<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark one)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 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)
6200 The Corners Parkway, Norcross, Georgia 30092
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 449-7800
-----------------------------
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _________
-------
<PAGE>
Form 10-Q
---------
Wells Real Estate Fund III, L.P.
--------------------------------
INDEX
-----
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - June 30, 2000
and December 31, 1999................................... 3
Statements of Income for the Three Months
and Six Months Ended June 30, 2000 and 1999............. 4
Statement of Partner's Capital for the
Six Months Ended June 30, 2000
and the Year Ended December 31, 1999.................... 5
Statements of Cash Flows for the Six
Months Ended June 30, 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
2
<PAGE>
WELLS REAL ESTATE FUND III, L.P.
(A Georgia Public Limited Partnership)
BALANCE SHEETS
<TABLE>
<CAPTION>
Assets June 30, 2000 December 31, 1999
----- ------------- ------------------
<S> <C> <C>
Real estate, at cost:
Land $ 576,350 $ 576,350
Building and improvements, less accumulated
depreciation of $1,097,969 in 2000 and
$1,012,443 in 1999 2,446,118 2,531,644
----------- -----------
Total real estate 3,022,468 3,107,994
----------- -----------
Cash and cash equivalents 127,307 128,536
Investment in joint ventures (Note 2) 11,032,112 11,369,590
Due from affiliates 229,827 318,763
Accounts receivable 1,135 14,489
Prepaid expenses and other assets 25,320 22,916
----------- -----------
Total assets $14,438,169 $14,962,288
=========== ===========
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Accounts payable $ 22,274 $ 5,478
Partnership distributions payable 6,769 435,375
----------- -----------
Total liabilities 29,043 440,853
----------- -----------
Partners' capital:
Limited Partners:
Class A - 19,635,965 units outstanding 14,409,126 14,521,435
Class B - 2,544,540 units outstanding 0 0
----------- -----------
Total partners' capital 14,409,126 14,521,435
----------- -----------
Total liabilities and partners' capital $14,438,169 $14,962,288
=========== ===========
</TABLE>
See accompanying condensed notes to financial statements
3
<PAGE>
WELLS REAL ESTATE FUND III, L.P.
(A Georgia Public Limited Partnership)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------------- ---------------------------------
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $148,098 $133,449 $284,406 $272,160
Equity in earnings of joint
ventures (Note 2) 45,960 179,282 188,103 318,307
-------- -------- -------- --------
194,058 312,731 472,509 590,467
-------- -------- -------- --------
Expenses:
Management & leasing fees 5,967 9,778 19,261 16,211
Operating costs-rental property 48,148 21,596 87,016 77,987
Depreciation 42,763 40,443 85,526 80,885
Legal & accounting 2,200 6,993 14,200 12,647
Computer costs 2,226 1,477 4,093 3,169
Partnership administration 20,538 13,462 31,162 31,667
-------- -------- -------- --------
121,842 93,749 241,258 222,566
-------- -------- -------- --------
Net income $ 72,216 $218,982 $231,251 $367,901
======== ======== ======== ========
Net income allocated to
General Partners $ 0 $ 0 $ 0 $ 0
Net income allocated to Class
A Limited Partners $ 72,216 $218,982 $231,251 $367,901
Net loss allocated to Class B
Limited Partners $ 0 $ 0 $ 0 $ 0
Net income per Class A Limited
Partner Unit $ 0.004 $ 0.01 $ 0.01 $ 0.02
Net loss per Class B
Limited Partner Unit $ (0.00) $ (0.00) $ (0.00) $ (0.00)
Cash distribution per Class A
Limited Partner Unit $ 0.00 $ 0.02 $ 0.02 $ 0.04
</TABLE>
See accompanying condensed notes to financial statements
4
<PAGE>
WELLS REAL ESTATE FUND III, L.P.
