<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark one)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1996 or
-------------------------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
--------------- ------------------
Commission file number 0-18407
---------------------------------------------------------
Wells Real Estate Fund III, L.P.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1800833
- ------------------------------- ----------------------------------------
(State -or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3885 Holcomb Bridge Road, Norcross, Georgia 30092
- ----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 449-7800
---------------------------
- ----------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-------- ---------
<PAGE>
Form 10-Q
---------
Wells Real Estate Fund III, L.P.
--------------------------------
INDEX
-----
Page No.
--------
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - March 31, 1996
and December 31, 1995................................ 3
Statements of Income for the Three Months
Ended March 31, 1996 and 1995........................ 4
Statement of Partner's Capital for the
Three Months Ended 1996
and the Year Ended December 31, 1995................. 5
Statements of Cash Flows for the Three
Months Ended March 31, 1996 and 1995................. 6
Condensed Notes to Financial Statements.............. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................... 16
PART II. OTHER INFORMATION............................................. 23
2
<PAGE>
WELLS REAL ESTATE FUND III, L.P.
(A Georgia Public Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1995 AND MARCH 31, 1996
<TABLE>
<CAPTION>
Assets March 31, 1996 December 31. 1995
------ --------------- ------------------
<S> <C> <C>
Real estate, at cost: (Note 2)
Land $ 576,350 $ 576,350
Building and improvements, less accumulated
depreciation of $494,481 in 1996 and $367,097
in 1995 3,071,119 3,110,696
----------- -----------
Total real estate 3,647,469 3,687,046
----------- -----------
Cash and cash equivalents 312,519 500,327
Investment in joint ventures (Note 2) 13,285,260 13,446,045
Due from affiliates 364,387 336,216
Accounts receivable 59,844 60,841
Prepaid expenses and other assets 29,033 29,096
----------- -----------
Total Assets $17,698,512 $18,059,571
----------- -----------
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Accounts payable 13,207 5,035
Partnership distributions payable 406,273 617,810
Due to affiliates 6,159 6,269
----------- -----------
Total liabilities 425,639 629,114
----------- -----------
Partners' capital:
General Partners 0 0
Limited Partners:
Class A - 19,635,965 units outstanding 17,272,873 17,430,457
Class B - 2,544,540 units outstanding 0 0
----------- -----------
Total partners' capital 17,272,873 17,430,457
----------- -----------
Total liabilities
and partners' capital $17,698,512 $18,059,571
----------- -----------
</TABLE>
See accompanying condensed notes to financial statements
3
<PAGE>
WELLS REAL ESTATE FUND III, L.P.
(A Georgia Public Limited Partnership)
Statements of Income
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1996 March, 31, 1995
-------------- ----------------
<S> <C> <C>
Revenues:
Rental income (Note 2) $145,742 $ 145,508
Equity in earnings of
joint ventures (Note 2) 203,602 283,339
Interest income 5,853 5,194
-------- ---------
355,197 434,041
Expenses:
Management and leasing fees 8,774 8,730
Operating costs - rental property 48,059 37,075
Depreciation 39,577 24,388
Legal and accounting 1,543 5,539
Computer costs 1,327 2,946
Partnership administration 20,781 14,180
-------- ---------
120,061 92,858
-------- ---------
Net income $235,136 $ 341,183
-------- ---------
Net loss allocated to General Partners $ 0 $ 0
Net income allocated to
Class A Limited Partners $235,136 $ 476,874
Net loss allocated to
Class B Limited Partners $ 0 $(135,691)
Net income per Class A
Limited Partner Unit $0.01 $ 0.02
Net loss per Class B
Limited Partner Unit $ 0 $ (0.05)
Cash distribution per Class
A Limited Partner Unit $0.02 $ 0.02
</TABLE>
See accompanying condensed notes to financial statements
4
<PAGE>
WELLS REAL ESTATE FUND III, L.P.
(A Georgia Public Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE THREE MONTHS ENDED, MARCH 31, 1996
<TABLE>
<CAPTION>
Limited Partners
--------------------------------------------------
Class A Class B Total
---------------------------- -------------------- General Partners'
Units Amounts Units Amount Partners Capital
---------- ----------------- --------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 19,635,965 $17,897,016 2,544,540 $ 179,381 0 $18,076,397
Net income (loss) 0 1,104,316 0 24,183 15,205 1,143,704
Partnership distributions 0 (1,570,875) 0 (203,564) (15,205) (1,789,644)
---------- ----------- --------- --------- -------- -----------
BALANCE, December 31, 1995 19,635,965 $17,430,457 2,544,540 $ 0 $ 0 $17,430,457
Net income 0 235,136 0 0 0 235,136
Partnership distributions 0 (392,719) 0 0 0 (392,719)
---------- ----------- --------- --------- -------- -----------
BALANCE, March 31, 1996 19,635,965 $17,272,873 2,544,540 0 0 $17,272,873
========== =========== ========= ========= ======== ===========
</TABLE>
See accompanying condensed notes to financial statements
5
<PAGE>
WELLS REAL ESTATE FUND III, L.P.
