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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, 2001 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 from to to
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Commission file number 0-14463
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WELLS REAL ESTATE FUND I
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(Exact name of registrant as specified in its charter)
Georgia 58-1565512
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
6200 The Corners Parkway, Norcross, Georgia 30092
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 449-7800 Securities
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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 [ ]
Aggregate market value of the voting stock held by nonaffiliates: Not Applicable
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PART I
ITEM 1. BUSINESS
General
Wells Real Estate Fund I (the "Partnership") is a Georgia public limited
partnership with Leo F. Wells, III and Wells Capital, Inc. ("Wells Capital"), a
Georgia corporation, serving as General Partners. The Partnership was formed on
April 26, 1984, for the purpose of acquiring, developing, constructing, owning,
operating, improving, leasing, and otherwise managing income producing
commercial properties for investment purposes.
On September 6, 1984, 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 September
5, 1986, and received gross proceeds of $35,321,000 representing subscriptions
from 4,895 Limited Partners, composed of two classes of limited partnership
interests, Class A and Class B limited partnership units. Limited Partners may
vote to, among other things, (a) amend the partnership agreement, subject to
certain limitations, (b) change the business purpose, investment or investment
objectives of the Partnership, and (c) add or 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 Partner unit has
equal voting rights, regardless of class.
The Partnership owns interests in properties through the following joint
ventures with other affiliated limited partnerships: (i) Wells-Baker Associates,
a joint venture between the Partnership and Wells & Associates, Inc. (the
"Wells-Baker Joint Venture"), (ii) Fund I-Fund II Tucker, a joint venture
between the Partnership and the Fund II-Fund IIOW Joint Venture (the "Tucker
Joint Venture"), and (iii) Fund I-II-IIOW-VI and VII Associates, a joint venture
among the Partnership, Fund II-Fund IIOW Joint Venture, Wells Real Estate Fund
VI, L.P. ("Wells Fund VI") and Wells Real Estate Fund VII, L. P. ("Wells Fund
VII") (the "Fund I-II-IIOW-VI-VII Joint Venture"). Fund II-Fund IIOW Joint
Venture is a joint venture between Wells Real Estate Fund II ("Wells Fund II')
and Wells Real Estate Fund II-OW ("Wells Fund IIOW"), Georgia limited
partnerships affiliated with the Partnership through common general partners and
common management. The investment objectives of Wells Fund II, Wells Fund IIOW,
Wells Fund VI and Wells Fund VII are substantially identical to those of the
Partnership.
As of December 31, 2001, the Partnership owned, directly or through its
ownership in the foregoing joint ventures, interests in the following
properties: (i) a condominium interest in a medical office building located in
Atlanta, Georgia, owned by the Partnership ("Paces Pavilion"), (ii) a shopping
center located in Knoxville, Tennessee, owned by the Partnership ("Black Oak
Plaza"), (iii) a commercial office building located in Atlanta, Georgia, owned
by Wells-Baker Joint Venture ("Peachtree Place"), and (iv) a retail shopping and
commercial office complex located in Tucker, Georgia, owned by the Tucker Joint
Venture ("Heritage Place"). All of the foregoing properties were acquired on an
all cash basis.
Wells-Baker Joint Venture sold one of its commercial office buildings, 3875
Peachtree Place, on August 31, 2000, for $772,915. Net proceeds were
approximately $704,495, of which the Partnership received $633,694. The
Partnership was allocated taxable gain of approximately $205,019 from this sale.
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Crowe's Crossing, owned by the Partnership, was sold on January 11, 2001 for net
sales proceeds of approximately $6,569,000. The Partnership recognized taxable
gain of approximately $11,496 from this sale.
Cherokee Commons, owned by the Fund I-II-IIOW-VI-VII Joint Venture, was sold on
October 1, 2001 for net proceeds of approximately $8,434,000 and gain of
approximately $1,725,000. The Partnership was allocated taxable gain of
approximately $52,461 and net proceeds of approximately $2,037,315 from the sale
of this property.
Employees
The Partnership has no direct employees. The employees of Wells Capital and
Wells Management Company, Inc. perform a full range of real estate services
including leasing and property management, accounting, asset management and
investor relations for the Partnership. See Item 11 "Compensation of General
Partners and Affiliates" for a summary of the fees paid to the General Partners
and their affiliates during the year ended December 31, 2001.
Insurance
Wells Management Company, Inc., an affiliate of the General Partners, carries
comprehensive liability and extended coverage with respect to all the properties
in which the Partnership has an ownership interest. In the opinion of management
of the Partnership, all such properties are adequately insured.
Competition
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 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
The Partnership owns interests in four properties, either directly or through
its ownership in joint ventures, as described in Item 1. 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 Partnership owns an interest
of approximately 90% in the Wells-Baker Joint Venture. Accordingly, the account
of the Wells-Baker Joint Venture are included in the consolidated financial
statements of the Partnership which are presented in item 14(a).
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The following table shows lease expirations during each of the next ten years
for all leases at properties in which the Partnership owned an interest either
through the joint ventures or directly as described in Item 1 as of December 31,
2001, assuming no exercise of renewal options or termination rights:
Partnership Percentage Percentage
Number Share of of Total of Total
Year of of Square Annualized Annualized Square Annualized
Lease Leases Feet Gross Base Gross Base Feet Gross Base
Expiration Expiring Expiring Rent (1) Rent (1) Expiring Rent
- ---------- -------- -------- ---------- ----------- ---------- ----------
2002 12 30,272 $ 430,951 $ 325,988 23.13% 21.52%
2003 11 20,788 286,521 192,729 15.88 14.31
2004 15 25,278 433,580 286,798 19.31 21.65
2005 5 15,682 190,729 173,102 11.98 9.52
2006 7 20,352 350,728 328,822 15.55 17.51
2007 1 3,752 83,242 83,242 2.87 4.16
2008 1 2,400 27,600 15,205 1.83 1.38
2009 1 3,580 31,683 31,683 2.73 1.58
2010 1 3,531 55,790 30,735 2.70 2.79
2011 1 5,265 112,092 61,751 4.02 5.60
-- ------- ---------- ---------- ------ ------
55 130,900 $2,002,916 $1,530,055 100.00% 100.00%
== ======= ========== ========== ====== ======
(1) Average monthly gross rent over the life of the lease,
annualized.
The following describes the properties in which the Partnership owned an
interest as of December 31, 2001:
Paces Pavilion
On December 27, 1985, the Partnership acquired a three-story medical office
building on 1.65 acres of land located on Howell Mill Road in metropolitan
Atlanta, Fulton County, Georgia, known as Paces Pavilion for a purchase
price of $3,443,203. Paces Pavilion, which is held in condominium
ownership, contains approximately 30,800 of net rentable square feet, all
of which was originally leased to HCA Realty, Inc. and Hospital Corporation
of America until December 31, 1996. As of December 31, 2001 five tenants
occupied Paces Pavilion, the following three of which occupied 10% or more
of the rentable space: Eye Consultants of Atlanta; King, Sanderson &
Heidecker; and Peachtree Park Pediatric. All of the tenants of Paces
Pavilion are in the business of providing various medical services.
Eye Consultants of Atlanta occupies two suites representing 11,757 square
feet. The annual base rent is $233,383, and the lease expires December 31,
2006.
King, Sanderson & Heidecker occupy 3,752 rentable square feet. The annual
base rent is $83,232, and the lease expires December 31, 2007.
Peachtree Park Pediatric occupies 5,906 rentable square feet. The annual
base rent is $112,212, and the lease expires March 31, 2014.
The occupancy rate at year end for Paces Pavilion was 86% in 2001, 33% in
2000, 19% in 1999, 13% in 1998 and 28% in 1997. The average effective
annual rental rate per square foot was $7.78 for 2001, $3.84 for 2000,
$3.31 for 1999, $2.44 for 1998, and $4.17 for 1997.
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Black Oak Plaza
On December 31, 1986, the Partnership acquired a retail shopping center
located in Metropolitan Knoxville, Knox County, Tennessee known as Black
Oak Plaza which was initially developed in 1981. Black Oak Plaza contains a
total of approximately 175,000 square feet of space, including a K-Mart
department store and a Kroger Food/Drug. The Partnership does not own the
portion of the shopping center occupied by K-Mart and Kroger. The portion
of the shopping center owned and operated by the Partnership contains
approximately 68,414 net rentable square feet. As of December 31, 2001, the
Partnership had expended a total of $4,581,743 for the acquisition of Black
Oak Plaza.
As of December 31, 2001, Black Oak Plaza was leased to 20 tenants with no
one tenant occupying a significant portion of the rentable space. The
occupancy rate at year end was 70% in 2001, 2000, and 1999, 73% in 1998 and
78% in 1997. The average annual rental rate per square foot was $6.37 for
2001, $6.01 for 2000, $5.53 for 1999, $6.41 for 1998 and $6.53 for 1997.
