<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark one)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2000 or
---------------------------------------------
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from_____________________ to__________________________
Commission file number 0-18407
----------------------------------------------------------
Wells Real Estate Fund III, L.P.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1800833
- ------------------------------ --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3885 Holcomb Bridge Road, Norcross, Georgia 30092
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 449-7800
-----------------------------
________________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ___
---
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Form 10-Q
---------
Wells Real Estate Fund III, L.P.
--------------------------------
INDEX
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<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - March 31, 2000
and December 31, 1999.................................. 3
Statements of Income for the Three Months
Ended March 31, 2000 and 1999.......................... 4
Statement of Partner's Capital for the
Year Ended December 31, 1999
and the Three Months Ended March 31, 2000.............. 5
Statements of Cash Flows for the Three
Months Ended March 31, 2000 and 1999................... 6
Condensed Notes to Financial Statements................. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 8
PART II. OTHER INFORMATION............................................ 16
</TABLE>
2
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WELLS REAL ESTATE FUND III, L.P.
(A Georgia Public Limited Partnership)
BALANCE SHEETS
<TABLE>
<CAPTION>
Assets March 31, 2000 December 31, 1999
------ -------------- ------------------
<S> <C> <C>
Real estate, at cost:
Land $ 576,350 $ 576,350
Building and improvements, less accumulated
depreciation of $1,139,185 in 2000 and
$1,096,423 in 1999 2,488,881 2,531,644
----------- -----------
Total real estate 3,065,231 3,107,994
----------- -----------
Cash and cash equivalents 119,145 128,536
Investment in joint ventures (Note 2) 11,215,979 11,369,590
Due from affiliates 295,757 318,763
Accounts receivable 13,452 14,489
Prepaid expenses and other assets 22,816 22,916
----------- -----------
Total assets $14,732,380 $14,962,288
=========== ===========
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Accounts payable $ 10,262 $ 5,478
Partnership distributions payable 385,208 435,375
----------- -----------
Total liabilities 395,470 440,853
----------- -----------
Partners' capital:
Limited Partners:
Class A - 19,635,965 units outstanding 14,336,910 14,521,435
Class B - 2,544,540 units outstanding 0 0
----------- -----------
Total partners' capital 14,336,910 14,521,435
----------- -----------
Total liabilities and partners' capital $14,732,380 $14,962,288
=========== ===========
</TABLE>
See accompanying condensed notes to financial statements
3
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WELLS REAL ESTATE FUND III, L.P.
(A Georgia Public Limited Partnership)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Revenues:
Rental income $136,308 $138,711
Interest income 48 33
Equity in income of joint ventures (Note 2) 142,143 139,025
-------- --------
278,499 277,769
-------- --------
Expenses:
Management and leasing fees 13,294 14,228
Operating costs-rental properties,
net of tenant reimbursements 38,916 48,628
Depreciation 42,763 40,442
Legal and accounting expenses 12,000 5,654
Computer expense 1,867 1,692
Partnership administration 10,624 18,206
-------- --------
119,464 128,850
-------- --------
Net income $159,035 $148,919
======== ========
Net income allocated to
Class A Limited Partners $159,035 $148,919
Net loss allocated to
Class B Limited Partners $ 0 $ 0
Net income per Class A
Limited Partner Unit $ 0.01 $ 0.01
Net loss per Class B
Limited Partner Unit $ 0 $ 0
Cash distribution per Class A
Limited Partner Unit $ 0.02 $ 0.02
</TABLE>
See accompanying condensed notes to financial statements
4
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WELLS REAL ESTATE FUND III, L.P.
