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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the fiscal year ended December 31, 2000 or
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[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period to
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Commission file number 0-18407
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Wells Real Estate Fund III, L.P.
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(Exact name of registrant as specified in its charter)
Georgia 58-1800833
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
6200 The Corners Parkway
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Suite 250, Norcross, Georgia 30092
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (770) 449-7800
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
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NONE NONE
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Securities registered pursuant to Section 12(g) of the Act:
CLASS A UNITS
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(Title of Class)
CLASS B UNITS
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(Title of Class)
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 ___
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Aggregate market value of the voting stock held by non-affiliates:
Not Applicable
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PART I
ITEM 1. BUSINESS
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General
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Wells Real Estate Fund III, L.P. (the "Partnership") is a Georgia public limited
partnership having Leo F. Wells, III and Wells Capital, Inc., a Georgia
corporation, as General Partners. The Partnership was formed on July 31, 1988,
for the purpose of acquiring, developing, constructing, owning, operating,
improving, leasing and otherwise managing for investment purposes
income-producing commercial or industrial properties.
On October 24, 1988, the Partnership commenced a public offering of its limited
partnership units pursuant to a Registration Statement filed on Form S-11 under
the Securities Act of 1933. The Partnership terminated its offering on October
23, 1990, and received gross proceeds of $22,206,310 representing subscriptions
from 2,700 Limited Partners, composed of two classes of limited partnership
interests, Class A and Class B limited partnership units.
The Partnership owns interests in properties directly and through equity
ownership in the following joint ventures: (i) the Fund II - Fund III Joint
Venture, (ii) the Fund II, III, VI and VII Joint Venture, and (iii) the Fund III
- - Fund IV Joint Venture.
As of December 31, 2000, the Partnership owned interest in the following
properties: (i) the Greenville Property, an office building in Greenville, North
Carolina, owned by the Partnership, (ii) The Atrium, an office building in
Houston, Texas, owned by the Fund II - Fund III Joint Venture, (iii) the
Brookwood Grill, a restaurant located in Roswell, Georgia, owned by the Fund II
- - Fund III Joint Venture, (iv) the Stockbridge Village Shopping Center, a retail
shopping center located in Stockbridge, Georgia, owned by the Fund III - Fund IV
Joint Venture, (v) the Reciprocal Group Building, previously known as the G.E.
Office Building, located in Richmond, Virginia, owned by the Fund III - Fund IV
Joint Venture, and (vi) an office/retail center in Roswell, Georgia, owned by
the Fund II, III, VI and VII Joint Venture. All of the foregoing properties were
acquired on an all cash basis.
Employees
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The Partnership has no direct employees. The employees of Wells Capital, Inc., a
General Partner of the Partnership, perform a full range of real estate services
including leasing and property management, accounting, asset management and
investor relations for the Partnership. See Item 11 - "Compensation of General
Partners and Affiliates" for a summary of the compensation and fees paid to the
General Partners and their affiliates during the fiscal year ended December 31,
2000.
2
Insurance
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Wells Management Company, Inc., an affiliate of the General Partner, carries
comprehensive liability and extended coverage with respect to all the properties
owned directly or indirectly by the Partnership. In the opinion of management,
the properties are adequately insured.
Competition
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The Partnership will experience competition for tenants from owners and managers
of competing projects, which may include the General Partners and their
affiliates. As a result, the Partnership may be required to provide free rent,
reduced charges for tenant improvements and other inducements, all of which may
have an adverse impact on results of operations. At the time the Partnership
elects to dispose of its properties, the Partnership will also be in competition
with sellers of similar properties to locate suitable purchasers for its
properties.
ITEM 2. PROPERTIES
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The Partnership owns six properties directly or through its ownership in joint
ventures of which three are office buildings, one a restaurant, one a retail
center and one a retail/office project. The Partnership does not have control
over the operations of the joint ventures; however, it does exercise significant
influence. Accordingly, investment in joint ventures is recorded on the equity
method. As of December 31, 2000, these properties were 81.5% occupied, compared
to 93.7% at December 31, 1999, 98.0% at December 31, 1998, and 96.0% at December
31, 1997.
The following table shows lease expirations during each of the next ten years
for all leases as of December 31, 2000, assuming no exercise of renewal options
or termination rights:
Partnership Percentage of
Share of Total
Number of Annualized Annualized Percentage of Annualized
Year of Lease Leases Square Feet Gross Base Gross Base Total Square Gross Base
Expiration Expiring Expiring Rent (1) Rent (1) Feet Expiring Rent
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2001(2) 6 31,527 669,665 520,986 11.01% 15.39%
2002(3) 19 169,187 2,385,289 895,885 59.10% 54.81%
2003 4 11,234 169,648 113,756 3.92% 3.90%
2004 4 12,183 199,198 81,891 4.26% 4.58%
2005 4 8,059 129,112 73,865 2.82% 2.97%
2006 1 5,935 127,575 11,635 2.07% 2.93%
2007 0 0 0 0 0.00% 0.00%
2008 1 5,124 93,941 53,400 1.79% 2.14%
2009(4) 1 43,000 578,340 330,868 15.03% 13.28%
2010 0 0 0 0 0.00% 0.00%
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40 286,249 $4,352,168 $2,082,286 100.00% 100.00%
(1) Average monthly gross rent over the life of the lease, annualized.
(2) Expiration of IBM with 23,322 square feet at the Greenville Property.
3
(3) Expiration of Boeing at The Atrium with 119,040 square feet.
(4) Expiration of Reciprocal Group with 43,000 square feet.
The following describes the properties in which the Partnership owns an interest
as of December 31, 2000:
The Greenville Property/ Fund III
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On June 30, 1990, the Partnership acquired a 2.34 acre tract of land located in
Greenville, North Carolina (the "Greenville Property") for a purchase price of
the land of $576,350, including acquisition expenses for the purpose of
developing, constructing and operating a two-story office building containing
approximately 34,300 rentable square feet. As of December 31, 2000, the
Partnership had expended approximately $3,778,000 for the acquisition,
development and construction of the Greenville Property.
The occupancy rate at the Greenville Property at year end was 77% in 2000, 76%
in 1999, 92% in 1998 and 1997 and 100% in 1996.
The average effective annual rental per square foot at the Greenville Property
was $16.79 for 2000, $16.18 for 1999, $16.41 for 1998, $16.66 for 1997 and
$17.40 for 1996.
One tenant occupies ten percent or more of the rentable square footage -
International Business Machines Corporation ("IBM"), a computer sales and
service corporation.
The Partnership entered into a net lease with IBM for a portion of the first
floor and the entire second floor of the Greenville Property representing
approximately 23,300 rentable square feet or approximately 67% of the Greenville
Property. The initial term of the IBM lease is nine years and ten months and
commenced in April of 1991. IBM has the option to extend the initial term of the
lease for two consecutive five-year periods. The annual base rent payable under
the IBM lease is $462,242, net of all expenses of operation, and is payable in
monthly installments of $38,520.17. The annual base rent will increase in the
sixth year of the initial term of the lease to $478,101 payable in equal monthly
installments of $39,841.75 and will remain constant for each of the subsequent
years in the initial term of the lease. In addition to the base rent, IBM is
required to pay additional rent equal to its share of all operating expenses
during the lease term.
The lease provides IBM with the right of first refusal to purchase the
Greenville Property should the Partnership receive a bona fide offer from the
third party to purchase the Greenville Property during the term of the lease.
IBM also has the right of first refusal to lease all or a portion of any space
which may from time to time become available. The IBM lease also provides that
the Partnership will not lease or consent to any sublease to any entity which,
as a major part of its business engages in sales and services similar to those
of IBM.
4
IBM's lease expires in February 28, 2001. IBM has decided not to exercise their
option to renew the lease or purchase the building. Management has hired an
outside firm to find a replacement tenant.
The Atrium/Fund II - Fund III Joint Venture
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On April 3, 1989, the Partnership formed a joint venture (the "Fund II - Fund
III Joint Venture") with an existing joint venture (the "Fund II - Fund II-OW
Joint Venture") previously formed between Wells Real Estate Fund II ("Wells Fund
II") and Wells Real Estate Fund II-OW ("Wells Fund II-OW"). Wells Fund II and
Wells Fund II-OW are public limited partnerships affiliated with the Partnership
through common general partners with investment objectives substantially
identical to those of the Partnership.
In April 1989, the Fund II - Fund III Joint Venture acquired a four-story office
building located on a 5.6 acre tract of land adjacent to the Johnson Space
Center in metropolitan Houston, in Nassau Bay, Harris County, Texas, known as
"The Atrium at Nassau Bay" (the "Atrium").
The funds used by the Fund II - Fund III Joint Venture to acquire the Atrium
were derived from capital contributions made to the Fund II - Fund III Joint
Venture by the Fund II - Fund II-OW Joint Venture and the Partnership in the
amounts of $8,327,856 and $2,538,000, respectively, for total initial capital
contributions of $10,865,856. As of December 31, 2000, the Fund II - Fund II-OW
Joint Venture and the Partnership had made total capital contributions to the
Fund II - Fund III Joint Venture of approximately $8,330,000 and $4,448,000,
respectively, for the acquisition and development of the Atrium.
The Atrium was first occupied in 1987 and contains approximately 119,000 net
rentable square feet. Each floor of the Atrium was originally under a separate
lease to Lockheed Engineering and Science Company, Inc., a wholly-owned
subsidiary of the Lockheed Company, each of which leases had terms of
approximately eight years and expired on June 30, 1996, and upon which date
Lockheed vacated the property.
On March 3, 1997, a lease was signed with The Boeing Company for the entire
Atrium building. The lease is for a period of five years with an option to renew
for an additional five year term. The rental rate for the first three years of
the lease term is $12.25 per square foot and $12.50 per square foot for the
final two years of initial lease term. The rate for the optional five year term
will be determined based upon then current market rates. Upon 150 day prior
written notice, Boeing has the right to cancel its lease in the event that NASA
or another prime contractor were to cancel or substantially reduce its contract.
In addition, there is a no-cause cancellation provision at the end of the first
three year period. This no-cause cancellation was not exercised. The lease also
provides that tenant will pay certain operating expenses in excess of $5.50 per
square foot on an annual basis.
Boeing began the move-in phase of its occupancy on April 15, 1997, and occupied
The Atrium and began paying rent on May 15, 1997. The total cost of completing
the required tenant improvements and outside broker commissions of approximately
$1.4 million was funded out of reserves and cash
5
flows of the Partnership, Wells Fund II and Wells Fund II-OW. As of December 31,
2000, the Partnership had contributed approximately $659,810, Fund II had
contributed approximately $387,752, Wells Fund II OW had contributed
approximately $21,744, and Fund II Fund III Joint Venture had contributed
$330,694 to fund the tenant improvements and outside broker commissions
required. As of December 31, 2000, the Fund II, Fund II-OW Joint Venture holds
an equity interest of approximately 61%, and the Partnership holds an equity
interest of approximately 39% in the Atrium Project.
The occupancy rate at the Atrium property was 100% as of December 31, 2000, 1999
and 1998. The average effective rental per square foot at the Atrium is $12.34
for 2000, $12.35 for 1999 and 1998, $7.77 for 1997 and $8.81 for 1996.
The Brookwood Grill Property/Fund II - Fund III Joint Venture
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On January 31, 1990, the Fund II - Fund II-OW Joint Venture acquired a 5.8 acre
tract of undeveloped real property at the intersection of Warsaw Road and
Holcomb Bridge Road in Roswell, Fulton County, Georgia (the "Holcomb Bridge Road
Property"). The Fund II - Fund II-OW Joint Venture paid $1,848,561, including
acquisition expenses, for the 5.8 acre tract of undeveloped property.
On September 20, 1991, the Fund II - Fund II-OW Joint Venture contributed
approximately 1.5 acres of the Holcomb Bridge Road Property (the "Brookwood
Grill Property"), along with its interest as landlord under the lease agreement
referred to below, as a capital contribution to the Fund II - Fund III Joint
Venture. As of September 20, 1991, the Fund II - Fund II-OW Joint Venture had
expended approximately $2,128,000 for the land acquisition and development of
the Brookwood Grill Property.
As of September 20, 1991, a lease agreement was entered into with the Brookwood
Grill of Roswell, Inc. for the development of approximately 1.5 acres and the
construction of a 7,440 square foot restaurant. This restaurant, which opened
early in March 1992, similar in concept to Houston's, Ruby Tuesday, and
Friday's. The terms of the lease called for an initial term of 9 years and 11
months, with two additional 10-year option periods. In January 2001, the tenant
renewed a ten year lease with a base rental of $286,983 per year for years 1
through 5, and $330,030 per year for years 6 through 10. The Fund II - Fund III
Joint Venture has expended approximately $1,100,000 for the development and
construction of the restaurant building together with parking areas, driveways,
landscaping and other improvements. In addition to the base rent described
above, the tenant is required to pay "additional rent" in amounts equal to a 12%
per annum return on all amounts expended for such improvements.
The occupancy rate for the Brookwood Grill, a sole tenant, was 100% as of
December 31, 2000, 1999 and 1998. The average effective annual rental per square
foot at the Brookwood Grill is $30.22 for 2000 and 1999, $30.26 for 1998 and
1997, $30.29 for 1996.
As of December 31, 2000, the Partnership and Fund II - Fund II-OW Joint Venture
had made total contributions to the Fund II - Fund III Joint Venture of
approximately $1,330,000 and
6
$2,128,000, respectively, for the acquisition and development of the Brookwood
Grill. The Fund II - Fund II-OW Joint Venture holds an approximately 62% equity
interest in the Brookwood Grill Property, and the Partnership holds an
approximately 38% equity interest in the project.
On January 10, 1995, the remaining 4.3 undeveloped acres of land comprising the
Holcomb Bridge Road Property was contributed to a new joint venture, Fund II,
III, VI and VII Associates by Fund II - Fund III Joint Venture. This property is
described below.
Holcomb Bridge Road Property/Fund II, III, VI and VII Associates
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On January 10, 1995, Fund II - Fund III Joint Venture, Wells Real Estate Fund
VI, L.P. ("Wells Fund VI"), a Georgia public limited partnership having Leo F.
