<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[CAPTION]
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
[Fee Required]
For the fiscal year ended December 31, 1997 or
-------------------
[ ] Transition report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
[No Fee Required]
For the transition period from to
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Commission file number 0-14463
-------------------------------
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.
The Partnership owns interests in the following joint ventures: (i) Wells-Baker
Associates, a joint venture between the Partnership and Wells & Associates, (ii)
Fund I-Fund II Tucker, and (iii) the Fund I, II, II-OW, VI, VII Joint Venture
As of December 31, 1997, the Partnership owned, directly or through its
ownership in joint ventures, interests in the following properties: (i) Paces
Pavilion, a medical office building located in Atlanta, Georgia, owned by the
Partnership, (ii) The Crowe's Crossing Property, a shopping center located in
DeKalb County, Georgia, owned by the Partnership, (iii) The Black Oak Plaza
Property, a shopping center located in Knoxville, Tennessee, owned by the
Partnership, (iv) The Peachtree Place Property, two commercial office buildings
located in Atlanta, Georgia, owned by Wells-Baker Associates, (v) The Tucker
Property, a retail shopping and commercial office complex located in Tucker,
Georgia, owned by Fund I-Fund II Tucker, and (vi) The Cherokee Property, a
shopping center located in Cherokee County, Georgia, owned by the Fund I, II,
II-OW, VI, VII Joint Venture. All of the foregoing properties were acquired on
an all cash basis.
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, 1997.
2
<PAGE>
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.
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, 1997, these properties were 78.77% occupied, down
from 86.20% at December 31, 1996, 87.20% at December 31, 1995, 91.38% at
December 31, 1994, and 90.33% at December 31, 1993.
The following table shows lease expirations during each of the next ten years as
of December 31, 1997, assuming no exercise of renewal options or termination
rights:
<TABLE>
<CAPTION>
Partnership Percentage
Share of Percentage of Total
Year of Number of Annualized Annualized of Total Annualized
Lease Leases Square Feet Gross Base Gross Base Square Feet Gross Base
Expiration Expiring Expiring Rent (1) Rent (1) Expiring Rent
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998 18 29,220 $ 371,431 $ 253,199 17% 17.53%
1999 34 57,149 704,710 496,526 34% 34.38%
2000 16 37,895 492,717 323,734 22% 22.42%
2001(2) 5 3,750 68,107 43,777 2% 3.03%
2002 11 35,337 464,756 288,772 21% 19.99%
2003 1 3,540 27,035 27,035 2% 1.87%
2004 0 0 0 0 0% 0.00%
2005 0 0 0 0 0% 0.00%
2006 0 0 0 0 0% 0.00%
2007 1 3,600 46,793 11,230 2% 0.78%
- ------------------------------------------------------------------------------------------------------
86 170,491 $2,175,549 $1,444,273 100% 100.00%
</TABLE>
3
<PAGE>
(1) Average monthly gross rent over the life of the lease, annualized.
(2) Lease expiring is ground lease only with McDonald's.
The following describes the properties in which the Partnership owns an interest
as of December 31, 1997:
PACES PAVILION PROPERTY
- -----------------------
On December 27, 1985, the Partnership acquired a three-story medical office
building on 1.65 acres of land located on Howell Mill Road in metropolitan
Atlanta, Fulton County, Georgia, directly across from the West Paces Ferry
Hospital (the "Paces Pavilion Property") for a purchase price of $3,443,203.
The Paces Pavilion 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 Paces Pavilion Property was 27.8% for the year ended
December 31, 1997 and 100% for the years ending December 31, 1996, 1995, 1994,
and 1993.
The average effective annual rental per square foot at the Paces Pavilion
Property was $4.17 for 1997 and $16.86 for 1996, 1995, 1994, and 1993.
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 86% in 1997, 89% in
1996, 88% in 1995 and 1994, and 86% in 1993.
The average annual rental per square foot at the Crowe's Crossing Property was
$7.40 for 1997, $7.92 for 1996, $7.60 for 1995, $7.49 for 1994, and $7.56 for
1993.
As of December 31, 1997, the Partnership had expended 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, 1997, Black Oak Plaza was approximately 78% 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 78% in 1997, 74% in 1996, 77% in 1995, 84%
in 1994, and 76% in 1993. The average annual rental per square foot at Black
Oak Plaza was $6.53 in 1997, $6.08 for 1996, $6.14 for 1995, $6.37 for 1994, and
$5.31 for 1993.
As of December 31, 1997, the Partnership had expended 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, 1997, 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, 1997, the buildings at the Peachtree Place Property were 95.3%
leased to seven tenants.
The occupancy rate at the Peachtree Place Property was 95.3% in 1997, 100% in
1996, 1995 and 1994, and 94% in 1993.
The average annual rental per square foot at the Peachtree Place Property was
$15.88 for 1997, $16.08 for 1996, $13.62 for 1995, $14.31 for 1994, and $13.18
for 1993.
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 was under a lease which expired in September, 1997, is currently on a
month-to-month basis. 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 by 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 $71,591 in 1997 and base rent of $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 $35,196 for 1997 and $2,940 for 1998. The lease expires
January 31, 1998, and negotiations are underway for renewal.
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 owning the Tucker Property 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,
1997, the Partnership had contributed a total of $6,194,634, and the Fund II-
Fund II-OW Joint Venture had contributed a total of $4,764,585 for the
acquisition and development of the Tucker Property. As of December 31, 1997,
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, 1997, the Tucker Property
was 85% occupied by 35 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 85% in 1997, 77% in 1996, 83% in
1995, 96% in 1994, and 89% in 1993.
The average effective annual rental per square foot at the Tucker Property was
$11.08 for 1997, $13.78 for 1996, $12.61 for 1995, $12.63 for 1994, and $11.37
for 1993.
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, 1997, the Partnership had contributed property with a book
value of $2,139,900, the Fund II-Fund II-OW Joint Venture had contributed
property with a book value of $4,860,100, Wells Fund VI had contributed cash in
the amount of $953,798 and Wells Fund VII had contributed cash in the amount of
$953,798 to the Fund I, II, II-OW, VI, VII Joint Venture. As of December 31,
1997, 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, 1997, the Cherokee Property was approximately 94% occupied by
20 tenants, including Kroger.
Kroger is the only tenant occupying ten percent or more of the rentable square
footage. Kroger is a retail grocery chain. The other tenants in the shopping
center provide typical retail shopping services.
The Kroger lease 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 94% in 1997, 93% in 1996, 94% in
1995, 91% in 1994, and 89% in 1993.
The average annual rental per square foot at the Cherokee Property was $8.49 for
1997, $8.59 for 1996, $7.50 for 1995, $5.33 for 1994, and $6.47 for 1993.
8
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ITEM 3. LEGAL PROCEEDINGS
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There were no material pending legal proceedings or proceedings known to be
contemplated by governmental authorities involving the Partnership during 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------- ---------------------------------------------------
No matters were submitted to a vote of the Limited Partners during the fourth
quarter of 1997.
(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, 1998, 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.