(A Georgia Public Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1999 AND THE THREE MONTHS ENDED
MARCH 31, 2000
<TABLE>
<CAPTION>
Limited Partners Total
--------------------------------------------
Class A Class B Partners'
-------------------- ------------------
Units Amounts Units Amounts Capital
----- ------- ----- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1998 19,635,965 $15,420,884 2,544,540 0 $15,420,884
Net income 0 674,443 0 34,979 709,412
Partnership distributions 0 (1,573,882) 0 (34,979) (1,608,861)
---------- ----------- --------- -------- -----------
BALANCE, December 31, 1999 19,635,965 14,521,435 2,544,540 0 14,521,435
Net income 0 159,035 0 0 159,035
Partnership distributions 0 (343,560) 0 0 (343,560)
---------- ----------- --------- -------- -----------
BALANCE, March 31, 2000 19,635,965 $14,336,910 2,544,540 $ 0 $14,336,910
========== =========== ========= ======== ===========
</TABLE>
See accompanying condensed notes to financial statements.
5
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WELLS REAL ESTATE FUND III, L.P.
(A Georgia Public Limited Partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 159,035 $ 148,919
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in income of joint ventures (142,143) (139,025)
Depreciation 42,763 40,442
Changes in assets and liabilities:
Accounts receivable 1,037 1,027
Prepaids and other assets 100 846
Accounts payable 4,780 8,543
Due to affiliates 0 13,420
--------- ---------
Net cash provided by operating activities 65,572 74,172
--------- ---------
Cash flow from investing activities:
Distributions received from joint ventures 318,763 333,796
--------- ---------
Net cash provided by investing activities 318,763 333,796
Cash flow from financing activities:
Partnership distribution paid (393,726) (453,371)
--------- ---------
Net decrease in cash and cash equivalents (9,391) (45,403)
Cash and cash equivalents, beginning of year 128,536 156,648
--------- ---------
Cash and cash equivalents, end of period $ 119,145 $ 111,245
========= =========
</TABLE>
See accompanying condensed notes to financial statements.
6
<PAGE>
WELLS REAL ESTATE FUND III, L.P.
(A Georgia Public Limited Partnership)
Condensed Notes to Financial Statements
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) General
------------
Wells Real Estate Fund III, L.P. (the "Partnership") is a Georgia public
limited partnership having Leo F. Wells, III and Wells Capital, Inc., a
Georgia corporation, as General Partners. The Partnership was formed on
July 31, 1988, for the purpose of acquiring, developing, constructing,
owning, operating, improving, leasing and otherwise managing for investment
purposes income-producing commercial properties.
On October 24, 1988, the Partnership commenced a public offering of its
limited partnership units pursuant to a Registration Statement filed on
Form S-11 under the Securities Act of 1933. The Partnership terminated its
offering on October 23, 1990, and received gross proceeds of $22,206,319
representing subscriptions from 2,700 Limited Partners, composed of two
classes of limited partnership interests, Class A and Class B limited
partnership units.
The Partnership owns interests in properties through equity ownership in
the following joint ventures: (i) The Fund II - Fund III Joint Venture,
(ii) The Fund II, III, VI and VII Associates Joint Venture and (iii) The
Fund III - Fund IV Joint Venture.
As of March 31, 2000, the Partnership owned interest in the following
properties: (i) the Greenville Property, an office building in Greenville,
North Carolina, owned by the Partnership, (ii) Boeing at the Atrium, an
office building in Houston, Texas, owned by Fund II - Fund III Joint
Venture, (iii) the Brookwood Grill, a restaurant located in Roswell,
Georgia, owned by Fund II - Fund III Joint Venture, (iv) the Stockbridge
Village Shopping Center, a retail shopping center located in Stockbridge,
Georgia, southeast of Atlanta, owned by Fund III - Fund IV Joint Venture,
(v) the G.E. Office Building located in Richmond, Virginia, owned by Fund
III - Fund IV Joint Venture, and (vi) an office/retail center in Roswell,
Georgia, owned by Fund II, III, VI and VII Joint Venture. All of the
foregoing properties were acquired on an all cash basis.
