<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
[Fee Required]
For the fiscal year ended December 31, 1998 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
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Wells Real Estate Fund I
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(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, 1998, 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, 1998.
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, 1998 and 1997 these properties were 78.8% occupied,
down from 87.20% at December 31, 1996.
The following table shows lease expirations during each of the next ten years as
of December 31, 1998, 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>
1999 18 29,220 $ 371,431 $ 253,199 17% 17.53%
2000 34 57,149 704,710 496,526 34% 34.38%
2001 16 37,895 492,717 323,734 22% 22.42%
2002(2) 5 3,750 68,107 43,777 2% 3.03%
2003 11 35,337 464,756 288,772 21% 19.99%
2004 1 3,540 27,035 27,035 2% 1.87%
2005 0 0 0 0 0% 0.00%
2006 0 0 0 0 0% 0.00%
2007 0 0 0 0 0% 0.00%
2008 1 3,600 46,793 11,230 2% 0.78%
- - -------------------------------------------------------------------------------------------------------------
86 170,491 $2,175,549 $1,444,273 100% 100.00%
</TABLE>
(1) Average monthly gross rent over the life of the lease, annualized.
(2) Lease expiring is ground lease only with McDonald's.
3
<PAGE>
The following describes the properties in which the Partnership owns an interest
as of December 31, 1998:
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. Management has hired an outside
firm to engage a tenant. Rental income is currently being generated from four
(4) leaseholders occupying 3,917 square feet.
The occupancy rate at the Paces Pavilion Property was 12.6% for the year ended
in December 31, 1998, 27.8% for the year ended December 31, 1997 and 100% for
the years ending December 31, 1996, 1995 and 1994.
The average effective annual rental per square foot at the Paces Pavilion
Property was $2.44 for 1998, $4.17 for 1997 and $16.86 for 1996, 1995 and 1994.
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 94% in 1998, 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
$7.43 for 1998, $7.40 for 1997, $7.92 for 1996, $7.60 for 1995 and $7.49 for
1994.
As of December 31, 1998, the Partnership had expended a total of $8,342,657 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, 1998, Black Oak Plaza was approximately 73% leased to 22 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 and is
currently on a month to month basis. The occupancy rate at Black Oak Plaza was
73% in 1998, 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 $6.41 in
1998, $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, 1998, the Partnership had expended a total of $4,636,899 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, 1998, 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, 1998, the buildings at the Peachtree Place Property were 74% leased
to six tenants.
The occupancy rate at the Peachtree Place Property was 74% in 1998, 95.3% in
1997, 100% in 1996, 1995 and 1994.
The average annual rental per square foot at the Peachtree Place Property was
$15.51 for 1998, $15.88 for 1997, $16.08 for 1996, $13.62 for 1995 and $14.31
for 1994.
Two tenants occupy ten percent or more of the rentable square footage, 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>
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 $73,483 in 1998 and base rent of $76,083 in 1999. The
lease expires December 31, 2002.
Dr. Keith Broome's lease represents 2,016 rentable square feet. The annual base
rent under the lease is $35,196 for 1997, $34,272 for 1998 and 1999. The lease
expires December 31, 2002.
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.
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,
1998, the Partnership had
6
<PAGE>
contributed a total of $6,399,854, and the Fund II-Fund II-OW Joint Venture had
contributed a total of $4,833,346 for the acquisition and development of the
Tucker Property. As of December 31, 1998, 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, 1998, the Tucker Property was 94% 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 94% in 1998, 85% in 1997, 77% in
1996, 83% in 1995, and 96% in 1994.
The average effective annual rental per square foot at the Tucker Property was
$12.76 for 1998, $11.08 for 1997, $13.78 for 1996, $12.61 for 1995 and $12.63
for 1994.
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.
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, 1998, 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
7
<PAGE>
had contributed cash in the amount of $953,798 to the Fund I, II, II-OW, VI, VII
Joint Venture. As of December 31, 1998, 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, 1998, the Cherokee Property was approximately 91% 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 91% in 1998, 94% in 1997, 93% in
1996, 94% in 1995 and 91% in 1994.
The average annual rental per square foot at the Cherokee Property was $8.78 for
1998, $8.49 for 1997, $8.59 for 1996, $7.50 for 1995 and $5.33 for 1994.
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 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted to a vote of the Limited Partners during the fourth
quarter of 1998.
8
<PAGE>
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S UNITS AND RELATED SECURITY HOLDER MATTERS
- - -------------------------------------------------------------------------------
As of February 28, 1999, 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, 1998 to be $154.55 per Class A Unit and
$330.31 per Class B Unit based on market conditions existing in early December,
1998. 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.
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 A or Class B Units during 1998. The Partnership is
reserving all operating cash flow which would otherwise be available for
distribution to fund the proposed reconfiguration of the interior of the Paces
Pavillion Building. 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 Per Class B
Unit Unit Unit Unit
Distribution for Total Cash Investment Return of Return of General
Quarter Ended Distributed Income Capital Capital Partner
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
March 31, 1998 $ 0 $0.00 $0.00 $0.00 $0.00
June 30, 1998 $ 0 $0.00 $0.00 $0.00 $0.00
September 30, 1998 $ 0 $0.00 $0.00 $0.00 $0.00
December 31, 1998 $ 0 $0.00 $0.00 $0.00 $0.00
</TABLE>
9
<PAGE>
.ITEM 6. SELECTED FINANCIAL DATA
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The following sets forth a summary of the selected financial data for the fiscal
years ended December 31, 1998, 1997, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Assets $23,098,782 $23,593,566 $24,968,886 $26,086,260 $27,020,983
Total Revenues 1,636,172 1,643,943 1,967,743 2,169,532 2,084,942
Net (Loss) Income (337,675) (305,296) 101,804 746,262 808,112
Net (Loss) Income
allocated to Class
A Limited Partners (337,675) 1,059,405 1,416,538 1,657,310 1,472,306
Net Loss
allocated to Class
B Limited Partners 0 (1,364,701) (1,314,734) (911,048) (664,194)
Net (Loss) Income
per Class A Limited
Partner Unit (3.42) 10.73 14.35 16.79 14.91
Net Loss
per Class B Limited
Partner Unit 0.00 (32.06) (30.89) (21.40) (15.60)
Cash Distributions
to Investors:
Investments income
Class A Units 0.00 10.85 12.92 17.24 13.12
Return of Capital
Class A Units 0.00 0.00 0.00 0.00 0.00
</TABLE>
TEM 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.
