<PAGE>
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 0-23719
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Wells Real Estate Fund X, L.P.
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(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Georgia 58-2250093
- --------------------------------- ---------------------------------------
(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:
</TABLE>
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:
NONE
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(Title of Class)
NONE
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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
--
Aggregate market value of the voting stock held by non-affiliates: Not
---
Applicable
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<PAGE>
PART I
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ITEM 1. BUSINESS
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GENERAL
Wells Real Estate Fund X, L.P. (the "Partnership") is a Georgia public limited
partnership having Leo F. Wells, III and Wells Partners, L.P., a Georgia non-
public limited partnership, as General Partners. The Partnership was formed on
June 20, 1996, for the purpose of acquiring, developing, constructing, owning,
operating, improving, leasing and otherwise managing for investment purposes
income-producing commercial or industrial properties.
On December 31, 1996, the Partnership commenced a public offering of up to
$35,000,000 of limited partnership units ($10.00 per unit) pursuant to a
Registration Statement filed on Form S-11 under the Securities Act of 1933. The
Partnership commenced active operations on February 4, 1997, when it received
and accepted subscriptions for 125,000 units. An aggregate requirement of
$2,500,000 of offering proceeds was reached on February 25, 1997, thus allowing
for the admission of New York and Pennsylvania investors in the Partnership.
The offering was terminated on December 30, 1997, at which time the Partnership
had sold 2,116,099 Class A Status Units, and 596,792 Class B Status Units, held
by a total of 1,588 and 218 Limited Partners respectively, for total Limited
Partner capital contributions of $27,128,912. After payment of $1,085,157 in
Acquisition and Advisory Fees and expenses, payment of $4,069,338 in selling
commissions and organization and offering expenses, $650,000 escrow contribution
on behalf of the Fund IX - Fund X Joint Venture and an investment of $3,500,000
in the Fund IX - Fund X Joint Venture as of December 31, 1997, the Partnership
was holding net offering proceeds of $17,824,417 available for investment in
properties.
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 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.
2
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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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As of December 31, 1997, the Partnership owned an interest in one property
through its ownership in joint ventures, which is an office building located in
Knoxville, Tennessee, which is substantially completed. 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, the property was 67.06%
occupied. As of December 31, 1997, the Partnership was holding approximately
$17,824,417 to invest in properties.
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:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
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 - - - - - -
1999 - - - - - -
2000 - - - - - -
2001 - - - - - -
2002 - - - - - -
2003 - - - - - -
2004 - - - - - -
2005 - - - - - -
2006 - - - - - -
2007(2) 1 55,000 67,500 341,687 100% 100%
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2007(2) 1 55,000 $687,500 $341,687 100% 100%
</TABLE>
(1) Average monthly gross rent over life of the lease, annualized.
(2) Expiration of ABB lease, Knoxville, Tennessee.
3
<PAGE>
The following describes the properties in which the Partnership owned an
interest as of December 31, 1997:
FUND IX - FUND X JOINT VENTURE
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On March 20, 1997, the Partnership and Wells Real Estate Fund IX, L.P. ("Wells
Fund IX"), a Georgia public limited partnership affiliated with the Partnership
through common general partners, formed a joint venture known as Fund IX and
Fund X Associates (the "Fund IX - Fund X Joint Venture"). The investment
objectives of Wells Fund IX are substantially identical to those of the
Partnership. Although the ultimate percentages of ownership in the Fund IX -
Fund X Joint Venture have not yet been finally determined, it is anticipated
that the Partnership will hold an approximately 50% equity interest in the two
properties described below. The total cost to complete both properties is
anticipated to be approximately $13,000,000. As of December 31, 1997, the
Partnership had contributed $3,500,000 and Wells Fund IX had contributed
$3,541,764, for total contributions of $7,041,764 to the Fund IX - Fund X Joint
Venture. At this time, the Partnership's equity interest in the Fund IX - Fund X
Joint Venture is approximately 49.7%, and Wells Fund IX's equity interest in the
Fund IX - Fund X Joint Venture is approximately 50.3%. The Partnership has
reserved sufficient funds to complete these projects.
THE ABB PROPERTY
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On March 20, 1997, Wells Fund IX contributed a 5.62 acre tract of real property
in Knoxville, Knox County, Tennessee and improvements thereon (the "ABB
Property"), valued at $1,306,393. As of December 31, 1997, the Partnership had
contributed $3,500,000 and Wells Fund IX had contributed $3,541,764 toward the
development of this project for total contributions of $7,041,764.
A three-story office building containing approximately 83,885 rentable square
feet is under construction on the site. An agreement was signed with ADEVCO
Corporation to supervise, manage and coordinate the planning, design,
construction and completion of the property. Integra Construction, Inc. is
acting as the general contractor and Smallwood, Reynolds, Stewart, Stewart
Associates, Inc. as the architect.
ABB Environmental Systems, a subsidiary of ABB, Inc., has executed a lease for
55,000 rentable square feet comprising approximately 66% of the building. The
initial term of the lease will be 9 years and 11 months commencing on
substantial completion of the project which is currently anticipated to be
January 1, 1998. ABB has the option to extend the initial term of the lease for
two consecutive five year periods. The annual base rent payable during the
initial term is $646,250 payable in equal monthly installments of $53,854 during
the first five years and $728,750 payable in equal monthly installments of
$60,729 during the last four years and 11 months of the initial term. The
annual base rent for each extended term will be at market rental rates. In
addition to the base rent, ABB is required to pay additional rent equal to its
share of operating expenses during the lease term.
4
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It is currently anticipated that the total cost to complete the project will be
approximately $7,800,000. Although the ultimate percentages of ownership in the
Fund IX - Fund X Joint Venture have not been finally determined, it is
anticipated that the Partnership will contribute approximately $400,000 and
Wells Fund IX will contribute approximately $358,235 to the remaining cost of
approximately $758,235 for an approximate 50% equity interest each.
The Partnership has reserved sufficient funds for this purpose. For further
information regarding the formation of the Fund IX - Fund X Joint Venture and
the development of the ABB Property, refer to Supplement No. 1 dated March 27,
1997, to the Prospectus of Wells Real Estate Fund X, L.P. and Wells Real Estate
Fund XI, L.P. dated December 31, 1996, contained in Post-Effective Amendment No.
1 to Form S-11 Registration Statement of Wells Real Estate Fund X, L.P. and
Wells Real Estate Fund XI, L.P. which was filed with the Commission on April 1,
1997 (Commission File No. 333-7979).