Wells, III and Wells Partners, L.P., a Georgia limited partnership, as general
partners, and Wells Real Estate Fund VII, L.P. ("Wells Fund VII"), a Georgia
public limited partnership having Leo F. Wells, III and Wells Partners, L.P., a
Georgia limited partnership, as general partners, entered into a Joint Venture
Agreement known as Fund II, III, VI and VII Associates ("Fund II, III, VI and
VII Joint Venture"). Wells Partners, L.P. is a private limited partnership
having Wells Capital, Inc., a General Partner of the Partnership, as its sole
general partner. The investment objectives of Wells Fund VI and Wells Fund VII
are substantially identical to those of the Partnership.
In January 1995, the Fund II - Fund III Joint Venture contributed to the Fund
II-III-VI-VII Joint Venture approximately 4.3 acres of land at the intersection
of Warsaw Road and Holcomb Bridge Road in Roswell, Fulton County, Georgia (the
"Holcomb Bridge Road Property") including land improvements for the development
and construction of two buildings with a total of 49,500 square feet. Fourteen
tenants occupied the Holcomb Bridge Property as of December 31, 2000, for an
occupancy rate of 92% in 2000, 100% in 1999 and 94% in 1998. The average
effective annual rental per square foot at the Holcomb Bridge Road Property was
$17.55 for 2000, $19.26 for 1999, $17.63 for 1998 and $13.71 for 1997.
As of December 31, 2000, Fund II and Fund III Joint Venture had contributed
$1,729,116 in land and improvements for an equity interest of approximately
24.1%, Wells Fund VI had contributed $1,929,541 for an equity interest of
approximately 26.9%, and Wells Fund VII had contributed $3,525,041 for an equity
interest of approximately 49.0%. The total cost to develop the Holcomb Bridge
Road Property was approximately $5,454,582, excluding land.
Fund III - Fund IV Joint Venture
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On March 27, 1991, the Partnership and Wells Real Estate Fund IV, L.P. ("Wells
Fund IV"), a Georgia public limited partnership having Leo F. Wells, III and
Wells Capital, Inc., a Georgia corporation, as General Partners, formed a Joint
Venture known as Fund III and Fund IV Associates (the "Fund III - Fund IV Joint
Venture"). The investment objectives of Wells Fund IV are substantially
identical to those of the Partnership. The Partnership holds an approximate
57.2% of equity interest in the Fund III - Fund IV Joint Venture which includes
a multi-tenant retail center and an office building. As of December 31, 2000,
the Partnership had contributed $8,357,551 and Wells Fund IV had contributed
$6,415,731 for total contributions of $14,773,282
7
to the Fund III - Fund IV Joint Venture. The Partnership owns interests in the
following two properties through the Fund III - Fund IV Joint Venture.
The Stockbridge Village Shopping Center/Fund III and Fund IV Joint Venture
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On April 4, 1991, the Fund III - Fund IV Joint Venture purchased 13.62 acres of
real property located in Clayton County, Georgia, for the purchase price of
$3,057,729 including acquisition costs, for the purpose of developing,
constructing and operating a shopping center known as the Stockbridge Village
Shopping Center ("Stockbridge Property"). The Stockbridge Property consists of a
multi-tenant shopping center containing approximately 112,891 square feet of
which approximately 64,097 square feet is occupied by the Kroger Company, a
retail grocery chain. This is the only tenant which occupies mores than ten
percent of the rentable square feet. The lease with the Kroger Company is for an
initial term of 20 years commencing November 14, 1991, with an option to extend
for four consecutive five-year periods at the same rental rate as the original
lease. The annual base rent payable under the Kroger lease during the initial
term is $492,692. The remaining 48,794 square feet is composed of 12 separate
retail spaces and 3 free-standing buildings. As of December 31, 2000, the
Partnership had contributed a total of $4,574,247 and Wells Fund IV had
contributed a total of $5,114,502 to fund total costs of approximately
$9,688,749 to fund the acquisition and development of the Stockbridge Property.
The occupancy rate at year end for the Stockbridge Property was 100% in 2000,
95% in 1999 and 100% in 1998. The average effective annual rental per square
foot at the Stockbridge Property was $11.29 for 2000, $11.23 for 1999, $10.82
for 1998, $9.86 for 1997 and $9.59 for 1996.
The Reciprocal Group Building, formerly known as The G.E. Building/Fund III -
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Fund IV Joint Venture
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The Reciprocal Group Building is a two-story office building containing
approximately 43,000 square feet located in Richmond, Virginia which was
acquired by the Fund III - Fund IV Joint Venture on July 1, 1992 for a purchase
price of $4,687,600. As of December 31, 2000, a total of $5,084,533 had been
incurred for the acquisition of the Reciprocal Group Building. Of this amount,
the Partnership contributed $3,783,304 and Wells Fund IV contributed $1,301,229
to the Fund III - Fund IV Joint Venture.
The G.E. lease expired March 31, 2000. On October 4, 2000, a lease was executed
for the entire building to the Reciprocal Group for a term of eight years with
occupancy expected in February, 2001. The annual base rent payable for 2001 is
$520,300. The cost for new tenant buildout is anticipated to be approximately
$1,270,000 of which the Partnership has funded $216,684 and has reserved
$626,969 for the remaining buildout.
The occupancy rate at the Reciprocal Group Building was 0% at December 31, 2000
and 100% at December 31, 1999 and 1998. The average effective annual rental per
square foot at the Reciprocal Group Building is $3.07 for 2000 and $12.27 for
1999, 1998, 1997 and 1996.
8
ITEM 3. LEGAL PROCEEDINGS
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There were no material pending legal proceedings known to be contemplated by
governmental authorities involving the Partnership during 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted to a vote of the Limited Partners during the fourth
quarter of 2000.
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S UNITS AND RELATED SECURITY HOLDER MATTERS
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As of February 28, 2001, the Partnership had 19,635,965 outstanding Class A
Units held by a total of 2,309 Limited Partners and 2,544,540 outstanding Class
B Units held by a total of 199 Limited Partners. The capital contribution per
unit is $1.00. There is no established public trading market for the
Partnership's limited partnership units, and it is not anticipated that a public
trading market for the units will develop. Under the Partnership Agreement, the
General Partners have the right to prohibit transfers of units.
The General Partners have estimated the investment value of properties held by
the Partnership as of December 31, 2000 to be $1.00 per Class A unit and $1.15
per Class B unit based on market conditions existing in early December, 2000.
The methodology used for this valuation was to estimate the amount a holder of
Partnership Units would receive if the Partnership's properties were all sold in
the ordinary course of business as of December 31, 2000, and the proceeds from
such sales (without reduction for selling expenses), together with Partnership
funds held as of such date, were distributed in a liquidation of the
Partnership. This value was confirmed as reasonable by an independent MAI
appraiser, David L. Beal Company, although no actual MAI appraisal was performed
due to the inordinate expense involved with such an undertaking. The valuation
does not include any fractional interest valuation.
Class A Unit holders are entitled to an annual 8% non-cumulative distribution
preference over Class B Unit holders as to distributions from Net Cash From
Operations, as defined in the Partnership Agreement to mean Cash Flow, less
adequate cash reserves for other obligations of the Partnership for which there
is no provision, but are initially allocated none of the depreciation,
amortization, cost recovery and interest expense. These items are allocated to
Class B Unit holders until their capital account balances have been reduced to
zero.
Net Cash From Operations to the Limited Partners is distributed on a quarterly
basis unless Limited Partners elect to have their cash distributions paid
monthly. Cash distributions made to the Limited Partners during the two most
recent fiscal years were as follows:
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Per Class A Per Class A Per Class B
Unit Unit Unit
Distribution for Total Cash Investment Return of Return of General
Quarter Ended Distributed Income Capital Capital Partner
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March, 31, 1999 $394,882 $0.01 $ 0.01 $ 0.00 $ 0.00
June 30, 1999 $393,000 $0.01 $ 0.01 $ 0.00 $ 0.00
September 30, 1999 $393,000 $0.01 $ 0.01 $ 0.00 $ 0.00
December 31, 1999 $427,979 $0.01 $ 0.01 $ 0.01 $ 0.00
March 31, 2000 $343,560 $0.01 $ 0.01 $ 0.00 $ 0.00
June 30, 2000 $ 0 $0.00 $ 0.00 $ 0.00 $ 0.00
September 30, 2000 $ 0 $0.00 $ 0.00 $ 0.00 $ 0.00
December 31, 2000 $ 0 $0.00 $ 0.00 $ 0.00 $ 0.00
The cash distributions to Limited Partners holding Class A units were
substantially reduced in 2000 due to the vacancy at the Reciprocal Group
Building, previously known as the G.E. Building and the cost necessary to lease
up the property as previously discussed. Distributions have been reserved for
the 2nd, 3rd and 4th quarters of 2000 to fund these costs.
(Remainder of this page left intentionally blank)
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10
ITEM 6. SELECTED FINANCIAL DATA.
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The following sets forth a summary of the selected financial data for the fiscal
years ended December 31, 2000, 1999, 1998, 1997 and 1996:
2000 1999 1998 1997 1996
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Total Assets $14,532,100 $ 14,962,288 $ 15,900,936 $ 16,791,667 $ 17,114,963
Total Revenues 818,263 1,136,759 1,099,102 850,058 1,155,615
Net Income 334,287 709,412 649,007 385,224 731,244
Net Income allocated
to General Partners 0 0 0 0 0
Net Income
allocated to Class
A Limited Partners 334,287 674,433 608,058 385,224 731,244
Net Income
allocated to Class
B Limited Partners 0 34,979 40,949 0 0
Net Income
per Class A Limited
Partner Unit .02 .03 .03 .02 .04
Net Income per
Class B Limited
Partner Unit .00 .01 .02 .00 .00
Cash Distributions to
Investors--
Investment Income
Class A Units: .01 .04 .04 .04 .07
Return of Capital
Class A Units: .01 .04 .04 .00 .00
Return of Capital
Class B Units: .00 .01 .02 .00 .00
Cash Distribution to
General Partners .00 .00 .00 .00 .00
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATION
------------
The following discussion and analysis should be read in conjunction with the
Selected Financial Data and the accompanying financial statements of the
Partnership and notes thereto. This Report contains forward-looking statements,
within the meaning of Section 27A of the Securities Act of 1933 and 21E of the
Securities Exchange Act of 1934, including discussion and analysis of the
financial condition of the Partnership, anticipated capital expenditures
required to complete certain projects, amounts of cash distributions anticipated
to be distributed to Limited Partners in the future and certain other matters.
Readers of this Report should be aware that there are various factors that could
cause actual results to differ materially from any forward-looking
11
statement made in this Report, which include construction costs which may exceed
estimates, construction delays, lease-up risks, inability to obtain new tenants
upon the expiration of existing leases, and the potential need to fund tenant
improvements or other capital expenditures out of operating cash flow.
Results of Operations and Changes in Financial Conditions
- ---------------------------------------------------------
General
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Gross revenues of the Partnership were $818,263 for the fiscal year ended
December 31, 2000, as compared to $1,136,759 for the fiscal year ended December
31, 1999, and $1,099,102 for the fiscal year ended December 31, 1998. The
decrease for 2000 over 1999, is due primarily to a decrease in equity in income
of joint ventures, due to the expiration of G.E.'s lease on March 31, 2000. In
2000, increased rental renewal rates at IBM Greenville caused revenues to
increase, partially offsetting the decrease in equity in income of joint
ventures. The increase in gross revenues for 1999 over 1998, is due to an
increase in equity in income of joint ventures as rental renewal rates increased
at Stockbridge Village.
Expenses of the Partnership were $483,976 for the fiscal year ended December 31,
2000, as compared to $427,347 for the fiscal year ended December 31, 1999 and
$450,095 for the fiscal year ended December 31, 1998. The increase in 2000 as
compared to 1999 is due primarily to higher operating costs resulting from a
decrease of tenant reimbursements in 2000. The decrease in 1999 as compared to
1998 is due primarily to no bad debt expense in 1999.
Net income of the Partnership was $334,287 for the fiscal year ended December
31, 2000, as compared to $709,412 for the fiscal year ended December 31, 1999,
and $649,007 for the fiscal year ended December 31, 1998. The decrease in net
income for 2000 is due primarily to reasons discussed above.
The Partnership's cash distributions to the Limited Partners holding Class A
Units were $0.02 per unit for the fiscal year ended December 31, 2000 and $0.08
for 1999. The decrease in distributions for 2000 is due to the reserve of
second, third and fourth quarter distributions to fund the tenant improvements
at the Reciprocal Group Building. Cash distributions to the Limited Partners
holding Class B Units were $0.00 for 2000 and $0.01 for 1999. No cash
distributions were made to the General Partners.
12
Property Operations
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As of December 31, 2000, the Partnership's ownership interest in the Greenville
Property is 100%, Fund II - Fund III Joint Venture is 39% and Fund III - Fund IV
Joint Venture is 57%.
As of December 31, 2000, the Partnership owned interests in the following
properties:
The Greenville Property/Fund III
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For the Year Ended December 31
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2000 1999 1998
---- ---- ----
Revenues:
Rental Income $ 576,004 $ 554,956 $ 562,951
Interest Income 10,055 58 350
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586,059 555,014 563,301
------------- ------------- -------------
Expenses:
Depreciation 171,052 164,864 160,038
Management and
leasing expenses 78,568 74,807 81,424
Other operating expenses 165,856 111,241 115,693
------------- ------------- -------------
415,476 350,912 357,155
------------- ------------- -------------
Net income $ 170,583 $ 204,102 $ 206,146
============= ============= =============
Occupied % 77% 76% 92%
Partnership Ownership % 100% 100% 100%
Cash Generated to the
Partnership $ 358,047 $ 380,319 $ 396,626
Net Income Allocated to
the Partnership $ 170,583 $ 204,102 $ 206,146
Rental income increased in 2000, as compared to 1999, due to an increase in
rental renewal rates and occupancy.
Rental income decreased for the period ended December 31, 1999, as compared to
the same period in 1998, due to a decline in occupancy from 92% in 1998 to 76%
in 1999. The increase in operating expenses in 2000, as compared to 1999 is due
to a decrease in tenant reimbursements. The decrease in operating expenses from
$115,693 in 1998, to $111,241 in 1999, was due to a decrease in janitorial
contract and supplies.
The real estate taxes were $30,108 for 2000 and $29,228 for 1999 and 1998.