The General Partners have estimated the investment value of properties held by
the Partnership as of December 31, 1997 to be $206.33 per unit based on market
conditions existing in early December, 1997. This value was confirmed as
reasonable by an independent MAI appraiser, David L. Beal Company, although no
actual MAI appraisal was performed due to the inordinate expense involved with
such an undertaking. The valuation does not include any fractional interest
valuation or any distinction between different Classes of Partnership 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>
Per Class A Per Class A Per Class B
Unit Unit Unit Per Class B
Distribution for Total Cash Investment Return of Return of Unit
Quarter Ended Distributed Income Capital Capital General Partner
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
March 31, 1997 $279,689 $2.83 $0.00 $0.00 $0.00
June 30, 1997 $308,490 $3.13 $0.00 $0.00 $0.00
September 30, 1997 $308,500 $3.13 $0.00 $0.00 $0.00
December 31, 1997 $174,564 $1.76 $0.00 $0.00 $0.00
</TABLE>
10
<PAGE>
The fourth quarter distribution was accrued for accounting purposes in 1997 and
was not actually paid to the Limited Partners holding Class A Units until
February 1998. The General Partners anticipate that cash distributions to
Limited Partners holding Class A Units will continue in 1998 to be paid from
investment income; however, there is no guarantee of this.
ITEM 6. SELECTED FINANCIAL DATA
- --------- -----------------------
The following sets forth a summary of the selected financial data for the fiscal
years ended December 31, 1997, 1996, 1995, 1994, and 1993:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Assets $23,593,566 $24,968,886 $26,086,260 $27,020,983 $27,228,786
Total Revenues 1,643,943 1,967,743 2,169,532 2,084,942 1,973,392
Net (Loss) Income (305,296) 101,804 746,262 808,112 650,841
Net Income
allocated to Class
A Limited Partners 1,059,405 1,416,538 1,657,310 1,472,306 1,387,751
Net Loss
allocated to Class
B Limited Partners (1,364,701) (1,314,734) (911,048) (664,194) (736,910)
Net Income
per Class A Limited
Partner Unit 10.73 14.35 16.79 14.91 14.06
Net Loss
per Class B Limited
Partner Unit (32.06) (30.89) (21.40) (15.60) (17.31)
Cash Distributions
to Investors:
Investments income
Class A Units 10.85 12.92 17.24 13.12 15.29
Return of Capital
Class A Units 0.00 0.00 0.00 0.00 0.00
</TABLE>
11
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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 $1,643,943 for the fiscal year ended
December 31, 1997, as compared to $1,967,743 for the fiscal year ended December
31, 1996 and $2,169,532 for the fiscal year ended December 31, 1995. The
decrease was due primarily to decreased rental income primarily at Paces
Pavilion.
Expenses of the Partnership were $1,945,614 for the fiscal year ended December
31, 1997, as compared to $1,861,777 for the fiscal year ended December 31, 1996
and $1,422,555 for the fiscal year ended December 31, 1995. The increase for
1997 over 1996 was due to several factors. Bad debt write-off of tenant
receivables increased to $103,115 for 1997 as compared to $21,359 in 1996. Loss
on real estate assets increased to $60,391 in 1997 as compared to $15,292 in
1996 due to returning suites to white-shell in preparation for new tenants at
Black Oak Plaza and Crowe's Crossing Shopping Center. Depreciation expense
increased for the joint ventures from 1995 to 1996 and 1997 due to a change in
the estimated useful lives of buildings and improvements from 40 years to 25
years which became effective in the fourth quarter of 1995. For further
discussion of depreciation expense, please refer to the notes to the
accompanying financial statements.
Net loss of the Partnership was $305,296 for the fiscal year ended December 31,
1997, as compared to net income of $101,804 for 1996, and $746,262 for 1995.
The net loss for 1997 is due to decreased revenues and increased expenses as
discussed above. The decrease in net income for 1996 as compared to 1995 is due
primarily to increased depreciation expense and major repairs (plumbing,
water/sewer line repairs and painting at Crowe's Crossing Shopping Center).
12
<PAGE>
The Partnership's cash distribution to the Limited Partners holding Class A
Units was $10.85 per unit for the fiscal year ended December 31, 1997, $12.92
for 1996 and $17.24 for 1995. 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, 1997, 1996, and 1995. Distributions accrued for the fourth
quarter of 1997 were paid in February, 1998.
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, 1996.
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.
PROPERTY OPERATIONS
- -------------------
As of December 31, 1997, the Partnership's ownership interest in the Paces
Pavilion Property, Black Oak Plaza, Crowe's Crossing Shopping Center is 100%,
the Peachtree Place Property is 89.95%, 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, 1997, the Partnership owned interests in the following
properties:
13
<PAGE>
Paces Pavilion Property/Fund I
- ------------------------------
For the Year Ended December 31
------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996 1995
--------------------- --------------------- ---------------------
Revenues:
Rental income $ 134,951 $545,149 $545,149
Expenses:
Depreciation 251,755 251,719 152,651
Management and
leasing expenses 8,652 32,709 32,709
Other operating expenses 241,180 25,815 4,792
--------- -------- --------
501,587 310,243 190,152
--------- -------- --------
Net (loss) income $(366,636) $234,906 $354,997
========= ======== ========
Occupied % 27.8% 100% 100%
Partnership Ownership % 100% 100% 100%
Cash generated to the
Partnership $ 0 $485,204 $540,357
Net income allocated to the
Partnership $(366,636) $234,906 $354,997
</TABLE>
Rental income decreased to $134,951 in 1997, as compared to $545,149 in 1996 and
1995, due to decreased tenant occupancy after HCA vacated the premises effective
December 31, 1996. Management and leasing fees decreased in 1997 to $8,652 from
$32,709 in 1996 and 1995, due to lowered tenant occupancy. Other operating
expenses increased to $241,180 in 1997 over $25,815 in 1996 and $4,792 in 1995,
primarily due to accrued common area expenses of approximately $145,000 payable
to the Paces Pavilion Condominium Association and other maintenance expenses.
HCA was under a triple-net lease and was directly responsible for all expenses.
The increase in depreciation expense from 1995 to 1996 and 1997 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".
As of December 31, 1997, capital improvements and renovations totaling $59,572
have been incurred at Paces Pavilion in preparation for re-leasing the space
formerly occupied by HCA. Currently, there are five tenants occupying 27.8% of
the premises. Management is actively seeking replacement tenants for the
remaining space at Paces Pavilion. Because of the decreased rental income,
increased expenses and capital improvements, no cash was generated to the
Partnership in 1997.
14
<PAGE>
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
Paces Pavilion Property and are included in the Paces Pavilion Condominium
Association monthly fee for 1997.
The Partnership's ownership percentage has remained constant at 100% for the
years 1997, 1996, and 1995.
