<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
<TABLE>
<CAPTION>
<S> <C>
(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, 1996 or
------------------------------------------------------------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
--------------------------------- ---------------------------------
Commission file number 0-14463
------------------------------------------------------------------------------
Wells Real Estate Fund I
- -----------------------------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1565512
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
3885 Holcomb Bridge Road, Norcross, Georgia 30092
- -----------------------------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 449-7800
--------------------------------------------------
- -----------------------------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
</TABLE>
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
----- -----
<PAGE>
Form 10-Q
---------
Wells Real Estate Fund I and Subsidiaries
-----------------------------------------
INDEX
-----
<TABLE>
<CAPTION>
Page No.
--------
<C> <S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets - September 30, 1996
and December 31, 1995................................... 3
Consolidated Statements of Income for
Three Months and Nine Months Ended
September 30, 1996 and 1995............................. 4
Statements of Partners' Capital
for the Nine Months Ended September 30, 1996
and the Year Ended December 31, 1995.................... 5
Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 1996 and 1995....... 6
Condensed Notes to Consolidated Financial Statements..... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................................. 13
PART II. OTHER INFORMATION................................................ 21
</TABLE>
2
<PAGE>
WELLS REAL ESTATE FUND I AND SUBSIDIARIES
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Assets September 30, 1996 December 31, 1995
------ ------------------ -----------------
<S> <C> <C>
Real Estate, at cost (Note 2)
Land $ 2,894,193 $ 2,894,193
Building and improvements, less
accumulated depreciation of $ 5,162,153
in 1996 and $4,391,172 in 1995 14,289,390 14,894,955
----------- -----------
Total real estate assets 17,183,583 17,789,148
----------- -----------
Investments in joint ventures (Note 3) 7,254,259 7,560,948
Cash and cash equivalents 223,520 323,786
Due from affiliates 108,578 124,999
Deferred lease acquisition costs 31,463 14,964
Accounts receivable 233,267 218,136
Prepaid expenses and other assets 67,590 54,279
----------- -----------
7,918,677 8,297,112
----------- -----------
Total assets $25,102,260 $26,086,260
=========== ===========
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Accounts payable $ 101,796 $ 85,610
Due to affiliates 1,376,803 1,267,152
Refundable security deposits 61,198 52,277
Partnership distribution payable 298,844 422,320
----------- -----------
Total liabilities 1,838,641 1,827,359
----------- -----------
Minority interest 131,459 137,051
Partners' capital
Limited partners:
Class A - 98,716 Units Outstanding 21,521,457 21,442,415
Class B - 42,568 Units Outstanding 1,610,703 2,679,435
----------- -----------
Total partners' capital 23,132,160 24,121,850
----------- -----------
Total liabilities and partners' capital $25,102,260 $26,086,260
=========== ===========
</TABLE>
See accompanying condensed notes to consolidated financial statements.
3
<PAGE>
WELLS REAL ESTATE FUND I AND SUBSIDIARIES
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------- ----------------------------------------
September 30, 1996 September 30, 1995 September 30, 1996 September 30, 1995
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 471,296 $ 482,035 $ 1,417,808 $1,439,589
Interest income 3,071 4,716 11,311 14,174
Equity in income of
Joint Ventures (Note 3) 26,141 88,324 61,119 209,192
--------- --------- ----------- ----------
500,508 575,075 1,490,238 1,662,955
--------- --------- ----------- ----------
Expenses:
Management and leasing fees 26,185 30,374 82,528 88,731
Lease acquisition costs 10,333 9,884 30,118 30,677
Operating costs - rental properties,
net of tenant reimbursements 201,819 140,008 510,080 365,935
Bad debt recovery 259 7,201 (6,386) 2,294
Depreciation 257,677 122,529 770,981 367,538
Legal and accounting 378 458 28,304 11,340
Computer expense 1,403 431 3,433 4,965
Partnership administration 18,918 19,377 72,802 63,809
Minority interest 1,300 (14) 3,304 1,052
--------- --------- ----------- ----------
518,272 330,248 1,495,164 936,341
--------- --------- ----------- ----------
Net income (loss) $ (17,764) $ 244,827 $ (4,926) $ 726,614
========= ========= =========== ==========
Net income allocated to
General Partners $ 0 $ 0 $ 0 $ 0
Net income allocated to
Class A Limited Partners $ 339,074 $ 433,710 $ 1,063,805 $1,294,268
Net loss allocated to Class B
Limited Partners $(356,838) $(188,883) $(1,068,731) $ (567,654)
Net income per Class A
Limited Partner Unit $ 3.43 $ 4.39 $ 10.77 $ 13.11
Net loss per Class B
Limited Partner Unit $ (8.39) $ (4.44) $ (25.11) $ (13.34)
Cash distribution per Class A
Limited Partner Unit $ 3.05 $ 4.52 $ 9.98 $ 13.16
</TABLE>
See accompanying condensed notes to consolidated financial statements.
