<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, 1998 or
----------------------------------------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
--------------------- -----------------------
Commission file number 0-20103
--------------------------------------------------------
Wells Real Estate Fund IV, L.P.
- ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1915128
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3885 Holcomb Bridge Road, Norcross, Georgia 30092
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 449-7800
-----------------------------
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
<PAGE>
Form 10-Q
---------
Wells Real Estate Fund II
-------------------------
INDEX
-----
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - June 30, 1998
and December 31, 1997.................................... 3
Statements of Income for the Three Months and Six Months
Ended June 30, 1998 and 1997............................. 4
Statements of Partners' Capital for the Year Ended
December 31, 1997 and the Six Months
Ended June 30, 1998...................................... 5
Statements of Cash Flows for the Six Months
Ended June 30, 1998 and 1997............................. 6
Condensed Notes to Financial Statements.................. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................................... 8
PART II. OTHER INFORMATION............................................ 14
2
<PAGE>
WELLS REAL ESTATE FUND IV, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
Assets June 30, 1998 December 31, 1997
------ ------------- -----------------
<S> <C> <C>
Investment in joint ventures (Note 2) $10,059,107 $10,201,623
Cash and cash equivalents 109,144 163,903
Due from affiliates 263,654 212,709
----------- -----------
Total assets $10,431,905 $10,578,235
=========== ===========
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Accounts payable and accrued expenses $ (88) $ 0
Partnership distributions payable 248,661 243,467
----------- -----------
Total liabilities $ 248,573 $ 243,467
----------- -----------
Partners' capital:
Limited partners
Class A - 1,322,909 Units outstanding 10,183,332 10,334,768
Class B - 38,551Units outstanding 0 0
----------- -----------
Total partners' capital 10,183,332 10,334,768
----------- -----------
Total liabilities and partners' capital $10,431,905 $10,578,235
=========== ===========
</TABLE>
See accompanying condensed notes to financial statements.
3
<PAGE>
WELLS REAL ESTATE FUND IV, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ ------------------------------
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Interest Income $ 1,414 $ 2,681 $ 3,863 $ 4,792
Equity in income of joint
ventures (Note 2) 206,610 178,997 351,132 317,608
-------- -------- -------- -------
208,024 181,678 354,995 322,400
Expenses:
Legal and accounting 8,146 5,988 12,917 15,942
Computer costs 1,838 1,651 3,824 4,694
Partnership administration 10,761 10,091 19,127 20,876
-------- -------- -------- --------
20,745 17,730 35,868 41,512
-------- -------- -------- --------
Net income $187,279 $163,948 $319,127 $280,888
======== ======== ======== ========
Net income allocated to
Class A Limited Partners $187,279 $163,948 $319,127 $280,888
Net loss allocated to Class
B Limited Partners $ 0 $ 0 $ 0 $ 0
Net income per Class A
Limited Partner Unit $ 0.14 $ 0.12 $ 0.24 $ 0.21
Net loss per Class B Limited
Partner Unit $ 0 $ 0 $ 0 $ 0
Cash distribution per Class A
Limited Partner Unit $ 0.19 $ 0.18 $ 0.36 $ 0.35
</TABLE>
See accompanying condensed notes to financial statements.
