<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1997 or
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[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period to
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Commission file number 0-18407
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Wells Real Estate Fund III, L.P.
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(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 Number)
3885 Holcomb Bridge Road, Norcross, Georgia 30992
- ------------------------------------------- ---------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (770) 449-7800
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
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NONE NONE
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Securities registered pursuant to Section 12(g) of the Act:
CLASS A UNITS
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(Title of Class)
CLASS B UNITS
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Aggregate market value of the voting stock
held by non-affiliates: Not Applicable
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PART I
ITEM 1. BUSINESS
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GENERAL
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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 $22,206,310 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 directly and through equity
ownership in the following joint ventures: (i) the Fund II - Fund III Joint
Venture, (ii) the Fund II, III, VI and VII Joint Venture, and (iii) the Fund III
- - Fund IV Joint Venture.
As of December 31, 1997, the Partnership owned interest in the following
properties: (i) the Greenville Property, an office building in Greenville,
North Carolina, owned by the Partnership, (ii) The Atrium, an office building
in Houston, Texas, owned by the 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
the Fund III - Fund IV Joint Venture, (v) the G.E. Office Building located in
Richmond, Virginia, owned by the Fund III - Fund IV Joint Venture, and (vi) an
office/retail center in Roswell, Georgia, owned by the Fund II, III, VI and VII
Joint Venture. All of the foregoing properties were acquired on an all cash
basis.
EMPLOYEES
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The Partnership has no direct employees. The employees of Wells Capital, Inc.,
a General Partner of the Partnership, perform a full range of real estate
services including leasing and property management, accounting, asset management
and investor relations for the Partnership. See Item 11 - "Compensation of
General Partners and Affiliates" for a summary of the compensation and fees paid
to the General Partners and their affiliates during the fiscal year ended
December 31, 1997.
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INSURANCE
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Wells Management Company, Inc., an affiliate of the General Partner, 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.
COMPETITION
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The Partnership will experience competition for tenants from owners and managers
of competing projects which may include the General Partners and their
affiliates. As a result, the Partnership may be required to provide free rent,
reduced charges for tenant improvements and other inducements, all of which may
have an adverse impact on results of operations. At the time the Partnership
elects to dispose of its properties, the Partnership will also be in competition
with sellers of similar properties to locate suitable purchasers for its
properties.
ITEM 2. PROPERTIES
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The Partnership owns six properties directly or through its ownership in joint
ventures of which three are office buildings, one a restaurant, one a retail
building and one a retail/office project. The Partnership does not have control
over the operations of the joint ventures; however, it does exercise significant
influence. Accordingly, investment in joint ventures is recorded on the equity
method. As of December 31, 1997, these properties were 96.0% occupied, compared
to 98.0% at December 31, 1996, 97.0% at December 31, 1995, 99.0% at December 31,
1994, and 99.0% at December 31, 1993.
The following table shows lease expirations during each of the next ten years
for all leases as of December 31, 1997, assuming no exercise of renewal options
or termination rights:
<TABLE>
<CAPTION>
Partnership
Share of Percentage of
Number of Annualized Annualized Percentage of Total
Year of Lease Leases Square Feet Gross Base Rent Gross Base Rent Total Square Annualized
Expiration Expiring Expiring (1) (1) Feet Expiring Gross Base Rent
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998 6 18,154 197,316 142,982 6.3% 4.7%
1999 6 11,843 156,049 55,452 4.1% 3.7%
2000(2) 3 50,793 686,498 327,625 17.8% 16.2%
2001(3) 5 32,767 664,891 488,389 11.5% 15.7%
2002(4) 17 166,436 2,413,416 924,447 58.2% 56.8%
2003 0 0 0 0 .0% 0.0%
2004 0 0 0 0 .0% 0.0%
2005 0 0 0 0 .0% 0.0%
2006 1 5,935 122,294 11,496 2.1% 2.9%
2007 0 0 0 0 .0% .0%
- ----------------------------------------------------------------------------------------------------------------------------
38 285,928 $4,240,464 $1,950,391 100.0% 100.0%
</TABLE>
3
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(1) Average monthly gross rent over the life of the lease, annualized.
(2) Expiration of General Electric.
(3) Expiration of IBM with 23,322 square feet at the Greenville Property and
the Brookwood
Grill with 7,440 square feet.
(4) Expiration of Boeing at The Atrium with 119,040 square feet.
The following describes the properties in which the Partnership owns an interest
as of December 31, 1997:
The Greenville Property/Fund III
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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. As of December 31, 1997, the
Partnership had expended approximately $3,778,000 for the acquisition,
development and construction of the Greenville Project.
The occupancy rate at the Greenville Property at year end was 92% in 1997, 100%
in 1996, 1995, and 1994, and 95% in 1993.
The average effective annual rental per square foot at the Greenville Property
was $16.66 for 1997, $17.40 for 1996, $17.01 for 1995, $16.73 for 1994, and
$16.74 for 1993.
Two tenants occupy ten percent or more of the rentable square footage -
International Business Machines Corporation ("IBM"), a computer sales and
service 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
Project. 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 Project should the Partnership receive a bona fide offer from the
third party to purchase the Greenville Project during the term of the lease.
IBM also has the right of first refusal to lease all or a portion of any
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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 $50,150 in 1995, $51,717 in 1996, and $53,200 in
1997. The Team YASNY lease expires March 31, 1998.
The Atrium/Fund II - Fund III Joint Venture
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On April 3, 1989, the Partnership formed a joint venture (the "Fund II - Fund
III Joint Venture") with an existing joint venture (the "Fund II - Fund II-OW
Joint Venture") previously formed between Wells Real Estate Fund II ("Wells Fund
II") and Wells Real Estate Fund II-OW ("Wells Fund II-OW"). Wells Fund II and
Wells Fund II-OW are public limited partnerships affiliated with the Partnership
through common general partners with investment objectives substantially
identical to those of the Partnership.
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 December 31, 1997, 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 Atrium was first occupied in 1987 and contains approximately 119,000 net
rentable square feet. Each floor of the Atrium was originally under a separate
lease to Lockheed Engineering and Science Company, Inc., a wholly-owned
subsidiary of the Lockheed Company, each of which leases had terms of
approximately eight years and expired on June 30, 1996, and upon which date
Lockheed vacated the property.
On March 3, 1997, a lease was signed with The Boeing Company for the entire
Atrium building. The lease is for a period of five years with an option to
renew for an additional five year term. The rental rate for the first three
years of the lease term is $12.25 per square foot and $12.50 per square foot for
the final two years of initial lease term. The rate for the optional five year
term will be determined based upon then current market rates. Upon 150 day
prior written notice, Boeing has the right to cancel its lease in the event that
NASA or another prime contractor were to cancel or substantially reduce its
contract. In addition, there is a no-cause cancellation provision at the end of
the first three year period. If this no-cause cancellation is exercised, Boeing
would be required to
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pay unamortized, up-front tenant improvement costs. The lease also provides that
tenant will pay certain operating expenses in excess of $5.50 per square foot on
an annual basis.
Boeing began the move-in phase of its occupancy on April 15, 1997, and occupied
The Atrium and began paying rent on May 15, 1997. The total cost of completing
the required tenant improvements and outside broker commissions of approximately
$1.4 million is being funded out of reserves and cash flows of the Partnership,
Wells Fund II and Wells Fund II-OW. As of December 31, 1997, the Partnership
had contributed approximately $659,810, Wells Fund II-OW had contributed
approximately $21,744, Wells Fund II had contributed approximately $387,752, and
Fund II Fund III Joint Venture had contributed $330,694 to fund the tenant
improvements and outside broker commissions required. The ownership percentages
in The Atrium have been adjusted as a result of these additional capital
contributions, and as of December 31, 1997, the Fund II - Fund II-OW Joint
Venture holds an equity interest in The Atrium of approximately 61%, and the
Partnership holds an equity interest of approximately 39% in the Atrium project.
The occupancy rate of the Atrium Property as of December 31, 1997 was 100%, in
1996 was 0% and 100% for 1993 through 1995. The average annual effective rate
was $7.77 for 1997, $8.81 for 1996, and 17.47 for 1993 through 1995.
The Brookwood Grill Property/Fund II - Fund III Joint Venture
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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 "Holcomb Bridge
Road 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
approximately 1.5 acres of the Holcomb Bridge Road Property (the "Brookwood
Grill 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 Brookwood Grill 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. This Roswell site, which opened
early in March 1992, is the second location in the Atlanta area for what is
anticipated as a southeastern chain of restaurants similar in concept to
Houston's, Ruby Tuesday, and Friday's. This chain is principally owned by David
Rowe, an Atlanta real estate developer of Kroger shopping centers, and several
operating partners formerly with Houston's. 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. The Fund II - Fund III Joint Venture has expended
approximately $1,100,000
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for the development and construction of the restaurant building together with
parking areas, driveways, landscaping and other 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 at year end for the Brookwood Grill, a sole tenant, was 100%
for 1997, 1996, 1995, 1994, and 1993. The average effective annual rental per
square foot at the Brookwood Grill is $30.26 for 1997, $30.29 for 1996, $30.21
for 1995, 1994 and 1993.
As of December 31, 1997, 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 remaining 4.3 acres of land comprising the Holcomb
Bridge Road Property was contributed to a new joint venture, Fund II, III, VI
and VII Associates by Fund II - Fund III Joint Venture. This property is
described below.
Holcomb Bridge Road Property/Fund II, III, VI and VII Associates
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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 Fund 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 to the Fund
II-III-VI-VII Joint Venture 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. Development is
substantially complete on two buildings containing a total of approximately
49,500 square feet. Fourteen tenants occupied the Holcomb Bridge Property as of
December 31, 1997, for an occupancy rate of 94% at year end. The average
effective annual rental per square foot was $13.71 for 1997 and $9.87 for 1996.
As of December 31, 1997, Fund II and Fund III Joint Venture had contributed
$1,729,116 in land and improvements for an equity interest of approximately
24.2%, Wells Fund VI had contributed $1,812,579 for an equity interest of
approximately 26.9%, and Wells Fund VII had contributed $3,335,121 for an
equity interest of approximately 48.9%. The total cost to develop the Holcomb
Bridge Road Property is currently estimated to be approximately $5,214,000,
excluding land. It is anticipated that of the remaining cost of approximately
$66,000 will be
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funded from reserves of Wells Fund VI and Wells Fund VII. Wells Fund VI and
Wells Fund VII have reserved sufficient funds for this purpose. The Partnership
is not obligated to provide any additional funding for the Holcomb Bridge Road
Property.
Fund III - Fund IV Joint Venture
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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 IV 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 the Joint Venture 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 a multi-tenant retail center and an office building described
below. As of December 31, 1997, 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
the two properties as described below.
The Stockbridge Village Shopping Center/Fund III and Fund IV Joint Venture
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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 ("Stockbridge Property"). The Stockbridge Property consists of a
multi-tenant shopping center containing approximately 112,891 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 48,794 square feet is
composed of 12 separate retail spaces and 3 free-standing buildings. The
occupancy rate at year end for the Stockbridge Property was 93% in 1997, 1996
and 1995, 97% in 1994, and 95% in 1993. The average effective annual rental per
square foot at the Stockbridge Property was $9.86 for 1997, $9.59 for 1996,
$10.16 for 1995, $10.26 for 1994, and $9.13 for 1993.
As of December 31, 1997, 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.
The G.E. Building/Fund III - Fund IV Joint Venture
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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.
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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 year end for the G.E. Building was 100%
for the years ended December 31, 1997, 1996, 1995, 1994, and 1993. The average
effective annual rental per square foot at the G.E. Building is $12.27 for 1997,
1996, 1995, 1994, and 1993. As of December 31, 1997, 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.
ITEM 3. LEGAL PROCEEDINGS
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Litigation was instituted in the Superior Court of Gwinnett County, Georgia on
January 13, 1997 against the Partnership, Wells Real Estate Fund II, L.P.
("Wells Fund II"), Wells Capital, Inc. and Leo F. Wells, II, who are the
general partners of the Partnership and Wells Fund II, in connection with a
request by a limited partner in the Partnership and Wells Fund II for a list of
the names, addresses and ownership interests of the limited partners which to
date the defendants have refused to furnish to the plaintiff. The case is
styled Gramercy Park Investments L.P. v. Wells Real Estate Fund II, Wells Real
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Estate Fund III, L.P., Wells Capital, Inc. and Leo F. Wells, III. The
- -----------------------------------------------------------------
plaintiff, which is a limited partner in both the Partnership and Wells Fund
II, alleged that it was entitled to copies of the limited partner lists under
applicable provisions of Georgia partnership law and the partnership agreements
of the Partnership and Wells Fund II so that plaintiff could make an offer to
purchase up to 4.9% of the partnership units in each fund. The plaintiff sought
an order directing the defendants to furnish to the plaintiff a current list of
the names, addresses and ownership interests of the limited partners in the
Partnership and Wells Fund II, as well as an award of certain damages,
including its costs and attorneys' fees and such other relief as the court would
deem just and proper. On February 26, 1997, the Court denied the plaintiff's
request for an immediate order requiring defendants to furnish the lists to the
plaintiff and instead ordered expedited discovery to be completed by March 31,
1997. Ultimately, the Court secured an agreement between the plaintiff and
defendant, which detailed the conditions and circumstances under which copies of
limited partner lists would be made available for use by the plaintiff (via a
third-party mailing service, as specified by the agreement) and conditions under
which an offer would be made by the plaintiff to the limited partners. The
agreement detailed time deadlines for actions by both the defendant and the
plaintiff. The time deadline for the actual making of offers to the limited
partners was not met by the plaintiff. The list of investor names has been
returned to the defendant by the third-party mailing service, and this legal
proceeding appears to be terminated at this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted to a vote of the Limited Partners during the fourth
quarter of 1997.