4
<PAGE>
WELLS REAL ESTATE FUND I AND SUBSIDIARIES
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1995 AND NINE MONTHS ENDED
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
LIMITED PARTNERS
------------------------------------------
CLASS A CLASS B TOTAL
-------------------- -------------------- PARTNERS'
UNITS AMOUNTS UNITS AMOUNTS CAPITAL
------ ------------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 98,716 $21,487,254 42,568 $ 3,590,483 $25,077,737
Net income (loss) 0 1,657,310 0 (911,048) 746,262
Partnership distributions 0 (1,702,149) 0 0 (1,702,149)
------ ----------- ------ ----------- -----------
BALANCE, DECEMBER 31, 1995 98,716 21,442,415 42,568 2,679,435 24,121,850
Net income (loss) 0 1,063,805 0 (1,068,731) (4,926)
Partnership distributions 0 (984,763) 0 0 (984,763)
------ ----------- ------ ----------- -----------
BALANCE, SEPTEMBER 30, 1996 98,716 $21,521,457 42,568 $ 1,610,704 $23,132,161
====== =========== ====== =========== ===========
</TABLE>
See accompanying condensed notes to consolidated financial statements.
5
<PAGE>
WELLS REAL ESTATE FUND I AND SUBSIDIARIES
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------------------------------
September 30, 1996 September 30, 1995
-------------------------- --------------------------
<S> <C> <C>
Cash flow from operating activities:
Net (loss) income $ (4,926) $ 726,614
Adjustments to reconcile net earnings
to net cash provided by
operating activities:
Equity in income of joint ventures (61,119) (209,192)
Minority interest 3,304 1,052
Distribution received from joint ventures 387,979 352,061
Partnership distribution paid (1,108,239) (1,303,796)
Depreciation 770,981 367,538
Accrued management and leasing fees 82,528 88,731
Changes in assets and liabilities:
Decrease (increase) in accounts receivable (18,880) 46,521
(Increase) decrease in prepaids and other assets (29,811) 1,773
Increase in deferred rental income 0 45,429
Increase (decrease) in accounts payable
and refundable security deposits 25,106 (5,120)
Increase (decrease) in due to affiliates 18,228 (81,644)
----------- -----------
Net cash provided by
operating activities 65,151 29,967
----------- -----------
Cash flow from investing activities:
Additional investment in Joint Venture 0 5,321
Additional investment in real estate (165,419) (98,950)
----------- -----------
Net cash used in investing activities (165,419) (93,629)
----------- -----------
Net decrease in cash and cash equivalents (100,266) (63,662)
Cash and cash equivalents, beginning of year 323,786 395,165
----------- -----------
Cash and cash equivalents, end of period $ 223,520 $ 331,503
=========== ===========
</TABLE>
See accompanying condensed notes to consolidated financial statements.
6
<PAGE>
WELLS REAL ESTATE FUND I AND SUBSIDIARIES
(A Georgia Public Limited Partnership)
Condensed Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) General
------------
Wells Real Estate Fund I (the "Partnership") is a Georgia public limited
partnership having Leo F. Wells, III and Wells Capital, Inc., a Georgia
corporation, as General Partners. The Partnership was formed on April 26,
1984, for the purpose of acquiring, developing, constructing, owning,
operating, improving, leasing and otherwise managing for investment
purposes income-producing commercial properties.
On September 6, 1984, the Partnership commenced a public offering of its
limited partnership units pursuant to a Registration Statement filed on
Form S-11 under the Securities Act of 1933. The Partnership terminated its
offering on September 5, 1986, and received gross proceeds of $35,321,000
representing subscriptions from 4,895 Limited Partners, composed of two
classes of limited partnership interest, Class A and Class B limited
partnership units.
As of September 30, 1996, the Partnership owned directly or through its
ownership in joint ventures, interests in the following properties: (i)
The Howell Mill Road Property, a medical office building located in
Atlanta, Georgia, (ii) The Crowe's Crossing Property, a shopping center
located in DeKalb County, Georgia, (iii) The Black Oak Plaza Property, a
shopping center located in Knoxville, Tennessee, (iv) The Peachtree Place
Property, two commercial office buildings located in Atlanta, Georgia, (v)
The Tucker Property, a retail shopping and commercial office complex
located in Tucker, Georgia, and (vi) The Cherokee Property, a shopping
center located in Cherokee County, Georgia. All of the foregoing
properties were acquired on an all cash basis.
(b) Basis of Presentation
---------------------------
The consolidated financial statements of Wells Real Estate Fund I and
subsidiaries (the "Partnership") have been prepared in accordance with
instructions to Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. These quarterly statements have not been examined by
independent accountants, but in the opinion of the General Partners, the
statements for the unaudited interim periods presented include all
adjustments, which are of a normal and recurring nature, necessary to
present a fair presentation of the results for such periods. For further
information, refer to the consolidated financial statements and footnotes
included in the Partnership's Form 10-K for the year ended December 31,
1995.
