 2010. Stone & Webster has the right to extend the Stone & Webster lease for two additional five-year periods of time for a base rent equal to the greater of (1) the last year’s rent, or (2) the then-current market rental rate. The current annual base rent payable for the Stone & Webster lease is $4,533,056.
 
SYSCO is the largest marketer and distributor of foodservice products in North America. SYSCO operates from approximately 100 distribution facilities and provides its products and services to about 356,000 restaurants and other users across the United States and portions of Canada. SYSCO reported a net worth, as of December 29, 2001, of approximately $2.2 billion.
 
The SYSCO lease commenced in October 1998 and expires in September 2008. The current annual base rent payable for the SYSCO lease is $2,130,320.
 
Motorola Plainfield Building
 
Wells OP purchased the Motorola Plainfield Building on November 1, 2000 for a purchase price of $33,648,156. The Motorola Plainfield Building, which was built in 1976, is a three-story office building containing 236,710 rentable square feet located in South Plainfield, New Jersey.
 
The Motorola Plainfield Building is leased to Motorola, Inc. (Motorola). Motorola is a global leader in providing integrated communications solutions and embedded electronic solutions, including software-enhanced wireless telephones, two-way radios and digital and analog systems and set-top terminals for broadband cable television operators. Motorola reported a net worth, as of December 31, 2001 , of approximately $13.7 billion.
 
The Motorola Plainfield lease commenced in November 2000 and expires in October 2010. Motorola has the right to extend the Motorola Plainfield lease for two additional five-year periods of time for a base rent equal to the greater of (1) base rent for the immediately preceding lease year, or (2) 95%
 
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of the then-current fair market rental rate. The current annual base rent payable for the Motorola Plainfield lease is $3,324,428.
 
The Motorola Plainfield lease grants Motorola a right of first refusal to purchase the Motorola Plainfield Building if Wells OP attempts to sell the property during the term of the lease. Additionally, Motorola has an expansion right for an additional 143,000 rentable square feet. If Motorola exercises its expansion option, upon completion of the expansion, the term of the Motorola Plainfield lease shall be extended an additional 10 years after Motorola occupies the expansion space. The base rent for the expansion space shall be determined by the construction costs and fees for the expansion. The base rent for the original building for the extended 10-year period shall be the greater of (1) the then-current base rent, or (2) 95% of the then-current fair market rental rate.            
 
Quest Building
 
The VIII-IX Joint Venture purchased the Quest Building on January 10, 1997 for a purchase price of $7,193,000. On July 1, 2000, the VIII-IX Joint Venture contributed the Quest Building to the VIII-IX-REIT Joint Venture. The Quest Building, which was built in 1984 and refurbished in 1996, is a two-story office building containing 65,006 rentable square feet located in Irvine, California.
 
The Quest Building is currently leased to Quest Software, Inc. (Quest). Quest, whose shares are publicly traded, is a corporation that provides software database management and disaster recovery services for its clients. Quest was established in April 1987 to develop and market software products to help insure uninterrupted, high performance access to enterprise and custom computing applications and databases. Quest reported a net worth, as of December 31, 2001, of approximately $441 million.
 
The Quest lease commenced in June 2000 and expires in January 2004. The annual base rent payable for the remaining portion of the initial lease term is $1,287,119. Quest has the right to extend the lease for two additional one-year periods of time at an annual base rent of $1,365,126.
 
Delphi Building
 
Wells OP purchased the Delphi Building on June 29, 2000 for a purchase price of $19,800,000. The Delphi Building, which was built in 2000, is a three-story office building containing 107,193 rentable square feet located in Troy, Michigan.
 
The Delphi Building is leased to Delphi Automotive Systems LLC (Delphi LLC). Delphi LLC is a wholly-owned subsidiary of Delphi Automotive Systems Corporation (Delphi), formerly the Automotive Components Group of General Motors, which was spun off from General Motors in May 1999. Delphi is the world’s largest automotive components supplier and sells its products to almost every major manufacturer of light vehicles in the world. Delphi reported a net worth, as of December 31, 2001, of approximately $2.22 billion.
 
The Delphi lease commenced in May 2000 and expires in April 2007. Delphi LLC has the right to extend the Delphi lease for two additional five-year periods of time at 95% of the then-current fair market rental rate. The current annual base rent payable for the Delphi lease is $1,955,524.
 
Avnet Building
 
Wells OP purchased the Avnet Building on June 12, 2000 for a purchase price of $13,250,000. The Avnet Building, which was built in 2000, is a two-story office building containing 132,070 rentable square feet located in Tempe, Arizona. The Avnet Building is subject to a first priority mortgage in favor of
 
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SouthTrust Bank, N.A. (SouthTrust) securing a SouthTrust Line of Credit, which is more particularly described in the “Real Estate Loans” section of this prospectus.
 
The Avnet Building is leased to Avnet, Inc. (Avnet). Avnet is a Fortune 300 company and one of the world’s largest industrial distributors of electronic components and computer products, including microprocessors, semi-conductors and electromechanical devices, serving customers in 60 countries. Additionally, Avnet sells products of more than 100 of the world’s leading component manufacturers to customers around the world. Avnet reported a net worth, as of December 28, 2001, of approximately $1.77 billion.
 
The Avnet lease commenced in May 2000 and expires in April 2010. Avnet has the right to extend the Avnet lease for two additional five-year periods of time. The annual rent payable for the first three years of each extension period will be at the current fair market rental rate at the end of the preceding term. The annual rent payable for the fourth and fifth years of each extension period will be the then-current fair market rental rate at the end of the preceding term multiplied by a factor of 1.093. The current annual base rent payable for the Avnet lease is $1,516,164.
 
Avnet has a right of first refusal to purchase the Avnet Building if Wells OP attempts to sell the Avnet Building. Avnet also has an expansion option. Wells OP has the option to undertake the expansion or allow Avnet to undertake the expansion at its own expense, subject to certain terms and conditions.
 
The Avnet ground lease commenced in April 1999 and expires in September 2083. Wells OP has the right to terminate the Avnet ground lease prior to the expiration of the 30th year. The current annual ground lease payment pursuant to the Avnet ground lease is $230,777.
 
Siemens Building
 
The XII-REIT Joint Venture purchased the Siemens Building on May 10, 2000 for a purchase price of $14,265,000. The Siemens Building, which was built in 2000, is a three-story office building containing 77,054 rentable square feet located in Troy, Michigan.
 
The Siemens Building is leased to Siemens Automotive Corporation (Siemens). Siemens is a subsidiary of Siemens Corporation USA, a domestic corporation which conducts the American operations of Siemens AG, the world’s second largest manufacturer of electronic capital goods. Siemens, part of the worldwide Automotive Systems Group of Siemens AG, is a supplier of advanced electronic and electrical products and systems to automobile manufacturers.
 
The Siemens lease commenced in January 2000 and expires in August 2010. Siemens has the right to extend the Siemens lease for two additional five-year periods at 95% of the then-current fair market rental rate. The current annual base rent payable for the Siemens lease is $1,374,643.
 
Siemens has a one-time right to cancel the Siemens lease effective after the 90th month of the lease term if Siemens pays a cancellation fee to the XII-REIT Joint Venture currently calculated to be approximately $1,234,160.
 
Motorola Tempe Building
 
Wells OP purchased the Motorola Tempe Building on March 29, 2000 for a purchase price of $16,000,000. The Motorola Tempe Building, which was built in 1998, is a two-story office building containing 133,225 rentable square feet in Tempe, Arizona. The Motorola Tempe Building is subject to a
 
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first priority mortgage in favor of SouthTrust securing a SouthTrust line of credit, which is more particularly described in the “Real Estate Loans” section of this prospectus.
 
The Motorola Tempe Building is leased to Motorola, Inc. (Motorola) and is occupied by Motorola’s Satellite Communications Division (SATCOM). SATCOM is a worldwide developer and manufacturer of space and ground communications equipment and systems. SATCOM is the prime contractor for the Iridium System and is primarily engaged in computer design and development functions.
 
The Motorola Tempe lease commenced in August 1998 and expires in August 2005. Motorola has the right to extend the Motorola Tempe lease for four additional five-year periods of time at the then-prevailing market rental rate. The current annual rent payable under the Motorola Tempe lease is $1,843,834.
 
The Motorola Tempe Building is subject to a ground lease that commenced in November 1997 and expires in December 2082. Wells OP has the right to terminate the Motorola Tempe ground lease prior to the expiration of the 30th year and prior to the expiration of each subsequent 10-year period thereafter. The current annual ground lease payment pursuant to the Motorola Tempe ground lease is $243,825.
 
ASML Building
 
Wells OP purchased the ASML Building on March 29, 2000 for a purchase price of $17,355,000. The ASML Building, which was built in 2000, is a two-story office and warehouse building containing 95,133 rentable square feet located in Tempe, Arizona. The ASML Building is subject to a first priority mortgage in favor of SouthTrust securing a SouthTrust line of credit, which is more particularly described in the “Real Estate Loans” section of this prospectus.
 
The ASML Building is leased to ASM Lithography, Inc. (ASML). ASML is a wholly-owned subsidiary of ASM Lithography Holdings NV (ASML Holdings), a Dutch multi-national corporation that supplies lithography systems used for printing integrated circuit designs onto very thin disks of silicon, commonly referred to as wafers. These systems are supplied to integrated circuit manufacturers throughout the United States, Asia and Western Europe. ASML Holdings, a guarantor of the ASML lease, reported a net worth, as of December 31, 2001, of approximately $1.1 billion.
 
The ASML lease commenced in June 1998 and expires in June 2013. The current annual base rent payable under the ASML lease is $1,927,788. ASML has an expansion option which allows ASML the ability to expand the building into at least an additional 30,000 rentable square feet, to be constructed by Wells OP. If the expansion option exercised is for less than 30,000 square feet, Wells OP may reject the exercise at its sole discretion. In the event that ASML exercises its expansion option after the first five years of the initial lease term, such lease term will be extended to 10 years from the date of such expansion.
 
The ASML Building is subject to a ground lease that commenced in August 1997 and expires in December 2082. Wells OP has the right to terminate the ASML ground lease prior to the expiration of the 30th year, and prior to the expiration of each subsequent 10-year period thereafter. The current annual ground lease payment pursuant to the ASML ground lease is $186,368.
 
Dial Building
 
Wells OP purchased the Dial Building on March 29, 2000 for a purchase price of $14,250,000. The Dial Building, which was built in 1997, is a two-story office building containing 129,689 rentable square feet located in Scottsdale, Arizona. The Dial Building is subject to a first priority mortgage in favor of SouthTrust securing a SouthTrust line of credit, which is more particularly described in the “Real Estate Loans” section of this prospectus.
 
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The Dial Building is leased to Dial Corporation (Dial). Dial currently has its headquarters in the Dial Building and is one of the leading consumer product manufacturers in the United States. Dial’s brands include Dial soap, Purex detergents, Renuzit air fresheners, Armour canned meats, and a variety of other leading consumer products. Dial reported a net worth, as of December 31, 2001, of approximately $81.8 million.
 
The Dial lease commenced in August 1997 and expires in August 2008. Dial has the right to extend the Dial lease for two additional five-year periods of time at 95% of the then-current fair market rental rate. The annual rent payable for the initial term of the Dial lease is $1,387,672.
 
Metris Tulsa Building
 
Wells OP purchased the Metris Tulsa Building on February 11, 2000 for a purchase price of $12,700,000. The Metris Tulsa Building, which was built in 2000, is a three-story office building containing 101,100 rentable square feet located in Tulsa, Oklahoma.
 
The Metris Tulsa Building is leased to Metris Direct, Inc. (Metris). Metris Companies, Inc., the parent company of Metris, has guaranteed the Metris Tulsa lease. The Metris Tulsa lease commenced in February 2000 and expires in January 2010. Metris has the right to extend the Metris Tulsa lease for two additional five-year periods of time. The monthly base rent payable for the renewal terms of the Metris Tulsa lease shall be equal to the then-current market rate. The current annual base rent payable for the Metris Tulsa lease is $1,187,925.
 
Cinemark Building
 
Wells OP purchased the Cinemark Building on December 21, 1999 for a purchase price of $21,800,000. The Cinemark Building, which was built in 1999, is a five-story office building containing 118,108 rentable square feet located in Plano, Texas. The Cinemark Building is subject to a first priority mortgage in favor of SouthTrust securing a SouthTrust line of credit, which is more particularly described in the “Real Estate Loans” section of this prospectus.
 
The entire 118,108 rentable square feet of the Cinemark Building is currently leased to two tenants. Cinemark USA, Inc. (Cinemark) occupies 65,521 rentable square feet (56%) of the Cinemark Building, and The Coca-Cola Company (Coca-Cola) occupies the remaining 52,587 (44%) rentable square feet of the Cinemark Building.
 
Cinemark, a privately owned company, is one of the largest motion picture exhibitors in North and South America. Cinemark currently operates in excess of 2,575 screens in 32 states within the United States and internationally in countries such as Argentina, Brazil, Canada, Chile, Costa Rica, Ecuador, El Salvador, Honduras, Nicaragua, Mexico and Peru. Cinemark reported a net worth, as of December 31, 2001, of approximately $25.3 million.
 
The Cinemark lease commenced in December 1999 and expires in December 2009. Cinemark has the right to extend the Cinemark lease for one additional five-year period of time and a subsequent additional 10-year period of time. The monthly base rent payable for the second renewal term of the Cinemark lease shall be equal to 95% of the then-current market rate. Cinemark has a right of first refusal to lease any of the remaining rentable area of the Cinemark Building that subsequently becomes vacant. The current annual base rent payable for the Cinemark lease is $1,366,491.
 
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Coca-Cola is the global soft-drink industry leader with world headquarters in Atlanta, Georgia. Coca-Cola manufactures and sells syrups, concentrates and beverage bases for Coca-Cola, the company’s flagship brand, and over 160 other soft drink brands in nearly 200 countries around the world. Coca-Cola reported a net worth, as of December 31, 2001, of approximately $11.4 billion.
 
The Coca-Cola lease commenced in December 1999 and expires in November 2006. Coca-Cola has the right to extend the lease for two additional five-year periods of time. The current annual base rent payable for the Coca-Cola lease is $1,354,184.
 
Gartner Building
 
The XI-XII-REIT Joint Venture purchased the Gartner Building on September 20, 1999 for a purchase price of $8,320,000. The Gartner Building, which was built in 1998, is a two-story office building containing 62,400 rentable square feet located in Fort Myers, Florida.
 
The Gartner Building is currently leased to The Gartner Group, Inc. (Gartner). The Gartner Building is occupied by Gartner’s Financial Services Division. Gartner is one of the world’s leading independent providers of research and analysis related to information and technology solutions. Gartner has over 80 locations worldwide and over 12,000 clients.
 
The Gartner lease commenced in February 1998 and expires in January 2008. Gartner has the right to extend the lease for two additional five-year periods of time at a rate equal to the lesser of (1) the prior rate increased by 2.5%, or (2) 95% of the then-current market rate. The current annual base rent payable for the Gartner lease is $830,656.
 
Videojet Technologies Chicago Building
 
Wells OP purchased the Videojet Technologies Chicago Building on September 10, 1999 for a purchase price of $32,630,940. The Videojet Technologies Chicago Building, which was built in 1991, is a two-story office, assembly and manufacturing building containing 250,354 rentable square located in Wood Dale, Illinois. The Videojet Technologies Chicago Building is subject to a first priority mortgage in favor of Bank of America, N.A. (BOA) securing the BOA loan, which is more particularly described in the “Real Estate Loans” section of this prospectus.
 
The Videojet Technologies Chicago Building is leased to Videojet Technologies, Inc. (Videojet). Videojet is one of the largest manufacturers of digital imaging, process control, and asset management systems worldwide. In February 2002, Videojet was acquired by Danaher Corporation (Danaher), a company whose shares are traded on the NYSE. Danaher is a leading manufacturer of process and environmental controls and tools and components.
 
The Videojet lease commenced in November 1991 and expires in November 2011. Videojet has the right to extend the Videojet lease for one additional five-year period of time. The current annual base rent payable for the Videojet lease is $3,376,746.
 
Johnson Matthey Building
 
The XI-XII-REIT Joint Venture purchased the Johnson Matthey Building on August 17, 1999 for a purchase price of $8,000,000. The Johnson Matthey Building, which was built in 1973 and refurbished in 1998, is a 130,000 square foot research and development, office and warehouse building located in Wayne, Pennsylvania.
 
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The Johnson Matthey Building is currently leased to Johnson Matthey, Inc. (Johnson Matthey). Johnson Matthey is a wholly-owned subsidiary of Johnson Matthey, PLC of the United Kingdom, a world leader in advanced materials technology. Johnson Matthey, PLC, a company whose shares are publicly traded, is over 175 years old, has operations in 38 countries and employs 12,000 people. Johnson Matthey reported a net worth, as of September 30, 2001, of approximately $1.16 billion.
 
The Johnson Matthey lease commenced in July 1998 and expires in June 2007. Johnson Matthey has the right to extend the lease for two additional three-year periods of time at the then-current fair market rent. Johnson Matthey has a right of first refusal to purchase the Johnson Matthey Building in the event that the XI-XII-REIT Joint Venture desires to sell the building to an unrelated third-party. The current annual base rent payable under the Johnson Matthey lease is $854,748.
 
Alstom Power Richmond Building
 
Wells OP purchased a 7.49 acre tract of land on July 22, 1999 for a purchase price of $936,250 and completed construction of the Alstom Power Richmond Building at an aggregate cost of approximately $11,400,000, including the cost of the land. The Alstom Power Richmond Building, which was built in 2000, is a four-story brick office building containing 99,057 gross square feet located in Midlothian, Virginia.
 
Wells OP originally obtained a construction loan from SouthTrust in the maximum principal amount of $9,280,000 to fund the development and construction of the Alstom Power Richmond Building. This loan, which is more specifically detailed in the “Real Estate Loans” section of this prospectus, was converted to a line of credit and is secured by a first priority mortgage against the Alstom Power Richmond Building, an assignment of the landlord’s interest in the Alstom Power Richmond lease and a $4,000,000 letter of credit issued by Unibank.
 
The Alstom Power Richmond Building is leased to Alstom Power, Inc. (Alstom Power). Alstom Power is the result of the December 30, 1999 merger between ABB Power Generation, Inc. and ABB Alstom Power, Inc. Alstom Power reported a net worth, as of September 30, 2001, of approximately $1.8 billion.
 
The Alstom Power Richmond lease commenced in July 2000 and expires in July 2007. Alstom Power has the right to extend the lease for two additional five-year periods of time at the then-current market rental rate. The current annual base rent payable for the Alstom Power lease is $1,213,324.
 
Alstom Power has a one-time option to terminate the Alstom Power lease as to a portion of the premises containing between 24,500 and 25,500 rentable square feet as of the fifth anniversary of the rental commencement date and Alstom Power will be required to pay a termination fee equal to six times the sum of the next due installments of rent plus the unamortized portions of the base improvement allowance, additional allowance and broker commission, each being amortized in equal monthly installments of principal and interest over the initial term of the lease at an annual rate of 10%.
 
Sprint Building
 
The XI-XII-REIT Joint Venture purchased the Sprint Building on July 2, 1999 for a purchase price of $9,500,000. The Sprint Building, which was built in 1992, is a three-story office building containing 68,900 rentable square feet located in Leawood, Kansas.
 
The Sprint Building is leased to Sprint Communications Company L.P. (Sprint). Sprint is the nation’s third largest long distance phone company, which operates on an all-digital long distance
 
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telecommunications network using state-of-the-art fiber optic and electronic technology. Sprint reported a net worth, as of December 31, 2001, of approximately $12.6 billion.
 
The Sprint lease commenced in May 1997 and expires in May 2007, subject to Sprint’s right to extend the lease for two additional five-year periods of time. The annual base rent payable under the Sprint lease is $1,102,404 for the remainder of the lease term. The monthly base rent payable for each extended term of the Sprint lease will be equal to 95% of the then-current market rental rate.
 
The Sprint lease contains a termination option which may be exercised by Sprint effective as of May 18, 2004 provided that Sprint has not exercised either expansion option, as described below. Sprint must provide notice to the XI-XII-REIT Joint Venture of its intent to exercise its termination option on or before August 21, 2003. If Sprint exercises its termination option, it will be required to pay the joint venture a termination payment equal to $6.53 per square foot, or $450,199.
 
Sprint also has an expansion option for an additional 20,000 square feet of office space. If Sprint exercises an expansion option, the XI-XII-REIT Joint Venture will be required to construct the expansion improvements in accordance with the specific drawings and plans attached as an exhibit to the Sprint lease. The joint venture will be required to fund the expansion improvements and to fund to Sprint a tenant finish allowance of $10 per square foot for the expansion space.
 
EYBL CarTex Building
 
The XI-XII-REIT Joint Venture purchased the EYBL CarTex Building on May 18, 1999 for a purchase price of $5,085,000. The EYBL CarTex Building, which was built in 1989, is a manufacturing and office building consisting of a total of 169,510 square feet located in Fountain Inn, South Carolina.
 
The EYBL CarTex Building is leased to EYBL CarTex, Inc. (EYBL CarTex). EYBL CarTex produces automotive textiles for BMW, Mercedes, GM Bali, VW Mexico and Golf A4. EYBL CarTex is a wholly-owned subsidiary of EYBL International, AG, Krems/Austria. EYBL International is the world’s largest producer of circular knit textile products and loop pile plushes for the automotive industry. EYBL International reported a net worth, as of September 30, 2001, of approximately $41.5 billion.
 
The EYBL CarTex lease commenced in March 1998 and expires in February 2008, subject to EYBL CarTex’s right to extend the lease for two additional five-year periods of time. The monthly base rent payable for each extended term of the lease will be equal to the fair market rent. In addition, EYBL CarTex has an option to purchase the EYBL CarTex Building at the expiration of the initial lease term by giving notice to the landlord by March 1, 2007. The current annual base rent payable under the EYBL CarTex lease is $550,908.
 
Matsushita Building
 
Wells OP purchased an 8.8 acre tract of land on March 15, 1999, for a purchase price of $4,450,230. Wells OP completed construction of the Matsushita Building in 2000 at an aggregate cost of $18,431,206, including the cost of the land. The Matsushita Building is a two-story office building containing 144,906 rentable square feet located in Lake Forest, California.
 
The Matsushita Building is leased to Matsushita Avionics Systems Corporation (Matsushita Avionics). Matsushita Avionics is a wholly-owned subsidiary of Matsushita Electric Corporation of America (Matsushita Electric). Matsushita Electric, a guarantor of the Matsushita lease, is a wholly-owned subsidiary of Matsushita Electric Industrial Co., Ltd. (Matsushita Industrial), a Japanese company which is the world’s largest consumer electronics manufacturer.
 
The Matsushita lease commenced in January 2000 and expires in January 2007. Matsushita Avionics has the option to extend the initial term of the Matsushita lease for two successive five-year
 
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periods at a rate of 95% of the stated rental rate. The monthly base rent during the option term shall be adjusted upward at the beginning of the 24th and 48th month of each option term by an amount equal to 6% of the monthly base rent payable immediately preceding such period. The current annual base rent payable for the Matsushita lease is $2,005,464.
 
AT&T Pennsylvania Building
 
Wells OP purchased the AT&T Pennsylvania Building on February 4, 1999 for a purchase price of $12,291,200. The AT&T Pennsylvania Building, which was built in 1998, is a four-story office building containing 81,859 rentable square feet located in Harrisburg, Pennsylvania.
 
The AT&T Pennsylvania Building is leased to Pennsylvania Cellular Telephone Corp. (Pennsylvania Telephone), a subsidiary of AT&T Corp. (AT&T), and the obligations of Pennsylvania Telephone under the Pennsylvania Telephone lease are guaranteed by AT&T.
 
The Pennsylvania Telephone lease commenced in November 1998 and expires in November 2008. Pennsylvania Telephone has the option to extend the initial term of the Pennsylvania Telephone lease for three additional five-year periods and one additional four year and 11-month period. The annual base rent for each extended term under the lease will be equal to 93% of the fair market rent. The fair market rent shall be multiplied by the fair market escalator (which represents the yearly rate of increases in the fair market rent for the entire renewal term), if any. The current annual base rent payable for the Pennsylvania Telephone lease is $1,442,116.
 
In addition, the Pennsylvania Telephone lease contains an option to expand the premises to create additional office space of not less than 40,000 gross square feet and not more than 90,000 gross square feet, as well as additional parking to accommodate such office space. If Pennsylvania Telephone exercises its option for the expansion improvements, Wells OP will be obligated to expend the funds necessary to construct the expansion improvements. Pennsylvania Telephone may exercise its expansion option by delivering written notice to Wells OP at any time before the last business day of the 96th month of the initial term of the Pennsylvania Telephone lease.
 
PwC Building
 
Wells OP purchased the PwC Building on December 31, 1998 for a purchase price of $21,127,854. The PwC Building, which was built in 1998, is a four-story office building containing 130,091 rentable square feet located in Tampa, Florida. Wells OP purchased the PwC Building subject to a loan from SouthTrust. The SouthTrust loan, which is more particularly described in the “Real Estate Loans” section of this prospectus, is secured by a first priority mortgage against the PwC Building.
 
The PwC Building is leased to PricewaterhouseCoopers (PwC). PwC provides a full range of business advisory services to leading global, national and local companies and to public institutions.
 
The PwC lease commenced in December 1998 and expires in December 2008, subject to PwC’s right to extend the lease for two additional five-year periods of time. The current annual base rent payable under the PwC lease is $2,093,382. The base rent escalates at the rate of 3% per year throughout the 10-year lease term. In addition, PwC is required to pay a “reserve” of $13,009 ($0.10 per square foot) as additional rent.
 
The annual base rent for each renewal term under the lease will be equal to the greater of (1) 90% of the then-current market rent rate for such space multiplied by the rentable area of the leased premises, or (2) 100% of the base rent paid during the last lease year of the initial term, or the then-current renewal term.
 
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In addition, the PwC lease contains an option to expand the premises to include an additional three or four-story building with an amount of square feet up to a total of 132,000 square feet which, if exercised by PwC, will require Wells OP to expend funds necessary to construct the expansion building. PwC may exercise its expansion option at any time prior to the expiration of the initial term of the PwC lease.
 
If PwC elects to exercise its expansion option, Wells OP will be required to expand the parking garage such that a sufficient number of parking spaces, at least equal to four parking spaces per 1,000 square feet of rentable area, is maintained. In the event that PwC elects to exercise its expansion option and Wells OP determines not to proceed with the construction of the expansion building as described above, or if Wells OP is otherwise required to construct the expansion building and fails to do so in a timely basis pursuant to the PwC lease, PwC may exercise its purchase option by giving Wells OP written notice of such exercise within 30 days after either such event. If PwC properly exercises its purchase option, PwC must simultaneously deliver a deposit in the amount of $50,000.
 
Cort Furniture Building
 
The Cort Joint Venture purchased the Cort Furniture Building on July 31, 1998 for a purchase price of $6,400,000. The Cort Furniture Building, which was built in 1975, is a one-story office, showroom and warehouse building containing 52,000 rentable square feet located in Fountain Valley, California.
 
The Cort Furniture Building is leased to Cort Furniture Rental Corporation (Cort). Cort uses the Cort Furniture Building as its regional corporate headquarters with an attached clearance showroom and warehouse storage areas. Cort is a wholly-owned subsidiary of Cort Business Services Corporation, the largest and only national provider of high-quality office and residential rental furniture and related accessories. The obligations of Cort under the Cort Furniture lease are guaranteed by Cort Business Services Corporation.
 
The Cort lease commenced in November 1988 and expires in October 2003. Cort has an option to extend the Cort lease for an additional five-year period of time at 90% of the then-fair market rental value, but will be no less than the rent in the 15th year of the Cort lease. The current annual base rent payable under the Cort lease is $834,888 for the remainder of the lease term.
 
Fairchild Building
 
The Fremont Joint Venture purchased the Fairchild Building on July 21, 1998 for a purchase price of $8,900,000. The Fairchild Building, which was built in 1985, is a two-story manufacturing and office building containing 58,424 rentable square feet located in Fremont, Alameda County, California.
 
The Fairchild Building is leased to Fairchild Technologies U.S.A., Inc. (Fairchild). Fairchild is a global leader in the design and manufacture of production equipment for semiconductor and compact disk manufacturing. Fairchild is a wholly-owned subsidiary of the Fairchild Corporation (Fairchild Corp), the largest aerospace fastener and fastening system manufacturer and one of the largest independent aerospace parts distributors in the world. The obligations of Fairchild under the Fairchild lease are guaranteed by Fairchild Corp. Fairchild Corp. reported a net worth, as of December 30, 2001, of approximately $403 million.
 
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The Fairchild lease commenced in December 1997 and expires in November 2004, subject to Fairchild’s right to extend the Fairchild lease for an additional five-year period. The base rent during the first year of the extended term of the Fairchild lease, if exercised by Fairchild, shall be 95% of the then-fair market rental value of the Fairchild Building subject to the annual 3% increase adjustments. The current annual base rent payable under the Fairchild lease is $920,144.
 
Avaya Building
 
The Avaya Building was purchased by the IX-X-XI-REIT Joint Venture on June 24, 1998 for a purchase price of $5,504,276. The Avaya Building, which was built in 1998, is a one-story office building containing 57,186 rentable square feet located in Oklahoma City, Oklahoma.
 
The Avaya Building is leased to Avaya, Inc. (Avaya), the former Enterprise Networks Group of Lucent Technologies Inc. (Lucent Technologies). Lucent Technologies, the former tenant, assigned the lease to Avaya on September 30, 2000. Lucent Technologies, which has not been released from its obligations as tenant to pay rent under the lease, is a telecommunications company which was spun off by AT&T in April 1996. Avaya reported a net worth, as of December 31, 2001, of approximately $452 million. Lucent Technologies reported a net worth, as of December 31, 2001, of approximately $10.63 billion.
 
The Avaya lease commenced in January 1998 and expires in January 2008. The current annual base rent payable under the Avaya lease is $536,977. Under the Avaya lease, Avaya also has an option to terminate the Avaya lease on the seventh anniversary of the rental commencement date. If Avaya elects to exercise its option to terminate the Avaya lease, Avaya would be required to pay a termination payment anticipated to be approximately $1,339,000.
 
Iomega Building
 
Wells Fund X originally purchased the Iomega Building on April 1, 1998 for a purchase price of $5,025,000 and, on July 1, 1998, contributed the Iomega Building to the IX-X-XI-REIT Joint Venture. The Iomega Building is a warehouse and office building with 108,250 rentable square feet located in Ogden, Utah.
 
The Iomega Building is leased to Iomega Corporation (Iomega). Iomega, a company whose shares are traded on the NYSE, is a manufacturer of computer storage devices used by individuals, businesses, government and educational institutions, including “Zip” drives and disks, “Jaz” one gigabyte drives and disks, and tape backup drives and cartridges. Iomega reported a net worth, as of December 31, 2001, of approximately $378.9 million.
 
The Iomega lease commenced in August 1996 and expires in April 2009. On March 1, 2003 and July 1, 2006, the monthly base rent payable under the Iomega lease will be increased to reflect an amount equal to 100% of the increase in the Consumer Price Index during the preceding 40 months; provided however, that in no event shall the base rent be increased with respect to any one year by more than 6% or by less than 3% per year, compounded annually, on a cumulative basis from the beginning of the lease term. The current annual base rent payable under the Iomega lease is $659,868.
 
Interlocken Building
 
The IX-X-XI-REIT Joint Venture purchased the Interlocken Building on March 20, 1998 for a purchase price of $8,275,000. The Interlocken Building, which was built in 1996, is a three-story multi-tenant office building containing 51,975 rentable square feet located in Broomfield, Colorado. The aggregate current annual base rent payable for all tenants of the Interlocken Building is $1,070,515.
 
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Ohmeda Building
 
The IX-X-XI-REIT Joint Venture purchased the Ohmeda Building on February 13, 1998 for a purchase price of $10,325,000. The Ohmeda Building, which was built in 1988, is a two-story office building containing 106,750 rentable square feet located in Louisville, Colorado.
 
The Ohmeda Building is leased to Ohmeda, Inc. (Ohmeda). Ohmeda is a medical supply firm based in Boulder, Colorado and is a worldwide leader in vascular access and hemodynamic monitoring for hospital patients. On April 13, 1998, Instrumentarium Corporation (Instrumentarium), a Finnish company, acquired the division of Ohmeda that occupies the Ohmeda Building. Instrumentarium, a guarantor on the Ohmeda lease, is an international health care company concentrating on selected fields of medical technology manufacturing, marketing and distribution. Instrumentarium reported a net worth, as of December 31, 2001, of approximately $480 million.
 
The Ohmeda lease expires in January 2005, subject to Ohmeda’s right to extend the Ohmeda lease for two additional five-year periods of time. The current annual base rent payable under the Ohmeda lease is $1,004,520.
 
The Ohmeda lease contains an option to expand the premises by an amount of square feet up to a total of 200,000 square feet which, if exercised by Ohmeda, will require the IX-X-XI-REIT Joint Venture to expend funds necessary to acquire additional land, if necessary, and to construct the expansion space.
 
Alstom Power Knoxville Building
 
Wells Fund IX purchased the land and constructed the Alstom Power Knoxville Building. The Alstom Power Knoxville Building, which was built in 1997, is a three-story multi-tenant steel-framed office building containing 84,404 square feet located in Knoxville, Tennessee. Wells Fund IX contributed the Alstom Power Knoxville Building to the IX-X-XI-REIT Joint Venture on March 26, 1997 and was credited with making a $7,900,000 capital contribution to the IX-X-XI-REIT Joint Venture.
 
The Alstom Power Knoxville Building is currently leased to Alstom Power, Inc. (Alstom Power). Alstom Power is the result of the December 30, 1999 merger between ABB Power Generation, Inc. and ABB Alstom Power, Inc. Alstom Power reported a net worth, as of September 30, 2001, of approximately $1.8 billion.
 
As security for Alstom Power’s obligations under its lease, Alstom Power has provided to the IX-X-XI-REIT Joint Venture an irrevocable standby letter of credit in accordance with the terms and conditions set forth in the Alstom Power Knoxville lease. The letter of credit maintained by Alstom Power is required to be in the amount of $4,000,000 until the seventh anniversary of the rental commencement date (January 2005), at which time it will be reduced by $1,000,000 each year until the end of the lease term.
 
The Alstom Power Knoxville lease commenced in January 1998 and expires in November 2007. The current annual base rent for the Alstom Power Knoxville lease is $1,106,520.
 
Alstom Power has an option to terminate the Alstom Power Knoxville lease as of the seventh anniversary of the rental commencement date. If Alstom Power elects to exercise this termination option, Alstom Power is required to pay to the IX-X-XI-REIT Joint Venture a termination payment currently estimated to be approximately $1,800,000 based upon certain assumptions.
 
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Property Management Fees
 
Wells Management, our Property Manager, has been retained to manage and lease substantially all of our properties. Except as set forth below, we pay management and leasing fees to Wells Management in an amount equal to the lesser of: (A) 4.5% of gross revenues, or (B) 0.6% of the net asset value of the properties (excluding vacant properties) owned by the Wells REIT, calculated on an annual basis. For purposes of this calculation, net asset value shall be defined as the excess of (1) the aggregate of the fair market value of all properties owned by the Wells REIT (excluding vacant properties), over (2) the aggregate outstanding debt of the Wells REIT (excluding debts having maturities of one year or less). In addition, we may pay Wells Management a separate fee for the one-time initial rent-up or leasing-up of newly constructed properties in an amount not to exceed the fee customarily charged in arm’s length transactions by others rendering similar services in the same geographic area for similar properties as determined by a survey of brokers and agents in such area (customarily equal to the first month’s rent).
 
Wells Management has also been retained to manage and lease all of the properties currently owned by the IX-X-XI-REIT Joint Venture and the VIII-IX-REIT Joint Venture. While both Wells Fund XI and the Wells REIT are authorized to pay management and leasing fees to Wells Management in the amount of 4.5% of gross revenues, Wells Fund VIII, Wells Fund IX and Wells Fund X are authorized to pay aggregate management and leasing fees to Wells Management in the amount of 6% of gross revenues. Accordingly, a portion of the gross revenues of these joint ventures will be subject to a 6% management and leasing fee and a portion of gross revenues will be subject to a 4.5% management and leasing fee based upon the respective ownership percentages of the joint venture partners in each of these two joint ventures.
 
Wells Management also received or will receive a one-time initial lease-up fee equal to the first month’s rent for the leasing of the Alstom Power Knoxville Building, the Avaya Building, the Matsushita Building, the Alstom Power Richmond Building and the Nissan Project.
 
Real Estate Loans
 
SouthTrust Loans
 
Wells OP has established various secured lines of credit with SouthTrust Bank, N.A. (SouthTrust) whereby SouthTrust has agreed to lend an aggregate amount of up to $72,140,000 in connection with its purchase of real properties. The interest rate on each of these separate lines of credit is an annual variable rate equal to the London InterBank Offered Rate (LIBOR) for a 30-day period plus 175 basis points. Wells OP will be charged an advance fee of 0.125% of the amount of each advance. As of June 30, 2002, the interest rate on each of the SouthTrust lines of credit was 3.625% per annum.
 
The $32,393,000 SouthTrust Line of Credit
 
The $32,393,000 SouthTrust line of credit requires monthly payments of interest only and matures on September 10, 2002. This SouthTrust line of credit is secured by first priority mortgages against the Cinemark Building, the Dial Building and the ASML Building. As of June 30, 2002, there was no outstanding principal balance due on the $32,393,000 SouthTrust line of credit.
 
The $12,844,000 SouthTrust Line of Credit
 
The $12,844,000 SouthTrust line of credit requires monthly payments of interest only and matures on September 10, 2002. This SouthTrust line of credit is secured by a first priority mortgage against the PwC Building. As of June 30, 2002, there was no outstanding principal balance due on the $12,844,000 SouthTrust line of credit.
 
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The $19,003,000 SouthTrust Line of Credit
 
The $19,003,000 SouthTrust line of credit requires monthly payments of interest only and matures on September 10, 2002. This SouthTrust line of credit is secured by first priority mortgages against the Avnet Building and the Motorola Tempe Building. As of June 30, 2002, there was no outstanding principal balance due on the $19,003,000 SouthTrust line of credit.
 
The $7,900,000 SouthTrust Line of Credit
 
Wells OP originally obtained a loan from SouthTrust Bank, N.A. in connection with the acquisition, development and construction of the Alstom Power Richmond Building. After completion of construction, SouthTrust converted the construction loan into a separate line of credit in the maximum principal amount of up to $7,900,000. This SouthTrust line of credit requires payments of interest only and matures on September 10, 2002. The $7,900,000 SouthTrust line of credit is secured by a first priority mortgage against the Alstom Power Richmond Building, the Alstom Power Richmond lease and a $4,000,000 letter of credit issued by Unibank. As of June 30, 2002, the outstanding principal balance on the $7,900,000 SouthTrust line of credit was $7,655,600.
 
BOA Line of Credit
 
Wells OP established a secured line of credit in the amount of $85,000,000 with Bank of America, N.A. (BOA Line of Credit) in connection with its purchase of real properties. In addition, Wells OP may increase the BOA Line of Credit up to an amount of $110,000,000 with the lender’s approval. The interest rate on the BOA Line of Credit is an annual variable rate equal to LIBOR for a 30-day period plus 180 basis points. The BOA Line of Credit requires monthly payments of interest only and matures on May 11, 2004. As of June 30, 2002, the interest rate on the BOA Line of Credit was 3.63% per annum. The BOA Line of Credit is secured by first priority mortgages against the Videojet Technologies Chicago Building, the AT&T Pennsylvania Building, the Motorola Tempe Building, the Matsushita Building, the Metris Tulsa Building and the Delphi Building. As of June 30, 2002, there was no outstanding principal balance due on the BOA Line of Credit.
 
BOA Construction Loan
 
Wells OP obtained a construction loan in the amount of $34,200,000 from Bank of America, N.A. (BOA Loan), to fund the construction of a building on the Nissan Property located in Irving, Texas. The loan requires monthly payments of interest only and matures on July 30, 2003. The interest rate on the loan is fixed at 5.91%. As of June 30, 2002, the outstanding principal balance on the BOA Loan was $8,002,541. The BOA Loan is secured by a first priority mortgage on the Nissan Property.
 
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SELECTED FINANCIAL DATA
 
The Wells REIT commenced active operations when it received and accepted subscriptions for a minimum of 125,000 shares on June 5, 1998. The following sets forth a summary of the selected financial data for the fiscal year ended December 31, 2001, 2000 and 1999:
 
 	  	2001

	  	2000

	  	1999

	
Total assets	  	$	753,224,519	  	$	398,550,346	  	$	143,852,290	
Total revenues	  	 	49,308,802	  	 	23,373,206	  	 	6,495,395	
Net income	  	 	21,723,967	  	 	8,552,967	  	 	3,884,649	
Net income allocated to Stockholders	  	 	21,723,967	  	 	8,552,967	  	 	3,884,649	
Earning per share:	  	 	 	  	 	 	  	 	 	
Basic and diluted	  	 	$0.43	  	 	$0.40	  	 	$0.50	
Cash distributions	  	 	0.76	  	 	0.73	  	 	0.70	
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
The following discussion and analysis should be read in conjunction with our accompanying financial statements and the notes thereto.
 
General
 
Forward Looking Statements
 
This section and other sections in the prospectus contain forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934, including discussion and analysis of the financial condition of the Wells REIT, anticipated capital expenditures required to complete certain projects, amounts of anticipated cash distributions to stockholders in the future and certain other matters. Readers of this prospectus should be aware that there are various factors that could cause actual results to differ materially from any forward-looking statements made in this prospectus, which include changes in general economic conditions, changes in real estate conditions, construction costs which may exceed estimates, construction delays, increases in interest rates, lease-up risks, inability to obtain new tenants upon the expiration of existing leases, and the potential need to fund tenant improvements or other capital expenditures out of operating cash flow. (See generally “Risk Factors.”)
 
REIT Qualification
 
We have made an election under Section 856 (c) of the Internal Revenue Code to be taxed as a REIT under the Internal Revenue Code beginning with its taxable year ended December 31, 1999. As a REIT for federal income tax purposes, we generally will not be subject to Federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which our qualification is lost. Such an event could materially, adversely affect our net income. However, we believe that we are organized and operate in a manner, which has enabled us to qualify for treatment as a REIT for federal income tax purposes during the year ended December 31, 2001. In addition, we intend to continue to operate the Wells REIT so as to remain qualified as a REIT for federal income tax purposes.
 
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Liquidity and Capital Resources
 
During the fiscal year ended December 31, 2001, we received aggregate gross offering proceeds of $522,516,620 from the sale of 52,251,662 shares of our common stock. After payment of $18,143,307 in acquisition and advisory fees and acquisition expenses, payment of $58,387,809 in selling commissions and organization and offering expenses, and common stock redemptions of $4,137,427 pursuant to our share redemption program, we raised net offering proceeds available for investment in properties of $441,848,077 during the fiscal year ended December 31, 2001.
 
During the three months ended March 31, 2002, we received aggregate gross offering proceeds of $255,702,943 from the sale of 25,570,294 shares of our common stock. After payment of $8,843,134 in acquisition and advisory fees and acquisition expenses, payment of $27,106,265 in selling commissions and organization and offering expenses, and common stock redemptions of $3,041,981 pursuant to our share redemption program, we raised net offering proceeds of $216,711,563 during the first quarter of 2002, of which $185,290,197 remained available for investment in properties at quarter end.
 
During the three months ended March 31, 2001, we received aggregate gross offering proceeds of $66,174,704 from the sale of 6,617,470 shares of our common stock. After payment of $2,288,933 in acquisition and advisory fees and acquisition expenses, payment of $8,175,768 in selling commissions and organizational and offering expenses, and common stock redemptions of $776,555 pursuant to our share redemption program, we raised net offering proceeds of $54,933,448, of which $5,952,930 was available for investment in properties at quarter end.
 
The net increase in cash and cash equivalents during the fiscal year ended December 31, 2001, as compared to the fiscal year ended December 31, 2000, and for the three months ended March 31, 2002, as compared to the three months ended March 31, 2001, is primarily the result of raising increased amounts of capital from the sale of shares of common stock, offset by the acquisition of properties during 2001 and the first quarter of 2002, and the payment of acquisition and advisory fees and acquisition expenses, commissions and, organization and offering costs.
 
As of March 31, 2002, we owned interests in 44 real estate properties either directly or through interests in joint ventures. These properties are generating operating cash flow sufficient to cover our operating expenses and pay dividends to our stockholders. We pay dividends on a quarterly basis regardless of the frequency with which such distributions are declared. Dividends will be paid to investors who are stockholders as of the record dates selected by our board of directors. We currently calculate quarterly dividends based on the daily record and dividend declaration dates; thus, stockholders are entitled to receive dividends immediately upon the purchase of shares. Dividends declared during 2001 and 2000 totaled $0.76 per share and $0.73 per share, respectively. Dividends declared for the first quarter of 2002 and the first quarter of 2001 were approximately $0.194 and $0.188 per share, respectively.
 
Dividends to be distributed to the stockholders are determined by our board of directors and are dependent on a number of factors, including funds available for payment of dividends, financial condition, capital expenditure requirements and annual distribution requirements in order to maintain our status as a REIT under the Internal Revenue Code. Operating cash flows are expected to increase as additional properties are added to our investment portfolio.
 
Cash Flows From Operating Activities
 
Our net cash provided by operating activities was $42,349,342 for the fiscal year ended December 31, 2001, $7,319,639 for the fiscal year ended December 31, 2000 and $4,008,275 for the fiscal year ended December 31, 1999. The increase in net cash provided by operating activities was due primarily to the net income generated by properties acquired during 2000 and 2001.
 
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Our net cash provided by operating activities was $13,117,549 and $8,235,314 for the three months ended March 31, 2002 and 2001, respectively. The increase in net cash provided by operating activities was due primarily to the net income generated by additional properties acquired during 2002 and 2001.
 
Cash Flows From Investing Activities
 
Our net cash used in investing activities was $274,605,735 for the fiscal year ended December 31, 2001, $249,316,460 for the fiscal year ended December 31, 2000 and $105,394,956 for the fiscal year ended December 31, 1999. The increase in net cash used in investing activities was due primarily to investments in properties, directly and through contributions to joint ventures, and the payment of related deferred project costs.
 
Our net cash used in investing activities was $111,821,692 and $4,264,257 for the three months ended March 31, 2002 and 2001, respectively. The increase in net cash used in investing activities was due primarily to investments in properties and the payment of related deferred project costs, partially offset by distributions received from joint ventures.
 
Cash Flows From Financing Activities
 
Our net cash provided by financing activities was $303,544,260 for the fiscal year ended December 31, 2001, $243,365,318 for the fiscal year ended December 31, 2000, and $96,337,082 for the fiscal year ended December 31, 1999. The increase in net cash provided by financing activities was due primarily to the raising of additional capital offset by the repayment of notes payable. We raised $522,516,620 in offering proceeds for fiscal year ended December 31, 2001, as compared to $180,387,220 for fiscal year ended December 31, 2000, and $103,169,490 for fiscal year ended December 31, 1999. In addition, we received loan proceeds from financing secured by properties of $110,243,145 and repaid notes payable in the amount of $229,781,888 for fiscal year ended December 31, 2001.
 
Our net cash provided by financing activities was $210,144,548 for the three months ended March 31, 2002 and net cash used in financing activities for the three months ended March 31, 2001 was $113,042. The increase in net cash provided by financing activities was due primarily to the raising of additional capital and the related repayment of notes payable. We raised $255,702,943 in offering proceeds for the three months ended March 31, 2002, as compared to $66,174,705 for the same period in 2001.
 
Results of Operations
 
Comparison of Fiscal Years Ended December 31, 2001, 2000 and 1999
 
Gross revenues were $49,308,802 for the fiscal year ended December 31, 2001, $23,373,206 for fiscal year ended December 31, 2000 and $6,495,395 for fiscal year ended December 31, 1999. Gross revenues for the year ended December 31, 2001, 2000 and 1999 were attributable to rental income, interest income earned on funds we held prior to the investment in properties, and income earned from joint ventures. The increase in revenues for the fiscal year ended December 31, 2001 was primarily attributable to the purchase of additional properties during 2000 and 2001. The purchase of additional properties also resulted in an increase in expenses which totaled $27,584,835 for the fiscal year ended December 31, 2001, $14,820,239 for the fiscal year ended December 31, 2000 and $2,610,746 for the fiscal year ended December 31, 1999. Expenses in 2001, 2000 and 1999 consisted primarily of depreciation, interest expense and management and leasing fees. Our net income also increased from
 
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$3,884,649 for fiscal year ended December 31, 1999 to $8,552,967 for fiscal year ended December 31, 2000 to $21,723,967 for the year ended December 31, 2001.
 
Comparison of First Quarter 2002 and 2001
 
As of March 31, 2002, our real estate properties were 100% leased to tenants. Gross revenues were $19,192,803 and $10,669,713 for the three months ended March 31, 2002 and 2001, respectively. Gross revenues for the three months ended March 31, 2002 and 2001 were attributable to rental income, interest income earned on funds we held prior to the investment in properties, and income earned from joint ventures. The increase in revenues in 2002 was primarily attributable to the purchase of additional properties for $104,051,998 during 2002 and the purchase of additional properties for $227,933,858 in the last three quarters of 2001. The purchase of additional properties also resulted in an increase in expenses which totaled $8,413,139 for the three months ended March 31, 2002, as compared to $7,394,368 for the three months ended March 31, 2001. Expenses in 2002 and 2001 consisted primarily of depreciation, interest expense, management and leasing fees and general and administrative costs. As a result, our net income also increased from $3,275,345 for the three months ended March 31, 2001 to $10,779,664 for the three months ended March 31, 2002.
 
Property Operations
 
The following table summarizes the operations of the joint ventures in which we owned an interest as of December 31, 2001, 2000 and 1999:
 
 	  	Total Revenue
For Years Ended December 31

	  	Net Income
For Years Ended December 31

	  	Well REIT’s Share of Net Income
For Years Ended December 31

	
 	  	2001

	  	2000

	  	1999

	  	2001

	  	2000

	  	1999

	  	2001

	  	2000

	  	1999

	
Fund IX-X-XI-REIT Joint Venture	  	$	4,344,209	  	$	4,388,193	  	$	4,053,042	  	$	2,684,837	  	$	2,669,143	  	$	2,172,244	  	$	99,649	  	$	99,177	  	$	81,501	
 	 	 	 	 	 	 	 	 	 	
Orange County Joint Venture	  	 	797,937	  	 	795,545	  	 	795,545	  	 	546,171	  	 	568,961	  	 	550,952	  	 	238,542	  	 	248,449	  	 	240,585	
 	 	 	 	 	 	 	 	 	 	
Fremont Joint Venture	  	 	907,673	  	 	902,946	  	 	902,946	  	 	562,893	  	 	563,133	  	 	559,174	  	 	436,265	  	 	436,452	  	 	433,383	
 	 	 	 	 	 	 	 	 	 	
Fund XI-XII-REIT Joint Venture	  	 	3,371,067	  	 	3,349,186	  	 	1,443,503	  	 	2,064,911	  	 	2,078,556	  	 	853,073	  	 	1,172,103	  	 	1,179,848	  	 	488,500	
 	 	 	 	 	 	 	 	 	 	
Fund XII-REIT Joint Venture	  	 	4,708,467	  	 	976,865	  	 	N/A	  	 	2,611,522	  	 	614,250	  	 	N/A	  	 	1,386,877	  	 	305,060	  	 	N/A	
 	 	 	 	 	 	 	 	 	 	
Fund VIII-IX-REIT Joint Venture	  	 	1,208,724	  	 	563,049	  	 	N/A	  	 	566,840	  	 	309,893	  	 	N/A	  	 	89,779	  	 	24,887	  	 	N/A	
Fund XIII- REIT Joint Venture	  	 	706,373	  	 	N/A	  	 	N/A	  	 	356,355	  	 	N/A	  	 	N/A	  	 	297,745	  	 	N/A	  	 	N/A	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	
 	  	$	16,044,450	  	$	10,975,784	  	$	7,195,036	  	$	8,977,529	  	$	6,803,936	  	$	4,135,443	  	$	3,720,960	  	$	2,293,873	  	$	1,243,969	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	

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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 years ended December 31, 2001, 2000, and 1999, respectively:
 
 	  	December 31,
2001

	 	 	December 31,
2000

	 	 	December 31,
1999

	 	
FUNDS FROM OPERATIONS:	  	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	$	21,723,967	 	 	$	8,552,967	 	 	$	3,884,649	 	
Add:	  	 	 	 	 	 	 	 	 	 	 	 	
Depreciation of real assets	  	 	15,344,801	 	 	 	7,743,550	 	 	 	1,726,103	 	
Amortization of deferred leasing costs	  	 	303,347	 	 	 	350,991	 	 	 	0	 	
Depreciation and amortization—unconsolidated partnerships	  	 	3,211,828	 	 	 	852,968	 	 	 	652,167	 	

	

	

	 	

	

	

	 	

	

	

	
Funds from operations (FFO)	  	 	40,583,943	 	 	 	17,500,476	 	 	 	6,262,919	 	
Adjustments:	  	 	 	 	 	 	 	 	 	 	 	 	
Loan cost amortization	  	 	770,192	 	 	 	232,559	 	 	 	8,921	 	
Straight line rent	  	 	(2,754,877	)	 	 	(1,650,791	)	 	 	(847,814	)	
Straight line rent—unconsolidated partnerships	  	 	(543,039	)	 	 	(245,288	)	 	 	(140,076	)	
Lease acquisition fees paid	  	 	0	 	 	 	(152,500	)	 	 	0	 	
Lease acquisition fees paid—Unconsolidated partnerships	  	 	0	 	 	 	(8,002	)	 	 	(512	)	

	

	

	 	

	

	

	 	

	

	

	
Adjusted funds from operations	  	$	38,056,219	 	 	$	15,676,454	 	 	$	5,283,438	 	

	

	

	 	

	

	

	 	

	

	

	
WEIGHTED AVERAGE SHARES:	  	 	 	 	 	 	 	 	 	 	 	 	
BASIC AND DILUTED	  	 	51,081,867	 	 	 	21,616,051	 	 	 	7,769,298	 	

	

	

	 	

	

	

	 	

	

	

	
 
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The following table reflects the calculation of FFO and AFFO for the three months ended March 31, 2002 and 2001, respectively:
 
 	  	Three Months Ended
March 31, 2002

	 	 	Three Months Ended
March 31, 2001

	 	
FUNDS FROM OPERATIONS:	  	 	 	 	 	 	 	 	
Net income	  	$	10,779,664	 	 	$	3,275,345	 	
Add:	  	 	 	 	 	 	 	 	
Depreciation of real assets	  	 	5,744,452	 	 	 	3,187,179	 	
Amortization of deferred leasing costs	  	 	72,749	 	 	 	75,837	 	
Depreciation and amortization—unconsolidated partnerships	  	 	706,176	 	 	 	299,116	 	

	

	

	 	

	

	

	
Funds from operations (FFO)	  	 	17,303,041	 	 	 	6,837,477	 	
Adjustments:	  	 	 	 	 	 	 	 	
Loan cost amortization	  	 	175,462	 	 	 	214,757	 	
Straight line rent	  	 	(1,038,378	)	 	 	(616,465	)	
Straight line rent—unconsolidated partnerships	  	 	(99,315	)	 	 	(39,739	)	
Lease acquisition fees paid—unconsolidated partnerships	  	 	0	 	 	 	(2,356	)	

	

	

	 	

	

	

	
Adjusted funds from operations (AFFO)	  	$	16,340,810	 	 	$	6,393,674	 	

	

	

	 	

	

	

	
WEIGHTED AVERAGE SHARES:	  	 	 	 	 	 	 	 	
BASIC AND DILUTED	  	 	95,130,210	 	 	 	34,359,444	 	

	

	

	 	

	

	

	
 
Inflation
 
The real estate market has not been affected significantly by inflation in the past three years due to the relatively low inflation rate. However, there are provisions in the majority of tenant leases which would protect us from the impact of inflation. These provisions include reimbursement billings for common area maintenance charges (CAM), real estate tax and insurance reimbursements on a per square foot basis, or in some cases, annual reimbursement of operating expenses above a certain per square foot allowance.
 
Critical Accounting Policies
 
Our accounting policies have been established and conform with generally accepted accounting principles in the United States (GAAP). The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied; thus, resulting in a different presentation of our financial statements. Below is a discussion of the accounting policies that we consider to be critical in that they may require complex judgment in their application or require estimates about matters which are inherently uncertain.
 
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Straight-Lined Rental Revenues
 
We recognize rental income generated from all leases on real estate assets in which we have an ownership interest, either directly or through investments in joint ventures, on a straight-line basis over the terms of the respective leases. If a tenant was to encounter financial difficulties in future periods, the amount recorded as a receivable may not be realized.
 
Operating Cost Reimbursements
 
We generally bill tenants for operating cost reimbursements, either directly or through investments in joint ventures, on a monthly basis at amounts estimated largely based on actual prior period activity and the respective lease terms. Such billings are generally adjusted on an annual basis to reflect reimbursements owed to the landlord based on the actual costs incurred during the period and the respective lease terms. Financial difficulties encountered by tenants may result in receivables not being realized.
 
Real Estate
 
We continually monitor events and changes in circumstances indicating that the carrying amounts of the real estate assets in which we have an ownership interest, either directly or through investments in joint ventures, may not be recoverable. When such events or changes in circumstances are present, we assess the potential impairment by comparing the fair market value of the asset, estimated at an amount equal to the future undiscounted operating cash flows expected to be generated from tenants over the life of the asset and from its eventual disposition, to the carrying value of the asset. In the event that the carrying amount exceeds the estimated fair market value, we would recognize an impairment loss in the amount required to adjust the carrying amount of the asset to its estimated fair market value. Neither the Wells REIT nor our joint ventures have recognized impairment losses on real estate assets in 2001, 2000 or 1999.
 
Deferred Project Costs
 
We record acquisition and advisory fees and acquisition expenses payable to Wells Capital, Inc., our advisor, by capitalizing deferred project costs and reimbursing our advisor in an amount equal to 3.5% of cumulative capital raised to date. As we invest our capital proceeds, deferred project costs are applied to real estate assets, either directly or through contributions to joint ventures, at an amount equal to 3.5% of each investment and depreciated over the useful lives of the respective real estate assets.
 
Deferred Offering Costs
 
Our advisor expects to continue to fund 100% of the organization and offering costs and recognize related expenses, to the extent that such costs exceed 3% of cumulative capital raised, on our behalf. Organization and offering costs include items such as legal and accounting fees, marketing and promotional costs, and printing costs, and specifically exclude sales costs and underwriting commissions. We record offering costs by accruing deferred offering costs, with an offsetting liability included in due to affiliates, at an amount equal to the lesser of 3% of cumulative capital raised to date or actual costs incurred from third-parties less reimbursements paid to our advisor. As the actual equity is raised, we reverse the deferred offering costs accrual and recognize a charge to stockholders’ equity upon reimbursing our advisor.
 
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PRIOR PERFORMANCE SUMMARY
 
The information presented in this section represents the historical experience of real estate programs managed by Wells Capital, our advisor, and its affiliates. Investors in the Wells REIT should not assume that they will experience returns, if any, comparable to those experienced by investors in such prior Wells real estate programs.
 
Of the 14 publicly offered real estate limited partnerships in which Leo F. Wells, III has served as a general partner, 13 of such limited partnerships have completed their respective offerings. These 13 limited partnerships and the year in which each of their offerings was completed are:
 
  1.  Wells Real Estate Fund I (1986),
 
  2.  Wells Real Estate Fund II (1988),
 
  3.  Wells Real Estate Fund II-OW (1988),
 
  4.  Wells Real Estate Fund III, L.P. (1990),
 
  5.  Wells Real Estate Fund IV, L.P. (1992),
 
  6.  Wells Real Estate Fund V, L.P. (1993),
 
  7.  Wells Real Estate Fund VI, L.P. (1994),
 
  8.  Wells Real Estate Fund VII, L.P. (1995),
 
  9.  Wells Real Estate Fund VIII, L.P. (1996),
 
10.  Wells Real Estate Fund IX, L.P. (1996),
 
11.  Wells Real Estate Fund X, L.P. (1997),
 
12.  Wells Real Estate Fund XI, L.P. (1998), and
 
13.  Wells Real Estate Fund XII, L.P. (2001).
 
In addition to the foregoing real estate limited partnerships, Wells Capital and its affiliates have sponsored three prior public offerings of shares of common stock of the Wells REIT. The initial public offering of the Wells REIT began on January 30, 1998 and was terminated on December 19, 1999. We received gross proceeds of approximately $132,181,919 from the sale of approximately 13,218,192 shares in our initial public offering. We commenced our second public offering of shares of common stock of the Wells REIT on December 20, 1999 and terminated the second offering on December 19, 2000. We received gross proceeds of approximately $175,229,193 from the sale of approximately 17,522,919 shares in our second public offering. We commenced our third public offering of shares of common stock of the Wells REIT on December 20, 2000. As of June 30, 2002, we had received gross proceeds of approximately $1,148,480,414 from the sale of approximately 114,848,041 shares in our third public offering. Accordingly, as of June 30, 2002, we had received aggregate gross offering proceeds of approximately $1,455,891,526 from the sale of approximately 145,589,153 shares in our three prior public offerings. 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, and common stock redemptions of $12,223,808 pursuant to our share redemption program, as of June 30, 2002, we had raised aggregate net offering proceeds available for investment in properties of $1,229,563,213, out of which $885,294,095 had been invested in real estate properties, and $344,269,118 remained available for investment in real estate properties.
 
Wells Capital and its affiliates are also currently sponsoring a public offering of 4,500,000 units on behalf of Wells Real Estate Fund XIII, L.P. (Wells Fund XIII), a public limited partnership. Wells Fund XIII began its offering on March 29, 2001 and, as of June 30, 2002, Wells Fund XIII had raised gross offering proceeds of $18,634,296 from 926 investors.
 
The Prior Performance Tables included in the back of this prospectus set forth information as of the dates indicated regarding certain of these Wells programs as to (1) experience in raising and investing funds (Table I); (2) compensation to sponsor (Table II); (3) annual operating results of prior programs (Table III); and (4) sales or disposals of properties (Table V).
 
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In addition to the real estate programs sponsored by Wells Capital and its affiliates discussed above, they are also sponsoring an index mutual fund that invests in various REIT stocks known as the Wells S&P REIT Index Fund (REIT Index Fund). The REIT Index Fund is a mutual fund that seeks to provide investment results corresponding to the performance of the S&P REIT Index by investing in the REIT stocks included in the S&P REIT Index. The REIT Index Fund began its offering on January 12, 1998 and, as of June 30, 2002, had raised offering proceeds net of redemptions of $136,709,717 from 6,719 investors.
 
Publicly Offered Unspecified Real Estate Programs
 
Wells Capital and its affiliates have previously sponsored the above listed 13 publicly offered real estate limited partnerships and are currently sponsoring Wells Fund XIII offered on an unspecified property or “blind pool” basis. The total amount of funds raised from investors in the offerings of these 14 publicly offered limited partnerships, as of December 31, 2001, was $331,193,410, and the total number of investors in such programs was 27,103.
 
The investment objectives of each of the other Wells programs are substantially identical to the investment objectives of the Wells REIT. Substantially all of the proceeds of the offerings of Wells Fund I, Wells Fund II, Wells Fund II-OW, Wells Fund III, Wells Fund IV, Wells Fund V, Wells Fund VI, Wells Fund VII, Wells Fund VIII, Wells Fund IX, Wells Fund X, Wells Fund XI and Wells Fund XII available for investment in real properties have been invested in properties.
 
Because of the cyclical nature of the real estate market, decreases in net income of the public partnerships could occur at any time in the future when economic conditions decline. No assurance can be made that the Wells programs will ultimately be successful in meeting their investment objectives. (See “Risk Factors.”)
 
The aggregate dollar amount of the acquisition and development costs of the properties purchased by the 14 publicly offered limited partnerships, as of December 31, 2001, was $275,358,446. Of this amount, approximately 90.2% was spent on acquiring or developing office buildings, and approximately 9.8% was spent on acquiring or developing shopping centers. Of this amount, approximately 22.6% was or will be spent on new properties, 57.1% on existing or used properties and 20.3% on construction properties. Following is a table showing a breakdown of the aggregate amount of the acquisition and development costs of the properties purchased by the Wells REIT, Wells Fund XIII and the 13 Wells programs listed above as of December 31, 2001:
 
Type of Property

	    	New

	 	 	Used

	 	 	    Construction

	 	
Office and Industrial Buildings	    	22.59	%	 	53.88	%	 	13.74	%	
Shopping Centers	    	0	%	 	3.21	%	 	6.58	%	
 
Wells Fund I terminated its offering on September 5, 1986, and received gross proceeds of $35,321,000 representing subscriptions from 4,895 limited partners ($24,679,000 of the gross proceeds were attributable to sales of Class A Units, and $10,642,000 of the gross proceeds were attributable to sales of Class B Units). Limited partners in Wells Fund I have no right to change the status of their units from Class A to Class B or vice versa. Wells Fund I owns interests in the following properties:
 
 	•	 	a condominium interest in a three-story medical office building in Atlanta, Georgia;	
 
 	•	 	a commercial office building in Atlanta, Georgia;	
 
 	•	 	a shopping center in Knoxville, Tennessee; and	
 
 	•	 	a project consisting of seven office buildings and a shopping center in Tucker, Georgia.	
 
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The prospectus of Wells Fund I provided that the properties purchased by Wells Fund I would typically be held for a period of eight to 12 years, but that the general partners may exercise their discretion on as to whether and when to sell the properties owned by Wells Fund I and that the general partners were under no obligation to sell the properties at any particular time.
 
Wells Fund I has sold the following properties from its portfolio:
 
Date of Sale

	  	Property Name

	  	%
Ownership

	 	 	Net Sale
Proceeds

	  	Taxable
Gain

	
Aug. 31, 2000	  	One of two buildings at Peachtree Place	  	90	%	 	$	633,694	  	$	205,019	
Jan. 11, 2001	  	Crowe’s Crossing	  	100	%	 	$	6,569,000	  	$	11,496	
Oct. 1, 2001	  	Cherokee Commons	  	24	%	 	$	2,037,315	  	$	52,461	
 
Wells Fund I is in the process of marketing its remaining properties for sale.
 
Wells Fund II and Wells Fund II-OW terminated their offerings on September 7, 1988, and received aggregate gross proceeds of $36,870,250 representing subscriptions from 4,659 limited partners ($28,829,000 of the gross proceeds were attributable to sales of Class A Units, and $8,041,250 of the gross proceeds were attributable to sales of Class B Units). Limited partners in Wells Fund II and Wells Fund II-OW have no right to change the status of their units from Class A to Class B or vice versa. Wells Fund II and Wells Fund II-OW own all of their properties through a joint venture, which owns interests in the following properties:
 
 	•	 	a project consisting of seven office buildings and a shopping center in Tucker, Georgia;	
 
 	•	 	a two-story office building in Charlotte, North Carolina which is currently unoccupied;	
 
 	•	 	a four-story office building in Houston, Texas, three floors of which are leased to Boeing;	
 
 	•	 	a restaurant property in Roswell, Georgia leased to Brookwood Grill of Roswell, Inc.; and	
 
 	•	 	a combined retail center and office development in Roswell, Georgia.	
 
The prospectus of Wells Fund II and Wells Fund II-OW provided that the properties purchased by Wells Fund II and Wells Fund II-OW would typically be held for a period of eight to 12 years, but that the general partners may exercise their discretion as to whether and when to sell the properties owned by Wells Fund II and Wells Fund II-OW and that the partnerships were under no obligation to sell their properties at any particular time.
 
Wells Fund II and Wells Fund II-OW sold the following property from its portfolio in 2001:
 
Date of Sale

	  	Property Name

	  	%
Ownership

	 	 	Net Sale
Proceeds

	  	Taxable
Gain

	
Oct. 1, 2001	  	Cherokee Commons	  	54	%	 	$	4,601,723	  	$	111,419	
 
Wells Fund II and Wells Fund II-OW are in the process of marketing their remaining properties for sale.
 
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Wells Fund III terminated its offering on October 23, 1990, and received gross proceeds of $22,206,310 representing subscriptions from 2,700 limited partners ($19,661,770 of the gross proceeds were attributable to sales of Class A Units, and $2,544,540 of the gross proceeds were attributable to sales of Class B Units). Limited partners in Wells Fund III have no right to change the status of their units from Class A to Class B or vice versa. Wells Fund III owns interests in the following properties:
 
 	•	 	a four-story office building in Houston, Texas, three floors of which are leased to Boeing;	
 
 	•	 	a restaurant property in Roswell, Georgia leased to Brookwood Grill of Roswell, Inc.;	
 
 	•	 	a combined retail center and office development in Roswell, Georgia;	
 
 	•	 	a two-story office building in Greenville, North Carolina;	
 
 	•	 	a shopping center in Stockbridge, Georgia having Kroger as the anchor tenant; and	
 
 	•	 	a two-story office building in Richmond, Virginia leased to Reciprocal Group.	
 
The prospectus of Wells Fund III provided that the properties purchased by Wells Fund III would typically be held for a period of eight to 12 years, but that the general partners may exercise their discretion as to whether and when to sell the properties owned by Wells Fund III and that they were under no obligation to sell the properties at any particular time. The general partners of Wells Fund III have decided to begin the process of positioning the properties for sale over the next several years.
 
Wells Fund IV terminated its offering on February 29, 1992, and received gross proceeds of $13,614,655 representing subscriptions from 1,286 limited partners ($13,229,150 of the gross proceeds were attributable to sales of Class A Units, and $385,505 of the gross proceeds were attributable to sales of Class B Units). Limited partners in Wells Fund IV have no right to change the status of their units from Class A to Class B or vice versa. Wells Fund IV owns interests in the following properties:
 
 	•	 	a shopping center in Stockbridge, Georgia having Kroger as the anchor tenant;	
 
 	•	 	a four-story office building in Jacksonville, Florida leased to IBM and Customized Transportation Inc. (CTI);	
 
 	•	 	a two-story office building in Richmond, Virginia leased to Reciprocal Group; and	
 
 	•	 	two substantially identical two-story office buildings in Stockbridge, Georgia.	
 
Wells Fund V terminated its offering on March 3, 1993, and received gross proceeds of $17,006,020 representing subscriptions from 1,667 limited partners ($15,209,666 of the gross proceeds were attributable to sales of Class A Units, and $1,796,354 of the gross proceeds were attributable to sales of Class B Units). Limited partners in Wells Fund V who purchased Class B Units are entitled to change the status of their units to Class A, but limited partners who purchased Class A Units are not entitled to change the status of their units to Class B. After taking into effect conversion elections made by limited partners subsequent to their subscription for units, as of December 31, 2001, $15,664,160 of units of Wells Fund V were treated as Class A Units, and $1,341,860 of units were treated as Class B Units. Wells Fund V owns interests in the following properties:
 
 	•	 	a four-story office building in Jacksonville, Florida leased to IBM and CTI;	
 
 	•	 	two substantially identical two-story office buildings in Stockbridge, Georgia;	
 
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 	•	 	a four-story office building in Hartford, Connecticut leased to Hartford Fire Insurance Company;	
 
 	•	 	restaurant properties in Stockbridge, Georgia leased to Apple Restaurants, Inc., Taco Mac, Dependable Ins and Tokyo Japanese Steak; and	
 
 	•	 	a three-story office building in Appleton, Wisconsin leased to Jaako Poyry Fluor Daniel.	
 
Wells Fund VI terminated its offering on April 4, 1994, and received gross proceeds of $25,000,000 representing subscriptions from 1,793 limited partners ($19,332,176 of the gross proceeds were attributable to sales of Class A Units, and $5,667,824 of the gross proceeds were attributable to sales of Class B Units). Limited partners in Wells Fund VI are entitled to change the status of their units from Class A to Class B and vice versa. After taking into effect conversion elections made by limited partners subsequent to their subscription for units, as of December 31, 2001, $22,363,610 of units of Wells Fund VI were treated as Class A Units, and $2,636,390 of units were treated as Class B Units. Wells Fund VI owns interests in the following properties:
 
 	•	 	a four-story office building in Hartford, Connecticut leased to Hartford Fire Insurance Company;	
 
 	•	 	restaurant properties in Stockbridge, Georgia leased to Apple Restaurants, Inc., Taco Mac, Dependable Insurance and Tokyo Japanese Steak;	
 
 	•	 	a restaurant and retail building in Stockbridge, Georgia;	
 
 	•	 	a shopping center in Stockbridge, Georgia;	
 
 	•	 	a three-story office building in Appleton, Wisconsin leased to Jaako Poyry Fluor Daniel;	
 
 	•	 	a combined retail and office development in Roswell, Georgia;	
 
 	•	 	a four-story office building in Jacksonville, Florida leased to Bellsouth Advertising and Publishing Corporation and American Express Travel Related Services Company, Inc.; and	
 
 	•	 	a shopping center in Clemmons, North Carolina having Harris Teeter, Inc. as the anchor tenant.	
 
Wells Fund VI sold its interest in the following property in 2001:
 
Date of Sale

	  	Property Name

	  	%
Ownership

	 	 	Net Sale
Proceeds

	  	Taxable
Gain

	
Oct. 1, 2001	  	Cherokee Commons	  	11	%	 	$	903,122	  	$	21,867	
 
Wells Fund VII terminated its offering on January 5, 1995, and received gross proceeds of $24,180,174 representing subscriptions from 1,910 limited partners ($16,788,095 of the gross proceeds were attributable to sales of Class A Units, and $7,392,079 of the gross proceeds were attributable to sales of Class B Units). Limited partners in Wells Fund VII are entitled to change the status of their units from Class A to Class B and vice versa. After taking into effect conversion elections made by limited partners subsequent to their subscriptions for units, as of December 31, 2001, $20,670,201 of units in Wells Fund VII were treated as Class A Units, and $3,509,973 of units were treated as Class B Units. Wells Fund VII owns interests in the following properties:
 
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 	•	 	a three-story office building in Appleton, Wisconsin leased to Jaako Poyry Fluor Daniel;	
 
 	•	 	a restaurant and retail building in Stockbridge, Georgia;	
 
 	•	 	a shopping center in Stockbridge, Georgia;	
 
 	•	 	a combined retail and office development in Roswell, Georgia;	
 
 	•	 	a two-story office building in Alachua County, Florida near Gainesville leased to CH2M Hill, Engineers, Planners, Economists, Scientists;	
 
 	•	 	a four-story office building in Jacksonville, Florida leased to Bellsouth Advertising and Publishing Corporation and American Express Travel Related Services Company, Inc.;	
 
 	•	 	a shopping center in Clemmons, North Carolina having Harris Teeter, Inc. as the anchor tenant; and	
 
 	•	 	a retail development in Clayton County, Georgia.	
 
Wells Fund VII sold its interest in the following property in 2001:
 
Date of Sale

	  	Property Name

	  	% Ownership

	 	 	Net Sale
Proceeds

	  	Taxable
Gain

	
Oct. 1, 2001	  	Cherokee Commons	  	11	%	 	$	903,122	  	$	21,867	
 
Wells Fund VIII terminated its offering on January 4, 1996, and received gross proceeds of $32,042,689 representing subscriptions from 2,241 limited partners ($26,135,339 of the gross proceeds were attributable to sales of Class A Units, and $5,907,350 were attributable to sales of Class B Units). Limited partners in Wells Fund VIII are entitled to change the status of their units from Class A to Class B and vice versa. After taking into effect conversion elections made by limited partners subsequent to their subscriptions for units and certain repurchases made by Wells Fund VIII, as of December 31, 2001, $28,065,187 of units in Wells Fund VIII were treated as Class A Units, and $3,967,502 of units were treated as Class B Units. Wells Fund VIII owns interests in the following properties:
 
 	•	 	a two-story office building in Alachua County, Florida near Gainsville leased to CH2M Hill, Engineers, Planners, Economists, Scientists;	
 
 	•	 	a four-story office building in Jacksonville, Florida leased to Bellsouth Advertising and Publishing Corporation and American Express Travel Related Services Company, Inc.;	
 
 	•	 	a shopping center in Clemmons, North Carolina having Harris Teeter, Inc. as the anchor tenant;	
 
 	•	 	a retail development in Clayton County, Georgia;	
 
 	•	 	a four-story office building in Madison, Wisconsin leased to US Cellular, a subsidiary of Bellsouth Corporation;	
 
 	•	 	a one-story office building in Farmers Branch, Texas leased to TCI Valwood Limited Partnership I;	
 
 	•	 	a two-story office building in Orange County, California leased to Quest Software, Inc.; and	
 
 	•	 	a two-story office building in Boulder County, Colorado leased to Cirrus Logic, Inc.	
 
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Wells Fund IX terminated its offering on December 30, 1996, and received gross proceeds of $35,000,000 representing subscriptions from 2,098 limited partners ($29,359,310 of the gross proceeds were attributable to sales of Class A Units, and $5,640,690 were attributable to sales of Class B Units). After taking into effect conversion elections made by limited partners subsequent to their subscriptions for units, as of December 31, 2001, $31,364,290 of units in Wells Fund IX were treated as Class A Units, and $3,635,710 of units were treated as Class B Units. Wells Fund IX owns interests in the following properties:
 
 	•	 	a one-story office building in Farmers Branch, Texas leased to TCI Valwood Limited Partnership I;	
 
 	•	 	a four-story office building in Madison, Wisconsin leased to US Cellular, a subsidiary of Bellsouth Corporation;	
 
 	•	 	a two-story office building in Orange County, California leased to Quest Software, Inc.;	
 
 	•	 	a two-story office building in Boulder County, Colorado leased to Cirrus Logic, Inc.;	
 
 	•	 	a two-story office building in Boulder County, Colorado leased to Ohmeda, Inc.;	
 
 	•	 	a three-story office building in Knox County, Tennessee leased to Alstom Power, Inc.;	
 
 	•	 	a one-story office and warehouse building in Weber County, Utah leased to Iomega Corporation;	
 
 	•	 	a three-story office multi-tenant building in Boulder County, Colorado; and	
 
 	•	 	a one-story office building in Oklahoma City, Oklahoma leased to Avaya, Inc.	
 
Certain financial information for Wells Fund IX is summarized below:
 
 	  	2001

	  	2000

	  	1999

	  	1998

	  	1997

	
Gross Revenues	  	$	1,874,290	  	$	1,836,768	  	$	1,593,734	  	$	1,561,456	  	$	1,199,300	
Net Income	  	$	1,768,474	  	$	1,758,676	  	$	1,490,331	  	$	1,449,955	  	$	1,091,766	
 
Wells Fund X terminated its offering on December 30, 1997, and received gross proceeds of $27,128,912 representing subscriptions from 1,812 limited partners ($21,160,992 of the gross proceeds were contributable to sales of Class A Units, and $5,967,920 were attributable to sales of Class B Units). After taking into effect conversion elections made by limited partners subsequent to their subscriptions for units, as of December 31, 2001, $23,166,181 of units in Wells Fund X were treated as Class A Units and $3,962,731 of units were treated as Class B Units. Wells Fund X owns interests in the following properties:
 
 	•	 	a three-story office building in Knox County, Tennessee leased to Alstom Power, Inc.;	
 
 	•	 	a two-story office building in Boulder County, Colorado leased to Ohmeda, Inc.;	
 
 	•	 	a one-story office and warehouse building in Weber County, Utah leased to Iomega Corporation;	
 
 	•	 	a three-story multi-tenant office building in Boulder County, Colorado;	
 
 	•	 	a one-story office building in Oklahoma City, Oklahoma leased to Avaya, Inc.;	
 
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 	•	 	a one-story office and warehouse building in Orange County, California leased to Cort Furniture Rental Corporation; and	
 
 	•	 	a two-story office and manufacturing building in Alameda County, California leased to Fairchild Technologies U.S.A., Inc.	
 
Certain financial information for Wells Fund X is summarized below:
 
 	  	2001

	  	2000

	  	1999

	  	1998

	  	1997

	
Gross Revenues	  	$	1,559,026	  	$	1,557,518	  	$	1,309,281	  	$	1,204,597	  	$	372,507	
Net Income	  	$	1,449,849	  	$	1,476,180	  	$	1,192,318	  	$	1,050,329	  	$	278,025	
 
Wells Fund XI terminated its offering on December 30, 1998, and received gross proceeds of $16,532,802 representing subscriptions from 1,345 limited partners ($13,029,424 of the gross proceeds were attributable to sales of Class A Units and $3,503,378 were attributable to sales of Class B Units). After taking into effect conversion elections made by limited partners subsequent to their subscriptions for units, as of December 31, 2001, $13,462,560 of units in Wells Fund XI were treated as Class A Units and $3,070,242 of units were treated as Class B Units. Wells Fund XI owns interests in the following properties:
 
 	•	 	a three-story office building in Knox County, Tennessee leased to Alstom Power, Inc.;	
 
 	•	 	a one-story office building in Oklahoma City, Oklahoma leased to Avaya, Inc.;	
 
 	•	 	a two-story office building in Boulder County, Colorado leased to Ohmeda, Inc.;	
 
 	•	 	a three-story multi-tenant office building in Boulder County, Colorado;	
 
 	•	 	a one-story office and warehouse building in Weber County, Utah leased to Iomega Corporation;	
 
 	•	 	a one-story office and warehouse building in Orange County, California leased to Cort Furniture Rental Corporation;	
 
 	•	 	a two-story office and manufacturing building in Alameda County, California leased to Fairchild Technologies U.S.A., Inc.;	
 
 	•	 	a two-story manufacturing and office building in Greenville County, South Carolina leased to EYBL CarTex, Inc.;	
 
 	•	 	a three-story office building in Johnson County, Kansas leased to Sprint Communications Company L.P.;	
 
 	•	 	a two-story research and development office and warehouse building in Chester County, Pennsylvania leased to Johnson Matthey, Inc.; and	
 
 	•	 	a two-story office building in Fort Myers, Florida leased to Gartner Group, Inc.	
 
Certain financial information for Wells Fund XI is summarized below:
 
 	  	2001

	  	2000

	  	1999

	  	1998

	
Gross Revenues	  	$	960,676	  	$	975,850	  	$	766,586	  	$	262,729	
Net Income	  	$	870,350	  	$	895,989	  	$	630,528	  	$	143,295	
 
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Wells Fund XII terminated its offering on March 21, 2001, and received gross proceeds of $35,611,192 representing subscriptions from 1,333 limited partners ($26,888,609 of the gross proceeds were attributable to sales of cash preferred units and $8,722,583 were attributable to sales of tax preferred units). After taking into effect conversion elections made by limited partners subsequent to their subscriptions for units, as of December 31, 2001, $27,786,067 of units in Wells Fund XII were treated as cash preferred units and $7,825,125 of units were treated as tax preferred units. Wells Fund XII owns interests in the following properties:
 
 	•	 	a two-story manufacturing and office building in Greenville County, South Carolina leased to EYBL CarTex, Inc.;	
 
 	•	 	a three-story office building in Johnson County, Kansas leased to Sprint Communications Company L.P.;	
 
 	•	 	a two-story research and development office and warehouse building in Chester County, Pennsylvania leased to Johnson Matthey, Inc.;	
 
 	•	 	a two-story office building in Fort Myers, Florida leased to Gartner Group, Inc.;	
 
 	•	 	a three-story office building in Troy, Michigan leased to Siemens Automotive Corporation;	
 
 	•	 	a one-story office building and a connecting two-story office building in Oklahoma City, Oklahoma leased to AT&T Corp. and Jordan Associates, Inc.; and	
 
 	•	 	a three-story office building in Brentwood, Tennessee leased to Comdata Network, Inc.	
 
Certain financial information for Wells Fund XII is summarized below:
 
 	  	2001

	  	2000

	  	1999

	
Gross Revenues	  	$	1,661,194	  	$	929,868	  	$	160,379	
Net Income	  	$	1,555,418	  	$	856,228	  	$	122,817	
 
Wells Fund XIII began its offering on March 29, 2001. As of June 30, 2002, Wells Fund XIII had received gross proceeds of $18,634,296 representing subscriptions from 926 limited partners ($15,743,298 of the gross proceeds were attributable to sales of cash preferred units and $2,890,998 were attributable to sales of tax preferred units). Wells Fund XIII owns interests in the following properties:
 
 	•	 	a two-story office building in Orange Park, Florida leased to AmeriCredit Financial Services Corporation; and	
 
 	•	 	two connected one-story office and assembly buildings in Parker, Colorado leased to Advanced Digital Information Corporation.	
 
The information set forth above should not be considered indicative of results to be expected from the Wells REIT.
 
The foregoing properties in which the above 14 limited partnerships have invested have all been acquired on an all cash basis.
 
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Leo F. Wells, III and Wells Partners, L.P. are the general partners of Wells Fund IV, Wells Fund V, Wells Fund VI, Wells Fund VII, Wells Fund VIII, Wells Fund IX, Wells Fund X, Wells Fund XI and Wells Fund XII. Wells Capital, which is the general partner of Wells Partners, L.P., and Leo F. Wells, III are the general partners of Wells Fund I, Wells Fund II, Wells Fund II-OW, Wells Fund III and Wells Fund XIII.
 
Potential investors are encouraged to examine the Prior Performance Tables included in the back of the prospectus for more detailed information regarding the prior experience of Wells Capital and its affiliates. In addition, upon request, prospective investors may obtain from us without charge copies of offering materials and any reports prepared in connection with any of the Wells programs, including a copy of the most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission. For a reasonable fee, we will also furnish upon request copies of the exhibits to any such Form 10-K. Any such request should be directed to our secretary. Additionally, Table VI contained in Part II of the registration statement, which is not part of this prospectus, gives certain additional information relating to properties acquired by the Wells programs. We will furnish, without charge, copies of such table upon request.
 
FEDERAL INCOME TAX CONSIDERATIONS
 
General
 
The following is a summary of material federal income tax considerations associated with an investment in the shares. This summary does not address all possible tax considerations that may be material to an investor and does not constitute tax advice. Moreover, this summary does not deal with all tax aspects that might be relevant to you, as a prospective stockholder, in light of your personal circumstances; nor does it deal with particular types of stockholders that are subject to special treatment under the Internal Revenue Code, such as insurance companies, tax-exempt organizations, financial institutions or broker-dealers, or foreign corporations or persons who are not citizens or residents of the United States (Non-U.S. stockholders). The Internal Revenue Code provisions governing the federal income tax treatment of REITs are highly technical and complex, and this summary is qualified in its entirety by the express language of applicable Internal Revenue Code provisions, Treasury Regulations promulgated thereunder and administrative and judicial interpretations thereof.
 
We urge you, as a prospective investor, to consult your own tax advisor regarding the specific tax consequences to you of a purchase of shares, ownership and sale of the shares and of our election to be taxed as a REIT, including the federal, state, local, foreign and other tax consequences of such purchase, ownership, sale and election.
 
Opinion of Counsel
 
Holland & Knight LLP (Holland & Knight) has acted as our counsel, has reviewed this summary and is of the opinion that it fairly summarizes the federal income tax considerations addressed that are material to stockholders. It is also the opinion of our counsel that it is more likely than not that we qualified to be taxed as a REIT under the Internal Revenue Code for our taxable year ended December 31, 2001, provided that we have operated and will continue to operate in accordance with various assumptions and the factual representations we made to counsel concerning our business, properties and operations. We must emphasize that all opinions issued by Holland & Knight are based on various assumptions and are conditioned upon the assumptions and representations we made concerning our business and properties. Moreover, our qualification for taxation as a REIT depends on our ability to meet the various qualification tests imposed under the Internal Revenue Code discussed below, the results
 
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of which will not be reviewed by Holland & Knight. Accordingly, we cannot assure you that the actual results of our operations for any one taxable year will satisfy these requirements. (See “Risk Factors—Failure to Qualify as a REIT.”)
 
The statements made in this section of the prospectus and in the opinion of Holland & Knight are based upon existing law and Treasury Regulations, as currently applicable, currently published administrative positions of the Internal Revenue Service and judicial decisions, all of which are subject to change, either prospectively or retroactively. We cannot assure you that any changes will not modify the conclusions expressed in our counsel’s opinion. Moreover, an opinion of counsel is not binding on the Internal Revenue Service and we cannot assure you that the Internal Revenue Service will not successfully challenge our status as a REIT.
 
Taxation of the Company
 
If we qualify for taxation as a REIT, we generally will not be subject to federal corporate income taxes on that portion of our ordinary income or capital gain that we distribute currently to our stockholders, because the REIT provisions of the Internal Revenue Code generally allow a REIT to deduct distributions paid to its stockholders. This substantially eliminates the federal “double taxation” on earnings (taxation at both the corporate level and stockholder level) that usually results from an investment in a corporation.
 
Even if we qualify for taxation as a REIT, however, we will be subject to federal income taxation as follows:
 
 	•	 	we will be taxed at regular corporate rates on our undistributed REIT taxable income, including undistributed net capital gains;	
 
 	•	 	under some circumstances, we will be subject to “alternative minimum tax”;	
 
 	•	 	if we have net income from the sale or other disposition of “foreclosure property” that is held primarily for sale to customers in the ordinary course of business or other non-qualifying income from foreclosure property, we will be subject to tax at the highest corporate rate on that income;	
 
 	•	 	if we have net income from prohibited transactions (which are, in general, sales or other dispositions of property other than foreclosure property held primarily for sale to customers in the ordinary course of business), the income will be subject to a 100% tax;	
 
 	•	 	if we fail to satisfy either of the 75% or 95% gross income tests (discussed below) but have nonetheless maintained our qualification as a REIT because certain conditions have been met, we will be subject to a 100% tax on an amount equal to the greater of the amount by which we fail the 75% or 95% test multiplied by a fraction calculated to reflect our profitability;	
 
 	•	 	if we fail to distribute during each year at least the sum of (1) 85% of our REIT ordinary income for the year, (2) 95% of our REIT capital gain net income for such year, and (3) any undistributed taxable income from prior periods, we will be subject to a 4% excise tax on the excess of the required distribution over the amounts actually distributed; and	
 
 	•	 	if we acquire any asset from a C corporation (i.e., a corporation generally subject to corporate-level tax) in a carryover-basis transaction and we subsequently recognize gain on the disposition of the asset during the 10-year period beginning on the date on which	
 
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 	we acquired the asset, then a portion of the gains may be subject to tax at the highest regular corporate rate, pursuant to guidelines issued by the Internal Revenue Service (Built-In-Gain Rules).	
 
Requirements for Qualification as a REIT
 
We elected to be taxable as a REIT for our taxable year ended December 31, 1998. In order for us to qualify as a REIT, however, we had to meet and we must continue to meet the requirements discussed below relating to our organization, sources of income, nature of assets and distributions of income to our stockholders.
 
Organizational Requirements
 
In order to qualify for taxation as a REIT under the Internal Revenue Code, we must:
 
 	•	 	be a domestic corporation;	
 
 	•	 	elect to be taxed as a REIT and satisfy relevant filing and other administrative requirements;	
 
 	•	 	be managed by one or more trustees or directors;	
 
 	•	 	have transferable shares;	
 
 	•	 	not be a financial institution or an insurance company;	
 
 	•	 	use a calendar year for federal income tax purposes;	
 
 	•	 	have at least 100 stockholders for at least 335 days of each taxable year of 12 months; and	
 
 	•	 	not be closely held.	
 
As a Maryland corporation, we satisfy the first requirement, and we have filed an election to be taxed as a REIT with the IRS. In addition, we are managed by a board of directors, we have transferable shares, and we do not intend to operate as a financial institution or insurance company. We utilize the calendar year for federal income tax purposes, and we have more than 100 stockholders. We would be treated as closely held only if five or fewer individuals or certain tax-exempt entities own, directly or indirectly, more than 50% (by value) of our shares at any time during the last half of our taxable year. For purposes of the closely-held test, the Internal Revenue Code generally permits a look-through for pension funds and certain other tax-exempt entities to the beneficiaries of the entity to determine if the REIT is closely held. Five or fewer individuals or tax-exempt entities have never owned more than 50% of our outstanding shares during the last half of any taxable year.
 
We are authorized to refuse to transfer our shares to any person if the sale or transfer would jeopardize our ability to satisfy the REIT ownership requirements. There can be no assurance that a refusal to transfer will be effective. However, based on the foregoing, we should currently satisfy the organizational requirements, including the share ownership requirements. Notwithstanding compliance with the share ownership requirements outlined above, tax-exempt stockholders may be required to treat all or a portion of their distributions from us as “unrelated business taxable income” if tax-exempt stockholders, in the aggregate, exceed certain ownership thresholds set forth in the Internal Revenue Code. (See “Taxation of Tax-Exempt Stockholders.”)
 
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Ownership of Interests in Partnerships and Qualified REIT Subsidiaries
 
In the case of a REIT that is a partner in a partnership, Treasury Regulations provide that the REIT is deemed to own its proportionate share, based on its interest in partnership capital, of the assets of the partnership and is deemed to have earned its allocable share of partnership income. Also, if a REIT owns a qualified REIT subsidiary, which is defined as a corporation wholly-owned by a REIT, the REIT will be deemed to own all of the subsidiary’s assets and liabilities and it will be deemed to be entitled to treat the income of that subsidiary as its own. In addition, the character of the assets and gross income of the partnership or qualified REIT subsidiary shall retain the same character in the hands of the REIT for purposes of satisfying the gross income tests and asset tests set forth in the Internal Revenue Code.
 
Operational Requirements—Gross Income Tests
 
To maintain our qualification as a REIT, we must satisfy annually two gross income requirements.
 
 	•	 	At least 75% of our gross income, excluding gross income from prohibited transactions, for each taxable year must be derived directly or indirectly from investments relating to real property or mortgages on real property. Gross income includes “rents from real property” and, in some circumstances, interest, but excludes gross income from dispositions of property held primarily for sale to customers in the ordinary course of a trade or business. Such dispositions are referred to as “prohibited transactions.” This is the 75% Income Test.	
 
 	•	 	At least 95% of our gross income, excluding gross income from prohibited transactions, for each taxable year must be derived from the real property investments described above and from distributions, interest and gains from the sale or disposition of stock or securities or from any combination of the foregoing. This is the 95% Income Test.	
 
 	•	 	The rents we receive or that we are deemed to receive qualify as “rents from real property” for purposes of satisfying the gross income requirements for a REIT only if the following conditions are met:	
 
 	•	 	the amount of rent received from a tenant generally must not be based in whole or in part on the income or profits of any person; however, an amount received or accrued generally will not be excluded from the term “rents from real property” solely by reason of being based on a fixed percentage or percentages of gross receipts or sales;	
 
 	•	 	rents received from a tenant will not qualify as “rents from real property” if an owner of 10% or more of the REIT directly or constructively owns 10% or more of the tenant (a “Related Party Tenant”) or a subtenant of the tenant (in which case only rent attributable to the subtenant is disqualified);	
 
 	•	 	if rent attributable to personal property leased in connection with a lease of real property is greater than 15% of the total rent received under the lease, then the portion of rent attributable to the personal property will not qualify as “rents from real property”; and	
 
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 	•	 	the REIT must not operate or manage the property or furnish or render services to tenants, other than through an “independent contractor” who is adequately compensated and from whom the REIT does not derive any income. However, a REIT may provide services with respect to its properties, and the income derived therefrom will qualify as “rents from real property,” if the services are “usually or customarily rendered” in connection with the rental of space only and are not otherwise considered “rendered to the occupant.” Even if the services with respect to a property are impermissible tenant services, the income derived therefrom will qualify as “rents from real property” if such income does not exceed one percent of all amounts received or accrued with respect to that property.	
 
Prior to the making of investments in properties, we may satisfy the 75% Income Test and the 95% Income Test by investing in liquid assets such as government securities or certificates of deposit, but earnings from those types of assets are qualifying income under the 75% Income Test only for one year from the receipt of proceeds. Accordingly, to the extent that offering proceeds have not been invested in properties prior to the expiration of this one year period, in order to satisfy the 75% Income Test, we may invest the offering proceeds in less liquid investments approved by our board of directors such as mortgage-backed securities or shares in other REITs. We intend to trace offering proceeds received for purposes of determining the one year period for “new capital investments.” No rulings or regulations have been issued under the provisions of the Internal Revenue Code governing “new capital investments,” however, so that there can be no assurance that the Internal Revenue Service will agree with this method of calculation.
 
Except for amounts received with respect to certain investments of cash reserves, we anticipate that substantially all of our gross income will be derived from sources that will allow us to satisfy the income tests described above; however, we can make no assurance in this regard.
 
Notwithstanding our failure to satisfy one or both of the 75% Income and the 95% Income Tests for any taxable year, we may still qualify as a REIT for that year if we are eligible for relief under specific provisions of the Internal Revenue Code. These relief provisions generally will be available if:
 
 	•	 	our failure to meet these tests was due to reasonable cause and not due to willful neglect;	
 
 	•	 	we attach a schedule of our income sources to our federal income tax return; and	
 
 	•	 	any incorrect information on the schedule is not due to fraud with intent to evade tax.	
 
It is not possible, however, to state whether, in all circumstances, we would be entitled to the benefit of these relief provisions. For example, if we fail to satisfy the gross income tests because nonqualifying income that we intentionally earn exceeds the limits on this income, the Internal Revenue Service could conclude that our failure to satisfy the tests was not due to reasonable cause. As discussed above in “Taxation of the Company,” even if these relief provisions apply, a tax would be imposed with respect to the excess net income.
 
Operational Requirements—Asset Tests
 
At the close of each quarter of our taxable year, we also must satisfy the following three tests (Asset Tests) relating to the nature and diversification of our assets:
 
 	•	 	First, at least 75% of the value of our total assets must be represented by real estate assets, cash, cash items and government securities. The term “real estate assets” includes	
 
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real property, mortgages on real property, shares in other qualified REITs and a proportionate share of any real estate assets owned by a partnership in which we are a partner or of any qualified REIT subsidiary of ours;
 
 	•	 	Second, no more than 25% of our total assets may be represented by securities other than those in the 75% asset class; and	
 
 	•	 	Third, of the investments included in the 25% asset class, the value of any one issuer’s securities that we own may not exceed 5% of the value of our total assets. Additionally, we may not own more than 10% of any one issuer’s outstanding voting securities, or securities having a value of more than 10% of the total value of the outstanding securities of any one issuer.	
 
These tests must generally be met for any quarter in which we acquire securities. Further, if we meet the Asset Tests at the close of any quarter, we will not lose our REIT status for a failure to satisfy the Asset Tests at the end of a later quarter if such failure occurs solely because of changes in asset values. If our failure to satisfy the Asset Tests results from an acquisition of securities or other property during a quarter, we can cure the failure by disposing of a sufficient amount of nonqualifying assets within 30 days after the close of that quarter. We maintain, and will continue to maintain, adequate records of the value of our assets to ensure compliance with the Asset Tests and will take other action within 30 days after the close of any quarter as may be required to cure any noncompliance.
 
Operational Requirements—Annual Distribution Requirement
 
In order to be taxed as a REIT, we are required to make dividend distributions, other than capital gain distributions, to our stockholders each year in the amount of at least 90% of our REIT taxable income (computed without regard to the dividends paid deduction and our capital gain and subject to certain other potential adjustments).
 
While we must generally pay dividends in the taxable year to which they relate, we may also pay dividends in the following taxable year if (1) they are declared before we timely file our federal income tax return for the taxable year in question, and if (2) they are paid on or before the first regular dividend payment date after the declaration.
 
Even if we satisfy the foregoing dividend distribution requirement and, accordingly, continue to qualify as a REIT for tax purposes, we will still be subject to tax on the excess of our net capital gain and our REIT taxable income, as adjusted, over the amount of dividends distributed to stockholders.
 
In addition, if we fail to distribute during each calendar year at least the sum of:
 
 	•	 	85% of our ordinary income for that year;	
 
 	•	 	95% of our capital gain net income other than the capital gain net income which we elect to retain and pay tax on for that year; and	
 
 	•	 	any undistributed taxable income from prior periods;	
 
we will be subject to a 4% excise tax on the excess of the amount of such required distributions over amounts actually distributed during such year.
 
We intend to make timely distributions sufficient to satisfy this requirement; however, we may possibly experience timing differences between (1) the actual receipt of income and payment of
 
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deductible expenses, and (2) the inclusion of that income. We may also possibly be allocated a share of net capital gain attributable to the sale of depreciated property that exceeds our allocable share of cash attributable to that sale.
 
In such circumstances, we may have less cash than is necessary to meet our annual distribution requirement or to avoid income or excise taxation on certain undistributed income. We may find it necessary in such circumstances to arrange for financing or raise funds through the issuance of additional shares in order to meet our distribution requirements, or we may make taxable stock distributions to meet the distribution requirement.
 
If we fail to satisfy the distribution requirement for any taxable year by reason of a later adjustment to our taxable income made by the Internal Revenue Service, we may be able to pay “deficiency dividends” in a later year and include such distributions in our deductions for dividends paid for the earlier year. In such event, we may be able to avoid being taxed on amounts distributed as deficiency dividends, but we would be required in such circumstances to pay interest to the Internal Revenue Service based upon the amount of any deduction taken for deficiency dividends for the earlier year.
 
As noted above, we may also elect to retain, rather than distribute, our net long-term capital gains. The effect of such an election would be as follows:
 
 	•	 	we would be required to pay the tax on these gains;	
 
 	•	 	stockholders, while required to include their proportionate share of the undistributed long-term capital gains in income, would receive a credit or refund for their share of the tax paid by the REIT; and	
 
 	•	 	the basis of a stockholder’s shares would be increased by the amount of our undistributed long-term capital gains (minus the amount of capital gains tax we pay) included in the stockholder’s long-term capital gains.	
 
In computing our REIT taxable income, we will use the accrual method of accounting and depreciate depreciable property under the alternative depreciation system. We are required to file an annual federal income tax return, which, like other corporate returns, is subject to examination by the Internal Revenue Service. Because the tax law requires us to make many judgments regarding the proper treatment of a transaction or an item of income or deduction, it is possible that the Internal Revenue Service will challenge positions we take in computing our REIT taxable income and our distributions. Issues could arise, for example, with respect to the allocation of the purchase price of properties between depreciable or amortizable assets and nondepreciable or non-amortizable assets such as land and the current deductibility of fees paid to Wells Capital or its affiliates. Were the Internal Revenue Service to successfully challenge our characterization of a transaction or determination of our REIT taxable income, we could be found to have failed to satisfy a requirement for qualification as a REIT. If, as a result of a challenge, we are determined to have failed to satisfy the distribution requirements for a taxable year, we would be disqualified as a REIT, unless we were permitted to pay a deficiency distribution to our stockholders and pay interest thereon to the Internal Revenue Service, as provided by the Internal Revenue Code. A deficiency distribution cannot be used to satisfy the distribution requirement, however, if the failure to meet the requirement is not due to a later adjustment to our income by the Internal Revenue Service.
 
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Operational Requirements—Recordkeeping
 
In order to continue to qualify as a REIT, we must maintain certain records as set forth in applicable Treasury Regulations. Further, we must request, on an annual basis, certain information designed to disclose the ownership of our outstanding shares. We intend to comply with such requirements.
 
Failure to Qualify as a REIT
 
If we fail to qualify as a REIT for any reason in a taxable year and applicable relief provisions do not apply, we will be subject to tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates. We will not be able to deduct dividends paid to our stockholders in any year in which we fail to qualify as a REIT. We also will be disqualified for the four taxable years following the year during which qualification was lost unless we are entitled to relief under specific statutory provisions. (See “Risk Factors—Federal Income Tax Risks.”)
 
Sale-Leaseback Transactions
 
Some of our investments may be in the form of sale-leaseback transactions. In most instances, depending on the economic terms of the transaction, we will be treated for federal income tax purposes as either the owner of the property or the holder of a debt secured by the property. We do not expect to request an opinion of counsel concerning the status of any leases of properties as true leases for federal income tax purposes.
 
The Internal Revenue Service may take the position that a specific sale-leaseback transaction, which we treat as a true lease, is not a true lease for federal income tax purposes but is, instead, a financing arrangement or loan. We may also structure some sale-leaseback transactions as loans. In this event, for purposes of the Asset Tests and the 75% Income Test, each such loan likely would be viewed as secured by real property to the extent of the fair market value of the underlying property. We expect that, for this purpose, the fair market value of the underlying property would be determined without taking into account our lease. If a sale-leaseback transaction were so recharacterized, we might fail to satisfy the Asset Tests or the Income Tests and, consequently, lose our REIT status effective with the year of recharacterization. Alternatively, the amount of our REIT taxable income could be recalculated which might also cause us to fail to meet the distribution requirement for a taxable year.
 
Taxation of U.S. Stockholders
 
Definition
 
In this section, the phrase “U.S. stockholder” means a holder of shares that for federal income tax purposes:
 
 	•	 	is a citizen or resident of the United States;	
 
 	•	 	is a corporation, partnership or other entity created or organized in or under the laws of the United States or of any political subdivision thereof;	
 
 	•	 	is an estate or trust, the income of which is subject to U.S. federal income taxation regardless of its source; or	
 
 	•	 	a trust if a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust.	
 
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For any taxable year for which we qualify for taxation as a REIT, amounts distributed to taxable U.S. stockholders will be taxed as described below.
 
Distributions Generally
 
Distributions to U.S. stockholders, other than capital gain distributions discussed below, will constitute dividends up to the amount of our current or accumulated earnings and profits and will be taxable to the stockholders as ordinary income. These distributions are not eligible for the dividends received deduction generally available to corporations. To the extent that we make a distribution in excess of our current or accumulated earnings and profits, the distribution will be treated first as a tax-free return of capital, reducing the tax basis in each U.S. stockholder’s shares, and the amount of each distribution in excess of a U.S. stockholder’s tax basis in its shares will be taxable as gain realized from the sale of its shares. Distributions that we declare in October, November or December of any year payable to a stockholder of record on a specified date in any of these months will be treated as both paid by us and received by the stockholder on December 31 of the year, provided that we actually pay the distribution no later than January 31 of the following calendar year. U.S. stockholders may not include any of our losses on their own federal income tax returns.
 
We will be treated as having sufficient earnings and profits to treat as a dividend any distribution by us up to the amount required to be distributed in order to avoid imposition of the 4% excise tax discussed above. Moreover, any “deficiency distribution” will be treated as an ordinary or capital gain distribution, as the case may be, regardless of our earnings and profits. As a result, stockholders may be required to treat as taxable some distributions that would otherwise result in a tax-free return of capital.
 
Capital Gain Distributions
 
Distributions to U.S. stockholders that we properly designate as capital gain distributions will be treated as long-term capital gains to the extent they do not exceed our actual net capital gain, for the taxable year without regard to the period for which the U.S. stockholder has held his stock.
 
Passive Activity Loss and Investment Interest Limitations
 
Our distributions and any gain you realize from a disposition of shares will not be treated as passive activity income, and stockholders may not be able to utilize any of their “passive losses” to offset this income on their personal tax returns. Our distributions (to the extent they do not constitute a return of capital) will generally be treated as investment income for purposes of the limitations on the deduction of investment interest. Net capital gain from a disposition of shares and capital gain distributions generally will be included in investment income for purposes of the investment interest deduction limitations only if, and to the extent, you so elect, in which case any such capital gains will be taxed as ordinary income.
 
Certain Dispositions of the Shares
 
In general, any gain or loss realized upon a taxable disposition of shares by a U.S. stockholder who is not a dealer in securities will be treated as long-term capital gain or loss if the shares have been held for more than 12 months and as short-term capital gain or loss if the shares have been held for 12 months or less. If, however, a U.S. stockholder has received any capital gains distributions with respect to his shares, any loss realized upon a taxable disposition of shares held for six months or less, to the extent of the capital gains distributions received with respect to his shares, will be treated as long-term capital loss. Also, the Internal Revenue Service is authorized to issue Treasury Regulations that would subject a portion of the capital gain a U.S. stockholder recognizes from selling his shares or from a capital
 
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gain distribution to a tax at a 25% rate, to the extent the capital gain is attributable to depreciation previously deducted.
 
Information Reporting Requirements and Backup Withholding for U.S. Stockholders
 
Under some circumstances, U.S. stockholders may be subject to backup withholding at a rate of 31% on payments made with respect to, or cash proceeds of a sale or exchange of, our shares. Backup withholding will apply only if the stockholder:
 
 	•	 	fails to furnish his or her taxpayer identification number (which, for an individual, would be his or her Social Security Number);	
 
 	•	 	furnishes an incorrect tax identification number;	
 
 	•	 	is notified by the Internal Revenue Service that he or she has failed properly to report payments of interest and distributions or is otherwise subject to backup withholding; or	
 
 	•	 	under some circumstances, fails to certify, under penalties of perjury, that he or she has furnished a correct tax identification number and that (a) he or she has not been notified by the Internal Revenue Service that he or she is subject to backup withholding for failure to report interest and distribution payments or (b) he or she has been notified by the Internal Revenue Service that he or she is no longer subject to backup withholding.	
 
Backup withholding will not apply with respect to payments made to some stockholders, such as corporations and tax-exempt organizations. Backup withholding is not an additional tax. Rather, the amount of any backup withholding with respect to a payment to a U.S. stockholder will be allowed as a credit against the U.S. stockholder’s U.S. federal income tax liability and may entitle the U.S. stockholder to a refund, provided that the required information is furnished to the Internal Revenue Service. U.S. stockholders should consult their own tax advisors regarding their qualifications for exemption from backup withholding and the procedure for obtaining an exemption.
 
Treatment of Tax-Exempt Stockholders
 
Tax-exempt entities such as employee pension benefit trusts, individual retirement accounts, charitable remainder trusts, etc. generally are exempt from federal income taxation. Such entities are subject to taxation, however, on any “unrelated business taxable income” (UBTI), as defined in the Internal Revenue Code. Our payment of dividends to a tax-exempt employee pension benefit trust or other domestic tax-exempt stockholder generally will not constitute UBTI to such stockholder unless such stockholder has borrowed to acquire or carry its shares.
 
In the event that we are deemed to be “predominately held” by qualified employee pension benefit trusts that each hold more than 10% (in value) of our shares, such trusts would be required to treat a percentage of the dividend distributions paid to them as UBTI. We would be deemed to be “predominately held” by such trusts if either (1) one employee pension benefit trust owns more than 25% in value of our shares, or (2) any group of such trusts, each owning more than 10% in value of our shares, holds in the aggregate more than 50% in value of our shares. If either of these ownership thresholds were ever exceeded, any qualified employee pension benefit trust holding more than 10% in value of our shares would be subject to tax on that portion of our dividend distributions made to it which is equal to the percentage of our income which would be UBTI if we, ourselves, were a qualified trust, rather than a REIT. We will attempt to monitor the concentration of ownership of employee pension benefit trusts in our shares, and we do not expect our shares to be deemed to be “predominately held” by qualified
 
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employee pension benefit trusts, as defined in the Internal Revenue Code, to the extent required to trigger the treatment of our income as UBTI to such trusts.
 
For social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal services plans exempt from federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of the Internal Revenue Code, respectively, income from an investment in our shares will constitute UBTI unless the stockholder in question is able to deduct amounts “set aside” or placed in reserve for certain purposes so as to offset the UBTI generated. Any such organization that is a prospective investor in our shares should consult its own tax advisor concerning these “set aside” and reserve requirements.
 
Special Tax Considerations for Non-U.S. Stockholders
 
The rules governing U.S. income taxation of non-resident alien individuals, foreign corporations, foreign partnerships and foreign trusts and estates (collectively, Non-U.S. stockholders) are complex. The following discussion is intended only as a summary of these rules. Non-U.S. stockholders should consult with their own tax advisors to determine the impact of federal, state and local income tax laws on an investment in our shares, including any reporting requirements.
 
Income Effectively Connected With a U.S. Trade or Business
 
In general, Non-U.S. stockholders will be subject to regular U.S. federal income taxation with respect to their investment in our shares if the income derived therefrom is “effectively connected” with the Non-U.S. stockholder’s conduct of a trade or business in the United States. A corporate Non-U.S. stockholder that receives income that is (or is treated as) effectively connected with a U.S. trade or business also may be subject to a branch profits tax under Section 884 of the Internal Revenue Code, which is payable in addition to the regular U.S. federal corporate income tax.
 
The following discussion will apply to Non-U.S. stockholders whose income derived from ownership of our shares is deemed to be not “effectively connected” with a U.S. trade or business.
 
Distributions Not Attributable to Gain From the Sale or Exchange of a United States Real Property Interest
 
A distribution to a Non-U.S. stockholder that is not attributable to gain realized by us from the sale or exchange of a United States real property interest and that we do not designate as a capital gain distribution will be treated as an ordinary income distribution to the extent that it is made out of current or accumulated earnings and profits. Generally, any ordinary income distribution will be subject to a U.S. federal income tax equal to 30% of the gross amount of the distribution unless this tax is reduced by the provisions of an applicable tax treaty. Any such distribution in excess of our earnings and profits will be treated first as a return of capital that will reduce each Non-U.S. stockholder’s basis in its shares (but not below zero) and then as gain from the disposition of those shares, the tax treatment of which is described under the rules discussed below with respect to dispositions of shares.
 
Distributions Attributable to Gain From the Sale or Exchange of a United States Real Property Interest
 
Distributions to a Non-U.S. stockholder that are attributable to gain from the sale or exchange of a United States real property interest will be taxed to a Non-U.S. stockholder under Internal Revenue Code provisions enacted by the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA). Under FIRPTA, such distributions are taxed to a Non-U.S. stockholder as if the distributions were gains
 
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“effectively connected” with a U.S. trade or business. Accordingly, a Non-U.S. stockholder will be taxed at the normal capital gain rates applicable to a U.S. stockholder (subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of non-resident alien individuals). Distributions subject to FIRPTA also may be subject to a 30% branch profits tax when made to a corporate Non-U.S. stockholder that is not entitled to a treaty exemption.
 
Withholding Obligations With Respect to Distributions to Non-U.S. Stockholders
 
Although tax treaties may reduce our withholding obligations, based on current law, we will generally be required to withhold from distributions to Non-U.S. stockholders, and remit to the Internal Revenue Service:
 
 	•	 	35% of designated capital gain distributions or, if greater, 35% of the amount of any distributions that could be designated as capital gain distributions; and	
 
 	•	 	30% of ordinary income distributions (i.e., dividends paid out of our earnings and profits).	
 
In addition, if we designate prior distributions as capital gain distributions, subsequent distributions, up to the amount of the prior distributions, will be treated as capital gain distributions for purposes of withholding. A distribution in excess of our earnings and profits will be subject to 30% withholding if at the time of the distribution it cannot be determined whether the distribution will be in an amount in excess of our current or accumulated earnings and profits. If the amount of tax we withhold with respect to a distribution to a Non-U.S. stockholder exceeds the stockholder’s U.S. tax liability with respect to that distribution, the Non-U.S. stockholder may file a claim with the Internal Revenue Service for a refund of the excess.
 
Sale of Our Shares by a Non-U.S. Stockholder
 
A sale of our shares by a Non-U.S. stockholder will generally not be subject to U.S. federal income taxation unless our shares constitute a “United States real property interest” within the meaning of FIRPTA. Our shares will not constitute a United States real property interest if we are a “domestically controlled REIT.” A “domestically controlled REIT” is a REIT that at all times during a specified testing period has less than 50% in value of its shares held directly or indirectly by Non-U.S. stockholders. We currently anticipate that we will be a domestically controlled REIT. Therefore, sales of our shares should not be subject to taxation under FIRPTA. However, we cannot assure you that we will continue to be a domestically controlled REIT. If we were not a domestically controlled REIT, whether a Non-U.S. stockholder’s sale of our shares would be subject to tax under FIRPTA as a sale of a United States real property interest would depend on whether our shares were “regularly traded” on an established securities market and on the size of the selling stockholder’s interest in us. Our shares currently are not “regularly traded” on an established securities market.
 
If the gain on the sale of shares were subject to taxation under FIRPTA, a Non-U.S. stockholder would be subject to the same treatment as a U.S. stockholder with respect to the gain, subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of non-resident alien individuals. In addition, distributions that are treated as gain from the disposition of shares and are subject to tax under FIRPTA also may be subject to a 30% branch profits tax when made to a corporate Non-U.S. stockholder that is not entitled to a treaty exemption. Under FIRPTA, the purchaser of our shares may be required to withhold 10% of the purchase price and remit this amount to the Internal Revenue Service.
 
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Even if not subject to FIRPTA, capital gains will be taxable to a Non-U.S. stockholder if the Non-U.S. stockholder is a non-resident alien individual who is present in the United States for 183 days or more during the taxable year and some other conditions apply, in which case the non-resident alien individual will be subject to a 30% tax on his or her U.S. source capital gains.
 
Recently promulgated Treasury Regulations may alter the procedures for claiming the benefits of an income tax treaty. Our Non-U.S. stockholders should consult their tax advisors concerning the effect, if any, of these Treasury Regulations on an investment in our shares.
 
Information Reporting Requirements and Backup Withholding for Non-U.S. Stockholders
 
Additional issues may arise for information reporting and backup withholding for Non-U.S. stockholders. Non-U.S. stockholders should consult their tax advisors with regard to U.S. information reporting and backup withholding requirements under the Internal Revenue Code.
 
Statement of Stock Ownership
 
We are required to demand annual written statements from the record holders of designated percentages of our shares disclosing the actual owners of the shares. Any record stockholder who, upon our request, does not provide us with required information concerning actual ownership of the shares is required to include specified information relating to his or her shares in his or her federal income tax return. We also must maintain, within the Internal Revenue District in which we are required to file our federal income tax return, permanent records showing the information we have received about the actual ownership of shares and a list of those persons failing or refusing to comply with our demand.
 
State and Local Taxation
 
We and any operating subsidiaries we may form may be subject to state and local tax in states and localities in which we or they do business or own property. The tax treatment of the Wells REIT, Wells OP, any operating subsidiaries we may form and the holders of our shares in local jurisdictions may differ from the federal income tax treatment described above.
 
Tax Aspects of Our Operating Partnership
 
The following discussion summarizes certain federal income tax considerations applicable to our investment in Wells OP, our operating partnership. The discussion does not cover state or local tax laws or any federal tax laws other than income tax laws.
 
Classification as a Partnership
 
We will be entitled to include in our income a distributive share of Wells OP’s income and to deduct our distributive share of Wells OP’s losses only if Wells OP is classified for federal income tax purposes as a partnership, rather than as an association taxable as a corporation. Under applicable Treasury Regulations (Check-the-Box-Regulations), an unincorporated U.S. entity with at least two members may elect to be classified either as an association taxable as a corporation or as a partnership. If such an entity fails to make an election, it generally will be treated as a partnership for federal income tax purposes. Wells OP intends to be classified as a partnership for federal income tax purposes and will not elect to be treated as an association taxable as a corporation under the Check-the-Box-Regulations.
 
Even though Wells OP will be treated as a partnership for federal income tax purposes, since it will not elect to be taxable as a corporation under the Check-the-Box Regulations, it could still be taxed
 
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as a corporation if it were deemed to be a “publicly traded partnership.” A publicly traded partnership is a partnership whose interests are traded on an established securities market or are readily tradable on a secondary market (or the substantial equivalent thereof); provided, that even if the foregoing requirements are met, a publicly traded partnership will not be treated as a corporation for federal income tax purposes if at least 90% of such partnership’s gross income for a taxable year consists of “qualifying income” under Section 7704(d) of the Internal Revenue Code. Qualifying income generally includes any income that is qualifying income for purposes of the 95% Income Test applicable to REITs (90% Passive-Type Income Exception). (See “Requirements for Qualification as a REIT—Operational Requirements—Gross Income Tests.”)
 
Under applicable Treasury Regulations (PTP Regulations), limited safe harbors from the definition of a publicly traded partnership are provided. Pursuant to one of those safe harbors (Private Placement Exclusion), interests in a partnership will not be treated as readily tradable on a secondary market or the substantial equivalent thereof if (1) all interests in the partnership were issued in a transaction (or transactions) that was not required to be registered under the Securities Act of 1933, as amended, and (2) the partnership does not have more than 100 partners at any time during the partnership’s taxable year. In determining the number of partners in a partnership, a person owning an interest in a flow-through entity (such as a partnership, grantor trust or S corporation) that owns an interest in the partnership is treated as a partner in such partnership only if (a) substantially all of the value of the owner’s interest in the flow-through is attributable to the flow-through entity’s interest (direct or indirect) in the partnership, and (b) a principal purpose of the use of the flow-through entity is to permit the partnership to satisfy the 100 partner limitation. Wells OP qualifies for the Private Placement Exclusion. Further, even if Wells OP were to be considered a publicly traded partnership under the PTP Regulations because it is deemed to have more than 100 partners, Wells OP should not be treated as a corporation because it should be eligible for the 90% Passive-Type Income Exception described above.
 
We have not requested, and do not intend to request, a ruling from the Internal Revenue Service that Wells OP will be classified as a partnership for federal income tax purposes. Holland & Knight is of the opinion, however, that based on certain factual assumptions and representations, Wells OP will more likely than not be treated for federal income tax purposes as a partnership and not as an association taxable as a corporation, or as a publicly traded partnership. Unlike a tax ruling, however, an opinion of counsel is not binding upon the Internal Revenue Service, and no assurance can be given that the Internal Revenue Service will not challenge the status of Wells OP as a partnership for federal income tax purposes. If such challenge were sustained by a court, Wells OP would be treated as a corporation for federal income tax purposes, as described below. In addition, the opinion of Holland & Knight is based on existing law, which is to a great extent the result of administrative and judicial interpretation. No assurance can be given that administrative or judicial changes would not modify the conclusions expressed in the opinion.
 
If for any reason Wells OP were taxable as a corporation, rather than a partnership, for federal income tax purposes, we would not be able to qualify as a REIT. (See “Federal Income Tax Considerations—Requirements for Qualification as a REIT—Operational Requirements—Gross Income Tests” and “Requirements for Qualification as a REIT—Operational Requirements—Asset Tests.”) In addition, any change in Wells OP’s status for tax purposes might be treated as a taxable event, in which case we might incur a tax liability without any related cash distribution. Further, items of income and deduction of Wells OP would not pass through to its partners, and its partners would be treated as stockholders for tax purposes. Consequently, Wells OP would be required to pay income tax at corporate tax rates on its net income, and distributions to its partners would constitute dividends that would not be deductible in computing Wells OP’s taxable income.
 
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Income Taxation of the Operating Partnership and its Partners
 
Partners, Not a Partnership, Subject to Tax.    A partnership is not a taxable entity for federal income tax purposes. As a partner in Wells OP, we will be required to take into account our allocable share of Wells OP’s income, gains, losses, deductions, and credits for any taxable year of Wells OP ending within or with our taxable year, without regard to whether we have received or will receive any distribution from Wells OP.
 
Partnership Allocations.    Although a partnership agreement generally determines the allocation of income and losses among partners, such allocations will be disregarded for tax purposes if they do not comply with the provisions of Section 704(b) of the Internal Revenue Code and the Treasury Regulations promulgated thereunder. If an allocation is not recognized for federal income tax purposes, the item subject to the allocation will be reallocated in accordance with the partners’ interests in the partnership, which will be determined by taking into account all of the facts and circumstances relating to the economic arrangement of the partners with respect to such item. Wells OP’s allocations of taxable income and loss are intended to comply with the requirements of Section 704(b) of the Internal Revenue Code and the Treasury Regulations promulgated thereunder.
 
Tax Allocations With Respect to Contributed Properties.    Pursuant to Section 704(c) of the Internal Revenue Code, income, gain, loss, and deduction attributable to appreciated or depreciated property that is contributed to a partnership in exchange for an interest in the partnership must be allocated for federal income tax purposes in a manner such that the contributor is charged with, or benefits from, the unrealized gain or unrealized loss associated with the property at the time of the contribution. The amount of such unrealized gain or unrealized loss is generally equal to the difference between the fair market value of the contributed property at the time of contribution and the adjusted tax basis of such property at the time of contribution. Under applicable Treasury Regulations, partnerships are required to use a “reasonable method” for allocating items subject to Section 704(c) of the Internal Revenue Code and several reasonable allocation methods are described therein.
 
Under the partnership agreement for Wells OP, depreciation or amortization deductions of Wells OP generally will be allocated among the partners in accordance with their respective interests in Wells OP, except to the extent that Wells OP is required under Section 704(c) to use a method for allocating depreciation deductions attributable to its properties that results in us receiving a disproportionately large share of such deductions. We may possibly be allocated (1) lower amounts of depreciation deductions for tax purposes with respect to contributed properties than would be allocated to us if each such property were to have a tax basis equal to its fair market value at the time of contribution, and (2) taxable gain in the event of a sale of such contributed properties in excess of the economic profit allocated to us as a result of such sale. These allocations may cause us to recognize taxable income in excess of cash proceeds received by us, which might adversely affect our ability to comply with the REIT distribution requirements, although we do not anticipate that this event will occur. The foregoing principles also will affect the calculation of our earnings and profits for purposes of determining which portion of our distributions is taxable as a dividend. The allocations described in this paragraph may result in a higher portion of our distributions being taxed as a dividend than would have occurred had we purchased such properties for cash.
 
Basis in Operating Partnership Interest.    The adjusted tax basis of our partnership interest in Wells OP generally is equal to (1) the amount of cash and the basis of any other property contributed to Wells OP by us, (2) increased by (A) our allocable share of Wells OP’s income and (B) our allocable share of the indebtedness of Wells OP, and (3) reduced, but not below zero, by (A) our allocable share of Wells OP’s losses and (B) the amount of cash distributed to us, including constructive cash distributions resulting from a reduction in our share of the indebtedness of Wells OP.
 
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If the allocation of our distributive share of Wells OP’s losses would reduce the adjusted tax basis of our partnership interest in Wells OP below zero, the recognition of such losses will be deferred until such time as the recognition of such losses would not reduce our adjusted tax basis below zero. If a distribution from Wells OP or a reduction in our share of Wells OP’s liabilities (which is treated as a constructive distribution for tax purposes) would reduce our adjusted tax basis below zero, any such distribution, including a constructive distribution, would cause us to recognize taxable income equal to the amount of such distribution in excess of our adjusted tax basis. The gain realized by us upon the receipt of any such distribution or constructive distribution would normally be characterized as capital gain, and if our partnership interest in Wells OP has been held for longer than the long-term capital gain holding period (currently one year), the distribution would constitute long-term capital gain.
 
Depreciation Deductions Available to the Operating Partnership.    Wells OP will use a portion of contributions made by the Wells REIT from offering proceeds to acquire interests in properties. Wells OP’s initial basis in such properties for federal income tax purposes generally will be equal to the purchase price paid by Wells OP. Wells OP plans to depreciate each such depreciable property for federal income tax purposes under the alternative depreciation system of depreciation (ADS). Under ADS, Wells OP generally will depreciate buildings and improvements over a 40-year recovery period using a straight-line method and a mid-month convention and will depreciate furnishings and equipment over a 12-year recovery period. To the extent that Wells OP acquires properties in exchange for units of Wells OP, Wells OP’s initial basis in each such property for federal income tax purposes should be the same as the transferor’s basis in that property on the date of acquisition by Wells OP. Although the law is not entirely clear, Wells OP generally intends to depreciate such depreciable property for federal income tax purposes over the same remaining useful lives and under the same methods used by the transferors of such properties.
 
Sale of the Operating Partnership’s Property
 
Generally, any gain realized by Wells OP on the sale of property held for more than one year will be long-term capital gain, except for any portion of such gain that is treated as depreciation or cost recovery recapture. Any gain recognized by Wells OP upon the disposition of a property will be allocated among the partners in accordance with their respective percentage interests in Wells OP.
 
Our share of any gain realized by Wells OP on the sale of any property held by Wells OP as inventory or other property held primarily for sale to customers in the ordinary course of Wells OP’s trade or business will be treated as income from a prohibited transaction that is subject to a 100% penalty tax. Such prohibited transaction income also may have an adverse effect upon our ability to satisfy the Income Tests for maintaining our REIT status. (See “Federal Income Tax Considerations—Requirements for Qualification as a REIT—Gross Income Tests” above.) We, however, do not presently intend to acquire or hold or allow Wells OP to acquire or hold any property that represents inventory or other property held primarily for sale to customers in the ordinary course of our or Wells OP’s trade or business.
 
ERISA CONSIDERATIONS
 
The following is a summary of some non-tax considerations associated with an investment in our shares by a qualified employee pension benefit plan or an individual retirement account (IRA). This summary is based on provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA), and the Internal Revenue Code, as amended through the date of this prospectus, and relevant regulations and opinions issued by the Department of Labor and the Internal Revenue Service. We cannot assure you that there will not be adverse tax decisions or legislative, regulatory or administrative changes which would significantly modify the statements expressed herein. Any such changes may or may not apply to transactions entered into prior to the date of their enactment.
 
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Each fiduciary of an employee pension benefit plan subject to ERISA, such as a profit sharing, section 401(k) or pension plan, or of any other retirement plan or account subject to Section 4975 of the Internal Revenue Code, such as an IRA (Benefit Plans), seeking to invest plan assets in our shares must, taking into account the facts and circumstances of such Benefit Plan, consider, among other matters:
 
 	•	 	whether the investment is consistent with the applicable provisions of ERISA and the Internal Revenue Code;	
 
 	•	 	whether, under the facts and circumstances appertaining to the Benefit Plan in question, the fiduciary’s responsibility to the plan has been satisfied;	
 
 	•	 	whether the investment will produce UBTI to the Benefit Plan (see “Federal Income Tax Considerations—Treatment of Tax-Exempt Stockholders”); and	
 
 	•	 	the need to value the assets of the Benefit Plan annually.	
 
Under ERISA, a plan fiduciary’s responsibilities include the following duties:
 
 	•	 	to act solely in the interest of plan participants and beneficiaries and for the exclusive purpose of providing benefits to them, as well as defraying reasonable expenses of plan administration;	
 
 	•	 	to invest plan assets prudently;	
 
 	•	 	to diversify the investments of the plan unless it is clearly prudent not to do so;	
 
 	•	 	to ensure sufficient liquidity for the plan; and	
 
 	•	 	to consider whether an investment would constitute or give rise to a prohibited transaction under ERISA or the Internal Revenue Code.	
 
ERISA also requires that the assets of an employee benefit plan be held in trust and that the trustee, or a duly authorized named fiduciary or investment manager, have exclusive authority and discretion to manage and control the assets of the plan.
 
Prohibited Transactions
 
Section 406 of ERISA and Section 4975 of the Internal Revenue Code prohibit specified transactions involving the assets of a Benefit Plan which are between the plan and any “party in interest” or “disqualified person” with respect to that Benefit Plan. These transactions are prohibited regardless of how beneficial they may be for the Benefit Plan. Prohibited transactions include the sale, exchange or leasing of property, and the lending of money or the extension of credit, between a Benefit Plan and a party in interest or disqualified person. The transfer to, or use by or for the benefit of, a party in interest, or disqualified person of any assets of a Benefit Plan is also prohibited. A fiduciary of a Benefit Plan also is prohibited from engaging in self-dealing, acting for a person who has an interest adverse to the plan or receiving any consideration for its own account from a party dealing with the plan in a transaction involving plan assets. Furthermore, Section 408 of the Internal Revenue Code states that assets of an IRA trust may not be commingled with other property except in a common trust fund or common investment fund.
 
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Plan Asset Considerations
 
In order to determine whether an investment in our shares by Benefit Plans creates or gives rise to the potential for either prohibited transactions or a commingling of assets as referred to above, a fiduciary must consider whether an investment in our shares will cause our assets to be treated as assets of the investing Benefit Plans. Neither ERISA nor the Internal Revenue Code define the term “plan assets,” however, U.S. Department of Labor Regulations provide guidelines as to whether, and under what circumstances, the underlying assets of an entity will be deemed to constitute assets of a Benefit Plan when the plan invests in that entity (Plan Assets Regulation). Under the Plan Assets Regulation, the assets of corporations, partnerships or other entities in which a Benefit Plan makes an equity investment will generally be deemed to be assets of the Benefit Plan unless the entity satisfies one of the exceptions to this general rule. As discussed below, we have received an opinion of counsel that, based on the Plan Assets Regulation, our underlying assets should not be deemed to be “plan assets” of Benefit Plans investing in shares, assuming the conditions set forth in the opinion are satisfied, based upon the fact that at least one of the specific exemptions set forth in the Plan Assets Regulation is satisfied, as determined under the criteria set forth below.
 
Specifically, the Plan Assets Regulation provides that the underlying assets of REITs will not be treated as assets of a Benefit Plan investing therein if the interest the Benefit Plan acquires is a “publicly-offered security.” A publicly-offered security must be:
 
 	•	 	sold as part of a public offering registered under the Securities Act of 1933, as amended, and be part of a class of securities registered under the Securities Exchange Act of 1934, as amended, within a specified time period;	
 
 	•	 	part of a class of securities that is owned by 100 or more persons who are independent of the issuer and one another; and	
 
 	•	 	“freely transferable.”	
 
Our shares are being sold as part of an offering of securities to the public pursuant to an effective registration statement under the Securities Act, and are part of a class registered under the Securities Exchange Act. In addition, we have well in excess of 100 independent stockholders. Thus, both the first and second criterion of the publicly-offered security exception will be satisfied.
 
Whether a security is “freely transferable” depends upon the particular facts and circumstances. For example, our shares are subject to certain restrictions on transferability intended to ensure that we continue to qualify for federal income tax treatment as a REIT. The regulation provides, however, that where the minimum investment in a public offering of securities is $10,000 or less, the presence of a restriction on transferability intended to prohibit transfers which would result in a termination or reclassification of the entity for state or federal tax purposes will not ordinarily affect a determination that such securities are “freely transferable.” The minimum investment in our shares is less than $10,000; thus, the restrictions imposed in order to maintain our status as a REIT should not cause the shares to be deemed not “freely transferable. “
 
In the event that our underlying assets were treated by the Department of Labor as the assets of investing Benefit Plans, our management would be treated as fiduciaries with respect to each Benefit Plan stockholder, and an investment in our shares might constitute an ineffective delegation of fiduciary responsibility to Wells Capital, our advisor, and expose the fiduciary of the Benefit Plan to co-fiduciary liability under ERISA for any breach by Wells Capital of the fiduciary duties mandated under ERISA.
 
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Further, if our assets are deemed to be “plan assets,” an investment by an IRA in our shares might be deemed to result in an impermissible commingling of IRA assets with other property.
 
If Wells Capital, our advisor, or its affiliates were treated as fiduciaries with respect to Benefit Plan stockholders, the prohibited transaction restrictions of ERISA and the Internal Revenue Code would apply to any transaction involving our assets. These restrictions could, for example, require that we avoid transactions with entities that are affiliated with us or our affiliates or restructure our activities in order to obtain an administrative exemption from the prohibited transaction restrictions. Alternatively, we might have to provide Benefit Plan stockholders with the opportunity to sell their shares to us or we might dissolve or terminate.
 
If a prohibited transaction were to occur, the Internal Revenue Code imposes an excise tax equal to 15% of the amount involved and authorizes the IRS to impose an additional 100% excise tax if the prohibited transaction is not “corrected” in a timely manner. These taxes would be imposed on any disqualified person who participates in the prohibited transaction. In addition, Wells Capital and possibly other fiduciaries of Benefit Plan stockholders subject to ERISA who permitted the prohibited transaction to occur or who otherwise breached their fiduciary responsibilities, or a non-fiduciary participating in a prohibited transaction, could be required to restore to the Benefit Plan any profits they realized as a result of the transaction or breach, and make good to the Benefit Plan any losses incurred by the Benefit Plan as a result of the transaction or breach. With respect to an IRA that invests in our shares, the occurrence of a prohibited transaction involving the individual who established the IRA, or his or her beneficiary, would cause the IRA to lose its tax-exempt status under Section 408(e)(2) of the Internal Revenue Code.
 
We have obtained an opinion from Holland & Knight that it is more likely than not that our shares will be deemed to constitute “publicly-offered securities” and, accordingly, that it is more likely than not that our underlying assets should not be considered “plan assets” under the Plan Assets Regulation, assuming the offering takes place as described in this prospectus. If our underlying assets were not deemed to be “plan assets,” the problems discussed in the immediately preceding three paragraphs are not expected to arise.
 
Other Prohibited Transactions
 
Regardless of whether the shares qualify for the “publicly-offered security” exception of the Plan Assets Regulation, a prohibited transaction could occur if the Wells REIT, Wells Capital, any selected dealer or any of their affiliates is a fiduciary (within the meaning of Section 3(21) of ERISA) with respect to any Benefit Plan purchasing the shares. Accordingly, unless an administrative or statutory exemption applies, shares should not be purchased by a Benefit Plan with respect to which any of the above persons is a fiduciary. A person is a fiduciary with respect to a Benefit Plan under Section 3(21) of ERISA if, among other things, the person has discretionary authority or control with respect to “plan assets” or provides investment advice for a fee with respect to “plan assets.” Under a regulation issued by the Department of Labor, a person shall be deemed to be providing investment advice if that person renders advice as to the advisability of investing in our shares and that person regularly provides investment advice to the Benefit Plan pursuant to a mutual agreement or understanding (written or otherwise) (1) that the advice will serve as the primary basis for investment decisions, and (2) that the advice will be individualized for the Benefit Plan based on its particular needs.
 
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Annual Valuation
 
A fiduciary of an employee benefit plan subject to ERISA is required to determine annually the fair market value of each asset of the plan as of the end of the plan’s fiscal year and to file a report reflecting that value with the Department of Labor. When the fair market value of any particular asset is not available, the fiduciary is required to make a good faith determination of that asset’s fair market value assuming an orderly liquidation at the time the determination is made. In addition, a trustee or custodian of an IRA must provide an IRA participant with a statement of the value of the IRA each year. In discharging its obligation to value assets of a plan, a fiduciary subject to ERISA must act consistently with the relevant provisions of the plan and the general fiduciary standards of ERISA.
 
Unless and until our shares are listed on a national securities exchange or are included for quotation on NASDAQ, it is not expected that a public market for the shares will develop. To date, neither the Internal Revenue Service nor the Department of Labor has promulgated regulations specifying how a plan fiduciary should determine the fair market value of the shares, namely when the fair market value of the shares is not determined in the marketplace. Therefore, to assist fiduciaries in fulfilling their valuation and annual reporting responsibilities with respect to ownership of shares, we intend to have our advisor prepare annual reports of the estimated value of our shares. The methodology to be utilized for determining such estimated share values will be for our advisor to estimate the amount a stockholder would receive if our properties were sold at their estimated fair market values at the end of the fiscal year and the proceeds therefrom (without reduction for selling expenses) were distributed to the stockholders in liquidation. Due to the expense involved in obtaining annual appraisals for all of our properties, we do not currently anticipate that actual appraisals will be obtained; however, in connection with the advisor’s estimated valuations, the advisor will obtain a third party opinion that its estimates of value are reasonable. We will provide our reports to plan fiduciaries and IRA trustees and custodians who identify themselves to us and request this information.
 
Until December 31, 2002, we intend to use the offering price of shares as the per share net asset value. Beginning at the end of year 2003, we will have our advisor prepare estimated valuations utilizing the methodology described above. You should be cautioned, however, that such valuations will be estimates only and will be based upon a number of assumptions that may not be accurate or complete. As set forth above, we do not currently anticipate obtaining appraisals for our properties and, accordingly, the advisor’s estimates should not be viewed as an accurate reflection of the fair market value of our properties, nor will they represent the amount of net proceeds that would result from an immediate sale of our properties. In addition, property values are subject to change and can always decline in the future. For these reasons, our estimated valuations should not be utilized for any purpose other than to assist plan fiduciaries in fulfilling their valuation and annual reporting responsibilities. Further, we cannot assure you:
 
 	•	 	that the estimated values we obtain could or will actually be realized by us or by our stockholders upon liquidation (in part because estimated values do not necessarily indicate the price at which assets could be sold and because no attempt will be made to estimate the expenses of selling any of our assets);	
 
 	•	 	that our stockholders could realize these values if they were to attempt to sell their shares; or	
 
 	•	 	that the estimated values, or the method used to establish values, would comply with the ERISA or IRA requirements described above.	
 
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DESCRIPTION OF SHARES
 
The following description of the shares is not complete but is a summary of portions of our articles of incorporation and is qualified in its entirety by reference to our articles of incorporation.
 
Under our articles of incorporation, we have authority to issue a total of 1,000,000,000 shares of capital stock. Of the total shares authorized, 750,000,000 shares are designated as common stock with a par value of $0.01 per share, 100,000,000 shares are designated as preferred stock and 150,000,000 shares are designated as shares-in-trust, which would be issued only in the event we have purchases in excess of the ownership limits described below. In addition, our board of directors may amend our articles of incorporation to increase or decrease the amount of our authorized shares.
 
As of June 30, 2002, approximately 144,366,772 shares of our common stock were issued and outstanding, and no shares of preferred stock or shares-in-trust were issued and outstanding.
 
Common Stock
 
The holders of common stock are entitled to one vote per share on all matters voted on by stockholders, including election of our directors. Our articles of incorporation do not provide for cumulative voting in the election of our directors. Therefore, the holders of a majority of the outstanding common shares can elect our entire board of directors. Subject to any preferential rights of any outstanding series of preferred stock, the holders of common stock are entitled to such dividends as may be declared from time to time by our board of directors out of legally available funds and, upon liquidation, are entitled to receive all assets available for distribution to our stockholders. All shares issued in the offering will be fully paid and non-assessable shares of common stock. Holders of shares of common stock will not have preemptive rights, which means that you will not have an automatic option to purchase any new shares that we issue.
 
We will not issue certificates for our shares. Shares will be held in “uncertificated” form which will eliminate the physical handling and safekeeping responsibilities inherent in owning transferable stock certificates and eliminate the need to return a duly executed stock certificate to effect a transfer. Wells Capital, our advisor, acts as our registrar and as the transfer agent for our shares. Transfers can be effected simply by mailing to Wells Capital a transfer and assignment form, which we will provide to you at no charge.
 
Preferred Stock
 
Our articles of incorporation authorize our board of directors to designate and issue one or more classes or series of preferred stock without stockholder approval. Our board of directors may determine the relative rights, preferences and privileges of each class or series of preferred stock so issued, which may be more beneficial than the rights, preferences and privileges attributable to the common stock. The issuance of preferred stock could have the effect of delaying or preventing a change in control of the Wells REIT. Our board of directors has no present plans to issue preferred stock, but may do so at any time in the future without stockholder approval.
 
Meetings and Special Voting Requirements
 
An annual meeting of the stockholders will be held each year, at least 30 days after delivery of our annual report. Special meetings of stockholders may be called only upon the request of a majority of our directors, a majority of the independent directors, the chairman, the president or upon the written request of stockholders holding at least 10% of the shares. The presence of a majority of the outstanding
 
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shares either in person or by proxy shall constitute a quorum. Generally, the affirmative vote of a majority of all votes entitled to be cast is necessary to take stockholder action authorized by our articles of incorporation, except that a majority of the votes represented in person or by proxy at a meeting at which a quorum is present is sufficient to elect a director.
 
Under Maryland Corporation Law and our articles of incorporation, stockholders are entitled to vote at a duly held meeting at which a quorum is present on (1) amendments to our articles of incorporation, (2) a liquidation or dissolution of the Wells REIT, (3) a reorganization of the Wells REIT, (4) a merger, consolidation or sale or other disposition of substantially all of our assets, and (5) a termination of our status as a REIT. The vote of stockholders holding a majority of our outstanding shares is required to approve any such action, and no such action can be taken by our board of directors without such majority vote of our stockholders. Accordingly, any provision in our articles of incorporation, including our investment objectives, can be amended by the vote of stockholders holding a majority of our outstanding shares. Stockholders voting against any merger or sale of assets are permitted under Maryland Corporation Law to petition a court for the appraisal and payment of the fair value of their shares. In an appraisal proceeding, the court appoints appraisers who attempt to determine the fair value of the stock as of the date of the stockholder vote on the merger or sale of assets. After considering the appraisers’ report, the court makes the final determination of the fair value to be paid to the dissenting stockholder and decides whether to award interest from the date of the merger or sale of assets and costs of the proceeding to the dissenting stockholders.
 
Wells Capital, as our advisor, is selected and approved annually by our directors. While the stockholders do not have the ability to vote to replace Wells Capital or to select a new advisor, stockholders do have the ability, by the affirmative vote of a majority of the shares entitled to vote on such matter, to elect to remove a director from our board.
 
Stockholders are entitled to receive a copy of our stockholder list upon request. The list provided by us will include each stockholder’s name, address and telephone number, if available, and number of shares owned by each stockholder and will be sent within 10 days of the receipt by us of the request. A stockholder requesting a list will be required to pay reasonable costs of postage and duplication. We have the right to request that a requesting stockholder represent to us that the list will not be used to pursue commercial interests.
 
In addition to the foregoing, stockholders have rights under Rule 14a-7 under the Securities Exchange Act, which provides that, upon the request of investors and the payment of the expenses of the distribution, we are required to distribute specific materials to stockholders in the context of the solicitation of proxies for voting on matters presented to stockholders or, at our option, provide requesting stockholders with a copy of the list of stockholders so that the requesting stockholders may make the distribution of proxies themselves.
 
Restriction on Ownership of Shares
 
In order for us to qualify as a REIT, not more than 50% of our outstanding shares may be owned by any five or fewer individuals, including some tax-exempt entities. In addition, the outstanding shares must be owned by 100 or more persons independent of us and each other during at least 335 days of a 12-month taxable year or during a proportionate part of a shorter taxable year. We may prohibit certain acquisitions and transfers of shares so as to ensure our continued qualification as a REIT under the Internal Revenue Code. However, we cannot assure you that this prohibition will be effective.
 
In order to assist us in preserving our status as a REIT, our articles of incorporation contain a limitation on ownership that prohibits any person or group of persons from acquiring, directly or
 
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indirectly, beneficial ownership of more than 9.8% of our outstanding shares. Our articles of incorporation provide that any transfer of shares that would violate our share ownership limitations is null and void and the intended transferee will acquire no rights in such shares, unless the transfer is approved by our board of directors based upon receipt of information that such transfer would not violate the provisions of the Internal Revenue Code for qualification as a REIT.
 
Shares in excess of the ownership limit which are attempted to be transferred will be designated as “shares-in-trust” and will be transferred automatically to a trust effective on the day before the reported transfer of such shares. The record holder of the shares that are designated as shares-in-trust will be required to submit such number of shares to the Wells REIT in the name of the trustee of the trust. We will designate a trustee of the share trust that will not be affiliated with us. We will also name one or more charitable organizations as a beneficiary of the share trust. Shares-in-trust will remain issued and outstanding shares and will be entitled to the same rights and privileges as all other shares of the same class or series. The trustee will receive all dividends and distributions on the shares-in-trust and will hold such dividends or distributions in trust for the benefit of the beneficiary. The trustee will vote all shares-in-trust during the period they are held in trust.
 
At our direction, the trustee will transfer the shares-in-trust to a person whose ownership will not violate the ownership limits. The transfer shall be made within 20 days of our receipt of notice that shares have been transferred to the trust. During this 20-day period, we will have the option of redeeming such shares. Upon any such transfer or redemption, the purported transferee or holder shall receive a per share price equal to the lesser of (1) the price per share in the transaction that created such shares-in-trust, or (2) the market price per share on the date of the transfer or redemption.
 
Any person who (1) acquires shares in violation of the foregoing restriction or who owns shares that were transferred to any such trust is required to give immediate written notice to the Wells REIT of such event, or (2) transfers or receives shares subject to such limitations is required to give the Wells REIT 15 days written notice prior to such transaction. In both cases, such persons shall provide to the Wells REIT such other information as we may request in order to determine the effect, if any, of such transfer on our status as a REIT.
 
The foregoing restrictions will continue to apply until (1) our board of directors determines it is no longer in our best interest to continue to qualify as a REIT, and (2) there is an affirmative vote of the majority of shares entitled to vote on such matter at a regular or special meeting of our stockholders.
 
The ownership limit does not apply to an offeror which, in accordance with applicable federal and state securities laws, makes a cash tender offer, where at least 85% of the outstanding shares are duly tendered and accepted pursuant to the cash tender offer. The ownership limit also does not apply to the underwriter in a public offering of shares or to a person or persons so exempted from the ownership limit by our board of directors based upon appropriate assurances that our qualification as a REIT is not jeopardized.
 
Any person who owns 5% or more of the outstanding shares during any taxable year will be asked to deliver a statement or affidavit setting forth the number of shares beneficially owned, directly or indirectly.
 
Dividends
 
Dividends will be paid on a quarterly basis regardless of the frequency with which such dividends are declared. Dividends will be paid to investors who are stockholders as of the record dates selected by our board of directors. We currently calculate our quarterly dividends based upon daily record and
 
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dividend declaration dates so our investors will be entitled to be paid dividends immediately upon their purchase of shares. We then make quarterly dividend payments following the end of each calendar quarter.
 
We are required to make distributions sufficient to satisfy the requirements for qualification as a REIT for tax purposes. Generally, income distributed as dividends will not be taxable to us under the Internal Revenue Code if we distribute at least 90% of our taxable income. (See “Federal Income Tax Considerations—Requirements for Qualification as a REIT.”)
 
Dividends will be declared at the discretion of our board of directors, in accordance with our earnings, cash flow and general financial condition. Our board’s discretion will be directed, in substantial part, by its obligation to cause us to comply with the REIT requirements. Because we may receive income from interest or rents at various times during our fiscal year, dividends may not reflect our income earned in that particular distribution period but may be made in anticipation of cash flow which we expect to receive during a later quarter and may be made in advance of actual receipt of funds in an attempt to make dividends relatively uniform. We may borrow money, issue securities or sell assets in order to make dividend distributions.
 
We are not prohibited from distributing our own securities in lieu of making cash dividends to stockholders, provided that the securities so distributed to stockholders are readily marketable. Stockholders who receive marketable securities in lieu of cash dividends may incur transaction expenses in liquidating the securities.
 
Dividend Reinvestment Plan
 
We currently have a dividend reinvestment plan available that allows you to have your dividends otherwise distributable to you invested in additional shares of the Wells REIT.
 
You may purchase shares under our dividend reinvestment plan for $10 per share until all of the shares registered as part of this offering have been sold. After this time, we may purchase shares either through purchases on the open market, if a market then exists, or through an additional issuance of shares. In any case, the price per share will be equal to the then-prevailing market price, which shall equal the price on the securities exchange or over-the-counter market on which such shares are listed at the date of purchase if such shares are then listed. A copy of our Amended and Restated Dividend Reinvestment Plan as currently in effect is included as Exhibit B to this prospectus.
 
You may elect to participate in the dividend reinvestment plan by completing the Subscription Agreement, the enrollment form or by other written notice to the plan administrator. Participation in the plan will begin with the next distribution made after receipt of your written notice. We may terminate the dividend reinvestment plan for any reason at any time upon 10 days’ prior written notice to participants. Your participation in the plan will also be terminated to the extent that a reinvestment of your dividends in our shares would cause the percentage ownership limitation contained in our articles of incorporation to be exceeded. In addition, you may terminate your participation in the dividend reinvestment plan at any time by providing us with written notice.
 
If you elect to participate in the dividend reinvestment plan and are subject to federal income taxation, you will incur a tax liability for dividends allocated to you even though you have elected not to receive the dividends in cash but rather to have the dividends withheld and reinvested pursuant to the dividend reinvestment plan. Specifically, you will be treated as if you have received the dividend from us in cash and then applied such dividend to the purchase of additional shares. You will be taxed on the
 
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amount of such dividend as ordinary income to the extent such dividend is from current or accumulated earnings and profits, unless we have designated all or a portion of the dividend as a capital gain dividend.
 
Share Redemption Program
 
Prior to the time that our shares are listed on a national securities exchange, stockholders of the Wells REIT who have held their shares for at least one year may receive the benefit of limited interim liquidity by presenting for redemption all or any portion of their shares to us at any time in accordance with the procedures outlined herein. At that time, we may, subject to the conditions and limitations described below, redeem the shares presented for redemption for cash to the extent that we have sufficient funds available to us to fund such redemption.
 
If you have held your shares for the required one-year period, you may redeem your shares for a purchase price equal to the lesser of (1) $10 per share, or (2) the purchase price per share that you actually paid for your shares of the Wells REIT. In the event that you are redeeming all of your shares, shares purchased pursuant to our dividend reinvestment plan may be excluded from the foregoing one-year holding period requirement, in the discretion of our board of directors. In addition, for purposes of the one-year holding period, limited partners of Wells OP who exchange their limited partnership units for shares in the Wells REIT shall be deemed to have owned their shares as of the date they were issued their limited partnership units in Wells OP. Our board of directors reserves the right in its sole discretion at any time and from time to time to (1) change the purchase price for redemptions, or (2) otherwise amend the terms of our share redemption program. In addition, our board of directors has delegated to our officers the right to (1) waive the one-year holding period in the event of the death or bankruptcy of a stockholder or other exigent circumstances, or (2) reject any request for redemption at any time and for any reason.
 
Redemption of shares, when requested, will be made quarterly on a first-come, first-served basis. Subject to funds being available, we will limit the number of shares redeemed pursuant to our share redemption program as follows: (1) during any calendar year, we will not redeem in excess of 3.0% of the weighted average number of shares outstanding during the prior calendar year; and (2) funding for the redemption of shares will come exclusively from the proceeds we receive from the sale of shares under our dividend reinvestment plan such that in no event shall the aggregate amount of redemptions under our share redemption program exceed aggregate proceeds received from the sale of shares pursuant to our dividend reinvestment plan. The board of directors, in its sole discretion, may choose to terminate the share redemption program or to reduce the number of shares purchased under the share redemption program if it determines the funds otherwise available to fund our share redemption program are needed for other purposes. (See “Risk Factors—Investment Risks.”)
 
We cannot guarantee that the funds set aside for our share redemption program will be sufficient to accommodate all requests made in any year. If we do not have such funds available, at the time when redemption is requested, you can (1) withdraw your request for redemption, or (2) ask that we honor your request at such time, if any, when sufficient funds become available. Such pending requests will be honored on a first-come, first-served basis.
 
Our share redemption program is only intended to provide interim liquidity for stockholders until a secondary market develops for the shares. No such market presently exists, and we cannot assure you that any market for your shares will ever develop.
 
The shares we redeem under our share redemption program will be cancelled, and will be held as treasury stock. We will not resell such shares to the public unless they are first registered with the
 
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Securities and Exchange Commission (Commission) under the Securities Act of 1933 and under appropriate state securities laws or otherwise sold in compliance with such laws.
 
Restrictions on Roll-Up Transactions
 
In connection with any proposed transaction considered a “Roll-up Transaction” involving the Wells REIT and the issuance of securities of an entity (a Roll-up Entity) that would be created or would survive after the successful completion of the Roll-up Transaction, an appraisal of all properties shall be obtained from a competent independent appraiser. The properties shall be appraised on a consistent basis, and the appraisal shall be based on the evaluation of all relevant information and shall indicate the value of the properties as of a date immediately prior to the announcement of the proposed Roll-up Transaction. The appraisal shall assume an orderly liquidation of properties over a 12-month period. The terms of the engagement of the independent appraiser shall clearly state that the engagement is for our benefit and the stockholders. A summary of the appraisal, indicating all material assumptions underlying the appraisal, shall be included in a report to stockholders in connection with any proposed Roll-up Transaction.
 
A “Roll-up Transaction” is a transaction involving the acquisition, merger, conversion or consolidation, directly or indirectly, of the Wells REIT and the issuance of securities of a Roll-up Entity. This term does not include:
 
 	•	 	a transaction involving our securities that have been for at least 12 months listed on a national securities exchange or included for quotation on NASDAQ; or	
 
 	•	 	a transaction involving the conversion to corporate, trust, or association form of only the Wells REIT if, as a consequence of the transaction, there will be no significant adverse change in any of the following: stockholder voting rights; the term of our existence; compensation to Wells Capital; or our investment objectives.	
 
In connection with a proposed Roll-up Transaction, the person sponsoring the Roll-up Transaction must offer to stockholders who vote “no” on the proposal the choice of:
 
(1)  accepting the securities of a Roll-up Entity offered in the proposed Roll-up Transaction; or
 
(2)  one of the following:
 
  (A)  remaining as stockholders of the Wells REIT and preserving their interests therein on the same terms and conditions as existed previously, or
 
  (B)  receiving cash in an amount equal to the stockholder’s pro rata share of the appraised value of our net assets.
 
We are prohibited from participating in any proposed Roll-up Transaction:
 
 	•	 	that would result in the stockholders having democracy rights in a Roll-up Entity that are less than those provided in our bylaws and described elsewhere in this prospectus, including rights with respect to the election and removal of directors, annual reports, annual and special meetings, amendment of our articles of incorporation, and dissolution of the Wells REIT;	
 
 	•	 	that includes provisions that would operate to materially impede or frustrate the accumulation of shares by any purchaser of the securities of the Roll-up Entity, except to the minimum extent necessary to preserve the tax status of the Roll-up Entity, or which	
 
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 	would limit the ability of an investor to exercise the voting rights of its securities of the Roll-up Entity on the basis of the number of shares held by that investor;	
 
 	•	 	in which investor’s rights to access of records of the Roll-up Entity will be less than those provided in the section of this prospectus entitled “Description of Shares—Meetings and Special Voting Requirements;” or	
 
 	•	 	in which any of the costs of the Roll-up Transaction would be borne by us if the Roll-up Transaction is not approved by the stockholders.	
 
Business Combinations
 
Maryland Corporation Law prohibits certain business combinations between a Maryland corporation and an interested stockholder or the interested stockholder’s affiliate for five years after the most recent date on which the stockholder becomes an interested stockholder. These provisions of the Maryland Corporation Law will not apply, however, to business combinations that are approved or exempted by the board of directors of the corporation prior to the time that the interested stockholder becomes an interested stockholder. As permitted by Maryland Corporation Law, we have provided in our articles of incorporation that the business combination provisions of Maryland Corporation Law will not apply to transactions involving the Wells REIT.
 
Control Share Acquisitions
 
Maryland Corporation Law provides that control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter. Shares owned by the acquiror, or by officers or directors who are employees of the corporation are not entitled to vote on the matter. As permitted by Maryland Corporation Law, we have provided in our articles of incorporation that the control share provisions of Maryland Corporation Law will not apply to transactions involving the Wells REIT.
 
THE OPERATING PARTNERSHIP AGREEMENT
 
General
 
Wells Operating Partnership, L.P. (Wells OP) was formed in January 1998 to acquire, own and operate properties on our behalf. It is considered to be an Umbrella Partnership Real Estate Investment Trust (UPREIT), which is a structure generally utilized to provide for the acquisition of real property from owners who desire to defer taxable gain otherwise required to be recognized by them upon the disposition of their properties. Such owners may also desire to achieve diversity in their investment and other benefits afforded to stockholders in a REIT. For purposes of satisfying the Asset and Income Tests for qualification as a REIT for tax purposes, the REIT’s proportionate share of the assets and income of an UPREIT, such as Wells OP, will be deemed to be assets and income of the REIT.
 
The property owner’s goals are accomplished because a property owner may contribute property to an UPREIT in exchange for limited partnership units on a tax-deferred basis. Further, Wells OP is structured to make distributions with respect to limited partnership units which will be equivalent to the dividend distributions made to stockholders of the Wells REIT. Finally, a limited partner in Wells OP may later exchange his limited partnership units in Wells OP for shares of the Wells REIT (in a taxable transaction) and, if our shares are then listed, achieve liquidity for his investment.
 
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Substantially all of our assets are held by Wells OP, and we intend to make future acquisitions of real properties using the UPREIT structure. The Wells REIT is the sole general partner of Wells OP and, as of June 30, 2002, owned an approximately 99.72% equity percentage interest in Wells OP. Wells Capital, our advisor, contributed $200,000 to Wells OP and is currently the only limited partner owning the other approximately 0.28% equity percentage interest in Wells OP. As the sole general partner of Wells OP, we have the exclusive power to manage and conduct the business of Wells OP.
 
The following is a summary of certain provisions of the partnership agreement of Wells OP. This summary is not complete and is qualified by the specific language in the partnership agreement. You should refer to the partnership agreement, itself, which we have filed as an exhibit to the registration statement, for more detail.
 
Capital Contributions
 
As we accept subscriptions for shares, we will transfer substantially all of the net proceeds of the offering to Wells OP as a capital contribution; however, we will be deemed to have made capital contributions in the amount of the gross offering proceeds received from investors. Wells OP will be deemed to have simultaneously paid the selling commissions and other costs associated with the offering. If Wells OP requires additional funds at any time in excess of capital contributions made by us and Wells Capital or from borrowing, we may borrow funds from a financial institution or other lender and lend such funds to Wells OP on the same terms and conditions as are applicable to our borrowing of such funds. In addition, we are authorized to cause Wells OP to issue partnership interests for less than fair market value if we conclude in good faith that such issuance is in the best interest of Wells OP and the Wells REIT.
 
Operations
 
The partnership agreement of Wells OP provides that Wells OP is to be operated in a manner that will (1) enable the Wells REIT to satisfy the requirements for being classified as a REIT for tax purposes, (2) avoid any federal income or excise tax liability, and (3) ensure that Wells OP will not be classified as a “publicly traded partnership” for purposes of Section 7704 of the Internal Revenue Code, which classification could result in Wells OP being taxed as a corporation, rather than as a partnership. (See “Federal Income Tax Considerations—Tax Aspects of Our Operating Partnership—Classification as a Partnership.”)
 
The partnership agreement provides that Wells OP will distribute cash flow from operations to the limited partners of Wells OP in accordance with their relative percentage interests on at least a quarterly basis in amounts determined by the Wells REIT as general partner such that a holder of one unit of limited partnership interest in Wells OP will receive the same amount of annual cash flow distributions from Wells OP as the amount of annual dividends paid to the holder of one of our shares. Remaining cash from operations will be distributed to the Wells REIT as the general partner to enable us to make dividend distributions to our stockholders.
 
Similarly, the partnership agreement of Wells OP provides that taxable income is allocated to the limited partners of Wells OP in accordance with their relative percentage interests such that a holder of one unit of limited partnership interest in Wells OP will be allocated taxable income for each taxable year in an amount equal to the amount of taxable income to be recognized by a holder of one of our shares, subject to compliance with the provisions of Sections 704(b) and 704(c) of the Internal Revenue Code and corresponding Treasury Regulations. Losses, if any, will generally be allocated among the partners in accordance with their respective percentage interests in Wells OP.
 
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Upon the liquidation of Wells OP, after payment of debts and obligations, any remaining assets of Wells OP will be distributed to partners with positive capital accounts in accordance with their respective positive capital account balances. If the Wells REIT were to have a negative balance in its capital account following a liquidation, it would be obligated to contribute cash to Wells OP equal to such negative balance for distribution to other partners, if any, having positive balances in their capital accounts.
 
In addition to the administrative and operating costs and expenses incurred by Wells OP in acquiring and operating real properties, Wells OP will pay all administrative costs and expenses of the Wells REIT and such expenses will be treated as expenses of Wells OP. Such expenses will include:
 
 	•	 	all expenses relating to the formation and continuity of existence of the Wells REIT;	
 
 	•	 	all expenses relating to the public offering and registration of securities by the Wells REIT;	
 
 	•	 	all expenses associated with the preparation and filing of any periodic reports by the Wells REIT under federal, state or local laws or regulations;	
 
 	•	 	all expenses associated with compliance by the Wells REIT with applicable laws, rules and regulations; and	
 
 	•	 	all other operating or administrative costs of the Wells REIT incurred in the ordinary course of its business on behalf of Wells OP.	
 
Exchange Rights
 
The limited partners of Wells OP, including Wells Capital, have the right to cause Wells OP to redeem their limited partnership units for cash equal to the value of an equivalent number of our shares, or, at our option, we may purchase their limited partnership units by issuing one share of the Wells REIT for each limited partnership unit redeemed. These exchange rights may not be exercised, however, if and to the extent that the delivery of shares upon such exercise would (1) result in any person owning shares in excess of our ownership limits, (2) result in shares being owned by fewer than 100 persons, (3) result in the Wells REIT being “closely held” within the meaning of Section 856(h) of the Internal Revenue Code, (4) cause the Wells REIT to own 10% or more of the ownership interests in a tenant within the meaning of Section 856(d)(2)(B) of the Internal Revenue Code, or (5) cause the acquisition of shares by a redeemed limited partner to be “integrated” with any other distribution of our shares for purposes of complying with the Securities Act of 1933.
 
Subject to the foregoing, limited partners may exercise their exchange rights at any time after one year following the date of issuance of their limited partnership units; provided, however, that a limited partner may not deliver more than two exchange notices each calendar year and may not exercise an exchange right for less than 1,000 limited partnership units, unless such limited partner holds less than 1,000 units, in which case, he must exercise his exchange right for all of his units.
 
Transferability of Interests
 
The Wells REIT may not (1) voluntarily withdraw as the general partner of Wells OP, (2) engage in any merger, consolidation or other business combination, or (3) transfer its general partnership interest in Wells OP (except to a wholly-owned subsidiary), unless the transaction in which such withdrawal, business combination or transfer occurs results in the limited partners receiving or having the right to
 
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receive an amount of cash, securities or other property equal in value to the amount they would have received if they had exercised their exchange rights immediately prior to such transaction or unless, in the case of a merger or other business combination, the successor entity contributes substantially all of its assets to Wells OP in return for an interest in Wells OP and agrees to assume all obligations of the general partner of Wells OP. The Wells REIT may also enter into a business combination or we may transfer our general partnership interest upon the receipt of the consent of a majority-in-interest of the limited partners of Wells OP, other than Wells Capital. With certain exceptions, the limited partners may not transfer their interests in Wells OP, in whole or in part, without the written consent of the Wells REIT as the general partner. In addition, Wells Capital may not transfer its interest in Wells OP as long as it is acting as the advisor to the Wells REIT, except pursuant to the exercise of its right to exchange limited partnership units for Wells REIT shares, in which case similar restrictions on transfer will apply to the REIT shares received by Wells Capital.
 
PLAN OF DISTRIBUTION
 
General
 
We are offering a maximum of 300,000,000 shares to the public through Wells Investment Securities, our Dealer Manager, a registered broker-dealer affiliated with Wells Capital, our advisor. (See “Conflicts of Interest.”) The shares are being offered at a price of $10.00 per share on a “best efforts” basis, which means generally that the Dealer Manager will be required to use only its best efforts to sell the shares and it has no firm commitment or obligation to purchase any of the shares. We are also offering 30,000,000 shares for sale pursuant to our dividend reinvestment plan at a price of $10.00 per share. We reserve the right in the future to reallocate additional shares to our dividend reinvestment plan out of our public offering shares. An additional 6,600,000 shares are reserved for issuance upon exercise of soliciting dealer warrants, which are granted to participating broker-dealers based upon the number of shares they sell. Therefore, a total of 336,600,000 shares are being registered in this offering.
 
The offering of shares will terminate on or before July 25, 2004. However, we reserve the right to terminate this offering at any time prior to such termination date.
 
Underwriting Compensation and Terms
 
Except as provided below, the Dealer Manager will receive selling commissions of 7.0% of the gross offering proceeds. The Dealer Manager will also receive 2.5% of the gross offering proceeds in the form of a dealer manager fee as compensation for acting as the Dealer Manager and for expenses incurred in connection with marketing our shares and paying the employment costs of the Dealer Manager’s wholesalers. Out of its dealer manager fee, the Dealer Manager may pay salaries and commissions to its wholesalers in the aggregate amount of up to 1.0% of gross offering proceeds. We will not pay referral or similar fees to any accountants, attorneys or other persons in connection with the distribution of the shares. Stockholders who elect to participate in the dividend reinvestment plan will be charged selling commissions and dealer manager fees on shares purchased pursuant to the dividend reinvestment plan on the same basis as stockholders purchasing shares other than pursuant to the dividend reinvestment plan.
 
The Dealer Manager may authorize certain other broker-dealers who are members of the NASD (Participating Dealers) to sell our shares. In the event of the sale of shares by such Participating Dealers, the Dealer Manager may reallow its commissions in the amount of up to 7.0% of the gross offering proceeds to such Participating Dealers. In addition, the Dealer Manager may reallow a portion of its dealer manager fee to Participating Dealers in the aggregate amount of up to 1.5% of gross offering proceeds to be paid to such Participating Dealers as marketing fees, or to reimburse representatives of such Participating Dealers the costs and expenses of attending our educational conferences and seminars.
 
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In addition, unless otherwise agreed with the Dealer Manager, Participating Dealers will be reimbursed for bona fide due diligence expenses, not to exceed 0.5% of gross offering proceeds in the aggregate.
 
We will also award to the Dealer Manager one soliciting dealer warrant for every 50 shares sold to the public or issued to stockholders pursuant to our dividend reinvestment plan during the offering period, except for sales of shares made net of commissions, as described below, in which case no warrants will be issued. The Dealer Manager intends to reallow these warrants to Participating Dealers by awarding one soliciting dealer warrant for every 50 shares sold during the offering period, unless such issuance of soliciting dealer warrants is prohibited by either federal or state securities laws. The holder of a soliciting dealer warrant will be entitled to purchase one share from the Wells REIT at a price of $12 per share during the period beginning on the first anniversary of the effective date of this offering and ending five years after the effective date of this offering. Participating Dealers are restricted from transferring, assigning, pledging or hypothecating the soliciting dealer warrants (except to certain officers or partners of such Participating Dealers in accordance with applicable NASD Rules) for a period of one year following the effective date of this offering. The shares issuable upon exercise of the soliciting dealer warrants are being registered as part of this offering. For the life of the soliciting dealer warrants, Participating Dealers are given the opportunity to profit from a rise in the market price for the common stock without assuming the risk of ownership, with a resulting dilution in the interest of other stockholders upon exercise of such warrants. In addition, holders of the soliciting dealer warrants would be expected to exercise such warrants at a time when we could obtain needed capital by offering new securities on terms more favorable than those provided by the soliciting dealer warrants. Exercise of the soliciting dealer warrants is governed by the terms and conditions detailed in this prospectus and in the Warrant Purchase Agreement, which is an exhibit to the registration statement.
 
In no event shall the total aggregate underwriting compensation, including sales commissions, the dealer manager fee and underwriting expense reimbursements, exceed 9.5% of gross offering proceeds in the aggregate, except for the soliciting dealer warrants described above and bona fide due diligence expenses not to exceed 0.5% of gross offering proceeds in the aggregate.
 
We have agreed to indemnify the Participating Dealers, including the Dealer Manager, against certain liabilities arising under the Securities Act of 1933, as amended.
 
The Participating Dealers are not obligated to obtain any subscriptions on our behalf, and we cannot assure you that any shares will be sold.
 
Our executive officers and directors, as well as officers and employees of Wells Capital or other affiliates, may purchase shares in this offering at a discount. The purchase price for such shares shall be $8.90 per share reflecting the fact that the acquisition and advisory fees relating to such shares will be reduced by $0.15 per share (from $0.30 per share to $0.15 per share), and that selling commissions in the amount of $0.70 per share and dealer manager fees in the amount of $0.25 per share will not be payable in connection with such sales. The net offering proceeds we receive will not be affected by such sales of shares at a discount. Wells Capital and its affiliates shall be expected to hold their shares purchased as stockholders for investment and not with a view towards distribution. In addition, shares purchased by Wells Capital or its affiliates shall not be entitled to vote on any matter presented to the stockholders for a vote.
 
We may sell shares to retirement plans of Participating Dealers, to Participating Dealers in their individual capacities, to IRAs and qualified plans of their registered representatives or to any one of their registered representatives in their individual capacities for 93% of the public offering price in consideration of the services rendered by such broker-dealers and registered representatives in the offering. The net proceeds to the Wells REIT from such sales made net of commissions will be identical to net proceeds we receive from other sales of shares.
 
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In connection with sales of certain minimum numbers of shares to a “purchaser,” as defined below, certain volume discounts resulting in reductions in selling commissions payable with respect to such sales are available to investors. In such event, any such reduction will be credited to the investor by reducing the purchase price per share payable by the investor. The following table illustrates the various discount levels available:
 
 	  	 	  	Commissions on Sales per Incremental
Share in Volume Discount Range

	
Number of
Shares Purchased

	  	Purchase Price per
Incremental Share in
Volume Discount Range

	  	Percentage
(based on $10 per share)

	  	Amount

	
           1 to 50,000	  	$10.00	  	7.0%	  	$0.70	
    50,001 to 100,000	  	$  9.80	  	5.0%	  	$0.50	
100,001 and Over	  	$  9.60	  	3.0%	  	$0.30	
 
For example, if an investor purchases 200,000 shares he would pay (1) $500,000 for the first 50,000 shares ($10.00 per share), (2) $490,000 for the next 50,000 shares ($9.80 per share), and (3) $960,000 for the remaining 100,000 shares ($9.60 per share). Accordingly, he could pay as little as $1,950,000 ($9.75 per share) rather than $2,000,000 for the shares, in which event the commission on the sale of such shares would be $90,000 ($0.45 per share) and, after payment of the dealer manager fee of $50,000 ($0.25 per share), we would receive net proceeds of $1,810,000 ($9.05 per share). The net proceeds to the Wells REIT will not be affected by volume discounts. Requests to apply the volume discount provisions must be made in writing and submitted simultaneously with your subscription for shares.
 
Because all investors will be paid the same dividends per share as other investors, an investor qualifying for a volume discount will receive a higher percentage return on his investment than investors who do not qualify for such discount.
 
Subscriptions may be combined for the purpose of determining the volume discounts in the case of subscriptions made by any “purchaser,” as that term is defined below, provided all such shares are purchased through the same broker-dealer. The volume discount shall be prorated among the separate subscribers considered to be a single “purchaser.” Any request to combine more than one subscription must be made in writing submitted simultaneously with your subscription for shares, and must set forth the basis for such request. Any such request will be subject to verification by the Dealer Manager that all of such subscriptions were made by a single “purchaser.”
 
For the purposes of such volume discounts, the term “purchaser” includes:
 
 	•	 	an individual, his or her spouse and their children under the age of 21 who purchase the units for his, her or their own accounts;	
 
 	•	 	a corporation, partnership, association, joint-stock company, trust fund or any organized group of persons, whether incorporated or not;	
 
 	•	 	an employees’ trust, pension, profit sharing or other employee benefit plan qualified under Section 401(a) of the Internal Revenue Code; and	
 
 	•	 	all commingled trust funds maintained by a given bank.	
 
Notwithstanding the above, in connection with volume sales made to investors in the Wells REIT, investors may request in writing to aggregate subscriptions, including subscriptions to public real estate programs previously sponsored by our advisor or its affiliates, as part of a combined order for purposes of determining the number of shares purchased, provided that any aggregate group of subscriptions must be
 
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received from the same Participating Dealer, including the Dealer Manager. Any such reduction in selling commission will be prorated among the separate subscribers. An investor may reduce the amount of his purchase price to the net amount shown in the foregoing table, if applicable. As set forth above, all requests to aggregate subscriptions as a single “purchaser” or other application of the foregoing volume discount provisions must be made in writing, and except as provided in this paragraph, separate subscriptions will not be cumulated, combined or aggregated.
 
California residents should be aware that volume discounts will not be available in connection with the sale of shares made to California residents to the extent such discounts do not comply with the provisions of Rule 260.140.51 adopted pursuant to the California Corporate Securities Law of 1968. Pursuant to this Rule, volume discounts can be made available to California residents only in accordance with the following conditions:
 
 	•	 	there can be no variance in the net proceeds to the Wells REIT from the sale of the shares to different purchasers of the same offering;	
 
 	•	 	all purchasers of the shares must be informed of the availability of quantity discounts;	
 
 	•	 	the same volume discounts must be allowed to all purchasers of shares which are part of the offering;	
 
 	•	 	the minimum amount of shares as to which volume discounts are allowed cannot be less than $10,000;	
 
 	•	 	the variance in the price of the shares must result solely from a different range of commissions, and all discounts allowed must be based on a uniform scale of commissions; and	
 
 	•	 	no discounts are allowed to any group of purchasers.	
 
Accordingly, volume discounts for California residents will be available in accordance with the foregoing table of uniform discount levels based on dollar volume of shares purchased, but no discounts are allowed to any group of purchasers, and no subscriptions may be aggregated as part of a combined order for purposes of determining the number of shares purchased.
 
Investors may agree with their broker-dealer to reduce the amount of selling commissions payable with respect to the sale of their shares down to zero (1) in the event that the investor has engaged the services of a registered investment advisor or other financial advisor with whom the investor has agreed to pay compensation for investment advisory services or other financial or investment advice, or (2) in the event that the investor is investing in a bank trust account with respect to which the investor has delegated the decision-making authority for investments made in the account to a bank trust department. The net proceeds to the Wells REIT will not be affected by reducing the commissions payable in connection with such transactions.
 
Neither the Dealer Manager nor its affiliates will compensate any person engaged as an investment advisor by a potential investor as an inducement for such investment advisor to advise favorably for an investment in the Wells REIT.
 
In addition, subscribers for shares may agree with their Participating Dealers and the Dealer Manager to have selling commissions due with respect to the purchase of their shares paid over a six-year period pursuant to a deferred commission arrangement. Stockholders electing the deferred commission option will be required to pay a total of $9.40 per share purchased upon subscription, rather than $10.00 per share, with respect to which $0.10 per share will be payable as commissions due upon subscription. For the period of six years following subscription, $0.10 per share will be deducted on an annual basis
 
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from dividends or other cash distributions otherwise payable to the stockholders and used by the Wells REIT to pay deferred commission obligations. The net proceeds to the Wells REIT will not be affected by the election of the deferred commission option. Under this arrangement, a stockholder electing the deferred commission option will pay a 1% commission upon subscription, rather than a 7% commission, and an amount equal to a 1% commission per year thereafter for the next six years, or longer if required to satisfy outstanding deferred commission obligations, will be deducted from dividends or other cash distributions otherwise payable to such stockholder and used by the Wells REIT to satisfy commission obligations. The foregoing commission amounts may be adjusted with approval of the Dealer Manager by application of the volume discount provisions described previously.
 
Stockholders electing the deferred commission option who are subject to federal income taxation will incur tax liability for dividends or other cash distributions otherwise payable to them with respect to their shares even though such dividends or other cash distributions will be withheld from such stockholders and will instead be paid to third parties to satisfy commission obligations.
 
Investors who wish to elect the deferred commission option should make the election on their Subscription Agreement Signature Page. Election of the deferred commission option shall authorize the Wells REIT to withhold dividends or other cash distributions otherwise payable to such stockholder for the purpose of paying commissions due under the deferred commission option; provided, however, that in no event may the Wells REIT withhold in excess of $0.60 per share in the aggregate under the deferred commission option. Such dividends or cash distributions otherwise payable to stockholders may be pledged by the Wells REIT, the Dealer Manager, Wells Capital or their affiliates to secure one or more loans, the proceeds of which would be used to satisfy sales commission obligations.
 
In the event that, at any time prior to the satisfaction of our remaining deferred commission obligations, listing of the shares occurs or is reasonably anticipated to occur, or we begin a liquidation of our properties, the remaining commissions due under the deferred commission option may be accelerated by the Wells REIT. In either such event, we shall provide notice of any such acceleration to stockholders who have elected the deferred commission option. In the event of listing, the amount of the remaining commissions due shall be deducted and paid by the Wells REIT out of dividends or other cash distributions otherwise payable to such stockholders during the time period prior to listing. To the extent that the distributions during such time period are insufficient to satisfy the remaining commissions due, the obligation of Wells REIT and our stockholders to make any further payments of deferred commissions under the deferred commission option shall terminate, and Participating Dealers will not be entitled to receive any further portion of their deferred commissions following listing of our shares. In the event of a liquidation of our properties, the amount of remaining commissions due shall be deducted and paid by the Wells REIT out of dividends or net sale proceeds otherwise payable to stockholders who are subject to any such acceleration of their deferred commission obligations. In no event may the Wells REIT withhold in excess of $0.60 per share in the aggregate for the payment of deferred commissions.
 
Subscription Procedures
 
You should pay for your shares by check payable to “Wells Real Estate Investment Trust, Inc.” Subscriptions will be effective only upon our acceptance, and we reserve the right to reject any subscription in whole or in part. We may not accept a subscription for shares until at least five business days after the date you receive this prospectus. You will receive a confirmation of your purchase. We will initially deposit the subscription proceeds in an interest-bearing account with Bank of America, N.A., Atlanta, Georgia. Subscribers may not withdraw funds from the account. We will withdraw funds from the account periodically for the acquisition of real estate properties, the payment of fees and expenses or other investments approved by our board of directors. We generally admit stockholders to the Wells REIT on a daily basis.
 
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Except for purchases pursuant to our dividend reinvestment plan or reinvestment plans of other public real estate programs, all accepted subscriptions will be for whole shares and for not less than 100 shares ($1,000). (See “Suitability Standards.”) Except in Maine, Minnesota, Nebraska and Washington, investors who have satisfied the minimum purchase requirement and have purchased units or shares in Wells programs or units or shares in other public real estate programs may purchase less than the minimum number of shares discussed above, provided that such investors purchase a minimum of 2.5 shares ($25). After investors have satisfied the minimum purchase requirement, minimum additional purchases must be in increments of at least 2.5 shares ($25), except for purchases made pursuant to our dividend reinvestment plan or reinvestment plans of other public real estate programs.
 
Investors who desire to establish an IRA for purposes of investing in shares may do so by having Wells Advisors, Inc., a qualified non-bank IRA custodian affiliated with our advisor, act as their IRA custodian. In the event that an IRA is established having Wells Advisors, Inc. as the IRA custodian, the authority of Wells Advisors, Inc. will be limited to holding the shares on behalf of the beneficiary of the IRA and making distributions or reinvestments in shares solely at the discretion of the beneficiary of the IRA. Wells Advisors, Inc. will not have the authority to vote any of the shares held in an IRA except strictly in accordance with the written instructions of the beneficiary of the IRA.
 
The proceeds of this offering will be used only for the purposes set forth in the “Estimated Use of Proceeds” section. Subscriptions will be accepted or rejected within 30 days of receipt by the Wells REIT and, if rejected, all funds shall be returned to the rejected subscribers within 10 business days.
 
The Dealer Manager and each Participating Dealer who sells shares on behalf of the Wells REIT have the responsibility to make every reasonable effort to determine that the purchase of shares is appropriate for the investor and that the requisite suitability standards are met. (See “Suitability Standards.”) In making this determination, the Participating Dealer will rely on relevant information provided by the investor, including information as to the investor’s age, investment objectives, investment experience, income, net worth, financial situation, other investments, and other pertinent information. Each investor should be aware that the Participating Dealer will be responsible for determining suitability.
 
The Dealer Manager or each Participating Dealer shall maintain records of the information used to determine that an investment in shares is suitable and appropriate for an investor. These records are required to be maintained for a period of at least six years.
 
SUPPLEMENTAL SALES MATERIAL
 
In addition to this prospectus, we may utilize certain sales material in connection with the offering of the shares, although only when accompanied by or preceded by the delivery of this prospectus. In certain jurisdictions, some or all of such sales material may not be available. This material may include information relating to this offering, the past performance of Wells Capital, our advisor, and its affiliates, property brochures and articles and publications concerning real estate. In addition, the sales material may contain certain quotes from various publications without obtaining the consent of the author or the publication for use of the quoted material in the sales material.
 
The offering of shares is made only by means of this prospectus. Although the information contained in such sales material will not conflict with any of the information contained in this prospectus, such material does not purport to be complete, and should not be considered a part of this prospectus or the registration statement of which this prospectus is a part, or as incorporated by reference in this prospectus or said registration statement or as forming the basis of the offering of the shares.
 
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LEGAL OPINIONS
 
The legality of the shares being offered hereby has been passed upon for the Wells REIT by Holland & Knight LLP (Holland & Knight). The statements under the caption “Federal Income Tax Consequences” as they relate to federal income tax matters have been reviewed by Holland & Knight, and Holland & Knight has opined as to certain income tax matters relating to an investment in shares of the Wells REIT. Holland & Knight has also represented Wells Capital, our advisor, as well as various other affiliates of Wells Capital, in other matters and may continue to do so in the future. (See “Conflicts of Interest.”)
 
EXPERTS
 
Changes in Principal Accountant
 
On May 8, 2002, the audit committee of our board of directors recommended to the board of directors the dismissal of Arthur Andersen LLP (Andersen) as our independent public accountants, and our board of directors approved the dismissal of Andersen as our independent public accountants; effective immediately.
 
Andersen’s reports on the consolidated financial statements of the Wells REIT for the years ended December 31, 2001 and December 31, 2000 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles.
 
During the fiscal years ended December 31, 2001 and December 31, 2000, and through the date of Andersen’s dismissal, there were no disagreements with Andersen on any matter of accounting principle or practice, financial statement disclosure, or auditing scope or procedure which, if not resolved to Andersen’s satisfaction, would have caused Andersen to make reference to the subject matter in connection with its report on the consolidated financial statements of the Wells REIT for such years and there were no reportable events as set forth in Item 304(a)(1)(v) of Regulation S-K.
 
On June 26, 2002, our board of directors approved the recommendation of the audit committee to engage Ernst & Young LLP (Ernst & Young) to audit the financial statements of the Wells REIT, effective immediately. During the fiscal years ended December 31, 2001 and December 31, 2000, and through the date hereof, the Wells REIT did not consult Ernst & Young with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the consolidated financial statements of the Wells REIT, or any other matters or reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.
 
Audited Financial Statements
 
The financial statements of the Wells REIT, as of December 31, 2001 and 2000, and for each of the years in the three-year period ended December 31, 2001, included in this prospectus and elsewhere in the registration statement, have been audited by Andersen, independent public accountants, as indicated in their report with respect thereto, and are included in this prospectus in reliance upon the authority of said firm as experts in giving said report.
 
In June 2002, Andersen was tried and convicted of federal obstruction of justice charges. Events arising out of the conviction or other events relating to the financial condition of Andersen may adversely affect the ability of Andersen to satisfy any potential claims that may arise out of Andersen’s audits of the financial statements contained in this prospectus. In addition, Andersen has notified us that it will no longer be able to provide us with the necessary consents related to previously audited financial statements
 
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contained in our prospectus. Our inability to obtain such consents may also adversely affect your ability to pursue potential claims against Andersen. (See “Risk Factors.”)
 
Unaudited Financial Statements
 
The Schedule III—Real Estate Investments and Accumulated Depreciation as of December 31, 2001, which is included in this prospectus, has not been audited.
 
The financial statements of the Wells REIT, as of March 31, 2002, and for the three month periods ended March 31, 2002 and March 31, 2001, which are included in this prospectus, have not been audited.
 
ADDITIONAL INFORMATION
 
We have filed with the Securities and Exchange Commission (Commission), Washington, D.C., a registration statement under the Securities Act of 1933, as amended, with respect to the shares offered pursuant to this prospectus. This prospectus does not contain all the information set forth in the registration statement and the exhibits related thereto filed with the Commission, reference to which is hereby made. Copies of the registration statement and exhibits related thereto, as well as periodic reports and information filed by the Wells REIT, may be obtained upon payment of the fees prescribed by the Commission, or may be examined at the offices of the Commission without charge, at the public reference facility in Washington, D.C. at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the Commission maintains a Web site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission.
 
GLOSSARY
 
The following are definitions of certain terms used in this prospectus and not otherwise defined in this prospectus:
 
“IRA” means an individual retirement account established pursuant to Section 408 or Section 408A of the Internal Revenue Code.
 
“NASAA Guidelines” means the Statement of Policy Regarding Real Estate Investment Trusts of the North American Securities Administrators Association, Inc., as revised and adopted on September 29, 1993.
 
“UBTI” means unrelated business taxable income, as that term is defined in Sections 511 through 514 of the Internal Revenue Code.
 
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INDEX TO FINANCIAL STATEMENTS AND PRIOR PERFORMANCE TABLES
 
 	  	Page

	
Wells Real Estate Investment Trust, Inc. and Subsidiary	  	 	
 	 	
Audited Financial Statements	  	 	
 	 	
Report of Independent Public Accountants	  	155	
 	 	
Consolidated Balance Sheets as of December 31, 2001 and 2000	  	156	
 	 	
Consolidated Statements of Income for the years ended December 31,
2001, 2000 and 1999	  	157	
 	 	
Consolidated Statements of Shareholders’ Equity for the years ended December 31,
2001, 2000 and 1999	  	158	
 	 	
Consolidated Statements of Cash Flows for the years ended December 31,
2001, 2000 and 1999	  	159	
 	 	
Notes to Consolidated Financial Statements	  	160	
 	 	
Unaudited Financial Statements	  	 	
 	 	
Schedule III—Real Estate Investments and Accumulated Depreciation as of
December 31, 2001	  	194	
 	 	
Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001	  	198	
 	 	
Consolidated Statements of Income for the three months ended March 31, 2002
and March 31, 2001	  	199	
 	 	
Consolidated Statements of Shareholders’ Equity for the year ended December 31, 2001
and for the three months ended March 31, 2002	  	200	
 	 	
Consolidated Statements of Cash Flows for the three months ended March 31, 2002
and March 31, 2001	  	201	
 	 	
Condensed Notes to Consolidated Financial Statements March 31, 2002	  	202	
 	 	
Prior Performance Tables (Unaudited)	  	210	
 
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Wells Real Estate Investment Trust, Inc.:
 
We have audited the accompanying consolidated balance sheets of WELLS REAL ESTATE INVESTMENT TRUST, INC. (a Maryland corporation)  AND SUBSIDIARY  as of December 31, 2001 and 2000 and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements and the schedule referred to below are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
 
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and schedule are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Wells Real Estate Investment Trust, Inc. and subsidiary as of December 31, 2001 and 2000 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States.
 
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule III––Real Estate Investments and Accumulated Depreciation as of December 31, 2001 is presented for purposes of complying with the Securities and Exchange Commission’s rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states, in all material respects, the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
 
ARTHUR ANDERSEN LLP
 
Atlanta, Georgia
January 25, 2002

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WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARY
 
CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2000

 	  	2001

	 	 	2000

	 	
ASSETS	
REAL ESTATE ASSETS, at cost:	  	 	 	 	 	 	 	 	
Land	  	$	86,246,985	 	 	$	46,237,812	 	
Building, less accumulated depreciation of $24,814,454 and $9,469,653 at December 31, 2001 and 2000, respectively	  	 	472,383,102	 	 	 	287,862,655	 	
Construction in progress	  	 	5,738,573	 	 	 	3,357,720	 	

	

	

	 	

	

	

	
Total real estate assets	  	 	564,368,660	 	 	 	337,458,187	 	
 	 	 	
INVESTMENT IN JOINT VENTURES	  	 	77,409,980	 	 	 	44,236,597	 	
 	 	 	
CASH AND CASH EQUIVALENTS	  	 	75,586,168	 	 	 	4,298,301	 	
 	 	 	
INVESTMENT IN BONDS	  	 	22,000,000	 	 	 	0	 	
 	 	 	
ACCOUNTS RECEIVABLE	  	 	6,003,179	 	 	 	3,781,034	 	
 	 	 	
DEFERRED PROJECT COSTS	  	 	2,977,110	 	 	 	550,256	 	
 	 	 	
DUE FROM AFFILIATES	  	 	1,692,727	 	 	 	309,680	 	
 	 	 	
DEFERRED LEASE ACQUISITION COSTS	  	 	1,525,199	 	 	 	1,890,332	 	
 	 	 	
DEFERRED OFFERING COSTS	  	 	0	 	 	 	1,291,376	 	
 	 	 	
PREPAID EXPENSES AND OTHER ASSETS, net	  	 	718,389	 	 	 	4,734,583	 	

	

	

	 	

	

	

	
Total assets	  	$	752,281,412	 	 	$	398,550,346	 	

	

	

	 	

	

	

	
LIABILITIES AND SHAREHOLDERS’ EQUITY	
LIABILITIES:	  	 	 	 	 	 	 	 	
Notes payable	  	$	8,124,444	 	 	$	127,663,187	 	
Obligation under capital lease	  	 	22,000,000	 	 	 	0	 	
Accounts payable and accrued expenses	  	 	8,727,473	 	 	 	2,166,387	 	
Due to affiliate	  	 	2,166,161	 	 	 	1,772,956	 	
Dividends payable	  	 	1,059,026	 	 	 	1,025,010	 	
Deferred rental income	  	 	661,657	 	 	 	381,194	 	

	

	

	 	

	

	

	
Total liabilities	  	$	42,738,761	 	 	$	133,008,734	 	

	

	

	 	

	

	

	
COMMITMENTS AND CONTINGENCIES	  	 	 	 	 	 	 	 	
 	 	 	
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP	  	 	200,000	 	 	 	200,000	 	

	

	

	 	

	

	

	
SHAREHOLDERS’ EQUITY:	  	 	 	 	 	 	 	 	
Common shares, $.01 par value; 125,000,000 shares authorized,
83,761,469 shares issued and 83,206,429 shares outstanding at December 31, 2001; 125,000,000 shares authorized, 31,509,807 shares issued, and 31,368,510 shares outstanding at December 31, 2000	  	 	837,614	 	 	 	315,097	 	
Additional paid–in capital	  	 	738,236,525	 	 	 	275,573,339	 	
Cumulative distributions in excess of earnings	  	 	(24,181,092	)	 	 	(9,133,855	)	
Treasury stock, at cost, 555,040 shares at December 31, 2001 and 141,297 shares at December 31, 2000	  	 	(5,550,396	)	 	 	(1,412,969	)	

	

	

	 	

	

	

	
Total shareholders’ equity	  	 	709,342,651	 	 	 	265,341,612	 	

	

	

	 	

	

	

	
Total liabilities and shareholders’ equity	  	$	752,281,412	 	 	$	398,550,346	 	

	

	

	 	

	

	

	
 
The accompanying notes are an integral part of these consolidated balance sheets.

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WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 2001, 2000, and 1999
 
 	  	2001

	  	2000

	  	1999

	 	
REVENUES:	  	 	 	  	 	 	  	 	 	 	
Rental income	  	$	44,204,279	  	$	20,505,000	  	$	4,735,184	 	
Equity in income of joint ventures	  	 	3,720,959	  	 	2,293,873	  	 	1,243,969	 	
Take out fee (Note 9)	  	 	137,500	  	 	0	  	 	0	 	
Interest and other income	  	 	1,246,064	  	 	574,333	  	 	516,242	 	

	

	  	

	

	  	

	

	

	
 	  	 	49,308,802	  	 	23,373,206	  	 	6,495,395	 	

	

	  	

	

	  	

	

	

	
EXPENSES:	  	 	 	  	 	 	  	 	 	 	
Depreciation	  	 	15,344,801	  	 	7,743,551	  	 	1,726,103	 	
Interest expense	  	 	3,411,210	  	 	3,966,902	  	 	442,029	 	
Amortization of deferred financing costs	  	 	770,192	  	 	232,559	  	 	8,921	 	
Operating costs, net of reimbursements	  	 	4,128,883	  	 	888,091	  	 	(74,666	)	
Management and leasing fees	  	 	2,507,188	  	 	1,309,974	  	 	257,744	 	
General and administrative	  	 	973,785	  	 	438,953	  	 	135,144	 	
Legal and accounting	  	 	448,776	  	 	240,209	  	 	115,471	 	

	

	  	

	

	  	

	

	

	
 	  	 	27,584,835	  	 	14,820,239	  	 	2,610,746	 	

	

	  	

	

	  	

	

	

	
NET INCOME	  	$	21,723,967	  	$	8,552,967	  	$	3,884,649	 	

	

	  	

	

	  	

	

	

	
EARNINGS PER SHARE:	  	 	 	  	 	 	  	 	 	 	
Basic and diluted	  	$	0.43	  	$	0.40	  	$	0.50	 	

	

	  	

	

	  	

	

	

	
 
The accompanying notes are an integral part of these consolidated statements.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the years ended December 31, 2001, 2000, and 1999
 
 	  	Common Stock

	  	Additional
Paid-In
Capital

	 	 	Cumulative
Distributions
in Excess of
Earnings

	 	 	Retained
Earnings

	 	  	Treasury Stock

	 	  	Total
Shareholders’
Equity

	 	 	
 	  	Shares

	  	Amount

	  	 	 	 	 	 	 	 	 	  	Shares

	 	  	Amount

	 	  	 	 	 	 	 	 	 	 	 	 	
BALANCE, December 31, 1998	  	3,154,136	  	$	31,541	  	$	27,567,275	 	 	$	(511,163	)	 	$	334,034	 	  	0	 	  	$	0	 	  	$	27,421,687	 	 	 	 	 	 	 	 	 	
Issuance of common stock	  	10,316,949	  	 	103,169	  	 	103,066,321	 	 	 	0	 	 	 	0	 	  	0	 	  	 	0	 	  	 	103,169,490	 	 	 	 	 	 	 	 	 	
Net income	  	0	  	 	0	  	 	0	 	 	 	0	 	 	 	3,884,649	 	  	0	 	  	 	0	 	  	 	3,884,649	 	 	 	 	 	 	 	 	 	
Dividends ($.70 per share)	  	0	  	 	0	  	 	0	 	 	 	(1,346,240	)	 	 	(4,218,683	)	  	0	 	  	 	0	 	  	 	(5,564,923	)	 	 	 	 	 	 	 	 	
Sales commissions and discounts	  	0	  	 	0	  	 	(9,801,197	)	 	 	0	 	 	 	0	 	  	0	 	  	 	0	 	  	 	(9,801,197	)	 	 	 	 	 	 	 	 	
Other offering expenses	  	0	  	 	0	  	 	(3,094,111	)	 	 	0	 	 	 	0	 	  	0	 	  	 	0	 	  	 	(3,094,111	)	 	 	 	 	 	 	 	 	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	  	

	

	  	

	

	

	  	

	

	

	 	 	 	 	 	 	 	 	
BALANCE, December 31, 1999	  	13,471,085	  	 	134,710	  	 	117,738,288	 	 	 	(1,857,403	)	 	 	0	 	  	0	 	  	 	0	 	  	 	116,015,595	 	 	 	 	 	 	 	 	 	
Issuance of common stock	  	18,038,722	  	 	180,387	  	 	180,206,833	 	 	 	0	 	 	 	0	 	  	0	 	  	 	0	 	  	 	180,387,220	 	 	 	 	 	 	 	 	 	
Treasury stock purchased	  	0	  	 	0	  	 	0	 	 	 	0	 	 	 	0	 	  	(141,297	)	  	 	(1,412,969	)	  	 	(1,412,969	)	 	 	 	 	 	 	 	 	
Net income	  	0	  	 	0	  	 	0	 	 	 	0	 	 	 	8,552,967	 	  	0	 	  	 	0	 	  	 	8,552,967	 	 	 	 	 	 	 	 	 	
Dividends ($.73 per share)	  	0	  	 	0	  	 	0	 	 	 	(7,276,452	)	 	 	(8,552,967	)	  	0	 	  	 	0	 	  	 	(15,829,419	)	 	 	 	 	 	 	 	 	
Sales commissions and discounts	  	0	  	 	0	  	 	(17,002,554	)	 	 	0	 	 	 	0	 	  	0	 	  	 	0	 	  	 	(17,002,554	)	 	 	 	 	 	 	 	 	
Other offering expenses	  	0	  	 	0	  	 	(5,369,228	)	 	 	0	 	 	 	0	 	  	0	 	  	 	0	 	  	 	(5,369,228	)	 	 	 	 	 	 	 	 	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	  	

	

	  	

	

	

	  	

	

	

	 	 	 	 	 	 	 	 	
BALANCE, December 31, 2000	  	31,509,807	  	 	315,097	  	 	275,573,339	 	 	 	(9,133,855	)	 	 	0	 	  	(141,297	)	  	 	(1,412,969	)	  	 	265,341,612	 	 	 	 	 	 	 	 	 	
Issuance of common stock	  	52,251,662	  	 	522,517	  	 	521,994,103	 	 	 	0	 	 	 	0	 	  	0	 	  	 	0	 	  	 	522,516,620	 	 	 	 	 	 	 	 	 	
Treasury stock purchased	  	0	  	 	0	  	 	0	 	 	 	0	 	 	 	0	 	  	(413,743	)	  	 	(4,137,427	)	  	 	(4,137,427	)	 	 	 	 	 	 	 	 	
Net income	  	0	  	 	0	  	 	0	 	 	 	0	 	 	 	21,723,967	 	  	0	 	  	 	0	 	  	 	21,723,967	 	 	 	 	 	 	 	 	 	
Dvidends ($.76 per share)	  	0	  	 	0	  	 	0	 	 	 	(15,047,237	)	 	 	(21,723,967	)	  	0	 	  	 	0	 	  	 	(36,771,204	)	 	 	 	 	 	 	 	 	
Sales commissions and discounts	  	0	  	 	0	  	 	(49,246,118	)	 	 	0	 	 	 	0	 	  	0	 	  	 	0	 	  	 	(49,246,118	)	 	 	 	 	 	 	 	 	
Other offering expenses	  	0	  	 	0	  	 	(10,084,799	)	 	 	 	 	 	 	0	 	  	0	 	  	 	0	 	  	 	(10,084,799	)	 	 	 	 	 	 	 	 	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	  	

	

	  	

	

	

	  	

	

	

	 	 	 	 	 	 	 	 	
BALANCE, December 31, 2001	  	83,761,469	  	$	837,614	  	$	738,236,525	 	 	$	(24,181,092	)	 	$	0	 	  	(555,040	)	  	$	(5,550,396	)	  	$	709,342,651	 	 	 	 	 	 	 	 	 	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	  	

	

	  	

	

	

	  	

	

	

	 	 	 	 	 	 	 	 	
 
The accompanying notes are an integral part of these consolidated statements.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 2001, 2000, and 1999
 
 	  	2001

	 	 	2000

	 	 	1999

	 	
CASH FLOWS FROM OPERATING ACTIVITIES:	  	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	$	21,723,967	 	 	$	8,552,967	 	 	$	3,884,649	 	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Equity in income of joint ventures	  	 	(3,720,959	)	 	 	(2,293,873	)	 	 	(1,243,969	)	
Depreciation	  	 	15,344,801	 	 	 	7,743,551	 	 	 	1,726,103	 	
Amortization of deferred financing costs	  	 	770,192	 	 	 	232,559	 	 	 	8,921	 	
Amortization of deferred leasing costs	  	 	303,347	 	 	 	350,991	 	 	 	0	 	
Write-off of deferred lease acquisition fees	  	 	61,786	 	 	 	0	 	 	 	0	 	
Changes in assets and liabilities:	  	 	 	 	 	 	 	 	 	 	 	 	
Accounts receivable	  	 	(2,222,145	)	 	 	(2,457,724	)	 	 	(898,704	)	
Due from affiliates	  	 	10,995	 	 	 	(435,600	)	 	 	0	 	
Prepaid expenses and other assets, net	  	 	3,246,002	 	 	 	(6,826,568	)	 	 	149,501	 	
Accounts payable and accrued expenses	  	 	6,561,086	 	 	 	1,941,666	 	 	 	36,894	 	
Deferred rental income	  	 	280,463	 	 	 	144,615	 	 	 	236,579	 	
Due to affiliates	  	 	(10,193	)	 	 	367,055	 	 	 	108,301	 	

	

	

	 	

	

	

	 	

	

	

	
Total adjustments	  	 	20,625,375	 	 	 	(1,233,328	)	 	 	123,626	 	

	

	

	 	

	

	

	 	

	

	

	
Net cash provided by operating activities	  	 	42,349,342	 	 	 	7,319,639	 	 	 	4,008,275	 	

	

	

	 	

	

	

	 	

	

	

	
CASH FLOWS FROM INVESTING ACTIVITIES:	  	 	 	 	 	 	 	 	 	 	 	 	
Investment in real estate	  	 	(227,933,858	)	 	 	(231,518,138	)	 	 	(85,514,506	)	
Investment in joint ventures	  	 	(33,690,862	)	 	 	(15,063,625	)	 	 	(17,641,211	)	
Deferred project costs paid	  	 	(17,220,446	)	 	 	(6,264,098	)	 	 	(3,610,967	)	
Distributions received from joint ventures	  	 	4,239,431	 	 	 	3,529,401	 	 	 	1,371,728	 	

	

	

	 	

	

	

	 	

	

	

	
Net cash used in investing activities	  	 	(274,605,735	)	 	 	(249,316,460	)	 	 	(105,394,956	)	

	

	

	 	

	

	

	 	

	

	

	
CASH FLOWS FROM FINANCING ACTIVITIES:	  	 	 	 	 	 	 	 	 	 	 	 	
Proceeds from notes payable	  	 	110,243,145	 	 	 	187,633,130	 	 	 	40,594,463	 	
Repayments of notes payable	  	 	(229,781,888	)	 	 	(83,899,171	)	 	 	(30,725,165	)	
Dividends paid to shareholders	  	 	(36,737,188	)	 	 	(16,971,110	)	 	 	(3,806,398	)	
Issuance of common stock	  	 	522,516,620	 	 	 	180,387,220	 	 	 	103,169,490	 	
Treasury stock purchased	  	 	(4,137,427	)	 	 	(1,412,969	)	 	 	0	 	
Sales commissions paid	  	 	(49,246,118	)	 	 	(17,002,554	)	 	 	(9,801,197	)	
Offering costs paid	  	 	(9,312,884	)	 	 	(5,369,228	)	 	 	(3,094,111	)	

	

	

	 	

	

	

	 	

	

	

	
Net cash provided by financing activities	  	 	303,544,260	 	 	 	243,365,318	 	 	 	96,337,082	 	

	

	

	 	

	

	

	 	

	

	

	
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	  	 	71,287,867	 	 	 	1,368,497	 	 	 	(5,049,599	)	
CASH AND CASH EQUIVALENTS, beginning of year	  	 	4,298,301	 	 	 	2,929,804	 	 	 	7,979,403	 	

	

	

	 	

	

	

	 	

	

	

	
CASH AND CASH EQUIVALENTS, end of year	  	$	75,586,168	 	 	$	4,298,301	 	 	$	2,929,804	 	

	

	

	 	

	

	

	 	

	

	

	
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITI ES:	  	 	 	 	 	 	 	 	 	 	 	 	
Deferred project costs applied to real estate assets	  	$	14,321,416	 	 	$	5,114,279	 	 	$	3,183,239	 	

	

	

	 	

	

	

	 	

	

	

	
Deferred project costs contributed to joint ventures	  	$	1,395,035	 	 	$	627,656	 	 	$	735,056	 	

	

	

	 	

	

	

	 	

	

	

	
Deferred project costs due to affiliate	  	$	1,114,140	 	 	$	191,281	 	 	$	191,783	 	

	

	

	 	

	

	

	 	

	

	

	
Deferred offering costs due to affiliate	  	$	0	 	 	$	1,291,376	 	 	$	964,941	 	

	

	

	 	

	

	

	 	

	

	

	
Reversal of deferred offering costs due to affiliate	  	$	964,941	 	 	$	0	 	 	$	0	 	

	

	

	 	

	

	

	 	

	

	

	
Other offering expenses due to affiliate	  	$	943,107	 	 	$	0	 	 	$	0	 	

	

	

	 	

	

	

	 	

	

	

	
Assumption of obligation under capital lease	  	$	22,000,000	 	 	$	0	 	 	$	0	 	

	

	

	 	

	

	

	 	

	

	

	
Investment in bonds	  	$	22,000,000	 	 	$	0	 	 	$	0	 	

	

	

	 	

	

	

	 	

	

	

	
 
The accompanying notes are an integral part of these consolidated statements.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
 
1.    ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Wells Real Estate Investment Trust, Inc. (the “Company”) is a Maryland corporation that qualifies as a real estate investment trust (“REIT”). The Company is conducting an offering for the sale of a maximum of 125,000,000 (exclusive of 10,000,000 shares available pursuant to the Company’s dividend reinvestment program) shares of common stock, $.01 par value per share, at a price of $10 per share. The Company will seek to acquire and operate commercial properties, including, but not limited to, office buildings, shopping centers, business and industrial parks, and other commercial and industrial properties, including properties which are under construction, are newly constructed, or have been constructed and have operating histories. All such properties may be acquired, developed, and operated by the Company alone or jointly with another party. The Company is likely to enter into one or more joint ventures with affiliated entities for the acquisition of properties. In connection therewith, the Company may enter into joint ventures for the acquisition of properties with prior or future real estate limited partnership programs sponsored by Wells Capital, Inc. (the “Advisor”) or its affiliates.
 