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PART II
ITEM 5. MARKET FOR PARTNERSHIP'S UNITS AND RELATED SECURITY
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HOLDER MATTERS
--------------
As of February 28, 1998, the Partnership had 19,635,965 outstanding Class A
Units held by a total of 2,319 Limited Partners and 2,544,540 outstanding Class
B Units held by a total of 202 Limited Partners. The capital contribution per
unit is $1.00. There is no established public trading market for the
Partnership's limited partnership units, and it is not anticipated that a public
trading market for the units will develop. Under the Partnership Agreement, the
General Partners have the right to prohibit transfers of units.
The General Partners have estimated the investment value of properties held by
the Partnership as of December 31, 1997 to be $1.10 per unit based on market
conditions existing in early December, 1997. This value was confirmed as
reasonable by an independent MAI appraiser, David L. Beal Company, although no
actual MAI appraisal was performed due to the inordinate expense involved with
such an undertaking. The valuation does not include any fractional interest
valuation or any distinction between different Classes of Partnership Units.
Class A Unit holders are entitled to an annual 8% non-cumulative distribution
preference over Class B Unit holders as to distributions from Net Cash From
Operations, as defined in the Partnership Agreement to mean Cash Flow, less
adequate cash reserves for other obligations of the Partnership for which there
is no provision, but are initially allocated none of the depreciation,
amortization, cost recovery and interest expense. These items are allocated to
Class B Unit holders until their capital account balances have been reduced to
zero.
Net Cash From Operations to the Limited Partners is distributed on a quarterly
basis unless Limited Partners elect to have their cash distributions paid
monthly. Cash distributions made to the Limited Partners during the two most
recent fiscal years were as follows:
<TABLE>
<CAPTION>
Per Class A Per Class A Per Class B
Unit Unit Unit
Distribution for Total Cash Investment Return of Return of
Quarter Ended Distributed Income Capital Capital General Partner
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
March 31, 1996 $392,719 $0.02 $0.00 $0.00 $0.00
June 30, 1996 $392,719 $0.02 $0.00 $0.00 $0.00
September 30, 1996 $312,517 $0.02 $0.00 $0.00 $0.00
December 31, 1996 $320,615 $0.01 $0.00 $0.00 $0.00
March 31, 1997 $ 0 $0.00 $0.00 $0.00 $0.00
June 30, 1997 $ 0 $0.00 $0.00 $0.00 $0.00
September 30, 1997 $349,938 $0.02 $0.00 $0.00 $0.00
December 31, 1997 $394,712 $0.02 $0.00 $0.00 $0.00
</TABLE>
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The fourth quarter distribution was accrued for accounting purposes in 1997, and
was not actually paid to the Limited Partners holding Class A units until
February 1998. The General Partners anticipate that cash distributions to
Limited Partners holding Class A units will continue in 1998 at a level at least
comparable with 1997 cash distributions; however, there is no guarantee of this.
ITEM 6. SELECTED FINANCIAL DATA.
- ------ -----------------------
The following sets forth a summary of the selected financial data for the fiscal
years ended December 31, 1997, 1996, 1995, 1994, and 1993:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Assets $16,791,667 $17,114,963 $18,059,571 $18,561,131 $19,006,762
Total Revenues 850,058 1,155,615 1,587,267 1,572,895 1,528,968
Net Income 385,224 731,244 1,143,704 1,130,464 1,087,637
Net Income allocated
to General Partners 0 0 15,205 0 0
Net Income allocated
to Class A Limited
Partners 385,224 731,244 1,104,316 1,608,929 1,625,405
Net Income (Loss)
allocated to Class B
Limited Partners 0 0 24,183 (478,465) (537,768)
Net Income
per Class A Limited
Partner Unit .02 .04 .06 .08 .08
Net Income (Loss) per
Class B Limited
Partner Unit .00 .00 .01 (.19) (.21)
Cash Distributions to
Investors--
Investment Income
Class A Units: .04 .07 .08 .08 .08
Return of Capital
Class A Units: .00 .00 .00 .00 .00
Investment Income
Class B Units: .00 .00 .00 .00 .00
Return of Capital
Class B Units: .00 .00 .08 .02 .00
Cash Distribution to
General Partners .00 .00 15,205.00 .00 .00
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
- -------------------------------------------------------------------------
RESULTS OF OPERATION
--------------------
The following discussion and analysis should be read in conjunction with the
Selected Financial Data and the accompanying financial statements of the
Partnership and notes thereto. This Report contains forward-looking statements,
within the meaning of Section 27A of the Securities Act of 1933 and 21E of the
Securities Exchange Act of 1934, including discussion and analysis of the
financial condition of the Partnership, anticipated capital expenditures
required to complete certain projects, amounts of cash distributions anticipated
to be distributed to Limited Partners in the future and certain other matters.
Readers of this Report should be aware that there are various factors that could
cause actual results to differ materially from any forward-looking statement
made in this Report, which include construction costs which may exceed
estimates, construction delays, lease-up risks, inability to obtain new tenants
upon the expiration of existing leases, and the potential need to fund tenant
improvements or other capital expenditures out of operating cash flow.
Results of Operations and Changes in Financial Conditions
- ---------------------------------------------------------
GENERAL
- -------
Gross revenues of the Partnership were $850,058 for the fiscal year ended
December 31, 1997, as compared to $1,155,615 for the fiscal year ended December
31, 1996, and $1,587,267 for the fiscal year ended December 31, 1995. The
decrease for 1997 over 1996 and 1995 is primarily due to the loss of income
contributed from the Fund II - Fund III Joint Venture, due primarily to the
termination of the Lockheed lease at The Atrium on June 30, 1996.
Expenses of the Partnership were $464,834 for the fiscal year ended December 31,
1997, as compared to $424,371 for the fiscal year ended December 31, 1996 and
$443,563 for the fiscal year ended December 31, 1995. In 1997, operating
expenses increased over 1996 due primarily to timing differences in common area
maintenance billings to tenants. In 1996, the increase in depreciation was
offset by a decrease in operating expenses. Depreciation expenses increased
from 1995 as compared to 1996 and 1997 due to a change in the estimated useful
lives of buildings and improvements from 40 years to 25 years which became
effective October 1, 1995. For further discussion of depreciation expense,
please refer to the notes to the accompanying financial statements.
Net income of the Partnership was $385,224 for the fiscal year ended December
31, 1997, as compared to $731,244 for the fiscal year ended December 31, 1996,
and $1,143,704 for the fiscal year ended December 31, 1995. The decrease in net
income for 1997 as compared to 1996 and 1995 is due primarily to the loss of
rental income from the Joint Ventures and increased depreciation expenses in
1996 and 1997, as noted above.
12
<PAGE>
The Partnership's cash distributions to the Limited Partners holding Class A
Units were $0.04 per unit for the fiscal year ended December 31, 1997, and $0.07
for 1996 and $0.08 for 1995. There were no cash distributions in 1997 and 1996
to the Limited Partners holding Class B Units; distributions were $0.08 per
unit for fiscal year ended December 31, 1995. This distribution was a return of
capital for the Class B Investors.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 121, "Accounting for the impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed of", which is
effective for fiscal years beginning after December 15, 1995. SFAS No. 121
established standards for determining when impairment losses on long-lived
assets have occurred and how impairment losses should be measured. The joint
venture adopted SFAS No. 121, effective January 1, 1995. The impact of adopting
SFAS No. 121 was not material to the financial statements of the joint ventures.
PROPERTY OPERATIONS
- -------------------
As of December 31, 1997, the Partnership's ownership interest in the Greenville
Property is 100%, Fund II - Fund III Joint Venture is 34% and Fund III - Fund IV
Joint Venture is 57%.
As of December 31, 1997, the Partnership owned interests in the following
properties:
The Greenville Property/Fund III
- --------------------------------
For the Year Ended December 31
------------------------------
1997 1996 1995
-------- -------- --------
Revenues:
Rental Income $571,555 $586,466 $581,016
Other Income 0 0 2,350
-------- -------- --------
571,555 586,466 583,366
Expenses:
Depreciation 158,308 158,308 112,196
Management and
leasing expenses 71,075 85,366 72,694
Other operating expenses 145,667 99,334 179,581
-------- -------- --------
375,050 343,008 364,471
-------- -------- --------
Net income $196,505 $243,458 $218,895
======== ======== ========
Occupied % 92% 100% 100%
Partnership Ownership % 100% 100% 100%
Cash Generated to the
Partnership $380,298 $411,469 $340,569
Net Income Allocated to
the Partnership $196,505 $243,458 $218,895
13
<PAGE>
Rental income decreased due to an expiration of a lease in 1997 as compared to
1996 and 1995. Expenses of the Greenville Property remained relatively stable
for the three year period. The increase in depreciation expenses in 1997 and
1996 as compared to 1995 was the 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 Conditions". The
fluctuation in other operating expenses was due primarily to timing differences
in CAM billings to tenants.
The real estate taxes were $27,945 for 1997, $27,479 for 1996 and $27,692 for
1995.
The Partnership's ownership percentage remained constant at 100% for 1997, 1996
and 1995.
For comments on the general competitive conditions to which the property may be
subject, see Item 1, Business, page 2. For additional information on the
property, tenants, etc., see Item 2, Properties, page 3.
The Atrium/Fund II - Fund III Joint Venture
- -------------------------------------------
For the Year Ended December 31
-------------------------------------
1997 1996 1995
----------- ---------- ----------
Revenues:
Rental Income $ 924,769 $1,048,583 $2,079,345
Interest Income 2,617 24,188 29,965
Other Income 8,638 0 0
----------- ---------- ----------
936,024 1,072,771 2,109,310
Expenses:
Depreciation 795,829 674,479 517,507
Management and
leasing expenses 111,576 71,381 142,761
Other operating
expenses 841,456 158,405 451,362
----------- ---------- ----------
1,748,861 904,265 1,111,630
Net (loss) income $ (812,837) $ 168,506 $ 997,680
=========== ========== ==========
Occupied % 100.00% 0.00% 100.00%
Partnership Ownership % 38.72% 34.40% 34.40%
Cash distributed to the
Partnership $ 85,283 $ 209,185 $ 589,206
Net (loss) income allocated
Partnership $ (303,212) $ 57,966 $ 343,202
14
<PAGE>
Rental revenue decreased from $1,048,583 in 1996 to $924,768 in 1997 and from
$2,079,345 in 1995 due to the terminations of the Lockheed lease as of June 30,
1996. Interest income decreased in 1997, compared to 1996 due to the decrease
in rent revenue being paid by Boeing, and the funding of operating expenses from
investment accounts during the vacancy of the Atrium. Other income increased in
1997 due to a one-time adjustment for unused credits on the original build out
of The Atrium and a $5,000 reimbursement for the sale of office system
components which were unusable by the new tenant. Depreciation and management
and leasing expenses and other operating expenses have increased in 1997
compared to 1996 due to the depreciation of tenant improvements made for the
Boeing Company and amortization of the leasing commission paid to acquire the
Boeing lease. Other operating expenses have increased in 1997 compared to 1996
due to a $181,684 expense for asset retirements and a decrease in reimbursements
of operating expenses. Depreciation expenses increased in 1997 and 1996 as
compared to 1995 due the change in estimated useful lives which was made
beginning in fourth quarter of 1995. Management and leasing fees decreased in
1996 compared to 1995 due to the decrease in rental income for the last six
months of 1996. Other operating expenses decreased from $451,362 in 1995 to
$158,405 in 1996 primarily due to vacancy of the Atrium for the last six months
of the year.
The real estate taxes were $140,366 for 1997, $150,105 for 1996, and $182,687
for 1995.
