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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, 1997 or
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[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from to
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Commission file number 0-23656
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Wells Real Estate Fund VI, L. P
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(Exact name of registrant as specified in its charter)
Georgia 58-2022628
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
3885 Holcomb Bridge Road
Norcross, Georgia 30092
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(Address of Principal executive offices) (Zip code)
Registrant's telephone number, including area code (770) 449-7800
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
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None None
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Securities registered pursuant to Section 12(g) of the Act:
Class A Unit
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(Title of Class)
Class B Unit
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Aggregate market value of the voting stock held by non-affiliates: Not Applicable
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1
PART I
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ITEM 1. BUSINESS.
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GENERAL
Wells Real Estate Fund VI, L.P. (the "Partnership") is a Georgia public limited
partnership having Leo F. Wells, III and Wells Partners, L.P., a Georgian non-
public limited partnership, as General Partners. The Partnership was formed on
December 1, 1992, for the purpose of acquiring, developing, constructing,
owning, operating, improving, leasing and otherwise managing for investment
purposes income-producing commercial or industrial properties.
On April 5, 1993, 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 April 4,
1994, and received gross proceeds of $25,000,000 representing subscriptions from
2,500,000 Limited Partners units, composed of two classes of limited partnership
interests, Class A and Class B limited partnership units.
The Partnership owns interests in properties through its equity ownership in the
following joint ventures: Fund V and Fund VI Associates, a joint venture between
the Partnership and Wells Real Estate Fund V, L.P. ( the "Fund V - Fund VI Joint
Venture"); (ii) Fund V, Fund VI, and Fund VII Associates, a joint venture
between the Partnership, Wells Real Estate Fund V, L.P. and Wells Real Estate
Fund VII, L.P. (the "Fund V-VI-VII Joint Venture"); (iii) Fund VI and Fund VII
Associates, a joint venture between the Partnership and Wells Real Estate Fund
VII, L.P. (the "Fund VI-VII Joint Venture"); (iv) Fund II, Fund III, Fund VI and
Fund VII Associates, a joint venture between the Partnership, Fund II and Fund
III Associates, and Wells Real Estate Fund VII, L.P., (the "Fund II,III,VI,VII
Joint Venture"); (v) Fund VI, Fund VII and Fund VIII Associates, a joint venture
between the Partnership, Wells Real Estate Fund VII, L.P. and Wells Real Estate
Fund VIII, L.P. (the "Fund VI,VII,VIII Joint Venture"); and (vi) Fund I, II, II-
OW, VI, VII Associates, a joint venture between the Partnership, Wells Real
Estate Fund I, Wells Real Estate Fund II, Wells Real Estate Fund II-OW, and
Wells Real Estate Fund VII, L.P. (the "Fund I,II,II-OW,VI,VII Joint Venture").
As of December 31, 1997, the Partnership owned interests in the following
properties through its ownership of the foregoing joint ventures: (i) a four
story office building located in Hartford, Connecticut (the "Hartford Building")
and (ii) two retail buildings located in Clayton County, Georgia (the
"Stockbridge Village II") which are owned by the Fund V - Fund VI Joint Venture;
(iii) a three-story office building located in Appleton Wisconsin (the "Marathon
Building") which is owned by the Fund V-VI-VII Joint Venture; (iv) two retail
buildings located in Clayton County, Georgia (the "Stockbridge Village III")
which are owned by the Fund VI - Fund VII Joint Venture; (v) a shopping center
expansion located in Clayton County, Georgia (the "Stockbridge Village I
Expansion") which is owned by the Fund VI - Fund VII Joint Venture; (vi) an
2
office/retail center located in Roswell, Georgia (the "Holcomb Bridge Road
Project") which is owned by the Fund II-III-VI-VII Joint Venture; (vii) a four
story office building located in Jacksonville, Florida (the "BellSouth
Property") which is owned by the Fund VI, VII, VIII Joint Venture; (viii) a
shopping center located in Clemmons, North Carolina (the "Tanglewood Commons")
which is owned by the Fund VI, VII, VIII Joint Venture; and (ix) a retail
shopping center located in Cherokee County, Georgia (the "Cherokee Commons")
which is owned by the Fund I-II-II-OW-VI-VII Joint Venture. All of the
foregoing properties were acquired on an all cash basis.
EMPLOYEES
The Partnership has no direct employees. The employees of Wells Capital, Inc.,
the sole General Partner of Wells Partners, L.P., 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, 1997.
INSURANCE
Wells Management Company, Inc., an affiliate of the General Partners, 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.
COMPETITION
The Partnership will experience competition for tenants from owners and managers
of competing projects which may include the General Partners and their
affiliates. As a result, the Partnership may 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 interests in nine properties through its investment in
joint ventures of which three are office buildings and six are retail buildings.
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, 1997, these
properties were 94% occupied, as compared to 93% as of December 31, 1996, 94% as
of December 31, 1995, and 100% as of December 31, 1994 and 1993.
3
The following table shows lease expirations during each of the next ten years
for all leases as of December 31, 1997, assuming no exercise of renewal options
or termination rights:
PARTNERSHIPS
YEAR OF NUMBER OF ANNUALIZED SHARE OF PERCENTAGE OF PERCENTAGE OF
LEASE LEASES SQUARE GROSS BASE ANNUALIZED TOTAL SQUARE TOTAL ANNUALIZED
EXPIRATION EXPIRING FEET EXPIRING RENT(1) GROSS BASE RENT(1) FEET EXPIRING BASE RENT
- ---------- --------- ------------- ----------- ------------------ ------------- ----------------
1998 3 4,200 45,997 4,922 1.1% 0.9%
1999 10 15,847 201,651 55,322 4.2% 3.7%
2000 7 17,473 263,231 71,584 4.7% 4.9%
2001 11 41,769 685,492 220,283 11.1% 12.7%
2002 20 38,083 594,143 178,003 10.1% 11.0%
2003 (2) 3 73,450 756,319 397,158 19.6% 14.1%
2004 2 11,000 216,648 99,136 2.9% 4.0%
2005 2 9,932 188,676 80,257 2.6% 3.5%
2006 (3) 5 160,328 2,380,107 900,428 42.7% 44.3%
2007 1 3,600 46,793 5,007 1.0% 0.9%
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64 375,682 $5,379,057 $2,012,100 100.0% 100.0%
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(1) Average monthly gross rent over the life of the lease, annualized.
(2) Expiration of Hartford Fire Insurance Company lease.
(3) Expiration of Marathon lease of 76,000 square feet and BellSouth lease
of 69,424 square feet.
The following describes the properties in which the Partnership owns an
interest as of December 31, 1997:
FUND V - FUND VI JOINT VENTURE
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On December 27, 1993, the Partnership and Wells Real Estate Fund V, L.P. ("Wells
Fund V"), a Georgia public limited partnership affiliated with the Partnership
through common general partners, entered into a joint venture agreement known as
Fund V and Fund VI Associates (the "Fund V - Fund VI Joint Venture"). The
investment objectives of Wells Fund V are substantially identical to those of
the Partnership. As of December 31, 1997, the Partnership had contributed
approximately $5,311,505, and Wells Fund V had contributed approximately
$4,544,601 to the Fund V - Fund VI Joint Venture. The Partnership holds an
approximately 53% equity interest, and Wells Fund V currently holds an
approximately 47% equity interest in the Fund V - Fund VI Joint Venture. It is
anticipated that the Partnership will fund an additional $60,000 toward the
completion of the Stockbridge Village II Project, at which time it is
anticipated that the Partnership will hold an approximate 54% equity interest in
the Fund V - Fund VI Joint Venture. The Partnership owns interests in the
following two properties through the Fund V - Fund VI Joint Venture:
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The Hartford Building
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On December 29, 1993, the Fund V - Fund VI Joint Venture purchased the Hartford
Building, a four-story office building containing approximately 71,000 rentable
square feet from Hartford Accident and Indemnity Company for a purchase price of
$6,900,000. The Hartford Building is located on 5.56 acres of land in
Southington, Hartford County, Connecticut. The funds used by the Fund V - Fund
VI Joint Venture to acquire the Hartford Building were derived from capital
contributions made by the Partnership and Wells Fund V totalling $3,432,707 and
$3,508,797, respectively, for total capital contributions to the Fund V - Fund
VI Joint Venture of $6,941,504.
The entire building is leased to Hartford Fire Insurance Company for a period of
nine years and eleven months commencing on December 29, 1993. The annual base
rent during the initial term is $458,400 payable in equal month installments of
$38,200 for the first three months, and $724,200 payable in equal monthly
installments of $60,350 commencing April 1, 1994 and continuing through the
expiration of the initial term of the lease under the terms of its lease.
Hartford also has the option to extend the initial term of the lease for two
consecutive five year periods. Under the terms of its lease, Hartford is
responsible for property taxes, operating expenses, general repair and
maintenance work and a pro rata share of capital expenditures based upon the
number of years remaining in the lease.
The occupancy rate at the Hartford Building was 100% as of years ended December
31, 1997, 1996, 1995 and 1994. The average effective annual rental per square
foot at the Hartford Building is $10.11 for 1997, 1996, 1995 and 1994, the first
year of ownership.
Stockbridge Village II - Stockbridge South Project
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On November 12, 1993, Wells Fund V purchased 2.46 acres of real property located
in Clayton County, Georgia for $1,022.634. On July 1, 1994, Wells Fund V
contributed the property as capital contribution to the Fund V - Fund VI Joint
Venture.
Construction of a 5,400 square foot retail building was completed in November,
1994. A second retail building containing approximately 10,550 square feet was
completed in June, 1995. The entire first building was leased by Apple
Restaurants, Inc. for nine years and eleven months beginning in December 9,
1994. The annual base rent under the lease is $125,982 until December 15, 1999,
at which time the annual base rent increases to $137,700.
Glenn's Open Pit Bar-B-Que leased 4,303 square feet of the second retail
building for a six year term beginning July 1, 1995 and vacated in April 1997
owing substantial rent. The receivable from Glenn's has been collected in
December 1997.
The total cost to complete the second building in Stockbridge Village II is
currently anticipated to be approximately $2,974,000. As of December 31, 1997,
the Partnership
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contributed $1,878,798, and Wells Fund V contributed $1,035,804 to the Fund V -
Fund VI Joint Venture for the acquisition and development of the Stockbridge
Village II Project. As set forth above, it is currently anticipated that the
remaining cost of approximately $60,000 will be contributed by the Partnership.
The occupancy rate at the Stockbridge Village II Project was 72% at year end
1997 and 61% as of the years ended December 31, 1996 and 1995. The average
effective annual rental per square foot at the Stockbridge Village II Project is
$14.88 for 1997, $12.43 for 1996 and $10.41 for 1995, the first year of
occupancy.
FUND V-VI-VII JOINT VENTURE
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On September 8, 1994, the Partnership, Wells Fund V and Wells Real Estate Fund
VII, L.P. ("Wells Fund VII"), Georgia public limited partnerships affiliated
with the Partnership through common general partners, entered into a joint
venture agreement known as Fund V, Fund VI and Fund VII Associates (the "Fund V-
VI-VII Joint Venture"). The investment objectives of Wells Fund VII are
substantially identical to those of the Partnership. The Partnership owns a 42%
interest in the following property through the Fund V-VI-VII Joint Venture:
The Marathon Building
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On September 16, 1994, the Fund V-VI-VII Joint Venture purchased a three-story
office building containing approximately 76,000 rentable square feet, located on
approximately 6.2 acres of land in Appleton, Wisconsin (the "Marathon Building")
for a purchase price of $8,250,000 excluding acquisition costs.
The funds used by the Fund V-VI-VII Joint Venture to acquire the Marathon
Building were derived from capital contributions made by the Partnership, Wells
Fund V and Wells Fund VII totalling $3,470,958, $1,337,505, and $3,470,958,
respectively, for total contributions to the Fund V-VI-VII Joint Venture of
$8,279,421 including acquisition costs. The Partnership owns an approximately
42% equity interest in the Fund V-VI-VII Joint Venture.
The entire Marathon Building is leased to Jaakko Poyry Fluor Daniel for a period
of twelve years, three and one-half months, with options to extend the lease for
two additional five-year periods. The annual base rent is $910,000. The
current lease expires December 31, 2006. The lease agreement is a net lease in
that the tenant is responsible for the operating expenses including real estate
taxes.
The occupancy rate at the Marathon Building was 100% for the years ended 1997,
1996, 1995, and the last three and a half months of 1994. The average effective
annual rental per square foot in the Marathon Building is $12.74 for 1997 and
$12.78 for 1996, 1995 and 1994, the first year of ownership.
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FUND VI - FUND VII JOINT VENTURE
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On December 9, 1994, the Partnership and Wells Fund VII entered into a Joint
Venture Agreement known as Fund VI and Fund VII Associates (the "Fund VI-Fund
VII Joint Venture"). As of December 31, 1997, the Partnership contributed
$2,483,285, including its cost to acquire land, and Wells Fund VII contributed
$3,367,483 to the Fund VI - Fund VII Joint Venture for the acquisition and
development of the Stockbridge Village III Project and the Stockbridge Village I
Expansion. As of December 31, 1997, the Partnership's equity interest in the
Fund VI - VII Joint Venture was approximately 42.5%, and Wells Fund VII's equity
interest in the Fund VI - VII Joint Venture was approximately 57.5%. The
Partnership owns interests in the following two properties through the Fund VI-
Fund VII Joint Venture:
Stockbridge Village III
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In April 1994, the Partnership purchased 3.27 acres of real property located on
the north side of Georgia State Route 138 at Mt. Zion Road, Clayton County,
Georgia for a cost of $1,015,673. This tract of land is located directly across
Route 138 from the Stockbridge Village Shopping Center which was developed and
is owned by an affiliate of the Partnership. On December 9, 1994, the
Partnership contributed the property as a capital contribution to the Fund VI-
Fund VII Joint Venture.
Kenny Rogers Roasters is a 3,200 square foot restaurant which was completed in
March 1995, at a cost of approximately $400,000 excluding land. The term of the
lease is for nine years and eleven months commencing March 1, 1995. The initial
base rent payable is $82,320. In the fifth year, the annual base rent payable
increases to $87,600.
Construction began in January, 1995, on a second outparcel building containing
approximately 15,000 square feet for approximately $1,500,000 excluding land.
Construction was substantially completed in October, 1995. In October 1995,
Damon's Clubhouse occupied 6,500 square feet restaurant. The term of the lease
is for nine years and eleven months commencing October, 1995. The initial
annual base rent is $102,375 through March, 2001 and $115,375 thereafter.
As of December 31, 1997, the Partnership had contributed $1,033,285, and Wells
Fund VII contributed $1,917,483 to the Fund VI-Fund VII Joint Venture for the
acquisition and development of the Stockbridge Village III Property. As of
December 31, 1997, the Partnership's equity interest in the Fund VI-Fund VII
Joint Venture was approximately 42.5%, and Wells Fund VII's equity interest in
the Fund VI-Fund VII Joint Venture was approximately 57.5%.
The occupancy rate at the Stockbridge Village III Project was 100% for the year
ended 1997, 87% at year end 1996 and 71% at year end 1995. The average
effective annual rental per square foot at the Stockbridge Village III Project
was $15.67 for 1997, $14.15 for 1996 and $4.85 for the partial year of occupancy
in 1995.
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Stockbridge Village I Expansion
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On June 7, 1995, the Fund VI - Fund VII Joint Venture purchased 3.38 acres of
real property located in Clayton County, Georgia for a total price of
approximately $718,000. The Stockbridge Village I Expansion consists of a multi-
tenant shopping center containing approximately 29,000 square feet.
Construction was substantially complete in April, 1996 with Cici's Pizza
occupying a 4,000 square foot restaurant. The term of the CiCi's lease is for
nine years and eleven months commencing in April, 1996. The initial base rent
is $48,000. In the third year, the annual base rent increases to $50,000, in
the sixth year to $52,000, and in the ninth year to $56,000. Ten additional
tenants have occupied 17,600 square feet at the property in 1996 and 1997.
Negotiations are being conducted to lease the remaining space.
As of December 31, 1997, the Partnership contributed a total of $1,450,000, and
Wells Fund VII contributed a total of $1,450,000, for a total cost of
approximately $2,900,000 toward the development and construction of the
Stockbridge Village I Expansion.
The occupancy rate at the Stockbridge Village I Expansion was 74% at year end
1997 and 36% at year end 1996, the first year of occupancy. The average
effective annual rental per square foot was $6.82 for 1997 and $2.69 for 1996.
FUND II - III - VI - VII JOINT VENTURE/HOLCOMB BRIDGE ROAD PROJECT
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On January 10, 1995, the Partnership, Fund II-Fund III Joint Venture, and Wells
Fund VII entered into a Joint Venture Agreement known as Fund II, III, VI and
VII Associates ("Fund II-III-VI-VII Joint Venture"). The Fund II-Fund III Joint
Venture is a joint venture between Wells Real Estate Fund III, L.P., a Georgia
public limited partnership having Leo F. Wells, III and Wells Capital, Inc. as
general partners, and an existing joint venture (the "Fund II-Fund II-OW Joint
Venture") formed by Wells Real Estate Fund II ("Wells Fund II"), a Georgia
public limited partnership having Leo F. Wells, III and Wells Capital, Inc. as
general partners, and Wells Real Estate Fund II-OW ("Wells Fund II-OW"), a
Georgia public limited partnership having Leo F. Wells, III and Wells Capital,
Inc. as general partners. The investment objectives of Wells Fund II, Wells
Fund II-OW and Wells Fund III 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 has
been substantially completed on two buildings containing a total of
approximately 49,500 square feet. Fourteen tenants occupied the 880 Holcomb
Bridge property as of December 31, 1997 for an occupancy rate of 94% at year end
1997. The average effective annual rental was $13.71 for 1997 and $9.87 per
square foot for 1996.
