<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, 1996 or
----------------------------------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
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Commission file number 0-25606
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Wells Real Estate Fund VII, L.P.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-2022629
- -------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3885 Holcomb Bridge Road, Norcross, Georgia 30092
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 449-7800
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- -------------------------------------------------------------------------------
(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 VII, L.P.
--------------------------------
INDEX
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Page No.
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - March 31, 1996
and December 31, 1995 ........................... 3
Statements of Income for the Three Months
Ended March 31, 1996 and 1995 ................... 4
Statement of Partners' Capital for the Year Ended
December 31, 1995 and the Three Months Ended
March 31, 1996.................................... 5
. Statements of Cash Flows for the Three
Months Ended March 31, 1996 and 1995............... 6
Condensed Notes to Financial Statements............ 7
. Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations......................................... 17
PART II. OTHER INFORMATION............................................. 23
2
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WELLS REAL ESTATE FUND VII, L.P.
(A Georgia Public Limited Partnership)
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31, 1996 December 31, 1995
----------------------------------
<S> <C> <C>
NONOPERATING REAL ESTATE ASSETS:
Land $ 534,262 $ 534,262
Construction in progress 846,776 738,094
----------- -----------
Total real estate assets 1,381,038 1,272,356
INVESTMENT IN JOINT VENTURES (NOTE 3) 18,169,292 18,110,964
DUE FROM AFFILIATES 155,878 156,825
CASH AND CASH EQUIVALENTS 726,610 1,114,066
DEFERRED PROJECT COSTS 122,241 126,613
ORGANIZATIONAL COSTS,
less accumulated amortization of $12,500
in 1996 and $10,938 in 1995 18,750 20,312
PREPAID EXPENSES AND OTHER ASSETS $ 23,546 $ 29,547
----------- -----------
Total Assets $20,597,355 $20,830,683
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued expenses $ 0 $ 178,413
Partnership distributions payable 179,710 191,558
Due to affiliates 5,097 0
----------- -----------
Total liabilities $ 184,807 $ 369,971
----------- -----------
PARTNERS' CAPITAL:
General Partners 0 0
Limited Partners
Class A - 1,698,328 units 14,544,688 14,457,205
Class B - 719,689 units 5,867,860 6,003,507
----------- -----------
Total Partners' capital 20,412,548 20,460,712
----------- -----------
Total liabilities and partners' capital $20,597,355 $20,830,683
=========== ===========
</TABLE>
See accompanying condensed notes to financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
WELLS REAL ESTATE FUND VII, L.P.
(A Georgia Public Limited Partnership)
STATEMENTS OF INCOME
Three Months Ended
March 31, 1996 March, 31, 1995
-------------- ---------------
<S> <C> <C>
REVENUES:
Equity in income of joint ventures (Note 3) $ 114,467 $ 70,798
Interest Income 43,409 202,117
----------- -----------
157,876 272,915
----------- -----------
EXPENSES:
Legal and accounting 6,056 8,349
Partnership administration 16,888 30,087
Amortization of organization costs 1,562 1,562
----------- -----------
24,506 39,998
----------- -----------
$ 133,370 $ 232,917
NET INCOME =========== ===========
NET LOSS ALLOCATED TO
GENERAL PARTNERS $ 0 $ (234)
=========== ===========
NET INCOME ALLOCATED TO CLASS A
LIMITED PARTNERS $ 220,170 $ 256,294
=========== ===========
NET LOSS ALLOCATED TO CLASS B
LIMITED PARTNERS $ (86,800) $ (23,294)
=========== ===========
NET INCOME PER WEIGHTED AVERAGE
CLASS A LIMITED PARTNER UNIT $ 0.130 $ 0.154
=========== ===========
NET LOSS PER WEIGHTED AVERAGE
CLASS B LIMITED PARTNER UNIT $ (0.121) $ (0.032)
=========== ===========
CASH DISTRIBUTION PER WEIGHTED
AVERAGE CLASS A LIMITED PARTNER
UNIT $ 0.11 $ 0.15
=========== ===========
</TABLE>
See accompanying condensed notes to financial statements.