(A Georgia Public Limited Partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
March 31, 1996 March, 31, 1995
----------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 235,136 $ 341,183
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Equity in income of joint ventures (203,603) (283,339)
Distributions received from joint ventures 336,217 352,504
Partnership distributions paid (609,293) (455,148)
Depreciation 39,577 24,388
Changes in assets and liabilities:
Decrease Increase) in accounts receivable 997 (26,091)
Decrease (Increase) in prepaids and
other assets 64 (248)
Increase in accounts payable 13,207 3,231
(Decrease) Increase due to affiliates (110) 87
--------- ---------
Net cash used in operating activities (187,808) (43,433)
--------- ---------
Net decrease in cash and cash equivalents (187,808) (43,433)
Cash and cash equivalents, beginning of year 500,327 318,250
--------- ---------
Cash and cash equivalents, end of period $ 312,519 $ 274,817
--------- ---------
</TABLE>
See accompanying condensed notes to financial statements
6
<PAGE>
WELLS REAL ESTATE FUND III, L.P.
(A Georgia Public Limited Partnership)
Condensed Notes to Financial Statements
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) General
-------
Wells Real Estate Fund III, L.P. (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 July 31, 1988, for the purpose of acquiring, developing,
constructing, owning, operating, improving, leasing and otherwise
managing for investment purposes income-producing commercial or
industrial properties.
On October 24, 1988, 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 October 23, 1990, and received gross
proceeds of $22,206,319 representing subscriptions from 2,700 Limited
Partners, composed to two classes of limited partnership interests,
Class A and Class B limited partnership units.
As of March 31, 1996, the Partnership owned interest in the following
properties: (i) the Greenville Property, an office building in
Greenville, North Carolina, (ii) the Atrium, an office building in
Houston Texas (iii) the Brookwood Grill, a restaurant located in
Roswell, Georgia, (iv) the Stockbridge Village Shopping Center, a
retail shopping center located in Stockbridge, Georgia, southeast of
Atlanta, (v) the G.E. Office Building located in Richmond, Virginia,
and (vi) an office/retail center currently being developed in Roswell,
Georgia. All of the foregoing properties were acquired on an all cash
basis.
(b) Basis of Presentation
---------------------
The financial statements of Wells Real Estate Fund III, L.P. (the
"Partnership") have been prepared in accordance with instructions to
Form 10-Q and do not include all of the information and footnotes
required by generally accepted accounting principals for complete
financial statements. These quarterly statements have not been
examined by independent accountants, but in the opinion of the General
Partners, the statements for the unaudited interim periods presented
include all adjustments, which are of a normal and recurring nature,
necessary to present a fair presentation of the results for such
periods. For further information, refer to the financial statements
and footnotes included in the Partnership's Form 10-K for the year
ended December 31, 1995.
7
<PAGE>
(c) Employees
---------
The Partnership has no direct employees. The employees of Wells
Capital, Inc., a General Partner of the Partnership, perform a full
range of real estate services including leasing and property
management, accounting, asset management and investor relations for
the Partnership.
(d) Insurance
---------
Wells Management Company, Inc., an affiliate of the General Partners,
carries comprehensive liability and extended coverage with respect to
all the properties owned directly or indirectly by the Partnership.
In the opinion of management of the registrant, the properties are
adequately insured.
(e) Competition
-----------
The Partnership will experience competition for tenants from owners
and managers of competing projects which may include the General
Partners and their affiliates. As a result, the Partnership may be
required to provide free rent, reduced charges for tenant improvements
and other inducements, all of which may have an adverse impact on
results of operations. At the time the Partnership elects to dispose
of its properties, the Partnership will also be in competition with
sellers of similar properties to locate suitable purchasers for its
properties.
(2) Real Estate and Rental Income
-----------------------------
The following describes the properties in which the Partnership owns an
interest as of March 31, 1996:
The Greenville Property
-----------------------
On June 30, 1990, the Partnership acquired a 2.34 acre tract of land
located in Greenville, North Carolina (the "Greenville Property") for
a purchase price of the land of $576,350, including acquisition
expenses, for the purpose of developing, constructing and operating a
two-story office building containing approximately 34,300 rentable
square feet.
