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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 ____________
Commission file number 0-18407
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WELLS REAL ESTATE FUND III, L.P.
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(Exact name of registrant as specified in its charter)
Georgia 58-1800833
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
6200 The Corners Parkway, Suite 250, Norcross, Georgia 30092
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (770) 449-7800
Securities registered pursuant to Section 12(b) of the Act: ---------------------------------------
Title of each class Name of exchange on which registered
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NONE NONE
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Securities registered pursuant to Section 12(g) of the Act:
CLASS A UNITS
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(Title of Class)
CLASS B UNITS
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
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Aggregate market value of the voting stock held by non-affiliates: Not
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Applicable
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PART I
ITEM 1. BUSINESS
General
Wells Real Estate Fund III, L.P. (the "Partnership") is a Georgia public limited
partnership with Leo F. Wells, III and Wells Capital, Inc., a Georgia
corporation, serving as General Partners. The Partnership was formed on July 31,
1988, for the purpose of acquiring, developing, constructing, owning, operating,
improving, leasing and otherwise managing income-producing commercial properties
for investment purposes. 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)
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.
On October 24, 1988, the Partnership commenced a public offering of its limited
partnership units pursuant to a Registration Statement filed on Form S-11 under
the Securities Act of 1933. The offering was terminated on October 23, 1990, at
which time the Partnership had raised $22,206,310 of capital through investors
who were admitted to the Partnership as Limited Partners. From the original
funds raised, the Partnership has invested a total of $17,983,843 in properties,
paid $1,554,442 in acquisition and advisory fees, paid $2,664,668 in selling
commissions and organization and offering expenses and is maintaining a working
capital reserve of $3,357. In 1990, the Partnership repurchased 6,128 limited
partners units and, in 1991, the Partnership repurchased 19,677 units.
The Partnership owns interests in properties directly and through equity
ownership in the following joint ventures: (i) the Fund II - Fund III Joint
Venture, a joint venture between the Partnership and the Fund II Fund II-OW,
(the "Fund II-III Joint Venture") (ii) the Fund II, III, VI and VII Joint
Venture, a joint venture among the Fund II-III 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 II-III-VI-VII Joint Venture") and (iii) the Fund III -
Fund IV Joint Venture, a joint venture between the Partnership and Wells Real
Estate Fund IV, L.P ("Wells Fund IV") (the "Fund III- IV Joint Venture").
As of December 31, 2001, the Partnership owned interests in the following
properties directly and through interests in the foregoing joint ventures: (i)
Greenville Center, an office building in Greenville, North Carolina, owned by
the Partnership, (ii) Boeing at the Atrium, an office building in Houston,
Texas, owned by the Fund II - III Joint Venture, (iii) Brookwood Grill, a
restaurant located in Roswell, Georgia, owned by the Fund II - III Joint
Venture, (iv) Stockbridge Village Shopping Center, a retail shopping center
located in Stockbridge, Georgia, southeast of Atlanta, owned by the Fund III -
IV Joint Venture, (v) Reciprocal Group Building, an office building, located in
Richmond, Virginia, owned by the Fund III - IV Joint Venture, and (vi) the
Holcomb Bridge Road Property, an office/retail center in Roswell, Georgia, owned
by the the Fund II-III-VI-VII Joint Venture. All of the foregoing properties
were acquired on an all cash basis.
2
Employees
The Partnership has no direct employees. The employees of Wells Capital, Inc.
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
Partner 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 Partner, carries
comprehensive liability and extended coverage with respect to all the properties
owned directly or indirectly by the Partnership. In the opinion of management,
the properties are adequately insured.
Competition
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 six properties directly or through its ownership in joint
ventures, of which three are office buildings, one is a restaurant, one is a
retail shopping center and one a is an office retail center. 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. As of December 31, 2001,
these properties were 86.7% occupied, as compared to 81.5% at December 31, 2000
and 93.7% at December 31, 1999.
The following table shows lease expirations during each of the next ten years
for all leases at properties in which the Partnership held an interest either
directly or through investments in joint ventures as of December 31, 2001,
assuming no exercise of renewal options or termination rights:
3
Partnership Percentage
Share of Percentage of Total
Year of Number of Annualized Annualized Total of Annualized
Lease Leases Square Feet Gross Base Gross Base Square Feet Gross Base
Expiration Expiring Expiring Rent (1) Rent (1) Expiring Rent
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2002(2) 18 167,587 $2,413,889 $ 877,170 51.29% 56.04%
2003 4 11,234 165,868 94,896 3.44 3.85
2004 7 15,883 251,767 111,959 4.86 5.84
2005 4 8,059 127,310 72,836 2.47 2.96
2006 3 11,896 246,266 22,317 3.64 5.72
2008 1 5,124 89,670 51,302 1.57 2.08
2009(3) 1 43,000 520,300 297,671 13.16 12.08
2011(4) 1 63,986 492,692 281,877 19.57 11.43
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39 326,769 $4,307,762 $1,810,028 100.00% 100.00%
(1) Average monthly gross rent over the life of the lease, annualized.
(2) Expiration of Boeing lease (119,040 square feet).
(3) Expiration of Reciprocal Group (43,000 square feet).
(4) Expiration of Kroger (63,986 square feet) at Stockbridge Village
Shopping Center.
The properties in which the Partnership owned an interest as of December 31,
2001 are described below:
Greenville Center
On June 30, 1990, the Partnership acquired a 2.34 acre tract of land
located in Greenville, North Carolina (the "Greenville Center") for a
purchase price of $576,350, including acquisition expenses, for the purpose
of developing, constructing and operating a two-story office building
containing approximately 34,300 rentable square feet. As of December 31,
2001, the Partnership had expended approximately $3,778,000 for the
acquisition, development and construction of Greenville Center.
At year end, Greenville Center had an occupancy rate of 34% in 2001, 77% in
2000, 76% in 1999, and 92% in 1998 and 1997. The average effective annual
rental rate per square foot at Greenville Center was $7.78 for 2001, $16.79
for 2000, $16.18 for 1999, $16.41 for 1998 and $16.66 for 1997.
In April of 1991, the Partnership entered into a net lease with IBM for a
portion of the first floor and the entire second floor of Greenville Center
representing approximately 23,300 rentable square feet or approximately 67%
of Greenville Center. The initial term of the IBM lease was nine years and
ten months. IBM's lease expired on February 28, 2001. IBM chose not to
exercise its option to renew the lease or purchase the building. Management
has hired an outside firm to find one or more replacement tenants.
Currently no single tenant occupies ten percent or more of the remaining
rentable square footage.
4
Boeing at the Atrium
On April 3, 1989, the Partnership formed the Fund II-III Joint Venture with
an existing joint venture, Fund II-IIOW Joint Venture. Wells Fund II and
Wells Fund II-OW are public limited partnerships affiliated with the
Partnership through common general partners.
In April 1989, the Fund II-III Joint Venture acquired a four-story office
building located on a 5.6 acre tract of land adjacent to the Johnson Space
Center in metropolitan Houston, in the city of Nassau Bay, Harris County,
Texas, known as "Boeing at the Atrium".
On March 3, 1997, a lease was signed with The Boeing Company for the entire
building. The lease was for a period of five years with an option to renew
for an additional five year term. The rental rate was $12.25 per square
foot for the first three years of the lease term and $12.50 per square foot
for the final two years of initial lease term. The rate for the optional
five year term would be based upon the then current market rates.
The Fund II-III Joint Venture is in the process of negotiating a lease for
the space that is currently occupied by Boeing. Tentatively, the lease
currently being negotiated will commence on September 1, 2002 for a term of
66 months with an option to renew for two additional five year terms. The
rental rate would be $15.75 per square foot for the initial term of the
lease. The rates for the two optional five year terms would be determined
based on the then current market rates. The tenant would have the option to
cancel the lease, without cause, at the end of the first three year period,
provided it gives nine months notice.
As of December 31, 2001, the Fund II-IIOW Joint Venture and the Partnership
had made total capital contributions to the Fund II-III Joint Venture of
approximately $8,330,000 and $4,448,000, respectively, for the acquisition
and development of Boeing at the Atrium. As of December 31, 2001, the Fund
II-IIOW Joint Venture holds an equity interest of approximately 61%, and
the Partnership holds an equity interest of approximately 39%.
The occupancy rate for Boeing at the Atrium was 100% as of December 31,
2001, 2000, 1999, 1998 and 1997. The average effective rental rate per
square foot was $12.35 for 2001, 2000, 1999 and 1998, and $7.77 for 1997,
the first year of occupancy.
Brookwood Grill
On January 31, 1990, the Fund II-IIOW Joint Venture acquired a 5.8 acre
tract of undeveloped real property at the intersection of Warsaw Road and
Holcomb Bridge Road in Roswell, Fulton County, Georgia (the "Holcomb Bridge
Road Property") for $1,848,561, including acquisition expenses.
On September 20, 1991, the Fund II-IIOW Joint Venture contributed
approximately 1.5 acres of the Holcomb Bridge Road Property ("Brookwood
Grill"), along with its interest as landlord under the lease agreement
referred to below, as a capital contribution to the Fund II-III Joint
Venture. As of September 20, 1991, the Fund II- IIOW Joint Venture had
expended approximately $2,128,000 for the land acquisition and development
of Brookwood Grill.
As of September 20, 1991, a lease agreement was entered into with the
Brookwood Grill of Roswell, Inc., the sole tenant, for the development of
approximately 1.5 acres and the
5
construction of a 7,440 square foot restaurant. This restaurant, which
opened early in March 1992, is similar in concept to Houston's, Ruby
Tuesday, and Friday's. The terms of the lease call for an initial term of 9
years and 11 months, with two additional 10-year renewal options. In
January 2001, the tenant renewed a ten-year lease with a base rental of
$286,983 per year for years one through five, and $330,030 per year for
years six through ten. The Fund II-III Joint Venture has expended an
aggregate amount of approximately $1,100,000 for the development and
construction of the restaurant building together with parking areas,
driveways, landscaping and other improvements. In addition to the base rent
described above, the tenant is required to pay additional rent in an amount
equal to a 12% per annum return on all amounts expended for such
improvements.
The occupancy rate for Brookwood Grill, was 100% as of December 31, 2001,
2000, 1999, 1998 and 1997. The average effective rental rate per square
foot at Brookwood Grill is $31.56 for 2001, $30.22 for 2000 and 1999,
$30.26 for 1998 and 1997.
As of December 31, 2001, the Fund II-IIOW Joint Venture and the Partnership
had made total contributions to the Fund II- III Joint Venture of
approximately $2,128,000 and $1,330,000, respectively, for the acquisition
and development of Brookwood Grill. The Fund II-IIOW Joint Venture holds an
approximately 62% equity interest in Brookwood Grill, and the Partnership
holds an approximately 38% equity interest in the project.
On January 10, 1995, the remaining 4.3 undeveloped acres of land comprising
the Holcomb Bridge Road Property was contributed by Fund II-III Joint
Venture to a new joint venture, Fund II-III-VI and VII Associates, which is
described in the following section.
Holcomb Bridge Property
On January 10, 1995, the Fund II-III Joint Venture, Wells Fund VI and Wells
Fund VII entered into the joint venture known as Fund II, III, VI and VII
Associates ("Fund II-III-VI-VII Joint Venture").
In January 1995, the Fund II-III Joint Venture contributed to the Fund
II-III-VI-VII Joint Venture approximately 4.3 acres of land at the
intersection of Warsaw Road and Holcomb Bridge Road in Roswell, Fulton
County, Georgia (the "Holcomb Bridge Property") including land improvements
for the development and construction of two buildings with a total of
49,534 square feet. Fourteen tenants occupied the Holcomb Bridge Property
as of December 31, 2001. At year end, the Holcomb Bridge Property had an
occupancy rate of 89% in 2001, 92% in 2000, 100% in 1999, 94% in 1998 and
1997. The average effective annual rental rate per square foot was $17.07
for 2001, $17.55 for 2000, $19.36 for 1999, $17.63 for 1998, and $13.71 for
1997.
