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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, 1996 or
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[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period to
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Commission file number 0-18407
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Wells Real Estate Fund III, L.P.
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(Exact name of registrant as specified in its charter)
Georgia 58-1800833
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(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
3885 Holcomb Bridge Road, Norcross Georgia 30992
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (770) 449-7800
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
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NONE NONE
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Securities registered pursuant to Section 12(g) of the Act:
CLASS A UNITS
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(Title of Class)
CLASS B UNITS
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Aggregate market value of the voting stock held by non-affiliates: Not
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Applicable
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PART I
ITEM 1. BUSINESS
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GENERAL
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Wells Real Estate Fund III, L.P. (the "Partnership") is a Georgia public limited
partnership having Leo F. Wells, III and Wells Capital, Inc., a Georgia
corporation, as General Partners. The Partnership was formed on July 31, 1988,
for the purpose of acquiring, developing, constructing, owning, operating,
improving, leasing and otherwise managing for investment purposes income-
producing commercial or industrial properties.
On October 24, 1988, the Partnership commenced a public offering of its limited
partnership units pursuant to a Registration Statement filed on Form S-11 under
the Securities Act of 1933. The Partnership terminated its offering on October
23, 1990, and received gross proceeds of $22,206,319 representing subscriptions
from 2,700 Limited Partners, composed of two classes of limited partnership
interests, Class A and Class B limited partnership units.
As of December 31, 1996, the Partnership owned interests in the following
properties: (i) the Greenville Property, an office building in Greenville,
North Carolina, (ii) the Atrium, an office building in Houston, Texas, (iii) the
Brookwood Grill, a restaurant located in Roswell, Georgia, (iv) the Stockbridge
Village Shopping Center, a retail shopping center located in Stockbridge,
Georgia, southeast of Atlanta, (v) the G.E. Office Building located in Richmond,
Virginia, and (vi) an office/retail center currently being developed in Roswell,
Georgia. All of the foregoing properties were acquired on an all cash basis and
are described in more detail in Item 2 below. The lease on the Atrium Building
in Houston, which contributes a significant proportion of the revenue to the
Partnership, expired in June 1996, and although the Partnership has responded to
various potential tenants regarding leasing the Atrium, no leases have been
signed as of December 31, 1996 (see the detailed discussion in Item 2,
Properties).
EMPLOYEES
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The Partnership has no direct employees. The employees of Wells Capital, Inc.,
a General Partner of the Partnership, perform a full range of real estate
services including leasing and property management, accounting, asset management
and investor relations for the Partnership. See Item 11 - "Compensation of
General Partners and Affiliates" for a summary of the compensation and fees paid
to the General Partners and their affiliates during the fiscal year ended
December 31, 1996.
INSURANCE
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Wells Management Company, Inc., an affiliate of the General Partner, carries
comprehensive liability and extended coverage with respect to all the properties
owned directly or indirectly by the Partnership. In the opinion of management
of the registrant, the properties are adequately insured.
2
COMPETITION
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The Partnership will experience competition for tenants from owners and managers
of competing projects which may include the General Partners and their
affiliates. As a result, the Partnership may be required to provide free rent,
reduced charges for tenant improvements and other inducements, all of which may
have an adverse impact on results of operations. At the time the Partnership
elects to dispose of its properties, the Partnership will also be in competition
with sellers of similar properties to locate suitable purchasers for its
properties.
ITEM 2. PROPERTIES
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The Partnership owns six properties directly or through its ownership in joint
ventures of which three are office buildings, one a restaurant, one a retail
building and one a retail/office project under construction. The Partnership
does not have control over the operations of the joint ventures; however, it
does exercise significant influence. Accordingly, investment in joint ventures
is recorded on the equity method. As of December 31, 1996, these properties
were 98.20% occupied, up from 97.25% at December 31, 1995, down from 99.40% at
December 31, 1994, and down from 98.60% at years ending 1993 and 1992.
The following table shows lease expirations during each of the next ten years
for all leases as of December 31, 1996, assuming no exercise of renewal options
or termination rights:
Partnership Percentage of
Share of Total
Number of Annualized Annualized Percentage of Annualized
Year of Lease Leases Square Feet Gross Base Rent Gross Base Rent Total Square Gross Base Rent
Expiration Expiring Expiring (1) (1) Feet Expiring
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1997 10 24,469 314,220 212,500 16.06% 13.10%
1998 5 14,138 162,096 107,762 9.28% 6.76%
1999 7 14,721 216,819 60,989 9.66% 9.04%
2000(2) 1 43,000 527,424 302,302 28.23% 22.00%
2001(3) 5 35,486 678,801 489,842 23.30% 28.31%
2002 3 14,570 376,085 171,413 9.57% 15.68%
2003 0 0 0 0 .00% 0.00%
2004 0 0 0 0 .00% 0.00%
2005 0 0 0 0 .00% 0.00%
2006 1 5,935 122,294 11,581 3.90% 5.10%
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32 152,319 $2,397,739 $1,356,488 100.00% 100.00%
(1) Average monthly gross rent over the life of the lease, annualized.
(2) Expiration of General Electric.
(3) Expiration of IBM with 23,322 square feet at the Greenville Property and
the Brookwood Grill with 7,440 square feet.
3
The following describes the properties in which the Partnership owns an interest
as of December 31, 1996:
The Greenville Property/ Fund III
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On June 30, 1990, the Partnership acquired a 2.34 acre tract of land located in
Greenville, North Carolina (the "Greenville Property") for a purchase price of
the land of $576,350, including acquisition expenses for the purpose of
developing, constructing and operating a two-story office building containing
approximately 34,300 rentable square feet. As of December 31, 1996, the
Partnership had expended approximately $3,778,000 for the acquisition,
development and construction of the Greenville Project.
The occupancy rate at the Greenville Property was 100% in 1996, 100% in 1995,
100% in 1994, 95% in 1993, and 94% in 1992.
The average effective annual rental per square foot at the Greenville Property
was $17.40 for 1996, $17.01 for 1995, $16.73 for 1994, $16.74 for 1993, and
$14.91 for 1992.
Two tenants occupy ten percent or more of the rentable square footage -
International Business Machines Corporation ("IBM"), a computer sales and
service corporation and Team YASNY (McDonald's) a fast-food restaurant chain.
The Partnership entered into a net lease with IBM for a portion of the first
floor and the entire second floor of the Greenville Property representing
approximately 23,300 rentable square feet or approximately 67% of the Greenville
Project. The initial term of the IBM lease is nine years and ten months and
commenced in April of 1991. IBM has the option to extend the initial term of
the lease for two consecutive five-year periods. The annual base rent payable
under the IBM lease is $462,242, net of all expenses of operation, and is
payable in monthly installments of $38,520.17. The annual base rent will
increase in the sixth year of the initial term of the lease to $478,101 payable
in equal monthly installments of $39,841.75 and will remain constant for each of
the subsequent years in the initial term of the lease. In addition to the base
rent, IBM is required to pay additional rent equal to its share of all operating
expenses during the lease term.
The lease provides IBM with the right of first refusal to purchase the
Greenville Project should the Partnership receive a bona fide offer from the
third party to purchase the Greenville Project during the term of the lease.
IBM also has the right of first refusal to lease all or a portion of any space
which may from time to time become available. The IBM lease also provides that
the Partnership will not lease or consent to any sublease to any entity which,
as a major part of its business engages in sales and services similar to those
of IBM.
Team YASNY's original lease represented 3,122 rentable square feet. In 1994,
Team YASNY expanded and increased their rentable space on additional 1,232
square feet for a total of 4,354 rentable square feet. The Team YASNY lease
calls for an annual rent of $50,150 in 1995, $51,717 in 1996, and $53,200 in
1997. The Team YASNY lease expires September 30, 1997.
4
The Atrium/Fund II - Fund III Joint Venture
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On April 3, 1989, the Fund II and Fund II-OW Joint Venture entered into a Joint
Venture (the "Fund II-Fund III Joint Venture") with Wells Real Estate Fund III,
L.P. ("Wells Fund III"), a Georgia public limited partnership affiliated with
the Partnership through common general partners. The investment objectives of
the Joint Venture are substantially identical to those of the Partnership.
In April 1989, the Fund II-Fund III Joint Venture acquired a four-story office
building located on a 5.6 acre tract of land adjacent to the Johnson Space
Center in metropolitan Houston, in Nassau Bay, Harris County, Texas, known as
"The Atrium at Nassau Bay" (the "Atrium").
The funds used by the Fund II-Fund III Joint Venture to acquire the Atrium were
derived from capital contributions made to the Fund II-Fund III Joint Venture by
the Fund II-Fund II-OW Joint Venture and Wells Fund III in the amounts of
$8,327,856 and $2,538,000, respectively, for total initial capital contributions
of $10,865,856. As of December 31, 1996, the Fund II-Fund II-OW Joint Venture
and the Partnership had made total capital contributions to the Fund II-Fund III
Joint Venture of approximately $8,330,000 and $4,448,000, respectively, for the
acquisition and development of the Atrium. The Fund II-Fund II-OW Joint Venture
holds an approximately 66% equity interest in the Fund II-Fund III Joint
Venture, and the Partnership holds approximately 34% equity interest in the Fund
II-Fund III Joint Venture.
The Atrium was first occupied in 1987 and contains approximately 119,000 net
rentable square feet. Each floor of the Atrium was originally under a separate
lease to Lockheed Engineering and Science Company, Inc., a wholly-owned
subsidiary of the Lockheed Company, each of which leases had terms of
approximately eight years and expired on June 30, 1996.
Since Lockheed vacated the building as of June 30, 1996, the occupancy rate of
the Atrium Property as of December 31, 1996 was 0% and 100% for 1992 through
1995. The average annual effective rate was $8.81 for 1996, and $17.47 for 1992
through 1995. As set forth above, the lease with Lockheed Company expired on
June 30, 1996, and although the Partnership has responded to various potential
tenants regarding leasing portions of the Atrium, no leases have been signed as
of December 31, 1996. It is anticipated that when leases are obtained for the
Atrium, rental rates will be lower than those paid by the previous tenant, and
income could decrease significantly under these new leases. In addition, such
leases are likely to require substantial tenant finish and refurbishment
expenditures by the Partnership which could further significantly reduce future
cash distributions to Limited Partners.
The Brookwood Grill Property/Fund II - Fund III Joint Venture
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On January 31, 1990, the Fund II-Fund II-OW Joint Venture acquired a 5.8 acre
tract of undeveloped real property at the intersection of Warsaw Road and
Holcomb Bridge Road in Roswell, Fulton County, Georgia (the "Brookwood Grill
Property"). The Fund II-Fund II-OW Joint Venture paid $1,848,561, including
acquisition expenses, for the 5.8 acre tract of undeveloped property.
5
On September 20, 1991, the Fund II-Fund II-OW Joint Venture contributed the
Brookwood Grill Property, along with its interest as landlord under the lease
agreement referred to below, as a capital contribution to the Fund II-Fund III
Joint Venture. As of September 20, 1991, the Fund II-Fund II-OW Joint Venture
had expended approximately $2,128,000 for the land acquisition and development
of the Brookwood Grill Property.
As of September 20, 1991, a lease agreement was entered into with the Brookwood
Grill of Roswell, Inc. for the development of approximately 1.5 acres and the
construction of a 7,440 square foot restaurant. This Roswell site, which opened
early March 1992, is the second location in the Atlanta area for what is
anticipated as a southeastern chain of restaurants similar in concept to
Houston's, Ruby Tuesday, and Friday's. This chain is principally owned by David
Rowe, an Atlanta real estate developer of Kroger shopping centers, and several
operating partners formerly with Houston's. The terms of the lease call for an
initial term of 9 years and 11 months, with two additional 10-year option
periods. The agreement calls for a base rental of $217,006 per year for Years 1
through 5, with a 15% increase for the remainder of the initial term. Rental
rates for all option periods will be based on the prevailing market values and
rates for those periods. The Fund II-Fund III Joint Venture has expended
approximately $1,100,000 for the development and construction of the restaurant
building together with parking areas, driveways, landscaping and other
improvements. In addition to the base rent described above, the tenant is
required to pay "additional rent" in amounts equal to a 12% per annum return on
all amounts expended for such improvements.
The occupancy rate for the Brookwood Grill, a sole tenant, was 100% for 1996,
1995, 1994, 1993 and 1992. The average effective annual rental per square foot
at the Brookwood Grill is $30.29 for 1996, $30.21 for 1995, 1994 and 1993, and
$24.60 for 1992, the first year of occupancy.