7
<PAGE>
(c) Employees
--------------
The Partnership has no direct employees. The employees of Wells Capital,
Inc., a General Partner of the Partnership, perform a full range of real
estate services including leasing and property management, accounting,
asset management and investor relations for the Partnership.
(d) 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, the properties are adequately insured.
(e) 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.
(2) Real Estate and Rental Income
-----------------------------
The following describes the properties in which the Partnership owns an
interest as September 30, 1996:
The Howell Mill Road Property - Fund I
--------------------------------------
On December 27, 1985, the Partnership acquired a three-story medical office
building on 1.65 acres of land located on Howell Mill Road in metropolitan
Atlanta, Fulton County, Georgia, directly across from the West Paces Ferry
Hospital (the "Howell Mill Road Property") for a purchase price of
$3,443,203. The Howell Mill Road Property contains approximately 32,339 of
net rentable square feet, and the entire building is currently occupied by
HCA Realty, Inc. and Hospital Corporation of America (collectively, "HCA").
HCA is a medical support staff group which supplies health care workers to
West Paces Ferry Hospital. HCA is currently leasing the premises on a
month-to-month basis. The Partnership and HCA have agreed that HCA will
continue to occupy the space and pay rent through December 31, 1996. On
January 1, 1997, the Partnership will assume control of the 32,339 square
foot building.
During HCA's lease term, the space used by HCA has decreased and over time,
it entered into a number of subleases on approximately 23,116 square feet
of space. Prior to January
8
<PAGE>
1, 1997, all those subleases will be assigned to the Partnership. The first
floor of the building, consisting of 9,223 square feet, is currently
vacant. The Partnership is actively marketing the space to secure tenants
while rent for that vacant space is being received from HCA. There is no
assurance that this vacant space will be leased prior to HCA's lease
termination or that, if leased, the rental rates will not be less than the
Partnership currently receives from HCA.
The occupancy rate at the Howell Mill Road Property for the quarters ended
September 30 was 100% in 1996, 1995, 1994, 1993, and 1992.
The average effective annual rental per square foot at the Howell Mill Road
Property was $16.86 for 1996, 1995, 1994, 1993, and 1992.
Crowe's Crossing Property - Fund I
----------------------------------
On December 31, 1986, the Partnership acquired a retail shopping center
known as "Crowe's Crossing Shopping Center" located in metropolitan
Atlanta, Dekalb County, Georgia (the "Crowe's Crossing Property"). The
Crowe's Crossing Property consists of approximately 93,728 net rentable
square feet. The Crowe's Crossing Property is anchored by a 45,528 square
foot lease with Kroger Food/Drug ("Kroger").
Kroger is the only tenant occupying ten percent or more of the rentable
square footage. Kroger is a retail grocery chain. The remaining 48,200
square feet of the center is composed of 31 separate retail spaces whose
tenants operate retail businesses typical of multi-tenant shopping centers.
The annual base rent payable under the Kroger lease is $295,932. The lease
expires April, 2011 with Kroger entitled to five successive renewals each
with a term of five years with the same rental rates as the original lease.
The occupancy rate at the Crowe's Crossing Property for each quarter ended
September 30 was 84% in 1996, 89% in 1995, 88% in 1994 and 1993, and 97% in
1992.
The average annual rental per square foot at the Crowe's Crossing Property
was $7.15 for 1996, $7.60 for 1995, $7.49 for 1994, $7.56 for 1993, and
$7.96 for 1992.
As of September 30, 1996, the Partnership had contributed a total of
$8,317,176 for the acquisition of the Crowe's Crossing Property.
Black Oak Plaza Property - Fund I
---------------------------------
On December 31, 1986, the Partnership acquired a retail shopping center
known as "Black Oak Plaza" located in Metropolitan Knoxville, Knox County,
Tennessee. Black Oak Plaza was initially developed in 1981. Although
Black Oak Plaza contains a total of approximately 175,000 square feet of
space including a K-Mart department store and a
9
<PAGE>
Kroger, the Partnership acquired only the space located in the shopping
center other than the space occupied by K-Mart and Kroger. The portion of
the shopping center owned and operated by the Partnership contains
approximately 68,414 net rentable square feet. As of September 30, 1996,
Black Oak Plaza was approximately 72% leased to 22 tenants. There are no
tenants whose leases are for 10% or more of the total square footage of the
center. The occupancy rate at Black Oak Plaza for the quarters ended
September 30 was 72% in 1996, 84% in 1995 and 1994, 74% in 1993, and 78% in
1992. The decrease in occupancy from September 1995 to September 1996 was
a result of the loss of several tenants, totalling 8,209 square feet. The
average annual rental per square foot at Black Oak Plaza was $5.86 for
1996, $6.14 for 1995, $6.37 for 1994, $5.31 for 1993, and $5.04 for 1992.