(b) Basis of Presentation
--------------------------
The financial statements of Wells Real Estate Fund III, L.P. have been
prepared in accordance with instructions to Form 10-Q and do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. These quarterly
statements have not been examined by independent accountants, but in the
opinion of the General Partners, the statements for the unaudited interim
periods presented include all adjustments, which are of a normal and
recurring
7
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nature, necessary to present a fair presentation of the results for such
periods. For further information, refer to the financial statements and
footnotes included in the Partnership's Form 10-K for the year ended
December 31, 1999.
(2) Investment in Joint Ventures
----------------------------
The Partnership does not have control over the operations of the joint
ventures; however, it does exercise significant influence. Accordingly,
investment in joint ventures is recorded on the equity method.
For a description of the joint ventures and properties owned by the
Partnership, please refer to the Partnership's Form 10-K for the year ended
December 31, 1999.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
-----------------------------------------------------------------------
RESULTS OF OPERATIONS.
----------------------
The following discussion and analysis should be read in conjunction with
the accompanying financial statements of the Partnership and notes thereto.
This Report contains forward-looking statements, with the meaning of
Section 27A of the Securities Act of 1993 and 21E of the Securities
Exchange Act of 1934, including discussion and analysis of the financial
condition of the Partnership, anticipated capital expenditures required to
complete certain projects, amounts of cash distributions anticipated to be
distributed to Limited Partners in the future and certain other matters.
Readers of this Report should be aware that there are various factors that
could cause actual results to differ materially from any forward-looking
statement made in the Report, which include construction costs which may
exceed estimates, construction delays, lease-up risks, inability to obtain
new tenants upon the expiration of existing leases, and the potential need
to fund tenant improvements or other capital expenditures out of operating
cash flow.
Results of Operations and Changes in Financial Conditions
---------------------------------------------------------
General
-------
As of March 31, 2000, the properties owned by the Partnership were 96.5%
occupied as compared to 95.6% as of March 31, 1999.
Gross revenues of the Partnership remained constant at $278,499 for the
three months ended March 31, 2000, as compared to $277,769 for the three
months ended March 31, 1999.
Expenses of the Partnership decreased to $119,464 for the three months
ended March 31, 2000, from $128,850 for the three months ended March 31,
1999. The decrease in expenses was due primarily to decreased overall
operating expenses at the IBM Greenville Property.
8
<PAGE>
Net cash provided by operating activities decreased from $74,172 in 1999 to
$65,572 in 2000, due to changes due to affiliates. Distributions received
from joint ventures and distributions paid to limited partners decreased
primarily due to capitalized tenant improvements paid in early 2000.
Since the Partnership pays out all cash flow, cash and cash equivalents
remains relatively stable.
The Partnership made cash distributions to the Limited Partners hold Class
A Units of $.02 per Class A Unit for the three months ended March 31, 2000
and $0.02 for the three months ended March 31, 1999. No cash distributions
were made to Limited Partners holding Class B Units or the General Partners
for the three months ended March 31, 2000 and 1999.
The Partnership's distributions paid and payable through the first quarter
of 2000 have been paid from net cash from operations and from distributions
received from its investments in joint ventures.
The Partnership has been notified that General Electric has elected not to
renew its current lease for the G.E. Building, which expired March 31,
2000. Management has begun efforts to market and lease this building to
one or more new tenants. At the current time, the estimated cost of
refurbishments, tenant improvements and building maintenance is anticipated
to be approximately $1,250,000, which may vary significantly depending upon
the ultimate tenant or tenants actually obtained for this property. It is
likely that these costs will be required to be funded out of cash from
operations of the Partnership and Wells Fund IV, which is likely to cause a
substantial reduction to distributions payable to Limited Partners in the
year 2000.