As of December 31, 1996, the Fund II-Fund II-OW Joint Venture and the
Partnership had made total contributions to the Fund II-Fund III Joint Venture
of approximately $2,128,000 and $1,330,000, respectively, for the acquisition
and development of the Brookwood Grill. The Fund II-Fund II-OW Joint Venture
holds an approximately 62% equity interest in the Brookwood Grill property, and
the Partnership holds an approximately 38% equity interest in the project.
On January 10, 1995, the remaining 4.3 acres of land comprising the Holcomb
Bridge Road Property was contributed to a new joint venture, Fund II, III, VI
and VII Associates by Fund II-Fund III Joint Venture. This property is
described below.
Holcomb Bridge Road Property/Fund II, III, VI and VII Associates
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On January 10, 1995, Fund II-Fund III Joint Venture; Wells Real Estate Fund VI ,
L.P. ("Wells Fund VI"), a Georgia public limited partnership having Leo F.
Wells, III and Wells Partners, L.P., a Georgia limited partnership, as general
partners, and Wells Real Estate Fund VII, L.P. ("Wells Fund VII"), a Georgia
public limited partnership having Leo F. Wells, III and Wells Partners, L.P., a
Georgia limited partnership, as general partners, entered into a Joint Venture
Agreement known as Fund II, III, VI and VII Associates ("Fund II, III, VI and
VII Joint
6
Venture"). Wells Partners, L.P. is a private limited partnership having Wells
Capital, Inc., a General Partner of the Partnership, as its sole general
partner. The investment objectives of Wells Fund VI and Wells Fund VII are
substantially identical to those of the Partnership.
In January 1995, the Fund II-Fund III Joint Venture contributed to the Fund II-
III-VI-VII Joint Venture approximately 4.3 acres of land at the intersection of
Warsaw Road and Holcomb Bridge Road in Roswell, Fulton County, Georgia (the
"Holcomb Bridge Road Property") including land improvements. Development is
substantially complete on two buildings containing a total of approximately
49,500 square feet. Nine tenants occupied the Holcomb Bridge Property as of
December 31, 1996, for an occupancy rate of 63%. The average effective annual
rental was $9.87 per square foot for 1996.
As of December 31, 1996, Fund II and Fund III Joint Venture had contributed
$1,729,116 in land and improvements for an equity interest of approximately
25.2%, Wells Fund VI had contributed $1,699,846 for an equity interest of
approximately 26.0%, and Wells Fund VII had contributed $3,217,154 for an
equity interest of approximately 48.8%. The total cost to develop the Holcomb
Bridge Road Property is currently estimated to be approximately $5,100,000,
excluding land. It is anticipated that of the remaining cost of approximately
$183,000, $100,000 will be contributed by Wells Fund VI and $83,000 by Wells
Fund VII, after which the equity interests in the property will be 48.3% for
Wells Fund VII, 26.4% for Wells Fund VI, and 25.3% for the Fund II-Fund III
Joint Venture. Wells Fund VI and Wells Fund VII have reserved sufficient funds
for this purpose. The Partnership is not obligated to provide any additional
funding for the Holcomb Bridge Road Property.
Fund III - Fund IV Joint Venture
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On March 27, 1991, the Partnership and Wells Real Estate Fund IV, L.P. ("Wells
Fund IV"), a Georgia public limited partnership having Leo F. Wells, III and
Wells Partners, L.P. as General Partners, entered into a Joint Venture Agreement
known as Fund III and Fund IV Associates (the "Fund III - Fund IV Joint
Venture"). As set forth above, Wells Partners, L.P. is a private limited
partnership having Wells Capital, Inc., a General Partner of the Partnership, as
its sole general partner. The investment objectives of the Joint Venture are
substantially identical to those of the Partnership. The Partnership holds an
approximate 57.3% equity interest in the Fund III-Fund IV Joint Venture which
owns and operates a multi-tenant retail center and an office building described
below. As of December 31, 1996, the Partnership had contributed $8,119,603 and
Wells Fund IV had contributed $6,131,677 for total contributions of $14,251,280
to the Fund III - Fund IV Joint Venture for the acquisition and development of
the two properties as described below.
7
The Stockbridge Village Shopping Center/Fund III and Fund IV Joint Venture
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On April 4, 1991, the Fund III - Fund IV Joint Venture purchased 13.62 acres of
real property located in Clayton County, Georgia, for the purchase price of
$3,057,729 including acquisition costs, for the purpose of developing,
constructing and operating a shopping center known as the Stockbridge Village
Shopping Center ("Stockbridge Property"). The Stockbridge Property consists of a
multi-tenant shopping center containing approximately 112,891 square feet of
which approximately 64,097 square feet is occupied by the Kroger Company, a
retail grocery chain. The lease with the Kroger Company is for an initial term
of 20 years commencing November 14, 1991, with an option to extend for four
consecutive five-year periods. The annual base rent payable under the Kroger
lease during the initial term is $492,692. The remaining 48,794 square feet is
composed of 12 separate retail spaces and 3 free-standing buildings. The
occupancy rate at the Stockbridge Property was 93% in 1996 and 1995, 97% in
1994, 95% in 1993, and 97% in 1992. The average effective annual rental per
square foot at the Stockbridge Property was $9.59 for 1996, $10.16 for 1995,
$10.26 for 1994, $9.13 for 1993, and $7.34 for 1992.
As of December 31, 1996, the Partnership had contributed a total of $4,515,042
and Wells Fund IV had contributed a total of $5,047,132 to fund the total cost
of approximately $9,562,000 for the acquisition and development of the
Stockbridge Property.
The G.E. Building/Fund III - Fund IV Joint Venture
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The G.E. Building is a two-story office building containing approximately 43,000
square feet located in Richmond, Virginia which was acquired by the Fund III-
Fund IV Joint Venture on July 1, 1992 for a purchase price of $4,687,600.
The entire G.E. Building is currently under a net lease to General Electric
("G.E."), a corporate office for the lighting division. The annual base rent
payable is currently $530,742 with annual base increases of 2%. The G.E. lease
expires March 31, 2000, with an option to extend the lease for one additional
five-year period. The occupancy rate at the G.E. Building was 100% for the
years ended December 31, 1996, 1995, 1994, 1993, and 1992, the first year of
ownership. The average effective annual rental per square foot at the G.E.
Building is $12.27 for 1996, 1995, 1994, 1993, and 1992. As of December 31,
1996, a total of $4,689,106 had been incurred for the acquisition of the G.E.
Building. Of this amount, Wells Fund IV contributed $1,084,545 and the
Partnership contributed $3,604,561 to the Fund III-Fund IV Joint Venture.
8
ITEM 3. LEGAL PROCEEDINGS
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Litigation was instituted in the Superior Court of Gwinnett County, Georgia on
January 13, 1997 against the Partnership, Wells Real Estate Fund II, L.P.
("Wells Fund II"), Wells Capital, Inc. and Leo F. Wells, II, who are the general
partners of the Partnership and Wells Fund III, in connection with a request by
a limited partner in the Partnership and Wells Fund II for a list of the names,
addresses and ownership interests of the limited partners which to date the
defendants have refused to furnish to the plaintiff. The case is styled
Gramercy Park Investments L.P. v. Wells Real Estate Fund II, Wells Real Estate
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Fund III, L.P., Wells Capital, Inc. and Leo F. Wells, III. The plaintiff, which
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is a limited partner in both the Partnership and Wells Fund II, alleges that it
is entitled to copies of the limited partner lists under applicable provisions
of Georgia partnership law and the partnership agreements of the Partnership and
Wells Fund II so that plaintiff may make an offer to purchase up to 4.9% of the
partnership units in each Fund. The plaintiff is seeking an order directing the
defendants to furnish to the plaintiff a current list of the names, addresses
and ownership interests of the limited partners in the Partnership and Wells
Fund II, as well as an award of certain damages, including its costs and
attorneys' fees and such other relief as the court deems just and proper. On
February 26, 1997, the Court denied the plaintiff's request for an immediate
order requiring defendants to furnish the lists to the plaintiff and instead
ordered expedited discovery which is to be completed by March 31, 1997.
Thereafter the Court will again consider the plaintiff's request to turn over
the limited partner lists.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted to a vote of the Limited Partners during the fourth
quarter of 1996.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK)
9
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S UNITS AND RELATED SECURITY HOLDER MATTER
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As of February 28, 1997, the Partnership had 19,635,965 outstanding Class A
Units held by a total of 2,331 Limited Partners and 2,544,540 outstanding Class
B Units held by a total of 203 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, 1995 $392,719 $0.02 $0.00 $0.00 $ 0.00
June 30, 1995 $392,719 $0.02 $0.00 $0.00 $ 0.00
September 30, 1995 $392,719 $0.02 $0.00 $0.00 $ 0.00
December 31, 1995 $611,487 $0.02 $0.00 $0.08 $15,205.00
March 31, 1996 $392,719 $0.02 $0.00 $0.00 $ 0.00
June 30, 1996 $392,719 $0.02 $0.00 $0.00 $ 0.00
September 30, 1996 $312,517 $0.02 $0.00 $0.00 $ 0.00
December 31, 1996 $320,615 $0.01 $0.00 $0.00 $ 0.00
The fourth quarter distribution was accrued for accounting purposes in 1996, and
was not actually paid to the Limited Partners holding Class A units until
February 1997. The General Partners anticipate that cash distributions to
Limited Partners holding Class A units will continue in 1997 at a level at least
comparable with 1996 cash distributions; however, there is no guarantee of this.
10
ITEM 6. SELECTED FINANCIAL DATA.
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The following sets forth a summary of the selected financial data for the fiscal
years ended December 31, 1996, 1995, 1994, 1993, and 1992:
1996 1995 1994 1993 1992
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Total Assets $17,114,963 $18,059,571 $18,561,131 $19,006,762 $19,417,510
Total Revenues 1,155,615 1,587,267 1,572,895 1,528,968 1,334,149
Net Income 731,244 1,143,704 1,130,464 1,087,637 812,188
Net Income
allocated to
General Partners 0 15,205 0 0 0
Net Income
allocated to Class
A Limited Partners 731,244 1,104,317 1,608,929 1,625,405 1,280,630
Net Income (Loss )
allocated to Class
B Limited Partners 0 24,182 (478,465) (537,768) (468,442)
Net Income
per Class A Limited
Partner Unit .04 .06 .08 .08 .07
Net Income (Loss) per
Class B Limited
Partner Unit .00 .01 (.19) (.21) (.18)
Cash Distributions to
Investors--
Investment Income
Class A Units: .07 .08 .08 .08 .06
Return of Capital
Class A Units: .00 .00 .00 .00 .00
Investment Income
Class B Units: .00 .00 .00 .00 .00
Return of Capital
Class B Units: .00 .08 .02 .00 .00
Cash Distribution to
General Partners 0.00 15,205.00 .00 .00 .00
11
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.
RESULTS OF OPERATIONS AND CHANGES IN FINANCIAL CONDITIONS
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GENERAL
- -------
Gross revenues of the Partnership were $1,155,615 for the fiscal year ended
December 31, 1996, as compared to $1,587,267 for the fiscal year ended December
31, 1995, and $1,572,895 for the fiscal year ended December 31, 1994. The
decrease for 1996 over 1995 is primarily due to the loss of income contributed
from the Fund II-Fund III Joint Venture, due to the termination of the Lockheed
lease at The Atrium on June 30, 1996. The increase for 1995 over 1994 was due
primarily to increased rental income at the Greenville Property providing a full
year of rent from the expansion of Team YASNY in late 1994.
Expenses of the Partnership remained relatively stable for 1994 and 1995 and
decreased to $424,371 for the fiscal year ended December 31, 1996, as compared
to $443,563 for the fiscal year ended December 31, 1995 and $442,431 for the
fiscal year ended December 31, 1994. In 1996, the increase in depreciation was
offset by a decrease in operating expenses. Depreciation expense increased from
1994 as compared to 1995 and 1996 due to a change in the estimated useful lives
of buildings and improvements from 40 years to 25 years which became effective
October 1, 1995. For further discussion of depreciation expense, please refer
to the notes to the accompanying financial statements.
Net income of the Partnership was $731,244 for the fiscal year ended December
31, 1996, as compared to $1,143,704 for the fiscal year ended December 31, 1995,
and $1,130,464 for the fiscal year ended December 31, 1994. The decrease in net
income for 1996 as compared to 1995 is due to loss of rental income from the
Joint Ventures as noted above. The increase in net income for 1995 over 1994 is
due primarily to increased rental revenues.