The occupancy rate at the Greenville Property for the quarters ended
March 31 was 98% in 1996, 100% in 1995 and 1994, 95% in 1993, and 94%
in 1992.
The average effective annual rental per square foot at the Greenville
Property was $17.00 for 1996, $17.01 for 1995, $16.73 for 1994, $16.74
for 1993, and $14.91 for 1992.
8
<PAGE>
Two tenants occupy ten percent or more of the rentable square footage
- International Business Machines Corporation ("IBM"), a business
machine corporation, and Team YASNY (McDonald's) a fast-food
restaurant chain.
The Partnership entered into a net lease with IBM for a portion of the
first floor and the entire second floor of the Greenville Property
representing approximately 23,300 rentable square feet or
approximately 67% of the Greenville Property. The initial term of the
IBM lease is nine years and ten months and commenced in April of 1991.
IBM has the option to extend the initial term of the lease for two
consecutive five-year periods. The annual base rent payable under the
IBM lease is $462,242, net of all expenses of operation, and is
payable in monthly installments of $38,520.17. The annual base rent
will increase in the sixth year of the initial term of the lease to
$478,101 payable in equal monthly installments of $39,841.75 and will
remain constant for each of the subsequent years in the initial term
of the lease. In addition to the base rent, IBM is required to pay
additional rent equal to its share of all operating expenses during
the lease term.
The lease provides IBM with the right of first refusal to purchase the
Greenville Property should the Partnership receive a bona fide offer
from a third party to purchase the Greenville Property during the term
of the lease. IBM also has the right of first refusal to lease all or
a portion of any space which may from time to time become available.
The IBM lease also provides that the Partnership will not lease or
consent to any sublease to any entity which, as a major part of its
business engages in sales and services similar to those of IBM.
Team YASNY's original lease represented 3,122 rentable square feet.
In 1994, Team YASNY expanded and increased their rentable space on
additional 1,232 square feet for a total of 4,354 rentable square
feet. The Team YASNY lease calls for an annual rent of $51,717 in
1996 and $53,200 in 1997. The Team YASNY lease expires September 30,
1997.
(3) Investment in Joint Ventures.
-----------------------------
The Partnership also owns the following properties through joint ventures.
The Partnership does not have control over the operations of the joint
ventures; however, it does exercise significant influence. Accordingly,
investment in joint ventures is recorded on the equity method.
9
<PAGE>
Fund II and Fund III Joint Venture
----------------------------------
On April 3, 1989, the Partnership formed a joint venture, Fund II and Fund
III Associates (the "Fund II-Fund III Joint Venture") with an existing
joint venture (the "Fund II-Fund II-OW Joint Venture") formed by Wells Real
Estate Fund II ("Wells Fund II"), a Georgia public limited partnership
having Leo F. Wells, III and Wells Capital, Inc., a Georgia corporation, as
General Partners, and Wells Real Estate Fund II-OW ("Wells Fund II-OW"), a
Georgia public limited partnership having Leo F. Wells, III and Wells
Capital, Inc., a Georgia corporation, as General Partners. Wells Fund II
and Wells Fund II-OW are affiliated with the Partnership through common
general partners with investment objectives substantially identical to
those of the Partnership. The Partnership owns interests in the following
two properties through the Fund II-Fund III Joint Venture:
The Atrium
----------
In April 1989, the Fund II-Fund III Joint Venture acquired a four-
story office building located on a 5.6 acre tract of land adjacent to
the Johnson Space Center in metropolitan Houston, in Nassau Bay,
Harris County, Texas, known as "The Atrium at Nassau Bay" (the
Atrium").
The funds used by the Fund II-Fund III Joint Venture to acquire the
Atrium were derived from capital contributions made to the Fund II-
Fund III Joint Venture by the Fund II-Fund II-OW Joint Venture and the
Partnership in the amounts of $8,327,856 and $2,538,000, respectively,
for total initial capital contributions of $10,865,856. As of March
31, 1996, the Fund II-Fund II-OW Joint Venture and the Partnership had
made total capital contributions to the Fund II-Fund III Joint Venture
of approximately $8,330,000 and $4,448,000, respectively, for the
acquisition and development of the Atrium. The Fund II-Fund II-OW
Joint Venture holds an approximately 66% equity interest in the Fund
II-Fund III Joint Venture, and the Partnership holds an approximately
34% equity interest in the Fund II-Fund III Joint Venture.
