<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark one)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1996 or
-----------------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
------------------ -------------------------
Commission file number 0-18407
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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
-----
PART 1. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements
Balance Sheets - June 30, 1996
and December 31, 1995 .................................3
Statements of Income for the Three
Months and Six Months Ended
June 30, 1996 and 1995 ................................4
Statement of Partner's Capital for the
Six Months Ended June 30, 1996 and the
Year Ended December 31, 1995 ..........................5
Statements of Cash Flows for the Six
Months Ended June 30, 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
<TABLE>
<CAPTION>
Assets June 30, 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 $534,058 in 1996 and
$367,097 in 1995 3,031,542 3,110,696
----------- -----------
Total real estate 3,607,892 3,687,046
----------- -----------
Cash and cash equivalents 408,404 500,327
Investment in joint ventures (Note3) 13,107,429 13,446,045
Due from affiliates 357,911 336,216
Accounts receivable 58,848 60,841
Prepaid expenses and other assets 27,574 29,096
----------- -----------
Total Assets $17,568,058 $18,059,571
=========== ===========
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Accounts payable $ 23,253 $ 5,035
Partnership distributions payable 396,899 617,810
Due to affiliates 10,014 6,269
----------- -----------
Total liabilities 430,166 629,114
----------- -----------
Partners' capital:
General Partners 0 0
Limited Partners:
Class A - 19,635,965 units outstanding 17,137,892 17,430,457
Class B - 2,544,540 units outstanding 0 0
----------- -----------
Total partners' capital 17,137,892 17,430,457
----------- -----------
Total liabilities
and partners' capital $17,568,058 $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 Six Months Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues:
Rental Income (Note 2) $146,241 $145,508 $291,983 $ 291,016
Equity in income of
joint ventures (Note 3) 180,081 284,256 383,683 567,595
Interest Income 3,808 4,798 9,661 9,992
-------- -------- -------- ---------
330,130 434,562 685,327 868,603
Expenses:
Management and leasing
fees 13,301 11,583 22,075 20,313
Operating costs - rental
property (19,743) 62,883 28,316 99,958
Depreciation 39,577 24,389 79,154 48,777
Legal and Accounting 20,801 599 22,344 6,138
Computer costs 1,390 1,808 2,717 4,754
Partnership administration 17,066 15,632 37,847 29,812
-------- -------- -------- ---------
72,392 116,894 192,453 209,752
-------- -------- -------- ---------
Net income $257,738 $317,668 $492,874 $ 658,851
======== ======== ======== =========
Net income allocated to
General Partners $ 0 $ 0 $ 0 $ 0
Net income allocated to
Class A Limited Partners $257,738 $361,358 $492,874 $ 838,232
Net loss allocated to
Class B Limited Partners $ 0 $(43,690) $ 0 $(179,381)
Net income per Class A
Limited Partner Unit $ 0.01 $ 0.02 $ 0.03 $ 0.04
Net loss per Class B
Limited Partner Unit $ 0 $ (0.02) $ 0 $ (0.07)
Cash distribution per Class
A Limited Partner Unit $ 0.02 $ 0.02 $ 0.04 $ 0.04
</TABLE>
See accompanying condensed notes to consolidated 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 SIX MONTHS ENDED JUNE 30, 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 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 0 492,874 0 0 0 492,874
Partnership distributions 0 (785,439) 0 0 0 (785,439)
---------- ----------- --------- --------- -------- -----------
BALANCE, June 30, 1996 19,635,965 $17,137,892 2,544,540 $ 0 $ 0 $17,137,892
========== =========== ========= ========= ======== ===========
</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>
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 492,874 $ 658,851
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Equity in income of joint ventures (383,683) (567,595)
Distributions received from joint ventures 700,604 759,696
Partnership distributions paid (1,006,350) (847,416)
Depreciation 79,154 48,777
Changes in assets and liabilities:
Decrease in accounts receivable 1,993 21,911
Decrease in prepaids and
other assets 1,521 1,811
Increase in accounts payable 18,219 2,534
(Decrease) Increase due to affiliates 3,745 (104)
----------- ---------
Net cash (used in) provided by
operating activities (91,923) 78,465
----------- ---------
Net (decrease) increase in cash and cash
equivalents (91,923) 78,465
Cash and cash equivalents, beginning of year 500,327 318,250
----------- ---------
Cash and cash equivalents, end of period $ 408,404 $ 396,715
=========== =========
</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
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 June 30, 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 June 30, 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
June 30 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 based on the prevailing market
values and rates for those 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 by an
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 June
30, 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 was
originally leased under a separate lease to Lockheed Engineering and
Science Company, Inc., a wholly-owned subsidiary of the Lockheed
Company, each of which lease had lease terms of approximately eight
years and each of which expired on June 30, 1996.
