Back to GetFilings.com



Table of Contents
 
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form 10-Q
 
(Mark One)
 
        x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
              SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2002
 
or
 
        ¨  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
              SECURITIES EXCHANGE  ACT OF 1934
 
For the transition period from __________ to __________
 
Commission file number 0-30287
 
 
WELLS REAL ESTATE FUND XII, L.P.
(Exact name of registrant as specified in its charter)
 
Georgia
  
58-2438242
(State of other jurisdiction of incorporation or organization)
  
(I.R.S. Employer Identification No.)
     
6200 The Corners Parkway, Suite 250,
Norcross, Georgia
  
30092
(Address of principal executive offices)
  
(Zip Code)
     
Registrant’s telephone number, including area code (770) 449-7800
 
(Former name, former address and former fiscal year, if changed since last report)
 
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  ¨
 

Table of Contents
FORM 10-Q
 
WELLS REAL ESTATE FUND XII, L.P.
 
INDEX
 
           
Page No.
PART I.
          
Item 1.
        
  3
         
  4
         
  5
         
  6
         
  7
         
  8
Item 2.
        
12
PART II.
        
15
    
16
      
      
             

2

Table of Contents
PART I.     FINANCIAL INFORMATION
 
Effective July 3, 2002, Wells Real Estate Fund XII (the “Partnership”) engaged Ernst & Young LLP (“Ernst & Young”) as its principal accountants to audit the Partnership’s financial statements. In accordance with the relief granted to former auditing clients of Arthur Andersen LLP in SEC Release No. 34-45589, Ernst & Young completed its review of the unaudited financial statements of the Partnership for the quarter ended March 31, 2002 pursuant to Rule 10-01(d) of Regulation S-X within the 60-day period allowed pursuant to the SEC Release, and no material modifications to the previously reported financial information were required.

3

Table of Contents
WELLS REAL ESTATE FUND XII, L.P.
 
(A Georgia Public Limited Partnership)
 
BALANCE SHEETS
 
    
(unaudited)
June 30,
2002
   
December 31,
2001
ASSETS:
              
Investments in joint ventures (Note 2)
   
$
29,535,172
   
$
30,003,597
Cash and cash equivalents
   
 
15,338
   
 
32,627
Due from affiliates
   
 
709,988
   
 
687,112
Accounts receivable
   
 
4,468
   
 
2,867
    
  
Total assets
   
$
30,264,966
   
$
30,726,203
    
  
LIABILITIES AND PARTNERS’ CAPITAL
              
Liabilities:
              
Accounts payable
   
$
1,098
   
$
2,490
Due to affiliates
   
 
60,000
   
 
0
Partnership distribution payable
   
 
673,285
   
 
659,919
    
  
Total liabilities
   
 
734,383
   
 
662,409
    
  
Partners’ capital:
              
Limited partners:
              
Cash Preferred—2,829,896 units and 2,778,607 units outstanding as of June 30, 2002 and December 31, 2001, respectively
   
 
24,987,661
   
 
24,613,370
Tax Preferred—731,223 units and 782,512 units outstanding as of June 30, 2002 and December 31, 2001, respectively
   
 
4,542,922
   
 
5,450,424
    
  
Total partners’ capital
   
 
29,530,583
   
 
30,063,794
    
  
Total liabilities and partners’ capital
   
$
30,264,966
   
$
30,726,203
    
  
 
The accompanying notes are an integral part of these balance sheets.

4

Table of Contents
WELLS REAL ESTATE FUND XII, L.P.
 
(A Georgia Public Limited Partnership)
 
STATEMENTS OF INCOME
 
    
(unaudited)
Three Months Ended
     
(unaudited)
Six Months Ended
  
    
June 30, 2002
     
June 30, 2001
     
June 30, 2002
     
June 30, 2001
  
REVENUES:
                                    
Equity in income of joint ventures (Note 2)
   
$
477,163
 
   
$
362,492
 
   
$
924,908
 
   
$
687,065
 
Interest income
   
 
0
 
   
 
46,607
 
   
 
628
 
   
 
82,175
 
    
  
  
  
    
 
477,163
 
   
 
409,099
 
   
 
925,536
 
   
 
769,240
 
    
  
