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EX-32.1 - SECTION 906 CEO & CFO CERTIFICATIONS - WELLS REAL ESTATE FUND XIV LPdex321.htm
EX-31.1 - SECTION 302 CEO CERTIFICATION - WELLS REAL ESTATE FUND XIV LPdex311.htm
EX-31.2 - SECTION 302 CFO CERTIFICATION - WELLS REAL ESTATE FUND XIV LPdex312.htm
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

  x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

or

 

  ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                          to                         

Commission file number 000-50647

 

 

WELLS REAL ESTATE FUND XIV, L.P.

(Exact name of registrant as specified in its charter)

 

 

 

Georgia   01-0748981
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification Number)

 

6200 The Corners Pkwy.,

Norcross, Georgia

  30092-3365
(Address of principal executive offices)   (Zip Code)
Registrant’s telephone number, including area code   (770) 449-7800

N/A

(Former name, former address, and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [Not yet applicable to registrant.]    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨                 Accelerated filer  ¨

Non-accelerated filer  x (Do not check if a smaller reporting company)                 Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨    No  x

 

 

 


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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Form 10-Q of Wells Real Estate Fund XIV, L.P. (the “Partnership” or the “Registrant”) other than historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements include, in particular, statements about our plans, strategies, and prospects and are subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” or other similar words. Specifically, we consider, among others, statements concerning future operating results and cash flows, our ability to meet future obligations, and the amount and timing of any future distributions to limited partners to be forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this report is filed with the Securities and Exchange Commission. We make no representations or warranties (express or implied) about the accuracy of any such forward-looking statements contained in this Form 10-Q, and we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Any such forward-looking statements are subject to unknown risks, uncertainties, and other factors and are based on a number of assumptions involving judgments with respect to, among other things, future economic, competitive, and market conditions, all of which are difficult or impossible to predict accurately. To the extent that our assumptions differ from actual results, our ability to meet such forward-looking statements, including our ability to generate positive cash flow from operations, provide distributions to partners, and maintain the value of our real estate properties, may be significantly hindered. See Item 1A. in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2008 for a discussion of some of the risks and uncertainties, although not all risks and uncertainties, which could cause actual results to differ materially from those presented in our forward-looking statements.

 

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WELLS REAL ESTATE FUND XIV, L.P.

 

TABLE OF CONTENTS

 

               Page No.
PART I.    FINANCIAL INFORMATION   
   Item 1.    Financial Statements   
      Balance Sheets – September 30, 2009 (unaudited) and December 31, 2008      5
      Statements of Operations for the Three Months and Nine Months Ended September 30, 2009 (unaudited) and 2008 (unaudited)      6
      Statements of Partners’ Capital for the Year Ended December 31, 2008 and the Nine Months Ended September 30, 2009 (unaudited)      7
      Statements of Cash Flows for the Nine Months Ended September 30, 2009 (unaudited) and 2008 (unaudited)      8
      Condensed Notes to Financial Statements (unaudited)      9
   Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations    16
   Item 3.    Quantitative and Qualitative Disclosures about Market Risk    23
   Item 4T.    Controls and Procedures    23
PART II.    OTHER INFORMATION   
   Item 1.    Legal Proceedings    24
   Item 1A.    Risk Factors    24
   Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds    24
   Item 3.    Defaults Upon Senior Securities    24
   Item 4.    Submission of Matters to a Vote of Security Holders    24
   Item 5.    Other Information    25
   Item 6.    Exhibits    25

 

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PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

The information furnished in the Partnership’s accompanying balance sheets and statements of operations, partners’ capital, and cash flows reflects all adjustments that are, in management’s opinion, necessary for a fair and consistent presentation of the aforementioned financial statements.

The accompanying financial statements should be read in conjunction with the notes to the Partnership’s financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in both this report on Form 10-Q and in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2008. The Partnership’s results of operations for the three months and nine months ended September 30, 2009 are not necessarily indicative of the operating results expected for the full year.

 

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WELLS REAL ESTATE FUND XIV, L.P.

 

BALANCE SHEETS

ASSETS

 

     (Unaudited)
September 30,
2009
   December 31,
2008

REAL ESTATE, AT COST:

     

Land

   $ 2,470,930    $ 2,470,930

Building and improvements, less accumulated depreciation of $1,004,317 and $826,607 as of September 30, 2009 and December 31, 2008, respectively

     8,472,966      8,650,676

Intangible lease assets, less accumulated amortization of $1,378,994 and $1,135,579 as of September 30, 2009 and December 31, 2008, respectively

     292,102      535,517
             

Total real estate assets

     11,235,998      11,657,123

Investment in joint venture

     4,540,725      4,752,021

Cash and cash equivalents

     2,173,769      848,232

Tenant receivables

     108,327      188,276

Due from joint venture

     143,513      168,426

Other assets

     10,232      37,175

Intangible lease origination costs, less accumulated amortization of $2,377,881 and $1,962,698 as of September 30, 2009 and December 31, 2008, respectively

     401,494      816,677
             

Total assets

   $ 18,614,058    $ 18,467,930
             

LIABILITIES AND PARTNERS’ CAPITAL

 

LIABILITIES:

     

Accounts payable, accrued expenses, and refundable security deposits

   $ 70,874    $ 81,754

Deferred income

     72,688      0

Due to affiliates

     9,279      14,750
             

Total liabilities

     152,841      96,504

Commitments and contingencies

     

PARTNERS’ CAPITAL:

     

Limited partners:

     

Cash Preferred – 2,648,615 units issued and outstanding

     18,459,677      18,370,784

Tax Preferred – 825,508 units issued and outstanding

     0      0

General partners

     1,540      642
             

Total partners’ capital

     18,461,217      18,371,426
             

Total liabilities and partners’ capital

   $ 18,614,058    $ 18,467,930
             

See accompanying notes.

 

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WELLS REAL ESTATE FUND XIV, L.P.