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 June 30, 1996.
10
<PAGE>
As set forth above, the lease with Lockheed Company expired on
June 30, 1996, and although the Partnership has responded to various
potential tenants regarding leasing portions of the Atrium, no leases
have been signed as of June 30, 1996. It is anticipated that when
leases are obtained for the Atrium, rental rates will be lower than
those paid by the previous tenant, and income could decrease
significantly under these new leases. In addition, such leases are
likely to require substantial tenant finish and refurbishment
expenditures by the Partnership which could substantially reduce
future cash distributions to Limited Partners.
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.
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 June 30 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.
11
<PAGE>
As of June 30, 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 almost
completed on two buildings containing a total of approximately 49,500
square feet. As of June 30, 1996, leases were signed with Bertucci's
Restaurant Corporation for 5,935 square feet, Air Touch Cellular for 3,046
square feet, Townsend Tax for 1,389 square feet, and Coldwell Banker for
4,801 square feet. Initial occupancy occurred in February 1996. Three
tenants occupied the 880 Holcomb Bridge Road Property as of June 30, 1996
for an occupancy rate of 21%. The average effective annual rental was
$0.81 per square foot for the second quarter of 1996.
As of June 30, 1996, Fund II - Fund III Joint Venture had contributed
$1,729,116 in land and improvements for an approximate 30.7% equity
interest, Wells Fund VI had contributed $1,112,691 to the joint venture for
an approximate 20.6% equity interest, and Wells Fund VII had contributed
$2,630,000 to the joint venture for an approximate 48.7% equity interest.
As of June 30, 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 $257,000 will be contributed $131,300 by Wells Fund
VI and $125,700 by Wells Fund VII, which have reserved sufficient funds for
this purpose. 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 June 30, 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 Property
------------------------
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 at the same rental
rate as the original lease. 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 June 30 were 93% in 1996, 100% in
1995, 99% in 1994 and 1993, and 94% in 1992. The average effective
annual rental per square foot at the Stockbridge Property was $9.54
for 1996, $10.16 for 1995, $10.26 for 1994, $9.13 for 1993, and $7.34
for 1992.
As of June 30, 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 at the
same rental rate as the original lease. The occupancy rate at the
G.E. Building for the quarters ended June 30 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 June 30, 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 $330,130 for the three months ended June
30, 1996, as compared to $434,562 for the three months ended June 30, 1995, and
$685,327 for the six months ended June 30, 1996, as compared to $868,603 for the
same period in 1995. The decrease for 1996 over 1995 was due primarily to
decreased income from joint ventures which was primarily due to the increased
depreciation expenses described below.
Expenses of the Partnership decreased for 1996 compared to 1995 for the three
months ended June 30 and for the six months ended June 30. The decrease in
expenses was due primarily to increased tenant reimbursements. Depreciation
expenses increased from 1995 to 1996 due to a change in the estimated useful
lives of buildings and improvements as of December 31 1995, from 40 years to 25
years. Legal and accounting expenses also increased in 1996 compared to 1995.
Net cash used in operating activities decreased from cash provided of $78,465 in
1995 to a use of cash of $91,923 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 six months ending June 30, 1996 and 1995. 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 June 30, 1996 and
1995 and $0.04 per unit for each of the six months ended June 30, 1996 and 1995.
All distributions for 1995 and 1996 were made from investment income. No cash
distributions were made to the Limited Partners holding Class B Units or the
General Partners for the three months or six months ended June 30, 1996 and
1995.
16
<PAGE>
Property Operations
- -------------------
As of June 30, 1996, the Partnership owned interests in the following
properties:
<TABLE>
<CAPTION>
The Greenville Property
- -----------------------
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 146,241 $ 145,508 $ 291,983 $ 291,016
Expenses:
Depreciation 39,577 24,389 79,154 48,777
Management and leasing
expenses 18,254 20,341 35,822 37,829
Other operating expenses (23,795) 54,126 16,010 82,443
---------- --------- --------- ---------
34,036 98,856 130,986 169,049
---------- --------- --------- ---------
Net income $ 112,205 $ 46,652 $ 160,997 $ 121,967
========== ========= ========= =========
Occupied % 98% 100% 98% 100%
Partnership's Ownership % 100% 100% 100% 100%
Cash Generated to the
Partnership $ 154,201 $ 87,539 $ 244,989 $ 189,144
Net Income Allocated to the
Partnership $ 112,205 $ 46,652 $ 160,997 $ 121,967
</TABLE>
Rental income remained stable from 1995 to 1996. 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 decreased
due to increased tenant reimbursement by IBM received in the second quarter.