The Atrium was first occupied in 1987 and contains approximately
119,000 net rentable square feet. Each floor of the Atrium is
currently under a separate lease to Lockheed Engineering and Science
Company, Inc., a wholly-owned subsidiary of the Lockheed Company, each
of which leases have terms of approximately eight years and expires on
June 30, 1996. The leases do not contain any provisions for
extension. The Fund II-Fund III Joint Venture is responsible for
operating expenses of up to $4.50 per square foot for the first four
years and $4.75 per square foot thereafter. The tenant under each
lease is required to pay certain operating expenses including expenses
relating to its share of the building in excess of $4.50 per square
foot paid by the Joint Venture for the first four lease years and
$4.75 per square foot for the remaining term. Under the terms of each
of the leases, the tenant is responsible for all maintenance and
repair work, as well as all utilities, taxes, insurance and similar
expenses with respect to the Atrium in excess of the amounts specified
above. The leases for each of the four floors of the building are
identical, except as to their base monthly rentals. The leases for
the Atrium currently provide for a monthly base rent of $185,298 until
the expiration of said lease in June 1996.
10
<PAGE>
The occupancy rate at the Atrium Property was 100% and the average
effective annual rental per square foot was $17.47 for the five years
ended March 31, 1996.
As set forth above, the Lockheed lease will expire on June 30, 1996,
and renewal is not expected at this time. The Partnership has
responded to various potential tenants regarding their leasing
portions of the Atrium should Lockheed not renew. In the event that
Lockheed does not renew its lease and the Partnership is unable to
lease a substantial portion of the Atrium Property at rates at least
comparable to the lease rates currently being paid under the Lockheed
lease, the income generated from the Atrium Property could decrease
significantly. In addition, even if the Partnership is able to obtain
leases with the new tenants for the Atrium Property, such leases are
likely to require substantial tenant finish and refurbishment
expenditures by the Partnership, which could have the effect of
substantially reducing future cash distributions to Limited Partners
in the year tenants are acquired.
The Brookwood Grill Property
----------------------------
On January 31, 1990, the Fund II-Fund II-OW Joint Venture acquired a
5.8 acre tract of undeveloped real property at the intersection of
Warsaw Road and Holcomb Bridge Road in Roswell, Fulton County, Georgia
(the "880 Property"). The Fund II-Fund II-OW Joint Venture paid
$1,848,561, including acquisition expenses, for the 5.8 acre tract of
undeveloped property.
On September 20, 1991, the Fund II-Fund II-OW Joint Venture
contributed the 880 Property, along with its interest as landlord
under the lease agreement referred to below, as a capital contribution
to the Fund II-Fund III Joint Venture. As of September 20, 1991, the
Fund II-Fund II-OW Joint Venture had expended approximately $2,128,000
for the land acquisition and development of the 880 Property.
11
<PAGE>
As of September 20, 1991, a lease agreement was entered into with the
Brookwood Grill of Roswell, Inc. for the development of approximately
1.5 acres and the construction of a 7,440 square foot restaurant. The
terms of the lease call for an initial term of 9 years and 11 months,
with two additional 10-year option periods. The agreement calls for a
base rental of $217,006 per year for Years 1 through 5, with a 15%
increase for the remainder of the initial term. Rental rates for all
option periods will be based on the prevailing market values and rates
for those periods. Under the terms of the lease, the Fund II-Fund III
Joint Venture was required to make certain improvements for the
development and construction of the restaurant building together with
parking areas, driveways, landscaping and other improvements as
agreed. The Fund II-Fund III Joint Venture has expended approximately
$1,100,000 for such improvements. In addition to the base rent
described above, the tenant is required to pay "additional rent" in
amounts equal to a 12% per annum return on all amounts expended for
such improvements.
The occupancy rate for the Brookwood Grill, a sole tenant, for the
quarters ended March 31 was 100% for 1996, 1995, 1994, 1993, and 1992.
The average effective annual rental per square foot at the Brookwood
Grill is $30.21 for 1996, 1995, 1994 and 1993, and $24.60 for 1992,
the first year of occupancy.
As of March 31, 1996, the Fund II-Fund II-OW Joint Venture and the
Partnership had made total contributions to the Fund II-Fund III Joint
Venture of approximately $2,128,000 and $1,330,000, respectively, for
the acquisition and development of the Brookwood Grill. The Fund II-
Fund II-OW Joint Venture holds an approximately 62% equity interest in
the Brookwood Grill property, and the Partnership holds an
approximately 38% equity interest in the project.
On January 10, 1995, the Fund II - Fund III Joint Venture contributed
the remaining 4.3 acres of land comprising the 880 Property to a new
joint venture, Fund II, III, VI, and VII Associates. This property is
described below.