(A Georgia Public Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1999 AND THE SIX MONTHS ENDED
JUNE 30, 2000
<TABLE>
<CAPTION>
Limited Partners
-----------------------------------------------
Class A Class B Total
------------------------- -------------------- 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 0 231,251 0 0 231,251
Partnership distributions 0 (343,560) 0 0 (343,560)
---------- ----------- --------- -------- -----------
BALANCE, June 30, 2000 19,635,965 $14,409,126 2,544,540 $ 0 $14,409,126
========== =========== ========= ======== ===========
</TABLE>
See accompanying condensed notes to financial statements.
5
<PAGE>
WELLS REAL ESTATE FUND III, L.P.
(A Georgia Public Limited Partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
--------------------------------------------------------
June 30, 2000 June 30, 1999
--------------------------- ---------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 231,251 $ 367,901
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in income of joint ventures (188,103) (318,307)
Depreciation 85,526 80,885
Changes in assets and liabilities:
Accounts receivable 13,352 (7,980)
Prepaids and other assets (2,404) 6,485
Accounts payable 16,795 7,353
Due to affiliates 0 (7,966)
--------- ---------
Total adjustments 74,834 (239,530)
--------- ---------
Net cash provided by operating activities 156,417 128,371
--------- ---------
Cash flow from investing activities:
Distributions received from joint ventures 614,520 663,345
--------- ---------
Net cash provided by investing activities 614,520 663,345
Cash flow from financing activities:
Partnership distribution paid (772,166) (848,252)
--------- ---------
Net decrease in cash and cash equivalents ( 1,229) (56,536)
Cash and cash equivalents, beginning of year 128,536 156,648
--------- ---------
Cash and cash equivalents, end of period $ 127,307 $ 100,112
========= =========
</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 June 30, 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) Holcomb Bridge Road, 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 the Partnership have been prepared in
accordance with instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. These quarterly statements
have not been examined by independent accountants, but in the opinion of
the General Partners, the statements for the unaudited interim periods
presented include all adjustments, which are of a normal and recurring
nature, necessary
7
<PAGE>
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 owns interest in six properties as of June 30, 2000,
through ownership in four 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 June 30, 2000, the properties owned by the Partnership were 82.7%
occupied as compared to 94% as of June 30, 1999. Gross revenues of the
Partnership were $472,509 for the six months June 30, 2000, as compared to
$590,454 for the six months ended June 30, 1999. The decrease in revenues
is primarily due to lower occupancy rates and the vacancy of the G.E.
Building.
Expenses of the Partnership remained relatively constant at $241,258 for
the six months ended June 30, 2000, from $222,553 for the six months ended
June 30, 1999. As a result, net income decreased to $231,251 from $367,901
for the six months ended June
8
<PAGE>
30, 2000 and 1999, respectively.
Net cash provided by operating activities increased from $128,371 in 1999
to $156,417 in 2000, due to changes in receivables, payables and 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. As a result, cash and cash equivalents
remained relatively stable at $127,307 for the end of the period as
compared to $128,536 at December 31, 1999.
There were no cash distributions accrued to Limited Partners holding Class
A Units for the second quarter of 2000, as compared to distributions of
$0.02 per unit for the second quarter of 1999. No cash distributions were
made to Limited Partners holding Class B Units or the General Partners for
the three months ended June 30, 2000 and 1999. Substantially all cash
generated from the operations of properties owned by the Partnership is
being reserved to fund the required tenant improvements and refurbishments
at the G.E. Building. G.E.'s lease expired March 31, 2000, and management
is currently in negotiations with a tenant to lease the building. The cost
for new tenant buildout and building maintenance is anticipated to be
approximately $1,250,000 , and will be funded by the Partnership and Wells
Fund IV.