For comments on the general conditions to which the property may be subject, see
Item 1, Business, page 1. For additional information on the property, tenants,
etc., see Item 2, Properties, page 3.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK)
15
<PAGE>
The Brookwood Grill Property/Fund II - Fund III Joint Venture
- -------------------------------------------------------------
For the Year Ended December 31
------------------------------
1997 1996 1995
-------- -------- --------
Revenues:
Rental Income $225,106 $225,359 $230,316
Equity in Income (Loss)
of Joint Venture 27,213 (19,378) 0
-------- -------- --------
252,319 205,981 230,316
Expenses:
Depreciation 54,014 54,014 63,446
Management and
leasing expenses 28,464 27,004 29,351
Other operating expenses 23,887 109,478 45,175
-------- -------- --------
106,365 190,496 137,972
-------- -------- --------
Net income $145,954 $ 15,485 $ 92,344
======== ======== ========
Occupied % 100.00% 100.00% 100.00%
Partnership Ownership % in the
Fund II Fund III Joint Venture 38.00% 38.00% 38.00%
Cash distributed to the
Partnership $115,125 $ 40,154 $ 58,009
Income allocated to the
Partnership $ 54,952 $ 5,830 $ 34,767
Rental income remained stable in 1997 and 1996, and decreased from 1995 to 1996
due to a decrease in billing of administrative fees which were classified as
other rental income in 1995. Equity in income of the II, III, VI and VII Joint
Venture increased substantially from 1996 to 1997 due to the increased occupancy
at the Holcomb Bridge Road Property. Depreciation, management and leasing
expenses were stable for 1997 and 1996. Although there was a change in useful
lives of assets from 40 years to 25 years in the fourth quarter of 1995,
depreciation expense decreased in 1996, compared to 1995, due to the
contribution of land improvements by the Fund II Fund III Joint Venture to the
Holcomb Bridge Road Property. Other operating expenses decreased in 1997,
compared to 1996, due to an increase in expense reimbursements from tenant,
adjustments to property taxes for prior year, and a decrease in administrative
expenses in 1997. Other operating expenses increased in 1996 compared to 1995
due to decreased property tax reimbursements from tenants, and a reimbursement
to the tenant in first quarter, 1996, of administrative charges paid in 1995.
Net income increased in 1997 compared to 1996 and decreased in 1996 compared to
1995 due to the reasons cited in the discussion above.
16
<PAGE>
Real estate taxes were $25,771 for 1997, $33,494 for 1996, and $39,668 for
1995.
The Stockbridge Village Shopping Center/Fund III - Fund IV Joint Venture
- ------------------------------------------------------------------------
For the Year Ended December 31
------------------------------------
1997 1996 1995
---------- ---------- ----------
Revenues:
Rental Income $1,113,238 $1,082,428 $1,148,600
Interest Income 12,308 13,024 15,482
---------- ---------- ----------
1,125,546 1,095,452 1,164,082
Expenses:
Depreciation 338,989 338,989 249,689
Management and
leasing expenses 107,578 98,442 105,251
Other operating expenses 68,797 90,187 101,047
---------- ---------- ----------
515,364 527,618 455,987
---------- ---------- ----------
Net income $ 610,182 $ 567,834 $ 708,095
========== ========== ==========
Occupied % 93% 93% 93%
Partnership Ownership % in the
Fund III Fund IV Joint Venture 57.3% 57.3% 57.3%
Cash Generated to the
Partnership $ 560,166 $ 546,625 $ 605,097
Net Income Allocated to
the Partnership $ 349,736 $ 325,463 $ 405,856
Rental income increased to $1,113,238 for 1997 as compared to $1,082,428 in 1996
due primarily to increased rental rates but decreased from $1,148,600 in 1995
due to decreased occupancy resulting from the early termination of a lease for
8,025 square feet in the fourth quarter of 1995. Expenses of the property
varied from $455,987 in 1995 to $527,618 in 1996 and $515,364 in 1997 due
primarily to the increase in depreciation expenses which became effective in the
fourth quarter of 1995 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 Conditions". Other
operating expenses decreased in 1997 as compared to 1996 due primarily to
savings in painting expense. Net income of the property varied from $610,182
for 1997 as compared to $567,834 for 1996 and $708,095 for 1995 due primarily to
increased depreciation expenses and increased rental income, as discussed above.
Real estate taxes were $98,138 for 1997, $104,795 for 1996, and $120,899 for
1995.
17
<PAGE>
The Partnership's ownership percentage in the Fund III - Fund IV Joint Venture
remained constant at 57.3% for 1997, 1996 and 1995.
For comments on the general conditions to which the property may be subject, see
Item 1, Business, page 2. For additional information on the property, tenants,
etc., see Item 2, Properties, page 3.
The G.E. Building/Fund III and Fund IV Joint Venture
- ----------------------------------------------------
For the Year Ended December 31
------------------------------
1997 1996 1995
-------- -------- --------
Revenues:
Rental Income $527,425 $527,425 $527,425
Expenses:
Depreciation 196,220 196,220 132,727
Management and
leasing expenses 38,435 39,860 39,821
Other operating expenses 3,708 8,731 9,313
-------- -------- --------
238,363 244,811 181,861
-------- -------- --------
Net income $289,062 $282,614 $345,564
======== ======== ========
Occupied % 100% 100% 100%
Partnership Ownership % in the
Fund III Fund IV Joint Venture 57.3% 57.3% 57.3%
Cash Generated to the
Partnership $284,890 $275,251 $253,847
Net Income Allocated to the
Partnership $165,680 $161,985 $198,065
Rental income remained constant for 1997, 1996, and 1995. Total expenses
decreased to $238,363 in 1997 from $244,811 in 1996 but increased from $181,861
in 1995. During 1995, there was an increase in depreciation expense due to the
change in the estimated useful lives of buildings and improvements which became
effective in the fourth quarter of 1995, as previously discussed under the
"General" section of "Results of Operations and Change in Financial Conditions."
Due primarily to increased depreciation expenses in 1997 and 1996, as compared
to 1995, net income decreased to $289,062 in 1997 and $282,614 in 1996, as
compared to $345,564 in 1995.
18
<PAGE>
The Partnership's ownership percentage in the Fund III - Fund IV Joint Venture
remained constant at 57.3% for 1997, 1996, and 1995.
Under the terms of the lease, G.E. pays the real estate taxes directly.
For comments on the general conditions to which the property may be subject, see
Item 1, Business, page 2. For additional information on the property, tenants,
etc., see Item 2, Properties, page 3.
Holcomb Bridge Road Property/Fund II, III, VI, VII Joint Venture
- ----------------------------------------------------------------
For the Year Ended Nine Months Ended
December 31, 1997 December 31, 1996
------------------ -----------------
Revenues:
Rental income $679,268 $255,062
Expenses:
Depreciation 325,974 181,798
Management & leasing expenses 48,962 28,832
Other operating expenses 195,567 101,600
-------- --------
570,503 312,230
-------- --------
Net income (loss) $108,765 $(57,168)
======== ========
Occupied % 94.12% 62.90%
Partnership's Ownership % in the
Fund II, III, VI, VII Joint Venture* 9.10% 9.50%
Cash distribution to the
Fund II - Fund III Joint Venture* $109,242 $ 19,494
Net income (loss) allocated to the
Fund II - Fund III Joint Venture* $ 27,213 $(19,378)
* The Partnership holds a 34% ownership in the Fund II - Fund III Joint
Venture.
Since the Holcomb Bridge Road Property was under construction and not occupied
until first quarter, 1996, comparative income and expense figures for the prior
years are not available.
In January, 1995, the Fund II - Fund III Joint Venture contributed 4.3 acres of
land and land improvements at the Holcomb Bridge Road Property to the Fund II,
III, VI, VII Joint Venture. Development has been substantially completed on two
buildings containing a total of approximately 49,500 square feet. As of
December 31, 1997, fourteen tenants occupied
19
<PAGE>
approximately 46,600 square feet of space in the retail and office building
under leases of varying lengths.
As of December 31, 1997, the Fund II - Fund III Joint Venture contributed
$1,729,116 in land and land improvements for an equity interest of approximately
24.2%, Wells Fund VI had contributed $1,812,579 for an equity interest of
approximately 26.9%, and Wells Fund VII had contributed $3,335,121 for an
equity interest of approximately 48.9% in the Fund II, III, VI, VII Joint
Venture. The total cost to develop the Holcomb Bridge Road Property is
currently estimated to be approximately $5,214,000, excluding land. It is
currently anticipated that approximately $66,000 will be required to complete
the development of the Holcomb Bridge Road Project, which amounts are
anticipated to be funded by additional capital contributions from Wells Fund VI
and Wells Fund VII, which have reserved sufficient funds for this purpose.
Real estate taxes were $85,230 for 1997 and $37,191 for 1996.
The Partnership's ownership percentage in the Holcomb Bridge Road Property was
9.1% in 1997 and 9.5% in 1996.
For comments on the general competitive conditions to which the property may be
subject, see Item 1, Business, page 2. For additional information on the
property, tenants, etc., see Item 2, Properties, page 3.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During its offering, which terminated on October 23, 1990, the Partnership
raised a total of $22,206,310 in capital through the sale of 22,206,310 Units.
No additional Units will be sold by the Partnership. From the original funds
raised, the Partnership has invested a total of $17,765,137 in properties, paid
$1,554,442 in acquisition and advisory fees, $2,664,668 in selling commissions
and organization and offering expenses, and is maintaining a working capital
reserve of $162,072.
Since the Partnership is an investment partnership formed for the purpose of
acquiring, owning and operating income-producing real property and has invested
all of its funds available for investment, it is unlikely that the Partnership
will acquire interests in any additional properties, and the Partnership's
capital resources are anticipated to remain relatively stable over the holding
period of its investments.
Pursuant to the terms of the Partnership Agreement, the Partnership is required
to maintain working capital reserves in an amount equal to the cash operating
expenses required to operate the Partnership for a six-month period not to be
reduced below 1% of Limited Partners' capital contributions. As set forth
above, in order to fund a portion of the tenant improvements at The Atrium, the
General Partners have used $60,000 of the Partnership's working capital reserves
to reduce the balance below this minimum amount, rather than funding the tenant
improvements out of operating cash flow, which would have the effect of reducing
cash flow distributions to Limited Partners. It is anticipated that future
rental revenues associated with the Boeing lease
20
<PAGE>
will be allocated to restore the Partnership's minimum working capital reserve
levels over time in the future.
The Partnership's net cash provided by operating activities decreased in 1997 to
$264,289 from $359,388 in 1996 and $290,354 in 1995. The decrease in 1997 was
due to a decrease in net income, primarily due to increased operating costs and
decreased payables due at year-end.
Cash and cash equivalents decreased in 1997 as compared to 1996 but increased as
compared to 1995 levels.
The Partnership's distributions paid and payable through the fourth quarter of
1997 have been paid from net cash from operations and from distributions
received from its equity investment in joint ventures. No cash distributions
were paid to Class B Unit holders for 1997. The Partnership expects to meet
liquidity, and budget demands through cash flow from operations.
The Partnership is unaware of any demands, commitments, events or capital
expenditures other than that which is required for the normal operations of its
properties that will result in the Partnership's liquidity increasing or
decreasing in any material way. The Partnership is not obligated to provide any
additional funding on the Holcomb Bridge Road Property. Additional funding for
the Holcomb Bridge Road Property is anticipated to be provided by capital
contributions from Wells Fund VI and Wells Fund VII, which have reserved
sufficient funds for this purpose.
Inflation
- ---------
Real estate has not been affected significantly by inflation in the past three
years due to the relatively low inflation rate. There are provisions in the
majority of tenant leases executed by the Partnership to protect the Partnership
from the impact of inflation. These leases contain common area maintenance
charges (CAM charges), real estate tax and insurance reimbursements on a per
square foot basis, or in some cases, annual reimbursements of operating expenses
above a certain per square foot allowance. These provisions should reduce the
Partnership's exposure to increases in costs and operating expenses resulting
from inflation. In addition, a number of the Partnership's leases are for terms
of less than five years which may permit the Partnership to replace existing
leases with new leases at higher base rental rates if the existing leases are
below market rate. There is no assurance, however, that the Partnership would
be able to replace existing leases with new leases at higher base rentals.
The General Partners have verified that all operational computer systems are
year 2000 compliant. This includes systems supporting accounting, property
management and investor services. Also, as part of this review, all building
control systems have been verified as compliant. The current line of business
applications are based on compliant operating systems and database servers. All
of these products are scheduled for additional upgrades before the year 2000.
Therefore, it is not anticipated that the year 2000 will have significant impact
on operations.
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------ -------------------------------------------
The Financial Statements of the Registrant and supplementary data are detailed
under Item 14(a) and filed as part of the report on the pages indicated.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- ------ ------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
------------------------------------
The Partnership's change in accountants during 1995 was previously reported in
the Partnership's Form 8-K dated September 11, 1995. There were no
disagreements with the Partnership's accountants or other reportable events
during 1997.
PART III
ITEM 10. GENERAL PARTNERS OF THE PARTNERSHIP
- ------- -----------------------------------
Wells Capital, Inc. Wells Capital, Inc. ("Capital") is a Georgia corporation
- ------------------
formed in April 1984. The executive offices of Capital are located at 3885
Holcomb Bridge Road, Norcross, Georgia 30092. Leo F. Wells, III is the sole
Director and the President of Capital.
LEO F. WELLS, III. Mr. Wells is a resident of Atlanta, Georgia, is 54 years of
- -----------------
age and holds a Bachelor of Business Administration Degree in Economics from the
University of Georgia. Mr. Wells is the President and sole Director of Capital.
Mr. Wells is the President of Wells & Associates, Inc., a real estate brokerage
and investment company formed in 1976 and incorporated in 1978, for which he
serves as principal broker. Mr. Wells is also currently the sole Director and
President of Wells Management Company, Inc., a property management company he
founded in 1983. In addition, Mr. Wells is the President and Chairman of the
Board of Wells Investment Securities, Inc., Wells & Associates, Inc., and Wells
Management Company, Inc., which are affiliates of the General Partners. From
1980 to February 1985, Mr. Wells served as Vice-President of Hill-Johnson, Inc.,
a Georgia corporation engaged in the construction business. From 1973 to 1976,
he was associated with Sax Gaskin Real Estate Company and from 1970 to 1973, he
was a real estate salesman and property manager for Roy D. Warren & Company, an
Atlanta real estate company.