Peachtree Place
In 1985, the Partnership acquired an interest in two commercial office
buildings located at Holcomb Bridge Road, Norcross, Gwinnett County,
Georgia known as Peachtree Place. Peachtree Place which is owned by the
Wells-Baker Joint Venture. The land upon which Peachtree Place was
developed was originally purchased by Wells & Associates for a purchase
price of $187,087. Upon the formation of the Wells-Baker Joint Venture,
Wells & Associates contributed the land to the joint venture as its capital
contribution. As of December 31, 2001, the Partnership had made total
capital contributions of $1,526,798 to the Wells-Baker Joint Venture. The
Partnership holds an approximate equity interest of 90% and Wells &
Associates, Inc. holds an approximate equity interest of 10%.
Wells-Baker Joint Venture sold one of its commercial office buildings, 3875
Peachtree Place, on August 31, 2000, for $772,915. Net proceeds were
approximately $704,495, of which the Partnership received $633,694. The
Partnership was allocated taxable gain of approximately $205,019 from this
sale.
The remaining office building at Peachtree Place contains approximately
11,006 net rentable square feet and is leased to six tenants, of which the
following four occupy 10% or more of the rentable square footage: Keen and
Good, financial advisors; Adevco Corporation, a commercial real estate
development company; Flying Fotos, Inc., an aerial photo company; and David
Reale and Associates, Inc., a janitorial services company.
Keen and Good's lease represents 1,512 rentable square feet. The annual
base rent was $26,460 for 2001. The lease expires January 31, 2002.
Adevco Corporation's lease represents 1,512 rentable square feet. The
annual base rent was $26,082 for 2001. The lease expires June 30, 2002.
Flying Fotos, Inc.'s lease represents 1,449 rentable square feet. The base
rent was $25,358 for 2001. The lease expires January 31, 2004.
David Reale and Associates, Inc.'s lease represents 2,582 rentable square
feet. The annual base rent was $44,411 for 2001. The lease expires March
31, 2005.
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The occupancy rate at Peachtree Place at year end was 81% in 2001 and 2000,
100% in 1999, 74% in 1998 and 95% in 1997. The average annual rental rate
per square foot was $14.86 for 2001, $12.85 for 2000, $13.86 for 1999,
$15.51 for 1998 and $15.88 for 1997.
Heritage Place
Heritage Place consists of a retail shopping center and a commercial office
building complex located in Tucker, DeKalb County, Georgia. The retail
shopping center contains approximately 29,858 net rentable square feet. The
commercial office space, which is divided into seven separate buildings,
contains approximately 67,465 net rentable square feet.
Heritage Place is owned by a joint venture (the "Tucker Joint Venture")
between the Partnership and the Fund II-IIOW Joint Venture. Both the
Partnership and the Fund II-IIOW Joint Venture have funded the cost of
developing Heritage Place through capital contributions made as progressive
stages of construction were completed. As of December 31, 2001, the
Partnership had contributed a total of $6,194,634, and the Fund II-IIOW
Joint Venture had contributed a total of $4,764,585 for the acquisition and
development of Heritage Place. As of December 31, 2001, the Partnership had
an equity interest of approximately 55% in the Tucker Joint Venture, and
the Fund II-IIOW Joint Venture held an equity interest of approximately 45%
in the Tucker Joint Venture.
The occupancy rate at Heritage Place was 83% in 2001, 89% in 2000, 87% in
1999 94% in 1998 and 85% in 1997. No tenants occupied ten percent or more
of the total rentable square footage. The principal businesses,
occupations, and professions of the tenants at Heritage Place include
shopping/commercial office services. The average effective annual rental
rate per square foot was $13.66 for 2001, $14.29 for 2000, $14.11 for 1999,
$12.76 for 1998 and $11.08 for 1997.
Heritage Place is currently being marketed for sale by The Dryman Team. The
management team is considering separating the retail portion of this
property from the office portion and creating a condominium for the office
buildings. The legal and site work have been completed so that the
management team can market this property to investors. The Partnership's
goal is to have this property sold by the end of 2002.
Crowe's Crossing
On December 31, 1986, the Partnership acquired a retail shopping center
located in metropolitan Atlanta, DeKalb County, Georgia known as Crowe's
Crossing containing approximately 93,728 net rentable square feet. Crowe's
Crossing was anchored by a 45,528 square foot lease with Kroger Food/Drug.
The remaining 48,200 square feet of the center was composed of 31 separate
spaces whose tenants operate retail businesses typical of multi-tenant
shopping centers.
Crowe's Crossing was sold on January 11, 2001 for net proceeds of
approximately $6,487,000. The Partnership recognized a taxable gain of
approximately $11,496 on this sale.
Cherokee Commons
The Fund I-II-IIOW-VI-VII Joint Venture was formed for the purpose of
owning and operating Cherokee Commons, which consists of a retail shopping
center located in metropolitan Atlanta, Cherokee County, Georgia and was
expanded to consist of approximately 103,755 net leaseable square feet.
Cherokee Commons was initially developed through a joint venture between
Wells Fund I and the Fund II-IIOW Joint Venture, which contributed Cherokee
Commons to the
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Fund I-II-IIOW-VI-VII Joint Venture on August 1, 1995 to complete the
required funding for the expansion.
As of September 30, 2001, Wells Fund I had contributed property with a book
value of $2,139,900, the Fund II-IIOW Joint Venture had contributed
property with a book value of $4,860,100, Wells Fund VI had contributed
cash in the amount of $953,798 and Wells Fund VII had contributed cash in
the amount of $953,798 to the Fund I-II-IIOW-VI-VII Joint Venture. As of
September 30, 2001, the equity interests in the Fund I-II-IIOW-VI-VII Joint
Venture were approximately as follows: Wells Fund I--24%, Fund II- IIOW
Joint Venture--54%, Wells Fund VI--11%, and Wells Fund VII--11%.
On October 1, 2001, the Fund I-II-IIOW-VI-VII Joint Venture sold Cherokee
Commons for net proceeds of $8,434,089 and gain of approximately $1,725,000
from the sale. The Partnership was allocated taxable gain of $52,461 and
net sale proceeds of $2,037,315 from the sale of this property.
ITEM 3. LEGAL PROCEEDINGS
On December 21, 2001, a class action lawsuit was filed in the United States
District Court for the Northern District of Georgia, Atlanta Division, against
the Partnership and the General Partners by John Weiss, John Weiss IRA, William
Main, Jeanne Rose, Diana Schulz and Michael Woo, individually and on behalf of
all Class A Limited Partners of the Partnership (the "Weiss Litigation"). On
January 30, 2002, the plaintiffs in the Weiss Litigation filed an amended
complaint restating the original complaint in its entirety (the "Amended
Complaint"). The Amended Complaint alleged, among other things, that (i) the
Amended and Restated Consent Solicitation Statement dated August 25, 2000 (the
"Consent Solicitation") contained material misrepresentations or omissions of
fact in violation of Rule 14a-3 promulgated under Section 14(a) of the
Securities Exchange Act of 1934 ("Count One"), and (ii) the defendants had
breached the Partnership Agreement and breached their fiduciary duties to the
plaintiffs by reallocating capital accounts to artificially create positive
capital accounts for the Class B Limited Partners and by holding net proceeds
from the sale of the Partnership's properties that should be distributed to the
Class A Limited Partners. In addition to seeking any compensatory damages that
might be suffered, the plaintiffs in the Weiss Litigation sought an injunction
against the Partnership and the General Partners from (i) issuing consent
solicitations for proxies to disburse monies in breach of the Partnership
Agreement, (ii) submitting any further consent solicitations for proxies that do
not meet the requirements of Rule 14a-3, (iii) modifying the Partnership
Agreement without the approval of 100% of the Class A Limited Partners, and (iv)
disbursing the proceeds from the sale of the Partnership's properties to Class B
Limited Partners that rightfully should be distributed to the Class A Limited
Partners. In addition, the plaintiffs in the Weiss Litigation requested specific
performance to require the defendants to perform their obligations under the
Partnership Agreement and that an equitable accounting be made of the nature and
amount of net proceeds from the sale of the Partnership's properties and the
appropriate distribution and time for distribution of such funds.
On March 13, 2002, the Partnership and the General Partners filed their answer
to the Amended Complaint and a motion to dismiss Count One of the Amended
Complaint on the basis that plaintiffs had failed to comply with the certain
procedural requirements imposed on litigation of this type, that plaintiffs'
claims under Count One were time-barred because they were not filed within the
applicable one-year statute of limitations period, and that plaintiffs' claims
were moot due to the fact that the Consent Solicitation was withdrawn and
terminated on January 17, 2002. In their answer, the Partnership and the General
Partners denied that they had breached the Partnership Agreement or
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breached their fiduciary duties to the plaintiffs and opposed all relief sought
under the Amended Complaint.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On approximately August 25, 2000, the Partnership mailed an Amended and
Restated Consent Solicitation Statement (the "Consent Solicitation") to the
Limited Partners. The Consent Solicitation was withdrawn and terminated on
January 17, 2002.