Substantially all of the Company’s business is conducted through Wells Operating Partnership, L.P. (the “Operating Partnership”), a Delaware limited partnership. During 1997, the Operating Partnership issued 20,000 limited partner units to the Advisor in exchange for $200,000. The Company is the sole general partner in the Operating Partnership and possesses full legal control and authority over the operations of the Operating Partnership; consequently, the accompanying consolidated financial statements of the Company include the accounts of the Operating Partnership. All significant intercompany balances have been eliminated in consolidation.
 
The Company owns interests in the following properties directly through its ownership in the Operating Partnership: (i) the PricewaterhouseCoopers property (the “PwC Building”), a four-story office building located in Tampa, Florida; (ii) the AT&T Building, a four-story office building located in Harrisburg, Pennsylvania; (iii) the Marconi Data Systems property (the “Marconi Building”), a two-story office, assembly, and manufacturing building located in Wood Dale, Illinois; (iv) the Cinemark Property (the “Cinemark Building”), a five-story office building located in Plano, Texas; (v) the Matsushita Property (the “Matsushita Building”), a two-story office building located in Lake Forest, California; (vi) the ASML Property (the “ASML Building”), a two-story office and warehouse building located in Tempe, Arizona; (vii) the Motorola Property (the “Motorola Tempe Building”), a two-story office building located in Tempe, Arizona; (viii) the Dial Property (the “Dial Building”), a two-story office building located in Scottsdale, Arizona; (ix) the Delphi Building, a three-story office building located in Troy, Michigan; (x) the Avnet Property (the “Avnet Building”), a two-story office building located in Tempe, Arizona; (xi) the Metris Oklahoma Building, a three-story office building located in Tulsa, Oklahoma; (xii) the Alstom Power-Richmond Building, a four-story office building located in Richmond, Virginia; (xiii) the Motorola Plainfield Building, a three-story office building located in South Plainfield, New Jersey; (xiv) the Stone & Webster Building, a six-story office building located in Houston, Texas; (xv) the Metris Minnetonka Building, a nine-story office building located in Minnetonka, Minnesota; (xvi) the State Street Bank Building, a seven-story office building located in Quincy, Massachusetts; (xvii) the IKON Buildings, two one-story office buildings located in Houston, Texas; (xviii) the Ingram Micro Distribution Facility, a one-story office and warehouse building located in Millington, Tennessee; (xix) the Lucent Building, a four-story office building located in Cary, North Carolina; (xx) the Nissan land (the “Nissan Property”), a 14.873 acre tract of undeveloped land located in Irving, Texas; (xxi) the Convergys Building, a two-story office building located in Tamarac, Florida; and (xxii) the Windy Point Buildings, a seven-story office building and an eleven-story office building located in Schaumburg, Illinois.
 
The Company owns an interest in one property through a joint venture between the Operating Partnership, Wells Real Estate Fund VIII, L.P. (“Wells Fund VIII”), and Wells Real Estate Fund IX, L.P. (“Wells Fund IX”), which is referred
 
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to as the Fund VIII, IX, and REIT Joint Venture. The Company also owns interests in five properties through a joint venture between the Operating Partnership, Wells Fund IX, Wells Real Estate Fund X, L.P. (“Wells Fund X”), and Wells Real Estate Fund XI, L.P. (“Wells Fund XI”), which is referred to as the Fund IX, Fund X, Fund XI, and REIT Joint Venture. The Company owns an interest in one property through each of two unique joint ventures between the Operating Partnership and Fund X and XI Associates, a joint venture between Wells Fund X and Wells Fund XI. In addition, the Company owns interests in four properties through a joint venture between the Operating Partnership, Wells Fund XI, and Wells Real Estate Fund XII, L.P. (“Wells Fund XII”), which is referred to as the Fund XI, XII, and REIT Joint Venture. The Company owns interests in three properties through a joint venture between the Operating Partnership and Wells Fund XII, which is referred to as the Fund XII and REIT Joint Venture. The Company also owns interests in two properties through a joint venture between the Operating Partnership and Wells Fund XIII, which is referred to as the Fund XIII and REIT Joint Venture.
 
Through its investment in the Fund VIII, IX, and REIT Joint Venture, the Company owns an interest in a two-story office building in Irvine, California (the “Quest Building”).
 
The following properties are owned by the Company through its investment in the Fund IX, X, XI, and REIT Joint Venture: (i) a three-story office building in Knoxville, Tennessee (the “Alstom Power Building”), (ii) a two-story office building in Louisville, Colorado (the “Ohmeda Building”), (iii) a three-story office building in Broomfield, Colorado (the “360 Interlocken Building”), (iv) a one-story office and warehouse building in Ogden, Utah (the “Iomega Building”), and (v) a one-story office building in Oklahoma City, Oklahoma (the “Avaya Building”).
 
Through its investment in two joint ventures with Fund X and XI Associates, the Company owns interests in the following properties: (i) a one-story office and warehouse building in Fountain Valley, California (the “Cort Furniture Building”), owned by Wells/Orange County Associates and (ii) a two-story manufacturing and office building in Fremont, California (the “Fairchild Building”), owned by Wells/Fremont Associates.
 
The following properties are owned by the Company through its investment in the Fund XI, XII, and REIT Joint Venture: (i) a two-story manufacturing and office building in Fountain Inn, South Carolina (the “EYBL CarTex Building”), (ii) a three-story office building Leawood, Kansas (the “Sprint Building”), (iii) an office and warehouse building in Chester County, Pennsylvania (the “Johnson Matthey Building”), and (iv) a two-story office building in Ft. Myers, Florida (the “Gartner Building”).
 
Through its investment in the Fund XII and REIT Joint Venture, the Company owns interests in the following properties: (i) a three-story office building in Troy, Michigan (the “Siemens Building”), (ii) a one-story office building and a two-story office building in Oklahoma City, Oklahoma (collectively referred to as the “AT&T Call Center Buildings”), and (iii) a three-story office building in Brentwood, Tennessee (the “Comdata Building”).
 
The following properties are owned by the Company through its investment in the Fund XIII and REIT Joint Venture: (i) a one-story office building in Orange Park, Florida (the “AmeriCredit Building”), and (ii) two connected one-story office and assembly buildings in Parker, Colorado (the “ADIC Buildings”).
 
Use of Estimates and Factors Affecting the Company
 
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
The carrying values of real estate are based on management’s current intent to hold the real estate assets as long-term investments. The success of the Company’s future operations and the ability to realize the investment in its assets will be dependent on the Company’s ability to maintain rental rates, occupancy, and an appropriate level of operating expenses in future years. Management believes that the steps it is taking will enable the Company to realize its investment in its assets.
 
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Income Taxes
 
The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement to currently distribute at least 90% of the REIT’s ordinary taxable income to shareholders. It is management’s current intention to adhere to these requirements and maintain the Company’s REIT status. As a REIT, the Company generally will not be subject to federal income tax on distributed taxable income. Even if the Company qualifies as a REIT, it may be subject to certain state and local taxes on its income and real estate assets, and to federal income and excise taxes on its undistributed taxable income. No provision for federal income taxes has been made in the accompanying consolidated financial statements, as the Company made distributions equal to or in excess of its taxable income in each of the three years in the period ended December 31, 2001.
 
Real Estate Assets
 
Real estate assets held by the Company and joint ventures are stated at cost less accumulated depreciation. Major improvements and betterments are capitalized when they extend the useful life of the related asset. All repair and maintenance expenditures are expensed as incurred.
 
Management continually monitors events and changes in circumstances which could indicate that carrying amounts of real estate assets may not be recoverable. When events or changes in circumstances are present which indicate that the carrying amounts of real estate assets may not be recoverable, management assesses the recoverability of real estate assets by determining whether the carrying value of such real estate assets will be recovered through the future cash flows expected from the use of the asset and its eventual disposition. Management has determined that there has been no impairment in the carrying value of real estate assets held by the Company or the joint ventures as of December 31, 2001 and 2000.
 
Depreciation of building and improvements is calculated using the straight-line method over 25 years. Tenant improvements are amortized over the life of the related lease or the life of the asset, whichever is shorter.
 
Revenue Recognition
 
All leases on real estate assets held by the Company or the joint ventures are classified as operating leases, and the related rental income is recognized on a straight-ine basis over the terms of the respective leases.
 
Cash and Cash Equivalents
 
For the purposes of the statements of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents include cash and short-term investments. Short-term investments are stated at cost, which approximates fair value, and consist of investments in money market accounts.
 
Deferred Lease Acquisition Costs
 
Costs incurred to procure operating leases are capitalized and amortized on a straight-line basis over the terms of the related leases.
 
Earnings Per Share
 
Earnings per share are calculated based on the weighted average number of common shares outstanding during each period. The weighted average number of common shares outstanding is identical for basic and fully diluted earnings per share, as there is no dilutive impact created from the Company’s stock option plan (Note 10) using the treasury stock method.
 
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Reclassifications
 
Certain prior year amounts have been reclassified to conform with the current year financial statement presentation.
 
Investment in Joint Ventures
 
Basis of Presentation
 
The Operating Partnership does not have control over the operations of the joint ventures; however, it does exercise significant influence. Accordingly, the Operating Partnership’s investments in joint ventures are recorded using the equity method of accounting.
 
Partners’ Distributions and Allocations of Profit and Loss
 
Cash available for distribution and allocations of profit and loss to the Operating Partnership by the joint ventures are made in accordance with the terms of the individual joint venture agreements. Generally, these items are allocated in proportion to the partners’ respective ownership interests. Cash is paid from the joint ventures to the Operating Partnership on a quarterly basis.
 
Deferred Lease Acquisition Costs
 
Costs incurred to procure operating leases are capitalized and amortized on a straight-line basis over the terms of the related leases. Deferred lease acquisition costs are included in prepaid expenses and other assets, net, in the balance sheets presented in Note 5.
 
2.    DEFERRED PROJECT COSTS
 
The Company paid a percentage of shareholder contributions to the Advisor for acquisition and advisory services and acquisition expenses. These payments, as stipulated in the prospectus, can be up to 3.5% of shareholder contributions, subject to certain overall limitations contained in the prospectus. Aggregate fees paid through December 31, 2001 were $29,122,286 and amounted to 3.5% of shareholders’ contributions received. These fees are allocated to specific properties as they are purchased or developed and are included in capitalized assets of the joint ventures or real estate assets. Deferred project costs at December 31, 2001 and 2000 represent fees not yet applied to properties.
 
3.    DEFERRED OFFERING COSTS
 
Offering expenses, to the extent they exceed 3% of gross offering proceeds, will be paid by the Advisor and not by the Company. Offering expenses include such costs as legal and accounting fees, printing costs, and other offering expenses and specifically exclude sales costs and underwriting commissions.
 
As of December 31, 2001, the Advisor paid offering expenses on behalf of the Company in the aggregate amount of $20,459,289, of which the Advisor had been reimbursed $18,551,241, which did not exceed the 3% limitation.
 
4.    RELATED-PARTY TRANSACTIONS
 
Due from affiliates at December 31, 2001 and 2000 represents the Operating Partnership’s share of the cash to be distributed from its joint venture investments for the fourth quarter of 2001 and 2000 and advances due from the Advisor as of December 31, 2000:
 
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 	  	2001

	  	2000

	
Fund VIII, IX, and REIT Joint Venture	  	$	46,875	  	$	21,605	
Fund IX, X, XI, and REIT Joint Venture	  	 	36,073	  	 	12,781	
Wells/Orange County Associates	  	 	83,847	  	 	24,583	
Wells/Fremont Associates	  	 	164,196	  	 	53,974	
Fund XI, XII, and REIT Joint Venture	  	 	429,980	  	 	136,648	
Fund XII and REIT Joint Venture	  	 	680,542	  	 	49,094	
Fund XIII and REIT	  	 	251,214	  	 	0	
Advisor	  	 	0	  	 	10,995	

	

	  	

	

	
 	  	$	1,692,727	  	$	309,680	

	

	  	

	

	

The Operating Partnership entered into a property management and leasing agreement with Wells Management Company, Inc. (“Wells Management”), an affiliate of the Advisor. In consideration for supervising the management and leasing of the Operating Partnership’s properties, the Operating Partnership will pay management and leasing fees equal to the lesser of (a) 4.5% of the gross revenues generally paid over the life of the lease or (b) .6% of the net asset value of the properties (excluding vacant properties) owned by the Company to Wells Management. These management and leasing fees are calculated on an annual basis plus a separate competitive fee for the one-time initial lease-up of newly constructed properties generally paid in conjunction with the receipt of the first month’s rent.
 
The Operating Partnership’s portion of the management and leasing fees and lease acquisition costs paid to Wells Management, both directly and at the joint venture level, were $2,468,294, $1,111,748, and $336,517 for the years ended December 31, 2001, 2000, and 1999, respectively.
 
The Advisor performs certain administrative services for the Operating Partnership, such as accounting and other partnership administration, and incurs the related expenses. Such expenses are allocated among the Operating Partnership and the various Wells Real Estate Funds based on time spent on each fund by individual administrative personnel. In the opinion of management, such allocation is a reasonable basis for allocating such expenses.
 
The Advisor is a general partner in various Wells Real Estate Funds. As such, there may exist conflicts of interest where the Advisor, while serving in the capacity as general partner for Wells Real Estate Funds, may be in competition with the Operating Partnership for tenants in similar geographic markets.
 
5.    INVESTMENT IN JOINT VENTURES
 
The Operating Partnership’s investment and percentage ownership in joint ventures at December 31, 2001 and 2000 are summarized as follows:
 
 	  	2001

	 	 	2000

	 	
 	  	Amount

	  	Percent

	 	 	Amount

	  	Percent

	 	
Fund VIII, IX, and REIT Joint Venture	  	$	1,189,067	  	16	%	 	$	1,276,551	  	16	%	
Fund IX, X, XI, and REIT Joint Venture	  	 	1,290,360	  	4	 	 	 	1,339,636	  	4	 	
Wells/Orange County Associates	  	 	2,740,000	  	44	 	 	 	2,827,607	  	44	 	
Wells/Fremont Associates	  	 	6,575,358	  	78	 	 	 	6,791,287	  	78	 	
Fund XI, XII, and REIT Joint Venture	  	 	17,187,985	  	57	 	 	 	17,688,615	  	57	 	
Fund XII and REIT Joint Venture	  	 	30,299,872	  	55	 	 	 	14,312,901	  	47	 	
Fund XIII and REIT Joint Venture	  	 	18,127,338	  	68	 	 	 	0	  	0	 	

	

	  	 	 	 	

	

	  	 	 	
 	  	$	77,409,980	  	 	 	 	$	44,236,597	  	 	 	

	

	  	 	 	 	

	

	  	 	 	
 
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The following is a roll forward of the Operating Partnership’s investment in joint ventures for the years ended December 31, 2001 and 2000:
 
 	  	2001

	 	 	2000

	 	
Investment in joint ventures, beginning of year	  	$	44,236,597	 	 	$	29,431,176	 	
Equity in income of joint ventures	  	 	3,720,959	 	 	 	2,293,873	 	
Contributions to joint ventures	  	 	35,085,897	 	 	 	15,691,281	 	
Distributions from joint ventures	  	 	(5,633,473	)	 	 	(3,179,733	)	

	

	

	 	

	

	

	
Investment in joint ventures, end of year	  	$	77,409,980	 	 	$	44,236,597	 	

	

	

	 	

	

	

	
 
Fund VIII, IX, and REIT Joint Venture
 
On June 15, 2000, Fund VIII and IX Associates, a joint venture between Wells Real Estate Fund VIII, L.P. (“Fund VIII”) and Wells Real Estate Fund IX, L.P. (“Fund IX”), entered into a joint venture with the Operating Partnership to form Fund VIII, IX, and REIT Joint Venture, for the purpose of acquiring, developing, operating, and selling real properties.
 
On July 1, 2000, Fund VIII and IX Associates contributed the Quest Building (formerly the Bake Parkway Building) to the joint venture. Fund VIII, IX, and REIT Joint Venture recorded the net assets of the Quest Building at an amount equal to the respective historical net book values. The Quest Building is a two-story office building containing approximately 65,006 rentable square feet on a 4.4-acre tract of land in Irvine, California. During 2000, the Operating Partnership contributed $1,282,111 to the Fund VIII, IX, and REIT Joint Venture. Ownership percentage interests were recomputed accordingly.
 
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Following are the financial statements for Fund VIII, IX, and REIT Joint Venture:
 
Fund VIII, IX, and REIT Joint Venture
(A Georgia Joint Venture)
 
Balance Sheets
December 31, 2001 and 2000
 
 	  	2001

	  	2000

	
Assets	
Real estate assets, at cost:	  	 	 	  	 	 	
Land	  	$	2,220,993	  	$	2,220,993	
Building and improvements, less accumulated depreciation of $649,436 in 2001 and $187,891 in 2000	  	 	4,952,724	  	 	5,408,892	

	

	  	

	

	
Total real estate assets	  	 	7,173,717	  	 	7,629,885	
Cash and cash equivalents	  	 	297,533	  	 	170,664	
Accounts receivable	  	 	164,835	  	 	197,802	
Prepaid expenses and other assets, net	  	 	191,799	  	 	283,864	

	

	  	

	

	
Total assets	  	$	7,827,884	  	$	8,282,215	

	

	  	

	

	
 	
Liabilities and Partners’ Capital	
Liabilities:	  	 	 	  	 	 	
Accounts payable	  	$	676	  	$	0	
Partership distributions payable	  	 	296,856	  	 	170,664	

	

	  	

	

	
Total liabilities	  	 	297,532	  	 	170,664	

	

	  	

	

	
Partners’ capital:	  	 	 	  	 	 	
Fund VIII and IX Associates	  	 	6,341,285	  	 	6,835,000	
Wells Operating Partnership, L.P.	  	 	1,189,067	  	 	1,276,551	

	

	  	

	

	
Total partners’ capital	  	 	7,530,352	  	 	8,111,551	

	

	  	

	

	
Total liabilities and partners’ capital	  	$	7,827,884	  	$	8,282,215	

	

	  	

	

	
 
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Fund VIII, IX, and REIT Joint Venture
(A Georgia Joint Venture)
 
Statements of Income
for the Year Ended December 31, 2001 and
the Period from June 15, 2000 (Inception) Through
December 31, 2000
 
 	  	2001

	  	2000

	
Revenues:	  	 	 	  	 	 	
Rental income	  	$	1,207,995	  	$	563,049	
Interest income	  	 	729	  	 	0	

	

	  	

	

	
 	  	 	1,208,724	  	 	563,049	

	

	  	

	

	
Expenses:	  	 	 	  	 	 	
Depreciation	  	 	461,545	  	 	187,891	
Management and leasing fees	  	 	142,735	  	 	54,395	
Property administration expenses	  	 	22,278	  	 	5,692	
Operating costs, net of reimbursements	  	 	15,326	  	 	5,178	

	

	  	

	

	
 	  	 	641,884	  	 	253,156	

	

	  	

	

	
Net income	  	$	566,840	  	$	309,893	

	

	  	

	

	
 	 	 	
Net income allocated to Fund VIII and IX Associates	  	$	477,061	  	$	285,006	

	

	  	

	

	
 	 	 	
Net income allocated to Wells Operating Partnership, L.P.	  	$	89,779	  	$	24,887	

	

	  	

	

	
 
Fund VIII, IX, and REIT Joint Venture
(A Georgia Joint Venture)
 
Statements of Partners’ Capital
for the Year Ended December 31, 2001 and
the Period from June 15, 2000 (Inception) Through
December 31, 2000
 
 	  	Fund VIII
and IX
Associates

	 	 	Wells Operating
Partnership, L.P.

	 	 	Total
Partners’
Capital

	 	
Balance, June 15, 2000 (inception)	  	$	0	 	 	$	0	 	 	$	0	 	
Net income	  	 	285,006	 	 	 	24,887	 	 	 	309,893	 	
Partnership contributions	  	 	6,857,889	 	 	 	1,282,111	 	 	 	8,140,000	 	
Partnership distributions	  	 	(307,895	)	 	 	(30,447	)	 	 	(338,342	)	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 2000	  	 	6,835,000	 	 	 	1,276,551	 	 	 	8,111,551	 	
Net income	  	 	477,061	 	 	 	89,779	 	 	 	566,840	 	
Partnership contributions	  	 	0	 	 	 	5,377	 	 	 	5,377	 	
Partnership distributions	  	 	(970,776	)	 	 	(182,640	)	 	 	(1,153,416	)	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 2001	  	$	6,341,285	 	 	$	1,189,067	 	 	$	7,530,352	 	

	

	

	 	

	

	

	 	

	

	

	
 
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Fund VIII, IX, and REIT Joint Venture
(A Georgia Joint Venture)
 
Statements of Cash Flows
for the Year Ended December 31, 2001 and
the Period from June 15, 2000 (Inception) Through
December 31, 2000
 
 	  	2001

	 	 	2000

	 	
Cash flows from operating activities:	  	 	 	 	 	 	 	 	
Net income	  	$	566,840	 	 	$	309,893	 	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	
Depreciation	  	 	461,545	 	 	 	187,891	 	
Changes in assets and liabilities:	  	 	 	 	 	 	 	 	
Accounts receivable	  	 	32,967	 	 	 	(197,802	)	
Prepaid expenses and other assets, net	  	 	92,065	 	 	 	(283,864	)	
Accounts payable	  	 	676	 	 	 	0	 	

	

	

	 	

	

	

	
Total adjustments	  	 	587,253	 	 	 	(293,775	)	

	

	

	 	

	

	

	
Net cash provided by operating activities	  	 	1,154,093	 	 	 	16,118	 	

	

	

	 	

	

	

	
Cash flows from investing activities:	  	 	 	 	 	 	 	 	
Investment in real estate	  	 	(5,377	)	 	 	(959,887	)	

	

	

	 	

	

	

	
Cash flows from financing activities:	  	 	 	 	 	 	 	 	
Contributions from joint venture partners	  	 	5,377	 	 	 	1,282,111	 	
Distributions to joint venture partners	  	 	(1,027,224	)	 	 	(167,678	)	

	

	

	 	

	

	

	
Net cash (used in) provided by financing activities	  	 	(1,021,847	)	 	 	1,114,433	 	

	

	

	 	

	

	

	
Net increase in cash and cash equivalents	  	 	126,869	 	 	 	170,664	 	
Cash and cash equivalents, beginning of period	  	 	170,664	 	 	 	0	 	

	

	

	 	

	

	

	
Cash and cash equivalents, end of year	  	$	297,533	 	 	$	170,664	 	

	

	

	 	

	

	

	
Supplemental disclosure of noncash activities:	  	 	 	 	 	 	 	 	
Real estate contribution received from joint venture partner	  	$	0	 	 	$	6,857,889	 	

	

	

	 	

	

	

	
 
Fund IX, X, XI, and REIT Joint Venture
 
On March 20, 1997, Fund IX and Wells Real Estate Fund X, L.P. (“Fund X”) entered into a joint venture agreement. The joint venture, Fund IX and X Associates, was formed to acquire, develop, operate, and sell real properties. On March 20, 1997, Wells Fund IX contributed a 5.62-acre tract of real property in Knoxville, Tennessee, and improvements thereon, known as the Alstom Power Building, to the Fund IX and X Associates joint venture. An 84,404-square foot, three-story building was constructed and commenced operations at the end of 1997.
 
        On February 13, 1998, the joint venture purchased a two-story office building, known as the Ohmeda Building, in Louisville, Colorado. On March 20, 1998, the joint venture purchased a three-story office building, known as the 360 Interlocken Building, in Broomfield, Colorado. On June 11, 1998, Fund IX and X Associates was amended and restated to admit Wells Real Estate Fund XI, L.P. (“Fund XI”) and the Operating Partnership. The joint venture was renamed the Fund IX, X, XI, and REIT Joint Venture. On June 24, 1998, the new joint venture purchased a one-story office building, known as the Avaya Building, in Oklahoma City, Oklahoma. On April 1, 1998, Wells Fund X purchased a one-story warehouse facility, known as the Iomega Building, in Ogden, Utah. On July 1, 1998, Wells Fund X contributed the Iomega Building to the Fund IX, X, XI, and REIT Joint Venture.
 
During 1999, Fund IX and Fund XI made contributions to the Fund IX, X, XI, and REIT Joint Venture; during 2000, Fund IX and Fund X made contributions to the Fund IX, X, XI, and REIT Joint Venture.
 
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Table of Contents
Following are the financial statements for the Fund IX, X, XI, and REIT Joint Venture:
 
The Fund IX, X, XI, and REIT Joint Venture
(A Georgia Joint Venture)
 
Balance Sheets
December 31, 2001 and 2000

 	  	2001

	  	2000

	
Assets	
Real estate assets, at cost:	  	 	 	  	 	 	
Land	  	$	6,698,020	  	$	6,698,020	
Building and improvements, less accumulated depreciation of $5,619,744 in 2001 and $4,203,502 in 2000	  	 	27,178,526	  	 	28,594,768	

	

	  	

	

	
Total real estate assets, net	  	 	33,876,546	  	 	35,292,788	
Cash and cash equivalents	  	 	1,555,917	  	 	1,500,044	
Accounts receivable	  	 	596,050	  	 	422,243	
Prepaid expenses and other assets, net	  	 	439,002	  	 	487,276	

	

	  	

	

	
Total assets	  	$	36,467,515	  	$	37,702,351	

	

	  	

	

	
 	
Liabilities and Partners’ Capital	
Liabilities:	  	 	 	  	 	 	
Accounts payable and accrued liabilities	  	$	620,907	  	$	568,517	
Refundable security deposits	  	 	100,336	  	 	99,279	
Due to affiliates	  	 	13,238	  	 	9,595	
Partnership distributions payable	  	 	966,912	  	 	931,151	

	

	  	

	

	
Total liabilities	  	 	1,701,393	  	 	1,608,542	

	

	  	

	

	
Partners’ capital:	  	 	 	  	 	 	
Wells Real Estate Fund IX	  	 	13,598,505	  	 	14,117,803	
Wells Real Estate Fund X	  	 	16,803,586	  	 	17,445,277	
Wells Real Estate Fund XI	  	 	3,073,671	  	 	3,191,093	
Wells Operating Partnership, L.P.	  	 	1,290,360	  	 	1,339,636	

	

	  	

	

	
Total partners’ capital	  	 	34,766,122	  	 	36,093,809	

	

	  	

	

	
Total liabilities and partners’ capital	  	$	36,467,515	  	$	37,702,351	

	

	  	

	

	
 
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Table of Contents
The Fund IX, X, XI, and REIT Joint Venture
(A Georgia Joint Venture)
 
Statements of Income
for the Years Ended December 31, 2001, 2000, and 1999
 
 	  	2001

	 	 	2000

	 	 	1999

	 	
Revenues:	  	 	 	 	 	 	 	 	 	 	 	 	
Rental income	  	$	4,174,379	 	 	$	4,198,388	 	 	$	3,932,962	 	
Other income	  	 	119,828	 	 	 	116,129	 	 	 	61,312	 	
Interest income	  	 	50,002	 	 	 	73,676	 	 	 	58,768	 	

	

	

	 	

	

	

	 	

	

	

	
 	  	 	4,344,209	 	 	 	4,388,193	 	 	 	4,053,042	 	

	

	

	 	

	

	

	 	

	

	

	
Expenses:	  	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	1,416,242	 	 	 	1,411,434	 	 	 	1,538,912	 	
Management and leasing fees	  	 	357,761	 	 	 	362,774	 	 	 	286,139	 	
Operating costs, net of reimbursements	  	 	(232,601	)	 	 	(133,505	)	 	 	(34,684	)	
Property administration expense	  	 	91,747	 	 	 	57,924	 	 	 	59,886	 	
Legal and accounting	  	 	26,223	 	 	 	20,423	 	 	 	30,545	 	

	

	

	 	

	

	

	 	

	

	

	
 	  	 	1,659,372	 	 	 	1,719,050	 	 	 	1,880,798	 	

	

	

	 	

	

	

	 	

	

	

	
Net income	  	$	2,684,837	 	 	$	2,669,143	 	 	$	2,172,244	 	

	

	

	 	

	

	

	 	

	

	

	
Net income allocated to Wells Real Estate Fund IX	  	$	1,050,156	 	 	$	1,045,094	 	 	$	850,072	 	

	

	

	 	

	

	

	 	

	

	

	
Net income allocated to Wells Real Estate Fund X	  	$	1,297,665	 	 	$	1,288,629	 	 	$	1,056,316	 	

	

	

	 	

	

	

	 	

	

	

	
Net income allocated to Wells Real Estate Fund XI	  	$	237,367	 	 	$	236,243	 	 	$	184,355	 	

	

	

	 	

	

	

	 	

	

	

	
Net income allocated to Wells Operating Partnership, L.P.	  	$	99,649	 	 	$	99,177	 	 	$	81,501	 	

	

	

	 	

	

	

	 	

	

	

	

The Fund IX, X, XI, and REIT Joint Venture
(A Georgia Joint Venture)
 
Statements of Partners’ Capital
for the Years Ended December 31, 2001, 2000, and 1999
 
 	  	Wells Real
Estate Fund
IX

	 	 	Wells Real
Estate Fund X

	 	 	Wells Real
Estate Fund
XI

	 	 	Wells
Operating
Partnership,
L.P.

	 	 	Total
Partners’
Capital

	 	
Balance, December 31, 1998	  	$	14,960,100	 	 	$	18,707,139	 	 	$	2,521,003	 	 	$	1,443,378	 	 	$	37,631,620	 	
Net income	  	 	850,072	 	 	 	1,056,316	 	 	 	184,355	 	 	 	81,501	 	 	 	2,172,244	 	
Partnership contributions	  	 	198,989	 	 	 	0	 	 	 	911,027	 	 	 	0	 	 	 	1,110,016	 	
Partnership distributions	  	 	(1,418,535	)	 	 	(1,762,586	)	 	 	(307,982	)	 	 	(135,995	)	 	 	(3,625,098	)	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 1999	  	 	14,590,626	 	 	 	18,000,869	 	 	 	3,308,403	 	 	 	1,388,884	 	 	 	37,288,782	 	
Net income	  	 	1,045,094	 	 	 	1,288,629	 	 	 	236,243	 	 	 	99,177	 	 	 	2,669,143	 	
Partnership contributions	  	 	46,122	 	 	 	84,317	 	 	 	0	 	 	 	0	 	 	 	130,439	 	
Partnership distributions	  	 	(1,564,039	)	 	 	(1,928,538	)	 	 	(353,553	)	 	 	(148,425	)	 	 	(3,994,555	)	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 2000	  	 	14,117,803	 	 	 	17,445,277	 	 	 	3,191,093	 	 	 	1,339,636	 	 	 	36,093,809	 	
Net income	  	 	1,050,156	 	 	 	1,297,665	 	 	 	237,367	 	 	 	99,649	 	 	 	2,684,837	 	
Partnership distributions	  	 	(1,569,454	)	 	 	(1,939,356	)	 	 	(354,789	)	 	 	(148,925	)	 	 	(4,012,524	)	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 2001	  	$	13,598,505	 	 	$	16,803,586	 	 	$	3,073,671	 	 	$	1,290,360	 	 	$	34,766,122	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 
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The Fund IX, X, XI, and REIT Joint Venture
(A Georgia Joint Venture)
 
Statements of Cash Flows
for the Years Ended December 31, 2001, 2000, and 1999
 
 	  	2001

	 	 	2000

	 	 	1999

	 	
Cash flows from operating activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	$	2,684,837	 	 	$	2,669,143	 	 	$	2,172,244	 	

	

	

	 	

	

	

	 	

	

	

	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	1,416,242	 	 	 	1,411,434	 	 	 	1,538,912	 	
Changes in assets and liabilities:	  	 	 	 	 	 	 	 	 	 	 	 	
Accounts receivable	  	 	(173,807	)	 	 	132,722	 	 	 	(421,708	)	
Prepaid expenses and other assets, net	  	 	48,274	 	 	 	39,133	 	 	 	(85,281	)	
Accounts payable and accrued liabilities, and refundable security deposits	  	 	53,447	 	 	 	(37,118	)	 	 	295,177	 	
Due to affiliates	  	 	3,643	 	 	 	3,216	 	 	 	1,973	 	

	

	

	 	

	

	

	 	

	

	

	
Total adjustments	  	 	1,347,799	 	 	 	1,549,387	 	 	 	1,329,073	 	

	

	

	 	

	

	

	 	

	

	

	
Net cash provided by operating activities	  	 	4,032,636	 	 	 	4,218,530	 	 	 	3,501,317	 	

	

	

	 	

	

	

	 	

	

	

	
Cash flows from investing activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Investment in real estate	  	 	0	 	 	 	(127,661	)	 	 	(930,401	)	

	

	

	 	

	

	

	 	

	

	

	
Cash flows from financing activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Distributions to joint venture partners	  	 	(3,976,763	)	 	 	(3,868,138	)	 	 	(3,820,491	)	
Contributions received from partners	  	 	0	 	 	 	130,439	 	 	 	1,066,992	 	

	

	

	 	

	

	

	 	

	

	

	
Net cash used in financing activities	  	 	(3,976,763	)	 	 	(3,737,699	)	 	 	(2,753,499	)	

	

	

	 	

	

	

	 	

	

	

	
Net increase (decrease) in cash and cash equivalents	  	 	55,873	 	 	 	353,170	 	 	 	(182,583	)	
Cash and cash equivalents, beginning of year	  	 	1,500,044	 	 	 	1,146,874	 	 	 	1,329,457	 	

	

	

	 	

	

	

	 	

	

	

	
Cash and cash equivalents, end of year	  	$	1,555,917	 	 	$	1,500,044	 	 	$	1,146,874	 	

	

	

	 	

	

	

	 	

	

	

	
Supplemental disclosure of noncash activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Deferred project costs contributed to joint venture	  	$	0	 	 	$	0	 	 	$	43,024	 	

	

	

	 	

	

	

	 	

	

	

	
 
Wells/Orange County Associates
 
On July 27, 1998, the Operating Partnership entered into a joint venture agreement with Wells Development Corporation, referred to as Wells/Orange County Associates. On July 31, 1998, Wells/Orange County Associates acquired a 52,000-square foot warehouse and office building located in Fountain Valley, California, known as the Cort Furniture Building.
 
On September 1, 1998, Fund X and XI Associates acquired Wells Development Corporation’s interest in Wells/Orange County Associates, which resulted in Fund X and XI Associates becoming a joint venture partner with the Operating Partnership in the ownership of the Cort Furniture Building.
 
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Table of Contents
Following are the financial statements for Wells/Orange County Associates:
 
Wells/Orange County Associates
(A Georgia Joint Venture)
 
Balance Sheets
December 31, 2001 and 2000
 
Assets
 	  	2001

	  	2000

	
Real estate assets, at cost:	  	 	 	  	 	 	
Land	  	$	2,187,501	  	$	2,187,501	
Building, less accumulated depreciation of $651,780 in 2001 and $465,216
in 2000	  	 	4,012,335	  	 	4,198,899	

	

	  	

	

	
Total real estate assets	  	 	6,199,836	  	 	6,386,400	
Cash and cash equivalents	  	 	188,407	  	 	119,038	
Accounts receivable	  	 	80,803	  	 	99,154	
Prepaid expenses and other assets	  	 	9,426	  	 	0	

	

	  	

	

	
Total assets	  	$	6,478,472	  	$	6,604,592	

	

	  	

	

	
 
Liabilities and Partners’ Capital
Liabilities:	  	 	 	  	 	 	
Accounts payable	  	$	11,792	  	$	1,000	
Partnership distributions payable	  	 	192,042	  	 	128,227	

	

	  	

	

	
Total liabilities	  	 	203,834	  	 	129,227	

	

	  	

	

	
Partners’ capital:	  	 	 	  	 	 	
Wells Operating Partnership, L.P.	  	 	2,740,000	  	 	2,827,607	
Fund X and XI Associates	  	 	3,534,638	  	 	3,647,758	

	

	  	

	

	
Total partners’ capital	  	 	6,274,638	  	 	6,475,365	

	

	  	

	

	
Total liabilities and partners’ capital	  	$	6,478,472	  	$	6,604,592	

	

	  	

	

	
 
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Wells/Orange County Associates
(A Georgia Joint Venture)
 
Statements of Income
for the Years Ended December 31, 2001, 2000, and 1999
 
 	  	2001

	  	2000

	  	1999

	
Revenues:	  	 	 	  	 	 	  	 	 	
Rental income	  	$	795,528	  	$	795,545	  	$	795,545	
Interest income	  	 	2,409	  	 	0	  	 	0	

	

	  	

	

	  	

	

	
 	  	 	797,937	  	 	795,545	  	 	795,545	

	

	  	

	

	  	

	

	
Expenses:	  	 	 	  	 	 	  	 	 	
Depreciation	  	 	186,564	  	 	186,564	  	 	186,565	
Management and leasing fees	  	 	33,547	  	 	30,915	  	 	30,360	
Operating costs, net of reimbursements	  	 	21,855	  	 	5,005	  	 	22,229	
Legal and accounting	  	 	9,800	  	 	4,100	  	 	5,439	

	

	  	

	

	  	

	

	
 	  	 	251,766	  	 	226,584	  	 	244,593	

	

	  	

	

	  	

	

	
Net income	  	$	546,171	  	$	568,961	  	$	550,952	

	

	  	

	

	  	

	

	
Net income allocated to Wells Operating Partnership, L.P.	  	$	238,542	  	$	248,449	  	$	240,585	

	

	  	

	

	  	

	

	
Net income allocated to Fund X and XI Associates	  	$	307,629	  	$	320,512	  	$	310,367	

	

	  	

	

	  	

	

	
 
Wells/Orange County Associates
(A Georgia Joint Venture)
 
Statements of Partners’ Capital
for the Years Ended December 31, 2001, 2000, and 1999
 
 	  	Wells
Operating
Partnership,
L.P.

	 	 	Fund X and
XI
Associates

	 	 	Total
Partners’
Capital

	 	
Balance, December 31, 1998	  	$	2,958,617	 	 	$	3,816,766	 	 	$	6,775,383	 	
Net income	  	 	240,585	 	 	 	310,367	 	 	 	550,952	 	
Partnership distributions	  	 	(306,090	)	 	 	(394,871	)	 	 	(700,961	)	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 1999	  	 	2,893,112	 	 	 	3,732,262	 	 	 	6,625,374	 	
Net income	  	 	248,449	 	 	 	320,512	 	 	 	568,961	 	
Partnership distributions	  	 	(313,954	)	 	 	(405,016	)	 	 	(718,970	)	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 2000	  	 	2,827,607	 	 	 	3,647,758	 	 	 	6,475,365	 	
Net income	  	 	238,542	 	 	 	307,629	 	 	 	546,171	 	
Partnership distributions	  	 	(326,149	)	 	 	(420,749	)	 	 	(746,898	)	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 2001	  	$	2,740,000	 	 	$	3,534,638	 	 	$	6,274,638	 	

	

	

	 	

	

	

	 	

	

	

	

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Table of Contents
Wells/Orange County Associates
(A Georgia Joint Venture)
 
Statements of Cash Flows
for the Years Ended December 31, 2001, 2000, and 1999
 
 	  	2001

	 	 	2000

	 	 	1999

	 	
Cash flows from operating activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	$	546,171	 	 	$	568,961	 	 	$	550,952	 	

	

	

	 	

	

	

	 	

	

	

	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	186,564	 	 	 	186,564	 	 	 	186,565	 	
Changes in assets and liabilities:	  	 	 	 	 	 	 	 	 	 	 	 	
Accounts receivable	  	 	18,351	 	 	 	(49,475	)	 	 	(36,556	)	
Accounts payable	  	 	10,792	 	 	 	1,000	 	 	 	(1,550	)	
Prepaid and other expenses	  	 	(9,426	)	 	 	0	 	 	 	0	 	

	

	

	 	

	

	

	 	

	

	

	
Total adjustments	  	 	206,281	 	 	 	138,089	 	 	 	148,459	 	

	

	

	 	

	

	

	 	

	

	

	
Net cash provided by operating activities	  	 	752,452	 	 	 	707,050	 	 	 	699,411	 	
Cash flows from financing activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Distributions to partners	  	 	(683,083	)	 	 	(764,678	)	 	 	(703,640	)	

	

	

	 	

	

	

	 	

	

	

	
Net increase (decrease) in cash and cash equivalents	  	 	69,369	 	 	 	(57,628	)	 	 	(4,229	)	
Cash and cash equivalents, beginning of year	  	 	119,038	 	 	 	176,666	 	 	 	180,895	 	

	

	

	 	

	

	

	 	

	

	

	
Cash and cash equivalents, end of year	  	$	188,407	 	 	$	119,038	 	 	$	176,666	 	

	

	

	 	

	

	

	 	

	

	

	
 
Wells/Fremont Associates
 
On July 15, 1998, the Operating Partnership entered into a joint venture agreement with Wells Development Corporation, referred to as Wells/Fremont Associates. On July 21, 1998, Wells/Fremont Associates acquired a 58,424-square foot two-story manufacturing and office building located in Fremont, California, known as the Fairchild Building.
 
On October 8, 1998, Fund X and XI Associates acquired Wells Development Corporation’s interest in Wells/Fremont Associates, which resulted in Fund X and XI Associates becoming a joint venture partner with the Operating Partnership in the ownership of the Fairchild Building.
 
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Table of Contents
Following are the financial statements for Wells/Fremont Associates:
 
Wells/Fremont Associates
(A Georgia Joint Venture)
 
Balance Sheets
December 31, 2001 and 2000
 
Assets
 
 	  	2001

	  	2000

	
Real estate assets, at cost:	  	 	 	  	 	 	
Land	  	$	2,219,251	  	$	2,219,251	
Building, less accumulated depreciation of $999,301 in 2001 and $713,773 in 2000	  	 	6,138,857	  	 	6,424,385	

	

	  	

	

	
Total real estate assets	  	 	8,358,108	  	 	8,643,636	
Cash and cash equivalents	  	 	203,750	  	 	92,564	
Accounts receivable	  	 	133,801	  	 	126,433	

	

	  	

	

	
Total assets	  	$	8,695,659	  	$	8,862,633	

	

	  	

	

	
 
Liabilities and Partners’ Capital
 
Liabilities:	  	 	 	  	 	 	
Accounts payable	  	$	1,896	  	$	3,016	
Due to affiliate	  	 	8,030	  	 	7,586	
Partnership distributions payable	  	 	201,854	  	 	89,549	

	

	  	

	

	
Total liabilities	  	 	211,780	  	 	100,151	

	

	  	

	

	
Partners’ capital:	  	 	 	  	 	 	
Wells Operating Partnership, L.P.	  	 	6,575,358	  	 	6,791,287	
Fund X and XI Associates	  	 	1,908,521	  	 	1,971,195	

	

	  	

	

	
Total partners’ capital	  	 	8,483,879	  	 	8,762,482	

	

	  	

	

	
Total liabilities and partners’ capital	  	$	8,695,659	  	$	8,862,633	

	

	  	

	

	

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Table of Contents
Wells/Fremont Associates
(A Georgia Joint Venture)
 
Statements of Income
for the Years Ended December 31, 2001, 2000, and 1999
 
 	  	2001

	  	2000

	  	1999

	
Revenues:	  	 	 	  	 	 	  	 	 	
Rental income	  	$	902,945	  	$	902,946	  	$	902,946	
Interest income	  	 	2,713	  	 	0	  	 	0	
Other income	  	 	2,015	  	 	0	  	 	0	

	

	  	

	

	  	

	

	
 	  	 	907,673	  	 	902,946	  	 	902,946	

	

	  	

	

	  	

	

	
Expenses:	  	 	 	  	 	 	  	 	 	
Depreciation	  	 	285,528	  	 	285,527	  	 	285,526	
Management and leasing fees	  	 	36,267	  	 	36,787	  	 	37,355	
Operating costs, net of reimbursements	  	 	16,585	  	 	13,199	  	 	16,006	
Legal and accounting	  	 	6,400	  	 	4,300	  	 	4,885	

	

	  	

	

	  	

	

	
 	  	 	344,780	  	 	339,813	  	 	343,772	

	

	  	

	

	  	

	

	
Net income	  	$	562,893	  	$	563,133	  	$	559,174	

	

	  	

	

	  	

	

	
Net income allocated to Wells Operating Partnership, L.P.	  	$	436,265	  	$	436,452	  	$	433,383	

	

	  	

	

	  	

	

	
Net income allocated to Fund X and XI Associates	  	$	126,628	  	$	126,681	  	$	125,791	

	

	  	

	

	  	

	

	
 
Wells/Fremont Associates
(A Georgia Joint Venture)
 
Statements of Partners’ Capital
for the Years Ended December 31, 2001, 2000, and 1999
 
 	  	Wells
Operating
Partnership,
L.P.

	 	 	Fund X and
XI
Associates

	 	 	Total
Partners’
Capital

	 	
Balance, December 31, 1998	  	$	7,166,682	 	 	$	2,080,155	 	 	$	9,246,837	 	
Net income	  	 	433,383	 	 	 	125,791	 	 	 	559,174	 	
Partnership distributions	  	 	(611,855	)	 	 	(177,593	)	 	 	(789,448	)	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 1999	  	 	6,988,210	 	 	 	2,028,353	 	 	 	9,016,563	 	
Net income	  	 	436,452	 	 	 	126,681	 	 	 	563,133	 	
Partnership distributions	  	 	(633,375	)	 	 	(183,839	)	 	 	(817,214	)	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 2000	  	 	6,791,287	 	 	 	1,971,195	 	 	 	8,762,482	 	
Net income	  	 	436,265	 	 	 	126,628	 	 	 	562,893	 	
Partnership distributions	  	 	(652,194	)	 	 	(189,302	)	 	 	(841,496	)	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 2001	  	$	6,575,358	 	 	$	1,908,521	 	 	$	8,483,879	 	

	

	

	 	

	

	

	 	

	

	

	

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Table of Contents
Wells/Fremont Associates
(A Georgia Joint Venture)
 
Statements of Cash Flows
for the Years Ended December 31, 2001, 2000, and 1999
 
 	  	2001

	 	 	2000

	 	 	1999

	 	
Cash flows from operating activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	$	562,893	 	 	$	563,133	 	 	$	559,174	 	

	

	

	 	

	

	

	 	

	

	

	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	285,528	 	 	 	285,527	 	 	 	285,526	 	
Changes in assets and liabilities:	  	 	 	 	 	 	 	 	 	 	 	 	
Accounts receivable	  	 	(7,368	)	 	 	(33,454	)	 	 	(58,237	)	
Accounts payable	  	 	(1,120	)	 	 	1,001	 	 	 	(1,550	)	
Due to affiliate	  	 	444	 	 	 	2,007	 	 	 	3,527	 	

	

	

	 	

	

	

	 	

	

	

	
Total adjustments	  	 	277,484	 	 	 	255,081	 	 	 	229,266	 	

	

	

	 	

	

	

	 	

	

	

	
Net cash provided by operating activities	  	 	840,377	 	 	 	818,214	 	 	 	788,440	 	
Cash flows from financing activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Distributions to partners	  	 	(729,191	)	 	 	(914,662	)	 	 	(791,940	)	

	

	

	 	

	

	

	 	

	

	

	
Net increase (decrease) in cash and cash equivalents	  	 	111,186	 	 	 	(96,448	)	 	 	(3,500	)	
Cash and cash equivalents, beginning of year	  	 	92,564	 	 	 	189,012	 	 	 	192,512	 	

	

	

	 	

	

	

	 	

	

	

	
Cash and cash equivalents, end of year	  	$	203,750	 	 	$	92,564	 	 	$	189,012	 	

	

	

	 	

	

	

	 	

	

	

	
 
Fund XI, XII, and REIT Joint Venture
 
On May 1, 1999, the Operating Partnership entered into a joint venture with Fund XI and Wells Real Estate Fund XII, L.P. (“Fund XII”). On May 18, 1999, the joint venture purchased a 169,510-square foot, two-story manufacturing and office building, known as EYBL CarTex Building, in Fountain Inn, South Carolina. On July 21, 1999, the joint venture purchased a 68,900-square foot, three-story-office building, known as the Sprint Building, in Leawood, Kansas. On August 17, 1999, the joint venture purchased a 130,000-square foot office and warehouse building, known as the Johnson Matthey Building, in Chester County, Pennsylvania. On September 20, 1999, the joint venture purchased a 62,400-square foot, two-story office building, known as the Gartner Building, in Fort Myers, Florida.
 
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Table of Contents
Following are the financial statements for the Fund XI, XII, and REIT Joint Venture:
 
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
 
Balance Sheets
December 31, 2001 and 2000

 	  	2001

	  	2000

	
Assets	  	 	 	  	 	 	
Real estate assets, at cost:	  	 	 	  	 	 	
Land	  	$	5,048,797	  	$	5,048,797	
Building and improvements, less accumulated depreciation of $2,692,116 in 2001 and $1,599,263 in 2000	  	 	24,626,336	  	 	25,719,189	

	

	  	

	

	
Total real estate assets	  	 	29,675,133	  	 	30,767,986	
Cash and cash equivalents	  	 	775,805	  	 	541,089	
Accounts receivable	  	 	675,022	  	 	394,314	
Prepaid assets and other expenses	  	 	26,486	  	 	26,486	

	

	  	

	

	
Total assets	  	$	31,152,446	  	$	31,729,875	

	

	  	

	

	

Liabilities and Partners’ Capital	  	 	 	  	 	 	
Liabilities:	  	 	 	  	 	 	
Accounts payable	  	$	114,612	  	$	114,180	
Partnership distributions payable	  	 	757,500	  	 	453,395	

	

	  	

	

	
Total liabilities	  	 	872,112	  	 	567,575	

	

	  	

	

	
Partners’ capital:	  	 	 	  	 	 	
Wells Real Estate Fund XI	  	 	7,917,646	  	 	8,148,261	
Wells Real Estate Fund XII	  	 	5,174,703	  	 	5,325,424	
Wells Operating Partnership, L.P.	  	 	17,187,985	  	 	17,688,615	

	

	  	

	

	
Total partners’ capital	  	 	30,280,334	  	 	31,162,300	

	

	  	

	

	
Total liabilities and partners’ capital	  	$	31,152,446	  	$	31,729,875	

	

	  	

	

	
 
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Table of Contents
 
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
 
Statements of Income
for the Years Ended December 31, 2001, 2000, and 1999
 
 	  	2001

	 	 	2000

	 	 	1999

	
Revenues:	  	 	 	 	 	 	 	 	 	 	 	
Rental income	  	$	3,346,227	 	 	$	3,345,932	 	 	$	1,443,446	
Interest income	  	 	24,480	 	 	 	2,814	 	 	 	0	
Other income	  	 	360	 	 	 	440	 	 	 	57	

	

	

	 	

	

	

	 	

	

	
 	  	 	3,371,067	 	 	 	3,349,186	 	 	 	1,443,503	

	

	

	 	

	

	

	 	

	

	
Expenses:	  	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	1,092,853	 	 	 	1,092,680	 	 	 	506,582	
Management and leasing fees	  	 	156,987	 	 	 	157,236	 	 	 	59,230	
Operating costs, net of reimbursements	  	 	(27,449	)	 	 	(30,718	)	 	 	4,639	
Property administration	  	 	65,765	 	 	 	36,707	 	 	 	15,979	
Legal and accounting	  	 	18,000	 	 	 	14,725	 	 	 	4,000	

	

	

	 	

	

	

	 	

	

	
 	  	 	1,306,156	 	 	 	1,270,630	 	 	 	590,430	

	

	

	 	

	

	

	 	

	

	
Net income	  	$	2,064,911	 	 	$	2,078,556	 	 	$	853,073	

	

	

	 	

	

	

	 	

	

	
Net income allocated to Wells Real Estate Fund XI	  	$	539,930	 	 	$	543,497	 	 	$	240,031	

	

	

	 	

	

	

	 	

	

	
Net income allocated to Wells Real Estate Fund XII	  	$	352,878	 	 	$	355,211	 	 	$	124,542	

	

	

	 	

	

	

	 	

	

	
Net income allocated to Wells Operating Partnership, L.P.	  	$	1,172,103	 	 	$	1,179,848	 	 	$	488,500	

	

	

	 	

	

	

	 	

	

	
 
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
 
Statements of Partners’ Capital
for the Years Ended December 31, 2001, 2000, and 1999
 
 	  	Wells Real
Estate
Fund XI

	 	 	Wells Real
Estate
Fund XII

	 	 	Wells
Operating
Partnership,
L.P.

	 	 	Total
Partners’
Capital

	 	
Balance, December 31, 1998	  	$	0	 	 	$	0	 	 	$	0	 	 	$	0	 	
Net income	  	 	240,031	 	 	 	124,542	 	 	 	488,500	 	 	 	853,073	 	
Partnership contributions	  	 	8,470,160	 	 	 	5,520,835	 	 	 	18,376,267	 	 	 	32,367,262	 	
Partnership distributions	  	 	(344,339	)	 	 	(177,743	)	 	 	(703,797	)	 	 	(1,225,879	)	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 1999	  	 	8,365,852	 	 	 	5,467,634	 	 	 	18,160,970	 	 	 	31,994,456	 	
Net income	  	 	543,497	 	 	 	355,211	 	 	 	1,179,848	 	 	 	2,078,556	 	
Partnership distributions	  	 	(761,088	)	 	 	(497,421	)	 	 	(1,652,203	)	 	 	(2,910,712	)	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 2000	  	 	8,148,261	 	 	 	5,325,424	 	 	 	17,688,615	 	 	 	31,162,300	 	
Net income	  	 	539,930	 	 	 	352,878	 	 	 	1,172,103	 	 	 	2,064,911	 	
Partnership distributions	  	 	(770,545	)	 	 	(503,599	)	 	 	(1,672,733	)	 	 	(2,946,877	)	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 2001	  	$	7,917,646	 	 	$	5,174,703	 	 	$	17,187,985	 	 	$	30,280,334	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	

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Table of Contents
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
 
Statements of Cash Flows
for the Years Ended December 31, 2001, 2000, and 1999
 
 	  	2001

	 	 	2000

	 	 	1999

	 	
Cash flows from operating activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	$	2,064,911	 	 	$	2,078,556	 	 	$	853,073	 	

	

	

	 	

	

	

	 	

	

	

	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	1,092,853	 	 	 	1,092,680	 	 	 	506,582	 	
Changes in assets and liabilities:	  	 	 	 	 	 	 	 	 	 	 	 	
Accounts receivable	  	 	(280,708	)	 	 	(260,537	)	 	 	(133,777	)	
Prepaid expenses and other assets	  	 	0	 	 	 	0	 	 	 	(26,486	)	
Accounts payable	  	 	432	 	 	 	1,723	 	 	 	112,457	 	

	

	

	 	

	

	

	 	

	

	

	
Total adjustments	  	 	812,577	 	 	 	833,866	 	 	 	458,776	 	

	

	

	 	

	

	

	 	

	

	

	
Net cash provided by operating activities	  	 	2,877,488	 	 	 	2,912,422	 	 	 	1,311,849	 	
Cash flows from financing activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Distributions to joint venture partners	  	 	(2,642,772	)	 	 	(3,137,611	)	 	 	(545,571	)	

	

	

	 	

	

	

	 	

	

	

	
Net increase (decrease) in cash and cash equivalents	  	 	234,716	 	 	 	(225,189	)	 	 	766,278	 	
Cash and cash equivalents, beginning of year	  	 	541,089	 	 	 	766,278	 	 	 	0	 	

	

	

	 	

	

	

	 	

	

	

	
Cash and cash equivalents, end of year	  	$	775,805	 	 	$	541,089	 	 	$	766,278	 	

	

	

	 	

	

	

	 	

	

	

	
Supplemental disclosure of noncash activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Deferred project costs contributed to joint venture	  	$	0	 	 	$	0	 	 	$	1,294,686	 	

	

	

	 	

	

	

	 	

	

	

	
Contribution of real estate assets to joint venture	  	$	0	 	 	$	0	 	 	$	31,072,562	 	

	

	

	 	

	

	

	 	

	

	

	

Fund XII and REIT Joint Venture
 
On May 10, 2000, the Operating Partnership entered into a joint venture with Fund XII. The joint venture, Fund XII and REIT Joint Venture, was formed to acquire, develop, operate, and sell real property. On May 20, 2000, the joint venture purchased a 77,054-square foot, three-story office building known as the Siemens Building in Troy, Oakland County, Michigan. On December 28, 2000, the joint venture purchased a 50,000-square foot, one-story office building and a 78,500-square foot two-story office building collectively known as the AT&T Call Center Buildings in Oklahoma City, Oklahoma County, Oklahoma. On May 15, 2001, the joint venture purchased a 201,237-square foot, three-story office building known as the Comdata Building located in Brentwood, Williamson County, Tennessee.
 
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Following are the financial statements for Fund XII and REIT Joint Venture:
 
Fund XII and REIT Joint Venture
(A Georgia Joint Venture)
 
Balance Sheets
December 31, 2001 and 2000
 
 	  	2001

	  	2000

	
Assets	  	 	 	  	 	 	
Real estate assets, at cost:	  	 	 	  	 	 	
Land	  	$	8,899,574	  	$	4,420,405	
Building and improvements, less accumulated depreciation of $2,131,838 in 2001 and $324,732 in 2000	  	 	45,814,781	  	 	26,004,918	

	

	  	

	

	
Total real estate assets	  	 	54,714,355	  	 	30,425,323	
Cash and cash equivalents	  	 	1,345,562	  	 	207,475	
Accounts receivable	  	 	442,023	  	 	130,490	

	

	  	

	

	
Total assets	  	$	56,501,940	  	$	30,763,288	

	

	  	

	

	
 	 	 	
Liabilities and Partners’ Capital	  	 	 	  	 	 	
Liabilities:	  	 	 	  	 	 	
Accounts payable	  	$	134,969	  	$	0	
Partnership distributions payable	  	 	1,238,205	  	 	208,261	

	

	  	

	

	
Total liabilities	  	 	1,373,174	  	 	208,261	

	

	  	

	

	
Partners’ capital:	  	 	 	  	 	 	
Wells Real Estate Fund XII	  	 	24,828,894	  	 	16,242,127	
Wells Operating Partnership, L.P.	  	 	30,299,872	  	 	14,312,900	

	

	  	

	

	
Total partners’ capital	  	 	55,128,766	  	 	30,555,027	

	

	  	

	

	
Total liabilities and partners’ capital	  	$	56,501,940	  	$	30,763,288	

	

	  	

	

	
 
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Fund XII and REIT Joint Venture
(A Georgia Joint Venture)
 
Statements of Income
for the Year Ended December 31, 2001 and
the Period From May 10, 2000 (Inception) Through
December 31, 2000
 
 	  	2001

	  	2000

	
Revenues:	  	 	 	  	 	 	
Rental income	  	$	4,683,323	  	$	974,796	
Interest income	  	 	25,144	  	 	2,069	

	

	  	

	

	
 	  	 	4,708,467	  	 	976,865	

	

	  	

	

	
Expenses:	  	 	 	  	 	 	
Depreciation	  	 	1,807,106	  	 	324,732	
Management and leasing fees	  	 	224,033	  	 	32,756	
Partnership administration	  	 	38,928	  	 	3,917	
Legal and accounting	  	 	16,425	  	 	0	
Operating costs, net of reimbursements	  	 	10,453	  	 	1,210	

	

	  	

	

	
 	  	 	2,096,945	  	 	362,615	

	

	  	

	

	
Net income	  	$	2,611,522	  	$	614,250	

	

	  	

	

	
Net income allocated to Wells Real Estate Fund XII	  	$	1,224,645	  	$	309,190	

	

	  	

	

	
Net income allocated to Wells Operating Partnership, L.P.	  	$	1,386,877	  	$	305,060	

	

	  	

	

	
 
Fund XII and REIT Joint Venture
(A Georgia Joint Venture)
 
Statements of Partners’ Capital
for the Year Ended December 31, 2001 and
the Period From May 10, 2000 (Inception) Through
December 31, 2000
 
 	  	Wells Real
Estate
Fund XII

	 	 	Wells
Operating
Partnership, L.P.

	 	 	Total
Partners’
Capital

	 	
Balance, May 10, 2000 (inception)	  	$	0	 	 	$	0	 	 	$	0	 	
Net income	  	 	309,190	 	 	 	305,060	 	 	 	614,250	 	
Partnership contributions	  	 	16,340,884	 	 	 	14,409,171	 	 	 	30,750,055	 	
Partnership distributions	  	 	(407,948	)	 	 	(401,330	)	 	 	(809,278	)	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 2000	  	 	16,242,126	 	 	 	14,312,901	 	 	 	30,555,027	 	
Net income	  	 	1,224,645	 	 	 	1,386,877	 	 	 	2,611,522	 	
Partnership contributions	  	 	9,298,084	 	 	 	16,795,441	 	 	 	26,093,525	 	
Partnership distributions	  	 	(1,935,961	)	 	 	(2,195,347	)	 	 	(4,131,308	)	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 2001	  	$	24,828,894	 	 	$	30,299,872	 	 	$	55,128,766	 	

	

	

	 	

	

	

	 	

	

	

	
 
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Fund XII and REIT Joint Venture
(A Georgia Joint Venture )
 
Statements of Cash Flows
for the Year Ended December 31, 2001 and
the Period From May 10, 2000 (Inception) Through
December 31, 2000
 
 	  	2001

	 	 	2000

	 	
Cash flows from operating activities:	  	 	 	 	 	 	 	 	
Net income	  	$	2,611,522	 	 	$	614,250	 	

	

	

	 	

	

	

	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	
Depreciation	  	 	1,807,106	 	 	 	324,732	 	
Changes in assets and liabilities:	  	 	 	 	 	 	 	 	
Accounts receivable	  	 	(311,533	)	 	 	(130,490	)	
Accounts payable	  	 	134,969	 	 	 	0	 	

	

	

	 	

	

	

	
Total adjustments	  	 	1,630,542	 	 	 	194,242	 	

	

	

	 	

	

	

	
Net cash provided by operating activities	  	 	4,242,064	 	 	 	808,492	 	

	

	

	 	

	

	

	
Cash flows from investing activities:	  	 	 	 	 	 	 	 	
Investment in real estate	  	 	(26,096,138	)	 	 	(29,520,043	)	

	

	

	 	

	

	

	
Cash flows from financing activities:	  	 	 	 	 	 	 	 	
Distributions to joint venture partners	  	 	(3,101,364	)	 	 	(601,017	)	
Contributions received from partners	  	 	26,093,525	 	 	 	29,520,043	 	

	

	

	 	

	

	

	
Net cash provided by financing activities	  	 	22,992,161	 	 	 	28,919,026	 	

	

	

	 	

	

	

	
Net increase in cash and cash equivalents	  	 	1,138,087	 	 	 	207,475	 	
Cash and cash equivalents, beginning of period	  	 	207,475	 	 	 	0	 	

	

	

	 	

	

	

	
Cash and cash equivalents, end of year	  	$	1,345,562	 	 	$	207,475	 	

	

	

	 	

	

	

	
Supplemental disclosure of noncash activities:	  	 	 	 	 	 	 	 	
Deferred project costs contributed to joint venture	  	$	0	 	 	$	1,230,012	 	

	

	

	 	

	

	

	
 
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Fund XIII and REIT Joint Venture
 
On June 27, 2001, Wells Real Estate Fund XIII, L.P. (“Fund XIII”) entered into a joint venture with the Operating Partnership to form the Fund XIII and REIT Joint Venture. On July 16, 2001, the Fund XIII and REIT Joint Venture purchased an 85,000-square foot, two-story office building known as the AmeriCredit Building in Clay County, Florida. On December 21, 2001, the Fund XIII and REIT Joint Venture purchased two connected one-story office and assembly buildings consisting of 148,200 square feet known as the ADIC Buildings in Douglas County, Colorado.
 
Following are the financial statements for the Fund XIII and REIT Joint Venture:
 
The Fund XIII and REIT Joint Venture
(A Georgia Joint Venture)
 
Balance Sheet
December 31, 2001
 
Assets	  	 	 	
Real estate assets, at cost:	  	 	 	
Land	  	$	3,724,819	
Building and improvements, less accumulated depreciation of $266,605 in 2001	  	 	22,783,948	

	

	
Total real estate assets	  	 	26,508,767	
Cash and cash equivalents	  	 	460,380	
Accounts receivable	  	 	71,236	
Prepaid assets and other expenses	  	 	773	

	

	
Total assets	  	$	27,041,156	

	

	

Liabilities and Partners’ Capital	  	 	 	
Liabilities:	  	 	 	
Accounts payable	  	$	145,331	
Partnership distributions payable	  	 	315,049	

	

	
Total liabilities	  	 	460,380	

	

	
Partners’ capital:	  	 	 	
Wells Real Estate Fund XIII	  	 	8,453,438	
Wells Operating Partnership, L.P.	  	 	18,127,338	

	

	
Total partners’ capital	  	 	26,580,776	

	

	
Total liabilities and partners’ capital	  	$	27,041,156	

	

	
 
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The Fund XIII and REIT Joint Venture
(A Georgia Joint Venture)
 
Statement of Income
for the Period From June 27, 2001 (Inception) Through
December 31, 2001
 
Revenues:	  	 	 	
Rental income	  	$	706,373	

	

	
Expenses:	  	 	 	
Depreciation	  	 	266,605	
Management and leasing fees	  	 	26,954	
Operating costs, net of reimbursements	  	 	53,659	
Legal and accounting	  	 	2,800	

	

	
 	  	 	350,018	

	

	
Net income	  	$	356,355	

	

	
Net income allocated to Wells Real Estate Fund XIII	  	$	58,610	

	

	
Net income allocated to Wells Operating Partnership, L.P.	  	$	297,745	

	

	
 
The Fund XIII and REIT Joint Venture
(A Georgia Joint Venture)
 
Statement of Partners’ Capital
for the Period From June 27, 2001 (Inception) Through
December 31, 2001
 
 	  	Wells Real
Estate
Fund XIII

	 	 	Wells
Operating
Partnership,
L.P.

	 	 	Total
Partners’
Capital

	 	
Balance, June 27, 2001 (inception)	  	$	0	 	 	$	0	 	 	$	0	 	
Net income	  	 	58,610	 	 	 	297,745	 	 	 	356,355	 	
Partnership contributions	  	 	8,491,069	 	 	 	18,285,076	 	 	 	26,776,145	 	
Partnership distributions	  	 	(96,241	)	 	 	(455,483	)	 	 	(551,724	)	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 2001	  	$	8,453,438	 	 	$	18,127,338	 	 	$	26,580,776	 	

	

	

	 	

	

	

	 	

	

	

	

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The Fund XIII and REIT Joint Venture
(A Georgia Joint Venture)
 
Statement of Cash Flows
for the Period From June 27, 2001 (Inception) Through
December 31, 2001
 
Cash flows from operating activities:	  	 	 	 	
Net income	  	$	356,355	 	

	

	

	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	
Depreciation	  	 	266,605	 	
Changes in assets and liabilities:	  	 	 	 	
Accounts receivable	  	 	(71,236	)	
Prepaid expenses and other assets	  	 	(773	)	
Accounts payable	  	 	145,331	 	

	

	

	
Total adjustments	  	 	339,927	 	

	

	

	
Net cash provided by operating activities	  	 	696,282	 	

	

	

	
Cash flows from investing activities:	  	 	 	 	
Investment in real estate	  	 	(25,779,337	)	

	

	

	
Cash flows from financing activities:	  	 	 	 	
Contributions from joint venture partners	  	 	25,780,110	 	
Distributions to joint venture partners	  	 	(236,675	)	

	

	

	
Net cash provided by financing activities	  	 	25,543,435	 	

	

	

	
Net increase in cash and cash equivalents	  	 	460,380	 	
Cash and cash equivalents, beginning of period	  	 	0	 	

	

	

	
Cash and cash equivalents, end of year	  	$	460,380	 	

	

	

	
Supplemental disclosure of noncash activities:	  	 	 	 	
Deferred project costs contributed to Joint Venture	  	$	996,035	 	

	

	

	
 
6.    INCOME TAX BASIS NET INCOME AND PARTNERS’ CAPITAL
 
The Operating Partnership’s income tax basis net income for the years ended December 31, 2001 and 2000 are calculated as follows:
 
 	  	2001

	 	 	2000

	 	
Financial statement net income	  	$	21,723,967	 	 	$	8,552,967	 	
Increase (decrease) in net income resulting from:	  	 	 	 	 	 	 	 	
Depreciation expense for financial reporting purposes in excess of amounts for income tax purposes	  	 	7,347,459	 	 	 	3,511,353	 	
Rental income accrued for financial reporting purposes in excess of amounts for income tax purposes	  	 	(2,735,237	)	 	 	(1,822,220	)	
Expenses deductible when paid for income tax purposes, accrued for financial reporting purposes	  	 	25,658	 	 	 	37,675	 	

	

	

	 	

	

	

	
Income tax basis net income	  	$	26,361,847	 	 	$	10,279,775	 	

	

	

	 	

	

	

	

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The Operating Partnership’s income tax basis partners’ capital at December 31, 2001 and 2000 is computed as follows:
 
 	  	2001

	 	 	2000

	 	
Financial statement partners’ capital	  	$	710,285,758	 	 	$	265,341,612	 	
Increase (decrease) in partners’ capital resulting from:	  	 	 	 	 	 	 	 	
Depreciation expense for financial reporting purposes in excess of amounts for income tax purposes	  	 	11,891,061	 	 	 	4,543,602	 	
Capitalization of syndication costs for income tax purposes, which are accounted for as cost of capital for financial reporting purposes	  	 	12,896,312	 	 	 	12,896,312	 	
Accumulated rental income accrued for financial reporting purposes in excess of amounts for income tax purposes	  	 	(5,382,483	)	 	 	(2,647,246	)	
Accumulated expenses deductible when paid for income tax purposes, accrued for financial reporting purposes	  	 	114,873	 	 	 	89,215	 	
Dividends payable	  	 	1,059,026	 	 	 	1,025,010	 	
Other	  	 	(222,378	)	 	 	(222,378	)	

	

	

	 	

	

	

	
Income tax basis partners’ capital	  	$	730,642,169	 	 	$	281,026,127	 	

	

	

	 	

	

	

	
 
7.    RENTAL INCOME
 
The future minimum rental income due from the Operating Partnership’s direct investment in real estate or its respective ownership interest in the joint ventures under noncancelable operating leases at December 31, 2001 is as follows:
 
Year ended December 31:	  	 	 	
2002	  	$	69,364,229	
2003	  	 	70,380,691	
2004	  	 	71,184,787	
2005	  	 	70,715,556	
2006	  	 	71,008,821	
Thereafter	  	 	270,840,299	

	

	
 	  	$	623,494,383	

	

	
 
One tenant contributed 10% of rental income for the year ended December 31, 2001. In addition, one tenant will contribute 12% of future minimum rental income.
 
Future minimum rental income due from Fund VIII, IX, and REIT Joint Venture under noncancelable operating leases at December 31, 2001 is as follows:
 
Year ended December 31:	  	 	 	
2002	  	$	1,287,119	
2003	  	 	1,287,119	
2004	  	 	107,260	
2005	  	 	0	
2006	  	 	0	
Thereafter	  	 	0	

	

	
 	  	$	2,681,498	

	

	
 
One tenant contributed 100% of rental income for the year ended December 31, 2001. In addition, one tenant will contribute 100% of future minimum rental income.
 
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The future minimum rental income due from Fund IX, X, XI, and REIT Joint Venture under noncancelable operating leases at December 31, 2001 is as follows:
 
Year ended December 31:	  	 	 	
2002	  	$	3,648,769	
2003	  	 	3,617,432	
2004	  	 	3,498,472	
2005	  	 	2,482,815	
2006	  	 	2,383,190	
Thereafter	  	 	3,053,321	

	

	
 	  	$	18,683,999	

	

	
 
Four tenants contributed 26%, 23%, 13%, and 13% of rental income for the year ended December 31, 2001. In addition, four tenants will contribute 38%, 21%, 20%, and 17% of future minimum rental income.
 
The future minimum rental income due Wells/Orange County Associates under noncancelable operating leases at December 31, 2001 is as follows:
 
Year ended December 31:	  	 	 	
2002	  	$	834,888	
2003	  	 	695,740	

	

	
 	  	$	1,530,628	

	

	
 
One tenant contributed 100% of rental income for the year ended December 31, 2001 and will contribute 100% of future minimum rental income.
 
The future minimum rental income due Wells/Fremont Associates under noncancelable operating leases at December 31, 2001 is as follows:
 
Year ended December 31:	  	 	 	
2002	  	$	922,444	
2003	  	 	950,118	
2004	  	 	894,832	

	

	
 	  	$	2,767,394	

	

	
 
One tenant contributed 100% of rental income for the year ended December 31, 2001 and will contribute 100% of future minimum rental income.
 
The future minimum rental income due from Fund XI, XII, and REIT Joint Venture under noncancelable operating leases at December 31, 2001 is as follows:
 
Year ended December 31:	  	 	 	
2002	  	$	3,277,512	
2003	  	 	3,367,510	
2004	  	 	3,445,193	
2005	  	 	3,495,155	
2006	  	 	3,552,724	
Thereafter	  	 	2,616,855	

	

	
 	  	$	19,754,949	

	

	
 
Four tenants contributed approximately 30%, 28%, 24%, and 18% of rental income for the year ended December 31, 2001. In addition, four tenants will contribute approximately 30%, 27%, 25%, and 18% of future minimum rental income.
 
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Table of Contents
The future minimum rental income due from Fund XII and REIT Joint Venture under noncancelable operating leases at December 31, 2001 is as follows:
 
Year ended December 31:	  	 	 	
2002	  	$	5,352,097	
2003	  	 	5,399,451	
2004	  	 	5,483,564	
2005	  	 	5,515,926	
2006	  	 	5,548,289	
Thereafter	  	 	34,677,467	

	

	
 	  	$	61,976,794	

	

	
 
Three tenants contributed approximately 31%, 29%, and 27% of rental income for the year ended December 31, 2001. In addition, three tenants will contribute approximately 58%, 21%, and 18% of future minimum rental income.
 
The future minimum rental income due Fund XIII and REIT Joint Venture under noncancelable operating leases at December 31, 2001 is as follows:
 
Year ended December 31:	  	 	 	
2002	  	$	2,545,038	
2003	  	 	2,602,641	
2004	  	 	2,661,228	
2005	  	 	2,721,105	
2006	  	 	2,782,957	
Thereafter	  	 	13,915,835	

	

	
 	  	$	27,228,804	

	

	
 
One tenant contributed approximately 95% of rental income for the year ended December 31, 2001. In addition, two tenants will contribute approximately 51% and 49% of future minimum rental income.
 
8.    INVESTMENT IN BONDS AND OBLIGATION UNDER CAPITAL LEASE
 
On September 27, 2001, the Operating Partnership acquired a ground leasehold interest in the Ingram Micro Distribution Facility pursuant to a Bond Real Property Lease dated December 20, 1995 (the “Bond Lease”). The ground leasehold interest under the Bond Lease, along with the Bond and Bond Deed of Trust described below, were purchased from Ingram Micro, L.P. (“Ingram”) in a sale lease-back transaction for a purchase price of $21,050,000. The Bond Lease expires on December 31, 2026. At closing, the Operating Partnership also entered into a new lease with Ingram pursuant to which Ingram agreed to lease the entire Ingram Micro Distribution Facility for a lease term of 10 years with two successive 10-year renewal options.
 
In connection with the original development of the Ingram Micro Distribution Facility, the Industrial Development Board of the City of Milington, Tennessee (the “Industrial Development Board”) issued an Industrial Development Revenue Note dated December 20, 1995 in the principal amount of $22,000,000 (the “Bond”) to Lease Plan North America, Inc. (the “Original Bond Holder”). The proceeds from the issuance of the Bond were utilized to finance the construction of the Ingram Micro Distribution Facility. The Bond is secured by a Fee Construction Mortgage Deed of Trust Assignment of Rents and Leases also dated December 20, 1995 (the “Bond Deed of Trust”) executed by the Industrial Development Board for the benefit of the Original Bond Holder. Beginning in 2006, the holder of the Bond Lease has the option to purchase the land underlying the Ingram Micro Distribution Facility for $100.00 plus satisfaction of the indebtedness evidenced by the Bond which, as set forth below, was acquired and is currently held by the Operating Partnership.
 
On December 20, 2000, Ingram purchased the Bond and the Bond Deed of Trust from the Original Bond Holder. On September 27, 2001, along with purchasing the Ingram Micro Distribution Facility through its acquisition of the ground leasehold interest under the Bond Lease, the Operating Partnership also acquired the Bond and the Bond Deed of Trust from Ingram. Because the Operating Partnership is technically subject to the obligation to pay the $22,000,000 indebtedness evidenced by the Bond, the obligation to pay the Bond is carried on the Company’s books as a liability;
 
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however, since Operating Partnership is also the owner of the Bond, the Bond is also carried on the Company’s books as an asset.
 
9.    NOTES PAYABLE
 
As of December 31, 2001, the Operating Partnership’s notes payable included the following:

Note payable to Bank of America, interest at 5.9%, interest payable monthly, due July 30, 2003, collateralized by the Nissan property	  	$	468,844	
Note payable to SouthTrust Bank, interest at LIBOR plus 175 basis points, principal and interest payable monthly, due June 10, 2002; collateralized by the Operating Partnership’s interests in the Cinemark Building, the Dial Building, the ASML Building, the Motorola Tempe Building, the Avnet Building, the Matsushita Building, and the PwC Building	  	 	7,655,600	

	

	
Total	  	$	8,124,444	

	

	
 
The contractual maturities of the Operating Partnership’s notes payable are as follows as of December 31, 2001:

2002	  	$	7,655,600	
2003	  	 	468,844	

	

	
Total	  	$	8,124,444	

	

	
 
10.    COMMITMENTS AND CONTINGENCIES
 
Take Out Purchase and Escrow Agreement
 
An affiliate of the Advisor (“Wells Exchange”) has developed a program (the “Wells Section 1031 Program”) involving the acquisition by Wells Exchange of income-producing commercial properties and the formation of a series of single member limited liability companies for the purpose of facilitating the resale of co-tenancy interests in such real estate properties to be owned in co-tenancy arrangements with persons (“1031 Participants”) who are looking to invest the proceeds from a sale of real estate held for investment in another real estate investment for purposes of qualifying for like-kind exchange treatment under Section 1031 of the Code. Each of these properties will be financed by a combination of permanent first mortgage financing and interim loan financing obtained from institutional lenders.
 
Following the acquisition of each property, Wells Exchange will attempt to sell co-tenancy interests to 1031 Participants, the proceeds of which will be used to pay off the interim financing. In consideration for the payment of a take out fee to the Company, and following approval of the potential property acquisition by the Company’s board of directors, it is anticipated that Wells OP will enter into a take out purchase and escrow agreement or similar contract providing that, in the event that Wells Exchange is unable to sell all of the co-tenancy interest in that particular property to 1031 Participants, the Operating Partnership will purchase, at Wells Exchange’s cost, any co-tenancy interests remaining unsold at the end of the offering period.
 
As a part of the initial transaction in the Wells Section 1031 Program, and in consideration for the payment of a take out fee in the amount of $137,500 to the Company, Wells OP entered into a take out purchase and escrow agreement dated April 16, 2001 providing that, among other things, Wells OP is obligated to acquire, at Wells Exchange’s cost ($839,694 in cash plus $832,060 of assumed debt for each 7.63358% interest of co-tenancy interest unsold), any co-tenancy interest in the building known as the Ford Motor Credit Complex which remains unsold at the expiration of the offering of Wells Exchange, which has been extended to April 15, 2002, which is also the maturity date of the interim loan relating to such property. The Ford Motor Credit Complex consists of two connecting office buildings containing 167,438 rentable square feet located in Colorado Springs, Colorado, currently under a triple-net lease with Ford Motor Credit Company, a wholly owned subsidiary of Ford Motor Company.
 
The obligations of Wells OP under the take out purchase and escrow agreement are secured by reserving against a portion of Wells OP’s existing line of credit with Bank of America, N.A. (the “Interim Lender”). If, for any reason, Wells OP fails to acquire any of the co-tenancy interest in the Ford Motor Credit Complex which remains unsold as of
 
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April 15, 2002, or there is otherwise an uncured default under the interim loan or the line of credit documents, the Interim Lender is authorized to draw down Wells OP’s line of credit in the amount necessary to pay the outstanding balance of the interim loan in full, in which event the appropriate amount of co-tenancy interest in the Ford Motor Credit Complex would be deeded to Wells OP. Wells OP’s maximum economic exposure in the transaction is $21,900,000, in which event Wells OP would acquire the Ford Motor Credit Complex for $11,000,000 in cash plus assumption of the first mortgage financing in the amount of $10,900,000. If some, but not all, of the co-tenancy interests are sold, Wells OP’s exposure would be less, and it would own an interest in the property in co-tenancy with the 1031 Participants who had previously acquired co-tenancy interests in the Ford Motor Credit Complex from Wells Exchange.
 
Development of the Nissan Property
 
The Operating Partnership has entered into an agreement with an independent third-party general contractor for the purpose of designing and constructing a three-story office building containing 268,290 rentable square feet on the Nissan Property. The construction agreement provides that the Operating Partnership will pay the contractor a maximum of $25,326,017 for the design and construction of the building. Construction commenced on January 25, 2002 and is scheduled to be completed within 20 months.
 
General
 
Management, after consultation with legal counsel, is not aware of any significant litigation or claims against the Company, the Operating Partnership, or the Advisor. In the normal course of business, the Company, the Operating Partnership, or the Advisor may become subject to such litigation or claims.
 
11.    SHAREHOLDERS’ EQUITY
 
Common Stock Option Plan
 
The Wells Real Estate Investment Trust, Inc. Independent Director Stock Option Plan (“the Plan”) provides for grants of stock to be made to independent nonemployee directors of the Company. Options to purchase 2,500 shares of common stock at $12 per share are granted upon initially becoming an independent director of the Company. Of these shares, 20% are exercisable immediately on the date of grant. An additional 20% of these shares become exercisable on each anniversary following the date of grant for a period of four years. Effective on the date of each annual meeting of shareholders of the Company, beginning in 2000, each independent director will be granted an option to purchase 1,000 additional shares of common stock. These options vest at the rate of 500 shares per full year of service thereafter. All options granted under the Plan expire no later than the date immediately following the tenth anniversary of the date of grant and may expire sooner in the event of the disability or death of the optionee or if the optionee ceases to serve as a director.
 
The Company has adopted the disclosure provisions in Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation.” As permitted by the provisions of SFAS No. 123, the Company applies Accounting Principles Board Opinion No. 25 and the related interpretations in accounting for its stock option plans and, accordingly, does not recognize compensation cost.
 
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A summary of the Company’s stock option activity during 2001 and 2000 is as follows:
 
 	  	Number

	  	Exercise
Price

	
Outstanding at December 31, 1999	  	17,500	  	$	12	
Granted	  	7,000	  	 	12	

	  	 	 	
Outstanding at December 31, 2000	  	24,500	  	 	12	
Granted	  	7,000	  	 	12	

	  	 	 	
Outstanding at December 31, 2001	  	31,500	  	 	12	

	  	 	 	
 	 	 	
Outstanding options exercisable as of December 31, 2001	  	10,500	  	 	12	

	  	 	 	
 
For SFAS No. 123 purposes, the fair value of each stock option for 2001 and 2000 has been estimated as of the date of the grant using the minimum value method. The weighted average risk-free interest rates assumed for 2001 and 2000 were 5.05% and 6.45%, respectively. Dividend yields of 7.8% and 7.3% were assumed for 2001 and 2000, respectively. The expected life of an option was assumed to be six years and four years for 2001 and 2000, respectively. Based on these assumptions, the fair value of the options granted during 2001 and 2000 is $0.
 
Treasury Stock
 
During 1999, the Company’s board of directors authorized a dividend reinvestment program (the “DRP”), through which common shareholders may elect to reinvest an amount equal to the dividends declared on their common shares into additional shares of the Company’s common stock in lieu of receiving cash dividends. During 2000, the Company’s board of directors authorized a common stock repurchase plan subject to the amount reinvested in the Company’s common shares through the DRP, less shares already redeemed, and a limitation in the amount of 3% of the average common shares outstanding during the preceding year. During 2001 and 2000, the Company repurchased 413,743 and 141,297 of its own common shares at an aggregate cost of $4,137,427 and $1,412,969, respectively. These transactions were funded with cash on hand and did not exceed either of the foregoing limitations.
 
12.    QUARTERLY RESULTS (UNAUDITED)
 
Presented below is a summary of the unaudited quarterly financial information for the years ended December 31, 2001 and 2000:
 
 	  	2001 Quarters Ended

	
 	  	March 31

	  	June 30

	  	September 30

	  	December 31

	
Revenues	  	$	10,669,713	  	$	10,891,240	  	$	12,507,904	  	$	15,239,945	
Net income	  	 	3,275,345	  	 	5,038,898	  	 	6,109,137	  	 	7,300,587	
Basic and diluted earnings per share(a)	  	$	0.10	  	$	0.12	  	$	0.11	  	$	0.10	
Dividends per share(a)	  	 	0.19	  	 	0.19	  	 	0.19	  	 	0.19	

(a)	 	The totals of the four quarterly amounts for the year ended December 31, 2001 do not equal the totals for the year. This difference results from rounding differences between quarters.	
 
192

Table of Contents
 	  	2000 Quarters Ended

	
 	  	March 31

	  	June 30

	  	September 30

	  	December 31

	
Revenues	  	$	3,710,409	  	$	5,537,618	  	$	6,586,611	  	$	7,538,568	
Net income	  	 	1,691,288	  	 	1,521,021	  	 	2,525,228	  	 	2,815,430	
Basic and diluted earnings per share	  	$	0.11	  	$	0.08	  	$	0.11	  	$	0.10	
Dividends per share	  	 	0.18	  	 	0.18	  	 	0.18	  	 	0.19	
 
13.    SUBSEQUENT EVENT
 
On January 11, 2002, the Operating Partnership purchased a three-story office building on a 9.8-acre tract of land located in Sarasota County, Florida known as the Arthur Andersen Building, from an unaffiliated third party for $21,400,000. The Operating Partnership incurred additional related acquisition expenses, including attorneys’ fees, recording fees, structural report and environmental report fees, and other closing costs, of approximately $30,000.
 
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Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARY
 
SCHEDULE III—REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION December 31, 2001
(Unaudited)
 
 	  	Cost

	  	Accumulated
Depreciation

	
BALANCE AT DECEMBER 31, 1998	  	$	76,201,910	  	$	1,487,963	
1999 additions	  	 	103,916,288	  	 	4,243,688	

	

	  	

	

	
BALANCE AT DECEMBER 31, 1999	  	 	180,118,198	  	 	5,731,651	
2000 additions	  	 	293,450,036	  	 	11,232,378	

	

	  	

	

	
BALANCE AT DECEMBER 31, 2000	  	 	473,568,234	  	 	16,964,029	

	

	  	

	

	
2001 additions	  	 	294,740,403	  	 	20,821,037	

	

	  	

	

	
BALANCE AT DECEMBER 31, 2001	  	$	768,308,697	  	$	37,785,066	

	

	  	

	

	
 
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Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARY
(A Georgia Public Limited Partnership)
 
SCHEDULE III—REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 2001
(Unaudited)
 
 	 	Initial Cost

	 	 	 	Gross Amount at Which Carried at
December 31, 2001

	 	 	 	Date of
Construction

	 	Date
Acquired

	 	Life on
Which
Depreciation
is Computed
(dd)

	 	
Description

	 	Ownership
Percentage

	 	 	Encumbrances

	 	Land

	 	Buildings and
Improvements

	 	Costs of
Capitalized
Improvements

	 	Land

	 	Buildings and
Improvements

	 	Construction
in Progress

	 	Total

	 	Accumulated
Depreciation

	 	 	 	 	 	 	 	
ALSTOM	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
      POWER—
      KNOXVILLE       PROPERTY(a)	 	4	%	 	None	 	$	582,897	 	$	744,164	 	$	6,744,547	 	$	607,930	 	$	7,463,678	 	$	0	 	$	8,071,608	 	$	1,844,482	 	1997	 	12/10/96	 	20 to 25 years	 	
AVAYA BUILDING	 	4	 	 	None	 	 	1,002,723	 	 	4,386,374	 	 	242,241	 	 	1,051,138	 	 	4,580,200	 	 	0	 	 	5,631,338	 	 	656,495	 	1998	 	6/24/98	 	20 to 25 years	 	
360
INTERLOCKEN (c)	 	4	 	 	None	 	 	1,570,000	 	 	6,733,500	 	 	437,266	 	 	1,650,070	 	 	7,090,696	 	 	0	 	 	8,740,766	 	 	1,098,339	 	1996	 	3/20/98	 	20 to 25 years	 	
IOMEGA
PROPERT(d)	 	4	 	 	None	 	 	597,000	 	 	4,674,624	 	 	876,459	 	 	641,988	 	 	5,506,095	 	 	0	 	 	6,148,083	 	 	742,404	 	1998	 	7/01/98	 	20 to 25 years	 	
OHMEDA PROPERTY(e)	 	4	 	 	None	 	 	2,613,600	 	 	7,762,481	 	 	528,415	 	 	2,746,894	 	 	8,157,602	 	 	0	 	 	10,904,496	 	 	1,278,024	 	1998	 	2/13/98	 	20 to 25 years	 	
FAIRCHILD PROPERTY(f)	 	78	 	 	None	 	 	2,130,480	 	 	6,852,630	 	 	374,300	 	 	2,219,251	 	 	7,138,159	 	 	0	 	 	9,357,410	 	 	999,301	 	1998	 	7/21/98	 	20 to 25 years	 	
ORANGE COUNTY PROPERTY(g)	 	44	 	 	None	 	 	2,100,000	 	 	4,463,700	 	 	287,916	 	 	2,187,501	 	 	4,664,115	 	 	0	 	 	6,851,616	 	 	651,780	 	1988	 	7/31/98	 	20 to 25 years	 	
PRICEWATER- HOUSECOOPERS PROPERTY(h)	 	100	 	 	None	 	 	1,460,000	 	 	19,839,071	 	 	825,560	 	 	1,520,834	 	 	20,603,797	 	 	0	 	 	22,124,631	 	 	2,469,792	 	1998	 	12/31/98	 	20 to 25 years	 	
EYBL CARTEX PROPERTY(i)	 	57	 	 	None	 	 	330,000	 	 	4,791,828	 	 	213,411	 	 	343,750	 	 	4,991,489	 	 	0	 	 	5,335,239	 	 	532,416	 	1998	 	5/18/99	 	20 to 25 years	 	
SPRINT BUILDING (j)	 	57	 	 	None	 	 	1,696,000	 	 	7,850,726	 	 	397,783	 	 	1,766,667	 	 	8,177,842	 	 	0	 	 	9,944,509	 	 	817,785	 	1998	 	7/2/99	 	20 to 25 years	 	
JOHNSON MATTHEY(k)	 	57	 	 	None	 	 	1,925,000	 	 	6,131,392	 	 	335,685	 	 	2,005,209	 	 	6,386,868	 	 	0	 	 	8,392,077	 	 	617,438	 	1973	 	8/17/99	 	20 to 25 years	 	
GARTNER PROPERTY(l)	 	57	 	 	None	 	 	895,844	 	 	7,451,760	 	 	347,820	 	 	933,171	 	 	7,762,253	 	 	0	 	 	8,695,424	 	 	724,477	 	1998	 	9/20/99	 	20 to 25 years	 	
AT&T—PA PROPERTY(m)	 	100	 	 	None	 	 	662,000	 	 	11,836,368	 	 	265,740	 	 	689,583	 	 	12,074,525	 	 	0	 	 	12,764,108	 	 	1,408,686	 	1998	 	2/4/99	 	20 to 25 years	 	
MARCONI PROPERTY(n)	 	100	 	 	None	 	 	5,000,000	 	 	28,161,665	 	 	1,381,747	 	 	5,208,335	 	 	29,335,077	 	 	0	 	 	34,543,412	 	 	2,737,941	 	1991	 	9/10/99	 	20 to 25 years	 	
CINEMARK PROPERTY(o)	 	100	 	 	None	 	 	1,456,000	 	 	20,376,881	 	 	908,217	 	 	1,516,667	 	 	21,224,431	 	 	0	 	 	22,741,098	 	 	1,768,692	 	1999	 	12/21/99	 	20 to 25 years	 	
 
195

Table of Contents
 	 	Initial Cost

	 	 	 	Gross Amount at Which Carried at
December 31, 2001

	 	 	 	Date of
Construction

	 	Date
Acquired

	 	Life on
Which
Depreciation
is Computed
(dd)

	 	
Description

	 	Ownership
Percentage

	 	Encumbrances

	 	Land

	 	Buildings and
Improvements

	 	Costs of
Capitalized
Improvements

	 	Land

	 	Buildings and
Improvements

	 	Construction
in Progress

	 	Total

	 	Accumulated
Depreciation

	 	 	 	 	 	 	 	
MATSUSHITA PROPERTY (p)	 	100	 	 	None	 	4,577,485	 	0	 	13,860,142	 	4,768,215	 	13,773,660	 	0	 	18,541,875	 	2,032,803	 	1999	 	3/15/99	 	20 to
25
years	 	
ALSTOM POWER— RICHMOND PROPERTY (q)	 	100	 	 	None	 	948,401	 	0	 	9,938,308	 	987,918	 	9,923,454	 	0	 	10,911,372	 	921,980	 	1999	 	7/22/99	 	20 to
25
years	 	
METRIS—OK PROPERTY (r)	 	100	 	 	None	 	1,150,000	 	11,569,583	 	541,489	 	1,197,917	 	12,063,155	 	0	 	13,261,072	 	881,413	 	2000	 	2/11/00	 	20 to
25
years	 	
DIAL PROPERTY (s)	 	100	 	 	None	 	3,500,000	 	10,785,309	 	601,264	 	3,645,835	 	11,240,738	 	83,125	 	14,969,698	 	821,315	 	1997	 	3/29/00	 	20 to
25
years	 	
ASML PROPERTY (t)	 	100	 	 	None	 	0	 	17,392,633	 	731,685	 	0	 	18,124,318	 	0	 	18,124,318	 	1,314,573	 	1995	 	3/29/00	 	20 to
25
years	 	
MOTOROLA—AZ PROPERTY (u)	 	100	 	 	None	 	0	 	16,036,219	 	669,639	 	0	 	16,705,858	 	0	 	16,705,858	 	1,218,400	 	1998	 	3/29/00	 	20 to
25
years	 	
AVNET PROPERTY (v)	 	100	 	 	None	 	0	 	13,271,502	 	551,156	 	0	 	13,822,658	 	0	 	13,822,658	 	868,060	 	2000	 	6/12/00	 	20 to
25
years	 	
DELPHI
PROPERTY (w)	 	100	 	 	None	 	2,160,000	 	16,775,971	 	1,676,956	 	2,250,008	 	18,469,408	 	14,877	 	20,734,293	 	1,286,705	 	2000	 	6/29/00	 	20 to
25
years	 	
SIEMENS PROPERTY (x)	 	47	 	 	None	 	2,143,588	 	12,048,902	 	591,358	 	2,232,905	 	12,550,943	 	43,757	 	14,827,605	 	959,465	 	2000	 	5/10/00	 	20 to
25
years	 	
QUEST PROPERTY (y)	 	16	 	 	None	 	2,220,993	 	5,545,498	 	51,285	 	2,220,993	 	5,602,160	 	0	 	7,823,153	 	649,436	 	1997	 	9/10/97	 	20 to
25
years	 	
MOTOROLA—NJ PROPERTY (z)	 	100	 	 	None	 	9,652,500	 	20,495,243	 	0	 	10,054,720	 	25,540,919	 	392,104	 	35,987,743	 	1,541,768	 	2000	 	11/1/00	 	20 to
25
years	 	
METRIS—MN PROPERTY (aa)	 	100	 	 	None	 	7,700,000	 	45,151,969	 	2,181	 	8,020,859	 	47,042,309	 	0	 	55,063,168	 	2,000,737	 	2000	 	12/21/00	 	20 to
25
years	 	
STONE & WEBSTER PROPERTY (bb)	 	100	 	 	None	 	7,100,000	 	37,914,954	 	0	 	7,395,857	 	39,498,469	 	0	 	46,894,326	 	1,679,981	 	1994	 	12/21/00	 	20 to
25
years	 	
AT&T—OK PROPERTY (cc)	 	47	 	 	None	 	2,100,000	 	13,227,555	 	638,651	 	2,187,500	 	13,785,631	 	0	 	15,973,131	 	597,317	 	1999	 	12/28/00	 	20 to
25
years	 	
COMDATA PROPERTY	 	64	 	 	None	 	4,300,000	 	20,650,000	 	572,944	 	4,479,168	 	21,566,287	 	0	 	26,045,455	 	575,056	 	1986	 	5/15/2001	 	20 to
25
years	 	
AMERICREDIT PROPERTY	 	87	 	 	None	 	1,610,000	 	10,890,000	 	563,257	 	1,677,084	 	11,386,174	 	0	 	13,063,258	 	227,724	 	2001	 	7/16/2001	 	20 to
25
years	 	
STATE STREET PROPERTY	 	100	 	 	None	 	10,600,000	 	38,962,988	 	4,344,837	 	11,041,670	 	40,666,305	 	2,201,913	 	53,909,888	 	807,903	 	1998	 	7/30/2001	 	20 to
25
years	 	
IKON PROPERTY	 	100	 	 	None	 	2,735,000	 	17,915,000	 	985,856	 	2,847,300	 	18,792,672	 	0	 	21,639,972	 	250,689	 	2000	 	9/7/2001	 	20 to
25
years	 	
NISSAN PROPERTY	 	100	 	$	8,124,444	 	5,545,700	 	0	 	21,353	 	5,567,053	 	0	 	2,653,777	 	8,220,830	 	0	 	2002	 	9/19/2001	 	20 to
25
years	 	
INGRAM MICRO PROPERTY	 	100	 	$	22,000,000	 	333,049	 	20,666,951	 	922,657	 	333,049	 	21,590,010	 	0	 	21,923,059	 	292,307	 	1997	 	9/27/2001	 	20 to
25
years	 	
LUCENT PROPERTY	 	100	 	 	None	 	7,000,000	 	10,650,000	 	1,106,240	 	7,275,830	 	11,484,562	 	0	 	18,760,392	 	153,093	 	2000	 	9/28/2001	 	20 to
25
years	 	
 
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Table of Contents
 	  	Initial Cost

	  	 	  	Gross Amount at Which Carried at
December 31, 2001

	  	 	  	Date of
Construction

	  	Date
Acquired

	  	Life on
Which
Depreciation
is Computed
(dd)

	 	
Description

	  	Ownership
Percentage

	  	Encumbrances

	  	Land

	  	Buildings and
Improvements

	  	Costs of
Capitalized
Improvements

	  	Land

	  	Buildings and
Improvements

	  	Construction
in Progress

	  	Total

	  	Accumulated
Depreciation

	  	 	  	 	  	 	 	
CONVERGYS PROPERTY	  	100	  	 	None	  	 	3,500,000	  	 	9,755,000	  	 	791,672	  	 	3,642,442	  	 	10,404,230	  	 	0	  	 	14,046,672	  	 	34,681	  	2001	  	12/21/2001	  	20 to 25 years	 	
ADIC PROPERTY	  	51	  	 	None	  	 	1,954,213	  	 	11,000,000	  	 	757,902	  	 	2,047,735	  	 	11,664,380	  	 	0	  	 	13,712,115	  	 	38,881	  	2001	  	12/21/2001	  	20 to 25 years	 	
WINDY POINT I PROPERTY	  	100	  	 	None	  	 	4,360,000	  	 	29,298,642	  	 	1,440,568	  	 	4,536,862	  	 	30,562,349	  	 	0	  	 	35,099,211	  	 	101,875	  	1999	  	12/31/2001	  	20 to 25 years	 	
WINDY POINT II PROPERTY	  	100	  	 	None	  	 	3,600,000	  	 	52,016,358	  	 	2,385,402	  	 	3,746,033	  	 	54,255,727	  	 	0	  	 	58,001,760	  	 	180,852	  	2001	  	12/31/2001	  	20 to 25 years	 	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	 	  	 	  	 	 	
        Total	  	 	  	$	30,124,444	  	$	112,812,473	  	$	584,077,441	  	$	57,913,909	  	$	117,245,941	  	$	645,673,203	  	$	5,389,553	  	$	768,308,697	  	$	37,785,066	  	 	  	 	  	 	 	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	 	  	 	  	 	 	

  (a)	 	The Alstom Power Knoxville Property consists of a three-story office building located in Knoxville, Tennessee. It is owned by Fund IX-X-XI-REIT Joint Venture.	
  (b)	 	The Avaya Building consists of a one-story office building located in Oklahoma City, Oklahoma. It is owned by Fund IX-X-XI-REIT Joint Venture.	
  (c)	 	The 360 Interlocken Property consists of a three-story multi-tenant office building located in Broomfield, Colorado. It is owned by Fund IX-X-XI-REIT Joint Venture.	
  (d)	 	The Iomega Property consists of a one-story warehouse and office building located in Ogden, Utah. It is owned by Fund IX-X-XI-REIT Joint Venture.	
  (e)	 	The Ohmeda Property consists of a two-story office building located in Louisville, Colorado. It is owned by Fund IX-X-XI-REIT Joint Venture.	
  (f)	 	The Fairchild Property consists of a two-story warehouse and office building located in Fremont, California. It is owned by Wells/Freemont Associates.	
  (g)	 	The Orange County Property consists of a one-story warehouse and office building located in Fountain Valley, California. It is owned by Wells/Orange County Associates.	
  (h)	 	The PriceWaterhouseCoopers Property consists of a four-story office building located in Tampa, Florida. It is 100% owned by the Company.	
  (i)	 	The EYBL CarTex Property consists of a one-story manufacturing and office building located in Fountain Inn, South Carolina. It is owned by Fund XI-XII-REIT Joint Venture.	
  (j)	 	The Sprint Building consists of a three-story office building located in Leawood, Kansas. It is owned by Fund XI-XII-REIT Joint Venture.	
  (k)	 	The Johnson Matthey Property consists of a one-story research and development office and warehouse building located in Chester County, Pennsylvania. It is owned by Fund XI-XII-REIT Joint Venture.	
  (l)	 	The Gartner Property consists of a two-story office building located in Ft. Myers, Florida. It is owned by Fund XI-XII-REIT Joint Venture	
  (m)	 	The AT&T––PA Property consists of a four-story office building located in Harrisburg, Pennsylvania. It is 100% owned by the Company.	
  (n)	 	The Marconi Property consists of a two-story office building located in Wood Dale, Illinois. It is 100% owned by the Company.	
  (o)	 	The Cinemark Property consists of a five-story office building located in Plano, Texas. It is 100% owned by the Company.	
  (p)	 	The Matsushita Property consists of a two-story office building located in Lake Forest, California. It is 100% owned by the Company.	
  (q)	 	The Alstom Property consists of a four-story office building located in Midlothian, Chesterfield County, Virginia. It is 100% owned by the Company.	
  (r)	 	The Metris––OK Property consists of a three-story office building located in Tulsa, Oklahoma. It is 100% owned by the Company.	
  (s)	 	The Dial Property consists of a two-story office building located in Scottsdale, Arizona. It is 100% owned by the Company.	
  (t)	 	The ASML Property consists of a two-story office building located in Tempe, Arizona. It is 100% owned by the Company.	
  (u)	 	The Motorola––AZ Property consists of a two-story office building located in Tempe, Arizona. It is 100% owned by the Company.	
  (v)	 	The Avnet Property consists of a two-story office building located in Tempe, Arizona. It is 100% owned by the Company.	
  (w)	 	The Delphi Property consists of a three-story office building located in Troy, Michigan. It is 100% owned by the Company.	
  (x)	 	The Siemens Property consists of a three-story office building located in Troy, Michigan. It is owned by Fund XII-REIT Joint Venture.	
  (y)	 	The Quest Property consists of a two-story office building located in Orange County, California. It is owned by Fund VIII-IX-REIT Joint Venture.	
  (z)	 	The Motorola––NJ Property consists of a three-story office building located in South Plainfield, New Jersey. It is 100% owned by the Company.	
(aa)	 	The Metris––MN Property consists of a nine-story office building located in Minnetonka, Minnesota. It is 100% owned by the Company.	
(bb)	 	The Stone & Webster Property consists of a six-story office building located in Houston, Texas. It is 100% owned by the Company.	
(cc)	 	The AT&T––OK Property consists of a two-story office building located in Oklahoma City, Oklahoma. It is owned by the Fund XII-REIT Joint Venture.	
(dd)	 	Depreciation lives used for buildings are 25 years. Depreciation lives used for land improvements are 20 years.	
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARY
 
CONSOLIDATED BALANCE SHEETS
 
 	  	March 31,
2002

	  	December 31,
2001

	
 	  	(Unaudited)	  	 	
ASSETS	  	 	 	  	 	 	
REAL ESTATE ASSETS, at cost:	  	 	 	  	 	 	
Land	  	$	94,273,542	  	$	86,246,985	
Building and improvements, less accumulated depreciation of $30,558,906 in 2002 and $24,814,454 in 2001	  	 	563,639,005	  	 	472,383,102	
Construction in progress	  	 	8,827,823	  	 	5,738,573	

	

	  	

	

	
Total real estate assets	  	 	666,740,370	  	 	564,368,660	
INVESTMENT IN JOINT VENTURES	  	 	76,811,543	  	 	77,409,980	
CASH AND CASH EQUIVALENTS	  	 	187,022,573	  	 	75,586,168	
INVESTMENT IN BONDS	  	 	22,000,000	  	 	22,000,000	
ACCOUNTS RECEIVABLE	  	 	7,697,487	  	 	6,003,179	
DEFERRED PROJECT COSTS	  	 	7,739,896	  	 	2,977,110	
DEFERRED LEASE ACQUISITION COSTS, net	  	 	1,868,674	  	 	1,525,199	
DUE FROM AFFILIATES	  	 	1,820,241	  	 	1,692,727	
PREPAID EXPENSES AND OTHER ASSETS, net	  	 	1,584,942	  	 	718,389	
DEFERRED OFFERING COSTS	  	 	244,761	  	 	0	

	

	  	

	

	
Total assets	  	$	973,530,487	  	$	752,281,412	

	

	  	

	

	
 
LIABILITIES AND SHAREHOLDERS’ EQUITY	  	 	 	 	 	 	 	 	
LIABILITIES:	  	 	 	 	 	 	 	 	
Notes payable	  	$	11,071,586	 	 	$	8,124,444	 	
Obligation under capital lease	  	 	22,000,000	 	 	 	22,000,000	 	
Accounts payable and accrued expenses	  	 	8,570,735	 	 	 	8,727,473	 	
Dividends payable	  	 	3,657,498	 	 	 	1,059,026	 	
Due to affiliates	  	 	990,923	 	 	 	2,166,161	 	
Deferred rental income	  	 	1,567,241	 	 	 	661,657	 	

	

	

	 	

	

	

	
Total liabilities	  	 	47,857,983	 	 	 	42,738,761	 	

	

	

	 	

	

	

	
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP	  	 	200,000	 	 	 	200,000	 	

	

	

	 	

	

	

	
SHAREHOLDERS’ EQUITY:	  	 	 	 	 	 	 	 	
Common shares, $.01 par value; 125,000,000 shares authorized, 109,331,764 shares issued and 108,472,526 shares outstanding at March 31, 2002, and 83,761,469 shares issued and 83,206,429 shares outstanding at December 31, 2001	  	 	1,093,317	 	 	 	837,614	 	
Additional paid-in capital	  	 	966,577,500	 	 	 	738,236,525	 	
Cumulative distributions in excess of earnings	  	 	(33,555,824	)	 	 	(24,181,092	)	
Treasury stock, at cost, 859,238 shares at March 31, 2002 and 555,040 shares at December 31, 2001	  	 	(8,592,377	)	 	 	(5,550,396	)	
Other comprehensive loss	  	 	(50,112	)	 	 	0	 	

	

	

	 	

	

	

	
Total shareholders’ equity	  	 	925,472,504	 	 	 	709,342,651	 	

	

	

	 	

	

	

	
Total liabilities and shareholders’ equity	  	$	973,530,487	 	 	$	752,281,412	 	

	

	

	 	

	

	

	
 
The accompanying condensed notes are an integral part of these consolidated financial statements.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 	  	Three Months Ended

	
 	  	March 31,
2002

	  	March 31,
2001

	
REVENUES:	  	 	 	  	 	 	
Rental income	  	$	16,738,163	  	$	9,860,085	
Equity in income of joint ventures	  	 	1,206,823	  	 	709,713	
Interest income	  	 	1,113,715	  	 	99,915	
Take out fee	  	 	134,102	  	 	0	

	

	  	

	

	
 	  	 	19,192,803	  	 	10,669,713	

	

	  	

	

	
EXPENSES:	  	 	 	  	 	 	
Depreciation	  	 	5,744,452	  	 	3,187,179	
Management and leasing fees	  	 	899,495	  	 	565,714	
Operating costs, net of reimbursements	  	 	624,698	  	 	1,091,185	
General and administrative	  	 	529,031	  	 	175,107	
Interest expense	  	 	440,001	  	 	2,160,426	
Amortization of deferred financing costs	  	 	175,462	  	 	214,757	

	

	  	

	

	
 	  	 	8,413,139	  	 	7,394,368	

	

	  	

	

	
NET INCOME	  	$	10,779,664	  	$	3,275,345	

	

	  	

	

	
 	 	 	
EARNINGS PER SHARE	  	 	 	  	 	 	
Basic and diluted	  	$	0.11	  	$	0.10	

	

	  	

	

	

The accompanying condensed notes are an integral part of these consolidated financial statements.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the year ended December 31, 2001
and for the three months ended March 31, 2002
 
 	  	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	  	25,570,295	  	 	255,703	  	 	255,447,240	 	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	  	 	0	 	  	 	255,702,943	 	
Treasury stock purchased	  	0	  	 	0	  	 	0	 	 	 	0	 	 	 	0	 	 	(304,198	)	 	 	(3,041,981	)	  	 	0	 	  	 	(3,041,981	)	
Net income	  	0	  	 	0	  	 	0	 	 	 	0	 	 	 	10,779,664	 	 	0	 	 	 	0	 	  	 	0	 	  	 	10,779,664	 	
Dividends ($.19 per share)	  	0	  	 	0	  	 	0	 	 	 	(9,374,732	)	 	 	(10,779,664	)	 	0	 	 	 	0	 	  	 	0	 	  	 	(20,154,396	)	
Sales commissions and discounts	  	0	  	 	0	  	 	(24,579,655	)	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	  	 	0	 	  	 	(24,579,655	)	
Other offering expenses	  	0	  	 	0	  	 	(2,526,610	)	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	  	 	0	 	  	 	(2,526,610	)	
Gain/(loss) on interest rate swap	  	0	  	 	0	  	 	0	 	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	  	 	(50,112	)	  	 	(50,112	)	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	  	

	

	

	  	

	

	

	
BALANCE, March 31, 2002 (UNAUDITED)	  	109,331,764	  	$	1,093,317	  	$	966,577,500	 	 	$	(33,555,824	)	 	$	0	 	 	(859,238	)	 	$	(8,592,377	)	  	$	(50,112	)	  	$	925,472,504	 	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	  	

	

	

	  	

	

	

	
 
The accompanying condensed notes are an integral part of these consolidated financial statements.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 	  	Three Months Ended

	 	
 	  	March 31,
2002

	 	 	March 31,
2001

	 	
CASH FLOWS FROM OPERATING ACTIVITIES:	  	 	 	 	 	 	 	 	
Net income	  	$	10,779,664	 	 	$	3,275,345	 	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	
Equity in income of joint ventures	  	 	(1,206,823	)	 	 	(709,713	)	
Depreciation	  	 	5,744,452	 	 	 	3,187,179	 	
Amortization of deferred financing costs	  	 	175,462	 	 	 	214,757	 	
Amortization of deferred leasing costs	  	 	72,749	 	 	 	75,837	 	
Deferred lease acquisition costs paid	  	 	(400,000	)	 	 	0	 	
Changes in assets and liabilities:	  	 	 	 	 	 	 	 	
Accounts receivable	  	 	(1,694,308	)	 	 	(264,416	)	
Due from affiliates	  	 	(13,740	)	 	 	0	 	
Deferred rental income	  	 	905,584	 	 	 	(142,888	)	
Prepaid expenses and other assets, net	  	 	(1,092,127	)	 	 	2,481,643	 	
Accounts payable and accrued expenses	  	 	(156,738	)	 	 	96,828	 	
Due to affiliates	  	 	(626	)	 	 	20,742	 	

	

	

	 	

	

	

	
Net cash provided by operating activities	  	 	13,113,549	 	 	 	8,235,314	 	

	

	

	 	

	

	

	
CASH FLOWS FROM INVESTING ACTIVITIES:	  	 	 	 	 	 	 	 	
Investments in real estate	  	 	(104,051,998	)	 	 	(2,703,858	)	
Investment in joint ventures	  	 	0	 	 	 	(5,749	)	
Deferred project costs paid	  	 	(9,461,180	)	 	 	(2,288,936	)	
Distributions received from joint ventures	  	 	1,691,486	 	 	 	734,286	 	

	

	

	 	

	

	

	
Net cash used in investing activities	  	 	(111,821,692	)	 	 	(4,264,257	)	

	

	

	 	

	

	

	
CASH FLOWS FROM FINANCING ACTIVITIES:	  	 	 	 	 	 	 	 	
Proceeds from notes payable	  	 	2,947,142	 	 	 	5,800,000	 	
Repayment of notes payable	  	 	0	 	 	 	(56,923,187	)	
Dividends paid to shareholders	  	 	(17,555,924	)	 	 	(6,213,236	)	
Issuance of common stock	  	 	255,702,943	 	 	 	66,174,705	 	
Sales commissions paid	  	 	(24,579,655	)	 	 	(6,212,824	)	
Offering costs paid	  	 	(3,327,977	)	 	 	(1,961,945	)	
Treasury stock purchased	  	 	(3,041,981	)	 	 	(776,555	)	

	

	

	 	

	

	

	
Net cash (used in) provided by financing activities	  	 	210,144,548	 	 	 	(113,042	)	

	

	

	 	

	

	

	
NET INCREASE IN CASH AND CASH EQUIVALENTS	  	 	111,436,405	 	 	 	3,858,015	 	
CASH AND CASH EQUIVALENTS, beginning of year	  	 	75,586,168	 	 	 	4,298,301	 	

	

	

	 	

	

	

	
CASH AND CASH EQUIVALENTS, end of period	  	$	187,022,573	 	 	$	8,156,316	 	

	

	

	 	

	

	

	
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:	  	 	 	 	 	 	 	 	
Deferred project costs applied to real estate assets	  	$	4,080,388	 	 	$	1,430,111	 	

	

	

	 	

	

	

	
Deferred project costs due to affiliate	  	$	496,134	 	 	$	0	 	

	

	

	 	

	

	

	
Interest rate swap	  	$	(50,112	)	 	$	0	 	

	

	

	 	

	

	

	
Deferred offering costs due to affiliate	  	$	244,761	 	 	$	0	 	

	

	

	 	

	

	

	
Other offering costs due to affiliate	  	$	141,761	 	 	$	0	 	

	

	

	 	

	

	

	
Write-off of deferred offering costs due to affiliate	  	$	0	 	 	$	709,686	 	

	

	

	 	

	

	

	
 
The accompanying condensed notes are an integral part of these consolidated financial statements.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARY
 
CONDENSED NOTES TO FINANCIAL STATEMENTS
March 31, 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 March 31, 2002, the Company has received gross proceeds of approximately $785,906,526 from the sale of approximately 78,590,653 shares from its third public offering. Accordingly, as of March 31, 2002, the Company has received aggregate gross offering proceeds of approximately $1,093,317,638 from the sale of 109,331,764 shares of its common stock to 27,900 investors. After payment of $37,965,419 in acquisition and advisory fees and acquisition expenses, payment of $125,647,820 in selling commissions and organization and offering expenses, capital contributions to joint ventures and acquisitions expenditures by Wells OP of $735,821,825 for property acquisitions, and common stock redemptions of $8,592,377 pursuant to the Company’s share redemption program, the Company was holding net offering proceeds of $185,290,197 available for investment in properties, as of March 31, 2002.
 
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Table of Contents
(b) Properties
 
As of March 31, 2002, the Company owned interests in 44 properties listed in the table below through its ownership in Wells OP. As of March 31, 2002, all of these properties were 100% leased.
 
Property Name	  	Tenant	  	Property Location	  	%
Owned	 	 	Purchase
Price	 	 	Square
Feet	  	Annual
Rent	 	

	
Dana Detroit Building	  	Dana Corporation	  	Detroit, MI	  	100	%	 	$	23,650,000	 	 	112,480	  	$	2,330,600	 	

	
Dana Kalamazoo Building	  	Dana Corporation	  	Kalamazoo, MI	  	100	%	 	$	18,300,000	 	 	147,004	  	$	1,842,800	 	

	
Novartis Building	  	Novartis Opthalmics, Inc.	  	Atlanta, GA	  	100	%	 	$	15,000,000	 	 	100,087	  	$	1,426,240	 	

	
Transocean Houston Building	  	Transocean Deepwater Offshore Drilling,
Inc.	  	Houston, TX	  	100	%	 	$	22,000,000	 	 	103,260	  	$	2,110,035	 	
 	  	Newpark Resources, Inc.	  	 	  	 	 	 	 	 	 	 	52,731	  	$	1,153,227	 	

	
Andersen Building	  	Arthur Andersen LLP	  	Sarasota, FL	  	100	%	 	$	21,400,000	 	 	157,704	  	$	1,988,454	 	

	
Windy Point Buildings	  	TCI Great Lakes, Inc.
The Apollo Group, Inc.
Global Knowledge Network
Zurich American Insurance
Various other tenants	  	Schaumburg, IL	  	100	%	 	$	89,275,000	 	 	129,157
28,322
22,028
300,000
8,884	  	$
$
$
$
$	1,940,404
242,948
358,094
4,718,285
129,947	 

 

	
Convergys Building	  	Convergys Customer Management Group,
Inc.	  	Tamarac, FL	  	100	%	 	$	13,255,000	 	 	100,000	  	$	1,144,176	 	

	
ADIC Buildings	  	Advanced Digital Information Corporation	  	Parker, CO	  	68.2	%	 	$	12,954,213	 	 	148,200	  	$	1,124,868	 	

	
Lucent Building	  	Lucent Technologies, Inc.	  	Cary, NC	  	100	%	 	$	17,650,000	 	 	120,000	  	$	1,813,500	 	

	
Ingram Micro Building	  	Ingram Micro, L.P.	  	Millington, TN	  	100	%	 	$	21,050,000	 	 	701,819	  	$	2,035,275	 	

	
Nissan Property	  	Nissan Motor Acceptance Corporation	  	Irving, TX	  	100	%	 	$	5,545,700	(1)	 	268,290	  	$	4,225,860	(2)	

	
IKON Buildings	  	IKON Office Solutions, Inc.	  	Houston, TX	  	100	%	 	$	20,650,000	 	 	157,790	  	$	2,015,767	 	

	
State Street Building	  	SSB Realty, LLC	  	Quincy, MA	  	100	%	 	$	49,563,000	 	 	234,668	  	$	6,922,706	 	

	
AmeriCredit Building	  	AmeriCredit Financial Services
Corporation	  	Orange Park, FL	  	68.2	%	 	$	12,500,000	 	 	85,000	  	$	1,322,388	 	

	
Comdata Building	  	Comdata Network, Inc.	  	Nashville, TN	  	55.0	%	 	$	24,950,000	 	 	201,237	  	$	2,443,647	 	

	
AT&T Oklahoma Buildings	  	AT&T Corp.
Jordan Associates, Inc.	  	Oklahoma City, OK	  	55.0	%	 	$	15,300,000	 	 	103,500
25,000	  	$
$	1,242,000
294,504	 

	
Metris Minnesota Building	  	Metris Direct, Inc.	  	Minnetonka, MN	  	100	%	 	$	52,800,000	 	 	300,633	  	$	4,960,445	 	

	
Stone & Webster Building	  	Stone & Webster, Inc.
SYSCO Corporation	  	Houston, TX	  	100	%	 	$	44,970,000	 	 	206,048
106,516	  	$
$	4,533,056
2,130,320	 

	
Motorola Plainfield Building	  	Motorola, Inc.	  	South Plainfield, NJ	  	100	%	 	$	33,648,156	 	 	236,710	  	$	3,324,427	 	

	
Quest Building	  	Quest Software, Inc.	  	Irvine, CA	  	15.8	%	 	$	7,193,000	 	 	65,006	  	$	1,287,119	 	

	
Delphi Building	  	Delphi Automotive Systems, LLC	  	Troy, MI	  	100	%	 	$	19,800,000	 	 	107,193	  	$	1,937,664	 	

	
Avnet Building	  	Avnet, Inc.	  	Tempe, AZ	  	100	%	 	$	13,250,000	 	 	132,070	  	$	1,516,164	 	

	
Siemens Building	  	Siemens Automotive Corp.	  	Troy, MI	  	56.8	%	 	$	14,265,000	 	 	77,054	  	$	1,371,946	 	

	
Motorola Tempe Building	  	Motorola, Inc.	  	Tempe, AZ	  	100	%	 	$	16,000,000	 	 	133,225	  	$	1,913,999	 	

	
ASML Building	  	ASM Lithography, Inc.	  	Tempe, AZ	  	100	%	 	$	17,355,000	 	 	95,133	  	$	1,927,788	 	

	
Dial Building	  	Dial Corporation	  	Scottsdale, AZ	  	100	%	 	$	14,250,000	 	 	129,689	  	$	1,387,672	 	

	
Metris Tulsa Building	  	Metris Direct, Inc.	  	Tulsa, OK	  	100	%	 	$	12,700,000	 	 	101,100	  	$	1,187,925	 	

	
Cinemark Building	  	Cinemark USA, Inc.
The Coca-Cola Co.	  	Plano, TX	  	100	%	 	$	21,800,000	 	 	65,521
52,587	  	$
$	1,366,491
1,354,524	 

	
Gartner Building	  	The Gartner Group, Inc.	  	Ft. Myers, FL	  	56.8	%	 	$	8,320,000	 	 	62,400	  	$	830,968	 	

	
Videojet Technologies Chicago
(formerly known as the “Marconi Building”)	  	Videojet Technologies, Inc.	  	Wood Dale, IL	  	100	%	 	$	32,630,940	 	 	250,354	  	$	3,376,743	 	

	
Johnson Matthey Building	  	Johnson Matthey, Inc.	  	Tredyffrin Township, PA	  	56.8	%	 	$	8,000,000	 	 	130,000	  	$	841,750	 	

	
Alstom Power Richmond Building	  	Alstom Power, Inc.	  	Midlothian, VA	  	100	%	 	$	11,400,000	 	 	99,057	  	$	1,225,963	 	

	
Sprint Building	  	Sprint Communications Company, L.P.	  	Leawood, KS	  	56.8	%	 	$	9,500,000	 	 	68,900	  	$	1,062,949	 	

	
EYBL CarTex Building	  	EYBL CarTex, Inc.	  	Greenville, SC	  	56.8	%	 	$	5,085,000	 	 	169,510	  	$	543,845	 	

	
Matsushita Building	  	Matsushita Avionics Systems Corporation	  	Lake Forest, CA	  	100	%	 	$	18,431,206	 	 	144,906	  	$	1,995,704	 	

	
AT&T Pennsylvania Building	  	Pennsylvania Cellular Telephone Corp.	  	Harrisburg, PA	  	100	%	 	$	12,291,200	 	 	81,859	  	$	1,442,116	 	

	
PwC Building	  	PricewaterhouseCoopers, LLP	  	Tampa, FL	  	100	%	 	$	21,127,854	 	 	130,091	  	$	2,093,382	 	

	
Fairchild Building	  	Fairchild Technologies U.S.A., Inc.	  	Fremont, CA	  	77.5	%	 	$	8,900,000	 	 	58,424	  	$	922,444	 	

	
Cort Furniture Building	  	Cort Furniture Rental Corporation	  	Fountain Valley, CA	  	44.0	%	 	$	6,400,000	 	 	52,000	  	$	834,888	 	

	
Iomega Building	  	Iomega Corporation	  	Ogden City, UT	  	3.7	%	 	$	5,025,000	 	 	108,250	  	$	539,958	 	

	
Interlocken Building	  	ODS Technologies, L.P. and GAIAM,
Inc.	  	Broomfield, CO	  	3.7	%	 	$	8,275,000	 	 	51,975	  	$	1,031,003	 	

	
Ohmeda Building	  	Ohmeda, Inc.	  	Louisville, CO	  	3.7	%	 	$	10,325,000	 	 	106,750	  	$	1,004,517	 	

	
Alstom Power Knoxville Building	  	Alstom Power, Inc.	  	Knoxville, TN	  	3.7	%	 	$	7,900,000	 	 	84,404	  	$	1,106,519	 	

	
Avaya Building	  	Avaya, Inc.	  	Oklahoma City, OK	  	3.7	%	 	$	5,504,276	 	 	57,186	  	$	536,977	 	

	
 
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(1)	 	This represents the costs incurred by Wells OP to purchase the land. Total costs to be incurred for development of the Nissan Property are currently estimated to be $42,259,000.	
(2)	 	Annual rent 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.	  	The AmeriCredit Building
The ADIC Buildings	

	
Fund XII-REIT Joint Venture	  	Wells Operating Partnership, L.P.
Wells Real Estate Fund XII, L.P.	  	The Siemens Building
The AT&T Oklahoma Buildings
The Comdata Building	

	
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.	  	The EYBL CarTex Building
The Sprint Building
The Johnson Matthey Building
The Gartner Building	

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

	
Wells/Fremont Associates Joint Venture (the “Fremont Joint Venture”)	  	Wells Operating Partnership, L.P.
Fund X-XI Joint Venture	  	The Fairchild Building	

	
Wells/Orange County Associates Joint Venture (the “Orange County Joint Venture”)	  	Wells Operating Partnership, L.P.
Fund X-XI Joint Venture	  	The Cort Building	

	
Fund VIII-IX-REIT Joint Venture	  	Wells Operating Partnership, L.P.
Fund VIII-IX Joint Venture	  	Quest Building	

	
 
(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. 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 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.

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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
 
Wells Capital, Inc. (the “Advisor”) expects to continue to fund 100% of the acquisition and advisory fees and acquisition expenses and recognize related expenses, to the extent that such costs exceed 3.5% of cumulative capital raised (subject to certain overall limitations described in the prospectus), on behalf of the Company. The Company records acquisition and advisory fees and acquisition expenses 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, at an amount equal to 3.5% of each investment and depreciated over the useful lives of the respective real estate assets. Acquisition and advisory fees and acquisition expenses paid as of March 31, 2002, amounted to $37,965,419 and represented approximately 3.5% of shareholders’ 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 March 31, 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 March 31, 2002, the Advisor had paid offering expenses on behalf of the Company in an aggregate amount of $23,230,560, of which the Advisor had been reimbursed $22,021,962, 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 holders of the shares. Distributions will be made to those shareholders who are shareholders 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, shareholders are entitled to receive dividends immediately upon the purchase of shares.
 
Dividends to be distributed to the shareholders are determined by the Board of Directors and are dependent on a number of factors related to the Company, including funds available for payment of dividends, financial condition, 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.
 
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(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., perform a full range of real estate services including leasing and property management, accounting, asset management and investor relations for the Company.
 
(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.
 
(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.
 
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2.    INVESTMENT IN JOINT VENTURES
 
(a) Basis of Presentation
 
As of March 31, 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 March 31, 2002 and 2001, respectively. There were no additional investments in joint ventures made by the Company during the three months ended March 31, 2002.
 
 	  	Total Revenues

	  	Net Income

	  	Wells OP’s Share of Net
Income

	
 	  	Three Months Ended

	  	Three Months Ended

	  	Three Months Ended

	
 	  	March 31,
2002

	  	March 31,
2001

	  	March 31,
2002

	  	March 31,
2001

	  	March 31,
2002

	  	March 31,
2001

	
Fund IX-X-XI-REIT Joint Venture	  	$	1,379,059	  	$	1,449,856	  	$	554,268	  	$	638,435	  	$	20,572	  	$	23,696	
Cort Joint Venture	  	 	212,006	  	 	199,586	  	 	129,750	  	 	133,753	  	 	56,658	  	 	58,406	
Fremont Joint Venture	  	 	225,161	  	 	225,178	  	 	135,948	  	 	142,612	  	 	105,365	  	 	110,530	
Fund XI-XII-REIT Joint Venture	  	 	858,219	  	 	847,030	  	 	497,149	  	 	514,277	  	 	282,197	  	 	291,918	
Fund XII-REIT Joint Venture	  	 	1,670,863	  	 	947,943	  	 	805,513	  	 	445,321	  	 	442,726	  	 	208,634	
Fund VIII-IX-REIT Joint Venture	  	 	323,746	  	 	267,624	  	 	160,696	  	 	105,033	  	 	273,931	  	 	16,529	
Fund XIII-REIT Joint Venture	  	 	700,648	  	 	0	  	 	401,674	  	 	0	  	 	25,374	  	 	0	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	
 	  	$	5,369,702	  	$	3,937,217	  	$	2,684,998	  	$	1,979,431	  	$	1,206,823	  	$	709,713	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	
 
3.    INVESTMENTS IN REAL ESTATE
 
As of March 31, 2002, the Company, through its ownership in Wells OP, owns 27 properties directly. The following describes acquisitions made directly by Wells OP during the three months ended March 31, 2002.
 
The Andersen Building
 
On January 11, 2002, Wells OP purchased the Andersen Building, a three-story office building containing approximately 157,700 rentable square feet on a 9.8 acre tract of land located in Sarasota County, Florida for a purchase price of $21,400,000, excluding closing costs. The Andersen Building is leased to Arthur Andersen LLP (“Andersen”). The current term of the Andersen lease is 10 years, which commenced on November 11, 1998 and expires on October 31, 2009. Andersen has the right to extend the initial 10-year term of its lease for two additional five-year periods at 90% of the then-current market rental rate. The current annual base rent payable under the Andersen lease is $1,988,454. Andersen has the option to purchase the Andersen Building prior to the end of the fifth lease year for $23,250,000 and again at the expiration of the initial lease term for $25,148,000.
 
The Transocean Houston Building
 
On March 15, 2002, Wells OP purchased the Transocean Houston Building, a six story office building containing approximately 156,000 rentable square feet located in Houston, Harris County, Texas for a purchase price of
 
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$22,000,000, excluding closing costs. The Transocean Houston Building is 100% leased to Transocean Deepwater Offshore Drilling, Inc. (“Transocean”) and Newpark Drilling Fluids, Inc. (“Newpark”).
 
The Transocean lease is a triple net lease which covers approximately 103,260 square feet commencing in December 2001 and expiring in March 2011. The initial annual base rent payable under the Transocean lease is $2,110,035. Transocean has the option to extend the initial term of its lease for either (1) two additional five-year periods, or (2) one additional ten-year period, at the then-current market rental rate. In addition, Transocean has an expansion option and a right of first refusal for up to an additional 51,780 rentable square feet.
 
The Newpark lease covers approximately 52,731 rentable square feet and is a net lease that commenced in August 1999 and expires in August 2009. The current annual base rent payable under the Newpark lease is $1,153,227.
 
The Novartis Atlanta Building
 
On March 28, 2002, Wells OP purchased the Novartis Atlanta Building, a four-story office building containing approximately 100,000 rentable square feet located in Duluth, Fulton County, Georgia for a purchase price of $15,000,000, excluding closing costs. The Novartis Atlanta Building is 100% leased to Novartis Opthalmics, Inc. (“Novartis”). The Novartis lease is a net lease which commenced in August 2001 and expires in July 2011. Novartis Corporation, the parent of Novartis, has guaranteed the lease. The current annual base rent payable is $1,426,240. Novartis, at its option, may extend the initial term of its lease for three additional five-year periods at the then-current market rental rate. In addition, Novartis may terminate the lease at the end of the fifth lease year by paying a $1,500,000 termination fee.
 
The Dana Corporation Buildings
 
On March 29, 2002, Wells OP purchased all of the membership interests in Dana Farmington Hills, LLC and Dana Kalamazoo, LLC, which respectively owned a three-story office and research development building containing approximately 112,400 rentable square feet located in Farmington Hills, Oakland County, Michigan (the “Dana Detroit Building”) and a two-story office and industrial building containing approximately 147,000 rentable square feet located in Kalamazoo, Kalamazoo County, Michigan (the “Dana Kalamazoo Building”) for an aggregate purchase price of $41,950,000, excluding closing costs.
 
The Dana Detroit Building is 100% leased to the Dana Corporation (“Dana”) under a net lease that commenced in October 2001 and expires in October 2021. The current annual base rent payable under the Dana lease for Detroit is $2,330,600. Dana may, at its option, extend the initial term of its lease for six additional five-year periods at the then-current market rental rate. Additionally, Dana may terminate the lease after the eleventh year of its initial lease term subject to certain conditions.
 
The Dana Kalamazoo Building is also 100% leased to Dana. The Dana lease for Kalamazoo is a net lease which commenced in October 2001 and expires in October 2011. The current annual base rent payable is $1,842,800. Dana has the option to extend the initial term of the Dana lease in Kalamazoo for six additional five-year periods at the then-current market rental rate. Additionally, Dana may terminate the lease at any time after the sixth year of the initial lease term and before the end of the nineteenth lease year, subject to certain conditions.
 
4.    NOTES PAYABLE
 
Notes payable consists of (i) $7,655,600 of draws on a line of credit from SouthTrust Bank secured by a first mortgage against the Cinemark, ASML, Dial, PwC, Motorola Tempe and Avnet Buildings and (ii) $3,415,986 outstanding on the construction loan from Bank of America which is being used to fund the development of the Nissan Property.
 
5.    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 detail in the financial statements and footnotes included in the Company’s Form 10-K for the
 
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year ended December 31, 2001. Payments of $601,963 have been made as of March 31, 2002 toward funding the obligation under the Matsushita agreement.
 
6.    COMMITMENTS AND CONTINGENCIES
 
Take Out Purchase and Escrow Agreement
 
An affiliate of the Advisor (“Wells Exchange”) has developed a program (the “Wells Section 1031 Program”) involving the acquisition by Wells Exchange of income-producing commercial properties and the formation of a series of single member limited liability companies for the purpose of facilitating the resale of co-tenancy interests in such real estate properties to be owned in co-tenancy arrangements with persons (“1031 Participants”) who are looking to invest the proceeds from a sale of real estate held for investment in another real estate investment for purposes of qualifying for like-kind exchange treatment under Section 1031 of the Code. Each of these properties will be financed by a combination of permanent first mortgage financing and interim loan financing obtained from institutional lenders.
 
Following the acquisition of each property, Wells Exchange will attempt to sell co-tenancy interests to 1031 Participants, the proceeds of which will be used to pay off the interim financing. In consideration for the payment of a Take Out Fee to the Company, and following approval of the potential property acquisition by the Company’s Board of Directors, it is anticipated that Wells OP will enter into a 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, and in consideration for the payment of a take out fee in the amount of $137,500 to the Company, Wells OP entered into a take out purchase and escrow agreement dated April 16, 2001 providing, 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 on April 15, 2002. On April 12, 2002, Wells Exchange paid off the interim financing on the Ford Motor Credit Complex and, accordingly, Wells OP has been released from its prior obligations under the take out purchase and escrow agreement relating to such property.
 
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PRIOR PERFORMANCE TABLES
 
The following Prior Performance Tables (Tables) provide information relating to real estate investment programs sponsored by Wells Capital, Inc., our advisor, and its affiliates (Wells Public Programs) which have investment objectives similar to Wells Real Estate Investment Trust, Inc. (Wells REIT). (See “Investment Objectives and Criteria.”) Except for the Wells REIT, all of the Wells Public Programs have used capital, and no acquisition indebtedness, to acquire their properties.
 
Prospective investors should read these Tables carefully together with the summary information concerning the Wells Public Programs as set forth in the “Prior Performance Summary” section of this prospectus.
 
Investors in the Wells REIT will not own any interest in the other Wells Public Programs and should not assume that they will experience returns, if any, comparable to those experienced by investors in other Wells Public Programs.
 
The advisor is responsible for the acquisition, operation, maintenance and resale of the real estate properties. The financial results of the Wells Public Programs, thus, may provide some indication of the advisor’s performance of its obligations during the periods covered. However, general economic conditions affecting the real estate industry and other factors contribute significantly to financial results.
 
The following tables are included herein:
 
Table I—Experience in Raising and Investing Funds (As a Percentage of Investment)
 
Table II—Compensation to Sponsor (in Dollars)
 
Table III—Annual Operating Results of Wells Public Programs
 
Table IV (Results of completed programs) has been omitted since none of the Wells Public Programs have been liquidated.
 
Table V—Sales or Disposals of Property
 
Additional information relating to the acquisition of properties by the Wells Public Programs is contained in Table VI, which is included in Part II of the registration statement which the Wells REIT has filed with the Securities and Exchange Commission. Copies of any or all information will be provided to prospective investors at no charge upon request.
 
The following are definitions of certain terms used in the Tables:
 
“Acquisition Fees” shall mean fees and commissions paid by a Wells Public Program in connection with its purchase or development of a property, except development fees paid to a person not affiliated with the Wells Public Program or with a general partner or advisor of the Wells Public Program in connection with the actual development of a project after acquisition of the land by the Wells Public Program.
 
“Organization Expenses” shall include legal fees, accounting fees, securities filing fees, printing and reproduction expenses and fees paid to the sponsor in connection with the planning and formation of the Wells Public Program.
 
“Underwriting Fees” shall include selling commissions and wholesaling fees paid to broker-dealers for services provided by the broker-dealers during the offering.
 
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TABLE I
(UNAUDITED)
 
EXPERIENCE IN RAISING AND INVESTING FUNDS
 
This Table provides a summary of the experience of the sponsors of Wells Public Programs for which offerings have been completed since December 31, 1998. Information is provided with regard to the manner in which the proceeds of the offerings have been applied. Also set forth is information pertaining to the timing and length of these offerings and the time period over which the proceeds have been invested in the properties. All figures are as of December 31, 2001.
 
 	  	Wells Real
Estate Fund
XI, L.P.

	 	 	Wells Real
Estate Fund
XII, L.P.

	 	 	Wells Real
Estate
Investment
Trust, Inc.

	 	
Dollar Amount Raised	  	$	16,532,802	(3)	 	$	35,611,192	(4)	 	$	307,411,112	(5)	

	

	

	 	

	

	

	 	

	

	

	
Percentage Amount Raised	  	 	100	%(3)	 	 	100	%(4)	 	 	100	%(5)	
Less Offering Expenses	  	 	 	 	 	 	 	 	 	 	 	 	
Underwriting Fees	  	 	9.5	%	 	 	9.5	%	 	 	9.5	%	
Organizational Expenses	  	 	3.0	%	 	 	3.0	%	 	 	3.0	%	
Reserves(1)	  	 	0.0	%	 	 	0.0	%	 	 	0.0	%	

	

	

	 	

	

	

	 	

	

	

	
Percent Available for Investment	  	 	87.5	%	 	 	87.5	%	 	 	87.5	%	
Acquisition and Development Costs	  	 	 	 	 	 	 	 	 	 	 	 	
Prepaid Items and Fees related to Purchase of Property	  	 	0.0	%	 	 	0.0	 	 	 	0.5	%	
Cash Down Payment	  	 	84.0	%	 	 	84.0	%	 	 	73.8	%	
Acquisition Fees(2)	  	 	3.5	%	 	 	3.5	%	 	 	3.5	%	
Development and Construction Costs	  	 	0.0	%	 	 	0.0	%	 	 	9.7	%	
Reserve for Payment of Indebtedness	  	 	0.0	%	 	 	0.0	%	 	 	0.0	%	

	

	

	 	

	

	

	 	

	

	

	
Total Acquisition and Development Cost	  	 	87.5	%	 	 	87.5	%	 	 	87.5	%	
Percent Leveraged	  	 	0.0	%	 	 	0.0	%	 	 	30.9	%	

	

	

	 	

	

	

	 	

	

	

	
Date Offering Began	  	 	12/31/97	 	 	 	03/22/99	 	 	 	01/30/98	 	
Length of Offering	  	 	12 mo.	 	 	 	24 mo.	 	 	 	35 mo.	 	
Months to Invest 90% of Amount Available for Investment (Measured from Beginning of Offering)	  	 	20 mo.	 	 	 	26 mo.	 	 	 	21 mo.	 	
Number of Investors as of 12/31/01	  	 	1,338	 	 	 	1,337	 	 	 	7,422	 	

(1)	 	Does not include general partner contributions held as part of reserves.	
(2)	 	Includes acquisition fees, real estate commissions, general contractor fees and/or architectural fees paid to affiliates of the general partners.	
(3)	 	Total dollar amount registered and available to be offered was $35,000,000. Wells Real Estate Fund XI, L.P. closed its offering on December 30, 1998, and the total dollar amount raised was $16,532,802.	
(4)	 	Total dollar amount registered and available to be offered was $70,000,000. Wells Real Estate Fund XII, L.P. closed its offering on March 21, 2001, and the total dollar amount raised was $35,611,192.	
(5)	 	The total dollar amount registered and available to be offered in the first offering was $165,000,000. Wells Real Estate Investment Trust, Inc. closed its initial offering on December 19, 1999, and the total dollar amount raised in its initial offering was $132,181,919. The total dollar amount registered and available to be offered in the second offering was $222,000,000. Wells Real Estate Investment Trust, Inc. closed its second offering on December 19, 2000, and the total dollar amount raised in its second offering was $175,229,193.	
 
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TABLE II
(UNAUDITED)
 
COMPENSATION TO SPONSOR
 
The following sets forth the compensation received by Wells Capital, Inc., our advisor, and its affiliates, including compensation paid out of offering proceeds and compensation paid in connection with the ongoing operations of Wells Public Programs having similar or identical investment objectives the offerings of which have been completed since December 31, 1998. All figures are as of December 31, 2001.
 
 	  	Wells Real
Estate Fund
XI, L.P.

	  	Wells Real
Estate Fund
XII, L.P.

	  	Wells Real
Estate
Investment
Trust, Inc.(1)

	  	Other Public
Programs(2)

	
Date Offering Commenced	  	 	12/31/97	  	 	03/22/99	  	 	01/30/98	  	 	—  	
Dollar Amount Raised	  	$	16,532,802	  	$	35,611,192	  	$	307,411,112	  	$	268,370,007	
To Sponsor from Proceeds of Offering:	  	 	 	  	 	 	  	 	 	  	 	 	
Underwriting Fees(3)	  	$	151,911	  	$	362,416	  	$	3,076,844	  	$	1,494,470	
Acquisition Fees	  	 	 	  	 	 	  	 	 	  	 	 	
Real Estate Commissions	  	 	—  	  	 	—  	  	 	—  	  	 	—  	
Acquisition and Advisory Fees(4)	  	$	578,648	  	$	1,246,392	  	$	10,759,389	  	$	12,644,556	
Dollar Amount of Cash Generated from Operations Before Deducting Payments to Sponsor(5)	  	$	3,494,174	  	$	3,508,128	  	$	116,037,681	  	$	58,169,461	
Amount Paid to Sponsor from Operations:	  	 	 	  	 	 	  	 	 	  	 	 	
Property Management Fee(2)	  	$	90,731	  	$	113,238	  	$	1,899,140	  	$	2,257,424	
Partnership Management Fee	  	 	—  	  	 	—  	  	 	—  	  	 	—  	
Reimbursements	  	$	164,746	  	$	142,990	  	$	1,047,449	  	$	2,503,609	
Leasing	  	$	90,731	  	$	113,238	  	$	1,899,140	  	$	2,257,426	
Commissions General Partner Distributions	  	 	—  	  	 	—  	  	 	—  	  	 	—  	
Other	  	 	—  	  	 	—  	  	 	—  	  	 	—  	
Dollar Amount of Property Sales and Refinancing Payments to Sponsors:	  	 	 	  	 	 	  	 	 	  	 	 	
Cash	  	 	—  	  	 	—  	  	 	—  	  	 	—  	
Notes	  	 	—  	  	 	—  	  	 	—  	  	 	—  	
Amount Paid to Sponsor from Property Sales and Refinancing:	  	 	 	  	 	 	  	 	 	  	 	 	
Real Estate Commissions	  	 	—  	  	 	—  	  	 	—  	  	 	—  	
Incentive Fees	  	 	—  	  	 	—  	  	 	—  	  	 	—  	
Other	  	 	—  	  	 	—  	  	 	—  	  	 	—  	

(1)	 	The total dollar amount registered and available to be offered in the first offering was $165,000,000. Wells Real Estate Investment Trust, Inc. closed its initial offering on December 19, 1999, and the total dollar amount raised in its initial offering was $132,181,919. The total dollar amount registered and available to be offered in the second offering was $222,000,000. Wells Real Estate Investment Trust, Inc. closed its second offering on December 19, 2000, and the total dollar amount raised in its second offering was $175,229,193.	
(2)	 	Includes compensation paid to the general partners from Wells Real Estate Fund I, Wells Real Estate Fund II, Wells Real Estate Fund II-OW, Wells Real Estate Fund III, L.P., Wells Real Estate Fund IV, L.P., Wells Real Estate Fund V, L.P., Wells Real Estate Fund VI, L.P., Wells Real Estate Fund VII, L.P., Wells Real Estate Fund VIII, L.P., Wells Real Estate Fund IX, L.P. and Wells Real Estate Fund X, L.P. during the past three years. In addition to the amounts shown, affiliates of the general partners of Wells Real Estate Fund I are entitled to certain property management and leasing fees but have elected to defer the payment of such fees until a later year on properties owned by Wells Real Estate Fund I. As of December 31, 2001, the amount of such deferred fees totaled $2,627,841.	
(3)	 	Includes net underwriting compensation and commissions paid to Wells Investment Securities, Inc. in connection with the offering which was not reallowed to participating broker-dealers.	

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(4)	 	Fees paid to the general partners or their affiliates for acquisition and advisory services in connection with the review and evaluation of potential real property acquisitions.	
(5)	 	Includes $(161,104) in net cash provided by operating activities, $3,308,970 in distributions to limited partners and $346,208 in payments to sponsor for Wells Real Estate Fund XI, L.P.; $167,620 in net cash used by operating activities, $2,971,042 in distributions to limited partners and $369,466 in payments to sponsor for Wells Real Estate Fund XII, L.P.; $53,677,256 in net cash provided by operating activities, $57,514,696 in dividends and $4,845,729 in payments to sponsor for Wells Real Estate Investment Trust, Inc.; and $956,542 in net cash provided by operating activities, $50,169,329 in distributions to limited partners and $7,018,457 in payments to sponsor for other public programs.	
 
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TABLE III
(UNAUDITED)
 
The following five tables set forth operating results of Wells Public Programs the offerings of which have been completed since December 30, 1996. The information relates only to public programs with investment objectives similar to those of the Wells REIT. All figures are as of December 31 of the year indicated.
 
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TABLE III (UNAUDITED)
 
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND IX, L.P.
 
 	  	2001

	 	 	2000

	 	 	1999

	 	 	1998

	 	 	1997

	 	
Gross Revenues(1)	  	$	1,874,290	 	 	$	1,836,768	 	 	$	1,593,734	 	 	$	1,561,456	 	 	$	1,199,300	 	
Profit on Sale of Properties	  	 	—  	 	 	 	—  	 	 	 	—	 	 	 	—  	 	 	 	—  	 	
Less:  Operating Expenses(2)	  	 	105,816	 	 	 	78,092	 	 	 	90,903	 	 	 	105,251	 	 	 	101,284	 	
Depreciation and Amortization(3)	  	 	0	 	 	 	0	 	 	 	12,500	 	 	 	6,250	 	 	 	6,250	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Net Income GAAP Basis(4)	  	$	1,768,474	 	 	$	1,758,676	 	 	$	1,490,331	 	 	$	1,449,955	 	 	$	1,091,766	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Taxable Income:Operations	  	$	2,251,474	 	 	$	2,147,094	 	 	$	1,924,542	 	 	$	1,906,011	 	 	$	1,083,824	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Cash Generated (Used By):	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operations	  	$	(101,573	)	 	$	(66,145	)	 	$	(94,403	)	 	$	80,147	 	 	$	501,390	 	
Joint Ventures	  	 	2,978,785	 	 	 	2,831,329	 	 	 	2,814,870	 	 	 	2,125,489	 	 	 	527,390	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 	  	$	2,877,212	 	 	$	2,765,184	 	 	$	2,720,467	 	 	$	2,205,636	 	 	$	1,028,780	 	
Less Cash Distributions to Investors:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating Cash Flow	  	 	2,877,212	 	 	 	2,707,684	 	 	 	2,720,467	 	 	 	2,188,189	 	 	 	1,028,780	 	
Return of Capital	  	 	—  	 	 	 	—  	 	 	 	15,528	 	 	 	—  	 	 	 	41,834	 	
Undistributed Cash Flow From Prior Year Operations	  	 	20,074	 	 	 	—  	 	 	 	17,447	 	 	 	—  	 	 	 	1,725	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Cash Generated (Deficiency) after Cash Distributions	  	$	(20,074	)	 	$	57,500	 	 	$	(32,975	)	 	$	17,447	 	 	$	(43,559	)	
Special Items (not including sales and financing):	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Source of Funds:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
General Partner Contributions	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Increase in Limited Partner Contributions	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 	  	$	(20,074	)	 	$	57,500	 	 	$	(32,975	)	 	$	17,447	 	 	$	(43,559	)	
Use of Funds:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Sales Commissions and Offering Expenses	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	323,039	 	
Return of Original Limited Partner’s Investment	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	100	 	
Property Acquisitions and Deferred Project Costs	  	 	—  	 	 	 	44,357	 	 	 	190,853	 	 	 	9,455,554	 	 	 	13,427,158	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Cash Generated (Deficiency) after Cash Distributions and Special Items	  	   $	(20,074	)	 	$	13,143	 	 	$	(223,828	)	 	  $	(9,438,107	)	 	$	(13,793,856	)	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Net Income and Distributions Data per $1,000 Invested:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income on GAAP Basis:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ordinary Income (Loss)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—Operations Class A Units	  	 	57	 	 	 	93	 	 	 	89	 	 	 	88	 	 	 	53	 	
—Operations Class B Units	  	 	(0	)	 	 	(267	)	 	 	(272	)	 	 	(218	)	 	 	(77	)	
Capital Gain (Loss)	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Tax and Distributions Data per $1,000 Invested:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Federal Income Tax Results:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ordinary Income (Loss)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—Operations Class A Units	  	 	94	 	 	 	91	 	 	 	86	 	 	 	85	 	 	 	46	 	
—Operations Class B Units	  	 	(195	)	 	 	(175	)	 	 	(164	)	 	 	(123	)	 	 	(47	)	
Capital Gain (Loss)	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Cash Distributions to Investors:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Source (on GAAP Basis)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—Investment Income Class A Units	  	 	56	 	 	 	87	 	 	 	88	 	 	 	73	 	 	 	36	 	
—Return of Capital Class A Units	  	 	36	 	 	 	—  	 	 	 	2	 	 	 	—  	 	 	 	—  	 	
—Return of Capital Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Source (on Cash Basis)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—Operations Class A Units	  	 	92	 	 	 	87	 	 	 	89	 	 	 	73	 	 	 	35	 	
—Return of Capital Class A Units	  	 	—  	 	 	 	—  	 	 	 	1	 	 	 	—  	 	 	 	1	 	
—Operations Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Source (on a Priority Distribution Basis)(5)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—Investment Income Class A Units	  	 	81	 	 	 	76	 	 	 	77	 	 	 	61	 	 	 	29	 	
—Return of Capital Class A Units	  	 	11	 	 	 	11	 	 	 	13	 	 	 	12	 	 	 	7	 	
—Return of Capital Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Amount (in Percentage Terms) Remaining Invested in Program Properties at the end of the Last Year Reported in the Table	  	 	100	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

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(1)	 	Includes $593,914 in equity in earnings of joint ventures and $605,386 from investment of reserve funds in 1997; $1,481,869 in equity in earnings of joint ventures and $79,587 from investment of reserve funds in 1998; $1,593,734 in equity in earnings of joint ventures and $0 from investment of reserve funds in 1999; and $1,829,216 in equity in earnings of joint ventures and $7,552 from investment of reserve funds in 2000; and $1,870,378 in equity in earnings of joint ventures and $3,912 from investment of reserve funds in 2001. As of December 31, 2001, the leasing status was 100% including developed property in initial lease up.	
(2)	 	Includes partnership administrative expenses.	
(3)	 	Included in equity in earnings of joint ventures in gross revenues is depreciation of $469,126 for 1997; $1,143,407 for 1998; $1,210,939 for 1999; $1,100,915 for 2000; and $1,076,802 for 2001.	
(4)	 	In accordance with the partnership agreement, net income or loss, depreciation and amortization are allocated $1,564,778 to Class A Limited Partners, $(472,806) to Class B Limited Partners and $(206) to the General Partners for 1997; $2,597,938 to Class A Limited Partners, $(1,147,983) to Class B Limited Partners and $0 to the General Partners for 1998; $2,713,636 to Class A Limited Partners, $(1,223,305) to Class B Limited Partners and $0 to the General Partners for 1999; $2,858,806 to Class A Limited Partners, $(1,100,130) to Class B Limited Partners and $0 to the General Partners for 2000; and $1,768,474 to Class A Limited Partners, $(0) to Class B Limited Partners and $0 to the General Partners for 2001.	
(5)	 	Pursuant to the terms of the partnership agreement, an amount equal to the cash distributions paid to Class A Limited Partners is payable as priority distributions out of the first available net proceeds from the sale of partnership properties to Class B Limited Partners. The amount of cash distributions paid per unit to Class A Limited Partners is shown as a return of capital to the extent of such priority distributions payable to Class B Limited Partners. As of December 31, 2001, the aggregate amount of such priority distributions payable to Class B Limited Partners totaled $1,668,253.	
 
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Table of Contents
TABLE III (UNAUDITED)
 
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND X, L.P.
 
 	  	2001

	 	 	2000

	 	 	1999

	 	 	1998

	 	 	1997

	 	
Gross Revenues(1)	  	$	1,559,026	 	 	$	1,557,518	 	 	$	1,309,281	 	 	$	1,204,597	 	 	$	372,507	 	
Profit or Sale of Properties	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Less:  Operating Expenses (2)	  	 	109,177	 	 	 	81,338	 	 	 	98,213	 	 	 	99,034	 	 	 	88,232	 	
     Depreciation and Amortization (3)	  	 	0	 	 	 	0	 	 	 	18,750	 	 	 	55,234	 	 	 	6,250	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Net Income GAAP Basis (4)	  	$	1,449,849	 	 	$	1,476,180	 	 	$	1,192,318	 	 	$	1,050,329	 	 	$	278,025	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Taxable Income: Operations	  	$	1,688,775	 	 	$	1,692,792	 	 	$	1,449,771	 	 	$	1,277,016	 	 	$	382,543	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Cash Generated (Used By):	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operations	  	 	(100,983	)	 	 	(59,595	)	 	 	(99,862	)	 	 	300,019	 	 	 	200,668	 	
Joint Ventures	  	 	2,307,137	 	 	 	2,192,397	 	 	 	2,175,915	 	 	 	886,846	 	 	 	—  	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 	  	$	2,206,154	 	 	$	2,132,802	 	 	$	2,076,053	 	 	$	1,186,865	 	 	$	200,668	 	
Less Cash Distributions to Investors:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating Cash Flow	  	 	2,206,154	 	 	 	2,103,260	 	 	 	2,067,801	 	 	 	1,186,865	 	 	 	—  	 	
Return of Capital	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	19,510	 	 	 	—  	 	
Undistributed Cash Flow From Prior Year Operations	  	 	25,647	 	 	 	—  	 	 	 	—  	 	 	 	200,668	 	 	 	—  	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Cash Generated (Deficiency) after Cash Distributions	  	$	(25,647	)	 	$	29,542	 	 	$	8,252	 	 	$	(220,178	)	 	$	200,668	 	
Special Items (not including sales and financing):	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Source of Funds:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
General Partner Contributions	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Increase in Limited Partner Contributions	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	27,128,912	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 	  	$	(25,647	)	 	$	29,542	 	 	$	8,252	 	 	$	(220,178	)	 	$	27,329,580	 	
Use of Funds:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Sales Commissions and Offering Expenses	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	300,725	 	 	 	3,737,363	 	
Return of Original Limited Partner’s Investment	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	100	 	
Property Acquisitions and Deferred Project Costs	  	 	0	 	 	 	81,022	 	 	 	0	 	 	 	17,613,067	 	 	 	5,188,485	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Cash Generated (Deficiency) after Cash Distributions and Special Items	  	$	(25,647	)	 	$	(51,480	)	 	$	8,252	 	 	$	(18,133,970	)	 	$	18,403,632	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Net Income and Distributions Data per $1,000 Invested:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income on GAAP Basis:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ordinary Income (Loss)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—Operations Class A Units	  	 	99	 	 	 	104	 	 	 	97	 	 	 	85	 	 	 	28	 	
—Operations Class B Units	  	 	(188	)	 	 	(159	)	 	 	(160	)	 	 	(123	)	 	 	(9	)	
Capital Gain (Loss)	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Tax and Distributions Data per $1,000 Invested:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Federal Income Tax Results:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ordinary Income (Loss)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—Operations Class A Units	  	 	95	 	 	 	98	 	 	 	92	 	 	 	78	 	 	 	35	 	
—Operations Class B Units	  	 	(130	)	 	 	(107	)	 	 	(100	)	 	 	(64	)	 	 	0	 	
Capital Gain (Loss)	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Cash Distributions to Investors:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Source (on GAAP Basis)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—Investment Income Class A Units	  	 	96	 	 	 	94	 	 	 	95	 	 	 	66	 	 	 	—  	 	
—Return of Capital Class A Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
—Return of Capital Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Source (on Cash Basis)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—Operations Class A Units	  	 	96	 	 	 	94	 	 	 	95	 	 	 	56	 	 	 	—  	 	
—Return of Capital Class A Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	10	 	 	 	—  	 	
—Operations Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Source (on a Priority Distribution Basis) (5)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—Investment Income Class A Units	  	 	80	 	 	 	74	 	 	 	71	 	 	 	48	 	 	 	—  	 	
—Return of Capital Class A Units	  	 	16	 	 	 	20	 	 	 	24	 	 	 	18	 	 	 	—  	 	
—Return of Capital Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Amount (in Percentage Terms) Remaining Invested in Program Properties at the end of the Last Year Reported in the Table	  	 	100	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 
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Table of Contents

(1)	 	Includes $(10,035) in equity in earnings of joint ventures and $382,542 from investment of reserve funds in 1997; $869,555 in equity in earnings of joint ventures and $215,042 from investment of reserve funds in 1998; $1,309,281 in equity in earnings of joint ventures and $0 from investment of reserve funds in 1999; 1,547,664 in equity in earnings of joint ventures and $9,854 from investment of reserve funds in 2000; and $1,549,588 in equity in earnings of joint ventures and $9,438 from investment of reserve funds in 2001. As of December 31, 2001, the leasing status was 100% including developed property in initial lease up.	
(2)	 	Includes partnership administrative expenses.	
(3)	 	Included in equity in earnings of joint ventures in gross revenues is depreciation of $18,675 for 1997; $674,986 for 1998; $891,911 for 1999; $816,544 for 2000; and $814,502 for 2001.	
(4)	 	In accordance with the partnership agreement, net income or loss, depreciation and amortization are allocated $302,862 to Class A Limited Partners, $(24,675) to Class B Limited Partners and $(162) to the General Partners for 1997; $1,779,191 to Class A Limited Partners, $(728,524) to Class B Limited Partners and $(338) to General Partners for 1998; $2,084,229 to Class A Limited Partners, $(891,911) to Class B Limited Partners and $0 to the General Partners for 1999; $2,292,724 to Class A Limited Partners, $(816,544) to Class B Limited Partners and $0 to the General Partners for 2000; and $2,264,351 to Class A Limited Partners, $(814,502) to Class B Limited Partners and $0 to the General Partners for 2001.	
(5)	 	Pursuant to the terms of the partnership agreement, an amount equal to the cash distributions paid to Class A Limited Partners is payable as priority distributions out of the first available net proceeds from the sale of partnership properties to Class B Limited Partners. The amount of cash distributions paid per unit to Class A Limited Partners is shown as a return of capital to the extent of such priority distributions payable to Class B Limited Partners. As of December 31, 2001, the aggregate amount of such priority distributions payable to Class B Limited Partners totaled $1,735,882.	
 
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Table of Contents
TABLE III (UNAUDITED)
 
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND XI, L.P.
 
 	  	2001

	 	 	2000

	 	 	1999

	 	 	1998

	 	 	1997

	
Gross Revenues(1)	  	$	960,676	 	 	$	975,850	 	 	$	766,586	 	 	$	262,729	 	 	N/A	
Profit on Sale of Properties	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	
Less: Operating Expenses(2)	  	 	90,326	 	 	 	79,861	 	 	 	111,058	 	 	 	113,184	 	 	 	
Depreciation and Amortization(3)	  	 	0	 	 	 	—  	 	 	 	25,000	 	 	 	6,250	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	
Net Income GAAP Basis(4)	  	$	870,350	 	 	$	895,989	 	 	$	630,528	 	 	$	143,295	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	
Taxable Income: Operations	  	$	1,038,394	 	 	$	944,775	 	 	$	704,108	 	 	$	177,692	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	
Cash Generated (Used By):	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operations	  	 	(128,985	)	 	 	(72,925	)	 	 	40,906	 	 	 	(50,858	)	 	 	
Joint Ventures	  	 	1,376,673	 	 	 	1,333,337	 	 	 	705,394	 	 	 	102,662	 	 	 	
 	  	$	1,247,688	 	 	$	1,260,412	 	 	$	746,300	 	 	$	51,804	 	 	 	
Less Cash Distributions to Investors:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating Cash Flow	  	 	1,247,688	 	 	 	1,205,303	 	 	 	746,300	 	 	 	51,804	 	 	 	
Return of Capital	  	 	4,809	 	 	 	—  	 	 	 	49,761S	 	 	 	48,070	 	 	 	
Undistributed Cash Flow From Prior Year Operations	  	 	55,109	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	
Cash Generated (Deficiency) after Cash Distributions	  	$	(59,918	)	 	$	55,109	 	 	$	(49,761	)	 	$	(48,070	)	 	 	
Special Items (not including sales and financing):	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Source of Funds:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
General Partner Contributions	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	
Increase in Limited Partner Contributions	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	16,532,801	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	
 	  	$	(59,918	)	 	$	55,109	 	 	$	(49,761	)	 	$	16,484,731	 	 	 	
Use of Funds:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Sales Commissions and Offering Expenses	  	 	—  	 	 	 	—  	 	 	 	214,609	 	 	 	1,779,661	 	 	 	
Return of Original Limited Partner’s Investment	  	 	—  	 	 	 	—  	 	 	 	100	 	 	 	—  	 	 	 	
Property Acquisitions and Deferred Project Costs	  	 	—  	 	 	 	—  	 	 	 	9,005,979	 	 	 	5,412,870	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	
Cash Generated (Deficiency) after Cash Distributions and Special Items	  	$	(59,918	)	 	$	55,109	 	 	$	(9,270,449	)	 	$	9,292,200	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	
Net Income and Distributions Data per $1,000 Invested:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income on GAAP Basis:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ordinary Income (Loss)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—Operations Class A Units	  	 	101	 	 	 	103	 	 	 	77	 	 	 	50	 	 	 	
—Operations Class B Units	  	 	(158	)	 	 	(155	)	 	 	(112	)	 	 	(77	)	 	 	
Capital Gain (Loss)	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	
Tax and Distributions Data per $1,000 Invested:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Federal Income Tax Results:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ordinary Income (Loss)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—Operations Class A Units	  	 	100	 	 	 	97	 	 	 	71	 	 	 	18	 	 	 	
—Operations Class B Units	  	 	(100	)	 	 	(112	)	 	 	(73	)	 	 	(17	)	 	 	
Capital Gain (Loss)	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	
Cash Distributions to Investors:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Source (on GAAP Basis)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—Investment Income Class A Units	  	 	97	 	 	 	90	 	 	 	60	 	 	 	8	 	 	 	
—Return of Capital Class A Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	
—Return of Capital Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	
Source (on Cash Basis)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—Operations Class A Units	  	 	97	 	 	 	90	 	 	 	56	 	 	 	4	 	 	 	
—Return of Capital Class A Units	  	 	—  	 	 	 	—  	 	 	 	4	 	 	 	4	 	 	 	
—Operations Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	
Source (on a Priority Distribution Basis)(5)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—Investment Income Class A Units	  	 	75	 	 	 	69	 	 	 	46	 	 	 	6	 	 	 	
—Return of Capital Class A Units	  	 	22	 	 	 	21	 	 	 	14	 	 	 	2	 	 	 	
—Return of Capital Class B Units	  	 	      —  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	
Amount (in Percentage Terms) Remaining Invested in Program Properties at the end of the Last Year Reported in the Table	  	 	100	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 
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Table of Contents

(1)	 	Includes $142,163 in equity in earnings of joint ventures and $120,566 from investment of reserve funds in 1998; $607,579 in equity in earnings of joint ventures and $159,007 from investment of reserve funds in 1999; $967,900 in equity in earnings of joint ventures and $7,950 from investment of reserve funds in 2000; and $959,631 in equity in earnings of joint ventures and $1,045 from investment of reserve funds in 2001. As of December 31, 2001, the leasing status was 100% including developed property in initial lease up.	
(2)	 	Includes partnership administrative expenses.	
(3)	 	Included in equity in earnings of joint ventures in gross revenues is depreciation of $105,458 for 1998; $353,840 for 1999; $485,558 for 2000; and $491,478 for 2001.	
(4)	 	In accordance with the partnership agreement, net income or loss, depreciation and amortization are allocated $254,862 to Class A Limited Partners, $(111,067) to Class B Limited Partners and $(500) to General Partners for 1998; $1,009,368 to Class A Limited Partners, $(378,840) to Class B Limited Partners and $0 to the General Partners for 1999; $1,381,547 to Class A Limited Partners, $(485,558) to Class B Limited Partners and $0 to General Partners for 2000; and $1,361,828 to Class A Limited Partners, $(491,478) to Class B Limited Partners and $0 to the General Partners for 2001.	
(5)	 	Pursuant to the terms of the partnership agreement, an amount equal to the cash distributions paid to Class A Limited Partners is payable as priority distributions out of the first available net proceeds from the sale of partnership properties to Class B Limited Partners. The amount of cash distributions paid per unit to Class A Limited Partners is shown as a return of capital to the extent of such priority distributions payable to Class B Limited Partners. As of December 31, 2001, the aggregate amount of such priority distributions payable to Class B Limited Partners totaled $791,502.	

220

Table of Contents
TABLE III (UNAUDITED)
 
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND XII, L.P.
 
 	  	2001

	 	 	2000

	 	 	1999

	 	
GrossRevenues(1)	  	$	1,661,194	 	 	$	929,868	 	 	$	160,379	 	
Profit on Sale of Properties	  	 	—  	 	 	 	—  	 	 	 	—  	 	
Less: Operating Expenses(2)	  	 	105,776	 	 	 	73,640	 	 	 	37,562	 	
Depreciation and Amortization(3)	  	 	0	 	 	 	0	 	 	 	0	 	

	

	

	 	

	

	

	 	

	

	

	
Net Income GAAP Basis(4)	  	$	1,555,418	 	 	$	856,228	 	 	$	122,817	 	

	

	

	 	

	

	

	 	

	

	

	
Taxable Income: Operations	  	$	1,850,674	 	 	$	863,490	 	 	$	130,108	 	

	

	

	 	

	

	

	 	

	

	

	
Cash Generated (Used By):	  	 	 	 	 	 	 	 	 	 	 	 	
Operations	  	 	(83,406	)	 	 	247,244	 	 	 	3,783	 	
Joint Ventures	  	 	2,036,837	 	 	 	737,266	 	 	 	61,485	 	
 	  	$	1,953,431	 	 	$	984,510	 	 	$	65,268	 	
Less Cash Distributions to Investors:	  	 	 	 	 	 	 	 	 	 	 	 	
Operating Cash Flow	  	 	1,953,431	 	 	 	779,818	 	 	 	62,934	 	
Return of Capital	  	 	—  	 	 	 	—  	 	 	 	—  	 	
Undistributed Cash Flow From Prior Year Operations	  	 	174,859	 	 	 	—  	 	 	 	—  	 	
Cash Generated (Deficiency) after Cash Distributions	  	$	(174,859	)	 	$	204,692	 	 	$	2,334	 	
Special Items (not including sales and financing):	  	 	 	 	 	 	 	 	 	 	 	 	
Source of Funds:	  	 	 	 	 	 	 	 	 	 	 	 	
General Partner Contributions	  	 	—  	 	 	 	—  	 	 	 	—  	 	
Increase in Limited Partner Contributions	  	 	10,625,431	 	 	 	15,617,575	 	 	 	9,368,186	 	
 	  	$	10,450,572	 	 	$	15,822,267	 	 	$	9,370,520	 	
Use of Funds:	  	 	 	 	 	 	 	 	 	 	 	 	
Sales Commissions and Offering Expenses	  	 	1,328,179	 	 	 	1,952,197	 	 	 	1,171,024	 	
Return of Original Limited Partner’s Investment	  	 	—  	 	 	 	—  	 	 	 	100	 	
Property Acquisitions and Deferred Project Costs	  	 	9,298,085	 	 	 	16,246,485	 	 	 	5,615,262	 	
Cash Generated (Deficiency) after Cash Distributions and Special Items	  	$	(175,692	)	 	$	(2,376,415	)	 	$	2,584,134	 	

	

	

	 	

	

	

	 	

	

	

	
Net Income and Distributions Data per $1,000 Invested:	  	 	 	 	 	 	 	 	 	 	 	 	
Net Income on GAAP Basis:	  	 	 	 	 	 	 	 	 	 	 	 	
Ordinary Income (Loss)	  	 	 	 	 	 	 	 	 	 	 	 	
—Operations Class A Units	  	 	98	 	 	 	89	 	 	 	50	 	
—Operations Class B Units	  	 	(131	)	 	 	(92	)	 	 	(56	)
	
Capital Gain (Loss)	  	 	—  	 	 	 	—  	 	 	 	—  	 	
Tax and Distributions Data per $1,000 Invested:	  	 	 	 	 	 	 	 	 	 	 	 	
Federal Income Tax Results:	  	 	 	 	 	 	 	 	 	 	 	 	
Ordinary Income (Loss)	  	 	 	 	 	 	 	 	 	 	 	 	
—Operations Class A Units	  	 	84	 	 	 	58	 	 	 	23	 	
—Operations Class B Units	  	 	(74	)	 	 	(38	)	 	 	(25	)	
Capital Gain (Loss)	  	 	—  	 	 	 	—  	 	 	 	—  	 	
Cash Distributions to Investors:	  	 	 	 	 	 	 	 	 	 	 	 	
Source (on GAAP Basis)	  	 	 	 	 	 	 	 	 	 	 	 	
—Investment Income Class A Units	  	 	77	 	 	 	41	 	 	 	8	 	
—Return of Capital Class A Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	
—Return of Capital Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	
Source (on Cash Basis)	  	 	 	 	 	 	 	 	 	 	 	 	
—Operations Class A Units	  	 	77	 	 	 	41	 	 	 	8	 	
—Return of Capital Class A Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	
—Operations Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	
Source (on a Priority Distribution Basis)(5)	  	 	 	 	 	 	 	 	 	 	 	 	
—Investment Income Class A Units	  	 	55	 	 	 	13	 	 	 	6	 	
—Return of Capital Class A Units	  	 	22	 	 	 	28	 	 	 	2	 	
—Return of Capital Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	
Amount (in Percentage Terms) Remaining Invested in Program Properties at the end of the Last Year Reported in the Table	  	 	100	%	 	 	 	 	 	 	 	 	
 
221

Table of Contents

(1)	 	Includes $124,542 in equity in earnings of joint ventures and $35,837 from investment of reserve funds in 1999; $664,401 in equity in earnings of joint ventures and $265,467 from investment of reserve funds in 2000; and $1,577,523 in equity in earnings of joint ventures and $83,671 from investment of reserve funds in 2001. As of December 31, 2001, the leasing status was 100% including developed property in initial lease up.	
(2)	 	Includes partnership administrative expenses.	
(3)	 	Included in equity in earnings of joint ventures in gross revenues is depreciation of $72,427 for 1999; $355,210 for 2000; and $1,035,609 for 2001.	
(4)	 	In accordance with the partnership agreement, net income or loss, depreciation and amortization are allocated $195,244 to Class A Limited Partners, $(71,927) to Class B Limited Partners and $(500) to the General Partners for 1999; $1,209,438 to Class A Limited Partners, $(353,210) to Class B Limited Partners and $0 to General Partners for 2000; and $2,591,027 to Class A Limited Partners, $(1,035,609) to Class B Limited Partners and $0 to the General Partners for 2001.	
(5)	 	Pursuant to the terms of the partnership agreement, an amount equal to the cash distributions paid to Class A Limited Partners is payable as priority distributions out of the first available net proceeds from the sale of partnership properties to Class B Limited Partners. The amount of cash distributions paid per unit to Class A Limited Partners is shown as a return of capital to the extent of such priority distributions payable to Class B Limited Partners. As of December 31, 2001, the aggregate amount of such priority distributions payable to Class B Limited Partners totaled $870,747.	
 
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Table of Contents
TABLE V (UNAUDITED)
 
SALES OR DISPOSALS OF PROPERTIES
 
The following Table sets forth sales or other disposals of properties by Wells Public Programs within the most recent three years. The information relates to only public programs with investment objectives similar to those of Wells Real Estate Investment Trust, Inc. All figures are as of December 31, 2001.
 
 	 	 	 	 	 	 	 	Selling Price, Net Of
Closing Costs And
GAAP Adjustments

	 	 	 	 	 	 	Cost Of Properties
Including Closing And
Soft Costs

	 	 	
Property

	 	Date
Acquired

	 	Date Of
Sale

	 	Cash
Received
Net Of
Closing
Costs

	 	Mortgage
Balance
At Time
Of Sale

	 	Purchase
Money
Mortgage
Taken
Back By
Program

	 	Adjustments
Resulting
From
Application
Of GAAP

	 	Total

	 	 	Original
Mortgage
Financing

	 	Total
Acquisition
Cost,
Capital
Improvement,
Closing And
Soft Costs(1)

	    	Total

	 	Excess
(Deficiency)
Of Property
Operating
Cash
Receipts
Over Cash
Expenditures

	
3875 Peachtree Place, Atlanta, Georgia	 	12/1/85	 	08/31/00	 	$	727,982	 	-0-	 	-0-	 	-0-	 	$	727,982	(2)	 	-0-	 	$	647,648	    	$	647,648	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Crowe’s Crossing Shopping Center, DeKalb Count, Georgia	 	12/31/86	 	01/11/01	 	$	6,487,000	 	-0-	 	-0-	 	-0-	 	$	6,487,000	(3)	 	-0-	 	$	9,388,869	    	$	9,368,869	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Cherokee Commons Shopping Center, Cherokee County, Georgia	 	10/30/87	 	10/01/01	 	$	8,434,089	 	-0-	 	-0-	 	-0-	 	$	8,434,089	(4)	 	-0-	 	$	10,650,750	    	$	10,650,750	 	 	

(1)	 	Amount shown does not include pro rata share of original offering costs.	
(2)	 	Includes Wells Real Estate Fund I's share of taxable gain from this sale in the amount of $205,019, of which $205,019 is allocated to capital gain and $0 is allocated to ordinary gain.	
(3)	 	Includes taxable gain from this sale in the amount of $11,496, of which $11,496 is allocated to capital gain and $0 is allocated to ordinary gain.	
(4)	 	Includes taxable gain from this sale in the amount of $207,613, of which $207,613 is allocated to capital gain and $0 is allocated to ordinary gain.	
 
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EXHIBIT A
 
SUBSCRIPTION AGREEMENT
 
To:    Wells Real Estate Investment Trust, Inc.
  Suite 250
  6200 The Corners Parkway
  Atlanta, Georgia 30092
 
Ladies and Gentlemen:
 
The undersigned, by signing and delivering a copy of the attached Subscription Agreement Signature Page, hereby tenders this subscription and applies for the purchase of the number of shares of common stock (“Shares”) of Wells Real Estate Investment Trust, Inc., a Maryland corporation (“Wells REIT”), set forth on such Subscription Agreement Signature Page. Payment for the Shares is hereby made by check payable to “Wells Real Estate Investment Trust, Inc.”
 
I hereby acknowledge receipt of the Prospectus of the Wells REIT dated July 26, 2002 (the “Prospectus”).
 
I agree that if this subscription is accepted, it will be held, together with the accompanying payment, on the terms described in the Prospectus. Subscriptions may be rejected in whole or in part by the Wells REIT in its sole and absolute discretion.
 
Prospective investors are hereby advised of the following:
 
(a)  The assignability and transferability of the Shares is restricted and will be governed by the Wells REIT’s Articles of Incorporation and Bylaws and all applicable laws as described in the Prospectus.
 
(b)  Prospective investors should not invest in Shares unless they have an adequate means of providing for their current needs and personal contingencies and have no need for liquidity in this investment.
 
(c)  There is no public market for the Shares and, accordingly, it may not be possible to readily the liquidate an investment in the Wells REIT.
 
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SPECIAL NOTICE FOR CALIFORNIA RESIDENTS ONLY
CONDITIONS RESTRICTING TRANSFER OF SHARES
 
260.141.11 Restrictions on Transfer.
 
(a)  The issuer of any security upon which a restriction on transfer has been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 of the Rules (the “Rules”) adopted under the California Corporate Securities Law (the “Code”) shall cause a copy of this section to be delivered to each issuee or transferee of such security at the time the certificate evidencing the security is delivered to the issuee or transferee.
 
(b)  It is unlawful for the holder of any such security to consummate a sale or transfer of such security, or any interest therein, without the prior written consent of the Commissioner (until this condition is removed pursuant to Section 260.141.12 of the Rules), except:
 
(1)  to the issuer;
 
(2)  pursuant to the order or process of any court;
 
(3)  to any person described in subdivision (i) of Section 25102 of the Code or Section 260.105.14 of the Rules;
 
(4)  to the transferor’s ancestors, descendants or spouse, or any custodian or trustee for the account of the transferor or the transferor’s ancestors, descendants or spouse; or to a transferee by a trustee or custodian for the account of the transferee or the transferee’s ancestors, descendants or spouse;
 
(5)  to holders of securities of the same class of the same issuer;
 
(6)  by way of gift or donation inter vivos or on death;
 
(7)  by or through a broker-dealer licensed under the Code (either acting as such or as a finder) to a resident of a foreign state, territory or country who is neither domiciled in this state to the knowledge of the broker-dealer, nor actually present in this state if the sale of such securities is not in violation of any securities laws of the foreign state, territory or country concerned;
 
(8)  to a broker-dealer licensed under the Code in a principal transaction, or as an underwriter or member of an underwriting syndicate or selling group;
 
(9)  if the interest sold or transferred is a pledge or other lien given by the purchaser to the seller upon a sale of the security for which the Commissioner’s written consent is obtained or under this rule not required;
 
(10)  by way of a sale qualified under Sections 25111, 25112, 25113 or 25121 of the Code, of the securities to be transferred, provided that no order under Section 25140 or subdivision (a) of Section 25143 is in effect with respect to such qualification;
 
(11)  by a corporation to a wholly owned subsidiary of such corporation, or by a wholly owned subsidiary of a corporation to such corporation;
 
(12)  by way of an exchange qualified under Section 25111, 25112 or 25113 of the Code provided that no order under Section 25140 or subdivision (a) of Section 25143 is in effect with respect to such qualification;
 
(13)  between residents of foreign states, territories or countries who are neither domiciled or actually present in this state;
 
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(14)  to the State Controller pursuant to the Unclaimed Property Law or to the administrator of the unclaimed property law of another state;
 
(15)  by the State Controller pursuant to the Unclaimed Property Law or by the administrator of the unclaimed property law of another state if, in either such case, such person (i) discloses to potential purchasers at the sale that transfer of the securities is restricted under this rule, (ii) delivers to each purchaser a copy of this rule, and (iii) advises the Commissioner of the name of each purchaser;
 
(16)  by a trustee to a successor trustee when such transfer does not involve a change in the beneficial ownership of the securities;
 
(17)  by way of an offer and sale of outstanding securities in an issuer transaction that is subject to the qualification requirement of Section 25110 of the Code but exempt from that qualification requirement by subdivision (f) of Section 25102; provided that any such transfer is on the condition that any certificate evidencing the security issued to such transferee shall contain the legend required by this section.
 
(c)  The certificates representing all such securities subject to such a restriction on transfer, whether upon initial issuance or upon any transfer thereof, shall bear on their face a legend, prominently stamped or printed thereon in capital letters of not less than 10-point size, reading as follows:
 
“IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER’S RULES.”
 
[Last amended effective January 21, 1988.]
 
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SPECIAL NOTICE FOR MAINE, MASSACHUSETTS, MINNESOTA, MISSOURI
AND NEBRASKA RESIDENTS ONLY
 
In no event may a subscription for Shares be accepted until at least five business days after the date the subscriber receives the Prospectus. Residents of the States of Maine, Massachusetts, Minnesota, Missouri and Nebraska who first received the Prospectus only at the time of subscription may receive a refund of the subscription amount upon request to the Wells REIT within five days of the date of subscription.
 
STANDARD REGISTRATION REQUIREMENTS
 
The following requirements have been established for the various forms of registration. Accordingly, complete Subscription Agreements and such supporting material as may be necessary must be provided.
 
TYPE OF OWNERSHIP AND SIGNATURE(S) REQUIRED
 
1.  INDIVIDUAL:    One signature required.
 
2.  JOINT TENANTS WITH RIGHT OF SURVIVORSHIP:    All parties must sign.
 
3.  TENANTS IN COMMON:    All parties must sign.
 
4.  COMMUNITY PROPERTY:    Only one investor signature required.
 
5.  PENSION OR PROFIT SHARING PLANS:    The trustee signs the Signature Page.
 
6.  TRUST:    The trustee signs the Signature Page. Provide the name of the trust, the name of the trustee and the name of the beneficiary.
 
7.  PARTNERSHIP:    Identify whether the entity is a general or limited partnership. The general partners must be identified and their signatures obtained on the Signature Page. In the case of an investment by a general partnership, all partners must sign (unless a “managing partner” has been designated for the partnership, in which case he may sign on behalf of the partnership if a certified copy of the document granting him authority to invest on behalf of the partnership is submitted).
 
8.  CORPORATION:    The Subscription Agreement must be accompanied by (1) a certified copy of the resolution of the Board of Directors designating the officer(s) of the corporation authorized to sign on behalf of the corporation and (2) a certified copy of the Board’s resolution authorizing the investment.
 
9.  IRA AND IRA ROLLOVERS:    Requires signature of authorized signer (e.g., an officer) of the bank, trust company, or other fiduciary. The address of the trustee must be provided in order for the trustee to receive checks and other pertinent information regarding the investment.
 
10.  KEOGH (HR 10):    Same rules as those applicable to IRAs.
 
11.  UNIFORM GIFT TO MINORS ACT (UGMA) or UNIFORM TRANSFERS TO MINORS ACT (UTMA):    The required signature is that of the custodian, not of the parent (unless the parent has been designated as the custodian). Only one child is permitted in each investment under UGMA or UTMA. In addition, designate the state under which the gift is being made.
 
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INSTRUCTIONS TO SUBSCRIPTION AGREEMENT SIGNATURE PAGE
TO WELLS REAL ESTATE INVESTMENT TRUST, INC. SUBSCRIPTION AGREEMENT
 
INVESTOR
INSTRUCTIONS	  	Please follow these instructions carefully. Failure to do so may result in the
rejection of your subscription. All information on the Subscription Agreement
Signature Page should be completed as follows:
 	
1.	  	INVESTMENT	  	a.	  	GENERAL:    A minimum investment of $1,000 (100 Shares) is required, except for certain states which require a higher minimum investment.  A CHECK FOR THE FULL PURCHASE PRICE OF THE SHARES SUBSCRIBED FOR SHOULD BE MADE PAYABLE TO THE ORDER OF “WELLS REAL ESTATE INVESTMENT TRUST, INC.”  Investors who have satisfied the minimum purchase requirements in Wells Real Estate Fund I, Wells Real Estate Fund II, Wells Real Estate Fund II-OW, Wells Real Estate Fund III, L.P., Wells Real Estate Fund IV, L.P., Wells Real Estate Fund V, L.P., Wells Real Estate Fund VI, L.P., Wells Real Estate Fund VII, L.P., Wells Real Estate Fund VIII, L.P., Wells Real Estate Fund IX, L.P., Wells Real Estate Fund X, L.P., Wells Real Estate Fund XI, L.P., Wells Real Estate Fund XII, L.P., or Wells Real Estate Fund XIII, L.P., or in any other public real estate program may invest as little as $25 (2.5 Shares) except for residents of Maine, Minnesota, Nebraska or Washington. Shares may be purchased only by persons meeting the standards set forth under the Section of the Prospectus entitled “Suitability Standards.” Please indicate the state in which the sale was made.  WE WILL NOT ACCEPT CASH, MONEY ORDERS OR TRAVELERS CHECKS FOR INITIAL INVESTMENTS.
 	
 	  	 	  	b.	  	DEFERRED COMMISSION OPTION:    Please check the box if you have agreed with your Broker-Dealer to elect the Deferred Commission Option, as described in the Prospectus, as supplemented to date. By electing the Deferred Commission Option, you are required to pay only $9.40 per Share purchased upon subscription. For the next six years following the year of subscription, you will have a 1% sales commission ($.10 per Share) per year deducted from and paid out of dividends or other cash distributions otherwise distributable to you. Election of the Deferred Commission Option shall authorize the Wells REIT to withhold such amounts from dividends or other cash distributions otherwise payable to you as is set forth in the “Plan of Distribution” section of the Prospectus.
 	
2.	  	ADDITIONAL
INVESTMENTS	  	Please check if you plan to make one or more additional investments in the Wells REIT.
All additional investments must be in increments of at least $25. Additional investments
by residents of Maine must be for the minimum amounts stated under “Suitability
Standards” in the Prospectus, and residents of Maine must execute a new Subscription
Agreement Signature Page to make additional investments in the Wells REIT. If
additional investments in the Wells REIT are made, the investor agrees to notify the
Wells REIT and the Broker-Dealer named on the Subscription Agreement Signature
Page in writing if at any time he fails to meet the applicable suitability standards or he is
unable to make any other representations or warranties set forth in the Prospectus or the
Subscription Agreement. The investor acknowledges that the Broker-Dealer named in
the Subscription Agreement Signature Page may receive commissions on such
additional investments as described in the Prospectus.
 	
3.	  	TYPE OF
OWNERSHIP	  	Please check the appropriate box to indicate the type of entity or type of individuals
subscribing.	
 
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4.	  	REGISTRATION
NAME AND
ADDRESS	  	Please enter the exact name in which the Shares are to be held. For joint tenants with
right of survivorship or tenants in common, include the names of both investors. In the
case of partnerships or corporations, include the name of an individual to whom
correspondence will be addressed. Trusts should include the name of the trustee. All
investors must complete the space provided for taxpayer identification number or
social security number. By signing in Section 6, the investor is certifying that this
number is correct. Enter the mailing address and telephone numbers of the registered
owner of this investment. In the case of a Qualified Plan or trust, this will be the
address of the trustee. Indicate the birthdate and occupation of the registered owner
unless the registered owner is a partnership, corporation or trust.
 	
5.	  	INVESTOR
NAME AND
ADDRESS	  	Complete this Section only if the investor’s name and address is different from the
registration name and address provided in Section 4. If the Shares are registered in the
name of a trust, enter the name, address, telephone number, social security number,
birthdate and occupation of the beneficial owner of the trust.
 	
6.	  	SUBSCRIBER
SIGNATURES	  	Please separately initial each representation made by the investor where indicated.
Except in the case of fiduciary accounts, the investor may not grant any person a power
of attorney to make such representations on his or her behalf. Each investor must sign
and date this Section. If title is to be held jointly, all parties must sign. If the registered
owner is a partnership, corporation or trust, a general partner, officer or trustee of the
entity must sign.  PLEASE NOTE THAT THESE SIGNATURES DO NOT HAVE
TO BE NOTARIZED.
 	
7.	  	DIVIDENDS	  	a.	  	DIVIDEND REINVESTMENT PLAN: By electing the Dividend Reinvestment Plan, the investor elects to reinvest the stated percentage of dividends otherwise payable to such investor in Shares of the Wells REIT. The investor agrees to notify the Wells REIT and the Broker-Dealer named on the Subscription Agreement Signature Page in writing if at any time he fails to meet the applicable suitability standards or he is unable to make any other representations and warranties as set forth in the Prospectus or Subscription Agreement or in the prospectus and subscription agreement of any future limited partnerships sponsored by the Advisor or its affiliates. The investor acknowledges that the Broker-Dealer named in the Subscription Agreement Signature Page may receive commissions not to exceed 7% of any reinvested dividends.
 	
 	  	 	  	b.	  	DIVIDEND ADDRESS : If cash dividends are to be sent to an address other than that provided in Section 4 (i.e., a bank, brokerage firm or savings and loan, etc.), please provide the name, account number and address.
 	
8.	  	BROKER-
DEALER	  	This Section is to be completed by the Registered Representative. Please complete all
BROKER-DEALER information contained in Section 8 including suitability
certification.  SIGNATURE PAGE MUST BE SIGNED BY AN AUTHORIZED
REPRESENTATIVE.	
 
The Subscription Agreement Signature Page, which has been delivered with this Prospectus, together with a check for the full purchase price, should be delivered or mailed to your Broker-Dealer. Only original, completed copies of Subscription Agreements can be accepted. Photocopied or otherwise duplicated Subscription Agreements cannot be accepted by the Wells REIT.
 
IF YOU NEED FURTHER ASSISTANCE IN COMPLETING THIS
SUBSCRIPTION AGREEMENT SIGNATURE PAGE,
PLEASE CALL 1-800-448-1010
 
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EXHIBIT B
 
AMENDED AND RESTATED
DIVIDEND REINVESTMENT PLAN
As of December 20, 1999
 
Wells Real Estate Investment Trust, Inc., a Maryland corporation (the “Company”), pursuant to its Amended and Restated Articles of Incorporation, adopted a Dividend Reinvestment Plan (the “DRP”), which is hereby amended and restated in its entirety as set forth below. Capitalized terms shall have the same meaning as set forth in the Articles unless otherwise defined herein.
 
1.  Dividend Reinvestment.    As agent for the shareholders (“Shareholders”) of the Company who (a) purchased shares of the Company’s common stock (the “Shares”) pursuant to the Company’s initial public offering (the “Initial Offering”), which commenced on January 30, 1998 and will terminate on or before January 30, 2000, (b) purchase Shares pursuant to the Company’s second public offering (the “Second Offering”), which will commence immediately upon the termination of the Initial Offering, or (c) purchase Shares pursuant to any future offering of the Company (“Future Offering”), and who elect to participate in the DRP (the “Participants”), the Company will apply all dividends and other distributions declared and paid in respect of the Shares held by each Participant (the “Dividends”), including Dividends paid with respect to any full or fractional Shares acquired under the DRP, to the purchase of the Shares for such Participants directly, if permitted under state securities laws and, if not, through the Dealer Manager or Soliciting Dealers registered in the Participant’s state of residence.
 
2.  Effective Date.    The effective date of this Amended and Restated Dividend Reinvestment Plan (the “DRP”) shall be the date that the Second Offering becomes effective with the Securities and Exchange Commission (the “Commission”).
 
3.  Procedure for Participation.    Any Shareholder who purchased Shares pursuant to the Initial Offering, the Second Offering or any Future Offering and who has received a prospectus, as contained in the Company’s registration statement filed with the Commission, may elect to become a Participant by completing and executing the Subscription Agreement, an enrollment form or any other appropriate authorization form as may be available from the Company, the Dealer Manager or Soliciting Dealer. Participation in the DRP will begin with the next Dividend payable after receipt of a Participant’s subscription, enrollment or authorization. Shares will be purchased under the DRP on the date that Dividends are paid by the Company. Dividends of the Company are currently paid quarterly. Each Participant agrees that if, at any time prior to the listing of the Shares on a national stock exchange or inclusion of the Shares for quotation on the National Association of Securities Dealers, Inc. Automated Quotation System (“Nasdaq”), he or she fails to meet the suitability requirements for making an investment in the Company or cannot make the other representations or warranties set forth in the Subscription Agreement, he or she will promptly so notify the Company in writing.
 
4.  Purchase of Shares.    Participants will acquire DRP Shares from the Company at a fixed price of $10 per Share until (i) all 2,200,000 of the DRP Shares registered in the Second Offering are issued or (ii) the Second Offering terminates and the Company elects to deregister with the Commission the unsold DRP Shares. Participants in the DRP may also purchase fractional Shares so that 100% of the Dividends will be used to acquire Shares. However, a Participant will not be able to acquire DRP Shares to the extent that any such purchase would cause such Participant to exceed the Ownership Limit as set forth in the Articles.
 
Shares to be distributed by the Company in connection with the DRP may (but are not required to) be supplied from: (a) the DRP Shares which will be registered with the Commission in connection with the Company’s Second Offering, (b) Shares to be registered with the Commission in a Future Offering for use in the DRP (a “Future Registration”), or (c) Shares of the Company’s common stock purchased by the Company for the DRP in a secondary market (if available) or on a stock exchange or Nasdaq (if listed) (collectively, the “Secondary Market”).
 
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Shares purchased on the Secondary Market as set forth in (c) above will be purchased at the then-prevailing market price, which price will be utilized for purposes of purchases of Shares in the DRP. Shares acquired by the Company on the Secondary Market or registered in a Future Registration for use in the DRP may be at prices lower or higher than the $10 per Share price which will be paid for the DRP Shares pursuant to the Initial Offering and the Second Offering.
 
If the Company acquires Shares in the Secondary Market for use in the DRP, the Company shall use reasonable efforts to acquire Shares for use in the DRP at the lowest price then reasonably available. However, the Company does not in any respect guarantee or warrant that the Shares so acquired and purchased by the Participant in the DRP will be at the lowest possible price. Further, irrespective of the Company’s ability to acquire Shares in the Secondary Market or to complete a Future Registration for shares to be used in the DRP, the Company is in no way obligated to do either, in its sole discretion.
 
It is understood that reinvestment of Dividends does not relieve a Participant of any income tax liability which may be payable on the Dividends.
 
5.  Share Certificates.    The ownership of the Shares purchased through the DRP will be in book-entry form only until the Company begins to issue certificates for its outstanding common stock.
 
6.  Reports.    Within 90 days after the end of the Company’s fiscal year, the Company shall provide each Shareholder with an individualized report on his or her investment, including the purchase date(s), purchase price and number of Shares owned, as well as the dates of Dividend distributions and amounts of Dividends paid during the prior fiscal year. In addition, the Company shall provide to each Participant an individualized quarterly report at the time of each Dividend payment showing the number of Shares owned prior to the current Dividend, the amount of the current Dividend and the number of Shares owned after the current Dividend.
 
7.  Commissions and Other Charges.    In connection with Shares sold pursuant to the DRP, the Company will pay selling commissions of 7%; a dealer manager fee of 2.5%; and, in the event that proceeds from the sale of DRP Shares are used to acquire properties, acquisition and advisory fees and expenses of 3.5%, of the purchase price of the DRP Shares.
 
8.  Termination by Participant.    A Participant may terminate participation in the DRP at any time, without penalty by delivering to the Company a written notice. Prior to listing of the Shares on a national stock exchange or Nasdaq, any transfer of Shares by a Participant to a non-Participant will terminate participation in the DRP with respect to the transferred Shares. If a Participant terminates DRP participation, the Company will ensure that the terminating Participant’s account will reflect the whole number of shares in his or her account and provide a check for the cash value of any fractional share in such account. Upon termination of DRP participation, Dividends will be distributed to the Shareholder in cash.
 
9.  Amendment or Termination of DRP by the Company.    The Board of Directors of the Company may by majority vote (including a majority of the Independent Directors) amend or terminate the DRP for any reason upon 10 days’ written notice to the Participants.
 
10.  Liability of the Company.    The Company shall not be liable for any act done in good faith, or for any good faith omission to act, including, without limitation, any claims or liability; (a) arising out of failure to terminate a Participant’s account upon such Participant’s death prior to receipt of notice in writing of such death; and (b) with respect to the time and the prices at which Shares are purchased or sold for a Participant’s account. To the extent that indemnification may apply to liabilities arising under the Securities Act of 1933, as amended, or the securities act of a sate, the Company has been advised that, in the opinion of the Commission and certain state securities commissioners, such indemnification is contrary to public policy and, therefore, unenforceable.
 
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Until October 24, 2002 (90 days after the date of this prospectus), all dealers that affect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as soliciting dealers.
 
We have not authorized any dealer, salesperson or other individual to give any information or to make any representations that are not contained in this prospectus. If any such information or statements are given or made, you should not rely upon such information or representation. This prospectus does not constitute an offer to sell any securities other than those to which this prospectus relates, or an offer to sell, or a solicitation of an offer to buy, to any person in any jurisdiction where such an offer or solicitation would be unlawful. This prospectus speaks as of the date set forth below. You should not assume that the delivery of this prospectus or that any sale made pursuant to this prospectus implies that the information contained in this prospectus will remain fully accurate and correct as of any time subsequent to the date of this prospectus.

 
ALPHABETICAL INDEX
 
 	  	Page

	
Additional Information	  	153	
Conflicts of Interest	  	54	
Description of Real Estate Investments	  	67	
Description of Shares	  	137	
ERISA Considerations	  	132	
Estimated Use of Proceeds	  	30	
Experts	  	152	
Federal Income Tax Considerations	  	117	
Financial Statements	  	154	
Glossary	  	153	
Investment Objectives and Criteria	  	58	
Legal Opinions	  	152	
Management	  	31	
Management Compensation	  	49	
Management’s Discussion and Analysis of Financial Condition and Results of Operations	  	101	
Plan of Distribution	  	146	
Prior Performance Summary	  	108	
Prior Performance Tables	  	210	
Prospectus Summary	  	10	
Questions and Answers About This Offering	  	1	
Risk Factors	  	17	
Selected Financial Data	  	101	
Suitability Standards	  	28	
Supplemental Sales Material	  	151	
The Operating Partnership Agreement	  	143	

 
Shares of the Wells REIT are not FDIC insured, may lose value and are not bank guaranteed. Investments in real estate and REITs may be affected by adverse economic and regulatory changes. Properties that incur vacancies may be difficult to sell or re-lease. Non-traded REITs have certain risks, including illiquidity of the investment, and should be considered a long-term investment. Past performance does not guarantee future performance. When you sell your shares, they could be worth less than what you paid for them.

 
 
WELLS REAL ESTATE
INVESTMENT TRUST, INC.
 
Up to 300,000,000 Shares
of Common Stock
Offered to the Public

 
PROSPECTUS

 
WELLS INVESTMENT
SECURITIES, INC.
 
July 26, 2002

 

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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 42 nd  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

	
 	 	
Unaudited Financial Statements	  	 	
 	 	
Consolidated Balance Sheets as of June 30, 2002 (unaudited) and December 31, 2001	  	10	
 	 	
Consolidated Statements of Income for the three months ended June 30, 2002 and June 30, 2001 (unaudited), and for the six months ended June 30, 2002 and June 30, 2001 (unaudited)	  	11	
 	 	
Consolidated Statements of Shareholders’ Equity for the year ended December 31, 2001 and for the six months ended June 30, 2002 (unaudited)	  	12	
 	 	
Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and June 30, 2001 (unaudited)	  	13	
 	 	
Condensed Notes to Consolidated Financial Statements June 30, 2002 (unaudited)	  	14	
 	 	
Wells Real Estate Investment Trust, Inc. and Subsidiary	  	 	
 	 	
Unaudited Pro Forma Financial Statements	  	 	
 	 	
Summary of Unaudited Pro Forma Financial Statements	  	26	
 	 	
Pro Forma Balance Sheet as of June 30, 2002 (unaudited)	  	27	
 	 	
Pro Forma Statement of Income for the year ended December 31, 2001 (unaudited)	  	29	
 	 	
Pro Forma Statement of Income for the six months ended June 30, 2002 (unaudited)	  	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	 	
 
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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.
 
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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
 
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Table of Contents
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.
 
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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.
 
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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
 
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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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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.
 
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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.
 
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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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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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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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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.
 
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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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WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 2 DATED AUGUST 29, 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, as supplemented and amended by Supplement No. 1 dated August 14, 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)	 	The declaration of dividends for the fourth quarter of 2002;	
 
 	(3)	 	Revisions to the “Description of Real Estate Investments” section of the prospectus to describe the following real property matters:	
 
 	(A)	 	Acquisition of three office buildings in Irving, Texas (Nokia Dallas Buildings);	
 
 	(B)	 	Acquisition of a seven-story office building in Austin, Texas (Harcourt Austin Building); and	
 
 	(C)	 	Execution of a lease with AmeriCredit Financial Services in connection with a build-to-suit three-story office building in Chandler, Arizona (AmeriCredit Arizona Building);	
 
 	(4)	 	Revisions to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the prospectus; and	
 
 	(5)	 	Unaudited pro forma financial statements of the Wells REIT reflecting the acquisition of the Nokia Dallas Buildings.	
 
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 25, 2002, we had received additional gross proceeds of approximately $84,871,857 from the sale of approximately 8,487,186 shares in our fourth public offering.

Table of Contents
Dividends
 
As we described in Supplement No. 1 to the prospectus, 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 – we were required to lower our dividend yield to investors.
 
As a result of the factors described in the preceding paragraph, on August 29, 2002, our board of directors declared dividends for the fourth quarter of 2002 in an amount equal to a 7.0% annualized percentage rate return on an investment of $10 per share to be paid in December 2002. Our fourth quarter dividends are calculated on a daily record basis of $0.001923 (0.1923 cents) per day per share on the outstanding shares of common stock payable to stockholders of record of such shares as shown on the books of the Wells REIT at the close of business on each day during the period, commencing on September 16, 2002, and continuing on each day thereafter through and including December 15, 2002.
 
Description of Properties
 
As of August 25, 2002, we had purchased interests in 59 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 25, 2002.
 
Nokia Dallas Buildings
 
On August 15, 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 three adjacent office buildings containing an aggregate of 604,234 rentable square feet located in Irving, Texas for an aggregate purchase price of $119,550,000, plus closing costs (Nokia Dallas Buildings). The Nokia Dallas Buildings consist of (1) a nine-story office building located at 6031 Connection Drive (Nokia I Building), (2) a seven-story office building located at 6021 Connection Drive (Nokia II Building), and (3) a six-story office building located at 6011 Connection Drive (Nokia III Building). The Nokia I Building and Nokia III Building were built in 1999, and the Nokia II Building was built in 2000.
 