9
<PAGE>
Property Operations
-------------------
As of June 30, 2000, the Partnership owned interests in the following
properties:
The Greenville Property - Fund III
----------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------------- --------------------------------
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $148,098 $133,449 $284,406 $272,160
-------- -------- -------- --------
Expenses:
Depreciation 42,763 40,443 85,526 80,885
Management & leasing expenses 14,118 18,656 27,472 35,225
Other operating expenses 39,889 12,673 78,805 58,960
-------- -------- -------- --------
96,770 71,772 191,803 175,070
-------- -------- -------- --------
Net income $ 51,328 $ 61,677 $ 92,603 $ 97,090
======== ======== ======== ========
Occupied % 86.4% 78.5% 86.4% 78.5%
Partnership Ownership % 100.0% 100.0% 100.0% 100.0%
Cash generated to the Partnership $ 99,830 $105,949 $186,077 $184,613
Net income generated to the
Partnership $ 51,328 $ 61,677 $ 92,603 $ 97,090
</TABLE>
Rental income increased as of June 30, 2000, as compared to the same period in
1999, due to the increase in occupancy from 78.5% to 86.4%. Other operating
expenses increased for 2000, as compared to 1999, due primarily to differences
in the adjustment for prior year common area maintenance billings to tenants.
Tenants are billed as estimate amount for the current year common area
maintenance which is then reconciled the following year and the differences
billed to the tenant. As a result of the increased expenses, net income
decreased in 2000, as compared to 1999.
10
<PAGE>
Boeing at the Atrium/Fund II and Fund III Joint Venture
-------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------------ -------------------------------------
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $366,176 $367,536 $ 733,712 $ 735,072
-------- -------- --------- ---------
366,176 367,536 733,712 735,072
-------- -------- --------- ---------
Expenses:
Depreciation 218,290 219,755 435,220 433,860
Management & leasing expenses 48,478 44,869 93,538 89,643
Other operating expenses 168,391 117,325 318,573 313,495
-------- -------- --------- ---------
435,159 381,949 847,331 836,998
-------- -------- --------- ---------
Net loss $(68,983) $(14,413) $(113,619) $(101,926)
======== ======== ========= =========
Occupied % 100.0% 100.0% 100.0% 100.0%
Partnership Ownership % 38.7% 38.7% 38.7% 38.7%
Cash distributed to the Partnership $ 63,620 $ 82,335 $ 118,533 $ 138,922
Net loss allocated to the $(26,691) $( 5,578) $ (43,971) $ (39,446)
Partnership
</TABLE>
Rental income remained relatively stable for the three months and six months
ended June 30, 2000, as compared to the same period 1999. Other operating
expense increased slightly due primarily to increased expenditures in
electricity and landscape repairs and property tax accruals.
11
<PAGE>
The Brookwood Grill Property/Fund II and Fund III Joint Venture
---------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------------ -------------------------------------
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $56,238 $56,187 $112,425 $112,375
Equity in income of joint venture 16,415 6,248 33,318 39,304
------- ------- -------- --------
72,653 62,435 145,743 151,679
------- ------- -------- --------
Expenses:
Depreciation 13,503 13,503 27,006 27,006
Management & leasing expenses 5,327 7,955 12,031 16,683
Other operating expenses 1,233 805 11,325 6,330
------- ------- -------- --------
20,063 22,263 50,362 50,019
------- ------- -------- --------
Net income $52,590 $40,172 $ 95,381 $101,660
======= ======= ======== ========
Occupied % 100.0% 100.0% 100.0% 100.0%
Partnership Ownership % 37.7% 37.7% 37.7% 37.7%
Cash distributed to the Partnership $38,538 $30,184 $ 73,386 $ 69,703
Net income allocated to the
Partnership $19,800 $15,125 $ 35,911 $ 38,275
</TABLE>
Other operating expenses increased for the six months ended June 30, 2000, as
compared to the same period last year due to appraisal fees for this property
which is currently being marketed for sale.