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
------------------------------
1997 1996 1995
-------------------- --------------------- ---------------------
Revenues:
<S> <C> <C> <C>
Rental income $693,334 $679,529 $712,634
Expenses:
Depreciation 417,262 405,116 245,967
Management and
leasing expenses 66,509 35,074 40,175
Other operating expenses 187,504 280,610 197,414
-------- -------- --------
671,275 720,800 483,556
-------- -------- --------
Net income (loss) $ 22,059 $(41,271) $229,078
======== ======== ========
Occupied % 86% 89% 88%
Partnership Ownership % 100% 100% 100%
Cash generated to the
Partnership $545,071 $284,270 $529,574
Net income (loss) allocated
to the Partnership $ 22,059 $(41,271) $229,078
</TABLE>
Although occupancy percentage decreased for the year ended December 31, 1997,
rental income increased in 1997 compared to 1996 because occupancy for the first
three quarters of 1997 was higher than the first three quarters of 1996. Rental
income decreased for 1996 as compared to 1995 due primarily to decreased
occupancy at the property during the first three quarters of 1996. Depreciation
increased in 1997 compared to 1996 due to the full year expense on tenant
15
<PAGE>
improvements for tenants acquired in 1996. Depreciation increased for 1997 and
1996 compared to 1995 due to the change in estimated useful lives beginning in
the fourth quarter of 1995. Management and leasing expenses increased in 1997
compared to 1996 due to the payment of CAM reimbursements for 1995 and 1996 by
Kroger. Management and leasing expenses decreasedin 1996 over 1995 due to
decreased rental collections in 1996. Other operating expenses decreased
substantially in 1997 compared to 1996 due to the billing of two year's CAM
reimbursements to Kroger as noted above. Other operating expenses increased
approximately $83,000 in 1996 compared to 1995 due primarily to expenditures for
plumbing, painting and water/sewer line repairs. Net income increased
approximately $63,000 in 1997 from 1996 for the reasons stated above, and
decreased from $229,078 in 1995 to a loss of $41,271 in 1996 as discussed above.
Cash generated to the Partnership increased in 1997 compared to 1996 due
primarily to the increase in rental income in 1997 and decreases in operating
expenses and capital expenditures.
Real estate taxes were $84,973 in 1997, $83,860 in 1996 and 1995.
The Partnership's ownership percentage has remained constant at 100% for the
years 1997, 1996, and 1995.
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>
<S> <C> <C> <C>
For the Year Ended December 31
------------------------------
1997 1996 1995
--------------------- --------------------- ---------------------
Revenues:
Rental income $447,027 $416,114 $424,258
Expenses:
Depreciation 254,009 235,326 165,247
Management and
leasing expenses 39,040 34,132 35,863
Other operating expenses 161,635 173,225 184,738
-------- -------- --------
454,684 442,683 385,848
-------- -------- --------
Net (loss) income $ (7,657) $(26,569) $ 38,410
======== ======== ========
Occupied % 78% 74% 77%
Partnership Ownership % 100% 100% 100%
Cash generated to the
Partnership $187,385 $ 95,893 $197,499
Net loss allocated
to the Partnership $ (7,657) $(26,569) $ 38,410
</TABLE>
16
<PAGE>
Rental income increased in 1997 to $447,027 compared to $416,114 in 1996 and
decreased from $424,258 in 1995 to $416,114 in 1996, due to fluctuations in
tenant occupancy at the property. Depreciation increased in 1997 compared to
1996 due to additional building and landscaping improvements, as well as, tenant
improvements for two new tenants. Depreciation increased in 1997 and 1996
compared to 1995, due to the change in useful lives of buildings and
improvements which became effective in the fourth quarter of 1995. Management
and leasing fees increased in 1997 compared to 1996, due to the increase in
rents received in 1997. The decrease in management and leasing expenses in 1996
compared to 1995 was due to a decrease of approximately $35,000 in actual rents
received in 1996.
Operating expenses in 1997 decreased as compared to 1996, due primarily to
increased tenant reimbursements. Although operating expenses in 1996 were lower
than in 1995, total expenses increased in 1996 compared to 1995, due to the
retirement of tenant improvements of $37,000 in 1995 compared to $11,000 in 1996
and the increase in depreciation expense. Net loss at the property decreased
approximately $19,000 in 1997 compared to 1996, due to the increased rental
income which was partially offset by the increase of approximately $12,000 in
operating expenses in 1997. Net income of the property decreased by
approximately $65,000 in 1996 compared to 1995, due primarily to increased
depreciation expense and decreased rental income previously discussed. Cash
generated to the Partnership increased in 1997 compared to 1996, due primarily
to the increase in rental income, and the decrease in operating expenses and
capital expenditures.
Real estate taxes were $40,634 for 1997, and $41,655 for 1996 and 1995.
The Partnership's ownership percentage remained constant at 100% for the years
1997, 1996 and 1995.
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.
17
<PAGE>
Peachtree Place/Fund I and Wells & Associates, Inc. Joint Venture
- -----------------------------------------------------------------
<TABLE>
For the Year Ended December 31
-------------------------------------------------------------------
<CAPTION>
1997 1996 1995
--------------------- --------------------- ---------------------
Revenues:
<S> <C> <C> <C>
Rental income $273,804 $276,345 $234,903
Interest income 22 30 665
-------- -------- --------
273,826 276,375 235,568
Expenses:
Depreciation $ 87,057 86,303 51,680
Management and
leasing expenses 22,931 15,265 20,782
Other operating expenses 127,686 133,398 156,396
-------- -------- --------
237,674 234,966 228,858
-------- -------- --------
Net income $ 36,152 $ 41,409 $ 6,710
======== ======== ========
Occupied % 95.34% 100.00% 100.00%
Partnership Ownership % 89.95% 89.95% 89.95%
Cash distribution to the
Partnership $128,771 $112,719 $ 47,488
Net income allocated to
the Partnership $ 32,518 $ 37,247 $ 5,994
</TABLE>
Rental income decreased slightly for the year ended December 31, 1997, as
compared to the same period for 1996, due to a small percentage of unoccupied
space. The increase in depreciation expense in 1997 and 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". The increase in management and leasing expenses were due primarily
to leasing commissions paid in 1997 in order to obtain new tenants and renew
existing leases. The decrease in operating expenses in 1997 as compared to 1996
was due primarily to lower repairs and maintenance costs and a decrease in
utilities. Net income decreased in 1997 as compared to net income in 1996, due
to the increase in expenses and decrease in rental income. Cash distributions
increased in 1997 as compared to 1996 as a result of decreased operating
expenses.
Real estate taxes were $15,650 for 1997, $16,331 for 1996, and $16,831 for 1995.
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.
18
<PAGE>
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.
Tucker Property/Fund I - Fund II Tucker Joint Venture
- ------------------------------------------------------
For the Year Ended December 31
------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- ---------------------
Revenues:
<S> <C> <C> <C>
Rental income $1,077,916 $1,065,598 $1,227,116
Interest income 1,159 624 2,599
---------- ---------- ----------
1,079,075 1,066,222 1,229,715
Expenses:
Depreciation 419,928 419,137 277,862
(Gain) Loss on
Real Estate Assets (45,943) 61,985 0
Management and
leasing expenses 122,452 118,542 135,517
Other operating expenses 532,859 501,724 563,049
------- ------- -------
1,029,296 1,101,388 976,428
---------- ---------- ----------
Net income (loss) $ 49,779 $ (35,166) $ 253,287
========== ========== ==========
Occupied % 84.83% 77.00% 83.00%
Partnership Ownership % 55.09% 55.09% 55.09%
Cash distribution to the
Partnership $ 205,024 $ 290,352 $ 367,070
Net income (loss) allocated to
the Partnership $ 27,423 $ (19,373) $ 139,535
</TABLE>
Rental income increased in 1997 compared to 1996 due primarily to increased
tenant occupancy at the property. A decrease in occupancy accounted for the
decrease in rental income from 1995 to 1996. In 1997, a loss on retirement of
assets of $58,952 was offset by insurance reimbursements of $104,895 for fire
damage which occurred in 1996 and wind storm damage in 1997. Operating expenses
increased in 1997 compared to 1996 due primarily to increase in heating and air
conditioning repairs, painting expense and maintenance. The increase in
depreciation expenses in 1997 and 1996 compared to 1995 was the result of the
change in 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 increased in 1997 compared to 1996 due primarily to increased rental
income and the reimbursement discussed above. Net income decreased in 1996
compared to 1995 due to increased depreciation and operating expenses, as
discussed above.