(b) N/A.
(c) The Consent Solicitation described above was mailed to solicit the consent
of each Class A Limited Partner to proposed amendments to the Partnership
Agreement to change and clarify the manner in which net sale proceeds were
to be allocated and distributed among Class A Limited Partners and Class B
Limited Partners in a manner which the General Partners believed was more
fair and equitable. The Consent Solicitation was withdrawn and terminated
on January 17, 2002.
(d) N/A.
(THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK)
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PART II
ITEM 5. MARKET FOR PARTNERSHIP'S UNITS AND RELATED SECURITY HOLDER MATTERS
As of February 28, 2002, the Partnership had 98,716 outstanding Class A Units
held by a total of 3,520 Limited Partners and 42,568 outstanding Class B Units
held by a total of 881 Limited Partners. The capital contribution per unit was
$250. 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.
Class A Unit holders are entitled to an annual 9% distribution preference over
Class B Unit holders as to distributions from Cash Available for Distribution
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.
Cash Available for Distribution to the Limited Partners is distributed on a
quarterly basis. To date, no cash distributions have been made to Limited
Partners holding Class B Units. The cash distributions made to the Limited
Partners holding Class A Units during the two most recent years were as follows:
Per Class A Per Class A Per Class B
Distribution Total Unit Unit Unit
for Quarter Cash Investment Return of Return of General
Ended Distributed Income Capital Capital Partner
- ------------------ ----------- ----------- ----------- ----------- -------
March 31, 2000 $308,486 $0.03 $3.09 $0.00 $0.00
June 30, 2000 347,969 0.00 3.53 0.00 0.00
September 30, 2000 370,184 2.41 1.34 0.00 0.00
December 31, 2000 370,000 0.00 3.75 0.00 0.00
March 31, 2001 262,186 2.66 0.00 0.00 0.00
June 30, 2001 246,833 0.21 2.29 0.00 0.00
September 30, 2001 246,764 1.04 1.46 0.00 0.00
December 31, 2001 246,790 2.50 0.00 0.00 0.00
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ITEM 6. SELECTED FINANCIAL DATA
The following sets forth a summary of selected financial data for the years
ended December 31, 2001, 2000, 1999, 1998, and 1997:
2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
Total assets $22,287,510 $21,732,650 $22,721,176 $23,098,782 $23,593,566
Total revenues 3,012,760 2,176,831 1,710,741 1,636,172 1,643,943
Net income (loss) 1,734,777 208,078 (101,904) (337,675) (305,296)
Net income (loss) allocated to
Class A Limited Partners 1,649,997 93,946 (101,904) (337,675) 1,059,405
Net income (loss) allocated to
Class B Limited Partners 84,780 114,132 0 0 (1,364,701)
Net income (loss) per Class A
Limited Partner Unit $ 16.71 $ 0.95 $ (1.03) $ (3.42) $ 10.73
Net income (loss) per Class B
Limited Partner Unit 1.99 2.68 0.00 0.00 (32.06)
Cash distributions per Class A
Limited Partner Unit :
Investment income 6.41 2.44 0.00 0.00 10.85
Return of capital 3.75 11.71 6.53 0.00 0.00
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL AND CONDITIONS RESULTS
OF OPERATION
Forward Looking Statements
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 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
Gross revenues of the Partnership were $3,012,760 for the year ended December
31, 2001, as compared to $2,176,831 and $1,710,741 for the years ended December
31, 2000 and 1999, respectively. The increase for 2001 was due primarily to the
gain on sales of Cherokee Commons and Crowe's Crossing of approximately
$1,553,000, of which approximately $414,000 was recognized through the
Partnership's 24% ownership interest in the Fund I-II-IIOW-VI-VII Joint Venture.
The gain was partly offset by reduced operating revenues as a result of the sale
of these properties. The increase from 1999 to 2000 was due to increased
interest income, increased rental income and the gain recognized on the sale of
one building in Peachtree Place. Expenses of the Partnership were $1,270,491 for
the fiscal year ended December 31, 2001, as compared to $1,946,297 and
$1,811,046 for the years ended December 31, 2000 and 1999, respectively. The
decrease in 2001 expenses from 2000 was primarily due to the sale of
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Crowe's Crossing, which resulted in proportionately reduced depreciation,
operating expenses and management and leasing fees recognized of approximately
$268,000. As a result, net income increased to $1,734,777 for the year ended
December 31, 2001, as compared to net income of $208,078 and net loss of
$101,904 for the same period in 2000 and 1999, respectively.
The Partnership's cash distribution per unit to the Limited Partners holding
Class A Units was $10.16 for the year ended December 31, 2001, $14.15 for the
year ended December 31, 2000 and $6.53 for the year ended December 31, 1999. No
distributions have been paid to Limited Partners holding Class B Units or to the
General Partners. Cash distributions payable to Limited Partners holding Class A
Units are anticipated to decline in 2002 and future years, as properties are
sold by the Partnership and the Partnership's portfolio is liquidated.
Refer to the audited Financial Statements for the consolidated statement of
income (loss) of the Partnership and Statements of Income for each Joint Venture
described in Item 1 and accompany footnotes presented in Item 14(a).
Liquidity and Capital Resources
During its offering, which terminated on September 5, 1986, the Partnership
raised a total of $35,321,000 through the sale of 141,284 units. No additional
Units will be sold by the Partnership. From the original funds raised, the
Partnership invested a total of $28,253,054 in properties, paid $2,225,992 in
acquisition and advisory fees, paid $4,836,633 in selling commissions and
organization and offering expenses, and is maintaining a working capital reserve
of $5,321.
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 used in operating activities was $562,623 for the
year ended December 31, 2001 compared to net cash provided by operating
activities of $922,523 and $614,844 for the years ended December 31, 2000 and
1999, respectively. The decrease from 2000 to 2001 stemmed from the sale of
Cherokee Commons and Crowe's Crossing resulting in less operating rental income.
The increase from 1999 to 2000 was a result of increased interest income and
increased rental income. Net cash provided by investing activities was
$6,895,309, $1,101,144 and $414,506 for the years ended 2001, 2000, and 1999,
respectively. The increases in both 2000 and 2001 are the results of the sales
of Cherokee Commons and Crowe's Crossing in 2001 and the sale of one of the
commercial buildings in Peachtree Place in 2000. Net cash used in financing
activities was $1,139,120, $1,425,236 and $328,088 for the years ended December
31, 2001, 2000 and 1999, respectively. The decrease in cash used for financing
activities from 2000 to 2001 resulted from lower distributions to Partners due
to the sales of properties mentioned above. The increase from 1999 to 2000 was
due to the Partnership reserving distributions during the first two quarters of
1999 while it paid distributions during all of 2000. As a result of the items
noted above cash and cash equivalents increased from $1,670,343 to $2,268,774 to
$8,587,586 for the years ended December 31, 1999, 2000 and 2001, respectively.
The Partnership has previously made the decision to begin the process of selling
its properties. At this time, Heritage Place is being actively marketed for
sale. As of December 31, 2001, the proceeds from the sales of Peachtree Place,
Cherokee Commons and Crowe's Crossing had not been distributed to the Limited
Partners as the General Partners continued to assess the feasibility of
attempting to purchase
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ownership interests in Paces Pavilion not currently owned by the Partnership in
order to consolidate ownership of this property within the Partnership, thereby
enhancing the property's marketability.
Management estimates that the fair market value of each of the properties
exceeds the carrying value of the corresponding real estate assets;
consequently, no impairment losses have been recorded. In the event that the net
sales proceeds are less than the carrying value of the properties sold, the
Partnership would recognize losses on the sales. Upon finalizing negotiations
with purchasers, management will reclassify the real estate assets of such
properties as "Held for Sale" and, pursuant to SFAS No. 121, discontinue
depreciation at that point. 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.
Inflation
The real estate market has not been affected significantly by inflation during
the past three years due to the relatively low inflation rate. There are
provisions in the majority of the tenant leases to protect the Partnership from
the impact of inflation. Most leases contain common area maintenance charges,
real estate tax and insurance reimbursements on a per square foot basis, or in
some cases, annual reimbursement of operating expenses above a certain per
square foot allowance. 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 rental rates.
Critical Accounting Policies
The Partnership's accounting policies have been established and conformed to in
accordance with accounting principles generally accepted in the United States
("GAAP"). The preparation of financial statements in conformity with GAAP
requires management to use judgment in the application of accounting policies,
including making estimates and assumptions. These judgments affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported amounts of
revenue and expenses during the reporting periods. If our judgment or
interpretation of the facts and circumstances relating to various transactions
had been different, it is possible that different accounting policies would have
been applied; thus, resulting in a different presentation of our financial
statements. Below is a discussion of the accounting policies that we consider to
be critical in that they may require complex judgment in their application or
require estimates about matters, which are inherently uncertain. Additional
discussion of accounting policies that we consider to be significant, including
further discussion of the critical accounting policies described below, is
presented in the notes to the Partnership's financial statements in Item 14(a).