12
<PAGE>
Holcomb Bridge Road Property/Fund II, III, VI, VII Joint Venture
----------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------------- ---------------------------------
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $222,699 $227,761 $444,856 $457,824
-------- -------- -------- --------
Expenses:
Depreciation 104,130 94,128 208,260 188,257
Management & leasing expenses 26,480 42,063 57,066 80,937
Other operating expenses 23,890 387 41,108 24,781
-------- -------- -------- --------
154,500 136,578 306,434 293,975
-------- -------- -------- --------
Net income $ 68,199 $ 91,183 $138,422 $163,849
======== ======== ======== ========
Occupied % 100% 94% 100% 94%
Partnership Ownership % 9.1% 9.1% 9.1% 9.1%
Cash distributed to the Fund II -
Fund III Joint Venture $ 45,459 $ 46,181 $ 91,406 $ 81,600
Net income allocated to the
Fund II - Fund III Joint Venture $ 16,415 $ 6,248 $ 33,318 $ 39,438
</TABLE>
Rental income remained relatively stable for the three months ended June 30,
2000, as compared to the same period in 1999. Management and leasing fees
decreased in 2000, as compared to 1999, due to a catch-up of 1998 management
fees in 1999. Other operating expenses increased for the three months and six
month period as compared to the same period last year due to appraisal fees for
this property which is currently being marketed for sale and monthly common area
maintenance billings were increased in 1999 to offset 1998 underpayment.
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 Fund II - Fund III Joint Venture were increased for
the six month period as compared to the same period in 1999 even though there is
a decrease in net income this year due to lease acquisition fees and procurement
fees paid in 1999.
13
<PAGE>
The G.E. Building/Richmond-Fund III-Fund IV Joint Venture
---------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------------- ----------------------------------
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 0 $131,856 $131,856 $263,712
Expenses:
Depreciation 49,056 49,053 98,112 98,112
Management & leasing expenses 0 10,179 10,179 20,274
Other operating expenses 42,975 2,113 47,122 3,358
-------- -------- -------- --------
92,031 61,345 155,413 121,744
-------- -------- -------- --------
Net (loss) income $(92,031) $ 70,511 $(23,557) $141,968
======== ======== ======== ========
Occupied % 0% 100.0% 0% 100.0%
Partnership Ownership % 57.2% 57.2% 57.2% 57.2%
Cash distributed to the Partnership $(28,281) $ 73,674 $ 44,229 $146,467
Net income allocated to the
Partnership $(52,652) $ 40,341 $(13,477) $ 81,274
</TABLE>
Rental income, net income and cash distributions generated from the G.E.
Building decreased in the second quarter of 2000, as compared to 1999, due
primarily to G.E.'s lease expiration on March 31, 2000. Other operating
expenses have increased due to the fact that G.E. no longer pays for the
buildings operating costs such as property taxes, electricity and various other
expenses. Management is currently in negotiations to lease the building to a
tenant. 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 Property/Fund III-Fund IV Joint Venture
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------------ ---------------------------------
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $319,132 $321,880 $628,240 $647,050
Interest income 968 2,800 4,368 6,300
-------- -------- -------- --------
320,100 324,680 632,608 653,350
-------- -------- -------- --------
Expenses:
Depreciation 90,517 89,126 179,560 177,310
Management & leasing expenses 29,952 29,466 64,924 62,650
Other operating expenses 15,213 (20,081) 21,695 (2,743)
-------- -------- -------- --------
135,682 98,511 266,179 237,217
-------- -------- -------- --------
Net income $184,418 $226,169 $366,429 $416,133
======== ======== ======== ========
Occupied % 98% 100% 98% 100%
Partnership Ownership % 57.2% 57.2% 57.2% 57.2%
Cash distributed to the Partnership $155,950 $179,920 $289,436 $340,203
Net income allocated to the
Partnership $105,508 $129,395 $209,640 $238,204
</TABLE>
Rental income decrease in 2000, as compared to 1999, due to two leases which
expired and were not renewed. One of the unoccupied spaces has been released in
the first quarter of 2000. Other operating expenses increased due primarily to
differences in the adjustment for prior year common area maintenance billings 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 are lower in 2000, as compared to 1999, due primarily to
capitalized tenant improvements paid of $29,000 in early 2000 and the decrease
in rental income and increase in other operating expenses.
15
<PAGE>
PART II - OTHER INFORMATION
----------------------------
Item 6(b). No reports on Form 8-K were filed during the second 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: August 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