22
<PAGE>
ITEM 11. COMPENSATION OF GENERAL PARTNERS AND AFFILIATES
- ------- -----------------------------------------------
The following table summarizes the compensation and fees paid to the General
Partners and their affiliates during the year ended December 31, 1997:
<TABLE>
<CAPTION>
( A ) ( B ) ( C )
Name of Individual or Number in Group Capacities in which served Form of Compensation Cash Compensation
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Wells Management Company, Inc. Property Manager-Management and Leasing $194,174 (1)
Fees
Wells Capital, Inc. General Partner Partnership
Cash Flow Distributions -0-
Leo F. Wells, III General Partner Partnership
Cash Flow Distributions -0-
</TABLE>
(1) The majority of these fees are not paid directly by the Partnership but are
paid by the joint venture entities which own properties for which the
property management and leasing services relate and include management and
leasing fees which were accrued for accounting purposes in 1997 but not
actually paid until January, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------- --------------------------------------------------------------
No Limited Partner is known by the Partnership to own beneficially more than 5%
of the outstanding units of the Partnership.
Set forth below is the security ownership of management as of February 28, 1998:
<TABLE>
<CAPTION>
(2) (3)
(1) Name and Address of Amount and Nature of (4)
Title of Class Beneficial Owner Beneficial Ownership Percent of Class
- ------------------ ------------------- -------------------- ----------------
<S> <C> <C> <C>
Class A Units Leo F. Wells, III 11,158.79 Units Less than 1%
(IRA, 401 (k) and
Profit Sharing)
Class B Units Leo F. Wells, III 1,750.00 Units Less than 1%
(401 (k))
</TABLE>
No arrangements exist which would, upon operation, result in a change in control
of the Partnership.
23
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------- ----------------------------------------------
The compensation and fees paid or to be paid by the Partnership to the General
Partners and their affiliates in connection with the operation of the
Partnership are as follows:
INTEREST IN PARTNERSHIP CASH FLOW AND NET SALE PROCEEDS
- -------------------------------------------------------
The General Partners receive a subordinated participation in net cash flow from
operations equal to 10% of net cash flow after the Limited Partners have
received preferential distributions equal to 8% of their adjusted capital
contribution. For the year ended December 31, 1997, the General Partners
received no cash distributions. The General Partners also receive a
subordinated participation in net sale proceeds and net financing proceeds equal
to 15% of residual proceeds available for distribution after the Limited
Partners have received a return of their adjusted capital contribution plus a
12% cumulative return on their adjusted capital contribution. The General
Partners received no distribution from net sales proceeds.
PROPERTY MANAGEMENT AND LEASING FEES
- ------------------------------------
Wells Management Company, Inc., an affiliate of the General Partners, will
receive compensation for supervising the management of the Partnership
properties equal to 6% (3% management and 3% leasing) of rental income. For the
year ended December 31, 1997, Wells Management Company, Inc. received $194,174
in management and leasing fees. In no event will such fees exceed the sum of
(i) 6% of the gross receipts of each property, plus (ii) a separate one-time fee
for initial rent-up or leasing-up of development properties in an amount not to
exceed the fee customarily charged in arm's-length transactions by others
rendering similar services in the same geographic area for similar properties.
With respect to properties leased on a net basis for a period of ten years or
longer, property management fees will not exceed 1% of gross revenues from such
leases, plus a one-time initial leasing fee of 3% of the gross revenues which
are payable over the first five years of the term of such net leases.
REAL ESTATE COMMISSIONS
- -----------------------
In connection with the sale of Partnership properties, the General Partners or
their affiliates may receive commissions not exceeding the lesser of (A) 50% of
the commissions customarily charged by other brokers in arm's-length
transactions involving comparable properties in the same geographic area or (B)
3% of the gross sales price of the property, and provided that payments of such
commissions will be made only after Limited Partners have received prior
distributions totaling 100% of their capital contributions plus a 6% cumulative
return on their adjusted capital contributions. During 1997, no real estate
commissions were paid to the General Partners.
24
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
- ------- --------------------------------------------
REPORTS ON FORM 8-K
-------------------
(a) 1. The Financial Statements are contained on pageS F-2 through F-32 of this
Annual Report on Form 10-K, and the list of the Financial Statements
contained herein is set forth on page F-1, which is hereby incorporated
by reference.
(a) 2. Financial Statement Schedule III
Information with respect to this item begins on Page S-1 of this Annual
Report on Form 10-K.
(a) 3. The Exhibits filed in response to Item 601 of Regulation S-K are listed
on the Exhibit Index attached hereto.
(b) No reports on Form 8-K were filed with the Commission during the fourth
quarter of 1997.
(c) The Exhibits filed in response to Item 601 of Regulation S-K are listed
on the Exhibit Index attached hereto.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.)
25
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized this 17th day of March,
1998.
WELLS REAL ESTATE FUND III
(Registrant)
By: /S/ Leo F. Wells, III
---------------------
LEO F. WELLS, III
Individual General Partner and as
President and Chief Financial Officer
of Wells Capital, Inc., the Corporate
General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person on behalf of the registrant and in
the capacity as and on the date indicated.
Signature Title
- --------- -----
/S/ Leo F. Wells, III Individual General Partner, President March 17, 1998
- --------------------- and Sole Director of Wells Capital,
Leo F. Wells, III Inc., the Corporate General Partner
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRARS WHICH HAVE NOT BEEN REGISTERED PURSUANT TO
SECTION 12 OF THE ACT.
No annual report or proxy material relating to an annual or other meeting of
security holders has been sent to security holders.
26
<PAGE>
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS PAGE
- -------------------- ----
<S> <C>
Independent Auditors' Reports F2
Balance Sheets as of December 31, 1997 and 1996 F3
Statements of Income for the Years ended
December 31, 1997, 1996, and 1995 F4
Statements of Partners' Capital for the Years ended
December 31, 1997, 1996, and 1995 F5
Statements of Cash Flows for the Years ended
December 31, 1997, 1996, and 1995 F6
Notes to Financial Statements for December 31, 1997,
1996, and 1995 F7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Wells Real Estate Fund III, L.P.:
We have audited the accompanying balance sheets of WELLS REAL ESTATE FUND III,
L.P. (a Georgia public limited partnership) as of December 31, 1997 and 1996 and
the related statements of income, partners' capital, and cash flows for each of
the three years in the period ended December 31, 1997. These financial
statements and the schedule referred to below are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on those
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wells Real Estate Fund III,
L.P. as of December 31, 1997 and 1996 and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule III--Real Estate Investments
and Accumulated Depreciation as of December 31, 1997 is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 9, 1998
<PAGE>
WELLS REAL ESTATE FUND III, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
REAL ESTATE ASSETS, AT COST:
Land $ 576,350 $ 576,350
Building and improvements, less accumulated depreciation of
$771,521 and $613,213 at December 31, 1997 and 1996,
respectively 2,794,080 2,952,388
Construction in progress 0 13,000
----------- -----------
Total real estate assets 3,370,430 3,541,738
INVESTMENT IN JOINT VENTURES 12,807,576 12,926,074
CASH AND CASH EQUIVALENTS 216,961 342,318
DUE FROM AFFILIATES 316,089 212,943
ACCOUNTS RECEIVABLE 62,621 67,790
PREPAID EXPENSES AND OTHER ASSETS 17,990 24,100
----------- -----------
Total assets $16,791,667 $17,114,963
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued expenses $ 7,535 $ 35,941
Partnership distributions payable 396,991 324,495
Due to affiliates 3,436 11,396
----------- -----------
Total liabilities 407,962 371,832
----------- -----------
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Limited partners:
Class A 16,383,705 16,743,131
Class B 0 0
----------- -----------
Total partners' capital 16,383,705 16,743,131
----------- -----------
Total liabilities and partners' capital $16,791,667 $17,114,963
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
WELLS REAL ESTATE FUND III, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Rental income $571,555 $ 586,466 $ 581,016
Equity in income of joint ventures 267,156 551,244 981,890
Interest income 11,347 17,905 22,011
Other income 0 0 2,350
-------- ---------- ----------
850,058 1,155,615 1,587,267
-------- ---------- ----------
EXPENSES:
Depreciation and amortization 158,308 158,308 112,196
Operating costs, net of reimbursements--rental property
125,810 73,206 179,581
Partnership administration 57,312 70,005 56,256
Lease acquisition costs 5,022 44,867 34,981
Management and leasing fees 66,053 40,499 37,713
Legal and accounting 42,562 32,332 16,984
Computer costs 9,767 5,154 5,852
-------- ---------- ----------
464,834 424,371 443,563
-------- ---------- ----------
NET INCOME $385,224 $ 731,244 $1,143,704
======== ========== ==========
NET INCOME ALLOCATED TO GENERAL PARTNERS $ 0 $ 0 $ 15,205
======== ========== ==========
NET INCOME ALLOCATED TO CLASS A LIMITED PARTNERS $385,224 $ 731,244 $1,104,316
======== ========== ==========
NET INCOME ALLOCATED TO CLASS B LIMITED PARTNERS $ 0 $ 0 $ 24,183
======== ========== ==========
NET INCOME PER CLASS A LIMITED PARTNER UNIT $ 0.02 $ 0.04 $ 0.06
======== ========== ==========
NET INCOME PER CLASS B LIMITED PARTNER UNIT $ 0.00 $ 0.00 $ 0.01
======== ========== ==========
CASH DISTRIBUTION TO GENERAL PARTNERS $ 0 $ 0 $ 15,205
======== ========== ==========
CASH DISTRIBUTION PER CLASS A LIMITED PARTNER UNIT $ 0.04 $ 0.07 $ 0.08
======== ========== ==========
CASH DISTRIBUTION PER CLASS B LIMITED PARTNER UNIT $ 0.00 $ 0.00 $ 0.08
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
WELLS REAL ESTATE FUND III, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
LIMITED PARTNERS
----------------------------------------------
CLASS A CLASS B TOTAL
---------------------------------------------- GENERAL PARTNERS'
UNITS AMOUNT UNITS AMOUNT PARTNERS CAPITAL
---------- ----------- --------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 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 0 731,244 0 0 0 731,244
Partnership distributions 0 (1,418,570) 0 0 0 (1,418,570)
---------- ----------- --------- --------- -------- -----------
BALANCE, DECEMBER 31, 1996 19,635,965 16,743,131 2,544,540 0 0 16,743,131
Net income 0 385,224 0 0 0 385,224
Partnership distributions 0 (744,650) 0 0 0 (744,650)
---------- ----------- --------- --------- -------- -----------
BALANCE, DECEMBER 31, 1997 19,635,965 $16,383,705 2,544,540 $ 0 $ 0 $16,383,705
========== =========== ========= ========= ======== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
WELLS REAL ESTATE FUND III, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 385,224 $ 731,244 $ 1,143,704
--------- ----------- -----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in income of joint ventures (267,156) (551,244) (981,890)
Depreciation and amortization 158,308 158,308 112,196
Changes in assets and liabilities:
Accounts receivable 5,169 (6,949) 24,955
Prepaid expenses and other assets 6,110 4,996 5,929
Accounts payable and accrued expenses (15,406) 17,906 (14,101)
Due to affiliates (7,960) 5,127 (439)
--------- ----------- -----------
Total adjustments 120,935 (371,856) (853,350)
--------- ----------- -----------
Net cash provided by operating activities 264,289 359,388 290,354
--------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in joint ventures (659,810) 0 0
Distributions received from joint ventures 942,318 1,194,488 1,522,447
--------- ----------- -----------
Net cash provided by investing activities 282,508 1,194,488 1,522,447
--------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners in excess of accumulated earnings (267,191) (170,157) 0
Distributions to partners from accumulated earnings (404,963) (1,541,728) (1,630,724)
--------- ----------- -----------
Net cash used in financing activities (672,154) (1,711,885) (1,630,724)
--------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (125,357) (158,009) 182,077
--------- ----------- -----------
CASH AND CASH EQUIVALENTS, beginning of year 342,318 500,327 318,250
--------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 216,961 $ 342,318 $ 500,327
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
WELLS REAL ESTATE FUND III, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996, AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Wells Real Estate Fund III, L.P. (the "Partnership") is a public limited
partnership organized on July 31, 1988, under the laws of the state of
Georgia. The general partners are Leo F. Wells, III and Wells Capital, Inc.
(the "Company"). The Partnership has two classes of limited partnership
interests, Class A and Class B units. Limited partners may vote to, among
other things, (a) amend the partnership agreement, subject to certain
limitations, (b) change the business purpose or investment objectives of the
Partnership, and (c) remove a general partner. A majority vote on any of the
above described matters will bind the Partnership without the concurrence of
the general partners. Each limited partnership unit has equal voting rights,
regardless of class.