Straight-Lined Rental Revenues
The Partnership recognizes rental income generated from all leases on real
estate assets in which the Partnership has an ownership interest, either
directly or through investments in joint ventures, on a straight-line basis over
the terms of the respective leases. If a tenant was to encounter financial
difficulties in future periods, the amount recorded as receivable may not be
realized.
-12-
Operating Cost Reimbursements
The Partnership generally bills tenants for operating cost reimbursements,
either directly or through investments in joint ventures, on a monthly basis at
amounts estimated largely based on actual prior period activity and the
respective lease terms. Such billings are generally adjusted on an annual basis
to reflect reimbursements owed to the landlord based on the actual costs
incurred during the period and the respective lease terms. Financial
difficulties encountered by tenants may result in the receivables not being
realized.
Real Estate
Management continually monitors events and changes in circumstances indicating
that the carrying amounts of the real estate assets in which the Partnership has
an ownership interest, either directly or through investments in joint ventures,
may not be recoverable. When such events or changes in circumstances are
present, management assesses the potential impairment by comparing the fair
market value of the asset, estimated at an amount equal to the future
undiscounted operating cash flows expected to be generated from tenants over the
life of asset and from its eventual disposition, to the carrying value of the
asset. In the event that the carrying amount exceeds the estimated fair market
value, the Partnership would recognize an impairment loss in the amount required
to adjust the carrying amount of the asset to its estimated fair market value.
Neither the Partnership nor its joint ventures have recognized impairment losses
on real estate assets in 2001, 2000 or 1999.
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 2001.
PART III
ITEM 10. GENERAL PARTNERS OF THE PARTNERSHIP
Wells Capital, Inc.
Wells Capital, Inc. ("Wells Capital") was formed in April 1984. The executive
offices of Wells Capital are located at 6200 The Corners Parkway, Norcross,
Georgia 30092. Leo F. Wells, III is the sole Director and the President of Wells
Capital.
Leo F. Wells, III.
Mr. Wells is a resident of Atlanta, Georgia, 58 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
-13-
Director of Wells 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
the President, sole Director and sole shareholder of Wells Real Estate Funds,
Inc., the parent company of Wells Capital, and 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 all 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 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
No cash compensation or fees were paid to the General Partners or their
affiliates during the year ended December 31, 2001 from the Partnership or with
respect to the Partnership's interests in joint ventures owning and operating
properties. Due to the fact that Wells Management Company, Inc. has elected to
defer the receipt of property management and leasing fees from the Partnership
and with respect to the Partnership's interests in properties owned through
joint ventures, as of December 31, 2001, deferred cash compensation of
approximately $2,627,842 in the aggregate, of which $1,791,480 was accrued at
the Partnership level and the remainder at the joint venture level, was due to
Wells Management Company, Inc. An aggregate of $174,040 in deferred property
management and leasing fees were accrued for fiscal year 2001, of which $54,765
were accrued at the Partnership level and the remainder at the joint venture
level.
The following table summarizes the compensation and fees paid to the General
Partners and their affiliates during the year ended December 31, 2001:
Name of Individual Capacities in Which Served Cash
or Number in Group Form of Compensation Compensation
- ------------------------------ --------------------------- ------------
Property Manager-Management
Wells Management Company, Inc. and Leasing Fees $174,040 (1)
(1) Some of these fees are paid directly by the Partnership and some are
paid by the joint venture entities which own properties to which the
property management and leasing services relate and include management
and leasing fees, some of which were accrued for accounting purposes
in 2001 and paid in January, 2002.
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.
-14-
Set forth below is the security ownership of management as of December 31, 2001.
Name and Address of Amount and Nature of
Title of Class Beneficial Owner Beneficial Ownershi Percent of Class
- -------------- ------------------- ----------------------- ----------------
Class A units Leo F. Wells, III 146 Units (IRA, 401 (k) Less than 1%
and Profit Sharing)
Class B units Leo F. Wells, III 222 Units (401 (k) and Less than 1%
Profit Sharing)
No arrangements exist which would, upon implementation, result in a change in
control of the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following are 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.
Interest in Partnership Cash Flow and Net Sale Proceeds
The General Partners are entitled to 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 9% of their adjusted
capital accounts in each fiscal year. In addition, after the Limited Partners
receive their distributions equal to 9% of their capital contributions and the
General Partners receive their distributions equal to 10% of the total
distributions for such year, the General Partners will receive a participation
of 10% of the additional distributions from cash available for distribution, 9%
of which is to be paid to the General Partners as a Partnership Management Fee.
The General Partners will also receive a participation in net sale proceeds and
net financing proceeds equal to 15% of the residual proceeds available for
distribution after the Limited Partners have received a return of their adjusted
capital contributions plus a 15% cumulative return on their adjusted capital
contributions. The General Partners received no distributions of cash flow or
net sale proceeds from the Partnership during 2001.
Property Management and Leasing Fees
Wells Management Company, Inc., an affiliate of the General Partners, is
entitled to receive compensation for supervising the management of the
Partnership properties equal to 6% (3% management and 3% leasing) of rental
income. 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 lease 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. Since the
third quarter of 1998, the management and leasing of Black Oak Plaza has been
performed by an outside agent. The management company receives a 3% fee and the
balance due to Wells Management Company, Inc. is accrued. Management and leasing
fees as well as initial lease-up fees due from the Partnership and with respect
to the Partnership's interest in joint ventures owning properties are currently
being expensed but not paid to Wells Management Company, Inc. As set forth
above, as of
-15-
December 31, 2001, deferred property management and leasing fees totaling
$2,627,842 were due to Wells Management Company, Inc., of which $174,040 was
accrued for fiscal year 2001.
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 2001, no real estate
commissions were paid to the General Partners or their affiliates.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.)
-16-
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-20 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.
3. The Exhibits filed in response to Item 601 of Regulation S-K are listed on
the Exhibit Index attached hereto.
(b) On October 16, 2001, the Partnership filed a Report on Form 8-K dated
October 1, 2001 reporting the sale of Cherokee Commons Shopping Center by
the Fund I-II-IIOW-VI-VII Joint Venture.
(c) The exhibits filed in response to Item 601 of Regulation S-K are listed on
the Exhibit Index attached hereto.
(d) See (a) 2 above.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK)
-17-
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 22nd day of March
2002.
Wells Real Estate Fund I
(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 Date
- ------------------------ ---------------------------------- --------------
/s/Leo F. Wells, III
- ------------------------
Leo F. Wells, III Individual General Partner, March 22, 2002
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.