12
The Partnership's cash distributions to the Limited Partners holding Class A
Units were $0.07 per unit for the fiscal year ended December 31, 1996, and $0.08
for 1995 and 1994. There were no cash distributions in 1996 to the Limited
Partners holding Class B Units; distributions were $0.08 per unit for fiscal
year ended December 31, 1995 and $0.02 per unit for the fiscal year ended
December 31, 1994. These distributions were a return of capital for the Class B
Investors.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 121, "Accounting for the impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed of", which is
effective for fiscal years beginning after December 15, 1995. SFAS No. 121
established standards for determining when impairment losses on long-lived
assets have occurred and how impairment losses should be measured. The joint
venture adopted SFAS No. 121, effective January 1, 1995. The impact of adopting
SFAS No. 121 was not material to the financial statements of the joint ventures.
PROPERTY OPERATIONS
- -------------------
As of December 31, 1996, the Partnership's ownership interest in the Greenville
Property is 100%, Fund II-Fund III Joint Venture is 34% and Fund III-Fund IV
Joint Venture is 57.3%.
As of December 31, 1996, the Partnership owned interests in the following
properties:
The Greenville Property/Fund III
- --------------------------------
For the Year Ended December 31
------------------------------------
1996 1995 1994
---- ---- ----
Revenues:
Rental Income $586,466 $581,016 $573,942
Other Income 0 2,350 0
-------- -------- --------
586,466 583,366 573,942
Expenses:
Depreciation 158,308 112,196 96,618
Management and
leasing expenses 40,499 37,713 35,903
Other operating expenses 144,201 214,562 227,043
-------- -------- --------
343,008 364,471 359,564
-------- -------- --------
Net income $243,458 $218,895 $214,378
======== ======== ========
Occupied % 100.00% 100.00% 100.00%
Partnership Ownership % 100.00% 100.00% 100.00%
Cash Generated to the
Partnership $411,469 $340,569 $286,410
Net Income Allocated to
the Partnership $243,458 $218,895 $214,378
13
Rental income remained stable from 1995 to 1996. Expenses of the Greenville
Property remained relatively stable for the three year period. The increase in
depreciation expense in 1996 and 1995 as compared to 1994 is a result of the
change in the estimated useful lives of buildings and improvements as previously
discussed under the "General" section of "Results of Operations and Changes in
Financial Conditions" and was offset by a decrease in other operating expenses.
Management and leasing fees were increased in 1996 as compared to 1995 and 1994
due to anticipated rental increases.
The real estate taxes were $27,479 for 1996 and $27,692 for 1995 and 1994.
The Partnership's ownership percentage remained constant at 100% for 1996, 1995,
and 1994.
For comments on the general competitive conditions to which the property may be
subject, see Item 1, Business, page 2. For additional information on the
property, tenants, etc., see Item 2, Properties, page 3.
The Atrium/Fund II - Fund III Joint Venture
- -------------------------------------------
For the Year Ended December 31
------------------------------------
1996 1995 1994
---- ---- ----
Revenues:
Rental Income $1,048,583 $2,079,345 $2,079,345
Interest Income 24,188 29,965 24,636
---------- ---------- ----------
1,072,771 2,109,310 2,103,981
Expenses:
Depreciation 674,479 517,507 475,928
Management and
leasing expenses 71,381 142,761 142,735
Other operating expenses 158,405 451,362 504,609
---------- ---------- ----------
904,265 1,111,630 1,123,272
---------- ---------- ----------
Net income $ 168,506 $ 997,680 $ 980,709
========== ========== ==========
Occupied % 0.00% 34.40% 34.40%
Partnership Ownership % 34.40% 34.40% 34.40%
Cash Distributed to
the Partnership $ 209,185 $ 589,206 $ 574,411
Net Income Allocated
to the Partnership $ 57,966 $ 343,202 $ 337,364
14
Rental income decreased to $1,048,583 in 1996 compared to $2,079,345 due to the
termination of the Lockheed lease as of June 30, 1996. Revenues, expenses and
net income had remained relatively stable for the years ended December 31, 1995
and 1994. Depreciation expense increased in 1996 compared to 1995 due to the
recording of a full year's depreciation expense reflecting the change in
estimated useful lives which was made beginning in fourth quarter 1995. In 1995,
the increase in depreciation expense due to the change in the estimated useful
lives of buildings and improvements was offset by a decrease in other operating
expenses. There were no significant decreases in any specific area of operating
expenses. Management and leasing fees decreased in 1996 compared to 1995 due to
the decrease in rental income for the last six months of 1996. Other operating
expenses decreased from $451,362 in 1995 to $158,405 in 1996 primarily due the
vacancy of the Atrium for the last six months of the year.
The real estate taxes were $150,105 for 1996, $182,687 for 1995, and $186,273
for 1994.
The lease with Lockheed Company expired on June 30, 1996, and although the
Partnership has responded to various potential tenants regarding leasing the
Atrium, no leases have been signed as of December 31, 1996. It is anticipated
that when leases are obtained for the Atrium, rental rates will be lower than
those paid by the previous tenant, and income could decrease significantly under
these new leases. In addition, such leases are likely to require further tenant
finish and refurbishment expenditures by the Partnership which could
substantially significant reduce future cash distributions to Limited Partners.
The Partnership's interest in The Atrium is owned through its Joint Venture
investment in Fund II-Fund III Joint Venture, and holds an approximate 34%
equity interest in the Joint Venture.
For comments on the general condition to which the property may be subject, see
Item 1, Business, page 2. For additional information on the property, tenants,
etc., see Item 2, Properties, page 3.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.)
15
The Brookwood Grill Property/Fund II - Fund III Joint Venture
- -------------------------------------------------------------
For the Year Ended December 31
--------------------------------
1996 1995 1994
---- ---- ----
Revenues:
Rental Income $225,359 $230,316 $224,750
Equity Loss of Joint Venture (19,378) 0 0
-------- -------- --------
205,981 230,316 224,750
Expenses:
Depreciation 54,014 63,446 58,659
Management and
leasing expenses 27,004 29,351 30,217
Other operating expenses 109,478 45,175 44,553
-------- -------- --------
190,496 137,972 133,429
-------- -------- --------
Net income $ 15,485 $ 92,344 $ 91,321
======== ======== ========
Occupied % 100.00% 100.00% 100.00%
Partnership Ownership % 38.00% 38.00% 38.00%
Cash Distributed to
the Partnership $ 40,154 $ 58,009 $ 55,818
Net Income Allocated
to the Partnership $ 5,830 $ 34,767 $ 34,380
Rental income decreased in 1996 compared to 1995 due to a decrease in billing of
expenses to the tenant. Rental income and expenses were relatively stable for
1995 and 1994. Although there was a change in useful lives of assets from 40
years to 25 years in the fourth quarter of 1995, depreciation expense decreased
in 1996, compared to 1995, due to the contribution of land and land improvements
by Brookwood Grill to the 880 Holcomb Bridge Property. Other operating expenses
increased in 1996 compared to 1995 due to decreased property tax reimbursements
from tenants, and a reimbursement to the tenant in first quarter, 1996, of
administrative charges paid in 1995. Net income decreased to $15,485 in 1996
compared to $92,344 in 1995 due primarily to the increased operating expenses in
1996, and due to the net loss generated by the Fund II, III, VI and VII Joint
Venture.
Real estate taxes were $33,494 for 1996, $39,668 for 1995, and $38,091 for
1994.
For comments on the general competitive conditions to which the property may be
subject, see Item 1, Business, page 2. For additional information on the
property, tenants, etc., see Item 2, Properties, page 3.
16
The Stockbridge Village Shopping Center/Fund III - Fund IV Joint Venture
- ------------------------------------------------------------------------
For the Year Ended December 31
------------------------------------
1996 1995 1994
---- ---- ----
Revenues:
Rental Income $1,082,428 $1,148,600 $1,158,963
Interest Income 13,024 15,482 9,678
---------- ---------- ----------
1,095,452 1,164,082 1,168,641
Expenses:
Depreciation 338,989 249,689 218,742
Management and
leasing expenses 98,442 105,251 124,458
Other operating expenses 90,187 101,047 84,646
---------- ---------- ----------
527,618 455,987 427,846
---------- ---------- ----------
Net income $ 567,834 $ 708,095 $ 740,795
========== ========== ==========
Occupied % 93.00% 93.00% 97.00%
Partnership Ownership % 57.30% 57.30% 57.30%
Cash Generated to the
Partnership $ 546,625 $ 605,097 $ 538,400
Net Income Allocated to
the Partnership $ 325,463 $ 405,856 $ 425,777
Rental income decreased to $1,082,428 for 1996 as compared to $1,148,600 in 1995
and $1,158,963 in 1994 due to decreased occupancy resulting from the early
termination of a lease for 8,025 square feet in the fourth quarter of 1995.
Expenses of the property increased from $427,846 in 1994 to $455,987 in 1995 and
$527,618 in 1996 due primarily to the increase in depreciation expense which
became effective in the fourth quarter of 1995 as a result of the change in the
estimated useful lives of buildings and improvements as previously discussed
under the "General" section of "Results of Operations and Change in Financial
Conditions". Net income of the property decreased to $567,834 for 1996 as
compared to $708,095 for 1995 and $740,795 for 1994 due primarily to increased
depreciation expense and decreased rental income, as discussed above.
Real estate taxes were $104,795 for 1996, $120,899 for 1995, and $130,364 for
1994.
The Partnership's ownership percentage in the Fund III - Fund IV Joint Venture
remained constant at 57.3% for 1996, 1995 and 1994.
17
For comments on the general conditions to which the property may be subject, see
Item 1, Business, page 2. For additional information on the property, tenants,
etc., see Item 2, Properties, page 3.
The G.E. Building/Fund III and Fund IV Joint Venture
- ----------------------------------------------------
For the Year Ended December 31
------------------------------
1996 1995 1994
---- ---- ----
Revenues:
Rental Income $527,425 $527,425 $527,425
Expenses:
Depreciation 196,220 132,727 112,639
Management and
leasing expenses 39,860 39,821 42,697
Other operating expenses 8,731 9,313 47,019
-------- -------- --------
244,811 181,861 202,355
-------- -------- --------
Net income $282,614 $345,564 $325,070
======== ======== ========
Occupied % 100.00% 100.00% 100.00%
Partnership Ownership % 57.30% 57.30% 57.30%
Cash Generated to the
Partnership $275,251 $253,847 $242,675
Net Income Allocated to
the Partnership $161,985 $198,065 $186,766
Rental income remained constant for 1996, 1995, and 1994. Total expenses
decreased to $181,861 in 1995 from $202,355 in 1994 but increased to $244,811 in
1996. During 1995, the increase in depreciation expense due to the change in
the estimated useful lives of buildings and improvements which became effective
in the fourth quarter of 1995, as previously discussed under the "General"
section of "Results of Operations and Change in Financial Conditions," was
offset by a decrease in other operating expenses as compared to 1994, which was
primarily the result of decreased legal fees following settlement of the
Thalhimer suit described below.
On May 10, 1993, the leasing agent, Morton G. Thalhimer, Inc., filed suit in the
U.S. District Court for the Eastern District of Virginia, Richmond, Virginia,
against the Partnership, Wells Fund IV and the General Partners for leasing
commissions due over the original term of the G.E. lease (excluding renewals)
estimated to be approximately $163,500. G.E. and the seller of the property
were named as third party defendants in the suit alleging that they were the
parties who should be financially responsible for these leasing commissions.
Pursuant to the Settlement Agreement entered into with Thalhimer, commencing in
January, 1994, and during each month
18
thereafter, Thalhimer is only entitled to three percent (3%) of the monthly rent
(exclusive of operating costs reimbursements, real estate tax and insurance
pass-throughs and similar items) received by the landlord under the G.E. Lease
(including any renewals or extensions of the lease or taking of additional
space), and except as set forth in the Settlement Agreement, the Landlord (the
Fund III-Fund IV Joint Venture) has no further obligation to Thalhimer or its
successors or assigns under the lease. G.E. has assumed 1 1/2% of the 3% and the
Fund III-Fund IV Joint Venture has assumed the remaining 1 1/2% of the total 3%.
Due to increased expenses in 1996 as compared to 1995 and decreased expenses in
1995 as compared to 1994, net income decreased to $282,614 in 1996, increased to
$345,564 for 1995, as compared to $325,070 in 1994.
The Partnership's ownership percentage in the Fund III-Fund IV Joint Venture
remained constant at 57.3% for 1996, 1995, and 1994.
Under the terms of the lease, G.E. pays the real estate taxes directly.
For comments on the general conditions to which the property may be subject, see
Item 1, Business, page 2. For additional information on the property, tenants,
etc., see Item 2, Properties, page 3.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.)
19
Holcomb Bridge Road Property/Fund II, III, VI, VII Joint Venture
- ----------------------------------------------------------------
1996
--------
Revenues:
Rental Income $255,062
Expenses:
Depreciation 181,798
Management and
leasing expenses 28,832
Other operating expenses 101,600
--------
312,230
--------
Net Loss $(57,168)
========
Occupied % 62.90%
Partnership Ownership % in the
Fund II, III, VI, VII Joint Venture* 9.50%
Cash Distribution to the
Fund II-Fund III Joint Venture* $ 19,494
Net Loss Allocated to the
Fund II-Fund III Joint Venture* $(19,378)
* The Partnership holds a 38% ownership in the Fund II-Fund III Joint
Venture.