4
<PAGE>
WELLS REAL ESTATE FUND IV, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1997
AND SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
LIMITED PARTNERS
----------------------------------------
CLASS A CLASS B TOTAL
------------------------ -------------- PARTNERS'
UNITS AMOUNT UNITS AMOUNT CAPITAL
--------- ------------- ------ ------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 1,322,909 $10,767,968 38,551 $0 $10,767,968
Net income 0 519,907 0 0 519,907
Partnership distribution 0 (953,107) 0 0 (953,107)
--------- ----------- ------ -- -----------
BALANCE, DECEMBER 31, 1997 1,322,909 $10,334,768 38,551 0 10,334,768
Net income 0 319,127 0 0 319,127
Partnership distributions 0 (470,563) 0 0 (470,563)
--------- ----------- ------ --
BALANCE, JUNE 30, 1998 1,332,909 $10,183,332 38,551 $0 $10,183,332
========= =========== ====== == ===========
</TABLE>
See accompanying condensed notes to financial statements
5
<PAGE>
WELLS REAL ESTATE FUND IV, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 319,127 $ 280,888
Adjustments to reconcile net income to net cash
used in operating activities:
Equity in income of joint ventures (351,132) (317,608)
Changes in assets and liabilities:
Accounts payable (88) (3,818)
Due to affiliates 0 (895)
Total adjustments (351,220) (322,321)
--------- ---------
Net cash used in operating activities (32,093) (41,433)
--------- ---------
Cash flows from investing activities:
Investment in joint ventures (33,419) 0
Distributions received from joint ventures 476,122 499,019
--------- ---------
Net cash provided by investing activities
Cash flows from financing activities:
Partnership distributions paid (465,369) (452,380)
--------- ---------
Net decrease in cash and cash equivalents (54,759) 5,206
Cash and cash equivalents, beginning of year 163,903 156,177
--------- ---------
Cash and cash equivalents, end of period $ 109,144 $ 161,383
========= =========
</TABLE>
See accompanying condensed notes to financial statements.
6
<PAGE>
WELLS REAL ESTATE FUND IV, L.P.
(A Georgia Public Limited Partnership)
Condensed Notes to Financial Statements
June 30, 1998
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) General
-------
Wells Real Estate Fund IV, L.P. (the "Partnership") is a Georgia public
limited partnership having Leo F. Wells, III and Wells Partners, L.P., as
General Partners. The Partnership was formed on October 25, 1990, for the
purpose of acquiring, developing, constructing, owning, operating, improving,
leasing and otherwise managing for investment purposes income-producing
commercial properties.
On March 4, 1991, the Partnership commenced an offering of up to $25,000,000
of Class A or Class B limited partnership units ($10.00 per unit) pursuant to
a Registration Statement on Form S-11 under the Securities Act of 1933. The
Partnership did not commence active operations until it received and accepted
subscriptions for 125,000 units which occurred on May 13, 1991. The offering
was terminated on February 29, 1992, at which time the Partnership had
obtained total contributions of $13,614,652 representing subscriptions from
1,285 Limited Partners.
The Partnership owns interests in properties through its equity ownership in
the following two joint ventures: (i) Fund III and Fund IV Associates, a joint
venture between the Partnership and Wells Real Estate Fund III, L.P. ( the
"Fund III - Fund IV Joint Venture"); and (ii) Fund IV and Fund V Associates, a
joint venture between the Partnership and Wells Real Estate Fund V, L.P. (the
"Fund IV - Fund V Joint Venture").
As of June 30, 1998, the Partnership owned interests in the following
properties through its ownership of the foregoing joint ventures: (i) a retail
shopping center located in Stockbridge, Georgia, southeast of Atlanta (the
"Stockbridge Village Shopping Center"), which is owned by the Fund III - Fund
IV Joint Venture; (ii) a two-story office building located in Richmond,
Virginia (the "G.E. Building/Richmond"), which is owned by the Fund III - Fund
IV Joint Venture; (iii) two substantially identical two-story office buildings
located in Clayton County, Georgia (the "Medical Center Building"), which are
owned by the Fund IV - Fund V Joint Venture, and (iv) a four-story office
building located in Jacksonville, Florida (the "IBM Jacksonville Building"),
which is owned by the Fund IV - Fund V Joint Venture. All of the foregoing
properties were acquired on an all cash basis. For further information
regarding these joint ventures and properties, refer to the Partnership's Form
10-K for the year ended December 31, 1997.
7
<PAGE>
(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 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, 1997.
(2) Investment in Joint Ventures
----------------------------
The Partnership owns interests in four properties as of June 30, 1998, through
ownership in two 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 further information, refer to Form 10-K of the Partnership
for the year ended December 31, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
--------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The following discussion and analysis should be read in conjunction with the
accompanying financial statements of the Partnership and notes thereto. This
Report contains forward-looking statements, 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 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.