 

STATEMENTS OF OPERATIONS

 

     (Unaudited)
Three Months Ended
September 30,
    (Unaudited)
Nine Months Ended
September 30,
 
     2009    2008     2009    2008  

REVENUES:

          

Rental income

   $ 288,549    $ 288,549      $ 865,646    $ 865,646   

Tenant reimbursements

     133,768      158,685        427,249      497,719   

Interest and other income

     13      1,574        56      5,926   
                              

Total revenues

     422,330      448,808        1,292,951      1,369,291   

EXPENSES:

          

Property operating costs

     117,275      140,100        378,943      449,182   

Management and leasing fees:

          

Related-party

     13,775      12,342        36,203      34,936   

Other

     8,731      8,480        27,343      26,526   

Depreciation

     59,237      59,237        177,710      177,710   

Amortization

     217,975      217,975        653,926      653,926   

General and administrative

     45,454      43,539        126,409      148,619   
                              

Total expenses

     462,447      481,673        1,400,534      1,490,899   

EQUITY IN INCOME OF JOINT VENTURE

     60,245      64,634        197,374      200,886   
                              

NET INCOME

   $ 20,128    $ 31,769      $ 89,791    $ 79,278   
                              

NET INCOME (LOSS) ALLOCATED TO:

          

CASH PREFERRED LIMITED PARTNERS

   $ 19,927    $ 382,556      $ 88,893    $ 1,137,633   
                              

TAX PREFERRED LIMITED PARTNERS

   $ 0    $ (351,105   $ 0    $ (1,058,673
                              

GENERAL PARTNERS

   $ 201    $ 318      $ 898    $ 318   
                              

NET INCOME (LOSS) PER WEIGHTED-AVERAGE LIMITED PARTNER UNIT:

          

CASH PREFERRED

     $0.01      $ 0.14        $0.03      $ 0.43   
                              

TAX PREFERRED

     $0.00      $(0.43     $0.00      $(1.28
                              

WEIGHTED-AVERAGE LIMITED PARTNER UNITS OUTSTANDING:

          

CASH PREFERRED

     2,648,615      2,648,615        2,648,615      2,648,282   
                              

TAX PREFERRED

     825,508      825,508        825,508      825,841   
                              

See accompanying notes.

 

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WELLS REAL ESTATE FUND XIV, L.P.

 

STATEMENTS OF PARTNERS’ CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 2008

AND THE NINE MONTHS ENDED SEPTEMBER 30, 2009 (UNAUDITED)

 

    Limited Partners     General
Partners
  Total
Partners’
Capital
 
    Cash Preferred     Tax Preferred      
    Units   Amount     Units     Amount      

BALANCE, December 31, 2007

  2,647,615   $ 17,548,501      826,508      $ 1,310,305      $ 0   $ 18,858,806   

Tax preferred conversion elections

  1,000     1,156      (1,000     (1,156     0     0   

Net income (loss)

  0     1,420,183      0        (1,309,149     642     111,676   

Distributions of operating cash flow
($0.23 per weighted-average Cash Preferred Unit)

  0     (599,056   0        0        0     (599,056
                                       

BALANCE, December 31, 2008

  2,648,615     18,370,784      825,508        0        642     18,371,426   

Net income

  0     88,893      0        0        898     89,791   
                                       

BALANCE, September 30, 2009

  2,648,615   $ 18,459,677      825,508      $ 0      $ 1,540   $ 18,461,217   
                                       

See accompanying notes.

 

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WELLS REAL ESTATE FUND XIV, L.P.

 

STATEMENTS OF CASH FLOWS

 

     (Unaudited)
Nine Months Ended
September 30,
 
     2009     2008  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income

   $ 89,791      $ 79,278   

Operating distributions received from joint venture

     433,583        467,196   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation

     177,710        177,710   

Amortization

     658,598        658,598   

Equity in income of joint venture

     (197,374     (200,886

Changes in assets and liabilities:

    

Decrease (increase) in tenant receivables

     79,949        (25,991

Decrease (increase) in other assets

     26,943        (4,361

(Decrease) increase in accounts payable and accrued expenses

     (10,880     31,789   

Increase in deferred income

     72,688        23,774   

(Decrease) increase in due to affiliates

     (5,471     844   
                

Net cash provided by operating activities

     1,325,537        1,207,951   

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Operating distributions paid to limited partners

     0        (1,011,669
                

NET INCREASE IN CASH AND CASH EQUIVALENTS

     1,325,537        196,282   

CASH AND CASH EQUIVALENTS, beginning of period

     848,232        482,904   
                

CASH AND CASH EQUIVALENTS, end of period

   $ 2,173,769      $ 679,186   
                

See accompanying notes.

 

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WELLS REAL ESTATE FUND XIV, L.P.

 

CONDENSED NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2009 (unaudited)

 

1. ORGANIZATION AND BUSINESS

Wells Real Estate Fund XIV, L.P. (the “Partnership”) is a Georgia public limited partnership with Leo F. Wells, III and Wells Capital, Inc. (“Wells Capital”), a Georgia corporation, serving as its general partners (collectively, the “General Partners”). Wells Capital is a wholly owned subsidiary of Wells Real Estate Funds, Inc. (“WREF”). Leo F. Wells, III is the president and sole director of Wells Capital and the president, sole director, and sole owner of WREF. The Partnership was formed on October 25, 2002 for the purpose of acquiring, developing, owning, operating, improving, leasing, and managing income producing commercial properties for investment purposes. Upon subscription, limited partners elected to have their units treated as Cash Preferred Units or Tax Preferred Units. Thereafter, limited partners have the right to change their prior elections to have some or all of their units treated as Cash Preferred Units or Tax Preferred Units one time during each quarterly accounting period. Limited partners may vote to, among other things: (a) amend the partnership agreement, subject to certain limitations; (b) change the business purpose or investment objectives of the Partnership; (c) add or remove a general partner; (d) elect a new general partner; (e) dissolve the Partnership; and (f) approve a sale involving all or substantially all of the Partnership’s assets, subject to certain limitations. The majority vote on any of the described matters will bind the Partnership, without the concurrence of the General Partners. Each limited partnership unit has equal voting rights regardless of which class of unit is selected.

On May 14, 2003, the Partnership commenced an offering of up to $45,000,000 of Cash Preferred or Tax Preferred limited partnership units ($10.00 per unit) pursuant to a Registration Statement filed on Form S-11 under the Securities Act of 1933. The offering was terminated on April 30, 2005, at which time the Partnership had sold approximately 2,531,031 Cash Preferred Units and 943,093 Tax Preferred Units representing total limited partner capital contributions of $34,741,238.

During the periods presented, the Partnership owned direct interests in the following properties:

 

1.    150 Apollo Drive

A three-story office building located in Chelmsford, Massachusetts

2.    3675 Kennesaw Building

A one-story distribution warehouse building located in Kennesaw, Georgia

During the periods presented, the Partnership owned interests in the following joint venture (the “Joint Venture”) and property:

 

Joint Venture    Joint Venture Partners    Properties

Fund XIII and Fund XIV Associates

(“Fund XIII-XIV Associates” or the “Joint Venture”)

  

•  Wells Real Estate Fund XIII, L.P.

•  Wells Real Estate Fund XIV, L.P.

  

Siemens– Orlando Building

Two single-story office buildings located in Orlando, Florida

Wells Real Estate Fund XIII, L.P. is affiliated with the Partnership through common general partners. Each of the properties described above was acquired on an all-cash basis. For further information regarding the Joint Venture and foregoing properties, refer to the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2008.