-18-
INDEX TO FINANCIAL STATEMENTS
Financial Statements Page
- ------------------------------------------------------------------------------------------------- ----
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 2001 and 2000 F-3
Consolidated Statements of Loss for the Years Ended December 31, 2001, 2000 and 1999 F-4
Consolidated Statements of Partners' Capital for the Years Ended December 31, 2001, 2000 and 1999 F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999 F-6
Notes to Consolidated Financial Statements for December 31, 2001, 2000 and 1999 F-7
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Fund I and Subsidiary:
We have audited the accompanying consolidated balance sheets of Wells Real
Estate Fund I (a Georgia limited partnership) AND SUBSIDIARY as of December 31,
2001 and 2000 and the related consolidated statements of income (loss),
partners' capital, and cash flows for each of the three years in the period
ended December 31, 2001. These financial statements and the schedule referred to
below are the responsibility of the Partnership's management. Our responsibility
is to express an opinion on these financial statements and the 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 I and
subsidiary as of December 31, 2001 and 2000 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2001 in conformity with accounting principles generally accepted in the
United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule III--Real Estate Investments and
Accumulated Depreciation as of December 31, 2001 is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 25, 2002
F-2
WELLS REAL ESTATE FUND I AND SUBSIDIARY
(A Georgia Public Limited Partnership)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
2001 2000
----------- -----------
ASSETS
REAL ESTATE ASSETS, at cost:
Land $ 1,440,608 $ 2,776,544
Building and improvements, less accumulated depreciation of $5,874,649
and $9,170,624 at December 31, 2001 and 2000, respectively 5,651,798 10,093,769
----------- -----------
Total real estate assets 7,092,406 12,870,313
INVESTMENT IN JOINT VENTURES 6,010,879 5,835,269
CASH AND CASH EQUIVALENTS 8,587,586 2,268,774
DUE FROM AFFILIATES 123,772 207,948
ACCOUNTS RECEIVABLE 145,114 306,881
DEFERRED LEASE ACQUISITION COSTS 197,558 159,239
PREPAID EXPENSES AND OTHER ASSETS 130,195 84,226
----------- -----------
Total assets $22,287,510 $21,732,650
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued expenses $ 52,876 $ 129,204
Refundable security deposits 111,875 106,609
Due to affiliate 1,795,903 1,773,130
Partnership distributions payable 251,701 374,875
Minority interest 44,341 50,222
----------- -----------
Total liabilities 2,256,696 2,434,040
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 7)
PARTNERS' CAPITAL:
Limited partners:
Class A--98,716 units 19,831,902 19,184,478
Class B--42,568 units 198,912 114,132
----------- -----------
Total partners' capital 20,030,814 19,298,610
----------- -----------
Total liabilities and partners' capital $22,287,510 $21,732,650
=========== ===========
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
WELLS REAL ESTATE FUND I AND SUBSIDIARY
(A Georgia Public Limited Partnership)
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
2001 2000 1999
----------- ----------- -----------
REVENUES:
Rental income $ 851,628 $ 1,559,270 $ 1,436,029
Equity in income of joint ventures 671,097 244,264 204,535
Interest income 323,217 105,194 70,177
Other income 28,217 0 0
Gain on sale of real estate 1,138,601 268,103 0
----------- ----------- -----------
3,012,760 2,176,831 1,710,741
----------- ----------- -----------
EXPENSES:
Depreciation 592,228 1,024,879 1,019,531
Operating costs, net of reimbursements 246,328 450,323 490,462
Partnership administration 76,333 99,869 63,465
Management and leasing fees 94,319 169,383 130,040
Legal and accounting 160,717 102,562 89,882
Bad debt expense 74,703 62,709 7,280
Computer costs 25,863 10,673 10,386
Loss on disposal of real estate assets 0 25,899 0
----------- ----------- -----------
1,270,491 1,946,297 1,811,046
----------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY INTEREST 1,742,269 230,534 (100,305)
MINORITY INTEREST (7,492) (22,456) (1,599)
----------- ----------- -----------
NET INCOME (LOSS) $ 1,734,777 $ 208,078 $ (101,904)
=========== =========== ===========
NET INCOME (LOSS) ALLOCATED TO CLASS A LIMITED PARTNERS $ 1,649,997 $ 93,946 $ (101,904)
=========== =========== ===========
NET INCOME ALLOCATED TO CLASS B LIMITED PARTNERS $ 84,780 $ 114,132 $ 0
=========== =========== ===========
NET INCOME (LOSS) PER CLASS A LIMITED PARTNER UNIT $ 16.71 $ .95 $ (1.03)
=========== =========== ===========
NET (LOSS) INCOME PER CLASS B LIMITED PARTNER UNIT $ 1.99 $ 2.68 $ 0.00
=========== =========== ===========
DISTRIBUTION PER CLASS A LIMITED PARTNER UNIT $ 10.16 $ 14.15 $ 6.53
=========== =========== ===========
The accompanying notes are an integral part of these consolidated
statements.
F-4
WELLS REAL ESTATE FUND I AND SUBSIDIARY
(A Georgia Public Limited Partnership)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
Limited Partners
------------------------------------------
Class A Class B Total
--------------------- ----------------- Partners'
Units Amount Units Amount Capital
------ ------------ ------ -------- ------------
BALANCE, December 31, 1998 98,716 $ 21,233,579 42,568 $ 0 $ 21,233,579
Net loss 0 (101,904) 0 0 (101,904)
Partnership distributions 0 (644,504) 0 0 (644,504)
------ ------------ ------ -------- ------------
BALANCE, December 31, 1999 98,716 20,487,171 42,568 0 20,487,171
Net income 0 93,946 0 114,132 208,078
Partnership distributions 0 (1,396,639) 0 0 (1,396,639)
------ ------------ ------ -------- ------------
BALANCE, December 31, 2000 98,716 19,184,478 42,568 114,132 19,298,610
Net income (loss) 0 1,649,997 0 84,780 1,734,777
Partnership distributions 0 (1,002,573) 0 0 (1,002,573)
------ ------------ ------ -------- ------------
BALANCE, December 31, 2001 98,716 $ 19,831,902 42,568 $198,912 $ 20,030,814
====== ============ ====== ======== ============
The accompanying notes are an integral part of these consolidated
statements.
F-5
WELLS REAL ESTATE FUND I AND SUBSIDIARY
(A Georgia Public Limited Partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
2001 2000 1999
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,734,777 $ 208,078 $ (101,904)
----------- ----------- -----------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Equity in income of joint ventures (671,097) (244,264) (204,535)
Depreciation 592,228 1,024,879 1,019,531
Gain on disposal of real estate assets (1,138,601) (268,103) 0
Loss on disposal of real estate assets 0 25,899 0
Changes in assets and liabilities:
Accounts receivable 159,356 (31,661) (44,710)
Deferred lease acquisition costs (40,617) (28,168) (73,481)
Prepaid expenses and other assets (45,969) 7,231 (32,916)
Accounts payable, accrued expenses, and
refundable security deposits (57,719) 119,697 (10,642)
Due to affiliate 22,773 86,479 61,902
Minority interest 7,492 22,456 1,599
----------- ----------- -----------
Total adjustments (1,172,154) 714,445 716,748
----------- ----------- -----------
Net cash provided by operating activities 562,623 922,523 614,844
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of real estate 6,486,652 702,604 0
Investment in real estate (171,006) (148,342) (27,499)
Distributions received from joint ventures 579,663 546,882 442,005
----------- ----------- -----------
Net cash provided by investing activities 6,895,309 1,101,144 414,506
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners from accumulated earnings (877,800) (104,646) 0
Distributions to partners in excess of accumulated earnings (247,947) (1,245,629) (320,363)
Distributions to minority interest (13,373) (74,961) (7,725)
----------- ----------- -----------
Net cash used in financing activities (1,139,120) (1,425,236) (328,088)
----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 6,318,812 598,431 701,262
CASH AND CASH EQUIVALENTS, beginning of year 2,268,774 1,670,343 969,081
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 8,587,586 $ 2,268,774 $ 1,670,343
=========== =========== ===========
The accompanying notes are an integral part of these consolidated
statements.
F-6
WELLS REAL ESTATE FUND I AND SUBSIDIARY
(A Georgia Public Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000, AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Wells Real Estate Fund I (the "Partnership") is a limited partnership organized
on April 26, 1984 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, are currently under
development or construction, are newly constructed, or have operating histories.
During the periods audited, the Partnership owned the following properties
directly: (i) a condominium interest in the Paces Pavilion Property, a medical
office building located in Atlanta, Georgia; (ii) the Crowe's Crossing Property,
a shopping center located in DeKalb County, Georgia; (iii) the Black Oak
Property, a shopping center located in Knoxville, Tennessee; and (iv) the
Peachtree Place Property ("Wells-Baker"), a commercial office building located
in Atlanta, Georgia. In addition, through its investment in joint ventures, the
Partnership owned interests in the following properties: Heritage Place at
Tucker ("Tucker"), a retail shopping and commercial office complex located in
Tucker, Georgia, and the Cherokee Commons Shopping Center ("Cherokee Commons"),
a shopping center located in Cherokee County, Georgia.
The Partnership sold the Crowe's Crossing Property on January 11, 2001 for net
proceeds of $6,486,652. As a result of the sale, the Partnership recognized a
$1,138,601 gain.
Basis of Presentation
The consolidated financial statements include the accounts of the Partnership
and Wells-Baker. The Partnership's interest in Wells-Baker was approximately 90%
at December 31, 2001 and 2000. All significant intercompany balances have been
eliminated in consolidation.
Minority Interest
Minority interest represents the interest of Wells and Associates, Inc., an
affiliate of the general partners, in Wells-Baker. The Partnership sold one of
the two commercial office buildings comprising approximately 13% of Wells-Baker
on August 31, 2000 for total proceeds of $702,604. As a result of this sale, the
Partnership recognized a $268,103 gain, of which approximately $26,810 was
allocated to minority interest. At December 31, 2001 and 2000, Wells and
Associates, Inc.'s interest in Wells-Baker was approximately 10%.
F-7
Use of Estimates and Factors Affecting the Partnership
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of 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 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 position the Partnership to realize its
investment in its assets.
Income Taxes
The Partnership is not subject to federal or state income taxes; 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 a 9% 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 a 9% per
annum return on their adjusted capital contributions, as defined. Any remaining
cash available for distribution is split between the limited partners and the
general partners on a basis of 90% and 10%, respectively.
Distribution of Sales Proceeds
Under the partnership agreement, the net proceeds from a sale or exchange of the
Partnership's properties are required to be distributed among the partners in
accordance with the positive balances in their tax capital accounts, after the
allocation of taxable gain on the sale or exchange of such properties, as
described below.
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 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 Class B limited partners 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/her capital account in an amount
not to exceed such positive balance, and (c) thereafter to the general partners.