The Partnership's ownership percentage remained constant at 100% for 2000, 1999
and 1998.
13
The Atrium/Fund II - Fund III Joint Venture
- -------------------------------------------
For the Year Ended December 31
------------------------------------------------------------------
2000 1999 1998
---- ---- ----
Revenues:
Rental Income $ 1,468,784 $ 1,470,144 $ 1,470,144
Other Income 0 4,000 13,280
------------- ------------- -------------
1,468,784 1,474,144 1,483,424
------------- ------------- -------------
Expenses:
Depreciation 877,240 867,720 866,778
Management and
leasing expenses 185,035 179,762 186,102
Other operating expenses 743,835 720,595 713,955
------------- ------------- -------------
1,806,110 1,768,077 1,766,835
------------- ------------- -------------
Net loss $ (337,326) $ (293,933) $ (283,411)
============= ============= =============
Occupied % 100% 100% 100%
Partnership Ownership % 38.7% 38.7% 38.7%
Cash distributed to the
Partnership $ 223,633 $ 243,400 $ 256,165
Net loss allocated
to the Partnership $ (130,545) $ (113,752) $ (109,680)
Rental income remained stable in 2000, as compared to 1999 and 1998. Management
and leasing expenses increased, as compared to 1999, due to a change in
estimated fees recorded in 1998, which resulted in decreased fees in 1999. Other
operating expenses increased due primarily to increased expenditures in
electricity, HVAC repairs, plumbing repairs, and glass maintenance in the
building. As a result, net income and cash distribution to the Fund II - Fund
II-IOW Joint Venture decreased.
The Atrium Property incurred property taxes of $187,536 for 2000, $175,360 for
1999 and $148,006 for 1998.
For comments on the general conditions to which the property may be subject, see
Item 1, Business, page 2. For additional information on the property, tenants,
etc., see Item 2, Properties, page 3.
14
The Brookwood Grill Property/Fund II - Fund III Joint Venture
- -------------------------------------------------------------
For the Year Ended December 31
------------------------------------------------------------------
2000 1999 1998
---- ---- ----
Revenues:
Rental Income $ 224,801 $ 224,801 $ 225,100
Equity in Income (Loss)
of Joint Venture 55,489 81,669 78,791
------------- ------------- -------------
280,290 306,470 303,891
------------- ------------- -------------
Expenses:
Depreciation 54,014 54,016 54,012
Management and
leasing expenses 25,320 30,096 23,349
Other operating expenses 6,513 (463) (24,632)
------------- ------------- -------------
85,847 83,649 52,727
------------- ------------- -------------
Net income $ 194,443 $ 222,821 $ 251,162
============= ============= =============
Occupied % 100% 100% 100%
Partnership Ownership % in the
Fund II - Fund III Joint Venture 37.7% 37.7% 37.7%
Cash distributed to the
Partnership $ 142,546 $ 153,210 $ 163,576
Income allocated to the
Partnership $ 73,208 $ 83,892 $ 94,562
Although rental income remained relatively stable in 2000, 1999 and 1998, total
revenues decreased in 2000 due to the decrease in equity income from Fund II,
III, VI, VII Joint Venture, as the Holcomb Bridge Property decreased its
occupancy this year.
Management and leasing expenses decreased in 2000 as compared to 1999, due to a
change in estimated fees recorded in 1999. Other operating expenses increased
due primarily to appraisal fees for this property and an increase in
administrative salaries.
The Brookwood Grill Property incurred property taxes of $17,973 for 2000,
$18,055 for 1999, and $16,270 for 1998.
This property is currently being marketed for sale by CB Richard Ellis. The
marketing piece is being broadly distributed to investors throughout the
country. The Partnership's goal is to have this property sold by the end of
2002.
15
For comments on the general conditions to which the property may be subject, see
Item 1, Business, page 2. For additional information on the property, tenants,
etc., see Item 2, Properties, page 3.
Holcomb Bridge Road Property / Fund II - III - VI - VII Joint Venture
---------------------------------------------------------------------
For the Year Ended December 31,
-------------------------------
2000 1999 1998
---- ---- ----
Revenues:
Rental Income $ 869,390 $ 953,952 $ 872,978
Other Income 0 23,843 36,000
---------- ----------- ----------
869,390 977,795 908,978
---------- ----------- ----------
Expenses:
Depreciation 355,293 415,165 376,290
Management & leasing expenses 111,567 129,798 97,701
Other operating expenses 171,997 93,534 107,418
---------- ----------- ----------
638,857 638,497 581,409
---------- ----------- ----------
Net income $ 230,533 $ 339,298 $ 327,569
========== =========== ==========
Occupied % 92% 100% 94%
Partnership's Ownership % 9.0% 9.0% 9.0%
Cash Distribution to the Fund II -
Fund III Joint Venture* $ 156,763 $ 182,886 $ 179,198
Net Income Allocated to the
Fund II - Fund III Joint Venture* $ 55,489 $ 81,669 $ 78,791
* The Partnership holds a 37.61% ownership in the Fund II - Fund III Joint
Venture.
Rental income decreased in 2000, as compared to 1999 and 1998, due to decreased
occupancy. Depreciation expense was higher in 1999, as compared to 1998 and
2000, due to increased tenant improvements for new tenants for 1999 and some
tenant improvements becoming fully depreciated in 1999. Other operating expenses
increased due to appraisal fees for this property and a bad debt recorded in
this year.
The Holcomb Bridge Property incurred property taxes of $52,877 for 2000, $53,896
for 1999, and $52,162 for 1998.
This property is currently being marketed for sale by CB Richard Ellis. The
marketing piece is being broadly distributed to investors throughout the
country. The Partnership's goal is to have this property sold by the end of
2002.
16
For comments on the general competitive conditions to which the property may be
subject, see Item, Business page 2. For additional information on tenants, etc.
refer to Item 2, Properties, page 3.
The Reciprocal Group Building, previously known as the G.E. Building/Richmond /
- -------------------------------------------------------------------------------
Fund III - Fund IV Joint Venture
- --------------------------------
For the Year Ended December 31
------------------------------
2000 1999 1998
---- ---- ----
Revenues:
Rental income $ 131,856 $527,425 $527,425
--------- -------- --------
Expenses
Depreciation 196,220 196,220 196,220
Management & leasing expenses 10,179 40,631 40,300
Other operating expenses 162,740 18,164 18,876
--------- -------- --------
369,139 255,015 255,396
--------- -------- --------
Net (loss) income $(237,283) $272,410 $272,029
========= ======== ========
Occupied % 0% 100% 100%
Partnership's Ownership % in the
Fund III-Fund IV Joint Venture 57.2% 57.2% 57.3%
Cash distribution to the Partnership $ 0 $287,763 $281,937
Net (loss) income allocated to the
Partnership $(135,754) $155,902 $155,918
Rental income, net income and cash distributions generated from the Reciprocal
Group Building decreased in the second, third and fourth quarters of 2000, as
compared to the same periods in 1999, due primarily to G.E.'s lease expiration
on March 31, 2000. Other operating expenses have increased due to the fact that
G.E. no longer reimburses for the buildings operating costs such as property
taxes, electricity and various other expenses. As of October 4, 2000, the entire
building has been leased to The Reciprocal Group for a term of eight years with
occupancy and rental income commencing in early February, 2001. At this time,
the cost for new tenant buildout and building maintenance is anticipated to be
approximately $1,270,000, of which the Partnership has funded $216,684.
Real estate taxes were $39,972 for 2000. In prior years, G.E. paid the real
estate taxes directly.
17
For comments on the general competitive conditions to which the property may be
subject, See Item 1, Business, Page 2. For additional information on tenants,
etc. refer to Item 2, Properties, Page 3.
The Stockbridge Village Shopping Center/Fund III - Fund IV Joint Venture
- ------------------------------------------------------------------------
Year For the Ended December 31
------------------------------
2000 1999 1998
---- ---- ----
Revenues:
Rental income $1,274,082 $1,267,823 $1,222,417
Interest income 4,921 11,790 9,368
---------- ---------- ----------
1,279,003 1,279,613 1,231,785
---------- ---------- ----------
Expenses
Depreciation 362,062 355,737 346,144
Management & leasing expenses 124,104 117,889 114,581
Other operating expenses 49,465 9,687 83,952
-------- -------- --------
535,631 483,313 554,677
-------- -------- --------
Net income 743,372 796,300 687,108
======== ======== ========
Occupied % 100% 95% 100%
Partnerships Ownership % in the
Fund III-Fund IV Joint Venture 57.2% 57.2% 57.3%
Cash distribution to the Partnership $ 603,680 $ 660,742 $ 566,769
Net income allocated to the
Partnership $ 425,296 $ 455,704 $ 393,827
Rental income increased for the year ended December 31, 2000, as compared to
1999 and 1998, due to increased occupancy and increased rental renewal rates.
Other operating expenses increased due primarily to differences in adjustment
for prior year common area maintenance billings to tenants and increased
expenditures for depreciation and management and leasing expenses. Tenants are
billed an estimated amount for the current year common area maintenance which is
then reconciled the following year and the difference billed to the tenant.
Distributions were lower in 2000, as compared to 1999 due primarily to the
decreased net income and payments of tenant improvements of $47,000 in 2000.
Real estate taxes were $111,481, $109,806 for 1999 and $110,891 for 1998.
18
The Partnership's ownership in the Fund III - Fund IV Joint Venture decreased in
1999, as compared to 1998, due to additional fundings in 1999 by Wells Fund IV,
which decreased the Partnership's ownership in the Fund III - Fund IV Joint
Venture.
For comments on the general competitive conditions to which the property may be
subject, See Item 1, Business, Page 2. For additional information on tenants,
etc. refer to Item 2, Properties, Page 3.
Liquidity and Capital Resources
- -------------------------------
During its offering, which terminated on October 23, 1990, the Partnership
raised a total of $22,206,310 in capital through the sale of 22,206,310 Units.
No additional Units will be sold by the Partnership. From the original funds
raised, the Partnership has invested a total of $17,983,843 in properties, paid
$1,554,442 in acquisition and advisory fees, $2,664,668 in selling commissions
and organization and offering expenses, and is maintaining a working capital
reserve of $3,357.
Since the Partnership is an investment partnership formed for the purpose of
acquiring, owning and operating income-producing real property and has invested
all of its funds available for investment, it is unlikely that the Partnership
will acquire interests in any additional properties, and the Partnership's
capital resources are anticipated to remain relatively stable over the holding
period of its investments.
The Partnership's net cash provided by operating activities increased to
$292,753 in 2000, as compared to $271,433 in 1999 due to fluctuations in
receivables and payables. The decrease in 1999, as compared to 1998, is due to
fluctuations in receivable and payables. Net cash provided by investing
activities decreased in 2000 as compared 1999 and in 1998 due to fluctuations of
investment in joint ventures and distributions from joint ventures each year.
Net cash used in financing activities decreased in 2000 from 1999 and increased
in 1999 from 1998 as distributions to limited partners fluctuated. As a result,
cash and cash equivalents have increased to $409,476 in 2000 from $128,536 in
1999 and decreased from $156,648 in 1998.
The Partnership's distributions paid for 2000 have been paid from net cash from
operations and a return of capital. The Partnership anticipates that
distributions will likely continue to be paid on a quarterly basis from such
sources for the year 2001.
The Partnership is unaware of any additional demands, commitments, events or
capital expenditures other than the tenant improvement costs at the Reciprocal
Group Building and that which is required for the normal operations of its
properties that will result in the Partnership's liquidity increasing or
decreasing in any material way. The Partnership has reserved the second, third
and fourth quarter 2000 distribution to fund these costs. The Partnership's
portion of these costs are expected to be $726,440 of which $216,684 was funded
as of December 31, 2000.
19
Inflation
- ---------
Real estate has not been affected significantly by inflation in the past three
years due to the relatively low inflation rate. There are provisions in the
majority of tenant leases executed by the Partnership to protect the Partnership
from the impact of inflation. These leases contain common area maintenance
charges (CAM charges), real estate tax and insurance reimbursements on a per
square foot basis, or in some cases, annual reimbursements of operating expenses
above a certain per square foot allowance. These provisions should reduce the
Partnership's exposure to increases in costs and operating expenses resulting
from inflation. In addition, a number of the Partnership's leases are for terms
of less than five years which may permit the Partnership to replace existing
leases with new leases at higher base rental rates if the existing leases are
below market rate. There is no assurance, however, that the Partnership would be
able to replace existing leases with new leases at higher base rentals.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -------------------------------------------------------
The Financial Statements of the Registrant and supplementary data are detailed
under Item 14(a) and filed as part of the report on the pages indicated.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ---------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
There were no disagreements with the Partnership's accountants or other
reportable events during 2000.
PART III
ITEM 10. GENERAL PARTNERS OF THE PARTNERSHIP
- -----------------------------------------------
Wells Capital, Inc. Wells Capital, Inc. ("Capital") is a Georgia corporation
- ------------------
formed in April 1984. The executive offices of Capital are located at 6200 The
Corners Parkway, Suite 250, Norcross, Georgia 30092. Leo F. Wells, III is the
sole Director and the President of Capital.
Leo F. Wells, III. Mr. Wells is a resident of Atlanta, Georgia, is 57 years of
- -----------------
age and holds a Bachelor of Business Administration Degree in Economics from the
University of Georgia. Mr. Wells is the President and sole Director of Capital.
Mr. Wells is the President of Wells & Associates, Inc., a real estate brokerage
and investment company formed in 1976 and incorporated in 1978, for which he
serves as principal broker. Mr. Wells is also currently the sole Director and
President of Wells Management Company, Inc., a property management company he
founded in 1983. In addition, Mr. Wells is the President and Chairman of the
Board of Wells Investment Securities, Inc., Wells & Associates, Inc., and Wells
Management Company, Inc., which are affiliates of the General Partners. From
1980 to February 1985, Mr. Wells served as Vice-President of Hill-Johnson, Inc.,
a Georgia corporation engaged in the construction business. From 1973 to 1976,
he was associated with Sax Gaskin Real Estate Company and
20
from 1970 to 1973, he was a real estate salesman and property manager for Roy D.
Warren & Company, an Atlanta real estate company.