As of December 31, 2001, the Fund II-III Joint Venture had contributed
$1,729,116 in land and improvements for an equity interest of approximately
24.1%, Wells Fund VI had contributed $1,929,541 for an equity interest of
approximately 26.9%, and Wells Fund VII had contributed $3,525,041 for an
equity interest of approximately 49.0%. The total cost to develop the
Holcomb Bridge Property was $5,454,582, excluding land.
Fund III - IV Joint Venture
On March 27, 1991, the Partnership and Wells Fund IV, a public limited
partnership affiliated with the Partnership through common general partners
formed the Fund III-IV Joint Venture. The
6
Partnership holds an approximate 57.2% equity interest in the Fund III-IV
Joint Venture which owns a multi-tenant retail center and an office
building. As of December 31, 2001, the Partnership had contributed
$8,357,551 and Wells Fund IV had contributed $6,415,731 for total
contributions of $14,773,282 to the Fund III-IV Joint Venture. The
Partnership owns interests in the following two properties through the Fund
III-IV Joint Venture.
Stockbridge Village Shopping Center
On April 4, 1991, the Fund III-IV Joint Venture purchased 13.62 acres of
real property located in Clayton County, Georgia for the purchase price of
$3,057,729, including acquisition costs, for the purpose of developing,
constructing and operating a shopping center known as the Stockbridge
Village Shopping Center. The multi-tenant shopping center contains
approximately 112,891 square feet, of which approximately 64,097 square
feet are occupied by the Kroger Company, a retail grocery chain. This is
the only tenant which occupies more than ten percent of the rentable square
feet, of the property. The lease with Kroger Company is for an initial term
of 20 years commencing November 14, 1991, with an option to extend for four
consecutive five year periods at the same rental rate as the original
lease. The annual base rent payable under the Kroger lease during the
initial term is $492,692. The remaining 48,794 square feet are comprised of
12 separate retail spaces and 3 free-standing retail buildings. As of
December 31, 2001, the Partnership had contributed a total of $4,574,247
and Wells Fund IV had contributed a total of $5,114,502 to fund the total
costs of $9,688,749 related to the acquisition and development of the
Stockbridge Village Shopping Center.
The occupancy rate at year end for the Stockbridge Village Shopping Center
was 100% in 2001, 100% in 2000, 95% in 1999, 100% in 1998 and 93% in 1997.
The average effective annual rental rate per square foot was $11.82 for
2001, $11.29 for 2000, $11.23 for 1999, $10.82 for 1998 and $9.86 for 1997.
Reciprocal Group Building
The Reciprocal Group Building is a two-story office building containing
approximately 43,000 square feet located in Richmond, Virginia, which was
acquired by the Fund III-IV Joint Venture on July 1, 1992, for a purchase
price of $4,687,600. As of December 31, 2001, the Partnership had
contributed $1,301,229 and Wells Fund IV had contributed $3,783,304 to the
Fund III-IV Joint Venture for the acquisition of the Reciprocal Group
Building.
General Electric, the previous tenant, elected not to renew its lease at
the Reciprocal Group Building, which expired March 31, 2000. Management
leased 100% of this building to the Reciprocal Group on October 4, 2000 for
a term of eight years, with rent commencing in February 2001. The total
cost of refurbishments, tenant improvements and building maintenance was
$1,407,002. These costs were funded out of cash from operations of the
Partnership and Wells Fund IV, which caused a substantial reduction in
distributions paid to the Partnership from the Fund III-IV Joint Venture
and, consequently, distributions payable from the Partnership to the
Limited Partners in 2000. The Partnership funded $570,914 of these
improvements, which were fully funded as of December 31, 2001.
At year end, the occupancy rate at the Reciprocal Group Building was 100%
in 2001, 0% in 2000, and 100% in 1999, 1998 and 1997. The average effective
annual rental rate per square foot was $12.33 for 2001, $3.07 for 2000 and
$12.27 for 1999, 1998, and 1997.
7
Because of the requirement for fiduciaries of retirement plans subject to ERISA
to determine the value of the assets of such retirement plans on an annual
basis, the General Partners are required under the Partnership Agreement to
report estimated Unit values to the Limited Partners each year in the
Partnership's annual Form 10-K. The methodology to be utilized for determining
such estimated Unit values under the Partnership Agreement is for the General
Partners to estimate the amount a Unit holder would receive if the Partnership's
properties were sold at their estimated fair market values as of the end of the
Partnership's fiscal year and the proceeds there from (without reduction for
selling expenses) were distributed to the Limited Partners in liquidation of the
Partnership. Utilizing this methodology, the General Partners have estimated
Unit valuations, based upon their estimates of property values as of December
31, 2001, to be approximately $0.74 per Class A Unit and $0.74 per Class B Unit,
based upon market conditions existing in early December 2001. In connection with
these estimated valuations, the General Partners obtained an opinion from David
L. Beal Company, an independent MAI appraiser, to the effect that such estimates
of value were reasonable; however, due to the inordinate expense involved in
obtaining appraisals for all of the Partnership's properties, no actual
appraisals were obtained. Accordingly, these estimates should not be viewed as
an accurate reflection of the fair market value of the Partnership's properties,
nor do they represent the amount of net proceeds which would result from an
immediate sale of the Partnership's properties. The valuations performed by the
General Partners are estimates only, and are based a number of assumptions which
may not be accurate or complete. In addition, property values are subject to
change and could decline in the future. Further, as set forth above, no
appraisals have or will be obtained. For these reasons, the estimated Unit
valuations set forth above should not be relied upon for any purpose other than
required ERISA disclosures.
ITEM 3. LEGAL PROCEEDINGS
There were no material pending legal proceedings known to be contemplated by
governmental authorities involving the Partnership during 2001.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Limited Partners during 2001.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK)
8
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S UNITS AND RELATED SECURITY HOLDER MATTERS
As of February 28, 2002, the Partnership had 19,635,965 outstanding Class A
Units held by a total of 2,309 Limited Partners and 2,544,540 outstanding Class
B Units held by a total of 199 Limited Partners. The capital contribution per
unit is $1.00. There is no established public trading market for the
Partnership's limited partnership units, and it is not anticipated that a public
trading market for the units will develop. Under the Partnership Agreement, the
General Partners have the right to prohibit transfers of units.
Class A Unit holders are entitled to an annual 8% non-cumulative distribution
preference over Class B Unit holders as to distributions from Net Cash from
Operations, as defined in the Partnership Agreement to mean Cash Flow, less
adequate cash reserves for other obligations of the Partnership for which there
is no provision, but are initially allocated none of the depreciation,
amortization, cost recovery and interest expense. These items are allocated to
Class B Unit holders until their capital account balances have been reduced to
zero.
Net Cash From Operations to the Limited Partners is distributed on a quarterly
basis unless Limited Partners elect to have their cash distributions paid
monthly. Cash distributions made to the Limited Partners during the two most
recent fiscal years were as follows:
Per Class A Per Class A Per Class B
Unit Unit Unit
Distribution for Total Cash Investment Return of Return of General
Quarter Ended Distributed Income Capital Capital Partner
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March, 31, 2000 $343,560 $0.01 $0.01 $0.00 $0.00
June 30, 2000 0 0.00 0.00 0.00 0.00
September 30, 2000 0 0.00 0.00 0.00 0.00
December 31, 2000 0 0.00 0.00 0.00 0.00
March, 31, 2001 318,939 0.01 0.01 0.01 0.00
June 30, 2001 294,716 0.00 0.00 0.01 0.00
September 30, 2001 294,503 0.00 0.00 0.01 0.00
December 31, 2001 0 0.00 0.00 0.00 0.00
The cash distributions to Limited Partners holding Class A units were reserved
in the last three quarters of 2000 due to the vacancy at the Reciprocal Group
Building and the cost necessary to lease this property, as previously discussed.
Distributions were reserved for the fourth quarter of 2001 to cover leasing
commissions and tenant improvements for the anticipated new lease at Boeing at
the Atrium.
9
ITEM 6. SELECTED FINANCIAL DATA.
The following sets forth a summary of the selected financial data for the fiscal
years ended December 31, 2001, 2000, 1999, 1998, and 1997:
2001 2000 1999 1998 1997
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Total Assets $14,008,457 $14,532,100 $14,962,288 $15,900,936 $16,791,667
Total Revenues 880,099 818,263 1,136,759 1,099,102 850,058
Net Income 375,442 334,287 709,412 649,007 385,224
Net Income allocated to
General Partners 0 0 0 0 0
Net Income allocated to
Class A Limited Partners 375,442 334,827 674,433 608,058 385,224
Net Income allocated to
Class B Limited Partners 0 0 34,979 40,949 0
Net Income per Class A
Limited Partner Unit .02 .02 .03 .03 .02
Net Income per Class B
Limited Partner Unit .00 .00 .01 .02 .00
Cash Distributions to
Investors per Class A
Limited Partner Unit
Investment Income .02 .01 .04 .04 .04
Return of Capital .03 .01 .04 .04 .00
Return of Capital per
Class B Limited Partner
Units: .00 .00 .01 .02 .00
Cash Distribution to
General Partners .00 .00 .00 .00 .00
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATION
The following discussion and analysis should be read in conjunction with the
Selected Financial Data and the accompanying financial statements of the
Partnership and notes thereto. This Report contains forward-looking statements,
within the meaning of Section 27A of the Securities Act of 1933 and 21E of the
Securities Exchange Act of 1934, including discussion and analysis of the
financial condition of the Partnership, anticipated capital expenditures
required to complete certain projects, amounts of cash distributions anticipated
to be distributed to Limited Partners in the future and certain other matters.
Readers of this Report should be aware that there are various factors that could
cause actual results to differ materially from any forward-looking 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.
10
Results of Operations
Refer to footnotes of audited Financial Statements where a complete summary of
operations is disclosed.
Gross revenues of the Partnership were $880,099 for the year ended December 31,
2001, as compared to $818,263, and $1,136,759 for the same periods in 2000 and
1999, respectively. The increase in gross revenues during 2001 is primarily due
to an increase in equity in income of joint ventures resulting from leasing the
Reciprocal Group Building for all of 2001 partly offset by a decrease resulting
from the expiration of IBM's lease at Greenville Center on February 28, 2001.
This space remained vacant at December 31, 2001. The decrease in revenues for
2000, as compared to 1999, is due primarily to a decrease in equity in income of
joint ventures, related to the vacancy at the Reciprocal Group Building
resulting from expiration of G.E.'s lease on March 31, 2000. This space was
released to the Reciprocal Group on October 4, 2000 with a rent commencement
date of February 2001.
Expenses of the Partnership increased to $504,657 for the year ended December
31, 2001, as compared to $483,976 for the same period in 2000, due to an
increase in operating expenses from administrative salaries offset by a decrease
in management fees from Greenville Center. Expenses for the year ended December
31, 1999 were $427,347. The increase in 2000, as compared to 1999, is due
primarily to higher operating costs resulting from a decrease of tenant
reimbursements in 2000 as a result the period during 2001 in which Greenville
Center was vacant. As a result, net income of the Partnership increased to
$375,442 for the year ended December 31, 2001 from $334,287 for the fiscal year
ended December 31, 2000, and decreased from $709,412 for the same period in
1999.
The Partnership's cash distributions to Limited Partners holding Class A Units
were $0.05, $0.02 and $0.08 per unit for the fiscal years ended December 31,
2001, 2000, and 1999, respectively. Cash distributions to the Limited Partners
holding Class B Units were $0.00 for both 2001 and 2000 and $0.01 for 1999. No
cash distributions were made to the General Partners. Cash distributions to
Limited Partners were lower in the year 2000 than in 1999 due to the fact that
distributions were paid to Limited Partners for all four quarters during 1999,
while distributions were reserved for three quarters in the year 2000 for the
funding of required tenant improvements at the Reciprocal Group Building. Cash
distributions to Limited Partners increased in 2001, as compared to 2000, since
distributions were paid to Limited Partners for the first three quarters in
2001, as compared to only one quarter in the year 2000, prior to the reserving
of distributions in the fourth quarter of 2001 to fund tenant improvements and
leasing commissions relating to the anticipated new lease at Boeing at the
Atrium.
