<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, 1996 or
----------------------------------------
[ ] 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
------------------ --------------------
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
-------------------
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of exchange on which registered
------------------- ------------------------------------
NONE NONE
Securities registered pursuant to Section 12 (g) of the Act:
CLASS A UNITS
- --------------------------------------------------------------------------------
(Title of Class)
CLASS B UNITS
- --------------------------------------------------------------------------------
(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
--------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
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 industrial 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 interests, Class A and Class B limited partnership
units.
As of December 31, 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 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 all cash basis and are described in more detail in Item 2 .
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. 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, 1996.
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.
2
<PAGE>
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
--------------------
The Partnership owns six properties directly or through its
ownership in joint ventures of which two are office buildings,
three are retail buildings, and one is a combined office and
retail project. 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, 1996, these
properties were 86.20% occupied, down from 87.20% at December 31,
1995, 91.38% at December 31, 1994, 90.33% at December 31, 1993,
and 88.77% at December 31, 1992.
The following table shows lease expirations during each of the
next ten years as of December 31, 1996, assuming no exercise of
renewal options or termination rights:
<TABLE>
<CAPTION>
Partnership Percentage of
Share of Total
Annualized Annualized Percentage Annualized
Year Number of Square Gross Gross of Total Gross
of Lease Leases Feet Base Base Square Feet Base
Expiration Expiring Expiring Rent(1) Rent(1) Expiring Rent
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 32 64,606 901,484 603,850 34.60% 37.46%
1998 19 28,104 363,810 277,447 15.05% 15.12%
1999 31 52,141 618,905 454,670 27.92% 25.72%
2000 6 17,912 203,341 165,037 9.59% 8.45%
2001(2) 7 5,250 110,300 97,462 2.81% 4.58%
2002 5 15,140 178,480 113,689 8.11% 7.42%
2003 1 3,580 30,009 30,009 1.92% 1.25%
2004 0 0 0 0 0.00% 0.00%
2005 0 0 0 0 0.00% 0.00%
2006 0 0 0 0 0.00% 0.00%
- --------------------------------------------------------------------------------------------------
101 186,733 2,406,329 1,742,165 100.00% 100.00%
</TABLE>
(1) Average monthly gross rent over the life of the lease,
annualized.
(2) Lease expiring is ground lease only with McDonald's.
3
<PAGE>
The following describes the properties in which the Partnership
owns an interest as of December 31, 1996:
The Howell Mill 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 was leased to HCA
Realty, Inc. and Hospital Corporation of America (collectively,
"HCA") until December 31, 1996. HCA is a medical support staff
group which supplies health care workers to West Paces Ferry
Hospital. Although efforts were made to negotiate a new lease,
HCA vacated the premises as of December 31, 1996. Rental income
is currently being generated from five (5) leaseholders occupying
8,664 square feet.
The occupancy rate at the Howell Mill Road Property was 100% for
the years ending December 31, 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 which expires in 2011. The annual base rent
payable under the Kroger lease is $295,932. 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 occupancy rate at the Crowe's Crossing Property was 89% in
1996, 88% in 1995 and 1994, 86% in 1993, and 78% in 1992.
The average annual rental per square foot at the Crowe's Crossing
Property was $7.92 for 1996, $7.60 for 1995, $7.49 for 1994,
$7.56 for 1993, and $7.96 for 1992.
As of December 31, 1996, the Partnership had contributed a total
of $8,317,176 for the acquisition of the Crowe's Crossing
Property.
4
<PAGE>
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 contained a total of
approximately 175,000 square feet of space including a K-Mart
department store and a Kroger Food/Drug, 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 December
31, 1996, Black Oak Plaza was approximately 74% leased to 23
tenants. Cato/Cato Plus, a women's clothing store, is the only
tenant occupying 10% or more of the rentable square footage of
the property. Cato's lease for 8,610 square feet, approximately
12.5% of the total, expires in January, 1999. The occupancy rate
at Black Oak Plaza was 77% in 1995, 84% in 1994, 76% in 1993, and
55% in 1992. The average annual rental per square foot at Black
Oak Plaza was $6.08 for 1996, $6.14 for 1995, $6.37 for 1994,
$5.31 for 1993, and $5.04 for 1992.
As of December 31, 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, Inc.
------------------------------------------------------------
In 1985, the Partnership acquired an interest in two commercial
office buildings located at 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 December 31,
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
December 31, 1996, the buildings at the Peachtree Place Property
were 100% leased to eight tenants.
The occupancy rate at the Peachtree Place Property was 100% in
1996, 1995 and 1994, 94% in 1993 and 1992.
The average effective annual rental per square foot at the
Peachtree Place Property was $16.08 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.
5
<PAGE>
REMAX is currently under a lease which will expire in September,
1997. They are occupying 4,483 rentable square feet, and the
annual base rent is $73,970.
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 calls for an 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 December 31,
1997.
Tucker Property/Fund I - 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. On January 1, 1991, the Cherokee Joint
Venture, which is defined below, was merged into the Tucker Joint
Venture forming a new joint venture ("Tucker-Cherokee Joint
Venture"). As described below, the Cherokee Joint Venture was
also a joint venture between the Partnership and the Fund II-Fund
II-OW Joint Venture. Under the terms of the Amended and Restated
Joint Venture Agreement of Fund I and Fund II Tucker-Cherokee,
the Partnership's percentage interest in the Tucker Property
remained unchanged as a result of the merger of the Tucker Joint
Venture into the Tucker-Cherokee Joint Venture.
6
<PAGE>
On August 1, 1995, the Partnership and the Fund II-Fund II-OW
Joint Venture entered into another amendment to effect the
contribution of the Cherokee Project to the Fund I, II, II-OW,
VI, VII Joint Venture, as described below. As a result, the name
of the joint venture was changed back to "Fund I and Fund II
Tucker". The Partnership's percentage interest in the Tucker
Property remained unchanged as a result of the transaction.
Both the Partnership and the Fund II-Fund II-OW Joint Venture
have funded the cost of completing the Tucker Property through
capital contributions which were paid as progressive stages of
construction were completed. As of December 31, 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 December 31, 1996, the Partnership
had approximately a 55% equity interest in the Tucker Property,
and the Fund II - Fund II-OW Joint Venture held approximately a
45% equity interest in the Tucker Property. As of December 31,
1996, the Tucker Property was 77% 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 was 77% in 1996, 83% in
1995, 96% in 1994, and 89% in 1993, and 80% in 1992.
The average effective annual rental per square foot at the Tucker
Property was $13.78 for 1996, $12.61 for 1995, $12.63 for 1994,
$11.37 for 1993 and 1992.
Cherokee Property/Fund I, II, II-OW, VI and 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. On January 1, 1991, the Cherokee Joint Venture
merged with the Tucker Joint Venture to form the Tucker-Cherokee
Joint Venture. As described above, the Tucker Joint Venture was
also a joint venture between the Partnership and the Fund II-Fund
II-OW Joint Venture. Under the terms of the Amended and
Restated Joint Venture Agreement of Fund I and Fund II
Tucker-Cherokee, the Partnership's percentage interest in the
Cherokee Property remained unchanged as a result of the merger of
the Cherokee Joint Venture into the Tucker-Cherokee Joint
Venture.
7
<PAGE>
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 Fund II-Fund II-OW, Wells Fund VI and Wells Fund
VII are substantially identical to those of the Partnership.
As of December 31, 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 Cherokee Property. As of December 31, 1996, the equity
interests in the Fund I, II, II-OW, VI, VII Joint Venture 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 Property. As of
December 31, 1996, the Cherokee Property was approximately 93%
occupied by 18 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 called 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, upon the same terms and
conditions.
The occupancy rate at the Cherokee Property was 93% in 1996, 94%
in 1995, 91% in 1994, 89% in 1993, and 88% in 1992.
The average effective annual rental per square foot at the
Cherokee Property was $9.00 for 1996, $7.50 for 1995, $5.33 for
1994, $6.47 for 1993, and $6.46 for 1992.
8
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
---------------------------
There were no material pending legal proceedings or proceedings
known to be contemplated by governmental authorities involving
the Partnership during 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-------------------------------------------------------------
No matters were submitted to a vote of the Limited Partners
during the fourth quarter of 1996.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.)
9
<PAGE>
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S UNITS AND RELATED SECURITY
-------------------------------------------------------------
HOLDER MATTERS
--------------
As of February 28, 1997, the Partnership had 98,716 outstanding
Class A Units held by a total of 3,682 Limited Partners and
42,568 outstanding Class B Units held by a total of 930 Limited
Partners. The capital contribution per unit was $250. There is
no established public trading market for the Partnership's
limited partnership units, and it is not anticipated that a
public trading market for the units will develop. Under the
Partnership Agreement, the General Partners have the right to
prohibit transfers of units.
Class A Unit holders are entitled to an annual 9% non-cumulative
distribution preference over Class B Unit holders as to
distributions from Cash Available for Distribution but are
initially allocated none of the depreciation, amortization, cost
recovery and interest expense. These items are allocated to
Class B Unit holders until their capital account balances have
been reduced to zero.
Cash Available for Distribution to the Limited Partners is
distributed on a quarterly basis. To date, no cash distributions
have been made to Limited Partners holding Class B units. Cash
distributions made to the Limited Partners holding Class A units
during the two most recent fiscal years were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Per Class A Per Class A Per Class B Per Class B
Unit Unit Unit Unit
Distribution for Total Cash Investment Return of Return of General
Quarter Ended Distributed Income Capital Capital Partner
- --------------------------------------------------------------------------------------------
March 31, 1995 $434,657 $ 4.40 $ 0.00 $ 0.00 $ 0.00
June 30, 1995 $418,490 $ 4.24 $ 0.00 $ 0.00 $ 0.00
September 30, 1995 $445,422 $ 4.51 $ 0.00 $ 0.00 $ 0.00
December 31, 1995 $403,581 $ 4.09 $ 0.00 $ 0.00 $ 0.00
March 31, 1996 $349,400 $ 3.54 $ 0.00 $ 0.00 $ 0.00
June 30, 1996 $334,597 $ 3.39 $ 0.00 $ 0.00 $ 0.00
September 30, 1996 $300,766 $ 3.05 $ 0.00 $ 0.00 $ 0.00
December 31, 1996 $291,099 $ 2.94 $ 0.00 $ 0.00 $ 0.00
</TABLE>
The fourth quarter distribution was accrued for accounting
purposes in 1996 and was not actually paid to the Limited
Partners holding Class A units until February 1997. The General
Partners anticipate that cash distributions to Limited Partners
holding Class A units will continue in 1997 to be paid from
investment income; however, there is no guarantee of this.