OKLAHOMA CITY PROJECT
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On May 30, 1997, the Fund IX - Fund X Joint Venture entered into an agreement
for the purchase and sale of real property with Wells Development Corporation
("Wells Development"), an affiliate of the General Partners, for the acquisition
of a one-story building to be developed on property located in Oklahoma City,
Oklahoma (the "Oklahoma City Project"). The Fund IX - Fund X Joint Venture will
purchase the Oklahoma City Project for a purchase price which is currently
anticipated to be approximately $5,200,000. Under the terms of its contract
with Wells Development, the Fund IX - Fund X Joint Venture was required to make
an earnest money deposit to Wells Development in the amount of $1,300,000. The
earnest money deposit was used to fund the purchase of the land upon which the
Oklahoma City Property will be developed and will also be used to fund the
initial costs of construction and development of the project. The Partnership
and Wells Fund IX made the required escrow contribution of $650,000 each on
behalf of the Fund IX - Fund X Joint Venture to Wells Development Corporation.
The site of the Oklahoma City Project consists of approximately 5.3 acres, and
when completed, the Oklahoma City Project will be a one-story office building
containing 57,186 net rentable square feet. An agreement with ADEVCO
Corporation to supervise, manage and coordinate the planning, design,
construction and completion of the property has been signed.
Lucent Technologies, a world-wide leader in telecommunications technology
producing a variety of communication products, has executed a lease agreement
with Wells Development to lease the entire Oklahoma City Project upon
completion. The initial term of the lease will be ten years commencing on
substantial completion of the project which is currently anticipated to be
January 1, 1998. Lucent Technologies has the option to extend the initial term
of the lease for two additional five year periods. The annual base rent payable
during the initial term is $508,383 payable in equal monthly installments of
$42,365 during the first five years and $594,152 payable in equal monthly
installments of $49,513 during the second five years of the lease term. The
annual base rent for each extendable term will be at market rental rates. In
addition to the base rent, Lucent Technologies will be required to pay
additional rent equal to its share of operating expenses during the lease term.
5
<PAGE>
It is currently anticipated that the total cost to complete the property, which
is estimated to be approximately $5,200,000, will be contributed equally by the
Partnership and Wells Fund IX for an ultimate percentage ownership of
approximately 50% for each partnership. For further information regarding the
contract entered into between the Fund IX - Fund X Joint Venture and Wells
Development and the development of the Oklahoma City Project, refer to
Supplement No. 2 dated June 17, 1997, to the Prospectus of Wells Real Estate
Fund X, L.P. and Wells Real Estate Fund XI, L.P. dated December 31, 1996,
contained in Post-Effective Amendment No. 2 to the Registration Statement of
Wells Real Estate Fund X, L.P. and Wells Real Estate Fund XI, L.P. which was
filed with the Commission on June 17, 1997 (Commission File No. 333-7979).
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.
PART II
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ITEM 5. MARKET FOR PARTNERSHIP'S UNITS AND RELATED SECURITY HOLDER MATTERS.
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The offering for sale of Units in the Partnership terminated on December 30,
1997, at which time the Partnership had 2,116,099 outstanding Class A Status
Units held by a total of 1,588 Limited Partners and 596,792 outstanding Class B
Status Units held by a total of 218 Limited Partners. The capital contribution
per unit is $10.00. There is no established public trading for the
Partnership's limited partnership units, and it is not anticipated that a public
trading market for the units will develop. Under the Partnership Agreement, the
General Partners have the right to prohibit transfers of units.
Class A Status Limited Partners are entitled to a distribution from Net Cash
from Operations, as defined in the Partnership Agreement to mean cash flow, less
adequate cash reserves for other obligations of the Partnership for which there
is no provision, on a per Unit basis until they have received distributions in
each fiscal year of the Partnership equal to 10% of their adjusted capital
contributions. After this preference is satisfied, the General Partners will
receive an amount of Net Cash From Operations equal to 10% of the total amount
of Net Cash From Operations distributed. Thereafter, the Limited Partners
holding Class A Status Units will receive 90% of Net Cash From Operations and
the General Partners will receive 10%. No Net Cash from Operations will be
distributed to Limited Partners holding Class B Status Units. Holders of Class
A Status Units will, except in limited circumstances, be allocated none of the
Partnership's net loss, depreciation, amortization and cost recovery deductions.
These deductions will be
6
<PAGE>
allocated to the Class B Status Units, until their capital account balances have
been reduced to zero. No distributions have been made to the General Partners as
of December 31, 1997.
Cash available to distribution to the Limited Partners is distributed on a
quarterly basis unless Limited Partners select to have their cash distributed
monthly. Cash distributions made to Class A Status Limited Partners during 1997
were as follows:
Per Class A Status Unit
-----------------------
Distribution for Total Cash Investment Return of General
Quarter Ended Distributed Income Capital Partner
- ---------------- ----------- ---------- --------- -------
<TABLE>
<S> <C> <C> <C> <C>
March 31, 1997 $0 $0.00 $0.00 $0.00
June 30, 1997 $0 $0.00 $0.00 $0.00
September 30, 1997 $0 $0.00 $0.00 $0.00
December 31, 1997 $294,309 $0.27 $0.00 $0.00
</TABLE>
The fourth quarter distribution was accrued for accounting purposes in 1997, and
was not actually paid to Limited Partners until February, 1998. Although there
is no assurance, the General Partners anticipate that cash distributions to
Limited Partners holding Class A Status 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 Partnership did not commence active operations until it received and
accepted subscriptions for a minimum of 125,000 units on February 4, 1997, and
accordingly, there is no comparative financial data available from prior fiscal
years. As of December 31, 1996, the Partnership's assets totaled approximately
$98,291 consisting primarily of the General Partners' capital contributions and
deferred offering costs.
The following sets forth a summary of the selected financial data for the eleven
months ended December 31, 1997.
[The remainder of this page left intentionally blank]
7
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<TABLE>
<CAPTION>
1997
------------------
<S> <C>
Total assets $23,716,744
Total revenues 372,507
Net income 278,025
Net loss allocated
to General Partners (162)
Net income allocated to
Class A Limited Partners 302,862
Net loss allocated to
Class B Limited Partners (24,675)
Net income per weighted
average (1) Class A
Limited Partner Unit .28
Net loss per weighted
average (1) Class B
Limited Partner Unit (0.09)
Cash Distributions per
weighted average (1)
Class A Limited Partner Unit:
Investment Income 0.27
Return of Capital 0.00
</TABLE>
(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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
- -------------------------------------------------------------------------
RESULTS OF OPERATION.