Liquidity and Capital Resources
Since the Partnership was 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. The Partnership's capital resources are
anticipated to remain relatively stable over the holding period for its
investments.
The Partnership's net cash provided by (used in) operating activities decreased
from $292,753 in 2000 to ($44,035) due to the low occupancy of Greenville Center
as described in the previous section. The decrease from $271,433 in 1999 to
$292,753 in 2000 was primarily due to changes in the timing of correction and
payments of accounts receivable and accounts payable respectively. Net cash
provided by investing activities decreased in 2001 as compared to both 2000 and
1999 as a result of investing in tenant improvements for the Reciprocal Group
Building and reserving operating cash flows in 2001 at the joint venture level
in order to fund future tenant improvements for the Boeing at the Atrium
Property. The Partnership reserved distributions for the second, third, and
fourth quarters of 2000. The changes in
11
net cash used in financing activities were consistent with the changes in cash
flow from investing activities, as the Fund distributed proportionately what was
received from the joint venture. As a result of the items noted above, cash and
cash equivalents decreased in 2001 from 2000.
The Partnership's distributions payable in 2001 have been paid from net cash
from operations and from distributions received from its investments in joint
ventures. The Partnership expects to continue to meets its short-term liquidity
requirements generally through net cash provided by operations which the
Partnership believes will continue to be adequate to meet both operating
requirements and distributions to limited partners.
The Partnership is unaware of any additional demands, commitments, events or
capital expenditures which are required for the normal operations of its
properties that will result in the Partnership's liquidity increasing or
decreasing in any material way.
Inflation
The real estate market has not been affected significantly by inflation in the
past three years due to the relatively low inflation rate. There are provisions
in the majority of tenant leases executed by the Partnership to protect the
Partnership from the impact of inflation. These leases contain common area
maintenance charges, real estate tax and insurance reimbursements on a per
square foot basis, or in some cases, annual reimbursements of operating expenses
above a certain per square foot allowance. These provisions should reduce the
Partnership's exposure to increases in costs and operating expenses resulting
from inflation. In addition, a number of the Partnership's leases are for terms
of less than five years which may permit the Partnership to replace existing
leases with new leases at higher base rental rates if the existing leases are
below market rate. There is no assurance, however, that the Partnership would be
able to replace existing leases with new leases at higher base rentals.
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 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.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK)
13
PART III
ITEM 10. GENERAL PARTNERS OF THE PARTNERSHIP
Wells Capital Inc., L.P. The executive offices of Wells Capital, Inc. are
located at 6200 The Corners Parkway, Norcross, Georgia, 30092.
Leo F. Wells, III. Mr. Wells is a resident of Atlanta, Georgia, is 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 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 the 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, Inc., 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., all of which are affiliates of the General Partners. From 1980 to
February 1985, Mr. Wells served as vice-president of Hill-Johnson, Inc., a
Georgia corporation engaged in the construction business. From 1973 to 1976, he
was associated with Sax Gaskin Real Estate Company, and from 1970 to 1973, he
was a real estate salesman and property manager for Roy D. Warren & Company, an
Atlanta real estate company.
ITEM 11. COMPENSATION OF GENERAL PARTNERS AND AFFILIATES
The following table summarizes the compensation and fees paid to the General
Partners and their affiliates during the year ended December 31, 2001:
Name of Individual or Number in Capacities in which served Form of
Group Compensation Cash Compensation
- ------------------------------- ---------------------------------- -----------------
Wells Management Company, Inc. Property Manager-Management and $184,541 (1)
Leasing Fees
(1) The majority of these fees are not paid directly by the Partnership but are
paid by the joint venture entities which own properties for which the
property management and leasing services relate and include management and
leasing fees, some of which were accrued for accounting purposes in 2001
but not actually paid until 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.
Set forth below is the security ownership of management as of February 28, 2002:
14
Name and Address of Amount and Nature of
Title of Class Beneficial Owner Beneficial Ownership Percent of Class
- -------------- ------------------- --------------------------- ----------------
Class A Units Leo F. Wells, III 24,392.79 Units (IRA, Less than 1%
401 (k) and Profit Sharing)
Class B Units Leo F. Wells, III 1,750.00 Units (IRA, Less than 1%
401 (k) and Profit Sharing)
No arrangements exist which would, upon execution thereof, result in a change in
control of the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The compensation and fees paid or to be paid by the Partnership to the General
Partners and their affiliates in connection with the operation of the
Partnership are as follows:
Interest in Partnership Cash Flow and Net Sale Proceeds
The General Partners receive a subordinated participation in net cash flow from
operations equal to 10% of net cash flow after the Limited Partners have
received preferential distributions equal to 8% of their adjusted capital
contribution. For the year ended December 31, 2001, the General Partners
received no cash distributions. The General Partners also receive a subordinated
participation in net sale proceeds and net financing proceeds equal to 15% of
residual proceeds available for distribution after the Limited Partners have
received a return of their adjusted capital contribution plus a 12% cumulative
return on their adjusted capital contribution. The General Partners received no
distribution from net sales proceeds.
Property Management and Leasing Fees
Wells Management Company, Inc., an affiliate of the General Partners, will
receive compensation for supervising the management of the Partnership
properties equal to 6% (3% management and 3% leasing) of rental income. For the
year ended December 31, 2001, Wells Management Company, Inc's compensation
totaled $184,541 in management and leasing fees. In no event will such fees
exceed the sum of (i) 6% of the gross receipts of each property, plus (ii) a
separate one-time fee for initial rent-up or leasing-up of development
properties in an amount not to exceed the fee customarily charged in
arm's-length transactions by others rendering similar services in the same
geographic area for similar properties. With respect to properties leased on a
net basis for a period of ten years or longer, property management fees will not
exceed 1% of gross revenues from such leases, plus a one-time initial leasing
fee of 3% of the gross revenues which are payable over the first five years of
the term of such net leases.
Real Estate Commissions
In connection with the sale of Partnership properties, the General Partners or
their affiliates may receive commissions not exceeding the lesser of (A) 50% of
the commissions customarily charged by other brokers in arm's-length
transactions involving comparable properties in the same geographic area or (B)
3% of the gross sales price of the property, and provided that payments of such
commissions will be made only after Limited Partners have received prior
distributions totaling 100% of their capital contributions plus a 6% cumulative
return on their adjusted capital contributions. During 2001, no real estate
commissions were paid to the General Partners.
15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
1. The Financial Statements are contained on pages F-2 through F-33 of this
Annual Report on Form 10-K, and the list of the Financial Statements
contained herein is set forth on page F-1, which is hereby incorporated by
reference.
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(a). The Exhibits filed in response to Item 601 of Regulation S-K are listed on
the Exhibit Index attached hereto.
(b). No reports on Form 8-K were filed with the Commission during the fourth
quarter of 2001.
(c). The Exhibits filed in response to Item 601 of Regulation S-K are listed on
the Exhibit Index attached hereto.
16
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 25th day of March
2001.
7Wells Real Estate Fund III
(Registrant)
By: /s/Leo F. Wells, III
----------------------------------------------
Leo F. Wells, III
Individual General Partner and as President
and Chief Financial Officer of Wells Capital,
Inc., the Corporate General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person on behalf of the registrant and in
the capacity as and on the date indicated.
Signature Title Date
- --------------------- ------------------------------------- --------------
/s/Leo F. Wells, III Individual General Partner, March 25, 2001
- -------------------- President and Sole Director of Wells
Leo F. Wells, III 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.
17
INDEX TO THE FINANCIAL STATEMENTS
Financial Statements Page
- --------------------------------------------------------------------------- -----
Independent Auditor's Report F-2
Consolidated Balance Sheets as of December 31, 2001 and 2000 F-3
Consolidated Statements of Income for the Years Ended
December 31, 2001, 2000 and 1999 F-9
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-December 31, 2001, 2000 and 1999 F-7
Audited Financial Statements - The Reciprocal Group Building F-27
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Fund III, L.P.:
We have audited the accompanying balance sheets of Wells Real Estate Fund III,
L.P. (a Georgia public limited partnership) as of December 31, 2001 and 2000 and
the related statements of income, 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 III,
L.P. as of December 31, 2001 and 2000 and the results of its operations and its
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 III, L.P.
(A Georgia Public Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
ASSETS
2001 2000
----------- -----------
REAL ESTATE ASSETS, AT COST:
Land $ 576,350 $ 576,350
Building and improvements, less accumulated depreciation of
$1,434,858and $1,267,475 at December 31, 2001 and 2000,
respectively 2,286,693 2,429,457
----------- -----------
Total real estate assets 2,863,043 3,005,807
INVESTMENT IN JOINT VENTURES 10,655,517 10,862,922
CASH AND CASH EQUIVALENTS 134,766 409,476
DUE FROM AFFILIATES 334,616 231,634
ACCOUNTS RECEIVABLE 0 5,313
PREPAID EXPENSES AND OTHER ASSETS, net 20,515 16,948
----------- -----------
Total assets $14,008,457 $14,532,100
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued expenses $ 23,492 $ 13,169
Partnership distributions payable 5,519 6,769
----------- -----------
Total liabilities 29,011 19,938
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 7)
PARTNERS' CAPITAL:
Limited partners:
Class A--19,635,965 units 13,979,446 14,512,162
Class B--2,544,540 units 0 0
----------- -----------
Total partners' capital 13,979,446 14,512,162
----------- -----------
Total liabilities and partners' capital $14,008,457 $14,532,100
=========== ===========
The accompanying notes are an integral part of these balance sheets.
F-3
WELLS REAL ESTATE FUND III, L.P.
(A Georgia Public Limited Partnership)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
2001 2000 1999
-------- ---------- ----------
REVENUES:
Rental income $266,677 $ 576,004 $ 554,956
Equity in income of joint ventures 602,145 232,205 581,745
Interest income 9,042 10,054 58
Other income 2,235 0 0
-------- ---------- ----------
880,099 818,263 1,136,759
-------- ---------- ----------
EXPENSES:
Depreciation 167,383 171,052 164,864
Operating costs, net of reimbursements 201,334 150,734 104,231
Partnership administration 64,277 55,182 53,592
Management and leasing fees 29,335 78,568 74,807
Legal and accounting 25,434 20,654 22,979
Computer costs 16,894 7,786 6,874
-------- ---------- ----------
504,657 483,976 427,347
-------- ---------- ----------
Net INCOME $375,442 $ 334,287 $ 709,412
======== ========== ==========
NET INCOME ALLOCATED TO CLASS A LIMITED PARTNERS $375,442 $ 334,287 $ 674,433
======== ========== ==========
NET INCOME ALLOCATED TO CLASS B LIMITED PARTNERS $ 0 $ 0 $ 34,979
======== ========== ==========
NET INCOME PER CLASS A LIMITED PARTNER UNIT $ 0.02 $ 0.02 $ 0.03
======== ========== ==========
NET INCOME PER CLASS B LIMITED PARTNER UNIT $ 0.00 $ 0.00 $ 0.01
======== ========== ==========
DISTRIBUTION PER CLASS A LIMITED PARTNER UNIT $ 0.05 $ 0.02 $ 0.08
======== ========== ==========
DISTRIBUTION PER CLASS B LIMITED PARTNER UNIT $ 0.00 $ 0.00 $ 0.01
======== ========== ==========
The accompanying notes are an integral part of these statements.
F-4
WELLS REAL ESTATE FUND III, L.P.