Prior year expenses were reimbursed, and IBM is now making monthly estimated
payments toward current year expenses.
17
<PAGE>
<TABLE>
<CAPTION>
The Atrium
- ----------
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 519,837 $ 519,837 $ 1,039,673 $ 1,039,673
Interest income 7,632 8,841 15,318 15,104
--------- --------- ----------- -----------
527,469 528,678 1,054,991 1,054,777
--------- --------- ----------- -----------
Expenses:
Depreciation 168,619 117,029 337,097 234,058
Management and leasing
expenses 35,690 35,690 71,380 71,380
Other operating expenses 147,609 61,323 233,551 132,027
--------- --------- ----------- -----------
351,918 214,042 642,028 437,465
--------- --------- ----------- -----------
Net income $ 175,551 $ 314,636 $ 412,963 $ 617,312
========= ========= =========== ===========
Occupied % 100% 100% 100% 100%
Partnership's Ownership % 34.4% 34.4% 34.4% 34.4%
Cash distributions to the
Partnership $ 140,164 $ 146,181 $ 294,141 $ 308,888
Net income allocated to the
Partnership $ 60,389 $ 108,234 $ 142,059 $ 212,355
</TABLE>
Rental and interest income remained stable for the three and six month periods
ended June 30, 1996 and 1995. The increases in depreciation expenses for the
three and six months ended June 30, 1996 over the same periods of 1995 are 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
Change in Financial Conditions". The increase in operating expenses to $147,609
for the three month period ended June 30, 1996, compared to the same three month
period of 1995, is primarily due to reimbursement paid to tenant of excess
expenses upon termination of the lease with Lockheed. Operating expenses
increased for the six month period of 1996 over 1995 for the reason mentioned
above and additional expenditures in first quarter of 1996 for engineering and
professional fees relating to attempting to obtain a new tenant for the
property.
The lease with Lockheed Company expired on June 30, 1996, and although the
Partnership has responded to various potential tenants regarding leasing
portions of the Atrium, no leases have been signed as of June 30, 1996. It is
anticipated that when leases are obtained for the Atrium, rental rates will be
lower than those paid by the previous tenant, and income could decrease
significantly under these new leases. In addition, such leases are likely to
require substantial tenant finish and refurbishment expenditures by the
Partnership which could substantially reduce future cash distribution to Limited
Partners.
18
<PAGE>
The Brookwood Grill Property
- ----------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Rental Income $ 56,187 $54,850 $112,375 $112,375
Equity loss of joint venture (20,990) 0 (26,423) 0
-------- ------- -------- --------
35,197 54,850 85,952 112,375
-------- ------- -------- --------
Expenses:
Depreciation 13,503 14,665 27,006 29,330
Management and leasing expenses 5,727 6,989 12,695 14,279
Other operating expenses 17,387 8,286 35,276 18,831
-------- ------- -------- --------
36,617 29,940 74,977 62,440
-------- ------- -------- --------
Net (loss) income $ (1,420) $24,910 $ 10,975 $ 49,935
======== ======= ======== ========
Occupied % 100% 100% 100% 100%
Partnership Ownership % 37.65% 37.65% 37.65% 37.65%
Cash distribution to the
Partnership $ 13,273 $14,738 $ 23,621 $ 29,520
Net income (loss) allocated to the
Partnership $ (535) $ 9,378 $ 4,132 $ 18,800
</TABLE>
Rental income remained relatively stable for the three and six month periods
ended June 30, 1996 and 1995. The decrease in depreciation for the three and
six month periods ended June 30 is due primarily to the contribution of land and
land improvements to the Fund II-III-VI-VIII Joint Venture. The increase in
other operating expenses for the three month period ended June 30, 1996, over
the same three months of 1995, is primarily due to decreased reimbursements from
tenant for property taxes. The increase in other operating expenses for the six
months ended June 30, 1996, over the same period of 1995, is the result of
decreased property tax reimbursements stated above and a reimbursement to the
tenant in first quarter 1996 of administrative charges paid in 1995. Net income
decreased for both the three and six month periods of 1996 compared to 1995 for
the reasons cited above and due to the net loss generated by the Fund II, III,
VI, VII Joint Venture.
