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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)

| | x |  | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
| | - |  | ---------------------------------------------------------------------------------------



For the quarterly period ended September 30, 2005



OR



| |  ̈ |  | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
| | - |  | ----------------------------------------------------------------------------------------



For the transition period from
 to



Commission file number 000-51262



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WELLS REAL ESTATE INVESTMENT TRUST II, INC.

(Exact name of registrant as
specified in its charter)



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|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Maryland                                                       |  | 20-0068852                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)



6200 The Corners
Parkway,

Norcross, Georgia 30092

(Address of principal executive offices)

(Zip Code)



(770) 449-7800

(Registrants telephone number, including area code)



N/A

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(Former name, former address, and former fiscal year, if changed since last report)



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Number of shares outstanding of the registrants

only class of common stock, as of October 31, 2005: 184,181,130 shares



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



Yes  x    No ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act).



Yes ̈No  x



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).



Yes ̈No  x



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##### Table of Contents

FORM 10-Q



WELLS REAL ESTATE
INVESTMENT TRUST II, INC.



TABLE OF CONTENTS



|         |  |                       |  |                                                                                                                                              |  |         
|-------- |  | --------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------- |  | --------
|         |  |                       |  |                                                                                                                                              |  | Page No.
|PART I.  |  | FINANCIAL INFORMATION |  |                                                                                                                                             
|         |  |                       | 
|         |  | Item 1.               |  | Consolidated Financial Statements                                                                                                            |  |         
|         |  |                       | 
|         |  |                       |  | Consolidated Balance SheetsSeptember 30, 2005 (unaudited) andDecember 31, 2004                                                              |  | 6       
|         |  |                       | 
|         |  |                       |  | Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2005 (unaudited) and 2004 (unaudited)         |  | 7       
|         |  |                       | 
|         |  |                       |  | Consolidated Statements of Stockholders Equity for the Year EndedDecember 31, 2004 and the Nine Months Ended September 30, 2005 (unaudited) |  | 8       
|         |  |                       | 
|         |  |                       |  | Consolidated Statements of Cash Flows for the Nine Months EndedSeptember 30, 2005 (unaudited) and 2004 (unaudited)                           |  | 9       
|         |  |                       | 
|         |  |                       |  | Condensed Notes to Consolidated Financial Statements (unaudited)                                                                             |  | 10      
|         |  |                       | 
|         |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition andResults of Operations                                                         |  | 21      
|         |  |                       | 
|         |  | Item 3.               |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                   |  | 32      
|         |  |                       | 
|         |  | Item 4.               |  | Controls and Procedures                                                                                                                      |  | 32      
|         |  |                      
|PART II. |  | OTHER INFORMATION     |  |                                                                                                                                             
|         |  |                       | 
|         |  | Item 1.               |  | Legal Proceedings                                                                                                                            |  | 33      
|         |  |                       | 
|         |  | Item 2.               |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                                  |  | 33      
|         |  |                       | 
|         |  | Item 3.               |  | Defaults Upon Senior Securities                                                                                                              |  | 33      
|         |  |                       | 
|         |  | Item 4.               |  | Submission of Matters to a Vote of Security Holders                                                                                          |  | 34      
|         |  |                       | 
|         |  | Item 5.               |  | Other Information                                                                                                                            |  | 34      
|         |  |                       | 
|         |  | Item 6.               |  | Exhibits                                                                                                                                     |  | 34      



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Forward-Looking Statements



Certain statements contained in this Form 10-Q of Wells Real Estate Investment Trust II, Inc. (Wells REIT II) other than
historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend for all such forward-looking statements to be
covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as applicable by law. Such statements include, in
particular, statements about our plans, strategies, and prospects and are subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated.
Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as may, will,
expect, intend, anticipate, estimate, believe, continue, or other similar words. Readers are cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date this report is filed with the Securities and Exchange Commission. We make no representations or warranties (express or implied) about the accuracy of any such forward-looking statements contained in this Form 10-Q, and we
do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.



Any such forward-looking statements are subject to unknown risks, uncertainties, and other factors and are based on a number of assumptions involving judgments with
respect to, among other things, future economic, competitive, and market conditions, all of which are difficult or impossible to predict accurately. To the extent that our assumptions differ from actual results, our ability to meet such
forward-looking statements, including our ability to generate positive cash flow from operations, provide dividends to stockholders, and maintain the value of our real estate properties, may be significantly hindered. Following are some of the risks
and uncertainties, although not all risks and uncertainties, which could cause actual results to differ materially from those presented in our forward-looking statements:



General economic risks



| |  |  | Adverse changes in general economic conditions or local conditions;
| | - |  | -------------------------------------------------------------------



| |  |  | Adverse economic conditions affecting the particular industry of one or more of our tenants;
| | - |  | --------------------------------------------------------------------------------------------



Enterprise risks



| |  |  | Our dependency on Wells Capital, Inc. (the Advisor) and its affiliates and their key personnel for various administrative services;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Advisors ability to attract and retain high-quality personnel who can provide acceptable service levels and generate economies of scale over time;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



Real estate risks



| |  |  | Our ability to achieve appropriate occupancy levels resulting in sufficient rental amounts;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | Supply of or demand for similar or competing rentable space, which may impact our ability to retain or obtain new tenants upon lease expiration at acceptable rental amounts;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Tenant ability or willingness to satisfy obligations relating to our lease agreements;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | Higher than expected property operating expenses, including property taxes, insurance, property management fees, and other costs at our properties;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our ability to secure adequate insurance at reasonable and appropriate rates to avoid uninsured losses or losses in excess of insured amounts;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Discovery of previously undetected environmentally hazardous or other defects or adverse conditions at our properties;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  |  | Our ability to invest stockholder proceeds to acquire properties at appropriate amounts that provide acceptable returns;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | Our ability to fund foreseen and unforeseen capital expenditures, including those related to tenant build-out projects, tenant improvements and lease-up costs, out of operating cash
flow;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our ability to sell a property when desirable at an acceptable return, including the ability of the purchaser to satisfy any continuing obligations to us;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



Financing and equity risks



| |  |  | Our continued access to adequate credit facilities and ability to refinance such facilities as appropriate;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | Our ability to pay amounts to our lenders and distributions to our stockholders;
| | - |  | --------------------------------------------------------------------------------



| |  |  | Increases in interest rates related to our variable rate debt;
| | - |  | --------------------------------------------------------------



| |  |  | Lender-required restrictive covenants relating to our operations, and our ability to satisfy such restrictions;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | Our ability to raise capital through our ongoing offering of common shares and our dividend reinvestment plan;
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | Potential changes to our share redemption program or dividend reinvestment plan;
| | - |  | --------------------------------------------------------------------------------



| |  |  | The amount of shares redeemed or prices paid in future periods to redeem shares under the share redemption program, as approved by our board of directors;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Possible limitations on our ability to borrow funds in the future that may result from our participation in the Wells Section 1031 Exchange Program sponsored by affiliates of
the Advisor;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Other operational risks



| |  |  | Our reliance on third parties to appropriately manage our properties;
| | - |  | ---------------------------------------------------------------------



| |  |  | Our ability to continue to qualify as a REIT for tax purposes;
| | - |  | --------------------------------------------------------------



| |  |  | Higher than expected administrative operating expenses, including expenses associated with operating as a public company;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | Our ability to comply with governmental, tax, real estate, environmental, and zoning laws and regulations and the related costs of compliance;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our ability to generate sufficient cash flow from operations to be able to maintain our dividend at its current level.
| | - |  | ----------------------------------------------------------------------------------------------------------------------



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|PART I. | FINANCIAL STATEMENTS
|------- | --------------------



The information furnished in the accompanying consolidated balance sheets and consolidated statements of operations, stockholders equity, and cash flows reflects all adjustments that are, in our opinion,
necessary for a fair and consistent presentation of the aforementioned financial statements.



The financial statements should be read in conjunction with the notes to Wells REIT IIs financial statements and Managements Discussion and Analysis of Financial Condition and Results of Operations
included in this report on Form 10-Q and with Wells REIT IIs Annual Report on Form 10-K for the year ended December 31, 2004. Wells REIT IIs results of operations for the three months and nine months ended September 30, 2005
are not necessarily indicative of the operating results expected for the full year.



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WELLS REAL ESTATE INVESTMENT TRUST II, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except for share and per share amounts)



|                                                                                                                                                                                        |  |                                |           |   |                   |   |           |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | --------- | - | ----------------- | - | --------- | -
|                                                                                                                                                                                        |  | September 30, 2005 (unaudited) |           |   | December 31, 2004 |  
|Assets:                                                                                                                                                                                 |  |                                |           |   |                   |   |           |  
|Real estate assets, at cost:                                                                                                                                                            |  |                                |           |   |                   |   |           |  
|Land                                                                                                                                                                                    |  | $                              | 244,320   |   |                   | $ | 152,399   |  
|Buildings and improvements, less accumulated depreciation of $23,229 and $7,456 as of September 30, 2005 and December 31, 2004,
respectively                                            |  |                                | 1,176,125 |   |                   |   | 616,201   |  
|Intangible lease assets, less accumulated amortization of $32,654 and $9,453 as of September 30, 2005 and December 31, 2004,
respectively                                               |  |                                | 267,571   |   |                   |   | 169,443   |  
|Construction in progress                                                                                                                                                                |  |                                | 438       |   |                   |   | 447       |  
|                                                                                                                                                                                        |  |                                |           |   |                   |   |           |  
|Total real estate assets                                                                                                                                                                |  |                                | 1,688,454 |   |                   |   | 938,490   |  
|                                                                                                                                                                                        |  |                               
|Cash and cash equivalents                                                                                                                                                               |  |                                | 152,014   |   |                   |   | 20,876    |  
|Tenant receivables, net of allowance for doubtful accounts of $711 and $432 as of September 30, 2005 and December 31, 2004,
respectively                                                |  |                                | 18,438    |   |                   |   | 7,500     |  
|Prepaid expenses and other assets                                                                                                                                                       |  |                                | 44,573    |   |                   |   | 4,769     |  
|Deferred financing costs, less accumulated amortization of $366 and $311 as of September 30, 2005 and December 31, 2004,
respectively                                                   |  |                                | 3,265     |   |                   |   | 977       |  
|Deferred lease costs, less accumulated amortization of $15,641 and $4,685 as of September 30, 2005 and December 31, 2004,
respectively                                                  |  |                                | 178,908   |   |                   |   | 105,153   |  
|Investment in bonds                                                                                                                                                                     |  |                                | 78,000    |   |                   |   | 78,000    |  
|                                                                                                                                                                                        |  |                                |           |   |                   |   |           |  
|Total assets                                                                                                                                                                            |  | $                              | 2,163,652 |   |                   | $ | 1,155,765 |  
|                                                                                                                                                                                        |  |                                |           |   |                   |   |           |  
|Liabilities:                                                                                                                                                                            |  |                                |           |   |                   |   |           |  
|Line of credit and notes payable                                                                                                                                                        |  | $                              | 510,110   |   |                   | $ | 350,505   |  
|Accounts payable, accrued expenses and accrued capital expenditures                                                                                                                     |  |                                | 19,357    |   |                   |   | 11,664    |  
|Due to affiliates                                                                                                                                                                       |  |                                | 3,238     |   |                   |   | 9,823     |  
|Dividends payable                                                                                                                                                                       |  |                                | 4,266     |   |                   |   | 1,964     |  
|Deferred income                                                                                                                                                                         |  |                                | 4,727     |   |                   |   | 1,408     |  
|Intangible lease liabilities, less accumulated amortization of $2,691 and $716 as of September 30, 2005 and December 31, 2004,
respectively                                             |  |                                | 54,674    |   |                   |   | 24,074    |  
|Obligations under capital leases                                                                                                                                                        |  |                                | 78,000    |   |                   |   | 78,000    |  
|                                                                                                                                                                                        |  |                                |           |   |                   |   |           |  
|Total liabilities                                                                                                                                                                       |  |                                | 674,372   |   |                   |   | 477,438   |  
|                                                                                                                                                                                        |  |                               
|Commitments and Contingencies                                                                                                                                                           |  |                                |          |   |                   |   |          |  
|                                                                                                                                                                                        |  |                               
|Minority Interest                                                                                                                                                                       |  |                                | 2,541     |   |                   |   | 1,212     |  
|                                                                                                                                                                                        |  |                               
|Redeemable Common Stock                                                                                                                                                                 |  |                                | 17,739    |   |                   |   |          |  
|                                                                                                                                                                                        |  |                               
|Stockholders Equity:                                                                                                                                                                   |  |                                |           |   |                   |   |           |  
|Preferred stock, $0.01 par value; 100,000,000 shares authorized; and none outstanding                                                                                                   |  |                                |          |   |                   |   |          |  
|Common stock, $0.01 par value; 900,000,000 shares authorized; and 175,478,398 and 79,132,494 shares issued and outstanding as of
September 30, 2005 and December 31, 2004, respectively |  |                                | 1,755     |   |                   |   | 791       |  
|Additional paid-in capital                                                                                                                                                              |  |                                | 1,556,125 |   |                   |   | 699,463   |  
|Cumulative distributions in excess of earnings                                                                                                                                          |  |                                | (71,141   | ) |                   |   | (23,139   | )
|Redeemable common stock                                                                                                                                                                 |  |                                | (17,739   | ) |                   |   |          |  
|                                                                                                                                                                                        |  |                                |           |   |                   |   |           |  
|Total stockholders equity                                                                                                                                                              |  |                                | 1,469,000 |   |                   |   | 677,115   |  
|                                                                                                                                                                                        |  |                                |           |   |                   |   |           |  
|Total liabilities, minority interest, redeemable common stock, and stockholders equity                                                                                                 |  | $                              | 2,163,652 |   |                   | $ | 1,155,765 |  
|                                                                                                                                                                                        |  |                                |           |   |                   |   |           |  



See accompanying
notes.