  
  
EXPENSES:
                                    
Partnership administration
   
 
95,490
 
   
 
22,187
 
   
 
109,049
 
   
 
33,623
 
Legal and accounting
   
 
2,427
 
   
 
4,157
 
   
 
9,363
 
   
 
12,807
 
Computer costs
   
 
1,632
 
   
 
4,295
 
   
 
3,455
 
   
 
5,495
 
    
  
  
  
    
 
99,549
 
   
 
30,639
 
   
 
121,867
 
   
 
51,925
 
    
  
  
  
NET INCOME
   
$
377,614
 
   
$
378,460
 
   
$
803,669
 
   
$
717,315
 
    
  
  
  
NET INCOME ALLOCATED TO CASH PREFERRED LIMITED PARTNERS
   
$
650,353
 
   
$
634,064
 
   
$
1,353,925
 
   
$
1,179,956
 
    
  
  
  
NET LOSS ALLOCATED TO TAX PREFERRED LIMITED PARTNERS
   
$
(272,739
)
   
 
(255,604
)
   
$
(550,256
)
   
$
(462,641
)
    
  
  
  
NET INCOME PER WEIGHTED AVERAGE CASH PREFERRED LIMITED PARTNER UNIT
   
$
0.23
 
   
$
0.27
 
   
$
0.48
 
   
$
0.50
 
    
  
  
  
NET LOSS PER WEIGHTED AVERAGE TAX PREFERRED LIMITED PARTNER UNIT
   
$
(0.37
)
   
$
(0.33
)
   
$
(0.74
)
   
$
(0.60
)
    
  
  
  
CASH DISTRIBUTION PER CASH PREFERRED LIMITED PARTNER UNIT
   
$
0.24
 
   
$
0.26
 
   
$
0.48
 
   
$
0.47
 
    
  
  
  
 
The accompanying notes are an integral part of these statements.

5

Table of Contents
WELLS REAL ESTATE FUND XII, L.P.
 
(A Georgia Public Limited Partnership)
 
STATEMENTS OF PARTNERS’ CAPITAL
 
FOR THE YEAR ENDED DECEMBER 31, 2001 AND
 
FOR THE SIX MONTHS ENDED JUNE 30, 2002 (UNAUDITED)
 
 
    
Limited Partners
     
Total Partners’ Capital
  
    
Cash Preferred
     
Tax Preferred
     
    
Units
   
Amounts
     
Units
     
Amounts
     
BALANCE at December 31, 2000
   
1,881,142
   
$
16,589,551
 
   
617,434
 
   
$
5,033,781
 
   
$
21,623,332
 
Net income (loss)
   
0
   
 
2,591,027
 
   
0
 
   
 
(1,035,609
)
   
 
1,555,418
 
Partnership distributions
   
0
   
 
(2,412,208
)
   
0
 
   
 
0
 
   
 
(2,412,208
)
Limited partner contributions
   
823,918
   
 
8,239,183
 
   
238,625
 
   
 
2,386,248
 
   
 
10,625,431
 
Sales commissions and discounts
   
0
   
 
(782,723
)
   
0
 
   
 
(226,693
)
   
 
(1,009,416
)
Other offering expenses
   
0
   
 
(247,176
)
   
0
 
   
 
(71,587
)
   
 
(318,763
)
Tax preferred conversions
   
73,547
   
 
635,716
 
   
(73,547
)
   
 
(635,716
)
   
 
0
 
    
  
  
  
  
BALANCE at December 31, 2001
   
2,778,607
   
 
24,613,370
 
   
782,512
 
   
 
5,450,424
 
   
 
30,063,794
 
Net income (loss)
   
0
   
 
1,353,925
 
   
0
 
   
 
(550,256
)
   
 
803,669
 
Partnership distributions
   
0
   
 
(1,336,880
)
   
0
 
   
 
0
 
   
 
(1,336,880
)
Tax preferred conversions
   
51,289
   
 
357,246
 
   
(51,289
)
   
 
(357,246
)
   
 
0
 
    
  
  
  
  
BALANCE at June 30, 2002 (unaudited)
   
2,829,896
   
$
24,987,661
 
   
731,223
 
   
$
4,542,922
 
   
$
29,530,583
 
    
  
  
  
  
 
The accompanying notes are an integral part of these statements.