ITEM 11. COMPENSATION OF GENERAL PARTNERS AND AFFILIATES
- -----------------------------------------------------------
The following table summarizes the compensation and fees paid to the General
Partners and their affiliates during the year ended December 31, 2000:
( A ) ( B ) ( C )
Name of Individual or Number in Group Capacities in which served Form of
Compensation Cash Compensation
Wells Management Company, Inc. Property Manager-Management and $228,176 (1)
Leasing Fees
Wells Capital, Inc. General Partner - Partnership
Cash Flow Distributions -0-
Leo F. Wells, III General Partner - Partnership
Cash Flow Distributions -0-
- -----------------------------------------------------------------------------------------------------------
(1) The majority of these fees are not paid directly by the Partnership but are
paid by the joint venture entities which own properties for which the
property management and leasing services relate and include management and
leasing fees, some of which were accrued for accounting purposes in 2000
but not actually paid until January, 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
No Limited Partner is known by the Partnership to own beneficially more than 5%
of the outstanding units of the Partnership.
Set forth below is the security ownership of management as of February 28, 2001:
(2) (3)
(1) Name and Address of Amount and Nature of (4)
Title of Class Beneficial Owner Beneficial Ownership Percent of Class
-------------- ---------------- -------------------- ----------------
Class A Units Leo F. Wells, III 11,158.79 Units Less than 1%
(IRA, 401 (k) and Profit
Sharing)
Class B Units Leo F. Wells, III 1,750.00 Units Less than 1%
(401 (k))
No arrangements exist which would, upon operation, result in a change in control
of the Partnership.
21
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The compensation and fees paid or to be paid by the Partnership to the General
Partners and their affiliates in connection with the operation of the
Partnership are as follows:
Interest in Partnership Cash Flow and Net Sale Proceeds
- -------------------------------------------------------
The General Partners receive a subordinated participation in net cash flow from
operations equal to 10% of net cash flow after the Limited Partners have
received preferential distributions equal to 8% of their adjusted capital
contribution. For the year ended December 31, 2000, the General Partners
received no cash distributions. The General Partners also receive a subordinated
participation in net sale proceeds and net financing proceeds equal to 15% of
residual proceeds available for distribution after the Limited Partners have
received a return of their adjusted capital contribution plus a 12% cumulative
return on their adjusted capital contribution. The General Partners received no
distribution from net sales proceeds.
Property Management and Leasing Fees
- ------------------------------------
Wells Management Company, Inc., an affiliate of the General Partners, will
receive compensation for supervising the management of the Partnership
properties equal to 6% (3% management and 3% leasing) of rental income. For the
year ended December 31, 2000, Wells Management Company, Inc's compensation
totaled $228,176 in management and leasing fees. In no event will such fees
exceed the sum of (i) 6% of the gross receipts of each property, plus (ii) a
separate one-time fee for initial rent-up or leasing-up of development
properties in an amount not to exceed the fee customarily charged in
arm's-length transactions by others rendering similar services in the same
geographic area for similar properties. With respect to properties leased on a
net basis for a period of ten years or longer, property management fees will not
exceed 1% of gross revenues from such leases, plus a one-time initial leasing
fee of 3% of the gross revenues which are payable over the first five years of
the term of such net leases.
Real Estate Commissions
- -----------------------
In connection with the sale of Partnership properties, the General Partners or
their affiliates may receive commissions not exceeding the lesser of (A) 50% of
the commissions customarily charged by other brokers in arm's-length
transactions involving comparable properties in the same geographic area or (B)
3% of the gross sales price of the property, and provided that payments of such
commissions will be made only after Limited Partners have received prior
distributions totaling 100% of their capital contributions plus a 6% cumulative
return on their adjusted capital contributions. During 2000, no real estate
commissions were paid to the General Partners.
22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
--------------------------------------------
REPORTS ON FORM 8-K
-------------------
(a)1. The Financial Statements are contained on pages F-2 through F-33 of this
Annual Report on Form 10-K, and the list of the Financial Statements
contained herein is set forth on page F-1, which is hereby incorporated
by reference.
(a)2. Financial Statement Schedule III
Information with respect to this item begins on Page S-1 of this Annual
Report on Form 10-K.
(a)3. The Exhibits filed in response to Item 601 of Regulation S-K are listed
on the Exhibit Index attached hereto.
(b) No reports on Form 8-K were filed with the Commission during the year of
2000.
(c) The Exhibits filed in response to Item 601 of Regulation S-K are listed
on the Exhibit Index attached hereto.
23
SIGNATURES
----------
Pursuant to the requirements of Sections 13 or 15(d) 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 this 27/th/ day of March,
2001.
Wells Real Estate Fund III
(Registrant)
By: /s/ Leo F. Wells, III
--------------------------------------
Leo F. Wells, III
Individual General Partner and as President
and Chief Financial Officer of Wells
Capital, Inc., the Corporate General
Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person on behalf of the registrant and in
the capacity as and on the date indicated.
Signature Title
- --------- -----
/s/ Leo F. Wells, III Individual General Partner, March 27, 2001
- ---------------------
Leo F. Wells, III President and Sole Director of
Wells Capital, Inc., the
Corporate General Partner
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRARS WHICH HAVE NOT BEEN REGISTERED PURSUANT TO
SECTION 12 OF THE ACT.
No annual report or proxy material relating to an annual or other meeting of
security holders has been sent to security holders.
24
INDEX TO THE FINANCIAL STATEMENTS
---------------------------------
Financial Statements Page
- -------------------- ----
Independent Auditor's Report F-2
Consolidated Balance Sheets as of December 31, 2000 and 1999 F-3
Consolidated Statements of Income for the Years Ended
December 31, 2000, 1999 and 1998 F-4
Consolidated Statements of Partners' Capital for the Years Ended
December 31, 2000, 1999 and 1998 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998 F-6
Notes to Consolidated Financial Statements-December 31, 2000, 1999 and 1998 F-7
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Fund III, L.P.:
We have audited the accompanying balance sheets of WELLS REAL ESTATE FUND III,
L.P. (a Georgia public limited partnership) as of December 31, 2000 and 1999 and
the related statements of income, partners' capital, and cash flows for each of
the three years in the period ended December 31, 2000. These financial
statements and the schedule referred to below are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on those
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
schedule are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wells Real Estate Fund III,
L.P. as of December 31, 2000 and 1999 and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule III--Real Estate Investments and
Accumulated Depreciation as of December 31, 2000 is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 30, 2001
F-2
WELLS REAL ESTATE FUND III, L.P.
(A Georgia Public Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
ASSETS
2000 1999
----------- -----------
REAL ESTATE ASSETS, at cost:
Land $ 576,350 $ 576,350
Building and improvements, less accumulated depreciation of $1,267,475
and $1,096,423 at December 31, 2000 and 1999, respectively 2,429,457 2,531,644
----------- -----------
Total real estate assets 3,005,807 3,107,994
INVESTMENT IN JOINT VENTURES 10,862,926 11,369,590
CASH AND CASH EQUIVALENTS 409,476 128,536
DUE FROM AFFILIATES 231,630 318,763
ACCOUNTS RECEIVABLE 5,313 14,489
PREPAID EXPENSES AND OTHER ASSETS 16,948 22,916
----------- -----------
Total assets $14,532,100 $14,962,288
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued expenses $ 13,169 $ 5,478
Partnership distributions payable 6,769 435,375
----------- -----------
Total liabilities 19,938 440,853
----------- -----------
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Limited partners:
Class A--19,635,965 units 14,512,162 14,521,435
Class B--2,544,540 units 0 0
----------- -----------
Total partners' capital 14,512,162 14,521,435
----------- -----------
Total liabilities and partners' capital $14,532,100 $14,962,288
=========== ===========
The accompanying notes are an integral part of these balance sheets.
F-3
WELLS REAL ESTATE FUND III, L.P.
(A Georgia Public Limited Partnership)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
2000 1999 1998
--------- ---------- ----------
REVENUES:
Rental income $ 576,004 $ 554,956 $ 562,951
Equity in income of joint ventures 232,205 581,745 534,627
Interest income 10,054 58 1,524
--------- ---------- ----------
818,263 1,136,759 1,099,102
--------- ---------- ----------
EXPENSES:
Depreciation 171,052 164,864 160,038
Operating costs, net of reimbursements 150,734 104,231 72,816
Partnership administration 55,182 53,592 74,328
Management and leasing fees 78,568 74,807 81,424
Legal and accounting 20,654 22,979 22,742
Bad debt expense 0 0 31,188
Computer costs 7,786 6,874 7,559
--------- ---------- ----------
483,976 427,347 450,095
--------- ---------- ----------
NET INCOME $ 334,287 $ 709,412 $ 649,007
========= ========== ==========
NET INCOME ALLOCATED TO CLASS A LIMITED PARTNERS $ 334,287 $ 674,433 $ 608,058
========= ========== ==========
NET INCOME ALLOCATED TO CLASS B LIMITED PARTNERS $ 0 $ 34,979 $ 40,949
========= ========== ==========
NET INCOME PER CLASS A LIMITED PARTNER UNIT $ 0.02 $ 0.03 $ 0.03
========= ========== ==========
NET INCOME PER CLASS B LIMITED PARTNER UNIT $ 0.00 $ 0.01 $ 0.02
========= ========== ==========
CASH DISTRIBUTION PER CLASS A LIMITED PARTNER UNIT $ 0.02 $ 0.08 $ 0.08
========= ========== ==========
CASH DISTRIBUTION PER CLASS B LIMITED PARTNER UNIT $ 0.00 $ 0.01 $ 0.02
========= ========== ==========
The accompanying notes are an integral part of these statements.
F-4
WELLS REAL ESTATE FUND III, L.P.
(A Georgia Public Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
Limited Partners Total
--------------------------------------------------------
Class A Class B Partners'
---------------------------- ----------------------
Units Amount Units Amount Capital
---------- ----------- --------- --------- -----------
BALANCE, December 31, 1997 19,635,965 $16,383,705 2,544,540 $ 0 $16,383,705
Net income 0 608,058 0 40,949 649,007
Partnership distributions 0 (1,570,879) 0 (40,949) (1,611,828)
---------- ----------- --------- --------- -----------
BALANCE, December 31, 1998 19,635,965 15,420,884 2,544,540 0 15,420,884
Net income 0 674,433 0 34,979 709,412
Partnership distributions 0 (1,573,882) 0 (34,979) (1,608,861)
---------- ----------- --------- --------- -----------
BALANCE, December 31, 1999 19,635,965 14,521,435 2,544,540 0 14,521,435
Net income 0 334,287 0 0 334,287
Partnership distributions 0 (343,560) 0 0 (343,560)
---------- ----------- --------- --------- -----------
BALANCE, December 31, 2000 19,635,965 $14,512,162 2,544,540 $ 0 $14,512,162
========== =========== ========= ========= ===========
The accompanying notes are an integral part of these statements.
F-5
WELLS REAL ESTATE FUND III, L.P.
(A Georgia Public Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
2000 1999 1998
---------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 334,287 $ 709,412 $ 649,007
---------- ----------- -----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in income of joint ventures (232,205) (581,745) (534,627)
Depreciation 171,052 164,864 160,038
Changes in assets and liabilities:
Accounts receivable 9,176 (6,489) 54,621
Prepaid expenses and other assets 5,968 1,241 (6,167)
Accounts payable and accrued expenses 7,691 (7,884) 5,827
Due from affiliates (3,216) (7,966) 4,530
---------- ----------- -----------
Total adjustments (41,534) (437,979) (315,778)
---------- ----------- -----------
Net cash provided by operating activities 292,753 271,433 333,229
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate (68,865) (27,850) (34,616)
Investment in joint ventures (216,683) 0 (59,205)
Distributions received from joint ventures 1,045,901 1,360,515 1,250,374
---------- ----------- -----------
Net cash provided by investing activities 760,353 1,332,665 1,156,553
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners in excess of accumulated earnings (334,944) (973,626) (1,056,213)
Distributions to partners from accumulated earnings (437,222) (658,584) (493,882)
---------- ----------- -----------
Net cash used in financing activities (772,166) (1,632,210) (1,550,095)
---------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 280,940 (28,112) (60,313)
CASH AND CASH EQUIVALENTS, beginning of year 128,536 156,648 216,961
---------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 409,476 $ 128,536 $ 156,648
========== =========== ===========
The accompanying notes are an integral part of these statements.
F-6
WELLS REAL ESTATE FUND III, L.P.
(A Georgia Public Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999, AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Wells Real Estate Fund III, L.P. (the "Partnership") is a public limited
partnership organized on July 31, 1988, under the laws of the state of
Georgia. The general partners are Leo F. Wells, III and Wells Capital, Inc.
(the "Company"). The Partnership has two classes of limited partnership
interests, Class A and Class B units. Limited partners may vote to, among
other things, (a) amend the partnership agreement, subject to certain
limitations, (b) change the business purpose or investment objectives of
the Partnership, and (c) remove a general partner. A majority vote on any
of the above described matters will bind the Partnership without the
concurrence of the general partners. Each limited partnership unit has
equal voting rights, regardless of class.
The Partnership was formed to acquire and operate commercial real
properties, including properties which are either to be developed,
currently under development or construction, newly constructed, or have
operating histories. The Partnership directly owns an office building in
Greenville, North Carolina. In addition, the Partnership owns an interest
in the following properties through joint ventures between the Partnership
and other Wells Real Estate Funds: (i) The Atrium of Nassau Bay ("The
Atrium"), a four-story office building located in metropolitan Houston,
Texas, (ii) the Brookwood Grill, a restaurant located in Roswell, Georgia,
(iii) the Stockbridge Village Shopping Center, a retail shopping center
located in Stockbridge, Georgia, southeast of Atlanta, Georgia, (iv) the
G.E. Lighting National Customer Center, a two-story office building located
in Richmond, Virginia, and (v) an office/retail center in Roswell, Georgia.
Use of Estimates and Factors Affecting the Partnership
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
The Partnership recently began considering selling its properties.
Management estimates that the net realizable value of each of the
properties exceeds the carrying value of the corresponding real estate
assets; consequently, no impairment loss has been recorded. In the event
that the net sales proceeds are less than the carrying value of the
property sold, the Partnership would recognize a loss on the sale.
Management is not contractually or financially obligated to sell any of its
properties, and it is management's current intent to fully realize the
Partnership's investment in real estate. The success of the Partnership's
future operations and the ability to realize the investment in its assets
will be dependent on the Partnership's ability to maintain rental rates,
occupancy, and an appropriate level of operating expenses in future years.