- ---------------------
The following discussion and analysis should be read in conjunction with the
Selected Financial Data and the accompanying financial statements of the
Partnership and notes thereto.
This Report contains forward-looking statements, within the meaning of Section
27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of
1934, including discussion and analysis of the financial condition of the
Partnership, anticipated capital expenditures required to complete certain
projects, amounts of cash distributions anticipated to be distributed to Limited
Partners in the future and certain other matters. Readers of this Report should
be aware that there are various factors that could cause actual results to
differ materially from any forward-looking statement made in the 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.
8
<PAGE>
RESULTS OF OPERATIONS AND CHANGES IN FINANCIAL CONDITIONS
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General
- -------
The Partnership commenced active operations on February 4, 1997, when it
received and accepted subscriptions for 125,000 units. An aggregate requirement
of $2,500,000 of offering proceeds was reached on February 25, 1997, thus
allowing for the admission of New York and Pennsylvania investors into the
Partnership. As of December 31, 1997, the Partnership had sold 2,116,099 Class
A Status Units and 596,792 Class B Status Units, held by a total of 1,588 and
218 Class A and Class B Limited Partners, respectively, for total Limited
Partner contributions of $27,128,912. After payment of $1,085,157 in acquisition
and advisory fees, payment of $4,069,338 in selling commissions and organization
and offering expenses, $650,000 escrow contribtion on behalf of the Fund IX -
Fund X Joint Venture and investment of $3,500,000 in the Fund IX - Fund X Joint
Venture, as of December 31, 1997, the Partnership was holding net offering
proceeds of $17,824,417 available for investment in properties.
It is anticipated that an additional investment in the Fund IX - Fund X Joint
Venture of approximately $758,235 will be required to complete the ABB Property
and that an additional investment of approximately $3,900,000 will be required
to complete the acquisition of the Lucent Project. It is anticipated that the
Partnership and Wells Fund IX will each contribute a total of approximately
$6,500,000 to the Fund IX - Fund X Joint Venture. It is currently anticipated
that the Partnership will contribute an additional $400,000 to complete the ABB
Project and an additional $1,950,000 to complete the Lucent Project. The
Partnership has reserved $2,350,000 out of its net offering proceeds of
approximately $17,824,417 available for investment in properties for these
purposes.
Gross revenues of the Partnership of $372,507 for the twelve months ended
December 31, 1997, were attributable primarily to interest income earned on
funds held by the Partnership prior to the investment in joint ventures.
Negative equity in income of joint ventures of $10,035 was due primarily to
depreciation and other operating expenses combined with the fact that the tenant
moved into the building in late December 1997.
Expenses of the Partnership were $94,482 for the twelve months ended December
31, 1997, and consisted primarily of legal, accounting and partnership
administrative costs. Net income of the Partnership was $278,025 for the twelve
months ended December 31, 1997. Net income allocated per weighted average unit
to Class A Limited Partners was $0.28; net loss allocated per weighted average
unit to Class B Limited Partners was $0.09 and net loss allocated to General
Partners was $162 for the twelve months ended December 31, 1997.
Since the Partnership did not commence active operations until it received and
accepted subscriptions for a minimum of 125,000 Units on February 4, 1997, there
is no comparative financial data available from the prior fiscal year.
9
<PAGE>
Property Operations
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As of December 31, 1997, the Partnership owned an interest in the following
operational property:
The ABB Building - Fund IX-X Joint Venture
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<TABLE>
<CAPTION>
One Month Ended
December 31, 1997
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<S> <C>
Revenues:
Rental income $28,512
Expenses:
Depreciation 36,863
Management & leasing expenses 1,711
Operating costs, net of
reimbursements 10,110
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48,692
------
Net loss $(20,180)
========
Occupied % 67.06%
Partnership's Ownership % in the Fund IX - Fund
X Joint Venture 49.70%
Net loss allocated to Partnership $(10,035)
</TABLE>
Since the ABB Project was started in March, 1997, comparative income and expense
figures for prior years are not available.
Real estate taxes and primarily all operational expenses for the building are
the responsibility of the tenant.
On March 20, 1997, Wells Fund IX contributed a 5.62 acre tract of real property
in Knoxville, Knox County, Tennessee and improvements thereon (the "ABB
Property"), valued at $1,306,393. As of September 30, 1997, the Partnership had
contributed $3,500,000 and Wells Fund IX had contributed $3,541,765 toward the
development of this project for total contributions of $7,041,765.
A three-story office building containing approximately 83,885 rentable square
feet is under construction on the site. An agreement was signed with ADEVCO
Corporation to supervise, manage and coordinate the planning, design,
construction and completion of the property. Integra Construction, Inc. is
acting as the general contractor and Smallwood, Reynolds, Stewart, Stewart
Associates, Inc. as the architect.
10
<PAGE>
ABB Environmental Systems, a subsidiary of ABB, Inc., has executed a lease for
55,000 rentable square feet comprising approximately 66% of the building. The
initial term of the lease will be 9 years and 11 months commencing on
substantial completion of the project which is currently anticipated to be
January 1, 1998. ABB has the option to extend the initial term of the lease for
two consecutive five year periods. The annual base rent payable during the
initial term is $646,250 payable in equal monthly installments of $53,854 during
the first five years and $728,750 payable in equal monthly installments of
$60,729 during the last four years and 11 months of the initial term. The
annual base rent for each extended term will be at market rental rates. In
addition to the base rent, ABB is required to pay additional rent equal to its
share of operating expenses during the lease term.
It is currently anticipated that the total cost to complete the project will be
approximately $7,800,000. Although the ultimate percentages of ownership in the
Fund IX -Fund X Joint Venture have not been finally determined, it is
anticipated that the Partnership will contribute $400,000 and Wells Fund IX will
contribute $358,235 to the remaining cost of approximately $758,235 for an
approximate 50% equity interest each.
The Partnership has reserved sufficient funds for this purpose. For further
information regarding the formation of the Fund IX - Fund X Joint Venture and
the development of the ABB Property, refer to the Form 8-K of Wells Real Estate
Fund X, L.P. dated March 26, 1997, filed with the Commission on April 1, 1997
(Commission File No. 333-7979).