10
<PAGE>
Results of Operations and Changes in Financial Conditions
- - ---------------------------------------------------------
General
- - -------
Gross revenues of the Partnership were $1,636,172 for the fiscal year ended
December 31, 1998, as compared to $1,643,943 for the fiscal year ended December
31, 1997 and $1,967,743 for the fiscal year ended December 31, 1996. The
decrease was due primarily to decreased rental income primarily at Paces
Pavilion.
Expenses of the Partnership were $1,973,731 for the fiscal year ended December
31, 1998, as compared to $1,945,614 for the fiscal year ended December 31, 1997
and $1,861,777 for the fiscal year ended December 31, 1996. The increase in
1998 over 1997 was due to parking lot repairs, HVAC and roof repairs, and
increased legal fees. 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 1998 over 1997 due to
increased tenant improvements.
Net loss of the Partnership was $337,675 for the fiscal year ended December 31,
1998, and $305,296 for the fiscal year ended December 31, 1997 as compared to
net income of $101,804 for 1996. The net loss for 1997 and 1998 is due to
decreased revenues and increased expenses as discussed above.
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 and $12.92
for 1996. No cash distributions were made to the Limited Partners holding Class
A Units for the year ending December 31, 1998 or Class B Units or to the General
Partners for the fiscal year ended December 31, 1998, 1997, and 1996.
The Partnership is reserving all operating cash flow generated during 1998 which
would otherwise be available for distribution to the Limited Partners to fund
the proposed reconfiguration of the interior of the Paces Pavilion Building.
The lease with Hospital Corporation of America (HCA) expired December 31, 1996
and as of December 31, 1998, the building is only 12.6% leased. The Partnership
is actively pursuing a lease renewal.
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.
11
<PAGE>
Property Operations
- - -------------------
As of December 31, 1998, the Partnership's ownership interest in the Paces
Pavilion Property, Black Oak Plaza and 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, 1998, the Partnership owned interests in the following
properties:
Paces Pavilion Property/Fund I
- - ------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31
--------------------------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Rental income $ 79,054 $ 134,951 $545,149
--------- --------- --------
Expenses:
Depreciation 256,157 251,755 251,719
Management and
leasing expenses 4,800 8,652 32,709
Other operating expenses 243,744 241,180 25,815
--------- --------- --------
504,701 501,587 310,243
--------- --------- --------
Net (loss) income $(425,647) $(366,636) $234,906
========= ========= ========
Occupied% 12.6% 27.8% 100%
Partnership Ownership% 100% 100% 100%
Cash generated to the
Partnership $ 0 $ 0 $485,204
Net income allocated to the
Partnership $(425,647) $(366,636) $234,906
</TABLE>
Rental income decreased to $79,054 in 1998 from $134,951 in 1997 and $545,149 in
1996, due to decreased tenant occupancy after HCA vacated the premises effective
December 31, 1996. Management and leasing fees decreased to $4,800 in 1998 from
$8,652 in 1997 and $32,709 in 1996 due to lowered tenant occupancy. Other
operating expenses remained relatively stable from 1998 to 1997 but increased to
$241,180 in 1997 over $25,815 in 1996 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.
As of December 31, 1998, capital improvements and renovations totaling $36,892
have been incurred at Paces Pavilion in preparation for re-leasing the space
formerly occupied by HCA. Currently, there are four tenants occupying 12.6% of
the premises. Management is actively
12
<PAGE>
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 1998.
Rental income is currently being generated through four (4) leaseholders
occupying 3,917 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 1998.
The Partnership's ownership percentage has remained constant at 100% for the
years 1998, 1997, and 1996.
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.
13
<PAGE>
Crowe's Crossing Shopping Center/Fund I
- - ---------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31
---------------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Rental income $696,530 $693,334 $679,529
-------- -------- --------
Expenses:
Depreciation 417,588 417,262 405,116
Management and
leasing expenses 76,243 66,509 35,074
Other operating expenses 71,925 187,504 280,610
-------- -------- --------
565,756 671,275 720,800
-------- -------- --------
Net income (loss) $130,774 $ 22,059 $(41,271)
======== ======== ========
Occupied % 94% 86% 89%
Partnership Ownership % 100% 100% 100%
Cash generated to the
Partnership $606,495 $545,071 $284,270
Net income (loss) generated
to the Partnership $130,774 $ 22,059 $(41,271)
</TABLE>
Rental income for December 31, 1998 remained relatively stable even though
occupancy rates increased due primarily to one tenant that moved in and didn't
pay rent for the year, which was replaced by a new tenant that moved in December
1998. Other operating expenses decreased for 1998 as compared to 1997 and 1996
due to painting the center and decreased security coverage in 1997.
Management and leasing expenses increased in 1998 compared to 1997 due to the
payment of CAM reimbursements from Kroger. Cash generated to the Partnership
increased in 1998 compared to 1997 due primarily to the increase in rental
income in 1998 and decreases in operating expenses and capital expenditures.
Real estate taxes were $87,045 in 1998, $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.
14
<PAGE>
Black Oak Plaza/Fund I
- - ----------------------
<TABLE>
<CAPTION>
For the Year Ended December 31
---------------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Rental income $ 441,890 $447,027 $416,114
--------- -------- --------
Expenses:
Depreciation 266,866 254,009 235,326
Management and
leasing expenses 46,857 39,040 34,132
Other operating expenses 232,521 161,635 173,225
--------- -------- --------
546,244 454,684 442,683
--------- -------- --------
Net (loss) $(104,354) $ (7,657) $(26,569)
========= ======== ========
Occupied % 73% 78% 74%
Partnership Ownership % 100% 100% 100%
Cash generated to the
Partnership $ 208,670 $187,385 $ 95,893
Net loss generated
to the Partnership $(104,354) $ (7,657) $(26,569)
</TABLE>
Rental income decreased in 1998 to $441,890 compared to $447,027 in 1997 and
increased in 1997 from $416,114 in 1996, due to fluctuation in tenant occupancy
at the property. Depreciation increased in 1998 compared to 1997 due to
additional building and landscaping improvements as well as tenant improvements
for two new tenants. The increase in management and leasing expenses in 1998 is
due to the payment of lease acquisitions fees for new tenants in February, 1998.
Other operating expenses increased in 1998, as compared to 1997, due to changes
in the 1996 CAM reimbursements which were reflected in 1997 at the time these
changes in estimates were identified, and increased in parking lot repairs, and
legal fees. Cash generated to the Partnership increased in 1998, as compared to
1997, due primarily to increased capital expenditures of approximately $15,700
and the increase in expenses noted above.
Real estate taxes were $39,479 for 1998, $40,634 for 1997, and $41,655 for 1996
and 1995.