6

Table of Contents
WELLS REAL ESTATE FUND XII, L.P.
 
(A Georgia Public Limited Partnership)
 
STATEMENTS OF CASH FLOWS
 
    
(unaudited)
Six Months Ended
  
    
June 30, 2002
     
June 30, 2001
  
CASH FLOWS FROM OPERATING ACTIVITIES:
                  
Net income
   
$
803,669
 
   
$
717,315
 
Adjustments to reconcile net income to net cash used in operating activities:
                  
Equity in income of joint ventures
   
 
(924,908
)
   
 
(687,065
)
Changes in assets and liabilities:
                  
Due to affiliates
   
 
60,000
 
   
 
(23,989
)
Accounts payable
   
 
(1,392
)
   
 
(1,588
)
Accounts receivable
   
 
(1,601
)
   
 
(14,378
)
    
  
Net cash used in operating activities
   
 
(64,232
)
   
 
(9,705
)
    
  
CASH FLOW FROM INVESTING ACTIVITIES:
                  
Investments in joint ventures
   
 
0
 
   
 
(8,926,156
)
Deferred project costs
   
 
0
 
   
 
(371,900
)
Distributions received from joint ventures
   
 
1,370,457
 
   
 
776,331
 
    
  
Net cash provided by (used in) investing activities
   
 
1,370,457
 
   
 
(8,521,725
)
    
  
CASH FLOW FROM FINANCING ACTIVITIES:
                  
Limited partners’ contributions
   
 
0
 
   
 
10,625,430
 
Sales commissions
   
 
0
 
   
 
(1,055,481
)
Offering costs
   
 
0
 
   
 
(318,763
)
Distributions to partners
   
 
(1,323,514
)
   
 
(884,431
)
    
  
Net cash (used in) provided by financing activities
   
 
(1,323,514
)
   
 
8,366,755
 
    
  
NET DECREASE IN CASH AND CASH EQUIVALENTS
   
 
(17,289
)
   
 
(164,675
)
CASH AND CASH EQUIVALENTS, beginning of year
   
 
32,627
 
   
 
208,319
 
    
  
CASH AND CASH EQUIVALENTS, end of period
   
$
15,338
 
   
$
43,644
 
    
  
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
                  
Reversal of deferred offering costs due to affiliate
   
$
0
 
   
$
180,409
 
    
  
 
The accompanying notes are an integral part of these statements.

7

Table of Contents
WELLS REAL ESTATE FUND XII, L.P.
 
(A Georgia Public Limited Partnership)
 
CONDENSED NOTES TO FINANCIAL STATEMENTS
 
JUNE 30, 2002 (UNAUDITED)
 
1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
(a)    Organization and Business
 
Wells Real Estate Fund XII, L.P. (the “Partnership”) is a Georgia public limited partnership having Leo F. Wells, III and Wells Partners, L.P. (“Wells Partners”), a Georgia non-public limited partnership, as the General Partners. The Partnership was formed on September 15, 1998 for the purpose of acquiring, developing, constructing, owning, operating, improving, leasing and otherwise managing income-producing commercial properties for investment purposes. Each limited partner must elect whether to have his units treated as Cash Preferred units or Tax Preferred units. Thereafter, the limited partners have the right to change their prior elections to have some or all of their units treated as Cash Preferred units or Tax Preferred units one time during each quarterly accounting period. The 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, (c) remove a General Partner, (d) elect a new General Partner, (e) dissolve the Partnership, and (f) approve a sale involving all or substantially all of the Partnership’s assets, subject to certain limitations. The majority vote on any of the matters described above will bind the Partnership without the concurrence of the General Partners. Each limited partnership unit has equal voting rights regardless of class.
 
On March 22, 1999, the Partnership commenced a public offering of up to $70,000,000 of limited partnership units pursuant to a Registration Statement on filed Form S-11 under the Securities Act of 1933. The Partnership commenced active operations on June 1, 1999 upon receiving and accepting subscriptions for 125,000 units. The offering was terminated on March 21, 2001 at which time the Partnership had sold 2,688,861 Cash Preferred units and 872,258 Tax Preferred units for $10 per unit held by a total of 1,227 and 106 Cash Preferred and Tax Preferred limited partners, respectively. As of June 30, 2002, the Partnership had paid a total of $1,246,403 in acquisition and advisory fees and acquisition expenses, $4,451,400 in selling commissions and organization and offering expenses, and had invested $5,300,000 in Fund XI-XII-REIT Associates and $24,613,401 in Fund XII-REIT Associates.
 