The Partnership was formed to acquire and operate commercial real properties,
including properties which are either to be developed, currently under
development or construction, newly constructed, or have operating histories.
The Partnership directly owns an office building in Greenville, North
Carolina. In addition, the Partnership owns an interest in the following
properties through joint ventures between the Partnership and other Wells
Real Estate Funds: (i) The Atrium of Nassau Bay ("The Atrium"), a four-story
office building located in metropolitan Houston, Texas, (ii) the Brookwood
Grill, a restaurant located in Roswell, Georgia, (iii) the Stockbridge
Village Shopping Center, a retail shopping center located in Stockbridge,
Georgia, southeast of Atlanta, Georgia, (iv) the G.E. Lighting National
Customer Center, a two-story office building located in Richmond, Virginia,
and (v) an office/retail center in Roswell, Georgia.
USE OF ESTIMATES AND FACTORS AFFECTING THE PARTNERSHIP
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The carrying values of the real estate assets are based on management's
current intent to hold the real estate assets as long-term investments. The
success of the Partnership's future operations and the ability to realize the
F-7
<PAGE>
investment in its assets will be dependent on the Partnership's ability to
maintain rental rates, occupancy, and an appropriate level of operating
expenses in future years. Management believes that the steps it is taking
will enable the Partnership to realize its investment in its assets.
INCOME TAXES
The Partnership is not subject to federal or state income taxes, and
therefore, none have been provided for in the accompanying financial
statements. The partners are required to include their respective share of
profits and losses in their individual income tax returns.
DISTRIBUTION OF NET CASH FROM OPERATIONS
Cash available for distribution is distributed on a cumulative noncompounded
basis to limited partners quarterly. In accordance with the partnership
agreement, distributions are paid first to limited partners holding Class A
units until they have received an 8% per annum return on their adjusted
capital contributions, as defined. Cash available for distribution is then
distributed to limited partners holding Class B units until they have
received an 8% per annum return on their adjusted capital contributions, as
defined. If any cash available for distribution remains, the general
partners receive an amount equal to 10% of total net cash from operations
distributed. Thereafter, amounts are distributed 10% to the general partners
and 90% to the limited partners.
DISTRIBUTION OF SALES PROCEEDS
Upon sales of properties, the net sales proceeds are distributed in the
following order:
. To limited partners until all limited partners have received 100% of
their adjusted capital contributions, as defined
. To limited partners holding Class B units until they receive an
amount equal to the net cash available for distribution received by
the limited partners holding Class A units
. To all limited partners until they receive a cumulative 12% per annum
return on their adjusted capital contributions, as defined
. To all limited partners until they receive an amount equal to their
respective cumulative distributions, as defined
. To all the general partners until they have received 100% of their
capital contributions, as defined
. Thereafter, 85% to the limited partners and 15% to the general
partners
ALLOCATION OF NET INCOME, NET LOSS, AND GAIN ON SALE
Net income is defined as net income recognized by the Partnership, excluding
deductions for depreciation, amortization, and cost recovery. Net income, as
defined, of the Partnership will be allocated each year in the same
F-8
<PAGE>
proportions that net cash from operations is distributed to the partners. To
the extent the Partnership's net income in any year exceeds net cash from
operations, it will be allocated 99% to the limited partners and 1% to the
general partners.
Net loss, depreciation, amortization, and cost recovery deductions for each
fiscal year will be allocated as follows: (a) 99% to the limited partners
holding Class B units and 1% to the general partners until their capital
accounts are reduced to zero, (b) then to any partner having a positive
balance in his capital account in an amount not to exceed such positive
balance, and (c) thereafter to the general partners.
Gain on the sale or exchange of the Partnership's properties will be
allocated generally in the same manner that the net proceeds from such sale
are distributed to partners after the following allocations are made, if
applicable, (a) allocations made pursuant to a qualified income offset
provision in the partnership agreement; (b) allocations to partners having
negative accounts until all negative capital accounts have been restored to
zero; and (c) allocations to Class B limited partners in amounts equal to
deductions for depreciation, amortization, and cost recovery previously
allocated to them with respect to the specific partnership property sold, but
not in excess of the amount of gain on sale recognized by the Partnership
with respect to the sale of such property.
REAL ESTATE ASSETS
Real estate assets held by the Partnership directly or through investments in
affiliated joint ventures are stated at cost less accumulated depreciation.
Major improvements and betterments are capitalized when they extend the
useful life of the related asset. All repairs and maintenance are expensed
as incurred.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121 , "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
which is effective for fiscal years beginning after December 15, 1995. SFAS
No. 121 establishes standards for determining when impairment losses on long-
lived assets have occurred and how impairment losses should be measured. The
Partnership and the entities in which it holds a joint venture interest
adopted SFAS No. 121 effective January 1, 1995. The impact of adopting SFAS
No. 121 was not material to the financial statements of the Partnership or
its affiliated joint ventures.
Management continually monitors events and changes in circumstances that
could indicate carrying amounts of real estate assets may not be recoverable.
When events or changes in circumstances are present that indicate the
carrying amounts of real estate assets may not be recoverable, management
assesses the recoverability of real estate assets under SFAS No. 121 by
determining whether the carrying value of such real estate assets will be
recovered through the future cash flows expected from the use of the asset
and its eventual disposition. Management has determined that there has been
no impairment in the carrying value of real estate assets held by the
Partnership or its affiliated joint ventures as of December 31, 1997.
Depreciation for buildings and improvements is calculated using the straight-
line method over the useful lives of the real estate assets. Effective
F-9
<PAGE>
October 1, 1995, the Partnership and its affiliated joint ventures revised
their estimate of the useful lives of buildings and improvements from 40 to
25 years. This change was made to better reflect the estimated periods
during which such assets will remain in service. The change had the effect
on the Partnership, directly and through its ownership interest in joint
ventures, of increasing depreciation expense approximately $61,167 in the
fourth quarter of 1995 and $261,953 and $320,502 in the years ended December
31, 1996 and 1997, respectively.
REVENUE RECOGNITION
All leases on real estate assets held by the Partnership are classified as
operating leases, and the related rental income is recognized on a straight-
line basis over the terms of the respective leases.
DEFERRED LEASE ACQUISITION COSTS
Costs incurred to procure operating leases are capitalized and amortized on a
straight-line basis over the terms of the related lease.
INVESTMENT IN JOINT VENTURES
The Partnership does not have control over the operations of the joint
ventures; however, it does exercise significant influence. Accordingly,
investments in joint ventures are recorded using the equity method of
accounting. The joint ventures follow the same significant accounting
policies as the Partnership.
Cash available for distribution and allocations of profit and loss to the
Partnership by the joint ventures are made in accordance with the terms of
the individual joint venture agreements. Generally, these items are
allocated in proportion to the partners' respective ownership interests.
Cash is paid from the joint ventures to the Partnership quarterly.
CASH AND CASH EQUIVALENTS
For the purposes of the statements of cash flows, the Partnership considers
all highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. Cash equivalents include cash and
short-term investments. Short-term investments are stated at cost, which
approximates fair value, and consist of investments in money market accounts.
PER UNIT DATA
Net income per unit with respect to the Partnership for the years ended
December 31, 1997, 1996, and 1995 is computed based on the number of units
outstanding during the period.
RECLASSIFICATIONS
Certain prior year items have been reclassified to conform with current year
financial statement presentation.
F-10
<PAGE>
2. RELATED-PARTY TRANSACTIONS
Due from affiliates at December 31, 1997 and 1996 represents the
Partnership's share of cash to be distributed for the fourth quarters of 1997
and 1996, respectively, as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Fund III and IV Associates $226,757 $212,618
Fund II and III Associates--The Atrium 58,454 0
Fund II and III Associates--Brookwood Grill 30,878 325
-------- --------
$316,089 $212,943
======== ========
</TABLE>
The Partnership entered into a property management agreement with Wells
Management Company, Inc. ("Wells Management"), an affiliate of the general
partners. In consideration for supervising the management of the
Partnership's properties, the Partnership will generally pay Wells Management
management and leasing fees equal to (a) 3% of the gross revenues for
management and 3% of the gross revenues for leasing (aggregate maximum of 6%)
plus a separate fee for the one-time initial lease-up of newly constructed
properties in an amount not to exceed the fee customarily charged in arm's-
length transactions by others rendering similar services in the same
geographic area for similar properties or (b) in the case of commercial
properties which are leased on a long-term net basis (ten or more years), 1%
of the gross revenues except for initial leasing fees equal to 3% of the
gross revenues over the first five years of the lease term.
The Partnership incurred management and leasing fees and lease acquisition
costs, both directly and at the joint venture level, of $194,174, $189,023,
and $204,671 for the years ended December 31, 1997, 1996, and 1995,
respectively, which were paid to Wells Management.
The Company performs certain administrative services for the Partnership,
such as accounting and other partnership administration, and incurs the
related expenses. Such expenses are allocated among the various Wells Real
Estate Funds based on time spent on each fund by individual administrative
personnel. In the opinion of management, such allocation is a reasonable
estimation of such expenses.
The general partners are also general partners of other Wells Real Estate
Funds. As such, there may exist conflicts of interest where the general
partners, while serving in the capacity as general partners of other Wells
Real Estate Funds, may be in competition with the Partnership for tenants in
similar geographic markets.
F-11
<PAGE>
3. INVESTMENT IN JOINT VENTURES
The Partnership's investment and percentage ownership in the joint ventures
at December 31, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------- -------------------------
AMOUNT PERCENT Amount Percent
----------- ------- ----------- -------
<S> <C> <C> <C> <C>
Fund III and IV Associates $ 7,570,298 57% $ 7,899,938 57%
Fund II and III Associates-- The Atrium 3,935,261 39 3,663,946 34
Fund II and III Associates-- Brookwood Grill 1,302,017 38 1,362,190 38
----------- -----------
$12,807,576 $12,926,074
=========== ===========
</TABLE>
The following is a rollforward of the Partnership's investment in joint
ventures for the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Investment in joint ventures, beginning of year $12,926,074 $13,446,045
Equity in income of joint ventures 267,156 551,244
Contributions to joint ventures 659,810 0
Distributions from joint ventures (1,045,464) (1,071,215)
----------- -----------
Investment in joint ventures, end of year $12,807,576 $12,926,074
=========== ===========
</TABLE>
FUND II AND III ASSOCIATES
On April 3, 1989, the Partnership entered into a joint venture agreement with
the Fund II and II-OW joint venture The new joint venture, Fund II and III
Associates, was formed for the purpose of investing in commercial real
properties. In April 1989, Fund II and III Associates acquired The Atrium.
In 1991, the Fund II and II-OW joint venture contributed its interest in a
parcel of land known as the 880 Property located in Roswell, Georgia, to Fund
II and III Associates. The property is a 5.8 acre tract of land. A
restaurant was developed on 1.3 acres and is currently operating as the
Brookwood Grill restaurant ("Fund II and III Associates--Brookwood Grill").
The remaining 4.6 acres of the 880 Property were transferred at cost to the
Fund II, III, VI, and VII Associates joint venture during 1995. Fund II and
III Associates' investment in this transferred parcel of the 880 Property was
$1,608,215 and $1,690,244 at December 31, 1997 and 1996, respectively, which
represented a 24% and 25% interest, respectively.
The Atrium was fully occupied from inception through June 1996, at which time
the previous tenant's lease expired. In March 1997, a lease was signed with
a new tenant for the entire building and the new tenant began paying rent in
May 1997. The lease term is for five years with an option to renew for an
additional is exercised, the tenant would be required to pay unamortized, up-
F-12
<PAGE>
front tenant improvement costs. The cost of completing the required tenant
improvements and outside broker commissions was funded out of reserves and
contributions by the Partnership and Fund II and II-OW.