(A Georgia Public Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
Limited Partners
-------------------------------------------------
Class A Class B Total
------------------------- -------------------- Partners'
Units Amount Units Amount Capital
---------- ------------ --------- -------- ------------
BALANCE, December 31, 1998 19,635,965 $ 15,420,884 2,544,540 $ 0 $ 15,420,884
Net income 0 674,433 0 34,979 709,412
Partnership distributions 0 (1,573,882) 0 (34,979) (1,608,861)
---------- ------------ --------- -------- ------------
BALANCE, December 31, 1999 19,635,965 14,521,435 2,544,540 0 14,521,435
Net income 0 334,287 0 0 334,287
Partnership distributions 0 (343,560) 0 0 (343,560)
---------- ------------ --------- -------- ------------
BALANCE, December 31, 2000 19,635,965 14,512,162 2,544,540 0 14,512,162
Net income 0 375,442 0 0 375,442
Partnership distributions 0 (908,158) 0 0 (908,158)
---------- ------------ --------- -------- ------------
BALANCE, December 31, 2001 19,635,965 $ 13,979,446 2,544,540 $ 0 $ 13,979,446
========== ============ ========= ======== ============
The accompanying notes are an integral part of these statements.
F-5
WELLS REAL ESTATE FUND III, L.P.
(A Georgia Public Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
2001 2000 1999
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 375,442 $ 334,287 $ 709,412
Adjustments to reconcile net income to net cash (used in) ----------- ----------- -----------
provided by operating activities:
Equity in income of joint ventures (602,145) (232,205) (581,745)
Depreciation 167,383 171,052 164,864
Changes in assets and liabilities:
Accounts receivable 5,313 9,176 (6,489)
Prepaid expenses and other assets, net (3,567) 5,968 1,241
Accounts payable and accrued expenses 10,323 7,691 (7,884)
Due from affiliates 3,216 (3,216) (7,966)
----------- ----------- -----------
Total adjustments (419,477) (41,534) (437,979)
----------- ----------- -----------
Net cash (used in) provided by operating
activities (44,035) 292,753 271,433
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate (24,619) (68,865) (27,850)
Investment in joint ventures (502,342) (216,683) 0
Distributions received from joint ventures 1,205,694 1,045,901 1,360,515
----------- ----------- -----------
Net cash provided by investing activities 678,733 760,353 1,332,665
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners in excess of accumulated earnings (332,890) (334,944) (973,626)
Distributions to partners from accumulated earnings (576,518) (437,222) (658,584)
----------- ----------- -----------
Net cash used in financing activities (909,408) (772,166) (1,632,210)
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (274,710) 280,940 (28,112)
CASH AND CASH EQUIVALENTS, beginning of year 409,476 128,536 156,648
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 134,766 $ 409,476 $ 128,536
=========== =========== ===========
The accompanying notes are an integral part of these statements.
F-6
WELLS REAL ESTATE FUND III, L.P.
(A Georgia Public Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000, AND 1999
1. Summary of significant accounting policies
Organization and Business
Wells Real Estate Fund III, L.P. (the "Partnership") is a public limited
partnership organized on July 31, 1988 under the laws of the state of
Georgia. The general partners are Leo F. Wells, III and Wells Capital, Inc.
(the "Company"). The Partnership has two classes of limited partnership
interests, Class A and Class B units. Limited partners may vote to, among
other things, (a) amend the partnership agreement, subject to certain
limitations, (b) change the business purpose or investment objectives of
the Partnership, and (c) remove a general partner. A majority vote on any
of the above-described matters will bind the Partnership without the
concurrence of the general partners. Each limited partnership unit has
equal voting rights, regardless of class.
The Partnership was formed to acquire and operate commercial real
properties, including properties which are either to be developed, are
currently under development or construction, are newly constructed, or have
operating histories. The Partnership directly owns an office building in
Greenville, North Carolina. In addition, the Partnership owns an interest
in the following properties through joint ventures between the Partnership
and other Wells Real Estate Funds: (i) The Atrium of Nassau Bay ("The
Atrium"), a four-story office building located in metropolitan Houston,
Texas, (ii) the Brookwood Grill, a restaurant located in Roswell, Georgia,
(iii) the Stockbridge Village Shopping Center, a retail shopping center
located in Stockbridge, Georgia, southeast of Atlanta, Georgia, (iv) the
Reciprocal Group Building (formerly G.E. Lighting National Customer
Center), a two-story office building located in Richmond, Virginia, and (v)
an office/retail center in Roswell, Georgia ("880 Holcomb Bridge").
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 considering selling its properties.
Management estimates that the net realizable value of each of the
properties exceeds the carrying value of the corresponding real estate
assets; consequently, no impairment loss has been recorded. In the event
that the net sales proceeds are less than the carrying value of the
property sold, the Partnership would recognize a loss on the sale.
Management is not contractually or financially obligated to sell any of its
properties, and it is management's current intent to fully realize the
Partnership's investment in real estate. The success of the Partnership's
future operations and the ability to realize the investment in its assets
will be dependent on the Partnership's ability to maintain rental rates,
occupancy, and an appropriate level of operating expenses in future years.
Management believes that the steps that it is taking will enable the
Partnership to realize its investment in its assets.
F-7
Income Taxes
The Partnership is not subject to federal or state income taxes; therefore,
none have been provided for in the accompanying financial statements. The
partners are required to include their respective shares of profits and
losses in their individual income tax returns.
Distribution of Net Cash From Operations
Cash available for distribution is distributed on a cumulative
noncompounded basis to limited partners quarterly. In accordance with the
partnership agreement, distributions are paid first to limited partners
holding Class A units until they have received an 8% per annum return on
their adjusted capital contributions, as defined. Cash available for
distribution is then distributed to limited partners holding Class B units
until they have received an 8% per annum return on their adjusted capital
contributions, as defined. If any cash available for distribution remains,
the general partners receive an amount equal to 10% of total net cash from
operations distributed. Thereafter, amounts are distributed 10% to the
general partners and 90% to the limited partners.
Distribution of Sales Proceeds
Upon sales of properties, the net sales proceeds are distributed in the
following order:
. To limited partners until all limited partners have received 100%
of their adjusted capital contributions, as defined
. To limited partners holding Class B units until they receive an
amount equal to the net cash available for distribution received
by the limited partners holding Class A units
. To all limited partners until they receive a cumulative 12% per
annum return on their adjusted capital contributions, as defined
. To all limited partners until they receive an amount equal to
their respective cumulative distributions, as defined
. To all general partners until they have received 100% of their
capital contributions, as defined
. Thereafter, 85% to the limited partners and 15% to the general
partners
Allocation of Net Income, Net Loss, and Gain on Sale
Net income is defined as net income recognized by the Partnership,
excluding deductions for depreciation and amortization. Net income, as
defined, of the Partnership will be allocated each year in the same
proportions that net cash from operations is distributed to the partners.
To the extent the Partnership's net income in any year exceeds net cash
from operations, it will be allocated 99% to the limited partners holding
Class A units and 1% to the general partners.
Net loss, depreciation, and amortization deductions for each fiscal year
will be allocated as follows: (a) 99% to the limited partners holding Class
B units and 1% to the general partners until their capital accounts are
reduced to zero, (b) then to any partner having a positive balance in
his/her capital account in an amount not to exceed such positive balance,
and (c) thereafter to the general partners.
Gain on the sale or exchange of the Partnership's properties will be
allocated generally in the same manner that the net proceeds from such sale
are distributed to partners after the following allocations are made, if
applicable: (a) allocations made pursuant to a qualified income offset
provision in the partnership agreement; (b) allocations to partners having
negative accounts until all negative capital accounts have been restored to
zero; and (c) allocations to Class B limited partners in amounts equal to
deductions for depreciation and amortization previously allocated to them
with respect to the specific
F-8
partnership property sold, but not in excess of the amount of gain on sale
recognized by the Partnership with respect to the sale of such property.
Real Estate Assets
Real estate assets held by the Partnership directly or through investments
in affiliated joint ventures are stated at cost less accumulated
depreciation. Major improvements and betterments are capitalized when they
extend the useful life of the related asset. All repairs and maintenance
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 real estate 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 lease. Net deferred
lease acquisition costs are included in prepaid expenses and other assets,
net, in the accompanying balance sheets.
Investment in Joint Ventures
The Partnership does not have control over the operations of the joint
ventures; however, it does exercise significant influence. Accordingly,
investments in joint ventures are recorded using the equity method of
accounting. The joint ventures follow the same significant accounting
policies as the Partnership.
Cash available for distribution and allocations of profit and loss to the
Partnership by the joint ventures are made in accordance with the terms of
the individual joint venture agreements. Generally, these items are
allocated in proportion to the partners' respective ownership interests.
Cash is paid from the joint ventures to the Partnership quarterly.
Cash and Cash Equivalents
For the purposes of the statements of cash flows, the Partnership considers
all highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. Cash equivalents include cash and
short-term investments. Short-term investments are stated at cost, which
approximates fair value, and consist of investments in money market
accounts.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year financial statement presentation.
F-9
2. RELATED-PARTY TRANSACTIONS
Due from affiliates at December 31, 2001 and 2000 represents advances to
Wells Management Company, Inc. ("Wells Management"), an affiliate of the
general partners, and the Partnership's share of cash to be distributed
from its joint venture investments for the fourth quarters of 2001 and
2000, respectively, as follows:
2001 2000
-------- --------
Fund III and IV Associates $233,731 $101,508
Fund II and III Associates--The Atrium 77,030 57,749
Fund II and III Associates--Brookwood Grill 23,855 69,161
Wells Management 0 3,216
-------- --------
$334,616 $231,634
======== ========
The Partnership entered into a property management and leasing agreement
with Wells Management. In consideration for supervising the management of
the Partnership's properties, the Partnership will generally pay Wells
Management management and leasing fees equal to (a) 3% of the gross
revenues for management and 3% of the gross revenues for leasing (aggregate
maximum of 6%) plus a separate fee for the one-time initial lease-up of
newly constructed properties in an amount not to exceed the fee customarily
charged in arm's-length transactions by others rendering similar services
in the same geographic area for similar properties or (b) in the case of
commercial properties which are leased on a long-term net basis (ten or
more years), 1% of the gross revenues except for initial leasing fees equal
to 3% of the gross revenues over the first five years of the lease term.
The Partnership incurred management and leasing fees and lease acquisition
costs, both directly and at the joint venture level, of $184,541, $228,176,
and $215,168 for the years ended December 31, 2001, 2000, and 1999,
respectively, which were paid to Wells Management.
The Company performs certain administrative services for the Partnership,
such as accounting and other partnership administration, and incurs the
related expenses. Such expenses are allocated among the various Wells Real
Estate Funds based on time spent on each fund by individual administrative
personnel. In the opinion of management, such allocation is a reasonable
estimation of such expenses.
The general partners are also general partners of other Wells Real Estate
Funds. As such, there may exist conflicts of interest where the general
partners in the capacity as general partners of other Wells Real Estate
Funds may be in competition with the Partnership for tenants in similar
geographic markets.
3. INVESTMENT IN JOINT VENTURES
The Partnership's investment and percentage ownership in the joint ventures
at December 31, 2001 and 2000 are summarized as follows:
2001 2000
---------------------- ----------------------
Amount Percent Amount Percent
------------ ------- ------------ -------
Fund III and IV Associates $ 7,079,433 57% $ 6,910,490 57%
Fund II and III Associates--The Atrium 2,545,024 36 2,858,085 36
Fund II and III Associates--Brookwood Grill 1,031,060 38 1,094,347 38
------------ ------------
$ 10,655,517 $ 10,862,922
============ ============
F-10
The following is a roll forward of the Partnership's investment in the
joint ventures for the years ended December 31, 2001 and 2000:
2001 2000
------------ -----------
Investment in joint ventures, beginning of year $ 10,862,922 $ 11,369,590
Equity in income of joint ventures 602,145 232,205
Contributions to joint ventures 502,342 216,683
Distributions from joint ventures (1,311,892) (955,556)
------------ -----------
Investment in joint ventures, end of year $ 10,655,517 $ 10,862,922
============ ============
Fund II and III Associates
On April 3, 1989, Fund II and II-OW, a joint venture partnership between
Wells Real Estate Fund II ("Fund II") and Wells Real Estate Fund II-OW
("Fund II-OW") entered into a joint venture agreement with the Partnership.