12
<PAGE>
Fund II, III, VI and VIII Associates/Holcomb Bridge Road Property
-----------------------------------------------------------------
On January 10, 1995, Fund II-Fund III Joint Venture, Wells Real Estate Fund
VI, L.P. ("Wells Fund VI"), a Georgia public limited partnership having Leo
F. Wells, III and Wells Partners, L.P., a Georgia limited partnership, as
general partners; and Wells Real Estate Fund VII, L.P. ("Wells Funds VII"),
a Georgia public limited partnership having Leo F. Wells, III and Wells
Partners, L.P., a Georgia limited partnership, as general partners, entered
into a Joint Venture Agreement known as Fund II, III, VI and VII Associates
("Fund II, III, VI and VII Joint Venture"). 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 Wells Fund VI and Wells Fund VII are substantially identical to those of
the Partnership.
In January, 1995, the Fund II-Fund III Joint Venture contributed
approximately 4.3 acres of land at the intersection of Warsaw Road and
Holcomb Bridge Road in Roswell, Fulton County, Georgia (the "Holcomb Bridge
Road Property") including land improvements with a book value of $1,729,116
to the Fund II, III, VI and VII Joint Venture. Development is underway on
two buildings containing a total of approximately 49,500 square feet. As
of March 31, 1996, leases were signed with Bertucci's Restaurant
Corporation for 5,935 square feet, Air Touch Cellular for 3,046 square feet
and Townsend Tax for 1,389 square feet. Initial occupancy occurred in
February 1996. Three tenants occupied the 880 Holcomb Bridge Road Property
as of March 31, 1996 for an occupancy rate of 21%. The average effective
annual rental was $0.81 per square foot for the first quarter of 1996.
As of March 31, 1996, Fund II - Fund III Joint Venture had contributed
$1,729,116 in land and improvements for an approximate 33% equity interest,
Wells Fund VI had contributed $982,691 toward the construction for an
approximate 19% equity interest, and Wells Fund VII had contributed
$2,500,000 for an approximate 48% equity interest. As of March 31, 1996,
the Partnership held an approximate 12% equity interest in the Fund II,
III, VI and VII Joint Venture. The total cost to develop the Holcomb
Bridge Road Property, excluding land, is currently anticipated to be
approximately $4,000,000, and it is anticipated that the remaining
approximate $517,000 will be contributed $260,000 by Wells Fund VI and
$257,000 by Wells Fund VII. The Partnership is not obligated to provide
any additional funding on the Holcomb Bridge Road Property.
13
<PAGE>
Fund III and Fund IV Joint Venture
----------------------------------
On March 27, 1991, the Partnership and Wells Real Estate Fund IV, L.P.
("Wells Fund IV"), a Georgia public limited partnership having Leo F.
Wells, III and Wells Partners, L.P., as General Partners, entered into a
Joint Venture Agreement known as Fund III and Fund VI Associates (the "Fund
III - Fund IV Joint Venture"). As set forth above, 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 Wells Fund IV are substantially identical to those of the Partnership.
The Partnership holds an approximate 57.3% equity interest in the Fund III
- Fund IV Joint Venture which owns and operates the multi-tenant retail
center and an office building described below. As of March 31, 1996, the
Partnership had contributed $8,119,603 and Wells Fund IV had contributed
$6,131,677 for total contributions of $14,251,280 to the Fund III - Fund IV
Joint Venture for the acquisition and development of two properties as
described below.
The Stockbridge Village Shopping Center
---------------------------------------
On April 4, 1991, the Fund III - Fund IV Joint Venture purchased 13.62
acres of real property located in Clayton County, Georgia, for the
purchase price of $3,057,729 including acquisition costs, for the
purpose of developing, constructing and operating a shopping center
known as the Stockbridge Village Shopping Center (the "Stockbridge
Property"). The Stockbridge Property consists of a multi-tenant
shopping center containing approximately 113,011 square feet of which
approximately 64,097 square feet is occupied by the Kroger Company, a
retail grocery chain. The lease with the Kroger Company is for an
initial term of 20 years commencing November 14, 1991, with an option
to extend for four consecutive five-year periods. The annual base
rent payable under the Kroger lease during the initial term is
$492,692. The remaining 48,914 square feet is comprised of 12
separate retail spaces and 3 free-standing buildings. The occupancy
rates at the Stockbridge Property for the quarters ended March 31 were
93% in 1996, 100% in 1995, 99% in 1994, 100% in 1993 and 87% in 1992.
The average effective annual renal per square foot at the Stockbridge
Property was $9.50 for 1996, $10.16 for 1995, $10.26 for 1994, $9.13
for 1993, and $7.34 for 1992.