8
As of December 31, 1997, Fund II-Fund III Joint Venture contributed $1,729,116
in land and improvements for an equity interest of approximately 24.2%, the
Partnership contributed $1,812,579 for an equity interest of approximately
26.9%, and Wells Fund VII contributed $3,335,121 for an equity interest of
approximately 48.9%. The total cost to develop the Holcomb Bridge Road Property
is currently estimated to be approximately $5,214,000,excluding land. Capital
contributions of $66,000 for the remaining investment will be funded from
reserves held by the Partnership and Wells Fund VII. The Partnership and Wells
Fund VII have reserved sufficient funds for this purpose.
FUND VI-VII-VIII JOINT VENTURE
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On April 17, 1995, the Partnership, Wells Fund VII and Wells Real Estate Fund
VIII, L.P. ("Wells Fund VIII"), a Georgia public limited partnership affiliated
with the Partnership through common general partners, formed a joint venture
known as the Fund VI, Fund VII, and Fund VIII Associates (the "Fund VI-VII-VIII
Joint Venture"). The investment objectives of Wells Fund VIII are substantially
identical to those of the Partnership. As of December 31, 1997, the Partnership
contributed approximately $6,067,688 for an approximately 34.3% equity interest
in the Fund VI-VII-VIII Joint Venture, which owns an office building in
Jacksonville, Florida and a multi-tenant retail center under development in
Forsyth County, North Carolina. As of December 31, 1997, Wells Fund VIII
contributed $5,700,000 for an equity interest in the Fund VI-VII-VIII Joint
Venture of approximately 32.3%, and Wells Fund VII contributed approximately
$5,932,312 for an equity interest in the Fund VI-VII-VIII Joint Venture of
approximately 33.4%. The total cost to complete both properties is
approximately $17,700,000.
BellSouth Property
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On April 25, 1995, the Fund VI-VII-VIII Joint Venture purchased a 5.55 acre
parcel of land in Jacksonville, Florida for a total of $1,245,059 including
closing costs. In May 1996, the 92,964 square foot office building was
completed with BellSouth Advertising and Publishing Corporation, a subsidiary of
BellSouth Company, occupying approximately 66,333 square feet and American
Express Travel Related Services Company, Inc. occupying approximately 22,607
square feet. BellSouth occupied an additional 3,901 square feet in December
1996. The land purchase and construction costs, totalling approximately
$9,000,000, were funded by capital contributions of $3,500,000 by the
Partnership, $3,500,000 by Wells Fund VII and $2,000,000 by the Wells Fund VIII.
The BellSouth lease is for a term of nine years and eleven months with an option
to extend for an additional five years at the then market rate. The annual base
rent during the initial term is $1,094,426 during the first five years and
$1,202,034 for the balance of the initial lease term. The American Express lease
is for a term of five years at an annual base rent of $369,851. BellSouth and
American Express are required to pay additional rent equal to their shares of
operating expenses during their respective lease terms.
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The average effective annual rental per square foot at the BellSouth Property
was $16.40 at year end 1997 and $14.15 at year end 1996, the first year of
occupancy. The occupancy rate at year end was 100% for 1997 and 1996.
Tanglewood Commons Shopping Center
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On May 31, 1995, the Fund VI-VII-VIII Joint Venture purchased a 14.683 acre
tract of real property located in Clemmons, Forsyth County, North Carolina. The
Fund VI-VII-VIII Joint Venture is constructing one large strip shopping center
building containing approximately 81,000 gross square feet on a 12.48 acre
tract. The remaining 2.2 acre portion of the property consists of four
l which have been graded and will be held for future development or
resale. As of December 31, 1997, the Partnership contributed $2,567,688, Wells
Fund VII contributed $2,432,312 and Wells Fund VIII had contributed $3,700,000
for the development of this project.
Total cost and expenses to be incurred by the Fund VI-VII-VIII Joint Venture for
the acquisition, development, construction and completion of the shopping center
are anticipated to be approximately $8,700,000. Construction of the project
began in March, 1996, and was substantially completed in the first quarter of
1997.
Harris Teeter, Inc., a regional supermarket chain, executed a lease for a
minimum of 45,000 square feet with an initial term of 20 years. The annual base
rent during the initial term is $488,250, payable in equal monthly installments
of $40,688. In addition, Harris Teeter has agreed to pay percentage rents equal
to one percent of the amount by which Harris Teeter's gross sales exceed
$35,000,000 for any lease year.
The occupancy rate at Tanglewood Commons was 86% at year end 1997. The average
effective annual rental per square foot at Tanglewood Commons was $8.36 for
1997, the first year of occupancy.
FUND I - II - II-OW - VI - VII JOINT VENTURE
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On August 1, 1995, the Partnership, Wells Real Estate Fund I ("Wells Fund I"), a
Georgia public limited partnership , the Fund II-Fund II-OW Joint Venture and
Wells Fund VII, entered into a joint venture agreement known as Fund I, II, II-
OW, VI and VII Associates (the "Fund I-II-II-OW-VI-VII Joint Venture"), which
was formed to own and operate the Cherokee Project described below. Wells Fund
I is a Georgia limited partnership having Leo F. Wells, III and Wells Capital,
Inc., as general partners. The investment objectives of Wells Fund I, the Fund
II-Fund II-OW Joint Venture and Wells Fund VII are substantially identical to
those of the Partnership.
The Cherokee Property
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The Cherokee Property consists of a retail shopping center known as the
"Cherokee Commons Shopping Center" located in metropolitan Atlanta, Cherokee
County, Georgia (the "Cherokee Project"). The Cherokee Project has been
expanded to consist of
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approximately 103,755 net leasable square feet. The Cherokee Project was
initially developed through a joint venture between Wells Fund I and the
Fund II-Fund II-OW Joint Venture, which contributed the Cherokee Project to the
Fund I-II-II-OW-VI-VII Joint Venture on August 1, 1995 to complete the required
funding for the expansion.
As of December 31, 1997, Wells Fund I contributed property with a book value of
$2,139,900, the Fund II-Fund II-OW Joint Venture contributed property with a
book value of $4,860,100, the Partnership contributed cash in the amount of
$953,798, and Wells Fund VII contributed cash in the amount of $953,798 to the
Fund I-II-l-VI-VII Joint Venture. As of December 31, 1997, the equity
interest in the Fund I - II - II-OW - VI - VII Joint Venture were as follows:
Wells Fund I 24%, Fund II-Fund II-OW Joint Venture 54%, Wells Fund VII 11% and
the Partnership 11%.
The Cherokee Project is anchored by a 67,115 square foot lease with Kroger
Food/Drug ("Kroger") which expires in 2011. Kroger's original lease was for
45,528 square feet. In 1994, Kroger expanded to the current 67,115 square feet
which is approximately 65% of the total rentable square feet in the property.
As of December 31, 1997, the Cherokee Project was approximately 94% occupied by
20 tenants, including Kroger. Kroger, a retail grocery chain, is the only
tenant occupying 10% or more of the rentable square footage. The other tenants
in the shopping center provide typical retail shopping services.
The Kroger lease calls for an annual rent of $392,915 which increased to
$589,102 on August 16, 1995 due to the expansion from 45,528 square feet to
67,115 square feet. The lease expires March 31, 2011 with Kroger entitled to
five successive renewals each for a term of five years.
The occupancy rate at year end for the Cherokee Property was 94% in 1997, 93% in
1996, 94% in 1995, 91% in 1994, and 89% in 1993. The average effective annual
rental per square foot at the Cherokee Property was $8.49 for 1997, $8.59 for
1996, $7.50 for 1995, $5.33 for 1994 and $6.47 for 1993.
ITEM 3. LEGAL PROCEEDINGS.
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There were no material pending legal proceedings or proceedings known to be
contemplated by governmental authorities involving the Partnership during 1997.
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 1997.
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PART II
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ITEM 5. MARKET FOR PARTNERSHIP'S UNITS AND RELATED SECURITY HOLDER MATTERS.
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As of February 28, 1998, the Partnership had 2,158,895 outstanding Class A Units
held by a total of 1,609 Limited Partners and 341,105 outstanding Class B Units
held by a total of 198 Limited Partners. The capital contribution per unit is
$10.00. There is no established public trading market for the Partnership's
limited partnership units, and it is not anticipated that a public trading
market for the units will develop. Under the Partnership Agreement, the General
Partners have the right to prohibit transfers of units.
The General Partners have estimated the investment value of properties held by
the Partnership, as of December 31, 1997, to be $10.91 per unit based on market
conditions existing in early December 1997. The value was confirmed as
reasonable by an independent MAI appraiser, David L. Beal Company, although no
actual MAI appraisal was performed due to the inordinate expense involved with
such an undertaking. The valuation does not include any fractional interest
valuation or any distinction between different Classes of Partnership Units.
Cash available for distribution to the Limited Partners is distributed on a
quarterly basis unless Limited Partners elect to have their cash distributions
paid monthly. Under the Partnership Agreement, distributions from net cash from
operations are allocated first to the Limited Partners holding Class A Units
(and limited partners holding Class B units that have elected a conversion right
that allows them to share in the distribution rights of limited partners holding
Class A units) until they have received 10% of their adjusted capital
contributions. "Net Cash From Operations" means Cash Flow, less adequate cash
reserves for other obligations of the Partnership for which there is no
provision. Cash available for distribution is then distributed to the General
Partners until they have received an amount equal to 10% of cash distributions
previously distributed to the limited partners. Any remaining cash available
for distribution is split between the Limited Partners holding Class A units and
the General Partners on a basis of 90% and 10% respectively. No distributions
will be made to the Limited Partners holding Class B Units. No distribution has
been made to the General Partner as of December 31, 1997.
Cash distributions made to Limited Partners holding Class A Units (and limited
partners holding Class B Units that have elected a conversion right) during the
two most recent fiscal years were as follows:
12
PER CLASS A UNIT
-----------------------
DISTRIBUTIONS FOR TOTAL CASH INVESTMENT RETURN OF
QUARTER ENDED DISTRIBUTION INCOME CAPITAL
------------------ ------------ ---------- ---------
March 31, 1996 $311,988 $0.15 $0.00
June 30, 1996 $282,512 $0.14 $0.00
Sept. 30, 1996 $262,551 $0.12 $0.00
Dec. 31, 1996 $358,606 $0.16 $0.00
March 31, 1997 $359,617 $0.17 $0.00
June 30, 1997 $362,741 $0.17 $0.00
Sept. 30, 1997 $399,873 $0.19 $0.00
Dec. 31, 1997 $432,841 $0.20 $0.00
Fourth quarter distribution was accrued for accounting purposes in 1997, and was
not actually paid to the limited partners holding Class A Units until February
1998. Even though there is no guarantee, the General Partners anticipate that
cash distributions to Limited Partners holding Class A Units will continue in
1998, at a level at least comparable with 1997 cash distributions on an annual
basis.
ITEM 6. SELECTED FINANCIAL DATA.
- --------------------------------
The following sets forth a summary of the selected financial data for the fiscal
years ended December 31, 1997, 1996, 1995 and 1994 and the nine months ended
December 31, 1993.
The Partnership which began on April 5, 1993 did not commence active operations
until it received and accepted subscriptions for a minimum of 125,000 units in
May, 1993.
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
Total assets $20,218,514 $20,880,163 $21,476,126 $21,837,180 $11,191,023
Total revenues 884,802 675,782 1,002,567 819,535 82,723
Net income 795,654 589,053 901,828 700,896 31,428
Net income/(loss) allocated
to General Partners 0 0 (1,828) 1,409 (81)
Net income allocated to
Class A Limited Partners 1,677,826 1,234,717 1,172,944 762,218 39,551
Net loss allocated to
Class B Limited Partners (882,172) (645,664) (269,288) (62,731) (8,042)
Net income per weighted
average (1) Class A
Limited Partner Unit .78 .59 .57 .43 .01
Net loss per weighted
average (1) Class B
Limited Partner Unit (2.47) (1.60) (.60) (.12) (.01)
Cash Distributions per
weighted average (1)
Class A Limited Partner Unit:
Investment Income .73 .57 .62 .32 .00
Return of Capital .00 .00 .00 .00 .00
- ---------------
(1) The weighted average unit is calculated by averaging units over the period
they are outstanding during the time units are still being purchased by
Limited Partners in the Partnership.
13
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 statements
made in this Report, which include construction costs which may exceed
estimates, construction delays, lease-up risks, inability to obtain new tenants
upon the expiration of existing leases, and the potential need to fund tenant
improvements or other capital expenditures out of operating cash flow.
RESULTS OF OPERATIONS AND CHANGES IN FINANCIAL CONDITIONS
- ---------------------------------------------------------
GENERAL
Gross revenues of the Partnership were $884,802 for the fiscal year ended
December 31, 1997, as compared to $675,782 for the fiscal year ended December
31, 1996, and $1,002,567 for the fiscal year ended December 31, 1995. The
decrease for 1996 as compared to 1995 was due primarily to decreased interest
income and decreased income from joint ventures due to the changes in
depreciation discussed below. The increase for 1997 over 1996 was due primarily
to increased income from joint ventures partially offset by a decrease in
interest income. This net increase in revenues is attributed to funds invested
in joint ventures, which increased the income generated from the joint ventures
but decreased the funds available to earn interest. Depreciation expense
increased for the joint ventures from 1995 to 1996 and 1997 due to a change in
the estimated useful lives of buildings and improvements from 40 years to 25
years which became effective in the fourth quarter of 1995. For further
discussion of depreciation expense, please refer to the notes to the
accompanying financial statements.
Expenses of the Partnership were $89,148 for 1997, as compared to $86,729 for
1996 and $100,739 for 1995. The decrease in expenses for 1997 and 1996 as
compared to 1995 was primarily due to decreased partnership administration
expenses.
Net income of the Partnership was $795,654 for the fiscal year ended December
31, 1997, as compared to $589,053 for the fiscal year ended December 31, 1996,
and $901,828 for the year ended December 31, 1995. The increase in net income
for 1997 over 1996 is due primarily to
14
increased earning from joint ventures. The decrease in net income for 1996 over
1995 is due primarily to decreased income from joint ventures and decreased
interest earned offset partially by decreased expenses.
The Partnership made cash distributions to the limited partners holding Class A
Units of $.73 for fiscal year 1997 as compared to $.57 per Class A Unit for
fiscal year 1996 and $.62 for fiscal year 1995. The General Partners anticipate
distributions per Unit will continue to increase for limited partners holding
Class A Units in 1998. Distributions accrued for the fourth quarter of 1997 to
the limited partners holding Class A Units were paid in February, 1998. No cash
distributions were made to limited partners holding Class B Units.
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 joint
ventures 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, 1997, the Partnership's ownership interest in Fund I,II,II-
OW, VI and VII Joint Venture was 10.7%, in Fund II,III, VI and VII Joint Venture
was 26.9%, in Fund V and VI Joint Venture was 53.5%, in Fund V,VI, and VII Joint
Venture was 41.8%, in Fund VI and VII Joint Venture was 42.5% and in Fund VI,VII
and VIII Joint Venture was 34.3%.
As of December 31, 1997, the Partnership owned interests through interests in
joint ventures in the following operational properties:
[The Remainder of this page left intentionally blank]
-----------------------------------------------------
15
THE HARTFORD BUILDING - FUND V - FUND VI JOINT VENTURE
- ------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31
------------------------------------------------------
1997 1996 1995
----------- ---------- ----------
Revenues:
Rental income $717,499 $717,499 $717,499
-------- -------- --------
Expenses
Depreciation 292,031 292,031 199,551
Management & leasing expenses 30,189 28,700 28,700
Other operating expenses (9,983) 13,948 21,182
-------- -------- --------
312,237 334,679 249,433
-------- -------- --------
Net income $405,262 $382,820 $468,066
======== ======== ========
Occupied % 100% 100% 100%
Partnership's Ownership % in the
Fund V-Fund VI Joint Venture 53.5% 52.5% 52.4%
Cash Distribution to the Partnership $374,219 $357,530 $346,456
Net Income Allocated to the
Partnership $215,449 $200,900 $240,278
Net income increased and expenses decreased in 1997, as compared to 1996, due
primarily to an insurance reimbursement from the tenant for prior year's
expenses. Net income decreased and expenses increased in 1996 over 1995 due
primarily to increased depreciation expenses as a result of the change in
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 Changes in Financial Conditions".
The Partnership's ownership in the Fund V-Fund VI Joint Venture increased from
52.4% in 1995, to 52.5% in 1996 and to 53.5% in 1997 due to additional fundings
by the Partnership, which increased its ownership interest and decreased the
Wells Fund V's ownership interest in the Fund V- Fund VI Joint Venture.
Cash distributions increased from 1997 as compared to 1996 and 1995. Net income
allocated to the Partnership decreased in 1996 as compared to 1995 due to
increased depreciation expenses but increased in 1997, as compared to 1996, due
to decreased expenses and increased ownership in the Fund V-Fund VI Joint
Venture as discussed above.
Real estate taxes and all operational expenses for the building are the
responsibility of the tenant.
16
For comments on the general competitive conditions to which the property may be
subject, See Item 1, Business, Page 2. For additional information on tenants,
etc. refer to Item 2, Properties, Page 3. For more detailed financial
information regarding the historical operations of The Hartford Building, refer
to the Financial Statements, as of December 31, 1997, 1996, 1995, regarding The
Hartford Building commencing at page F-43 of this Annual Report on Form 10-K.
STOCKBRIDGE VILLAGE II - FUND V - FUND VI JOINT VENTURE
- -------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31
------------------------------------------------------
1997 1996 1995
----------- ---------- ----------
Revenues:
Rental income $235,508 $196,629 $166,033
-------- -------- --------
Expenses
Depreciation 96,357 79,239 43,588
Management & leasing expenses 35,423 19,786 16,136
Other operating expenses 62,725 90,216 43,099
-------- -------- --------
194,505 189,241 102,823
-------- -------- --------
Net income $ 41,003 $ 7,388 $ 63,210
======== ======== ========
Occupied % 72% 61% 61%
Partnership's Ownership % in the
Fund V-Fund VI Joint Venture 53.5% 52.5% 52.4%
Cash Distribution to the Partnership $ 69,719 $ 37,193 $ 35,490
Net Income Allocated to the
Partnership $ 22,033 $ 3,519 $ 30,555
The Stockbridge Village II Project, consists of two retail buildings which
contain a total of approximately 15,950 square feet. The first building
containing 5,400 square feet was completed in November, 1994 and occupied by
Apple Restaurants, Inc. in December, 1994, resulting in 100% occupancy as of
December 31, 1994. The second building containing 10,550 square feet opened in
June, 1995. Glenn's Open Pit Bar-B-Que leased 4,303 square feet beginning in
July, 1995. 6,049 additional square feet have been leased in the second
building in 1997. Glenn's has vacated its space in April, 1997 owing
substantial rent. The related receivable was collected in December, 1997.