19
<PAGE>
The property was 85% leased as of December 31, 1997, as compared to 77% as of
December 31, 1996, and 83% as of December 31, 1995. Real estate taxes were
$108,836 in 1997, $111,947 in 1996, and $127,484 for 1995.
For comments on the general 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.
Cherokee Commons Shopping Center/Fund I, II, II-OW, VI and VII Joint Venture
- ----------------------------------------------------------------------------
For the Year Ended December 31
------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- ---------------------
Revenues:
<S> <C> <C> <C>
Rental income $880,652 $890,951 $778,204
Interest income 67 73 180
-------- -------- --------
880,719 891,024 778,384
Expenses:
Depreciation 440,882 429,419 277,099
Management and
leasing expenses 78,046 48,882 36,303
Other operating expenses 138,294 180,841 115,885
-------- -------- --------
657,222 659,142 429,287
-------- -------- --------
Net income $223,497 $231,882 $349,097
======== ======== ========
Occupied % 94.41% 93.00% 94.00%
Partnership Ownership % 24.00% 24.00% 24.00%
Cash distributed to the
Partnership $160,881 $189,008 $126,697
Net income allocated to the
Partnership $ 53,691 $ 55,705 $ 95,490
</TABLE>
Rental income decreased in 1997 compared to 1996 due to decreased occupancy at
the property for the first three quarters of 1997. Rental income increased in
1996 over 1995 due to the Kroger expansion which was completed in November 1994
but not billed until September, 1995. The increase in occupancy in 1997 is due
to a new 1,200 square foot lease executed in 1997. Operating expenses of the
property decreased to$138,294 in 1997 from $180,841 in 1996, and increased from
$115,885 in 1995. The decrease in operating expenses in 1997 as compared to
1996 is due to timing differences in billing of common area maintenance charges
and property taxes which was partially offset by increases in plumbing repairs
and contract labor expenses. The increase in operating expenses from 1995 to
1996 is due primarily to repairs and maintenance (roof repairs, painting and
20
<PAGE>
tenant finish) and general and administrative expenses. The increase in
depreciation expenses for 1997 and 1996 as compared to 1995 was the 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. Net
income of the property decreased to $223,497 in 1997 and decreased to $231,882
in 1996 from $349,097 in 1995, due to the reasons discussed above.
Real estate taxes were $67,259 for 1997, $63,696 for 1996, and $63,694 for 1995.
For comments on the general conditions to which the property may be subject, see
Item 1, Business, page 2. For additional informat ion on the property, tenants,
etc., see Item 2, Properties, page 3.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.)
21
<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 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
$872,851 in 1997 as compared to $1,083,576 in 1996 and $1,325,789 for 1995
primarily due to decreased net income.
The decrease in equity income of joint ventures in 1997 as compared to 1996 was
due to a write-off of assets returning tenant suites to white-shell in
preparation for new tenants. The decrease in equity income of joint ventures
in 1996 as compared to 1995 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 provided by investing activities increased to $239,519 in 1997 from
$217,741 in 1996, due to decreased building and tenant improvements partially
offset by decreased distributions from joint ventures and decreased to $217,741
in 1996 as compared to $341,580 in 1995 due to increased building and tenant
improvements in 1996. Net cash used in financing activities decreased to
$1,188,347 in 1997 as compared to $1,420,927 in 1996 and $1,738,748 in 1995 due
to decreased distributions to partners due to decreased rental income and
increased property expenses. As a result, cash and cash equivalents decreased
to $128,199 in 1997 as compared to $204,176 in 1996 and $323,786 in 1995.
The Partnership's distributions paid and payable through the fourth quarter of
1997 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.
The tenant improvement requirements necessary to release the Paces Pavilion
Building are not known at this time and the Partnership intends to fund these
improvements, if any, from cash flow from operations which will result in lower
distributions to partners.
22
<PAGE>
The Partnership is unaware of any other 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 should
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.
The General Partners have verified that all operational computer systems are
year 2000 compliant. This includes systems supporting accounting, property
management and investor services. Also, as part of this review, all building
control systems have been verified as compliant. The current line of business
applications are based on compliant operating systems and database servers. All
of these products are scheduled for additional upgrades before the year 2000.
Therefore, it is not anticipated that the year 2000 will have significant impact
on operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- --------- -------------------------------------------
The Financial Statements of the Registrant and supplementary data are detailed
under Item 14 (a) and filed as part of the report on the pages indicated.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- -------- -------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
The Partnership's change in accountants during 1995 was previously reported in
the Partnership's Form 8-K dated September 11, 1995. There were no
disagreements with the Partnership's accountants or other reportable events
during 1997.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.)
23
<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
Director and the President of Capital.
LEO F. WELLS, III. Mr. Wells is a resident of Atlanta, Georgia, is 54 years of
- -----------------
age and holds a Bachelor of Business Administration Degree in Economics from the
University of Georgia. Mr. Wells is the President and sole Director of Wells
Capital. Mr. Wells is the President of Wells & Associates, Inc., a real estate
brokerage and investment company formed in 1976 and incorporated in 1978, for
which he serves as principal broker. Mr. Wells is also currently the sole
Director and President of Wells Management Company, Inc., a property management
company he founded in 1983. In addition, Mr. Wells is the President and
Chairman of the Board of Wells Investment Securities, Inc., Wells & Associates,
Inc., and Wells Management Company, Inc. which are affiliates of the General
Partners. From 1980 to February 1985, Mr. Wells served as Vice-President of
Hill-Johnson, Inc., a Georgia corporation engaged in the construction business.
From 1973 to 1976, he was associated with Sax Gaskin Real Estate Company and
from 1970 to 1973, he was a real estate salesman and property manager for Roy D.
Warren & Company, an Atlanta real estate company.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.)
24
<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, 1997 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, 1997, deferred cash compensation of
approximately $2,088,726 of which $1,525,320 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 $193,456 was accrued for fiscal year
1997.
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, 1998.
<TABLE>
<S> <C> <C> <C>
(1) (2) (3) (4)
Name and Address of Amount and Nature of
Title of Class Beneficial Owner Beneficial Ownership Percent of Class
- ----------------------- ------------------------ -------------------- ------------------------
Class A Units Leo F. Wells, III 116 Units (IRA, 401 (k) Less than 1%
and Profit Sharing)
Class B Units Leo F. Wells, III 167 Units (401 (k) and Less than 1%
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.)
25
<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 1997.
PROPERTY MANAGEMENT AND LEASING FEES
- ------------------------------------
Wells Management Company, Inc., an affiliate of the General Partners, will
receive compensation for supervising the management of the Partnership
properties equal to 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, 1997, deferred property management and leasing fees totaling $2,088,726 were
due to Wells Management Company, Inc., of which $193,456 was accrued for fiscal
year 1997.