8
<PAGE>
RESULTS OF OPERATIONS AND CHANGES IN FINANCIAL CONDITIONS
---------------------------------------------------------
(a) General
-----------
As of June 30, 1998, the properties owned by the Partnership were 96.76%
occupied. Gross revenues of the Partnership were $208,024 for the three
months ended June 30, 1998, and $354,995 for the six months ended June 30,
1998, as compared to $181,678 for the three months ended June 30, 1997 and
$322,400 for the six months ended June 30, 1997. This increase in gross
revenues was due primarily to a slight increase in income from joint ventures,
which was primarily due to increased rental renewal rates and increased
occupancy at the Stockbridge Property. As a result, net income increased for
both the three months and six months ended June 30, 1998, as compared to the
same periods ended June 30, 1997.
The Partnership's net cash used in operating activities decreased slightly for
1998, as compared to 1997, due to a decrease in operating costs in 1998.
Distributions received from joint ventures decreased while distributions paid
to limited partners increased. In addition, a $33,419 investment in the joint
venture was made. As a result cash and cash equivalents decreased to $109,144
for June 30, 1998, as compared to $161,383 for June 30, 1997.
The Partnership made cash distributions to the Limited Partners holding Class
A Units of $.19 per Unit for the three months ended June 30, 1998 compared to
$0.18 for the three months ended June 30, 1997. No cash distributions were
made to the Limited Partners holding Class B Units or to the General Partners.
The Partnership's distributions paid and payable through the second quarter of
1998 have been paid from net cash from operations and from distributions
received from its equity investment in joint ventures, and the Partnership
anticipates that distributions will continue to be paid on a quarterly basis
from such sources.
The Partnership is unaware of any known demands, commitments, events or
capital expenditures other than that which is required from the normal
operations of its properties that will result in the Partnership's liquidity
increasing or decreasing in any material way. The Partnership expects to meet
liquidity requirements and budget demands through cash flow from operations.
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.
9
<PAGE>
Property Operations
- -------------------
As of June 30, 1998, the Partnership owned interests in the following properties
through joint ventures:
IBM Jacksonville /Fund IV - Fund V Joint Venture
- ------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ -----------------------------
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $365,896 $365,992 $731,888 $732,113
Expenses:
Depreciation 79,524 79,511 159,048 159,005
Management & leasing expenses 51,801 44,397 98,477 87,762
Other operating expenses (7,083) (4,809) 98,277 100,674
-------- -------- -------- --------
124,242 119,099 355,802 347,441
-------- -------- -------- --------
Net income $241,654 $246,893 $376,086 $384,672
======== ======== ======== ========
Occupied % 100% 100% 100% 100%
Partnership's Ownership % in the
Fund IV Fund V Joint Venture 37.6% 37.8% 37.6% 37.8%
Cash distribution to Partnership $ 94,905 $ 95,979 $170,119 $173,697
Net income allocated to the
Partnership $ 90,948 $ 93,421 $141,542 $145,704
</TABLE>
Rental income for the IBM Jacksonville Building remained relatively stable in
1998, as compared to 1997 figures. Operating expenses increased slightly in
1998 due primarily to increased management and leasing expenses. Cash
distributions remained relatively stable for 1998 and 1997. Wells Fund V
contributed cash fundings to the Joint Venture for construction, which decreased
the Partnership's ownership interest in the Fund IV - Fund V Joint Venture.
10
<PAGE>
The Medical Center Property/Fund IV - Fund V Joint Venture
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ -----------------------------
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $118,712 $ 99,181 $236,039 $187,749
Interest income 2,572 2,284 4,519 4,923
-------- -------- -------- --------
121,284 101,465 240,558 192,672
-------- -------- -------- --------
Expenses:
Depreciation 44,524 41,313 89,048 81,135
Management & leasing expenses 15,874 18,032 30,670 29,697
Other operating expenses 32,795 36,636 80,471 82,052
-------- -------- -------- --------
93,193 95,981 200,189 192,884
-------- -------- -------- --------
Net income (loss) $ 28,091 $ 5,484 $ 40,369 $ (212)
======== ======== ======== ========
Occupied % 82% 82% 82% 82%
Partnership's Ownership % in the
Fund IV Fund V Joint Venture 37.6% 37.8% 37.6% 37.8%
Cash distribution to Partnership $ 30,258 $ 17,772 $ 54,400 $ 32,629
Net income (loss) allocated to the
Partnership $ 10,572 $ 2,076 $ 15,193 $ (84)
</TABLE>
Rental income, expenses and cash distributions increased in 1998, over 1997, due
primarily to an increase in the occupancy level of the property in the second
quarter of 1997 and a correction of an error in the straight-line rent in 1997.
