<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, 1998 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 Identification No.)
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
----------------
- --------------------------------------------------------------------------------
(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
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Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - March 31, 1998
and December 31, 1997.................... 3
Statements of Income for the Three Months
Ended March 31, 1998 and 1997............ 4
Statement of Partner's Capital for the
Three Months Ended March 31, 1998
and the Year Ended December 31, 1997..... 5
Statements of Cash Flows for the Three
Months Ended March 31, 1998 and 1997..... 6
Condensed Notes to Financial Statements.. 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 8
PART II. OTHER INFORMATION........................... 16
2
<PAGE>
WELLS REAL ESTATE FUND III, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
Assets March 31, 1998 December 31, 1997
------ -------------- ------------------
<S> <C> <C>
Real estate, at cost:
Land $ 576,350 $ 576,350
Building and improvements, less accumulated
depreciation of $811,098 in 1998 and $771,521
in 1997 2,754,504 2,794,080
Construction in progress 79,022 0
----------- -----------
Total real estate 3,409,876 3,370,430
----------- -----------
Cash and cash equivalents 145,382 216,961
Investment in joint ventures (Note 2) 12,662,376 12,807,576
Due from affiliates 292,851 316,089
Accounts receivable 59,235 62,621
Prepaid expenses and other assets 18,842 17,990
----------- -----------
Total assets $16,588,562 $16,791,667
=========== ===========
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Accounts payable $ 23,880 $ 7,535
Partnership distributions payable 374,531 396,991
Due to affiliates 32,965 3,436
----------- -----------
Total liabilities 431,376 407,962
----------- -----------
Partners' capital:
General Partners 0 0
Limited Partners:
Class A - 19,635,965 units outstanding 16,157,186 16,383,705
Class B - 2,544,540 units outstanding 0 0
----------- -----------
Total partners' capital 16,157,186 16,383,705
----------- -----------
Total liabilities and partners' capital $16,588,562 $16,791,667
=========== ===========
</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, 1998 March 31, 1997
------------------ --------------
<S> <C> <C>
Revenues:
Rental income $137,765 $147,677
Interest income 629 7,159
Equity in income of joint ventures (Note 2) 117,263 44,873
-------- --------
255,657 199,709
-------- --------
Expenses:
Management and leasing fees 8,783 9,108
Operating costs-rental properties,
net of tenant reimbursements 46,357 55,194
Depreciation 39,577 41,427
Legal and accounting expenses 4,771 11,617
Computer expense 2,010 3,306
Partnership administration 8,429 14,652
-------- --------
109,927 135,304
-------- --------
Net income $145,730 $ 64,405
======== ========
Net income allocated to
Class A Limited Partners $145,730 $ 64,405
Net loss allocated to
Class B Limited Partners $ 0 $ 0
Net income per Class A
Limited Partner Unit $ 0.01 $ 0.00
Net loss per Class B
Limited Partner Unit $ 0 $ 0
Cash distribution per Class A
Limited Partner Unit $ 0.02 $ 0
</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, 1997 AND THE THREE MONTHS ENDED
MARCH 31, 1998
<TABLE>
<CAPTION>
LIMITED PARTNERS
---------------------------------------------
CLASS A CLASS B TOTAL
------------------------- ------------------ PARTNERS'
UNITS AMOUNTS UNITS AMOUNTS CAPITAL
---------- ------------- --------- ------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 19,635,965 $16,743,131 2,544,540 $0 $16,743,131
Net income 0 385,224 0 0 385,224
Partnership distributions 0 (744,650) 0 0 (744,650)
---------- ----------- --------- -- -----------
BALANCE, December 31, 1997 19,635,965 16,383,705 2,544,540 0 16,383,705
Net income 0 145,730 0 0 145,730
Partnership distributions 0 (372,249) 0 0 (293,226)
---------- ----------- --------- -- -----------
BALANCE, March 31, 1998 19,635,965 $16,157,186 2,544,540 $0 $16,236,209
========== =========== ========= == ===========
</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>
Three Months Ended
---------------------------------------------
March 31, 1998 March 31, 1997
---------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 145,730 $ 64,405
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in income of joint ventures (117,263) (44,873)
Depreciation 39,577 41,427
Changes in assets and liabilities:
Accounts receivable 7,687 (7,641)
Prepaids and other assets (852) (4,706)
Accounts payable 16,345 4,127
Due to affiliates 29,529 0
--------- ---------
Net cash provided by operating activities 120,753 52,739
--------- ---------
Cash flow from investing activities:
Investment in joint ventures (109,410) 0
Distributions received from joint ventures 311,787 242,945
--------- ---------
Net cash provided by investing activities 202,377 242,945
Cash flow from financing activities:
Partnership distribution paid (394,709) (320,762)
--------- ---------
Net decrease in cash and cash equivalents (71,579) (25,078)
Cash and cash equivalents, beginning of year 216,961 342,318
--------- ---------
Cash and cash equivalents, end of period $ 145,382 $ 317,240
========= =========
</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 of two
classes of limited partnership interests, Class A and Class B limited
partnership units.