The new joint venture, Fund II and III Associates--The Atrium, was formed
for the purpose of investing in commercial and industrial real properties.
In April 1989, Fund II and III Associates--The Atrium acquired The Atrium.
The Atrium was fully occupied from inception through June 1996, at which
time the previous tenant's lease expired. In March 1997, a lease was signed
with a new tenant for the entire building, and the new tenant began paying
rent in May 1997. The lease term was for five years with an option to renew
for an additional five years. A no-cause cancellation provision became
effective at the end of the first three-year period. If this no-cause
cancellation were exercised, the tenant would be required to pay
unamortized, up-front tenant improvement costs. The costs of completing the
required tenant improvements and outside broker commissions were funded out
of reserves and contributions by Fund II and II-OW and the Partnership.
On January 31, 1990, Fund II and II-OW entered into a second joint venture
agreement with Fund III. The new joint venture, Fund II and III
Associates--Brookwood Grill, was formed for the purpose of investing in
commercial and industrial real properties. In 1991, Fund II and II-OW
contributed its interest in a parcel of land known as 880 Holcomb Bridge
located in Roswell, Georgia, to Fund II and III Associates--Brookwood
Grill. The property is a 5.8-acre tract of land. A restaurant was developed
on 1.5 acres of 880 Holcomb Bridge and is currently operating as the
Brookwood Grill restaurant. During 1995, the remaining 4.3 acres of 880
Holcomb Bridge were transferred at cost to the Fund II, III, VI, and VII
Associates joint venture, a joint venture partnership between Fund II and
III Associates--Brookwood Grill, Fund VI, and Fund VII. Fund II and III
Associates--Brookwood Grill's investment in this transferred parcel of 880
Holcomb Bridge was $1,210,117 and $1,305,317 at December 31, 2001 and 2000,
respectively, which represents a 24% interest for each year.
F-11
Following are the financial statements for Fund II and III Associates--The
Atrium:
Fund II and III Associates--The Atrium
(A Georgia Joint Venture)
Balance Sheets
December 31, 2001 and 2000
Assets
2001 2000
---------- ----------
Real estate assets, at cost:
Land $1,504,743 $1,504,743
Building and improvements, less accumulated depreciation of
$7,889,603 in 2001 and $7,113,487 in 2000 5,572,282 6,274,702
---------- ----------
Total real estate assets 7,077,025 7,779,445
Cash and cash equivalents 211,954 240,314
Accounts receivable 5,346 23,202
Prepaid expenses and other assets, net 78,954 123,399
---------- ----------
Total assets $7,373,279 $8,166,360
========== ==========
Liabilities and Partners' Capital
liabilities:
Accounts payable $ 100,365 $ 104,321
Partnership distributions payable 169,050 149,227
---------- ----------
Total liabilities 269,415 253,548
---------- ----------
Partners' capital:
Fund II and II-OW 4,558,840 5,054,727
Wells Real Estate Fund III 2,545,024 2,858,085
---------- ----------
Total partners' capital 7,103,864 7,912,812
---------- ----------
Total liabilities and partners' capital $7,373,279 $8,166,360
========== ==========
F-12
Fund II and III Associates--The Atrium
(A Georgia Joint Venture)
Statements of Loss
for the Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
----------- ----------- -----------
Revenues:
Rental income $ 1,470,144 $ 1,468,784 $ 1,470,144
Other income 0 0 4,000
Interest income 7,730 0 0
----------- ----------- -----------
1,477,874 1,468,784 1,474,144
----------- ----------- -----------
Expenses:
Depreciation 776,116 877,240 867,720
Operating costs, net of reimbursements 598,010 723,744 692,066
Management and leasing fees 190,978 185,035 179,762
Partnership administration 37,886 14,841 23,278
Legal and accounting 9,002 5,250 5,250
----------- ----------- -----------
1,611,992 1,806,110 1,768,076
----------- ----------- -----------
Net loss $ (134,118) $ (337,326) $ (293,932)
=========== =========== ===========
Net loss allocated to Fund II and II-OW $ (82,214) $ (206,781) $ (180,180)
=========== =========== ===========
Net loss allocated to Wells Real Estate Fund III $ (51,904) $ (130,545) $ (113,752)
=========== =========== ===========
Fund II and III Associates--The Atrium
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 2001, 2000, and 1999
Fund II Wells Real Total
and Estate Partners'
II-OW Fund III Capital
----------- ----------- -----------
Balance, December 31, 1998 $ 6,181,461 $ 3,569,416 $ 9,750,877
Net loss (180,180) (113,752) (293,932)
Partnership distributions (385,541) (243,401) (628,942)
----------- ----------- -----------
Balance, December 31, 1999 5,615,740 3,212,263 8,828,003
Net loss (206,781) (130,545) (337,326)
Partnership distributions (354,232) (223,633) (577,865)
----------- ----------- -----------
Balance, December 31, 2000 5,054,727 2,858,085 7,912,812
Net loss (82,214) (51,904) (134,118)
Partnership distributions (413,673) (261,157) (674,830)
----------- ----------- -----------
Balance, December 31, 2001 $ 4,558,840 $ 2,545,024 $ 7,103,864
=========== =========== ===========
F-13
Fund II and III Associates--The Atrium
(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 loss $(134,118) $ (337,326) $(293,932)
--------- ----------- ---------
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation 776,116 877,240 867,720
Changes in assets and liabilities:
Accounts receivable 17,856 6,816 (11,904)
Prepaid expenses and other assets, net 44,445 89,744 89,745
Accounts payable (3,956) 102,520 (2,786)
--------- ----------- ---------
Total adjustments 834,461 1,076,320 942,775
--------- ----------- ---------
Net cash provided by operating activities 700,343 738,994 648,843
Cash flows from investing activities:
Investment in real estate assets (73,696) (58,200) (23,401)
Cash flows from financing activities:
Distributions to joint venture partners (655,007) (529,650) (665,154)
--------- ----------- ---------
Net (decrease) increase in cash and cash equivalents (28,360) 151,144 (39,712)
Cash and cash equivalents, beginning of year 240,314 89,170 128,882
--------- ----------- ---------
Cash and cash equivalents, end of year $ 211,954 $ 240,314 $ 89,170
========= =========== =========
F-14
Following are the financial statements for Fund II and III Associates--Brookwood
Grill:
Fund II and III Associates--Brookwood Grill
(A Georgia Joint Venture)
Balance Sheets
December 31, 2001 and 2000
Assets
2001 2000
---------- ----------
Real estate assets, at cost:
Land $ 745,223 $ 745,223
Building and improvements, less accumulated depreciation of $490,320 in
2001 and $437,759 in 2000 782,493 835,054
---------- ----------
Total real estate assets 1,527,716 1,580,277
Investment in joint venture 1,210,117 1,305,317
Cash and cash equivalents 22,272 57,515
Due from affiliate 32,501 69,758
Accounts receivable 8,927 38,714
Prepaid expenses and other assets, net 3,188 6,344
---------- ----------
Total assets $2,804,721 $3,057,925
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 2,553 $ 4,580
Due to affiliate 0 917
Partnership distributions payable 63,358 145,528
---------- ----------
Total liabilities 65,911 151,025
---------- ----------
Partners' capital:
Fund II and II-OW 1,707,750 1,812,553
Wells Real Estate Fund III 1,031,060 1,094,347
---------- ----------
Total partners' capital 2,738,810 2,906,900
---------- ----------
Total liabilities and partners' capital $2,804,721 $3,057,925
========== ==========
F-15
Fund II and III Associates--Brookwood Grill
(A Georgia Joint Venture)
Statements of Income
for the Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
-------- --------- ---------
Revenues:
Rental income $234,810 $ 224,801 $ 224,801
Equity in income of joint venture 63,326 55,489 81,669
Other income 2,580 0 0
-------- --------- ---------
300,716 280,290 306,470
-------- --------- ---------
Expenses:
Depreciation 52,561 54,014 54,014
Operating costs, net of reimbursements 21,828 (13,375) (11,565)
Management and leasing fees 28,673 25,320 30,096
Partnership administration 13,986 14,019 5,853
Legal and accounting 3,509 5,869 5,252
-------- --------- ---------
120,557 85,847 83,650
-------- --------- ---------
Net income $180,159 $ 194,443 $ 222,820
======== ========= =========
Net income allocated to Fund II and II-OW $112,329 $ 121,235 $ 138,928
======== ========= =========
Net income allocated to Wells Real Estate Fund III $ 67,830 $ 73,208 $ 83,892
======== ========= =========
Fund II and III Associates--Brookwood Grill
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 2001, 2000, and 1999
Fund II Wells Real Total
and Estate Partners'
II-OW Fund III Capital
----------- ----------- -----------
Balance, December 31, 1998 $ 2,042,176 $ 1,233,003 $ 3,275,179
Net income 138,928 83,892 222,820
Partnership distributions (253,721) (153,210) (406,931)
----------- ----------- -----------
Balance, December 31, 1999 1,927,383 1,163,685 3,091,068
Net income 121,235 73,208 194,443
Partnership distributions (236,065) (142,546) (378,611)
----------- ----------- -----------
Balance, December 31, 2000 1,812,553 1,094,347 2,906,900
Net income 112,329 67,830 180,159
Partnership distributions (217,132) (131,117) (348,249)
----------- ----------- -----------
Balance, December 31, 2001 $ 1,707,750 $ 1,031,060 $ 2,738,810
=========== =========== ===========
F-16
Fund II and III Associates--Brookwood Grill
(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 $ 180,159 $ 194,443 $ 222,820
---------- ---------- ----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 52,561 54,014 54,014
Equity in income of joint venture (63,326) (55,489) (81,669)
Changes in assets and liabilities:
Accounts receivable 29,787 2,346 25,958
Prepaid expenses and other assets, net 3,156 5,568 5,568
Accounts payable (2,027) 4,580 (1,200)
Due to affiliates (917) (1,488) (1,489)
---------- ---------- ----------
Total adjustments 19,234 9,531 1,182
---------- ---------- ----------
Net cash provided by operating activities 199,393 203,974 224,002
Cash flows from investing activities:
Distributions received from joint venture 195,783 147,198 173,171
Cash flows from financing activities:
Distributions to joint venture partners (430,419) (359,284) (405,502)
---------- ---------- ----------
Net decrease in cash and cash equivalents (35,243) (8,112) (8,329)
Cash and cash equivalents, beginning of year 57,515 65,627 73,956
---------- ---------- ----------
Cash and cash equivalents, end of year $ 22,272 $ 57,515 $ 65,627
========== ========== ==========
Fund II, III, VI, and VII Associates
On January 1, 1995, the Fund II and III Associates--Brookwood Grill entered into
a joint venture agreement with Fund VI and Fund VII to form Fund II, III, VI,
and VII Associates for the purpose of acquiring, developing, operating, and
selling real properties. During 1995, Fund II and III Associates--Brookwood
Grill contributed a 4.3-acre tract of land from its 880 Holcomb Bridge property
to the Fund II, III, VI, and VII Associates joint venture. Development of two
retail and office buildings containing a total of approximately 49,500 square
feet was substantially complete in 1996.