Rental income and management and leasing expenses are greater in 1997, as
compared to 1996 and 1995, due to the increased lease up of the project.
Operating expenses for 1997, have decreased from 1996 levels due primarily to a
bad debt recovery in 1997, on the Glenn's space.
17
In 1997, 1996 and 1995, there were increases in depreciation expense due to
increased new tenant occupancy and the change in 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 Changes in Financial Conditions".
The Partnership's ownership percentage in the Fund V - Fund VI Joint Venture
increased to 53.5% in 1997 from 52.5% for 1996 and 52.4% in 1995 due to
additional investments by the Partnership which increased its ownership interest
and decreased Wells Fund V's ownership interest in the Fund V - Fund VI Joint
Venture.
The Stockbridge Village II Project incurred property taxes of $25,491 for 1997,
$22,835 for 1996 and $19,924 for 1995.
For comments on the general competitive conditions to which the property may be
subject, See Item 1, Business, Page 2. For additional information on tenants,
etc., refer to Item 2, Properties, Page 3.
THE MARATHON BUILDING/FUND V-VI-VII JOINT VENTURE
- -------------------------------------------------
For the Year Ended December 31
------------------------------------------------------
1997 1996 1995
----------- ---------- ----------
Revenues:
Rental income $968,219 $971,017 $971,017
Expenses:
Depreciation 350,585 350,585 243,428
Management & leasing expenses 39,671 38,841 38,841
Other operating expenses 11,905 14,636 25,557
-------- -------- --------
402,161 404,062 307,826
-------- -------- --------
Net income $566,058 $566,955 $663,191
======== ======== ========
Occupied % 100% 100% 100%
Partnership's Ownership % in the
Fund V-VI-VII Joint Venture 41.8% 41.8% 41.8%
Cash Distribution to the Partnership $388,557 $359,305 $354,736
Net Income Allocated to the
Partnership $236,782 $237,157 $277,413
Rental income remained relatively stable in 1997, 1996 and 1995. Net income was
lower 1997 and 1996 than in 1995, due primarily to increases in depreciation
expenses as a result of the change in estimated useful lives of buildings and
improvements which became effective in the
18
fourth quarter of 1995, as previously discussed under the "General" section of
"Results of Operations and Changes in Financial Conditions".
Real estate taxes and all operational expenses for the building are the
responsibility of the tenant.
The Partnership has an equity interest of 41.8% in the Marathon Property through
its ownership in the Fund V-VI-VII Joint Venture.
For comments on the general competitive conditions to which the property may be
subject, See Item 1, Business, page 2. For additional information on tenants,
etc., refer to Item 2, Properties, Page 3.
Stockbridge Village III/Fund VI - Fund VII Joint Venture
- --------------------------------------------------------
8 Months Ended
For the Year Ended December 31, December 31,
----------------------------------- ----------------
1997 1996 1995
------------- ------------ ----------------
Revenues:
Rental income $285,256 $257,571 $88,239
Expenses:
Depreciation 86,626 84,642 28,273
Management and leasing expenses 30,722 51,107 8,999
Other operating expenses 22,501 59,168 43,082
-------- -------- -------
139,849 194,917 80,354
-------- -------- -------
Net income $145,407 $ 62,654 $ 7,885
======== ======== =======
Occupied % 100% 87% 71%
Partnership's Ownership % in the
Fund VI - Fund VII Joint Venture 42.5% 42.8% 43.9%
Cash Distribution to the Partnership $ 99,789 $ 65,756 $ 0
Net Income Allocation to the Partnership $ 62,151 $ 26,845 $ 4,107
In April 1994, the Partnership purchased 3.27 acres of land located in Clayton
County, Georgia. On December 9, 1994, the Partnership contributed the
Stockbridge Village III property ("Stockbridge Village III") as a capital
contribution to the Fund VI - Fund VII Joint Venture.
19
Construction was completed on a 3,200 square foot restaurant in March, 1995.
This retail building is leased to Kenny Rogers Roasters, a restaurant, for a
term of nine years and eleven months. The initial base rent is $82,320 with an
increase in the fifth year to $87,600 annually.
The second multi-tenant retail building containing approximately 15,000 square
feet was completed in October, 1995. Damon's Clubhouse, a restaurant, occupied
approximately 6,732 square feet in October. The Damon's lease is for a term of
nine years and eleven months with initial base rent of $102,375 for five years
and increasing to $115,375 for the remainder of the lease. The remaining 8,268
square feet were fully occupied as of December 31, 1997.
The Stockbridge Village III Project incurred $25,009 for 1997, $23,026 for 1996
and $13,368 for 1995 in property taxes.
The Partnership has an equity interest of 42.5% in the Stockbridge Village III
property through its ownership in the Fund VI - Fund VII Joint Venture.
For comments on the general competitive conditions to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
etc. refer to Item 2, Properties, page 3.
Stockbridge Village I Expansion/Fund VI - Fund VII Joint Venture
- ----------------------------------------------------------------
Year Ended Nine Months Ended
December 31, 1997 December 31, 1996
----------------- -----------------
Revenues:
Rental income $199,090 $ 59,006
Expenses:
Depreciation 111,990 52,780
Management & leasing expenses 25,268 3,238
Other operating expenses 38,757 28,810
-------- --------
176,015 84,828
-------- --------
Net income (loss) $ 23,075 $(25,822)
======== ========
Occupied % 74% 36%
Partnership's Ownership % in the Fund VI -
Fund VII Joint Venture 42.5% 42.8%
Cash Distribution to Partnership $ 48,829 $ 0
Net Income (Loss) Allocated to the
Partnership $ 9,832 $(11,070)
On June 7, 1995, the Fund VI - Fund VII Joint Venture purchased 3.38 acres of
real property located in Clayton County, Georgia. The Stockbridge Village I
Expansion consists of a multi-
20
tenant shopping center containing approximately 29,000 square feet. The majority
of construction was completed in April, 1996 with Cici's Pizza leasing a 4,000
square foot restaurant. The term of the lease is for nine years and eleven
months commencing April, 1997. The initial base rent is $48,000. In the third
year, annual base rent will increase to $50,000, in the sixth year to $52,000,
and in the ninth year to $56,000. Ten additional tenants have occupied 17,600
square feet at the property as of December 31, 1997. Negotiations are being
conducted to lease the remaining space.
Since this property opened in 1996, comparable financial information for prior
years is not available. The Stockbridge Village I Expansion incurred property
taxes of $25,608 for 1997 and $9,182 for 1996. It is projected that no
additional funding will be required to complete tenant buildout by the
Partnership or Wells Fund VII.
For comments on the general competitive conditions to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
refer to Item 2, Properties, page 3.
Holcomb Bridge Road Property / Fund II - III - VI - VII Joint Venture
- ---------------------------------------------------------------------
For the Year Ended Nine Months Ended
December 31, 1997 December 31, 1996
------------------------ ------------------------
Revenues:
Rental Income $679,268 $255,062
Expenses:
Depreciation 325,974 181,798
Management & leasing expenses 48,962 28,832
Other operating expenses 195,567 101,600
-------- --------
570,503 312,230
-------- --------
Net income (loss) $108,765 $(57,168)
======== ========
Occupied % 94% 63%
Partnership's Ownership % in the Fund II - III - VI -
VII Joint Venture 26.9% 26.0%
Cash Distribution to Partnership $115,220 $ 19,329
Net Income (Loss) Allocated to the
Partnership $ 28,409 $(10,193)
Since the Holcomb Bridge Road Property was under construction and not occupied
until first quarter, 1996, comparative income and expense figures for the years
ended December 31, 1996 and 1995 are not available.
21
In January, 1995, the Fund II - Fund III Joint Venture contributed 4.3 acres of
land and land improvements at Holcomb Bridge Road to the Fund II - III - VI -
VII Joint Venture. The project opened in April, 1996. Development has been
substantially completed on two buildings with a total of 49,500 square feet. As
of December 31, 1997, fourteen tenants occupied approximately 46,600 square feet
of space in the retail building under leases of varying lengths.
As of December 31, 1997, the Fund II - Fund III Joint Venture contributed
$1,729,116 in land and land improvements for an equity interest of approximately
24.2%, the Partnership contributed $1,812,579 for an equity interest of
approximately 26.9%, and Wells Fund VII had contributed $3,335,121 for an equity
interest of approximately 48.9% to the Holcomb Bridge Road Project. The total
cost to develop the Holcomb Bridge Road Project is currently estimated to be
approximately $5,214,000, excluding land. It is currently anticipated that the
remaining approximately $66,000 will be required to complete the development of
the Holcomb Bridge Road Project, which amounts are anticipated to be funded by
additional capital contributions from the Partnership and Wells Fund VII, which
has reserved sufficient funds for this purpose. Real estate taxes were $85,230
for 1997 and $37,191 for 1996. The Partnership's ownership percentage was 26.9%
in 1997, and 26.0% in 1996.
For comments on the general competitive conditions to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
etc. refer to Item 2, Properties, page 3.
BellSouth Property / Fund VI - VII - VIII Joint Venture
- -------------------------------------------------------
FOR THE YEAR ENDED EIGHT MONTHS ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------- -------------------------
Revenues:
Rental income $1,524,708 $876,711
Interest income 8,188 60,092
---------- --------
1,532,896 936,803
---------- --------
Expenses:
Depreciation 443,544 290,407
Management & leasing expenses 191,176 99,330
Other operating expenses 414,754 288,665
---------- --------
1,049,474 678,402
---------- --------
Net income $ 483,422 $258,401
========== ========
Occupied % 100% 100%
Partnership's Ownership % in the Fund VI
- VII - VIII Joint Venture 34.3% 36.4%
Cash Distribution to Partnership $ 335,846 $175,281
Net Income Allocated to Partnership $ 170,391 $100,600
22
On April 25, 1995, the Fund VI - VII - VIII Joint Venture purchased 5.55 acres
of land located in Jacksonville, Florida. In May 1996, the 92,964 square foot
office building was completed, with BellSouth Advertising and Publishing
Corporation occupying approximately 66,333 square feet and American Express
occupying approximately 22,607 square feet. An additional approximate 3,091
square feet was occupied by BellSouth commencing in December 1996 bringing
occupancy to 100%.
The initial term of the BellSouth lease is nine years and eleven months. The
annual base rent during the initial term is $1,048,061 during the first five
years and $1,150,878 for the balance of the initial lease term. The American
Express lease is for a term of five years at an annual base rent of $369,851.
BellSouth and American Express are required to pay additional rent equal to
their share of operating expenses during their respective lease terms.
Interest income was generated from construction dollars, not as yet funded on
construction, being invested in interest bearing accounts.
Since the building opened in May, 1996, comparative income and expense figures
for prior years are not available. The BellSouth Property incurred property
taxes of $164,400 for 1997 and $23,234 for 1996, the first year of occupancy.
For comments on the general competitive conditions to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
etc. refer to Item 2, Properties, page 3.
[The remainder of this page left intentionally blank]
----------------------------------------------------
23
Tanglewood Commons / Fund VI - VII - VIII Joint Venture
- -------------------------------------------------------
ELEVEN MONTHS ENDED
-------------------
DECEMBER 31, 1997
-------------------
Revenues:
Rental income $562,880
Interest income 11,276
--------
574,156
--------
Expenses:
Depreciation 191,155
Management & leasing expenses 41,589
Other operating expenses 88,873
--------
321,617
--------
Net income $252,539
========
Occupied % 86%
Partnership's Ownership % in the Fund VI - Fund
VII - Fund VIII Joint Venture 34.3%
Cash Distribution to Partnership $132,652
Net Income Allocated to the
Partnership $ 87,731
On May 31, 1995, the Fund VI-VII-VIII Joint Venture purchased a 14.683 acre
tract of real property located in Clemmons, Forsyth County, North Carolina. The
land purchase costs were funded by a capital contribution made by the
Partnership. Total costs and expenses to be incurred by the Fund VI-VII-VIII
Joint Venture for the acquisition, development, construction and completion of
the shopping center were approximately $8,700,000. A strip shopping center
containing approximately 67,320 gross square feet opened on the site on February
26, 1997.
In February 1997, Harris Teeter, Inc., a regional supermarket chain, occupied
its leased space of 46,120 square feet with an initial term of 20 years. The
annual base rent during the initial term is $488,250. In addition, Harris
Teeter has agreed to pay percentage rent equal to one percent of the amount by
which Harris Teeter gross sales exceed $35,000,000 for any lease year.
Tanglewood Commons incurred property taxes of $58,466 for 1997, the first year
of occupancy. Since this property commenced operations in February 1997,
comparable income and expense figures for the prior year are not available.
24
Cherokee Commons Shopping Center / Fund I - II - II-OW - VI - VII Joint Venture.
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1995
-------- -------- --------
Revenues:
Rental Income $880,652 $890,951 $778,204
Interest Income 67 73 180
-------- -------- --------
880,719 891,024 778,384
Expenses:
Depreciation 440,882 429,419 277,099
Management & leasing expenses 78,046 48,882 36,303
Other operating expenses 138,294 180,841 115,885
-------- -------- --------
657,222 659,142 429,287
-------- -------- --------
Net income $223,497 $231,882 $349,097
======== ======== ========
Occupied % 94% 93% 94%
Partnership's Ownership % 10.7% 10.7% 10.7%
Cash Distribution to Partnership $ 65,047 $ 72,510 $ 36,069
Net Income Allocated to the
Partnership $ 23,931 $ 24,830 $ 18,381
Rental income decreased in 1997, as compared to 1996, due to decreased occupancy
at the property for the first three quarters of 1997. Rental income increased
in 1996 over 1995 due to the Kroger expansion which was completed in November,
1994 but not billed until September, 1995. The increase in occupancy in 1997,
was due to a new 1,200 square foot lease executed in 1997. Operating expenses
of the property decreased to $138,294 in 1997 from $180,841 in 1996, and
increased from $115,885 in 1995. The decrease in operating expenses in 1997, as
compared to 1996, is due to timing differences in billing of common area
maintenance charges and property taxes which was partially offset by increases
in plumbing repair and contract labor expenses. The increase in operating
expenses from 1995 to 1996 is due primarily to repairs and maintenance (roof
repairs, painting and tenant finish) and general and administrative expenses.
The increase in depreciation expenses for 1997 and 1996 as compared to 1995 is a
result of the change in the estimated useful lives of buildings and improvements
which became effective in the fourth quarter of 1995, as previously discussed.
Net income of the property decreased to $223,497 in 1997 and decreased to
$231,882 in 1996 from $349,097 in 1995, due to the reasons discussed above.
Real estate taxes were $67,259 for 1997, $63,696 for 1996 and $63,694 for 1995.
For comments on the general competitive conditions to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
etc. refer to Item 2, Properties, page 3.
25
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During its offering, which terminated on April 4, 1994, the Partnership raised a
total of $25,000,000 in capital through the sale of 2,500,000 units. No
additional units will be sold by the Partnership. From the original funds
raised, the Partnership incurred $4,619,157 in commissions, acquisition fees,
organization and offering costs; invested $20,104,000 in properties; reserved
$217,000 as working capital reserves; and the remainder of approximately $60,000
is reserved for investment in joint ventures. It is currently anticipated that
approximately $60,000 will be contributed by the Partnership to the Fund V -
Fund VI Joint Venture to complete the Stockbridge Village II Project and $66,000
will be contributed by the Partnership and Wells Fund VII to the Fund II-III-VI-
VII Joint Venture to complete the Holcomb Bridge Road Project.
Pursuant to the terms of the Partnership Agreement, the Partnership is required
to maintain working capital reserves in an amount equal to the cash operating
expenses required to operate the Partnership for a six-month period not the be
reduced below 1% of Limited Partners' capital contributions. As set forth
above, in order to fund tenant improvements at the Stockbridge Village II and at
the Holcomb Bridge Road Property, the General Partners have used $32,878 of the
Partnership's working capital reserves to reduce the balance below this minimum
amount, rather than funding the tenant improvements out of operating cash flow,
which would have the effect of reducing cash flow distributions to Limited
Partners. It is anticipated that future rental revenues from these projects
will be allocated to restore the Partnership's minimum working capital reserve
levels over time in the future.
The Partnership's net cash (used in ) provided by operating activities decreased
from $278,728 for the year ended December 31, 1995 to $(2,716) for the year
ended December 31, 1996 to $(57,206) for the year ended December 31, 1997
primarily due to decreased interest income in 1996 and 1997. Net cash provided
by (used in) investing activities increased from $(9,955,164) in 1995 to
$809,967 in 1996 to $1,189,264 in 1997 due primarily to decreases in investments
in joint ventures, a return of capital in 1996 due to a transfer of funds from
the Tanglewood Project to the Holcomb Bridge Road Project and increases in
distributions received from joint ventures. Cash flow from financing activities
varied from $(1,261,032) in 1995 to $(1,185,516) in 1996 and $(1,452,803) in
1997 due to fluctuations in distributions to partners.
The Partnership's distributions paid and payable through the fourth quarter of
1997 have been paid from net cash from operations and from distributions
received from its equity investment in joint ventures. The Partnership
anticipates that distributions will continue to be paid on a quarterly basis
from such sources. No cash distributions were paid to Class B Unit holders for
1997. The Partnership expects to meet liquidity requirements and budget demands
through cash flow from operations.