Since the Holcomb Bridge Property was under construction and not occupied until
first quarter, 1996, comparative income and expense figures for the years ended
December 31, 1995 and 1994, are not available.
In January 1995, the Fund II-Fund III Joint Venture contributed 4.3 acres of
land and land improvements at 880 Holcomb Bridge Road to the Fund II-III-VI-VII
Joint Venture. Development is being completed on two buildings containing a
total of approximately 49,500 square feet. As of December 31, 1996, nine
tenants occupied approximately 31,144 square feet of space in the retail and
office building under leases of varying lengths. Since the property was not
developed as of December 31, 1995, no comparative figures are available for the
year.
Real estate taxes were $37,191 for 1996.
20
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During its offering, which terminated on October 23, 1990, the Partnership
raised a total of $22,206,319 in capital through the sale of 22,206,310 units.
No additional units will be sold by the Partnership. From the original funds
raised, the Partnership has invested a total of $17,765,137 in properties, paid
$1,554,442 in acquisition and advisory fees, $2,664,668 in selling commissions
and organization and offering expenses, and is maintaining a working capital
reserve of $222,072.
Since the Partnership is an investment partnership formed for the purpose of
acquiring, owning and operating income-producing real property and has invested
all of its funds available for investment, it is highly unlikely that the
Partnership will acquire interests in any additional properties, and the
Partnership's capital resources are anticipated to remain relatively stable over
the holding period of its investments.
The Partnership is required to maintain working capital reserves in an amount
equal to the cash operating expenses estimated to be required to operate the
Partnership for a six month period, not to exceed 3% or be reduced below 1% of
offering proceeds available for investment in properties. The General Partners
believe such working capital reserves will be adequate.
The Partnership's net cash provided by operating activities decreased in 1996 to
$25,148 from $182,077 in 1995 and $57,271 in 1994. The decrease in 1996 was due
to a decrease in net income, lower distributions received from the Joint
Ventures and increased payables due at year-end. Expenses for building and
tenant improvements were $13,000 for 1996.
Cash and cash equivalents decreased in 1996 after remaining stable for 1995 and
1994. This was due to decreased Joint Venture equity resulting in lowered gross
revenues, as well as legal and accounting costs. The Partnership generally
distributes cash available less reserves and, as a result, the level of cash has
remained relatively stable.
The Partnership's distributions paid and payable through the fourth quarter of
1996 have been paid from Net Cash from Operations and from distributions
received from its equity investment in joint ventures. The Partnership expects
to meet liquidity, and budget demands through cash flow from operations.
Subject to the potential need to fund tenant improvements which may be required
for new tenants at the Atrium, as previously discussed, the Partnership is
unaware of any demands, commitments, events or capital expenditures other than
that which is required for the normal operations of its properties that will
result in the Partnership's liquidity increasing or decreasing in any material
way. The Partnership is not obligated to provide any additional funding on the
Holcomb Bridge Road Property. Additional funding for the Holcomb Bridge Road
Property is anticipated to be provided by capital contributions from Wells Fund
VI and Wells Fund VII, which have reserved sufficient capital for this purpose.
21
INFLATION
- ---------
Real Estate has not been affected significantly by inflation in the past three
years due to the relatively low inflation rate. There are provisions in the
majority of tenant leases executed by the Partnership to protect the Partnership
from the impact of inflation. These leases contain common area maintenance
charges (CAM charges), real estate tax and insurance reimbursements on a per
square foot basis, or in some cases, annual reimbursements of operating expenses
above a certain per square foot allowance. These provisions reduce the
Partnership's exposure to increases in costs and operating expenses resulting
from inflation. In addition, a number of the Partnership's leases are for terms
of less than five years which may permit the Partnership to replace existing
leases with new leases at higher base rental rates if the existing leases are
below market rate. There is no assurance, however, that the Partnership would
be able to replace existing leases with new leases at higher base rentals.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -----------------------------------------------------
The financial statements of the Registrant and supplementary data are detailed
under Item 14(a) and filed as part of the report on the pages indicated.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- ----------------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
The Partnership's change in accountants during 1995 was previously reported in
the Partnership's Form 8-K dated September 11, 1995. There were no
disagreements with the Partnership's accountants or other reportable events
during 1996.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.)
22
PART III
ITEM 10. GENERAL PARTNERS OF THE PARTNERSHIP
- -----------------------------------------------
WELLS CAPITAL, INC. Wells Capital, Inc. ("Capital") is a Georgia corporation
- -------------------
formed in April 1984. The executive offices of Capital are located at 3885
Holcomb Bridge Road, Norcross, Georgia 30092. Leo F. Wells, III is the sole
shareholder, sole Director and the President of Capital.
LEO F. WELLS, III. Mr. Wells is a resident of Atlanta, Georgia, is 53 years of
- -----------------
age and holds a Bachelor of Business Administration Degree in Economics from the
University of Georgia. Mr. Wells is the President and sole Director of Capital.
Mr. Wells is the President of Wells & Associates, Inc., a real estate brokerage
and investment company formed in 1976 and incorporated in 1978, for which he
serves as principal broker. Mr. Wells is also currently the sole Director and
President of Wells Management Company, Inc., a property management company he
founded in 1983. In addition, Mr. Wells is the President and Chairman of the
Board of Wells Investment Securities, Inc., Wells & Associates, Inc., and Wells
Management Company, Inc., which are affiliates of the General Partners. From
1980 to February 1985, Mr. Wells served as Vice-President of Hill-Johnson, Inc.,
a Georgia corporation engaged in the construction business. From 1973 to 1976,
he was associated with Sax Gaskin Real Estate Company and 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, 1996:
(A) (B) (C)
Name of Individual or Capacities in which served
Number in Group Form of Compensation Cash Compensation
- ------------------------------------------------------------------------------
Wells Management Company, Property Manager-Management $189,023 (1)
Inc. and Leasing Fees
Wells Capital, Inc. General Partner - Partnership
Cash Flow Distributions -0-
Leo F. Wells, III General Partner - Partnership
Cash Flow Distributions -0-
23
(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 which were accrued for accounting purposes in 1996 but not
actually paid until January, 1997.
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, 1997:
(2) (3)
(1) Name and Address of Amount and Nature of (4)
Title of Class Beneficial Owner Beneficial Ownership Percent of Class
- -------------- ---------------- -------------------- ----------------
Class A Units Leo F. Wells, 11,158.79 Units Less than 1%
III (IRA, 401 (k)
and Profit
Sharing)
Class A Units Leo F. Wells, 1,750.00 Units Less than 1%
III (401 (k))
No arrangements exist which would, upon operation, 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, 1996, 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.
24
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, 1996, Wells Management Company, Inc. received $189,023
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 1996, no real estate
commissions were paid to the General Partners.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.)
25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
(a) 1. Financial Statements
Information with respect to this item is contained on Pages F-2 to F-30
of this Annual Report on Form 10-K. See Index to Financial Statements on
Page F-1.
(a) 2. Financial Statement Schedule III
Information with respect to this item begins on Page S-1 of this Annual
Report on Form 10-K.
(a) 3. The Exhibits filed in response to Item 601 of Regulation S-K are listed
on the Exhibit Index attached hereto.
(b) No reports on Form 8-K were filed with the Commission during the fourth
quarter of 1996.
(c) The Exhibits filed in response to Item 601 of Regulation S-K are listed
on the Exhibit Index attached hereto.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.)
26
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 17/th/ day of March,
1997.
WELLS REAL ESTATE FUND III
(Registrant)
By: /s/Leo F. Wells, III
-------------------------------------
LEO F. WELLS, III
Individual General Partner and as President
of Wells Capital, Inc., the Corporate
General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person on behalf of the registrant and in
the capacity as and on the date indicated.
Signature Title
- --------- -----
/s/Leo F. Wells, III Individual General Partner, March 17, 1997
- -------------------- President and Sole Director of
Leo F. Wells, III Wells Capital, Inc., the Corporate
General Partner
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRARS WHICH HAVE NOT BEEN REGISTERED PURSUANT TO
SECTION 12 OF THE ACT.
No annual report or proxy material relating to an annual or other meeting of
security holders has been sent to security holders.
27
EXHIBIT INDEX
-------------
(Wells Real Estate Fund III, L.P.)
The following documents are filed as exhibits to this report. Those
exhibits previously filed and incorporated herein by reference are identified
below by an asterisk. For each such asterisked exhibit, there is shown below
the description of the previous filing. Exhibits which are not required for
this report are omitted.
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NUMBER
- ------- ----------------------- -----------
*4(a) Agreement of Limited Partnership of N/A
Wells Real Estate Fund III, L.P.
(Registration Statement of Wells Real
Estate Fund III, L.P., Exhibit B to the
Prospectus, File No. 33-24063)
*4(b) Amendment to Agreement of Limited N/A
Partnership of Wells Real Estate
Fund III, L.P. (Exhibit 4(a) to
Post-Effective Amendment No. 1 to
Registration Statement of Wells Real
Estate Fund III, L.P., File No.
33-24063)
*4(c) Second Amendment to Agreement of N/A
Limited Partnership of Wells Real
Estate Fund III, L.P. (Exhibit 4(a)
to Post-Effective Amendment No. 5
to Registration Statement of Wells
Real Estate Fund III, L.P., File No.
33-24063)
*4(d) Third Amendment to Agreement of N/A
Limited Partnership of Wells Real
Estate Fund III, L.P. (Exhibit to
Post-Effective Amendment No. 7 to
Registration Statement of Wells Real
Estate Fund III, L.P., File No.
33-24063)
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NUMBER
- ------- ----------------------- -----------
*10(a) Management Agreement between Registrant N/A
and Wells Management Company, Inc. (Exhibit
to Form 10-K of Wells Real Estate Fund III,
L.P. for the fiscal year ended December 31,
1990, File No. 0-18407)
*10(b) Leasing and Tenant Coordination Agreement N/A
between Registrant and Wells Management
Company, Inc. (Exhibit to Form 10-K of
Wells Real Estate Fund III, L.P. for the
fiscal year ended December 31, 1990, File
No. 0-18407)
*10(c) Purchase Agreement for the Acquisition N/A
of the Atrium at Nassau Bay dated
March 1, 1989 (Exhibit 10(i) to Form 10-K
of Wells Real Estate Fund II for the
fiscal year ended December 31, 1990,
File No. 0-16518)
*10(d) Joint Venture Agreement of Fund II and N/A
Fund III Associates dated March 1,
1989 (Exhibit to Post-Effective
Amendment No. 2 to Registration
Statement of Wells Real Estate Fund
III, L.P., File No. 33-24063)
*10(e) First Amendment to Joint Venture Agreement N/A
of Fund II and Fund III Associates dated
April 1, 1989 (Exhibit 10(k) to Form 10-K
of Wells Real Estate Fund II for the
fiscal year ended December 31, 1990,
File No. 0-16518)
*10(f) Leases with Lockheed Engineering and N/A
Sciences Company, Inc. (Exhibit 10(l)
to Form 10-K of Wells Real Estate Fund
II for the fiscal year ended
December 31, 1990, File No. 0-16518)
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NUMBER
- ------- ----------------------- -----------
*10(g) Custodial Agency Agreement between N/A
Registrant and Citizens and Southern
Trust Company (Georgia), National
Association dated January 1, 1990
(Exhibit to Post-Effective
Amendment No. 5 to Registration
Statement of Wells Real Estate Fund
III, L.P., File No. 33-24063)
*10(h) Purchase Agreement for the Acquisition N/A
of the Greenville Property dated
April 10, 1990 (Exhibit to Form 10-K of
Wells Real Estate Fund III, L.P. for the
fiscal year ended December 31, 1990, File
No. 0-18407)
*10(i) Development Agreement with ADEVCO N/A
Corporation dated June 15, 1990 (Exhibit
to Form 10-K of Wells Real Estate Fund III,
L.P. for the fiscal year ended December 31,
1990, File No. 0-18407)
*10(j) Construction Contract with McDevitt N/A
& Street Company dated May 31, 1990 (Exhibit
to Form 10-K of Wells Real Estate Fund III,
L.P. for the fiscal year ended December 31,
1990, File No. 0-18407)
*10(k) Lease with International Business N/A
Machines Corporation dated May 15,
1990 (Exhibit to Form 10-K of Wells Real
Estate Fund III, L.P. for the fiscal year
ended December 31, 1990, File No. 0-18407)
*10(l) Amended and Restated Joint Venture N/A
Agreement of Fund II and Fund III Associates
(Exhibit 10(o) to Form 10-K of Wells Real
Estate Fund II for the fiscal year ended
December 31, 1991, File No. 0-16518)
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NUMBER
- ------- ----------------------- -----------
*10(m) Land and Building Lease Agreement between N/A
Fund II and Fund II-OW and Brookwood Grill
of Roswell, Inc. (Exhibit 10(p) to Form
10-K of Wells Real Estate Fund II for the
fiscal year ended December 31, 1991, File
No. 0-16518)
*10(n) Assignment and Assumption of Lease dated N/A
September 20, 1991 between Fund II and
Fund II-OW and Fund II and Fund III
Associates (Exhibit 10(q) to Form 10-K
of Wells Real Estate Fund II for the
fiscal year ended December 31, 1991,
File No. 0-16518)
*10(o) Fund III and Fund IV Associates Joint N/A
Venture Agreement dated March 27, 1991
(Exhibit 10(g) to Post-Effective Amendment
No. 1 to Registration Statement of Wells
Real Estate Fund IV, L.P. and Wells Real
Estate Fund V, L.P., File No. 33-37830)
*10(p) Agreement of Purchase and Sale dated N/A
October 31, 1990 between 675 Industrial
Park, Ltd. and The Vlass-Fotos Group, Inc.