F-17
The following are the financial statements for Fund II, III, VI, and VII
Associates:
Fund II, III, VI, and VII Associates
(A Georgia Joint Venture)
Balance Sheets
December 31, 2001 and 2000
Assets
2001 2000
---------- ----------
Real estate assets, at cost:
Land $1,325,242 $1,325,242
Building and improvements, less accumulated depreciation of
$1,969,078 in 2001 and $1,654,520 in 2000 3,749,081 4,063,639
---------- ----------
Total real estate assets 5,074,323 5,388,881
Cash and cash equivalents 151,109 88,044
Accounts receivable 27,391 151,886
Prepaid expenses and other assets, net 86,575 158,872
---------- ----------
Total assets $5,339,398 $5,787,683
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 47,605 $ 82,072
Partnership distributions payable 136,570 154,874
---------- ----------
184,175 236,946
---------- ----------
Partners' capital:
Fund II and III Associates--Brookwood Grill 1,210,117 1,305,317
Wells Real Estate Fund VI 1,350,182 1,456,417
Wells Real Estate Fund VII 2,594,924 2,789,003
---------- ----------
Total partners' capital 5,155,223 5,550,737
---------- ----------
Total liabilities and partners' capital $5,339,398 $5,787,683
========== ==========
F-18
Fund II, III, VI, and VII Associates
(A Georgia Joint Venture)
Statements of Income
for the Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
---------- ---------- ----------
Revenues:
Rental income $ 845,597 $ 869,390 $ 953,952
Other income 0 0 23,843
Interest income 2,566 0 0
---------- ---------- ----------
848,163 869,390 977,795
---------- ---------- ----------
Expenses:
Depreciation 314,558 355,293 415,165
Operating costs, net of reimbursements 77,354 70,693 68,691
Management and leasing fees 103,277 111,567 129,798
Legal and accounting 12,389 4,513 4,952
Partnership administration 21,691 22,646 19,891
Bad debt expense 55,802 74,145 0
---------- ---------- ----------
585,071 638,857 638,497
---------- ---------- ----------
Net income $ 263,092 $ 230,533 $ 339,298
========== ========== ==========
Net income allocated to Fund II and III Associates--Brookwood Grill $ 63,326 $ 55,489 $ 81,669
========== ========== ==========
Net income allocated to Wells Real Estate Fund VI $ 70,667 $ 61,921 $ 91,135
========== ========== ==========
Net income allocated to Wells Real Estate Fund VII $ 129,099 $ 113,123 $ 166,494
========== ========== ==========
Fund II, III, VI, and VII Associates
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 2001, 2000, and 1999
Fund II
and III
Associates-- Wells Wells Real Total
Brookwood Real Esate Estate Partners'
Grill Fud VI Fund VII Capital
------------ ----------- ----------- ----------
Balance, December 31, 1998 $ 1,507,807 $ 1,682,380 $ 3,201,805 $6,391,992
Net income 81,669 91,135 166,494 339,298
Partnership distributions (182,885) (204,085) (372,836) (759,806)
----------- ----------- ----------- ----------
Balance, December 31, 1999 1,406,591 1,569,430 2,995,463 5,971,484
Net income 55,489 61,921 113,123 230,533
Partnership distributions (156,763) (174,934) (319,583) (651,280)
----------- ----------- ----------- ----------
Balance, December 31, 2000 1,305,317 1,456,417 2,789,003 5,550,737
Net income 63,326 70,667 129,099 263,092
Partnership distributions (158,526) (176,902) (323,178) (658,606)
----------- ----------- ----------- ----------
Balance, December 31, 2001 $ 1,210,117 $ 1,350,182 $ 2,594,924 $5,155,223
=========== =========== =========== ==========
F-19
Fund II, III, VI, and VII Associates
(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 $ 263,092 $ 230,533 $ 339,298
---------- ---------- ----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 314,558 355,293 415,165
Changes in assets and liabilities:
Accounts receivable 124,495 10,578 (51,004)
Prepaid expenses and other assets, net 72,297 54,571 20,522
Accounts payable and accrued expenses (34,467) (5,854) (104,146)
---------- ---------- ----------
Total adjustments 476,883 414,588 280,537
----------- ---------- ----------
Net cash provided by operating activities 739,975 645,121 619,835
Cash flows from investing activities:
Investment in real estate 0 0 (19,772)
Cash flows from financing activities:
Distributions to joint venture partners (676,910) (746,481) (719,447)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 63,065 (101,360) (119,384)
Cash and cash equivalents, beginning of year 88,044 189,404 308,788
---------- ---------- ----------
Cash and cash equivalents, end of year $ 151,109 $ 88,044 $ 189,404
========== ========== ==========
Fund III and IV Associates
On March 27, 1991, the Partnership entered into a joint venture with Wells Real
Estate Fund IV, L.P. The joint venture, Fund III and IV Associates, was formed
for the purpose of developing, constructing, and operating the Stockbridge
Village Shopping Center in Stockbridge, Georgia. In addition, in July 1992, Fund
III and IV Associates purchased the Reciprocal Group Building (formerly G.E.
Lighting National Customer Center) in Richmond, Virginia.
F-20
The following are the financial statements for Fund III and IV Associates:
Fund III and IV Associates
(A Georgia Joint Venture)
Balance Sheets
December 31, 2001 and 2000
Assets
2001 2000
----------- -----------
Real estate assets, at cost:
Land $ 3,331,775 $ 3,331,775
Building and improvements, less accumulated depreciation of
$4,597,821 in 2001 and $3,980,865 in 2000 8,643,113 8,540,176
----------- -----------
Total real estate assets 11,974,888 11,871,951
Cash and cash equivalents 315,325 105,104
Accounts receivable 213,999 130,226
Prepaid expenses and other assets, net 321,531 191,722
----------- -----------
Total assets $12,825,743 $12,299,003
=========== ===========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 39,665 $ 40,896
Partnership distributions payable 408,538 177,418
Due to affiliates 3,406 1,870
----------- -----------
Total liabilities 451,609 220,184
----------- -----------
Partners' capital:
Wells Real Estate Fund III 7,079,433 6,910,490
Wells Real Estate Fund IV 5,294,701 5,168,329
----------- -----------
Total partners' capital 12,374,134 12,078,819
----------- -----------
Total liabilities and partners' capital $12,825,743 $12,299,003
=========== ===========
F-21
Fund III and IV Associates
(A Georgia Joint Venture)
Statements of Income
for the Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
----------- ----------- -----------
Revenues:
Rental income $ 1,864,868 $ 1,405,938 $ 1,795,247
Interest income 450 4,921 11,790
Other income 22,917 0 0
----------- ----------- -----------
1,888,235 1,410,859 1,807,037
----------- ----------- -----------
Expenses:
Depreciation 616,956 558,282 551,956
Management and leasing fees 168,643 134,283 158,520
Operating costs, net of reimbursements 27,932 164,018 (21,669)
Property administration 35,540 39,875 40,357
Legal and accounting 14,515 8,312 9,163
----------- ----------- -----------
863,586 904,770 738,327
----------- ----------- -----------
Net income $1,024,649 $ 506,089 $1,068,710
=========== =========== ===========
Net income allocated to Wells Real Estate Fund III $ 586,219 $ 289,542 $ 611,605
=========== =========== ===========
Net income allocated to Wells Real Estate Fund IV $ 438,430 $ 216,547 $ 457,105
=========== =========== ===========
Fund III and IV Associates
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 2001, 2000, and 1999
Wells Real Wells Real Total
Estate Estate Partners'
Fund III Fund IV Capital
---------- ---------- -----------
Balance, December 31, 1998 $7,330,542 $5,459,021 $12,789,563
Net income 611,605 457,105 1,068,710
Partnership contributions 0 23,280 23,280
Partnership distributions (948,505) (708,892) (1,657,397)
---------- ---------- -----------
Balance, December 31, 1999 6,993,642 5,230,514 12,224,156
Net income 289,542 216,547 506,089
Partnership contributions 216,683 162,058 378,741
Partnership distributions (589,377) (440,790) (1,030,167)
---------- ---------- -----------
Balance, December 31, 2000 6,910,490 5,168,329 12,078,819
Net income 586,219 438,430 1,024,649
Partnership contributions 502,342 375,720 878,062
Partnership distributions (919,618) (687,778) (1,607,396)
---------- ---------- -----------
Balance, December 31, 2001 $7,079,433 $5,294,701 $12,374,134
========== ========== ===========
F-22
Fund III and IV Associates
(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 $ 1,024,649 $ 506,089 $ 1,068,710
----------- ----------- -----------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 616,956 558,282 551,956
Changes in assets and liabilities:
Accounts receivable (83,773) 40,821 2,586
Prepaid expenses and other assets, net (129,809) (126,509) 9,320
Accounts payable (1,231) 7,137 (4,380)
Due to affiliates 1,536 (6,008) 6,366
----------- ----------- -----------
Total adjustments 403,679 473,723 565,848
----------- ----------- -----------
Net cash provided by operating activities 1,428,328 979,812 1,634,558
----------- ----------- -----------
Cash flows from investing activities:
Investment in real estate (719,893) (305,527) (24,871)
----------- ----------- -----------
Cash flows from financing activities:
Contributions from joint venture partners 878,062 378,741 23,280
Distributions to joint venture partners (1,376,276) (1,258,531) (1,659,316)
----------- ----------- -----------
Net cash used in financing activities (498,214) (879,790) (1,636,036)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 210,221 (205,505) (26,349)
Cash and cash equivalents, beginning of year 105,104 310,609 336,958
----------- ----------- -----------
Cash and cash equivalents, end of year $ 315,325 $ 105,104 $ 310,609
=========== =========== ===========
4. INCOME TAX BASIS NET INCOME AND PARTNERS' CAPITAL
The Partnership's income tax basis net income for the years ended December
31, 2001, 2000, and 1999 is calculated as follows:
2001 2000 1999
-------- -------- ----------
Financial statement net income $375,442 $334,287 $ 709,412
Increase (decrease) in net income resulting from:
Depreciation expense for financial reporting purposes in
excess of amounts for income tax purposes 389,512 352,963 364,072
Rental income recognized for income tax purposes in excess of
amounts for financial reporting purposes (19,017) 18,532 23,693
Expenses deductible when paid for income tax purposes,
accrued for financial reporting purposes 15,742 (4,326) (8,929)
Fixed asset retirement in excess of amounts for income tax
purposes 0 0 0
Other 2,423 1,243 999
-------- -------- ----------
Income tax basis net income $764,102 $702,699 $1,089,247
======== ======== ==========
F-23
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 $13,979,446 $14,512,162 $14,521,435
Increase (decrease) in partners' capital resulting from:
Depreciation expense for financial reporting purposes
in excess of amounts for income tax purposes 2,103,399 1,713,887 1,360,924
Capitalization of syndication costs for income tax
purposes, which are accounted for as cost of
capital for financial reporting purposes 2,624,555 2,624,555 2,624,555
Accumulated rental income accrued for financial
reporting purposes in excess of amounts for income
tax purposes (214,832) (195,815) (214,347)
Accumulated expenses deductible when paid for income
tax purposes, accrued for financial reporting
purposes 122,874 107,132 111,458
Partnership's distribution payable 5,519 6,769 435,375
Other 2,934 511 (732)
----------- ----------- -----------
Income tax basis partners' capital $18,623,895 $18,769,201 $18,838,668
=========== =========== ===========
5. RENTAL INCOME
The future minimum rental income due from the Partnership's direct
investment in real estate or its respective ownership interest in joint
ventures under noncancelable operating leases at December 31, 2001 is as
follows:
Year ending December 31:
2002 $1,221,611
2003 1,058,149
2004 913,800
2005 834,361
2006 807,073
Thereafter 2,848,967
----------
$7,683,961
==========
Two tenants contributed approximately 27%, and 13% of revenues. In
addition, three tenants will contribute approximately 40%, 34%, and 17% of
future minimum rental income.
The future minimum rental income due Fund II and III Associates--The Atrium
under noncancelable operating leases at December 31, 2001 is as follows:
Year ending December 31:
2002 $620,000
2003 0
2004 0
2005 0
2006 0
Thereafter 0
--------
$620,000
========
F-24
One tenant at The Atrium contributed 100% of rental income for the year
ended December 31, 2001 and will contribute 100% of future minimum rental
income.
