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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, 2006

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

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



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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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act (check one).

Large Accelerated filer ̈Accelerated filer ̈Non-Accelerated filer  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

Number of shares
outstanding of the registrants

only class of common stock, as of October 31, 2006: 264,657,967 shares



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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                                                                                                             |  | 4       
| |  |                               |  |         
| |  |                               |  |          |  | Consolidated Balance Sheets as of September 30, 2006 (unaudited) and December 31, 2005                                                        |  | 5       
| |  |                               |  |         
| |  |                               |  |          |  | Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 2006 (unaudited) and 2005 (unaudited)              |  | 6       
| |  |                               |  |         
| |  |                               |  |          |  | Consolidated Statements of Stockholders Equity for the Year Ended December 31, 2005 and the Nine Months Ended September 30, 2006 (unaudited) |  | 7       
| |  |                               |  |         
| |  |                               |  |          |  | Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2006 (unaudited) and 2005 (unaudited)                           |  | 8       
| |  |                               |  |         
| |  |                               |  |          |  | Condensed Notes to Consolidated Financial Statements (unaudited)                                                                              |  | 9       
| |  |                               |  |         
| |  |                               |  | Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                         |  | 20      
| |  |                               |  |         
| |  |                               |  | Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                    |  | 29      
| |  |                               |  |         
| |  |                               |  | Item 4.  |  | Controls and Procedures                                                                                                                       |  | 30      
| |  |                              
| |  | PART II.
OTHER INFORMATION    |  |         
| |  |                               |  |         
| |  |                               |  | Item 1.  |  | Legal Proceedings                                                                                                                             |  | 31      
| |  |                               |  |         
| |  |                               |  | Item 1A. |  | Risk Factors                                                                                                                                  |  | 31      
| |  |                               |  |         
| |  |                               |  | Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                                   |  | 31      
| |  |                               |  |         
| |  |                               |  | Item 3.  |  | Defaults Upon Senior Securities                                                                                                               |  | 32      
| |  |                               |  |         
| |  |                               |  | Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                                                           |  | 32      
| |  |                               |  |         
| |  |                               |  | Item 5.  |  | Other Information                                                                                                                             |  | 33      
| |  |                               |  |         
| |  |                               |  | Item 6.  |  | Exhibits                                                                                                                                      |  | 33      



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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Form 10-Q of Wells Real Estate Investment Trust II, Inc. (Wells REIT II or
the Registrant) 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 applicable safe harbor provisions for forward-looking statements contained in those acts. 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, make distributions to stockholders, and
maintain the value of our real estate properties, may be significantly hindered. See Item 1A herein, as well as Item 1A in Wells REIT IIs Annual Report on Form 10-K for the year ended December 31, 2005, for a discussion of some
of the risks and uncertainties, although not all risks and uncertainties, that could cause actual results to differ materially from those presented in our forward-looking statements.



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PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

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

The accompanying 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, 2005. Wells
REIT IIs results of operations for the three months and nine months ended September 30, 2006 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 share and per share amounts)



|                                                                                                                                                                                     |  |                                |           |   |                   |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------ | --------- | - | ----------------- | - | --------- | -
|                                                                                                                                                                                     |  | (Unaudited) September 30, 2006 |           |   | December 31, 2005 |  
|Assets:                                                                                                                                                                              |  |                                |           |   |                   |   |           |  
|Real estate assets, at cost:                                                                                                                                                         |  |                                |           |   |                   |   |           |  
|Land                                                                                                                                                                                 |  | $                              | 332,570   |   |                   | $ | 277,097   |  
|Buildings and improvements, less accumulated depreciation of $65,807 and $31,961 as of September 30, 2006 and
December 31, 2005, respectively                                        |  |                                | 1,797,446 |   |                   |   | 1,589,689 |  
|Intangible lease assets, less accumulated amortization of $89,839 and $43,538 as of September 30, 2006 and
December 31, 2005, respectively                                           |  |                                | 415,679   |   |                   |   | 390,001   |  
|Construction in progress                                                                                                                                                             |  |                                | 1,085     |   |                   |   | 6,040     |  
|                                                                                                                                                                                     |  |                                |           |   |                   |   |           |  
|Total real estate assets                                                                                                                                                             |  |                                | 2,546,780 |   |                   |   | 2,262,827 |  
|                                                                                                                                                                                     |  |                               
|Cash and cash equivalents                                                                                                                                                            |  |                                | 72,948    |   |                   |   | 35,352    |  
|Tenant receivables, net of allowance for doubtful accounts of $1,358 and $735 as of September 30, 2006 and
December 31, 2005, respectively                                           |  |                                | 47,687    |   |                   |   | 27,887    |  
|Prepaid expenses and other assets                                                                                                                                                    |  |                                | 41,949    |   |                   |   | 44,033    |  
|Deferred financing costs, less accumulated amortization of $1,278 and $614 as of September 30, 2006 and December 31,
2005, respectively                                              |  |                                | 2,791     |   |                   |   | 3,231     |  
|Deferred lease costs, less accumulated amortization of $43,250 and $20,929 as of September 30, 2006 and December 31,
2005, respectively                                              |  |                                | 285,004   |   |                   |   | 237,553   |  
|Investment in bonds                                                                                                                                                                  |  |                                | 78,000    |   |                   |   | 78,000    |  
|                                                                                                                                                                                     |  |                                |           |   |                   |   |           |  
|Total assets                                                                                                                                                                         |  | $                              | 3,075,159 |   |                   | $ | 2,688,883 |  
|                                                                                                                                                                                     |  |                                |           |   |                   |   |           |  
|                                                                                                                                                                                     |  |                               
|Liabilities:                                                                                                                                                                         |  |                                |           |   |                   |   |           |  
|Line of credit and notes payable                                                                                                                                                     |  | $                              | 743,689   |   |                   | $ | 832,402   |  
|Accounts payable, accrued expenses, and accrued capital expenditures                                                                                                                 |  |                                | 32,258    |   |                   |   | 31,694    |  
|Due to affiliates                                                                                                                                                                    |  |                                | 2,866     |   |                   |   | 8,220     |  
|Dividends payable                                                                                                                                                                    |  |                                | 6,310     |   |                   |   | 5,142     |  
|Deferred income                                                                                                                                                                      |  |                                | 8,458     |   |                   |   | 8,387     |  
|Intangible lease liabilities, less accumulated amortization of $8,172 and $3,894 as of September 30, 2006 and
December 31, 2005, respectively                                        |  |                                | 93,172    |   |                   |   | 62,560    |  
|Obligations under capital leases                                                                                                                                                     |  |                                | 78,000    |   |                   |   | 78,000    |  
|                                                                                                                                                                                     |  |                                |           |   |                   |   |           |  
|Total liabilities                                                                                                                                                                    |  |                                | 964,753   |   |                   |   | 1,026,405 |  
|                                                                                                                                                                                     |  |                               
|Commitments and Contingencies                                                                                                                                                        |  |                                |          |   |                   |   |          |  
|                                                                                                                                                                                     |  |                               
|Minority Interest                                                                                                                                                                    |  |                                | 3,203     |   |                   |   | 2,724     |  
|                                                                                                                                                                                     |  |                               
|Redeemable Common Stock                                                                                                                                                              |  |                                | 33,156    |   |                   |   |          |  
|                                                                                                                                                                                     |  |                               
|Stockholders Equity:                                                                                                                                                                |  |                                |           |   |                   |   |           |  
|Common stock, $0.01 par value; 900,000,000 shares authorized; 258,275,700 and 197,403,280 shares issued and outstanding as of
September 30, 2006 and December 31, 2005, respectively |  |                                | 2,583     |   |                   |   | 1,974     |  
|Additional paid-in capital                                                                                                                                                           |  |                                | 2,296,001 |   |                   |   | 1,752,162 |  
|Cumulative distributions in excess of earnings                                                                                                                                       |  |                                | (190,269  | ) |                   |   | (94,382   | )
|Redeemable common stock                                                                                                                                                              |  |                                | (33,156   | ) |                   |   |          |  
|Other comprehensive loss                                                                                                                                                             |  |                                | (1,112    | ) |                   |   |          |  
|                                                                                                                                                                                     |  |                                |           |   |                   |   |           |  
|Total stockholders equity                                                                                                                                                           |  |                                | 2,074,047 |   |                   |   | 1,659,754 |  
|                                                                                                                                                                                     |  |                                |           |   |                   |   |           |  
|Total liabilities, minority interest, redeemable common stock, and stockholders equity                                                                                              |  | $                              | 3,075,159 |   |                   | $ | 2,688,883 |  
|                                                                                                                                                                                     |  |                                |           |   |                   |   |           |  

See accompanying notes.



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WELLS REAL ESTATE INVESTMENT TRUST II, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)