 

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The financial statements of the Partnership have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”), including the instructions to Form 10-Q and Article 10 of Regulation S-X, and in accordance with such rules and regulations, do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements. In the opinion of the General Partners, the statements for the unaudited interim periods presented include all adjustments that are of a normal and recurring nature and necessary to fairly and consistently present the results for these periods. Results for interim periods are not necessarily indicative of full-year results. For further information, refer to the financial statements and footnotes included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2008. The Partnership has evaluated subsequent events occurring during the period from October 1, 2009 through November 12, 2009, the date of filing with the SEC.

Investment in Joint Venture

The Partnership has evaluated the Joint Venture and concluded that it is not a variable interest entity. The Partnership does not have control over the operations of the Joint Venture; however, it does exercise significant influence. Approval by the Partnership as well as the other joint venture partner is required for any major decision or any action that would materially affect the Joint Venture or its real property investments. Accordingly, the Partnership accounts for its investment in the Joint Venture using the equity method of accounting, whereby the original investment is recorded at cost and subsequently adjusted for contributions, distributions, and net income (loss) attributable to the Partnership. Pursuant to the terms of the joint venture agreement, all income (loss) and distributions are allocated to the joint venture partners in accordance with their respective ownership interests. Distributions of net cash from operations, if available, are generally distributed to the joint venture partners on a quarterly basis.

Evaluating the Recoverability of Real Estate Assets

The Partnership continually monitors events and changes in circumstances that could indicate that the carrying amounts of the real estate assets owned through the Partnership’s investment in the Joint Ventures may not be recoverable. When indicators of potential impairment are present which suggest that the carrying amounts of real estate assets may not be recoverable, management assesses the recoverability of the real estate assets by determining whether the respective carrying values will be recovered through the estimated undiscounted future operating cash flows expected from the use of the assets and their eventual disposition for assets held for use, or with the estimated fair values, less costs to sell, for assets held for sale. In the event that the expected undiscounted future cash flows for assets held for use, or the estimated fair value, less costs to sell, for assets held for sale do not exceed the respective asset carrying value, management adjusts the real estate assets to their respective estimated fair values, pursuant to the provisions of the property, plant, and equipment accounting standard for the impairment or disposal of long-lived assets, and recognizes an impairment loss. Estimated fair values are calculated based on the following information, in order of preference, dependent upon availability: (i) recently quoted market prices, (ii) market prices for comparable properties, or (iii) the present value of future cash flows, including estimated salvage value.

While various techniques and assumptions can be used to estimate fair value depending on the nature of the asset or liability, the accounting standard for fair value measurements and disclosures describes three levels of inputs that may be used to measure fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Partnership has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which is typically based on an entity’s own assumptions, as there is little, if any, related market

 

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activity or information. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Partnership’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. The accounting standard for fair value measurements and disclosures was applied to the Partnership’s outstanding non-financial assets and non-financial liabilities effective January 1, 2009.

Distribution of Net Cash from Operations

Net cash from operations, if available, is generally distributed quarterly to the partners as follows:

 

   

First, to all Cash Preferred limited partners on a per-unit basis until such limited partners have received distributions equal to a 10% per annum return on their respective net capital contributions, as defined;

 

   

Second, to the General Partners until the General Partners receive distributions equal to 10% of the total cumulative distributions paid by the Partnership for such year; and

 

   

Third, to the Cash Preferred limited partners on a per-unit basis and the General Partners allocated on a basis of 90% and 10%, respectively.

No distributions of net cash flow from operations will be made to limited partners holding Tax Preferred Units.

Distribution of Net Sale Proceeds

Upon the sale of properties, unless reserved, net sale proceeds will be distributed in the following order:

 

   

In the event that the particular property sold is sold for a price that is less than its original property purchase price, to the limited partners holding Cash Preferred Units until they have received an amount equal to the excess of the original property purchase price over the price for which the property was sold, limited to the amount of depreciation, amortization, and cost recovery deductions taken by the limited partners holding Tax Preferred Units with respect to such property;

 

   

To limited partners holding units which at any time have been treated as Tax Preferred Units until each such limited partner has received an amount necessary to equal the net cash from operations previously distributed to the limited partners holding Cash Preferred Units on a per-unit basis;

 

   

To all limited partners on a per-unit basis until the limited partners have received 100% of their respective net capital contributions, as defined;

 

   

To all limited partners on a per-unit basis until they have received a cumulative 10% per annum return on their respective net capital contributions, as defined;

 

   

To limited partners on a per-unit basis until the limited partners have received an amount equal to their respective preferential limited partner returns (defined as the sum of a 10% per annum cumulative return on net capital contributions for all periods during which the units were treated as Cash Preferred Units and a 15% per annum cumulative return on net capital contributions for all periods during which the units were treated as Tax Preferred Units);

 

   

To the General Partners until they have received 100% of their respective capital contributions, as defined;

 

   

Then, if limited partners have received any excess limited partner distributions (defined as distributions to limited partners over the life of their investment in the Partnership in excess of their net capital contributions, as defined, plus their preferential limited partner return), to the General Partners until they have received distributions equal to 20% of the sum of any such excess limited partner distributions, plus distributions made to the General Partners pursuant to this provision; and

 

   

Thereafter, 80% to the limited partners on a per-unit basis and 20% to the General Partners.

 

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Allocations of Net Income, Net Loss, and Gain on Sale

For the purpose of determining allocations per the partnership agreement, net income is defined as net income recognized by the Partnership, excluding deductions for depreciation, amortization, cost recovery, and the gain on sale of assets. Net income, as defined, of the Partnership will be allocated each year in the same proportion that net cash from operations is distributed to the partners holding Cash Preferred Units and the General Partner. To the extent the Partnership’s net income in any year exceeds net cash from operations, such excess net income will be allocated 99% to the limited partners holding Cash Preferred Units and 1% to the General Partners.

Net loss, depreciation, and amortization deductions for each fiscal year will be allocated as follows: (a) 99% to the limited partners holding Tax Preferred 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 the qualified income offset provisions of the Partnership agreement; (b) allocations to partners having negative capital accounts until all negative capital accounts have been restored to zero; and (c) allocations to limited partners holding Tax Preferred Units in amounts equal to the deductions for depreciation and amortization 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.

Recent Accounting Pronouncement

In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“SFAS 168”). SFAS 168 requires that the FASB Accounting Standards Codification (“Codification”) become the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Once the Codification is in effect, all of its content will carry the same level of authority, effectively superseding SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. SFAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of SFAS 168 did not have a material impact on the Partnership’s financial statements or disclosures.

Reclassifications

Certain prior year amounts have been reclassified to conform with the current year’s financial statement presentation.

