<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark one)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 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)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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<PAGE>
Form 10-Q
---------
Wells Real Estate Fund I and Subsidiaries
-----------------------------------------
INDEX
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Page No.
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PART 1. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets - June 30, 1996
and December 31, 1995..................................... 3
Consolidated Statements of Income for
Three Months and Six Months Ended June 30, 1996 and 1995... 4
Statements of Partners' Capital
for the Six Months Ended June 30, 1996
and the Year Ended December 31, 1995...................... 5
Consolidated Statements of Cash Flows for
the Six Months Ended June 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............................................... 14
PART 11. OTHER INFORMATION............................................... 21
2
<PAGE>
WELLS REAL ESTATE FUND I AND SUBSIDIARIES
(A Georgia Public Limited Partnership)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Assets June 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 $4,904,477
in 1996 and $4,391,172 in 1995 14,500,974 14,894,955
----------- -----------
Total real estate 17,395,167 17,789,148
----------- -----------
Investments in joint ventures (Note 3) 7,354,210 7,560,948
Cash and cash equivalents 248,360 323,786
Due from affiliates 106,224 124,999
Deferred lease acquisition costs 18,586 14,964
Accounts receivable 233,306 218,136
Prepaid expenses and other assets 62,741 54,279
----------- -----------
8,023,427 8,297,112
----------- -----------
Total assets $25,418,594 $26,086,260
=========== ===========
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Accounts payable $ 102,455 $ 85,610
Due to affiliates 1,341,420 1,267,152
Refundable security deposits 53,977 52,277
Partnership distribution payable 336,274 422,320
----------- -----------
Total liabilities 1,834,126 1,827,359
----------- -----------
Minority interest 133,778 137,051
Partners' capital
Limited Partners:
Class A - 98,716 Units Outstanding 21,483,148 21,442,415
Class B - 42,568 Units Outstanding 1,967,542 2,679,435
----------- -----------
Total Partners' capital 23,450,690 24,121,850
----------- -----------
Total liabilities and Partners' capital $25,418,594 $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 Six Months Ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 480,421 $ 482,834 $ 946,512 $ 957,554
Interest income 3,444 4,108 8,240 9,458
Equity in income of
Joint Ventures (Note 3) 2,959 70,396 34,978 120,868
--------- --------- --------- ----------
486,824 557,338 989,730 1,087,880
--------- --------- --------- ----------
Expenses:
Management and leasing fees 26,259 29,431 56,343 58,357
Lease acquisition costs 9,954 10,127 19,785 20,793
Operating costs - rental properties,
net of tenant reimbursements 168,536 137,279 308,261 225,927
Bad debt recovery (6,645) (3,500) (6,645) (4,907)
Depreciation 257,289 122,636 513,304 245,009
Legal and accounting 20,840 4,552 27,926 10,882
Computer expense 1,007 1,773 2,030 4,534
Partnership administration 26,059 23,424 53,884 44,432
Minority interest 1,241 585 2,004 1,066
--------- --------- --------- ----------
504,540 326,307 976,892 606,093
--------- --------- --------- ----------
Net income (loss) $ (17,716) $ 231,031 $ 12,838 $ 481,787
========= ========= ========= ==========
Net income allocated to
General Partners $ 0 $ 0 $ 0 $ 0
Net income allocated to
Class A Limited Partners $ 339,201 $ 418,940 $ 724,731 $ 860,558
Net loss allocated to Class
B Limited Partners $(356,917) $(187,909) $(711,893) $ (378,771)
Net income per Class A
Limited Partner Unit $ 3.44 $ 4.24 $ 7.34 $ 8.72
Net loss per Class B
Limited Partner Unit $ (8.38) $ (4.41) $ (16.72) $ (8.90)
Cash distribution per Class
A Limited Partner Unit $ 3.39 $ 4.24 $ 6.93 $ 8.64
</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 SIX MONTHS ENDED JUNE 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) 0 724,731 0 (711,893) 12,838
Partnership distributions 0 (683,998) 0 0 (683,998)
------ ----------- ------ ---------- -----------
BALANCE, June 30, 1996 98,716 $21,483,148 42,568 $1,967,542 $23,450,690
====== =========== ====== ========== ===========
</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>
Six Months Ended
----------------
June 30, 1996 June 30, 1995
------------- --------------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 12,838 $481,787
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Equity in earnings of joint ventures (34,978) (120,868)
Minority interest 2,004 1,066
Distribution received from joint ventures 260,491 269,701
Partnership distribution paid (770,043) (885,314)
Depreciation 513,304 245,009
Accrued management and leasing fees 56,343 49,594
Changes in assets and liabilities:
Decrease (Increase) in accounts receivable (15,170) 5,355
Increase in prepaids and other assets (12,085) (1,699)
Increase in deferred rental income 0 2,100
Increase in accounts payable
and refundable security deposits 18,544 11,388
Increase (Decrease) in due to affiliates 12,649 (73,557)
--------- ---------
Net cash provided by (used in)
operating activities 43,897 (15,438)
Cash flow from investing activities:
Additional investment in Joint Venture 0 5,321
Additional investment in real estate (119,324) (73,672)
--------- ---------
Net cash used in
investing activities (119,324) (68,351)
--------- ---------
Net decrease in cash and cash equivalents (75,427) (83,789)
Cash and cash equivalents, beginning of year 323,786 395,165
--------- ---------
Cash and cash equivalents, end of period $ 248,360 $ 311,376
========= =========
</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 or
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 June 30, 1996, the Partnership owned directly or though 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 June 30, 1996:
The Howell Mill Property
------------------------
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.