The Nokia Dallas Buildings are all leased entirely to Nokia, Inc., the U.S. operating subsidiary of Nokia Corporation (Nokia), under long-term net leases (i.e., operating costs and maintenance costs are paid by the tenant) for periods of 10 years, with approximately seven to eight years remaining on such leases. Nokia, the guarantor of the Nokia, Inc. leases, is a Finnish corporation whose shares are traded on the New York Stock Exchange. Nokia is a mobile communications company that supplies mobile phones and mobile, fixed broadband, and Internet protocol networks. Nokia sells its products in over 130 countries worldwide. Nokia reported a net worth, as of December 31, 2001, of approximately $12 billion Euros.
 
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Since the Dallas Nokia Buildings are leased to a single tenant on a long-term basis under net leases that transfer substantially all of the operating costs to the tenant, we believe that financial information about the guarantor of the leases, Nokia, is more relevant to investors than financial statements of the property acquired. Nokia is a public company which currently files its financial statements in reports filed with the Securities and Exchange Commission, and following is summary financial data regarding Nokia taken from its previously filed public reports:
 
Consolidated Profit and Loss Accounts
 	  	For the Fiscal Year Ended

	
 	  	December 31,
2001

	  	December 31,
2000

	  	December 31,
1999

	
 	  	(In millions of Euros)	
Net Sales	  	31,191	  	30,376	  	19,772	
Operating Profit	  	3,362	  	5,776	  	3,908	
Net Profit	  	2,200	  	3,938	  	2,577	

Consolidated Balance Sheet Data
 	  	December 31,
2001

	  	December 31,
2000

	
 	  	(In millions of Euros)	
Total Assets	  	22,427	  	19,890	
Long-term liabilities	  	460	  	311	
Shareholders’ Equity	  	12,205	  	10,808	
 
If you would like to review more detailed financial information regarding Nokia, please refer to the financial statements of Nokia, which are publicly available with the Securities and Exchange Commission at http://www.sec.gov.
 
The Nokia I Building is a nine-story building containing 228,678 rentable square feet. The Nokia I Building lease fully commenced in July 1999 and expires in July 2009. The current annual base rent payable under the Nokia I Building lease is $4,413,485.
 
The Nokia II Building is a seven-story building containing 223,470 rentable square feet. The Nokia II Building lease commenced in December 2000 and expires in December 2010. The current annual base rent payable under the Nokia II Building lease is $4,547,614.
 
The Nokia III Building is a six-story building containing 152,086 rentable square feet. The Nokia III Building lease commenced in June 1999 and expires in July 2009. The current annual base rent payable under the Nokia III Building lease is $3,024,990.
 
Nokia, Inc. has a right of first offer on the future sale of each of the Nokia Dallas Buildings.
 
Harcourt Austin Building
 
On August 15, 2002, Wells OP purchased a seven-story office building containing 195,230 rentable square feet located in Austin, Texas (Harcourt Austin Building) for a purchase price of $39,000,000, plus closing costs. The Harcourt Austin Building was built in 2001 and is located at 10801 North Mopac Expressway, Austin, Texas.
 
The Harcourt Austin Building is leased entirely to Harcourt, Inc., a wholly owned subsidiary of Harcourt General, Inc. (Harcourt General), the guarantor of the Harcourt lease. Harcourt General is a Delaware corporation having its corporate headquarters in Newton, Massachusetts. Harcourt General is a worldwide education company that provides books, print, and electronic learning materials, assessments, and professional development programs to students and teachers in pre-kindergarten through 12 th  grade. Harcourt General was acquired in July 2001, by, and became a wholly owned subsidiary of, Reed Elsevier PLC, a privately held company.
 
The Harcourt lease commenced in July 2001 and expires in June 2016. The current annual base rent payable under the Harcourt lease is $3,353,040.
 
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Lease of AmeriCredit Arizona Building
 
On August 9, 2002, Wells OP entered into a 10-year lease with AmeriCredit Financial Services, Inc. (AmeriCredit) for a build-to-suit property on a 14-acre tract of land located in Chandler, Arizona (AmeriCredit Arizona Property). Wells OP expects to enter into a definitive agreement to acquire the AmeriCredit Arizona Property in the near future.
 
AmeriCredit is wholly-owned by, and serves as the primary operating subsidiary for, AmeriCredit Corp., a Texas corporation whose common stock is publicly traded on the NYSE. AmeriCredit Corp. is the guarantor of the lease. AmeriCredit is the world’s largest independent middle-market automobile finance company. AmeriCredit purchases loans made by franchised and select independent dealers to consumers buying late model used and, to a lesser extent, new automobiles. AmeriCredit Corp. reported a net worth, as of December 31, 2001, of approximately $1.2 billion.
 
The AmeriCredit Arizona lease will commence shortly after completion of construction of a three-story office building containing approximately 153,494 rentable square feet on the AmeriCredit Arizona Property, which we expect to occur in approximately March 2003 at a total estimated cost of $24,700,000. The AmeriCredit Arizona lease expires 10 years and four months after lease commencement. AmeriCredit has the right to extend the initial term of this lease for two additional five-year terms at 95% of the then-current market rental rate. In addition, AmeriCredit may terminate the AmeriCredit Arizona lease at the end of the 88 th  month by paying a $2,512,697 termination fee.
 
As an inducement for Wells OP to enter into the AmeriCredit Arizona lease, AmeriCredit has prepaid to Wells OP the first three years of base rent on the AmeriCredit Arizona Building at a discounted amount equal to $4,827,945 rather than the amount of base rent that would otherwise have been payable ratably over the first three years of the lease term. Wells OP will be required to repay this prepaid rent or some portion thereof under certain circumstances described in the AmeriCredit Arizona lease such as failure of Wells OP to substantially complete construction of the building in accordance with specifications by August 1, 2003, damage or destruction of the building, eminent domain taking of the property and failure of Wells OP to make required repairs to the building. Wells OP has obtained and delivered an irrevocable stand-by letter of credit from Bank of America, N.A. to AmeriCredit in the amount of the prepaid rent to secure Wells OP’s obligation to repay the prepaid rent under these conditions.
 
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 Nokia Dallas Buildings, the Harcourt Austin Building and the AmeriCredit Arizona Building, subject to certain limitations. In addition, Wells Management will receive a one-time initial lease-up fee relating to the leasing of the AmeriCredit Arizona Building equal to one month’s rent estimated to be approximately $207,000.
 
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
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, as supplemented by Supplement No. 1 dated August 14, 2002.
 
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 25, 2002, we had received additional gross proceeds of approximately $84,871,857 from the sale of approximately 8,487,186 shares in our fourth public offering. Accordingly, as of August 25, 2002, we had received aggregate gross offering proceeds of approximately $1,684,315,201 from the sale of approximately 168,431,520 shares in all of our public offerings. After payment of $58,452,949 in acquisition and advisory fees and acquisition expenses, payment of $187,490,370 in selling commissions and organization and offering expenses, and common stock redemptions of $14,230,931 pursuant to our share redemption program, as of August 25, 2002, we had raised aggregate net offering proceeds available for investment in properties of $1,424,140,951, out of which $1,128,348,590 had been invested in real estate properties, and $295,792,361 remained available for investment in real estate properties.
 
Financial Statements
 
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.
 
5

Table of Contents
INDEX TO FINANCIAL STATEMENTS

Wells Real Estate Investment Trust, Inc. and Subsidiary	  	Page

	
 	 	
Unaudited Pro Forma Financial Statements	  	 	
 	 	
Summary of Unaudited Pro Forma Financial Statements	  	7	
 	 	
Pro Forma Balance Sheet as of June 30, 2002 (unaudited)	  	8	
 	 	
Pro Forma Statement of Income for the year ended December 31, 2001 (unaudited)	  	10	
 	 	
Pro Forma Statement of Income for the six months ended June 30, 2002 (unaudited)	  	11	
 
6

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 previously filed.
 
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, the Kraft Atlanta Building (the “Other Recent Acquisitions”) and the Nokia Dallas Buildings (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

	 	 	 	
 	  	Wells Real
Estate	  	Recent Acquisitions

	 	 	 	
 	  	Investment
Trust, Inc. (e)

	  	Other

	 	 	Nokia
Dallas

	 	 	Pro Forma
Total

	
REAL ESTATE ASSETS, at cost:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	
Land	  	$	110,330,449	  	$	8,488,044	 (a)	 	$	9,100,000	 (a)	 	$	128,634,284	
 	  	 	 	  	 	345,443	 (b)	 	 	370,348	 (b)	 	 	 	
Buildings, less accumulated depreciation of $37,717,737	  	 	689,490,969	  	 	46,302,615	 (a)	 	 	110,831,069	 (a)	 	 	853,019,628	
 	  	 	 	  	 	1,884,408	 (b)	 	 	4,510,567	 (b)	 	 	 	
Construction in progress	  	 	16,081,841	  	 	379,901	 (a)	 	 	0	 	 	 	16,461,742	

	

	  	

	

	

	 	

	

	

	 	

	

	
Total real estate assets	  	 	815,903,259	  	 	57,400,411	 	 	 	124,811,984	 	 	 	998,115,654	

	

	  	

	

	

	 	

	

	

	 	

	

	
CASH AND CASH EQUIVALENTS	  	 	341,909,775	  	 	(43,452,969	)(a)	 	 	(119,931,069	)(a)	 	 	372,072,298	
 	  	 	 	  	 	200,566,384	 (c)	 	 	 	 	 	 	 	
 	  	 	 	  	 	(7,019,823	)(d)	 	 	 	 	 	 	 	
INVESTMENT IN JOINT VENTURES	  	 	76,217,870	  	 	0	 	 	 	0	 	 	 	76,217,870	
INVESTMENT IN BONDS	  	 	22,000,000	  	 	0	 	 	 	0	 	 	 	22,000,000	
ACCOUNTS RECEIVABLE	  	 	10,709,104	  	 	0	 	 	 	0	 	 	 	10,709,104	
DEFERRED LEASE ACQUISITION COSTS, net	  	 	1,790,608	  	 	0	 	 	 	0	 	 	 	1,790,608	
DEFERRED PROJECT COSTS	  	 	14,314,914	  	 	(2,229,851	)(b)	 	 	(4,880,915	)(b)	 	 	14,223,971	
 	  	 	 	  	 	7,019,823	 (d)	 	 	 	 	 	 	 	
DEFERRED OFFERING COSTS	  	 	1,392,934	  	 	0	 	 	 	0	 	 	 	1,392,934	
DUE FROM AFFILIATES	  	 	1,897,309	  	 	0	 	 	 	0	 	 	 	1,897,309	
NOTE RECEIVABLE	  	 	5,149,792	  	 	0	 	 	 	0	 	 	 	5,149,792	
PREPAID EXPENSES AND OTHER ASSETS, net	  	 	1,881,308	  	 	0	 	 	 	0	 	 	 	1,881,308	

	

	  	

	

	

	 	

	

	

	 	

	

	
Total assets	  	$	1,293,166,873	  	$	212,283,975	 	 	$	0	 	 	$	1,505,450,848	

	

	  	

	

	

	 	

	

	

	 	

	

	

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LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 	  	 	 	  	Pro Forma Adjustments

	  	 	 	
 	  	Wells Real
Estate	 	  	Recent Acquisitions

	  	 	 	
 	  	Investment
Trust, Inc. (e)

	 	  	Other

	 	 	Nokia
Dallas

	  	Pro Forma
Total

	 	
LIABILITIES:	  	 	 	 	  	 	 	 	 	 	 	  	 	 	 	
Accounts payable and accrued expenses	  	$	11,840,214	 	  	$	14,830	(a)	 	$	0	  	$	11,855,044	 	
Notes payable	  	 	15,658,141	 	  	 	11,702,761	(a)	 	 	0	  	 	27,360,902	 	
Obligations under capital lease	  	 	22,000,000	 	  	 	0	 	 	 	0	  	 	22,000,000	 	
Dividends payable	  	 	4,538,635	 	  	 	0	 	 	 	0	  	 	4,538,635	 	
Due to affiliates	  	 	2,106,790	 	  	 	0	 	 	 	0	  	 	2,106,790	 	
Deferred rental income	  	 	1,013,544	 	  	 	0	 	 	 	0	  	 	1,013,544	 	

	

	

	  	

	

	

	 	

	

	  	

	

	

	
Total liabilities	  	 	57,157,324	 	  	 	11,717,591	 	 	 	0	  	 	68,874,915	 	

	

	

	  	

	

	

	 	

	

	  	

	

	

	
COMMITMENTS AND CONTINGENCIES	  	 	 	 	  	 	 	 	 	 	 	  	 	 	 	
 	 	 	 	 	
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP	  	 	200,000	 	  	 	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	 	  	 	200,566	(c)	 	 	0	  	 	1,656,456	 	
Additional paid-in capital	  	 	1,290,858,515	 	  	 	200,365,818	(c)	 	 	0	  	 	1,491,224,333	 	
Cumulative distributions in excess of earnings	  	 	(43,991,669	)	  	 	0	 	 	 	0	  	 	(43,991,669	)	
Treasury stock, at cost, 1,222,381 shares	  	 	(12,223,808	)	  	 	0	 	 	 	0	  	 	(12,223,808	)	
Other comprehensive loss	  	 	(289,379	)	  	 	0	 	 	 	0	  	 	(289,379	)	

	

	

	  	

	

	

	 	

	

	  	

	

	

	
Total shareholders’ equity	  	 	1,235,809,549	 	  	 	200,566,384	 	 	 	0	  	 	1,436,375,933	 	

	

	

	  	

	

	

	 	

	

	  	

	

	

	
Total liabilities and shareholders’ equity	  	$	1,293,166,873	 	  	$	212,283,975	 	 	$	0	  	$	1,505,450,848	 	

	

	

	  	

	

	

	 	

	

	  	

	

	

	
 
(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 Nokia Dallas 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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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
Trust, Inc.(f)

	  	2001
Acquisitions

	 	 	2002
Acquisitions

	 	 	Other

	 	 	Nokia
Dallas

	 	 	Pro Forma
Total

	
REVENUES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental income	  	$	44,204,279	  	$	11,349,076	(a)	 	$	14,846,431	(a)	 	$	4,020,112	(a)	 	$	12,518,628	(a)	 	$	86,938,526	
Equity in income of joint ventures	  	 	3,720,959	  	 	1,111,850	(b)	 	 	0	 	 	 	0	 	 	 	0	 	 	 	4,832,809	
Interest income	  	 	1,246,064	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,246,064	
Take out fee	  	 	137,500	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	137,500	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
 	  	 	49,308,802	  	 	12,460,926	 	 	 	14,846,431	 	 	 	4,020,112	 	 	 	12,518,628	 	 	 	93,154,899	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
EXPENSES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	15,344,801	  	 	5,772,761	(c)	 	 	5,356,374	(c)	 	 	1,584,975	(c)	 	 	4,613,665	(c)	 	 	32,672,576	
Interest	  	 	3,411,210	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	3,411,210	
Operating costs, net of reimbursements	  	 	4,128,883	  	 	2,854,275	(d)	 	 	1,505,269	(d)	 	 	5,452	(d)	 	 	0	 	 	 	8,493,879	
Management and leasing fees	  	 	2,507,188	  	 	510,708	(e)	 	 	668,090	(e)	 	 	180,904	(e)	 	 	563,338	(e)	 	 	4,430,228	
General and administrative	  	 	973,785	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	973,785	
Amortization of deferred financing costs	  	 	770,192	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	770,192	
Legal and accounting	  	 	448,776	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	448,776	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
 	  	 	27,584,835	  	 	9,137,744	 	 	 	7,529,733	 	 	 	1,771,331	 	 	 	5,177,003	 	 	 	51,200,646	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
NET INCOME	  	$	21,723,967	  	$	3,323,182	 	 	$	7,316,698	 	 	$	2,248,781	 	 	$	7,341,625	 	 	$	41,954,253	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
EARNINGS PER SHARE, basic and diluted	  	$	0.43	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	0.26	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	
WEIGHTED AVERAGE SHARES, basic and diluted	  	 	50,520,853	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	164,423,411	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	
 
 	(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.
 
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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
Trust, Inc.(e)

	  	2002
Acquisitions

	 	 	Other

	 	 	Nokia
Dallas

	 	 	Pro Forma
Total

	
REVENUES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental income	  	$	38,571,815	  	$	7,307,774	(a)	 	$	2,652,335	(a)	 	$	6,259,314	(a)	 	$	54,791,238	
Equity in income of joint ventures	  	 	2,478,686	  	 	0	 	 	 	0	 	 	 	0	 	 	 	2,478,686	
Interest income	  	 	2,648,351	  	 	0	 	 	 	0	 	 	 	0	 	 	 	2,648,351	
Take out fee	  	 	134,102	  	 	0	 	 	 	0	 	 	 	0	 	 	 	134,102	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
 	  	 	43,832,954	  	 	7,307,774	 	 	 	2,652,335	 	 	 	6,259,314	 	 	 	60,052,377	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
EXPENSES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	12,903,282	  	 	2,588,546	(b)	 	 	963,740	(b)	 	 	2,306,833	(b)	 	 	18,762,401	
Interest	  	 	880,002	  	 	0	 	 	 	0	 	 	 	0	 	 	 	880,002	
Operating costs, net of reimbursements	  	 	2,063,997	  	 	300,018	(c)	 	 	79,067	(c)	 	 	0	 	 	 	2,443,082	
Management and leasing fees	  	 	1,903,082	  	 	328,850	(d)	 	 	119,355	(d)	 	 	281,669	(d)	 	 	2,632,956	
General and administrative	  	 	1,121,457	  	 	0	 	 	 	0	 	 	 	0	 	 	 	1,121,457	
Amortization of deferred financing costs	  	 	424,992	  	 	0	 	 	 	0	 	 	 	0	 	 	 	424,992	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
 	  	 	19,296,812	  	 	3,217,414	 	 	 	1,162,162	 	 	 	2,588,502	 	 	 	26,264,890	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
NET INCOME	  	$	24,536,142	  	$	4,090,360	 	 	$	1,490,173	 	 	$	3,670,812	 	 	$	33,787,487	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
EARNINGS PER SHARE, basic and diluted	  	$	0.22	  	 	 	 	 	 	 	 	 	 	 	 	 	$	0.21	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	

	

	
WEIGHTED AVERAGE SHARES, basic and diluted	  	 	110,885,641	  	 	 	 	 	 	 	 	 	 	 	 	 	 	164,423,411	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	

	

	
 
 	(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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WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 3 DATED OCTOBER 15, 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, as supplemented and amended by Supplement No. 1 dated August 14, 2002 and Supplement No. 2 dated August 29, 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 Real Estate Investments” section of the prospectus to describe the following real property acquisitions:	
 
 	(A)	 	Acquisition of a two-story office building and a one-story daycare facility in Holtsville, New York (IRS Long Island Buildings);	
 
 	(B)	 	Acquisition of a 14.74 acre tract of land and the build-to-suit construction of a three-story office building in Chandler, Arizona (AmeriCredit Phoenix Building);	
 
 	(C)	 	Acquisition of a four-story office building in Parsippany, New Jersey (KeyBank Parsippany Building);	
 
 	(D)	 	Acquisition of a one-story office building located in Indianapolis, Indiana (Allstate Indianapolis Building);	
 
 	(E)	 	Acquisition of a three-story office building located in Colorado Springs, Colorado (Federal Express Colorado Springs Building);	
 
 	(F)	 	Acquisition of a one-story office and distribution building in Des Moines, Iowa (EDS Des Moines Building);	
 
 	(G)	 	Acquisition of a two-story office building with a three-story wing located in Plano, Texas (Intuit Dallas Building); and	
 
 	(H)	 	Acquisition of a two-story office building in Westlake, Texas (Daimler Chrysler Dallas Building);	
 
 	(3)	 	Revisions to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the prospectus;	
 
 	(4)	 	Status of the development of the Nissan Project;	
 
 	(5)	 	Audited financial statements relating to the Harcourt Austin Building, which acquisition was described in Supplement No. 2 dated August 29, 2002, the IRS Long Island Buildings and the KeyBank Parsippany Building; and	
 
 	(6)	 	Unaudited pro forma financial statements of the Wells REIT reflecting the acquisition of the Harcourt Austin Building, IRS Long Island Buildings, AmeriCredit Phoenix Property, KeyBank Parsippany Building, Allstate Indianapolis Building, Federal Express Colorado Springs Building, EDS Des Moines Building, Intuit Dallas Building and Daimler Chrysler Dallas Building.	
 
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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 $1,282,976,865 in gross offering proceeds from the sale of 128,297,687 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 October 15, 2002, we had received additional gross proceeds of approximately $276,782,914 from the sale of approximately 27,678,291 shares in our fourth public offering.
 
Description of Properties
 
As of October 15, 2002, we had purchased interests in 67 real estate properties located in 22 states. Below are the descriptions of our recent real property acquisitions.
 
IRS Long Island Buildings
 
On September 16, 2002, Wells REIT-Holtsville, NY, LLC (REIT-Holtsville), a Georgia limited liability company wholly-owned by 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 (IRS Office Building) and a one-story daycare facility (IRS Daycare Facility) containing an aggregate 259,700 rentable square feet located in Holtsville, New York for a purchase price of $50,975,000, plus closing costs from HIRS Associates LLC (HIRS). HIRS is not in any way affiliated with the Wells REIT, Wells OP, REIT-Holtsville, or our advisor, Wells Capital, Inc.
 
The IRS Office Building was built in 2000 and is located at 5000 Corporate Court in Holtsville, New York on a 36.25-acre tract of land. The IRS Daycare Facility was built in 1999 and is located on a 1.87-acre tract of land located at 2 Corporate Drive in Holtsville, New York. The IRS Office Building is located in central Long Island in a campus setting. The property was developed as a flagship campus for the Internal Revenue Service (IRS) and is one of only eight processing and collection facilities in the country.
 
Approximately 191,050 of the aggregate rentable square feet of the IRS Long Island Buildings (74%) is currently leased to the United States of America (U.S.A.) through the U.S. General Services Administration (GSA) for occupancy by the IRS under three separate lease agreements for the processing & collection division of the IRS (IRS Collection), the compliance division of the IRS (IRS Compliance), and the IRS Daycare Facility. The GSA is a centralized federal procurement and property management agency which acquires office space, equipment, telecommunications, information technology, supplies and services for federal agencies such as the IRS.
 
REIT-Holtsville is negotiating for the remaining 26% of the IRS Long Island Buildings to be leased by the U.S.A. on behalf of the IRS or to another suitable tenant. If REIT-Holtsville should lease this space to the U.S.A. or another suitable tenant within 18 months, REIT-Holtsville would owe the seller an additional amount of up to $14,500,000 as additional purchase price for the IRS Long Island Buildings pursuant to the terms of an earnout agreement entered into between REIT-Holtsville and the seller at the closing.
 
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All three of the IRS leases are net leases (i.e., operating costs and maintenance costs are paid by the tenant) which include provisions that require the landlord and the property manager to comply with various employment related practices and other various laws typically required by government entities. Although we believe that the Wells REIT, Wells OP and REIT-Holtsville should be deemed exempt from these requirements, if a determination were made that these or other affiliated entities violated these lease provisions, the tenant has the right under each of the IRS leases to terminate the lease or to require compliance by the appropriate entities. REIT-Holtsville, as the landlord, is responsible for maintaining and repairing the roof, structural elements and mechanical systems of the IRS Long Island Buildings.
 
The IRS Collection lease, which encompasses 128,000 rentable square feet of the IRS Office Building, commenced in August 2000 and expires in August 2005. The current annual base rent payable under the IRS Collection lease is $5,029,380. The annual base rent payable under the IRS Collection lease for the remaining two years of the initial lease term will be $2,814,900. The U.S.A., at its option, has the right to extend the initial term of its lease for two additional five-year periods at annual rental rates of $4,209,869 and $4,999,219, respectively.
 
The IRS Compliance lease, which encompasses 50,949 rentable square feet of the IRS Office Building, commenced in December 2001 and expires in December 2011. The annual base rent payable under the IRS Compliance lease for the initial term of the lease is $1,663,200. The U.S.A., at its option, has the right to extend the initial term of its lease for one additional ten-year period at an annual rental rate of $2,217,600.
 
The IRS Daycare Facility lease, which encompasses the entire 12,100 rentable square feet of the IRS Daycare Facility, commenced in October 1999 and expires in September 2004. The annual base rent payable under the IRS Daycare Facility lease for the initial term of the lease is $486,799. The U.S.A., at its option, has the right to extend the initial term of its lease for two additional five-year periods at an annual rental rate of $435,600.
 
AmCap Management Corporation, an affiliate of HIRS, the seller of the property, will serve as the initial property manager of the IRS Long Island Buildings for a period of up to 18 months. AmCap Management Corporation is not in any way affiliated with the Wells REIT, Wells OP, REIT-Holtsville or our advisor. Prior to the expiration of the 18-month term of the property management agreement, REIT-Holtsville will be required to locate and hire a new property manager for the IRS Long Island Buildings.
 
The AmeriCredit Phoenix Property
 
On September 12, 2002, Wells OP purchased a 14.74 acre tract of land located in Chandler, Maricopa County, Arizona (AmeriCredit Phoenix Property (formerly referred to as AmeriCredit Arizona Property)) for $2,632,298, plus closing costs from Price & Germann Roads, L.L.C., an Arizona limited liability company (Price). Price is not in any way affiliated with the Wells REIT, Wells OP or our advisor.
 
Wells OP has entered into a development agreement and an owner-contractor agreement to construct a three-story office building containing 153,494 rentable square feet (AmeriCredit Phoenix Project) on the AmeriCredit Phoenix Property. Wells OP anticipates that the aggregate of all costs and expenses to be incurred with respect to the acquisition of the AmeriCredit Phoenix Property, and the planning, design, development, construction and completion of the AmeriCredit Phoenix Project will total approximately $24,700,000.
 
Development Agreement.    Wells OP entered into a Development Agreement (Development Agreement) with ADEVCO Corporation, a Georgia corporation (Developer), as the exclusive development manager to supervise, manage and coordinate the planning, design, construction and completion of the AmeriCredit Phoenix Project. As compensation for the services to be rendered by the Developer under the Development Agreement, Wells OP will pay a development fee payable ratably (on
 
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the basis of the percentage of construction completed) as the construction and development of the AmeriCredit Phoenix Project is completed.
 
Owner-Contractor Agreement.    Wells OP entered into an Owner-Contractor Agreement (Construction Agreement) with Bovis Lend Lease, Inc. (Contractor) for the construction of the AmeriCredit Phoenix Project. The Contractor is a worldwide construction company with U.S. headquarters in New York. The Contractor provides services in a variety of sectors in the construction industry, including commercial, residential, industrial, pharmaceutical, sports and leisure, and retail and entertainment. The Contractor began construction in September 2002 of a three-story office building containing approximately 153,494 rentable square feet (AmeriCredit Phoenix Building).
 
The Construction Agreement provides that Wells OP will pay the Contractor a maximum of $10,398,274 for the construction of the AmeriCredit Phoenix Project which includes all estimated fees and costs, including the architect fees. The Contractor will be responsible for all costs of labor, materials, construction equipment and machinery necessary for completion of the AmeriCredit Phoenix Project. In addition, the Contractor will be required to secure and pay for any additional business licenses, tap fees and building permits which may be necessary for construction of the AmeriCredit Phoenix Project.
 
AmeriCredit Phoenix Lease.    The AmeriCredit Phoenix Building will be leased entirely to AmeriCredit Financial Services, Inc. (AmeriCredit). AmeriCredit is wholly-owned by, and serves as the primary operating subsidiary for, AmeriCredit Corp., a Texas corporation whose common stock is publicly traded on the New York Stock Exchange (NYSE). AmeriCredit Corp. is the guarantor of the lease. AmeriCredit is the world’s largest independent middle-market automobile finance company. AmeriCredit purchases loans made by franchised and select independent dealers to consumers buying late model used and, to a lesser extent, new automobiles. AmeriCredit Corp. reported a net worth, as of December 31, 2001, of approximately $1.2 billion.
 
The AmeriCredit Phoenix lease is a net lease (i.e., operating costs and maintenance costs to be paid by the tenant) and will commence shortly after completion of construction of the AmeriCredit Phoenix Building, which we currently expect to occur in approximately March 2003. The AmeriCredit Phoenix lease expires 10 years and four months after lease commencement. AmeriCredit has the right to extend the initial term of this lease for two additional five-year terms at 95% of the then-current market rental rate. In addition, AmeriCredit may terminate the AmeriCredit Phoenix lease at the end of the 88 th  month by paying a $2,512,697 termination fee. Wells OP, as the landlord, will be responsible for maintaining the roof, foundation, structural walls, exterior windows, parking lot, driveways, and light poles.
 
As an inducement for Wells OP to enter into the AmeriCredit Phoenix lease, AmeriCredit has prepaid to Wells OP the first three years of base rent on the AmeriCredit Phoenix Building at a discounted amount equal to $4,827,945 rather than the amount of base rent that would otherwise have been payable ratably over the first three years of the lease term. Wells OP will be required to repay this prepaid rent or some portion thereof under certain circumstances described in the AmeriCredit Phoenix lease such as failure of Wells OP to substantially complete construction of the building in accordance with specifications by August 1, 2003, damage or destruction of the building, eminent domain taking of the property and failure of Wells OP to make required repairs to the building. Wells OP has obtained and delivered an irrevocable stand-by letter of credit from Bank of America, N.A. to AmeriCredit in the amount of the prepaid rent to secure Wells OP’s obligation to repay the prepaid rent under these conditions.
 
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KeyBank Parsippany Building
 
On September 27, 2002, Wells OP purchased a four-story office building containing 404,515 rentable square feet located on a 19.06 acre tract of land in Parsippany, New Jersey (KeyBank Parsippany Building) for a purchase price of $101,350,000, plus closing costs from Two Gatehall Associates, L.L.C. (Gatehall) and Asset Preservation, Inc. (Asset). Neither Gatehall nor Asset are in any way affiliated with the Wells REIT, Wells OP or our advisor.
 
The Key Bank Parsippany Building was completed in 1985 and is located at Two Gatehall Drive in Parsippany, Morris County, New Jersey. The KeyBank Parsippany Building is leased to Key Bank U.S.A., N.A. (KeyBank) and Gemini Technology Services (Gemini).
 
KeyBank is a national banking association and a wholly-owned subsidiary of KeyCorp, the guarantor on the lease. KeyCorp, whose shares are traded on the NYSE, is a bank-based financial services company that provides investment management, retail and commercial banking, retirement, consumer finance, and investment banking products and services to individuals and companies throughout the United States and internationally. KeyCorp operates approximately 2,300 ATMs across the United States. KeyCorp reported a net worth, as of June 30, 2002, of approximately $6.6 billion.
 
The KeyBank lease covers 200,000 rentable square feet (49%) and is a net lease (i.e., operating costs and maintenance costs are paid by the tenant) which commenced in March 2001 and expires in February 2016. The current annual base rent payable under the KeyBank lease is $3,800,000. KeyBank, at its option, has the right to extend the initial term of its lease for three additional five-year periods at the then-current market rental rate.
 
Gemini Technology Services is an information technology subsidiary of Deutsch Bank AG (Deutsch Bank). Deutsch Bank provides financial services around the world to individuals and institutional clients and serves more than 12 million customers in 75 countries worldwide.
 
The Gemini lease covers 204,515 rentable square feet (51%) and is a gross lease (i.e., operating costs and maintenance costs are the responsibility of the landlord) that commenced in December 2000 and expires in December 2013. The current annual base rent payable under the Gemini lease is $5,726,420. Gemini secured its obligations under the Gemini lease with a $35,000,000 irrevocable letter of credit, which amount decreases over time during the initial term of the Gemini lease. Gemini, at its option, has the right to extend the initial term of its lease for three additional five-year periods at a rate equal to the greater of (1) the annual rent during the final year of the initial lease term, or (2) 95% of the then-current market rental rate.
 
Allstate Indianapolis Building
 
On September 27, 2002, Wells OP purchased a one-story office building containing 89,956 rentable square feet located on a 12.71 acre tract of land in Indianapolis, Indiana (Allstate Indianapolis Building) for a purchase price of $10,900,000, plus closing costs from Hartsfield Building, LLC (Hartsfield). In addition, at closing, Hartsfield assigned to Wells OP a purchase option agreement for the right to purchase an additional adjacent 2.38 acre tract of land for $249,000 on or before January 2007. Hartsfield is not in any way affiliated with the Wells REIT, Wells OP or our advisor.
 
The Allstate Indianapolis Building was completed in 2002 and is located at 5757 Decatur Blvd. in Indianapolis, Marion County, Indiana. The Allstate Indianapolis Building is leased to Allstate Insurance Company (Allstate) and Holladay Property Services Midwest, Inc. (Holladay).
 
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Allstate Corporation, the holding company for Allstate whose shares are traded on the NYSE, provides automobile, homeowner’s, and life insurance throughout the United States, as well as numerous investment products, including retirement planning, annuities and mutual funds. Allstate Corporation reported a net worth, as of June 30, 2002, of approximately $17.2 billion.
 
The Allstate lease, a gross lease (i.e., operating costs and maintenance costs are paid by the landlord) which covers 84,200 rentable square feet (94%), commenced in March 2002 and expires in August 2012. The current annual base rent payable under the Allstate lease is $1,246,164. Allstate at its option has the right to (1) terminate the initial term of the Allstate lease at the end of the fifth lease year (August 2007) upon payment of a $385,000 fee, or (2) reduce its area of occupancy to not less than 20,256 rentable square feet, by providing written notice on or before August 2006. Allstate, 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, Allstate has a right of first refusal for the leasing of additional space in the Allstate Indianapolis Building. Wells OP, as the landlord, will be responsible for maintaining the exterior of the building, parking lots, driveways, roof and all structural parts of the building.
 
Holladay is a property management company that manages the Allstate Indianapolis Building from the site. The Holladay lease, a gross lease (i.e., operating costs and maintenance costs are paid by the landlord) which covers 5,756 rentable square feet (6%), commenced in October 2001 and expires in September 2006. The current annual base rent payable under the Holladay lease is $74,832.
 
Federal Express Colorado Springs Building
 
On September 27, 2002, Wells OP purchased a three-story office building containing 155,808 rentable square feet located on a 28.01 acre tract of land in Colorado Springs, Colorado (Federal Express Colorado Springs Building) for a purchase price of $26,000,000, plus closing costs from KDC-CO I Investment Limited Partnership (KDC). KDC is not in any way affiliated with the Wells REIT, Wells OP or our advisor.
 
The Federal Express Colorado Springs Building was completed in 2001 and is located at 350 Spectrum Loop in Colorado Springs, El Paso County, Colorado. The Federal Express Colorado Springs Building is leased entirely to Federal Express Corporation (Federal Express). The Federal Express lease is a net lease (i.e., operating costs and maintenance costs are paid by the tenant) which commenced in July 2001 and expires in October 2016. Federal Express, whose shares are traded on the NYSE, provides transportation, e-commerce and supply chain management services in over 210 countries through its numerous subsidiaries.
 
Since the Federal Express Colorado Springs Building is leased to a single tenant on a long-term basis under a net lease that transfers substantially all of the operating costs to the tenant, we believe that financial information about Federal Express is more relevant to investors than financial statements of the property acquired.
 
Federal Express currently files its financial statements in reports filed with the Securities and Exchange Commission (SEC), and the following summary financial data regarding Federal Express is taken from its previously filed public reports:
 
 	  	FOR THE FISCAL YEAR ENDED

	
 	  	MAY 31, 2002

	  	MAY 31, 2001

	  	MAY 31, 2000

	
 	  	(IN MILLIONS)	
CONSOLIDATED STATEMENTS OF OPERATIONS:	  	 	 	  	 	 	  	 	 	
Revenues	  	$	15,327	  	$	15,534	  	$	15,068	
Operating Income	  	$	811	  	$	847	  	$	900	
Net Income	  	$	443	  	$	499	  	$	510	
 
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 	  	MAY 31, 2002

	  	MAY 31, 2001

	
 	  	(IN MILLIONS)	
CONSOLIDATED BALANCE SHEET DATA:	  	 	 	  	 	 	
Total Assets	  	$	9,949	  	$	9,623	
Long-Term Debt	  	$	851	  	$	852	
Stockholders’ Equity	  	$	4,673	  	$	4,248	
 
For more detailed financial information regarding Federal Express, please refer to the financial statements of Federal Express Corporation, which are publicly available with the SEC at http://www.sec.gov.
 
The current annual base rent payable under the Federal Express lease is $2,248,309. Federal Express, at its option, has the right to extend the initial term of its lease for four additional five-year periods at 90% of the then-current market rental rate. In addition, Federal Express has an expansion option under its lease pursuant to which Wells OP would be required to construct an additional office building. Wells OP has agreed to allow Koll Development Company, LLC (Koll Development), an affiliate of the seller of the property, to develop such expansion provided that Wells OP shall have the right of first refusal to purchase such expansion property within three years after completion. Koll Development is not in any way affiliated with the Wells REIT, Wells OP or our advisor.
 
Wells OP, as the landlord, will be responsible for maintaining the roof, foundation, exterior walls, structural components of the parking areas, drives and sidewalks and the underground utilities of the Federal Express Colorado Springs Building. In addition, Wells OP is responsible for the capital replacements of the mechanical and electrical systems for the Federal Express Colorado Springs Building.
 
EDS Des Moines Building
 
On September 27, 2002, Wells OP purchased from KDC-EDS Des Moines Investments, LLC (KDC-EDS), Koll Development and Koll Corporate Development I-Iowa, L.P. (Koll Corporate) all of the partnership interests in KDC-EDS Des Moines Investment Limited Partnership, a Texas limited partnership, which owns a one-story office and distribution building containing 115,000 rentable square feet of office space and 290,000 rentable square feet of warehouse space located on a 27.97 acre tract of land in Des Moines, Iowa (EDS Des Moines Building) for a purchase price of $26,500,000, plus closing costs. Neither KDC-EDS, Koll Development nor Koll Corporate are in any way affiliated with the Wells REIT, Wells OP or our advisor.
 
The EDS Des Moines Building was completed in 2002 and is located at 3600 Army Post Road in Des Moines, Polk County, Iowa. The EDS Des Moines Building is leased entirely to EDS Information Services L.L.C. (EDS), a wholly-owned subsidiary of Electronic Data Systems Corporation (EDS Corp). EDS Corp is the guarantor of the EDS lease. The EDS lease is a net lease (i.e., operating costs and maintenance costs are paid by the tenant) which commenced in May 2002 and expires in April 2012. EDS Corp, whose shares are traded on the NYSE, is a global information technology services company with services ranging from computer support to server management to web hosting. EDS Corp operates in 60 countries worldwide.
 
Since the EDS Des Moines Building is leased to a single tenant on a long-term basis under a net lease that transfers substantially all of the operating costs to the tenant, we believe that financial information about EDS Corp, the guarantor of the EDS lease, is more relevant to investors than financial statements of the property acquired.
 
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        EDS Corp currently files its financial statements in reports filed with the SEC, and the following summary financial data regarding EDS Corp is taken from its previously filed public reports:
 
 	  	FOR THE FISCAL YEAR ENDED

	
 	  	DECEMBER 31, 2001

	  	DECEMBER 31, 2000

	  	DECEMBER 31, 1999

	
 	  	(IN MILLIONS)	
CONSOLIDATED STATEMENTS OF OPERATIONS:	  	 	 	  	 	 	  	 	 	
Revenues	  	$	21,543	  	$	19,227	  	$	18,732	
Operating Income	  	$	2,096	  	$	1,818	  	$	473	
Net Income	  	$	1,363	  	$	1,143	  	$	421	

DECEMBER 31, 2001

	  	 
DECEMBER 31, 2000

	
 	  	 	  	(IN MILLIONS)	
CONSOLIDATED BALANCE SHEET DATA:	  	 	 	  	 	 	  	 	 	
Total Assets	  	 	 	  	$	16,353	  	$	12,692	
Long-Term Debt	  	 	 	  	$	4,692	  	$	2,585	
Stockholders’ Equity	  	 	 	  	$	6,446	  	$	5,139	
 
For more detailed financial information regarding EDS Corp, please refer to the financial statements of Electronic Data Systems Corporation, which are publicly available with the SEC at http://www.sec.gov.
 
The current annual base rent payable under the EDS lease is $2,389,500. EDS, 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, EDS has an expansion option under its lease for up to an additional 100,000 rentable square feet. Wells OP, as the landlord, is responsible for maintaining the roof, foundation, exterior walls, plumbing and electrical lines for the EDS Des Moines Building.
 
Intuit Dallas Building
 
On September 27, 2002, Wells OP purchased a two-story office building with a three-story wing containing 166,238 rentable square feet located on a 10.7 acre tract of land in Plano, Texas (Intuit Dallas Building) for a purchase price of $26,500,000, plus closing costs from KDC-TX I Investment Limited Partnership (KDC-TX). KDC-TX is not in any way affiliated with the Wells REIT, Wells OP or our advisor.
 
The Intuit Dallas Building was completed in 2001 and is located at 5601 Headquarters Drive in Plano, Collin County, Texas. The Intuit Dallas Building is leased entirely to Lacerte Software Corporation (Lacerte), a wholly-owned subsidiary of Intuit, Inc. (Intuit). Intuit is the guarantor of the Lacerte lease. The Lacerte lease is a net lease (i.e., operating costs and maintenance costs are paid by the tenant) which commenced in July 2001 and expires in June 2011.
 
Lacerte is a tax software development company that offers a variety of tax software products and customer support services. Intuit, whose shares are traded on the NASDAQ, provides small business, tax preparation and personal finance software products and Web-based services that simplify complex financial tasks for consumers, small businesses and accounting professionals.
 
Since the Intuit Dallas Building is leased to a single tenant on a long-term basis under a net lease that transfers substantially all of the operating costs to the tenant, we believe that financial information about the guarantor of the lease, Intuit, is more relevant to investors than financial statements of the property acquired.
 
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        Intuit currently files its financial statements in reports filed with the SEC, and the following summary financial data regarding Intuit is taken from its previously filed public reports:
 
 	  	FOR THE FISCAL YEAR ENDED

	
 	  	JULY 31, 2002

	  	JULY 31, 2001

	 	 	JULY 31, 2000

	
 	  	(IN MILLIONS)	
CONSOLIDATED STATEMENTS OF OPERATIONS:	  	 	 	  	 	 	 	 	 	 	
Revenues	  	$	1,358	  	$	1,148	 	 	$	1,037	
Income (Loss) from Continuing Operations	  	$	59	  	$	(74	)	 	$	9	
Net Income (Loss)	  	$	140	  	$	(83	)	 	$	306	

 	  	JULY 31, 2002

	  	JULY 31, 2001

	
 	  	(IN MILLIONS)	
CONSOLIDATED BALANCE SHEET DATA:	  	 	 	  	 	 	
Total Assets	  	$	2,963	  	$	2,862	
Long-Term Debt	  	$	15	  	$	12	
Stockholders’ Equity	  	$	2,216	  	$	2,161	
 
For more detailed financial information regarding Intuit, please refer to the financial statements of Intuit, Inc., which are publicly available with the SEC at http://www.sec.gov.
 
The current annual base rent payable under the Lacerte lease is $2,461,985. Lacerte, at its option, has the right to extend the initial term of its lease for two additional five-year periods at rental rates of $17.92 per square foot and $19.71 per square foot, respectively. In addition, Lacerte has an expansion option through November 2004 pursuant to which Wells OP would be required to purchase an additional 19-acre tract of land and to construct up to an approximately 600,000 rentable square foot building thereon. Wells OP has agreed to allow Koll Development, an affiliate of KDC-TX, the seller of the property, to develop any such expansion. Wells OP, as the landlord, is responsible for maintaining the structural elements of the building, including the parking deck, roof, building facade, foundation, load bearing walls and building and utility systems for the Intuit Dallas Building.
 
Daimler Chrysler Dallas Building
 
On September 30, 2002, Wells OP purchased from Hillwood Operating, L.P. (Hillwood) and ABI Commercial L.P. (ABI) all of the partnership interests in CT Corporate Center No. 1, L.P. (CT), a Texas limited partnership, which owns a two-story office building containing 130,290 rentable square feet located in Westlake, Texas (Daimler Chrysler Dallas Building) for a purchase price of $25,100,000, plus closing costs. Neither Hillwood nor ABI are in any way affiliated with the Wells REIT, Wells OP or our advisor.
 
The Daimler Chrysler Dallas Building was completed in 2001 and is located at 2050 Roanoke Road in Westlake, Tarrant County, Texas. The Daimler Chrysler Dallas Building is leased entirely to Daimler Chrysler Services North America LLC (Daimler Chrysler NA). Daimler Chrysler NA is a wholly owned subsidiary of DaimlerChrysler AG (DaimlerChrysler). DaimlerChrysler is one of the world’s leading automotive, transportation and services companies and has over 50 operating plants worldwide.
 
The Daimler Chrysler NA lease is a gross lease (i.e., operating costs and maintenance costs are paid by the landlord) which commenced in January 2002 and expires in December 2011. The current annual base rent payable under the Daimler Chrysler NA lease is $3,189,499. Daimler Chrysler NA, at its option, has the right to extend the initial term of its lease for three additional five-year periods at 98% of the then-current market rental rate. In addition, Daimler Chrysler NA has an expansion option for up to an additional 70,000 rentable square feet and a right of first offer if Wells OP desires to sell the Daimler Chrysler Dallas Building during the term of the lease. Wells OP, as the landlord, is responsible for maintaining the roof, foundation, and structural members of the exterior walls of the building, trash
 
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removal, janitorial and window-washing services, pest control, landscaping maintenance, water, lighting and passenger elevator service for the Daimler Chrysler Dallas Building.
 
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 up to 4.5% of gross revenues from the AmeriCredit Phoenix Building, the KeyBank Parsippany Building, the Allstate Indianapolis Building, the Federal Express Colorado Springs Building, the EDS Des Moines Building, the Intuit Dallas Building and the Daimler Chrysler Dallas Building subject to certain limitations. In addition, Wells Management will receive a one-time initial lease-up fee relating to the leasing of the AmeriCredit Phoenix Building equal to one month’s rent estimated to be approximately $207,000.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
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, as supplemented by Supplement No. 1 dated August 14, 2002 and Supplement No. 2 dated August 29, 2002.
 
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 $1,282,976,865 in gross offering proceeds from the sale of 128,297,687 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 October 15, 2002, we had received additional gross proceeds of approximately $276,782,914 from the sale of approximately 27,678,291 shares in our fourth public offering. Accordingly, as of October 15, 2002, we had received aggregate gross offering proceeds of approximately $1,876,226,258 from the sale of approximately 187,622,626 shares in all of our public offerings. After payment of $65,068,579 in acquisition and advisory fees and acquisition expenses, payment of $208,356,782 in selling commissions and organization and offering expenses, and common stock redemptions of $17,123,992 pursuant to our share redemption program, as of October 15, 2002, we had raised aggregate net offering proceeds available for investment in properties of $1,585,676,905, out of which $1,400,791,370 had been invested in real estate properties, and $184,885,535 remained available for investment in real estate properties.
 
Status of the Nissan Project
 
As of September 30, 2002, Wells OP had expended $24,226,880 towards the construction of the three-story approximately 268,290 rentable square foot office building in Irving, Texas. The Nissan Project is approximately 47% complete and is currently expected to be completed in February 2003. We estimate that the aggregate cost and expenses to be incurred by Wells OP with respect to the acquisition and construction of the Nissan Project will total approximately $41,855,600, which is within the budgeted amount for the property.
 
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Financial Statements
 
Audited Financial Statements
 
The statements of revenues over certain operating expenses of the Harcourt Austin Building, the IRS Long Island Buildings and the KeyBank Parsippany Building for the year ended December 31, 2001, which are included in this supplement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports appearing elsewhere herein, and are included in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.
 
Unaudited Financial Statements
 
The statements of revenues over certain operating expenses of the Harcourt Austin Building, the IRS Long Island Buildings and the KeyBank Parsippany Building for the six months ended June 30, 2002, 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
 
 	  	Page

	
Harcourt Austin Building	  	 	
 	 	
Report of Independent Auditors	  	13	
 	 	
Statements of Revenues Over Certain Operating Expenses
for the year ended December 31, 2001 (audited) and for the
six months ended June 30, 2002 (unaudited)	  	14	
 	 	
Notes to Statements of Revenues Over Certain Operating
Expenses for the year ended December 31, 2001 (audited) and
for the six months ended June 30, 2002 (unaudited)	  	15	
 	 	
IRS Long Island Buildings	  	 	
 	 	
Report of Independent Auditors	  	17	
 	 	
Statements of Revenues Over Certain Operating Expenses
for the year ended December 31, 2001 (audited) and for the
six months ended June 30, 2002 (unaudited)	  	18	
 	 	
Notes to Statements of Revenues Over Certain Operating
Expenses for the year ended December 31, 2001 (audited) and
for the six months ended June 30, 2002 (unaudited)	  	19	
 	 	
KeyBank Parsippany Building	  	 	
 	 	
Report of Independent Auditors	  	21	
 	 	
Statements of Revenues Over Certain Operating Expenses
for the year ended December 31, 2001 (audited) and for the
six months ended June 30, 2002 (unaudited)	  	22	
 	 	
Notes to Statements of Revenues Over Certain Operating
Expenses for the year ended December 31, 2001 (audited) and
for the six months ended June 30, 2002 (unaudited)	  	23	
 	 	
Wells Real Estate Investment Trust, Inc. and Subsidiary	  	 	
 	 	
Unaudited Pro Forma Financial Statements	  	 	
 	 	
Summary of Unaudited Pro Forma Financial Statements	  	25	
 	 	
Pro Forma Balance Sheet as of June 30, 2002 (unaudited)	  	26	
 	 	
Pro Forma Statement of Income for the year ended
December 31, 2001 (unaudited)	  	28	
 	 	
Pro Forma Statement of Income for the six months ended
June 30, 2002 (unaudited)	  	29	
 
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Report of Independent Auditors
 
Shareholders and Board of Directors
Wells Real Estate Investment Trust, Inc.
 
We have audited the accompanying statement of revenues over certain operating expenses of the Harcourt Austin Building (the “Building”) for the year ended December 31, 2001. This statement is the responsibility of the Building’s management. Our responsibility is to express an opinion on this statement based on our audit.
 
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues over certain operating expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of revenues over certain operating expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement of revenues over certain operating expenses. We believe that our audit provides a reasonable basis for our opinion.
 
The accompanying statement of revenues over certain operating expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, as described in Note 2, and is not intended to be a complete presentation of the Building’s revenues and expenses.
 
In our opinion, the statement of revenues over certain operating expenses referred to above presents fairly, in all material respects, the revenues and certain operating expenses described in Note 2 of the Harcourt Austin Building for the year ended December 31, 2001 in conformity with accounting principles generally accepted in the United States.

/s/ ERNST & YOUNG LLP
 
Atlanta, Georgia
October 21, 2002
 
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Harcourt Austin Building
 
Statements of Revenues Over Certain Operating Expenses
 
For the year ended December 31, 2001 and the six months ended June 30, 2002 (unaudited)
 
 	  	2002

	  	2001

	
 	  	(Unaudited)	  	 	
Rental revenues	  	$	1,770,085	  	$	1,770,085	
Operating expenses, net of reimbursements	  	 	64,780	  	 	67,131	

	

	  	

	

	
Revenues over certain operating expenses	  	$	1,705,305	  	$	1,702,954	

	

	  	

	

	
 
See accompanying notes.
 
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Harcourt Austin Building
 
Notes to Statements of Revenues Over Certain Operating Expenses
 
For the year ended December 31, 2001 and the six months ended June 30, 2002 (unaudited)
 
1.    ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
 
Description of Real Estate Property Acquired
 
On August 15, 2002, the Wells Operating Partnership, L.P. (“Wells OP’) acquired the Harcourt Austin Building from Carr Development & Construction, LP (“Carr”). Wells OP is a Delaware limited partnership formed to acquire, own, lease, operate, and manage real properties on behalf of 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.
 
Harcourt, Inc. (“Harcourt”) currently occupies the entire 195,230 rentable square feet of the seven-story office building under a lease agreement (the “Harcourt Lease”). Harcourt is a Delaware corporation owned equally by Reed Elsevier PLC and Reed Elsevier NV whose shares are traded on the New York Stock Exchange. Carr’s interest in the Harcourt Lease was assigned to Wells OP upon acquisition of the building. The initial term of the Harcourt Lease commenced in July 2001 and expires in June 2016. Under the Harcourt Lease, Harcourt is required to pay, as additional rent, all operating costs, including but not limited to electricity, water, sewer, insurance, taxes and a management fee not to exceed 3.5% of rent. Furthermore, Harcourt will be required to reimburse the landlord for costs of capital improvements that are intended to reduce operating costs or improve safety and any replacement or capital repairs to the Building’s HVAC systems. Wells OP will be responsible for maintaining and repairing the Building’s roof, structural elements and mechanical systems.
 
Rental Revenues
 
Rental income is recognized on a straight-line basis over the term of the lease. The accompanying statements of revenues over certain operating expenses include rental revenues from the date of commencement of the Harcourt Lease in July 2001.
 
2.    BASIS OF ACCOUNTING
 
The accompanying statements of revenues over certain operating expenses are presented in conformity with accounting principles generally accepted in the United States and in accordance with the applicable rules and regulations of the Securities and Exchange Commission for real estate properties acquired. Accordingly, these statements exclude certain historical expenses that are not comparable to the proposed future operations of the property such as depreciation and interest. Therefore, these statements are not comparable to the statement of operations of the Harcourt Austin Building after its acquisition by Wells OP.
 
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Notes to Statements of Revenues Over Certain Operating Expenses
(Continued)
 
3.    FUTURE MINIMUM RENTAL COMMITMENTS
 
Future minimum rental commitments for the years ended December 31 are as follows:
 
2002	  	$	3,104,157	
2003	  	 	3,104,157	
2004	  	 	3,104,157	
2005	  	 	3,104,157	
2006	  	 	3,314,029	
Thereafter	  	 	35,819,824	

	

	
 	  	$	51,550,481	

	

	
 
4.    INTERIM UNAUDITED FINANCIAL INFORMATION
 
The financial statement for the six months ended June 30, 2002 is unaudited, however in the the opinion of management, all adjustments (consisting solely of normal, recurring adjustments) necessary for the fair presentation of the financial statement for the interim period have been included. The results of the interim period are not necessarily indicative of the results to be obtained for a full fiscal year.

 
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Report of Independent Auditors
 
Shareholders and Board of Directors
Wells Real Estate Investment Trust, Inc.
 
We have audited the accompanying statement of revenues over certain operating expenses of the IRS Long Island Buildings (the “Buildings”) for the year ended December 31, 2001. This statement is the responsibility of the Buildings’ management. Our responsibility is to express an opinion on this statement based on our audit.
 
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues over certain operating expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of revenues over certain operating expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement of revenues over certain operating expenses. We believe that our audit provides a reasonable basis for our opinion.
 
The accompanying statement of revenues over certain operating expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, as described in Note 2, and is not intended to be a complete presentation of the Buildings’ revenues and expenses.
 
In our opinion, the statement of revenues over certain operating expenses referred to above presents fairly, in all material respects, the revenues and certain operating expenses described in Note 2 of the IRS Long Island Buildings for the year ended December 31, 2001 in conformity with accounting principles generally accepted in the United States.

/s/ ERNST & YOUNG LLP
 
Atlanta, Georgia
September 26, 2002
 
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IRS Long Island Buildings
 
Statements of Revenues Over Certain Operating Expenses
 
Year ended December 31, 2001 and the six months ended June 30, 2002 (unaudited)
 
 	  	2002

	  	2001

	
 	  	(Unaudited)	  	 	
Rental revenues	  	$	3,106,658	  	$	4,665,840	
Operating expenses, net of reimbursements	  	 	641,803	  	 	745,258	

	

	  	

	

	
Revenues over certain operating expenses	  	$	2,464,855	  	$	3,920,582	

	

	  	

	

	
 
See accompanying notes.
 
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IRS Long Island Buildings
 
Notes to Statements of Revenues Over Certain Operating Expenses
 
Year ended December 31, 2001 and the six months ended June 30, 2002 (unaudited)
 
1.    ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
 
Description of Real Estate Property Acquired
 
On September 13, 2002, Wells REIT—Holtsville, NY, LLC (the “Company”) acquired the IRS Long Island Buildings (the “Buildings”) from HIRS Associates, LLC (“HIRS”). The Company, a Georgia limited liability company, was created on September 10, 2002 by the Wells Operating Partnership, L.P. (“Wells OP’) as the sole member of the Company. Wells OP is a Delaware limited partnership formed to acquire, own, lease, operate, and manage real properties on behalf of 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.
 
The United States of America, through the U.S. General Services Administration (“GSA”), currently leases 191,049 of the total 259,700 rentable square feet on behalf of the Internal Revenue Service under three leases (the “IRS Collection Lease”, the “IRS Compliance Lease” and the “IRS Daycare Facility Lease”, collectively, the “IRS Leases”). The GSA is a centralized federal procurement and property management agency created by Congress to improve government efficiency and effectiveness. GSA acquires on the government’s behalf, the office space, equipment, telecommunications, information technology, supplies and services they need to achieve their agency’s mission of services to the public. HIRS’s interests in the GSA Leases were assigned to Wells OP upon acquisition of the Buildings. The IRS Collection Lease commenced in August 2000 and expires in August 2005. The IRS Compliance Lease commenced in December 2001 and expires in December 2011. The IRS Daycare Facility Lease commenced in October 1999 and expires in September 2004. Under the IRS Leases, beginning in the second lease year and each year after, the tenant will pay, as adjusted rent, changes in costs from the first lease year for cleaning services, supplies, materials, maintenance, trash removal, landscaping, sewer charges and certain administrative expenses attributable to occupancy. The amount of the adjustment will be computed using the Cost of Living Index. Wells OP will be responsible for maintaining and repairing the Buildings’ roof, structural elements and mechanical systems.
 
If the Company secures an additional lease with the IRS or another suitable tenant for the remaining 68,651 square feet of vacant space in the Buildings within 18 months, the Company would owe an additional amount of up to $14,500,000 as additional purchase price for the Buildings pursuant to the terms of an earnout agreement entered into between the Company and HIRS at closing.
 
Rental Revenues
 
Rental income is recognized on a straight-line basis over the term of the lease.
 
2.    BASIS OF ACCOUNTING
 
The accompanying statements of revenues over certain operating expenses are presented in conformity with accounting principles generally accepted in the United States and in accordance with the applicable rules and regulations of the Securities and Exchange Commission for real estate properties acquired.
 
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Notes to Statements of Revenues Over Certain Operating Expenses
(Continued)
 
Accordingly, these statements exclude certain historical expenses that are not comparable to the proposed future operations of the property such as depreciation, interest, and management fees. Therefore, these statements are not comparable to the statement of operations of the Buildings after its acquisition by Wells OP.
 
3.    FUTURE MINIMUM RENTAL COMMITMENTS
 
Future minimum rental commitments for the years ended December 31 are as follows:
 
2002	  	$	6,761,367	
2003	  	 	6,256,896	
2004	  	 	4,843,722	
2005	  	 	3,305,530	
2006	  	 	1,663,200	
Thereafter	  	 	8,316,000	

	

	
 	  	$	31,146,715	

	

	
 
4.    INTERIM UNAUDITED FINANCIAL INFORMATION
 
The financial statement for the six months ended June 30, 2002 is unaudited, however in the the opinion of management, all adjustments (consisting solely of normal, recurring adjustments) necessary for the fair presentation of the financial statement for the interim period have been included. The results of the interim period are not necessarily indicative of the results to be obtained for a full fiscal year.

 
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Report of Independent Auditors
 
Board of Directors and Stockholders
Wells Real Estate Investment Trust, Inc.
 
We have audited the accompanying statement of revenues over certain operating expenses of the KeyBank Parsippany Building (the “Building”) for the year ended December 31, 2001. This statement is the responsibility of the Building’s management. Our responsibility is to express an opinion on this statement based on our audit.
 
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues over certain operating expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of revenues over certain operating expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement of revenues over certain operating expenses. We believe that our audit provides a reasonable basis for our opinion.
 
The accompanying statement of revenues over certain operating expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, as described in Note 2, and is not intended to be a complete presentation of the Building’s revenues and expenses.
 
In our opinion, the statement of revenues over certain operating expenses referred to above presents fairly, in all material respects, the revenues and certain operating expenses described in Note 2 of the KeyBank Parsippany Building for the year ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.
 
/S/    ERNST & YOUNG LLP
 
New York, New York
January 31, 2002
 
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KeyBank Parsippany
 
Statements of Revenues Over Certain Operating Expenses
(Amounts in thousands)
 
 	  	Six Months
Ended June 30,
2002

	  	Year Ended
December 31,
2001

	
 	  	(Unaudited)	  	 	
Revenues:	  	 	 	  	 	 	
Base rent	  	$	5,089	  	$	9,421	
Tenant reimbursements	  	 	1,117	  	 	1,833	

	

	  	

	

	
Total revenues	  	 	6,206	  	 	11,254	
Operating expenses	  	 	1,522	  	 	3,159	

	

	  	

	

	
Revenues over certain operating expenses	  	$	4,684	  	$	8,095	

	

	  	

	

	
 
See accompanying notes.
 
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KeyBank Parsippany
 
Notes to Statements of Revenues Over Certain Operating Expenses
For the year ended December 31, 2001 and the six months ended
June 30, 2002 (Unaudited)
(Amounts in thousands)
 
1.    ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
 
Description of Real Estate Property Acquired
 
On September 27, 2002, the Wells Operating Partnership acquired the KeyBank Parsippany Building (the “Building”), a 404,515 square foot office building in Parsippany, New Jersey, from Two Gatehall Acquisition, L.L.C. and Asset Preservation, Inc. (collectively the “Seller”).
 
At December 31, 2001, the Building was 100% leased to two tenants, Exodus Communications, Inc. (“Exodus”) and KeyBank USA National Association, under operating leases that were both executed in 2000. Both operating leases expire over the next 15 years.
 
Exodus filed bankruptcy in 2001. On January 17, 2002, the Exodus lease was assigned to Gemini Technology Services, Inc., an affiliate of Deutsche Bank, AG. Deutsche Bank, AG assumed all of the obligations of Exodus under the lease.
 
The lease agreements provide for certain reimbursements of real estate taxes, insurance and certain common area maintenance costs.
 
Revenue Recognition
 
Rental revenue is recognized on a straight-line basis over the initial term of the lease. The excess of rents so recognized over amounts contractually due pursuant to the underlying leases for the six months ended June 30, 2002 and the year ended December 31, 2001 was $326 (unaudited) and $3,279, respectively. Such amounts are included in rental and reimbursement revenues in the accompanying financial statements.
 
Use of Estimates
 
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
 
2.    BASIS OF ACCOUNTING
 
The accompanying statements of revenues over certain operating expenses are presented in conformity with accounting principles generally accepted in the United States and in accordance with the applicable rules and regulations of the Securities and Exchange Commission for real estate properties acquired. Accordingly, these statements exclude certain historical expenses that are not comparable to the proposed future operations of the Building such as depreciation and interest.
 
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3.    LEASE AGREEMENTS
 
The minimum rental receipts due on the noncancelable operating leases as of December 31, 2001 are as follows:
 
2002	  	$	9,526	
2003	  	 	9,526	
2004	  	 	9,526	
2005	  	 	9,526	
2006	  	 	10,464	
Thereafter	  	 	88,139	

	

	
 	  	$	136,707	

	

	
 
Reimbursement revenue was $1,117 (unaudited) and $1,833 for the six months ended June 30, 2002 and the year ended December 31, 2001, respectively.
 
4.    RELATED PARTY TRANSACTIONS
 
Pursuant to a management agreement, an affiliate of the Seller has responsibilities of property management and leasing of the Building.
 
5.    INTERIM UNAUDITED FINANCIAL INFORMATION
 
The financial statement for the six months ended June 30, 2002 is unaudited, however, in the opinion of management, all adjustments (consisting solely of normal, recurring adjustments) necessary for the fair presentation of the financial statement for the interim period have been included. The results of the interim period are not necessarily indicative of the results to be obtained for a full fiscal year.
 
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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 previously filed.
 
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 ISS Atlanta Buildings, the PacifiCare San Antonio Building, the Kerr McGee Property, the BMG Greenville Buildings, the Kraft Atlanta Building, the Nokia Dallas Buildings (the “Other Recent Acquisitions”), the Harcourt Austin Building, the AmeriCredit Phoenix Property, the IRS Long Island Buildings, the KeyBank Parsippany Building, the Allstate Indianapolis Building, the Federal Express Colorado Springs Building, the EDS Des Moines Building, the Intuit Dallas Building and the Daimler Chrysler Dallas Building (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 and the AmeriCredit Phoenix 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, the Kerr McGee Property, the AmeriCredit Phoenix Property and the EDS Des Moines Building 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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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA BALANCE SHEET
 
JUNE 30, 2002
 
(Unaudited)
 
ASSETS
 
 	  	Wells Real
Estate
Investment
Trust, Inc.(i)

	  	Pro Forma Adjustments

	 	 	Pro Forma
        Total        

	 	
 	  	 	  	Recent Acquisitions

	 	 	 	 	 	 	
 	  	 	  	Other

	 	 	Harcourt
Austin

	 	 	AmeriCredit
Phoenix

	 	 	IRS Long
Island

	 	 	KeyBank
Parsippany

	 	 	Allstate
Indianapolis

	 	 	Federal
Express
Colorado
Springs

	 	 	EDS Des
Moines

	 	 	Intuit
Dallas

	 	 	Daimler
Chrysler
Dallas

	 	 	 	 	 	 	 	
REAL ESTATE ASSETS, at cost:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Land	  	$	110,330,449	  	$	20,288,044	(a)	 	$	5,860,000	(a)	 	$	2,671,324	(a)	 	$	4,200,000	(a)	 	$	8,700,000	(a)	 	$	1,275,000	(a)	 	$	2,100,000	(a)	 	$	850,000	(a)	 	$	3,030,000	(a)	 	$	2,585,000	(a)	 	$	163,989,961	 	 	 	 	
 	  	 	 	  	 	825,675	(b)	 	 	238,488	(b)	 	 	108,717	(b)	 	 	174,724	(b)	 	 	353,694	(b)	 	 	51,753	(b)	 	 	85,465	(b)	 	 	34,593	(b)	 	 	123,314	(b)	 	 	103,721	(b)	 	 	 	 	 	 	 	
Buildings, less accumulated depreciation of $37,717,737	  	 	689,490,969	  	 	195,198,843	(a)	 	 	33,143,323	(a)	 	 	0	 	 	 	46,287,120	(a)	 	 	92,943,893	(a)	 	 	9,679,933	(a)	 	 	23,987,714	(a)	 	 	25,727,376	(a)	 	 	23,639,654	(a)	 	 	22,587,753	(a)	 	 	1,181,968,343	 	 	 	 	
 	  	 	 	  	 	7,944,138	(b)	 	 	1,348,856	(b)	 	 	0	 	 	 	1,925,583	(b)	 	 	3,778,591	(b)	 	 	392,914	(b)	 	 	976,244	(b)	 	 	1,047,044	(b)	 	 	962,079	(b)	 	 	906,316	(b)	 	 	 	 	 	 	 	
Construction in progress	  	 	16,081,841	  	 	379,901	(a)	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	16,461,742	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
Total real estate assets	  	 	815,903,259	  	 	224,636,601	 	 	 	40,590,667	 	 	 	2,780,041	 	 	 	52,587,427	 	 	 	105,776,178	 	 	 	11,399,600	 	 	 	27,149,423	 	 	 	27,659,013	 	 	 	27,755,047	 	 	 	26,182,790	 	 	 	1,362,420,046	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
CASH AND CASH EQUIVALENTS	  	 	341,909,775	  	 	(203,990,460	)(a)	 	 	(39,003,323	)(a)	 	 	(2,671,324	)(a)	 	 	(51,454,530	)(a)	 	 	(101,643,893	)(a)	 	 	(10,954,933	)(a)	 	 	(26,087,714	)(a)	 	 	(26,577,376	)(a)	 	 	(26,669,654	)(a)	 	 	25,128,513	)(a)	 	 	185,098,497	 	 	 	 	
 	  	 	 	  	 	365,329,012	(c)	 	 	 	 	 	 	4,827,945	(h)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	 	  	 	(12,786,515	)(e)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
INVESTMENT IN JOINT VENTURES	  	 	76,217,870	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	76,217,870	 	 	 	 	
INVESTMENT IN BONDS	  	 	22,000,000	  	 	32,500,000	(e)	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	54,500,000	 	 	 	 	
ACCOUNTS RECEIVABLE	  	 	10,709,104	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	10,709,104	 	 	 	 	
DEFERRED LEASE ACQUISITION COSTS, NET	  	 	1,790,608	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,790,608	 	 	 	 	
DEFERRED PROJECT COSTS	  	 	14,314,914	  	 	(8,769,813	)(b)	 	 	(1,587,344	)(b)	 	 	(108,717	)(b)	 	 	(2,100,307	)(b)	 	 	(4,132,285	)(b)	 	 	(444,667	)(b)	 	 	(1,061,709	)(b)	 	 	(1,081,637	)(b)	 	 	(1,085,393	)(b)	 	 	(1,010,037	)(b)	 	 	5,719,520	 	 	 	 	
 	  	 	 	  	 	12,786,515	(e)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
DEFERRED OFFERING COSTS	  	 	1,392,934	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,392,934	 	 	 	 	
DUE FROM AFFILIATES	  	 	1,897,309	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,897,309	 	 	 	 	
NOTE RECEIVABLE	  	 	5,149,792	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	5,149,792	 	 	 	 	
PREPAID EXPENSES AND OTHER ASSETS, NET	  	 	1,881,308	  	 	0	 	 	 	0	 	 	 	0	 	 	 	967,410	(g)	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	2,848,718	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
Total assets	  	$	1,293,166,873	  	$	409,705,340	 	 	$	0	 	 	$	4,827,945	 	 	$	0	 	 	$	0	 	 	$	0	 	 	$	0	 	 	$	0	 	 	$	0	 	 	$	44,240	 	 	$	1,707,744,398	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
 
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Table of Contents
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 	  	Wells Real
Estate
Investment
Trust, Inc. (i)

	 	 	Pro Forma Adjustments

	 	 	Pro Forma
Total

	 	 	
 	  	 	 	 	Recent Acquisitions

	 	 	 	 	 	 	 	 	
 	  	 	 	 	Other

	 	 	Harcourt
Austin

	  	AmeriCredit
Phoenix

	 	 	IRS
Long Island

	  	KeyBank
Parsippany

	  	Allstate
Indianapolis

	  	Federal Express
Colorado Springs

	  	EDS
Des Moines

	  	Intuit
Dallas

	  	Daimler
Chrysler Dallas

	 	 	 	 	 	 	 	 	 	 	
LIABILITIES:	  	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	  	 	 	  	 	 	  	 	 	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	
Accounts payable and accrued expenses	  	$	11,840,214	 	 	$	173,567	(a)	 	$	0	  	$	0	 	 	$	0	  	$	0	  	$	0	  	$	0	  	$	0	  	$	0	  	$	44,240	(a)	 	$	12,058,021	 	 	 	 	 	 	 	
Notes payable	  	 	15,658,141	 	 	 	11,702,761	(a)	 	 	0	  	 	0	 	 	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	 	 	 	27,360,902	 	 	 	 	 	 	 	
Obligations under capital lease	  	 	22,000,000	 	 	 	32,500,000	(f)	 	 	0	  	 	0	 	 	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	 	 	 	54,500,000	 	 	 	 	 	 	 	
Dividends payable	  	 	4,538,635	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	 	 	 	4,538,635	 	 	 	 	 	 	 	
Due to affiliates	  	 	2,106,790	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	 	 	 	2,106,790	 	 	 	 	 	 	 	
Deferred rental income	  	 	1,013,544	 	 	 	0	 	 	 	0	  	 	4,827,945	(h)	 	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	 	 	 	5,841,489	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	

	 	

	

	

	 	 	 	 	 	 	
Total liabilities	  	 	57,157,324	 	 	 	44,376,328	 	 	 	0	  	 	4,827,945	 	 	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	44,240	 	 	 	106,405,837	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	

	 	

	

	

	 	 	 	 	 	 	
COMMITMENTS AND CONTINGENCIES	  	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	  	 	 	  	 	 	  	 	 	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP	  	 	200,000	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	0	  	 	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	 	 	 	365,329	(c)	 	 	0	  	 	0	 	 	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	 	 	 	1,821,219	 	 	 	 	 	 	 	
Additional paid-in capital	  	 	1,290,858,515	 	 	 	364,963,683	(c)	 	 	0	  	 	0	 	 	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	 	 	 	1,655,822,198	 	 	 	 	 	 	 	
Cumulative distributions in excess of earnings	  	 	(43,991,669	)	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	 	 	 	(43,991,669	)	 	 	 	 	 	 	
Treasury stock, at cost, 1,222,381 shares	  	 	(12,223,808	)	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	 	 	 	(12,223,808	)	 	 	 	 	 	 	
Other comprehensive loss	  	 	(289,379	)	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	 	 	 	(289,379	)	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	

	 	

	

	

	 	 	 	 	 	 	
Total shareholders’ equity	  	 	1,235,809,549	 	 	 	365,329,012	 	 	 	0	  	 	0	 	 	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	 	 	 	1,601,138,561	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	

	 	

	

	

	 	 	 	 	 	 	
Total liabilities and shareholders’ equity	  	$	1,293,166,873	 	 	$	409,705,340	 	 	$	0	  	$	4,827,945	 	 	$	0	  	$	0	  	$	0	  	$	0	  	$	0	  	$	0	  	$	44,240	 	 	$	1,707,744,398	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	

	 	

	

	

	 	 	 	 	 	 	
 
 	(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 cash paid for purchase.	
 
 	(c)	 	Reflects capital raised through issuance of additional shares subsequent to June 30, 2002 through Daimler Chrysler acquisition date.	
 
 	(d)	 	Reflects deferred project costs capitalized as a result of additional capital raised described in note (c) above.	
 
 	(e)	 	Reflects investment in bonds for which 100% of the principal balance becomes payable on December 1, 2015.	
 
 	(f)	 	Reflects mortgage note secured by the Deed of Trust to the ISS Atlanta Buildings for which 100% of the principal balance becomes payable on December 1, 2015.	
 
 	(g)	 	Reflects portion of purchase price placed in escrow to ensure completion of seller repairs.	
 
 	(h)	 	Reflects prepaid rent received for the three years of the AmeriCredit lease agreement.	
 
 	(i)	 	Historical financial information derived from quarterly report on Form 10-Q.	
 
The accompanying notes are an integral part of this statement.
 
27

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA STATEMENT OF INCOME
 
FOR THE YEAR ENDED DECEMBER 31, 2001
 
(Unaudited)
 
 	 	Wells Real
Estate
Investment
Trust, Inc. (f)

	  	Pro Forma Adjustments

	 	 	 	 	
 	 	 	  	2001
Acquisitions

	 	 	2002
Acquisitions

	 	 	Recent Acquisitions

	 	 	 	 	 	 	
 	 	 	  	 	 	 	 	 	 	Other

	 	 	Harcourt
Austin

	 	 	IRS Long
Island

	 	 	KeyBank
Parsippany

	 	 	Allstate
Indianapolis

	 	 	Federal Express
Colorado Springs

	 	 	Intuit
Dallas

	 	 	Daimler
Chrysler Dallas

	 	 	Pro Forma
Totals

	 	 	 	 	 	 	 	 	 	 	
REVENUES:	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental income	 	$	44,204,279	  	$	11,349,076	(a)	 	$	14,846,431	(a)	 	$	20,937,018	(a)	 	$	1,770,085	(a)	 	$	4,605,406	(a)	 	$	9,650,085	(a)	 	$	18,708	(a)	 	$	1,210,670	(a)	 	$	1,292,500	(a)	 	$	284,617	(a)	 	$	110,168,875	 	 	 	 	 	 	 	 	 	 	
Equity in income of joint ventures	 	 	3,720,959	  	 	1,111,850	(b)	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	4,832,809	 	 	 	 	 	 	 	 	 	 	
Interest income	 	 	1,246,064	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,246,064	 	 	 	 	 	 	 	 	 	 	
Take out fee	 	 	137,500	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	137,500	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
 	 	 	49,308,802	  	 	12,460,926	 	 	 	14,846,431	 	 	 	20,937,018	 	 	 	1,770,085	 	 	 	4,605,406	 	 	 	9,650,085	 	 	 	18,708	 	 	 	1,210,670	 	 	 	1,292,500	 	 	 	284,617	 	 	 	116,385,248	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
EXPENSES:	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	 	 	15,344,801	  	 	5,772,761	(c)	 	 	5,356,374	(c)	 	 	7,783,213	(c)	 	 	689,844	(c)	 	 	1,928,508	(c)	 	 	3,868,899	(c)	 	 	100,728	(c)	 	 	499,279	(c)	 	 	492,035	(c)	 	 	78,314	(c)	 	 	41,914,756	 	 	 	 	 	 	 	 	 	 	
Interest	 	 	3,411,210	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	3,411,210	 	 	 	 	 	 	 	 	 	 	
Operating costs, net of reimbursements	 	 	4,128,883	  	 	2,854,275	(d)	 	 	1,505,269	(d)	 	 	5,452	(d)	 	 	0	 	 	 	814,339	(d)	 	 	1,326,000	(d)	 	 	2,962	(d)	 	 	0	 	 	 	0	 	 	 	14,321	(d)	 	 	10,651,501	 	 	 	 	 	 	 	 	 	 	
Management and leasing fees	 	 	2,507,188	  	 	510,708	(e)	 	 	668,090	(e)	 	 	942,165	(e)	 	 	79,654	(e)	 	 	0	 	 	 	434,254	(e)	 	 	842	(e)	 	 	54,480	(e)	 	 	58,163	(e)	 	 	12,808	(e)	 	 	5,268,352	 	 	 	 	 	 	 	 	 	 	
General and administrative	 	 	973,785	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	973,785	 	 	 	 	 	 	 	 	 	 	
Amortization of deferred
financing costs	 	 	770,192	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	770,192	 	 	 	 	 	 	 	 	 	 	
Legal and accounting	 	 	448,776	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	448,776	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
 	 	 	27,584,835	  	 	9,137,744	 	 	 	7,529,733	 	 	 	8,730,830	 	 	 	769,498	 	 	 	2,742,847	 	 	 	5,629,153	 	 	 	104,532	 	 	 	553,759	 	 	 	550,198	 	 	 	105,443	 	 	 	63,438,572	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
NET INCOME	 	$	21,723,967	  	$	3,323,182	 	 	$	7,316,698	 	 	$	12,206,188	 	 	$	1,000,587	 	 	$	1,862,559	 	 	$	4,020,932	 	 	$	(85,824	)	 	$	656,911	 	 	$	742,302	 	 	$	179,174	 	 	$	52,946,676	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
EARNINGS PER SHARE, basic
and diluted	 	$	0.43	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	0.29	 	 	 	 	 	 	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	 	 	 	
WEIGHTED AVERAGE SHARES, basic and diluted	 	 	50,520,853	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	180,899,673	 	 	 	 	 	 	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	 	 	 	
 
 	(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 operating expenses, net of reimbursements.	
 
 	(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.
 
28

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA STATEMENT OF INCOME
 
FOR THE SIX MONTHS ENDED JUNE 30, 2002
 
(Unaudited)
 
 	 	Wells Real
Estate
Investment
Trust, Inc. (e)	 	Pro Forma Adjustments

	 	 	 	 	
 	 	 	 	 	 	 	Recent Acquisitions

	 	 	 	 	 	 	
 	 	 	 	2002
Acquisitions

	 	 	Other

	 	 	Harcourt
Austin

	 	 	IRS
Long Island

	 	 	KeyBank
Parsippany

	 	 	Allstate
Indianapolis

	 	 	Federal Express
Colorado Springs

	 	 	EDS
Des Moines

	 	 	Intuit
Dallas

	 	 	Daimler
Chrysler Dallas

	 	 	Pro Forma
Total

	 	 	 	 	
REVENUES:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental income	 	$	38,571,815	 	$	7,307,774	(a)	 	$	11,110,788	(a)	 	$	1,770,085	(a)	 	$	3,076,351	(a)	 	$	5,172,857	(a)	 	$	463,071	(a)	 	$	1,210,670	(a)	 	$	456,549	(a)	 	$	1,292,500	(a)	 	$	1,707,699	(a)	 	$	72,140,159	 	 	 	 	
Equity in income of joint ventures	 	 	2,478,686	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	2,478,686	 	 	 	 	
Interest income	 	 	2,648,351	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	2,648,351	 	 	 	 	
Take out fee	 	 	134,102	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	134,102	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
 	 	 	43,832,954	 	 	7,307,774	 	 	 	11,110,788	 	 	 	1,770,085	 	 	 	3,076,351	 	 	 	5,172,857	 	 	 	463,071	 	 	 	1,210,670	 	 	 	456,549	 	 	 	1,292,500	 	 	 	1,707,699	 	 	 	77,401,298	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
EXPENSES:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	 	 	12,903,282	 	 	2,588,546	(b)	 	 	4,062,859	(b)	 	 	689,844	(b)	 	 	964,254	(b)	 	 	1,934,450	(b)	 	 	201,457	(b)	 	 	499,279	(b)	 	 	178,496	(b)	 	 	492,035	(b)	 	 	469,881	(b)	 	 	24,984,383	 	 	 	 	
Interest	 	 	880,002	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	880,002	 	 	 	 	
Operating costs, net of reimbursements	 	 	2,063,997	 	 	300,018	(c)	 	 	79,067	(c)	 	 	0	 	 	 	687,948	(c)	 	 	405,000	(c)	 	 	34,940	(c)	 	 	0	 	 	 	0	 	 	 	0	 	 	 	317,939	(c)	 	 	3,888,909	 	 	 	 	
Management and leasing fees	 	 	1,903,082	 	 	328,850	(d)	 	 	499,985	(d)	 	 	79,654	(d)	 	 	0	 	 	 	232,779	(d)	 	 	20,838	(d)	 	 	54,480	(d)	 	 	20,545	(d)	 	 	58,163	(d)	 	 	76,846	(d)	 	 	3,275,222	 	 	 	 	
General and administrative	 	 	1,121,457	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,121,457	 	 	 	 	
Amortization of deferred financing costs	 	 	424,992	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	424,992	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
 	 	 	19,296,812	 	 	3,217,414	 	 	 	4,641,911	 	 	 	769,498	 	 	 	1,652,202	 	 	 	2,572,229	 	 	 	257,235	 	 	 	553,759	 	 	 	199,041	 	 	 	550,198	 	 	 	864,666	 	 	 	34,574,965	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
NET INCOME	 	$	24,536,142	 	$	4,090,360	 	 	$	6,468,877	 	 	$	1,000,587	 	 	$	1,424,149	 	 	$	2,600,628	 	 	$	205,836	 	 	$	656,911	 	 	$	257,508	 	 	$	742,302	 	 	$	843,033	 	 	$	42,826,333	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
EARNINGS PER SHARE, basic and diluted	 	$	0.22	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	0.24	 	 	 	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	
WEIGHTED AVERAGE SHARES, basic and diluted	 	 	110,885,641	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	180,899,673	 	 	 	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	
 
 	(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 operating expenses, net of reimbursements.	
 
 	(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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WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 4 DATED DECEMBER 10, 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, as supplemented and amended by Supplement No. 1 dated August 14, 2002, Supplement No. 2 dated August 29, 2002, and Supplement No. 3 dated October 25, 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)	 	The declaration of dividends for the first quarter of 2003;	
 
 	(3)	 	Revisions to the “Management – Executive Officers and Directors” section of the prospectus to describe the appointment of Randall D. Fretz as a Vice President of the Wells REIT;	
 
 	(4)	 	Revisions to the “Description of Real Estate Investments” section of the prospectus to describe the following real property acquisitions;	
 
 	(A)	 	Acquisition of two nine-story office buildings in Washington, DC (NASA Buildings);	
 
 	(B)	 	Acquisition of three three-story office buildings in Glen Allen, Virginia (Capital One Richmond Buildings); and	
 
 	(C)	 	Acquisition of an 11-story office building in Nashville, Tennessee (Caterpillar Nashville Building);	
 
 	(5)	 	Status of Real Estate Loans;	
 
 	(6)	 	Revisions to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the prospectus;	
 
 	(7)	 	Status of the leasing of the Vertex Sarasota Building (formerly known as the Arthur Andersen Building);	
 
 	(8)	 	Unaudited financial statements of the Wells REIT for the period ended September 30, 2002;	
 
 	(9)	 	Audited financial statements relating to the recently acquired NASA Buildings and the Caterpillar Nashville Building; and	
 
 	(10)	 	Unaudited pro forma financial statements of the Wells REIT reflecting the acquisition of the NASA Buildings, the Caterpillar Nashville Building and the Capital One Richmond Buildings.	
 
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

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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 $1,282,976,865 in gross offering proceeds from the sale of 128,297,687 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 November 30, 2002, we had received additional gross proceeds of approximately $448,615,344 from the sale of approximately 44,861,534 shares in our fourth public offering. Accordingly, as of November 30, 2002, we had received aggregate gross offering proceeds of approximately $2,039,003,318 from the sale of approximately 203,900,332 shares in all of our public offerings. After payment of $70,676,832 in acquisition and advisory fees and acquisition expenses, payment of $226,160,588 in selling commissions and organization and offering expenses, and common stock redemptions of $19,665,247 pursuant to our share redemption program, as of November 30, 2002, we had raised aggregate net offering proceeds available for investment in properties of $1,722,500,651, out of which $1,668,713,333 had been invested in real estate properties, and $53,787,318 remained available for investment in real estate properties.
 
Dividends
 
On December 4, 2002, our board of directors declared dividends for the first quarter of 2003 in the amount of a 7.0% annualized percentage rate return on an investment of $10.00 per share to be paid in March 2003. Our first quarter dividends are calculated on a daily record basis of $0.00 1944 (0. 1944 cents) per day per share on the outstanding shares of common stock payable to stockholders of record of such shares as shown on the books of the Wells REIT at the close of business on each day during the period, commencing on December 16, 2002, and continuing on each day thereafter through and including March 15, 2003.
 
Management
 
The following information should be read in conjunction with the “Management – Executive Officers and Directors” section beginning on page 31 of the prospectus to include background information on Randall D. Fretz. On December 4, 2002, our board of directors appointed Randall D. Fretz as a Vice President of the Wells REIT.
 
Randall D. Fretz is also a Vice President of Wells Capital, Inc. (Wells Capital), our advisor, and the Chief of Staff and a Senior Vice President of Wells Real Estate Funds, Inc. Mr. Fretz is primarily responsible for corporate strategy and planning and advising and coordinating the executive officers of Wells Capital on corporate matters and special projects. Prior to joining Wells Capital in 2002, Mr. Fretz served as President of US & Canada operations for Larson-Juhl, a world leader in custom art and picture-framing home decor. Mr. Fretz was previously the Division Director at Bausch & Lomb and also held various senior positions at Tandem International and Lever Brothers. Mr. Fretz holds a bachelor degree in each of Sociology and Physical Education from McMaster University in Hamilton, Ontario. He also earned an MBA from the Ivy School of Business in London, Ontario.

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Description of Properties
 
As of December 10, 2002, we had purchased interests in 70 real estate properties located in 23 states. Below are the descriptions of our recent real property acquisitions.
 
NASA Buildings
 
On November 22, 2002, Wells REIT-Independence Square, LLC (REIT-Independence), a single member Georgia limited liability company wholly-owned by the Wells REIT, purchased two nine-story office buildings containing an aggregate of approximately 948,800 rentable square feet located in Washington, D.C. (NASA Buildings) for a purchase price of $345,000,000, plus closing costs from Southwest Market Limited Partnership (Southwest). In order to finance the acquisition of the NASA Buildings, the Wells REIT obtained $85,000,000 in loan proceeds by having Wells OP draw down on its existing line of credit with Bank of America (BOA). Southwest is not in any way affiliated with the Wells REIT, REIT-Independence, or our advisor, Wells Capital.
 
The NASA Buildings, consisting of a nine-story office building containing approximately 347,796 rentable square feet (One Independence Square) and a nine-story office building containing approximately 601,017 rentable square feet (Two Independence Square), were built in 1991 and 1992 and are located on a 3.58-acre tract of land at One & Two Independence Square on E. Street in Washington, D.C.
 
The primary tenant in One Independence Square is the Office of the Comptroller of the Currency, an agency of the United States Government (OCC). Approximately 341,520 of the rentable square feet in the NASA Buildings (36.0%) is currently leased to the OCC. The OCC charters and regulates all national banks. It also supervises the federal branches and agencies of foreign banks. The OCC’s nationwide staff of examiners conducts on-site reviews of national banks and provides sustained supervision of bank operations. The OCC issues rules, legal interpretations, and corporate decisions concerning banking, bank investments, bank community development activities, and other aspects of bank operations.
 
The OCC lease, which encompasses 341,520 rentable square feet (98.2%) in One Independence Square, commenced in May 1991 and expires in May 2006. Under the OCC Lease, operating and maintenance costs are the responsibility of the landlord, but the tenant is required to pay, as additional rent, its share of increases in real estate taxes and changes in costs from the first lease year for various operating expenses including cleaning services, electricity, heating, water, air conditioning and landscaping. The current annual base rent payable under the OCC lease is $12,159,948, which includes approximately $1,000,000 per year for the parking facility. The OCC, at its option, has the right to extend the initial term of its lease for two additional five-year periods. The annual rental rate for the first five-year period is 95% of the then-current market rental rate. The annual rental rate for the second five-year period is 90% of the then-current market rental rate.
 
The primary tenant in Two Independence Square is the National Aeronautics and Space Administration (NASA). Approximately 590,689 of the rentable square feet in the NASA Buildings (62.3%) is currently leased to the United States of America (U.S.A.) through the U.S. General Services Administration (GSA) for occupancy by NASA. The GSA is a centralized federal procurement and property management agency which acquires office space, equipment, telecommunications, information technology, supplies and services for federal agencies such as NASA. NASA, which was created in 1958, is the federal agency which runs the United States government’s space program, including the space shuttle program and the launching of unmanned satellites and probes to explore the solar system.
 
The NASA lease, which encompasses 590,689 rentable square feet (98.3%) in Two Independence Square, commenced in July 1992 and expires in July 2012. Under the terms of the NASA lease, operating and maintenance costs are the responsibility of the landlord but, in order to compensate the landlord for the tenant’s share of increases in the operating and maintenance costs of the building, the tenant is required to pay annual rental increases computed by increasing the base year’s operating costs of Two Independence Square by the percentage change in the Cost of Living Index each year.
 
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The current annual base rent payable under the NASA lease is $21,534,124. The U.S.A., at its option, has the right to extend the initial term of its lease for one additional ten-year period at an annual rental rate of $31,255,936.
 
Approximately 14,920 of the remaining aggregate rentable square feet in the NASA Buildings (1.6%) is currently leased to four additional tenants, which account for current annual base rents payable of $121,686, and 1,684 rentable square feet of the NASA Buildings (0.1%) is currently vacant. REIT-Independence will be responsible for maintaining and repairing the NASA Buildings’ roof, foundations, common areas, electrical systems and mechanical systems.
 
Both the OCC lease and the NASA lease include provisions that require the landlord and the property manager to comply with various employment related practices and various other laws typically required in leases with government entities. Although we believe that the Wells REIT and REIT-Independence should be deemed exempt from these requirements, if a determination were made that these or other affiliated entities violated these lease provisions, the tenants have the right under the OCC lease and the NASA lease to terminate the lease or to require compliance by the appropriate entities.
 
Boston Properties, Inc., an affiliate of the seller, is serving as the property manager of the NASA Buildings. Boston Properties, Inc. is not in any way affiliated with the Wells REIT, REIT-Independence or our advisor.
 
Capital One Richmond Buildings
 
On November 26, 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 two three-story office buildings from Highwoods Realty Limited Partnership (Highwoods Realty) and one three-story office building from Highwoods/Florida Holdings, L.P. (Highwoods Florida) located on a 15.25 acre tract of land in Glen Allen, Virginia (Capital One Richmond Buildings) for an aggregate purchase price of $28,509,000, plus closing costs. In order to finance the acquisition of the Capital One Richmond Buildings, Wells OP obtained approximately $28,670,000 in loan proceeds by drawing down on an existing line of credit with SouthTrust Bank (SouthTrust). Neither Highwoods Realty nor Highwoods Florida is in any way affiliated with the Wells REIT, Wells OP or our advisor.
 
The Capital One Richmond Buildings contain an aggregate of 225,220 rentable square feet and were completed in 1999. The Capital One Richmond Buildings are located at 100, 120 & 140 Eastshore Drive in Glen Allen, Henrico County, Virginia. Each of the Capital One Richmond Buildings is leased entirely to Capital One Services, Inc. (Capital One), under separate net lease agreements (i.e., operating costs and maintenance costs are paid by the tenant).
 
Capital One, a wholly-owned subsidiary of Capital One Financial Corporation (Capital One Financial), provides various operating, administrative and other services to Capital One Financial. Capital One Financial’s primary focus is on credit card lending, but it also engages in unsecured installment lending and automobile financing.
 
The Capital One Richmond I Building contains 68,500 rentable square feet. The Capital One Richmond I lease commenced in March 2000 and expires in March 2010. The current annual base rent payable for the Capital One Richmond I lease is $786,573. The annual base rent increases each lease year by two percent. Capital One, at its option, has the right to extend the initial term of its lease for three additional five-year periods. The annual rent for each year of each extended term will continue to increase by two percent as described for the initial term.
 
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The Capital One Richmond II Building contains 77,045 rentable square feet. The Capital One Richmond II lease commenced in June 1999 and expires in May 2004. The current annual base rent payable for the Capital One Richmond II lease is $940,249. The annual base rent increases each lease year by two percent. Capital One, at its option, has the right to extend the initial term of its lease for two additional five-year periods. The annual rent for each year of each extended term will continue to increase by two percent as described for the initial term.
 
The Capital One Richmond III Building contains 79,675 rentable square feet. The Capital One Richmond III lease commenced in February 2000 and expires in February 2010. The current annual base rent payable for the Capital One Richmond III lease is $912,822. The annual base rent increases each lease year by two percent. Capital One, at its option, has the right to extend the initial term of its lease for three additional five-year periods. The annual rent for each year of each extended term will continue to increase by two percent as described for the initial term.
 
Wells OP, as the landlord, will be responsible for maintaining the roof, foundation, exterior walls, and mechanical and electrical systems of the Capital One Richmond Buildings. In addition, Capital One has a right of first refusal to purchase one or all of the Capital One Richmond Buildings upon Wells OP receiving an offer from any third party.
 
Highwoods Properties, Inc. (Highwoods), an affiliate of Highwoods Realty, Highwoods Florida and the seller of the Caterpillar Nashville Building (described below), has provided a guarantee of each of the leases for the Capital One Richmond Buildings. Highwoods has guaranteed the leases for the Capital One Richmond I Building and the Capital One Richmond III Building for the first five years of ownership by Wells OP. Highwoods has also guaranteed the lease for the Capital One Richmond II Building for the remainder of the current lease term and for any shortfall in rental income from May 2004 until November 2007 following the expiration of the current lease for the Capital One Richmond II Building. In addition, if the Capital One Richmond II lease expires or is terminated at any time prior to November 2007 and Highwoods provides Wells OP with a suitable replacement tenant which Wells OP declines, Highwoods has the right to repurchase the Capital One Richmond II Building at a purchase price of $10,126,590. This repurchase right expires if Highwoods fails to exercise such right within 30 days of Wells OP declining a suitable tenant. Further, in the event that Highwoods exercises its right to repurchase, Wells OP, at its option, may rescind the Highwoods right to repurchase within ten days of such exercise, provided that the act of rescinding the repurchase right will release Highwoods from its rental income guaranty with respect to the Capital One Richmond II Building. Highwoods, a public company traded on the New York Stock Exchange, is a self-administered real estate investment trust that provides leasing, management, development, construction and other tenant-related services for its properties and for third parties. Highwoods reported a net worth, as of September 30, 2002, of approximately $1.57 billion. Highwoods is not in any way affiliated with the Wells REIT, Wells OP or our advisor.
 
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 up to 4.5% of gross revenues from the Capital One Richmond Buildings, subject to certain limitations. Wells OP has entered into five-year management agreements with Highwoods Realty, an affiliate of the sellers, to serve as the on-site property manager for each of the Capital One Richmond Buildings, which property management fees will be paid out of or credited against the 4.5% fee payable to Wells Management.
 
Caterpillar Nashville Building
 
On November 26, 2002, Wells OP purchased all of the membership interests in 2120 West End Avenue, LLC, a Delaware limited liability company, which owned an 11-story office building located in Nashville, Tennessee (Caterpillar Nashville Building) for a purchase price of $61,525,000, plus closing costs, from Highwoods/Tennessee Holdings, L.P. (Highwoods Tennessee). In order to finance the acquisition of the Caterpillar Nashville Building, Wells OP obtained $25,000,000 in loan proceeds by drawing down on an existing line of credit with BOA and approximately $33,560,000 in loan proceeds by drawing down on an existing line of credit with SouthTrust. Subsequent to this acquisition, Wells OP dissolved 2120 West End Avenue, LLC and became the direct owner of the Caterpillar Nashville Building. Highwoods Tennessee is not in any way affiliated with the Wells REIT, Wells OP or our advisor.
 
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The Caterpillar Nashville Building, which is leased to Caterpillar Financial Services Corporation (Caterpillar), Thoughtworks, LLC (Thoughtworks) and Highwoods, contains 312,297 rentable square feet and was completed in 2000. The Caterpillar Nashville Building is located at 2120 West End Avenue in Nashville, Davidson County, Tennessee.
 
Caterpillar, as the primary tenant, occupies 300,901 rentable square feet (96.4%) of the Caterpillar Nashville Building. Caterpillar is a wholly owned subsidiary of Caterpillar, Inc. Caterpillar offers financing alternatives for various products manufactured by Caterpillar, Inc. and provides loans to customers and dealers of Caterpillar, Inc. products around the world. Caterpillar, Inc. is the one of the world’s largest manufacturers of construction and mining equipment, natural gas and diesel engines, and industrial gas turbines. Caterpillar, which offers a wide variety of financial alternatives for purchasers of Caterpillar, Inc.’s equipment, has locations in over 26 countries worldwide.
 
The Caterpillar lease commenced in March 2000 and expires in February 2015. The current annual base rent payable under the Caterpillar lease is $7,384,110. Caterpillar may terminate the Caterpillar lease after the 10th lease year (2010) by paying a termination fee to Wells OP of $7,644,682.
 
Caterpillar has a right of first refusal to lease the space currently occupied by Thoughtworks and Highwoods if either terminates its lease. In addition, Caterpillar has expansion rights which it may exercise prior to the fourth and eighth lease years. Caterpillar, 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. Under the Caterpillar lease, operating and maintenance costs are the responsibility of the landlord, but Caterpillar is responsible for increases in operating costs, provided that its obligation to pay increases in expenses other than insurance, taxes and utilities is capped at 4.5% annually. Further, under its lease Caterpillar is required to reimburse the landlord management fees up to 4% of annual gross rental receipts. Wells OP, as the landlord, will be responsible for maintaining the roof, foundation, exterior walls, interior structural walls, parking facilities and mechanical and electrical systems of the Caterpillar Nashville Building.
 
Thoughtworks is a privately held company that provides custom application development and advanced system integration services in the e-commerce industry. The Thoughtworks lease covers 6,400 rentable square feet (2.0%) and commenced in May 2000 and expires in May 2005. The current annual base rent payable under the Thoughtworks lease is $162,944.
 
The Highwoods lease covers 4,996 rentable square feet (1.6%) and commenced in October 2000 and expires in September 2005. The current annual base rent payable under the Highwoods lease is $129,946.
 
Wells Management, an affiliate of Wells REIT and our advisor, will be paid management and leasing fees in the amount of up to 4.5% of gross revenues from the Caterpillar Nashville Building, subject to certain limitations. Wells OP has entered into a 10-year management agreement with Highwoods Realty, an affiliate of the sellers of the Capital One Richmond Buildings and the Caterpillar Nashville Building, to serve as the property manager of the Caterpillar Nashville Building which property management fees will be paid out of or credited against the 4.5% fee payable to Wells Management.
 
Real Estate Loans
 
In November, 2002, Wells OP increased its existing line of credit with BOA to $110 million. In addition, Wells OP is currently in the process of increasing its existing line of credit with SouthTrust to approximately $98 million. As described above, Wells OP drew down on existing lines of credit with BOA and SouthTrust an aggregate approximately $172,230,000 to finance the acquisitions of the NASA Buildings, the Capital One Richmond Buildings and the Caterpillar Nashville Building. As of November 30, 2002, the outstanding principal balance due under the BOA line of credit was approximately $110,000,000, the outstanding principal balance due under the SouthTrust line of credit was approximately $72,000,000, and the Wells REIT had a debt leverage ratio of approximately 11.5% to the value of its properties.
 
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
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, as supplemented by Supplement No. 1 dated August 14, 2002, Supplement No. 2 dated August 29, 2002 and Supplement No. 3 dated October 25, 2002.
 
Forward Looking Statements
 
This supplement contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934, including discussion and analysis of our financial condition, anticipated capital expenditures required to complete certain projects, amounts of anticipated cash distributions to shareholders in the future and certain other matters. Readers of this supplement should be aware that there are various factors that could cause actual results to differ materially from any forward-looking statements made in this 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 on a timely basis or 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.
 
We have made an election under Section 856 (c) of the Internal Revenue Code (Internal Revenue Code) to be taxed as a REIT under the Internal Revenue Code beginning with its taxable year ended December 31, 1999. As a REIT for federal income tax purposes, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which our qualification is lost. Such an event could materially adversely affect our net income. However, management believes that we are organized and operate in a manner which will enable us to qualify for treatment as a REIT for federal income tax purposes during this fiscal year. In addition, management intends to continue to operate the Wells REIT so as to remain qualified as a REIT for federal income tax purposes.
 
Liquidity and Capital Resources
 
During the nine months ended September 30, 2002, we received aggregate gross offering proceeds of $988.5 million from the sale of 98.8 million shares of our common stock. After payment of $34.8 million in acquisition and advisory fees and acquisition expenses, payment of $104.3 million in selling commissions and organization and offering expenses, and common stock redemptions of $11.6 million pursuant to our share redemption program, we raised net offering proceeds of $837.8 million during the first three quarters of 2002, of which $144.5 million remained available for investment in properties at quarter end. In October, we reached our limit on stock redemptions for the year and, accordingly, there will be no further stock redemptions under our stock redemption program for the remainder of 2002.
 
During the nine months ended September 30, 2001, we received aggregate gross offering proceeds of $297.8 million from the sale of 29.8 million shares of its common stock. After payment of $10.3 million in acquisition and advisory fees and acquisition expenses, payment of $35.6 million in selling commissions and organizational and offering expenses, and common stock redemptions of $2.1 million pursuant to our share redemption program, we raised net offering proceeds of $249.8 million during the first three quarters of 2001, of which $8.7 million remained available for investment in properties at quarter end.
 
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The significant increase in capital resources we have available is due to significantly increased sales of our common stock during the first three quarters of 2002.
 
As of September 30, 2002, we owned interests in 67 real estate properties either directly or through interests in joint ventures. Dividends declared for the third quarter of 2002 and 2001 were approximately $0.1938 and $0.1875 per share, respectively. In August 2002, our board of directors declared dividends for the fourth quarter of 2002 in the amount of approximately $0.175 per share.
 
Due primarily to the pace of our property acquisitions, as explained in more detail in the following paragraphs, dividends paid in the first three quarters of 2002 in the aggregate amount of approximately $71.4 million exceeded our Adjusted Funds From Operations for this period by approximately $11 million.
 
We continue to 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 shareholders. 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 – we were required to lower our dividend yield to investors.
 
As a result of the factors described in the preceding paragraph, on August 29, 2002, our board of directors declared dividends for the fourth quarter of 2002 in an amount equal to a 7.0% annualized percentage rate return on an investment of $10 per share to be paid in December 2002. Our fourth quarter dividends are calculated on a daily record basis of $0.001923 (0.1923 cents) per day per share on the outstanding shares of common stock payable to shareholders of record of such shares as shown on our books at the close of business on each day during the period, commencing on September 16, 2002, and continuing on each day thereafter through and including December 15, 2002.
 
Cash Flows From Operating Activities
 
Our net cash provided by operating activities was $68.2 million and $26.5 million for the nine months ended September 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 $826.9 million and $155.7 million for the nine months ended September 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.
 
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Cash Flows From Financing Activities
 
Our net cash provided by financing activities was $827.1 million and $136.1 million for the nine months ended September 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 $208.1 million in the prior year. We raised $988.5 million in offering proceeds for the nine months ended September 30, 2002, as compared to $297.8 million for the same period in 2001. Additionally, we paid dividends totaling $23.5 million in the first three quarters of 2001 compared to $71.4 million in the same period of 2002.
 
Results of Operations
 
Gross revenues were $74.5 million and $34.1 million for the nine months ended September 30, 2002 and 2001, respectively. Gross revenues for the nine months ended September 30, 2002 and 2001 were attributable to rental income, interest income earned on funds we held prior to the investment in properties, and income earned from joint ventures. The increase in revenues in 2002 was primarily attributable to the purchase of $805.5 million in additional properties during 2002 and the purchase of $114.1 million in additional properties during the fourth quarter of 2001 which were not owned for the first three quarters of 2001. The purchase of additional properties also resulted in an increase in expenses, which totaled $34.7 million for the nine months ended September 30, 2002, as compared to $19.6 million for the nine months ended September 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 increased from $14.4 million for the nine months ended September 30, 2001 to $39.8 million for the nine months ended September 30, 2002.
 
Earnings per share for the nine months ended September 30, 2002 decreased from $0.33 per share for the nine months ended September 30, 2001 to $0.31 per share for the nine months ended September 30, 2002. Earnings per share for the third quarter decreased from $0.11 per share for the three months ended September 30, 2001 to $0.09 per share for the three months ended September 30, 2002. These decreases were primarily due to the substantial increase in the number of shares outstanding as a result of capital raised in 2002 which was not completely matched by a corresponding increase in net income because such capital proceeds were not fully invested in properties.
 
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 nine months ended September 30, 2002 and 2001, respectively:
 
9

Table of Contents
 	  	Three Months Ended
(in thousands)

	 	 	Nine Months Ended
(in thousands)

	 	
 	  	September 30,
2002

	 	 	September 30,
2001

	 	 	September 30,
2002

	 	 	September 30,
2001

	 	
FUNDS FROM OPERATIONS:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	$	15,285	 	 	$	6,109	 	 	$	39,821	 	 	$	14,423	 	
Add:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	10,282	 	 	 	3,947	 	 	 	23,185	 	 	 	10,341	 	
Amortization of deferred leasing costs	  	 	78	 	 	 	76	 	 	 	229	 	 	 	228	 	
Depreciation and amortization—unconsolidated partnerships	  	 	708	 	 	 	647	 	 	 	2,115	 	 	 	1,561	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Funds from operations (FFO)	  	 	26,353	 	 	 	10,779	 	 	 	65,350	 	 	 	26,553	 	
Adjustments:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan cost amortization	  	 	162	 	 	 	237	 	 	 	587	 	 	 	529	 	
Straight line rent	  	 	(2,146	)	 	 	(708	)	 	 	(5,312	)	 	 	(1,930	)	
Straight line rent—unconsolidated Partnerships	  	 	(27	)	 	 	(100	)	 	 	(229	)	 	 	(233	)	
Lease acquisitions fees paid—unconsolidated partnerships	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(8	)	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Adjusted funds from operations	  	$	24,342	 	 	$	10,208	 	 	$	60,396	 	 	$	24,911	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
BASIC AND DILUTED WEIGHTED AVERAGE SHARES	  	 	163,395	 	 	 	54,112	 	 	 	128,541	 	 	 	43,726	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 
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 that 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
 
We 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.
 
Subsequent Events
 
Effective October 31, 2002, Arthur Andersen LLP (Andersen) and Wells OP entered into a termination agreement with respect to the lease for the three-story office building containing 157,700 rentable square feet located in Sarasota, Florida formerly known as the Arthur Andersen Building. In consideration for releasing Andersen from its obligation to pay rent under the lease, Andersen paid Wells OP a termination fee of $979,760 and conveyed to Wells OP an approximately 1.3 acre tract of land adjacent to the property which was used for parking.
 
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Table of Contents
Status of the leasing of the Vertex Sarasota Building (formerly the Arthur Andersen Building)
 
As set forth in the “Subsequent Events” subsection of the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this supplement, effective October 31, 2002, Andersen and Wells OP entered into a termination agreement with respect to the lease for the three-story office building containing 157,700 rentable square feet located in Sarasota, Florida, formerly known as the Arthur Andersen Building (Vertex Sarasota Building). On November 1, 2002, Wells OP entered into a net lease agreement with Vertex Tax Technology Enterprises, LLC (Vertex) for a portion of the Vertex Sarasota Building.
 
Approximately 47,388 rentable square feet of the Vertex Sarasota Building is currently under a net lease agreement with Vertex. The current term of the lease is seven years, which commenced on November 1, 2002 and expires on October 31, 2009. The current annual base rent payable under the Vertex lease is $621,257. Pursuant to the Vertex lease, Vertex has a right of first refusal to lease an additional 5,695 square feet of rentable space in the third floor of the building. Wells OP, as the landlord, will be responsible for maintaining the building’s exterior walls, HVAC system, plumbing, elevators, fire protection, other mechanical systems, public areas, including parking lot, building structure, foundation and roof.
 
Vertex, a wholly owned subsidiary of Vertex, Inc., is a successor company of Andersen’s corporate income tax technology solutions division. The Vertex lease is guaranteed by Vertex, Inc, which is a privately held company providing corporate customers with tax compliance software and research services for sales and use tax, property tax, payroll tax, telecommunications tax, and income tax.
 
Financial Statements
 
Audited Financial Statements
 
The statements of revenues over certain operating expenses of the NASA Buildings and the Caterpillar Nashville Building for the year ended December 31, 2001, which are included in this supplement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports appearing elsewhere herein, and are included in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.
 
Unaudited Financial Statements
 
The financial statements of the Wells REIT, as of September 30, 2002, and for the three and nine month periods ended September 30, 2002 and September 30, 2001, which are included in this supplement, have not been audited.
 
The statements of revenues over certain operating expenses of the NASA Buildings and the Caterpillar Nashville Building for the nine months ended September 30, 2002, which are included in this supplement, have not been audited.
 
The pro forma balance sheet of the Wells REIT, as of September 30, 2002, the pro forma statement of income for the year ended December 31, 2001, and the pro forma statement of income for the nine months ended September 30, 2002, which are included in this supplement, have not been audited.
 
11

Table of Contents
INDEX TO FINANCIAL STATEMENTS
 
Wells Real Estate Investment Trust, Inc. and Subsidiary	  	Page	
 	 	 	
 	 	Unaudited Financial Statements	  	 	
 	 	 	
 	 	Consolidated Balance Sheets as of September 30, 2002 (unaudited) and December 31, 2001	  	13	
 	 	 	
 	 	Consolidated Statements of Income for the three months ended September 30, 2002 and September 30, 2001(unaudited), and for the nine months ended September 30, 2002 and September 30, 2001 (unaudited)	  	14	
 	 	 	
 	 	Consolidated Statements of Shareholders’ Equity for the year ended December 31, 2001 and for the nine months ended September 30, 2002 (unaudited)	  	15	
 	 	 	
 	 	Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and September 30, 2001 (unaudited)	  	16	
 	 	 	
 	 	Condensed Notes to Consolidated Financial Statements September 30, 2002 (unaudited)	  	17	
 	 	
NASA Buildings	  	 	
 	 	 	
 	 	Report of Independent Auditors	  	34	
 	 	 	
 	 	Statements of Revenues Over Certain Operating Expenses for the year ended December 31, 2001 (audited) and for the nine months ended September 30, 2002 (unaudited)	  	35	
 	 	 	
 	 	Notes to Statements of Revenues Over Certain Operating Expenses for the year ended December 31, 2001 (audited) and for the nine months ended September 30, 2002 (unaudited)	  	36	
 	 	
Caterpillar Nashville Building	  	 	
 	 	 	
 	 	Report of Independent Auditors	  	38	
 	 	 	
 	 	Statements of Revenues Over Certain Operating Expenses for the year ended December 31, 2001 (audited) and for the nine months ended September 30, 2002 (unaudited)	  	39	
 	 	 	
 	 	Notes to Statements of Revenues Over Certain Operating Expenses for the year ended December 31, 2001 (audited) and for the nine months ended September 30, 2002 (unaudited)	  	40	
 	 	
Wells Real Estate Investment Trust, Inc. and Subsidiary	  	 	
 	 	 	
 	 	Unaudited Pro Forma Financial Statements	  	 	
 	 	 	
 	 	Summary of Unaudited Pro Forma Financial Statements	  	42	
 	 	 	
 	 	Pro Forma Balance Sheet as of September 30, 2002 (unaudited)	  	43	
 	 	 	
 	 	Pro Forma Statement of Income for the year ended December 31, 2001 (unaudited)	  	45	
 	 	 	
 	 	Pro Forma Statement of Income for the nine months ended September 30, 2002 (unaudited)	  	46	

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Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
AND SUBSIDIARY
 
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
 
 	  	September 30,
2002

	 	 	December 31,
2001

	 	
 	  	(unaudited)	 	 	 	 	
ASSETS	  	 	 	 	 	 	 	 	
REAL ESTATE, at cost:	  	 	 	 	 	 	 	 	
Land	  	$	164,191	 	 	$	86,247	 	
Building and improvements, less accumulated depreciation of $48,000 in 2002 and $24,814 in 2001	  	 	1,171,793	 	 	 	472,383	 	
Construction in progress	  	 	28,500	 	 	 	5,739	 	

	

	

	 	

	

	

	
Total real estate	  	 	1,364,484	 	 	 	564,369	 	
INVESTMENT IN JOINT VENTURES	  	 	75,388	 	 	 	77,410	 	
CASH AND CASH EQUIVALENTS	  	 	143,912	 	 	 	75,586	 	
INVESTMENT IN BONDS	  	 	54,500	 	 	 	22,000	 	
STRAIGHT-LINE RENT RECEIVABLE	  	 	10,632	 	 	 	5,362	 	
ACCOUNTS RECEIVABLE	  	 	1,387	 	 	 	641	 	
NOTE RECEIVABLE	  	 	4,966	 	 	 	0	 	
DEFERRED LEASE ACQUISITION COSTS, net	  	 	1,713	 	 	 	1,525	 	
DEFERRED PROJECT COSTS	  	 	5,963	 	 	 	2,977	 	
DUE FROM AFFILIATES	  	 	2,185	 	 	 	1,693	 	
DEFERRED OFFERING COSTS	  	 	3,537	 	 	 	0	 	
PREPAID EXPENSES AND OTHER ASSETS, net	  	 	2,597	 	 	 	718	 	

	

	

	 	

	

	

	
Total assets	  	$	1,671,264	 	 	$	752,281	 	

	

	

	 	

	

	

	
LIABILITIES AND SHAREHOLDERS’ EQUITY	  	 	 	 	 	 	 	 	
LIABILITIES:	  	 	 	 	 	 	 	 	
Notes payable	  	$	35,829	 	 	$	8,124	 	
Obligations under capital leases	  	 	54,500	 	 	 	22,000	 	
Accounts payable and accrued expenses	  	 	17,539	 	 	 	8,727	 	
Dividends payable	  	 	10,209	 	 	 	1,059	 	
Deferred rental income	  	 	7,894	 	 	 	662	 	
Due to affiliates	  	 	4,380	 	 	 	2,166	 	

	

	

	 	

	

	

	
Total liabilities	  	 	130,351	 	 	 	42,738	 	

	

	

	 	

	

	

	
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP	  	 	200	 	 	 	200	 	

	

	

	 	

	

	

	
SHAREHOLDERS’ EQUITY:	  	 	 	 	 	 	 	 	
Common shares, $.01 par value; 750,000 shares authorized, 182,609 shares issued and 180,892 outstanding at September 30, 2002, and 350,000 shares authorized, 83,761 shares issued and 83,206 shares outstanding at December 31, 2001	  	 	1,826	 	 	 	838	 	
Additional paid-in capital	  	 	1,621,376	 	 	 	738,236	 	
Cumulative distributions in excess of earnings	  	 	(64,907	)	 	 	(24,181	)	
Treasury stock, at cost, 1,717 shares at September 30, 2002 and
555 shares at December 31, 2001	  	 	(17,167	)	 	 	(5,550	)	
Other comprehensive loss	  	 	(415	)	 	 	0	 	

	

	

	 	

	

	

	
Total shareholders’ equity	  	 	1,540,713	 	 	 	709,343	 	

	

	

	 	

	

	

	
Total liabilities and shareholders’ equity	  	$	1,671,264	 	 	$	752,281	 	

	

	

	 	

	

	

	
 
See accompanying condensed notes to financial statements.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF INCOME
 
(unaudited and in thousands except per share amounts)
 
 	  	Three Months Ended

	  	Nine Months Ended

	
 	  	September 30,
2002

	  	September 30,
2001

	  	September 30
2002

	  	September 30
2001

	
REVENUES:	  	 	 	  	 	 	  	 	 	  	 	 	
Rental income	  	$	27,549	  	$	11,317	  	$	66,121	  	$	31,028	
Equity in income of joint ventures	  	 	1,259	  	 	1,102	  	 	3,738	  	 	2,622	
Interest income	  	 	1,899	  	 	89	  	 	4,547	  	 	281	
Take out fee	  	 	1	  	 	0	  	 	135	  	 	138	

	

	  	

	

	  	

	

	  	

	

	
 	  	 	30,708	  	 	12,508	  	 	74,541	  	 	34,069	

	

	  	

	

	  	

	

	  	

	

	
EXPENSES:	  	 	 	  	 	 	  	 	 	  	 	 	
Depreciation	  	 	10,282	  	 	3,947	  	 	23,185	  	 	10,341	
Operating costs, net of reimbursements	  	 	2,191	  	 	1,294	  	 	4,255	  	 	3,168	
Management and leasing fees	  	 	1,445	  	 	632	  	 	3,348	  	 	1,750	
Administrative costs	  	 	745	  	 	141	  	 	1,867	  	 	901	
Interest expense	  	 	598	  	 	148	  	 	1,478	  	 	2,957	
Amortization of deferred financing costs	  	 	162	  	 	237	  	 	587	  	 	529	

	

	  	

	

	  	

	

	  	

	

	
 	  	 	15,423	  	 	6,399	  	 	34,720	  	 	19,646	

	

	  	

	

	  	

	

	  	

	

	
NET INCOME	  	$	15,285	  	$	6,109	  	$	39,821	  	$	14,423	

	

	  	

	

	  	

	

	  	

	

	
BASIC AND DILUTED EARNINGS PER SHARE	  	$	0.09	  	$	0.11	  	$	0.31	  	$	0.33	

	

	  	

	

	  	

	

	  	

	

	
BASIC AND DILUTED WEIGHTED AVERAGE SHARES	  	 	163,395	  	 	54,112	  	 	128,541	  	 	43,726	

	

	  	

	

	  	

	

	  	

	

	
 
See accompanying condensed notes to financial statements.

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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
 
FOR THE YEAR ENDED DECEMBER 31, 2001
 
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED)
 
(in thousands except per share amounts)
 
 	 	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	 	31,510	 	$	315	 	$	275,573	 	 	$	(9,134	)	 	$	0	 	 	(141	)	 	$	(1,413	)	 	$	0	 	 	$	265,341	 	
Issuance of common stock	 	52,251	 	 	523	 	 	521,994	 	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	 	 	0	 	 	 	522,517	 	
Treasury stock purchased	 	0	 	 	0	 	 	0	 	 	 	0	 	 	 	0	 	 	(414	)	 	 	(4,137	)	 	 	0	 	 	 	(4,137	)	
Net income	 	0	 	 	0	 	 	0	 	 	 	0	 	 	 	21,724	 	 	0	 	 	 	0	 	 	 	0	 	 	 	21,724	 	
Dividends ($.76 per share)	 	0	 	 	0	 	 	0	 	 	 	(15,047	)	 	 	(21,724	)	 	0	 	 	 	0	 	 	 	0	 	 	 	(36,771	)	
Sales commissions and discounts	 	0	 	 	0	 	 	(49,246	)	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	 	 	0	 	 	 	(49,246	)	
Other offering expenses	 	0	 	 	0	 	 	(10,085	)	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	 	 	0	 	 	 	(10,085	)	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
BALANCE, December 31, 2001	 	83,761	 	 	838	 	 	738,236	 	 	 	(24,181	)	 	 	0	 	 	(555	)	 	 	(5,550	)	 	 	0	 	 	 	709,343	 	
Issuance of common stock	 	98,848	 	 	988	 	 	987,482	 	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	 	 	0	 	 	 	988,470	 	
Treasury stock purchased	 	0	 	 	0	 	 	0	 	 	 	0	 	 	 	0	 	 	(1,162	)	 	 	(11,617	)	 	 	0	 	 	 	(11,617	)	
Dividends ($.58 per share)	 	0	 	 	0	 	 	0	 	 	 	(40,726	)	 	 	(39,821	)	 	0	 	 	 	0	 	 	 	0	 	 	 	(80,547	)	
Sales commissions and discounts	 	0	 	 	0	 	 	(94,097	)	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	 	 	0	 	 	 	(94,097	)	
Other offering expenses	 	0	 	 	0	 	 	(10,245	)	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	 	 	0	 	 	 	(10,245	)	
Components of comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	0	 	 	0	 	 	0	 	 	 	0	 	 	 	39,821	 	 	0	 	 	 	0	 	 	 	0	 	 	 	39,821	 	
Gain/(loss) on interest rate swap	 	0	 	 	0	 	 	0	 	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	 	 	(415	)	 	 	(415	)	

	

	

	
Comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	39,406	 	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
BALANCE, September 30, 2002 (unaudited)	 	182,609	 	$	1,826	 	$	1,621,376	 	 	$	(64,907	)	 	$	0	 	 	(1,717	)	 	$	(17,167	)	 	$	(415	)	 	$	1,540,713	 	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 
See accompanying condensed notes to financial statements.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(unaudited and in thousands)
 
 	  	Nine Months Ended

	 	
 	  	September 30,
2002

	 	 	September 30,
2001

	 	
CASH FLOWS FROM OPERATING ACTIVITIES:	  	 	 	 	 	 	 	 	
Net income	  	$	39,821	 	 	$	14,423	 	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	
Equity in income of joint ventures	  	 	(3,738	)	 	 	(2,622	)	
Depreciation	  	 	23,185	 	 	 	10,341	 	
Amortization of deferred financing costs	  	 	587	 	 	 	529	 	
Amortization of deferred leasing costs	  	 	229	 	 	 	228	 	
Bad debt expense	  	 	113	 	 	 	0	 	
Changes in assets and liabilities:	  	 	 	 	 	 	 	 	
Accounts receivable	  	 	(746	)	 	 	(370	)	
Straight-line rent receivable	  	 	(5,382	)	 	 	(1,949	)	
Due from affiliates	  	 	(35	)	 	 	0	 	
Deferred rental income	  	 	7,232	 	 	 	(381	)	
Accounts payable and accrued expenses	  	 	8,811	 	 	 	3,309	 	
Prepaid expenses and other assets, net	  	 	(1,813	)	 	 	3,211	 	
Due to affiliates	  	 	(105	)	 	 	(235	)	

	

	

	 	

	

	

	
Net cash provided by operating activities	  	 	68,159	 	 	 	26,484	 	

	

	

	 	

	

	

	
CASH FLOWS FROM INVESTING ACTIVITIES:	  	 	 	 	 	 	 	 	
Investments in real estate	  	 	(797,011	)	 	 	(121,366	)	
Investment in joint ventures	  	 	0	 	 	 	(27,018	)	
Deferred project costs paid	  	 	(34,784	)	 	 	(10,347	)	
Distributions received from joint ventures	  	 	5,301	 	 	 	3,027	 	
Deferred lease acquisition costs paid	  	 	(400	)	 	 	0	 	

	

	

	 	

	

	

	
Net cash used in investing activities	  	 	(826,894	)	 	 	(155,704	)	

	

	

	 	

	

	

	
CASH FLOWS FROM FINANCING ACTIVITIES:	  	 	 	 	 	 	 	 	
Proceeds from note payable	  	 	27,742	 	 	 	107,587	 	
Repayment of note payable	  	 	(37	)	 	 	(208,102	)	
Dividends paid	  	 	(71,397	)	 	 	(23,502	)	
Issuance of common stock	  	 	988,470	 	 	 	297,775	 	
Sales commissions paid	  	 	(94,097	)	 	 	(28,086	)	
Offering costs paid	  	 	(10,937	)	 	 	(7,481	)	
Treasury stock purchased	  	 	(11,617	)	 	 	(2,137	)	
Deferred financing costs paid	  	 	(1,066	)	 	 	0	 	

	

	

	 	

	

	

	
Net cash provided by financing activities	  	 	827,061	 	 	 	136,054	 	

	

	

	 	

	

	

	
NET INCREASE IN CASH AND CASH EQUIVALENTS	  	 	68,326	 	 	 	6,834	 	
CASH AND CASH EQUIVALENTS, beginning of year	  	 	75,586	 	 	 	4,298	 	

	

	

	 	

	

	

	
CASH AND CASH EQUIVALENTS, end of period	  	$	143,912	 	 	$	11,132	 	

	

	

	 	

	

	

	
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:	  	 	 	 	 	 	 	 	
Deferred project costs applied to real estate assets	  	$	31,271	 	 	$	1,127	 	

	

	

	 	

	

	

	
Deferred project costs applied to joint ventures	  	$	0	 	 	$	9,295	 	

	

	

	 	

	

	

	
Deferred project costs due to affiliate	  	$	587	 	 	$	(498	)	

	

	

	 	

	

	

	
Interest rate swap	  	$	(415	)	 	$	0	 	

	

	

	 	

	

	

	
Increase (decrease) in deferred offering cost accrual	  	$	3,537	 	 	$	(1,291	)	

	

	

	 	

	

	

	
Assumption of obligations under capital lease	  	$	32,500	 	 	$	22,000	 	

	

	

	 	

	

	

	
Investment in bonds	  	$	32,500	 	 	$	22,000	 	

	

	

	 	

	

	

	
 
See accompanying condensed notes to financial statements.
 
16

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
AND SUBSIDIARY
 
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
SEPTEMBER 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 16.5 million shares of common stock at $10 per share pursuant to a Registration Statement on Form S-11 filed under the Securities Act of 1933. The Company commenced active operations on June 5, 1998. The Company terminated its initial public offering on December 19, 1999 at which time gross proceeds of approximately $132.2 million had been received from the sale of approximately 13.2 million shares. The Company commenced its second public offering of shares of common stock on December 20, 1999, which was terminated on December 19, 2000 after receipt of gross proceeds of approximately $175.2 million from the sale of approximately 17.5 million shares. The Company commenced its third public offering of shares of common stock on December 20, 2000, which terminated on July 26, 2002 after receipt of gross proceeds of approximately $1.3 billion from the sale of approximately 128.3 million shares. As of September 30, 2002, the Company has received gross proceeds of approximately $235.7 million from the sale of approximately 23.6 million shares from its fourth public offering. Accordingly, as of September 30, 2002, the Company has received aggregate gross offering proceeds of approximately $1.8 billion from the sale of 182.6 million shares of its common stock to investors. After payment of $63.3 million in acquisition and advisory fees and acquisition expenses, payment of $202.9 million in selling commissions and organization and offering expenses, capital contributions to joint ventures and acquisitions expenditures by Wells OP of $1.4 billion for property acquisitions, and common stock redemptions of $17.2 million pursuant to the Company’s share redemption program, the Company was holding net offering proceeds of $144.5 million available for investment in properties, as of September 30, 2002.
 
17

Table of Contents
(b) Properties
 
As of September 30, 2002, the Company owned interests in 67 properties listed in the table below through its ownership in Wells OP.
 
Property
Name

	  	Tenant

	  	Property
Location

	  	%
Owned

	 	 	Purchase
Price

	 	 	Square
Feet

	  	Annual
Rent

	 	
Daimler Chrysler Dallas	  	Daimler Chrysler Services North America LLC	  	Westlake, TX	  	100	%	 	$	25,100,000	 	 	130,290	  	$	3,189,499	 	
 	 	 	 	 	 	 	
Allstate Indianapolis	  	Allstate Insurance Company
Holladay Property Services Midwest, Inc.	  	Indianapolis, IN	  	100	%	 	$	10,900,000	 	 	84,200
5,756	  	$
$	1,246,164
74,832	 

Intuit Dallas	  	Lacerte Software Corporation	  	Plano, TX	  	100	%	 	$	26,500,000	 	 	166,238	  	$	2,461,985	 	
 	 	 	 	 	 	 	
EDS Des Moines	  	EDS Information Services LLC	  	Des Moines, IA	  	100	%	 	$	26,500,000	 	 	405,000	  	$	2,389,500	 	
 	 	 	 	 	 	 	
Federal Express Colorado Springs	  	Federal Express Corporation	  	Colorado Springs, CO	  	100	%	 	$	26,000,000	 	 	155,808	  	$	2,248,309	 	
 	 	 	 	 	 	 	
KeyBank Parsippany	  	KeyBank U.S.A., N.A.
Gemini Technology Services	  	Parsippany, NJ	  	100	%	 	$	101,350,000	 	 	200,000
204,515	  	$
$	3,800,000
5,726,420	 

IRS Long Island	  	IRS Collection
IRS Compliance
IRS Daycare Facility	  	Holtsville, NY	  	100	%	 	$	50,975,000	 	 	128,000
50,949
12,100	  	$
$
$	5,029,380
1,663,200
486,799	(1)

 	 	 	 	 	 	 	
AmeriCredit Phoenix	  	AmeriCredit Financial Services, Inc.	  	Chandler, AZ	  	100	%	 	$	24,700,000	(2)	 	153,494	  	$	1,609,315	(3)	
 	 	 	 	 	 	 	
Harcourt Austin	  	Harcourt, Inc.	  	Austin, TX	  	100	%	 	$	39,000,000	 	 	195,230	  	$	3,353,040	 	
 	 	 	 	 	 	 	
Nokia Dallas	  	Nokia, Inc.
Nokia, Inc.
Nokia, Inc.	  	Irving, TX	  	100	%	 	$	119,550,000	 	 	228,678
223,470
152,086	  	$
$
$	4,413,485
4,547,614
3,024,990	 

 	 	 	 	 	 	 	
Kraft Atlanta	  	Kraft Foods North America, Inc.
Perkin Elmer Instruments, LLC	  	Suwanee, GA	  	100	%	 	$	11,625,000	 	 	73,264
13,955	  	$
$	1,263,804
194,672	 

BMG Greenville	  	BMG Direct Marketing, Inc.
BMG Music	  	Duncan, SC	  	100	%	 	$	26,900,000	 	 	473,398
313,380	  	$
$	1,394,156
763,600	 

Kerr-McGee	  	Kerr-McGee Oil & Gas Corporation	  	Houston, TX	  	100	%	 	$	15,760,000	(2)	 	100,000	  	$	1,655,000	(3)	
 	 	 	 	 	 	 	
PacifiCare San Antonio	  	PacifiCare Health Systems, Inc.	  	San Antonio, TX	  	100	%	 	$	14,650,000	 	 	142,500	  	$	1,471,700	 	
 	 	 	 	 	 	 	
ISS Atlanta	  	Internet Security Systems, Inc.	  	Atlanta, GA	  	100	%	 	$	40,500,000	 	 	238,600	  	$	4,623,445	 	
 	 	 	 	 	 	 	
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
704,430	 

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	(4)	 	147,004	  	$	1,842,800	 	
 	 	 	 	 	 	 	
Dana Detroit	  	Dana Corporation	  	Farmington Hills, MI	  	100	%	 	 	(see above	)(4)	 	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 (5)	  	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	(6)	 	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	(6)	 	300,034	  	$	5,244,594	 	
 	 	 	 	 	 	 	
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	  	Nissan Motor Acceptance Corporation	  	Irving, TX	  	100	%	 	$	42,259,000	(2)	 	268,290	  	$	4,225,860	(3)	
 	 	 	 	 	 	 	
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	 	
 
18

Table of Contents
Property
Name

	  	Tenant

	  	Property
Location

	  	%
Owned

	 	 	Purchase
Price

	  	Square
Feet

	  	Annual
Rent

	
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	  	$	2,054,329	
 	 	 	 	 	 	 	
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 (2)	  	Alstom Power, Inc.	  	Midlothian, VA	  	100	%	 	$	11,400,000	  	99,057	  	$	1,244,501	
 	 	 	 	 	 	 	
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 (2)	  	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	
 	 	 	 	 	 	 	
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)	 	Includes only the leased portion of this property.	
(2)	 	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.	
(3)	 	Annual rent for AmeriCredit Phoenix, Kerr McGee and Nissan Property does not take effect until construction of the building is completed and the tenant is occupying the building.	
(4)	 	Dana Kalamazoo and Dana Detroit were purchased for an aggregate purchase price of $41,950,000.	
(5)	 	Subsequent to September 30, 2002, this building has been vacated by the tenant. See Footnote 10 and “Subsequent Events” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this supplement.	
(6)	 	Windy Point I and Windy Point II were purchased for an aggregate purchase price of $89,275,000.	
 
19

Table of Contents
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. 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.
 
20

Table of Contents
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 to date.
 
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 September 30, 2002, amounted to $63.3 million 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 September 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 equity is raised, the Company reverses the deferred offering costs accrual and recognizes a charge to stockholders’ equity upon reimbursing the Advisor. As of September 30, 2002, the Advisor had paid organization and offering expenses on behalf of the Company in an aggregate amount of $34.2 million, of which the Advisor had been reimbursed $29.7 million, 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.
 
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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 $1.1 million and $0.4 million for the nine months ended September 30, 2002 and 2001, respectively, and $0.5 million and $0.1 million for the three months ended September 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.
 
(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.
 
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(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 management of the Company, 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 September 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 September 30, 2002 and 2001, respectively. There were no additional investments in joint ventures made by the Company during the three months and nine months ended September 30, 2002.
 
 	  	Total Revenues

	  	Net Income

	  	Wells OP’s Share of Net
Income

	
 	  	Three Months Ended
(in thousands)

	  	Three Months Ended
(in thousands)

	  	Three Months Ended
(in thousands)

	
 	  	September 30,
2002

	  	September 30,
2001

	  	September 30,
2002

	  	September 30,
2001

	  	September 30,
2002

	  	September 30,
2001

	
Fund IX-X-XI-REIT
Joint Venture	  	$	1,083	  	$	1,083	  	$	574	  	$	670	  	$	21	  	$	25	
Cort Joint Venture	  	 	199	  	 	204	  	 	135	  	 	149	  	 	59	  	 	65	
Fremont Joint
Venture	  	 	226	  	 	227	  	 	142	  	 	142	  	 	110	  	 	110	
Fund XI-XII-REIT
Joint Venture	  	 	836	  	 	844	  	 	484	  	 	520	  	 	275	  	 	295	
Fund XII-REIT
Joint Venture	  	 	1,330	  	 	1,410	  	 	727	  	 	815	  	 	400	  	 	448	
Fund VIII-IX-REIT
Joint Venture	  	 	302	  	 	314	  	 	153	  	 	156	  	 	24	  	 	24	
Fund XIII-REIT
Joint Venture	  	 	704	  	 	306	  	 	408	  	 	155	  	 	370	  	 	135	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	
 	  	$	4,680	  	$	4,388	  	$	2,623	  	$	2,607	  	$	1,259	  	$	1,102	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	
 
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 	  	Total Revenues

	  	Net Income

	  	Wells OP’s
Share of Net Income

	
 	  	Nine Months Ended (in thousands)

	  	Nine Months Ended (in thousands)

	  	Nine Months Ended (in thousands)

	
 	  	September 30,
2002

	  	September 30,
2001

	  	September 30,
2002

	  	September 30,
2001

	  	September 30,
2002

	  	September 30,
2001

	
Fund IX-X-XI-REIT
    Joint Venture	  	$	3,310	  	$	3,264	  	$	1,747	  	$	2,043	  	$	65	  	$	76	
 	 	 	 	 	 	 	
Cort Joint Venture	  	 	597	  	 	602	  	 	405	  	 	415	  	 	177	  	 	181	
Fremont Joint
    Venture	  	 	678	  	 	677	  	 	419	  	 	421	  	 	325	  	 	326	
Fund XI-XII-REIT
    Joint Venture	  	 	2,525	  	 	2,533	  	 	1,526	  	 	1,534	  	 	866	  	 	871	
Fund XII-REIT
    Joint Venture	  	 	4,143	  	 	3,306	  	 	2,385	  	 	1,848	  	 	1,311	  	 	967	
Fund VIII-IX-REIT
    Joint Venture	  	 	906	  	 	894	  	 	461	  	 	416	  	 	73	  	 	66	
 	 	 	 	 	 	 	
Fund XIII-REIT
    Joint Venture	  	 	2,108	  	 	306	  	 	1,215	  	 	155	  	 	921	  	 	135	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	
 	  	$	14,267	  	$	11,582	  	$	8,158	  	$	6,832	  	$	3,738	  	$	2,622	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	
 
3. INVESTMENTS IN REAL ESTATE
 
As of September 30, 2002, the Company, through its ownership in Wells OP, owns 50 properties directly. The following describes acquisitions made directly by Wells OP during the three months ended September 30, 2002.
 
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 $40.5 million, 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 $32.5 million in connection with the construction of these buildings. The Bonds, which entitle Wells OP to certain real property tax abatement benefits, were also assigned to Wells OP at the closing. Fee title interest to the land will be transferred to Wells OP upon payment of the outstanding balance on the Bonds, either by prepayment by Wells OP or at the expiration of the ground lease on December 1, 2015.
 
The entire rentable area of the ISS Atlanta Buildings is leased to Internet Security Systems, Inc., a Georgia corporation (“ISS”). The ISS Atlanta lease 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 approximately $4.6 million. 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 $14.7 million, 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 in November 2000 and expires in November 2010. The current annual base rent payable under the PacifiCare lease is approximately $1.5 million. 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 approximately $0.2
 
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million 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 approximately $1.7, 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 $15.8 million.
 
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 $13.7 million 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 Buildings
 
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 $26.9 million, 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 that commenced in March 1988 and expires in March 2011. The current annual base rent payable under the BMG Marketing lease is approximately $1.4 million. 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 that commenced in December 1987 and expires in March 2011. The current annual base rent payable under the BMG Music lease is approximately $0.8 million. 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 approximately $11.6 million, excluding closing costs. The Kraft Atlanta Building is leased to Kraft Foods North America, Inc. (“Kraft”) and PerkinElmer Instruments, LLC (“PerkinElmer”).
 
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The Kraft lease is a net lease that covers approximately 73,264 square feet that commenced in February 2002 and expires in January 2012. The current annual base rent payable under the Kraft lease is approximately $1.3 million. 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 $7.0 million termination fee, or (2) at the end of the seventh lease year by paying an approximately $1.8 million termination fee.
 
The PerkinElmer lease is a net lease that covers approximately 13,955 rentable square feet that commenced in December 2001 and expires in November 2016. The current annual base rent payable under the PerkinElmer lease is approximately $0.2 million. 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 $0.3 million termination fee.
 
The Nokia Dallas Buildings
 
On August 15, 2002, Wells OP purchased the Nokia Dallas Buildings, three adjacent office buildings containing an aggregate of 604,234 rentable square feet located in Irving, Texas for an aggregate purchase price of approximately $119.6 million, excluding closing costs. The Nokia Dallas Buildings are all leased entirely to Nokia, Inc (“Nokia”) under three long-term net leases for periods of 10 years, with approximately seven to eight years remaining on such leases.
 
The Nokia I Building is a nine-story building containing 228,678 rentable square feet. The Nokia I Building lease fully commenced in July 1999 and expires in July 2009. The current annual base rent payable under the Nokia I Building lease is approximately $4.4 million. The Nokia II Building is a seven-story building containing 223,470 rentable square feet. The Nokia II Building lease commenced in December 2000 and expires in December 2010. The current annual base rent payable under the Nokia II Building lease is approximately $4.5 million. The Nokia III Building is a six-story building containing 152,086 rentable square feet. The Nokia III Building lease commenced in June 1999 and expires in July 2009. The current annual base rent payable under the Nokia III Building lease is approximately $3.0 million.
 
The Harcourt Austin Building
 
On August 15, 2002, Wells OP purchased the Harcourt Austin Building, a seven-story office building containing 195,230 rentable square feet located in Austin, Texas for a purchase price of $39.0 million, excluding closing costs. The Harcourt Austin Building is leased entirely to Harcourt, Inc. (“Harcout”), a wholly owned subsidiary of Harcourt General, Inc., the guarantor of the Harcourt lease. The Harcourt lease commenced in July 2001 and expires in June 2016. The current annual base rent payable under the Harcourt lease is approximately $3.4 million.
 
The AmeriCredit Phoenix Property
 
On September 12, 2002, Wells OP purchased the AmeriCredit Phoenix Property, a 14.74-acre tract of land located in Chandler, Maricopa County, Arizona for a purchase price of approximately $2.6 million, excluding closing costs. Wells OP has entered into agreements to construct a three-story office building containing approximately 153,494 rentable square feet (the “AmeriCredit Phoenix Project”) on the AmeriCredit Phoenix 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 AmeriCredit Phoenix Project and the planning, design, development, construction and completion of the AmeriCredit Phoenix Project will total approximately $24.7 million.
 
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The entire 153,494 rentable square feet of the AmeriCredit Phoenix Project will be leased to AmeriCredit Financial Services, Inc. (“AmeriCredit”), a wholly owned subsidiary of AmeriCredit Corporation. The initial term of the AmeriCredit lease will extend 10 years and 4 month beyond the rent commencement date. Construction on the building is scheduled to be completed by August 2003. AmeriCredit has the right to extend the initial term of this lease for two additional periods of five years at 95% of the then-market rate. As an inducement for Wells OP to enter into the AmeriCredit Phoenix lease, AmeriCredit has prepaid to Wells OP the first three years of base rent at a discounted amount equal to approximately $4.8 million.
 
The IRS Long Island Buildings
 
On September 16, 2002, Wells REIT-Holtsville, NY, LLC (“REIT-Holtsville”), a Georgia limited liability company wholly-owned by Wells OP purchased the IRS Long Island Buildings, a two-story office building and a one-story daycare facility containing an aggregate 259,700 rentable square feet located in Holtsville, New York for a purchase price of approximately $51.0 million, excluding closing costs. Approximately 191,050 of the aggregate rentable square feet of the IRS Long Island Buildings (74%) is currently leased to the United States of America through the U.S. General Services Administration (“U.S.A.”) for occupancy by the IRS under three separate lease agreements for the processing & collection division of the IRS (“IRS Collection”), the compliance division of the IRS (“IRS Compliance”), and the IRS Daycare Facility. REIT-Holtsville is negotiating for the remaining 26% of the IRS Long Island Buildings to be leased by the U.S.A. on behalf of the IRS or to another suitable tenant. If REIT-Holtsville should lease this space to the U.S.A. or another suitable tenant within 18 months, REIT-Holtsville would owe the seller an additional amount of up to $14.5 million as additional purchase price for the IRS Long Island Buildings pursuant to the terms of an earnout agreement entered into between REIT-Holtsville and the seller at the closing.
 
The IRS Collection lease, which encompasses 128,000 rentable square feet of the IRS Office Building, commenced in August 2000 and expires in August 2005. The current annual base rent payable under the IRS Collection lease is approximately $5.0 million. The annual base rent payable under the IRS Collection lease for the remaining two years of the initial lease term will be approximately $2.8 million. The U.S.A., at its option, has the right to extend the initial term of its lease for two additional five-year periods at annual rental rates of approximately $4.2 million and $5.0 million, respectively.
 
The IRS Compliance lease, which encompasses 50,949 rentable square feet of the IRS Office Building, commenced in December 2001 and expires in December 2011. The annual base rent payable under the IRS Compliance lease for the initial term of the lease is approximately $1.7 million. The U.S.A., at its option, has the right to extend the initial term of its lease for one additional ten-year period at an annual rental rate of approximately $2.2 million.
 
The IRS Daycare Facility lease, which encompasses the entire 12,100 rentable square feet of the IRS Daycare Facility, commenced in October 1999 and expires in September 2004. The annual base rent payable under the IRS Daycare Facility lease for the initial term of the lease is approximately $0.5 million. The U.S.A., at its option, has the right to extend the initial term of its lease for two additional five-year periods at an annual rental rate of approximately $0.4 million.
 
The KeyBank Parsippany Building
 
On September 27, 2002, Wells OP purchased the KeyBank Parsippany Building, a four-story office building containing 404,515 rentable square feet located in Parsippany, New Jersey for a purchase price of approximately $101.4 million, excluding closing costs. The KeyBank Parsippany Building is leased to Key Bank U.S.A., N.A. (“KeyBank”) and Gemini Technology Services (“Gemini”).

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The KeyBank lease covers 200,000 rentable square feet (49%) under a net lease that commenced in March 2001 and expires in February 2016. The current annual base rent payable under the KeyBank lease is $3.8 million. KeyBank, at its option, has the right to extend the initial term of its lease for three additional five-year periods at the then-current market rental rate.
 
The Gemini lease covers 204,515 rentable square feet (51%) under a gross lease that commenced in December 2000 and expires in December 2013. The current annual base rent payable under the Gemini lease is approximately $5.7 million. Gemini, at its option, has the right to extend the initial term of its lease for three additional five-year periods at a rate equal to the greater of (1) the annual rent during the final year of the initial lease term, or (2) 95% of the then-current market rental rate.
 
The Federal Express Colorado Springs Building
 
On September 27, 2002, Wells OP purchased the Federal Express Colorado Springs Building, a three-story office building containing 155,808 rentable square feet located in Colorado Springs, Colorado for a purchase price of $26.0 million, excluding closing costs. The Federal Express Colorado Springs Building is leased entirely to Federal Express Corporation (“Federal Express”). The Federal Express lease commenced in July 2001 and expires in October 2016. The current annual base rent payable under the Federal Express lease is approximately $2.2 million. Federal Express, at its option, has the right to extend the initial term of its lease for four additional five-year periods at 90% of the then-current market rental rate. In addition, Federal Express has an expansion option under its lease pursuant to which Wells OP would be required to construct an additional office building.
 
The EDS Des Moines Building
 
On September 27, 2002, Wells OP purchased the EDS Des Moines Building, a one-story office and distribution building containing 115,000 rentable square feet of office space and 290,000 rentable square feet of warehouse space located in Des Moines, Iowa for a purchase price of $26.5 million, excluding closing costs. The EDS Des Moines Building is leased entirely to EDS Information Services L.L.C. (“EDS”), a wholly-owned subsidiary of Electronic Data Systems Corporation ( “ EDS Corp .” ). EDS Corp. is the guarantor of the EDS lease. The EDS lease commenced in May 2002 and expires in April 2012. The current annual base rent payable under the EDS lease is approximately $2.4 million. EDS, 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, EDS has an expansion option under its lease for up to an additional 100,000 rentable square feet.
 
The Intuit Dallas Building
 
On September 27, 2002, Wells OP purchased the Intuit Dallas Building, a two-story office building with a three-story wing containing 166,238 rentable square feet located in Plano, Texas for a purchase price of $26.5 million, excluding closing costs. The Intuit Dallas Building is leased entirely to Lacerte Software Corporation (“Lacerte”), a wholly-owned subsidiary of Intuit, Inc. (“Intuit”). Intuit is the guarantor of the Lacerte lease. The Lacerte lease commenced in July 2001 and expires in June 2011. The current annual base rent payable under the Lacerte lease is approximately $2.5 million. Lacerte, at its option, has the right to extend the initial term of its lease for two additional five-year periods at rental rates of $17.92 per square foot and $19.71 per square foot, respectively. In addition, Lacerte has an expansion option through November 2004 pursuant to which Wells OP would be required to purchase an additional 19 acre tract of land and to construct up to an approximately 600,000 rentable square foot building thereon.
 
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The Allstate Indianapolis Building
 
On September 27, 2002, Wells OP purchased the Allstate Indianapolis Building, a one-story office building containing 89,956 rentable square feet located in Indianapolis, Indiana for a purchase price of $10.9 million, excluding closing costs. The Allstate Indianapolis Building is leased to Allstate Insurance Company (“Allstate”) and Holladay Property Services Midwest, Inc. (“Holladay”).
 
The Allstate lease, which covers 84,200 rentable square feet (94%), commenced in March 2002 and expires in August 2012. The current annual base rent payable under the Allstate lease is approximately $1.2 million. Allstate at its option has the right to (1) terminate the initial term of the Allstate lease at the end of the fifth lease year (August 2007) upon payment of an approximately $0.4 million fee, or (2) reduce its area of occupancy to not less than 20,256 rentable square feet, by providing written notice on or before August 2006. Allstate, 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, Allstate has a right of first refusal for the leasing of additional space in the Allstate Indianapolis Building.
 
Holladay is a property management company that manages the Allstate Indianapolis Building from the site. The Holladay lease, which covers 5,756 rentable square feet (6%), commenced in October 2001 and expires in September 2006. The current annual base rent payable under the Holladay lease is approximately $.07 million.
 
The Daimler Chrysler Dallas Building
 
On September 30, 2002, Wells OP purchased the Daimler Chrysler Dallas Building, a two-story office building containing 130,290 rentable square feet located in Westlake, Texas for a purchase price of $25.1 million, excluding closing costs. The Daimler Chrysler Dallas Building is leased entirely to Daimler Chrysler Services North America LLC (“Daimler Chrysler NA”). The Daimler Chrysler NA lease commenced in January 2002 and expires in December 2011. The current annual base rent payable under the Daimler Chrysler NA lease is approximately $3.2 million. Daimler Chrysler NA, at its option, has the right to extend the initial term of its lease for three additional five-year periods at 98% of the then-current market rental rate. In addition, Daimler Chrysler NA has an expansion option for up to an additional 70,000 rentable square feet and a right of first offer if Wells OP desires to sell the Daimler Chrysler Dallas Building during the term of the lease.
 
4. NOTE RECEIVABLE
 
In connection with the purchase of the TRW Denver Building on May 29, 2002, Wells OP acquired a note receivable from the building’s sole tenant, TRW, Inc., in the amount of $5.2 million. The loan was made to fund above-standard tenant improvement costs to the building. The note receivable is structured to be fully amortized over the remaining lease term, which expires September 2007, at 11% interest with TRW making monthly loan payments of $.1 million. At September 30, 2002, the principal balance of this note receivable was $5.0 million.
 
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5. NOTES PAYABLE
 
At September 30, 2002, Wells OP had the following debt:
 
Lender

	 	Collateral

	 	Type of Debt

	 	Maturity Date

	 	Balance
Outstanding
(in millions)

	
SouthTrust	 	The Alstom Power Richmond Building	 	$7.9 million line of credit, interest at 30 day LIBOR plus 175 basis points	 	December 10, 2002	 	$7.7	
 	 	 	 	 	
SouthTrust	 	The PwC Building	 	$12.8 million line of credit, interest at 30 day LIBOR plus 175 basis points	 	December 10, 2002	 	2.1	
 	 	 	 	 	
SouthTrust	 	The Avnet Building and the Motorola Tempe Building	 	$19.0 million line of credit, interest at 30 day LIBOR plus 175 basis points	 	December 10, 2002	 	0	
 	 	 	 	 	
SouthTrust	 	The Cinemark Building, the Dial Building and the ASML Building	 	$32.4 million line of credit, interest at 30 day LIBOR plus 175 basis points	 	December 10, 2002	 	0	
 	 	 	 	 	
Bank of America	 	The Nissan Property	 	$34.2 million construction loan, interest at LIBOR plus 200 basis points	 	July 30, 2003	 	13.3	
 	 	 	 	 	
Bank of America	 	The Kerr McGee Property	 	$13.7 million construction loan, interest at LIBOR plus 200 basis points	 	January 29, 2004	 	1.0	
 	 	 	 	 	
Bank of America	 	The Videojet Technologies Chicago Building, the AT&T Pennsylvania Building, the Matsushita Building, the Metris Tulsa Building, the Motorola Plainfield Building and the Delphi Building	 	$85 million line of credit, interest at 30 day LIBOR plus 180 basis points	 	May 11, 2004	 	0	
 	 	 	 	 	
Prudential	 	The BMG Buildings	 	$8.8 million note payable, interest at 8%, principal and interest payable monthly	 	December 15, 2003	 	8.8	
 	 	 	 	 	
Prudential	 	The BMG Buildings	 	$2.9 million note payable, interest at 8.5%, interest payable monthly, principal payable upon maturity	 	December 15, 2003	 	2.9	

	
Total	 	 	 	 	 	 	 	$35.8	

	
 
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6. INTEREST RATE SWAPS
 
Wells OP has entered into interest rate swap agreements with Bank of America in order to hedge its interest rate exposure on the Bank of America construction loans for the Nissan Property (the Nissan Loan) and the Kerr McGee Property (the Kerr McGee Loan). The interest rate swap agreements involve 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. The notional amount of both interest rate swaps is the balance outstanding on the construction loan on the payment date.
 
The interest rate swap for the Nissan Loan became effective January 15, 2002 and terminates on June 15, 2003. Wells OP, as the fixed rate payer, has an interest rate of 3.9%. Bank of America, the variable rate payer, pays at a rate equal to U.S. dollar LIBOR on the payment date. The result is an effective interest rate of 5.9% on the Nissan Loan.
 
The interest rate swap for the Kerr McGee Loan became effective September 15, 2002 and terminates on July 15, 2003. Wells OP as fixed rate payer has an interest rate of 2.27%. Bank of America, the variable rate payer, pays at a rate equal to U.S. dollar LIBOR on the payment date. The result is an effective interest rate of 4.27% on the Kerr McGee Loan.
 
During the nine months ended September 30, 2002, Wells OP made interest payments totaling approximately $45,221 under the terms of the interest rate swap agreements. At September 30, 2002, the estimated fair value of the interest rate swap for the Nissan Loan and the Kerr McGee Loan was $(384,855) and $(30,180), respectively. The interest rate swaps are accounted for by mark-to-market accounting on a monthly basis and are included in prepaid and other assets on the accompanying consolidated balance sheet.
 
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. INVESTMENT IN BONDS AND OBLIGATIONS UNDER CAPITAL LEASES
 
In connection with the purchase of a ground leasehold interest in the Ingram Micro Distribution Facility pursuant to a Bond Real Property Lease dated December 20, 1995 (the Bond Lease), Wells OP acquired an Industrial Development Revenue Note (the Bond) dated December 20, 1995 in the principal amount of $22 million. As part of the same transaction, Wells OP also acquired a Fee Construction Mortgage Deed of Trust Assignment of Rents and Leases (the Bond Deed of Trust), also dated December 20, 1995, which was executed by the Industrial Development Board in order to secure the Bond. Beginning in 2006, the holder of the Bond Lease has the option to purchase the land underlying the Ingram Micro Distribution Facility for $100 plus satisfaction of the indebtedness evidenced by the Bond. Because Wells OP is technically subject to the obligation to pay the $22 million indebtedness evidenced by the Bond, the obligation to pay the Bond is carried on the Company’s books as a liability. However, since Wells OP is also the owner of the Bond, the Bond is also carried on the Company’s books as an asset.
 
As part of the transaction to acquire a ground leasehold interest in the ISS Atlanta Buildings, Wells OP was assigned Development Authority of Fulton County Taxable Revenue Bonds totaling $32.5 million, which were originally issued in connection with the development of the ISS Atlanta Buildings (the Bonds). The Bonds entitle Wells OP to certain property tax abatement benefits. Upon payment of the outstanding balance on the Bonds, on or before the expiration of the ground lease on December 1, 2015, fee title interest to the underlying land will be transferred to Wells OP. Because Wells OP is technically subject to the obligation to pay the $32.5 million indebtedness evidenced by the Bond, the
 
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obligation to pay the Bonds is carried on the Company’s books as a liability. However, since Wells OP is also the owner of the Bonds, the Bonds are also carried on the Company’s books as an asset.
 
8. 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 $.6 million have been made as of September 30, 2002 toward funding the obligation under the Matsushita agreement.
 
9. COMMITMENTS AND CONTINGENCIES
 
Take Out Purchase and Escrow Agreement
 
An affiliate of the Advisor (“Wells Exchange”) has developed a program (the “Wells Section 1031 Program”) involving the acquisition by Wells Exchange of income-producing commercial properties and the formation of a series of single member limited liability companies for the purpose of facilitating the resale of co-tenancy interests in such real estate properties to be owned in co-tenancy arrangements with persons (“1031 Participants”) who are looking to invest the proceeds from a sale of real estate held for investment in another real estate investment for purposes of qualifying for like-kind exchange treatment under Section 1031 of the Code. Each of these properties will be financed by a combination of permanent first mortgage financing and interim loan financing obtained from institutional lenders.
 
Following the acquisition of each property, Wells Exchange will attempt to sell co-tenancy interests to 1031 Participants, the proceeds of which will be used to pay off the interim financing. In consideration for the payment of a take out fee to the Company, and following approval of the potential property acquisition by the Company’s Board of Directors, it is anticipated that Wells OP will enter into a 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 $.1 million in each of 2001 and 2002 by payment of a take out fee to Wells OP in an amount equal to 1.25% of its maximum financial obligation under the Ford Motor Credit take out purchase and escrow agreement. On April 12, 2002, Wells Exchange paid off the interim financing on the Ford Motor Credit Complex. This 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.
 
Letters of Credit
 
At September 30, 2002, Wells OP had three letters of credit totaling $19.2 million outstanding from financial institutions, which were not recorded in the accompanying consolidated balance sheet. These letters of credit were required by three of the Company’s tenants to ensure completion of the Company’s contractual obligations. The Company’s management does not anticipate a need to draw on these letters of credit.
 
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Properties under Contract
 
At September 30, 2002, the Company had three executed contracts for the acquisition of properties totaling $82.0 million. Escrows of $1.3 million have been paid out for these properties and are included in prepaid and other assets on the accompanying consolidated balance sheet.
 
10. SUBSEQUENT EVENTS
 
Issuance of Common Stock
 
From October 1, 2002 through October 25, 2002, the Company has raised approximately $91.5 million through the issuance of 9.1 million shares of common stock in the Company.
 
Termination Agreement
 
Effective October 31, 2002, Arthur Andersen LLP (Andersen) and Wells OP entered into a termination agreement with respect to the lease for the three-story office building containing 157,700 rentable square feet located in Sarasota, Florida known as the Arthur Andersen Building. In consideration for releasing Andersen from its obligation to pay rent under the lease, Andersen paid Wells OP a termination fee of $979,760 and conveyed to Wells OP an approximately 1.3 acre tract of land adjacent to the property which was used for parking.
 
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Report of Independent Auditors
 
Shareholders and Board of Directors
Wells Real Estate Investment Trust, Inc.
 
We have audited the accompanying statement of revenues over certain operating expenses of the NASA Buildings for the year ended December 31, 2001. This statement is the responsibility of the NASA Buildings’ management. Our responsibility is to express an opinion on this statement based on our audit.
 
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues over certain operating expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of revenues over certain operating expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement of revenues over certain operating expenses. We believe that our audit provides a reasonable basis for our opinion.
 
The accompanying statement of revenues over certain operating expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, as described in Note 2, and is not intended to be a complete presentation of the NASA Buildings’ revenues and expenses.
 
In our opinion, the statement of revenues over certain operating expenses referred to above presents fairly, in all material respects, the revenues and certain operating expenses described in Note 2 of the NASA Buildings for the year ended December 31, 2001 in conformity with accounting principles generally accepted in the United States.
 
Ernst & Young LLP
 
Atlanta, Georgia
November 26, 2002
 
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NASA Buildings
 
Statements of Revenues Over Certain Operating Expenses
 
For the year ended December 31, 2001 and the nine months ended September 30, 2002
 
 	  	2002

	  	2001

	
 	  	(Unaudited)	  	 	
Revenues:	  	 	 	  	 	 	
Base rent	  	$	25,179,213	  	$	33,637,808	
Tenant reimbursements	  	 	1,703,365	  	 	2,586,032	

	

	  	

	

	
Total revenues	  	 	26,882,578	  	 	36,223,840	
Operating expenses	  	 	7,761,014	  	 	10,200,082	

	

	  	

	

	
Revenues over certain operating expenses	  	$	19,121,564	  	$	26,023,758	

	

	  	

	

	
 
See accompanying notes.
 
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NASA Buildings
 
Notes to Statements of Revenues Over Certain Operating Expenses
 
For the year ended December 31, 2001 and the nine months ended September 30, 2002
 
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
 
Description of Real Estate Property Acquired
 
On November 22, 2002, Wells REIT-Independence Square, LLC (“the Company”) acquired the NASA Buildings from Southwest Market Limited Partnership (“Southwest Market”). The Company, a Georgia limited liability company, was created on November 22, 2002 by Wells Real Estate Investment Trust, Inc., a Maryland corporation, the sole member of the Company.
 
The two nine-story buildings contain 948,813 square feet of net rentable area and are leased to six tenants, including the National Aeronautics and Space Administration (“NASA”) and The Office of the Comptroller of the Currency (“OCC”), which occupy a total of 932,209 square feet. The remaining square footage is leased to several retail tenants under lease agreements that expire over the next eight years. NASA occupies 590,689 square feet under a gross lease (“NASA Lease”) that commenced in July 1992 and expires in July 2012. OCC occupies 341,520 square feet under a lease (“OCC Lease”) that commenced in May 1991 and expires in May 2006. Southwest Market’s interests in the NASA Lease, the OCC Lease and other retail lease agreements were assigned to the Company upon the acquisition of the NASA Buildings.
 
Under the NASA Lease, the tenant is required to pay, as adjusted rent, its share of increases in real estate taxes and changes in costs from the first lease year for cleaning services, supplies, materials, maintenance, trash removal, landscaping, sewer charges and certain administrative expenses attributable to occupancy. The amount of the adjustment will be computed using the Cost of Living Index. Under the OCC Lease, the tenant is required to pay, as additional rent, its share of increases in real estate taxes and changes in costs from the first lease year for, including but not limited to, cleaning services, electricity, heating, water, air conditioning and landscaping. The Company will be responsible for maintaining and repairing the NASA Buildings’ roof, foundations, common areas, electrical systems and mechanical systems.
 
Rental Revenues
 
Rental income is recognized on a straight-line basis over the terms of the leases.
 
2. BASIS OF ACCOUNTING
 
The accompanying statements of revenues over certain operating expenses are presented in conformity with accounting principles generally accepted in the United States and in accordance with the applicable rules and regulations of the Securities and Exchange Commission for real estate properties acquired. Accordingly, these statements exclude certain historical expenses that are not comparable to the proposed future operations of the property such as depreciation and interest. Therefore, these statements are not comparable to the statement of operations of the NASA Buildings after their acquisition by the Company.
 
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NASA Buildings
 
Notes to Statements of Revenues Over Certain Operating Expenses
(continued)
 
3. FUTURE MINIMUM RENTAL COMMITMENTS
 
Future minimum rental commitments for the years ended December 31 are as follows:
 	  	 	 	
2002	  	$	32,856,309	
2003	  	 	32,875,773	
2004	  	 	32,987,740	
2005	  	 	33,104,624	
2006	  	 	26,008,009	
Thereafter	  	 	117,928,136	

	

	
 	  	$	275,760,591	

	

	
 
4. INTERIM UNAUDITED FINANCIAL INFORMATION
 
The statement of revenues over certain operating expenses for the nine months ended September 30, 2002 is unaudited, however, in the opinion of management, all adjustments (consisting solely of normal, recurring adjustments) necessary for the fair presentation of the statement for the interim period have been included. The results of the interim period are not necessarily indicative of the results to be obtained for a full fiscal year.
 
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Report of Independent Auditors
 
Shareholders and Board of Directors
Wells Real Estate Investment Trust, Inc.
 
We have audited the accompanying statement of revenues over certain operating expenses of the Caterpillar Nashville Building for the year ended December 31, 2001. This statement is the responsibility of the Caterpillar Nashville Building’s management. Our responsibility is to express an opinion on this statement based on our audit.
 
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues over certain operating expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of revenues over certain operating expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement of revenues over certain operating expenses. We believe that our audit provides a reasonable basis for our opinion.
 
The accompanying statement of revenues over certain operating expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, as described in Note 2, and is not intended to be a complete presentation of the Caterpillar Nashville Building’s revenues and expenses.
 
In our opinion, the statement of revenues over certain operating expenses referred to above presents fairly, in all material respects, the revenues and certain operating expenses described in Note 2 of the Caterpillar Nashville Building for the year ended December 31, 2001 in conformity with accounting principles generally accepted in the United States.
 
Ernst & Young LLP            
 
Atlanta, Georgia
November 26, 2002
 
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Caterpillar Nashville Building
 
Statements of Revenues Over Certain Operating Expenses
 
For the year ended December 31, 2001 and the nine months ended September 30, 2002
 
 	  	2002

	  	2001

	
 	  	(Unaudited)	  	 	
Revenues:	  	 	 	  	 	 	
Base rent	  	$	5,922,277	  	$	7,896,370	
Tenant reimbursements	  	 	357,722	  	 	379,662	

	

	  	

	

	
Total revenues	  	 	6,279,999	  	 	8,276,032	
 	 	 	
Operating expenses	  	 	1,910,316	  	 	2,565,309	

	

	  	

	

	
Revenues over certain operating expenses	  	$	4,369,683	  	$	5,710,723	

	

	  	

	

	
 
See accompanying notes.	  	 	 	  	 	 	

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Caterpillar Nashville Building
 
Notes to Statements of Revenues Over Certain Operating Expenses
 
For the year ended December 31, 2001 and the nine months ended September 30, 2002
 
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
 
Description of Real Estate Property Acquired
 
On November 26, 2002, the Wells Operating Partnership, L.P. (“Wells OP”) acquired the Caterpillar Nashville Building from Highwoods/Tennessee Holdings, LP. (“Highwoods/Tennessee”). Wells OP is a Delaware limited partnership formed to acquire, own, lease, operate, and manage real properties on behalf of 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.
 
The 312,297 square foot 11-story Caterpillar Nashville Building is 100% leased to three tenants, Caterpillar Financial Services Corporation (“Caterpillar”), Thoughtworks, LLC (“Thoughtworks”) and Highwoods Properties, Inc. (“Highwoods”). Caterpillar currently occupies 300,901 square feet under a gross lease (“Caterpillar Lease”) that commenced in March 2000 and expires in February 2015. Thoughtworks currently occupies 6,400 square feet under a gross lease (“Thoughtworks Lease”) that commenced in May 2000 and expires in May 2005. Highwoods currently occupies 4,996 square feet under a gross lease (“Highwoods Lease”) that commenced in October 2000 and expires in September 2005. Highwoods/Tennessee’s interests in the Caterpillar Lease, Thoughtworks Lease and Highwoods Lease were assigned to Wells OP upon acquisition of the Caterpillar Nashville Building.
 
Under the Caterpillar Lease, the Thoughtworks Lease and the Highwoods Lease, the tenants are required to pay, as additional rent, all operating costs in excess of a $6.50 per square foot expense stop. Under the Caterpillar Lease, Caterpillar’s responsibility for increases in expenses other than insurance, taxes and utilities is capped at 4.5% annually. Furthermore, Caterpillar will reimburse the landlord a management fee equal to 4% of gross rental receipts. Wells OP will be responsible for the maintenance and repair of the structural elements of the building and the capital repairs and replacement of the roof.
 
Rental Revenues
 
Rental income is recognized on a straight-line basis over the terms of the leases.
 
2. BASIS OF ACCOUNTING
 
The accompanying statements of revenues over certain operating expenses are presented in conformity with accounting principles generally accepted in the United States and in accordance with the applicable rules and regulations of the Securities and Exchange Commission for real estate properties acquired. Accordingly, these statements exclude certain historical expenses that are not comparable to the proposed future operations of the property such as depreciation and interest. Therefore, these statements are not comparable to the statement of operations of the Caterpillar Nashville Building after its acquisition by Wells OP.
 
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Caterpillar Nashville Building
 
Notes to Statements of Revenues Over Certain Operating Expenses
(continued)
 
3. FUTURE MINIMUM RENTAL COMMITMENTS
 
Future minimum rental commitments for the years ended December 31 are as follows:
 	  	 	 	
2002	  	$	7,673,511	
2003	  	 	7,680,935	
2004	  	 	7,688,516	
2005	  	 	7,808,282	
2006	  	 	7,685,012	
Thereafter	  	 	64,265,433	

	

	
 	  	$	102,801,689	

	

	
 
4. INTERIM UNAUDITED FINANCIAL INFORMATION
 
The statement of revenues over certain operating expenses for the nine months ended September 30, 2002 is unaudited, however, in the opinion of management, all adjustments (consisting solely of normal, recurring adjustments) necessary for the fair presentation of the statement for the interim period have been included. The results of the interim period are not necessarily indicative of the results to be obtained for a full fiscal year.
 
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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., a Maryland corporation (the “Wells REIT”), 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 September 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 previously filed.
 
The following unaudited pro forma balance sheet as of September 30, 2002 has been prepared to give effect to the fourth quarter 2002 acquisitions of the NASA Buildings by the Wells REIT and the Caterpillar Nashville Building and the Capital One Richmond Buildings by Wells OP (collectively, the “Recent Acquisitions”) as if the acquisitions occurred on September 30, 2002.
 
The following unaudited pro forma statement of income for the nine months ended September 30, 2002 has been prepared to give effect to the first, second and third quarter 2002 acquisitions of the Vertex Sarasota Building (formerly the Arthur Andersen Building), the Transocean Houston Building, the 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, the ISS Atlanta Buildings, the PacifiCare San Antonio Building, the BMG Greenville Buildings, the Kraft Atlanta Building, the Nokia Dallas Buildings, the IRS Long Island Buildings, the KeyBank Parsippany Building, the Allstate Indianapolis Building, the Federal Express Colorado Springs Building, the EDS Des Moines Building, the Intuit Dallas Building, the Daimler Chrysler Dallas Building (collectively, the “2002 Acquisitions”) and the Recent Acquisitions as if the acquisitions occurred on January 1, 2001. The Kerr McGee Property and the AmeriCredit Phoenix Property had no operations during the nine months ended September 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, the Kerr McGee Property, the AmeriCredit Phoenix Property and the EDS Des Moines Building 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 REIT. As the sole general partner of Wells OP, the Wells REIT 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 REIT.
 
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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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA BALANCE SHEET
 
September 30, 2002
 
(Unaudited)
 
ASSETS
 
 	 	Wells Real
Estate
Investment
Trust, Inc. (f)

	 	Pro Forma Adjustments

	 	 	 	 	
 	 	 	 	Recent Acquisitions

	 	 	 	 	 	 	
 	 	 	 	Other

	 	 	NASA

	 	 	Caterpillar
Nashville

	 	 	Capital
One
Richmond

	 	 	Pro Forma
Total

	 	 	 	 	
REAL ESTATE ASSETS, at cost:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Land	 	$	164,190,412	 	$	0	 	 	$	34,500,000	(c)	 	$	4,900,000	(c)	 	$	2,855,000	(c)	 	$	207,520,392	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	1,067,468	(d)	 	 	7,512	(d)	 	 	0	 	 	 	 	 	 	 	 	
Buildings, less accumulated depreciation of $47,999,655	 	 	1,171,793,037	 	 	0	 	 	 	314,665,776	(c)	 	 	56,861,000	(c)	 	 	25,779,345	(c)	 	 	1,578,922,438	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	820,631	(d)	 	 	87,172	(e)	 	 	0	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	8,915,477	(e)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Construction in progress	 	 	28,500,195	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	28,500,195	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
Total real estate assets	 	 	1,364,483,644	 	 	0	 	 	 	359,969,352	 	 	 	61,855,684	 	 	 	28,634,345	 	 	 	1,814,943,025	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
CASH AND CASH EQUIVALENTS	 	 	143,911,852	 	 	206,602,229	(a)	 	 	(264,165,776	)(c)	 	 	(2,312,755	)(c)	 	 	0	 	 	 	76,804,472	 	 	 	 	
 	 	 	 	 	 	(7,231,078	)(b)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
INVESTMENT IN JOINT VENTURES	 	 	75,388,348	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	75,388,348	 	 	 	 	
INVESTMENT IN BONDS	 	 	54,500,000	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	54,500,000	 	 	 	 	
ACCOUNTS RECEIVABLE	 	 	12,018,601	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	12,018,601	 	 	 	 	
DEFERRED LEASE ACQUISITION COSTS, NET	 	 	1,712,541	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,712,541	 	 	 	 	
DEFERRED PROJECT COSTS	 	 	5,963,370	 	 	7,231,078	(b)	 	 	(10,803,576	)(d)	 	 	(94,684	) (d)	 	 	0	 	 	 	2,296,188	 	 	 	 	
DEFERRED OFFERING COSTS	 	 	3,537,361	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	3,537,361	 	 	 	 	
DUE FROM AFFILIATES	 	 	2,185,436	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	2,185,436	 	 	 	 	
NOTE RECEIVABLE	 	 	4,965,838	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	4,965,838	 	 	 	 	
PREPAID EXPENSES AND OTHER ASSETS, NET	 	 	2,597,110	 	 	0	 	 	 	0	 	 	 	0	 	 	 	37,764	(c)	 	 	2,634,874	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
Total assets	 	$	1,671,264,101	 	$	206,602,229	 	 	$	85,000,000	 	 	$	59,448,245	 	 	$	28,672,109	 	 	$	2,050,986,684	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	

43

Table of Contents
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 	 	Wells Real
Estate
Investment
Trust, Inc. (f)

	 	 	Pro Forma Adjustments

	 	 	 	 	 	
 	 	 	 	 	Recent Acquisitions

	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	Caterpillar
Nashville

	 	 	Capital One
Richmond

	 	 	Pro Forma
Total

	 	 	 	 	 	 	 	 	
 	 	 	 	 	Other

	 	 	NASA

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
LIABILITIES:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Accounts payable and accrued expenses	 	$	17,538,820	 	 	$	0	 	 	$	0	 	 	$	881,644	(c)	 	$	0	 	 	$	18,420,464	 	 	 	 	 	 	 	 	 	 	
Notes payable	 	 	35,829,293	 	 	 	0	 	 	 	85,000,000	(c)	 	 	58,566,601	(c)	 	 	28,672,109	(c)	 	 	208,068,003	 	 	 	 	 	 	 	 	 	 	
Obligations under capital lease	 	 	54,500,000	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	54,500,000	 	 	 	 	 	 	 	 	 	 	
Dividends payable	 	 	10,209,306	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	10,209,306	 	 	 	 	 	 	 	 	 	 	
Due to affiliates	 	 	4,379,745	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	4,379,745	 	 	 	 	 	 	 	 	 	 	
Deferred rental income	 	 	7,893,930	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	7,893,930	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	
Total liabilities	 	 	130,351,094	 	 	 	0	 	 	 	85,000,000	 	 	 	59,448,245	 	 	 	28,672,109	 	 	 	303,471,448	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	
COMMITMENTS AND CONTINGENCIES	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP	 	 	200,000	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	200,000	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	
SHAREHOLDERS’ EQUITY:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Common shares, $.01 par value; 750,000,000 shares authorized, 182,608,517 shares issued and 180,891,792 outstanding at September 30, 2002	 	 	1,826,086	 	 	 	206,602	(a)	 	 	0	 	 	 	0	 	 	 	0	 	 	 	2,032,688	 	 	 	 	 	 	 	 	 	 	
Additional paid-in capital	 	 	1,621,376,451	 	 	 	206,395,627	(a)	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,827,772,078	 	 	 	 	 	 	 	 	 	 	
Cumulative distributions in excess of earnings	 	 	(64,907,241	)	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	(64,907,241	)	 	 	 	 	 	 	 	 	 	
Treasury stock, at cost, 1,716,725 shares	 	 	(17,167,254	)	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	(17,167,254	)	 	 	 	 	 	 	 	 	 	
Other comprehensive loss	 	 	(415,035	)	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	(415,035	)	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	
Total shareholders’ equity	 	 	1,540,713,007	 	 	 	206,602,229	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,747,315,236	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	
Total liabilities and shareholders’ equity	 	$	1,671,264,101	 	 	$	206,602,229	 	 	$	85,000,000	 	 	$	59,448,245	 	 	$	28,672,109	 	 	$	2,050,986,684	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	
 
(a)	 	Reflects capital raised through issuance of additional shares subsequent to September 30, 2002 through Capital One Richmond acquisition date.	
 
(b)	 	Reflects deferred project costs capitalized as a result of additional capital raised described in note (a) above.	
 
(c)	 	Reflects Wells Real Estate Investment Trust, Inc.’s purchase price for the land, building and liabilities assumed.	
 
(d)	 	Reflects deferred project costs applied to the land and building at approximately 4.07% of the cash paid for purchase.	
 
(e)	 	Reflects deferred project costs applied to the land and building at approximately 4.094% of the cash paid for purchase.	
 
(f)	 	Historical financial information derived from quarterly report on Form 10-Q.	

The accompanying notes are an integral part of this statement.

44

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA STATEMENT OF INCOME
 
for the year ended December 31, 2001
 
(Unaudited)
 
 	  	Wells Real
Estate
Investment
Trust, Inc. (g)

	  	Pro Forma Adjustments

	 	 	 	 	
 	  	 	  	 	 	 	 	 	 	Recent Acquisitions

	 	 	 	 	 	 	
 	  	 	  	2001
Acquisitions

	 	 	2002
Acquisitions

	 	 	NASA

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	  	 	 	 	 	 	 	 	 	 	Caterpillar
Nashville

	 	 	Capital One
Richmond

	 	 	Pro Forma
Total

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
REVENUES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental income	  	$	44,204,279	  	$	11,349,076	(a)	 	$	54,615,521	(a)	 	$	34,603,317	(a)	 	$	7,970,097	(a)	 	$	2,744,112	(a)	 	$	155,486,402	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
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	 	 	 	54,615,521	 	 	 	34,603,317	 	 	 	7,970,097	 	 	 	2,744,112	 	 	 	161,702,775	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EXPENSES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	15,344,801	  	 	5,772,761	(c)	 	 	22,487,278	(c)	 	 	12,976,075	(c)	 	 	2,277,927	(c)	 	 	1,031,174	(c)	 	 	59,890,016	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest	  	 	3,411,210	  	 	0	 	 	 	0	 	 	 	4,664,800	(f)	 	 	3,214,135	(f)	 	 	1,573,525	(f)	 	 	12,863,670	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating costs, net of reimbursements	  	 	4,128,883	  	 	2,854,275	(d)	 	 	3,668,343	(d)	 	 	7,614,050	(d)	 	 	2,014,828	(d)	 	 	0	 	 	 	20,280,379	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Management and leasing fees	  	 	2,507,188	  	 	510,708	(e)	 	 	2,250,455	(e)	 	 	0	 	 	 	358,654	(e)	 	 	123,485	(e)	 	 	5,750,490	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
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	 	 	 	28,406,076	 	 	 	25,254,925	 	 	 	7,865,544	 	 	 	2,728,184	 	 	 	100,977,308	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NET INCOME	  	$	21,723,967	  	$	3,323,182	 	 	$	26,209,445	 	 	$	9,348,392	 	 	$	104,553	 	 	$	15,928	 	 	$	60,725,467	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EARNINGS PER SHARE, basic and diluted	  	$	0.43	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	0.30	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
WEIGHTED AVERAGE SHARES, basic and diluted	  	 	50,520,853	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	201,302,216	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 
(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 Buildings.	
 
(c)	 	Depreciation expense on the buildings is recognized using the straight-line method and a 25-year life.	
 
(d)	 	Consists of operating expenses, net of reimbursements.	
 
(e)	 	Management and leasing fees are calculated at 4.5% of rental income.	
 
(f)	 	Represents interest expense on lines of credit used to acquire the properties, which bear interest at approximately 5.488% for the year ended December 31, 2001.	
 
(g)	 	Historical financial information derived from annual report on Form 10-K.	
 
The accompanying notes are an integral part of this statement.
 
45

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA STATEMENT OF INCOME
 
for the nine months ended September 30, 2002
 
(Unaudited)
 
 	  	Wells Real
Estate
Investment
Trust, Inc. (f)

	  	Pro Forma Adjustments

	 	 	 	 	
 	  	 	  	 	 	 	Recent Acquisitions

	 	 	 	 	 	 	
 	  	 	  	2002
Acquisitions

	 	 	NASA

	 	 	Caterpillar
Nashville

	 	 	Capital One
Richmond

	 	 	Pro Forma
Total

	 	 	 	 	
REVENUES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental income	  	$	66,120,992	  	$	42,103,180	(a)	 	$	25,903,344	(a)	 	$	5,977,573	(a)	 	$	2,058,084	(a)	 	$	142,163,173	 	 	 	 	
Equity in income of joint ventures	  	 	3,738,045	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	3,738,045	 	 	 	 	
Interest income	  	 	4,547,040	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	4,547,040	 	 	 	 	
Take out fee	  	 	134,666	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	134,666	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
 	  	 	74,540,743	  	 	42,103,180	 	 	 	25,903,344	 	 	 	5,977,573	 	 	 	2,058,084	 	 	 	150,582,924	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
EXPENSES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	23,185,201	  	 	15,039,449	(b)	 	 	9,732,057	(b)	 	 	1,708,445	(b)	 	 	773,380	(b)	 	 	50,438,532	 	 	 	 	
Interest	  	 	1,478,333	  	 	0	 	 	 	2,620,763	(e)	 	 	1,805,755	(e)	 	 	884,033	(e)	 	 	6,788,884	 	 	 	 	
Operating costs, net of reimbursements	  	 	4,254,882	  	 	3,410,341	(c)	 	 	6,057,649	(c)	 	 	1,412,091	(c)	 	 	0	 	 	 	15,134,963	 	 	 	 	
Management and leasing fees	  	 	3,348,210	  	 	1,697,775	(d)	 	 	0	 	 	 	268,991	(d)	 	 	92,614	(d)	 	 	5,407,590	 	 	 	 	
General and administrative	  	 	1,866,042	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,866,042	 	 	 	 	
Amortization of deferred financing costs	  	 	586,822	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	586,822	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
 	  	 	34,719,490	  	 	20,147,565	 	 	 	18,410,469	 	 	 	5,195,282	 	 	 	1,750,027	 	 	 	80,222,833	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
NET INCOME	  	$	39,821,253	  	$	21,955,615	 	 	$	7,492,875	 	 	$	782,291	 	 	$	308,057	 	 	$	70,360,091	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
EARNINGS PER SHARE, basic and diluted	  	$	0.31	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	0.35	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	
WEIGHTED AVERAGE SHARES, basic and diluted	  	 	128,541,432	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	201,302,216	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	
 
(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 operating expenses, net of reimbursements.	
 
(d)	 	Management and leasing fees are calculated at 4.5% of rental income.	
 
(e)	 	Represents interest expense on lines of credit used to acquire the properties, which bear interest at approximately 4.111% for the nine months ended September 30, 2002.	
 
(f)	 	Historical financial information derived from quarterly report on Form 10-Q.	
 
The accompanying notes are an integral part of this statement.
 
46

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 5 DATED JANUARY 15, 2003 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, as supplemented and amended by Supplement No. 1 dated August 14, 2002, Supplement No. 2 dated August 29, 2002, Supplement No. 3 dated October 25, 2002, and Supplement No. 4 dated December 10, 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 Real Estate Investments” section of the prospectus to describe the following real property acquisitions;	
 
 	(A)	 	Acquisition of an interest in a four-story office building in Fishers, Indiana (John Wiley Indianapolis Building);	
 
 	(B)	 	Acquisition of a 20-story office building in Glendale, California (Nestle Building); and	
 
 	(C)	 	Acquisition of two three-story office buildings in Mayfield Heights, Ohio (East Point Buildings);	
 
 	(3)	 	The second transaction under the Section 1031 Exchange Program;	
 
 	(4)	 	Revisions to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the prospectus;	
 
 	(5)	 	Amended and restated unaudited financial statements of the Wells REIT for the period ended September 30, 2002 to incorporate changes resulting from a change in accounting presentation;	
 
 	(6)	 	Financial statements relating to the recently acquired Nestle Building; and	
 
 	(7)	 	Unaudited pro forma financial statements of the Wells REIT reflecting the acquisition of the Nestle Building and the East Point Buildings, and an interest in the John Wiley Indianapolis 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 $1,282,976,865 in gross offering proceeds from the sale of 128,297,687 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 January 15, 2003, we had received additional gross proceeds of approximately
 
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$638,970,439 from the sale of approximately 63,897,044 shares in our fourth public offering. Accordingly, as of January 15, 2003, we had received aggregate gross offering proceeds of approximately $2,229,358,416 from the sale of approximately 222,935,842 shares in all of our public offerings. After payment of $77,283,698 in acquisition and advisory fees and acquisition expenses, payment of $247,036,149 in selling commissions and organization and offering expenses, and common stock redemptions of $21,252,750 pursuant to our share redemption program, as of January 15, 2003, we had raised aggregate net offering proceeds available for investment in properties of $1,883,785,819, out of which $1,853,694,118 had been invested in real estate properties, and $30,091,701 remained available for investment in real estate properties.
 
Description of Properties
 
As of January 15, 2003, we had purchased interests in 73 real estate properties located in 23 states. Below are the descriptions of our recent real property acquisitions.
 
John Wiley Indianapolis Building
 
On December 12, 2002, Wells Fund XIII – REIT Joint Venture Partnership (XIII-REIT Joint Venture), a joint venture partnership between Wells Real Estate Fund XIII, L.P. (Wells Fund XIII) and 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 four-story office building on a 10.28 acre tract of land located at 10475 Crosspoint Boulevard in Fishers, Hamilton County, Indiana (John Wiley Indianapolis Building) from Crosspoint Seven, LLC for a purchase price of $17,450,000, plus closing costs. Crosspoint Seven, LLC is not in any way affiliated with the XIII-REIT Joint Venture, Wells REIT, Wells OP, or our advisor, Wells Capital, Inc.
 
Wells OP contributed $8,928,915 and Wells Fund XIII contributed $8,577,787 to the Wells Fund XIII – REIT Joint Venture to fund their respective shares of the acquisition costs for the John Wiley Indianapolis Building. As of December 31, 2002, Wells OP held an equity percentage interest in the XIII – REIT Joint Venture of approximately 61.28% and Wells Fund XIII held an equity percentage interest in the Wells Fund XIII – REIT Joint Venture of approximately 38.72%.
 
The John Wiley Indianapolis Building, which was completed in 1999, contains approximately 141,047 rentable square feet and is leased to John Wiley & Sons, Inc. (John Wiley), United Student Aid Funds, Inc. (USA Funds) and Robert Half International, Inc. (Robert Half).
 
John Wiley, as the primary tenant, occupies 123,674 rentable square feet (87.7%) of the John Wiley Indianapolis Building. John Wiley, a New York corporation publicly traded on the New York Stock Exchange (NYSE), publishes books and journals in print and electronic media specializing in scientific, technical, medical, professional, and educational materials. John Wiley has operations in the United States, Europe, Canada, Asia, and Australia. John Wiley reported a net worth, as of April 30, 2002, of approximately $276 million.
 
The John Wiley lease commenced in November 1999 and expires in October 2009. The current annual base rent payable under the John Wiley lease is $1,940,892. John Wiley is obligated to lease the remaining 17,373 rentable square feet of the John Wiley Indianapolis Building upon the expiration of the USA Funds lease and the Robert Half lease described below. John Wiley has the right, at its option, to extend the initial term of its lease for two additional five-year periods at 95% of the then-current market rental rate. The XIII-REIT Joint Venture, as the landlord, is responsible for paying the operating and maintenance costs; however, under the John Wiley lease, John Wiley is responsible for its share of operating and maintenance costs in excess of $3.55 per rentable square foot, along with its share of real estate taxes.
 
USA Funds is a wholly owned subsidiary of SLM Corporation, which is a leading source of funding and servicing support for education loans. USA Funds is a nonprofit corporation that supports access to education by providing financial and other services to those who pursue, provide or promote education. The USA Funds lease covers 14,413 rentable square feet (10.2%) and commenced in February
 
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2001 and expires in July 2005. The current annual base rent payable under the USA Funds lease is $223,401. Under the USA Funds lease, USA Funds is responsible for its share of operating and maintenance costs in excess of $4.00 per rentable square foot, along with its share of real estate taxes.
 
Robert Half is a staffing services agency publicly traded on the NYSE. Robert Half specializes in the staffing of accountants, attorneys, finance professionals, administrative support technicians, information technology professionals, and web design professionals. Robert Half has more than 325 locations in North America, Europe, Australia and New Zealand. The Robert Half lease covers 2,960 rentable square feet (2.1%) and commenced in April 2000 and expires in April 2005. The current annual base rent payable under the Robert Half lease is $55,256. Under the Robert Half lease, Robert Half is responsible for operating and maintenance costs and real estate taxes in excess of $4.01 per rentable square foot.
 
The XIII-REIT Joint Venture, as landlord, is responsible for the maintenance and repair of the elevators, plumbing, heating, and air conditioning, exterior walls, doors, windows, corridors and other common areas of the John Wiley Indianapolis Building.
 
Wells Management Company, Inc. (Wells Management), an affiliate of the Wells REIT and our advisor, will manage the John Wiley Indianapolis Building on behalf of the XIII-REIT Joint Venture and will be paid management and leasing fees in the amount of 4.5% of the gross revenues from the John Wiley Indianapolis Building.
 
Nestle Building
 
On December 20, 2002, Wells REIT Glendale, CA, LLC (REIT Glendale), a Georgia limited liability company wholly-owned by Wells OP, purchased a 20-story office building containing approximately 505,115 rentable square feet located in Glendale, California (Nestle Building) for a purchase price of $157,000,000, plus closing costs, from Douglas Emmett Joint Venture (Douglas Emmett). Douglas Emmett is not in any way affiliated with the Wells REIT, Wells OP or our advisor.
 
In connection with the acquisition of the Nestle Building, REIT Glendale assumed an existing $90,000,000 loan in favor of Landesbank Schleswig-Holstein Girozentrale, Kiel (Landesbank Loan), a German chartered bank, secured by the property. The interest rate on the Landesbank Loan is equal to LIBOR plus 1.15%, and the current interest rate on the Landesbank Loan is fixed for the next six months at 2.53% per annum. The Landesbank Loan requires monthly payments of interest only and matures on December 27, 2006. REIT Glendale may prepay the Landesbank Loan any time after December 28, 2003 without incurring any penalty. REIT Glendale paid a $450,000 loan assumption fee at closing in connection with the assumption of the Landesbank Loan.
 
The Nestle Building was built in 1990 and is located on a 4.02-acre tract of land at 800 N. Brand Boulevard in Glendale, California. Approximately 502,994 rentable square feet of the Nestle Building (99.6%) is leased to Nestle USA, Inc. (Nestle USA), a wholly-owned subsidiary of Nestle S.A., a Swiss company. Nestle USA operates manufacturing centers which produce various foods and beverages, including chocolate, prepared foods, juices and milk products. Some of Nestle USA’s famous brands include Stouffer’s, Carnation, Libby’s, Taster’s Choice and Nestle.
 
The Nestle USA lease commenced in August 1990 and expires in August 2010. The current annual base rent payable under the Nestle USA lease is $14,839,519. Nestle has the right, at its option, to extend the initial term of its lease for four additional five-year periods at the then-current market rental rate. Nestle also has a right of first refusal to lease any additional available space in the Nestle Building. REIT Glendale, as the landlord, is responsible for paying the operating and maintenance costs under the Nestle USA lease; however, Nestle USA is responsible for its share of operating and maintenance costs in excess of the base year operating allowance established in the first lease year. REIT Glendale, as the landlord, is also responsible for
 
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maintaining and repairing the structural portions and mechanical systems of the Nestle Building, including plumbing, heating, air conditioning, and electrical systems.
 
Wells Management will manage the Nestle Building on behalf of REIT Glendale and will be paid management and leasing fees in the amount of 4.5% of the gross revenues from the Nestle Building, subject to certain limitations.
 
East Point Buildings
 
On January 9, 2003, Wells OP purchased two three-story office buildings containing approximately 187,735 aggregate rentable square feet located in Mayfield Heights, Ohio (East Point Buildings) for a purchase price of $21,968,000, plus closing costs, from Best Property Fund, L.P. (Best Property). Best Property is not in any way affiliated with the Wells REIT, Wells OP, or our advisor.
 
The East Point Buildings, which were built in 2000, are located at 6085 Parkland Boulevard (East Point I) and 6095 Parkland Boulevard (East Point II) in Mayfield Heights, Cuyahoga County, Ohio. The entire 102,484 rentable square feet of East Point I is leased to Progressive Casualty Insurance Company (Progressive Casualty). Progressive Casualty is the principal operating subsidiary of Progressive Corporation (Progressive Corp.), the fourth largest auto insurance company in the United States. Progressive Corp., a public company traded on the NYSE, provides various insurance products, including personal automobile insurance, D&O insurance and employee misconduct insurance.
 
The Progressive Casualty lease is a net lease (i.e., operating costs and maintenance costs are paid by the tenant) which commenced in January 2003 and expires in December 2012. The current annual base rent payable under the Progressive Casualty lease is $947,977. Progressive Casualty has the right, at its option, to extend the initial term of its lease for one additional five-year period for an annual base rent of $1,332,292 and a second additional five-year period at 95% of the then-current market rental rate. If Progressive Casualty does not exercise the first five-year extension option described above, it has the right to exercise a six-month extension option for a monthly base rent of $111,024. Progressive Casualty has a right of first offer to lease additional space in the East Point Buildings upon space becoming available, which is subordinate to the rights of the tenants of East Point II described below. In addition, Progressive Casualty has a right of first offer to purchase the East Point Buildings, which right is also subordinate to the right of The Austin Company (Austin) described below. If Wells OP subdivides East Point I and East Point II, Progressive Casualty’s right of first offer will then apply only to East Point I.
 
East Point II contains approximately 85,251 rentable square feet, of which 70,585 is currently leased to Austin, Danaher Power Solutions LLC (Danaher) and Moreland Management Co. (Moreland). Approximately 14,666 rentable square feet (17.2%) of East Point II is vacant.
 
Austin leases 40,900 rentable square feet (48.0%) of East Point II. Austin is a private company with corporate headquarters in Cleveland, Ohio. Austin offers a wide range of in-house architectural, engineering, design-build and construction management services. Austin has offices in many major U.S. cities, London and Puerto Rico. The Austin lease is a net lease which commenced in June 2000 and expires in June 2010. The current annual base rent payable under the Austin lease is $1,002,050. Austin has the right, at its option, to extend the initial term of its lease for one additional five-year period for an annual base rent of $1,042,950. Austin has a right of first refusal to lease additional space on the second floor in East Point II upon space becoming available. In addition, Austin has a right of first offer to purchase the East Point Buildings upon the landlord’s receipt of a third-party offer.
 
Danaher leases 15,553 rentable square feet (18.2%) of East Point II. Danaher is a wholly owned subsidiary of Danaher Corporation (Danaher Corp.). Danaher designs, manufactures and provides power quality and reliability products and services. Danaher Corp., a public company traded on the NYSE, is located in 30 countries worldwide and conducts business in the process and environmental controls industry and the tools and components industry. The Danaher lease commenced in July 2002 and expires in November 2007. The current annual base rent payable under the Danaher lease is $324,348. Wells OP, as the landlord, is responsible for paying the operating and maintenance costs under the Danaher lease; however, Danaher is responsible for its share of (1) operating
 
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and maintenance costs in excess of $1.85 per rentable square foot, and (2) real estate taxes in excess of $4.65 per rentable square foot.
 
Moreland leases 14,132 rentable square feet (16.6%) of East Point II. The Moreland lease commenced in August 2001 and expires in October 2011. The current annual base rent payable under the Moreland lease is $325,036. Moreland has the right, at its option, to extend the initial term of its lease for two additional five-year periods at the then-current market rental rate .  Moreland has a right of first refusal to lease additional space on the floor Moreland currently occupies in East Point II upon space becoming available.
 
Wells OP, as the landlord, is responsible for maintaining all common areas, building mechanical systems, exterior doors and walls, and the roof of the East Point Buildings.
 
Wells Management will be paid management and leasing fees in the amount of up to 4.5% of gross revenues from the East Point Buildings, subject to certain limitations. Wells OP has entered into a management agreement with CB Richard Ellis to serve as the on-site property manager for the East Point Buildings, which property management fees will be paid out of or credited against the fees payable to Wells Management. CB Richard Ellis is not in any way affiliated with the Wells REIT, Wells OP, or our advisor.
 
Second Transaction under the Section 1031 Exchange Program
 
As described in the “Investment Objectives and Criteria – Section 1031 Exchange Program” section of our prospectus, an affiliate of our advisor has developed a program (Section 1031 Exchange Program) involving the acquisition of income-producing commercial properties and the formation of a series of single member limited liabilities companies (Wells Exchange) for the purpose of facilitating the resale of co-tenancy interests in such real estate properties to persons (1031 Participants) who are looking to invest the proceeds from a sale of real estate held for investment into another real estate investment for purposes of qualifying for like-kind exchange treatment under Section 1031 of the Internal Revenue Code. The initial transaction in the Section 1031 Exchange Program involved the acquisition by Wells Exchange and resale of co-tenancy interests in the Ford Motor Credit Complex located in Colorado Springs, Colorado. Since all of the co-tenancy interests in the Ford Motor Credit Complex were sold to 1031 Participants, Wells OP neither acquired any unsold co-tenancy interests in the Ford Motor Credit Complex, nor has any additional exposure under the Take Out Purchase and Escrow Agreement entered into in connection with the acquisition of the Ford Motor Credit Complex.
 
The second transaction in the Section 1031 Exchange Program involves the acquisition by Wells Exchange and resale of co-tenancy interests in two single tenant office buildings each containing approximately 98,216 rentable square feet located in Birmingham, Alabama (Meadow Brook Corporate Park) currently under lease agreements with Allstate Insurance Company (Allstate) and Computer Sciences Corporation (Computer Sciences). Allstate is a wholly owned subsidiary of Allstate Corporation, a Fortune 100 company. Allstate sells private passenger auto and homeowners insurance in the United States and Canada, as well as other lines of personal property and casualty insurance, including landlords, personal umbrella, renters, condominium, residential fire, manufactured housing, boat owners and selected commercial property and casualty. Computer Sciences, a public company traded on the NYSE, is in the technology services business and provides broad-based technology services that include management consulting, systems integration, and systems outsourcing to commercial markets and the federal government. Wells Exchange is currently engaged in the offer and sale of co-tenancy interests in the Meadow Brook Corporate Park to 1031 Participants.
 
In consideration for the payment of a Take Out Fee in the amount of $175,000, and following approval of the potential property acquisition by our board of directors, Wells OP entered into a Take Out Purchase and Escrow Agreement relating to the Meadow Brook Corporate Park. Pursuant to the terms of
 
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the Take Out Purchase and Escrow Agreement, Wells OP is obligated to acquire, at Wells Exchange’s cost ($419,916 in cash for each 2.9994% co-tenancy interest), any co-tenancy interests in the Meadow Brook Corporate Park which remain unsold on September 30, 2003.
 
The obligations of Wells OP under the Take Out Purchase and Escrow Agreement are secured by a line of credit with Bank of America, N.A. (BOA). If, for any reason, Wells OP fails to acquire any of the co-tenancy interests in the Meadow Brook Corporate Park which remain unsold as of September 30, 2003, or if there is otherwise an uncured default under the interim loan between Wells Exchange and BOA or Well OP’s loan documents, BOA is authorized to draw down on Wells OP’s line of credit in the amount necessary to pay the outstanding balance of the interim loan in full, in which event the appropriate amount of unsold co-tenancy interests in the Meadow Brook Corporate Park would be deeded to Wells OP. Wells OP’s maximum economic exposure in the transaction is $14,000,000, in which event Wells OP would acquire the Meadow Brook Corporate Park for $14,000,000 in cash plus assumption of the first mortgage financing in the amount of $13,900,000. If Wells Exchange successfully sells 100% of the co-tenancy interests to 1031 Particpants, Wells OP will not acquire any interest in the Meadow Brook Corporate Park. If some, but not all, of the co-tenancy interests are sold by Wells Exchange, Wells OP’s exposure would be less, and it would end up owning an interest in the property in co-tenancy with 1031 Participants who had previously acquired co-tenancy interests in the Meadow Brook Corporate Park from Wells Exchange.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following information amends and restates the information contained in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of Supplement No. 4 dated December 10, 2002, and 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, as supplemented by Supplement No. 1 dated August 14, 2002, Supplement No. 2 dated August 29, 2002 and Supplement No. 3 dated October 25, 2002. We amended our previously filed third quarter Form 10-Q by amending the Consolidated Statements of Income for the three and nine months ended September 30, 2002 and Notes 1(k) and 2 to the Condensed Notes to Financial Statements and the “Results of Operations” subsection of the Management’s Discussion and Analysis of Financial Condition and Results of Operations in order to restate the presentation of certain of our operating costs reimbursed by tenants as revenue and the gross property operating costs as expenses pursuant to a FASB Emerging Issues Task Force release issued in November 2001. In addition, interest income and interest expense related to certain bonds held by the Wells REIT have been restated to reflect such amounts on a gross basis consistent with this revised presentation. The comparative financial information for prior periods was also reclassified to conform the presentation. Since this presentation does not impact the amount of reimbursements we received or the property operating costs incurred and requires equal adjustments to revenues and expenses, the adoption of this guidance will have no impact on our financial position, net income, earnings per share or cash flows.
 
Forward Looking Statements
 
This supplement contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934, including discussion and analysis of our financial condition, anticipated capital expenditures required to complete certain projects, amounts of anticipated cash distributions to shareholders in the future and certain other matters. Readers of this supplement should be aware that there are various factors that could cause actual results to differ materially from any forward-looking statements made in this 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 on a timely basis or in properties
 
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that will provide targeted rates of return and the potential need to fund tenant improvements or other capital expenditures out of operating cash flow.
 
We have made an election under Section 856 (c) of the Internal Revenue Code (Internal Revenue Code) to be taxed as a REIT under the Internal Revenue Code beginning with its taxable year ended December 31, 1999. As a REIT for federal income tax purposes, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which our qualification is lost. Such an event could materially adversely affect our net income. However, management believes that we are organized and operate in a manner which will enable us to qualify for treatment as a REIT for federal income tax purposes during this fiscal year. In addition, management intends to continue to operate the Wells REIT so as to remain qualified as a REIT for federal income tax purposes.
 
Liquidity and Capital Resources
 
During the nine months ended September 30, 2002, we received aggregate gross offering proceeds of $988.5 million from the sale of 98.8 million shares of our common stock. After payment of $34.8 million in acquisition and advisory fees and acquisition expenses, payment of $104.3 million in selling commissions and organization and offering expenses, and common stock redemptions of $11.6 million pursuant to our share redemption program, we raised net offering proceeds of $837.8 million during the first three quarters of 2002, of which $144.5 million remained available for investment in properties at quarter end. In October, we reached our limit on stock redemptions for the year and, accordingly, there will be no further stock redemptions under our stock redemption program for the remainder of 2002.
 
During the nine months ended September 30, 2001, we received aggregate gross offering proceeds of $297.8 million from the sale of 29.8 million shares of its common stock. After payment of $10.3 million in acquisition and advisory fees and acquisition expenses, payment of $35.6 million in selling commissions and organizational and offering expenses, and common stock redemptions of $2.1 million pursuant to our share redemption program, we raised net offering proceeds of $249.8 million during the first three quarters of 2001, of which $8.7 million remained available for investment in properties at quarter end.
 
The significant increase in capital resources we have available is due to significantly increased sales of our common stock during the first three quarters of 2002.
 
As of September 30, 2002, we owned interests in 67 real estate properties either directly or through interests in joint ventures. Dividends declared for the third quarter of 2002 and 2001 were approximately $0.1938 and $0.1875 per share, respectively. In August 2002, our board of directors declared dividends for the fourth quarter of 2002 in the amount of approximately $0.175 per share.
 
Due primarily to the pace of our property acquisitions, as explained in more detail in the following paragraphs, dividends paid in the first three quarters of 2002 in the aggregate amount of approximately $71.4 million exceeded our Adjusted Funds From Operations for this period by approximately $11 million.
 
We continue to 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
 
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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 shareholders. 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 – we were required to lower our dividend yield to investors.
 
As a result of the factors described in the preceding paragraph, on August 29, 2002, our board of directors declared dividends for the fourth quarter of 2002 in an amount equal to a 7.0% annualized percentage rate return on an investment of $10 per share to be paid in December 2002. Our fourth quarter dividends are calculated on a daily record basis of $0.001923 (0.1923 cents) per day per share on the outstanding shares of common stock payable to shareholders of record of such shares as shown on our books at the close of business on each day during the period, commencing on September 16, 2002, and continuing on each day thereafter through and including December 15, 2002.
 
For information relating to the dividends declared for the first quarter of 2003, see the “Subsequent Events” section below.
 
Cash Flows From Operating Activities
 
Our net cash provided by operating activities was $68.2 million and $26.5 million for the nine months ended September 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 $826.9 million and $155.7 million for the nine months ended September 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 $827.1 million and $136.1 million for the nine months ended September 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 $208.1 million in the prior year. We raised $988.5 million in offering proceeds for the nine months ended September 30, 2002, as compared to $297.8 million for the same period in 2001. Additionally, we paid dividends totaling $23.5 million in the first three quarters of 2001 compared to $71.4 million in the same period of 2002.
 