The Partnership's ownership percentage remained constant at 100% for the years
1998, 1997 and 1996.
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.
15
<PAGE>
Peachtree Place/Fund I and Wells & Associates, Inc. Joint Venture
- - -----------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31
---------------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Rental income $267,476 $276,345 $276,345
Interest income 24 22 30
-------- -------- --------
267,500 273,826 276,375
-------- -------- --------
Expenses:
Depreciation $ 85,148 87,057 86,303
Management and
leasing expenses 22,450 22,931 15,265
Other operating expenses 158,749 127,686 133,398
-------- -------- --------
266,347 237,674 234,966
-------- -------- --------
Net income $ 1,153 $ 36,152 $ 41,409
======== ======== ========
Occupied % 74.02% 95.34% 100.00%
Partnership Ownership % 89.95% 89.95% 89.95%
Cash distribution to the
Partnership $ 82,286 $128,771 $112,719
Net income allocated to
the Partnership $ 1,037 $ 32,518 $ 37,247
</TABLE>
Rental income decreased slightly for the year ended December 31, 1998, as
compared to the same period for 1997 and 1996, due to decreased occupancy. The
increase in management and leasing expenses were due primarily to leasing
commissions paid in 1998 and in 1997 in order to obtain new tenants and renew
existing leases. Operating expenses increased from $127,686 in 1997 to $158,749
in 1998 due to increased HVAC and roof repairs. 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 1998 as
compared to net income in 1997 and 1996 due to the increase in expenses and
decrease in rental income. Cash distributions decreased to $82,286 in 1998 from
$128,771 in 1997 due to the increase in operating expenses as discussed above.
Cash distributions increased in 1997 as compared to 1996 as a result of
decreased operating expenses.
Real estate taxes were $15,650 for 1998 and 1997, and $16,331 for 1996.
The Partnership holds an 89.95% equity interest in the joint venture, and Wells
& Associates, Inc. holds a 10.05% equity interest in the joint venture.
For comments on the general 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.
16
<PAGE>
Tucker Property/Fund I - Fund II Tucker Joint Venture
- - ------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31
---------------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Rental income $1,242,332 $1,077,916 $1,065,598
Interest income 0 1,159 624
---------- ---------- ----------
1,242,332 1,079,075 1,066,222
---------- ---------- ----------
Expenses:
Depreciation 440,099 419,928 419,137
(Gain) Loss on
Real Estate Assets 0 (45,943) $ 61,985
Management and
leasing expenses 164,378 122,452 118,542
Other operating expenses 532,985 532,859 501,724
---------- ---------- ----------
1,137,462 1,029,296 1,101,388
---------- ---------- ----------
Net income (loss) $ 104,870 $ 49,779 $ (35,166)
========== ========== ==========
Occupied % 93.94% 84.83% 77.00%
Partnership Ownership % 55.09% 55.09% 55.09%
Cash distribution to the
Partnership $ 269,139 $ 205,024 $ 290,352
Net income (loss) allocated
to the Partnership $ 57,773 $ 27,423 $ (19,373)
</TABLE>
Rental income increased in 1998 compared to 1997 and in 1997 as compared to 1996
due primarily to increased tenant occupancy at the property. 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.
Other operating expense remained stable in 1998 as compared to 1997 but
increased in 1997 compared to 1996 due primarily to an increase in heating and
air conditioning repairs, painting expense and maintenance. The increase in
depreciation and management and leasing expenses in 1998 compared to 1997 was
the result of increased occupancy which resulted in increased tenant
improvements.
Net income increased in 1998 compared to 1997 and 1997 to 1996 due primarily to
increased rental income and the insurance reimbursement discussed above.
The property was 94% leased as of December 31, 1998, as compared to 85% as of
December 31, 1997, and 77% as of December 31, 1996. Real estate taxes were
$93,697 in 1998, $108,836 in 1997, and $111,947 in 1996.
17
<PAGE>
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
- - ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31
---------------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Rental income $909,831 $880,652 $890,951
Interest income 84 67 73
-------- -------- --------
909,915 880,719 891,024
Expenses:
Depreciation 444,660 440,882 429,419
Management and
leasing expenses 82,517 78,046 48,882
Other operating expenses 84,676 138,294 180,841
-------- -------- --------
611,853 657,222 659,142
-------- -------- --------
Net income $298,062 $223,497 $231,882
======== ======== ========
Occupied % 91.00% 94.41% 93.00%
Partnership Ownership % 24.00% 24.00% 24.00%
Cash distributed to the
Partnership $193,285 $160,881 $189,008
Net income allocated to the
Partnership $ 71,604 $ 53,691 $ 55,705
</TABLE>
Rental income increased in 1998 over 1997 due primarily to a one time adjustment
made to the straight line rent schedule in 1997. Rental income decreased in
1997 compared to 1996 due to decreased occupancy at the property for the first
three quarters of 1997. The increase in occupancy in the fourth quarter 1997 is
due to a new 1,200 square foot lease executed in 1997. Operating expenses of
the property decreased to $84,676 in 1998 from $138,294 in 1997, and decreased
from $180,841 in 1996. The decrease in operating expenses in 1998, as compared
to 1997, is due to decreased expenditures for tenant improvements, common area
expenses and legal fees. The decrease in operating expenses in 1997 as compared
to 1996 is due to a change in the estimated billing of common area maintenance
charges and property taxes which was partially offset by increases in plumbing
repairs and contract labor expenses. Net income of the property increased to
$298,062 in 1998 and decreased to $223,497 in 1997 from $231,882 in 1996, due to
the reasons discussed above.
Real estate taxes were $77,311 for 1998, $67,259 for 1997 and $63,696 for 1996.
18
<PAGE>
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.
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
$632,778 in 1998 as compared to $872,851 in 1997 and $1,083,576 for 1996
primarily due to decreased net income.
Net cash provided by investing activities increased to $391,609 in 1998 from
$239,519 in 1997, due to decreased building and tenant improvements partially
offset by increased distributions from joint ventures and increased to $239,519
in 1997 as compared to $217,741 in 1996 due to decreased building and tenant
improvements in 1997. Net cash used in financing activities decreased to
$183,505 in 1998 as compared to $1,188,347 in 1997 and $1,420,927 in 1996 due to
decreased distributions to partners due to decreased rental income and increased
property expenses and the reserving of distributions in 1998 for tenant
improvements at the Paces Pavilion property. As a result, cash and cash
equivalents increased to $969,081 in 1998 as compared to $128,199 in 1997 and
$204,176 in 1996.
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.
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.
19
<PAGE>
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.