26
<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 1997, no real estate
commissions were paid to the General Partners or their affiliates.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.)
27
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
- --------- ----------------------------------------------------
ON FORM 8-K
-----------
(a)1. The Financial Statements are contained on pages F-2 through F-24 of this
Annual Report on Form 10-K, and the list of the Financial Statements
contained herein is set forth on page F-1, which is hereby incorporated
by reference.
(a)2. Financial Statement Schedule III
Information with respect to this item begins on Page S-1 of this Annual
Report on Form 10-K.
(a)3. The Exhibits filed in response to Item 601 of Regulation S-K are listed
on the Exhibit Index attached hereto.
(b) No reports on Form 8-K were filed with the Commission during the fourth
quarter of 1997.
(c) The Exhibits filed in response to Item 601 of Regulation S-K are listed
on the Exhibit Index attached hereto.
(d) See (a)2 above.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.)
28
<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 17h day of March,
1998.
WELLS REAL ESTATE FUND I
(Registrant)
By: /s/Leo F. Wells, III
--------------------
LEO F. WELLS, III
Individual General Partner and as President
and Chief Financial Officer 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.
<TABLE>
<CAPTION>
<S> <C>
Signature Title
- -------------------------------- ---------------------------------
/s/Leo F. Wells, III Individual General Partner, March 17, 1998
- -------------------------------- President and Sole Director of
Leo F. Wells, III Wells Capital, Inc., the
Corporate General Partner
</TABLE>
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.
29
<PAGE>
INDEX TO FINANCIAL STATEMENTS
-----------------------------
FINANCIAL STATEMENTS
- --------------------
<TABLE>
<CAPTION>
Financial Statements PAGE
- ----------------------------------------------------- ----
<S> <C>
Independent Auditors' Report F2
Balance Sheets as of December 31, 1997 and 1996 F3
Statements of (Loss) Income for the Years ended
December 31, 1997, 1996, and 1995 F4
Statements of Partners' Capital for the Years Ended
December 31, 1997, 1996, and 1995 F5
Statements of Cash Flows for the Years Ended
December 31, 1997, 1996, and 1995 F6
Notes to Financial Statements for
December 31, 1997, 1996, and 1995 F7
</TABLE>
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.)
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, 1997 and 1996 and the related consolidated statements of (loss)
income, partners' capital, and cash flows for each of the three years in the
period ended December 31, 1997. These financial statements and the schedule
referred to below are the responsibility of the partnership's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements 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, 1997 and 1996 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule III--Real Estate Investments
and Accumulated Depreciation as of December 31, 1997 is presented for purposes
of complying with the securities and exchange commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ Arthur Andersen LLP
-----------------------
Atlanta, Georgia
January 9, 1998
<PAGE>
WELLS REAL ESTATE FUND I AND SUBSIDIARY
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
---------- -----------
REAL ESTATE ASSETS, at cost:
<S> <C> <C>
Land $ 2,894,193 $ 2,894,193
Building and improvements, less accumulated depreciation of $6,354,204 and $5,369,635 at
December 31, 1997 and 1996, respectively 13,279,260 14,176,266
---------- ----------
Total real estate assets 16,173,453 17,070,459
INVESTMENT IN JOINT VENTURES 6,833,129 7,117,920
CASH AND CASH EQUIVALENTS 128,199 204,176
DUE FROM AFFILIATES 64,469 111,552
ACCOUNTS RECEIVABLE 293,644 363,662
DEFERRED LEASE ACQUISITION COSTS 46,378 35,808
PREPAID EXPENSES AND OTHER ASSETS 54,294 65,309
----------- -----------
Total assets $23,593,566 $24,968,886
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued expenses $ 138,088 $ 131,340
Due to affiliate 1,531,215 1,412,572
Refundable security deposits 55,808 62,876
Partnership distributions payable 179,270 285,687
Minority interest 117,931 128,619
--------- ---------
Total liabilities 2,022,312 2,021,094
--------- ---------
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Limited partners:
Class A 21,571,254 21,583,091
Class B 0 1,364,701
----------- -----------
Total partners' capital 21,571,254 22,947,792
----------- -----------
Total liabilities and partners' capital $23,593,566 $24,968,886
=========== ===========
The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>
F-3
<PAGE>
WELLS REAL ESTATE FUND I AND SUBSIDIARY
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF (LOSS) INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ----------
REVENUES:
<S> <C> <C> <C>
Rental income $ 1,549,117 $ 1,917,137 $1,915,403
Equity in income of joint ventures 81,114 36,332 235,025
Interest income 13,712 14,274 19,104
----------- ----------- ----------
1,643,943 1,967,743 2,169,532
----------- ----------- ----------
EXPENSES:
Depreciation 1,010,084 978,463 615,546
Operating costs, net of reimbursements 413,522 443,441 356,647
Partnership administration 118,909 143,214 155,814
Management and leasing fees 124,686 107,785 118,021
Legal and accounting 85,683 97,231 59,072
Lease acquisition costs 20,075 42,570 40,352
Bad debt expense 103,115 21,359 25,045
Computer costs 9,149 12,422 14,908
Loss on real estate assets 60,391 15,292 37,150
----------- ----------- ----------
1,945,614 1,861,777 1,422,555
----------- ----------- ----------
(LOSS) INCOME BEFORE MINORITY INTEREST (301,671) 105,966 746,977
MINORITY INTEREST (3,625) (4,162) (715)
----------- ----------- ----------
NET (LOSS) INCOME $ (305,296) $ 101,804 $ 746,262
=========== =========== ==========
NET INCOME ALLOCATED TO CLASS A LIMITED PARTNERS $ 1,059,405 $ 1,416,538 $1,657,310
=========== =========== ==========
NET LOSS ALLOCATED TO CLASS B LIMITED PARTNERS $(1,364,701) $(1,314,734) $ (911,048)
=========== =========== ==========
NET INCOME PER CLASS A LIMITED PARTNER UNIT $10.73 $14.35 $16.79
=========== =========== ==========
NET LOSS PER CLASS B LIMITED PARTNER UNIT $(32.06) $(30.89) $(21.40)
=========== =========== ==========
CASH DISTRIBUTION PER CLASS A LIMITED PARTNER UNIT $10.85 $12.92 $17.24
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
WELLS REAL ESTATE FUND I AND SUBSIDIARY
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
LIMITED PARTNERS TOTAL
------------------------------------------------
CLASS A CLASS B GENERAL PARTNERS'
------------------------ ----------------------
UNITS AMOUNT UNITS AMOUNT PARTNERS CAPITAL
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 98,716 $21,487,254 42,568 $ 3,590,483 $0 $25,077,737
Net income (loss) 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
Net income (loss) 0 1,059,405 0 (1,364,701) 0 (305,296)
Partnership distributions 0 (1,071,242) 0 0 0 (1,071,242)
------- ---------- ------ --------- ----- ----------
BALANCE, DECEMBER 31, 1997 98,716 $21,571,254 42,568 $ 0 $0 $21,571,254
======= ========== ====== ========= ===== ==========
</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 CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net (loss) income $ (305,296) $ 101,804 $ 746,262
----------- ----------- -----------
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Equity in income of joint ventures (81,114) (36,332) (235,025)
Depreciation 1,010,084 978,463 615,546
Loss on real estate assets 60,391 15,292 37,150
Changes in assets and liabilities:
Accounts receivable 70,018 (145,526) 89,742
Deferred lease acquisition costs (10,570) (20,844) 4,979
Prepaid expenses and other assets 11,015 (11,030) 4,051
Accounts payable, accrued expenses, and refundable
security deposits (320) 56,329 4,930
Due to affiliate 118,643 145,420 58,154
----------- ----------- -----------
Total adjustments 1,178,147 981,772 579,527
----------- ----------- -----------
Net cash provided by operating activities
872,851 1,083,576 1,325,789
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate (173,469) (275,066) (153,423)
Distributions received from joint ventures 412,988 492,807 495,003
----------- ----------- -----------
Net cash provided by investing activities 239,519 217,741 341,580
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners from accumulated earnings (1,177,659) (1,412,495) (1,734,040)
Minority interest 3,625 4,162 715
Distributions to minority interest (14,313) (12,594) (5,423)
----------- ----------- -----------
Net cash used in financing activities (1,188,347) (1,420,927) (1,738,748)
----------- ----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS
(75,977) (119,610) (71,379)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 204,176 323,786 395,165
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 128,199 $ 204,176 $ 323,786
=========== =========== ===========
</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)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996, AND 1995
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, 1997, the Partnership owned the following properties
directly: (i) the Paces Pavilion Property ("Paces Pavilion"), a medical
office building located in Atlanta, Georgia (formerly called the Howell Mill
Road Property); (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, through its investment in joint ventures, the Partnership owns
interests in the following properties: 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.
