ATLANTA, Dec. 28, 2000 - The REIT Modernization Act, which takes effect January 1, 2001, marks one of the most significant changes to REIT laws in 40 years.  While cash flow of REITs will remain high compared to other investments, the new law changes the minimum distribution requirement of a REIT�s taxable income from 95% to 90%, allowing REITs to build cash reserves in the face of a declining economy.  
 

Leo F. Wells III, president and founder of Wells Real Estate Funds, a national real estate investment firm in Atlanta, comments, �With �bell weather� stocks cutting dividends for the first time in history and many companies predicting lower than expected 4th quarter earnings, maintaining dividends � especially in a faltering market � is very important to investors with ever-declining alternatives for income.  Consequently, REITs will once again

Leo F. Wells, III  Wells Real Estate Funds

In fact, many REITs have posted returns upwards of 20% this year, making REITs one of the best-performing major market categories in the year 2000.  Many industry analysts attribute the 2000 REIT rally to the fact that REITs represent a traditional portfolio stabilizer to investors fearing a tech stock backlash. More importantly, however, is that the REIT Modernization Act will create further value for REIT investors. �For REITs that are highly leveraged, the REIT Modernization Act will in effect allow the individual REIT to hold onto more of their earnings, enabling them to pay down debt. It also provides an opportunity for REITs to renovate properties,� Wells says, �thus protecting and increasing the potential for capital appreciation. Since the Wells REIT incurs no permanent debt on acquisitions and the long-term net leases signed by our Fortune 500-type tenants require the tenant to pay all costs of maintenance, insurance, and taxes, we anticipate continuing paying out 95% of earnings.�

Wells also notes that as the economy faces a potential slowdown, hotel, apartment, and retail REITs are more likely to suffer financially. However, the REIT Modernization Act should help soften the blow for these particular sectors. �REITs in general operate within very tight financial margins, but because hotel, retail, and apartment REITs are subject to more variable operating expenses than office or industrial REITs, cash flow in these sectors might be more volatile in the wake of an economic downturn. If they experience dramatic fluctuations in occupancy levels, for example, then maintaining the necessary cash flow to cover expenses becomes more of a challenge. The REIT Modernization Act helps to cushion those REITs by providing an extra 5% of cash reserves to cover expenses,� he said.

Wells also notes that since the �orphan and widow� stocks are drastically reducing dividends, investors will seek cash flow elsewhere. �While the REIT Modernization Act will now require REITs to distribute only 90% of income, this percentage is still exceptionally high compared to corporations, which are not required to pay any dividends. In fact, investors today have fewer income-producing investment options than ever before. In the 1950s and �60s, 80% of a corporation�s earnings were paid out in the form of dividends. Today that number is as low as 25-30%. Consequently, investors may see their investments growing in equity on their monthly statements, but they have no money to spend without liquidating assets.  Particularly in a volatile market, cash flow makes REITs very attractive,� said Wells.

Wells Real Estate Funds is a national real estate investment firm that specializes in acquiring and managing Class �A� suburban office and industrial properties leased long-term to Fortune 500-type tenants.  

This information does not constitute an offer to sell nor a solicitation of an offer to buy the securities described herein.