As of September 30, 1996, the Partnership had contributed a total of
$4,564,521 for the acquisition of Black Oak Plaza.
Peachtree Place Property - Fund I and Wells & Associates Joint Venture
----------------------------------------------------------------------
In 1985, the Partnership acquired an interest in two commercial office
buildings located at 3875 and 3867 Holcomb Bridge Road, Norcross, Gwinnett
County, Georgia (the "Peachtree Place Property"). The Peachtree Place
Property, which contains approximately 17,245 net rentable square feet, is
owned through a joint venture between the Partnership and Wells &
Associates, Inc., a Georgia corporation affiliated with the General
Partners. The land upon which the Peachtree Place Property was developed
was originally purchased by Wells & Associates, Inc. for a purchase price
of $187,087, and, upon the formation of the joint venture with the
Partnership, Wells & Associates, Inc. contributed the land to the joint
venture as its capital contribution. As of September 30, 1996, the
Partnership had made total capital contributions of $1,552,367 to the joint
venture. The Partnership holds a 89.95% equity interest in the joint
venture and Wells & Associates, Inc. holds a 10.05% equity interest in the
joint venture. As of September 30, 1996, the buildings at the Peachtree
Place Property were 100% leased to 7 tenants.
The occupancy rate at the Peachtree Place Property for each quarter ended
September 30 was 100% in 1996, 86% in 1995, and 100% in 1994, 1993, and
1992.
The average effective annual rental per square foot at the Peachtree Place
Property was $15.81 for 1996, $13.62 for 1995, $14.31 for 1994, $13.18 for
1993, and $14.38 for 1992.
Three tenants occupy ten percent or more of the rentable square footage--
REMAX, a realtor; Dr. Keith Broome, a dentist; and Dr. Christian Loetscher,
an oral surgeon. The other tenants in the office park provide typical
commercial office services.
10
<PAGE>
REMAX is not currently under a lease, but is occupying 4,483 rentable
square feet on a month-to-month basis. The monthly base rent is $6,164.13.
The Partnership is in the process of negotiating a new lease with REMAX
which is expected to be signed by October 1, 1996.
Dr. Loetscher's original lease represented 2,067 rentable square feet. In
1995, he expanded and increased his rentable space an additional 2,333
square feet for a total of 4,400 rentable square feet. Dr. Loetscher's
lease provides for annual base rent of $73,258 in 1996, $71,591 in 1997 and
$29,333 in 1998. The lease expires May 31, 1998.
Dr. Keith Broome's lease represents 2,016 rentable square feet. The annual
base rent under the lease is $34,272 for 1996, $35,196 for 1997 and $2,940
for 1998. The lease expires January 31, 1998.
(3) Investments in Joint Ventures
-----------------------------
The Partnership owns interests in the following properties through joint
ventures. The Partnership does not have control over the operations of the
joint ventures; however, it does exercise significant influence.
Accordingly, investments in joint ventures is recorded on the equity
method.
Tucker Property - Fund I and Fund II Tucker Joint Venture
---------------------------------------------------------
The Tucker Property consists of a retail shopping center and a commercial
office building complex located in Tucker, DeKalb County, Georgia (the
"Tucker Property"). The retail shopping center at the Tucker Property
contains approximately 29,858 net rentable square feet. The commercial
office space at the Tucker Property, which is divided into seven separate
buildings, contains approximately 67,465 net rentable square feet.
On September 4, 1986, the Partnership acquired an 11.17 acre tract of land
located at Hugh Howell Road and Tucker Industrial Boulevard, Tucker, DeKalb
County, Georgia. In January 1987, the Partnership transferred and
contributed this tract of land to a joint venture (the "Tucker Joint
Venture"), which was formed in 1987 between the Partnership and Wells Real
Estate Fund II ("Wells Fund II"). Wells Fund II is a Georgia public
limited partnership affiliated with the Partnership through common general
partners. The investment objectives of Wells Fund II are substantially
identical to those of the Partnership. On March 1, 1988, Wells Fund II
formed a joint venture (the "Fund II-Fund II-OW Joint Venture") with Wells
Real Estate Fund II-OW ("Wells Fund II-OW"). Wells Fund II-OW is a Georgia
public limited partnership affiliated with the Partnership through common
general partners. The investment objectives of Wells Fund II-OW are
substantially identical to those of the Partnership. Upon the formation of
the Fund II-Fund II-OW Joint Venture, Wells Fund II contributed its joint
venture interest in the Tucker Joint Venture to the Fund II-Fund II-OW
Joint Venture as part of its capital contribution.