8
<PAGE>
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 received
from HCA.
The occupancy rate at the Howell Mill Road Property for the quarters
ended June 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
-------------------------
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 June 30 was 82% in 1996, 90% in 1995, 86% in 1994 and 1993, and
78% 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 June 30, 1996, the Partnership had contributed a total of
$8,317,176 for the acquisition of the Crowe's Crossing Property.
9
<PAGE>
Black Oak Plaza Property
------------------------
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
Kroger Food/Drug ("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 69,046 net rentable square
feet. As of June 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 June 30 was 72% in 1996, 84%
in 1995 and 1994, 76% in 1993, and 55% in 1992. 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 June 30, 1996, the Partnership had contributed a total of
$4,564,521 for the acquisition of Black Oak Plaza.
Peachtree Place Property
------------------------
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 June 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 June 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 June 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 September 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
---------------
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 June 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 June
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
June 30, 1996, the Tucker Property was 75% occupied by 31 tenants.
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 June
30 was 75% in 1996, 96% in 1995, 93% in 1994, 87% in 1993, and 82% 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 $11.37 for 1992.
Cherokee Property
-----------------
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 June 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 June 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 Food/Drug ("Kroger") which expires in 2011. Kroger's original
lease was for 45,528 square feet. In 1994, Kroger expanded to the
current 67,115 square feet which is approximately 65% of the total
rentable square feet in the Cherokee Property. As of June 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
June 30 was 95% in 1996 and 1995, 86% in 1994, 88% in 1993, and 87%
in 1992.
The average effective annual rental per square foot at the Cherokee
Property was $8.61 for 1996, $7.50 for 1995, $5.53 for 1994, $6.47 for
1993, and $6.46 for 1992.
13
<PAGE>
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.
Results of Operations and Changes in Financial Conditions
- ---------------------------------------------------------
General
- -------
Gross revenues of the Partnership were $486,824 for the three months ended June
30, 1996, as compared to $557,338 for three months ended June 30, 1995 and
$989,730 for the six months ended June 30, 1996 as compared to $1,087,880 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 six months ended
June 30, 1996, as compared to June 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 buildings and improvements, 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 a use of cash of
$15,438 in 1995 to a source of cash of $43,897 in 1996, due primarily to the
change in distributions paid and due to affiliates. Net cash used in investing
activities increased from $68,351 in 1995 to $119,324 in 1996 due to an increase
in investment in real estate. Cash and cash equivalents decreased from $311,376
in 1995 to $248,360 in 1996 due primarily to the increase in receivables,
prepaids, and payables. The Partnership distributes cash available less
reserves, and as a result, the level of cash remains relatively stable.
The Partnership's cash distributions to the Limited Partners holding Class A
units was $6.93 per unit for six months ended June 30, 1996, as compared to
$8.64 for 1995, and $3.39 for the three months ended June 30, 1996, as compared
to $4.24 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 six months
ended June 30, 1996 and 1995.
14
<PAGE>
Property Operations
- -------------------
As of June 30, 1996, the Partnership owned interests in the following
properties:
<TABLE>
<CAPTION>
Howell Mill Road Property
- -------------------------
Three Months Ended Six Months Ended
------------------------------ ------------------------------
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Rental Income $136,288 $136,288 $272,575 $272,575
Expenses:
Depreciation 62,929 30,438 125,859 60,875
Management and leasing expenses 8,178 8,178 16,355 16,355
Other operating expenses 10,715 187 12,423 374
-------- -------- -------- --------
81,822 38,803 154,637 77,604
-------- -------- -------- --------
Net income $ 54,466 $ 97,485 $117,938 $194,971
======== ======== ======== ========
Occupied % 100% 100% 100% 100%
Partnership's Ownership % 100% 100% 100% 100%
Cash generated to the Partnership $125,573 $136,101 $260,152 $272,202
Net income allocated to the Partnership $ 54,466 $ 97,485 $117,938 $194,971
</TABLE>
Rental income remained stable for the period ending June 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. 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 received from
HCA.