Following are the financial statements for Fund II and III Associates--The
Atrium:
FUND II AND III ASSOCIATES--THE ATRIUM
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
Assets
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Real estate assets, at cost:
Land $ 1,504,743 $ 1,504,743
Building and improvements, less accumulated
depreciation of $4,567,184 in 1997 and $3,852,396
in 1996 8,804,839 8,816,719
Construction in progress 0 33,477
----------- -----------
Total real estate assets 10,309,582 10,354,939
Cash and cash equivalents 281,285 448,112
Accounts receivable 18,950 0
Prepaid expenses and other assets 392,633 35,216
----------- -----------
Total assets $11,002,450 $10,838,267
=========== ===========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 151,366 $ 188,760
Partnership distributions payable 151,044 0
Due to affiliates 3,829 0
----------- -----------
Total liabilities 306,239 188,760
----------- -----------
Partners' capital:
Fund II and II-OW 6,760,950 6,985,561
Wells Real Estate Fund III 3,935,261 3,663,946
----------- -----------
Total partners' capital 10,696,211 10,649,507
----------- -----------
Total liabilities and partners' capital $11,002,450 $10,838,267
=========== ===========
</TABLE>
F-13
<PAGE>
FUND II AND III ASSOCIATES--THE ATRIUM
(A GEORGIA JOINT VENTURE)
STATEMENTS OF (LOSS) INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
Revenues:
Rental income $ 924,769 $1,048,583 $2,079,345
Interest income 2,617 24,188 29,965
Other income 8,638 0 0
--------- ---------- ----------
936,024 1,072,771 2,109,310
--------- ---------- ----------
Expenses:
Depreciation 795,829 674,479 517,507
Operating costs, net of reimbursements 614,932 85,183 419,152
Management and leasing fees 55,486 71,381 142,761
Property administration 27,325 59,934 23,077
Legal and accounting 17,408 11,878 7,384
Computer costs 107 1,410 1,749
Lease acquisition costs 56,090 0 0
Loss on real estate assets 181,684 0 0
---------- ---------- ----------
1,748,861 904,265 1,111,630
---------- ---------- ----------
Net (loss) income $ (812,837) $ 168,506 $ 997,680
========== ========== ==========
Net (loss) income allocated to
Fund II and II-OW $ (509,625) $ 110,540 $ 654,478
========== ========== ==========
Net (loss) income allocated to Wells
Real Estate Fund III $ (303,212) $ 57,966 $ 343,202
========== ========== ==========
</TABLE>
F-14
<PAGE>
FUND II AND III ASSOCIATES--THE ATRIUM
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
FUND II WELLS REAL TOTAL
AND ESTATE PARTNERS'
II-OW FUND III CAPITAL
----------- ---------- -----------
<S> <C> <C> <C>
Balance, December 31, 1994 $ 7,743,056 $4,061,169 $11,804,225
Net income 654,478 343,202 997,680
Partnership distributions (1,123,602) (589,206) (1,712,808)
----------- ---------- -----------
Balance, December 31, 1995 7,273,932 3,815,165 11,089,097
Net income 110,540 57,966 168,506
Partnership distributions (398,911) (209,185) (608,096)
----------- ---------- -----------
Balance, December 31, 1996 6,985,561 3,663,946 10,649,507
Net loss (509,625) (303,212) (812,837)
Partnership contributions 409,495 659,810 1,069,305
Partnership distributions (124,481) (85,283) (209,764)
----------- ---------- -----------
Balance, December 31, 1997 $ 6,760,950 $3,935,261 $10,696,211
=========== ========== ===========
</TABLE>
F-15
<PAGE>
FUND II AND III ASSOCIATES--THE ATRIUM
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (812,837) $ 168,506 $ 997,680
---------- --------- -----------
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation 795,829 674,479 517,507
Loss on real estate assets 181,684 0 0
Changes in assets and liabilities:
Accounts receivable (18,950) 113,362 226,724
Prepaid expenses and other assets (357,417) 0 0
Accounts payable (37,394) (338,991) 163,364
Due to affiliates 3,829 (6,802) (13,603)
---------- --------- -----------
Total adjustments 567,581 442,048 893,992
---------- --------- -----------
Net cash (used in) provided by operating
activities (245,256) 610,554 1,891,672
---------- --------- -----------
Cash flows from investing activities:
Investment in real estate assets (932,156) (35,038) (15,501)
---------- --------- -----------
Cash flows from financing activities:
Contributions from joint venture partners 1,069,305 0 0
Distributions to joint venture partners (58,720) (973,577) (1,714,751)
---------- --------- -----------
Net cash provided by (used in) financing
activities 1,010,585 (973,577) (1,714,751)
---------- --------- -----------
Net (decrease) increase in cash and cash equivalents (166,827) (398,061) 161,420
Cash and cash equivalents, beginning of year 448,112 846,173 684,753
---------- --------- -----------
Cash and cash equivalents, end of year $ 281,285 $ 448,112 $ 846,173
========== ========= ===========
</TABLE>
F-16
<PAGE>
Following are the financial statements for Fund II and III Associates--
Brookwood Grill:
FUND II AND III ASSOCIATES--BROOKWOOD GRILL
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
Assets
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Real estate assets, at cost:
Land $ 745,223 $ 745,223
Building and improvements, less accumulated
depreciation of $275,717 in 1997 and
$221,703 in 1996 997,096 1,051,110
---------- ----------
Total real estate assets 1,742,319 1,796,333
Investment in joint venture 1,608,215 1,690,244
Cash and cash equivalents 54,321 9,102
Due from affiliate 32,092 12,472
Accounts receivable 89,757 113,986
Prepaid expenses and other assets 23,048 28,616
---------- ----------
Total assets $3,549,752 $3,650,753
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 3,879 $ 20,040
Due to affiliate 5,381 6,544
Partnership distributions payable 82,012 5,865
---------- ----------
Total liabilities 91,272 32,449
---------- ----------
Partners' capital:
Fund II and II-OW 2,156,463 2,256,114
Wells Real Estate Fund III 1,302,017 1,362,190
---------- ----------
Total partners' capital 3,458,480 3,618,304
---------- ----------
Total liabilities and partners' capital $3,549,752 $3,650,753
========== ==========
</TABLE>
F-17
<PAGE>
FUND II AND III ASSOCIATES--BROOKWOOD GRILL
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Rental income $225,106 $225,359 $230,316
Equity in income (loss) of
joint venture 27,213 (19,378) 0
-------- -------- --------
252,319 205,981 230,316
-------- -------- --------
Expenses:
Operating costs, net of
reimbursements 15,233 92,450 15,508
Depreciation 54,014 54,014 63,446
Management and leasing fees 22,896 21,436 23,783
Property administration 3,875 12,454 13,890
Lease acquisition costs 5,568 5,568 5,568
Legal and accounting 4,672 3,164 14,028
Computer costs 107 1,410 1,749
-------- -------- --------
106,365 190,496 137,972
-------- -------- --------
Net income $145,954 $ 15,485 $ 92,344
======== ======== ========
Net income allocated to
Fund II and II-OW $ 91,002 $ 9,655 $ 57,577
======== ======== ========
Net income allocated to
Wells Real Estate Fund III $ 54,952 $ 5,830 $ 34,767
======== ======== ========
</TABLE>
F-18
<PAGE>
FUND II AND III ASSOCIATES--BROOKWOOD GRILL
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
FUND II WELLS REAL TOTAL
AND ESTATE PARTNERS'
II-OW FUND III CAPITAL
---------- ---------- ----------
<S> <C> <C> <C>
Balance, December 31, 1994 $2,351,445 $1,419,756 $3,771,201
Net income 57,577 34,767 92,344
Partnership distributions (96,065) (58,009) (154,074)
---------- ---------- ----------
Balance, December 31, 1995 2,312,957 1,396,514 3,709,471
Net income 9,655 5,830 15,485
Partnership distributions (66,498) (40,154) (106,652)
---------- ---------- ----------
Balance, December 31, 1996 2,256,114 1,362,190 3,618,304
Net income 91,002 54,952 145,954
Partnership distributions (190,653) (115,125) (305,778)
---------- ---------- ----------
Balance, December 31, 1997 $2,156,463 $1,302,017 $3,458,480
========== ========== ==========
</TABLE>
F-19
<PAGE>
FUND II AND III ASSOCIATES--BROOKWOOD GRILL
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 145,954 $ 15,485 $ 92,344
--------- --------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 54,014 54,014 63,446
Equity in (income) loss of joint venture (27,213) 19,378 0
Changes in assets and liabilities:
Accounts receivable 24,229 (9,262) (7,188)
Prepaid expenses and other assets 5,568 5,568 5,568
Accounts payable (16,161) 18,860 (3,431)
Due to affiliates (1,163) 465 465
--------- --------- ----------
Total adjustments 39,274 89,023 58,860
--------- --------- ----------
Net cash provided by operating activities 185,228 104,508 151,204
--------- --------- ----------
Cash flows from investing activities:
Distributions received from joint venture 89,622 7,022 0
--------- --------- ----------
Cash flows from financing activities:
Advances received from affiliate 0 0 30,173
Distributions to joint venture partners (229,631) (136,320) (179,724)
--------- --------- ----------
Net cash used in financing activities (229,631) (136,320) (149,551)
--------- --------- ----------
Net increase (decrease) in cash and cash equivalents 45,219 (24,790) 1,653
Cash and cash equivalents, beginning of year 9,102 33,892 32,239
--------- --------- ----------
Cash and cash equivalents, end of year $ 54,321 $ 9,102 $ 33,892
========= ========= ==========
Supplemental disclosure of noncash items:
Transfer of real estate assets to joint venture for
partnership interest, net of accumulated depreciation
of $50,484 $ 0 $ 0 $1,729,116
========= ========= ==========
</TABLE>
Fund II, III, VI, and VII Associates
On January 1, 1995, the Fund II and III Associates joint venture entered into
a joint venture agreement with Wells Real Estate Fund VI, L.P. ("Fund VI")
and Wells Real Estate Fund VII, L.P. ("Fund VII"). The joint venture, Fund
II, III, VI, and VII Associates, was formed for the purpose of acquiring,
developing, operating, and selling real properties. During 1995, Fund II and
III Associates contributed a 4.3-acre tract of land from its 880 Property to
the Fund II, III, VI, and VII Associates joint venture. During 1996 and
1997, Fund VI and Fund VII made contributions to the joint venture.
F-20
<PAGE>
Ownership percentage interests were recompleted accordingly. Development was
substantially completed in 1996 on two retail and office buildings containing
a total of approximately 49,500 square feet.
The following are the financial statements for Fund II, III, VI, and VII
Associates:
FUND II, III, VI, AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
Assets
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Real estate assets, at cost:
Land $1,325,242 $1,325,242
Building and improvements, less accumulated
depreciation of $507,772 in 1997 and $181,798 in 1996 5,025,276 4,568,805
Construction in progress 59,564 214,398
---------- ----------
Total real estate assets 6,410,082 6,108,445
Cash and cash equivalents 219,391 675,703
Accounts receivable 54,524 67,334
Prepaid expenses and other assets 269,568 145,820
---------- ----------
Total assets $6,953,565 $6,997,302
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 170,776 $ 204,970
Partnership distributions payable 131,907 49,590
---------- ----------
302,683 254,560
---------- ----------
Partners' capital:
Fund II and III Associates 1,608,215 1,690,244
Wells Real Estate Fund VI 1,789,811 1,759,947
Wells Real Estate Fund VII 3,252,856 3,292,551
---------- ----------
Total partners' capital 6,650,882 6,742,742
---------- ----------
Total liabilities and partners' capital $6,953,565 $6,997,302
========== ==========
</TABLE>
F-21
<PAGE>
FUND II, III, VI, AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Revenues:
Rental income $679,268 $255,062
-------- --------
Expenses:
Depreciation 325,974 181,798
Operating costs, net of reimbursements 122,261 75,018
Management and leasing fees 48,962 16,376
Legal and accounting 4,885 14,928
Lease acquisition costs 50,872 12,456
Property administration 17,321 10,286
Computer costs 228 1,368
-------- --------
570,503 312,230
-------- --------
Net income (loss) $108,765 $(57,168)
======== ========
Net income (loss) allocated to Fund II and III Associates $ 27,213 $(19,378)
======== ========
Net income (loss) allocated to Wells Real Estate Fund VI $ 28,409 $(10,193)
======== ========
Net income (loss) allocated to Wells Real Estate Fund VII $ 53,143 $(27,597)
======== ========
</TABLE>
F-22
<PAGE>
FUND II, III, VI, AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
FUND II WELLS WELLS REAL TOTAL
AND III REAL ESTATE ESTATE PARTNERS'
ASSOCIATES FUND VI FUND VII CAPITAL
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, January 1, 1995 $ 0 $ 0 $ 0 $ 0
Partnership contributions 1,729,116 1,028,210 2,521,739 5,279,065
---------- ---------- ---------- ----------
Balance, December 31, 1995 1,729,116 1,028,210 2,521,739 5,279,065
Partnership contributions 0 761,259 835,646 1,596,905
Partnership distributions (19,494) (19,329) (37,237) (76,060)
Net loss (19,378) (10,193) (27,597) (57,168)
---------- ---------- ---------- ----------
Balance, December 31, 1996 1,690,244 1,759,947 3,292,551 6,742,742
Partnership contributions 0 116,675 121,576 238,251
Partnership distributions (109,242) (115,220) (214,414) (438,876)
Net income 27,213 28,409 53,143 108,765
---------- ---------- ---------- ----------
Balance, December 31, 1997 $1,608,215 $1,789,811 $3,252,856 $6,650,882
========== ========== ========== ==========
</TABLE>
F-23
<PAGE>
FUND II, III, VI, AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 108,765 $ (57,168) $ 0
--------- ----------- -----------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 325,974 181,798 0
Changes in assets and liabilities:
Accounts receivable 12,810 (67,334) 0
Prepaid expenses and other assets (123,748) (104,792) (41,028)
Accounts payable and accrued expenses (34,194) 88,532 22,256
--------- ----------- -----------
Total adjustments 180,842 98,204 (18,772)
--------- ----------- -----------
Net cash provided by (used in) operating activities 289,607 41,036 (18,772)
--------- ----------- -----------
Cash flows from investing activities:
(Decrease) increase in construction payables 0 (358,467) 452,649
Investment in real estate (620,059) (1,736,082) (2,595,190)
--------- ----------- -----------
Net cash used in investing activities (620,059) (26,470) 0
--------- ----------- -----------
Cash flows from financing activities:
Contributions from joint venture partners 230,699 1,434,308 3,482,691
Distributions to joint venture partners (356,559) (2,094,549) (2,142,541)
--------- ----------- -----------
Net cash (used in) provided by financing activities (125,860) 1,407,838 3,482,691
--------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (456,312) (645,675) 1,321,378
Cash and cash equivalents, beginning of year 675,703 1,321,378 0
--------- ----------- -----------
Cash and cash equivalents, end of year $ 219,391 $ 675,703 $ 1,321,378
========= =========== ===========
Supplemental disclosure of noncash activities:
Contribution of real estate assets $ 0 $ 0 $ 1,729,116
========= =========== ===========
Deferred project costs applied by partners $ 7,552 $ 162,597 $ 67,257
========= =========== ===========
</TABLE>
FUND III AND IV ASSOCIATES
On March 27, 1991, the Partnership entered into a joint venture with Wells Real
Estate Fund IV, L.P. The joint venture, Fund III and IV Associates, was formed
for the purpose of developing, constructing, and operating the Stockbridge
Village Shopping Center in Stockbridge, Georgia. In addition, in July 1992,
Fund III and IV Associates purchased the G.E. Lighting National Customer Center
in Richmond, Virginia.