Year 2000
- - ---------
The Partnership is presently reviewing the potential impact of Year 2000
compliance issues on its information systems and business operations. A full
assessment of Year 2000 compliance issues was begun in late 1997 and is expected
to be completed by March 31, 1999. Renovations and replacements of equipment
have been and are being made as warranted as the assessment progresses. The
costs incurred by the Partnership and its affiliates thus far for renovations
and replacements have been immaterial. Some testing of systems has begun and
all testing is expected to be complete by June 30, 1999.
As to the status of the Partnership's information technology systems, it is
presently believed that all major systems and software packages with the
exception of the accounting and property management package are Year 2000
compliant. The Partnership's affiliated entities are purchasing the upgrade for
the accounting and property management package system; however, it is not slated
to be available until the end of the first quarter of 1999. At the present
time, it is believed that all major non-information technology systems are Year
2000 compliant. The cost to upgrade any non-compliant systems is believed to be
immaterial.
The Partnership is in the process of confirming with the Partnership's
vendors, including third-party service providers such as banks, that their
systems will be Year 2000 compliant. Based on the information received thus
far, the primary third-party service providers with which the Partnership has
relationships have confirmed their Year 2000 readiness.
The Partnership relies on computers and operating systems provided by
equipment manufacturers, and also on application software designed for use with
its accounting, property management and investment portfolio tracking. The
Partnership has preliminarily determined that any costs, problems or
uncertainties associated with the potential consequences of Year 2000 issues are
not expected to have a material impact on the future operations or financial
condition of the Partnership. The Partnership will perform due diligence as to
the Year 2000 readiness of each property owned by the Partnership and each
property contemplated for purchase by the Partnership.
The Partnership's reliance on embedded computer systems (i.e.,
microcontrollers) is limited to facilities related matters, such as office
security systems and environmental control systems.
20
<PAGE>
The Partnership is currently formulating contingency plans to cover any areas
of concern. Alternate means of operating the business are being developed in
the unlikely circumstance that the computer and phone systems are rendered
inoperable. An off-site facility from which the Partnership could operate is
being sought as well as alternate means of communication with key third-party
vendors. A written plan is being developed for testing and dispensation to each
staff member of the Advisor of the Partnership.
Management believes that the Partnership's risk of Year 2000 problems is
minimal. In the unlikely event there is a problem, the worst case scenarios
would include the risks that the elevator or security systems within the
Partnership's properties would fail or the key third-party vendors upon which
the Partnership relies would be unable to provide accurate investor information.
In the event that the elevator shuts down, the Partnership has devised a plan
for each building whereby the tenants will use the stairs until the elevators
are fixed. In the event that the security system shuts down, the Partnership
has devised a plan for each building to hire temporary on-site security guards.
In the event that a third-party vendor has Year 2000 problems relating to
investor information, the Partnership intends to perform a full system back-up
of all investor information as of December 31, 1999 so that the Partnership will
have accurate hard-copy investor information.
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
-----------------------------------
There were no disagreements with the Partnership's accountants or other
reportable events during 1998.
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 55 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.
21
<PAGE>
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.
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, 1998 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, 1998, deferred cash compensation of
approximately $2,269,189 of which $1,625,810 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 $175,663 was accrued for fiscal year
1998.
The following table summarizes the compensation and fees paid to the General
Partners and their affiliates during the year ended December 31, 1998.
<TABLE>
<CAPTION>
(A) (B) (C)
Name of Individual or Number in Capacities in which served Form of
Group Compensation Cash Compensation
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Wells Management Company, Inc. Property Manager-Management $227,230 (1)
And Leasing Fees
Wells Capital, Inc. General Partner-Partnership 0
Cash Flow Distributions
Leo F. Wells, III General Partner-Partnership 0
Cash Flow Distributions
</TABLE>
(1) The majority of these fees are not paid directly by the Partnership but are
paid by the joint venture entities which own properties to which the
property management and leasing services relate and include management and
leasing fees which were accrued for accounting purposes in 1998 but not
actually paid until January, 1999.
22
<PAGE>
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 December 31, 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 146 Units (IRA, 401 (k) Less than 1%
and Profit Sharing)
Class B Units Leo F. Wells, III 202 Units (401 (k) and Less than 1%
Profit Sharing)
</TABLE>
No arrangements exist which would, upon implementation, result in a change in
control of the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- - --------------------------------------------------------
The compensation and fees paid or to be paid by the Partnership to the General
Partners and their affiliates in connection with the operation of the
Partnership are as follows:
Interest in Partnership Cash Flow and Net 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 1998.
23
<PAGE>
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, 1998, deferred property management and leasing fees totaling $2,269,189 were
due to Wells Management Company, Inc., of which $175,663 was accrued for fiscal
year 1998.
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 1998, no real estate
commissions were paid to the General Partners or their affiliates.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.)
24
<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 1998.
(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)
25
<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 26h day of March,
1999.
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 26, 1999
- - -------------------- 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.