|                                                               |  |                                              |         |   |                                             |   |         |      |  |   |         |   |  |   |         |  
|-------------------------------------------------------------- |  | -------------------------------------------- | ------- | - | ------------------------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                               |  | (Unaudited) Three Months Ended September 30, |         |   | (Unaudited) Nine Months Ended September 30, |  
|                                                               |  | 2006                                         |         |   | 2005                                        |   |         | 2006 |  |   | 2005    |  
|Revenues:                                                      |  |                                              |         |   |                                             |   |         |      |  |   |         |   |  |   |         |  
|Rental income                                                  |  | $                                            | 61,260  |   |                                             | $ | 35,795  |      |  | $ | 176,076 |   |  | $ | 90,675  |  
|Tenant reimbursements                                          |  |                                              | 13,287  |   |                                             |   | 8,538   |      |  |   | 40,657  |   |  |   | 19,683  |  
|Hotel income                                                   |  |                                              | 7,426   |   |                                             |   |        |      |  |   | 17,811  |   |  |   |        |  
|                                                               |  |                                              |         |   |                                             |   |         |      |  |   |         |   |  |   |         |  
|                                                               |  |                                              | 81,973  |   |                                             |   | 44,333  |      |  |   | 234,544 |   |  |   | 110,358 |  
|Expenses:                                                      |  |                                              |         |   |                                             |   |         |      |  |   |         |   |  |   |         |  
|Property operating costs                                       |  |                                              | 22,266  |   |                                             |   | 13,122  |      |  |   | 65,272  |   |  |   | 31,259  |  
|Hotel operating costs                                          |  |                                              | 5,483   |   |                                             |   |        |      |  |   | 13,479  |   |  |   |        |  
|Asset and property management fees:                            |  |                                              |         |   |                                             |   |         |      |  |   |         |   |  |   |         |  
|Related-party                                                  |  |                                              | 5,170   |   |                                             |   | 2,882   |      |  |   | 14,806  |   |  |   | 7,159   |  
|Other                                                          |  |                                              | 1,183   |   |                                             |   | 635     |      |  |   | 3,560   |   |  |   | 1,741   |  
|Depreciation                                                   |  |                                              | 11,937  |   |                                             |   | 6,542   |      |  |   | 33,846  |   |  |   | 15,773  |  
|Amortization                                                   |  |                                              | 20,475  |   |                                             |   | 11,655  |      |  |   | 59,988  |   |  |   | 29,659  |  
|Lease termination expense                                      |  |                                              | 1,814   |   |                                             |   |        |      |  |   | 1,814   |   |  |   |        |  
|General and administrative                                     |  |                                              | 2,919   |   |                                             |   | 1,523   |      |  |   | 8,807   |   |  |   | 6,134   |  
|                                                               |  |                                              |         |   |                                             |   |         |      |  |   |         |   |  |   |         |  
|                                                               |  |                                              | 71,247  |   |                                             |   | 36,359  |      |  |   | 201,572 |   |  |   | 91,725  |  
|                                                               |  |                                              |         |   |                                             |   |         |      |  |   |         |   |  |   |         |  
|Real estate operating income                                   |  |                                              | 10,726  |   |                                             |   | 7,974   |      |  |   | 32,972  |   |  |   | 18,633  |  
|                                                               |  |                                              |         |  
|Other income (expense):                                        |  |                                              |         |   |                                             |   |         |      |  |   |         |   |  |   |         |  
|Interest expense                                               |  |                                              | (9,415  | ) |                                             |   | (5,478  | )    |  |   | (30,755 | ) |  |   | (16,667 | )
|Loss on early extinguishment of debt                           |  |                                              |        |   |                                             |   |        |      |  |   | (1,115  | ) |  |   |        |  
|Interest and other income                                      |  |                                              | 1,818   |   |                                             |   | 2,833   |      |  |   | 5,559   |   |  |   | 5,707   |  
|                                                               |  |                                              |         |   |                                             |   |         |      |  |   |         |   |  |   |         |  
|                                                               |  |                                              | (7,597  | ) |                                             |   | (2,645  | )    |  |   | (26,311 | ) |  |   | (10,960 | )
|                                                               |  |                                              |         |   |                                             |   |         |      |  |   |         |   |  |   |         |  
|Income before minority interest and income tax expense         |  |                                              | 3,129   |   |                                             |   | 5,329   |      |  |   | 6,661   |   |  |   | 7,673   |  
|                                                               |  |                                              |         |  
|Minority interest in earnings of consolidated entities         |  |                                              | (204    | ) |                                             |   | (83     | )    |  |   | (580    | ) |  |   | (189    | )
|                                                               |  |                                              |         |   |                                             |   |         |      |  |   |         |   |  |   |         |  
|Income before income tax expense                               |  |                                              | 2,925   |   |                                             |   | 5,246   |      |  |   | 6,081   |   |  |   | 7,484   |  
|                                                               |  |                                              |         |  
|Income tax expense                                             |  |                                              | (288    | ) |                                             |   |        |      |  |   | (239    | ) |  |   |        |  
|                                                               |  |                                              |         |   |                                             |   |         |      |  |   |         |   |  |   |         |  
|Net income                                                     |  | $                                            | 2,637   |   |                                             | $ | 5,246   |      |  | $ | 5,842   |   |  | $ | 7,484   |  
|                                                               |  |                                              |         |   |                                             |   |         |      |  |   |         |   |  |   |         |  
|Per share information  basic and diluted:                     |  |                                              |         |   |                                             |   |         |      |  |   |         |   |  |   |         |  
|Net income available to common stockholders                    |  | $                                            | 0.01    |   |                                             | $ | 0.03    |      |  | $ | 0.03    |   |  | $ | 0.06    |  
|                                                               |  |                                              |         |   |                                             |   |         |      |  |   |         |   |  |   |         |  
|Weighted-average common shares outstanding  basic and diluted |  |                                              | 247,285 |   |                                             |   | 161,770 |      |  |   | 226,983 |   |  |   | 123,903 |  
|                                                               |  |                                              |         |   |                                             |   |         |      |  |   |         |   |  |   |         |  

See accompanying notes.



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WELLS REAL ESTATE INVESTMENT TRUST II, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2005

AND THE NINE MONTHS ENDED SEPTEMBER 30, 2006 (UNAUDITED)

(in thousands, except per share amounts)



|                                                                         |        |              |   |        |                            |       |   |                                              |   |           |                        |  |   |                         |   |  |                            |         |   |  |   |        |   |  |   |           |  
|------------------------------------------------------------------------ | ------ | ------------ | - | ------ | -------------------------- | ----- | - | -------------------------------------------- | - | --------- | ---------------------- |  | - | ----------------------- | - |  | -------------------------- | ------- | - |  | - | ------ | - |  | - | --------- | -
|                                                                         |        | Common Stock |   |        | Additional Paid-In Capital |       |   | CumulativeDistributionsin Excess
of Earnings |   |           | RedeemableCommon Stock |  |   | OtherComprehensive Loss |   |  | Total Stockholders Equity |        
|                                                                         | Shares |              |   | Amount |                            |       |   |                                              |   |          
|Balance, December 31, 2004                                               |        | 79,132       |   |        | $                          | 791   |   |                                              | $ | 699,463   |                        |  | $ | (23,139                 | ) |  | $                          |        |   |  | $ |       |   |  | $ | 677,115   |  
|                                                                         |        |              |   |        |                            |       |  
|Issuance of common stock                                                 |        | 119,875      |   |        |                            | 1,199 |   |                                              |   | 1,197,555 |                        |  |   |                        |   |  |                            |        |   |  |   |       |   |  |   | 1,198,754 |  
|Redemptions of common stock                                              |        | (1,604       | ) |        |                            | (16   | ) |                                              |   | (15,304   | )                      |  |   |                        |   |  |                            |        |   |  |   |       |   |  |   | (15,320   | )
|Dividends ($0.60 per share)                                              |        |             |   |        |                            |      |   |                                              |   |          |                        |  |   | (83,764                 | ) |  |                            |        |   |  |   |       |   |  |   | (83,764   | )
|Commissions and discounts on stock sales and related dealer-manager fees |        |             |   |        |                            |      |   |                                              |   | (113,017  | )                      |  |   |                        |   |  |                            |        |   |  |   |       |   |  |   | (113,017  | )
|Other offering costs                                                     |        |             |   |        |                            |      |   |                                              |   | (16,535   | )                      |  |   |                        |   |  |                            |        |   |  |   |       |   |  |   | (16,535   | )
|Net income                                                               |        |             |   |        |                            |      |   |                                              |   |          |                        |  |   | 12,521                  |   |  |                            |        |   |  |   |       |   |  |   | 12,521    |  
|                                                                         |        |              |   |        |                            |       |   |                                              |   |           |                        |  |   |                         |   |  |                            |         |   |  |   |        |   |  |   |           |  
|Balance, December 31, 2005                                               |        | 197,403      |   |        |                            | 1,974 |   |                                              |   | 1,752,162 |                        |  |   | (94,382                 | ) |  |                            |        |   |  |   |       |   |  |   | 1,659,754 |  
|                                                                         |        |              |   |        |                            |       |  
|Issuance of common stock                                                 |        | 63,430       |   |        |                            | 634   |   |                                              |   | 633,666   |                        |  |   |                        |   |  |                            |        |   |  |   |       |   |  |   | 634,300   |  
|Redemptions of common stock                                              |        | (2,557       | ) |        |                            | (25   | ) |                                              |   | (24,407   | )                      |  |   |                        |   |  |                            |        |   |  |   |       |   |  |   | (24,432   | )
|Redeemable common stock                                                  |        |             |   |        |                            |      |   |                                              |   |          |                        |  |   |                        |   |  |                            | (33,156 | ) |  |   |       |   |  |   | (33,156   | )
|Dividends ($0.45 per share)                                              |        |             |   |        |                            |      |   |                                              |   |          |                        |  |   | (101,729                | ) |  |                            |        |   |  |   |       |   |  |   | (101,729  | )
|Commissions and discounts on stock sales and related dealer-manager fees |        |             |   |        |                            |      |   |                                              |   | (57,113   | )                      |  |   |                        |   |  |                            |        |   |  |   |       |   |  |   | (57,113   | )
|Other offering costs                                                     |        |             |   |        |                            |      |   |                                              |   | (8,307    | )                      |  |   |                        |   |  |                            |        |   |  |   |       |   |  |   | (8,307    | )
|Components of comprehensive income:                                      |        |              |   |        |                            |       |   |                                              |   |           |                        |  |   |                         |   |  |                            |         |   |  |   |        |   |  |   |           |  
|Net income                                                               |        |             |   |        |                            |      |   |                                              |   |          |                        |  |   | 5,842                   |   |  |                            |        |   |  |   |       |   |  |   | 5,842     |  
|Loss on interest rate swap                                               |        |             |   |        |                            |      |   |                                              |   |          |                        |  |   |                        |   |  |                            |        |   |  |   | (1,112 | ) |  |   | (1,112    | )
|                                                                         |        |              |   |        |                            |       |   |                                              |   |           |                        |  |   |                         |   |  |                            |         |   |  |   |        |   |  |   |           |  
|Comprehensive income                                                     |        |              |   |        |                            |       |   |                                              |   |           |                        |  |   |                         |   |  |                            |         |   |  |   |        |   |  |   | 4,730     |  
|                                                                         |        |              |   |        |                            |       |   |                                              |   |           |                        |  |   |                         |   |  |                            |         |   |  |   |        |   |  |   |           |  
|Balance, September 30, 2006                                              |        | 258,276      |   |        | $                          | 2,583 |   |                                              | $ | 2,296,001 |                        |  | $ | (190,269                | ) |  | $                          | (33,156 | ) |  | $ | (1,112 | ) |  | $ | 2,074,047 |  
|                                                                         |        |              |   |        |                            |       |   |                                              |   |           |                        |  |   |                         |   |  |                            |         |   |  |   |        |   |  |   |           |  

See accompanying notes.



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##### Table of Contents

WELLS REAL ESTATE INVESTMENT TRUST II, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                            |  |                                             |          |   |      |   |          |  
|------------------------------------------------------------------------------------------- |  | ------------------------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                            |  | (unaudited) Nine Months Ended September 30, |         
|                                                                                            |  | 2006                                        |          |   | 2005 |  
|Cash Flows from Operating Activities:                                                       |  |                                             |          |   |      |   |          |  
|Net income                                                                                  |  | $                                           | 5,842    |   |      | $ | 7,484    |  
|Adjustments to reconcile net income to net cash provided by operating activities:           |  |                                             |          |   |      |   |          |  
|Depreciation                                                                                |  |                                             | 33,846   |   |      |   | 15,773   |  
|Other amortization                                                                          |  |                                             | 68,582   |   |      |   | 32,180   |  
|Amortization of deferred financing costs and fair market value adjustments on notes payable |  |                                             | 1,354    |   |      |   | 1,633    |  
|Loss on early extinguishment of debt                                                        |  |                                             | 1,115    |   |      |   |         |  
|Lease termination expense                                                                   |  |                                             | 1,814    |   |      |   |         |  
|Minority interest in earnings of consolidated entities                                      |  |                                             | 580      |   |      |   | 189      |  
|Changes in assets and liabilities:                                                          |  |                                             |          |   |      |   |          |  
|Increase in tenant receivables, net                                                         |  |                                             | (19,330  | ) |      |   | (10,938  | )
|Decrease (increase) in prepaid expenses and other assets                                    |  |                                             | 3,161    |   |      |   | (6,251   | )
|Increase in accounts payable and accrued expenses                                           |  |                                             | 7,169    |   |      |   | 1,144    |  
|Decrease in due to affiliates                                                               |  |                                             | (2,079   | ) |      |   | (77      | )
|Increase in deferred income                                                                 |  |                                             | 71       |   |      |   | 3,319    |  
|                                                                                            |  |                                             |          |   |      |   |          |  
|Net cash provided by operating activities                                                   |  |                                             | 102,125  |   |      |   | 44,456   |  
|                                                                                            |  |                                            
|Cash Flows from Investing Activities:                                                       |  |                                             |          |   |      |   |          |  
|Investment in real estate and earnest money paid                                            |  |                                             | (401,916 | ) |      |   | (712,591 | )
|Proceeds from master leases                                                                 |  |                                             | 6,040    |   |      |   | 15,094   |  
|Acquisition fees paid                                                                       |  |                                             | (14,677  | ) |      |   | (22,832  | )
|Deferred lease costs paid                                                                   |  |                                             | (3,708   | ) |      |   | (2,214   | )
|                                                                                            |  |                                             |          |   |      |   |          |  
|Net cash used in investing activities                                                       |  |                                             | (414,261 | ) |      |   | (722,543 | )
|                                                                                            |  |                                            
|Cash Flows from Financing Activities:                                                       |  |                                             |          |   |      |   |          |  
|Deferred financing costs paid                                                               |  |                                             | (840     | ) |      |   | (3,437   | )
|Proceeds from line of credit and notes payable                                              |  |                                             | 450,654  |   |      |   | 347,887  |  
|Repayments of line of credit and notes payable                                              |  |                                             | (536,934 | ) |      |   | (336,406 | )
|Prepayment penalty on early extinguishment of debt                                          |  |                                             | (5,734   | ) |      |   |         |  
|Distributions paid to minority interest partners                                            |  |                                             | (101     | ) |      |   | (160     | )
|Issuance of common stock                                                                    |  |                                             | 630,463  |   |      |   | 971,221  |  
|Redemptions of common stock                                                                 |  |                                             | (24,424  | ) |      |   | (10,399  | )
|Dividends paid to stockholders                                                              |  |                                             | (100,561 | ) |      |   | (53,184  | )
|Commissions on stock sales and related dealer-manager fees paid                             |  |                                             | (52,571  | ) |      |   | (89,692  | )
|Other offering costs paid                                                                   |  |                                             | (10,220  | ) |      |   | (16,605  | )
|                                                                                            |  |                                             |          |   |      |   |          |  
|Net cash provided by financing activities                                                   |  |                                             | 349,732  |   |      |   | 809,225  |  
|                                                                                            |  |                                            
|Net increase in cash and cash equivalents                                                   |  |                                             | 37,596   |   |      |   | 131,138  |  
|Cash and cash equivalents, beginning of period                                              |  |                                             | 35,352   |   |      |   | 20,876   |  
|                                                                                            |  |                                             |          |   |      |   |          |  
|Cash and cash equivalents, end of period                                                    |  | $                                           | 72,948   |   |      | $ | 152,014  |  
|                                                                                            |  |                                             |          |   |      |   |          |  