9
<PAGE>
Property Operations
- -------------------
As of March 31, 2000, the Partnership owned interests in the following
properties:
The Greenville Property- Fund III
- ---------------------------------
Three Months Ended
------------------
March 31, 2000 March 31, 1999
-------------- --------------
Revenues:
Rental income $ 136,308 $ 138,711
--------- ---------
Expenses:
Depreciation 42,763 40,442
Management & leasing expenses 13,294 14,228
Other operating expenses 38,916 48,628
--------- ---------
94,973 103,298
--------- ---------
Net income $ 41,335 $ 35,413
========= =========
Occupied % 86.4% 78.5%
Partnership's Ownership % 100% 100%
Cash generated to the Partnership $ 86,247 $ 78,664
Net income generated to the Partnership $ 41,335 $ 35,413
Rental income decreased slightly as of March 31, 2000, as compared to the same
period in 1999, even though occupancy increased due to a new lease for 3,472
square feet that did not commence until mid-quarter. Other operating expenses
decreased for the third quarter of 2000, as compared to 1999, due primarily to
parking lot repairs of almost $6,000 in 1999. As a result of decreased total
expenses, net income and cash generated to the Partnership increased in 2000, as
compared to 1999.
10
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Boeing at the Atrium/Fund II and Fund III Joint Venture
- -------------------------------------------------------
Three Months Ended
------------------
March 31, 2000 March 31, 1999
-------------- --------------
Revenues:
Rental income $ 367,536 $ 367,536
---------- ----------
Expenses:
Depreciation 216,930 214,105
Management & leasing expenses 45,060 44,774
Other operating expenses 150,182 196,170
---------- ----------
412,172 455,049
---------- ----------
Net loss $ (44,636) $ (87,513)
========== ==========
Occupied % 100% 100%
Partnership's Ownership % 38.7% 38.7%
Cash distributions to the Partnership $ 54,913 $ 56,587
Net loss allocated to the Partnership $ (17,280) $ (33,868)
Rental income remained stable for the three months ended March 31, 2000, as
compared to the three months ended March 31, 1999. Other operating expense
decreased due to an increase in common area maintenance reimbursements billed to
tenants. Tenants are billed an estimated amount for the current year common
area maintenance which is then reconciled the following year and the difference
billed to the tenant.
Cash distributions to the Partnership decreased even though net loss decreased
by $42,877 due primarily to capital expenditures on the property's exterior
caulking and coating during the first quarter of 2000 for approximately $50,000.
11
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The Brookwood Grill Property/Fund II and Fund III Joint Venture
- ---------------------------------------------------------------
Three Months Ended
------------------
March 31, 2000 March 31, 1999
-------------- --------------
Revenues:
Rental income $ 56,187 $ 56,188
Equity in income of joint venture 16,903 17,491
--------- ---------
73,090 73,679
--------- ---------
Expenses:
Depreciation 13,503 13,503
Management & leasing expenses 6,704 8,728
Other operating expenses 10,092 5,525
--------- ---------
30,299 27,756
--------- ---------
Net income $ 42,791 $ 45,923
========= =========
Occupied % 100% 100%
Partnership's Ownership % 37.7% 37.7%
Cash distributions to the Partnership $ 34,848 $ 33,971
Net income allocated to the Partnership $ 16,111 $ 17,290
Rental income, net income and cash distributions to the Partnership remained
relatively stable for the three months ended March 31, 2000 as compared to 1999
due to the stable occupancy rate.
12
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Holcomb Bridge Road Project / Fund II, III, VI, VII Joint Venture
- -----------------------------------------------------------------
Three Months Ended
------------------
March 31, 2000 March 31, 1999
-------------- --------------
Revenues:
Rental income $ 222,157 $ 230,063
----------- ------------
Expenses:
Depreciation 104,130 94,129
Management & leasing expenses 30,586 38,874
Other operating expenses 17,218 24,394
----------- ------------
151,934 157,397
----------- ------------
Net income $ 70,223 $ 72,666
=========== ============
Occupied % 100% 100%
Partnership Ownership % 9.1% 9.1%
Cash Distribution to the Fund II -
Fund III Joint Venture* $ 45,947 $ 35,418
Net Income Allocated to the
Fund II - Fund III Joint Venture* $ 16,903 $ 17,491
*The Partnership holds a 9.1% ownership in the Fund II - Fund III Joint Venture.