The future minimum rental income due Fund II and III Associates--Brookwood
Grill under noncancelable operating leases at December 31, 2001 is as
follows:
Year ending December 31:
2002 $ 280,744
2003 286,983
2004 286,983
2005 286,983
2006 322,855
Thereafter 1,705,155
----------
$3,169,703
==========
One tenant contributed 100% of rental income for the year ended December
31, 2001 and will contribute 100% of future minimum rental income.
The future minimum rental income due Fund II, III, VI, and VII Associates
under noncancelable operating leases at December 31, 2001 is as follows:
Year ending December 31:
2002 $ 604,859
2003 319,952
2004 285,696
2005 167,194
2006 21,308
Thereafter 0
----------
$1,399,009
==========
Three tenants contributed approximately 15%, 15%, and 14% of rental income
for the year ended December 31, 2001. In addition, four tenants will
contribute approximately 38%, 17%, 13%, and 11% of future minimum rental
income.
The future minimum rental income due Fund III and IV Associates under
noncancelable operating leases at December 31, 2001 is as follows:
Year ending December 31:
2002 $ 1,150,615
2003 1,398,357
2004 1,330,753
2005 1,242,927
2006 1,194,786
Thereafter 3,856,860
-----------
$10,174,298
===========
Two tenants contributed approximately 26% and 26% of rental income for the
year ended December 31, 2001. In addition, two tenants will contribute
approximately 48% and 41% of future minimum rental income.
F-25
6. QUARTERLY RESULTS (UNAUDITED)
Presented below is a summary of the unaudited quarterly financial
information for the years ended December 31, 2001 and 2000:
2001 Quarters Ended
------------------------------------------------
March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
Revenues $276,383 $230,128 $181,321 $192,267
Net income 146,852 88,778 70,172 69,640
Net income allocated to Class A limited
partners 146,852 88,778 70,172 69,640
Net income per Class A limited partner unit $ 0.01 $ 0.01 $ 0.00 $ 0.00
Distribution per Class A limited partner
unit(a) 0.02 0.02 0.02 0.00
(a) The totals of the four quarterly amounts for the year ended
December 31, 2001 do not equal the totals for the year. This
difference results from rounding differences between quarters.
2000 Quarters Ended
------------------------------------------------
March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
Revenues $278,499 $194,058 $201,834 $143,872
Net income 159,035 72,716 75,948 26,588
Net income allocated to Class A limited
partners 159,035 72,716 75,948 26,588
Net income per Class A limited partner unit (a) $ 0.01 $ 0.00 $ 0.00 $ 0.00
Distribution per Class A limited partner unit 0.02 0.00 0.00 0.00
(a) The totals of the four quarterly amounts for the year ended
December 31, 2000 do not equal the totals for the year. This
difference results from rounding differences between quarters.
7. COMMITMENTS AND CONTINGENCIES
Management, after consultation with legal counsel, is not aware of any
significant litigation or claims against the Partnership or the Company. In
the normal course of business, the Partnership or the Company may become
subject to such litigation or claims.
F-26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Fund III
and Wells Real Estate Fund IV:
We have audited the accompanying balance sheets of THE RECIPROCAL GROUP BUILDING
as of December 31, 2001 and 2000 and the related 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 are the responsibility of
the property's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Reciprocal Group Property
as of December 31, 2001 and 2000 and the results of its operations and its 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.
Atlanta, Georgia
January 25, 2002
F-27
THE RECIPROCAL GROUP BUILDING
BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
ASSETS
2001 2000
---------- ----------
REAL ESTATE ASSETS:
Land $ 573,582 $ 573,582
Building and improvements, less accumulated depreciation of
$1,642,014 in 2001 and $1,390,730 in 2000 3,867,368 3,410,947
---------- ----------
Total real estate assets 4,440,950 3,984,529
CASH AND CASH EQUIVALENTS 88,967 0
ACCOUNTS RECEIVABLE 75,027 0
PREPAID EXPENSES AND OTHER ASSETS, net 251,556 115,667
---------- ----------
Total assets $4,856,500 $4,100,196
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Due to affiliates $ 0 $ 33,264
Accounts payable 1,967 501
Distributions payable to partners 140,680 0
---------- ----------
Total liabilities 142,647 33,765
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 4)
PARTNERS' CAPITAL:
Wells Real Estate Fund III 3,705,145 3,334,659
Wells Real Estate Fund IV 1,008,708 731,772
---------- ----------
Total partners' capital 4,713,853 4,066,431
---------- ----------
Total liabilities and partners' capital $4,856,500 $4,100,196
========== ==========
The accompanying notes are an integral part of these balance sheets.
F-28
THE RECIPROCAL GROUP BUILDING
STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
2001 2000 1999
-------- --------- --------
REVENUES:
Rental income $530,141 $ 131,856 $527,425
Other income 20,000 0 0
-------- --------- --------
550,141 131,856 527,425
-------- --------- --------
EXPENSES:
Depreciation 251,284 196,220 196,220
Legal and accounting 5,000 3,750 4,421
Management and leasing fees 52,464 10,179 40,631
Operating costs, net of reimbursements 16,093 158,991 13,743
-------- --------- --------
324,841 369,140 255,015
-------- --------- --------
NET INCOME (LOSS) $225,300 $(237,284) $272,410
======== ========= ========
The accompanying notes are an integral part of these statements.
F-29
THE RECIPROCAL GROUP BUILDING
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
Wells Real Wells Real Total
Estate Estate Partners'
Fund III Fund IV Capital
---------- ---------- ----------
BALANCE, December 31, 1998 $3,385,590 $ 769,795 $4,155,385
Net income 155,902 116,508 272,410
Distributions (287,763) (215,058) (502,821)
---------- ---------- ----------
BALANCE, December 31, 1999 3,253,729 671,245 3,924,974
Capital contributions 216,684 162,056 378,740
Net income (135,754) (101,529) (237,283)
Distributions 0 0 0
---------- ---------- ----------
BALANCE, December 31, 2000 3,334,659 731,772 4,066,431
Capital contributions 502,439 375,623 878,062
Net income 128,897 96,403 225,300
Distributions (260,850) (195,090) (455,940)
---------- ---------- ----------
BALANCE, December 31, 2001 $3,705,145 $1,008,708 $4,713,853
========== ========== ==========
The accompanying notes are an integral part of these statements.
F-30
THE RECIPROCAL GROUP BUILDING
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) $ 225,300 $(237,284) $ 272,410
--------- --------- ---------
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation 251,284 196,220 196,220
Changes in assets and liabilities:
Accounts receivable (75,027) 9,644 35,803
Prepaid expenses and other assets, net (135,889) (115,667) 0
Accounts payable 1,466 33,331 (1,116)
Due to affiliate (33,264) 0 (2,045)
--------- --------- ---------
Total adjustments 8,570 123,528 228,862
--------- --------- ---------
Net cash provided by (used in) operating activities 233,870 (113,756) 501,272
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate (707,705) (264,986) 0
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions from partners 878,062 378,740 0
Distributions paid to partners (315,260) (116,035) (513,703)
--------- --------- ---------
Net cash provided by (used in) financing activities 562,802 262,705 (513,703)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 88,967 (116,037) (12,431)
CASH AND CASH EQUIVALENTS, beginning of year 0 116,037 128,468
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year $ 88,967 $ 0 $ 116,037
========= ========= =========
The accompanying notes are an integral part of these statements.
F-31
THE RECIPROCAL GROUP BUILDING
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000, AND 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
The Reciprocal Group Building ("Reciprocal Group") is an office building
located in Richmond, Virginia, and is owned by Fund III and Fund IV
Associates, a joint venture between Wells Real Estate Fund III, L.P. ("Fund
III") and Wells Real Estate Fund, IV L.P. ("Fund IV"). As of December 31,
2001 and 2000, Fund III owned 57.2% and Fund IV owned 42.8% of Reciprocal
Group, respectively. Allocations of net income and distributions are made
in accordance with ownership percentages.
Use of Estimates
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.
Income Taxes
Reciprocal Group is not deemed to be a taxable entity for federal income
tax purposes.
Real Estate Assets
Real estate assets held by Reciprocal Group 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 which
could indicate that carrying amounts of real estate assets may not be
recoverable. When events or changes in circumstances are present which
indicate that the carrying amounts of real estate assets may not be
recoverable, management assesses the recoverability of real estate assets
by determining whether the carrying value of such real estate assets will
be recovered through the future cash flows expected from the use of the
asset and its eventual disposition. Management has determined that there
has been no impairment in the carrying value of Reciprocal Group as of
December 31, 2001 or December 31, 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
The lease on Reciprocal Group is classified as an operating lease, and the
related rental income is recognized on a straight-line basis over the term
of the lease.
F-32
Deferred Lease Acquisition Costs
Costs incurred to procure operating leases are capitalized and amortized on
a straight-line basis over the terms of the related leases. Deferred lease
acquisition costs are included in prepaid expenses and other assets, net,
in the accompanying balance sheets.
Cash and Cash Equivalents
For the purposes of the statements of cash flows, Reciprocal Group
considers all highly liquid investments purchased with an original maturity
of three months or less to be cash equivalents. Cash equivalents include
cash and short-term investments. Short-term investments are stated at cost,
which approximates fair value, and consist of investments in money market
accounts.
2. RENTAL INCOME
The future minimum rental income due to Reciprocal Group under
noncancelable operating leases at December 31, 2001 is as follows:
Year ended December 31:
2002 $ 534,608
2003 550,647
2004 567,166
2005 584,181
2006 601,706
Thereafter 1,311,433
----------
$4,149,741
==========
One tenant at Reciprocal Group contributed 100% of rental income for the
year ended December 31, 2001 and represents 100% of the future minimum
rental income above.
3. RELATED-PARTY TRANSACTIONS
Fund III and Fund IV entered into a property management agreement with
Wells Management Company, Inc. ("Wells Management"), an affiliate of Fund
III and Fund IV. In consideration for supervising the management of
Reciprocal Group, Fund III and Fund IV generally pays Wells Management
management and leasing fees equal to (a) 3% of the gross revenues for
management and 3% of the gross revenues for leasing (aggregate maximum of
6%) plus a separate fee for the one-time initial lease-up of newly
constructed properties in an amount not to exceed the fee customarily
charged in arm's-length transactions by others rendering similar services
in the same geographic area for similar properties or (b) in the case of
commercial properties which are leased on a long-term net basis (ten or
more years), 1% of the gross revenues except for initial leasing fees equal
to 3% of the gross revenues over the first five years of the lease term.
Reciprocal Group incurred management and leasing fees and lease acquisition
costs of $19,909, $10,179, and $40,631 for the years ended December 31,
2001, 2000, and 1999, respectively.
4. COMMITMENTS AND CONTINGENCIES
Management, after consultation with legal counsel, is not aware of any
significant litigation or claims against Reciprocal Group and its partners.
In the normal course of business, Reciprocal Group and its partners may
become subject to such litigation or claims.
F-33
EXHIBIT INDEX
-------------
(Wells Real Estate Fund III, L.P.)
The following documents are filed as exhibits to this report. Those
exhibits previously filed and incorporated herein by reference are identified
below by an asterisk. For each such asterisked exhibit, there is shown below the
description of the previous filing. Exhibits which are not required for this
report are omitted.
Exhibit
Number Description of Document
- ------ -----------------------
*4(a) Agreement of Limited Partnership of Wells Real Estate Fund III, L.P.
(Registration Statement of Wells Real Estate Fund III, L.P., Exhibit B
to the Prospectus, File No. 33-24063)
*4(b) Amendment to Agreement of Limited Partnership of Wells Real Estate
Fund III, L.P. (Exhibit 4(a) to Post-Effective Amendment No. 1 to
Registration Statement of Wells Real Estate Fund III, L.P., File No.
33-24063)
*4(c) Second Amendment to Agreement of Limited Partnership of Wells Real
Estate Fund III, L.P. (Exhibit 4(a) to Post-Effective Amendment No. 5
to Registration Statement of Wells Real Estate Fund III, L.P., File
No. 33-24063)
*4(d) Third Amendment to Agreement of Limited Partnership of Wells Real
Estate Fund III, L.P. (Exhibit to Post-Effective Amendment No. 7 to
Registration Statement of Wells Real Estate Fund III, L.P., File No.