26
<PAGE>
INDEX TO FINANCIAL STATEMENTS
-----------------------------
<TABLE>
<CAPTION>
Financial Statements Page
- - -------------------- ----
<S> <C>
Independent Auditors' Report F2
Balance Sheets as of December 31, 1998 and 1997 F3
Statements of (Loss) Income for the Years ended
December 31, 1998, 1997, and 1996 F4
Statements of Partners' Capital for the Years Ended
December 31, 1998, 1997, and 1996 F5
Statements of Cash Flows for the Years Ended
December 31, 1998, 1997, and 1996 F6
Notes to Financial Statements for
December 31, 1998, 1997, and 1996 F7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To 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, 1998 and 1997 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, 1998. 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, 1998 and 1997 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 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, 1998 is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 27, 1999
F-2
<PAGE>
WELLS REAL ESTATE FUND I AND SUBSIDIARY
(A Georgia Public Limited Partnership)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
REAL ESTATE ASSETS, at cost:
Land $ 2,894,193 $ 2,894,193
Building and improvements, less accumulated depreciation of $7,379,963
and $6,354,205 at December 31, 1998 and 1997, respectively 12,305,562 13,279,260
----------- -----------
Total real estate assets 15,199,755 16,173,453
INVESTMENT IN JOINT VENTURES 6,500,083 6,833,129
CASH AND CASH EQUIVALENTS 969,081 128,199
DUE FROM AFFILIATES 83,222 64,469
ACCOUNTS RECEIVABLE 230,510 293,644
DEFERRED LEASE ACQUISITION COSTS 57,590 46,378
PREPAID EXPENSES AND OTHER ASSETS 58,541 54,294
----------- -----------
Total assets $23,098,782 $23,593,566
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued expenses $ 70,049 $ 138,088
Due to affiliate 1,624,749 1,531,215
Refundable security deposits 56,709 55,808
Partnership distributions payable 4,843 179,270
Minority interest 108,853 117,931
----------- -----------
Total liabilities 1,865,203 2,022,312
----------- -----------
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Limited partners:
Class A 21,233,579 21,571,254
Class B 0 0
----------- -----------
Total partners' capital 21,233,579 21,571,254
----------- -----------
Total liabilities and partners' capital $23,098,782 $23,593,566
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
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, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Rental income $1,484,950 $1,549,117 $1,917,137
Equity in income of joint ventures 129,377 81,114 36,332
Interest income 21,845 13,712 14,274
---------- ----------- ----------
1,636,172 1,643,943 1,967,743
---------- ----------- ----------
EXPENSES:
Depreciation 1,025,759 1,010,084 978,463
Operating costs, net of reimbursements 463,280 413,522 443,441
Partnership administration 109,094 118,909 143,214
Management and leasing fees 146,350 144,761 150,355
Legal and accounting 173,873 85,683 97,231
Bad debt expense 47,816 103,115 21,359
Computer costs 7,559 9,149 12,422
Loss on real estate assets 0 60,391 15,292
---------- ----------- ----------
1,973,731 1,945,614 1,861,777
---------- ----------- ----------
(LOSS) INCOME BEFORE MINORITY INTEREST (337,559) (301,671) 105,966
MINORITY INTEREST (116) (3,625) (4,162)
---------- ----------- ----------
NET (LOSS) INCOME $ (337,675) $ (305,296) $ 101,804
========== =========== ==========
NET (LOSS) INCOME ALLOCATED TO CLASS A
LIMITED PARTNERS $ (337,675) $ 1,059,405 $1,416,538
========== =========== ==========
NET LOSS ALLOCATED TO CLASS B LIMITED
PARTNERS $ 0 $(1,364,701) $(1,314,734)
========== =========== ===========
NET (LOSS) INCOME PER CLASS A LIMITED
PARTNER UNIT $ (3.42) $ 10.73 $ 14.35
========== ========== ==========
NET LOSS PER CLASS B LIMITED
PARTNER UNIT $ 0.00 $ (32.06) $ (30.89)
========== ========== ==========
CASH DISTRIBUTION PER CLASS A LIMITED PARTNER UNIT $ 0.00 $ 10.85 $ 12.92
========== ========== ==========
</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, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
Limited Partners
----------------------------------------------
Class A Class B Total
---------------------- General Partners'
Units Amount Units Amount Partners Capital
--------- ---------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 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
Net loss 0 (337,675) 0 0 0 (337,675)
------ ----------- ------ ----------- ------ -----------
BALANCE, December 31, 1998 98,716 $21,233,579 42,568 $ 0 $ 0 $21,233,579
====== =========== ====== =========== ====== ===========
</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, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (337,675) $ (305,296) $ 101,804
---------- ----------- -----------
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Equity in income of joint ventures (129,377) (81,114) (36,332)
Depreciation 1,025,759 1,010,084 978,463
Loss on real estate assets 0 60,391 15,292
Changes in assets and liabilities:
Accounts receivable 63,134 70,018 (145,526)
Deferred lease acquisition costs (11,212) (10,570) (20,844)
Prepaid expenses and other assets (4,247) 11,015 (11,030)
Accounts payable, accrued expenses, and
refundable security deposits (67,138) (320) 56,329
Due to affiliate 93,534 118,643 145,420
---------- ----------- -----------
Total adjustments 970,453 1,178,147 981,772
---------- ----------- -----------
Net cash provided by operating
activities 632,778 872,851 1,083,576
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate (52,061) (173,469) (275,066)
Distributions received from joint ventures 443,670 412,988 492,807
---------- ----------- -----------
Net cash provided by investing activities 391,609 239,519 217,741
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners in excess of accumulated
earnings (174,427) (1,177,659) (1,412,495)
Minority interest 116 3,625 4,162
Distributions to minority interest (9,194) (14,313) (12,594)
---------- ----------- -----------
Net cash used in financing activities (183,505) (1,188,347) (1,420,927)
---------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 840,882 (75,977) (119,610)
CASH AND CASH EQUIVALENTS, beginning of year 128,199 204,176 323,786
---------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 969,081 $ 128,199 $ 204,176
========== =========== ===========
</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, 1998, 1997, AND 1996
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, 1998, 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
Place 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, 1998 and 1997. All significant intercompany balances have been
eliminated in consolidation.
F-7
<PAGE>
Minority Interest
Minority interest represents the interest of Wells and Associates, Inc., an
affiliate of the general partners, in Wells-Baker. At December 31, 1998 and
1997, Wells and Associates, Inc.'s interest in Wells-Baker was approximately
10%.
Use of Estimates and Factors Affecting the Partnership
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The carrying values of the real estate assets are based on management's
current intent to hold the real estate assets as long-term investments. The
success of the Partnership's future operations and the ability to realize the
investment in its assets will be dependent 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 year ended December 31, 1996, of which approximately
25% was received from sublessees. This tenant vacated the property effective
December 31, 1996 and the property is currently only 13% 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 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 27,
1999, 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
F-8
<PAGE>
remaining cash available for distribution is split between the limited
partners and the general partners on a basis of 90% and 10%, respectively.
Distribution of Sales Proceeds
Upon sales of properties, the net sales proceeds are distributed in the
following order:
. To limited partners, on a per unit basis, until all limited
partners have received 100% of their adjusted capital
contributions, as defined
. 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 and amortization. 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 and amortization 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 and amortization 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.
F-9
<PAGE>
Real Estate Assets
Real estate assets held by the Partnership directly or through investments
in affiliated joint ventures are stated at cost less accumulated
depreciation. Major improvements and betterments are capitalized when they
extend the useful life of the related asset. All repairs and maintenance
are expensed as incurred.
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 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, 1998.
Depreciation for buildings and improvements is calculated using the
straight-line method over 25 years.
Revenue Recognition
All leases on real estate assets held by the Partnership are classified as
operating leases and the related rental income is recognized on a straight-
line basis over the terms of the respective leases.
Deferred Lease Acquisition Costs
Costs incurred to procure operating leases are capitalized and amortized on
a straight-line basis over the terms of the related leases.
Investment in Joint Ventures
The Partnership does not have control over the operations of the joint
ventures; however, it does exercise significant influence. Accordingly,
investment in joint ventures is recorded using the equity method of
accounting. The joint ventures follow the same significant accounting
policies as the Partnership.