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, 1997 and 1996. All significant intercompany balances have been
eliminated in consolidation.
MINORITY INTEREST
Minority interest represents the interest of Wells and Associates, Inc., an
affiliate of the general partners, in Wells-Baker. At December 31, 1997 and
1996, Wells and Associates, Inc.'s interest in Wells-Baker was approximately
10%.
F-7
<PAGE>
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 on 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 Paces Pavilion represented 100% of rental income of
the Partnership for the years ended December 31, 1996 and 1995, respectively,
of which approximately 25% was received from sublessees. This tenant vacated
the property effective December 31, 1996 and the property is currently only
28% occupied. The Partnership is actively seeking replacement tenants for
occupancy of the remainder of the space at Paces Pavilion; however, in the
event that replacement tenants require significant tenant improvements and
renovations to the space to be leased, it is anticipated that such amounts
may be funded from cash distributions of the Partnership which would
otherwise have been distributed to the Limited Partners. In such event, cash
distributions to Limited Partners holding Class A Units may be reduced or
suspended pending funding of amounts required for any such tenant
improvements or renovations. As of January 9, 1998, the Partnership has not
been successful in re-leasing a substantial portion of Paces Pavilion.
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 quarterly. In accordance with the partnership
agreement, distributions are paid first to limited partners holding Class A
units until they have received a 9% per annum 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% per annum 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.
F-8
<PAGE>
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
. 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, as defined
. 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.
F-9
<PAGE>
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
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 amounts of real estate assets may not be recoverable, management
assesses the recoverability of real estate assets under SFAS No. 121 by
determining whether the carrying value of such real estate assets will be
recovered through the future cash flows expected from the use of the asset
and its eventual disposition. Management has determined that there has been
no impairment in the carrying value of real estate assets held by the
Partnership or its affiliated joint ventures as of December 31, 1997.
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, and $669,447 in the years ended December
31, 1996 and 1997, respectively.
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.
F-10
<PAGE>
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.
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, 1997, 1996, and 1995 is computed based on the number of
units outstanding during the period.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the current
year financial statement presentation.
2. RELATED-PARTY TRANSACTIONS
Due from affiliates at December 31, 1997 and 1996 represents the
Partnership's share of cash to be distributed for the fourth quarters of 1997
and 1996, as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Fund I and II Tucker $15,149 $ 66,754
Fund I, II, II-OW, VI, and VII Associates--Cherokee
49,320 44,798
-------- --------
$64,469 $111,552
======== ========
</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.
F-11
<PAGE>
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, 1997, 1996, and 1995 of $147,282, $111,371, and $217,562,
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
owned through joint ventures. As of December 31, 1997 and 1996, this
deferral totaled $1,525,320 and $1,412,572, respectively, 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 on time spent on each fund by individual administrative
personnel. In the opinion of management, such allocation is a reasonable
estimation of such expenses.
The general partners are also general partners of other Wells Real Estate
Funds. As such, there may exist conflicts of interest where the general
partners, while serving in the 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, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- -------------------------
AMOUNT PERCENT AMOUNT PERCENT
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Fund I and II Tucker $4,969,956 55% $5,147,557 55%
Fund I, II, II-OW, VI, and VII
Associates--Cherokee 1,863,173 24 1,970,363 24
---------- ------- ---------- -------
$6,833,129 $7,117,920
========== ==========
</TABLE>
The following is a rollforward of the Partnership's investment in joint
ventures for the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
Investment in joint ventures, beginning of year $7,117,920 $7,560,948
Equity in income of joint ventures 81,114 36,332
Distributions from joint ventures (365,905) (479,360)
---------- -----------
Investment in joint ventures, end of year $6,833,129 $7,117,920
========== ===========
</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
F-12
<PAGE>
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
Commons joint ventures were merged into a new joint 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. In 1996, Fund I
and II Tucker received an initial 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 income (loss). In 1997, $104,895
was received as an insurance settlement for the fire damages discussed above
and storm damages that occurred in 1997. In addition, a loss from the
retirement of real estate assets of $58,952 was incurred. The resulting net
gain on real estate assets of $45,943 is included in the accompanying
statements of income (loss).