The Partnership owns interests in properties through equity ownership in
the following joint ventures: (i) The Fund II - Fund III Joint Venture,
(ii) The Fund II, III, VI and VII Associates Joint Venture and (iii) The
Fund III - Fund IV Joint Venture.
As of March 31, 1998, the Partnership owned interest in the following
properties: (i) the Greenville Property, an office building in Greenville,
North Carolina, owned directly by the Partnership, (ii) Boeing at the
Atrium, an office building in Houston, Texas, owned directly by Fund II -
Fund III Joint Venture, (iii) the Brookwood Grill, a restaurant located in
Roswell, Georgia, owned by The Fund II - Fund III Joint Venture, (iv) the
Stockbridge Village Shopping Center, a retail shopping center located in
Stockbridge, Georgia, southeast of Atlanta, owned by Fund III - Fund IV
Joint Venture, (v) the G.E. Office Building located in Richmond, Virginia,
owned by Fund III - Fund IV Joint Venture, and (vi) an office/retail center
in Roswell, Georgia, owned by Fund II, III, VI and VII Joint Venture. 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. 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 principles 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
7
<PAGE>
information, refer to the financial statements and footnotes included in
the Partnership's Form 10-K for the year ended December 31, 1997.
(2) 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 on the equity method.
For a description of the joint ventures and properties owned by the
Partnership, please refer to the Partnership's Form 10-K for the year ended
December 31, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
-----------------------------------------------------------------------
RESULTS OF OPERATIONS.
----------------------
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 $255,657 for the three months ended
March 31, 1998, with an occupancy rate of 95.7%, as compared to $199,709
for the three months ended March 31, 1997 with an occupancy rate of 72.5%.
The increase for 1998 over 1997 was due to increased income from joint
ventures, primarily due to occupancy increases at Boeing at the Atrium and
the Office Retail Center in Roswell, Georgia.
Expenses of the Partnership decreased from $135,304 for the three months
ended March 31, 1997, to $109,927 for the three months ended March 31,
1998. The decrease in expenses was due primarily to decreased operating
costs, legal and accounting expenses, and computer costs.
8
<PAGE>
Net cash provided by operating activities increased from $52,739 in 1997
to $120,753 in 1998, due to the increase in net income.
The General Partners have verified that all operational computer systems
are year 2000 compliant. This includes systems supporting accounting,
property management and investor services. Also, as part of this review,
all building control systems have been verified as compliant. The current
line of business applications are based on compliant operating systems and
database servers. All of these products are scheduled for additional
upgrades before the year 2000. Therefore, it is not anticipated that the
year 2000 will have significant impact on operations.
The Partnership made cash distributions to the Limited Partners hold Class
A Units of $.01per Class A Unit for the three months ended March 31, 1998,
as compared to no distribution for the three months ended March 31, 1997.
No cash distributions were made to Limited Partners holding Class B Units
or the General Partners for the three months ended March 31, 1998 and 1997.