The funds used by the Fund IX - Fund X Joint Venture to complete the ABB
Building were derived from capital contributions made by the Partnership and
Wells Fund IX, totaling $3,500,000 and $3,541,764 respectively. The Partnership
owns an approximate 50% equity interest in the Fund IX - Fund X Joint Venture.
For comments on general 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.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Partnership commenced active operations on February 4, 1997, when it
received and accepted subscriptions for 125,000 units.
The Partnership terminated its offering on December 30, 1997, the Partnership
raised $27,128,912 in capital through the sale of 2,712,892 units.
After payment of $1,085,157 in Acquisition and Advisory fees and expenses,
payment of $4,069,338 in selling commissions and organizational and offering
expenses, $650,000 escrow contribution on behalf of the Fund IX - Fund X Joint
Venture and the investment by the Partnership of $3,500,000 in the Fund IX -
Fund X Joint Venture, as of December 31, 1997, the Partnership was holding net
offering proceeds of approximately $17,824,417 available for additional
properties.
11
<PAGE>
The Partnership's net cash provided by operating activities of $200,668 is due
primarily to interest income earned on funds held by the Partnership prior to
investment in properties. Net cash used in investing activities of $5,188,485 is
primarily the result of the payment of Acquisition and Advisory Fees, investment
in the Fund IX - Fund X Joint Venture of $3,500,000 and an earnest money deposit
which was advanced for a new project. Net cash provided by financing activities
is the result of raising $27,128,912 in Limited Partners contributions less
commissions and organizational and offering expenses, and therefore, increasing
cash and cash equivalents from $600 of General Partners' contribution at the
beginning of the year to $18,404,232 as of December 31, 1997.
The Partnership's distributions to holders of Class A Status Units for the 4th
quarter ended December 31, 1997 will be paid in February, 1998 from Investment
Income. Although there is no assurance, the Partnership anticipates that
distributions will continue to be paid on a quarterly basis from such sources on
a level at least consistent with 1997. No cash distributions were paid to
holders of Class B Status Units in 1997.
The Partnership expects to continue to meet its short-term liquidity
requirements generally through net cash provided by operations which the
Partnership believes will continue to be adequate to meet both operating
requirements and distributions to limited partners. At this time, given the
nature of the joint venture and property in which the Partnership has invested,
there are no known improvements or renovations to the properties expected to be
funded from cash flow from operations.
The Partnership expects to make future real estate investments, directly or
through investments in joint ventures from limited partnership contributions.
As of December 31, 1997, the Partnership has reserved $18,474,417 for this
purpose including approximately $400,000 for an office building in Knoxville,
Tennessee, owned by the Fund IX - Fund X Joint Venture and approximately
$1,950,000 needed to complete the office building in Oklahoma City, Oklahoma,
also owned by the Fund IX - Fund X Joint Venture.
Since properties are acquired on an all-cash basis, the Partnership has no
permanent long-term liquidity requirements.
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. These leases contain common area maintenance charges (CAM charges),
real estate tax and insurance reimbursements on a per square foot bases, or in
some cases, annual reimbursement of operating expenses above a certain per
square foot allowance. These provisions should reduce the Partnership's
exposure to increases in costs and operating expenses resulting from inflation.
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
12
<PAGE>
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.
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
Wells Capital, Inc. 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.
13
<PAGE>
ITEM 11. COMPENSATION OF GENERAL PARTNERS AND AFFILIATES.
- ---------------------------------------------------------
The following table summarizes the compensation and fees (including
reimbursement of expenses) paid to the General Partners and their affiliates
during the year ended December 31, 1997.
CASH COMPENSATION TABLE
-----------------------
<TABLE>
<CAPTION>
<S> <C> <C>
(A) (B) (C)
Name of individual or Capacities in which served - Cash Compensation
number in group Form of Compensation
- --------------------- ---------------------------- -----------------
Wells Capital, Inc. General Partner of Wells $ 1,085,157
Partners, L.P.
Acquisition and Advisory Fees
Wells Capital, Inc. General Partner of Wells $ 1,356,447
Partners, L.P. Reimbursement
of Organization and Offering
Expenses
Leo F. Wells, III General Partner 0
Wells Investment Dealer Manager - $2,712,891 (1)
Securities, Inc. Selling Commissions
Wells Management Property Manager - $ 1,711 (2)
Company, Inc. Management and Leasing
Fees
</TABLE>
(1) This amount includes all selling commissions paid or payable to Wells
Investment Securities, Inc., a substantial portion of which were
reallocated to other broker-dealers.
(2) These fees are not paid directly by the Partnership but are paid by the
joint venture entities which owns the ABB Property 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.
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.
14
<PAGE>
Set forth below is the security ownership of management as of February 28, 1998.
<TABLE>
<CAPTION>
(1) (2) (3) (4)
<S> <C> <C> <C>
Amount and Nature
Name of of Beneficial
Title of Class Beneficial Owner Ownership Percent of Class
- ------------- ---------------- ----------------- ----------------
Class A Status Leo F. Wells, III 110.036 Units (IRA, less than 1%
Units 401 (k) Plan
</TABLE>
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 SALES 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 Status Units have received preferential distributions equal to 10%
of their adjusted capital accounts in each fiscal year. The General
Partners will also receive a subordinated participation in net sales
proceeds and net financing proceeds equal to 20% of residual proceeds
available for distribution after Limited Partners holding Class A Status
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 contributions plus a 15% cumulative return on their adjusted
capital contributions; provided, however, that in no event shall the
General Partners receive in the aggregate in excess of 15% of net sales
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 did not receive any distributions from
net cash flow from operations or net sales proceeds for the year ended
December 31, 1997.
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
lessor of (A) (i) 3% of the gross revenues for management and 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 others rendering similar services in the same geographic
area for similar properties; and (ii) in the case of
15
<PAGE>
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.
Management and leasing fees are not paid directly by the Partnership but by
the joint venture entity which owns the properties. The Partnership's
share of these fees were $1,711 for the year ended December 31, 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
totaling 100% of their capital contributions plus a 6% cumulative return on
their adjusted capital contributions. No real estate commissions were paid
to the General Partners or affiliates for the year ended December 31, 1997.