11
<PAGE>
Both the Partnership and the Fund II-Fund II-OW Joint Venture have funded
the costs of completing the Tucker Property through capital contributions
which were paid as progressive stages of construction were completed. As
of September 30, 1996, the Partnership had contributed a total of
$6,399,854, and the Fund II-Fund II-OW Joint Venture had contributed a
total of $4,833,346 to the Tucker Property. As of September 30, 1996, the
Partnership had an approximately 55% equity interest in the Tucker
Property, and the Fund II - Fund II-OW Joint Venture held approximately at
45% equity interest in the Tucker Property. As of September 30, 1996, the
Tucker Property was 75% occupied by 31 tenants, due to tenants vacating
approximately 9,761 square feet.
There are no tenants in the project occupying ten percent or more of the
rentable square footage. The principal businesses, occupations, and
professions carried on in the building are typical retail
shopping/commercial office services.
The occupancy rate at the Tucker Property for the quarters ended September
30 was 75% in 1996, 89% in 1995, 97% in 1994, 87% in 1993, and 78% in 1992.
The average effective annual rental per square foot at the Tucker Property
was $11.14 for 1996, $12.61 for 1995, $12.63 for 1994, $11.37 for 1993, and
$11.02 for 1992.
Cherokee Property - Fund I-II-II-OW-VI-VII Joint Venture
--------------------------------------------------------
The Cherokee Property consists of a retail shopping center known as
"Cherokee Commons Shopping Center" located in metropolitan Atlanta,
Cherokee County, Georgia (the "Cherokee Property"). The Cherokee Property
consists of approximately 103,755 net rentable square feet.
On June 30, 1987, the Partnership acquired an interest in the Cherokee
Property through a joint venture (the "Cherokee Joint Venture") between the
Partnership and Wells Fund II-Fund II-OW Joint Venture described above.
On August 1, 1995, the Partnership, Fund II-Fund II-OW Joint Venture, Wells
Real Estate Fund VI, L.P., a Georgia public limited partnership having Leo
F. Wells, III and Wells Partners, L.P., a Georgia limited partnership, as
general partners ("Wells Fund VI"), and Wells Real Estate Fund VII, L.P., a
Georgia public limited partnership having Leo F. Wells, III and Wells
Partners, L.P., a Georgia limited partnership, as general partners ("Wells
Fund VII"), entered into a joint venture agreement known as Fund I, II, II-
OW, VI, and VII Associates (the "Fund I-II-II-OW-VI-VII Joint Venture"),
which was formed to own and operate the Cherokee Property. Wells Partners,
L.P. is a private limited partnership having Wells Capital, Inc., a General
Partner of the Partnership, as its sole general partner. The investment
objectives of the Fund II-Fund II-OW Joint Venture, Wells Fund VI and Wells
Fund VII are substantially identical to those of the Partnership.
12
<PAGE>
As of September 30, 1996, the Partnership had contributed property with a
book value of $2,139,900, the Fund II-Fund II-OW Joint Venture had
contributed property with a book value of $4,860,100, Wells Fund VI had
contributed cash in the amount of $953,798 and Wells Fund VII had
contributed cash in the amount of $953,798 to the Fund I-II-II-OW- VI-VII
Joint Venture. As of September 30, 1996, approximate equity interests in
the Cherokee Property were as follows: the Partnership - 24%, Fund II-Fund
II-OW Joint Venture - 54%, Wells Fund VI - 11% and Wells Fund VII - 11%.
The Cherokee Property is anchored by a 67,115 square foot lease with Kroger
which expires in 2011. Kroger's original lease was for 45,528 square feet.
In 1994, Kroger expanded to the current 67,115 square feet which is
approximately 65% of the total rentable square feet in the Cherokee
Property. As of September 30, 1996, the Cherokee Property was
approximately 95% occupied by 20 tenants, including Kroger. Kroger is the
only tenant occupying ten percent or more of the rentable square footage.
Kroger is a retail grocery chain. The other tenants in the shopping center
provide typical retail shopping services.
The Kroger lease provides for an annual rent of $392,915 which increased to
$589,102 on August 16, 1995, due to the expansion from 45,528 square feet
to 67,115 square feet. The lease expires March 31, 2011 with Kroger
entitled to five successive renewals each for a term of five years at the
same rental rate as the original lease.
The occupancy rate at the Cherokee Property for the quarters ended
September 30 was 95% in 1996 and 1995, 92% in 1994, 82% in 1993, and 87%
in 1992.
The average effective annual rental per square foot at the Cherokee
Property was $8.57 for 1996, $7.50 for 1995, $5.53 for 1994, $6.47 for
1993, and $6.46 for 1992.
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 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.
13
<PAGE>
Results of Operations and Changes in Financial Conditions
---------------------------------------------------------
General
-------
Gross revenues of the Partnership were $500,508 for the three months ended
September 30, 1996, as compared to $575,075 for three months ended
September 30, 1995, and $1,490,238 for the nine months ended September 30,
1996, as compared to $1,662,955 for the same period in 1995. The decreases
for 1996 over 1995 were due to decreased earnings from joint ventures
caused primarily by decreased revenues from decreased occupancy at
properties owned by joint ventures.