See accompanying notes.



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##### Table of Contents

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2006

(unaudited)

1. Organization

Wells Real Estate Investment Trust II, Inc. (Wells REIT II) is a Maryland corporation that has elected to be taxed as a
real estate investment trust (REIT) for federal income tax purposes. Wells REIT II 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 and commenced operations on January 22, 2004. Wells REIT II conducts business primarily through Wells Operating Partnership
II, L.P. (Wells OP II), a Delaware limited partnership. Wells REIT II is the sole general partner of Wells OP II and controls the operations of Wells OP II. Wells REIT II owns more than 99.9% of the equity interests in
Wells OP II. Wells Capital, Inc. (Wells Capital), the external advisor to Wells REIT II, is the sole limited partner of Wells OP II. Wells OP II acquires, develops, owns, leases, and operates real properties directly, through wholly
owned subsidiaries or through joint ventures. References to Wells REIT II herein shall include Wells REIT II, all subsidiaries of Wells REIT II, including consolidated joint ventures, Wells OP II, and Wells OP IIs subsidiaries. See Note 7 for
a discussion of the advisory services provided by Wells Capital.

As of September 30, 2006, Wells REIT II owned interests in 45 office
properties, one industrial building, and one hotel, comprising approximately 13.6 million square feet of rentable space located in 17 states and the District of Columbia. Forty-one of the properties are wholly owned and six are owned through
consolidated joint ventures. As of September 30, 2006, the office and industrial 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, of which 185.0 million shares were reserved for issuance through Wells REIT IIs dividend reinvestment plan,
pursuant to a Registration Statement filed on Form S-11 under the Securities Act of 1933. Except for continuing to offer shares for sale through its dividend reinvestment plan, Wells REIT II stopped offering shares for sale under its initial public
offering on November 26, 2005. Wells REIT II raised gross offering proceeds of approximately $2.0 billion from the sale of approximately 197.1 million shares under its initial public offering, including shares sold under the dividend
reinvestment plan after the primary offering terminated. On November 10, 2005, Wells REIT II commenced a follow-on offering of up to 300.6 million shares of common stock, of which 0.6 million shares were reserved for issuance under
Wells REIT IIs dividend reinvestment plan, pursuant to a Registration Statement filed on Form S-11 under the Securities Act of 1933. On April 14, 2006, Wells REIT II amended the aforementioned registration statements to offer in a
combined prospectus the 300.6 million shares registered under the follow-on offering and 174.4 million unsold shares related to the dividend reinvestment plan and registered under the initial public offering. As of September 30, 2006,
Wells REIT II had raised gross offering proceeds of approximately $654.1 million from the sale of approximately 65.4 million shares under the follow-on offering, including dividend reinvestment plan shares sold under the combined prospectus.

Wells REIT II has raised gross offering proceeds from the sale of common stock under the initial public offering and follow-on offering of
approximately $2.6 billion. After deductions from such gross offering proceeds for payments of acquisition fees of approximately $52.3 million, selling commissions and dealer-manager fees of approximately $245.4 million, other organization and
offering expenses of approximately $40.7 million, and common stock redemptions of approximately $42.3 million under the share redemption program, Wells REIT II had received aggregate net offering proceeds of approximately $2.2 billion as of
September 30, 2006. Substantially all of Wells REIT IIs net offering proceeds have been invested in real properties.

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 of 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.



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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 (SEC), 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 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. Wells REIT IIs consolidated financial statements include the accounts of Wells REIT II, Wells OP II, and a variable interest entity in which Wells REIT II is the primary beneficiary. 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, 2005.

Redeemable Common Stock

As of September 30, 2006, Wells REIT IIs share redemption program provided that
Ordinary Redemptions (those that do not occur within two years of death or qualifying disability) and those sought upon qualifying disability during any calendar year are limited to those that can be funded with proceeds raised in the
current calendar year from Wells REIT IIs dividend reinvestment plan. Although Wells REIT II is under no obligation to redeem any shares to the extent that total redemptions would exceed the foregoing limit, the board of directors of Wells
REIT II has reserved the right to redeem additional shares upon the death of stockholders. See Note 5 for a discussion of the limits on redemption.

As the use of proceeds raised in the current calendar year from the dividend reinvestment plan is outside the control of Wells REIT II, those proceeds 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 consolidated financial statements as of September 30, 2006.

Wells REIT IIs redeemable common shares are contingently redeemable at the option of the holder until such shares are tendered for redemption. Accordingly, pursuant to Statement of
Financial Accounting Standard (SFAS) No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS 150), Wells REIT II reclassifies such obligations from temporary
equity to a liability based upon their respective settlement values upon being tendered for redemption. As of September 30, 2006 and December 31, 2005, shares tendered for redemption and not yet redeemed of approximately $8,000 and $0,
respectively, are included in accounts payable, accrued expenses, and accrued capital expenditures in the accompanying consolidated balance sheets.

Interest Rate Swap Agreements

Wells REIT II has entered into interest rate swap agreements to hedge its exposure to
changing interest rates on variable rate debt instruments. Wells REIT II accounts for interest rate swap agreements in accordance with SFAS No. 133, Accounting for DerivativeInstruments and Hedging Activities. Accordingly, the
fair value of all interest rate swap agreements are included in either prepaid expenses and other assets or accounts payable, accrued expenses, and accrued capital expenditures in the consolidated balance sheets. The change in fair value of the
effective portion of an interest rate swap agreement that is designated as a hedge is recorded as other comprehensive income (loss) in the consolidated statement of stockholders equity. All other changes in fair values of interest rate swap
agreements are recorded as other income (expense) in the accompanying consolidated statements of income. Net amounts received or paid under interest rate swap agreements are recorded as adjustments to interest expense as incurred.



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Revenue Recognition  Hotel Operations

Wells REIT II owns an interest in a full-service hotel. Revenues derived from the operations of the hotel include, but are not limited to, revenues from
rental of rooms, food and beverage sales, telephone usage, and other service revenues. Revenue is recognized when rooms are occupied, when services have been performed, and when products are delivered.

Income Taxes

Wells REIT II has
elected to be taxed as a REIT under the Internal Revenue Code of 1986 (the Code), as amended, and has operated as such beginning with its taxable year 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 adjusted taxable income, as defined in the Code, to its stockholders. As a REIT, Wells REIT II generally is not subject to income tax on income it
distributes to stockholders. 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.

On October 4, 2005, Wells REIT II created Wells TRS II, LLC (Wells TRS), a wholly owned subsidiary organized as a Delaware limited
liability company, which owns, among other things, an interest in a full-service hotel. 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 are subject to federal and state income taxes. In addition, for Wells REIT II to continue to
qualify as a REIT, Wells REIT IIs investments in taxable REIT subsidiaries cannot exceed 20% of the value of the total assets of Wells REIT II. Deferred tax assets and liabilities are established for temporary differences between the financial
reporting basis and the tax basis of assets and liabilities at the enacted rates expected to be in effect when the temporary differences reverse.

Reclassifications

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

Recent Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty inIncome Taxes, an interpretation of FASB
Statement No. 109, (FIN 48), which clarifies the relevant criteria and approach for the recognition, derecognition, and measurement of uncertain tax positions. FIN 48 will be effective for Wells REIT II beginning
January 1, 2007. Wells REIT II is currently assessing the provisions and evaluating the financial statement impact of FIN 48 on its consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157), which defines fair value, establishes a framework for measuring fair value, and
expands disclosures required for fair value measurements under GAAP. SFAS 157 emphasizes that fair value is a market-based measurement, as opposed to a transaction-specific measurement. SFAS 157 will be effective for Wells REIT II beginning
January 1, 2008. Wells REIT II is currently assessing the provisions and evaluating the financial impact of SFAS 157 on its consolidated financial statements.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements(SAB
No. 108), which provides interpretive guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. SAB No. 108 is effective for fiscal
years ending after November 15, 2006, and will be effective for Wells REIT II beginning December 31, 2006. Wells REIT II does not believe the adoption of such guidance will have an impact on its consolidated financial statements.



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3. Real Estate Acquisitions

Summary

As of September 30, 2006, Wells REIT II owned interests in 47
properties as a result of acquiring 18 properties during the year ended December 31, 2004, acquiring 21 properties during the year ended December 31, 2005, acquiring 2 properties and completing construction of the LakePointe 3 building
during the second quarter of 2006, and acquiring 5 properties during the third quarter of 2006.

263 Shuman Boulevard Building
Acquisition

On July 20, 2006, Wells REIT II purchased a five-story office building containing approximately 354,000 rentable
square feet (the 263 Shuman Boulevard Building) located on an approximate 15.2-acre parcel of land at 263 Shuman Boulevard in Naperville, Illinois, for a purchase price of approximately $55.3 million, exclusive of closing costs. The 263
Shuman Boulevard Building, which was constructed in 1986, is entirely leased to OfficeMax Incorporated.

11950 Corporate Boulevard
Building Acquisition

On August 9, 2006, Wells REIT II purchased a four-story office building containing approximately 227,000
rentable square feet (the 11950 Corporate Boulevard Building) located on an approximate 13.2-acre parcel of land at 11950 Corporate Boulevard in Orlando, Florida, for a purchase price of approximately $44.0 million, exclusive of closing
costs. The 11950 Corporate Boulevard Building, which was constructed in 2001, is entirely leased to Siemens Westinghouse Power Corporation.