Management believes that the steps that it is taking will enable the
Partnership to realize its investment in its assets.
F-7
Income Taxes
The Partnership is not subject to federal or state income taxes, and
therefore, none have been provided for in the accompanying financial
statements. The partners are required to include their respective shares of
profits and losses in their individual income tax returns.
Distribution of Net Cash From Operations
Cash available for distribution is distributed on a cumulative
noncompounded basis to limited partners quarterly. In accordance with the
partnership agreement, distributions are paid first to limited partners
holding Class A units until they have received an 8% per annum return on
their adjusted capital contributions, as defined. Cash available for
distribution is then distributed to limited partners holding Class B units
until they have received an 8% per annum return on their adjusted capital
contributions, as defined. If any cash available for distribution remains,
the general partners receive an amount equal to 10% of total net cash from
operations distributed. Thereafter, amounts are distributed 10% to the
general partners and 90% to the limited partners.
Distribution of Sales Proceeds
Upon sales of properties, the net sales proceeds are distributed in the
following order:
. To limited partners until all limited partners have received 100%
of their adjusted capital contributions, as defined
. To limited partners holding Class B units until they receive an
amount equal to the net cash available for distribution received
by the limited partners holding Class A units
. To all limited partners until they receive a cumulative 12% per
annum return on their adjusted capital contributions, as defined
. To all limited partners until they receive an amount equal to
their respective cumulative distributions, as defined
. To all general partners until they have received 100% of their
capital contributions, as defined
. Thereafter, 85% to the limited partners and 15% to the general
partners
Allocation of Net Income, Net Loss, and Gain on Sale
Net income is defined as net income recognized by the Partnership,
excluding deductions for depreciation and amortization. Net income, as
defined, of the Partnership will be allocated each year in the same
proportions that net cash from operations is distributed to the partners.
To the extent the Partnership's net income in any year exceeds net cash
from operations, it will be allocated 99% to the limited partners holding
Class A units and 1% to the general partners.
Net loss, depreciation, and amortization deductions for each fiscal year
will be allocated as follows: (a) 99% to the limited partners holding Class
B units and 1% to the general partners until their capital accounts are
reduced to zero, (b) then to any partner having a positive balance in his
capital account in an amount not to exceed such positive balance, and (c)
thereafter to the general partners.
Gain on the sale or exchange of the Partnership's properties will be
allocated generally in the same manner that the net proceeds from such sale
are distributed to partners after the following allocations are made, if
applicable, (a) allocations made pursuant to a qualified income offset
provision in the partnership agreement; (b) allocations to partners having
negative accounts until all negative capital accounts have been restored to
zero; and (c) allocations to Class B limited partners in amounts equal to
deductions for depreciation and amortization previously allocated to them
with respect to the specific partnership
F-8
property sold, but not in excess of the amount of gain on sale recognized
by the Partnership with respect to the sale of such property.
Real Estate Assets
Real estate assets held by the Partnership directly or through investments
in affiliated joint ventures are stated at cost less accumulated
depreciation. Major improvements and betterments are capitalized when they
extend the useful life of the related asset. All repairs and maintenance
are expensed as incurred.
Management continually monitors events and changes in circumstances that
could indicate carrying amounts of real estate assets may not be
recoverable. When events or changes in circumstances are present that
indicate the carrying amounts of real estate assets may not be recoverable,
management assesses the recoverability of real estate assets by determining
whether the carrying value of such real estate assets will be recovered
through the future cash flows expected from the use of the asset and its
eventual disposition. Management has determined that there has been no
impairment in the carrying value of real estate assets held by the
Partnership or its affiliated joint ventures as of December 31, 2000.
Depreciation for buildings and improvements is calculated using the
straight-line method over 25 years.
Revenue Recognition
All leases on real estate assets held by the Partnership are classified as
operating leases, and the related rental income is recognized on a
straight-line basis over the terms of the respective leases.
Deferred Lease Acquisition Costs
Costs incurred to procure operating leases are capitalized and amortized on
a straight-line basis over the terms of the related lease.
Investment in Joint Ventures
The Partnership does not have control over the operations of the joint
ventures; however, it does exercise significant influence. Accordingly,
investments in joint ventures are recorded using the equity method of
accounting. The joint ventures follow the same significant accounting
policies as the Partnership.
Cash available for distribution and allocations of profit and loss to the
Partnership by the joint ventures are made in accordance with the terms of
the individual joint venture agreements. Generally, these items are
allocated in proportion to the partners' respective ownership interests.
Cash is paid from the joint ventures to the Partnership quarterly.
Cash and Cash Equivalents
For the purposes of the statements of cash flows, the Partnership considers
all highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. Cash equivalents include cash and
short-term investments. Short-term investments are stated at cost, which
approximates fair value, and consist of investments in money market
accounts.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year financial statement presentation.
F-9
2. RELATED-PARTY TRANSACTIONS
Due from affiliates at December 31, 2000 and 1999 represents advances to
Wells Management Company, Inc. ("Wells Management"), an affiliate of the
general partners, and the Partnership's share of cash to be distributed
from its joint venture investments for the fourth quarters of 2000 and
1999, respectively, as follows:
2000 1999
-------- --------
Fund III and IV Associates $101,504 $232,157
Fund II and III Associates--The Atrium 57,749 39,092
Fund II and III Associates--Brookwood Grill 69,161 47,514
Wells Management Company 3,216 0
-------- --------
$231,630 $318,763
======== ========
The Partnership entered into a property management agreement with Wells
Management. In consideration for supervising the management of the
Partnership's properties, the Partnership will generally pay Wells
Management management and leasing fees equal to (a) 3% of the gross
revenues for management and 3% of the gross revenues for leasing (aggregate
maximum of 6%) plus a separate fee for the one-time initial lease-up of
newly constructed properties in an amount not to exceed the fee customarily
charged in arm's-length transactions by others rendering similar services
in the same geographic area for similar properties or (b) in the case of
commercial properties which are leased on a long-term net basis (ten or
more years), 1% of the gross revenues except for initial leasing fees equal
to 3% of the gross revenues over the first five years of the lease term.
The Partnership incurred management and leasing fees and lease acquisition
costs, both directly and at the joint venture level, of $228,176, $215,168,
and $183,589, for the years ended December 31, 2000, 1999, and 1998,
respectively, which were paid to Wells Management.
The Company performs certain administrative services for the Partnership,
such as accounting and other partnership administration, and incurs the
related expenses. Such expenses are allocated among the various Wells Real
Estate Funds based on time spent on each fund by individual administrative
personnel. In the opinion of management, such allocation is a reasonable
estimation of such expenses.
The general partners are also general partners of other Wells Real Estate
Funds. As such, there may exist conflicts of interest where the general
partners in the capacity as general partners of other Wells Real Estate
Funds may be in competition with the Partnership for tenants in similar
geographic markets.
3. INVESTMENT IN JOINT VENTURES
The Partnership's investment and percentage ownership in the joint ventures
at December 31, 2000 and 1999 are summarized as follows:
2000 1999
-------------------------- --------------------------
Amount Percent Amount Percent
----------- ----------- ----------- -----------
Fund III and IV Associates $ 6,910,490 57% $ 6,993,642 57%
Fund II and III Associates--The Atrium 2,858,085 39 3,212,263 39
Fund II and III Associates--Brookwood Grill 1,094,347 38 1,163,685 38
----------- -----------
$10,862,926 $11,369,590
=========== ===========
F-10
The following is a rollforward of the Partnership's investment in joint ventures
for the years ended December 31, 2000 and 1999:
2000 1999
----------- -----------
Investment in joint ventures, beginning of year $11,369,590 $12,132,961
Equity in income of joint ventures 232,205 581,745
Contributions to joint ventures 216,683 0
Distributions from joint ventures (955,552) (1,345,116)
----------- -----------
Investment in joint ventures, end of year $10,862,926 $11,369,590
=========== ===========
Fund II and III Associates
On April 3, 1989, the Partnership entered into a joint venture agreement with
the Fund II and II-OW joint venture. The new joint venture, Fund II and III
Associates, was formed for the purpose of investing in commercial real
properties. In April 1989, Fund II and III Associates acquired The Atrium. In
1991, the Fund II and II-OW joint venture contributed its interest in a parcel
of land known as the 880 Property located in Roswell, Georgia, to Fund II and
III Associates. The property is a 5.8 acre tract of land. A restaurant was
developed on 1.5 acres of the 880 Property and is currently operating as the
Brookwood Grill restaurant ("Fund II and III Associates--Brookwood Grill"). The
remaining 4.3 acres of the 880 Property were transferred at cost to the Fund II,
III, VI, and VII Associates joint venture during 1995. Fund II and III
Associates' investment in this transferred parcel of the 880 Property was
$1,305,317 and $1,406,591 at December 31, 2000 and 1999, respectively, which
represented a 24% interest for each year.
The Atrium was fully occupied from inception through June 1996, at which time
the previous tenant's lease expired. In March 1997, a lease was signed with a
new tenant for the entire building and the new tenant began paying rent in May
1997. The lease term is for five years with an option to renew for an additional
five years. There is no-cause cancellation provision at the end of the first
three-year period. If this no-cause cancellation is exercised, the tenant would
be required to pay unamortized, up-front tenant improvement costs. The cost of
completing the required tenant improvements and outside broker commissions was
funded out of reserves and contributions by the Partnership and Fund II and
II-OW.
F-11
Following are the financial statements for Fund II and III Associates--The
Atrium:
Fund II and III Associates--The Atrium
(A Georgia Joint Venture)
Balance Sheets
December 31, 2000 and 1999
Assets
2000 1999
---------- ----------
Real estate assets, at cost:
Land $1,504,743 $1,504,743
Building and improvements, less accumulated depreciation of $7,113,487 in
2000 and $6,301,682 in 1999 6,274,702 7,093,742
---------- ----------
Total real estate assets 7,779,445 8,598,485
Cash and cash equivalents 240,314 89,170
Accounts receivable 23,202 30,018
Prepaid expenses and other assets 123,399 213,143
---------- ----------
Total assets $8,166,360 $8,930,816
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 104,321 $ 1,801
Partnership distributions payable 149,227 101,012
---------- ----------
Total liabilities 253,548 102,813
---------- ----------
Partners' capital:
Fund II and II-OW 5,054,727 5,615,740
Wells Real Estate Fund III 2,858,085 3,212,263
---------- ----------
Total partners' capital 7,912,812 8,828,003
---------- ----------
Total liabilities and partners' capital $8,166,360 $8,930,816
========== ==========
F-12
Fund II and III Associates--The Atrium
(A Georgia Joint Venture)
Statements of Loss
for the Years Ended December 31, 2000, 1999, and 1998
2000 1999 1998
---------- ---------- ----------
Revenues:
Rental income $1,468,784 $1,470,144 $1,470,144
Other income 0 4,000 13,280
---------- ---------- ----------
1,468,784 1,474,144 1,483,424
---------- ---------- ----------
Expenses:
Depreciation 877,240 867,720 866,778
Operating costs, net of reimbursements 723,744 692,066 699,550
Management and leasing fees 185,035 179,762 186,102
Partnership administration 14,841 23,278 11,095
Legal and accounting 5,250 5,250 3,310
---------- ---------- ----------
1,806,110 1,768,076 1,766,835
---------- ---------- ----------
Net loss $ (337,326) $ (293,932) $ (283,411)
========== ========== ==========
Net loss allocated to Fund II and II-OW $ (206,781) $ (180,180) $ (173,731)
========== ========== ==========
Net loss allocated to Wells Real Estate Fund III $ (130,545) $ (113,752) $ (109,680)
========== ========== ==========
Fund II and III Associates--The Atrium
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 2000, 1999, and 1998
Fund II Wells Real Total
and Estate Partners'
II-OW Fund III Capital
---------- ---------- -----------
Balance, December 31, 1997 $6,760,950 $3,935,261 $10,696,211
Net loss (173,731) (109,680) (283,411)
Partnership distributions (405,758) (256,165) (661,923)
---------- ---------- -----------
Balance, December 31, 1998 6,181,461 3,569,416 9,750,877
Net loss (180,180) (113,752) (293,932)
Partnership distributions (385,541) (243,401) (628,942)
---------- ---------- -----------
Balance, December 31, 1999 5,615,740 3,212,263 8,828,003
Net loss (206,781) (130,545) (337,326)
Partnership distributions (354,232) (223,633) (577,865)
---------- ---------- -----------
Balance, December 31, 2000 $5,054,727 $2,858,085 $ 7,912,812
========== ========== ===========
F-13
Fund II and III Associates--The Atrium
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 2000, 1999, and 1998
2000 1999 1998
---------- ---------- ----------
Cash flows from operating activities:
Net loss $ (337,326) $ (293,932) $ (283,411)
---------- ---------- ----------
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation 877,240 867,720 866,778
Changes in assets and liabilities:
Accounts receivable 6,816 (11,904) 836
Prepaid expenses and other assets 89,744 89,745 89,745
Accounts payable 102,520 (2,786) (146,779)
Due to affiliates 0 0 (3,829)
---------- ---------- ----------
Total adjustments 1,076,320 942,775 806,751
---------- ---------- ----------
Net cash provided by operating activities 738,994 648,843 523,340
---------- ---------- ----------
Cash flows from investing activities:
Investment in real estate assets (58,200) (23,401) 0
---------- ---------- ----------
Cash flows from financing activities:
Distributions to joint venture partners (529,650) (665,154) (675,743)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 151,144 (39,712) (152,403)
Cash and cash equivalents, beginning of year 89,170 128,882 281,285
---------- ---------- ----------
Cash and cash equivalents, end of year $ 240,314 $ 89,170 $ 128,882
========== ========== ==========
Supplemental disclosure of noncash activities:
Write-off of fully depreciated fixed assets $ 65,435 $ 0 $ 0
========== ========== ==========
F-14
Following are the financial statements for Fund II and III Associates--Brookwood
Grill:
Fund II and III Associates--Brookwood Grill
(A Georgia Joint Venture)
Balance Sheets
December 31, 2000 and 1999
Assets
2000 1999
----------- -----------
Real estate assets, at cost:
Land $ 745,223 $ 745,223
Building and improvements, less accumulated depreciation of $437,759 in
2000 and $383,745 in 1999 835,054 889,068
----------- -----------
Total real estate assets 1,580,277 1,634,291
Investment in joint venture 1,305,317 1,406,591
Cash and cash equivalents 57,515 65,627
Due from affiliate 69,758 60,193
Accounts receivable 38,714 41,060
Prepaid expenses and other assets 6,344 11,912
----------- -----------
Total assets $ 3,057,925 $ 3,219,674
=========== ===========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 4,580 $ 0