15
<PAGE>
Crowe's Crossing Shopping Center
- --------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ ------------------------------
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Rental Income $176,089 $178,113 $335,274 $353,548
Expenses:
Depreciation 99,904 49,456 199,826 98,807
Management and leasing expenses 7,023 9,485 17,769 19,487
Other operating expenses 105,222 69,001 179,215 88,989
-------- -------- -------- --------
212,149 127,942 396,810 207,283
-------- -------- -------- --------
Net income (loss) $(36,060) $ 50,171 $(61,536) $146,265
======== ======== ======== ========
Occupied % 82.4% 90.4% 82.4% 90.4%
Partnership's Ownership % 100% 100% 100% 100%
Cash generated to the Partnership $ 51,162 $106,612 $125,943 $280,358
Net income (loss) allocated to the
Partnership $(36,060) $ 50,171 $(61,536) $146,265
</TABLE>
Rental income remained relatively stable for the three month periods ended June
30, 1996 and 1995. The decreased rental income for the six months ended June
30, 1996 and 1995 was due primarily to the decreased occupancy at the property
during first quarter. A lease for one of the larger vacant spaces at the
property is currently being negotiated. Net income decreased for the three month
and six month periods ended June 30, 1996 and 1995 due primarily to the
increases in depreciation resulting from the change, as of December 31, 1995, in
the estimated useful lives of buildings and improvements. The balance of the
decrease in net income is primarily the result of timing differences in the
billing and payment of tenant expense reimbursements as well as a $14,000
expenditure for exterior painting at the property. Cash generated to the
Partnership decreased for the three and six month periods ended June 30, 1996,
compared to June 30, 1995, due to the decreased rental income, tenant
reimbursements and capital expenditures for tenant improvements of approximately
$31,000 during the first six months of 1996.
16
<PAGE>
<TABLE>
<CAPTION>
Black Oak Plaza Property
- ------------------------------------
Three Months Ended Six Months Ended
---------------------------- ----------------------------
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental Income $99,531 $113,355 $202,342 $220,408
Interest Income 37 254 81 550
------- -------- -------- -------
99,568 113,609 202,423 220,958
Expenses:
Depreciation 72,751 32,141 144,726 64,124
Management and leasing expenses 8,850 9,895 17,534 18,224
Other operating expenses 16,822 29,964 47,319 61,709
------- -------- -------- -------
98,423 72,000 209,579 144,057
------- -------- -------- -------
Net income (loss) $ 1,145 $ 41,609 $ (7,156) $ 76,901
======= ======== ======== ========
Occupied % 72% 84% 72% 84%
Partnership's Ownership % 100% 100% 100% 100%
Cash generated to the Partnership $61,862 $ 55,787 $ 84,646 $ 90,285
Net income (loss) allocated to the
Partnership $ 1,145 $ 41,608 $ (7,156) $ 76,900
</TABLE>
Rental income for the three months and six months ended June 30, 1996 has
decreased, as compared to the three months and six months ended June 30, 1995,
due to the decreased occupancy at the property, although no new leases have been
executed, prospective tenants have shown interest in three of the vacant spaces
at the property. Other operating expenses have decreased for the three months
and six months ended June 30, 1996, compared to the same period in 1995, due
primarily to an increase in the common area maintenance fees billed in May of
1996. Depreciation increased for 1996 due to the change, as of December 31,
1995, in estimated useful lives of buildings and improvements. The decrease in
net income for both the three and six month periods ended June 30, 1996 is
primarily as a result of this change in depreciation. Cash generated to the
Partnership increased approximately $6,000 for the three month period ended June
30, 1996, compared to 1995, due to higher capital expenditures in 1995 for
parking lot repairs. The decrease in cash generated to the Partnership for the
six month period ended June 30, 1996, compared to the same period of 1995, is
due primarily to an increase in capital expenditures.
17
<PAGE>
<TABLE>
<CAPTION>
Peachtree Place Property
- ------------------------
Three Months Ended Six Months Ended
----------------------------- -----------------------------
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $68,514 $55,078 $136,321 $111,523
Interest income 8 257 15 527
------- ------- -------- --------
68,522 55,335 136,336 112,050
Expenses:
Depreciation 21,705 10,602 42,893 21,204
Management and leasing expenses 5,349 2,956 10,842 6,457
Other operating expenses 29,118 36,067 62,658 73,975
------- ------- -------- --------
56,172 49,625 116,393 101,636
------- ------- -------- --------
Net income $12,350 $ 5,710 $ 19,943 $ 10,414
======= ======= ======== ========
Occupied % 100% 75% 100% 75%
Partnership's Ownership % 89.95% 89.76% 89.95% 89.76%
Cash generated to the Partnership $34,295 $18,477 $ 47,236 $ 36,162
Net income allocated to the
Partnership $11,109 $ 5,126 $ 17,939 $ 9,348
</TABLE>
Rental income and net income increased for the quarter ending June 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 June 30, 1996 as compared to 75% leased as of June 30, 1995.