(Exhibit 10(h) to Post-Effective Amendment
No. 1 to Registration Statement of Wells
Real Estate Fund IV, L.P. and Wells Real
Estate Fund V, L.P., File No. 33-37830)
*10(q) Lease dated January 31, 1991 between The N/A
Vlass-Fotos Group, Inc. and The Kroger Co.
(Exhibit 10(i) to Post-Effective Amendment
No. 1 to Registration Statement of Wells
Real Estate Fund IV, L.P. and Wells Real
Estate Fund V, L.P., File No. 33-37830)
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NUMBER
- ------- ----------------------- -----------
*10(r) Lease Agreement dated January 31, 1991 N/A
between The Vlass-Fotos Group, Inc. and
The Kroger Co. (Exhibit 10(j) to Post-
Effective Amendment No. 1 to Registration
Statement of Wells Real Estate Fund IV,
L.P. and Wells Real Estate Fund V, L.P.,
File No. 33-37830)
*10(s) First Amendment to Lease dated April 3, N/A
1991 between The Vlass-Fotos Group, Inc.
and The Kroger Co. (Exhibit 10(k) to Post-
Effective Amendment No. 1 to Registration
Statement of Wells Real Estate Fund IV,
L.P. and Wells Real Estate Fund V, L.P.,
File No. 33-37830)
*10(t) First Amendment to Lease Agreement dated N/A
April 3, 1991 between The Vlass-Fotos
Group, Inc. and The Kroger Co. (Exhibit
10(l) to Post-Effective Amendment No. 1
to Registration Statement of Wells Real
Estate Fund IV, L.P. and Wells Real Estate
Fund V, L.P., File No. 33-37830)
*10(u) Development Agreement dated April 4, 1991 N/A
between Fund III and Fund IV Associates
and The Vlass-Fotos Group, Inc. (Exhibit
10(m) to Post-Effective Amendment No. 1 to
Registration Statement of Wells Real Estate
Fund IV, L.P. and Wells Real Estate Fund V,
L.P., File No. 33-37830)
*10(v) First Amendment to Joint Venture Agreement N/A
of Fund III and IV Associates dated July 1,
1992 (Exhibit to Form 10-K of Wells Real
Estate Fund III, L.P. for the fiscal year
ended December 31, 1992, File No. 0-18407)
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NUMBER
- ------- ----------------------- -----------
*10(w) Agreement for the Purchase and Sale of N/A
Property between Rowe Properties-Markel,
L.P. and Fund III and Fund IV Associates
and Addendum to Agreement for the Purchase
and Sale of Property (Exhibit to Form 10-K
of Wells Real Estate Fund III, L.P. for
the fiscal year ended December 31, 1992,
File No. 0-18407)
*10(x) Office Lease with G.E. Lighting, Rider No. 1 N/A
to Lease, Addendum of Lease, Second Addendum
of Lease, Third Amendment of Lease and
Fourth Amendment to Office Lease (Exhibit to
Form 10-K of Wells Real Estate Fund III,
L.P. for the fiscal year ended December 31,
1992, File No. 0-18407)
*10(y) Amended and Restated Custodial Agency N/A
Agreement between Wells Real Estate Fund III,
L.P. and NationsBank of Georgia, N.A. dated
April 1, 1994 (Exhibit to Form 10-K of Wells
Real Estate Fund III, L.P. for the fiscal
year ended December 31, 1994, File No. 0-
18407)
*10(z) Joint Venture Agreement of Fund II, III, N/A
VI and VII Associates (Exhibit to Form
10-K of Wells Real Estate Fund VI, L.P.
for the fiscal year ended December 31,
1995, File No. 0-23656)
ATL1-101734
INDEX TO THE FINANCIAL STATEMENTS
FINANCIAL STATEMENTS PAGE
- -------------------- ----
Independent Auditors' Reports F2-F3
Balance Sheets as of December 31, 1996 and 1995 F4
Statements of Income for the Years ended
December 31, 1996, 1995, and 1994 F5
Statements of Partners' Capital for the Years ended
December 31, 1996, 1995, and 1994 F6
Statements of Cash Flows for the Years ended
December 31, 1996, 1995, and 1994 F7
Notes to Financial Statements for December 31, 1996,
1995, and 1994 F8
Financial Statement Schedule III Real Estate Statements and
Accumulated Depreciation for the Year ended December 31, 1996 S1-S2
F-1
Arthur Andersen LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
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, 1996 and 1995 and
the related statements of income, partners' capital, and cash flows for the
years then ended. These financial statements and the schedule referred to below
are the responsibility of the Partnership's management. Our responsibility is
to express an opinion on those financial statements and schedule based on our
audits. The financial statements of Wells Real Estate Fund III, L.P. for the
year ended December 31, 1994 were audited by other auditors whose report dated
January 13, 1995 expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. 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, 1996 and 1995 and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
January 10, 1997
F-2
[LETTERHEAD OF KPMG PEAT MARWICK LLP APPEARS HERE]
INDEPENDENT AUDITORS' REPORT
The Partners
Wells Real Estate Fund III, L.P.:
We have audited the balance sheet (which is not presented separately herein) of
Wells Real Estate Fund III, L.P. (a limited partnership) as of December 31,
1994, and the related statements of income, partners' capital, and cash flows
for the year then ended. In connection with our audit of the financial
statements, we have also audited the information for the year ended December 31,
1994 included in the December 31, 1996 financial statement Schedule III - Real
Estate and Accumulated Depreciation. These financial statements and information
included in the financial statement schedule are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements and information included in the financial statement
schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides 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, 1994, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles. Also in our opinion, the related information for 1994 included in
the financial statement schedule referred to above, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
January 13, 1995
Atlanta, Georgia
F-3
WELLS REAL ESTATE FUND III, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
1996 1995
----------- -----------
REAL ESTATE ASSETS, AT COST:
Land 576,350 $ 576,350
Building and improvements, less accumulated
depreciation of $613,213 and $454,905 at
December 31, 1996 and 1995, respectively 2,952,388 3,110,696
Construction in progress 13,000 0
----------- -----------
Total real estate assets 3,541,738 3,687,046
INVESTMENT IN JOINT VENTURES 12,926,074 13,446,045
CASH AND CASH EQUIVALENTS 342,318 500,327
DUE FROM AFFILIATES 212,943 336,216
ACCOUNTS RECEIVABLE 67,790 60,841
PREPAID EXPENSES AND OTHER ASSETS 24,100 29,096
----------- -----------
Total assets $17,114,963 $18,059,571
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued expenses $ 35,941 $ 5,035
Partnership distributions payable 324,495 617,810
Due to affiliates 11,396 6,269
----------- -----------
Total liabilities 371,832 629,114
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 7)
PARTNERS' CAPITAL:
Limited partners:
Class A 16,743,131 17,430,457
Class B 0 0
----------- -----------
Total partners' capital 16,743,131 17,430,457
----------- -----------
Total liabilities and partners' capital $17,114,963 $18,059,571
=========== ===========
The accompanying notes are an integral part of these balance sheets.
F-4
WELLS REAL ESTATE FUND III, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1996 1995 1994
---------- ---------- -----------
REVENUES:
Rental income $ 586,466 $ 581,016 $ 573,942
Equity in income of joint ventures 551,244 981,890 984,287
Interest income 17,905 22,011 14,666
Other income 0 2,350 0
---------- ---------- -----------
1,155,615 1,587,267 1,572,895
---------- ---------- -----------
EXPENSES:
Depreciation and amortization 158,308 112,196 96,618
Operating costs--rental property 73,206 179,581 191,400
Partnership administration 70,005 56,256 58,919
Lease acquisition costs 44,867 34,981 35,644
Management and leasing fees 40,499 37,713 35,903
Legal and accounting 32,332 16,984 17,677
Computer costs 5,154 5,852 6,270
---------- ---------- -----------
424,371 443,563 442,431
---------- ---------- -----------
NET INCOME $ 731,244 $1,143,704 $1,130,464
========== ========== ===========
NET INCOME ALLOCATED TO GENERAL PARTNERS $ 0 $ 15,205 $ 0
========== ========== ===========
NET INCOME ALLOCATED TO CLASS A LIMITED
PARTNERS $ 731,244 $1,104,316 $1,608,929
========== ========== ===========
NET INCOME (LOSS) ALLOCATED TO CLASS B
LIMITED PARTNERS $ 0 $ 24,183 $ (478,465)
========== ========== ===========
NET INCOME PER CLASS A LIMITED PARTNER
UNIT $ 0.04 $ 0.06 $ 0.08
========== ========== ===========
NET INCOME (LOSS) PER CLASS B LIMITED
PARTNER UNIT $ 0.00 $ 0.01 $ (0.19)
========== ========== ===========
CASH DISTRIBUTION TO GENERAL PARTNERS $ 0 $ 15,205 $ 0
========== ========== ===========
CASH DISTRIBUTION PER CLASS A LIMITED
PARTNER UNIT $ 0.07 $ 0.08 $ 0.08
========== ========== ===========
CASH DISTRIBUTION PER CLASS B LIMITED
PARTNER UNIT $ 0.00 $ 0.08 $ 0.02
========== ========== ===========
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 PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
LIMITED PARTNERS TOTAL
----------------------------------------------------
CLASS A CLASS B GENERAL PARTNERS'
------------------------- -------------------------
UNITS AMOUNT UNITS AMOUNT PARTNERS CAPITAL
----------- ------------ ----------- ------------ ---------- ------------
BALANCE, DECEMBER 31, 1993 19,635,965 $17,858,965 2,544,540 $ 716,482 $ 0 $18,575,447
Net income (loss) 0 1,608,929 0 (478,465) 0 1,130,464
Partnership distributions 0 (1,570,878) 0 (58,636) 0 (1,629,514)
----------- ------------ ----------- ------------ ---------- ------------
BALANCE, DECEMBER 31, 1994 19,635,965 17,897,016 2,544,540 179,381 0 18,076,397
Net income 0 1,104,316 0 24,183 15,205 1,143,704
Partnership distributions 0 (1,570,875) 0 (203,564) (15,205) (1,789,644)
----------- ------------ ----------- ------------ ---------- ------------
BALANCE, DECEMBER 31, 1995 19,635,965 17,430,457 2,544,540 0 0 17,430,457
Net income 0 731,244 0 0 0 731,244
Partnership distributions 0 (1,418,570) 0 0 0 (1,418,570)
----------- ------------ ----------- ------------ ---------- ------------
BALANCE, DECEMBER 31, 1996 19,635,965 $16,743,131 2,544,540 $ 0 $ 0 $16,743,131
=========== ============ =========== ============ ========== ============
The accompanying notes are an integral part of these statements.
F-6
WELLS REAL ESTATE FUND III, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1996 1995 1994
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 731,244 $ 1,143,704 $ 1,130,464
------------- ------------- -------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in income of joint ventures (551,244) (981,890) (984,287)
Distributions received from joint ventures 1,194,488 1,522,447 1,379,536
Distributions to partners from accumulated earnings (1,541,728) (1,630,724) (1,568,752)
Depreciation and amortization 158,308 112,196 96,618
Changes in assets and liabilities:
Accounts receivable (6,949) 24,955 2,715
Prepaid expenses and other assets 4,996 5,929 8,321
Accounts payable and accrued expenses 30,906 (14,101) (5,983)
Due to affiliates 5,127 (439) (1,361)
------------- ------------- -------------
Total adjustments (706,096) (961,627) (1,073,193)
------------- ------------- -------------
Net cash provided by operating activities 25,148 182,077 57,271
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate (13,000) 0 (51,984)
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners in excess of accumulated earnings (170,157) 0 0
------------- ------------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (158,009) 182,077 5,287
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 500,327 318,250 312,963
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 342,318 $ 500,327 $ 318,250
============= ============= =============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Deferred project costs applied to joint venture properties $ 0 $ 0 $ 5,653
============= ============= =============
The accompanying notes are an integral part of these statements.