Wells Fund V contributed cash fundings to the Joint Venture for construction,
which decreased the Partnership's ownership interest in the Fund IV - Fund V
Joint Venture.
11
<PAGE>
The Stockbridge Village Shopping Center / Fund III - Fund IV Joint Venture
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ ------------------------------
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $300,521 $274,300 $585,885 $548,037
Interest income 1,965 2,474 3,930 6,117
-------- -------- -------- --------
302,486 276,774 589,815 554,154
======== ======== ======== ========
Expenses:
Depreciation 86,120 84,747 170,867 169,494
Management & leasing expenses 26,360 25,101 54,823 55,437
Other operating expenses 16,925 43,845 38,633 68,263
-------- -------- -------- --------
129,405 153,693 264,323 293,194
-------- -------- -------- --------
Net income $173,081 $123,081 $325,492 $260,960
======== ======== ======== ========
Occupied % 97% 93% 97% 93%
Partnership's Ownership % in the
Fund III Fund IV Joint Venture 42.7% 42.7% 42.7% 42.7%
Cash distribution to Partnership $108,760 $ 91,495 $200,717 $190,813
Net income allocated to the
Partnership $ 74,096 $ 52,535 $138,931 $111,387
</TABLE>
Rental income increased for the three and six months ended June 30, 1998, as
compared to the same periods in 1997, due to increased rental rates and
increased occupancy. Expenses of the property decreased from $293,194 in 1997
to $264,323 in 1998, due primarily to differences in the annual adjustment for
prior year common area maintenance billings to tenants.
12
<PAGE>
The G.E. Building/Richmond / Fund III - Fund IV Joint Venture
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ ------------------------------
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $131,856 $131,856 $263,712 $263,712
Expenses:
Depreciation 49,053 49,053 98,106 98,112
Management & leasing expenses 10,095 9,965 20,109 19,930
Other operating expenses 97 289 15,552 3,692
-------- -------- -------- --------
59,245 59,310 133,767 121,734
-------- -------- -------- --------
Net income $ 72,611 $ 72,546 $129,945 $141,978
======== ======== ======== ========
Occupied % 100% 100% 100% 100%
Partnership's Ownership % in the
Fund III Fund IV Joint Venture 42.7% 42.7% 42.7% 42.7%
Cash distribution to Partnership $ 54,731 $ 53,574 $101,832 $104,767
Net income allocated to the
Partnership $ 30,993 $ 30,965 $ 55,465 $ 60,601
</TABLE>
Rental income has remained constant for 1997 through 1998. Net income and cash
distributions generated from the G.E. Building decreased for the six months
ended June 30, 1998, as compared to the same period in 1997, due to increased
expenses in the first quarter of 1998 for extraordinary roof repairs.
13
<PAGE>
PART II - OTHER INFORMATION
Item 6(b). No reports on Form 8-K were filed during the second quarter of
1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WELLS REAL ESTATE FUND IV, L.P.
(Registrant)
Dated: August 10, 1998 By: /s/Leo F. Wells, III
---------------------------------------------
Leo F. Wells, III, as Individual General
Partner and as President, Sole Director and Chief
Financial Officer of Wells Capital,
Inc., the General Partner of Wells Partners, L.P.
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 109,144
<SECURITIES> 10,059,107
<RECEIVABLES> 263,654
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,431,905
<CURRENT-LIABILITIES> 248,573
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 10,183,332
<TOTAL-LIABILITY-AND-EQUITY> 10,431,905
<SALES> 0
<TOTAL-REVENUES> 354,995
<CGS> 0
<TOTAL-COSTS> 35,868
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 319,127
<INCOME-TAX> 319,127
<INCOME-CONTINUING> 319,127
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 319,127
<EPS-PRIMARY> .24
<EPS-DILUTED> 0
</TABLE>