10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
---------------------------------
The following sets forth a summary of the selected financial data
for the fiscal years ended December 31, 1996, 1995, 1994, 1993,
and 1992:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Assets $24,968,886 $26,086,260 $27,020,983 $27,228,786 $28,024,349
Total Revenues 1,967,743 2,169,532 2,084,942 1,973,392 2,111,371
Net Income 101,804 746,262 808,112 650,841 761,308
Net Income
allocated to
Class A Limited
Partners 1,416,538 1,657,310 1,472,306 1,387,751 1,491,433
Net Loss
allocated to
Class B Limited
Partners (1,314,734) (911,048) (664,194) (736,910) (730,125)
Net Income
per Class A
Limited
Partner Unit 14.35 16.79 14.91 14.06 15.11
Net Loss
per Class B
Limited
Partner Unit (30.89) (21.40) (15.60) (17.31) (17.15)
Cash Distributions
to Investors:
Investments income
Class A Units 12.92 17.24 13.12 15.29 12.96
Return of Capital
Class A Units 0.00 0.00 0.00 0.00 0.00
</TABLE>
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-----------------------------------------------------------
AND CONDITIONS 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 this
Report, which include construction costs which may exceed
estimates, construction delays, lease-up risks, inability to
obtain new tenants upon the expiration of existing leases, and
the potential need to fund tenant improvements or other capital
expenditures out of operating cash flow.
Results of Operations and Changes in Financial Conditions
---------------------------------------------------------
General
-------
Gross revenues of the Partnership were $1,967,743 for the fiscal
year ended December 31, 1996, as compared to $2,169,532 for the
fiscal year ended December 31, 1995 and $2,084,942 for the fiscal
year ended December 31, 1994. The decrease was due primarily to
decreased earnings from joint ventures caused by increased
depreciation expenses, as well as, decreased interest income.
Rental income remained stable for 1996.
Expenses of the Partnership were $1,865,939 for the fiscal year
ended December 31, 1996, as compared to $1,423,270 for the fiscal
year ended December 31, 1995, and $1,276,830 for the fiscal year
ended December 31, 1994. The increase for 1996 over 1995 was due
to several factors. Depreciation increased in 1995 compared to
1996 due to a change in the estimated useful lives of buildings
and improvements from 40 to 25 years, which became effective
October 1, 1995. Operating expenses increased over 1995 due
primarily to major repairs (plumbing, water/sewer line repairs,
and painting) at the Crowe's Crossing Shopping Center. Although
operating expenses were somewhat less at Black Oak Plaza, the
decrease was offset by the increase in depreciation expense in
1996 due to the change in estimated useful lives as discussed
above. (See Property Operations for further discussion
concerning expense increase.) For further discussion of
depreciation expense, please refer to the notes to the
accompanying financial statements.
12
<PAGE>
Net income of the Partnership was $101,804 for the fiscal year
ended December 31, 1996, as compared to $746,262 and $808, 112
for the years 1995 and 1994, respectively. The decrease in net
income for 1996 is due primarily to increased depreciation
expense; however, as discussed above, there were increased
operating expenses and other factors which also contributed to
this decrease. The decreased net income in 1995 as compared to
1994 was due primarily to increased depreciation expense.
The Partnership's cash distribution to the Limited Partners
holding Class A units was $12.92 per unit for the fiscal year
ended December 31, 1996, $17.24 for 1995 and $13.12 for 1994. No
cash distributions were made to the Limited Partners holding
Class B units or to the General Partners for the fiscal year
ended December 31, 1996, 1995, and 1994. Distributions accrued
for the fourth quarter of 1996 were paid in February, 1997.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed of", which is effective for fiscal
years beginning after December 15, 1995. SFAS No. 121
establishes standards for determining when impairment losses on
long-lived assets have occurred and how impairment losses
should be measured. The joint ventures adopted SFAS No. 121, effective
January 1, 1995. The impact of adopting SFAS No. 121 was not
material to the financial statements of the joint ventures.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.)
13
<PAGE>
Property Operations
-------------------
As of December 31, 1996, the Partnership's ownership interest in
the Howell Mill Road Property, Black Oak Plaza, Crowe's Crossing
Shopping Center and the Peachtree Place Property is 100%, Fund I
- Fund II Tucker Joint Venture is 55.09% and Fund I, II, II-OW,
VI and VII Joint Venture is 24%.
As of December 31, 1996, the Partnership owned interests in the
following properties:
Howell Mill Road Property/Fund I
--------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31
-----------------------------------------
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Revenues:
Rental Income $545,149 $545,149 $545,149
Expenses:
Depreciation 251,719 152,651 121,749
Management and
leasing expenses 32,709 32,709 32,709
Other operating expenses 25,815 4,792 4,651
-------- -------- --------
310,243 190,152 159,109
-------- -------- --------
Net income $234,906 $354,997 $386,040
======== ======== ========
Occupied % 100% 100% 100%
Partnership Ownership % 100% 100% 100%
Cash generated to the
Partnership $485,204 $540,357 $540,499
Net income allocated to
the Partnership $234,906 $354,997 $386,040
</TABLE>
Rental income, all expenses (with the exception of depreciation),
and cash generated to the Partnership remained stable for the
years ending December 31, 1996, 1995, and 1994. The increase in
depreciation expense from 1995 to 1996 was due to the change in
the estimated useful lives of buildings and improvements which
became effective in the fourth quarter of 1995, as previously
discussed under the "General" section of "Results of Operations
and Changes in Financial Conditions". Net income was lower in
1996 as compared to 1995 and 1994 due to an increase in
depreciation expense and operating expenses, primarily legal
fees. HCA vacated the building on December 31, 1996, and
improvements are in process to make the premises ready for
marketing and leasing. These capital improvements decreased cash
generated to the Partnership for 1996 as compared to 1995 and
14
<PAGE>
1994. Rental income is currently being generated through five
(5) leaseholders occupying 8,664 square feet.
Real estate taxes were paid by HCA directly during the years of
occupancy at the Howell Mill Road Property.
The Partnership's ownership percentage has remained constant at
100% for the years 1996, 1995, and 1994.
For comments on the general competitive conditions to which the
property may be subject, see Item 1, Business, page 2. For
additional information on the property, tenants, etc., see Item
2, Properties, page 3.
Crowe's Crossing Shopping Center/Fund I
---------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31
------------------------------
<S> <C> <C> <C>
1996 1995 1994
---- ----- ----
Revenues:
Rental Income $679,529 $712,634 $701,678
Expenses:
Depreciation 405,116 245,967 196,594
Management and
leasing expenses 35,074 40,175 36,385
Other operating expenses 280,610 197,414 181,839
-------- --------- --------
720,800 483,556 414,818
--------- --------- --------
Net (Loss ) Income $(41,271) $229,078 $286,860
======== ======== ========
Occupied % 89% 88% 88%
Partnership Ownership % 100% 100% 100%
Cash generated to the
Partnership $284,270 $529,574 $442,763
Net (Loss) Income allocated
to the Partnership $(41,271) $229,078 $286,860
</TABLE>
Rental income decreased to $679,529 for 1996 as compared to
$712,634 for 1995 due primarily to the decreased occupancy rate
of 83% for the first three quarters of 1996. Rental income
increased to $712,634 for 1995 as compared to $701,678 for 1994
even though occupancy levels remained unchanged due to rental
rate increases for existing tenants. Depreciation increased for
1996 compared to 1995 due to the recording of a full year's
expense reflecting the change in estimated useful lives beginning
in the fourth quarter 1995. Depreciation increased for 1995 as
15
<PAGE>
compared to 1994 due to the change in the estimated useful lives
of buildings and improvements as previously discussed under
"General" section of "Results of Operations and Change in
Financial Condition". Management and leasing expenses
decreased in 1996 over 1995 due to decreased rental collections
in 1996. Management and leasing expenses increased in 1995 over
1994 due to increased rental collections in 1995. Other
operating expenses increased approximately $83,000 in 1996
compared to 1995 due primarily to expenditures for plumbing,
painting and water/sewer line repairs of approximately $43,000
and bad debt write-off of approximately $21,000. Other operating
expenses increased approximately $15,000 in 1995 as compared to
1994 due mainly to additional security expense. Net income of
the property decreased approximately $270,000 in 1996 compared to
1995 for the reasons stated above, and decreased to $229,078 in
1995 compared to $286,860 in 1994 primarily due to the increased
depreciation in 1995.
Real estate taxes were $83,860 for 1996 and 1995, and $83,997 for
1994.
The Partnership's ownership percentage has remained constant at
100% for the years 1996, 1995, and 1994.
For comments on the general competitive conditions to which the
property may be subject, see Item 1, Business, page 2. For
additional information on the property, tenants, etc., see Item
2, Properties, page 3.
Black Oak Plaza/Fund I
----------------------
<TABLE>
<CAPTION>
For the Year Ended December 31
---------------------------------------------
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Revenues:
Rental Income $416,114 $424,258 $439,703
Expenses:
Depreciation 235,326 165,247 128,878
Management and
leasing expenses 34,132 35,863 26,385
Other operating expenses 173,225 184,738 210,069
-------- -------- --------
442,683 385,848 365,332
-------- -------- --------
Net (Loss) Income $(26,569) $ 38,410 $ 74,371
======== ======== ========
Occupied % 74% 77% 84%
Partnership Ownership % 100% 100% 100%
Cash generated to the
Partnership $ 95,893 $197,499 $ 0
Net (Loss) Income
allocated to the
Partnership $(26,569) $ 38,410 $ 74,371
</TABLE>
16
<PAGE>
Rental income decreased to $416,114 for 1996 as compared to
$424,258 in 1995 due to decreased occupancy at the project.
Rental income decreased for 1995 over 1994 due mainly to a lower
average level of occupancy for 1995. Depreciation increased for
1996 compared to 1995 due to the fact that the change in
estimated lives of buildings and improvements which became
effective in the fourth quarter of 1995, was in effect for a full
year. Depreciation increased for 1995 as compared to 1994 due to
the change in the estimated useful lives of buildings and
improvements as previously discussed under "General" section of
"Results of Operations and Changes in Financial Conditions".