The Partnership is unaware of any known demands, commitments, events or capital
expenditures other than that which is required for the normal operations of the
properties in which it owns a joint venture interest that will result in the
Partnership's liquidity increasing or decreasing in any material way.
26
INFLATION
- ---------
The real estate market has not been affected significantly by inflation in the
past three years due to the relatively low inflation rate. There are provisions
in the majority of tenant leases to protect the partnership from the impact of
inflation. Most leases contain common area maintenance charges, real estate tax
and insurance reimbursements on a per square foot basis, or in some cases,
annual reimbursement of operating expenses above a certain per square foot
allowance. These provisions should reduce the Partnership 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.
The General Partners have verified that all operational computer systems are
year 2000 compliant. This includes systems supporting accounting, property
management and investor services. Also, as part of this review, all building
control systems have been verified as compliant. The current line of business
applications are based on compliant operating systems and database servers. All
of these products are scheduled for additional upgrades before the year 2000.
Therefore, it is not anticipated that the year 2000 will have significant impact
on operations.
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 1997.
27
PART III
--------
ITEM 10. GENERAL PARTNERS OF THE PARTNERSHIP.
- ---------------------------------------------
WELLS PARTNERS, L.P. Wells Partners, L.P. is a private Georgia limited
- --------------------
partnership formed on October 25, 1990. The sole General Partner of Wells
Partners, L.P. is Wells Capital, Inc., a Georgia corporation. The executive
offices of Wells Capital, Inc. are located at 3885 Holcomb Bridge Road,
Norcross, Georgia 30092.
LEO F. WELLS, III. Mr. Wells is a resident of Atlanta, Georgia, is 54 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, 1997.
CASH COMPENSATION TABLE
(A) (B) (C)
NAME OF INDIVIDUAL OR CAPACITIES IN WHICH SERVED
NUMBER IN GROUP - FORM OF COMPENSATION CASH COMPENSATION
- --------------------- -------------------------- -----------------
Wells Management Property Manager - $170,646
Company, Inc. Management and Leasing
Fees
- ---------------
(1) The majority of these fees are not paid directly by the Partnership but are
paid by the joint venture entities which own properties for which the
property management and leasing services relate and include management and
leasing fees which were accrued for accounting purposes in 1997, but not
actually paid until January, 1998.
28
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, 1998.
(1) (2) (3) (4)
TITLE OF CLASS NAME AND ADDRESS OF AMOUNT AND NATURE PERCENT OF CLASS
BENEFICIAL OWNER OF BENEFICIAL
OWNERSHIP
- --------------------------------------------------------------------------------
Class A Units Leo F. Wells, III 1327.37 units IRA less than 1%
(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 will receive a subordinated participation in net cash flow from
operations equal to 10% of net cash flow after the Limited Partners holding
Class A Units have received preferential distributions equal to 10% of
their adjusted capital contribution. The General Partners will also receive
a subordinated participation in net sale proceeds and net financing
proceeds equal to 20% of residual proceeds available for distribution after
Limited Partners holding Class A Units have received a return of their
adjusted capital contributions plus a 10% cumulative return on their
adjusted capital contributions and Limited Partners holding Class B Units
have received a return of their adjusted capital contribution plus a 15%
cumulative return on their adjusted capital contribution; however, that in
no event shall the General Partners receive in the aggregate in excess of
15% of net sale proceeds and net financing proceeds remaining after
payments to Limited Partners from such proceeds of amounts equal to the sum
of their adjusted capital contributions plus a 6% cumulative return on
their adjusted capital contributions. The General Partners received no
distribution from cash flow or from net sales proceeds in 1997.
29
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 the
lesser of: (A)(i) 3% of the gross revenues for leasing (aggregate maximum
of 6%) plus a separate one-time fee for initial rent-up or leasing-up of
newly constructed properties in an amount not to exceed the fee customarily
charged in arm's-length transactions by other rendering similar services in
the same geographic area for similar properties; and (ii) in the cash of
industrial and commercial properties which are leased on a long-term 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; or (B) the amounts charged by unaffiliated persons rendering
comparable services in the same geographic area. Wells Management Company,
Inc. received $170,646 in property management and leasing fees relating to
the Partnership in 1997.
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
totalling 100% of their capital contributions plus a 6% cumulative return
on their adjusted capital contributions. The General Partners or their
affiliates received no real estate commissions in 1997.
30
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
- --------------------------------------------------------------------------
(a)1. Financial Statements
The Financial Statements are contained on pages F-2 through F-50 of this
Annual Report on Form 10-K, and the list of the Financial Statements
contained herein is set forth on page F-1, which is hereby incorporated
by reference.
(a)2. Financial Statement Schedule III Information with respect to this item
begins on Page S-1 of this Annual Report on Form 10-K.
(a)3. The Exhibits filed in response to Item 601 of Regulation S-K are listed
on the Exhibit Index attached hereto.
(b) No reports on Form 8-K were filed with the Commission during the fourth
quarter of 1997.
(c) The Exhibits filed in response to Item 601 of Regulation S-K are listed
on the Exhibit Index attached hereto.
(d) See (a) 2 above.
31
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 17th day of March,
1998.
WELLS REAL ESTATE FUND VI, L.P.
(Registrant)
By: /s/ Leo F. Wells, III
--------------------------------------------
Individual General Partner and as President
and Chief Financial Officer of Wells
Capital, Inc., the General Partner of Wells
Partners, L.P.
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, 1998
- ------------------------ President and Sole Director
Leo F. Wells, III of Wells Capital, Inc., the
General Partner of Wells
Partners, L.P.
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.
32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ---------------------------------------------------
INDEX TO THE FINANCIAL STATEMENTS
FINANCIAL STATEMENTS PAGE
- -------------------- ----
Independent Auditors' Reports F2
Balance Sheets as of December 31, 1997 and 1996 F3
Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995 F4
Statements of Partners' Capital for the Years Ended
December 31, 1997, 1996 and 1995 F5
Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 F6
Notes to Financial Statements for December 31, 1997,
1996, and 1995 F7
Audited Financial Statements - The Hartford Building F43
F-1
[LETTERHEAD OF ARTHUR ANDERSEN LLP APPEARS HERE]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Wells Real Estate Fund VI, L.P.:
We have audited the accompanying balance sheets of WELLS REAL ESTATE FUND VI,
L.P. (a Georgia public limited partnership) as of December 31, 1997 and 1996 and
the related statements of income, partners' capital, and cash flows for each of
the three years in the period ended December 31, 1997. These financial
statements and the schedule referred to below are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
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 VI, L.P.
as of December 31, 1997 and 1996 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule III--Real Estate Investments
and Accumulated Depreciation as of December 31, 1997 is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 9, 1998
F-2
WELLS REAL ESTATE FUND VI, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
----------- -----------
INVESTMENT IN JOINT VENTURES $19,479,915 $19,930,833
CASH AND CASH EQUIVALENTS 268,337 589,082
DUE FROM AFFILIATES 465,733 335,878
DEFERRED PROJECT COSTS 2,666 14,157
ORGANIZATIONAL COSTS, LESS ACCUMULATED AMORTIZATION OF $29,687 IN
1997 AND $23,437 IN 1996 1,563 7,813
PREPAID EXPENSES AND OTHER ASSETS 300 2,400
----------- -----------
Total assets $20,218,514 $20,880,163
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued expenses $ 0 $ 4,500
Partnership distributions payable 432,841 330,572
----------- -----------
Total liabilities 432,841 335,072
----------- -----------
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Limited partners:
Class A 18,525,190 18,162,497
Class B 1,260,483 2,382,594
----------- -----------
Total partners' capital 19,785,673 20,545,091
----------- -----------
Total liabilities and partners' capital $20,218,514 $20,880,163
=========== ===========
The accompanying notes are an integral part of these balance sheets.
F-3
WELLS REAL ESTATE FUND VI, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
1997 1996 1995
---------- ---------- ----------
REVENUES:
Equity in income of joint ventures $ 856,710 $ 607,214 $ 681,033
Interest income 28,092 68,568 321,534
---------- ---------- ----------
884,802 675,782 1,002,567
---------- ---------- ----------
EXPENSES:
Partnership administration 52,386 49,424 73,123
Legal and accounting 21,541 26,556 15,762
Amortization of organization costs 6,250 6,250 6,250
Computer costs 8,971 4,499 5,604
---------- ---------- ----------
89,148 86,729 100,739
---------- ---------- ----------
NET INCOME $ 795,654 $ 589,053 $ 901,828
========== ========== ==========
NET LOSS ALLOCATED TO GENERAL PARTNERS $ 0 $ 0 $ (1,828)
========== ========== ==========
NET INCOME ALLOCATED TO CLASS A LIMITED PARTNERS $1,677,826 $1,234,717 $1,172,944
========== ========== ==========
NET LOSS ALLOCATED TO CLASS B LIMITED PARTNERS $ (882,172) $ (645,664) $ (269,288)
========== ========== ==========
NET INCOME PER WEIGHTED AVERAGE CLASS A LIMITED $ 0.78 $ 0.59 $ 0.57
PARTNER UNIT ========== ========== ==========
NET LOSS PER WEIGHTED AVERAGE CLASS B LIMITED PARTNER $ (2.47) $ (1.60) $ (0.60)
UNIT ========== ========== ==========
CASH DISTRIBUTION PER WEIGHTED AVERAGE CLASS A
LIMITED PARTNER UNIT $ 0.73 $ 0.57 $ 0.62
========== ========== ==========
The accompanying notes are an integral part of these statements.
F-4
WELLS REAL ESTATE FUND VI, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
LIMITED PARTNERS
----------------------------------------------
CLASS A CLASS B TOTAL
----------------------- --------------------- GENERAL PARTNERS'
UNITS AMOUNT UNITS AMOUNT PARTNERS CAPITAL
---------- ----------- -------- ---------- -------- -----------
BALANCE, DECEMBER 31, 1994 2,003,010 $17,371,901 496,990 $4,143,449 $ 1,828 $21,517,178
Net income (loss) 0 1,172,944 0 (269,288) (1,828) 901,828
Partnership distributions 0 (1,274,745) 0 0 0 (1,274,745)
Class B conversion elections 45,346 367,586 (45,346) (367,586) 0 0
---------- ----------- -------- ---------- ------- -----------
BALANCE, DECEMBER 31, 1995 2,048,356 17,637,686 451,644 3,506,575 0 21,144,261
Net income (loss) 0 1,234,717 0 (645,664) 0 589,053
Partnership distributions 0 (1,188,223) 0 0 0 (1,188,223)
Class B conversion elections 64,901 478,317 (64,901) (478,317) 0 0
---------- ----------- -------- ---------- ------- -----------
BALANCE, DECEMBER 31, 1996 2,113,257 18,162,497 386,743 2,382,594 0 20,545,091
Net income (loss) 0 1,677,826 0 (882,172) 0 795,654
Partnership distributions 0 (1,555,072) 0 0 0 (1,555,072)
Class B conversion elections 45,638 239,939 (45,638) (239,939) 0 0
---------- ----------- -------- ---------- ------- -----------
BALANCE, DECEMBER 31, 1997 2,158,895 $18,525,190 341,105 $1,260,483 $ 0 $19,785,673
========== =========== ======== ========== ======= ===========
The accompanying notes are an integral part of these statements.
F-5
ESTATE FUND VI, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
1997 1996 1995
----------- ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 795,654 $ 589,053 $ 901,828
----------- ----------- ------------
Adjustments to reconcile net income to net cash used in
operating activities:
Equity in income of joint ventures (856,710) (607,214) (681,033)
Amortization of organization costs 6,250 6,250 6,250
Changes in assets and liabilities:
Prepaid expenses and other assets 2,100 8,695 53,533
Deferred income 0 0 (3,850)
Accounts payable and accrued expenses (4,500) 500 2,000
----------- ----------- ------------
Total adjustments (852,860) (591,769) (623,100)
----------- ----------- ------------
Net cash (used in) provided by operating activities
(57,206) (2,716) 278,728
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in joint ventures (310,759) (734,924) (10,721,376)
Distributions received from joint ventures 1,500,023 1,044,891 766,212
Return of contributions in joint venture 0 500,000 0
----------- ----------- ------------
Net cash (used in) provided by investing activities 1,189,264 809,967 (9,955,164)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners from accumulated earnings (1,452,803) (1,185,516) (1,261,032)
----------- ----------- ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (320,745) (378,265) (10,937,468)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 589,082 967,347 11,904,815
----------- ----------- ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 268,337 $ 589,082 $ 967,347
=========== =========== ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Deferred project costs applied to joint venture
properties, net of deferred project costs transferred
between joint venture properties $ 11,491 $ 21,305 $ 495,866
=========== =========== ============
The accompanying notes are an integral part of these statements.
F-6
WELLS REAL ESTATE FUND VI, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996, AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Wells Real Estate Fund VI, L.P. (the "Partnership") is a public limited
partnership organized on April 5, 1993 under the laws of the state of
Georgia. The general partners are Leo F. Wells, III and Wells Partners, L.P.
("Wells Partners"), a Georgia nonpublic limited partnership. The Partnership
has two classes of limited partnership interests, Class A and Class B units.
Limited partners shall have the right to change their prior elections to have
some or all of their units treated as Class A units or Class B units once
every five years. Limited partners may vote to, among other things, (a)
amend the partnership agreement, subject to certain limitations, (b) change
the business purpose or investment objectives of the Partnership, and (c)
remove a general partner. A majority vote on any of the above described
matters will bind the Partnership, without the concurrence of the general
partners. Each limited partnership unit has equal voting rights, regardless
of class.
The Partnership was formed to acquire and operate commercial real properties,
including properties which are to be developed, are currently under
development or construction, are newly constructed, or have operating
histories. The Partnership owns an interest in the following properties
through joint ventures between the Partnership and other Wells Real Estate
Funds: (i) a shopping center located in Cherokee County, Georgia, the
Cherokee Commons Shopping Center ("Cherokee Commons"), (ii) an office/retail
center in Roswell, Georgia, (iii) the Hartford Building, a four-story office
building located in Southington, Connecticut, (iv) the Stockbridge Village II
property, two retail buildings located in Clayton County, Georgia, (v) the
Marathon Building, a three-story office building located in Appleton,
Wisconsin, (vi) the Stockbridge Village III Retail Center, two retail
buildings located in Stockbridge, Georgia, (vii) a retail center expansion in
Stockbridge, Georgia, (viii) the BellSouth property, a four-story office
building in Jacksonville, Florida, and (ix) a retail shopping center in
Clemmons, Forsyth County, North Carolina.
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
F-7
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 on the Partnership's ability to
maintain rental rates, occupancy, and an appropriate level of operating
expenses in future years. Management believes that the steps it is taking
will enable the Partnership to realize its investment in its assets.
INCOME TAXES
The Partnership is not subject to federal or state income taxes, and
therefore, none have been provided for in the accompanying financial
statements. The partners are required to include their respective shares of
profits and losses in their individual income tax returns.
DISTRIBUTION OF NET CASH FROM OPERATIONS
Cash available for distribution, as defined by the partnership agreement, is
distributed to limited partners quarterly. In accordance with the
partnership agreement, distributions are paid first to limited partners
holding Class A units until they have received a 10% per annum return on
their adjusted capital contributions, as defined. Cash available for
distribution is then paid to the general partners until they have received an
amount equal to 10% of distributions. Any remaining cash available for
distribution is split between the limited partners holding Class A units and
the general partners on a basis of 90% and 10%, respectively. No
distributions will be made to the limited partners holding Class B units.
DISTRIBUTION OF SALES PROCEEDS
Upon sales of properties, the net sales proceeds are distributed in the
following order:
. To limited partners, on a per unit basis, until each limited partner
has received 100% of its adjusted capital contribution, as defined
. To limited partners holding Class B units, on a per unit basis, 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, on a per unit basis, until they receive a
cumulative 10% per annum return on their adjusted capital
contributions, as defined
. To all limited partners, on a per unit basis, until they receive an
amount equal to their respective cumulative distributions, as defined
. To the general partners until they have received 100% of their
capital contributions, as defined
. Thereafter, 80% to the limited partners and 20% to the general
partners
F-8
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 holding Class A
units 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 capital accounts until all negative capital accounts have been
restored to zero, (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, and (d)
allocations to Class A limited partners and general 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.
INVESTMENT IN JOINT VENTURES
BASIS OF PRESENTATION. 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.
REAL ESTATE ASSETS. Real estate assets held through investments in
affiliated joint ventures are stated at cost less accumulated depreciation.
Major improvements and betterments are capitalized when they extend the
useful lives of the related assets. 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
joint ventures 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.
F-9
Management continually monitors events and changes in circumstances which
could indicate that carrying amounts of real estate assets may not be
recoverable. When events or changes in circumstances are present which
indicate that the carrying amounts of real estate assets may not be
recoverable, management assesses the recoverability of real estate assets
under SFAS No. 121 by determining whether the carrying value of such real
estate assets will be recovered through the future cash flows expected from
the use of the asset and its eventual disposition. Management has determined
that there has been no impairment in the carrying value of real estate assets
held by the joint ventures as of December 31, 1997.
Depreciation for buildings, building improvements, and land improvements is
calculated using the straight-line method over their useful lives. Effective
October 1, 1995, the joint ventures revised their estimate of the useful
lives of those assets from 40 years 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, through its ownership
interest in the joint ventures, of increasing depreciation expense
approximately $39,928 in the fourth quarter of 1995 and $260,958 and $352,316
in the years ended December 31, 1996 and 1997, respectively. Tenant
improvements are amortized over the life of the related lease or the life of
the asset, whichever is shorter.
REVENUE RECOGNITION. All leases on real estate held by the joint ventures
are classified as operating leases, and the related rental income is
recognized on a straight-line basis over the terms of the respective leases.
PARTNERS' DISTRIBUTIONS AND ALLOCATIONS OF PROFIT AND LOSS. 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 by the joint
ventures to the Partnership quarterly.
DEFERRED LEASE ACQUISITION COSTS. Costs incurred to procure operating leases
are capitalized and amortized on a straight-line basis over the terms of the
related leases.