Due to affiliate 917 2,405
Partnership distributions payable 145,528 126,201
----------- -----------
Total liabilities 151,025 128,606
----------- -----------
Partners' capital:
Fund II and II-OW 1,812,553 1,927,383
Wells Real Estate Fund III 1,094,347 1,163,685
----------- -----------
Total partners' capital 2,906,900 3,091,068
----------- -----------
Total liabilities and partners' capital $ 3,057,925 $ 3,219,674
=========== ===========
F-15
Fund II and III Associates--Brookwood Grill
(A Georgia Joint Venture)
Statements of Income
for the Years Ended December 31, 2000, 1999, and 1998
2000 1999 1998
-------- -------- --------
Revenues:
Rental income $224,801 $224,801 $225,100
Equity in income of joint venture 55,489 81,669 78,791
-------- -------- --------
280,290 306,470 303,891
-------- -------- --------
Expenses:
Depreciation 54,014 54,014 54,014
Operating costs, net of reimbursements (13,375) (11,565) (31,540)
Management and leasing fees 25,320 30,096 23,348
Partnership administration 14,019 5,853 3,708
Legal and accounting 5,869 5,252 3,200
-------- -------- --------
85,847 83,650 52,730
-------- -------- --------
Net income $194,443 $222,820 $251,161
======== ======== ========
Net income allocated to Fund II and II-OW $121,235 $138,928 $156,599
======== ======== ========
Net income allocated to Wells Real Estate Fund III $ 73,208 $ 83,892 $ 94,562
======== ======== ========
Fund II and III Associates--Brookwood Grill
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 2000, 1999, and 1998
Fund II Wells Real Total
and Estate Partners'
II-OW Fund III Capital
---------- ---------- ----------
Balance, December 31, 1997 $2,156,463 $1,302,017 $3,458,480
Net income 156,599 94,562 251,161
Partnership distributions (270,886) (163,576) (434,462)
---------- ---------- ----------
Balance, December 31, 1998 2,042,176 1,233,003 3,275,179
Net income 138,928 83,892 222,820
Partnership distributions (253,721) (153,210) (406,931)
---------- ---------- ----------
Balance, December 31, 1999 1,927,383 1,163,685 3,091,068
Net income 121,235 73,208 194,443
Partnership distributions (236,065) (142,546) (378,611)
---------- ---------- ----------
Balance, December 31, 2000 $1,812,553 $1,094,347 $2,906,900
========== ========== ==========
F-16
Fund II and III Associates--Brookwood Grill
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 2000, 1999, and 1998
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income $ 194,443 $ 222,820 $ 251,161
--------- --------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 54,014 54,014 54,014
Equity in income of joint venture (55,489) (81,669) (78,791)
Changes in assets and liabilities:
Accounts receivable 2,346 25,958 22,739
Prepaid expenses and other assets 5,568 5,568 5,568
Accounts payable 4,580 (1,200) (2,679)
Due to affiliates (1,488) (1,489) (1,487)
--------- --------- ---------
Total adjustments 9,531 1,182 (636)
--------- --------- ---------
Net cash provided by operating activities 203,974 224,002 250,525
--------- --------- ---------
Cash flows from investing activities:
Distributions received from joint venture 147,198 173,171 160,812
--------- --------- ---------
Cash flows from financing activities:
Distributions to joint venture partners (359,284) (405,502) (391,702)
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents (8,112) (8,329) 19,635
Cash and cash equivalents, beginning of year 65,627 73,956 54,321
--------- --------- ---------
Cash and cash equivalents, end of year $ 57,515 $ 65,627 $ 73,956
========= ========= =========
Fund II, III, VI, and VII Associates--Holcomb Bridge
On January 1, 1995, the Fund II and III Associates joint venture entered into a
joint venture agreement with Wells Real Estate Fund VI, L.P. ("Fund VI") and
Wells Real Estate Fund VII, L.P. ("Fund VII"). The joint venture, Fund II, III,
VI, and VII Associates, was formed for the purpose of acquiring, developing,
operating, and selling real properties. During 1995, Fund II and III Associates
contributed a 4.3-acre tract of land from its 880 Property--Holcomb Bridge to
the Fund II, III, VI, and VII Associates joint venture. During 1998, 1997, and
1996, Fund VI and Fund VII made contributions to the joint venture. Ownership
percentage interests were recompleted accordingly. Development was substantially
completed in 1996 on two retail and office buildings containing a total of
approximately 49,500 square feet.
F-17
The following are the financial statements for Fund II, III, VI, and VII
Associates:
Fund II, III, VI, and VII Associates
(A Georgia Joint Venture)
Balance Sheets
December 31, 2000 and 1999
Assets
2000 1999
---------- ----------
Real estate assets, at cost:
Land $1,325,242 $1,325,242
Building and improvements, less accumulated depreciation of $1,654,520 in
2000 and $1,299,227 in 1999 4,063,639 4,418,932
---------- ----------
Total real estate assets 5,388,881 5,744,174
Cash and cash equivalents 88,044 189,404
Accounts receivable 151,886 162,464
Prepaid expenses and other assets 158,872 213,443
---------- ----------
Total assets $5,787,683 $6,309,485
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 82,072 $ 87,926
Partnership distributions payable 154,874 250,075
---------- ----------
236,946 338,001
---------- ----------
Partners' capital:
Fund II and III Associates 1,305,317 1,406,591
Wells Real Estate Fund VI 1,456,417 1,569,430
Wells Real Estate Fund VII 2,789,003 2,995,463
---------- ----------
Total partners' capital 5,550,737 5,971,484
---------- ----------
Total liabilities and partners' capital $5,787,683 $6,309,485
========== ==========
F-18
Fund II, III, VI, and VII Associates
(A Georgia Joint Venture)
Statements of Income
for the Years Ended December 31, 2000, 1999, and 1998
2000 1999 1998
--------- --------- ---------
Revenues:
Rental income $ 869,390 $ 953,952 $ 872,978
Other income 0 23,843 36,000
--------- --------- ---------
869,390 977,795 908,978
--------- --------- ---------
Expenses:
Depreciation 355,293 415,165 376,290
Operating costs, net of reimbursements 70,693 68,691 85,983
Management and leasing fees 111,567 129,798 97,701
Legal and accounting 4,513 4,952 6,509
Partnership administration 22,646 19,891 14,926
Bad debt expense 74,145 0 0
--------- --------- ---------
638,857 638,497 581,409
--------- --------- ---------
Net income $ 230,533 $ 339,298 $ 327,569
========= ========= =========
Net income allocated to Fund II and III Associates $ 55,489 $ 81,669 $ 78,791
========= ========= =========
Net income allocated to Wells Real Estate Fund VI $ 61,921 $ 91,135 $ 87,914
========= ========= =========
Net income allocated to Wells Real Estate Fund VII $ 113,123 $ 166,494 $ 160,864
========= ========= =========
Fund II, III, VI, and VII Associates
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 2000, 1999, and 1998
Fund II Wells Wells Real Total
and III Real Estate Estate Partners'
Associates Fund VI Fund VII Capital
---------- ---------- ---------- ----------
Balance, December 31, 1997 $1,608,215 $1,789,811 $3,252,856 $6,650,882
Partnership contributions 0 4,600 154,049 158,649
Net income 78,791 87,914 160,864 327,569
Partnership distributions (179,199) (199,945) (365,964) (745,108)
---------- ---------- ---------- ----------
Balance, December 31, 1998 1,507,807 1,682,380 3,201,805 6,391,992
Net income 81,669 91,135 166,494 339,298
Partnership distributions (182,885) (204,085) (372,836) (759,806)
---------- ---------- ---------- ----------
Balance, December 31, 1999 1,406,591 1,569,430 2,995,463 5,971,484
Net income 55,489 61,921 113,123 230,533
Partnership distributions (156,763) (174,934) (319,583) (651,280)
---------- ---------- ---------- ----------
Balance, December 31, 2000 $1,305,317 $1,456,417 $2,789,003 $5,550,737
========== ========== ========== ==========
F-19
Fund II, III, VI, and VII Associates
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 2000, 1999, and 1998
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income $ 230,533 $ 339,298 $ 327,569
--------- --------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 355,293 415,165 376,290
Changes in assets and liabilities:
Accounts receivable 10,578 (51,004) (56,936)
Prepaid expenses and other assets 54,571 20,522 35,603
Accounts payable and accrued expenses (5,854) (104,146) 21,296
--------- --------- ---------
Total adjustments 414,588 280,537 376,253
--------- --------- ---------
Net cash provided by operating activities 645,121 619,835 703,822
--------- --------- ---------
Cash flows from investing activities:
Investment in real estate 0 (19,772) (102,122)
--------- --------- ---------
Cash flows from financing activities:
Contributions from joint venture partners 0 0 154,996
Distributions to joint venture partners (746,481) (719,447) (667,299)
--------- --------- ---------
Net cash used in financing activities (746,481) (719,447) (512,303)
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents (101,360) (119,384) 89,397
Cash and cash equivalents, beginning of year 189,404 308,788 219,391
--------- --------- ---------
Cash and cash equivalents, end of year $ 88,044 $ 189,404 $308,788
========= ========= =========
Supplemental disclosure of noncash activities:
Deferred project costs contributed to joint venture $ 0 $ 0 $ 3,653
========= ========= =========
Fund III and IV Associates
On March 27, 1991, the Partnership entered into a joint venture with Wells Real
Estate Fund IV, L.P. The joint venture, Fund III and IV Associates, was formed
for the purpose of developing, constructing, and operating the Stockbridge
Village Shopping Center in Stockbridge, Georgia. In addition, in July 1992, Fund
III and IV Associates purchased the G.E. Lighting National Customer Center in
Richmond, Virginia.
F-20
The following are the financial statements for Fund III and IV Associates:
Fund III and IV Associates
(A Georgia Joint Venture)
Balance Sheets
December 31, 2000 and 1999
Assets
2000 1999
------------ ------------
Real estate assets, at cost:
Land $ 3,331,775 $ 3,331,775
Building and improvements, less accumulated depreciation of $3,980,865
in 2000 and $3,422,583 in 1999 8,540,176 8,792,931
------------ ------------
Total real estate assets 11,871,951 12,124,706
Cash and cash equivalents 105,104 310,609
Accounts receivable 130,226 171,047
Prepaid expenses and other assets 191,722 65,213
------------ ------------
Total assets $ 12,299,003 $ 12,671,575
============ ============
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 40,896 $ 33,759
Partnership distributions payable 177,418 405,782
Due to affiliates 1,870 7,878
------------ ------------
Total liabilities 220,184 447,419
------------ ------------
Partners' capital:
Wells Real Estate Fund III 6,910,490 6,993,642
Wells Real Estate Fund IV 5,168,329 5,230,514
------------ ------------
Total partners' capital 12,078,819 12,224,156
------------ ------------
Total liabilities and partners' capital $ 12,299,003 $ 12,671,575
============ ============
F-21
Fund III and IV Associates
(A Georgia Joint Venture)
Statements of Income
for the Years Ended December 31, 2000, 1999, and 1998
Assets
2000 1999 1998
---------- ---------- ----------
Revenues:
Rental income $1,405,938 $1,795,247 $1,749,842
Interest income 4,921 11,790 9,368
---------- ---------- ----------
1,410,859 1,807,037 1,759,210
---------- ---------- ----------
Expenses:
Depreciation 558,282 551,956 542,363
Management and leasing fees 134,283 158,520 154,881
Operating costs, net of reimbursements 164,018 (21,669) 62,863
Property administration 39,875 40,357 27,546
Legal and accounting 8,312 9,163 12,420
---------- ---------- ----------
904,770 738,327 800,073
---------- ---------- ----------
Net income $ 506,089 $1,068,710 $ 959,137
========== ========== ==========
Net income allocated to Wells Real Estate Fund III $ 289,542 $ 611,605 $ 549,745
========== ========== ==========
Net income allocated to Wells Real Estate Fund IV $ 216,547 $ 457,105 $ 409,392
========== ========== ==========
Fund III and IV Associates
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 2000, 1999, and 1998
Wells Real Wells Real Total
Estate Estate Partners'
Fund III Fund IV Capital
---------- ---------- -----------
Balance, December 31, 1997 $7,570,298 $5,637,567 $13,207,865
Net income 549,745 409,392 959,137
Partnership contributions 59,205 44,090 103,295
Partnership distributions (848,706) (632,028) (1,480,734)
---------- ---------- -----------
Balance, December 31, 1998 7,330,542 5,459,021 12,789,563
Net income 611,605 457,105 1,068,710
Partnership contributions 0 23,280 23,280
Partnership distributions (948,505) (708,892) (1,657,397)
---------- ---------- -----------
Balance, December 31, 1999 6,993,642 5,230,514 12,224,156
Net income 289,542 216,547 506,089
Partnership contributions 216,683 162,058 378,741
Partnership distributions (589,377) (440,790) (1,030,167)
---------- ---------- -----------
Balance, December 31, 2000 $6,910,490 $5,168,329 $12,078,819
========== ========== ===========
F-22
Fund III and IV Associates
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 2000, 1999, and 1998
2000 1999 1998
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 506,089 $ 1,068,710 $ 959,137
----------- ----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 558,282 551,956 542,363
Changes in assets and liabilities:
Accounts receivable 40,821 2,586 33,590
Prepaid expenses and other assets (126,509) 9,320 (31,628)
Accounts payable 7,137 (4,380) 1,967
Due to affiliates (6,008) 6,366 (5,427)
----------- ----------- -----------
Total adjustments 473,723 565,848 540,865
----------- ----------- -----------
Net cash provided by operating activities 979,812 1,634,558 1,500,002
----------- ----------- -----------
Cash flows from investing activities:
Investment in real estate (305,527) (24,871) (111,383)
----------- ----------- -----------
Cash flows from financing activities:
Contributions from joint venture partners 378,741 23,280 103,295
Distributions to joint venture partners (1,258,531) (1,659,316) (1,461,150)
----------- ----------- -----------
Net cash used in financing activities (879,790) (1,636,036) (1,357,855)
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (205,505) (26,349) 30,764
Cash and cash equivalents, beginning of year 310,609 336,958 306,194
----------- ----------- -----------
Cash and cash equivalents, end of year $ 105,104 $ 310,609 $ 336,958
=========== =========== ===========
4. INCOME TAX BASIS NET INCOME AND PARTNERS' CAPITAL
The Partnership's income tax basis net income for the years ended December
31, 2000, 1999, and 1998 is calculated as follows:
2000 1999 1998
-------- ---------- ----------
Financial statement net income $334,287 $ 709,412 $ 649,007
Increase (decrease) in net income resulting from:
Depreciation expense for financial reporting purposes in excess
of amounts for income tax purposes 352,963 364,072 353,230
Rental income recognized for income tax purposes in excess of
amounts for financial reporting purposes 18,532 23,693 45,896
Expenses deductible when paid for income tax purposes, accrued
for financial reporting purposes (4,326) (8,929) (1,014)
Fixed asset retirement in excess of amounts for income tax
purposes 0 0 0
Other 1,243 999 960
-------- ---------- ----------
Income tax basis net income $702,699 $1,089,247 $1,048,079
======== ========== ==========
F-23
The Partnership's income tax basis partners' capital at December 31, 2000,
1999, and 1998 is computed as follows:
2000 1999 1998
----------- ----------- -----------
Financial statement partners' capital $14,512,162 $14,521,435 $15,420,884
Increase (decrease) in partners' capital resulting from:
Depreciation expense for financial reporting purposes in
excess of amounts for income tax purposes 1,713,887 1,360,924 996,852
Capitalization of syndication costs for income tax
purposes, which are accounted for as cost of capital
for financial reporting purposes 2,624,555 2,624,555 2,624,555
Accumulated rental income accrued for financial reporting
purposes in excess of amounts for income tax purposes (195,815) (214,347) (238,040)
Accumulated expenses deductible when paid for income tax
purposes, accrued for financial reporting purposes 107,132 111,458 120,387
Partnership's distribution payable 6,769 435,375 458,724
Other 511 (732) (1,731)
----------- ----------- -----------
Income tax basis partners' capital $18,769,201 $18,838,668 $19,381,631
=========== =========== ===========
5. RENTAL INCOME
The future minimum rental income due from the Partnership's direct
investment in real estate or its respective ownership interest in joint
ventures under noncancelable operating leases at December 31, 2000 is as
follows:
Year ending December 31:
2001 $ 2,213,498
2002 1,616,689
2003 1,172,520
2004 1,095,438
2005 1,056,484
Thereafter 4,549,577
------------
$ 11,704,206
============
Three tenants contributed approximately 27%, 21%, and 13% of revenues. In
addition, three tenants will contribute approximately 22%, 18%, and 17% of
future minimum rental income.