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##### Table of Contents

WELLS REAL ESTATE INVESTMENT TRUST II, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except for share and per share amounts)



|                                                                  |  |                                             |             |      |                                            |            |      |  |      |             |  |   |            |  
|----------------------------------------------------------------- |  | ------------------------------------------- | ----------- | ---- | ------------------------------------------ | ---------- | ---- |  | ---- | ----------- |  | - | ---------- | -
|                                                                  |  | (unaudited) Three Months EndedSeptember 30, |             |      | (unaudited) Nine Months EndedSeptember 30, |           
|                                                                  |  | 2005                                        |             | 2004 |                                            |            | 2005 |  | 2004 |            
|Revenues:                                                         |  |                                             |             |      |                                            |            |      |  |      |             |  |   |            |  
|Rental income                                                     |  | $                                           | 35,795      |      | $                                          | 15,191     |      |  | $    | 90,675      |  | $ | 20,743     |  
|Tenant reimbursements                                             |  |                                             | 8,538       |      |                                            | 2,238      |      |  |      | 19,683      |  |   | 3,174      |  
|Interest and other income                                         |  |                                             | 2,833       |      |                                            | 1,259      |      |  |      | 5,707       |  |   | 1,679      |  
|                                                                  |  |                                             |             |      |                                            |            |      |  |      |             |  |   |            |  
|                                                                  |  |                                             | 47,166      |      |                                            | 18,688     |      |  |      | 116,065     |  |   | 25,596     |  
|Expenses:                                                         |  |                                             |             |      |                                            |            |      |  |      |             |  |   |            |  
|Property operating costs                                          |  |                                             | 13,122      |      |                                            | 4,668      |      |  |      | 31,259      |  |   | 6,196      |  
|Asset and property management fees:                               |  |                                             |             |      |                                            |            |      |  |      |             |  |   |            |  
|Related party                                                     |  |                                             | 2,882       |      |                                            | 1,042      |      |  |      | 7,159       |  |   | 1,346      |  
|Other                                                             |  |                                             | 635         |      |                                            | 218        |      |  |      | 1,741       |  |   | 346        |  
|Depreciation                                                      |  |                                             | 6,542       |      |                                            | 2,386      |      |  |      | 15,773      |  |   | 3,743      |  
|Amortization                                                      |  |                                             | 11,655      |      |                                            | 4,197      |      |  |      | 29,659      |  |   | 5,524      |  
|General and administrative                                        |  |                                             | 1,523       |      |                                            | 1,170      |      |  |      | 6,134       |  |   | 2,535      |  
|Interest expense                                                  |  |                                             | 5,478       |      |                                            | 6,663      |      |  |      | 16,667      |  |   | 10,516     |  
|                                                                  |  |                                             |             |      |                                            |            |      |  |      |             |  |   |            |  
|                                                                  |  |                                             | 41,837      |      |                                            | 20,344     |      |  |      | 108,392     |  |   | 30,206     |  
|                                                                  |  |                                             |             |      |                                            |            |      |  |      |             |  |   |            |  
|Income (loss) before minority interest                            |  |                                             | 5,329       |      |                                            | (1,656     | )    |  |      | 7,673       |  |   | (4,610     | )
|                                                                  |  |                                             |             |     
|Minority interest in earnings (loss) of consolidated subsidiaries |  |                                             | 83          |      |                                            |           |      |  |      | 189         |  |   | (7         | )
|                                                                  |  |                                             |             |      |                                            |            |      |  |      |             |  |   |            |  
|Net income (loss)                                                 |  | $                                           | 5,246       |      | $                                          | (1,656     | )    |  | $    | 7,484       |  | $ | (4,603     | )
|                                                                  |  |                                             |             |      |                                            |            |      |  |      |             |  |   |            |  
|Net income (loss) per sharebasic and diluted                     |  | $                                           | 0.03        |      | $                                          | (0.04      | )    |  | $    | 0.06        |  | $ | (0.23      | )
|                                                                  |  |                                             |             |      |                                            |            |      |  |      |             |  |   |            |  
|Weighted-average shares outstandingbasic and diluted             |  |                                             | 161,769,791 |      |                                            | 41,501,631 |      |  |      | 123,903,337 |  |   | 19,608,662 |  
|                                                                  |  |                                             |             |      |                                            |            |      |  |      |             |  |   |            |  



See accompanying
notes.



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##### Table of Contents

WELLS REAL ESTATE INVESTMENT TRUST II, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2004

AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 (UNAUDITED)

(in thousands, except per share amounts)



|                                                                         |  |              |   |  |                            |       |   |                                                |   |           |                        |  |   |                            |   |  |   |         |   |  |   |           |  
|------------------------------------------------------------------------ |  | ------------ | - |  | -------------------------- | ----- | - | ---------------------------------------------- | - | --------- | ---------------------- |  | - | -------------------------- | - |  | - | ------- | - |  | - | --------- | -
|                                                                         |  | Common Stock |   |  | Additional Paid-In Capital |       |   | Cumulative Distributions in Excess of Earnings |   |           | Redeemable CommonStock |  |   | Total Stockholders Equity |  
|                                                                         |  | Shares       |   |  | Amount                     |       |   |                                                |   |          
|Balance, December 31, 2003                                               |  |             |   |  | $                          |      |   |                                                | $ | 1         |                        |  | $ |                           |   |  | $ |        |   |  | $ | 1         |  
|Issuance of common stock                                                 |  | 79,201       |   |  |                            | 792   |   |                                                |   | 791,220   |                        |  |   |                           |   |  |   |        |   |  |   | 792,012   |  
|Redemptions of common stock                                              |  | (69          | ) |  |                            | (1    | ) |                                                |   | (689      | )                      |  |   |                           |   |  |   |        |   |  |   | (690      | )
|Dividends ($0.49 per share)                                              |  |             |   |  |                            |      |   |                                                |   |          |                        |  |   | (18,577                    | ) |  |   |        |   |  |   | (18,577   | )
|Commissions and discounts on stock sales and related dealer-manager fees |  |             |   |  |                            |      |   |                                                |   | (75,241   | )                      |  |   |                           |   |  |   |        |   |  |   | (75,241   | )
|Other offering costs                                                     |  |             |   |  |                            |      |   |                                                |   | (15,828   | )                      |  |   |                           |   |  |   |        |   |  |   | (15,828   | )
|Net loss                                                                 |  |             |   |  |                            |      |   |                                                |   |          |                        |  |   | (4,562                     | ) |  |   |        |   |  |   | (4,562    | )
|                                                                         |  |              |   |  |                            |       |   |                                                |   |           |                        |  |   |                            |   |  |   |         |   |  |   |           |  
|Balance, December 31, 2004                                               |  | 79,132       |   |  |                            | 791   |   |                                                |   | 699,463   |                        |  |   | (23,139                    | ) |  |   |        |   |  |   | 677,115   |  
|Issuance of common stock                                                 |  | 97,429       |   |  |                            | 975   |   |                                                |   | 973,313   |                        |  |   |                           |   |  |   |        |   |  |   | 974,288   |  
|Redemptions of common stock                                              |  | (1,083       | ) |  |                            | (11   | ) |                                                |   | (10,388   | )                      |  |   |                           |   |  |   |        |   |  |   | (10,399   | )
|Redeemable common stock                                                  |  |             |   |  |                            |      |   |                                                |   |          |                        |  |   |                           |   |  |   | (17,739 | ) |  |   | (17,739   | )
|Dividends ($0.45 per share)                                              |  |             |   |  |                            |      |   |                                                |   |          |                        |  |   | (55,486                    | ) |  |   |        |   |  |   | (55,486   | )
|Commissions and discounts on stock sales and related dealer-manager fees |  |             |   |  |                            |      |   |                                                |   | (92,557   | )                      |  |   |                           |   |  |   |        |   |  |   | (92,557   | )
|Other offering costs                                                     |  |             |   |  |                            |      |   |                                                |   | (13,706   | )                      |  |   |                           |   |  |   |        |   |  |   | (13,706   | )
|Net income                                                               |  |             |   |  |                            |      |   |                                                |   |          |                        |  |   | 7,484                      |   |  |   |        |   |  |   | 7,484     |  
|                                                                         |  |              |   |  |                            |       |   |                                                |   |           |                        |  |   |                            |   |  |   |         |   |  |   |           |  
|Balance, September 30, 2005                                              |  | 175,478      |   |  | $                          | 1,755 |   |                                                | $ | 1,556,125 |                        |  | $ | (71,141                    | ) |  | $ | (17,739 | ) |  | $ | 1,469,000 |  
|                                                                         |  |              |   |  |                            |       |   |                                                |   |           |                        |  |   |                            |   |  |   |         |   |  |   |           |  



See accompanying
notes.



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WELLS REAL ESTATE INVESTMENT TRUST II, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                            |  |                                             |          |   |      |   |          |  
|------------------------------------------------------------------------------------------- |  | ------------------------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                            |  | (unaudited) Nine Months Ended September 30, |         
|                                                                                            |  | 2005                                        |          |   | 2004 |  
|Cash Flows from Operating Activities:                                                       |  |                                             |          |   |      |   |          |  
|Net income (loss)                                                                           |  | $                                           | 7,484    |   |      | $ | (4,603   | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities:    |  |                                             |          |   |      |   |          |  
|Minority interest in earnings (loss) of consolidated entities                               |  |                                             | 189      |   |      |   | (7       | )
|Depreciation                                                                                |  |                                             | 15,773   |   |      |   | 3,743    |  
|Amortization                                                                                |  |                                             | 33,813   |   |      |   | 10,687   |  
|Changes in assets and liabilities:                                                          |  |                                             |          |   |      |   |          |  
|Increase in tenant receivables, net                                                         |  |                                             | (10,938  | ) |      |   | (4,154   | )
|Increase in prepaid expenses and other assets                                               |  |                                             | (6,251   | ) |      |   | (2,263   | )
|Increase in accounts payable and accrued expenses                                           |  |                                             | 1,144    |   |      |   | 4,858    |  
|Decrease in due to affiliates                                                               |  |                                             | (77      | ) |      |   |         |  
|Increase in deferred income                                                                 |  |                                             | 3,319    |   |      |   | 603      |  
|                                                                                            |  |                                             |          |   |      |   |          |  
|Total adjustments                                                                           |  |                                             | 36,972   |   |      |   | 13,467   |  
|                                                                                            |  |                                             |          |   |      |   |          |  
|Net cash provided by operating activities                                                   |  |                                             | 44,456   |   |      |   | 8,864    |  
|                                                                                            |  |                                             |          |   |      |   |          |  
|                                                                                            |  |                                            
|Cash Flows from Investment Activities:                                                      |  |                                             |          |   |      |   |          |  
|Investment in real estate                                                                   |  |                                             | (693,103 | ) |      |   | (732,989 | )
|Proceeds from master leases                                                                 |  |                                             | 15,094   |   |      |   |          |  
|Earnest money paid                                                                          |  |                                             | (19,488  | ) |      |   | (10,300  | )
|Acquisition fees paid                                                                       |  |                                             | (22,832  | ) |      |   | (10,603  | )
|Deferred lease costs paid                                                                   |  |                                             | (2,214   | ) |      |   |         |  
|                                                                                            |  |                                             |          |   |      |   |          |  
|Net cash used in investing activities                                                       |  |                                             | (722,543 | ) |      |   | (753,892 | )
|                                                                                            |  |                                             |          |   |      |   |          |  
|                                                                                            |  |                                            
|Cash Flows from Financing Activities:                                                       |  |                                             |          |   |      |   |          |  
|Deferred financing costs paid                                                               |  |                                             | (3,437   | ) |      |   | (5,095   | )
|Proceeds from lines of credit and notes payable                                             |  |                                             | 347,887  |   |      |   | 608,667  |  
|Repayments of lines of credit and notes payable                                             |  |                                             | (336,406 | ) |      |   | (308,855 | )
|Dividends paid to stockholders                                                              |  |                                             | (53,184  | ) |      |   | (7,275   | )
|Distributions paid to minority interest partner                                             |  |                                             | (160     | ) |      |   |         |  
|Issuance of common stock                                                                    |  |                                             | 971,221  |   |      |   | 544,567  |  
|Commissions on stock sales and related dealer-manager fees paid                             |  |                                             | (89,692  | ) |      |   | (51,235  | )
|Other offering costs paid                                                                   |  |                                             | (16,605  | ) |      |   | (10,603  | )
|Redemptions of common stock                                                                 |  |                                             | (10,399  | ) |      |   | (341     | )
|                                                                                            |  |                                             |          |   |      |   |          |  
|Net cash provided by financing activities                                                   |  |                                             | 809,225  |   |      |   | 769,830  |  
|                                                                                            |  |                                             |          |   |      |   |          |  
|                                                                                            |  |                                            
|Net increase in cash and cash equivalents                                                   |  |                                             | 131,138  |   |      |   | 24,802   |  
|Cash and cash equivalents, beginning of period                                              |  |                                             | 20,876   |   |      |   | 157      |  
|                                                                                            |  |                                             |          |   |      |   |          |  
|Cash and cash equivalents, end of period                                                    |  | $                                           | 152,014  |   |      | $ | 24,959   |  
|                                                                                            |  |                                             |          |   |      |   |          |  
|                                                                                            |  |                                            
|Supplemental Disclosures of Investing and Financing Noncash Activities:                     |  |                                             |          |   |      |   |          |  
|Acquisition fees applied to investments                                                     |  | $                                           | 18,107   |   |      | $ | 9,955    |  
|                                                                                            |  |                                             |          |   |      |   |          |  
|Acquisition fees due to affiliate                                                           |  | $                                           | 351      |   |      | $ | 289      |  
|                                                                                            |  |                                             |          |   |      |   |          |  
|Investment in real estate related assets funded with other assets                           |  | $                                           | 345      |   |      | $ |         |  
|                                                                                            |  |                                             |          |   |      |   |          |  
|Capital expenditures accrued                                                                |  | $                                           | 294      |   |      | $ | 4,079    |  
|                                                                                            |  |                                             |          |   |      |   |          |  
|Other assets assumed upon acquisition of properties                                         |  | $                                           | 5,076    |   |      | $ |         |  
|                                                                                            |  |                                             |          |   |      |   |          |  
|Write-off of fully amortized financing costs                                                |  | $                                           | 1,093    |   |      | $ | 1,059    |  
|                                                                                            |  |                                             |          |   |      |   |          |  
|Deferred lease costs accrued                                                                |  | $                                           | 124      |   |      | $ |         |  
|                                                                                            |  |                                             |          |   |      |   |          |  
|Assumption of bonds and related obligation under capital lease upon acquisition of property |  | $                                           |         |   |      | $ | 78,000   |  
|                                                                                            |  |                                             |          |   |      |   |          |  
|Notes payable assumed upon acquisition of properties                                        |  | $                                           | 118,269  |   |      | $ | 69,085   |  
|                                                                                            |  |                                             |          |   |      |   |          |  
|Proceeds from notes payable placed in escrow                                                |  | $                                           | 23,913   |   |      | $ |         |  
|                                                                                            |  |                                             |          |   |      |   |          |  
|Fair market value adjustment to notes payable upon acquisition of properties                |  | $                                           | 5,458    |   |      | $ | 969      |  
|                                                                                            |  |                                             |          |   |      |   |          |  
|Liabilities assumed upon acquisition of properties                                          |  | $                                           | 8,459    |   |      | $ | 3,010    |  
|                                                                                            |  |                                             |          |   |      |   |          |  
|Other offering costs due to affiliate                                                       |  | $                                           | 861      |   |      | $ | 289      |  
|                                                                                            |  |                                             |          |   |      |   |          |  
|Commissions on stock sales and related dealer-manager fees due to affiliate                 |  | $                                           | 450      |   |      | $ | 498      |  
|                                                                                            |  |                                             |          |   |      |   |          |  
|Dividends payable                                                                           |  | $                                           | 4,265    |   |      | $ | 1,309    |  
|                                                                                            |  |                                             |          |   |      |   |          |  
|Contributions from minority interest partners                                               |  | $                                           | 1,300    |   |      | $ |         |  
|                                                                                            |  |                                             |          |   |      |   |          |  
|Discounts applied to issuance of common stock                                               |  | $                                           | 3,067    |   |      | $ | 1,052    |  
|                                                                                            |  |                                             |          |   |      |   |          |  
|Redeemable common stock                                                                     |  | $                                           | 17,739   |   |      | $ |         |  
|                                                                                            |  |                                             |          |   |      |   |          |  