F-7
WELLS REAL ESTATE FUND III, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
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
described matters will bind the Partnership without the concurrence of the
general partners. Each limited partnership unit has equal voting rights,
regardless of class.
The Partnership was formed to acquire and operate commercial real properties,
including properties which are either to be developed, currently under
development or construction, newly constructed, or have operating histories.
The Partnership directly owns an office building in Greenville, North
Carolina. In addition, the Partnership owns an interest in the following
properties through joint ventures between the Partnership and other Wells
Real Estate funds: (i) The Atrium of Nassau Bay ("The Atrium"), a four-story
office building located in metropolitan Houston, Texas, (ii) the Brookwood
Grill, a restaurant located in Roswell, Georgia, (iii) the Stockbridge
Village Shopping Center, a retail shopping center located in Stockbridge,
Georgia, southeast of Atlanta, Georgia, (iv) the G.E. Lighting National
Customer Center, a two-story office building located in Richmond, Virginia,
and (v) an office/retail center in Roswell, Georgia (Note 3).
USE OF ESTIMATES AND FACTORS AFFECTING THE PARTNERSHIP
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The carrying values of the real estate assets are based on management's
current intent to hold the real estate assets as long-term investments. The
success of the Partnership's future operations and the ability to realize the
investment in its assets will be dependent upon the Partnership's ability to
maintain rental rates, occupancy and an appropriate level
F-8
of operating expenses in future years. Management believes that the steps it
is taking will enable the Partnership to realize its investment in its
assets.
The lease with one significant tenant at The Atrium contributed approximately
4% and 22% of equity in income of joint ventures to the Partnership for the
years ended December 31, 1996 and 1995, respectively. This tenant's lease
expired in June 1996. As of December 31, 1996, the Partnership has been
unable to re-lease The Atrium. If the Partnership is able to obtain leases
with new tenants for The Atrium, such leases are likely to require
substantial tenant finish and refurbishment expenditures by the Partnership
and may be re-leased at rates substantially lower than those previously
obtained, which could have the effect of substantially reducing future cash
distributions to the partners.
INCOME TAXES
The Partnership is not subject to federal or state income taxes, and
therefore, none have been provided for in the accompanying financial
statements. The partners are required to include their respective share 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 on a quarterly basis. In accordance with the
partnership agreement, distributions first are paid to limited partners
holding Class A units until they have received an 8% 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% 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
. To all the general partners until they have received 100% of their
capital contributions
F-9
. 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, amortization, and cost recovery. Net income, as
defined, of the Partnership will be allocated each year in the same
proportions that net cash from operations is distributed to the partners. To
the extent the Partnership's net income in any year exceeds net cash from
operations, it will be allocated 99% to the limited partners and 1% to the
general partners.
Net loss, depreciation, amortization, and cost recovery deductions for each
fiscal year will be allocated as follows: (a) 99% to the limited partners
holding Class B units and 1% to the general partners until their capital
accounts are reduced to zero, (b) then to any partner having a positive
balance in his capital account in an amount not to exceed such positive
balance, and (c) thereafter to the general partners.
Gain on the sale or exchange of the Partnership's properties will be
allocated generally in the same manner that the net proceeds from such sale
are distributed to partners after the following allocations are made, if
applicable, (a) allocations made pursuant to a qualified income offset
provision in the partnership agreement, (b) allocations to partners having
negative accounts until all negative capital accounts have been restored to
zero; and (c) allocations to Class B limited partners in amounts equal to
deductions for depreciation, amortization, and cost recovery previously
allocated to them with respect to the specific 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 are expensed
as incurred.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121 , "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
which is effective for fiscal years beginning after December 15, 1995. SFAS
No. 121 establishes standards for determining when impairment losses on long-
lived assets have occurred and how impairment losses should be measured. The
Partnership and the entities in which it holds a joint venture interest
adopted SFAS No. 121, effective January 1, 1995. The impact of adopting SFAS
No. 121 was not material to the financial statements of the Partnership or
its affiliated joint ventures.
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 amount of real estate assets may not be recoverable, management
assesses the recoverability of real estate assets under SFAS No. 121 by
determining whether the carrying value of such real estate assets will be
F-10
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, 1996.
Depreciation for buildings and improvements is calculated using the straight-
line method over the useful lives of the real estate assets. Effective
October 1, 1995, the Partnership and its affiliated joint ventures revised
their estimate of the useful lives of buildings and improvements from 40 to
25 years. This change was made to better reflect the estimated periods
during which such assets will remain in service. The change had the effect
on the Partnership, directly and through its ownership interest in joint
ventures, of increasing depreciation expense approximately $61,167 in the
fourth quarter of 1995 and $261,953 in the year ended December 31, 1996.
REVENUE RECOGNITION
All leases on real estate assets held by the Partnership are classified as
operating leases and the related rental income is recognized on a straight-
line basis over the terms of the respective leases.
DEFERRED LEASE ACQUISITION COSTS
Costs incurred to procure operating leases are capitalized and amortized on a
straight-line basis over the terms of the related lease.
INVESTMENT IN JOINT VENTURES
The Partnership does not have control over the operations of the joint
ventures; however, it does exercise significant influence. Accordingly,
investments in joint ventures are recorded using the equity method of
accounting. The joint ventures follow the same significant accounting
policies as the Partnership.
Cash available for distribution and allocations of profit and loss to the
Partnership by the joint ventures are made in accordance with the terms of
the individual joint venture agreements. Generally, these items are
allocated in proportion to the partners' respective ownership interests.
Cash is paid from the joint ventures to the Partnership quarterly.
CASH AND CASH EQUIVALENTS
For the purposes of the statements of cash flows, the Partnership considers
all highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. Cash equivalents include cash and
short-term investments. Short-term investments are stated at cost, which
approximates fair value, and consist of investments in money market accounts.
PER UNIT DATA
Net income (loss) per unit with respect to the Partnership for the years
ended December 31, 1996, 1995, and 1994 is computed based on the weighted
average number of units outstanding during the period.
F-11
RECLASSIFICATIONS
Certain 1995 and 1994 items have been reclassified to conform with 1996
financial statement presentation.
2. RELATED-PARTY TRANSACTIONS
Due from affiliates at December 31, 1996 and 1995 represents the
Partnership's share of cash to be distributed for the fourth quarters of 1996
and 1995, respectively, as follows:
1996 1995
-------- --------
Fund III and IV Associates $212,618 $197,113
Fund II and III Associates--The Atrium 0 125,725
Fund II and III Associates--Brookwood Grill 325 13,378
-------- --------
$212,943 $336,216
======== ========
The Partnership entered into a property management agreement with Wells
Management Company, Inc. ("Wells Management"), an affiliate of the general
partners. 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 $189,023, $204,671,
and $201,112 for the years ended December 31, 1996, 1995, and 1994,
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, while serving 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.
F-12
3. INVESTMENT IN JOINT VENTURES
The Partnership's investment and percentage ownership in the joint ventures
at December 31, 1996 and 1995 are summarized as follows:
1996 1995
------------------ ------------------
AMOUNT PERCENT Amount Percent
------------------ ------------------
Fund III and IV Associates $ 7,899,938 57% $ 8,234,366 57%
Fund II and III Associates--The Atrium
3,663,946 34 3,815,165 34
Fund II and III Associates --Brookwood
Grill 1,362,190 38 1,396,514 38
----------- -----------
$12,926,074 $13,446,045
=========== ===========
The following is a roll forward of the Partnership's investment in joint
ventures for the years ended December 31, 1996 and 1995:
1996 1995
----------- -----------
Investment in joint ventures, beginning $13,446,045 $13,970,314
of period
Equity in income of joint ventures 551,244 981,890
Distributions from joint ventures (1,071,215) (1,506,159)
Investment in joint ventures, end of
------------ ------------
period $12,926,074 $13,446,045
=========== ============
FUND II AND III ASSOCIATES
On April 3, 1989, the Partnership entered into a joint venture agreement with
the Fund II and II-OW joint venture The new joint venture, Fund II and III
Associates, was formed for the purpose of investing in commercial real
properties. In April 1989, Fund II and III Associates acquired The Atrium.
In 1991, the Fund II and II-OW joint venture contributed its interest in a
parcel of land known as the 880 Property located in Roswell, Georgia, to Fund
II and III Associates. The property is a 5.8 acre tract of land. A
restaurant was developed on 1.3 acres and is currently operating as the
Brookwood Grill restaurant ("Fund II and III Associates--Brookwood Grill").
The remaining 4.6 acres of the 880 Property were transferred at cost to the
Fund II, III, VI, and VII Associates joint venture during 1995. Fund II and
III Associates' investment in this transferred parcel of the 880 Property was
$1,690,244 and $1,729,116 at December 31, 1996 and 1995, respectively, which
represented a 25% and 33% interest, respectively.