The Partnership's distributions paid and payable through the first quarter
of 1998 have been paid from net cash from operations and from distributions
received from its investments in joint ventures, and the Partnership
anticipates that distributions will continue to be paid on a quarterly
basis from such sources. The Partnership expects to meet liquidity
requirements and budget demands through cash flows.
The Partnership is unaware of any know 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.
RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income", requires certain transactions (e.g., unrealized
gains/losses on available for sale securities) that are not reflected in
net income to be displayed as other comprehensive income. The Statement
also requires an entity to report total comprehensive income (i.e., net
income plus other comprehensive income) for every period in which an income
statement is presented. SFAS No. 130 is effective for annual and interim
periods beginning after December 15, 1997. None of the transactions
required to be reported in other comprehensive income pertain to the
Partnership; consequently, adoption of this Statement had no impact on the
partnership's disclosures.
9
<PAGE>
PROPERTY OPERATIONS
- -------------------
As of March 31, 1998, the Partnership owned interests in the following
properties:
The Greenville Property- Fund III
- ---------------------------------
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------
March 31, 1998 March 31, 1997
--------------- ----------------
<S> <C> <C>
Revenues:
Rental income $137,765 $147,677
Expenses:
Depreciation 39,577 41,428
Management & leasing expenses 16,974 16,698
Other operating expenses 38,166 47,604
-------- --------
94,717 105,730
-------- --------
Net income $ 43,048 $ 41,947
======== ========
Occupied % 92% 100%
Partnership's Ownership % 100% 100%
Cash generated to the Partnership $ 91,582 $ 85,463
Net income generated to the Partnership $ 43,048 $ 41,947
</TABLE>
Rental income decreased from 1997 to 1998, due to the decline in occupancy from
100% to 92%. Expenses of the Greenville Property decreased from $117,490 in
1997 to $107,138 in 1998 due primarily to decreased repairs and maintenance.
10
<PAGE>
Boeing at the Atrium/Fund II and Fund III Joint Venture
- -------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------
March 31, 1998 March 31, 1997
-------------- ---------------
<S> <C> <C>
Revenues:
Rental income $367,536 $ 0
Interest income 0 2,517
-------- ---------
367,536 2,517
-------- ---------
Expenses:
Depreciation 216,930 168,642
Management & leasing expenses 44,488 0
Other operating expenses 158,431 97,967
-------- ---------
419,849 266,609
-------- ---------
Net (loss) $(52,313) $(264,092)
======== =========
Occupied % 100% 0%
Partnership's Ownership % 38.7% 34.4%
Cash distributions to the Partnership $ 71,307 $ 0
Net loss allocated to the Partnership $(20,245) $ (90,848)
</TABLE>
Rental income increased for the three months ended March 31, 1998, compared to
the same period in 1997, due to the vacancy of the Atrium for the first four and
a half months of 1997.
Depreciation, management and leasing, and other expenses have increased in 1998
compared to 1997 with the occupancy of the building by Boeing. Cash generated
to the Partnership increased, due primarily to the increase in rental revenues
and reimbursement of tenant improvements of approximately $12,000 received from
Boeing.
11
<PAGE>
The Brookwood Grill Property/Fund II and Fund III Joint Venture
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Revenues:
Rental income $56,338 $56,544
Equity in income of joint venture 16,131 10,857
------- -------
72,469 67,401
------- -------
Expenses:
Depreciation 13,503 13,503
Management & leasing expenses 7,033 6,761
Other operating expenses 5,229 2,259
------- -------
25,765 22,523
------- -------
Net income $46,704 $44,878
======= =======
Occupied % 100% 100%
Partnership's Ownership % 37.7% 38.0%
Cash distributions to the Partnership $34,813 $28,460
Net income allocated to the Partnership $17,584 $16,896
</TABLE>
Rental income has increased for the three months ended March 31, 1998 as
compared to 1997, due primarily to the increase in equity in income of joint
venture, which is the result of increased occupancy at the Holcomb Bridge
Property. The increase in operating expenses for the first quarter of 1998 over
the same period of 1997 is due primarily to billing of reimbursements in first
quarter 1997. The increase in net income is due primarily to the increase of
approximately $5,000 in the equity income of the joint venture which was
partially offset by the decrease in reimbursements noted above.