CASH AND CASH EQUIVALENTS
For the purposes of the statements of cash flows, 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, 1997, 1996, and 1995, is computed based on the weighted
average number of units outstanding during the period.
F-10
RECLASSIFICATIONS
Certain prior year items have been reclassified to conform with the current
year financial statement presentation.
2. DEFERRED PROJECT COSTS
The Partnership paid a percentage of limited partner contributions to Wells
Capital, Inc. (the "Company"), the general partner of Wells Partners, for
acquisition and advisory services. These payments, as stipulated by the
partnership agreement, can be up to 6% of the limited partner contributions,
subject to certain overall limitations contained in the partnership
agreement. Aggregate fees paid through December 31, 1997 were $932,216 and
amounted to 3.7% of the limited partner contributions received. These fees
are allocated to specific properties as they are purchased or developed and
are included in real estate assets at the joint ventures. Deferred project
costs at December 31, 1997 and 1996 represent fees not yet applied to
properties.
3. RELATED-PARTY TRANSACTIONS
Due from affiliates at December 31, 1997 and 1996 represents the
Partnership's share of cash to be distributed for the fourth quarters of 1997
and 1996, as follows:
1997 1996
-------- --------
Fund V and VI Associates $141,979 $ 98,995
Fund V, VI, and VII Associates 96,724 89,577
Fund VI and VII Associates 38,932 17,737
Fund VI, VII, and VIII Associates 132,340 97,741
Fund I, II, II-OW, VI, and VII Associates--Cherokee 20,409 18,925
Fund II, III, VI, and VII Associates 35,349 12,903
-------- --------
$465,733 $335,878
======== ========
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 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.
F-11
The Partnership incurred management and leasing fees and lease acquisition
costs, at the joint venture level, of $170,646, $93,349, and $45,301 for the
years ended December 31, 1997, 1996, and 1995, 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.
4. INVESTMENT IN JOINT VENTURES
The Partnership's investment and percentage ownership in joint ventures at
December 31, 1997 and 1996 are summarized as follows:
1997 1996
--------------------------- ---------------------------
AMOUNT PERCENT AMOUNT PERCENT
------------ --------- ----------- ---------
Fund I, II, II-OW, VI, and VII
Associates--Cherokee $ 891,482 11% $ 932,597 11%
Fund II, III, VI, and VII Associates 1,789,811 27 1,759,947 26
Fund V and VI Associates 4,989,976 53 5,006,236 53
Fund V, VI, and VII Associates 3,263,121 42 3,414,896 42
Fund VI and VII Associates 2,487,443 43 2,548,699 43
Fund VI, VII, and VIII Associates 6,058,082 34 6,268,458 36
------------ -----------
$19,479,915 $19,930,833
============ ===========
The following is a rollforward of the Partnership's investment in joint
ventures for the years ended December 31, 1997 and 1996:
1997 1996
----------- -----------
Investment in joint ventures, beginning of year $19,930,833 $20,184,572
Equity in income of joint ventures 856,710 607,214
Distributions from joint ventures (1,629,878) (1,117,182)
Contributions to joint ventures 322,250 779,389
Return of contributions 0 (523,160)
----------- -----------
Investment in joint ventures, end of year $19,479,915 $19,930,833
=========== ===========
F-12
FUND I, II, II-OW, VI, AND VII ASSOCIATES--CHEROKEE
On August 1, 1995, the Partnership entered into a joint venture agreement
with Wells Real Estate Fund I, Fund II and II-OW (a joint venture between
Wells Real Estate Fund II and Wells Real Estate Fund II-OW), and Wells Real
Estate Fund VII, L.P. ("Fund VII"). The joint venture, Fund I, II, II-OW,
VI, and VII Associates--Cherokee, was formed for the purpose of owning and
operating Cherokee Commons, a retail shopping center containing approximately
103,755 square feet, located in Cherokee County, Georgia. Until the
formation of this joint venture, Cherokee Commons was part of the Fund I and
II Tucker--Cherokee joint venture. Concurrent with the formation of the Fund
I, II, II-OW, VI, and VII Associates--Cherokee joint venture, Cherokee
Commons was transferred from the Fund I and II Tucker--Cherokee joint
venture. Percentage ownership interests in Fund I, II, II-OW, VI, and VII
Associates--Cherokee were determined at the time of formation based on
contributions. Under the terms of the joint venture agreement, Fund VI and
Fund VII each contributed approximately $1 million to the new joint venture
in return for a 10.7% ownership interest. Fund I's ownership interest in the
Cherokee joint venture changed from 30.6% to 24%, and Fund II and II-OW joint
venture's ownership interest changed from 69.4% to 54.6%. The $2 million in
cash contributed to Cherokee was used to fund an expansion of the property
for an existing tenant.
F-13
Following are the financial statements for Fund I, II, II-OW, VI, and VII
Associates--Cherokee:
FUND I, II, II-OW, VI, AND VII ASSOCIATES--CHEROKEE
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
Assets
1997 1996
---------- ----------
Real estate assets, at cost:
Land $1,219,704 $1,219,704
Building and improvements, less accumulated depreciation of
$2,273,149 in 1997 and $1,847,476 in 1996 6,939,884 7,329,974
---------- ----------
Total real estate assets 8,159,588 8,549,678
Cash and cash equivalents 153,159 71,346
Accounts receivable 92,516 93,902
Prepaid expenses and other assets 99,869 78,527
---------- ----------
Total assets $8,505,132 $8,793,453
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 36,851 $ 23,130
Partnership distributions payable 194,123 112,817
Due to affiliates 93,940 78,375
---------- ----------
Total liabilities 324,914 214,322
---------- ----------
Partners' capital:
Wells Real Estate Fund I 1,863,173 1,970,363
Fund II and II-OW 4,536,781 4,746,274
Wells Real Estate Fund VI 891,482 932,597
Wells Real Estate Fund VII 888,782 929,897
---------- ----------
Total partners' capital 8,180,218 8,579,131
---------- ----------
Total liabilities and partners' capital $8,505,132 $8,793,453
========== ==========
F-14
FUND I, II, II-OW, VI AND VII ASSOCIATES--CHEROKEE
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
1997 1996 1995
-------- -------- --------
Revenues:
Rental income $880,652 $890,951 $778,204
Interest income 67 73 180
-------- -------- --------
880,719 891,024 778,384
-------- -------- --------
Expenses:
Depreciation 440,882 429,419 277,099
Operating costs, net of reimbursements 70,017 126,367 51,663
Property administration 26,260 42,868 39,316
Management and leasing fees 64,807 35,598 29,015
Lease acquisition costs 13,239 13,284 7,288
Legal and accounting 9,385 8,362 20,273
Computer costs 0 3,244 4,633
Loss on real estate assets 32,632 0 0
-------- -------- --------
657,222 659,142 429,287
-------- -------- --------
Net income $223,497 $231,882 $349,097
======== ======== ========
Net income allocated to Wells Real Estate Fund I $ 53,691 $ 55,705 $ 95,490
======== ======== ========
Net income allocated to Fund II and II-OW $121,942 $126,517 $216,845
======== ======== ========
Net income allocated to Wells Real Estate Fund VI $ 23,932 $ 24,830 $ 18,381
======== ======== ========
Net income allocated to Wells Real Estate Fund VII $ 23,932 $ 24,830 $ 18,381
======== ======== ========
F-15
FUND I, II, II-OW, VI AND VII ASSOCIATES--CHEROKEE
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
WELLS REAL FUND II WELLS REAL WELLS REAL TOTAL
ESTATE AND ESTATE ESTATE PARTNERS'
FUND I II-OW FUND VI FUND VII CAPITAL
---------- ---------- -------- ---------- ----------
Balance, December 31, 1994 $2,140,194 $5,081,851 $ 0 $ 0 $7,222,045
Net income 95,490 216,845 18,381 18,381 349,097
Partnership contributions 0 0 997,965 995,266 1,993,231
Partnership distributions (126,697) (269,900) (36,069) (36,070) (468,736)
Other (5,321) 0 0 0 (5,321)
---------- ---------- -------- -------- ----------
Balance, December 31, 1995 2,103,666 5,028,796 980,277 977,577 9,090,316
Net income 55,705 126,517 24,830 24,830 231,882
Partnership distributions (189,008) (409,039) (72,510) (72,510) (743,067)
---------- ---------- -------- -------- ----------
Balance, December 31, 1996 1,970,363 4,746,274 932,597 929,897 8,579,131
Net income 53,691 121,942 23,932 23,932 223,497
Partnership distributions (160,881) (331,435) (65,047) (65,047) (622,410)
---------- ---------- -------- -------- ----------
Balance, December 31, 1997 $1,863,173 $4,536,781 $891,482 $888,782 $8,180,218
========== ========== ======== ======== ==========
F-16
FUND I, II, II-OW, VI, AND VII ASSOCIATES--CHEROKEE
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
1997 1996 1995
--------- --------- -----------
Cash flows from operating activities:
Net income $ 223,497 $ 231,882 $ 349,097
--------- --------- -----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 440,882 429,419 277,099
Loss on real estate assets 32,632 0 0
Changes in assets and liabilities:
Accounts receivable 1,386 43,062 7,111
Prepaid expenses and other assets (21,342) 14,106 (42,937)
Accounts payable and accrued expenses 13,721 (4,624) (279,529)
Due to affiliates 15,565 9,613 9,909
--------- --------- -----------
Total adjustments 482,844 491,576 (28,347)
--------- --------- -----------
Net cash provided by operating activities 706,341 723,458 320,750
--------- --------- -----------
Cash flows from investing activities:
Investment in real estate (83,424) (28,231) (1,869,138)
--------- --------- -----------
Cash flows from financing activities:
Contributions from joint venture partners 0 0 2,100,403
Distributions to joint venture partners (541,104) (834,237) (376,011)
--------- --------- -----------
Net cash (used in) provided by financing activities (541,104) (834,237) 1,724,392
Net increase (decrease) in cash and cash equivalents 81,813 (139,010) 176,004
Cash and cash equivalents, beginning of year 71,346 210,356 34,352
--------- --------- -----------
Cash and cash equivalents, end of year $ 153,159 $ 71,346 $ 210,356
========= ========= ===========
Supplemental disclosure of noncash investing activities:
Deferred project costs applied by partners $ 0 $ 0 $ 85,637
========= ========= ===========
Fund II, III, VI, and VII Associates
On January 1, 1995, the Partnership entered into a joint venture agreement
with Fund II and III Associates, and Fund VII. The joint venture, Fund II,
III, VI, and VII Associates, was formed for the purpose of acquiring,
developing, operating, and selling real properties. During 1995, Fund II and
III Associates contributed at cost a 4.3-acre tract of land from its 880
Property--Brookwood Grill to the Fund II, III, VI, and VII Associates joint
venture. During 1997 and 1996, the Partnership and Fund VII made
contributions to the joint venture. Ownership percentage interests were
recomputed accordingly.
F-17
Development was substantially completed in 1996 on two buildings containing a
total of approximately 49,500 square feet.
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, 1997 AND 1996
Assets
1997 1996
---------- ----------
Real estate assets, at cost:
Land $1,325,242 $1,325,242
Building and improvements, less accumulated depreciation of
$507,772 in 1997 and $181,798 in 1996 5,025,276 4,568,805
Construction in progress 59,564 214,398
---------- ----------
Total real estate assets 6,410,082 6,108,445
Cash and cash equivalents 219,391 675,703
Accounts receivable 54,524 67,334
Prepaid expenses and other assets 269,568 145,820
---------- ----------
Total assets $6,953,565 $6,997,302
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 170,776 $ 204,970
Partnership distributions payable 131,907 49,590
---------- ----------
302,683 254,560
---------- ----------
Partners' capital:
Fund II and III Associates 1,608,215 1,690,244
Wells Real Estate Fund VI 1,789,811 1,759,947
Wells Real Estate Fund VII 3,252,856 3,292,551
---------- ----------
Total partners' capital 6,650,882 6,742,742
---------- ----------
Total liabilities and partners' capital $6,953,565 $6,997,302
========== ==========
F-18
FUND II, III, VI, AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
---------- ----------
Revenues:
Rental Income $679,268 $255,062
-------- --------
Expenses:
Depreciation 325,974 181,798
Operating costs, net of reimbursements 122,261 75,018
Management and leasing fees 48,962 16,376
Legal and accounting 4,885 14,928
Lease acquisition costs 50,872 12,456
Property administration 17,321 10,286
Computer costs 228 1,368
--------- ---------
570,503 312,230
--------- ---------
Net income (loss) $108,765 $(57,168)
========= =========
Net income (loss) allocated to Fund II and III Associates $ 27,213 $(19,378)
========= =========
Net income (loss) allocated to Wells Real Estate Fund VI $ 28,409 $(10,193)
========= =========
Net income (loss) allocated to Wells Real Estate Fund VII $ 53,143 $(27,597)
========= =========
F-19
FUND II, III, VI, AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
FUND II WELLS WELLS REAL TOTAL
AND III REAL ESTATE ESTATE PARTNERS'
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
Partnership contributions 0 116,675 121,576 238,251
Partnership distributions (109,242) (115,220) (214,414) (438,876)
Net income 27,213 28,409 53,143 108,765
---------- ---------- ---------- ----------
Balance, December 31, 1997 $1,608,215 $1,789,811 $3,252,856 $6,650,882
========== ========== ========== ==========
F-20
FUND II, III, VI, AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
1997 1996 1995
--------- ----------- -----------
Cash flows from operating activities:
Net income (loss) $ 108,765 $ (57,168) $ 0
--------- ----------- -----------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 325,974 181,798 0
Changes in assets and liabilities:
Accounts receivable 12,810 (67,334) 0
Prepaid expenses and other assets (123,748) (104,792) (41,028)
Accounts payable and accrued expenses (34,194) 88,532 22,256
--------- ----------- -----------
Total adjustments 180,842 98,204 (18,772)
--------- ----------- -----------
Net cash provided by (used in) operating activities 289,607 41,036 (18,772)
--------- ----------- -----------
Cash flows from investing activities:
(Decrease) increase in construction payables 0 (358,467) 452,649
Investment in real estate (620,059) (1,736,082) (2,595,190)
--------- ----------- -----------
Net cash used in investing activities (620,059) (2,094,549) (2,142,541)
--------- ----------- -----------
Cash flows from financing activities:
Contributions from joint venture partners 230,699 1,434,308 3,482,691
Distributions to joint venture partners (356,559) (26,470) 0
--------- ----------- -----------
Net cash (used in) provided by financing activities (125,860) 1,407,838 3,482,691
--------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (456,312) (645,675) 1,321,378
Cash and cash equivalents, beginning of year 675,703 1,321,378 0
--------- ----------- -----------
Cash and cash equivalents, end of year $ 219,391 $ 675,703 $ 1,321,378
========= =========== ===========
Supplemental disclosure of noncash investing activities:
Contribution of real estate assets $ 0 $ 0 $ 1,729,116
========= =========== ===========
Deferred project costs applied by partners $ 7,552 $ 162,597 $ 67,257
========= =========== ===========
Fund V and VI Associates
On December 27, 1993, the Partnership entered into a joint venture agreement
with Wells Real Estate Fund V, L.P. ("Fund V"). The joint venture, Fund V
and VI Associates, was formed for the purpose of investing in commercial real
properties. In December 1993, the joint venture purchased a 71,000-square-
foot, four-story office building known as the Hartford Building in
Southington, Connecticut. On June 26, 1994, Fund V contributed its interest
in a parcel of land, the Stockbridge Village II property, to the joint
venture. The Stockbridge Village II property consists of two separate
restaurants and began operations during 1995.