Edgewater Corporate Center Building Acquisition

On September 6, 2006, Wells REIT II purchased a five-story office
building containing approximately 180,000 rentable square feet (the Edgewater Corporate Center Building previously referred to as the Decision One Building) located on an approximate 10.5-acre parcel of land at 3023 HSBC Way
in Lancaster, South Carolina, for a purchase price of approximately $35.5 million, exclusive of closing costs. The Edgewater Corporate Center Building, which was constructed in 2006, is entirely leased to Decision One Mortgage Company, LLC.

4300 Centreway Place Building Acquisition

On September 19, 2006, Wells REIT II purchased a three-story office building containing approximately 139,000 rentable square feet (the 4300 Centreway Place Building) located on an approximate
9.2-acre parcel of land at 4300 Centreway Place in Arlington, Texas, for a purchase price of approximately $19.3 million, exclusive of closing costs. The 4300 Centreway Place Building, which was constructed in 1998, is entirely leased to Aetna Life
Insurance Company.

80 Park Plaza Building Acquisition

On September 21, 2006, Wells REIT II purchased a 26-story office building containing approximately 1.0 million rentable square feet (the 80 Park Plaza Building) located on an approximate 2.8-acre
parcel of land at 1135-1155 Raymond Boulevard in Newark, New Jersey, for a purchase price of approximately $147.5 million, exclusive of closing costs. The 80 Park Plaza Building, which was constructed in 1979, is entirely leased to Public Service
Electric and Gas Company.



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4. Line of Credit and Notes Payable

As of September 30, 2006 and December 31, 2005, Wells REIT II had the following indebtedness outstanding (in thousands):



|                                                   |  |                   |         |                  |   |        
|-------------------------------------------------- |  | ----------------- | ------- | ---------------- | - | -------
|Facility                                           |  | September 30,2006 |         | December 31,2005
|Line of credit                                     |  | $                 | 173,000 |                  | $ | 214,000
|100 East Pratt Street Building mortgage note       |  |                   | 105,000 |                  |   | 105,000
|Wildwood Buildings mortgage note                   |  |                   | 90,000  |                  |   | 90,000 
|5 Houston Center Building mortgage note            |  |                   | 90,000  |                  |   | 90,000 
|One West Fourth Street Building mortgage note      |  |                   | 48,733  |                  |   | 49,662 
|800 North Frederick Building mortgage note         |  |                   | 46,400  |                  |   | 46,400 
|80 Park Plaza Building mortgage note               |  |                   | 45,900  |                  |   |       
|SanTan Corporate Center mortgage note              |  |                   | 39,000  |                  |   |       
|Highland Landmark Building mortgage note           |  |                   | 30,840  |                  |   | 30,840 
|9 Technology Drive Building mortgage note          |  |                   | 23,800  |                  |   | 23,800 
|One and Four Robbins Road Buildings mortgage note  |  |                   | 23,000  |                  |   | 23,000 
|LakePointe 3 construction loan                     |  |                   | 14,842  |                  |   | 6,476  
|Key Center Complex mortgage notes                  |  |                   | 13,174  |                  |   | 12,571 
|University Circle Buildings mortgage note          |  |                   |        |                  |   | 122,932
|Finley Road and Opus Place Buildings mortgage note |  |                   |        |                  |   | 17,721 
|                                                   |  |                   |         |                  |   |        
|Total indebtedness                                 |  | $                 | 743,689 |                  | $ | 832,402
|                                                   |  |                   |         |                  |   |        

During the three months ended September 30, 2006, Wells REIT II engaged in the following
significant activities with respect to its line of credit and notes payable:

The line of credit represents a $400.0 million unsecured
revolving financing facility (the Wachovia Line of Credit) with a syndicate of banks led by Wachovia Bank, N.A., which expires May 9, 2008. During August 2006, Wells REIT II pledged approximately $2.0 million of its borrowing
capacity under the Wachovia Line of Credit to a letter of credit for future tenant improvements. As of September 30, 2006, after consideration of the letter of credit, Wells REIT II had remaining borrowing capacity of up to approximately
$212.5 million under the Wachovia Line of Credit. During the three months ended September 30, 2006, Wells REIT II received net proceeds of $89.0 million under the Wachovia Line of Credit.

On September 21, 2006, Wells REIT II obtained a $45.9 million loan secured by the 80 Park Plaza Building (the 80 Park Plaza Building mortgage note) in favor of Anglo Irish Bank,
the proceeds of which were used to purchase the 80 Park Plaza Building (Note 3). The 80 Park Plaza Building mortgage note bears interest at LIBOR plus 130 basis points (approximately 6.63% per annum as of September 30, 2006) and matures in
September 2016. Interest is due monthly; however, under the terms of the loan agreement, monthly debt service amounts are added to the outstanding balance of the note over the term. Wells REIT II may prepay the 80 Park Plaza Building mortgage note
in full or in part at any time upon 15 days written notice subject to the payment of a cost maintenance fee, as defined by the loan agreement.

In connection with obtaining the 80 Park Plaza Building mortgage note, Wells REIT II entered into an interest rate swap agreement with Anglo Irish Bank. The interest rate swap agreement has an effective date of
September 22, 2006 and terminates on September 21, 2016. Under the terms of the interest rate swap agreement, Wells REIT II will pay Anglo Irish Bank monthly interest at a fixed rate of 5.275% per annum and receive LIBOR-based monthly
interest payments from Anglo Irish Bank. The interest rate swap effectively fixes Wells REIT IIs interest rate on the 80 Park Plaza Building mortgage note at 6.575%.

On September 28, 2006, Wells REIT II entered into a $39.0 million interest-only promissory note with Wachovia Bank, N.A. (the SanTan Corporate Center mortgage note). The SanTan
Corporate Center mortgage note is secured by the SanTan Corporate Center. The note matures on October 11, 2016 and bears interest at a fixed rate of 5.83% per annum.



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##### Table of Contents

Wells REIT II may prepay the SanTan Corporate Center mortgage note at anytime upon at least 30 days
written notice subject to certain prepayment penalties, as defined by the promissory note agreement.

Wells REIT II made interest payments,
including amounts capitalized, of approximately $26.3 million and $11.4 million during the nine months ended September 30, 2006 and 2005, respectively. This excludes the $5.7 million prepayment penalty paid in January 2006 related to the
University Circle Buildings mortgage note, which is included in loss on early extinguishment of debt in the accompanying consolidated statements of income.

5. Share Redemption Program

The board of directors of Wells REIT II approved an amendment to the
share redemption program (SRP), which became effective September 9, 2006. The amendment grants Wells REIT II discretion to redeem additional shares submitted for redemption upon the death of stockholders in excess of net
proceeds raised in the current calendar year from Wells REIT IIs dividend reinvestment plan. The redemption limits set forth in the amended SRP are summarized below:



| |  |  | Wells REIT II will not make an Ordinary Redemption (those that do not occur within two years of death or qualifying disability) until one year after the issuance
of the shares to be redeemed.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Wells REIT II will not redeem shares on any redemption date to the extent that such redemptions would cause the amount paid for Ordinary Redemptions since the
beginning of the then-current calendar year to exceed 50% of the net proceeds from the sale of shares under Wells REIT IIs dividend reinvestment plan during such period.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Wells REIT II will limit Ordinary Redemptions and those upon the qualifying disability of a stockholder so that the aggregate of such redemptions during any
calendar year do not exceed:
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 100% of the net proceeds from Wells REIT IIs dividend reinvestment plan during the calendar year or
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | 5% of the weighted-average number of shares outstanding in the prior calendar year.
| | - |  | -----------------------------------------------------------------------------------

Although there is no limit under the SRP on the number of shares Wells REIT II may redeem upon the death of stockholders, Wells REIT II is under no obligation to redeem such shares to the extent
such redemptions would cause total redemptions to exceed the two limits set forth immediately above.



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6. Supplemental Disclosures of Noncash Activities

Outlined below are significant noncash investing and financing transactions for the nine months ended September 30, 2006 and 2005 (in thousands):



|                                                                              |  |                                 |        |      |   |        
|----------------------------------------------------------------------------- |  | ------------------------------- | ------ | ---- | - | -------
|                                                                              |  | Nine Months Ended September 30,
|                                                                              |  | 2006                            |        | 2005
|Investment in real estate funded with other assets                            |  | $                               | 3,368  |      | $ | 345    
|                                                                              |  |                                 |        |      |   |        
|Acquisition fees applied to real estate assets                                |  | $                               | 11,781 |      | $ | 18,107 
|                                                                              |  |                                 |        |      |   |        
|Other assets assumed upon acquisition of properties                           |  | $                               | 58     |      | $ | 5,076  
|                                                                              |  |                                 |        |      |   |        
|Other liabilities assumed upon acquisition of properties                      |  | $                               | 965    |      | $ | 8,459  
|                                                                              |  |                                 |        |      |   |        
|Loss on interest rate swap                                                    |  | $                               | 1,112  |      | $ |       
|                                                                              |  |                                 |        |      |   |        
|Acquisition fees due to affiliate                                             |  | $                               | 330    |      | $ | 351    
|                                                                              |  |                                 |        |      |   |        
|Accrued capital expenditures and deferred lease costs                         |  | $                               | 5,087  |      | $ | 418    
|                                                                              |  |                                 |        |      |   |        
|Notes payable assumed upon acquisition of properties                          |  | $                               |       |      | $ | 118,269
|                                                                              |  |                                 |        |      |   |        
|Proceeds from note payable in escrow                                          |  | $                               | 2,112  |      | $ | 23,913 
|                                                                              |  |                                 |        |      |   |        
|Fair market value adjustments to notes payable upon acquisition of properties |  | $                               |       |      | $ | 5,458  
|                                                                              |  |                                 |        |      |   |        
|Write-off of fully amortized intangible assets and deferred lease costs       |  | $                               | 4,239  |      | $ |       
|                                                                              |  |                                 |        |      |   |        
|Write-off of fully amortized deferred financing costs                         |  | $                               | 34     |      | $ | 1,093  
|                                                                              |  |                                 |        |      |   |        
|Discounts applied to issuance of common stock                                 |  | $                               | 3,837  |      | $ | 3,067  
|                                                                              |  |                                 |        |      |   |        
|Contributions from minority interest partners                                 |  | $                               |       |      | $ | 1,300  
|                                                                              |  |                                 |        |      |   |        
|Redeemable common stock                                                       |  | $                               | 33,156 |      | $ | 17,739 
|                                                                              |  |                                 |        |      |   |        
|Accrued redemptions of common stock                                           |  | $                               | 8      |      | $ |       
|                                                                              |  |                                 |        |      |   |        
|Dividends payable                                                             |  | $                               | 6,310  |      | $ | 4,265  
|                                                                              |  |                                 |        |      |   |        
|Commissions on stock sales and related dealer-manager fees due to affiliate   |  | $                               | 789    |      | $ | 450    
|                                                                              |  |                                 |        |      |   |        
|Other offering costs due to affiliate                                         |  | $                               | 834    |      | $ | 861    
|                                                                              |  |                                 |        |      |   |        

7. Related-Party Transactions

Advisory Agreement

On October 26, 2006, Wells REIT II renewed the
advisory agreement (the Advisory Agreement) with Wells Capital through October 20, 2007. The Advisory Agreement entitles Wells Capital to earn specified fees for certain services. The terms of the renewed Advisory Agreement are
identical to the prior agreement. Either party may terminate the Advisory Agreement without cause or penalty upon providing 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 Wells Capital.