DEFERRED PROJECT COSTS
----------------------
The Partnership pays Acquisition and Advisory Fees to the General Partners
for acquisition and advisory services. These payments, as provided by the
Partnership Agreement, may not exceed 5% of the Limited Partners' capital
contributions. Acquisition and Advisory Fees paid as of December 31, 1997,
amounted to $1,085,157 and represented approximately 4.0% of the Limited
Partners' capital contributions. These fees are allocated to specific
properties as they are purchased.
DEFERRED OFFERING COSTS
-----------------------
Wells Capital, Inc. (the "Company"), the General Partner of Wells Partners,
L.P., pays all the offering expenses for the Partnership. The Company may
be reimbursed by the Partnership to the extent that such offering expenses
do not exceed 5% of total Limited Partners' capital contributions. As of
December 31, 1997, the Partnership had reimbursed the Company for
$1,356,447 in offering expenses, which amounted to 5% of Limited Partners'
capital contributions.
16
<PAGE>
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.
17
<PAGE>
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 IX, L.P.
(Registrant)
By: /s/ Leo F. Wells, III
---------------------
LEO F. WELLS, III
Individual General Partner and as President
and Chief Financial Officier 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.
18
<PAGE>
INDEX TO FINANCIAL STATEMENTS
-----------------------------
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS PAGE
- ---------------------------------------------------------- ----
<S> <C>
Independent Auditors' Report F-2
Balance Sheets as of December 31, 1997 and 1996 F-3
Statement of Income for the Year Ended December 31, 1997 F-4
Statement of Partners' Capital for the Year Ended
December 31, 1997 F-5
Statement of Cash Flows for the Year Ended December 31,
1997 F-6
Notes to Financial Statements for December 31, 1997 and
1996 F-7
</TABLE>
F-1
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN LLP APPEARS HERE]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Wells Real Estate Fund X, L.P.:
We have audited the accompanying balance sheets of WELLS REAL ESTATE FUND X,
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 the year
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 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 X, L.P.
as of December 31, 1997 and 1996 and the results of its operations and its cash
flows for the year 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.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 9, 1998
F-2
<PAGE>
WELLS REAL ESTATE FUND X, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
----------- -------
CASH AND CASH EQUIVALENTS $18,404,232 $ 600
INVESTMENT IN JOINT VENTURE 3,662,803 0
DEFERRED OFFERING COSTS 0 97,691
DEFERRED PROJECT COSTS 912,317 0
ORGANIZATIONAL COSTS, LESS ACCUMULATED
AMORTIZATION OF $6,250 IN 1997 25,000 0
PREPAID EXPENSES AND OTHER ASSETS 712,392 0
----------- -------
Total assets $23,716,744 $98,291
=========== =======
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Due to affiliate $ 105,008 $97,691
Partnership distributions payable 294,309 0
Sales commissions payable 242,387 0
----------- -------
Total liabilities 641,704 97,691
----------- -------
PARTNERS' CAPITAL:
General partners 338 500
Limited partners:
Class A 18,019,767 0
Class B 5,054,935 0
Original limited partner 0 100
----------- -------
Total partners' capitaL 23,075,040 600
----------- -------
Total liabilities and partners' capital $23,716,744 $98,291
=========== =======
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
WELLS REAL ESTATE FUND X, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
REVENUES:
Equity in loss of joint venture $(10,035)
Interest income 382,542
---------
372,507
---------
EXPENSES:
Partnership administration m 71,554
Legal and accounting 9,135
Amortization of organizational costs 6,250
Computer costs 7,543
--------
94,482
--------
NET INCOME $278,025
========
NET LOSS ALLOCATED TO GENERAL PARTNERS $ (162)
========
NET INCOME ALLOCATED TO CLASS A LIMITED PARTNERS $302,862
========
NET LOSS ALLOCATED TO CLASS B LIMITED PARTNERS $(24,675)
========
NET INCOME PER CLASS A LIMITED PARTNER UNIT $ 0.28
========
NET LOSS PER CLASS B LIMITED PARTNER UNIT $ (0.09)
========
CASH DISTRIBUTION PER CLASS A LIMITED PARTNER UNIT $ 0.27
========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
WELLS REAL ESTATE FUND X, L.P.
(A Georgia Limited Partnership)
STATEMENT OF PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
LIMITED PARTNERS TOTAL
---------------------------------------------
CLASS A CLASS B GENERAL PARTNERS'
------------------ ----------------------
ORIGINAL UNITS AMOUNT UNITS AMOUNT PARTNERS CAPITAL
-------- ----- ------- ----- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 $100 0 $ 0 0 $ $500 $ 600
Net income (loss) 0 0 302,862 0 (24,675) (162) 278,025
Partnership distributions 0 0 (294,309) 0 0 0 (294,309)
Return of capital (100) 0 0 0 0 0 (100)
Limited partner contributions 0 2,116,099 21,160,987 596,792 5,967,925 0 27,128,912
Sales commissions and discounts 0 0 (2,116,099) 0 (596,792) 0 (2,712,891)
Other offering expenses 0 0 (1,033,674) 0 (291,523) 0 (1,325,197)
------- --------- ----------- -------- ---------- ---- -----------
BALANCE, DECEMBER 31, 1997 $ 0 2,116,099 $18,019,767 596,79 $5,054,935 $338 $23,075,040
======= ========= =========== ======== ========== ==== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
WELLS REAL ESTATE FUND X, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net income $ 278,025
--------------
Adjustments to reconcile net income to net cash used in operating activities:
Equity in loss of joint venture 10,035
Amortization of organizational costs 6,250
Changes in assets and liabilities:
Organizational costs (31,250)
Prepaid expenses and other assets (62,392)
--------------
Total adjustments (77,357)
--------------
Net cash provided by operating activities 200,668
--------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in joint venture (3,499,999)
Earnest money deposit (650,000)
Deferred project costs paid (1,038,486)
--------------
Net cash used in investing activities (5,188,485)
--------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Limited partners' contributions 27,128,912
Sales commissions and discounts paid (2,470,504)
Offering costs paid (1,266,859)
Return of capital (100)
--------------
Net cash provided by financing activities 23,391,449
--------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 18,403,632
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 600
--------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 18,404,232
==============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Deferred project costs applied to joint venture property $ 172,839
==============
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
<TABLE>
<CAPTION>
<S>
<C>
WELLS REAL ESTATE FUND X, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
</TABLE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Wells Real Estate Fund X, L.P. (the "Partnership") is a public limited
partnership organized on June 20, 1996 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 units. Upon subscription for units,
each limited partner must elect whether to have its units treated as Class A
units or Class B units. Thereafter, limited partners shall have the right to
change their prior election to have some or all of their units treated as
Class A units or Class B 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) remove a
general partner, (d) elect a new general partner, (e) dissolve the
Partnership, and (f) approve a sale of assets, subject to certain
limitations. Each limited partnership unit has equal voting rights,
regardless of class.