 

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3. INVESTMENT IN JOINT VENTURE

Summary of Financial Information

The following information summarizes the operations of the Joint Venture for the three months and nine months ended September 30, 2009 and 2008, respectively:

 

    Total Revenues   Income From
Continuing Operations
  Income From
Discontinued Operations
  Net Income
    Three Months Ended
September 30,
  Three Months Ended
September 30,
  Three Months Ended
September 30,
  Three Months Ended
September 30,
    2009   2008         2009               2008         2009   2008   2009   2008

Fund XIII-XIV Associates

  $402,908   $394,970   $114,316   $122,646   $0   $0   $114,316   $122,646
                               
    Total Revenues   Income From Continuing
Operations
  Income From
Discontinued Operations
  Net Income
    Nine Months Ended
September 30,
  Nine Months Ended
September 30,
  Nine Months Ended
September 30,
  Nine Months Ended
September 30,
    2009   2008   2009   2008   2009   2008   2009   2008

Fund XIII-XIV Associates

  $1,191,346   $1,183,432   $374,525   $380,181   $0   $1,008   $374,525   $381,189
                               

The Partnership allocates its share of net income, net loss, and gain on sale generated by the properties owned by the Joint Venture to its Cash Preferred and Tax Preferred limited partners pursuant to the partnership agreement provisions outlined in Note 2. The components of income from discontinued operations recognized by the Joint Venture are provided below:

 

     Nine Months Ended
September 30, 2009
   Nine Months Ended
September 30, 2008
     Operating
Income
   Gain
on Sale
   Total    Operating
Income
   Gain
on Sale
   Total

Fund XIII-XIV Associates

   $0    $0    $0    $1,008    $0    $1,008
                             

Due from Joint Venture

As presented in the accompanying balance sheets, due from joint venture as of September 30, 2009 and December 31, 2008 represents operating cash flow generated by the Joint Venture for the three months ended September 30, 2009 and December 31, 2008, respectively, which is attributable to the Partnership.

 

4. RELATED-PARTY TRANSACTIONS

Management and Leasing Fees

The Partnership has entered into a property management, leasing, and asset management agreement with Wells Management Company, Inc. (“Wells Management”), an affiliate of the General Partners. In accordance with the property management, leasing, and asset management agreement, Wells Management receives compensation for the management and leasing of the Partnership’s properties owned directly or through the Joint Venture, equal to the lesser of (a) 4.5% of the gross revenues collected monthly; plus, a separate competitive fee for the one-time initial lease-up of newly constructed properties generally paid in conjunction with the receipt of the first month’s rent, or (b) fees that would be paid to a comparable outside firm, which is assessed periodically based on market studies. In the case of commercial properties leased on a long-term net-lease basis (ten or more years), the maximum property management fee from such leases shall be 1% of the gross revenues generally paid over the life of the leases, except for a one-time initial leasing fee of 3% of the gross revenues on each lease payable over the first five full years of the original lease term. Management and leasing fees are paid by the Joint Venture for the properties owned through the Joint Venture and, accordingly, are included in equity in income of joint venture in the accompanying statements of operations. Management and leasing fees are paid by the Partnership

 

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for the properties owned directly. The Partnership’s share of management, leasing and asset management fees and lease acquisition costs from properties owned directly and through the Joint Venture and payable to Wells Management is $19,156 and $16,544 for the three months ended September 30, 2009 and 2008, respectively, and $50,200 and $46,764 for the nine months ended September 30, 2009 and 2008, respectively.

Administrative Reimbursements

Wells Capital, one of our General Partners, and Wells Management perform certain administrative services for the Partnership, relating to accounting, property management, and other partnership administration, and incur the related expenses. Such expenses are allocated among other entities affiliated with the General Partners based on time spent on each fund by individual administrative personnel. In the opinion of the General Partners, this allocation is a reasonable estimation of such expenses. The Partnership incurred administrative expenses of $21,324 and $22,626 payable to Wells Capital and Wells Management for the three months ended September 30, 2009 and 2008, respectively, and $67,639 and $70,118 for the nine months ended September 30, 2009 and 2008, respectively. In addition, Wells Capital and Wells Management pay for certain operating expenses of the Partnership (“bill-backs”) directly and invoice the Partnership for the reimbursement thereof on a quarterly basis.

Due to Affiliates

As of September 30, 2009 and December 31, 2008, due to affiliates was comprised of the following items:

 

     September 30,
2009
   December 31,
2008

Administrative reimbursements and bill-backs due to Wells Capital and/or Wells Management

   $7,859    $  9,648

Management, leasing, and asset management fees due to Wells Management

     1,420        5,102
         
   $9,279    $14,750
         

Economic Dependency

The Partnership has engaged Wells Capital and Wells Management to provide certain essential services, including supervision of the management and leasing of its properties, asset acquisition and disposition services, as well as other administrative responsibilities, including accounting services and investor communications and relations. These agreements are terminable by either party upon 60 days’ written notice. As a result of these relationships, the Partnership is dependent upon Wells Capital and Wells Management.

Wells Capital and Wells Management are both owned and controlled by WREF. The operations of Wells Capital and Wells Management represent substantially all of the business of WREF. Accordingly, the Partnership focuses on the financial condition of WREF when assessing the financial condition of Wells Capital and Wells Management. In the event that WREF were to become unable to meet its obligations as they become due, the Partnership might be required to find alternative service providers.

Future net income generated by WREF will be largely dependent upon the amount of fees earned by Wells Capital and Wells Management based on, among other things, the level of investor proceeds raised from the sale of common stock for certain WREF-sponsored programs and the volume of future acquisitions and dispositions of real estate assets by WREF-sponsored programs, as well as anticipated dividend income earned from its holdings of common stock of Piedmont REIT, which was acquired in connection with the Piedmont REIT internalization transaction (see Assertion of Legal Action Against Related-Parties below). In addition, WREF guarantees unsecured debt of another WREF-sponsored product which was in the amount of approximately $23.7 million as of October 31, 2009. The General Partners believe that WREF generates adequate cash flow from operations and has adequate liquidity available in the form of cash on hand and other investments necessary to meet its current and future obligations as they become due.

 

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The Partnership is also dependent upon the ability of its current tenants to pay their contractual rent amounts as they become due. The inability of a tenant to pay future rental amounts would be likely to have a negative impact on the Partnership’s results of operations. The Partnership is not currently aware of any reason why its existing tenants will not be able to pay their contractual rental amounts as they become due in all material respects. Situations preventing the tenants from paying contractual rents could result in a material adverse impact on the Partnership’s results of operations.