F-13
<PAGE>
Following are the financial statements for Fund I and II Tucker:
FUND I AND II TUCKER
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
Assets
<TABLE>
<CAPTION>
1997 1996
---------- -----------
Real estate assets, AT COST:
<S> <C> <C>
Land $3,260,887 $ 3,260,887
Building and improvements, less accumulated depreciation of
$2,473,553 in 1997 and $2,066,844 in 1996
6,364,031 6,496,361
---------- -----------
Total real estate assets 9,624,918 9,757,248
Cash and cash equivalents 12,684 223,277
Accounts receivable 79,715 74,471
Prepaid expenses and other assets 104,596 49,980
---------- -----------
Total assets $9,821,913 $10,104,976
========== ===========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 74,018 $ 42,187
Partnership distributions payable 16,060 110,880
Due to affiliates 481,228 422,793
---------- -----------
Total liabilities 571,306 575,860
---------- -----------
Partners' capital:
Wells Real Estate Fund I 4,969,956 5,147,557
Fund II and II-OW 4,280,651 4,381,559
---------- -----------
Total partners' capital 9,250,607 9,529,116
---------- -----------
Total liabilities and partners' capital $9,821,913 $10,104,976
========== ===========
</TABLE>
F-14
<PAGE>
<TABLE>
FUND I AND II TUCKER
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<CAPTION>
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Rental Income $1,077,916 $1,065,598 $1,227,116
Interest Income 1,159 624 2,599
----------- ---------- ----------
1,079,075 1,066,222 1,229,715
----------- ---------- ----------
Expenses:
Operating costs, net reimbursements 496,258 463,229 517,011
Depreciation 419,928 419,137 277,862
Management and leasing fees 79,524 65,100 73,410
(Gain) loss on real estate assets (45,943) 61,985 0
Lease acquisition costs 42,928 53,422 62,107
Property administration 28,665 30,724 32,740
Legal and accounting 7,936 4,386 9,477
Computer costs 0 3,385 3,821
---------- ----------- ----------
1,029,296 1,101,388 976,428
---------- ----------- ----------
Net income (loss) $ 49,779 $ (35,166) $ 253,287
========== =========== ==========
Net income (loss) allocated to Wells Real Estate
Fund I $ 27,423 $ (19,373) $ 139,535
---------- ---------- ----------
Net income (loss) allocated to Fund II and II-OW $ 22,356 $ (15,793) $ 113,752
========== ========== ==========
</TABLE>
F-15
<PAGE>
FUND I AND II TUCKER
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
WELLS REAL FUND II TOTAL
ESTATE AND PARTNERS'
FUND I II-OW CAPITAL
---------- ---------- -----------
<S> <C> <C> <C>
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
Net income 27,423 22,356 49,779
Partnership distributions (205,024) (123,264) (328,288)
---------- ---------- -----------
Balance, December 31, 1997 $4,969,956 $4,280,651 $ 9,250,607
========== ========== ===========
</TABLE>
F-16
<PAGE>
FUNDS I AND II TUCKER
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) $ 49,779 $ (35,166) $ 253,287
---------- --------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 419,928 419,137 277,862
(Gain) loss on real estate assets (45,943) 61,985 0
Changes in assets and liabilities:
Accounts receivable (5,244) 24,751 36,144
Prepaid expenses and other assets (54,616) 5,052 8,250
Accounts payable and accrued expenses 31,831 (13,972) (157)
Due to affiliates 58,435 46,643 52,876
---------- --------- ---------
Total adjustments 404,391 543,596 374,975
---------- --------- ---------
Net cash provided by operating activities 454,170 508,430 628,262
---------- --------- ---------
Cash flows from investing activities:
Investment in real estate (346,550) (63,491) (9,699)
Insurance proceeds 104,895 143,944 0
---------- --------- ---------
Net cash (used in) provided by investing
activities (241,655) 80,453 (9,699)
---------- --------- ---------
Cash flows from financing activities:
Distributions to joint venture partners (423,108) (505,628) (638,581)
---------- --------- ---------
Net (decrease) increase in cash and cash equivalents (210,593) 83,255 (20,018)
Cash and cash equivalents, beginning of year 223,277 140,022 160,040
---------- --------- ---------
Cash and cash equivalents, end of year $ 12,684 $ 223,277 $ 140,022
---------- --------- ---------
---------- --------- ---------
</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>
<TABLE>
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, 1997 AND 1996
Assets
<CAPTION>
1997 1996
---------- ----------
Real estate assets, at cost:
<S> <C> <C>
Land $1,219,704 $1,219,704
Building and improvements, less accumulated depreciation of
$2,273,149 in 1997 and $1,847,476 in 1996 6,939,884 7,329,974
---------- ----------
Total real estate assets 8,159,588 8,549,678
Cash and cash equivalents 153,159 71,346
Accounts receivable 92,516 93,902
Prepaid expenses and other assets 99,869 78,527
---------- ----------
Total assets $8,505,132 $8,793,453
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 36,851 $ 23,130
Partnership distributions payable 194,123 112,817
Due to affiliates 93,940 78,375
---------- ----------
Total liabilities 324,914 214,322
---------- ----------
Partners' capital:
Wells Real Estate Fund I 1,863,173 1,970,363
Fund II and II-OW 4,536,781 4,746,274
Wells Real Estate Fund VI 891,482 932,597
Wells Real Estate Fund VII 888,782 929,897
---------- ----------
Total partners' capital 8,180,218 8,579,131
---------- ----------
Total liabilities and partners' capital $8,505,132 $8,793,453
========== ==========
</TABLE>
F-18
<PAGE>
FUND I, II, II-OW, VI AND VII ASSOCIATES--CHEROKEE
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
Revenues:
<S> <C> <C> <C>
Rental income $880,652 $890,951 $778,204
Interest income 67 73 180
-------- -------- --------
880,719 891,024 778,384
-------- -------- --------
Expenses:
Depreciation 440,882 429,419 277,099
Operating costs, net of reimbursements 70,017 126,367 51,663
Property administration 26,260 42,868 39,316
Management and leasing fees 64,807 35,598 29,015
Lease acquisition costs 13,239 13,284 7,288
Legal and accounting 9,385 8,362 20,273
Computer costs 0 3,244 4,633
Loss on real estate assets 32,632 0 0
-------- -------- --------
657,222 659,142 429,287
-------- -------- --------
Net income $223,497 $231,882 $349,097
======== ======== ========
Net income allocated to Wells Real Estate Fund I $ 53,691 $ 55,705 $ 95,490
======== ======== ========
Net income allocated to Fund II and II-OW $121,942 $126,517 $216,845
======== ======== ========
Net income allocated to Wells Real Estate Fund VI $ 23,932 $ 24,830 $ 18,381
======== ======== ========
Net income allocated to Wells Real Estate Fund VII $ 23,932 $ 24,830 $ 18,381
======== ======== ========
</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, 1997, 1996, AND 1995
<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, 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
Net income 53,691 121,942 23,932 23,932 223,497
Partnership distributions (160,881) (331,435) (65,047) (65,047) (622,410)
---------- ---------- -------- --------- ----------
Balance, December 31, 1997 $1,863,173 $4,536,781 $891,482 $888,782 $8,180,218
========== ========== ======== ========= ==========
</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, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 223,497 $ 231,882 $ 349,097
---------- --------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 440,882 429,419 277,099
Loss on real estate assets 32,632 0 0
Changes in assets and liabilities:
Accounts receivable 1,386 43,062 7,111
Prepaid expenses and other assets (21,342) 14,106 (42,937)
Accounts payable and accrued expenses 13,721 (4,624) (279,529)
Due to affiliates 15,565 9,613 9,909
---------- --------- ---------
Total adjustments 482,844 491,576 (28,347)
---------- --------- ---------
Net cash provided by operating activities 706,341 723,458 320,750
---------- --------- ---------
Cash flows from investing activities:
Investment in real estate (83,424) (28,231) (1,869,138)
---------- --------- ---------
Cash flows from financing activities:
Contributions from joint venture partners 0 0 2,100,403
Distributions to joint venture partners (541,404) (834,237) (376,011)
---------- --------- ---------
Net cash (used in) provided by financing
activities (541,404) (834,237) 1,724,392