33-24063)
*10(a) Management Agreement between Registrant and Wells Management Company,
Inc. (Exhibit to Form 10-K of Wells Real Estate Fund III, L.P. for the
fiscal year ended December 31, 1990, File No. 0-18407)
*10(b) Leasing and Tenant Coordination Agreement between Registrant and Wells
Management Company, Inc. (Exhibit to Form 10-K of Wells Real Estate
Fund III, L.P. for the fiscal year ended December 31, 1990, File No.
0-18407)
*10(c) Purchase Agreement for the Acquisition of the Atrium at Nassau Bay
dated March 1, 1989 (Exhibit 10(i) to Form 10-K of Wells Real Estate
Fund II for the fiscal year ended December 31, 1990, File No. 0-16518)
*10(d) Joint Venture Agreement of Fund II and Fund III Associates dated March
1, 1989 (Exhibit to Post-Effective Amendment No. 2 to Registration
Statement of Wells Real Estate Fund III, L.P., File No. 33-24063)
*10(e) First Amendment to Joint Venture Agreement of Fund II and Fund III
Associates dated April 1, 1989 (Exhibit 10(k) to Form 10-K of Wells
Real Estate Fund II for the fiscal year ended December 31, 1990, File
No. 0-16518)
*10(f) Leases with Lockheed Engineering and Sciences Company, Inc. (Exhibit
10(l) to Form 10-K of Wells Real Estate Fund II for the fiscal year
ended December 31, 1990, File No. 0-16518)
*10(g) Custodial Agency Agreement between Registrant and Citizens and
Southern Trust Company (Georgia), National Association dated January
1, 1990 (Exhibit to Post-Effective Amendment No. 5 to Registration
Statement of Wells Real Estate Fund III, L.P., File No. 33-24063)
*10(h) Purchase Agreement for the Acquisition of the Greenville Property
dated April 10, 1990 (Exhibit to Form 10-K of Wells Real Estate Fund
III, L.P. for the fiscal year ended December 31, 1990, File No.
0-18407)
*10(i) Development Agreement with ADEVCO Corporation dated June 15, 1990
(Exhibit to Form 10-K of Wells Real Estate Fund III, L.P. for the
fiscal year ended December 31, 1990, File No. 0-18407)
*10(j) Construction Contract with McDevitt & Street Company dated May 31,
1990 (Exhibit to Form 10-K of Wells Real Estate Fund III, L.P. for the
fiscal year ended December 31, 1990, File No. 0-18407)
*10(k) Lease with International Business Machines Corporation dated May 15,
1990 (Exhibit to Form 10-K of Wells Real Estate Fund III, L.P. for the
fiscal year ended December 31, 1990, File No. 0-18407)
*10(l) Amended and Restated Joint Venture Agreement of Fund II and Fund III
Associates (Exhibit 10(o) to Form 10-K of Wells Real Estate Fund II
for the fiscal year ended December 31, 1991, File No. 0-16518)
*10(m) Land and Building Lease Agreement between Fund II and Fund II-OW and
Brookwood Grill of Roswell, Inc. (Exhibit 10(p) to Form 10-K of Wells
Real Estate Fund II for the fiscal year ended December 31, 1991, File
No. 0-16518)
2
*10(n) Assignment and Assumption of Lease dated September 20, 1991 between
Fund II and Fund II-OW and Fund II and Fund III Associates (Exhibit
10(q) to Form 10-K of Wells Real Estate Fund II for the fiscal year
ended December 31, 1991, File No. 0-16518)
*10(o) Fund III and Fund IV Associates Joint Venture Agreement dated March
27, 1991 (Exhibit 10(g) to Post-Effective Amendment No. 1 to
Registration Statement of Wells Real Estate Fund IV, L.P. and Wells
Real Estate Fund V, L.P., File No. 33-37830)
*10(p) Agreement of Purchase and Sale dated October 31, 1990 between 675
Industrial Park, Ltd. and The Vlass-Fotos Group, Inc. (Exhibit 10(h)
to Post-Effective Amendment No. 1 to Registration Statement of Wells
Real Estate Fund IV, L.P. and Wells Real Estate Fund V, L.P., File No.
33-37830)
*10(q) Lease dated January 31, 1991 between The Vlass-Fotos Group, Inc. and
The Kroger Co. (Exhibit 10(i) to Post-Effective Amendment No. 1 to
Registration Statement of Wells Real Estate Fund IV, L.P. and Wells
Real Estate Fund V, L.P., File No. 33-37830)
*10(r) Lease Agreement dated January 31, 1991 between The Vlass-Fotos Group,
Inc. and The Kroger Co. (Exhibit 10(j) to Post-Effective Amendment No.
1 to Registration Statement of Wells Real Estate Fund IV, L.P. and
Wells Real Estate Fund V, L.P., File No. 33-37830)
*10(s) First Amendment to Lease dated April 3, 1991 between The Vlass-Fotos
Group, Inc. and The Kroger Co. (Exhibit 10(k) to Post-Effective
Amendment No. 1 to Registration Statement of Wells Real Estate Fund
IV, L.P. and Wells Real Estate Fund V, L.P., File No. 33-37830)
*10(t) First Amendment to Lease Agreement dated April 3, 1991 between The
Vlass-Fotos Group, Inc. and The Kroger Co. (Exhibit 10(l) to
Post-Effective Amendment No. 1 to Registration Statement of Wells Real
Estate Fund IV, L.P. and Wells Real Estate Fund V, L.P., File No.
33-37830)
*10(u) Development Agreement dated April 4, 1991 between Fund III and Fund IV
Associates and The Vlass-Fotos Group, Inc. (Exhibit 10(m) to
Post-Effective Amendment No. 1 to Registration Statement of Wells Real
Estate Fund IV, L.P. and Wells Real Estate Fund V, L.P., File No.
33-37830)
3
*10(v) First Amendment to Joint Venture Agreement of Fund III and IV
Associates dated July 1, 1992 (Exhibit to Form 10-K of Wells Real
Estate Fund III, L.P. for the fiscal year ended December 31, 1992,
File No. 0-18407)
*10(w) Agreement for the Purchase and Sale of Property between Rowe
Properties-Markel, L.P. and Fund III and Fund IV Associates and
Addendum to Agreement for the Purchase and Sale of Property (Exhibit
to Form 10-K of Wells Real Estate Fund III, L.P. for the fiscal year
ended December 31, 1992, File No. 0-18407)
*10(x) Office Lease with G.E. Lighting, Rider No. 1 to Lease, Addendum of
Lease, Second Addendum of Lease, Third Amendment of Lease and Fourth
Amendment to Office Lease (Exhibit to Form 10-K of Wells Real Estate
Fund III, L.P. for the fiscal year ended December 31, 1992, File No.
0-18407)
*10(y) Amended and Restated Custodial Agency Agreement between Wells Real
Estate Fund III, L.P. and NationsBank of Georgia, N.A. dated April 1,
1994 (Exhibit to Form 10-K of Wells Real Estate Fund III, L.P. for the
fiscal year ended December 31, 1994, File No. 0-18407)
*10(z) Joint Venture Agreement of Fund II, III, VI and VII Associates
(Exhibit 10(w) to Form 10-K of Wells Real Estate Fund VI, L.P. for the
fiscal year ended December 31,1995, File No. 0-23656)
4
WELLS REAL ESTATE FUND III, L.P.
(A Georgia Public Limited Partnership)
SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2001
Initial Cost
------------------------- Costs of
Buildings and Capitalized
Description Ownership Encumbrances Land Improvements Improvements
----------- --------- ------------ ---------- ------------- ------------
THE ATRIUM AT NASSAU BAY (a) 39% None $1,367,000 $10,983,000 $ 2,616,628
GREENVILLE PROPERTY (b) 100 None 529,977 0 3,767,924
880 PROPERTY--BROOKWOOD GRILL (c) 38 None 523,319 0 1,494,717
STOCKBRIDGE VILLAGE (d) 57 None 2,551,645 0 7,938,101
RECIPROCAL GROUP (e) 57 None 529,546 4,158,223 1,395,195
880 PROPERTY (f) 9 None 1,325,242 0 5,718,159
---------- ----------- -----------
Total $6,826,729 $15,141,223 $22,930,724
========== =========== ===========
Gross Amount at Which Carried at December 31, 2001
-------------------------------------------------------------
Buildings and Construction
Description Land Improvements in Progress Total
----------- ---------- ------------- ------------ -----------
THE ATRIUM AT NASSAU BAY (a) $1,504,743 $13,456,733 $5,150 $14,966,626
GREENVILLE PROPERTY (b) 576,350 3,721,551 0 4,297,901
880 PROPERTY--BROOKWOOD GRILL (c) 745,223 1,272,813 0 2,018,036
STOCKBRIDGE VILLAGE (d) 2,758,193 7,731,314 238 10,489,745
RECIPROCAL GROUP (e) 573,582 5,509,381 0 6,082,963
880 PROPERTY (f) 1,325,242 5,718,159 0 7,043,401
---------- ----------- ------ -----------
Total $7,483,333 $37,409,951 $5,388 $44,898,672
========== =========== ====== ===========
Life on Which
Accumulated Date of Date Depreciation
Description Depreciation Construction Acquired Is Computed (g)
----------- ------------- ------------ -------- ---------------
THE ATRIUM AT NASSAU BAY (a) $ 7,889,603 1988 04/03/89 12 to 25 years
GREENVILLE PROPERTY (b) 1,434,858 1990 06/30/90 20 to 25 years
880 PROPERTY--BROOKWOOD GRILL (c) 490,319 1991 03/27/91 20 to 25 years
STOCKBRIDGE VILLAGE (d) 2,955,806 1991 04/04/91 20 to 25 years
RECIPROCAL GROUP (e) 1,642,014 1991 07/01/92 20 to 25 years
880 PROPERTY (f) 1,969,079 1996 01/31/90 20 to 25 years
-----------
Total $16,381,679
===========
(a) The Atrium at Nassau Bay is a four-story office building located in
Houston, Texas. It is owned by Fund II and III Associates.
(b) The Greenville Project is a two-story office building located in
Greenville, North Carolina, owned entirely by the Partnership.
(c) The 880 Property--Brookwood Grill is a 7,440-square-foot restaurant located
in Fulton County, Georgia. It is owned by Fund II and III Associates.
(d) Stockbridge Village is a 13.62-acre retail shopping center located in
Stockbridge, Georgia. It is owned by Fund III and IV Associates.
(e) The Reciprocal Group is a 43,000-square-foot office building located in
Richmond, Virginia. It is owned by Fund III and IV Associates.
(f) The 880 Property is an office-retail shopping center located in Roswell,
Georgia. It is owned by Fund II, III, VI, and VII Associates.
(g) Depreciation lives used for buildings were 40 years through September 1995,
changed to 25 years thereafter. Depreciation lives used for land
improvements are 12 to 20 years.
WELLS REAL ESTATE FUND III, L.P.
(A Georgia Public Limited Partnership)
SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2001
Accumulated
Cost Depreciation
----------- ------------
BALANCE AT DECEMBER 31, 1997 $43,365,642 $ 8,450,458
1998 additions 251,771 1,999,481
----------- -----------
BALANCE AT DECEMBER 31, 1998 43,617,413 10,449,939
1999 additions 30,462 1,988,289
----------- -----------
BALANCE AT DECEMBER 31, 1999 43,647,875 12,438,228
2000 additions 432,593 2,015,879
----------- -----------
BALANCE AT DECEMBER 31, 2000 44,080,468 14,454,107
2001 additions 818,204 1,976,113
2001 deletions 0 (48,541)
----------- -----------
BALANCE AT DECEMBER 31, 2001 $44,898,672 $16,381,679
=========== ===========
S-2