F-8
Under the partnership agreement, gain on the sale or exchange of the
Partnership's properties is allocated as follows: (a) first, to partners having
negative capital accounts, if any, until all negative capital accounts have been
restored to zero; (b) then to the limited partners in proportion to and to the
extent of the excess of (i) each limited partner's adjusted capital
contribution, plus a cumulative 15% per annum return on his/her adjusted capital
contribution (16% for investments made before December 31, 1984), less the sum
of all prior distributions of cash flow from operations previously made to such
limited partner, over (ii) such limited partner's capital account balance as of
the sale date; (c) then to the general partners in proportion to and to the
extent of the excess of (i) each general partner's adjusted capital
contribution, over (ii) such general partner's capital account balance as of the
sale date; and (d) thereafter 85% to the limited partners and 15% to the general
partners.
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 expenditures 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, 2001 or 2000.
Depreciation for buildings and improvements is calculated using the
straight-line method over 25 years. Tenant improvements are amortized over the
life of the related lease or the life of the asset, whichever is shorter.
Revenue Recognition
All leases on real estate assets held by the 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 leases. Deferred lease
acquisition costs are included in prepaid expenses and other assets, net, in the
balance sheets presented in Note 3.
Investment in Joint Ventures
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 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 generally
paid by the joint ventures to the Partnership on a quarterly basis.
F-9
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.
2. RELATED-PARTY TRANSACTIONS
As summarized below, due from affiliates at December 31, 2001 and 2000
represents the Partnership's share of cash to be distributed from its joint
venture investments for the fourth quarters of 2001 and 2000 and advances to
Wells Real Estate Funds, Inc. ("WREF, Inc."), an entity with management common
to the Partnership:
2001 2000
-------- --------
Fund I and II--Tucker $ 95,240 $157,647
Fund I, II, II-OW, VI, and VII Associates--Cherokee 18,532 50,301
WREF, Inc. 10,000 0
-------- --------
$123,772 $207,948
======== ========
The Partnership entered into property management agreements with an unrelated
third party and Wells Management Company, Inc. ("Wells Management"), an
affiliate of the general partners. In consideration for supervising the
management of certain of its properties, the Partnership pays an unrelated third
party management and leasing fees equal to 1.5% of the gross revenues for
management and 1.5% of the gross revenues for leasing. With respect to Wells
Management, the Partnership incurs management and leasing fees equal to (a) 1.5%
of the gross revenues for management and 1.5% of the gross revenues for leasing,
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 partnerships'
aggregate management and leasing fees may not exceed a maximum of 6% of annual
gross revenues.
The Partnership incurred management and leasing fees and lease acquisition
costs, both directly and at the joint venture level, for the years ended
December 31, 2001, 2000, and 1999 of $174,040, $236,326, and $200,249,
respectively. Wells Management has elected to defer the receipt of its portion
of the management and leasing fees due from the Partnership and with respect to
the Partnership's interest in properties owned directly and through certain
joint ventures. As of December 31, 2001 and 2000, aggregate deferred management
and leasing fees at both the Partnership and joint venture levels totaled
$2,627,842 and $2,520,040, respectively, all of which are included in due to
affiliates in the accompanying balance sheets of the Partnership and the joint
ventures (Note 3).
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.
F-10
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
their capacity as general partners for 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 in and percentage ownership of joint ventures at
December 31, 2001 and 2000 are summarized as follows:
2001 2000
-------------------- --------------------
Amount Percent Amount Percent
---------- ------- ---------- -------
Fund I and II--Tucker $4,170,868 52% $4,337,149 52%
Fund I, II, II-OW, VI, and VII
Associates--Cherokee 1,840,011 22 1,498,120 22
---------- ----------
$6,010,879 $5,835,269
========== ==========
The following is a roll forward of the Partnership's investment in joint
ventures for the years ended December 31, 2001 and 2000:
2001 2000
----------- ------------
Investment in joint ventures, beginning of year $ 5,835,269 $ 6,200,073
Equity in income of joint ventures 671,097 244,264
Distributions from joint ventures (495,487) (609,068)
----------- -----------
Investment in joint ventures, end of year $ 6,010,879 $ 5,835,269
=========== ===========
Fund I and II--Tucker
Tucker and Cherokee Commons were previously held in two joint ventures between
Fund II and II-OW and the Partnership, which were formed for the purpose of
owning, developing, and operating Cherokee Commons and Tucker. In 1991, the
Tucker and Cherokee Commons joint ventures were merged into a new joint venture,
the Fund I and II Tucker--Cherokee Joint Venture. Under the terms of the joint
venture agreement, the ownership interests of the Partnership and Fund II and
II-OW in each individual property remained unchanged.
On August 1, 1995, the Fund I and II Tucker--Cherokee Joint Venture assigned its
ownership in Cherokee Commons to Fund I, II, II-OW, VI, and VII
Associates--Cherokee, a joint venture between the Partnership, Fund II and
II-OW, Wells Real Estate Fund VI, L.P. ("Fund VI"), and Wells Real Estate Fund
VII, L.P. ("Fund VII"). Upon the assignment of Cherokee Commons, the Fund I and
II Tucker--Cherokee Joint Venture was renamed Fund I and II--Tucker. Tucker is a
retail shopping center containing approximately 29,858 square feet and a
commercial office-building complex containing approximately 67,465 square feet
in Tucker, DeKalb County, Georgia.
F-11
Following are the financial statements for Fund I and II--Tucker:
Fund I and II--Tucker
(A Georgia Joint Venture)
Balance Sheets
December 31, 2001 and 2000
2001 2000
---------- ----------
Assets
Real estate assets, at cost:
Land $3,260,887 $3,260,887
Building and improvements, less accumulated depreciation of $4,363,519 in
2001 and $3,896,844 in 2000 5,246,515 5,459,417
---------- ----------
Total real estate assets 8,507,402 8,720,304
Cash and cash equivalents 152,975 117,239
Accounts receivable 103,861 222,778
Prepaid expenses and other assets, net 137,437 110,525
---------- ----------
Total assets $8,901,675 $9,170,846
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 79,839 $ 69,099
Partnership distributions payable 163,584 236,990
Due to affiliates 686,464 632,762
---------- ----------
Total liabilities 929,887 938,851
---------- ----------
Partners' capital:
Wells Real Estate Fund I 4,170,868 4,337,149
Fund II and II-OW 3,800,920 3,894,846
---------- ----------
Total partners' capital 7,971,788 8,231,995
---------- ----------
Total liabilities and partners' capital $8,901,675 $9,170,846
========== ==========
F-12
Fund I and II--Tucker
(A Georgia Joint Venture)
Statements of Income
for the Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
---------- ---------- ----------
Revenues:
Rental income $1,327,608 $1,390,599 $1,373,213
Interest income 1,511 601 447
---------- ---------- ----------
1,329,119 1,391,200 1,373,660
---------- ---------- ----------
Expenses:
Operating costs, net of reimbursements 398,970 434,738 464,001
Depreciation 483,844 491,806 491,386
Management and leasing fees 131,700 121,946 158,269
Partnership administration 44,514 37,480 29,109
Legal and accounting 15,757 6,824 5,739
Bad debt expense 19,464 27,097 0
---------- ---------- ----------
1,094,249 1,119,891 1,148,504
---------- ---------- ----------
Net income $ 234,870 $ 271,309 $ 225,156
========== ========== ==========
Net income allocated to Wells Real Estate Fund I $ 129,390 $ 149,464 $ 124,039
========== ========== ==========
Net income allocated to Fund II and II-OW $ 105,480 $ 121,845 $ 101,117
========== ========== ==========
Fund I and II--Tucker
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 2001, 2000, and 1999
Wells Real Fund II Total
Estate and Partners'
Fund I II-OW Capital
----------- ----------- -----------
Balance, December 31, 1998 $ 4,758,591 $ 4,156,811 $ 8,915,402
Net income 124,039 101,117 225,156
Partnership distributions (300,690) (199,736) (500,426)
----------- ----------- ------------
Balance, December 31, 1999 4,581,940 4,058,192 8,640,132
Net income 149,464 121,845 271,309
Partnership distributions (394,255) (285,191) (679,446)
----------- ----------- ------------
Balance, December 31, 2000 4,337,149 3,894,846 8,231,995
Net income 129,390 105,480 234,870
Partnership distributions (295,671) (199,406) (495,077)
----------- ----------- ------------
Balance, December 31, 2001 $ 4,170,868 $ 3,800,920 $ 7,971,788
=========== =========== ===========
F-13
Funds I and II--Tucker
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
--------- --------- ---------
Cash flows from operating activities:
Net income $ 234,870 $ 271,309 $ 225,156
--------- --------- ---------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 483,844 491,806 491,386
Changes in assets and liabilities:
Accounts receivable 118,917 (97,006) (29,410)
Prepaid expenses and other assets, net (26,912) 5,340 6,316
Accounts payable and accrued expenses 10,740 1,302 2,833
Due to affiliates 53,702 44,418 39,712
--------- --------- ---------
Total adjustments 640,291 445,860 510,837
--------- --------- ---------
Net cash provided by operating activities 875,161 717,169 735,993
Cash flows from investing activities:
Investment in real estate (270,942) (115,341) (260,522)
Cash flows from financing activities:
Distributions to joint venture partners (568,483) (608,206) (401,234)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 35,736 (6,378) 74,237
Cash and cash equivalents, beginning of year 117,239 123,617 49,380
--------- --------- ---------
Cash and cash equivalents, end of year $ 152,975 $ 117,239 $ 123,617
========= ========= =========
Supplemental disclosure of noncash activities:
Write-off of fully depreciated real estate assets $ 17,169 $ 0 $ 0
========= ========= =========
Fund I, II, II-OW, VI, and VII Associates--Cherokee
Fund I, II, II-OW, VI, and VII Associates--Cherokee (or the "Cherokee Joint
Venture") was formed in August 1995 for the purpose of owning and operating
Cherokee Commons, a retail shopping center containing approximately 103,755
square feet, located in Cherokee County, Georgia. Until the formation of this
joint venture, Cherokee Commons was part of the Fund I and II Tucker--Cherokee
Joint Venture. Concurrent with the formation of Fund I, II, II-OW, VI, and VII
Associates--Cherokee, Cherokee Commons was transferred from the Fund I and II
Tucker--Cherokee Joint Venture to the Cherokee Joint Venture. Percentage
ownership interests in the Cherokee Joint Venture were determined at the time of
formation based on relative capital contributions. Under the terms of the joint
venture agreement, Fund VI and Fund VII each contributed approximately $1
million in return for an 11% ownership interest. Fund I's ownership interest in
the Cherokee Joint Venture changed from 31% to 24%, and Fund II and II-OW joint
venture's ownership interest changed from 69% to 55%. The $2 million in cash
contributed to the Cherokee Joint Venture was used to fund an expansion of the
property for an existing tenant. On October 1, 2001, the Cherokee Joint Venture
sold Cherokee Commons for net proceeds of $8,434,089 and recognized a gain of
$1,725,015 on the sale.