F-13
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, 1996 AND 1995
Assets
1996 1995
----------- -----------
Real estate assets, at cost:
Land $ 1,504,743 $ 1,504,743
Building and improvements, less
accumulated depreciation of $3,852,396
in 1996 and $3,177,917 in 1995 8,816,719 9,474,137
Construction in progress 33,477 15,500
----------- -----------
Total real estate assets 10,354,939 10,994,380
Cash and cash equivalents 448,112 846,173
Accounts receivable 0 113,362
Prepaid expenses and other assets 35,216 35,216
----------- -----------
Total assets $10,838,267 $11,989,131
=========== ===========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 188,760 $ 527,751
Partnership distributions payable 0 365,481
Due to affiliates 0 6,802
----------- -----------
Total liabilities 188,760 900,034
----------- -----------
Partners' capital:
Fund II and II-OW 6,985,561 7,273,932
Wells Real Estate Fund III 3,663,946 3,815,165
----------- -----------
Total partners' capital 10,649,507 11,089,097
----------- -----------
Total liabilities and partners'
capital $10,838,267 $11,989,131
=========== ===========
F-14
FUND II AND III ASSOCIATES--THE ATRIUM
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1996 1995 1994
---------- ---------- ----------
Revenues:
Rental income $1,048,583 $2,079,345 $2,079,345
Interest income 24,188 29,965 24,636
----------- ---------- ----------
1,072,771 2,109,310 2,103,981
----------- ---------- ----------
Expenses:
Depreciation 674,479 517,507 475,928
Operating costs, net of reimbursements 85,183 419,152 419,752
Management and leasing fees 71,381 142,761 142,735
Partnership administration 59,934 23,077 30,816
Legal and accounting 11,878 7,384 51,238
Computer costs 1,410 1,749 2,760
Amortization of organization costs 0 0 43
---------- ---------- ----------
904,265 1,111,630 1,123,272
---------- ---------- ----------
Net income $ 168,506 $ 997,680 $ 980,709
---------- ---------- ==========
Net income allocated to Fund II and II-OW $ 110,540 $ 654,478 $ 643,344
========== ========== ==========
Net income allocated to Wells Real
Estate Fund III $ 57,966 $ 343,202 $ 337,365
========== ========== ==========
FUND II AND III ASSOCIATES--THE ATRIUM
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
FUND II WELLS REAL TOTAL
AND ESTATE PARTNERS'
II-OW FUND III CAPITAL
----------- ---------- -----------
Balance, December 31, 1993 $ 8,195,100 $4,298,216 $12,493,316
Net income 643,344 337,365 980,709
Partnership distributions (1,095,388) (574,412) (1,669,800)
------------ ----------- ------------
Balance, December 31, 1994 7,743,056 4,061,169 11,804,225
Net income 654,478 343,202 997,680
Partnership distributions (1,123,602) (589,206) (1,712,808)
------------ ----------- ------------
Balance, December 31, 1995 7,273,932 3,815,165 11,089,097
Net income 110,540 57,966 168,506
Partnership distributions (398,911) (209,185) (608,096)
------------ ----------- ------------
Balance, December 31, 1996 $ 6,985,561 $3,663,946 $10,649,507
=========== =========== ============
F-15
FUND II AND III ASSOCIATES--THE ATRIUM
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1996 1995 1994
---------- ----------- -----------
Cash flows from operating activities:
Net income $ 168,506 $ 997,680 $ 980,709
--------- ----------- -----------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 674,479 517,507 475,928
Changes in assets and liabilities:
Accounts receivable 113,362 226,724 226,768
Accounts payable (338,991) 163,364 (146,603)
Due to affiliates (6,802) (13,603) (13,604)
---------- ------------ ------------
Total adjustments 442,048 893,992 542,489
--------- ----------- ------------
Net cash provided by operating
activities 610,554 1,891,672 1,523,198
Cash flows from investing activities:
Investment in real estate assets (35,038) (15,501) 0
Cash flows from financing activities:
Distributions to joint venture partners (973,577) (1,714,751) (1,721,820)
----------- ----------- -----------
Net (decrease) increase in cash and
cash equivalents (398,061) 161,420 (198,622)
Cash and cash equivalents, beginning of
year 846,173 684,753 883,375
---------- ----------- -----------
Cash and cash equivalents, end of year $ 448,112 $ 846,173 $ 684,753
========== =========== ===========
F-16
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, 1996 AND 1995
Assets
1996 1995
--------- --------
Real estate assets, at cost:
Land $ 745,223 $ 745,223
Building and improvements, less
accumulated depreciation of $221,703
in 1996 and $167,689 in 1995 1,051,110 1,105,124
---------- ----------
Total real estate assets 1,796,333 1,850,347
Investment in joint venture 1,690,244 1,729,116
Cash and cash equivalents 9,102 33,892
Due from affiliate 12,472 0
Accounts receivable 113,986 104,724
Prepaid expenses and other assets 28,616 34,184
---------- ----------
Total assets $3,650,753 $3,752,263
========== ==========
Liabilities and Partners' Capital
1996 1995
--------- --------
Liabilities:
Accounts payable $ 20,040 $ 1,180
Due to affiliate 6,544 6,079
Partnership distributions payable 5,865 35,533
---------- ----------
Total liabilities 32,449 42,792
---------- ----------
Partners' capital:
Fund II and II-OW 2,256,114 2,312,957
Wells Real Estate Fund III 1,362,190 1,396,514
---------- ----------
Total partners' capital 3,618,304 3,709,471
---------- ----------
Total liabilities and partners'
capital $3,650,753 $3,752,263
========== ==========
F-17
FUND II AND III ASSOCIATES--BROOKWOOD GRILL
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1996 1995 1994
------- ------- -------
Revenues:
Rental income $225,359 $230,316 $224,750
Equity in loss of joint venture (19,378) 0 0
--------- -------- --------
205,981 230,316 224,750
--------- -------- --------
Expenses:
Operating costs, net of reimbursements 92,450 15,508 24,397
Depreciation 54,014 63,446 58,659
Management and leasing fees 21,436 23,783 24,649
Partnership administration 12,454 13,890 8,496
Lease acquisition costs 5,568 5,568 5,568
Legal and accounting 3,164 14,028 8,984
Computer costs 1,410 1,749 2,676
-------- -------- --------
190,496 137,972 133,429
-------- -------- --------
Net income $ 15,485 $ 92,344 $ 91,321
======== ======== ========
Net income allocated to Fund II and
II-OW $ 9,655 $ 57,577 $ 56,941
======== ======== ========
Net income allocated to Wells Real
Estate Fund III $ 5,830 $ 34,767 $ 34,380
======== ======== ========
FUND II AND III ASSOCIATES--BROOKWOOD GRILL
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
WELLS REAL TOTAL
FUND II ESTATE PARTNERS'
AND II-OW FUND III CAPITAL
---------- ---------- ----------
Balance, December 31, 1993 $2,386,950 $1,441,194 $3,828,144
Net income 56,941 34,380 91,321
Partnership distributions (92,446) (55,818) (148,264)
----------- ----------- -----------
Balance, December 31, 1994 2,351,445 1,419,756 3,771,201
Net income 57,577 34,767 92,344
Partnership distributions (96,065) (58,009) (154,074)
----------- ----------- -----------
Balance, December 31, 1995 2,312,957 1,396,514 3,709,471
Net income 9,655 5,830 15,485
Partnership distributions (66,498) (40,154) (106,652)
----------- ----------- -----------
Balance, December 31, 1996 $2,256,114 $1,362,190 $3,618,304
=========== =========== ===========
F-18
FUND II AND III ASSOCIATES--BROOKWOOD GRILL
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1996 1995 1994
--------- ---------- ---------
Cash flows from operating activities:
Net income $ 15,485 $ 92,344 $ 91,321
--------- ---------- ---------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 54,014 63,446 58,659
Equity in loss of joint venture 19,378 0 0
Distributions received from joint
venture 7,022 0 0
Changes in assets and liabilities:
Accounts receivable (9,262) (7,188) 30,281
Prepaid expenses and other assets 5,568 5,568 (2,182)
Accounts payable 18,860 (3,431) (30,157)
Due to affiliates 465 465 374
---------- --------- --------
Total adjustments 96,045 58,860 56,975
---------- --------- --------
Net cash provided by operating
activities 111,530 151,204 148,296
---------- --------- --------
Cash flows from financing activities:
Advances received from (paid to)
affiliate 0 30,173 (30,173)
Distributions to joint venture partners (136,320) (179,724) (123,966)
--------- --------- ---------
Net cash used in financing
activities (136,320) (149,551) (154,139)
--------- --------- ---------
Net (decrease) increase in cash and
cash equivalents (24,790) 1,653 (5,843)
Cash and cash equivalents, beginning of
year 33,892 32,239 38,082
--------- ---------- ---------
Cash and cash equivalents, end of year $ 9,102 $ 33,892 $ 32,239
========= ========== =========
Supplemental disclosure of noncash
items:
Transfer of real estate assets to joint
venture for partnership interest, net
of accumulated depreciation of $50,484 $ 0 $1,729,116 $ 0
========= ========== =========
FUND II, III, VI, AND VII ASSOCIATES
On January 1, 1995, the Fund II and III Associates joint venture entered into
a joint venture agreement with Wells Real Estate Fund VI, L.P. and Wells Real
Estate Fund VII, L.P. The joint venture, Fund II, III, VI, and VII
Associates, was formed for the purpose of acquiring, developing, operating,
and selling real properties. During 1995, Fund II and III Associates
contributed a 4.3-acre tract of land from its 880 Property to the Fund II,
III, VI, and VII Associates joint venture. Development is substantially
complete on two retail and office buildings containing a total of
approximately 49,500 square feet. During 1996, leases commenced on
approximately half of the available space.
F-19
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, 1996 AND 1995
Assets
1996 1995
---------- ----------
Nonoperating real estate assets, at cost:
Land $ 0 $1,325,242
Land improvements 0 403,874
Construction in progress 0 2,662,448
---------- ----------
Total nonoperating real estate assets 0 4,391,564
---------- ----------
Operating real estate assets, at cost:
Land 1,325,242 0
Building and improvements, less accumulated depreciation of $181,798 4,568,805 0
Construction in progress 214,398 0
---------- ----------
Total operating real estate assets 6,108,445 0
---------- ----------
Total real estate assets 6,108,445 4,391,564
Cash and cash equivalents 675,703 1,321,378
Accounts receivable 67,334 0
Prepaid expenses and other assets 145,820 41,028
---------- ----------
Total assets $6,997,302 $5,753,970
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 204,970 $ 474,905
Partnership distributions payable 49,590 0
---------- ----------
254,560 474,905
---------- ----------
Partners' capital:
Fund II and III Associates 1,690,244 1,729,116
Wells Real Estate Fund VI 1,759,947 1,028,210
Wells Real Estate Fund VII 3,292,551 2,521,739
---------- ----------
Total partners' capital 6,742,742 5,279,065
---------- ----------
Total liabilities and partners' capital $6,997,302 $5,753,970
========== ==========
F-20
FUND II, III, VI, AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENT OF LOSS
FOR THE YEAR ENDED DECEMBER 31, 1996
Revenues:
Rental income $255,062
----------
Expenses:
Depreciation 181,798
Operating costs, net of reimbursements 75,018
Management and leasing fees 16,376
Legal and accounting 14,928
Lease acquisition costs 12,456
Partnership administration 10,286
Computer costs 1,368
----------
312,230
----------
Net loss $(57,168)
==========
Net loss allocated to Fund II and III Associates $(19,378)
==========
Net loss allocated to Wells Real Estate Fund VI $(10,193)
==========
Net loss allocated to Wells Real Estate Fund VII $(27,597)
==========
FUND II, III, VI, AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
WELLS WELLS REAL TOTAL
FUND II AND REAL ESTATE ESTATE PARTNERS'
III ASSOCIATES FUND VI FUND VII CAPITAL
-------------- ----------- ---------- ----------
Balance, January 1, 1995 $ 0 $ 0 $ 0 $ 0
Partnership contributions 1,729,116 1,028,210 2,521,739 5,279,065
-------------- ----------- ---------- ----------
Balance, December 31, 1995 1,729,116 1,028,210 2,521,739 5,279,065
Partnership contributions 0 761,259 835,646 1,596,905
Partnership distributions (19,494) (19,329) (37,237) (76,060)
Net loss (19,378) (10,193) (27,597) (57,168)
-------------- ----------- ---------- ----------
Balance, December 31, 1996 $1,690,244 $1,759,947 $3,292,551 $6,742,742
============== =========== ========== ==========
F-21
FUND II, III, VI, AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
------------ ------------
Cash flows from operating activities:
Net loss $ (57,168) $ 0
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation 181,798 0
Changes in assets and liabilities:
Accounts receivable (67,334) 0
Prepaid expenses and other assets (104,792) (41,028)
Accounts payable and accrued expenses 88,532 22,256
------------ ------------
Total adjustments 98,204 (18,772)
------------ ------------
Net cash provided by (used in) operating
activities 41,036 (18,772)
------------ ------------
Cash flows from investing activities:
(Decrease) increase in construction payables (358,467) 452,649
Investment in real estate (1,736,082) (2,595,190)
------------ ------------
Net cash used in investing activities (2,094,549) (2,142,541)
------------ ------------
Cash flows from financing activities:
Contributions from joint venture partners 1,434,308 3,482,691
Distributions to joint venture partners (26,470) 0
------------ ------------
Net cash provided by financing 1,407,838 3,482,691
------------ ------------
Net (decrease) increase in cash and cash equivalents (645,675) 1,321,378
Cash and cash equivalents, beginning of year 1,321,378 0
------------ ------------
Cash and cash equivalents, end of year $ 675,703 $ 1,321,378
============ ============
Supplemental disclosure of noncash activities:
Contribution of real estate assets $ 0 $ 1,729,116
============ ============
Deferred project costs applied by partners $ 162,597 $ 67,257
============ ============
FUND III AND IV ASSOCIATES
On March 27, 1991, the Partnership entered into a joint venture with Wells
Real Estate Fund IV, L.P. The joint venture, Fund III and IV Associates, was
formed for the purpose of developing, constructing, and operating the
Stockbridge Village Shopping Center in Stockbridge, Georgia. In addition, in
July 1992, Fund III and IV Associates purchased the G.E. Lighting National
Customer Center in Richmond, Virginia.