See accompanying
notes.



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##### Table of Contents

WELLS REAL ESTATE INVESTMENT TRUST II, INC.



CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



SEPTEMBER 30, 2005

(unaudited)



|1. | Organization
|-- | ------------



Wells Real Estate Investment Trust II, Inc. (Wells REIT II) is a Maryland corporation that 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. Wells REIT II was incorporated on July 3, 2003, elected to be taxed as a real estate investment trust (REIT) for federal income
tax purposes beginning with the taxable year ended December 31, 2003, and commenced operations on January 22, 2004. Wells REIT IIs business is primarily conducted through Wells Operating Partnership II, L.P. (Wells OP
II), a Delaware limited partnership. Wells OP II was formed on July 3, 2003 to acquire, develop, own, lease, and operate real properties on behalf of Wells REIT II, directly, through wholly owned subsidiaries or through joint ventures.
Wells REIT II is the sole general partner of Wells OP II and possesses full legal control and authority over the operations of Wells OP II. Wells Capital, Inc. (the Advisor) is the sole limited partner of Wells OP II. References to Wells
REIT II herein shall include Wells REIT II, all subsidiaries of Wells REIT II, all subsidiaries of Wells OP II, and Wells OP IIs consolidated joint ventures. See Note 5 included herein for a further discussion of the Advisor.



As of September 30, 2005, Wells REIT II owned interests in 32 properties, either
directly or through joint ventures, comprising approximately 8.2 million square feet of commercial office space located in 14 states and the District of Columbia. As of September 30, 2005, these properties were approximately 97% leased.



On December 1, 2003, Wells REIT II commenced its initial public offering
of up to 785.0 million shares of common stock pursuant to a Registration Statement filed on Form S-11 under the Securities Act of 1933, with 185.0 million of those shares being reserved for issuance through Wells REIT IIs dividend
reinvestment plan. Through September 30, 2005, Wells REIT II had sold approximately 176.6 million shares for gross proceeds of approximately $1.8 billion. Of this amount, Wells REIT II incurred costs of approximately (1) $35.3 million
in acquisition fees, (2) $167.8 million in selling commissions and dealer-manager fees, and (3) $29.5 million in organization and offering costs, and redeemed shares of common stock pursuant to Wells REIT IIs share redemption program
for approximately $11.5 million. With these net offering proceeds and additional indebtedness, Wells REIT II had invested approximately $1.3 billion in real estate assets through September 30, 2005.



Wells REIT IIs stock is not listed on a public securities exchange. However, Wells REIT
IIs charter requires that, in the event that Wells REIT IIs stock is not listed on a national securities exchange by October 2015, Wells REIT II must either seek stockholder approval for an extension or amendment of this listing deadline
or stockholder approval to begin liquidating investments and distributing the resulting proceeds to the stockholders. In the event that Wells REIT II seeks stockholder approval for an extension or amendment to this listing date and does not obtain
it, Wells REIT II will then be required to seek stockholder approval to liquidate. In this circumstance, if Wells REIT II seeks and does not obtain approval to liquidate, Wells REIT II will not be required to list or liquidate and could continue to
operate indefinitely as an unlisted company.



|2. | Summary of Significant Accounting Policies
|-- | ------------------------------------------



Basis of Presentation



The consolidated financial statements of Wells REIT II 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 U.S. generally accepted accounting principles (GAAP) for complete financial statements. In the opinion of management, the statements



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##### Table of Contents

for these unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair and consistent
presentation of the results for such periods. Results for these interim periods are not necessarily indicative of a full years results. For further information, refer to the financial statements and footnotes included in Wells REIT IIs
annual report on Form 10-K for the year ended December 31, 2004.



Revenue Recognition



All leases on real estate assets held by
Wells REIT II are classified as operating leases, and the related base rental income is generally 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 are billed to tenants pursuant to the terms of the underlying leases. Rents collected in advance are deferred to future periods.



In conjunction with certain acquisitions, we have entered into master lease agreements with various sellers whereby the sellers are
obligated to pay rent pertaining to certain non-revenue producing spaces either at the time of, or subsequent to, the property acquisition. These master leases were established at the time of acquisition in order to mitigate the potential negative
effects of loss of rent and expense reimbursements. For financial reporting purposes, payments received under master lease agreements are reflected as a reduction of the basis of the underlying property rather than rental income. Wells REIT II
received total master lease payments of $8.2 million and $0 during the three months ended September 30, 2005 and 2004, respectively, and approximately $15.1 million and $0 during the nine months ended September 30, 2005 and 2004,
respectively. In addition, as of September 30, 2005 and December 31, 2004, approximately $0.9 million and $0, respectively, of master lease proceeds were held in escrow, which are included in prepaid expenses and other assets.



Prepaid Expenses and Other Assets



Prepaid expenses and other assets are primarily comprised of prepaid taxes, insurance and
operating costs, escrow accounts held by lenders to pay future real estate taxes, insurance and tenant improvements, earnest money paid in connection with future acquisitions and borrowings, other escrow accounts created in connection with the
acquisition of real estate assets, and capitalized acquisition fees that have not yet been applied to investments in real estate assets. Prepaid expenses and other assets will be expensed as incurred or reclassified to other asset accounts upon
being put into service in future periods. Balances without a future economic benefit are written off as they are identified.



Income Taxes



Wells REIT II has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the Code), beginning with its taxable period ended December 31, 2003. To qualify as a REIT, Wells
REIT II must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of its annual REIT taxable income, computed without regard to the dividends-paid deduction and by excluding net
capital gains attributable to stockholders. As a REIT, Wells REIT II is generally not subject to federal income taxes. Accordingly, neither a provision nor benefit for federal income taxes has been recorded in the accompanying consolidated financial
statements. However, Wells REIT II is subject to certain state and local taxes related to the operations of properties in certain locations, which have been provided for in the accompanying consolidated financial statements.



Stockholders Equity



The par value of investor proceeds raised from Wells REIT IIs offering of common stock
is classified as common stock, with the remainder allocated to additional paid-in capital.



As of September 30, 2005, Wells REIT IIs share redemption program, as amended, provides that all redemptions during any calendar year, including those upon death or qualifying disability, are limited to
those



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that can be funded with proceeds raised in the current calendar year from Wells REIT IIs dividend reinvestment plan. As the use of those proceeds for
redemptions is outside the control of Wells REIT II, they are considered to be temporary equity under Accounting Series Release No. 268, Presentation in Financial Statements of Redeemable Preferred Stock. Therefore, Wells REIT II
has included an amount equal to proceeds from shares issued through Wells REIT IIs dividend reinvestment plan in the current calendar year, less the amount of redemptions previously funded with such proceeds, as redeemable common stock in the
accompanying financial statements as of September 30, 2005.



Effective
July 1, 2003, Wells REIT II adopted Statement of Financial Accounting Standard No. 150 Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS No. 150), which requires,
among other things, that financial instruments that represent a mandatory obligation of the company to repurchase its shares be classified as liabilities and reported at settlement value. Wells REIT IIs redeemable common shares are
contingently redeemable at the option of the holder. As such, SFAS No. 150 is not applicable until such shares are tendered for redemption by the holder, at which time Wells REIT II reclassifies such obligations from mezzanine equity to a
liability based upon their respective settlement values. As of September 30, 2005, all shares tendered for redemption have been settled.



Reclassifications



Certain prior period amounts have been reclassified to conform with the current period financial statement presentation.



Recent Accounting Pronouncement



In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 123-R,
which replaces SFAS No. 123, Accounting for Stock-Based Compensation,and supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123-R applies to all transactions
involving the issuance of equity securities, including, among others, common stock and stock options, in exchange for goods and services. SFAS No. 123-R requires Wells REIT II to recognize expense for all stock options awarded over the
respective vesting periods based on their fair values. SFAS No. 123-R will become applicable to Wells REIT II effective January 1, 2006. To date, the fair value of options granted by Wells REIT II is $0. The adoption of this statement
is not expected to have a material effect on Wells REIT IIs financial statements.



In July 2005, the FASB issued a Staff Position related to Statement of Position (SOP) 78-9-1: Interaction of American Institute of Certified Public Accountants SOP 78-9 and Emerging Issues Task Force (EITF) Issue
No. 04-5(FSP).The EITF reached a consensus on EITF Issue No. 04-5, Determining Whether a General Partner or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited
Partners Have Certain Rights, concluding that a general partner is presumed to control a limited partnership and should, therefore, consolidate the limited partnership unless the limited partners possess substantive kick-out rights
or substantive participating rights. This FSP eliminates the concept of important rights provided in SOP 78-9 and replaces it with the concepts of kick-out rights and substantive participating rights,
as defined in EITF Issue 04-5. For all new partnerships formed and existing partnerships for which the partnership agreements are modified, this FSP and EITF Issue 04-5 became effective as of June 30, 2005. For all other partnerships, this
guidance will become effective as of January 1, 2006. The adoption of this FSP is not expected to have a material effect on Wells REIT IIs financial statements.



|3. | Real Estate Acquisitions
|-- | ------------------------



Overview



During the three months ended September 30, 2005, Wells REIT II acquired ownership interests in seven properties for an aggregate purchase price of approximately $457.9 million, exclusive of related closing costs
and acquisition fees.



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##### Table of Contents

180 E. 100 South Building Acquisition



On July 6, 2005, Wells REIT II purchased an eight-story office building containing approximately 206,000 rentable square feet (the
180 E. 100 South Building) located on an approximate five-acre parcel of land at 180 E. 100 South in Salt Lake City, Utah, for a purchase price of approximately $46.5 million, exclusive of closing costs. The 180 E. 100 South Building is
entirely leased to Questar Corporation.



Nashoba Buildings Acquisition



On August 18, 2005, Wells REIT II acquired an approximate 99%
interest in Nashoba View Ownership, LLC, a joint venture between Wells REIT II and an unrelated third-party, which owns a three-story office building and a two-story office building containing a total of approximately 458,000 rentable square feet
(the Nashoba Buildings) located on an approximate 59-acre parcel of land at One Robbins Road and Four Robbins Road in Westford, Massachusetts, for approximately $92.5 million, exclusive of closing costs. The Nashoba Buildings are leased
entirely to Lucent Technologies, Inc.



Baldwin Point Building Acquisition



On August 26, 2005, Wells REIT II acquired an approximate 97%
interest in 2420 Lakemont Avenue, LLC, a joint venture between Wells REIT II and an unrelated third-party, which owns a four-story office building containing approximately 165,000 rentable square feet (the Baldwin Point Building) located
on an approximate nine-acre parcel of land at Lakemont Avenue in Orlando, Florida for approximately $27.9 million, exclusive of closing costs. Approximately 78% of the rentable square feet of the Baldwin Point Building is leased to Travelers
Indemnity Company, and the remaining 22% is currently vacant.