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



| |  |  | Reimbursement of organization and offering costs paid by Wells Capital 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 Wells Capital 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 (i) all properties of Wells REIT II and (ii) investments in joint ventures.
The amount of these fees paid in any calendar quarter may not exceed 0.25% of the net asset value of those investments at each quarter-end after deducting debt used to acquire or refinance properties;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



15



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##### Table of Contents

| |  |  | Reimbursement for all costs and expenses Wells Capital incurs in fulfilling its duties as the asset portfolio manager, including (i) wages and salaries and
other employee-related expenses of Wells Capitals employees, who 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 Wells Capital receives a disposition fee (described below) or an acquisition fee, and
(ii) amounts paid for IRA custodial service costs allocated to Wells REIT II accounts;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For any property sold by Wells REIT II, a disposition fee equal to 1.0% 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 Wells
Capital for certain organization and offering costs up to the lesser of actual expenses or 2% of gross equity raised. As of September 30, 2006, Wells REIT II has incurred and charged to additional paid-in capital cumulative other offering
costs of approximately $31.7 million related to the initial public offering and $9.0 million related to the follow-on offering, which represents approximately 1.6% and 1.4% of cumulative gross proceeds raised by Wells REIT II under each offering,
respectively.

Dealer-Manager Agreement

Wells REIT II has executed a Dealer-Manager Agreement with Wells Investment Securities, Inc. (WIS), whereby WIS, an affiliate of Wells Capital, performs the dealer-manager function for Wells REIT II.
For these services, WIS earns a commission 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. Effective beginning in the fourth quarter
of 2005, Wells REIT II no longer pays commissions on shares issued under its dividend reinvestment plan.

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. Wells REIT II pays no dealer-manager fees on shares issued under its 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 Wells Capital. In consideration for supervising the management,
leasing, and construction of certain Wells REIT II properties, Wells REIT II pays 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;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



16



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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.
| | - |  | -------------------------------------------------------------------------------------------------

Related-Party Costs

Pursuant to the
terms of the agreements described above, Wells REIT II incurred the following related-party costs for the three months and nine months ended September 30, 2006 and 2005, respectively (in thousands):



|                                                     |  |                                  |        |                                 |   |        |  |      |        |  |   |        
|---------------------------------------------------- |  | -------------------------------- | ------ | ------------------------------- | - | ------ |  | ---- | ------ |  | - | -------
|                                                     |  | Three Months Ended September 30, |        | Nine Months Ended September 30,
|                                                     |  | 2006                             |        | 2005                            |   | 2006   |  | 2005
|Commissions(1)                                       |  | $                                | 13,598 |                                 | $ | 20,244 |  | $    | 41,256 |  | $ | 68,200 
|Dealer-manager fees(1)                               |  |                                  | 5,264  |                                 |   | 7,230  |  |      | 15,857 |  |   | 24,357 
|Asset management fees                                |  |                                  | 4,940  |                                 |   | 2,775  |  |      | 14,345 |  |   | 7,043  
|Acquisition fees(2)                                  |  |                                  | 4,181  |                                 |   | 5,758  |  |      | 12,610 |  |   | 19,424 
|Reimbursements of organization and offering costs(1) |  |                                  | 2,381  |                                 |   | 2,429  |  |      | 8,307  |  |   | 13,706 
|Administrative reimbursements                        |  |                                  | 1,594  |                                 |   | 497    |  |      | 4,380  |  |   | 2,496  
|Property management fees                             |  |                                  | 230    |                                 |   | 107    |  |      | 461    |  |   | 116    
|Construction fees                                    |  |                                  |       |                                 |   |       |  |      | 150    |  |   |       
|                                                     |  |                                  |        |                                 |   |        |  |      |        |  |   |        
|                                                     |  | $                                | 32,188 |                                 | $ | 39,040 |  | $    | 97,366 |  | $ | 135,342
|                                                     |  |                                  |        |                                 |   |        |  |      |        |  |   |        

---

|(1) | Commissions, dealer-manager fees, and reimbursements of organization and offering costs are charged against stockholders equity in the
accompanying consolidated balance sheets.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Acquisition fees are capitalized as prepaid expenses and other assets in the accompanying consolidated balance sheets and are allocated to
properties upon acquiring properties, or repaying debt used to finance property acquisitions, with investor proceeds.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Wells REIT II incurred no related-party disposition fees, incentive fees, listing fees, or leasing commissions during the three months or nine months ended September 30, 2006 or 2005, respectively.



17



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##### Table of Contents

Due to Affiliates

The detail of amounts due to affiliates is provided below as of September 30, 2006 and December 31, 2005 (in thousands):



|                                                                                         |  |                    |       |                  |   |      
|---------------------------------------------------------------------------------------- |  | ------------------ | ----- | ---------------- | - | -----
|                                                                                         |  | September 30, 2006 |       | December 31,2005
|Other salary and administrative reimbursements due to Wells Capital and Wells Management |  | $                  | 913   |                  | $ | 906  
|Organization and offering cost reimbursements due to Wells Capital                       |  |                    | 834   |                  |   | 2,747
|Commissions and dealer-manager fees due to WIS                                           |  |                    | 789   |                  |   | 84   
|Acquisition fees due to Wells Capital                                                    |  |                    | 330   |                  |   | 2,397
|Asset management fees due to Wells Capital                                               |  |                    |      |                  |   | 2,086
|                                                                                         |  |                    |       |                  |   |      
|                                                                                         |  | $                  | 2,866 |                  | $ | 8,220
|                                                                                         |  |                    |       |                  |   |      

Economic Dependency

Wells REIT II has engaged Wells Capital 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s common stock, as well as other administrative responsibilities for Wells REIT
II including accounting services, stockholder communications, and investor relations. As a result of these relationships, Wells REIT II is dependent upon Wells Capital, Wells Management, and WIS.

Wells Capital, Wells Management, and WIS are all owned and controlled by Wells Real Estate Funds, Inc. (WREF). The operations of Wells
Capital, 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 Wells Capital, 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 Wells Capital and Wells Management based on, among other things, the level of investor proceeds raised and the volume of
future acquisitions and dispositions of real estate assets by Wells REIT II and other WREF-sponsored programs. As of September 30, 2006, Wells REIT II believes that WREF is generating 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.

8. Commitments and Contingencies

Take-Out Agreements

Wells Management 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 in order to qualify 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, a subsidiary of Wells Management attempts to sell co-tenancy interests in such property to 1031
Participants. The proceeds from such sales are typically used to immediately repay the interim financing.

As of September 30, 2006,
Wells REIT II had commitments outstanding under two Take-Out Purchase and Escrow Agreements (the Take-Out Agreements) related to the Wells Section 1031 Program. Under the terms of the Take-Out Agreements, Wells REIT II receives a
fee in exchange for committing to purchase any of the co-tenancy interests



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##### Table of Contents

described above that remain unsold to 1031 Participants on the maturity date of the interim financing
obtained to acquire the properties. In consideration for the exposure created under the Take-Out Agreements, Wells REIT II earned fees of approximately $0.1 million and $0.2 million for the three months ended September 30, 2006 and 2005,
respectively, and approximately $0.3 million and $0.2 million for the nine months ended September 30, 2006 and 2005, respectively, which are included in interest and other income in the accompanying consolidated statements of income.

Information regarding the Take-Out Agreements outstanding as of September 30, 2006 is as follows (in thousands):



|                     |  |                           |  |                     |  |                          |        |                                          |   |                          |  |   |   
|-------------------- |  | ------------------------- |  | ------------------- |  | ------------------------ | ------ | ---------------------------------------- | - | ------------------------ |  | - | --
|Location of Property |  | Property Acquisition Date |  | Obligation End Date |  | Initial Maximum Exposure |        | Remaining Exposure at September 30, 2006 |   | AdditionalFees Earned(1)
|Lisle, IL            |  | December 14, 2005         |  | December 14, 2006   |  | $                        | 12,080 |                                          | $ | 7,369                    |  | $ | 46
|Bellevue, NE         |  | December 16, 2005         |  | December 16, 2006   |  | $                        | 21,610 |                                          | $ | 14,165                   |  | $ | 77

---

|(1) | Additional fees earned represent amounts earned by Wells REIT II during the third quarter of 2006 for extending the take-out period through the
respective obligation end dates shown above.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Property Under Contract

On September 13, 2006, Wells REIT II entered into an agreement to acquire a 19-story office building containing approximately 630,000 rentable square
feet located on an approximate 1.9-acre tract of land at 95 Christopher Columbus Drive in Jersey City, New Jersey (the International Financial Tower) for a total contract price of $193.6 million, exclusive of closing costs. In connection
with the execution of this agreement, Wells REIT II paid a deposit of $4.0 million to an escrow agent, which is included in prepaid expenses and other assets in the accompanying consolidated balance sheets.On October 31, 2006, Wells
REIT II purchased the International Financial Tower for a purchase price of approximately $193.6 million, exclusive of closing costs. The International Financial Tower, which was constructed in 1989, is leased to Pershing, LLC (approximately 75%),
NTT Data USA, LLC (approximately 22%), and various other office and retail tenants (approximately 3%).

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. As of September 30, 2006, 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 that arise in the ordinary course of its business. Wells REIT II is not currently involved in any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on the results
of operations or financial condition of Wells REIT II. Wells REIT II is not aware of any such legal proceedings contemplated by governmental authorities.

9. Subsequent Event

Sale of Shares of Common Stock

From October 1, 2006 through October 31, 2006, Wells REIT II raised approximately $67.1 million through the issuance of approximately
6.7 million shares of common stock under its follow-on offering. As of October 31, 2006, approximately 227.9 million shares remained available for sale to the public under the follow-on offering, exclusive of shares available under
Wells REIT IIs dividend reinvestment plan.



19



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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 consolidated financial statements and notes thereto. See also Cautionary Note Regarding Forward-Looking Statements preceding Part I, as well as our
consolidated financial statements and the notes thereto 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, 2005.

Wells REIT II was formed on July 3, 2003. During 2004, we began acquiring real estate assets and receiving investor proceeds under our initial
public offering of common stock. We continued receiving investor proceeds and investing in real estate assets through September 30, 2006. Thus, our results of operations for the three months and nine months ended September 30, 2006 and
2005, respectively, reflect growing operational revenues and expenses, fluctuating interest expense, and general and administrative expenses. The increased operational revenues and expenses result from acquiring real properties, while the
fluctuations in interest expense arise from using varying levels of short-term and long-term debt financing for our acquisitions. Our general and administrative expenses have declined as a percentage of total revenues for the nine months ended
September 30, 2006, as compared to the nine months ended September 30, 2005, commensurate with the operational growth of the enterprise.

Liquidity and Capital Resources

Overview

From January 2004 through September 2006, we raised significant funds through the sale of our common stock under our public offerings. We primarily used the proceeds from these sales of common
stock, net of offering costs and other expenses, to acquire real properties and fund certain capital improvements identified at the time of acquisition. We anticipate receiving proceeds from the sale of our common stock under our follow-on offering
in the future, and investing such proceeds in future acquisitions of real properties. We also anticipate receiving proceeds from the sale of our common stock under our dividend reinvestment plan in the future, and using a significant portion of such
proceeds to fund redemptions of our common stock under our SRP. We expect that our primary source of future operating cash flows will be cash generated from the operations of the properties currently in our portfolio and those to be acquired in the
future. The amount of future dividends to be paid to our stockholders will be largely dependent upon the amount of cash generated from our operating activities, our expectations of future cash flows, and our determination of near-term cash needs for
capital improvements, tenant re-leasing, redemptions of our common stock, and debt repayments.