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK)

8

Table of Contents
 
The Partnership owns interests in all of its real estate assets through joint ventures with other Wells entities. As of June 30, 2002, the Partnership owned interests in the following seven properties through the affiliated joint ventures listed below:
 
Joint Venture
  
Joint Venture Partners
  
Properties
Fund XI-XII-REIT Associates
  
—Wells Real Estate Fund XI, L.P.
—Wells Real Estate Fund XII, L.P.
—Wells Operating Partnership, L.P.*
  
1.  Eybl Cartex Building
    A two-story manufacturing and office building located in Fountain Inn, South Carolina
2.  Sprint Building
    A three-story office building located in Leadwood, Johnson County, Kansas
3.  Johnson Matthey Building
    A one-story office building and warehouse located in Tredyffin Township, Chester County, Pennsylvania
4.  Gartner Building
    A two-story office building located in Ft. Myers, Lee County, Florida
Fund XII-REIT Associates
  
—Wells Real Estate Fund XII, L.P.
—Wells Operating Partnership, L.P.*
  
5.  Siemens Building
    A three-story office building located in Troy, Oakland County, Michigan
6.  AT&T Oklahoma Building
    A one-story office building and a two-story office building located in Oklahoma City, Oklahoma County, Oklahoma
7.  Comdata Building
    A three-story office building located in Williamson County, Brentwood, Tennessee
 
*
 
Wells Operating Partnership, L.P. is a Delaware limited partnership with Wells Real Estate Investment Trust, Inc. serving as its general partner; Wells REIT is a Maryland corporation that qualifies as a real estate investment trust.
 
Each of the foregoing properties was acquired on an all cash basis. For further information regarding the above joint ventures and properties, refer to the report filed for the Partnership on Form 10-K for the year ended December 31, 2001.
 
(c )    Basis of Presentation
 
The financial statements of the Partnership have been prepared in accordance with the instructions for Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles (“GAAP”) for complete financial statements. The quarterly statements have not been examined by independent accountants. However, in the opinion of the General Partners, the statements for the unaudited interim periods presented include all adjustments that are of a normal and recurring nature and necessary to fairly present the results for these periods. Interim results for 2002 are not necessarily indicative of results for the year. For further information, refer to the financial statements and footnotes included in the report filed for the Partnership on Form 10-K for the year ended December 31, 2001.

9

Table of Contents
 
(c)    Distribution of Net Cash From Operations
 
As defined by the partnership agreement, cash available for distributions is distributed quarterly to the limited partners as follows:
 
 
•
 
First, to all Cash Preferred limited partners until such limited partners have received distributions equal to a 10% per annum return on their respective net capital contributions, as defined.
 
 
•
 
Second, to the General Partners until each general partner has received distributions equal to 10% of the total cumulative distributions declared by the Partnership to date.
 
 
•
 
Third, to the Cash Preferred limited partners and the General Partners allocated on a basis of 90% and 10%, respectively.
 
No distributions will be made to the limited partners holding Class B units.
 
(d)    Impairment of Real Estate Assets
 
On January 1, 2002, the Partnership adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Under the new guidance, management reviews each of the properties in which it holds an interest for impairment when there is an event or change in circumstances that indicates the carrying amount of the asset may not be recoverable and the future undiscounted cash flows expected to be generated by the asset are less than its carrying amount. If such assets are considered to be impaired, the Partnership records impairment losses and reduces the carrying amount of impaired assets to an amount that reflects the fair value of the assets at the time impairment is evident. Management also reviews estimated selling prices of assets held for sale and records impairment losses to reduce the carrying amount of assets held for sale when the carrying amounts exceed the estimated selling prices less costs to sell. Also, material long-lived assets held for sale are separately identified in the balance sheets and their related net operating income is segregated as income from discontinued operations in the statements of income. In addition, depreciation of long-lived assets held for sale is not recorded. If an asset held for sale reverts to an asset used in operations, the asset will be measured at the lower of the original carrying cost, adjusted for the forgone depreciation, or the fair value at the date of the decision to hold the asset.
 