The Partnership was formed to acquire and operate commercial real
properties, including properties which are either to be developed, currently
under development or construction, newly constructed, or which have
operating histories. The Partnership owns an interest in a three-story
office building in Knoxville, Tennessee (the "ABB Property") through a joint
venture between the Partnership and Wells Real Estate Fund IX, L.P. ("Fund
IX").
USE OF ESTIMATES AND FACTORS AFFECTING THE PARTNERSHIP
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The carrying values of real estate 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
F-7
<PAGE>
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.
DISTRIBUTIONS OF NET CASH FROM OPERATIONS
Cash available for distribution, as defined by the partnership agreement,
will be distributed to the 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 net capital contributions, as defined. Then distributions are paid to
the general partners until they have received 10% of the total amount thus
far distributed. Any remaining cash available for distribution is split 90%
to the limited partners holding Class A units and 10% to the general
partners. No such distributions will be made to the limited partners holding
Class B units.
DISTRIBUTION OF SALES PROCEEDS
Upon sales of properties, the net sales proceeds will be distributed in the
following order:
. To limited partners holding units which at any time have been treated
as Class B units until they receive an amount necessary to equal the
net cash available for distribution received by the limited partners
holding Class A units
. To limited partners on a per unit basis until each limited partner
has received 100% of their net capital contributions, as defined
. To all limited partners on a per unit basis until they receive a
cumulative 10% per annum return on their net capital contributions,
as defined
. To limited partners on a per unit basis until they receive an amount
equal to their preferential limited partner return (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 Class A units
and a 15% per annum cumulative return on net capital contributions
for all periods during which the units were treated as Class B units)
. To the general partners until they have received 100% of their
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
F-8
<PAGE>
partner distributions plus distributions made to the general partners
pursuant to this provision
. Thereafter, 80% to the limited partners on a per unit basis and 20%
to the general partners
ALLOCATION OF NET INCOME, NET LOSS, AND GAIN ON SALE
Net income is defined as net income recognized by the Partnership, excluding
deductions for depreciation, amortization, and cost recovery. Net income, as
defined, of the Partnership will be allocated each year in the same
proportion 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 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 Class B
units in amounts equal to the 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 VENTURE
BASIS OF PRESENTATION. The Partnership does not have control over the
operations of the joint venture; however, it does exercise significant
influence. Accordingly, the Partnership's investment in the joint venture is
recorded using the equity method of accounting.
REAL ESTATE ASSETS. Real estate assets held by the joint venture are stated
at cost less accumulated depreciation. Major improvements and betterments
are capitalized when they extend the useful life of the related asset. All
repairs and maintenance are expensed as incurred.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," which is effective for fiscal years beginning after December 15, 1995.
SFAS No. 121 establishes standards for determining when impairment losses on
long-lived assets have occurred and how impairment losses should be
measured.
F-9
<PAGE>
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 venture as of December 31, 1997.
Depreciation for building and improvements is calculated using the straight-
line method over 25 years. Tenant improvements are amortized over the life
of the related lease or the life of the asset, whichever is shorter.
REVENUE RECOGNITION. All leases on real estate assets held by the joint
venture 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 venture are made in accordance with the terms of the individual
joint venture agreement. Generally, these items are allocated in proportion
to the partners' respective ownership interests. Cash is paid from the joint
venture to the Partnership on a quarterly basis.
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 statement 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 year
ended December 31, 1997 is computed based on the weighted average number of
units outstanding during the period.
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 5% of the limited partner contributions,
subject to certain overall limitations contained in the partnership
agreement. Aggregate fees paid through December 31, 1997 were $1,085,157
F-10
<PAGE>
and amounted to 4% of the limited partners' contributions received. These
fees are allocated to specific properties as they are purchased or developed
and are included in capitalized assets of the joint venture. Deferred
project costs at December 31, 1997 represent fees not yet applied to
properties. As of December 31, 1997, $46,670 of fees had not yet been paid
and are included in due to affiliate in the accompanying balance sheet.
3. DEFERRED OFFERING COSTS
Organization and offering expenses, to the extent they exceed 5% of the
gross proceeds, were paid by the Company and not by the Partnership.
Organization and offering expenses do not include sales or underwriting
commissions, but do include such costs as legal and accounting fees,
printing costs, and other offering expenses.
As of December 31, 1997, the Company paid organization and offering expenses
on behalf of the Partnership in the aggregate amount of $1,614,470, of which
the Company was reimbursed $1,356,447, which did not exceed the 5%
limitation. The Company absorbed the remaining $258,023 of offering and
organization expenses which exceeded the 5% limitation. The liability of
$58,338 for the unpaid balance of the aforementioned expenses is included in
due to affiliate at December 31, 1997.
4. RELATED-PARTY TRANSACTIONS
The Partnership entered into a property management agreement with Wells
Management Company, Inc. ("Wells Management"), an affiliate of the general
partners. In consideration for supervising the management of the
Partnership's properties, the Partnership will generally pay Wells
Management management and leasing fees equal to (a) 3% of the gross revenues
for management and 3% of the gross revenues for leasing (aggregate maximum
of 6%) plus a separate fee for the one-time initial lease-up of newly
constructed properties in an amount not to exceed the fee customarily
charged in arm's-length transactions by others rendering similar services in
the same geographic area for similar properties or (b) in the case of
commercial properties which are leased on a long-term net basis (ten or more
years), 1% of the gross revenues except for initial leasing fees equal to 3%
of the gross revenues over the first five years of the lease term.
The Partnership incurred management and leasing fees and lease acquisition
costs, at the joint venture level, of $856 for the year ended December 31,
1997 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
F-11
<PAGE>
capacity as general partners of other Wells Real Estate Funds, may be in
competition with the Partnership for tenants in similar geographic markets.