Cash available for distribution and allocations of profit and loss to the
Partnership by the joint ventures are made in accordance with the terms of
the individual joint venture agreements. Generally, these items are
allocated in proportion to the partners' respective ownership interests.
Cash is paid by the joint ventures to the Partnership on a quarterly basis.
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
F-10
<PAGE>
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, 1998, 1997, and 1996 is computed based on the average
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, 1998 and 1997 represents the
Partnership's share of cash to be distributed from its joint venture
investments for the fourth quarters of 1998 and 1997, as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Fund I and II Tucker $43,284 $15,149
Fund I, II, II-OW, VI, and VII
Associates--Cherokee 39,938 49,320
------- -------
$83,222 $64,469
======= =======
</TABLE>
The Partnership entered into property management agreements with Merchant's
Management, Inc. and Wells Management Company, Inc. ("Wells Management"),
an affiliate of the general partners. In consideration for supervising the
management of its properties, the Partnership pays Merchant's Management,
Inc. management and leasing fees equal to 1.5% of the gross revenues for
management and 1.5% of the gross revenues for leasing. The Partnership will
also generally pay Wells Management management and leasing fees equal to
(a) 1.5% of the gross revenues for management and 1.5% of the gross
revenues for leasing, plus a separate fee for the one-time initial lease-up
of newly constructed properties in an amount not to exceed the fee
customarily charged in arm's-length transactions by others rendering
similar services in the same geographic area for similar properties or (b)
in the case of commercial properties, which are leased on a long-term net
basis (ten or more years), 1% of the gross revenues except for initial
leasing fees equal to 3% of the gross revenues over the first five years of
the lease term. The Partnership's aggregate management and leasing fees are
not to exceed a maximum of 6% of annual gross revenues. 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,
1998, 1997, and 1996 of $227,230, $147,282, and $111,371, 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
F-11
<PAGE>
properties owned through joint ventures. As of December 31, 1998 and 1997,
this deferral totaled $1,624,749 and $1,525,320, 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 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, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Fund I and II Tucker 4,758,591 55% $4,969,956 55%
Fund I, II, II-OW, VI, and VII
Associates--Cherokee 1,741,492 24 1,863,173 24
---------- ----------
$6,500,083 $6,833,129
========== ==========
</TABLE>
The following is a rollforward of the Partnership's investment in joint
ventures for the years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Investment in joint ventures, beginning of year $6,833,129 $7,117,920
Equity in income of joint ventures 129,377 81,114
Distributions from joint ventures (462,423) (365,905)
----------- ----------
Investment in joint ventures, end of year $6,500,083 $6,833,129
=========== ==========
</TABLE>
Fund I and II Tucker
Tucker and Cherokee Commons were previously held in a joint venture between
the Partnership and Fund II and II-OW, a Georgia joint venture having Wells
Real Estate Fund II and Wells Real Estate Fund II-OW as joint partners. The
joint ventures were formed for the purpose of owning, developing, and
operating Cherokee Commons and Tucker. In 1991, the Tucker and Cherokee
Commons joint ventures were merged into a new joint venture, the Fund I and
II Tucker-Cherokee Joint Venture. Under the terms of
F-12
<PAGE>
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 following statement of 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 following statement of income.
Additional insurance proceeds of $27,319 related to these damages were
received in 1998 and are reflected as a gain on real estate assets in the
following statement of income.
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, 1998 and 1997
Assets
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Real estate assets, at cost:
Land $3,260,887 $3,260,887
Building and improvements, less accumulated
depreciation of $2,913,652 in 1998 and $2,473,553 in
1997 6,040,015 6,083,701
Construction in progress 26,731 280,330
---------- ----------
Total real estate assets 9,327,633 9,624,918
Cash and cash equivalents 49,380 12,684
Accounts receivable 96,362 79,715
Prepaid expenses and other assets 122,181 104,596
---------- ----------
Total assets $9,595,556 $9,821,913
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 64,964 $ 74,018
Partnership distributions payable 66,558 16,060
Due to affiliates 548,632 481,228
---------- ----------
Total liabilities 680,154 571,306
---------- ----------
Partners' capital:
Wells Real Estate Fund I 4,758,591 4,969,956
Fund II and II-OW 4,156,811 4,280,651
---------- ----------
Total partners' capital 8,915,402 9,250,607
---------- ----------
Total liabilities and partners' capital $9,595,556 $9,821,913
========== ==========
</TABLE>
F-14
<PAGE>
Fund I and II Tucker
(A Georgia Joint Venture)
Statements of Income (Loss)
for the Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Rental income $1,242,332 $1,077,916 $1,065,598
Interest income 0 1,159 624
---------- ---------- ----------
1,242,332 1,079,075 1,066,222
---------- ---------- ----------
Expenses:
Operating costs, net of
reimbursements 515,791 496,258 463,229
Depreciation 440,099 419,928 419,137
Management and leasing fees 164,378 122,452 118,542
(Gain) loss on real estate assets (27,319) (45,943) 61,985
Property administration 32,420 28,665 30,724
Legal and accounting 12,093 7,936 4,386
Computer costs 0 0 3,385
---------- ---------- ----------
1,137,462 1,029,296 1,101,388
---------- ---------- ----------
Net income (loss) $ 104,870 $ 49,779 $ (35,166)
========== ========== ==========
Net income (loss) allocated to Wells Real
Estate Fund I $ 57,773 $ 27,423 $ (19,373)
========== ========== ==========
Net income (loss) allocated to Fund II
and II-OW $ 47,097 $ 22,356 $ (15,793)
========== ========== ==========
</TABLE>
F-15
<PAGE>
Fund I and II Tucker
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
Wells Real Fund II Total
Estate and Partners'
Fund I II-OW Capital
---------- ---------- -----------
<S> <C> <C> <C>
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
Net income 57,773 47,097 104,870
Partnership distributions (269,138) (170,937) (440,075)
---------- ---------- -----------
Balance, December 31, 1998 $4,758,591 $4,156,811 $ 8,915,402
========== ========== ===========
</TABLE>
F-16
<PAGE>
Funds I and II Tucker
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 104,870 $ 49,779 $ (35,166)
--------- --------- ---------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 440,099 419,928 419,137
(Gain) loss on real estate assets (27,319) (45,943) 61,985
Changes in assets and liabilities:
Accounts receivable (16,647) (5,244) 24,751
Prepaid expenses and other assets (17,585) (54,616) 5,052
Accounts payable and accrued expenses (9,054) 31,831 (13,972)
Due to affiliates 67,404 58,435 46,643
--------- --------- ---------
Total adjustments 436,898 404,391 543,596
--------- --------- ---------
Net cash provided by operating
activities 541,768 454,170 508,430
--------- --------- ---------
Cash flows from investing activities:
Investment in real estate (142,814) (346,550) (63,491)
Insurance proceeds 27,319 104,895 143,944
--------- --------- ---------
Net cash (used in) provided by
investing activities (115,495) (241,655) 80,453
--------- --------- ---------
Cash flows from financing activities:
Distributions to joint venture partners (389,577) (423,108) (505,628)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 36,696 (210,593) 83,255
Cash and cash equivalents, beginning of year 12,684 223,277 140,022
--------- --------- ---------
Cash and cash equivalents, end of year $ 49,380 $ 12,684 $ 223,277
========= ========= =========
</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 55.6%. The $2 million in cash contributed to Cherokee Commons was
used to fund an expansion of the property for an existing tenant.