As of March 31, 1996, the Partnership had contributed a total of
$4,515,042 and Wells Fund IV had contributed a total of $5,047,132 to
fund the total cost of approximately $9,562,000 for the acquisition
and development of the Stockbridge Property.
14
<PAGE>
The G.E. Building/Richmond
--------------------------
The G.E. Building is a two-story office building containing
approximately 43,000 square feet located in Richmond, Virginia which
was acquired by the Fund III-Fund IV Joint Venture on July 1, 1992 for
a purchase price of $4,687,600.
The entire G.E. Building is currently under a net lease to General
Electric ("G.E."), a corporate office for the lighting division. The
annual base rent payable is currently $530,742 with annual base
increases of 2%. The G.E. lease expires March 31, 2000, with an
option to extend the lease for one additional five-year period. The
occupancy rate at the G.E. Building for the quarters ended March 31
was 100% for 1996, 1995, 1994, 1993, and 1992. The average effective
annual rental per square foot at the G.E. Building is $12.27 for 1996,
1995, 1994, 1993, and 1992. As of March 31, 1996, a total of
$4,689,106 had been incurred for the acquisition of the G.E. Building.
Of this amount, Wells Fund IV contributed $1,084,545 and the
Partnership contributed $3,604,561 to the Fund III-Fund IV Joint
Venture.
15
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATION.
- -------------
The following discussion and analysis should be read in conjunction with the
accompanying financial statements of the Partnership and notes thereto. This
Report contains forward-looking statements, with the meaning of Section 27A of
the Securities Act of 1993 and 21E of the Securities Exchange Act of 1934,
including discussion and analysis of the financial condition of the Partnership,
anticipated capital expenditures required to complete certain projects, amounts
of cash distributions anticipated to be distributed to Limited Partners in the
future and certain other matters. Readers of this Report should be aware that
there are various factors that could cause actual results to differ materially
from any forward-looking statement made in the Report, which include
construction costs which may exceed estimates, construction delays, lease-up
risks, inability to obtain new tenants upon the expiration of existing leases,
and the potential need to fund tenant improvements or other capital expenditures
out of operating cash flow.
Results in Operations and Changes in Financial Conditions
- ---------------------------------------------------------
General
- -------
Gross revenues of the Partnership were $355,197 for the three months ended March
31, 1996, as compared to $434,041 for the three months ended March 31, 1995.
The decrease for 1996 over 1995 was due primarily to decreased income from joint
ventures which was primarily due to increased depreciation expense.
Expenses of the Partnership increased for 1996 compared to 1995 from $92,858
for the three months ended March 31, 1995 to $120,061 for the three months ended
March 31, 1996. The increase in expenses was due primarily to increased
operating costs, partnership administration and depreciation expenses.
Depreciation expenses increased from 1995 to 1996 due to a change in the
estimated useful lives of buildings and improvements from 40 years to 25 years.
Net cash used in operating activities decreased from a use of cash of $43,433 in
1995 to a use of cash of $187,808 in 1996. The decrease was due to decreased
net income, decreased distributions received from joint ventures and an increase
in distributions paid. Cash and cash equivalents remained relatively stable for
each of the three months ending March 31, 1995 and 1996. The Partnership
generally distributes cash available less reserves. As a result, the level of
cash remains relatively stable.
The Partnership's cash distributions to the Limited Partners holding Class A
Units were $0.02 per unit for each of the three months ended March 31, 1996 and
1995. No cash distributions were made to the Limited Partners holding Class B
Units or the General Partners for the three months ended March 31, 1996 and
1995.
Property Operations
- -------------------
As of March 31, 1996, the Partnership owned interests in the following
properties:
16
<PAGE>
<TABLE>
<CAPTION>
The Greenville Property
- -----------------------
Three Months Ended March 31
----------------------------
1996 1995
----------------------------
<S> <C> <C>
Revenues:
Rental income $145,742 $145,508
Expenses:
Depreciation 39,577 24,388
Management and leasing expenses 17,568 17,488
Other operating expenses 39,805 28,317
-------- --------
96,950 70,193
-------- --------
Net income $ 48,792 $ 75,315
-------- --------
Occupied % 98% 100%
Partnership's Ownership % 100% 100%
Cash Generated to the Partnership $ 90,788 $101,628
Net Income Allocated to the Partnership $ 48,792 $ 75,315
</TABLE>
Rental income remained stable from 1995 to 1996. Expenses of the Greenville
Property increased in 1996 as compared to 1995 due to an increase in
depreciation expense and other operating expenses. The increase in depreciation
expenses is due to the change in the estimated useful lives of buildings and
improvements as previously discussed under the "General" section of "Results of
Operations and Changes in Financial Condition". Operating expenses increased
due to decreased tenant reimbursements.