Management and leasing expenses decreased for 1996 compared to
1995 due to the decrease of approximately $35,000 in actual rents
received in 1996. Management and leasing expenses increased for
1995 compared to 1994 due primarily to an increase of
approximately $50,500 in actual rents received in 1995 as
compared to 1994. An increase in common area maintenance ("CAM")
reimbursements in July of 1994 of $.35 per square foot, and the
application of management and leasing fees to CAM reimbursement
fees paid by Kroger in 1995 account for the remainder of the
increase in management and leasing fees in 1995 compared to 1994.
Although operating expenses in 1996 were approximately $14,200
higher than in 1995, total operating expenses decreased in 1996
compared to 1995 due to the retirement of tenant improvements of
$37,000 in 1995 compared to $11,000 in 1996. Other operating
expenses decreased for 1995 compared to 1994 due primarily to the
cost of approximately $22,500 in repairs and maintenance in 1994.
Net income of the property decreased approximately $65,000 in
1996 compared to 1995 due primarily to increased depreciation
expense and decreased rental income previously discussed. Net
income of the property decreased to $38,410 in 1995 as compared
to $74,371 in 1994 due to increased depreciation expense as
discussed.
Real estate taxes were $41,655 for 1996 and 1995 and $38,360 for
1994 and 1993.
The Partnership's ownership percentage remained constant at 100%
for the years 1996, 1995 and 1994.
For comments on the general competitive conditions to which the
property maybe subject, see Item 1, Business, page 2. For
additional information on the property, tenants, etc., see Item
2, Properties, page 3.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.)
17
<PAGE>
Peachtree Place/Fund I and Wells & Associates, Inc. Joint
---------------------------------------------------------
Venture
-------
<TABLE>
<CAPTION>
For the Year Ended December 31
---------------------------------------------
<S> <C> <C> <C>
1996 1995 1994
----- ----- ------
Revenues:
Rental Income $276,345 $234,903 $246,724
Interest Income 30 665 983
-------- -------- --------
276,375 235,568 247,707
Expenses:
Depreciation 86,303 51,680 42,411
Management and
leasing expenses 15,265 20,782 21,961
Other operating expenses 133,398 156,396 131,274
-------- -------- --------
234,966 228,858 195,646
-------- -------- --------
Net Income $ 41,409 $ 6,710 $ 52,061
======== ======== ========
Occupied % 100.00% 100.00% 100.00%
Partnership Ownership % 89.95% 89.95% 89.76%
Cash Distribution to the
Partnership $112,719 $ 47,488 $104,258
Net Income allocated to
the Partnership $ 37,247 $ 5,994 $ 46,730
</TABLE>
Rental income increased for the year ended December 31, 1996, as
compared to the same period for 1995 due to the full year's
rental income from all current tenants. In 1996, the increase in
depreciation expense was due to the change in the estimated
useful lives of buildings and improvements which became effective
in the fourth quarter of 1995, as previously discussed under the
"General" section of "Results of Operations and Changes in
Financial Conditions". The decrease in operating expenses in
1996 as compared to 1995 was due primarily to lowered repairs and
maintenance costs and a decrease in utilities. Net income and
cash distributions were increased in 1996 as compared to 1995 due
to the increased revenues and decreased operating expenses. The
property was 100% leased as of December 31, 1996, 1995, and
1994.
Real estate taxes were $28,068 for 1996, and $16,831 for 1995 and
1994.
The Partnership holds an 89.95% equity interest in the joint
venture, and Wells & Associates, Inc. holds a 10.05% equity
interest in the joint venture.
For comments on the general competitive conditions to which the
property may be subject, see Item 1, Business, page 2. For
additional information on the property, tenants, etc., see Item
2, Properties, page 3.
18
<PAGE>
Tucker Property/Fund I - Fund II Tucker Joint Venture
------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31
<S> <C> <C> <C>
1996 1995 1992
---------- ---------- ----------
Revenues:
Rental Income $1,065,598 $1,227,116 $1,228,960
Interest Income 624 2,599 3,269
---------- ---------- ----------
1,066,222 1,229,715 1,232,229
Expenses:
Depreciation 419,137 277,862 238,238
Loss on Real Estate
Assets 61,985 0 0
Management and
leasing expenses 118,542 135,517 133,650
Other operating
expenses 501,724 563,049 500,494
---------- ---------- ----------
1,101,388 976,428 872,382
---------- ---------- ----------
Net (Loss) Income $(35,166) $253,287 $ 359,847
========== ========== ==========
Occupied % 77.00% 83.00% 96.00%
Partnership Ownership % 55.09% 55.09% 55.09%
Cash Distribution to
the Partnership $ 290,352 $ 367,070 $ 309,179
Net Income (Loss)
allocated
to the Partnership $ (19,373) $ 139,535 $ 198,239
</TABLE>
Rental income decreased from 1995 to 1996 due primarily to
decreased tenant occupancy. Operating expenses increased in 1996
over 1995 due to an increase in HVAC repairs, painting expense
and maintenance. Operating expenses decreased in 1995 as
compared to 1994 due chiefly to an increase in property taxes,
utilities and other repairs/maintenance. The increase in
depreciation expense in 1996 over 1995 and 1994 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 Conditions".
Net income decreased in 1996 to ($35,166) from $253,287 in 1995
due to increased depreciation and operating expenses, as
discussed above. Further, a fire occurred in September 1996
resulting in estimated repair costs of $210,927. An insurance
check in the amount of $143,944 was received in December, 1996,
and repairs are expected to be completed by the end of the first
quarter of 1997. A loss on real estate assets of $61,985 is
reflected in the aforementioned loss of income. Net income
decreased in 1995 to $253,287 from $359,847 in 1994 due to
decreased tenant occupancy and an increase in operating expenses
as discussed above.
19
<PAGE>
The property was 77% leased as of December 31, 1996, as compared
to 83% as of December 31, 1995, and 96% as of December 31, 1994.
Rental income for 1996 decreased over the 1995 level due to
decreased occupancy.
Real estate taxes were $111,947 for 1996, $127,484 for 1995, and
$105,042 for 1994.
As of December 31, 1996, the Partnership owned, through its
ownership in the joint venture Fund I and Fund II Tucker, 55.09%
of the property in Tucker known as Heritage Place.
For comments on the general competitive conditions to which the
property may be subject, see Item 1, Business, Page 2. For
additional information on the property, tenants, etc., see Item
2, Properties, page 3.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.)
20
<PAGE>
Cherokee Commons Shopping Center/Fund I, II, II-OW, VI and VII Joint Venture
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31
-------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Rental Income $890,951 $778,204 $552,823
Interest Income 73 180 50
--------- --------- ---------
891,024 778,384 552,873
Expenses:
Depreciation 429,419 277,099 172,583
Management and
leasing expenses 48,882 36,303 22,410
Other operating
expenses 180,841 115,885 569,830
-------- -------- --------
659,142 429,287 764,823
-------- -------- --------
Net Income (Loss) $231,882 $349,097 $ (211,950)
======== ======== ==========
Occupied % 93.00% 94.00% 91.00%
Partnership Ownership % 24.00% 24.00% 30.60%
Cash Distribution to
the Partnership $189,008 $126,697 $ 104,234
Net Income (Loss) allocated
to the Partnership $55,705 $95,490 $ (63,123)
</TABLE>
Rental income increased in 1996 over 1995 due to the Kroger expansion which was
completed in November, 1994. Rental income for the year ended December 31, 1995
increased approximately $225,500 from the rental income for the year ended
December 31, 1994. This increase is due to excess rents relating to the Kroger
expansion which, although completed in November of 1994, was billed
retroactively and paid in September 1995. The decrease in occupancy in 1996 is
due to the current vacancy of 2,380 square feet; however, a lease is being
negotiated for 1,200 square feet with anticipated occupancy in February 1997.
Operating expenses of the property increased to $180,841 in 1996 from $115,885
in 1995 and decreased from $569,830 in 1994. The increase in 1996 over 1995 is
due primarily to repairs and maintenance roof repairs, painting and tenant
finish, as well as, general and administrative expenses. The decrease from 1995
over 1994 was due to the retirement of tenant improvement resulting from the
Kroger expansion. The increase of depreciation expense for 1996, as compared to
1995 and 1994, is a result of the change in the estimated useful lives of
buildings and improvements which became effective in the fourth quarter of 1995,
as previously discussed under the "General" section of "Results of Operations
and changes to Financial Conditions." Net income of the property decreased to
$231,882 in 1996 from $349,097 in 1995 and increased from ($211,950) in 1994,
due to the increase in operating expenses as discussed above.
21
<PAGE>
A lease amendment was executed with Kroger expanding 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 cost 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 as of December 31, 1994
and Wells Fund VI $953,798, and Wells Fund VII $953,798 as of
December 31, 1995.
Real estate taxes were $63,696 for 1996, $63,694 for 1995 and
$56,080 for 1994.
As of December 31, 1996, the Partnership owned, through its
ownership in the Joint Venture Fund I, II, II-OW, VI and VII
Associates, 24.02% of Cherokee Commons Shopping Center.
For comments on the general competitive conditions to which the
property may be subject, see Item 1, Business, Page 2. For
additional information on the property, tenants, etc. , see Item
2, Properties, page 3.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.)
22
<PAGE>
Liquidity and Capital Resources
-------------------------------
During its offering, which terminated on September 5, 1986, the
Partnership raised a total of $35,321,000 through the sale of
141,284 units. No additional units will be sold by the
Partnership. From the original funds raised, the Partnership had
invested a total of $28,253,054 in properties, paid $2,225,992
in acquisition and advisory fees, $4,836,633 in selling
commissions and organization and offering expenses, and is
maintaining a working capital reserve of $5,321.
Since the Partnership is an investment partnership formed for the
purpose of acquiring, owning, and operating income-producing real
property and has invested all of its funds available for
investment, it is highly unlikely that the Partnership will
acquire interests in any additional properties, and the
Partnership's capital resources are anticipated to remain
relatively stable over the holding period of its investments.