F-24
<PAGE>
The following are financial statements for Fund III and IV Associates:
FUND III AND IV ASSOCIATES
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
Assets
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
----------- -----------
Real estate assets, at cost:
Land $ 3,331,775 $ 3,331,775
Building and improvements, less accumulated
depreciation of $2,328,264 in 1997 and
$1,793,055 in 1996 9,750,996 10,286,205
----------- -----------
Total real estate assets 13,082,771 13,617,980
Cash and cash equivalents 306,194 297,901
Accounts receivable 207,223 247,567
Prepaid expenses and other assets 42,905 36,231
----------- -----------
Total assets $13,639,093 $14,199,679
=========== ===========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 36,172 $ 39,722
Partnership distributions payable 388,117 370,953
Due to affiliates 6,939 6,018
----------- -----------
Total liabilities 431,228 416,693
----------- -----------
Partners' capital:
Wells Real Estate Fund III 7,570,298 7,899,938
Wells Real Estate Fund IV 5,637,567 5,883,048
----------- -----------
Total partners' capital 13,207,865 13,782,986
----------- -----------
Total liabilities and partners' capital $13,639,093 $14,199,679
=========== ===========
</TABLE>
F-25
<PAGE>
FUND III AND IV ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Rental income $1,640,663 $1,609,853 $1,676,025
Interest income 12,308 13,024 15,482
---------- ---------- ----------
1,652,971 1,622,877 1,691,507
---------- ---------- ----------
Expenses:
Depreciation 535,209 535,209 382,416
Management and leasing fees 117,965 87,401 93,024
Operating costs, net of
reimbursements 36,973 60,043 40,195
Lease acquisition costs 28,048 50,901 78,766
Property administration 21,735 23,054 26,364
Legal and accounting 13,797 11,191 10,928
Computer costs 0 4,569 5,790
Amortization of organization costs 0 61 366
---------- ---------- ----------
753,727 772,429 637,849
---------- ---------- ----------
Net income $ 899,244 $ 850,448 $1,053,658
========== ========== ==========
Net income allocated to
Wells Real Estate Fund III $ 515,416 $ 487,448 $ 603,921
========== ========== ==========
Net income allocated to
Wells Real Estate Fund IV $ 383,828 $ 363,000 $ 449,737
========== ========== ==========
</TABLE>
F-26
<PAGE>
FUND III AND IV ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
WELLS REAL WELLS REAL TOTAL
ESTATE ESTATE PARTNERS'
FUND III FUND IV CAPITAL
---------- ---------- -----------
<S> <C> <C> <C>
Balance, December 31, 1994 $8,489,389 $6,321,951 $14,811,340
Net income 603,921 449,737 1,053,658
Partnership contributions 0 59 59
Partnership distributions (858,944) (639,651) (1,498,595)
---------- ---------- -----------
Balance, December 31, 1995 8,234,366 6,132,096 14,366,462
Net income 487,448 363,000 850,448
Partnership distributions (821,876) (612,048) (1,433,924)
---------- ---------- -----------
Balance, December 31, 1996 7,899,938 5,883,048 13,782,986
Net income 515,416 383,828 899,244
Partnership distributions (845,056) (629,309) (1,474,365)
---------- ---------- -----------
Balance, December 31, 1997 $7,570,298 $5,637,567 $13,207,865
========== ========== ===========
</TABLE>
F-27
<PAGE>
FUND III AND IV ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 899,244 $ 850,448 $ 1,053,658
----------- ----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 535,209 535,209 382,416
Changes in assets and liabilities:
Accounts receivable 40,344 46,711 73,382
Prepaid expenses and other assets (6,674) 18,111 54,265
Accounts payable (3,550) 6,501 (2,728)
Due to affiliates 921 (1,133) (8,261)
----------- ----------- -----------
Total adjustments 566,250 605,399 499,074
----------- ----------- -----------
Net cash provided by operating activities 1,465,494 1,455,847 1,552,732
----------- ----------- -----------
Cash flows from investing activities:
Investment in real estate 0 (1,976) (29,209)
----------- ----------- -----------
Cash flows from financing activities:
Contributions from joint venture partners 0 0 59
Distributions to joint venture partners (1,457,201) (1,406,873) (1,508,718)
----------- ----------- -----------
Net cash used in financing activities (1,457,201) (1,406,873) (1,508,659)
----------- ----------- -----------
Net increase in cash and cash equivalents 8,293 46,998 14,864
Cash and cash equivalents, beginning of year 297,901 250,903 236,039
----------- ----------- -----------
Cash and cash equivalents, end of year $ 306,194 $ 297,901 $ 250,903
=========== =========== ===========
</TABLE>
F-28
<PAGE>
4. INCOME TAX BASIS NET INCOME AND PARTNERS' CAPITAL
The Partnership's income tax basis net income for the years ended December
31, 1997, 1996, and 1995 is calculated as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Financial statement net income $ 385,224 $ 731,244 $1,143,704
Increase (decrease) in net income resulting from:
Depreciation expense for financial reporting purposes in
excess of amounts for income tax purposes 320,502 261,953 61,167
Rental income accrued for financial reporting purposes less
than (in excess of) amounts for income tax purposes 9,634 68,420 (3,371)
Expenses (added) deductible when paid for income tax
purposes, accrued for financial reporting purposes (6,871) 4,219 104,161
Fixed asset retirement in excess of amounts for income tax
purposes (7,064) 0 0
Other 6,213 0 0
----------- ----------- -----------
Income tax basis net income $ 707,638 $1,065,836 $1,305,661
=========== =========== ===========
</TABLE>
The Partnership's income tax basis partners' capital at
December 31, 1997, 1996, and 1995 is computed as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Financial statement partners' capital $16,383,705 $16,743,131 $17,430,457
Increase (decrease) in partners' capital resulting from:
Depreciation expense for financial reporting purposes in
excess of amounts for income tax purposes 643,622 323,120 61,167
Capitalization of syndication costs for income tax
purposes, which are accounted for as cost of capital for
financial reporting purposes 2,624,555 2,624,555 2,624,555
Accumulated rental income accrued for financial reporting
purposes in excess of amounts for income tax purposes (283,936) (293,570) (361,990)
Accumulated expenses deductible when paid for income
tax purposes, accrued for financial reporting purposes 121,401 128,272 127,059
Partnership's distribution payable 396,991 324,495 619,021
Other (2,691) (1,840) 2,154
----------- ----------- -----------
Income tax basis partners' capital $19,883,647 $19,848,163 $20,502,423
=========== =========== ===========
</TABLE>
5. RENTAL INCOME
The future minimum rental income due from the Partnership's direct investment
in real estate or its respective ownership interest in joint ventures under
noncancelable operating leases at December 31, 1997 is as follows:
F-29
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31:
1998 $ 2,030,562
1999 1,988,400
2000 1,711,755
2001 1,229,432
2002 683,033
Thereafter 3,439,611
-----------
$11,082,793
===========
</TABLE>
Three significant tenants contributed approximately 21%, 17%, and 19% of
revenues, which is either included as rental income in the accompanying
statements of income or in the calculation of equity in income of joint
ventures for the year ended December 31, 1997. In addition, two significant
tenants will contribute approximately 57% and 22% of future minimum rental
income.
The future minimum rental income due Fund II and III Associates--The Atrium
under noncancelable operating leases at December 31, 1997 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31:
1998 $ 1,458,240
1999 1,458,240
2000 1,476,960
2001 1,488,000
2002 550,722
Thereafter 0
-----------
$ 6,432,162
===========
</TABLE>
One significant tenant at the Atrium contributed 100% of rental income for
the year ended December 31, 1997 and will contribute 100% of future minimum
rental income.
The future minimum rental income due Fund II and III Associates--Brookwood
Grill under noncancelable operating leases at December 31, 1997 is as
follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31:
1998 $ 249,550
1999 249,550
2000 249,550
2001 249,550
2002 20,795
-----------
$ 1,018,995
===========
</TABLE>
One significant tenant contributed 100% of rental income for the year ended
December 31, 1997 and will contribute 100% of future minimum rental income.
F-30
<PAGE>
The future minimum rental income due Fund II, III, VI, and VII Associates
under noncancelable operating leases at December 31, 1997 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31:
1998 $ 811,017
1999 800,552
2000 655,056
2001 589,985
2002 335,261
Thereafter 385,280
-----------
$ 3,577,151
===========
</TABLE>
Two significant tenants contributed approximately 18% and 15% of rental
income for the year ended December 31, 1997. In addition, two significant
tenants will contribute approximately 28% and 14% of future minimum rental
income.
The future minimum rental income due Fund III and IV Associates under
noncancelable operating leases at December 31, 1997 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31:
1998 $ 1,659,180
1999 1,634,297
2000 1,166,970
2001 1,023,783
2002 810,501
Thereafter 5,942,564
-----------
$12,237,295
===========
</TABLE>
Two significant tenants contributed approximately 30% and 32% of rental
income for the year ended December 31, 1997. In addition, two significant
tenants will contribute approximately 90% and 10% of future minimum rental
income.
6. QUARTERLY RESULTS (UNAUDITED)
Presented below is a summary of the unaudited quarterly financial information
for the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 QUARTERS ENDED
---------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues $199,709 $196,951 $281,182 $172,216
Net income 64,405 75,417 168,471 76,931
Net income allocated to Class A limited partners 64,405 75,417 168,471 76,931
Net income per Class A limited partner unit $ 0.00 $ 0.00 $ 0.01 $ 0.01
Cash distribution per Class A limited partner unit 0.00 0.00 0.02 0.02
</TABLE>
F-31
<PAGE>
<TABLE>
<CAPTION>
1996 Quarters Ended
---------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues $355,197 $330,130 $288,562 $181,726
Net income 235,136 257,738 169,124 69,246
Net income allocated to Class A limited partners 235,136 257,738 169,124 69,246
Net income per Class A limited partner unit (a) $ 0.01 $ 0.01 $ 0.01 $ 0.00
Cash distribution per Class A limited partner unit 0.02 0.02 0.02 0.01
</TABLE>
(a) The total of the four quarterly amounts for net income per Class A
limited partner unit for the year ended December 31, 1996 does not equal
the total for the year. This difference results from rounding
differences.
7. COMMITMENTS AND CONTINGENCIES
Management, after consultation with legal counsel, is not aware of any
significant litigation or claims against the Partnership or the Company. In
the normal course of business, the Partnership or the Company may become
subject to such litigation or claims.
F-32
<PAGE>
WELLS REAL ESTATE FUND III, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
SCHEDULE III--REAL ESTATE INVESTMENTS
AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
<TABLE>
<CAPTION>
INITIAL COST
------------------------- COSTS OF
BUILDINGS AND CAPITALIZED
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS
- ---------------------------- ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C>
THE ATRIUM AT NASSAU BAY (A) None $1,367,000 $10,983,000 $ 2,526,766
GREENVILLE PROJECT (B) None 529,977 0 3,611,974
880 PROPERTY--BROOKWOOD
GRILL (C) None 523,319 0 1,494,717
STOCKBRIDGE VILLAGE (D) None 2,551,645 0 7,749,117
G.E. LIGHTING NATIONAL
CUSTOMER CENTER (E) None 529,546 4,158,223 422,504
880 PROPERTY (F) None 1,325,242 0 5,592,612
---------- ----------- -----------
Total $6,826,729 $15,141,223 $21,397,690
========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH CARRIED AT DECEMBER 31, 1997
----------------------------------------------------
BUILDINGS AND CONSTRUCTION
LAND IMPROVEMENTS IN PROGRESS TOTAL
---------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
THE ATRIUM AT NASSAU BAY (A) $1,504,743 $13,372,023 $ 0 $14,876,766
GREENVILLE PROJECT (B) 576,350 3,565,601 0 4,141,951
880 PROPERTY--BROOKWOOD
GRILL (C) 745,223 1,272,813 0 2,018,036
STOCKBRIDGE VILLAGE (D) 2,758,193 7,542,569 0 10,300,762
G.E. LIGHTING NATIONAL
CUSTOMER CENTER (E) 573,582 4,536,691 0 5,110,273
880 PROPERTY (F) 1,325,242 5,533,048 59,564 6,917,854
---------- ------------- ------------ -----------
Total $7,483,333 $35,822,745 $59,564 $43,365,642
========== ============= ============ ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIFE ON WHICH
ACCUMULATED DATE OF DATE DEPRECIATION
DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED (G)
------------ ------------ -------- ---------------
<S> <C> <C> <C> <C>
THE ATRIUM AT NASSAU BAY (A) $4,567,184 1988 04/03/89 12 to 25 years
GREENVILLE PROJECT (B) 771,521 1990 06/30/90 20 to 25 years
880 PROPERTY--BROOKWOOD
GRILL (C) 275,717 1991 03/27/91 20 to 25 years
STOCKBRIDGE VILLAGE (D) 1,526,193 1991 04/04/91 20 to 25 years
G.E. LIGHTING NATIONAL
CUSTOMER CENTER (E) 802,071 1991 07/01/92 20 to 25 years
880 PROPERTY (F) 507,772 1996 01/31/90 20 to 25 years
----------
Total $8,450,458
==========
</TABLE>
(a) The Atrium at Nassau Bay is a four-story office building located in Houston,
Texas. It is owned by Fund II and III Associates. The Partnership owned a
39% interest in Fund II and III Associates as of December 31, 1997.