4
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WELLS REAL ESTATE FUND VII, L.P.
(A Georgia Public Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1995
AND FOR THE THREE MONTHS ENDED, MARCH 31, 1996
<TABLE>
<CAPTION>
Limited Partners
-----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A Class B Total
---------------------- -------------------- General Partners'
Original Units Amounts Units Amounts Partners Capital
-------- --------- ----------- ------- ---------- -------- ----------
BALANCE, December 31, 1994 100 1,631,009 $13,893,443 706,487 $5,984,727 280 19,878,550
Net income (loss) 0 0 950,826 0 (146,503) (280) 804,043
Limited partner contributions 0 47,800 478,000 32,721 327,212 0 805,212
Partnership distributions 0 0 (906,211) 0 0 0 (906,211)
Sales Commissions 0 0 (47,800) 0 (32,721) 0 (80,521)
Other offering expenses 0 0 (23,900) 0 (16,361) 0 (40,261)
Class A conversion elections 0 13,518 112,847 (13,518) (112,847) 0 0
Return of capital (100) 0 0 0 0 0 (100)
------- --------- ----------- ------- ---------- ---- -----------
BALANCE, December 31, 1995 0 1,692,327 $14,457,205 725,690 $6,003,507 0 $20,460,712
Net Income (loss) 0 0 220,171 0 (86,800) 0 133,371
Partnership distributions 0 0 (181,535) 0 0 0 (181,535)
Class A conversion elections 0 6,001 48,847 (6,001) (48,847) 0 0
Return of capital 0 0 0 0 0 0 0
-------- --------- ----------- ------- ---------- ---- -----------
BALANCE, March 31, 1996 0 1,698,328 $14,544,688 719,689 $5,867,860 0 $20,412,548
======== ========= =========== ======= ========== ==== ===========
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
WELLS REAL ESTATE FUND VII, L.P.
(A Georgia Public Limited Partnership)
STATEMENTS OF CASH FLOWS
Three Months Ended
March 31, 1996 March, 31, 1995
-------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 133,370 $ 232,917
Adjustments to reconcile net earnings to net cash
(used in) provided by operating activities:
Equity in income of joint ventures (114,467) (70,798)
Distributions received from joint ventures 162,016 81,886
Distributions to partners from
accumulated earnings (193,382) (173,607)
Amortization of organization costs 1,562 1,562
Changes in assets and liabilities
Prepaids and other assets 6,000 (28,421)
Due to affiliates 1,097 0
Accounts payable (174,413) (4,000)
---------- -----------
Total adjustments (311,587) (193,378)
---------- -----------
Net cash (used in) provided by
operating activities (178,217) 39,539
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in joint ventures (100,558) (1,504,573)
Deferred project costs paid 0 (28,182)
Investment in real estate (108,681) (512,001)
---------- -----------
Net cash used in investing activities (209,239) (2,044,756)
CASH FLOWS FROM FINANCING ACTIVITIES:
Limited partners contributions 0 805,215
Sales commissions paid 0 (203,946)
Offering costs paid 0 (40,261)
---------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 0 561,008
---------- -----------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (387,456) (1,444,209)
---------- -----------
CASH AND CASH EQUIVALENTS, beginning
of year 1,114,066 15,555,870
---------- -----------
CASH AND CASH EQUIVALENTS, end of period 726,610 14,111,661
========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING ACTIVITIES:
Deferred project costs applied to real estate
and joint venture property $ 4,372 $ 0
---------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
6
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WELLS REAL ESTATE FUND VII, L.P.
(A Georgia Public Limited Partnership)
Condensed Notes to Financial Statements
March 31, 1996
(1) Summary of Significant Accounting Policies
---------------------------------------
(a) General
-------
Wells Real Estate Fund VII, L.P. (the "Partnership") is a Georgia
public limited partnership, having Leo F. Wells, III and Wells
Partners, L.P., a Georgia limited partnership, as General Partners.
The Partnership was formed on December 1, 1992, for the purpose of
acquiring, developing, owning, operating, improving, leasing, and
otherwise managing for investment purposes income-producing commercial
or industrial properties.