The Partnership's net cash provided by operating activities
decreased to $82,044 in 1995 as compared to $497,138 in 1994 and
increased to $155,456 for the year ended December 31, 1996. The
increase at 1996 was primarily due to increases to accounts
payable and amounts due to affiliates, partially offset by
increased accounts receivables.
The increase in equity income of joint ventures was offset by an
increase in depreciation expense from 1995 as compared to 1994.
The decrease in equity income of joint ventures as of December
31, 1996, was a result of the increased depreciation expense from
the change of estimated useful lives of buildings and
improvements as previously discussed, which became effective in
the fourth quarter of 1995.
Net cash used in investing activities increased to $275,066 in
1996 from $153,423 in 1995, due to increased building and tenant
improvements. Net cash used in investing activities decreased in
1995 to $153,423 from $560,189 in 1994 due to a decrease in
building and tenant improvements. Cash and cash equivalents
decreased to $204,176 in 1996 after remaining relatively stable
at December 31, 1995 and 1994. The decrease is primarily due to
increased prepaid expenses, accounts receivables and reduced
equity income of joint ventures offset by lowered distributions
to partners from accumulated earnings. The Partnership
distributes cash available less reserves, and as a result, the
level of cash typically remains stable.
The Partnership's distributions paid and payable through the
fourth quarter of 1996 have been paid from net cash from
operations and from distributions received from its equity
investment in joint ventures, and the Partnership anticipates
that distributions will continue to be paid on a quarterly basis
from such sources. The Partnership expects to meet liquidity
requirements and budget demands through cash flow.
23
<PAGE>
The Partnership is unaware of any known demands, commitments,
events, or capital expenditures other than that which is required
for the normal operations of its properties or the properties in
which it owns a joint venture interest that will result in the
Partnership's liquidity increasing or decreasing in any material
way.
Inflation
---------
Real estate 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 executed
by the Partnership 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 reduce the Partnership's exposure to increases
in costs and operating expenses resulting from inflation. In
addition, a number of the Partnership's leases are for terms of
less than five years which may permit the Partnership to replace
existing leases with new leases at higher base rental rates if
the existing leases are below market rate. There is no
assurance, however, that the Partnership would be able to replace
existing leases with new leases at higher base rentals.
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 1996.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.)
24
<PAGE>
PART III
ITEM 10. GENERAL PARTNERS OF THE PARTNERSHIP
--------------------------------------------------
Wells Capital, Inc. Wells Capital, Inc. ("Capital") is a Georgia
corporation formed in April 1984. The executive offices of
Capital are located at 3885 Holcomb Bridge Road, Norcross,
Georgia 30092. Leo F. Wells, III is the sole shareholder, sole
Director and the President of Capital.
Leo F. Wells, III. Mr. Wells is a resident of Atlanta, Georgia,
is 53 years of age and holds a Bachelor of Business
Administration Degree in Economics from the University of
Georgia. Mr. Wells is the President and sole Director of
Capital. Mr. Wells is the President of Wells & Associates, Inc.,
a real estate brokerage and investment company formed in 1976 and
incorporated in 1978, for which he serves as principal broker.
Mr. Wells is also currently the sole Director and President of
Wells Management Company, Inc., a property management company he
founded in 1983. In addition, Mr. Wells is the President and
Chairman of the Board of Wells Investment Securities, Inc., Wells
& Associates, Inc., Wells Management Company, Inc. and Wells
Investment Securities, 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.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.)
25
<PAGE>
ITEM 11. COMPENSATION OF GENERAL PARTNERS AND AFFILIATES
-----------------------------------------------
No cash compensation or fees were paid to the General Partners or
their affiliates during the year ended December 31, 1996 from the
Partnership or with respect to the Partnership's interests in
joint ventures owning and operating properties. Due to the fact
that Wells Management Company, Inc. has elected to defer the
receipt of property management and leasing fees from the
Partnership and with respect to the Partnership's interests in
properties owned through joint ventures, as of December 31, 1996,
deferred cash compensation of approximately $1,821,982 of which
$1,412,572 was accrued at the Partnership level and the remainder
at the joint venture level, was due to the General Partners and
their affiliates, of which $111,371 was accrued for fiscal year
ended 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
-----------------------------------------------
AND MANAGEMENT
--------------
No Limited Partner is known by the Partnership to own
beneficially more than 5% of the outstanding units of the
Partnership.
Set forth below is the security ownership of management as of
February 28, 1997.
<TABLE>
<CAPTION>
(2) (3)
Name and Address Amount and Nature
(1) of Beneficial of Beneficial (4)
Title of Class Owner Ownership Percent of Class
-------------- ---------------- ----------------- ----------------
<S> <C> <C> <C>
Class A Units Leo F. Wells, III 116 Units (IRA, Less than 1%
401 (k) and
Profit Sharing)
Class A Units Leo F. Wells, III 152 Units (401 Less than 1%
(k) and Profit
Sharing)
Class A Units Leo F. Wells, III 151 Units (outright) Less than 1%
</TABLE>
No arrangements exist which would, upon implementation, result in
a change in control of the Partnership.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.)
26
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------------
The compensation and fees paid or to be paid by the Partnership
to the General Partners and their affiliates in connection with
the operation of the Partnership are as follows:
Interest in Partnership Cash Flow and Net Sale Proceeds
-------------------------------------------------------
The General Partners will receive a subordinated participation in
net cash flow from operations equal to 10% of net cash flow after
the Limited Partners have received preferential distributions
equal to 9% of their adjusted capital accounts in each fiscal
year. In addition, after the Limited Partners receive their
distributions equal to 9% of their capital contributions and the
General Partners receive their distributions equal to 10% of the
total distributions for such year, the General Partners will
receive a participation of 10% of the additional distributions
from cash available for distribution, 9% of which shall be paid
to the General Partners as a Partnership Management Fee. The
General Partners will also receive a participation in net sale
proceeds and net financing proceeds equal to 15% of the residual
proceeds available for distribution after the Limited Partners
have received a return of their adjusted capital contributions
plus a 15% cumulative return on their adjusted capital
contributions. The General Partners received no partnership cash
flow or net sale proceeds during 1996.
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 6%(3%
management and 3% leasing) of rental income. In no event will
such fees exceed the sum of (i) 6% of the gross receipts of each
property, plus (ii) a separate one-time fee for initial rent-up
or leasing-up of development 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. With respect to properties leased on a
net basis for a period of ten years or longer, property
management fees will not exceed 1% of gross revenues from such
leases, plus a one-time initial leasing fee of 3% of the gross
revenues which are payable over the first five years of the term
of such net leases. Management and leasing fees as well as
initial lease-up fees due from the Partnership and with respect
to the Partnership's interest in joint ventures owning properties
are currently being expensed but not paid to Wells Management
Company, Inc. As set forth above, as of December 31, 1996,
deferred property management and leasing fees totaling $1,821,982
were due to Wells Management Company, Inc., of which $111,371 was
accrued for fiscal year ended 1996.
27
<PAGE>
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. During 1996, no real estate commissions
were paid to the General Partners or their affiliates.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.)
28
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
--------------------------------------------------------------
ON FORM 8-K
-----------
(a) 1. Financial Statements
Information with respect to this item is contained on Pages
F-2 to F-24 of this Annual Report on Form 10-K. See Index to
Financial Statements on Page F-1.
(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 1996.
(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.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.)
29
<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, 1997.
Wells Real Estate Fund I
(Registrant)
By: /s/Leo F. Wells, III
--------------------
Leo F. Wells, III
Individual General Partner and
as President of Wells Capital,
Inc., the Corporate General
Partner
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, 1997
--------------------- President and Sole Director
Leo F. Wells, III of Wells Capital, Inc., the
Corporate General Partner
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.
30
<PAGE>
EXHIBIT INDEX
(Wells Real Estate Fund I)
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.
<TABLE>
<CAPTION>
Sequential
Exhibit No. Description of Document Page Number
---------- ----------------------- -----------
<S> <C> <C>
*4 Restated and Amended Certificate and N/A
Agreement of Limited Partnership of
Wells Real Estate Fund I (Registration
Statement of Wells Real Estate Fund
I, Exhibit B to the Prospectus, File
No. 2-91165)
*10(a) Management Agreement between Registrant N/A
and Wells Management Company, Inc. (Exhibit
to Form 10-K of Wells Real Estate Fund I
for the fiscal year ended December 31, 1990,
File No. 0-14463)
*10(b) Leasing and Tenant Coordination Agreement N/A
Between Registrant and Wells Management
Company, Inc. (Exhibit to Form 10-K of
Wells Real Estate Fund I for the fiscal
year ended December 31, 1990, File
No. 0-14463)
*10(c) Purchase Agreement for the acquisition N/A
of the Howell Mill Road Property dated
December 27, 1985 (Exhibit to Form 10-K
of Wells Real Estate Fund I for the
fiscal year ended December 31, 1990, File
No. 0-14463)
*10(d) Leases between Registrant and Hospital N/A
Corporation of America (Exhibit to Form
10-K of Wells Real Estate Fund I for
the fiscal year ended December 31, 1990,
File No. 0-14463)
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION> <S> <C> <C>
Sequential
Exhibit No. Description of Document Page Number
---------- ----------------------- -----------
*10(e) Joint Venture Agreement of Wells-Baker N/A
Associates dated April 1, 1985 (Exhibit
to Form 10-K of Wells Real Estate Fund I
for the fiscal year ended December 31,
1990, File No. 0-14463)
*10(f) Purchase Agreement for the acquisition N/A
of Heritage Place at Tucker dated
April 25, 1986 (Exhibit to Form 10-K of
Wells Real Estate Fund I for the fiscal
year ended December 31, 1990, File
No. 0-14463)
*10(g) Joint Venture Agreement of Fund I and N/A
Fund II Tucker dated January 9, 1987
(Exhibit to Form 10-K of Wells Real
Estate Fund I for the fiscal year ended
December 31, 1990, File No. 0-14463)
*10(h) Purchase Agreement for the acquisition N/A
of the Cherokee Commons Shopping
Center dated December 31, 1986 (Exhibit
to Form 10-K of Wells Real Estate Fund I
for the fiscal year ended December 31,
1990, File No. 0-14463)
*10(i) Joint Venture Agreement of Fund I and N/A
Fund II Cherokee dated June 27, 1987
(Exhibit to Form 10-K of Wells Real
Estate Fund I for the fiscal year ended
December 31, 1990, File No. 0-14463)
*10(j) Amended and Restated Joint Venture N/A
Agreement of Fund I and Fund II Tucker-
Cherokee dated January 1, 1991 (Exhibit
to Form 10-K of Wells Real Estate Fund I
for the fiscal year ended December 31,
1991, File No. 0-14463)
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> Sequential
Exhibit No. Description of Document Page Number
----------- ----------------------- ------------
*10(k) Lease Modification Agreement No. 3 with N/A
The Kroger Co. dated December 21, 1993
(Exhibit to Form 10-K of Wells Real
Estate Fund I for the fiscal year ended
December 31, 1993, File No. 0-14463)
*10(l) Joint Venture Agreement of Fund I, II, N/A
II-OW, VI and VII Associates dated
August 1, 1995 (Exhibit to Form 10-K of
Wells Real Estate Fund VI, L.P. for the
fiscal year ended December 31, 1995,
File No. 0-23656)
*10(m) First Amendment to Amended and Restated N/A
Joint Venture Agreement of Fund I and
Fund II Tucker (formerly Fund I and
Fund II Tucker-Cherokee) dated August 1,
1995 (Exhibit to Form 10-K of Wells Real
Estate Fund I for the fiscal year ended
December 31, 1995, File No. 0-14463)
*10(n) Custodial Agency Agreement between Wells N/A
Real Estate Fund I and NationsBank
of Georgia, N.A. dated August 1, 1995
(Exhibit to Form 10-K of Wells Real
Estate Fund I for the fiscal year ended
December 31, 1995, File No. 0-14463)
</TABLE>
33
<PAGE>
INDEX TO FINANCIAL STATEMENTS
-----------------------------
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL STATEMENTS PAGE
- --------------------------------- ----
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets
as of December 31, 1996 and 1995 F-4
Consolidated Statements of Income for
the Years Ended December 31, 1996,
1995, and 1994 F-5
Consolidated Statements of Partners'
Capital for the Years Ended
December 31, 1996, 1995, and 1994 F-6
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1996,
1995, and 1994 F-7
Notes to Consolidated Financial Statements
for December 31, 1996, 1995, and 1994 F-8
</TABLE>
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.)