Rental income and net income decreased for the three months ended March 31,
2000, as compared to the three months ended March 31, 1999, due to an
overestimate of straight line rent adjustment during the first quarter of 1999.
Cash distributions to the Partnership increased even though net income decreased
slightly due to lease acquisitions fees paid of approximately $20,000 in 1999.
13
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The G.E. Building/Richmond / Fund III - Fund IV Joint Venture
- -------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Revenues:
Rental Income $131,856 $131,856
-------- --------
Expenses:
Depreciation 49,056 49,059
Management & leasing expenses 10,179 10,095
Other operating expenses 4,147 1,245
-------- --------
63,382 60,399
-------- --------
Net income $ 68,474 $ 71,457
======== ========
Occupied % 100% 100%
Partnership Ownership % 57.2% 57.2%
Cash Distribution to Partnership $ 72,510 $ 72,793
Net Income allocated to the Partnership $ 39,174 $ 40,933
</TABLE>
Rental income has remained constant for 2000 and 1999. Net income and cash
distributions generated from the G.E. Building decreased in the first quarter of
2000, as compared to the same period for 1999, due primarily to an increase in
travel expenses related to releasing this building.
G.E. has decided not to renew their lease with expired March 31, 2000.
Management has begun its efforts to lease the building to one or more tenants.
At this time, the cost for new tenant buildout and building maintenance is
anticipated to be approximately $1,250,000.
14
<PAGE>
The Stockbridge Village Shopping Center / Fund III - Fund IV Joint Venture
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Revenues:
Rental income $309,108 $325,170
Interest income 3,400 3,500
-------- --------
312,508 328,670
-------- --------
Expenses:
Depreciation 89,043 88,184
Management & leasing expenses 34,972 33,184
Other operating expenses 6,482 17,338
-------- --------
130,497 138,706
-------- --------
Net income $182,011 $189,964
======== ========
Occupied % 98% 100%
Partnership Ownership % 57.2% 57.2%
Cash Distribution to Partnership $133,486 $160,283
Net Income allocated to the
Partnership $104,132 $108,809
</TABLE>
Rental income decrease in 2000, as compared to 1999, due to two leases which
expired and were not renewed. Other operating expenses decreased due primarily
to differences in the adjustment for prior year common area maintenance billings
to tenants and decreased expenditures for roof repairs in 2000. Tenants are
billed an estimated amount for the current year common area maintenance which is
then reconciled the following year and the difference billed to the tenant.
Cash distributions are lower in 2000, as compared to 1999, due primarily to
capitalized tenant improvements paid of $29,000 in early 2000.
15
<PAGE>
PART II - OTHER INFORMATION
----------------------------
Item 6(b). No reports on Form 8-K were filed during the first quarter of 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
WELLS REAL ESTATE FUND III, L.P.
(Registrant)
Dated: May 11, 2000 By: /s/ Leo F. Wells, III
---------------------
Leo F. Wells, III, as Individual
General Partner and as President
and Chief Financial
Officer of Wells Capital, Inc.
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 119,145
<SECURITIES> 0
<RECEIVABLES> 309,209
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,816
<PP&E> 4,204,416
<DEPRECIATION> 1,139,185
<TOTAL-ASSETS> 14,732,380
<CURRENT-LIABILITIES> 395,470
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 14,336,910
<TOTAL-LIABILITY-AND-EQUITY> 14,732,380
<SALES> 0
<TOTAL-REVENUES> 278,499
<CGS> 0
<TOTAL-COSTS> 119,464
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 159,035
<INCOME-TAX> 159,035
<INCOME-CONTINUING> 159,035
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 159,035
<EPS-BASIC> .01
<EPS-DILUTED> 0
</TABLE>