Assertion of Legal Action Against Related-Parties

On March 12, 2007, a stockholder of Piedmont REIT, filed a putative class action and derivative complaint, presently styled In re Wells Real Estate Investment Trust, Inc. Securities Litigation, in the United States District Court for the District of Maryland against, among others, Piedmont REIT; Leo F. Wells, III and Wells Capital, the Partnership’s General Partners; Wells Management, the Partnership’s property manager; certain affiliates of WREF; the directors of Piedmont REIT; and certain individuals who formerly served as officers or directors of Piedmont REIT prior to the closing of the internalization transaction on April 16, 2007. The complaint alleged, among other things, violations of the federal proxy rules and breaches of fiduciary duty arising from the Piedmont REIT internalization transaction and the related proxy statement filed with the SEC on February 26, 2007, as amended. The complaint sought, among other things, unspecified monetary damages and nullification of the Piedmont REIT internalization transaction. On April 9, 2007, the District Court denied the plaintiff’s motion for an order enjoining the internalization transaction. On April 17, 2007, the Court granted the defendants’ motion to transfer venue to the United States District Court for the Northern District of Georgia, and the case was docketed in the Northern District of Georgia on April 24, 2007. On June 7, 2007, the Court granted a motion to designate the class lead plaintiff and class co-lead counsel. On June 27, 2007, the plaintiff filed an amended complaint, which attempted to assert class action claims on behalf of those persons who received and were entitled to vote on the Piedmont REIT proxy statement filed with the SEC on February 26, 2007, and derivative claims on behalf of Piedmont REIT. On July 9, 2007, the Court denied the plaintiff’s motion for expedited discovery related to an anticipated motion for a preliminary injunction. On August 13, 2007, the defendants filed a motion to dismiss the amended complaint. On March 31, 2008, the Court granted in part the defendants’ motion to dismiss the amended complaint. The Court dismissed five of the seven counts of the amended complaint in their entirety. The Court dismissed the remaining two counts with the exception of allegations regarding the failure to disclose in the Piedmont REIT proxy statement details of certain expressions of interest in acquiring Piedmont REIT. On April 21, 2008, the plaintiff filed a second amended complaint, which alleges violations of the federal proxy rules based upon allegations that the proxy statement to obtain approval for the Piedmont REIT internalization transaction omitted details of certain expressions of interest in acquiring Piedmont REIT. The second amended complaint seeks, among other things, unspecified monetary damages, to nullify and rescind the internalization transaction, and to cancel and rescind any stock issued to the defendants as consideration for the internalization transaction. On May 12, 2008, the defendants answered and raised certain defenses to the second amended complaint. On June 23, 2008, the plaintiff filed a motion for class certification. On September 16, 2009, the Court granted the plaintiff’s motion for class certification. On September 20, 2009, the defendants filed a petition for permission to appeal immediately the Court’s order granting the motion for class certification with the Eleventh Circuit Court of Appeals. The petition for permission to appeal was denied on October 30, 2009. On April 13, 2009, the plaintiff moved for leave to amend the second amended complaint to add additional defendants. The Court denied the plaintiff’s motion for leave to amend on June 23, 2009. The parties are presently engaged in expert discovery. Mr. Wells, Wells Capital, and Wells Management intend to vigorously defend this action. Any financial loss incurred by Wells Capital, Wells Management, or their affiliates could hinder their ability to successfully manage our operations and our portfolio of investments.

 

5. COMMITMENTS AND CONTINGENCIES

From time to time, the Partnership and its General Partners are party to legal proceedings which arise in the ordinary course of our business. The Partnership is not currently involved in any litigation for which the outcome would, in the judgment of the General Partners based on information currently available, have a materially

 

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adverse impact on the results of operations or financial condition of the Partnership, nor is management aware of any such litigation threatened against us.

Certain lease agreements include provisions that, at the option of the tenant, may obligate the Partnership to expend capital to expand an existing property or provide other expenditures for the benefit of the tenant. Through November 30, 2009, one of the tenants at the Siemens – Orlando Building, Etour and Travel, Inc. (“Etour”), has the right to request the reimbursement of tenant improvements of up to approximately $79,000, which would be required to be funded by Fund XIII-XIV Associates. As of September 30, 2009, Fund XIII-XIV Associates has funded Etour’s first reimbursement request of approximately $30,000 of the aforementioned obligation to reimburse tenant improvements. Through September 30, 2010, the majority tenant at the Siemens – Orlando Building, Siemens Shared Services, LLC (“Siemens”), has the right to request the reimbursement of tenant improvements of up to approximately $237,000, which would be required to be funded by Fund XIII-XIV Associates. As of September 30, 2009, Fund XIII-XIV Associates had not yet received a request for reimbursement of the aforementioned obligation to reimburse Siemens’ tenant improvements.

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the accompanying financial statements and notes thereto. See also “Cautionary Note Regarding Forward-Looking Statements” preceding Part I, as well as the notes to our financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations provided in our Annual Report on Form 10-K for the year ended December 31, 2008.

Overview

Management believes that the Partnership typically operates through the following five key life cycle phases. The duration of each phase is dependent upon various economic, industry, market, and other internal/external factors. Some overlap naturally exists in the transition from one phase to the next.

 

   

Fundraising phase

The period during which the Partnership is raising capital through the sale and issuance of limited partner units to the public;

 

   

Investing phase

The period during which the Partnership invests the capital raised during the fundraising phase, less upfront fees, into the acquisition of real estate assets;

 

   

Holding phase

The period during which the Partnership owns and operates its real estate assets during the initial lease terms of the tenants;

 

   

Positioning-for-sale phase

The period during which the leases in place at the time of acquisition expire and, thus, the Partnership expends time, effort, and funds to re-lease such space to existing and/or new tenants. Following the holding phase, the Partnership continues to own and operate the real estate assets, evaluate various options for disposition, and market the real estate assets for sale; and

 

   

Disposition-and-liquidation phase

The period during which the Partnership sells its real estate investments, distributes net sale proceeds to the partners, liquidates, and terminates the Partnership.

Portfolio Overview

We are currently in the holding phase of our life cycle. We now own a 100% interest in two properties and a partial interest in one additional property, all of which are currently 100% leased. On May 20, 2009,

 

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Fund XIII-XIV Associates completed a lease amendment with Siemens, the majority tenant at the Siemens – Orlando Building, which extended the termination date of the lease from September 30, 2009 to September 30, 2011. Our focus in the near-term is to maintain the high occupancy level of our portfolio and maximize operating performance of each of our assets.

The third quarter 2009 operating distributions to limited partners holding Cash Preferred Units were reserved. We anticipate that operating distributions will continue to be reserved in the near-term as a result of our intention to fund our pro rata share of anticipated re-leasing costs, tenant improvement reimbursement obligations and capital improvements at the Siemens – Orlando Building and 150 Apollo Drive.

Property Summary

As we continue to operate in the holding phase, we will continue to focus on re-leasing vacant space and space that may become vacant upon the expiration of our current leases. In doing so, we will seek to maximize returns to our limited partners by attempting to negotiate long-term leases at market rental rates while attempting to minimize down time, re-leasing expenditures, ongoing property level costs and portfolio costs. Later as we move into the positioning-for-sale and disposition-and-liquidation phases, our attention will shift to locating suitable buyers and negotiating purchase-sale contracts that will attempt to maximize the total return to our limited partners, and minimize contingencies and our post-closing involvement with buyers. As of October 31, 2009, the Partnership owned interests in three properties.