Results of Operations
 
Gross revenues were $87.9 million and $38.5 million for the nine months ended September 30, 2002 and 2001, respectively. Gross revenues for the nine months ended September 30, 2002 and 2001 were attributable to rental income, operating cost reimbursements, interest income earned on funds held by the Company 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 $805.5 million in additional properties during 2002 and the purchase of $114.1 million in additional properties during the fourth quarter of 2001 which were not owned for the first three quarters of 2001. The purchase of additional properties also resulted in an increase in expenses, which totaled $48.1 million for the nine months ended September 30, 2002, as compared to $24.1 million for the nine months ended September 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 increased from $14.4 million for the nine months ended September 30, 2001 to $39.8 million for the nine months ended September 30, 2002.
 
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Earnings per share for the nine months ended September 30, 2002 decreased from $0.33 per share for the nine months ended September 30, 2001 to $0.31 per share for the nine months ended September 30, 2002. Earnings per share for the third quarter decreased from $0.11 per share for the three months ended September 30, 2001 to $0.09 per share for the three months ended September 30, 2002. These decreases were primarily due to the substantial increase in the number of shares outstanding as a result of capital raised in 2002 which was not completely matched by a corresponding increase in net income because such capital proceeds were not fully invested in properties.
 
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 nine months ended September 30, 2002 and 2001, respectively:
 
 	  	Three Months Ended
(in thousands)

	 	 	Nine Months Ended
(in thousands)

	 	
 	  	September 30,
2002

	 	 	September 30,
2001

	 	 	September 30,
2002

	 	 	September 30,
2001

	 	
FUNDS FROM OPERATIONS:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	
Net income	  	$	15,285	 	 	$	6,109	 	 	$	39,821	 	 	$	14,423	 	
Add:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	10,282	 	 	 	3,947	 	 	 	23,185	 	 	 	10,341	 	
Amortization of deferred leasing costs	  	 	78	 	 	 	76	 	 	 	229	 	 	 	228	 	
Depreciation and amortization—unconsolidated partnerships	  	 	708	 	 	 	647	 	 	 	2,115	 	 	 	1,561	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Funds from operations (FFO)	  	 	26,353	 	 	 	10,779	 	 	 	65,350	 	 	 	26,553	 	
 	 	 	 	 	
Adjustments:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan cost amortization	  	 	162	 	 	 	237	 	 	 	587	 	 	 	529	 	
Straight line rent	  	 	(2,146	)	 	 	(708	)	 	 	(5,312	)	 	 	(1,930	)	
Straight line rent—unconsolidated partnerships	  	 	(27	)	 	 	(100	)	 	 	(229	)	 	 	(233	)	
Lease acquisitions fees paid—unconsolidated partnerships	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(8	)	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Adjusted funds from operations	  	$	24,342	 	 	$	10,208	 	 	$	60,396	 	 	$	24,911	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 	 	 	 	 	
BASIC AND DILUTED WEIGHTED AVERAGE SHARES	  	 	163,395	 	 	 	54,112	 	 	 	128,541	 	 	 	43,726	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 
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 that 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
 
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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.
 
Subsequent Events
 
Effective October 31, 2002, Arthur Andersen LLP (Andersen) and Wells OP entered into a termination agreement with respect to the lease for the three-story office building containing 157,700 rentable square feet located in Sarasota, Florida formerly known as the Arthur Andersen Building. In consideration for releasing Andersen from its obligation to pay rent under the lease, Andersen paid Wells OP a termination fee of $979,760 and conveyed to Wells OP an approximately 1.3 acre tract of land adjacent to the property which was used for parking. On November 1, 2002, Wells OP entered into a net lease agreement with Vertex Tax Technology Enterprises, LLC (Vertex) for approximately 47,388 rentable square feet of the building. The current term of the lease is seven years, which commenced on November 1, 2002 and expires on October 31, 2009. The current annual base rent payable under the Vertex lease is $621,257.
 
In November 2002, Shoreview Associates LLC (Shoreview), the owner of an office building located in Ramsey County, Minnesota that Wells OP had contracted to purchase, filed a lawsuit against Wells OP in state court in Minnesota alleging that it was entitled to the $750,000 in earnest money that Wells OP had deposited under the contract. Wells OP has filed a counterclaim in the case asserting that it is entitled to the $750,000 earnest money deposit. Procedurally, Wells OP had the case transferred to U.S. District Court in Minnesota and Shoreview has moved to transfer the case back to the state court. The dispute currently remains in litigation.
 
On December 4, 2002, our board of directors declared dividends for the first quarter of 2003 in the amount of a 7.0% annualized percentage rate return on an investment of $10.00 per share to be paid in March 2003. Our first quarter dividends are calculated on a daily record basis of $0.001944 (0.1944 cents) per day per share on the outstanding shares of common stock payable to stockholders of record of such shares as shown on the books of the Wells REIT at the close of business on each day during the period, commencing on December 16, 2002, and continuing on each day thereafter through and including March 15, 2003.
 
Financial Statements
 
Audited Financial Statements
 
The statement of revenues over certain operating expenses of the Nestle Building for the year ended December 31, 2001, which is included in this supplement, has been audited by Ernst & Young LLP, independent auditors, as set forth in their report appearing elsewhere herein, and is included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
 
Unaudited Financial Statements
 
The amended and restated financial statements of the Wells REIT, as of September 30, 2002, and for the three and nine month periods ended September 30, 2002 and September 30, 2001, which are included in this supplement, have not been audited.
 
The statements of revenues over certain operating expenses of the Nestle Building for the nine months ended September 30, 2002, which are included in this supplement, have not been audited.
 
The pro forma balance sheet of the Wells REIT, as of September 30, 2002, the pro forma statement of income for the year ended December 31, 2001, and the pro forma statement of income for the nine months ended September 30, 2002, which are included in this supplement, have not been audited.
 
10

Table of Contents
INDEX TO FINANCIAL STATEMENTS
 
Wells Real Estate Investment Trust, Inc. and Subsidiary	  	Page

	
 	 	
Unaudited Financial Statements	  	 	
 	 	
Consolidated Balance Sheets as of September 30, 2002 (unaudited) and December 31, 2001	  	12	
 	 	
Consolidated Statements of Income for the three months ended September 30, 2002 and September 30, 2001(unaudited), and for the nine months ended September 30, 2002 and September 30, 2001 (unaudited)	  	13	
 	 	
Consolidated Statements of Shareholders’ Equity for the year ended December 31, 2001 and for the nine months ended September 30, 2002 (unaudited)	  	14	
 	 	
Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and September 30, 2001 (unaudited)	  	15	
 	 	
Condensed Notes to Consolidated Financial Statements September 30, 2002 (unaudited)	  	16	
 	 	
Nestle Building	  	 	
 	 	
Report of Independent Auditors	  	33	
 	 	
Statements of Revenues Over Certain Operating Expenses for the year ended December 31, 2001 (audited) and for the nine months ended September 30, 2002 (unaudited)	  	34	
 	 	
Notes to Statements of Revenues Over Certain Operating Expenses for the year ended December 31, 2001 (audited) and for the nine months ended September 30, 2002 (unaudited)	  	35	
 	 	
Wells Real Estate Investment Trust, Inc. and Subsidiary	  	 	
 	 	
Unaudited Pro Forma Financial Statements	  	 	
 	 	
Summary of Unaudited Pro Forma Financial Statements	  	37	
 	 	
Pro Forma Balance Sheet as of September 30, 2002 (unaudited)	  	38	
 	 	
Pro Forma Statement of Income for the year ended December 31, 2001 (unaudited)	  	40	
 	 	
Pro Forma Statement of Income for the nine months ended September 30, 2002 (unaudited)	  	41	

11

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
 
 	  	September 30,
2002

	 	 	December 31,
2001

	 	
ASSETS	  	(unaudited)	 	 	 	 	
REAL ESTATE, at cost:	  	 	 	 	 	 	 	 	
Land	  	$	164,191	 	 	$	86,247	 	
Building and improvements, less accumulated depreciation of $48,000 in 2002 and $24,814 in 2001	  	 	1,171,793	 	 	 	472,383	 	
Construction in progress	  	 	28,500	 	 	 	5,739	 	

	

	

	 	

	

	

	
Total real estate	  	 	1,364,484	 	 	 	564,369	 	
INVESTMENT IN JOINT VENTURES	  	 	75,388	 	 	 	77,410	 	
CASH AND CASH EQUIVALENTS	  	 	143,912	 	 	 	75,586	 	
INVESTMENT IN BONDS	  	 	54,500	 	 	 	22,000	 	
STRAIGHT-LINE RENT RECEIVABLE	  	 	10,632	 	 	 	5,362	 	
ACCOUNTS RECEIVABLE	  	 	1,387	 	 	 	641	 	
NOTE RECEIVABLE	  	 	4,966	 	 	 	0	 	
DEFERRED LEASE ACQUISITION COSTS, net	  	 	1,713	 	 	 	1,525	 	
DEFERRED PROJECT COSTS	  	 	5,963	 	 	 	2,977	 	
DUE FROM AFFILIATES	  	 	2,185	 	 	 	1,693	 	
DEFERRED OFFERING COSTS	  	 	3,537	 	 	 	0	 	
PREPAID EXPENSES AND OTHER ASSETS, net	  	 	2,597	 	 	 	718	 	

	

	

	 	

	

	

	
Total assets	  	$	1,671,264	 	 	$	752,281	 	

	

	

	 	

	

	

	
LIABILITIES AND SHAREHOLDERS’ EQUITY	  	 	 	 	 	 	 	 	
LIABILITIES:	  	 	 	 	 	 	 	 	
Notes payable	  	$	35,829	 	 	$	8,124	 	
Obligations under capital leases	  	 	54,500	 	 	 	22,000	 	
Accounts payable and accrued expenses	  	 	17,539	 	 	 	8,727	 	
Dividends payable	  	 	10,209	 	 	 	1,059	 	
Deferred rental income	  	 	7,894	 	 	 	662	 	
Due to affiliates	  	 	4,380	 	 	 	2,166	 	

	

	

	 	

	

	

	
Total liabilities	  	 	130,351	 	 	 	42,738	 	

	

	

	 	

	

	

	
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP	  	 	200	 	 	 	200	 	

	

	

	 	

	

	

	
SHAREHOLDERS’ EQUITY:	  	 	 	 	 	 	 	 	
Common shares, $.01 par value; 750,000 shares authorized, 182,609 shares issued and 180,892 outstanding at September 30, 2002, and 350,000 shares authorized, 83,761 shares issued and 83,206 shares outstanding at December 31, 2001	  	 	1,826	 	 	 	838	 	
Additional paid-in capital	  	 	1,621,376	 	 	 	738,236	 	
Cumulative distributions in excess of earnings	  	 	(64,907	)	 	 	(24,181	)	
Treasury stock, at cost, 1,717 shares at September 30, 2002 and
555 shares at December 31, 2001	  	 	(17,167	)	 	 	(5,550	)	
Other comprehensive loss	  	 	(415	)	 	 	0	 	

	

	

	 	

	

	

	
Total shareholders’ equity	  	 	1,540,713	 	 	 	709,343	 	

	

	

	 	

	

	

	
Total liabilities and shareholders’ equity	  	$	1,671,264	 	 	$	752,281	 	

	

	

	 	

	

	

	
 
See accompanying condensed notes to financial statements.

12

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF INCOME
 
(unaudited and in thousands except per share amounts)
 
 	  	Three Months Ended

	  	Nine Months Ended

	
 	  	September 30,
2002

	  	September 30,
2001

	  	September 30
2002

	  	September 30
2001

	
REVENUES:	  	 	 	  	 	 	  	 	 	  	 	 	
Rental income	  	$	27,549	  	$	11,317	  	$	66,121	  	$	31,028	
Operating cost reimbursements*	  	 	3,677	  	 	1,331	  	 	12,854	  	 	4,470	
Equity in income of joint ventures	  	 	1,259	  	 	1,102	  	 	3,738	  	 	2,622	
Interest income*	  	 	2,427	  	 	89	  	 	5,075	  	 	281	
Take out fee	  	 	1	  	 	0	  	 	135	  	 	138	

	

	  	

	

	  	

	

	  	

	

	
 	  	 	34,913	  	 	13,839	  	 	87,923	  	 	38,539	

	

	  	

	

	  	

	

	  	

	

	
EXPENSES:	  	 	 	  	 	 	  	 	 	  	 	 	
Depreciation	  	 	10,282	  	 	3,947	  	 	23,185	  	 	10,341	
Operating costs*	  	 	5,868	  	 	2,625	  	 	17,109	  	 	7,638	
Management and leasing fees	  	 	1,445	  	 	632	  	 	3,348	  	 	1,750	
Administrative costs	  	 	745	  	 	141	  	 	1,867	  	 	901	
Interest expense*	  	 	1,126	  	 	148	  	 	2,006	  	 	2,957	
Amortization of deferred financing costs	  	 	162	  	 	237	  	 	587	  	 	529	

	

	  	

	

	  	

	

	  	

	

	
 	  	 	19,628	  	 	7,730	  	 	48,102	  	 	24,116	

	

	  	

	

	  	

	

	  	

	

	
NET INCOME	  	$	15,285	  	$	6,109	  	$	39,821	  	$	14,423	

	

	  	

	

	  	

	

	  	

	

	
 	 	 	 	 	
BASIC AND DILUTED EARNINGS PER SHARE	  	$	0.09	  	$	0.11	  	$	0.31	  	$	0.33	

	

	  	

	

	  	

	

	  	

	

	
 	 	 	 	 	
BASIC AND DILUTED WEIGHTED AVERAGE SHARES	  	 	163,395	  	 	54,112	  	 	128,541	  	 	43,726	

	

	  	

	

	  	

	

	  	

	

	
 
See accompanying condensed notes to financial statements.
 
* These financial statement line items have been amended and restated as described in the accompanying Note 1(k).
 
13

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 NINE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED)
 
(in thousands except per share amounts)
 
 	  	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	  	31,510	  	$	315	  	$	275,573	 	 	$	(9,134	)	 	$	0	 	 	(141	)	 	$	(1,413	)	  	$	0	 	  	$	265,341	 	
Issuance of common stock	  	52,251	  	 	523	  	 	521,994	 	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	  	 	0	 	  	 	522,517	 	
Treasury stock purchased	  	0	  	 	0	  	 	0	 	 	 	0	 	 	 	0	 	 	(414	)	 	 	(4,137	)	  	 	0	 	  	 	(4,137	)	
Net income	  	0	  	 	0	  	 	0	 	 	 	0	 	 	 	21,724	 	 	0	 	 	 	0	 	  	 	0	 	  	 	21,724	 	
Dividends ($.76 per share)	  	0	  	 	0	  	 	0	 	 	 	(15,047	)	 	 	(21,724	)	 	0	 	 	 	0	 	  	 	0	 	  	 	(36,771	)	
Sales commissions and discounts	  	0	  	 	0	  	 	(49,246	)	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	  	 	0	 	  	 	(49,246	)	
Other offering expenses	  	0	  	 	0	  	 	(10,085	)	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	  	 	0	 	  	 	(10,085	)	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	  	

	

	

	  	

	

	

	
 	 	 	 	 	 	 	 	 	 	
BALANCE, December 31, 2001	  	83,761	  	 	838	  	 	738,236	 	 	 	(24,181	)	 	 	0	 	 	(555	)	 	 	(5,550	)	  	 	0	 	  	 	709,343	 	
Issuance of common stock	  	98,848	  	 	988	  	 	987,482	 	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	  	 	0	 	  	 	988,470	 	
Treasury stock purchased	  	0	  	 	0	  	 	0	 	 	 	0	 	 	 	0	 	 	(1,162	)	 	 	(11,617	)	  	 	0	 	  	 	(11,617	)	
Dividends ($.58 per share)	  	0	  	 	0	  	 	0	 	 	 	(40,726	)	 	 	(39,821	)	 	0	 	 	 	0	 	  	 	0	 	  	 	(80,547	)	
Sales commissions and discounts	  	0	  	 	0	  	 	(94,097	)	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	  	 	0	 	  	 	(94,097	)	
Other offering expenses	  	0	  	 	0	  	 	(10,245	)	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	  	 	0	 	  	 	(10,245	)	
Components of comprehensive income:	  	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	
Net income	  	0	  	 	0	  	 	0	 	 	 	0	 	 	 	39,821	 	 	0	 	 	 	0	 	  	 	0	 	  	 	39,821	 	
Gain/(loss) on interest rate swap	  	0	  	 	0	  	 	0	 	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	  	 	(415	)	  	 	(415	)	

	

	

	
Comprehensive income	  	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	  	 	39,406	 	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	  	

	

	

	  	

	

	

	
BALANCE, September 30, 2002 (unaudited)	  	182,609	  	$	1,826	  	$	1,621,376	 	 	$	(64,907	)	 	$	0	 	 	(1,717	)	 	$	(17,167	)	  	$	(415	)	  	$	1,540,713	 	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	  	

	

	

	  	

	

	

	
 
See accompanying condensed notes to financial statements.

14

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
 
 	  	Nine Months Ended

	 	
 	  	September 30,
2002

	 	 	September 30,
2001

	 	
CASH FLOWS FROM OPERATING ACTIVITIES:	  	 	 	 	 	 	 	 	
Net income	  	$	39,821	 	 	$	14,423	 	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	
Equity in income of joint ventures	  	 	(3,738	)	 	 	(2,622	)	
Depreciation	  	 	23,185	 	 	 	10,341	 	
Amortization of deferred financing costs	  	 	587	 	 	 	529	 	
Amortization of deferred leasing costs	  	 	229	 	 	 	228	 	
Bad debt expense	  	 	113	 	 	 	0	 	
Changes in assets and liabilities:	  	 	 	 	 	 	 	 	
Accounts receivable	  	 	(746	)	 	 	(370	)	
Straight-line rent receivable	  	 	(5,382	)	 	 	(1,949	)	
Due from affiliates	  	 	(35	)	 	 	0	 	
Deferred rental income	  	 	7,232	 	 	 	(381	)	
Accounts payable and accrued expenses	  	 	8,811	 	 	 	3,309	 	
Prepaid expenses and other assets, net	  	 	(1,813	)	 	 	3,211	 	
Due to affiliates	  	 	(105	)	 	 	(235	)	

	

	

	 	

	

	

	
Net cash provided by operating activities	  	 	68,159	 	 	 	26,484	 	

	

	

	 	

	

	

	
CASH FLOWS FROM INVESTING ACTIVITIES:	  	 	 	 	 	 	 	 	
Investments in real estate	  	 	(797,011	)	 	 	(121,366	)	
Investment in joint ventures	  	 	0	 	 	 	(27,018	)	
Deferred project costs paid	  	 	(34,784	)	 	 	(10,347	)	
Distributions received from joint ventures	  	 	5,301	 	 	 	3,027	 	
Deferred lease acquisition costs paid	  	 	(400	)	 	 	0	 	

	

	

	 	

	

	

	
Net cash used in investing activities	  	 	(826,894	)	 	 	(155,704	)	

	

	

	 	

	

	

	
CASH FLOWS FROM FINANCING ACTIVITIES:	  	 	 	 	 	 	 	 	
Proceeds from note payable	  	 	27,742	 	 	 	107,587	 	
Repayment of note payable	  	 	(37	)	 	 	(208,102	)	
Dividends paid	  	 	(71,397	)	 	 	(23,502	)	
Issuance of common stock	  	 	988,470	 	 	 	297,775	 	
Sales commissions paid	  	 	(94,097	)	 	 	(28,086	)	
Offering costs paid	  	 	(10,937	)	 	 	(7,481	)	
Treasury stock purchased	  	 	(11,617	)	 	 	(2,137	)	
Deferred financing costs paid	  	 	(1,066	)	 	 	0	 	

	

	

	 	

	

	

	
Net cash provided by financing activities	  	 	827,061	 	 	 	136,054	 	

	

	

	 	

	

	

	
NET INCREASE IN CASH AND CASH EQUIVALENTS	  	 	68,326	 	 	 	6,834	 	
 	 	 	
CASH AND CASH EQUIVALENTS, beginning of year	  	 	75,586	 	 	 	4,298	 	

	

	

	 	

	

	

	
CASH AND CASH EQUIVALENTS, end of period	  	$	143,912	 	 	$	11,132	 	

	

	

	 	

	

	

	
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:	  	 	 	 	 	 	 	 	
 	 	 	
Deferred project costs applied to real estate assets	  	$	31,271	 	 	$	1,127	 	

	

	

	 	

	

	

	
Deferred project costs applied to joint ventures	  	$	0	 	 	$	9,295	 	

	

	

	 	

	

	

	
Deferred project costs due to affiliate	  	$	587	 	 	$	(498	)	

	

	

	 	

	

	

	
Interest rate swap	  	$	(415	)	 	$	0	 	

	

	

	 	

	

	

	
Increase (decrease) in deferred offering cost accrual	  	$	3,537	 	 	$	(1,291	)	

	

	

	 	

	

	

	
Assumption of obligations under capital lease	  	$	32,500	 	 	$	22,000	 	

	

	

	 	

	

	

	
Investment in bonds	  	$	32,500	 	 	$	22,000	 	

	

	

	 	

	

	

	
 
See accompanying condensed notes to financial statements.
 
15

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
 
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
SEPTEMBER 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 16.5 million shares of common stock at $10 per share pursuant to a Registration Statement on Form S-11 filed under the Securities Act of 1933. The Company commenced active operations on June 5, 1998. The Company terminated its initial public offering on December 19, 1999 at which time gross proceeds of approximately $132.2 million had been received from the sale of approximately 13.2 million shares. The Company commenced its second public offering of shares of common stock on December 20, 1999, which was terminated on December 19, 2000 after receipt of gross proceeds of approximately $175.2 million from the sale of approximately 17.5 million shares. The Company commenced its third public offering of shares of common stock on December 20, 2000, which terminated on July 26, 2002 after receipt of gross proceeds of approximately $1.3 billion from the sale of approximately 128.3 million shares. As of September 30, 2002, the Company has received gross proceeds of approximately $235.7 million from the sale of approximately 23.6 million shares from its fourth public offering. Accordingly, as of September 30, 2002, the Company has received aggregate gross offering proceeds of approximately $1.8 billion from the sale of 182.6 million shares of its common stock to investors. After payment of $63.3 million in acquisition and advisory fees and acquisition expenses, payment of $202.9 million in selling commissions and organization and offering expenses, capital contributions to joint ventures and acquisitions expenditures by Wells OP of $1.4 billion for property acquisitions, and common stock redemptions of $17.2 million pursuant to the Company’s share redemption program, the Company was holding net offering proceeds of $144.5 million available for investment in properties, as of September 30, 2002.
 
16

Table of Contents
(b) Properties
 
As of September 30, 2002, the Company owned interests in 67 properties listed in the table below through its ownership in Wells OP.
 
Property
Name

	  	Tenant

	  	Property
Location

	  	%
Owned

	 	 	Purchase
Price

	 	 	Square
Feet

	  	Annual
Rent

	 	
Daimler Chrysler Dallas	  	Daimler Chrysler Services North America
LLC	  	Westlake, TX	  	100	%	 	$	25,100,000	 	 	130,290	  	$	3,189,499	 	
Allstate Indianapolis	  	Allstate Insurance Company
Holladay Property Services Midwest, Inc.	  	Indianapolis, IN	  	100	%	 	$	10,900,000	 	 	84,200
5,756	  	$
$	1,246,164
74,832	 
 	
Intuit Dallas	  	Lacerte Software Corporation	  	Plano, TX	  	100	%	 	$	26,500,000	 	 	166,238	  	$	2,461,985	 	
EDS Des Moines	  	EDS Information Services LLC	  	Des Moines, IA	  	100	%	 	$	26,500,000	 	 	405,000	  	$	2,389,500	 	
Federal Express Colorado Springs	  	Federal Express Corporation	  	Colorado Springs, CO	  	100	%	 	$	26,000,000	 	 	155,808	  	$	2,248,309	 	
KeyBank Parsippany	  	KeyBank U.S.A., N.A.
Gemini Technology Services	  	Parsippany, NJ	  	100	%	 	$	101,350,000	 	 	200,000
204,515	  	$
$	3,800,000
5,726,420	 
 	
IRS Long Island	  	IRS Collection
IRS Compliance
IRS Daycare Facility	  	Holtsville, NY	  	100	%	 	$	50,975,000	 	 	128,000
50,949
12,100	  	$
$
$	5,029,380
1,663,200
486,799	(1)

AmeriCredit Phoenix	  	AmeriCredit Financial Services, Inc.	  	Chandler, AZ	  	100	%	 	$	24,700,000	(2)	 	153,494	  	$	1,609,315	(3)	
Harcourt Austin	  	Harcourt, Inc.	  	Austin, TX	  	100	%	 	$	39,000,000	 	 	195,230	  	$	3,353,040	 	
Nokia Dallas	  	Nokia, Inc.
Nokia, Inc.
Nokia, Inc.	  	Irving, TX	  	100	%	 	$	119,550,000	 	 	228,678
223,470
152,086	  	$
$
$	4,413,485
4,547,614
3,024,990	 

Kraft Atlanta	  	Kraft Foods North America, Inc.
Perkin Elmer Instruments, LLC	  	Suwanee, GA	  	100	%	 	$	11,625,000	 	 	73,264
13,955	  	$
$	1,263,804
194,672	 
 	
BMG Greenville	  	BMG Direct Marketing, Inc.
BMG Music	  	Duncan, SC	  	100	%	 	$	26,900,000	 	 	473,398
313,380	  	$
$	1,394,156
763,600	 
 	
Kerr-McGee	  	Kerr-McGee Oil & Gas Corporation	  	Houston, TX	  	100	%	 	$	15,760,000	(2)	 	100,000	  	$	1,655,000	(3)	
PacifiCare San Antonio	  	PacifiCare Health Systems, Inc.	  	San Antonio, TX	  	100	%	 	$	14,650,000	 	 	142,500	  	$	1,471,700	 	
ISS Atlanta	  	Internet Security Systems, Inc.	  	Atlanta, GA	  	100	%	 	$	40,500,000	 	 	238,600	  	$	4,623,445	 	
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
704,430	 
 	
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	(4)	 	147,004	  	$	1,842,800	 	
Dana Detroit	  	Dana Corporation	  	Farmington Hills, MI	  	100	%	 	 
 	(see
above	 
)(4)	 	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 (5)	  	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	(6)	 	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	(6)	 	300,034	  	$	5,244,594	 	
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	  	Nissan Motor Acceptance Corporation	  	Irving, TX	  	100	%	 	$	42,259,000	(2)	 	268,290	  	$	4,225,860	(3)	
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	 	
 
17

Table of Contents
Property
Name

	  	Tenant

	  	Property
Location

	  	%
Owned

	 	 	Purchase
Price

	  	Square
Feet

	  	Annual
Rent

	
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	  	$	2,054,329	
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 (2)	  	Alstom Power, Inc.	  	Midlothian, VA	  	100	%	 	$	11,400,000	  	99,057	  	$	1,244,501	
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 (2)	  	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	
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)	 	Includes only the leased portion of this property.	
 
(2)	 	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.	
 
(3)	 	Annual rent for AmeriCredit Phoenix, Kerr McGee and Nissan Property does not take effect until construction of the building is completed and the tenant is occupying the building.	
 
(4)	 	Dana Kalamazoo and Dana Detroit were purchased for an aggregate purchase price of $41,950,000.	
 
(5)	 	Subsequent to September 30, 2002, this building has been vacated by the tenant. See Footnote 10 and “Subsequent Events” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this supplement.	
 
(6)	 	Windy Point I and Windy Point II were purchased for an aggregate purchase price of $89,275,000.	
 
18

Table of Contents
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. 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.
 
19

Table of Contents
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 to date.
 
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 September 30, 2002, amounted to $63.3 million 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 September 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 equity is raised, the Company reverses the deferred offering costs accrual and recognizes a charge to stockholders’ equity upon reimbursing the Advisor. As of September 30, 2002, the Advisor had paid organization and offering expenses on behalf of the Company in an aggregate amount of $34.2 million, of which the Advisor had been reimbursed $29.7 million, 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.
 
20

Table of Contents
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 $1.1 million and $0.4 million for the nine months ended September 30, 2002 and 2001, respectively, and $0.5 million and $0.1 million for the three months ended September 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.
 
(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.
 
21

Table of Contents
(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 management of the Company, 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.
 
(k) Reclassifications and Change in Presentation
 
The Company has historically reported property operating costs net of reimbursements from tenants as an expense in its Consolidated Statements of Income. These costs include property taxes, property insurance, utilities, repairs and maintenance, management fees and other expenses related to the ownership and operation of the Company’s properties that are required to be reimbursed by the properties’ tenants in accordance with the terms of their leases. In response to a FASB Emerging Issues Task Force release issued in November 2001, the Company will now present the reimbursements received from tenants as revenue and the gross property operating costs as expenses commencing in the first quarter of 2002. Consequently, the accompanying Consolidated Statements of Income for the three and nine months ended September 30, 2002 have been amended and restated to reflect the effects of this revised presentation. In addition, the comparative financial information for prior periods has been reclassified to conform to the presentation in the 2002 financial statements.
 
Since this presentation does not impact the amount of reimbursements received or property operating costs incurred and requires equal adjustments to revenues and expenses, the adoption of this guidance will have no impact on the financial position, net income, earnings per share or cash flows of the Company.
 
2. INVESTMENT IN JOINT VENTURES
 
(a) Basis of Presentation
 
As of September 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 results of operations of the unconsolidated joint ventures in which the Company, through Wells OP, had ownership interests as of September 30, 2002 and 2001, respectively. There were no additional investments in joint ventures made by the Company during the three and nine months ended September 30, 2002.
 
22

Table of Contents
 	  	Total Revenues

	  	Net Income

	  	Wells OP’s
Share of Net Income

	
 	  	Three Months Ended (in thousands)

	  	Three Months Ended (in thousands)

	  	Three Months Ended (in thousands)

	
 	  	September 30,
2002

	  	September 30,
2001

	  	September 30,
2002

	  	September 30,
2001

	  	September 30,
2002

	  	September 30,
2001

	
Fund IX-X-XI-REIT Joint Venture	  	$	1,346	  	$	1,458	  	$	574	  	$	670	  	$	21	  	$	25	
Cort Joint Venture	  	 	209	  	 	213	  	 	135	  	 	149	  	 	59	  	 	65	
Fremont Joint Venture	  	 	226	  	 	227	  	 	142	  	 	142	  	 	110	  	 	110	
Fund XI-XII-REIT Joint Venture	  	 	855	  	 	856	  	 	484	  	 	520	  	 	275	  	 	295	
Fund XII-REIT Joint Venture	  	 	1,481	  	 	1,525	  	 	727	  	 	815	  	 	400	  	 	448	
Fund VIII-IX-REIT Joint Venture	  	 	310	  	 	314	  	 	153	  	 	156	  	 	24	  	 	24	
Fund XIII-REIT Joint Venture	  	 	707	  	 	306	  	 	408	  	 	155	  	 	370	  	 	135	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	
 	  	$	5,134	  	$	4,899	  	$	2,623	  	$	2,607	  	$	1,259	  	$	1,102	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	
 	 	 	 	
 	  	Total Revenues

	  	Net Income

	  	Wells OP’s
Share of Net Income

	
 	  	Nine Months Ended (in thousands)

	  	Nine Months Ended (in thousands)

	  	Nine Months Ended (in thousands)

	
 	  	September 30,
2002

	  	September 30,
2001

	  	September 30,
2002

	  	September 30,
2001

	  	September 30,
2002

	  	September 30,
2001

	
Fund IX-X-XI-REIT Joint Venture	  	$	4,170	  	$	4,472	  	$	1,747	  	$	2,043	  	$	65	  	$	76	
Cort Joint Venture	  	 	631	  	 	611	  	 	405	  	 	415	  	 	177	  	 	181	
Fremont Joint Venture	  	 	679	  	 	677	  	 	419	  	 	421	  	 	325	  	 	326	
Fund XI-XII-REIT Joint Venture	  	 	2,601	  	 	2,571	  	 	1,526	  	 	1,534	  	 	866	  	 	871	
Fund XII-REIT Joint Venture	  	 	4,643	  	 	3,729	  	 	2,385	  	 	1,848	  	 	1,311	  	 	967	
Fund VIII-IX-REIT Joint Venture	  	 	945	  	 	902	  	 	461	  	 	416	  	 	73	  	 	66	
Fund XIII-REIT Joint Venture	  	 	2,115	  	 	306	  	 	1,215	  	 	155	  	 	921	  	 	135	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	
 	  	$	15,784	  	$	13,268	  	$	8,158	  	$	6,832	  	$	3,738	  	$	2,622	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	
 
Total revenues for the three and nine months ended September 30, 2002 presented above have been amended and restated to include operating cost reimbursements from tenants as revenue, consistent with the presentation described in Note 1(k).
 
3. INVESTMENTS IN REAL ESTATE
 
As of September 30, 2002, the Company, through its ownership in Wells OP, owns 50 properties directly. The following describes acquisitions made directly by Wells OP during the three months ended September 30, 2002.
 
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 $40.5 million, excluding closing costs. The ISS Atlanta Buildings were acquired by assigning to Wells OP an existing ground lease with
 
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the Development Authority of Fulton County (“Development Authority”). Fee simple title to the land upon which the ISS Atlanta Buildings are located is held by the Development Authority, which issued Development Authority of Fulton County Taxable Revenue Bonds (“Bonds”) totaling $32.5 million in connection with the construction of these buildings. The Bonds, which entitle Wells OP to certain real property tax abatement benefits, were also assigned to Wells OP at the closing. Fee title interest to the land will be transferred to Wells OP upon payment of the outstanding balance on the Bonds, either by prepayment by Wells OP or at the expiration of the ground lease on December 1, 2015.
 
The entire rentable area of the ISS Atlanta Buildings is leased to Internet Security Systems, Inc., a Georgia corporation (“ISS”). The ISS Atlanta lease 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 approximately $4.6 million. 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 $14.7 million, 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 in November 2000 and expires in November 2010. The current annual base rent payable under the PacifiCare lease is approximately $1.5 million. 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 approximately $0.2 million 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 approximately $1.7, 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 $15.8 million.
 
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 $13.7 million 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.
 
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The BMG Greenville Buildings
 
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 $26.9 million, 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 that commenced in March 1988 and expires in March 2011. The current annual base rent payable under the BMG Marketing lease is approximately $1.4 million. 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 that commenced in December 1987 and expires in March 2011. The current annual base rent payable under the BMG Music lease is approximately $0.8 million. 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 approximately $11.6 million, 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 that commenced in February 2002 and expires in January 2012. The current annual base rent payable under the Kraft lease is approximately $1.3 million. 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 $7.0 million termination fee, or (2) at the end of the seventh lease year by paying an approximately $1.8 million termination fee.
 
The PerkinElmer lease is a net lease that covers approximately 13,955 rentable square feet that commenced in December 2001 and expires in November 2016. The current annual base rent payable under the PerkinElmer lease is approximately $0.2 million. 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 $0.3 million termination fee.
 
The Nokia Dallas Buildings
 
On August 15, 2002, Wells OP purchased the Nokia Dallas Buildings, three adjacent office buildings containing an aggregate of 604,234 rentable square feet located in Irving, Texas for an aggregate purchase price of approximately $119.6 million, excluding closing costs. The Nokia Dallas Buildings are all leased entirely to Nokia, Inc (“Nokia”) under three long-term net leases for periods of 10 years, with approximately seven to eight years remaining on such leases.
 
The Nokia I Building is a nine-story building containing 228,678 rentable square feet. The Nokia I Building lease fully commenced in July 1999 and expires in July 2009. The current annual base rent payable under the Nokia I Building lease is approximately $4.4 million. The Nokia II Building is a seven-story building containing 223,470 rentable square feet. The Nokia II Building lease commenced in December 2000 and expires in December 2010. The current annual base rent payable under the Nokia II Building lease is approximately $4.5 million. The Nokia III Building is a six-story building containing
 
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152,086 rentable square feet. The Nokia III Building lease commenced in June 1999 and expires in July 2009. The current annual base rent payable under the Nokia III Building lease is approximately $3.0 million.
 
The Harcourt Austin Building
 
On August 15, 2002, Wells OP purchased the Harcourt Austin Building, a seven-story office building containing 195,230 rentable square feet located in Austin, Texas for a purchase price of $39.0 million, excluding closing costs. The Harcourt Austin Building is leased entirely to Harcourt, Inc. (“Harcourt”), a wholly owned subsidiary of Harcourt General, Inc., the guarantor of the Harcourt lease. The Harcourt lease commenced in July 2001 and expires in June 2016. The current annual base rent payable under the Harcourt lease is approximately $3.4 million.
 
The AmeriCredit Phoenix Property
 
On September 12, 2002, Wells OP purchased the AmeriCredit Phoenix Property, a 14.74-acre tract of land located in Chandler, Maricopa County, Arizona for a purchase price of approximately $2.6 million, excluding closing costs. Wells OP has entered into agreements to construct a three-story office building containing approximately 153,494 rentable square feet (the “AmeriCredit Phoenix Project”) on the AmeriCredit Phoenix 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 AmeriCredit Phoenix Project and the planning, design, development, construction and completion of the AmeriCredit Phoenix Project will total approximately $24.7 million.
 
The entire 153,494 rentable square feet of the AmeriCredit Phoenix Project will be leased to AmeriCredit Financial Services, Inc. (“AmeriCredit”), a wholly owned subsidiary of AmeriCredit Corporation. The initial term of the AmeriCredit lease will extend 10 years and 4 month beyond the rent commencement date. Construction on the building is scheduled to be completed by August 2003. AmeriCredit has the right to extend the initial term of this lease for two additional periods of five years at 95% of the then-market rate. As an inducement for Wells OP to enter into the AmeriCredit Phoenix lease, AmeriCredit has prepaid to Wells OP the first three years of base rent at a discounted amount equal to approximately $4.8 million.
 
The IRS Long Island Buildings
 
On September 16, 2002, Wells REIT-Holtsville, NY, LLC (“REIT-Holtsville”), a Georgia limited liability company wholly-owned by Wells OP purchased the IRS Long Island Buildings, a two-story office building and a one-story daycare facility containing an aggregate 259,700 rentable square feet located in Holtsville, New York for a purchase price of approximately $51.0 million, excluding closing costs. Approximately 191,050 of the aggregate rentable square feet of the IRS Long Island Buildings (74%) is currently leased to the United States of America through the U.S. General Services Administration (“U.S.A.”) for occupancy by the IRS under three separate lease agreements for the processing & collection division of the IRS (“IRS Collection”), the compliance division of the IRS (“IRS Compliance”), and the IRS Daycare Facility. REIT-Holtsville is negotiating for the remaining 26% of the IRS Long Island Buildings to be leased by the U.S.A. on behalf of the IRS or to another suitable tenant. If REIT-Holtsville should lease this space to the U.S.A. or another suitable tenant within 18 months, REIT-Holtsville would owe the seller an additional amount of up to $14.5 million as additional purchase price for the IRS Long Island Buildings pursuant to the terms of an earnout agreement entered into between REIT-Holtsville and the seller at the closing.
 
The IRS Collection lease, which encompasses 128,000 rentable square feet of the IRS Office Building, commenced in August 2000 and expires in August 2005. The current annual base rent payable under the IRS Collection lease is approximately $5.0 million. The annual base rent payable under the
 
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IRS Collection lease for the remaining two years of the initial lease term will be approximately $2.8 million. The U.S.A., at its option, has the right to extend the initial term of its lease for two additional five-year periods at annual rental rates of approximately $4.2 million and $5.0 million, respectively.
 
The IRS Compliance lease, which encompasses 50,949 rentable square feet of the IRS Office Building, commenced in December 2001 and expires in December 2011. The annual base rent payable under the IRS Compliance lease for the initial term of the lease is approximately $1.7 million. The U.S.A., at its option, has the right to extend the initial term of its lease for one additional ten-year period at an annual rental rate of approximately $2.2 million.
 
The IRS Daycare Facility lease, which encompasses the entire 12,100 rentable square feet of the IRS Daycare Facility, commenced in October 1999 and expires in September 2004. The annual base rent payable under the IRS Daycare Facility lease for the initial term of the lease is approximately $0.5 million. The U.S.A., at its option, has the right to extend the initial term of its lease for two additional five-year periods at an annual rental rate of approximately $0.4 million.
 
The KeyBank Parsippany Building
 
On September 27, 2002, Wells OP purchased the KeyBank Parsippany Building, a four-story office building containing 404,515 rentable square feet located in Parsippany, New Jersey for a purchase price of approximately $101.4 million, excluding closing costs. The KeyBank Parsippany Building is leased to Key Bank U.S.A., N.A. (“KeyBank”) and Gemini Technology Services (“Gemini”).
 
The KeyBank lease covers 200,000 rentable square feet (49%) under a net lease that commenced in March 2001 and expires in February 2016. The current annual base rent payable under the KeyBank lease is $3.8 million. KeyBank, at its option, has the right to extend the initial term of its lease for three additional five-year periods at the then-current market rental rate.
 
The Gemini lease covers 204,515 rentable square feet (51%) under a gross lease that commenced in December 2000 and expires in December 2013. The current annual base rent payable under the Gemini lease is approximately $5.7 million. Gemini, at its option, has the right to extend the initial term of its lease for three additional five-year periods at a rate equal to the greater of (1) the annual rent during the final year of the initial lease term, or (2) 95% of the then-current market rental rate.
 
The Federal Express Colorado Springs Building
 
On September 27, 2002, Wells OP purchased the Federal Express Colorado Springs Building, a three-story office building containing 155,808 rentable square feet located in Colorado Springs, Colorado for a purchase price of $26.0 million, excluding closing costs. The Federal Express Colorado Springs Building is leased entirely to Federal Express Corporation (“Federal Express”). The Federal Express lease commenced in July 2001 and expires in October 2016. The current annual base rent payable under the Federal Express lease is approximately $2.2 million. Federal Express, at its option, has the right to extend the initial term of its lease for four additional five-year periods at 90% of the then-current market rental rate. In addition, Federal Express has an expansion option under its lease pursuant to which Wells OP would be required to construct an additional office building.
 
The EDS Des Moines Building
 
On September 27, 2002, Wells OP purchased the EDS Des Moines Building, a one-story office and distribution building containing 115,000 rentable square feet of office space and 290,000 rentable square feet of warehouse space located in Des Moines, Iowa for a purchase price of $26.5 million, excluding closing costs. The EDS Des Moines Building is leased entirely to EDS Information Services
 
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L.L.C. (“EDS”), a wholly-owned subsidiary of Electronic Data Systems Corporation (“EDS Corp.”). EDS Corp. is the guarantor of the EDS lease. The EDS lease commenced in May 2002 and expires in April 2012. The current annual base rent payable under the EDS lease is approximately $2.4 million. EDS, 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, EDS has an expansion option under its lease for up to an additional 100,000 rentable square feet.
 
The Intuit Dallas Building
 
On September 27, 2002, Wells OP purchased the Intuit Dallas Building, a two-story office building with a three-story wing containing 166,238 rentable square feet located in Plano, Texas for a purchase price of $26.5 million, excluding closing costs. The Intuit Dallas Building is leased entirely to Lacerte Software Corporation (“Lacerte”), a wholly-owned subsidiary of Intuit, Inc. (“Intuit”). Intuit is the guarantor of the Lacerte lease. The Lacerte lease commenced in July 2001 and expires in June 2011. The current annual base rent payable under the Lacerte lease is approximately $2.5 million. Lacerte, at its option, has the right to extend the initial term of its lease for two additional five-year periods at rental rates of $17.92 per square foot and $19.71 per square foot, respectively. In addition, Lacerte has an expansion option through November 2004 pursuant to which Wells OP would be required to purchase an additional 19 acre tract of land and to construct up to an approximately 600,000 rentable square foot building thereon.
 
The Allstate Indianapolis Building
 
On September 27, 2002, Wells OP purchased the Allstate Indianapolis Building, a one-story office building containing 89,956 rentable square feet located in Indianapolis, Indiana for a purchase price of $10.9 million, excluding closing costs. The Allstate Indianapolis Building is leased to Allstate Insurance Company (“Allstate”) and Holladay Property Services Midwest, Inc. (“Holladay”).
 
The Allstate lease, which covers 84,200 rentable square feet (94%), commenced in March 2002 and expires in August 2012. The current annual base rent payable under the Allstate lease is approximately $1.2 million. Allstate at its option has the right to (1) terminate the initial term of the Allstate lease at the end of the fifth lease year (August 2007) upon payment of an approximately $0.4 million fee, or (2) reduce its area of occupancy to not less than 20,256 rentable square feet, by providing written notice on or before August 2006. Allstate, 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, Allstate has a right of first refusal for the leasing of additional space in the Allstate Indianapolis Building.
 
Holladay is a property management company that manages the Allstate Indianapolis Building from the site. The Holladay lease, which covers 5,756 rentable square feet (6%), commenced in October 2001 and expires in September 2006. The current annual base rent payable under the Holladay lease is approximately $.07 million.
 
The Daimler Chrysler Dallas Building
 
On September 30, 2002, Wells OP purchased the Daimler Chrysler Dallas Building, a two-story office building containing 130,290 rentable square feet located in Westlake, Texas for a purchase price of $25.1 million, excluding closing costs. The Daimler Chrysler Dallas Building is leased entirely to Daimler Chrysler Services North America LLC (“Daimler Chrysler NA”). The Daimler Chrysler NA lease commenced in January 2002 and expires in December 2011. The current annual base rent payable under the Daimler Chrysler NA lease is approximately $3.2 million. Daimler Chrysler NA, at its option, has the right to extend the initial term of its lease for three additional five-year periods at 98% of the then-current market rental rate. In addition, Daimler Chrysler NA has an expansion option for up to an
 
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additional 70,000 rentable square feet and a right of first offer if Wells OP desires to sell the Daimler Chrysler Dallas Building during the term of the lease.
 
4. NOTE RECEIVABLE
 
In connection with the purchase of the TRW Denver Building on May 29, 2002, Wells OP acquired a note receivable from the building’s sole tenant, TRW, Inc., in the amount of $5.2 million. The loan was made to fund above-standard tenant improvement costs to the building. The note receivable is structured to be fully amortized over the remaining lease term, which expires September 2007, at 11% interest with TRW making monthly loan payments of $.1 million. At September 30, 2002, the principal balance of this note receivable was $5.0 million.
 
5. NOTES PAYABLE
 
At September 30, 2002, Wells OP had the following debt:
 
Lender

	  	Collateral

	  	Type of Debt

	 	Maturity Date

	  	Balance
Outstanding
(in millions)

	
 	 	 	 	 	
SouthTrust	  	The Alstom Power Richmond Building	  	$7.9 million line of credit, interest
at 30 day LIBOR plus 175 basis
points	 	December 10, 2002	  	$	7.7	
 	 	 	 	 	
SouthTrust	  	The PwC Building	  	$12.8 million line of credit,
interest at 30 day LIBOR plus
175 basis points	 	December 10, 2002	  	 	2.1	
 	 	 	 	 	
SouthTrust	  	The Avnet Building and the Motorola
Tempe Building	  	$19.0 million line of credit,
interest at 30 day LIBOR plus
175 basis points	 	December 10, 2002	  	 	0	
 	 	 	 	 	
SouthTrust	  	The Cinemark Building, the Dial
Building and the ASML Building	  	$32.4 million line of credit,
interest at 30 day LIBOR plus
175 basis points	 	December 10, 2002	  	 	0	
 	 	 	 	 	
Bank of America	  	The Nissan Property	  	$34.2 million construction loan,
interest at LIBOR plus 200 basis
points	 	July 30, 2003	  	 	13.3	
 	 	 	 	 	
Bank of America	  	The Kerr McGee Property	  	$13.7 million construction loan,
interest at LIBOR plus 200 basis
points	 	January 29, 2004	  	 	1.0	
 	 	 	 	 	
Bank of America	  	The Videojet Technologies Chicago
Building, the AT&T Pennsylvania
Building, the Matsushita Building, the
Metris Tulsa Building, the Motorola
Plainfield Building and the Delphi
Building	  	$85 million line of credit,
interest at 30 day LIBOR plus
180 basis points	 	May 11, 2004	  	 	0	
 	 	 	 	 	
Prudential	  	The BMG Buildings	  	$8.8 million note payable,
interest at 8%, principal and
interest payable monthly	 	December 15, 2003	  	 	8.8	
 	 	 	 	 	
Prudential	  	The BMG Buildings	  	$2.9 million note payable,
interest at 8.5%, interest payable
monthly, principal payable upon
maturity	 	December 15, 2003	  	 	2.9	

	

	
Total	  	 	  	 	 	 	  	$	35.8	

	

	
 
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6. INTEREST RATE SWAPS
 
Wells OP has entered into interest rate swap agreements with Bank of America in order to hedge its interest rate exposure on the Bank of America construction loans for the Nissan Property (the Nissan Loan) and the Kerr McGee Property (the Kerr McGee Loan). The interest rate swap agreements involve 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. The notional amount of both interest rate swaps is the balance outstanding on the construction loan on the payment date.
 
The interest rate swap for the Nissan Loan became effective January 15, 2002 and terminates on June 15, 2003. Wells OP, as the fixed rate payer, has an interest rate of 3.9%. Bank of America, the variable rate payer, pays at a rate equal to U.S. dollar LIBOR on the payment date. The result is an effective interest rate of 5.9% on the Nissan Loan.
 
The interest rate swap for the Kerr McGee Loan became effective September 15, 2002 and terminates on July 15, 2003. Wells OP as fixed rate payer has an interest rate of 2.27%. Bank of America, the variable rate payer, pays at a rate equal to U.S. dollar LIBOR on the payment date. The result is an effective interest rate of 4.27% on the Kerr McGee Loan.
 
During the nine months ended September 30, 2002, Wells OP made interest payments totaling approximately $45,221 under the terms of the interest rate swap agreements. At September 30, 2002, the estimated fair value of the interest rate swap for the Nissan Loan and the Kerr McGee Loan was $(384,855) and $(30,180), respectively. The interest rate swaps are accounted for by mark-to-market accounting on a monthly basis and are included in prepaid and other assets on the accompanying consolidated balance sheet.
 
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. INVESTMENT IN BONDS AND OBLIGATIONS UNDER CAPITAL LEASES
 
In connection with the purchase of a ground leasehold interest in the Ingram Micro Distribution Facility pursuant to a Bond Real Property Lease dated December 20, 1995 (the Bond Lease), Wells OP acquired an Industrial Development Revenue Note (the Bond) dated December 20, 1995 in the principal amount of $22 million. As part of the same transaction, Wells OP also acquired a Fee Construction Mortgage Deed of Trust Assignment of Rents and Leases (the Bond Deed of Trust), also dated December 20, 1995, which was executed by the Industrial Development Board in order to secure the Bond. Beginning in 2006, the holder of the Bond Lease has the option to purchase the land underlying the Ingram Micro Distribution Facility for $100 plus satisfaction of the indebtedness evidenced by the Bond. Because Wells OP is technically subject to the obligation to pay the $22 million indebtedness evidenced by the Bond, the obligation to pay the Bond is carried on the Company’s books as a liability. However, since Wells OP is also the owner of the Bond, the Bond is also carried on the Company’s books as an asset.
 
As part of the transaction to acquire a ground leasehold interest in the ISS Atlanta Buildings, Wells OP was assigned Development Authority of Fulton County Taxable Revenue Bonds totaling $32.5 million, which were originally issued in connection with the development of the ISS Atlanta Buildings (the Bonds). The Bonds entitle Wells OP to certain property tax abatement benefits. Upon payment of the outstanding balance on the Bonds, on or before the expiration of the ground lease on December 1, 2015, fee title interest to the underlying land will be transferred to Wells OP. Because Wells OP is technically subject to the obligation to pay the $32.5 million indebtedness evidenced by the Bond, the
 
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obligation to pay the Bonds is carried on the Company’s books as a liability. However, since Wells OP is also the owner of the Bonds, the Bonds are also carried on the Company’s books as an asset.
 
8. 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 $.6 million have been made as of September 30, 2002 toward funding the obligation under the Matsushita agreement.
 
9. COMMITMENTS AND CONTINGENCIES
 
Take Out Purchase and Escrow Agreement
 
An affiliate of the Advisor (“Wells Exchange”) has developed a program (the “Wells Section 1031 Program”) involving the acquisition by Wells Exchange of income-producing commercial properties and the formation of a series of single member limited liability companies for the purpose of facilitating the resale of co-tenancy interests in such real estate properties to be owned in co-tenancy arrangements with persons (“1031 Participants”) who are looking to invest the proceeds from a sale of real estate held for investment in another real estate investment for purposes of qualifying for like-kind exchange treatment under Section 1031 of the Code. Each of these properties will be financed by a combination of permanent first mortgage financing and interim loan financing obtained from institutional lenders.
 
Following the acquisition of each property, Wells Exchange will attempt to sell co-tenancy interests to 1031 Participants, the proceeds of which will be used to pay off the interim financing. In consideration for the payment of a take out fee to the Company, and following approval of the potential property acquisition by the Company’s Board of Directors, it is anticipated that Wells OP will enter into a 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 $.1 million in each of 2001 and 2002 by payment of a take out fee to Wells OP in an amount equal to 1.25% of its maximum financial obligation under the Ford Motor Credit take out purchase and escrow agreement. On April 12, 2002, Wells Exchange paid off the interim financing on the Ford Motor Credit Complex. This 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.
 
Letters of Credit
 
At September 30, 2002, Wells OP had three letters of credit totaling $19.2 million outstanding from financial institutions, which were not recorded in the accompanying consolidated balance sheet. These letters of credit were required by three of the Company’s tenants to ensure completion of the Company’s contractual obligations. The Company’s management does not anticipate a need to draw on these letters of credit.
 
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Properties under Contract
 
At September 30, 2002, the Company had three executed contracts for the acquisition of properties totaling $82.0 million. Escrows of $1.3 million have been paid out for these properties and are included in prepaid and other assets on the accompanying consolidated balance sheet.
 
10. SUBSEQUENT EVENTS
 
Issuance of Common Stock
 
From October 1, 2002 through October 25, 2002, the Company has raised approximately $91.5 million through the issuance of 9.1 million shares of common stock in the Company.
 
Termination Agreement
 
Effective October 31, 2002, Arthur Andersen LLP (Andersen) and Wells OP entered into a termination agreement with respect to the lease for the three-story office building containing 157,700 rentable square feet located in Sarasota, Florida known as the Arthur Andersen Building. In consideration for releasing Andersen from its obligation to pay rent under the lease, Andersen paid Wells OP a termination fee of $979,760 and conveyed to Wells OP an approximately 1.3 acre tract of land adjacent to the property which was used for parking.
 
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Report of Independent Auditors
 
Shareholders and Board of Directors
Wells Real Estate Investment Trust, Inc.
 
We have audited the accompanying statement of revenues over certain operating expenses of the Nestle Building for the year ended December 31, 2001. This statement is the responsibility of the Nestle Building’s management. Our responsibility is to express an opinion on this statement based on our audit.
 
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues over certain operating expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of revenues over certain operating expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement of revenues over certain operating expenses. We believe that our audit provides a reasonable basis for our opinion.
 
The accompanying statement of revenues over certain operating expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, as described in Note 2, and is not intended to be a complete presentation of the Nestle Building’s revenues and expenses.
 
In our opinion, the statement of revenues over certain operating expenses referred to above presents fairly, in all material respects, the revenues and certain operating expenses described in Note 2 of the Nestle Building for the year ended December 31, 2001 in conformity with accounting principles generally accepted in the United States.
 
Ernst & Young LLP
 
Atlanta, Georgia
January 21, 2003
 
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Nestle Building
 
Statements of Revenues Over Certain Operating Expenses
 
For the year ended December 31, 2001 and the nine months ended September 30, 2002
 
 	  	2002

	  	2001

	
 	  	(Unaudited)	  	 	
Revenues:	  	 	 	  	 	 	
Base rent	  	$	10,995,810	  	$	14,660,259	
Parking	  	 	617,318	  	 	848,917	
Tenant reimbursements	  	 	698,210	  	 	853,872	

	

	  	

	

	
Total revenues	  	 	12,311,338	  	 	16,363,048	
 	 	 	
Operating expenses	  	 	3,914,726	  	 	4,968,193	

	

	  	

	

	
Revenues over certain operating expenses	  	$	8,396,612	  	$	11,394,855	

	

	  	

	

	

See accompanying notes.
 
34

Table of Contents
Nestle Building
 
Notes to Statements of Revenues Over Certain Operating Expenses
 
For the year ended December 31, 2001 and the nine months ended September 30, 2002
 
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
 
Description of Real Estate Property Acquired
 
On December 20, 2002, Wells REIT-Glendale, CA, LLC (“the Company”) acquired the Nestle Building from Douglas Emmett Joint Venture (“Douglas Emmett”). The Company, a Georgia limited liability company, was created on December 20, 2002. Wells Operating Partnership, L.P. (“Wells OP’) is the sole member of the Company. Wells OP is a Delaware limited partnership formed to acquire, own, lease, operate, and manage real properties on behalf of 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.
 
The twenty-story building contains 505,115 square feet of net rentable area and is 100% leased to several tenants, including Nestle USA, Inc. (“Nestle”). Nestle occupies a total of 502,994 square feet, or 99.6%, under a lease (“Nestle Lease”) that commenced in August 1990 and expires in August 2010. The remaining square footage is leased to several retail tenants under lease agreements that expire over the next seven years. Douglas Emmett’s interests in the Nestle Lease and other retail lease agreements were assigned to the Company upon acquisition of the Nestle Building. Under the Nestle Lease, the tenant is required to pay, as additional rent, its pro rata share of operating expenses over the base year operating allowance established in the first lease year. Operating expenses shall consist of all direct costs of operation and maintenance of the building including, but not limited to, real estate taxes, water and sewer charges, utilities, janitorial services, security and labor. Additionally, the Nestle Lease entitles Nestle to a specified number of parking spaces, and Nestle is required to pay monthly rental payments for the spaces which the Company records as parking revenues. The Company will be responsible for maintaining and repairing the Nestle Building’s roof, foundation, common areas, electrical and mechanical systems.
 
Rental Revenues
 
Rental income is recognized on a straight-line basis over the terms of the leases.
 
2. BASIS OF ACCOUNTING
 
The accompanying statements of revenues over certain operating expenses are presented in conformity with accounting principles generally accepted in the United States and in accordance with the applicable rules and regulations of the Securities and Exchange Commission for real estate properties acquired. Accordingly, these statements exclude certain historical expenses that are not comparable to the proposed future operations of the property such as depreciation and interest. Therefore, these statements are not comparable to the statement of operations of the Nestle Building after its acquisition by the Company.
 
35

Table of Contents
Notes to Statements of Revenues Over Certain Operating Expenses
(Continued)
 
3. FUTURE MINIMUM RENTAL COMMITMENTS
 
Future minimum rental commitments for the years ended December 31 are as follows:
 
2002	  	$	14,939,680	
2003	  	 	14,950,502	
2004	  	 	14,963,154	
2005	  	 	15,508,547	
2006	  	 	16,591,633	
Thereafter	  	 	60,926,465	

	

	
 	  	$	137,879,981	

	

	
 
4. INTERIM UNAUDITED FINANCIAL INFORMATION
 
The statement of revenues over certain operating expenses for the nine months ended September 30, 2002 is unaudited, however, in the opinion of management, all adjustments (consisting solely of normal, recurring adjustments) necessary for the fair presentation of the statement for the interim period have been included. The results of the interim period are not necessarily indicative of the results to be obtained for a full fiscal year.
 
36

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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., a Maryland Corporation (the “Wells REIT”), included in its annual report on Form 10-K for the year ended December 31, 2001 and quarterly report on Form 10-Q/A for the period ended September 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 previously filed.
 
The following unaudited pro forma balance sheet as of September 30, 2002 has been prepared to give effect to the fourth quarter 2002 acquisitions of the NASA Buildings by Wells REIT-Independence Square, LLC, of which Wells REIT is the sole member, the Caterpillar Nashville Building, the Capital One Richmond Buildings (the “Other Recent Acquisitions”) by Wells Operating Partnership, L.P. (“Wells OP”), the Nestle Building by Wells REIT Glendale, CA, LLC, of which Wells OP is the sole member, and the John Wiley Indianapolis Building by Wells XIII-REIT Joint Venture (“Wells XIII-REIT), a joint venture partnership between Wells Real Estate Fund XIII, L.P. and Wells OP, and the first quarter 2003 acquisition of the East Point Buildings (collectively, the “Recent Acquisitions”) by Wells OP as if the acquisitions occurred on September 30, 2002.
 
Wells OP is a Delaware limited partnership that was organized to own and operate properties on behalf of Wells REIT. As the sole general partner of Wells OP, Wells REIT 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 REIT.
 
The following unaudited pro forma statement of income for the nine months ended September 30, 2002 has been prepared to give effect to the first, second and third quarter 2002 acquisitions of the Vertex Sarasota Building (formerly, the Arthur Andersen Building), the Transocean Houston Building, the 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, the ISS Atlanta Buildings, the PacifiCare San Antonio Building, the BMG Greenville Buildings, the Kraft Atlanta Building, the Nokia Dallas Buildings, the Harcourt Austin Building, the IRS Long Island Buildings, the KeyBank Parsippany Building, the Allstate Indianapolis Building, the Federal Express Colorado Springs Building, the EDS Des Moines Building, the Intuit Dallas Building, the Daimler Chrysler Dallas Building (collectively, the “2002 Acquisitions”) and the Recent Acquisitions as if the acquisitions occurred on January 1, 2001. The Kerr McGee Property and the AmeriCredit Phoenix Property had no operations during the nine months ended September 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, the Kerr McGee Property, the AmeriCredit Phoenix Property and the EDS Des Moines Building had no operations during 2001.
 
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. In addition, the pro forma balance sheet includes allocations of the purchase price for certain acquisitions based upon preliminary estimates of the fair value of the assets and liabilities acquired. Therefore, these allocations may be adjusted in the future upon finalization of these preliminary estimates.

37

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA BALANCE SHEET
 
SEPTEMBER 30, 2002
 
(Unaudited)
 
ASSETS
 
 	  	Wells Real
Estate
Investment
Trust, Inc. (i)

	  	Pro Forma Adjustments

	 	
 	  	 	  	Recent Acquisitions

	 	 	 	
 	  	 	  	 	 	 	John Wiley
Indianapolis

	 	 	Nestle

	 	 	East Point

	 	 	Pro Forma
Total

	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
REAL ESTATE ASSETS, at cost:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
Land	  	$	164,190,412	  	$
 	 
87,755,000 	 
(c)	 	$	0	 	 	$	23,200,000	(c)	 	$	2,163,000	(c)	 	$	280,284,706	 	 	 	 	
 	  	 	 	  	 	1,888,098	(d)	 	 	 	 	 	 	404,941	(e)	 	 	88,553	(e)	 	 	 	 	 	 	 	
 	  	 	 	  	 	594,702	(e)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
Buildings, less accumulated depreciation of $47,999,655	  	 	1,171,793,037	  	 	351,806,121 	(c)	 	 	0	 	 	 	134,446,731	(c)	 	 	19,916,138	(c)	 	 	1,689,539,532	 	 	 	 	
 	  	 	 	  	 	8,415,460	(e)	 	 	 	 	 	 	2,346,678	(e)	 	 	815,367	(e)	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
Construction in progress	  	 	28,500,195	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	28,500,195	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
Total real estate assets	  	 	1,364,483,644	  	 	450,459,381	 	 	 	0	 	 	 	160,398,350	 	 	 	22,983,058	 	 	 	1,998,324,433	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
CASH AND CASH EQUIVALENTS	  	 	143,911,852	  	 	(266,478,531	)(c)	 	 	(8,928,915	)(f)	 	 	(67,646,731	)(c)	 	 	(22,079,138	)(c)	 	 	144,624,892	 	 	 	 	
 	  	 	 	  	 	379,115,394	(a)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	 	  	 	(13,269,039	)(b)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
INVESTMENT IN JOINT VENTURES	  	 	75,388,348	  	 	0	 	 	 	9,294,465	(g)	 	 	0	 	 	 	0	 	 	 	84,682,813	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
INVESTMENT IN BONDS	  	 	54,500,000	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	54,500,000	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
ACCOUNTS RECEIVABLE	  	 	12,018,601	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	12,018,601	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
DEFERRED LEASE ACQUISITION COSTS, NET	  	 	1,712,541	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,712,541	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
DEFERRED PROJECT COSTS	  	 	5,963,370	  	 	(1,895,611	)(d)	 	 	(365,550	)(h)	 	 	(2,751,619	)(e)	 	 	(903,920	)(e)	 	 	4,313,060	 	 	 	 	
 	  	 	 	  	 	(9,002,649	)(e)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	 	  	 	13,269,039	(b)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
DEFERRED OFFERING COSTS	  	 	3,537,361	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	3,537,361	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
DUE FROM AFFILIATES	  	 	2,185,436	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	2,185,436	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
NOTE RECEIVABLE	  	 	4,965,838	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	4,965,838	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
PREPAID EXPENSES AND OTHER ASSETS, NET	  	 	2,597,110	  	 	37,764	(c)	 	 	0	 	 	 	0	 	 	 	0	 	 	 	2,634,874	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
Total assets	  	$	1,671,264,101	  	$	552,235,748	 	 	$	0	 	 	$	90,000,000	 	 	$	0	 	 	$	2,313,499,849	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	

38

Table of Contents
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 	  	Wells Real
Estate
Investment
Trust, Inc. (i)

	 	 	Pro Forma Adjustments

	 	 	
 	  	 	 	 	Recent Acquisitions

	 	 	 	 	 	
 	  	 	 	 	Other

	 	 	John Wiley
Indianapolis

	  	Nestle

	 	 	East Point

	  	Pro Forma
Total

	 	 	 	 	 	 	 	
LIABILITIES:	  	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	
Accounts payable and accrued expenses	  	$	17,538,820	 	 	$	881,644	(c)	 	$	0	  	$	0	 	 	$	0	  	$	18,420,464	 	 	 	 	 	 	 	
Notes payable	  	 	35,829,293	 	 	 	172,238,710	(c)	 	 	0	  	 	90,000,000	(c)	 	 	0	  	 	298,068,003	 	 	 	 	 	 	 	
Obligations under capital lease	  	 	54,500,000	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	54,500,000	 	 	 	 	 	 	 	
Dividends payable	  	 	10,209,306	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	10,209,306	 	 	 	 	 	 	 	
Due to affiliates	  	 	4,379,745	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	4,379,745	 	 	 	 	 	 	 	
Deferred rental income	  	 	7,893,930	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	7,893,930	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	

	 	 	 	 	 	 	
Total liabilities	  	 	130,351,094	 	 	 	173,120,354	 	 	 	0	  	 	90,000,000	 	 	 	0	  	 	393,471,448	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	

	 	 	 	 	 	 	
COMMITMENTS AND CONTINGENCIES	  	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP	  	 	200,000	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	200,000	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	

	 	 	 	 	 	 	
SHAREHOLDERS’ EQUITY:	  	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	
Common shares, $.01 par value; 750,000,000 shares authorized, 182,608,517 shares issued and 180,891,792 outstanding at September 30, 2002	  	 	1,826,086	 	 	 	379,115	(a)	 	 	0	  	 	0	 	 	 	0	  	 	2,205,201	 	 	 	 	 	 	 	
Additional paid-in capital	  	 	1,621,376,451	 	 	 	378,736,279	(a)	 	 	0	  	 	0	 	 	 	0	  	 	2,000,112,730	 	 	 	 	 	 	 	
Cumulative distributions in excess of earnings	  	 	(64,907,241	)	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	(64,907,241	)	 	 	 	 	 	 	
Treasury stock, at cost, 1,716,725 shares	  	 	(17,167,254	)	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	(17,167,254	)	 	 	 	 	 	 	
Other comprehensive loss	  	 	(415,035	)	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	(415,035	)	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	

	 	 	 	 	 	 	
Total shareholders’ equity	  	 	1,540,713,007	 	 	 	379,115,394	 	 	 	0	  	 	0	 	 	 	0	  	 	1,919,828,401	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	

	 	 	 	 	 	 	
Total liabilities and shareholders’ equity	  	$	1,671,264,101	 	 	$	552,235,748	 	 	$	0	  	$	90,000,000	 	 	$	0	  	$	2,313,499,849	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	

	 	 	 	 	 	 	
 
(a)	 	Reflects capital raised through issuance of additional shares subsequent to September 30, 2002 through East Point acquisition date.	
 
(b)	 	Reflects deferred project costs capitalized as a result of additional capital raised described in note (a) above.	
 
(c)	 	Reflects Wells Real Estate Investment Trust, Inc.’s purchase price for the land, building and liabilities assumed.	
 
(d)	 	Reflects deferred project costs applied to the land and building at approximately 4.07% of the cash paid for purchase.	
 
(e)	 	Reflects deferred project costs applied to the land and building at approximately 4.094% of the cash paid for purchase.	
 
(f)	 	Reflects Wells Real Estate Investment Trust, Inc.’s proportionate share of the cost to acquire the John Wiley Indianapolis Building.	
 
(g)	 	Reflects Wells Real Estate Investment Trust, Inc.’s contribution to the Wells XIII-REIT Joint Venture, which decreased its interest in the joint venture from 68.29% to 61.28%.	
 
(h)	 	Reflects deferred project costs contributed to the Wells Fund XIII-REIT Joint Venture at approximately 4.094% of purchase price.	
 
(i)	 	Historical financial information derived from quarterly report on Form 10-Q.	
 
The accompanying notes are an integral part of this statement.
 
39

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA STATEMENT OF INCOME
 
FOR THE YEAR ENDED DECEMBER 31, 2001
 
(Unaudited)
 
 	  	Wells Real Estate
Investment
Trust, Inc. (h)

	  	Pro Forma Adjustments

	 	 	Pro Forma
Total

	 	
 	  	 	  	2001
Acquisitions

	 	 	2002
Acquisitions

	 	 	Recent Acquisitions

	 	 	 	 	 	 	
 	  	 	  	 	 	 	 	 	 	Other

	 	 	John Wiley
Indianapolis

	 	 	Nestle

	 	 	East Point

	 	 	 	 	 	 	 	 	 	 	 	 	 	
REVENUES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental income	  	$	44,204,279	  	$	11,349,076	(a)	 	$	54,615,521	(a)	 	$	45,317,526	(a)	 	$	0	 	 	$	16,657,346	(a)	 	$	1,059,426	(a)	 	$	173,203,174	 	 	 	 	 	 	 	 	 	 	
Equity in income of joint ventures	  	 	3,720,959	  	 	1,111,850	(b)	 	 	0	 	 	 	0	 	 	 	638,552	(b)	 	 	0	 	 	 	0	 	 	 	5,471,361	 	 	 	 	 	 	 	 	 	 	
Interest income	  	 	1,246,064	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,246,064	 	 	 	 	 	 	 	 	 	 	
Take out fee	  	 	137,500	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	137,500	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
 	  	 	49,308,802	  	 	12,460,926	 	 	 	54,615,521	 	 	 	45,317,526	 	 	 	638,552	 	 	 	16,657,346	 	 	 	1,059,426	 	 	 	180,058,099	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
EXPENSES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	15,344,801	  	 	5,772,761	(c)	 	 	22,487,278	(c)	 	 	14,408,864	(c)	 	 	0	 	 	 	5,471,736	(c)	 	 	829,260	(c)	 	 	64,314,700	 	 	 	 	 	 	 	 	 	 	
Interest	  	 	3,411,210	  	 	0	 	 	 	0	 	 	 	9,452,460	(f)	 	 	0	 	 	 	4,399,200	(g)	 	 	0	 	 	 	17,262,870	 	 	 	 	 	 	 	 	 	 	
Operating costs, net of reimbursements	  	 	4,128,883	  	 	2,854,275	(d)	 	 	3,668,343	(d)	 	 	9,628,878	(d)	 	 	0	 	 	 	4,114,321	(d)	 	 	926,011	(d)	 	 	25,320,711	 	 	 	 	 	 	 	 	 	 	
Management and leasing fees	  	 	2,507,188	  	 	510,708	(e)	 	 	2,250,455	(e)	 	 	482,139	(e)	 	 	0	 	 	 	711,379	(e)	 	 	47,674	(e)	 	 	6,509,543	 	 	 	 	 	 	 	 	 	 	
General and administrative	  	 	973,785	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	973,785	 	 	 	 	 	 	 	 	 	 	
Amortization of deferred financing costs	  	 	770,192	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	770,192	 	 	 	 	 	 	 	 	 	 	
Legal and accounting	  	 	448,776	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	448,776	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
 	  	 	27,584,835	  	 	9,137,744	 	 	 	28,406,076	 	 	 	33,972,341	 	 	 	0	 	 	 	14,696,636	 	 	 	1,802,945	 	 	 	115,600,577	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
NET INCOME	  	$	21,723,967	  	$	3,323,182	 	 	$	26,209,445	 	 	$	11,345,185	 	 	$	638,552	 	 	$	1,960,710	 	 	$	(743,519	)	 	$	64,457,522	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EARNINGS PER SHARE, basic and diluted	  	$	0.43	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	0.21	 	 	 	 	 	 	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
WEIGHTED AVERAGE SHARES, basic and
    diluted	  	 	50,520,853	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	303,171,546	 	 	 	 	 	 	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	 	 	 	
 
(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, the ADIC Buildings and the John Wiley Indianapolis Building.	
 
(c)	 	Depreciation expense on the buildings is recognized using the straight-line method and a 25-year life.	
 
(d)	 	Consists of operating expenses, net of reimbursements.	
 
(e)	 	Management and leasing fees are calculated at 4.5% of rental income.	
 
(f)	 	Represents interest expense on lines of credit used to acquire assets, which bear interest at approximately 5.488% for the year ended December 31, 2001.	
 
(g)	 	Represents interest expense on mortgage assumed as part of the Nestle Building acquisition, which bears interest at approximately 4.888% for the year ended December 31, 2001.	
 
(h)	 	Historical financial information derived from annual report on Form 10-K.	
 
The accompanying notes are an integral part of this statement.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA STATEMENT OF INCOME
 
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
 
(Unaudited)
 
 	  	Wells Real Estate
Investment
Trust, Inc. (i)

	  	Pro Forma Adjustments

	 	 	Pro Forma
Total

	 	
 	  	 	  	2002
Acquisitions

	 	 	Recent Acquisitions

	 	 	 	 	 	 	
 	  	 	  	 	 	 	Other

	 	 	John Wiley
Indianapolis

	 	 	Nestle

	 	 	East Point

	 	 	 	 	 	 	 	 	 	 	
REVENUES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental income	  	$	66,120,992	  	$	42,103,180	(a)	 	$	33,939,001	(a)	 	$	0	 	 	$	12,473,951	(a)	 	$	1,112,123	(a)	 	$	155,749,247	 	 	 	 	 	 	 	
Operating cost reimbursements	  	 	12,853,717	  	 	5,976,734	(h)	 	 	3,062,835	(h)	 	 	0	 	 	 	698,210	(h)	 	 	47,499	(h)	 	 	22,638,995	 	 	 	 	 	 	 	
Equity in income of joint ventures	  	 	3,738,046	  	 	0	 	 	 	0	 	 	 	487,970	(f)	 	 	0	 	 	 	0	 	 	 	4,226,016	 	 	 	 	 	 	 	
Interest income	  	 	5,075,165	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	5,075,165	 	 	 	 	 	 	 	
Take out fee	  	 	134,666	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	134,666	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
 	  	 	87,922,586	  	 	48,079,914	 	 	 	37,001,836	 	 	 	487,970	 	 	 	13,172,161	 	 	 	1,159,622	 	 	 	187,824,089	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
EXPENSES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	23,185,201	  	 	15,039,449	(b)	 	 	10,806,647	(b)	 	 	0	 	 	 	4,103,802	(b)	 	 	621,945	(b)	 	 	53,757,044	 	 	 	 	 	 	 	
Operating costs	  	 	17,108,599	  	 	10,179,532	 	 	 	10,532,575	(c)	 	 	0	 	 	 	3,914,726	(c)	 	 	742,490	(c)	 	 	42,477,922	 	 	 	 	 	 	 	
Interest	  	 	2,006,458	  	 	0	 	 	 	5,310,551	(e)	 	 	0	 	 	 	2,369,925	(g)	 	 	0	 	 	 	9,686,934	 	 	 	 	 	 	 	
Management and leasing fees	  	 	3,348,210	  	 	1,697,775	(d)	 	 	361,605	(d)	 	 	0	 	 	 	533,548	(d)	 	 	50,046	(d)	 	 	5,991,184	 	 	 	 	 	 	 	
General and administrative	  	 	1,866,042	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,866,042	 	 	 	 	 	 	 	
Amortization of deferred financing costs	  	 	586,715	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	586,715	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
 	  	 	48,101,225	  	 	26,916,756	 	 	 	27,011,378	 	 	 	0	 	 	 	10,922,001	 	 	 	1,414,481	 	 	 	114,365,841	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
NET INCOME	  	$	39,821,361	  	$	21,163,158	 	 	$	9,990,458	 	 	$	487,970	 	 	$	2,250,160	 	 	$	(254,859	)	 	$	73,458,248	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EARNINGS PER SHARE, basic and diluted	  	$	0.31	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	0.24	 	 	 	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
WEIGHTED AVERAGE SHARES, basic and diluted	  	 	128,541,432	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	303,171,546	 	 	 	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	
 
(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 operating expenses.	
 
(d)	 	Management and leasing fees are calculated at 4.5% of rental income.	
 
(e)	 	Represents interest expense on lines of credits used to acquire assets, which bear interest at approximately 4.111% for the nine months ended September 30, 2002.	
 
(f)	 	Reflects Wells Real Estate Investment Trust, Inc.’s equity in income of the Wells Fund XIII-REIT Joint Venture related to the John Wiley Indianapolis Building. The pro forma adjustment results from rental revenues less operating expenses, management fees and depreciation.	
 
(g)	 	Represents interest expense on mortgage assumed as part of the Nestle Building acquisition, which bears interest at approximately 3.511% for the nine months ended September 30, 2002.	
 
(h)	 	Consists of operating costs reimbursements.	
 
(i)	 	Historical financial information derived from quarterly report on Form 10-Q/A.	
 
The accompanying notes are an integral part of this statement.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 6 DATED APRIL 14, 2003 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, as supplemented and amended by Supplement No. 1 dated August 14, 2002, Supplement No. 2 dated August 29, 2002, Supplement No. 3 dated October 25, 2002, Supplement No. 4 dated December 10, 2002, and Supplement No. 5 dated January 15, 2003. 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)	 	The declaration of dividends for the second quarter of 2003;	
 
 	(3)	 	Revisions to the “ERISA Considerations – Annual Valuation” section of the prospectus;	
 
 	(4)	 	Revisions to the “Description of Real Estate Investments” section of the prospectus to describe the acquisition of a 25-story office building in Detroit, Michigan (150 West Jefferson Detroit Building);	
 
 	(5)	 	Revisions to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the prospectus;	
 
 	(6)	 	Updated audited financial statements of the Wells REIT;	
 
 	(7)	 	Updated unaudited prior performance tables; and	
 
 	(8)	 	Unaudited pro forma financial statements of the Wells REIT reflecting the acquisition of the 150 West Jefferson Detroit 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 $1,282,976,865 in gross offering proceeds from the sale of 128,297,687 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 March 31, 2003, we had received additional gross proceeds of approximately $1.0 billion from the sale of approximately 101.4 million shares in our fourth public offering. Accordingly, as of March 31, 2003, we had received aggregate gross offering proceeds of approximately $2.6 billion from the sale of approximately 260.5 million shares in all of our public offerings. After payment of approximately $90.0 million in acquisition and advisory fees and acquisition expenses, payment of $291.4 million in selling commissions and organization and offering expenses, and common stock redemptions of approximately $33.9 million pursuant to our share redemption program, as of March 31, 2003, we had raised aggregate net offering proceeds available for investment in properties of
 
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approximately $2.2 billion, out of which approximately $2.1 billion had been invested in real estate properties, and approximately $108.6 million remained available for investment in real estate properties.
 
Dividends
 
On March 12, 2003, our board of directors declared dividends for the second quarter of 2003 in the amount of a 7.0% annualized percentage rate return on an investment of $10.00 per share to be paid in June 2003. Our second quarter dividends are calculated on a daily record basis of $0.001922 (0.1922 cents) per day per share on the outstanding shares of common stock payable to stockholders of record of such shares as shown on the books of the Wells REIT at the close of business on each day during the period, commencing on March 16, 2003, and continuing on each day thereafter through and including June 15, 2003.
 
ERISA Considerations—Annual Valuation
 
The information contained on page 136 in the “ERISA Considerations—Annual Valuation” section of the prospectus is revised as of the date of this supplement by the deletion of that section in its entirety and the insertion of the following paragraphs in lieu thereof:
 
Annual Valuation
 
A fiduciary of an employee benefit plan subject to ERISA is required to determine annually the fair market value of each asset of the plan as of the end of the plan’s fiscal year and to file a report reflecting that value with the Department of Labor. When the fair market value of any particular asset is not available, the fiduciary is required to make a good faith determination of that asset’s fair market value assuming an orderly liquidation at the time the determination is made. In addition, a trustee or custodian of an IRA must provide an IRA participant with a statement of the value of the IRA each year. In discharging its obligation to value assets of a plan, a fiduciary subject to ERISA must act consistently with the relevant provisions of the plan and the general fiduciary standards of ERISA.
 
Unless and until our shares are listed on a national securities exchange or are included for quotation on NASDAQ, it is not expected that a public market for the shares will develop. To date, neither the Internal Revenue Service nor the Department of Labor has promulgated regulations specifying how a plan fiduciary should determine the fair market value of common stock in a corporation in circumstances where the fair market value of the shares is not determined in the marketplace.
 
We have included in the past and intend to continue to include in the future estimated share values in our annual reports on Form 10-K each year. Currently, we have estimated the value of the shares to be $10 per share, which represents the price per share at which we are currently offering our shares to the public. However, please note that there is no public trading market for the shares at this time, and it is unlikely that you would be able to receive $10 per share if such a market did exist and you sold your shares. In addition, we have not performed an evaluation of our properties and, therefore, this valuation is not based upon the value of our properties, nor does it represent the amount you would receive if our properties were sold and the proceeds distributed to you in a liquidation of the Wells REIT. Such amount would most likely be less than $10 per share as a result of the fact that, at the time we purchase our properties, the amount of funds available for investment in properties is reduced by the approximately 15% to 16% of offering proceeds we raise which is used to pay selling commissions and dealer manager fees, organization and offering expenses and acquisition and advisory fees and expenses.
 
We previously indicated that we would implement a process by the end of year 2003 to produce estimated valuations of our shares based upon estimating the fair market values of our properties at the end of each year. When we initially determined to implement such a process by the end of 2003, we did not expect we would be continuing to raise substantial new funds through the public offering of our
 
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shares in 2003. As noted herein, after the costs associated with raising funds and acquiring properties are taken into account, only approximately 84% to 85% of offering proceeds are available for investment in properties. As a result, so long as we are still in the process of raising significant new funds and acquiring new properties with those funds, it would be expected that, in the absence of other factors affecting property values, our aggregate net asset value would be significantly less than the proceeds of our offerings and may not be the best indicator of the value of shares purchased as a long term income producing investment. Instead, we believe that, during periods in which significant amounts of shares are still being offered and sold to investors, the price paid by such investors may better reflect the estimated value of the shares. Accordingly, as long as we continue to publicly offer our shares, we expect to continue to use the current offering price of our shares as estimated per share value reported in our annual reports on Form 10-K.
 
Beginning three full fiscal years after we have ceased to sell significant amounts of shares, we will reevaluate the best method to value our shares. Currently, we intend, at that time, to have our advisor begin preparing estimated valuations utilizing the methodology described below and intend to continue to provide reports to plan fiduciaries and IRA trustees and custodians who identify themselves to us and request this information using these valuations. The methodology to be utilized for determining such estimated share values will be for our advisor to estimate the amount a stockholder would receive if our properties were sold at their estimated fair market values at the end of the fiscal year and the proceeds from such sales (without reductions for selling expenses and other costs) were distributed to the stockholders in liquidation. While, in connection with the advisor’s estimated valuations, the advisor will be obtaining a third party opinion that its estimates of value are reasonable, due to the expense involved in obtaining annual appraisals for all of our properties, we do not anticipate that actual appraisals will be obtained. These estimated values for our shares will also be reported in our annual reports on Form 10-K.
 
You should be cautioned that such valuations will be estimates only and will be based upon a number of assumptions that may not be accurate or complete. As set forth above, we do not anticipate obtaining appraisals for our properties and, accordingly, the advisor’s estimates should not be viewed as an accurate reflection of the fair market value of our properties, nor will they represent the amount of net proceeds that would result from an immediate sale of our properties. In addition, property values are subject to change and can always decline in the future. For these reasons, our estimated valuations should not be utilized for any purpose other than to assist plan fiduciaries in fulfilling their valuation and annual reporting responsibilities. Further, we cannot assure you:
 
 	•	 	that the estimated values our advisor prepares could or will actually be realized by us or by our stockholders upon liquidation (in part because estimated values do not necessarily indicate the price at which assets could be sold and because no attempt will be made to estimate the expenses of selling any of our assets);	
 
 	•	 	that you would be able to realize estimated net asset values if you were to attempt to sell your shares; or	
 
 	•	 	that the estimated values, or the method used to establish such values, would comply with the ERISA or IRA requirements described above.	
 
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Description of Properties
 
As of March 31, 2003, we had purchased interests in 74 real estate properties located in 23 states. Below is a description of our recent real property acquisition.
 
150 West Jefferson Detroit Building
 
On March 31, 2003, 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 25-story office building containing approximately 505,417 rentable square feet located at 150 West Jefferson Avenue, downtown Detroit, Michigan (150 West Jefferson Detroit Building) for a purchase price of $93,750,000, from 150 West Jefferson Partners LLC (Seller). Seller is not in any way affiliated with the Wells REIT, Wells OP or Wells Capital, Inc., our advisor.
 
The 150 West Jefferson Detroit Building was built in 1989 and is located on a 1.527-acre tract of land at 150 West Jefferson Avenue in downtown Detroit, Michigan. The 150 West Jefferson Detroit Building is leased to 17 different tenants. Miller, Canfield, Paddock & Stone (Miller Canfield), Butzel Long PC (Butzel Long) and MCN Energy Group, Inc., formerly known as MCN Corporation (MCN) lease, in the aggregate, approximately 311,285 rentable square feet (61.6%) of the 150 West Jefferson Detroit Building. The other 14 tenants lease approximately 190,863 rentable square feet (37.8%) of the 150 West Jefferson Detroit Building for an aggregate annual base rent payable of approximately $3,900,000. Approximately 3,269 rentable square feet (0.6%) of the 150 West Jefferson Detroit Building is vacant.
 
Approximately 129,902 rentable square feet of the 150 West Jefferson Detroit Building (25.7%) is leased to Miller Canfield, a law firm with eight offices in the state of Michigan, as well as offices in New York, Florida, Washington, D.C., Canada, and Poland. Miller Canfield, which engages in a variety of practice areas such as litigation, employment, real estate, business and bankruptcy, has approximately 350 attorneys.
 
The Miller Canfield lease commenced in June 1989 and expires in June 2009, except for the lease of the 14th and 20th floors, which expires in June 2004. The current annual base rent payable under the Miller Canfield lease is $2,335,994. In addition, Miller Canfield leases storage space in the 150 West Jefferson Detroit Building at an annual rate of $38,619. Miller Canfield has the right, at its option, to extend the initial term of its lease for three additional five-year periods at rental rates specified in the Miller Canfield lease, except that Miller Canfield has the right to extend the lease of the 14 th and 20 th  floors for four additional five-year periods. Miller Canfield also has a right of first refusal to lease any additional available space in the 150 West Jefferson Detroit Building. Under the Miller Canfield lease, Miller Canfield is generally responsible for its pro rata share of operating and maintenance costs, including real estate taxes. Wells OP, as the landlord, is also responsible for maintaining and repairing the structural portions and mechanical systems of the 150 West Jefferson Detroit Building.
 
Approximately 101,147 rentable square feet of the 150 West Jefferson Detroit Building (20.0%) is leased to Butzel Long, a Michigan-based law firm with five offices in Michigan and two offices in Florida. Butzel Long has approximately 200 attorneys and provides services in a wide variety of legal practice areas. Butzel Long serves clients from numerous business sectors, including automotive, manufacturing, banking and financial services, retail and wholesale distribution, insurance, professional services, health care, advertising, media, publishing, technology and computers, marine, transportation, construction, utilities and real estate.
 
The Butzel Long lease commenced in February 1990 and expires in July 2013. The current annual base rent payable under the Butzel Long lease is $1,770,073. In addition, Butzel Long leases storage space in the 150 West Jefferson Detroit Building at an annual rate of $71,857. Butzel Long has the right, at its option, to extend the initial term of its lease for two additional five-year periods at 95%
 
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of the then-current market rental rate. Butzel Long also has a right of first refusal to lease any additional available space accessible by the low rise bank of elevators in the 150 West Jefferson Detroit Building. Under the Butzel Long lease, Butzel Long is responsible for its pro rata share of operating and maintenance costs. Wells OP, as the landlord, is also responsible for maintaining and repairing the structural portions and mechanical systems of the 150 West Jefferson Detroit Building.
 
Approximately 80,236 rentable square feet of the 150 West Jefferson-Detroit Building (15.9%) is leased to MCN, a wholly-owned subsidiary of DTE Energy Company (DTE), as a result of the acquisition by DTE of all of MCN’s stock in May 2001. DTE is a Michigan corporation with corporate headquarters in Detroit, Michigan, and is a leader in the gas and energy service industry. DTE provides approximately 2.1 million customers with electric service and approximately 1.2 million customers with gas service in Michigan. DTE’s three main operating units include energy resources, energy distribution, and gas. MCN, through its primary subsidiary, Michigan Consolidated Gas Company, specializes in the natural gas distribution industry.
 
The MCN lease commenced in February 1994 and expires in January 2006. The current annual base rent payable under the MCN lease is $1,816,027. MCN has the right, at its option, to extend the initial term of its lease for two additional five-year periods at rental rates specified in the MCN lease. Under the MCN lease, MCN is required to pay for its share of real estate taxes and operating expenses relating to its lease of space on the 10 th  floor of the 150 West Jefferson Detroit Building. Wells OP, as the landlord, is also responsible for maintaining and repairing the structural portions and mechanical systems of the 150 West Jefferson Detroit Building.
 
Wells Management will manage the 150 West Jefferson Detroit Building on behalf of Wells OP and will be paid management and leasing fees in the amount of 4.5% of the gross revenues from the 150 West Jefferson Detroit Building, subject to certain limitations.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The information contained on page 101 in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the prospectus is revised as of the date of this supplement by the deletion of that entire section and the insertion of the information below. The following discussion and analysis should also be read in conjunction with our accompanying financial statements and notes thereto.
 
Forward Looking Statements
 
This supplement contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934, including discussion and analysis of our financial condition, 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 this 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 on a timely basis or 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. (See generally “Risk Factors.”)
 
REIT Qualification
 
We have made an election under Section 856 (c) of the Internal Revenue Code of 1986 (Internal Revenue Code) to be taxed as a REIT under the Internal Revenue Code beginning with our taxable year ended December 31, 1998. As a REIT for federal income tax purposes, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in
 
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any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which our qualification is lost. Such an event could materially adversely affect our financial position and results of operations. However, management believes that we are organized and operate in a manner which will enable us to qualify for treatment as a REIT for federal income tax purposes during this fiscal year. In addition, management intends to continue to operate the Wells REIT so as to remain qualified as a REIT for federal income tax purposes.
 
Liquidity and Capital Resources
 
General
 
During the fiscal year ended December 31, 2002, we received aggregate gross offering proceeds of $1,340.3 million from the sale of 134.0 million shares of our common stock. After payment of $46.4 million in acquisition and advisory fees and acquisition expenses, payment of $127.3 million in selling commissions, and payment of $20.5 million in organization and offering expenses, and common stock redemptions of $15.4 million pursuant to our share redemption program, we raised net offering proceeds available for investment in properties of $1,130.7 million during the year ended December 31, 2002.
 
During the fiscal year ended December 31, 2001, we received aggregate gross offering proceeds of $522.5 million from the sale of 52.3 million shares of our common stock. After payment of $18.1 million in acquisition and advisory fees and acquisition expenses, payment of $58.4 million in selling commissions and organization and offering expenses, and common stock redemptions of $4.1 million pursuant to our share redemption program, we raised net offering proceeds available for investment in properties of $441.8 million during the year ended December 31, 2001.
 
As of December 31, 2002, we had received aggregate gross offering proceeds from all of our offerings of approximately $2,177.9 million from the sale of 217.8 million shares of our common stock to approximately 58,000 investors. After our payment of $75.5 million in acquisition and advisory fees and acquisition expenses, payment of $206.4 million in selling commissions, payment of $40.0 million in organization and offering expenses, capital contributions to joint ventures and property acquisitions expenditures of $1,808.5 million, and common stock redemptions of $20.9 million pursuant to our share redemption program, we were holding net offering proceeds of $26.6 million available for investment in properties, as of December 31, 2002.
 
The net decrease in cash and cash equivalents of approximately $30.1 million during the year ended December 31, 2002 is primarily the result of the higher level of investment in real estate as compared to the level of fund raising and borrowing during the period. The increase in cash and cash equivalents of $71.3 million during 2001 is primarily the result of higher levels of fund raising and borrowings as compared to the levels of investment in real estate during those periods.
 
As of December 31, 2002, we owned interests in 72 real estate properties either directly or through interests in joint ventures. These properties are currently generating operating cash flow sufficient to cover our operating expenses and pay dividends to shareholders. We pay dividends on a quarterly basis. Dividends will be paid to investors who are stockholders as of the record dates selected by our board of directors. We currently calculate quarterly dividends based on the daily record and dividend declaration dates; thus, stockholders are entitled to receive dividends immediately upon the purchase of shares. Dividends declared during 2002 and 2001 totaled $0.76 per share in each year. Dividends declared for the fourth quarter of 2002 and the first and second quarters of 2003 were at an annualized rate of $0.70 per share.
 
Due primarily to the pace of our property acquisitions from late 2001 through 2002, as explained in more detail in the following paragraphs, dividends paid during 2002 in the aggregate amount of
 
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approximately $105.0 million exceeded Funds From Operations for the year by approximately $3.2 million. Dividends paid during 2002 also exceeded taxable income of $80.5 million and, accordingly, the company exceeded the minimum distribution requirement to be taxed as a REIT for federal income tax purposes.
 
We continue to acquire properties that meet our standards and 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 our advisor to add to its 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 of the additional time it now takes in the acquisition process for our advisor to assess tenant credit – plus our commitment to adhere to purchasing properties with tenants that meet our investment criteria – we have been required to lower the dividend yield to our stockholders.
 
As a result of the factors described in the preceding paragraph, our board of directors declared dividends for the fourth quarter of 2002 and the first and second quarters of 2003 in an amount equal to a 7.0% annualized percentage rate return on an investment of $10 per share.
 
Dividends to be distributed to our stockholders are determined by our board of directors and are dependent on a number of factors related to the Wells REIT, including funds available for payment of dividends, financial condition, amounts paid for properties, the timing of property acquisitions, capital expenditure requirements and annual distribution requirements in order to maintain our status as a REIT under the Internal Revenue Code.
 
Cash Flows From Operating Activities
 
Our net cash provided by operating activities was $104.6 million, $42.3 million, and $7.3 million for the years ended December 31, 2002, 2001, and 2000, respectively. The increase in net cash provided by operating activities was due primarily to the additional net income generated by 32, 11, and 12 properties acquired during the years ended December 31, 2002, 2001, and 2000, respectively. We do not recognize in operations the full annual effect from the properties during the year of acquisition, as the operations of the properties are only included in operations from the date of acquisition. Operating cash flows are expected to increase as we acquire additional properties in future periods and as we obtain the benefit of a full year of operations for properties acquired during the year ended December 31, 2002.
 
Cash Flows Used In Investing Activities
 
Comparison of 2002 vs 2001
 
Our net cash used in investing activities was $1,362.5 million for the year ended December 31, 2002 compared to $274.6 million for the year ended December 31, 2001. The increase in net cash used in investing activities was due primarily to investments in properties, directly and through contributions to joint ventures, and the payment of related deferred project costs. Investments and related deferred project costs totaled $1,369.5 million and $278.8 million for the years ended December 31, 2002 and 2001, respectively. The increase in investments during the year ended December 31, 2002 was due to our ability to increase investor proceeds and identify property investments meeting our objectives. The investment in real estate assets and joint venture cash outflows were partially offset by distributions from joint ventures of $7.4 million and $4.2 million for the years ended December 31, 2002 and 2001, respectively. The increase in distributions from joint ventures is due to the additional investments in joint
 
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ventures during the year ended December 31, 2001 in which we recognized a full year’s benefit during the year ended December 31, 2002.
 
Comparison of 2001 vs 2000
 
Our net cash used in investing activities was $274.6 million and $249.3 million for the years ended December 31, 2001 and 2000, respectively. The increase in net cash used in investing activities was due primarily to investments in properties directly or through contributions to joint ventures, and the payment of related deferred project costs. Investments and related deferred project costs totaled $278.8 million and $252.8 million for the years ended December 31, 2001 and 2000, respectively. Investments in real estate assets and joint venture cash outflows were partially offset by distributions from joint ventures of $4.2 million and $3.5 million for the years ended December 31, 2001 and 2000, respectively.
 
Cash flows used in investment in real estate assets and joint ventures in future periods will be dependent upon the availability of funds either through capital contributions raised from the sale of stock or debt facilities and the availability of real estate assets or joint venture investments that meet our investment objectives.
 
The cash flows provided by joint ventures are expected to increase in 2003, when we recognize a full year of benefit for the 2002 joint venture investments. Increases to cash flows provided by joint venture distributions will be dependent upon whether we invest in additional properties through joint ventures in the future as expected cash flows from existing joint ventures are expected to provide nominal increases based on scheduled rent increases.
 
Cash Flows From Financing Activities
 
Comparison of 2002 vs 2001
 
Our net cash provided by financing activities was $1,227.8 million and $303.5 million for the years ended December 31, 2002 and 2001, respectively. The increase in net cash provided by financing activities was due primarily to the raising of additional capital of $1,340.3 million during the year ended December 31, 2002 compared to $522.5 million during the year ended December 31, 2001. The amounts raised were partially offset by the payment of commissions and offering costs totaling $140.5 million and $58.6 million for the years ended December 31, 2002 and 2001, respectively and redemptions of our stock of $15.4 million and $4.1 million for the years ended December 31, 2002, and 2001, respectively.
 
Additionally, we obtained funds from financing arrangements totaling $212.9 million and $110.2 million and made debt repayments of $62.8 million and $229.8 million for the years ended December 31, 2002 and 2001, respectively. As a result of our increased operations and activities during the years ended December 31, 2002 and 2001, we paid dividends of $105.0 million and $36.7 million, respectively.
 
Comparison of 2001 vs 2000
 
Our net cash provided by financing activities was $303.5 million and $243.4 million for the years ended December 31, 2001 and 2000, respectively. The increase in net cash provided by financing activities was due primarily to the raising of additional capital of $522.5 million during the year ended December 31, 2001 compared to $180.4 million for the year ended December 31, 2000. The amounts raised were partially offset by the payment of commissions and offering costs totaling $58.6 million and $22.4 million for the years ended December 31, 2001 and 2000, respectively, and redemptions of our stock of $4.1 million and $1.4 million for the years ended December 31, 2001 and 2000, respectively.

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Additionally, we obtained funds from financing arrangements totaling $110.2 million and $187.6 million and made debt repayments of $229.8 million and $83.9 million for the years ended December 31, 2001 and 2000, respectively. As a result of our increased operations and activities during the years ended December 31, 2001 and 2000, we paid dividends of $36.7 million and $17.0 million, respectively.
 
The amounts of cash provided by and used in financing activities in the future will be dependent upon our ability to raise additional funds from investors and from the ability to secure debt facilities for the acquisition of real estate assets in future periods, and may not be comparable to the amounts of cash provided in past periods.
 
Results of Operations
 
As of December 31, 2002, our 72 real estate properties were 98.3% leased. Our results of operations have changed significantly for the years ended December 31, 2002, 2001, and 2000, generally as a result of the 32, 11, and 12 property acquisitions during the years ended December 31, 2002, 2001, and 2000, respectively. We expect that rental income, equity income of joint ventures, tenant reimbursements, operating expenses, management and leasing fees, and net income will each increase in future periods as a result of owning real estate assets acquired in 2002 for a full year and as a result of future acquisitions of real estate assets. Due to the average remaining terms of the long-term leases currently in place at our properties, management does not anticipate significant changes in near-term rental revenues from properties currently owned.
 
Comparison of 2002 vs 2001
 
Rental income was $107.5 million and $44.2 million for the years ended December 31, 2002 and 2001, respectively. Tenant reimbursements were $19.0 million and $6.8 million for the years ended December 31, 2002 and 2001, respectively. Tenant reimbursements were equivalent to 70% and 63% of the property operating costs for these respective years. The variance in the costs is dependent upon the terms of the lease agreements for the real estate assets in each year.
 
Equity in income of joint ventures was $4.7 million and $3.7 million for the years ended December 31, 2002 and 2001, respectively. The increase is primarily a result of recognizing a full year of operations in 2002 for the investments in joint ventures made during 2001. Equity in income of joint ventures is expected to increase in future periods as additional investments in joint ventures are made; however, returns from existing joint venture investments are not expected to change materially from the historical results.
 
Lease termination income was $1.4 million for the year ended December 31, 2002 compared to $0 for the year ended December 31, 2001. The 2002 activity relates to a single lease termination at the Vertex-Sarasota Building (formerly the Andersen Building), in which, in consideration for releasing Arthur Andersen from its obligations to pay rent under the lease, Arthur Andersen paid Wells OP a termination fee of approximately $1.0 million and conveyed to Wells OP an adjacent parcel of land which we valued at $0.4 million.
 
Interest and other income was $7.0 million and $1.5 million for the years ended December 31, 2002 and 2001, respectively. Of this amount $2.8 million and $0.5 million was attributable to interest on the bonds related to the Ingram Micro and ISS Buildings, which is offset by the related interest expense associated with the bonds. We invest any funds received from stockholders in short-term investments until the funds are invested in real estate asset investments. At certain times during the years ended December 31, 2002 and 2001, we held a significant amount of cash on hand resulting in the relatively high interest income. The level of interest income is dependent upon our ability to find suitable real estate asset investments on a pace consistent with investor proceeds, therefore interest income amounts
 
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for the years ended December 31, 2002 and 2001, may or may not be indicative of interest income for future periods.
 
Depreciation expense was $38.8 million and $15.3 million for the years ended December 31, 2002 and 2001, representing 36% and 35%, of rental income for the respective year. The change between periods is generally due to a change in applicable cost of the real estate assets compared to the straight-line revenues generated by the real estate assets. Operating costs were $26.9 million and $10.9 million for the years ended December 31, 2002 and 2001, representing 21% of the sum of the rental income and tenant reimbursements revenue amounts for each year. Management and leasing fees were $5.2 million, and $2.5 million for the years ended December 31, 2002, and 2001, respectively.
 
General and administrative costs were $3.2 million and $1.2 million for the years ended December 31, 2002 and 2001, respectively, and legal and accounting expenses were $1.0 million and $0.4 million, for the years ended December 31, 2002 and 2001, respectively. The increase in the expenses are attributable to our increased size over the years, but represent 3% of total revenues for each year ended December 31, 2002 and 2001. In the future, such costs as a percentage of total revenues are expected to be materially consistent with the historical periods, but may change as we continue to grow.
 
Interest expense and amortization of deferred financing costs was $4.6 million and $4.2 million for the years ended December 31, 2002 and 2001, respectively. Of this amount $2.8 million and $0.5 million was attributable to interest on the bonds related to the Ingram Micro and ISS Buildings for the years ended December 31, 2002 and 2001, respectively, which is offset by the related interest income associated with the bonds as noted above. Interest expense is dependent upon the amount of borrowings outstanding during the period as well as the interest rate. Interest expense payable to third parties (excluding the interest on the bonds) for the year ended December 31, 2002 decreased as compared to the year ended December 31, 2001 due to lower average amounts of borrowings outstanding during the periods as well as lower interest rates.
 
Comparison of 2001 vs 2000
 
Rental income revenues were $44.2 million and $20.5 million for the years ended December 31, 2001 and 2000, respectively. Tenant reimbursements were $6.8 million and $2.3 million for the years ended December 31, 2001 and 2000, respectively. Tenant reimbursements were equivalent to 63% and 71% of the property operating costs for the respective years. The variance in the cost is dependent upon the terms of the lease agreements for the real estate assets in each year.
 
Equity in income of joint ventures was $3.7 million and $2.3 million for the years ended December 31, 2001 and 2000, respectively. The increase is due to the investments in joint ventures during 2001 and recognizing a full year of operations for investments in joint ventures during 2000.
 
Interest and other income was $1.5 million and $0.6 million for the years ended December 31, 2001 and 2000, respectively. Of this amount $0.5 million and $0 during the years ended December 31, 2001 and 2000, respectively was attributable to interest on the bonds related to the Ingram Micro Building, which is offset by the related interest expense associated with the bonds. We invest any funds received from our stockholders in short-term investments until the funds are placed in real estate asset investments. At certain times during the years ended December 31, 2001 and 2000, we held varying amounts of cash on hand resulting in the increases in interest income between years.
 
Depreciation expense was $15.3 million and $7.7 million for the years ended December 31, 2001 and 2000, representing 35% and 38% of rental income for the respective year. The change between years is generally due to a change in applicable cost of the real estate assets compared to the straight-line revenues generated by the real estate assets. Operating costs were $10.9 million and $3.2 million for the
 
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years ended December 31, 2001 and 2000, respectively, representing 21% and 14%, respectively, of the sum of the rental income and tenant reimbursements revenue amounts. Management and leasing fees were $2.5 million and $1.3 million for the years ended December 31, 2001 and 2000, respectively.
 
General and administrative costs were $1.2 million and $0.4 million for the years ended December 31, 2001 and 2000, respectively, and legal and accounting expenses were $0.4 million and $0.2 million for the years ended December 31, 2001 and 2000, respectively. The increase in the expenses are attributable to our increased size, but represent 3% of total revenues for each year ended December 31, 2001 and 2000.
 
Interest expense and amortization of deferred financing costs was $4.2 million for each of the years ended December 31, 2001 and 2000. Of this amount $0.5 million and $0.0 million was attributable to interest on the bonds related to the Ingram Micro Building for the years ended December 31, 2001 and 2000, respectively, which is offset by the related interest income associated with the bonds as noted above. Interest expense is dependent upon the amount of borrowings outstanding during the period as well as the interest rate. Interest expense payable to third parties (excluding the interest on the bonds) for the years ended December 31, 2001 compared to the year ended December 31, 2000 decreased due to a lower average amount of borrowings outstanding during the year as well as lower interest rates.
 
Subsequent Events
 
Sale of shares of our common stock
 
From January 1, 2003 through March 31, 2003, we had raised approximately $426.8 million through the issuance of 42.7 million shares of our common stock.
 
Redemptions of our common stock
 
From January 1, 2003 through March 31, 2003, we redeemed approximately 1.3 million shares of our common stock at an aggregate cost of approximately $12.9 million pursuant to its share redemption program. Our current share redemption plan will allow for redemptions totaling $40 million for the year ending December 31, 2003.
 
Property Acquisitions
 
On January 9, 2003, Wells OP purchased two three-story office buildings containing approximately 187,735 aggregate rentable square feet located in Mayfield Heights, Ohio, (the “East Point Buildings”) for a purchase price of $22.0 million, excluding closing costs and acquisition and advisory fees paid to the Advisor. The East Point Buildings, which were built in 2000, are located at 6085 Parkland Boulevard (“East Point I”) and 6095 Parkland Boulevard (“East Point II”) in Mayfield Heights, Cuyahoga County, Ohio. The entire 102,484 rentable square feet of East Point I is leased to Progressive Casualty Insurance Company. East Point II contains approximately 85,251 rentable square feet, of which 70,585 rentable square feet (83%) is currently leased to Austin, Danaher Power Solutions LLC and Moreland Management Co. Approximately 14,666 rentable square feet (17%) of East Point II is vacant.
 
In connection with the acquisition of the East Point Buildings, we entered into an earn-out agreement, whereby we are required to pay the seller for each new lease fully executed after the date of acquisition of the property but on or before March 31, 2004, or on or before July 31, 2004 if the tenant thereunder is a leasing prospect as defined by the agreement. Payments shall be in the amounts of the anticipated first year’s annual rent less operating expenses with the sum divided by 0.105 and the result reduced by tenant improvement costs related to the space.
 
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On March 31, 2003, Wells OP purchased a 25-story office building containing approximately 505,417 rentable square feet located in Detroit, Michigan, (the “150 West Jefferson Detroit Building”) for a purchase price of $93.75 million, excluding closing costs and acquisition and advisory fees paid to the Advisor. The 150 West Jefferson Detroit Building, which was built in 1989, is located at 150 West Jefferson Avenue in Detroit, Michigan. Miller, Canfield, Paddock & Stone, Butzel Long PC and MCN Energy Group, Inc., formerly known as MCN Corporation aggregately lease approximately 311,285 rentable square feet of the 150 West Jefferson Detroit Building (61.6%). Approximately 190,863 rentable square feet (37.8%) is leased to an additional 14 tenants. Approximatley 3,269 rentable square feet (0.6%) of the 150 West Jefferson Detroit Building is vacant.
 
Dividend Declaration
 
On March 12, 2003, our board of directors declared dividends for the second quarter of 2003 in the amount of a 7.0% annualized percentage return on an investment of $10 per share, payable our shareholders on a daily record basis.
 
Commitments and Contingencies
 
Take Out Purchase and Escrow Agreement
 
We entered into a take out purchase and escrow agreement with an affiliate of our advisor whereby we earn a fee in return for agreeing to purchase any unsold co-tenancy interests related to the Section 1031 exchange program established by an affiliate of our advisor. See Note 8 to our consolidated financial statements included in this supplement for discussion of this potential obligation.
 
Letters of Credit
 
We have three unused letters of credit as required by other parties to ensure completion of the our obligations under certain contracts. See Note 8 to our consolidated financial statements included in this supplement for further discussion of the letters of credit.
 
Property Under Contract
 
We entered into an agreement to purchase a third building at the ISS Atlanta Buildings development upon completion of construction for $10 million. See Note 8 to our consolidated financial statements included in this supplement for further discussion of the property under contract and related obligations.
 
Properties Under Construction
 
We entered into three agreements for the construction and development of certain properties. See Note 8 to our consolidated financial statements included in this supplement for a more detailed discussion of the properties under construction and the related obligation.
 
Commitments Under Existing Lease Agreements
 
We entered into lease agreements with tenants that may include provisions that, at the option of the tenants, may require us to incur certain capital costs. See Note 8 to our consolidated financial statements included in this supplement for further discussion of these potential obligations.

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Earn-out Agreements
 
We entered into a purchase agreement containing an earn-out clause that may result in us being obligated to pay $14.5 million to the seller of a property. See Note 8 to our consolidated financial statements included in this supplement for a more detailed discussion of this potential obligation.
 
Leasehold Property Obligations
 
We own certain properties that are subject to ground leases and require us to pay rent in future years. See Note 8 to our consolidated financial statements included in this supplement for further discussion of the lease terms and required payments.
 
Pending Litigation
 
We have certain pending litigation related to a dispute over the right to a $750,000 escrow money deposit for a property that was not acquired. See Note 8 to our consolidated financial statements included in this supplement for further discussion of the litigation.
 
Funds from Operations
 
Funds from Operations (FFO), as defined by the National Association of Real Estate Investment Trusts (NAREIT), generally means net income, computed in accordance with accounting principles generally accepted in the United States (GAAP) excluding extraordinary items (as defined by GAAP) and gains (or losses) from sales of property, plus depreciation and amortization on real estate assets, and after adjustments for unconsolidated partnerships, joint ventures and subsidiaries. Management believes that FFO is helpful to investors as a measure of the performance of an equity REIT. However, our calculation of FFO, while consistent with NAREIT’s definition, may not be comparable to similarly titled measures presented by other REITs. FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered as an alternative to net income as an indication of our performance or to cash flows as a measure of liquidity or ability to make distributions.
 
The following table reflects the calculation of FFO for the three years ended December 31, 2002, 2001, and 2000, respectively:
 
 	  	December 31,
2002

	  	December 31,
2001

	  	December 31,
2000

	
FUNDS FROM OPERATIONS:	  	 	 	  	 	 	  	 	 	
Net income	  	$	59,854	  	$	21,724	  	$	8,553	
Add:	  	 	 	  	 	 	  	 	 	
Depreciation of real assets	  	 	38,780	  	 	15,345	  	 	7,743	
Amortization of deferred leasing costs	  	 	303	  	 	303	  	 	351	
Depreciation and amortization—unconsolidated partnerships	  	 	2,861	  	 	3,212	  	 	853	

	

	  	

	

	  	

	

	
Funds from operations (FFO)	  	$	101,798	  	$	40,584	  	$	17,500	

	

	  	

	

	  	

	

	
 	 	 	 	
WEIGHTED AVERAGE SHARES:	  	 	 	  	 	 	  	 	 	
BASIC AND DILUTED	  	 	145,633	  	 	51,082	  	 	21,616	

	

	  	

	

	  	

	

	

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In order to recognize revenues on a straight line basis over the terms of the respective leases, we recognized straight line revenue of $7.6 million, $2.8 million, and $1.7 million during the years ended December 31, 2002, 2001, and 2000 respectively.
 
Inflation
 
The real estate market has not been affected significantly by inflation in the past three years due to the relatively low inflation rate. However, there are provisions in the majority of tenant leases, which would protect us from the impact of inflation. These provisions include reimbursement billings for operating expense pass-through charges, real estate tax and insurance reimbursements on a per square foot basis, or in some cases, annual reimbursement of operating expenses above a certain per square foot allowance. However, due to the long-term nature of the leases, the leases may not re-set frequently enough to cover inflation.
 
Application of Critical Accounting Policies
 
Our accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If management’s judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied; thus, resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses.
 
The critical accounting policies outlined below have been discussed with members of our audit committee. There have been no significant changes in the critical accounting policies, methodology, or assumptions in the current period.
 
Below is a discussion of the accounting policies that management considers to be critical in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain. Additional discussion of accounting policies that management considers to be significant, including further discussion of the critical accounting policies described below, is presented in Note 2 to our consolidated financial statements included in this supplement.
 
Investment in Real Estate Assets
 
We are required to make subjective assessments as to the useful lives of our depreciable assets. We consider the period of future benefit of the asset to determine the appropriate useful lives. These assessments have a direct impact on net income. The estimated useful lives of our assets by class are as follows:
 
Building	  	25 years	
Building improvements	  	10-25 years	
Land improvements	  	20-25 years	
Tenant Improvements	  	Lease term	
 
In the event that management uses inappropriate useful lives or methods for depreciation, our net income would be misstated.
 
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Valuation of Real Estate Assets
 
We continually monitor events and changes in circumstances that could indicate that the carrying amounts of the real estate assets, both operating properties and properties under construction, in which we have an ownership interest, either directly or through investments in joint ventures, may not be recoverable. When indicators of potential impairment are present which indicate that the carrying amounts of real estate assets may not be recoverable, management assesses the recoverability of the real estate assets by determining whether the carrying value of the real estate assets will be recovered through the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying value, management adjusts the real estate assets to the fair value and recognizes an impairment loss. We have determined that there has been no impairment in the carrying value of real estate assets we held and any unconsolidated joint ventures at December 31, 2002 and 2001.
 
Projections of expected future cash flows requires management to estimate future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, discount rates, the number of months it takes to re-lease the property, and the number of years the property is held for investment. The use of inappropriate assumptions in the future cash flow analysis would result in an incorrect assessment of the property’s future cash flows and fair value, and could result in the overstatement of our carrying value of real estate assets and net income.
 
Intangible Lease Asset/Liability
 
As part of the acquisition of real estate assets, we determine whether an intangible asset or liability related to above or below market leases was acquired as part of the acquisition of the real estate. As a result of adopting the standards, amounts totaling $12.1 million have been recorded as intangible lease assets and $32.7 million have been recorded as intangible lease liabilities, relating to above and below market lease arrangements for properties acquired in 2002. The intangible assets and liabilities are recorded at their estimated fair market values at the date of acquisition, and are amortized over the remaining term of the respective lease to rental income.
 
The determination of the estimated fair values of the intangible lease asset or liability requires the use of significant assumptions with regard to the current market rental rates, rental growth rates, discount rates and other variables. If inappropriate estimates with regard to these variables are used, misclassification of assets or liabilities and incorrect calculation of depreciation amounts would occur, which would misstate our net income.
 
Related Party Transactions and Agreements
 
We have entered into agreements with our advisor and other affiliates, whereby we pay certain fees or reimbursements to our advisor or such affiliates for acquisition and advisory fees, organization and offering costs, sales commissions, dealer manager fees, property management and leasing fees, and reimbursement of operating costs. See Note 12 to our consolidated financial statements included in this supplement for a discussion of the various related party transactions, agreements, and fees.
 
Conflicts of Interest
 
Our advisor is also a general partner in and advisor to various Wells Real Estate Funds. As such, there are conflicts of interest in which the advisor, while serving in the capacity as general partner for Wells Real Estate Funds, may be in competition with us in connection with property acquisitions or for tenants in similar geographic markets.

15

Table of Contents
Financial Statements
 
Ernst & Young LLP
 
The consolidated financial statements of the Wells REIT, as of and for the year ended December 31, 2002, and Schedule III—Real Estate Assets and Accumulated Depreciation as of December 31, 2002, included in this supplement and elsewhere in the registration statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
 
Arthur Andersen LLP
 
The consolidated financial statements of the Wells REIT, as of December 31, 2001 and 2000, and for each of the two years in the period ended December 31, 2001, and Schedule III—Real Estate Investments and Accumulated Depreciation as of December 31, 2001, included in this supplement and elsewhere in the registration statement, were audited by Arthur Andersen LLP (Andersen), independent public accountants, as indicated in their report with respect thereto, and are included in this supplement in reliance upon the authority of said firm as experts in giving said report.
 
Andersen ceased operations during 2002 and, accordingly, has not reissued their report related to previously audited financial statements. Additionally, Andersen has not consented to the use of their report related to previously audited financial statements. Events arising out of the ceased operations of Andersen may adversely affect the ability of Andersen to satisfy any potential claims that may arise out of Andersen’s audits of the financial statements contained in this supplement. In addition, our inability to obtain a consent from Andersen may also adversely affect your ability to pursue potential claims against Andersen.
 
Prior Performance Tables
 
The prior performance tables dated as of December 31, 2002, which are included in this supplement and elsewhere in the registration statement, have not been audited.
 
Unaudited Financial Statements
 
The pro forma balance sheet of the Wells REIT, as of December 31, 2002 and the pro forma statement of income for the year ended December 31, 2001, which are included in this supplement, have not been audited.
 
16

Table of Contents
INDEX TO FINANCIAL STATEMENTS
 
Wells Real Estate Investment Trust, Inc. and Subsidiary	  	Page

	
 	 	
Audited Financial Statements	  	 	
 	 	
Report of Independent Auditors—Ernst & Young LLP	  	18	
 	 	
Report of Independent Accountants—Arthur Andersen	  	19	
 	 	
Consolidated Balance Sheets as of December 31, 2002 and 2001	  	20	
 	 	
Consolidated Statements of Income for the years ended December 31, 2002, 2001 and 2000	  	22	
 	 	
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2002, 2001 and 2000	  	23	
 	 	
Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000	  	24	
 	 	
Notes to Consolidated Financial Statements	  	25	
 	 	
Schedule III—Real Estate Assets and Accumulated Depreciation as of December 31, 2002	  	55	
 	 	
Prior Performance Tables (Unaudited)	  	59	
 	 	
Wells Real Estate Investment Trust, Inc. and Subsidiary	  	 	
 	 	
Unaudited Pro Forma Financial Statements	  	 	
 	 	
Summary of Unaudited Pro Forma Financial Statements	  	69	
 	 	
Pro Forma Balance Sheet as of December 31, 2002 (unaudited)	  	70	
 	 	
Pro Forma Statement of Income for the year ended December 31, 2002 (unaudited)	  	72	

17

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REPORT OF INDEPENDENT AUDITORS
 
Board of Directors and Shareholders
Wells Real Estate Investment Trust, Inc.
 
We have audited the accompanying consolidated balance sheet of Wells Real Estate Investment Trust, Inc. and subsidiaries as of December 31, 2002 and the related consolidated statements of income, shareholders’ equity, and cash flows for the year then ended. Our audit also included financial statement Schedule III—Real Estate Assets and Accumulated Depreciation as of December 31, 2002. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit. The financial statements and schedule of Wells Real Estate Investment Trust, Inc. and subsidiary as of December 31, 2001, and for the years ended December 31, 2001 and 2000 were audited by other auditors who have ceased operations, and whose report dated January 25, 2002 expressed an unqualified opinion on those financial statements and schedule before the restatement adjustments and disclosures described in Note 2.
 
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
 
In our opinion, the 2002 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Wells Real Estate Investment Trust, Inc. and subsidiaries at December 31, 2002 and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related 2002 financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
 
As discussed above, the financial statements of Wells Real Estate Investment Trust, Inc. and subsidiary as of December 31, 2001 and for the years ended December 31, 2001 and 2000 were audited by other auditors who have ceased operations. As described in Note 2, these financial statements have been restated. We audited the adjustments described in Note 2 that were applied to restate the 2001 and 2000 financial statements. Our procedures included (a) agreeing the amounts in the restatement adjustments columns to the corresponding accounts maintained in the underlying records of the Company, and (b) testing the application of the adjustments to the historical amounts. In our opinion, such adjustments are appropriate and have been properly applied. Additionally, as described in Note 2, these financial statements have been revised to include disclosure of the number of weighted average shares outstanding for the years ended December 31, 2001 and 2000 on the consolidated statements of income. Our audit procedures with respect to this disclosure included recalculating the number of weighted average shares outstanding for the years ended December 31, 2001 and 2000 by dividing the net income amount previously reported on the consolidated statements of income in 2001 and 2000 by the earnings per share amount previously reported on the consolidated statements of income in 2001 and 2000. In our opinion, the disclosure of the number of weighted average shares outstanding on the consolidated statements of income for the years ended December 31, 2001 and 2000 is appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2001 and 2000 financial statements of Wells Real Estate Investment Trust, Inc. and subsidiary other than with respect to such restatement adjustments and disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 and 2000 financial statements taken as a whole.
 
As discussed in Note 2, in 2002 the Company adopted Statement of Financial Accounting Standards No. 141, “Business Combinations” and No. 142, “Goodwill and Other Intangible Assets”.
 
/s/    Ernst & Young LLP
 
Atlanta, Georgia
January 24, 2003
 
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(The following is a copy of the audit report previously issued by Arthur Andersen LLP in connection with the consolidated financial statements of Wells Real Estate Investment Trust, Inc. (Wells REIT) included in the previous year’s Form 10-K for the fiscal year ended December 31, 2001. This audit report has not been reissued by Arthur Andersen in connection with the filing of the Wells REIT Form 10-K for the fiscal year ended December 31, 2002.)
 
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Wells Real Estate Investment Trust, Inc.:
 
We have audited the accompanying consolidated balance sheets of WELLS REAL ESTATE INVESTMENT TRUST, INC. (a Maryland corporation) AND SUBSIDIARY  as of December 31, 2001 and 2000 and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements and the schedule referred to below are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
 
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and schedule are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Wells Real Estate Investment Trust, Inc. and subsidiary as of December 31, 2001 and 2000 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States.
 
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule III—Real Estate Investments and Accumulated Depreciation as of December 31, 2001 is presented for purposes of complying with the Securities and Exchange Commission’s rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states, in all material respects, the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
 
/s/    ARTHUR ANDERSEN LLP
 
Atlanta, Georgia
January 25, 2002
 
19

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WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
DECEMBER 31, 2002 and 2001
 
(in thousands, except share amounts)
 
ASSETS
 
 	  	2002

	  	2001

	
REAL ESTATE ASSETS, at cost:	  	 	 	  	 	 	
Land	  	$	279,185	  	$	86,247	
Buildings and improvements, less accumulated depreciation of $63,594 and $24,814 at December 31, 2002 and 2001, respectively	  	 	1,683,036	  	 	472,383	
Construction in progress	  	 	42,746	  	 	5,739	

	

	  	

	

	
Total real estate assets	  	 	2,004,967	  	 	564,369	
 	 	 	
INVESTMENTS IN JOINT VENTURES	  	 	83,915	  	 	77,410	
 	 	 	
CASH AND CASH EQUIVALENTS	  	 	45,464	  	 	75,586	
 	 	 	
RENT RECEIVABLE	  	 	19,321	  	 	6,003	
 	 	 	
DEFERRED PROJECT COSTS	  	 	1,494	  	 	2,977	
 	 	 	
DUE FROM AFFILIATES	  	 	1,961	  	 	1,693	
 	 	 	
PREPAID EXPENSES AND OTHER ASSETS, net	  	 	4,407	  	 	718	
 	 	 	
DEFERRED LEASE ACQUISITION COSTS, net	  	 	1,638	  	 	1,525	
 	 	 	
INTANGIBLE LEASE ASSET	  	 	12,060	  	 	—  	
 	 	 	
INVESTMENTS IN BONDS	  	 	54,500	  	 	22,000	

	

	  	

	

	
Total assets	  	$	2,229,727	  	$	752,281	

	

	  	

	

	
 
20

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LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 	  	2002

	 	 	2001

	 	
LIABILITIES:	  	 	 	 	 	 	 	 	
Notes payable	  	$	248,195	 	 	$	8,124	 	
Obligations under capital leases	  	 	54,500	 	 	 	22,000	 	
Intangible lease liability	  	 	32,697	 	 	 	—  	 	
Accounts payable and accrued expenses	  	 	24,580	 	 	 	8,727	 	
Due to affiliate	  	 	15,975	 	 	 	2,166	 	
Dividends payable	  	 	6,046	 	 	 	1,059	 	
Deferred rental income	  	 	11,584	 	 	 	662	 	

	

	

	 	

	

	

	
Total liabilities	  	 	393,577	 	 	 	42,738	 	

	

	

	 	

	

	

	
 	 	 	
COMMITMENTS AND CONTINGENCIES	  	 	 	 	 	 	 	 	
 	 	 	
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP	  	 	200	 	 	 	200	 	

	

	

	 	

	

	

	
 	 	 	
SHAREHOLDERS’ EQUITY:	  	 	 	 	 	 	 	 	
Common shares, $.01 par value; 750,000,000 shares authorized, 217,790,874 shares issued, and 215,699,717 shares outstanding at December 31, 2002 and 125,000,000 shares authorized, 83,761,469 shares issued and 83,206,429 shares outstanding at December 31, 2001	  	 	2,178	 	 	 	838	 	
Additional paid-in capital	  	 	1,929,381	 	 	 	738,236	 	
Cumulative distributions in excess of earnings	  	 	(74,310	)	 	 	(24,181	)	
Treasury stock, at cost, 2,091,157 shares at December 31, 2002 and 555,040 shares at December 31, 2001	  	 	(20,912	)	 	 	(5,550	)	
Other comprehensive loss	  	 	(387	)	 	 	—  	 	

	

	

	 	

	

	

	
Total shareholders’ equity	  	 	1,835,950	 	 	 	709,343	 	

	

	

	 	

	

	

	
Total liabilities and shareholders’ equity	  	$	2,229,727	 	 	$	752,281	 	

	

	

	 	

	

	

	
 
See accompanying notes.

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WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF INCOME
 
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
 
(in thousands, except per share amounts)
 
 	  	2002

	  	2001

	  	2000

	
REVENUES:	  	 	 	  	 	 	  	 	 	
Rental income	  	$	107,526	  	$	44,204	  	$	20,505	
Tenant reimbursements	  	 	18,992	  	 	6,830	  	 	2,318	
Equity in income of joint ventures	  	 	4,700	  	 	3,721	  	 	2,294	
Lease termination income	  	 	1,409	  	 	—  	  	 	—  	
Interest and other income	  	 	7,001	  	 	1,521	  	 	574	

	

	  	

	

	  	

	

	
 	  	 	139,628	  	 	56,276	  	 	25,691	

	

	  	

	

	  	

	

	
EXPENSES:	  	 	 	  	 	 	  	 	 	
Depreciation	  	 	38,780	  	 	15,345	  	 	7,743	
Interest expense	  	 	4,638	  	 	4,181	  	 	4,200	
Property operating costs	  	 	26,949	  	 	10,901	  	 	3,206	
Management and leasing fees	  	 	5,155	  	 	2,507	  	 	1,310	
General and administrative	  	 	3,244	  	 	1,169	  	 	439	
Legal and accounting	  	 	1,008	  	 	449	  	 	240	

	

	  	

	

	  	

	

	
 	  	 	79,774	  	 	34,552	  	 	17,138	

	

	  	

	

	  	

	

	
NET INCOME	  	$	59,854	  	$	21,724	  	$	8,553	

	

	  	

	

	  	

	

	
 	 	 	 	
EARNINGS PER SHARE:	  	 	 	  	 	 	  	 	 	
Basic and diluted	  	$	0.41	  	$	0.43	  	$	0.40	

	

	  	

	

	  	

	

	
 	 	 	 	
WEIGHTED AVERAGE SHARES OUTSTANDING:	  	 	 	  	 	 	  	 	 	
Basic and diluted	  	 	145,633	  	 	51,082	  	 	21,616	

	

	  	

	

	  	

	

	
 
See accompanying notes.

22

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
 
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
 
(in thousands, except per share amounts)
 
 	 	Common Stock

	 	Additional
Paid-In
Capital

	 	 	Cumulative
Distributions
in Excess
of Earnings

	 	 	Retained
Earnings

	 	 	Treasury Stock

	 	 	Other
Comprehensive
Income

	 	 	Total
Shareholders’
Equity

	 	 	
 	 	Shares

	 	Amount

	 	 	 	 	 	 	 	 	 	 	Shares

	 	 	Amount

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
BALANCE, December 31, 1999	 	13,471	 	$	135	 	$	117,738	 	 	$	(1,857	)	 	$	—  	 	 	—  	 	 	$	—  	 	 	$	—  	 	 	$	116,016	 	 	 	 	 	 	 	 	 	 	
Issuance of common stock	 	18,039	 	 	180	 	 	180,207	 	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	180,387	 	 	 	 	 	 	 	 	 	 	
Treasury stock purchased	 	—  	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	(141	)	 	 	(1,413	)	 	 	—  	 	 	 	(1,413	)	 	 	 	 	 	 	 	 	 	
Dividends ($0.73 per share)	 	—  	 	 	—  	 	 	—  	 	 	 	(7,276	)	 	 	(8,553	)	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(15,829	)	 	 	 	 	 	 	 	 	 	
Sales commissions and dealer manager fees	 	—  	 	 	—  	 	 	(17,003	)	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(17,003	)	 	 	 	 	 	 	 	 	 	
Other offering costs	 	—  	 	 	—  	 	 	(5,369	)	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(5,369	)	 	 	 	 	 	 	 	 	 	
Net income	 	—  	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	8,553	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	8,553	 	 	 	 	 	 	 	 	 	 	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
BALANCE, December 31, 2000	 	31,510	 	 	315	 	 	275,573	 	 	 	(9,133	)	 	 	—  	 	 	(141	)	 	 	(1,413	)	 	 	—  	 	 	 	265,342	 	 	 	 	 	 	 	 	 	 	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	
Issuance of common stock	 	52,251	 	 	523	 	 	521,994	 	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	522,517	 	 	 	 	 	 	 	 	 	 	
Treasury stock purchased	 	—  	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	(414	)	 	 	(4,137	)	 	 	—  	 	 	 	(4,137	)	 	 	 	 	 	 	 	 	 	
Dividends ($0.76 per share)	 	—  	 	 	—  	 	 	—  	 	 	 	(15,048	)	 	 	(21,724	)	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(36,772	)	 	 	 	 	 	 	 	 	 	
Sales commissions and dealer manager fees	 	—  	 	 	—  	 	 	(49,246	)	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(49,246	)	 	 	 	 	 	 	 	 	 	
Other offering costs	 	—  	 	 	—  	 	 	(10,085	)	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(10,085	)	 	 	 	 	 	 	 	 	 	
Net income	 	—  	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	21,724	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	21,724	 	 	 	 	 	 	 	 	 	 	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
BALANCE, December 31, 2001	 	83,761	 	 	838	 	 	738,236	 	 	 	(24,181	)	 	 	—  	 	 	(555	)	 	 	(5,550	)	 	 	—  	 	 	 	709,343	 	 	 	 	 	 	 	 	 	 	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	
Issuance of common stock	 	134,030	 	 	1,340	 	 	1,338,953	 	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	1,340,293	 	 	 	 	 	 	 	 	 	 	
Treasury stock purchased	 	—  	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	(1,536	)	 	 	(15,362	)	 	 	—  	 	 	 	(15,362	)	 	 	 	 	 	 	 	 	 	
Dividends ($0.76 per share)	 	—  	 	 	—  	 	 	—  	 	 	 	(50,129	)	 	 	(59,854	)	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(109,983	)	 	 	 	 	 	 	 	 	 	
Sales commissions and dealer manager fees	 	—  	 	 	—  	 	 	(127,332	)	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(127,332	)	 	 	 	 	 	 	 	 	 	
Other offering costs	 	—  	 	 	—  	 	 	(20,476	)	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(20,476	)	 	 	 	 	 	 	 	 	 	
Components of comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	—  	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	59,854	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	59,854	 	 	 	 	 	 	 	 	 	 	
Loss on interest rate swap	 	—  	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	(387	)	 	 	(387	)	 	 	 	 	 	 	 	 	 	
Comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	59,467	 	 	 	 	 	 	 	 	 	 	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
BALANCE, December 31, 2002	 	217,791	 	$	2,178	 	$	1,929,381	 	 	$	(74,310	)	 	$	—  	 	 	(2,091	)	 	$	(20,912	)	 	$	(387	)	 	$	1,835,950	 	 	 	 	 	 	 	 	 	 	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	

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WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
 
(in thousands)
 
 	  	2002

	 	 	2001

	 	 	2000

	 	
CASH FLOWS FROM OPERATING ACTIVITIES:	  	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	$	59,854	 	 	$	21,724	 	 	$	8,553	 	

	

	

	 	

	

	

	 	

	

	

	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Equity in income of joint ventures	  	 	(4,700	)	 	 	(3,721	)	 	 	(2,294	)	
Depreciation	  	 	38,780	 	 	 	15,345	 	 	 	7,743	 	
Amortization of deferred financing costs	  	 	845	 	 	 	770	 	 	 	233	 	
Amortization of deferred lease acquisition costs	  	 	303	 	 	 	303	 	 	 	351	 	
Land received in lease termination	  	 	(430	)	 	 	—  	 	 	 	—  	 	
Write-off of deferred lease acquisition costs	  	 	—  	 	 	 	62	 	 	 	—  	 	
Changes in assets and liabilities:	  	 	 	 	 	 	 	 	 	 	 	 	
Rent receivable	  	 	(13,318	)	 	 	(2,222	)	 	 	(2,458	)	
Due from affiliates	  	 	(185	)	 	 	11	 	 	 	(436	)	
Prepaid expenses and other assets, net	  	 	(3,248	)	 	 	3,246	 	 	 	(6,827	)	
Accounts payable and accrued expenses	  	 	15,853	 	 	 	6,561	 	 	 	1,942	 	
Deferred rental income	  	 	10,922	 	 	 	280	 	 	 	146	 	
Due to affiliates	  	 	(104	)	 	 	(10	)	 	 	367	 	

	

	

	 	

	

	

	 	

	

	

	
Total adjustments	  	 	44,718	 	 	 	20,625	 	 	 	(1,233	)	

	

	

	 	

	

	

	 	

	

	

	
Net cash provided by operating activities	  	 	104,572	 	 	 	42,349	 	 	 	7,320	 	

	

	

	 	

	

	

	 	

	

	

	
CASH FLOWS FROM INVESTING ACTIVITIES:	  	 	 	 	 	 	 	 	 	 	 	 	
Investment in real estate assets	  	 	(1,308,759	)	 	 	(227,934	)	 	 	(231,518	)	
Contributions to joint ventures	  	 	(8,910	)	 	 	(33,691	)	 	 	(15,064	)	
Investment in intangible lease asset	  	 	(12,060	)	 	 	—  	 	 	 	—  	 	
Deferred project costs paid	  	 	(39,797	)	 	 	(17,220	)	 	 	(6,264	)	
Deferred lease acquisition costs paid	  	 	(400	)	 	 	—  	 	 	 	—  	 	
Distributions received from joint ventures	  	 	7,388	 	 	 	4,239	 	 	 	3,529	 	

	

	

	 	

	

	

	 	

	

	

	
Net cash used in investing activities	  	 	(1,362,538	)	 	 	(274,606	)	 	 	(249,317	)	

	

	

	 	

	

	

	 	

	

	

	
CASH FLOWS FROM FINANCING ACTIVITIES:	  	 	 	 	 	 	 	 	 	 	 	 	
Proceeds from notes payable	  	 	212,906	 	 	 	110,243	 	 	 	187,633	 	
Repayments of notes payable	  	 	(62,835	)	 	 	(229,782	)	 	 	(83,899	)	
Dividends paid to shareholders	  	 	(104,996	)	 	 	(36,737	)	 	 	(16,971	)	
Issuance of common stock	  	 	1,340,293	 	 	 	522,517	 	 	 	180,387	 	
Treasury stock purchased	  	 	(15,362	)	 	 	(4,137	)	 	 	(1,413	)	
Sales commissions and dealer manager fees paid	  	 	(127,332	)	 	 	(49,246	)	 	 	(17,003	)	
Other offering costs paid	  	 	(13,156	)	 	 	(9,313	)	 	 	(5,369	)	
Deferred financing costs paid	  	 	(1,674	)	 	 	—  	 	 	 	—  	 	

	

	

	 	

	

	

	 	

	

	

	
Net cash provided by financing activities	  	 	1,227,844	 	 	 	303,545	 	 	 	243,365	 	

	

	

	 	

	

	

	 	

	

	

	
 	 	 	 	
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	  	 	(30,122	)	 	 	71,288	 	 	 	1,368	 	
 	 	 	 	
CASH AND CASH EQUIVALENTS, beginning of year	  	 	75,586	 	 	 	4,298	 	 	 	2,930	 	

	

	

	 	

	

	

	 	

	

	

	
 	 	 	 	
CASH AND CASH EQUIVALENTS, end of year	  	$	45,464	 	 	$	75,586	 	 	$	4,298	 	

	

	

	 	

	

	

	 	

	

	

	
 
See accompanying notes.

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WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
DECEMBER 31, 2002, 2001 AND 2000
 
1.    Organization
 
Wells Real Estate Investment Trust, Inc. (the “Company”) is a Maryland corporation that qualifies as a real estate investment trust (“REIT”). The Company was incorporated in 1997 and commenced operations on June 5, 1998.
 
The Company engages in the acquisition and ownership of commercial real estate properties, throughout the United States, including properties which are under construction, are newly constructed or have operating histories. At December 31, 2002, the Company has invested in commercial and industrial real estate assets, either directly or through joint ventures with real estate limited partnership programs sponsored by Wells Capital, Inc. (the “Advisor”) or its affiliates.
 
Substantially all of the Company’s business is conducted through Wells Operating Partnership, L.P., (“Wells OP”), a Delaware limited partnership, and its subsidiaries. Wells OP was formed to acquire, develop, own, lease, and operate real properties on behalf of the Company, either directly, through wholly-owned subsidiaries, or through joint ventures. The Company is the sole general partner in Wells OP and possesses full legal control and authority over the operations of Wells OP. In addition, the Company owns Wells REIT-Independence Square, LLC (“Wells REIT-Independence”), a single member Georgia limited liability company. Wells REIT-Independence was formed for the purpose of acquiring two office buildings located in Washington, D.C. (the “NASA Buildings”). Wells OP, and its subsidiaries, and Wells REIT-Independence comprise the Company’s subsidiaries.
 
The Company has initiated four offerings of the Company’s stock as follows:
 
Offering #

	 	Date Commenced

	  	Termination Date

	  	Gross Proceeds

	  	Shares Issued

	 	
1	 	January 30, 1998	  	December 19, 1999	  	$    132.2 million	  	13.2 million	 	
2	 	December 20, 1999	  	December 19, 2000	  	$    175.2 million	  	17.5 million	 	
3	 	December 20, 2000	  	July 26, 2002	  	$ 1,283.0 million	  	128.3 million	 	
4	 	July 26, 2002	  	Offering will terminate
on or before July 25,
2004	  	$    587.5 million
(through December 31,
2002)	  	58.8 million
(through December 31,
2002	 
 
)	

	  	

	  	

	  	

	

	
Total as of December 31, 2002	 	 	  	 	  	$ 2,177.9 million	  	217.8 million	 	

	  	

	

	
 
After payment of $75.5 million in acquisition and advisory fees and acquisition expenses to the Advisor, payment of $206.4 million in selling commissions, payment of $40.0 million in organization and offering expenses to the Advisor, investment in real estate assets and joint ventures of $1,808.5 million, and common stock redemptions of $20.9 million pursuant to the Company’s share redemption program, the Company was holding net offering proceeds of approximately $26.6 million available for investment in properties at December 31, 2002.
 
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The Company’s stock is not listed on a national exchange. However, the Company’s Articles of Incorporation currently require that, in the event that the Company’s stock is not listed on a national exchange by January 30, 2008, the Company must begin liquidating its investments and distributing the resulting proceeds to the shareholders.
 
2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Principles of Consolidation and Basis of Presentation
 
The consolidated financial statements include the accounts of the Company, Wells OP and its subsidiaries, and Wells REIT-Independence. The financial statements of the Company’s subsidiaries are prepared using accounting policies consistent with the Company. All significant inter-company balances and transactions have been eliminated in consolidation.
 
Use of Estimates
 
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
 
Investments in Joint Ventures
 
The Company and its subsidiaries do not consolidate investments in ventures in which the Company or a subsidiary does not control the venture, including joint ventures requiring consent of both partners for all major decisions, regardless of whether the Company or a subsidiary owns a majority interest in the venture. These investments are accounted for using the equity method of accounting, whereby original investments are recorded at cost, and subsequently adjusted for contributions, distributions, and the investor’s share of income or losses of the joint ventures. Allocations of income and loss and distributions by the joint ventures are made in accordance with the terms of the individual joint venture agreements. Generally, these items are allocated in proportion to the partners’ respective ownership interests, which approximates economic ownership. Generally, cash distributions are made from the joint ventures to the investor on a quarterly basis.
 
Real Estate Assets
 
Real estate assets are stated at cost, less accumulated depreciation. Amounts capitalized to real estate assets consist of the cost of acquisition or construction, and any tenant improvements or major improvements and betterments which extend the useful life of the related asset. All repairs and maintenance are expensed as incurred. Additionally, the Company capitalizes interest when development of a real estate asset is in progress. Approximately $0.8 million, $0.1 million, and $0.2 million of interest was capitalized for the years ended December 31, 2002, 2001, and 2000, respectively.
 
The estimated useful lives of the Company’s real estate assets by class are as follows:
 
Building	  	25 years	
Building improvements	  	10-25 years	
Land improvements	  	20-25 years	
Tenant Improvements	  	Lease term	
 
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Management continually monitors events and changes in circumstances that could indicate that carrying amounts of real estate assets may not be recoverable. When indicators of potential impairment are present, management assesses the recoverability of the assets by determining whether the carrying value of the real estate assets will be recovered through the undiscounted future cash flows expected from the use and eventual disposition of the asset. In the event the expected undiscounted future cash flows do not exceed the carrying value, management adjusts the real estate assets to the fair value and recognizes an impairment loss. Management has determined that there has been no impairment in the carrying value of real estate assets held by the Company, its subsidiaries, and any unconsolidated joint ventures to date.
 
Effective January 1, 2002, the Company adopted the Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long Lived Assets”  (“SFAS 144”), which supersedes Statement of Financial Accounting Standards No. 121 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”  (“SFAS 121”) and Accounting Principles Board No. 30  “Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual or Infrequently Occurring Events or Transactions,”  with regard to impairment assessment and discontinued operations respectively. In the current year, adoption of this standard did not have a significant impact on the Company, as SFAS 144 did not significantly change the measurement criteria for impairment under SFAS 121 and no properties were disposed of in the current year resulting in discontinued operations.
 
Cash and Cash Equivalents
 
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents include cash and short-term investments. Short-term investments are stated at cost, which approximates fair value, and consists of investments in money market accounts. At December 31, 2002 and 2001, there are no restrictions on the use of the Company’s cash.
 
Rent Receivable
 
Receivables are recognized and carried at original amount earned less a provision for any uncollectible amounts, which approximates fair value. An allowance for uncollectible amounts is made when collection of the full amount is no longer probable. Bad debt expense was $0.1 million, $0.0 million, and $0.0 million for the years ended December 31, 2002, 2001, and 2000, respectively.
 
Deferred Project Costs
 
The Company pays certain fees to the Advisor with regard to the acquisition of properties which are capitalized to the cost of the properties and depreciated on the same basis and over the respective useful life of the related asset. Deferred project costs represent costs incurred for properties to be acquired.
 
Prepaid Expenses and Other Assets, net
 
Prepaid expenses and other assets include deferred financing costs, prepaid property operating expenses, earnest money amounts, and purchase price escrows. Deferred financing costs are capitalized and amortized to interest expense on a straight-line basis over the terms of the related financing arrangement. Accumulated amortization of deferred financing costs totaled $1.2 million and $1.0 million at December 31, 2002 and 2001, respectively.
 
Deferred Lease Acquisition Costs
 
Costs incurred to procure operating leases are capitalized and amortized on a straight-line basis over the terms of the related lease. Accumulated amortization of deferred lease acquisition costs totaled $0.8 million and $0.5 million at December 31, 2002 and 2001, respectively. The related amortization expense for
 
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deferred lease acquisition costs was $0.3 million, $0.3 million and $0.4 million for the years ended December 31, 2002, 2001, and 2000, respectively, which is included in management and leasing fees in the consolidated statements of income.
 
Intangible Lease Asset/Liability
 
On January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 141 “Business Combinations,” and Statement of Financial Accounting Standards No. 142  “Goodwill and Intangibles” . These standards govern business combinations and asset acquisitions, and the accounting for acquired intangibles. As part of the acquisition of real estate assets, the Company determines whether an intangible asset or liability related to above or below market leases was acquired as part of the acquisition of the real estate. As a result of adopting the standards, amounts totaling $12.1 million have been recorded as intangible lease assets and $32.7 million have been recorded as intangible lease liabilities, relating to above and below market lease arrangements for properties acquired in 2002. The intangible assets and liabilities are recorded at their estimated fair market values at the date of acquisition, and are amortized over the remaining term of the respective lease to rental income. The weighted average amortization period for the intangible lease assets and liabilities was approximately 10 years and 9 years, respectively. These intangibles will be amortized as follows:
 
For the year ending December 31:

	  	Intangible
Lease
Asset
(000s)

	  	Intangible
Lease
Liability
(000s)

	
2003	  	$	1,909	  	$	4,144	
2004	  	 	1,909	  	 	4,144	
2005	  	 	1,807	  	 	4,144	
2006	  	 	677	  	 	3,602	
2007	  	 	677	  	 	2,842	
Thereafter	  	 	5,081	  	 	13,821	

	

	  	

	

	
 	  	$	12,060	  	$	32,697	

	

	  	

	

	
 
Investments in Bonds and Obligations Under Capital Leases
 
As a result of certain purchase transactions, the Company has acquired investments in bonds and certain obligations under capital leases. The Company records the bonds and obligations under capital leases at the amounts the Company expects to pay and receive. Because the Company is obligated to pay the indebtedness evidenced by the bonds, the Company has recorded these obligations as liabilities; however, since the Company is also the owner of the bonds, the bonds are carried on the Company’s books as assets. The related offsetting interest amounts are recorded as interest income and interest expense in the period that the amounts accrue. See Note 5 for a more detailed discussion of the bonds and obligations under capital leases.
 
Notes Payable
 
All loans are measured at the stated principal amount, which approximates fair value. Interest is charged to interest expense as it accrues, except for interest qualifying for capitalization relating to properties under development.
 
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Dividends Payable and Distribution Policy
 
The Company will make distributions each taxable year (not including a return of capital for federal income tax purposes) equal to at least 90% of the Company’s taxable income. The Company intends to make regular quarterly distributions to shareholders. Currently, dividends are declared in advance of the quarter to which they relate based on a daily rate for the upcoming quarter. Thus, shareholders are entitled to receive dividends immediately upon purchase of shares.
 
Dividends to be distributed to the shareholders are determined by the board of directors of the Company and are dependent upon a number of factors relating to the Company, including funds available for payment of dividends, financial condition, the timing of property acquisitions, capital expenditure requirements and annual distribution requirements in order to maintain the Company’s status as a REIT under the Internal Revenue Code.
 
Offering and Related Costs
 
Offering costs are charged by the Advisor for costs incurred by the Advisor for raising capital for the Company. Such costs include legal and accounting fees, printing costs, sales, promotional, and other offering costs. Such costs, as well as sales commissions and dealer manager fees associated with the offering of shares, which are currently 7% and 2.5%, respectively, of gross offering proceeds, are accounted for as a reduction of equity.
 
Treasury Stock
 
The Company currently has a share redemption plan in place whereby the Company acquires shares from shareholders, subject to certain limitations. The Company accounts for these share repurchases using the treasury stock method.
 
Revenue Recognition
 
All leases on real estate assets held by the Company or its subsidiaries are classified as operating leases, and the related rental income is recognized on a straight-line basis over the terms of the respective leases. Tenant reimbursements are recognized as revenue in the period that the related operating cost is incurred and therefore contractually earned and billable pursuant to the terms of the underlying lease. Rents paid in advance, which do not qualify for revenue recognition, are deferred to future periods.
 
Revenues earned relating to lease termination agreements are recognized at the time the tenant loses the right to lease the space and when the Company has earned the right to receive such payments.
 
Stock-Based Compensation
 
The Company has adopted the disclosure provisions in Statement of Financial Accounting Standards No. 123 “Accounting and Disclosure for Stock-Based Compensation”  (“SFAS 123”). As permitted by the provisions of SFAS 123, the Company applies Accounting Principles Board Opinion No.  25 “Accounting for Stock Issued to Employees”  (“APB 25”) and the related interpretations in accounting for its stock option grants to members of the board of directors, and accordingly, does not recognize compensation cost in the consolidated statements of income but instead provides pro forma disclosure in the notes to the consolidated financial statements. For the years ended December 31, 2002, 2001, and 2000, stock option grants did not have any impact on the consolidated statements of income as the fair value at the date of issue for each grant is estimated at $0.
 
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Earnings Per Share
 
Earnings per share are calculated based on the weighted average number of common shares outstanding during each period. The weighted average number of common shares outstanding is identical for basic and fully diluted earnings per share. Outstanding stock options and warrants have been excluded from the diluted earnings per share calculation as their impact would be anti-dilutive using the treasury stock method, as the exercise price of the options and warrants exceed the stock offering price.
 
Financial Instruments
 
The Company considers its cash, accounts receivable, accounts payable, bonds, obligations under capital leases, notes payable, and interest rate swaps to meet the definition of financial instruments. At December 31, 2002 and 2001, the carrying value of the Company’s financial instruments approximated their fair value. Notes payable bear interest based on variable interest rates that periodically adjust to market or are fixed rate debt that is due within twelve months.
 
Interest Rate Swap Agreements
 
On January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133 “Accounting for Derivative Instruments and Hedging Activities”  (“SFAS 133”) as amended by Statement of Financial Accounting Standards No. 137  “Accounting for Derivative Instruments and Hedging Activities—Deferral of the Effective Date of SFAS 133”  and Statement of Financial Accounting Standards No. 138  “Accounting for Certain Derivative Instruments and Certain Hedging Activities.”  SFAS 133 requires recording all derivative instruments as assets or liabilities, measured at fair value in the consolidated balance sheet. The effect of adopting SFAS 133 did not have a material effect on the Company’s consolidated financial statements.
 
The Company has entered into certain interest rate swap agreements to minimize the Company’s exposure to increases in interest rates on certain variable interest rate agreements. At the time of entering into the agreement and on an ongoing basis, the Company considers effectiveness of the interest rate swap at hedging the Company’s exposure to interest rate fluctuations. The Company recognizes interest rate swap agreements at fair value at each balance sheet date. If the agreement is deemed to effectively hedge the risk, the corresponding change in value is recorded as an adjustment to other comprehensive income. In the event that the swap is not effective, the corresponding change in fair value of the swap is recorded in the consolidated statements of income. Currently, each interest rate swap agreement entered into by the Company has been deemed effective and therefore reflected as a component of other comprehensive income, with no impact on the consolidated statements of income. The fair value of the swap agreements are included in prepaid and other assets or accounts payable and accrued expenses in the consolidated balance sheets. Net receipts and payments are recognized as adjustments to interest expense.
 
Income Taxes
 
The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), and has operated as such beginning with its taxable year ended December 31, 1998. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to currently distribute at least 90% (95% in 2000) of the REIT’s ordinary taxable income to shareholders. As a REIT, the Company generally will not be subject to federal income tax on taxable income that it distributes to its shareholders. If the Company fails to qualify as a REIT in any taxable year, it will then be subject to federal income taxes on its taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service granted the Company relief under certain statutory provisions. Such an event could materially adversely affect the Company’s net income and net cash
 
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available for distribution to shareholders. However, the Company believes that it is organized and operates in such a manner as to qualify for treatment as a REIT and intends to continue to operate in the foreseeable future in such a manner so that the Company will remain qualified as a REIT for federal income tax purposes. No provision for federal income taxes has been made in the accompanying consolidated financial statements, as the Company made distributions in excess of its taxable income in the years ended December 31, 2002, 2001, and 2000.
 
Restatement Adjustments and Disclosures
 
The Company and its joint ventures have historically reported property operating costs net of reimbursements from tenants as an expense in its consolidated statements of income. These costs include property taxes, property insurance, utilities, repairs and maintenance, management fees and other expenses related to the ownership and operation of the Company’s properties that are required to be reimbursed by the properties’ tenants in accordance with the terms of their leases. In response to FASB Emerging Issues Task Force consensus reached in November 2001, the Company and its joint ventures will now present these reimbursements as revenue and the gross property operating costs as expenses. Consequently, the accompanying consolidated statements of income of the Company for the years ended December 31, 2001 and 2000 have been restated to reflect the effects of this revised presentation.
 
 	  	2001

	  	2000

	
 	  	As
Previously
Reported
(000s)

	  	Restatement
Adjustments
(000s)

	 	 	As
Restated
(000s)

	  	As
Previously
Reported
(000s)

	  	Restatement
Adjustments
(000s)

	 	 	As
Restated
(000s)

	
Revenues:	  	 	 	  	 	 	 	 	 	 	  	 	 	  	 	 	 	 	 	 	
Rental income	  	$	44,204	  	$	—  	 	 	$	44,204	  	$	20,505	  	$	—  	 	 	$	20,505	
Tenant reimbursements	  	 	—  	  	 	6,830	 	 	 	6,830	  	 	—  	  	 	2,318	 	 	 	2,318	
Equity in income of joint ventures	  	 	3,721	  	 	—  	 	 	 	3,721	  	 	2,294	  	 	—  	 	 	 	2,294	
Take out fee	  	 	138	  	 	(138	)	 	 	—  	  	 	—  	  	 	—  	 	 	 	—  	
Interest and other income	  	 	1,246	  	 	275	 	 	 	1,521	  	 	574	  	 	—  	 	 	 	574	

	

	  	

	

	

	 	

	

	  	

	

	  	

	

	

	 	

	

	
 	  	 	49,309	  	 	6,967	 	 	 	56,276	  	 	23,373	  	 	2,318	 	 	 	25,691	

	

	  	

	

	

	 	

	

	  	

	

	  	

	

	

	 	

	

	
Expenses:	  	 	 	  	 	 	 	 	 	 	  	 	 	  	 	 	 	 	 	 	
Depreciation	  	 	15,345	  	 	—  	 	 	 	15,345	  	 	7,743	  	 	—  	 	 	 	7,743	
Interest expense	  	 	3,411	  	 	770	 	 	 	4,181	  	 	3,967	  	 	233	 	 	 	4,200	
Amortization of deferred financing costs	  	 	770	  	 	(770	)	 	 	—  	  	 	233	  	 	(233	)	 	 	—  	
Property operating costs	  	 	4,129	  	 	6,772	 	 	 	10,901	  	 	888	  	 	2,318	 	 	 	3,206	
Management and leasing fees	  	 	2,507	  	 	—  	 	 	 	2,507	  	 	1,310	  	 	—  	 	 	 	1,310	
General and administrative	  	 	974	  	 	195	 	 	 	1,169	  	 	439	  	 	—  	 	 	 	439	
Legal and accounting	  	 	449	  	 	—  	 	 	 	449	  	 	240	  	 	—  	 	 	 	240	

	

	  	

	

	

	 	

	

	  	

	

	  	

	

	

	 	

	

	
 	  	 	27,585	  	 	6,967	 	 	 	34,552	  	 	14,820	  	 	2,318	 	 	 	17,138	

	

	  	

	

	

	 	

	

	  	

	

	  	

	

	

	 	

	

	
Net income	  	$	21,724	  	$	—	 	 	$	21,724	  	 	$8,553	  	$	—	 	 	 	$8,553	

	

	  	

	

	

	 	

	

	  	

	

	  	

	

	

	 	

	

	

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In addition, the condensed combined statements of income disclosed in Note 4 have also been restated to reflect the effects of this revised presentation.
 
Since this presentation does not impact the amount of reimbursements received or property operating costs incurred and requires equal adjustments to revenues and expenses, the adoption of this guidance will have no impact on the financial position, net income, earnings per share or cash flows of the Company.
 
Furthermore, the statements of income for the years ended December 31, 2001 and 2000 have been revised to include disclosure of the weighted average shares outstanding for the years ended December 31, 2001 and 2000.
 
3.    REAL ESTATE ASSETS
 
The Company owns 100% interests in the following properties as of December 31, 2002. Operating results of the properties are included in the financial statements of the Company from the date of acquisition.
 
Property
Name

	 	Tenant

	 	Lease
Expiration

	 	Property
Location

	 	Date
Acquired

	 	Purchase
Price

	 	Square
Feet

	 	Annual
Rent

	
 	 	 	 	 	 	 	 	
Nestle
Los Angeles (1)	 	Nestle USA, Inc.
Various other tenants	 	8/2010	 	Glendale, CA	 	12/2002	 	$	157,000,000	 	505,115	 	$
$	14,844,799
29,065	
 	 	 	 	 	 	 	 	
Capital One
Richmond (2)	 	Capital One Services, Inc
Capital One Services, Inc
Capital One Services, Inc.	 	3/2010
5/2004
2/2010	 	Glen Allen, VA	 	11/2002	 	$	28,509,000	 	225,220	 	$
 
 	786,573
913,076
940,249	
 	 	 	 	 	 	 	 	
Caterpillar
Nashville	 	Caterpillar Financial Services Corporation
Thoughtworks, Inc
Highwoods Properties, Inc	 	2/2015
5/2005
9/2005	 	Nashville, TN	 	11/2002	 	$	61,525,000	 	312,297	 	$
$
$	7,384,111
162,944
129,946	
 	 	 	 	 	 	 	 	
NASA	 	National Aeronautics and Space Administration
Office of the Comptroller of the Currency	 	7/2012
5/2006	 	Washington, D.C.	 	11/2002	 	$	345,000,000	 	948,800	 	$
$	21,534,124
12,159,948	
 	 	 	 	 	 	 	 	
Daimler
Chrysler Dallas	 	Daimler Chrysler Services North America LLC	 	12/2011	 	Westlake, TX	 	9/2002	 	$	25,100,000	 	130,290	 	$	2,389,517	
 	 	 	 	 	 	 	 	
Allstate
Indianapolis	 	Allstate Insurance Company
Holladay Property Services Midwest, Inc.	 	8/2012
9/2006	 	Indianapolis, IN	 	9/2002	 	$	10,900,000	 	84,200
5,756	 	$
$	1,246,164
74,832	
 	 	 	 	 	 	 	 	
Intuit Dallas	 	Lacerte Software Corporation	 	6/2011	 	Plano, TX	 	9/2002	 	$	26,500,000	 	166,238	 	$	2,461,985	
 	 	 	 	 	 	 	 	
EDS Des Moines	 	EDS Information
Services LLC	 	4/2012	 	Des Moines, IA	 	9/2002	 	$	26,500,000	 	405,000	 	$	2,389,500	
 
32

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Property
Name

	 	Tenant

	 	Lease
Expiration

	 	Property
Location

	 	Date
Acquired

	 	Purchase
Price

	 	Square
Feet

	 	Annual
Rent

	
 	 	 	 	 	 	 	 	
Federal Express Colorado Springs	 	Federal Express Corporation	 	10/2016	 	Colorado Springs, CO	 	9/2002	 	$	26,000,000	 	155,808	 	$	2,248,309	
 	 	 	 	 	 	 	 	
KeyBank Parsippany	 	KeyBank U.S.A., N.A.
Gemini Technology Services	 	2/2016
12/2013	 	Parsippany, NJ	 	9/2002	 	$	101,350,000	 	200,000
204,515	 	$
$	3,800,000
5,726,420	
 	 	 	 	 	 	 	 	
IRS Long Island (3)	 	IRS Collection
IRS Compliance
IRS Daycare Facility	 	8/2005
12/2011
9/2004	 	Holtsville, NY	 	9/2002	 	$	50,975,000	 	128,000
50,949
12,100	 	$
$
$	5,029,380
1,663,200
486,799	
 	 	 	 	 	 	 	 	
AmeriCredit Phoenix (4) (5)	 	AmeriCredit Financial Services, Inc.	 	12/2013	 	Chandler, AZ	 	8/2002	 	$	24,700,000	 	153,494	 	$	1,609,315	
 	 	 	 	 	 	 	 	
Harcourt Austin	 	Harcourt, Inc.	 	6/2016	 	Austin, TX	 	8/2002	 	$	39,000,000	 	195,230	 	$	3,353,040	
 	 	 	 	 	 	 	 	
Nokia Dallas	 	Nokia, Inc.
Nokia, Inc.
Nokia, Inc.	 	7/2009
12/2010
7/2009	 	Irving, TX	 	8/2002	 	$	119,550,000	 	228,678
223,470
152,086	 	$
$
$	4,413,485
4,547,614
3,024,990	
 	 	 	 	 	 	 	 	
Kraft Atlanta	 	Kraft Foods North America, Inc.
Perkin Elmer Instruments, LLC	 	1/2012
11/2016	 	Suwanee, GA	 	8/2002	 	$	11,625,000	 	73,264
13,955	 	$
$	945,106
198,580	
 	 	 	 	 	 	 	 	
BMG Greenville (1)	 	BMG Direct Marketing, Inc.
BMG Music	 	12/2010
12/2009	 	Duncan, SC	 	7/2002	 	$	26,900,000	 	473,398
313,380	 	$
$	1,394,156
763,600	
 	 	 	 	 	 	 	 	
Kerr-McGee (1) (4) (5)	 	Kerr-McGee Oil & Gas Corporation	 	8/2014	 	Houston, TX	 	7/2002	 	$	15,760,000	 	100,000	 	$	1,655,000	
 	 	 	 	 	 	 	 	
PacifiCare San Antonio	 	PacifiCare Health Systems, Inc.	 	11/2010	 	San Antonio, TX	 	7/2002	 	$	14,650,000	 	142,500	 	$	1,471,700	
 	 	 	 	 	 	 	 	
ISS Atlanta (6)	 	Internet Security Systems, Inc.	 	5/2013	 	Atlanta, GA	 	7/2002	 	$	40,500,000	 	238,600	 	$	4,055,985	
 	 	 	 	 	 	 	 	
MFS Phoenix	 	Massachusetts Financial Services Company	 	7/2011	 	Phoenix, AZ	 	6/2002	 	$	25,800,000	 	148,605	 	$	2,347,959	
 	 	 	 	 	 	 	 	
TRW Denver	 	TRW, Inc.	 	9/2007	 	Aurora, CO	 	5/2002	 	$	21,060,000	 	108,240	 	$	2,871,069	
 	 	 	 	 	 	 	 	
Agilent Boston (7)	 	Agilent Technologies, Inc.	 	9/2011	 	Boxborough, MA	 	5/2002	 	$	31,742,274	 	174,585	 	$	3,578,993	
 	 	 	 	 	 	 	 	
Experian/TRW	 	Experian Information Solutions, Inc.	 	10/2010	 	Allen, TX	 	5/2002	 	$	35,150,000	 	292,700	 	$	3,701,918	
 	 	 	 	 	 	 	 	
BellSouth
Ft. Lauderdale (8)	 	BellSouth Advertising and Publishing Corporation	 	7/2008	 	Ft. Lauderdale, FL	 	4/2002	 	$	6,850,000	 	47,400	 	$	765,519	
 	 	 	 	 	 	 	 	
Agilent Atlanta (1)	 	Agilent Technologies, Inc.
Koninklijke Philips Electronics N.V.	 	9/2011
9/2011	 	Alpharetta, GA	 	4/2002	 	$	15,100,000	 	66,811
34,396	 	$
$	1,368,289
704,430	
 	 	 	 	 	 	 	 	
Travelers Express Denver	 	Travelers Express Company, Inc.	 	3/2012	 	Lakewood, CO	 	4/2002	 	$	10,395,845	 	68,165	 	$	1,012,250	
 	 	 	 	 	 	 	 	
Dana Kalamazoo (9)	 	Dana Corporation	 	10/2021	 	Kalamazoo, MI	 	3/2002	 	$	41,950,000	 	147,004	 	$	1,842,800	
 	 	 	 	 	 	 	 	
Dana Detroit (9)	 	Dana Corporation	 	10/2021	 	Farmington Hills, MI	 	3/2002	 	$	41,950,000	 	112,480	 	$	2,330,600	
 	 	 	 	 	 	 	 	
Novartis Atlanta (1)	 	Novartis Opthalmics, Inc.	 	7/2011	 	Duluth, GA	 	3/2002	 	$	15,000,000	 	100,087	 	$	1,454,765	
 
33

Table of Contents
Property
Name

	 	Tenant

	 	Lease
Expiration

	 	Property
Location

	 	Date
Acquired

	 	Purchase
Price

	 	Square
Feet

	 	Annual
Rent

	
 	 	 	 	 	 	 	 	
Transocean Houston	 	Transocean Deepwater Offshore Drilling, Inc.
Newpark Drilling Fluids, Inc.	 	3/2011
10/2009	 	Houston, TX	 	3/2002	 	$	22,000,000	 	103,260
52,731	 	$
$	2,103,285
1,153,227	
 	 	 	 	 	 	 	 	
Vertex Sarasota (formerly,
Arthur Andersen) (10)	 	Vertex Tax Technology	 	10/2009	 	Sarasota, FL	 	1/2002	 	$	21,400,000	 	157,700	 	$	621,257	
 	 	 	 	 	 	 	 	
Windy Point I (11)	 	TCI Great Lakes, Inc.
The Apollo Group, Inc.
Global Knowledge Network
Various other tenants	 	11/2009
7/2009
4/2010
Various	 	Schaumburg, IL	 	12/2001	 	$	32,225,000	 	129,157
28,322
22,028
8,884	 	$
$
$
$	2,128,503
477,226
393,776
141,010	
 	 	 	 	 	 	 	 	
Windy Point II (11)	 	Zurich American Insurance	 	8/2011	 	Schaumburg, IL	 	12/2001	 	$	57,050,000	 	300,034	 	$	5,244,594	
 	 	 	 	 	 	 	 	
Convergys	 	Convergys Customer Management Group, Inc.	 	9/2011	 	Tamarac, FL	 	12/2001	 	$	13,255,000	 	100,000	 	$	1,279,397	
 	 	 	 	 	 	 	 	
Lucent	 	Lucent Technologies, Inc.	 	9/2011	 	Cary, NC	 	9/2001	 	$	17,650,000	 	120,000	 	$	1,854,000	
 	 	 	 	 	 	 	 	
Ingram Micro (6)	 	Ingram Micro, L.P.	 	9/2011	 	Millington, TN	 	9/2001	 	$	21,050,000	 	701,819	 	$	2,035,275	
 	 	 	 	 	 	 	 	
Nissan (1) (4) (5)	 	Nissan Motor Acceptance Corporation	 	3/2013	 	Irving, TX	 	9/2001	 	$	42,259,000	 	268,290	 	$	4,225,860	
 	 	 	 	 	 	 	 	
IKON	 	IKON Office Solutions, Inc.	 	4/2010	 	Houston, TX	 	9/2001	 	$	20,650,000	 	157,790	 	$	2,015,767	
 	 	 	 	 	 	 	 	
State Street	 	SSB Realty, LLC	 	3/2011	 	Quincy, MA	 	7/2001	 	$	49,563,000	 	234,668	 	$	6,922,706	
 	 	 	 	 	 	 	 	
Metris Minnesota (1)	 	Metris Direct, Inc.	 	12/2011	 	Minnetonka, MN	 	12/2000	 	$	52,800,000	 	300,633	 	$	4,960,445	
 	 	 	 	 	 	 	 	
Stone & Webster	 	Stone & Webster, Inc. SYSCO Corporation	 	12/2010
9/2008	 	Houston, TX	 	12/2000	 	$	44,970,000	 	206,048
106,516	 	$
$	4,533,056
2,130,320	
 	 	 	 	 	 	 	 	
Motorola Plainfield (1)	 	Motorola, Inc.	 	10/2010	 	S. Plainfield, NJ	 	11/2000	 	$	33,648,156	 	236,710	 	$	3,324,428	
 	 	 	 	 	 	 	 	
Delphi (1)	 	Delphi Automotive Systems, LLC	 	4/2007	 	Troy, MI	 	6/2000	 	$	19,800,000	 	107,193	 	$	1,955,520	
 	 	 	 	 	 	 	 	
Avnet (1) (8)	 	Avnet, Inc.	 	4/2010	 	Tempe, AZ	 	6/2000	 	$	13,250,000	 	132,070	 	$	1,516,164	
 	 	 	 	 	 	 	 	
Motorola Tempe (8)	 	Motorola, Inc.	 	8/2005	 	Tempe, AZ	 	3/2000	 	$	16,000,000	 	133,225	 	$	2,054,329	
 	 	 	 	 	 	 	 	
ASML (1) (8)	 	ASM Lithography, Inc.	 	6/2013	 	Tempe, AZ	 	3/2000	 	$	17,355,000	 	95,133	 	$	1,927,788	
 	 	 	 	 	 	 	 	
Dial (1)	 	Dial Corporation	 	8/2008	 	Scottsdale, AZ	 	3/2000	 	$	14,250,000	 	129,689	 	$	1,387,672	
 	 	 	 	 	 	 	 	
Metris Tulsa	 	Metris Direct, Inc.	 	1/2010	 	Tulsa, OK	 	2/2000	 	$	12,700,000	 	101,100	 	$	1,187,925	
 	 	 	 	 	 	 	 	
Cinemark (1)	 	Cinemark USA, Inc.
The Coca-Cola Company	 	12/2009
11/2006	 	Plano, TX	 	12/1999	 	$	21,800,000	 	65,521
52,587	 	$
$	1,366,491
1,406,268	
 
34

Table of Contents
Property
Name

	 	Tenant

	 	Lease
Expiration

	 	Property
Location

	 	Date
Acquired

	 	Purchase
Price

	 	Square
Feet

	 	Annual
Rent

	
 	 	 	 	 	 	 	 	
Videojet Technologies Chicago (1)	 	Videojet Technologies, Inc.	 	11/2011	 	Wood Dale, IL	 	9/1999	 	$	32,630,940	 	250,354	 	$	3,376,743	
 	 	 	 	 	 	 	 	
Alstom Power Richmond (4) (1)	 	Alstom Power, Inc.	 	7/2007	 	Midlothian, VA	 	7/1999	 	$	11,400,000	 	99,057	 	$	1,244,501	
 	 	 	 	 	 	 	 	
Matsushita (4) (1)	 	Matsushita Avionics Systems Corporation	 	1/2007	 	Lake Forest, CA	 	3/1999	 	$	18,431,206	 	144,906	 	$	1,998,768	
 	 	 	 	 	 	 	 	
AT&T Pennsylvania (1)	 	Pennsylvania Cellular Telephone Corp.	 	11/2008	 	Harrisburg, PA	 	2/1999	 	$	12,291,200	 	81,859	 	$	1,468,529	
 	 	 	 	 	 	 	 	
Eisenhower Boulevard
(formerly, PwC) (1)	 	IBM (formerly, PricewaterhouseCoopers, LLP)	 	12/2008	 	Tampa, FL	 	12/1998	 	$	21,127,854	 	130,091	 	$	2,093,382	
 
(1)	 	Property is security for a debt facility.	
(2)	 	The previous owner has provided a guarantee of the Capital One leases for a specified period subsequent to the acquisition of the buildings, whereby the previous owner agrees to pay any rental shortfall, but also has the right to repurchase one of the buildings under certain terms.	
(3)	 	Excludes space subject to earn-out agreement.	
(4)	 	Includes the actual costs incurred or estimate to be incurred by Company to develop and construct the building in addition to the purchase price of the land.	
(5)	 	The related lease agreement and annual rent for the Americredit Phoenix, Kerr McGee and Nissan Properties do not take effect until construction of the building is completed and the tenant is occupying the building.	
(6)	 	Property is subject to capital lease obligation.	
(7)	 	In connection with the acquisition of the property, the Company assumed the obligation as landlord to provide the tenant $3.4 million for tenant improvements, of which $1.1 million had not been incurred at December 31, 2002.	
(8)	 	Property is subject to operating ground lease obligation.	
(9)	 	Dana Kalamazoo and Dana Detroit were purchased for an aggregate purchase price of $41,950,000.	
(10)	 	At December 31, 2002, 111,000 square feet, or approximately 70%, of the property was vacant and unleased as a result of the Company negotiating a lease termination agreement with the former tenant whereby the Company received approximately $1.0 million in cash and a 1.3 acre tract of land adjacent to the property which is used for parking.	
(11)	 	Windy Point I and Windy Point II were purchased for an aggregate purchase price of $89,275,000.	

35

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4.	 	INVESTMENTS IN JOINT VENTURES	
 
At December 31, 2002, the Company, through its ownership in Wells OP, owns interests in certain properties through joint ventures with affiliates as outlined below:
 
Joint Venture

	  	Joint Venture Partners

	  	Ownership
Percentage

	 	Properties Held by Joint Venture

	
Fund XIII-REIT Joint Venture	  	Wells OP
Wells Real Estate Fund XIII, L.P.	  	61%	 	AmeriCredit Building
ADIC Buildings
John Wiley Building	
 	 	 	 	
Fund XII-REIT Joint Venture	  	Wells OP
Wells Real Estate Fund XII, L.P.	  	55%	 	Siemens Building
AT&T Oklahoma Buildings
Comdata Building	
 	 	 	 	
Fund XI-XII-REIT Joint Venture	  	Wells OP
Wells Real Estate Fund XI, L.P.
Wells Real Estate Fund XII, L.P.	  	57%	 	EYBL CarTex Building
Sprint Building
Johnson Matthey Building
Gartner Building	
 	 	 	 	
Fund IX-X-XI-REIT Joint Venture	  	Wells OP
Wells Real Estate Fund IX, L.P.
Wells Real Estate Fund X, L.P.
Wells Real Estate Fund XI, L.P.	  	4%	 	Alstom Power Knoxville Building
Ohmeda Building
Interlocken Building
Avaya Building
Iomega Building	
 	 	 	 	
Wells/Freemont Associates Joint Venture
(the “Freemont Joint Venture”)	  	Wells OP
Fund X-XI Joint Venture	  	78%	 	Fairchild Building	
 	 	 	 	
Wells/Orange County Associates Joint Venture
(the “Orange County Joint Venture”)	  	Wells OP
Fund X-XI Joint Venture	  	44%	 	Cort Building	
 	 	 	 	
Fund VIII-IX-REIT Joint Venture	  	Wells OP
Fund VIII-IX Joint Venture	  	16%	 	Quest Building	
 
Details of the properties owned by the Company through Wells OP’s joint venture investments are as follows.
 
36

Table of Contents
Property
Name

	  	Tenant

	 	Lease
Expiration

	 	Property
Location

	 	Date
Acquired

	 	Purchase
Price

	 	Square
Feet

	 	Annual
Rent

	
 	 	 	 	 	 	 	 	
John Wiley Indianapolis (1)	  	John Wiley & Sons, Inc.
United Student Aid Funds, Inc.
Robert Half International, Inc.	 	10/2009
7/2005
4/2005	 	Fishers, IN	 	12/2002	 	$	17,450,000	 	141,047	 	$
$
$	1,940,892
223,401
55,500	
 	 	 	 	 	 	 	 	
ADIC (1)	  	Advanced Digital Information Corporation	 	10/2011	 	Parker, CO	 	12/2001	 	$	12,954,213	 	148,204	 	$	1,247,137	
 	 	 	 	 	 	 	 	
AmeriCredit (1)	  	AmeriCredit Financial Services Corporation	 	6/2011	 	Orange Park, FL	 	7/2001	 	$	12,500,000	 	85,000	 	$	1,336,200	
 	 	 	 	 	 	 	 	
Comdata (1)	  	Comdata Network, Inc.	 	5/2016	 	Brentwood, TN	 	5/2001	 	$	24,950,000	 	201,237	 	$	2,458,638	
 	 	 	 	 	 	 	 	
AT&T Oklahoma (1)	  	AT&T Corp.
Jordan Associates, Inc.	 	8/2010
12/2008	 	Oklahoma City, OK	 	12/2000	 	$	15,300,000	 	103,500
25,000	 	$
$	1,242,000
294,504	
 	 	 	 	 	 	 	 	
Quest (1)	  	Quest Software, Inc.	 	1/2004	 	Irvine, CA	 	7/2000	 	$	7,193,000	 	65,006	 	$	1,287,119	
 	 	 	 	 	 	 	 	
Siemens (1)	  	Siemens Automotive Corp.	 	8/2010	 	Troy, MI	 	5/2000	 	$	14,265,000	 	77,054	 	$	1,374,643	
 	 	 	 	 	 	 	 	
Gartner (1)	  	The Gartner Group, Inc.	 	1/2008	 	Ft. Myers, FL	 	9/1999	 	$	8,320,000	 	62,400	 	$	830,656	
 	 	 	 	 	 	 	 	
Johnson Matthey (1)	  	Johnson Matthey, Inc.	 	6/2007	 	Wayne, PA	 	8/1999	 	$	8,000,000	 	130,000	 	$	854,750	
 	 	 	 	 	 	 	 	
Sprint (1)	  	Sprint Communications Company, L.P.	 	5/2007	 	Leawood, KS	 	7/1999	 	$	9,500,000	 	68,900	 	$	1,102,400	
 	 	 	 	 	 	 	 	
EYBL CarTex (2)	  	EYBL CarTex, Inc.	 	—  	 	Fountain Inn, SC	 	5/1999	 	$	5,085,000	 	169,510	 	 	—  	
 	 	 	 	 	 	 	 	
Cort Furniture (1)	  	Cort Furniture Rental Corporation	 	10/2003	 	Fountain Valley, CA	 	7/1998	 	$	6,400,000	 	52,000	 	$	834,888	
 	 	 	 	 	 	 	 	
Fairchild (1)	  	Fairchild Technologies U.S.A., Inc.	 	11/2004	 	Fremont, CA	 	7/1998	 	$	8,900,000	 	58,424	 	$	945,564	
 	 	 	 	 	 	 	 	
Avaya (1)	  	Avaya, Inc.	 	1/2008	 	Oklahoma City, OK	 	6/1998	 	$	5,504,276	 	57,186	 	$	536,977	
 	 	 	 	 	 	 	 	
Iomega (1)	  	Iomega Corporation	 	4/2009	 	Ogden, UT	 	7/1998	 	$	5,025,000	 	108,250	 	$	539,958	
 	 	 	 	 	 	 	 	
Interlocken (3)	  	GAIAM, Inc.
ODS Technologies, L.P. Infocenter	 	5/2005
9/2003
5/2005	 	Broomfield, CO	 	3/1998	 	$	8,275,000	 	51,975	 	$
$
$	574,464
205,835
69,840	
 	 	 	 	 	 	 	 	
Ohmeda (1)	  	Ohmeda, Inc.	 	1/2005	 	Louisville, CO	 	2/1998	 	$	10,325,000	 	106,750	 	$	1,004,517	
 	 	 	 	 	 	 	 	
Alstom Power Knoxville (1)	  	Alstom Power, Inc.	 	11/2007	 	Knoxville, TN	 	3/1997	 	$	7,900,000	 	84,404	 	$	1,059,522	
 
(1)	 	Property is 100% leased as of December 31, 2002.	
(2)	 	The tenant vacated the space in November 2002 and filed for corporate dissolution in December 2002.	
(3)	 	Property is 75% leased as of December 31, 2002.	
 
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The investment objectives of each joint venture in which Wells OP is a partner are consistent with those of the Company. Wells OP is acting as the initial administrative venturer, as defined in the respective joint venture agreements, of each of the joint ventures included above, and as such, is responsible for establishing policies and operating procedures with respect to the business and affairs of each of these joint ventures. However, approval of the other joint venturers is required for any major decision or any action that materially affects these joint ventures or their real property investments.
 
Wells OP’s investment balance and percentage ownership in joint ventures at December 31, 2002 and 2001 are summarized as follows:
 
 	  	2002

	 	 	2001

	 	
 	  	Amount
(000s)

	  	Percent

	 	 	Amount
(000s)

	  	Percent

	 	
Fund VIII, IX, and REIT Joint Venture	  	$	1,089	  	16	%	 	$	1,189	  	16	%	
Fund IX, X, XI, and REIT Joint Venture	  	 	1,246	  	4	 	 	 	1,290	  	4	 	
Wells/Orange County Associates	  	 	2,641	  	44	 	 	 	2,740	  	44	 	
Wells/Fremont Associates	  	 	6,340	  	78	 	 	 	6,576	  	78	 	
Fund XI, XII, and REIT Joint Venture	  	 	16,361	  	57	 	 	 	17,188	  	57	 	
Fund XII and REIT Joint Venture	  	 	29,343	  	55	 	 	 	30,300	  	55	 	
Fund XIII and REIT Joint Venture	  	 	26,895	  	61	 	 	 	18,127	  	68	 	

	

	  	 	 	 	

	

	  	 	 	
 	  	$	83,915	  	 	 	 	$	77,410	  	 	 	

	

	  	 	 	 	

	

	  	 	 	
 
The following is a reconciliation of Wells OP’s investment in joint ventures for the years ended December 31, 2002 and 2001:
 
 	  	2002
(000s)

	 	 	2001
(000s)

	 	
Investment in joint ventures, beginning of year	  	$	77,410	 	 	$	44,236	 	
Equity in income of joint ventures	  	 	4,700	 	 	 	3,721	 	
Contributions to joint ventures	  	 	9,275	 	 	 	35,086	 	
Distributions from joint ventures	  	 	(7,470	)	 	 	(5,633	)	

	

	

	 	

	

	

	
Investment in joint ventures, end of year	  	$	83,915	 	 	$	77,410	 	

	

	

	 	

	

	

	
 
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Condensed combined financial information for all joint ventures as of December 31, 2002 and 2001, and for the years ended December 31, 2002, 2001 and 2000 is as follows:
 
Condensed Combined Balance Sheets
 
 	  	2002
(000s)

	  	2001
(000s)

	
Assets:	  	 	 	  	 	 	
Real estate assets	  	$	178,637	  	$	166,507	
Cash	  	 	4,780	  	 	4,827	
Accounts receivable	  	 	2,073	  	 	2,139	
Other assets	  	 	556	  	 	692	

	

	  	

	

	
Total adjustments	  	$	186,046	  	$	174,165	

	

	  	

	

	
Liabilities and partners’ equity	  	 	 	  	 	 	
Accounts payable and accrued expenses	  	 	1,071	  	 	1,152	
Distributions payable	  	 	3,777	  	 	3,968	

	

	  	

	

	
Total liabilities	  	 	4,848	  	 	5,120	

	

	  	

	

	
Partners’ equity	  	 	181,198	  	 	169,045	

	

	  	

	

	
Total liabilities and partners’ equity	  	$	186,046	  	$	174,165	

	

	  	

	

	
 
Condensed Combined Statements of Income	 	
 	  	2002
(000s)

	  	2001
(000s)

	 	 	2000
(000s)

	 	 	
Revenues:	  	 	 	  	 	 	 	 	 	 	 	 	
Rental income	  	$	19,167	  	$	15,931	 	 	$	10,895	 	 	
Tenant reimbursements (1)	  	 	1,849	  	 	2,251	(1)	 	 	1,768	(1)	 	
Other income	  	 	46	  	 	105	 	 	 	79	 	 	

	

	  	

	

	

	 	

	

	

	 	
Total revenues	  	 	21,062	  	 	18,287	 	 	 	12,742	 	 	

	

	  	

	

	

	 	

	

	

	 	
Expenses:	  	 	 	  	 	 	 	 	 	 	 	 	
Depreciation	  	 	6,470	  	 	5,516	 	 	 	3,489	 	 	
Operating expenses (1)	  	 	2,898	  	 	2,399	(1)	 	 	1,774	(1)	 	
Management and leasing fees	  	 	1,123	  	 	978	 	 	 	675	 	 	

	

	  	

	

	

	 	

	

	

	 	
Total expenses	  	 	10,491	  	 	8,893	 	 	 	5,938	 	 	

	

	  	

	

	

	 	

	

	

	 	
Net Income	  	$	10,571	  	$	9,394	 	 	$	6,804	 	 	

	

	  	

	

	

	 	

	

	

	 	
 
(1)	 	Amounts have been restated to reflect tenant reimbursements of $2,251,000 in 2001, and $1,768,000 in 2000 as revenue and gross operating costs as expenses as described in the Restatement Adjustments and Disclosures section of Note 2.	
 
The Company has historically presented the condensed balance sheets, statements of income, statements of partners’ capital, and statements of cash flows for each joint venture investment in the notes to the consolidated financial statements, although such disclosure is not required. In prior years, the joint venture investments had a more significant impact on the financial position and results of operations of the Company. However, with the continued acquisition of properties in the current year, the significance of the joint venture investments has been diluted. Management has determined that inclusion of the information presented in prior years is unnecessary due to the insignificance of the joint ventures as a percentage of total assets and net income.
 
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5.	 	INVESTMENTS IN BONDS AND OBLIGATIONS UNDER CAPITAL LEASES	
 
In connection with the purchase of a ground leasehold interest in the Ingram Micro Distribution Facility pursuant to a Bond Real Property Lease dated December 20, 1995 (the “Ingram Bond Lease”), Wells OP acquired an Industrial Development Revenue Note (the “Ingram Bond”) dated December 20, 1995 in the principal amount of $22 million. As part of the same transaction, Wells OP also acquired a Fee Construction Mortgage Deed of Trust Assignment of Rents and Leases (the “Ingram Bond Deed of Trust”), also dated December 20, 1995, which was executed by the Industrial Development Board in order to secure the Ingram Bond. The Ingram Bond Lease expires on December 31, 2026. Beginning in 2006, the Company has the option to purchase the land underlying the Ingram Micro Distribution Facility for $100 plus satisfaction of the indebtedness.
 
As part of the transaction to acquire a ground leasehold interest in the ISS Atlanta Buildings, Wells OP was assigned Development Authority of Fulton County Taxable Revenue Bonds totaling $32.5 million, which were originally issued in connection with the development of the ISS Atlanta Buildings (the “ISS Bonds”). The ISS Bonds entitle Wells OP to certain property tax abatement benefits. Upon payment of the outstanding balance on the ISS Bonds, on or before the expiration of the ground lease on December 1, 2015, fee title interest to the underlying land will be transferred to Wells OP.
 
The net carrying value of the ISS Atlanta Buildings and Ingram Micro Building is $62.4 million at December 31, 2002. Depreciation of the assets under capital leases is included with depreciation expense in the consolidated statements of income.
 
6.	 	BORROWINGS	
 
The Company has financed its investments, acquisitions, and developments through various lenders as described below. On December 31, 2002 and 2001, the Company had the following amounts outstanding:
 
Facility

	  	2002
(000s)

	  	2001
(000s)

	
$110 million Bank of America Line of Credit, accruing interest at LIBOR plus 175 basis points (3.31% at December 31, 2002), requiring interest payments monthly with principal due at maturity (May 11, 2004), collateralized by the Videojet Technologies Chicago Building, the AT&T Pennsylvania Building, the Matsushita Building, the Metris Minnesota Building, the Motorola Plainfield Building, and the Delphi Building	  	$	58,000	  	$	—  	
 	 	 	
$98.138 million SouthTrust Bank Line of Credit, accruing interest at LIBOR plus 175 basis points (3.31% at December 31, 2002), requiring interest payments monthly and principal due at maturity (June 10, 2003); collateralized by the Novartis Building, the Cinemark Building, the Dial Building, the ASML Building, the Alstom Power Richmond Building, the Avnet Building, the Agilent Atlanta Building, and the Eisenhower Boulevard Building (formerly the PWC Building)	  	 	61,399	  	 	7,655	
 	 	 	
$90 million note payable to Landesbank Schleswig-Hostein Gironzentrale, Kiel, accruing interest at LIBOR plus 115 basis points, currently locked at 2.53% through July 2, 2003 (2.53% at December 31, 2002), requiring interest payments monthly, with principal due at maturity (December 20, 2006), collateralized by the Nestle Building	  	 	90,000	  	 	—  	
 
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Facility

	  	2002
(000s)

	  	2001
(000s)

	
$34.2 million construction loan payable to Bank of America, accruing interest LIBOR plus 200 basis points (3.57% at December 31, 2002), requiring interest payments monthly and principal due at maturity (July 30, 2003), collateralized by the Nissan Property (1)	  	 	23,149	  	 	469	
$13.7 million construction loan payable to Bank of America, accruing interest at LIBOR plus 200 basis points (3.57% at December 31, 2002), requiring interest payments monthly, with principal due at maturity (January 29, 2004), collateralized by the Kerr-McGee Property (1)	  	 	4,038	  	 	—  	
$8.8 million note payable to Prudential, accruing interest at 8%, requiring interest and principal payments monthly with any unamortized principal due at maturity (December 15, 2003), collateralized by the BMG Buildings	  	 	8,709	  	 	—  	
$2.9 million note payable to Prudential, accruing interest at 8.5%, requiring interest payments monthly with principal due at maturity (December 15, 2003), collateralized by the BMG Buildings	  	 	2,900	  	 	—  	

	

	  	

	

	
Total borrowings	  	$	248,195	  	$	8,124	

	

	  	

	

	
 
 	(1)	 	The Company has entered into an interest rate swap for this construction loan. Refer to Note 7 for details of the interest rate swap agreements.	
 
The Company’s weighted average interest rate at December 31, 2002 for the aforementioned borrowings was approximately 3.3%. Cash paid for interest, including amounts capitalized was $4.2 million for the year ended December 31, 2002.
 
The following table summarizes the scheduled aggregate principal repayments, for the five years subsequent to December 31, 2002:
 
For the year ending December 31:

	  	Amount
(000s)

	
2003	  	$	96,157	
2004	  	 	62,038	
2005	  	 	—  	
2006	  	 	90,000	
2007	  	 	—  	
Thereafter	  	 	—  	

	

	
Total	  	$	248,195	

	

	

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The debt agreements contain requirements with regard to certain operating and financial covenants, including, but not limited to, maintaining insurance on the properties, distribution limits, and other financial ratios. For the year ended December 31, 2002, the Company was in violation of a debt covenant which limits the amount of the Company’s dividend payments to the Company’s funds from operations for the period. The lender provided a waiver for this violation for the year ended December 31, 2002. The Company’s compliance with this covenant in periods subsequent to December 31, 2002 will be dependent upon the future operations and dividends of the Company. Management projects that distributions will not exceed funds from operations for the year ended December 31, 2003.
 
7.	 	INTEREST RATE SWAP AGREEMENTS	
 
The Company has entered into interest rate swap agreements with Bank of America in order to hedge its interest rate exposure on the Bank of America construction loans for the Nissan Property (the Nissan Loan) and the Kerr McGee Property (the Kerr McGee Loan). The interest rate swap agreements involve 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. The notional amount of both interest rate swaps is the balance outstanding on the construction loan on the payment date.
 
The interest rate swap for the Nissan Loan became effective January 15, 2002 and terminates on June 15, 2003. The Company, as the fixed rate payer, has an interest rate of 3.9%, plus 200 basis points. Bank of America, the variable rate payer, pays at a rate equal to U.S. dollar LIBOR on the payment date. The result is an effective interest rate of 5.9% on the Nissan Loan.
 
The interest rate swap for the Kerr McGee Loan became effective September 15, 2002 and terminates on July 15, 2003. The Company as the fixed rate payer has an interest rate of 2.27%, plus 200 basis points. Bank of America, the variable rate payer, pays at a rate equal to U.S. dollar LIBOR on the payment date. The result is an effective interest rate of 4.27% on the Kerr McGee Loan.
 
For the year ended December 31, 2002, the Company made interest payments totaling approximately $0.2 million under the terms of the interest rate swap agreements. At December 31, 2002, the combined estimated fair value of the interest rate swaps for the Nissan Loan and the Kerr McGee Loan was approximately $(0.4 million).
 
8.	 	COMMITMENTS AND CONTINGENCIES	
 
Take Out Purchase and Escrow Agreement
 
The Advisor and it’s affiliates have developed a program (the “Wells Section 1031 Program”) involving the acquisition by a subsidiary of Wells Management Company (“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 seeking 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. The acquisition of each of the properties acquired by Wells Exchange will be financed by a combination of permanent first mortgage financing and interim loan financing obtained from institutional lenders.
 
Following the acquisition of each property, Wells Exchange will attempt to sell co-tenancy interests to 1031 Participants, the proceeds of which will be used to repay a prorata portion of the interim financing. In
 
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consideration for the payment of a take out fee to Wells OP, and following approval of the potential property acquisition by the Company’s board of directors, it is anticipated that Wells OP will enter into a take out purchase and escrow agreement or similar contract providing that, in the event that Wells Exchange is unable to sell all of the co-tenancy 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.
 
Ford Motor Credit Transaction
 
As a part of the initial transaction in the Wells Section 1031 Program, and in consideration for the payment of a take out fee in the amount of $0.1 million to the Company, Wells OP entered into a take out purchase and escrow agreement dated April 16, 2001. However, Wells OP was not required to satisfy any of the requirements under the agreement as all co-tenancy interests were sold prior to the extended deadline. The pay off of the loan on April 12, 2002 by Wells Exchange-Federal Drive-Colorado Springs, LLC triggered the release of Wells OP from its prior obligations under the take out agreement. The $0.1 million take out fee was recognized as income in 2001.
 
Meadow Brook Corporate Park Transaction
 
The second transaction in the Section 1031 Exchange Program involves the acquisition by Wells Exchange-Meadow Brook Park, Birmingham, LLC (“Wells Exchange-Meadow Brook Park”), a wholly owned subsidiary of Wells Management Company, and resale of co-tenancy interests in two single tenant office buildings each containing approximately 98,216 rentable square feet located in Birmingham, Alabama (“Meadow Brook Corporate Park”) currently under lease agreements with Allstate Insurance Company and Computer Sciences Corporation. Wells Exchange-Meadow Brook Park is currently engaged in the offer and sale of co-tenancy interests in the Meadow Brook Corporate Park to 1031 Participants.
 
In consideration for the payment of a take out fee in the amount of $0.2 million, which was recognized as income in the year ended December 31, 2002, Wells OP entered into a take out purchase and escrow Agreement relating to the Meadow Brook Corporate Park. Pursuant to the terms of the take out purchase and escrow agreement, Wells OP is obligated to acquire, at Wells Exchange-Meadow Brook Park’s cost ($0.4 million in cash for each 2.9994% co-tenancy interest), any co-tenancy interests in the Meadow Brook Corporate Park that remain unsold on September 30, 2003.
 
The obligation of Wells OP under the Take Out Purchase and Escrow Agreement relating to Meadow Brook Corporate Park is secured by a line of credit with Bank of America, N.A. (BOA). If, for any reason, Wells OP fails to acquire any of the co-tenancy interests in the Meadow Brook Corporate Park which remain unsold as of September 30, 2003, or if there is otherwise an uncured default under the interim loan, BOA is authorized to draw down on Wells OP’s line of credit in the amount necessary to pay the outstanding balance of the interim loan in full, in which event the appropriate amount of unsold co-tenancy interests in the Meadow Brook Corporate Park would be deeded to Wells OP. Wells OP’s maximum economic exposure in the transaction is $14 million, in which event Wells OP would acquire the Meadow Brook Corporate Park for $14 million in cash plus assumption of the first mortgage financing in the amount of $13.9 million. If Wells Exchange-Meadow Brook Park successfully sells 100% of the co-tenancy interests to 1031 participants, Wells OP will not acquire any interest in the Meadow Brook Corporate Park. If some, but not all, of the co-tenancy interests are sold by Wells Exchange-Meadow Brook Park, Wells OP’s exposure would be less, and it would end up owning an interest in the property in co-tenancy with 1031 Participants who had previously acquired co-tenancy interests in the Meadow Brook Corporate Park from Wells Exchange-Meadow Brook Park.

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Letters of Credit
 
At December 31, 2002, Wells OP had three unused letters of credit totaling approximately $19.7 million outstanding from financial institutions, consisting of letters of credit of approximately $14.5 million; $4.8 million; and $0.4 million with expiration dates of February 28, 2004; August 12, 2003; and February 2, 2004; respectively. These amounts are not recorded in the accompanying consolidated balance sheet as of December 31, 2002. These letters of credit were required by three unrelated parties to ensure completion of the Company’s obligations under certain earn-out and construction agreements. Management does not anticipate a need to draw on these letters of credit.
 
Properties Under Contract
 
At December 31, 2002, the Company has a contract to acquire a third building at the Company’s ISS Atlanta Buildings development upon completion of construction for a fixed purchase price of $10.0 million. The property is currently under construction, with an expected completion date in June 2003.
 
Commitments Under Existing Lease Agreements
 
Certain lease agreements include provisions that, at the option of the tenant, the Company may be obligated to expend certain amounts of capital to expand an existing property, construct on adjacent property, or provide other expenditures for the benefit of the tenant, which would then be leased to the tenant upon completion, in favor of additional rental revenue. No such options have been exercised by tenants.
 
Properties Under Construction
 
Wells OP has entered into an agreement with an independent third-party general contractor for the purpose of designing and constructing a three-story office building containing 268,290 rentable square feet on the Nissan Property. The construction agreement provides that Wells OP will pay the contractor a fee of $25.3 million for the design and construction of the building, plus $5.6 million for acquisition of the land. Construction commenced in January 2002 and the building was completed in February 2003. Construction was funded through a construction loan with Bank of America (see Note 6). As of December 31, 2002, approximately $25.7 million of costs had been incurred to construct the property, with minimal additional costs incurred subsequently to complete the building.
 
Wells OP has entered into an agreement with an independent third-party general contractor for the purpose of developing, designing, and constructing the Kerr-McGee Building. The building’s completion is projected for July 2003. Construction is being funded through the construction loan with Bank of America (see Note 6). The total anticipated 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 Building will total approximately $15.8 million, plus $2.1 million for acquisition of the land. At December 31, 2002, $5.4 million had been incurred.
 
Wells OP has entered into an agreement with an independent third-party general contractor for the purpose of designing and constructing the Americredit Phoenix Building. Construction commenced in September 2002 with budgeted costs of $24.7 million with scheduled completion in May 2003. The cost of the underlying land was $2.7 million. Construction is being funded through the use of investor proceeds. As of December 31, 2002, approximately $6.3 million of costs had been incurred to construct the property, with an additional $15.7 million of additional costs anticipated to compete the building.

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Earn-out Agreements
 
As part of the acquisition of the IRS Building, the Company entered into an agreement whereby the Company is obligated to pay the seller an additional $14.5 million if the Company or the seller locates a suitable tenant and leases the vacant space of the building within 18 months after the date of acquisition of the property, or March 2004. If the space is not leased within this time, the Company is released from any obligation to pay this additional purchase consideration. The 26% of the building that was unleased at the time of acquisition remains unleased at December 31, 2002.
 
Leasehold Property Obligations
 
The ASML, Motorola Tempe, Avnet, and Bellsouth Ft. Lauderdale Buildings are subject to certain ground leases with expiration dates of 2082, 2082, 2083, and 2049, respectively. Required payments, under the terms of the leases are as follows at December 31, 2002, in thousands:
 
 	  	Amount
(000s)

	
2003	  	$     726	
2004	  	726	
2005	  	726	
2006	  	726	
2007	  	726	
Thereafter	  	92,366	

	
Total	  	$95,996	

	
 
Ground rent expense for the years ended December 31, 2002, 2001, and 2000 was approximately $0.7 million, $0.7 million, and $0.5 million, respectively. The net book value of the related land improvements subject to operating leases is $50.3 million at December 31, 2002.
 
Pending Litigation
 
In the normal course of business, the Company and its subsidiaries may become subject to litigation or claims. In November 2002, Shoreview Associates LLC (“Shoreview”), the owner of an office building located in Ramsey County, Minnesota that Wells OP had contracted to purchase, filed a lawsuit against Wells OP in state court in Minnesota alleging that Shoreview was entitled to the $750,000 in earnest money that Wells OP had deposited under the contract. Wells OP has filed a counterclaim in the case asserting that it is entitled to the $750,000 earnest money deposit. Procedurally, Wells OP had the case transferred to U.S. District Court in Minnesota, and Shoreview has moved to transfer the case back to state court. The dispute currently remains in litigation. After consultation with legal counsel, management does not believe that a reserve for a loss contingency is necessary.

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9.	 	SHAREHOLDERS’ EQUITY	
 
General
 
Under the Company’s Articles of Incorporation, the total number of shares of stock authorized for issuance is 1 billion, consisting of 750 million common shares, 100 million preferred shares, and 150 million shares-in-trust, each as defined by the Company’s Articles of Incorporation as amended and restated on June 26, 2002.
 
The common shares shall have a par value of $0.01 per share and shall entitle the holders to one vote per share on all matters upon which shareholders, subject to the express terms of any series preferred shares, are entitled to vote pursuant to the Articles of Incorporation.
 
The Company is authorized to issue one or more series of preferred shares. Prior to the issuance of such shares, the board of directors shall fix the number of shares outstanding to be included in each series, and the designation, preferences, terms, rights, restrictions, limitations and qualifications and terms and conditions of redemption of the shares of each class or series. As of December 31, 2002, the Company has not issued any preferred shares.
 
In order to ensure that certain ownership restrictions are not violated and the Company’s REIT status is not violated, the Articles of Incorporation of the Company authorize the Company to issue certain shares-in-trust and exchange these for such shares causing violation. Such shares shall be deemed transferred to and held in a trust established on behalf of the violator and administered by the trustee, as defined in the Articles of Incorporation. Such shares-in-trust shall be issued and outstanding stock of the Company and are entitled to the same rights and privileges as all other shares of the same class or series, except that the trust will receive all distributions on such shares, the trustee will be entitled to the vote associated with the shares-in-trust, and shares-in-trust are not transferable. Upon liquidation, such shares-in-trust shall be treated consistently with all other shares of the same class or series. As of December 31, 2002, the Company has not issued any shares-in-trust.
 
2000 Employee Stock Option Plan
 
On June 28, 2000, the shareholders approved the 2000 Employee Stock Option Plan of Wells Real Estate Investment Trust, Inc. (the “Employee Option Plan”), which provides for grants of “non-qualified” stock options to be made to selected employees of Wells Capital and Wells Management, subject to the discretion of the Compensation Committee and the limitations of the Employee Option Plan. A total of 750,000 shares have been authorized and reserved for issuance under the Employee Option Plan. At December 31, 2002, no stock options have been granted or exercised under the Employee Stock Option Plan; therefore, 750,000 shares are available for issue.
 
The exercise price for the employee options shall be the greater of (1) $11.00 per share, or (2) the Fair Market Value, as defined in the Employee Option Plan, of the shares on the date the option is granted. The Compensation Committee has the authority to set the term and vesting period of the stock option except that no option shall have a term greater than five years from the later of (1) the date the Company’s shares are listed on a national securities exchange, or (2) the date the stock option is granted. In the event that the Compensation Committee determines that the potential benefits of the stock options may be inappropriately diluted or enlarged as a result of a certain corporate transaction or event, the Compensation Committee may adjust the number and kind of shares or the exercise price with respect to any option. Upon exercise, the employee agrees to remain in the employment of Wells Capital or Wells Management for a period of one year after the date of grant. No stock option may be exercised if such exercise would jeopardize the Company’s status as a REIT under the Internal Revenue Code. No option may be sold, pledged, assigned or transferred by an employee in any manner other than by will or the laws of descent or distribution.

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Independent Director Stock Option Plan
 
On June 16, 1999, the shareholders approved the Wells Real Estate Investment Trust, Inc. Independent Director Stock Option Plan (“the Independent Director Plan”), which provides for grants of stock to be made to independent non-employee directors of the Company. A total of 100,000 shares have been authorized and reserved for issuance under the Independent Director Plan. At December 31, 2002, 41,000 options have been granted, with 59,000 available to be granted.
 