F-22
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, 1996 AND 1995
Assets
1996 1995
----------- -----------
Real estate assets, at cost:
Land $ 3,331,775 $ 3,331,775
Building and improvements, less accumulated
depreciation of $1,793,055 in 1996 and $1,257,846 in 1995 10,286,205 10,819,438
----------- -----------
Total real estate assets 13,617,980 14,151,213
Cash and cash equivalents 297,901 250,903
Accounts receivable 247,567 294,278
Prepaid expenses and other assets 36,231 54,342
----------- -----------
Total assets $14,199,679 $14,750,736
=========== ===========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 39,722 $ 33,221
Partnership distributions payable 370,953 343,902
Due to affiliates 6,018 7,151
----------- -----------
Total liabilities 416,693 384,274
----------- -----------
Partners' capital:
Wells Real Estate Fund III 7,899,938 8,234,366
Wells Real Estate Fund IV 5,883,048 6,132,096
----------- -----------
Total partners' capital 13,782,986 14,366,462
----------- -----------
Total liabilities and partners' capital $14,199,679 $14,750,736
=========== ===========
F-23
FUND III AND IV ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1996 1995 1994
---------- ---------- ----------
Revenues:
Rental income $1,609,853 $1,676,025 $1,686,388
Interest income 13,024 15,482 9,678
---------- ---------- ----------
1,622,877 1,691,507 1,696,066
---------- ---------- ----------
Expenses:
Depreciation 535,209 382,416 331,381
Management and leasing fees 87,401 93,024 96,042
Operating costs, net of reimbursements 60,043 40,195 5,785
Lease acquisition costs 50,901 78,766 54,988
Property administration 23,054 26,364 44,781
Legal and accounting 11,191 10,928 93,193
Computer costs 4,569 5,790 3,666
Amortization of organization costs 61 366 366
---------- ---------- ----------
772,429 637,849 630,202
---------- ---------- ----------
Net income $ 850,448 $1,053,658 $1,065,864
========== ========== ==========
Net income allocated to Wells Real Estate Fund III $ 487,448 $ 603,921 $ 612,543
========== ========== ==========
Net income allocated to Wells Real Estate Fund IV $ 363,000 $ 449,737 $ 453,321
========== ========== ==========
F-24
FUND III AND IV ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
WELLS REAL WELLS REAL TOTAL
ESTATE ESTATE PARTNERS'
FUND III FUND IV CAPITAL
---------- ---------- ----------
Balance, December 31, 1993 $8,657,921 $6,136,991 $14,794,912
Net income 612,543 453,321 1,065,864
Partnership contributions 0 309,595 309,595
Partnership distributions (781,075) (577,956) (1,359,031)
----------- ----------- ------------
Balance, December 31, 1994 8,489,389 6,321,951 14,811,340
Net income 603,921 449,737 1,053,658
Partnership contributions 0 59 59
Partnership distributions (858,944) (639,651) (1,498,595)
----------- ----------- ------------
Balance, December 31, 1995 8,234,366 6,132,096 14,366,462
Net income 487,448 363,000 850,448
Partnership distributions (821,876) (612,048) (1,433,924)
----------- ----------- ------------
Balance, December 31, 1996 $7,899,938 $5,883,048 $13,782,986
=========== =========== ============
F-25
FUND III AND IV ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1996 1995 1994
----------- ------------ -----------
Cash flows from operating activities:
Net income $ 850,448 $ 1,053,658 $ 1,065,864
------------ ------------ ------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 535,209 382,416 331,381
Changes in assets and liabilities:
Accounts receivable 46,711 73,382 (87,950)
Prepaid expenses and other assets 18,111 54,265 9,599
Accounts payable 6,501 (2,728) (140,979)
Due to affiliates (1,133) (8,261) (33,820)
------------ ------------ ------------
Total adjustments 605,399 499,074 78,231
------------ ------------ ------------
Net cash provided by operating
activities 1,455,847 1,552,732 1,144,095
------------ ------------ ------------
Cash flows from investing activities:
Investment in real estate (1,976) (29,209) (221,528)
------------ ------------ ------------
Cash flows from financing activities:
Contributions from joint venture partners 0 59 309,602
Distributions to joint venture partners (1,406,873) (1,508,718) (1,276,883)
------------ ------------ ------------
Net cash used in financing activities (1,406,873) (1,508,659) (967,281)
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents 46,998 14,864 (44,714)
Cash and cash equivalents, beginning of year 250,903 236,039 280,753
------------ ------------ ------------
Cash and cash equivalents, end of year $ 297,901 $ 250,903 $ 236,039
============ =========== ============
Supplemental disclosure of noncash
investing activities:
Deferred project costs applied by partners $ 0 $ 0 $ 19,988
============ =========== ============
F-26
4. INCOME TAX BASIS NET INCOME AND PARTNERS' CAPITAL
The Partnership's income tax basis net income for the years ended December
31, 1996, 1995, and 1994 are calculated as follows:
1996 1995 1994
------------ ----------- ------------
Financial statement net income $ 731,244 $ 1,143,704 $ 1,130,464
Increase (decrease) in net income resulting from:
Depreciation expense for financial reporting purposes
in excess of amounts for income tax purposes 261,953 61,167 0
Rental income accrued for financial reporting purposes
less than (in excess of) amounts for income tax purposes 68,420 (3,371) (62,660)
Expenses added (deductible) when paid for income tax
purposes, accrued for financial reporting purposes 4,219 104,161 (25,331)
------------ ----------- ------------
Income tax basis net income $ 1,065,836 $ 1,305,661 $ 1,042,473
============ ============ ============
The Partnership's income tax basis partners' capital at December 31, 1996, 1995,
and 1994 is computed as follows:
1996 1995 1994
------------ ----------- ------------
Financial statement partners' capital $16,743,131 $17,430,457 $18,076,397
Increase (decrease) in partners' capital resulting from:
Depreciation expense for financial reporting
purposes in excess of amounts for income tax purposes 323,120 61,167 0
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 (293,570) (361,990) (358,619)
Accumulated expenses deductible when paid for
income tax purposes, accrued for financial
reporting purposes 128,272 127,059 22,898
Partnership distributions payable for tax purposes 324,495 619,021 458,890
Other (1,840) 2,154 2,155
------------ ------------ ------------
Income tax basis partners' capital $19,848,163 $20,502,423 $20,826,276
============ ============ ============
F-27
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, 1996 is as
follows:
Year ending December 31:
1997 $1,589,339
1998 1,374,202
1999 1,331,274
2000 1,058,861
2001 571,450
Thereafter 3,450,147
----------
$9,375,273
==========
Three significant tenants contributed approximately 14%, 14%, and 13% of
revenues, which is either included as rental income in the accompanying
statements of income or in the calculation of equity in income of joint
ventures for the year ended December 31, 1996. In addition, two significant
tenants will contribute approximately 51% and 11% of future minimum rental
income.
One significant tenant at the Atrium contributed 100% of rental income for
the year ended December 31, 1996. At December 31, 1996, there are no leases
signed at The Atrium. Accordingly, no future minimum rental income is due
Fund II and III Associates--The Atrium.
The future minimum rental income due Fund II and III Associates--Brookwood
Grill under noncancelable operating leases at December 31, 1996 is as
follows:
Year ending December 31:
1997 $ 230,563
1998 249,550
1999 249,550
2000 249,550
2001 249,550
Thereafter 20,796
----------
$1,249,559
==========
One significant tenant contributed 100% of rental income for the year ended
December 31, 1996 and will contribute 100% of future minimum rental income.
F-28
The future minimum rental income due Fund II, III, VI, and VII Associates
under noncancelable operating leases at December 31, 1996 is as follows:
Year ending December 31:
1997 $ 456,659
1998 468,816
1999 431,682
2000 341,028
2001 244,106
Thereafter 506,949
----------
$2,449,240
==========
Four significant tenants contributed approximately 38%, 16%, 14%, and 11%
of rental income for the year ended December 31, 1996. In addition, two
significant tenants will contribute approximately 46% and 15% of future
minimum rental income.
The future minimum rental income due Fund III and IV Associates under
noncancelable operating leases at December 31, 1996 is as follows:
Year ending December 31:
1997 $ 1,534,820
1998 1,312,213
1999 1,259,368
2000 797,802
2001 657,172
Thereafter 5,928,922
-----------
$11,490,297
===========
Two significant tenants contributed 31% and 33% of rental income for the
year ended December 31, 1996. In addition, two significant tenants will
contribute approximately 72% and 16% of future minimum rental income.
F-29
6. QUARTERLY RESULTS (UNAUDITED)
Presented below is a summary of the unaudited quarterly financial
information for the years ended December 31, 1996 and 1995:
1996 QUARTERS ENDED
-----------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- --------- -------------- -------------
Revenues $ 355,197 $330,130 $288,562 $181,726
Net income 235,136 257,738 169,124 69,246
Net income allocated to Class A limited
partners 235,136 257,738 169,124 69,246
Net income per Class A limited partner
unit (a) $ 0.01 $ 0.01 $ 0.01 $ 0.00
Cash distribution per Class A limited
partner unit 0.02 0.02 0.02 0.01
1995 QUARTERS ENDED
-----------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- --------- -------------- -------------
Revenues $ 434,041 $434,562 $436,431 $282,233
Net income 341,183 317,668 332,156 152,697
Net income allocated to general partners 0 0 0 15,205
Net income (loss) allocated to Class A
limited partners 476,874 361,358 332,156 (66,072)
Net (loss) income allocated to Class B
limited partners (135,691) (43,690) 0 203,564
Net income per Class A limited partner
unit $ 0.02 $ 0.02 $ 0.02 $ 0.00
Net (loss) income per Class B limited
partner unit (0.05) (0.02) 0 0.08
Cash distributed to general partners 0 0 0 15,205
Cash distribution per Class A limited
partner unit 0.02 0.02 0.02 0.02
Cash distribution per Class B limited
partner unit 0.00 0.00 0.00 0.08
(a) The total of the four quarterly amounts for net income per Class
A limited partner unit for the year ended December 31, 1996 does
not equal the total for the year. This difference results from
rounding differences
7. COMMITMENTS AND CONTINGENCIES
Management, after consultation with legal counsel, is not aware of any
significant litigation or claims against the Company. In the normal course
of business, the Company may become subject to such litigation or claims.
F-30
WELLS REAL ESTATE FUND III, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
SCHEDULE III--REAL ESTATE INVESTMENTS
AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
INITIAL COST COSTS OF GROSS AMOUNT AT WHICH CARRIED AT DECEMBER 31, 1996
----------------------- --------------------------------------------------
BUILDINGS AND CAPITALIZED BUILDINGS AND CONSTRUCTION
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS IN PROGRESS TOTAL
- ------------------------ ------------ --------- -------------- ------------ ------ ------------- ------------ ---------
THE ATRIUM AT NASSAU BAY None $1,367,000 $10,983,000 $ 1,857,335 $1,504,743 $12,669,115 $ 33,477 $14,207,335
(A)
GREENVILLE PROJECT(B) None 529,977 0 3,624,974 576,350 3,565,601 13,000 4,154,951
880 PROPERTY--BROOKWOOD
GRILL (C) None 523,319 0 1,494,717 745,223 1,272,813 0 2,018,036
STOCKBRIDGE VILLAGE (D) None 2,551,645 0 7,749,117 2,758,193 7,542,569 0 10,300,762
G.E. LIGHTING NATIONAL None 529,546 4,158,223 422,504 573,582 4,536,691 0 5,110,273
CUSTOMER CENTER (E)
0
880 PROPERTY (F) 1,325,242 0 4,965,001 1,325,242 4,750,603 214,398 6,290,243
---------- ----------- ----------- ---------- ----------- -------- ------------
Total $6,826,729 $15,141,223 $20,113,648 $7,483,333 $34,337,392 260,875 $42,081,600
========== =========== =========== ========== =========== ======== ============
LIFE ON
WHICH
ACCUMULATED DATE OF DATE DEPRECIATION
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED (G)
- ---------------------- ------------- ------------ -------- ----------------
THE ATRIUM AT NASSAU BAY $3,852,396 1988 04/03/89 12 to 25 years
(A)
GREENVILLE PROJECT(B) 613,213 1990 06/20/90 20 to 25 years
880 PROPERTY--BROOKWOOD
GRILL (C) 221,703 1991 01/01/90 20 to 25 years
STOCKBRIDGE VILLAGE (D) 1,187,204 1991 03/27/91 20 to 25 years
G.E. LIGHTING NATIONAL
CUSTOMER CENTER (E) 605,851 1991 07/01/92 20 to 25 years
880 PROPERTY (F) 181,798 1996 01/31/90 20 to 25 years
-----------
Total $6,662,165
===========
(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. The Partnership
owned a 34% interest in Fund II and III Associates as of December 31, 1996.
(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 a joint venture, Fund II and III
Associates. The Partnership owned a 38% interest in the 880 Property--
Brookwood Grill as of December 31, 1996.
(d) Stockbridge Village is a 13.62-acre retail shopping center located in
Stockbridge, Georgia. It is owned by Fund III and IV Associates. The
Partnership owned a 57% interest in Fund III and IV Associates as of
December 31, 1996.
(e) The G.E. Lighting National Customer Center is a 43,000-square foot office
building located in Richmond, Virginia. It is owned by Fund III and IV
Associates. The Partnership owned a 57% interest in Fund III and IV
Associates as of December 31, 1996.
(f) The 880 Property is a 4.3-acre tract of real property under development in
Fulton County, Georgia. It is owned by Fund II, III, VI, and VII
Associates. The Partnership owned a 10% interest in Fund II, III, VI, and
VII Associates as of December 31, 1996.
(g) Depreciation lives used for buildings are 40 years through September 1995,
changed to 25 years thereafter. Depreciation lives used for land
improvements are 20 years.
S-1
WELLS REAL ESTATE FUND III, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
SCHEDULE III--REAL ESTATE INVESTMENTS
AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
ACCUMULATED
COST DEPRECIATION
----------- ------------
BALANCE, DECEMBER 31, 1994 $37,506,406 $4,033,276
1995 additions 4,406,101 1,076,285
1994 deductions (1,779,600) (51,204)
------------ -------------
BALANCE, DECEMBER 31, 1995 40,132,907 5,058,357
1996 additions 1,948,693 1,603,808
------------ ------------
BALANCE, DECEMBER 31, 1996 $42,081,600 $6,662,165
============ ============
S-2