On April 6, 1994, 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 filed
under the Securities Act of 1933. The Partnership commenced active
operations when it received and accepted subscriptions for a minimum
of 125,000 units on April 26, 1994. The Partnership terminated its
offering on January 5, 1995, and received gross proceeds of
$24,180,174 representing subscriptions from 1910 Limited Partners.
As of March 31, 1996, the Partnership owned interest in the following
properties: (i) a three-story office building located in Appleton,
Wisconsin; (ii) two retail buildings located in Stockbridge, Georgia;
(iii) a retail building under construction in Stockbridge, Georgia;
(v) an office/retail center located in Roswell, Georgia; (vi) a retail
center located in Cherokee County, Georgia; (vii) an office building
located in Gainesville, Florida; (viii) a four-story office building
located in Jacksonville, Florida; and (ix) a retail center under
construction in Winston-Salem, North Carolina. All of the foregoing
properties were acquired on an all cash basis.
(b) Employees
---------
The Partnership has no direct employees. The employees of Wells
Capital, Inc., the sole general partner of Wells Partners, L.P., 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.
7
<PAGE>
(c) Insurance
---------
Wells Management Company, Inc., an affiliate of the General Partners,
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.
(d) Competition
-----------
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.
(e) Basis of Presentation
----------------------
The consolidated financial statements of Wells Real Estate Fund VII,
L.P. (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, 1995.
8
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(f) Partnership Distribution
------------------------
Cash available for distribution, as defined by the Partnership
Agreement, is distributed to the Limited Partners on a quarterly
basis. In accordance with the Partnership Agreement, distributions
first are paid to Limited Partners holding Class A Units until they
have received a 10% return on their Net Capital Contributions, as
defined. Cash available for distribution is then paid to the General
Partners until they have received an amount equal to 10% of
distributions. Thereafter, the Limited Partners holding Class A
Status Units will received 90% of any remaining cash available for
distribution, and the General Partners will receive 10%. No
distributions will be made to the Limited Partners holding Class B
Units.
(g) Income Taxes
------------
The Partnership has not requested a ruling from the Internal Revenue
Service to the effect that it will be treated as a partnership and not
an association taxable as a corporation for Federal income tax
purposes. The Partnership requested an opinion of counsel as to its
tax status, but such opinion is not binding upon the Internal Revenue
Service.
(h) Statement of Cash Flows
-----------------------
For the purpose of the statement of cash flows, the Partnership
considers all highly liquid debt instruments purchased with an
original maturity of three months or less of be cash equivalents.
Cash equivalents include cash and short-term investments.
(2) Short-Term Investments
----------------------
At March 31, 1996, short-term investments are stated at cost which
approximates fair market value and consist primarily of money-market
accounts.
(3) Investments in Joint Ventures
-----------------------------
The Partnership owns interests in nine properties through its ownership in
joint ventures of which three are office buildings and six are retail
centers. 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 March 31, 1996, the five properties that are in operation had an
occupancy rate of 76.3%.
9
<PAGE>
FUND V-VI-VII Joint Venture
- ---------------------------
On September 8, 1994, the Partnership, Wells Real Estate Fund V, L.P. ("Wells
Fund V") and Wells Real Estate Fund VI, L.P. ("Wells Fund VI"), both of which
are Georgia public limited partnerships affiliated with the Partnership through
common general partners, entered into a Joint Venture Agreement known as Fund V,
Fund VI and Fund VII Associates (the "Fund V-VI-VII Joint Venture"). The
investment objectives of Wells Fund V and Wells Fund VI are substantially
identical to those of the Partnership. The Partnership owns an interest in the
following property through the Fund V-VI-VII Joint Venture:
The Marathon Building
- ---------------------
On September 16, 1994, Fund V-VI-VII Joint Venture purchased a three-story
office building for a purchase price of $8,250,000, excluding acquisition costs,
containing approximately 75,000 rentable square feet, located on approximately
6.2 acres of land in Appleton, Wisconsin ("the Marathon Building"). The funds
used by the Fund V-VI-VII Joint Venture to acquire the Marathon Building were
derived from capital contributions made by the Partnership, Wells Fund V and
Wells Fund VI totaling $3,470,958, $1,337,505, and $3,470,958, respectively, for
total contributions to Fund V-VI-VII Joint Venture of $8,279,421 including
acquisition costs. The Partnership owns as approximately 42% equity interest in
the Fund V-VI-VII Joint Venture.