2.    INVESTMENTS IN JOINT VENTURES
 
(a)    Basis of Presentation
 
As of June 30, 2002, the Partnership owned interests in seven properties through its ownership in the joint ventures as described in Note 1. The Partnership does not have control over the operations of these joint ventures; however, it does exercise significant influence. Accordingly, investments in joint ventures are recorded using the equity method of accounting. For further information regarding investments in joint ventures, see the report filed for the Partnership on Form 10-K for the year ended December 31, 2001.

10

Table of Contents
 
(b)    Summary of Operations
 
The following information summarizes the operations of the unconsolidated joint ventures in which the Partnership held ownership interests for three and six months ended June 30, 2002 and 2001:
 
    
Total Revenues
   
Net Income
   
Partnership’s
Share of Net Income
    
Three Months Ended
   
Three Months Ended
   
Three Months Ended
    
June 30,
2002
   
June 30,
2001
   
June 30,
2002
   
June 30,
2001
   
June 30,
2002
   
June 30,
2001
Fund XI-XII-REIT Associates
   
$
877,713
   
$
847,857
   
$
545,009
   
$
499,960
   
$
93,137
   
$
85,440
Fund XII-REIT Associates
   
 
1,422,140
   
 
1,102,873
   
 
852,672
   
 
587,864
   
 
384,026
   
 
277,052
    
  
  
  
  
  
    
$
2,299,853
   
$
1,950,730
   
$
1,397,681
   
$
1,087,824
   
$
477,163
   
$
362,492
    
  
  
  
  
  
 
 
    
Total Revenues
   
Net Income
   
Partnership’s
Share of Net Income
    
Six Months Ended
   
Six Months Ended
   
Six Months Ended
    
June 30,
2002
   
June 30,
2001
   
June 30,
2002
   
June 30,
2001
   
June 30,
2002
   
June 30,
2001
Fund XI-XII-REIT Associates
   
$
1,717,083
   
$
1,689,371
   
$
1,042,158
   
$
1,014,237
   
$
178,094
   
$
173,326
Fund XII-REIT Associates
   
 
2,821,413
   
 
1,896,195
   
 
1,658,185
   
 
1,033,184
   
 
746,814
   
 
513,739
    
  
  
  
  
  
    
$
4,538,496
   
$
3,585,566
   
$
2,700,343
   
$
2,047,421
   
$
924,908
   
$
687,065
    
  
  
  
  
  
 
 
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK)

11

Table of Contents
 
ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATION.
 
The following discussion and analysis should be read in conjunction with the Partnership’s accompanying financial statements and notes thereto.
 
(a)    Forward-Looking Statements
 
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 may cause actual results to differ materially from any forward-looking statements made in this report, including construction costs that 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 flows.
 
(b)    Results of Operations
 
Gross Revenues
Gross revenues increased to $925,536 for the six months ended June 30, 2002 from $769,240 for the six months ended June 30, 2001 primarily due to an increase in income generated from the Comdata Building, as it was acquired in May 2001, partially offset by (i) a decrease in interest income resulting from capital contributions to Fund XII-REIT Associates for the purchase of the Comdata Building in May 2001 and (ii) increased depreciation expense for the Comdata Building.
 
Expenses
Expenses increased to $121,867 for the six months ended June 30, 2002 from $51,925 for the six months ended June 30, 2001 primarily as a result of Tennessee Partnership franchise and excise taxes assessed for 2001 and 2002 during the second quarter of 2002.
 
As a result, net income increased to $803,669 for the six months ended June 30, 2002 from $717,315 for the same period in 2001.
 
Distributions
The Partnership declared cash distributions to limited partners holding Cash Preferred units of $0.48 and $0.47 per unit for the six months ended June 30, 2002 and 2001, respectively. The General Partners anticipate that distributions per unit to limited partners holding Cash Preferred units will continue in 2002 at a level at least comparable with 2001 cash distributions on an annual basis. No cash distributions were declared to limited partners holding Tax Preferred units.
 