17
<PAGE>
<TABLE>
<CAPTION>
The Atrium Three Months Ended March 31
- ---------- -----------------------------
1996 1995
-------------- -------------
<S> <C> <C>
Revenues:
Rental income $519,836 $519,836
Interest income 7,686 6,263
-------- --------
527,522 526,099
-------- --------
Expenses:
Depreciation 168,478 117,029
Management and leasing expenses 35,690 35,690
Other operating expenses 85,942 70,704
-------- --------
290,110 223,423
-------- --------
Net income $237,412 $302,676
======== ========
Occupied % 100% 100%
Partnership's Ownership % 34.4% 34.4%
Cash Distributed to the Partnership $153,977 $162,707
Net Income allocated to the Partnership $ 81,670 $104,121
</TABLE>
Rental and interest income remained stable for the three month periods ended
March 31, 1996 and 1995. The increase in depreciation expense for the three
months ended March 31, 1996 over the same period of 1995 is due to the change in
the estimated useful lives of buildings and improvements as previously discussed
under the "General" section of "Results of Operations and Changes in Financial
Condition." The increase in operating expenses to $85,942 as of March 31, 1996
compared to $70,704 as of March 31, 1995 is primarily due to expenditures for
engineering and professional fees related to obtaining a new tenant for the
property.
The lease with Lockheed Company will expire on June 30, 1996, and renewal is not
anticipated at this time. The Partnership has responded to various potential
tenants regarding leasing portions of the Atrium should Lockheed not renew. In
the event that Lockheed does not renew its lease and the Partnership unable to
lease a substantial portion of the Atrium Property at rates at least comparable
to the lease rates currently being paid under the Lockheed lease, the income
generated from the Atrium Property could decease significantly following the
expiration of the Lockheed lease on June 30, 1996. In addition, even if the
Partnership is able to obtain leases with new tenants for the Atrium Property,
such leases are likely to require substantial tenant finish and refurbishment
expenditures by the Partnership, which could have the effect of substantially
reducing future cash distributions of Limited Partners.
18
<PAGE>
<TABLE>
<CAPTION>
The Brookwood Grill Property Three Months Ended March 31
- ---------------------------- ----------------------------
1996 1995
----------------------------
<S> <C> <C>
Revenues:
Rental income $56,188 $57,525
Equity in loss of joint ventures (5,433) 0
------- -------
50,755 57,525
Expenses:
Depreciation 13,503 14,665
Management and leasing expenses 6,968 7,290
Other operating expenses 17,889 10,545
------- -------
38,360 32,500
------- -------
Net income $12,395 $25,025
======= =======
Occupied % 100% 100%
Partnership's Ownership % 38.0% 37.6%
Cash Distributed to the Partnership $10,348 $14,782
Net Income allocated to the Partnership $ 4,667 $ 9,422
</TABLE>
Rental income has remained relatively stable for the three months ended March
31, 1996 as compared to 1995. The decrease in depreciation for the first
quarter of 1996 over the same period of 1995 is due primarily to the
contribution of land improvements to the Fund II -III-VI-VII Joint Venture. The
increase in operating expenses for the first quarter of 1996 over the same
period in 1995 is due primarily to a reimbursement to tenant of administrative
charges for the prior year. Net income decreased from $25,025 as of March 31,
1995 to $12,395 as of March 31, 1996 due primarily to the tenant reimbursement
discussed above and the equity loss generated by the new joint venture.
19
<PAGE>
<TABLE>
<CAPTION>
880 Holcomb Bridge - Fund II, III, VI, VII Joint Venture
- ----------------------------------------------------------
Three Months Ended
-------------------
<S> <C>
March 31, 1996
-------------------
Revenues:
Rental income $ 9,421
Expenses:
Depreciation 6,120
Management and leasing expenses 1,051
Other operating expenses 18,839
--------
26,010
--------
Net loss $(16,589)
========
Occupied % 71%
Partnership's Ownership % in the
Fund II-Fund III Joint Venture 32.75%
Cash Distribution to the Fund II-Fund III
Joint Venture * $ 0
Net (loss) Allocated to the Fund II-Fund III
Joint Venture * $ (5,433)
</TABLE>
* The Partnership holds a 32.75% ownership in the Fund II-Fund III Joint Venture
In January 1995, the Fund II-Fund III Joint Venture contributed 4.3 acres of
land and land improvements at 880 Holcomb Bridge Road (the "Holcomb Bridge Road
Project") to the Fund II, III, IV, and VII Joint Venture. Development is being
completed on two buildings with a total of approximately 49,500 square feet.