F-17
<PAGE>
Following are the financial statements for Fund I, II, II-OW, VI, and VII
Associates--Cherokee:
Fund I, II, II-OW, VI, and VII Associates--Cherokee
(A Georgia Joint Venture)
Balance Sheets
December 31, 1998 and 1997
Assets
<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
Real estate assets, at cost:
Land $1,219,704 $1,219,704
Building and improvements, less accumulated
depreciation of $2,717,809 in 1998 and $2,273,149 in
1997 6,500,995 6,939,884
---------- ----------
Total real estate assets 7,720,699 8,159,588
Cash and cash equivalents 222,814 153,159
Accounts receivable 35,517 92,516
Prepaid expenses and other assets 90,979 99,869
---------- -----------
Total assets $8,070,009 $8,505,132
========== ===========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 107,129 $ 36,851
Partnership distributions payable 130,838 194,123
Due to affiliates 109,267 93,940
---------- -----------
Total liabilities 347,234 324,914
---------- -----------
Partners' capital:
Wells Real Estate Fund I 1,741,492 1,863,173
Fund II and II-OW 4,295,663 4,536,781
Wells Real Estate Fund VI 844,160 891,482
Wells Real Estate Fund VII 841,460 888,782
---------- -----------
Total partners' capital 7,722,775 8,180,218
---------- -----------
Total liabilities and partners' capital $8,070,009 $8,505,132
========== ===========
</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, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Rental income $909,831 $880,652 $890,951
Interest income 84 67 73
---------- ---------- ----------
909,915 880,719 891,024
---------- ---------- ----------
Expenses:
Depreciation 444,660 440,882 429,419
Operating costs, net of reimbursements 35,715 70,017 126,367
Property administration 22,934 26,260 42,868
Management and leasing fees 82,517 78,046 48,882
Legal and accounting 7,363 9,385 8,362
Computer costs 0 0 3,244
Bad debt expense 18,664 0 0
Loss on real estate assets 0 32,632 0
---------- ---------- ----------
611,853 657,222 659,142
---------- ---------- ----------
Net income $298,062 $223,497 $231,882
========== ========== ==========
Net income allocated to Wells Real Estate Fund I $ 71,604 $ 53,691 $ 55,705
========== ========== ==========
Net income allocated to Fund II and II-OW $162,626 $121,942 $126,517
========== ========== ==========
Net income allocated to Wells Real Estate Fund VI $ 31,916 $ 23,932 $ 24,830
========== ========== ==========
Net income allocated to Wells Real Estate Fund VII $ 31,916 $ 23,932 $ 24,830
========== ========== ==========
</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, 1998, 1997, and 1996
<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, 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
Net income 71,604 162,626 31,916 31,916 298,062
Partnership distributions (193,285) (403,744) (79,238) (79,238) (755,505)
---------- ---------- ---------- --------- ----------
Balance, December 31, 1998 $1,741,492 $4,295,663 $844,160 $841,460 $7,722,775
========== ========== ========== ========== ==========
</TABLE>
Fund I, II, II-OW, VI, and VII Associates--Cherokee
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 298,062 $ 223,497 $ 231,882
--------- --------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 444,660 440,882 429,419
Loss on real estate assets 0 32,632 0
Changes in assets and liabilities:
Accounts receivable 56,999 1,386 43,062
Prepaid expenses and other assets 8,890 (21,342) 14,106
Accounts payable and accrued expenses 70,278 13,721 (4,624)
Due to affiliates 15,327 15,565 9,613
--------- --------- ---------
Total adjustments 596,154 482,844 491,576
--------- --------- ---------
Net cash provided by operating 894,216 706,341 723,458
activities --------- --------- ---------
Cash flows from investing activities:
Investment in real estate (5,771) (83,424) (28,231)
--------- --------- ---------
Cash flows from financing activities:
Distributions to joint venture partners (818,790) (541,104) (834,237)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 69,655 81,813 (139,010)
Cash and cash equivalents, beginning of year 153,159 71,346 210,356
--------- --------- ---------
Cash and cash equivalents, end of year $ 222,814 $ 153,159 $ 71,346
========= ========= =========
</TABLE>
F-20
<PAGE>
4. INCOME TAX BASIS NET INCOME AND PARTNERS' CAPITAL
The Partnership's income tax basis net income for the years ended December
31, 1998, 1997, and 1996 is calculated as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Financial statement net (loss) income $(337,675) $(305,296) $101,804
Increase (decrease) in net (loss) income resulting from:
Depreciation expense for financial reporting purposes in excess of
amounts for income tax purposes 705,472 669,447 628,032
Expenses deductible when paid for income tax purposes, accrued for
financial reporting purposes 146,242 164,719 151,292
Rental income recognized for income tax purposes in excess of amounts
for financial reporting purposes 33,416 13,613 6,402
Amortization of lease acquisition costs 0 0 12,267
Meals and entertainment 1,577 1,491 0
Reversal of prior year property taxes 0 (10,559) 10,559
Other 21,031 0 0
---------- ---------- ----------
Income tax basis net income $ 570,063 $ 533,415 $910,356
========== ========== ==========
</TABLE>
The Partnership's income tax basis partners' capital at December 31, 1998,
1997, and 1996 is computed as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Financial statement partners' capital $21,233,579 $21,571,254 $22,947,792
Increase (decrease) in partners' capital resulting from:
Depreciation expense for financial reporting purposes in
excess of amounts for income tax purposes 2,158,851 1,453,379 783,932
Joint venture change in ownership 14,293 14,293 14,293
Accumulated rental income accrued for financial reporting
purposes in excess of amounts for income tax purposes (153,823) (187,239) (200,852)
Accumulated expenses deductible when paid for income tax
purposes, accrued for financial reporting purposes 2,246,023 2,099,781 1,935,062
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 4,843 179,270 285,687
Other, net 8,917 (13,690) 6,035
---------- ----------- -----------
Income tax basis partners' capital $25,510,597 $25,114,962 $25,769,863
=========== =========== ===========
</TABLE>
F-21
<PAGE>
5. RENTAL INCOME
The future minimum rental income due from the Partnership's direct
investments in real estate assets or its respective ownership interest in the
joint ventures under noncancelable operating leases at December 31, 1998 is
as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1999 $1,903,623
2000 1,559,426
2001 1,167,124
2002 814,329
2003 515,668
Thereafter 3,502,823
----------
$9,462,993
==========
</TABLE>
One significant tenant contributed approximately 18% of rental income for the
year ended December 31, 1998. In addition, two significant tenants will
contribute approximately 41% and 18% of future minimum rental income.