Information relating to the properties owned by the Partnership or its Joint Venture is presented below:

 

   

The 7500 Setzler Parkway property was sold on January 31, 2007.

 

   

The Randstad – Atlanta Building was sold on April 24, 2007.

 

   

The Siemens – Orlando Building, located in Orlando, Florida, is currently 100% leased to three tenants. The major lease to Siemens extends through September 2011.

 

   

The 150 Apollo Drive property, located in Chelmsford, Massachusetts, a suburb of Boston, is 100% leased to Avaya, Inc. until April 2010.

 

   

The 3675 Kennesaw Building, located in Kennesaw, Georgia, a suburb of Atlanta, is 100% leased to World Electric Supply, Inc. until October 2012.

Liquidity and Capital Resources

Overview

Our operating strategy entails funding expenditures related to the recurring operations of the properties owned through the Joint Venture or directly by the Partnership and the portfolio with operating cash flows, including current and prior period operating distributions received from the Joint Venture, and assessing the amount of remaining cash flows that will be required to fund known future re-leasing costs and other capital improvements. Any residual operating cash flows are generally considered available for distribution to the Cash Preferred limited partners and, unless reserved, are generally paid quarterly. As a result, the ongoing monitoring of our cash position is critical to ensuring that adequate liquidity and capital resources are available. Economic downturns in one or more of our core markets could adversely impact the ability of one or more of our tenants to honor lease payments and our ability to re-lease space on favorable terms as leases expire or space otherwise becomes vacant. In the event of either situation, cash flows and, consequently, our ability to provide funding for capital needs could be adversely affected.

Short-Term Liquidity

During the nine months ended September 30, 2009, we generated net cash flows from operating activities, including distributions received from the Joint Venture, of approximately $1,326,000. Such operating cash flows

 

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are generally representative of rental revenues and tenant reimbursements, less property operating expenses, management fees, general administrative expenses, and capital expenditures. We continued to withhold the net operating cash flows generated in 2009 to fund our pro rata share of anticipated re-leasing costs, tenant improvement reimbursement obligations and capital improvements at the Siemens – Orlando Building and 150 Apollo Drive. The extent of future operating distributions paid to limited partners will be largely dependent upon the amount of cash generated by properties owned directly by the Partnership or through the Joint Venture, our expectations of future cash flows and determination of near-term cash needs to fund our share of tenant re-leasing costs, and other capital improvements for properties owned directly by the Partnership or through the Joint Venture. We anticipate that operating distributions from the Joint Venture may decline in the near term as a result of funding our pro rata share of anticipated re-leasing costs and tenant improvement reimbursement obligations at the Siemens – Orlando Building and 150 Apollo Drive.

We believe that the cash on hand and distributions due from the Joint Ventures are sufficient to cover our working capital needs, including liabilities of approximately $153,000, as of September 30, 2009. During the remainder of 2009, we anticipate that we will be able to fund our proportionate share of capital expenditures noted above out of operating cash flows and net sale proceeds.

Long-Term Liquidity

We expect that our future sources of capital will be primarily derived from operating cash flows generated by the Joint Venture and our directly owned properties. Our future long-term liquidity requirements will include, but not be limited to, funding our share of tenant improvements, renovations, expansions, and other significant capital improvements necessary for properties owned through the Joint Venture or directly by the Partnership. We expect to continue to use substantially all future net cash flows from operations to provide funding for such requirements and to pay operating distributions to our limited partners. Future cash flows from operating activities will be primarily affected by distributions received from the Joint Venture, which are dependent upon the net operating income generated by the Joint Venture’s remaining property, and our directly owned properties, less reserves for known or anticipated capital expenditures.

Capital Resources

The Partnership is an investment vehicle formed for the purpose of acquiring, owning, and operating income-producing real properties or investing in joint ventures formed for the same purpose, and has invested all of the partners’ original net offering proceeds available for investment. Thus it is unlikely that we will acquire interests in any additional properties or joint ventures. Historically, our investment strategy generally involves acquiring properties that are preleased to creditworthy tenants on an all-cash basis either directly by the Partnership or through the Joint Venture.

We fund capital expenditures primarily related to building improvements for the purpose of maintaining the quality of our properties, and tenant improvements for the purpose of readying our properties for re-leasing. As leases expire, we will attempt to re-lease space to an existing tenant or market the space to prospective new tenants. Generally, tenant improvements funded in connection with lease renewals require less capital than those funded in connection with new leases. However, external conditions, such as the supply of and demand for comparable space available within a given market, drive capital costs as well as rental rates. Any capital or other expenditures required for the property owned through the Joint Venture and not funded from the operations of the Joint Venture will be required to be funded by the Partnership and the other respective joint venture partner on a pro rata basis.

Operating cash flows, if available, are generally distributed from the Joint Venture to the Partnership approximately one month following calendar quarter-ends. However, the Joint Venture will reserve operating distributions, or a portion thereof, as needed in order to fund known capital and other expenditures. Our cash management policy typically includes first utilizing current period operating cash flows until depleted, at which

 

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point operating reserves are utilized to fund capital and other required expenditures. In the event that current and prior period accumulated operating cash flows are insufficient to fund such costs, net sale proceeds reserves, if available, would then be utilized.

As of September 30, 2009, we have received, used, distributed, and held net sale proceeds allocated to the Partnership from the sale of properties as presented below:

 

    Net Sale
Proceeds
  Partnership’s
Approximate
Ownership %
  Net Sale Proceeds
Allocated to the
Partnership
  Use of
Net Sale Proceeds
  Net Sale Proceeds
Distributed to
Partners as of

September 30, 2009
  Undistributed Net
Sale Proceeds as of

September 30, 2009

Property Sold

        Amount   

Purpose

   

7500 Setzler Parkway
(sold in 2007)

  $8,723,080   52.7%   $ 4,597,063   $0      $ 4,597,063   $ 0

Randstad – Atlanta Building
(sold in 2007)

  $8,992,600   52.7%     4,739,100     0        4,692,937     46,163
                            

Total

      $ 9,336,163   $0      $ 9,290,000   $ 46,163
                            

Upon evaluating the anticipated capital needs of the properties in which we currently own an interest, our General Partners have determined to reserve the remaining net sale proceeds to fund our pro rata share of anticipated re-leasing costs, tenant improvement reimbursement obligations and capital improvements at the Siemens – Orlando Building and 150 Apollo Drive.