As of March 31, 1996, three tenants are occupying approximately 10,370 square
feet of space in the retail building under leases of varying lengths. Since the
property was not developed as of March 31, 1995, no comparative figures are
available for the quarter.
As of March 31, 1996, the Fund II-Fund III Joint Venture contributed $1,729,116
in land and improvements for an approximate 32.75% equity interest, Wells Fund
VI contributed $982,691 toward the construction for an approximate 19.48% equity
interest, and Wells Fund VII contributed $2,500,000 for an approximate 47.77%
equity interest. The total cost to develop the Holcomb Bridge Road Project is
currently estimated to be approximately $4,000,000, excluding land. It is
anticipated that of the remaining cost of approximately $517,000, $260,000 will
be contributed by Wells Fund VI and $257,000 by Wells Fund VII for an
anticipated equity interest of 48.1% by the Wells Fund VII, 30.2% by the Fund
II-Fund III Joint Venture and 21.7% by Wells Fund VI.
20
<PAGE>
<TABLE>
<CAPTION>
The Stockbridge Village Shopping Center Three Months Ended March 31
- -------------------------------------- ----------------------------
1996 1995
----------------------------
<S> <C> <C>
Revenues:
Rental income $268,455 $296,535
Interest income 3,613 4,480
-------- --------
272,068 301,015
Expenses:
Depreciation 84,748 55,296
Management and leasing expenses 27,154 28,821
Other operating expenses 25,392 11,379
-------- --------
137,294 95,496
-------- --------
Net income $134,774 $205,519
======== ========
Occupied % 93% 100%
Partnership's Ownership % 57.3% 57.3%
Cash Distributed to the Partnership $132,544 $154,618
Net Income Allocated to the Partnership $ 77,248 $117,797
</TABLE>
Rental income decreased to $268,455 for 1996, as compared to $296,535 in 1995,
due to decreased occupancy resulting from the early termination of a lease for
8,025 square feet. Expenses of the property increased from $95,496 in 1995 to
$137,294 due primarily to the increase in depreciation expense as a result of
the change in the estimated useful lives of buildings and improvements as
previously discussed under the "General" section of "Results of Operations and
Changes in Financial Condition" and timing differences in billing tenant expense
reimbursements.
21
<PAGE>
<TABLE>
<CAPTION>
The G.E. Building/Richmond Three Months Ended March 31
- -------------------------- -----------------------------
1996 1995
-------------- -------------
<S> <C> <C>
Revenues:
Rental income $131,856 $131,856
Expenses:
Depreciation 49,053 28,160
Management and leasing expenses 9,965 9,965
Other operating expenses 3,020 3,007
-------- --------
62,038 41,132
-------- --------
Net income $ 69,818 $ 90,724
======== ========
Occupied % 100% 100%
Partnership's Ownership % 57.3% 57.3%
Cash Distributed to the Partnership $ 67,519 $ 66,225
Net Income Allocated to the Partnership $ 40,017 $ 52,000
</TABLE>
Rental income remained constant for 1996 and 1995. Total expenses increased in
1996 due to the increase in depreciation expense as a result of the change in
the estimate useful lives of buildings and improvements as previously discussed
under the "General" section of "Results of Operations and Change in Financial
Condition".
22
<PAGE>
PART II - OTHER INFORMATION
Item 6(b). No reports on Form 8-K were filed during the first quarter of 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
WELLS REAL ESTATE FUND III, L.P.
(Registrant)
Dated: May 13, 1996 By: /s/Leo F. Wells, III
----------------------------------------------
Leo F. Wells, III, as Individual General
Partner and as President, Sole Director and Chief
Financial Officer of Wells Capital, Inc., the
Corporate General Partner
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 312,519
<SECURITIES> 13,285,260
<RECEIVABLES> 424,231
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 29,033
<PP&E> 4,141,950
<DEPRECIATION> 494,481
<TOTAL-ASSETS> 17,698,512
<CURRENT-LIABILITIES> 425,639
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 17,272,873
<TOTAL-LIABILITY-AND-EQUITY> 17,698,512
<SALES> 0
<TOTAL-REVENUES> 355,197
<CGS> 0
<TOTAL-COSTS> 120,061
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 235,136
<INCOME-TAX> 235,136
<INCOME-CONTINUING> 235,136
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 235,136
<EPS-PRIMARY> .01
<EPS-DILUTED> 0
</TABLE>