Expenses of the Partnership increased for the three months and nine months
ended September 30, 1996, as compared to September 30, 1995. The expense
increases for 1996 over 1995 were due primarily to the increase in
depreciation expense. Depreciation increased from 1995 to 1996 due to a
change in the estimated useful lives of all buildings and improvements in
which the Partnership owns an interest, as of December 31, 1995, from 40
years to 25 years. Expenses also increased in 1996 over 1995 due to an
increase in operating expenses for Crowe's Crossing.
Net cash provided by operating activities increased from $29,967 in 1995 to
$65,151 in 1996, due primarily to the increase in distributions received
from joint ventures and a decrease in distributions paid to investors. Net
cash used in investing activities increased from $93,629 in 1995 to
$165,419 in 1996 due to an increase in capital expenditures at the
properties. Cash and cash equivalents decreased from $331,503 in 1995 to
$223,520 in 1996 due primarily to the increase in receivables, prepaids,
payables and capital expenditures.
The Partnership's cash distributions to the Limited Partners holding Class
A units was $9.98 per unit for nine months ended September 30, 1996, as
compared to $13.16 for 1995, and $3.05 for the three months ended September
30, 1996, as compared to $4.62 for the same period in 1995. All
distributions for 1995 and 1996 were made from investment income. No cash
distributions were made to the Limited Partners holding Class B units or to
the General Partners for the nine months ended September 30, 1996 and 1995.
14
<PAGE>
PROPERTY OPERATIONS
- -------------------
As of September 30, 1996, the Partnership owned interests in the following
properties:
Howell Mill Road Property - Fund I
- ----------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------- ----------------------------------------
September 30, 1996 September 30, 1995 September 30, 1996 September 30, 1995
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Revenues:
Rental Income $136,287 $136,280 $408,862 $408,855
Expenses:
Depreciation 62,929 30,438 188,788 91,313
Management and leasing expenses 8,178 8,178 24,533 24,533
Other operating expenses 3,296 (915) 15,719 2,196
-------- -------- -------- --------
74,403 37,701 229,040 118,042
-------- -------- -------- --------
Net income $ 61,883 $ 98,579 $179,822 $290,813
======== ======== ======== ========
Occupied % 100% 100% 100% 100%
Partnership's Ownership % 100% 100% 100% 100%
Cash generated to the Partnership $132,991 $136,042 $393,143 $408,244
Net income allocated to the
Partnership $ 61,883 $ 98,579 $179,822 $290,813
</TABLE>
Rental income remained stable for the periods ending September 30, 1996 and
1995. The increase in depreciation expense from 1995 to 1996 was due to the
change in the estimated useful lives of buildings and improvements as previously
discussed under the "General" section of "Results of Operations and Changes in
Financial Condition". Other operating expenses increased mainly due to
increased legal fees associated with negotiating the HCA lease. Net income was
lower in 1996 as compared to 1995 due to the increases in depreciation expense
and other operating expenses. Cash generated to the Partnership decreased due
to increased operating expenses and efforts to lease-up the property. HCA is
currently leasing the premises on a month-to-month basis. The Partnership and
HCA have agreed that HCA will continue to occupy the space and pay rent through
December 31, 1996. On January 1, 1997, the Partnership will assume control of
the 32,339 square foot building.
During HCA's lease term, the space used by HCA has decreased and over time, it
entered into a number of subleases on approximately 23,116 square feet of space.
Prior to January 1, 1997, all those subleases will be assigned to the
Partnership. The first floor of the building, consisting of 9,223 square feet,
is currently vacant. The Partnership is actively marketing the space to secure
tenants while rent is being received from HCA. There is no assurance that this
vacant space will be leased prior to HCA's lease termination or that, if leased,
the rental rates will not be less than the Partnership currently receives from
HCA.