F-14
Following are the financial statements for Fund I, II, II-OW, VI, and VII
Associates--Cherokee:
Fund I, II, II-OW, VI, and VII Associates--Cherokee
(A Georgia Joint Venture)
Balance Sheets
December 31, 2001 and 2000
2001 2000
---------- ----------
Assets
Real estate assets, at cost:
Land $ 0 $1,219,704
Building and improvements, less accumulated depreciation of $0 in 2001 and
$3,606,079 in 2000 0 5,624,924
---------- ----------
Total real estate assets 0 6,844,628
Cash and cash equivalents 8,455,308 214,940
Accounts receivable 54,871 31,356
Prepaid expenses and other assets 21,528 100,866
---------- ----------
Total assets $8,531,707 $7,191,790
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 30,777 $ 23,716
Refundable security deposits 0 23,839
Partnership distributions payable 77,142 197,191
Due to affiliates 149,898 137,334
---------- ----------
Total liabilities 257,817 382,080
---------- ----------
Partners' capital:
Wells Real Estate Fund I 1,840,011 1,498,120
Fund II and II-OW 4,620,682 3,814,737
Wells Real Estate Fund VI 907,949 749,777
Wells Real Estate Fund VII 905,248 747,076
---------- ----------
Total partners' capital 8,273,890 6,809,710
---------- ----------
Total liabilities and partners' capital $8,531,707 $7,191,790
========== ==========
F-15
Fund I, II, II-OW, VI, and VII Associates--Cherokee
(A Georgia Joint Venture)
Statements of Income
for the Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
----------- ----------- -----------
Revenues:
Rental income $ 758,302 $ 965,305 $ 945,222
Interest income 69,626 78 68
Other income 1,008 0 0
Gain on sale of real estate 1,725,015 0 0
----------- ----------- -----------
2,553,951 965,383 945,290
----------- ----------- -----------
Expenses:
Depreciation 254,448 442,250 447,969
Operating costs, net of reimbursements (65,676) 24,557 37,583
Partnership administration 15,627 23,352 24,882
Management and leasing fees 67,560 74,422 94,149
Legal and accounting 18,357 6,180 5,624
Bad debt expense 8,682 0 0
----------- ----------- -----------
298,998 570,761 610,207
----------- ----------- -----------
Net income $ 2,254,953 $ 394,622 $ 335,083
=========== =========== ===========
Net income allocated to Wells Real Estate Fund I $ 541,707 $ 94,800 $ 80,496
=========== =========== ===========
Net income allocated to Fund II and II-OW $ 1,230,326 $ 215,310 $ 182,825
=========== =========== ===========
Net income allocated to Wells Real Estate Fund VI $ 241,460 $ 42,256 $ 35,881
=========== =========== ===========
Net income allocated to Wells Real Estate Fund VII $ 241,460 $ 42,256 $ 35,881
=========== =========== ===========
Fund I, II, II-OW, VI, and VII Associates--Cherokee
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 2001, 2000, and 1999
Wells Real Fund II Wells Real Wells Real Total
Estate and Estate Estate Partners'
Fund I II-OW Fund VI Fund VII Capital
----------- ----------- ---------- ---------- -----------
Balance, December 31, 1998 $ 1,741,492 $ 4,295,663 $ 844,160 $ 841,460 $ 7,722,775
Net income 80,496 182,825 35,881 35,881 335,083
Partnership distributions (203,855) (425,383) (83,483) (83,483) (796,204)
----------- ----------- --------- --------- -----------
Balance, December 31, 1999 1,618,133 4,053,105 796,558 793,858 7,261,654
Net income 94,800 215,310 42,256 42,256 394,622
Partnership distributions (214,813) (453,678) (89,037) (89,038) (846,566)
----------- ----------- --------- --------- -----------
Balance, December 31, 2000 1,498,120 3,814,737 749,777 747,076 6,809,710
Net income 541,707 1,230,326 241,460 241,460 2,254,953
Partnership distributions (199,816) (424,381) (83,288) (83,288) (790,773)
----------- ----------- --------- --------- -----------
Balance, December 31, 2001 $ 1,840,011 $ 4,620,682 $ 907,949 $ 905,248 $ 8,273,890
=========== =========== ========= ========= ===========
F-16
Fund I, II, II-OW, VI, and VII Associates--Cherokee
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 2,254,953 $ 394,622 $ 335,083
----------- ----------- -----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 254,448 442,250 447,969
Gain on sale of real estate (1,725,015) 0 0
Changes in assets and liabilities:
Accounts receivable (56,972) (3,653) 7,814
Prepaid expenses and other assets, net 12,961 (11,020) 1,133
Accounts payable and accrued expenses, and
refundable security deposits (29,563) 12,694 (72,272)
Due to affiliates 12,564 15,062 13,005
----------- ----------- -----------
Total adjustments (1,531,577) 455,333 397,649
----------- ----------- -----------
Net cash provided by operating activities 723,376 849,955 732,732
----------- ----------- -----------
Cash flows from investing activities:
Net proceeds from the sale of real estate 8,434,089 0 0
Investment in real estate (6,275) 0 (14,148)
----------- ----------- -----------
Net cash provided by (used in) investing
activities 8,427,814 0 (14,148)
----------- ----------- -----------
Cash flows from financing activities:
Distributions to joint venture partners (910,822) (841,555) (734,858)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 8,240,368 8,400 (16,274)
Cash and cash equivalents, beginning of year 214,940 206,540 222,814
----------- ----------- -----------
Cash and cash equivalents, end of year $ 8,455,308 $ 214,940 $ 206,540
=========== =========== ===========
F-17
4. INCOME TAX BASIS NET INCOME AND PARTNERS' CAPITAL
The Partnership's income tax basis net income for the years ended Decemb 2000
1999 follows:
2001 2000 1999
----------- ----------- -----------
Financial statement net income (loss) $ 1,734,777 $ 208,078 $ (101,904)
Decrease in net loss resulting from:
Depreciation expense for financial reporting purposes in
excess of amounts for income tax purposes 447,329 693,726 720,603
Expenses deductible when paid for income tax purposes, accrued
for financial reporting purposes 134,113 91,782 87,478
Gain on sale of property for financial reporting purposes in
excess of amount for income tax purposes (1,509,904) 0 0
Rental income recognized for income tax purposes in excess of
amounts for financial reporting purposes 22,037 258 59,574
Meals and entertainment 1,329 990 590
Other 0 (56,999) 0
----------- ----------- -----------
Income tax basis net income $ 829,681 $ 937,835 $ 766,341
=========== =========== ===========
The Partnership's income tax basis partners' capital at December 31, 2001, 2000,
and 1999 is computed as follows:
2001 2000 1999
------------ ------------ ------------
Financial statement partners' capital $ 20,030,814 $ 19,298,610 $ 20,487,171
Increase (decrease) in partners' capital resulting from:
Depreciation expense for financial reporting
purposes in excess of amounts for income tax
purposes 4,020,509 3,573,180 2,879,454
Joint venture change in ownership 14,293 14,293 14,293
Accumulated rental income accrued for financial
reporting purposes in excess of amounts for
income tax purposes (71,954) (93,991) (94,249)
Accumulated expenses deductible when paid for
income tax purposes, accrued for financial
reporting purposes 2,559,396 2,425,283 2,333,501
Accumulated expenses capitalized for income tax
purposes and expensed for financial reporting
purposes, net of accumulated amortization (2,086) (2,086) (2,086)
Partnership distributions payable 251,672 350,578 299,399
Other, net (45,173) (46,502) 9,507
Gain on sale of property for financial reporting
purposes in excess of amount for income tax
purposes (1,509,904) 0 0
------------ ------------ ------------
Income tax basis partners' capital $ 25,247,567 $ 25,519,365 $ 25,926,990
============ ============ ============
5. RENTAL INCOME
The future minimum rental income due from the Partnership's direct investments
in real estate assets or its respective ownership interest in the joint ventures
under noncancelable operating leases at December 31, 2001 is as follows:
F-18
Year ending December 31:
2002 $1,678,324
2003 1,454,185
2004 1,199,997
2005 942,193
2006 878,681
Thereafter 1,584,959
----------
$7,738,339
==========
One tenant contributed 10% of rental income for the year ended December 31,
2001. In addition, four tenants will contribute approximately 32%, 20%, 12%, and
12% of future minimum rental income.