18
<PAGE>
<TABLE>
<CAPTION>
Tucker Property
- ---------------
Three Months Ended Six Months Ended
---------------------------- -----------------------------
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $255,854 $322,051 $542,001 $644,015
Interest income 127 1,099 379 2,449
-------- -------- -------- --------
255,981 323,150 542,380 646,464
Expenses:
Depreciation 104,428 60,007 208,228 120,013
Management and leasing expenses 30,297 32,009 62,384 67,800
Other operating expenses 140,584 135,553 256,500 298,131
-------- -------- -------- --------
275,309 227,569 527,112 485,944
-------- -------- -------- --------
Net income $(19,328) $ 95,581 $ 15,268 $160,520
======== ======== ======== ========
Occupied % 75% 96% 75% 96%
Partnership's Ownership % 55.09% 55.09% 55.09% 55.09%
Cash distributed to the Partnership $ 57,028 $101,012 $147,426 $186,408
Net income allocated to the
Partnership $(10,648) $ 52,655 $ 8,411 $ 88,430
</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 June 30, 1996, as compared to 96% leased as
of June 30, 1995, due to three tenants vacating space totaling 9,884 square
feet. Although no leases have been signed, every effort is being made to re-
lease this space.
19
<PAGE>
<TABLE>
<CAPTION>
Cherokee Property
- -----------------
Three Months Ended Six Months Ended
----------------------------- -----------------------------
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental Income $223,987 $147,679 $446,608 $293,517
Interest income 18 70 37 95
-------- -------- -------- --------
224,005 147,749 446,645 293,612
Expenses:
Depreciation 107,461 45,717 214,644 91,244
Management and leasing expenses 13,276 7,401 25,910 14,469
Other operating expenses 46,632 36,597 95,504 81,820
-------- -------- -------- --------
167,369 89,715 336,058 187,533
-------- -------- -------- --------
Net income $ 56,636 $ 58,034 $110,587 $106,079
======== ======== ======== ========
Occupied % 95% 95% 95% 95%
Partnership's Ownership % 24.0% 30.57% 24.0% 30.57%
Cash distribution to the Partnership $ 49,196 $ 26,764 $ 94,290 $ 39,417
Net income allocated to the
Partnership $ 13,606 $ 17,741 $ 26,566 $ 32,438
</TABLE>
Rental income increased in 1996 over 1995 due to the Kroger expansion which was
completed in November 1994; however, the additional rent 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 remained
relatively stable due to the increase in revenue which was offset by the
increase in expenses.
A lease amendment executed with Kroger in 1994 provided for the expansion of its
existing store at the Cherokee Commons Shopping Center from 45,528 square feet
to 66,918 square feet. In November, 1994, construction was completed on the
Kroger expansion and remodeling of the center. The total costs for both the
Kroger expansion and remodeling of the Center was $2,807,367. The costs of this
expansion were funded in the following amounts: the Partnership $94,679, and
the Fund II-Fund II-OW Joint Venture $805,092, Wells Fund VI $953,798, and Wells
Fund VII $953,798 as of June 30, 1996. Due to these additional investments, the
Partnership's ownership percentage in the Cherokee Commons Shopping Center
decreased from 30.6% in 1995 to 24.0% as of June 30, 1996. Wells Fund VI and
Wells Fund VII did not make their respective capital contributions until August,
1995.
20
<PAGE>
PART II - OTHER INFORMATION
Item 6(b). No reports on Form 8-K were filed during the second 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: August 13, 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., the
Corporate General Partner
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 248,360
<SECURITIES> 7,354,210
<RECEIVABLES> 339,530
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 81,327
<PP&E> 22,299,644
<DEPRECIATION> 4,904,477
<TOTAL-ASSETS> 25,418,594
<CURRENT-LIABILITIES> 1,834,126
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 23,450,690
<TOTAL-LIABILITY-AND-EQUITY> 25,418,594
<SALES> 0
<TOTAL-REVENUES> 989,730
<CGS> 0
<TOTAL-COSTS> 976,892
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,838
<INCOME-TAX> 12,838
<INCOME-CONTINUING> 12,838
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,838
<EPS-PRIMARY> 7.34
<EPS-DILUTED> 0
</TABLE>