The competition to acquire high-quality
commercial office properties remains high. Timing differences arise between acquiring properties and raising capital and between making operating payments and collecting operating receipts. Accordingly, we may periodically be required to borrow
funds on a short-term basis to meet our dividend payment schedule. Our primary focus, however, is to continue to maintain the quality of our portfolio. Thus, in this intensely competitive environment, we may opt to lower the 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

During the nine months ended September 30, 2006, we generated net cash flows from operating activities of approximately $102.1 million, which is
primarily comprised of receipts for rental income, tenant reimbursements, hotel income, and interest and other income, partially offset by payments for operating costs, interest expense, asset and property management fees, and general and
administrative expenses. Such net cash flows from operating activities were primarily used to pay dividends to stockholders of approximately $100.6 million during the same period. We generated net cash flows from financing activities of
approximately $349.7 million during the nine months ended September 30, 2006, primarily as a result of raising proceeds from the sale of common stock under our public offerings, net of commissions, dealer-manager fees, and other offering costs
of approximately $567.7 million, reduced by net debt repayments and prepayment penalties of approximately $92.0 million and redemptions of common stock of approximately



20



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$24.4 million. Such net cash flows from financing activities and cash on hand were used primarily to
invest approximately $401.9 million in real estate and pay acquisition fees of approximately $14.7 million. We expect to utilize the residual cash balance of approximately $72.9 million as of September 30, 2006 to satisfy current liabilities,
pay future dividends, fund future acquisitions of real properties, or reduce indebtedness.

We intend to continue to generate capital from
the sale of common stock under our follow-on offering and from third-party borrowings, and to use such capital primarily to fund future acquisitions of real estate. We expect that we will use a significant portion of the proceeds from sales under
our dividend reinvestment plan to fund redemptions under the SRP. As of October 31, 2006, we held cash balances of approximately $41.6 million and had outstanding borrowings under the Wachovia Line of Credit of approximately $269.0 million. As
of October 31, 2006, after consideration of a letter of credit pledged against the Wachovia Line of Credit, we had a remaining borrowing capacity of approximately $116.5 million under the Wachovia Line of Credit. Accordingly, we believe that we
have adequate capacity to continue to expand our portfolio and meet our future operating cash flow needs. We expect to use substantially all of our future operating cash flow, after payments for certain capital expenditures, to pay dividends to
stockholders.

On September 5, 2006, our board of directors declared a daily dividend for stockholders of record from
September 16, 2006 through December 15, 2006 in an amount equal to an annualized dividend of $0.60 per share, which is consistent with the rate of dividends declared for each quarter of 2005 and the first three quarters of 2006 on a per
share basis. Such dividend will be paid during December 2006.

Long-term Liquidity and Capital Resources

We expect that our primary sources of capital over the long term will include proceeds from the sale of our common stock, proceeds from secured or
unsecured borrowings from third-party 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, tenant improvements,
offering-related costs, operating expenses, including interest expense on any outstanding indebtedness, and 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 temporarily use other sources of cash, such as short-term 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, the repayment of outstanding borrowings, and the redemption of shares under the SRP. If
sufficient equity or debt capital is not available, our future investments in real estate will be lower.

To the extent that future cash
flows provided by operations are lower due to lower returns on properties, future dividends paid may be lower as well. Our cash flow from operations depends significantly on market rents and our tenants ability to make rental payments. We
believe that the diversity of our tenant base and the concentration of creditworthy tenants in our portfolio help to mitigate the risk of a tenant defaulting on a lease. However, general economic downturns, or downturns in one or more of our core
markets, could adversely impact the ability of our tenants to make lease payments and our ability to re-lease space on favorable terms when leases expire. In the event of either situation, our cash flow and consequently our ability to meet capital
needs, could adversely affect our ability to pay dividends in the future.



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Contractual Commitments and Contingencies

As of September 30, 2006, our contractual obligations are as follows (in thousands):



|                                |  |       |           |                                                   |   |           |  |           |         |            |   |        |  |   |        
|------------------------------- |  | ----- | --------- | ------------------------------------------------- | - | --------- |  | --------- | ------- | ---------- | - | ------ |  | - | -------
|                                |  |       |           | Payments Due During the Years Ending December 31,
|Contractual Obligations         |  | Total |           | Remainder of 2006                                 |   | 2007-2008 |  | 2009-2010 |         | Thereafter
|Outstanding debt obligations(1) |  | $     | 743,689   |                                                   | $ | 118       |  | $         | 303,274 |            | $ | 25,029 |  | $ | 415,268
|Capital lease obligations       |  |       | 105,870   |                                                   |   | 1,170     |  |           | 9,360   |            |   | 9,360  |  |   | 85,980 
|Purchase obligations(2)         |  |       | 193,600   |                                                   |   | 193,600   |  |           |        |            |   |       |  |   |       
|Operating lease obligations     |  |       | 3,135     |                                                   |   | 15        |  |           | 120     |            |   | 120    |  |   | 2,880  
|                                |  |       |           |                                                   |   |           |  |           |         |            |   |        |  |   |        
|Total                           |  | $     | 1,046,294 |                                                   | $ | 194,903   |  | $         | 312,754 |            | $ | 34,509 |  | $ | 504,128
|                                |  |       |           |                                                   |   |           |  |           |         |            |   |        |  |   |        

---

|(1) | Amounts include principal payments only. We made interest payments of $26.3 million during the nine months ended September 30, 2006 and expect to pay
interest in future periods on outstanding debt obligations based on the rates and terms disclosed in our Annual Report on Form 10-K for the year ended December 31, 2005 and in Note 4 to our accompanying consolidated financial statements.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Represents a purchase commitment for the International Financial Tower, which was under contract at September 30, 2006. Refer to Note 8 of our accompanying
consolidated financial statements for further explanation.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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, property operating costs, asset and property management fees, depreciation, amortization, and net income will increase in future periods
as a result of owning the assets we acquired prior to and during the periods presented for an entire period and as a result of future acquisitions of real estate assets that are anticipated.

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 on January 22, 2004, we
acquired 18 properties during the year ended December 31, 2004 and acquired 21 properties during the year ended December 31, 2005. During the nine months ended September 31, 2006, we acquired 7 properties and completed construction of
the LakePointe 3 building, bringing our total portfolio to 47 properties as of September 30, 2006. Accordingly, the results of operations presented for the three months and nine months ended September 30, 2006 and 2005, respectively, are
not directly comparable.

Comparison of the three months ended September 30, 2005 versus the three months ended September 30,
2006

Rental income and tenant reimbursements increased from approximately $35.8 million and $8.5 million, respectively, for the three
months ended September 30, 2005 to approximately $61.3 million and $13.3 million, respectively, for the three months ended September 30, 2006, primarily as a result of the growth in the portfolio during the last three months of 2005 and
the first nine months of 2006. 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 last three months of 2005 and the
first nine months of 2006 for an entire period and future acquisitions of real estate assets.

Hotel income and hotel operating costs of
approximately $7.4 million and $5.5 million, respectively, were recognized for the three months ended September 30, 2006 and reflect earnings on one hotel property located in Cleveland, Ohio, which we acquired during the fourth quarter of 2005.

Property operating costs and asset and property management fees increased from approximately $13.1 million and $3.5 million,
respectively, for the three months ended September 30, 2005 to approximately $22.3 million and $6.4 million, respectively, for the three months ended September 30, 2006, primarily as a result of the growth in the portfolio during the
last three months of 2005 and the first nine months of 2006. 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 last three months of 2005 and the first nine months of 2006 for an entire period and future acquisitions of additional real estate assets.



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Depreciation of real estate and amortization of related lease costs increased from approximately $6.5
million and $11.7 million, respectively, for the three months ended September 30, 2005 to approximately $11.9 million and $20.5 million, respectively, for the three months ended September 30, 2006, primarily due to the acquisition of
properties during the last three months of 2005 and the first nine months of 2006. We expect depreciation and amortization to continue to increase in future periods, as compared to historical periods, due to future acquisitions of real estate
assets.

General and administrative expenses increased from approximately $1.5 million for the three months ended September 30, 2005
to approximately $2.9 million for the three months ended September 30, 2006, primarily due to increases in salary expense reimbursements payable to Wells Capital and Wells Management as a result of increasing the size of our portfolio of real
estate assets during the last three months of 2005 and the first nine months of 2006.

Lease termination expense of approximately $1.8
million was recognized for the three months ended September 30, 2006 due to a noncash partial write-off of intangible lease assets resulting from an amendment to a lease agreement that reduced base rent in exchange for the removal of a lease
termination option.

Interest expense increased from approximately $5.5 million for the three months ended September 30, 2005 to
approximately $9.4 million for the three months ended September 30, 2006, primarily due to new mortgage notes and mortgage notes assumed in connection with property acquisitions, as well as an increase in average borrowings under our line of
credit. There were no borrowings on the line of credit during the three months ended September 30, 2005 compared to average borrowings of approximately $173.1 million during the three months ended September 30, 2006. Future levels of
interest expense will vary primarily based on the amounts of future borrowings and the costs of borrowings. Future borrowings will be used primarily to fund future acquisitions of real estate or interests therein. Accordingly, the amounts of future
borrowings and future interest expense will largely depend on the level of additional proceeds we raise under our ongoing public offering, the opportunities to acquire real estate assets consistent with our investment objectives, and the timing of
such future acquisitions.

Net income and net income per share decreased from approximately $5.2 million and $0.03, respectively, for the
three months ended September 30, 2005 to approximately $2.6 million and $0.01, respectively, for the three months ended September 30, 2006, primarily as a result of the increases in lease termination expense and interest expense described
above. We expect future real estate acquisitions to result in an increase in net income in future periods and expect future net income per share to fluctuate primarily based on the level of proceeds raised in our ongoing public offering and the rate
at which we are able to invest such proceeds in income-generating real estate assets.

Comparison of the nine months ended
September 30, 2005 versus the nine months ended September 30, 2006

Rental income and tenant reimbursements increased from
approximately $90.7 million and $19.7 million, respectively, for the nine months ended September 30, 2005 to approximately $176.1 million and $40.7 million, respectively, for the nine months ended September 30, 2006, primarily as a result
of the growth in the portfolio during the last three months of 2005 and the first nine months of 2006. 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 last three months of 2005 and the first nine months of 2006 for an entire period and future acquisitions of real estate assets.

Hotel income and hotel operating costs of approximately $17.8 million and $13.5 million, respectively, were recognized for the nine months ended September 30, 2006 and reflect earnings on one hotel property
located in Cleveland, Ohio, which we acquired during the fourth quarter of 2005.

Property operating costs and asset and property
management fees increased from approximately $31.3 million and $8.9 million, respectively, for the nine months ended September 30, 2005 to approximately $65.3 million and $18.4 million, respectively, for the nine months ended
September 30, 2006, primarily as a result of the growth in the portfolio during the last three months of 2005 and the first nine months of 2006. 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 last three months of 2005 and the first nine months of 2006 for an entire period and future acquisitions of additional real estate assets.



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Depreciation of real estate and amortization of related lease costs increased from approximately $15.8
million and $29.7 million, respectively, for the nine months ended September 30, 2005 to approximately $33.8 million and $60.0 million, respectively, for the nine months ended September 30, 2006, primarily due to the acquisition of
properties during the last three months of 2005 and the first nine months of 2006. We expect depreciation and amortization to continue to increase in future periods, as compared to historical periods, due to future acquisitions of real estate
assets.