15
<PAGE>
Crowe's Crossing Shopping Center - Fund I
- -----------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------- ----------------------------------------
September 30, 1996 September 30, 1995 September 30, 1996 September 30, 1995
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Revenues:
Rental Income $162,625 $174,476 $ 497,899 $528,024
Expenses:
Depreciation 99,904 49,348 299,730 148,155
Management and leasing expenses 7,480 11,043 25,249 30,530
Other operating expenses 98,217 69,678 277,432 158,667
-------- -------- --------- --------
205,601 130,069 602,411 337,352
-------- -------- --------- --------
Net (loss) income $(42,976) $ 44,407 $(104,512) $190,672
======== ======== ========= ========
Occupied % 84.1% 89.92% 84.1% 89.92%
==================================== ======== ======== ========= ========
Partnership's Ownership % in
Property 100% 100% 100% 100%
Cash generated to the Partnership $ 57,098 $101,232 $ 183,041 $381,590
Net income (loss) allocated to the
Partnership $(42,976) $ 44,407 $(104,512) $190,672
</TABLE>
Rental income decreased for the three and nine month periods ended September 30,
1996 compared to the same periods in 1995 due primarily to decreased occupancy
at the property. Negotiations are continuing for the leasing of a large space
at the property. Net income decreased for the three and nine month periods
ended September 30, 1996 and 1995 due primarily to the increases in depreciation
resulting from the change, as of fourth quarter 1995, in the estimated useful
lives of buildings and improvements. The balance of the decrease in net income
is the result of timing differences in the billing and payment of tenant expense
reimbursements as well as expenditure of approximately $25,000 for plumbing and
air conditioning repairs at the property during the third quarter 1996. Cash
generated to the Partnership decreased for the three and nine month periods
ended September 30, 1996, compared to September 30, 1995, due to the decreased
rental income, tenant reimbursements, and capital expenditures for tenant
improvements, and increased maintenance expenses (described above) at the
property.
16
<PAGE>
Black Oak Plaza Property - Fund I
- ---------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------- ----------------------------------------
September 30, 1996 September 30, 1995 September 30, 1996 September 30, 1995
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Revenues:
Rental Income $101,873 $113,834 $304,215 $334,242
Interest Income 28 209 109 759
-------- -------- -------- --------
101,901 114,043 304,324 335,001
-------- -------- -------- --------
Expenses:
Depreciation 73,139 32,141 217,865 96,265
Management and leasing expenses 8,523 9,051 26,057 27,275
Other operating expenses 66,665 38,121 113,984 99,830
-------- -------- -------- --------
148,327 79,313 357,906 223,370
-------- -------- -------- --------
Net income (loss) $(46,426) $ 34,730 $(53,582) $111,631
======== ======== ======== ========
Occupied % 74% 84% 74% 84%
Partnership's Ownership % in
Property 100% 100% 100% 100%
Cash generated to the Partnership $ 0 $ 80,853 $ 55,172 $171,138
Net income (loss) allocated to the
Partnership $(46,426) $ 34,730 $(53,582) $111,631
</TABLE>
Rental income decreased for the three months and nine months ended September 30,
1996, compared to the same periods in 1995, due primarily to decreased occupancy
at the property. Several new leases have been executed in third quarter of
1996, and one lease was renewed with additional square footage. Depreciation
increased in 1996 due to the change, in the fourth quarter of 1995, in estimated
useful lives of buildings and improvements. Other operating expenses have
increased for the three months ended September 30, 1996 due primarily to the
expenditure of approximately $14,000 for exterior painting at the center and
$15,000 in legal fees concerning collections from former tenants during the
third quarter of 1996. Cash generated to the Partnership decreased for the
three and six months ended September 30, 1996, compared to the same period of
1995, for the reasons cited above and additional capital expenditures of
approximately $45,000 at the property.
17
<PAGE>
Peachtree Place Property - Fund I and Wells & Associates Joint Venture
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------------- ---------------------------------------
September 30, 1996 September 30, 1995 September 30, 1996 September 30, 1995
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $70,511 $56,220 $206,832 $167,743
Interest income 7 118 22 645
------- ------- -------- --------
70,518 56,338 206,854 168,388
------- ------- -------- --------
Expenses:
Depreciation 21,705 10,602 64,598 31,806
Management and leasing expenses 5,523 8,583 16,365 15,040
Other operating expenses 33,899 37,295 96,557 111,270
------- ------- -------- --------
61,127 56,480 177,520 158,116
------- ------- -------- --------
Net (loss) income $ 9,391 $ (142) $ 29,334 $ 10,272
======= ======= ======== ========
Occupied % 100% 100% 100% 100%
Partnership's Ownership % 89.95% 89.76% 89.95% 89.76%
Cash generated to the Partnership $31,723 $ 0 $ 78,959 $ 35,003
Net (loss) income allocated to the
Partnership $ 8,447 $ (128) $ 26,386 $ 9,219
</TABLE>
Rental income and net income increased for the quarter ending September 30,
1996, as compared to the same period for 1995, due chiefly to an increase in
tenant occupancy for 1996. Management and leasing expenses increased in 1996
due to the increased rental income. Operating expenses decreased in 1996 as
compared to 1995 due mainly to decreased property general and administrative
expenses. In 1996, the increases in depreciation expenses were due to the
change in the estimated useful lives of buildings and improvements as previously
discussed under the "General" section of "Results of Operations and Changes in
Financial Conditions." Cash distributions increased in 1996 as compared to 1995
due to the increased revenue and decreased operating expenses. The property was
100% leased as of September 30, 1996, maintaining this occupancy since the end
of the third quarter in 1995.