F-1
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN LLP APPEARS HERE]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Wells Real Estate Fund I and Subsidiary:
We have audited the accompanying consolidated balance sheets of WELLS REAL
ESTATE FUND I (a Georgia public limited partnership) AND SUBSIDIARY as of
December 31, 1996 and 1995 and the related consolidated statements of income,
partners' capital, and cash flows for the years then ended. 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
consolidated financial statements and schedule based on our audits.
The financial statements of Wells Real Estate Fund I and subsidiary for the
year ended December 31, 1994 were audited by other auditors whose report
dated January 13, 1995 expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Wells Real Estate
Fund I and subsidiary as of December 31, 1996 and 1995 and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
January 10, 1997
F-2
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP APPEARS HERE]
INDEPENDENT AUDITORS' REPORT
The Partners
Wells Real Estate Fund I:
We have audited the consolidated balance sheet (which is not presented
separately herein) of Wells Real Estate Fund I (a limited partnership) and
subsidiary as of December 31, 1994, and the related consolidated statements of
income, partners' capital, and cash flows for the year then ended. In
connection with our audit of the consolidated financial statements, we have also
audited the information for the year ended December 31, 1994 included in the
December 31, 1996 financial statement Schedule III - Real Estate and Accumulated
Depreciation. These consolidated financial statements and information included
in the financial statement schedule are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these consolidated
financial statements and information included in the financial statement
schedule based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Wells Real Estate
Fund I and subsidiary as of December 31, 1994, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles. Also in our opinion, the related
information for 1994 included in the financial statement schedule referred to
above, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/ KPMG PEAT MARWICK LLP
-------------------------
January 13, 1995
Atlanta, Georgia
F-3
<PAGE>
WELLS REAL ESTATE FUND I AND SUBSIDIARY
(A Georgia Public Limited Partnership)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
REAL ESTATE ASSETS, at cost:
Land $ 2,894,193 $ 2,894,193
Building and improvements, less accumulated depreciation
of $5,369,635 and $4,391,172 at December 31,
1996 and 1995, respectively 14,176,266 14,894,955
----------- -----------
Total real estate assets 17,070,459 17,789,148
----------- -----------
INVESTMENT IN JOINT VENTURES 7,117,920 7,560,948
CASH AND CASH EQUIVALENTS 204,176 323,786
DUE FROM AFFILIATES 111,552 124,999
ACCOUNTS RECEIVABLE 363,662 218,136
DEFERRED LEASE ACQUISITION COSTS 35,808 14,964
PREPAID EXPENSES AND OTHER ASSETS 65,309 54,279
----------- -----------
7,898,427 8,297,112
----------- -----------
Total assets $24,968,886 $26,086,260
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued expenses $ 131,340 $ 85,610
Due to affiliate 1,412,572 1,267,152
Refundable security deposits 62,876 52,277
Partnership distributions payable 285,687 422,320
Minority interest 128,619 137,051
----------- -----------
Total liabilities 2,021,094 1,964,410
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 6)
PARTNERS' CAPITAL:
Limited partners:
Class A 21,583,091 21,442,415
Class B 1,364,701 2,679,435
----------- -----------
Total partners' capital 22,947,792 24,121,850
----------- -----------
Total liabilities and partners' capital $24,968,886 $26,086,260
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
WELLS REAL ESTATE FUND I AND SUBSIDIARY
(A Georgia Public Limited Partnership)
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Rental income $ 1,917,137 $1,915,403 $1,933,254
Equity in income of joint ventures 36,332 235,025 135,116
Interest income 14,274 19,104 16,572
----------- ---------- ----------
1,967,743 2,169,532 2,084,942
EXPENSES:
Depreciation 978,463 615,546 489,195
Operating costs, net of reimbursements 458,733 393,797 398,728
Partnership administration 143,214 155,814 164,164
Management and leasing fees 107,785 118,021 108,641
Legal and accounting 97,231 59,072 52,014
Lease acquisition costs 42,570 40,352 38,987
Bad debt expense 21,359 25,045 5,056
Computer costs 12,422 14,908 14,714
----------- ---------- ----------
1,861,777 1,422,555 1,271,499
----------- ---------- ----------
INCOME BEFORE MINORITY INTEREST 105,966 746,977 813,443
MINORITY INTEREST 4,162 715 5,331
----------- ---------- ----------
NET INCOME $ 101,804 $ 746,262 $ 808,112
=========== ========== ==========
NET INCOME ALLOCATED TO CLASS A LIMITED
PARTNERS $ 1,416,538 $1,657,310 $1,472,306
=========== ========== ==========
NET LOSS ALLOCATED TO CLASS B LIMITED
PARTNERS $(1,314,734) $ (911,048) $ (664,194)
=========== ========== ==========
NET INCOME PER CLASS A LIMITED PARTNER UNIT $ 14.35 $ 16.79 $ 14.91
=========== ========== ==========
NET LOSS PER CLASS B LIMITED PARTNER UNIT $(30.89) $(21.40) $(15.60)
=========== ========== ==========
CASH DISTRIBUTION PER CLASS A LIMITED
PARTNER UNIT $ 12.92 $ 17.24 $ 13.12
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
WELLS REAL ESTATE FUND I AND SUBSIDIARY
(A Georgia Public Limited Partnership)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
Limited Partners
--------------------------------------------------------------
Class A Class B Total
----------------------------- ------------------------- General Partners'
Units Amount Units Amount Partners Capital
------- ----------- ------ ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 98,716 $21,309,648 42,568 $4,254,677 $0 $25,564,325
Net income (loss) 0 1,472,306 0 (664,194) 0 808,112
Partnership distributions 0 (1,294,700) 0 0 0 (1,294,700)
------- ----------- ------ ---------- -- -----------
BALANCE, December 31, 1994 98,716 21,487,254 42,568 3,590,483 0 25,077,737
Net income (loss) 0 1,657,310 0 (911,048) 0 746,262
Partnership distributions 0 (1,702,149) 0 0 0 (1,702,149)
------- ----------- ------ ---------- -- -----------
BALANCE, December 31, 1995 98,716 21,442,415 42,568 2,679,435 0 24,121,850
Net income (loss) 0 1,416,538 0 (1,314,734) 0 101,804
Partnership distributions 0 (1,275,862) 0 0 0 (1,275,862)
------- ----------- ------ ---------- -- -----------
BALANCE, December 31, 1996 98,716 $21,583,091 42,568 $1,364,701 $0 $22,947,792
======= =========== ====== ========== == ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
WELLS REAL ESTATE FUND I AND SUBSIDIARY
(A Georgia Public Limited Partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 101,804 $ 746,262 $ 808,112
----------- ----------- ------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in income of joint ventures (36,332) (235,025) (135,115)
Distributions received from joint ventures 492,807 495,003 376,668
Minority interest 4,162 715 5,331
Distributions to minority interest (12,594) (5,423) 0
Distributions to partners from accumulated earnings (1,412,495) (1,734,040) (1,246,042)
Depreciation 978,463 615,546 489,195
Loss on fixed asset disposal 15,292 37,150 53,472
Changes in assets and liabilities:
Accounts receivable (145,526) 89,742 (67,312)
Deferred lease acquisition costs (20,844) 4,979 (13,292)
Prepaid expenses and other assets (11,030) 4,051 1,327
Accounts payable, accrued expenses, and refundable security deposits 56,329 4,930 8,354
Due to affiliate 145,420 58,154 216,440
----------- ----------- -----------
Total adjustments 53,652 (664,218) (310,974)
----------- ----------- -----------
Net cash provided by operating activities 155,456 82,044 497,138
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in joint ventures 0 0 (100,000)
Investment in real estate (275,066) (153,423) (460,189)
----------- ----------- -----------
Net cash used in investing activities (275,066) (153,423) (560,189)
----------- ----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (119,610) (71,379) (63,051)
CASH AND CASH EQUIVALENTS, beginning of year 323,786 395,165 458,216
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 204,176 $ 323,786 $ 395,165
============= =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
WELLS REAL ESTATE FUND I AND SUBSIDIARY
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Wells Real Estate Fund I (the "Partnership") is a public limited partnership
organized on April 26, 1984, under the laws of the state of Georgia. The
general partners are Leo F. Wells, III and Wells Capital, Inc. (the
"Company"). The Partnership has two classes of limited partnership
interests, Class A and Class B units. Limited partners may vote to, among
other things, (a) amend the partnership agreement, subject to certain
limitations, (b) change the business purpose or investment objectives of the
Partnership, and (c) remove a general partner. A majority vote on any of the
above described matters will bind the Partnership, without the concurrence of
the general partner. 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 have operating histories.