University
Circle Buildings Acquisition



On September 21, 2005, Wells REIT II
purchased three six-story office buildings containing a total of approximately 451,000 rentable square feet (the University Circle Buildings) located on an approximate nine-acre parcel of land at 1900, 1950, and 2000 University Avenue in
East Palo Alto, California for a purchase price of approximately $291.0 million, exclusive of closing costs. Approximately 90% of the rentable square feet of the University Circle Buildings is leased to various office/retail tenants, and the
remaining 10% is currently vacant. As further described in Note 6, Wells REIT II will owe additional purchase consideration ranging from $7.7 million to $12.9 million for the acquisition of the University Circle Buildings in May 2006.



Acquisitions during the first six months of 2005



During the first six months of 2005, Wells REIT II acquired ownership interests in seven
properties for an aggregate purchase price of approximately $382.4 million, exclusive of related closing costs and acquisition fees.



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|4. | Line of Credit and Notes Payable
|-- | --------------------------------



As of September 30, 2005 and December 31, 2004, Wells REIT II had the following indebtedness outstanding (in thousands):



|                                             |  |                   |         |     |                  |   |        
|-------------------------------------------- |  | ----------------- | ------- | --- | ---------------- | - | -------
|Facility                                     |  | September 30,2005 |         |     | December 31,2004
|Line of credit                               |  | $                 |        |     |                  | $ | 115,350
|Wildwood mortgage note                       |  |                   | 90,000  |     |                  |   | 90,000 
|One West Fourth mortgage note                |  |                   | 49,962  |     |                  |   | 50,840 
|800 North Frederick mortgage note            |  |                   | 46,400  |     |                  |   | 46,400 
|Highland Landmark mortgage note              |  |                   | 30,840  |     |                  |   | 30,840 
|Finley Road and Opus Place mortgage note     |  |                   | 17,560  | (1) |                  |   | 17,075 
|9 Technology Drive Building mortgage note    |  |                   | 23,800  |     |                  |   |       
|100 East Pratt Street Building mortgage note |  |                   | 105,000 |     |                  |   |       
|Nashoba Buildings mortgage note              |  |                   | 23,000  |     |                  |   |       
|University Circle Buildings mortgage note    |  |                   | 123,548 | (2) |                  |   |       
|                                             |  |                   |         |     |                  |   |        
|Total line of credit and notes payable       |  | $                 | 510,110 |     |                  | $ | 350,505
|                                             |  |                   |         |     |                  |   |        

| | 
| | 

| | (1) | Upon acquisition of the Finley Road and Opus Place properties, Wells REIT II adjusted this loan to fair value by reducing the basis with a corresponding adjustment to building. This
fair value adjustment is amortized to interest expense over the loan term. The outstanding principal balance and unamortized fair value adjustment for this loan were approximately $17.8 million and approximately $0.2 million, respectively, as of
September 30, 2005, and approximately $17.8 million and $0.7 million, respectively, as of December 31, 2004.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Upon acquisition of the University Circle Buildings, Wells REIT II adjusted this loan to fair value by increasing the basis with a corresponding adjustment to building. This fair
value adjustment is amortized to interest expense over the loan term. The outstanding principal balance and unamortized fair value adjustment for this loan were approximately $118.1 million and approximately $5.4 million, respectively, as of
September 30, 2005.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During the three months ended
September 30, 2005, Wells REIT II had the following activity with respect to its line of credit and notes payable:



On May 9, 2005, Wells REIT II entered into a $400.0 million, three-year, unsecured revolving financing facility (the Wachovia Line of Credit) with a syndicate
of banks led by Wachovia Bank, N.A. The Wachovia Line of Credit replaces the $430.0 million, 180-day, secured revolving financing facility with Bank of America, N.A. (the BOA Line of Credit). As of September 30, 2005, Wells REIT II had
no amount outstanding under the Wachovia Line of Credit. During September 2005, Wells REIT II pledged approximately $9.2 million of its borrowing capacity under the Wachovia Line of Credit to letters of credit for future tenant improvements and
leasing costs. After consideration of the letters of credit, Wells REIT II had a remaining borrowing capacity, as of September 30, 2005, of up to approximately $240.4 million under the Wachovia Line of Credit.



On September 6, 2005, Wells REIT II entered into a $105.0 million promissory note with
Citigroup Global Markets Realty Corporation (the 100 East Pratt Street Building mortgage note). The 100 East Pratt Street Building mortgage note matures on June 11, 2017 (the Maturity Date); however, from
September 6, 2005 through July 13, 2015, the lender has the right to cause the entire outstanding principal amount, together with all accrued and unpaid interest, to become due and payable as of September 11, 2015. The 100 East Pratt
Street Building mortgage note bears interest at a fixed rate of 5.0775% per annum from September 6, 2005 through September 10, 2015, and the greater of (i) a fixed rate of 7.0775% per annum or (ii) the treasury rate, as
defined, plus two percent, from September 11, 2015 through the Maturity Date. In addition to such interest payments, from September 11, 2015 through the Maturity Date, Wells REIT II is required to remit all excess cash flow generated by
the 100 East Pratt Street Building to the lender as additional principal payments on the



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100 East Pratt Street Building mortgage note. This note is secured by the 100 East Pratt Street Building, which had a net book value of approximately $109.4
million as of September 30, 2005. Wells REIT II may repay this facility in full without incurring any prepayment penalties beginning July 11, 2015.



On August 18, 2005, Wells REIT II entered into a $23.0 million interest-only promissory note with The Prudential Insurance Company of America (the Nashoba
Buildings mortgage note), the proceeds from which were used to acquire an interest in a joint venture that owns the Nashoba Buildings (Note 3). The Nashoba Buildings mortgage note matures in September 2010 and bears interest at a fixed
rate of 5.07% per annum. This note is secured by the Nashoba Buildings, which had a net book value of approximately $70.8 million as of September 30, 2005. Wells REIT II may prepay this facility at any time, subject to certain prepayment
penalties.



On September 21, 2005, Wells REIT II assumed a $118.3 million
promissory note with the Teachers Insurance & Annuity Association of America (the University Circle Buildings mortgage note) in connection with the acquisition of the University Circle Buildings (Note 3). The University Circle
Buildings mortgage note matures in January 2011 and bears interest at a fixed rate of 6.04% per annum. This note is secured by the University Circle Buildings, which had a net book value of approximately $182.7 million as of September 30,
2005. Wells REIT II may prepay this facility at any time after December 31, 2005, subject to certain prepayment penalties.



Cash paid for interest was approximately $11.4 million and $3.7 million during the nine months ended September 30, 2005 and 2004, respectively.



|5. | Related-Party Transactions
|-- | --------------------------



Advisory Agreement



Wells REIT II has entered into an advisory agreement (the Advisory Agreement) with the Advisor, which entitles the Advisor to earn specified fees upon the completion of certain services. The Advisory
Agreement has a one-year term; however, either party may terminate the Advisory Agreement upon 60 days written notice. If initiating termination of the Advisory Agreement, Wells REIT II would be obligated to pay all unpaid earned fees and
reimbursements of expenses to the Advisor.



Under the terms of the Advisory
Agreement, the Advisor receives the following fees and reimbursements:



| |  |  | Reimbursement of organization and offering costs paid by the Advisor on behalf of Wells REIT II, not to exceed 2.0% of gross offering proceeds;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Acquisition fees of 2.0% of gross offering proceeds, subject to certain limitations; Wells REIT II also reimburses the Advisor for expenses it pays to third parties in connection
with acquisitions or potential acquisitions;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Monthly asset management fees equal to one-twelfth of 0.75% of the cost of (1) all properties of Wells REIT II and (2) investments in joint ventures. The amount of these
fees paid in any calendar quarter may not exceed 1.0% of the net asset value of those investments at each quarter-end after deducting debt used to acquire or refinance properties;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Reimbursement for all costs and expenses the Advisor incurs in fulfilling its duties as the asset portfolio manager, including wages and salaries and other employee-related expenses
of the Advisors employees, which perform a full range of real estate services for Wells REIT II, including management, administration, operations, and marketing, and are billed to Wells REIT II based on the amount of time spent on Wells REIT
II by such personnel, provided that such expenses are not reimbursed if incurred in connection with services for which the Advisor receives a disposition fee (described below) or an acquisition fee. Included in this amount are amounts paid for IRA
custodial service costs allocated to Wells REIT II accounts;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | For any property sold by Wells REIT II, a disposition fee equal to 3.0% of the sales price, with the limitation that the total real estate commissions (including such disposition
fee) for any Wells REIT II property sold may not exceed the lesser of (i) 6.0% of the sales price of each property or (ii) the level of real estate commissions customarily charged in light of the size, type, and location of the property;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Incentive fee of 10% of net sales proceeds remaining after stockholders have received distributions equal to the sum of the stockholders 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.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Per the terms of the Advisory Agreement, Wells
REIT II is required to reimburse the Advisor for certain organization and offering costs up to the lesser of actual expenses or 2% of gross equity raised. As of September 30, 2005, the Advisor had incurred cumulative organization and offering
costs on behalf of Wells REIT II of approximately $29.5 million, which represents approximately 1.8% of cumulative gross equity raised by Wells REIT II. Accordingly, Wells REIT II has incurred and charged to additional paid-in capital organization
and offering costs of approximately $29.5 million.



On October 20, 2005,
Wells REIT II entered into a new advisory agreement (the New Advisory Agreement) with the Advisor, which supersedes the existing Advisory Agreement and is effective through October 19, 2006; however, either party may terminate the
New Advisory Agreement without cause or penalty upon providing 60 days written notice. The terms of the New Advisory Agreement are substantially identical to those of the Advisory Agreement except that disposition fees have declined from
3.0% (under the Advisory Agreement) to 1.0% (under the New Advisory Agreement) of the sales price.



Dealer-Manager Agreement



Wells REIT II
has executed a Dealer-Manager Agreement with Wells Investment Securities, Inc. (WIS), whereby WIS, an affiliate of the Advisor, performs the dealer-manager function for Wells REIT II. For these services, WIS earns a fee of up to 7% of
the gross offering proceeds from the sale of the shares of Wells REIT II, of which substantially all is re-allowed to participating broker dealers.



Additionally, Wells REIT II is required to pay WIS a dealer-manager fee of up to 2.5% of the gross offering proceeds from the sale of Wells REIT IIs stock at the
time the shares are sold. Under the dealer-manager agreement, up to 1.5% of the gross offering proceeds may be reallowed by WIS to participating broker dealers, and some of the fees may be reduced for certain classes of purchasers or for purchasers
under the dividend reinvestment plan.



Property Management, Leasing, and
Construction Agreement



On November 24, 2004, Wells REIT II entered
into a Master Property Management, Leasing, and Construction Agreement (the Management Agreement) with Wells Management Company, Inc. (Wells Management), an affiliate of the Advisor. In consideration for supervising the
management, leasing, and construction of certain Wells REIT II properties, Wells REIT II will pay the following fees to Wells Management in accordance with the terms of the Management Agreement:



| |  |  | Property management fees in an amount equal to a percentage negotiated for each property managed by Wells Management of the gross monthly income collected for that property for the
preceding month;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Leasing commissions for new, renewal, or expansion leases entered into with respect to any property for which Wells Management serves as leasing agent equal to a percentage as
negotiated for that property of the total base rental and operating expenses to be paid to Wells REIT II during the applicable term of the lease, provided, however, that no commission shall be payable as to any portion of such term beyond ten years;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  |  | Initial lease-up fees for newly constructed properties under the agreement, generally equal to one months rent;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | Fees equal to a specified percentage of up to 5% of all construction build-out funded by Wells REIT II, given as a leasing concession, and overseen by Wells Management; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other fees as negotiated with the addition of each specific property covered under the agreement.
| | - |  | -------------------------------------------------------------------------------------------------



Pursuant to the terms of the agreements described above, Wells REIT II incurred the following related-party expenses for the three months
and nine months ended September 30, 2005 and 2004 (in thousands):



|                                                    |  |                                  |         |                                 |   |        |  |      |         |  |   |       
|--------------------------------------------------- |  | -------------------------------- | ------- | ------------------------------- | - | ------ |  | ---- | ------- |  | - | ------
|                                                    |  | Three Months Ended September 30, |         | Nine Months Ended September 30,
|                                                    |  | 2005                             |         | 2004                            |   | 2005   |  | 2004
|Acquisition fees(1)                                 |  | $                                | 5,758   |                                 | $ | 5,401  |  | $    | 19,424  |  | $ | 10,872
|Reimbursement of organization and offering costs(2) |  |                                  | 2,429   |                                 |   | 5,401  |  |      | 13,706  |  |   | 10,872
|Asset management fees                               |  |                                  | 2,775   |                                 |   | 1,042  |  |      | 7,043   |  |   | 1,346 
|Property management fees                            |  |                                  | 107     |                                 |   |       |  |      | 116     |  |   |      
|Administrative reimbursements                       |  |                                  | 540     |                                 |   | 322    |  |      | 2,525   |  |   | 583   
|Commissions(2)                                      |  |                                  | 20,244  |                                 |   | 18,902 |  |      | 68,200  |  |   | 38,051
|Dealer-manager fees(2)                              |  |                                  | 7,230   |                                 |   | 6,751  |  |      | 24,357  |  |   | 13,590
|                                                    |  |                                  |         |                                 |   |        |  |      |         |  |   |       
|                                                    |  |                                  | $39,083 |                                 | $ | 37,819 |  | $    | 135,371 |  | $ | 75,314
|                                                    |  |                                  |         |                                 |   |        |  |      |         |  |   |       

| | 
| | 

| | (1) | Acquisition fees are capitalized as prepaid expenses and other assets in the accompanying consolidated balance sheets and are allocated to properties upon acquisition.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Commissions, dealer-manager fees, and reimbursements of organization and offering costs are charged against stockholders equity in the accompanying consolidated balance
sheets.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Wells REIT II incurred no related-party disposition
fees, incentive fees, listing fees, leasing commissions, or construction-related fees during the nine months ended September 30, 2005 or 2004.