---------- --------- ---------
Net increase (decrease) in cash and cash equivalents 81,813 (139,010) 176,004
Cash and cash equivalents, beginning of year 71,346 210,356 34,352
---------- --------- ---------
Cash and cash equivalents, end of year $ 153,159 $ 71,346 $ 210,356
========== ========= =========
Supplemental disclosure of noncash investing activities
activities:
Deferred project costs applied by partners $ 0 $ 0 $ 85,637
========== ========= =========
</TABLE>
F-21
<PAGE>
4. INCOME TAX BASIS NET INCOME AND PARTNERS' CAPITAL
The Partnership's income tax basis net income for the years ended December
31, 1997, 1996, and 1995 is calculated as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ----------
<S> <C> <C> <C>
Financial statement net (loss) income $(305,296) $101,804 $ 746,262
Increase (decrease) in net (loss) income resulting from:
Depreciation expense for financial reporting purposes in
excess of amounts for income tax purposes 669,447 628,032 155,900
0 0 10,491
Joint venture change in ownership
Expenses deductible when paid for income tax purposes, accrued
for financial reporting purposes 164,719 161,851 222,622
Rental income accrued for financial reporting purposes in
excess of amounts for income tax purposes 13,613 6,402 72,775
Amortization of lease acquisition costs 0 12,267 (4,266)
Meals and entertainment 1,491 0 0
Reversal of prior year property taxes (10,559) 0 0
--------- -------- ----------
Income tax basis net income $ 533,415 $910,356 $1,203,784
========= ======== ==========
</TABLE>
The Partnership's income tax basis partners' capital at December 31, 1997,
1996, and 1995 is computed as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Financial statement partners' capital $21,571,254 $22,947,792 $24,121,850
Increase (decrease) in partners' capital resulting from:
Depreciation expense for financial reporting purposes
in excess of amounts for income tax purposes 1,453,379 783,932 155,900
Joint venture change in ownership 14,293 14,293 10,491
Accumulated rental income accrued for financial
reporting purposes in excess of amounts for income tax
purposes (187,239) (200,852) (207,254)
Accumulated expenses deductible when paid for income
tax purposes, accrued for financial reporting purposes 2,099,781 1,935,062 1,773,211
Accumulated expenses capitalized for income tax
purposes and expensed for financial reporting
purposes, net of accumulated amortization (2,086) (2,086) (2,086)
Partnership's distributions payable 179,270 285,687 422,320
Other, net (13,690) 6,035 (11,890)
----------- ----------- -----------
Income tax basis partners' capital $25,114,962 $25,769,863 $26,262,542
=========== =========== ===========
</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, 1997 is as
follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1998 $1,712,713
1999 1,341,829
2000 927,138
2001 803,538
2002 661,664
Thereafter 3,978,816
----------
$9,425,698
==========
</TABLE>
One significant tenant contributed approximately 18% of rental income for the
year ended December 31, 1997. In addition, two significant tenants will
contribute approximately 44% 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, 1997 is as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1998 $ 857,737
1999 629,923
2000 385,861
2001 298,015
2002 221,950
Thereafter 152,500
----------
$2,545,986
==========
</TABLE>
Three significant tenants will contribute approximately 13%, 11%, and 27% 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,
1997 is as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1998 $ 833,808
1999 788,101
2000 725,527
2001 675,986
2002 653,869
Thereafter 5,061,423
----------
$8,738,714
==========
</TABLE>
F-23
<PAGE>
One significant tenant contributed approximately 67% of rental income for the
year ended December 31, 1997. In addition, one tenant will contribute
approximately 89% 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 Partnership or the Company. In
the normal course of business, the Partnership or 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, 1997
<TABLE>
<CAPTION>
Initial Cost
---------------------- Costs of
Buildings and Capitalized
Description Encumbrances Land Improvements Improvements
- ----------- ------------ ---- ------------ ------------
<S> <C> <C> <C> <C>
PACES PAVILION (A) None $ 515,078 $ 3,158,662 $ 1,790,967
BLACK OAK PLAZA (B) None 727,500 4,151,849 1,026,341
CROWE'S CROSSING (C) None 1,317,220 7,617,905 286,584
PEACHTREE PROPERTY (D) None 187,087 0 1,748,464
CHEROKEE COMMONS (E) None 1,142,663 6,462,837 2,827,237
HERITAGE PLACE AT TUCKER (F) None 2,756,378 0 9,342,093
---------- ----------- -----------
Total $6,645,926 $21,391,253 $17,021,686
========== =========== ===========
Gross Amount at Which Carried at
December 31, 1997
---------------------------------------------------
Buildings and Construction Accumulated Date of
Description Land Improvements in Progress Total Depreciation Construction
- ----------- --------- ----------- ----------- ------------ ----------- ------------
PACES PAVILION (A) $ 501,049 $4,869,955 $ 93,703 $ 5,464,707 $ 1,683,020 1986
BLACK OAK PLAZA (B) 737,770 5,161,920 6,000 5,905,690 1,486,401 1986
CROWE'S CROSSING (C) 1,335,936 7,885,773 0 9,221,709 2,604,749 1986
PEACHTREE PROPERTY (D) 319,438 1,616,113 0 1,935,551 580,034 1986
CHEROKEE COMMONS (E) 1,219,704 9,210,142 2,891 10,432,737 2,273,149 1986
HERITAGE PLACE AT TUCKER (F) 3,260,887 8,557,254 280,330 12,098,471 2,473,553 1987
---------- ------------ ----------- ----------- -----------
Total $7,374,784 $37,301,157 $382,924 $45,058,865 $11,100,906
========== =========== =========== =========== ===========
Life on Which
Date Depreciation
Description Acquired Is Computed (g)
- ----------- -------- --------------
PACES PAVILION (A) 12/27/85 20 to 25 years
BLACK OAK PLAZA (B) 12/31/86 20 to 25 years
CROWE'S CROSSING (C) 12/31/86 20 to 25 years
PEACHTREE PROPERTY (D) 04/09/85 20 to 25 years
CHEROKEE COMMONS (E) 06/09/87 20 to 25 years
HERITAGE PLACE AT TUCKER (F) 09/04/86 20 to 25 years
(a) Paces Pavilion 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, 1997.
(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, 1997.
(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, 1997.
(g) Depreciation lives used for buildings were 40 years through September 1995, changed to 25 years thereafter. Depreciation lives
used for land improvements are 20 years.
</TABLE>
S-1
<PAGE>
WELLS REAL ESTATE FUND I
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
<TABLE>
Accumulated
Cost Depreciation
----------- ------------
<S> <C> <C>
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
1997 ADDITIONS 599,975 1,867,429
1997 DEDUCTIONS (202,450) (50,478)
----------- ------------
BALANCE AT DECEMBER 31, 1997 $45,058,865 $11,100,906
=========== ============
</TABLE>
S-2
<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.
SEQUENTIAL
Exhibit No. DESCRIPTION OF DOCUMENT PAGE NUMBER
- ------------- -------------------------------------------- -----------
*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)
<PAGE>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NUMBER
- ------------- -------------------------------------------- -----------
*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)
*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)
<PAGE>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NUMBER
- ------------- -------------------------------------------- -----------
*10(j) Agreement of Fund I and Fund II Tucker- N/A
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)
*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> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 128,199
<SECURITIES> 6,833,129
<RECEIVABLES> 358,113
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 100,672
<PP&E> 22,527,657
<DEPRECIATION> 6,354,204
<TOTAL-ASSETS> 23,593,566
<CURRENT-LIABILITIES> 2,022,312
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 23,593,566
<SALES> 0
<TOTAL-REVENUES> 1,643,943
<CGS> 0
<TOTAL-COSTS> 1,945,614
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (301,671)
<INCOME-TAX> (301,671)
<INCOME-CONTINUING> (301,671)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (301,671)
<EPS-PRIMARY> 10.73
<EPS-DILUTED> 0
</TABLE>