5. INVESTMENT IN JOINT VENTURE
The Partnership's investment and percentage ownership in the joint venture
at December 31, 1997 is summarized as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENT
---------- ----------
<S> <C> <C>
Fund IX and X Associates $3,662,803 50%
========== ==========
</TABLE>
The following is a rollforward of the Partnership's investment in joint
venture for the year ended December 31, 1997:
<TABLE>
<S> <C>
Investment in joint venture, beginning of year $ 0
Equity in loss of joint venture (10,035)
Contributions to joint venture 3,672,838
------------
Investment in joint venture, end of year $3,662,803
============
</TABLE>
FUND IX AND X ASSOCIATES
On March 20, 1997, the Partnership entered into a joint venture agreement
with Wells Real Estate Fund IX, L.P. The joint venture, Fund IX and X
Associates, was formed to acquire, develop, operate, and sell real
properties. On March 20, 1997, the Partnership contributed a 5.62-acre tract
of real property in Knoxville, Tennessee, and improvements thereon, known as
the ABB Property, to the Fund IX and X Associates joint venture. A 83,885-
square-foot, three-story office building was constructed and commenced
operations at the end of 1997.
F-12
<PAGE>
Following are the financial statements for Fund IX and X Associates:
FUND IX AND X ASSOCIATES
(A GEORGIA JOINT VENTURE)
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Assets
<S> <C>
Real estate assets, at cost:
Land $ 607,930
Building and improvements, less accumulated depreciation of $36,863 6,445,300
Construction in progress 35,622
-----------
Total real estate assets 7,088,852
Cash and cash equivalents 289,171
Accounts receivable 40,512
Prepaid expenses and other assets 329,310
-----------
Total assets $ 7,747,845
===========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 379,770
Due to affiliates 2,479
-----------
Total liabilities 382,249
-----------
Partners' Capital:
Wells Real Estate Fund IX 3,702,793
Wells Real Estate Fund X 3,662,803
-----------
Total partners' capital 7,365,596
-----------
Total liabilities and partners' capital $7,747,845
===========
</TABLE>
F-13
<PAGE>
FUND IX AND X ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENT OF LOSS
FOR THE PERIOD FROM INCEPTION (MARCH 20, 1997)
TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Revenues:
Rental income $ 28,512
----------
Expenses:
Depreciation 36,863
Management and leasing fees 1,711
Operating costs, net of reimbursements 10,118
----------
48,692
----------
Net loss $(20,180)
==========
Net loss allocated to Wells Real Estate Fund IX $(10,145)
==========
Net loss allocated to Wells Real Estate Fund X $(10,035)
==========
</TABLE>
FUND IX AND X ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENT OF PARTNERS' CAPITAL
FOR THE PERIOD FROM INCEPTION (MARCH 20, 1997)
TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
WELLS REAL WELLS REAL TOTAL
ESTATE ESTATE PARTNERS'
FUND IX FUND X CAPITAL
---------- ---------- ----------
<S> <C> <C> <C>
Balance, December 31, 1996 $0 $0 $0
Net loss (10,145) (10,035) (20,180)
Partnership contributions 3,712,938 3,672,838 7,385,776
---------- ---------- ----------
Balance, December 31, 1997 $3,702,793 $3,662,803 $7,365,596
========== ========== ==========
</TABLE>
F-14
<PAGE>
FUND IX AND X ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (MARCH 20, 1997)
TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net loss $(20,180)
----------
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation 36,863
Changes in assets and liabilities:
Accounts receivable (40,512)
Prepaid expenses and other assets (329,310)
Accounts payable 379,770
Due to affiliates 2,479
----------
Total adjustments 49,290
----------
Net cash provided by operating activities 29,110
Cash flows from investing activities:
Investment in real estate from partners (5,715,847)
Cash flows from financing activities:
Contributions received from partners 5,975,908
----------
Net increase in cash and cash equivalents 289,171
Cash and cash equivalents, beginning of period 0
----------
Cash and cash equivalents, END OF PERIOD $289,171
==========
Supplemental disclosure of noncash activities:
Deferred project costs applied by partners, net of
deferred project costs transferred $ 318,981
==========
Contribution of real estate assets $1,090,887
==========
</TABLE>
6. INCOME TAX BASIS NET INCOME AND PARTNERS' CAPITAL
The Partnership's income tax basis net income for the year ended December 31,
1997 is calculated as follows:
Financial statement net income $278,025
Increase in net income resulting from:
Expenses deducted for financial reporting purposes,
capitalized for income tax purposes 104,518
----------
Income tax basis net income $382,543
==========
F-15
<PAGE>
The Partnership's income tax basis partners' capital at December 31, 1997 is
computed as follows:
Financial statement partners' capital $23,075,040
Increase in partners' capital resulting from:
Depreciation expense for financial reporting
purposes in excess of amounts
for income tax purposes
Syndication costs 4,038,088
Expenses deducted for financial reporting purposes,
capitalized for income tax purposes 104,518
Partnership's distributions payable 294,309
-----------
Income tax basis partners' capital $27,511,955
===========
7. RENTAL INCOME
The future minimum rental income due from the Partnership's respective
ownership interest in the joint ventures under noncancelable operating leases
at December 31, 1997 is as follows:
Year ended December 31:
1998 $ 323,125
1999 323,125
2000 323,125
2001 323,125
2002 323,125
Thereafter 1,791,511
-----------
$3,407,136
===========
One tenant contributed 100% of rental income, which is included in equity in
loss of joint venture, for the year ended December 31, 1997 and will
contribute 100% of future minimum rental income.
The future minimum rental income due Fund IX and X Associates under
noncancelable operating leases at December 31, 1997 is as follows:
Year ended December 31:
1998 $646,250
1999 646,250
2000 646,250
2001 646,250
2002 646,250
Thereafter 3,583,021
----------
$6,814,271
==========
One tenant contributed 100% of rental income for the year ended December 31,
1997 and will contribute 100% of future minimum rental income.
F-16
<PAGE>
8. QUARTERLY RESULTS (UNAUDITED)
Presented below is a summary of the unaudited quarterly financial information
for the year ended December 31, 1997:
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $10,000 $78,462 $120,514 $163,531
Net (loss) income (4,397) 52,137 97,473 132,812
Net (loss) income allocated to general
limited partners (44) 44 0 (162)
Net income allocated to Class A
limited partners 0 47,740 97,473 157,649
Net (loss) income allocated to
Class B limited partners (4,353) 4,353 0 (24,675)
Net income (loss) per weighted average
Class A limited partner unit outstanding (a) $0.00 $0.09 $0.09 $0.08
Net (loss) income per weighted average
Class B limited partner unit (a) (0.05) 0.05 0.00 (0.05)
Cash distribution per Class A limited
partner unit (a) 0.00 0.00 0.00 0.15
</TABLE>
(a) The totals of the four quarterly amounts for the year ended December 31,
1997 do not equal the totals for the year. This difference results from the
use of a weighted average to compute the number of units outstanding for
each quarter and the year.