Due to Affiliates



The detail of amounts due to affiliates is provided below as of September 30, 2005 and December 31, 2004 (in thousands):



|                                                                  |  |                   |       |                  |   |      
|----------------------------------------------------------------- |  | ----------------- | ----- | ---------------- | - | -----
|                                                                  |  | September 30,2005 |       | December 31,2004
|Asset management fees due to the Advisor                          |  | $                 | 927   |                  | $ | 1,555
|Organization and offering cost reimbursements due to the Advisor  |  |                   | 861   |                  |   | 3,759
|Acquisition fees due to the Advisor                               |  |                   | 351   |                  |   | 3,759
|Commissions and dealer-manager fees due to WIS                    |  |                   | 450   |                  |   | 651  
|Other salary and administrative reimbursements due to the Advisor |  |                   | 649   |                  |   | 99   
|                                                                  |  |                   |       |                  |   |      
|                                                                  |  | $                 | 3,238 |                  | $ | 9,823
|                                                                  |  |                   |       |                  |   |      



Economic Dependency



Wells REIT II has engaged the Advisor and its affiliates, Wells Management and WIS, to
provide certain services that are essential to Wells REIT II, including asset management services, supervision of the management and leasing of some properties owned by Wells REIT II, asset acquisition and disposition services, the sale of shares of
Wells REIT II common stock, as well as other administrative responsibilities for Wells REIT II including accounting services, stockholder communications, and investor relations. These agreements are terminable by either party upon 60 days
written notice. As a result of these relationships, Wells REIT II is dependent upon the Advisor, Wells Management, and WIS.



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##### Table of Contents

The Advisor, Wells Management, and WIS are all owned and controlled by Wells Real Estate Funds, Inc. (WREF).
The operations of the Advisor, Wells Management, and WIS represent substantially all of the business of WREF. Accordingly, Wells REIT II focuses on the financial condition of WREF when assessing the financial condition of the Advisor, Wells
Management, and WIS. In the event that WREF were to become unable to meet its obligations as they become due, Wells REIT II might be required to find alternative service providers.



Future net income generated by WREF will be largely dependent upon the amount of fees earned by the Advisor, Wells Management, and WIS based
on, among other things, the level of investor proceeds raised from the sale of Wells REIT IIs common stock and the volume of future acquisitions and dispositions of real estate assets by Wells-sponsored programs. As of September 30, 2005
and December 31, 2004, WREF believes that it generates adequate cash flow from operations and has adequate liquidity available in the form of cash on hand and current receivables necessary to meet its current and future obligations as they
become due.



Dismissal of Litigation Against Related Parties



During early 2004, a putative class action complaint was filed against, among others,
Leo. F. Wells, III, the president and a director of Wells REIT II, the Advisor, and Wells Management (Hendry et al. v. Leo F. Wells, III et al., Superior Court of Gwinnett County, Georgia, Civil Action No. 04-A-2791-2). The Court granted
the plaintiffs motion to permit voluntary dismissal of this suit, and it was subsequently dismissed without prejudice. In November 2004, the same plaintiffs filed a second putative class action complaint against, among others,
Mr. Wells, the Advisor, and Wells Management (Hendry et al. v. Leo F. Wells, III et al., Superior Court of Gwinnett County, Georgia Civil Action No. 04A-13051-6). On January 28, 2005, the defendants filed motions for
summary judgment and motions to dismiss the plaintiffs claims. Pursuant to orders entered July 1, 2005, the Court granted the defendants motions to dismiss and for summary judgment on all counts in the complaint. Thus,
this action has now been dismissed, subject to the plaintiffs right to file a notice of appeal within the required time period. On August 3, 2005, the plaintiffs filed a motion requesting the Court to vacate and re-enter
the orders to give the plaintiffs an opportunity to file a motion for reconsideration or notice of appeal. Both the plaintiffs and defendants have filed briefs supporting their respective positions, and the plaintiffs motion is still pending
before the Court.



|6. | Commitments and Contingencies
|-- | -----------------------------



Princeton Hill Take-Out Agreement



Wells Management, an affiliate of the Advisor, has developed a program that involves the acquisition of income-producing commercial properties through a series of
single-member limited liability companies for the purpose of facilitating the resale of co-tenancy interests in such real estate properties (the Wells Section 1031 Program) to persons seeking to reinvest 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 (1031 Participants). Acquisitions of properties for the
Wells Section 1031 Program are generally financed with a combination of permanent first mortgage financing and interim financing obtained from institutional lenders. Following the acquisition of a property, Wells Exchange attempts to sell
co-tenancy interests in such property to 1031 Participants, the proceeds from which are typically used to immediately repay the investors pro rata shares of interim financing.



On September 7, 2005, Wells Exchange acquired a three-story office building located in Springdale, Ohio (the Princeton Hill
Property) for the purpose of selling co-tenancy interests therein for a total of approximately $13.3 million. Commensurate with closing this acquisition, Wells Exchange and Wells REIT II entered an agreement (the Princeton Hill Take-Out
Agreement), which provides that, in the event that co-tenancy interests remain unsold as of June 7, 2006, Wells REIT II would acquire such unsold co-tenancy interests at a price equal to the greater of (a) the amount required to
repay the principal and interest outstanding on the interim financing or (b) Wells Exchanges cost in the unsold co-tenancy interests. In consideration for the exposure created under



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##### Table of Contents

the Princeton Hill Take-Out Agreement, Wells REIT II earned a fee of approximately $166,000 in September 2005, which is reported within interest and other
income in the accompanying consolidated statement of operations.



As of
September 30, 2005, Wells REIT IIs maximum exposure under the Princeton Hill Take-Out Agreement related to acquiring unsold co-tenancy interests in the Princeton Hill Property was approximately $5.0 million. As of October 7, 2005,
Wells REIT II had no exposure under the Princeton Hill Take-Out Agreement, as Wells Exchange had sold all co-tenancy interests in the Princeton Hill Property to investors.



Decision One Building



On June 24, 2005, Wells REIT II entered into an agreement to purchase a five-story office building currently under construction that will contain approximately
180,000 rentable square feet in Lancaster, South Carolina (the Decision One Building) for a gross purchase price of approximately $33.7 million, plus closing costs and an allowance for tenant improvements and leasing commissions not to
exceed $1.8 million. In connection with the execution of this agreement, Wells REIT II paid a nonrefundable deposit of $3.4 million to an escrow agent in June 2005, which will be applied to the purchase price. Completion of the construction of the
Decision One Building is anticipated to occur in June 2006, at which point the purchase price will become due and payable to the seller. Decision One Mortgage Company will lease 100% of the Decision One Building at rental rates to be determined
based upon total actual construction costs.



University Circle Buildings



In connection with the acquisition of the University Circle Buildings on
September 21, 2005 (Note 3), Wells REIT II will owe additional purchase consideration ranging from $7.7 million to $12.9 million. The exact amount will be calculated pursuant to an earnout agreement between Wells REIT II and the seller and will
be based on the amount of qualified leases, as defined, to be procured by the seller for currently vacant space on or before May 1, 2006. In connection with this earnout agreement, at closing, Wells REIT II assigned $7.7 million of available
borrowings under the Wachovia Line of Credit to a letter of credit. At September 30, 2005, $7.7 million was reported within accounts payable, accrued expenses, and accrued capital expenditures in the accompanying consolidated balance sheet.



Commitments Under Existing Lease Agreements



Certain lease agreements include provisions that, at the option of the tenant, may obligate
Wells REIT II to expend capital to expand an existing property or provide other expenditures for the benefit of the tenant. The current lease with the majority tenant of the 100 East Pratt Street Building, T. Rowe Price Group, Inc., entitles
T. Rowe Price Group, Inc. to obligate Wells REIT II to fund tenant improvements or grant leasing commissions of up to $19.2 million, of which approximately $1.9 million may be used to offset future rental billings at the tenants
discretion. As of September 30, 2005, no tenants have exercised such options that had not been materially satisfied.



Litigation



Wells REIT II is from time to time a party to legal proceedings, which arise in the ordinary course of its business. Wells REIT II is not currently involved in any litigation the outcome of which would have, in
managements judgment based on information currently available, a material adverse effect on the results of operations or financial condition of Wells REIT II, nor is management aware of any such litigation threatened against Wells REIT
II.



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##### Table of Contents

|7. | Subsequent Events
|-- | -----------------



Sale of Shares of Common Stock



From
October 1, 2005 through October 31, 2005, Wells REIT II raised approximately $75.5 million through the issuance of approximately 7.6 million shares of common stock of Wells REIT II under its initial public offering. As of October 31,
2005, approximately 415.8 million shares remained available for sale to the public under Wells REIT IIs initial public offering, exclusive of shares available under Wells REIT IIs dividend reinvestment plan; however, this offering is
scheduled to terminate with the acceptance of subscription agreements dated by November 26, 2005.



Wells REIT II has filed a registration statement with the SEC to register 300,600,000 shares of its common stock, of which up to 300,000,000 shares will be offered in the primary offering for $10 per share, with
volume discounts available to investors who purchase more than 50,000 shares at any one time. Discounts may also be available for other categories of purchasers. The remaining 600,000 shares of common stock are offered under Wells REIT IIs
amended and restated dividend reinvestment plan at a purchase price equal to the higher of $9.55 per share or 95% of the estimated value of a share of its common stock. The aforementioned registration statement was declared effective by the SEC on
November 10, 2005. As of November 14, 2005, Wells REIT II had not issued any shares under this registration statement.



Taxable REIT Subsidiary



On October 4, 2005, Wells REIT II created Wells TRS II, LLC (Wells TRS), a wholly owned subsidiary organized as a Delaware single-member limited liability company. Wells REIT II has elected to treat Wells
TRS as a taxable REIT subsidiary. Wells REIT II may perform additional, non-customary services for tenants of buildings owned by Wells REIT II through Wells TRS, including any real estate or non-real estate related services; however, any earnings
related to such services will be subject to federal and state income taxes. In addition, in order for Wells REIT II to continue to qualify as a REIT, Wells REIT IIs investment in Wells TRS cannot exceed 20% of value of the total assets of
Wells REIT II.



Properties Under Contract



On October 28, 2005, Wells REIT II entered into a purchase and sale agreement to
purchase a 27-story office building containing approximately 581,000 rentable square feet located in Houston, Texas, for a gross purchase price of $166.0 million, plus closing costs. In connection with the execution of the agreement, Wells REIT II
paid a deposit of $3.0 million to an escrow agent, which will be applied to the purchase price. The acquisition is expected to be partially funded by the assumption of an existing $90.0 million fixed rate loan secured by the property. In the event
that Wells REIT II does not receive approval for its assumption of the existing loan by November 28, 2005, the agreement will automatically terminate and, provided Wells REIT II complied in all material respects with its obligation to procure the
loan assumption approval, the $3.0 million earnest money deposit will be refunded to Wells REIT II and Wells REIT II shall be relieved of all further liability and responsibility under the agreement.



On November 10, 2005, Wells REIT II entered into a purchase and sale agreement to purchase a
six-story office building containing approximately 250,000 rentable square feet located in Irving, Texas, for a gross purchase price of $45.2 million, exclusive of closing costs. In connection with the execution of the agreement, Wells REIT II paid
a deposit of $0.8 million to an escrow agent, which will be applied to the purchase price at closing.



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##### Table of Contents

|ITEM 2. | 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 notes thereto. See also
Forward-Looking Statements preceding Part I, as well as the notes to our consolidated financial statements and Managements Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on
Form 10-K for the year ended December 31, 2004.



Wells REIT II was formed
on July 3, 2003, and began to receive investor proceeds from its initial public offering of common stock and acquire real estate assets during 2004. Thus, our results of operations for the three months and nine months ended September 30,
2005 and 2004 reflect growing operational revenues and expenses resulting from the acquisition of real properties, fluctuations in interest expense resulting from using varying levels of short- and long-term debt financing for such acquisitions, and
relatively high general and administrative expenses, which have declined as a percentage of total revenues for 2005, as compared to 2004, commensurate with the operational growth of the enterprise.



Liquidity and Capital Resources



Overview



During the nine months ended September 30, 2005, we generated net cash flows from operating activities of approximately $44.5 million,
which is primarily comprised of receipts of rental revenues, tenant reimbursements, and interest income, less payments for property operating expenses, asset and property management fees, interest expense, and general and administrative expenses.
From cash flows from operating activities, proceeds from master leases and cash on hand, we paid dividends to stockholders of approximately $53.2 million. During the nine months ended September 30, 2005, we generated net cash flow from
financing activities of approximately $809.2 million, primarily as a result of raising net proceeds from the sale of our common stock under our public offering of approximately $971.2 million, net of commissions and dealer-manager fees, and
borrowing approximately $347.9 million. Such cash inflows from financing activities were primarily used to repay outstanding balances on the BOA Line of Credit, the Wachovia Line of Credit, and notes payable of approximately $336.4 million, to
invest approximately $693.1 million in real estate and related assets and liabilities, to pay other offering costs of approximately $16.6 million, and to pay acquisition fees of approximately $22.8 million. We expect to utilize residual cash and
cash equivalents of approximately $152.0 million as of September 30, 2005 to satisfy current liabilities, pay future dividends, fund future anticipated acquisitions of real properties, or reduce indebtedness.