The future minimum rental income due Fund I and II Tucker under noncancelable
operating leases at December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1999 $1,022,295
2000 802,081
2001 470,129
2002 268,924
2003 36,342
Thereafter 131,800
----------
$2,731,571
==========
</TABLE>
One significant tenant will contribute approximately 21% 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,
1998 is as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1999 $ 883,301
2000 824,544
2001 737,386
2002 694,469
2003 636,952
Thereafter 4,424,471
----------
$8,201,123
==========
</TABLE>
F-22
<PAGE>
One significant tenant contributed approximately 65% of rental income for
the year ended December 31, 1998. In addition, one tenant will contribute
approximately 88% 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-23
<PAGE>
WELLS REAL ESTATE FUND I AND SUBSIDIARY
(A Georgia Public Limited Partnership)
SCHEDULE III-REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
<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 $ 1,819,842
BLACK OAK PLAZA (b) None 727,500 4,151,849 1,037,553
CROWE'S CROSSING (c) None 1,317,220 7,617,905 298,509
PEACHTREE PROPERTY None 187,087 0 1,748,493
(d)
CHEROKEE COMMONS None 1,142,663 6,462,837 2,833,007
(e)
HERITAGE PLACE AT
TUCKER (f) None 2,756.378 0 9,484,907
-------------- ------------- --------------
Total None $6,645,926 $21,391,253 $ 17,222,311
================= ============= ==============
<CAPTION>
Gross Amounts at Which Carried at December 31, 1998
---------------------------------------------------------------------------
Buildings and Construction
Description Land Improvements in Progress Total
- - ------------------------ ----------------------- ----------------- ---------------- ------------
<S> <C> <C> <C> <C>
PACES PAVILION (a) $ 501,049 $ 4,992,533 $ 0 $ 5,493,602
BLACK OAK PLAZA (b) 737,770 5,173,332 6,000 5,916,902
CROWE'S CROSSING (c) 1,335,936 7,895,553 2,145 9,233,634
PEACHTREE PROPERTY 319,438 1,616,113 29 1,935,580
(d)
CHEROKEE COMMONS 1,219,704 9,218,803 0 10,438,507
(e)
HERITAGE PLACE AT
TUCKER (f) 3,260,887 8,953,667 26,731 12,241,285
-------------- --------------- ---------------- -------------
Total $ 7,374,784 $ 37,849,801 $34,905 $ 45,259,510
============== =============== =============== =============
<CAPTION>
Life on Which
Accumulated Date of Date Depreciation
Description Depreciation Construction Acquired is Computed (g)
- - -------------------- ------------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
PACES PAVILION (a) $ 1,939,178 1986 12/27/85 20 to 25 years
BLACK OAK PLAZA (b) 1,753,266 1986 12/31/86 20 to 25 years
CROWE'S CROSSING (c) 3,022,337 1986 12/31/86 20 to 25 years
PEACHTREE PROPERTY 665,182 1986 04/09/85 20 to 25 years
(d)
CHEROKEE COMMONS 2,717,803 1986 06/09/87 20 to 25 years
(e)
HERITAGE PLACE AT
TUCKER (f) 2,913,652 1987 09/04/86 20 to 25 years
------------
Total $13,011,418
============
</TABLE>
(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, 1998.
(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, 1998.
(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, 1998.
(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.
S-1
<PAGE>
WELLS REAL ESTATE FUND AND SUBSIDIARY
(A Georgia Public Limited Partnership)
SCHEDULE III---REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
---------------- ----------------
<S> <C> <C>
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
1998 additions 200,645 1,910,512
---------------- ----------------
BALANCE AT DECEMBER 31, 1998 $45,259,510 $13,011,418
================ ================
</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.
<TABLE>
<CAPTION>
Sequential
Exhibit No. Description of Document Page Number
- - ----------- ----------------------- -----------
<S> <C> <C>
*4 Restated and Amended Certificate and N/A
Agreement of Limited Partnership of
Wells Real Estate Fund I (Registration
Statement of Wells Real Estate Fund
I, Exhibit B to the Prospectus, File
No. 2-91165)
*10(a) Management Agreement between Registrant N/A
and Wells Management Company, Inc. (Exhibit
to Form 10-K of Wells Real Estate Fund I
for the fiscal year ended December 31, 1990,
File No. 0-14463)
*10(b) Leasing and Tenant Coordination Agreement N/A
Between Registrant and Wells Management
Company, Inc. 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)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sequential
Exhibit No. Description of Document Page Number
- - ----------- ----------------------- -----------
<S> <C> <C>
*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)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description of Document Page Number
- - ----------- ----------------------- -----------
<S> <C> <C>
*10(j) Amended and Restated Joint Venture N/A
Agreement of Fund I and Fund II Tucker-
Cherokee dated January 1, 1991 (Exhibit
to Form 10-K of Wells Real Estate Fund I
for the fiscal year ended December 31,
1991, File No. 0-14463)
*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>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 969,081
<SECURITIES> 6,500,083
<RECEIVABLES> 313,432
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 116,137
<PP&E> 22,579,718
<DEPRECIATION> 7,379,963
<TOTAL-ASSETS> 23,098,782
<CURRENT-LIABILITIES> 1,865,203
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 21,233,578
<TOTAL-LIABILITY-AND-EQUITY> 23,098,782
<SALES> 1,636,172
<TOTAL-REVENUES> 1,636,172
<CGS> 1,973,731
<TOTAL-COSTS> 1,973,731
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (337,675)
<INCOME-TAX> (337,675)
<INCOME-CONTINUING> (337,675)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (337,675)
<EPS-PRIMARY> (3.42)
<EPS-DILUTED> 0
</TABLE>