18
<PAGE>
Tucker Property - Fund I and Fund II Tucker Joint Venture
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------- ----------------------------------------
September 30, 1996 September 30, 1995 September 30, 1996 September 30, 1995
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $262,134 $313,802 $804,135 $957,817
Interest income 122 147 501 2,596
-------- -------- -------- --------
262,256 313,949 804,636 960,413
-------- -------- -------- --------
Expenses:
Depreciation 105,280 60,007 313,508 180,020
Management and leasing expenses 27,454 36,291 89,838 104,091
Other operating expenses 109,108 124,144 365,608 422,275
-------- -------- -------- --------
241,842 220,442 768,954 706,386
-------- -------- -------- --------
Net income $ 20,414 $ 93,507 $ 35,682 $254,027
======== ======== ======== ========
Occupied % 75% 89% 75% 89%
Partnership's Ownership % 55.09% 55.09% 55.09% 55.09%
Cash distributed to the Partnership $ 76,171 $102,067 $223,597 $288,475
Net income allocated to the
Partnership $ 11,246 $ 85,163 $ 19,657 $139,943
</TABLE>
Rental income decreased in 1996 from 1995 due primarily to decreased tenant
occupancy. Operating expenses decreased in 1996 over 1995 due to a decrease in
utilities and other repairs and maintenance. The increase in depreciation
expense for 1996 as compared to 1995 is a result of the change in the estimated
useful lives of buildings and improvements as previously discussed under the
"General" section of "Results of Operations and Changes in Financial Condition".
Net income of the property decreased in 1996 as compared to 1995 due to
increased depreciation and decreased occupancy as discussed above.
The property was 75% leased, as of September 30, 1996, as compared to 89% leased
as of September 30, 1995, due to three tenants vacating space totaling 9,761
square feet. Although no leases have been signed, every effort is being made to
re-lease this space. There is no assurance that this vacant space will be
leased or that the rental rates will not be less than the Partnership received
from former tenants.
19
<PAGE>
Cherokee Property - Funds I-II-II-OW-VI-VII Joint Venture
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------- ----------------------------------------
September 30, 1996 September 30, 1995 September 30, 1996 September 30, 1995
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $219,956 $253,387 $666,564 $546,904
Interest income 18 69 55 164
-------- -------- -------- --------
219,974 253,456 666,619 547,068
-------- -------- -------- --------
Expenses:
Depreciation 107,607 72,989 322,251 164,233
Management and leasing expenses 12,101 9,354 38,011 23,823
Other operating expenses 38,084 36,728 133,588 118,548
-------- -------- -------- --------
157,792 119,071 496,850 306,604
-------- -------- -------- --------
Net income $ 62,182 $134,385 $172,769 $240,464
======== ======== ======== ========
Occupied % 95% 95% 95% 95%
Partnership's Ownership % 24.0% 23.0% 24.0% 23.0%
Cash distributed to the Partnership $ 49,920 $ 40,876 $144,210 $ 80,293
Net income allocated to the
Partnership $ 14,938 $ 36,811 $ 41,504 $ 69,249
</TABLE>
Rental income decreased for the three months ended September 30, 1996, as
compared to the same period for 1995, due to the receipt in September 1995 of
certain excess rents relating to the Kroger expansion which, although completed
in November 1994, was billed retroactively and paid in September 1995. The
increases in depreciation expenses for 1996 as compared to 1995, are the result
of the change in the estimated useful lives of the buildings and improvements as
previously discussed under the "General" section of "Results of Operation and
Changes in Financial Conditions". Management and leasing expenses increased in
1996 as compared to 1995 due to the increased revenue. Other operating expenses
increased in 1996 due to increased repairs and maintenance. Net income of the
property decreased for the nine month period ended September 30, 1996, as
compared to the same period for 1995, due primarily to the increase in
depreciation expenses offset partially by the increase in rental income.
20
<PAGE>
PART II - OTHER INFORMATION
----------------------------
Item 6(b). No reports on Form 8-K were filed during the third quarter of 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
WELLS REAL ESTATE FUND I
(Registrant)
Dated: November 11, 1996 By: /s/ Leo F. Wells, III
--------------------------------
Leo F. Wells, III, as Individual
General Partner and as President,
Sole Director and Chief Financial
Officer of Wells Capital, Inc.
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 223,520
<SECURITIES> 7,254,259
<RECEIVABLES> 341,845
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 67,590
<PP&E> 17,215,046
<DEPRECIATION> 0
<TOTAL-ASSETS> 25,102,260
<CURRENT-LIABILITIES> 1,838,641
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 23,132,160
<TOTAL-LIABILITY-AND-EQUITY> 25,102,260
<SALES> 0
<TOTAL-REVENUES> 1,490,238
<CGS> 0
<TOTAL-COSTS> 1,495,164
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,926)
<INCOME-TAX> (4,926)
<INCOME-CONTINUING> (4,926)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,926)
<EPS-PRIMARY> 10.77
<EPS-DILUTED> 0
</TABLE>