We are currently experiencing increased market competition to acquire high-quality commercial
office properties. At the same time, we continue to have capital inflows due to the sale of our equity securities, including investments of approximately $195.0 million funded by a nonrecurring special distribution paid in June 2005 by Wells REIT I,
another Wells-sponsored investment program, to its stockholders. Though we anticipate receiving some additional investments in our equity securities funded by the special distribution paid to stockholders of Wells REIT I, we do not expect
future additional investments from this special distribution to be significant.



On September 7, 2005, the board of directors of Wells REIT II declared a daily dividend for the fourth quarter of 2005, which is anticipated to be paid in December 2005, in an amount equal to an annualized $0.60 per share. Dividends
declared for the fourth quarter of 2005 are consistent with dividends declared and paid for the first three quarters of 2005 on a per share basis. The combination of continuing sales of equity and the increase of the prices for high-quality
commercial office properties has created downward pressure on our annualized dividend. For the nine months ended September 30, 2005, our funds from operations of $52.9 million (see page 25), when combined with master lease receipts of $15.1
million, was adequate to fund the payment of dividends to our stockholders of $53.2 million. However, due to the timing of cash receipts and payments from operations, we may periodically be required to borrow funds on a short-term basis to meet our
dividend payment schedule. Our primary focus is to continue to maintain the quality of our portfolio. Accordingly, we will opt to lower the



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##### Table of Contents

dividend rather than compromise that quality or accumulate significant borrowings to meet a dividend level higher than operating cash flow would
support. We will continue to carefully monitor our cash flows and market conditions, and their impact on our earnings and future dividend projections.



Short-term Liquidity and Capital Resources



We intend to continue to generate capital from the offering of common stock and from borrowings to expand and diversify our portfolio. We expect to fund our future
acquisitions with proceeds from the offering of common stock and capacity under the Wachovia Line of Credit. As of October 31, 2005, we held a cash balance of approximately $224.5 million, of which we anticipate using the majority to fund the
acquisition of two properties that are currently under contract (see Subsequent Events section below). As of October 31, 2005, we had no amount outstanding under the Wachovia Line of Credit. We pledged approximately $9.2 million of our
borrowing capacity under the Wachovia Line of Credit to letters of credit for future tenant improvements and leasing costs. After considering the letters of credit, we had a remaining borrowing capacity, as of October 31, 2005, of up to $249.9
million under the Wachovia Line of Credit. Accordingly, we believe that we have adequate capacity to acquire the aforementioned properties, expand our portfolio, and meet our operating cash flow needs.



Long-term Liquidity and Capital Resources



We expect that potential sources of capital over the long term will include proceeds from
the sale of our common stock, proceeds from secured or unsecured financings from banks and other lenders, and net cash flows from operations. We expect that our primary uses of capital will be for property acquisitions, either directly or through
investments in joint ventures, for the payment of tenant improvements, for the payment of offering-related costs, for the payment of operating expenses, including interest expense on any outstanding indebtedness, and for the payment of dividends.



In determining how and when to allocate cash resources, we initially consider
the source of the cash. We expect that substantially all future net operating cash flows, after payments for certain capital expenditures such as tenant improvements and leasing commissions, will be used to pay dividends. However, we may use other
sources of cash, such as borrowings, to fund dividends from time to time (see Liquidity and Capital Resources Overview above). We expect to use substantially all net cash flows generated from raising equity or debt financing to fund
acquisitions, certain capital expenditures identified upon acquisition, or repayments of outstanding borrowings. To the extent that sufficient equity or debt capital is not available, our future investments in real estate will be lower.



As further discussed in Note 6 to the accompanying consolidated financial statements, we
entered into an agreement to purchase an office building, which is currently under construction, in Lancaster, South Carolina, for a gross purchase price of approximately $33.7 million, plus closing costs and an allowance for tenant improvements and
leasing costs not to exceed $1.8 million upon completion. We anticipate construction of the Decision One Building to be completed in June 2006. We anticipate paying for this acquisition with equity proceeds, borrowings on the Wachovia Line of
Credit, or a combination thereof, the allocation of which will depend upon the timing and amount of additional capital to be raised and future property acquisitions.



As of September 30, 2005, our contractual obligations are as follows (in thousands):



|                                               |  |                             |         |                          |   |       
|---------------------------------------------- |  | --------------------------- | ------- | ------------------------ | - | ------
|Payments dueduring the year endingDecember 31, |  | Outstanding DebtObligations |         | Capital LeaseObligations
|2005                                           |  | $                           | 917     |                          | $ |      
|2006                                           |  |                             | 22,068  |                          |   |      
|2007                                           |  |                             | 4,973   |                          |   |      
|2008                                           |  |                             | 29,014  |                          |   |      
|2009                                           |  |                             | 5,470   |                          |   |      
|2010                                           |  |                             | 28,742  |                          |   |      
|Thereafter                                     |  |                             | 418,926 |                          |   | 78,000
|                                               |  |                             |         |                          |   |       
|                                               |  | $                           | 510,110 |                          | $ | 78,000
|                                               |  |                             |         |                          |   |       



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##### Table of Contents

Results of Operations



Overview



Our results of operations are not indicative of those expected in future periods as we expect that rental income, tenant reimbursements, operating expenses, asset management fees, depreciation, and amortization and
net income will increase in future periods as a result of owning the assets acquired during the quarter ended September 30, 2005 for an entire period and as a result of future acquisitions of real estate assets.



We commenced our initial public offering on December 1, 2003. Following the receipt and
acceptance of subscriptions for the minimum offering of $2,500,000 (250,000 shares) on January 22, 2004, we acquired 14 real properties during the first nine months of 2004. During the remainder of 2004 and first nine months of 2005, we
invested in 18 additional properties, which increased the total number of properties held in our portfolio to 32 as of September 30, 2005. Accordingly, the results of operations presented for the quarters ended September 30, 2005 and
September 30, 2004 are not directly comparable.



Comparison of the
three months ended September 30, 2005 versus the three months ended September 30, 2004



Rental income and tenant reimbursements increased from approximately $15.1 million and $2.2 million, respectively, for the three months ended September 30, 2004 to approximately $35.8 million and $8.5 million,
respectively, for the three months ended September 30, 2005, primarily as a result of the growth in the portfolio during the fourth quarter of 2004 and the first three quarters of 2005. Rental income and tenant reimbursements are expected to
continue to increase in future periods, as compared to historical periods, as a result of owning the assets acquired during the quarter ended September 30, 2005 for an entire period and future acquisitions of real estate assets.



Interest and other income increased from approximately $1.3 million for the three months
ended September 30, 2004 to approximately $2.8 million for the three months ended September 30, 2005, primarily as a result of holding additional investor proceeds during the third quarter of 2005, which were generated from the sale of
common stock under our ongoing offering during the fourth quarter of 2004 and the first three quarters of 2005. Future levels of interest income will be largely dependent upon the rate at which investor proceeds are raised and the timing and
availability of future acquisitions of real estate assets.



Property operating
costs and asset and property management fees increased from approximately $4.7 million and $1.3 million, respectively, for the three months ended September 30, 2004 to approximately $13.1 million and $3.5 million, respectively, for the three
months ended September 30, 2005, primarily as a result of the growth in the portfolio during the fourth quarter of 2004 and the first three quarters of 2005. Property operating costs and asset and property management fees are expected to
continue to increase in future periods, as compared to historical periods, due to owning the assets acquired during the quarter ended September 30, 2005 for an entire period and future acquisitions of additional real estate assets.



Depreciation of real estate and amortization of related lease costs increased from
approximately $2.4 million and $4.2 million, respectively, for the three months ended September 30, 2004 to approximately $6.5 million and $11.7 million, respectively, for the three months ended September 30, 2005, primarily due to the
acquisition of properties during the fourth quarter of 2004 and the first three quarters of 2005. Amortization of related lease costs increased by a greater amount than depreciation primarily as a result of amortizing related lease costs over
shorter periods (the respective lease terms), as compared to depreciating buildings over 40 years. Depreciation and amortization are expected to continue to increase in future periods, as compared to historical periods, due to owning the assets
acquired during the quarter ended September 30, 2005 for an entire period and future acquisitions of real estate assets.



General and administrative expenses increased from approximately $1.2 million for the three months ended September 30, 2004 to approximately $1.5 million for the
three months ended September 30, 2005, primarily due



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to increases in administrative salary expense reimbursements related to owning a larger portfolio of real estate assets as a result of acquiring properties
during the fourth quarter of 2004 and the first three quarters of 2005. General and administrative expenses as a percent of total revenues decreased from approximately 6% for the quarter ended September 30, 2004 to approximately 3% for the
quarter ended September 30, 2005. In connection with the acquisition of additional real properties, we anticipate future general and administrative expenses to continue to increase as measured in gross dollars and to continue to decrease as a
percentage of total revenues as we achieve greater economies of scale with a larger portfolio of real estate assets in future periods, as compared to historical periods.



Interest expense decreased from approximately $6.7 million for the three months ended September 30, 2004 to approximately $5.5 million
for the three months ended September 30, 2005, primarily due to the fact that average borrowings under our lines of credit decreased from approximately $287.9 million during the third quarter of 2004 to $0 during the third quarter of 2005.
Future levels of interest expense will vary primarily based on the amounts of future borrowings and the cost of borrowing. Future borrowings will be used primarily to fund future acquisitions of real estate assets or interests therein. Accordingly,
the amounts of future borrowings and future interest expense will be largely dependent upon the level of additional investor proceeds raised, the opportunities to acquire real estate assets consistent with our investment objectives, and the timing
of such future acquisitions.



Minority interest in earnings of consolidated
subsidiaries increased from $0 for the three months ended September 30, 2004 to approximately $83,000 for the three months ended September 30, 2005, primarily as a result of acquiring an approximate 95% interest in a joint venture that
owns the Highland Landmark III property on December 28, 2004. In addition, we acquired interests in two properties, the Nashoba Buildings and the Baldwin Point Building, through separate joint ventures with minority interest partners in
August 2005. Earnings allocated to minority interest partners fluctuate based on the level of earnings generated by related properties and the nature of the allocation provisions provided in respective joint venture agreements. Accordingly, minority
interest in earnings of consolidated subsidiaries is expected to continue to increase in future periods, as compared to historical periods, due to owning the Nashoba Buildings and the Baldwin Point Building for an entire period.



We recognized net income and net income per share of approximately $5.2 million and $0.03,
respectively, for the third quarter of 2005, as compared to net loss and net loss per share of approximately ($1.7) million and ($0.04), respectively, for the three months ended September 30, 2004, primarily due to the fact that the increase in
net operating income generated from our growing portfolio of properties outpaced the increase in property and portfolio expenses for the third quarter of 2005, as compared to the third quarter of 2004. Net income is expected to continue to increase
in future periods, as compared to historical periods, due to owning the assets acquired during the quarter ended September 30, 2005 for an entire period and future acquisitions of real estate assets.



Comparison of the nine months ended September 30, 2005 versus the nine months ended
September 30, 2004



Rental income and tenant reimbursements increased
from approximately $20.7 million and $3.2 million, respectively, for the nine months ended September 30, 2004 to approximately $90.7 million and $19.7 million, respectively, for the nine months ended September 30, 2005, primarily as a
result of the growth in the portfolio during the fourth quarter of 2004 and the first three quarters of 2005. Rental income and tenant reimbursements are expected to continue to increase in future periods, as compared to historical periods, as a
result of owning the assets acquired during the nine months ended September 30, 2005 for an entire period and future acquisitions of real estate assets.



Interest and other income increased from approximately $1.7 million for the nine months ended September 30, 2004 to approximately $5.7 million for the nine months
ended September 30, 2005, primarily as a result of holding additional investor proceeds during the nine months ended September 30, 2005, which were generated from the sale of common stock under our ongoing offering during the fourth
quarter of 2004 and the first three quarters of 2005. Future levels of interest income will be largely dependent upon the rate at which investor proceeds are raised and the timing and availability of future acquisitions of real estate assets.



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Property operating costs and asset and property management fees increased from approximately $6.2 million and $1.7
million, respectively, for the nine months ended September 30, 2004 to approximately $31.3 million and $8.9 million, respectively, for the nine months ended September 30, 2005, primarily as a result of the growth in the portfolio during
the fourth quarter of 2004 and the first three quarters of 2005. Property operating costs and asset and property management fees are expected to continue to increase in future periods, as compared to historical periods, due to owning the assets
acquired during the nine months ended September 30, 2005 for an entire period and future acquisitions of additional real estate assets.



Depreciation of real estate and amortization of related lease costs increased from approximately $3.7 million and $5.5 million, respectively, for the nine months ended
September 30, 2004 to approximately $15.8 million and $29.7 million, respectively, for the nine months ended September 30, 2005, primarily due to the acquisition of properties during the fourth quarter of 2004 and the first three quarters
of 2005. Amortization of related lease costs increased by a greater amount than depreciation primarily as a result of amortizing related lease costs over shorter periods (the respective lease terms), as compared to depreciating buildings over 40
years. Depreciation and amortization are expected to continue to increase in future periods, as compared to historical periods, due to owning the assets acquired during the nine months ended September 30, 2005 for an entire period and future
acquisitions of real estate assets.