19
<PAGE>
Holcomb Bridge Road Property - Fund II, III, VI, VII Joint Venture
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, 1996 June 30, 1996
------------- -------------
<S> <C> <C>
Revenues:
Rental income $ 43,754 $ 53,175
Expenses:
Depreciation 77,822 83,942
Management and leasing expenses 5,029 6,080
Other operating expenses 28,894 47,733
-------- --------
111,745 137,755
-------- --------
Net Loss $(67,991) $(84,580)
======== ========
Occupied % 20.9% 20.9%
Partnership's Ownership % in the
Fund II, III, VI, VII Joint Venture 11.57% 11.57%
Cash Distribution to the Fund II-Fund III
Joint Venture* $ 0 $ 0
Net Loss Allocated to the Fund II-Fund III
Joint Venture* $(20,990) $(26,423)
</TABLE>
* The Partnership holds a 37.65% 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 June 30, 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 June 30, 1995, no comparative figures are
available for the quarter.
As of June 30, 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 for an approximate 19.5% equity interest, and Wells
Fund VII contributed $2,500,000 for an approximate 47.8% 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 $257,000, $131,300 will be contributed by Wells
Fund VI and $125,700 by Wells Fund VII for an anticipated equity interest of
48.7% by Wells Fund VII, 30.7% by the Fund II-Fund III Joint Venture and 20.6%
by Wells Fund VI. Wells Fund VI and Wells Fund VII have reserved sufficient
funds for this purpose.
20
<PAGE>
The Stockbridge Property
- ------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Rental income $269,887 $299,736 $538,342 $596,271
Interest income 3,079 4,062 6,692 8,542
-------- -------- -------- --------
272,966 303,798 545,034 604,813
Expenses:
Depreciation 84,748 55,296 169,496 110,592
Management and leasing expenses 24,166 30,445 51,320 59,266
Other expenses 22,970 19,188 48,362 30,567
-------- -------- -------- --------
131,884 104,929 269,178 200,425
-------- -------- -------- --------
Net income $141,082 $198,869 $275,856 $404,388
======== ======== ======== ========
Occupied % 93% 100% 93% 100%
Partnership's Ownership % 57.3% 57.3% 57.3% 57.3%
Cash Distributed to the
Partnership $136,168 $151,464 $268,712 $306,082
Net income allocated to the
Partnership $ 80,863 $113,985 $158,111 $231,782
</TABLE>
Rental income decreased for the three and the six months ended June 30, 1996, as
compared to the same periods in 1995, due to decreased occupancy resulting from
the early termination of a lease for 8,025 square feet. Although no leases have
been signed, every effort is being made to re-lease this space. Expenses of
the property increased from $200,425 in 1995 to $269,856 in 1996 due primarily
to the increase in depreciation expenses 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 and
extraordinary painting expenditures.
21
<PAGE>
The G.E. Building/Richmond
- --------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rental income $131,856 $131,856 $263,712 $263,712
Expenses:
Depreciation 49,053 28,160 98,106 56,320
Management and leasing
expenses 9,965 9,926 19,930 19,891
Other operating expenses 4,162 1,898 7,182 4,905
-------- -------- -------- --------
63,180 39,984 125,218 81,116
-------- -------- -------- --------
Net income $ 68,676 $ 91,872 $138,494 $182,596
======== ======== ======== ========
Occupied % 100% 100% 100% 100%
Partnership's Ownership % 57.3% 57.3% 57.3% 57.3%
Cash Distributed to the
Partnership $ 68,307 $ 68,241 $135,826 $134,466
Net Income Allocated to the
Partnership $ 39,362 $ 52,658 $ 79,380 $104,658
</TABLE>
Rental income remained constant for 1996 and 1995. Total expenses increased in
1996, over 1995, and accordingly, net income decreased in 1996, as compared to
1995, due primarily to the increase in depreciation expenses 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 Change in
Financial Condition".
22
<PAGE>
PART II - OTHER INFORMATION
Item 6(b). No reports on Form 8-K were filed during the second quarter of 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
WELLS REAL ESTATE FUND III, L.P.
(Registrant)
Dated: August 13, 1996 By: /s/Leo F. Wells, III
------------------------------------------------
Leo F. Wells, III, as Individual General
Partner and as President, Sole Director and Chief
Financial Officer of Wells Capital, Inc., the
Corporate General Partner
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 408,404
<SECURITIES> 13,107,429
<RECEIVABLES> 416,795
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 27,574
<PP&E> 4,141,950
<DEPRECIATION> 534,058
<TOTAL-ASSETS> 17,568,058
<CURRENT-LIABILITIES> 430,166
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 17,137,892
<TOTAL-LIABILITY-AND-EQUITY> 17,568,058
<SALES> 0
<TOTAL-REVENUES> 685,327
<CGS> 0
<TOTAL-COSTS> 192,453
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 492,874
<INCOME-TAX> 492,874
<INCOME-CONTINUING> 492,874
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 492,874
<EPS-PRIMARY> .03
<EPS-DILUTED> 0
</TABLE>