(b) The Greenville Project is a two-story office building located in Greenville,
North Carolina, owned entirely by the Partnership.
(c) The 880 Property--Brookwood Grill is a 7,440-square-foot restaurant located
in Fulton County, Georgia. It is owned by a joint venture, Fund II and III
Associates. The Partnership owned a 38% interest in the 880 Property--
Brookwood Grill as of December 31, 1997.
(d) Stockbridge Village is a 13.62-acre retail shopping center located in
Stockbridge, Georgia. It is owned by Fund III and IV Associates. The
Partnership owned a 57% interest in Fund III and IV Associates as of
December 31, 1997.
(e) The G.E. Lighting National Customer Center is a 43,000-square-foot office
building located in Richmond, Virginia. It is owned by Fund III and IV
Associates. The Partnership owned a 57% interest in Fund III and IV
Associates as of December 31, 1997.
(f) The 880 Property is a 4.3-acre tract of real property under development in
Fulton County, Georgia. It is owned by Fund II, III, VI, and VII Associates.
The Partnership owned a 9% interest in Fund II, III, VI, and VII Associates
as of December 31, 1997.
(g) Depreciation lives used for buildings were 40 years through September 1995,
changed to 25 years thereafter. Depreciation lives used for land
improvements are 12 to 20 years.
S-1
<PAGE>
WELLS REAL ESTATE FUND III, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
SCHEDULE III--REAL ESTATE INVESTMENTS
AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
----------- ------------
<S> <C> <C>
BALANCE AT DECEMBER 31, 1995 $40,132,907 $5,058,357
1996 additions 1,948,693 1,603,808
----------- ----------
BALANCE AT DECEMBER 31, 1996 42,081,600 6,662,165
1997 additions 1,546,767 1,869,334
1997 deductions (262,725) (81,041)
----------- ----------
BALANCE AT DECEMBER 31, 1997 $43,365,642 $8,450,458
=========== ==========
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
-------------
(Wells Real Estate Fund III, L.P.)
The following documents are filed as exhibits to this report. Those exhibits
previously filed and incorporated herein by reference are identified below by an
asterisk. For each such asterisked exhibit, there is shown below the
description of the previous filing. Exhibits which are not required for this
report are omitted.
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NUMBER
- --------- -------------------------------------------- -------------
*4(a) Agreement of Limited Partnership of N/A
Wells Real Estate Fund III, L.P.
(Registration Statement of Wells Real
Estate Fund III, L.P., Exhibit B to the
Prospectus, File No. 33-24063)
*4(b) Amendment to Agreement of Limited N/A
Partnership of Wells Real Estate
Fund III, L.P. (Exhibit 4(a) to
Post-Effective Amendment No. 1 to
Registration Statement of Wells Real
Estate Fund III, L.P., File No. 33-24063)
*4(c) Second Amendment to Agreement of N/A
Limited Partnership of Wells Real
Estate Fund III, L.P. (Exhibit 4(a)
to Post-Effective Amendment No. 5
to Registration Statement of Wells
Real Estate Fund III, L.P., File No. 33-24063)
*4(d) Third Amendment to Agreement of N/A
Limited Partnership of Wells Real
Estate Fund III, L.P. (Exhibit to
Post-Effective Amendment No. 7 to
Registration Statement of Wells Real
Estate Fund III, L.P., File No. 33-24063)
<PAGE>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NUMBER
- --------- -------------------------------------------- -------------
*10(a) Management Agreement between Registrant N/A
and Wells Management Company, Inc. (Exhibit
to Form 10-K of Wells Real Estate Fund III,
L.P. for the fiscal year ended December 31,
1990, File No. 0-18407)
*10(b) Leasing and Tenant Coordination Agreement N/A
between Registrant and Wells Management
Company, Inc. (Exhibit to Form 10-K of
Wells Real Estate Fund III, L.P. for the
fiscal year ended December 31, 1990, File
No. 0-18407)
*10(c) Purchase Agreement for the Acquisition N/A
of the Atrium at Nassau Bay dated
March 1, 1989 (Exhibit 10(i) to Form 10-K
of Wells Real Estate Fund II for the
fiscal year ended December 31, 1990,
File No. 0-16518)
*10(d) Joint Venture Agreement of Fund II and N/A
Fund III Associates dated March 1,
1989 (Exhibit to Post-Effective
Amendment No. 2 to Registration
Statement of Wells Real Estate Fund
III, L.P., File No. 33-24063)
*10(e) First Amendment to Joint Venture Agreement N/A
of Fund II and Fund III Associates dated
April 1, 1989 (Exhibit 10(k) to Form 10-K
of Wells Real Estate Fund II for the
fiscal year ended December 31, 1990,
File No. 0-16518)
*10(f) Leases with Lockheed Engineering and N/A
Sciences Company, Inc. (Exhibit 10(l)
to Form 10-K of Wells Real Estate Fund
II for the fiscal year ended
December 31, 1990, File No. 0-16518)
<PAGE>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NUMBER
- --------- -------------------------------------------- -------------
*10(g) Custodial Agency Agreement between N/A
Registrant and Citizens and Southern
Trust Company (Georgia), National
Association dated January 1, 1990
(Exhibit to Post-Effective
Amendment No. 5 to Registration
Statement of Wells Real Estate Fund
III, L.P., File No. 33-24063)
*10(h) Purchase Agreement for the Acquisition N/A
of the Greenville Property dated
April 10, 1990 (Exhibit to Form 10-K of
Wells Real Estate Fund III, L.P. for the
fiscal year ended December 31, 1990, File
No. 0-18407)
*10(i) Development Agreement with ADEVCO N/A
Corporation dated June 15, 1990 (Exhibit
to Form 10-K of Wells Real Estate Fund III,
L.P. for the fiscal year ended December 31,
1990, File No. 0-18407)
*10(j) Construction Contract with McDevitt N/A
& Street Company dated May 31, 1990 (Exhibit
to Form 10-K of Wells Real Estate Fund III,
L.P. for the fiscal year ended December 31,
1990, File No. 0-18407)
*10(k) Lease with International Business N/A
Machines Corporation dated May 15,
1990 (Exhibit to Form 10-K of Wells Real
Estate Fund III, L.P. for the fiscal year
ended December 31, 1990, File No. 0-18407)
*10(l) Amended and Restated Joint Venture N/A
Agreement of Fund II and Fund III Associates
(Exhibit 10(o) to Form 10-K of Wells Real
Estate Fund II for the fiscal year ended
December 31, 1991, File No. 0-16518)
<PAGE>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NUMBER
- --------- -------------------------------------------- -------------
*10(m) Land and Building Lease Agreement between N/A
Fund II and Fund II-OW and Brookwood Grill
of Roswell, Inc. (Exhibit 10(p) to Form
10-K of Wells Real Estate Fund II for the
fiscal year ended December 31, 1991, File
No. 0-16518)
*10(n) Assignment and Assumption of Lease dated N/A
September 20, 1991 between Fund II and
Fund II-OW and Fund II and Fund III
Associates (Exhibit 10(q) to Form 10-K
of Wells Real Estate Fund II for the
fiscal year ended December 31, 1991,
File No. 0-16518)
*10(o) Fund III and Fund IV Associates Joint N/A
Venture Agreement dated March 27, 1991
(Exhibit 10(g) to Post-Effective Amendment
No. 1 to Registration Statement of Wells
Real Estate Fund IV, L.P. and Wells Real
Estate Fund V, L.P., File No. 33-37830)
*10(p) Agreement of Purchase and Sale dated N/A
October 31, 1990 between 675 Industrial
Park, Ltd. and The Vlass-Fotos Group, Inc.
(Exhibit 10(h) to Post-Effective Amendment
No. 1 to Registration Statement of Wells
Real Estate Fund IV, L.P. and Wells Real
Estate Fund V, L.P., File No. 33-37830)
*10(q) Lease dated January 31, 1991 between The N/A
Vlass-Fotos Group, Inc. and The Kroger Co.
(Exhibit 10(i) to Post-Effective Amendment
No. 1 to Registration Statement of Wells
Real Estate Fund IV, L.P. and Wells Real
Estate Fund V, L.P., File No. 33-37830)
<PAGE>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NUMBER
- --------- -------------------------------------------- -------------
*10(r) Lease Agreement dated January 31, 1991 N/A
between The Vlass-Fotos Group, Inc. and
The Kroger Co. (Exhibit 10(j) to Post-
Effective Amendment No. 1 to Registration
Statement of Wells Real Estate Fund IV,
L.P. and Wells Real Estate Fund V, L.P.,
File No. 33-37830)
*10(s) First Amendment to Lease dated April 3, N/A
1991 between The Vlass-Fotos Group, Inc.
and The Kroger Co. (Exhibit 10(k) to Post-
Effective Amendment No. 1 to Registration
Statement of Wells Real Estate Fund IV,
L.P. and Wells Real Estate Fund V, L.P.,
File No. 33-37830)
*10(t) First Amendment to Lease Agreement dated N/A
April 3, 1991 between The Vlass-Fotos
Group, Inc. and The Kroger Co. (Exhibit
10(l) to Post-Effective Amendment No. 1
to Registration Statement of Wells Real
Estate Fund IV, L.P. and Wells Real Estate
Fund V, L.P., File No. 33-37830)
*10(u) Development Agreement dated April 4, 1991 N/A
between Fund III and Fund IV Associates
and The Vlass-Fotos Group, Inc. (Exhibit
10(m) to Post-Effective Amendment No. 1 to
Registration Statement of Wells Real Estate
Fund IV, L.P. and Wells Real Estate Fund V,
L.P., File No. 33-37830)
*10(v) First Amendment to Joint Venture Agreement N/A
of Fund III and IV Associates dated July 1,
1992 (Exhibit to Form 10-K of Wells Real
Estate Fund III, L.P. for the fiscal year
ended December 31, 1992, File No. 0-18407)
<PAGE>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NUMBER
- --------- -------------------------------------------- -------------
*10(w) Agreement for the Purchase and Sale of N/A
Property between Rowe Properties-Markel,
L.P. and Fund III and Fund IV Associates
and Addendum to Agreement for the Purchase
and Sale of Property (Exhibit to Form 10-K
of Wells Real Estate Fund III, L.P. for
the fiscal year ended December 31, 1992,
File No. 0-18407)
*10(x) Office Lease with G.E. Lighting, Rider N/A
No. 1 to Lease, Addendum of Lease, Second
Addendum of Lease, Third Amendment of Lease
and Fourth Amendment to Office Lease
(Exhibit to Form 10-K of Wells Real Estate
Fund III, L.P. for the fiscal year ended
December 31, 1992, File No. 0-18407)
*10(y) Amended and Restated Custodial Agency N/A
Agreement between Wells Real Estate Fund
III, L.P. and NationsBank of Georgia, N.A.
dated April 1, 1994 (Exhibit to Form 10-K
of Wells Real Estate Fund III, L.P. for
the fiscal year ended December 31, 1994,
File No. 0-18407)
*10(z) Joint Venture Agreement of Fund II, III, N/A
VI and VII Associates (Exhibit to Form
10-K of Wells Real Estate Fund VI, L.P.
for the fiscal year ended December 31,
1995, File No. 0-23656)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 216,961
<SECURITIES> 12,807,576
<RECEIVABLES> 378,710
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,990
<PP&E> 4,141,951
<DEPRECIATION> 771,521
<TOTAL-ASSETS> 16,791,667
<CURRENT-LIABILITIES> 407,962
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 16,383,705
<TOTAL-LIABILITY-AND-EQUITY> 16,791,667
<SALES> 0
<TOTAL-REVENUES> 850,058
<CGS> 0
<TOTAL-COSTS> 464,834
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 385,224
<INCOME-TAX> 385,224
<INCOME-CONTINUING> 385,224
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 385,224
<EPS-PRIMARY> .02
<EPS-DILUTED> 0
</TABLE>