Options to purchase 2,500 shares of common stock at the greater of (1) $12 per share or (2) the Fair Market Value, as defined in the Independent Director Plan, are granted upon initially becoming an independent director of the Company, or at the date of the approval of the Independent Stock Option Plan for existing independent directors. Of these shares, 20% are exercisable immediately on the date of grant. An additional 20% of these shares become exercisable on each anniversary following the date of grant for a period of four years. Additionally, effective on the date of each annual meeting of shareholders of the Company, beginning in 2000, each independent director will be granted an option to purchase 1,000 additional shares of common stock. These options are 100% exercisable at the completion of two years of service after the date of grant. All options granted under the Independent Director Plan expire no later than the date immediately following the tenth anniversary of the date of grant and may expire sooner in the event of the disability or death of the independent director or if the independent director ceases to serve as a director. In the event that the potential benefits of the stock options may be inappropriately diluted or enlarged as a result of a certain corporate transaction or event, a corresponding adjustment to the consideration payable with respect to all stock options shall be made. No option may be sold, pledged, assigned or transferred by an independent director in any manner other than by will or the laws of descent or distribution.
 
A summary of the Company’s stock option activity for the years ended December 31, 2002, 2001, and 2000 is as follows:
 
 	  	Number

	  	Exercise
Price

	  	Exercisable

	
Outstanding at December 31, 1999	  	17,500	  	$	12	  	 	
Granted in 2000	  	7,000	  	 	12	  	 	

	  	 	 	  	 	
Outstanding at December 31, 2000	  	24,500	  	 	12	  	7,000	
Granted in 2001	  	7,000	  	 	12	  	 	

	  	 	 	  	 	
Outstanding at December 31, 2001	  	31,500	  	 	12	  	10,500	
Granted in 2002	  	9,500	  	 	12	  	 	

	  	 	 	  	 	
Outstanding at December 31, 2002	  	41,000	  	 	12	  	21,500	

	  	 	 	  	 	
 
For SFAS 123 purposes, the fair value of each stock option for 2002, 2001, and 2000 has been estimated as of the date of the grant using the Black-Scholes minimum value method. The weighted average risk-free interest rates assumed for 2002, 2001 and 2000 were 4.57%, 5.05% and 6.45%, respectively. Projected future dividend yields of 7.0%, 7.8% and 7.3% were estimated for the options granted in 2002, 2001, and 2000, respectively. The expected life of an option was assumed to be six, six, and four years for 2002, 2001, and 2000, respectively. Based on these assumptions, the fair value of the options granted during the years ended December 31, 2002, 2001, and 2000 is $0. All options granted have an exercise price of $12 per share. The weighted average contractual remaining life for options that are exercisable at December 31, 2002 was approximately 8.7 years.

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Independent Director Warrant Plan
 
The Independent Director Warrant Plan (the “Independent Director Warrant Plan”), was approved by the shareholders on June 28, 2000, providing for the issuance of one warrant to purchase common stock for every 25 shares of common stock purchased by the independent director. A total of 500,000 warrants have been authorized and reserved for issuance under the Independent Director Warrant Plan. The exercise price of the warrants shall be $12 per share. No warrant may be sold, pledged, assigned or transferred by an independent director in any manner other than by the laws of descent or distribution. At December 31, 2002, approximately 5,000 warrants have been earned under the Independent Director Warrant Plan, but no warrants have been issued under the Independent Director Warrant Plan.
 
Dividend Reinvestment Plan
 
During 1999, the Company’s board of directors authorized a dividend reinvestment plan (the “DRP”), through which common shareholders may elect to reinvest an amount equal to the dividends declared on their common shares into additional shares of the Company’s common stock in lieu of receiving cash dividends. The shares may be purchased at a fixed price per share and participants in the DRP may purchase fractional shares so that 100% of the dividends will be used to acquire shares of the Company’s stock. With respect to such shares, the Company will pay selling commissions of 7%, a dealer manager fee of 2.5%, organization and offering costs of up to 3% of the reinvestment, acquisition and advisory fees and expenses of 3.5% of the purchase price, which is consistent with the costs paid in connection with the current offering of shares of the Company’s common stock. The board of directors, by majority vote, may amend or terminate the DRP for any reason upon 10 days notice to the participants of the DRP.
 
Share Redemption Program
 
As the Company’s stock is currently not listed on a national exchange, there is no market for the Company’s stock. As a result, there is risk that a shareholder may not be able to sell the Company’s stock at a time or price acceptable to the shareholder. During 2000, the Company’s board of directors authorized a common stock redemption plan for investors who held the shares for more than one year, subject to the limitation that aggregate shares redeemed under the plan could not exceed the lesser of (i) the amount reinvested in the Company’s common shares through the DRP, less shares already redeemed, or (ii) 3% of the average common shares outstanding during the preceding year. The Company has no obligation to repurchase shares under its share redemption program. Shares redeemed under the share redemption program are purchased by the Company at the amount contributed by the shareholder, including any commissions paid at issuance. During 2002, 2001, and 2000, the Company repurchased 1.5 million; 0.4 million; and 0.1 million of its own common shares at an aggregate cost of $15.3 million; $4.1 million; and $1.4 million, respectively. These transactions were funded with cash on hand and did not exceed any of the foregoing limitations. At the time of such redemption, Wells Investment Securities, Inc. (“WIS”) has refunded to the Company the 2.5% commission earned upon the issuance of such shares. The board of directors, by majority vote, may amend or terminate the Company’s share redemption program at any time.
 
Dealer Warrant Plan
 
Under the terms of each offering of the Company’s stock, warrants to purchase shares of the Company’s stock were delivered to WIS. Currently such warrants are issued in book form only and warrant certificates are not issued. For each warrant, the warrant-holder shall have the right to purchase one share from the Company at a price of $12 during the time period beginning one year from the effective date of the respective offering and ending on the date five years after the effective date. Warrants outstanding as of December 31, 2002 for the first, second, third, and fourth offerings to date are approximately 0.5 million, 0.7 million, 4.7 million, and 1.1 million, respectively. As of December 31, 2002, no warrants have been exercised under the plan.

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10.	 	SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES	
 
Outlined below are significant non-cash transactions for the years ended December 31, 2002, 2001, and 2000:
 
 	  	2002
(000s)

	  	2001
(000s)

	  	2000
(000s)

	
Deferred project costs applied to real estate assets	  	$	47,491	  	$	14,321	  	$	5,114	

	

	  	

	

	  	

	

	
Deferred project costs contributed to joint ventures	  	$	366	  	$	1,395	  	$	628	

	

	  	

	

	  	

	

	
Deferred project costs applied to lease acquisition costs	  	$	16	  	$	—  	  	$	—  	

	

	  	

	

	  	

	

	
Deferred project costs due to affiliate	  	$	7,708	  	$	1,114	  	$	191	

	

	  	

	

	  	

	

	
Deferred offering costs due to affiliate	  	$	—  	  	$	—  	  	$	1,291	

	

	  	

	

	  	

	

	
Reversal of deferred offering costs due to affiliate	  	$	—  	  	$	965	  	$	—  	

	

	  	

	

	  	

	

	
Other offering expenses due to affiliate	  	$	8,263	  	$	943	  	$	—  	

	

	  	

	

	  	

	

	
Assumption of obligation under capital lease and related bonds	  	$	32,500	  	$	22,000	  	$	—  	

	

	  	

	

	  	

	

	
Assumption of debt at property acquisition	  	$	90,000	  	$	—  	  	$	—  	

	

	  	

	

	  	

	

	
 
 	  	2002
(000s)

	  	2001
(000s)

	  	2000
(000s)

	
Acquisition of intangible lease liability	  	$	32,697	  	$	—  	  	$	—  	

	

	  	

	

	  	

	

	
Dividends Payable	  	$	6,046	  	$	1,059	  	$	1,025	

	

	  	

	

	  	

	

	
Due from affiliates	  	$	1,774	  	$	1,693	  	$	250	

	

	  	

	

	  	

	

	
Write off fully amortized deferred financing costs	  	$	623	  	$	—  	  	$	—    	

	

	  	

	

	  	

	

	
 
11.	 	INCOME TAX BASIS NET INCOME	
 
The Company’s income tax basis net income for the years ended December 31, 2002, 2001, and 2000 is calculated as follows:
 
 	  	2002
(000s)

	 	 	2001
(000s)

	 	 	2000
(000s)

	 	
GAAP basis financial statement net income	  	$	59,854	 	 	$	21,724	 	 	$	8,553	 	
Increase (decrease) in net income resulting from:	  	 	 	 	 	 	 	 	 	 	 	 	
Depreciation expense for financial reporting purposes in excess of amounts for income tax purposes	  	 	17,160	 	 	 	7,347	 	 	 	3,511	 	
Rental income accrued for income tax purposes in excess of (less than) amounts for financial reporting purposes	  	 	3,578	 	 	 	(2,735	)	 	 	(1,822	)	
Expenses deductible when paid for income tax purposes, accrued for financial reporting purposes	  	 	(71	)	 	 	26	 	 	 	38	 	

	

	

	 	

	

	

	 	

	

	

	
Income tax basis net income, prior to dividends paid deduction	  	$	80,521	 	 	$	26,362	 	 	$	10,280	 	

	

	

	 	

	

	

	 	

	

	

	

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At December 31, 2002, the tax basis carrying value of the Company’s total assets was approximately $2,237.2 million.
 
12.	 	RELATED-PARTY TRANSACTIONS	
 
Advisory Agreement
 
The Company has entered into an Advisory Agreement with the Advisor, which entitles the Advisor to specified fees upon the completion of certain services with regard to the offering of shares to the public and investment of funds in real estate projects. The current Advisory Agreement dated January 30, 2002 has been temporarily extended by the board of directors until May 19, 2003.
 
The Company pays a percentage of shareholder contributions to the Advisor for acquisition and advisory services and acquisition expenses. These payments, as stipulated in the Company’s current offering prospectus, are limited to 3.5% of shareholder contributions, subject to certain overall operating expense limitations contained in the prospectus. Aggregate fees incurred through December 31, 2002 and 2001 were $75.5 million and $29.1 million, respectively, and approximated 3.5% of shareholder contributions received. As of December 31, 2002, $67.8 million had been paid to the Advisor through December 31, 2002, with $7.7 million payable to the Advisor.
 
Under the terms of the Advisory Agreement, the Company reimburses the Advisor for organization and offering costs not to exceed 3% of the offering proceeds raised. To the extent that organization and offering costs exceed 3% of gross offering proceeds, offering costs will be paid by the Advisor and not by the Company. As of December 31, 2002 the Advisor had paid fund to date organization and offering expenses on behalf of the Company in the aggregate amount of approximately $40.0 million, which did not exceed the 3% limitation. The Advisor had been reimbursed $31.7 million as of December 31, 2002.
 
Additionally, the Advisory Agreement provides that if the Advisor provides a substantial amount of the associated services, as determined by the Independent Directors, the Advisor shall earn a disposition fee in the event that properties are disposed of, in the amount of 50% of a competitive real estate commission or 3.0% of the sales price of the property. At December 31, 2002, no such fees had been paid to the Advisor as no properties had been disposed of to date. The disposition fee will be paid only if shareholders have received total dividends in an amount equal to the sum of their aggregate invested capital, plus an 8% return on invested capital.
 
The Advisory Agreement also provides that the Advisor shall earn an amount equal to 10% of the net sales proceeds remaining after shareholders have received dividends equal to the sum of the shareholders’ invested capital plus an 8% return of invested capital. The Advisor will not earn this fee in the event that the Company’s shares are listed on a national stock exchange. As of December 31, 2002, no such fees have been paid.
 
If the Company’s shares are listed on a national stock exchange at any future date, the Advisor shall be entitled to an incentive fee in an amount equal to 10.0% of the amount by which (1) the market value of the outstanding stock of the Company as defined in the Advisory Agreement, exceeds (2) the sum of 100% of invested capital and the total dividends required to be paid to the shareholders in order to pay the shareholders an 8.0% return on invested capital from inception through the date of listing. No such amounts have been incurred as of December 31, 2002. In the event the fee is paid to the Advisor following listing, no other performance fee will be paid to the Advisor.

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Administrative Services Reimbursement
 
The Company has no direct employees. The employees of the Advisor and Wells Management Company, Inc. (“Wells Management”), an affiliate of 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 related expenses are allocated among the Company and the various Wells Real Estate Funds based on time spent on each entity by individual administrative personnel. The Company was allocated salaries, wages, and other payroll related costs by the Advisor and Wells Management totaling $2.0 million, $0.7 million, and $0.2 million for the years ended December 31, 2002, 2001, and 2000, respectively. These amounts are included in general and administrative expenses in the consolidated statements of income.
 
Property Management and Leasing Agreements
 
The Company entered into a property management and leasing agreement with Wells Management. In consideration for supervising the management and leasing of the Company’s properties, the Company will pay management and leasing fees to Wells Management equal to the lesser of (a) 4.5% of the gross revenues generally paid over the life of the lease or (b) 0.6% of the net asset value of the properties (excluding vacant properties) owned by the Company. These management and leasing fees are calculated on an annual basis plus a separate competitive fee for the one-time initial lease-up of newly constructed properties generally paid in conjunction with the receipt of the first month’s rent. Management and leasing fees incurred for services provided by Wells Management were $5.0 million, $2.5 million, and $1.1 million for the years ended December 31, 2002, 2001, and 2000, respectively.
 
Dealer Manager Agreement
 
The Company has entered into a dealer manager agreement, whereby, WIS, performs the dealer manager function for the Company. For these services, WIS earns fees of 7% of the gross proceeds from the sale of the shares of the Company, which is reallocated to participating broker-dealers. Additionally, WIS earns a dealer manager fee of 2.5% of the gross offering proceeds at the time the shares are sold, of which up to 1.5% may be reallowed to the broker-dealer. WIS has elected, although is not obligated, to reduce the dealer manager fee amount in each period by 2.5% of the gross redemptions under the Company’s redemption plan. The amount of such reduction was $0.4 million, $0.1 million, and $0.0 million for the years ended
December 31, 2002, 2001, and 2000, respectively. During the years ended December 31, 2002, 2001, and 2000, the Company incurred commissions and dealer manager fees of $127.3 million, $49.2 million, and $17.0 million, respectively.

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Due From Affiliates
 
Due from affiliates included in the consolidated balance sheets at December 31, 2002 and 2001 represents the Company’s share of the cash to be distributed from its joint venture investments for the fourth quarter of 2002 and 2001 and other amounts payable to the Company from other related parties:
 
 	  	2002
(000s)

	  	2001
(000s)

	
Fund VIII, IX, and REIT Joint Venture	  	$	48	  	$	47	
Fund IX, X, XI, and REIT Joint Venture	  	 	21	  	 	36	
Wells/Orange County Associates	  	 	85	  	 	84	
Wells/Fremont Associates	  	 	168	  	 	164	
Fund XI, XII, and REIT Joint Venture	  	 	361	  	 	430	
Fund XII and REIT Joint Venture	  	 	688	  	 	681	
Fund XIII and REEIT Joint Venture	  	 	403	  	 	251	
Affiliates of the Advisor	  	 	187	  	 	—  	

	

	  	

	

	
 	  	$	1,961	  	$	1,693	

	

	  	

	

	
 
Conflict of Interest
 
The Advisor also is a general partner in various Wells Real Estate Funds. As such, there are conflicts of interest where the Advisor, while serving in the capacity as general partner for Wells Real Estate Funds, may be in competition with the Company in connection with property acquisitions or for tenants in similar geographic markets.
 
13.	 	OPERATING LEASES	
 
Virtually all of the Company’s real estate assets are leased to tenants under operating leases for which the terms and expirations vary. The leases frequently have provisions to extend the lease agreement, options for early termination after paying a specified penalty, and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. Amounts required as security deposits vary depending upon the terms of the respective leases and the creditworthiness of the tenant, but generally are not significant amounts. Therefore exposure to credit risk is limited to the extent that the receivables exceed this amount. Security deposits related to tenant leases are included in accounts payable and accrued expenses in the consolidated balance sheets.
 
The future minimum rental income from the Company’s investment in real estate assets under non-cancelable operating leases, excluding properties under development, at December 31, 2002 is as follows:
 
 	  	Amount
(000s)

	
Year ending December 31:	  	 	 	
2003	  	$	195,677	
2004	  	 	197,680	
2005	  	 	197,852	
2006	  	 	192,666	
2007	  	 	183,494	
Thereafter	  	 	759,559	

	

	
 	  	$	1,726,928	

	

	

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No individual tenant accounted for greater than 10% of the rental income for the year ended December 31, 2002. At December 31, 2002, approximately 12% of the future rental amounts are attributable to one tenant, the National Aeronautics and Space Administration.
 
14.	 	QUARTERLY RESULTS (UNAUDITED)	
 
Presented below is a summary of the unaudited quarterly financial information for the years ended December 31, 2002 and 2001, in thousands, except per share data:
 
 	  	2002 Quarters Ended

	
 	  	March 31

	  	June 30

	  	September 30

	  	December 31

	
Revenues	  	$	23,608	  	$	29,402	  	$	34,913	  	$	51,705	
Net income	  	$	10,780	  	$	13,756	  	$	15,285	  	$	20,033	
Basic and diluted earnings per share (a)	  	$	0.11	  	$	0.11	  	$	0.09	  	$	0.10	
Dividends per share (a)	  	$	0.19	  	$	0.19	  	$	0.19	  	$	0.18	
 
 	  	2001 Quarters Ended

	
 	  	March 31

	  	June 30

	  	September 30

	  	December 31

	
Revenues	  	$	12,232	  	$	12,468	  	$	13,839	  	$	17,737	
Net income	  	$	3,275	  	$	5,039	  	$	6,109	  	$	7,301	
Basic and diluted earnings per share (a)	  	$	0.10	  	$	0.12	  	$	0.11	  	$	0.10	
Dividends per share (a)	  	$	0.19	  	$	0.19	  	$	0.19	  	$	0.19	
 
 	(a)	 	The totals of the four quarterly amounts for the years ended December 31, 2002, and 2001, do not equal the totals for the years then ended. This difference results from rounding differences between quarters.	
 
15.	 	ECONOMIC DEPENDENCY	
 
The Company is dependent on the Advisor for certain services which are essential to the Company, including the sale of the Company’s shares of common stock available for issue, asset acquisition and disposition decisions and other general administrative responsibilities. Additionally, the Company is dependent upon Wells Management to provide certain property management and leasing services. In the event that these companies were unable to provide the respective services to the Company, the Company would be required to obtain such services from other sources.
 
The Company is dependent upon the ability of its current tenants to pay their contractual rent amounts as they become due. The inability of a tenant to pay future rental amounts would have a negative impact on the Company. One tenant, the National Aeronautics and Space Administration, represents approximately 12% of the future rental income under non-cancelable leases at December 31, 2002. No other tenants exceed 10% of future rental income. Except for the tenant that has filed for corporate dissolution as discussed in Note 4, the Company is not aware of any reason that its current tenants would not be able to pay their contractual rental amounts as they become due.

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Table of Contents
16.	 	SUBSEQUENT EVENTS	
 
Sale of Shares of Common Stock
 
From January 1, 2003 through January 24, 2003, the Company has raised approximately $84.6 million through the issuance of 8.5 million shares of common stock of the Company.
 
Redemptions of Common Stock
 
From January 1, 2003 through January 24, 2003, the Company has redeemed approximately 0.5 million shares of common stock of the Company at an aggregate cost of $4.8 million pursuant to its share redemption program. The Company’s current plan allows for redemptions of approximately 4.0 million shares at an aggregate cost of $40.0 million for the year ending December 31, 2003. See Note 9 for a description of the limitations of the Company’s share redemption plan.
 
Property Acquisitions
 
On January 9, 2003, Wells OP purchased two three-story office buildings containing approximately 187,735 aggregate rentable square feet located in Mayfield Heights, Ohio, for a purchase price of $22.0 million, excluding closing costs and acquisition and advisory fees paid to the Advisor. The entire 102,484 rentable square feet of East Point I is leased to Progressive Casualty Insurance Company. East Point II contains approximately 85,251 rentable square feet, of which 70,585 is currently leased to Austin, Danaher Power Solutions LLC and Moreland Management Co. Approximately 14,666 rentable square feet (17%) of East Point II is vacant.
 
In connection with the acquisition of the property, the Company entered into an earn-out agreement whereby the Company is required to pay the seller certain amounts for each new lease fully executed after the date of acquisition of the property but on or before March 31, 2004, or on or before July 31, 2004, if the tenant thereunder is a leasing prospect as defined by the agreement. Payments shall be the anticipated first year’s annual rent less operating expenses with the sum divided by 0.105 and the result reduced by tenant improvement costs related to the space.

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WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
(A MARYLAND CORPORATION)
SCHEDULE III—REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2002
 
(dollars in thousands)
 
 	 	 	 	 	 	 	 	Initial Cost

	 	Cost
Capitalized
Subsequent
to
Acquisition

	 	Gross Amount at Which Carried at
December 31, 2002

	 	 	 	 	 	 	 	Life on which
Depreciation is
Computed

	 	
Description

	 	Location

	 	Ownership
Percentage

	 	Encumbrances

	 	Land

	 	Buildings and
Improvements

	 	 	 	Land

	 	Buildings and
Improvements

	 	Construction
in Progress

	 	Total

	 	Accumulated
Depreciation

	 	Date of
Construction

	 	Date
Acquired

	 	 	 	
EISENHOWER BLVD	 	Tampa, FL	 	100	 	(a)	 	$  1,460	 	$19,839	 	$     826	 	$  1,521	 	$20,604	 	$         0	 	$22,125	 	$3,294	 	1998	 	    12/31/98	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
AT&T—PA	 	Harrisburg, PA	 	100	 	(b)	 	662	 	11,836	 	676	 	690	 	12,484	 	0	 	13,174	 	  1,905	 	1998	 	        2/4/99	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
VIDEOJET
    TECHNOLOGY	 	Wood Dale, IL	 	100	 	(b)	 	5,000	 	28,162	 	1,381	 	5,208	 	29,335	 	0	 	34,543	 	  3,911	 	1991	 	      9/10/99	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CINEMARK	 	Plano, TX	 	100	 	(a)	 	1,456	 	20,377	 	908	 	1,517	 	21,224	 	0	 	22,741	 	  2,618	 	1999	 	    12/21/99	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
MATSUSHITA	 	Lake Forest, CA	 	100	 	(b)	 	4,577	 	0	 	13,965	 	4,768	 	13,774	 	0	 	18,542	 	  3,072	 	1999	 	      3/15/99	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
ALSTOM POWER
    —RICHMOND	 	Midlothian, VA	 	100	 	(a)	 	948	 	0	 	9,963	 	988	 	9,923	 	0	 	10,911	 	  1,542	 	1999	 	      7/22/99	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
METRIS—OK	 	Tulsa, OK	 	100	 	None    	 	1,150	 	11,570	 	541	 	1,198	 	12,063	 	0	 	13,261	 	  1,404	 	2000	 	      2/11/00	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
DIAL	 	Scottsdale, AZ	 	100	 	(a)	 	3,500	 	10,785	 	736	 	3,646	 	11,375	 	0	 	15,021	 	  1,276	 	1997	 	      3/29/00	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
ASML	 	Tempe, AZ	 	100	 	(a)	 	0	 	17,393	 	731	 	0	 	18,124	 	0	 	18,124	 	  2,040	 	1995	 	      3/29/00	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
MOTOROLA TEMPE	 	Tempe, AZ	 	100	 	None    	 	0	 	16,036	 	670	 	0	 	16,706	 	0	 	16,706	 	  1,887	 	1998	 	      3/29/00	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
AVNET	 	Tempe, AZ	 	100	 	(a)	 	0	 	13,272	 	551	 	0	 	13,823	 	0	 	13,823	 	  1,421	 	2000	 	    6/12/00	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
DELPHI	 	Troy, MI	 	100	 	(b)	 	2,160	 	16,776	 	1,811	 	2,250	 	18,497	 	0	 	20,747	 	  2,117	 	2000	 	      6/29/00	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
MOTOROLA—NJ	 	South Plainfield, NJ	 	100	 	(b)	 	9,653	 	20,495	 	5,857	 	10,055	 	25,950	 	0	 	36,005	 	  3,020	 	2000	 	      11/1/00	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
METRIS—MN	 	Minnetonka, MN	 	100	 	(b)	 	7,700	 	45,152	 	2,211	 	8,021	 	47,042	 	0	 	55,063	 	  3,882	 	2000	 	    12/21/00	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
STONE & WEBSTER	 	Houston, TX	 	100	 	None    	 	7,100	 	37,915	 	1,889	 	7,396	 	39,508	 	0	 	46,904	 	  3,260	 	1994	 	    12/21/00	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
STATE STREET	 	Quincy, MA	 	100	 	None    	 	10,600	 	38,963	 	4,348	 	11,042	 	40,933	 	1,936	 	53,911	 	  2,438	 	1990	 	  7/30/2001	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
IKON	 	Houston, TX	 	100	 	None    	 	2,735	 	17,915	 	990	 	2,847	 	18,793	 	0	 	21,640	 	  1,002	 	2000	 	    9/7/2001	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NISSAN PROPERTY	 	Irving, TX	 	100	 	23,149    	 	5,546	 	0	 	25,727	 	5,567	 	0	 	25,706	 	31,273	 	         0	 	2002	 	  9/19/2001	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
INGRAM MICRO	 	Millington, TN	 	100	 	22,000    	 	320	 	20,667	 	936	 	333	 	21,590	 	0	 	21,923	 	  1,156	 	1997	 	  9/26/2001	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
LUCENT	 	Cary, NC	 	100	 	None    	 	7,000	 	10,650	 	1,110	 	7,276	 	11,484	 	0	 	18,760	 	     612	 	2000	 	  9/28/2001	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CONVERGYS	 	Tamarac, FL	 	100	 	None    	 	3,500	 	9,755	 	792	 	3,642	 	10,405	 	0	 	14,047	 	     451	 	2001	 	12/21/2001	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
WINDY POINT I	 	Schaumburg, IL	 	100	 	None    	 	4,360	 	29,299	 	2,735	 	4,537	 	31,857	 	0	 	36,394	 	  1,380	 	1999	 	12/31/2001	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
WINDY POINT II	 	Schaumburg, IL	 	100	 	None    	 	3,600	 	52,016	 	3,156	 	3,746	 	55,026	 	0	 	58,772	 	  2,384	 	2001	 	12/31/2001	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
VERTEX SARASOTA	 	Sarasota, FL	 	100	 	None    	 	1,700	 	19,866	 	1,291	 	2,203	 	20,654	 	0	 	22,857	 	     821	 	1999	 	  1/11/2002	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
TRANSOCEAN
    HOUSTON	 	Houston, TX	 	100	 	None    	 	     845	 	21,186	 	     887	 	     879	 	22,039	 	        0	 	22,918	 	   735	 	1999	 	  3/15/2002	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NOVARTIS
    ATLANTA	 	Duluth, GA	 	100	 	(a)	 	2,000	 	13,047	 	605	 	2,080	 	13,572	 	0	 	15,652	 	     452	 	2001	 	  3/28/2002	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
DANA DETROIT	 	Farmington Hills, MI	 	100	 	None    	 	2,208	 	21,703	 	973	 	2,298	 	22,586	 	0	 	24,884	 	     753	 	1999	 	  3/29/2002	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
DANA KALAMAZOO	 	Kalamazoo, MI	 	100	 	None    	 	963	 	13,318	 	753	 	1,002	 	14,032	 	0	 	15,034	 	     608	 	1999	 	  3/29/002	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
TRAVELERS EXPRESS	 	Lakewood, CO	 	100	 	None    	 	1,487	 	9,076	 	430	 	1,548	 	9,445	 	0	 	10,993	 	     283	 	2002	 	  4/10/2002	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
AGILENT ATLANTA	 	Alpharetta, GA	 	100	 	(a)	 	1,500	 	13,652	 	616	 	1,561	 	14,207	 	0	 	15,768	 	     426	 	2001	 	  4/18/2002	 	20 to 25 years	 	
 
55

Table of Contents
 	 	 	 	 	 	 	 	Initial Cost

	 	Cost
Capitalized
Subsequent to
Acquisition

	 	Gross Amount at Which Carried at
December 31, 2002

	 	 	 	 	 	 	 	Life on which
Depreciation is
Computed

	 	
Description

	 	Location

	 	Ownership
Percentage

	 	Encumbrances

	 	Land

	 	Buildings and
Improvements

	 	 	 	Land

	 	Buildings and
Improvements

	 	Construction
in Progress

	 	Total

	 	Accumulated
Depreciation

	 	Date of
Construction

	 	Date
Acquired

	 	 	 	 	
BELLSOUTH FT.
    LAUDERDALE	 	Ft. Lauderdale, FL	 	100	 	 	None	 	$	1,100	 	$	5,792	 	$	280	 	$	1,145	 	$	6,027	 	$	0	 	$	7,172	 	 	181	 	2001	 	4/18/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EXPERIAN/
    TRW DALLAS	 	Allen, TX	 	100	 	 	None	 	 	4,000	 	 	31,695	 	 	1,453	 	 	4,163	 	 	32,985	 	 	0	 	 	37,148	 	 	880	 	1982	 	5/1/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
AGILENT BOSTON	 	Boxborough, MA	 	100	 	 	None	 	 	3,500	 	 	31,751	 	 	1,296	 	 	3,642	 	 	29,498	 	 	3,407	 	 	36,547	 	 	787	 	2002	 	5/3/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
TRW DENVER	 	Aurora, CO	 	100	 	 	None	 	 	1,325	 	 	14,570	 	 	6,069	 	 	1,397	 	 	20,567	 	 	0	 	 	21,964	 	 	548	 	1997	 	5/29/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
MFS PHOENIX	 	Phoenix, AZ	 	100	 	 	None	 	 	2,500	 	 	23,381	 	 	1,054	 	 	2,602	 	 	24,333	 	 	0	 	 	26,935	 	 	568	 	2001	 	6/4/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
ISS ATLANTA	 	Atlanta, GA	 	100	 	 	32,500	 	 	2,700	 	 	38,065	 	 	1,659	 	 	2,810	 	 	39,614	 	 	0	 	 	42,424	 	 	792	 	2001	 	7/1/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
PACIFICARE SAN
    ANTONIO	 	San Antonio, TX	 	100	 	 	None	 	 	2,450	 	 	12,240	 	 	598	 	 	2,550	 	 	12,738	 	 	0	 	 	15,288	 	 	255	 	2000	 	7/12/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
KERR MCGEE
    HOUSTON	 	Houston, TX	 	100	 	 	4,038	 	 	1,738	 	 	0	 	 	5,754	 	 	2,118	 	 	0	 	 	5,374	 	 	7,492	 	 	0	 	2003	 	7/29/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
BMG
    GREENVILLE	 	Greenville, SC	 	100	 	 	11,609	 	 	1,600	 	 	25,601	 	 	1,087	 	 	1,665	 	 	26,623	 	 	0	 	 	28,288	 	 	522	 	1987	 	7/31/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
KRAFT ATLANTA	 	Suwanee, GA	 	100	 	 	None	 	 	2,700	 	 	8,976	 	 	475	 	 	2,810	 	 	9,341	 	 	0	 	 	12,151	 	 	156	 	2001	 	7/31/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NOKIA DALLAS	 	Irving, TX	 	100	 	 	None	 	 	9,100	 	 	110,831	 	 	4,892	 	 	9,470	 	 	115,353	 	 	0	 	 	124,823	 	 	1,923	 	1999	 	8/15/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
HARCOURT AUSTIN	 	Austin, TX	 	100	 	 	None	 	 	5,860	 	 	33,143	 	 	1,587	 	 	6,098	 	 	34,492	 	 	0	 	 	40,590	 	 	575	 	2001	 	8/15/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
AMERICREDIT
    PHOENIX	 	Chandler, AZ	 	100	 	 	None	 	 	2,632	 	 	0	 	 	6,362	 	 	2,671	 	 	0	 	 	6,323	 	 	8,994	 	 	0	 	2003	 	9/12/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
IRS LONG ISLAND	 	Holtsville, NY	 	100	 	 	None	 	 	4,200	 	 	38,716	 	 	2,104	 	 	4,374	 	 	40,646	 	 	0	 	 	45,020	 	 	643	 	200	 	9/16/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
KEYBANK
    PARSIPPANY	 	Parsippany, NJ	 	100	 	 	None	 	 	8,700	 	 	92,944	 	 	4,137	 	 	9,053	 	 	96,728	 	 	0	 	 	105,781	 	 	1,290	 	1985	 	9/27/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
FEDEX
    COLORADO
    SPRINGS	 	Colorado
    Springs, CO	 	100	 	 	None	 	 	2,100	 	 	23,988	 	 	1,061	 	 	2,185	 	 	24,964	 	 	0	 	 	27,149	 	 	333	 	2001	 	9/27/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EDS DES MOINES	 	Des Moines, IA	 	100	 	 	None	 	 	850	 	 	25,727	 	 	1,082	 	 	885	 	 	26,774	 	 	0	 	 	27,659	 	 	357	 	2002	 	9/27/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
INTUIT DALLAS	 	Plano, TX	 	100	 	 	None	 	 	3,030	 	 	23,640	 	 	1,089	 	 	3,153	 	 	24,606	 	 	0	 	 	27,759	 	 	328	 	2001	 	9/27/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
ALLSTATE
    INDIANAPOLIS	 	Indianapolis, IN	 	100	 	 	None	 	 	1,275	 	 	9,680	 	 	443	 	 	1,327	 	 	10,071	 	 	0	 	 	11,398	 	 	134	 	2001	 	9/27/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
DAIMLER
    CHRYSLER
    DALLAS	 	Westlake, TX	 	100	 	 	None	 	 	2,585	 	 	22,588	 	 	1,010	 	 	2,689	 	 	23,494	 	 	0	 	 	26,183	 	 	313	 	2001	 	9/30/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NASA	 	Washington, DC	 	100	 	 	None	 	 	80,000	 	 	299,188	 	 	11,909	 	 	82,881	 	 	308,216	 	 	0	 	 	391,097	 	 	1,850	 	1991	 	11/22/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CATERPILLAR
    NASHVILLE	 	Nashville, TN	 	100	 	 	None	 	 	4,900	 	 	58,923	 	 	1,124	 	 	5,101	 	 	59,846	 	 	0	 	 	64,947	 	 	380	 	2000	 	11/26/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CAPITAL ONE
    RICHMOND	 	Glen Allen, VA	 	100	 	 	None	 	 	2,855	 	 	25,541	 	 	442	 	 	2,972	 	 	25,866	 	 	0	 	 	28,838	 	 	172	 	1999	 	11/26/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NESTLE
    LOS ANGELES	 	Glendale, CA	 	100	 	 	90,000	 	 	23,200	 	 	134,447	 	 	2,751	 	 	23,605	 	 	136,793	 	 	0	 	 	160,398	 	 	457	 	1990	 	12/20/2002	 	20 to 25 years	 	 	

	

	 	

	

	 	

	

	 	

	

	 	

	

	 	

	

	 	

	

	 	

	

	 	

	

	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total—
    100% REIT
    Properties	 	 	 	 	 	$	302,695	 	$	268,630	 	$	1,652,148	 	$	147,783	 	$	279,185	 	$	1,746,630	 	$	42,746	 	$	2,068,561	 	$	63,594	 	 	 	 	 	 	 	 	

	

	 	

	

	 	

	

	 	

	

	 	

	

	 	

	

	 	

	

	 	

	

	 	

	

	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
ALSTOM POWER
    —KNOXVILLE	 	Knoxville, TN	 	        4%	 	 	None	 	$	583	 	$	744	 	$	6,745	 	$	608	 	$	7,464	 	$	0	 	$	8,072	 	$	2,250	 	1997	 	3/26/97	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
AVAYA	 	Oklahoma
    City, OK	 	    4	 	 	None	 	 	1,003	 	 	4,386	 	 	242	 	 	1,051	 	 	4,580	 	 	0	 	 	5,631	 	 	840	 	1998	 	6/24/98	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
360 INTERLOCKEN	 	Broomfield, CO	 	    4	 	 	None	 	 	1,570	 	 	6,734	 	 	748	 	 	1,650	 	 	7,369	 	 	33	 	 	9,052	 	 	1,388	 	1996	 	3/20/98	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
IOMEGA	 	Ogden City, UT	 	    4	 	 	None	 	 	597	 	 	4,675	 	 	876	 	 	642	 	 	5,506	 	 	0	 	 	6,148	 	 	963	 	1998	 	7/01/98	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
OHMEDA	 	Louisville, CO	 	    4	 	 	None	 	 	2,614	 	 	7,762	 	 	528	 	 	2,747	 	 	8,157	 	 	0	 	 	10,904	 	 	1,604	 	1998	 	2/13/98	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
FAIRCHILD	 	Fremont, CA	 	  78	 	 	None	 	 	2,130	 	 	6,853	 	 	374	 	 	2,219	 	 	7,138	 	 	0	 	 	9,357	 	 	1,285	 	1998	 	7/21/98	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CORT FURNITURE	 	Fountain Valley,
CA	 	  44	 	 	None	 	 	2,100	 	 	4,464	 	 	288	 	 	2,188	 	 	4,664	 	 	0	 	 	6,852	 	 	838	 	1988	 	7/31/98	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EYBL CARTEX	 	Fountain Inn, SC	 	  57	 	 	None	 	 	330	 	 	4,792	 	 	213	 	 	344	 	 	4,991	 	 	0	 	 	5,335	 	 	732	 	1998	 	5/18/99	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
SPRINT	 	Leawood, KS	 	  57	 	 	None	 	 	1,696	 	 	7,851	 	 	398	 	 	1,767	 	 	8,178	 	 	0	 	 	9,945	 	 	1,145	 	1998	 	7/2/99	 	20 to 25 years	 	 	
 
56

Table of Contents
 	 	 	 	 	 	 	 	Initial Cost

	 	Cost
Capitalized
Subsequent to
Acquisition

	 	Gross Amount at Which Carried at
December 31, 2002

	 	 	 	 	 	 	 	Life on which
Depreciation is
Computed

	 	
Description

	 	Location

	 	Ownership
Percentage

	 	Encumbrances

	 	Land

	 	Buildings and
Improvements

	 	 	 	Land

	 	Buildings and
Improvements

	 	Construction
in Progress

	 	Total

	 	Accumulated
Depreciation

	 	Date of
Construction

	 	Date
Acquired

	 	 	 	 	
JOHNSON MATTHEY	 	Tredyffrin, PA	 	57	 	None	 	$	1,925	 	$	6,131	 	$	336	 	$	2,005	 	$	6,387	 	$        0	 	$	8,392	 	$	873	 	1973	 	8/17/99	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
GARTNER	 	Ft. Myers, FL	 	57	 	None	 	 	896	 	 	7,452	 	 	347	 	 	933	 	 	7,762	 	           0	 	 	8,695	 	 	1,035	 	1998	 	9/20/99	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
SIEMENS	 	Troy, MI	 	55	 	None	 	 	2,144	 	 	12,049	 	 	695	 	 	2,233	 	 	12,655	 	           0	 	 	14,888	 	 	1,586	 	2000	 	5/10/00	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
QUEST	 	Irvine, CA	 	16	 	None	 	 	2,221	 	 	5,545	 	 	57	 	 	2,221	 	 	5,602	 	           0	 	 	7,823	 	 	1,111	 	1997	 	7/1/00	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
AT&T—OK	 	Oklahoma City, OK	 	55	 	None	 	 	2,100	 	 	13,228	 	 	646	 	 	2,188	 	 	13,786	 	           0	 	 	15,974	 	 	1,149	 	1999	 	12/28/00	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
COMDATA	 	Brentwood, TN	 	55	 	None	 	 	4,300	 	 	20,650	 	 	1,095	 	 	4,479	 	 	21,566	 	           0	 	 	26,045	 	 	1,438	 	1986	 	5/15/2001	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
AMERICREDIT	 	Orange Park, FL	 	61	 	None	 	 	1,610	 	 	10,890	 	 	563	 	 	1,677	 	 	11,386	 	           0	 	 	13,063	 	 	683	 	2001	 	7/16/2001	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
ADIC	 	Parker, CO	 	61	 	None	 	 	1,954	 	 	11,000	 	 	758	 	 	2,048	 	 	11,664	 	           0	 	 	13,712	 	 	505	 	2001	 	12/21/2001	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
JOHN WILEY
    INDIANAPOLIS	 	Indianapolis, IN	 	61	 	None	 	 	1,300	 	 	15,042	 	 	723	 	 	1,354	 	 	15,711	 	           0	 	 	17,065	 	 	56	 	1999	 	12/12/2002	 	20 to 25 years	 	 	

	 	

	

	 	

	

	 	

	

	 	

	

	 	

	

	 	

	 	

	

	 	

	

	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total – JV Properties	 	 	 	 	 	$           0	 	$	31,073	 	$	150,248	 	$	15,632	 	$	32,354	 	$	164,566	 	$       33	 	$	196,953	 	$	19,481	 	 	 	 	 	 	 	 	

	 	

	

	 	

	

	 	

	

	 	

	

	 	

	

	 	

	 	

	

	 	

	

	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total—All Properties	 	 	 	 	 	$302,695	 	$	299,703	 	$	1,802,396	 	$	163,415	 	$	311,539	 	$	1,911,196	 	$42,779	 	$	2,265,514	 	$	83,075	 	 	 	 	 	 	 	 	

	 	

	

	 	

	

	 	

	

	 	

	

	 	

	

	 	

	 	

	

	 	

	

	 	 	 	 	 	 	 	 	
 
 	(a)	 	These properties collateralize the $98.138 million SouthTrust Bank line of credit that accrues interest at LIBOR plus 175 basis points (3.31% at December 31, 2002) and requires interest payments monthly and principal due at maturity (June 10, 2003). The principal amount outstanding as of December 31, 2002 was $61.399 million.	 	
 
 	(b)	 	These properties collateralize the $110 million Bank of America line of credit that accrues interest at LIBOR plus 175 basis points (3.31% at December 31, 2002) and requires interest payments monthly and principal due at maturity (May 11, 2004). The principal amount outstanding as of December 31, 2002 was $58 million.	 	

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WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
 
(A Maryland Corporation)
 
SCHEDULE III—REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
 
DECEMBER 31, 2002
 
(dollars in thousands)
 
 	  	Cost

	  	Accumulated
Depreciation

	
BALANCE AT DECEMBER 31, 1999	  	$	180,118	  	$	5,732	
 	 	 	
2000 additions	  	 	293,450	  	 	11,232	

	

	  	

	

	
BALANCE AT DECEMBER 31, 2000	  	 	473,568	  	 	16,964	
 	 	 	
2001 additions	  	 	294,740	  	 	20,821	

	

	  	

	

	
BALANCE AT DECEMBER 31, 2001	  	 	768,308	  	 	37,785	
 	 	 	
2002 additions	  	 	1,497,206	  	 	45,290	

	

	  	

	

	
BALANCE AT DECEMBER 31, 2002	  	$	2,265,514	  	$	83,075	

	

	  	

	

	

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PRIOR PERFORMANCE TABLES
 
The following Prior Performance Tables (Tables) provide information relating to real estate investment programs sponsored by Wells Capital, Inc., our advisor, and its affiliates (Wells Public Programs) which have investment objectives similar to Wells Real Estate Investment Trust, Inc. (Wells REIT). (See “Investment Objectives and Criteria.”) Except for the Wells REIT, all of the Wells Public Programs have used capital, and no acquisition indebtedness, to acquire their properties.
 
Prospective investors should read these Tables carefully together with the summary information concerning the Wells Public Programs as set forth in the “Prior Performance Summary” section of this prospectus.
 
Investors in the Wells REIT will not own any interest in the other Wells Public Programs and should not assume that they will experience returns, if any, comparable to those experienced by investors in other Wells Public Programs.
 
Our advisor is responsible for the acquisition, operation, maintenance and resale of the real estate properties. For both the Wells REIT and other Wells Public Programs. The financial results of other Wells Public Programs, thus, may provide some indication of our advisor’s performance of its obligations during the periods covered. However, general economic conditions affecting the real estate industry and other factors contribute significantly to financial results.
 
The following tables are included herein:
 
Table I—Experience in Raising and Investing Funds (As a Percentage of Investment)
 
Table II—Compensation to Sponsor (in Dollars)
 
Table III—Annual Operating Results of Wells Public Programs
 
Table IV (Results of completed programs) has been omitted since none of the Wells Public Programs have been liquidated.
 
Table V—Sales or Disposals of Property
 
Additional information relating to the acquisition of properties by the Wells Public Programs is contained in Table VI, which is included in Part II of the registration statement which the Wells REIT has filed with the Securities and Exchange Commission. Copies of any or all information will be provided to prospective investors at no charge upon request.
 
The following are definitions of certain terms used in the Tables:
 
“Acquisition Fees” shall mean fees and commissions paid by a Wells Public Program in connection with its purchase or development of a property, except development fees paid to a person not affiliated with the Wells Public Program or with a general partner or advisor of the Wells Public Program in connection with the actual development of a project after acquisition of the land by the Wells Public Program.
 
“Organization Expenses” shall include legal fees, accounting fees, securities filing fees, printing and reproduction expenses and fees paid to the sponsor in connection with the planning and formation of the Wells Public Program.
 
“Underwriting Fees” shall include selling commissions and wholesaling fees paid to broker-dealers for services provided by the broker-dealers during the offering.
 
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TABLE I
 
EXPERIENCE IN RAISING AND INVESTING FUNDS
(UNAUDITED)
 
This Table provides a summary of the experience of the sponsors of Wells Public Programs for which offerings have been completed since December 31, 1999. Information is provided with regard to the manner in which the proceeds of the offerings have been applied. Also set forth is information pertaining to the timing and length of these offerings and the time period over which the proceeds have been invested in the properties. All figures are as of December 31, 2002.
 
 	  	Wells Real
Estate Fund
XII, L.P.

	 	  	Wells Real Estate
Investment
Trust, Inc.

	 	
Dollar Amount Raised	  	$	35,611,192	(3)	  	$	1,458,206,058	(4)	

	

	

	  	

	

	

	
 	 	 	
Percentage Amount Raised	  	 	100	%(3)	  	 	100	%(4)	
 	 	 	
Less Offering Expenses	  	 	 	 	  	 	 	 	
Underwriting Fees	  	 	9.5	%	  	 	9.5	%	
Organizational Expenses	  	 	3.0	%	  	 	3.0	%	
Reserves(1)	  	 	0.0	%	  	 	0.0	%	

	

	

	  	

	

	

	
Percent Available for Investment	  	 	87.5	%	  	 	87.5	%	
Acquisition and Development Costs	  	 	 	 	  	 	 	 	
Prepaid Items and Fees related to Purchase of Property	  	 	0.0	%	  	 	0.0	%	
Cash Down Payment	  	 	84.0	%	  	 	81.7	%	
Acquisition Fees(2)	  	 	3.5	%	  	 	3.5	%	
Development and Construction Costs	  	 	0.0	%	  	 	2.3	%	

	

	

	  	

	

	

	
Reserve for Payment of Indebtedness	  	 	0.0	%	  	 	0.0	%	

	

	

	  	

	

	

	
Total Acquisition and Development Cost	  	 	87.5	%	  	 	87.5	%	
Percent Leveraged	  	 	0.0	%	  	 	0.0	%	

	

	

	  	

	

	

	
 	 	 	
Date Offering Began	  	 	03/22/99	 	  	 	(4	)	
 	 	 	
Length of Offering	  	 	24 mo.	 	  	 	(4	)	
 	 	 	
Months to Invest 90% of Amount Available for Investment (Measured from Beginning of Offering)	  	 	26 mo.	 	  	 	(4	)	
 	 	 	
Number of Investors as of 12/31/02	  	 	1,337	 	  	 	37,270	 	
 
(1)	 	Does not include general partner contributions held as part of reserves.	
 
(2)	 	Includes acquisition fees, real estate commissions, general contractor fees and/or architectural fees paid to affiliates of the general partners.	
 
(3)	 	Total dollar amount registered and available to be offered was $70,000,000. Wells Real Estate Fund XII, L.P. closed its offering on March 21, 2001, and the total dollar amount raised was $35,611,192.	
 
(4)	 	This amount includes only the Wells Real Estate Investment Trust, Inc.’s second and third offerings. The total dollar amount registered and available to be offered in the second offering was $222,000,000. Wells Real Estate Investment Trust, Inc. began its second offering on December 20, 1999 and closed its second offering on December 19, 2000. It took Wells Real Estate Investment Trust, Inc. 10 months to invest 90% of the amount available for investment in the second offering. The total dollar amount raised in its second offering was $175,229,193. The total dollar amount registered and available to be offered in the third offering was $1,350,000,000. Wells Real Estate Investment Trust, Inc. began its third offering on December 20, 2000 and closed its third offering on July 26, 2002. It took Wells Real Estate Investment Trust, Inc. 21 months to invest 90% of the amount available for investment in the third offering. The total dollar amount raised in its third offering was $1,282,976,862.	
 
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TABLE II
COMPENSATION TO SPONSOR
(UNAUDITED)
 
The following sets forth the compensation received by Wells Capital, Inc., our advisor, and its affiliates, including compensation paid out of offering proceeds and compensation paid in connection with the ongoing operations of Wells Public Programs having similar or identical investment objectives the offerings of which have been completed since December 31, 1999. All figures are as of December 31, 2002.
 
 	  	Wells Real
Estate Fund
XII, L.P.

	  	Wells Real
Estate
Investment
Trust, Inc.(1)

	  	Other
Public
Programs(2)

	
Date Offering Commenced	  	 	03/22/99	  	 	12/20/99	  	 	—  	
Dollar Amount Raised	  	$	35,611,192	  	$	1,458,206,058	  	$	284,902,808	
Amount paid to Sponsor from Proceeds of Offering:	  	 	 	  	 	 	  	 	 	
Underwriting Fees(3)	  	$	362,416	  	$	59,280,729	  	$	1,646,381	
Acquisition Fees	  	 	 	  	 	 	  	 	 	
Real Estate Commissions	  	 	—  	  	 	—  	  	 	—  	
Acquisition and Advisory Fees(4)	  	$	1,246,392	  	$	51,037,212	  	$	13,223,204	
Dollar Amount of Cash Generated from Operations Before Deducting Payments to Sponsor(5)	  	$	520,102	  	$	113,853,928	  	$	7,980,284	
Amount Paid to Sponsor from Operations:	  	 	 	  	 	 	  	 	 	
Property Management Fee(2)	  	$	158,647	  	$	3,250,927	  	$	2,342,594	
Partnership Management Fee	  	 	—  	  	 	—  	  	 	—  	
Reimbursements	  	$	205,071	  	$	1,130,152	  	$	3,186,612	
Leasing Commissions	  	$	158,647	  	$	3,250,927	  	$	2,342,594	
General Partner Distributions	  	 	—  	  	 	—  	  	 	—  	
Other	  	 	—  	  	 	—  	  	 	—  	
Dollar Amount of Property Sales and Refinancing Payments to Sponsors:	  	 	 	  	 	 	  	 	 	
Cash	  	 	—  	  	 	—  	  	 	—  	
Notes	  	 	—  	  	 	—  	  	 	—  	
Amount Paid to Sponsor from Property Sales and Refinancing:	  	 	 	  	 	 	  	 	 	
Real Estate Commissions	  	 	—  	  	 	—  	  	 	—  	
Incentive Fees	  	 	—  	  	 	—  	  	 	—  	
Other	  	 	—  	  	 	—  	  	 	—  	
 
(1)	 	This amount includes only the Wells Real Estate Investment Trust, Inc.’s second and third offerings. The total dollar amount registered and available to be offered in the second offering was $222,000,000. Wells Real Estate Investment Trust, Inc. closed its second offering on December 19, 2000, and the total dollar amount raised in its second offering was $175,229,193. The total dollar amount registered and available to be offered in the third offering was $1,350,000,000. Wells Real Estate Investment Trust, Inc. closed its third offering on July 26, 2002, and the total dollar amount raised in its third offering was $1,282,976,862.	
 
(2)	 	Includes compensation paid to the general partners from Wells Real Estate Fund I, Wells Real Estate Fund II, Wells Real Estate Fund II-OW, Wells Real Estate Fund III, L.P., Wells Real Estate Fund IV, L.P., Wells Real Estate Fund V, L.P., Wells Real Estate Fund VI, L.P., Wells Real Estate Fund VII, L.P., Wells Real Estate Fund VIII, L.P., Wells Real Estate Fund IX, L.P., Wells Real Estate Fund X, L.P. and Wells Real Estate Fund XI, L.P. during the past three years. In addition to the amounts shown, affiliates of the general partners of Wells Real Estate Fund I are entitled to certain property management and leasing fees but have elected to defer the payment of such fees until a later year on properties owned by Wells Real Estate Fund I. As of December 31, 2002, the aggregate amount of such deferred fees totaled $2,881,491.	
 
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(3)	 	Includes net underwriting compensation and commissions paid to Wells Investment Securities, Inc. in connection with the offering which was not reallowed to participating broker-dealers.	
 
(4)	 	Fees paid to the general partners or their affiliates for acquisition and advisory services in connection with the review and evaluation of potential real property acquisitions.	
 
(5)	 	Includes $2,263 in net cash used in operating activities and $522,365 in payments to sponsor for Wells Real Estate Fund XII, L.P., $106,221,922 in net cash provided by operating activities and $7,632,006 in payments to sponsor for Wells Real Estate Investment Trust, Inc. and $108,482 in net cash provided by operating activities and $7,871,802 in payments to sponsor for other public programs.	
 
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TABLE III
(UNAUDITED)
 
The following two tables set forth operating results of Wells Public Programs the offerings of which have been completed since December 31, 1997. The information relates only to public programs with investment objectives similar to those of Wells Real Estate Investment Trust, Inc. All figures are as of December 31 of the year indicated.
 
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TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
(UNAUDITED)
WELLS REAL ESTATE FUND XI, L.P.
 
 	  	2002

	 	 	2001

	 	 	2000

	 	 	1999

	 	 	1998

	 	
Gross Revenues(1)	  	$	839,691	 	 	$	960,676	 	 	$	975,850	 	 	$	766,586	 	 	$	262,729	 	
Profit on Sale of Properties	  	 	    —  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Less: Operating Expenses(2)	  	 	92,876	 	 	 	90,326	 	 	 	79,861	 	 	 	111,058	 	 	 	113,184	 	
Depreciation and Amortization(3)	  	 	0	 	 	 	0	 	 	 	—  	 	 	 	25,000	 	 	 	6,250	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Net Income GAAP Basis(4)	  	$	746,815	 	 	$	870,350	 	 	$	895,989	 	 	$	630,528	 	 	$	143,295	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Taxable Income: Operations	  	$	965,422	 	 	$	1,038,394	 	 	$	944,775	 	 	$	704,108	 	 	$	177,692	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Cash Generated (Used By):	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operations	  	 	(105,148	)	 	 	(128,985	)	 	 	(72,925	)	 	 	40,906	 	 	 	(50,858	)	
Joint Ventures	  	 	1,473,190	 	 	 	1,376,673	 	 	 	1,333,337	 	 	 	705,394	 	 	 	102,662	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 	  	$	1,368,042	 	 	$	1,247,688	 	 	$	1,260,412	 	 	$	746,300	 	 	$	51,804	 	
 	 	 	 	 	 	
Less Cash Distributions to Investors:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating Cash Flow	  	 	1,294,485	 	 	 	1,247,688	 	 	 	1,205,303	 	 	 	746,300	 	 	 	51,804	 	
Return of Capital	  	 	—  	 	 	 	4,809	 	 	 	—  	 	 	 	49,761	 	 	 	48,070	 	
Undistributed Cash Flow From Prior Year Operations	  	 	—  	 	 	 	55,109	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Cash Generated (Deficiency) after Cash Distributions	  	$	73,557	 	 	$	(59,918	)	 	$	55,109	 	 	$	(49,761	)	 	$	(48,070	)	
Special Items (not including sales and financing):	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Source of Funds:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
General Partner Contributions	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Increase in Limited Partner Contributions	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	16,532,801	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 	  	$	73,557	 	 	$	(59,918	)	 	$	55,109	 	 	$	(49,761	)	 	$	16,484,731	 	
Use of Funds:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Sales Commissions and Offering Expenses	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	214,609	 	 	 	1,779,661	 	
Return of Original Limited Partner’s Investment	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	100	 	 	 	—  	 	
Property Acquisitions and Deferred Project Costs	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	9,005,979	 	 	 	5,412,870	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Cash Generated (Deficiency) after Cash Distributions and Special Items	  	$	73,557	 	 	$	(59,918	)	 	$	55,109	 	 	$	(9,270,449	)	 	$	9,292,200	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Net Income and Distributions Data per $1,000 Invested:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income on GAAP Basis:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ordinary Income (Loss)	  	 	91	 	 	 	101	 	 	 	103	 	 	 	77	 	 	 	50	 	
—  Operations Class A Units	  	 	(168	)	 	 	(158	)	 	 	(155	)	 	 	(112	)	 	 	(77	)	
—  Operations Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Capital Gain (Loss)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	
Tax and Distributions Data per $1,000 Invested:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Federal Income Tax Results:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ordinary Income (Loss)	  	 	93	 	 	 	100	 	 	 	97	 	 	 	71	 	 	 	18	 	
—  Operations Class A Units	  	 	(109	)	 	 	(100	)	 	 	(112	)	 	 	(73	)	 	 	(17	)	
—  Operations Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Capital Gain (Loss)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	
Cash Distributions to Investors:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Source (on GAAP Basis)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—  Investment Income Class A Units	  	 	90	 	 	 	97	 	 	 	90	 	 	 	60	 	 	 	8	 	
—  Return of Capital Class A Units	  	 	4	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
—  Return of Capital Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Source (on Cash Basis)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—  Operations Class A Units	  	 	94	 	 	 	97	 	 	 	90	 	 	 	56	 	 	 	4	 	
—  Return of Capital Class A Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	4	 	 	 	4	 	
—  Operations Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Source (on a Priority Distribution Basis)(5)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—  Investment Income Class A Units	  	 	75	 	 	 	75	 	 	 	69	 	 	 	46	 	 	 	6	 	
—  Return of Capital Class A Units	  	 	19	 	 	 	22	 	 	 	21	 	 	 	14	 	 	 	2	 	
—  Return of Capital Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
 
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 	  	2002

	 	 	2001

	 	 	2000

	  	1999

	  	1998

	
Amount (in Percentage Terms)
Remaining Invested in Program
Properties at the end of the Last Year
Reported in the Table	  	100	%	 	100	%	 	 	  	 	  	 	
 
(1)	 	Includes $142,163 in equity in earnings of joint ventures and $120,566 from investment of reserve funds in 1998; $607,579 in equity in earnings of joint ventures and $159,007 from investment of reserve funds in 1999; $967,900 in equity in earnings of joint ventures and $7,950 from investment of reserve funds in 2000; $959,631 in equity in earnings of joint ventures and $1,045 from investment of reserve funds in 2001; and $837,509 in equity in earnings of joint ventures and $2,182 from investment of reserve funds in 2002. As of December 31, 2002, the leasing status was 100% including developed property in initial lease up.	
 
(2)	 	Includes partnership administrative expenses.	
 
(3)	 	Included in equity in earnings of joint ventures in gross revenues is depreciation of $105,458 for 1998; $353,840 for 1999; $485,558 for 2000; $491,478 for 2001; and $492,404 for 2002.	
 
(4)	 	In accordance with the partnership agreement, net income or loss, depreciation and amortization are allocated $254,862 to Class A Limited Partners, $(111,067) to Class B Limited Partners and $(500) to General Partners for 1998; $1,009,368 to Class A Limited Partners, $(378,840) to Class B Limited Partners and $0 to the General Partners for 1999; $1,381,547 to Class A Limited Partners, $(485,558) to Class B Limited Partners and $0 to General Partners for 2000; $1,361,828 to Class A Limited Partners, $(491,478) to Class B Limited Partners and $0 to the General Partners for 2001; and $ 1,239,219 to Class A Limited Partners, $ (492,404) to Class B Limited Partners and $ 0 to the General Partners for 2002.	
 
(5)	 	Pursuant to the terms of the partnership agreement, an amount equal to the cash distributions paid to Class A Limited Partners is payable as priority distributions out of the first available net proceeds from the sale of partnership properties to Class B Limited Partners. The amount of cash distributions paid per unit to Class A Limited Partners is shown as a return of capital to the extent of such priority distributions payable to Class B Limited Partners. As of December 31, 2002, the aggregate amount of such priority distributions payable to Class B Limited Partners totaled $1,057,338.	
 
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TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
(UNAUDITED)
WELLS REAL ESTATE FUND XII, L.P.
 
 	  	2002

	 	 	2001

	 	 	2000

	 	 	1999

	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Gross Revenues(1)	  	$	1,727,330	 	 	$	1,661,194	 	 	$	929,868	 	 	$	160,379	 	
Profit on Sale of Properties	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Less: Operating Expenses(2)	  	 	179,436	 	 	 	105,776	 	 	 	73,640	 	 	 	37,562	 	
Depreciation and Amortization(3)	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Net Income GAAP Basis(4)	  	$	1,547,894	 	 	$	1,555,418	 	 	$	856,228	 	 	$	122,817	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Taxable Income: Operations	  	$	1,929,381	 	 	$	1,850,674	 	 	$	863,490	 	 	$	130,108	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Cash Generated (Used By):	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operations	  	 	(176,478	)	 	 	(73,029	)	 	 	247,244	 	 	 	3,783	 	
Joint Ventures	  	 	2,824,519	 	 	 	2,036,837	 	 	 	737,266	 	 	 	61,485	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 	  	$	2,648,041	 	 	$	1,963,808	 	 	$	984,510	 	 	$	65,268	 	
 	 	 	 	 	
Less Cash Distributions to Investors:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating Cash Flow	  	 	2,648,041	 	 	 	1,963,808	 	 	 	779,818	 	 	 	62,934	 	
Return of Capital	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Undistributed Cash Flow From Prior Year Operations	  	 	2,156	 	 	 	164,482	 	 	 	—  	 	 	 	—  	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Cash Generated (Deficiency) after Cash Distributions	  	$	(2,156	)	 	$	(164,482	)	 	$	204,692	 	 	$	2,334	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Special Items (not including sales and financing):	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Source of Funds:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
General Partner Contributions	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Increase in Limited Partner Contributions	  	 	—  	 	 	 	10,625,431	 	 	 	15,617,575	 	 	 	9,368,186	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 	  	$	(2,156	)	 	$	10,460,949	 	 	$	15,822,267	 	 	$	9,370,520	 	
Use of Funds:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Sales Commissions and Offering Expenses	  	 	—  	 	 	 	1,338,556	 	 	 	1,952,197	 	 	 	1,171,024	 	
Return of Original Limited Partner’s Investment	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	100	 	
Property Acquisitions and Deferred Project Costs	  	 	—  	 	 	 	9,298,085	 	 	 	16,246,485	 	 	 	5,615,262	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Cash Generated (Deficiency) after Cash Distributions and Special Items	  	$	(2,156	)	 	$	(175,692	)	 	$	(2,376,415	)	 	$	2,584,134	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income and Distributions Data per $1,000 Invested:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income on GAAP Basis:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ordinary Income (Loss)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—  Operations Class A Units	  	 	94	 	 	 	98	 	 	 	89	 	 	 	50	 	
—  Operations Class B Units	  	 	(151	)	 	 	(131	)	 	 	(92	)	 	 	(56	)	
Capital Gain (Loss)	  	 	 	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Tax and Distributions Data per $1,000 Invested:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Federal Income Tax Results:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ordinary Income (Loss)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—  Operations Class A Units	  	 	91	 	 	 	84	 	 	 	58	 	 	 	23	 	
—  Operations Class B Units	  	 	(95	)	 	 	(74	)	 	 	(38	)	 	 	(25	)	
Capital Gain (Loss)	  	 	 	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash Distributions to Investors:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Source (on GAAP Basis)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—  Investment Income Class A Units	  	 	93	 	 	 	77	 	 	 	41	 	 	 	8	 	
—  Return of Capital Class A Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
—  Return of Capital Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Source (on Cash Basis)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—  Operations Class A Units	  	 	93	 	 	 	77	 	 	 	41	 	 	 	8	 	
—  Return of Capital Class A Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
—  Operations Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Source (on a Priority Distribution Basis)(5)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—  Investment Income Class A Units	  	 	70	 	 	 	55	 	 	 	13	 	 	 	6	 	
—  Return of Capital Class A Units	  	 	23	 	 	 	22	 	 	 	28	 	 	 	2	 	
—  Return of Capital Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Amount (in Percentage Terms) Remaining Invested in Program Properties at the end of the Last Year Reported in the Table	  	 	100	%	 	 	100	% 	 	 	 	 	 	 	 	 	
 
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(1)	 	Includes $124,542 in equity in earnings of joint ventures and $35,837 from investment of reserve funds in 1999; $664,401 in equity in earnings of joint ventures and $265,467 from investment of reserve funds in 2000; $1,577,523 in equity in earnings of joint ventures and $83,671 from investment of reserve funds in 2001; and $1,726,553 in equity in earnings of joint ventures and $777 from investment of reserve funds in 2002. As of December 31, 2002, the leasing status was 100% including developed property in initial lease up.	
 
(2)	 	Includes partnership administrative expenses.	
 
(3)	 	Included in equity in earnings of joint ventures in gross revenues is depreciation of $72,427 for 1999; $355,210 for 2000; $1,035,609 for 2001; and $1,107,728 for 2002.	
 
(4)	 	In accordance with the partnership agreement, net income or loss, depreciation and amortization are allocated $195,244 to Class A Limited Partners, $(71,927) to Class B Limited Partners and $(500) to the General Partners for 1999; $1,209,438 to Class A Limited Partners, $(353,210) to Class B Limited Partners and $0 to General Partners for 2000; $2,591,027 to Class A Limited Partners, $(1,035,609) to Class B Limited Partners and $0 to the General Partners for 2001; and $2,655,622 to Class A Limited Partners, $(1,107,728) to Class B Limited Partners, $ 0 to General Partners for 2002.	
 
(5)	 	Pursuant to the terms of the partnership agreement, an amount equal to the cash distributions paid to Class A Limited Partners is payable as priority distributions out of the first available net proceeds from the sale of partnership properties to Class B Limited Partners. The amount of cash distributions paid per unit to Class A Limited Partners is shown as a return of capital to the extent of such priority distributions payable to Class B Limited Partners. As of December 31, 2002, the aggregate amount of such priority distributions payable to Class B Limited Partners totaled $1,524,597.	
 
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TABLE V
SALES OR DISPOSALS OF PROPERTIES
(UNAUDITED)
 
The following Table sets forth sales or other disposals of properties by Wells Public Programs within the most recent three years. The information relates to only public programs with investment objectives similar to those of Wells Real Estate Investment Trust, Inc. All figures are as of December 31, 2002.
 
Property

	 	Date
Acquired

	 	Date
Of
Sale

	 	 	 	Selling Price, Net Of
Closing Costs And GAAP
Adjustments

	 	 	 	 	 	 	Cost Of Properties
Including Closing And
Soft Costs

	 	Excess
(Deficiency)
Of Property
Operating Cash
Receipts Over
Cash
Expenditures

	 	
 	 	 	 	 	 	Cash
Received
Net Of
Closing
Costs

	 	Mortgage
Balance
At Time
Of Sale

	 	Purchase
Money
Mortgage
Taken
Back By
Program

	 	Adjustments
Resulting
From
Application
Of GAAP

	 	Total

	 	 	Original
Mortgage
Financing

	 	Total
Acquisition
Cost, Capital
Improvement,
Closing And
Soft Costs(1)

	 	Total

	 	 	 	 	 	
3875 Peachtree Place,
Atlanta, GA	 	12/1/85	 	08/31/00	 	$	727,982	 	-0-	 	-0-	 	-0-	 	$	727,982	(2)	 	-0-	 	$	582,337	 	$	582,337	 	-0-	 	 	 	
Crowe’s Crossing
Shopping Center,
DeKalb County, GA	 	12/31/86	 	01/11/01	 	$	6,487,000	 	-0-	 	-0-	 	-0-	 	$	6,487,000	(3)	 	-0-	 	$	9,255,594	 	$	9,255,594	 	-0-	 	 	 	
Cherokee Commons
Shopping Center,
Cherokee County, GA	 	10/30/87	 	10/01/01	 	$	8,434,089	 	-0-	 	-0-	 	-0-	 	$	8,434,089	(4)	 	-0-	 	$	10,450,555	 	$	10,450,555	 	-0-	 	 	 	
Greenville Center,
Greenville, SC	 	6/20/90	 	9/30/02	 	$	2,271,187	 	-0-	 	-0-	 	-0-	 	$	2,271,187	(5)	 	-0-	 	$	4,297,901	 	$	4,297,901	 	-0-	 	 	 	
Tanglewood Commons Outparcel, Clemmens, NC	 	5/30/95	 	10/07/02	 	$	524,398	 	-0-	 	-0-	 	-0-	 	$	524,398	(6)	 	-0-	 	$	506,326	 	$	506,326	 	-0-	 	 	 	
 
(1)	 	Amount shown does not include pro rata share of original offering costs.	
(2)	 	Includes Wells Real Estate Fund I’s share of taxable gain from this sale in the amount of $205,019, of which $205,019 is allocated to capital gain and $0 is allocated to ordinary gain.	
(3)	 	Includes taxable gain from this sale in the amount of $11,496, of which $11,496 is allocated to capital gain and $0 is allocated to ordinary gain.	
(4)	 	Includes taxable gain from this sale in the amount of $207,613, of which $207,613 is allocated to capital gain and $0 is allocated to ordinary gain.	
(5)	 	Includes taxable loss from this sale in the amount of $910,227.	
(6)	 	Includes taxable gain from this sale in the amount of $ 13,062 of which $13,062 is allocated to capital gain and $0 is allocated to ordinary gain.	
 
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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., a Maryland Corporation (the “Wells REIT”), included in its annual report on Form 10-K for the year ended December 31, 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 previously filed.
 
The following unaudited pro forma balance sheet as of December 31, 2002 has been prepared to give effect to the first quarter 2003 acquisition of the East Point Buildings and the 150 West Jefferson Building (collectively, the “Recent Acquisitions”) by Wells Operating Partnership, L.P. (“Wells OP”) as if the acquisitions occurred on December 31, 2002.
 
Wells OP is a Delaware limited partnership that was organized to own and operate properties on behalf of Wells REIT. As the sole general partner of Wells OP, Wells REIT 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 REIT.
 
The following unaudited pro forma statement of income for the year ended December 31, 2002 has been prepared to give effect to the 2002 acquisition of the Vertex Sarasota Building (formerly, the Arthur Andersen Building), the Transocean Houston Building, the 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, the ISS Atlanta Buildings, the PacifiCare San Antonio Building, the BMG Greenville Buildings, the Kraft Atlanta Building, the Nokia Dallas Buildings, the Harcourt Austin Building, the IRS Long Island Buildings, the KeyBank Parsippany Building, the Allstate Indianapolis Building, the Federal Express Colorado Springs Building, the EDS Des Moines Building, the Intuit Dallas Building, the Daimler Chrysler Dallas Building, the NASA Buildings, the Caterpillar Nashville Building, the Capital One Richmond Buildings, the John Wiley Indianapolis Building and the Nestle Los Angeles Building (collectively, the “2002 Acquisitions”) and the Recent Acquisitions as if the acquisitions occurred on January 1, 2002. The Kerr McGee Property and the AmeriCredit Phoenix Property had no operations during the year ended December 31, 2002.
 
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 acquisition of the 2002 Acquisitions and the Recent Acquisitions been consummated as of January 1, 2002. In addition, the pro forma balance sheet includes allocations of the purchase price for certain acquisitions based upon preliminary estimates of the fair value of the assets and liabilities acquired. Therefore, these allocations may be adjusted in the future upon finalization of these preliminary estimates.

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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA BALANCE SHEET
 
DECEMBER 31, 2002
 
(in thousands, except share amounts)
 
(Unaudited)
 
ASSETS
 
 	  	Wells Real
Estate
Investment
Trust, Inc. (e)

	  	Pro Forma Adjustments

	 	 	Pro Forma
Total

	 	
 	  	 	  	Other

	 	 	Recent Acquisitions

	 	 	 	 	 	 	
 	  	 	  	 	 	 	East Point

	 	 	150 West Jefferson

	 	 	 	 	 	 	 	 	 	 	
REAL ESTATE ASSETS, at cost:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Land	  	$	279,185	  	$	0	 	 	$	2,163	(c)	 	$	9,375	(c)	 	$	291,196	 	 	 	 	 	 	 	
 	  	 	 	  	 	 	 	 	 	89	(d)	 	 	384	(d)	 	 	 	 	 	 	 	 	 	 	
Buildings, less accumulated depreciation of $63,594	  	 	1,683,036	  	 	0	 	 	 	19,916	(c)	 	 	84,519	(c)	 	 	1,791,746	 	 	 	 	 	 	 	
 	  	 	 	  	 	 	 	 	 	815	(d)	 	 	3,460	(d)	 	 	 	 	 	 	 	 	 	 	
Construction in progress	  	 	42,746	  	 	0	 	 	 	0	 	 	 	0	 	 	 	42,746	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
Total real estate assets	  	 	2,004,967	  	 	0	 	 	 	22,983	 	 	 	97,738	 	 	 	2,125,688	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
INVESTMENT IN JOINT VENTURES	  	 	83,915	  	 	0	 	 	 	0	 	 	 	0	 	 	 	83,915	 	 	 	 	 	 	 	
CASH AND CASH EQUIVALENTS	  	 	45,464	  	 	380,046	(a)	 	 	(22,079	)(c)	 	 	(93,894	)(c)	 	 	294,591	 	 	 	 	 	 	 	
 	  	 	 	  	 	(14,946	)(b)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
RENT RECEIVABLE	  	 	19,321	  	 	0	 	 	 	0	 	 	 	0	 	 	 	19,321	 	 	 	 	 	 	 	
DEFERRED PROJECT COSTS	  	 	1,494	  	 	14,946	(b)	 	 	(904	)(d)	 	 	(3,844	)(d)	 	 	11,692	 	 	 	 	 	 	 	
DUE FROM AFFILIATES	  	 	1,961	  	 	0	 	 	 	0	 	 	 	0	 	 	 	1,961	 	 	 	 	 	 	 	
PREPAID EXPENSES AND OTHER ASSETS, NET	  	 	4,407	  	 	0	 	 	 	0	 	 	 	0	 	 	 	4,407	 	 	 	 	 	 	 	
DEFERRED LEASE ACQUISITION COSTS, NET	  	 	1,638	  	 	0	 	 	 	0	 	 	 	0	 	 	 	1,638	 	 	 	 	 	 	 	
INTANGIBLE LEASE ASSET	  	 	12,060	  	 	0	 	 	 	0	 	 	 	0	 	 	 	12,060	 	 	 	 	 	 	 	
INVESTMENT IN BONDS	  	 	54,500	  	 	0	 	 	 	0	 	 	 	0	 	 	 	54,500	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
Total assets	  	$	2,229,727	  	$	380,046	 	 	$	0	 	 	$	0	 	 	$	2,609,773	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	

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LIABILITIES AND SHAREHOLDERS’ EQUITY
 
(in thousands, except share amounts)
 
 	  	Wells Real
Estate
Investment
Trust, Inc. (e)

	 	 	Pro Forma Adjustments

	  	Pro Forma
Total

	 	 	
 	  	 	 	 	Other

	 	 	Recent Acquisitions

	  	 	 	 	 	 	 	
 	  	 	 	 	 	 	 	East Point

	  	150 West Jefferson

	  	 	 	 	 	 	 	 	 	 	 	 	
LIABILITIES:	  	 	 	 	 	 	 	 	 	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	
Notes payable	  	$	248,195	 	 	$	0	 	 	$	0	  	$	0	  	$	248,195	 	 	 	 	 	 	 	 	 	 	
Obligations under capital lease	  	 	54,500	 	 	 	0	 	 	 	0	  	 	0	  	 	54,500	 	 	 	 	 	 	 	 	 	 	
Intangible lease liability	  	 	32,697	 	 	 	0	 	 	 	0	  	 	0	  	 	32,697	 	 	 	 	 	 	 	 	 	 	
Accounts payable and accrued expenses	  	 	24,580	 	 	 	0	 	 	 	0	  	 	0	  	 	24,580	 	 	 	 	 	 	 	 	 	 	
Due to affiliate	  	 	15,975	 	 	 	0	 	 	 	0	  	 	0	  	 	15,975	 	 	 	 	 	 	 	 	 	 	
Dividends payable	  	 	6,046	 	 	 	0	 	 	 	0	  	 	0	  	 	6,046	 	 	 	 	 	 	 	 	 	 	
Deferred rental income	  	 	11,584	 	 	 	0	 	 	 	0	  	 	0	  	 	11,584	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	
Total liabilities	  	 	393,577	 	 	 	0	 	 	 	0	  	 	0	  	 	393,577	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	
COMMITMENTS AND CONTINGENCIES	  	 	 	 	 	 	 	 	 	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP	  	 	200	 	 	 	0	 	 	 	0	  	 	0	  	 	200	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	
SHAREHOLDERS’ EQUITY:	  	 	 	 	 	 	 	 	 	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	
Common shares, $.01 par value; 750,000,000 shares authorized, 217,790,874 shares issued and 215,699,717 outstanding at December 31, 2002	  	 	2,178	 	 	 	427	(a)	 	 	0	  	 	0	  	 	2,605	 	 	 	 	 	 	 	 	 	 	
Additional paid-in capital	  	 	1,929,381	 	 	 	379,619	(a)	 	 	0	  	 	0	  	 	2,309,000	 	 	 	 	 	 	 	 	 	 	
Cumulative distributions in excess of earnings	  	 	(74,310	)	 	 	0	 	 	 	0	  	 	0	  	 	(74,310	)	 	 	 	 	 	 	 	 	 	
Treasury stock, at cost, 2,091,157 shares at December 31, 2002	  	 	(20,912	)	 	 	0	 	 	 	0	  	 	0	  	 	(20,912	)	 	 	 	 	 	 	 	 	 	
Other comprehensive loss	  	 	(387	)	 	 	0	 	 	 	0	  	 	0	  	 	(387	)	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	
Total shareholders’ equity	  	 	1,835,950	 	 	 	380,046	 	 	 	0	  	 	0	  	 	2,215,996	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	
Total liabilities and shareholders’ equity	  	$	2,229,727	 	 	$	380,046	 	 	$	0	  	$	0	  	$	2,609,773	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	
 
(a)	 	Reflects capital raised through issuance of additional shares subsequent to December 31, 2002 through 150 West Jefferson acquisition date, net of organizational and offering costs, commissions and dealer-manager fees.	
 
(b)	 	Reflects deferred project costs capitalized as a result of additional capital raised described in note (a) above.	
 
(c)	 	Reflects Wells Real Estate Investment Trust, Inc.’s purchase price for the land, building and liabilities assumed.	
 
(d)	 	Reflects deferred project costs applied to the land and building at approximately 4.094% of the cash paid for purchase.	
 
(e)	 	Historical financial information derived from annual report on Form 10-K.	
 
The accompanying notes are an integral part of this statement.

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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA STATEMENT OF INCOME
 
FOR THE YEAR ENDED DECEMBER 31, 2002
 
(in thousands, except per share amounts)
 
(Unaudited)
 
 	  	Wells Real
Estate
Investment
Trust, Inc. (h)

	  	Pro Forma Adjustments

	 	 	Pro Forma
Total

	 	
 	  	 	  	 	 	 	Recent Acquisitions

	 	 	 	 	 	 	
 	  	 	  	2002 Acquisitions

	 	 	East Point

	 	 	150 West Jefferson

	 	 	 	 	 	 	 	
REVENUES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental income	  	$	107,526	  	$	98,599	(a)	 	$	1,531	(a)	 	$	11,665	(a)	 	$	219,321	 	 	 	 	
Tenant reimbursements	  	 	18,992	  	 	9,584	(b)	 	 	63	(b)	 	 	5,527	(b)	 	 	34,166	 	 	 	 	
Equity in income of joint ventures	  	 	4,700	  	 	648	(c)	 	 	0	 	 	 	0	 	 	 	5,348	 	 	 	 	
Lease termination income	  	 	1,409	  	 	0	 	 	 	0	 	 	 	0	 	 	 	1,409	 	 	 	 	
Interest and other income	  	 	7,001	  	 	0	 	 	 	0	 	 	 	0	 	 	 	7,001	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
 	  	 	139,628	  	 	108,831	 	 	 	1,594	 	 	 	17,192	 	 	 	267,245	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
EXPENSES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	38,780	  	 	34,362	(d)	 	 	829	(d)	 	 	3,519	(d)	 	 	77,490	 	 	 	 	
Interest expense	  	 	4,638	  	 	9,657	(e)	 	 	0	 	 	 	0	 	 	 	14,295	 	 	 	 	
Property operating costs	  	 	26,949	  	 	25,244	(f)	 	 	990	(f)	 	 	7,752	(f)	 	 	60,935	 	 	 	 	
Management and leasing fees	  	 	5,155	  	 	3,196	(g)	 	 	72	(g)	 	 	774	(g)	 	 	9,197	 	 	 	 	
General and administrative	  	 	3,244	  	 	0	 	 	 	0	 	 	 	0	 	 	 	3,244	 	 	 	 	
Legal and accounting	  	 	1,008	  	 	0	 	 	 	0	 	 	 	0	 	 	 	1,008	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
 	  	 	79,774	  	 	72,459	 	 	 	1,891	 	 	 	12,045	 	 	 	166,169	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
NET INCOME	  	$	59,854	  	$	36,372	 	 	$	(297	)	 	$	5,147	 	 	$	101,076	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
EARNINGS PER SHARE, basic and diluted	  	$	0.41	  	 	 	 	 	 	 	 	 	 	 	 	 	$	0.39	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	
WEIGHTED AVERAGE SHARES, basic and diluted	  	 	145,633	  	 	 	 	 	 	 	 	 	 	 	 	 	 	257,084	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	
 
 	(a)	 	Rental income is recognized on a straight-line basis.	
 
 	(b)	 	Consists of operating costs reimbursements.	
 
 	(c)	 	Reflects Wells Real Estate Investment Trust, Inc.’s equity in income of the Wells Fund XIII-REIT Joint Venture related to the John Wiley Indianapolis Building. The pro forma adjustment results from rental revenues less operating expenses, management fees and depreciation.	
 
 	(d)	 	Depreciation expense on the buildings is recognized using the straight-line method and a 25-year life.	
 
 	(e)	 	Represents interest expense on lines of credits used to acquire assets, which bear interest at approximately 3.99% for the year ended December 31, 2002 and assumed mortgages on the BMG Direct, BMG Music and Nestle Buildings, which bear interest at 8.5%, 8% and 3.39% for the year ended December 31, 2002, respectively.	
 
 	(f)	 	Consists of operating expenses.	
 
 	(g)	 	Management and leasing fees are calculated at 4.5% of rental income and tenant reimbursements.	
 
 	(h)	 	Historical financial information derived from annual report on Form 10-K.	
 
The accompanying notes are an integral part of this statement.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
SUPPLEMENT NO. 7 DATED MAY 15, 2003 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, as supplemented and amended by Supplement No. 1 dated August 14, 2002, Supplement No. 2 dated August 29, 2002, Supplement No. 3 dated October 25, 2002, Supplement No. 4 dated December 10, 2002, Supplement No. 5 dated January 15, 2003, and Supplement No. 6 dated April 14, 2003. 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 Real Estate Investments” section of the prospectus to describe the following real property acquisitions;	
 
 	(A)	 	Acquisition of a three-story office building in Englewood Cliffs, New Jersey (Citicorp Englewood Cliffs, NJ Building);	
 
 	(B)	 	Acquisition of a 32-story office building in Minneapolis, Minnesota (US Bancorp Minneapolis Building);	
 
 	(C)	 	Acquisition of an 83-story office building in Chicago, Illinois (Aon Center Chicago Building); and	
 
 	(D)	 	Acquisition of a three-story office building in Auburn Hills, Michigan (GMAC Detroit Building);	
 
 	(3)	 	Status of the development of the Nissan Project, the Kerr-McGee Property and the AmeriCredit Phoenix Building;	
 
 	(4)	 	Description of unsecured line of credit in the amount of $500 million;	
 
 	(5)	 	Revisions to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the prospectus;	
 
 	(6)	 	Unaudited financial statements of the Wells REIT for the three month period ended March 31, 2003;	
 
 	(7)	 	Financial statements relating to the recently acquired US Bancorp Minneapolis Building and the Aon Center Chicago Building; and	
 
 	(8)	 	Unaudited pro forma financial statements of the Wells REIT reflecting the acquisition of the Citicorp Englewood Cliffs, NJ Building, the US Bancorp Minneapolis Building, the Aon Center Chicago Building and the GMAC Detroit Building.	
 
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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 $132.2 million in gross offering proceeds from the sale of 13.2 million 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 $175.2 million in gross offering proceeds from the sale of 17.5 million 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 $1.3 billion in gross offering proceeds from the sale of 128.3 million 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 May 15, 2003, we had received additional gross proceeds of approximately $1.3 billion from the sale of approximately 126.8 million shares in our fourth public offering. Accordingly, as of May 15, 2003, we had received aggregate gross offering proceeds of approximately $2.9 billion from the sale of approximately 285.9 million shares in all of our public offerings. After payment of approximately $98.6 million in acquisition and advisory fees and acquisition expenses, payment of $319.4 million in selling commissions and organization and offering expenses, and common stock redemptions of approximately $42.7 million pursuant to our share redemption program, as of May 15, 2003, we had raised aggregate net offering proceeds available for investment in properties of approximately $2.4 billion, out of which approximately $2.3 billion had been invested in real estate properties, and approximately $74.3 million remained available for investment in real estate properties.
 
Description of Properties
 
As of May 15, 2003, we had purchased interests in 78 real estate properties located in 23 states. Below is a description of our recent real property acquisitions.
 
Citicorp Englewood Cliffs, NJ Building
 
On April 30, 2003, 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 three-story office building containing approximately 410,000 rentable square feet located on an approximately 27-acre tract of land at 111 Sylvan Avenue in Englewood Cliffs, New Jersey (Citicorp Englewood Cliffs, NJ Building) for a purchase price of $70.5 million. The Citicorp Englewood Cliffs, NJ Building was purchased from US Fund Sylvan Avenue, L.P., a Delaware limited partnership not in any way affiliated with the Wells REIT, Wells OP or Wells Capital, Inc., our advisor. In order to finance the acquisition of the Citicorp Englewood Cliffs, NJ Building, Wells OP obtained approximately $50 million in loan proceeds by drawing down on its existing line of credit with SouthTrust Bank, N.A.
 
The Citicorp Englewood Cliffs, NJ Building, which was originally built in 1953 and renovated in 1998, is leased under a net lease (i.e., operating costs and maintenance costs are paid by the tenant) entirely to Citicorp North America, Inc. (Citicorp North America), a wholly-owned subsidiary of Citicorp, Inc. (Citicorp). Citicorp, which is a guarantor of the Citicorp North America lease, is a financial services holding company whose four main business segments include consumer financial services, corporate and institutional financial services, investment management services, and private investment services. Citicorp provides its services in approximately 100 countries worldwide.
 
The Citicorp North America lease commenced in June 1998 and expires in November 2010. The current annual base rent payable under the Citicorp North America lease is approximately $6.0 million. Citicorp North America has the right, at its option, to extend the initial term of its lease for two additional five-year periods at the then-current market rental rate. Under the Citicorp North America lease, the tenant is responsible for maintaining the Citicorp Englewood Cliffs, NJ Building and for the payment of
 
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all operating expenses relating to the property and Wells OP, as the landlord, is responsible for maintaining and repairing the structural portions and mechanical systems of the Citicorp Englewood Cliffs, NJ Building.
 
Since the Citicorp Englewood Cliffs, NJ Building is leased to a single tenant on a long-term basis under a net lease that transfers substantially all of the operating costs to the tenant, we believe that financial information about the guarantor of the lease, Citicorp, is more relevant to investors than financial statements of the property acquired.
 
Citicorp currently files its financial statements in reports filed with the SEC, and the following summary financial data regarding Citicorp is taken from its previously filed public reports:
 
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
 
 	  	FOR THE FISCAL YEAR ENDED

	
 	  	12/31/2002

	  	12/31/2001

	  	12/31/2000

	
 	  	(IN MILLIONS)	
Revenues	  	$	66,401	  	$	67,266	  	$	64,503	
Operating Income	  	$	16,166	  	$	15,221	  	$	12,915	
Net Income	  	$	10,709	  	$	9,642	  	$	8,110	
 
CONSOLIDATED BALANCE SHEET DATA:
 
 	  	AS OF THE FISCAL YEAR ENDED

	
 	  	12/31/2002

	  	12/31/2001

	  	12/31/2000

	
 	  	(IN MILLIONS)	
Total Assets	  	$	727,337	  	$	646,944	  	$	551,607	
Long-Term Debt	  	$	78,372	  	$	81,053	  	$	80,335	
Stockholders’ Equity	  	$	73,540	  	$	63,453	  	$	47,865	
 
For more detailed financial information regarding Citicorp, please refer to the financial statements of Citicorp, Inc., which are publicly available with the SEC at http://www.sec.gov.
 
Wells Management Company, Inc. (Wells Management), an affiliate of the Wells REIT and our advisor, will manage the Citicorp Englewood Cliffs, NJ Building on behalf of Wells OP and will be paid management and leasing fees in the amount of up to 4.5% of the gross revenues from the Citicorp Englewood Cliffs, NJ Building, subject to certain limitations.
 
US Bancorp Minneapolis Building
 
On May 1, 2003, Wells OP purchased a 32-story office building containing approximately 929,694 rentable square feet located at 800 Nicollet Mall, Minneapolis, Minnesota (US Bancorp Minneapolis Building) for a purchase price of $174 million from MN-Nicolet Mall, L.L.C. (Nicolet Mall), a Delaware limited liability company not in any way affiliated with the Wells REIT, Wells OP or our advisor.
 
The US Bancorp Minneapolis Building was built in 2000 and is located on an approximately 1.2-acre tract of land in downtown Minneapolis, Minnesota. The US Bancorp Minneapolis Building is leased to 29 different tenants.
 
U.S. Bancorp Piper Jaffray Companies, Inc. (US Bancorp Piper Jaffray) leases approximately 718,171 rentable square feet of the US Bancorp Minneapolis Building (77.2%). US Bancorp Piper Jaffray is currently a wholly-owned subsidiary of U.S. Bancorp. U.S. Bancorp, which is a guarantor of the US Bancorp Piper Jaffray lease, is a financial services holding company having its corporate
 
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headquarters in Minneapolis, Minnesota. U.S. Bancorp reported a net worth, as of December 31, 2002, of approximately $18.1 billion. US Bancorp Piper Jaffray provides investment products and services, including securities, mutual funds and annuities, and insurance products, to individuals, institutions and businesses. In February 2003, U.S. Bancorp announced a plan to spin-off its capital markets business unit, including US Bancorp Piper Jaffray, in late 2003. In connection with the spin-off, shareholders of U.S. Bancorp will receive a stock dividend of the shares in US Bancorp Piper Jaffray, as a result of which US Bancorp Piper Jaffray will become an independent company and will no longer be a wholly-owned subsidiary of U.S. Bancorp. U.S. Bancorp will remain as a guarantor of the US Bancorp Piper Jaffray lease after the spin-off.
 
The US Bancorp Piper Jaffray lease commenced in June 2000 and expires in May 2014. The current annual base rent payable under the US Bancorp Piper Jaffray lease is approximately $10.8 million. US Bancorp Piper Jaffray has the right, at its option, to extend the initial term of its lease for one additional six-year period, and two additional five-year periods. US Bancorp Piper Jaffray also has options to lease additional available space in the US Bancorp Minneapolis Building in 2004, 2006, 2008, 2010, and 2012, as well as a right of first refusal to lease additional available space beginning in June 2003. Under the US Bancorp Piper Jaffray lease, US Bancorp Piper Jaffray is responsible for its pro rata share of operating and maintenance costs. Wells OP, as the landlord, is responsible for maintaining and repairing the structural portions and mechanical systems of the US Bancorp Minneapolis Building.
 
The other 28 tenants lease approximately 205,056 rentable square feet (22.1%) of the US Bancorp Minneapolis Building for an aggregate annual base rent payable of approximately $3.7 million. Approximately 6,467 rentable square feet (0.7%) of the US Bancorp Minneapolis Building is currently vacant.
 
Wells Management will be paid management and leasing fees in the amount of up to 4.5% of gross revenues from the US Bancorp Minneapolis Building, subject to certain limitations. Wells OP has entered into a two-year management agreement with Equity Office Management, L.L.C. (Equity Office Management), an affiliate of the seller of the US Bancorp Minneapolis Building, to serve as the on-site property manager for the US Bancorp Minneapolis Building. The property management fees payable to Equity Office Management will be paid out of or credited against the fees payable to Wells Management. Equity Office Management is not in any way affiliated with the Wells REIT, Wells OP or our advisor.
 
Aon Center Chicago Building
 
On May 9, 2003, Wells REIT—Chicago Center, Chicago, LLC (REIT—Chicago Center), a single member Delaware limited liability company wholly-owned by Wells OP, purchased an 83-story office building containing approximately 2,577,000 rentable square feet located at 200 East Randolph Street in Chicago, Illinois (Aon Center Chicago Building) for a purchase price of approximately $465.2 million, from BRE/Randolph Drive, L.L.C. (BRE/Randolph), a Delaware limited liability company. BRE/Randolph is not in any way affiliated with the Wells REIT, REIT—Chicago Center, Wells OP or our advisor. In order to finance the acquisition of the Aon Center Chicago Building, REIT—Chicago Center obtained (1) approximately $350 million in loan proceeds by having Wells OP draw down on its existing $500 million unsecured line of credit described below, and (2) approximately $112.3 million in seller financing from BRE/Randolph. The seller financing in favor of BRE/Randolph (a) was provided on an interest free basis, (b) is due and payable in full on January 31, 2004, (c) is secured by a first priority mortgage on the Aon Center Chicago Building, and (d) is guaranteed by Wells OP.
 
The Aon Center Chicago Building, which was built in 1972 and is located on an approximately 3.7-acre tract of land in downtown Chicago, is the third tallest building in North America. The Aon Center Chicago Building is leased or subleased to approximately 40 different tenants. BP Corporation North America Inc., Aon Corporation, Kirkland & Ellis, DDB & Needham Chicago Inc., Daniel J. Edelman, Inc., PricewaterhouseCoopers, Deloitte and Touche USA LLP, and Jones Lang LaSalle
 
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Americas, Inc. lease or sublease, in the aggregate, approximately 1,759,000 rentable square feet (68.3%) of the Aon Center Chicago Building. The other tenants lease approximately 622,000 rentable square feet (24.1%) of the Aon Center Chicago Building for an aggregate annual base rent payable of approximately $7.9 million. Approximately 196,000 rentable square feet (7.6%) of the Aon Center Chicago Building is vacant. REIT—Chicago Center, as the landlord for the Aon Center Chicago Building, is responsible for maintaining and repairing the structural portions and mechanical systems of the Aon Center Chicago Building.
 
Approximately 775,796 rentable square feet of the Aon Center Chicago Building (30.1%) is leased to BP Corporation North America Inc. (BP Corporation) is a wholly-owned subsidiary of BP p.l.c. (BP), a British public limited company which is one of the leading oil companies in the world. BP Corporation controls operations in North America for BP.
 
The BP Corporation lease is a net lease which commenced in December 1998 and expires in December 2013. The current annual base rent payable under the BP Corporation lease is approximately $15.6 million. BP Corporation has the right, at its option, to extend the initial term of its lease for four additional five-year periods at 95% of the then-current market rental rate. BP Corporation also has an option to lease an additional floor in the Aon Center Chicago Building, as well as a right of first offer to lease additional available space, subject to various restrictions. Further, BP Corporation has a right of first offer to purchase the Aon Center Chicago Building upon a subsequent sale of the Aon Center Chicago Building by REIT—Chicago Center, subject to various restrictions.
 
BP Corporation has subleased approximately 515,083 rentable square feet of the Aon Center Chicago Building (20.0%) to Aon Corporation (Aon). The Aon sublease commenced in September 2001 and expires in December 2013. The current annual base rent payable to BP Corporation under the Aon sublease is approximately $6.9 million. Aon, which has its headquarters located in the Aon Center Chicago Building, is a holding company whose subsidiaries provide insurance brokerage, consulting, and insurance underwriting services. Aon has approximately 550 offices in 120 countries worldwide. Aon reported a net worth, as of December 31, 2002, of approximately $3.9 billion.
 
Approximately 351,243 rentable square feet of the Aon Center Chicago Building (13.6%) is leased to Kirkland & Ellis. Kirkland & Ellis is a law firm with approximately 900 attorneys and offices in Chicago, Washington, D.C., New York, Los Angeles, San Francisco, and London. Kirkland & Ellis handles matters of litigation, corporate, intellectual property and technology, bankruptcy, tax, and counseling for national and international clients.
 
The Kirkland & Ellis lease is a net lease which commenced in January 1987 and expires in December 2011. The current annual base rent payable under the Kirkland & Ellis lease is approximately $4.8 million. Kirkland & Ellis has the right, at its option, to extend the initial term of its lease for one additional ten-year period at the then-current market rental rate. Kirkland & Ellis also has an option to lease additional available space in the Aon Center Chicago Building, and a right of first offer to lease additional space on the 47 th , 50 th , 51 st , 52 nd , and 66 th  floors. Kirkland & Ellis has exercised a right of first offer to lease additional available space in the Aon Center Chicago Building on the 65 th  and 67 th  floors beginning in 2004 and 2005 respectively.
 
Approximately 263,978 rentable square feet of the Aon Center Chicago Building (10.2%) is leased to DDB & Needham Chicago Inc. (DDB), which has its corporate headquarters in the Aon Center Chicago Building. DDB is an advertising and marketing firm with offices in approximately 96 countries worldwide. DDB is a wholly-owned subsidiary of Omnicom Group, Inc. (Omnicom), which is a guarantor of the DDB lease. Omnicom is one of the largest advertising and corporate communications companies in the world. Omnicom reported a net worth, as of December 31, 2002, of approximately $2.57 billion.
 
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The DDB lease is a net lease which commenced in July 1997 and expires in June 2018. The current annual base rent payable under the DDB lease is approximately $4.3 million. DDB has the right, at its option, to extend the initial term of its lease for one additional five-year period at the then-current market rental rate. DDB also has an option and a right of first offer to lease space on the 34 th  floor in the Aon Center Chicago Building. In addition, the DDB lease provides DDB with the right to reduce its leased space by between 10,000 and 50,000 square feet if DDB experiences reduced advertising account revenue.
 
Approximately 126,735 rentable square feet of the Aon Center Chicago Building (4.9%) is leased to Daniel J. Edelman, Inc. (Edelman), the parent company of Edelman Public Relations Worldwide. Edelman Public Relations Worldwide is a large privately held public relations firm with 38 offices worldwide and has its corporate headquarters in the Aon Center Chicago Building.
 
The Edelman lease is a net lease which commenced in March 1995 and expires in February 2010. The current annual base rent payable under the Edelman lease is approximately $1.9 million. Edelman has the right, at its option, to extend the initial term of its lease for two additional five-year periods at 95% of the then-current market rental rate. Edelman also has a right of third offer to lease additional space on the 78 th  floor of the Aon Center Chicago Building.
 
Approximately 121,788 rentable square feet of the Aon Center Chicago Building (4.7%) is leased to PricewaterhouseCoopers (PwC), an accounting services firm with offices in approximately 142 countries worldwide. PwC’s five main business units include Audit, Assurance and Business Advisory Services; Business Process Outsourcing; Corporate Finance and Recovery Services; Human Resource Services; and Global Tax Services.
 
The PwC lease is a net lease which commenced in January 1994 and expires in December 2003. The current annual base rent payable under the PwC lease is approximately $1.7 million. PwC currently subleases its entire leased premises to Deloitte and Touche USA LLP (Deloitte), a professional services organization which provides assurance and advisory, tax, and consulting services in over 140 countries worldwide.
 
Deloitte’s sublease expires in December 2003 at the same time as the expiration of the PwC lease. Deloitte has entered into a new net lease for 134,966 rentable square feet, which commences on the earlier of (1) the termination of the PwC lease, or (2) January 1, 2004, and expires in June 2005. The initial annual base rent payable under the Deloitte lease will be approximately $3.9 million. Deloitte has the right, at its option, to extend the initial term of its lease for two additional five-year periods at the then-current market rental rate.
 
Approximately 119,215 rentable square feet of the Aon Center Chicago Building (4.6%) is leased to Jones Lang LaSalle Americas, Inc. (Jones Lang), which has its corporate headquarters in the Aon Center Chicago Building. Jones Lang is a real estate services and investment company with offices in approximately 34 countries worldwide. Jones Lang’s operations include space acquisition and disposition, facilities and property management, project and development management services, leasing, buying and selling properties, consulting and capital markets expertise. Jones Lang reported a net worth, as of December 31, 2002, of approximately $367 million.
 
The Jones Lang lease is a net lease which commenced in March 1996 and expires in February 2006. The current annual base rent payable under the Jones Lang lease is approximately $1.4 million. Jones Lang has the right, at its option, to extend the initial term of its lease for two additional five-year periods at the then-current market rental rate. Jones Lang also has a right of first offer to lease additional space on the 42 nd  floor of the Aon Center Chicago Building.
 
Wells Management will be paid management and leasing fees in the amount of up to 4.5% of gross revenues from the Aon Center Chicago Building, subject to certain limitations. REIT—Chicago Center has entered into a five-year management agreement with Brea Property Management of Illinois, LLC (Brea) pursuant to which Brea will serve as the on-site property manager for the Aon Center Chicago Building.
 
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Brea will be paid management fees out of or credited against the fees payable to Wells Management. Brea is not in any way affiliated with the Wells REIT, REIT—Chicago Center, Wells OP or our advisor.
 
GMAC Detroit Building
 
On May 9, 2003, Wells OP purchased a three-story office building containing approximately 119,122 rentable square feet located at 900 Squirrel Road in Auburn Hills, Michigan (GMAC Detroit Building) for a purchase price of approximately $17.8 million, from KDC-SW, Auburn Hills 1, L.P., a Texas limited partnership (KDC-SW). KDC-SW is not in any way affiliated with the Wells REIT, Wells OP or our advisor. KDC-SW is an affiliate of the sellers of the Federal Express Colorado Springs Building, the EDS Des Moines Building, and the Intuit Dallas Building, which were purchased by Wells OP in September 2002.
 
The GMAC Detroit Building was built in 2001 and is located on an approximately 7.3-acre tract of land in Auburn Hills, Michigan, 30 miles north of downtown Detroit. The GMAC Detroit Building is leased to General Motors Acceptance Corp and Delmia Corp. Approximately 16,182 rentable square feet (13.6%) of the GMAC Detroit Building is vacant. Wells OP entered into an earn-out agreement with the seller at closing, pursuant to which Wells OP is required to pay the seller certain amounts for each new lease executed before November 8, 2004 for any portion of the currently vacant space.
 
Approximately 60,034 rentable square feet of the GMAC Detroit Building (50.4%) is leased to General Motors Acceptance Corp (GMAC), a wholly-owned subsidiary of General Motors Corporation (GM). GMAC provides financing, mortgage and insurance services directly and through its subsidiaries to consumers and businesses on a global basis. GMAC reported a net worth, as of December 31, 2002, of approximately $17.8 billion.
 
The GMAC lease commenced in January 2002 and expires in March 2007. The current annual base rent payable under the GMAC lease is approximately $1.4 million. GMAC has the right, at its option, to extend the initial term of its lease for two additional five-year periods at 95% of the then-current market rental rate. Under the GMAC lease, Wells OP, as the landlord, is responsible for maintaining and repairing the structural portions and mechanical systems of the GMAC Detroit Building and for paying operating expenses and maintenance costs relating to the GMAC Detroit Building, subject to reimbursement obligations described below. Beginning in the lease year after 95% of the GMAC Detroit Building is occupied, GMAC will be responsible for its pro rata share of increases in operating and maintenance costs which exceed the expenses incurred by Wells OP in the first lease year in which 95% of the GMAC Detroit Building is occupied.
 
Approximately 42,906 rentable square feet of the GMAC Detroit Building (36.0%) is leased to Delmia Corp. (Delmia). Delmia designs digital manufacturing software products for process planning, detailing, verification and simulation of digital factories. Delmia, which has its corporate headquarters in the GMAC Detroit Building, is a subsidiary of Dassault Systemes, S.A. (Dassault), a French corporation. Dassault, which is a guarantor of the Delmia lease, provides product lifecycle management software using three-dimensional digital technology. Dassault reported a net worth, as of December 31, 2002, of approximately $735 million.
 
The Delmia lease commenced in January 2003 and expires in July 2013. The initial annual base rent payable under the Delmia lease is approximately $0.9 million. Delmia has the right, at its option, to extend the initial term of its lease for two additional five-year periods at 95% of the then-current market rental rate. Delmia also has a right of first refusal to lease additional available space in the GMAC Detroit Building during the first 2 years of the Delmia lease and a right of first offer on available space for the remainder of the Delmia lease. Delmia, at its option, may terminate the Delmia lease at the end of the 66 th  month by paying a termination fee of approximately $1 million plus other costs and commissions. Under the Delmia lease, Wells OP, as the landlord, is responsible for maintaining and repairing the structural portions and mechanical systems of the GMAC Detroit Building and for paying operating expenses and maintenance costs relating to the GMAC Detroit Building, subject to reimbursement obligations described below. Beginning in 2004, Delmia will be responsible for its pro rata share of increases in operating and maintenance costs which exceed the expenses incurred by Wells OP in 2003.
 
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Wells Management will be paid management and leasing fees in the amount of up to 4.5% of gross revenues from the GMAC Detroit Building, subject to certain limitations. Wells OP has entered into an agreement with Trammell Crow Company (Trammell Crow) to serve as the on-site property manager for the GMAC Detroit Building. The property management fees payable to Trammel Crow will be paid out of or credited against the fees payable to Wells Management. Trammell Crow is not in any way affiliated with the Wells REIT, Wells OP or our advisor.
 
Status of the Nissan Building
 
In March 2003, the construction of the Nissan Building , a three-story approximately 268,290 rentable square foot office building in Irving, Texas, was substantially completed. The aggregate cost and expenses incurred by Wells OP with respect to the acquisition and construction of the Nissan Building totaled approximately $41.7 million, which is within the budgeted amount for the property. Nissan Motor Acceptance Corporation occupied the building under a net lease agreement commencing on April 1, 2003. The construction was financed through a loan that was paid off in March 2003, when the building was substantially completed.
 
Status of the AmeriCredit Phoenix Building
 
In April 2003, the construction of the AmeriCredit Phoenix Building, a three-story approximately 153,494 rentable square foot office building in Chandler, Arizona, was substantially completed. The aggregate cost and expenses incurred by Wells OP with respect to the acquisition and construction of the AmeriCredit Phoenix Building totaled approximately $25.6 million. The revised total cost, which reflects an increase of approximately $0.9 million from the budgeted amount for the property, is due to certain recently requested additional tenant improvements and requirements by the City of Chandler. AmeriCredit Financial Services, Inc. occupied the building under a net lease agreement commencing on April 15, 2003.
 
Status of the Kerr-McGee Building
 
As of May 15, 2003, Wells OP had expended approximately $11.0 million towards the construction of the four-story approximately 100,000 rentable square foot office building in Houston, Texas. The Kerr-McGee Building is approximately 65% complete and is currently expected to be completed in July 2003. We estimate that the aggregate cost and expenses to be incurred by Wells OP with respect to the acquisition and construction of the Kerr-McGee Building will total approximately $15.8 million, which is within the budgeted amount for the property.
 
Description of $500 Million Line of Credit
 
Wells OP established an unsecured secured line of credit in the amount of $500 million with Bank of America, N.A. (BOA) and a consortium of other financial institutions ($500 Million Line of Credit). This unsecured line of credit replaces the $110 million secured line of credit with BOA. The interest rate on the $500 Million Line of Credit is an annual variable rate equal to the London InterBank Offered Rate (LIBOR) for a 30-day period plus up to 1.625% or certain other alternative rates. Wells OP paid up-front commitment fees in an amount equal to approximately $2.3 million in connection with the $500 Million Line of Credit. In addition, Wells OP is required to pay a quarterly facility fee of .25% per annum on the entire amount of the $500 Million Line of Credit. As of May 15, 2003, the interest rate on the $500 Million Line of Credit was 4.4% per annum, and the outstanding principal balance on the $500 Million Line of Credit was $350 million.
 
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following discussion and analysis should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section contained in Supplement No. 6 dated April 14, 2003 and should also be read in conjunction with our accompanying financial statements and notes thereto.
 
Forward Looking Statements
 
This supplement contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934, including discussion and analysis of our financial condition, 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 this 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 on a timely basis or 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.
 
REIT Qualification
 
We have made an election under Section 856 of the Internal Revenue Code to be taxed as a REIT beginning with our taxable year ended December 31, 1998. As a REIT for federal income tax purposes, we generally will not be subject to federal income tax on income that we distribute to shareholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which our qualification is lost. Such an event could materially, adversely affect our financial position and results of operations. However, management believes that we are organized and operate in a manner which will enable us to qualify for treatment as a REIT for federal income tax purposes during the year ending December 31, 2003. In addition, we intend to continue to operate to remain qualified as a REIT for federal income tax purposes.
 
Liquidity and Capital Resources
 
During the three months ended March 31, 2003, we received aggregate gross offering proceeds of $426.8 million from the sale of 42.7 million shares of our common stock. After incurring costs of $14.4 million in acquisition and advisory fees and acquisition expenses, $45.0 million in selling commissions and organization and offering expenses and common stock redemptions of $12.9 million pursuant to our share redemption program, we raised net offering proceeds of $354.5 million during the three months ended March 31, 2003.
 
During the three months ended March 31, 2002, we received aggregate gross offering proceeds of $255.7 million from the sale of 25.7 million shares of our common stock. After incurring costs of $8.9 million in acquisition and advisory fees and acquisition expenses, $27.1 million in selling commissions and organizational and offering expenses and common stock redemptions of $3.0 million pursuant to our share redemption program, we raised net offering proceeds of $216.7 million during the three months ended March 31, 2002.
 
The significant increase in capital resources available to us is due to significantly increased sales of our common stock during the first quarter of 2003. After payment of the costs described above associated with the sale of shares of common stock and acquisitions of properties, we have $108.6 million available for investment in real estate assets as of March 31, 2003.
 
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As of March 31, 2003, we owned interests in 74 real estate properties either directly or through our interests in joint ventures located throughout the United States. Our real estate investment policies are to identify and invest in high-grade commercial office and industrial buildings located in densely populated metropolitan markets which are newly constructed, under construction or which have been previously constructed and have operating histories. However, we are not limited to such investments. We expect to continue to acquire commercial properties which meet our standards of quality in terms of the real estate and the creditworthiness of the tenants.
 
We have developed specific standards for determining creditworthiness of potential tenants of our properties in order to reduce the risk of tenant default. Although authorized to enter into leases with any type of tenant, we anticipate that a majority of our tenants will be large corporations or other entities which have a net worth in excess of $100 million or whose lease obligations are guaranteed by another corporation or entity with a net worth in excess of $100 million.
 
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 entering into any commitment to buy a property. We continue to remain steadfast in our commitment to invest in quality properties that will produce quality income for our stockholders.
 
Dividends during the three months ended March 31, 2003, were $39.7 million compared to $17.6 million during the three months ended March 31, 2002. For each $10 share of our common stock, our board of directors declared dividends for the period December 16, 2002 through March 15, 2003, at an annualized percentage rate of return of 7.0% compared to an annualized percentage rate of return of 7.75% for the period December 16, 2001 through March 15, 2002. The reduction of the annualized percentage rate of return for the dividends resulted from the higher value placed on our type of properties and the additional time it now takes in the acquisition process for us to assess tenant creditworthiness and, therefore, invest proceeds in properties.
 
Our board of directors has declared dividends for the period March 16, 2003, through June 15, 2003, at an annualized percentage rate of return of 7.0%. Second quarter dividends are calculated on a daily record basis of $0.001902 (0.1902 cents) per day per share on the outstanding shares of our common stock payable to stockholders of record as shown on our books at the close of business on each day during the period commencing on March 16, 2003, and continuing on each day thereafter through and including June 15, 2003.
 
The payment of dividends in the future will generally be dependent upon the cash flows from operating the properties currently owned and acquired in future periods, our financial condition, amounts paid for properties acquired, the timing of property acquisitions, capital expenditure requirements and distribution requirements in order to maintain our REIT status under the Internal Revenue Code.
 
Subsequent to March 31, 2003, we obtained an additional variable rate unsecured line of credit in the amount of $500 million to provide us with increased flexibility for funding acquisitions at times when real estate investments are available at appropriate prices but sufficient offering proceeds to fund such acquisitions have not been raised.
 
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Cash Flows From Operating Activities
 
Our net cash provided by operating activities was $38.7 million and $13.5 million for the three months ended March 31, 2003 and 2002, respectively. The increase in net cash provided by operating activities was due primarily to the net income generated by $1.4 billion of additional properties acquired during 2002 and $115.8 million of properties acquired during the three months ended March 31, 2003. We do not recognize in operations the full effect from the properties during the year of acquisition, as the operations of the properties are only included in operations from the date of acquisition. Operating cash flows are expected to increase as we acquire additional properties in future periods and as we obtain the benefit of a full quarter of operations for properties acquired during the three months ended March 31, 2003.
 
Cash Flows Used In Investing Activities
 
Our net cash used in investing activities was $151.9 million and $112.2 million for the three months ended March 31, 2003 and 2002, respectively. The increase in net cash used in investing activities was due primarily to greater investments in properties and the payment of the related deferred project costs resulting from raising a greater amount of offering proceeds. Our investments in real estate assets and intangible lease assets and payment of acquisition and advisory costs totaled $153.6 million and $113.5 million for the three months ended March 31, 2003 and 2002, respectively. The cash outflow from the investments in properties and the payment of deferred project costs were partially offset by distributions from joint ventures of $1.8 million and $1.7 million during the three months ended March 31, 2003, and 2002, respectively. The increase in distributions from joint ventures is primarily due to additional investment in joint ventures during the fourth quarter of 2002.
 
Cash Flows From Financing Activities
 
Our net cash provided by financing activities was $185.8 million and $210.1 million for the three months ended March 31, 2003 and 2002, respectively. The raising of additional capital increased to $426.8 million during the three months ended March 31, 2003, as compared to $255.7 million during the three months ended March 31, 2002. The amounts raised were partially offset by the payment of commissions and offering costs totaling $49.2 million and $27.9 million and redemptions of $13.0 million and $3.0 million during the three months ended March 31, 2003 and 2002, respectively.
 
Additionally, we obtained funds from debt financing arrangements totaling $5.2 million and $2.9 million and made debt repayments of $144.4 million and $0 during the three months ended March 31, 2003 and 2002, respectively, based on the availability and need of cash for investment in real estate assets during the period. Primarily as a result of the increased cash flow from operations, during the three months ended March 31, 2003 and 2002, we paid dividends of $39.7 million and $17.6 million, respectively.
 
Results of Operations
 
As of March 31, 2003, our 74 real estate properties were 98% leased. Our results of operations have changed significantly for the three months ended March 31, 2003, as compared to the three months ended March 31, 2002, generally as result of the acquisition of approximately $1.4 billion of real estate assets during the year ended December 31, 2002, and an additional $115.8 million of real estate assets acquired during the three months ended March 31, 2003. We expect that rental income, tenant reimbursements, depreciation expense, operating expenses, management and leasing fees and net income will each increase in future periods as a result of owning the assets acquired during the three months ended March 31, 2003, for an entire quarter and as a result of anticipated future acquisitions of real estate assets. Due to the average remaining terms of the long-term leases currently in place at our properties,
 
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management does not anticipate significant changes in near-term rental revenues from properties currently owned.
 
Rental income increased by $36.6 million, during the first quarter of 2003, from $16.7 million for the three months ended March 31, 2002, to $53.3 million for the three months ended March 31, 2003. Tenant reimbursements were $9.6 million and $4.4 million for the three months ended March 31, 2003 and 2002, respectively, for an increase of $5.2 million. The increases were primarily due to the rental income and tenant reimbursements for properties acquired subsequent to March 31, 2002, which totaled $35.0 million and $5.3 million, respectively, for the three months ended March 31, 2003. Revenues in future periods are expected to increase compared to historical periods as additional properties are acquired.
 
Our equity in income of joint ventures was $1.3 million and $1.2 million for the three months ended March 31, 2003 and 2002, respectively. Equity in income of joint ventures is not anticipated to change significantly in future periods unless we invest additional proceeds in future joint venture investments.
 
Depreciation expense for the three months ended March 31, 2003 and 2002, was $19.2 million and $5.7 million, respectively comprising approximately 36% and 34% of rental income for the respective three month periods. The change in the percentages between periods is generally due to a change in the applicable cost of the real estate assets compared to the revenues generated by the real estate assets. Depreciation expense relating to assets acquired after March 31, 2002, was $12.9 million. Depreciation expense is expected to increase in future periods as additional properties are acquired, however should remain consistent as a percentage of revenues unless the relationship between the cost of the assets and the revenues earned changes.
 
Property operating costs were $15.2 million and $5.0 million for the three months ended March 31, 2003 and 2002, respectively, representing approximately 24% of the sum of the rental income and tenant reimbursements for each three month period. Property operating costs for the properties acquired subsequent to March 31, 2002, were $9.1 million for the three months ended March 31, 2003. Property operating costs are expected to increase as more properties are acquired, but expenses should remain relatively consistent as a percentage of the sum of rental income and tenant reimbursements.
 
Management and leasing fees expenses were $2.3 million and $0.9 million for the three months ended March 31, 2003 and 2002, respectively, representing approximately 4% of the sum of the rental income and tenant reimbursements for each three month period. Management and leasing fees for properties acquired after March 31, 2002, were $1.3 million for the three months ended March 31, 2003. Management and leasing fees are expected to increase as additional properties are acquired but, as a percentage of the sum of rental income and tenant reimbursements, should remain relatively consistent with historical results.
 
General and administrative expenses increased from $0.5 million for the three months ended March 31, 2002, to $1.6 million for the three months ended March 31, 2003, representing approximately 2% of the total revenues for each three month period. General and administrative expenses are expected to increase in future periods as our assets continue to increase as additional properties are acquired, but are expected remain relatively constant as a percentage of total revenues.
 
Interest expense was $2.6 million and $0.6 million for the three months ended March 31, 2003 and 2002, respectively. Interest expense of $1.0 and $0.4 million for the three months ended March 31, 2003 and 2002, respectively, was attributable to interest on the bonds related to the Ingram Micro and ISS Buildings, which is offset by the interest income associated with the bonds, which results in no net impact on our operating results. The remaining $1.6 million and $0.2 million is due to the interest on our
 
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outstanding borrowings for each period. We had significantly more borrowings outstanding during the three months ended March 31, 2003, as compared to the three months ended March 31, 2002, resulting in a significant increase in the interest expense between the two periods. Interest expense in future periods will be dependent upon the amount of borrowings outstanding during those periods and current interest rates. Historical results may not be indicative of interest expense in future periods.
 
Earnings per share for the three months ended March 31, 2003, decreased to $0.10 per share compared to $0.11 per share for the three months ended March 31, 2002. This decrease is primarily a result of the higher cost of investments in real estate assets resulting in lower revenues and higher depreciation expense as a percentage of the cost of those assets, as described above.
 
Funds From Operations
 
Funds from Operations (FFO), as defined by the National Association of Real Estate Investment Trusts (NAREIT), generally means net income, computed in accordance with accounting principles generally accepted in the United States (GAAP) excluding extraordinary items (as defined by GAAP) and gains (or losses) from sales of property, plus depreciation and amortization on real estate assets, and after adjustments for unconsolidated partnerships, joint ventures and subsidiaries. Management believes that FFO is helpful to investors as a measure of the performance of an equity REIT. However, our calculation of FFO, while consistent with NAREIT’s definition, may not be comparable to similarly titled measures presented by other REITs. FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered as an alternative to net income as an indication of our performance or to cash flows as a measure of liquidity or ability to make distributions.
 
The following table reflects the calculation of FFO for the three month periods ended March 31, 2003 and 2002:
 
 	  	For the three months ended March 31,

	
 	  	2003

	  	2002

	
Funds from operations:	  	 	 	  	 	 	
Net income	  	$	24,364	  	$	10,780	
Add:	  	 	 	  	 	 	
Depreciation of real estate assets	  	 	19,218	  	 	5,744	
Amortization of deferred leasing costs	  	 	78	  	 	73	
Depreciation and amortization—unconsolidated investments in joint ventures	  	 	785	  	 	706	

	

	  	

	

	
Funds from operations (FFO)	  	$	44,445	  	$	17,303	

	

	  	

	

	
Weighted average shares	  	 	 	  	 	 	
Basic and diluted	  	 	233,247	  	 	95,130	

	

	  	

	

	
 
In order to recognize revenues on a straight line basis over the terms of the respective leases, we recognized straight line rental revenue of $0.8 million and $1.0 million during the three months ended March 31, 2003 and 2002, respectively.
 
Amortization of the intangible lease assets and liabilities resulted in a net increase in rental revenue of $0.5 million for the three months ended March 31, 2003.
 
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Inflation
 
The real estate market has not been affected significantly by inflation in the past three years due to the relatively low inflation rate. However, there are provisions in the majority of tenant leases, which would protect us from the impact of inflation. These provisions include reimbursement billings for operating expense pass-through charges, real estate tax and insurance reimbursements on a per square foot basis, or in some cases, annual reimbursement of operating expenses above a certain per square foot allowance. However, due to the long-term nature of the leases, the leases may not re-set frequently enough to cover inflation.
 
Application of Critical Accounting Policies
 
Our accounting policies have been established to conform with generally accepted accounting principles (GAAP). The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If management’s judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied; thus, resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses.
 
The critical accounting policies outlined below have been discussed with members of our audit committee. There have been no significant changes in the critical accounting policies, methodology, or assumptions in the current period.
 
Below is a discussion of the accounting policies that management considers to be critical in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain.
 
Investment in Real Estate Assets
 
We are required to make subjective assessments as to the useful lives of our depreciable assets. We consider the period of future benefit of the asset to determine the appropriate useful lives. These assessments have a direct impact on net income. The estimated useful lives of our assets by class are as follows:
 
Building	  	25 years	
Building improvements	  	10-25 years	
Land improvements	  	20-25 years	
Tenant Improvements	  	Lease term	
 
In the event that inappropriate useful lives or methods are used for depreciation, our net income would be misstated.
 
Valuation of Real Estate Assets
 
We continually monitor events and changes in circumstances that could indicate that the carrying amounts of the real estate assets, both operating properties and properties under construction, in which we have an ownership interest, either directly or through investments in joint ventures, may not be recoverable. When indicators of potential impairment are present which indicate that the carrying amounts of real estate assets may not be recoverable, we assess the recoverability of the real estate assets by determining whether the carrying value of the real estate assets will be recovered through the undiscounted future
 
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operating cash flows expected from the use of the asset and its eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying value, we adjust the real estate assets to the fair value and recognize an impairment loss. We have determined that there has been no impairment in the carrying value of real estate assets held by us and any unconsolidated joint ventures at March 31, 2003.
 
Projections of expected future cash flows requires us to estimate future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, discount rates, the number of months it takes to re-lease the property and the number of years the property is held for investment. The use of inappropriate assumptions in the future cash flow analysis would result in an incorrect assessment of the property’s future cash flows and fair value and could result in the overstatement of the carrying value of our real estate assets and net income.
 
Intangible Lease Asset/Liability
 
We determine whether an intangible asset or liability related to above or below market leases was acquired as part of the acquisition of the real estate assets. The intangible assets and liabilities are recorded at their estimated fair market values at the date of acquisition and amortized over the remaining term of the respective lease to rental income.
 
The determination of the estimated fair values of the intangible lease asset or liability requires the use of significant assumptions with regard to the current market rental rates, rental growth rates, discount rates and other variables. If inappropriate estimates with regard to these variables are used, misclassification of assets or liabilities and incorrect calculation of depreciation amounts would occur, which would misstate our net income.
 
Commitments and Contingencies
 
Take Out Purchase and Escrow Agreement
 
Wells Capital, Inc., our advisor, and its affiliates have developed a program (Wells Section 1031 Program) involving the acquisition by a subsidiary of Wells Management Company (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 seeking to invest the proceeds from a sale of real estate held for investment in another real estate investment for purposes of qualifying for like-kind exchange treatment under Section 1031 of the Internal Revenue Code. The acquisition of each of the properties acquired by Wells Exchange will be financed by a combination of permanent first mortgage financing and interim loan financing obtained from institutional lenders.
 
Following the acquisition of each property, Wells Exchange will attempt to sell co-tenancy interests to 1031 Participants, the proceeds of which will be used to repay a prorata portion of the interim financing. In consideration for the payment of a take out fee to us and following approval of the potential property acquisition by our board of directors, it is anticipated that we will enter into a take out purchase and escrow agreement or similar contract providing that, if Wells Exchange is unable to sell all of the co-tenancy interests in that particular property to 1031 Participants, we will purchase, at Wells Exchange’s cost, any co-tenancy interests remaining unsold at the end of the offering period.
 
In consideration for the payment of a take out fee in the amount of approximately $0.2 million, on December 31, 2002, Wells OP entered into a take out purchase and escrow agreement providing, among other things, that we would be obligated to acquire, at Wells Exchange’s cost ($0.4 million in cash plus $0.4 million of assumed debt for each 2.9994% interest of co-tenancy
 
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interest unsold), any unsold co-tenancy interests in two buildings known as Meadow Brook Corporate Park located in Birmingham, Alabama, which remain unsold at the expiration of the offering of Wells Exchange on September 30, 2003.
 
Our obligations under the take out purchase and escrow agreement are secured by reserving against our existing line of credit with Bank of America, N.A. (Interim Lender). If, for any reason, we fail to acquire any of the co-tenancy interests in Meadow Brook Corporate Park which remain unsold as of September 30, 2003, or there is otherwise an uncured default under the interim loan or the line of credit documents, the Interim Lender is authorized to draw down our line of credit in the amount necessary to pay the outstanding balance of the interim loan in full, in which event the appropriate amount of co-tenancy interest in Meadow Brook Corporate Park would be deeded to us. Our maximum economic exposure in the transaction was initially $14.0 million in cash plus assumption of the first mortgage financing in the amount of $13.9 million. As of March 31, 2003, due to the number of co-tenancy interests sold in Meadow Brook Corporate Park through such date, our maximum exposure has been reduced to $6.7 million in cash plus the assumption of the first mortgage financing in the amount of $6.7 million.
 
Letters of Credit
 
At March 31, 2003, we had three unused letters of credit totaling approximately $19.7 million outstanding from financial institutions, consisting of letters of credit of approximately $14.5 million, $4.8 million and $0.4 million with expiration dates of February 28, 2004; August 12, 2003; and February 2, 2004, respectively. These amounts are not recorded in the accompanying consolidated balance sheet as of March 31, 2003. These letters of credit were required by three unrelated parties to ensure completion of our obligations under certain earn-out and construction agreements. We do not anticipate a need to draw on these letters of credit.
 
Properties Under Contract
 
At March 31, 2003, we have a contract to acquire a third building at our ISS Atlanta Buildings development upon completion of construction (expected in June 2003) for a fixed purchase price of $10.0 million.
 
Commitments Under Existing Lease Agreements
 
Certain lease agreements include provisions that, at the option of the tenant, we may be obligated to expend certain amounts of capital to expand an existing property, construct on adjacent property or provide other expenditures for the benefit of the tenant, in favor of additional rental revenue. At March 31, 2003, tenants have exercised no such options.
 
Properties Under Construction
 
As of March 31, 2003, we have executed construction agreements with unrelated third parties for the purpose of constructing two buildings. The table below details the status of the properties under construction as of March 31, 2003:
 
Property

	  	Total
Projected
Cost

	  	Construction
Costs to Date

	  	Expected
Future Costs

	  	Expected
Completion
Date

	  	Primary
Source of Funds

	
Kerr-McGee	  	$	15.8 million	  	$	9.7 million	  	$	6.1 million	  	July 2003	  	Debt	
AmeriCredit—Phoenix	  	$	24.7 million	  	$	18.9 million	  	$	5.8 million	  	April 2003	  	Investor Proceeds	

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Earn-out Agreements
 
As part of the acquisition of the IRS Building, we entered into an agreement to pay the seller an additional $14.5 million if we or the seller locates a suitable tenant and leases the vacant space of the building within 18 months after the date of acquisition of the property, or March 2004. If the space is not leased within this time, we are released from any obligation to pay this additional purchase consideration. The 26% of the building that was unleased at the time of acquisition remains unleased at March 31, 2003.
 
In connection with the acquisition of East Point I and II Buildings, we entered into an earn-out agreement whereby we are required to pay the seller certain amounts for each new, fully executed lease after the date of acquisition of the property but on or before March 31, 2004. Payments shall be the anticipated first year’s annual rent less operating expenses with the sum divided by 0.105 and the result reduced by tenant improvement costs related to the space.
 
Leasehold Property Obligations
 
The ASML, Motorola Tempe, Avnet, and Bellsouth Ft. Lauderdale Buildings are subject to certain ground leases with expiration dates of 2082, 2082, 2083 and 2049, respectively.
 
Pending Litigation
 
In the normal course of business, we may become subject to litigation or claims. In November 2002, we contracted to purchase an office building located in Ramsey County, Minnesota, from Shoreview Associates LLC (Shoreview), who filed a lawsuit against us in Minnesota state court alleging that Shoreview was entitled to the $0.8 million in earnest money that we had deposited under the contract. We have filed a counterclaim in the case asserting that we are entitled to the $0.8 million earnest money deposit. Procedurally, we had the case transferred to U.S. District Court in Minnesota, and Shoreview has moved to transfer the case back to state court. The dispute currently remains in litigation. After consultation with legal counsel, we do not believe that a reserve for a loss contingency is necessary.
 
Related Party Transactions and Agreements
 
We have entered into agreements with our advisor and its affiliates, whereby we pay certain fees or reimbursements to our advisor or its affiliates for acquisition and advisory fees and expenses, organization and offering costs, sales commissions dealer manager fees, property management and leasing fees and reimbursement of operating costs. See Note 5 to our consolidated financial statements included in this report for a discussion of the various related party transactions, agreements and fees.
 
Conflicts of Interest
 
Our advisor is also a general partner in and advisor to various Wells Real Estate Funds. As such, there are conflicts of interest where our advisor, while serving in the capacity as general partner for Wells Real Estate Funds, may be in competition with us in connection with property acquisitions or for tenants in similar geographic markets.
 
Subsequent Events
 
Sale of shares of our Common Stock
 
From April 1, 2003 through May 15, 2003, we raised approximately $271.6 million through the issuance of approximately 27.2 million shares of our common stock.
 
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Property Acquisitions
 
On April 30, 2003, we purchased the Citicorp Englewood Cliffs, NJ Building, a three-story office building containing approximately 410,000 rentable square feet located in Englewood Cliffs, New Jersey, for a purchase price of $70.5 million, excluding closing costs and acquisition and advisory fees and expenses paid to our advisor. The building is leased entirely to Citicorp North America, Inc., a wholly-owned subsidiary of Citicorp, Inc.
 
On May 1, 2003, we purchased the US Bancorp Minneapolis Building, a 32-story office building containing approximately 929,694 rentable square feet located in Minneapolis, Minnesota, for a purchase price of $174 million, excluding closing costs and acquisition and advisory fees and expenses paid to our advisor. The building is approximately 99% leased under leases to various tenants with varying terms, including US Bancorp Piper Jaffray Companies, Inc. which leases approximately 77% of the building.
 
On May 9, 2003, we purchased the Aon Center Chicago Building, an 83-story office building containing approximately 2.6 million rentable square feet located in Chicago, Illinois, for a purchase price of $465.2 million, excluding closing costs and acquisition and advisory fees and expenses paid to our advisor. The building is approximately 92% leased under leases to various tenants with varying lease terms, including BP Corporation North America, Inc, DDB & Needham Chicago, Inc. and Kirkland & Ellis, which collectively lease approximately 54% of the building.
 
On May 9, 2003, we acquired the GMAC Detroit Building, a three-story office building containing approximately 119,122 square feet located in Auburn Hills, Michigan, for a purchase price of approximately $17.8 million, excluding closing costs and acquisition and advisory fees and expenses paid to our advisor. The building is approximately 86% leased to the GMAC Corporation and Delmia Corporation. For the remaining approximately 14% unleased portion of the building, we are required to pay the seller certain amounts for each new, fully executed lease entered into after the date of acquisition of the building but on or before November 8, 2004. Payments are calculated by dividing the sum of the anticipated first year’s annual rent less operating expenses by 0.095 and the result reduced by tenant improvement costs related to the space.
 
Line of Credit
 
On April 23, 2003, we entered into the $500 Million Line of Credit, an unsecured revolving credit facility with a consortium of banks, including Bank of America, N.A. (BOA). The agreement expires in April 2005 and replaced the $110 million line of credit with BOA. We paid up-front commitment fees totaling $2.3 million to the lenders based on each financial institution’s relative commitment level. The agreement contains alternative borrowing arrangements that provide for interest costs based on LIBOR plus up to 1.625% or certain other alternative rates. Additionally, we are required to pay a quarterly facility fee of .25% per annum on the entire amount of this credit facility.
 
Financial Statements
 
Audited Financial Statements
 
The statements of revenues over certain operating expenses of the US Bancorp Minneapolis Building and the Aon Chicago Center Building for the year ended December 31, 2002, which are included in this supplement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports appearing elsewhere herein, and are included in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.
 
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Unaudited Financial Statements
 
The financial statements of the Wells REIT, as of March 31, 2003, and for the three month period ended March 31, 2003, which are included in this supplement, have not been audited.
 
The statements of revenues over certain operating expenses of the Aon Chicago Center Building for the three months ended March 31, 2003, which are included in this supplement, have not been audited.
 
The pro forma balance sheet of the Wells REIT, as of March 31, 2003, the pro forma statement of income for the year ended December 31, 2002, and the pro forma statement of income for the three months ended March 31, 2003, which are included in this supplement, have not been audited.
 
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INDEX TO FINANCIAL STATEMENTS
 
 	  	Page

	
Wells Real Estate Investment Trust, Inc. and Subsidiaries	  	 	
 	 	
Unaudited Financial Statements	  	 	
 	 	
Consolidated Balance Sheets as of March 31, 2003 (unaudited) and December 31, 2002	  	21	
 	 	
Consolidated Statements of Income for the three months ended March 31, 2003 and March 31, 2002 (unaudited)	  	22	
 	 	
Consolidated Statements of Shareholders’ Equity for the year ended December 31, 2002 and for the three months ended March 31, 2003 (unaudited)	  	23	
 	 	
Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and March 31, 2002 (unaudited)	  	24	
 	 	
Condensed Notes to Consolidated Financial Statements March 31, 2003 (unaudited)	  	25	
 	 	
US Bancorp Minneapolis Building	  	 	
 	 	
Report of Independent Auditors	  	35	
 	 	
Statement of Revenues Over Certain Operating Expenses for the year ended December 31, 2002 (audited)	  	36	
 	 	
Notes to Statement of Revenues Over Certain Operating Expenses for the year ended December 31, 2002 (audited)	  	37	
 	 	
Aon Center Chicago Building	  	 	
 	 	
Report of Independent Auditors	  	39	
 	 	
Statements of Revenues Over Certain Operating Expenses for the year ended December 31, 2002 (audited) and for the three months ended March 31, 2003 (unaudited)	  	40	
 	 	
Notes to Statements of Revenues Over Certain Operating Expenses for the year ended December 31, 2002 (audited) and for the three months ended March 31, 2003 (unaudited)	  	41	
 	 	
Wells Real Estate Investment Trust, Inc. and Subsidiaries	  	 	
 	 	
Unaudited Pro Forma Financial Statements	  	 	
 	 	
Summary of Unaudited Pro Forma Financial Statements	  	43	
 	 	
Pro Forma Balance Sheet as of March 31, 2003 (unaudited)	  	44	
 	 	
Pro Forma Statement of Income for the year ended December 31, 2002 (unaudited)	  	46	
 	 	
Pro Forma Statement of Income for the three months ended March 31, 2003 (unaudited)	  	47	
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
 
 	  	March 31,
2003

	 	 	December 31,
2002

	 	
 	  	(unaudited)	 	 	 	 	
Assets:	  	 	 	 	 	 	 	 	
 	 	 	
Real estate assets, at cost:	  	 	 	 	 	 	 	 	
Land	  	$	291,140	 	 	$	279,185	 	
Building and improvements, less accumulated depreciation of $82,812 at March 31, 2003, and $63,594 at December 31, 2002	  	 	1,811,220	 	 	 	1,683,036	 	
Construction in progress	  	 	24,102	 	 	 	42,746	 	

	

	

	 	

	

	

	
Total real estate assets	  	 	2,126,462	 	 	 	2,004,967	 	
Investments in joint ventures	  	 	83,286	 	 	 	83,915	 	
Cash and cash equivalents	  	 	118,030	 	 	 	45,464	 	
Rents receivable	  	 	19,928	 	 	 	19,321	 	
Deferred project costs	  	 	5,124	 	 	 	1,494	 	
Due from affiliates	  	 	2,167	 	 	 	1,961	 	
Prepaid expenses and other assets, net	  	 	5,997	 	 	 	4,407	 	
Deferred lease acquisition costs, net	  	 	1,561	 	 	 	1,638	 	
Intangible lease assets	  	 	14,147	 	 	 	12,060	 	
Investment in bonds	  	 	54,500	 	 	 	54,500	 	

	

	

	 	

	

	

	
Total assets	  	$	2,431,202	 	 	$	2,229,727	 	

	

	

	 	

	

	

	
Liabilities, Minority Interest and Shareholders’ Equity:	  	 	 	 	 	 	 	 	
 	 	 	
Borrowings	  	$	108,986	 	 	$	248,195	 	
Obligations under capital leases	  	 	54,500	 	 	 	54,500	 	
Intangible lease liabilities	  	 	32,033	 	 	 	32,697	 	
Accounts payable and accrued expenses	  	 	23,131	 	 	 	24,580	 	
Due to affiliates	  	 	5,292	 	 	 	15,975	 	
Dividends payable	  	 	7,252	 	 	 	6,046	 	
Deferred rental income	  	 	11,164	 	 	 	11,584	 	

	

	

	 	

	

	

	
Total liabilities	  	 	242,358	 	 	 	393,577	 	
 	 	 	
Minority interest of unit holder in operating partnership	  	 	200	 	 	 	200	 	

	

	

	 	

	

	

	
Commitments and Contingencies	  	 	—  	 	 	 	—  	 	
 	 	 	
Shareholders’ Equity:	  	 	 	 	 	 	 	 	
Common shares, $.01 par value; 750,000,000 shares authorized, 260,469,726 shares issued and 257,083,636 outstanding at March 31, 2003, and 750,000,000 shares authorized, 217,790,874 shares issued and 215,699,717 shares outstanding at December 31, 2002	  	 	2,605	 	 	 	2,178	 	
Additional paid-in capital	  	 	2,310,731	 	 	 	1,929,381	 	
Cumulative distributions in excess of earnings	  	 	(90,802	)	 	 	(74,310	)	
Treasury stock, at cost, 3,386,090 shares at March 31, 2003 and 2,091,157 shares at December 31, 2002	  	 	(33,860	)	 	 	(20,912	)	
Other comprehensive loss	  	 	(30	)	 	 	(387	)	

	

	

	 	

	

	

	
Total shareholders’ equity	  	 	2,188,644	 	 	 	1,835,950	 	

	

	

	 	

	

	

	
Total liabilities, minority interest and shareholders’ equity	  	$	2,431,202	 	 	$	2,229,727	 	

	

	

	 	

	

	

	
 
See accompanying notes.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share amounts)
 
 	  	Three Months Ended
March 31,

	
 	  	2003

	  	2002

	
Revenues:	  	 	 	  	 	 	
Rental income	  	$	53,343	  	$	16,738	
Tenant reimbursements	  	 	9,601	  	 	4,415	
Equity in income of joint ventures	  	 	1,261	  	 	1,207	
Interest income and other income	  	 	1,154	  	 	1,248	

	

	  	

	

	
 	  	 	65,359	  	 	23,608	

	

	  	

	

	
Expenses:	  	 	 	  	 	 	
Depreciation	  	 	19,218	  	 	5,744	
Property operating costs	  	 	15,220	  	 	5,040	
Management and leasing fees	  	 	2,333	  	 	900	
General and administrative	  	 	1,576	  	 	529	
Interest expense	  	 	2,648	  	 	615	

	

	  	

	

	
 	  	 	40,995	  	 	12,828	

	

	  	

	

	
Net income	  	$	24,364	  	$	10,780	

	

	  	

	

	
Earnings per share	  	 	 	  	 	 	
Basic and diluted	  	$	0.10	  	$	0.11	

	

	  	

	

	
Weighted average shares outstanding	  	 	 	  	 	 	
Basic and diluted	  	 	233,247	  	 	94,845	

	

	  	

	

	
Dividends declared per share	  	$	0.18	  	$	0.19	

	

	  	

	

	
 
See accompanying notes.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2002
AND FOR THE THREE MONTHS ENDED MARCH 31, 2003 (UNAUDITED)
(in thousands, except per share amounts)
 
 	  	Common Stock

	  	Additional
Paid-In
Capital

	 	 	Cumulative
Distributions
in Excess
of Earnings

	 	 	Retained
Earnings

	 	 	Treasury Stock

	 	  	Other
Comprehensive
Income

	 	  	Total
Shareholders’
Equity

	 	 	
 	  	Shares

	  	Amount

	  	 	 	 	 	 	 	 	 	 	Shares

	 	 	Amount

	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Balance, December 31, 2001	  	83,761	  	$	838	  	$	738,236	 	 	$	(24,181	)	 	$	—  	 	 	(555	)	 	$	(5,550	)	  	 	—  	 	  	$	709,343	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Issuance of common stock	  	134,030	  	 	1,340	  	 	1,338,953	 	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	  	 	—  	 	  	 	1,340,293	 	 	 	 	 	 	 	 	 	 	
Treasury stock purchased	  	—  	  	 	—  	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	(1,536	)	 	 	(15,362	)	  	 	—  	 	  	 	(15,362	)	 	 	 	 	 	 	 	 	 	
Dividends ($0.76 per share)	  	—  	  	 	—  	  	 	—  	 	 	 	(50,129	)	 	 	(59,854	)	 	—  	 	 	 	—  	 	  	 	—  	 	  	 	(109,983	)	 	 	 	 	 	 	 	 	 	
Sales commissions and dealer manager fees	  	—  	  	 	—  	  	 	(127,332	)	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	  	 	—  	 	  	 	(127,332	)	 	 	 	 	 	 	 	 	 	
Other offering costs	  	—  	  	 	—  	  	 	(20,476	)	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	  	 	—  	 	  	 	(20,476	)	 	 	 	 	 	 	 	 	 	
Components of comprehensive income:	  	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	—  	  	 	—  	  	 	—  	 	 	 	—  	 	 	 	59,854	 	 	—  	 	 	 	—  	 	  	 	—  	 	  	 	59,854	 	 	 	 	 	 	 	 	 	 	
Change in value of interest rate swap	  	—  	  	 	—  	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	  	 	(387	)	  	 	(387	)	 	 	 	 	 	 	 	 	 	

	

	

	 	 	 	 	 	 	 	 	 	
Comprehensive income	  	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	  	 	59,467	 	 	 	 	 	 	 	 	 	 	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	  	

	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	
Balance, December 31, 2002	  	217,791	  	 	2,178	  	 	1,929,381	 	 	 	(74,310	)	 	 	—  	 	 	(2,091	)	 	 	(20,912	)	  	 	(387	)	  	 	1,835,950	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Issuance of common stock	  	42,679	  	 	427	  	 	426,362	 	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	  	 	—  	 	  	 	426,789	 	 	 	 	 	 	 	 	 	 	
Treasury stock purchased	  	—  	  	 	—  	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	(1,295	)	 	 	(12,948	)	  	 	—  	 	  	 	(12,948	)	 	 	 	 	 	 	 	 	 	
Dividends ($0.18 per share)	  	—  	  	 	—  	  	 	—  	 	 	 	(16,492	)	 	 	(24,364	)	 	—  	 	 	 	—  	 	  	 	—  	 	  	 	(40,856	)	 	 	 	 	 	 	 	 	 	
Sales commissions and dealer manager fees	  	—  	  	 	—  	  	 	(40,221	)	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	  	 	—  	 	  	 	(40,221	)	 	 	 	 	 	 	 	 	 	
Other offering costs	  	—  	  	 	—  	  	 	(4,791	)	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	  	 	—  	 	  	 	(4,791	)	 	 	 	 	 	 	 	 	 	
Components of comprehensive income:	  	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	—  	  	 	—  	  	 	—  	 	 	 	—  	 	 	 	24,364	 	 	—  	 	 	 	—  	 	  	 	—  	 	  	 	24,364	 	 	 	 	 	 	 	 	 	 	
Change in value of interest rate swap	  	—  	  	 	—  	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	  	 	357	 	  	 	357	 	 	 	 	 	 	 	 	 	 	

	

	

	 	 	 	 	 	 	 	 	 	
Comprehensive income	  	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	  	 	24,721	 	 	 	 	 	 	 	 	 	 	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	  	

	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	
Balance, March 31, 2003	  	260,470	  	$	2,605	  	$	2,310,731	 	 	$	(90,802	)	 	 	—  	 	 	(3,386	)	 	$	(33,860	)	  	$	(30	)	  	$	2,188,644	 	 	 	 	 	 	 	 	 	 	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	  	

	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	
 
See accompanying notes.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
 
 	  	Three Months Ended March 31,

	 	
 	  	2003

	 	 	2002

	 	
Cash flows from operating activities:	  	 	 	 	 	 	 	 	
Net income	  	$	24,364	 	 	$	10,780	 	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	
Equity in income of joint ventures	  	 	(1,261	)	 	 	(1,207	)	
Depreciation	  	 	19,218	 	 	 	5,744	 	
Amortization of deferred financing costs	  	 	415	 	 	 	175	 	
Amortization of intangible lease assets/liabilities	  	 	(485	)	 	 	—  	 	
Amortization of deferred lease acquisition costs	  	 	78	 	 	 	73	 	
Changes in assets and liabilities:	  	 	 	 	 	 	 	 	
Rents receivable	  	 	(607	)	 	 	(1,694	)	
Due from affiliates	  	 	—  	 	 	 	(13	)	
Deferred rental income	  	 	(420	)	 	 	906	 	
Accounts payable and accrued expenses	  	 	(1,449	)	 	 	(157	)	
Prepaid expenses and other assets, net	  	 	(1,140	)	 	 	(1,092	)	
Due to affiliates	  	 	(21	)	 	 	(1	)	

	

	

	 	

	

	

	
Net cash provided by operating activities	  	 	38,692	 	 	 	13,514	 	

	

	

	 	

	

	

	
Cash flows from investing activities:	  	 	 	 	 	 	 	 	
Investment in real estate assets	  	 	(129,981	)	 	 	(104,052	)	
Contributions to joint ventures	  	 	(78	)	 	 	—  	 	
Investment in intangible lease assets	  	 	(2,651	)	 	 	—  	 	
Deferred project costs paid	  	 	(20,966	)	 	 	(9,461	)	
Distributions received from joint ventures	  	 	1,786	 	 	 	1,691	 	
Deferred lease acquisition costs paid	  	 	—  	 	 	 	(400	)	

	

	

	 	

	

	

	
Net cash used in investing activities	  	 	(151,890	)	 	 	(112,222	)	

	

	

	 	

	

	

	
Cash flows from financing activities:	  	 	 	 	 	 	 	 	
Proceeds from borrowings	  	 	5,151	 	 	 	2,947	 	
Repayment of borrowings	  	 	(144,360	)	 	 	—  	 	
Dividends paid to shareholders	  	 	(39,650	)	 	 	(17,556	)	
Issuance of common stock	  	 	426,789	 	 	 	255,703	 	
Treasury stock purchased	  	 	(12,952	)	 	 	(3,042	)	
Sales commissions and dealer manager fees paid	  	 	(40,221	)	 	 	(24,580	)	
Other offering costs paid	  	 	(8,993	)	 	 	(3,327	)	

	

	

	 	

	

	

	
Net cash provided by financing activities	  	 	185,764	 	 	 	210,145	 	

	

	

	 	

	

	

	
Net increase in cash and cash equivalents	  	 	72,566	 	 	 	111,437	 	
 	 	 	
Cash and cash equivalents, beginning of year	  	 	45,464	 	 	 	75,586	 	

	

	

	 	

	

	

	
Cash and cash equivalents, end of period	  	$	118,030	 	 	$	187,023	 	

	

	

	 	

	

	

	
 
See accompanying notes.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
MARCH 31, 2003
 
(UNAUDITED)
 
1.    Organization
 
General
 
Wells Real Estate Investment Trust, Inc. (the “Company”) is a Maryland corporation that qualifies as a real estate investment trust (“REIT”). The Company was incorporated in 1997 and commenced operations on June 5, 1998.
 
The Company engages in the acquisition and ownership of commercial real estate properties throughout the United States, including properties which are under construction, are newly constructed or have operating histories. At March 31, 2003, the Company has invested in commercial office and industrial real estate assets, either directly or through joint ventures with real estate limited partnership programs sponsored by Wells Capital, Inc. (the “Advisor”) or its affiliates.
 
The Company’s business is conducted through Wells Operating Partnership, L.P. (“Wells OP”), a Delaware limited partnership, and its subsidiaries, and Wells REIT-Independence Square, LLC (“Wells REIT-Independence”), a single member Georgia limited liability company. Wells OP was formed to acquire, develop, own, lease and operate properties on behalf of the Company, directly, through wholly-owned subsidiaries or through joint ventures. Wells REIT-Independence was formed to acquire the NASA building located in Washington, D.C. The Company is the sole general partner in Wells OP and the sole member of Wells REIT-Independence and possesses full legal control and authority over the operations of Wells OP and Wells REIT-Independence. Wells OP, and its subsidiaries, and Wells REIT-Independence comprise the Company’s subsidiaries.
 
Four offerings of the Company’s stock have been initiated as follows:
 
Offering #

	  	Date Commenced

	  	Termination Date

	  	Gross Proceeds

	  	Shares Issued

	
1	  	January 30, 1998	  	December 19, 1999	  	$ 132.2 million	  	13.2 million	
2	  	December 20, 1999	  	December 19, 2000	  	$ 175.2 million	  	17.5 million	
3	  	December 20, 2000	  	July 26, 2002	  	$ 1,283.0 million	  	128.3 million	
4	  	July 26, 2002	  	Offering will terminate on
or before July 25, 2004	  	$ 1,014.3 million
(through March 31, 2003)	  	101.5 million
(through March 31, 2003)	
Total as of
March 31, 2003	  	 	  	 	  	$ 2,604.7 million	  	260.5 million	
 
After incurring costs from all offerings of $90.0 million in acquisition and advisory fees and expenses, $246.6 million in selling commissions, $44.8 million in organization and offering expenses to the Advisor, investment in real estate assets and joint ventures of $2,080.8 million and common stock redemptions pursuant to the Company’s share redemption program of $33.9 million, the Company was holding net offering proceeds of approximately $108.6 million available for investment in properties at March 31, 2003.

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The Company’s stock is not listed on a national exchange. However, the Company’s Articles of Incorporation currently require if the Company’s stock is not listed on a national exchange by January 30, 2008, the Company must begin the process of liquidating its investments and distributing the resulting proceeds to the shareholders. The Company’s Articles of Incorporation can only be amended by a proxy vote of the Company’s shareholders.
 
Basis of Presentation
 
The consolidated financial statements of the Company have been prepared in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X and do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. Independent auditors have not examined these quarterly statements, but in the opinion of management, 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, 2002.
 
Income Taxes
 
The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, and has operated as such beginning with its taxable year ended December 31, 1998. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to currently distribute at least 90% of the REIT’s ordinary taxable income to shareholders. As a REIT, the Company generally will not be subject to federal income tax on taxable income that it distributes to its shareholders. If the Company fails to qualify as a REIT in any taxable year, it will then be subject to federal income taxes on its taxable income for four years following the year during which qualification is lost, unless the Internal Revenue Service grants the Company relief under certain statutory provisions. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to shareholders. However, the Company believes that it is organized and operates in such a manner as to qualify for treatment as a REIT and intends to continue to operate in the foreseeable future in such a manner that the Company will remain qualified as a REIT for federal income tax purposes. No provision for federal income taxes has been made in the accompanying consolidated financial statements, as the Company made distributions in excess of its taxable income for the periods presented.
 
Recent Pronouncements
 
On January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 141 “Business Combinations,” and Statement of Financial Accounting Standards No. 142 “ Goodwill and Intangibles.”  These standards govern business combinations, asset acquisitions and the accounting for acquired intangibles. The Company determines whether an intangible asset or liability related to above or below market leases was acquired as part of the acquisition of real estate assets. The resulting intangible lease assets and liabilities are recorded at their estimated fair market values at the date of acquisition and amortized over the remaining term of the respective lease to rental income. Amortization of the intangible lease assets and liabilities resulted in a net increase in rental revenue of $0.5 million for the three months ended March 1, 2003.
 
In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities,”  which clarifies the application of Accounting Research Bulletin (“ARB”) No. 51,  “Consolidated Financial Statements,”  relating to consolidation of certain entities. FIN 46 requires the identification of the Company’s participation in variable interest entities (“VIEs”), which are defined as entities with a level of invested equity that is not sufficient to fund future activities to permit them to operate on a stand alone basis, or whose equity holders lack certain characteristics of a controlling financial interest. For entities identified as VIEs, FIN 46 sets forth a model to evaluate potential
 
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consolidation based on an assessment of which party to the VIE, if any, bears a majority of the exposure to its expected losses, or stands to gain from a majority of its expected returns. FIN 46 is effective for all new VIEs created or acquired after January 31, 2003. For VIEs created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. FIN 46 also sets forth certain disclosures regarding interests in VIEs that are deemed significant, even if consolidation is not required. As the Company’s joint ventures do not fall under the definition of VIEs provided above, we do not believe that the adoption of FIN 46 will result in the consolidation of any previously unconsolidated entities.
 
2.	 	Real Estate Assets	
 
Significant Events
 
During the three months ended March 31, 2003, the Company acquired ownership interests in two properties for a total purchase price of $115.8 million, exclusive of related closing costs and acquisition and advisory fees paid to the Advisor as described below.
 
East Point I & II Buildings
 
On January 9, 2003, the Company purchased two three-story office buildings containing approximately 187,735 aggregate rentable square feet located in Mayfield Heights, Ohio, for a purchase price of $22.0 million. Progressive Casualty Insurance; Austin, Danaher Power Solutions; and Moreland Management Company occupy approximately 92% of the rentable square feet in the two buildings. The remaining approximately 8% of the rentable square feet is vacant. At closing, the Company entered into an earn-out agreement with the seller with regard to the vacant space that requires the Company to pay the seller certain amounts for each new, fully-executed lease after the date of acquisition but on or before March 31, 2004, relating to the vacant space. Payments are calculated by dividing the anticipated first year’s annual rent less operating expenses 0.105, with the result being reduced by tenant improvement costs related to the space.
 
150 West Jefferson Detroit Building
 
On March 31, 2003, the Company purchased a 25-story office building containing approximately 505,417 rentable square feet located at 150 West Jefferson Avenue, downtown Detroit, Michigan, for a purchase price of $93.8 million. The building is 99% occupied under leases to various tenants with varying lease terms, including Miller, Canfield, Paddock, & Stone; Butzel Long PC; and MCN Energy Group, Inc., which collectively occupy approximately 62% of the building.
 
Nissan Building
 
In March 2003, the Company substantially completed the construction of the Nissan Building located in Dallas, Texas, and transferred total construction costs for the project from construction in progress to building and improvements. Nissan Motor Acceptance Corporation will occupy the building under a lease commencing on April 1, 2003. The construction was financed through a loan that was paid off in March 2003, when the building was substantially complete.
 
3.	 	Investment in Joint Ventures	
 
The information below summarizes the operations of the seven unconsolidated joint ventures that the Company, through Wells OP, had ownership interests as of March 31, 2003.
 
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CONDENSED COMBINED STATEMENTS OF INCOME
 
 	  	Three Months
Ended March 31,

	
 	  	2003

	  	2002

	
 	  	(000s)	  	(000s)	
Revenues:	  	 	 	  	 	 	
Rental income	  	$	5,284	  	$	4,728	
Tenant reimbursements	  	 	470	  	 	641	
Other income	  	 	8	  	 	13	

	

	  	

	

	
Total revenues	  	 	5,762	  	 	5,382	

	

	  	

	

	
Expenses:	  	 	 	  	 	 	
Depreciation	  	 	1,768	  	 	1,604	
Operating expenses	  	 	966	  	 	831	
Management and leasing fees	  	 	329	  	 	262	

	

	  	

	

	
Total expenses	  	 	3,063	  	 	2,697	

	

	  	

	

	
Net income	  	$	2,699	  	$	2,685	

	

	  	

	

	
Net income allocated to the Company	  	$	1,261	  	$	1,207	

	

	  	

	

	
 
4.	 	Borrowings	
 
The Company has financed certain investments, acquisitions and developments through various borrowings as described below. On March 31, 2003, and December 31, 2002, the Company had the following amounts outstanding:
 
Facility

	  	March 31,
2003

	  	December 31,
2002

	
 	  	(000s)	  	(000s)	
$110 million Bank of America Line of Credit; accruing interest at LIBOR plus 175 basis points (3.05% at March 31, 2003); requiring interest payments monthly with principal due at maturity (May 11, 2004); collateralized by the Videojet Technologies Chicago Building, the AT&T Pennsylvania Building, the Matsushita Building, the Metris Minnesota Building, the Motorola Plainfield Building and the Delphi Building	  	$	—  	  	$	58,000	
 	 	 	
$98.1 million SouthTrust Bank Line of Credit; accruing interest at LIBOR plus 175 basis points (3.05 % at March 31, 2003); requiring interest payments monthly and principal due at maturity (June 10, 2003); collateralized by the Novartis Building, the Cinemark Building, the Dial Building, the ASML Building, the Alstom Power Richmond Building, the Avnet Building, the Agilent Atlanta Building and the Eisenhower Boulevard Building (formerly the PwC Building)	  	 	—  	  	 	61,399	
 	 	 	
$90 million note payable to Landesbank Schleswig-Hostein Gironzentrale, Kiel; accruing interest at LIBOR plus 115 basis points; currently locked at 2.53% through July 2, 2003 (2.53% at March 31, 2003); requiring interest payments monthly, with principal due at maturity (December 20, 2006); collateralized by the Nestle Building	  	 	90,000	  	 	90,000	
 	 	 	
$34.2 million construction loan payable to Bank of America; accruing interest at LIBOR plus 200 basis points; requiring interest payments monthly and principal due at maturity (July 30, 2003); collateralized by the Nissan Building(1)	  	 	—  	  	 	23,149	
 	 	 	
$13.7 million construction loan payable to Bank of America; accruing interest at LIBOR plus 200 basis points (3.30% at March 31, 2003); requiring interest payments monthly, with principal due at maturity (January 29, 2004); collateralized by the Kerr-McGee Property(2)	  	 	7,435	  	 	4,038	
 	 	 	
$8.8 million note payable to Prudential; accruing interest at 8%; requiring interest and principal payments monthly with any unamortized principal due at maturity (December 15, 2003); collateralized by the BMG Buildings	  	 	8,651	  	 	8,709	
 
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Facility

	  	March 31,
2003

	  	December  31,
2002

	
 	  	(000s)	  	(000s)	
$2.9 million note payable to Prudential; accruing interest at 8.5%; requiring interest payments monthly with principal due at maturity (December 15, 2003); collateralized by the BMG Buildings	  	 	2,900	  	 	2,900	

	

	  	

	

	
Total borrowings	  	$	108,986	  	$	248,195	

	

	  	

	

	

(1)	 	The Company repaid this loan in March 2003, upon substantial completion of the construction of the property. At that time, the Company terminated the interest rate swap at a cost of $0.3 million, which was reclassified from other comprehensive income to interest expense.	
(2)	 	The Company has entered into an interest rate swap for this construction loan. The swap has the effect of fixing the interest rate at 4.27% through July 15, 2003.	
 
5.	 	Related-Party Transactions	
 
Advisory Agreement
 
The Company has entered into an Advisory Agreement with the Advisor, which entitles the Advisor to specified fees upon the completion of certain services with regard to the offering of shares to the public and investment of funds in real estate projects. The current Advisory Agreement dated January 30, 2002, has been temporarily extended by the board of directors until May 19, 2003.
 
Under the terms of the agreement, the Advisor receives the following fees and reimbursements:
 
 	•	 	Acquisition and advisory fees and expenses of 3.5% of gross offering proceeds, subject to certain limitations;	
 
 	•	 	Reimbursement of organization and offering costs paid on behalf of the Company, not to exceed 3% of gross offering proceeds;	
 
 	•	 	Disposition fee of 50% of the lesser of a competitive real estate commission or 3% of the sales price of the property, subordinated to the payment of dividends to shareholders equal to the sum of the shareholders’ invested capital plus an 8% return on invested capital;	
 
 	•	 	Incentive fee of 10% of net sales proceeds remaining after shareholders have received dividends equal to the sum of the shareholders’ invested capital plus an 8% return of invested capital; and	
 
 	•	 	Listing fee of 10% of the excess by which the market value of the stock plus dividends paid prior to listing exceeds the sum of 100% of the invested capital plus an 8% return on invested capital.	
 
Acquisition and advisory fees and expenses incurred for the quarters ended March 31, 2003 and 2002, totaled $14.5 million and $8.8 million, respectively. Organizational and offering costs incurred for the quarters ended March 31, 2003 and 2002, totaled $4.8 million and $1.8 million, respectively. The Company incurred no disposition, incentive or listing fees during the quarters ended March 31, 2003 and 2002.
 
Administrative Services Reimbursement
 
The Company has no direct employees. The employees of the Advisor and Wells Management Company, Inc. (“Wells Management”), an affiliate of 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 related expenses are allocated among the Company and the various Wells Real Estate Funds based on time spent on each entity by individual administrative personnel. These expenses are
 
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included in general and administrative expenses in the consolidated statements of income. These expenses totaled $1.0 million and $0.3 million for the three months ended March 31, 2003 and 2002, respectively.
 
Property Management and Leasing Agreements
 
The Company has entered into a property management and leasing agreement with Wells Management. In consideration for supervising the management and leasing of the Company’s properties, the Company will pay management and leasing fees to Wells Management equal to the lesser of (a) 4.5% of the gross revenues generally paid over the life of the lease or (b) 0.6% of the net asset value of the properties (excluding vacant properties) owned by the Company. These management and leasing fees are calculated on an annual basis plus a separate competitive fee for the one-time initial lease-up of newly constructed properties generally paid in conjunction with the receipt of the first month’s rent. These expenses totaled $2.2 million and $0.8 million for the three months ended March 31, 2003 and 2002, respectively.
 
Dealer Manager Agreement
 
The Company has entered into a dealer manager agreement with Wells Investment Securities, Inc. (“WIS”), an affiliate of the Advisor, whereby WIS performs the dealer manager function for the Company. For these services, WIS earns fees of 7% of the gross proceeds from the sale of the shares of the Company, most of which are reallowed to participating broker-dealers. Additionally, WIS earns a dealer manager fee of 2.5% of the gross offering proceeds at the time the shares are sold, of which up to 1.5% may be reallowed to participating broker-dealers. WIS has elected, although is not obligated, to reduce the dealer manager fee amount in each period by 2.5% of the gross redemptions under the Company’s share redemption plan. During the three months ended March 31, 2003 and 2002, the Company incurred commissions of $29.9 million and $17.9 million, respectively, of which more than 99% was reallowed to participating broker-dealers. Dealer manager fees of $10.3 million and $6.3 million were incurred for the quarters ended March 31, 2003 and 2002, respectively. Of these amounts, $5.0 million and $2.0 million were reallowed to participating broker-dealers for the quarters ended March 31, 2003 and 2002, respectively.
 
Due From Affiliates
 
Due from affiliates included in the consolidated balance sheets primarily represents the Company’s share of the cash to be distributed from its joint venture investments for the first quarter of 2003 and the fourth quarter 2002 and other amounts payable to the Company from other related parties.
 
Conflicts of Interest
 
The Advisor also is a general partner in various Wells Real Estate Funds. As such, there are conflicts of interest where the Advisor, while serving in the capacity as general partner for Wells Real Estate Funds, may be in competition with the Company in connection with property acquisitions or for tenants in similar geographic markets.
 
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6.	 	Consolidated Statement of Cash Flows Supplemental Information	
 
 	  	For the three months ended
March 31,

	
 	  	2003

	  	2002

	
SUPPLEMENTAL INFORMATION:	  	 	 	  	 	 	
Interest paid during the period, including amounts capitalized	  	$	3,188	  	$	493	

	

	  	

	

	
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:	  	 	 	  	 	 	
Deferred project costs applied to real estate assets	  	$	10,853	  	$	4,080	

	

	  	

	

	
Deferred project costs due to affiliate	  	$	1,224	  	$	496	

	

	  	

	

	
Deferred offering costs due to affiliate	  	$	—  	  	$	245	

	

	  	

	

	
Other offering expenses due to affiliate	  	$	4,061	  	$	142	

	

	  	

	

	
Acquisition of intangible lease liability	  	$	385	  	$	—  	

	

	  	

	

	
Dividends payable	  	$	7,252	  	$	3,657	

	

	  	

	

	
Due from affiliates	  	$	1,968	  	$	1,805	

	

	  	

	

	
 
7.	 	Commitments and Contingencies	
 
Take Out Purchase and Escrow Agreement
 
The Advisor and its affiliates have developed a program (the “Wells Section 1031 Program”) involving the acquisition by a subsidiary of Wells Management Company (“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 seeking to invest the proceeds from a sale of real estate held for investment in another real estate investment for purposes of qualifying for like-kind exchange treatment under Section 1031 of the Internal Revenue Code. The acquisition of each of the properties acquired by Wells Exchange will be financed by a combination of permanent first mortgage financing and interim loan financing obtained from institutional lenders.
 
Following the acquisition of each property, Wells Exchange will attempt to sell co-tenancy interests to 1031 Participants, the proceeds of which will be used to repay a prorata portion of 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 the Company will enter into a take out purchase and escrow agreement or similar contract providing that, if Wells Exchange is unable to sell all of the co-tenancy interests in that particular property to 1031 Participants, the Company will purchase, at Wells Exchange’s cost, any co-tenancy interests remaining unsold at the end of the offering period.
 
In consideration for the payment of a take out fee in the amount of approximately $0.2 million, on December 31, 2002, Wells OP entered into a take out purchase and escrow agreement providing, among other things, that Wells OP would be obligated to acquire, at Wells Exchange’s cost ($0.4 million in cash plus $0.4 million of assumed debt for each 2.9994% interest of co-tenancy interest unsold), any unsold co-tenancy interests in two buildings known as Meadow Brook Corporate Park located in Birmingham, Alabama, which remain unsold at the expiration of the offering of Wells Exchange on September 30, 2003.
 
The obligations of Wells OP under the take out purchase and escrow agreement are secured by reserving against Well OP’s existing line of credit with Bank of America, N.A. (the “Interim Lender”). If, for any
 
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reason, Wells OP fails to acquire any of the co-tenancy interests in Meadow Brook Corporate Park which remain unsold as of September 30, 2003, or there is otherwise an uncured default under the interim loan or the line of credit documents, the Interim Lender is authorized to draw down Wells OP’s line of credit in the amount necessary to pay the outstanding balance of the interim loan in full, in which event the appropriate amount of co-tenancy interest in Meadow Brook Corporate Park would be deeded to Wells OP. Wells OP’s maximum economic exposure in the transaction was initially $14.0 million in cash plus assumption of the first mortgage financing in the amount of $13.9 million. As of March 31, 2003, due to the number of co-tenancy interests sold in Meadow Brook Corporate Park through such date, Wells OP’s maximum exposure has been reduced to $6.7 million in cash plus the assumption of the first mortgage financing in the amount of $6.7 million.
 
Letters of Credit
 
At March 31, 2003, the Company had three unused letters of credit totaling approximately $19.7 million outstanding from financial institutions, consisting of letters of credit of approximately $14.5 million, $4.8 million and $0.4 million with expiration dates of February 28, 2004; August 12, 2003; and February 2, 2004, respectively. These amounts are not recorded in the accompanying consolidated balance sheet as of March 31, 2003. These letters of credit were required by three unrelated parties to ensure completion of the Company’s obligations under certain earn-out and construction agreements. The Company does not anticipate a need to draw on these letters of credit.
 
Properties Under Contract
 
At March 31, 2003, the Company has a contract to acquire a third building at the ISS Atlanta Buildings development upon completion of construction (expected in June 2003) for a fixed purchase price of $10.0 million.
 
Commitments Under Existing Lease Agreements
 
Certain lease agreements include provisions that, at the option of the tenant, the Company may be obligated to expend certain amounts of capital to expand an existing property, construct on adjacent property or provide other expenditures for the benefit of the tenant, in favor of additional rental revenue. At March 31, 2003, no tenants have exercised such options.
 
Properties Under Construction
 
As of March 31, 2003, the Company had executed construction agreements with unrelated third parties for the purpose of constructing two buildings. The table below details the status of the properties under construction as of March 31, 2003:
 
Property

	  	Total
Projected Cost

	  	Construction
Costs to Date

	  	Expected
Future Costs

	  	Expected
Completion
Date

	  	Primary
Source of Funds

	
Kerr-McGee	  	$	15.8  million	  	$	9.7 million	  	$	6.1 million	  	July 2003	  	Debt	
AmeriCredit—Phoenix	  	$	24.7  million	  	$	18.9 million	  	$	5.8 million	  	April 2003	  	Investor Proceeds	
 
Earn-out Agreements
 
As part of the acquisition of the IRS Building, the Company entered into an agreement to pay the seller an additional $14.5 million if the Company or the seller locates a suitable tenant and leases the vacant space of
 
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the building within 18 months after the date of acquisition of the property, or March 2004. If the space is not leased within this time, the Company is released from any obligation to pay this additional purchase consideration. The 26% of the building that was vacant at the time of acquisition remains unleased at March 31, 2003.
 
In connection with the acquisition of the East Point I and II Buildings, the Company entered into an earn-out agreement whereby the Company is required to pay the seller certain amounts for each new, fully executed lease after the date of acquisition of the property but on or before March 31, 2004. Payments shall be the anticipated first year’s annual rent less operating expenses with the sum divided by 0.105 and the result reduced by tenant improvement costs related to the space.
 
Leasehold Property Obligations
 
The ASML, Motorola Tempe, Avnet and Bellsouth Ft. Lauderdale Buildings are subject to certain ground leases with expiration dates of 2082, 2082, 2083 and 2049, respectively.
 
Pending Litigation
 
In the normal course of business, the Company may become subject to litigation or claims. In November 2002, the Company contracted to purchase an office building located in Ramsey County, Minnesota, from Shoreview Associates LLC (“Shoreview”), who filed a lawsuit against the Company in Minnesota state court alleging that Shoreview was entitled to the $0.8 million in earnest money the Company had deposited under the contract. The Company has filed a counterclaim in the case asserting that the Company is entitled to the $0.8 million earnest money deposit. Procedurally, the Company had the case transferred to U.S. District Court in Minnesota, and Shoreview has moved to transfer the case back to state court. The dispute currently remains in litigation. After consultation with legal counsel, management does not believe that a reserve for a loss contingency is necessary.
 
8.	 	Subsequent Events	
 
Sale of Shares of Common Stock
 
From April 1, 2003 through April 30, 2003, the Company has raised approximately $179.2 million through the issuance of 17.9 million shares of common stock of the Company.
 
Property Acquisitions
 
On April 30, 2003, the Company purchased the Citicorp Englewood Cliffs, NJ Building, a three-story office building containing approximately 410,000 rentable square feet located in Englewood Cliffs, New Jersey, for a purchase price of $70.5 million, excluding closing costs and acquisition and advisory fees and expenses paid to the Advisor. The building is leased entirely to Citicorp North America, Inc., a wholly-owned subsidiary of Citicorp, Inc.
 
On May 1, 2003, the Company purchased the US Bancorp Minneapolis Building, a 32-story office building containing approximately 929,694 rentable square feet located in Minneapolis, Minnesota, for a purchase price of $174.0 million, excluding closing costs and acquisition and advisory fees and expenses paid to the Advisor. The building is approximately 99% leased under leases to various tenants with varying terms, including US Bancorp Piper Jaffray Companies, Inc., which leases approximately 77% of the building.
 
On May 9, 2003, the Company purchased the Aon Center Chicago Building, an 83-story office building containing approximately 2.6 million rentable square feet located in Chicago, Illinois, for a purchase price of approximately $465.2 million, excluding closing costs and acquisition and advisory costs paid to the Advisor. The building is approximately 92% leased under leases to various tenants with varying lease
 
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terms, including BP Corporation North American, Inc., DDB Needham Chicago, Inc. and Kirkland & Ellis, which collectively lease approximately 54% of the building.
 
On May 9, 2003, the Company acquired the GMAC Detroit Building, a three story office building containing approximately 119,122 square feet located in Auburn Hills, Michigan, for a purchase price of approximately $17.8 million, excluding closing costs and acquisition and advisory fees and expenses paid to the Advisor. The building is approximately 86% leased to the GMAC Corporation and Delmia Corporation. For the remaining approximately 14% of the building, the Company is required to pay the seller certain amounts for each new, fully executed lease entered into after the date of acquisition of the building but on or before November 8, 2004. Payments are calculated by dividing the sum of the anticipated first year’s annual rent less operating expenses by 0.095, with the result being reduced by tenant improvement costs related to the space.
 
Line of Credit
 
On April 23, 2003, the Company entered into a $500 million unsecured revolving credit facility with a consortium of banks. The agreement expires in April 2005 and replaced the $110 million line of credit with Bank of America. The Company paid up-front commitment fees totaling $2.3 million to the lenders based on each financial institution’s relative commitment level. The agreement contains alternative borrowing arrangements that provide for interest costs based on LIBOR plus up to 1.625%, or certain other alternative rates. Additionally, the Company is required to pay a quarterly facility fee of .25% per annum on the entire amount of this credit facility.
 
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Report of Independent Auditors
 
Shareholders and Board of Directors
Wells Real Estate Investment Trust, Inc.
 
We have audited the accompanying statement of revenues over certain operating expenses of the US Bancorp Minneapolis Building for the year ended December 31, 2002. This statement is the responsibility of the US Bancorp Minneapolis Building’s management. Our responsibility is to express an opinion on this statement based on our audit.
 
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues over certain operating expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of revenues over certain operating expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement of revenues over certain operating expenses. We believe that our audit provides a reasonable basis for our opinion.
 
The accompanying statement of revenues over certain operating expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, as described in Note 2, and is not intended to be a complete presentation of the US Bancorp Minneapolis Building’s revenues and expenses.
 
In our opinion, the statement of revenues over certain operating expenses referred to above presents fairly, in all material respects, the revenues and certain operating expenses described in Note 2 of the US Bancorp Minneapolis Building for the year ended December 31, 2002 in conformity with accounting principles generally accepted in the United States.
 
/s/    ERNST & YOUNG LLP
 
Atlanta, Georgia
May 5, 2003
 
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US Bancorp Minneapolis Building
 
Statement of Revenues Over Certain Operating Expenses
 
For the year ended December 31, 2002
(in thousands)
 
Revenues:	  	 	 	
Base rent	  	$	12,495	
Tenant reimbursements	  	 	9,699	
Parking revenues	  	 	980	

	

	
Total revenues	  	 	23,174	
Expenses:	  	 	 	
Real estate taxes	  	 	5,839	
Other operating expenses	  	 	2,022	
Utilities	  	 	1,476	
Cleaning	  	 	971	
Management fee	  	 	690	
Administrative	  	 	646	

	

	
Total expenses	  	 	11,644	

	

	
Revenues over certain operating expenses	  	$	11,530	

	

	
 
See accompanying notes.
 
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US Bancorp Minneapolis Building
 
Notes to Statement of Revenues Over Certain Operating Expenses
 
For the year ended December 31, 2002
 
1. Description of Real Estate Property Acquired
 
On May 1, 2003, Wells Operating Partnership, L.P. (“Wells OP’) acquired the US Bancorp Minneapolis Building, a 929,694 square foot Class A office tower located in Minneapolis, Minnesota, from MN-Nicollet Mall, LLC (“Nicollet Mall”). Total consideration for the acquisition was approximately $174 million, excluding acquisition costs. Wells OP is a Delaware limited partnership formed to acquire, own, lease, operate, and manage real properties on behalf of 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.
 
2. Basis of Accounting
 
The accompanying statement of revenues over certain operating expenses is presented in conformity with accounting principles generally accepted in the United States and in accordance with the applicable rules and regulations of the Securities and Exchange Commission for real estate properties acquired. Accordingly, the statement excludes certain historical expenses that are not comparable to the proposed future operations of the property such as certain ancillary income, amortization, depreciation, interest and corporate expenses. Therefore, this statement is not comparable to the statement of operations of the US Bancorp Minneapolis Building after its acquisition by Wells OP.
 
3. Significant Accounting Policies
 
Rental Revenues
 
Rental revenue is recognized on a straight-line basis over the terms of the related leases. The excess of recognized rentals over amounts due pursuant to lease terms is recorded as straight-line rent receivable. The impact of the straight-line rent adjustment increased revenue by approximately $1.6 million for the year ended December 31, 2002.
 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
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US Bancorp Minneapolis Building
 
Notes to Statement of Revenues Over Certain Operating Expenses
 
For the year ended December 31, 2002
 
4. Description of Leasing Arrangements
 
The office and retail space is leased to tenants under leases with terms that vary in length. Certain leases contain reimbursement clauses and renewal options. Nicollet Mall’s interests in all lease agreements were assigned to Wells OP upon its acquisition of the US Bancorp Minneapolis Building.
 
5. Future Minimum Rental Commitments
 
Future minimum rental commitments for the years ended December 31 are as follows (in thousands):
 
2003	  	$	14,589	
2004	  	 	14,645	
2005	  	 	14,603	
2006	  	 	13,890	
2007	  	 	13,161	
Thereafter	  	 	85,650	

	

	
 	  	$	156,538	

	

	
 
One tenant, US Bancorp Piper Jaffray Companies, Inc., contributed approximately 73% of rental income for the year ended December 31, 2002. Subsequent to December 31, 2002, this tenant will contribute approximately 86% of the future minimum rental income of those leases in place as of that date.
 
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Report of Independent Auditors
 
Shareholders and Board of Directors
Wells Real Estate Investment Trust, Inc.
 
We have audited the accompanying statement of revenues over certain operating expenses of the Aon Center Chicago Building for the year ended December 31, 2002. This statement is the responsibility of the Aon Center Chicago Building’s management. Our responsibility is to express an opinion on this statement based on our audit.
 
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues over certain operating expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of revenues over certain operating expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement of revenues over certain operating expenses. We believe that our audit provides a reasonable basis for our opinion.
 
The accompanying statement of revenues over certain operating expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, as described in Note 2, and is not intended to be a complete presentation of the Aon Center Chicago Building’s revenues and expenses.
 
In our opinion, the statement of revenues over certain operating expenses referred to above presents fairly, in all material respects, the revenues and certain operating expenses described in Note 2 of the Aon Center Chicago Building for the year ended December 31, 2002 in conformity with accounting principles generally accepted in the United States.
 
/s/    ERNST & YOUNG LLP
 
Atlanta, Georgia
May 9, 2003
 
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Aon Center Chicago Building
 
Statements of Revenues Over Certain Operating Expenses
 
For the year ended December 31, 2002
and the three months ended March 31, 2003 (unaudited)
(in thousands)
 
 	  	2003

	  	2002

	
 	  	(unaudited)	  	 	
Revenues:	  	 	 	  	 	 	
Base rent	  	$	9,478	  	$	37,923	
Tenant reimbursements	  	 	8,411	  	 	37,119	
Parking revenues	  	 	436	  	 	1,679	
Other revenues	  	 	526	  	 	1,332	

	

	  	

	

	
Total revenues	  	 	18,851	  	 	78,053	
 	 	 	
Expenses:	  	 	 	  	 	 	
Real estate taxes	  	 	5,128	  	 	21,501	
Other operating expenses	  	 	837	  	 	4,749	
Cleaning	  	 	1,103	  	 	4,629	
Security	  	 	682	  	 	4,143	
Utilities	  	 	1,279	  	 	4,025	
Administrative	  	 	635	  	 	2,965	
HVAC	  	 	385	  	 	2,224	

	

	  	

	

	
Total expenses	  	 	10,049	  	 	44,236	

	

	  	

	

	
Revenues over certain operating expenses	  	$	8,802	  	$	33,817	

	

	  	

	

	
 
See accompanying notes.
 
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Aon Center Chicago Building
 
Notes to Statements of Revenues Over Certain Operating Expenses
For the year ended December 31, 2002
and the three months ended March 31, 2003 (unaudited)
 
1. Description of Real Estate Property Acquired
 
On May 9, 2003, Wells REIT-Chicago Center, Chicago LLC (“the Company”) acquired the Aon Center Chicago Building, an approximately 2.6 million square foot Class A office tower located in Chicago, Illinois, from BRE/Randolph Drive, LLC (“Randolph Drive”). Total consideration for the acquisition was approximately $465.2 million. The Company, a Georgia limited liability company, was created on April 30, 2003. Wells Operating Partnership, L.P. (“Wells OP”) is the sole member of the Company. Wells OP is a Delaware limited partnership formed to acquire, own, lease, operate, and manage real properties on behalf of 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.
 
2. Basis of Accounting
 
The accompanying statements of revenues over certain operating expenses is presented in conformity with accounting principles generally accepted in the United States and in accordance with the applicable rules and regulations of the Securities and Exchange Commission for real estate properties acquired. Accordingly, the statements exclude certain historical expenses that are not comparable to the proposed future operations of the property such as certain ancillary income, amortization, depreciation, interest and corporate expenses. Therefore, the statements will not be comparable to the statements of operations of the Aon Center Chicago Building after its acquisition by the Company.
 
3. Significant Accounting Policies
 
Rental Revenues
 
Rental revenue is recognized on a straight-line basis over the terms of the related leases. The excess of recognized rentals over amounts due pursuant to lease terms is recorded as straight-line rent receivable. The impact of the straight-line rent adjustment increased revenue by approximately $1.7 million for the year ended December 31, 2002 and $195,000 for the three months ended March 31, 2003.
 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
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Aon Center Chicago Building
 
Notes to Statements of Revenues Over Certain Operating Expenses
For the year ended December 31, 2002
and the three months ended March 31, 2003 (unaudited)
 
4. Description of Leasing Arrangements
 
The office and retail space is leased to tenants under leases with terms that vary in length. Certain leases contain reimbursement clauses and renewal options. Randolph Drive’s interests in all lease agreements were assigned to the Company upon its acquisition of the Aon Center Chicago Building.
 
5. Future Minimum Rental Commitments
 
Future minimum rental commitments for the years ended December 31 are as follows (in thousands):
 
2003	  	$	36,822	
2004	  	 	39,539	
2005	  	 	36,693	
2006	  	 	32,778	
2007	  	 	32,652	
Thereafter	  	 	185,071	

	

	
 	  	$	363,555	

	

	
 
Two tenants, Amoco Corporation and Kirkland & Ellis, contributed approximately 46% and 11%, respectively, of rental income for the year ended December 31, 2002. At December 31, 2002, three tenants, Amoco Corporation, DDB Needham and Kirkland & Ellis, will contribute approximately 54%, 12% and 11%, respectively, of the future minimum rental income of those leases in place as of that date.
 
6. Interim Unaudited Financial Information
 
The financial statement for the three months ended March 31, 2003 is unaudited, however, in the opinion of management, all adjustments (consisting solely of normal, recurring adjustments) necessary for the fair presentation of the financial statement for the interim period have been included. The results of the interim period are not necessarily indicative of the results to be obtained for a full fiscal year.
 
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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., a Maryland Corporation (the “Wells REIT”), included in its annual report on Form 10-K for the year ended December 31, 2002 and its quarterly report on Form 10-Q for the three months ended March 31, 2003. 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 previously filed.
 
The following unaudited pro forma balance sheet as of March 31, 2003 has been prepared to give effect to the second quarter 2003 acquisitions of the Citicorp Englewood Cliffs, NJ Building, the US Bancorp Minneapolis Building and the GMAC Detroit Building by Wells Operating Partnership, L.P. (“Wells OP”) and the acquisition of the Aon Center Chicago Building (collectively, the “Recent Acquisitions”) by Wells REIT—Chicago Center, Chicago, LLC, a single member limited liability company of which Wells OP is the sole member, as if the acquisitions occurred on March 31, 2003.
 
Wells OP is a Delaware limited partnership that was organized to own and operate properties on behalf of Wells REIT. As the sole general partner of Wells OP, Wells REIT 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 REIT.
 
The following unaudited pro forma statement of income for the three months ended March 31, 2003 has been prepared to give effect to the first quarter 2003 acquisitions of the East Point Cleveland Buildings and the 150 West Jefferson Detroit Building (collectively, the “2003 Acquisitions”) and the Recent Acquisitions as if the acquisitions occurred on January 1, 2002.
 
The following unaudited pro forma statement of income for the year ended December 31, 2002 has been prepared to give effect to the 2002 acquisition of the Vertex Sarasota Building (formerly, the Arthur Andersen Building), the Transocean Houston Building, the 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, the ISS Atlanta Buildings, the PacifiCare San Antonio Building, the BMG Greenville Buildings, the Kraft Atlanta Building, the Nokia Dallas Buildings, the Harcourt Austin Building, the IRS Long Island Buildings, the KeyBank Parsippany Building, the Allstate Indianapolis Building, the Federal Express Colorado Springs Building, the EDS Des Moines Building, the Intuit Dallas Building, the Daimler Chrysler Dallas Building, the NASA Buildings, the Caterpillar Nashville Building, the Capital One Richmond Buildings, the John Wiley Indianapolis Building and the Nestle Los Angeles Building (collectively, the “2002 Acquisitions”), the 2003 Acquisitions and the Recent Acquisitions as if the acquisitions occurred on January 1, 2002. The Kerr McGee Property and the AmeriCredit Phoenix Property had no operations during the year ended December 31, 2002.
 
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 acquisition of the 2002 Acquisitions, 2003 Acquisitions and the Recent Acquisitions been consummated as of January 1, 2002. In addition, the pro forma balance sheet includes allocations of the purchase price for certain acquisitions based upon preliminary estimates of the fair value of the assets and liabilities acquired. Therefore, these allocations may be adjusted in the future upon finalization of these preliminary estimates.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA BALANCE SHEET
 
MARCH 31, 2003
 
(in thousands, except share amounts)
 
(Unaudited)
 
ASSETS
 
 	  	Wells Real
Estate
Investment
Trust, Inc.(a)

	  	Pro Forma Adjustments

	 	 	Pro Forma
Total

	 	
 	  	 	  	Other

	 	 	Recent Acquisitions

	 	 	 	 	 	 	 	
 	  	 	  	 	 	 	Citicorp Englewood
Cliffs, NJ

	 	 	US Bancorp
Minneapolis

	 	 	Aon Center
Chicago

	 	 	GMAC
Detroit

	 	 	 	 	 	 	 	 	 	 	 	 	
REAL ESTATE ASSETS, at cost:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Land	  	$	291,140	  	$	0	 	 	$
 	10,300
124	(d)
(e)	 	$
 	10,700
438	(d)
(e)	 	$
 	23,258
10	(d)
(e)	 	$
 	1,900
78	(d)
(e)	 	$	337,948	 	 	 	 	 	 	 	 	 	
Buildings, less accumulated depreciation of $82,812	  	 	1,811,220	  	 	0	 	 	 	60,587	(d)	 	 	162,797	(d)	 	 	445,956	(d)	 	 	15,919	(d)	 	 	2,504,723	 	 	 	 	 	 	 	 	 	
 	  	 	 	  	 	 	 	 	 	732	(e)	 	 	6,665	(e)	 	 	195	(e)	 	 	652	(e)	 	 	 	 	 	 	 	 	 	 	 	 	
Construction in progress	  	 	24,102	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	24,102	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	
Total real estate assets	  	 	2,126,462	  	 	0	 	 	 	71,743	 	 	 	180,600	 	 	 	469,419	 	 	 	18,549	 	 	 	2,866,773	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
INVESTMENT IN JOINT VENTURES	  	 	83,286	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	83,286	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CASH AND CASH EQUIVALENTS	  	 	118,030	  	 	192,164	(b)	 	 	(20,929	)(d)	 	 	(173,497	)(d)	 	 	(7,833	)(d)	 	 	(17,819	)(d)	 	 	82,559	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	 	  	 	(7,557	)(c)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
RENT RECEIVABLE	  	 	19,928	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	19,928	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
DEFERRED PROJECT COSTS	  	 	5,124	  	 	7,557	(c)	 	 	(856	)(e)	 	 	(7,103	)(e)	 	 	(205	)(e)	 	 	(730	)(e)	 	 	3,787	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
DUE FROM AFFILIATES	  	 	2,167	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	2,167	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
PREPAID EXPENSES AND OTHER ASSETS, NET	  	 	5,997	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	5,997	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
DEFERRED LEASE ACQUISITION COSTS, NET	  	 	1,561	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,561	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
INTANGIBLE LEASE ASSET	  	 	14,147	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	14,147	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
INVESTMENT IN BONDS	  	 	54,500	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	54,500	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	
Total assets	  	$	2,431,202	  	$	192,164	 	 	$	49,958	 	 	$	0	 	 	$	461,381	 	 	$	0	 	 	$	3,134,705	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	
 
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LIABILITIES AND SHAREHOLDERS’ EQUITY
 
(in thousands, except share amounts)
 
 	  	Wells Real
Estate
Investment 

Trust,
Inc.(a)

	 	 	Pro Forma Adjustments

	  	Pro Forma
Total

	 	 	
 	  	 	 	 	Other

	 	 	Recent Acquisitions

	  	 	 	 	 	 	 	
 	  	 	 	 	 	 	 	Citicorp Englewood
Cliffs, NJ

	 	 	US Bancorp
Minneapolis

	  	Aon Center
Chicago

	 	 	GMAC
Detroit

	  	 	 	 	 	 	 	 	 	 	 	 	
LIABILITIES:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	
Borrowings	  	$	108,986	 	 	$	0	 	 	$	49,958	(d)	 	$	0	  	$	461,381	(d)	 	$	0	  	$	620,325	 	 	 	 	 	 	 	 	 	 	
Obligations under capital lease	  	 	54,500	 	 	 	0	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	54,500	 	 	 	 	 	 	 	 	 	 	
Intangible lease liability	  	 	32,033	 	 	 	0	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	32,033	 	 	 	 	 	 	 	 	 	 	
Accounts payable and accrued expenses	  	 	23,131	 	 	 	0	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	23,131	 	 	 	 	 	 	 	 	 	 	
Due to affiliate	  	 	5,292	 	 	 	0	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	5,292	 	 	 	 	 	 	 	 	 	 	
Dividends payable	  	 	7,252	 	 	 	0	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	7,252	 	 	 	 	 	 	 	 	 	 	
Deferred rental income	  	 	11,164	 	 	 	0	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	11,164	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	
Total liabilities	  	 	242,358	 	 	 	0	 	 	 	49,958	 	 	 	0	  	 	461,381	 	 	 	0	  	 	753,697	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	
COMMITMENTS AND CONTINGENCIES	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	
MINORITY INTEREST OF UNIT HOLDER IN
    OPERATING PARTNERSHIP	  	 	200	 	 	 	0	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	200	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	
SHAREHOLDERS’ EQUITY:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	
Common shares, $.01 par value; 750,000,000 shares authorized, 217,790,874 shares issued and 215,699,717 outstanding at December 31, 2002	  	 	2,605	 	 	 	216	(b)	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	2,821	 	 	 	 	 	 	 	 	 	 	
Additional paid-in capital	  	 	2,310,731	 	 	 	191,948	(b)	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	2,502,679	 	 	 	 	 	 	 	 	 	 	
Cumulative distributions in excess of earnings	  	 	(90,802	)	 	 	0	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	(90,802	)	 	 	 	 	 	 	 	 	 	
Treasury stock, at cost, 2,091,157 shares at December 31, 2002	  	 	(33,860	)	 	 	0	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	(33,860	)	 	 	 	 	 	 	 	 	 	
Other comprehensive loss	  	 	(30	)	 	 	0	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	(30	)	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	
Total shareholders’ equity	  	 	2,188,644	 	 	 	192,164	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	2,380,808	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	
Total liabilities and shareholders’ equity	  	$	2,431,202	 	 	$	192,164	 	 	$	49,958	 	 	$	0	  	$	461,381	 	 	$	0	  	$	3,134,705	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	

(a)	 	Historical financial information derived from quarterly report on Form 10-Q.	
(b)	 	Reflects capital raised through issuance of additional shares subsequent to March 31, 2003 through GMAC Detroit acquisition date, net of organizational and offering costs, commissions and dealer-manager fees.	
(c)	 	Reflects deferred project costs capitalized as a result of additional capital raised described in note (b) above.	
(d)	 	Reflects Wells Real Estate Investment Trust, Inc.’s purchase price for the land, building and liabilities assumed.	
(e)	 	Reflects deferred project costs applied to the land and building at approximately 4.094% of the cash paid for purchase.	
 
The accompanying notes are an integral part of this statement.
 
45

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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA STATEMENT OF INCOME
 
FOR THE YEAR ENDED DECEMBER 31, 2002
 
(in thousands, except per share amounts)
 
(Unaudited)
 
 	  	Wells Real
Estate
Investment
Trust, Inc.(a)

	  	Pro Forma Adjustments

	 	 	Pro Forma
Total

	 	
 	  	 	  	2002
Acquisitions

	 	 	2003
Acquisitions

	 	 	Recent Acquisitions

	 	 	 	 	 	 	
 	  	 	  	 	 	 	 	 	 	Citicorp Englewood
Cliffs, NJ

	 	 	US Bancorp
Minneapolis

	 	 	Aon Center
Chicago

	 	 	GMAC
Detroit

	 	 	 	 	 	 	 	 	 	 	 	 	 	
REVENUES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental income	  	$	107,526	  	$	98,599	(b)	 	$	13,196	(b)	 	$	6,359	(b)	 	$	13,665	(b)	 	$	42,592	(b)	 	$	1,336	(b)	 	$	283,273	 	 	 	 	 	 	 	 	 	 	
Tenant reimbursements	  	 	18,992	  	 	9,584	(c)	 	 	5,590	(c)	 	 	14	(c)	 	 	9,699	(c)	 	 	37,119	(c)	 	 	39	(c)	 	 	81,037	 	 	 	 	 	 	 	 	 	 	
Equity in income of joint ventures	  	 	4,700	  	 	648	(d)	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	5,348	 	 	 	 	 	 	 	 	 	 	
Lease termination income	  	 	1,409	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,409	 	 	 	 	 	 	 	 	 	 	
Interest and other income	  	 	7,001	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	7,001	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
 	  	 	139,628	  	 	108,831	 	 	 	18,786	 	 	 	6,373	 	 	 	23,364	 	 	 	79,711	 	 	 	1,375	 	 	 	378,068	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
EXPENSES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	38,780	  	 	34,362	(e)	 	 	4,348	(e)	 	 	2,453	(e)	 	 	6,778	(e)	 	 	17,846	(e)	 	 	663	(e)	 	 	105,230	 	 	 	 	 	 	 	 	 	 	
Interest expense	  	 	4,638	  	 	9,657	(f)	 	 	0	 	 	 	1,993	(f)	 	 	0	 	 	 	22,414	(i)	 	 	0	 	 	 	38,702	 	 	 	 	 	 	 	 	 	 	
Property operating costs	  	 	26,949	  	 	25,244	(g)	 	 	8,742	(g)	 	 	63	(g)	 	 	10,955	(g)	 	 	45,627	(g)	 	 	609	(g)	 	 	118,189	 	 	 	 	 	 	 	 	 	 	
Management and leasing fees	  	 	5,155	  	 	3,196	(h)	 	 	846	(h)	 	 	287	(h)	 	 	1,051	(h)	 	 	3,587	(h)	 	 	62	(h)	 	 	14,184	 	 	 	 	 	 	 	 	 	 	
General and administrative	  	 	3,244	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	3,244	 	 	 	 	 	 	 	 	 	 	
Legal and accounting	  	 	1,008	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,008	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
 	  	 	79,774	  	 	72,459	 	 	 	13,936	 	 	 	4,796	 	 	 	18,784	 	 	 	89,474	 	 	 	1,334	 	 	 	280,557	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
NET INCOME	  	$	59,854	  	$	36,372	 	 	$	4,850	 	 	$	1,577	 	 	$	4,580	 	 	$	(9,763	)	 	$	41	 	 	$	97,511	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
EARNINGS PER SHARE, basic and diluted	  	$	0.41	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	0.35	 	 	 	 	 	 	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	 	 	 	
WEIGHTED AVERAGE SHARES, basic and diluted	  	 	145,633	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	278,027	 	 	 	 	 	 	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	 	 	 	

(a)	 	Historical financial information derived from annual report on Form 10-K.	
(b)	 	Rental income is recognized on a straight-line basis.	
(c)	 	Consists of operating costs reimbursements.	
(d)	 	Reflects Wells Real Estate Investment Trust, Inc.’s equity in income of the Wells Fund XIII-REIT Joint Venture related to the John Wiley Indianapolis Building. The pro forma adjustment results from rental revenues less operating expenses, management fees and depreciation.	
(e)	 	Depreciation expense is recognized using the straight-line method and a 25-year life.	
(f)	 	Represents interest expense on lines of credits used to acquire assets, which bear interest at approximately 3.99% for the year ended December 31, 2002 and assumed mortgages on the BMG Direct, BMG Music and Nestle Buildings, which bear interest at 8.5%, 8% and 3.39% for the year ended December 31, 2002, respectively.	
(g)	 	Consists of operating expenses.	
(h)	 	Management and leasing fees are generally calculated at 4.5% of rental income and tenant reimbursements.	
(i)	 	Represents interest expense on loan used to acquire Aon Center Chicago Building, which bears interest at approximately 4.858% for the year ended December 31, 2002.	
 
The accompanying notes are an integral part of this statement.
 
46

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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA STATEMENT OF INCOME
 
FOR THE THREE MONTHS ENDED MARCH 31, 2003
 
(in thousands, except per share amounts)
 
(Unaudited)
 
 	  	Wells Real
Estate
Investment
Trust, Inc. (a)

	  	Pro Forma Adjustments

	 	 	Pro Forma
Total

	 	
 	  	 	  	2003
Acquisitions

	 	 	Recent Acquisitions

	 	 	 	 	 	 	
 	  	 	  	 	 	 	Citicorp Englewood
Cliffs, NJ

	 	 	US Bancorp
Minneapolis

	 	 	Aon Center
Chicago

	 	 	GMAC
Detroit

	 	 	 	 	 	 	 	 	 	 	
REVENUES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental income	  	$	53,343	  	$	2,941	(b)	 	$	1,590	(b)	 	$	3,421	(b)	 	$	10,855	(b)	 	$	563	(b)	 	$	72,713	 	 	 	 	 	 	 	
Tenant reimbursements	  	 	9,601	  	 	1,378	(c)	 	 	6	(c)	 	 	2,799	(c)	 	 	8,411	(c)	 	 	23	(c)	 	 	22,218	 	 	 	 	 	 	 	
Equity in income of joint ventures	  	 	1,261	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,261	 	 	 	 	 	 	 	
Interest and other income	  	 	1,154	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,154	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
 	  	 	65,359	  	 	4,319	 	 	 	1,596	 	 	 	6,220	 	 	 	19,266	 	 	 	586	 	 	 	97,346	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
EXPENSES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	19,218	  	 	888	(d)	 	 	613	(d)	 	 	1,694	(d)	 	 	4,462	(d)	 	 	166	(d)	 	 	27,041	 	 	 	 	 	 	 	
Property operating costs	  	 	15,220	  	 	1,946	(f)	 	 	74	(f)	 	 	2,682	(f)	 	 	10,572	(f)	 	 	270	(f)	 	 	30,764	 	 	 	 	 	 	 	
Management and leasing fees	  	 	2,333	  	 	194	(g)	 	 	72	(g)	 	 	280	(g)	 	 	867	(g)	 	 	26	(g)	 	 	3,772	 	 	 	 	 	 	 	
General and administrative	  	 	1,576	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,576	 	 	 	 	 	 	 	
Interest expense	  	 	2,648	  	 	0	 	 	 	388	(e)	 	 	0	 	 	 	5,075	(h)	 	 	0	 	 	 	8,111	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
 	  	 	40,995	  	 	3,028	 	 	 	1,147	 	 	 	4,656	 	 	 	20,976	 	 	 	462	 	 	 	71,264	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
NET INCOME	  	$	24,364	  	$	1,291	 	 	$	449	 	 	$	1,564	 	 	$	(1,710	)	 	$	124	 	 	$	26,082	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
EARNINGS PER SHARE, basic and diluted	  	$	0.10	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	0.09	 	 	 	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	
WEIGHTED AVERAGE SHARES, basic and diluted	  	 	233,247	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	278,027	 	 	 	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	

(a)	 	Historical financial information derived from quarterly report on Form 10-Q.	
(b)	 	Rental income is recognized on a straight-line basis.	
(c)	 	Consists of operating costs reimbursements.	
(d)	 	Depreciation expense is recognized using the straight-line method and a 25-year life.	
(e)	 	Represents interest expense on lines of credits used to acquire assets, which bear interest at approximately 3.106% for the three months ended March 31, 2003.	
(f)	 	Consists of operating expenses.	
(g)	 	Management and leasing fees are generally calculated at 4.5% of rental income and tenant reimbursements.	
(h)	 	Represents interest expense on loan used to acquire Aon Center Chicago Building, which bears interest at approximately 4.40% for the three months ended March 31, 2003.	
 
The accompanying notes are an integral part of this statement.
 
47

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 8 DATED JUNE 15, 2003 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, as supplemented and amended by Supplement No. 1 dated August 14, 2002, Supplement No. 2 dated August 29, 2002, Supplement No. 3 dated October 25, 2002, Supplement No. 4 dated December 10, 2002, Supplement No. 5 dated January 15, 2003, Supplement No. 6 dated April 14, 2003, and Supplement No. 7 dated May 15, 2003 . 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)	 	The declaration of dividends for the third quarter of 2003; and	
 
 	(3)	 	Notice received from the NASD of its determination to institute an enforcement action against Wells Investment Securities, Inc. (Wells Investment Securities), our Dealer Manager, and Leo F. Wells, III for alleged NASD Rule violations relating to the educational and due diligence conferences sponsored by Wells Investment Securities in 2001 and 2002.	
 
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 $132.2 million in gross offering proceeds from the sale of 13.2 million 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 $175.2 million in gross offering proceeds from the sale of 17.5 million 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 $1.3 billion in gross offering proceeds from the sale of 128.3 million 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 May 31, 2003, we had received additional gross proceeds of approximately $1.4 billion from the sale of approximately 137.3 million shares in our fourth public offering. Accordingly, as of May 31, 2003, we had received aggregate gross offering proceeds of approximately $3.0 billion from the sale of approximately 296.3 million shares in all of our public offerings. After payment of approximately $102.2 million in acquisition and advisory fees and acquisition expenses, payment of $329.2 million in selling commissions and organization and offering expenses, and common stock redemptions of approximately $43.6 million pursuant to our share redemption program, as of May 31, 2003, we had raised aggregate net offering proceeds available for investment in properties of approximately $2.5 billion, out of which approximately $2.0 billion had been invested in real estate properties, and approximately $50.6 million remained available for investment in real estate properties.

Table of Contents
Dividends
 
On June 11, 2003, our board of directors declared dividends for the third quarter of 2003 in the amount of a 7.0% annualized percentage rate return on an investment of $10.00 per share to be paid in September 2003. Our third quarter dividends are calculated on a daily record basis of $0.001902 (0.1902 cents) per day per share on the outstanding shares of common stock payable to stockholders of record of such shares as shown on the books of the Wells REIT at the close of business on each day during the period, commencing on June 16, 2003, and continuing on each day thereafter through and including September 15, 2003.
 
NASD Enforcement Action
 
On June 6, 2003, the enforcement division of NASD, Inc. (NASD) informed Wells Investment Securities, our Dealer Manager, and Leo F. Wells, III, our President and a director, that the NASD has made a determination to institute disciplinary proceedings against both Wells Investment Securities and Mr. Wells, as registered principal of Wells Investment Securities, for alleged violations of various NASD Conduct Rules entirely related to providing non-cash compensation of more than $100 to associated persons of NASD member firms in connection with their attendance at the annual educational and due diligence conferences sponsored by Wells Investment Securities in 2001 and 2002.
 
While the NASD has not yet instituted a formal action against Wells Investment Securities or Mr. Wells and, in its notice, only cited alleged rule violations in general terms, Wells Investment Securities and Mr. Wells are in the process of ascertaining the specific factual details forming the basis for these allegations. Based upon what we know at this time, however, we believe that these alleged rule violations will relate primarily to (1) the failure to obtain full reimbursement from some of the registered representatives for travel expenses of guests and the cost of golf in connection with attendance at our 2001 educational conference, and (2) the payment for meals of guests of attendees at our 2001 and 2002 educational conferences. We are unable to predict at this time the potential outcome of any such enforcement action against Wells Investment Securities and Mr. Wells or the potential effect such an enforcement action may have on the operations of Wells Capital, Inc., our advisor, and, accordingly, on our operations, if any.