The future minimum rental income due Fund I and II Tucker under noncancelable
operating leases at December 31, 2001 is as follows:
Year ending December 31:
2002 $1,158,289
2003 900,721
2004 615,863
2005 431,008
2006 397,257
Thereafter 775,652
----------
$4,278,790
==========
One tenant contributed 11% of rental income for the year ended December 31,
2001. In addition, two tenants will contribute approximately 24% and 12% of
future minimum rental income.
6. QUARTERLY RESULTS (UNAUDITED)
Presented below is a summary of the unaudited quarterly financial information
for the years ended December 31, 2001 and 2000:
2001 Quarters Ended
----------------------------------------------------
March 31 June 30 September 30 December 31
---------- ---------- ------------ -----------
Revenues $1,567,880 $ 344,294 $ 328,848 $ 771,738
Net income (loss) 1,174,326 20,872 102,301 (27,008)
Net income allocated to Class A limited
partners 737,440 20,872 102,301 789,384
Net income (loss) allocated to Class B
limited partners 436,886 0 0 (352,106)
Net income per Class A limited partner unit
outstanding $ 7.47 $ 0.21 $ 1.04 $ 7.99
Net income (loss) per Class B limited
partner unit outstanding 10.26 0.00 0.00 (8.27)
Distribution per Class A limited partner
unit outstanding 2.66 2.50 2.50 2.50
F-19
2000 Quarters Ended
-------------------------------------------------
March 31 June 30 September 30 December 31
-------- --------- ------------ -----------
Revenues $482,424 $ 479,425 $721,446 $ 493,536
Net income (loss) 3,134 (50,432) 238,189 17,187
Net income (loss) allocated to Class A
limited partners 3,134 (50,432) 238,189 (96,945)
Net income (loss) per Class A limited partner
unit outstanding (a) $ 0.03 $ (0.51) $ 2.41 $ (0.98)
Distribution per Class A limited partner unit
outstanding 3.12 3.52 3.75 3.76
(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.
7. COMMITMENTS AND CONTINGENCIES
Litigation is pending against the Partnership and its general partners whereby
certain limited partners of the Partnership (the "Plaintiffs") have alleged that
the Amended and Restated Consent Solicitation Statement (the "Consent
Solicitation") dated August 25, 2000 contains misrepresentations or omissions of
material fact in violation of Section 14(a) of the Securities Exchange Act of
1934 and SEC Rule 14a-3 related to the methodology used to allocate proceeds
from the sale of properties to the Class B limited partners. The Partnership has
withdrawn the Consent Solicitation, and in response, the Plaintiffs have filed
an amended complaint alleging that the general partners have breached their
fiduciary duties with respect to the handling of sales proceeds under the
partnership agreement. The Partnership will respond to the amended complaint on
or before March 1, 2002. Currently, it is management's belief that the potential
liability associated with this matter is neither probable nor estimable; thus,
no related accruals have been provided for in the accompanying financial
statements.
Management, after consultation with legal counsel, is not aware of any other
significant litigation or claims against the Partnership. In the normal course
of business, the Partnership may become subject to such litigation or claims.
F-20
EXHIBIT INDEX
-------------
(Wells Real Estate Fund I)
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.
Sequential
Exhibit No. Description of Document
- ---------- -----------------------
*4 Restated and Amended Certificate and Agreement of
Limited Partnership of Wells Real Estate Fund I
(Registration Statement of Wells Real Estate Fund
I, Exhibit B to the Prospectus, File No. 2-91165)
*10(a) Management Agreement between Registrant and Wells
Management Company, Inc. (Exhibit to Form 10-K of
Wells Real Estate Fund I for the fiscal year ended
December 31, 1990, File No. 0-14463)
*10(b) Leasing and Tenant Coordination Agreement Between
Registrant and Wells Management Company, Inc.
(Exhibit to Form 10-K of Wells Real Estate Fund I for
the fiscal year ended December 31, 1990, File No.
0-14463)
*10(c) Purchase Agreement for the acquisition of the Howell
Mill Road Property dated December 27, 1985 (Exhibit
to Form 10-K of Wells Real Estate Fund I for the
fiscal year ended December 31, 1990, File No.
0-14463)
*10(d) Leases between Registrant and Hospital Corporation of
America (Exhibit to Form 10-K of Wells Real Estate
Fund I for the fiscal year ended December 31, 1990,
File No. 0-14463)
*10(e) Joint Venture Agreement of Wells-Baker Associates
dated April 1, 1985 (Exhibit to Form 10-K of Wells
Real Estate Fund I for the fiscal year ended December
31, 1990, File No.
0-14463)
*10(f) Purchase Agreement for the acquisition of Heritage
Place at Tucker dated April 25, 1986 (Exhibit to Form
10-K of Wells Real Estate Fund I for the fiscal year
ended December 31, 1990, File No. 0-14463)
*10(g) Joint Venture Agreement of Fund I and Fund II Tucker
dated January 9, 1987 (Exhibit to Form 10-K of Wells
Real Estate Fund I for the fiscal year ended December
31, 1990, File No. 0-14463)
*10(h) Purchase Agreement for the acquisition of the
Cherokee Commons Shopping Center dated December 31,
1986 (Exhibit to Form 10-K of Wells Real Estate Fund
I for the fiscal year ended December 31, 1990, File
No. 0-14463)
*10(i) Joint Venture Agreement of Fund I and Fund II
Cherokee dated June 27, 1987 (Exhibit to Form 10-K of
Wells Real Estate Fund I for the fiscal year ended
December 31, 1990, File No. 0-14463)
*10(j) Amended and Restated Joint Venture Agreement of Fund
I and Fund II Tucker-Cherokee dated January 1, 1991
(Exhibit to Form 10-K of Wells Real Estate Fund I for
the fiscal year ended December 31, 1991, File No.
0-14463)
*10(k) Lease Modification Agreement No. 3 with The Kroger
Co. dated December 21, 1993 (Exhibit to Form 10-K of
Wells Real Estate Fund I for the fiscal year ended
December 31, 1993, File No. 0-14463)
*10(l) Joint Venture Agreement of Fund I, II, II-OW, VI and
VII Associates dated August 1, 1995 (Exhibit 10(ii)
to Form 10-K of Wells Real Estate Fund VI, L.P. for
the fiscal year ended December 31, 1995, File No.
0-23656)
*10(m) First Amendment to Amended and Restated Joint Venture
Agreement of Fund I and Fund II Tucker (formerly Fund
I and Fund II Tucker-Cherokee) dated August 1, 1995
(Exhibit to Form 10-K of Wells Real Estate Fund I for
the fiscal year ended December 31, 1995, File No.
0-14463)
*10(n) Custodial Agency Agreement between Wells Real Estate
Fund I and NationsBank of Georgia, N.A. dated August
1, 1995 (Exhibit to Form 10-K of Wells Real Estate
Fund I for the fiscal year ended December 31, 1995,
File No. 0-14463)
*10(o) Purchase and Sale Agreement for the sale of the
Crowe's Crossing Shopping Center dated November 28,
2000 (Exhibit to Form 10-K of Wells Real Estate Fund
I for the fiscal year ended December 31, 2000, File
No. 0-14463)
10(p) Purchase and Sale Agreement for the sale of the
Cherokee Commons Shopping Center dated August 6,
2001 (filed herewith)
2