Results of Operations

Comparison of the three months ended September 30, 2009 versus the three months ended September 30, 2008

Rental income, management and leasing fees, depreciation expense, amortization expense, general and administrative expenses, and equity in income of Joint Venture remained relatively constant for the three months ended September 30, 2009 and September 30, 2008. We anticipate that rental income, management and leasing fees, depreciation expense, amortization expense, and equity in income of Joint Venture will remain at similar levels until May 2010, at which point rental income is expected to decline unless we are unable to secure a replacement tenant for the square footage leased through April 30, 2010 by Avaya, Inc., the sole tenant at 150 Apollo Drive. Absent temporary fluctuations throughout the course of the year, we anticipate that changes in the future levels of our general and administrative expenses will vary primarily based on future changes in our reporting and regulatory requirements.

Tenant reimbursements at the properties we own directly were $133,768 and $158,685 for the three months ended September 30, 2009 and 2008, respectively. Property operating costs at the properties we own directly were $117,275 and $140,100 for the three months ended September 30, 2009 and 2008, respectively. The decreases are primarily due to a decrease in reimbursable repairs and maintenance costs at 150 Apollo Drive and the 3675 Kennesaw Building. We expect tenant reimbursements and property operating costs to remain at similar levels until May 2010 at which point tenant reimbursements is expected to decline unless we are unable to secure a replacement tenant for the square footage leased through April 30, 2010 by Avaya, Inc., the sole tenant at 150 Apollo Drive.

Interest and other income was $13 and $1,574 for the three months ended September 30, 2009 and 2008, respectively. The decrease is primarily a result of a decrease in the average daily yield. Future levels of interest income will be largely dependent upon the level of net sale proceeds held based on the timing of future property dispositions and net sale proceeds distributions to the limited partners.

 

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Comparison of the nine months ended September 30, 2009 versus the nine months ended September 30, 2008

Rental income, management and leasing fees, depreciation expense, amortization expense, and equity in income of Joint Venture remained relatively constant for the nine months ended September 30, 2009 and September 30, 2008. We anticipate that rental income, management and leasing fees, depreciation expense, amortization expense, and equity in income of Joint Venture will remain at similar levels until May 2010 at which point rental income is expected to decline unless we are unable to secure a replacement tenant for the square footage leased through April 30, 2010 by Avaya, Inc., the sole tenant at 150 Apollo Drive.

Tenant reimbursements at the properties we own directly were $427,249 and $497,719 for the nine months ended September 30, 2009 and 2008, respectively. Property operating costs at the properties we own directly were $378,943 and $449,182 for the nine months ended September 30, 2009 and 2008, respectively. The decreases are primarily due to a decrease in reimbursable repairs and maintenance costs and property taxes levied at 150 Apollo Drive. We expect tenant reimbursements and property operating costs to remain at similar levels until May 2010 at which point tenant reimbursements is expected to decline unless we are unable to secure a replacement tenant for the square footage leased through April 30, 2010 by Avaya, Inc., the sole tenant at 150 Apollo Drive.

Interest and other income was $56 and $5,926 for the nine months ended September 30, 2009 and 2008, respectively. The decrease is primarily a result of a decrease in the average daily yield. Future levels of interest income will be largely dependent upon the level of net sale proceeds held based on the timing of future property dispositions and net sale proceeds distributions to the limited partners.

General and administrative expenses were $126,409 and $148,619 for the nine months ended September 30, 2009 and 2008, respectively. This decrease is attributable to a temporary decline in accounting fees related to the timing of work performed by our external accountants in the current year. Absent temporary fluctuations throughout the course of the year, we anticipate that changes in the future levels of our general and administrative expenses will vary primarily based on future changes in our reporting and regulatory requirements.

Inflation

We are exposed to inflation risk, as income from long-term leases is the primary source of our cash flows from operations. There are provisions in the majority of our tenant leases that are intended to help protect us from the impact of inflation. These provisions include rent steps, reimbursement billings for operating expense pass-through 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. However, due to the long-term nature of our leases, the leases may not readjust their reimbursement rates frequently enough to cover inflation.

Application of Critical Accounting Policies

Summary

Our accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If management’s judgment or interpretation of the facts and circumstances relating to various transactions are different, it is possible that different accounting policies would be applied, thus resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses.

 

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Below is a discussion of the accounting policies used by the Partnership and the Joint Venture, which are considered critical in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain.

Investment in Real Estate Assets

We are required to make subjective assessments as to the useful lives of our depreciable assets. We consider the period of future benefit of the assets to determine the appropriate useful lives. These assessments have a direct impact on net income. The estimated useful lives of the assets owned directly by the Partnership or through the Joint Venture are depreciated or amortized using the straight-line method over the following useful lives:

 

Buildings

   40 years

Building improvements

   5-25 years

Land improvements

   20 years

Tenant improvements

   Shorter of lease term or economic life

Intangible lease assets

   Lease term

In the event that the Partnership or Joint Venture utilizes inappropriate useful lives or methods of depreciation or amortization, our net income would be misstated.

Evaluating the Recoverability of Real Estate Assets

We continually monitor events and changes in circumstances that could indicate that the carrying amounts of the real estate assets and related intangible assets in which we have an ownership interest, either directly or through investments in the Joint Venture, may not be recoverable. When indicators of potential impairment are present which suggest that the carrying amounts of real estate assets and related intangible assets may not be recoverable, we assess the recoverability of the real estate assets and related intangible assets by determining whether the respective carrying values will be recovered through the estimated undiscounted future operating cash flows expected from the use of the assets and their eventual disposition for assets held for use, or with the estimated fair values, less costs to sell, for assets held for sale. In the event that such expected undiscounted future cash flows for assets held for use, or the estimated fair values less costs to sell, for assets held for sale, do not exceed the respective assets’ carrying values, we adjust the real estate assets and related intangible assets to their respective estimated fair values, pursuant to the provisions of the property, plant, and equipment accounting standard for the impairment or disposal of long-lived assets, and recognize an impairment loss. Estimated fair values are calculated based on the following information in order of preference, dependent upon availability: (i) recently quoted market prices, (ii) market prices for comparable properties, or (iii) the present value of future cash flows, including estimated salvage value. We have determined that there has been no impairment in the carrying value of any of our real estate assets held as of September 30, 2009.

Projections of expected future cash flows require that we estimate future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, the number of months it takes to re-lease the property, and the number of years the property is held for investment, among other factors. The subjectivity of assumptions used in the future cash flow analysis, including discount rates, could result in an incorrect assessment of the property’s future cash flows and fair value, and could result in the misstatement of the carrying values of real estate assets and related intangible assets held by the Partnership or the Joint Venture and net income of the Partnership.

 

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Allocation of Purchase Price of Acquired Assets

Upon acquisition of real properties, either owned directly by the Partnership or through its investment in the Joint Venture, the Partnership allocated the purchase price of properties to the identifiable tangible assets, which consist of land and building, and identifiable intangible assets and liabilities, which consist of the following items:

 

   

Direct costs associated with obtaining a new tenant, including commissions, tenant improvements and other direct costs are included in intangible lease origination costs in the accompanying balance sheets and are amortized to expense over the remaining terms of the respective leases.