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 9 DATED AUGUST 27, 2003 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, as supplemented and amended by Supplement No. 1 dated August 14, 2002, Supplement No. 2 dated August 29, 2002, Supplement No. 3 dated October 25, 2002, Supplement No. 4 dated December 10, 2002, Supplement No. 5 dated January 15, 2003, Supplement No. 6 dated April 14, 2003, Supplement No. 7 dated May 15, 2003, and Supplement No. 8 dated June 15, 2003. 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)	 	Settlement of the NASD enforcement action against Wells Investment Securities, Inc. (Wells Investment Securities), our Dealer Manager, and Leo F. Wells, III, our president and chairman of our board of directors;	
 
 	(3)	 	Revisions to the “Management—Executive Officers and Directors” section of the prospectus to describe the addition of W. Wayne Woody as a newly appointed independent director and a member of our Audit Committee;	
 
 	(4)	 	Revisions to the “Management—Compensation of Directors” section of the prospectus;	
 
 	(5)	 	Revisions to the “Description of Real Estate Investments” section of the prospectus to describe the following real property acquisitions;	
 
 	(A)	 	Acquisition of a six-story office building and a two-story office building in Reston, Virginia (IBM Reston Buildings);	
 
 	(B)	 	Acquisition of a three-story office building in Atlanta, Georgia (ISS Atlanta III Building);	
 
 	(C)	 	Acquisition of two four-story office buildings in Rockville, Maryland (Lockheed Martin Rockville Buildings);	
 
 	(D)	 	Acquisition of a 19-story office building in Atlanta, Georgia (Cingular Atlanta Building); and	
 
 	(E)	 	Acquisition of an eight-story office building in Bridgewater, New Jersey (Aventis Northern NJ Building);	
 
 	(6)	 	Revisions to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the prospectus to include information for the quarter ended June 30, 2003;	
 
 	(7)	 	Changes to the “Plan of Distribution – Underwriting Compensation and Terms” section of the prospectus to reflect an additional volume discount available for purchases of 500,000 or more shares;	
 
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 	(8)	 	Description of committees of the board of directors;	
 
 	(9)	 	Unaudited financial statements of the Wells REIT for the period ended June 30, 2003;	
 
 	(10)	 	Statements of Revenues Over Certain Operating Expenses for the recently acquired Lockheed Martin Rockville Buildings, the Cingular Atlanta Building and the Aventis Northern NJ Building; and	
 
 	(11)	 	Unaudited pro forma financial statements of the Wells REIT reflecting the acquisition of the IBM Reston Buildings, the ISS Atlanta III Building, the Lockheed Martin Rockville Buildings, the Cingular Atlanta Building and the Aventis Northern NJ 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 $132.2 million in gross offering proceeds from the sale of approximately 13.2 million 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 $175.2 million in gross offering proceeds from the sale of approximately 17.5 million 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 $1.3 billion in gross offering proceeds from the sale of approximately 128.3 million 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 15, 2003, we had received additional gross proceeds of approximately $1.974 billion from the sale of approximately 197.4 million shares in our fourth public offering. Accordingly, as of August 15, 2003, we had received aggregate gross offering proceeds of approximately $3.565 billion from the sale of approximately 3.565 million shares in all of our public offerings. After payment of approximately $122.7 million in acquisition and advisory fees and acquisition expenses, payment of approximately $389.0 million in selling commissions and organization and offering expenses, and common stock redemptions of approximately $59.4 million pursuant to our share redemption program, as of August 15, 2003, we had raised aggregate net offering proceeds available for investment in properties of approximately $2.994 billion, out of which approximately $2.955 billion had been invested in real estate properties, and approximately $38.8 million remained available for investment in real estate properties.
 
Redemptions of Common Stock under our Share Redemption Plan
 
Our current share redemption plan allows for the redemption of approximately 4.37 million shares at an aggregate cost of $43.7 million for the year ending December 31, 2003. From January 1, 2003 through August 15, 2003, we had redeemed approximately 3.85 million shares of common stock available for redemption for the year at an aggregate cost of approximately $38.5 million. We anticipate that the remaining shares eligible for redemption during the year ending December 31, 2003 will be exhausted in the very near future. All other requests for potential redemption will not be eligible for redemption on a first come, first served
basis until after January 1, 2004, subject to our board’s ability to change or terminate our share redemption program at any time in its discretion.
 
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Settlement of NASD Enforcement Action
 
As described in more detail in Supplement No. 8 dated June 15, 2003, in a letter dated June 6, 2003, Wells Investment Securities, our Dealer Manager, and Leo F. Wells, III, registered principal of Wells Investment Securities and our president and chairman of our board of directors, were informed that the NASD had made a determination to institute certain disciplinary proceedings against them. On August 26, 2003, Wells Investment Securities and Mr. Wells settled this contemplated NASD enforcement action against them by entering into a Letter of Acceptance, Waiver and Consent (AWC) with the NASD which contained findings by the NASD that Wells Investment Securities and Mr. Wells had violated certain of its Conduct Rules related to providing non-cash compensation of more than $100 to associated persons of NASD member firms in connection with their attendance at the annual educational conferences sponsored by Wells Investment Securities in 2001 and 2002.
 
Without admitting or denying the allegations and findings against them, Wells Investment Securities and Mr. Wells consented in the AWC to various findings by the NASD which are summarized in the following paragraph:
 
In 2001 and 2002, Wells Investment Securities sponsored conferences attended by registered representatives who sold its real estate investment products. Wells Investment Securities also paid for certain expenses of guests of the registered representatives who attended the conferences. In 2001, Wells Investment Securities paid the costs of travel to the conference and meals for many of the guests, and paid the costs of playing golf for some of the registered representatives and their guests. Wells Investment Securities later invoiced registered representatives for the cost of golf and for travel expenses of guests, but was not fully reimbursed for such. In 2002, Wells Investment Securities paid for meals for the guests. Wells Investment Securities also conditioned most of the 2001 conference invitations on attainment by the registered representatives of a predetermined sales goal for Wells Investment Securities products. This conduct violated the prohibitions against payment and receipt of non-cash compensation in connection with the sales of these products contained in NASD’s Conduct Rules 2710, 2810, and 3060. In addition, Wells Investment Securities and Mr. Wells failed to adhere to all of the terms of their written undertaking made in March 2001 not to engage in the conduct described above, and thereby engaged in conduct that was inconsistent with high standards of commercial honor and just and equitable principles of trade in violation of NASD Conduct Rule 2110.
 
Wells Investment Securities consented to a censure and Mr. Wells consented to suspension from acting in a principal capacity with an NASD member firm for one year. Wells Investment Securities and Mr. Wells also agreed to the imposition of a joint and several fine in the amount of $150,000. Although Mr. Wells is now prohibited from acting in a principal capacity with Wells Investment Securities and has, therefore, resigned from all relevant positions in that regard, he will continue to engage in selling efforts on behalf of Wells Investment Securities and other non-principal activities. Mr. Wells will also continue to serve as our president and chairman of our board of directors and as the president of both Wells Capital, Inc., our advisor, and Wells Management Company, Inc., our property manager.
 
Management
 
Executive Officers and Directors
 
The following information should be read in conjunction with the “Management – Executive Officers and Directors” section beginning on page 34 of the prospectus to include background information on W. Wayne Woody. On July 15, 2003, our board of directors unanimously approved an increase in the number of our directors from 10 to 11 and elected W. Wayne Woody as a new independent director to fill the vacancy. Mr. Woody was also appointed as a member of our Audit Committee. Of our 11 directors, nine are considered independent of Wells Capital, Inc. (Wells Capital), our advisor.
 
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W. Wayne Woody served as the Interim Chief Financial Officer for Legacy Investment Group, a boutique investment firm, from 2000 to 2001 where he was responsible for guiding the company through a transition in accounting and reporting.
 
From 1968 until his retirement in 1999, Mr. Woody was employed by KMPG LLP and its predecessor firms, Peat Marwick Mitchell & Co. and Peat Marwick Main. As a Senior Partner, he served in a number of key positions in the firm, including Securities and Exchange Commission Reviewing Partner and Partner-in-Charge of Professional Practice and Firm Risk Management for the southeastern United States and Puerto Rico. Mr. Woody was also a member of the Board of Directors of KMPG LLP from 1990 through 1994. Prior to joining KMPG, Mr. Woody was the Principal Budget Analyst for the State of Georgia Office of Planning and Budget where he reviewed, analyzed and presented the Governor’s budget proposals to the state legislature.
 
Mr. Woody currently serves as Chairman of the Audit Committee for the City of Atlanta. He is also a director and the Chairman of the Audit Committee of the Metropolitan Atlanta Chapter of the American Red Cross. Mr. Woody is a member of the Board of Directors for the Metropolitan Atlanta Chapter of the American Heart Association. In addition, he is a trustee and the Chairman of the Finance Committee for the Georgia State University Foundation. Mr. Woody previously served a three-year term as Chairman of the Board of Trustees for the Georgia Center for the Visually Impaired.
 
Mr. Woody received a Bachelor of Science degree from Middle Tennessee State University and a Masters of Business Administration degree from Georgia State University. He is a Certified Public Accountant in the states of Georgia and North Carolina.
 
Compensation of Directors
 
The paragraph contained in the “Management – Compensation of Directors” section of the prospectus on page 38 should be replaced by the following paragraph to reflect a change in the manner in which we compensate our independent directors:
 
We pay each of our independent directors an annual retainer of $12,000, $2,500 per regularly scheduled board meeting attended, $1,500 per regularly scheduled committee meeting attended (committee chairpersons receive an additional $500 per committee meeting for serving in that capacity) and $250 per special board meeting attended whether held in person or by telephone conference. Members of our Audit Committee will receive $2,500 per meeting attended for each of the four meetings necessary to review our quarterly and annual financial statements. In addition, we have reserved 100,000 shares of common stock for future issuance upon the exercise of stock options granted to the independent directors pursuant to our Independent Director Stock Option Plan and 500,000 shares for future issuance upon the exercise of warrants to be granted to the independent directors pursuant to our Independent Director Warrant Plan. All directors receive reimbursement of reasonable out-of-pocket expenses incurred in connection with attendance at meetings of the board of directors. If a director also is an officer of the Wells REIT, we do not pay separate compensation for services rendered as a director.
 
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Description of Properties
 
As of August 20, 2003, we had purchased interests in 83 real estate properties located in 24 states. Below is a description of our recent real property acquisitions.
 
IBM Reston Buildings
 
On June 27, 2003, 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 six-story office building and a two-story office building containing approximately 141,000 aggregate rentable square feet located on an approximately 4.56-acre tract of land at 11107 & 11109 Sunset Hills Road in Reston, Virginia (IBM Reston Buildings) for a purchase price of approximately $28.6 million, plus closing costs. The IBM Reston Buildings were purchased from Sunset Hills, LLC, a Delaware limited liability company not in any way affiliated with the Wells REIT, Wells OP or Wells Capital, Inc. (Advisor).
 
The IBM Reston Buildings, which were built in 1984 and 1985, respectively, are leased to International Business Machines Corporation (IBM) (approximately 71%) and Tellabs Reston, Inc. (Tellabs) (approximately 29%).
 
IBM, a company whose shares are publicly traded on the New York Stock Exchange (NYSE), manufactures and sells computer services, hardware and software and is the most diversified provider of computer products and services in the United States. IBM reported a net worth, as of December 31, 2002, of approximately $22.8 billion. The current annual base rent payable under the IBM lease, which expires in 2012, is approximately $2.4 million. In addition, IBM has the right to terminate the IBM lease (1) in 2007 by paying an approximately $2.3 million termination fee, or (2) in 2009 by paying an approximately $1.1 million termination fee.
 
Tellabs is a wholly-owned subsidiary of Tellabs, Inc., a company whose shares are publicly traded on NASDAQ which designs, manufactures, markets and services optical networking, broadband access and voice-quality enhancement solutions. The current annual base rent payable under the Tellabs lease, which expires in 2011, is approximately $1.2 million. In addition, Tellabs has obtained an approximately $2.5 million letter of credit from Silicon Valley Bank to serve as additional security for payments under the lease.
 
ISS Atlanta III Building
 
On July 1, 2003, Wells OP purchased a three-story office building containing approximately 50,400 rentable square feet (ISS Atlanta III Building) located at 859 Mount Vernon Highway in Atlanta, Georgia for a purchase price of $10.0 million, plus closing costs. The ISS Atlanta III Building was purchased from Spring Creek Partners, LLC, a Georgia limited liability company not in any way affiliated with the Wells REIT, Wells OP or our Advisor. The ISS Atlanta III Building is the third building in a three building complex. In 2002, Wells OP purchased two five-story office buildings containing approximately 238,600 aggregate rentable square feet which are immediately adjacent to the ISS Atlanta III Building.
 
The entire rentable area of the ISS Atlanta III Building is leased to Internet Security Systems, Inc., a Georgia corporation (ISS). The ISS Atlanta lease is guaranteed by the parent of ISS, Internet Security Systems, Inc., a Delaware corporation (ISS, Inc.), whose shares are traded on NASDAQ. ISS, Inc. provides computer security solutions to networks, servers and desktop computers for organizational customers, including corporate customers and governmental units. ISS, Inc. reported a net worth, as of December 31, 2002, of approximately $464.6 million.
 
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The ISS Atlanta III lease is a net lease (i.e., operating costs and maintenance costs are paid by the tenant) that expires in 2013. The current annual base rent payable under the ISS Atlanta III lease is approximately $1.0 million. In addition, ISS has obtained a $2.5 million letter of credit from Wachovia Bank, N.A. to serve as additional security for payments under the lease. ISS has the right to apply to the Development Authority of Fulton County (Development Authority) for tax abatement benefits in connection with the recent construction of the ISS Atlanta III Building, which, if successful, will result in Wells OP transferring fee simple title to the land and improvements to the Development Authority in connection with the issuance of Development Authority of Fulton County Taxable Revenue Bonds (Bonds) and retaining ownership of an interest in the ISS Atlanta III Building by taking back a ground lease on the land and improvements. Fee title interest to the land and improvements will be transferred back 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. Pursuant to the ISS Atlanta III lease, ISS is required to pay all costs associated with the application for tax abatement benefits.
 
Since the ISS Atlanta III Building is leased to a single tenant on a long-term basis under a net lease that transfers substantially all of the operating costs to the tenant, we believe that financial information about the guarantor of the lease, ISS, Inc., is more relevant to investors than financial statements of the property acquired.
 
ISS, Inc. currently files its financial statements in reports filed with the SEC, and the following summary financial data regarding ISS, Inc. is taken from its previously filed public reports:
 
 	  	For the Fiscal Year Ended

	
Consolidated Statements of Operations
 	  	12/31/2002

	  	12/31/2001

	 	  	12/31/2000

	
 	  	(in thousands)	
Revenues	  	$	243,285	  	$	223,559	 	  	$	194,975	
Operating Income	  	$	8,023	  	$	(24,158	)	  	$	20,569	
Net Income	  	$	1,779	  	$	(15,458	)	  	$	18,315	
 	 	
 	  	As of the Fiscal Year Ended

	
Consolidated Balance Sheet
 	  	12/31/2002

	  	12/31/2001

	 	  	12/31/2000

	
 	  	(in thousands)	
Total Assets	  	$	546,568	  	$	500,984	 	  	$	240,240	
Stockholders’ Equity	  	$	464,556	  	$	426,935	 	  	$	188,389	
 
For more detailed financial information regarding ISS, Inc., please refer to the financial statements of Internet Security Systems, Inc., which are publicly available with the SEC at http://www.sec.gov.
 
Lockheed Martin Rockville Buildings
 
On July 30, 2003, Wells OP purchased all of the membership interest in Meridian/Northwestern Shady Grove North, LLC (North), a Delaware limited liability company, which owns two four-story office buildings containing approximately 231,000 aggregate rentable square feet located on an approximately 8.91-acre tract of land at 9211 & 9221 Corporate Boulevard in Rockville, Maryland (Lockheed Martin Rockville Buildings) for a purchase price of approximately $51.6 million, plus closing costs. The Lockheed Martin Rockville Buildings were purchased from Meridian/Northwestern Shady Grove Holdings, LLC (Holdings), a Delaware limited liability company which owned the entire membership interest in North. Neither North nor Holdings is in any way affiliated with the Wells REIT, Wells OP or our Advisor.
 
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The entire rentable square feet of the Lockheed Martin Rockville Buildings are leased under two separate lease agreements to Lockheed Martin Corporation (Lockheed Martin). Lockheed Martin, a company whose shares are publicly traded on the NYSE, is a technology company formed in March of 1995 with the merger of two other technology companies, Lockheed Corporation and Martin Marietta Corporation. Lockheed Martin is principally engaged in the research, design, development, manufacture and integration of advanced technology systems, products and services. Lockheed Martin reported a net worth, as of December 31, 2002, of approximately $5.9 billion. The current aggregate annual base rent payable under the Lockheed Martin leases, which expire in 2009, is approximately $4.7 million.
 
Cingular Atlanta Building
 
On August 1, 2003, Wells OP purchased a 19-story office building containing approximately 413,000 aggregate rentable square feet located on an approximately 5.2-acre tract of land at 5565 Glenridge Connector, N.E. in Atlanta, Georgia (Cingular Atlanta Building) for a purchase price of approximately $83.9 million, plus closing costs. The Cingular Atlanta Building was purchased from Teachers Insurance and Annuity Association of America, a New York corporation not in any way affiliated with the Wells REIT, Wells OP or our Advisor.
 
The Cingular Atlanta Building, which was built in 2000, is primarily leased to Cingular Wireless, LLC (Cingular) (approximately 76%). Approximately 21% of the Cingular Atlanta Building is leased to four additional tenants, and approximately 3% of the Cingular Atlanta Building is currently vacant.
 
Cingular is a joint venture between the domestic wireless divisions of SBC Communications, Inc. and BellSouth Corporation. Cingular serves more than 22 million voice and data customers across the United States, provides cellular/PCS service in 43 of the top 50 markets nationwide, and provides corporate e-mail and other advanced data services. Cingular reported a net worth, as of December 31, 2002, of approximately $7.5 billion.
 
The current annual base rent payable under the Cingular lease, which expires in 2010, is approximately $8.9 million. Cingular has the right to terminate the Cingular lease in 2008 by paying a termination fee equal to all unamortized tenant improvement allowances and leasing commissions incurred by the landlord in connection with the Cingular lease, which is currently estimated to be approximately $2.7 million. The Cingular lease prohibits Wells OP from leasing any space in the Cingular Atlanta Building to another tenant in the telecommunications business.
 
The current aggregate annual base rent for the remaining four tenants is approximately $2.0 million.
 
Aventis Northern NJ Building
 
On August 14, 2003, Wells Bridgewater I, LLC (Wells Bridgewater), a Georgia limited liability company wholly-owned by Wells OP, purchased an eight-story office building containing approximately 297,000 rentable square feet located on an approximately 10.47 acre tract of land at 200 Crossing Boulevard in Bridgewater, New Jersey (Aventis Northern NJ Building) for a purchase price of $96.3 million, plus closing costs, from PGC Bridgewater, LLC, a Delaware limited liability company not in any way affiliated with the Wells REIT, Wells OP, Wells Bridgewater or our Advisor.
 
The entire Aventis Northern NJ Building is leased to Aventis, Inc. (Aventis), the U.S. pharmaceuticals division and a subsidiary of Aventis SA, a French company whose shares are publicly traded on the NYSE. Aventis Pharma AG, an affiliate of Aventis and a subsidiary of Aventis SA is a guarantor of the Aventis lease. Aventis develops pharmaceutical products in areas such as oncology, cardiology, diabetes, respiratory/allergy and anti-infectives. The current annual net base rent payable under the Aventis lease, which expires in 2012, is approximately $7.3 million.
 
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Property Management
 
Wells Management Company, Inc. (Wells Management), an affiliate of the Wells REIT and our Advisor, will manage the IBM Reston Buildings, the ISS Atlanta III Building, the Lockheed Martin Buildings, the Cingular Atlanta Building and the Aventis Northern NJ Building on behalf of Wells OP. Wells Management will be paid asset and property management fees in the amount of up to 4.5% of the gross revenues from the IBM Reston Buildings, the ISS Atlanta III Building, the Lockheed Martin Buildings, the Cingular Atlanta Building and the Aventis Northern NJ Building, subject to certain limitations. Hines Interests Limited Partnership (Hines) is the current on-site property manager of the Aventis Northern NJ Building and Wells OP anticipates entering into a new management agreement with Hines to continue to serve as the on-site property manager. The property management fees payable to Hines will be paid out of or credited against the fees payable to Wells Management. Hines is not in any way affiliated with the Wells REIT, Wells OP, Wells Bridgewater or our Advisor.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following discussion and analysis should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section contained in Supplement No. 6 dated April 14, 2003 and Supplement No. 7 dated May 15, 2003 and should also be read in conjunction with our accompanying financial statements and notes thereto.
 
Forward Looking Statements
 
This supplement contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934, including discussion and analysis of our financial condition, 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 this 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 on a timely basis or 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.
 
REIT Qualification
 
We have made an election under Section 856 of the Internal Revenue Code to be taxed as a REIT beginning with our taxable year ended December 31, 1998. As a REIT for federal income tax purposes, we generally will not be subject to federal income tax on income that we distribute to shareholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which our qualification is lost. Such an event could materially, adversely affect our financial position and results of operations. However, management believes that we are organized and operate in a manner which will enable us to qualify for treatment as a REIT for federal income tax purposes during the year ending December 31, 2003. In addition, we intend to continue to operate to remain qualified as a REIT for federal income tax purposes.
 
Liquidity and Capital Resources
 
During the six months ended June 30, 2003, we received aggregate gross offering proceeds of $1.04 billion from the sale of 104.4 million shares of our common stock. After incurring costs of $35.5 million in acquisition and advisory fees and acquisition expenses, $108.9 million in selling commissions
 
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and organization and offering expenses and common stock redemptions of $31.0 million pursuant to our share redemption program, we raised net offering proceeds of $868.9 million during the six months ended June 30, 2003.
 
The significant increase in capital resources available to us is due to significantly increased sales of our common stock during the first half of 2003. After payment of the costs described above associated with the sale of shares of common stock and acquisitions of properties, we had approximately $44.0 million available for investment in real estate assets as of June 30, 2003.
 
As of June 30, 2003, we owned interests in 79 real estate properties either directly or through our interests in joint ventures located throughout the United States. Our real estate investment policies are to identify and invest in high-grade commercial office and industrial buildings located in densely populated metropolitan markets which are newly constructed, under construction or which have been previously constructed and have operating histories. However, we are not limited to such investments. We expect to continue to acquire commercial properties that meet our standards of quality in terms of the real estate and the creditworthiness of the tenants.
 
We have developed specific standards for determining creditworthiness of potential tenants of our properties in order to reduce the risk of tenant default. Although authorized to enter into leases with any type of tenant, we anticipate that a majority of our tenants will be large corporations or other entities which have a net worth in excess of $100 million or whose lease obligations are guaranteed by another corporation or entity with a net worth in excess of $100 million.
 
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 entering into any commitment to buy a property. We continue to remain steadfast in our commitment to invest in quality properties that will produce quality income for our stockholders.
 
Dividends paid during the six months ended June 30, 2003 were $87.6 million compared to $40.9 million during the six months ended June 30, 2002. For each $10 share of our common stock, our board of directors declared dividends for the period December 16, 2002 through June 15, 2003, at an annualized percentage rate of return of 7.0%, compared to an annualized percentage rate of return of 7.75% for the period December 16, 2001 through June 15, 2002. The reduction of the annualized percentage rate of return for the dividends resulted from the higher value placed on our type of properties and the additional time it now takes in the acquisition process for us to assess tenant creditworthiness and, therefore, invest proceeds in properties.
 
Our board of directors has declared dividends for the period June 16, 2003, through September 15, 2003, at an annualized percentage rate of return of 7.0%. Third quarter dividends are calculated on a daily record basis of $0.001902 (0.1902 cents) per day per share on the outstanding shares of our common stock payable to stockholders of record as shown on our books at the close of business on each day during the period commencing on June 16, 2003, and continuing on each day thereafter through and including September 15, 2003.
 
The payment of dividends in the future will generally be dependent upon the cash flows from operating the properties currently owned and acquired in future periods, our financial condition, amounts paid for properties acquired, the timing of property acquisitions, capital expenditure requirements and distribution requirements in order to maintain our REIT status under the Internal Revenue Code.
 
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Cash Flows From Operating Activities
 
Our net cash provided by operating activities was $88.5 million and $33.1 million for the six months ended June 30, 2003 and 2002, respectively. The increase in net cash provided by operating activities was due primarily to the net income generated by $1.4 billion of additional properties acquired during 2002 and an additional $871.9 million of real estate assets acquired and $76.8 million in build-to-suit projects completed during the six months ended June 30, 2003. We do not recognize in income the full effect from the properties during the year of acquisition, as the operations of the properties are only included in income from the date of acquisition. Operating cash flows are expected to increase as we acquire additional properties in future periods and as we obtain the benefit of a full quarter of operations for properties acquired during the six months ended June 30, 2003.
 
Cash Flows Used In Investing Activities
 
Our net cash used in investing activities was $829.6 million and $278.4 million for the six months ended June 30, 2003 and 2002, respectively. The increase in net cash used in investing activities was due primarily to greater investments in properties and the payment of the related deferred project costs resulting from raising a greater amount of offering proceeds. Our investments in real estate assets, lease acquisitions and intangible lease assets and payment of acquisition and advisory costs totaled $833.6 million and $281.9 million for the six months ended June 30, 2003 and 2002, respectively. The cash outflow from the investments in properties and the payment of deferred project costs were partially offset by distributions from joint ventures of $4.0 million and $3.5 million during the six months ended June 30, 2003, and 2002, respectively. The increase in distributions from joint ventures is primarily due to additional investment in joint ventures during the fourth quarter of 2002.
 
Cash Flows From Financing Activities
 
Our net cash provided by financing activities was $754.7 million and $511.6 million for the six months ended June 30, 2003 and 2002, respectively. Capital fund raising increased to $1.04 billion during the six months ended June 30, 2003, as compared to $618.3 million during the six months ended June 30, 2002. The amounts raised were partially offset by the payment of commissions and offering costs totaling $114.8 million and $65.8 million and redemptions of $31.0 million and $6.7 million during the six months ended June 30, 2003 and 2002, respectively.
 
Additionally, we obtained funds from financing arrangements totaling $549.3 million and $7.5 million and made repayments of borrowings of $601.1 million and $0 during the six months ended June 30, 2003 and 2002, respectively, based on the availability and need of cash for investment in real estate assets during the period. Related to the acquisition of new financing facilities we incurred deferred financing costs of $4.4 million and $0.9 million during the six months ended June 30, 2003 and 2002. Primarily as a result of the increased cash flow from operations, during the six months ended June 30, 2003 and 2002, we paid dividends of $87.6 million and $40.9 million, respectively.
 
Results of Operations
 
As of June 30, 2003, our 79 real estate properties were approximately 97% leased. Our results of operations have changed significantly for the three and six months ended June 30, 2003, as compared to the three and six months ended June 30, 2002, generally as result of the acquisition of approximately $1.4 billion of real estate assets during the year ended December 31, 2002, and an additional $871.9 million of real estate assets acquired and $76.8 million in build-to-suit projects completed during the six months ended June 30, 2003. We expect that rental income, tenant reimbursements, depreciation expense,
 
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operating expenses, asset and property management and leasing fees and net income will each increase in future periods as a result of owning the assets acquired during the six months ended June 30, 2003, for an entire period and as a result of anticipated future acquisitions of real estate assets. Due to the average remaining terms of the long-term leases currently in place at our properties, management does not anticipate significant changes in near-term rental revenues from properties currently owned.
 
Three months ended June 30, 2003 vs. three months ended June 30, 2002
 
Rental income increased by $47.1 million, during the second quarter of 2003, from $21.8 million for the three months ended June 30, 2002, to $69.0 million for the three months ended June 30, 2003. Tenant reimbursements were $16.5 million and $4.8 million for the three months ended June 30, 2003 and 2002, respectively, for an increase of $11.7 million. The increases were primarily due to the rental income and tenant reimbursements for properties acquired subsequent to March 31, 2002, which totaled $49.5 million and $12.1 million, respectively, for the three months ended June 30, 2003 and $2.4 million and $1.1 million for the three months ended June 30, 2002. Revenues in future periods are expected to increase compared to historical periods as additional properties are acquired.
 
Our equity in income of joint ventures was $1.1 million and $1.3 million for the three months ended June 30, 2003 and 2002, respectively. Equity in income of joint ventures is not anticipated to change significantly in future periods unless we invest additional proceeds in future joint venture investments or dispose of joint venture investments.
 
Depreciation expense for the three months ended June 30, 2003 and 2002, was $25.1 million and $7.2 million, respectively comprising approximately 36% and 33% of rental income for the respective three month periods. The change in the percentages between periods is generally due to a change in the applicable cost of the real estate assets compared to the revenues generated by the real estate assets. Depreciation expense relating to assets acquired after March 31, 2002, was $18.4 million and $0.9 million for the three months ended June 30, 2003 and June 30, 2002, respectively. Depreciation expense is expected to increase in future periods as additional properties are acquired, however should remain consistent as a percentage of revenues unless the relationship between the cost of the assets and the revenues earned changes.
 
Property operating costs were $25.8 million and $6.2 million for the three months ended June 30, 2003 and 2002, respectively, representing 30% and 23% of the sum of the rental income and tenant reimbursements for each respective three month period. The increase of property operating costs as a percentage of the sum of the rental income and tenant reimbursements is primarily due to the recent acquisition of certain full service properties that have a higher ratio of property operating costs to revenues. Property operating costs for the properties acquired subsequent to March 31, 2002 were $19.7 million and $1.1 million for the three months ended June 30, 2003 and 2002, respectively. Property operating costs are expected to increase as more properties are acquired, but expenses should remain relatively consistent as a percentage of the sum of rental income and tenant reimbursements.
 
Asset and property management and leasing fees expenses were $3.2 million and $1.0 million for the three months ended June 30, 2003 and 2002, respectively, representing approximately 4% of the sum of the rental income and tenant reimbursements for each three month period. Asset and property management fees for properties acquired after March 31, 2002, were $1.9 million and $0.1 million for the three months ended June 30, 2003 and 2002, respectively. Asset and property management fees are expected to increase as additional properties are acquired but, as a percentage of the sum of rental income and tenant reimbursements, should remain relatively consistent with historical results.
 
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General and administrative expenses increased from $0.6 million for the three months ended June 30, 2002, to $0.9 million for the three months ended June 30, 2003, representing approximately 2% and 1% of the total revenues for each respective three month period. The decrease from the prior period is primarily due to greater efficiencies resulting from economies of scale. General and administrative expenses are expected to increase in future periods as additional properties are acquired, but are expected remain relatively constant as a percentage of total revenues.
 
Interest expense was $4.8 million and $0.7 million for the three months ended June 30, 2003 and 2002, respectively. Interest expense of $1.0 and $0.4 million for the three months ended June 30, 2003 and 2002, respectively, was attributable to interest on the bonds related to the Ingram Micro and ISS Buildings, which is offset by the interest income associated with the bonds, which results in no net impact on our operating results. The remaining $3.8 million and $0.3 million is due to the interest on our outstanding borrowings and amortization of deferred financing costs for each period. We had significantly more borrowings outstanding during the three months ended June 30, 2003, as compared to the three months ended June 30, 2002, resulting in a significant increase in the interest expense between the two periods. Additionally, in the period ending June 30, 2003, we wrote-off approximately $0.5 million of deferred financing costs associated with the Bank of America $110.0 million line of credit termination (See Note 4 of our consolidated financial statements for further information). Interest expense in future periods will be dependent upon the amount of borrowings outstanding during those periods and current interest rates. Historical results may not be indicative of interest expense in future periods.
 
Earnings per share for the three months ended June 30, 2003, decreased to $0.10 per share compared to $0.11 per share for the three months ended June 30, 2002. This decrease is primarily a result of the higher cost of investments in real estate assets relative to returns on those investments.
 
Six months ended June 30, 2003 vs. six months ended June 30, 2002
 
Rental income increased by $83.7 million, during the first half of 2003, from $38.6 million for the six months ended June 30, 2002, to $122.3 million for the six months ended June 30, 2003. Tenant reimbursements were $26.1 million and $9.2 million for the six months ended June 30, 2003 and 2002, respectively, for an increase of $16.9 million. The increases were primarily due to the rental income and tenant reimbursements for properties acquired subsequent to December 31, 2001, which totaled $89.3 million $17.9 million, respectively, for the six months ended June 30, 2003, and $6.0 million and $1.3 million for the first half of 2002. Revenues in future periods are expected to increase compared to historical periods as additional properties are acquired.
 
Our equity in income of joint ventures was $2.4 million and $2.5 million for the six months ended June 30, 2003 and 2002, respectively. Equity in income of joint ventures is not anticipated to change significantly in future periods unless we invest additional proceeds in future joint venture investments or dispose of joint venture investments.
 
Depreciation expense for the six months ended June 30, 2003 and 2002, was $44.3 million and $12.9 million, respectively comprising approximately 36% and 33% of rental income for the respective six month periods. The increase in the percentages between periods is generally due to an increase in the applicable cost of the real estate assets compared to the revenues generated by the real estate assets. Depreciation expense relating to assets acquired after December 31, 2001, was $33.1 million and $2.3 million for the six months ended June 30, 2003 and 2002, respectively. Depreciation expense is expected to increase in future periods as additional properties are acquired, however should remain consistent as a percentage of revenues unless the relationship between the cost of the assets and the revenues earned changes.
 
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Property operating costs were $41.0 million and $11.2 million for the six months ended June 30, 2003 and 2002, respectively, representing approximately 28% and 24% of the sum of the rental income and tenant reimbursements for each respective six month period. The increase in the property operating costs as a percentage of the sum of the rental income and tenant reimbursements is primarily due to operating costs of the recently acquired full service properties as a percentage of revenues. Property operating costs for the properties acquired subsequent to December 31, 2001, were $30.1 million and $1.7 million for the six months ended June 30, 2003 and 2002, respectively. Property operating costs are expected to increase as more properties are acquired, but expenses should remain relatively consistent as a percentage of the sum of rental income and tenant reimbursements.
 
Management and leasing fees expenses were $5.5 million and $1.9 million for the six months ended June 30, 2003 and 2002, respectively, representing approximately 4% of the sum of the rental income and tenant reimbursements for each six month period. Management and leasing fees for properties acquired after June 30, 2002, were $3.5 million and $0.2 million for the six months ended June 30, 2003 and 2002, respectively. Management and leasing fees are expected to increase as additional properties are acquired; however, as a percentage of the sum of rental income and tenant reimbursements, should remain relatively consistent with historical results.
 
General and administrative expenses increased from $1.1 million for the six months ended June 30, 2002, to $2.5 million for the six months ended June 30, 2003, representing approximately 2% of the total revenues for each respective six month period. General and administrative expenses are expected to increase in future periods as our assets continue to increase as additional properties are acquired, but are expected remain relatively constant as a percentage of total revenues.
 
Interest expense was $7.4 million and $1.3 million for the six months ended June 30, 2003 and 2002, respectively. Interest expense of $1.9 and $0.9 million for the six months ended June 30, 2003 and 2002, respectively, was attributable to interest on the bonds related to the Ingram Micro and ISS Buildings, which is offset by the interest income associated with the bonds, which results in no net impact on our operating results. The remaining $5.5 million and $0.4 million, respectively, is due to the interest on our outstanding borrowings for each period and amortization of deferred finance costs. We had significantly more borrowings outstanding during the six months ended June 30, 2003, as compared to the six months ended June 30, 2002, resulting in a significant increase in the interest expense between the two periods. Additionally, in the period ending June 30, 2003, we wrote-off approximately $0.5 million of deferred costs associated with the Bank of America $110.0 million line of credit termination (See Note 4 of our consolidated financial statements for further information). Interest expense in future periods will be dependent upon the amount of borrowings outstanding during those periods and current interest rates. Historical results may not be indicative of interest expense in future periods.
 
Earnings per share for the six months ended June 30, 2003, decreased to $0.20 per share compared to $0.22 per share for the six months ended June 30, 2002. This decrease is primarily a result of the higher cost of investments in real estate assets relative to returns on those investments resulting in lower returns.
 
Funds From Operations
 
Funds from Operations (FFO), as defined by the National Association of Real Estate Investment Trusts (NAREIT), generally means net income, computed in accordance with accounting principles generally accepted in the United States (GAAP) excluding extraordinary items (as defined by GAAP) and gains (or losses) from sales of property, plus depreciation and amortization on real estate assets, and after adjustments for unconsolidated partnerships, joint ventures and subsidiaries. Management believes that FFO is helpful to investors as a measure of the performance of an equity REIT.
 
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However, our calculation of FFO, while consistent with NAREIT’s definition, may not be comparable to similarly titled measures presented by other REITs. FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered as an alternative to net income as an indication of our performance or to cash flows as a measure of liquidity or ability to make distributions.
 
The following table reflects the calculation of FFO for the three and six month periods ended June 30, 2003 and 2002:
 
 	  	For the three months
ended June 30,

	  	For the six months
ended June 30,

	
 	  	2003

	  	2002

	  	2003

	  	2002

	
FUNDS FROM OPERATIONS:	  	 	 	  	 	 	  	 	 	  	 	 	
Net income	  	$	27,985	  	$	13,756	  	$	52,349	  	$	24,536	
Add:	  	 	 	  	 	 	  	 	 	  	 	 	
Depreciation of real estate assets	  	 	25,060	  	 	7,159	  	 	44,278	  	 	12,903	
Amortization of deferred leasing costs	  	 	271	  	 	78	  	 	349	  	 	151	
Depreciation & amortization—unconsolidated investments in joint assets	  	 	779	  	 	701	  	 	1,565	  	 	1,407	

	

	  	

	

	  	

	

	  	

	

	
Funds from Operations (FFO)	  	$	54,095	  	$	21,694	  	$	98,541	  	$	38,997	

	

	  	

	

	  	

	

	  	

	

	
WEIGHTED AVERAGE SHARES	  	 	 	  	 	 	  	 	 	  	 	 	
BASIC AND DILUTED	  	 	283,903	  	 	126,038	  	 	258,575	  	 	110,886	

	

	  	

	

	  	

	

	  	

	

	
 
In order to recognize revenues on a straight line basis over the terms of the respective leases, we recognized straight line rental revenue of $4.3 million and $2.1 million during the three months ended June 30, 2003 and 2002, respectively. For the six months ended June 30, 2003 and 2002, we recognized straight line rental revenue of $5.1 million and $3.2 million, respectively.
 
Amortization of the intangible lease assets and liabilities resulted in a net increase in rental revenue of $0.6 million and $1.1 million, respectively for the three and six months periods ended June 30, 2003.
 
Inflation
 
The real estate market has not been affected significantly by inflation in the past three years due to the relatively low inflation rate. However, there are provisions in the majority of tenant leases, which would protect us from the impact of inflation. These provisions include reimbursement billings for operating expense pass-through charges, real estate tax and insurance reimbursements on a per square foot basis, or in some cases, annual reimbursement of operating expenses above a certain per square foot allowance. However, due to the long-term nature of the leases, the leases may not re-set frequently enough to cover inflation.
 
Application of Critical Accounting Policies
 
Our accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If management’s judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied; thus, resulting in a different presentation of the financial statements. Additionally, other companies may utilize
 
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different estimates that may impact comparability of our results of operations to those of companies in similar businesses.
 
The critical accounting policies outlined below have been discussed with members of our Audit Committee. There have been no significant changes in the critical accounting policies, methodology, or assumptions in the current period.
 
Below is a discussion of the accounting policies that management considers to be critical in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain.
 
Investment in Real Estate Assets
 
We are required to make subjective assessments as to the useful lives of our depreciable assets. We consider the period of future benefit of the asset to determine the appropriate useful lives. These assessments have a direct impact on net income. The estimated useful lives of our assets by class are as follows:
 
Building	  	25 years	
Building improvements	  	10-25 years	
Land improvements	  	20-25 years	
Tenant Improvements	  	Lease term	
 
In the event that inappropriate useful lives or methods are used for depreciation, our net income would be misstated.
 
Valuation of Real Estate Assets
 
We continually monitor events and changes in circumstances that could indicate that the carrying amounts of the real estate assets, both operating properties and properties under construction, in which we have an ownership interest, either directly or through investments in joint ventures, may not be recoverable. When indicators of potential impairment are present which indicate that the carrying amounts of real estate assets may not be recoverable, we assess the recoverability of the real estate assets by determining whether the carrying value of the real estate assets will be recovered through the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying value, we adjust the real estate assets to the fair value and recognize an impairment loss. We have determined that there has been no impairment in the carrying value of real estate assets held by us and any unconsolidated joint ventures at June 30, 2003.
 
Projections of expected future cash flows requires us to estimate future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, discount rates, the number of months it takes to re-lease the property and the number of years the property is held for investment. The use of inappropriate assumptions in the future cash flow analysis would result in an incorrect assessment of the property’s future cash flows and fair value and could result in the overstatement of the carrying value of our real estate assets and net income.
 
Intangible Lease Asset/Liability
 
We determine whether an intangible asset or liability related to above or below market leases was acquired as part of the acquisition of the real estate assets. The intangible assets and liabilities are
 
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recorded at their estimated fair market values at the date of acquisition and amortized over the remaining term of the respective lease to rental income.
 
The determination of the estimated fair values of the intangible lease asset or liability requires the use of significant assumptions with regard to the current market rental rates, rental growth rates, discount rates and other variables. If inappropriate estimates with regard to these variables are used, misclassification of assets or liabilities and incorrect calculation of depreciation amounts would occur, which would misstate our net income.
 
Commitments and Contingencies
 
Take Out Purchase and Escrow Agreement
 
Wells Management Company has developed a program (Wells Section 1031 Program) involving the acquisition by a subsidiary of Wells Management Company (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 seeking to invest the proceeds from a sale of real estate held for investment in another real estate investment for purposes of qualifying for like-kind exchange treatment under Section 1031 of the Internal Revenue Service Code. The acquisition of each of the properties acquired by Wells Exchange will be financed by a combination of permanent first mortgage financing and interim loan financing obtained from institutional lenders.
 
Following the acquisition of each property, Wells Exchange will attempt to sell co-tenancy interests to 1031 Participants, the proceeds of which will be used to repay a prorata portion of the interim financing. In consideration for the payment of a take out fee to us and following approval of the potential property acquisition by our board of directors, it is anticipated that we will enter into a take out purchase and escrow agreement or similar contract providing that, if Wells Exchange is unable to sell all of the co-tenancy interests in that particular property to 1031 Participants, we will purchase, at Wells Exchange’s cost, any co-tenancy interests remaining unsold at the end of the offering period.
 
See Note 7 to our consolidated financial statements included in this supplement for discussion of this potential obligation.
 
Letters of Credit
 
At June 30, 2003, we had three unused letters of credit as required by other parties to ensure completion of our obligations under certain contracts. See Note 7 to our consolidated financial statements included in this supplement for further discussion of the letters of credit.
 
Commitments Under Existing Lease Agreements
 
We entered into lease agreements with tenants that may include provisions that, at the option of the tenant, may require us to incur certain capital costs. See Note 7 to our consolidated financial statements included in this supplement for further discussion of these potential obligations.
 
Earn-out Agreements
 
We entered into certain purchase agreements containing various earn-out clauses that may result in Wells REIT being obligated to pay additional amounts to the seller of a property. See Note 7 to our consolidated financial statements included in this supplement for a more detailed discussion of these potential obligations.
 
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Leasehold Property Obligations
 
We own certain properties that are subject to ground leases and require us to pay rent in future years. See Note 7 to our consolidated financial statements included in this supplement for further discussion of the lease terms and required payments.
 
Pending Litigation
 
We have certain pending litigation related to a dispute over the right to an approximately $0.8 million escrow deposit for a property that was not acquired. See Note 7 to our consolidated financial statements included in this supplement for further discussion of the litigation.
 
NASD Enforcement Action
 
On June 6, 2003, the enforcement division of NASD, Inc. (NASD) informed Wells Investment Securities, Inc., our Dealer Manager, and Leo F. Wells, III, our president and a director, that the NASD has made a determination to institute disciplinary proceedings against both Wells Investment Securities and Mr. Wells, as registered principal of Wells Investment Securities, for alleged violations of various NASD Conduct Rules. Please see the “Settlement of NASD Enforcement Action” section of this supplement for a discussion of the settlement with the NASD.
 
Related Party Transactions and Agreements
 
We have entered into agreements with our Advisor and its affiliates, whereby we pay certain fees or reimbursements to our Advisor or its affiliates for acquisition and advisory fees and expenses, organization and offering costs, sales commissions dealer manager fees, asset and property management fees and reimbursement of operating costs. See Note 5 to our consolidated financial statements included in this supplement for a discussion of the various related party transactions, agreements and fees.
 
Conflicts of Interest
 
Our Advisor is also a general partner in and advisor to various Wells Real Estate Funds. As such, there are conflicts of interest where our Advisor, while serving in the capacity as general partner for Wells Real Estate Funds, may be in competition with us in connection with property acquisitions or for tenants in similar geographic markets.
 
Subsequent Events
 
Sale of Shares of Common Stock
 
From July 1, 2003 through August 15, 2003, Wells REIT has raised approximately $342.4 million through the issuance of approximately 34.2 million shares of common stock of Wells REIT. At August 15, 2003 approximately 111.1 million shares remain available under the current offering of Wells REIT’s stock, excluding shares available under our dividend reinvestment plan.
 
Redemptions of Common Stock under our Share Redemption Plan
 
Our current share redemption plan allows for the redemption of approximately 4.37 million shares at an aggregate cost of $43.7 million for the year ending December 31, 2003. From January 1, 2003 through August 15, 2003, we had redeemed approximately 3.85 million shares of common stock available for redemption for the year at an aggregate cost of approximately $38.5 million. We anticipate that the remaining shares eligible for redemption during the year ending December 31, 2003 will be exhausted in the very near future. All other requests for potential redemption will not be eligible for redemption on a first come, first served
 
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basis until after January 1, 2004, subject to our board’s ability to change or terminate our share redemption program at any time in its discretion.
 
Property Acquisitions
 
ISS Atlanta III
 
On July 1, 2003, Wells REIT purchased the third Internet Security Systems (ISS) Building, a five-story building containing approximately 50,400 rentable square feet located in Atlanta, Georgia for a purchase price of approximately $10.0 million. The building is 100% leased to ISS. The first two ISS Buildings were purchased in July 2002. The three-building project now totals approximately 289,000 rentable square feet.
 
Lockheed Martin Rockville
 
On July 30, 2003, Wells REIT purchased all the membership interest in Meridian/Northwestern Shady Grove North, LLC, a Delaware limited liability company, which owns two four-story office buildings containing approximately 231,000 aggregate rentable square feet located in Rockville, Maryland, for a purchase price of approximately $51.6 million. The buildings are 100% leased to Lockheed Martin.
 
Cingular Atlanta
 
On August 1, 2003, Wells REIT purchased the Cingular Atlanta Building, a 19-story building containing approximately 413,000 rentable square feet located in Atlanta, Georgia, for a purchase price of $83.9 million. The building is 97% leased under leases to various tenants with varying terms, including Cingular Wireless, LLC, which leases 76% of the building.
 
Aventis Northern NJ Building
 
On August 14, 2003, Wells Bridgewater purchased an eight-story office building containing approximately 297,000 rentable square feet located in Bridgewater, New Jersey for a purchase price of $96.3 million. The building is 100% leased to Aventis, Inc.
 
Underwriting Compensation and Terms
 
Notwithstanding the volume discount table contained in the first paragraph on page 148 in the “Plan of Distribution—Underwriting Compensation and Terms” section of the prospectus, the Wells REIT is offering a volume discount reduction of 6.0% for sales of 500,000 or more shares of the Wells REIT through the end of this offering. Therefore, purchasers of 500,000 or more shares will pay only 1% sales commissions resulting in a purchase price of $9.40 per share. The net proceeds to the Wells REIT will not be affected by use of this volume discount available to purchasers of 500,000 or more shares.
 
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Board of Director Committees
 
The Audit Committee
 
The Audit Committee’s primary function is to assist our board of directors in fulfilling its oversight responsibilities by reviewing the financial information to be provided to the stockholders and others, the system of internal controls which our management has established and our audit and financial reporting process. In performing this function, the Audit Committee shall maintain free and open communications among our board of directors, our independent accountants and our financial management team. The Audit Committee’s members are as follows:
 
BOARD COMMITTEE

	 	MEMBERS

	
Audit Committee	 	Walter W. Sessoms (Chairman)
William H. Keogler, Jr.
Donald S. Moss
Neil H. Strickland
W. Wayne Woody	
 
The Compensation Committee
 
The primary function of the Compensation Committee is to administer the granting of stock options to selected employees of our Advisor and Wells Management Company, based upon recommendations from Wells Capital, and to set the terms and conditions of such options in accordance with the 2000 Employee Stock Option Plan. The Compensation Committee’s members are as follows:
 
BOARD COMMITTEE

	 	MEMBERS

	
Compensation Committee	 	John L. Bell
Richard W. Carpenter
Bud Carter
William H. Keogler, Jr.
Donald S. Moss
Walter W. Sessoms
Neil H. Strickland	
 
The Directors Nominating and Compensation Committee
 
The Directors Nominating and Compensation Committee was created in 2003, and the primary function of the Directors Nominating and Compensation Committee is to make recommendations to the board of directors regarding the size of the board of directors and its makeup in terms of specific areas of expertise and diversity and to make recommendations to the board of directors regarding director compensation. The Directors Nominating and Compensation Committee also nominates candidates to fill any vacancies on the board of directors and will consider nominees recommended by stockholders. The Directors Nominating and Compensation Committee members are as follows:
 
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BOARD COMMITTEE

	 	MEMBERS

	
Directors Nominating and Compensation Committee	 	Donald S. Moss (Chairman)
John L. Bell
Michael R. Buchanan
Richard W. Carpenter
Bud Carter
William H. Keogler, Jr.
Walter W. Sessoms
Neil H. Strickland
W. Wayne Woody	
 
The Asset Management Committee
 
The Asset Management Committee was created in 2003, and the primary function of the Asset Management Committee is to review and advise the board of directors on investment criteria and acquisition policies, general economic environment in various real estate markets, existing or prospective properties or tenants, and portfolio diversification goals. The Asset Management Committee members are as follows:
 
BOARD COMMITTEE

	 	MEMBERS

	
Asset Management Committee	 	Michael R. Buchanan (Chairman)
John L. Bell
Richard W. Carpenter
Walter W. Sessoms	
 
The Shareholder Relations, Communication and Development Committee
 
The Shareholder Relations, Communication and Development Committee was created in 2003, and the primary function of the Shareholder Relations, Communication and Development Committee is to advise the board of directors on various stockholders’ issues including market conditions, communications with stockholders, and investor support programs. The Shareholder Relations, Communication and Development Committee members are as follows:
 
BOARD COMMITTEE

	 	MEMBERS

	
Shareholder Relations, Communications
and Development Committee	 	Bud Carter (Chairman)
William H. Keogler, Jr.
Donald S. Moss
Neil H. Strickland	
 
The Finance and Planning Committee
 
The Finance and Planning Committee was created in 2003, and the primary function of the Finance and Planning Committee is to review and advise the board of directors on the overall financial performance of the Wells REIT which includes issues related to net proceeds raised, fees and expenses, operating earnings, dividends, capital structure and budgetary and reporting processes. The Finance and Planning Committee members are as follows:
 
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BOARD COMMITTEE

	 	MEMBERS

	
Finance and Planning Committee	 	Richard W. Carpenter (Chairman)
Michael R. Buchanan
Bud Carter
John L. Bell	
 
Financial Statements
 
Audited Financial Statements
 
The statements of revenues over certain operating expenses of the Lockheed Martin Rockville Buildings, the Cingular Atlanta Building and the Aventis Northern NJ Building for the year ended December 31, 2002, which are included in this supplement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports appearing elsewhere herein, and are included in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.
 
Unaudited Financial Statements
 
The financial statements of the Wells REIT, as of June 30, 2003, and for the six month periods ended June 30, 2003 and June 30, 2002, which are included in this supplement, have not been audited.
 
The statements of revenues over certain operating expenses of the Lockheed Martin Rockville Buildings, the Cingular Atlanta Building and the Aventis Northern NJ Building for the six months ended June 30, 2003, which are included in this supplement, have not been audited.
 
The pro forma balance sheet of the Wells REIT, as of June 30, 2003, the pro forma statement of income for the year ended December 31, 2002, and the pro forma statement of income for the six months ended June 30, 2003, which are included in this supplement, have not been audited.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
 	  	Page

	
Wells Real Estate Investment Trust, Inc. and Subsidiaries	  	 	
 	 	
Unaudited Financial Statements	  	 	
 	 	
Consolidated Balance Sheets as of June 30, 2003 (unaudited) and December 31, 2002 (audited)	  	24	
 	 	
Consolidated Statements of Income for the six months ended June 30, 2003 and June 30, 2002 (unaudited)	  	25	
 	 	
Consolidated Statements of Shareholders’ Equity for the year ended December 31, 2002 (audited) and for the six months ended June 30, 2003 (unaudited)	  	26	
 	 	
Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and June 30, 2002 (unaudited)	  	27	
 	 	
Condensed Notes to Consolidated Financial Statements June 30, 2003 (unaudited)	  	28	
 	 	
Lockheed Martin Rockville Buildings	  	 	
 	 	
Report of Independent Auditors	  	38	
 	 	
Statements of Revenues Over Certain Operating Expenses for the year ended December 31, 2002 (audited) and for the six months ended June 30, 2003 (unaudited)	  	39	
 	 	
Notes to Statements of Revenues Over Certain Operating Expenses for the year ended December 31, 2002 (audited) and for the six months ended June 30, 2003 (unaudited)	  	40	
 	 	
Cingular Atlanta Building	  	 	
 	 	
Report of Independent Auditors	  	42	
 	 	
Statements of Revenues Over Certain Operating Expenses for the year ended December 31, 2002 (audited) and for the six months ended June 30, 2003 (unaudited)	  	43	
 	 	
Notes to Statements of Revenues Over Certain Operating Expenses for the year ended December 31, 2002 (audited) and for the six months ended June 30, 2003 (unaudited)	  	44	
 	 	
Aventis Northern NJ Building	  	 	
 	 	
Report of Independent Auditors	  	46	
 	 	
Statements of Revenues Over Certain Operating Expenses For the year ended December 31, 2002 (audited) and for the six months ended June 30, 2003 (unaudited)	  	47	
 	 	
Notes to Statements of Revenues Over Certain Operating Expenses for the year ended December 31, 2002 (audited) and for the six months ended June 30, 2003 (unaudited)	  	48	
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
 	  	Page

	
Wells Real Estate Investment Trust, Inc. and Subsidiaries	  	 	
 	 	
Unaudited Pro Forma Financial Statements	  	 	
 	 	
Summary of Unaudited Pro Forma Financial Statements	  	50	
 	 	
Pro Forma Balance Sheet as of June 30, 2003 (unaudited)	  	51	
 	 	
Pro Forma Statement of Income for the year ended December 31, 2002(unaudited)	  	53	
 	 	
Pro Forma Statement of Income for the six months ended June 30, 2003 (unaudited)	  	54	
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
 
 	  	June 30, 2003
(unaudited)

	 	 	December 31,
2002

	 	
ASSETS:	  	 	 	 	 	 	 	 	
Real estate assets, at cost:	  	 	 	 	 	 	 	 	
Land	  	$	342,885	 	 	$	279,185	 	
Building and improvements, less accumulated depreciation of $107,872 at June 30, 2003, and $63,594 at December 31, 2002	  	 	2,575,249	 	 	 	1,683,036	 	
Construction in progress	  	 	532	 	 	 	42,746	 	

	

	

	 	

	

	

	
Total real estate assets	  	 	2,918,666	 	 	 	2,004,967	 	
Investments in joint ventures	  	 	82,513	 	 	 	83,915	 	
Cash and cash equivalents	  	 	59,105	 	 	 	45,464	 	
Rents receivable	  	 	26,814	 	 	 	19,321	 	
Deferred project costs	  	 	1,864	 	 	 	1,494	 	
Due from affiliates	  	 	1,807	 	 	 	1,961	 	
Prepaid expenses and other assets, net	  	 	12,656	 	 	 	4,407	 	
Deferred lease acquisition costs, net	  	 	11,880	 	 	 	1,638	 	
Intangible lease assets	  	 	22,839	 	 	 	12,060	 	
Investment in bonds	  	 	54,500	 	 	 	54,500	 	

	

	

	 	

	

	

	
Total assets	  	$	3,192,644	 	 	$	2,229,727	 	

	

	

	 	

	

	

	
LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS’ EQUITY:	  	 	 	 	 	 	 	 	
Borrowings	  	$	308,765	 	 	$	248,195	 	
Obligations under capital leases	  	 	54,500	 	 	 	54,500	 	
Intangible lease liabilities	  	 	46,249	 	 	 	32,697	 	
Accounts payable and accrued expenses	  	 	57,013	 	 	 	24,580	 	
Due to affiliates	  	 	5,061	 	 	 	15,975	 	
Dividends payable	  	 	9,532	 	 	 	6,046	 	
Deferred rental income	  	 	9,379	 	 	 	11,584	 	

	

	

	 	

	

	

	
Total liabilities	  	 	490,499	 	 	 	393,577	 	
Minority interest of unit holder in operating partnership	  	 	200	 	 	 	200	 	

	

	

	 	

	

	

	
COMMITMENTS AND CONTINGENCIES	  	 	—  	 	 	 	—  	 	
SHAREHOLDERS’ EQUITY:	  	 	 	 	 	 	 	 	
Common shares, $.01 par value; 750,000,000 shares authorized, 322,219,052 shares issued and 317,026,812 outstanding at June 30, 2003, and 750,000,000 shares authorized, 217,790,874 shares issued and 215,699,717 shares outstanding at December 31, 2002	  	 	3,222	 	 	 	2,178	 	
Additional paid-in capital	  	 	2,863,705	 	 	 	1,929,381	 	
Cumulative distributions in excess of earnings	  	 	(113,052	)	 	 	(74,310	)	
Treasury stock, at cost, 5,192,240 shares at June 30, 2003 and 2,091,157 shares at December 31, 2002	  	 	(51,922	)	 	 	(20,912	)	
Other comprehensive loss	  	 	(8	)	 	 	(387	)	

	

	

	 	

	

	

	
 	  	 	 	 	 	 	 	 	
Total shareholders’ equity	  	 	2,701,945	 	 	 	1,835,950	 	

	

	

	 	

	

	

	
Total liabilities, minority interest and shareholders’ equity	  	$	3,192,644	 	 	$	2,229,727	 	

	

	

	 	

	

	

	
 
See accompanying notes.
 
24

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share amounts)
 
 	  	Three months ended
June 30,

	  	Six months ended
June 30,

	
 	  	2003

	  	2002

	  	2003

	  	2002

	
REVENUES:	  	 	 	  	 	 	  	 	 	  	 	 	
Rental income	  	$	68,969	  	$	21,834	  	$	122,312	  	$	38,572	
Tenant reimbursements	  	 	16,457	  	 	4,762	  	 	26,058	  	 	9,177	
Equity in income of joint ventures	  	 	1,131	  	 	1,271	  	 	2,392	  	 	2,478	
Interest income and other income	  	 	1,161	  	 	1,535	  	 	2,315	  	 	2,648	
Take out fee	  	 	—  	  	 	—  	  	 	—  	  	 	134	

	

	  	

	

	  	

	

	  	

	

	
 	  	 	87,718	  	 	29,402	  	 	153,077	  	 	53,009	

	

	  	

	

	  	

	

	  	

	

	
EXPENSES:	  	 	 	  	 	 	  	 	 	  	 	 	
Depreciation	  	 	25,060	  	 	7,159	  	 	44,278	  	 	12,903	
Property operating costs	  	 	25,819	  	 	6,201	  	 	41,039	  	 	11,241	
Management and leasing fees	  	 	3,155	  	 	1,004	  	 	5,488	  	 	1,903	
General and administrative	  	 	947	  	 	592	  	 	2,523	  	 	1,121	
Interest expense	  	 	4,752	  	 	690	  	 	7,400	  	 	1,305	

	

	  	

	

	  	

	

	  	

	

	
 	  	 	59,733	  	 	15,646	  	 	100,728	  	 	28,473	

	

	  	

	

	  	

	

	  	

	

	
NET INCOME	  	$	27,985	  	$	13,756	  	$	52,349	  	$	24,536	

	

	  	

	

	  	

	

	  	

	

	
EARNINGS PER SHARE	  	 	 	  	 	 	  	 	 	  	 	 	
Basic and diluted	  	$	0.10	  	$	0.11	  	$	0.20	  	$	0.22	

	

	  	

	

	  	

	

	  	

	

	
WEIGHTED AVERAGE SHARES OUTSTANDING	  	 	 	  	 	 	  	 	 	  	 	 	
Basic and diluted	  	 	283,903	  	 	126,038	  	 	258,575	  	 	110,886	

	

	  	

	

	  	

	

	  	

	

	
DIVIDENDS DECLARED PER SHARE	  	$	0.18	  	$	0.19	  	$	0.35	  	$	0.39	

	

	  	

	

	  	

	

	  	

	

	
 
See accompanying notes.
 
25

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2002
AND FOR THE SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED)
(in thousands, except per share amounts)
 
 	  	Common Stock

	  	Additional
Paid-In
Capital

	 	 	Cumulative
Distributions
in Excess
of Earnings

	 	 	Retained
Earnings

	 	 	Treasury Stock

	 	  	Other
Comprehensive
Income

	 	  	Total
Shareholders’
Equity

	 	 	
 	  	Shares

	  	Amount

	  	 	 	 	 	 	 	 	 	 	Shares

	 	 	Amount

	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
BALANCE, December 31, 2001	  	83,761	  	$	838	  	$	738,236	 	 	$	(24,181	)	 	$	—  	 	 	(555	)	 	$	(5,550	)	  	 	—  	 	  	$	709,343	 	 	 	 	 	 	 	 	 	 	
Issuance of common stock	  	134,030	  	 	1,340	  	 	1,338,953	 	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	  	 	—  	 	  	 	1,340,293	 	 	 	 	 	 	 	 	 	 	
Treasury stock purchased	  	—  	  	 	—  	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	(1,536	)	 	 	(15,362	)	  	 	—  	 	  	 	(15,362	)	 	 	 	 	 	 	 	 	 	
Dividends ($0.76 per share)	  	—  	  	 	—  	  	 	—  	 	 	 	(50,129	)	 	 	(59,854	)	 	—  	 	 	 	—  	 	  	 	—  	 	  	 	(109,983	)	 	 	 	 	 	 	 	 	 	
Sales commissions and dealer manager fees	  	—  	  	 	—  	  	 	(127,332	)	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	  	 	—  	 	  	 	(127,332	)	 	 	 	 	 	 	 	 	 	
Other offering costs	  	—  	  	 	—  	  	 	(20,476	)	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	  	 	—  	 	  	 	(20,476	)	 	 	 	 	 	 	 	 	 	
Components of comprehensive income:	  	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	—  	  	 	—  	  	 	—  	 	 	 	—  	 	 	 	59,854	 	 	—  	 	 	 	—  	 	  	 	—  	 	  	 	59,854	 	 	 	 	 	 	 	 	 	 	
Change in value of interest rate swap	  	—  	  	 	—  	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	  	 	(387	)	  	 	(387	)	 	 	 	 	 	 	 	 	 	

	

	

	 	 	 	 	 	 	 	 	 	
Comprehensive income	  	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	  	 	59,467	 	 	 	 	 	 	 	 	 	 	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	  	

	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	
BALANCE, December 31, 2002	  	217,791	  	 	2,178	  	 	1,929,381	 	 	 	(74,310	)	 	 	—  	 	 	(2,091	)	 	 	(20,912	)	  	 	(387	)	  	 	1,835,950	 	 	 	 	 	 	 	 	 	 	
Issuance of common stock	  	104,428	  	 	1,044	  	 	1,043,236	 	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	  	 	—  	 	  	 	1,044,280	 	 	 	 	 	 	 	 	 	 	
Treasury stock purchased	  	—  	  	 	—  	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	(3,101	)	 	 	(31,010	)	  	 	—  	 	  	 	(31,010	)	 	 	 	 	 	 	 	 	 	
Dividends ($0.35 per share)	  	—  	  	 	—  	  	 	—  	 	 	 	(38,742	)	 	 	(52,349	)	 	—  	 	 	 	—  	 	  	 	—  	 	  	 	(91,091	)	 	 	 	 	 	 	 	 	 	
Sales commissions and dealer manager fees	  	—  	  	 	—  	  	 	(98,423	)	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	  	 	—  	 	  	 	(98,423	)	 	 	 	 	 	 	 	 	 	
Other offering costs	  	—  	  	 	—  	  	 	(10,489	)	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	  	 	—  	 	  	 	(10,489	)	 	 	 	 	 	 	 	 	 	
Components of comprehensive income:	  	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	—  	  	 	—  	  	 	—  	 	 	 	—  	 	 	 	52,349	 	 	—  	 	 	 	—  	 	  	 	—  	 	  	 	52,349	 	 	 	 	 	 	 	 	 	 	
Change in value of interest rate swap	  	—  	  	 	—  	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	  	 	379	 	  	 	379	 	 	 	 	 	 	 	 	 	 	

	

	

	 	 	 	 	 	 	 	 	 	
Comprehensive income	  	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	  	 	52,728	 	 	 	 	 	 	 	 	 	 	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	  	

	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	
BALANCE, June 30, 2003	  	322,219	  	$	3,222	  	$	2,863,705	 	 	$	(113,052	)	 	 	—  	 	 	(5,192	)	 	$	(51,922	)	  	$	(8	)	  	$	2,701,945	 	 	 	 	 	 	 	 	 	 	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	  	

	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	
 
See accompanying notes.
 
26

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
 
 	  	Six Months Ended June 30,

	 	
 	  	2003

	 	 	2002

	 	
CASH FLOWS FROM OPERATING ACTIVITIES:	  	 	 	 	 	 	 	 	
Net income	  	$	52,349	 	 	$	24,536	 	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	
Equity in income of joint ventures	  	 	(2,392	)	 	 	(2,478	)	
Depreciation	  	 	44,278	 	 	 	12,903	 	
Amortization of deferred financing costs	  	 	1,524	 	 	 	425	 	
Amortization of intangible lease assets/liabilities	  	 	(1,095	)	 	 	—  	 	
Amortization of deferred lease acquisition costs	  	 	349	 	 	 	151	 	
Changes in assets and liabilities:	  	 	 	 	 	 	 	 	
Rents receivable	  	 	(7,493	)	 	 	(4,706	)	
Deferred rental income	  	 	(2,205	)	 	 	352	 	
Accounts payable and accrued expenses	  	 	7,961	 	 	 	3,113	 	
Prepaid expenses and other assets, net	  	 	(4,799	)	 	 	(1,018	)	
Due to/from affiliates	  	 	34	 	 	 	(140	)	

	

	

	 	

	

	

	
Net cash provided by operating activities	  	 	88,511	 	 	 	33,138	 	

	

	

	 	

	

	

	
CASH FLOWS FROM INVESTING ACTIVITIES:	  	 	 	 	 	 	 	 	
Investment in real estate assets	  	 	(770,657	)	 	 	(259,536	)	
Contributions to joint ventures	  	 	(79	)	 	 	—  	 	
Investment in intangible lease assets	  	 	(12,112	)	 	 	—  	 	
Deferred project costs paid	  	 	(40,521	)	 	 	(22,008	)	
Distributions received from joint ventures	  	 	4,009	 	 	 	3,497	 	
Deferred lease acquisition costs paid	  	 	(10,234	)	 	 	(400	)	

	

	

	 	

	

	

	
Net cash used in investing activities	  	 	(829,594	)	 	 	(278,447	)	

	

	

	 	

	

	

	
CASH FLOWS FROM FINANCING ACTIVITIES:	  	 	 	 	 	 	 	 	
Proceeds from borrowings	  	 	549,297	 	 	 	7,534	 	
Repayment of borrowings	  	 	(601,074	)	 	 	—  	 	
Dividends paid to shareholders	  	 	(87,605	)	 	 	(40,867	)	
Issuance of common stock	  	 	1,044,285	 	 	 	618,276	 	
Treasury stock purchased	  	 	(31,010	)	 	 	(6,673	)	
Sales commissions and dealer manager fees paid	  	 	(96,037	)	 	 	(58,959	)	
Other offering costs paid	  	 	(18,753	)	 	 	(6,819	)	
Deferred financing costs paid	  	 	(4,379	)	 	 	(860	)	

	

	

	 	

	

	

	
Net cash provided by financing activities	  	 	754,724	 	 	 	511,632	 	

	

	

	 	

	

	

	
NET INCREASE IN CASH AND CASH EQUIVALENTS	  	 	13,641	 	 	 	266,323	 	
CASH AND CASH EQUIVALENTS, beginning of period	  	 	45,464	 	 	 	75,586	 	

	

	

	 	

	

	

	
CASH AND CASH EQUIVALENTS, end of period	  	$	59,105	 	 	$	341,909	 	

	

	

	 	

	

	

	
 
See accompanying notes.
 
27

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
JUNE 30, 2003
(unaudited)
 
1.	 	ORGANIZATION	
 
General
 
Wells Real Estate Investment Trust, Inc. (“Wells REIT”) is a Maryland corporation that qualifies as a real estate investment trust (“REIT”). Wells REIT was incorporated in 1997 and commenced operations on June 5, 1998.
 
Wells REIT engages in the acquisition and ownership of commercial real estate properties throughout the United States, including properties that are under construction, are newly constructed or have operating histories. At June 30, 2003, Wells REIT has invested in commercial office and industrial real estate assets, either directly or through joint ventures with real estate limited partnership programs sponsored by Wells Capital, Inc. (the “Advisor”) or its affiliates.
 
Wells REIT’s business is conducted through Wells Operating Partnership, L.P. (“Wells OP”), a Delaware limited partnership, and its subsidiaries, and Wells REIT-Independence Square, LLC (“Wells REIT-Independence”), a single member Georgia limited liability company. Wells OP was formed to acquire, develop, own, lease and operate properties on behalf of Wells REIT, directly, through wholly-owned subsidiaries or through joint ventures. Wells REIT-Independence was formed to acquire the NASA building located in Washington, D.C. Wells REIT is the sole general partner in Wells OP and the sole member of Wells REIT-Independence and possesses full legal control and authority over the operations of Wells OP and Wells REIT-Independence. Wells OP, and its subsidiaries, and Wells REIT-Independence comprise Wells REIT’s subsidiaries.
 
Four offerings of Wells REIT stock have been initiated as follows:
 
Offering #

	 	Date Commenced

	 	Termination Date

	 	Gross Proceeds

	 	Shares Issued

	
1	 	January 30, 1998	 	December 19, 1999	 	$132.2 million	 	13.2 million	
2	 	December 20, 1999	 	December 19, 2000	 	$175.2 million	 	17.5 million	
3	 	December 20, 2000	 	July 26, 2002	 	$ 1,283.0 million	 	128.3 million	
4	 	July 26, 2002	 	Offering will terminate
on or before July 25,
2004	 	$ 1,631.8 million
(through June 30, 2003)	 	163.2 million
(through June 30,
2003)	
Total as of
June 30, 2003	 	 	 	 	 	$ 3,222.2 million	 	322.2 million	
 
After incurring costs from all offerings of $111.0 million in acquisition and advisory fees and expenses, $304.8 million in selling commissions, $50.5 million in organization and offering expenses to the Advisor, investment in real estate assets and joint ventures of $2,660.0 million and common stock redemptions pursuant to Wells REIT’s share redemption program of $51.9 million, Wells REIT was holding net offering proceeds of approximately $44.0 million available for investment in properties at June 30, 2003.
 
Wells REIT’s stock is not listed on a national exchange. However, the Wells REIT’s Articles of Incorporation currently require the Wells REIT to begin the process of liquidating its investments and distributing the resulting proceeds to the shareholders if its shares are not listed on a national exchange by January 30, 2008 Wells REIT Articles of Incorporation can only be amended by a proxy vote of Wells REIT’s shareholders.
 
28

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
Basis of Presentation
 
The consolidated financial statements of Wells REIT have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, including the instructions to Form 10-Q and Article 10 of Regulation S-X, and do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. Independent auditors have not examined these quarterly statements, but in the opinion of management, 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 Wells REIT’s Form 10-K for the year ended December 31, 2002.
 
Income Taxes
 
Wells REIT has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, and has operated as such beginning with its taxable year ended December 31, 1998. To qualify as a REIT, Wells REIT must meet certain organizational and operational requirements, including a requirement to currently distribute at least 90% of the REIT’s ordinary taxable income to shareholders. As a REIT, Wells REIT generally will not be subject to federal income tax on taxable income that it distributes to its shareholders. If Wells REIT fails to qualify as a REIT in any taxable year, it will then be subject to federal income taxes on its taxable income for four years following the year during which qualification is lost, unless the Internal Revenue Service grants Wells REIT relief under certain statutory provisions. Such an event could materially adversely affect Wells REIT’s net income and net cash available for distribution to shareholders. However, Wells REIT 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 that Wells REIT will remain qualified as a REIT for federal income tax purposes. No provision for federal income taxes has been made in the accompanying consolidated financial statements, as Wells REIT made distributions in excess of its taxable income for the periods presented.
 
Recent Pronouncements
 
On January 1, 2002, Wells REIT adopted Statement of Financial Accounting Standards No. 141 “Business Combinations,” and Statement of Financial Accounting Standards No. 142 “ Goodwill and Intangibles.”  These standards govern business combinations, asset acquisitions and the accounting for acquired intangibles. Wells REIT determines whether an intangible asset or liability related to above or below market leases was acquired as part of the acquisition of real estate assets. The resulting intangible lease assets and liabilities are recorded at their estimated fair market values at the date of acquisition and amortized over the remaining term of the respective lease to rental income. Amortization of the intangible lease assets and liabilities resulted in a net increase in rental revenue of $0.6 million and $1.1 million for the three and six months ended June 30, 2003, respectively.
 
In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities,”  which clarifies the application of Accounting Research Bulletin (“ARB”) No. 51,  “Consolidated Financial Statements,”  relating to consolidation of certain entities. FIN 46 requires the identification of Wells REIT’s participation in variable interest entities (“VIEs”), which are defined as entities with a level of invested equity that is not sufficient to fund future activities to permit them to operate on a stand alone basis, or whose equity holders lack certain characteristics of a controlling financial interest. For entities identified as VIEs, FIN 46 sets forth a model to evaluate potential consolidation based on an assessment of which party to the VIE, if any, bears a majority of the exposure to its expected losses, or stands to gain from a majority of its expected returns. FIN 46 is effective for all new VIEs created or acquired after January 31, 2003. For VIEs created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. FIN 46 also sets forth certain disclosures regarding interests in VIEs that are deemed significant, even if consolidation is not required. As Wells REIT’s joint ventures do not fall under the definition of VIEs provided above, we do not believe that the adoption of FIN 46 will result in the consolidation of any previously unconsolidated entities.
 
29

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
2.	 	REAL ESTATE ASSETS	
 
Acquisitions
 
During the six months ended June 30, 2003, Wells REIT acquired ownership interests in seven properties for a total purchase price of $871.9 million, exclusive of related closing costs and acquisition and advisory fees paid to the Advisor as described below.
 
East Point I & II
 
On January 9, 2003, Wells REIT purchased two three-story office buildings containing approximately 187,735 aggregate rentable square feet located in Mayfield Heights, Ohio, for a purchase price of approximately $22.0 million. Progressive Casualty Insurance; Austin, Danaher Power Solutions; and Moreland Management Company occupy approximately 92% of the rentable square feet in the two buildings. The remaining approximately 8% of the rentable square feet is vacant as of June 30, 2003. At closing, Wells REIT entered into an earn-out agreement with the seller with regard to the vacant space that requires Wells REIT to pay the seller certain amounts for each new, fully-executed lease after the date of acquisition but on or before March 31, 2004, relating to the vacant space. Payments are calculated by dividing the anticipated first year’s annual rent less operating expenses 0.105, with the result being reduced by tenant improvement costs related to the space.
 
150 West Jefferson Detroit
 
On March 31, 2003, Wells REIT purchased a 25-story office building containing approximately 505,417 rentable square feet located at 150 West Jefferson Avenue, downtown Detroit, Michigan, for a purchase price of approximately $93.8 million. The building is 99% occupied under leases to various tenants with varying lease terms, including Miller, Canfield, Paddock, & Stone; Butzel Long PC; and MCN Energy Group, Inc., which collectively occupy approximately 62% of the building.
 
Citicorp Englewood Cliffs
 
On April 30, 2003, Wells REIT purchased the Citicorp Englewood Cliffs, NJ Building, a three-story office building containing approximately 410,000 rentable square feet located in Englewood Cliffs, New Jersey, for a purchase price of $70.5 million. The building is leased entirely to Citicorp North America, Inc., a wholly-owned subsidiary of Citicorp, Inc.
 
US Bancorp
 
On May 1, 2003, Wells REIT purchased the US Bancorp Minneapolis Building, a 32-story office building containing approximately 929,694 rentable square feet located in Minneapolis, Minnesota, for a purchase price of $174.0 million. The building is approximately 99% leased under leases to various tenants with varying terms, including US Bancorp Piper Jaffray Companies, Inc., which leases approximately 77% of the building.
 
AON Center Chicago
 
On May 9, 2003, Wells REIT purchased the AON Center Chicago Building, an 83-story office building containing approximately 2.6 million rentable square feet located in Chicago, Illinois, for a purchase price of approximately $465.2 million. The building is approximately 92% leased under leases to various tenants with varying lease terms, including BP Corporation North American, Inc., DDB Needham Chicago, Inc., and Kirkland & Ellis which collectively lease approximately 54% of the building.
 
GMAC Detroit
 
On May 9, 2003, Wells REIT acquired the GMAC Detroit Building, a three-story office building containing approximately 119,122 square feet located in Auburn Hills, Michigan, for a purchase price of approximately $17.8 million. The building is approximately 86% leased to the GMAC Corporation and Delmia Corporation. For the remaining approximately 14% of the building, Wells REIT is required to pay the seller certain amounts for each new, fully executed lease entered into after the date of acquisition of the building but on or before November 8, 2004. Payments are calculated by dividing the sum of the anticipated first year’s annual rent less operating expenses by 0.095, with the result being reduced by tenant improvement costs related to the space.
 
30

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
IBM Reston I & II
 
On June 30, 2003, Wells REIT purchased the IBM Reston Buildings, one six-story and one two-story office building containing approximately 140,994 aggregate rentable square feet located in Reston, Virgina for a purchase price of approximately $28.6 million. The buildings are 100% occupied by the IBM Corporation and Tellabs Reston, Inc.
 
Build-to-Suit Projects
 
During the six month period ended June 30, 2003, Wells REIT completed three build-to-suit projects with a total investment amount totaling approximately $76.8 million as discussed below.
 
Nissan
 
In March 2003, Wells REIT substantially completed the construction of the Nissan Building located in Dallas, Texas, and transferred total construction costs of approximately $41.8 million for the project from construction in progress to building and improvements. Nissan Motor Acceptance Corporation occupied the building under a lease commencing on April 1, 2003. The construction was financed through a loan that was paid off in March 2003, when the building was substantially complete.
 
AmeriCredit
 
In April 2003, Wells REIT substantially completed the construction of the AmeriCredit Building located in Phoenix, Arizona, and transferred total construction costs of approximately $23.5 million for the project from construction in progress to building and improvements. AmeriCredit Corporation occupied the building under a lease commencing on April 15, 2003. The entire construction was financed completely with investor proceeds.
 
Kerr-McGee
 
In June 2003, Wells REIT substantially completed the construction of the Kerr-McGee located in Houston, Texas, and transferred total construction costs of approximately $11.5 million for the project from construction in progress to building and improvements. Kerr-McGee Corporation will occupy the building under a lease commencing on July 1, 2003. The construction of this property was financed through a loan that was paid off in July 2003.
 
3.	 	INVESTMENT IN JOINT VENTURES	
 
The information below summarizes the operations of the seven unconsolidated joint ventures that Wells REIT, through Wells OP, had ownership interests as of June 30, 2003.
 
CONDENSED COMBINED STATEMENTS OF INCOME
 
 	  	Three months ended
June 30,

	  	Six months ended
June 30,

	
 	  	2003
(000s)

	  	2002
(000s)

	  	2003
(000s)

	  	2002
(000s)

	
REVENUES:	  	 	 	  	 	 	  	 	 	  	 	 	
Rental income	  	$	5,134	  	$	4,859	  	$	10,280	  	$	9,587	
Tenant reimbursements	  	 	551	  	 	373	  	 	1,021	  	 	1,015	
Other income	  	 	3	  	 	12	  	 	11	  	 	24	

	

	  	

	

	  	

	

	  	

	

	
Total revenues	  	 	5,688	  	 	5,244	  	 	11,312	  	 	10,626	

	

	  	

	

	  	

	

	  	

	

	
EXPENSES:	  	 	 	  	 	 	  	 	 	  	 	 	
Depreciation	  	 	1,751	  	 	1,592	  	 	3,519	  	 	3,196	
Operating expenses	  	 	1,107	  	 	513	  	 	1,934	  	 	1,344	
Management and leasing fees	  	 	322	  	 	287	  	 	651	  	 	549	

	

	  	

	

	  	

	

	  	

	

	
TOTAL EXPENSES	  	 	3,180	  	 	2,392	  	 	6,104	  	 	5,089	

	

	  	

	

	  	

	

	  	

	

	
NET INCOME	  	$	2,508	  	$	2,852	  	$	5,208	  	$	5,537	

	

	  	

	

	  	

	

	  	

	

	
NET INCOME ALLOCATED TO WELLS REIT	  	$	1,131	  	$	1,271	  	$	2,392	  	$	2,478	

	

	  	

	

	  	

	

	  	

	

	
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
4.	 	BORROWINGS	
 
Wells REIT has financed certain investments, acquisitions and developments through various borrowings as described below. On June 30, 2003, and December 31, 2002, Wells REIT had the following amounts outstanding:
 
Facility

	  	June 30,
2003
(000s)

	  	December 31,
2002
(000s)

	
$110 million line of credit; accruing interest at LIBOR plus 175 basis points; requiring interest payments monthly with principal due at maturity; collateralized by various buildings(1)	  	$	—  	  	$	58,000	
 	 	 	
$98.1 million line of credit; accruing interest at LIBOR plus 175 basis points (2.87 % at June 30, 2003); requiring interest payments monthly and principal due at maturity (September 2003); collateralized by various buildings	  	 	65,500	  	 	61,399	
 	 	 	
$500 million unsecured revolving line of credit; accruing interest at various rates of interest based on LIBOR plus up to 1.625% (2.43% at June 30, 2003); requiring interest payments monthly and principal payments due at maturity (May 2005) (2)	  	 	20,000	  	 	—  	
 	 	 	
$50 million line of credit; accruing interest at LIBOR plus 175 basis points; requiring interest payments monthly with principal due at maturity (May 2005); collateralized by various buildings(3)	  	 	—  	  	 	—  	
 	 	 	
$90 million note payable; accruing interest at LIBOR plus 115 basis points; currently locked at 2.53% through July 2, 2003 (2.53% at June 30, 2003); requiring interest payments monthly, with principal due at maturity (December 2006); subject to certain prepayment penalties; collateralized by the Nestle Building	  	 	90,000	  	 	90,000	
 	 	 	
$112.3 million note payable; seller financed interest free loan incurred upon purchase of AON Center in May 2003; Principal balance due upon maturity (January 2004); collateralized by the AON Center Building	  	 	112,347	  	 	—  	
 	 	 	
$34.2 million construction loan payable; accruing interest at LIBOR plus 200 basis points; requiring interest payments monthly and principal due at maturity (July 2003); collateralized by the Nissan Building(4)	  	 	—  	  	 	23,149	
 	 	 	
$13.7 million construction loan payable; accruing interest at LIBOR plus 200 basis points (3.12% at June 30, 2003); requiring interest payments monthly, with principal due at maturity (January 2004); collateralized by the Kerr-McGee Building(5)	  	 	9,426	  	 	4,038	
 	 	 	
$8.8 million note payable; accruing interest at 8%; requiring interest and principal payments monthly with any unamortized principal due at maturity (December 2003); subject to certain prepayment penalties; collateralized by the BMG Buildings	  	 	8,592	  	 	8,709	
 	 	 	
$2.9 million note payable; accruing interest at 8.5%; requiring interest payments monthly with principal due at maturity (December 2003); subject to certain prepayment penalties; collateralized by the BMG Buildings	  	 	2,900	  	 	2,900	

	

	  	

	

	
Total borrowings	  	$	308,765	  	$	248,195	

	

	  	

	

	

(1)	 	Wells REIT terminated this credit facility upon execution of the $500 million line of credit in April 2003.	
(2)	 	Wells REIT entered into this revolving credit facility in April 2003. Additionally, Wells REIT is required to pay a quarterly facility fee of 0.25% per annum on the entire amount of the credit facility.	
(3)	 	Wells REIT entered into this credit agreement in June 2003.	
(4)	 	Wells REIT repaid this loan in March 2003, upon substantial completion of the construction of the property. At that time, Wells REIT terminated the interest rate swap at a cost of $0.3 million, which was reclassified from other comprehensive income to interest expense.	
(5)	 	Wells REIT has entered into an interest rate swap for this construction loan. The swap has the effect of fixing the interest rate at 4.27% through July 15, 2003.	
 
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Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
5.	 	RELATED-PARTY TRANSACTIONS	
 
Advisory Agreement
 
Wells REIT has entered into an Advisory Agreement with the Advisor, which entitles the Advisor to specified fees in consideration for certain services with regard to the offering of shares to the public and investment of funds in real estate projects. The current Advisory Agreement expires January 30, 2004.
 
Under the terms of the agreement, the Advisor receives the following fees and reimbursements:
 
 	•	 	Acquisition and advisory fees and acquisitions expenses of 3.5% of gross offering proceeds, subject to certain limitations;	
 
 	•	 	Reimbursement of organization and offering costs paid on behalf of Wells REIT, not to exceed 3% of gross offering proceeds;	
 
 	•	 	Disposition fee of 50% of the lesser of a competitive real estate commission or 3% of the sales price of the property, subordinated to the payment of dividends to shareholders equal to the sum of the shareholders’ invested capital plus an 8% return on invested capital;	
 
 	•	 	Incentive fee of 10% of net sales proceeds remaining after shareholders have received distributions equal to the sum of the shareholders’ invested capital plus an 8% return of invested capital; and	
 
 	•	 	Listing fee of 10% of the excess by which the market value of the stock plus dividends paid prior to listing exceeds the sum of 100% of the invested capital plus an 8% return on invested capital.	
 
The Advisor has elected, but is not obligated, to reduce the acquisition and advisory fees and organizational and offering costs by the amounts attributable to shares redeemed under the share redemption program for shares redeemed through June 30, 2003.
 
Acquisition and advisory fees and expenses incurred for the three months ended June 30, 2003 and 2002, totaled $21.0 million and $12.6 million, respectively. Organizational and offering costs incurred for the three months ended June 30, 2003 and 2002, totaled $5.7 million and $3.6 million, respectively.
 
Acquisition and advisory fees and acquisition expenses incurred for the six months ended June 30, 2003 and 2002, totaled $35.5 million and $21.4 million, respectively. Organizational and offering costs incurred for the six months ended June 30, 2003 and 2002, totaled $10.5 million and $5.4 million, respectively. Wells REIT incurred no disposition, incentive or listing fees during the six months ended June 30, 2003 or 2002.
 
Administrative Services Reimbursement
 
Wells REIT has no direct employees. The employees of the Advisor and Wells Management Company, Inc. (“Wells Management”), an affiliate of the Advisor, perform a full range of real estate services including leasing and property management, accounting, asset management and investor relations for Wells REIT. The related expenses are allocated among Wells REIT and the various Wells Real Estate Funds based on time spent on each entity by individual administrative personnel. These expenses are included in general and administrative expenses in the consolidated statements of income. These expenses totaled $1.0 million and $0.4 million for the three months ended June 30, 2003 and 2002, respectively. Administrative services reimbursements totaled $2.0 million and $0.7 million for the six months ended June 30, 2003 and 2002, respectively.
 
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Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
Asset and Property Management Agreement
 
Wells REIT has entered into an asset and property management agreement with Wells Management. In consideration for asset management services and for supervising the management and leasing of Wells REIT’s properties, Wells REIT will pay asset and property management fees to Wells Management equal to the lesser of (a) 4.5% of the gross revenues generally paid over the life of the lease or (b) 0.6% of the net asset value of the properties (excluding vacant properties) owned by Wells REIT. These asset and property management fees are calculated on an annual basis plus a separate competitive fee for the one-time initial lease-up of newly constructed properties generally paid in conjunction with the receipt of the first month’s rent. These expenses totaled $2.9 million and $1.0 million for the three months ended June 30, 2003 and 2002, respectively, and $5.1 million and $1.9 million for the six months ended June 30, 2003 and 2002, respectively.
 
Dealer Manager Agreement
 
Wells REIT has entered into a dealer manager agreement with Wells Investment Securities, Inc. (“WIS”), an affiliate of the Advisor, whereby WIS performs the dealer manager function for Wells REIT. For these services, WIS earns fees of 7% of the gross proceeds from the sale of the shares of Wells REIT, most of which are reallowed to participating broker-dealers. Additionally, WIS earns a dealer manager fee of 2.5% of the gross offering proceeds at the time the shares are sold, of which up to 1.5% may be reallowed to participating broker-dealers. WIS has elected, although is not obligated, to reduce the dealer manager fee by 2.5% of the gross redemptions under Wells REIT’s share redemption plan for shares redeemed through June 30, 2003. During the three months ended June 30, 2003 and 2002, Wells REIT incurred commissions of $43.2 million and $25.8 million, respectively, of which more than 99% was reallowed to participating broker-dealers. Dealer manager fees of $15.0 million and $9.0 million were incurred for the three months ended June 30, 2003 and 2002, respectively. Of these amounts, $7.1 million and $5.1 million were reallowed to participating broker-dealers for the three months ended June 30, 2003 and 2002, respectively. For the six months ended June 30, 2003 and 2002, Wells REIT incurred commissions of $73.1 million and $43.3 million, respectively, of which more than 99% was reallowed to participating broker-dealers. Dealer manager fees of $25.3 million and $15.3 million were incurred for the six months ended June 30, 2003 and 2002. Of these amounts, $12.1 million and $7.1 million were reallowed to participating broker-dealers.
 
Due From Affiliates
 
Due from affiliates included in the consolidated balance sheets primarily represents Wells REIT’s share of the cash to be distributed from its joint venture investments and other amounts payable to Wells REIT from other related parties.
 
Conflicts of Interest
 
The Advisor also is a general partner in various Wells Real Estate Funds. As such, there are conflicts of interest where the Advisor, while serving in the capacity as general partner for Wells Real Estate Funds, may be in competition with Wells REIT in connection with property acquisitions or for tenants in similar geographic markets.
 
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Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
6.	 	CONSOLIDATED STATEMENT OF CASH FLOWS SUPPLEMENTAL INFORMATION	
 
 	  	For the six months
ended June 30,

	
 	  	2003

	  	2002

	
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:	  	 	 	  	 	 	
Deferred project costs applied to investments	  	$	35,094	  	$	10,068	

	

	  	

	

	
Deferred project costs due to affiliate	  	$	2,651	  	$	512	

	

	  	

	

	
Other offering expenses due to affiliate	  	$	2,390	  	$	1,595	

	

	  	

	

	
Acquisition of intangible lease liability	  	$	15,980	  	$	—  	

	

	  	

	

	
Dividends payable	  	$	9,532	  	$	4,539	

	

	  	

	

	
Joint venture distributions applied to investment	  	$	3,872	  	$	3,799	

	

	  	

	

	
Seller financed debt arrangement obtained at acquisition of property	  	$	112,347	  	$	—  	

	

	  	

	

	
Other liabilities assumed at acquisition of property	  	$	19,064	  	$	—  	

	

	  	

	

	
Capital expenditure accrued	  	$	5,408	  	$	—  	

	

	  	

	

	
 
7.	 	COMMITMENTS AND CONTINGENCIES	
 
Take Out Purchase and Escrow Agreement
 
The Advisor and its affiliates have developed a program (the “Wells Section 1031 Program”) involving the acquisition by a subsidiary of Wells Management Company (“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 seeking to invest the proceeds from a sale of real estate held for investment in another real estate investment for purposes of qualifying for like-kind exchange treatment under Section 1031 of the Internal Revenue Service Code. The acquisition of each of the properties acquired by Wells Exchange will be financed by a combination of permanent first mortgage financing and interim loan financing obtained from institutional lenders.
 
Following the acquisition of each property, Wells Exchange will attempt to sell co-tenancy interests to 1031 Participants, the proceeds of which will be used to repay a prorata portion of the interim financing. In consideration for the payment of a take out fee to Wells REIT and following approval of the potential property acquisition by Wells REIT’s board of directors, it is anticipated that Wells REIT will enter into a take out purchase and escrow agreement or similar contract providing that, if Wells Exchange is unable to sell all of the co-tenancy interests in that particular property to 1031 Participants, Wells REIT will purchase, at Wells Exchange’s cost, any co-tenancy interests remaining unsold at the end of the offering period.
 
In consideration for the payment of a take out fee in the amount of approximately $0.2 million, on December 31, 2002, Wells OP entered into a take out purchase and escrow agreement providing, among other things, that Wells OP would be obligated to acquire, at Wells Exchange’s cost ($0.4 million in cash plus $0.4 million of assumed debt for each 2.9994% interest of co-tenancy interest unsold), any unsold co-tenancy interests in two buildings known as Meadow Brook Corporate Park located in Birmingham, Alabama, which remain unsold at the expiration of the offering of Wells Exchange on September 30, 2003.
 
The obligations of Wells OP under the take out purchase and escrow agreement were secured by reserving against Well OP’s existing line of credit with Bank of America, N.A. (the “Interim Lender”). However, in April 2003, Wells Exchange repaid the loan amount in full to the Interim Lender and now Wells OP is obligated to pay Wells Exchange for any unsold units. Wells OP’s maximum economic exposure in the transaction was initially $14.0 million in cash plus assumption of the first mortgage financing in the amount of $13.9 million. As of June 30, 2003, due to the number of co-tenancy interests sold in Meadow Brook Corporate Park through such date, Wells OP’s maximum exposure has been reduced to $2.8 million in cash plus the assumption of the first mortgage financing in the amount of $2.8 million.
 
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Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
Letters of Credit
 
At June 30, 2003, Wells REIT had three unused letters of credit totaling approximately $19.7 million outstanding from financial institutions, consisting of letters of credit of approximately $14.5 million, $4.8 million and $0.4 million with expiration dates of February 28, 2004; August 12, 2003; and February 2, 2004, respectively. These amounts are not recorded in the accompanying consolidated balance sheet as of June 30, 2003 or December 31, 2002. These letters of credit were required by three unrelated parties to ensure completion of Wells REIT’s obligations under certain earn-out and construction agreements. Wells REIT does not anticipate a need to draw on these letters of credit.
 
Commitments Under Existing Lease Agreements
 
Certain lease agreements include provisions that, at the option of the tenant, Wells REIT may be obligated to expend certain amounts of capital to expand an existing property, construct on adjacent property or provide other expenditures for the benefit of the tenant, in favor of additional rental revenue. At June 30, 2003, no tenants have exercised such options.
 
Earn-out Agreements
 
As part of the acquisition of the IRS Building, Wells REIT entered into an agreement to pay the seller an additional $14.5 million if Wells REIT or the seller locates a suitable tenant and leases the vacant space of the building within 18 months after the date of acquisition of the property, or March 2004. If the space is not leased within this time, Wells REIT is released from any obligation to pay this additional purchase consideration. The 26% of the building that was vacant at the time of acquisition remains unleased at June 30, 2003. As of June 30, 2003, no payments have been made under this agreement.
 
In connection with the acquisition of the East Point I and II Buildings, Wells REIT entered into an earn-out agreement whereby Wells REIT is required to pay the seller certain amounts for each new, fully executed lease after the date of acquisition of the property but on or before June 30, 2004. Payments shall be the anticipated first year’s annual rent less operating expenses with the sum divided by 0.105 and the result reduced by tenant improvement costs related to the space. As of June 30, 2003, no payments have been made under this agreement.
 
As part of the acquisition of the GMAC Detroit Building, Wells REIT entered into an agreement to pay the seller certain amounts for each new, fully executed lease entered into after the date of acquisition of the building but on or before November 8, 2004. Payments are calculated by dividing the sum of the anticipated first year’s annual rent less operating expenses by 0.095, with the result being reduced by tenant improvement costs related to the space. As of June 30, 2003, no payments have been made under this agreement.
 
Leasehold Property Obligations
 
The ASML, Motorola Tempe, Avnet and Bellsouth Ft. Lauderdale Buildings are subject to certain ground leases with expiration dates of 2082, 2082, 2083 and 2049, respectively.
 
Pending Litigation
 
In the normal course of business, Wells REIT may become subject to litigation or claims. In November 2002, Wells REIT contracted to purchase an office building located in Ramsey County, Minnesota, from Shoreview Associates LLC (“Shoreview”), who filed a lawsuit against Wells REIT in Minnesota state court alleging that Shoreview was entitled to approximately $0.8 million in earnest money Wells REIT had deposited under the contract. Wells REIT has filed a counterclaim in the case asserting that Wells REIT is entitled to the earnest money deposit. Procedurally, Wells REIT had the case transferred to U.S. District Court in Minnesota, and Shoreview has moved to transfer the case back to state court. The dispute currently remains in litigation. After consultation with legal counsel, management does not believe that a reserve for a loss contingency is necessary.
 
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Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
NASD Enforcement Action
 
On June 6, 2003, the enforcement division of NASD, Inc. (NASD) informed Wells Investment Securities, the Wells REIT Dealer Manager, and Leo F. Wells, III, President and a director of Wells REIT, that the NASD has made a determination to institute disciplinary proceedings against both Wells Investment Securities and Mr. Wells, as registered principal of Wells Investment Securities, for alleged violations of various NASD Conduct Rules entirely related to providing non-cash compensation of more than $100 to associated persons of NASD member firms in connection with their attendance at the annual educational and due diligence conferences sponsored by Wells Investment Securities in 2001 and 2002.
 
Management is unable to predict at this time the potential outcome of any such enforcement action against Wells Investment Securities and Mr. Wells or the potential effect such an enforcement action may have on the operations of the Advisor, and, accordingly, on the operations of Wells REIT, if any.
 
8.	 	SUBSEQUENT EVENTS	
 
Sale of Shares of Common Stock
 
From July 1, 2003 through July 31, 2003, Wells REIT has raised approximately $233.5 million through the issuance of approximately 23.5 million shares of common stock of Wells REIT. At July 31, 2003 approximately 130.5 million shares remain available under the current offering of Wells REIT’s stock.
 
Redemptions of Common Stock
 
Wells REIT’s current share redemption plan allows for the redemption of approximately 4.0 million shares at an aggregate cost of $40.0 million for the year ending December 31, 2003. From January 1, 2003 through July 31, 2003, Wells REIT had redeemed 3.6 million shares of common stock available for redemption for the year at an aggregate cost of approximately $36.0 million. Wells REIT anticipates that the remaining shares eligible for redemption during the year ending December 31, 2003 will be exhausted in the very near future. All other requests for potential redemption will be eligible on a first come first serve basis beginning in the first quarter 2004, subject to the Board’s ability to change or terminate the Wells REIT’s share redemption program at any time in its discretion.
 
Property Acquisitions
 
Internet Security Systems Atlanta
 
On July 1, 2003, Wells REIT purchased the third Internet Security Systems (ISS) Building, a five-story building containing approximately 50,400 rentable square feet located in Atlanta, Georgia for a purchase price of approximately $10.0 million. The building is 100% leased to ISS. The first two ISS Buildings were purchased in July 2002. The three-building project now totals approximately 289,000 rentable square feet.
 
Lockheed Martin Rockville
 
On July 30, 2003, Wells REIT purchased all the membership interest in Meridian/Northwestern Shady Grove North, LLC, a Delaware limited liability company, which owns two four-story office buildings containing approximately 231,000 aggregate rentable square feet located in Rockville, Maryland, for a purchase price of approximately $51.6 million. The buildings are 100% leased by Lockheed Martin.
 
Cingular Atlanta
 
On August 1, 2003, Wells REIT purchased the Cingular Atlanta Building, a 19-story building containing approximately 413,279 rentable square feet located in Atlanta, Georgia, for a purchase price of $83.9 million. The building is 97% leased under leases to various tenants with varying terms, including Cingular Wireless, LLC, which leases 76% of the building.
 
37

Table of Contents
Report of Independent Auditors
 
Shareholders and Board of Directors
Wells Real Estate Investment Trust, Inc.
 
We have audited the accompanying statement of revenues over certain operating expenses of the Lockheed Martin Rockville Buildings for the year ended December 31, 2002. This statement is the responsibility of the Lockheed Martin Rockville Buildings’ management. Our responsibility is to express an opinion on this statement based on our audit.
 
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues over certain operating expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of revenues over certain operating expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement of revenues over certain operating expenses. We believe that our audit provides a reasonable basis for our opinion.
 
The accompanying statement of revenues over certain operating expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, as described in Note 2, and is not intended to be a complete presentation of the Lockheed Martin Rockville Buildings’ revenues and expenses.
 
In our opinion, the statement of revenues over certain operating expenses referred to above presents fairly, in all material respects, the revenues and certain operating expenses described in Note 2 of the Lockheed Martin Rockville Buildings for the year ended December 31, 2002 in conformity with accounting principles generally accepted in the United States.
 
Atlanta, Georgia	 	 	
August 14, 2003	 	                                             /s/    Ernst & Young LLP	
 
38

Table of Contents
Lockheed Martin Rockville Buildings
 
Statements of Revenues Over Certain Operating Expenses
 
For the year ended December 31, 2002
and the six months ended June 30, 2003 (unaudited)
 
(in thousands)
 
 	  	2003

	  	2002

	
 	  	(Unaudited)	  	 	
Revenues:	  	 	 	  	 	 	
Base rent	  	$	2,739	  	$	4,727	
Tenant reimbursements	  	 	96	  	 	159	

	

	  	

	

	
Total revenues	  	 	2,835	  	 	4,886	
 	 	 	
Expenses:	  	 	 	  	 	 	
Other operating expenses	  	 	224	  	 	519	
Real estate taxes	  	 	199	  	 	398	
Cleaning	  	 	105	  	 	208	
Utilities	  	 	90	  	 	200	
Management fees	  	 	90	  	 	177	

	

	  	

	

	
Total expenses	  	 	708	  	 	1,502	

	

	  	

	

	
Revenues over certain operating expenses	  	$	2,127	  	$	3,384	

	

	  	

	

	
 
See accompanying notes.
 
39

Table of Contents
Lockheed Martin Rockville Buildings
 
Notes to Statements of Revenues Over Certain Operating Expenses
 
For the year ended December 31, 2002
and the six months ended June 30, 2003 (unaudited)
 
1. Description of Real Estate Property Acquired
 
On July 30, 2003, Wells Operating Partnership, L.P. (“Wells OP”) acquired all of the membership interest in Meridian/Northwestern Shady Grove North, LLC, a Delaware limited liability company, which owns the Lockheed Martin Rockville Buildings, two four-story office buildings containing approximately 230,000 square feet located in Rockville, Maryland, from Meridian/Northwestern Shady Grove Holdings, LLC (“Holdings”). Total consideration for the acquisition was approximately $51.6 million. Wells OP is a Delaware limited partnership formed to acquire, own, lease, operate, and manage real properties on behalf of 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.
 
2. Basis of Accounting
 
The accompanying statements of revenues over certain operating expenses are presented in conformity with accounting principles generally accepted in the United States and in accordance with the applicable rules and regulations of the Securities and Exchange Commission for real estate properties acquired. Accordingly, the statements exclude certain historical expenses that are not comparable to the proposed future operations of the property such as certain ancillary income, amortization, depreciation, interest and corporate expenses. Therefore, the statements will not be comparable to the statements of operations of the Lockheed Martin Rockville Buildings after their acquisition by Wells OP.
 
3. Significant Accounting Policies
 
Rental Revenues
 
Rental revenue is recognized on a straight-line basis over the terms of the related leases. The excess of recognized rental income over amounts due pursuant to lease terms is recorded as straight-line rent receivable. The impact of the straight-line rent adjustment increased revenue by approximately $0 for the year ended December 31, 2002 and $375,000 for the six months ended June 30, 2003.
 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
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Table of Contents
Lockheed Martin Rockville Buildings
 
Notes to Statements of Revenues Over Certain Operating Expenses
(continued)
 
For the year ended December 31, 2002
and the six months ended June 30, 2003 (unaudited)
 
4. Description of Leasing Arrangements
 
The Lockheed Martin Rockville Buildings are 100% leased to Lockheed Martin Corporation (“Lockheed”) under leases (“Lockheed Leases”) that commenced in February 1999 and expire in January 2009. The Lockheed Leases were amended in March 2003 to extend the lease expiration dates to January 2009 and increase base rents. Under the Lockheed Leases, Lockheed is required to pay, as additional rent, any increases in operating expenses, excluding electricity, and real estate taxes over a base year amount. Lockheed will be billed directly by Wells OP for annual electrical costs. Holdings’ interests in all lease agreements were assigned to Wells OP upon its acquisition of the Lockheed Martin Rockville Buildings.
 
5. Future Minimum Rental Commitments
 
Future minimum rental commitments for the years ended December 31 are as follows (in thousands):
 
2003	  	$	4,727	
2004	  	 	5,573	
2005	  	 	5,831	
2006	  	 	6,036	
2007	  	 	6,246	
Thereafter	  	 	7,004	

	

	
 	  	$	35,417	

	

	
 
6. Interim Unaudited Financial Information
 
The statement of revenues over certain operating expenses for the six months ended June 30, 2003 is unaudited, however, in the opinion of management, all adjustments (consisting solely of normal, recurring adjustments) necessary for the fair presentation of the financial statement for the interim period have been included. The results of the interim period are not necessarily indicative of the results to be obtained for a full fiscal year.
 
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Report of Independent Auditors
 
Shareholders and Board of Directors
Wells Real Estate Investment Trust, Inc.
 
We have audited the accompanying statement of revenues over certain operating expenses of the Cingular Atlanta Building for the year ended December 31, 2002. This statement is the responsibility of the Cingular Atlanta Building’s management. Our responsibility is to express an opinion on this statement based on our audit.
 
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues over certain operating expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of revenues over certain operating expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement of revenues over certain operating expenses. We believe that our audit provides a reasonable basis for our opinion.
 
The accompanying statement of revenues over certain operating expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, as described in Note 2, and is not intended to be a complete presentation of the Cingular Atlanta Building’s revenues and expenses.
 
In our opinion, the statement of revenues over certain operating expenses referred to above presents fairly, in all material respects, the revenues and certain operating expenses described in Note 2 of the Cingular Atlanta Building for the year ended December 31, 2002 in conformity with accounting principles generally accepted in the United States.
 
Atlanta, Georgia	 	 	
August 8, 2003	 	                                             /s/    Ernst & Young LLP	
 
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Cingular Atlanta Building
 
Statements of Revenues Over Certain Operating Expenses
 
For the year ended December 31, 2002
and the six months ended June 30, 2003 (unaudited)
 
(in thousands)
 
 	  	2003

	  	2002

	
 	  	(Unaudited)	  	 	
Revenues:	  	 	 	  	 	 	
Base rent	  	$	5,183	  	$	10,364	
Tenant reimbursements	  	 	87	  	 	137	
Parking revenue	  	 	9	  	 	13	

	

	  	

	

	
Total revenues	  	 	5,279	  	 	10,514	
 	 	 	
Expenses:	  	 	 	  	 	 	
Other operating expenses	  	 	485	  	 	912	
Real estate taxes	  	 	515	  	 	908	
Utilities	  	 	263	  	 	603	
Cleaning	  	 	191	  	 	356	
Management fees	  	 	125	  	 	250	
Security	  	 	125	  	 	221	

	

	  	

	

	
Total expenses	  	 	1,704	  	 	3,250	

	

	  	

	

	
Revenues over certain operating expenses	  	$	3,575	  	$	7,264	

	

	  	

	

	
 
See accompanying notes.
 
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Cingular Atlanta Building
 
Notes to Statements of Revenues Over Certain Operating Expenses
 
For the year ended December 31, 2002
and the six months ended June 30, 2003 (unaudited)
 
1. Description of Real Estate Property Acquired
 
On August 1, 2003, Wells Operating Partnership, L.P. (“Wells OP”) acquired the Cingular Atlanta Building, a 19-story office building containing approximately 413,000 square feet located in Atlanta, Georgia, from Teachers Insurance and Annuity Association of America (“Teachers”). Total consideration for the acquisition was approximately $84 million. Wells OP is a Delaware limited partnership formed to acquire, own, lease, operate, and manage real properties on behalf of 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.
 
2. Basis of Accounting
 
The accompanying statements of revenues over certain operating expenses are presented in conformity with accounting principles generally accepted in the United States and in accordance with the applicable rules and regulations of the Securities and Exchange Commission for real estate properties acquired. Accordingly, the statements exclude certain historical expenses that are not comparable to the proposed future operations of the property such as certain ancillary income, amortization, depreciation, interest and corporate expenses. Therefore, the statements will not be comparable to the statements of operations of the Cingular Atlanta Building after its acquisition by Wells OP.
 
3. Significant Accounting Policies
 
Rental Revenues
 
Rental revenue is recognized on a straight-line basis over the terms of the related leases. The excess of recognized rental income over amounts due pursuant to lease terms is recorded as straight-line rent receivable. The impact of the straight-line rent adjustment increased revenue by approximately $1.9 million for the year ended December 31, 2002, due to recognition of rent abatements in the first two years of the lease which will not recur on an ongoing basis, and decreased revenue by approximately $0.2 million for the six months ended June 30, 2003.
 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
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Cingular Atlanta Building
 
Notes to Statements of Revenues Over Certain Operating Expenses
(continued)
 
For the year ended December 31, 2002
and the six months ended June 30, 2003 (unaudited)
 
4. Description of Leasing Arrangements
 
The office and retail space is leased to tenants under leases with terms that vary in length. Certain leases contain reimbursement clauses and renewal options. Teachers’ interests in all lease agreements were assigned to Wells OP upon its acquisition of the Cingular Atlanta Building.
 
5. Future Minimum Rental Commitments
 
Future minimum rental commitments for the years ended December 31 are as follows (in thousands):
 
2003	  	$	10,743	
2004	  	 	10,927	
2005	  	 	11,290	
2006	  	 	11,491	
2007	  	 	10,784	
Thereafter	  	 	36,063	

	

	
 	  	$	91,298	

	

	
 
Two tenants, Cingular Wireless, LLC and Habif, Arogeti & Wynne, LLP contributed approximately 81% and 13%, respectively, of rental income for the year ended December 31, 2002. Subsequent to December 31, 2002, these tenants will contribute approximately 81% and 12%, respectively, of the future minimum rental income of those leases in place as of that date.
 
6. Interim Unaudited Financial Information
 
The statement of revenues over certain operating expenses for the six months ended June 30, 2003 is unaudited, however, in the opinion of management, all adjustments (consisting solely of normal, recurring adjustments) necessary for the fair presentation of the financial statement for the interim period have been included. The results of the interim period are not necessarily indicative of the results to be obtained for a full fiscal year.
 
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Report of Independent Auditors
 
Shareholders and Board of Directors
Wells Real Estate Investment Trust, Inc.
 
We have audited the accompanying statement of revenues over certain operating expenses of the Aventis Northern NJ Building for the year ended December 31, 2002. This statement is the responsibility of the Aventis Northern NJ Building’s management. Our responsibility is to express an opinion on this statement based on our audit.
 
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues over certain operating expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of revenues over certain operating expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement of revenues over certain operating expenses. We believe that our audit provides a reasonable basis for our opinion.
 
The accompanying statement of revenues over certain operating expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, as described in Note 2, and is not intended to be a complete presentation of the Aventis Northern NJ Building’s revenues and expenses.
 
In our opinion, the statement of revenues over certain operating expenses referred to above presents fairly, in all material respects, the revenues and certain operating expenses described in Note 2 of the Aventis Northern NJ Building for the year ended December 31, 2002 in conformity with accounting principles generally accepted in the United States.
 
Atlanta, Georgia	 	 	
August 20, 2003	 	                                             /s/    Ernst & Young LLP	
 
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Aventis Northern NJ Building
 
Statements of Revenues Over Certain Operating Expenses
 
For the year ended December 31, 2002
and the six months ended June 30, 2003 (unaudited)
 
(in thousands)
 
 	  	2003

	  	2002

	
 	  	(Unaudited)	  	 	
Revenues:	  	 	 	  	 	 	
Base rent	  	$	3,888	  	$	7,129	
Tenant reimbursements	  	 	1,167	  	 	2,264	

	

	  	

	

	
Total revenues	  	 	5,055	  	 	9,393	
Expenses:	  	 	 	  	 	 	
Other operating expenses	  	 	370	  	 	613	
Real estate taxes	  	 	398	  	 	567	
Utilities	  	 	245	  	 	561	
Management fees	  	 	127	  	 	266	
Salaries & wages	  	 	118	  	 	257	

	

	  	

	

	
Total expenses	  	 	1,258	  	 	2,264	

	

	  	

	

	
Revenues over certain operating expenses	  	$	3,797	  	$	7,129	

	

	  	

	

	
 
See accompanying notes.
 
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Aventis Northern NJ Building
 
Notes to Statements of Revenues Over Certain Operating Expenses
 
For the year ended December 31, 2002
and the six months ended June 30, 2003 (unaudited)
 
1. Description of Real Estate Property Acquired
 
On August 14, 2003, Wells Bridgewater I, LLC (“the Company”) acquired the Aventis Northern NJ Building, an eight-story office building containing approximately 297,000 square feet located in Bridgewater, New Jersey, from PGC Bridgewater, LLC (“PGC Bridgewater”). Total consideration for the acquisition was approximately $96.3 million. The Company, a Georgia limited liability company, was created on August 8, 2003. Wells Operating Partnership, L.P. (“Wells OP”) is the sole member of the Company. Wells OP is a Delaware limited partnership formed to acquire, own, lease, operate, and manage real properties on behalf of 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.
 
2. Basis of Accounting
 
The accompanying statements of revenues over certain operating expenses are presented in conformity with accounting principles generally accepted in the United States and in accordance with the applicable rules and regulations of the Securities and Exchange Commission for real estate properties acquired. Accordingly, the statements exclude certain historical expenses that are not comparable to the proposed future operations of the property such as certain ancillary income, amortization, depreciation, interest and corporate expenses. Therefore, the statements will not be comparable to the statements of operations of the Aventis Northern NJ Building after its acquisition by the Company.
 
3. Significant Accounting Policies
 
Rental Revenues
 
Rental revenue is recognized on a straight-line basis over the terms of the related leases. The excess of recognized rental income over amounts due pursuant to lease terms is recorded as straight-line rent receivable. The impact of the straight-line rent adjustment increased revenue by approximately $450,000 for the year ended December 31, 2002 and by approximately $246,000 for the six months ended June 30, 2003.
 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
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Aventis Northern NJ Building
 
Notes to Statements of Revenues Over Certain Operating Expenses
(continued)
 
For the year ended December 31, 2002
and the six months ended June 30, 2003 (unaudited)
 
4. Description of Leasing Arrangements
 
The Aventis Northern NJ Building is 100% leased to Aventis, Inc. (“Aventis”) under a net lease (“Aventis Lease”) that commenced in February 2002 and expires in March 2012. Under the Aventis Lease, Aventis is required to pay, as additional rent, the costs of electrical energy consumed, its proportionate share of operating expenses and a management fee equal to 3% of gross revenue. PGC Bridgewater’s interest in the Aventis lease agreement was assigned to the Company upon its acquisition of the Aventis Northern NJ Building.
 
5. Future Minimum Rental Commitments
 
Future minimum rental commitments for the years ended December 31 are as follows (in thousands):
 
2003	  	$	7,286	
2004	  	 	7,286	
2005	  	 	7,286	
2006	  	 	7,286	
2007	  	 	8,171	
Thereafter	  	 	35,072	

	

	
 	  	$	72,387	

	

	
 
6. Interim Unaudited Financial Information
 
The statement of revenues over certain operating expenses for the six months ended June 30, 2003 is unaudited, however, in the opinion of management, all adjustments (consisting solely of normal, recurring adjustments) necessary for the fair presentation of the financial statement for the interim period have been included. The results of the interim period are not necessarily indicative of the results to be obtained for a full fiscal year.
 
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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., a Maryland Corporation (the “Wells REIT”), included in its annual report on Form 10-K for the year ended December 31, 2002 and its quarterly report on Form 10-Q for the six months ended June 30, 2003. 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 previously filed.
 
The following unaudited pro forma balance sheet as of June 30, 2003 has been prepared to give effect to the third quarter 2003 acquisitions of the ISS Atlanta III Building, the Lockheed Martin Rockville Buildings, the Cingular Atlanta Building by Wells Operating Partnership, L.P. (“Wells OP”) and the Aventis Northern NJ Building (collectively, the “Recent Acquisitions”) by Wells Bridgewater I, LLC, of which Wells OP is the sole member, as if the acquisitions occurred on June 30, 2003.
 
Wells OP is a Delaware limited partnership that was organized to own and operate properties on behalf of Wells REIT. As the sole general partner of Wells OP, Wells REIT 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 REIT.
 
The following unaudited pro forma statement of income for the six months ended June 30, 2003 has been prepared to give effect to the first quarter 2003 acquisitions of the East Point Cleveland Buildings and the 150 West Jefferson Detroit Building, the second quarter 2003 acquisitions of the Citicorp Englewood Cliffs, NJ Building, the US Bancorp Minneapolis Building, the Aon Center Chicago Building, the GMAC Detroit Building and the IBM Reston Buildings (collectively, the “2003 Acquisitions”) and the Recent Acquisitions as if the acquisitions occurred on January 1, 2002.
 
The following unaudited pro forma statement of income for the year ended December 31, 2002 has been prepared to give effect to the 2002 acquisition of the Vertex Sarasota Building (formerly, the Arthur Andersen Building), the Transocean Houston Building, the 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, the ISS Atlanta Buildings, the PacifiCare San Antonio Building, the BMG Greenville Buildings, the Kraft Atlanta Building, the Nokia Dallas Buildings, the Harcourt Austin Building, the IRS Long Island Buildings, the KeyBank Parsippany Building, the Allstate Indianapolis Building, the Federal Express Colorado Springs Building, the EDS Des Moines Building, the Intuit Dallas Building, the Daimler Chrysler Dallas Building, the NASA Buildings, the Caterpillar Nashville Building, the Capital One Richmond Buildings, the John Wiley Indianapolis Building and the Nestle Los Angeles Building (collectively, the “2002 Acquisitions”), the 2003 Acquisitions and the Recent Acquisitions as if the acquisitions occurred on January 1, 2002. The Kerr McGee Property, the AmeriCredit Phoenix Property and the ISS Atlanta III Building had no operations during the year ended December 31, 2002.
 
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 acquisition of the 2002 Acquisitions, 2003 Acquisitions and the Recent Acquisitions been consummated as of January 1, 2002. In addition, the pro forma balance sheet includes allocations of the purchase price for certain acquisitions based upon preliminary estimates of the fair value of the assets and liabilities acquired. Therefore, these allocations may be adjusted in the future upon finalization of these preliminary estimates.
 
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Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA BALANCE SHEET
 
JUNE 30, 2003
 
(in thousands, except share amounts)
 
(Unaudited)
 
ASSETS
 
 	  	Wells Real
Estate
Investment
Trust, Inc. (a)

	  	Pro Forma Adjustments

	 	 	Pro
Forma
Total

	 	
 	  	 	  	Other

	 	 	Recent Acquisitions

	 	 	 	 	 	 	
 	  	 	  	 	 	 	ISS Atlanta III

	 	 	Lockheed Martin
Rockville

	 	 	Cingular
Atlanta

	 	 	Aventis
Northern NJ

	 	 	 	 	 	 	 	 	 	 	
REAL ESTATE ASSETS, at cost:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Land	  	$	342,885	  	$	0	 	 	$	950	 (d)	 	$	5,800	 (d)	 	$	6,400	 (d)	 	$	8,000	 (d)	 	$	364,755	 	 	 	 	 	 	 	
 	  	 	 	  	 	 	 	 	 	39	  (e)	 	 	237	 (e)	 	 	262	  (e)	 	 	182	  (e)	 	 	 	 	 	 	 	 	 	 	
Buildings, less accumulated depreciation of $107,872	  	 	2,575,249	  	 	0	 	 	 	8,906	 (d)	 	 	45,427	 (d)	 	 	77,615	 (d)	 	 	88,668	 (d)	 	 	2,803,283	 	 	 	 	 	 	 	
 	  	 	 	  	 	 	 	 	 	365	  (e)	 	 	1,860	 (e)	 	 	3,178	 (e)	 	 	2,015	 (e)	 	 	 	 	 	 	 	 	 	 	
Construction in progress	  	 	532	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	532	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
Total real estate assets	  	 	2,918,666	  	 	0	 	 	 	10,260	 	 	 	53,324	 	 	 	87,455	 	 	 	98,865	 	 	 	3,168,570	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
INVESTMENT IN JOINT VENTURES	  	 	82,513	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	82,513	 	 	 	 	 	 	 	
CASH AND CASH EQUIVALENTS	  	 	59,105	  	 	297,883	 (b)	 	 	(9,856	) (d)	 	 	(51,227	) (d)	 	 	(52,015	) (d)	 	 	(53,668	) (d)	 	 	178,638	 	 	 	 	 	 	 	
 	  	 	 	  	 	(11,584	) (c)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
RENT RECEIVABLE	  	 	26,814	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	26,814	 	 	 	 	 	 	 	
DEFERRED PROJECT COSTS	  	 	1,864	  	 	11,584	 (c)	 	 	(404	) (e)	 	 	(2,097	) (e)	 	 	(3,440	) (e)	 	 	(2,197	) (e)	 	 	5,310	 	 	 	 	 	 	 	
DUE FROM AFFILIATES	  	 	1,807	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,807	 	 	 	 	 	 	 	
PREPAID EXPENSES AND OTHER ASSETS, NET	  	 	12,656	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	12,656	 	 	 	 	 	 	 	
DEFERRED LEASE ACQUISITION COSTS, NET	  	 	11,880	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	11,880	 	 	 	 	 	 	 	
INTANGIBLE LEASE ASSET	  	 	22,839	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	22,839	 	 	 	 	 	 	 	
INVESTMENT IN BONDS	  	 	54,500	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	54,500	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
Total assets	  	$	3,192,644	  	$	297,883	 	 	$	0	 	 	$	0	 	 	$	32,000	 	 	$	43,000	 	 	$	3,565,527	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
 
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Table of Contents
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
(in thousands, except share amounts)
 
 	  	Wells Real
Estate
Investment
Trust, Inc. (a)

	 	 	Pro Forma Adjustments

	 	 	Pro Forma
Total

	 	 	
 	  	 	 	 	Other

	 	 	Recent Acquisitions

	 	 	 	 	 	 	 	 	
 	  	 	 	 	 	 	 	ISS Atlanta III

	  	Lockheed Martin
Rockville

	  	Cingular
Atlanta

	 	 	Aventis
Northern NJ

	 	 	 	 	 	 	 	 	 	 	 	 	 	
LIABILITIES:	  	 	 	 	 	 	 	 	 	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Borrowings	  	$	308,765	 	 	$	0	 	 	$	0	  	$	0	  	$	32,000	 (d)	 	$	43,000	 (d)	 	$	383,765	 	 	 	 	 	 	 	 	 	 	
Obligations under capital lease	  	 	54,500	 	 	 	0	 	 	 	0	  	 	0	  	 	0	 	 	 	0	 	 	 	54,500	 	 	 	 	 	 	 	 	 	 	
Intangible lease liability	  	 	46,249	 	 	 	0	 	 	 	0	  	 	0	  	 	0	 	 	 	0	 	 	 	46,249	 	 	 	 	 	 	 	 	 	 	
Accounts payable and accrued expenses	  	 	57,013	 	 	 	0	 	 	 	0	  	 	0	  	 	0	 	 	 	0	 	 	 	57,013	 	 	 	 	 	 	 	 	 	 	
Due to affiliate	  	 	5,061	 	 	 	0	 	 	 	0	  	 	0	  	 	0	 	 	 	0	 	 	 	5,061	 	 	 	 	 	 	 	 	 	 	
Dividends payable	  	 	9,532	 	 	 	0	 	 	 	0	  	 	0	  	 	0	 	 	 	0	 	 	 	9,532	 	 	 	 	 	 	 	 	 	 	
Deferred rental income	  	 	9,379	 	 	 	0	 	 	 	0	  	 	0	  	 	0	 	 	 	0	 	 	 	9,379	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	
Total liabilities	  	 	490,499	 	 	 	0	 	 	 	0	  	 	0	  	 	32,000	 	 	 	43,000	 	 	 	565,499	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	
COMMITMENTS AND CONTINGENCIES	  	 	 	 	 	 	 	 	 	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP	  	 	200	 	 	 	0	 	 	 	0	  	 	0	  	 	0	 	 	 	0	 	 	 	200	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	
SHAREHOLDERS’ EQUITY:	  	 	 	 	 	 	 	 	 	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Common shares, $.01 par value; 750,000,000 shares authorized, 322,219,052 shares issued and 317,026,812 outstanding at June 30, 2003	  	 	3,222	 	 	 	331	 (b)	 	 	0	  	 	0	  	 	0	 	 	 	0	 	 	 	3,553	 	 	 	 	 	 	 	 	 	 	
Additional paid-in capital	  	 	2,863,705	 	 	 	297,552	 (b)	 	 	0	  	 	0	  	 	0	 	 	 	0	 	 	 	3,161,257	 	 	 	 	 	 	 	 	 	 	
Cumulative distributions in excess of earnings	  	 	(113,052	)	 	 	0	 	 	 	0	  	 	0	  	 	0	 	 	 	0	 	 	 	(113,052	)	 	 	 	 	 	 	 	 	 	
Treasury stock, at cost, 5,192,240 shares at June 30, 2003	  	 	(51,922	)	 	 	0	 	 	 	0	  	 	0	  	 	0	 	 	 	0	 	 	 	(51,922	)	 	 	 	 	 	 	 	 	 	
Other comprehensive loss	  	 	(8	)	 	 	0	 	 	 	0	  	 	0	  	 	0	 	 	 	0	 	 	 	(8	)	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	
Total shareholders’ equity	  	 	2,701,945	 	 	 	297,883	 	 	 	0	  	 	0	  	 	0	 	 	 	0	 	 	 	2,999,828	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	
Total liabilities and shareholders’ equity	  	$	3,192,644	 	 	$	297,883	 	 	$	0	  	$	0	  	$	32,000	 	 	$	43,000	 	 	$	3,565,527	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	

(a)	 	Historical financial information derived from quarterly report on Form 10-Q.	
(b)	 	Reflects capital raised through issuance of additional shares subsequent to June 30, 2003 through Aventis Northern NJ acquisition date, net of organizational and offering costs, commissions and dealer-manager fees.	
(c)	 	Reflects deferred project costs capitalized as a result of additional capital raised described in note (b) above.	
(d)	 	Reflects Wells Real Estate Investment Trust, Inc.’s purchase price for the land, building and liabilities assumed, net of any purchase price adjustments.	
(e)	 	Reflects deferred project costs applied to the land and building at approximately 4.094% of the cash paid for purchase.	
 
The accompanying notes are an integral part of this statement.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA STATEMENT OF INCOME
 
FOR THE YEAR ENDED DECEMBER 31, 2002
 
(in thousands, except per share amounts)
 
(Unaudited)
 
 	  	Wells Real
Estate
Investment
Trust, Inc. (a)

	  	Pro Forma Adjustments

	 	 	Pro Forma
Total

	 	
 	  	 	  	2002
Acquisitions

	 	 	2003
Acquisitions

	 	 	Recent Acquisitions

	 	 	 	 	 	 	
 	  	 	  	 	 	 	 	 	 	Lockheed Martin
Rockville

	 	 	Cingular
Atlanta

	 	 	Aventis
Northern NJ

	 	 	 	 	 	 	 	 	 	 	 	 	 	
REVENUES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental income	  	$	107,526	  	$	98,599	 (b)	 	$	77,148	 (b)	 	$	4,727	 (b)	 	$	11,062	 (b)	 	$	7,129	 (b)	 	$	306,191	 	 	 	 	 	 	 	 	 	 	
Tenant reimbursements	  	 	18,992	  	 	9,584	 (c)	 	 	52,461	 (c)	 	 	159	 (c)	 	 	137	  (c)	 	 	2,271	 (c)	 	 	83,604	 	 	 	 	 	 	 	 	 	 	
Equity in income of joint ventures	  	 	4,700	  	 	648	 (d)	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	5,348	 	 	 	 	 	 	 	 	 	 	
Lease termination income	  	 	1,409	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,409	 	 	 	 	 	 	 	 	 	 	
Interest and other income	  	 	7,001	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	7,001	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
 	  	 	139,628	  	 	108,831	 	 	 	129,609	 	 	 	4,886	 	 	 	11,199	 	 	 	9,400	 	 	 	403,553	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
EXPENSES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	38,780	  	 	34,362	 (e)	 	 	32,088	 (e)	 	 	1,891	 (e)	 	 	3,232	 (e)	 	 	3,627	 (e)	 	 	113,980	 	 	 	 	 	 	 	 	 	 	
Interest expense	  	 	4,638	  	 	9,657	 (f)	 	 	24,407	 (f)	 	 	0	 	 	 	1,277	 (f)	 	 	1,716	 (f)	 	 	41,695	 	 	 	 	 	 	 	 	 	 	
Property operating costs	  	 	26,949	  	 	25,244	 (g)	 	 	65,996	 (g)	 	 	1,326	 (g)	 	 	3,001	 (g)	 	 	1,998	 (g)	 	 	124,514	 	 	 	 	 	 	 	 	 	 	
Management and leasing fees	  	 	5,155	  	 	3,196	 (h)	 	 	5,833	 (h)	 	 	220	 (h)	 	 	504	 (h)	 	 	423	 (h)	 	 	15,331	 	 	 	 	 	 	 	 	 	 	
General and administrative	  	 	3,244	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	3,244	 	 	 	 	 	 	 	 	 	 	
Legal and accounting	  	 	1,008	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,008	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
 	  	 	79,774	  	 	72,459	 	 	 	128,324	 	 	 	3,437	 	 	 	8,014	 	 	 	7,764	 	 	 	299,772	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
NET INCOME	  	$	59,854	  	$	36,372	 	 	$	1,285	 	 	$	1,449	 	 	$	3,185	 	 	$	1,636	 	 	$	103,781	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
EARNINGS PER SHARE, basic and diluted	  	$	0.41	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	0.30	 	 	 	 	 	 	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	 	 	 	
WEIGHTED AVERAGE SHARES, basic and diluted	  	 	145,633	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	349,381	 	 	 	 	 	 	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	 	 	 	

(a)	 	Historical financial information derived from annual report on Form 10-K.	
(b)	 	Rental income is recognized on a straight-line basis.	
(c)	 	Consists of operating costs reimbursements.	
(d)	 	Reflects Wells Real Estate Investment Trust, Inc.’s equity in income of the Wells Fund XIII-REIT Joint Venture related to the John Wiley Indianapolis Building. The pro forma adjustment results from rental revenues less operating expenses, management fees and depreciation.	
(e)	 	Depreciation expense is recognized using the straight-line method and a 25-year life.	
(f)	 	Represents interest expense on lines of credits used to acquire assets, which bore interest at approximately 3.99% for the year ended December 31, 2002, interest expense on loan used to acquire the Aon Center Chicago Building, which bore interest at approximately 4.858% for the year ended December 31, 2002 and assumed mortgages on the two BMG Greenville Buildings and the Nestle Los Angeles Building which bore interest at 8.5%, 8% and 3.39% for the year ended December 31, 2002, respectively.	
(g)	 	Consists of operating expenses.	
(h)	 	Management and leasing fees are generally calculated at 4.5% of rental income and tenant reimbursements.	
 
The accompanying notes are an integral part of this statement.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA STATEMENT OF INCOME
 
FOR THE SIX MONTHS ENDED JUNE 30, 2003
 
(in thousands, except per share amounts)
 
(Unaudited)
 
 	  	Wells Real
Estate
Investment
Trust, Inc. (a)

	  	Pro Forma Adjustments

	 	 	Pro Forma
Total

	 	
 	  	 	  	2003
Acquisitions

	 	 	Recent Acquisitions

	 	 	 	 	 	 	
 	  	 	  	 	 	 	ISS Atlanta III

	 	 	Lockheed Martin
Rockville

	 	 	Cingular
Atlanta

	 	 	Aventis
Northern NJ

	 	 	 	 	 	 	 	 	 	 	
REVENUES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental income	  	$	122,312	  	$	27,355	 (b)	 	$	43	 (b)	 	$	2,739	 (b)	 	$	5,534	 (b)	 	$	3,888	 (b)	 	$	161,871	 	 	 	 	 	 	 	
Tenant reimbursements	  	 	26,058	  	 	17,050	 (c)	 	 	0	 	 	 	96	  (c)	 	 	87	  (c)	 	 	1,188	 (c)	 	 	44,479	 	 	 	 	 	 	 	
Equity in income of joint ventures	  	 	2,392	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	2,392	 	 	 	 	 	 	 	
Interest and other income	  	 	2,315	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	2,315	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
 	  	 	153,077	  	 	44,405	 	 	 	43	 	 	 	2,835	 	 	 	5,621	 	 	 	5,076	 	 	 	211,057	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
EXPENSES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	44,278	  	 	10,898	 (d)	 	 	32	 (d)	 	 	945	 (d)	 	 	1,616	 (d)	 	 	1,814	 (d)	 	 	59,583	 	 	 	 	 	 	 	
Property operating costs	  	 	41,039	  	 	21,206	 (e)	 	 	24	 (e)	 	 	619	 (e)	 	 	1,579	 (e)	 	 	1,131	 (e)	 	 	65,598	 	 	 	 	 	 	 	
Management and leasing fees	  	 	5,488	  	 	1,998	 (f)	 	 	2	 (f)	 	 	128	 (f)	 	 	253	 (f)	 	 	228	 (f)	 	 	8,097	 	 	 	 	 	 	 	
General and administrative	  	 	2,523	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	2,523	 	 	 	 	 	 	 	
Interest expense	  	 	7,400	  	 	7,655	 (g)	 	 	0	 	 	 	0	 	 	 	526	 (g)	 	 	707	 (g)	 	 	16,288	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
 	  	 	100,728	  	 	41,757	 	 	 	58	 	 	 	1,692	 	 	 	3,974	 	 	 	3,880	 	 	 	152,089	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
NET INCOME	  	$	52,349	  	$	2,648	 	 	$	(15	)	 	$	1,143	 	 	$	1,647	 	 	$	1,196	 	 	$	58,968	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
EARNINGS PER SHARE, basic and diluted	  	$	0.20	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	0.17	 	 	 	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	
WEIGHTED AVERAGE SHARES, basic and diluted	  	 	258,575	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	349,381	 	 	 	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	

(a)	 	Historical financial information derived from quarterly report on Form 10-Q.	
(b)	 	Rental income is recognized on a straight-line basis.	
(c)	 	Consists of operating costs reimbursements.	
(d)	 	Depreciation expense is recognized using the straight-line method and a 25-year life.	
(e)	 	Consists of operating expenses	
(f)	 	Management and leasing fees are generally calculated at 4.5% of rental income and tenant reimbursements.	
(g)	 	Represents interest expense on lines of credits used to acquire assets, which bore interest at approximately 3.29% for the six months ended June 30, 2003 and interest expense on loan used to acquire the Aon Center Chicago Building, which bore interest at approximately 4.40% for the six months ended June 30, 2003	
 
The accompanying notes are an integral part of this statement.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 10 DATED SEPTEMBER 15, 2003 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, as supplemented and amended by Supplement No. 1 dated August 14, 2002, Supplement No. 2 dated August 29, 2002, Supplement No. 3 dated October 25, 2002, Supplement No. 4 dated December 10, 2002, Supplement No. 5 dated January 15, 2003, Supplement No. 6 dated April 14, 2003, Supplement No. 7 dated May 15, 2003, Supplement No. 8 dated June 15, 2003, and Supplement No. 9 dated August 27, 2003. 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 Real Estate Investments” section of the prospectus to describe the following real property acquisitions;	
 
 	(A)	 	Acquisition of a five-story office building in Pasadena, California (Applera Pasadena Building);	
 
 	(B)	 	Acquisition of a three-story office building in Brea, California (Continental Casualty Orange County Building); and	
 
 	(C)	 	Acquisition of a 10-story office building in Lyndhurst, New Jersey (Polo Ralph Lauren Newark Building); and	
 
 	(3)	 	Unaudited pro forma financial statements of the Wells REIT reflecting the acquisitions of the Applera Pasadena Building, the Continental Casualty Orange County Building and the Polo Ralph Lauren Newark 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 $132.2 million in gross offering proceeds from the sale of approximately 13.2 million 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 $175.2 million in gross offering proceeds from the sale of approximately 17.5 million 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 $1.3 billion in gross offering proceeds from the sale of approximately 128.3 million 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 September 10, 2003, we had received additional gross proceeds of approximately $2.2 billion from the sale of approximately 217.0 million shares in our fourth public offering. Therefore, there were approximately $914 million in shares (91.4 million shares) remaining available for sale to the public under the fourth public offering, which excludes shares available under our dividend reinvestment plan.
 
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Accordingly, as of September 10, 2003, we had received aggregate gross offering proceeds of approximately $3.8 billion from the sale of approximately 376.0 million shares in all of our public offerings. After payment of approximately $129.5 million in acquisition and advisory fees and acquisition expenses, payment of approximately $408.6 million in selling commissions and organization and offering expenses, and common stock redemptions of approximately $60.4 million pursuant to our share redemption program, as of September 10, 2003, we had raised aggregate net offering proceeds available for investment in properties of approximately $3.2 billion, out of which approximately $3.1 billion had been invested in real estate properties, and approximately $38.7 million remained available for investment in real estate properties.
 
Description of Properties
 
As of September 10, 2003, we had purchased interests in 86 real estate properties located in 24 states. Below is a description of our recent real property acquisitions.
 
Applera Pasadena Building
 
On August 21, 2003, 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, through a wholly-owned subsidiary, purchased a five-story office building containing approximately 176,000 aggregate rentable square feet located on an approximately 1.9-acre tract of land at 1055 East Colorado Boulevard in Pasadena, California (Applera Pasadena Building) for a purchase price of approximately $37.9 million, plus closing costs. Wells OP formed Wells REIT – Pasadena, CA, L.P., a Delaware limited partnership, to purchase the Applera Pasadena Building from KN Colorado, LLC, a Delaware limited liability company not in any way affiliated with the Wells REIT, Wells OP, Wells REIT – Pasadena, CA, L.P. or Wells Capital, Inc., our advisor (Advisor). Wells OP previously purchased four buildings from an affiliate of KN Colorado, LLC (the Federal Express Colorado Springs Building, the EDS Des Moines Building, the Intuit Dallas Building and the GMAC Detroit Building).
 
The Applera Pasadena Building, which was built in 2001, is primarily leased to Paracel, Inc. (Paracel) (approximately 48%). Approximately 28% of the Applera Pasadena Building is leased to six additional tenants, and approximately 24% of the Applera Pasadena Building is currently vacant.
 
Paracel, a wholly-owed subsidiary of Applera Corporation (Applera), is a provider of high-performance genomic data and text analysis systems for the pharmaceutical, biotechnology, academic and government markets. Applera, the guarantor of the Paracel lease, is a worldwide life sciences and genomics company with headquarters in Norwalk, Connecticut. Applera provides technology and information solutions to scientists through its two business units, Applied Biosystems Group and Celera Genomics Group. Applera reported a net worth, as of March 31, 2003, of approximately $2.25 billion.
 
The current annual base rent payable under the Paracel lease, which expires in 2011, is approximately $2.6 million. Paracel is actively marketing a majority of its current space for sublease. Paracel and Applera will remain liable for any subleased space in the Applera Pasadena Building.
 
The current aggregate annual base rent for the remaining six tenants in the Applera Pasadena Building is approximately $1.5 million.
 
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Continental Casualty Orange County Building
 
On August 29, 2003, Wells OP purchased a three-story office building containing approximately 134,000 aggregate rentable square feet located on a approximately 7.8-acre tract of land at 675 Placentia Avenue in Brea, California (Continental Casualty Orange County Building) for a purchase price of approximately $25.6 million, plus closing costs. The Continental Casualty Orange County Building was purchased from Fairway II-VEF III, LLC, a Delaware limited liability company not in any way affiliated with the Wells REIT, Wells OP or our Advisor.
 
The Continental Casualty Orange County Building, which was built in 2003, is entirely leased to Continental Casualty Company (Continental Casualty) (approximately 84%) and Phoenix American Insurance Group, Inc. (Phoenix) (approximately 16%).
 
Continental Casualty, which has its corporate headquarters in Chicago, Illinois, is a subsidiary of CNA Financial Corporation (CNA). CNA is a global insurance organization providing businesses and individuals with a wide range of insurance products and insurance-related services. Continental Casualty, along with other CNA affiliates, conducts the property and casualty insurance operations of CNA.
 
The current annual base rent payable under the Continental Casualty lease, which expires in 2013, is approximately $2.7 million. Continental Casualty has the right to terminate the Continental Casualty lease in 2010 by paying a termination fee equal to various unamortized allowances, commissions, fees and concessions incurred by the landlord in connection with the Continental Casualty lease, which is currently estimated to be approximately $2.7 million. The Continental Casualty lease prohibits Wells OP from leasing any space in the Continental Casualty Orange County Building to 22 competitor insurance companies .  In addition, Continental Casualty has various expansion options and a right of first refusal to lease additional space in the Continental Casualty Orange County Building.
 
Phoenix is an independent service contract and mechanical breakdown insurance administrator with corporate offices in Miami, Florida. Phoenix provides comprehensive insurance coverage for automobiles, motorcycles, recreational vehicles, travel trailers, and marine craft to individual consumers, car dealers, credit unions, and lending institutions.
 
The current annual base rent payable under the Phoenix lease, which expires in 2008, is approximately $0.5 million.
 
Polo Ralph Lauren Newark Building
 
On September 5, 2003, Wells OP purchased a 10-story office building containing approximately 268,000 aggregate rentable square feet located on an approximately 6.15-acre tract of land at 9 Polito Avenue in Lyndhurst, New Jersey (Polo Ralph Lauren Newark Building) for a purchase price of approximately $46.6 million, plus closing costs. The Polo Ralph Lauren Newark Building was purchased from Utah State Retirement Investment Fund, a Utah Common Trust Fund not in any way affiliated with the Wells REIT, Wells OP or our Advisor.
 
The Polo Ralph Lauren Newark Building, which was built in 1986, is primarily leased to Polo Ralph Lauren Corporation (Polo) (approximately 60%) and Scandinavian Airlines of North America, Inc. (Scandinavian) (approximately 13%). Approximately 19% of the Polo Ralph Lauren Newark Building is leased to nine additional tenants, and approximately 8% of the Polo Ralph Lauren Newark Building is currently vacant.
 
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Table of Contents
Polo designs, manufactures, and distributes premium lifestyle products, including apparel, accessories, fragrances, and home products. Polo, a company whose shares are publicly traded on the New York Stock Exchange (NYSE), operates through numerous brand names, including “Polo,” “Polo Sport,” “Ralph Lauren,” and “Chaps.” Polo reported a net worth, as of June 28, 2003, of approximately $1.2 billion. Polo’s senior unsecured debt is currently rated by S&P as BBB and by Moody’s as Baa2. The current annual base rent payable under the Polo lease, which expires in 2008, is approximately $3.0 million. In addition, Polo has a right of first refusal to lease additional space in the Polo Ralph Lauren Newark Building should space become available.
 
Scandinavian is a wholly-owned subsidiary of Scandinavian Airlines System (SAS), which has its corporate headquarters in Stockholm, Sweden. SAS operates Scandinavian Airlines, as well as several affiliated airlines, and other airline-related businesses. Ownership interests of SAS are traded on stock exchanges in Stockholm, Oslo, and Copenhagen. SAS reported a net worth, as of June 30, 2003, of approximately $1.65 billion. The current annual base rent payable under the Scandinavian lease, which expires in 2007, is approximately $1.0 million.
 
The current aggregate annual base rent for the remaining nine tenants in the Polo Ralph Lauren Newark Building is approximately $1.3 million.
 
Property Management
 
Wells Management Company, Inc. (Wells Management), an affiliate of the Wells REIT and our Advisor, will manage the Applera Pasadena Building, the Continental Casualty Orange County Building and the Polo Ralph Lauren Newark Building on behalf of Wells OP. Wells Management will be paid asset and property management fees in the amount of up to 4.5% of the gross revenues from the Applera Pasadena Building, the Continental Casualty Orange County Building and the Polo Ralph Lauren Newark Building, subject to certain limitations.
 
Financial Statements
 
Unaudited Financial Statements
 
The pro forma balance sheet of the Wells REIT, as of June 30, 2003, the pro forma statement of income for the year ended December 31, 2002, and the pro forma statement of income for the six months ended June 30, 2003, which are included in this supplement, have not been audited.
 
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 	  	Page

	
Wells Real Estate Investment Trust, Inc. and Subsidiaries	  	 	
 	 	
Unaudited Pro Forma Financial Statements	  	 	
 	 	
Summary of Unaudited Pro Forma Financial Statements	  	6	
 	 	
Pro Forma Balance Sheet as of June 30, 2003 (unaudited)	  	7	
 	 	
Pro Forma Statement of Income for the year ended December 31, 2002 (unaudited)	  	9	
 	 	
Pro Forma Statement of Income for the six months ended June 30, 2003 (unaudited)	  	10	
 
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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., a Maryland Corporation (the “Wells REIT”), included in its annual report on Form 10-K for the year ended December 31, 2002 and its quarterly report on Form 10-Q for the six months ended June 30, 2003. 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 previously filed.
 
The following unaudited pro forma balance sheet as of June 30, 2003 has been prepared to give effect to the third quarter 2003 acquisitions of the ISS Atlanta III Building, the Lockheed Martin Rockville Buildings and the Cingular Atlanta Building by Wells Operating Partnership, L.P. (“Wells OP”) and the Aventis Northern NJ Building by Wells Bridgewater I, LLC, of which Wells OP is the sole member, (collectively, the “Other Recent Acquisitions”) and the acquisitions of the Continental Casualty Orange County Building and the Polo Ralph Lauren Newark Building by Wells OP, and the Applera Pasadena Building by Wells REIT – Pasadena, CA, L.P., a Delaware limited partnership wholly-owned by Wells OP, (collectively, the “Recent Acquisitions”) as if the acquisitions occurred on June 30, 2003.
 
Wells OP is a Delaware limited partnership that was organized to own and operate properties on behalf of Wells REIT. As the sole general partner of Wells OP, Wells REIT 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 REIT.
 
The following unaudited pro forma statement of income for the six months ended June 30, 2003 has been prepared to give effect to the first quarter 2003 acquisitions of the East Point Cleveland Buildings and the 150 West Jefferson Detroit Building, the second quarter 2003 acquisitions of the Citicorp Englewood Cliffs, NJ Building, the US Bancorp Minneapolis Building, the Aon Center Chicago Building, the GMAC Detroit Building and the IBM Reston Buildings (collectively, the “2003 Acquisitions”) and the Recent Acquisitions as if the acquisitions occurred on January 1, 2002.
 
The following unaudited pro forma statement of income for the year ended December 31, 2002 has been prepared to give effect to the 2002 acquisition of the Vertex Sarasota Building (formerly, the Arthur Andersen Building), the Transocean Houston Building, the 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, the ISS Atlanta Buildings, the PacifiCare San Antonio Building, the BMG Greenville Buildings, the Kraft Atlanta Building, the Nokia Dallas Buildings, the Harcourt Austin Building, the IRS Long Island Buildings, the KeyBank Parsippany Building, the Allstate Indianapolis Building, the Federal Express Colorado Springs Building, the EDS Des Moines Building, the Intuit Dallas Building, the Daimler Chrysler Dallas Building, the NASA Buildings, the Caterpillar Nashville Building, the Capital One Richmond Buildings, the John Wiley Indianapolis Building and the Nestle Los Angeles Building (collectively, the “2002 Acquisitions”), the 2003 Acquisitions and the Recent Acquisitions as if the acquisitions occurred on January 1, 2002. The Kerr McGee Property, the AmeriCredit Phoenix Property, the ISS Atlanta III Building and the Continental Casualty Orange County Building had no operations during the year ended December 31, 2002.
 
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 acquisition of the 2002 Acquisitions, 2003 Acquisitions and the Recent Acquisitions been consummated as of January 1, 2002. In addition, the pro forma balance sheet includes allocations of the purchase price for certain acquisitions based upon preliminary estimates of the fair value of the assets and liabilities acquired. Therefore, these allocations may be adjusted in the future upon finalization of these preliminary estimates.

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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA BALANCE SHEET
 
JUNE 30, 2003
 
(in thousands, except share amounts)
 
(Unaudited)
 
ASSETS
 
 	 	Wells Real
Estate
Investment
Trust, Inc. (a)

	 	Pro Forma Adjustments

	 	 	Pro Forma
Total

	 	
 	 	 	 	Other

	 	 	Recent Acquisitions

	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	Applera
Pasadena

	 	 	Continental Casualty
Orange County

	 	 	Polo Ralph Lauren
Newark

	 	 	 	 	 	 	 	 	 	 	 	 	
REAL ESTATE ASSETS, at cost:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Land	 	$	342,885	 	$	21,150	(b)	 	$	6,240	(b)	 	$	6,830	(b)	 	$	6,700	(b)	 	$	385,334	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	720	(c)	 	 	255	(c)	 	 	280	(c)	 	 	274	(c)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Buildings, less accumulated depreciation of $107,872	 	 	2,575,249	 	 	220,616	(b)	 	 	31,470	(b)	 	 	18,849	(b)	 	 	39,956	(b)	 	 	2,897,253	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	7,418	(c)	 	 	1,288	(c)	 	 	771	(c)	 	 	1,636	(c)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Construction in progress	 	 	532	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	532	 	 	 	 	 	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	
Total real estate assets	 	 	2,918,666	 	 	249,904	 	 	 	39,253	 	 	 	26,730	 	 	 	48,566	 	 	 	3,283,119	 	 	 	 	 	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	
INVESTMENT IN JOINT VENTURES	 	 	82,513	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	82,513	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CASH AND CASH EQUIVALENTS	 	 	59,105	 	 	(141,766	)(b)	 	 	(37,710	)(b)	 	 	(25,679	)(b)	 	 	(46,656	)(b)	 	 	236,858	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	447,148	(d)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	(17,584	)(e)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
RENT RECEIVABLE	 	 	26,814	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	26,814	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
DEFERRED PROJECT COSTS	 	 	1,864	 	 	(8,138	)(c)	 	 	(1,543	)(c)	 	 	1,051	(c)	 	 	(1,910	)(c)	 	 	6,806	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	17,584	(e)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
DUE FROM AFFILIATES	 	 	1,807	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,807	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
PREPAID EXPENSES AND OTHER ASSETS, NET	 	 	12,656	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	12,656	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
DEFERRED LEASE ACQUISITION COSTS, NET	 	 	11,880	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	11,880	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
INTANGIBLE LEASE ASSET	 	 	22,839	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	22,839	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
INVESTMENT IN BONDS	 	 	54,500	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	54,500	 	 	 	 	 	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	
Total assets	 	$	3,192,644	 	$	547,148	 	 	$	0	 	 	$	0	 	 	$	0	 	 	$	3,739,792	 	 	 	 	 	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	

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LIABILITIES AND SHAREHOLDERS’ EQUITY
 
(in thousands, except share amounts)
 
 	 	Wells Real
Estate
Investment
Trust, Inc. (a)

	 	 	Pro Forma Adjustments

	 	Pro Forma
Total

	 	 	
 	 	 	 	 	Other

	 	 	Recent Acquisitions

	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	Applera
Pasadena

	 	Continental Casualty
Orange County

	 	Polo Ralph Lauren
Newark

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
LIABILITIES:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Borrowings	 	$	308,765	 	 	$	100,000	(b)	 	$	0	 	$	0	 	$	0	 	$	408,765	 	 	 	 	 	 	 	 	 	 	 	 	
Obligations under capital lease	 	 	54,500	 	 	 	0	 	 	 	0	 	 	0	 	 	0	 	 	54,500	 	 	 	 	 	 	 	 	 	 	 	 	
Intangible lease liability	 	 	46,249	 	 	 	0	 	 	 	0	 	 	0	 	 	0	 	 	46,249	 	 	 	 	 	 	 	 	 	 	 	 	
Accounts payable and accrued expenses	 	 	57,013	 	 	 	0	 	 	 	0	 	 	0	 	 	0	 	 	57,013	 	 	 	 	 	 	 	 	 	 	 	 	
Due to affiliate	 	 	5,061	 	 	 	0	 	 	 	0	 	 	0	 	 	0	 	 	5,061	 	 	 	 	 	 	 	 	 	 	 	 	
Dividends payable	 	 	9,532	 	 	 	0	 	 	 	0	 	 	0	 	 	0	 	 	9,532	 	 	 	 	 	 	 	 	 	 	 	 	
Deferred rental income	 	 	9,379	 	 	 	0	 	 	 	0	 	 	0	 	 	0	 	 	9,379	 	 	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	 	

	

	 	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	 	 	
Total liabilities	 	 	490,499	 	 	 	100,000	 	 	 	0	 	 	0	 	 	0	 	 	590,499	 	 	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	 	

	

	 	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	 	 	
COMMITMENTS AND CONTINGENCIES	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP	 	 	200	 	 	 	0	 	 	 	0	 	 	0	 	 	0	 	 	200	 	 	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	 	

	

	 	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	 	 	
SHAREHOLDERS’ EQUITY:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Common shares, $.01 par value; 750,000,000 shares authorized, 322,219,052 shares issued and 317,026,812 outstanding at June 30, 2003	 	 	3,222	 	 	 	502	(d)	 	 	0	 	 	0	 	 	0	 	 	3,724	 	 	 	 	 	 	 	 	 	 	 	 	
Additional paid-in capital	 	 	2,863,705	 	 	 	446,646	(d)	 	 	0	 	 	0	 	 	0	 	 	3,310,351	 	 	 	 	 	 	 	 	 	 	 	 	
Cumulative distributions in excess of earnings	 	 	(113,052	)	 	 	0	 	 	 	0	 	 	0	 	 	0	 	 	(113,052	)	 	 	 	 	 	 	 	 	 	 	 	
Treasury stock, at cost, 5,192,240 shares at June 30, 2003	 	 	(51,922	)	 	 	0	 	 	 	0	 	 	0	 	 	0	 	 	(51,922	)	 	 	 	 	 	 	 	 	 	 	 	
Other comprehensive loss	 	 	(8	)	 	 	0	 	 	 	0	 	 	0	 	 	0	 	 	(8	)	 	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	 	

	

	 	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	 	 	
Total shareholders’ equity	 	 	2,701,945	 	 	 	447,148	 	 	 	0	 	 	0	 	 	0	 	 	3,149,093	 	 	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	 	

	

	 	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	 	 	
Total liabilities and shareholders’ equity	 	$	3,192,644	 	 	$	547,148	 	 	$	0	 	$	0	 	$	0	 	$	3,739,792	 	 	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	 	

	

	 	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	 	 	

(a)	 	Historical financial information derived from quarterly report on Form 10-Q.	
(b)	 	Reflects Wells Real Estate Investment Trust, Inc.’s purchase price for the land, building and liabilities assumed, net of any purchase price adjustments.	
(c)	 	Reflects deferred project costs applied to the land and building at approximately 4.094% of the cash paid for purchase.	
(d)	 	Reflects capital raised through issuance of additional shares subsequent to June 30, 2003 through Polo Ralph Lauren Newark acquisition date, net of organizational and offering costs, commissions and dealer-manager fees.	
(e)	 	Reflects deferred project costs capitalized as a result of additional capital raised described in note (d) above.	
 
The accompanying notes are an integral part of this statement.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA STATEMENT OF INCOME
 
FOR THE YEAR ENDED DECEMBER 31, 2002
(in thousands, except per share amounts)
 
(Unaudited)
 
 	 	Wells Real
Estate
Investment
Trust, Inc. (a)

	 	Pro Forma Adjustments

	 	 	Pro Forma
Total

	 	
 	 	 	 	2002
Acquisitions

	 	 	2003
Acquisitions

	 	 	Other

	 	 	Recent Acquisitions

	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	Applera
Pasadena

	 	 	Polo Ralph Lauren
Newark

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
REVENUES:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental income	 	$	107,526	 	$	98,599	(b)	 	$	77,148	(b)	 	$	22,918	(b)	 	$	3,457	(b)	 	$	5,253	(b)	 	$	314,901	 	 	 	 	 	 	 	 	 	 	 	 	
Tenant reimbursements	 	 	18,992	 	 	9,584	(c)	 	 	52,461	(c)	 	 	2,567	(c)	 	 	50	(c)	 	 	1,608	(c)	 	 	85,262	 	 	 	 	 	 	 	 	 	 	 	 	
Equity in income of joint ventures	 	 	4,700	 	 	648	(d)	 	 	0	(d)	 	 	0	(d)	 	 	0	 	 	 	0	 	 	 	5,348	 	 	 	 	 	 	 	 	 	 	 	 	
Lease termination income	 	 	1,409	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,409	 	 	 	 	 	 	 	 	 	 	 	 	
Interest and other income	 	 	7,001	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	7,001	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	139,628	 	 	108,831	 	 	 	129,609	 	 	 	25,485	 	 	 	3,507	 	 	 	6,861	 	 	 	413,921	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	
EXPENSES:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	 	 	38,780	 	 	34,362	(e)	 	 	32,088	(e)	 	 	8,750	(e)	 	 	1,310	(e)	 	 	1,664	(e)	 	 	116,954	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	4,638	 	 	9,657	(f)	 	 	24,407	(f)	 	 	3,990	(f)	 	 	0	 	 	 	0	 	 	 	42,692	 	 	 	 	 	 	 	 	 	 	 	 	
Property operating costs	 	 	26,949	 	 	25,244	(g)	 	 	65,996	(g)	 	 	6,325	(g)	 	 	1,029	(g)	 	 	2,235	(g)	 	 	127,778	 	 	 	 	 	 	 	 	 	 	 	 	
Management and leasing fees	 	 	5,155	 	 	3,196	(h)	 	 	5,833	(h)	 	 	1,147	(h)	 	 	158	(h)	 	 	309	(h)	 	 	15,798	 	 	 	 	 	 	 	 	 	 	 	 	
General and administrative	 	 	3,244	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	3,244	 	 	 	 	 	 	 	 	 	 	 	 	
Legal and accounting	 	 	1,008	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,008	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	79,774	 	 	72,459	 	 	 	128,324	 	 	 	20,212	 	 	 	2,497	 	 	 	4,208	 	 	 	307,474	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	
NET INCOME	 	$	59,854	 	$	36,372	 	 	$	1,285	 	 	$	5,273	 	 	$	1,010	 	 	$	2,653	 	 	$	106,447	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	
EARNINGS PER SHARE, basic and diluted	 	$	0.41	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	0.29	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	
WEIGHTED AVERAGE SHARES, basic and diluted	 	 	145,633	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	366,418	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	

 	(a)	 	Historical financial information derived from annual report on Form 10-K.	
 	(b)	 	Rental income is recognized on a straight-line basis.	
 	(c)	 	Consists of operating costs reimbursements.	
 	(d)	 	Reflects Wells Real Estate Investment Trust, Inc.’s equity in income of the Wells Fund XIII-REIT Joint Venture related to the John Wiley Indianapolis Building. The pro forma adjustment results from rental revenues less operating expenses, management fees and depreciation.	
 	(e)	 	Depreciation expense is recognized using the straight-line method and a 25-year life.	
 	(f)	 	Represents interest expense on lines of credits used to acquire assets, which bore interest at approximately 3.99% for the year ended December 31, 2002, interest expense on loan used to acquire the Aon Center Chicago Building, which bore interest at approximately 4.858% for the year ended December 31, 2002 and assumed mortgages on the BMG Greenville Buildings and Nestle Los Angeles Building, which bore interest at 8.5%, 8% and 3.39% for the year ended December 31, 2002, respectively.	
 	(g)	 	Consists of operating expenses.	
 	(h)	 	Management and leasing fees are generally calculated at 4.5% of rental income and tenant reimbursements.	
 
The accompanying notes are an integral part of this statement.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA STATEMENT OF INCOME
 
FOR THE SIX MONTHS ENDED JUNE 30, 2003
 
(in thousands, except per share amounts)
 
(Unaudited)
 
 	 	Wells Real
Estate
Investment
Trust, Inc. (a)

	 	Pro Forma Adjustments

	 	 	Pro Forma
Total

	 	
 	 	 	 	2003
Acquisitions

	 	 	Other

	 	 	Recent Acquisitions

	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	Applera
Pasadena

	 	 	Continental Casualty
Orange County

	 	 	Polo Ralph Lauren
Newark

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
REVENUES:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental income	 	$	122,312	 	$	27,355	(b)	 	$	12,204	(b)	 	$	1,952	(b)	 	$	1,044	(b)	 	$	2,662	(b)	 	$	167,529	 	 	 	 	 	 	 	 	 	 	 	 	
Tenant reimbursements	 	 	26,058	 	 	17,050	(c)	 	 	1,371	(c)	 	 	23	(c)	 	 	0	 	 	 	987	(c)	 	 	45,489	 	 	 	 	 	 	 	 	 	 	 	 	
Equity in income of joint ventures	 	 	2,392	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	2,392	 	 	 	 	 	 	 	 	 	 	 	 	
Interest and other income	 	 	2,315	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	2,315	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	153,077	 	 	44,405	 	 	 	13,575	 	 	 	1,975	 	 	 	1,044	 	 	 	3,649	 	 	 	217,725	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	
EXPENSES:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	 	 	44,278	 	 	10,898	(d)	 	 	4,407	(d)	 	 	655	(d)	 	 	392	(d)	 	 	832	(d)	 	 	61,462	 	 	 	 	 	 	 	 	 	 	 	 	
Property operating costs	 	 	41,039	 	 	21,206	(e)	 	 	3,353	(e)	 	 	669	(e)	 	 	416	(e)	 	 	1,202	(e)	 	 	67,885	 	 	 	 	 	 	 	 	 	 	 	 	
Management and leasing fees	 	 	5,488	 	 	1,998	(f)	 	 	611	(f)	 	 	89	(f)	 	 	47	(f)	 	 	164	(f)	 	 	8,397	 	 	 	 	 	 	 	 	 	 	 	 	
General and administrative	 	 	2,523	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	2,523	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	7,400	 	 	7,655	(g)	 	 	1,645	(g)	 	 	0	 	 	 	0	 	 	 	0	 	 	 	16,700	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	100,728	 	 	41,757	 	 	 	10,016	 	 	 	1,413	 	 	 	855	 	 	 	2,198	 	 	 	156,967	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	
NET INCOME	 	$	52,349	 	$	2,648	 	 	$	3,559	 	 	$	562	 	 	$	189	 	 	$	1,451	 	 	$	60,758	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	
EARNINGS PER SHARE, basic and diluted	 	$	0.20	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	0.17	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	
WEIGHTED AVERAGE SHARES, basic and diluted	 	 	258,575	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	366,418	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	

 	(a)	 	Historical financial information derived from quarterly report on Form 10-Q.	
 	(b)	 	Rental income is recognized on a straight-line basis.	
 	(c)	 	Consists of operating costs reimbursements.	
 	(d)	 	Depreciation expense is recognized using the straight-line method and a 25-year life.	
 	(e)	 	Consists of operating expenses.	
 	(f)	 	Management and leasing fees are generally calculated at 4.5% of rental income and tenant reimbursements.	
 	(g)	 	Represents interest expense on lines of credits used to acquire assets, which bore interest at approximately 3.29% for the six months ended June 30, 2003 and interest expense on loan used to acquire the Aon Center Chicago Building, which bore interest at approximately 4.40% for the six months ended June 30, 2003.	
 
The accompanying notes are an integral part of this statement.
 
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PART II
 
INFORMATION NOT REQUIRED IN PROSPECTUS
 
Items 31 through 35 and Item 37 of Part II are incorporated by reference to the Registrant’s Registration Statement, as amended to date, Commission File No. 333-85848
 
Item 36	 	Financial Statements and Exhibits.	
 
 	(a)	 	Financial Statements:	
 
The following financial statements of Registrant are filed as part of this Registration Statement and included in the Prospectus:
 
Audited Financial Statements
 
 	(1)	 	Report of Independent Public Accountants,	
 
 	(2)	 	Consolidated Balance Sheets as of December 31, 2001 and December 31, 2000,	
 
 	(3)	 	Consolidated Statements of Income for the years ended December 31, 2001, 2000 and 1999,	
 
 	(4)	 	Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2001, 2000 and 1999,	
 
 	(5)	 	Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999,	
 
 	(6)	 	Notes to Consolidated Financial Statements, and	
 
 	(7)	 	Schedule III—Real Estate Investments and Accumulated Depreciation as of December 31, 2001.	
 
Unaudited Financial Statements
 
 	(1)	 	Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001,	
 
 	(2)	 	Consolidated Statements of Income for the three months ended March 31, 2002 and March 31, 2001,	
 
 	(3)	 	Consolidated Statements of Shareholders’ Equity for the year ended December 31, 2001 and for the three months ended March 31, 2002,	
 
 	(4)	 	Consolidated Statements of Cash Flows for the three months ended March 31, 2002 and March 31, 2001, and	
 
 	(5)	 	Condensed Notes to Consolidated Financial Statements.	
 
The following financial statements of the Registrant are filed as part of this Registration Statement and included in Supplement No. 1 to the Prospectus:
 
Unaudited Financial Statements
 
 	(1)	 	Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001,	
 
 	(2)	 	Consolidated Statements of Income for the three months ended June 30, 2002 and June 30, 2001 and for the six months ended June 30, 2002 and June 30, 2001,	
 
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 	(3)	 	Consolidated Statements of Shareholders’ Equity for the year ended December 31, 2001 and for the six months ended June 30, 2002,	
 
 	(4)	 	Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and June 30, 2001, and	
 
 	(5)	 	Condensed Notes to Consolidated Financial Statements.	
 
The following unaudited pro forma financial statements of the Registrant are filed as part of this Registration Statement and included in Supplement No. 1 to the Prospectus:
 
 	(1)	 	Summary of Unaudited Pro Forma Financial Statements,	
 
 	(2)	 	Pro Forma Balance Sheet as of June 30, 2002,	
 
 	(3)	 	Pro Forma Statement of Income for the year ended December 31, 2001, and	
 
 	(4)	 	Pro Forma Statement of Income for the six months ended June 30, 2002.	
 
The following unaudited pro forma financial statements of the Registrant are filed as part of this Registration Statement and included in Supplement No. 2 to the Prospectus:
 
 	(1)	 	Summary of Unaudited Pro Forma Financial Statements,	
 
 	(2)	 	Pro Forma Balance Sheet as of June 30, 2002,	
 
 	(3)	 	Pro Forma Statement of Income for the year ended December 31, 2001, and	
 
 	(4)	 	Pro Forma Statement of Income for the six months ended June 30, 2002.	
 
The following financial statements relating to the acquisition of the Harcourt Austin Building are filed as part of this Registration Statement and included in Supplement No. 3 to the Prospectus:
 
 	(1)	 	Report of Independent Auditors,	
 
 	(2)	 	Statements of Revenues over Certain Operating Expenses for the year ended December 31, 2001 (audited) and the six months ended June 30, 2002 (unaudited), and	
 
 	(3)	 	Notes to Statements of Revenues over Certain Operating Expenses for the year ended December 31, 2001 (audited) and the six months ended June 30, 2002 (unaudited).	
 
The following financial statements relating to the acquisition of the IRS Long Island Buildings are filed as part of this Registration Statement and included in Supplement No. 3 to the Prospectus:
 
 	(1)	 	Report of Independent Auditors,	
 
 	(2)	 	Statements of Revenues over Certain Operating Expenses for the year ended December 31, 2001 (audited) and the six months ended June 30, 2002 (unaudited), and	
 
 	(3)	 	Notes to Statements of Revenues over Certain Operating Expenses for the year ended December 31, 2001 (audited) and the six months ended June 30, 2002 (unaudited).	
 
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The following financial statements relating to the acquisition of the KeyBank Parsippany Building are filed as part of this Registration Statement and included in Supplement No. 3 to the Prospectus:
 
 	(1)	 	Report of Independent Auditors,	
 
 	(2)	 	Statements of Revenues over Certain Operating Expenses for the year ended December 31, 2001 (audited) and the six months ended June 30, 2002 (unaudited), and	
 
 	(3)	 	Notes to Statements of Revenues over Certain Operating Expenses for the year ended December 31, 2001 (audited) and the six months ended June 30, 2002 (unaudited).	
 
The following unaudited pro forma financial statements of the Registrant are filed as part of this Registration Statement and included in Supplement No. 3 to the Prospectus:
 
 	(1)	 	Summary of Unaudited Pro Forma Financial Statements,	
 
 	(2)	 	Pro Forma Balance Sheet as of June 30, 2002,	
 
 	(3)	 	Pro Forma Statement of Income for the year ended December 31, 2001, and	
 
 	(4)	 	Pro Forma Statement of Income for the six months ended June 30, 2002.	
 
The following financial statements of the Registrant are filed as part of this Registration Statement and included in Supplement No. 4 to the Prospectus:
 
Unaudited Financial Statements
 
 	(1)	 	Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001,	
 
 	(2)	 	Consolidated Statements of Income for the three months ended September 30, 2002 and September 30, 2001 and for the nine months ended September 30, 2002 and September 30, 2001,	
 
 	(3)	 	Consolidated Statements of Shareholders’ Equity for the year ended December 31, 2001 and for the nine months ended September 30, 2002,	
 
 	(4)	 	Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and September 30, 2001, and	
 
 	(5)	 	Condensed Notes to Consolidated Financial Statements.	
 
The following financial statements relating to the acquisition of the NASA Buildings are filed as part of this Registration Statement and included in Supplement No. 4 to the Prospectus:
 
 	(1)	 	Report of Independent Auditors,	
 
 	(2)	 	Statements of Revenues over Certain Operating Expenses for the year ended December 31, 2001 (audited) and the nine months ended September 30, 2002 (unaudited), and	
 
 	(3)	 	Notes to Statements of Revenues over Certain Operating Expenses for the year ended December 31, 2001 (audited) and the nine months ended September 30, 2002 (unaudited).	
 
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The following financial statements relating to the acquisition of the Caterpillar Nashville Building are filed as part of this Registration Statement and included in Supplement No. 4 to the Prospectus:
 
 	(1)	 	Report of Independent Auditors,	
 
 	(2)	 	Statements of Revenues over Certain Operating Expenses for the year ended December 31, 2001 (audited) and the nine months ended September 30, 2002 (unaudited), and	
 
 	(3)	 	Notes to Statements of Revenues over Certain Operating Expenses for the year ended December 31, 2001 (audited) and the nine months ended September 30, 2002 (unaudited).	
 
The following unaudited pro forma financial statements of the Registrant are filed as part of this Registration Statement and included in Supplement No. 4 to the Prospectus:
 
 	(1)	 	Summary of Unaudited Pro Forma Financial Statements,	
 
 	(2)	 	Pro Forma Balance Sheet as of September 30, 2002,	
 
 	(3)	 	Pro Forma Statement of Income for the year ended December 31, 2001, and	
 
 	(4)	 	Pro Forma Statement of Income for the nine months ended September 30, 2002.	
 
The following revised financial statements of the Registrant are filed as part of this Registration Statement and included in Supplement No. 5 to the Prospectus:
 
 	(1)	 	Consolidated Balance Sheets as of September 30, 2002 (unaudited) and December 31, 2001 (audited),	
 
 	(2)	 	Consolidated Statements of Income for the three months ended September 30, 2002 and September 30, 2001 (unaudited) and for the nine months ended September 30, 2002 and September 30, 2001 (unaudited),	
 
 	(3)	 	Consolidated Statements of Shareholders’ Equity for the year ended December 31, 2001 (audited) and for the nine months ended September 30, 2002 (unaudited),	
 
 	(4)	 	Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and September 30, 2001 (unaudited), and	
 
 	(5)	 	Condensed Notes to Consolidated Financial Statements (unaudited).	
 
The following financial statements relating to the acquisition of the Nestle Building are filed as part of this Registration Statement and included in Supplement No. 5 to the Prospectus:
 
 	(1)	 	Report of Independent Auditors,	
 
 	(2)	 	Statements of Revenues over Certain Operating Expenses for the year ended December 31, 2001 (audited) and the nine months ended September 30, 2002 (unaudited), and	
 
 	(3)	 	Notes to Statements of Revenues over Certain Operating Expenses for the year ended December 31, 2001 (audited) and the nine months ended September 30, 2002 (unaudited).	
 
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The following unaudited pro forma financial statements of the Registrant are filed as part of this Registration Statement and included in Supplement No. 5 to the Prospectus:
 
 	(1)	 	Summary of Unaudited Pro Forma Financial Statements,	
 
 	(2)	 	Pro Forma Balance Sheet as of September 30, 2002,	
 
 	(3)	 	Pro Forma Statement of Income for the year ended December 31, 2001, and	
 
 	(4)	 	Pro Forma Statement of Income for the nine months ended September 30, 2002.	
 
The following audited financial statements of Registrant are filed as part of this Registration Statement and included in Supplement No. 6 to the Prospectus:
 
Audited Financial Statements
 
 	(1)	 	Report of Independent Auditors,	
 
 	(2)	 	Report of Independent Public Accountants,	
 
 	(3)	 	Consolidated Balance Sheets as of December 31, 2002 and December 31, 2001,	
 
 	(4)	 	Consolidated Statements of Income for the years ended December 31, 2002, 2001 and 2000,	
 
 	(5)	 	Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2002, 2001 and 2000,	
 
 	(6)	 	Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000,	
 
 	(7)	 	Notes to Consolidated Financial Statements, and	
 
 	(8)	 	Schedule III—Real Estate Assets and Accumulated Depreciation as of December 31, 2002.	
 
The following unaudited pro forma financial statements of the Registrant are filed as part of this Registration Statement and included in Supplement No. 6 to the Prospectus:
 
 	(1)	 	Summary of Unaudited Pro Forma Financial Statements,	
 
 	(2)	 	Pro Forma Balance Sheet as of December 31, 2002, and	
 
 	(3)	 	Pro Forma Statement of Income for the year ended December 31, 2002.	
 
The following financial statements of the Registrant are filed as part of this Registration Statement and included in Supplement No. 7 to the Prospectus:
 
 	(1)	 	Consolidated Balance Sheets as of March 31, 2003 (unaudited) and December 31, 2002,	
 
 	(2)	 	Consolidated Statements of Income for the three months ended March 31, 2003 and March 31, 2002 (unaudited),	
 
 	(3)	 	Consolidated Statements of Shareholders’ Equity for the year ended December 31, 2002 and for the three months ended March 31, 2003 (unaudited),	
 
 	(4)	 	Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and March 31, 2002 (unaudited), and	
 
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 	(5)	 	Condensed Notes to Consolidated Financial Statements March 31, 2003 (unaudited).	
 
The following financial statements relating to the acquisition of the US Bancorp Minneapolis Building are filed as part of this Registration Statement and included in Supplement No. 7 to the Prospectus:
 
 	(1)	 	Report of Independent Auditors,	
 
 	(2)	 	Statements of Revenues over Certain Operating Expenses for the year ended December 31, 2002 (audited), and	
 
 	(3)	 	Notes to Statement of Revenues over Certain Operating Expenses for the year ended December 31, 2002 (audited).	
 
The following financial statements relating to the acquisition of the Aon Center Chicago Building are filed as part of this Registration Statement and included in Supplement No. 7 to the Prospectus:
 
 	(1)	 	Report of Independent Auditors,	
 
 	(2)	 	Statement of Revenues over Certain Operating Expenses for the year ended December 31, 2002 (audited) and the three months ended March 31, 2003 (unaudited), and	
 
 	(3)	 	Notes to Statements of Revenues over Certain Operating Expenses for the year ended December 31, 2002 (audited) and the three months ended March 31, 2003 (unaudited).	
 
The following unaudited pro forma financial statements of the Registrant are filed as part of this Registration Statement and included in Supplement No. 7 to the Prospectus:
 
 	(1)	 	Summary of Unaudited Pro Forma Financial Statements,	
 
 	(2)	 	Pro Forma Balance Sheet as of March 31, 2003,	
 
 	(3)	 	Pro Forma Statement of Income for the year ended December 31, 2002, and	
 
 	(4)	 	Pro Forma Statement of Income for the three months ended March 31, 2003.	
 
The following financial statements of the Registrant are filed as part of this Registration Statement and included in Supplement No. 9 to the Prospectus:
 
 	(1)	 	Consolidated Balance Sheets as of June 30, 2003 (unaudited) and December 31, 2002,	
 
 	(2)	 	Consolidated Statements of Income for the six months ended June 30, 2003 and June 30, 2002 (unaudited),	
 
 	(3)	 	Consolidated Statements of Shareholders’ Equity for the year ended December 31, 2002 and for the six months ended June 30, 2003 (unaudited),	
 
 	(4)	 	Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and June 30, 2002 (unaudited), and	
 
 	(5)	 	Condensed Notes to Consolidated Financial Statements June 30, 2003 (unaudited).	
 
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The following financial statements relating to the acquisition of the Lockheed Martin Rockville Buildings are filed as part of this Registration Statement and included in Supplement No. 9 to the Prospectus:
 
 	(1)	 	Report of Independent Auditors,	
 
 	(2)	 	Statements of Revenues over Certain Operating Expenses for the year ended December 31, 2002 (audited) and for the six months ended June 30, 2003 (unaudited), and	
 
 	(3)	 	Notes to Statement of Revenues over Certain Operating Expenses for the year ended December 31, 2002 (audited) and for the six months ended June 30, 2003 (unaudited).	
 
The following financial statements relating to the acquisition of the Cingular Atlanta Building are filed as part of this Registration Statement and included in Supplement No. 9 to the Prospectus:
 
 	(1)	 	Report of Independent Auditors,	
 
 	(2)	 	Statement of Revenues over Certain Operating Expenses for the year ended December 31, 2002 (audited) and the six months ended June 30, 2003 (unaudited), and	
 
 	(3)	 	Notes to Statements of Revenues over Certain Operating Expenses for the year ended December 31, 2002 (audited) and the six months ended June 30, 2003 (unaudited).	
 
The following financial statements relating to the acquisition of the Aventis Northern NJ Building are filed as part of this Registration Statement and included in Supplement No. 9 to the Prospectus:
 
 	(1)	 	Report of Independent Auditors,	
 
 	(2)	 	Statement of Revenues over Certain Operating Expenses for the year ended December 31, 2002 (audited) and the six months ended June 30, 2003 (unaudited), and	
 
 	(3)	 	Notes to Statements of Revenues over Certain Operating Expenses for the year ended December 31, 2002 (audited) and the six months ended June 30, 2003 (unaudited).	
 
The following unaudited pro forma financial statements of the Registrant are filed as part of this Registration Statement and included in Supplement No. 9 to the Prospectus:
 
 	(1)	 	Summary of Unaudited Pro Forma Financial Statements,	
 
 	(2)	 	Pro Forma Balance Sheet as of June 30, 2003,	
 
 	(3)	 	Pro Forma Statement of Income for the year ended December 31, 2002, and	
 
 	(4)	 	Pro Forma Statement of Income for the six months ended June 30, 2003.	
 
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The following unaudited pro forma financial statements of the Registrant are filed as part of this Registration Statement and included in Supplement No. 10 to the Prospectus:
 
 	(1)	 	Summary of Unaudited Pro Forma Financial Statements,	
 
 	(2)	 	Pro Forma Balance Sheet as of June 30, 2003,	
 
 	(3)	 	Pro Forma Statement of Income for the year ended December 31, 2002, and	
 
 	(4)	 	Pro Forma Statement of Income for the six months ended June 30, 2003.	
 
 	(b)	 	Exhibits (See Exhibit Index):	
 
Exhibit No.

	  	Description

	
 	 	
1.1	  	Form of Dealer Manager Agreement (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 10, 2002)	
 	 	
1.2	  	Form of Warrant Purchase Agreement (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 10, 2002)	
 	 	
3.1	  	Amended and Restated Articles of Incorporation dated as of July 1, 2000 (previously filed in and incorporated by reference to Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on August 31, 2000)	
 	 	
3.2	  	Articles of Amendment to Amended and Restated Articles of Incorporation dated as June 26, 2002 (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
3.3	  	Bylaws (previously filed in and incorporated by reference to Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on January 23, 1998)	
 	 	
3.4	  	Amendment No. 1 to Bylaws (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on April 15, 1999)	
 	 	
4.1	  	Form of Subscription Agreement and Subscription Agreement Signature Page (included as Exhibit A to Prospectus)	
 	 	
5.1	  	Opinion of Holland & Knight LLP as to legality of securities (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
8.1	  	Opinion of Holland & Knight LLP as to tax matters (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
8.2	  	Opinion of Holland & Knight LLP as to ERISA matters (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.1	  	Advisory Agreement dated January 30, 2003	
 
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10.2	  	Asset/Property Management Agreement among Registrant, Wells Operating Partnership, L.P. and Wells Management Company, Inc.	
 	 	
10.3	  	Amended and Restated Joint Venture Agreement of The Fund IX, Fund X, Fund XI and REIT Joint Venture (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 of the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on July 9, 1998)	
 	 	
10.4	  	Joint Venture Agreement of Wells/Fremont Associates (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 of the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on August 14, 1998)	
 	 	
10.5	  	Joint Venture Agreement of Wells/Orange County Associates (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 of the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on August 14, 1998)	
 	 	
10.6	  	Amended and Restated Joint Venture Partnership Agreement of The Wells Fund XI-Fund XII—REIT Joint Venture (previously filed in and incorporated by reference to Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on November 17, 1999)	
 	 	
10.7	  	Joint Venture Partnership Agreement of Wells Fund XII-REIT Joint Venture Partnership (previously filed as Exhibit 10.11 and incorporated by reference to Post-Effective Amendment No. 2 to Form S-11 Registration Statement of Wells Real Estate Fund XII, L.P. on Form S-11, Commission File No. 33-66657, filed on April 25, 2000)	
 	 	
10.8	  	Joint Venture Partnership Agreement of Fund VIII-IX-REIT Joint Venture (previously filed in and incorporated by reference to Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on August 31, 2000)	
 	 	
10.9	  	Joint Venture Partnership Agreement of Wells Fund XIII-REIT Joint Venture Partnership (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on July 23, 2001)	
 	 	
10.10	  	Agreement of Limited Partnership of Wells Operating Partnership, L.P. as Amended and Restated as of January 1, 2000 (previously filed in and incorporated by reference to Form 10-K of Registrant for the fiscal year ended December 31, 2000, Commission File No. 0-25739)	
 	 	
10.11	  	Amended and Restated Promissory Note for $15,500,000 for the SouthTrust Loan (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 of the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on January 15, 1999)	
 	 	
10.12	  	Amendment No. 1 to Mortgage and Security Agreement and other Loan Documents for the PwC Building securing the SouthTrust Loan (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 of the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on January 15, 1999)	
 	 	
10.13	  	Loan Agreement with SouthTrust Bank, N.A. for a $35,000,000 revolving line of credit dated May 3, 2000 (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on September 8, 2000)	
 
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10.14	  	Promissory Note for $35,000,000 to SouthTrust Bank, N.A. (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on September 8, 2000)	
 	 	
10.15	  	Allonge to Revolving Note relating to the SouthTrust Bank N.A. $32,393,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.16	  	First Amendment to Revolving Loan Agreement and Other Loan Documents relating to the SouthTrust Bank N.A. $32,393,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.17	  	Second Note Modification Agreement relating to the SouthTrust Bank N.A. $12,844,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.18	  	Second Amendment to Amended and Restated Loan Agreement and Other Loan Documents relating to the SouthTrust Bank N.A. $12,844,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.19	  	Revolving Note relating to the SouthTrust Bank N.A. $19,003,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.20	  	Revolving Loan Agreement relating to the SouthTrust Bank N.A. $19,003,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.21	  	Amended and Restated Revolving Note relating to the SouthTrust Bank N.A. $7,900,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.22	  	Amended and Restated Loan Agreement relating to the SouthTrust Bank N.A. $7,900,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.23	  	Revolving Credit Agreement relating to the Bank of America, N.A. $85,000,000 revolving line of credit (previously filed in and incorporated by reference to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on April 8, 2002)	
 	 	
10.24	  	Construction Loan Agreement relating to the Bank of America, N.A. $34,200,000 construction loan (previously filed in and incorporated by reference to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on April 8, 2002)	
 
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10.25	  	Lease for the Eisenhower Blvd Tampa Building (formerly the PwC Building) (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 of the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on January 15, 1999)	
 	 	
10.26	  	Office Lease for the Matsushita Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 of the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on April 15, 1999)	
 	 	
10.27	  	Guaranty of Lease for the Matsushita Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 of the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on April 15, 1999)	
 	 	
10.28	  	Lease Agreement with Cinemark USA, Inc. for a portion of the Cinemark Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on March 15, 2000)	
 	 	
10.29	  	Lease Agreement with The Coca-Cola Company for a portion of the Cinemark Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on March 15, 2000)	
 	 	
10.30	  	Lease Agreement for the Motorola Tempe Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on June 9, 2000)	
 	 	
10.31	  	First Amendment to Lease Agreement for the Motorola Tempe Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on June 9, 2000)	
 	 	
10.32	  	Ground Lease Agreement for the Motorola Tempe Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on June 9, 2000)	
 	 	
10.33	  	Lease Agreement for the Motorola Plainfield Building (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 1, 2000)	
 	 	
10.34	  	Lease Agreement with Stone & Webster, Inc. for a portion of the Stone & Webster Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on February 9, 2001)	
 	 	
10.35	  	Lease Agreement with Sysco Corporation for a portion of the Stone & Webster Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on February 9, 2001)	
 	 	
10.36	  	Lease Agreement for the Metris Minnesota Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on February 9, 2001)	
 
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10.37	  	Fourth Amendment to Lease Agreement for the Metris Minnesota Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on February 9, 2001)	
 	 	
10.38	  	Guaranty of Lease for the Metris Minnesota Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on February 9, 2001)	
 	 	
10.39	  	Lease Agreement for the Comdata Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on July 23, 2001)	
 	 	
10.40	  	First Amendment to Lease Agreement for the Comdata Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on July 23, 2001)	
 	 	
10.41	  	Lease Agreement for the State Street Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.42	  	Lease Agreement for the IKON Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.43	  	First Amendment to Lease Agreement for the IKON Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.44	  	Reinstatement of and Second Amendment to Lease Agreement for the IKON Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.45	  	Agreement of Sale for the Nissan Property (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.46	  	Lease Agreement for the Nissan Property (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.47	  	Guaranty of Lease for the Nissan Property (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.48	  	Development Agreement for the Nissan Property (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.49	  	Design and Build Construction Agreement for the Nissan Property (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 
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10.50	  	Indenture of Lease Agreement for Ingram Micro Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.51	  	Guaranty of Lease Agreement for Ingram Micro Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.52	  	Absolute Assignment of Lease and Assumption Agreement for Ingram Micro Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.53	  	Bond Real Property Lease Agreement for the Ingram Micro Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.54	  	Second Amendment to Lease Agreement for Matsushita Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.55	  	Lease Agreement with TCI Great Lakes, Inc. for a portion of the Windy Point I Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on January 23, 2002)	
 	 	
10.56	  	First Amendment to Office Lease with TCI Great Lakes, Inc. (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on January 23, 2002)	
 	 	
10.57	  	Lease Agreement with Zurich American Insurance Company for the Windy Point II Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on January 23, 2002)	
 	 	
10.58	  	Third Amendment to Office Lease with Zurich American Insurance Company (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on January 23, 2002)	
 	 	
10.59	  	Lease Agreement with Arthur Andersen LLP for the Vertex Sarasota Building (formerly the Arthur Andersen Building) (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on January 23, 2002)	
 	 	
10.60	  	Lease Agreement with Transocean Deepwater Offshore Drilling, Inc. for a portion of the Transocean Houston Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 6 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on April 22, 2002)	
 
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10.61	  	Lease Agreement with Newpark Drilling Fluids, Inc. for a portion of the Transocean Houston Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 6 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on April 22, 2002)	
 	 	
10.62	  	Lease Agreement for the Dana Detroit Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 6 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on April 22, 2002)	
 	 	
10.63	  	Second Amendment to Lease Agreement for the Dana Detroit Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 6 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on April 22, 2002)	
 	 	
10.64	  	Lease Agreement for the Dana Kalamazoo Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 6 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on April 22, 2002)	
 	 	
10.65	  	Second Amendment to Lease Agreement for the Dana Kalamazoo Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 6 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on April 22, 2002)	
 	 	
10.66	  	Purchase and Sale Agreement for the Experian/TRW Buildings (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 10, 2002)	
 	 	
10.67	  	Lease Agreement for the Experian/TRW Buildings (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 10, 2002)	
 	 	
10.68	  	Lease Amendment to Lease Agreement for the Experian/TRW Buildings (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 10, 2002)	
 	 	
10.69	  	Purchase and Sale Agreement and Escrow Instructions for the Agilent Boston Building (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 10, 2002)	
 	 	
10.70	  	Lease Agreement for the Agilent Boston Building (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 10, 2002)	
 	 	
10.71	  	Purchase and Sale Agreement for the TRW Denver Building (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.72	  	Lease Agreement for the TRW Denver Building (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.73	  	Purchase and Sale Agreement for the MFS Phoenix Building (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 
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10.74	  	Lease Agreement for the MFS Phoenix Building (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.75	  	Purchase and Sale Agreement for the ISS Atlanta Buildings (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.76	  	Lease Agreement for the ISS Atlanta Buildings (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.77	  	Amendment No. 5 to Lease Agreement for the ISS Atlanta Buildings (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.78	  	Ground Lease Agreement for ISS Atlanta Buildings (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.79	  	Purchase and Sale Agreement for the Nokia Dallas Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.80	  	Lease Agreement for Building No. 1 of the Nokia Dallas Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.81	  	Amendment to Lease Agreement for Building No. 1 of the Nokia Dallas Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.82	  	Lease Agreement for Building No. 2 of the Nokia Dallas Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.83	  	Amendment to Lease Agreement for Building No. 2 of the Nokia Dallas Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.84	  	Lease Agreement for Building No. 3 of the Nokia Dallas Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.85	  	Amendment to Lease Agreement for Building No. 3 of the Nokia Dallas Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 
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10.86	  	Agreement of Sale for the KeyBank Parsippany Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.87	  	Lease Agreement with KeyBank U.S.A., N.A. for a portion of the KeyBank Parsippany Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.88	  	Lease Agreement with Gemini Technology Services for a portion of the KeyBank Parsippany Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.89	  	Amendment to Lease Agreement with Gemini Technology Services for a portion of the KeyBank Parsippany Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.90	  	Purchase and Sale Agreement for NASA Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on January 24, 2003)	
 	 	
10.91	  	Lease Agreement with the Office of the Comptroller of the Currency and amendments thereto (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on January 24, 2003)	
 	 	
10.92	  	Lease Agreement with the United States of America (NASA) and amendments thereto (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on January 24, 2003)	
 	 	
10.93	  	Agreement of Purchase and Sale for Nestle Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on January 24, 2003)	
 	 	
10.94	  	Loan Agreement for $90,000,000 loan assumed with Landesbank Schleswig-Holstein Gironzentrale, Kiel (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on January 24, 2003)	
 	 	
10.95	  	Lease Agreement for Nestle Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on January 24, 2003)	
 	 	
10.96	  	Various amendments to Lease Agreement for Nestle Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on January 24, 2003)	
 	 	
10.97	  	Agreement of Purchase and Sale for 150 West Jefferson Detroit Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on April 14, 2003)	
 
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10.98	  	$500,000,000 Credit Agreement for an unsecured line of credit with Bank of America, N.A. and a consortium of other banks (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 20, 2003)	
 	 	
10.99	  	Real Estate Sale Agreement for US Bancorp Minneapolis Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 20, 2003)	
 	 	
10.100	  	Lease Agreement with US Bancorp Piper Jaffray Companies, Inc. and amendments thereto for a portion of US Bancorp Minneapolis Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 20, 2003)	
 	 	
10.101	  	Agreement of Purchase and Sale for Aon Center Chicago Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 20, 2003)	
 	 	
10.102	  	Lease Agreement with BP Corporation North America, Inc. and amendments thereto for a portion of the Aon Center Chicago Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 20, 2003)	
 	 	
10.103	  	Lease Agreement for Cingular Atlanta Building	
 	 	
10.104	  	Lease Agreement for Aventis Northern NJ Building	
 	 	
23.1	  	Consent of Holland & Knight LLP (included in exhibits 5.1 and 8.1)	
 	 	
23.2	  	Consent of Arthur Andersen LLP (previously filed in and incorporated by reference to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on April 8, 2002)	
 	 	
23.3	  	Consent of Ernst & Young LLP	
 	 	
23.4	  	Consent of Ernst & Young LLP	
 	 	
24.1	  	Power of Attorney	
 	 	
24.2	  	Power of Attorney	
 
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Table of Contents
SIGNATURES
 
Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form S-11 and has duly caused this Post-Effective Amendment No. 5 to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Norcross, and State of Georgia, on the 18 th  day of September, 2003.
 
WELLS REAL ESTATE INVESTMENT TRUST, INC.	
A Maryland corporation	
(Registrant)	
 	 	
By:	 	/s/ Leo F. Wells, III

	
 	 	Leo F. Wells, III, President	
 
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 5 to Registration Statement has been signed below on September 18, 2003 by the following persons in the capacities indicated.
 
Name

	  	Title

	
 	 	
/s/ Leo F. Wells, III

Leo F. Wells, III	  	President and Director
(Principal Executive Officer)	
 	 	
/s/ Douglas P. Williams

Douglas P. Williams	  	Executive Vice President and Director
(Principal Financial and Accounting Officer)	
 	 	
/s/ John L. Bell *

John L. Bell (By Douglas P. Williams, as Attorney-in-fact)	  	Director	
 	 	
/s/ Michael R. Buchanan *

Michael R. Buchanan (By Douglas P. Williams, as Attorney-in-fact)	  	Director	
 	 	
/s/ Richard W. Carpenter *

Richard W. Carpenter (By Douglas P. Williams, as Attorney-in-fact)	  	Director	
 	 	
/s/ Bud Carter *

Bud Carter (By Douglas P. Williams, as Attorney-in-fact)	  	Director	
 	 	
/s/ William H. Keogler, Jr. *

William H. Keogler, Jr. (By Douglas P. Williams, as Attorney-in-fact)	  	Director	
 	 	
/s/ Donald S. Moss *

Donald S. Moss (By Douglas P. Williams, as Attorney-in-fact)	  	Director	
 	 	
/s/ Walter W. Sessoms *

Walter W. Sessoms (By Douglas P. Williams, as Attorney-in-fact)	  	Director	
 	 	
/s/ Neil H. Strickland *

Neil H. Strickland (By Douglas P. Williams, as Attorney-in-fact)	  	Director	
 	 	
/s/ W. Wayne Woody **

W. Wayne Woody (By Douglas P. Williams, as Attorney-in-fact)	  	Director	

*	 	By Douglas P. Williams, as Attorney-in-fact, pursuant to Power of Attorney dated April 20, 2003 and included as Exhibit 24.1 herein.	
**	 	By Douglas P. Williams, as Attorney-in-fact, pursuant to Power of Attorney dated July 25, 2003 and included as Exhibit 24.2 herein.	

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EXHIBIT INDEX
 
Exhibit No.

	 	Description

	
 	 	
1.1	 	Form of Dealer Manager Agreement (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 10, 2002)	
 	 	
1.2	 	Form of Warrant Purchase Agreement (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 10, 2002)	
 	 	
3.1	 	Amended and Restated Articles of Incorporation dated as of July 1, 2000 (previously filed in and incorporated by reference to Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on August 31, 2000)	
 	 	
3.2	 	Articles of Amendment to Amended and Restated Articles of Incorporation dated as June 26, 2002 (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
3.3	 	Bylaws (previously filed in and incorporated by reference to Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on January 23, 1998)	
 	 	
3.4	 	Amendment No. 1 to Bylaws (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on April 15, 1999)	
 	 	
4.1	 	Form of Subscription Agreement and Subscription Agreement Signature Page (included as Exhibit A to Prospectus)	
 	 	
5.1	 	Opinion of Holland & Knight LLP as to legality of securities (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
8.1	 	Opinion of Holland & Knight LLP as to tax matters (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
8.2	 	Opinion of Holland & Knight LLP as to ERISA matters (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.1	 	Advisory Agreement dated January 30, 2003, filed herewith	
 	 	
10.2	 	Asset/Property Management Agreement among Registrant, Wells Operating Partnership, L.P. and Wells Management Company, Inc., filed herewith	
 	 	
10.3	 	Amended and Restated Joint Venture Agreement of The Fund IX, Fund X, Fund XI and REIT Joint Venture (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 of the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on July 9, 1998)	
 	 	
10.4	 	Joint Venture Agreement of Wells/Fremont Associates (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 of the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on August 14, 1998)	

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10.5	  	Joint Venture Agreement of Wells/Orange County Associates (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 of the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on August 14, 1998)	
 	 	
10.6	  	Amended and Restated Joint Venture Partnership Agreement of The Wells Fund XI-Fund XII—REIT Joint Venture (previously filed in and incorporated by reference to Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on November 17, 1999)	
 	 	
10.7	  	Joint Venture Partnership Agreement of Wells Fund XII-REIT Joint Venture Partnership (previously filed as Exhibit 10.11 and incorporated by reference to Post-Effective Amendment No. 2 to Form S-11 Registration Statement of Wells Real Estate Fund XII, L.P. on Form S-11, Commission File No. 33-66657, filed on April 25, 2000)	
 	 	
10.8	  	Joint Venture Partnership Agreement of Fund VIII-IX-REIT Joint Venture (previously filed in and incorporated by reference to Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on August 31, 2000)	
 	 	
10.9	  	Joint Venture Partnership Agreement of Wells Fund XIII-REIT Joint Venture Partnership (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on July 23, 2001)	
 	 	
10.10	  	Agreement of Limited Partnership of Wells Operating Partnership, L.P. as Amended and Restated as of January 1, 2000 (previously filed in and incorporated by reference to Form 10-K of Registrant for the fiscal year ended December 31, 2000, Commission File No. 0-25739)	
 	 	
10.11	  	Amended and Restated Promissory Note for $15,500,000 for the SouthTrust Loan (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 of the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on January 15, 1999)	
 	 	
10.12	  	Amendment No. 1 to Mortgage and Security Agreement and other Loan Documents for the PwC Building securing the SouthTrust Loan (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 of the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on January 15, 1999)	
 	 	
10.13	  	Loan Agreement with SouthTrust Bank, N.A. for a $35,000,000 revolving line of credit dated May 3, 2000 (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on September 8, 2000)	
 	 	
10.14	  	Promissory Note for $35,000,000 to SouthTrust Bank, N.A. (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on September 8, 2000)	
 	 	
10.15	  	Allonge to Revolving Note relating to the SouthTrust Bank N.A. $32,393,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.16	  	First Amendment to Revolving Loan Agreement and Other Loan Documents relating to the SouthTrust Bank N.A. $32,393,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	

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10.17	  	Second Note Modification Agreement relating to the SouthTrust Bank N.A. $12,844,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.18	  	Second Amendment to Amended and Restated Loan Agreement and Other Loan Documents relating to the SouthTrust Bank N.A. $12,844,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.19	  	Revolving Note relating to the SouthTrust Bank N.A. $19,003,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.20	  	Revolving Loan Agreement relating to the SouthTrust Bank N.A. $19,003,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.21	  	Amended and Restated Revolving Note relating to the SouthTrust Bank N.A. $7,900,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.22	  	Amended and Restated Loan Agreement relating to the SouthTrust Bank N.A. $7,900,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.23	  	Revolving Credit Agreement relating to the Bank of America, N.A. $85,000,000 revolving line of credit (previously filed in and incorporated by reference to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on April 8, 2002)	
 	 	
10.24	  	Construction Loan Agreement relating to the Bank of America, N.A. $34,200,000 construction loan (previously filed in and incorporated by reference to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on April 8, 2002)	
 	 	
10.25	  	Lease for the Eisenhower Blvd Tampa Building (formerly the PwC Building) (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 of the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on January 15, 1999)	
 	 	
10.26	  	Office Lease for the Matsushita Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 of the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on April 15, 1999)	
 	 	
10.27	  	Guaranty of Lease for the Matsushita Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 of the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on April 15, 1999)	
 	 	
10.28	  	Lease Agreement with Cinemark USA, Inc. for a portion of the Cinemark Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on March 15, 2000)	

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10.29	  	Lease Agreement with The Coca-Cola Company for a portion of the Cinemark Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on March 15, 2000)	
 	 	
10.30	  	Lease Agreement for the Motorola Tempe Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on June 9, 2000)	
 	 	
10.31	  	First Amendment to Lease Agreement for the Motorola Tempe Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on June 9, 2000)	
 	 	
10.32	  	Ground Lease Agreement for the Motorola Tempe Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on June 9, 2000)	
 	 	
10.33	  	Lease Agreement for the Motorola Plainfield Building (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 1, 2000)	
 	 	
10.34	  	Lease Agreement with Stone & Webster, Inc. for a portion of the Stone & Webster Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on February 9, 2001)	
 	 	
10.35	  	Lease Agreement with Sysco Corporation for a portion of the Stone & Webster Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on February 9, 2001)	
 	 	
10.36	  	Lease Agreement for the Metris Minnesota Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on February 9, 2001)	
 	 	
10.37	  	Fourth Amendment to Lease Agreement for the Metris Minnesota Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on February 9, 2001)	
 	 	
10.38	  	Guaranty of Lease for the Metris Minnesota Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on February 9, 2001)	
 	 	
10.39	  	Lease Agreement for the Comdata Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on July 23, 2001)	
 	 	
10.40	  	First Amendment to Lease Agreement for the Comdata Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on July 23, 2001)	
 	 	
10.41	  	Lease Agreement for the State Street Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	

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10.42	  	Lease Agreement for the IKON Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.43	  	First Amendment to Lease Agreement for the IKON Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.44	  	Reinstatement of and Second Amendment to Lease Agreement for the IKON Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.45	  	Agreement of Sale for the Nissan Property (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.46	  	Lease Agreement for the Nissan Property (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.47	  	Guaranty of Lease for the Nissan Property (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.48	  	Development Agreement for the Nissan Property (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.49	  	Design and Build Construction Agreement for the Nissan Property (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.50	  	Indenture of Lease Agreement for Ingram Micro Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.51	  	Guaranty of Lease Agreement for Ingram Micro Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.52	  	Absolute Assignment of Lease and Assumption Agreement for Ingram Micro Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.53	  	Bond Real Property Lease Agreement for the Ingram Micro Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.54	  	Second Amendment to Lease Agreement for Matsushita Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	

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10.55	  	Lease Agreement with TCI Great Lakes, Inc. for a portion of the Windy Point I Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on January 23, 2002)	
 	 	
10.56	  	First Amendment to Office Lease with TCI Great Lakes, Inc. (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on January 23, 2002)	
 	 	
10.57	  	Lease Agreement with Zurich American Insurance Company for the Windy Point II Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on January 23, 2002)	
 	 	
10.58	  	Third Amendment to Office Lease with Zurich American Insurance Company (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on January 23, 2002)	
 	 	
10.59	  	Lease Agreement with Arthur Andersen LLP for the Vertex Sarasota Building (formerly the Arthur Andersen Building) (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on January 23, 2002)	
 	 	
10.60	  	Lease Agreement with Transocean Deepwater Offshore Drilling, Inc. for a portion of the Transocean Houston Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 6 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on April 22, 2002)	
 	 	
10.61	  	Lease Agreement with Newpark Drilling Fluids, Inc. for a portion of the Transocean Houston Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 6 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on April 22, 2002)	
 	 	
10.62	  	Lease Agreement for the Dana Detroit Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 6 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on April 22, 2002)	
 	 	
10.63	  	Second Amendment to Lease Agreement for the Dana Detroit Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 6 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on April 22, 2002)	
 	 	
10.64	  	Lease Agreement for the Dana Kalamazoo Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 6 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on April 22, 2002)	
 	 	
10.65	  	Second Amendment to Lease Agreement for the Dana Kalamazoo Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 6 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on April 22, 2002)	
 	 	
10.66	  	Purchase and Sale Agreement for the Experian/TRW Buildings (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 10, 2002)	
 	 	
10.67	  	Lease Agreement for the Experian/TRW Buildings (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 10, 2002)	

Table of Contents
 	 	
10.68	  	Lease Amendment to Lease Agreement for the Experian/TRW Buildings (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 10, 2002)	
 	 	
10.69	  	Purchase and Sale Agreement and Escrow Instructions for the Agilent Boston Building (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 10, 2002)	
 	 	
10.70	  	Lease Agreement for the Agilent Boston Building (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 10, 2002)	
 	 	
10.71	  	Purchase and Sale Agreement for the TRW Denver Building (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.72	  	Lease Agreement for the TRW Denver Building (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.73	  	Purchase and Sale Agreement for the MFS Phoenix Building (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.74	  	Lease Agreement for the MFS Phoenix Building (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.75	  	Purchase and Sale Agreement for the ISS Atlanta Buildings (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.76	  	Lease Agreement for the ISS Atlanta Buildings (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.77	  	Amendment No. 5 to Lease Agreement for the ISS Atlanta Buildings (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.78	  	Ground Lease Agreement for the ISS Atlanta Buildings (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.79	  	Purchase and Sale Agreement for the Nokia Dallas Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.80	  	Lease Agreement for Building No. 1 of the Nokia Dallas Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.81	  	Amendment to Lease Agreement for Building No. 1 of the Nokia Dallas Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	

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10.82	  	Lease Agreement for Building No. 2 of the Nokia Dallas Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.83	  	Amendment to Lease Agreement for Building No. 2 of the Nokia Dallas Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.84	  	Lease Agreement for Building No. 3 of the Nokia Dallas Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.85	  	Amendment to Lease Agreement for Building No. 3 of the Nokia Dallas Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.86	  	Agreement of Sale for the KeyBank Parsippany Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.87	  	Lease Agreement with KeyBank U.S.A., N.A. for a portion of the KeyBank Parsippany Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.88	  	Lease Agreement with Gemini Technology Services for a portion of the KeyBank Parsippany Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.89	  	Amendment to Lease Agreement with Gemini Technology Services for a portion of the KeyBank Parsippany Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.90	  	Purchase and Sale Agreement for NASA Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on January 24, 2003)	
 	 	
10.91	  	Lease Agreement with the Office of the Comptroller of the Currency and amendments thereto (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on January 24, 2003)	
 	 	
10.92	  	Lease Agreement with the United States of America (NASA) and amendments thereto (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on January 24, 2003)	
 	 	
10.93	  	Agreement of Purchase and Sale for Nestle Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on January 24, 2003)	

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10.94	  	Loan Agreement for $90,000,000 loan assumed with Landesbank Schleswig-Holstein Gironzentrale, Kiel (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on January 24, 2003)	
 	 	
10.95	  	Lease Agreement for Nestle Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on January 24, 2003)	
 	 	
10.96	  	Various amendments to Lease Agreement for Nestle Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on January 24, 2003)	
 	 	
10.97	  	Agreement of Purchase and Sale for 150 West Jefferson Detroit Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on April 14, 2003)	
 	 	
10.98	  	$500,000,000 Credit Agreement for an unsecured line of credit with Bank of America, N.A. and a consortium of other banks (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 20, 2003)	
 	 	
10.99	  	Real Estate Sale Agreement for US Bancorp Minneapolis Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 20, 2003)	
 	 	
10.100	  	Lease Agreement with US Bancorp Piper Jaffray Companies, Inc. and amendments thereto for a portion of US Bancorp Minneapolis Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 20, 2003)	
 	 	
10.101	  	Agreement of Purchase and Sale for Aon Center Chicago Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 20, 2003)	
 	 	
10.102	  	Lease Agreement with BP Corporation North America, Inc. and amendments thereto for a portion of the Aon Center Chicago Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 20, 2003)	
 	 	
10.103	  	Lease Agreement for Cingular Atlanta Building, filed herewith	
 	 	
10.104	  	Lease Agreement for Aventis Northern NJ Building, filed herewith	
 	 	
23.1	  	Consent of Holland & Knight LLP (included in exhibits 5.1 and 8.1)	
 	 	
23.2	  	Consent of Arthur Andersen LLP (previously filed in and incorporated by reference to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on April 8, 2002)	
 	 	
23.3	  	Consent of Ernst & Young LLP, filed herewith	
 	 	
23.4	  	Consent of Ernst & Young LLP, filed herewith	
 	 	
24.1	  	Power of Attorney, filed herewith	
 	 	
24.2	  	Power of Attorney, filed herewith	

EXHIBIT 10.1
 
ADVISORY AGREEMENT

ADVISORY AGREEMENT
 
THIS ADVISORY AGREEMENT, effective as of January 30, 2003, is between WELLS REAL ESTATE INVESTMENT TRUST, INC., a Maryland corporation (the “Company”), and WELLS CAPITAL, INC., a Georgia corporation (the “Advisor”).
 