As of December 31, 1996, the Partnership owned the following properties
directly: (i) the Howell Mill Road Crossing Property ("Howell Mill
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 Property, a shopping center located in
Knoxville, Tennessee; and (iv) the Peachtree Property ("Wells-Baker"), two
commercial office buildings located in Atlanta, Georgia. In addition, the
Partnership owned the following properties through its investment in joint
ventures: Heritage Place at Tucker ("Tucker"), a retail shopping and
commercial office complex located in Tucker, Georgia and the Cherokee Commons
Shopping Center ("Cherokee Commons"), a shopping center located in Cherokee
County, Georgia (Note 3).
BASIS OF PRESENTATION
The financial statements include the accounts of the Partnership and Wells-
Baker. The Partnership's interest in Wells-Baker was approximately 90% at
December 31, 1996 and 1995. All significant intercompany balances have been
eliminated in consolidation.
F-8
<PAGE>
MINORITY INTEREST
Minority interest represents the interest of Wells and Associates, Inc., an
affiliate of the general partners, in Wells-Baker. At December 31, 1996 and
1995, Wells and Associates, Inc.'s interest in Wells-Baker was approximately
10%.
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 the real estate assets are based on management's
current intent to hold the real estate assets as long-term investments. The
success of the Partnership's future operations and the ability to realize the
investment in its assets will be dependent upon the Partnership's ability to
maintain rental rates, occupancy, and an appropriate level of operating
expenses in future years. Management believes that the steps it is taking
will enable the Partnership to realize its investment in its assets.
One significant tenant at the Howell Mill Property represented approximately
28% and 25% of rental income of the Partnership for the years ended December
31, 1996 and 1995, respectively. This tenant vacated the property on
December 31, 1996. As of January 10, 1997, the Partnership has been unable
to re-lease a substantial portion of the Howell Mill Property.
INCOME TAXES
The Partnership is not subject to federal or state income taxes, and
therefore, none have been provided for in the accompanying financial
statements. The partners are required to include their respective shares of
profits and losses in their individual income tax returns.
DISTRIBUTION OF NET CASH FROM OPERATIONS
Cash available for distribution is distributed on a cumulative noncompounded
basis to limited partners on a quarterly basis. In accordance with the
partnership agreement, distributions first are paid to limited partners
holding Class A units until they have received a 9% return on their adjusted
capital contributions, as defined. Cash available for distribution is then
distributed to limited partners holding Class B units until they have
received a 9% return on their adjusted capital contributions, as defined.
Any remaining cash available for distribution is split between the limited
partners and the general partners on a basis of 90% and 10%, respectively.
DISTRIBUTION OF SALES PROCEEDS
Upon sales of properties, the net sales proceeds are distributed in the
following order:
. To limited partners, on a per unit basis, until all limited partners
have received 100% of their adjusted capital contributions, as
defined
F-9
<PAGE>
. To limited partners holding Class B units until they receive an
amount equal to the net cash available for distribution received by
the limited partners holding Class A units
. To all limited partners until they receive a cumulative 15% per annum
return on their adjusted capital contributions, as defined
. To all the general partners until they have received 100% of their
capital contributions
. Thereafter, 85% to the limited partners and 15% 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
proportions that net cash from operations is distributed to the partners. To
the extent the Partnership's net income in any year exceeds net cash from
operations, it will be allocated 99% to the limited partners 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 Class B limited
partners and 1% to the general partners until their capital accounts are
reduced to zero, (b) then to any partner having a positive balance in his
capital account in an amount not to exceed such positive balance, and (c)
thereafter to the general partners.
Gain on the sale or exchange of the Partnership's properties will be
allocated generally in the same manner that the net proceeds from such sale
are distributed to partners after the following allocations are made, if
applicable: (a) allocations made pursuant to a qualified income offset
provision in the partnership agreement, (b) allocations to partners having
negative capital accounts until all negative capital accounts have been
restored to zero, and (c) allocations to Class B limited partners in amounts
equal to deductions for depreciation, amortization, and cost recovery
previously allocated to them with respect to the specific partnership
property sold, but not in excess of the amount of gain on sale recognized by
the Partnership with respect to the sale of such property.
REAL ESTATE ASSETS
Real estate assets held by the Partnership directly or through investments in
affiliated joint ventures 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. The
Partnership and the entities in which it holds a joint venture interest
F-10
<PAGE>
adopted SFAS No. 121, effective January 1, 1995. The impact of adopting SFAS
No. 121 was not material to the financial statements of the Partnership or
its affiliated joint ventures.
Management continually monitors events and changes in circumstances that
could indicate carrying amounts of real estate assets may not be recoverable.
When events or changes in circumstances are present that indicate the
carrying amount 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
Partnership or its affiliated joint ventures as of December 31, 1996.
Depreciation for buildings and improvements is calculated using the straight-
line method over the useful lives of the real estate assets. Effective
October 1, 1995, the Partnership and its affiliated joint ventures revised
their estimate of the useful lives of buildings and improvements from 40 to
25 years. This change was made to better reflect the estimated periods
during which such assets will remain in service. The change had the effect
on the Partnership directly, and through its ownership interest in joint
ventures, of increasing depreciation expense approximately $155,900 in the
fourth quarter of 1995 and $628,032 in the year ended December 31, 1996.
REVENUE RECOGNITION
All leases on real estate assets held by the Partnership are classified as
operating leases and the related rental income is recognized on a straight-
line basis over the terms of the respective leases.
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.
INVESTMENT IN JOINT VENTURES
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 using the equity method of
accounting. The joint ventures follow the same significant accounting
policies as the Partnership.
Cash available for distribution and allocations of profit and loss to the
Partnership by the joint ventures are made in accordance with the terms of
the individual joint venture agreements. Generally, these items are
allocated in proportion to the partners' respective ownership interests.
Cash is paid by the joint ventures to the Partnership on a quarterly basis.
F-11
<PAGE>
CASH AND CASH EQUIVALENTS
For the purposes of the statements of cash flows, the Partnership considers
all highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. Cash equivalents include cash and
short-term investments. Short-term investments, are stated at cost, which
approximates fair value, and consist of investments in money market accounts.
PER UNIT DATA
Net income (loss) per unit with respect to the Partnership for the years
ended December 31, 1996, 1995, and 1994 is computed based on the weighted
average number of units outstanding during the period.
RECLASSIFICATIONS
Certain 1995 and 1994 amounts have been reclassified to conform with the 1996
financial statement presentation.
2. RELATED-PARTY TRANSACTIONS
Due from affiliates at December 31, 1996 and 1995 represents the
Partnership's share of cash to be distributed for the fourth quarters of 1996
and 1995, as follows:
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
Fund I and II Tucker $ 66,754 $ 78,595
Fund I, II, II-OW, VI, and VII
Associates--Cherokee 44,798 46,404
-------- --------
$111,552 $124,999
======== ========
</TABLE>
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, both directly and at the joint venture level, for the years ended
December 31, 1996, 1995, and 1994 of $111,371, $217,562, and $225,663,
respectively, which were paid to Wells Management. Wells Management has
elected to defer the receipt of property management and leasing fees from the
Partnership and with respect to the Partnership's interest in properties
F-12
<PAGE>
owned through joint ventures. As of December 31, 1996 and 1995, this
deferral totaled $1,412,572 and $1,267,152, respectively, was due to Wells
Management and is included in due to affiliate in the accompanying balance
sheets.
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 upon time spent on each fund by individual administrative
personnel. In the opinion of management, such allocation is a reasonable
estimation of such expenses.
The general partners are also general partners of other Wells Real Estate
funds. As such, there may exist conflicts of interest where the general
partners, while serving in the capacity as general partners for other Wells
Real Estate funds, may be in competition with the Partnership for tenants in
similar geographic markets.
3. INVESTMENT IN JOINT VENTURES
The Partnership's investment and percentage ownership in joint ventures at
December 31, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------- ---------------------
AMOUNT PERCENT AMOUNT PERCENT
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Fund I and II Tucker $5,147,557 55% $5,457,282 55%
Fund I, II, II-OW, VI, and VII
Associates--Cherokee 1,970,363 24 2,103,666 24
---------- ----------
$7,117,920 $7,560,948
========== ==========
</TABLE>
The following is a roll forward of the Partnership's investment in joint
ventures for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Investment in joint ventures, beginning
of period $7,560,948 $7,825,011
Equity in income of joint ventures 36,332 235,025
Distributions from joint ventures (479,360) (493,767)
Other 0 (5,321)
---------- ----------
Investment in joint ventures, end of
period $7,117,920 $7,560,948
========== ==========
</TABLE>
FUND I AND II TUCKER
Tucker and Cherokee Commons were previously held in a joint venture between
the Partnership and Fund II and II-OW, a Georgia joint venture having Wells
Real Estate Fund II and Wells Real Estate Fund II-OW as joint partners. The
joint ventures were formed for the purpose of owning, developing, and
operating Cherokee Commons and Tucker. In 1991, the Tucker and Cherokee
joint ventures were merged into a new joint
F-13
<PAGE>
venture, the Tucker-Cherokee Joint Venture. Under the terms of the joint
venture agreement, the ownership interests of the Partnership and Fund II and
II-OW in each individual property remained unchanged.
On August 1, 1995, the joint venture assigned its ownership in Cherokee
Commons to the Fund I, II, II-OW, VI, and VII Associates joint venture. Upon
the assignment of Cherokee Commons, the joint venture was renamed Fund I and
II Tucker. Tucker is a retail shopping center containing approximately
29,858 square feet and a commercial office building complex containing
approximately 67,465 square feet in Tucker, DeKalb County, Georgia.
In 1996, one of the tenants in Tucker experienced a fire. Fund I and II
Tucker received an insurance settlement of $143,944 for damages to the
building. The loss on real estate assets of $61,985 is included in the
accompanying statements of (loss) income.