 

   

The value of opportunity costs associated with lost rentals avoided by acquiring an in-place lease are included in intangible lease assets in the accompanying balance sheets and are amortized to expense over the remaining terms of the respective leases.

 

   

The value of tenant relationships is included in intangible lease assets in the accompanying balance sheets and amortized to expense over the remaining terms of the respective leases.

 

   

The value of effective rental rates of in-place leases that are above or below the market rates of comparable leases is recorded as intangible lease assets or liabilities and amortized as an adjustment to rental income over the remaining terms of the respective leases.

During the three months ended September 30, 2009 and 2008, the Partnership recognized the following amortization of intangible lease assets:

 

     Intangible Lease Assets    Intangible
Lease
Origination
Costs
     Above-Market
In-Place

Lease Asset
   Absorption
Period Costs
  

For the three months ended September 30:

        

2009

   $1,557    $79,581    $138,394
              

2008

   $1,557    $79,581    $138,394
              

During the nine months ended September 30, 2009 and 2008, the Partnership recognized the following amortization of intangible lease assets:

 

     Intangible Lease Assets    Intangible
Lease
Origination
Costs
     Above-Market
In-Place
Lease Asset
   Absorption
Period Costs
  

For the nine months ended September 30:

        

2009

   $4,672    $238,743    $415,183
              

2008

   $4,672    $238,743    $415,183
              

As of September 30, 2009 and December 31, 2008, the Partnership had the following gross intangible in-place lease assets:

 

     Intangible Lease Assets    Intangible
Lease
Origination
Costs
     Above-Market
In-Place

Lease Asset
   Absorption
Period
Costs
  

September 30, 2009

   $42,045    $1,629,051    $2,779,375
              

December 31, 2008

   $42,045    $1,629,051    $2,779,375
              

 

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The remaining net intangible asset balances will be amortized as follows:

 

     Intangible Lease Assets    Intangible
Lease
Origination
Costs
     Above-Market
In-Place
Lease Asset
   Absorption
Period
Costs
  

For the year ending December 31:

        

2009

   $  1,557    $ 79,581    $ 138,394

2010

       6,229      129,364      205,478

2011

       6,229      34,883      31,430

2012

       5,190      29,069      26,192
                  
   $19,205    $ 272,897    $ 401,494
                  

Related-Party Transactions

We have entered into agreements with Wells Capital, Wells Management, an affiliate of our General Partners, and their affiliates, whereby we pay certain fees and expense reimbursements to Wells Capital, Wells Management and their affiliates for asset management; the management and leasing of our properties; administrative services relating to accounting, property management, and other partnership administration, and incur the related expenses. See Note 4 to our financial statements included in this report for a description of these fees and expense reimbursements we have incurred.

Commitments and Contingencies

Certain lease agreements include provisions that, at the option of the tenant, may obligate the Partnership to expend capital to expand an existing property or provide other expenditures for the benefit of the tenant. Through November 30, 2009, one of the tenants at the Siemens – Orlando Building, Etour, has the right to request the reimbursement of tenant improvements of up to approximately $79,000, which would be required to be funded by Fund XIII-XIV Associates. As of September 30, 2009, Fund XIII-XIV Associates has funded Etour’s first reimbursement request of approximately $30,000 of the aforementioned obligation to reimburse tenant improvements. Through September 30, 2010, the majority tenant at the Siemens – Orlando Building, Siemens, has the right to request the reimbursement of tenant improvements of up to approximately $237,000, which would be required to be funded by Fund XIII-XIV Associates. As of September 30, 2009, Fund XIII-XIV Associates had not yet received a request for reimbursement of the aforementioned obligation to reimburse Siemens’ tenant improvements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Since we do not borrow any money, make any foreign investments or invest in any market risk-sensitive instruments, we are not subject to risks relating to interest rates, foreign currency exchange rate fluctuations, or the other market risks contemplated by Item 305 of Regulation S-K.

 

ITEM 4T. CONTROLS AND PROCEDURES

We carried out an evaluation, under the supervision and with the participation of management of Wells Capital, our corporate general partner, including the Principal Executive Officer and the Principal Financial Officer of Wells Capital, of the effectiveness of the design and operation of the Partnership’s disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”) as of the end of the quarterly period covered by this report. Based upon that evaluation, the Principal Executive Officer and the Principal Financial Officer of Wells Capital concluded that our disclosure controls and procedures were

 

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effective as of the end of the period covered by this quarterly report in providing a reasonable level of assurance that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in applicable SEC rules and forms, including providing a reasonable level of assurance that information required to be disclosed by us in the reports we file under the Exchange Act is accumulated and communicated to our management, including the Principal Executive Officer and the Principal Financial Officer of Wells Capital, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

We are from time to time a party to legal proceedings, which arise in the ordinary course of our business. We are not currently involved in any litigation the outcome of which would, in management’s judgment based on information currently available, have a material adverse effect on our results of operations or financial condition, nor is management aware of any such litigation threatened against us during the quarter ended September 30, 2009, requiring disclosure under Item 103 of Regulation S-K. For a description of pending litigation involving certain related parties, see “Assertion of Legal Action Against Related-Parties” in Note 4 to our financial statements included in this report.

 

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

(a) We did not sell any equity securities that were not registered under the Securities Act of 1933 during the quarter ended September 30, 2009.

 

(b) Not applicable.

 

(c) We did not redeem any securities during the quarter ended September 30, 2009.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

(a) We were not subject to any indebtedness and, therefore, did not default with respect to any indebtedness during the quarter ended September 30, 2009.

 

(b) Not applicable.

 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of our limited partners during the quarter ended September 30, 2009.

 

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ITEM 5. OTHER INFORMATION

 

(a) During the quarter ended September 30, 2009, there was no information required to be disclosed in a report on Form 8-K which was not disclosed in a report on Form 8-K.

 

(b) Not applicable.

 

ITEM 6. EXHIBITS

The Exhibits to this report are set forth on Exhibit Index to Third Quarter Form 10-Q attached hereto.

 

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SIGNATURES

Pursuant to the requirements 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.

 

   

WELLS REAL ESTATE FUND XIV, L.P.

(Registrant)

    By:  

WELLS CAPITAL, INC.

(General Partner)

November 12, 2009

    /s/ LEO F. WELLS, III
   

Leo F. Wells, III

President, Principal Executive Officer,

and Sole Director of Wells Capital, Inc.

November 12, 2009

   

/s/ DOUGLAS P. WILLIAMS

   

Douglas P. Williams

Principal Financial Officer

of Wells Capital, Inc.

 

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EXHIBIT INDEX

TO THIRD QUARTER FORM 10-Q

OF

WELLS REAL ESTATE FUND XIV, L.P.

 

Exhibit

Number

  

Description of Document

31.1    Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2    Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1    Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002