W I T N E S S E T H
 
WHEREAS, the Company has issued shares of its common stock, par value $.01, to the public, has registered with the Securities and Exchange Commission certain additional shares of its common stock to be offered to the public (“Shares”) and may subsequently issue securities other than such Shares (“Securities”);
 
WHEREAS, the Company intends to continue to qualify as a REIT (as defined below), and to invest its funds in investments permitted by the terms of the Company’s Articles of Incorporation and Sections 856 through 860 of the Code (as defined below);
 
WHEREAS, the Company desires to avail itself of the experience, sources of information, advice, assistance and certain facilities available to the Advisor and to have the Advisor undertake the duties and responsibilities hereinafter set forth, on behalf of, and subject to the supervision of, the Board of Directors of the Company all as provided herein; and
 
WHEREAS, the Advisor is willing to undertake to render such services, subject to the supervision of the Board of Directors, on the terms and conditions hereinafter set forth.
 
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements contained herein, the parties hereto agree as follows:
 
1.Definitions. As used in this Advisory Agreement (the “Agreement”), the following terms have the definitions hereinafter indicated:
 
Acquisition Expenses. Any and all expenses incurred by the Company, the Advisor, or any Affiliate of either in connection with the selection, acquisition or development of any Property, whether or not acquired, including, without limitation, legal fees and expenses, travel and communications expenses, costs of appraisals, nonrefundable option payments on property not acquired, accounting fees and expenses, and title insurance premiums.
 
Acquisition Fees. Any and all fees and commissions, exclusive of Acquisition Expenses, paid by any person or entity to any other person or entity (including any fees or commissions paid by or to any Affiliate of the Company or the Advisor) in connection with purchase, development or construction of any Property, including, without limitation, real estate commissions, acquisition fees, finder’s fees, selection fees, nonrecurring management fees, consulting fees, loan fees, points, or any other fees or commissions of a similar nature.
 
Advisor. Wells Capital, Inc., a Georgia corporation, any successor advisor to the Company, or any person or entity to which Wells Capital, Inc. or any successor advisor subcontracts substantially all of its functions.

Affiliate or Affiliated. As to any individual, corporation, partnership, trust or other association (other than the Excess Shares Trust), (i) any Person or entity directly or indirectly; through one or more intermediaries controlling, controlled by, or under common control with another person or entity; (ii) any Person or entity, directly or indirectly owning or controlling ten percent (10%) or more of the outstanding voting securities of another Person or entity; (iii) any officer, director, partner, or trustee of such Person or entity; (iv) any Person ten percent (10%) or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held, with power to vote, by such other Person; and (v) if such other Person or entity is an officer, director, partner, or trustee of a Person or entity, the Person or entity for which such Person or entity acts in any such capacity.
 
Appraised Value. Value according to an appraisal made by an Independent Appraiser.
 
Articles of Incorporation. The Articles of Incorporation of the Company under Title 2 of the Corporations and Associations Article of the Annotated Code of Maryland, as amended from time to time.
 
Average Invested Assets. For a specified period, the average of the aggregate book value of the assets of the Company invested, directly or indirectly, in Properties and Loans secured by real estate before reserves for depreciation or bad debts or other similar non-cash reserves, computed by taking the average of such values at the end of each month during such period.
 
Board of Directors or Board. The persons holding such office, as of any particular time, under the Articles of Incorporation of the Company, whether they be the Directors named therein or additional or successor Directors.
 
Bylaws. The bylaws of the Company, as the same are in effect from time to time.
 
Cash from Financings. Net cash proceeds realized by the Company from the financing of Company Property or from the refinancing of any Company indebtedness.
 
Cash from Sales. Net cash proceeds realized by the Company from the sale, exchange or other disposition of any of its assets after deduction of all expenses incurred in connection therewith. Cash from Sales shall not include Cash from Financings.
 
Cash from Sales and Financings. The total sum of Cash from Sales and Cash from Financings.
 
Cause. With respect to the termination of this Agreement, fraud, criminal conduct, willful misconduct or willful or negligent breach of fiduciary duty by the Advisor, breach of this Agreement, a default by the Sponsor under the guarantee by the Sponsor to the Company or the bankruptcy of the Sponsor.
 
Code. Internal Revenue Code of 1986, as amended from time to time, or any successor statute thereto. Reference to any provision of the Code shall mean such provision as in effect from time to time, as the same may be amended, and any successor provision thereto, as interpreted by any applicable regulations as in effect from time to time.
 
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Company. Wells Real Estate Investment Trust, Inc., a corporation organized under the laws of the State of Maryland.
 
Company Property. Any and all property, real, personal or otherwise, tangible or intangible, which is transferred or conveyed to the Company or the Partnership (including all rents, income, profits and gains therefrom), and which is owned or held by, or for the account of, the Company or the Partnership.
 
Competitive Real Estate Commission. A real estate or brokerage commission for the purchase or sale of property which is reasonable, customary, and competitive in light of the size, type, and location of the property. The total of all real estate commissions paid by the Company to all Persons (including the Subordinated Disposition Fee payable to the Advisor) in connection with any Sale of one or more of the Company’s Properties shall not exceed the lesser of (i) a Competitive Real Estate Commission or (ii) 6% of the gross sales price of the Property or Properties.
 
Contract Purchase Price. The amount actually paid or allocated (as of the date of purchase) to the purchase, development, construction or improvement of Property, exclusive of Acquisition Fees and Acquisition Expenses.
 
Contract Sales Price. The total consideration received by the Company for the Sale of a Company Property.
 
Director. A member of the Board of Directors of the Company.
 
Dividends. Any dividends or other distributions of money or other property by the Company to owners of Shares, including distributions that may constitute a return of capital for federal income tax purposes.
 
Equity Interest. The stock of or other interests in, or warrants or other rights to purchase the stock of or other interests in, any entity that has borrowed money from the Company or that is a tenant of the Company or that is a parent or controlling Person of any such borrower or tenant.
 
Equity Shares. Transferable shares of beneficial interest of the Company of any class or series, including common shares or preferred shares.
 
Good Reason. With respect to the termination of this Agreement, (i) any failure to obtain a satisfactory agreement from any successor to the Company to assume and agree to perform the Company’s obligations under this Agreement; or (ii) any material breach of this Agreement of any nature whatsoever by the Company.
 
Gross Proceeds. The aggregate purchase price of all Shares sold for the account of the Company through an Offering, without deduction for Selling Commissions, volume discounts, the marketing support fee and due diligence expense reimbursement or Organization and Offering Expenses.
 
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Independent Appraiser. A qualified appraiser of real estate as determined by the Board. Membership in a nationally recognized appraisal society such as the American Institute of Real Estate Appraisers (“M.A.I.”) or the Society of Real Estate Appraisers (“S.R.E.A.”) shall be conclusive evidence of such qualification.
 
Independent Director. A Director who is not and within the last two years has not been directly or indirectly associated with the Advisor by virtue of (i) ownership of an interest in the Advisor or its Affiliates, (ii) employment by the Advisor or its Affiliates, (iii) service as an officer or director of the Advisor or its Affiliates, (iv) performance of services, other than as a Director, for the Company, (v) service as a director or trustee of more than three real estate investment trusts advised by the Advisor, or (vi) maintenance of a material business or professional relationship with the Advisor or any of its Affiliates. A business or professional relationship is considered material if the gross revenue derived by the Director from the Advisor and Affiliates exceeds 5.0% of either the Director’s annual gross revenue during either of the last two years or the Director’s net worth on a fair market value basis. An indirect relationship shall include circumstances in which a Director’s spouse, parents, children, siblings, mothers- or fathers-in-law, sons- or daughters-in-law, or brothers- or sisters-in-law is or has been associated with the Advisor, any of its Affiliates, or the Company.
 
Independent Expert. A person or entity with no material current or prior business or personal relationship with the Advisor or the Directors and who is engaged to a substantial extent in the business of rendering opinions regarding the value of assets of the type held by the Company.
 
Invested Capital. The amount calculated by multiplying the total number of Shares purchased by stockholders by the issue price, reduced by the portion of any Dividend that is attributable to Net Sales Proceeds and by any amounts paid by the Company to repurchase Shares pursuant to the Company’s plan for redemption of Shares.
 
Joint Ventures. The joint venture or general partnership arrangements established to acquire Properties in which the Company or the Partnership is a co-venturer, general partner or joint venture partner with another Person.
 
Listing. The listing of the Shares of the Company on a national securities exchange or over-the-counter market.
 
Managing Dealer. Wells Investment Securities, Inc., an Affiliate of the Advisor, or such entity selected by the Board of Directors to act as the managing dealer for an Offering. Wells Investment Securities, Inc. is a member of NASD, Inc.
 
Net Income. For any period, the total revenues applicable to such period, less the total expenses applicable to such period excluding additions to reserves for depreciation, bad debts or other similar non-cash reserves; provided, however, Net Income for purposes of calculating total allowable Operating Expenses (as defined herein) shall exclude the gain from the sale of the Company’s assets.
 
Net Sales Proceeds. In the case of a transaction described in clause (i) (A) of the definition of Sale, the proceeds of any such transaction less the amount of all real estate
 
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commissions and closing costs paid by the Company. In the case of a transaction described in clause (i) (B) of such definition, Net Sales Proceeds means the proceeds of any such transaction less the amount of any legal and other selling expenses incurred in connection with such transaction. In the case of a transaction described in clause (i) (C) of such definition, Net Sales Proceeds means the proceeds of any such transaction actually distributed to the Company from the Joint Venture. In the case of a transaction or series of transactions described in clause (i) (D) of the definition of Sale, Net Sales Proceeds means the proceeds of any such transaction less the amount of all commissions and closing costs paid by the Company. In the case of a transaction described in clause (ii) of the definition of Sale, Net Sales Proceeds means the proceeds of such transaction or series of transactions less all amounts generated thereby and reinvested in one or more Properties within 180 days thereafter and less the amount of any real estate commissions, closing costs, and legal and other selling expenses incurred by or allocated to the Company in connection with such transaction or series of transactions. Net Sales Proceeds shall also include, in the case of any Property consisting of a building only, any amounts that the Company determines, in its discretion, to be economically equivalent to proceeds of a Sale. Net Sales Proceeds shall not include any reserves established by the Company in its sole discretion.
 
Offering. Any public offering of Shares pursuant to a Prospectus which is registered with the SEC.
 
Operating Expenses. All costs and expenses incurred by the Company, as determined under generally accepted accounting principles, which in any way are related to the operation of the Company or to Company business, including advisory fees, but excluding (i) the expenses of raising capital such as Organizational and Offering Expenses, legal, audit, accounting, underwriting, brokerage, listing, registration, and other fees, printing and other such expenses and tax incurred in connection with the issuance, distribution, transfer, registration and Listing of the Shares, (ii) interest payments, (iii) taxes, (iv) non-cash expenditures such as depreciation, amortization and bad loan reserves, (v) the Advisor’s subordinated 10% share of Net Sales Proceeds, (vi) the Subordinated Incentive Fee, and (vii) Acquisition Fees and Acquisition Expenses, real estate commissions on the sale of property, and other expenses connected with the acquisition, disposition and ownership of real estate interests, mortgage loans or other property (such as the costs of foreclosure, insurance premiums, legal services, maintenance, repair and improvement of property).
 
Organizational and Offering Expenses. Any and all actual legal, accounting, printing and other accountable Offering costs and expenses, other than selling commissions and the 2.5% dealer manager fee, including amounts to reimburse the Advisor for all marketing related costs and expenses, including, but not limited to, salaries and direct expenses of the Advisor’s employees while engaged in registering and marketing the Shares and other marketing and organization costs, technology costs and expenses attributable to an Offering, costs and expenses of conducting educational conferences and seminars, payment or reimbursement of bona fide due diligence expenses, and costs and expenses incurred by the Advisor or any Affiliate for attending retail seminars conducted by broker-dealers. The Organizational and Offering Expenses paid by the Company in connection with any Offering will not exceed 3.0% of the Gross Proceeds raised in such Offering.
 
5

Partnership. Wells Operating Partnership, L.P., a Delaware limited partnership formed to own and operate properties on behalf of the Company.
 
Person. An individual, corporation, partnership, estate, trust (including a trust qualified under Section 401(a) or 501(c) (17) of the Code), a portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, association, private foundation within the meaning of Section 509(a) of the Code, joint stock company or other entity, or any government or any agency or political subdivision thereof.
 
Property or Properties. (i) The real properties, including the buildings located thereon, or (ii) the real properties only, or (iii) the buildings only, which are acquired by the Company, either directly or through joint venture arrangements or other partnerships.
 
Prospectus. “Prospectus” has the meaning set forth in Section 2(10) of the Securities Act of 1933, as amended (the “Securities Act”), including a preliminary Prospectus, an offering circular as described in Rule 256 of the General Rules and Regulations under the Securities Act or, in the case of an intrastate offering, any document by whatever name known, utilized for the purpose of offering and selling securities to the public.
 
Real Estate Asset Value. The amount actually paid or allocated to the purchase, development, construction or improvement of a Property, exclusive of Acquisition Fees and Acquisition Expenses.
 
Registration Statement. The most currently filed Registration Statement on Form S-11 with the Securities and Exchange Commission, of which the Prospectus is a part.
 
REIT. A “real estate investment trust” under Sections 856 through 860 of the Code.
 
Sale or Sales. (i) Any transaction or series of transactions whereby: (A) the Company or the Partnership sells, grants, transfers, conveys, or relinquishes its ownership of any Property or portion thereof, including the lease of any Property consisting of the building only, and including any event with respect to any Property which gives rise to a significant amount of insurance proceeds or condemnation awards; (B) the Company or the Partnership sells, grants, transfers, conveys, or relinquishes its ownership of all or substantially all of the interest of the Company or the Partnership in any Joint Venture in which it is a co-venturer or partner; or (C) any Joint Venture in which the Company or the Partnership as a co-venturer or partner sells, grants, transfers, conveys, or relinquishes its ownership of any Property or portion thereof, including any event with respect to any Property which gives rise to insurance claims or condemnation awards, but (ii) not including any transaction or series of transactions specified in clause (i) (A), (i) (B), or (i) (C) above in which the proceeds of such transaction or series of transactions are reinvested in one or more Properties within 180 days thereafter.
 
Securities. Any Equity Shares, Excess Shares, as such term is defined in the Company’s Articles of Incorporation, any other stock, shares or other evidences of equity or beneficial or other interests, voting trust certificates, bonds, debentures, notes or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as “securities” or any certificates of interest, shares or
 
6

participations in, temporary or interim certificates for, receipts for, guarantees of, or warrants, options or rights to subscribe to, purchase or acquire, any of the foregoing.
 
Shares. Any shares of the Company’s common stock, par value $.01 per share, previously issued by the Company pursuant to an effective registration statement and shares currently registered with the Securities and Exchange Commission pursuant to the Registration Statement.
 
Soliciting Dealers. Broker-dealers who are members of NASD, Inc., or that are exempt from broker-dealer registration, and who, in either case, have executed participating broker or other agreements with the Managing Dealer to sell Shares.
 
Sponsor. Any Person directly or indirectly instrumental in organizing, wholly or in part, the Company or any Person who will control, manage or participate in the management of the Company, and any Affiliate of such Person. Not included is any Person whose only relationship with the Company is that of an independent property manager of Company assets, and whose only compensation is as such. Sponsor does not include wholly independent third parties such as attorneys, accountants, and underwriters whose only compensation is for professional services.
 
Stockholders. The record holders of the Company’s Shares as maintained in the Company’s books and records.
 
Stockholders’ 8.0% Return. As of each date, an aggregate amount equal to an 8.0% cumulative, noncompounded, annual return on Invested Capital.
 
Subordinated Disposition Fee. The Subordinated Disposition Fee as defined in Paragraph 9(b).
 
Subordinated Incentive Fee. The fee payable to the Advisor under certain circumstances if the Shares are listed on a national securities exchange or over-the-counter market as defined in Paragraph 9(d).
 
Subordinated Share of Net Sale Proceeds. The Subordinated Share of Net Sales Proceeds as defined in Paragraph 9(c).
 
Termination Date. The date of termination of the Agreement.
 
Total Property Cost. With regard to any Company Property, an amount equal to the sum of the Real Estate Asset Value of such Property plus the Acquisition Fees and Acquisition Expenses paid in connection with such Property.
 
2%/25% Guidelines. The requirement pursuant to the guidelines of the North American Securities Administrators Association, Inc. that, in any 12 month period, total Operating Expenses not exceed the greater of 2% of the Company’s Average Invested Assets during such 12 month period or 25% of the Company’s Net Income over the same 12 month period.
 
Valuation. An estimate of value of the assets of the Company as determined by an Independent Expert.
 
7

2.Appointment. The Company hereby appoints the Advisor to serve as its advisor on the terms and conditions set forth in this Agreement, and the Advisor hereby accepts such appointment.
 
3.Duties of the Advisor. The Advisor undertakes to use its best efforts to present to the Company potential investment opportunities and to provide a continuing and suitable investment program consistent with the investment objectives and policies of the Company as determined and adopted from time to time by the Board. In performance of this undertaking, subject to the supervision of the Board and consistent with the provisions of the Prospectus, Articles of Incorporation and Bylaws of the Company, the Advisor shall, either directly or by engaging an Affiliate:
 
 	(a)	 	serve as the Company’s investment and financial advisor and provide research and economic and statistical data in connection with the Company’s assets and investment policies;	
 
 	(b)	 	provide the daily management of the Company and perform and supervise the various administrative functions reasonably necessary for the management of the Company;	
 
 	(c)	 	maintain and preserve the books and records of the Company, including stock books and records reflecting a record of the Stockholders and their ownership of the Company’s uncertificated Shares and acting as transfer agent for the Company’s uncertificated Shares;	
 
 	(d)	 	investigate, select, and, on behalf of the Company, engage and conduct business with such Persons as the Advisor deems necessary to the proper performance of its obligations hereunder, including but not limited to consultants, accountants, correspondents, lenders, technical advisors, attorneys, brokers, underwriters, corporate fiduciaries, escrow agents, depositaries, custodians, agents for collection, insurers, insurance agents, banks, builders, developers, property owners, mortgagors, and any and all agents for any of the foregoing, including Affiliates of the Advisor, and Persons acting in any other capacity deemed by the Advisor necessary or desirable for the performance of any of the foregoing services, including but not limited to entering into contracts in the name of the Company with any of the foregoing;	
 
 	(e)	 	consult with the officers and the Board of the Company and assist the Board in the formulation and implementation of the Company’s financial policies, and, as necessary, furnish the Board with advice and recommendations with respect to the making of investments consistent with the investment objectives and policies of the Company and in connection with any borrowings proposed to be undertaken by the Company;	
 
 	(f)	 	subject to the provisions of Paragraphs 3(h) and 4 hereof, (i) locate, analyze and select potential investments in Properties, (ii) structure and negotiate the terms and conditions of transactions pursuant to which investment in Properties will be	
 
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 	made; (iii) make investments in Properties on behalf of the Company or the Partnership in compliance with the investment objectives and policies of the Company; (iv) arrange for financing and refinancing and make other changes in the asset or capital structure of, and dispose of, reinvest the proceeds from the sale of, or otherwise deal with the investments in, Property; and (v) enter into leases and service contracts for Company Property and, to the extent necessary, perform all other operational functions for the maintenance and administration of such Company Property;	
 
 	(g)	 	provide the Board with periodic reports regarding prospective investments in Properties;	
 
 	(h)	 	obtain the prior approval of the Board (including a majority of all Independent Directors) for any and all investments in Properties;	
 
 	(i)	 	negotiate on behalf of the Company with banks or lenders for loans to be made to the Company, and negotiate on behalf of the Company with investment banking firms and broker-dealers or negotiate private sales of Shares and Securities or obtain loans for the Company, but in no event in such a way so that the Advisor shall be acting as broker-dealer or underwriter; and provided, further, that any fees and costs payable to third parties incurred by the Advisor in connection with the foregoing shall be the responsibility of the Company;	
 
 	(j)	 	obtain reports (which may be prepared by the Advisor or its Affiliates), where appropriate, concerning the value of investments or contemplated investments of the Company in Properties;	
 
 	(k)	 	from time to time, or at any time reasonably requested by the Board, make reports to the Board of its performance of services to the Company under this Agreement;	
 
 	(l)	 	provide the Company with all necessary cash management services;	
 
 	(m)	 	do all things necessary to assure its ability to render the services described in this Agreement;	
 
 	(n)	 	deliver to or maintain on behalf of the Company copies of all appraisals obtained in connection with the investments in Properties; and	
 
 	(o)	 	notify the Board of all proposed material transactions before they are completed.	
 
4. Authority of Advisor.
 
(a) Pursuant to the terms of this Agreement (including the restrictions included in this Paragraph 4 and in Paragraph 7), and subject to the continuing and exclusive authority of the Board over the management of the Company, the Board hereby delegates to the Advisor the authority to (1) locate, analyze and select investment opportunities, (2) structure the terms and conditions of transactions pursuant to which investments will be made or acquired for the
 
9

Company or the Partnership, (3) acquire Properties in compliance with the investment objectives and policies of the Company, (4) arrange for financing or refinancing of Properties, (5) enter into leases and service contracts for the Company’s Properties, including oversight of Affiliated companies that perform property management services for the Company, (6) oversee non-affiliated property managers and other non-affiliated Persons who perform services for the Company, and (7) undertake accounting and other record-keeping functions at the Property level.
 
(b) Notwithstanding the foregoing, any investment in Properties, including any acquisition of Property by the Company or the Partnership (as well as any financing acquired by the Company or the Partnership in connection with such acquisition), will require the prior approval of the Board.
 
(c) If a transaction requires approval by the Independent Directors, the Advisor will deliver to the Independent Directors all documents required by them to properly evaluate the proposed investment in the Property.
 
The prior approval of a majority of the Independent Directors and a majority of the Board not otherwise interested in the transaction will be required for each transaction with the Advisor or its Affiliates.
 
The Board may, at any time upon the giving of notice to the Advisor, modify or revoke the authority set forth in this Paragraph 4. If and to the extent the Board so modifies or revokes the authority contained herein, the Advisor shall henceforth submit to the Board for prior approval such proposed transactions involving investments in Property as thereafter require prior approval, provided however, that such modification or revocation shall be effective upon receipt by the Advisor and shall not be applicable to investment transactions to which the Advisor has committed the Company prior to the date of receipt by the Advisor of such notification.
 
5.Bank Accounts. The Advisor may establish and maintain one or more bank accounts in its own name for the account of the Company or in the name of the Company and may collect and deposit into any such account or accounts, and disburse from any such account or accounts, any money on behalf of the Company, under such terms and conditions as the Board may approve, provided that no funds shall be commingled with the funds of the Advisor; and the Advisor shall from time to time render appropriate accountings of such collections and payments to the Board and to the auditors of the Company.
 
6.Records; Access. The Advisor shall maintain appropriate records of all its activities hereunder and make such records available for inspection by the Board and by counsel, auditors and authorized agents of the Company, at any time or from time to time during normal business hours. The Advisor shall at all reasonable times have access to the books and records of the Company.
 
7.Limitations on Activities. Anything else in this Agreement to the contrary notwithstanding, the Advisor shall refrain from taking any action which, in its sole judgment made in good faith, would (a) adversely affect the status of the Company as a REIT, (b) subject the Company to regulation under the Investment Company Act of 1940, as amended, or (c) violate any law, rule, regulation or statement of policy of any governmental body or agency
 
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having jurisdiction over the Company, its Shares or its Securities, or otherwise not be permitted by the Articles of Incorporation or Bylaws of the Company, except if such action shall be ordered by the Board, in which case the Advisor shall notify promptly the Board of the Advisor’s judgment of the potential impact of such action and shall refrain from taking such action until it receives further clarification or instructions from the Board. In such event the Advisor shall have no liability for acting in accordance with the specific instructions of the Board so given. Notwithstanding the foregoing, the Advisor, its directors, officers, employees and stockholders, and stockholders, directors and officers of the Advisor’s Affiliates shall not be liable to the Company or to the Board or stockholders for any act or omission by the Advisor, its directors, officers or employees, or stockholders, directors or officers of the Advisor’s Affiliates except as provided in Paragraphs 20 and 21 of this Agreement.
 
8.Relationship with Directors. Directors, officers and employees of the Advisor or an Affiliate of the Advisor or any corporate parents of an Affiliate, or directors, officers or stockholders of any director, officer or corporate parent of an Affiliate may serve as a Director and as officers of the Company, except that no director, officer or employee of the Advisor or its Affiliates who also is a Director or officer of the Company shall receive any compensation from the Company for serving as a Director or officer other than reasonable reimbursement for travel and related expenses incurred in attending meetings of the Board.
 
9.Fees.
 
(a) Acquisition Fees and Expenses. The Advisor may receive, as compensation payable by the Company for services rendered in connection with the investigation, selection and acquisition (by purchase, investment or exchange) of Properties, Acquisition Fees in an amount equal to up to 3.0% of Gross Proceeds and Acquisition Expenses in an amount equal to up to 0.5% of Gross Proceeds.
 
(b) Subordinated Disposition Fee. If the Advisor or an Affiliate provides a substantial amount of the services (as determined by a majority of the Independent Directors) in connection with the Sale of one or more Properties, the Advisor or an Affiliate shall receive a Subordinated Disposition Fee equal to the lesser of (i) one-half of a Competitive Real Estate Commission or (ii) 3.0% of the sales price of such Property or Properties. The Subordinated Disposition Fee will be paid only if Stockholders have received total Dividends in an amount equal to the sum of their aggregate Invested Capital and their aggregate Stockholders’ 8.0% Return. To the extent that Subordinated Disposition Fees are not paid by the Company on a current basis due to the foregoing limitation, the unpaid fees will be accrued and paid at such time as the subordination conditions have been satisfied. The Subordinated Disposition Fee may be paid in addition to real estate commissions paid to non-Affiliates, provided that the total real estate commissions paid to all Persons by the Company shall not exceed an amount equal to the lesser of (i) 6.0% of the Contract Sales Price of a Property or (ii) the Competitive Real Estate Commission. In the event this Agreement is terminated prior to such time as the Stockholders have received total Dividends in an amount equal to 100% of Invested Capital plus an amount sufficient to pay the Stockholders’ 8.0% Return through the Termination Date, an appraisal of the Properties then owned by the Company shall be made and the Subordinated Disposition Fee on Properties previously sold will be deemed earned if the Appraised Value of the Properties then owned by the Company plus total Dividends received prior to the Termination Date equals
 
11

100% of Invested Capital plus an amount sufficient to pay the Stockholders’ 8.0% Return through the Termination Date. Upon Listing, if the Advisor has accrued but not been paid such Subordinated Disposition Fee, then for purposes of determining whether the subordination conditions have been satisfied, Stockholders will be deemed to have received Dividends in the amount equal to the product of the total number of Shares outstanding and the average closing price of the Shares over a period, beginning 180 days after Listing, of 30 days during which the Shares are traded.
 
(c) Subordinated Share of Net Sales Proceeds. The Subordinated Share of Net Sales Proceeds shall be payable to the Advisor in an amount equal to 10% of Net Sales Proceeds remaining after the Stockholders have received Dividends equal to the sum of the Stockholders’ 8.0% Return and 100% of Invested Capital. Following Listing, no Subordinated Share of Net Sales Proceeds will be paid to the Advisor.
 
(d) Subordinated Incentive Fee. Upon Listing, the Advisor shall be entitled to the Subordinated Incentive Fee in an amount equal to 10.0% of the amount by which (i) the market value of the outstanding stock of the Company, measured by taking the average closing price or average of bid and asked price, as the case may be, over a period of 30 days during which the stock is traded, with such period beginning 180 days after Listing (the “Market Value”), plus the total of all Dividends paid to Stockholders from the Company’s inception until the date of Listing, exceeds (ii) the sum of (A) 100% of Invested Capital and (B) the total Dividends required to be paid to the Stockholders in order to pay the Stockholders’ 8.0% Return from inception through the date of Listing. The Company shall have the option to pay such fee in the form of cash, Shares, a promissory note or any combination of the foregoing. The Subordinated Incentive Fee will be reduced by the amount of any prior payment to the Advisor of a deferred, Subordinated Share of Net Sales Proceeds from a Sale or Sales of Property. In the event the Subordinated Incentive Fee is paid to the Advisor following Listing, no other performance fee will be paid to the Advisor.
 
(e) Loans from Affiliates. If any loans are made to the Company by an Affiliate of the Advisor, the maximum amount of interest that may be charged by such Affiliate shall be the lesser of (i) 1.0% above the prime rate of interest charged from time to time by The Bank of New York and (ii) the rate that would be charged to the Company by unrelated lending institutions on comparable loans for the same purpose. The terms of any such loans shall be no less favorable than the terms available between non-Affiliated Persons for similar commercial loans.
 
(f) Changes to Fee Structure. In the event of Listing, the Company and the Advisor shall negotiate in good faith to establish a fee structure appropriate for a perpetual-life entity. A majority of the Independent Directors must approve the new fee structure negotiated with the Advisor. In negotiating a new fee structure, the Independent Directors shall consider all of the factors they deem relevant, including, but not limited to: (i) the amount of the advisory fee in relation to the asset value, composition and profitability of the Company’s portfolio; (ii) the success of the Advisor in generating opportunities that meet the investment objectives of the Company; (iii) the rates charged to other REITs and to investors other than REITs by Advisors performing the same or similar services; (iv) additional revenues realized by the Advisor and its Affiliates through their relationship with the Company, including loan administration, underwriting or broker commissions, servicing, engineering, inspection and other fees, whether
 
12

paid by the Company or by others with whom the Company does business; (v) the quality and extent of service and advice furnished by the Advisor; (vi) the performance of the investment portfolio of the Company, including income, conversion or appreciation of capital, and number and frequency of problem investments; and (vii) the quality of the Property portfolio of the Company in relationship to the investments generated by the Advisor for its own account. The new fee structure can be no more favorable to the Advisor than the current fee structure.
 
10. Expenses.
 
(a) In addition to the compensation paid to the Advisor pursuant to Paragraph 9 hereof, the Company shall pay directly or reimburse the Advisor for all of the expenses paid or incurred by the Advisor in connection with the services it provides to the Company pursuant to this Agreement, including, but not limited to:
 
 	(i)	 	the Company’s Organizational and Offering Expenses; provided, however, that within 60 days after the end of the month in which an Offering terminates, the Advisor shall reimburse the Company for any Organizational and Offering Expenses reimbursement received by the Advisor pursuant to this Paragraph 10, to the extent that such reimbursement exceeds 3.0% of the Gross Proceeds. The Advisor shall be responsible for the payment of all the Company’s Organizational and Offering Expenses in excess of 3.0% of the Gross Proceeds;	
 
 	(ii)	 	Acquisition Expenses incurred in connection with the selection and acquisition of Properties;	
 
 	(iii)	 	the actual cost of goods and services used by the Company and obtained from entities not affiliated with the Advisor, other than Acquisition Expenses, including brokerage fees paid in connection with the purchase and sale of securities;	
 
 	(iv)	 	interest and other costs for borrowed money, including discounts, points and other similar fees;	
 
 	(v)	 	taxes and assessments on income or Property and taxes as an expense of doing business;	
 
 	(vi)	 	costs associated with insurance required in connection with the business of the Company or by the Board;	
 
 	(vii)	 	expenses of managing and operating Properties owned by the Company, whether payable to an Affiliate of the Company or a non-affiliated Person.	
 
 	(viii)	 	all expenses in connection with payments to the Board and meetings of the Board and Stockholders;	
 
 	(ix)	 	expenses associated with Listing or with the issuance and distribution of Shares and Securities, such as selling commissions and fees, advertising expenses, taxes, legal and accounting fees, Listing and registration fees, and other Organization and Offering Expenses;	
 
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 	(x)	 	expenses connected with payments of Dividends in cash or otherwise made or caused to be made by the Company to the Stockholders;	
 
 	(xi)	 	expenses of organizing, revising, amending, converting, modifying, or terminating the Company or the Articles of Incorporation;	
 
 	(xii)	 	expenses of maintaining communications with Stockholders, including the cost of preparation, printing, and mailing annual reports and other Stockholder reports, proxy statements and other reports required by governmental entities;	
 
 	(xiii)	 	administrative service expenses (including personnel costs; provided, however, that no reimbursement shall be made for costs of personnel to the extent that such personnel perform services in transactions for which the Advisor receives a separate fee); and	
 
 	(xiv)	 	audit, accounting and legal fees.	
 
(b) Expenses incurred by the Advisor on behalf of the Company and payable pursuant to this Paragraph 10 shall be reimbursed no less than monthly to the Advisor. The Advisor shall prepare a statement documenting the expenses of the Company during each quarter, and shall deliver such statement to the Company within 45 days after the end of each quarter.
 
11.Other Services. Should the Board request that the Advisor or any director, officer or employee thereof render services for the Company other than set forth in Paragraph 3, such services shall be separately compensated at such rates and in such amounts as are agreed by the Advisor and the Independent Directors of the Company, subject to the limitations contained in the Articles of Incorporation, and shall not be deemed to be services pursuant to the terms of this Agreement.
 
12.Fidelity Bond. The Advisor shall maintain a fidelity bond for the benefit of the Company which bond shall insure the Company from losses of up to $200,000 per occurrence and shall be of the type customarily purchased by entities performing services similar to those provided to the Company by the Advisor.
 
13Reimbursement to the Advisor. The Company shall not reimburse the Advisor at the end of any fiscal quarter Operating Expenses that, in the four consecutive fiscal quarters then ended (the “Expense Year”) exceed (the “Excess Amount”) the greater of 2% of Average Invested Assets or 25% of Net Income (the “2%/25% Guidelines”) for such year. Any Excess Amount paid to the Advisor during a fiscal quarter shall be repaid to the Company. If there is an Excess Amount in any Expense Year and the Independent Directors determine that such excess was justified, based on unusual and nonrecurring factors which they deem sufficient, the Excess Amount may be carried over and included in Operating Expenses in subsequent Expense Years, and reimbursed to the Advisor in one or more of such years, provided that Operating Expenses in any Expense Year, including any Excess Amount to be paid to the Advisor, shall not exceed the 2%/25% Guidelines. Within 60 days after the end of any fiscal quarter of the Company for which total Operating Expenses for the Expense Year exceed the 2%/25% Guidelines, there shall be sent to the stockholders a written disclosure of such fact, together with an explanation of the
 
14

factors the Independent Directors considered in determining that such excess expenses were justified. Such determination shall be reflected in the minutes of the meetings of the Board of Directors. The Company will not reimburse the Advisor or its Affiliates for services for which the Advisor or its Affiliates are entitled to compensation in the form of a separate fee. All figures used in the foregoing computation shall be determined in accordance with generally accepted accounting principles applied on a consistent basis.
 
14.Other Activities of the Advisor. Nothing herein contained shall prevent the Advisor from engaging in other activities, including, without limitation, the rendering of advice to other Persons (including other REITs) and the management of other programs advised, sponsored or organized by the Advisor or its Affiliates; nor shall this Agreement limit or restrict the right of any director, officer, employee, or stockholder of the Advisor or its Affiliates to engage in any other business or to render services of any kind to any other partnership, corporation, firm, individual, trust or association. The Advisor may, with respect to any investment in which the Company is a participant, also render advice and service to each and every other participant therein. The Advisor shall report to the Board the existence of any condition or circumstance, existing or anticipated, of which it has knowledge, which creates or could create a conflict of interest between the Advisor’s obligations to the Company and its obligations to or its interest in any other partnership, corporation, firm, individual, trust or association. The Advisor or its Affiliates shall promptly disclose to the Board knowledge of such condition or circumstance. If the Sponsor, Advisor, Director or Affiliates thereof have sponsored other investment programs with similar investment objectives which have investment funds available at the same time as the Company, it shall be the duty of the Board (including the Independent Directors) to adopt the method set forth in the Registration Statement or another reasonable method by which properties are to be allocated to the competing investment entities and to use their best efforts to apply such method fairly to the Company.
 
The Advisor shall be required to use its best efforts to present a continuing and suitable investment program to the Company which is consistent with the investment policies and objectives of the Company, but neither the Advisor nor any Affiliate of the Advisor shall be obligated generally to present any particular investment opportunity to the Company even if the opportunity is of character which, if presented to the Company, could be taken by the Company. The Advisor or its Affiliates may make such an investment in a property only after (i) such investment has been offered to the Company and all public partnerships and other investment entities affiliated with the Company with funds available for such investment and (ii) such investment is found to be unsuitable for investment by the Company, such partnerships and investment entities.
 
In the event that the Advisor or its Affiliates is presented with a potential investment which might be made by the Company and by another investment entity which the Advisor or its Affiliates advises or manages, the Advisor shall consider the investment portfolio of each entity, cash flow of each entity, the effect of the acquisition on the diversification of each entity’s portfolio, rental payments during any renewal period, the estimated income tax effects of the purchase on each entity, the policies of each entity relating to leverage, the funds of each entity available for investment and the length of time such funds have been available for investment. In the event that an investment opportunity becomes available which is suitable for both the Company and a public or private entity which the Advisor or its Affiliates are Affiliated, then the
 
15

entity which has had the longest period of time elapse since it was offered an investment opportunity will first be offered the investment opportunity.
 
15.Relationship of Advisor and Company. The Company and the Advisor are not partners or joint venturers with each other, and nothing in this Agreement shall be construed to make them such partners or joint venturers or impose any liability as such on either of them.
 
16.Term; Termination of Agreement. This Agreement shall continue in force until January 29, 2004, subject to an unlimited number of successive one-year renewals upon mutual consent of the parties. It is the duty of the Board to evaluate the performance of the Advisor or annually before renewing the Agreement, and each such renewal shall be for a term of no more than one year.
 
17.Termination by Either Party. This Agreement may be terminated upon 60 days written notice without Cause or penalty, by either party (upon approval of a majority of the Independent Directors of the Company or a majority of the Board of Directors of the Advisor, as the case may be).
 
18.Assignment to an Affiliate. This Agreement may be assigned by the Advisor to an Affiliate with the approval of a majority of the Board (including a majority of the Independent Directors). The Advisor may assign any rights to receive fees or other payments under this Agreement without obtaining the approval of the Board. This Agreement shall not be assigned by the Company without the consent of the Advisor, except in the case of an assignment by the Company to a corporation or other organization which is a successor to all of the assets, rights and obligations of the Company, in which case such successor organization shall be bound hereunder and by the terms of said assignment in the same manner as the Company is bound by this Agreement.
 
19.Payments to and Duties of Advisor upon Termination. Payments to the Advisor pursuant to this Section 19 shall be subject to the 2%/25% Guidelines to the extent applicable.
 
(a) After the Termination Date, the Advisor shall not be entitled to compensation for further services hereunder except it shall be entitled to receive from the Company within 30 days after the effective date of such termination all unpaid reimbursements of expenses and all earned but unpaid fees payable to the Advisor prior to termination of this Agreement.
 
(b) The Advisor shall promptly upon termination:
 
 	(i)	 	pay over to the Company all money collected and held for the account of the Company pursuant to this Agreement, after deducting any accrued compensation and reimbursement for its expenses to which it is then entitled;	
 
 	(ii)	 	deliver to the Board a full accounting, including a statement showing all payments collected by it and a statement of all money held by it, covering the period following the date of the last accounting furnished to the Board;	
 
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 	(iii)	 	deliver to the Board all assets, including Properties, and documents of the Company then in the custody of the Advisor; and	
 
 	(iv)	 	cooperate with the Company to provide an orderly management transition.	
 
20.Indemnification by the Company. The Company shall indemnify and hold harmless the Advisor and its Affiliates, including their respective officers, directors, partners and employees, from all liability, claims, damages or losses arising in the performance of their duties hereunder, and related expenses, including reasonable attorneys’ fees, to the extent such liability, claims, damages or losses and related expenses are not fully reimbursed by insurance, subject to any limitations imposed by the laws of the State of Maryland or the Articles of Incorporation of the Company. Notwithstanding the foregoing, the Advisor shall not be entitled to indemnification or be held harmless pursuant to this paragraph 20 for any activity which the Advisor shall be required to indemnify or hold harmless the Company pursuant to paragraph 21. Any indemnification of the Advisor may be made only out of the net assets of the Company and not from Stockholders.
 
21.Indemnification by Advisor. The Advisor shall indemnify and hold harmless the Company from contract or other liability, claims, damages, taxes or losses and related expenses including attorneys’ fees, to the extent that such liability, claims, damages, taxes or losses and related expenses are not fully reimbursed by insurance and are incurred by reason of the Advisor’s bad faith, fraud, willful misfeasance, misconduct, negligence or reckless disregard of its duties, but the Advisor shall not be held responsible for any action of the Board of Directors in following or declining to follow any advice or recommendation given by the Advisor.
 
22.Notices. Any notice, report or other communication required or permitted to be given hereunder shall be in writing unless some other method of giving such notice, report or other communication is required by the Articles of Incorporation, the Bylaws, or accepted by the party to whom it is given, and shall be given by being delivered by hand or by overnight mail or other overnight delivery service to the addresses set forth herein:
 
To the Board and to the Company:	  	Wells Real Estate Investment Trust, Inc.	
 	  	6200 The Corners Parkway, Suite 250	
 	  	Norcross, Georgia 30092	
 	 	
To the Advisor:	  	Wells Capital, Inc.	
 	  	6200 The Corners Parkway, Suite 250	
 	  	Norcross, Georgia 30092	
 
Either party may at any time give notice in writing to the other party of a change in its address for the purposes of this Paragraph 22.
 
23.Modification. This Agreement shall not be changed, modified, terminated, or discharged, in whole or in part, except by an instrument in writing signed by both parties hereto, or their respective successors or assignees.
 
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24.Severability. The provisions of this Agreement are independent of and severable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part.
 
25.Construction. The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of Georgia.
 
26.Entire Agreement. This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing.
 
27.Indulgences, not Waivers. Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.
 
28.Gender. Words used herein regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context requires.
 
29.Titles not to Affect Interpretation. The titles of paragraphs and subparagraphs contained in this Agreement are for convenience only, and they neither form a part of this Agreement nor are they to be used in the construction or interpretation hereof.
 
30.Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories.
 
31.Name. Wells Capital, Inc. has a proprietary interest in the name “Wells.” Accordingly, and in recognition of this right, if at any time the Company ceases to retain Wells Capital, Inc. or an Affiliate thereof to perform the services of Advisor, the Company will, promptly after receipt of written request from Wells Capital, Inc., cease to conduct business under or use the name “Wells” or any diminutive thereof and the Company shall use its best efforts to change the name of the Company to a name that does not contain the name “Wells” or any other word or words that might, in the sole discretion of the Advisor, be susceptible of indication of some form of relationship between the Company and the Advisor or any Affiliate
 
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thereof. Consistent with the foregoing, it is specifically recognized that the Advisor or one or more of its Affiliates has in the past and may in the future organize, sponsor or otherwise permit to exist other investment vehicles (including vehicles for investment in real estate) and financial and service organizations having “Wells” as a part of their name, all without the need for any consent (and without the right to object thereto) by the Company or its Board.
 
32.Initial Investment. The Advisor has contributed $200,000 (the “Initial Investment”) in exchange for 20,000 units of limited partnership interest (“Units”) in Wells Operating Partnership, L.P. (the “Partnership”). The Advisor or its Affiliates may not sell any of the Units purchased with the Initial Investment while the Advisor acts in such advisory capacity to the Company,  provided ,  that  such Units may be transferred in connection with the exercise of the Advisor’s right under the Partnership Agreement of the Partnership to exchange its Units for Shares, in which case similar restrictions on transfer will apply to the Shares received by the Advisor. The restrictions included above shall not apply to any Shares acquired by the Advisor or its Affiliates other than the Units acquired through the Initial Investment or Shares acquired in exchange for the Units acquired through the Initial Investment. The Advisor shall not vote any Shares it now owns, or hereafter acquires, in any vote for the election of Directors or any vote regarding the approval or termination of any contract with the Advisor or any of its Affiliates.
 
[Signatures appear on next page.]
 
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IN WITNESS WHEREOF, the parties hereto have executed this Advisory Agreement this 17th day of June to be effective as of the date and year first above written.
 
WELLS REAL ESTATE INVESTMENT TRUST, INC.	
 	 	
By:	 	/s/ Douglas P. Williams

	
Name:	 	Douglas P. Williams

	
Title:	 	Executive Vice President

	
 	
WELLS CAPITAL, INC.	
 	 	
By:	 	/s/ Leo F. Wells, III

	
Name:	 	Leo F. Wells, III

	
Title:	 	President

	
 
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EXHIBIT 10.2
 
ASSET/PROPERTY MANAGEMENT AGREEMENT

ASSET/PROPERTY MANAGEMENT AGREEMENT
 
THIS ASSET/PROPERTY MANAGEMENT AGREEMENT (“Agreement”) is made and entered into as of the 17th day of June, 2003, by and among WELLS REAL ESTATE INVESTMENT TRUST, INC., a Maryland corporation (“Wells REIT”), WELLS OPERATING PARTNERSHIP, L.P., a Delaware limited partnership (“Owner”), and WELLS MANAGEMENT COMPANY, INC., a Georgia corporation with offices in Norcross, Georgia (“Manager”).
 
W I T N E S S E T H:
 
WHEREAS, Owner was organized to acquire, own, operate, lease and manage real estate properties on behalf of Wells REIT; and
 
WHEREAS, Wells REIT and Manager have previously entered into that certain Amended and Restated Property Management and Leasing Agreement dated December 1, 2000 (the “Property Management Agreement”); and
 
WHEREAS, Owner intends to continue to retain Manager to manage and coordinate the leasing of the real estate properties acquired by Owner under the terms and conditions set forth herein; and
 
WHEREAS, the parties desire to amend certain provisions of the Property Management Agreement to clarify and segregate the asset management functions currently being provided by Manager in addition to the property management and leasing functions; and
 
WHEREAS, the parties desire to amend and restate the Property Management Agreement in its entirety in accordance with the terms and provisions hereof.
 
NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, do hereby agree, and the Property Management Agreement is hereby amended and restated in its entirety in this Agreement, as follows:
 
ARTICLE I.
DEFINITIONS
 
Except as otherwise specified or as the context may otherwise require, the following terms have the respective meanings set forth below for all purposes of this Agreement, and the definitions of such terms are equally applicable both to the singular and plural forms thereof:
 
1.1 “Affiliate” means a person who is (i) in the case of an individual, any relative of such person, (ii) any officer, director, trustee, partner, manager, employee or holder of ten percent (10%) or more of any class of the voting securities of or equity interest in such person; (iii) any corporation, partnership, limited liability company, trust or other entity controlling, controlled by or under common control with such person; or (iv) any officer, director, trustee, partner, manager, employee or holder of ten percent (10%) or more of the outstanding voting securities of any corporation, partnership, limited liability company, trust or other entity controlling, controlled by or under common control with such person. For purposes of this definition, the term “controls,” “is controlled by,” or “is under common control with” shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of an entity, whether through the ownership of voting rights, by contract or otherwise.

1.2 “Gross Revenues” means all amounts actually collected as rents or other charges for the use and occupancy of the Properties, but shall exclude interest and other investment income of Owner and proceeds received by Owner for a sale, exchange, condemnation, eminent domain taking, casualty or other disposition of assets of Owner.
 
1.3 “Improvements” means buildings, structures, equipment from time to time located on the Properties and all parking and common areas located on the Properties.
 
1.4 “Lease” means, unless the context otherwise requires, any lease or sublease made by Owner as landlord or by its predecessor.
 
1.5 “Management Fees” has the meaning set forth in Section 4.1(a) hereof.
 
1.6 “Owner” means Wells Operating Partnership, L.P. and any joint venture, limited liability company or other Affiliate of Wells Operating Partnership, L.P., including in some instances the Wells REIT or Affiliates of the Wells REIT, that own, in whole or in part, on behalf of Wells REIT, any Improvements.
 
1.7 “Ownership Agreements” has the meaning set forth in Section 2.4(k) hereof.
 
1.8 “Properties” means all real estate properties owned by Owner and all tracts acquired by Owner in the future containing income-producing Improvements or on which Owner will construct income-producing Improvements.
 
1.9 “Third Party Property Manager” means any entity other than Manager or an Affiliate of Manager that has been retained by Owner or Manager to perform and carry out at one or more of the Properties the property management services described in Section 2.4 hereof, but shall exclude persons, entities or independent contractors retained or hired by Owner or Manager to perform facility management or other services or tasks at a particular Property, the costs for which are passed through to and ultimately paid by the tenant at such Property.
 
ARTICLE II.
APPOINTMENT OF MANAGER; SERVICES TO BE PERFORMED
 
2.1 Appointment of Manager. Owner hereby engages and retains Manager as the sole and exclusive manager, as tenant coordinating agent of the Properties and as asset manager of the portfolio of Owner’s Properties, and Manager hereby accepts such appointment on the terms and conditions hereinafter set forth, it being understood that this Agreement shall cause Manager to be, at law, Owner’s agent upon the terms contained herein.
 
2.2 General Duties. Manager shall devote its best efforts to performing its duties hereunder to administer, promote, manage, operate, maintain, improve and lease the Properties in a diligent, careful and vigilant manner. The services of Manager are to be of scope and quality not less than those generally performed by professional asset and property managers of other similar properties in the area. Manager shall make available to Owner the full benefit of the judgment, experience and advice of the members of Manager’s organization and staff with respect to the policies to be pursued by Owner relating to the management, operation and leasing of the Properties. Manager shall assist Owner in obtaining Third Party Property Managers or, with the approval of Owner, subcontract property management services to be provided hereunder to Third Party Property Managers, as it deems appropriate for certain Properties.
 
2.3 Specific Duties as Asset Manager. Manager’s duties as asset manager of the portfolio of Owner’s Properties shall include the following:
 
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(a) Oversight of Property Managers. Manager shall oversee the performance by the property manager of each Property of its duties, including collection and proper deposits of rental payments, payment of Property expenses, Property maintenance, etc.
 
(b) Conduct On-Site Visits. Manager shall conduct periodic on-site property visits to each Property to inspect the physical condition of the Property and to evaluate the performance of the property manager of its duties.
 
(c) Preparation of the Budget. Manager shall review, analyze and comment upon the operating budgets, capital budgets and leasing plans prepared and submitted by the property manager of each Property.
 
(d) Review and Analysis of Financial Information. Manager shall review and analyze on-going financial information pertaining to each Property and the overall portfolio of Properties owned by Owner.
 
(e) Asset Management Strategies. Manager shall formulate and oversee the implementation of strategies for the administration, promotion, management, operation, maintenance, improvement, financing and refinancing, leasing and disposition of Owner’s Properties on an overall portfolio basis.
 
2.4 Specific Duties as Property Manager. Manager’s duties as property manager of the Properties shall include the following:
 
(a) Lease Obligations. Manager shall perform all duties of the landlord under all leases insofar as such duties relate to operation, maintenance, and day-to-day management. Manager shall also provide or cause to be provided, at Owner’s expense, all services normally provided to tenants of like premises, including where applicable and without limitation, gas, electricity or other utilities required to be furnished to tenants under leases, normal repairs and maintenance, and cleaning and janitorial service. Manager shall arrange for and supervise the performance of all installations and improvements in space leased to any tenant which are either expressly required under the terms of the lease of such space or which are customarily provided to tenants.
 
(b) Maintenance. Manager shall cause the Properties to be maintained in the same manner as similar properties in the area. Manager’s duties and supervision in this respect shall include, without limitation, cleaning of the interior and the exterior of the Improvements and the public common areas on the Properties and the making and supervision of repairs, alterations, and decoration of the Improvements, subject to and in strict compliance with this Agreement and the Leases. Construction activities undertaken by the Manager, if any, will be limited to activities related to the management, operation, maintenance, and leasing of the Property (e.g., repairs, renovations, and leasehold improvements).
 
(c) Leasing Functions. Manager shall coordinate the leasing of the Properties and shall negotiate and use its best efforts to secure executed leases from qualified tenants, and to execute same on behalf of Owner, if requested, for available space in the Properties, such leases to be in form and on terms approved by Owner and Manager, and to bring about complete leasing of the Properties. Manager shall be responsible for the hiring of all leasing agents, as necessary for the leasing of the Properties, and to otherwise oversee and manage the leasing process on behalf of the Owner.
 
(d) Notice of Violations. Manager shall forward to Owner promptly upon receipt all notices of violation or other notices from any governmental authority, and board of fire underwriters or any insurance company, and shall make such recommendations regarding compliance with such notice as shall be appropriate.
 
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(e) Personnel. Any personnel hired by Manager to maintain, operate and lease the Property shall be the employees or independent contractors of Manager and not of Owner. Manager shall use due care in the selection and supervision of such employees or independent contractors. Manager shall be responsible for the preparation of and shall timely file all payroll tax reports and timely make payments of all withholding and other payroll taxes with respect to each employee.
 
(f) Utilities and Supplies. Manager shall enter into or renew contracts for electricity, gas, steam, landscaping, fuel, oil, maintenance and other services as are customarily furnished or rendered in connection with the operation of similar rental property in the area.
 
(g) Expenses. Manager shall analyze all bills received for services, work and supplies in connection with the maintaining and operating the Properties, pay all such bills, and, if requested by Owner, pay, when due, utility and water charges, sewer rent and assessments, and any other amount payable in respect to the Properties. All bills shall be paid by Manager within the time required to obtain discounts, if any. Owner may from time to time request that Manager forward certain bills to Owner promptly after receipt, and Manager shall comply with any such request. It is understood that the payment of real property taxes and assessment and insurance premiums will be paid out of the Account (as hereinafter defined) by Manager. All expenses shall be billed at net cost ( i.e. , less all rebates, commissions, discounts and allowances, however designed).
 
(h) Monies Collected. Manager shall collect all rent and other monies from tenants and any sums otherwise due Owner with respect to the Properties in the ordinary course of business. In collecting such monies, Manager shall inform tenants of the Properties that all remittances are to be in the form of a check or money order. Owner authorizes Manager to request, demand, collect and receipt for all such rent and other monies and to institute legal proceedings in the name of Owner for the collection thereof and for the dispossession of any tenant in default under its Lease.
 
(i) Banking Accommodations. Manager shall establish and maintain a separate checking account (the “Account”) for funds relating to the Properties. All monies deposited from time to time in the Account shall be deemed to be trust funds and shall be and remain the property of Owner and shall be withdrawn and disbursed by Manager for the account of Owner only as expressly permitted by this Agreement for the purposes of performing the obligations of Manager hereunder. No monies collected by Manager on Owner’s behalf shall be commingled with funds of Manager. The Account shall be maintained, and monies shall be deposited therein and withdrawn therefrom, in accordance with the following:
 
(i) All sums received from rents and other income from the Properties shall be promptly deposited by Manager in the Account. Manager shall have the right to designate two or more persons who shall be authorized to draw against the Account, but only for purposes authorized by this Agreement.
 
(ii) All sums due to Manager hereunder, whether for compensation, reimbursement for expenditures, or otherwise, as herein provided, shall be a charge against the operating revenues of the Properties and shall be paid and/or withdrawn by Manager from the Account prior to the making of any other disbursements therefrom.
 
(iii) By the 30th day of the first month following each calendar quarter, Manager shall forward to Owner net operating proceeds from the preceding quarter, retaining at all times, however a reserve of $5,000, in addition to any amounts otherwise provided in the budget.
 
(j) Tenant Complaints. Manager shall maintain business-like relations with the tenants of the Properties.
 
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(k) Ownership Agreements. Manager has received copies of agreements of limited partnership, joint venture partnership agreements and operating agreements of Owner and its Affiliates (the “Ownership Agreements”) and is familiar with the terms thereof. Manager shall use reasonable care to avoid any act or omission which, in the performance of its duties hereunder, shall in any way conflict with the terms of the Ownership Agreements.
 
(l) Signs. Manager shall place and remove, or cause to be placed and removed, such signs upon the Properties as Manager deems appropriate, subject, however, to the terms and conditions of the Leases and to any applicable ordinances and regulations.
 
2.5 Approval of Leases, Contracts, Etc. In fulfilling its duties to the Owner, Manager may and hereby is authorized to enter into any leases, contracts or agreements on behalf of the Owner in the ordinary course of the management, operation, maintenance and leasing of the Property.
 
2.6 Accounting, Records and Reports.
 
(a) Records. Manager shall maintain all office records and books of account and shall record therein, and keep copies of, each invoice received from services, work and supplies ordered in connection with the maintenance and operation of the Properties. Such records shall be maintained on a double entry basis. Owner and persons designated by Owner shall at all reasonable time have access to and the right to audit and make independent examinations of such records, books and accounts and all vouchers, files and all other material pertaining to the Properties and this Agreement, all of which Manager agrees to keep safe, available and separate from any records not pertaining to the Properties, at a place recommended by Manager and approved by Owner.
 
(b) Quarterly Reports. On or before the 30th day of the first month following each calendar quarter for which such report or statement is prepared and during the term of this Agreement, Manager shall prepare and submit to Owner the following reports and statements:
 
(i) Rental collection record;
 
(ii) Quarterly operating statement;
 
(iii) Copy of cash disbursements ledger entries for such period, if requested;
 
(iv) Copy of cash receipts ledger entries for such period, if requested;
 
(v) The original copies of all contracts entered into by Manager on behalf of Owner during such period, if requested; and
 
(vi) Copy of ledger entries for such period relating to security deposits maintained by Manager, if requested.
 
(c) Budgets and Leasing Plans. Not later than November 15 of each calendar year, Manager shall prepare and submit to Owner for its approval an operating budget and a marketing and leasing plan on the Properties for the calendar year immediately following such submission. The budget and leasing plan shall be in the form of the budget and plan approved by Owner prior to the date thereof. As often as reasonably necessary during the period covered by any such budget, Manager may submit to Owner for its approval an updated budget or plan incorporating such changes as shall be necessary to reflect cost over-runs and the like during such period. If Owner does not disapprove any such budget within 30 days after receipt thereof by Owner, such budget shall be deemed approved. If Owner shall disapprove any such budget or plan, it shall so notify Manager within said 30-day period and explain the reasons therefor. Manager will not incur any costs other than those estimated in any budget except for:
 
5

(i) tenant improvements and real estate commissions required under a Lease;
 
(ii) maintenance or repair costs under $5,000;
 
(iii) costs incurred in emergency situations in which action is immediately necessary for the preservation or safety of the Property, or for the safety of occupant or other person (or to avoid the suspension of any necessary service of the Property);
 
(iv) expenditures for real estate taxes and assessment; and
 
(v) maintenance supplies calling for an aggregate purchase price less than $25,000.
 
(d) Returns Required by Law. Manager shall execute and file when due all forms, reports, and returns required by law relating to the employment of its personnel.
 
(e) Notices. Promptly after receipt, Manager shall deliver to Owner all notices, from any tenant, or any governmental authority, that are not a routine nature. Managers shall also report expeditiously to Owner notice of any extensive damage to any part of the Properties.
 
ARTICLE III.
EXPENSES
 
3.1 Owner’s Expenses. Except as otherwise specifically provided, all costs and expenses incurred hereunder by Manager in fulfilling its duties to Owner shall be for the account of and on behalf of Owner. Such costs and expenses may include reasonable wages and salaries and other employee-related expenses of all on-site and off-site employees of Manager who are engaged in the operation, management, maintenance and leasing or access control of the Properties, including taxes, insurance and benefits relating to such employees, and legal, travel and other out-of-pocket expenses which are directly related to the management of specific Properties. All costs and expenses for which Owner is responsible under this Agreement shall be paid by Manager out of the Account. In the event said account does not contain sufficient funds to pay all said expenses, Owner shall fund all sums necessary to meet such additional costs and expenses.
 
3.2 Manager’s Expenses. Manager shall, out of its own funds, pay all of its general overhead and administrative expenses.
 
6

ARTICLE IV.
MANAGER’S COMPENSATION
 
4.1 Property Management, Leasing and Asset Management Fees.
 
(a) Management Fees. Owner shall pay Manager for the property management, leasing and asset management services described in Article II hereof Management Fees equal to the lesser of (A) four and one half percent (4.5%) of Gross Revenues received from the Properties over the term of this Management Agreement, or (B) 0.6% of Net Asset Value calculated on an annual basis. For purposes of this calculation, “Net Asset Value” shall mean the excess of (i) the aggregate of the fair market value of all the Properties (excluding vacant properties) owned by Owner (whether wholly owned or partial investment through a joint venture partnership or other co-ownership arrangement), over (ii) the aggregate outstanding debt of Owner (excluding debt having maturities of one year of less). Out of these Management Fees, at Properties with respect to which Third Party Property Managers are retained to manage the Property, Manager shall either (1) credit and reduce this amount by the amount of any property management fees payable to the Third Party Property Manager by Owner, in the event that a Third Party Property Manager is retained directly by Owner, or (2) pay the property management fees due and owing to the Third Party Property Managers directly, in the event that a Third Party Property Manager is retained by Manager on a subcontract basis. Manager’s compensation under this Section 4.1 shall apply to all renewals, extensions or expansions of Leases which Manager has originally negotiated.
 
(b) Other Management Fee Matters. For planning and coordinating the construction of any tenant finish along with Owner or any architect, contractor or other authorized person, the payment for which shall be the responsibility of the tenant, Manager shall be entitled to receive from any such tenant an amount equal to up to 5% of the amount as remitted by the tenant to Owner or to a representative of Owner in payment for such construction.
 
4.2 Initial Lease-Up Fee. In addition to the compensation paid to Manager under Section 4.1 above, Manager shall be entitled to receive a separate fee for the one-time initial rent-up or leasing-up of newly constructed Improvements in an amount not to exceed the fee customarily charged in arm’s length transactions by others rendering similar services in the same geographic area for similar properties as determined by a survey of brokers and agents in such area. For this purpose, a total rehabilitation shall be included in the term “newly constructed.”
 
4.3 Audit Adjustment. If any audit of the records, books or accounts relating to the Properties discloses an overpayment or underpayment of Management Fees, Owner or Manager shall promptly pay to the other party the amount of such overpayment or underpayment, as the case may be. If such audit discloses an overpayment of Management Fees for any fiscal year of more than the correct Management Fees for such fiscal year, Manager shall bear the cost of such audit.
 
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ARTICLE V.
INSURANCE AND INDEMNIFICATION
 
5.1 Insurance to be Carried.
 
(a) Manager shall obtain and keep in full force and effect insurance on the Properties against such hazards as Owner and Manager shall deem appropriate, but in any event insurance sufficient to comply with the Leases and the Ownership Agreements shall be maintained. All liability policies shall provide sufficient insurance satisfactory to both Owner and Manager and shall contain waivers of subrogation for the benefit of Manager.
 
(b) Manager shall obtain and keep in full force and effect, in accordance with the laws of the state in which each Property is located, employer’s liability insurance applicable to and covering all employees of Manager at the Properties and all persons engaged in the performance of any work required hereunder, and Manager shall furnish Owner certificates of insurers naming Owner as a co-insured and evidencing that such insurance is in effect. If any work under this Agreement is subcontracted as permitted herein, Manager shall include in each subcontract a provision that the subcontractor shall also furnish Owner with such a certificate.
 
5.2 Cooperation with Insurers. Manager shall cooperate with and provide reasonable access to the Properties to representatives of insurance companies and insurance brokers or agents with respect to insurance which is in effect or for which application has been made. Manager shall use its best efforts to comply with all requirements of insurers.
 
5.3 Accidents and Claims. Manager shall promptly investigate and shall report in detail to Owner all accidents, claims for damage relating to the ownership, operation or maintenance of the Properties, and any damage or destruction to the Properties and the estimated costs of repair thereof, and shall prepare for approval by Owner all reports required by an insurance company in connection with any such accident, claim, damage, or destruction. Such reports shall be given to Owner promptly and any report not so given within 10 days after the occurrence of any such accident, claim, damage or destruction shall be noted in the monthly report delivered to Owner pursuant to Section 2.6(b). Manager is authorized to settle any claim against an insurance company arising out of any policy and, in connection with such claim, to execute proofs of loss and adjustments of loss and to collect and receipt for loss proceeds.
 
5.4 Indemnification. Manager shall hold Owner harmless from and indemnify and defend Owner against any and all claims or liability for any injury or damage to any person or property whatsoever for which Manager is responsible occurring in, on, or about the Properties, including, without limitation, the Improvements when such injury or damage shall be caused by the negligence of Manager, its agents, servants, or employees, except to the extent that Owner recovers insurance proceeds with respect to such matter. Owner will indemnify and hold Manager harmless against all liability for injury to persons and damage to property caused by Owner’s negligence and which did not result from the negligence or misconduct of Manager, except to the extent Manager recovers insurance proceeds with respect to such matter.
 
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ARTICLE VI.
TERM, TERMINATION
 
6.1 Term. This Agreement shall commence on the date first above written and shall continue until terminated in accordance with the earliest to occur of the following:
 
(a) One year from the date of the commencement of the term hereof. However, this Agreement will be automatically extended for an additional one-year period at the end of each year unless Owner or Manager gives sixty (60) days written notice of its intention to terminate the Agreement; or
 
(b) Immediately upon the occurrence of any of the following:
 
(i) A decree or order is rendered by a court having jurisdiction (A) adjudging Manager as bankrupt or insolvent, or (B) approving as properly filed a petition seeking reorganization, readjustment, arrangement, composition or similar relief for Manager under the federal bankruptcy laws or any similar applicable law or practice, or (C) appointing a receiver or liquidator or trustee or assignee in bankruptcy or insolvency of Manager or a substantial part of the property of Manager, or for the winding up or liquidation of its affairs, or
 
(ii) Manager (A) institutes proceedings to be adjudicated a voluntary bankrupt or an insolvent, (B) consents to the filing of a bankruptcy proceeding against it, (C) files a petition or answer or consent seeking reorganization, readjustment, arrangement, composition or relief under any similar applicable law or practice, (D) consents to the filing of any such petition, or to the appointment of a receiver or liquidator or trustee or assignee in bankruptcy or insolvency for it or for a substantial part of its property, (E) makes an assignment for the benefit of creditors, (F), is unable to or admits in writing its inability to pay its debts generally as they become due unless such inability shall be the fault of Owner, or (G) takes corporate or other action in furtherance of any of the aforesaid purposes.
 
Upon termination, the obligations of the parties hereto shall cease, provided that Manager shall comply with the provisions hereof applicable in the event of termination and shall be entitled to receive all compensation which may be due Manager hereunder up to the date of such termination, and provided, further, that if this Agreement terminates pursuant to clause (b) above, Owner shall have other remedies as may be available at law or in equity.
 
6.2 Manager’s Obligations after Termination. Upon the termination of this Agreement, Manager shall have the following duties:
 
(a) Manager shall deliver to Owner, or its designee, all books and records with respect to the Properties.
 
(b) Manager shall transfer and assign to Owner, or its designee, all service contracts and personal property relating to or used in the operation and maintenance of the Properties, except personal property paid for and owned by Manager. Manager shall also, for a period of sixty (60) days immediately following the date of such termination, make itself available to consult with and advise Owner, or its designee, regarding the operation, maintenance and leasing of the Properties.
 
(c) Manager shall render to Owner an accounting of all funds of Owner in its possession and shall deliver to Owner a statement of Management Fees claimed to be due Manager and shall cause funds of Owner held by Manager relating to the Properties to be paid to Owner or its designee.
 
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ARTICLE VII.
MISCELLANEOUS
 
7.1 Notices. All notices, approvals, consents and other communications hereunder shall be in writing, and, except when receipt is required to start the running of a period of time, shall be deemed given when delivered in person or on the fifth day after its mailing by either party by registered or certified United States mail, postage prepaid and return receipt requested, to the other party, at the addresses set forth after their respect name below or at such different addresses as either party shall have theretofore advised the other party in writing in accordance with this Section 7.1.
 
Owner:	  	WELLS OPERATING PARTNERSHIP, L.P.	
 	  	C/O WELLS REAL ESTATE INVESTMENT TRUST, INC.	
 	  	6200 The Corners Parkway, Suite 250	
 	  	Norcross, Georgia 30092	
 	 	
Manager:	  	WELLS MANAGEMENT COMPANY, INC.	
 	  	6200 The Corners Parkway, Suite 250	
 	  	Norcross, Georgia 30092	
 	  	Attention: Vice President of Property Management	
 
7.2 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Georgia.
 
7.3 Assignment. Manager may delegate partially or in full its duties and rights under this Agreement but only with the prior written consent of Owner. Except as provided in the immediately preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the parties and their respective successors and assigns.
 
7.4 No Waiver. The failure of Owner to seek redress for violation or to insist upon the strict performance of any covenant or condition of this Agreement shall not constitute a waiver thereof for the future.
 
7.5 Amendments. This Agreement may be amended only by an instrument in writing signed by the party against whom enforcement of the amendment is sought.
 
7.6 Headings. The headings of the various subdivisions of this Agreement are for reference only and shall not define or limit any of the terms or provisions hereof.
 
7.7 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart.
 
7.8 Entire Agreement. This Agreement contains the entire understanding and all agreements between Owner and Manager respecting the management of the Properties. There are no representations, agreements, arrangements or understandings, oral or written, between Owner and Manager relating to the management of the Properties that are not fully expressed herein.
 
7.9 Disputes. If there shall be a dispute between Owner and Manager relating to this Agreement resulting in litigation, the prevailing party in such litigation shall be entitled to recover from the other party to such litigation such amount as the court shall fix as reasonable attorneys’ fees.
 
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7.10 Activities of Manager. The obligations of Manager pursuant to the terms and provisions of this Agreement shall not be construed to preclude Manager from engaging in other activities or business ventures, whether or not such other activities or ventures are in competition with the Owner or the business of Owner.
 
7.11 Independent Contractor. Manager and Owner shall not be construed as joint venturers or partners of each other pursuant to this Agreement, and neither shall have the power to bind or obligate the other except as set forth herein. In all respects, the status of Manger to Owner under this Agreement is that of an independent contractor.
 
IN WITNESS WHEREOF, the parties have executed this Asset/Property Management Agreement as of the date first above written.
 
WELLS REIT:	
 	
WELLS REAL ESTATE INVESTMENT TRUST, INC.	
 	 	
By:	 	/s/ Leo F. Wells, III

	
Name:	 	Leo F. Wells, III

	
Title:	 	President

	
 	
OWNER:	
 	
WELLS OPERATING PARTNERSHIP, L.P.	
 	 	
By:	 	Wells Real Estate Investment Trust, Inc.	
 	 	(As General Partner of Wells Operating Partnership, L.P.)	
 	 	 	
 	 	By:	 	/s/ Douglas P. Williams

	
 	 	Name:	 	Douglas P. Williams

	
 	 	Title:	 	Senior Vice President

	
 	
MANAGER:	
 	
WELLS MANAGEMENT COMPANY, INC.	
 	 	
By:	 	/s/ Scott Meadows

	
Name:	 	Scott Meadows

	
Title:	 	Senior Vice President

	
 
11

EXHIBIT 10.103
 
LEASE AGREEMENT FOR CINGULAR ATLANTA BUILDING

OFFICE LEASE
 
This Office Lease (the “Lease”) is dated as of December 22, 2000, by and between HOGAN GLENRIDGE HIGHLANDS TWO, LLC, a Florida limited liability company, having an office at 5555 Glenridge Connector, Suite 925, Atlanta, Georgia 30342 (“Landlord”), and CINGULAR WIRELESS LLC, a Delaware limited liability company, having an office at 1100 Peachtree Street, Suite 900, Atlanta, Georgia 30309-4530 (“Tenant”).
 
I. DEMISE OF PREMISES
 
Landlord hereby leases to Tenant and Tenant leases from Landlord the Premises located in the Building, together with the nonexclusive right to use, in common with Landlord and others, the following portions of the Building and Land: all common areas of the Building and Land, including the entrance foyer and lobby; the corridors and lavatories on the floors on which the Premises are situated; and stairways, elevators, entranceways, shipping and receiving areas, sidewalks, landscaped areas, driveways, service roads and loading facilities.
 
II. SUMMARY OF TERMS
 
As used in this Lease, the following terms shall have the following meanings.
 
A.	 	Premises: That part of the Building outlined on the Plans attached hereto as Attachment 2, showing the Premises, consisting of the entirety of the following floors of the Building, containing in each instance the following number of rentable square feet:	
 
Floor

	  	Rentable Square Feet

	
5	  	22,654	
6	  	22,654	
7	  	22,654	
8	  	22,654	
9	  	22,654	
10	  	22,654	
11	  	22,624	
12	  	22,654	
14	  	22,352	
15	  	23,089	
16	  	23,042	
17	  	23,042	
18	  	22,414	
20	  	18,133	
 
Landlord and Tenant agree that the number of rentable square feet of the Premises or any portion thereof, for all purposes under this Lease, shall be the number of usable square

feet thereof, as determined in accordance with the Standard Method for Measuring Floor Area in Office Buildings of the Building Owners and Managers Association International, multiplied by: (i) as to a floor leased by Tenant in its entirety, 109.5%; and (ii) as to a floor of which Tenant leases a part, but not all, 116.5%.
 
B.	 	Building: The building, known as Glenridge Highlands Two, on the Land, having an address of 5565 Glenridge Connector, Atlanta, GA 30342, as shown on the Land and Building Plan attached hereto as Attachment 3, together with the covered parking garage serving the Building. Landlord and Tenant agree that the number of rentable square feet of the Building, for all purposes under this Lease, shall be the number of usable square feet thereof, as determined in accordance with the Standard Method for Measuring Floor Area in Office Buildings of the Building Owners and Managers Association International, multiplied by: (i) as to a floor leased by a single tenant, in its entirety, 109.5%; and (ii) as to a floor leased by multiple tenants, 116.5%.	
 
C.	 	Land: The real property shown on the Land and Building Plan.	
 
D.	 	Office Park: The project known as “Glenridge Highlands”, consisting of the Land, Building and “GHO” and “GH3” (as such are herein defined).	
 
E.	 	Building Manager: The Hogan Group, at the address of 5555 Glenridge Connector, Suite 925, Atlanta, Georgia 30342, or such other person as Landlord may designate.	
 
F.	 	Commencement Date; Rent Commencement Dates; Termination as to Certain Floors:	
 
 	(i)	 	The “Commencement Date” of the Lease Term shall mean the Rent Commencement Date as to the portions of the Premises located on the 11 th  and 12 th  floors of the Building, as hereinafter set forth.	
 
 	(ii)	 	Subject to the extension thereof as set forth in Section 1 of Attachment 1 to this Lease and in any other provision of this Lease, the “Rent Commencement Date” for each portion of the Premises shall be on the following dates:	
 
 	(a)	 	The Rent Commencement Date for the 11th and 12th floors of the Building shall be January 1, 2001.	
 
 	(b)	 	The Rent Commencement Date for one floor of the 9th, 10th, 14th, 15th, 16th, 17th, 18th, and 20th floors of the Building shall be on each of the following dates:	
 
February 1, 2001
February 15, 2001
March 1, 2001
March 15, 2001
April 1, 2001
 
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April 15, 2001
May 1, 2001
May 15, 2001
 
Tenant shall have the right to designate the floor for each such date by giving written notice to Landlord not less than ten (10) days prior thereto; and, in the event Tenant fails in any instance to give such notice for any date, the floor designated for such date shall be deemed to be the highest floor not theretofore designated or deemed designated.
 
 	(c)	 	The Rent Commencement Date for one floor of the 5th, 6th, 7th, and 8th floors of the Building shall be on each of the following dates:	
 
August 1, 2001
September 1, 2001
January 1, 2002
July 1, 2002
 
The floor designated for each date shall be the highest floor not theretofore designated or deemed designated and as to which this Lease has not been terminated in accordance with subsection (iii), below.
 
 	(iii)	 	Notwithstanding the foregoing, Tenant shall have the right to terminate this Lease as to any or all of the 5th, 6th, 7th, and 8th floors of the Building as hereinafter set forth:	
 
 	(a)	 	On or before January 3, 2001, Tenant shall have the right to give Landlord written notice that Tenant desires to terminate this Lease as to the Termination Floor (as defined in this subsection (iii) below). If Tenant gives such notice, there shall be no Rent Commencement Date on August 1, 2001, and this Lease shall terminate as to the Termination Floor.	
 
 	(b)	 	On or before April 1, 2001, Tenant shall have the right to give Landlord written notice that Tenant desires to terminate this Lease as to the Termination Floor. If Tenant gives such notice, there shall be no Rent Commencement Date on September 1, 2001, and this Lease shall terminate as to the Termination Floor.	
 
 	(c)	 	On or before June 1, 2001, Tenant shall have the right to give Landlord written notice that Tenant desires to terminate this Lease as to the Termination Floor. If Tenant gives such notice, there shall be no Rent Commencement Date on January 1, 2002, and this Lease shall terminate as to the Termination Floor.	
 
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 	(d)	 	On or before September 1, 2001, Tenant shall have the right to give Landlord written notice that Tenant desires to terminate this Lease as to the Termination Floor. If Tenant gives such notice, there shall be no Rent Commencement Date on July 1, 2002, and this Lease shall terminate as to the Termination Floor.	
 
For each of subsections (a), (b), (c) and (d) above, the “Termination Floor” shall mean the lowest of the 5th, 6th, 7th, and 8th floor as to which this Lease has not then been terminated pursuant to this subsection (iii). Any floor as to which this Lease is terminated pursuant to this subsection (iii) shall nonetheless be subject to the right of first refusal granted to Tenant in Section 2 of  Attachment 8  to this Lease. If Tenant terminates this Lease as to any floor after Tenant commences the installation of Tenant Improvements on such floor, Tenant shall be obligated to remove such Tenant Improvements, on a lien free basis, and return such floor to the Base Building Improvements condition, on a lien free basis .
 
Notwithstanding anything contained in this Lease to the contrary, in no event shall there be funded any portion of the Tenant Allowance attributable to the square footage within any portion of the Premises as to which Tenant has an unexpired right to terminate this Lease pursuant to this subsection (iii) unless Tenant gives Landlord written notice of its waiver of its rights to terminate this Lease as to such area.
 
G.	 	Termination Date: The last day of the tenth (10th) Lease Year.	
 
H.	 	Lease Year: The first Lease Year shall be a twelve (12) calendar month period beginning on the Rent Commencement Date for the 11th and 12th floors. Each subsequent Lease Year shall be a twelve (12) calendar month period, beginning on the day after the end of the first Lease Year, and on successive anniversaries thereof.	
 
I.	 	Lease Term: A period commencing on the Commencement Date and expiring at midnight on the Termination Date, unless sooner terminated as provided in this Lease.	
 
J. & K. Base Rent & Monthly Installments of Base Rent:
 
 	(i)	 	The following applies to the 9th, 10th, 11th, 12th, 14th,15th, 16th, 17th, 18th and 20th floors of the Premises, and to the floors of the Premises as to which the Rent Commencement Date is January 1, 2002, and July 1, 2002, if Tenant does not terminate this Lease as to such floors.	
 
Lease Year

	  	Base Rent Per Rentable

Square Foot Per Annum

	
1	  	$19.00	
2	  	$26.75	
3	  	$28.50	
 
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4	  	$28.50	
5	  	$29.50	
6	  	$30.00	
7	  	$30.00	
8	  	$30.00	
9	  	$31.10	
10	  	$31.10	
 
 	(ii)	 	The following applies to the floors of the Premises as to which the Rent Commencement Date is August 1, 2001, and September 1, 2001, if Tenant does not terminate this Lease as to such floors.	
 
Lease Year

	  	Base Rent Per Rentable

Square Foot Per Annum

	
1	  	$26.00	
2	  	$26.52	
3	  	$27.05	
4	  	$27.59	
5	  	$28.14	
6	  	$28.71	
7	  	$29.28	
8	  	$29.87	
9	  	$30.46	
10	  	$31.07	
 
 	(iii)	 	Notwithstanding the foregoing, payments of Base Rent by Tenant as set forth above are subject to: (a) the occurrence of the Rent Commencement Dates as to the various portions of the Premises and the other terms of Section F above; (b) the Rent abatements described in Sections 1, 6, 14, 15, and 21 of  Attachment 1  to this Lease, in accordance with the provisions thereof; (c) the rights to set off against, and deduct from, the payment of Rent set forth in Section 7 of  Attachment 6  to this Lease; and (d) the Rent abatements described in Section 1 of Attachment 8  to this Lease.	
 
L.	 	Tenant’s Proportionate Share: Tenant’s Proportionate Share, from time to time, shall be that fraction, expressed as a percentage, the numerator of which is the number of rentable square feet in the portions of the Premises as to which the Rent Commencement Date has occurred, and the denominator of which is the total number of rentable square feet in the Building.	
 
M.	 	Base Year: The calendar year 2001	
 
N.	 	[Intentionally omitted]	
 
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O.	 	Landlord’s Mailing Address: 5555 Glenridge Connector, Suite 925, Atlanta, Georgia 30342	
 
P.	 	Tenant’s Mailing Address:	
 
Prior to Commencement Date: 1100 Peachtree Street, Suite 900, Atlanta, Georgia 30309-4530; Attn. General Attorney—Real Estate.
 
As of Commencement Date: The Premises, Attn: Director of Real Estate
 
With a copy to:	  	Andrew Kauss, Esq.	
 	  	Kilpatrick & Stockton	
 	  	1100 Peachtree Street	
 	  	Suite 2800	
 	  	Atlanta, GA 30309	
 	 	
And to:	  	General Attorney—Real Estate	
 	  	BellSouth	
 	  	Suite 4300	
 	  	BellSouth Center	
 	  	765 West Peachtree Street	
 	  	Atlanta, GA 30375	
 
Q.	 	Normal Business Hours: The hours from 8:00 a.m. to 6:00 p.m. Monday through Friday and 8:00 a.m. through 1:00 p.m. on Saturday, excluding the following holidays: New Year’s Day, Martin Luther King’s Birthday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.	
 
R.	 	State: The State of Georgia	
 
S.	 	Parking Spaces: Tenant shall be entitled to the nonexclusive use in common with others of up to, but not in excess of, 3.5 spaces per 1,000 rentable square feet of the Premises, in the covered parking garage and surface parking areas of and serving the Building, in accordance with the terms and provisions of Section 7 of  Attachment 8  to this Lease.	
 
T.	 	Broker: The Hogan Group, Inc., for Landlord, and Carter & Associates, L.L.C., for Tenant.	
 
U.	 	Permitted Use: General Office purposes and all related uses. The Premises may not be used for: (i) the display of pornographic materials, (ii) any off-track betting club or facility; (iii) the sale of lottery tickets or other games of chance (other than for charitable events); (iv) an adult entertainment facility, massage parlor, bathhouse, or facility or entertainment which caters to the prurient interests of patrons, including, but not limited to, the depiction of “X-Rates” or sexually explicit conduct or nudity by (a) movies, (b) peep shows, or (c) live entertainment; or (v) the sale of sex-centered objects, books, magazines, or periodicals.	
 
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V.	 	Tenant’s Representatives: Tenant’s employees, agents, contractors, licensees and invitees.	
 
III Attachments
 
The Attachments listed below are incorporated in this Lease and are to be construed as part hereof:
 
 	1.	 	General Terms, Covenants and Conditions	
 
 	2.	 	Plan showing the Premises	
 
 	3.	 	Land and Building Plan	
 
 	4.	 	Rules and Regulations	
 
 	5.	 	Expense Escalation	
 
 	6.	 	Work Letter	
 
 	6.1	 	Base Building Specifications	
 
6.1(A) Base Building Specifications Supplement
 
6.1(B) Tenant Improvement Materials
 
 	6.2	 	Advance Procedures	
 
 	6.3	 	Form of Request for Advance	
 
 	7.	 	Form of Subordination, Non-Disturbance and Attornment Agreement	
 
 	8.	 	Special Stipulations	
 
 	8.1	 	Pylon Sign Location and Sign Specifications	
 
 	8.2	 	Parking Plan	
 
 	8.3	 	List of Designated Prohibited Tenants	
 
 	8.4	 	Location of Generator Pad	
 
 	8.5	 	Location of Macro-Network Base Station	
 
 	8.6	 	Letter Regarding Film	
 
 	9.	 	Specifications for Janitorial Services	
 
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease or caused it to be executed on the day and year first above written.
 
LANDLORD:	 	 	 	TENANT:	
 	 	 	
HOGAN GLENRIDGE HIGHLANDS TWO,
L.L.C.	 	 	 	CINGULAR WIRELESS LLC, a Delaware
limited liability company	
 	 	 	 	 	
By:	 	Glenridge SPE, Inc., a Florida
corporation, its managing member	 	 	 	By:	 	/s/ Stephen M. Carter

	
 	 	 	 	 	 	 	 	Stephen M. Carter

	
By:	 	 

	 	 	 	 	 	Print Name	
Its:	 	Vice President

	 	 	 	 	 	 	
 	 	 	 	 	 	Its:	 	President & CEO

	
 	 	(CORPORATE SEAL)	 	 	 	 	 	Title	
 
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Attachment 1
 
GENERAL TERMS, COVENANTS AND CONDITIONS
 
1. Delivery of Premises.
 
(a) Landlord has delivered to Tenant the Base Building Improvements as to the 11th, 12th and 14th floors of the Building, Substantially Completed (as defined in  Attachment 6  to this Lease), except as noted on  Attachment 6.1(A) , for the commencement of the construction of Tenant Improvements therein, and Tenant has commenced the construction of Tenant Improvements therein, as of October 2, 2000. Landlord shall cause the matters noted on Attachment 6.1(A)  as to the 11 th , 12 th  and 14 th  floors of the Building to be completed by the completion dates set forth therein or, if no completion date is set forth therein with respect to any such matter, by November 15, 2000, as such date may be extended by Landlord Force Majeure Items and delays caused directly by Tenant or parties acting on behalf of Tenant, but not by any event of Force Majeure (as defined in Section 26 of this  Attachment 1 ) unless such event constitutes a Landlord Force Majeure Item. Landlord shall cause the Base Building Improvements as to the remainder of the Building and as to the 9 th , 10 th , 15 th , 16 th , 17 th , 18 th  and 20 th  floors of the Premises to be Substantially Completed, and such portion of the Premises to be delivered to Tenant for the commencement of the construction of Tenant Improvements therein on or before December 1, 2000, as such date may be extended by Landlord Force Majeure Items and delays caused directly by Tenant or parties acting on behalf of Tenant, but not by any event of Force Majeure unless such event constitutes a Landlord Force Majeure Item. Landlord shall cause the Base Building Improvements as to the 5 th , 6 th , 7 th , and 8 th floors of the Premises to be Substantially Completed, and such portion of the Premises to be delivered to Tenant for the commencement of the construction of Tenant Improvements therein on or before February 28, 2001, as such date may be extended by delays caused directly by Tenant or parties acting on behalf of Tenant, but not by any event of Force Majeure or Landlord Force Majeure Items.
 
(b) If Landlord has not caused the Base Building Improvements, excluding the delivery of the Tenant Improvement Materials (as defined in Attachment 6  to this Lease), as to the remainder of the Building and the 9 th , 10 th , 15 th , 16 th , 17 th , 18 th  and 20 th  floors of the Premises to be Substantially Completed, and such portion of the Premises to be delivered to Tenant for the commencement of the construction of Tenant Improvements therein, on or before January 15, 2001 (as such date may be extended by delays caused directly by Tenant or parties acting on behalf of Tenant, but not by any event of Force Majeure, or Landlord Force Majeure Items), then, in addition to Tenant’s other rights and remedies set forth in this Section 1, Tenant may terminate this Lease, without further obligation by either party hereto, by notice to Landlord given at any time after January 15, 2001, but prior to the time that such portion of the Premises and the Base Building Improvements are so delivered to Tenant in the manner set forth above. If Tenant does terminate this Lease for said cause, Tenant shall not be obligated to pay for any Tenant Improvements included or made to any portion of the Premises on said date, or the cost to remove any such Tenant Improvements. In such event, Landlord shall within thirty (30) days from the date of Tenant’s termination notice reimburse Tenant for the amounts actually incurred
 
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by Tenant, and shall pay any amounts actually due to any parties Tenant has contracted with, in connection with the installation of the Tenant Improvements and the preparation of the Premises for Tenant’s occupancy.
 
(c) If Landlord has not caused the Base Building Improvements, excluding the delivery of the Tenant Improvement Materials, as to the 5th, 6th, 7 th , and 8 th  floors of the Premises (or whichever of them Tenant has not elected to terminate Tenant’s interest in under subsection II.F.(iii) of this Lease) to be Substantially Completed, and such portion of the Premises to be delivered to Tenant for the commencement of the construction of Tenant Improvements therein, on or before February 28, 2001 (as extended by delays caused directly by Tenant or parties acting on behalf of Tenant, but not by any event of Force Majeure or Landlord Force Majeure Items), then, in addition to Tenant’s other rights and remedies set forth in this Section 1, Tenant may terminate this Lease, without further obligation by either party hereto, by notice to Landlord given at any time after February 28, 2001, but prior to the time that such portion of the Premises and Base Building Improvements are so delivered to Tenant in the manner set forth above. If Tenant does terminate this Lease for said cause, Tenant shall not be obligated to pay for any Tenant Improvements included or made to any portion of the Premises on said date, or the cost to remove any such Tenant Improvements. In such event, Landlord shall within thirty (30) days from the date of Tenant’s termination notice reimburse Tenant for the amounts actually incurred by Tenant, and shall pay any amounts actually due to any parties Tenant has contracted with, in connection with the installation of the Tenant Improvements and the preparation of the Premises for Tenant’s occupancy.
 
(d) After the Commencement Date has been determined for any floor of the Premises, Landlord and Tenant shall execute a supplemental agreement specifying the Commencement Date, Termination Date and such other information as Landlord or Tenant shall reasonably require for such floor of the Premises.
 
(e) Tenant may, at Tenant’s option and election, enter any portion of the Premises at any time, and from time to time, prior to the Rent Commencement Date therefor, to install Tenant Improvements, to otherwise prepare the same for Tenant’s occupancy, and to use and occupy the same. Tenant shall not have any obligation to pay any Rent or other charges of any kind whatsoever in respect of any portion of the Premises, including, but not limited to, Base Rent or Excess Expenses, until the Rent Commencement Date therefor. Such entry shall otherwise be subject to all of the terms and provisions of this Lease, including, but not limited to, the provisions related to such actions being or causing Tenant Delay.
 
(f) For the purposes of this Lease, “Landlord Force Majeure Items” shall mean only the following matters, to the extent outside of Landlord’s, or its contractors’, agents’, officers’, or employees’, reasonable control: (i) any casualty affecting the Office Park or Building; (ii) the issuance of (or failure to issue) any governmental or municipal permit, license or other such item, provided Landlord has exercised due diligence and Landlord’s best, reasonable efforts to obtain same; (iii) delays caused by Tenant’s Contractor or Tenant’s Architect; (iv) any labor strike, work stoppage, slow down, lockout or any picketing related thereto (whether legal or not); (v)
 
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governmental action; (vi) condemnation or other exercise of the power of eminent domain; or (vii) acts of vandalism or malicious mischief.
 
(g) If Landlord fails to (i) complete the Base Building Improvements as to the remainder of the Building, (ii) complete the matters noted on Attachment 6.1(A)  as to the 11 th , 12 th  or 14 th  floors of the Building, or (iii) complete the Base Building Improvements (including the delivery of the Tenant Improvement Materials) as to the 9 th , 10 th , 15 th , 16 th , 17 th , 18 th  or 20 th  floors of the Premises, and deliver such portion of the Premises as set forth above, on or before December 1, 2000, as such date is extended by Landlord Force Majeure Items or delays caused directly by Tenant or parties acting on behalf of Tenant, but not by any event of Force Majeure unless such event constitutes a Landlord Force Majeure Item, then: (i) the Rent Commencement Date for such portion of the Premises shall be extended for a period of time equal to the length of such delay; and (ii) Tenant shall have an additional abatement of Base Rent equal to one hundred fifty percent (150%) of the Base Rent due for the portion of the Premises for which delivery was not so achieved for a period of time equal to the length of such delay.
 
(h) If Landlord fails to complete the Base Building Improvements (including the delivery of the Tenant Improvement Materials) as to, and to deliver, (i) the 5 th , 6 th , or 7 th floors of the Premises (or whichever of such floors Tenant has not elected to terminate Tenant’s interest under subsection II.F.(iii) of this Lease), on or before February 28, 2001, or (ii) the 8 th  floor of the Premises (if Tenant has not elected to terminate Tenant’s interest in such floor under subsection II.F.(iii) of this Lease), on or before January 3, 2001, as each such date is extended by Landlord Force Majeure Items or delays caused directly by Tenant or parties acting on behalf of Tenant, but not by any event of Force Majeure unless such event constitutes a Landlord Force Majeure Item, and Tenant is actually delayed in achieving Substantial Completion for such portion of the Premises, then: (i) the Rent Commencement Date for such portion of the Premises shall be extended for a period of time equal to the length of the delay; and (ii) Tenant shall have an additional abatement of Base Rent equal to one hundred fifty percent (150%) of the Base Rent due for the portion of the Premises for which delivery was not so achieved for a period of time equal to the length of such delay.
 
(i) In addition to any extension of any Rent Commencement Date as set forth above, the Rent Commencement Date as to any portion of the Premises shall also be extended by reason of Landlord Delay or Tenant Force Majeure Delay (as defined in and provided for in  Attachment 6  to this Lease).
 
(j) If Landlord has not caused the delivery of the Tenant Improvement Materials, (i) as to the 9th, 10th, 15th, 16th, 17th, 18th and 20th floors of the Premises, to be delivered to the Premises on or before January 15, 2001, or (ii) as to the 5 th , 6 th , 7 th , and 8 th  floors of the Premises (or whichever of them Tenant has not elected to terminate Tenant’s interest in under subsection II.F.(iii) of this Lease) to be delivered to the Premises, on or before February 28, 2001, then, in addition to all other rights and remedies that Tenant may have under this Lease, at law or in equity, Tenant shall have the right to purchase the Tenant Improvement Materials, or comparable substitutes therefor. In such event, (i) for purposes of determining the Rent Commencement Date and calculating the abatement of Base Rent under clauses 1(g) and 1(h) above, Landlord shall be
 
11

deemed to have delivered the Tenant Improvement Materials on the date Tenant actually receives delivery of the Tenant Improvement Materials, or comparable substitutes therefor, purchased by Tenant, and (ii) Landlord shall reimburse Tenant for the costs incurred by Tenant in connection with such purchase within ten (10) days from the date Tenant gives Landlord written notice of any such costs incurred. If Landlord fails to reimburse Tenant for any portion of such amount actually incurred by Tenant as required hereby, then, in addition to all other rights and remedies that Tenant may have under this Lease, at law or in equity, Tenant shall have the right to set off against, and deduct from, the first payments of Base Rent, additional Rent and other amounts becoming due under this Lease, the amount that Landlord has failed to reimburse Tenant, together with interest thereon from the date of the purchase to the date of recovery by set off as herein provided, at the rate of twelve percent (12%) per annum.
 
2. Rent.
 
Tenant shall pay Monthly Installments of Base Rent in advance on the first day of each month of the Term. Monthly Installments of Base Rent for any partial month (including any partial month prior to the first Lease Year) shall be prorated on a per diem basis. All costs and expenses which Tenant assumes or agrees to pay and any other sum payable by Tenant pursuant to this Lease shall be deemed additional rent (together with Base Rent referred to as the “Rent”). The Rent shall be paid in lawful money of the United States of America to the Building Manager or to such other person or at such other place as Landlord may from time to time designate, without any prior notice or demand therefor and without deduction or offset except as specifically permitted under this Lease.
 
3. Late Payments.
 
If any part of the Rent is not paid within five (5) days after it is due, Tenant shall pay Landlord (a) an administrative fee of One Thousand and No/100 Dollars ($1,000.00), for and in connection with processing this late payment, and (b) interest on the amount due from its due date until paid at the lesser of (i) the rate of interest announced from time to time by Bank of America, N.A., as its prime or base rate of interest, plus two percent (2%) per annum, or (ii) the maximum rate which Landlord may lawfully charge Tenant.
 
4. Use of the Premises.
 
Tenant shall use the Premises only for the Permitted Use and all other uses or purposes are prohibited. Tenant shall not commit waste in the Premises and shall not store, dispose of or generate any hazardous materials (except as is customary for an office use) or permit anything to be done in the Premises which causes injury to persons or to the Building, impairs the economic maintenance and operation of the Building, or substantially interferes with or substantially inconveniences other tenants or occupants of the Building.
 
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5. Rules and Regulations.
 
Tenant shall comply with and cause Tenant’s Representatives to comply with the attached Rules and Regulations and with such reasonable modifications and additions (which will be applicable to all similarly situated Building tenants with similar uses) as Landlord may from time to time make; provided, however, such modifications and additions shall not materially interfere with Tenant’s use and enjoyment of the Premises. Landlord shall not be responsible for the violation of the Rules and Regulations by others; provided, however, Landlord shall use good faith efforts to enforce the Rules and Regulations uniformly. In the event of any conflicts between the Rules and Regulations and the terms and provisions of this Lease, the terms and provisions of this Lease shall control.
 
6. Services.
 
(a) Landlord will operate and maintain the Building in compliance with all applicable laws and according to those standards from time to time prevailing for first-class (class “A”) office buildings of similar age, quality and type in the area in which the Building is located. Landlord shall furnish the following services according to such standards (the “Normal Services”):
 
(i) elevator service for use in common with the occupants of the Building;
 
(ii) janitorial and cleaning services to the Premises and common areas of the Building in accordance with the Specifications for Janitorial Services provided for in  Attachment 9  to this Lease;
 
(iii) domestic hot and cold water in reasonable quantities to the common areas and the Premises;
 
(iv) electricity for lighting the Premises and the operation of usual and customary computers and office equipment for general office use of a telecommunications company (a minimum of 8 watts per rentable square foot for low voltage use and 2 watts per rentable square foot for high voltage use);
 
(v) climate control to the Premises during Normal Business Hours as reasonably required for the comfortable use of the Premises, consistent with the requirements set forth in  Attachment 6.1  to this Lease;
 
(vi) toilet facilities, including necessary washroom supplies sufficient for Tenant’s normal use;
 
(vii) electric lighting for all common areas of the Building and the Land that require electric light during the day or are open at night, including replacement of tubes and ballasts in lighting fixtures; replacement of starters, tubes and ballasts in those Building standard lighting fixtures installed in the Premises;
 
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(viii) security for the Building on a twenty-four (24) hour basis, including a reasonable security system;
 
(ix) a key card or marlock access system for access to the Building after Normal Business Hours; and
 
(x) so long as Tenant and/or its affiliates lease and Tenant and/or its affiliates occupy at least fifty percent (50%) of the Building, a full time security guard service, unless Tenant, in Tenant’s good faith judgment, permits Landlord to discontinue such service, so long as Landlord is providing the security services at the levels and in accordance with the above.
 
(b) Tenant shall be authorized and entitled to provide Tenant’s own security personnel for the Building and Property, at Tenant’s sole cost and expense, subject to and conditioned upon the following terms and conditions:
 
(i) Tenant’s security guards shall in all instances be subject to the direction and authority of any security guards for the Premises or Office Park, and Tenant shall so notify Tenant’s security guards;
 
(ii) Tenant shall register the identity of the security service which Tenant uses, and shall cause such security service to post a roster and list of the persons which will be working as Tenant’s security guards with the security service for the Building and Project, indicating the people which will be working on behalf of Tenant, and the exact times at which such people will be working;
 
(iii) Tenant shall cause its security service to provide liability insurance in amounts which Tenant believes are reasonable, and such insurance shall be written with companies licensed to write insurance in the State of Georgia which are otherwise satisfactory to Tenant, in Tenant’s reasonable judgment, and Tenant shall cause the insurer to name Tenant, Landlord and any Mortgagee as an additional named insured on any such insurance policies, and no such insurance may be modified or canceled on less than thirty (30) days’ notice to Tenant, Landlord and any Mortgagee;
 
(iv) Tenant shall indemnify Landlord and hold Landlord harmless from and against any loss, cost, damage or expense, including, but not limited to, court costs and attorneys fees, arising out of or in connection with the acts or omissions of Tenant’s security guards;
 
(v) Tenant’s security guards shall not in any manner interfere with any other tenants in the Project, or the employees, agents or invitees or such tenants; and
 
(vi) Tenant’s security guards shall not be permitted to carry guns or any other weapons.
 
14

(c) If any utilities or services not described in clause 6(a) above are specially or exclusively supplied to Tenant or the Premises (the “Special Services”), Tenant shall pay the cost of the Special Services to Landlord or the applicable utility company, as required.
 
(d) Tenant shall not use utilities or other services in excess of Normal Services. To avoid possible adverse effects upon the Building’s electrical and mechanical systems, Tenant shall not, without Landlord’s prior consent in each instance (which shall not be unreasonably withheld), connect supplemental air conditioning equipment, heavy duty equipment or other similar electrical equipment (“High Usage Equipment”) to the Building’s electrical system. Landlord may survey Tenant’s use of services from time to time. Tenant shall pay Landlord all costs of connection of, or arising out of any excess use of, High Usage Equipment, including the cost of all alterations to the Building’s mechanical and electrical systems (including the installation of meters) and the cost of the additional electricity made available to Tenant, if any. Tenant shall pay such costs within ten (10) days after Landlord’s demand therefor and as periodically billed to Tenant thereafter.
 
(e) Landlord does not warrant that the services supplied by Landlord will be free from interruption. Any interruption or discontinuance of service shall not be deemed an eviction or disturbance of Tenant’s use or possession of the Premises, or any part thereof, nor render Landlord liable to Tenant for damages by abatement of Rent or otherwise, nor relieve Tenant from performance of Tenant’s obligations under this Lease, except as expressly set forth below. Landlord shall, in any event, exercise reasonable diligence to restore any service so interrupted. If Landlord fails to furnish or delays in furnishing any service Landlord is obligated to provide under this Lease, Tenant shall be entitled to abate Rent until the service is restored, but only under the following terms and conditions:
 
 	(i)	 	the loss of service was not caused by, through or under Tenant;	
 
 	(ii)	 	the loss of service must be of a material nature so as to render the Premises (or a discrete portion thereof) unusable for the purposes contemplated by this Lease;	
 
 	(iii)	 	Tenant must give written notice promptly to Landlord of the loss of service and its claim for abatement under this provision, and Tenant shall be entitled to abatement of Rent, assuming all other conditions of this provision are satisfied, commencing on the day such service is curtailed, provided that if such service is restored or replaced within thirty (30) business days of Landlord’s receipt of such notice, then Tenant shall not be entitled to any such abatement;	
 
 	(iv)	 	Landlord may prevent or stop abatement by providing substantially the same service by temporary or alternative means until the cause of the loss of service can be corrected;	
 
 	(v)	 	If the service in question has not been provided for thirty (30) consecutive days, Tenant shall have the right (a) if no emergency exists (a condition	
 
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which creates a risk of imminent danger to persons or substantial damage to property), to perform the same after giving five (5) days’ notice to Landlord and to any party entitled to receive notices pursuant to this Lease, provided Landlord shall not commence to cure such default within such five (5) day period and thereafter proceed with due diligence to do so; and (b) in any emergency situation to perform the same immediately without further notice or delay. If Tenant is entitled and elects to rectify any default as aforesaid, Tenant shall effect such cure in a reasonable manner, using reasonable and comparable materials and supplies, and first-class reputable contractors and suppliers, and so as not to interfere unreasonably with the rights of third parties, including other tenants. Tenant shall also perform such work so as not to violate or impair any warranties. Once the cure is accomplished by Tenant, the abatement rights described above shall immediately cease and Landlord shall immediately reimburse Tenant for all costs and expenses actually incurred in good faith by Tenant in effecting such cure; and
 
 	(vi)	 	If the loss of service only applies to a portion of the Premises, and the other factors set forth above are fulfilled, then the abatement described above shall apply to such portion of the Premises for which the loss of service applies.	
 
If Landlord fails to furnish or delays in furnishing any service Landlord is obligated to provide under this Lease for ninety (90) consecutive days, Tenant may terminate this Lease by notice to Landlord given at any time thereafter and prior to the time that the service is restored. Thereafter Landlord and Tenant shall have no further obligations to the other, except as may otherwise be provided in this Lease.
 
(f) Tenant shall be entitled to utilize after hours HVAC service in the Premises, with such service to be provided by Landlord to the requested area of the Premises from and after reasonable prior notice from Tenant. The cost to provide after hours HVAC service in calendar year 2001 shall be $35.00 per floor, per hour; provided, however, Tenant may instead in calendar year 2001 elect to pre-purchase and pay for blocks of one hundred (100) hours of additional HVAC service, with pre-identified times and days of use, in which event the cost of such additional HVAC service shall be $25.00 per floor, per hour. Any increases in the cost of after hours HVAC service after calendar year 2001 shall be limited to the actual increase in the cost to Landlord in providing such services.
 
(g) As part of the Normal Services, Landlord may, to the extent the provider is willing to do so, also furnish a fiber spine network allowing fractional use of internet, phone, and cable or satellite television systems through a qualified and reputable provider of such services selected by Landlord in Landlord’s sole and absolute discretion.
 
7. Repairs and Maintenance.
 
Tenant shall keep the Premises in good order, condition and repair. Tenant shall give Landlord prompt notice of any damage to or defective condition in the Premises. Except as
 
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provided in Sections 1, 6, 7, 8 and 14 of this Attachment 1, Tenant shall be responsible for all repairs, replacements and alterations in and to the Premises. Landlord shall repair, replace and maintain those portions of the Building which do not constitute a part of the Premises and are not leased to others (except as provided in Section 11 of this  Attachment 1 ), and all Building systems (including those portions thereof that may be located within the Premises, including, without limitation, all HVAC, electrical, mechanical and plumbing systems) in compliance with all applicable laws and according to those standards from time to time prevailing for first-class (class “A”) office buildings of similar age, quality and type in the area in which the Building is located. All repairs, replacements and maintenance shall be performed with reasonable promptness and in a good and workmanlike manner. If any condition obligated to be repaired by Landlord, or the repair itself, causes an interruption of Tenant’s use of the Premises, or any portion thereof, for a period in excess of three (3) business days after notice from Tenant to Landlord that a default by Landlord exists under this Lease for a failure to repair and that the Premises are unusable (the “Repair Notice”), then commencing upon the expiration of such three (3) business day period, Tenant’s Rent will equitably abate in proportion to the portion of the Premises so rendered unusable for so long as all or any portion of the Premises remains unusable. If any condition obligated to be repaired by Landlord, or the repair itself, renders all or any portion of the Premises unusable for a period in excess of thirty (30) days after the Repair Notice, then commencing upon the expiration of such thirty (30) day period, Tenant will have the right to terminate this Lease by delivering written notice of the termination to Landlord for so long as all or any portion of the Premises remains unusable; provided, however, if such repair cannot be completed within such thirty (30) day period and Landlord diligently pursues the completion thereof, Landlord shall have an additional thirty (30) days to complete such repair before Tenant shall have such right to terminate this Lease.
 
8. Alterations and Construction Liens.
 
(a) Alterations to the Premises shall not be made without the prior consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed. Alterations shall be done in accordance with such requirements as Landlord may reasonably impose. Any review or approval by Landlord of plans or specifications with respect to any alteration is solely for Landlord’s benefit, and without any representation or warranty whatsoever to Tenant with respect to the adequacy, correctness or efficiency thereof. Notwithstanding anything herein to the contrary, Tenant is not required to obtain Landlord’s consent or approval of: (i) any cosmetic alterations (including, but not limited to, painting, wallpapering, hanging pictures and installing carpet); or (ii) any alterations that do not adversely affect the structure of the Building or the Building systems, but Tenant shall perform such work in accordance with all applicable laws and shall provide notice to Landlord (as to scope of work and schedule) for all such work and shall provide Landlord copies of any as-built plans for any such work, if such plans are done as a part of Tenant’s work. If required by Landlord (which requirement must be communicated to Tenant, if at all, contemporaneously with Landlord’s approval of the alterations), alterations made by Tenant pursuant to this Section 8 shall be removed by Tenant upon the termination of the Term and Tenant shall at its expense repair any material damage to the Premises or the Building caused by the removal. Notwithstanding anything herein to the contrary, Landlord may not require the removal of usual and customary office alterations made to the Premises.
 
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(b) If Tenant is permitted to make alterations, Tenant shall indemnify and defend Landlord for, from and against any and all construction and other liens and encumbrances filed by any person claiming through or under Tenant and against all costs, expenses, losses and liabilities actually incurred (including reasonable attorneys’ fees actually incurred) by Landlord in connection with any such lien or encumbrance or any action or proceeding brought thereon. If Tenant is permitted to make alterations, Tenant at its expense shall procure the discharge of record by payment, deposit, bond, order of a court of competent jurisdiction or otherwise, of all such liens and encumbrances within thirty (30) days after notice thereof.
 
(c) Tenant is prohibited from subjecting the Premises, Building, Land or Office Park, or any part thereof or any interest of Landlord therein, to any mechanics or materialmen’s lien. If any mechanics or materialmen’s lien shall at any time be filed against the Premises, Building, Land or Office Park or any part thereof or any interest of Landlord therein, by reason of any act, work, labor or services or materials or equipment furnished at the request of Tenant, Tenant within thirty (30) days after notice of the filing thereof, or such shorter period as may be required by the holder of any mortgage of Landlord’s interest in the Premises, will cause the same to be discharged of record by payment, deposit, bond, order of a court of competent jurisdiction or otherwise. If Tenant shall fail to timely cause such lien to be discharged, then in addition to any other right or remedy, Landlord may, but shall not be obligated to, discharge the same whether by paying the amount claimed to be due or by procuring the discharge of such lien by deposit or by bond. Any amount so paid by Landlord and all reasonable costs and expenses actually incurred by Landlord in connection therewith, together with interest thereon at the highest legal rate shall constitute additional Rent and shall be paid to Landlord on demand.
 
(d) Nothing contained in this Lease shall be deemed or construed in any way as constituting the consent or request of Landlord, express or implied by inference or otherwise, to any contractor, subcontractor, laborer or materialman for the performance of any labor or the furnishing of any materials for any specific improvement, alteration to or repair of the Premises or any part thereof, nor as giving Tenant any right, power or authority to contract for or permit the rendering of any services or the furnishing of any materials, that would give rise to the filing of any lien against the Premises or the Building, Land or Office Park, or any part thereof or any interest of Landlord therein.
 
9. Insurance.
 
(a) Tenant shall, at its expense, maintain (i) property insurance on Tenant’s property and on the Tenant Improvements to the extent their value exceeds the Tenant Allowance (for which amount Landlord is to maintain insurance pursuant to clause 9(g) below) which coverage shall provide protection against perils included within a Standard Georgia Property Form for Fire, Windstorm and other Extended Coverages, together with insurance against vandalism and malicious mischief and special perils, commonly known as all risk coverage; and (ii) commercial general liability insurance, including coverage for bodily injury and death, broad form property damage and personal injury and such other coverages as were once referred to as broad form coverage in an amount of not less than One Million Dollars ($1,000,000.00) combined single limit
 
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for both bodily injury and property damage; (iii) contractual liability under which the insurer agrees to indemnify and hold Landlord and any holder of a mortgage against Landlord’s interest in the Premises, harmless from and against any and all costs, expenses and/or liability arising out of or based upon any and all claims, accidents, injuries and damages mentioned in the indemnification provisions in Section 10 of this  Attachment 1  (to the extent that coverage is afforded under the policy); and (iv) business interruption insurance for no less than a period of twelve (12) months.
 
(b) All policies of insurance required from Tenant shall be issued in a form reasonably acceptable to Landlord by insurance companies with general policy holders ratings of “B+” as rated in the most current available “Best’s Insurance Reports” and qualified to do business in the State of Georgia. The policy for commercial general liability insurance shall name Landlord, any Mortgagee and Landlord’s property management company, as an additional insured and such policy shall state that the insurance coverage may not be changed, cancelled or non-renewed without at least thirty (30) days prior written notice to Landlord.
 
(c ) Certificates evidencing the insurance policies required hereunder from Tenant shall be delivered to Landlord on or before delivery of possession of the Premises to Tenant and thereafter, within thirty (30) days of the expiration date of each such policy and as often as any such policy shall expire or terminate, renew or should additional policies be procured and maintained.
 
(d) Each such policy required by Tenant hereunder shall be written as a primary policy which does not contribute to and is not in excess of coverage which Landlord may carry.
 
(e) If the Office Park, the Building, the Premises, or any part thereof or any personal property located therein are damaged or destroyed by fire or other insured casualty, the rights, if any, of Landlord against Tenant, and of Tenant against Landlord, with respect to such damage or destruction are waived and each policy of fire and/or extended coverage maintained by Landlord or Tenant covering the Office Park, the Building, the Premises and the personal property located therein shall contain a clause or endorsement providing in substance a waiver of subrogation so that the insurance shall not be prejudiced if the insured has waived its right of recovery from any person or persons prior to the date of loss or damage.
 
(f) Notwithstanding the provisions of this Section 9, so long as Tenant or the affiliate of Tenant providing the self insurance as described below has either (i) a net worth in excess of $500,000,000 (as demonstrated to Landlord’s reasonable satisfaction), or (ii) (A) a net worth in excess of $100,000,000 (as demonstrated to Landlord’s reasonable satisfaction), and (B) a minimum investment grade rating on its unsecured long term debt obligations of not less than “B+” or the equivalent then available by Standard and Poor’s Corporation (or any successor thereto), Tenant may provide self-insurance with respect to all or any portion of the risks required to be insured against by Tenant under this Section 9, and in satisfaction of Tenant’s obligations in respect thereof; provided, however, that if Tenant does elect to self-insure, Landlord shall have the same benefits of a waiver of subrogation (and limits on indemnity) as if Tenant had carried an insurance policy described herein, for the matter for which Tenant has self-insured. Tenant shall
 
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notify Landlord of any such election to self-insure, at least thirty (30) days prior to such election becoming effective.
 
(g) Landlord shall procure and maintain at its expense (but with the expense to be included in Operating Expenses) throughout the Lease Term a policy of “all risks” (including rent loss coverage) property insurance insuring the full insurable replacement cost of the Building (including the Tenant Improvements to the extent of the Tenant Allowance), as evidenced by an agreed-amount endorsement adequate to prevent Landlord from having any co-insurance obligations, but such insurance may include a commercially reasonable deductible. In addition, Landlord shall procure and maintain at its expense (but with the expense to be included in Operating Expenses) throughout the Lease Term a commercial general liability insurance policy covering the Building with combined single limits for both damage to property and personal injury of not less than $3,000,000 per occurrence and with general aggregate limits of not less than $10,000,000. Landlord may also carry such other types of insurance in form and amounts which Landlord shall reasonably determine to be appropriate from time to time, provided that the expense for such other types of insurance shall be included in Operating Expenses only if insurance of such types and amounts are then being maintained by other landlords of first-class, multi-tenant office Buildings in the metropolitan Atlanta, Georgia area. Any insurance required to be carried by Landlord hereunder may be carried under blanket policies covering other properties of Landlord and/or its partners or members and/or their respective related or affiliated corporations so long as such blanket policies provide insurance at all times for the Building as required by this Lease.
 
10. Indemnification.
 
(a) Tenant hereby indemnifies Landlord from and agrees to hold Landlord harmless against any and all liability, loss, cost, damage or expense, including, without limitation, court costs and reasonable attorney’s fees actually incurred, imposed on Landlord by any person whomsoever, by the gross negligence or willful misconduct of Tenant, or any of its employees, contractors, servants, agents subtenants, assignees or representatives acting within the scope of their respective authority. Landlord hereby indemnifies Tenant from and agrees to hold Tenant harmless against any and all liability, loss, cost, damage or expense, including, without limitation, court costs and reasonable attorney’s fees actually incurred, imposed on Tenant by any person whomsoever, by the gross negligence or willful misconduct of Landlord, or any of its employees, contractors, servants, agents, subtenants, assignees or representatives acting within the scope of their respective authority. The provisions of this Section shall survive any termination of this Lease.
 
(b) Anything in this Lease to the contrary notwithstanding, Landlord and Tenant each waive any claims (except claims arising under Section 11 of this  Attachment 1 ) that either of them may have against the other for any damage or injury to property caused by the other’s negligence or willful misconduct, including the Premises and the Building, arising from a peril insurable under the insurance now commonly known as “all-risk” coverage, whether or not caused by the other, or its agents, employees or contractors. Neither party shall in any event (except as expressly provided in Sections 13 and 23 of this  Attachment 1 ) be liable to the other for indirect or
 
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consequential damages for any breach of this Lease. The provisions of this Section shall survive the termination or expiration of this Lease.
 
11. Observance of Laws.
 
(a) Tenant shall at its expense comply with all laws, regulations, rules, ordinances and orders, including the requirements and regulations of any governmental authority having jurisdiction (collectively, the “Laws”), including those which relate to: (a) the partitioning, equipment operation, alteration, occupancy and use of the Premises, (b) the making of any repairs, replacements or improvements to the Premises, and (c) any business conducted in the Premises. Except as provided in the preceding sentence, Landlord shall comply with all Laws which relate to the Building.
 
(b) Landlord and Tenant shall comply with all applicable laws governing the use, abatement, removal, storage, disposal or transport of any substances, chemicals or materials declared to be, or regulated as, hazardous or toxic under any applicable laws (“Hazardous Substances”) and any applicable laws governing required or permitted alteration, repair, maintenance, restoration, removal or other work in or about the Premises, Building or Land that involves or affects any Hazardous Substances. Each party will indemnify and hold the other harmless from and against any and all claims, costs and liabilities (including reasonable attorneys’ fees actually incurred) arising out of or in connection with any breach by such party of its covenants under this clause 11(b).
 
(c) Landlord shall cause the Land, the Office Park and the Building (including but not limited to elevators and all appurtenant common areas), and any alterations made by Landlord after the Commencement Date to comply with the Americans With Disabilities Act of 1990 and all regulations issued by the U.S. Attorney General or other authorized agencies under the authority of such Act (“ADA”). Throughout the Lease Term, Tenant shall cause any alterations made by Tenant in the Premises after the Commencement Date to comply with the ADA. Landlord and Tenant covenant and agree to reimburse and indemnify each other for any expenses incurred by the indemnified party due to the indemnifying party’s failure to conform to the requirements of the ADA as agreed to in this clause 11(c), including, but not limited to, the cost of making any alterations, renovations or accommodations required by the ADA, or any governmental enforcement agency, or any court, any and all fines, civil penalties and damages awarded resulting from a violation of the ADA and all reasonable legal expenses incurred in defending such claims made under the ADA or in enforcing this indemnification, including, but not limited to, reasonable attorney’s fees actually incurred. Such indemnification shall survive the expiration or termination of this Lease, but only with respect to claims made under the ADA during the Term (Tenant shall not be responsible for any claims made under the ADA after the Term).
 
12. Surrender of the Premises.
 
Tenant, on the Termination Date or earlier expiration of the Term, shall surrender the Premises in as good condition as when Tenant took possession, except for reasonable or ordinary
 
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wear and tear, depreciation and obsolescence, damage by fire, other casualty or condemnation and alterations permitted under this Lease for which restoration is not required. Any of Tenant’s property (except money and securities) left on the Premises on the date ten (10) days following the Termination Date or the earlier termination of this Lease shall be deemed abandoned and, at Landlord’s option, title shall pass to Landlord under this Lease as if by, and to the same legal extent as, a bill of sale or, if Landlord elects to remove all or any part of Tenant’s property, the reasonable cost of such removal, including repairing any damage to the Premises or Building caused by the removal and the cost of storage and sale, shall be paid by Tenant within ten (10) days of Landlord’s demand.
 
13. Holding Over.
 
If Tenant retains possession of all or part of the Premises in excess of ten (10) days after the Termination Date, Tenant’s occupancy shall be as a tenant at sufferance, terminable at any time by Landlord; provided, however, if Tenant has provided Landlord at least six (6) months prior notice of the fact that Tenant shall so hold over in the Premises (which notice shall include the exact period of the holdover), Tenant shall be a month-to-month tenant for the period so specified by Tenant, and Tenant shall pay Landlord rent for such time as Tenant remains in possession of the Premises after the Termination Date (within the time period identified by Tenant as the holdover period) at the monthly rate of one hundred twenty-five percent (125%) of the Base Rent payable hereunder, plus all other Rent required by the terms of this Lease. If Tenant has not so provided Landlord such notice of Tenant’s intended holding over of the Premises, or Tenant holds over beyond the period identified by Tenant above as the holdover period, then Tenant shall be a tenant at sufferance, and Tenant shall pay Landlord, in such circumstances, rent for such time as Tenant remains in possession of the Premises at a monthly rate of 150% of the Base Rent payable hereunder, plus all other Rent required by the terms of this Lease. The provisions of this Section do not exclude Landlord’s rights of reentry or any other right hereunder.
 
14. Damage.
 
(a) If the Building, Land or Premises are damaged by fire or other casualty, and this Lease is not terminated, as provided in clause 14(b) below, Landlord shall repair the damage at no expense to Tenant to the extent of the Base Building Improvements, as described herein, with reasonable promptness after notice to it of the damage; provided, however, that Landlord shall not be required to repair or replace any of Tenant’s property or any alterations made by Tenant in the Premises, including the Tenant Improvements. In such event, Landlord shall provide to Tenant an amount equal to the Tenant Allowance and other similar allowances provided by Landlord to Tenant hereunder to improve and build-out space as a part of expansions of the space leased by Tenant under this Lease, to be disbursed as described herein, and Rent shall abate for the Premises, or portions thereof, from the date of the damage until the earlier date to occur of: (i) the date Tenant occupies any portion of the Premises for the purposes of conducting its business therein (as to such portion only), or (ii) if four (4) or less floors of the Premises are damaged by the casualty, one hundred twenty (120) days after Landlord has substantially completed the restoration of the Base Building Improvements and provides access to the Premises
 
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to Tenant so that work on Tenant Improvements can commence therein, with Tenant having an additional fifteen (15) days prior to Rent commencement under such circumstances for every additional floor so damaged by the casualty in question so that restoration thereof is required; provided, however, if one of the floors damaged in such casualty is the 20 th  floor of the Building, then Tenant shall have, as to that floor only, an additional thirty (30) days after Landlord turns over such space to Tenant in accordance with the above, prior to Rent commencement for such floor. All of the Rent commencement dates set forth above shall be extended by Landlord Delay and Tenant Force Majeure Items. Tenant shall have the right to work on the damaged areas of the Premises at the same time Landlord is working on the damaged areas of the Building and each shall cause its respective contractor to cooperate with one another in such efforts.
 
(b) If the Building, Land or Premises are substantially damaged by fire or other casualty, Landlord may terminate this Lease by notice to Tenant within forty-five (45) days after the date of the damage and this Lease shall terminate upon the thirtieth (30 th ) day after such notice by which date Tenant shall vacate and surrender the Premises to Landlord; provided, however, Landlord may terminate this Lease in such circumstances only if Landlord terminates all other leases in the Building which Landlord has the right to terminate. If this Lease is terminated by Landlord in accordance with this clause 14(b), Tenant shall not be responsible for any Rent allocable to the period commencing after the date of the damage, and Landlord shall refund to Tenant any Rent paid by Tenant allocable to such period along with the notice of termination. The Building, Land or Premises (whether or not the Premises are damaged) shall be deemed substantially damaged if (1) Landlord is required to expend for repairs more than forty-five percent (45%) of the replacement value of the Building immediately prior to the damage, or (2) repair by Landlord in the manner set forth in clause 14(a) above, is not possible in accordance with Landlord’s reasonable estimate, within one hundred eighty (180) days following the date of the damage.
 
(c) If the Building, Land or Premises are damaged by fire or other casualty and this Lease has not been terminated and Landlord does not substantially complete the repair or restoration of the Building, Land or Premises to the extent required under clause 14(a) above within (x) one hundred eighty (180) days after the date of the casualty, or (y) such longer period as Tenant accepts, Tenant may terminate this Lease by notice to Landlord given at any time after the end of the one hundred eighty (180) day or longer period, as applicable. If the completion of repairs is delayed by Tenant or Tenant’s Representatives, the foregoing one hundred eighty (180) day or longer period, as applicable, shall be extended to the extent of such delay. Termination shall be effective thirty (30) days after such notice is given unless Landlord shall substantially complete the repair or restoration within the thirty (30) day period, in which case Tenant’s notice of termination shall be deemed withdrawn. If this Lease is terminated by Tenant in accordance with this clause 14(c), the Rent shall be equitably abate from the date of damage until the date of termination. This Section 14 is intended to provide the only remedies available to Tenant for damage caused by casualty and, therefore, to the extent permitted by law, Tenant waives the provision of any Laws which would provide alternative or additional remedies in the event of such damage.
 
15. Condemnation.
 
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(a) If all or any portion of the Premises is taken by condemnation or under threat thereof for any public or quasi-public purpose, Tenant may terminate this Lease by notice to Landlord given at any time within sixty (60) days after the date of taking. If this Lease is terminated by Tenant in accordance with this clause 15(a), Tenant shall not be responsible for any Rent allocable to the period commencing after the date of the condemnation, and Landlord shall refund to Tenant any Rent paid by Tenant allocable to such period within thirty (30) days after receipt of the termination notice.
 
(b) If all or any portion of the Building or Land (including, but not limited to, the parking deck serving the Premises and the common areas), not including the Premises, is taken by condemnation or under threat thereof for any public or quasi-public purpose, then (1) Landlord may terminate this Lease by notice to Tenant within ninety (90) days after the date of taking if (x) the cost of restoration will exceed the award received as a result of the taking, (y) repair is not possible in accordance with Landlord’s reasonable estimate within one hundred eighty (180) days following the date of taking, or (z) in Landlord’s reasonable judgment, it will be unable to economically operate the Building in light of Landlord’s agreements and obligations regarding the Building; provided, however, Landlord may terminate this Lease in such circumstances only if Landlord terminates all other leases in the Building which Landlord has the right to terminate; and (2) Tenant may terminate this Lease by notice to Landlord within ninety (90) days after the date of taking if the taking renders the Premises unusable for the purposes contemplated by this Lease. This Lease shall terminate on the thirtieth (30 th ) day after such notice by which date Tenant shall vacate and surrender the Premises to Landlord and the Rent shall equitably abate from the date of the taking until the termination date. If this Lease continues in force upon a temporary taking (which shall be one hundred eighty (180) days or less) or a partial taking, the Base Rent, Tenant’s Proportionate Share and other relevant items shall be equitably adjusted according to the relative rental value of the Premises and Building before and after the taking.
 
(c) Subject to the succeeding sentence, in any taking, all of the proceeds of any award payable by the condemning authority shall be and remain the sole and exclusive property of Landlord, and Tenant hereby assigns all of its right, title and interest in and to any award to Landlord. Notwithstanding the foregoing, Tenant shall have the right to claim from the condemning authority, but not from Landlord, such compensation as may be recoverable by Tenant in its own right for any damages resulting from the taking of Tenant’s fixtures, trade fixtures, equipment, furniture and furnishings, or personal property, or for moving expenses, business relocation expenses or damages to Tenant’s business incurred as a result of such condemnation, for the unamortized amount contributed by Tenant for the cost of the Tenant Improvements, and for the unamortized amount paid by Tenant for the alterations to the Premises; provided, however, that in no event will Tenant claim the value of the unexpired term of this Lease.
 
16. Assignment and Subletting.
 
(a) Subject to Landlord’s rights to notice and other restrictions expressly set forth in this clause 16(a) and any other applicable provision of this Lease, Tenant may assign this Lease or sublet the Premises, in whole or in part, without the prior written consent of Landlord.
 
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Notwithstanding the forgoing: (i) Tenant shall notify Landlord prior to any such assignment or subletting; (ii) Tenant may not assign this Lease or sublet the Premises to any governmental authority or agency, without the prior written consent of Landlord, which consent may be withheld in Landlord’s sole discretion; (iii) Tenant may not assign this Lease or sublet the Premises to a tenant which shall house, on a permanent basis, more than one (1) person per 150 rentable square feet of the Premises occupied by such tenant; (iv) Tenant may not assign this Lease or sublet the Premises to any company engaged in the retail sale of securities; and (v) Tenant may only assign its rights with respect to exterior signage on the Building set forth in clause 6(a) of  Attachment 8  to this Lease to a tenant that meets the occupancy requirement of Tenant with respect thereto, and in the event Tenant assigns such rights, Tenant must assign all of such rights (i.e. the rights with respect to exterior signage on the Building set forth in clause 6(a) of  Attachment 8  to this Lease may not be held by more than one (1) tenant).
 
(b) Upon any assignment of this Lease, or upon any sublease, Tenant shall pay to Landlord as additional rent fifty percent (50%) of: (1) in the case of an assignment, an amount equal to all sums and other consideration paid to Tenant by the assignee for or by reason of such assignment (excluding any sums paid for the sale, rental or use of Tenant’s property, and any sums reasonably attributable to the value of Tenant’s contribution to the cost of the Tenant Improvements or Tenant’s cost for alterations to the Premises), less the expenses actually paid by Tenant in connection with the assignment; and (2) in the case of a sublease, any rents, additional charges or other consideration payable under the sublease to Tenant by the subtenant (excluding any sums paid for the sale, rental or use of Tenant’s property, and any sums reasonably attributable to the value of Tenant’s contribution to the cost of the Tenant Improvements or Tenant’s cost for alterations to the Premises) which are in excess of the Rent during the term of the sublease in respect of the subleased space, less the reasonable expenses actually paid by Tenant in connection with the subletting. The sums payable hereunder shall be paid to Landlord as and when payable by the assignee or subtenant to Tenant. Notwithstanding the foregoing, no amount shall be payable to Landlord pursuant to this clause 16(b) in respect of any assignment or sublease to any parent, subsidiary, affiliate or controlled limited liability company, partnership, corporation or other entity, or to a limited liability company, partnership, corporation or other entity into which Tenant may be converted or with which Tenant may merge or into which Tenant or its assets may be consolidated.
 
(c) No assignment or subletting shall affect the continuing primary liability of Tenant (which, following an assignment, shall be joint and several with the assignee) and Tenant shall not be released from performing any of the terms, covenants and conditions of this Lease.
 
17. Subordination.
 
(a) Landlord hereby represents and warrants to Tenant that Landlord is the fee simple owner to title to the Land, subject only to a deed to secure debt in favor of Pacific Life Insurance Company (“Current Mortgagee”). Landlord shall provide to Tenant, within five (5) business days from the date hereof, a subordination, non-disturbance and attornment agreement, executed by Current Mortgagee, in the form attached hereto as  Attachment “7” , by this reference incorporated herein.
 
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(b) This Lease and all rights of Tenant hereunder shall be subordinate to any lease of the Building or Land (an “Underlying Lease”) and to any mortgage, deed to secure debt or deed of trust (a “Mortgage”) which hereafter affects the Building or Land, unless Landlord, at its option, designates this Lease as superior to any such Underlying Lease or Mortgage; provided, however, as a condition of subordination to any Underlying Lease or Mortgage, the lessor of such Underlying Lease or the holder of such Mortgage shall provide a subordination, non-disturbance and attornment agreement (an “SNDA”) for this Lease in a commercially reasonable form, reasonably satisfactory to Tenant, and in all cases stating that Tenant’s use and occupancy of the Premises shall not be disturbed except in accordance with the terms and provisions of this Lease, and no such subsequent SNDA shall except from Mortgagee’s obligations the obligation to fund the Tenant Allowance (as hereinafter defined) to the extent due under the terms of this Lease. Upon such designation, this Lease shall be superior to any such Underlying Lease or Mortgage. Tenant shall promptly execute, acknowledge and deliver any agreement that Landlord, the lessor under any Underlying Lease (“Lessor”) or the holder of any Mortgage (“Mortgagee”) or any of their respective assigns or successors in interest may reasonably request to evidence such subordination or superiority. If any Lessor or Mortgagee (or any purchaser at a foreclosure sale) succeeds to the rights of Landlord under this Lease, whether through possession or foreclosure action or delivery of a new lease or deed (a “Successor Landlord”), Tenant shall attorn to and recognize the Successor Landlord as Tenant’s Landlord under this Lease and shall promptly execute and deliver any agreement that the Successor Landlord may reasonably request to evidence such attornment. Although this clause 17(b) is self operative, if a Lessor, Mortgagee or Successor Landlord reasonably requires that an agreement of subordination, superiority or attornment be executed by Tenant in accordance with this clause 17(b), Tenant shall deliver said agreement within fifteen (15) days after Landlord’s request subject to the non-disturbance provision in favor of Tenant set forth above. Upon such attornment, this Lease shall continue in full force and effect as a direct lease between Successor Landlord and Tenant, upon the terms and conditions contained herein, except that, except as set forth in clause 17(c) below, such Successor Landlord shall not: (a) be liable for any previous act or omission of Landlord under this Lease; (b) be subject to any credit, demand, claim, counterclaim, offset or defense which theretofore accrued to Tenant against Landlord, other than: (i) the Tenant Allowance (as defined in  Attachment 6  to this Lease) and any similar allowances provided for in this Lease or any attachment hereto with respect to space in the Building (but not in GH3), including, without limitation any allowance with respect to the Expansion Space (as defined clause 2(a) of  Attachment 8  to this Lease) (collectively, the “Improvement Allowances”), in each instance, in accordance with the terms of this Lease and the attachments hereto; (ii) the rights to set off against, and deduct from, the payment of Rent set forth in Section 7 of Attachment 6  to this Lease; and (iii) the Rent abatements described in Section 1 of  Attachment 8  to this Lease; (c) be bound by any previous modification of this Lease or by any previous prepayment of more than one month’s fixed rent or additional rent, unless such modification or prepayment shall have been previously approved in writing by such Successor Landlord or by the Mortgagee to whose interest such Successor Landlord succeeded if such approval was required; (d) be required to account for any security deposit of Tenant other than any security deposit actually delivered by Landlord to such Successor Landlord or to the Mortgagee to whose interest such Successor Landlord succeeded; (e) be bound by any obligation to make any payment (other than the
 
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Improvement Allowances in accordance with the terms of this Lease and the attachments hereto) to Tenant or grant any credits, except for services, repairs, maintenance and restoration provided for under this Lease to be performed by Landlord after the date of such attornment; or (f) be responsible for any monies owing by Landlord to Tenant (other than the Improvement Allowances in accordance with the terms of this Lease and the attachments hereto). Prior to Tenant’s having any right to terminate this Lease by reason of a default by Landlord, any Mortgagee shall have the right, but not the obligation, to cure such default by Landlord during, or at any time within thirty (30) days after the expiration of, Landlord’s cure period, if any (or at any time within thirty (30) days after the occurrence of the default, if there is no cure period); provided, however, that this right of a Mortgagee shall not impact upon or limit the exercise of any other remedies of Tenant available under this Lease.
 
(c) Notwithstanding the provisions set forth in clause 17(b) above, any Lessor or Mortgagee shall be bound by the following provisions, and any SNDA or other agreement to be signed by Tenant shall provide that:
 
(i) Lessor or Mortgagee shall advance and fund the Tenant Allowance in accordance with the terms and provisions of this Lease.
 
(ii) Lessor’s or Mortgagee’s obligation to advance and fund the Tenant Allowance is an independent obligation of Lessor or Mortgagee, in addition to and separate and apart from the obligations of Landlord under this Lease.
 
(iii) Lessor or Mortgagee shall advance and fund the Tenant Allowance in accordance with the terms and provisions of this Lease, notwithstanding the fact that, under any agreement between Lessor or Mortgagee and Landlord, Lessor or Mortgagee may not be obligated to make such advances to Landlord, and irrespective of the reason that Lessor or Mortgagee may not be obligated to make such advances to Landlord, including, without limitation, a default by Landlord under any such agreement.
 
(iv) To the extent the Tenant Allowance has not been funded in accordance with the terms and provisions of this Lease, Tenant shall have the absolute right to exercise its rights of set off set forth in  Section  7 of  Attachment 6  to this Lease (the “Set Off Rights”) at any time in respect of any portion of the Tenant Allowance; and, without limiting the generality of the foregoing, in no event shall a termination of an Underlying Lease or a foreclosure of a Mortgage (by judicial process, power of sale or otherwise) or conveyance in lieu of foreclosure of a Mortgage, which termination, foreclosure, power of sale, or conveyance occurs prior to the expiration date of the Lease, including any extensions and renewals of the Lease now provided thereunder (a “Termination or Foreclosure”), impair, limit, affect, lessen, abrogate or otherwise modify, in any manner whatsoever, the right of Tenant to exercise the Set Off Rights after the Termination or Foreclosure in respect of portions of the Tenant Allowance that were required to have been advanced and funded prior to the Termination or Foreclosure but were not.
 
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18. Estoppel Certificates.
 
Tenant shall from time to time, within fifteen (15) days after request, deliver to Landlord or any Mortgagee requesting same, a statement in writing certifying the status of this Lease and any options contained herein, the performance hereunder of Landlord and Tenant and such other matters, as Landlord or any Mortgagee requesting same shall reasonably request, in form and substance reasonably satisfactory to Landlord or any Mortgagee requesting same and Tenant.
 
19. Transfer of Landlord’s Interest.
 
The term “Landlord” as used in this Lease shall be limited to mean and include only the owners of Landlord’s interest in this Lease at the time in question. Upon any transfer of such interest and the transferee’s assumption of all liability for the performance of any obligations on the part of Landlord contained in this Lease first arising from and after the effective date of the transfer, Landlord herein named (and in case of any subsequent transfer, the then transferor) shall thereafter be relieved of all liability for the performance of any obligations on the part of Landlord contained in this Lease first arising from and after the effective date of the transfer.
 
20. Quiet Enjoyment.
 
Landlord warrants and covenants that Tenant, upon paying the Rent and performing all of the terms, covenants and conditions on its part to be performed, shall peaceably and quietly enjoy the Premises subject, nevertheless, to the terms of this Lease, and Tenant will not be disturbed in such quiet and peaceable possession except as expressly provided in this Lease.
 
21. Rights Reserved to Landlord.
 
(a) Landlord reserves the right on reasonable prior notice to Tenant: (1) to install and maintain all signs in the Office Park, including the exterior and interior of the Building (subject, however, to the provisions of Section 6 of  Attachment 8  to this Lease); (2) to exhibit the Premises after Normal Business Hours, without any material interference with the conduct of Tenant’s business therein, to any prospective purchaser or mortgagee of the Building or Land and to others having an interest therein at any time during the Term, and to prospective tenants during the last nine (9) months of the Term (provided, however, Landlord shall not have the right to exhibit those portions of the Premises of which Tenant has notified Landlord, in good faith, in which Tenant conducts sensitive business operations); (3) to enter the Premises, without any material interference with the conduct of Tenant’s business therein, to make necessary inspections, repairs and adjustments or otherwise to comply with the terms of this Lease (provided, however, Landlord shall not have the right to enter those portions of the Premises of which Tenant has notified Landlord, in good faith, in which Tenant conducts sensitive business operations); and (4) to relocate, alter, improve, reduce or add to the configuration of and the various facilities and improvements within the Building, the Land and the Office Park, provided that the change shall not materially alter, qualify or restrict Tenant’s access to or use of the Premises.
 
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(b) Landlord shall not have the right to rename the Building, as long as Tenant and/or its affiliates lease at least 175,000 rentable square feet therein and Tenant and/or its affiliates occupy at least 88,500 rentable square feet therein. Landlord shall have the right to re-name the Office Park; provided, however, (i) if Tenant and/or its affiliates then lease at least 245,000 rentable square feet in the Office Park, and Tenant and/or its affiliates then occupy at least 88,500 rentable square feet in the Office Park, Landlord may not rename the Office Park for any entity other than for an entity which is primarily in the business of developing, owning or managing real estate, (ii) Landlord may not rename the Office Park at all, if Tenant and/or its affiliates then lease at least thirty-three percent (33%) of the rentable square feet within the Office Park, and Tenant and/or its affiliates then occupy at least 88,500 rentable square feet in the Office Park, and (iii) in no event shall the Office Park be named for any company engaged in any telecommunications business.
 
(c) If work under clause 21(a) above precludes Tenant from occupying a portion of the Premises, Tenant shall be entitled to abate Rent as to such portion of the Premises, but only under the following terms and conditions:
 
 	(i)	 	the interference must be of a material nature so as to render the Premises (or portion thereof) substantially unusable for the purposes contemplated by this Lease; and	
 
 	(ii)	 	Tenant must give written notice promptly to Landlord of the interference and its claim for abatement under this provision and Tenant shall be entitled to abatement of Rent, assuming all other conditions of this provision are satisfied, commencing on the day of such interruption, provided that if the interruption ceases within three (3) business days of Landlord’s receipt of such notice, then Tenant shall not be entitled to any such abatement.	
 
22. Default.
 
The following shall be deemed an Event of Default under this Lease: (a) Tenant’s failure to make any payment of Rent and the continuance of such failure for five (5) days after the date notice of such late payment is received by Tenant; provided, however, if more than two (2) payments due of Tenant hereunder in any one (1) calendar year are not made until after notice of such late payment is received by Tenant then it shall be an Event of Default hereunder by Tenant if any subsequent payment due of Tenant hereunder in the same calendar year is not made within ten (10) days of the date when due, and (b) Tenant’s failure to cure a default in the performance of any other covenant or obligation of Tenant under this Lease within a period of thirty (30) days following Tenant’s receipt of notice from Landlord specifying the default (or if the specified default is not capable of cure within the thirty (30) day period, if Tenant fails immediately after notice from Landlord to commence to cure the default and diligently to pursue completion of the cure during and after the thirty (30) day period).
 
23. Remedies.
 
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(a) Upon the occurrence of an Event of Default, Landlord may, without prejudice to Landlord’s other rights hereunder and in addition to all other rights and remedies which Landlord may have under the Laws:
 
 	(i)	 	Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord. If Tenant shall fail to do so, Landlord may, without further notice and without prejudice to any other remedy Landlord may have, enter upon the Premises without the requirement of resorting to the dispossessory procedures set forth in O.C.G.A. §§ 44-7-50  et seq . and expel or remove Tenant and Tenant’s effects without being liable for any claim for trespass or damages therefor. Upon any such termination, Tenant shall remain liable to Landlord for Rent due and payable on the day of termination, and damages in an amount equal to the Rent and any other amounts which would have been owing by Tenant for the balance of the Term, had this Lease not been terminated, less the reasonable rental value of the Premises for the balance of the Term; or	
 
 	(ii)	 	Enter the Premises without the requirement of resorting to the dispossessory procedures set forth in O.C.G.A. §§ 44-7-50 etseq. and without being liable for any claim for trespass or damages therefor, and, in connection therewith, rekey the Premises, remove Tenant’s effects therefrom and store the same at Tenant’s expense, without being liable for any damage thereto, and relet the Premises, without advertisement, by private negotiations, for any term Landlord deems proper, and receive the rent therefor. Tenant shall pay Landlord on demand any deficiency that may arise by reason of such reletting, but Tenant shall not be entitled to any surplus so arising. Tenant shall reimburse Landlord for all reasonable costs and expenses (including, without limitation, advertising expenses and professional fees) actually incurred in connection with or in any way related to the eviction of Tenant and reletting the Premises, and for the amount of any other Rent which would have been due of Tenant to Landlord hereunder if not for certain concessions granted by Landlord to Tenant. Landlord, in addition to but not in lieu of or in limitation of any other right or remedy provided to Landlord under the terms of this Lease or otherwise (but only to the extent such sum is not reimbursed to Landlord in conjunction with any other payment made by Tenant to Landlord), shall have the right to be immediately repaid by Tenant the amount of all costs and expenses incurred in renovating or altering the Premises to make it suitable for reletting; or	
 
 	(iii)	 	Landlord may declare to be due and payable immediately, the present value (calculated with a discount factor of eight percent [8%] per annum) of the difference between (x) the entire amount of rent and other charges and assessments which in Landlord’s reasonable determination would become due and payable during the remainder of the Lease Term determined as though this Lease had not been terminated, and (y) the then fair market	
 
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rental value of the Premises for the remainder of the Lease Term. Upon the acceleration of such amounts, Tenant agrees to pay the same at once, together with all Rent and other charges and assessments theretofore due, at Landlord’s address as provided herein, it being agreed that such payment shall not constitute a penalty or forfeiture but shall constitute liquidated damages for Tenant’s failure to comply with the terms and provisions of this Lease (Landlord and Tenant agreeing that Landlord’s actual damages in such event are impossible to ascertain and that the amount set forth above is a reasonable estimate thereof); or
 
 	(iv)	 	Do whatever Tenant is obligated to do under this Lease, including, but not limited to, entering the Premises, without being liable to prosecution or any claims for damages, in order to accomplish this purpose. Tenant agrees to reimburse Landlord immediately upon demand for any reasonable expenses which Landlord may actually incur in thus effecting compliance with this Lease on behalf of Tenant. Landlord shall not be liable for any damages resulting to Tenant from such action, whether caused by the negligence of Landlord or otherwise.	
 
(b) Pursuit by Landlord of any of the foregoing remedies shall not preclude the pursuit of general or special damages incurred, or of any of the other remedies provided herein, at law or in equity.
 
(c) No act or thing done by Landlord or Landlord’s employees or agents during the Term shall be deemed an acceptance of a surrender of the Premises. Neither the mention in this Lease of any particular remedy, nor the exercise by Landlord of any particular remedy hereunder, at law or in equity, shall preclude Landlord from any other remedy Landlord might have under this Lease, at law or in equity. Any waiver of or redress for any violation of any covenant or condition contained in this Lease or any of the Rules and Regulations now or hereafter adopted by Landlord, shall not prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation. The receipt by Landlord of Rent with knowledge of the breach of any covenant in this Lease shall not be deemed a waiver of such breach.
 
24. Security Deposit [intentionally omitted]
 
25. Bankruptcy.
 
If Tenant files a voluntary petition pursuant to the Bankruptcy Code (including any successor code) or takes the benefit of any insolvency act or is dissolved, or if any involuntary petition is filed against Tenant pursuant to the Bankruptcy Code and the petition is not dismissed within one hundred twenty (120) days after the filing, or if a receiver is appointed for Tenant’s business or assets and the appointment of the receiver is not vacated within one hundred twenty (120) days after the appointment, or if Tenant shall make an assignment for the benefit of creditors, then same shall be a default under this Lease and Landlord shall have all of the rights
 
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provided in Section 23 of this Attachment 1 for nonpayment of the Rent to the extent permitted by the Laws.
 
26. Force Majeure.
 
Landlord shall be excused for the period of any delay in the performance of any obligation hereunder when prevented from so doing by causes beyond its control, including labor disputes, civil commotion, hostilities, sabotage, governmental regulations or controls, fire or other casualty, inability to obtain any material, financing or services, and acts of God, provided that nothing contained in this Section shall be deemed to (a) excuse or permit any delay of in excess of ninety (90) days in the completion of the Base Building Improvements or the delivery of the Premises or any portion thereof as required by Section 1 of this  Attachment 1 , or (b) provide for any extension of the time periods in Sections 6(d), 14 or 21 of this  Attachment 1 . Tenant shall similarly be excused for delay in the performance of any obligation hereunder, provided that nothing contained in this Section shall be deemed to excuse or permit any delay in the payment of Rent or any delay in the cure of any default which may be cured by the payment of money except as otherwise expressly provided in this Lease.
 
27. Limitation of Liability.
 
If Landlord becomes obligated to pay Tenant a money judgment arising out of this Lease, including any failure by Landlord to perform any of its obligations under this Lease, Tenant shall be limited for the satisfaction of the money judgment solely to (a) Landlord’s interest in the Building and Land, and the proceeds of any sale thereof, and (b) the proceeds of Landlord’s insurance policy or policies actually paid to Landlord and not applied by Landlord to the applicable claim or to the restoration of the Building required by the terms of this Lease (unless such proceeds are not so applied because such proceeds are required by the holder of a deed to secure debt encumbering the Building to be paid to it to reduce the debt served by such deed to secure debt), for satisfaction of Tenant’s remedies, if any, and no other property or assets of Landlord or the individual partners, directors, officers, or shareholders of Landlord shall be subject to levy, execution or other enforcement procedure whatsoever for the satisfaction of the money judgment.
 
28. Parking.
 
Landlord hereby permits Tenant the right to use the Parking Spaces. If Landlord institutes an automobile identification procedure, Tenant shall cooperate with Landlord’s reasonable requirements therefor; provided, however, in no event shall any such program result in any charges or costs to Tenant or restrict, encumber or materially adversely affect Tenant’s use of the Parking Spaces.
 
29. Relocation [intentionally omitted]
 
30. Brokerage Fees.
 
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THE HOGAN GROUP, INC. (“HOGAN”) HAS ACTED AS AGENT FOR LANDLORD IN THIS TRANSACTION. CARTER & ASSOCIATES, L.L.C. (“CARTER”) HAS ACTED AS AGENT FOR TENANT IN THIS TRANSACTION. BOTH HOGAN AND CARTER SHALL BE PAID A COMMISSION BY LANDLORD. CARTER SHALL BE PAID A COMMISSION BY LANDLORD PURSUANT TO A SEPARATE COMMISSION AGREEMENT DATED               , 2000 BY AND BETWEEN LANDLORD AND CARTER. Tenant warrants and represents that it has not dealt with any other party (including a broker or other agent) in connection with this Lease except Hogan and Carter, who shall be paid by Landlord under a separate agreement. Tenant shall indemnify and defend Landlord for, from and against any claims, expenses, liabilities and losses (including reasonable attorneys’ fees) resulting from any compensation, commissions or charges claimed by or owing to any other party in connection with this Lease by reason of any act of Tenant (other than Hogan and Carter). Landlord warrants and represents that it has not dealt with any other party (including a broker or other agent) in connection with this Lease except Hogan and Carter, who shall be paid by Landlord under a separate agreement. Landlord shall indemnify and defend Tenant for, from and against any claims, expenses, liabilities and losses (including reasonable attorneys’ fees) resulting from any compensation, commissions or charges claimed by or owing to any other party in connection with this Lease by reason of any act of Landlord (including, without limitation, Hogan and Carter). Such indemnification obligations shall survive the expiration or termination of this Lease.
 
31. Notice.
 
All notices, demands, consents, approvals, elections or other communications permitted or required to be given hereunder (a notice or notices) shall be in writing and shall be deemed given and received: (a) the date delivered if delivered by hand; or (b) one business day after deposit with a private courier or overnight delivery service; or (c) two (2) business days after deposit in the United States mails, certified or registered mail with return receipt requested and postage prepaid. Notices shall be addressed as follows: (a) if to Landlord, to the Landlord’s Mailing Address and to the Building Manager; and (b) if to Tenant, to the Tenant’s Mailing Address. Any address or name specified above may be changed by a notice given to the addressee by the other party in accordance with this Section. The inability to deliver a notice because of a changed address for which no prior notice was given or rejection or other refusal to accept any notice shall be deemed to be the receipt of the notice as of the date of such inability to deliver or rejection or refusal to accept.
 
32. Miscellaneous.
 
(a) This Lease shall be deemed to have been made in and shall be construed in accordance with the Laws of the State. This Lease may have been executed in several counterparts, all of which constitute one and the same instrument. The captions appearing within the body of this Lease have been inserted as a matter of convenience and for reference only and in no way define, limit or enlarge the scope or meaning of this Lease or of any provision hereof. This Lease sets forth all of the agreements and understandings between Landlord and Tenant and there are no agreements or understanding, either oral or written, between them other than as are
 
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herein set forth. No amendment or change to this Lease shall be binding upon Landlord or Tenant unless reduced to writing and signed by both of them.
 
(b) As used in this Lease, any list of one or more items preceded by the word “including” shall not be deemed limited to the stated items but shall be deemed without limitation.
 
(c) If any provision of this Lease is or becomes illegal or unenforceable because of current or future Laws effective during the Term, the intention of the parties hereto is that the remaining parts of this Lease shall not be affected thereby.
 
(d) The failure of either party to exercise any remedy or election shall not be construed as a waiver for the future of such remedy or election, but the same shall remain in full force and effect. The receipt by Landlord of full or partial Rent with knowledge of a breach of this Lease shall not be deemed a waiver of such breach. No payment of a lesser amount than the Rent due Landlord shall be deemed to be other than on account of the Rent and Landlord may accept payment without prejudice to Landlord’s right to recover the balance of such Rent or pursue any other remedy provided in this Lease, notwithstanding any endorsement or statement accompanying the payment to the contrary.
 
(e) In any proceeding which Landlord or Tenant may prosecute to enforce its rights hereunder, the unsuccessful party shall pay all costs of litigation incurred by the prevailing party, including reasonable attorneys’ fees, incurred at both the trial and appellate levels.
 
(f) If Landlord commences any summary proceeding (or equivalent) or an action for nonpayment of Rent, Tenant shall not interpose in the proceeding or action any counterclaim not arising out of or under this Lease or in connection with the Land, Building or Premises, provided that this prohibition shall not prevent Tenant from raising any appropriate defense in such proceeding or action and any such underlying claim shall be preserved for any subsequent action commenced by Tenant against Landlord.
 
(g) All the terms and provisions of this Lease shall be binding upon and, except as prohibited or limited by Section 16 of this Attachment 1, inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and permitted assigns.
 
(h) At Tenant’s request, Landlord shall execute and deliver to Tenant, and Tenant shall have the right to record in the public records of Fulton County a memorandum of this Lease in form and substance reasonably satisfactory to Landlord and Tenant, evidencing Tenant’s rights hereunder with respect to the Building and GH3 (as hereinafter defined).
 
(i) Time shall be of the essence of this Lease.
 
(j) Tenant shall assume and pay to Landlord at the time of paying the Rent any excise, sales, use, gross receipts or other similar taxes (other than a net income or excess profits tax) which may be imposed on or measured by such Rent (including utilities and other services specially or separately billed or supplied to Tenant) and which Landlord may be required to pay or
 
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collect under any Laws not in effect or hereafter enacted. Tenant shall also assume and pay all taxes specifically attributable to the value of Tenant’s leasehold improvements in excess of Landlord’s Base Building Improvements.
 
(k) Tenant shall pay all taxes due on its personal property located in the Premises.
 
(l) If more than one person or entity executes this Lease as Tenant, each such person or entity shall be jointly and severally liable for observing and performing each of the terms, covenants, conditions and provisions to be observed or performed by Tenant.
 
(m) Tenant has only a usufruct under this Lease, not subject to levy or sale. No estate shall pass out of Landlord by this Lease.
 
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Attachment 5
 
EXPENSE ESCALATION—BASE STOP
 
Escalation. The Base Rent does not reflect future increases in the amount of taxes on the Land, the Building and other improvements on the Land (collectively the “Property”) or in the cost of operations and maintenance of the Property. In order that the Rent payable throughout the Term shall reflect any such increase, the parties agree as follows:
 
1. Definitions
 
(a) Real Estate Taxes: (1) all general and special taxes, assessments, duties and levies, if any, payable (adjusted after protest or litigation, if any) for any part of the Term, exclusive of penalties, on the Property; (2) any service, user or license fees or taxes, or any taxes which shall be payable on the rentals of the Building in addition to or in lieu of any of the foregoing in whole or in part; and (3) the reasonable expenses paid in contesting the amount or validity of any such taxes, charges or assessments, such expense to be applicable to the period of the item contested,  provided ,  however , that the amount of such expenses included in the Real Estate Taxes for any period shall not exceed the amount by which the Real Estate Taxes for such period are actually reduced by the proceedings in respect of which such expenses are incurred. If there is available a discount in the amount of Real Estate Taxes based on timing of payment, then the term “Real Estate Taxes” shall mean the amount of such Real Estate Taxes, calculated at the reduced rate, available if Landlord had paid such taxes in a reasonable manner and at a reasonable time, irrespective of when actually paid by Landlord.
 
Notwithstanding anything to the contrary herein, the following are not included in Real Estate Taxes: (i) federal, state, or local income taxes; (ii) franchise, gift, transfer, excise, capital stock, estate, succession, or inheritance taxes; (iii) penalties or interest for late payment of Real Estate Taxes, unless in connection with a protest or claim of such; and (iv) the portion of Real Estate Taxes that is allocable to any capital improvements to the Building made after the date of this Lease (other than improvements to tenants’ premises equivalent in value to the Allowance as a part of such tenants build-out). If (i) Landlord receives a refund of any portion of the Real Estate Taxes relating to a certain period, and (ii) Tenant has made a payment to Landlord of Tenant’s Proportionate Share of the additional Real Estate Taxes applicable to the same period in respect of which such refund of Real Estate Taxes was subsequently obtained, then Landlord shall, upon receipt of any such refund of such Real Estate Taxes, reimburse Tenant an amount equal to Tenant’s Proportionate Share of any such refund (such refund to be calculated after deducting all of Landlord’s reasonable expenses paid in connection with obtaining any such refund).
 
In calculating Real Estate Taxes for the Base Stop, the Real Estate Taxes for the Base Year shall be increased to reflect assessments attributable to the value of the Building as if the Building were ninety-five percent (95%) occupied during the entire year.
 
(b) Operating Expenses: all expenses (other than those expressly excluded below) (i) that are actually incurred in good faith by Landlord or on Landlord’s behalf, (ii) that are attributable to
 
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the management, repair, operation and maintenance of the Property, (iii) that are determined under generally accepted accounting principles consistently applied, and (iv) that are generally incurred in the operation, maintenance, management and repair of office buildings of similar age, quality and type in the area in which the Building is located, including: (1) utilities; (2) rent, casualty, liability and fidelity insurance; (3) cleaning and security services; (4) landscaping; (5) the amortized (over the useful life thereof) cost of alterations and improvements to the Property made by reason of the Laws or the requirements of insurance bodies, but only to the extent such are enacted after the Commencement Date; (6) reasonable management fees not in excess of the then prevailing rates for management fees of other comparable buildings in the area in which the Building is located; (7) the amortized (over the useful life thereof) cost of capital improvements, replacements or additions to the Property made during the Term which Landlord reasonably projects will reduce Operating Expenses, but only to the extent of the projected reduction for each relevant calendar year; (8) administrative expenses, including the reasonable cost (including foregone rent at a reasonable rate) of the management office (which must be a reasonable size); (9) all other charges properly allocable to the repair, operation and maintenance of the Building in accordance with generally acceptable accounting principles; and (10) the cost of cleaning up, removing, abating or otherwise mitigating any Hazardous Materials, but only to the extent (i) such were not on the Property as of December 1, 2000; and (ii) such were not introduced or brought onto the Property by Landlord, or another, identifiable tenant of the Building. The pass-through of any Operating Expenses incurred by Landlord under clause (10) above, after the Base Year, to Tenant shall be spread out for Tenant over a period of time equal to the greater of (i) the remaining Lease Term, or (ii) seven (7) years, and if the Lease Term expires before the expiration of said seven (7) year period, Tenant shall have no liability past the expiration of the Term for such amounts; and in any event, no more than ten cents (10¢) per rentable square foot leased by Tenant per year may be passed through to Tenant for this particular item of Operating Expenses. Landlord shall use all reasonable efforts to pursue any remedies it may have against third parties for recovery of any Operating Expenses incurred by Landlord under clause (10) above, and any costs so collected from third parties shall off-set amounts due from or paid by Tenant for this item of Operating Expenses.
 
If during any calendar year the Building is not fully occupied or if any tenant of the Building (other than Tenant) furnishes to itself any services which would otherwise have been furnished by Landlord, Operating Expenses shall be adjusted at the expiration of each calendar year as if the Building were ninety-five percent (95%) occupied during the entire year and as if Landlord had furnished such services. “Fully occupied” shall be defined as occupancy of ninety-five percent (95%) or more of the rentable area of the Building. For each such calendar year, Landlord shall provide in the statement required by Section 3(b) below a reasonably detailed description of how such adjustment was calculated.
 
Operating Expenses will not include (1) interest on debt or amortization payments on mortgages or deeds to secure debt or interest on any other debt for borrowed money; (2) ground lease payments or rent under any other underlying lease; (3) leasing commissions and other leasing costs; (4) costs of marketing and advertising space for lease in the Building; (5) costs for which Landlord is reimbursed (other than such tenants’ regular contributions to Operating Expenses); (6) any depreciation or capital expenditures (except as expressly provided above); (7)
 
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legal fees incurred for negotiating leases or collecting rents; (8) any cost or expense in connection with accounting, tax, or audit work with respect to Landlord’s ownership entity (as distinguished from such services directly related to the operation and maintenance of the Building); (9) all taxes and related items not included in Real Estate Taxes; (10) any taxes assessed against any improvements made by a tenant in the Building at a cost in excess of the allowance provided to such tenant for leasehold improvements in such tenant’s lease; (11) costs (including permit, license and inspections fees) incurred in renovating, improving, decorating, painting or redecorating space leased on an exclusive basis, constituting the exclusive usable space of a single tenant; (12) the cost of electricity, HVAC or other services or items furnished to tenants in the Building (including Tenant), to the extent such cost is separately payable or reimbursable by such tenant as a separately stated charge and not as a part of such tenant’s proportionate share of Operating Expenses or increases in Operating Expenses; (13) costs arising out of or by reason of the violation by Landlord or another identified tenant of the terms of any lease; (14) costs paid to subsidiaries of affiliates of Landlord for any services, supplies, materials or other matters otherwise included in Operating Expenses, to the extent that such costs exceed the competitive cost of such services, supplies, materials or other matters of the same level of quality, were they provided by a party other than a subsidiary or affiliate; (15) rentals and other related expenses incurred in leasing air conditioning systems, elevators, or other equipment ordinarily considered to be of a capital nature, except when used in an emergency or on a short-term basis, or equipment used in providing janitorial services, landscaping services or other services provided for the Building by independent third-parties; (16) the cost of any work or service performed for, or facilities furnished to, any tenant of the Building to a materially greater extent or in a manner more favorable to such tenant than that performed or furnished for, or available to, Tenant; (17) costs incurred to remedy defects in construction materials or installations; (18) any costs, fines or penalties incurred because Landlord negligently or knowingly violated any Law; (19) repairs or other work required to repair, or otherwise caused by, fire or other casualty (excluding a reasonable deductible with respect to any such insurance policy, such deductible not to exceed $10,000.00 per occurrence) or condemnation; (20) costs incurred in connection with the sale, financing, refinancing, mortgaging, selling or change of ownership of the Building, including brokerage commissions, attorneys’ and accountants’ fees, closing costs, title insurance premiums, transfer taxes and interest charge(s); (21) costs, fines, interest, penalties, legal fees, costs of litigation or other costs incurred due to the failure by Landlord to pay when due, Real Estate Taxes or Operating Expenses for the Building, except in connection with or as a part of a protest of such amount due; (22) costs for sculptures, paintings or other works of art, including costs incurred with respect to the purchase, ownership, leasing, showing, promotion, repair and/or (other than non-routine) maintenance of the same; (23) any amounts payable by Landlord by way of indemnity, or for damages, or which constitute a fine, interest or penalty, but if such amounts arise out of a contractual dispute involving Landlord in respect of costs otherwise includable as Operating Expenses, such amounts shall be excluded, only to the extent such amounts are in excess of what would have been due of Landlord under the contract itself; and (24) any costs or expenses that under generally accepted accounting principles consistently applied would not be considered normal maintenance, repair, management or operating expenses.
 
Any costs incurred because of a change of policy or practice in operating the Building that causes an increase in Operating Expenses over Operating Expenses for the Base Stop (changed
 
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expenses) shall be included as Operating Expenses only if the change in policy or practice would have been made by a reasonably prudent operator of comparable office buildings of similar age, quality and type in the area in which the Building is located. The changed expenses shall be included as Operating Expenses to the extent of, but only to the extent of, the increase in cost over the projected costs that would have been included in Operating Expenses for purposes of calculation of the Base Stop.
 
In calculating Operating Expenses, to the extent that Landlord receives any reimbursement, refund, credit, discount, reduction, or allowance for the cost of any item otherwise includable in Operating Expenses (except to the extent of reimbursements to Landlord by other tenants of their proportionate share of Operating Expenses or increases in Operating Expenses) the cost of the item includable in Operating Expenses shall be net of any such reimbursement, refund, credit, discount, reduction or other allowance. If any such reimbursement, refund, credit, discount, reduction, or allowance is received by Landlord in a later period and the amount thereof has not been applied against Operating Expenses in a previous period, Landlord shall, upon receipt of the same, reimburse Tenant in an amount equal to the lesser of (i) Tenant’s Proportionate Share of any such reimbursement, refund, credit, discount, reduction, or allowance, or (ii) an amount equal to the amount paid by Tenant as its Proportionate Share of increases in Operating Expenses allocable to the period to which such reimbursement, refund, credit, discount, reduction, or allowance applies.
 
(c) Base Stop: shall be the actual Real Estate Taxes and Operating Expenses for the Base Year (adjusted as required by Section 1(b) above). The Base Stop will include a management fee payable by Landlord of four percent (4%) of gross proceeds, based upon a fully occupied (95%) Building.
 
2. Excess Expenses and Excess Base Stop.
 
Tenant shall pay Landlord an amount equal to Tenant’s Proportionate Share of the amount by which the sum of the Real Estate Taxes and the Operating Expenses for each calendar year during the Term after the calendar year 2001 exceeds the Base Stop (the excess amount is referred to as the “Excess Expenses”). Tenant’s Proportionate Share of Excess Expenses shall be prorated as necessary for the first and last calendar years of the Term if the Commencement Date or Termination Date are other than the first or last day of the year, respectively. Tenant shall receive as a credit an amount equal to Tenant’s Proportionate Share of the amount by which the sum of the Real Estate Taxes for each calendar year during the Term is less than the Base Stop, resulting from a “Tax Inducement” (as herein defined). The amount of the credit, if any, shall be determined as of the date Landlord provides the statement required by Section 3(b) below, and the credit shall apply against the next ensuing monthly installment or installments of the Rent until the credit is exhausted.
 
3. Current Payments and Adjustments.
 
(a) In order to provide for current payments on accounts of Excess Expenses Tenant shall pay as additional rent, together with Monthly Installments of Base Rent, an amount equal to
 
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Tenant’s Proportionate Share of the Excess Expenses due for the ensuing twelve (12) months (as reasonably estimated by Landlord from time to time) in twelve (12) equal monthly installments commencing on the first (1st) day of the month following the month in which Landlord notifies Tenant of the amount.
 
(b) On or before April 1 of each calendar year, Landlord shall deliver to Tenant a statement (certified by an officer of Landlord) (the “Statement”) of the actual amount of Real Estate Taxes, Operating Expenses and Tenant’s Proportionate Share of the Excess Expenses for the preceding calendar year. If Tenant’s Proportionate Share of the actual Excess Expenses for the previous calendar year exceeds the aggregate of the estimated monthly payments made by Tenant for that year, Tenant shall within thirty (30) days of receipt of the statement pay Landlord such excess as additional rent. If the aggregate exceeds Tenant’s Proportionate Share of the actual Excess Expenses, then Landlord shall credit against Tenant’s next ensuing Monthly Installment or Installments of the Rent an amount equal to the difference until the credit is exhausted, or pay such amount in cash to Tenant, if after the end of the Term. If the aggregate exceeds Tenant’s Proportionate Share of the actual Excess Expenses by more than five percent (5%) (excluding any adjustment for Real Estate Taxes, which Landlord and Tenant acknowledge may vary widely from original estimates because of actions by Landlord to appeal or reduce assessments), then Landlord shall at the time the statement is delivered pay Tenant such excess and shall also pay Tenant interest on such excess at the rate of ten percent (10%) per annum. The interest shall be calculated as if one-twelfth (1/12) of the excess accumulated each month during such period and interest shall continue accruing until the excess is refunded to Tenant.
 
4. Termination.
 
(a) If Landlord has not already done so, Landlord may at any time after the end of the Term give Tenant notice of Landlord’s reasonable estimate of Tenant’s Proportionate Share of the Excess Expenses (prorated) for the calendar year in which the Term ends. Tenant shall within thirty (30) days after receipt of such notice pay Landlord the amount specified. Adjustments shall thereafter be made in accordance with this Section.
 
(b) If a credit is due from Landlord at the end of the Term or at the time of adjustment, Tenant shall be entitled to receive the amount of the credit in the form of payment from Landlord, provided that Landlord may, in lieu of such payment, apply the credit against any Rent which is due but not paid on that date. Except as expressly set forth herein, no interest or penalties shall accrue on any amounts which Landlord is obliged to credit or pay Tenant by reason of this  Attachment 5 .
 
5. Statements.
 
Tenant shall have six (6) months after receipt of any statement of actual Real Estate Taxes, Operating Expenses and Tenant’s Proportionate Share of Excess Expenses to dispute the correctness or completeness thereof. Each such statement given by Landlord shall be conclusive and binding, absent manifest error, upon Tenant unless within such six (6) month period Tenant shall notify Landlord that it disputes the correctness of the statement, specifying the particular
 
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respects in which it is claimed to be incorrect. Pending resolution of the dispute, Tenant shall pay additional rent in accordance with the statement but such payment shall be without prejudice to Tenant’s position. Tenant (or its accountants) shall have the right to inspect and audit, at reasonable times and in a reasonable manner, during such six (6) month period, such of Landlord’s books and accounts and records as pertain to and contain information concerning the Excess Expenses for the period in question. The books and records shall be kept in accordance with generally accepted accounting principles consistently applied. If Tenant’s audit for any period should reveal that actual Real Estate Taxes, Operating Expenses or Excess Expenses for such period were overstated in any statement of actual Real Estate Taxes, Operating Expenses and Tenant’s Proportionate Share of Excess Expenses for such period, then: (i) the overpayment (together with interest at the rate of ten percent (10%) per annum) shall be due and payable by Landlord to Tenant within thirty (30) days after the determination of the amount of the overpayment; and (ii) if the Statement by Landlord of total Operating Expenses overstated the Operating Expenses by more than four percent (4%), as evidenced by the audit accepted by Landlord and Tenant, or otherwise determined as correct, then Landlord shall pay for all reasonable audit expenses and costs actually incurred by Tenant. Payment of any Excess Expenses shall not preclude Tenant from thereafter disputing the correctness or completeness of any statement of actual Real Estate Taxes, Operating Expenses and Tenant’s Proportionate Share of Excess Expenses in accordance with this Section 5.
 
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ATTACHMENT 8
 
SPECIAL STIPULATIONS
 
1. Rent Abatement. Notwithstanding anything to the contrary contained in this Lease, Tenant shall not be obligated to pay Base Rent or Tenant’s Proportionate Share of Excess Expenses for the 2 nd , 6 th , 12 th , 19 th , 24 th  and 73 rd  months of this Lease Term.
 
2. Expansion Space Option.
 
(a) Provided this Lease is then in full force and effect and no Event of Default has occurred and is then existing beyond any applicable notice and cure period, Landlord hereby grants Tenant for the Lease Term a right of first refusal (the “Refusal Right”) to lease any portion of the Building, not then part of the Premises and which is Available, as defined in this clause 2(a) below (the “Expansion Space”), in accordance with the within terms and conditions. Space shall be deemed to be “Available” for the purposes of this clause 2(a) if the space is: (i) not subject to any right of first offer, right of first refusal, right to expand, right to extend, renewal right or similar right, however named, in favor of any other tenant as of the date of this Lease; or (ii) not subject to any right of first offer, right of first refusal, right to expand, right to extend, renewal right or similar right, however named, granted to another tenant after the date of this Lease if such rights are granted to such future tenant after Tenant’s failure to accept any such offer of such space made to Tenant in accordance with the provisions of this Special Stipulation 2.
 
(b) Should Landlord receive, from time to time, during the Lease Term a bona fide offer (the “Offer”) from a prospective tenant to lease any portion of the Expansion Space (the “Offer Space”), upon terms and conditions and at a rental rate acceptable to Landlord, Landlord shall notify Tenant thereof in writing (the “Offer Space Notice”), and offer to lease the Offer Space to Tenant upon the financial terms contained in the Offer. The Offer Space Notice may not be given more than nine (9) months in advance of such availability and shall set forth the following terms of the Offer: (i) the date upon which the Offer Space will be available; (ii) Base Rent rate (expressed as dollars per annum per square foot); (iii) base year for Real Estate Taxes and Operating Expenses; (iv) tenant improvement allowance (expressed as dollars per annum per square foot); and (v) any other material financial terms (expressed as dollars per annum per square foot). Tenant shall have eight (8) business days to accept or reject such offer.
 
(c) If Tenant rejects such offer or fails to respond within said eight (8) business day period, then: (i) Landlord shall be entitled to lease the Offer Space to the third party (or its affiliate or subsidiary) making the Offer on the terms and conditions contained in the Offer (or substantially equivalent economic terms and conditions); and (ii) if Landlord does not actually lease the Offer Space to the third party making the Offer within six (6) months from the date of the Offer Space Notice, such space shall again become subject to the Refusal Right. Any Offer Space actually leased by Landlord during such six (6) month period shall again be subject to the Refusal Right when it again becomes Available (as defined in clause 2(a) above).

(d) If Tenant accepts such offer within said eight (8) business day period, then Tenant shall have leased the Offer Space upon the financial terms contained in the Offer Space Notice, and upon the other terms and conditions as contained in this Lease and for a term co-terminus with the Lease Term; provided, however, (i) Tenant shall in all events be required to lease the Offer Space for a minimum term of not less than three (3) years, notwithstanding the period of time remaining in the Lease Term, and if Tenant elects to lease the Offer Space at any time when less than three (3) years remain in the Lease Term, the term for such Offer Space only shall be a full three (3) year period, and (ii) if the term set forth in the Offer is less than the remaining Lease Term, then at the expiration of the term set forth in the Offer the financial terms of the lease of the Offer Space shall thereafter be the financial terms of this Lease.
 
(e) If Tenant leases any Offer Space, the rent for such Offer Space shall commence on the earlier to occur of: (i) the Final Rent Commencement Date (hereinafter defined); or (ii) if Tenant actually occupies any portion of the Offer Space for the conduct of its business therein prior to the Final Rent Commencement Date, then, as to such occupied portion only, the date upon which Tenant actually occupies the same for the conduct of its business therein. For the purposes hereof, the Final Rent Commencement Date for the entirety of the Offer Space shall mean: (1) if the Offer Space contains two (2) floors or less, the date ninety (90) days after Landlord tenders possession of the Offer Space to Tenant for the commencement of preparation thereof for Tenant’s occupancy; and (2) if the Offer Space contains more than two (2) floors, the date ninety (90) days after Landlord tenders possession of the Offer Space to Tenant for the commencement of preparation thereof for Tenant’s occupancy, plus fifteen (15) days for each additional floor (or portion of a floor) included in the Offer Space. The Final Rent Commencement Date shall be extended by Landlord Delay and Tenant Force Majeure Items.
 
(f) If Tenant leases any Offer Space, then Landlord shall disburse any tenant improvement allowance provided for in the Offer Space Notice to Tenant in accordance with the provisions contained in the Work Letter for disbursement of the Tenant Allowance.
 
(g) If Tenant leases any Offer Space, Landlord and Tenant shall promptly execute and deliver to the other an amendment to this Lease, in form and substance reasonably satisfactory to Landlord and to Tenant, to reflect changes in the Premises and any other appropriate terms changed by the addition of the Offer Space.
 
(h) In addition to and not in lieu of the rights of Tenant set forth above, if there exists any Expansion Space as to which Landlord has not received an Offer and Tenant desires to investigate the possibility of leasing such Expansion Space, Tenant shall have the rights under this Section 2(h).
 
(1) Tenant may give Landlord notice specifying any Expansion Space which Tenant desires to investigate leasing, and Landlord shall give Tenant a notice (the “Expansion Space Notice”) with respect thereto. Any Expansion Space Notice given by Landlord shall set forth the following terms upon which Landlord is willing to lease the Expansion Space: (1) the date upon which the Expansion Space will be available; (2) Base Rent rate (expressed as dollars per annum per square foot); (3) base year for Real Estate Taxes and Operating Expenses; (4)

tenant improvement allowance (expressed as dollars per annum per square foot); and (5) any other material financial terms. Tenant shall have fifteen (15) days to accept or reject such offer.
 
(2) If Tenant does not accept such offer within said fifteen (15) day period, such Expansion Space shall nonetheless remain subject to the Refusal Right set forth above and later request by Tenant for an Expansion Space Notice with respect thereto.
 
(3) If Tenant accepts such offer within said fifteen (15) day period, then Tenant shall have leased the Expansion Space upon the financial terms contained in the Expansion Space Notice, and upon the other terms and conditions as contained in this Lease, for a term co-terminus with the Lease Term; provided, however, Tenant shall in all events be required to lease the Expansion Space for a minimum term of not less than three (3) years, notwithstanding the period of time remaining in the Lease Term, and if Tenant elects to lease the Expansion Space at any time when less than three (3) years remain in the Lease Term, the term of the lease for such Expansion Space only shall be automatically extended so that it is a full three (3) year period.
 
(4) If Tenant leases any Expansion Space, the rent for such Expansion Space shall commence on the earlier to occur of: (i) the Expansion Space Final Rent Commencement Date (hereinafter defined); or (ii) if Tenant actually occupies any portion of the Expansion Space for the conduct of its business therein prior to the Expansion Space Final Rent Commencement Date, then, as to such occupied portion only, the date upon which Tenant actually occupies the same for the conduct of its business therein. For the purposes hereof, the Expansion Space Final Rent Commencement Date for the entirety of the Expansion Space shall mean: (x) if the Expansion Space contains two (2) floors or less, the date ninety (90) days after Landlord tenders possession of the Expansion Space to Tenant for the commencement of preparation thereof for Tenant’s occupancy; and (y) if the Expansion Space contains more than two (2) floors, the date ninety (90) days after Landlord tenders possession of the Expansion Space to Tenant for the commencement of preparation thereof for Tenant’s occupancy, plus fifteen (15) days for each additional floor (or portion of a floor) included in the Expansion Space. The Expansion Space Final Rent Commencement Date shall be extended by Landlord Delay and Tenant Force Majeure Items.
 
3. Renewal of Lease. (a) Provided this Lease is then in full force and effect and no Event of Default has occurred and is then existing beyond any applicable notice and cure period, Landlord hereby grants to Tenant three (3) options to renew this Lease for a period of five (5) years each (a “Renewal Term”, or collectively the “Renewal Terms”), at a rental rate equal to ninety-five percent (95%) of the effective rental rate then being offered by landlords to tenants desiring to lease comparable space, which is the size of the Premises, in the other comparable first-class (class “A”) office buildings located in comparable first-class (class “A”) mixed-use projects in the metropolitan area of Atlanta, Georgia, for a comparable term, with comparable on-site amenities and services and comparable parking rights and privileges (expressly including the value of free and reserved parking), and the standard tenant improvement allowance provided, rent credit, moving allowance, abatements or other concessions or inducements then being offered to such comparable tenants, seeking comparable space, as such rate is determined and established by Landlord (the “Market Rate”). If Tenant desires to renew this Lease, Tenant shall notify Landlord

at least twelve (12) months in advance of the expiration of the Term, or the Renewal Term, as the case may be (the “Renewal Notice”). Landlord shall make an offer to Tenant based upon the above-described terms within thirty (30) days following receipt of the Renewal Notice. Tenant shall have thirty (30) days from the date Landlord makes such offer to either (i) accept the offer, (ii) reject the offer, or (iii) elect to submit the issue of Market Rate to arbitration. If Tenant fails to respond within such thirty (30) day period, Tenant shall be deemed to have rejected the offer pursuant to clause 3(a)(ii) above. If Tenant rejects the offer, or is deemed to have rejected the offer, pursuant to clause 3(a)(ii) above, then this Lease shall expire as of the end of the Term as established herein or the Renewal Term, as the case may be. If Tenant accepts such offer, then the Term or the Renewal Term, as the case may be, shall be extended by said five (5) year period, and the rent for such period shall be the rent as offered by Landlord and accepted by Tenant pursuant to the terms and conditions of this Section.
 
(b) If Tenant elects to submit the issue of Market Rate to arbitration pursuant to clause 3(a)(iii) above, the notice of such election shall set forth the name of the arbitrator selected by Tenant. Within ten (10) days after receipt of such notice by Landlord from Tenant, Landlord shall notify Tenant of the arbitrator selected by Landlord. Within ten (10) days after the appointment of Landlord’s arbitrator, the arbitrators so appointed shall jointly appoint a third arbitrator. If such arbitrators are unable to select a third arbitrator within ten (10) days after the appointment of Landlord’s arbitrator, then Landlord or Tenant, or both, shall immediately by petition to the Presiding Judge of the Superior Court of Fulton County, Georgia, request the appointment of five (5) persons, each of whom shall be qualified to serve as a third arbitrator, and none of whom shall have any interest in or be in any way affiliated with or related to either Landlord or Tenant as a stockholder, officer, employee or agent of Landlord or Tenant or a relative of any stockholder, officer, agent or employee of Landlord or Tenant. From the five (5) persons so appointed, Landlord and Tenant shall, within ten (10) days after such appointment, alternatively strike two names each, Tenant striking one name first. The remaining person shall act as the third arbitrator. If either Landlord or Tenant shall fail or refuse to appoint an arbitrator within the time provided, then the other party shall petition the then Presiding Judge of the Superior Court of Fulton County, Georgia to appoint an arbitrator for such party and any arbitrator so appointed shall be considered as having been appointed by the party so failing or refusing to appoint an arbitrator. If either party shall fail or refuse within the time provided to strike from the list of the five (5) persons appointed by the Presiding Judge of the Superior Court of Fulton County, then the other party shall proceed to select the third arbitrator from said list. Notwithstanding anything to the contrary set forth in this clause 3(b), each of the arbitrators selected shall be qualified arbitrators and experienced in the type of issues to be arbitrated.
 
(c) After a third arbitrator has been appointed in accordance with the foregoing clause 3(b), the arbitrators shall hold such meetings as either Landlord or Tenant, or both, may reasonably request and at such meetings hear and consider any evidence which either Landlord or Tenant, or both, desire to present. Within twenty (20) days after the appointment of the third arbitrator, the arbitrators shall make their final determination deciding the issue of Market Rate.
 
(d) The determination made by the arbitrators as to the Market Rate shall be in writing and signed by at least two arbitrators and shall be binding upon Landlord and Tenant.

(e) Landlord shall pay the fees and expenses of the arbitrator selected by Landlord and Tenant shall pay the fees and expenses of the arbitrator selected by Tenant. The fees and expenses of the third arbitrator, together with any expenses of the arbitration proceeding itself, shall be divided equally between Landlord and Tenant.
 
4. Hazardous Wastes; Landlord’s Covenants .
 
(a) To the best of Landlord’s knowledge and belief, but without any independent investigation or inquiry of any kind or nature whatsoever, there are no Hazardous Substances in the Land, the Building or the Premises other than “Permitted Hazardous Substances”, as that term is defined below. Landlord covenants and agrees that if any Hazardous Substances other than Permitted Hazardous Substances are found in the Land, the Building or the Premises in such amounts and locations as would require Landlord to remove such materials as a matter of law, then Landlord shall remove or cause to be removed such Hazardous Substances. Such removal shall be accomplished in a manner that does not cause an unreasonable disruption to Tenant’s operations in the Premises.
 
(b) The term “Permitted Hazardous Substances” shall mean such Hazardous Substances as are commonly and legally used or stored as a consequence of using, maintaining or operating the Land, the Building and the Premises, but only so long as the quantities thereof do not pose a threat to public health or to the environment or would necessitate a “response action” as that term is defined in CERCLA, and so long as Landlord strictly complies or causes compliance with all applicable governmental rules and regulations concerning the use, storage, production, transportation and disposal of such Hazardous Substances.
 
(c) Landlord will indemnify and hold Tenant harmless from and against any and all claims, costs and liabilities (including reasonable attorneys’ fees) arising out of or in connection with: (i) the presence in the Land, Building or Premises of any Hazardous Substances, other than Hazardous Substances brought to the Land, Building or Premises by Tenant or Tenant’s Representatives; or (ii) any breach by Landlord of its representations and covenants under this Section 6. Such indemnification obligation shall survive the expiration or termination of this Lease.
 
5. Tenant’s Right To Install Satellite Antennae Module.
 
(a) Subject to the terms and conditions as described below, Tenant shall have the right, free of rent or other rent related charges, to place on the roof of the Building microwave, satellite or other antenna module(s) (the “Antennae”) and related hardware and cabling, connected to the Premises, to service and serve the Premises and communications and transmissions of data to and from the Premises. Notwithstanding anything contained herein to the contrary, Tenant shall be solely responsible for any utility charges or other similar charges incurred in connection with the use and operation of the Antennae.

(b) Tenant hereby covenants and agrees to obtain and pay for all permits and license fees which may be required to be paid for the erection and maintenance of any and all such Antennae. The right of Tenant to install such Antennae is expressly conditioned upon Tenant’s Antennae not interfering with any antennae presently existing on the roof of this Building, and Tenant hereby covenants and agrees that these Antennae will not so interfere.
 
(c) Tenant shall furnish detailed plans and specifications for such Antennae systems to Landlord for Landlord’s consent, which consent shall not be unreasonably withheld, conditioned or delayed, provided Landlord may condition its consent by requiring that such systems be installed in the least conspicuous of all reasonably acceptable locations on which the systems might be located and that all components and elements thereof (except the terminal devices and structures) be concealed from view from within and without the Building. Upon the giving of such consent, such systems shall be installed, at Tenant’s expense, by a contractor selected by Tenant and approved by Landlord, such approval not to be unreasonably withheld, conditioned or delayed by Landlord. In the installation of such systems, Tenant shall not void or compromise any roof or other warranties which Landlord may have with respect to the base Building or components thereof, and Tenant shall comply with all applicable laws, and keep the Premises, Building and Property free and clear from liens arising from or related to Tenant’s installation, and shall provide all insurance with respect to or in connection with the Antennae as Landlord in Landlord’s reasonable judgment, deems appropriate or necessary. Tenant shall be entitled to use such portions of the Building as may be reasonably necessary for the installation, operation and maintenance of the Antennae, and Tenant shall have reasonable access to such portions of the Building at all times throughout the Lease Term for such purposes; provided however, that except for the roof, any cables, conduits or other physical connections between such Antennae and the Premises shall be concealed underground or within permanent walls, floors, columns and ceilings of the Building and in the shafts of the Building provided for such installations, not damaging the appearance of the Building or reducing the usable or rentable space of the Building; and provided further, that except for the roof and Premises, any installation or maintenance work performed by Tenant or at Tenant’s direction shall be performed without unreasonably interfering with Landlord’s or any other tenant’s use of the Building, and upon completion of such installation and maintenance (initially and from time to time) Tenant shall restore such portions of the Building to a condition reasonably comparable to that existing prior to such installation or maintenance. Tenant shall be responsible for procuring whatever licenses or permits may be required for the use of such systems or operation of any equipment served thereby, and Landlord shall cooperate with Tenant, at Tenant’s expense, in procuring such licenses or permits, to the extent required by applicable laws. Landlord makes no warranties whatsoever as to the permissibility of such systems under applicable laws. Tenant’s Antennae shall not constitute a nuisance, or unreasonably interfere with the operations of other tenants of the Building or with the normal use of the area surrounding the Building by occupants thereof. Upon termination or expiration of this Lease, Tenant shall remove the Antennae installed by it pursuant to this clause 5(c), at its expense, and shall repair and restore the Building to a condition comparable to that existing prior to such installation, normal wear and tear excepted.
 
(d) Landlord reserves the right to relocate said Antennae at any time, at no expense to Tenant, provided such relocation shall have no material adverse impact on the operations of such

Antennae as a service to the Premises. Tenant hereby covenants and agrees that such Antennae shall be designed and shall be installed, to the extent reasonably practicable, in a manner so that it is relocatable without extraordinary or unreasonable trouble, effort or expense.
 
6. Signage.
 
(a) So long as no Event of Default has occurred and is then existing beyond any applicable notice and cure period, and Tenant and/or its affiliates occupy at least 177,000 rentable square feet in the Building, Tenant shall have the exclusive right to the Building top (parapet) signage as well as the right to have signage on two (2) sides of the Building. Tenant shall maintain and repair such signage at Tenant’s sole cost and expense. Landlord shall not permit any other signage on the exterior of the Building. The design criteria for the parapet sign are as set forth in  Attachment 8.1  to this Lease.
 
(b) Landlord shall provide Tenant the exclusive right to place signage on an exterior pylon for the Building, which Landlord covenants and agrees to construct for Tenant’s sole use, at the main entrance area to the Building. The location and design criteria for such sign are as set forth in Attachment 8.1  to this Lease.
 
(c) Any damage to the walls or doors caused by Tenant’s signage shall be repaired by Tenant prior to the termination of this Lease.
 
(d) All costs associated with any signage granted hereunder, except for the main Building directory and the exterior pylon, shall be paid by Tenant, or to the extent available, from the Tenant Allowance.
 
(e) Upon Landlord’s request, Tenant shall remove any exterior signage at the end of the Lease Term at Tenant’s sole cost and expense.
 
7. Parking.
 
(a) Notwithstanding the terms and conditions of this Lease, twenty-five (25) of the Parking Spaces provided to Tenant under this Lease shall be reserved for Tenant’s exclusive use at the location described on  Attachment 8.2  to this Lease.
 
(b) Landlord covenants that it shall not charge any parking fee for Tenant’s Parking Spaces during the Lease Term (including any Renewal Terms).
 
(c) Landlord shall not grant parking rights with respect to the parking facilities serving the Building so that the aggregate of parking rights granted is in excess of the number of parking spaces actually available.
 
(d) If Tenant notifies Landlord that it needs additional parking, Landlord shall use reasonable efforts to provide Tenant, at no cost to Tenant as a tenant in the Building (but without affecting the economic terms set forth in Section 12 of this  Attachment 8 ), additional parking in

the future GH3 parking deck, if such parking deck has been constructed by Landlord; provided, however, Landlord shall have no obligation to so construct the GH3 parking deck.
 
(e) Landlord shall provide, at no cost to Tenant or Tenant’s visitors, sufficient visitor parking to meet Tenant’s needs in the location described on  Attachment 8.2  to this Lease.
 
8. Telecommunications.
 
(a) Subject to the terms and conditions as described below, Tenant shall have the right to contract with a provider(s) of local and long distance telephone services and other communication services of any kind (the “Provider”), or Tenant may be its own provider. The Provider selected by Tenant or Tenant, as applicable, shall have the right, subject to reasonable availability and Landlord’s reasonable prior consent, to place in the Building riser system, and in the phone room(s) on any floor of the Building that the Premises are located and other common areas of the Building, equipment (the “Equipment”) and related hardware and cabling, connected to the Premises, to service and serve the Premises and communications and transmissions of data to, from and within the Premises.
 
(b) Tenant hereby covenants and agrees that Landlord shall not be obligated to obtain or pay for any permits and license fees which may be required to be paid for the erection and maintenance of any and all such Equipment. The right of the Provider or Tenant, as applicable, to install such Equipment is expressly conditioned upon the Equipment not interfering with any equipment presently existing on or within the Building.
 
(c) Prior to installation of the Equipment, the Provider or Tenant, as applicable, shall furnish detailed plans and specifications for such Equipment systems to Landlord for Landlord’s consent, which consent shall not be unreasonably withheld, conditioned or delayed, provided Landlord may condition its consent by requiring that such systems be installed in the least conspicuous of all reasonably acceptable locations on which the systems might be located. In the installation of such systems, the Provider or Tenant, as applicable, shall comply with all applicable laws, and keep the Premises, Building and Land free and clear from liens arising from or related to the installation, and shall provide all insurance with respect to or in connection with the Equipment. The Provider or Tenant, as applicable, shall be entitled to use such portions of the Building as may be reasonably necessary for the installation, operation and maintenance of the Equipment, and the Provider or Tenant, as applicable, shall have reasonable access to such portions of the Building at all times throughout the Term for such purposes; provided however, that except for the roof, any cables, conduits or other physical connections between the Equipment and the Premises shall be concealed underground or within permanent walls, floors, columns and ceilings of the Building and in the shafts of the Building provided for such installations, not damaging the appearance of the Building or reducing the usable or rentable space of the Building; and provided further, that except for the roof and Premises, any installation or maintenance work performed by the Provider or Tenant, as applicable, or at the Provider’s or Tenant’s, as applicable, direction shall be performed without unreasonably interfering with Landlord’s or any other tenant’s use of the Building, and upon completion of such installation and maintenance (initially and from time to time) the Provider or Tenant, as applicable, shall restore

such portions of the Building to a condition reasonably comparable to that existing prior to such installation or maintenance. The Provider or Tenant, as applicable, shall be responsible for procuring whatever licenses or permits may be required for the use of such systems or operation of any equipment served thereby, and Landlord shall cooperate with the Provider or Tenant, as applicable, at the Provider’s or Tenant’s, as applicable, expense, in procuring such licenses or permits, to the extent required by applicable laws. Landlord makes no warranties whatsoever as to the permissibility of such systems under applicable laws. The Equipment shall not constitute a nuisance, or unreasonably interfere with the operations of other tenants of the Building or with the normal use of the area surrounding the Building by occupants thereof. Upon termination or expiration of this Lease, Tenant shall remove the Equipment, at its expense, and shall repair and restore the Building to a condition comparable to that existing prior to such installation, normal wear and tear excepted.
 
(d) Landlord reserves the right to relocate said Equipment at any time, at no expense to Tenant, provided such relocation shall have no material adverse impact on the operations of such Equipment as a service to the Premises.
 
(e) Tenant reserves the right to replace, upgrade, update or relocate said Equipment at any time, at Tenant’s sole cost and expense.
 
9. Operating Costs Limitation. Notwithstanding the terms and conditions of Attachment 5 of this Lease, except as described below, in no event shall Tenant be obligated to pay Tenant’s Proportionate Share of Excess Expenses for any year in excess of one hundred five percent (105%) of the amount paid by Tenant for the prior year; provided, however, the above limitation shall not apply to increases in Tenant’s Proportionate Share of Excess Expenses related to utilities costs to the Building, Land or Premises, costs arising out of or in connection with new or revised governmental regulations and insurance premiums related to or payable in connection with the Building, Land or Premises, and, except as otherwise expressly provided for in this Lease, there shall be no limit on increases in Tenant’s Proportionate Share of Excess Expenses related to such Real Estate Taxes, utilities, governmental regulations and insurance premiums for the Building, Land or Premises that can be passed on by Landlord to Tenant or that shall be due of Tenant at any time and from year to year.
 
10. Early Termination Right. (a) Tenant shall have the right to terminate this Lease at the end of the eighth (8th) Lease Year, by curing all then existing Events of Default under this Lease which can be cured by the payment of money, by providing Landlord with notice of Tenant’s election to terminate this Lease no less than twelve (12) months prior to the end of the eighth (8 th ) Lease Year, and by the payment to Landlord of all unamortized Tenant Improvement Allowances or other cash allowances granted to Tenant (including, but not limited to, the value of any rental abatements of any nature or kind) and leasing commissions incurred by Landlord as a result of or in connection with this Lease (all such costs to be, for the purposes of this clause 10(a), amortized in equal amounts on a straight-line basis over the initial Lease Term), plus any other amounts due under clause 10(b) below (the “Release Payment”). One half (  1 / 2 ) of the Release Payment shall be due at the time the notice of cancellation is given by Tenant, and one-half (  1 / 2 ) of the Release

Payment shall be due and payable at the end of the eighth (8th) Lease Year. Upon the payment of the sums required hereunder, Landlord shall deliver to Tenant a lease termination agreement.
 
(b) If Tenant has leased any other space in the Building (the “Additional Space”), then Tenant’s rights and obligation with respect to the Additional Space shall also terminate and Tenant shall pay, at the time the payment described in clause 10(a) above is due, in addition to the amounts specified therein, the unamortized Tenant Improvement Allowance or other cash allowances granted to Tenant (including, but not limited to, the value of any rental abatements of any nature or kind) and leasing commissions incurred by Landlord as a result of or in connection with the leasing of such Additional Space (assuming such costs are amortized in equal amounts on a straight-line basis) .
 
11. Exclusive Rights. (a) So long as this Lease is in effect and no Event of Default on the part of Tenant has occurred and has existed for in excess of thirty (30) days, and is then existing: (i) Landlord shall not lease any space in the Building to any entity that is engaged, or which has any affiliate or subsidiary that is engaged, in any telecommunications business, including, without limitation, all Wireless Service Providers, as hereinafter defined, or to any entity that conducts its business, or which has any affiliate or subsidiary that conducts its business, under the name of any entity that is engaged in any telecommunications business, including, without limitation, all Wireless Service Providers, as hereinafter defined (any such entity individually, a “Telecommunications Tenant”); (ii) unless Landlord is contractually obligated to do so under a lease of space in the Building executed prior to the date of this Lease, Landlord shall not consent to any assignment of any lease of space in the Building, or any sublease of any space in the Building, to any Telecommunications Tenant; and (iii) all leases by Landlord of space in the Building executed after the date of this Lease shall provide that the space demised thereby cannot be subleased, and the lease cannot be assigned, to any Telecommunications Tenant.
 
(b) So long as no Event of Default on the part of Tenant has occurred and has existed for in excess of thirty (30) days, and is then existing, and so long as Tenant and/or its affiliates occupy at least 88,500 rentable square feet in the Building: (i) Landlord shall not lease any space in GH3 to any entity listed on  Attachment 8.3  to this Lease, or their respective affiliates, subsidiaries or successors in interest, or to any entity that conducts its business under the name of any entity listed on  Attachment 8.3  to this Lease, or their respective affiliates, subsidiaries or successors in interest (any such entity individually, a “Designated Entity”, and, collectively, the “Designated Entities”, all of which Designated Entities are hereby agreed to be included, without limitation, in the definition of a Wireless Service Provider set forth below); (ii) Landlord shall not consent to any assignment of any lease of space in GH3, or any sublease of any space in the GH3, to any Designated Entity; and (iii) Landlord shall not affix, or permit to be affixed, to GH3 any signage naming any entity that is engaged, or whose affiliates or subsidiaries are engaged, in business of the provision of wireless voice or data services, or any entity that conducts its business under the name of any entity that is engaged, or whose affiliates or subsidiaries are engaged, in business of the provision of wireless voice or data services (a “Wireless Service Provider”).
 
(c) From and after the time that Tenant and/or its affiliates lease at least 150,000 rentable square feet in GH3 and Tenant and/or its affiliates actually occupy at least 75,000

rentable square feet in GH3, so long as no Event of Default on the part of Tenant under a lease of space in GH3 has occurred and has existed for in excess of thirty (30) days, and is then existing: (i) Landlord shall not lease any space in GH3 to any Wireless Service Provider; (ii) Landlord shall not consent to any assignment of any lease of space in GH3, or any sublease of any space in GH3, to any Wireless Service Provider; and (iii) all leases of space in GH3 shall provide that the space demised thereby cannot be subleased, and the lease cannot be assigned, to any Wireless Service Provider.
 
12. Potential GH3 Building Expansion.
 
(a) So long as no Event of Default has occurred and is then existing beyond any applicable notice and cure period and Tenant and/or its affiliates are then leasing at least 177,000 rentable square feet in the Building and Tenant and/or its affiliates are then occupying at least 88,500 rentable square feet in the Building, Tenant shall have the rights of first offer (as set forth in subsections (i), (ii), (iii) and (iv) below) on all space in the building which may be constructed adjacent to the Building, to be known as “Glenridge Highlands Three” (“GH3”), if, as and when such building is constructed. Landlord makes no representation that GH3 shall be constructed, but does represent and warrant to Tenant that Landlord will file as soon as Landlord determines it is most advantageous to achieve the desired rezoning result with Fulton County a rezoning application for the land on which GH3 would be constructed (the “GH3 Land”) to allow the construction of GH3. Landlord shall pursue the approval of the rezoning application diligently and in good faith, and shall use reasonable good faith efforts to obtain all other required permits, approvals and financing to construct GH3. If Landlord obtains the approval of the rezoning application, Landlord shall notify Tenant of such approval and Landlord shall not thereafter seek to further rezone the GH3 Land until the conditions set forth below have been satisfied by Landlord. If, as and when constructed, GH3 is expected to contain approximately 225,000 rentable square feet, with parking available in a currently anticipated ratio of four (4) parking spaces per 1000 rentable square feet. The anticipated construction period would commence on or about October 1, 2001, with a certificate of occupancy being issued fourteen (14) months, or as soon as practical, thereafter. The initial lease of space to Tenant in GH3 is herein called the “Initial GH3 Lease”. Subject to the foregoing, Landlord hereby grants to Tenant for the Lease Term the right of first offer (the “ROFO”) to lease all space in GH3 (the “GH3 Space”) on the terms and provisions hereinafter set forth.
 
(i) Upon Landlord’s obtaining the necessary rezoning of the GH3 Land and Landlord’s determination to proceed with the construction of GH3, and prior to Landlord’s making any offer or proposal to any other prospective tenant for the lease of space in GH3, Landlord shall give Tenant written notice (the “Initial Lease Notice”), which notice shall contain the following terms upon which Landlord in good faith is willing to lease to Tenant the Initial Space Requirement (hereinafter defined) for an initial term of ten (10) years: (i) the date upon which Landlord projects that GH3 will be constructed and the GH3 Space will be available; (ii) Base Rent rate; (iii) base year for Real Estate Taxes and Operating Expenses; (iv) tenant improvement allowance; and (v) any other material financial terms. For the purposes hereof, the “Initial Space Requirement” shall be the  greatest  of: (1) fifty percent (50%) of the total rentable square

feet in GH3; (2) the number of rentable square feet in GH3 that Landlord has determined in good faith is the necessary pre-lease requirement for the financing of GH3; or (3) 150,000 rentable square feet. Tenant shall have the right, in its sole discretion, to designate the floors in GH3 upon which the Initial Space Requirement will be located, so long as such floors are in one contiguous block, and there is no more than one (1) floor of which Tenant leases a part, but not all.
 