(c)    Liquidity and Capital Resources
 
Net cash used in operating activities increased to $64,232 for the six months ended June 30, 2002 from $9,705 for the six months ended June 30, 2001 primarily due to the increase in expenses and reduction of interest income describe above. Net cash flows from investing activities increased to $1,370,457 provided for the six months ended June 30, 2002 compared to $8,521,725 used for the six months ended June 30, 2001 due to (i) capital contributions to Fund XII-REIT Associates for the purchase of the Comdata Building in the second quarter of 2001, (ii) additional distributions received from joint ventures in 2002, the majority of which has been generated from the Comdata Building,

12

Table of Contents
and (iii) the payment of deferred project costs to Wells Capital, Inc., an affiliate of the general partners, pursuant to the terms of the Partnership’s prospectus, as capital was raised during the six months period ended June 30, 2001. Net cash flows from financing activities decreased to $(1,323,514) used for the six months ended June 30, 2002 compared to $8,366,755 provided for the six months ended June 30, 2001 primarily as a result of terminating the Partnership’s public offering of limited partnership units on March 21, 2001, offset by the payment of additional distributions to limited partners commensurate with the increase in cash flows received from joint ventures during the same period.
 
The Partnership expects to continue to meet its short-term liquidity requirements and budget demands and provide for distributions to limited partners generally through net cash flows provided from operations and received from joint ventures. While there is no assurance, the Partnership anticipates that distributions will continue to be paid to limited partners on a quarterly basis for the remainder of 2002 from such sources at a level at least comparable with those provided for the first quarter of 2002. The Partnership is unaware of any known 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 a material way.
 
(d)    Inflation
 
The real estate market has not been affected significantly by inflation in the past three years due to the relatively low inflation rate. Most tenant leases contain provisions for common area maintenance, real estate tax and insurance reimbursements from tenants either on a per square foot basis, or above a certain allowance per square foot annually, which should reduce the Partnership’s exposure to increases in costs and other operating expenses resulting from the impact of inflation.
 
(e)    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 judgments in the application of accounting policies, including making estimates and assumptions. These judgments may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the financial statements presented and the reported amounts of revenues and expenses during the respective 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.
 
The accounting policies that we consider to be critical, in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain, are discussed below. For further information related to the Partnership’s accounting policies, including the critical accounting policies described below, refer to the report filed for the Partnership on Form 10-K for the year ended December 31, 2001.
 
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 through its investments in joint ventures on a straight-line basis over the terms of the respective leases. Should tenants encounter financial difficulties in future periods, the amounts recorded as receivables may not be fully realized.

13

Table of Contents
 
Operating Cost Reimbursements
 
The Partnership generally bills tenants for operating cost reimbursements through its investments in joint ventures on a monthly basis at amounts estimated largely based on actual prior period activity and the respective tenant 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 tenant lease terms. Should tenants encounter financial difficulties in future periods, the amounts recorded as receivables may not be fully 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 ownership interests through its 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 underlying assets, estimated at amounts equal to the future undiscounted operating cash flows expected to be generated from tenants over the life of the assets and from their eventual disposition, to the carrying value of the assets. 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 2002, 2001 or 2000.
 
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK)

14

Table of Contents
 
PART II— OTHER INFORMATION
 
ITEM 6 (b.)  During the second quarter of 2002, the Registrant filed a Current Report on Form 8-K dated May 16, 2002 disclosing the dismissal of Arthur Andersen LLP as its independent public accountants.
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
       
WELLS REAL ESTATE FUND XII, L.P.
(Registrant)
Date:    August 12, 2002
      
By:
  
/s/ Leo F. Wells, III
               
Leo F. Wells, III
as Individual General Partner and
as President, of Wells Capital, Inc.,
the General Partner of Wells Partners, L.P.
 
Date:    August 12, 2002
      
By:
  
/s/ Douglas P. Williams
               
As Chief Financial Officer

15

Table of Contents
 
EXHIBIT INDEX
TO
SECOND QUARTER FORM 10-Q
OF
WELLS REAL ESTATE FUND XII, L.P.
 
Exhibit No.
   
Description
99.1
   
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2
   
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 

16