9. 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-17
<PAGE>
WELLS REAL ESTATE FUND X, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
<TABLE>
<CAPTION>
INITIAL COST GROSS AMOUNT AT WHICH CARRIED AT DECEMBER 31, 1997
----------------------- COSTS OF --------------------------------------------------
BUILDINGS AND CAPITALIZED BUILDINGS AND CONSTRUCTION
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS IN PROGRESS TOTAL
- --------------------- ----------- -------- ------------- ------------ --------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
KNOXVILLE PROPERTY (A) None $582,897 $0 $6,542,818 $607,930 $6,482,163 $35,622 $7,125,715
======== ============ =========== ======== ========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
LIFE ON WHICH
ACCUMULATED DATE OF DATE DEPRECIATION
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED(g)
- ----------------------- ------------ ------------- -------- --------------
<S> <C> <C> <C> <C>
KNOXVILLE PROPERTY (A) $36,863 1997 12/10/96 20 to 25 years
============
</TABLE>
(a) The Knoxville Property is a 5.622-acre tract of real property under
construction in Knoxville, Tennessee. It is owned by Fund IX and X
Associates. The Partnership owned a 50% interest in Fund IX and X Associates
at December 31, 1997.
(b) Depreciation lives used for buildings are 25 years. Depreciation lives used
for land improvements are 20 years.
S-1
<PAGE>
WELLS REAL ESTATE FUND X, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
ACCUMULATED
COST DEPRECIATION
---------- ----------
BALANCE AT DECEMBER 31,1996 $ 0 $ 0
1997 additions
7,125,715 36,863
---------- ----------
BALANCE AT DECEMBER 31, 1997 $7,125,715 $ 36,863
========== ==========
S-2
<PAGE>
EXHIBIT INDEX
-------------
(Wells Real Estate Fund X, L.P.)
The following documents are filed as exhibits to this report. Those exhibits
previously filed and incorporated herein by reference are identified below by an
asterisk. For each such asterisked exhibit, there is shown below the
description of the previous filing. Exhibits which are not required for this
report are omitted.
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------
*3(a) Amended and Restated Agreement of Limited Partnership of Wells Real
Estate Fund X, L.P. (Exhibit 3(a) to Form S-11 Registration Statement
of Wells Real Estate Fund X, L.P. and Wells Real Estate Fund XI, L.P.,
File No. 333-7979).
*3(b) Certificate of Limited Partnership of Wells Real Estate Fund X, L.P.
(Exhibit 3(b) to Form S-11 Registration Statement of Wells Real Estate
Fund X, L.P. and Wells Real Estate Fund XI, L.P., File No. 333-7979).
*10(a) Leasing and Tenant Coordinating Agreement between Wells Real Estate
Fund X, L.P. and Wells Management Company, Inc. (Exhibit 10(d) to Form
S-11 Registration Statement of Wells Real Estate Fund X, L.P. and Wells
Real Estate Fund XI, L.P., File No. 333-7979).
*10(b) Management Agreement between Wells Real Estate Fund X, L.P. and Wells
Management Company, Inc. (Exhibit 10(e) to Form S-11 Registration
Statement of Wells Real Estate Fund X, L.P. and Wells Real Estate Fund
XI, L.P., File No. 333-7979).
*10(c) Custodial Agency Agreement between Wells Real Estate Fund X, L.P. and
The Bank of New York (Exhibit 10(f) to Form S-11 Registration Statement
of Wells Real Estate Fund X, L.P. and Wells Real Estate Fund XI, L.P.,
File No. 333-7979).
*10(d) Joint Venture Agreement of Fund IX and Fund X Associates dated March
20, 1997 (Exhibit 10(g) to Post-Effective Amendment No. 1 to Form S-11
Registration Statement of Wells Real Estate Fund X, L.P. and Wells Real
Estate Fund XI, L.P., File No. 333-7979).
*10(e) Lease Agreement dated December 10, 1996, between Wells Real Fund IX,
L.P. and ABB Flakt, Inc. (Exhibit 10(kk) to Post-Effective Amendment
No. 13 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).
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------
*10(f) Development Agreement dated December 10, 1996, between Wells Real Fund
Fund IX, L.P. and ADEVCO Corporation (Exhibit 10(ll) to Post-Effective
Amendment No. 13 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(g) Owner-Contractor Agreement dated November 1, 1996, between Wells Real
Estate Fund IX, L.P. and Integra Construction, Inc. (Exhibit 10(mm) to
Post-Effective Amendment No. 13 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(h) Agreement for the Purchase and Sale of Real Property dated May 30,
1997, between Fund IX and Fund X Associates and Wells Development
Corporation (Exhibit 10(k) to Post-Effective Amendment No. 2 to Form S-
11 Registration Statement of Wells Real Estate Fund X, L.P. and Wells
Real Estate Fund XI, L.P., File No. 333-7979).
*10(i) Net Lease Agreement dated May 30, 1997, between Wells Development
Corporation and Lucent Technologies, Inc. (Exhibit 10(l) to Post-
Effective Amendment No. 2 to Form S-11 Registration Statement of Wells
Real Estate Fund X, L.P. and Wells Real Estate Fund XI, L.P., File No
333-7979).
*10(j) Development Agreement dated May 30, 1997, between Wells Development
Corporation and ADEVCO Corporation. (Exhibit 10(m) to Post-Effective
Amendment No. 2 to Form S-11 Registration Statement of Wells Real
Estate Fund X, L.P. and Wells Real Estate Fund XI, L.P., File No 333-
7979).
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 18,404,232
<SECURITIES> 3,662,803
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 712,392
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 23,716,744
<CURRENT-LIABILITIES> 641,704
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 23,075,040
<TOTAL-LIABILITY-AND-EQUITY> 23,716,744
<SALES> 0
<TOTAL-REVENUES> 372,507
<CGS> 0
<TOTAL-COSTS> 94,482
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 278,025
<INCOME-TAX> 278,025
<INCOME-CONTINUING> 278,025
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 278,025
<EPS-PRIMARY> .28
<EPS-DILUTED> 0
</TABLE>