(A) Tenant shall notify Landlord within thirty (30) days after its receipt of the Initial Lease Notice whether it desires to exercise the ROFO to lease the Initial Space Requirement under a new lease for GH3. If Tenant exercises the ROFO as to the Initial Space Requirement, Landlord and Tenant shall proceed to negotiate in good faith for and shall, within sixty (60) days after Tenant’s notice described in this clause (A), duly execute and deliver the new lease of the Initial Space Requirement on the terms contained in the Initial Lease Notice, in substantially the same form as this Lease. Such lease shall constitute the Initial GH3 Lease for all purposes under this Section 12.
 
(B) If Tenant does not notify Landlord within said thirty (30) day period that it exercises the ROFO to lease the Initial Space Requirement, Tenant shall be deemed to have refused the Initial Space Requirement. After any refusal or deemed refusal by Tenant of the Initial Space Requirement, the ROFO shall not apply to the Initial Space Requirement for twelve (12) months after the date of the Initial Lease Notice, during which time Landlord shall be free to lease all of GH3, or any portion thereof, to a single tenant for any term and on such terms and conditions not materially more favorable than the terms and conditions contained in the Initial Lease Notice, excluding any benefits and better economic terms caused or arising out of financing alternatives available in connection with a tenant other than Tenant which were not available in a lease with Tenant.
 
(C) If Landlord does not actually lease all or any portion of GH3 within twelve (12) months after the date of the Initial Lease Notice, GH3 shall again become subject to the ROFO, pursuant to this clause 12(a)(i).
 
(D) If Landlord leases all or any portion of GH3 within such twelve (12) month period: (1) as to the space so leased, the ROFO shall be subordinate to the rights of any tenant of that portion of GH3 actually leased by Landlord during such twelve (12) month period, expressly including any and all renewal rights, expansion rights, rights of first refusal and other similar rights expressly set forth in the Initial Lease Notice and granted to such tenant; and (2) as to any space in GH3 not so leased, such space again be subject to the ROFO pursuant to clauses 12(a)(iii) and (iv) below.
 
(ii) If Landlord shall determine, in Landlord’s sole and absolute discretion, that market conditions do not support the construction of GH3 and that Landlord desires to rezone the GH3 Land for a different use, Landlord shall give Tenant written notice (the “Rezoning

Notice”), which notice shall contain the terms upon which Landlord in good faith is willing to lease to Tenant the Initial Space Requirement, as required for the Initial Lease Notice pursuant to clause 12(a)(i), above. Tenant shall have the right, in its sole discretion, to designate the floors in GH3 upon which the Initial Space Requirement will be located, so long as such floors are in one contiguous block, and there is no more than one (1) floor of which Tenant leases a part, but not all. Landlord may pursue actions in support of or to advance any such rezoning during Tenant’s response time to the Rezoning Notice, so long as the rezoning itself is not accomplished during this period.
 
(A) Tenant shall notify Landlord within thirty (30) days after its receipt of the Rezoning Notice whether it desires to exercise the ROFO to lease the Initial Space Requirement under a new lease for GH3. If Tenant exercises the ROFO as to the Initial Space Requirement, Landlord and Tenant shall proceed to negotiate in good faith for, and shall within sixty (60) days after Tenant’s notice described in this clause (A) duly execute and deliver, a lease of the Initial Space Requirement on the terms contained in the Rezoning Notice, in substantially the same form as this Lease. Such lease shall constitute the Initial GH3 Lease for all purposes under this Section 12.
 
(B) If Tenant does not notify Landlord within said thirty (30) day period that it exercises the ROFO to lease the Initial Space Requirement, Tenant shall be deemed to have refused the Initial Space Requirement. After any such refusal, Landlord shall have the right to rezone the GH3 Land to such use or otherwise develop the GH3 Land as Landlord may elect in its sole discretion, and if the land is rezoned and GH3 is not constructed Tenant shall have no further rights thereto or interest therein.
 
(iii) In addition to Tenant’s rights as to the Initial Space Requirement, and irrespective of whether Tenant has exercised the ROFO as to the Initial Space Requirement, the ROFO shall also apply to any portion of GH3 not then part of the premises demised by a lease to Tenant in GH3 and which is Available, as defined in this clause 12(a)(iii) below (the “GH3 Available Space”), in accordance with the within terms and conditions. Space shall be deemed to be “Available” for the purposes of this clause 12(a)(iii) if the space is not then occupied or subject to any right of first offer or right of first refusal granted to another tenant if such rights are granted to such future tenant after Tenant’s failure to exercise the ROFO as to such space in accordance with this Special Stipulation 12.
 
(A) Should Landlord desire to lease any GH3 Available Space, Landlord shall give Tenant a written notice (the “GH3 Available Space Notice”), and offer to lease the GH3 Available Space to Tenant. Additionally, if there is GH3 Available Space, Tenant may give Landlord notice specifying any GH3 Available Space as to which Tenant desires to receive a GH3 Available Space Notice, and Landlord shall give Tenant a GH3 Available Space Notice with respect thereto. Any GH3 Available Space Notice given by Landlord without a request from Tenant may not be given more than nine (9) months in advance of such projected availability

(unless such space is 75,000 square feet or more, in which event the GH3 Available Space Notice may be given by Landlord up to twelve (12) months in advance of its projected availability) and shall set forth the following terms upon which Landlord is willing to lease the GH3 Available Space: (1) the date upon which the GH3 Available Space will be available; (2) Base Rent rate (expressed as dollars per annum per square foot); (3) base year for Real Estate Taxes and Operating Expenses; (4) tenant improvement allowance (expressed as dollars per annum per square foot); (5) if Landlord is willing to lease less than all of the GH3 Available Space, the smaller increments thereof that Landlord is willing to lease; and (6) any other material financial terms. Tenant shall have eight (8) business days to accept or reject the ROFO to lease the GH3 Available Space, or any portion thereof designated by Tenant that is consistent with the increments specified by Landlord in the GH3 Available Space Notice.
 
(B) If Tenant rejects the ROFO to lease the entirety of the GH3 Available Space or fails to respond within said eight (8) business day period, then: (1) Landlord shall be entitled to lease the entirety of the GH3 Available Space or any portion thereof that is consistent with the increments specified by Landlord in the GH3 Available Space Notice on terms and conditions not materially more favorable to the tenant than those contained in the GH3 Available Space Notice; and (2) any of the GH3 Available Space not leased by Landlord within nine (9) months from the date of the GH3 Available Space Notice shall again become subject to the ROFO. If Landlord leases the GH3 Available Space or any portion thereof during such nine (9) month period, such GH3 Available Space shall again be subject to the ROFO when it again becomes GH3 Available Space, subject to any right of first refusal contained in such lease that is expressly set forth in the GH3 Available Space Notice.
 
(C) If Tenant leases only a portion of the GH3 Available Space within said eight (8) business day period, then: (1) Landlord shall be entitled to lease the remaining GH3 Available Space in the increments specified by Landlord in the GH3 Available Space Notice on terms and conditions not materially more favorable to the tenant than those contained in the GH3 Available Space Notice; and (2) if Landlord does not actually lease any remaining portion of the GH3 Available Space within nine (9) months from the date of the GH3 Available Space Notice, such space shall again become subject to the ROFO. If Landlord leases any portion of the remaining GH3 Available Space during such nine (9) month period, such GH3 Available Space shall again be subject to the ROFO when it again becomes GH3 Available Space, subject to any right of first refusal contained in such lease that is expressly set forth in the GH3 Available Space Notice.
 
(D) If Tenant exercises the ROFO to lease any GH3 Available Space within said eight (8) business day period, and such GH3 Available Space is the initial space leased by Tenant in GH3, then Landlord and Tenant shall proceed to negotiate in good faith a lease of such GH3 Available Space on the terms set forth

in the GH3 Available Space Notice, for an initial term specified by Tenant which shall be not less than five (5) years and not more than ten (10) years, and on a lease in substantially the same form as this Lease. Such lease shall constitute the Initial GH3 Lease for all purposes under this Section 12. If Tenant exercises the ROFO to lease any GH3 Available Space within said eight (8) business day period, and such GH3 Available Space is not the initial space leased by Tenant in GH3, then Tenant shall have leased such GH3 Available Space upon the financial terms contained in the GH3 Available Space Notice, and upon the other terms and conditions as contained in the Initial GH3 Lease, for a term co-terminus with the term of the Initial GH3 Lease and with all allowances and concessions contained in the GH3 Available Space Notice prorated; provided, however, Tenant shall in all events be required to lease such GH3 Available Space for a minimum term of not less than three (3) years, notwithstanding the period of time remaining in the term of the Initial GH3 Lease, and if Tenant elects to lease such GH3 Available Space at any time when less than three (3) years remain in the term of the Initial GH3 Lease, the term for such GH3 Available Space only shall be automatically extended so that it is a full three (3) year period.
 
(E) If Tenant leases any GH3 Available Space, the rent for such GH3 Available Space shall commence on the earlier to occur of: (1) the GH3 Available Space Final Rent Commencement Date (hereinafter defined); or (2) if Tenant actually occupies any portion of such GH3 Available Space for the conduct of its business therein prior to the GH3 Available Space Final Rent Commencement Date, then, as to such portion only, the date upon which Tenant actually occupies the same for the conduct of its business therein. For the purposes hereof, the GH3 Available Space Final Rent Commencement Date for the entirety of the GH3 Available Space actually leased by Tenant shall mean: (x) if such GH3 Available Space contains two (2) floors or less, the date ninety (90) days after Landlord tenders possession of the GH3 Available Space to Tenant for the commencement of preparation thereof for Tenant’s occupancy; and (y) if such GH3 Available Space contains more than two (2) floors, the date ninety (90) days after Landlord tenders possession of the Offer Space to Tenant for the commencement of preparation thereof for Tenant’s occupancy, plus fifteen (15) days for each additional floor (or portion of a floor) included in the GH3 Available Space. The GH3 Available Space Final Rent Commencement Date shall be extended by Landlord Delay and Tenant Force Majeure Items.
 
(iv) In addition to and not in lieu of the rights of Tenant with respect to GH3 as set forth in clauses 12(a)(i), (ii) and (iii) above, and irrespective of whether Tenant has or has not exercised the ROFO under clauses 12(a)(i), (ii) or (iii) above, if Landlord desires to lease space in GH3 to a Wireless Service Provider and has a bona fide offer (the “WSP Offer”) to so lease space in GH3, then Landlord shall first offer such space (the “WSP Space”) to Tenant, upon and subject to the following terms and conditions.

(A) Landlord shall so notify Tenant (a “WSP ROFO Notice”) of the WSP Offer. The WSP ROFO Notice shall contain the following terms of the WSP Offer: (1) the date upon which the WSP Space will be available; (2) Base Rent rate (expressed as dollars per annum per square foot); (3) base year for Real Estate Taxes and Operating Expenses; (4) tenant improvement allowance (expressed as dollars per annum per square foot); (5) the identity of the Wireless Service Provider (unless Landlord is prohibited by confidentiality or other written agreement from disclosing the same); and (6) any other material financial terms. Tenant shall notify Landlord within eight (8) business days after its receipt of a WSP ROFO Notice whether it desires to exercise the ROFO.
 
(B) If Tenant rejects such offer or fails to respond within said eight (8) business day period, then: (i) Landlord shall be entitled to lease the WSP Space to the Wireless Service Provider making the WSP Offer on the terms and conditions contained in the WSP Offer; and (ii) if Landlord does not actually lease the WSP Space within six (6) months from the date of the Landlord’s WSP ROFO Notice, such space shall again become subject to the ROFO.
 
(C) If Tenant exercises the ROFO within said eight (8) business day period, and the WSP Space is the initial space leased by Tenant in GH3, then: (1) Landlord and Tenant shall proceed to negotiate in good faith for, and shall, within sixty (60) days after Tenant’s notice described in clause 12(a)(iv)(A) above, duly execute and deliver a lease of the WSP Space on the terms set forth in the WSP Offer, in substantially the same form as this Lease; and (2) if the WSP Space represents the Initial Space Requirement, the initial term of such lease shall be ten (10) years, and otherwise, the initial term shall be specified by Tenant but shall be not less than the term specified in the WSP Offer and not more than ten (10) years. Such lease shall constitute the Initial GH3 Lease for all purposes under this Section 12. If Tenant exercises the ROFO within said eight (8) business day period, and the WSP Space is not the initial space leased by Tenant in GH3, then Tenant shall have leased the WSP Space upon the financial terms contained in the WSP Offer, and upon the other terms and conditions as contained in the Initial GH3 Lease, for a term co-terminus with the term of the Initial GH3 Lease and with all allowances and concessions contained in the WSP Offer prorated; provided, however, Tenant shall in all events be required to lease the WSP Space for a minimum term of not less than three (3) years, notwithstanding the period of time remaining in the term of the Initial GH3 Lease, and if Tenant elects to lease the WSP Space at any time when less than three (3) years remain in the term of the Initial GH3 Lease , the term for such WSP Space only shall be automatically extended so that it is a full three (3) year period.
 
(D) If Tenant leases any WSP Space, the rent for such WSP Space shall commence on the earlier to occur of: (1) the WSP Space Final Rent Commencement Date (hereinafter defined); or (2) if Tenant actually occupies any portion of the WSP Space for the conduct of its business therein prior to the WSP

Space Final Rent Commencement Date, then, as to such occupied portions only, the date upon which Tenant actually occupies the same for the conduct of its business therein. For the purposes hereof, the WSP Space Final Rent Commencement Date for the entirety of the WSP Space shall mean: (x) if the WSP Space contains two (2) floors or less, the date ninety (90) days after Landlord tenders possession of the WSP Space to Tenant for the commencement of preparation thereof for Tenant’s occupancy; and (y) if the WSP Space contains more than two (2) floors, the date ninety (90) days after Landlord tenders possession of the Offer Space to Tenant for the commencement of preparation thereof for Tenant’s occupancy, plus fifteen (15) days for each additional floor (or portion of a floor) included in the WSP Space. The WSP Space Final Rent Commencement Date shall be extended by Landlord Delay and Tenant Force Majeure Items.
 
(E) If Tenant exercises the ROFO as to any WSP Space and Tenant is then leasing space in GH3, Tenant shall have the right, in lieu of leasing the WSP Space, to designate other GH3 Available Space of comparable or greater size which is closer to or contiguous with space in GH3 then leased by Tenant as the space to be leased by Tenant in lieu of the WSP Space, so long as any other GH3 Available Space designated by Tenant does not leave Landlord with a block of space not leased on such floor which is commercially unleasable.
 
(F) If Tenant does not exercise the ROFO as to any WSP Space and Landlord leases such space to the Wireless Service Provider within the permitted six (6) month period, then: (1) the ROFO as to such WSP Space shall thereafter be subordinate to the rights of the Wireless Service Provider so leasing such space, expressly including any rights of expansion, extension, rights of first refusal and other similar rights expressly set forth in the WSP ROFO Notice and granted to the Wireless Service Provider; and (2) such Wireless Service Provider shall have the right to expand its occupancy in GH3 and the leasing of space in GH3 for such expansion purposes shall not be subject to the ROFO.
 
(G) If Tenant does exercise the ROFO as to a WSP ROFO Notice, then the same Wireless Service Provider (and any affiliate or subsidiary thereof) cannot be presented under a WSP ROFO Notice for a period of at least twelve (12) months after the date of the subject WSP ROFO Notice.
 
(H) If Tenant exercises the ROFO and elects to lease WSP Space in response to a WSP ROFO Notice, Tenant shall have the absolute right to assign such lease or sublet such premises subject only to the provisions of Section 16 of Attachment 1 to this Lease.
 
(I) All leases by Landlord of space in GH3 other than leases to Wireless Service Providers shall provide that the space demised thereby cannot be subleased, and the lease cannot be assigned, to any Wireless Service Provider.

(b) Landlord shall use its commercially reasonable efforts to cause the current owner of Glenridge Highlands One (“GHO”) to provide a right of first offer to Tenant, for all space within GHO, which, under a lease, the owner thereof has no obligations to offer a renewal right to the existing tenant. The rental rate which Landlord will use commercially reasonable efforts to negotiate on behalf of Tenant will be the prevailing market rates and allowances for similar space.
 
13. Private Club Membership/Health Club.
 
(a) Landlord shall obtain from the Ashford Club for Tenant fifteen (15) memberships at no initiation fee, for so long as and if the Ashford Club is in operation in the Building. Tenant will be solely responsible for all fees of any kind or nature thereafter.
 
(b) Landlord shall maintain and operate health club facilities in the Building during the initial Lease Term (but shall have no obligation to do so in any Renewal Terms or extensions of the Initial Term). Tenant, and its employees and agents, shall have the right to utilize free of charge such health club. Landlord shall maintain the health club during the initial Lease Term.
 
14. Generator and Generator Pad. Tenant may, at Tenant’s option and in Tenant’s sole discretion, use a pad to be constructed on the Land (the “Pad”), the size and location of which are described  Attachment 8.4  to this Lease, to place Tenant’s generator, which supports the Premises (the “Generator”). The Pad shall constitute a portion of the Base Building Improvements, but shall be paid for by Tenant (and may be funded from the Tenant Allowance, to the extent available). The Generator shall be placed, constructed and used at Tenant’s sole cost and expense and in accordance with and subject to the following:
 
 	(i)	 	The Generator shall be properly placed and screened, as determined by Landlord, in Landlord’s reasonable judgment;	
 
 	(ii)	 	The Generator shall be operated and maintained in accordance with all applicable Laws;	
 
 	(iii)	 	Tenant shall keep the Generator properly serviced, at Tenant’s sole cost and expense, under a service contract consented to by Landlord, in Landlord’s reasonable judgment;	
 
 	(iv)	 	The Generator shall only be used in and during a power outage or material reduction in power provided to the Building, and shall only be tested after normal Business Hours.	
 
 	(v)	 	Landlord shall have the absolute right, in Landlord’s sole discretion, to relocate said Generator at any time and from time to time, at no cost to Tenant, unless the need or desire for the relocation arises out of a violation of any law or code or by Tenant of the terms of this Lease with respect to such Generator, in which case Tenant shall pay the cost of such relocation.	

If the relocation arises out of a violation with respect to the Generator of any law or code, or in connection with a violation by Tenant of the provisions herein with respect to said Generator, such relocation shall not result in the Generator being inoperative in excess of forty-eight (48) hours, which forty-eight (48) hours shall be over a weekend, and if, instead, Landlord elects, in its sole discretion to move such Generator, then there shall be no period of time during which the Generator (or a replacement generator) is inoperative.
 
 	(vi)	 	Tenant may maintain, as a part of such generator use, diesel fuel at the Generator and outside the Building, and sealed batteries, inside the Premises, in accordance with all applicable Laws.	
 
15. Sale of Building. If Landlord elects to sell the Building, Landlord shall notify Tenant of such election prior to entering into any contract or other legally binding agreement with any prospective purchaser; provided, however, that this provision shall not in any way provide Tenant with or imply that Tenant has a right to purchase the Building from Landlord or to consent to the subsequent owner thereof.
 
16. Tax Abatement/Incentives. Landlord and Tenant acknowledge and agree that it may be in their mutual best interest to reduce the property taxes payable (the “Tax Abatement”) with respect to the Land by obtaining certain tax incentives from Fulton County and the Development Authority of Fulton County (the “Authority”). Landlord and Tenant agree to reasonably cooperate in connection with this property tax reduction transaction and to execute any and all instruments, agreements and other documents reasonably requested by the other party (all at Tenant’s sole cost and expense, subject to the allocation described below) in order to obtain such property tax reductions; provided, however, Tenant acknowledges and agrees that in no event shall Landlord be required to execute any documents, the effect of which would be to transfer title out of Landlord, without the consent of certain other parties with an interest in or lien upon the Building, or if Landlord, after reviewing the required documents, believes, in Landlord’s sole and absolute judgment, that the current or future value of the Building could be reduced. Tenant shall pay any and all costs and expenses in connection with or as a part of this tax reduction and/or abatement transaction, including, but not limited to, the fees and expenses of the Authority, counsel to the Authority, Bond Counsel, and the Indenture Trustee. If the property tax reduction transaction is consummated and a tax savings is realized, the tax savings shall be divided between Landlord and Tenant based on Tenant’s Proportionate Share.
 
Notwithstanding anything contained herein to the contrary, the provisions of this Special Stipulation 16 shall in no way be construed to require Landlord to execute any instruments, agreements or other documents or to in any way effect the property tax reduction transaction unless the final form of the transaction and all documents necessary to effectuate the transaction are acceptable to Landlord and to any lender of Landlord in their sole and absolute discretion.
 
Landlord acknowledges and agrees that Tenant will be seeking to obtain similar property tax reductions with respect to Tenant’s leasehold improvements and furniture, fixtures and equipment to be installed in the Building and owned by Tenant, as well as Tenant’s special equipment which are to be installed in the Building and/or located on the Land.

17. Storage. In the event that any storage space becomes available in the Building’s basement (the “Storage Space”), Landlord shall offer to lease such space to Tenant prior to offering such space to any other prospective tenant and in any event shall offer such space to Tenant on or before December 1, 2000. Tenant shall advise Landlord in writing within ten (10) days after receipt of Landlord’s offer to lease the Storage Space if Tenant will lease such space. If Tenant fails to so notify Landlord within the ten (10) day period, then Tenant shall be deemed to have waived the right to lease such Storage Space as set forth herein. If Tenant accepts such offer, Landlord and Tenant shall amend this Lease to reflect the addition of such Storage Space and any other appropriate terms and changes by the addition of such Storage Space. Such offer to lease shall be for the remainder of the Lease Term at an annual rental rate equal to forty five percent (45%) of the Base Rent due under this Lease and on such other lease terms as are reasonably acceptable to Landlord and Tenant (the Storage Space shall not be included in the calculation of Tenant’s Proportionate Share and shall not be subject to the payment of Excess Expenses).
 
18. Vending Machines. Notwithstanding anything to the contrary set forth in this Lease, Tenant shall have the right to install and maintain vending machines for the exclusive use of Tenant’s employees and guests in number and type in the Premises as Tenant determines appropriate.
 
19. Kitchen, Dining Room and Cafeteria.
 
(a) Notwithstanding anything to the contrary set forth in this Lease, expect as set provided in clause 19(b) below, Tenant shall have the right to maintain a kitchen and dining room in the Premises, for the sole purpose of providing a warming kitchen for food prepared off-site, and not for the preparation of food itself, for use by Tenant’s executive level employees and their guests, but not for providing a general dining facility for Tenant’s employees.
 
(b) Notwithstanding the above, if Landlord does not operate or caused to be operated within the Building a general service cafeteria or similar general food service operation (the “Cafeteria”), providing cold and hot food for breakfast and lunch, consistent with the standards of general service food operations in buildings of similar size as the Building in the area of the Building, open to the general public, expressly including Tenant’s employees (i) on or before April 1, 2001, or (ii) thereafter for a period of six (6) consecutive months, then Tenant may provide such a cafeteria or food service operation within the Premises for Tenant’s employees and invitees, subject to the other limitations contained herein.
 
(c) Landlord recognizes the fact that if Landlord does not operate or cause to be operated the Cafeteria within the Building in accordance with clause 19(b) above, Tenant may desire to operate or cause a designee to operate the Cafeteria rather than providing such a service within the Premises. In such event, Landlord agrees to negotiate with Tenant in good faith upon the terms and conditions of the operation of the Cafeteria by Tenant or its designee.

20. Macro-Network Base Station. (a) Subject to terms and conditions as described below, Tenant may, at Tenant’s option and in Tenant’s sole discretion, place an antenna and base station, and related equipment and facilities (the “Base Station”), on the parking deck serving the Premises at a location described on  Attachment 8.5  to this Lease, to serve its macro-network serving the Premises. The Base Station shall be placed, constructed and used at Tenant’s sole cost and expense.
 
(b) Tenant shall furnish detailed plans and specifications for the Base Station to Landlord for Landlord’s consent, which consent shall not be unreasonably withheld, conditioned or delayed, provided Landlord may condition its consent by requiring that the Base Station be installed in the least conspicuous of all reasonably acceptable locations on which the Base Station might be located. Upon the giving of such consent, the Base Station shall be installed, at Tenant’s sole cost and expense (which may be funded from the Tenant Allowance, to the extent available), by a contractor selected by Tenant and approved by Landlord, such approval not to be unreasonably withheld, conditioned or delayed by Landlord. In the installation of the Base Station, Tenant shall comply with all applicable Laws, and keep the Premises, Building and Land free and clear from liens arising from or related to Tenant’s installation, and shall provide all insurance with respect to or in connection with the Base Station as Landlord in Landlord’s reasonable judgment, deems appropriate or necessary. Tenant shall be entitled to use such portions of the Building as may be reasonably necessary for the installation, operation and maintenance of the Base Station, and Tenant shall have reasonable access to such portions of the Building at all times throughout the Lease Term for such purposes; provided, however, that any installation or maintenance work performed by Tenant or at Tenant’s direction shall be performed without unreasonably interfering with Landlord’s or any other tenant’s use of the Building, and upon completion of such installation and maintenance (initially and from time to time) Tenant shall restore such portions of the Building to a condition reasonably comparable to that existing prior to such installation or maintenance. Tenant shall be responsible for procuring whatever licenses or permits may be required for the use of the Base Station. Tenant’s Base Station shall not constitute a nuisance, or unreasonably interfere with the operations of other tenants of the Building or with the normal use of the area surrounding the Building by occupants thereof. Upon termination or expiration of this Lease, Tenant shall remove the Base Station installed by it pursuant to this Section, at its expense, and shall repair and restore the Building to a condition comparable to that existing prior to such installation, normal wear and tear excepted.
 
(c) Landlord reserves the right to relocate the Base Station at any time, at no expense to Tenant, provided such relocation shall have no material adverse impact on the operations of such Base Station as a service to the Premises. Tenant hereby covenants and agrees that such Base Station shall be designed and shall be installed, to the extent reasonably practicable, in a manner so that it is relocatable without extraordinary or unreasonable trouble, effort or expense.
 
(d) If the location and existence of the Base Station results in the inability to use certain parking spaces within the parking deck, Tenant’s allocated Parking Spaces as described in Special Stipulation 7 hereof shall be reduced by the number of spaces rendered unusable by the Base Station.

21. Glass and Window Treatment. Tenant shall have the right, in Tenant’s discretion, to put the glass and window treatment and glass and window film known as “Sungard RLW, 150 Silver 35 Window Film” (the “Film”) on the glass and windows of any floors of the Building in which Tenant occupies in the entirety, subject to and conditioned upon the following terms and conditions:
 
(a) Landlord shall have the right to consent to the final design criteria and application process and timing for the Film, such consent of Landlord not to be unreasonably withheld or delayed;
 
(b) Tenant shall be responsible for any and all additional glass and window breakage, leakage or other damage associated with or arising from the Film and its placement, as outlined in the letter attached hereto as  Attachment 8.6  to this Lease, by this reference incorporated herein. If the glass and window damage, leakage or breakage becomes excessive, or Landlord deems in Landlord’s sole, reasonable discretion, that the addition of the Film will or is putting any of the Building mechanical, plumbing or electrical systems, the Building structure, or any other tenant of the Building at risk for any type of damage or injury, Tenant shall be required to remove the Film within thirty (30) days of written request from Landlord. If Tenant, within ten (10) days of such notice, demonstrates to Landlord that modifications to the Film, or replacement thereof, has eliminated any such problem or problems related to the Film, there shall a period of an additional thirty (30) days after which Tenant and Landlord will review the matter and Landlord will then notify Tenant as to whether or not the Film must be removed in its entirety, within ten (10) days;
 
(c) The Film shall be applied at Tenant’s sole cost and expense, and shall be considered work done by Tenant in the Premises under Section 8 of  Attachment 1  to this Lease;
 
(d) If Tenant elects to install the Film, Tenant must do so for all of the windows and glass on an entire floor;
 
(e) At or prior to the termination of the Lease, Tenant shall, at Tenant’s sole cost and expense, in a manner acceptable to Landlord, in Landlord’s sole, reasonable discretion, remove the Film and replace any glass, framing, or other areas that may have been discolored or otherwise changed as a result of the application of such Film; and
 
(f) Tenant shall have the right to modify or up-date the Film at any time during the Term, subject to Landlord’s right to review and approve, in Landlord’s reasonable discretion, such change, and whether, as a result of such change, the Film must be removed, in accordance with (b) above, or otherwise modified.
 
(g) Landlord acknowledges that the Film may be damaged by certain cleaning substances. Landlord shall cooperate with Tenant in notifying anyone cleaning the windows on which Tenant has put the Film of the proper cleaning method and cleaning substances to be used when cleaning such windows.

22. Space for HAW.
 
(a) Tenant acknowledges that Landlord has entered into a lease (the “HAW Lease”) with Habif, Arogeti & Wynne, L.L.P (“HAW”) for the 2 nd , 3 rd  and part of the 4 th  floor of the Building (the “HAW Space”). Under the HAW Lease, HAW has the right to lease the remaining portion of the 4 th  floor, and the right, at the end of the 4 th  and 7 th  year of the HAW Lease, to lease between 3,000 and 5,000 additional rentable square feet of the Building not then part of the HAW Space (the “HAW Option Space”). In the event that Tenant has not terminated this Lease as to the 5 th  floor, this Lease shall automatically terminate as to a portion of the 5 th  floor (the “Released Space”) in the event that: (i) HAW timely exercises its right to lease the HAW Option Space; (ii) HAW has leased the entire 4 th  floor; and (iii) there is no other space in the Building which is unoccupied and which could reasonably satisfy HAW’s rights to the HAW Option Space (expressly excluding any space located on the 1 st  floor of the Building). Landlord shall provide Tenant written notice of any such potential termination within five (5) business days of Tenant’s exercise of its rights with respect to the HAW Option Space.
 
(b) The termination date as to the Released Space shall be the later of: (i) the date one hundred eighty (180) days prior to the end of the 4th or 7th year of the HAW Lease, as the case may be; or (ii) the date sixty (60) days after the date Tenant receives notice of such potential termination.
 
(c) Tenant shall have the right to designate the Released Space provided that the boundaries of the Released Space shall be (i) at the interior, the core of the Building, (ii) at the exterior, the exterior walls of the Building, and (iii) on each side, single demising lines perpendicular to, and extending between, the core and exterior walls of the Building ( provided ,  however , that Landlord shall not unreasonably withhold its consent to deviations from the straight-line perpendicularly of such demising lines which do not impair the ability of Landlord to lease any remaining portion of the floor on a commercially reasonable basis). The Released Space shall contain only the minimum number of rentable square feet of the 5 th  floor required to satisfy HAW’s rights to the HAW Option Space. If HAW exercises its right to take the HAW Option Space at the end of the 4 th  year and at the end of 7 th  year, the space designated by Tenant for the second take must be contiguous to the space designated by Tenant for the first take.
 
(d) Landlord shall be responsible, at its own cost and expense and not as an Operating Expense, for: (i) the construction of the core walls, demising walls and any corridor walls necessary to accommodate the build-out of the Released Space and the occupancy of the 5 th  floor as a multi-tenant floor (including the structural components of any partition and the drywall surface for the walls); (ii) the alteration or modification of any of the Building systems rendered necessary by reason of the exclusion of the Released Space from the Premises (including all modifications necessary or desirable to provide the Normal Service to the Premises); (iii) the construction and installation of the complete demising walls for any newly created common areas on the 5 th  floor, the creation of which is necessitated by the occupancy of the 5 th  floor as a multi-tenant floor; and (v) the construction and installation of interior improvements and decorations for such newly-created common area in a manner consistent with the other common areas of a typical

multi-tenant floor in the Building, or if no multi-tenant floor exists in the Building, consistent with the common areas of typical multi-tenant floors for first-class (class “A”) office buildings of similar age, quality and type in the area in which the Building is located.

EXHIBIT 10.104
 
LEASE AGREEMENT FOR AVENTIS NORTHERN NJ BUILDING

MEMORANDUM OF LEASE
 
Prepared by:
Ted Zangari, Esq.
Sills Cummis Radin Tischman Epstein & Gross, PA.
One Riverfront Plaza
Newark, New Jersey 07102
 
(The Above Space for Recorder’s Use Only)
 
MEMORANDUM OF LEASE
 
THIS MEMORANDUM OF LEASE, made as of December 22, 2000, by and between BRIDGEWATER HINES DEVELOPMENT LLC whose address is c/o Hines Interests Limited Partnership, 885 Third Avenue, Suite 2700, New York, NY 10022 (“Landlord”) and AVENTIS PHARMACEUTICALS INC., whose address is Route 202-206, Post Office Box 6800, Bridgewater, New Jersey 08807-0800 (“Tenant”).
 
1. Landlord has leased to Tenant pursuant to the terms and conditions of an Agreement of Lease dated as of December     , 2000 (the “Lease”) a portion (the “Premises”) of that certain office building known as Bridgewater Crossing 1 ,  to be constructed on that certain parcel of land (the “Land”) designated as Lot 4 in Block 552 on the Tax Map of Bridgewater Township, Somerset County, New Jersey, together with all easements and appurtenances thereto, and located at 200-400 Crossing Boulevard, Bridgewater, New Jersey, as described on Exhibit A-1  attached hereto.
 
2. The terms and conditions of the Lease are incorporated herein as though set forth in full, whereby Tenant may have and hold the Premises together with any and all rights, benefits, privileges and easements, now or hereafter appurtenant thereto, at the rental and upon the terms and conditions therein stated, for an initial term of approximately ten (10) years (the “Initial Term”).
 
3. Under the terms of the Lease, the Initial Term may be extended for two (2) separate and additional periods of five (5) years each after the expiration of the Initial Term (each such additional five-year period is hereinafter referred to as a “Renewal Term”). Each Renewal Term shall be subject to all the terms and conditions of the Lease as if the Initial Term originally included such Renewal Term.
 
1

4. This Memorandum of Lease is executed for the purpose of recordation in order to give notice of all of the terms, provisions and conditions of the Lease (including, without limitation, provisions set forth therein regarding Tenant’s right to use [and to permit Tenant’s employees, agents and contractors to use] certain common areas of the Land [such as, without limitation, the parking facilities appurtenant to the said office building] as well as certain other common areas of the Land.
 
5. In addition to those terms referred to hereinabove, the Lease contains numerous other terms, covenants and conditions which likewise affect not only the Premises but also the Land, and notice is hereby given that reference should be had to the Lease directly with respect to the details of such terms, covenants and conditions. The Lease and exhibits thereto are hereby incorporated by reference in this Memorandum of Lease and the parties hereby ratify and confirm the Lease as if said Lease were being re-executed by them and recorded. In the event of any conflict between the provisions of this instrument and the Lease, the provisions of the Lease shall control.
 
6. Capitalized terms not defined herein shall have the same meaning as set forth in the Lease.
 
7. This Memorandum of Lease may be executed in counterparts, each of which shall be deemed an original and all of which shall he considered one and the same agreement.
 
IN WITNESS WHEREOF, the parties hereto have executed this Memorandum of Lease as of the day and year first above written.
 
 	 	 	 	LANDLORD:	
 	 	 	
WITNESS:	 	 	 	BRIDGEWATER HINES DEVELOPMENT LLC	
 	 	 	 	
/s/ Renee Khan

	 	 	 	By:	 	/s/ Tom (Illegible)

	
 	 	 	 	 	 	Name:	 	 	
 	 	 	 	 	 	Title:	 	 	

 	 	 	 	TENANT:	
 	 	 	
ATTEST:	 	 	 	AVENTIS PHARMACEUTICALS INC.	

	 	 	 	By:	 	 

	
 	 	 	 	 	 	Name:	 	 	
 	 	 	 	 	 	Title:	 	 	

2

IN WITNESS WHEREOF, the parties hereto have executed this Memorandum of Lease as of the day and year first above written.
 
 	 	 	 	LANDLORD:	
 	 	 	
WITNESS:	 	 	 	BRIDGEWATER HINES DEVELOPMENT LLC	

	 	 	 	By:	 	 

	
 	 	 	 	 	 	Name:	 	 	
 	 	 	 	 	 	Title:	 	 	

 	 	 	 	TENANT:	
 	 	 	
ATTEST:	 	 	 	AVENTIS PHARMACEUTICALS INC.	
 	 	 	 	
/s/ Owen K. Ball, Jr.

	 	 	 	By:	 	/s/ Gerald P. Belle

	
 	 	 	 	 	 	Name: Gerald P. Belle	
 	 	 	 	 	 	Title: President	

 
3

AGREEMENT OF LEASE
 
BRIDGEWATER HINES DEVELOPMENT LLC
 
as Landlord
 
- and -
 
AVENTIS PHARMACEUTICALS INC.
 
as Tenant

Premises:	  	BRIDGEWATER CROSSING 1	
 	  	200 Crossing Boulevard	
 	  	Bridgewater, New Jersey	

TABLE OF CONTENTS
 
 	  	 	  	Page

	
ARTICLE 1. DEFINITIONS	  	1	
ARTICLE 2. DEMISED PREMISES	  	5	
2.1.	  	Leasing of Demised Premises	  	5	
2.2.	  	Remeasurement of Demised Premises	  	6	
ARTICLE 3. USE	  	6	
3.1.	  	Permitted Use	  	6	
3.2.	  	Zoning, Etc.	  	7	
ARTICLE 4. TERM AND POSSESSION	  	7	
4.1.	  	Term	  	7	
4.2.	  	Late Delivery	  	7	
4.3.	  	Commencement Date Memorandum; Memorandum of Lease	  	8	
4.4.	  	Condition of Demised Premises	  	8	
ARTICLE 5. RENT	  	8	
5.1.	  	Net Base Rent	  	8	
5.2.	  	Additional Rent	  	9	
5.3.	  	Operating Expenses	  	9	
5.4.	  	Management Fee	  	10	
5.5.	  	Taxes	  	11	
5.6.	  	Tenant’s Proportionate Share	  	12	
5.7.	  	Occupancy Adjustment	  	13	
5.8.	  	Complex Allocation	  	13	
5.9.	  	Survival of Additional Rent Obligations	  	14	
5.10.	  	Time of Payment: Late Fee; Default Interest	  	14	
5.11.	  	Rent Tax	  	15	
5.12.	  	Landlord’s Remedies	  	15	
5.13.	  	Payment of Rent	  	15	
ARTICLE 6. LANDLORD’S BASE BUILDING WORK; TENANT IMPROVEMENTS AND EARLY ACCESS, MAINTENANCE AND REPAIRS	  	15	
6.1.	  	Landlord’s Base Building Work	  	15	
6.2.	  	Tenant Improvements	  	15	
6.3.	  	Tenant’s Early Access	  	16	
6.4.	  	Maintenance and Repairs by Tenant	  	16	
6.5.	  	Maintenance and Repairs by Landlord	  	17	
6.6.	  	Landlord’s Warranty	  	17	
6.7.	  	Compliance with Laws; Americans with Disabilities Act of 1990	  	17	
6.8.	  	Cafeteria	  	17	
ARTICLE 7. ALTERATIONS BY TENANT AND TRADE FIXTURES	  	18	
7.1.	  	Alterations	  	18	
7.2.	  	No Liens	  	18	
7.3.	  	Labor Harmony	  	19	
7.4.	  	Expiration of Term	  	19	
 
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7.5.	  	Trade Fixtures	  	19	
ARTICLE 8. LANDLORD’S SERVICES	  	19	
8.1.	  	Landlord’s Services	  	19	
8.2.	  	Tenant’s Access	  	22	
8.3.	  	Tenant’s Security System	  	22	
8.4.	  	Intentionally Omitted	  	22	
8.5.	  	Building Management	  	22	
8.6.	  	Designated Providers of Certain Building Services	  	22	
8.7.	  	Service Providers for Tenant’s Systems	  	22	
ARTICLE 9. ELECTRICITY	  	23	
9.1.	  	Intentionally Omitted.	  	23	
9.2.	  	Electrical Usage	  	23	
9.3.	  	Tenant Electrical Installations	  	23	
ARTICLE 10. INTENTIONALLY OMITTED	  	23	
ARTICLE 11. RIGHTS RESERVED TO LANDLORD	  	23	
11.1.	  	Reserved Rights	  	23	
ARTICLE 12. COVENANT OF QUIET ENJOYMENT	  	24	
12.1.	  	Quiet Enjoyment	  	24	
ARTICLE 13. WAIVER OF SUBROGATION, INDEMNIFICATION AND INSURANCE	  	24	
13.1.	  	Tenant’s Indemnity	  	24	
13.2.	  	Tenant’s Insurance	  	24	
13.3.	  	Landlord’s Indemnity	  	25	
13.4.	  	Landlord’s Insurance	  	25	
13.5.	  	Waiver of Subrogation	  	26	
13.6.	  	Limitations on Indemnities	  	26	
13.7.	  	Survival	  	27	
ARTICLE 14. MUTUAL RELEASES	  	27	
14.1.	  	Limitation of Liability of Landlord	  	27	
14.2.	  	Limitation on Liability of Tenant	  	27	
ARTICLE 15. CONDEMNATION	  	28	
15.1.	  	Waiver of Claims	  	28	
15.2.	  	Whole or Partial Condemnation	  	28	
ARTICLE 16. DAMAGE OR DESTRUCTION	  	28	
16.1.	  	Casualty	  	28	
16.2.	  	Waiver of Statutory Remedies	  	29	
16.3.	  	Governmental Approvals	  	30	
ARTICLE 17. SUBORDINATION	  	30	
17.1.	  	Subordination of Lease	  	30	
17.2.	  	Attornment	  	30	
17.3.	  	Acknowledgement by Tenant	  	30	
17.4	  	Non-Disturbance Protection	  	30	
ARTICLE 18. ASSIGNMENT AND SUBLETTING	  	31	
18.1.	  	Restrictions Upon Transfer	  	31	
18.2.	  	Landlord’s Consent Recapture	  	32	
18.3.	  	Approval of Sublease or Assignment Requiring Consent	  	33	
18.4	  	Transfers to Related/Successor Entities	  	34	
 
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18.5.	  	Continuing Liability	  	35	
18.6.	  	No Waiver	  	35	
18.7.	  	Intentionally Omitted	  	36	
18.8.	  	Restrictions upon Rental Arrangements	  	36	
18.9.	  	Intentionally Omitted	  	36	
18.10.	  	Further Subletting and Assignment	  	36	
ARTICLE 19. RULES AND REGULATIONS	  	36	
19.1.	  	Rules and Regulations	  	36	
ARTICLE 20. PERFORMANCE OF OTHER PARTY’S COVENANTS	  	36	
20.1.	  	Landlord’s Right to Perform	  	36	
20.2.	  	Tenant’s Right to Perform	  	37	
ARTICLE 21. AIR AND LIGHT	  	37	
21.1.	  	Air and Light Rights	  	37	
ARTICLE 22. NOTICES	  	37	
22.1.	  	Notices to Tenant	  	37	
22.2.	  	Notices to Landlord	  	38	
22.3.	  	Effectiveness of Notices	  	39	
ARTICLE 23. INTENTIONALLY OMITTED	  	39	
ARTICLE 24. EVENTS OF DEFAULT	  	39	
24.1	  	Matters Constituting a Default	  	39	
ARTICLE 25. RIGHTS OF LANDLORD UPON DEFAULT BY TENANT	  	40	
25.1.	  	Landlord’s Remedies	  	40	
25.2.	  	Remedies Cumulative	  	42	
25.3.	  	No Waiver	  	42	
25.4.	  	Payments to Landlord After Default	  	42	
25.5.	  	Tenant’s Waivers	  	42	
25.6	  	Mitigation of Damages	  	43	
ARTICLE 26. ACCESS	  	43	
26.1.	  	Landlord’s Entry	  	43	
ARTICLE 27. CUSTOM AND USAGE PRESUMPTION OF CONSTRUCTION	  	44	
27.1.	  	Enforcement of Lease Provisions	  	44	
27.2.	  	Presumption of Construction	  	44	
ARTICLE 28. SCOPE AND INTERPRETATION OF AGREEMENT	  	44	
28.1.	  	Sole Agreement: Governing Law	  	44	
ARTICLE 29. CAPTIONS	  	44	
29.1.	  	Captions	  	44	
ARTICLE 30. SEVERABILITY	  	44	
30.1.	  	Enforcement of Remaining Provisions	  	44	
ARTICLE 31. PARTIES, SUCCESSORS AND ASSIGNS	  	44	
31.1.	  	Definition Tenant	  	44	
31.2.	  	Definition of Landlord	  	45	
31.3.	  	Extent of Landlord’s Liability	  	45	
31.4.	  	Successors and Assigns	  	45	
31.5	  	No Personal Liability	  	45	
ARTICLE 32. PARKING PRIVILEGES	  	45	
32.1.	  	Parking Allocation	  	45	
 
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32.2.	  	Designation of Visitor Parking	  	46	
ARTICLE 33. SURRENDER OF DEMISED PREMISES	  	46	
33.1.	  	Tenant’s Obligations upon Surrender	  	46	
3.2	  	Holdover	  	46	
ARTICLE 34. BROKERS	  	47	
34.1.	  	Tenant’s Representation	  	47	
34.2.	  	Landlord’s Representation	  	47	
34.3.	  	Commissions	  	47	
ARTICLE 35. SIGNAGE AND FIXTURES	  	47	
35.1.	  	Signs	  	47	
35.2.	  	Tenant’s Equipment and Fixtures	  	48	
ARTICLE 36. FORCE MAJEURE	  	49	
36.1.	  	Effect of Excusable Delay	  	49	
ARTICLE 37. COMPLIANCE WITH ENVIRONMENTAL LAWS	  	49	
37.1.	  	Tenant’s Compliance	  	49	
37.2.	  	Obligations under ISRA	  	49	
37.3.	  	No Hazardous Substances	  	49	
37.4.	  	Indemnity for Environmental Matters	  	50	
37.5	  	Existing Environmental Conditions	  	50	
ARTICLE 38. ESTOPPEL CERTIFICATES	  	50	
38.1.	  	Delivery of Estoppel Certificates to Tenant	  	50	
38.2.	  	Delivery of Estoppel Certificates by Landlord	  	50	
ARTICLE 39. WAIVER OF JURY TRIAL	  	51	
39.1.	  	Waiver by Landlord and Tenant	  	51	
ARTICLE 40. TENANT’S ACCESS RIGHTS	  	51	
40.1	  	Roof Rights	  	51	
40.2	  	Conduit Rights	  	51	
40.3	  	Loading Dock Rights	  	51	
ARTICLE 41. SUBMISSION TO TENANT; LEASE COUNTERPARTS	  	52	
41.1.	  	Non-Binding Nature	  	52	
41.2.	  	Tenant’s Option to Renew	  	52	
ARTICLE 42. RENEWAL OPTION	  	52	
42.1.	  	Tenant’s Option to Review	  	52	
ARTICLE 43. SALE OF BUILDING	  	53	
43.1.	  	Sale of Building	  	53	
ARTICLE 44. LEASE GUARANTY	  	54	
44.1.	  	Lease Guaranty	  	54	
ARTICLE 45. ARBITRATION	  	54	

iv

AGREEMENT OF LEASE
 
THIS LEASE, made this 22nd day of December, 2000, by and between BRIDGEWATER HINES DEVELOPMENT LLC whose address is c/o Hines Interests Limited Partnership, 885 Third Avenue, Suite 2700, New York, New York 10022 (“Landlord”) and AVENTIS PHARMACEUTICALS INC., whose address is Route 202-206, Post Office Box 6800, Bridgewater, New Jersey 08807-0800 (“Tenant”).
 
ARTICLE 1. DEFINITIONS
 
For all purposes of this Lease and all agreements supplemental thereto or modifying this Lease, the following terms shall have the meanings herein specified:
 
“Additional Rent” shall mean all amounts payable by Tenant under this Lease, other than the payment of Net Base Rent, including without limitation, the Recurring Additional Rent Items set forth in Section 5.2 of this Lease.
 
“Adjacent Building” shall mean the office building known as Bridgewater Crossing II, to be constructed on the Land (other than the Property) at 400 Crossing Boulevard, Bridgewater, New Jersey.
 
“Affiliate” shall mean with respect to any person or entity any other person or entity that controls, is controlled by or under common control with the first such person or entity (with “control” meaning the ownership of more than fifty percent (50%) of the voting securities or equity interests of an entity or the power to otherwise direct an entity’s business affairs).
 
“Brokers” shall mean Landlord’s Broker and Tenant’s Broker.
 
“Building” shall mean the office building known as Bridgewater Crossing I to be constructed on the Land at 200 Crossing Boulevard, Bridgewater, New Jersey.
 
“Building Holidays” shall mean New Year’s Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day, as each of said holidays are celebrated in the State of New Jersey. In addition to the above denominated days, holidays shall also include days prior or subsequent to the enumerated holidays such as the Friday after Thanksgiving; Friday, when Christmas falls on a Thursday; etc. In addition, if any holiday falls on a weekend and is celebrated by the State of New Jersey or Federal Government on a weekday, such weekday shall also be deemed a holiday hereunder.
 
“Business Hours” shall mean 7:00 am. to 6:00 p.m. on Mondays through Fridays and 9:00 am to 1:00 p.m. on Saturdays, excluding Building Holidays.
 
“Commencement Date” shall mean the earlier of (i) Substantial Completion of the Demised Premises or (ii) such earlier date as Tenant takes possession or commences use of the Demised Premises for any purpose, other than Tenant’s Early Access, as set forth in Section 6.3 hereof.
 
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“Common Area” or “Common Areas” shall mean the Interior Common Areas and the Exterior Common Areas.
 
“Complex” shall mean the Land, Common Areas and improvements thereon on which has been approved the development of a two (2) building office complex. In the event Landlord subdivides the Land following the execution of this Lease, then, at Landlord’s option, “Complex” shall have the same meaning as “Property.”
 
“Default” shall have the meaning given such term in Section 24.1 of this Lease.
 
“Default Rate” shall have the meaning given such term in Section 25.4 of this Lease.
 
“Demised Premises” shall mean all of the rentable area of the Building, which the Landlord and Tenant have agreed shall consist of approximately 297,379 rentable square feet of office space as shown on the floor plans of the Building annexed hereto as  Exhibit “A ” and made a part hereof, subject, however, to a confirmatory adjustment of such rentable square footage as provided in Section 2.2 below.
 
“Designated Provider” shall have the meaning given such term in Section 8.6 of this Lease.
 
“Excusable Delay” shall mean a delay actually caused by governmental action or lack thereof, shortages or unavailability of materials and/or supplies, labor disputes, strikes, slowdowns, job actions, picketing, secondary boycotts, fire or other casualty, delays in transportation, acts of God, requests of any governmental agencies or authorities, acts of declared or undeclared war, public disorder, riot or civil commotion, or by anything else beyond the reasonable control of Landlord (when applied to an obligation of Landlord) or of Tenant (when applied to an obligation of Tenant); provided, however, in order for a party to claim an Excusable Delay delayed the timely fulfillment of such party’s obligations hereunder, such party must provide notice to the other party within five (5) business days after discovering the Excusable Delay, which notice shall specify the delay and the anticipated impact on the fulfillment of such party’s obligations.
 
“Exterior Common Area” or Exterior Common Areas” shall mean all areas, structures, parking areas, access driveways, roadways, sidewalks, plazas, landscaped areas, traffic lights, storm drainage facilities, sanitary sewer, domestic and fire water systems, fire protection installations, electric power and telephone cables and lines and other utility connections, facilities and other improvements (above and below ground) including, without limitation, the helipad to be constructed by Landlord, which now exist or hereafter are constructed on the Complex for use in common by Landlord, Tenant and other tenants located in the Complex.
 
“Hazardous Substances” shall mean any “hazardous chemical,” “hazardous substance,” waste or similar term as defined, listed, regulated, classified or identified in the Comprehensive Environmental Responsibility Compensation and Liability Act, as amended (42 U.S.C. 9601,  et seq .), the New Jersey Industrial Site Recovery Act, as amended (N.J.S.A .  l3:lK-6  et seq .), the New Jersey Spill Compensation and Control Act, as amended (N.J.S.A. 58:l0-23.11b,  et seq .), any rules or regulations promulgated thereunder, or in any other present or future applicable Federal, State or local law, rule, regulation or ordinance dealing with the protection of human
 
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health and safety or the environment. “Hazardous Substances” shall include, without limitation, petroleum and petroleum-based products and waste or any mixture thereof.
 
“Interior Common Area” or “Interior Common Areas” shall mean those areas of the Building devoted to corridors, elevator foyers, rest rooms, mechanical rooms, janitorial closets, electrical and telephone closets, vending areas, and lobby areas (whether at ground level or otherwise), the property management office (consisting of not more than one thousand (l,000) rentable square feet), and other similar facilities provided for the common use or benefit of tenants generally and/or the public.
 
“Land” shall mean the parcel of land designated as Lot 4 in Block 552 on the Tax Map of Bridgewater Township, Somerset County, New Jersey, together with all easements and appurtenances thereto, and located at 200-400 Crossing Boulevard, Bridgewater, New Jersey, as described on Exhibit A-1  attached hereto. In the event Landlord subdivides the Land following the execution of this Lease, then, at Landlord’s option, “Land” shall mean only the subdivided portion thereof on which the Building is located. Any such subdivision of the Land shall be substantially as depicted on  Exhibit A-2  attached hereto.
 
“Landlord’s Broker” shall mean Insignia/ESG.
 
“Landlord’s Base Building Work” shall have the meaning given such term in the Work Letter attached hereto as Exhibit “B” .
 
“Lease” or “this Lease” consists of this Agreement of Lease and Exhibits “A” through “G” attached hereto and made a part hereof.
 
“Lease Year” shall mean each calendar year during the Term hereof, subject to Section 5.6(a) hereof.
 
“Landlord’s Estimate” shall have the meaning given such term in Section 5.6 of this Lease.
 
“Legal Requirements” shall mean all federal, state and municipal laws, ordinances, rules, regulations, orders and recommendations issued by any governmental authority, permits or statements of occupancy, all requirements and recommendations of the Board of Fire Underwriters and any insurance organizations or associations and/or companies, and all covenants, conditions and restrictions of record (collectively, “Legal Requirements”). With respect to the covenants, conditions and restrictions of record as of the date hereof, Landlord agrees that it shall not amend or modify same (or cause same to be amended or modified), to the extent Landlord has discretion under applicable Legal Requirements, such that Tenant’s use or occupancy of the Demised Premises as provided in this Lease is materially and adversely impaired thereby or such that Tenant’s monetary obligations are increased thereby. In addition, Landlord agrees that it shall not enter into a future restriction of record, to the extent Landlord has discretion under applicable Legal Requirements, which would have the effect of materially and adversely impairing Tenant’s use or occupancy of the Demised Premises or which would have the effect of increasing Tenant’s monetary obligations hereunder.
 
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“Net Base Rent” shall mean the fixed rental payable pursuant to Section 5.1 of this Lease.
 
“Operating Expenses” shall have the meaning given such term in Section 5.3 of this Lease.
 
“Property” shall mean collectively the Land attributable to 200 Crossing Boulevard (initially, as depicted on Exhibit A-2 attached hereto) only, and the Building, the Interior Common Areas of the Building, the Exterior Common Areas thereon, and all other improvements now or hereafter located thereon.
 
“Qualified Appraiser” shall have the meaning given such term in Section 42.1 of this Lease.
 
“Recurring Additional Rent Items” shall have the meaning given such term in Section 5.2 of this Lease.
 
“Related Entity” shall have the meaning given such term in Section 18.4 of this Lease.
 
“Related Lease” shall mean that certain Agreement of Lease dated of even date herewith, by and between Landlord and Tenant for 400 Crossing Boulevard, Bridgewater, New Jersey.
 
“Rent” shall mean Net Base Rent and Additional Rent (including, without limitation, Recurring Additional Rent Items).
 
“Severe Excusable Delay” shall mean a delay actually caused by (i) any event of Excusable Delay caused by acts of God which hinders the performance of Landlord’s Base Building Work and/or the Tenant Improvements for more than thirty (30) days, (ii) any event of Excusable Delay caused by labor strikes, labor shortages, labor slowdowns, job actions, picketing or secondary boycotts which hinders the performance of Landlord’s Base Building Work and/or the Tenant Improvements for more than forty-five (45) days, or (iii) any other event of Excusable Delay (regardless of how long same hinders the performance of Landlord’s Base Building Work and/or the Tenant Improvements); provided, however, in order for Landlord to claim a Severe Excusable Delay delayed the timely fulfillment of Landlord’s obligations hereunder, Landlord must provide notice to Tenant within five (5) business days after discovering the Excusable Delay, which notice shall specify the delay and the anticipated impact on the fulfillment of Landlord’s obligations.
 
“Substantial Completion” shall mean the later of: (i) the date upon which Landlord’s Base Building Work and the Tenant Improvements are Substantially Completed in conformity with the Work Letter, and (ii) the date upon which Landlord has obtained a temporary or permanent certificate of occupancy (or local equivalent) in connection with such work. As used herein, “Substantially Completed” shall mean with respect to the Demised Premises when the Landlord’s Base Building Work and Tenant Improvements are substantially completed except for details or construction, decoration and mechanical adjustments which are minor in character, the non-completion of which will not interfere (other than to a de minimis extent) with Tenant’s occupancy of the Demised Premises for the Permitted Use.
 
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“Successor Entity” shall have the inclining given such term in Section 18.4 of this Lease.
 
“Taxes” shall have the meaning given such term in Section 5.5 of this Lease.
 
“Tenant Delay” shall mean any act or omission of any nature by Tenant or Tenant’s Visitors which actually delays the Substantial Completion of Landlord’s Base Building Work or Tenant Improvements, actually delays the construction of any other improvements in the Building or Complex necessary for Tenant’s occupancy of the Demised Premises, or actually delays the issuance of a temporary or permanent certificate of occupancy for the Demised Premises including without limitation, any failure by Tenant to submit plans when due, any failure or delay by Tenant in supplying information or giving authorizations or approvals, any delays resulting from changes requested by Tenant to the Landlord’s Base Building Work or the Tenant Improvements; provided, however, in order for Landlord to claim a Tenant Delay delayed the Substantial Completion of Landlord’s Base Building Work or Tenant Improvements. Landlord must provide notice to Tenant within five (5) business days after discovering the Tenant Delay, which notice shall specify the delay and the anticipated impact on the Substantial Completion of Landlord’s Base Building Work or Tenant Improvements.
 
“Tenant Improvements” shall have the meaning set forth in the Work Letter attached hereto as Exhibit “B”.
 
“Tenant’s Allowance” shall have the meaning given such term in Section 6.2 of this Lease.
 
“Tenant’s Broker” shall mean The Staubach Company of New Jersey, LLC
 
“Tenant’s Proportionate Share” shall mean 100%.
 
“Tenant’s Visitors” shall mean persons invited by Tenant into the Demised Premises as guests or doing lawful business with Tenant including, without limitation, Tenant’s agents, servants, employees, contractors, invitees and licensees.
 
“Term”, sometimes also referred to as the “Lease Term”, shall mean the time period commencing on the Commencement Date and terminating on the Termination Date.
 
“Termination Date” shall mean the earlier to occur of (i) the last day of the month in which the eleventh (11th) anniversary of the Commencement Date occurs or (ii) the last day of the month in which the tenth (10th) anniversary of the “Stage III Commencement Date” under the Related Lease occurs, subject to extension pursuant to Section 33.2 hereof.
 
“Work Letter” shall mean the document which governs the Landlord’s Base Building Work and the Tenant Improvements referred to in Article 6 of this Lease and attached to this Lease as  Exhibit “B” .
 
ARTICLE 2. DEMISED PREMISES
 
2.1. Leasing of Demised Premises. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, for the Term and upon the terms, conditions, covenants and
 
5

agreements herein provided, the Demised Premises to be used by Tenant solely for those uses permitted under Article 3 hereof. Tenant and Tenant’s Visitors shall have the right to use, in common with Landlord and any other tenants of the Building, at no additional charge, the Common Areas and shall have the right to use, at no additional charge, on an exclusive basis, the parking spaces located on the Property, as more particularly described in Article 32.
 
2.2. Remeasurement of Demised Premises. (a) Within sixty (60) days after Substantial Completion of the Demised Premises, Tenant may determine whether the “as built” rentable square footage of the Demised Premises dìffers from that set forth in the definition of “Demised Premises.” Tenant shall give Landlord written notice of this calculation and, if Landlord disagrees with Tenant’s measurement, Landlord and Tenant shall mutually agree on the selection of an engineer or architect who will make a final determination thereof, whose cost shall be shared equally between Landlord and Tenant. If the “as built” rentable square footage of the Demised Premises is less than or more than that set forth in the definition of “Demised Premises,” (a) Rent and any other calculations based upon the rentable square footage of the Demised Premises shall be adjusted accordingly, and (b) Landlord and Tenant shall execute and deliver an amendment to this Lease reflecting this decrease or increase, as applicable.
 
(b) In computing the rentable square footage of the Demised Premises, the following shall apply:
 
(i) With respect to an entire floor demised to a single tenant, the rentable area thereof shall be equal to the product of the usable square footage of the entire floor multiplied by  1.111 . No deduction shall be made for columns in the Building;
 
(ii) With respect to any portion of the Building which is less than an entire floor, the rentable square footage thereof shall be equal to the usable square footage of such portion of the Building, multiplied by  1.111 . No deduction shall he made for columns in the Building; and
 
(iii) The usable square footage of any portion of the Building shall be computed by using the “Standard Method for Measuring Floor Area in Office Buildings,” promulgated by the Building owners and Managers Association International (ANSI Z65.1-1996).
 
ARTICLE 3. USE
 
3.1. Permitted Use. The Demised Premises shall be used and occupied only for the Permitted Use (as hereinafter defined) and for no other purposes. For purposes hereof, the term “Permitted Use” shall mean general, executive and administrative offices in keeping with the standards and practices customarily applied to similar first class office buildings in the Somerset County, New Jersey area, which may include, on an incidental basis, non-laboratory or so-called “dry” research and development as well as all uses customarily ancillary and incidental thereto, including without limitation for a cafeteria with general and private dining rooms and for a fitness center, credit union branch, automatic teller machine kiosk, company store, nurse’s office and travel agency office, each for the exclusive use by Tenant’s employees (subject to Section 7.1 in the event any such items are not part of Landlord’s Base Building Work or the Tenant
 
6

Improvements); provided, however, that “Permitted Use” shall not include: (i) offices of any agency or bureau of the United States or any state or political subdivision thereof; (ii) offices or agencies of any foreign government or political subdivision thereof; (iii) offices of any health care professionals or service organization, except for administrative offices where no diagnostic, treatment or laboratory services are performed, except as otherwise provided in the last sentence of this Section 3.1; (iv) schools or other training facilities that are not ancillary to executive, professional or corporate administrative office use; (v) retail or restaurant uses, other than the aforementioned cafeteria; (vi) intentionally omitted; (vii) offices at which deposits or bills are regularly paid in person by customers, other than the aforementioned credit union branch; and (viii) personnel agencies, except offices of executive search firms. Notwithstanding the foregoing proviso, in the event that Landlord leases any portion of the Building to a tenant or tenants for any of the uses described in (i) through (viii) above, such uses shall thereafter be included in the “Permitted Use.”
 
3.2. Zoning, Etc. Landlord represents that the zoning district in which the Property is located is the Bridgewater Regional Center Zone and that the Permitted Use for general, executive and administrative offices is lawfully permitted in such district, but nothing contained herein shall be construed as any representation or warranty by Landlord as to whether the ancillary and incidental uses set forth in Section 3.1 are lawfully permitted in such district. Landlord represents that, as of the date hereof, it is unaware (without having conducted any inquiry or investigation) of any covenants, conditions or restrictions of record (other than those shown on Schedule B of its title insurance policy dated May 24, 2000, a copy of which has heretofore been provided to Tenant) that would adversely affect the use of the Building for the Permitted Use and that it has not entered into any such covenant, condition or restriction since May 24, 2000 which would adversely affect the use of the Building for the Permitted Use.
 
ARTICLE 4. TERM AND POSSESSION
 
4.1. Term. The Lease Term shall commence on the Commencement Date and shall continue until the Termination Date.
 
4.2. Late Delivery. (a) If the Commencement Date is delayed because of a Tenant Delay, Tenant shall pay to Landlord on the Commencement Date, as Additional Rent, the amount of Net Base Rent and Recurring Additional Rent Items for the period that the Commencement Date was delayed due solely to the Tenant Delay. In the event of any dispute between Landlord and Tenant regarding the length of any alleged Tenant Delay which has not been resolved by the parties prior to the Commencement Date, Landlord’s determination shall be utilized for purposes of calculating the amount of such Additional Rent due on the Commencement Date (subject, however, to a readjustment by Landlord and Tenant at such time as said dispute is finally resolved, whereupon the amount of any overpayment shall be taken by Tenant as a credit against Net Base Rent and Recurring Additional Rent Items, or if it is determined that Tenant has underpaid such Additional Rent, then the amount of the underpayment shall be paid to Landlord by Tenant within thirty (30) days after such amount has been so determined).
 
(b) Landlord shall exercise its good faith and diligent efforts to cause the Commencement Date to occur by February 1, 2002. If, despite such good faith and diligent
 
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efforts, the Commencement Date does not occur by May 1, 2002, as such date is extended by one (1) day for each day of Tenant Delay or Excusable Delay, then, as Tenant’s sole and exclusive remedy for such late delivery, Tenant shall be entitled to an abatement in Net Base Rent commencing on the Commencement Date equal to one (1) day for each one (1) day that the Commencement Date is delayed beyond May 1, 2002 (extended by Tenant Delay or Excusable Delay as aforesaid), but in no event shall such rent abatement exceed One Million Eight Hundred Twenty-One Thousand Four Hundred Forty-Six and 38/100 ($1,821,446.38) Dollars ( i.e. , three (3) months’ Net Base Rent). Furthermore, if the Commencement Date does not occur by July 31, 2002, as such date is extended by one (l) day for each day of Tenant Delay or a Severe Excusable Delay, then, as Tenant’s sole and exclusive remedy for such late delivery, Tenant may terminate this Lease and the Related Lease upon twenty (20) days’ notice to Landlord, which notice may be given at any time between August 1, 2002 and August 31, 2002 (as such dates may he extended by Tenant Delay or Severe Excusable Delay as aforesaid), TIME BEING STRICTLY OF THE ESSENCE, and unless the Commencement Date occurs within the aforesaid twenty (20) days, this Lease and the Related Lease shall terminate upon the expiration of said twenty (20) day period and the parties shall be released from all liabilities or obligations hereunder and under the Related Lease. In the event Tenant elects to terminate this Lease as provided herein, Tenant shall not also be entitled to the rent abatement (or cash equivalent thereof) provided in the first sentence of this sub-paragraph (b).
 
4.3. Commencement Date Memorandum; Memorandum of Lease. The actual Commencement Date shall he evidenced by a “Commencement Date Memorandum” to be executed by Landlord and Tenant in substantially the form attached hereto as  Exhibit “C” . Upon the request of either party following the execution and delivery of this Lease, Landlord and Tenant shall execute a short form lease or memorandum for recording, which shall be in the form attached as  Exhibit G  hereto. In no event shall the amount of Net Ease Rent reserved hereunder or other business terms of this Lease be included in any such short form lease or memorandum. The party requesting such short form or memorandum shall bear the cost and expense of recording same.
 
4.4. Condition of Demised Premises. Except as expressly set forth herein, neither Landlord nor Landlord’s agents have made any representations or promises with respect to the physical condition of the Building, the Land upon which it is erected or the Demised Premises, the leases, expenses of operation or any other matter or thing affecting or related to the Demised Premises, and no rights, easements or licenses are acquired by Tenant by implication or otherwise except as expressly set forth in the provisions of this Lease.
 
ARTICLE 5. RENT
 
5.1. Net Base Rent. During the Lease Term, Tenant shall pay to Landlord “Net Base Rent” as follows:
 
(i) Commencing on the Commencement Date and continuing through and including the day immediately preceding the fifth (5th) anniversary of the Commencement Date, Tenant shall pay to Landlord Net Base Rent equal to Seven Million, Two Hundred Eighty-Five Thousand Seven Hundred Eighty Five and 50/100 DOLLARS ($7,285,785.50) ,  which shall be payable in advance in equal monthly installments of Six
 
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Hundred Seven Thousand, One Hundred Forty-Eight and 79/100 DOLLARS ($607,148.79).
 
(ii) Commencing on the fifth (5th) anniversary of the Commencement Date and continuing through and including the Termination Date, Tenant shall pay to Landlord Net Base Rent equal to Eight Million, Two Hundred Fifty Two Thousand Two Hundred Sixty-Seven and 25/100 DOLLARS ($8,252,267.25), which shall be payable in advance in equal monthly installments of Six Hundred Eighty-Seven Thousand, Six Hundred Eighty-Eight and 94/100 DOLLARS ($687,688.94).
 
5.2. Additional Rent. In addition to the Net Base Rent to be paid as herein provided, Tenant shall pay, as Additional Rent, the following “Recurring Additional Rent Items”: (i) the cost of electrical energy consumed by Tenant as provided for in Article 9 herein; (ii) Tenant’s Proportionate Share of Operating Expenses; and (iii) the Management Fee.
 
5.3. Operating Expenses. Landlord shall be entitled to collect from Tenant as Additional Rent Tenant’s Proportionate Share of Operating Expenses in the manner more particularly set forth in Section 5.6 .  The term “Operating Expenses” shall include, without limitation, those costs or expenses paid or incurred by Landlord for operating, maintaining and repairing the Property and the Exterior Common Areas of the Complex, including, by way of example and without limitation, the cost of electricity for Common Areas including outside and garage lighting, the cost of heating, ventilating and air-conditioning the Building, water, sewer, fuel, window cleaning, janitorial service, elevator maintenance, security, refuse removal, Taxes (as defined in Section 5.5 below), insurance of all kinds carried by Landlord and applicable to the Property and the Exterior Common Areas of the Complex (including without limitation, fire and extended coverage insurance, public liability, elevator, workmen’s compensation, boiler and machinery, use and occupancy, health, accident and group life insurance of all employees, and casualty rent insurance), snow removal, maintenance and cleaning of the parking lot, garage, site driveways and adjacent roadways, all landscape maintenance costs for the Complex, repairs of any kind for which Landlord is not reimbursed, pest control, painting, replacement of worn out mechanical or damaged equipment, uniforms, equipment rentals or other operating costs paid pursuant to such rentals, building and janitorial supplies, sundries, sales or use tax on supplies or services, wages and salaries of all persons engaged by Landlord in the operation of the Complex, all costs associated with operating and maintaining a property management office(s) in the Complex, expenses incurred by Landlord, legal and accounting expenses, and any other expense or cost, which, in accordance with generally accepted accounting principles and the standard management practices for office buildings comparable to the Complex would be considered as an expense of operating, maintaining or repairing the Property and the Exterior Common Areas of the Complex. Landlord agrees to use commercially reasonable efforts to obtain commercially competitive rates (with respect to the Somerset County, New Jersey market) for the goods and services included within Operating Expenses.
 
Operating Expenses may include certain costs or expenditures regarded as capital costs or expenditures under generally accepted accounting principles, but only to the extent that the same are (i) to install a labor saving, energy saving or other equipment, device or improvement intended by Landlord to reduce Operating Expenses, but only to the extent that the equipment, device or improvement reduces Operating Expenses, (ii) required to comply with Legal
 
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Requirements that were not applicable to the Property or the Exterior Common Areas of the Complex (as the case may be) as of the Commencement Date, or (iii) incurred by Landlord for repairs or replacements required or permitted to be made by Landlord hereunder. All capital costs and expenditures permitted to be included in Operating Expenses by the immediately preceding sentence shall be amortized on a straight time basis (with a per annum interest factor equal to the prime or base rate of Citibank, N.A. or its successor in effect on the date of the expenditure) over the useful life thereof calculated in accordance with generally accepted accounting principles, as reasonably determined by Landlord, with only the annual amortization amount of such items included in Operating Expenses for each Lease Year (or portion thereof) of such useful life within the Term.
 
Notwithstanding the foregoing, Operating Expenses shall not include the following: (a) depreciation or amortization of the Building, the Landlord’s Base Building Work, the Tenant Improvements or any other improvements made to the Property (except for the amortization of the capital costs and expenses described in the immediately preceding paragraph of this Section); (b) the cost of performing any item contemplated as part of the Tenant Improvements or otherwise identified as a Landlord obligation under the Work Letter, including, without limitation, the cost of repairing or replacing any defective or improperly installed item of such work within any applicable warranty period; (c) lease commissions or other costs incurred in leasing or procuring tenants for the Building; (d) principal, interest and other debt service payments on any indebtedness of Landlord; (e) Taxes assessed during the Term but relating to a period prior to the Commencement Date or after the Termination Date; (f) expenses which are actually reimbursed by insurance or other tenants; (g) the amount of any refundable deposits; (h) salaries and benefits of executive officers of Landlord, any Affiliate of Landlord or any third party management personnel above the level of building manager; (i) the cost of any work or service performed for any particular tenant at such tenant’s cost and expense; (j) legal expenses incurred in the preparation of the leases or enforcing the terms of any lease; (k) management fees of any kind (it being understood that Tenant is paying the Management Fee separately); (i) ground rental payments; (m) any costs or expenditures regarded as capital costs or expenditures under generally accepted accounting principles, excepting only to the extent provided in the immediately preceding paragraph of this Section; (n) advertising, promotional and marketing fees or expenses for the Building; (o) Landlord’s limited liability company overhead not related to management of the Building; (p) costs of compliance with Legal Requirements if and to the extent such compliance item was required with respect to the Complex as of the Commencement Date (including, without limitation, compliance costs associated with that certain No Further Action letter described in Section 37.3 below); (q) fines and penalties not as a result of Tenant’s Default under this Lease; (r) tort claims and expenses of the investigation and defense thereof other than as a result of the negligence or willful acts or omissions of Tenant or Tenant’s Visitors; (s) amounts in excess of fair market rates (with respect to the Somerset County, New Jersey market) in respect of any transaction with, or provision of any item or service by, Landlord or any Affiliate of Landlord; (t) costs associated with withdrawal from a “multi-employer plan;” (u) personal property or equipment rental costs if the purchase of same would not be includable in Operating Expenses; or (v) the cost of Tenant’s audit pursuant to Section 5.6(e).
 
5.4. Management Fee. Landlord shall be entitled to collect front Tenant as Additional Rent, in the same manner as more particularly set forth in Section 5.6 below, a fixed
 
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management cost recovery charge equal to (a) three percent (3%) of the Tenant’s Net Base Rent for such calendar year, and (b) three percent (3%) of the Tenant’s Proportionate Share of Operating Expenses allocable to the Property and payable by Tenant as a Recurring Additional Rent Item pursuant to this Article 5 (the sum of which shall be the “Management Fee”).
 
5.5. Taxes. (a) Landlord shall he entitled to collect from Tenant as Additional Rent Tenant’s Proportionate Share of Taxes (as a component of Operating Expenses) in the manner more particularly set forth in Section 5.6 .  The term “Taxes” shall mean the amount of real estate taxes (or tax impositions in substitution for real estate taxes), assessments, and any other governmental real estate or  ad valorem  charge, fee or payment, whether general, special, ordinary or extraordinary which may now or hereafter be levied or assessed against the Complex (including the Buildings and related improvements). Landlord shall take the benefit of the provisions of any statute or ordinance permitting any assessment to be paid over a period of time, and Tenant shall be obliged to pay only Tenant’s Proportionate Share of the installments of any such assessment applicable and payable during the Term of this Lease or any renewal hereof, plus any carrying costs or other charges levied by the taxing authority for the privilege of so paying such assessment over period of time. Taxes shall not include any federal, state or local income, revenue or excise taxes imposed on Landlord or any inheritance, estate, succession, gift, capital stock, franchise, excise, realty transfer or excess profit taxes (unless, only to the extent, imposed in lieu of Taxes) or any interest or penalties imposed as a result of Landlord’s lateness or failure to pay Taxes when due.
 
(b) If Landlord shall receive any tax refund in respect of any tax year, Landlord shall deduct from such tax refund any expenses incurred in obtaining such tax refund, and out of the remaining balance of such tax refund, Landlord shall credit to Tenant’s Proportionate Share of such refund. Any expenses incurred by Landlord in contesting the validity or the amount of the assessed valuation of the Complex or of any Taxes for any year to the extent not offset by a tax refund, shall be included as an item of Taxes for the tax year in which such contest shall be finally determined for the purpose of computing the Additional Rent due Landlord or any credit due to Tenant hereunder.
 
(c) If the tax year for real estate taxes shall he changed then an appropriate adjustment shall be made in the computation of the Additional Rent due to Landlord or any credit due to Tenant, in accordance with sound accounting principles to effectuate the changeover to any New tax year adopted by any taxing authority; and
 
(d) Landlord shall pay all Taxes prior to any delinquency, subject, however, to Landlord’s right to contest same. Tenant hereby acknowledges and agrees that Landlord may contest and appeal Taxes from time to time and at any time when Landlord, in its commercially reasonable judgment, determines that it is prudent to do so (provided that such contest would not constitute a default under any mortgage or underlying lease affecting the Land, the Buildings or the Demised Premises, or cause the Land, the Buildings or the Demised Premises to be in danger of being subject to a tax sale or being foreclosed upon). Tenant may request from time to time that Landlord consider the potential for contesting any real estate tax assessment of the Complex by the taxing authority. Upon such request, Landlord will consult with Tenant regarding the appropriateness of instituting an appeal of such assessment, but Landlord shall ultimately be guided by its own commercially reasonable determination.
 
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5.6. Tenant’s Proportionate Share. Tenant shall be responsible for Tenant’s Proportionate Share of the Operating Expenses for each Lease Year, or pro rata portion thereof, during the Term as hereinafter provided:
 
(a) Landlord shall send to Tenant a statement (“Landlord’s Estimate”) prior to the Commencement Date of projected Operating Expenses for the Lease Year in which the Commencement Date occurs, and thereafter on or about December 15 of each Lease Year of projected Operating Expenses for the following applicable Lease Year. Notwithstanding the foregoing, the calculation of Operating Expenses may be performed, at Landlord’s sole option, based on the annual anniversary of the Commencement Date (or another accounting period) rather than on a calendar year. Landlord shall indicate, as part of Landlord’s Estimate, what Tenant’s Proportionate Share of the Operating Expenses shall be, said amount to be paid in equal monthly installments (rounded up to the nearest whole dollar) in advance by Tenant as a Recurring Additional Rent Item commencing on the Commencement Date as may be adjusted on January 1 of each applicable Lease Year.
 
(b) If, during the course of any Lease Year, Landlord shall have reason to believe that the Operating Expenses shall be higher than Landlord’s Estimate, then Landlord shall have the right, but not the obligation, on one occasion to adjust Landlord’s Estimate by a lump sum invoice for the months of the Lease Year which precede the revised projections, and in addition, to advise Tenant of any adjustment in future monthly amounts with the end result that Operating Expenses shall be on a reasonably current basis each Lease Year.
 
(c) Within one hundred twenty (120) days following the end of each Lease Year, or as soon thereafter as reasonably feasible, Landlord shall send to Tenant: (i) a statement of actual expenses incurred for the prior Lease Year showing the pro rata share of the Operating Expenses due from Tenant based on Tenant’s Proportionate Share; and (ii) copies of any and all invoices theretofore received by Landlord pertaining to Taxes for the prior Lease Year, as well as evidence of payment by Landlord (prior to delinquency) of such Taxes for the prior Lease Year. For each Lease Year, in the event that the amount prepaid by Tenant for the Operating Expenses exceeds the amount that was actually due based upon actual year end Operating Expenses, then Landlord shall issue a credit to Tenant in an amount equal to the overcharge, which credit Tenant may apply to future Operating Expense payments until Tenant has been fully credited with the overcharge. If the credit due to Tenant is more than the aggregate total of future Operating Expense payments (as reasonably estimated by Landlord), or if the credit pertains to the last Lease Year of the Term, Landlord shall pay to Tenant, along with the statement regarding same, the difference between the credit and such aggregate total or the full amount of such credit, as the case may be. In the event landlord has undercharged Tenant, then Landlord shall send Tenant an invoice for the amount due, along with the statement regarding same, which amount shall constitute Additional Rent and shall he paid in full by Tenant within thirty (30) days of receipt of such invoice.
 
(d) Landlord shall maintain at all times during the Term of this Lease, at a location in the New York City metropolitan area, full, complete and accurate books of account and records for all Operating Expenses prepared in accordance with generally accepted accounting principles. Landlord shall keep such books and records, as well as contracts, bills, vouchers, checks and such other documents as are reasonably necessary to properly audit
 
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Operating Expenses, for a sufficient period of time alter the Lease Year to which they are applicable to allow Tenant to perform an audit, if Tenant so elects, pursuant to paragraph (e) below.
 
(e) Tenant shall have the right, one (l) time with respect to each Lease Year, at Tenant’s expense, to examine the books and records pertaining to Operating Expenses so that Tenant can determine that Operating Expenses have, in fact, been correctly calculated by Landlord; provided that if Tenant fails to exercise such right within twelve (12) months following the expiration of the Lease Year for which Landlord’s calculation of Operating Expenses pertains (or within three (3) months following Tenant’s receipt of Landlord’s statement (delivered pursuant to paragraph (c) above) for such Lease Year if such statement is delivered later than nine (9) months after the end of such Lease Year) and/or fails to so complete such examination within twelve(12) months following Tenant’s receipt of Landlord’s statement delivered pursuant to paragraph (c) above, Tenant shall be deemed to have waived its right to audit and contest Landlord’s determination of Operating Expenses for such period, and, in such event, Landlord’s determination of Operating Expenses shall become final and binding on Landlord and Tenant for all purposes under this Lease automatically upon such failure to exercise or failure to complete, as the case may be. If Tenant makes a timely action to review Landlord’s determination of Operating Expenses, Landlord’s books and records relating thereto shall he open for copying (at Tenant’s cost) or inspection (which shall he conducted on a strictly confidential basis) upon reasonable notice and at reasonable times during Business Hours by Tenant and its duly authorized representatives (other than a person or firm who would be compensated by Tenant on a contingency fee basis, unless such firm is a national accounting firm such as PriceWaterhouseCoopers), who shall have reasonable access to the same and the right to require of Landlord, its agents and employees such information or explanation with respect to the same as may reasonably be necessary for a proper examination thereof. If Tenant disputes any Operating Expense statement as a result of an audit, Tenant shall nonetheless pay all Operating Expenses set forth herein until such dispute is resolved. In the event that it is finally determined as a result of any audit by Tenant that the actual Operating Expenses for any period are less than the sum paid by Tenant for such period, then the amount of the excess shall be taken by Tenant as a credit against the Operating Expense payments next due or, if the credit pertains to the last Lease Year of the Term, refunded to Tenant by lump sum payment. If, on the other hand, Tenant’s audit reveals that Tenant has underpaid Operating Expenses for any period, then the amount of the underpayment shall he paid to Landlord by Tenant within thirty (30) days after the amount Tenant owes has been determined. Landlord shall, within thirty (30) days after receipt of notice from Tenant, reimburse Tenant for the commercially reasonable out-of-pocket costs incurred by Tenant in performing the audit.
 
5.7. Occupancy Adjustment. Notwithstanding any other provision herein to the contrary, if the Building is not filly occupied during any year of the Term or the entire Building is not provided Landlord’s Services (as hereinafter defined), then Operating Expenses that vary as to occupancy shall be computed for such year as though the Building had been fully occupied and had been provided with Landlord’s Services during such year.
 
5.8. Complex Allocation. For so long as the Complex is operated under common management. Operating Expenses shall include all costs and expenses for the operating, maintaining (including without limitation snow removal, landscaping, street maintenance and
 
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retention basin maintenance), repairing, making replacements to, managing, insuring and any utility charges (including without limitation, electricity and the cost of Landlord’s Services) with respect to the Exterior Common Areas of the entire Complex, and Landlord, prior to calculating Tenant’s Proportionate Share of Operating Expenses, shall make an allocation of such Operating Expenses attributable to the Exterior Common Areas between the Property and the other portion of the Complex, which allocation shall be determined solely by Landlord during such period as Landlord is the owner of the entire Complex, or as agreed upon by Landlord and the owner(s) of the balance of the Complex at any time at the entire Complex is not owned by Landlord, but in all events in accordance with sound commercial real estate management practices. Operating Expenses shall only include those costs and expenses attributable to the Exterior Common Areas of the Property. Similarly, for so long as the Complex is operated under common management, Operating Expenses shall include all Taxes with respect to the entire Complex, and Landlord, prior to calculating Tenant’s Proportionate Share of Operating Expenses, shall make an allocation of the Taxes component of Operating Expenses between the Property and the other portion of the Complex, which allocation shall be determined solely by Landlord during such period as Landlord is the owner of the entire Complex, or as agreed upon by Landlord and the owner(s) of the balance of the Complex at any time that the entire Complex is not owned by Landlord, but in all events in accordance with sound commercial real estate management practices. If the Complex is not operated under common management or if Landlord otherwise choose to have the Property separately assessed, then Operating Expenses shall only include those Taxes pertaining to the Property.
 
5.9. Survival of Additional Rent Obligations. Tenant’s obligations to make the payments required by this Article 5 as Additional Rent shall survive any termination of this Lease by lapse of time or otherwise.
 
5.10. Time of Payment: Late Fee; Default Interest. Commencing on the Commencement Date, all payments of Net Base Rent and Recurring Additional Rent items shall be paid to Landlord without demand and without deduction 1 set-off or counterclaim, except as expressly set forth in this Lease, on the lust (1st) day of every month during the Lease Term. If the Commencement Date shall be a day other than the first day of the month, the rental payment shall be pro rated for said month. Without waiving any of Landlord’s other remedies for Tenant’s failure to pay Rent as in this Lease contained, Tenant agrees that (i) any Net Base Rent or Recurring Additional Rent item not paid by the fifth (5th) business day of any month, and (ii) any other item of Additional Rent not paid by the fifth (5th) business day following the due date hereunder, shall require payment by Tenant of a late charge to compensate Landlord for the additional administrative costs resulting from such failure (and not as a penalty) equal to the lesser of (a) five percent (5%) of the amount unpaid, or (b) $500.00 for the first time in each Lease Year that such item of Rent is not paid within such five (5) day period and, thereafter, for the balance of such Lease Year, Tenant shall pay a late charge equal to the lesser of (x) ten percent (10%) of the amount unpaid, or (y) $l,000 for each such late payment in addition, any installment or installments of Net Base Rent or any Recurring Additional Rent item accruing hereunder, and all other sums payable by Tenant hereunder (other than the late charge set forth in the preceding sentence), which are not paid within thirty (30) days following the date when due, shall bear interest from and after the thirtieth (30 th ) day following the due date until the date paid at the Default Rate. Anything hereinabove contained to the contrary notwithstanding, it is expressly understood and agreed that any late payment of Rent or other charges, despite
 
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Landlord’s invoice for or collection of such late fees or interest, shall be a Default hereunder (so long as the giving of any required notices and the expiration of any applicable grace periods has occurred), for which Landlord shall have such rights or remedies as provided in this Lease.
 
5.11. Rent Tax. In the event that any business, rent or other taxes that are now or hereafter levied upon Tenant’s use or occupancy of the Demised Premises are enacted, changed or altered so that any of such taxes are levied against Landlord, or the mode of collection of such taxes is changed so that Landlord is responsible for collection or payment of such taxes, Tenant shall pay any and all such taxes to Landlord upon thirty (30) days’ of Landlord’s demand, as Additional Rent, so long as Landlord provides an invoice or other reasonable evidence of the payment thereof.
 
5.12. Landlord’s Remedies. Landlord shall have all the rights and remedies for the collection of Additional Rent as are available to Landlord for the collection of (the Net Base Rent pursuant to the terms of this Lease and as permitted by law.
 
5.13. Payment of Rent. Rent and all sums payable hereunder by Tenant to Landlord shall be paid in the legal tender of the United States of America for the payment of public and private debts to:
 
Bridgewater Hines Development LLC
c/o Hines Interests Limited Partnership
885 Third Avenue, Suite 2700
New York, NY 10022
 
or to such other person or place as Landlord shall from time to time designate by written notice to Tenant. Net Base Rent and Additional Rent may be paid by wire transfer using wiring instructions that will be supplied by Landlord.
 
ARTICLE 6. LANDLORD’S BASE BUILDING WORK; TENANT IMPROVEMENTS
AND EARLY ACCESS, MAINTENANCE AND REPAIRS
 
6.1. Landlord’s Base Building Work. Landlord shall, at us sole cost and expense, construct the Landlord’s Base Building Work in accordance with that certain work letter attached hereto as  Exhibit “B”  (the “Work Letter”), which Landlord agrees will be in keeping with the standards customarily applied to similar first-class office buildings in the Somerset County, New Jersey area. If Landlord has not obtained a building permit (or equivalent legal authorization) which would permit Landlord to commence construction of Landlord’s Base Building Work by August 31, 2001, as such date is extended by one (l) day for each day of Tenant Delay or Excusable Delay, then Tenant may terminate this Lease upon twenty (20) days’ notice to Landlord, which notice shall be given no later than September 15, 2001 (as such dates may be extended by Tenant Delay or Excusable Delay as aforesaid), TIME BEING STRICTLY OF THE ESSENCE, and unless, within said twenty (20) day period, landlord obtains said building permit (or equivalent authorization), this Lease shall terminate upon the expiration of said twenty (20) day period and the parties shall be released from all liability and obligation hereunder.
 
6.2. Tenant Improvements. Landlord shall also construct the Tenant Improvements in accordance with the Work Letter, which Landlord agrees will be in keeping with the standards
 
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customarily applied to similar first-class office buildings in the Somerset County, New Jersey area. Landlord shall be responsible for the Cost of the Tenant Improvements (as defined in the Work Letter) up to $8,921,370.00 (based upon $30.00 per rentable square foot of the Demised Premises)  plus $225,000.00 with respect to the cafeteria (“Tenant’s Allowance”), and Tenant shall be responsible for any Additional Costs (as defined in the Work Letter). Tenant shall have no obligation to remove any of the Tenant improvements upon the expiration or earlier termination of the Term, except for any of the Tenant Improvements that is not typically performed for office tenants such as bank vaults, internal staircases and the like (other than the cafeteria), and provided that with respect to such Tenant Improvements Landlord has advised Tenant of the requirement to remove such Tenant Improvements at the time of the approval of the Space Plans in accordance with the Work Letter, in which event Tenant shall remove same and restore the Demised Premises to the condition which existed prior to the installation thereof.
 
6.3. Tenant’s Early Access. Landlord shall exercise its commercially reasonable efforts to provide Tenant access to the Demised Premises at least thirty (30) days prior to the Commencement Date (which as of the date hereof is expected to be February 1, 2002), but in no event later than twenty (20) days prior to the Commencement Date (and the Commencement Date shall be postponed accordingly if Landlord fails to make the Demised Premises available for Tenant’s early access rights, subject to the following  proviso),  for the limited purpose of installing its furniture, fixtures, equipment, and phone and computer wiring and for performing any other work to prepare the Demised Premises for its occupancy (other than actual move-in of personalty), all without any obligation to pay Rent therefor, provided: (i) such work shall not interfere with or delay Landlord in completion of Landlord’s Base Building Work or the Tenant Improvements, or any other work that Landlord may be performing in the Demised Premises, the Building or the Complex; (ii) such work shall be performed for Tenant so as not to cause or create any labor dispute for Landlord; and (iii) Tenant complies with all of the other terms and conditions of this Lease during such early access period. In addition, Tenant shall indemnify and hold Landlord harmless from any and all causes of action occurring as a result of Tenant’s activities in the Demised Premises during the early access period. Tenant acknowledges and agrees that such early access will be granted with respect to differing portions of the Demised Premises at different times, in Landlord’s discretion, in order to minimize the interference of Tenant’s activities with the performance of Landlord’s Base Building Work or the Tenant Improvements, or any other work that Landlord may be performing in the Demised Premises.
 
6.4. Maintenance and Repairs by Tenant. Tenant shall take good care of the interior of Demised Premises throughout the Term, maintain and preserve same in good repair, except for normal wear and tear and damage by fire or other casualty, and be responsible for all necessary repairs and replacements thereto. Tenant shall also be responsible for the repair, maintenance and replacement of those structural components of the Building or the Building’s mechanical, electrical and plumbing systems to the extent that such components and/or systems were installed and/or modified by or for Tenant. Tenant shall not injure, deface or commit waste of the Demised Premises. Except to the extent waived or released pursuant to Section 13.5, Tenant shall be responsible for any damage of any kind or character to the Building or Complex caused by the negligence or willful misconduct of Tenant or Tenant’s Visitors or alterations performed by or for Tenant (excluding alterations performed by Landlord on Tenant’s behalf). All repairs that affect the Building’s structural components or the Building’s mechanical, heating, air-conditioning, electrical and plumbing systems, shall be made solely by Landlord or
 
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its contractor, and Tenant shall pay the actual out-of-pocket costs incurred therefor to Landlord within thirty (30) days of Landlord’s demand, as Additional Rent.
 
6.5. Maintenance and Repairs by Landlord. Landlord shall maintain the Property and the Complex at all times in good repair and operating condition and in order and appearance in keeping with the standards customarily applied to similar first-class office buildings in the Somerset County, New Jersey area, other than those which it is Tenant’s express obligation to make under Section 6.4 or elsewhere in this Lease, the cost of all of which, to the extent permitted under Article 5, shall be included in Operating Expenses. Landlord shall maintain, repair and replace the Building’s structural components and the plumbing, heating air-conditioning, electrical and mechanical fixtures (exclusive of plumbing, heating, air-conditioning, electrical and mechanical fixtures installed by or for Tenant) when required, and maintain and make repairs to the Common Areas, the roof of the Building and the exterior of the Building, the cost of all of which, to the extent permitted under Article 5, shall be included in Operating Expenses; provided, however, that, except to the extent waived or released pursuant to Section 13.5, Tenant shall pay as Additional Rent the cost of all such repairs or replacements arising from the negligence or willful misconduct of Tenant or Tenant’s Visitors or alterations performed by or for Tenant (excluding alterations performed by Landlord on Tenant’s behalf).
 
6.6. Landlord’s Warranty. In addition to Landlord’s repair and maintenance obligations set forth in Section 6.5 above, Landlord hereby warrants and guarantees Landlord’s Base Building Work and the Tenant Improvements against any defects in workmanship or materials for a period of two (2) years after the Commencement Date. In the event any repairs or replacements are required pursuant to the foregoing warranty and guaranty, the cost thereof shall be borne by Landlord and shall not be included as an Operating Expense.
 
6.7. Compliance with Laws; Americans with Disabilities Act of 1990. The Demised Premises shall, upon the Commencement Date, comply with all applicable Legal Requirements including, without limitation, the Americans with Disabilities Act of 1990, as amended (the “ADA”). Following the Commencement Date, Landlord hereby also agrees to be responsible for the compliance of the Property and the complex (including the Common Areas and Demised Premises), to the extent same is not the responsibility of Tenant pursuant to the next sentence, with all such Legal Requirements, the cost of all of which, to the extent permitted under Article 5, shall be included in Operating Expenses. Notwithstanding the foregoing, during the Term of this Lease, Tenant shall comply with all Legal Requirements pertaining to Tenant’s manner of use of the Demised Premises or any alterations or improvements to the Demised Premises made by or on behalf of Tenant, including any alterations or improvements to the Properly or the Complex (including the Common Areas) required by any provision of the ADA not applicable to Landlord’s Base Building Work or Tenant’s Improvements, or to the Property or the Complex (as applicable) as of the Commencement Date.
 
6.8. Cafeteria. Tenant shall, at its sole risk, cost and expense, be responsible for the control, management, operation, and maintenance of the cafeteria.
 
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ARTICLE 7. ALTERATIONS BY TENANT AND TRADE FIXTURES
 
7.1. Alterations. Tenant shall not do any work in or about the Demised Premises or make any alterations or additions thereto which would affect the Building structure, the exterior of the Building, any mechanical plumbing, electrical or other systems in the Building, or which would be visible from the exterior of the Demised Premises, without in each instance obtaining the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed. At the time Tenant requests Landlord’s consent to any such proposed alterations or additions, Tenant shall submit to Landlord detailed drawings and specifications for such proposed alterations or additions. If Landlord grants its consent thereto, Landlord shall advise Tenant, at the time Landlord so grants its consent, whether, upon the expiration or earlier termination of this Lease, Tenant will be requited to remove such alteration(s). Subject to the foregoing, Tenant shall have the right, without Landlord’s consent, to make interior, non-structural alterations Mid additions to the Demised Premises, provided that prior to commencing any alterations to the Demised Premises, Tenant shall provide Landlord with at least ten (10) days’ advance notice thereof setting forth the scope of such proposed alterations, All such work to which Landlord consents, or which is permitted hereunder without Landlord’s consent, shall be performed and installed at Tenant’s sole cost and expense in a good and workmanlike manner and in compliance with all applicable Legal Requirements. Notwithstanding anything contained herein, any alterations which affect the Building’s structural components or the plumbing, heating, air conditioning, electrical or mechanical systems shall be performed by Landlord or by contractor(s) designated by Landlord, the cost of which shall be commercially competitive in the Somerset County, New Jersey area, and Tenant shall pay the costs incurred therefor to Landlord, within thirty (30) days after Landlord’s demand, as Additional Rent. In addition, Tenant agrees that in all instances where Tenant invites bids for the performance of any such alteration(s) or for any repair work pursuant to Section 6.4 above, whether or not same require Landlord’s consent, Tenant will permit Landlord to submit a hid therefor on behalf of itself or an Affiliate of landlord, and Tenant shall consider such bid, in good faith, along with any other bid(s) it obtains with respect to same. During the work, Tenant shall maintain such insurance as Landlord may reasonably require for the benefit of Landlord or such other parties as Landlord shall designate. Landlord may require that Tenant furnish a guarantee by each of Tenant’s prime contractors and materialmen for the benefit of Landlord, Tenant and such other parties as Landlord shall designate, that all work, materials and equipment will be in accordance with the plans and specifications and that they will promptly, upon notice, correct and repair at their own cost and expense any deficiency, defect, fault or imperfection of materials, equipment or workmanship which appears within one (1) year after completion of their work or installation. Within 30 days of completion of any alterations or improvements that materially change the configuration of the Demised Premises or affect the Building structure, the exterior of the Building, or any mechanical, plumbing, electrical or other systems in the Building, whether or not Landlord’s consent therefor was required, Tenant shall furnish Landlord with complete as-built sepia and CAD drawings thereof.
 
7.2. No Liens. No work or installation by Tenant at the Demised Premises or elsewhere in the Complex shall be done except after providing to Landlord appropriate assurances in connection with the possible filing of any construction items and/or notice of unpaid balance (commonly known as a “construction lien”) in the local office, as provided by
 
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law. If any such lien is filed, Tenant shall cause it to be discharged, satisfied or bonded within thirty (30) days of filing.
 
7.3. Labor Harmony. No work, services or installation by Tenant in or about the Demised Premises or elsewhere in the Complex shall be performed or installed except by workmen and mechanics working in harmony and not unreasonably interfering with labor employed by Landlord, Land lord’s mechanics or their contractors or by any other tenant or their contractors. Any violation hereof shall automatically constitute a permitted cancellation by Landlord of any prior Landlord’s consent to or permission for such work or installation.
 
7.4. Expiration of Term. The Tenant Improvements, as well as any alterations, improvements or additions thereafter made by or on behalf of Tenant with Landlord’s permission or as permitted herein shall remain upon the Demised Premises at the expiration or earlier termination of this Lease and shall become the property of Landlord, except for those Tenant improvements and/or alterations, improvements and additions theretofore required by Landlord to be removed by Tenant at the expiration or earlier termination of this Lease pursuant to Section 6.2 or Section 7.1 above, which Tenant shall remove and restore the Demised Premises to the condition which existed prior to the installation thereof. Should Tenant fail to so remove any such items so required to be removed, or should Tenant fail to restore the Demised Premises as required pursuant to Section 6.2 or 7.1 above or Section 7.5 below, Landlord may do same, and Tenant shall pay the cost and expense thereof to Landlord as Additional Rent with thirty (30) days of demand. The obligations set forth in this Section 7.4 shall survive the expiration or earlier termination of this Lease.
 
7.5. Trade Fixtures. All trade fixtures installed by Tenant in the Demised Premises, except lighting fixtures, heating and air-conditioning equipment, mechanical, plumbing and electrical systems and fixtures, and floor coverings, shall remain the property of Tenant and shall be removed on or before the Termination Dale or earlier termination of this Lease. At Landlord’s option, any trade fixture not removed on or before the Termination Date or earlier termination of this Lease shall either become Landlord’s property, or Landlord may remove and dispose of them, and in such event Tenant shall pay the cost and expense thereof to Landlord as Additional Rent within thirty (30) days of demand. Tenant shall promptly restore the Demised Premises to the original order and condition upon removal of trade fixtures and shall repair any and all damage caused by said removal. The obligations set forth in this Section 7.5 shall Survive the expiration or earlier termination of this Lease.
 
ARTICLE 8. LANDLORD’S SERVICES
 
8.1. Landlord’s Services. Landlord shall provide the following services (“Landlord’s Services”):
 
 	(a)	 	Air heating and air cooling during Business Hours, subject to curtailment as required by Legal Requirements, at such temperatures and in such amounts as are in keeping with similar first-class office buildings in the Somerset County, New Jersey area.	
 
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 	(b)	 	Sufficient electrical capacity at all times, subject to the terms of the last paragraph of this Section 8.1 and Article 9 below, to operate (i) incandescent lights, persona) computers and printers, photocopying machines and other machines of similar low voltage electrical consumption (l20/208 volts), provided that the total rated electrical design load or said lighting and machines of low electrical voltage shall not exceed four (4) watts per square foot of the Demised Promises; and (ii) lighting and equipment of high voltage electrical consumption (277/480 volts), provided that the total rated electrical design load for said lighting and equipment of high electrical voltage shall not exceed two (2) watts per square foot of the Demised Premises.	
 
 	(c)	 	Cleaning services to the Demised Premises and the Complex as set forth in Exhibit “D” annexed hereto. Tenant shall have the right to select the janitorial contractor for the Demised Premises, and may also be entitled to select the janitorial contractor for the Building as and to the extent set forth in Section 8.6 below. Tenant shall pay to Landlord the cost of removal from the Building of any of Tenant 1 s refuse and rubbish which materially exceeds the refuse and rubbish usually attendant upon the use of such premises for general office purposes.	
 
 	(d)	 	Hot and cold water at all times (subject to the last paragraph of this Section 8.1) for use in lavatories in common with oilier tenants from the regular supply of the Complex.	
 
 	(e)	 	Non-exclusive multiple cab passenger elevator service to the Demised Premises during Business flours and at least one (1) cab passenger service to the Demised Premises twenty-four (24) hours per day (subject to the last paragraph of this Section 8.1); non-exclusive freight elevator service daring Business Hours (all subject to temporary cessation for ordinary repair and maintenance and during times when life safety systems override normal building operating systems) with such freight elevator service available at other times upon reasonable prior notice and the payment by Tenant to Landlord of any additional expense actually incurred by Landlord in connection therewith; and non-exclusive passenger and freight elevator service during construction of the Tenant Improvements and Tenant’s move into the Demised Premises, which use shall be scheduled in advance with Landlord.	
 
 	(f)	 	Electric lighting Service at all limes (subject to the last paragraph of this Section 8.1) for all Common Areas of the Complex in the manna and to the extent as are in keeping with similar first-class office buildings in the Somerset County, New Jersey area.	
 
 	(g)	 	Access control for the Complex comparable as to coverage, control and responsiveness (but not necessarily as to means for accomplishing same) to other similar first-class office buildings in the Somerset County New Jersey area; PROVIDED, HOWEVER, LANDLORD SHALL HAVE NO RESPONSIBILITY TO PREVENT, AND SHALL NOT BE LIABLE TO TENANT FOR LIABILITY OR LOSS TO TENANT OR TENANT’S VISITORS ARISING	
 
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 	OUT OF LOSSES DUE TO THEFT, BURGLARY OR DAMAGE OR INJURY TO PERSONS OR PROPERTY CAUSED BY PERSONS GAINING UNAUTHORIZED ACCESS TO THE COMPLEX OR THE DEM1SED PREMISES (E.G., EXCLUDING LANDLORD’S AGENTS, CONTRACTORS, EMPLOYEES AND MEMBERS), AND TENANT HEREBY RELEASES LANDLORD FROM ALL LIABILITY RELATING THERETO, EXCEPT TO THE EXTENT SUCH LOSSES ARE CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OR WILLFUL MISCONDUCT OF LANDLORD OR LANDLORD’S AGENTS, CONTRACTORS, EMPLOYEES AND MEMBERS.	
 
 	(h)	 	All building standard fluorescent bulb replacement in all areas and alt incandescent bulb replacement in the Common Areas.	
 
 	(i)	 	Gas at all times (subject to the lust paragraph of this Section 8.1) for use in Common with other tenants, from the regular supply of the Complex.	
 
If Tenant requires air conditioning or heat beyond Business Hours, Landlord will furnish such air-conditioning or heat, provided Tenant gives Landlord’s agent sufficient advance notice of such requirement and Tenant agrees to pay for the, costs actually incurred by Landlord in connection therewith. Landlord shall provide this service at actual cost, without mark-up to Tenant, which cost shall include, but not be limited to, the utility consumed, chemical treatment, Landlord’s staff, and costs allocated to preventative maintenance of the equipment providing such service.
 
To the extent the services described above require electricity, gas and/or water supplied by the public utilities, Landlord’s covenants thereunder shall only impose on Landlord the obligation to use its good faith, reasonable efforts to cause the applicable public utilities to furnish the same. Failure by Landlord to furnish the services described in this Article 8, or any cessation thereof, shall not render Landlord liable for damages to either person or property (except to the extent caused by the act, omission or neglect of Landlord or Landlord’s agents or employees), nor to be construed as an eviction of Tenant, nor work an abatement of Rent (subject to the last sentence of this paragraph), nor relieve Tenant from fulfillment of any covenant or agreement hereof. In addition, should any of the equipment or machinery, for any cause, fail to operate, or function properly, Tenant shall have no claim for abatement or rebate of Rent (subject to the last sentence of tins paragraph) or damages on account of an interruption in service occasioned thereby or resulting therefrom. Landlord shall have the right temporarily to interrupt services in order to make any necessary repairs or replacements to, or to otherwise service, the Building’s systems. In all of the foregoing instances, however, Landlord shall exercise commercially reasonable efforts to minimize interference with Tenant’s operations, to eliminate the cause of the interruption and to effect restoration of service as expeditiously as possible. Notwithstanding the foregoing or anything else to the contrary contained in this Lease, if any failure to provide any service or utility required of Landlord under this Lease shall continue for more than two (2) consecutive business days after notice from Tenant to Landlord of such failure, and provided such failure to provide the required service renders all or any portion of the Demised Premises untenantable, then as Tenant’s sole remedy with respect thereto, Net Base Rent shall be proportionately abated hereunder commencing on the third (3rd) business day after notice of such interruption, retroactive to the commencement of the interruption, to the extent, if any, that
 
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the amount of such abatement is actually reimbursed to Landlord under policies of rent interruption insurance maintained by Landlord as an Operating Expense for the Property.
 
8.2. Tenant’s Access. Subject to applicable Legal Requirements, Tenant shall have the right of twenty-four (24) hour, three hundred sixty-five (365) day access to the Demised Premises, the Building and the parking area,
 
8.3. Tenant’s Security System. Subject to the provisions of Article 7, Tenant shall be permitted to install, at its sole cost and expense, a security surveillance system in the Demised Premises and elsewhere on the Property (including the parking areas). Additionally, provided that Tenant (including its permitted assignee and/or subtenants) are, taken together, in possession of the entire Building, Tenant shall be permitted to install, at its solo cost and expense and subject to the provisions of Article 7, an access control system (bribe parking garage serving (he Building, Tenant shall coordinate the installation of its security system(s) with Landlord in order to provide Landlord with continued access to the Demised Premises and the parking areas.
 
8.4. Intentionally Omitted.
 
8.5. Building Management. During the Term of this Lease, Landlord shall have the right to control and direct the management of the Building. Notwithstanding the foregoing, in the event in Tenant’s reasonable opinion, Landlord’s management of the Building is not commensurate with industry standards for the management of similar first-class office buildings in the Somerset County, New Jersey area, Tenant shall notify Landlord in writing and allow Landlord sixty (60) days to cure any such alleged deficiency and bring the Building management into compliance with industry standards. In the event Landlord fails to cure any deficiency alleged by Tenant within such sixty (60) day period, Tenant shall have the right to require Landlord to retain a property manager that will operate the Building in accordance with industry standards for similar properties in the Somerset County, New Jersey area. In the event a dispute arises as to whether the Building is operated in accordance with industry standards, any such dispute will be resolved by arbitration in accordance with the provisions of Article 45.
 
8.6. Designated Providers of Certain Building Services. Provided that: (i) Tenant is Aventis Pharmaceuticals Inc. or any Related Entity or Successor Entity thereto; (ii) no Default by Tenant has occurred and is continuing; and (iii) Aventis Pharmaceuticals inc., any Related Entity or any Successor Entity thereto, taken together, are in possession of the entire Building, Tenant shall have the right to require that Landlord utilize the services of Tenant’s designated contractors for the provision of security services and janitorial services to the Demised Premises (individually a “Designated Provider” and collectively the “Designated Providers”), subject to the terms and conditions of this Section 8.6. Notwithstanding anything herein, Landlord shall only be obligated to utilize a particular Designated Provider if: (x) the cost of such Designated Provider is commercially competitive with other providers of comparable reputation performing a similar service in the Somerset County, New Jersey area; and (y) such Designated Provider performs its services in a first-class manner.
 
8.7. Service Providers for Tenant’s Systems. Tenant shall have the right to select the contractors Tenant will engage to service Tenant’s so-called “critical systems”, including but not limited to Tenant’s emergency generator, supplemental HVAC unit, and uninterrupted power
 
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supply, subject to Landlord’s approval, which approval shall not be unreasonably withheld, conditioned or delayed, provided that Tenant selects reputable contractors with an established reputation of providing first-class services.
 
ARTICLE 9. ELECTRICITY
 
9.1. Intentionally Omitted.
 
9.2. Electrical Usage. Landlord shall arrange for the provision of electric current to the Demised Premises or any building systems servicing solely the Demised Premises on a direct meter or on a submetering basis, from utility providers and/or suppliers selected by Landlord in its sole discretion, provided that the rates of such providers and suppliers are commercially competitive with other providers and suppliers of comparable reputation servicing the Somerset County, New Jersey area, and further provided that the quality of such service(s) so provided satisfies the electrical requirements of Tenant set forth herein, so as to permit the normal operation of the Demised Premises. The Building “master” meter shall be installed as part of Landlord’s Base Building Work and any submeters which measure consumption for the Demised Premises (whether on a per floor or other basis) shall be installed as part of the Tenant Improvements. Bills therefor shall be rendered at such times as Landlord may elect on a monthly basis and the amount, as computed from such submeter(s), shall be deemed to he, and he paid as, a Recurring Additional Rent Item. If any tax is imposed by any governmental authorities upon Landlord’s receipts from the sale or resale of electric current to Tenant, Tenant covenants and agrees that, where permitted by law, Tenant shall pay the portion of such taxes attributable to Tenant’s electrical usage.
 
9.3. Tenant Electrical Installations. Tenant agrees that it will not use electricity in the Demised Premises in excess of the capacity of any of the electrical conductors and equipment otherwise serving the Demised Premises, and that it will not make any electrical installations, alterations or additions except in accordance with Article 7. Tenant will at all times comply with the rules, regulations, terms and conditions applicable to service, equipment, wiring and requirements of the public utility supplying electric current to the Property or Complex, provided Tenant is provided a copy of such rules, regulations, terms and conditions. In the event that, in Landlord’s reasonable judgment, Tenant’s electrical requirements necessitate installation of art additional riser, risers or other proper and necessary equipment, the same shall be installed by Landlord at Tenant’s sole expense, which actual, out-of-pocket costs and expenses shall be chargeable and collectible as Additional Rent and paid within thirty (30) days after the rendition of a bill to Tenant therefor.
 
ARTICLE 10. INTENTIONALLY OMITTED
 
ARTICLE 11. RIGIITS RESERVED TO LANDLORD
 
11.1. Reserved Rights. Landlord shall have the right, but shall be under no obligation, to do the following things (at any time or times and from time to time) in or about the Demised Premises and Complex.
 
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(a) discontinue any facility or service not expressly covenanted for herein, as they constitute no part of the consideration for this Lease;
 
(b) control and prevent access to any pan of the Building or Complex, provided such action does not materially interfere with Tenant’s ingress and egress to the Demised Premises;
 
(c) prevent access to the Building by any person during any invasion, mob riot, public excitement or other commotion by closing the doors or otherwise; and
 
(d) install, place upon or affix to the roof or exterior walls of the Demised Premises and/or the Building, equipment, antennae and any other object or structure provided it does not interfere with Tenant’s use and occupancy of the Demised Premises.
 
Notwithstanding anything contained herein, for so long as Aventis Pharmaceuticals Inc., any Related Entity or any Successor Entity thereto, taken together, are in possession of the entire Building. Landlord shall not, without Tenant’s prior consent, which consent shall not be unreasonably withheld, conditioned or delayed, make any changes to the parking area in the portion of the Complex which is shaded on  Exhibit A-2  annexed hereto (i.e., within the parking area located on the Property).
 
ARTICLE 12. COVENANT OF QUIET ENJOYMENT
 
12.1. Quiet Enjoyment. Landlord covenants that (a) it has the power and authority to enter into this Lease and (b) so long as Tenant performs every obligation of Tenant under this Lease, Tenant shall quietly enjoy the Demised Premises without hindrance by Landlord or anyone claiming under Landlord, subject however, to all of the provisions of this Lease and the instruments referred to in Section 17.1.
 
ARTICLE 13. WAIVER OF SUBROGATION, INDEMNIFICATION AND INSURANCE
 
13.1. Tenant’s Indemnity. Tenant shall be responsible for and shall relieve, indemnify and save Landlord harmless from and against all ex4enses, costs (including reasonable attorney fees and disbursements), loss, liability and claims based on, arising out of or resulting from: (1) any set, omission or neglect or Tenant or Tenant’s Visitors or the use of the Demised Premises, Common Areas (or any part thereof) by Tenant, or (ii) any alteration or other work performed by Tenant in a about the Demised Premises.
 
13.2. Tenant’s Insurance. Tenant, at its own expense, will maintain with solvent insurers of good financial standing authorized to do business in the State of New Jersey the following:
 
 	(a)	 	Commercial general liability insurance policies in the broadest form then available in New Jersey, against claims for bodily injury, personal injury, death or property damage occurring on, in or about the Demised Premises or as a result of ownership of facilities located on the Demised Premises, with Landlord as an additional insured, and at Landlord’s request with any property manager, ground lessor and/or mortgagee as additional insured(s), in amounts not less than FIVE	
 
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 	MILLION AND 00/100 ($5,000,000.00) DOLLARS each occurrence combined single limit for bodily injury, personal injury, death, or property damage. Tenant’s liability insurance required in this Lease shall be written to be primary, with any other insurance available to Landlord being excess.	
 
 	(b)	 	All-Risk property insurance governing Tenant’s stock in trade, trade fixtures, furniture, furnishings, removable floor coverings, equipment, signs and all other property of Tenant in the Demised Premises (including, but not limited to, all items in the Demised Premises not paid for by Landlord) in amounts not less than 100% of the full insurable value of the property covered and not less than the amount sufficient to avoid the effect of the co-insurance provisions of the applicable policy or policies. Landlord shall have the right from time to time during the Term to require that the commercial general liability insurance policy limits be increased to the prevailing level customarily carried with respect to similar properties in Somerset County, New Jersey, and the surrounding area. Tenant’s commercial general liability insurance shall contain a broad form contractual liability endorsement. Upon commencement of this Lease and upon renewal of all insurance required hereunder, Tenant shall provide Landlord a certificate of insurance as evidence of the insurance required of Tenant hereunder. Landlord shall be provided thirty (30) days’ advance written notice of any cancellation or non-renewal of the insurance required herein. All insurance required to be maintained under this Section 13.2 may be provided under: (i) an individual policy covering this location; (ii) a blanket policy or policies which includes other liabilities, properties and locations of Tenant, (iii) with respect to the all-risk property insurance only, a plan of self-insurance; or (iv) a combination of any of the foregoing insurance programs. To the extent any deductible is permitted or allowed as a part of any insurance policy carried by Tenant in compliance with this Section 13.2, then Tenant shall he deemed to be covering the amount thereof under an informal plan of self-insurance;  provided , however, that in no event shall any deductible exceed One Hundred Thousand Dollars ($100,000).	
 
13.3. Landlord’s Indemnity. Landlord shall be responsible for and shall relieve, indemnify and save Tenant harmless from and against all expenses, costs (including reasonable attorney fees and disbursements), loss, liability and claims based on, arising out of or resulting from any act, omission or neglect of Landlord, or Landlord’s agents or employees.
 
13.4. Landlord’s Insurance. Landlord, as an item of Operating Expenses:
 
(a) shall maintain, or cause to be maintained, a policy or policies of insurance with the premiums thereon fully paid in advance, issued by and binding upon an insurance company of good financial standing, insuring the Property and Exterior Common Areas of the Complex against loss or damage by fire or other insurable hazards (including earthquake loss if Landlord elects to maintain such coverage) and contingencies for the full insurable value thereof or, in the alternative, insuring for one hundred percent (100%) of the replacement cost thereof as determined by Landlord’s insurer from time to time (or such other amount as shall be required to eliminate operation of coinsurance provisions), exclusive of excavations and foundations or such
 
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other coverage as Landlord deems appropriate for the Project. Landlord shall not be obligated to insure any of Tenant’s furniture, equipment, machinery, trade-fixtures, personal property, goods or supplies (“Tenant’s Personal Property”), or any alterations that Tenant may make upon the Demised Premises. If the annual premiums paid by Landlord for such casualty insurance exceed the standard premium rates because the nature of Tenant’s operations result in extra-hazardous or higher than normal risk exposure, then Tenant shall, within thirty (30) days after receipt of appropriate premium invoices, reimburse Landlord for such increases premium. All insurance proceeds payable under Landlord’s insurance carried hereunder shall he payable solely to Landlord and Tenant shall have no interest therein.
 
(b) with respect to the Complex, shall maintain or cause to be maintained a policy or policies of commercial general liability insurance with the premiums thereon fully paid in advance, issued by and binding upon an insurance company of good financial standing such insurance to afford minimum protection of not less than Five Million Dollars ($5,000,000) per occurrence, combined single limit, for bodily injury (including death) and property damage. The coverages required to be carried shall be extended to include, but not to be limited to, blanket contractual liability, personal injury liability (libel, slander, false arrest and wrongful eviction), and broad form property damage liability. Upon request of Tenant, landlord shall provide Tenant reasonable evidence that the insurance required to be maintained hereunder by Landlord is in full force and effect.
 
13.5. Waiver of Subrogation. Any provision of this Lease to the contrary notwithstanding, Landlord and Tenant hereby release the other from any and all liability or responsibility to the other or anyone claiming through or under them by way of subrogation or otherwise (a) from any and all liability for any loss or damage to the property of the releasing party, (b) for any loss or damage that may result, directly or indirectly, from the loss or damage to such property and (c) from legal liability for any loss or damage to property (no matter who the Owner of the property may be), all to the extent (and only to the extent) that the releasing party’s loss or damage is insured or, if not insured, was insurable under standard “all risk” property insurance policies generally available to landlords and tenants of commercial properties, even if such loss or damage or legal liability shall be caused by or result from the fault or negligence of the other party or anyone for whom such party may be responsible and even if the releasing party is sell-insured or the amount of the releasing party’s insurance is inadequate to cover the loss or damage or legal liability. It is the intention of the parties that Landlord and Tenant shall look solely to their respective insurance carriers for recovery against any such loss or damage or legal liability with respect to its properly, without such insurance carriers having any rights or subrogation against the other party. Landlord and Tenant each shall be responsible for obtaining whatever endorsements to their respective policies of insurance as may be necessary to permit the foregoing waivers and releases.
 
13.6. Limitations on Indemnities. All indemnity obligations of Landlord and Tenant arising under this Lease, and all claims, demands, damages and losses assertable by Landlord and Tenant against the other in any suit or cause of action arising out of or relating to this Lease, the Demised Premises, the Building, the Property or the complex, or the use and occupancy thereof, are limited as follows:
 
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(a) By the releases and waivers expressed herein, including, without limitation, the mutual releases and waivers of rights set forth in Section 13.5;
 
(b) All claims for indemnification and other recoveries shall be limited to direct, proximately caused damages and exclude all consequential or indirect damages, including, but not limited to, business loss or interruption, suffered by the party asserting the claim or seeking the recovery, except with respect to Tenant’s indemnity obligation set forth in Section 33.2;
 
(c) In the case of Landlord, the limitations expressed in Section 31.3; and
 
(d) In the event that Landlord and Tenant (or the persons for whom they are liable as expressly set forth herein) are determined to be contributorily responsible for the indemnified injury or loss, each indemnitors obligation is limited to the indemnitor’s equitable share of the losses, costs or expenses to be indemnified against based on the relative culpability of each indemnifying person whose negligence or willful acts or omissions contributed to the injury or loss.
 
13.7. Survival. The indemnities and limitations set forth in this Article 13 shall survive the expiration or termination of this Lease.
 
ARTICLE 14. MUTUAL RELEASES
 
14.1. Limitation of Liability of Landlord. (a) Tenant agrees that Landlord and its agents, contractors, employees, and members shall not be liable to Tenant, and Tenant hereby releases said parties from any liability, for any personal injury, toss of income or damage to or loss of persons or property, or loss of use of any property, in or about the Complex from any cause whatsoever unless such damage, loss or injury results from the negligence or willful misconduct of Landlord, its agents, contractors, employees, or members, or the breach by Landlord of any outs covenants or obligations hereunder.
 
(b) Notwithstanding any provisions of this Lease to the contrary, Tenant agrees that any goods, personal property or personal effects, including removable trade fixtures used or placed by the Tenant or its employees in or about the Demised Premises or Property, shall be at the sole risk of Tenant, and Landlord shall not in any manner be held responsible or liable therefor.
 
(c) Notwithstanding any provisions of this Lease to the contrary, in no event shall Landlord have any liability to Tenant for any claims based on the interruption of, or loss to, Tenant’s business.
 
14.2. Limitation on Liability of Tenant. Landlord agrees that Tenant and its agents, contractors, employees, officers, directors, shareholders and partners shall not be liable to Landlord, and Landlord hereby releases said parties from any liability, for any personal injury, loss of income (other than payment of Rent) or damage to or loss of persons or property or loss of use of any property in or about the corridors, lobbies and other untenanted portions of the Property or the Complex from any cause whatsoever unless such damage, loss or injury results from the negligence or willful misconduct of Tenant and its agents, contractors, employees,
 
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officers, directors, shareholders, partners or Tenant’s Visitors, or the breach by Tenant of any of its covenants or obligations hereunder.
 
ARTICLE 15. CONDEMNATION
 
15.1. Waiver of Claims. Tenant hereby waives any injury, loss or damage, or claim therefor, resulting from any exercise of a power of eminent domain affecting all or any part of the Demised Premises or the air rights, Land or Building, except that Tenant reserves against the condemning authority Tenant’s right to, and separate claim for, any damages for loss of good will, machinery and moving expenses payable to tenants or lessees under the appropriate State code as well as any other claim to which Tenant may be entitled under law at the time of condemnation provided there would be no reduction in the award to Landlord. In no event, however, shall Tenant have or make any claim against Landlord, or the condemning authority or any party having an interest in the air rights, Land or Building, which would diminish or reduce the award for the air rights, Land or Building.
 
15.2. Whole or Partial Condemnation. In the event the whole or a substantial part (as hereinafter defined) of the Demised Premises, or the use or occupancy of the Demised Premises, shall be taken as a result of the exercise of a power of eminent domain, this Lease shall terminate as of the date the right to possession vests in the condemning authority and Rent shall be apportioned as of that date. If less than a substantial part of the Demised Premises, or the use or occupancy thereof, is taken or condemned by any governmental or quasi-governmental authority for any public or quasi-public use or purpose (including a sale thereof under threat of such a taking), and this Lease is not terminated by Landlord as hereinafter provided, this Lease shall continue in full force and effect, but the Rent thereafter payable hereunder shall he equitably adjusted as of the date the right to possession vests in the condemning authority. For purposes of this Section 15.2, a substantial part of the Demised Premises shall be considered to have been taken if more than ten percent (10%) of the Demised Premises is rendered unusable as a result of such taking or if access to the Demised Premises is materially adversely affected as a result of such taking. If a significant portion of the Building (but not the Demised Premises) or the Property shall be taken or condemned by any governmental or quasi-governmental authority for any public or quasi-public use or purpose (including a sale thereof under threat of such a taking), then Landlord may, at its option, terminate this Lease by notifying Tenant in writing of such termination within ninety (90) days after the date title thereto vests in such governmental or quasi-governmental authority.
 
ARTICLE 16. DAMAGE OR DESTRUCTION
 
16.1. Casualty. (a) In the event of any tire or other casualty to the Building, Landlord shall provide Tenant with a written notice (the “Landlord’s Notice”) of its intention to repair the fire or other casualty or terminate this Lease in accordance with this Article 12 within thirty (30) days of such fire or other casualty, which thirty (30) day period shall in addition to Excusable Delay, be expressly subject to extension in an amount of time equal to the amount of time during which Landlord is adjusting insurance proceeds with its insurance carrier. If the Building shall be so damaged that substantial alteration or reconstruction of the Building shall, in Landlord’s sole opinion, be required (whether or not the Demised Premises shall have been damaged by such casualty), or in the event of any substantial uninsured loss to the Building or the mortgagee
 
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of any mortgage affecting the Demised Premises does not make insurance proceeds available, Landlord may at its option terminate the Lease by so notifying Tenant as part of Landlord’s Notice. If Landlord does not elect to terminate the Lease, Landlord’s Notice shall specify the number of days following the occurrence of such fire or other casualty that would be required, in Landlord’s judgment, in order to reconstruct the Demised Premises or those portions of the Building affecting the use and enjoyment of the Demised Premises. If Landlord’s Notice indicates that such reconstruction of the Demised Premises or those portions of the Building affecting the use and enjoyment of the Demised Premises shall exceed three hundred sixty-five (365) days (or during the last twenty-four (24) months of the Term, two hundred forty (240) days) from the date of the fire or other casualty, and Landlord does not elect to terminate the Lease as provided in Landlord’s Notice, Tenant shall have the right, to be exercised within fifteen (15) days after receipt of Landlord’s Notice, to elect, by notice to Landlord, to cancel this Lease (hereinafter called “Tenant’s Notice”). If the Lease is terminated by either Landlord or Tenant as above permitted, Landlord and Tenant thereafter shall have no further obligation or claim, one to the other, and this Lease shall be deemed null and void and of no further force and effect.
 
(b) In the event the Lease is not terminated by either Landlord or Tenant as hereinabove permitted, Landlord shall, subject to Excusable Delay, commence and proceed with reasonable diligence to restore the portion of the Building affecting the use and occupancy of the Demised Premises. If Landlord indicates in Landlord’s Notice (i) that the Demised Premises and/or the Building can be repaired within the applicable time period giving rise to Tenant’s termination right, but such repairs are not completed within such time period (as such time period may be extended for Excusable Delay, but in no event more than one hundred eighty (180) days, or (ii) that it will take longer than the applicable time period giving rise to Tenant’s termination right to repair the Demised Premises and/or the Building and Tenant does not elect to terminate this Lease, but such repairs are not completed within such time period (as such time period may he extended for Excusable Delay, but in no event more than one hundred eighty (180) days), then in either case this Lease and the Term hereof may at the election of Tenant be terminated by notice in writing from Tenant to Landlord, within thirty (30) days thereafter, TIME BEING STRICTLY OF THE ESSENCE, which termination shall be effective thirty (30) days after such notice unless the Demised Premises and/or Building have been fully restored within said thirty (30) day period, in which case this Lease shall continue in full force and effect. Landlord shall not be liable for any inconvenience, loss of business or annoyance to Tenant or damage to the business of Tenant resulting in any way from such damage or the repair thereof, except that, as Tenant’s sole and exclusive remedy with respect thereto, Landlord shall allow Tenant a fair diminution of Net Base Rent and Recurring Additional Rent Items during the time and to the extent that the Demised Premises is unfit for occupancy. During the period of any reconstruction undertaken by Landlord, Tenant shall be responsible to remove its personal properly, fixtures and equipment from the damaged area prior to Landlord’s institution of reconstruction work. Landlord shall have no liability to Tenant with respect to any damage, loss or theft of any such personal property, fixtures and equipment not so removed.
 
16.2. Waiver of Statutory Remedies. Tenant waives the benefit of New Jersey Revised Statutes, Title 46, chapter 8, Sections 6 and 7, and agrees that Tenant will not be relieved of the obligations to pay the Net Base Rent or any Additional Rent in cast of damage to or destruction of the Building, except as provided by this Lease.
 
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16.3. Governmental Approvals. Notwithstanding any of the foregoing provisions to the contrary, Landlord’s obligation to repair the damage and restore and rebuild the Building and/or the Demised Premises pursuant to this Article shall be conditioned on such restoration being then lawfully permitted and Landlord being granted all necessary approvals from governmental authorities having jurisdiction.
 
ARTICLE 17. SUBORDINATION
 
17.1. Subordination of Lease. Subject to the provisions of Section 17.4 below, Tenant acknowledges that this Lease and Tenant’s rights hereunder are subject and subordinate to all mortgages hereafter placed upon Landlord’s estate in the Land, the Building and the Demised Premises (Landlord hereby representing that no mortgages, judgments or liens affect the Land, the Building or the Demised Premises as of the date hereof).
 
17.2. Attornment. Subject to the provisions of Section 17.4 below, if any mortgagee or other person shall acquire title to Landlord’s estate in the Demised Premises, the Land or Building by foreclosure, deed in lieu thereof, or otherwise, or, at any time during the Term of this Lease, the landlord of the Demised Premises shall be the holder of a leasehold estate covering premises which include the Demised Premises, and if such leasehold estate shall terminate or be terminated for any reason, Tenant agrees, at the election and upon written notice of any owner of the premises which include the Demised Premises, or, of any mortgagee in possession thereof; or of any holder of a leasehold thereafter affecting premises which include the Demised Premises, to attorn, from time to time, to any such owner, mortgagee or holder, upon the terms and could it ions set forth herein for the remainder of the Term demised in this lease.
 
17.3. Acknowledgement by Tenant. The foregoing provisions shall inure to the benefit of any such owner, mortgagee or holder and shall be self-operative upon any such demand, without requiring any further instrument to give effect to such provisions.
 
17.4 Non-Disturbance Protection. Notwithstanding the foregoing provisions of this Article 17, the subordination of this Lease and Tenant’s obligations attorn to any such mortgagee or holder shall be conditioned upon its receipt of a Subordination, Non-Disturbance and Attornment Agreement (“SNDA”), in form and substance reasonably satisfactory to Tenant and any such mortgagee or holder, which shall provide, among other things, that:
 
(a) so long as Tenant is not in Default with respect to any of Tenant’s obligations under this Lease, Tenant shall not be joined as a party defendant (unless required by applicable law) (i) in any action or proceeding which may be instituted or taken by any such holder for the purpose of terminating such underlying leasehold by reason of any default thereunder, or (ii) in any foreclosure action or proceeding which may be instituted by any such mortgagee;
 
(b) so long as Tenant is not in Default with respect to any of Tenant’s obligations under this Lease, Tenant shall not be evicted from the Demised Premises, nor shall Tenant’s leasehold estate or right to possession of the Demised Premises be terminated or disturbed, by reason of any default under any such underlying leasehold or mortgage;
 
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(c) in the event of any act or omission of Landlord which would give Tenant the right, immediately or after lapse of a period of time, to cancel or terminate this Lease, or to claim a partial or total eviction, Tenant shall not exercise such right: (i) until it has given written notice of such act or omission to each Landlord’s holder or mortgagee whose name and address shall previously have been furnished to Tenant in writing, and (ii) unless such act or omission shall be one which is not capable of being remedied by Landlord or Landlord’s holder or mortgagee within thirty (30) days, until a thirty (30) day period for remedying such act or omission shall have elapsed following the giving of such notice, provided Landlord’s holder or mortgagee shall with due diligence give Tenant written notice of its intention to, and commence and continue to, remedy such act or omission.
 
(d) the holder or mortgagee shall not be: (i) liable for any previous act or omission of Landlord; (ii) subject to any defenses which Tenant nay have against Landlord; (iii) subject to any offsets which Tenant may have against any prior landlord, except to the extent such offsets are expressly provided under the Lease and the holder or mortgagee has received notice thereof and the opportunity to cure within the applicable time periods set forth in the Lease; (iv) bound by any Net Base Rent which Tenant might have paid for more than one month in advance of its due date under the Lease to Landlord, unless such additional rent is paid in accordance with the applicable provisions of this Lease; or (v) liable for the performance of Landlord’s covenants and agreements contained in this Lease to any extent other than as successor landlord of the Demised Premises, and no other property of such holder or mortgagee shall be subject to levy, attachment, execution or other enforcement procedure for the satisfaction of Tenant’s remedies.
 
Tenant acknowledges that it would be unreasonable to reject an SNDA which incorporates clauses (a) through (d) above, and otherwise does not result in an increase of Tenant’s monetary obligations under the Lease or materially and adversely affect Tenant’s non-monetary obligations under the Lease. In addition, any SNDA may also provide that Tenant will, at the option of any such mortgagee or holder, either (x) attorn to such mortgagee or holder and perform for such mortgagee’s or holder’s benefit all of the terms, covenants and conditions to be performed by Tenant under this Lease, or (y) enter into a new lease with such mortgagee or holder or their respective successors or assigns for the balance of the Lease Term on the same terms and conditions as are contained in this Lease. Landlord shall have no liability to Tenant if, for any reason whatsoever, Tenant shall not receive an SNDA nor shall the same relieve or release Tenant from any of the obligations of Tenant under this Lease.
 
ARTICLE 18. ASSIGNMENT AND SUBLETTING
 
18.1. Restrictions Upon Transfer. (a) Subject to the provisions of Section l8.4, Tenant expressly covenants that it shall not by operation of law or otherwise assign, encumber or mortgage this Lease in whole or in part, nor sublet or suffer or permit the Demised Premises or any part thereof to be used by others, without the prior written consent of Landlord in each instance, which consent will not be unreasonably withheld, conditioned or delayed; provided, however, that (i) Landlord may withhold its consent for any or no reason to any such transfer requested by Tenant prior to the commencement Date, and (ii) Landlord may withhold its consent for any or no reason to any such at transfer requested by Tenant prior to the l81 st  day following the Commencement Date except a transfer that involves an assignment of this Lease or a subletting (to one (1) subtenant) of the entire Demised Premises or a portion of the Demised
 
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Premises containing no less than 150,000 rentable square feet (in which event, Landlord’s consent shall not be unreasonably withheld, conditioned or delayed, as aforesaid). Any attempt by Tenant to assign, encumber or mortgage this Lease or sublet all or any portion of the Demised Premises without the express consent of Landlord shall he null and void.
 
(b) If Tenant’s interest in this Lease is assigned or if the Demised Premises are sublet to or occupied by, or used by, anyone other than Tenant, whether or not in violation of this Article 18, Landlord may, after the occurrence of a Default by Tenant, accept from any assignee, subtenant or any one who claims a right to the interest of Tenant under this Lease or who occupies any part(s) or the whole of the Demised Premises the payment of Net Base Rent and Additional Rent and/or the performance of any of the other obligations of Tenant under this Lease, but such acceptance shall not be deemed to be a waiver by Landlord of the breach by Tenant of the provisions of this Article 18 nor a recognition by Landlord that any such assignee, subtenant, claimant or occupant has succeeded to the rights of Tenant hereunder, or a release by Landlord of Tenant from further performance by Tenant of the covenants on Tenant’s part to be paid or performed under this Lease; provided, however, that the net amount of Net Base Rent and Additional Rent collected from any such assignee, subtenant, claimant or occupant shall be applied by Landlord to the Net Base Rent and Additional Rent to be paid hereunder.
 
(c) Tenant agrees to pay to Land lord all out-of-pocket fees, costs and expenses (which in no event shall exceed $5,000.00 in any proposed transaction), including, but not limited to, reasonable attorneys’ fees and disbursements, incurred by Landlord in connection with any proposed assignment of this Lease or any proposed sublease of the Demised Premises.
 
18.2. Landlord’s Consent Recapture. (a) If Tenant is required to obtain Landlord’s consent to an assignment of this Lease or a subletting of all or any part of the Demised Premises (i.e., other than as set forth in Section 18.4 below), Tenant shall submit a request to Landlord and include the following information: (i) the name of the proposed assignee or subtenant; (ii) the terms of the proposed assignment or subletting, including without limitation the proposed effective date thereof; (iii) the nature of the proposed assignee or subtenant’s business and its proposed use of the Demised Premises; (iv) copies of the most recently available information regarding the financial responsibility of the proposed assignee or subtenant; and (v) description of any required revisions to the floor layout of the Demised Premises.
 
(b) Provided Landlord receives such information from Tenant, Landlord shall, within ten (10) business days of its receipt of Tenant’s request to assign or sublet, notify Tenant whether Landlord consents to or rejects the proposed assignment or subletting.
 
(c) In lieu of either consenting to or rejecting Tenant’s request, Landlord shall have the option, to be exercised in writing within said ten (10) business day period, if the request is to assign this Lease or to sublet all of the Demised Premises for a proposed term of sixty (60) months or more (inclusive of renewal terms in such subletting), to cancel and terminate this Lease, either with respect of such portion of the Demised Premises or, at Landlord’s option, with respect to the entire floor(s) of the building on which such portion(s) of the Demised Premises is located (or such portion of the entire floor(s) as has been sublet to entities other than Related Entities in accordance with the provisions of this Article 18. The cancellation date shall be the proposed effective commencement date referred to in Section l8.2(a)(ii) above, and upon such
 
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cancellation date, Tenant shall thereafter be released from all liability hereunder (in the case of a termination of this Lease for the entire Demised Premises), or from all liability hereunder with respect to the portion of the Demised Premises so recaptured by Landlord (in the case of a termination of this Lease with respect to less than the entire Demised Premises). Landlord and Tenant shall enter into a written agreement to reflect any Lease termination or Lease modification effected pursuant to this Section; provided, however, that the failure of the parties to execute such agreement shall not vitiate the effect of any cancellation pursuant to this Section.
 
(d) If Landlord shall cancel this Lease in whole or in part as above provided, Tenant shall surrender possession of the Demised Premises, or the portion of the Demised Premises which is the subject of the recapture, as the case may be, on the proposed effective commencement date referred to in Section 18.2(a)(ii) above, in accordance with the provisions of this Lease relating to surrender possession of the Demised Premises (including without limitation, Section 33, 1 hereof). If this Lease shall be canceled as to a portion of the Demised Premises only, (i) the Net Base Rent payable by Tenant hereunder and Tenant’s Proportionate Share of Operating Expenses and the number of parking spaces allocable to Tenant pursuant to Section 32.1 hereof, shall be reduced proportionately according to the ratio that the portion of space surrendered bears to the entire Demised Premises, and (ii) Landlord, at Landlord’s expense shall make any alterations to the Demised Premises required to make the portion of the Demised Premises surrendered a self-contained rental unit (including without limitation with access through corridors to the elevators and toilets serving such space).
 
(e) if Landlord does not respond to Tenant’s request for consent to assign this Lease or sublet the Demised Premises within ten (10) business days of Landlord’s receipt thereof, Tenant may send Landlord a second request for consent (the ‘Second Notice”), which Second Notice shall contain in capital letters the following language: “TENANT’S REQUEST FOR LANDLORD’S CONSENT AS SET FORTH HEREIN, WHICH REQUEST WAS PREVIOUSLY SUBMITTED TO LANDLORD, SHALL HE DEEMED GIVEN BY LANDLORD IF LANDLORD SHALL FAIL TO RESPOND TO THIS SECOND NOTICE WITHIN TEN (10) BUSINESS DAYS FROM RECEIPT HEREOF.” Should Landlord so fail to respond to the Second Notice within such ten (10) business day period, Landlord’s consent, in such specific instance only, shall be deemed given.
 
(f) If Landlord’s consent is given (or deemed given, as aforesaid) and the assignment or subletting does not become fully binding upon the parties thereto and effective within six (6) months of the proposed effective date referred to in Section l8.2(a)(ii) above, Landlord’s consent to such transaction shall again be required.
 
18.3. Approval of Sublease or Assignment Requiring Consent. (a) If Landlord shall consent to a sublease or an assignment pursuant to a request from Tenant, or if a sublease or assignment is permitted herein without Landlord’s consent, Tenant shall cause to be executed by its assignee or subtenant an agreement to perform faithfully and to assume and be bound by all of the terms, covenants, conditions, provisions and agreements of this Lease for the period covered by the assignment or sublease and to the extent of the space sublet or assigned (and, in the ease of a sublease, the subtenant shall agree to afloat to Landlord in the event this Lease is terminated as a result of a Default by Tenant hereunder and Landlord elects, at its sole option, to recognize such subtenant as a direct tenant). An executed counterpart of each sublease or assignment and
 
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assumption of performance by the subtenant or assignee, in form and substance approved by Landlord, shall be delivered to Landlord within five (5) days prior to the commencement of occupancy set forth in such assignment or sublease; no such assignment or sublease shall be binding on Landlord until Landlord has received such counterpart as required herein. In the case of an assignment, the assignor tenant shall not be relieved or released from the performance of any of Tenant’s obligations under this Lease, nor shall such assignment be construed to impair or discharge any of said obligations.
 
(b) With respect to any such assignment of this Lease or to any such sublease requiring Landlord’s consent, Tenant shall in consideration therefor pay to Landlord as Additional Rent the following amounts:
 
(i) in the case of an assignment, an amount equal to fifty percent (50%) of all sums and other considerations paid to Tenant by the assignee for or by reason of such assignment (after deducting therefrom the out-of-pocket costs incurred by Tenant in connection with such assignment, including without limitation marketing expenses, brokerage commissions and attorneys’ fees), together with such rental increment paid by such assignee in excess of the Net Base Rent and Recurring Additional Rent items in the same manner as hereinafter provided in subsection (ii); and
 
(ii) in the case of a sublease, fifty percent (50%) of any rents, additional charges or other consideration payable under the sublease to Tenant by the subtenant which is in excess of the Net Base Rent and Recurring Additional Rent Items accruing during the term of the sublease in respect of the subleased space (at the rate per square foot payable by Tenant hereunder) pursuant to the terms hereof (after deducting therefrom the out-of-pocket costs incurred by Tenant in connection with such sublease, including without limitation marketing expenses, brokerage commissions and attorneys’ fees.
 
The sums payable under this Section 18.3(b) shall be paid to Landlord as Additional Rent if, as and when paid by the assignee or subtenant to Tenant.
 
18.4 Transfers to Related/Successor Entities. (a) Notwithstanding the preceding provisions of this Article 18 of any other provision of this Lease, Tenant may sublet all or any portion of the Demised Premises or assign this Lease to, or permit occupancy of all or a portion of the Demised Premises by, a Related Entity (as hereinafter defined) without being required to obtain Landlord’s consent thereto, provided that at the time of any such sublet, assignment or grant of occupancy right no Default by Tenant shall have occurred and be continuing. Not later than ten (10) days after such subletting, assignment or grant of occupancy right. Tenant shall notify Landlord of the subletting, assignment or grant of occupancy right and, in the case of a sublet or an assignment, deliver to Landlord an executed counterpart of such sublease or assignment and assumption of performance by the subtenant or assignee. The term “Related Entity” shall mean an Affiliate of Tenant or any joint venture in which Tenant owns a fifty percent (50%) or greater equity interest, in the case of a subletting or grant of occupancy right, such subletting or grant of occupancy right shall not be deemed to vest in any such Related Entity any right or interest in this Lease or a direct grant by Landlord of any right to occupy the Demised Premises, nor shall it relieve, release, impair or discharge any of Tenant’s obligations
 
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under this Lease (including the obligation not to allow the Demised Premises to be used for any use or purpose other than the Permitted Use). In the case of an assignment, the assignor tenant shall not be relieved or released from the performance of any of Tenant’s obligations under this Lease, nor shall such assignment be construed to impair or discharge any of said obligations.
 
(b) Notwithstanding the preceding provisions of this Article 18 or any other provision of this Lease tenant may assign this Lease to a Successor Entity (as hereinafter defined) without being required to obtain Landlord’s consent thereto, provided that at the time of any such assignment no Default by Tenant shall have occurred. Not later than ten (10) days after such assignment, Tenant shall notify Landlord of the assignment and deliver to Landlord an executed counterpart of such assignment and assumption of performance by the assignee. The term “Successor Entity” shall mean any of the following: (x) a corporation or other entity into which or with which Tenant shall be merged or consolidated, in accordance with applicable statutory provisions for the merger or consolidation of corporations or entities, provided that (whether by operation of law or by effective provisions contained in the instruments of merger or consolidation) the liabilities of the corporations participating in such merger or consolidation are assumed by the corporation or entity surviving such merger or consolidation; or (y) a corporation or other entity acquiring this Lease and the term hereof and the estate hereby granted, the goodwill and all or substantially all of the other property and assets of Tenant, and assuming all or substantially all of the liabilities of Tenant; or (z) any corporate or other business entity successor to a Successor Entity becoming such by either of the methods described in clauses (x) and (y) above; provided that, in each ease: (1) such merger or consolidation, or such acquisition and assumption, as the case may be, shall be made for a good business purpose other than (and not principally for) the purpose of transferring the Leasehold estate created hereby, (2) immediately after giving effect to any such merger or consolidation, or such acquisition and assumption, as the case may be, the corporation or other entity surviving such merger or created by such consolidation or acquiring such assets and assuming such liabilities, as the ease may be, shall have a net worth, as determined in accordance with generally accepted accounting principles, of no less than One Hundred Million and no/100 Dollars ($100,000,000) and (3) proof reasonably satisfactory to Landlord of such net worth shall have been delivered to Landlord at least ten (10) days after the effective date of any such transaction. In the case clan assignment, the assignor tenant shall not be relieved or released from the performance of any of Tenant’s obligations under this Lease, nor shall such assignment be construed to impair or discharge any of said obligations.
 
(e) The transfer of the outstanding capital stock of, or interest in, any corporate or partnership tenant shall not he deemed an assignment of this Lease (and Tenant shall not be required to furnish Landlord with the information described in the last sentence of Subsection 18.1(b) above) if such transfer shall be effected by the sale of such stock or interest through any recognized national stock exchange.
 
18.5. Continuing Liability. In no event shall any assignment or subletting to which Landlord may consent, release or relieve Tenant from its obligations to fully observe or perform all of the terms, covenants and conditions of this Lease on its part to be observed or performed.
 
18.6. No Waiver. Consent by Landlord to any assignment or subletting shall not constitute a waiver of the necessity for such consent to any subsequent assignment or subletting.
 
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18.7. Intentionally Omitted.
 
18.8. Restrictions upon Rental Arrangements. In no event shall Tenant assign this Lease or enter into any sublease, license, concession or other agreement for use, occupancy or utilization of any part of the Demised Premises which provides for a rental or other payment for such use, occupancy or utilization based in whole or in part on the income or profits derived by any person from the Demised Premises leased, used, occupied or utilized (other than an amount based on a fixed percentage or percentages of gross receipts or sales), and Tenant agrees that aft assignments, subleases, licenses, concessions or other agreen 1 ents for use, occupancy or utilization of any part of the Demised Premises shall provide that the person having an interest in the possession, use, occupancy or utilization of the Demised Premises shall opt enter into any lease, sublease, license, concession or other agreement for use, occupancy or utilization of space in the Demised Premises which provides for a rental or other payment for such use, occupancy or utilization based in whole or in part on the income or profits derived by any person from the Demised Premises leased, used, occupied or utilized (other than an amount based on a fixed percentage or percentages of gross receipts of sales) and any such purported assignment, sublease, license, concession or other agreement shall be absolutely void and ineffective as a conveyance of any right or interest in the possession, use, occupancy or utilization of any part of the Demised Premises.
 
18.9. Intentionally Omitted.
 
18.10. Further Subletting and Assignment. My subsequent sublease by an assignee or further sublease by a subtenant shall be subject to the terms and conditions of this Article 18.
 
ARTICLE 19. RULES AND REGULATIONS
 
19.1. Rules and Regulations. Tenant and Tenant’s Visitors shall at all Limes abide by and observe the rules and regulations attached hereto as Exhibit “E” and all other rules or regulations that Landlord may promulgate from time to time for the operation and maintenance of the Property or the Complex, provided that notice thereof is given to Tenant, that such other rules and regulations are not inconsistent with the provisions of this Lease, and that such rules and regulations are reasonable and are not discriminatory. Landlord shall not be liable to Tenant for the violation of any such rules or regulations by any other tenant or its employees, agents, invitees, or licensees. If there is any inconsistency between this Lease and any rules and regulations promulgated by Landlord, including without limitation those set forth in  Exhibit “E” , this Lease shall govern. Landlord agrees that all such rules and regulations shall be uniformly applied to all similarly situated tenants.
 
ARTICLE 20. PERFORMANCE OF OTHER PARTY’S COVENANTS
 
20.1. Landlord’s Right to Perform. If Tenant fails to perform any of its respective obligations hereunder within applicable notice and cure periods (or sooner in the event of an emergency), Landlord may (but shall not be obligated to) perform such obligation, in which event the cost of such performance, including but not limited to reasonable attorneys’ fees in instituting, prosecuting or defending any action or proceeding, together with interest thereon at the Default Rate from the date of payment and, in addition, in the case of repair or replacement
 
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required to be made by Tenant pursuant to Article 6, an administrative cost recovery charge of five percent (5%) of the cost of such repair or replacement, shall be reimbursed by Tenant as Additional Rent upon thirty (30) days’ prior demand therefor. The performance of such obligation by Landlord shall not constitute a waiver of any right or remedy of Landlord arising from such failure of Tenant.
 
20.2. Tenant’s Right to Perform. If Landlord fails to perform any of its respective obligations under Article 6 or Article 8 hereof, Tenant may, after thirty (30) days’ notice to Landlord and Landlord’s failure to commence to cure such failure within such time flame and thereafter diligently prosecute such cure to completion (but shall not be obligated to) perform such obligation, in which event the cost of such performance, including but not limited to reasonable attorneys’ fees in instituting, prosecuting or defending any action or proceeding, together with interest thereon at the Default Rate from the dale of payment and, in the case of repair or replacement required to be made by Landlord pursuant to Article 6, an administrative cost recovery charge of five percent (5%) of the cost of such repair or replacement, shall be reimbursed by Landlord upon thirty (30) days’ prior demand therefor, Notwithstanding anything contained herein. Tenant shall not make any repairs to the roof or other structural portions of the Building, or to any plumbing, mechanical, heating, air- conditioning, or electrical systems in the Building. The performance such obligation by Tenant shall not constitute a waiver of any right or remedy of Tenant arising from such failure of Landlord. Notwithstanding the foregoing, Landlord’s breach, default or non-performance of any of Landlord’s covenants or obligations under this lease shall not excuse Tenant of Tenant’s covenants and obligations under this Lease, including, without limitation, the obligation to pay Net Base Rent and Additional Rent.
 
ARTICLE 21. AIR AND LIGHT
 
21.1. Air and Light Rights. This lease does not grant any right to air and light.
 
ARTICLE 22. NOTICES
 
22.1. Notices to Tenant. Any notice or demand given by Landlord to Tenant (except for invoices) shall be in writing and shall be deemed to have been duly given if sent by registered or certified mail, return receipt requested, postage prepaid, or sent by a nationally recognized overnight receipted delivery service, with receipt acknowledged, addressed to Tenant as follows:
 
Aventis Pharmaceuticals Inc.
399 Interpace Parkway
Parsippany, New Jersey 07054
Attention: General Counsel
Telephone #973-394-6262
Facsimile #973-394-7222
 
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with a copy to:	  	Aventis Pharmaceuticals Inc.	
 	  	Route 202-206	
 	  	Post Office Box 6800	
 	  	Bridgewater, New Jersey 08807-0800	
 	  	Attention: N.A. Real Estate	
 	  	Telephone # 908-231-3821	
 	  	Facsimile # 908-231-3221	
 
And a copy to:	  	Morgan, Lewis & Bockius LLP	
 	  	1701 Market Street	
 	  	Philadelphia, PA 19103-2921	
 	  	Attention; Robert L. Cooney, Jr., Esq.	
 	  	Telephone # (215) 963-5000	
 	  	Facsimile #(215)963-5299	
 
or to such other address as Tenant may from time to time designate by written notice to Landlord. Notwithstanding the foregoing) invoices may be sent by first-class mail, postage prepaid, addressed to Tenant as follows:
 
Aventis Pharmaceuticals Inc.
Route 202-206
Post Office Box 6800
Bridgewater, New Jersey 08807-0800
Attention: N.A. Real Estate
Telephone #908-231-3821
Facsimile 1/908-231-3821
 
or to such other address as Tenant may from time to time designate by written notice to Landlord.
 
22.2. Notices to Landlord. Any notice or demand to be given by Tenant to Landlord shall be in writing and shall he deemed to have been duly given if sent by registered or certified mail, return receipt requested, postage prepaid, or sent by a nationally recognized overnight receipted delivery service, with receipt acknowledged, addressed to Landlord as follows:
 
 	 	Bridgewater Hines Development LLC	
 	 	885 Third Avenue, Suite 2701)	
 	 	New York, NY 10022	
 	 	Attn: Jeff Spiritos	
 	 	Telephone # (212) 230-2300	
 	 	Facsimile # (212) 230-2276	
 
with a copy to:	  	Bridgewater Hines Development LLC	
 	  	c/o Hines Interests limited Partnership	
 	  	2800 Post Oak Boulevard, 50th Floor	
 	  	Houston, TX 77056-6118	
 
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 	 	Attn: C. Hastings Johnson	
 	 	Telephone # (713) 621-8000	
 	 	Facsimile # (713) 966-2636	
 
and a copy to:	  	Sills Cummis Radin Tischman Epstein & Gross, P.A.	
 	  	One Riverfront Plaza	
 	  	Newark, New Jersey 07102	
 	  	Attn:Ted Zangari, Esq.	
 	  	Telephone # (973) 643-5781	
 	  	Facsimile # (973) 643-6500	
 
or to such other-address or addresses as Landlord may from time to time designate by written notice to Tenant, except that payment of Rent shall be to the address set forth in Section 5.13 above,
 
22.3. Effectiveness of Notices. Notice sent in compliance with the provisions of this Section shall be deemed given on the business day next following the day on which notice was sent if sent by overnight mail, or three (3) business days next following the day on which notice was sent if sent by registered or certified mail. The listing of telephone and facsimile numbers above shall not he construed to mean that notices shall be deemed to have been given if sent telephonically or by facsimile (however, Landlord and Tenant may, for informational purposes, elect to send a copy of any notice by such means).
 
ARTICLE 23. INTENTIONALLY OMITTED
 
ARTICLE 24. EVENTS OF DEFAULT
 
24.1 Matters Constituting a Default. The occurrence of any of the following shall constitute a “Default” under this Lease:
 
(a) if Tenant shall fail to pay any installment of Net Base Rent or Additional Rent when due, or fail to pay when due any other payment required by this Lease, and in each case such failure shall continue for a period often (10) days following written notice thereof to Tenant;
 
(b) If Tenant shall violate or fail to perform any other term, condition, covenant or agreement to be performed or observed by Tenant (under this Lease and such violation or failure shall continue for a period of thirty (30) days after written notice thereof to Tenant; provided however, that if such violation or failure is capable of being cured within a reasonable period, but cannot be cured within such thirty (30) day period, then provided Tenant commences to cure such violation or failure within said thirty (30) day period and thereafter diligently prosecutes same to completion, Tenant shall have such period of time longer than thirty (30) days as is reasonably necessary to cure such violation or failure;
 
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(c) If Tenant or any guarantor or surely of this Lease shall generally not pay its debts as they become due, or shall admit in writing its inability to pay its debts, or shall make a general assignment for the benefit of creditors;
 
(d) If Tenant or any guarantor or surely of this Lease shall commence any case, proceeding or other action seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its property, and such case, proceeding or other action results in the entry of an order for relief against it which remains undismissed for a period of ninety (90) days;
 
(e) If any case, proceeding or other action against Tenant or any guarantor or surety of this Lease shall be commenced seeking to have an order for relief entered against it as debtor, or seeking reorganization, arrangement, adjustment liquidation, dissolution or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its property, and such case, proceeding or other action results in the entry of an order for relief against it which remains undismissed for a period of ninety (90) days;
 
(f) Intentionally Omitted.
 
(g) The liquidation or dissolution of any corporate surety or guarantor of this Lease;
 
(h) Any event shall occur or any contingency shall arise whereby this Lease or the estate hereby granted or the unexpired balance of the Lease Term would, by operation of law or otherwise, devolve upon or pass to any person, firm, association or corporation other than Tenant, except as maybe expressly authorized in Article 18 above; and
 
(i) Any surety or guarantor of this Lease fails to comply with all the provisions of the suretyship or guaranty agreement and such failure continues beyond any applicable notice and cure periods contained therein.
 
ARTICLE 25. RIGHTS OF LANDLORD UPON DEFAULT BY TENANT
 
25.1. Landlord’s Remedies. If any Default occurs, Landlord may, notwithstanding the fact that Landlord may have other remedies hereunder or at law or in equity by notice to Tenant, designate a date, not less than five (5) business (days after the giving of such notice, on which this Lease shall terminate; and thereupon, the Term of this Lease and the estate hereby granted shall expire and terminate on such date with the same force and effect as if the date specified in such notice were the Termination Date and all rights of Tenant hereunder shall expire and terminate but Tenant shall remain liable as provided in this Lease, and Landlord shall have the right to remove all persons, goods, fixtures and chattels from the Demised Premises, by reasonable force or otherwise, without liability or damages to Tenant. If Landlord elects to terminate this Lease, everything contained in this Lease on the part of Landlord to be done and performed shall cease without prejudice, subject, however, to the right of Landlord to recover
 
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from Tenant all Rent and other sums accrued up to the time of termination or recovery of possession by Landlord, whichever is later, and all Rent remaining to be paid under this Lease (in the manner hereinafter set forth).
 
Whether or not Landlord elects to terminate this Lease, Landlord may re-enter and take possession of the Demised Premises and the provisions of this Article 25 shall operate as a native to quit, any other notice to quit or of Landlord’s intention to re-enter the Demised Premises being hereunder expressly waived if necessary, Landlord may proceed to recover possession of the Demised Premises under and by virtue of the laws of the State of New Jersey or by such other proceedings, including re-entry and possession, as may be applicable. Following such taking of possession, Landlord may in its own name, but as agent for Tenant, assign, sublet or relet the Demised Premises for any period equal to or greater or less than the remainder of the Term hereof for any sum which Landlord may deem reasonable to any lessee Landlord may select, and for any use or purpose which Landlord may designate. If the full rental provided herein plus the costs, expenses and damages hereafter described shall not be realized by Landlord in any assignment, subletting or reletting, Tenant shall be liable for all damages sustained by Landlord, including, without limitation, (1) the deficiency in Net Base Rent and Additional Rent, and (ii) the cost of recovering the Demised Premises, reasonable attorneys’ fees and court costs, collection costs, brokerage fees, reasonable rental concessions and/or tenant improvement allowances, and the expense of placing the Demised Premises in first-class rentable condition (the items in this clause (ii) being collectively Referred to as the “Reletting Expenses”). Landlord shall in no way he responsible or liable for any failure to relet the Demised Premises or any part thereof, or any failure to collect any Rent due and/or accrued from such retelling, to the end and intent that Landlord may elect to hold Tenant liable for the Net Base Rent, Additional Rent, and any and all other items of cost and expense which Tenant shall have been obligated to pay throughout the remainder of the Lease Term. Any damages or loss of Rent sustained by Landlord may be immediately recovered by Landlord, at Landlord’s option, at the time of the reletting, or in monthly payments, or in separate actions, from time to time, as said damages shall have been made more easily ascertainable by successive relettings, or, at Landlord’s option may be deferred until the expiration of the Lease Term, in which event Tenant hereby agrees that the cause of action shall not be deemed to have accrued until the date of expiration of the Lease Term.
 
Alternatively, landlord may, at its sole option, recover from Tenant all damages it may sustain by reason of Tenant’s Default, including the Reletting Expenses, and, in addition, Landlord shall be entitled to recover from Tenant, as and for liquidated damages, and not as a penalty, an amount equal to the difference between the rents, charges and other sums reserved hereunder or the period which otherwise would have constituted the balance of the Term from the latest of the date of termination of this Lease, the date of reentry or the date through which monthly deficiencies shall have been paid in full (conclusively presuming the Recurring Additional Rent items to be 105% of the amount payable for the year immediately preceding such termination or reentry) and the fair market rental value of the Demised Premises (at the time of such election) for such period, discounted to present value using a discount factor of the “prime rate” then being published by Citibank, NA., all of which shall immediately be due and payable by Tenant to Landlord.
 
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The provisions contained in this Section shall he in addition to, and shall not prevent the enforcement of, any claim Landlord may have against Tenant for anticipatory breach of this Lease.
 
25.2. Remedies Cumulative. All rights and remedies of Landlord set forth herein are in addition Lu all other rights and remedies available to Landlord at law or in equity. All rights and remedies available to Landlord hereunder or at law or in equity are expressly declared to be cumulative. The exercise by Landlord of any such tight or remedy shall not prevent the concurrent or subsequent exercise of any such right or remedy. No delay in the enforcement or exercise of any such right or remedy shall constitute a waiver of any default by Tenant hereunder or of any of Landlord’s rights or remedies in connection therewith. Landlord shall not be deemed to have waived any default by Tenant hereunder unless such waiver is set forth in a written instrument signed by Landlord. If Landlord waives in writing any default by Tenant, such waiver shall not he construed as a waiver of any covenant, condition or agreement set forth in this Lease except as to the specific circumstances described in such written waiver. The rights hereunder granted to Landlord shall also be the rights of Tenant in the same manner as hereinabove provided for Landlord.
 
25.3. No Waiver. If Landlord shall institute proceedings against Tenant and a compromise or settlement thereof shall be made, the same shall not constitute a waiver by Landlord of any future breach or of any other covenant, condition or agreement set forth herein, nor of any of Landlord’s rights hereunder. Neither the payment by Tenant of a lesser amount than the installments of Net Base Rent, Additional Rent or of any sums due hereunder nor any endorsement or statement on any check or letter accompanying a check for payment of Rent or other sums payable hereunder shall be deemed an accord and satisfaction, and Landlord may accept such cheek or payment without prejudice to Landlord’s light to recover the balance of such Rent or other sums or to pursue any other remedy available to Landlord. No re-entry by Landlord, and no acceptance by Landlord of keys from Tenant, shall be considered an acceptance of a surrender of this Lease.
 
25.4. Payments to Landlord After Default. If a Default by Tenant under this Lease shall have occurred and be continuing (or sooner in the event of a breach or other default of this Lease deemed by Landlord to be a  bona fide  emergency), then Landlord may, but shall not be required to, make such payment or do such act. If Landlord elects to make such payment or do such act, all costs and expenses incurred by Landlord, plus interest thereon at the rate per annum, which is two percent (2%) higher than the “prime rate” then being published by Citibank, N.A. (the “Default Rate”), at the main branch bank in New York City, from the date paid by Landlord to the day of payment thereof by Tenant, shall be immediately paid by Tenant to Landlord; provided, however, that nothing contained herein shall be construed as permitting Landlord to charge or receive interest in excess of the maximum legal rate then allowed by law. The taking of such action by Landlord shall not be considered as a cure of such Default (or breach so deemed an emergency by Landlord, as applicable) by Tenant or prevent Landlord from pursuing any remedy it is otherwise entitled to in connection with such Default.
 
25.5. Tenant’s Waivers. Tenant expressly waives the benefit of any and all laws now made or which may hereafter be made, exempting or releasing goods on said Demised Premises
 
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or elsewhere any property in any way belonging to Tenant, from levy and sale upon distress for Rent or other charges herein reserved or payable as Rent, or upon an execution on any judgment obtained in an action brought for nonpayment of Rent, or in any and all suits, actions or proceedings, amicable or otherwise, for the collection of Rent or other charges herein reserved or payable as Rent due and in arrears, for any expense incurred in removing rubbish or refuse matter from said Demised Premises, and for any damage for the non-fulfillment of any of the covenants herein contained. Notwithstanding anything contained herein to the contrary, in no event shall Landlord be liable for, and Tenant hereby waives any claim for, consequential or speculative damages hereunder.
 
25.6 Mitigation of Damages. Any provision of this Article 25 to the contrary notwithstanding, Landlord shall use commercially reasonable efforts to relet the Demised Premises to mitigate Landlord’s damages following the occurrence of a Default by Tenant and Landlord’s recovering possession of the Demised Premises, provided, however, nothing herein shall be construed to require Landlord to relet the Demised Premises ahead of other similar office premises owned or managed by Landlord or an Affiliate of Landlord in the Somerset County, New Jersey area which are then available for leasing or are about to become available for leasing.
 
ARTICLE 26. ACCESS
 
26.1. Landlord’s Entry. Landlord and its authorized representatives, upon reasonable advance notice (except in an emergency, in which case no notice shall be required, but Landlord shall exercise its commercially reasonable efforts to notify Tenant), may enter the Demised Premises during Business Hours (except in the event of an emergency) (i) to inspect, make repairs, replacements and improvements to or installations in the Demised Premises or any Building system or facility which Landlord may deem necessary or reasonably desirable, (ii) to perform following Tenant’s failure to make repairs or perform under this Lease, (iii) for the purpose of complying with laws, regulations and other directions of governmental authorities, or (iv) to show the Demised Premises to prospective purchasers, investors, encumbrancers, tenants (during the eighteen (18) months immediately preceding the expiration of the Term then in effect), without the same constituting an eviction. In the event Landlord so enters the Demised Premises, it shall be escorted through the Demised Premises by Tenant (except in the case of an emergency) and comply with such reasonable privacy limitations as Tenant may impose with respect to access to any security-restricted portions of the Demised Premises ((except in the event of an emergency). If Tenant is not present to open and permit entry into the Demised Premises, Landlord or its authorized representatives may enter the same whenever such entry may be necessary or permissible by master key or forcibly and provided reasonable care is exercised to safeguard Tenant’s properly and such entry shall nut render Landlord or its agents liable therefor, nor in any event shall the obligations of Tenant hereunder be affected. In all of the foregoing instances, however, Landlord shall exercise commercially reasonable efforts to minimize interference with Tenant’s operations. Notwithstanding the foregoing or anything else to the contrary contained in this Lease, if Tenant’s operations are interrupted as a result thereof and such interruption shall continue for more than two (2) consecutive business days after notice from Tenant to Landlord of such interruption, and provided such interruption renders all or any portion of the Demised Premises untenantable, then as Tenant’s sole remedy with respect
 
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thereto, Net Base Rent shall be proportionately abated hereunder commencing on the third (3rd) business day after notice of such interruption, retroactive to the commencement of the interruption, to the extent, if any, that the amount of such abatement is actually reimbursed to Landlord under policies of rent interruption insurance maintained by Landlord as an Operating Expense for the Property.
 
ARTICLE 27. CUSTOM AND USAGE PRESUMPTION OF CONSTRUCTION
 
27.1. Enforcement of Lease Provisions. Landlord and Tenant shall have the right at all times to enforce the covenants and conditions of this Lease in strict accordance with the terms hereof despite any conduct or custom on the part of either Landlord or Tenant in refraining from so doing at any time or times, and despite any contrary law, usage or custom or any failure by either to enforce its rights at any time or times.
 
27.2. Presumption of Construction. This Lease shall be construed without regard to any presumption or other rule requiring construction against the party causing this Lease to be drafted.
 
ARTICLE 28. SCOPE AND INTERPRETATION OF AGREEMENT
 
28.1. Sole Agreement: Governing Law. This Lease is the only agreement between the parties hereto pertaining to the Demised Premises, and all negotiations and oral agreements are included herein. The laws of the state in which the Demised Premises is located shall govern the validity, interpretation, performance and enforcement of this Lease.
 
ARTICLE 29. CAPTIONS
 
29.1. Captions. Any headings preceding the text of the several Articles and subparagraphs hereof are inserted solely for convenience of reference and shall not constitute a part of this Lease nor shall they affect its meaning, construction or effect.
 
ARTICLE 30. SEVERABILITY
 
30.1. Enforcement of Remaining Provisions. If any provision of this Lease is held to be invalid, the remaining provisions shall not be affected thereby, but shall continue in full force and effect.
 
ARTICLE 31. PARTIES, SUCCESSORS AND ASSIGNS
 
31.1. Definition Tenant. The term “Tenant” shall refer to each and every person or party mentioned as a Tenant herein, be the same one or more. If there shall be more than one Tenant, they shall be bound jointly and severally by all of the terms, covenants and agreements of this Lease and any notice required or permitted by the terms of this Lease may be given by or to any one thereof and shall have the same force and effect as if given by or to all.
 
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31.2. Definition of Landlord. The term “Landlord” as used in this Lease shall refer only to the owner for the time being of Landlord’s estate in the Demised Premises or the Building of which it is a part. Landlord shall be and is hereby relieved of all covenants and obligations of Landlord hereunder after the date of transfer of Landlord’s estate in the Demised Premises or the Building of which it is a part, and it shall be construed without further agreement between the parties that the transferee has assumed and agreed to carry out any and all covenants and obligations of Landlord hereunder during such time as said transferee shall own or hold Landlord’s estate or interest in the Demised Premises or the Building of which it is a part. Tenant agrees to attorn to any such purchaser or transferee upon all terms and conditions of this Lease. The provisions of this Article 31 shall apply to each successive transfer of Landlord’s interest or estate. Notwithstanding anything contained herein, Landlord agrees that it shall not ground lease, sell, transfer or otherwise convey fee ownership of the Demised Premises, the Property or the Complex to any person or entity, other than an Affiliate of Landlord, prior to the Commencement Date.
 
31.3. Extent of Landlord’s Liability. The liability of Landlord under this Lease shall be and is hereby limited to Landlord’s interest in the Demised Premises and the Building of which it is a part, and the proceeds therefrom (except to the extent any lender has prior rights thereto), and no other asset of Landlord shall be affected by reason of any liability which Landlord may have to Tenant or to any other person by reason of this Lease, the execution thereof, or the acquisition of Landlord’s interest. In no event shall any member, shareholder, partner, officer or employees of Landlord be held to have any personal liability for satisfaction of any claims or judgments that Tenant may have against Landlord.
 
31.4. Successors and Assigns. Subject to the provisions of Article 18 and Section 31.2 hereof, all rights, obligations and liabilities hereupon given to or imposed upon the respective parties hereto shall extend to and bind the several and respective heirs, executors, administrators, successors, sub-tenants and assigns of said parties.
 
31.5 No Personal Liability. In no event shall any member, shareholder, partner, officer or employees of Tenant be held to have any personal liability for satisfaction of any claims or judgments that Landlord may have against Tenant.
 
ARTICLE 32. PARKING PRIVILEGES
 
32.1. Parking Allocation. Tenant, is hereby entitled to utilize, at no additional charge, on an exclusive basis (for so long as Tenant is in possession of the entire Building; otherwise, on a non-exclusive basis)) one thousand thirty-two (1.032) parking spaces, which parking spaces shall be unassigned; any additional parking spaces required or used by Tenant shall only be available after obtaining Landlord’s prior approval. Landlord shall have, in its reasonable discretion, the right to assign parking spaces. Subject to Article 19 hereof, Tenant covenants and agrees to comply with all reasonable rules and regulations which Landlord may from time to time make to assure proper use of parking spaces by permitted users, including but not limited to the prohibition of overnight parking. Landlord’s remedies under such tides and regulations may include, but shall not be limited to, the right to tow away at owner’s expense any vehicles not parked in compliance with these rules and regulations. Landlord shall not be responsible to
 
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Tenant for the non-compliance or breach by any other tenant of said rules and regulations. Parking may be provided by a parking contractor selected by Landlord. Tenant shall use good faith, commercially reasonable efforts to require its employees to park in the parking area of the Property dedicated to the Building (and not in the parking area of the Property dedicated to 400 Crossing Boulevard, as shown on Exhibit A-2 annexed hereto).
 
32.2. Designation of Visitor Parking. Provided that Tenant is in possession of the entire Building, and subject to applicable Legal Requirements, Tenant shall have the right to designate which parking spaces are to be used for visitor parking and, upon Tenant’s request, Landlord shall install signage identifying such spaces as being for the use of visitors (the cost of which signage shall be included in Operating Expenses). Nothing contained herein shall he deemed to obligate Landlord to police or otherwise enforce the use of such spaces by visitors, it being agreed that any such enforcement shall be the sole obligation of Tenant.
 
ARTICLE 33. SURRENDER OF DEMISED PREMISES
 
33.1. Tenant’s Obligations upon Surrender. On the Termination Date, or earlier permitted termination of the Lease Term, Tenant shall quit and surrender the Demised Premises in good and orderly condition and repair (reasonable wear and tear, and damage by fire or other casualty excepted) and shall deliver and surrender the Demised Premises to Landlord peaceably, together with all alterations, additions and improvements in, to or on the Demised Premises made by Tenant as permitted under the Lease, except to the extent any of the foregoing are required to be removed pursuant to Sections 6.2 and 7.1 and/or are installed by Tenant in violation of this Lease. Tenant’s obligations shall survive the surrender and the delivery of the Demised Premises as provided hereunder. Prior to the expiration of the Lease Term, Tenant shall also remove all of its movable property, equipment and trade fixtures from the Demised Premises without damage, leaving the Demised Premises in broom-clean condition. All such personal property not removed by Tenant shall he deemed abandoned by Tenant and Landlord reserves the right to charge the cost of such removal to Tenant, which obligation shall survive the Lease termination and surrender hereinabove provided.
 
3.2 Holdover. Landlord and Tenant have agreed that in the event of any unauthorized holdover (i) Landlord’s damages shall include but shall not be limited to a monthly use and occupancy charge to be computed at the rate of 200% of the monthly installment of Net Base Rent due and payable in the last full month of the Term then in effect, and (ii)Tenant’s use and occupancy of the Demised Premises shall be on the terms and conditions of this Lease, including without limitation the obligation to pay the Recurring Additional Rent Items that become due and payable during such holdover period at the rate of 200% of such amount. The payment of the use and occupancy charge, in the event of such Tenant holdover, shall not be deemed or construed to create a further relationship of Landlord and Tenant hereunder. In addition, such charge shall not derogate from or diminish the additional damages resulting from Tenant’s holdover, if any, as provided in the last sentence of this Section 33.2. Notwithstanding the foregoing, provided that no Default by Tenant under this Lease shall have occurred and be continuing as of the date Tenant notifies Landlord of its election to do so, Tenant may extend the Term hereof as it relates to the Demised Premises for up to six (6) months (and such extension shall not constitute a holdover), provided that (i) Tenant shall notify Landlord of its election to so
 
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extend the Term by giving Landlord notice thereof not less than eighteen (18) months prior to the expiration of the Term then in effect, TIME BEING STRICTLY OF THE ESSENCE, (ii) the notice to Landlord specifies the period of time (in whole months), not to exceed six (6) months, by which the Term shall be so extended, (iii) the Net Base Rent for such extension period shall be computed at the rate of 150% of the monthly installment of Net Base Rent due and payable in the last full month of the Term then in effect) and (iv) Tenant’s use and occupancy of the Demised Premises shall be on the terms and conditions of this Lease, including without limitation the obligation to pay the Recurring Additional Rent Items that become due and payable during such extension period. In the event Tenant so timely extends the Term, then the Termination Date shall be so extended, and upon the Termination Date, as so extended, the other provisions of this Article 33 shall immediately and automatically apply. If the Tenant shall so holdover, Tenant shall indemnify Landlord against loss or liability resulting from delay by Tenant in surrendering the Demised Premises, including, without limitation any claims made by any succeeding tenant founded on the delay.
 
ARTICLE 34. BROKERS
 
34.1. Tenant’s Representation. Tenant represents that it has not dealt with any other real estate brokerage firm other than the Brokers with regard to the leasing of the Demised Premises pursuant to the terms of this Lease. Tenant agrees to indemnify and hold Landlord harmless from any and all claims of brokers other than Brokers and expenses in connection therewith arising out of or in connection with the negotiation of or the entering into this Lease by Landlord and Tenant due to any action of Tenant.
 
34.2. Landlord’s Representation. Landlord represents that it has not dealt with any other real estate brokerage firm other than the Brokers with regard to the leasing of the Demised Premises pursuant to the terms of this Lease. Landlord agrees to indemnify and hold Tenant harmless from any and all claims of brokers (including Landlord’s Broker, but excluding Tenant’s Broker) and expenses in connection therewith arising out of or in connection with the negotiation of or the entering into this Lease by Landlord and Tenant due to any action of Landlord.
 
34.3. Commissions. Landlord shall pay the Brokers their commission pursuant to a separate agreement between Landlord and each Broker.
 
ARTICLE 35. SIGNAGE AND FIXTURES
 
35.1. Signs. (a) No sign, advertisement or notice referring to Tenant (other than signs located in the interior of the Demised Premises and not visible from the exterior of the Demised Premises) shall be inscribed, painted, affixed or otherwise displayed on any part of the exterior or the interior of the Building without the prior approval of Landlord, which approval shall not be unreasonably withheld, conditioned or delayed. All of Tenant’s signs that are approved by Landlord shall be installed at Tenant’s cost and expense, in accordance with Article 7. If any sign, advertisement or notice that has not been approved by Landlord is exhibited or installed by Tenant, Landlord shall have the right to remove the same at Tenant’s expense. Tenant may list the name of its firm, together with the names of all officers of Tenant located at the Demised
 
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Premises, on the office directory (if any) in the lobby, at no additional charge to Tenant (except that the costs of operating, maintaining, repairing and replacing such directory may be included in Operating Expenses);
 
(b) Provided that Tenant obtains any governmental approvals for a monument sign that is in addition to (and not to the exclusion of) a monument sign that may be erected by the Landlord for the Property, Tenant, at its expense and subject to obtaining any required governmental permits and approvals, may install (for Tenant’s exclusive use or, at Tenant’s option, for the exclusive use of any subtenantor Tenant), maintain, repair and replace a monument sign (the “Tenant’s Monument Sign) on the Land in the location at the entrance to the Property to be mutually acceptable to Landlord and Tenant. The design and specifications for the monument to be used for Tenant’s Monument Sign shall be subject to the prior written approval of Landlord, Which approval shall not be unreasonably withheld, conditioned or delayed. The specifications for the letters and symbols used on Tenant’s Monument Sign shall also be subject to the prior written approval of Landlord, which approval shall not be unreasonably withheld, conditioned or delayed. In the event that Tenant does not obtain approval for a separate monument sign, Landlord shall make space available on its monument sign, if any, for Tenant’s use.
 
(c) So long as Aventis Pharmaceuticals Inc., or any Related Entity, or any Successor Entity thereto, taken together, are in possession of, in the aggregate, at least 400,000 rentable square feet in the Complex, Tenant, at its expense and subject to its obtaining any required governmental permits and approvals, shall have the right to install, maintain, repair and replace a sign on the exterior of the Building (the “Tenant’s Building Exterior Sign”) in a location that is approved by 1andlord, which approval is not to be unreasonably withheld, conditioned or delayed, and by all governmental authorities having jurisdiction over the installation of Tenant’s Building Exterior Sign. The design and specifications for Tenant’s Building Exterior Sign (including the specifications for the letters and symbols proposed to be utilized thereon) shall be subject to the prior written approval of Landlord, which approval shall not unreasonably be withheld, conditioned or delayed. Landlord agrees that during the Term Tenant’s Building Exterior Sign shall he the only sign identifying a tenant on the exterior walls of the Building.
 
35.2. Tenant’s Equipment and Fixtures. Landlord shall have the right to prescribe the weight and position of safes, and other heavy equipment and fixtures, which, if allowed by Landlord, shall be installed in such manner in order to distribute their weight adequately. Tenant, in any event, shall not install any furniture, fixtures or equipment which shall exceed floor loads of the Building specified in the Work Letter. Any and all damage to the Demised Premises or the Building caused by moving the same in or upon the Demised Premises, shall be repaired by and at the sole cost of Tenant. No furniture, equipment or other bulky matter of any description will be received into the Building or carried in the elevators, except as approved by Landlord, and all such furniture, equipment and other bulky matter shall be delivered only through the designated delivery entrance of the Building and the designated freight elevator. Landlord may, but shaft not be obligated to, supervise all moving of furniture, equipment and other materials, but Landlord shall not, however, be responsible for any damage to or charges for moving the same. Tenant agrees to remove promptly from the sidewalks adjacent to the Building any of Tenant’s furniture, equipment or other material there delivered or deposited.
 
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Tenant agrees that delivery of furniture, fixtures and equipment shall be subject to Landlord’s prior designation of the time of delivery during normal Business Hours and of the access areas for the entry of such furniture, fixtures and equipment, as Landlord shall direct, except Tenant shall have the right lo move in on weekends, and subject to prior approval of Landlord, during normal working hours.
 
ARTICLE 36. FORCE MAJEURE
 
36.1. Effect of Excusable Delay. Whenever a period of time is herein prescribed for the taking of any action by a party, such party shall not be liable or responsible for, and there shall be excluded from the computation of such period of time, any delays due to Excusable Delay, except as otherwise expressly provided in this Lease or except where “Severe Excusable Delay” applies.
 
ARTICLE 37. COMPLIANCE WITH ENVIRONMENTAL LAWS
 
37.1. Tenant’s Compliance. Tenant agrees to comply with all applicable environmental laws, of rules and regulations, including but not limited to the New Jersey Spill Act, N.J.S.A. 58:10-23.11  et seq ., and the Industrial Site Recovery Act (N.J.S.A. 13:1K-6 et seq.), as same may be amended (“ISRA”). Tenant shall not conduct any operations that shall cause the Building or the Demised Premises to be deemed an “industrial establishment” as defined in ISRA.
 
37.2. Obligations under ISRA. Tenant hereby agrees to execute such documents Landlord reasonably deems necessary and to make such applications as Landlord reasonably requires to assure compliance with ISRA. Without waiving the requirement that Tenant shall engage in no ISRA applicable operations at the Demised Premises, Tenant shall bear all costs and expenses incurred by Landlord associated with any ISRA compliance resulting front Tenant’s use of the Demised Premises including but not limited to state agency fees (including oversight costs), consulting and engineering fees, clean-up and monitoring costs, filing fees and suretyship expenses. As used in this Lease, ISRA compliance shall include such applications for determinations of nonapplicability of ISRA by the appropriate governmental authority as Landlord may reasonably request. The foregoing undertaking shall survive the termination or sooner expiration of the Lease and surrender of the Demised Premises and shall also survive sale, lease or assignment of the Demised Premises by Landlord. Tenant shall immediately provide Landlord with copies of all correspondence, reports, notices, orders, findings, declarations and other materials pertinent to Tenant’s compliance and the New Jersey Department of Environmental Protection’s requirements under ISRA as they are issued or received by Tenant.
 
37.3. No Hazardous Substances. Landlord nor Tenant shall generate, store manufacture, refine) transport, treat, dispose of, or otherwise cause or permit to be released or present in, on, under or about the Building (including the Demised Premises) or the Complex, any Hazardous Substances, Tenant acknowledges that it has received and has read a copy of that certain No Further Action letter issued by the New Jersey Department of Environmental Protection dated June 15, 2000 with respect to ground water under the Land.
 
49

37.4. Indemnity for Environmental Matters. (a) Tenant agrees to indemnify and hold harmless Landlord from and against any and all liabilities, damages, claims, losses, judgments, causes of action, costs and expenses (including the reasonable fees and expenses of counsel) which may be incurred by Landlord, or threatened against Landlord, relating to or arising out of any breach by Tenant of this Article 37, which indemnification shall survive the expiration or sooner termination of this Lease.
 
(b) Landlord agrees to indemnify and hold harmless Tenant from and against any and all liabilities, damages, claims, losses, judgments, causes of action, costs and expenses (including the reasonable fees and expenses of counsel) which may be incurred by Tenant, or threatened against Tenant, relating to or arising out of any breach by Landlord of this Article 37, which indemnification shall survive the expiration or sooner termination of this Lease.
 
37.5 Existing Environmental Conditions. Notwithstanding anything else to the contrary contained in this Lease, Landlord acknowledges and agrees that Tenant shall have no obligation to remedy any environmental condition affecting the Complex as of the Commencement Date.
 
ARTICLE 38. ESTOPPEL CERTIFICATES
 
38.1. Delivery of Estoppel Certificates to Tenant. Tenant shall, from time to time, within ten (10) days of Landlord’s written request, execute, acknowledge and deliver to Landlord a written statement certifying: (i) that the Lease is unmodified and in full force and effect, or that the Lease is in full force and effect as modified and listing the instruments of modification; (ii) the dates to which the Net Base Rent and Additional Rent and charges have been paid; (iii) whether or not) to the knowledge of Tenant, Landlord is in default in performance of any of its obligations under this Lease, and if so, specifying each such default of which Tenant may have knowledge; (iv) whether Tenant has received notice that it is in default in performance of any of its obligations under this Lease, and if so, specifying each such default; and (v) as to any other matters reasonably requested by Landlord as to which Tenant may readily obtain or confirm the information; it being intended that any such certificate delivered pursuant to this Section 38.1 may be relied upon by a prospective purchaser of Landlord’s interest or a ground lessor or mortgagee of Landlord’s interest or assignee of any mortgage under Landlord’s interest in the Demised Premises.
 
38.2. Delivery of Estoppel Certificates by Landlord. Landlord shall, from time to time, within ten (10) days of Tenant’s written request; execute, acknowledge and deliver to Tenant a written statement certifying; (i) that the Lease is unmodified and in full force and effect or that the Lease is in full force and effect as modified and listing the instruments of modification; (ii) the dates to which the Net Base Rent and Additional Rent and charges have been paid; (iii) whether or not, to the knowledge of Landlord, Tenant is in default in performance of any of its obligations under this Lease, and if so, specifying each such default of which I and lord may have knowledge; (iv) whether Landlord has received notice that it is in default in performance of any of its obligations under this Lease, and if so, specifying each such default; and (v) as to any other matters reasonably requested by Tenant as to which Landlord may readily obtain or confirm the information; it being intended that any such certificate delivered pursuant to this
 
50

Section 38.3 may be relied upon by a prospective assignee of Tenant’s interest in this Lease or a prospective subtenant of Tenant’s interest in the Demised Premises.
 
ARTICLE 39. WAIVER OF JURY TRIAL
 
39.1. Waiver by Landlord and Tenant. Landlord and Tenant each hereby waive trial by jury in any action, proceeding or counterclaim brought by either of them against the other in connection with any matter arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant hereunder, Tenant’s use or occupancy of the Demised Premises, and/or any claim of injury or damage.
 
ARTICLE 40. TENANT’S ACCESS RIGHTS
 
40.1 Roof Rights. Provided Landlord shall have the continued ability to lawfully allow tenants or itself the right to install roof top dish antennas or other communication devices, Tenant shall have the right, subject to the provisions of Section 7.1 and applicable Legal Requirements, to install communications equipment on Tenant’s Proportionate Share of the roof, provided said equipment: (i) does not display any name, logo or identity; (ii) is installed in compliance with any and all necessary governmental approvals; (iii) is installed at Tenant’s sole cost and expense. and (iv) is installed by Landlord’s designated contractor(s) so long as the cost charged by such contractor(s) is commercially competitive in the Somerset County, New Jersey area, Tenant shall be responsible for any damage caused to the roof as a result thereof, and hereby agrees to indemnify and holds Landlord harmless from all costs, expenses, and claims resulting therefrom. In addition to, and not in lieu of, the criteria set forth in Section 7.1, Landlord shall have the right to impose certain conditions on the installation of such equipment, including but not limited to requiring Tenant to screen the equipment in such manner as to preserve the aesthetic nature of the Building. Upon die expiration or sooner termination of this Lease Tenant shall, at Landlord’s option, remove said equipment and repair all injury done by or in connection With the installation or removal thereof. Landlord agrees that in the event Landlord installs any such communications equipment.. Landlord shall comply with the same criteria as Tenant in connection with maintaining the aesthetic nature of the Building.
 
40.2 Conduit Rights. Subject to the provisions of Section 7.1 and applicable Legal Requirements, Tenant shall have the right, without the obligation to pay any Additional Rent therefor, to install a supplemental HVAC system and/or utilize Tenant’s Proportionate Share of the vertical penetrations, risers and chase areas in the Building, and/or to install additional conduits for the purpose of running Tenant’s wiring or cabling to areas within the Demised Premises, to the roof of the Building, and/or to the exterior of the Building, and/or between the Building and the Adjacent Building, provided that in all such instances, same is installed by Landlord’s designated contractor(s) so long as the cost charged by such contractor(s) is commercially competitive in the Somerset County, New Jersey area.
 
40.3 Loading Dock Rights. Tenant shall have the non-exclusive right to utilize the Building’s loading dock during the Term of this Lease on a “first come, first served” basis, provided that Tenant coordinates such usage with Landlord. In addition, Tenant shall have the non-exclusive right lo utilize the loading dock during Tenant’s early access period, on a “first
 
51

come, first served” basis, provided that such usage does not interfere with or otherwise hinder Landlord’s use thereof.
 
ARTICLE 41. SUBMISSION TO TENANT; LEASE COUNTERPARTS
 
41.1. Non-Binding Nature. The submission of an unsigned copy of this document to Tenant for Tenant’s consideration does not constitute an offer to tease the Demised Premises or an option to or for the Demised Premises. This document shall become effective and binding only upon the execution and delivery of this Lease by both Landlord and Tenant.
 
41.2. Tenant’s Option to Renew. This Lease may be executed in counterparts, each of which shall be deemed an original and all of which shall be considered one and the same agreement.
 
ARTICLE 42. RENEWAL OPTION
 
42.1. Tenant’s Option to Review. Provided that no Default by Tenant under this Lease shall have occurred and be continuing as of the date Tenant notifies Landlord of its election to extend the Term or as of the commencement date of the extended term, Tenant may extend the original Term as it relates to the Demised Premises for two (2) periods of five (5) years each, subject to the following terms and conditions:
 
(a) Tenant shall notify Landlord of its election to extend the Term by giving Landlord notice thereof not more than twenty-four (24) months and not less than eighteen (18) months prior to the expiration of the Term then in effect, if the Demised Premises shall then consist of fifty percent (50%) or more of the rentable square footage contained hi the Building, or not more than eighteen (18) months and not less than twelve (12) months prior to the expiration of the Term then in effect ,  if the Demised Premises shall then consist of less than fifty percent (50%) of the rentable square footage contained in the Building, TIME BEING STRICTLY OF THE ESSENCE. All of the provisions of this Lease (other than the amount of Net Base Rent payable hereunder and the provisions of the Work Letter) shall apply during the extension period.
 
(c) The annual Net Base Rent during the first extension period shall be the greater of (a) the annual Net Base Rent in effect during the twelve (12) month period preceding the commencement of such extension term and (b) the “fair market rent” (as defined below) for the Demised Premises as at the time of the commencement of the extended term, but not to exceed $33.75 per rentable square foot of the Demised Premises per annum.
 
(d) The annual Net Base Rent during the second extension period shall be ninety-five percent (95%) of the “fair market rent” for the Demised Premises as at the time of the commencement of the second extended term.
 
(e) The term “fair market rent” shall be the rent generally payable in Somerset County, New Jersey for equivalent space in an office building of approximately the saint quality, size and condition as the Building, giving due consideration to the fact that the Building is of first class design, the condition of the Demised Premises as improved, the location of the
 
52

Demised Premises in the Building, the length of the Term of the Lease, and all other factors that would be relevant to a third-party tenant desiring to lease the Demised Premises for the extended term, including without limitation whether Landlord is making an improvement allowance available for the extended term.
 
(f) Not later than twelve (12) months (or if the Demised Premises shall consist of less than fifty percent (50%) of the rentable square footage contained in the Building, not later than nine (9) months) prior to the expiration of the Term then in effect, Landlord shall notify Tenant of Landlord’s determination of the annual Net Base Rent during such extension period. If Tenant desires to dispute Landlord’s determination, Tenant shall, within thirty (30) days after receipt thereof submit to Landlord a written appraisal of the fair market rent for the Demised Premises by an appraiser who is a member of the American Institute of Real Estate Appraisers, having at least seven (7) years experience in appraising commercial real estate in Somerset County, New Jersey (a “Qualified Appraiser”). If Landlord disagrees with the fair market rent determined by Tenant’s Qualified Appraiser, it shall, within thirty (30) days of receipt of such appraisal, submit to Tenant a written appraisal of the fair market rent for the Demised Premises by a Qualified Appraiser selected by Landlord. If Landlord’s and Tenant’s Qualified Appraisers do not agree upon the fair market rent but are apart by less than live (5%) percent, then the fair market rents determined by both shall be averaged; otherwise, Landlord and the Tenant’s Qualified Appraiser shall mutually agree upon an independent Qualified Appraiser to determine such fair market rent. If the parties are unable to agree upon such independent appraiser, either party may request the American Arbitration Association in Somerset, New Jersey, to appoint such independent appraiser. The independent appraiser shall select either Landlord’s Qualified Appraiser’s determination of fair market rent or the fair market rent determined by Tenant’s Qualified Appraiser, which determination shall be binding upon both Landlord and Tenant. The parties shall be responsible for the cost of their own Qualified Appraiser and shall share equally in the cost of any independent third Qualified Appraiser. Pending resolution of the issue of fair market rent, Tenant shall pay to Landlord as of commencement of the extension term, the Net Base Rent as determined by Landlord. In the event that it is established that the Net Base Rent is less than the Net Base Rent paid by Tenant prior to a final determination under the preceding sentence, Landlord shall reimburse Tenant any overpayment of Net Base Rent within thirty (30) days of such final determination. In the event that it is established that the Net Base Rent is more than the Net Base Rent paid by Tenant prior to a final determination under the preceding sentence, Tenant shall pay to Landlord any deficiency amount of Net Base Rent within thirty (30) days of such final determination.
 
(g) Upon final determination of the Net Base Rent to be paid during either extension period as hereinabove provided, Landlord and Tenant shall enter into a lease amendment to reflect the same.
 
ARTICLE 43. SALE OF BUILDING
 
43.1. Sale of Building. If Landlord decides to sell the Property or the Complex during the Term, then Landlord will provide to Tenant notice of Landlord’s potential interest in selling the Property or the Complex (as the case may be) at least thirty (30) days prior to Landlord commencing to publicly market same for sale (“Freeze Period”). At the time of such notice to
 
53

Tenant, Landlord will provide Tenant with any marketing materials (which may be in draft form) that Landlord then intends to make generally available to potential purchasers of the Property or the Complex (as the case may be) following the expiration of the Freeze Period. Nothing contained herein shall be deemed to grant Tenant an option to purchase the Property or the Complex, or a right of first refusal, it being the intention of the panics that the provision of this Article 43 is for the sole purpose of providing Tenant with notice of Landlord’s intention to market the Property or the Complex (as the case may be) for sale and an opportunity, to be exercised within the Freeze Period, TIME BEING STRICTLY OF THE ESSENCE, to submit to Landlord for Landlord’s consideration, in Landlord’s sole discretion, a proposal to purchase same .  The foregoing notice requirement shall not apply to any transfer of less than all of the Property, or to any transfer of the Property or the Complex by Landlord to any Affiliate of Landlord, or to any unsolicited offer Landlord may receive. This notice requirement is for the personal benefit of Aventis Pharmaceuticals Inc., any Related Entity or any Successor Entity thereto, and may not be exercised or assigned, voluntarily or involuntarily, by or to any other person or entity other than Aventis Pharmaceuticals Inc., any Related Entity or any Successor Entity thereto.
 
ARTICLE 44. LEASE GUARANTY
 
44.1. Lease Guaranty. The obligations of Tenant pursuant to this Lease shall be guaranteed by Aventis Pharma AG, a German corporation (“Guarantor”), pursuant to the terms of the Lease Guaranty attached hereto as  Exhibit “F’ . Tenant shall deliver to Landlord the executed Guaranty, together with an opinion of Tenant’s counsel as may be required by Landlord confirming the enforceability of the Guaranty, simultaneously with Tenant’s execution and delivery of this Lease.
 
ARTICLE 45. ARBITRATION
 
45.1. In any case in which this Lease expressly provides that a matter is to be determined by arbitration and does not otherwise provide a mechanism for arbitration, such arbitration shall be conducted in the City of Newark, New Jersey, in accordance with the Commercial Arbitration Rules (Expedited Procedures) of the AAA, except that the provisions oft his Article 45 shall supersede any conflicting or inconsistent provisions of said rules. The party requesting arbitration shall do so by giving notice to that effect to the other party, specifying in said notice the nature of the dispute, and that said dispute shall be determined in Newark, by a panel of up to 3 arbitrators in accordance with this Article 45. Landlord and Tenant shall each appoint their own arbitrator within 20 days after the giving of notice by either party. If either Landlord or Tenant shall fail timely to appoint an arbitrator, the appointed arbitrator shall select the second arbitrator, who shall be impartial, within 20 days after such party’s failure to appoint. The arbitrators so appointed shall meet and shall, if possible, determine such matter within 10 days after the second arbitrator is appointed and their determination shall be binding on the parties. If for any reason such two arbitrators fail to agree on such matter within such period of 10 days, then either Landlord or Tenant may request the AAA to appoint an arbitrator who shall be impartial within 30 days of such request and both parties shall be bound by any appointment so made within such 30 day period. The third arbitrator (and the second arbitrator if selected by the other arbitrator as provided above) shall subscribe and swear to an oath fairly and impartially
 
54

to determine such dispute. Within 7 days after the third arbitrator has been appointed, each of the first two arbitrators shall submit their respective determinations to the third arbitrator who must select one or the other of such determinations (whichever the third arbitrator believes to he correct or closest to a correct determination) within 7 days after the first two arbitrators shall have submitted their respective determinations to the third arbitrator, and the selection so made shall in all cases be binding upon the parties, and judgment upon such decision may be entered into any court having jurisdiction. In the event of the failure, refusal or inability of an arbitrator to act, a successor shall be appointed within 10 days as hereinbefore provided. The third arbitrator shall be experienced in the issue with which the arbitration is concerned and shall have been actively engaged in such field for a period of at least 10 years before the date of his or her appointment hereunder. If the second arbitrator is appointed by the first arbitrator as provided above such second arbitrator shall also be experienced in the issue with which the arbitration is concerned and have been actively engaged in such field for a period of at least 10 years before the date of his or her appointment hereunder. The third arbitrator shall apply the laws of the State of New Jersey without giving effect to any principles of conflicts of laws. The third arbitrator shall schedule a hearing where the parties and their advocates shall have the right to present evidence, call witnesses and experts and cross-examine the other party’s witnesses and experts. The losing party shall pay the fees and expenses of all arbitrators acting under this Article 45.
 
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IN WITNESS WHEREOF, the parties have caused these presents to be duly executed as a sealed instrument as of the day and year first above written.
 
WITNESS/ATTEST:	  	LANDLORD:	
 	 	
 	  	BRIDGEWATER HINES DEVELOPMENT LLC	
 	 	
/s/ (Illegible)

	  	By:     /s/ Tom Owens

	
 	  	 	 	Name: Tom Owens

	
 	  	 	 	Title:   S.V.P.

	
 	 	
WITNESS/ATTEST:	  	TENANT:	
 	 	
 	  	AVENTIS PHARMACEUTICALS INC.	

	  	By:

	
 	  	 	 	Name:

	
 	  	 	 	Title:

	
 
56

IN WITNESS WHEREOF, the parties have caused these presents to be duly executed as a sealed instrument as of the day and year first above written.
 
WITNESS/ATTEST:	  	LANDLORD:	
 	 	
 	  	BRIDGEWATER HINES DEVELOPMENT LLC	

	  	By:

	
 	  	 	 	Name:

	
 	  	 	 	Title:

	
 	 	
WITNESS/ATTEST:	  	TENANT:	
 	 	
 	  	AVENTIS PHARMACEUTICALS INC.	
 	 	
/s/ Owen K. Ball, Jr.

	  	By:     /s/ Gerald P. Belle

	
 	  	 	 	Name: Gerald P. Belle

	
 	  	 	 	Title:    President

	

57

EXHIBIT 23.3
 
CONSENT OF ERNST & YOUNG LLP

Consent of Independent Auditors
 
We consent to the reference to our firm under the captions “Financial Statements” and to the use of our reports dated January 24, 2003 on the consolidated financial statements and schedule of Wells Real Estate Investment Trust, Inc.; dated September 26, 2002 on the Statement of Revenues Over Certain Operating Expenses for the IRS Long Island Buildings; dated October 21, 2002 on the Statement of Revenues Over Certain Operating Expenses for the Harcourt Austin Building; dated November 26, 2002 on the Statement of Revenues Over Certain Operating Expenses for the NASA Buildings; dated November 26, 2002 on the Statement of Revenues Over Certain Operating Expenses for the Caterpillar Nashville Building; dated January 21, 2003 on the Statement of Revenues Over Certain Operating Expenses for the Nestle Building; dated May 5, 2003 on the Statement of Revenues over Certain Operating Expenses for the US Bancorp Minneapolis Building; dated May 9, 2003 on the Statement of Revenues over Certain Operating Expenses for the Aon Center Chicago Building; dated August 8, 2003 on the Statement of Revenues over Certain Operating Expenses for the Cingular Atlanta Building; dated August 14, 2003 on the Statement of Revenues over Certain Operating Expenses for the Lockheed Martin Rockville Buildings; and dated August 20, 2003 on the Statement of Revenues over Certain Operating Expenses for the Aventis Northern NJ Building in Post-Effective Amendment No. 5 to the Registration Statement (Form S-11 No. 333-85848) and related Prospectus of Wells Real Estate Investment Trust, Inc. for the registration of 330,000,000 shares of its common stock.
 
/s/ Ernst & Young LLP
 
Atlanta, Georgia
September 15, 2003

EXHIBIT 23.4
 
CONSENT OF ERNST & YOUNG LLP

Consent of Independent Auditors
 
We consent to the reference to our firm under the caption “Financial Statements” and to the use of our report dated January 31, 2002 on the Statement of Revenues over Certain Operating Expenses for the KeyBank Parsippany Building, in Post-Effective Amendment No. 5 to the Registration Statement (Form S-11 No. 333-85848) and related Prospectus of Wells Real Estate Investment Trust, Inc. for the registration of 330,000,000 shares of its common stock.
 
/s/ Ernst & Young LLP
 
New York, New York
September 15, 2003

EXHIBIT 24.1
 
POWER OF ATTORNEY

POWER OF ATTORNEY
 
Each person whose signature appears below hereby constitutes and appoints Leo F. Wells, III and Douglas P. Williams, or either of them acting singly, as his true and lawful attorney-in-fact, for him and in his name, place and stead, to execute and sign any and all amendments, including any post-effective amendments, to the Registration Statement on Form S-11 of Wells Real Estate Investment Trust, Inc. or any additional Registration Statement filed pursuant to Rule 462 and to cause the same to be filed with the Securities and Exchange Commission hereby granting to said attorneys-in-fact and each of them full power and authority to do and perform all and every act and thing whatsoever requisite or desirable to be done in and about the premises as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all acts and things that said attorneys-in-fact or either of them may do or cause to be done by virtue of these presents.
 
Pursuant to the requirements of the Securities Act of 1933, as amended, this Power of Attorney has been signed below, effective as of April 20, 2003, by the following persons and in the capacities indicated below.
 
Signatures

	  	Title

	
 	 	
/s/ Leo F. Wells, III

Leo F. Wells, III	  	President and Director
(Principal Executive Officer)	
 	 	
/s/ Douglas P. Williams

Douglas P. Williams	  	Executive Vice President and Director
(Principal Financial and Accounting Officer)	
 	 	
/s/ John L. Bell

John L. Bell	  	Director	
 	 	
/s/ Michael R. Buchanan

Michael R. Buchanan	  	Director	
 	 	
/s/ Richard W. Carpenter

Richard W. Carpenter	  	Director	
 	 	
/s/ Bud Carter

Bud Carter	  	Director	
 	 	
/s/ William H. Keogler, Jr.

William H. Keogler, Jr.	  	Director	
 	 	
/s/ Donald S. Moss

Donald S. Moss	  	Director	
 	 	
/s/ Walter W. Sessoms

Walter W. Sessoms	  	Director	
 	 	
/s/ Neil H. Strickland

Neil H. Strickland	  	Director	

EXHIBIT 24.2
 
POWER OF ATTORNEY

POWER OF ATTORNEY
 
The person whose signature appears below hereby constitutes and appoints Leo F. Wells, III and Douglas P. Williams, or either of them acting singly, as his true and lawful attorney-in-fact, for him and in his name, place and stead, to execute and sign any and all amendments, including any post-effective amendments, to the Registration Statement on Form S-11 of Wells Real Estate Investment Trust, Inc. or any additional Registration Statement filed pursuant to Rule 462 and to cause the same to be filed with the Securities and Exchange Commission hereby granting to said attorneys-in-fact and each of them full power and authority to do and perform all and every act and thing whatsoever requisite or desirable to be done in and about the premises as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all acts and things that said attorneys-in-fact or either of them may do or cause to be done by virtue of these presents.
 
Pursuant to the requirements of the Securities Act of 1933, as amended, this Power of Attorney has been signed below, effective as of July 25, 2003, by the following person and in the capacity indicated below.
 
Signatures

	  	Title

	
 	 	
/s/ W. Wayne Woody

	  	Director	
W. Wayne Woody