F-21
Following are the financial statements for Fund V and VI Associates:
FUND V AND VI ASSOCIATES
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
Assets
1997 1996
---------- ----------
Real estate assets, at cost:
Land $1,622,733 $1,622,733
Building and improvements, less accumulated depreciation of
$1,184,725 in 1997 and $796,338 in 1996 7,590,973 7,791,513
Construction in progress 493 3,217
---------- ----------
Total real estate assets 9,214,199 9,417,463
Cash and cash equivalents 245,298 157,443
Accounts receivable 109,882 120,022
Prepaid expenses and other assets 56,002 54,969
---------- ----------
Total assets $9,625,381 $9,749,897
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 17,885 $ 25,752
Partnership distributions payable 265,539 188,453
Due to affiliates 9,657 5,537
---------- ----------
Total liabilities 293,081 219,742
---------- ----------
Partners' capital:
Wells Real Estate Fund V 4,342,324 4,523,919
Wells Real Estate Fund VI 4,989,976 5,006,236
---------- ----------
Total partners' capital 9,332,300 9,530,155
---------- ----------
Total liabilities and partners' capital $9,625,381 $9,749,897
========== ==========
F-22
FUND V AND VI ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
1997 1996 1995
-------- -------- --------
Revenues:
Rental income $953,007 $914,128 $883,532
-------- -------- --------
Expenses:
Depreciation 388,387 371,270 243,139
Operating costs, net of reimbursements 39,492 49,873 32,005
Management and leasing fees 46,694 38,727 38,540
Legal and accounting 24,941 10,816 11,905
Property administration 10,425 10,655 12,752
Lease acquisition costs 18,918 9,759 10,417
Computer costs 0 2,820 3,498
Bad debt (recovery) expense (22,115) 30,000 0
-------- -------- --------
506,742 523,920 352,256
-------- -------- --------
Net income $446,265 $390,208 $531,276
======== ======== ========
Net income allocated to Wells Real Estate Fund V $208,783 $185,438 $258,343
======== ======== ========
Net income allocated to Wells Real Estate Fund VI $237,482 $204,770 $272,933
======== ======== ========
F-23
FUND V AND VI ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
WELLS REAL WELLS REAL TOTAL
ESTATE ESTATE PARTNERS'
FUND V FUND VI CAPITAL
---------- ---------- ----------
Balance, December 31, 1994 $4,804,168 $4,508,043 $9,312,211
Net income 258,343 272,933 531,276
Partnership contributions 0 786,099 786,099
Partnership distributions (363,084) (385,153) (748,237)
---------- ---------- ----------
Balance, December 31, 1995 4,699,427 5,181,922 9,881,349
Net income 185,438 204,770 390,208
Partnership contributions 0 18,130 18,130
Partnership distributions (360,946) (398,586) (759,532)
---------- ---------- ----------
Balance, December 31, 1996 4,523,919 5,006,236 9,530,155
Net income 208,783 237,482 446,265
Partnership contributions 0 190,197 190,197
Partnership distributions (390,378) (443,939) (834,317)
---------- ---------- ----------
Balance, December 31, 1997 $4,342,324 $4,989,976 $9,332,300
========== ========== ==========
F-24
FUND V AND VI ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
1997 1996 1995
--------- --------- ---------
Cash flows from operating activities:
Net income $ 446,265 $ 390,208 $ 531,276
--------- --------- ---------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 388,387 371,270 243,139
Changes in assets and liabilities:
Accounts receivable 10,140 (23,373) (32,496)
Prepaid expenses and other assets (1,033) (13,827) (11,442)
Accounts payable (7,867) 15,752 (46,745)
Due to affiliates 4,120 799 2,348
--------- --------- ---------
Total adjustments 393,747 350,621 154,804
--------- --------- ---------
Net cash provided by operating activities 840,012 740,829 686,080
--------- --------- ---------
Cash flows from investing activities:
Investment in real estate (185,123) (10,807) (751,481)
--------- --------- ---------
Cash flows from financing activities:
Contributions from joint venture partners 190,197 18,130 786,099
Distributions to joint venture partners (757,231) (774,404) (668,748)
--------- --------- ---------
Net cash (used in) provided by financing activities
(567,034) (756,274) 117,351
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 87,855 (26,252) 51,950
Cash and cash equivalents, beginning of year 157,443 183,695 131,745
--------- --------- ---------
Cash and cash equivalents, end of year $ 245,298 $ 157,443 $ 183,695
========= ========= =========
FUND V, VI, AND VII ASSOCIATES
On September 8, 1994, the Partnership entered into a joint venture agreement
with Fund V and Fund VII. The joint venture, Fund V, VI, and VII Associates,
was formed for the purpose of investing in commercial real properties. In
September 1994, Fund V, VI, and VII Associates purchased a 75,000-square-
foot, three-story office building known as the Marathon Building in Appleton,
Wisconsin.
F-25
Following are the financial statements for Fund V, VI, and VII Associates:
FUND V, VI, AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
Assets
1997 1996
---------- ----------
Real estate assets, at cost:
Land $ 314,591 $ 314,591
Building and improvements, less accumulated depreciation of
$1,005,614 in 1997 and $655,029 in 1996 7,362,290 7,712,875
---------- ----------
Total real estate assets 7,676,881 8,027,466
Cash and cash equivalents 231,232 214,145
Accounts receivable 130,577 142,358
---------- ----------
Total assets $8,038,690 $8,383,969
========== ==========
Liabilities and Partners' Capital
Liabilities:
Partnership distributions payable $ 231,232 $ 214,145
Due to affiliates 6,166 5,695
---------- ----------
Total liabilities 237,398 219,840
---------- ----------
Partners' capital:
Wells Real Estate Fund V 1,283,867 1,343,590
Wells Real Estate Fund VI 3,263,121 3,414,896
Wells Real Estate Fund VII 3,254,304 3,405,643
---------- ----------
Total partners' capital 7,801,292 8,164,129
---------- ----------
Total liabilities and partners' capital $8,038,690 $8,383,969
========== ==========
F-26
FUND V, VI, AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
1997 1996 1995
------------ ---------- ---------
Revenues:
Rental income $968,219 $971,017 $971,017
------------- ----------- ----------
Expenses:
Depreciation 350,585 350,585 243,428
Management and leasing fees 39,671 38,841 38,841
Legal and accounting 5,690 7,331 13,715
Property administration 3,878 4,641 8,150
Computer costs 107 1,410 1,749
Operating costs 2,230 1,254 1,943
------------ ---------- ----------
402,161 404,062 307,826
------------ ---------- ----------
Net income $566,058 $566,955 $663,191
============ ========== ==========
Net income allocated to Wells Real Estate Fund V $ 93,173 $ 93,321 $109,161
============ ========== ==========
Net income allocated to Wells Real Estate Fund VI $236,782 $237,157 $277,413
============ ========== ==========
Net income allocated to Wells Real Estate Fund VII $236,103 $236,477 $276,617
============ ========== ==========
FUND V, VI, AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
WELLS REAL WELLS REAL WELLS REAL TOTAL
ESTATE ESTATE ESTATE PARTNERS'
FUND V FUND VI FUND VII CAPITAL
------------ ----------- ----------- -----------
Balance, December 31, 1994 $1,422,081 $3,614,367 $3,604,542 $8,640,990
Net income 109,161 277,413 276,617 663,191
Partnership distributions (139,588) (354,736) (353,719) (848,043)
------------- ------------ ----------- -----------
Balance, December 31, 1995 1,391,654 3,537,044 3,527,440 8,456,138
Net income 93,321 237,157 236,477 566,955
Partnership distributions (141,385) (359,305) (358,274) (858,964)
------------- ------------ ----------- -----------
Balance, December 31, 1996 1,343,590 3,414,896 3,405,643 8,164,129
Net income 93,173 236,782 236,103 566,058
Partnership distributions (152,896) (388,557) (387,442) (928,895)
------------- ------------ ------------ -----------
Balance, December 31, 1997 $1,283,867 $3,263,121 $3,254,304 $7,801,292
============= ============ ============ ===========
F-27
FUND V, VI, AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
1997 1996 1995
---------- ---------- ----------
Cash flows from operating activities:
Net income $ 566,058 $ 566,955 $ 663,191
---------- ---------- ----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 350,585 350,585 243,428
Changes in assets and liabilities:
Accounts receivable 11,781 (61,017) (61,017)
Accounts payable 0 0 (3,000)
Due to affiliates 471 2,441 2,441
---------- --------- ---------
Total adjustments 362,837 292,009 181,852
---------- --------- ---------
Net cash provided by operating activities
928,895 858,964 845,043
Cash flows from financing activities:
Distributions to joint venture partners (911,808) (853,946) (835,231)
---------- --------- ---------
Net increase in cash and cash equivalents 17,087 5,018 9,812
Cash and cash equivalents, beginning of year 214,145 209,127 199,315
--------- --------- ---------
Cash and cash equivalents, end of year $ 231,232 $ 214,145 $ 209,127
========= ========== =========
FUND VI AND VII ASSOCIATES
On December 9, 1994, the Partnership entered into a joint venture agreement
with Fund VII. The joint venture, Fund VI and VII Associates, was formed for
the purpose of investing in commercial real properties. In December 1994,
the Partnership contributed its interest in a parcel of land, the Stockbridge
Village III Retail Center property, located in Stockbridge, Georgia, to the
joint venture. The Stockbridge Village III Retail Center property is
comprised of two separate outparcel buildings totaling approximately 18,500
square feet. One of the outparcel buildings began operations during 1995.
The other outparcel began operations during 1996. On June 7, 1995, Fund VI
and VII Associates purchased 3.38 acres of real property located in
Stockbridge, Georgia. The retail center expansion consists of a multi-tenant
shopping center containing approximately 29,000 square feet.
During 1995 and 1997, both the Partnership and Fund VII made contributions to
Fund VI and VII Associates, and during 1996, Fund VII made contributions to
the joint venture. Ownership percentage interests were recomputed
accordingly.
F-28
Following are the financial statements for Fund VI and VII Associates:
FUND VI AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
Assets
1997 1996
----------- ----------
Real estate assets, at cost:
Land $1,812,447 $1,812,447
Building and improvements, less accumulated depreciation of $364,311
in 1997 and $165,695 in 1996 3,834,375 3,497,180
Construction in progress 34,669 115,438
------------ ----------
Total real estate assets 5,681,491 5,425,065
Cash and cash equivalents 33,921 505,724
Accounts receivable 191,854 93,166
Prepaid expenses and other assets 131,527 82,706
------------ ----------
Total assets $6,038,793 $6,106,661
============ ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 95,044 $ 103,535
Partnership distributions payable 91,435 41,473
Due to affiliates 4,606 2,412
---------- ---------
Total liabilities 191,085 147,420
---------- ---------
Partners' capital:
Wells Real Estate Fund VI 2,487,443 2,548,699
Wells Real Estate Fund VII 3,360,265 3,410,542
---------- ---------
Total partners' capital 5,847,708 5,959,241
---------- ---------
Total liabilities and partners' capital $6,038,793 $6,106,661
========== ==========
F-29
FUND VI AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
1997 1996 1995
--------- --------- ---------
Revenues:
Rental income $485,346 $316,487 $88,239
Expenses:
Depreciation 198,616 137,422 28,273
Operating costs, net of reimbursements 19,833 50,299 31,835
Lease acquisition costs 25,619 34,153 2,546
Management and leasing fees 30,371 20,192 6,453
Property administration 20,803 19,123 6,871
Legal and accounting 21,622 14,277 3,240
Computer costs 0 4,188 1,136
-------- -------- -------
316,864 279,654 80,354
-------- -------- -------
Net income $168,482 $ 36,833 $ 7,885
======== ======== =======
Net income allocated to Wells Real Estate Fund VI $ 71,983 $ 15,775 $ 4,107
======== ======== =======
Net income allocated to Wells Real Estate Fund VII $ 96,499 $ 21,058 $ 3,778
======== ======== =======
F-30
FUND VI AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
WELLS REAL WELLS REAL TOTAL
ESTATE ESTATE PARTNERS'
FUND VI FUND VII CAPITAL
---------- ---------- ----------
Balance, December 31, 1994 $1,053,648 $ 188,684 $1,242,332
Net income 4,107 3,778 7,885
Partnership contributions 1,529,340 3,118,321 4,647,661
Other 3,725 4,612 8,337
---------- ---------- ----------
Balance, December 31, 1995 2,590,820 3,315,395 5,906,215
Net income 15,775 21,058 36,833
Partnership contributions 0 151,306 151,306
Partnership distributions (57,896) (77,217) (135,113)
--------- --------- ---------
Balance, December 31, 1996 2,548,699 3,410,542 5,959,241
Net income 71,983 96,499 168,482
Partnership contributions 15,378 52,528 67,906
Partnership distributions (148,617) (199,304) (347,921)
--------- --------- ---------
Balance, December 31, 1997 $2,487,443 $3,360,265 $5,847,708
========== ========== ==========
F-31
FUNDS VI AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
1997 1996 1995
--------- ----------- ----------
Cash flows from operating activities:
Net income $ 168,482 $ 36,833 $ 7,885
--------- ---------- ----------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 198,616 137,422 28,273
Changes in assets and liabilities:
Accounts receivable (98,688) (59,241) (33,925)
Prepaid expenses and other assets (48,821) (13,757) (68,949)
Accounts payable 26,509 21,049 17,486
Due to affiliates 2,194 (4,485) 6,897
---------- ----------- ---------
Total adjustments 79,810 80,988 (50,218)
---------- ----------- ---------
Net cash provided by (used in) operating activities
248,292 117,821 (42,333)
---------- ----------- ----------
Cash flows from investing activities:
(Decrease) increase in construction payables (35,000) (14,116) 49,116
Investment in real estate (455,042) (1,060,466) (3,000,848)
---------- ----------- ----------
Net cash used in investing activities
(490,042) (1,074,582) (2,951,732)
---------- ----------- ----------
Cash flows from financing activities:
Contributions from joint venture partners 67,906 145,002 4,396,851
Distributions to joint venture partners (297,959) (79,332) (5,971)
---------- ----------- ----------
Net cash (used in) provided by financing activities
(230,053) 65,670 4,390,880
---------- ----------- ----------
Net (decrease) increase in cash and cash equivalents
(471,803) (891,091) 1,396,815
Cash and cash equivalents, beginning of year 505,724 1,396,815 0
---------- ----------- -----------
Cash and cash equivalents, end of year $ 33,921 $ 505,724 $ 1,396,815
========== =========== ===========
Supplemental disclosure of noncash items:
Deferred project costs applied by partners $ 0 $ 6,304 $ 250,810
=========== =========== ===========
Fund VI, VII, and VIII Associates
On April 17, 1995, the Partnership entered into a joint venture with Fund VII
and Wells Real Estate Fund VIII, L.P. ("Fund VIII"). The joint venture, Fund
VI, VII, and VIII Associates, was formed to acquire, develop, operate, and
sell real properties. On April 25, 1995, the joint venture purchased a 5.55-
acre parcel of land in Jacksonville, Florida. A 92,964-square foot office
building, known as the Bell South property, was completed and commenced
operations in 1996. On May 31, 1995, the joint venture purchased a
F-32
14.683-acre parcel of land located in Clemmons, Forsyth County, North
Carolina. A retail shopping center was developed and was substantially
complete at December 31, 1997.
During 1996, the Partnership and Fund VII each withdrew $500,000 from the
joint venture in order to contribute needed funds to Fund II, III, VI, and
VII Associates. In addition, deferred project costs related to the
Partnership and Fund VII of $23,160 and $21,739, respectively, were unapplied
when the contributions were withdrawn. During 1996, Fund VIII made an
additional contribution of $2,815,965, which included $115,965 of deferred
project costs that were applied. Ownership percentage interests were
recomputed accordingly.
F-33
Following are the financial statements for Fund VI, VII, and VIII Associates:
FUND VI, VII, AND VIII ASSOCIATES
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
Assets
1997 1996
----------- -----------
Nonoperating real estate assets, at cost:
Land $ 0 $ 3,159,929
Construction in progress 0 4,587,178
----------- -----------
Total nonoperating real estate assets 0 7,747,107
----------- -----------
Operating real estate assets, at cost:
Land 4,461,819 1,301,890
Building and improvements, less accumulated depreciation of
$925,106 in 1997 and $290,407 in 1996 11,747,642 7,004,986
Construction in progress 94,715 0
---------- ----------
Total operating real estate assets 16,304,176 8,306,876
---------- ----------
Total real estate assets 16,304,176 16,053,983
Cash and cash equivalents 1,059,001 929,683
Accounts receivable 104,021 27,851
Prepaid expenses and other assets 712,814 691,741
----------- -----------
Total assets $18,180,012 $17,703,258
=========== ===========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 100,792 $ 203,275
Partnership distributions payable 386,390 268,656
Due to affiliates 5,177 1,555
----------- ----------
Total liabilities 492,359 473,486
----------- ----------
Partners' capital:
Wells Real Estate Fund VI 6,058,082 6,268,458
Wells Real Estate Fund VII 5,906,810 6,111,934
Wells Real Estate Fund VIII 5,722,761 4,849,380
----------- ----------
Total partners' capital 17,687,653 17,229,772
----------- ----------
Total liabilities and partners' capital $18,180,012 $17,703,258
=========== ===========
F-34
FUND VI, VII, AND VIII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FOR THE PERIOD FROM INCEPTION (APRIL 17, 1995) TO DECEMBER 31, 1995
1997 1996 1995
---------- ---------- ---------
Revenues:
Rental income $2,087,588 $ 876,711 $ 0
Interest income 19,464 147,581 270,723
Other income 360 150 0
---------- --------- --------
2,107,412 1,024,442 270,723
---------- --------- --------
Expenses:
Depreciation 634,699 290,407 0
Operating costs 460,873 262,090 12,792
Lease acquisition costs 97,457 50,388 0
Management and leasing fees 135,308 48,942 0
Legal and accounting 15,934 17,251 0
Property administration 27,180 15,975 10,980
Computer costs 0 642 0
1,371,451 685,695 23,772
---------- ---------- --------
Net income $ 735,961 $ 338,747 $246,951
========== ========== ========
Net income allocated to Wells Real Estate Fund VI $ 258,122 $ 134,875 $108,199
========== ========== ========
Net income allocated to Wells Real Estate Fund VII $ 251,676 $ 131,609 $105,848
========== ========== ========
Net income allocated to Wells Real Estate Fund VIII $ 226,163 $ 72,263 $ 32,904
========== ========== ========
F-35
FUND VI, VII, AND VIII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FOR THE PERIOD FROM INCEPTION (APRIL 17, 1995) TO DECEMBER 31, 1995
WELLS REAL WELLS REAL WELLS REAL TOTAL
ESTATE ESTATE ESTATE PARTNERS'
FUND VI FUND VII FUND VIII CAPITAL
---------- ---------- ---------- -----------
Balance, April 17, 1995 $ 0 $ 0 $ 0 $ 0
Net income 108,199 105,848 32,904 246,951
Partnership contributions 6,871,903 6,711,976 2,085,890 15,669,769
Partnership distributions (113,803) (111,331) (34,609) (259,743)
--------- --------- --------- ----------
Balance, December 31, 1995 6,866,299 6,706,493 2,084,185 15,656,977
Net income 134,875 131,609 72,263 338,747
Partnership contributions 0 0 2,815,965 2,815,965
Partnership distributions (209,556) (204,429) (123,033) (537,018)
Return of contributions (523,160) (521,739) 0 (1,044,899)
--------- --------- --------- ------------
Balance, December 31, 1996 6,268,458 6,111,934 4,849,380 17,229,772
Net income 258,122 251,676 226,163 735,961
Partnership contributions 0 0 1,055,900 1,055,900
Partnership distributions (468,498) (456,800) (408,682) (1,333,980)
----------- ---------- ---------- -----------
Balance, December 31, 1997 $6,058,082 $5,906,810 $5,722,761 $17,687,653
=========== ========== ========== ===========
F-36
FUND VI, VII, AND VIII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FOR THE PERIOD FROM INCEPTION (APRIL 17, 1995) TO DECEMBER 31, 1995
1997 1996 1995
----------- ------------ -----------
Cash flows from operating activities:
Net income $ 735,961 $ 338,747 $ 246,951
----------- ----------- -----------
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation 634,699 290,407 0
Changes in assets and liabilities:
Accounts receivable (76,170) 5,149 (33,000)
Prepaid expenses and other assets (21,073) (427,363) (264,378)
Accounts payable 8,312 37,480 0
Due to affiliates 3,622 1,555 0
----------- ----------- -----------
Total adjustments 549,390 (92,772) (297,378)
----------- ----------- -----------
Net cash provided by (used in)
operating activities 1,285,351 245,975 (50,427)
----------- ----------- -----------
Cash flows from investing activities:
(Decrease) increase in construction payables (110,795) (607,204) 772,999
Investment in real estate (828,992) (7,381,063) (8,892,261)
----------- ----------- -----------
Net cash used in investing activities (939,787) (7,988,267) (8,119,262)
----------- ----------- -----------
Cash flows from financing activities:
Contributions received from joint venture partners 1,000,000 2,700,000 15,669,769
Return of contributions from joint venture partners 0 (1,000,000) 0
Distributions to joint venture partners (1,216,246) (375,952) (152,153)
---------- ---------- ----------
Net cash (used in) provided by financing activities
(216,246) 1,324,048 15,517,616
---------- ----------- ----------
Net increase (decrease) in cash and cash equivalents 129,318 (6,418,244) 7,347,927
Cash and cash equivalents, beginning of period 929,683 7,347,927 0
----------- ----------- -----------
Cash and cash equivalents, end of period $ 1,059,001 $ 929,683 $ 7,347,927
=========== =========== ===========
Supplemental disclosure of noncash items:
Deferred project costs contributed by partners, net $ 55,900 $ 71,066 $ 669,769
=========== =========== ===========
F-37
5. INCOME TAX BASIS NET INCOME AND PARTNERS' CAPITAL
The Partnership's income tax basis net income for the years ended December
31, 1997, 1996, and 1995 is calculated as follows:
1997 1996 1995
----------- --------- ---------
Financial statement net income $ 795,654 $589,053 $901,828
Increase (decrease) in net income resulting from:
Depreciation expense for financial reporting purposes
in excess of amounts for income tax purposes 352,316
260,958 39,928
Joint venture change in ownership 0 0 8,730
Expenses deductible when paid for income tax
purposes, accrued for financial reporting purposes
4,088 6,032 13,744
Rental income accrued for financial reporting
purposes in excess of amounts for income tax purposes
(60,288) (46,654) (47,699)
---------- -------- --------
Income tax basis net income $1,091,770 $809,389 $916,531
========== ======== ========
The Partnership's income tax basis partners' capital at December 31, 1997,
1996, and 1995 is computed as follows:
1997 1996 1995
----------- ------------ ------------
Financial statement partners' capital $19,785,673 $20,545,091 $21,144,261
Increase (decrease) in partners' capital resulting
from:
Depreciation expense for financial reporting
purposes in excess of amounts for income tax
purposes 653,202 300,886 39,928
Joint venture change in ownership 8,730 8,730 8,730
Capitalization of syndication costs for income tax
purposes, which are accounted for as cost of
capital for financial reporting purposes 3,655,694 3,655,694 3,655,694
Accumulated rental income accrued for financial
reporting purposes in excess of amounts for income
tax purposes (190,138) (129,850) (82,377)
Accumulated expenses deductible when paid for
income tax purposes, accrued for financial
reporting purposes 26,147 22,059 15,208
Partnership's distributions payable 432,841 330,572 322,702
----------- ----------- -----------
Income tax basis partners' capital $24,372,149 $24,728,020 $25,104,146
=========== =========== ===========
F-38
6. RENTAL INCOME
The future minimum rental income due from the Partnership's respective
ownership interests in joint ventures under noncancelable operating leases at
December 31, 1997 is as follows:
Year ending December 31:
1998 $ 2,220,994
1999 2,211,185
2000 2,146,428
2001 2,065,424
2002 1,897,344
Thereafter 7,499,166
-----------
$18,040,541
===========
Three significant tenants contributed approximately 21%, 28%, and 17% of
rental income, which is included in equity of income of joint ventures, for
the year ended December 31, 1997. In addition, four significant tenants will
contribute approximately 15%, 21%, 20%, and 18% of future minimum rental
income.