General and administrative expenses
increased from approximately $2.5 million for the nine months ended September 30, 2004 to approximately $6.1 million for the nine months ended September 30, 2005, primarily due to increases in administrative salary expense reimbursements
related to owning a larger portfolio of real estate assets as a result of acquiring properties during the fourth quarter of 2004 and the first three quarters of 2005. General and administrative expenses as a percent of total revenues decreased from
approximately 10% for the nine months ended September 30, 2004 to approximately 5% for the nine months ended September 30, 2005. In connection with the acquisition of additional real properties, we anticipate future general and
administrative expenses to continue to increase as measured in gross dollars and to continue to decrease as a percentage of total revenues as we achieve greater economies of scale with a larger portfolio of real estate assets in future periods, as
compared to historical periods.



Interest expense increased from approximately
$10.5 million for the nine months ended September 30, 2004 to approximately $16.7 million for the nine months ended September 30, 2005. The additional interest expense incurred during 2005 relates primarily to amounts drawn on our lines of
credit and in the form of new mortgage notes and mortgage notes assumed in connection with acquisitions of properties during the first six months of 2005. Future levels of interest expense will vary primarily based on the amounts of future
borrowings and the cost of borrowing. Future borrowings will be used primarily to fund future acquisitions of real estate assets or interests therein. Accordingly, the amounts of future borrowings and future interest expense will be largely
dependent upon the level of additional investor proceeds raised, the opportunities to acquire real estate assets consistent with our investment objectives, and the timing of such future acquisitions.



Minority interest increased from approximately $7,000 in loss of consolidated subsidiaries
for the nine months ended September 30, 2004 to approximately $189,000 in earnings of consolidated subsidiaries for the nine months ended September 30, 2005, primarily as a result of acquiring an approximate 95% interest in a joint venture
that owns the Highland Landmark III property on December 28, 2004. In addition, we acquired interests in two properties, the Nashoba Buildings and the Baldwin Point Building, through separate joint ventures with minority interest partners
in August 2005. Earnings allocated to our minority interest partners fluctuate based on the level of earnings generated by related properties and nature of the allocation provisions provided in respective joint venture agreements. Accordingly,
minority interest in earnings (loss) of consolidated subsidiaries is expected to continue to increase in future periods, as compared to historical periods, due to owning the Nashoba Buildings and the Baldwin Point Building for an entire period.



We recognized net income and net income per share of approximately $7.5
million and $0.06, respectively, for the nine months ended September 30, 2005, as compared to net loss and net loss per share of approximately



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($4.6) million and ($0.23), respectively, for the nine months ended September 30, 2004, primarily due to the fact that the increase in net operating
income generated from our growing portfolio of properties outpaced the increase in property and portfolio expenses for the nine months ended September 30, 2005, as compared to the nine months ended September 30, 2004. Net income is
expected to continue to increase in future periods, as compared to historical periods, due to owning the assets acquired during the nine months ended September 30, 2005 for an entire period and future acquisitions of real estate assets.



Funds From Operations



We believe that funds from operations (FFO) is a beneficial indicator of the
performance of any equity REIT. Because FFO calculations exclude such factors as depreciation and amortization of real estate assets and gains or losses from sales of operating real estate assets (which can vary among owners of identical assets in
similar conditions based on historical cost accounting and useful-life estimates), they facilitate comparisons of operating performance between periods and with other REITs. Our management believes that accounting for real estate assets in
accordance with accounting principles generally accepted in the United States (GAAP) implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen
with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. As a result, we believe that the use
of FFO, together with the required GAAP presentations, provide a more complete understanding of our performance relative to our competitors and a more informed and appropriate basis on which to make decisions involving operating, financing, and
investing activities. Other REITs may not define FFO in accordance with the current National Association of Real Estate Investment Trusts (NAREIT) definition (as we do) or may interpret the current NAREIT definition differently
than we do.



We believe that net income, as defined by GAAP, is the most
relevant measure of our operating performance and, accordingly, believe that FFO should not be viewed as an alternative measurement of our operating performance to net income.



Noncash items such as depreciation, amortization, and gains on the sale of real estate assets are excluded from our calculation of FFO.
Conversely, FFO is not adjusted to reflect the cost of capital improvements or any related capitalized interest. Our calculation of FFO is presented in the following table (in thousands, except for weighted-average shares outstanding):



|                                    |  |                                         |             |      |                                        |            |      |  |      |             |  |   |            |  
|----------------------------------- |  | --------------------------------------- | ----------- | ---- | -------------------------------------- | ---------- | ---- |  | ---- | ----------- |  | - | ---------- | -
|                                    |  | For the Three Months EndedSeptember 30, |             |      | For the Nine Months EndedSeptember 30, |           
|                                    |  | 2005                                    |             | 2004 |                                        |            | 2005 |  | 2004 |            
|Net income (loss)                   |  | $                                       | 5,246       |      | $                                      | (1,656     | )    |  | $    | 7,484       |  | $ | (4,603     | )
|Add:                                |  |                                         |             |      |                                        |            |      |  |      |             |  |   |            |  
|Depreciation of real assets         |  |                                         | 6,542       |      |                                        | 2,386      |      |  |      | 15,773      |  |   | 3,743      |  
|Amortization of lease-related costs |  |                                         | 11,655      |      |                                        | 4,197      |      |  |      | 29,659      |  |   | 5,524      |  
|                                    |  |                                         |             |      |                                        |            |      |  |      |             |  |   |            |  
|FFO                                 |  | $                                       | 23,443      |      | $                                      | 4,927      |      |  | $    | 52,916      |  | $ | 4,664      |  
|                                    |  |                                         |             |      |                                        |            |      |  |      |             |  |   |            |  
|Weighted-average shares outstanding |  |                                         | 161,769,791 |      |                                        | 41,501,631 |      |  |      | 123,903,337 |  |   | 19,608,662 |  
|                                    |  |                                         |             |      |                                        |            |      |  |      |             |  |   |            |  



Set forth below is additional
information related to selected material cash and non-cash items included in or excluded from net income (loss) above, which may be helpful in assessing our operating results:



Included in Net Income (Loss):



| |  |  | We recognized straight-line rental revenues of approximately $4.4 million and $1.6 million for the three months ended September 30, 2005 and 2004, respectively, and
approximately $9.9 million and $2.5 million for the nine months ended September 30, 2005 and 2004, respectively;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | We recognized amortization of intangible lease assets and liabilities as a net decrease to rental revenues of approximately $0.8 million and $0.5 million for the three months ended
September 30, 2005 and 2004, respectively, and approximately $2.5 million and $0.9 million for the nine months ended September 30, 2005 and 2004, respectively; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We recognized amortization of deferred financing costs of approximately $0.2 million and $2.1 million for the three months ended September 30, 2005 and 2004, respectively, and
approximately $1.2 million and $4.1 million for the nine months ended September 30, 2005 and 2004, respectively.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Excluded from Net Income (Loss):



| |  |  | Master lease payments under various lease arrangements are not reflected in our net income. Master lease payments of $8.2 million and $15.1 million for the three- and nine-month
periods ended September 30, 2005, respectively, are considered when determining cash available for dividends to our stockholders.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Through the first quarter 2004, we previously reported the amortization of the fair values of in-place leases related to opportunity costs associated with lost rentals
that are avoided by acquiring in-place leases and tenant relationships as an adjustment to rental income in our consolidated statements of operations. Beginning with the second quarter 2004, we have presented this amortization as amortization
expense in our consolidated statements of operations, and have reclassified such amortization from rental income to amortization expense for the period previously presented. The period of amortization continues to be the term of the respective
lease. This reclassification results in no change in net loss as previously reported. The primary purpose of this change is to more closely align our presentation of such costs with similar costs as classified by others in the real estate industry.



REIT Qualification



We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended,
and have operated as such beginning with our taxable year ended December 31, 2003. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our REIT
taxable income, computed without regard to the dividends-paid deduction and by excluding our net capital gain to our stockholders. As a REIT, 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 taxes on our taxable income for four years following the year during which qualification is lost, unless the Internal Revenue Service grants us
relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to stockholders. However, we believe that we are organized and operate in such a manner as to qualify
for treatment as a REIT and intend to continue to operate in the foreseeable future so as to remain qualified as a REIT for federal income tax purposes. No provision for federal income taxes has been made in our accompanying consolidated financial
statements, as we made distributions in excess of taxable income for the periods presented. We are subject to certain state and local taxes related to the operations of properties in certain locations, which have been provided for in our
accompanying consolidated financial statements.



Inflation



We are exposed to inflation risk, as income from long-term leases is the primary source
of our cash flows from operations. There are provisions in the majority of our tenant leases that would help protect us from the impact of inflation. These provisions include rent steps, 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 offset the impact of 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 us to use judgment in the application of accounting policies, including making



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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 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.



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:



|                        |  |            
|----------------------- |  | -----------
|Buildings               |  | 40 years   
|Building improvements   |  | 5-25 years 
|Land improvements       |  | 20-25 years
|Tenant improvements     |  | Lease term 
|Intangible lease assets |  | Lease term 



Allocation of Purchase Price of
Acquired Assets



Upon the acquisition of real properties, it is our policy
to allocate the purchase price of properties to acquired tangible assets, consisting of land and building, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, other value of in-place
leases, and value of tenant relationships, based in each case on their fair values.



The fair values of the tangible assets of an acquired property (which includes land and building) are determined by valuing the property as if it were vacant, and the as-if-vacant value is then allocated to land and building
based on our determination of the relative fair value of these assets. We determine the as-if-vacant fair value of a property using methods similar to those used by independent appraisers. Factors considered by us in performing these analyses
include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, we include real estate taxes, insurance, and other operating expenses
and estimates of lost rental revenue during the expected lease-up periods based on current market demand. We also estimate the cost to execute similar leases including leasing commissions, legal, and other related costs.



The fair values of above-market and below-market in-place lease values are recorded based on
the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) our estimate of fair market
lease rates for the corresponding in-place leases, measured over a period equal to the remaining noncancelable term of the lease. The above-market and below-market lease values are capitalized as intangible lease assets and liabilities and amortized
as an adjustment of rental income over the remaining terms of the respective leases.



The fair values of in-place leases include direct costs associated with obtaining a new tenant, opportunity costs associated with lost rentals that are avoided by acquiring an in-place lease, and tenant relationships. Direct costs
associated with obtaining a new tenant include commissions, tenant improvements, and other direct costs and are estimated based on managements consideration of current market costs to execute a similar lease. These direct costs are included in
deferred lease costs in the accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the respective leases. The value of opportunity costs is calculated using the contractual amounts to be paid pursuant to
the in-place leases over a market absorption period for a similar lease. Customer relationships are valued based on expected renewal of a lease or the likelihood of obtaining a particular tenant for other locations. These lease intangibles are
included in intangible lease assets in the accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the respective leases. Beginning on April 1, 2004, these lease intangibles were amortized to expense
rather than as an adjustment to rental income.



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Estimates of the fair values of the tangible and intangible assets require us to estimate market lease rates, property
operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods, and the number of years the property is held for investment. The use of inappropriate estimates would result in an incorrect assessment of our
purchase price allocations, which could impact the amount of our reported net income.



Valuation of Real Estate Assets



We continually monitor events
and changes in circumstances that could indicate that the carrying amounts of the real estate and related intangible 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 and related intangible assets may not be recoverable, we assess the
recoverability of these assets by determining whether the carrying value 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 and related intangible assets to the fair value and recognize an impairment loss.



Projections of expected future cash flows require that we estimate future market rental income amounts subsequent to the expiration of
current lease agreements, property operating expenses, the number of months it takes to re-lease the property, and the number of years the property is held for investment, among other factors. The subjectivity of assumptions used in the future cash
flow analysis, including discount rates, could result in an incorrect assessment of the propertys fair value and could result in the misstatement of the carrying value of our real estate and related intangible assets and our net income. We
have determined that there has been no impairment in the carrying value of real estate assets held as of September 30, 2005.



Related-Party Transactions and Agreements



General



See Note 5 to our consolidated financial statements for a discussion of the various agreements with related parties.



Economic Dependency



We have engaged the Advisor and its affiliates, Wells Management and WIS, to provide certain services that are essential to us, including asset management services, supervision of the management and leasing of some
properties owned by us, asset acquisition and disposition services, the sale of shares of our common stock, as well as other administrative responsibilities for us including accounting services, stockholder communications, and investor relations.
These agreements are terminable by either party on 60 days written notice. As a result of these relationships, we are dependent upon the Advisor, Wells Management, and WIS.



The Advisor, Wells Management, and WIS are all owned and controlled by Wells Real Estate Funds, Inc. (WREF). The operations of
the Advisor, Wells Management, and WIS represent substantially all of the business of WREF. Accordingly, we focus on the financial condition of WREF when assessing the financial condition of the Advisor, Wells Management, and WIS. In the event that
WREF were to become unable to meet its obligations as they become due, we might be required to find alternative service providers.



Future net income generated by WREF will be largely dependent upon the amount of fees earned by the Advisor, Wells Management, and WIS based on, among other things, the
level of investor proceeds raised from the sale of Wells REIT IIs common stock and the volume of future acquisitions and dispositions of real estate assets by Wells-sponsored programs. As of September 30, 2005 and December 31, 2004,
WREF believes that it generates adequate cash flow from operations and has adequate liquidity available in the form of cash on hand and current receivables necessary to meet its current and future obligations as they become due.