The future minimum rental income due Fund II and III Associates--The Atrium
under noncancelable operating leases at December 31, 2000 is as follows:
Year ending December 31:
2001 $1,488,000
2002 620,000
----------
$2,108,000
==========
One tenant at the Atrium contributed 100% of rental income for the year
ended December 31, 2000 and will contribute 100% of future minimum rental
income.
F-24
The future minimum rental income due Fund II and III Associates--Brookwood
Grill under noncancelable operating leases at December 31, 2000 is as
follows:
Year ending December 31:
2001 $ 249,550
2002 25,995
-----------
$ 275,545
===========
One tenant contributed 100% of rental income for the year ended December
31, 2000 and will contribute 100% of future minimum rental income.
The future minimum rental income due Fund II, III, VI, and VII Associates
under noncancelable operating leases at December 31, 2000 is as follows:
Year ending December 31:
2001 $ 816,533
2002 539,270
2003 255,097
2004 219,319
2005 127,850
Thereafter 21,308
-----------
$ 1,979,377
===========
Three tenants contributed approximately 15%, 14%, and 13% of rental income
for the year ended December 31, 2000. In addition, four tenants will
contribute approximately 33%, 13%, 13%, and 11% of future minimum rental
income.
The future minimum rental income due Fund III and IV Associates under
noncancelable operating leases at December 31, 2000 is as follows:
Year ending December 31:
2001 $ 2,201,798
2002 2,100,205
2003 1,893,006
2004 1,864,303
2005 1,827,107
Thereafter 7,950,490
-----------
$17,836,909
===========
Two tenants contributed approximately 35% and 10% of rental income for the
year ended December 31, 2000. In addition, one tenant will contribute
approximately 30% of future minimum rental income.
F-25
6. QUARTERLY RESULTS (UNAUDITED)
Presented below is a summary of the unaudited quarterly financial
information for the years ended December 31, 2000 and 1999:
2000 Quarters Ended
--------------------------------------------------------
March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
Revenues $278,499 $194,058 $201,834 $143,872
Net income 159,035 72,716 75,948 26,588
Net income allocated to Class A limited partners 159,035 72,716 75,948 26,588
Net income per Class A limited partner unit (a) $ 0.01 $ 0.00 $ 0.00 $ 0.00
Cash distribution per Class A limited partner unit 0.02 0.00 0.00 0.00
(a) The totals of the four quarterly amounts for the year ended
December 31, 2000 do not equal the totals for the year. This
difference results from rounding differences between quarters.
1999 Quarters Ended
---------------------------------------------------------
March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
Revenues $277,769 $312,685 $273,209 $273,096
Net income 148,919 218,982 176,510 165,001
Net income allocated to Class A limited partners 148,919 218,982 176,510 130,022
Net income allocated to Class B limited partners 0 0 0 34,979
Net income per Class A limited partner unit $ 0.01 $ 0.01 $ 0.01 $ 0.00
Net income per Class B limited partner unit 0.00 0.00 0.00 0.01
Cash distribution per Class A limited partner unit 0.02 0.02 0.02 0.02
Cash distribution per Class B limited partner unit 0.00 0.00 0.00 0.01
7. COMMITMENTS AND CONTINGENCIES
Management, after consultation with legal counsel, is not aware of any
significant litigation or claims against the Partnership or the Company. In
the normal course of business, the Partnership or the Company may become
subject to such litigation or claims.
F-26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Fund II,
Wells Real Estate Fund II-OW,
and Wells Real Estate Fund III, L.P.:
We have audited the accompanying balance sheets of THE ATRIUM BUILDING as of
December 31, 2000 and 1999 and the related statements of loss, partners'
capital, and cash flows for each of the three years in the period ended December
31, 2000. These financial statements are the responsibility of the building's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Atrium Building as of
December 31, 2000 and 1999 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2000 in conformity
with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 30, 2001
F-27
THE ATRIUM BUILDING
BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
ASSETS
2000 1999
---------------- ---------------
REAL ESTATE ASSETS:
Land $1,504,743 $1,504,743
Building and improvements, less accumulated depreciation of
$7,113,487 in 2000 and $6,301,681 in 1999 6,274,702 7,093,742
---------------- ---------------
Total real estate assets 7,779,445 8,598,485
CASH AND CASH EQUIVALENTS 240,314 89,170
ACCOUNTS RECEIVABLE 23,202 30,018
PREPAID AND OTHER ASSETS, net 123,399 213,143
---------------- ---------------
Total assets $8,166,360 $8,930,816
================ ===============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Distributions payable to partners $ 149,227 $ 101,012
Accounts payable 104,321 1,801
---------------- ---------------
Total liabilities 253,548 102,813
---------------- ---------------
COMMITMENTS AND CONTINGENCIES (Note 4)
PARTNERS' CAPITAL:
Wells Real Estate Fund II 4,631,085 5,162,262
Wells Real Estate Fund II-OW 423,642 453,477
Wells Real Estate Fund III, L.P. 2,858,085 3,212,264
---------------- ---------------
Total partners' capital 7,912,812 8,828,003
---------------- ---------------
Total liabilities and partners' capital $8,166,360 $8,930,816
================ ===============
The accompanying notes are an integral part of these balance sheets.
F-28
THE ATRIUM BUILDING
STATEMENTS OF LOSS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
2000 1999 1998
--------------- -------------- ---------------
REVENUES:
Rental income $1,468,784 $1,470,144 $1,470,144
--------------- -------------- ---------------
EXPENSES:
Depreciation 877,240 867,719 866,778
Operating costs, net of reimbursements 738,585 711,346 697,365
Management and leasing fees 185,035 179,762 186,102
Legal and accounting 5,250 5,250 3,310
--------------- -------------- ---------------
1,806,110 1,764,077 1,753,555
--------------- -------------- ---------------
NET LOSS $ (337,326) $ (293,933) $ (283,411)
=============== ============== ===============
NET LOSS ALLOCATED TO WELLS REAL ESTATE
FUND II $ (195,784) $ (170,613) $ (164,506)
=============== ============== ===============
NET LOSS ALLOCATED TO WELLS REAL ESTATE
FUND II-OW $ (10,997) $ (9,568) $ (9,225)
=============== ============== ===============
NET LOSS ALLOCATED TO WELLS REAL ESTATE
FUND III, L.P. $ (130,545) $ (113,752) $ (109,680)
=============== ============== ===============
The accompanying notes are an integral part of these statements.
F-29
THE ATRIUM BUILDING
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
Wells Real
Wells Real Wells Real Estate Total
Estate Estate Fund III, Partners'
Fund II Fund II-OW L.P. Capital
-------------- -------------- -------------- ---------------
BALANCE, December 31, 1997 $6,246,662 $514,288 $3,935,260 $10,696,210
Net loss (164,506) (9,225) (109,680) (283,411)
Distributions (384,212) (21,546) (256,164) (661,922)
-------------- -------------- -------------- ---------------
BALANCE, December 31, 1998 5,697,944 483,517 3,569,416 9,750,877
Net loss (170,613) (9,568) (113,752) (293,933)
Distributions (365,069) (20,472) (243,400) (628,941)
-------------- -------------- -------------- ---------------
BALANCE, December 31, 1999 5,162,262 453,477 3,212,264 8,828,003
-------------- -------------- -------------- ---------------
Net loss (195,784) (10,997) (130,545) (337,326)
Distributions (335,393) (18,839) (223,633) (577,865)
-------------- -------------- -------------- ---------------
BALANCE, December 31, 2000 $4,631,085 $423,641 $2,858,086 $ 7,912,812
============== ============== ============== ===============
The accompanying notes are an integral part of these statements.
F-30
THE ATRIUM BUILDING
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
2000 1999 1998
--------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (337,326) $(293,933) $(283,411)
--------------- ------------- -------------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 877,240 867,719 866,778
Changes in assets and liabilities:
Accounts receivable 6,816 (11,904) 836
Prepaid expenses and other assets, net 89,744 89,745 89,745
Accounts payable 102,520 (2,786) (146,779)
Due to affiliates 0 0 (3,829)
Total adjustments 1,076,320 942,774 806,751
--------------- ------------- -------------
Net cash provided by operating activities 738,994 648,841 523,340
--------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate assets (58,200) (23,400) 0
--------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid to partners (529,650) (665,153) (675,743)
--------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 151,144 (39,712) (152,403)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 89,170 128,882 281,285
--------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 240,314 $ 89,170 $ 128,882
=============== ============= =============
The accompanying notes are an integral part of these statements.
F-31
THE ATRIUM BUILDING
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999, AND 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
The Atrium Building ("Atrium") is a four-story office building located in
Houston, Harris County, Texas. The building is owned by Fund II and III
Associates, a joint venture between Wells Real Estate Fund II ("Fund II"),
Wells Real Estate Fund II-OW ("Fund II-OW"), and Wells Real Estate Fund
III, L.P. ("Fund III). Fund II owns 58% of Atrium, Fund II-OW owns 3% of
Atrium, and Fund III owns 39% of Atrium at December 31, 2000. Allocation of
net loss and distributions are made in accordance with ownership
percentages.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Income Taxes
Atrium is not deemed to be a taxable entity for federal income tax
purposes.
Real Estate Assets
Real estate assets are stated at cost, less accumulated depreciation. Major
improvements and betterments are capitalized when they extend the useful
life of the related asset. All repairs and maintenance are expensed as
incurred.
Management continually monitors events and changes in circumstances which
could indicate that carrying amounts of real estate assets may not be
recoverable. When events or changes in circumstances are present which
indicate that the carrying amounts of real estate assets may not be
recoverable, management assesses the recoverability of real estate assets
by determining whether the carrying value of such real estate assets will
be recovered through the future cash flows expected from the use of the
asset and its eventual disposition. Management has determined that there
has been no impairment in the carrying value of Atrium as of December 31,
2000.
Depreciation is calculated using the straight-line method over 25 years.
Revenue Recognition
The lease on Atrium is classified as an operating lease, and the related
rental income is recognized on a straight-line basis over the term of the
lease.
F-32
Deferred Lease Acquisition Costs
Costs incurred to procure operating leases are capitalized and amortized on
a straight-line basis over the terms of the related leases.
Cash and Cash Equivalents
For the purposes of the statements of cash flows, Atrium considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. Cash equivalents include cash and
short-term investments. Short-term investments are stated at cost, which
approximates fair value, and consist of investments in money market
accounts.
2. RENTAL INCOME
The future minimum rental income due to Atrium under noncancelable
operating leases at December 31, 2000 is as follows:
Year ending December 31:
2001 $1,488,000
2002 620,000
----------
$2,108,000
==========
One tenant contributed 100% of rental income for the year ended December
31, 2000 and represents 100% of the future minimum rental income above.
This tenant has the option to renew an additional five-year lease term upon
the expiration of the current lease during 2002.
3. RELATED-PARTY TRANSACTIONS
Fund II and II-OW and Fund III entered into a property management agreement
with Wells Management Company, Inc. ("Wells Management"), an affiliate of
Fund II and II-OW and Fund III. In consideration for supervising the
management of Atrium, Fund II and II-OW and Fund III will generally pay
Wells Management management and leasing fees equal to (a) 3% of the gross
revenues for management and 3% of the gross revenues for leasing (aggregate
maximum of 6%) plus a separate fee for the one-time initial lease-up of
newly constructed properties in an amount not to exceed the fee customarily
charged in arm's-length transactions by others rendering similar services
in the same geographic area for similar properties or (b) in the case of
commercial properties which are leased on a long-term net basis (ten or
more years), 1% of the gross revenues except for initial leasing fees equal
to 3% of the gross revenues over the first five years of the lease term.