Following are the financial statements for Fund I and II Tucker:
FUND I AND II TUCKER
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
Assets
<TABLE>
<CAPTION>
1996 1995
--------- --------
Real estate assets, at cost:
<S> <C> <C>
Land $ 3,260,887 $ 3,260,887
Building and improvements, less
accumulated depreciation of
$2,066,844 in 1996 and $1,702,219 in
1995 6,496,361 7,057,936
----------- -----------
Total real estate assets 9,757,248 10,318,823
Cash and cash equivalents 223,277 140,022
Accounts receivable 74,471 99,222
Prepaid expenses and other assets 49,980 55,032
----------- -----------
Total assets $10,104,976 $10,613,099
=========== ===========
</TABLE>
F-14
<PAGE>
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 42,187 $ 56,159
Partnership distributions payable 110,880 131,683
Due to affiliates 422,793 376,150
----------- -----------
Total liabilities 575,860 563,992
----------- -----------
Partners' capital:
Wells Real Estate Fund I 5,147,557 5,457,282
Fund II and II-OW 4,381,559 4,591,825
----------- -----------
Total partners' capital 9,529,116 10,049,107
----------- -----------
Total liabilities and partners'
capital $10,104,976 $10,613,099
=========== ===========
</TABLE>
FUND I AND II TUCKER
(A GEORGIA JOINT VENTURE)
STATEMENTS OF (LOSS) INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----- ---- ----
Revenues:
<S> <C> <C> <C>
Rental income $1,065,598 $1,227,116 $1,228,960
Interest income 624 2,599 3,269
---------- ---------- ----------
1,066,222 1,229,715 1,232,229
---------- ---------- ----------
Expenses:
Operating costs, net of reimbursements 463,229 517,011 459,056
Depreciation 419,137 277,862 238,238
Management and leasing fees 65,100 73,410 73,161
Loss on real estate assets 61,985 0 0
Lease acquisition costs 53,442 62,107 60,489
Property administration 30,724 32,740 29,322
Legal and accounting 4,386 9,477 8,930
Computer costs 3,385 3,821 3,186
---------- ---------- ----------
1,101,388 976,428 872,382
---------- ---------- ----------
Net (loss) income $ (35,166) $ 253,287 $ 359,847
=========== ========== ==========
Net (loss) income allocated to
Wells Real Estate Fund I $ (19,373) $ 139,535 $ 198,239
========== ========== ==========
Net (loss) income allocated to Fund II
and II-OW $ (15,793) $ 113,752 $ 161,608
========== ========== ==========
</TABLE>
F-15
<PAGE>
FUND I AND II TUCKER
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
WELLS REAL FUND II TOTAL
ESTATE AND PARTNERS'
FUND I II-OW CAPITAL
---------- ---------- -----------
<S> <C> <C> <C>
Balance, December 31, 1993 $5,795,757 $4,769,385 $10,565,142
Net income 198,239 161,608 359,847
Partnership distributions (309,179) (202,642) (511,821)
---------- ---------- -----------
Balance, December 31, 1994 5,684,817 4,728,351 10,413,168
Net income 139,535 113,752 253,287
Partnership distributions (367,070) (250,278) (617,348)
---------- ---------- -----------
Balance, December 31, 1995 5,457,282 4,591,825 10,049,107
Net loss (19,373) (15,793) (35,166)
Partnership distributions (290,352) (194,473) (484,825)
---------- ---------- -----------
Balance, December 31, 1996 $5,147,557 $4,381,559 $ 9,529,116
========== ========== ===========
</TABLE>
F-16
<PAGE>
FUNDS I AND II TUCKER
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (35,166) $ 253,287 $ 359,847
--------- --------- ---------
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Depreciation 419,137 277,862 238,238
Loss on real estate assets 61,985 0 0
Changes in assets and liabilities:
Accounts receivable 24,751 36,144 12,982
Prepaid expenses and other assets 5,052 8,250 10,588
Accounts payable and accrued
expenses (13,972) (157) (17,186)
Due to affiliates 46,643 52,876 53,567
--------- --------- ---------
Total adjustments 543,596 374,975 298,189
--------- --------- ---------
Net cash provided by operating
activities 508,430 628,262 658,036
--------- --------- ---------
Cash flows from investing activities:
Investment in real estate, net of fire
damage (63,491) (9,699) (158,003)
Insurance proceeds 143,944 0 0
--------- --------- ---------
Net cash provided by (used in)
investing activities 80,453 (9,699) (158,003)
--------- --------- ---------
Cash flows from financing activities:
Distributions to joint venture partners (505,628) (638,581) (455,798)
--------- --------- ---------
Net increase (decrease) in cash and
cash equivalents 83,255 (20,018) 44,235
Cash and cash equivalents, beginning of
year 140,022 160,040 115,805
--------- --------- ---------
Cash and cash equivalents, end of year $ 223,277 $ 140,022 $ 160,040
</TABLE> ========= ========= =========
FUND I, II, II-OW, VI, AND VII ASSOCIATES--CHEROKEE
On August 1, 1995, Cherokee Commons was transferred to a new joint venture
between the Partnership, Fund II and II-OW, Wells Real Estate Fund VI, L.P.
("Fund VI"), and Wells Real Estate Fund VII, L.P. ("Fund VII"). The joint
venture, I, II, II-OW, VI, and VII Associates--Cherokee was formed for the
purpose of owning and operating Cherokee Commons, a retail shopping center
containing approximately 103,755 square feet, located in Cherokee County,
Georgia. Percentage ownership interests in the joint venture were determined
at the time of formation based on contributions. Under the terms of the
joint venture agreement, Fund VI and Fund VII each contributed approximately
$1 million to the new joint venture in return for a 10.7% ownership interest.
The Partnership's ownership interest in Cherokee Commons changed from 30.6%
to 24% and Fund II and II-OW joint venture's ownership interest changed from
69.4% to 54.6%. The $2 million in cash contributed to Cherokee Commons was
used to fund an expansion of the property for an existing tenant.
F-17
<PAGE>
Following are the financial statements for Fund I, II, II-OW, VI, AND VII
Associates--Cherokee:
FUND I, II, II-OW, VI, AND VII ASSOCIATES--CHEROKEE
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
Assets
<TABLE>
<CAPTION>
1996 1995
---------- ----------
Real estate assets, at cost:
<S> <C> <C>
Land $1,219,704 $1,219,704
Building and improvements, less
accumulated depreciation of
$1,847,476 in 1996 and $1,418,057 in
1995 7,329,974 7,731,162
---------- ----------
Total real estate assets 8,549,678 8,950,866
Cash and cash equivalents 71,346 210,356
Accounts receivable 93,902 136,964
Prepaid expenses and other assets 78,527 92,633
---------- ----------
Total assets $8,793,453 $9,390,819
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 23,130 $ 27,754
Partnership distributions payable 112,817 203,987
Due to affiliates 78,375 68,762
---------- ----------
Total liabilities 214,322 300,503
---------- ----------
Partners' capital:
Wells Real Estate Fund I 1,970,363 2,103,666
Fund II and II-OW 4,746,274 5,028,796
Wells Real Estate Fund VI 932,597 980,277
Wells Real Estate Fund VII 929,897 977,577
---------- ----------
Total partners' capital 8,579,131 9,090,316
---------- ----------
Total liabilities and partners'
capital $8,793,453 $9,390,819
========== ==========
</TABLE>
F-18
<PAGE>
FUND I, II, II-OW, VI AND VII ASSOCIATES--CHEROKEE
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- ---------
Revenues:
<S> <C> <C> <C>
Rental income $890,951 $778,204 $ 552,823
Interest income 73 180 50
-------- -------- ---------
891,024 778,384 552,873
-------- -------- ---------
Expenses:
Depreciation 429,419 277,099 172,583
Operating costs, net of reimbursements 126,367 51,663 502,434
Property administration 42,868 39,316 44,624
Management and leasing fees 35,598 29,015 19,462
Lease acquisition costs 13,284 7,288 2,948
Legal and accounting 8,362 20,273 19,756
Computer costs 3,244 4,633 3,016
-------- -------- ---------
659,142 429,287 764,823
-------- -------- ---------
Net income (loss) $231,882 $349,097 $(211,950)
======== ======== ==========
Net income (loss) allocated
to Wells Real Estate Fund I $ 55,705 $ 95,490 $ (63,124)
======== ======== ==========
Net income (loss) allocated to Fund II
and II-OW $126,517 $216,845 $(148,827)
======== ======== ==========
Net income allocated to Wells Real
Estate Fund VI $ 24,830 $ 18,381 $ 0
======== ======== =========
Net income allocated to Wells Real
Estate Fund VII $ 24,830 $ 18,381 $ 0
======== ======== =========
</TABLE>
F-19
<PAGE>
FUND I, II, II-OW, VI AND VII ASSOCIATES--CHEROKEE
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
WELLS REAL FUND II WELLS REAL WELLS REAL TOTAL
ESTATE AND ESTATE ESTATE PARTNERS'
FUND I II-OW FUND VI FUND VII CAPITAL
----------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $2,207,551 $4,639,064 $ 0 $ 0 $6,846,615
Net loss (63,123) (148,827) 0 0 (211,950)
Partnership contributions 100,000 805,092 0 0 905,092
Partnership distributions (104,234) (213,478) 0 0 (317,712)
---------- ---------- -------- -------- ----------
Balance, December 31, 1994 2,140,194 5,081,851 0 0 7,222,045
Net income 95,490 216,845 18,381 18,381 349,097
Partnership contributions 0 0 997,965 995,266 1,993,231
Partnership distributions (126,697) (269,900) (36,069) (36,070) (468,736)
Other (5,321) 0 0 0 (5,321)
---------- ---------- -------- -------- ----------
Balance, December 31, 1995 2,103,666 5,028,796 980,277 977,577 9,090,316
Net income 55,705 126,517 24,830 24,830 231,882
Partnership distributions (189,008) (409,039) (72,510) (72,510) (743,067)
---------- ---------- -------- -------- ----------
Balance, December 31, 1996 $1,970,363 $4,746,274 $932,597 $929,897 $8,579,131
========== ========== ======== ======== ==========
</TABLE>
F-20
<PAGE>
FUND I, II, II-OW, VI, AND VII ASSOCIATES--CHEROKEE
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 231,882 $ 349,097 $ (211,950)
----------- ----------- -----------
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation 429,419 277,099 172,583
Changes in assets and liabilities:
Accounts receivable 43,062 7,111 (42,225)
Prepaid expenses and other assets 14,106 (42,937) (17,654)