The future minimum rental income due Fund I, II, II-OW, VI, and VII
Associates--Cherokee under noncancelable operating leases at December 31,
1997 is as follows:
Year ending December 31:
1998 $ 833,808
1999 788,101
2000 725,527
2001 675,986
2002 653,869
Thereafter 5,061,423
----------
$8,738,714
==========
One significant tenant contributed approximately 67% of rental income for the
year ended December 31, 1997. In addition, one significant tenant will
contribute approximately 89% of future minimum rental income.
F-39
The future minimum rental income due Fund II, III, VI, and VII Associates
under noncancelable operating leases at December 31, 1997 is as follows:
Year ending December 31:
1998 $ 811,017
1999 800,552
2000 655,056
2001 589,985
2002 335,261
Thereafter 385,280
----------
$3,577,151
==========
Two significant tenants contributed approximately 18% and 15% of rental
income for the year ended December 31, 1997. In addition, two significant
tenants will contribute approximately 28% and 14% of future minimum rental
income.
The future minimum rental income due Fund V and VI Associates under
noncancelable operating leases at December 31, 1997 is as follows:
Year ending December 31:
1998 $ 945,121
1999 948,664
2000 936,186
2001 966,506
2002 961,845
Thereafter 1,303,823
----------
$6,062,145
==========
Two significant tenants contributed approximately 75% and 14% of rental
income for the year ended December 31, 1997. In addition, three significant
tenants will contribute approximately 70%, 15%, and 13% of future minimum
rental income.
The future minimum rental income due Fund V, VI, and VII Associates under
noncancelable operating leases at December 31, 1997 is as follows:
Year ending December 31:
1998 $ 980,000
1999 980,000
2000 980,000
2001 980,000
2002 990,000
Thereafter 3,960,000
----------
$8,870,000
==========
One significant tenant contributed 100% of rental income for the year ended
December 31, 1997 and will contribute 100% of future minimum rental income.
F-40
The future minimum rental income due Fund VI and VII Associates under
noncancelable operating leases at December 31, 1997 is as follows:
Year ending December 31:
1998 $ 517,319
1999 505,102
2000 462,620
2001 383,707
2002 286,043
Thereafter 555,183
----------
$2,709,974
==========
Two significant tenants contributed approximately 10% and 22% of rental
income for the year ended December 31, 1997. In addition, two significant
tenants will contribute approximately 17% and 33% of future minimum rental
income.
The future minimum rental income due Fund VI, VII, and VIII Associates under
noncancelable operating leases at December 31, 1997 is as follows:
Year ending December 31:
1998 $ 2,179,779
1999 2,183,002
2000 2,195,447
2001 2,082,905
2002 1,927,031
Thereafter 11,759,263
-----------
$22,327,427
===========
Two significant tenants contributed approximately 55% and 26% of rental
income for the year ended December 31, 1997. In addition, two significant
tenants will contribute approximately 43% and 46% of future minimum rental
income.
7. QUARTERLY RESULTS (UNAUDITED)
Presented below is a summary of the unaudited quarterly financial information
for the years ended December 31, 1997 and 1996:
1997 QUARTERS ENDED
--------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
Revenues $ 209,023 $ 198,922 $ 222,291 $ 254,566
Net income 179,641 171,569 208,740 235,704
Net income allocated to Class A limited
partners 382,061 381,924 432,467 481,374
Net loss allocated to Class B limited
partners (202,420) (210,355) (223,727) (245,670)
F-41
1997 QUARTERS ENDED
----------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ ------------
Net income per weighted average Class A
limited partner unit outstanding $ 0.18 $ 0.18 $ 0.20 $ 0.22
Net loss per weighted average Class B
limited partner unit outstanding (0.52) (0.58) (0.65) (0.72)
Cash distribution per weighted average Class
A limited partner unit outstanding 0.17 0.17 0.19 0.20
1996 QUARTERS ENDED
--------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
Revenues $ 179,792 $ 130,335 $ 160,514 $ 205,141
Net income 160,761 96,138 144,677 187,477
Net income allocated to Class A limited
partners 277,507 240,165 358,439 358,606
Net loss allocated to Class B limited
partners (116,746) (144,027) (213,762) (171,129)
Net income per weighted average Class A
limited partner unit outstanding $ 0.13 $ 0.12 $ 0.17 $ 0.17
Net loss per weighted average Class B
limited partner unit outstanding (0.27) (0.35) (0.54) (0.44)
Cash distribution per weighted average Class
A limited partner unit outstanding 0.15 0.14 0.12 0.15
8. COMMITMENTS AND CONTINGENCIES
Management, after consultation with legal counsel, is not aware of any
significant litigation or claims against the Partnership or the Company. In
the normal course of business, the Partnership or the Company may become
subject to such litigation or claims.
F-42
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Wells Real Estate Fund V, L.P. and
Wells Real Estate Fund VI, L.P.:
We have audited the accompanying balance sheets of THE HARTFORD BUILDING as of
December 31, 1997 and 1996 and the related statements of income, partners'
capital, and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the building's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Hartford Building as of
December 31, 1997 and 1996 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 9, 1998
THE HARTFORD BUILDING
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
---------- -----------
REAL ESTATE ASSETS:
Land $ 528,042 $ 528,042
Building and improvements, less accumulated depreciation of
$960,729 in 1997 and $668,698 in 1996 5,841,712 6,133,743
---------- -----------
Total real estate assets 6,369,754 6,661,785
CASH 245,298 157,443
DUE FROM AFFILIATE 0 11,767
ACCOUNTS RECEIVABLE 39,648 46,348
---------- ----------
Total assets $6,654,700 $6,877,343
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Payable to joint venture partners $ 167,970 $ 171,064
Due to affiliate 78,914 0
---------- ----------
Total liabilities 246,884 171,064
---------- ----------
COMMITMENTS AND CONTINGENCIES
Partners' capital:
Wells Real Estate Fund V, L.P. 3,326,547 3,466,241
Wells Real Estate Fund VI, L.P. 3,081,269 3,240,038
--------- ---------
Total partners' capital 6,407,816 6,706,279
--------- ---------
Total liabilities and partners' capital $6,654,700 $6,877,343
========== ==========
The accompanying notes are an integral part of these balance sheets.
F-44
THE HARTFORD BUILDING
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
1997 1996 1995
--------- --------- --------
REVENUES:
Rental income $717,499 $717,499 $717,499
--------- -------- --------
EXPENSES:
Depreciation 292,031 292,031 199,551
Operating costs, net of reimbursements (19,184) 10,494 14,612
Management and leasing fees 30,189 28,700 28,700
Legal and accounting 9,201 2,044 4,821
Computer costs 0 1,410 1,749
-------- -------- --------
312,237 334,679 249,433
-------- -------- --------
NET INCOME $405,262 $382,820 $468,066
======== ======== ========
NET INCOME ALLOCATED TO WELLS REAL ESTATE FUND V, L.P. $189,812 $181,919 $227,788
======== ======== ========
NET INCOME ALLOCATED TO WELLS REAL ESTATE FUND VI, L.P. $215,450 $200,901 $240,278
======== ======== ========
The accompanying notes are an integral part of these statements.
F-45
THE HARTFORD BUILDING
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
WELLS REAL WELLS REAL TOTAL
ESTATE ESTATE PARTNERS'
FUND V, L.P. FUND VI, L.P. CAPITAL
------------ ------------- -----------
BALANCE, DECEMBER 31, 1994 $3,707,881 $3,502,845 $7,210,726
Net income 227,788 240,278 468,066
Distributions (327,595) (346,455) (674,050)
---------- --------- ---------
BALANCE, DECEMBER 31, 1995 3,608,074 3,396,668 7,004,742
Net income 181,919 200,901 382,820
Distributions (323,752) (357,531) (681,283)
--------- --------- ---------
BALANCE, DECEMBER 31, 1996 3,466,241 3,240,038 6,706,279
Net income 189,812 215,450 405,262
Distributions (329,294) (374,431) (703,725)
---------- ---------- -----------
BALANCE, DECEMBER 31, 1997 $3,326,759 $3,081,057 $6,407,816
========== ========== ===========
The accompanying notes are an integral part of these statements.
F-46
THE HARTFORD BUILDING
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
1997 1996 1995
--------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 405,262 $ 382,820 $ 468,066
--------- --------- ---------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 292,031 292,031 199,551
Changes in assets and liabilities:
Accounts receivable 6,700 6,700 6,700
Received from (due to) affiliate 90,681 (30,018) 46,069
-------- --------- -------
Total adjustments 389,412 268,713 252,320
-------- --------- -------
Net cash provided by operating activities
794,674 651,533 720,386
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to joint venture partners (706,819) (677,785) (668,436)
-------- --------- --------
NET INCREASE (DECREASE) IN CASH 87,855 (26,252) 51,950
CASH, BEGINNING OF YEAR 157,443 183,695 131,745
--------- --------- ---------
CASH, END OF YEAR $ 245,298 $ 157,443 $ 183,695
========= ========= =========
The accompanying notes are an integral part of these statements.
F-47
THE HARTFORD BUILDING
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996, AND 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
The Hartford Building ("Hartford") is a four-story office building located in
Southington, Connecticut. The building is owned by Fund V and VI Associates,
a joint venture between Wells Real Estate Fund V, L.P. ("Fund V") and Wells
Real Estate Fund VI, L.P. ("Fund VI"). Fund V owns 47%, 47%, and 48% of
Hartford and Fund VI owns 53%, 53%, and 52% of Hartford at December 31,
1997, 1996, and 1995, respectively. Allocation of net income and
distributions are made in accordance with ownership percentages.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INCOME TAXES
Hartford is not deemed to be a taxable entity for federal income tax
purposes.
REAL ESTATE ASSETS
Real estate assets are stated at cost, less accumulated depreciation. Major
improvements and betterments are capitalized when they extend the useful life
of the related asset. All repairs and maintenance are expensed as incurred.
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 was 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.
Hartford adopted SFAS No. 121 effective January 1, 1995. The impact of
adopting SFAS No. 121 was not material to the financial statements of
Hartford.
Management continually monitors events and changes in circumstances which
could indicate that carrying amounts of real estate assets may not be
recoverable. When events
F-48
or changes in circumstances are present which indicate that the carrying
amounts of real estate assets may not be recoverable, management assesses the
recoverability of real estate assets under SFAS No. 121 by determining
whether the carrying value of such real estate assets will be recovered
through the future cash flows expected from the use of the asset and its
eventual disposition. Management has determined that there has been no
impairment in the carrying value of the Hartford real estate assets as of
December 31, 1997.
Depreciation is calculated using the straight-line method over the estimated
useful life of the real estate assets. Effective October 1, 1995, Hartford
revised its estimate of the useful life of the building 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
of increasing depreciation expense approximately $29,487 in the fourth
quarter of 1995 and $121,970 in the years ended December 31, 1997 and 1996.
REVENUE RECOGNITION
The lease on the Hartford real estate assets is classified as an operating
lease, and the related rental income is recognized on a straight-line basis
over the terms of the lease.
2. RENTAL INCOME
The future minimum rental income due Hartford under noncancelable operating
leases at December 31, 1997 is as follows:
Year ending December 31:
1998 $ 724,200
1999 724,200
2000 724,200
2001 724,200
2002 724,200
Thereafter 663,850
----------
$4,284,850
==========
One tenant contributed 100% of rental income for the year ended December 31,
1997 and represents 100% of the future minimum rental income above.
3. RELATED-PARTY TRANSACTIONS
Hartford entered into a property management agreement with Wells Management
Company, Inc. ("Wells Management"), an affiliate of Hartford. In
consideration for supervising the management of Hartford, Hartford 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
F-49
revenues except for initial leasing fees equal to 3% of the gross revenues
over the first five years of the lease term.
Hartford incurred management and leasing fees of $30,189, $28,700, and
$28,700 for the years ended December 31, 1997, 1996, and 1995, respectively,
which were paid to Wells Management.
4. COMMITMENTS AND CONTINGENCIES
Management, after consultation with legal counsel, is not aware of any
significant litigation or claims against Hartford. In the normal course of
business, Hartford may become subject to such litigation or claims.
F-50
WELLS REAL ESTATE FUND VI, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
INITIAL COST
---------------------------------------------
BUILDINGS AND CAPITALIZED
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS
---------------------------------------------------------------
HARTFORD BUILDING (a) None $ 528,042 6,775,574 $ 26,867
STOCKBRIDGE VILLAGE II (b) None 1,095,219 0 1,973,222
MARATHON BUILDING (c) None 314,591 8,367,904 0
STOCKBRIDGE VILLAGE III (d) None 1,015,674 0 1,977,793
STOCKBRIDGE VILLAGE I EXPANSION (e) None 712,234 0 2,340,101
880 PROPERTY (f) None 1,325,242 0 5,592,612
BELLSOUTH PROPERTY (g) None 1,244,256 0 7,353,027
TANGLEWOOD COMMONS (h) None 3,020,040 0 5,611,959
CHEROKEE COMMONS (i) None 1,142,663 6,462,837 2,827,237
--------------------------------------------------------------
Total $10,398,325 $21,606,315 $27,702,818
==============================================================
GROSS AMOUNT AT WHICH CARRIED AT DECEMBER 31, 1997
----------------------------------------------------------
BUILDINGS AND CONSTRUCTION
DESCRIPTION LAND IMPROVEMENTS IN PROGRESS TOTAL
----------------------------------------------------------
HARTFORD BUILDING (a) $ 528,042 $ 6,802,441 $ 0 $ 7,330,483
STOCKBRIDGE VILLAGE II (b) 1,094,691 1,973,257 493 3,068,441
MARATHON BUILDING (c) 314,591 8,367,904 0 8,682,495
STOCKBRIDGE VILLAGE II (d) 1,062,720 1,927,980 2,767 2,993,467
STOCKBRIDGE VILLAGE I EXPANSION (e) 749,727 2,270,706 31,902 3,052,335
800 PROPERTY (f) 1,325,242 5,533,048 59,564 6,917,854
BELLSOUTH PROPERTY (g) 1,301,890 7,295,393 0 8,597,283
TANGLEWOOD COMMONS (h) 3,159,928 5,377,356 94,715 8,631,999
CHEROKEE COMMONS (i) 1,219,704 9,210,142 2,891 10,432,737
-------------------------------------------------------
Total $10,756,535 $48,758,227 $192,332 $59,707,094
=======================================================
LIFE ON WHICH
ACCUMULATED DATE OF DATE DEPRECIATION
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED (J)
- ----------------------------------------------------------------------------------------------
HARTFORD BUILDING (A) $ 960,729 1981 12/29/93 20 to 25 years
STOCKBRIDGE VILLAGE II (B) 223,996 1994 11/12/99 20 to 25 years
MARATHON BUILDING (C) 1,005,614 1991 09/16/94 20 to 25 years
STOCKBRIDGE VILLAGE III (D) 199,541 1995 04/07/94 20 to 25 years
STOCKBRIDGE VILLAGE I EXPANSION (E) 164,770 1996 06/07/95 20 to 25 years
880 PROPERTY (F) 507,772 1996 01/31/90 20 to 25 years
BELLSOUTH PROPERTY (G) 733,951 1996 04/25/95 20 to 25 years
TANGLEWOOD COMMONS (H) 191,155 1997 05/31/95 20 to 25 years
CHEROKEE COMMONS (I) 2,273,149 1986 06/09/87 20 to 25 years
----------
Total $6,260,677
==========
(a) The Hartford Building is a four-story, 71,000-square-foot building located
in Southington, Connecticut. It is owned by Fund V and VI Associates. The
Partnership owned a 53% interest in Fu nd V and VI Associates at December
31, 1997.