Lease termination expense of approximately $1.8 million was recognized for the nine months ended September 30, 2006 due to a
noncash partial write-off of intangible lease assets resulting from an amendment to a lease agreement that reduced base rent in exchange for the removal of a lease termination option.

General and administrative expenses increased from approximately $6.1 million for the nine months ended September 30, 2005 to approximately $8.8 million for the nine months ended
September 30, 2006, primarily due to increases in salary expense reimbursements payable to Wells Capital and Wells Management as a result of increasing the size of our portfolio of real estate assets during the last three months of 2005 and the
first nine months of 2006. General and administrative expenses as a percent of total revenues decreased from approximately 6% for the nine months ended September 30, 2005 to approximately 4% for the nine months ended September 30, 2006.

Interest expense increased from approximately $16.7 million for the nine months ended September 30, 2005 to approximately $30.8
million for the nine months ended September 30, 2006, primarily due to new mortgage notes and mortgage notes assumed in connection with property acquisitions, as well as an increase in average borrowings under our line of credit. Average
borrowings under our line of credit increased from approximately $13.2 million during the first nine months of 2005 to $202.3 million during the first nine months of 2006. Future levels of interest expense will vary primarily based on the amounts of
future borrowings and the costs of borrowings. Future borrowings will be used primarily to fund future acquisitions of real estate or interests therein. Accordingly, the amounts of future borrowings and future interest expense will largely depend on
the level of additional proceeds we raise under our ongoing public offering, the opportunities to acquire real estate assets consistent with our investment objectives, and the timing of such future acquisitions.

We recognized a loss on early extinguishment of debt of approximately $1.1 million during the nine months ended September 30, 2006 in connection
with prepaying the University Circle Buildings mortgage note in January 2006. The loss resulted from a prepayment penalty of approximately $5.7 million and a write-off of approximately $0.6 million in deferred financing costs, partially offset by a
write-off of the unamortized fair value adjustment to debt of approximately $5.2 million.

Net income and net income per share decreased
from approximately $7.5 million and $0.06, respectively, for the nine months ended September 30, 2005 to approximately $5.8 million and $0.03, respectively, for the nine months ended September 30, 2006, primarily as a result of the loss on
early extinguishment of debt, the lease termination expense, and the increase in interest expense described above. We expect future real estate acquisitions to result in an increase in net income in future periods and expect future net income per
share to fluctuate primarily based on the level of proceeds raised in our ongoing public offering and the rate at which we are able to invest such proceeds in income-generating real estate assets.

Funds From Operations

Funds from
operations (FFO) is a non-GAAP financial measure and should not be viewed as an alternative measurement of our operating performance to net income. We believe that FFO is a beneficial indicator of the performance of equity REITs.
Specifically, FFO calculations exclude factors such as depreciation and amortization of real estate assets and gains or losses from sales of operating real estate assets. As such factors can vary among owners of identical assets in similar
conditions based on historical cost accounting and useful-life estimates, FFO may provide a valuable comparison of operating performance between periods and with other REITs. Management believes that accounting for real estate assets in accordance
with GAAP implicitly assumes that the value of real estate assets



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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 presentation, provides 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. We calculate FFO in accordance with the current National Association of Real Estate Investment Trust (NAREIT) definition. However, other REITs may not define FFO in accordance with the NAREIT definition, or may interpret the
current NAREIT definition differently than we do.

As presented below, FFO is adjusted to exclude the impact of certain noncash items, such
as depreciation, amortization, and gains on the sale of real estate assets. Reconciliations of net income to FFO are presented below (in thousands):



|                                    |  |                                         |         |                                        |   |         |  |      |         |  |   |        
|----------------------------------- |  | --------------------------------------- | ------- | -------------------------------------- | - | ------- |  | ---- | ------- |  | - | -------
|                                    |  | For the Three MonthsEnded September 30, |         | For the Nine MonthsEnded September 30,
|                                    |  | 2006                                    |         | 2005                                   |   | 2006    |  | 2005
|Net income                          |  | $                                       | 2,637   |                                        | $ | 5,246   |  | $    | 5,842   |  | $ | 7,484  
|Add:                                |  |                                         |         |                                        |   |         |  |      |         |  |   |        
|Depreciation of real assets         |  |                                         | 11,937  |                                        |   | 6,542   |  |      | 33,846  |  |   | 15,773 
|Amortization of lease-related costs |  |                                         | 20,475  |                                        |   | 11,655  |  |      | 59,988  |  |   | 29,659 
|                                    |  |                                         |         |                                        |   |         |  |      |         |  |   |        
|FFO                                 |  | $                                       | 35,049  |                                        | $ | 23,443  |  | $    | 99,676  |  | $ | 52,916 
|                                    |  |                                         |         |                                        |   |         |  |      |         |  |   |        
|Weighted-average shares outstanding |  |                                         | 247,285 |                                        |   | 161,770 |  |      | 226,983 |  |   | 123,903
|                                    |  |                                         |         |                                        |   |         |  |      |         |  |   |        

Set forth below is additional information related to certain cash and noncash items included in or
excluded from net income above, which may be helpful in assessing our operating results. In addition, cash flows generated from FFO may be used to fund all or a portion of certain capitalizable items that are excluded from FFO, such as capitalized
interest, tenant improvements, building improvements, and deferred lease costs. Please see the accompanying consolidated statements of cash flows for detail of our operating, investing, and financing cash activities.

Noncash Items Included in Net Income:



| |  |  | Straight-line rental revenue of approximately $5.1 million and $4.4 million was recognized for the three months ended September 30, 2006 and 2005,
respectively, and approximately $16.1 million and $9.9 million was recognized for the nine months ended September 30, 2006 and 2005, respectively;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Amortization of above-market and below-market in-place leases was recognized as net decreases to rental income of approximately $2.8 million and $0.8 million for
the three months ended September 30, 2006 and 2005, respectively, and approximately $8.5 million and $2.5 million for the nine months ended September 30, 2006 and 2005, respectively;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Amortization of deferred financing costs of approximately $0.2 million and $0.2 million was recognized as interest expense for the three months ended
September 30, 2006 and 2005, respectively, and approximately $0.7 million and $1.2 million was recognized as interest expense for the nine months ended September 30, 2006 and 2005, respectively;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Approximately $1.1 million was recognized as a loss on early extinguishment of debt for the nine months ended September 30, 2006 in connection with
prepayment of the University Circle Buildings mortgage note during January 2006 resulting from a prepayment penalty of $5.7 million and a write-off of $0.6 million in deferred financing costs, partially offset by a write-off of the unamortized fair
value adjustment to debt of approximately $5.2 million; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Approximately $1.8 million was recognized as lease termination expense for the three months and nine months ended September 30, 2006 due to a noncash
partial write-off of intangible lease assets resulting from an amendment to a lease agreement that reduced base rent in exchange for the removal of a lease termination option.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Cash Item Excluded from Net Income:



| |  |  | Master lease proceeds relating to previous acquisitions of approximately $5.7 million and $8.2 million were collected during the three months ended
September 30, 2006 and 2005, respectively, and approximately $6.0 million and $15.1 million were collected during the nine months ended September 30, 2006 and 2005, respectively. Master lease proceeds are recorded as an adjustment to the
basis of real estate assets during the period acquired and, accordingly, are not included in net income or FFO. We consider master lease proceeds when determining cash available for dividends to our stockholders.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Election as a REIT

We have elected
to be taxed as a REIT under the Code, 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 adjusted taxable income, as defined in the Code, to our stockholders, computed without regard to the dividends-paid deduction and by excluding our net capital gain. 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 then be subject to federal income taxes on our taxable income for that year and for the 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 our stockholders.
However, we believe that we are organized and operate in such a manner as to qualify for treatment as a REIT for federal income tax purposes.

On October 4, 2005, we created Wells TRS II, LLC (Wells TRS), a wholly owned subsidiary organized as a Delaware limited liability company, which owns, among other things, an interest in a full-service hotel. We have elected
to treat Wells TRS as a taxable REIT subsidiary. We may perform additional, non-customary services for tenants of buildings that we own through Wells TRS, including any real estate or non-real estate related services; however, any earnings related
to such services are subject to federal and state income taxes. In addition, in order for us to continue to qualify as a REIT, our investments in taxable REIT subsidiaries cannot exceed 20% of the value of our total assets. Wells TRS had net
operating income on an income tax basis for the three months and nine months ended September 30, 2006. The related deferred tax liability as of September 30, 2006 is included in accounts payable, accrued expense, and accrued capital
expenditures, and the related deferred tax asset as of December 31, 2005 is included in prepaid and other assets in the accompanying consolidated balance sheets. The related income tax expense for the three months and nine months ended
September 30, 2006 is included in the accompanying consolidated statements of income.

No provision for federal income taxes has been
made in our accompanying consolidated financial statements, other than the provision relating to Wells TRS, as we made distributions in excess of taxable income for the periods presented. We are subject to certain state and local taxes related to
property operations 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 are intended to protect us from, and mitigate the risk of, 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 fully cover inflation.



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Application of Critical Accounting Policies

Our accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP requires management to
use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenue and expenses during the reporting periods. If 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                            
|Tenant improvements     |  | Shorter of economic life or lease term
|Intangible lease assets |  | Lease term                            

Allocation of Purchase Price of Acquired Assets

Upon the acquisition of real properties, we 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 and the value of in-place leases, based in each case on our estimate of 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 we consider 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, including leasing
commissions and other related costs. In estimating carrying costs, we include real estate taxes, insurance, and other operating expenses during the expected lease-up periods based on current market conditions.

The fair values of above-market and below-market in-place leases are recorded based on the present value (using a discount 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 terms of the leases. The capitalized above-market and below-market lease values are recorded as intangible lease assets or liabilities and amortized as an adjustment to 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
our 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.



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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 would 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 of 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 that suggest 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 decrease the carrying value of the real estate and
related intangible assets to the estimated fair values, as defined by Statement of Financial Accounting Standard No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, and recognize an impairment loss. Estimated fair
values are calculated based on the following information, in order of preference, dependent upon availability: (i) recently quoted market prices, (ii) market prices for comparable properties, or (iii) the present value of undiscounted
cash flows, including estimated salvage value. We have determined that there has been no impairment in the carrying value of our real estate assets during the nine months ended September 30, 2006 and 2005.

Projections of expected future operating 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 net income.

Related-Party Transactions and Agreements

We have entered into agreements with our advisor, Wells Capital, and its affiliates, whereby we pay certain fees and reimbursements to Wells Capital or its affiliates, for acquisition fees, commissions, dealer-manager fees, asset and
property management fees, construction fees, reimbursement of organizational and offering costs, and reimbursement of operating costs. See Note 7 to our accompanying consolidated financial statements included herein for a discussion of the various
related-party transactions, agreements, and fees.

Commitments and Contingencies

We are subject to certain commitments and contingencies with regard to certain transactions. Refer to Note 8 of our accompanying consolidated financial
statements for further explanation. Examples of such commitments and contingencies include:



| |  |  | Take-Out Agreements;
| | - |  | --------------------



| |  |  | Property under contract;
| | - |  | ------------------------



| |  |  | Commitments under existing lease agreements; and
| | - |  | ------------------------------------------------



| |  |  | Litigation.
| | - |  | -----------

Subsequent Events

Sale of Shares of Common Stock

From October 1, 2006 through October 31, 2006, we raised approximately $67.1 million through the issuance of approximately 6.7 million shares of our common stock under our follow-on offering. As of
October 31, 2006, approximately 227.9 million shares remained available for sale to the public under the follow-on offering, exclusive of shares available under our dividend reinvestment plan.