Accounts payable and accrued
expenses (4,624) (279,529) 278,837
Due to affiliates 9,613 9,909 (4,904)
----------- ----------- -----------
Total adjustments 491,576 (28,347) 386,637
----------- ----------- -----------
Net cash provided by operating
activities 723,458 320,750 174,687
----------- ----------- -----------
Cash flows from investing activities:
Investment in real estate (28,231) (1,869,138) (609,489)
----------- ----------- -----------
Cash flows from financing activities:
Contributions from joint venture 0 2,100,403 706,962
partners
Distributions to joint venture partners (834,237) (376,011) (237,808)
----------- ----------- -----------
Net cash (used in) provided by
financing activities (834,237) 1,724,392 469,154
----------- ----------- -----------
Net (decrease) increase in cash and
cash equivalents (139,010) 176,004 34,352
Cash and cash equivalents, beginning of
year 210,356 34,352 0
----------- ----------- -----------
Cash and cash equivalents, end of year $ 71,346 $ 210,356 $ 34,352
=========== =========== ===========
Supplemental disclosure of noncash
investing activities:
Deferred project costs applied by
partners $ 0 $ 85,637 $ 0
=========== =========== ===========
</TABLE>
F-21
<PAGE>
4. INCOME TAX EARNINGS AND PARTNERS' CAPITAL
The Partnership's income tax earnings for the years ended
December 31, 1996, 1995, and 1994
are calculated as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
----------- ----------- ----------
Financial statement net income $ 101,804 $ 746,262 $ 808,112
Increase (decrease) in net income resulting from:
Depreciation expense for financial reporting
purposes in excess of amounts for income tax
purposes 628,032 155,900 0
Joint venture change in ownership 0 10,491 0
Expenses deductible when paid for income tax
purposes, accrued for financial
reporting purposes 161,851 222,622 151,661
Rental income accrued for financial reporting
purposes less than (in excess of) amounts for
income tax purposes 6,402 72,775 (39,756)
Amortization of lease acquisition costs 12,267 (4,266) (4,266)
----------- ----------- ----------
Income tax basis net income $ 910,356 $ 1,203,784 $ 915,751
=========== =========== ==========
The Partnership's income tax basis partners' capital at December 31, 1996, 1995,
and 1994 was computed as follows:
1996 1995 1994
----- ---- ----
Financial statement partners' capital $22,947,792 $24,121,850 $25,077,737
Increase (decrease) in partners'
capital resulting from:
Depreciation expense for financial
reporting purposes in excess of
amounts for income tax purposes 783,932 155,900 0
Joint venture change in ownership 14,293 10,491 0
Accumulated rental income accrued for
financial reporting purposes in
excess of amounts for income tax
purposes (200,852) (207,254) (280,029)
Accumulated expenses deductible when
paid for income tax purposes, accrued
for financial reporting purposes 1,935,062 1,773,211 1,550,590
Accumulated expenses capitalized for
income tax purposes and expensed for
financial reporting purposes, net of
accumulated amortization (2,086) (2,086) 2,180
Partnership's distributions payable 285,687 422,320 454,211
Other, net 6,035 (11,890) (11,890)
----------- ----------- -----------
Income tax basis partners' capital $25,769,863 $26,262,542 $26,792,799
=========== =========== ===========
</TABLE>
F-22
<PAGE>
5. RENTAL INCOME
The future minimum rental income due from the Partnership's direct investment
in real estate assets or its respective ownership interest in the joint
ventures under noncancelable operating leases at December 31, 1996 is as
follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1997 $ 1,913,889
1998 1,483,374
1999 1,099,652
2000 748,791
2001 653,160
Thereafter 4,357,368
-----------
$10,256,234
===========
</TABLE>
Two significant tenants contributed approximately 28% and 15% of revenues,
which is included as either rental income or in equity in income of joint
ventures, for the year ended December 31, 1996. In addition, two significant
tenants will contribute approximately 43% and 20% of future minimum rental
income.
The future minimum rental income due Fund I and II Tucker under noncancelable
operating leases at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1997 $ 900,406
1998 515,010
1999 314,526
2000 156,000
2001 92,433
Thereafter 20,314
----------
$1,998,689
==========
</TABLE>
Two tenants will contribute approximately 16% and 14% of future minimum
rental income.
The future minimum rental income due Fund I, II, II-OW, VI, and VII
Associates--Cherokee under noncancelable operating leases at December 31,
1996 is as follows:
F-23
<PAGE>
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1997 $ 868,954
1998 750,926
1999 684,582
2000 633,827
2001 609,896
Thereafter 5,449,194
----------
$8,997,379
==========
</TABLE>
One significant tenant contributed approximately 66% of rental income for the
year ended December 31, 1996. In addition, one tenant will contribute
approximately 93% of future minimum rental income.
6. COMMITMENTS AND CONTINGENCIES
Management, after consultation with legal counsel, is not aware of any
significant litigation or claims against the Company. In the normal course
of business, the Company may become subject to such litigation or claims.
F-24
<PAGE>
WELLS REAL ESTATE FUND I
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
SCHEDULE III-REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Initial Cost
------------------------ Costs of
Buildings and Capitalized
Description Encumbrances Land Improvements Improvements
- ----------- ------------ --------- ------------- -------------
<S> <C> <C> <C> <C>
HOWELL MILL PROPERTY (a) None $ 515,078 $ 3,158,662 $ 1,731,394
BLACK OAK PLAZA (b) None 727,500 4,151,849 955,028
CROWE'S CROSSING (c) None 1,317,220 7,617,905 329,907
PEACHTREE PROPERTY (d) None 187,087 0 1,748,464
CHEROKEE COMMONS (e) None 1,142,663 6,462,837 2,791,654
HERITAGE PLACE AT TUCKER (f) None 2,756,378 0 9,067,714
---------- ----------- -----------
Total $6,645,926 $21,391,253 $16,624,161
========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Which Carried at December 31, 1996
-----------------------------------------------------
Buildings and Construction
Land Improvements in Progress Total
--------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
HOWELL MILL PROPERTY (a) $ 501,049 $ 4,869,955 $34,130 $ 5,405,134
BLACK OAK PLAZA (b) 737,770 5,086,607 10,000 5,834,377
CROWE'S CROSSING (c) 1,335,936 7,893,096 36,000 9,265,032
PEACHTREE PROPERTY (d) 319,438 1,616,113 0 1,935,551
CHEROKEE COMMONS (e) 1,219,704 9,170,950 6,500 10,397,154
HERITAGE PLACE AT TUCKER (f) 3,260,887 8,557,705 5,500 11,824,092
----------- ----------- ------- -----------
Total $7,374,784 $37,194,426 $92,130 $44,661,340
========== =========== ======= ===========
</TABLE>
<TABLE>
<CAPTION>
Life on Which
Accumulated Date of Date Depreciation
Depreciation Construction Acquired Is Computed (g)
------------ ------------ -------- --------------
<S> <C> <C> <C> <C>
HOWELL MILL PROPERTY (a) $1,431,266 1986 12/27/85 20 to 40 years
BLACK OAK PLAZA (b) 1,248,535 1986 12/31/86 20 to 40 years
CROWE'S CROSSING (c) 2,196,857 1986 12/31/86 20 to 40 years
PEACHTREE PROPERTY (d) 492,977 1986 04/09/85 20 to 40 years
CHEROKEE COMMONS (e) 1,847,476 1986 06/09/87 20 to 40 years
HERITAGE PLACE AT TUCKER (f) 2,066,844 1987 09/04/86 20 to 40 years
----------
Total $9,283,955
==========
</TABLE>
(a) Howell Mill Property is a medical office building located in Atlanta,
Georgia, owned entirely by the Partnership.
(b) Black Oak Plaza is a retail shopping center located in Knoxville, Tennessee,
owned entirely by the Partnership.
(c) Crowe's Crossing is a retail shopping center located in DeKalb County,
Georgia, owned entirely by the Partnership.
(d) Peachtree Property is a commercial office park located in Atlanta, Georgia.
It is owned by Wells-Baker. The Partnership owned a 90% interest in Wells-
Baker at December 31, 1996.
(e) Cherokee Commons is a retail shopping center located in Cherokee County,
Georgia. It is owned by Fund I, II, II-OW, VI, and VII Associates-Cherokee.
The Partnership owned a 24% interest in Fund I, II, II-OW, VI, and VII
Associates-Cherokee at December 31, 1996.
(f) Heritage Place at Tucker is a center offering retail, shopping, and
commercial office space located in Tucker, Georgia. It is owned by Fund I
and II-Tucker. The Partnership owned a 55% interest in Fund I and II-Tucker
at December 31, 1996.
(g) Depreciation lives used for buildings are 40 years through September 1995,
changed to 25 years thereafter. Depreciation lives used for land
improvements are 20 years.
<PAGE>
WELLS REAL ESTATE FUND I
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
SCHEDULE III-REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
Accumulated
Cost Depreciation
----------- ------------
BALANCE AT DECEMBER 31, 1994 $42,500,389 $6,351,972
1995 additions 2,123,774 1,174,275
1995 deductions (53,879) (14,799)
------------ ----------
BALANCE AT DECEMBER 31, 1995 44,570,284 7,511,448
1996 additions 366,788 1,827,019
1996 deductions (275,732) (54,512)
----------- ----------
BALANCE AT DECEMBER 31, 1996 $44,661,340 $9,283,955
=========== ==========
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 204,176
<SECURITIES> 7,117,920
<RECEIVABLES> 475,214
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 65,309
<PP&E> 22,440,094
<DEPRECIATION> 5,369,635
<TOTAL-ASSETS> 24,968,886
<CURRENT-LIABILITIES> 2,021,094
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 22,947,792
<TOTAL-LIABILITY-AND-EQUITY> 24,968,886
<SALES> 0
<TOTAL-REVENUES> 1,967,743
<CGS> 0
<TOTAL-COSTS> 1,861,777
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 101,804
<INCOME-TAX> 101,804
<INCOME-CONTINUING> 101,804
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 101,804
<EPS-PRIMARY> 14.35
<EPS-DILUTED> 0
</TABLE>