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Dismissal of Litigation Against Related Parties



During early 2004, a putative class action complaint was filed against, among others, Leo. F. Wells, III, the president and a director of
Wells REIT II, the Advisor, and Wells Management (Hendry et al. v. Leo F. Wells, III et al., Superior Court of Gwinnett County, Georgia, Civil Action No. 04-A-2791-2). The Court granted the plaintiffs motion to permit voluntary
dismissal of this suit, and it was subsequently dismissed without prejudice. In November 2004, the same plaintiffs filed a second putative class action complaint against, among others, Mr. Wells, the Advisor, and Wells Management
(Hendry et al. v. Leo F. Wells, III et al., Superior Court of Gwinnett County, Georgia Civil Action No. 04A-13051-6). On January 28, 2005, the defendants filed motions for summary judgment and motions to dismiss the
plaintiffs claims. Pursuant to orders entered July 1, 2005, the Court granted the defendants motions to dismiss and for summary judgment on all counts in the complaint. Thus, this action has now been dismissed, subject to
the plaintiffs right to file a notice of appeal within the required time period. On August 3, 2005, the plaintiffs filed a motion requesting the Court to vacate and re-enter the orders to give the plaintiffs an opportunity
to file a motion for reconsideration or notice of appeal. Both the plaintiffs and defendants have filed briefs supporting their respective positions, and the plaintiffs motion is still pending before the Court.



Commitments and Contingencies



We are subject to certain contingencies and commitments with regard to certain transactions.
Refer to Notes 5, 6, and 7 to our consolidated financial statements for further explanation. Examples of such commitments and contingencies include:



| |  |  | Litigation against our Advisor and its affiliates (Note 5)
| | - |  | ----------------------------------------------------------



| |  |  | Decision One Building (Note 6)
| | - |  | ------------------------------



| |  |  | University Circle Buildings (Note 6)
| | - |  | ------------------------------------



| |  |  | Commitments under existing lease agreements (Note 6)
| | - |  | ----------------------------------------------------



| |  |  | Princeton Hill Take-Out Agreement (Note 6, 7)
| | - |  | ---------------------------------------------



Subsequent Events



Sale of Shares of Common Stock



From
October 1, 2005 through October 31, 2005, we raised approximately $75.5 million through the issuance of approximately 7.6 million shares of common stock under our initial public offering. As of October 31, 2005, approximately 415.8
million shares remained available for sale to the public under our initial public offering, exclusive of shares available under our dividend reinvestment plan; however, this offering is scheduled to terminate with the acceptance of subscription
agreements dated by November 26, 2005.



We have filed a registration statement
with the SEC to register 300,600,000 shares of common stock, of which up to 300,000,000 shares will be offered in the primary offering for $10 per share, with volume discounts available to investors who purchase more than 50,000 shares at any one
time. Discounts may also be available for other categories of purchasers. The remaining 600,000 shares of common stock are offered under our amended and restated dividend reinvestment plan at a purchase price equal to the higher of $9.55 per share
or 95% of the estimated value of a share of our common stock. The aforementioned registration statement was declared effective by the SEC on November 10, 2005. As of November 14, 2005, we had not issued any shares under this registration
statement.



Princeton Hill Take-Out Agreement



As of October 7, 2005, we have no exposure under the Princeton Hill Take-Out Agreement,
as Wells Exchange has sold all co-tenancy interests in the Princeton Hill Property to investors.



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Taxable REIT Subsidiary



On October 4, 2005, we created Wells TRS II, LLC (Wells TRS), a wholly owned subsidiary organized as a Delaware single-member limited liability company. We
have elected to treat Wells TRS as a taxable REIT subsidiary. We may perform additional, non-customary services for tenants of buildings owned by us through Wells TRS, including any real estate or non-real estate related services; however, any
earnings related to such services will be subject to federal and state income taxes. In addition, in order for us to continue to qualify as a REIT, our investment in Wells TRS cannot exceed 20% of value of our total assets.



Properties Under Contract



On October 28, 2005, we entered into a purchase and sale agreement to purchase a
27-story office building containing approximately 581,000 rentable square feet located in Houston, Texas, for a gross purchase price of $166.0 million, plus closing costs. In connection with the execution of the agreement, we paid a deposit of $3.0
million to an escrow agent, which will be applied to the purchase price. The acquisition is expected to be partially funded by the assumption of an existing $90.0 million fixed rate loan secured by the property. In the event that we do not receive
approval for our assumption of the existing loan by November 28, 2005, the agreement will automatically terminate and, provided we complied in all material respects with our obligation to procure the loan assumption approval, the $3.0 million
earnest money deposit will be refunded to us and we shall be relieved of all further liability and responsibility under the agreement.



On November 10, 2005, we entered into a purchase and sale agreement to purchase a six-story office building containing approximately 250,000 rentable square feet located
in Irving, Texas, for a gross purchase price of $45.2 million, exclusive of closing costs. In connection with the execution of the agreement, we paid a deposit of $0.8 million to an escrow agent, which will be applied to the purchase price at
closing.



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##### Table of Contents

|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
|------- | ---------------------------------------------------------



As a result of our debt facilities, we are exposed to interest rate changes. Our interest rate risk management objectives are to limit the impact of interest rate changes
on earnings and cash flow primarily through a low-to-moderate level of overall borrowings. However, we currently have a substantial amount of debt outstanding. We manage our ratio of fixed to floating rate debt with the objective of achieving the
most efficient mix between favorable rates and exposure to rate changes based on anticipated market conditions. Our line of credit is based on variable interest rates in order to take advantage of the lower rates available in the current interest
rate environment and to provide the necessary financing flexibility; however, we are closely monitoring interest rates and will continue to consider the sources and terms of our borrowing facilities to determine whether we have appropriately guarded
against the risk of increasing interest rates in future periods.



We may enter
into interest rate swaps, caps, or other arrangements in order to mitigate our interest rate risk on a related financial instrument. We do not enter into derivative or interest rate transactions for speculative purposes. All of our debt was entered
into for other than trading purposes, and the fair value of our debt approximates its carrying amount.



The Wachovia Line of Credit is our only debt instrument that bears interest at a variable rate. As of September 30, 2005, no amount was outstanding on the Wachovia Line of Credit.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------



Managements Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures



We carried out an evaluation, under the supervision and with the participation of management, including the Principal Executive Officer and
Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 as of the end of the period covered by this report. Based
upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report in providing a reasonable level
of assurance that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in applicable SEC rules and
forms, including providing a reasonable level of assurance that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Principal Executive Officer and our Principal Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.



Changes in Internal Control Over Financial Reporting



There
has been no identified change in our internal control over financial reporting that occurred during the quarter ended September 30, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.



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|PART II. | OTHER INFORMATION
|-------- | -----------------



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------



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



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------



| | (a) | On July 19, 2005, we issued options to purchase 8,000 shares of common stock at an exercise price of $12.00 per share to our independent directors under our Independent
Director Stock Option Plan. These options were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | The registration statement relating to our initial public offering (No. 333-107066) was declared effective on November 26, 2003. The offering commenced on December 1, 2003
and is ongoing. WIS is the dealer-manager of our offering. The registration statement covers 600.0 million shares of common stock in a primary offering at an aggregate price of up to $6.0 billion and an additional 185.0 million shares
under our dividend reinvestment plan at an aggregate price of $1.85 billion. Through September 30, 2005, we had sold approximately 176.6 million shares for gross offering proceeds of approximately $1.8 billion, out of which we incurred
costs of approximately $35.3 million in acquisition fees and expenses, approximately $167.8 million in selling commissions and dealer-manager fees, and approximately $29.5 million in organization and offering costs to WIS and the Advisor, which are
our affiliates.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For information regarding how
we used the net proceeds from our initial public offering (along with how we used cash from operating activities and from borrowings) through September 30, 2005, see our consolidated statements of cash flows included in this report and in our
Annual Report on Form 10-K for the year ended December 31, 2004.



| | (c) | During the quarter ended September 30, 2005, we redeemed shares as follows:
| | --- | ---------------------------------------------------------------------------



|               |  |                                        |  |                                         |      |                                                                                                                       |   |           
|-------------- |  | -------------------------------------- |  | --------------------------------------- | ---- | --------------------------------------------------------------------------------------------------------------------- | - | ----------
|Period         |  | ApproximateNumber ofShares Redeemed(1) |  | ApproximateAverage Price Paid per Share |      | Maximum Approximate DollarValue of Shares Available ThatMay Yet
Be Redeemed inCalendar Year 2005 Under the Plan(2)(3)
|July 2005      |  | 254,134                                |  | $                                       | 9.71 |                                                                                                                       | $ | 8,734,162 
|August 2005    |  | 198,778                                |  | $                                       | 9.71 |                                                                                                                       | $ | 6,803,486 
|September 2005 |  | 204,477                                |  | $                                       | 9.33 |                                                                                                                       | $ | 17,739,203

| | 
| | 

| | (1) | All shares redeemed were repurchased under our share redemption program. We announced the commencement of the program on December 10, 2003 and an amendment to the program on
April 22, 2004.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | During any calendar year, we will not redeem ordinary shares, exclusive of redemptions upon death or qualifying disability, in excess of 5% of the weighted-average common shares
outstanding during the prior calendar year.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | All redemptions under our share redemption program, including redemptions upon death or qualifying disability, are limited to those that can be funded with proceeds received from
the sale of shares under our dividend reinvestment plan during in the current calendar year, less redemptions previously funded during such calendar year.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------



There have been no defaults with respect to any of our indebtedness.



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



| | (a) | On July 19, 2005, we held our annual meeting of stockholders at The Atlanta Athletic Club in Duluth, Georgia.
| | --- | -------------------------------------------------------------------------------------------------------------



| | (b) | Our stockholders elected the following individuals to the board of directors: Leo Wells, III; Douglas Williams; Charles Brown; Richard Carpenter; Bud Carter; Donald Moss; Jack
Pinkerton; Walter Sessoms; Neil Strickland; and Wayne Woody.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | The above matter was approved by stockholders of the Registrant at the annual meeting by the casting of the following votes:
| | --- | ----------------------------------------------------------------------------------------------------------------------------



|                  |  |            |  |               
|----------------- |  | ---------- |  | --------------
|Name              |  | Votes For  |  | Votes Withheld
|Leo Wells, III    |  | 56,641,316 |  | 1,284,173     
|Douglas Williams  |  | 56,734,758 |  | 1,190,731     
|Charles Brown     |  | 56,729,981 |  | 1,195,508     
|Richard Carpenter |  | 56,715,069 |  | 1,210,420     
|Bud Carter        |  | 56,688,378 |  | 1,237,111     
|Donald Moss       |  | 56,715,292 |  | 1,210,197     
|Jack Pinkerton    |  | 56,669,640 |  | 1,255,849     
|Walter Sessoms    |  | 56,689,665 |  | 1,235,825     
|Neil Strickland   |  | 56,706,661 |  | 1,218,828     
|Wayne Woody       |  | 56,729,141 |  | 1,196,348     



|ITEM 5. | OTHER INFORMATION
|------- | -----------------



| | (a) | During the third quarter of 2005, there was no information that was required to be disclosed in a report on Form 8-K that was not disclosed in a report on Form 8-K.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | There are no material changes to the procedures by which stockholders may recommend nominees to the Registrants board of directors since the filing of the Registrants
Schedule 14A.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 6. | EXHIBITS
|------- | --------



The exhibits required to be filed with this report are set forth on the Exhibit Index to Third Quarter 2005 Form 10-Q attached hereto.



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SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.



|                         |  |                                                          |  |                                                                                        
|------------------------ |  | -------------------------------------------------------- |  | ---------------------------------------------------------------------------------------
|                         |  | WELLS REAL ESTATE INVESTMENT TRUST II, INC. (Registrant)
|                         |  |                                                         
|Dated: November 14, 2005 |  | By:                                                      |  | /s/ DOUGLAS P. WILLIAMS                                                                
|                         |  |                                                          |  | Douglas P. Williams Executive Vice
President, Treasurer and Principal Financial Officer



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##### Table of Contents

EXHIBIT INDEX

TO

THIRD QUARTER 2005 FORM 10-Q

OF

WELLS REAL ESTATE INVESTMENT TRUST II, INC.



|            |  |                                                                                                                                                                                                                                                                                         
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                             
|3.1         |  | Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Amendment No. 3 to the Registration Statement on Form S-11 (No. 333-107066) filed with the
Commission on November 25, 2003 (the Registration Statement))                                  
|            | 
|3.2         |  | Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Registration Statement)                                                                                                                                                                                    
|            | 
|4.1         |  | Form of Subscription Agreement (incorporated by reference to Appendix A to the Prospectus included in the Registration Statement)                                                                                                                                                       
|            | 
|4.2         |  | Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares
without certificates) (incorporated by reference to Exhibit 4.2 to the Registration Statement)
|            | 
|4.3         |  | Dividend Reinvestment Plan (incorporated by reference to Appendix B to the Prospectus included in the Registration Statement)                                                                                                                                                           
|            | 
|4.4         |  | Description of Share Redemption Plan (incorporated by reference to Supplement No. 9 included in Post-Effective Amendment No. 9 to the Registration Statement under the caption Share
Redemption Plan)                                                                                 
|            | 
|10.1        |  | Advisory Agreement between the Company and Wells Capital, Inc. dated October 20, 2005 (incorporated by reference to Post-Effective Amendment No. 11 to the Registration Statement on Form S-11
(file no. 333-107066))                                                                   
|            | 
|10.2        |  | Form of Dealer Manager Agreement between the Company and Wells Investment Securities, Inc. dated November 10, 2005 (incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement on Form S-11 (file no. 333-125643))                                        
|            | 
|10.3        |  | Purchase and Sale Agreement (relating to the acquisition of University Circle) entered August 1, 2005 between University Circle Investors, LLC and the Company (incorporated by reference to
Exhibit 10.3 to the Companys Form 10-Q for the period ended June 30, 2005)                
|            | 
|31.1        |  | Certification of the Chief Executive Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002                                                                                        
|            | 
|31.2        |  | Certification of the Chief Financial Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002                                                                                        
|            | 
|32.1        |  | Certification of the Chief Executive Officer and Chief Financial Officer of the Company pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002