(b) Stockbridge Village II consists of two retail buildings located in Clayton
County, Georgia. It is owned by Fund V and VI Associates. The Partnership
owned a 53% interest in Fund V and VI Associates at December 31, 1997.
(c) The Marathon Building is a three-story, 75,000-square-foot building located
in Appleton, Wisc onsin. It is owned by Fund V, VI, and VII Associates. The
Partnership owned a 42% interest in Fund V, VI, and VII Associates at
December 31, 1997.
(d) Stockbridge Vi llage III consists of two retail buildings located in
Stockbridge, Georgia. It is owned by Fund VI and VII Associates. The
Partnership owned a 43% interest in Fund VI and VII Associates at December
31, 1997.
(e) Stockbridge Village I Expansion is a retail shopping center located in
Stockbridge, Georgia. It is owned by Fund VI and VII Associates. The
Partnership owned a 43% interest in Fund VI and VII Associates at December
31, 1997.
(f) The 880 Property is an office-retail shopping center located in Roswell,
Georgia. It is owned by Fund II, III, VI, and VII Associates. The
Partnership owned a 27% interest in Fund II, III, VI, and VII Associates at
December 31, 1997.
(g) The BellSouth Property is a four-story, 93,000 square-foot building located
in Jacksonville, Florida. It is owned by the Fund VI, VII, and VIII
Associates. The Partnership owned a 34% interest in Fund VI, VII, and VIII
Associates at December 31, 1997.
(h) Tanglewood Commons is a retail shopping center located in Clemmons, Forsyth
County, North Carolina. It is owned by the Fund VI, VII, and VIII
Associates. The Partnership owned a 34% interest in Fund VI, VII, and VIII
Associates at December 31, 1997.
(i) Cherokee Commons is a retail shopping center located in Cherokee County,
Georgia. It is owned by Fund I, II, II-OW, VI, and VII Associates--Cherokee.
The Partnership owned an 11% interest in Fund I, II, II-OW, VI, and VII
Associates--Cherokee at December 31, 1997.
(j) Depreciation lives used for buildings were 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 VI, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
Accumulated
Cost Depreciation
----------- ------------
BALANCE AT DECEMBER 31, 1995 $47,062,226 $2,175,842
1996 additions 10,456,616 1,760,901
----------- ---------
BALANCE AT DECEMBER 31, 1996 57,518,842 3,936,743
1997 additions 2,236,092 2,339,142
1997 deductions (47,840) (15,208)
----------- ----------
BALANCE AT DECEMBER 31, 1997 $59,707,094 $6,260,677
=========== ==========
S-2
EXHIBIT INDEX
-------------
(Wells Real Estate Fund VI, 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
- ----------------- --------------------------------------------------------- ------------------
*3(a) Certificate of Limited Partnership of Wells Real Estate N/A
Fund VI, L.P. (Exhibit 3(c) to Registration Statement of
Wells Real Estate Fund VI, L.P. and Wells Real Estate
Fund VII, L.P., File No. 33-55908)
*4(a) Agreement of Limited Partnership of Wells Real Estate N/A
Fund VI, L.P. (Exhibit to Form 10-K of Wells Real Estate
Fund VI, L.P. for the fiscal year ended December 31,
1993, File No. 0-23656)
*10(a) Management Agreement between Wells Real Estate Fund VI, N/A
L.P. and Wells Management Company, Inc. (Exhibit to Form
10-K of Wells Real Estate Fund VI, L.P. for the fiscal
year ended December 31, 1993, File No. 0-23656)
*10(b) Leasing and Tenant Coordinating Agreement between Wells N/A
Real Estate Fund VI, L.P. and Wells Management Company,
Inc. (Exhibit to Form 10-K of Wells Real Estate Fund VI,
L.P. for the fiscal year ended December 31, 1993, File
No. 0-23656)
*10(c) Custodial Agency Agreement dated March 25, 1993, between N/A
Wells Real Estate Fund VI, L.P. and NationsBank of
Georgia, N.A. (Exhibit to Form 10-K of Wells Real Estate
Fund VI, L.P. for the fiscal year ended December 31,
1993, File No. 0-23656)
*10(d) Fund V and Fund VI Associates Joint Venture Agreement N/A
dated December 27, 1993 (Exhibit 10(g) to Post-Effective
Amendment No. 1 to Registration Statement of Wells Real
Estate Fund VI, L.P. and Wells Real Estate Fund VII,
L.P., File No. 33-55908)
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NUMBER
- ----------------- --------------------------------------------------------- ------------------
*10(e) Sale and Purchase Agreement dated November 17, 1993, N/A
with Hartford Accident and Indemnity Company (Exhibit
10(h) to Post-Effective Amendment No. 1 to Registration
Statement of Wells Real Estate Fund VI, L.P. and Wells
Real Estate Fund VII, L.P., File No. 33-55908)
*10(f) Lease with Hartford Fire Insurance Company December 29, N/A
1993 (Exhibit 10(i) to Post-Effective Amendment No. 1 to
Registration Statement of Wells Real Estate Fund VI,
L.P. and Wells Real Estate Fund VII, L.P., File No.
33-55908)
*10(g) Amended and Restated Custodial Agency Agreement dated N/A
April 1, 1994, between Wells Real Estate Fund VI, L.P.
and NationsBank of Georgia, N.A. (Exhibit to Form 10-K
of Wells Real Estate Fund VI, L.P. for the fiscal year
ended December 31, 1994, File No. 0-23656)
*10(h) First Amendment to Joint Venture Agreement of Fund V and N/A
Fund VI Associates dated July 1, 1994 (Exhibit 10(x) to
Form 10-K of Wells Real Estate Fund V, L.P. for the
fiscal year ended December 31, 1994, File No. 0-21580)
*10(i) Land and Building Lease Agreement dated March 29, 1994, N/A
between Apple Restaurants, Inc. and NationsBank of
Georgia, N.A., as Agent for Wells Real Estate Fund V,
L.P. (Exhibit 10(y) to Form 10-K of Wells Real Estate
Fund V, L.P. for the fiscal year ended December 31,
1994, File No. 0-21580)
*10(j) Building Lease Agreement dated September 9, 1994, N/A
between Glenn's Open-Pit Bar-B-Que, Inc. and NationsBank
of Georgia, N.A., as Agent for Fund V and Fund VI
Associates (Exhibit 10(z) to Form 10-K of Wells Real
Estate Fund V, L.P. for the fiscal year ended December
31, 1994, File No. 0-21580)
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NUMBER
- ----------------- --------------------------------------------------------- ------------------
*10(k) Joint Venture Agreement of Fund V, Fund VI and Fund VII N/A
Associates dated September 8, 1994, among Wells Real
Estate Fund V, L.P., Wells Real Estate Fund VI, L.P. and
Wells Real Estate Fund VII, L.P. (Exhibit 10(j) to
Post-Effective Amendment No. 6 to Registration Statement
of Wells Real Estate Fund VI, L.P. and Wells Real Estate
Fund VII, L.P., File No. 33-55908)
*10(l) Agreement for the Purchase and Sale of Property dated N/A
August 24, 1994, between Interglobia Inc. - Appleton and
NationsBank of Georgia, N.A., as Agent for Fund V and
Fund VI Associates (Exhibit 10(k) to Post-Effective
Amendment No. 6 to Registration Statement of Wells Real
Estate Fund VI, L.P. and Wells Real Estate Fund VII,
L.P., File No. 33-55908)
*10(m) Assignment and Assumption of Agreement for the Purchase N/A
and Sale of Real Property dated September 9, 1994,
between NationsBank of Georgia, N.A., as Agent for Fund
V and Fund VI Associates, and NationsBank of Georgia,
N.A., as Agent for Fund V, Fund VI and Fund VII
Associates (Exhibit 10(l) to Post-Effective Amendment
No. 6 to Registration Statement of Wells Real Estate
Fund VI, L.P. and Wells Real Estate Fund VII, L.P., File
No. 33-55908)
*10(n) Building Lease dated February 14, 1991, between N/A
Interglobia Inc. - Appleton and Marathon
Engineers/Architects/Planners, Inc. (included as part of
Exhibit D to Exhibit 10(k) to Post-Effective Amendment
No. 6 to Registration Statement of Wells Real Estate
Fund VI, L.P. and Wells Real Estate Fund VII, L.P., File
No. 33-55908)
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NUMBER
- ----------------- --------------------------------------------------------- ------------------
*10(o) Limited Guaranty of Lease dated January 1, 1993, by J. N/A
P. Finance OY and Fluor Daniel, Inc. for the benefit of
Interglobia Inc. - Appleton (included as Exhibit B to
Assignment, Assumption and Amendment of Lease referred
to as Exhibit 10(p) below, which is included as part of
Exhibit D to Exhibit 10(k) to Post-Effective Amendment
No. 6 to Registration Statement of Wells Real Estate
Fund VI, L.P. and Wells Real Estate Fund VII, L.P., File
No. 33-55908)
*10(p) Assignment, Assumption and Amendment of Lease dated N/A
January 1, 1993, among Interglobia Inc. - Appleton,
Marathon Engineers/Architects/Planners, Inc. and Jaakko
Poyry Fluor Daniel (included as part of Exhibit D to
Exhibit 10(k) to Post-Effective Amendment No. 6 to
Registration Statement of Wells Real Estate Fund VI,
L.P. and Wells Real Estate Fund VII, L.P., File No.
33-55908)
*10(q) Second Amendment to Building lease dated August 15, N/A
1994, between Interglobia Inc. - Appleton and Jaakko
Poyry Fluor Daniel (successor-in-interest to Marathon
Engineers/Architects/Planners, Inc.) (included as
Exhibit D-1 to Exhibit 10(k) to Post-Effective Amendment
No. 6 to Registration Statement of Wells Real Estate
Fund VI, L.P. and Wells Real Estate Fund VII, L.P., File
No. 33-55908)
*10(r) Assignment and Assumption of Lease dated September 6, N/A
1994, between Interglobia Inc. - Appleton and
NationsBank of Georgia, N.A., as Agent for Fund V, Fund
VI and Fund VII Associates (Exhibit 10(q) to
Post-Effective Amendment No. 6 to Registration Statement
of Wells Real Estate Fund VI, L.P. and Wells Real Estate
Fund VII, L.P., File No. 33-55908)
*10(s) Agreement for the Purchase and Sale of Real Property N/A
dated April 7, 1994, between 138 Industrial Ltd. and
NationsBank of Georgia, N.A., as Agent for Wells Real
Estate Fund VI, L.P. (Exhibit to Form 10-K of Wells Real
Estate Fund VI, L.P. for the fiscal year ended December
31, 1994, File No. 0-23656)
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NUMBER
- ----------------- --------------------------------------------------------- ------------------
*10(t) Land and Building Lease Agreement dated August 22, 1994, N/A
between KRR Stockbridge, Inc. d/b/a Kenny Rogers
Roasters and NationsBank of Georgia, N.A., as Agent for
Wells Real Estate Fund VI, L.P. (Exhibit to Form 10-K of
Wells Real Estate Fund VI, L.P. for the fiscal year
ended December 31, 1994, File No. 0-23656)
*10(u) Joint Venture Agreement of Fund VI and Fund VII N/A
Associates dated December 9, 1994 (Exhibit to Form 10-K
of Wells Real Estate Fund VI, L.P. for the fiscal year
ended December 31, 1994, File No. 0-23656)
*10(v) Building Lease Agreement dated December 19, 1994, N/A
between Damon's of Stockbridge, LLC d/b/a Damon's
Clubhouse and NationsBank of Georgia, N.A., as Agent for
Fund VI and Fund VII Associates (Exhibit to Form 10-K of
Wells Real Estate Fund VI, L.P. for the fiscal year
ended December 31, 1994, File No. 0-23656)
*10(w) Joint Venture Agreement of Fund II, III, VI and VII N/A
Associates dated January 10, 1995 (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)
*10(x) Joint Venture Agreement of Fund VI, Fund VII and Fund N/A
VIII Associates dated April 17, 1995 (Exhibit 10(q) to
Post-Effective Amendment No. 3 to Form S-11 Registration
Statement of Wells Real Estate Fund VIII, L.P. and Wells
Real Estate Fund IX, L.P., File No. 33-83852)
*10(y) Agreement for the Purchase and Sale of Real Property N/A
dated February 13, 1995, between G.L. National, Inc. and
Wells Capital, Inc. (Exhibit 10(r) to Post-Effective
Amendment No. 3 to Form S-11 Registration Statement of
Wells Real Estate Fund VIII, L.P. and Wells Real Estate
Fund IX, L.P., File No. 33-83852)
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NUMBER
- ----------------- --------------------------------------------------------- ------------------
*10(z) Agreement to Lease dated February 15, 1995, between N/A
NationsBank of Georgia, N.A., as Agent for Wells Real
Estate Fund VII, L.P. and BellSouth Advertising &
Publishing Corporation (Exhibit 10(s) to Post-Effective
Amendment No. 3 to Form S-11 Registration Statement of
Wells Real Estate Fund VIII, L.P. and Wells Real Estate
Fund IX, L.P., File No. 33-83852)
*10(aa) Development Agreement dated April 25, 1995, between Fund N/A
VI, Fund VII and Fund VIII Associates and ADEVCO
Corporation (Exhibit 10(t) to Post-Effective Amendment
No. 3 to Form S-11 Registration Statement of Wells Real
Estate Fund VIII, L.P. and Wells Real Estate Fund IX,
L.P., File No. 33-83852)
*10(bb) Owner-Contractor Agreement dated April 24, 1995, between N/A
Fund VI, Fund VII and Fund VIII Associates, as Owner,
and McDevitt Street Bovis, Inc., as Contractor (Exhibit
10(u) to Post-Effective Amendment No. 3 to Form S-11
Registration Statement of Wells Real Estate Fund VIII,
L.P. and Wells Real Estate Fund IX, L.P., File No.
33-83852)
*10(cc) Architect's Agreement dated February 15, 1995, between N/A
Wells Real Estate Fund VII, L.P., as Owner, and Mayes,
Suddereth & Etheredge, Inc., as Architect (Exhibit 10(v)
to Post-Effective Amendment No. 3 to Form S-11
Registration Statement of Wells Real Estate Fund VIII,
L.P. and Wells Real Estate Fund IX, L.P., File No.
33-83852)
*10(dd) First Amendment to Joint Venture Agreement of Fund VI N/A
and Fund VII Associates dated May 25, 1995 (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)
*10(ee) First Amendment to Joint Venture Agreement of Fund VI, N/A
Fund VII and Fund VIII Associates dated May 30, 1995
(Exhibit 10(w) to Post Effective Amendment No. 4 to Form
S-11 Registration Statement of Wells Real Estate Fund
VIII, L.P. and Wells Real Estate Fund IX, L.P., File No.
33-83852)
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NUMBER
- ----------------- --------------------------------------------------------- ------------------
*10(ff) Real Estate Purchase Agreement dated April 13, 1995 N/A
(Exhibit 10(x) to Post Effective Amendment No. 4 to Form
S-11 Registration Statement of Wells Real Estate Fund
VIII, L.P. and Wells Real Estate Fund IX, L.P., File No.
33-83852)
*10(gg) Lease Agreement dated February 27, 1995, between N/A
NationsBank of Georgia, N.A., as agent for Wells Real
Estate Fund VII, L.P., and Harris Teeter, Inc. (Exhibit
10(y) to Post Effective Amendment No. 4 to Form S-11
Registration Statement of Wells Real Estate Fund VIII,
L.P. and Wells Real Estate Fund IX, L.P., File No.
33-83852)
*10(hh) Development Agreement dated May 31, 1995, between Fund N/A
VI, Fund VII and Fund VIII Associates and Norcom
Development, Inc. (Exhibit 10(z) to Post Effective
Amendment No. 4 to Form S-11 Registration Statement of
Wells Real Estate Fund VIII, L.P. and Wells Real Estate
Fund IX, L.P., File No. 33-83852)
*10(ii) Joint Venture Agreement of Fund I, II, II-OW, VI and VII N/A
Associates dated August 1, 1995 (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)
*10(jj) Lease Modification Agreement No. 3 with The Kroger Co. N/A
dated December 31, 1993 (Exhibit 10(k) to Form 10-K of
Wells Real Estate Fund I for the fiscal year ended
December 31, 1993, File No. 0-14463)