12
<PAGE>
Holcomb Bridge Road Property/Fund II, III, VI, VII Joint Venture
- ----------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Revenues:
Rental income $213,235 $160,185
Expenses:
Depreciation 93,904 66,130
Management & leasing expenses 29,364 20,580
Other operating expenses 23,033 30,307
-------- --------
146,301 117,017
-------- --------
Net income $ 66,934 $ 43,168
======== ========
Occupied % 94.1% 63.0%
Partnership's Ownership % 9.1% 9.5%
Cash distributions to the
Fund II-Fund III Joint Venture* $ 41,168 $ 27,496
Net income allocated to the
Fund II-Fund III Joint Venture* $ 16,131 $ 10,857
</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 to the Fund II, III, VI,
VII Joint Venture. Development is being completed on two buildings with a total
of approximately 49,500 square feet.
As of March 31, 1998, fourteen tenants are occupying approximately 46,600 square
feet of space in the retail and office building under leases of varying lengths.
Increases in revenues, expenses and net income for the quarter ended March 31,
1998, compared to the same quarter of 1997, are due to the five additional
tenants occupying the property in 1998, as compared to the first quarter of
1997.
The Partnership's ownership percentage in the Fund II, III, VI, VII Joint
Venture decreased to 9.06 % in 1998, as compared to 9.47% in 1997, due to
additional fundings for construction by Wells Real Estate Fund VII.
13
<PAGE>
The G.E. Building/Richmond-Fund III-Fund IV Joint Venture
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Revenues:
Rental income $131,856 $131,856
Expenses:
Depreciation 49,053 49,056
Management & leasing expenses 10,014 9,965
Other operating expenses 15,455 3,403
-------- --------
74,522 62,424
-------- --------
Net income $ 57,334 $ 69,432
======== ========
Occupied % 100% 100%
Partnership's Ownership % 57.3% 57.3%
Cash distributions to the Partnership $ 63,249 $ 68,743
Net income allocated to the Partnership $ 32,862 $ 39,796
</TABLE>
Rental income remained constant for 1998 and 1997. Expenses, net income and
cash distributions generated from the G.E. Building decreased in the first
quarter of 1998, as compared to the same period for 1997, due primarily to an
extraordinary roof repair.
14
<PAGE>
The Stockbridge Village Shopping Center Property/Fund III-Fund IV Joint Venture
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Revenues:
Rental income $285,364 $273,737
Interest income 1,965 3,643
-------- --------
287,329 277,380
-------- --------
Expenses:
Depreciation 84,747 84,747
Management & leasing expenses 28,463 30,336
Other operating expenses 21,708 24,418
-------- --------
134,918 139,501
-------- --------
Net income $152,411 $137,879
======== ========
Occupied % 93% 93%
Partnership's Ownership % 57.3% 57.3%
Cash distributions to the Partnership $123,483 $133,367
Net income allocated to the Partnership $ 87,063 $ 79,028
</TABLE>
Rental income and net income increased in 1998 as compared to 1997 due primarily
to increased renewals and a slight decrease in expenses.
15
<PAGE>
PART II - OTHER INFORMATION
----------------------------
Item 6(b). No reports on Form 8-K were filed during the first quarter of 1998.
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 11, 1998 By: /s/Leo F. Wells, III
--------------------
Leo F. Wells, III, as Individual
General Partner and as President
and Chief Financial
Officer of Wells Capital, Inc.
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 145,382
<SECURITIES> 12,662,376
<RECEIVABLES> 352,086
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,842
<PP&E> 3,565,602
<DEPRECIATION> 811,098
<TOTAL-ASSETS> 16,588,562
<CURRENT-LIABILITIES> 431,376
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 16,157,186
<TOTAL-LIABILITY-AND-EQUITY> 16,588,562
<SALES> 0
<TOTAL-REVENUES> 255,657
<CGS> 0
<TOTAL-COSTS> 109,927
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 145,730
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 145,730
<EPS-PRIMARY> .01
<EPS-DILUTED> 0
</TABLE>