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International Financial Tower Acquisition

On October 31, 2006, we purchased a 19-story office building containing approximately 630,000 rentable square feet located on an approximate 1.9-acre tract of land at 95 Christopher Columbus
Drive in Jersey City, New Jersey, for a total contract price of $193.6 million, exclusive of closing costs. The International Financial Tower, which was constructed in 1989, is leased to Pershing, LLC (approximately 75%), NTT Data USA, LLC
(approximately 22%), and various other office and retail tenants (approximately 3%).

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 a mix that we believe is appropriate in light of anticipated changes in interest rates. 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 ourselves against the risk of increasing interest rates in future periods.

Additionally, we have entered into interest rate swaps, and may enter into other 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.

Our financial instruments consist of both fixed and variable rate debt. The Wachovia Line of Credit, the LakePointe 3 construction loan, and the 80 Park Plaza Building mortgage note are our only
debt instruments that bear interest at a variable rate. As of September 30, 2006, we had $173.0 million outstanding on the Wachovia Line of Credit, $14.8 million outstanding on the LakePointe 3 construction loan, $45.9 million outstanding on
the 80 Park Plaza Building mortgage note, and $510.0 million in fixed-rate, term mortgage loans. The weighted-average interest rate of our fixed and variable rate debt at September 30, 2006 was 5.4%.

The Wachovia Line of Credit is subject to interest costs based on, at our option, the London Interbank Offered Rate (LIBOR) for 7-, 30-, 60-,
90-, or 180-day periods, plus an applicable margin ranging from 0.85% to 1.20% (LIBOR Loans), or the floating base rate. The applicable margin for LIBOR Loans is based on the ratio of debt to total asset value. The base rate for any day
is the higher of Wachovias prime rate for such day, or the Federal Funds Rate for such day plus 50 basis points. The maturity date of the Wachovia Line of Credit is May 9, 2008. We are able to extend the initial maturity date to
May 9, 2009 if we seek an extension and meet the related conditions set forth in the agreement. An increase in the variable interest rate on this line of credit constitutes a market risk, as an increase in rates would increase interest incurred
and, therefore, decrease cash flows available for distribution to stockholders.

The LakePointe 3 construction loan is a debt instrument
used to fund a portion of the costs necessary to build an office building in Charlotte, North Carolina, which was completed in May 2006. The loan matures in 2007 and requires monthly interest payments at a rate of monthly LIBOR, plus 100 basis
points (approximately 6.3% per annum as of September 30, 2006). During the fourth quarter of 2005, we entered into an interest rate swap agreement to hedge exposure to changing interest rates. Under the terms of the interest rate swap
agreement, we are obligated to pay a monthly interest payment at a fixed rate of 4.84% per annum of the lesser of the outstanding balance on the construction loan or the notional amount under the swap agreement. The interest rate swap expires
in 2007.

On September 21, 2006, we obtained the $45.9 million 80 Park Plaza Building mortgage note to purchase the 80 Park Plaza
Building. The note bears interest at LIBOR plus 130 basis points (approximately 6.63% per annum as of September 30, 2006) and matures in September 2016. In connection with obtaining the 80 Park Plaza Building mortgage note, we entered into
an interest rate swap agreement to hedge exposure to changing interest rates. The interest rate swap



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agreement has an effective date of September 22, 2006 and terminates September 21, 2016. Under
the terms of the interest rate swap agreement, we will pay monthly interest at a fixed rate of 5.275% per annum and receive LIBOR-based monthly interest payments. The interest rate swap effectively fixes our interest rate on the 80 Park Plaza
Building mortgage note at 6.575%.

Approximately $510.0 million of our total debt outstanding as of September 30, 2006 is subject to
fixed rates, with an average interest rate of 5.09% and expirations ranging from 2008 to 2018. A change in the market interest rate impacts the net financial instrument position of our fixed-rate debt portfolio but has no impact on interest incurred
or cash flows.

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 pursuant to 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 in 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 were no significant changes in our internal control over financial reporting that occurred during the quarter
ended September 30, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are party to legal proceedings, which arise in the
ordinary course of our business. We are not currently involved in any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on our results of operations or financial condition, nor are we aware of any such
legal proceedings contemplated by governmental authorities.

ITEM 1A. RISK FACTORS

The following risk factor relates to our dependence on key personnel of Wells
Capital and should be read together with the risk factors disclosed under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2005.

Our inability to retain the services of key personnel could cause our operations to suffer

We rely
on Wells Capital and its affiliates for the day-to-day operation of our business. We believe that our success is significantly dependent upon the contributions of the key personnel of Wells Capital and its affiliates, including among others Leo F.
Wells, III, Douglas P. Williams, and Randall D. Fretz, each of whom would be difficult to replace. Such key personnel dedicate attention to multiple WREF-sponsored programs and, as a result, experience conflicts of interest in allocating their time
among us and other WREF-sponsored programs with which they are involved.

The charter of Wells Real Estate Investment Trust, Inc.
(Wells REIT), a Wells-sponsored program, requires that it begin the process of liquidating its investments if its shares are not listed on a national securities exchange by January 30, 2008. If the board of directors
of Wells REIT should decide to list its securities on a national securities exchange prior to January 30, 2008, Wells REIT might seek to become self-managed prior to listing due to the markets apparent preference for
self-managed REITs. In so doing, Wells REIT might consider acquiring a portion of Wells Capitals business in an effort to become self-managed. In the event that Wells Real Estate Investment Trust, Inc. or another WREF-sponsored
program were to sever ties with WREF, there is a risk that certain of these key personnel may cease their affiliation with us, Wells Capital, or its affiliates. In such event, we may be unable to find suitable replacement personnel, and our
operating results could suffer as a result.

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



|(a) | On July 19, 2006, we issued options to purchase 7,000 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. All equity securities sold by us in the quarter ended September 30, 2006 were
sold in an offering registered under the Securities Act of 1933.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | Not applicable.
|--- | ---------------



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|(c) | During the quarter ended September 30, 2006, we redeemed shares as follows (in thousands, except per share amounts):
|--- | --------------------------------------------------------------------------------------------------------------------



|               |  |                                    |  |                              |      |                                                                                         |    
|-------------- |  | ---------------------------------- |  | ---------------------------- | ---- | --------------------------------------------------------------------------------------- | ---
|Period         |  | Total Number of Shares Redeemed(1) |  | Average Price Paid per Share |      | Approximate Dollar Value of Shares Available That May Yet Be Redeemed
Under the Program
|July 2006      |  | 347                                |  | $                            | 9.48 |                                                                                         | (2)
|August 2006    |  | 387                                |  | $                            | 9.67 |                                                                                         | (2)
|September 2006 |  | 364                                |  | $                            | 9.39 |                                                                                         | (2)

---

|(1) | All shares repurchased were repurchased under our SRP. We announced the commencement of the program on December 10, 2003 and amendments to
the program on April 22, 2004; March 28, 2006; May 11, 2006; and August 10, 2006.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Effective September 9, 2006, we limit redemptions under the SRP as follows: We will not make Ordinary Redemptions (those that do
not occur within two years of death or qualifying disability) until one year after the issuance of the shares to be redeemed. We will not redeem shares on any redemption date to the extent that such redemptions would cause the amount paid for
Ordinary Redemptions since the beginning of the then-current calendar year to exceed 50% of the net proceeds from the sale of shares under our dividend reinvestment plan during such period. We will limit Ordinary Redemptions and those upon the
qualifying disability of a stockholder so that the aggregate of such redemptions during any calendar year do not exceed 100% of the net proceeds from our dividend reinvestment plan during the calendar year or 5% of the weighted-average number of
shares outstanding in the prior calendar year. Although there is no limit under the SRP on the number of shares we may redeem upon the death of stockholders, we are under no obligation to redeem such shares to the extent such redemptions would
cause total redemptions to exceed the two limits set forth immediately above. See Note 5 to our accompanying consolidated financial statements for additional discussion of the SRP.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ITEM 3. DEFAULTS UPON SENIOR SECURITIES



|(a) | There have been no defaults with respect to any of our indebtedness.
|--- | --------------------------------------------------------------------



|(b) | Not applicable.
|--- | ---------------

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



|(a) | On July 19, 2006, 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; Neil Strickland; and Wayne Woody. The board of directors also solicited proxies for the re-election of Walter W. Sessoms to the board. Mr. Sessoms passed away prior to the annual stockholders meeting and his
name was withdrawn. The board of directors has not made a decision to fill the vacancy on the board.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|                  |  |             |  |               
|----------------- |  | ----------- |  | --------------
|Name              |  | Votes For   |  | Votes Withheld
|Leo Wells, III    |  | 112,724,618 |  | 1,498,304     
|Douglas Williams  |  | 112,765,340 |  | 1,457,582     
|Charles Brown     |  | 112,748,001 |  | 1,474,921     
|Richard Carpenter |  | 112,718,578 |  | 1,504,344     
|Bud Carter        |  | 112,720,283 |  | 1,502,639     
|Donald Moss       |  | 112,688,456 |  | 1,534,466     
|Jack Pinkerton    |  | 112,628,035 |  | 1,594,887     
|Neil Strickland   |  | 112,701,234 |  | 1,521,688     
|Wayne Woody       |  | 112,757,053 |  | 1,465,869     



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ITEM 5. OTHER INFORMATION



|(a) | During the third quarter of 2006, 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 our board of directors since the filing of our Schedule 14A.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------

ITEM 6. EXHIBITS

The exhibits required to be filed with this report are set forth on the Exhibit Index to
this quarterly report attached hereto.



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SIGNATURES

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



|                        |  |                                                          |  |                                                                                        
|----------------------- |  | -------------------------------------------------------- |  | ---------------------------------------------------------------------------------------
|                        |  | WELLS REAL ESTATE INVESTMENT TRUST II, INC. (Registrant)
|                        |  |                                                         
|Dated: November 7, 2006 |  | By:                                                      |  | /s/ DOUGLAS P. WILLIAMS                                                                
|                        |  |                                                          |  | Douglas P. Williams Executive Vice President, Treasurer and Principal Financial Officer



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EXHIBIT INDEX TO

THIRD QUARTER 2006 FORM 10-Q OF

WELLS REAL ESTATE INVESTMENT TRUST II, INC.

The following documents are filed as exhibits to this report. Exhibits that are not required for this report are omitted.



|            |  |                                                                                                                                                                                                                                                                                                              
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 IPO Registration Statement))                                                   
|            | 
|3.2         |  | Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the IPO Registration Statement)                                                                                                                                                                                                     
|            | 
|4.1         |  | Form of Subscription Agreement with Consent to Electronic Delivery (incorporated by reference to Appendix A to the Prospectus included in Amendment No. 1 to the Registration
Statement on Form S-11 (No. 333-125643) filed with the Commission on October 19, 2005 (the Follow-on 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 IPO Registration Statement)                 
|            | 
|4.3         |  | Amended and Restated Dividend Reinvestment Plan (incorporated by reference to Appendix B to the Prospectus included in the Follow-on Registration
Statement)                                                                                                                                                 
|            | 
|4.4         |  | Description of Share Redemption Program (incorporated by reference to Exhibit 4.4 to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30,
2006)                                                                                                                                        
|            | 
|10.1        |  | Advisory Agreement between the Company and Wells Capital, Inc. dated October 26, 2006                                                                                                                                                                                                                        
|            | 
|31.1        |  | Certification of the Chief Executive Officer of the Company, pursuant to Securities Exchange Act Rules 13a-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 Rules 13a-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                                                                                                             



35