Atrium incurred management and leasing fees of $95,290, $90,018, and
$186,102, for the years ended December 31, 2000, 1999, and 1998,
respectively, which were paid to Wells Management.
4. COMMITMENTS AND CONTINGENCIES
Management, after consultation with legal counsel, is not aware of any
significant litigation or claims against Atrium or its partners. In the
normal course of business, Atrium or its partners may become subject to
such litigation or claims.
F-33
WELLS REAL ESTATE FUND III, L.P.
(A Georgia Public Limited Partnership)
SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2000
Gross Amount at Which Carried at
Initial Cost December 31, 2000
----------------------- Costs of --------------------------------------
Buildings and Capitalized Buildings and Construction
Description Ownership Encumbrances Land Improvements Improvements Land Improvements in Progress
- -------------------------------- --------- ------------ ---------- ------------- ------------ ---------- ------------ ------------
THE ATRIUM AT NASSAU BAY (a) 39% None $1,367,000 $10,983,000 $ 2,542,933 $1,504,743 $13,388,190 $ 0
GREENVILLE PROPERTY (b) 100 None 529,977 0 3,743,304 576,350 3,628,066 68,865
880 PROPERTY--BROOKWOOD GRILL (c) 38 None 523,319 0 1,494,717 745,223 1,272,813 0
STOCKBRIDGE VILLAGE (d) 57 None 2,551,645 0 7,925,913 2,758,193 7,714,165 5,200
RECIPROCAL GROUP (e) 57 None 529,546 4,158,223 687,490 573,582 4,536,691 264,986
880 PROPERTY (f) 9 None 1,325,242 0 5,718,159 1,325,242 5,718,159 0
---------- ----------- ----------- ---------- ----------- --------
Total $6,826,729 $15,141,223 $22,112,516 $7,483,333 $36,258,084 $339,051
========== =========== =========== ========== =========== ========
Accumulated Date of Date Depreciation
Description Total Depreciation Construction Acquired Is Computed (g)
- ----------------------------------- ---------- ------------ ------------ -------- ---------------
THE ATRIUM AT NASSAU BAY (a) $14,892,933 $ 7,113,488 1988 04/03/89 12 to 25 years
GREENVILLE PROPERTY (b) 4,273,281 1,267,474 1990 06/30/90 20 to 25 years
880 PROPERTY--BROOKWOOD GRILL (c) 2,018,036 437,759 1991 03/27/91 20 to 25 years
STOCKBRIDGE VILLAGE (d) 10,477,558 2,590,136 1991 04/04/91 20 to 25 years
RECIPROCAL GROUP (e) 5,375,259 1,390,730 1991 07/01/92 20 to 25 years
880 PROPERTY (f) 7,043,401 1,654,520 1996 01/31/90 20 to 25 years
----------- -----------
Total $44,080,468 $14,454,107
=========== ===========
(a) The Atrium at Nassau Bay is a four-story office building located in
Houston, Texas. It is owned by Fund II and III Associates.
(b) The Greenville Project is a two-story office building located in
Greenville, North Carolina, owned entirely by the Partnership.
(c) The 880 Property--Brookwood Grill is a 7,440-square-foot restaurant located
in Fulton County, Georgia. It is owned by Fund II and III Associates.
(d) Stockbridge Village is a 13.62-acre retail shopping center located in
Stockbridge, Georgia. It is owned by Fund III and IV Associates.
(e) The Reciprocal Group is a 43,000-square-foot office building located in
Richmond, Virginia. It is owned by Fund III and IV Associates.
(f) The 880 Property is an office-retail shopping center located in Roswell,
Georgia. It is owned by Fund II, III, VI, and VII Associates.
(g) Depreciation lives used for buildings were 40 years through September 1995,
changed to 25 years thereafter. Depreciation lives used for land
improvements are 12 to 20 years.
WELLS REAL ESTATE FUND III, L.P.
(A Georgia Public Limited Partnership)
SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2000
Accumulated
Cost Depreciation
----------- ------------
BALANCE AT DECEMBER 31, 1996 $42,081,600 $ 6,662,165
1997 additions 1,546,767 1,869,334
1997 deductions (262,725) (81,041)
----------- ------------
BALANCE AT DECEMBER 31, 1997 43,365,642 8,450,458
1998 additions 251,771 1,999,481
----------- ------------
BALANCE AT DECEMBER 31, 1998 43,617,413 10,449,939
1999 additions 30,462 1,988,289
----------- ------------
BALANCE AT DECEMBER 31, 1999 43,647,875 12,438,228
2000 additions 432,593 2,015,879
----------- ------------
BALANCE AT DECEMBER 31, 2000 $44,080,468 $14,454,107
=========== ===========
S-2
EXHIBIT INDEX
-------------
(Wells Real Estate Fund III, L.P.)
The following documents are filed as exhibits to this report. Those
exhibits previously filed and incorporated herein by reference are identified
below by an asterisk. For each such asterisked exhibit, there is shown below the
description of the previous filing. Exhibits which are not required for this
report are omitted.
Exhibit Sequential
Number Description of Document Page Number
- ------ ----------------------- -----------
*4(a) Agreement of Limited Partnership of N/A
Wells Real Estate Fund III, L.P.
(Registration Statement of Wells Real
Estate Fund III, L.P., Exhibit B to the
Prospectus, File No. 33-24063)
*4(b) Amendment to Agreement of Limited N/A
Partnership of Wells Real Estate
Fund III, L.P. (Exhibit 4(a) to
Post-Effective Amendment No. 1 to
Registration Statement of Wells Real
Estate Fund III, L.P., File No.
33-24063)
*4(c) Second Amendment to Agreement of N/A
Limited Partnership of Wells Real
Estate Fund III, L.P. (Exhibit 4(a)
to Post-Effective Amendment No. 5
to Registration Statement of Wells
Real Estate Fund III, L.P., File No.
33-24063)
*4(d) Third Amendment to Agreement of N/A
Limited Partnership of Wells Real
Estate Fund III, L.P. (Exhibit to
Post-Effective Amendment No. 7 to
Registration Statement of Wells Real
Estate Fund III, L.P., File No.
33-24063)
Exhibit Sequential
Number Description of Document Page Number
- ------ ----------------------- -----------
*10(a) Management Agreement between Registrant N/A
and Wells Management Company, Inc. (Exhibit
to Form 10-K of Wells Real Estate Fund III,
L.P. for the fiscal year ended December 31,
1990, File No. 0-18407)
*10(b) Leasing and Tenant Coordination Agreement N/A
between Registrant and Wells Management
Company, Inc. (Exhibit to Form 10-K of
Wells Real Estate Fund III, L.P. for the
fiscal year ended December 31, 1990, File
No. 0-18407)
*10(c) Purchase Agreement for the Acquisition N/A
of the Atrium at Nassau Bay dated
March 1, 1989 (Exhibit 10(i) to Form 10-K
of Wells Real Estate Fund II for the
fiscal year ended December 31, 1990,
File No. 0-16518)
*10(d) Joint Venture Agreement of Fund II and N/A
Fund III Associates dated March 1,
1989 (Exhibit to Post-Effective
Amendment No. 2 to Registration
Statement of Wells Real Estate Fund
III, L.P., File No. 33-24063)
*10(e) First Amendment to Joint Venture Agreement N/A
of Fund II and Fund III Associates dated
April 1, 1989 (Exhibit 10(k) to Form 10-K
of Wells Real Estate Fund II for the
fiscal year ended December 31, 1990,
File No. 0-16518)
*10(f) Leases with Lockheed Engineering and N/A
Sciences Company, Inc. (Exhibit 10(l)
to Form 10-K of Wells Real Estate Fund
II for the fiscal year ended
December 31, 1990, File No. 0-16518)
Exhibit Sequential
Number Description of Document Page Number
- ------ ----------------------- -----------
*10(g) Custodial Agency Agreement between N/A
Registrant and Citizens and Southern
Trust Company (Georgia), National
Association dated January 1, 1990
(Exhibit to Post-Effective
Amendment No. 5 to Registration
Statement of Wells Real Estate Fund
III, L.P., File No. 33-24063)
*10(h) Purchase Agreement for the Acquisition N/A
of the Greenville Property dated
April 10, 1990 (Exhibit to Form 10-K of
Wells Real Estate Fund III, L.P. for the
fiscal year ended December 31, 1990, File
No. 0-18407)
*10(i) Development Agreement with ADEVCO N/A
Corporation dated June 15, 1990 (Exhibit
to Form 10-K of Wells Real Estate Fund III,
L.P. for the fiscal year ended December 31,
1990, File No. 0-18407)
*10(j) Construction Contract with McDevitt N/A
& Street Company dated May 31, 1990 (Exhibit
to Form 10-K of Wells Real Estate Fund III,
L.P. for the fiscal year ended December 31,
1990, File No. 0-18407)
*10(k) Lease with International Business N/A
Machines Corporation dated May 15,
1990 (Exhibit to Form 10-K of Wells Real
Estate Fund III, L.P. for the fiscal year
ended December 31, 1990, File No. 0-18407)
*10(l) Amended and Restated Joint Venture N/A
Agreement of Fund II and Fund III Associates
(Exhibit 10(o) to Form 10-K of Wells Real
Estate Fund II for the fiscal year ended
December 31, 1991, File No. 0-16518)
Exhibit Sequential
Number Description of Document Page Number
- ------ ----------------------- -----------
*10(m) Land and Building Lease Agreement between N/A
Fund II and Fund II-OW and Brookwood Grill
of Roswell, Inc. (Exhibit 10(p) to Form
10-K of Wells Real Estate Fund II for the
fiscal year ended December 31, 1991, File
No. 0-16518)
*10(n) Assignment and Assumption of Lease dated N/A
September 20, 1991 between Fund II and
Fund II-OW and Fund II and Fund III Associates
(Exhibit 10(q) to Form 10-K of Wells Real Estate
Fund II for the fiscal year ended December 31,
1991, File No. 0-16518)
*10(o) Fund III and Fund IV Associates Joint N/A
Venture Agreement dated March 27, 1991
(Exhibit 10(g) to Post-Effective Amendment
No. 1 to Registration Statement of Wells
Real Estate Fund IV, L.P. and Wells Real
Estate Fund V, L.P., File No. 33-37830)
*10(p) Agreement of Purchase and Sale dated N/A
October 31, 1990 between 675 Industrial
Park, Ltd. and The Vlass-Fotos Group, Inc.
(Exhibit 10(h) to Post-Effective Amendment
No. 1 to Registration Statement of Wells
Real Estate Fund IV, L.P. and Wells Real
Estate Fund V, L.P., File No. 33-37830)
*10(q) Lease dated January 31, 1991 between The N/A
Vlass-Fotos Group, Inc. and The Kroger Co.
(Exhibit 10(i) to Post-Effective Amendment
No. 1 to Registration Statement of Wells
Real Estate Fund IV, L.P. and Wells Real
Estate Fund V, L.P., File No. 33-37830)
Exhibit Sequential
Number Description of Document Page Number
- ------ ----------------------- -----------
*10(r) Lease Agreement dated January 31, 1991 N/A
between The Vlass-Fotos Group, Inc. and
The Kroger Co. (Exhibit 10(j) to Post-
Effective Amendment No. 1 to Registration
Statement of Wells Real Estate Fund IV,
L.P. and Wells Real Estate Fund V, L.P.,
File No. 33-37830)
*10(s) First Amendment to Lease dated April 3, N/A
1991 between The Vlass-Fotos Group, Inc.
and The Kroger Co. (Exhibit 10(k) to Post-
Effective Amendment No. 1 to Registration
Statement of Wells Real Estate Fund IV,
L.P. and Wells Real Estate Fund V, L.P.,
File No. 33-37830)
*10(t) First Amendment to Lease Agreement dated N/A
April 3, 1991 between The Vlass-Fotos
Group, Inc. and The Kroger Co. (Exhibit
10(l) to Post-Effective Amendment No. 1
to Registration Statement of Wells Real
Estate Fund IV, L.P. and Wells Real Estate
Fund V, L.P., File No. 33-37830)
*10(u) Development Agreement dated April 4, 1991 N/A
between Fund III and Fund IV Associates
and The Vlass-Fotos Group, Inc. (Exhibit
10(m) to Post-Effective Amendment No. 1 to
Registration Statement of Wells Real Estate
Fund IV, L.P. and Wells Real Estate Fund V,
L.P., File No. 33-37830)
*10(v) First Amendment to Joint Venture Agreement N/A
of Fund III and IV Associates dated July 1,
1992 (Exhibit to Form 10-K of Wells Real
Estate Fund III, L.P. for the fiscal year
ended December 31, 1992, File No. 0-18407)
Exhibit Sequential
Number Description of Document Page Number
- ------ ----------------------- -----------
*10(w) Agreement for the Purchase and Sale of N/A
Property between Rowe Properties-Markel,
L.P. and Fund III and Fund IV Associates
and Addendum to Agreement for the Purchase
and Sale of Property (Exhibit to Form 10-K
of Wells Real Estate Fund III, L.P. for
the fiscal year ended December 31, 1992,
File No. 0-18407)
*10(x) Office Lease with G.E. Lighting, Rider N/A
No. 1 to Lease, Addendum of Lease, Second
Addendum of Lease, Third Amendment of Lease
and Fourth Amendment to Office Lease
(Exhibit to Form 10-K of Wells Real Estate
Fund III, L.P. for the fiscal year ended
December 31, 1992, File No. 0-18407)
*10(y) Amended and Restated Custodial Agency N/A
Agreement between Wells Real Estate Fund
III, L.P. and NationsBank of Georgia, N.A.
dated April 1, 1994 (Exhibit to Form 10-K of
Wells Real Estate Fund III, L.P. for the
fiscal year ended December 31, 1994, File No.
0-18407)
*10(z) Joint Venture Agreement of Fund II, III, N/A
VI and VII Associates (Exhibit to Form
10-K of Wells Real Estate Fund VI, L.P.
for the fiscal year ended December 31,
1995, File No. 0-23656)