The entire Marathon Building is leased to Jaakko Poyry Fluor Daniel for a period
of twelve years, three and one-half months, with options to renew the lease for
two additional five-year periods. The annual base rent is $910,000. The
current lease expires on December 31, 2006. The lease agreement is a net lease
in that the tenant is responsible for the operational expenses including real
estate taxes.
The occupancy rate at the Marathon Building was 100% for 1996, 1995, and the
last three and one-half months of 1994. The average annual rental per square
foot in the Marathon Building was $12.13 for 1996, 1995 and 1994, the first year
of ownership.
Fund VI-Fund VII Joint Venture
- ------------------------------
On December 9, 1994, the Partnership and Wells Fund VI entered into a Joint
Venture Agreement known as Fund VI and Fund VII Associates ("Fund VI-Fund VII
Joint Venture"). As of March 31, 1996, the Partnership's equity interest in the
Fund VI-Fund VII Joint Venture was approximately 57% and Wells Fund VI equity
interest in the Fund VI-Fund VII Joint Venture was approximately 43%. The
Partnership owns interests in the following two properties through the Fund VI-
Fund VII Joint Venture:
10
<PAGE>
Stockbridge Village III
- -----------------------
In April 1994, Wells Fund VI purchased 3.27 acres of real property located on
the north side of George State Route 138 at Mt. Zion Road, Clayton County,
Georgia for a cost of $1,015,673. This tract of land is located directly across
Route 138 from the Stockbridge Village Shopping Center, which was developed and
is owned by an affiliate of the Partnership. On December 9, 1994, Wells Fund VI
contributed the property as a capital contribution to the Fund VI - Fund VII
Joint Venture.
Kenny Rogers Roasters is a 3,200 square foot restaurant which was completed in
March 1995, at a cost of approximately $400,000 excluding land. The term of the
lease is for nine years and eleven months commencing March 1, 1995. The initial
base rent payable is $82,320. In the fifth year, the annual base rent payable
increases to $87,600.
Construction began in January, 1995, on a second outparcel building containing
approximately 15,000 square feet for approximately $1,500,000 excluding land.
Construction was substantially completed in October, 1995. In October 1995,
Damon's Clubhouse restaurant occupied 6,700 square feet. The term of the lease
is for nine years and eleven months commencing October, 1995. The initial annual
base rent is $102,375 through March, 2001 and $115,375 thereafter.
As of March 31, 1996, the Partnership had contributed $1,821,834 and Wells Fund
VI contributed $1,017,097 to the Fund VI-Fund VII Joint Venture for the
acquisition and development of the Stockbridge Village III Property.
The occupancy rate at the Stockbridge Village III Property was 77% in 1996 and
71% in 1995. The average effective annual rental per square foot at the
Stockbridge Village III Property was $12.51 in 1996 and $4.85 for the partial
year of occupancy in 1995.
Stockbridge Village I Expansion
- -------------------------------
On June 7, 1995, the Fund VI - Fund VII Joint Venture purchased 3.38 acres of
real property located in Clayton County, Georgia for a total price of
approximately $718,000. The Stockbridge Village I Expansion consists of a
multi-tenant shopping center containing approximately 29,000 square feet. The
majority of construction has been completed as of April, 1996. A lease has been
signed with Cici's Pizza for a 4,000 square foot restaurant. The term of the
lease is for nine years and eleven months commencing in April, 1996. The
initial base rent is $48,000. In the third year, the annual base rent increases
to $50,000, in the sixth year to $52,000, and in the ninth year to $56,000.
Negotiations are being conducted to lease the remaining space.
As of March 31, 1996, the Partnership contributed a total of $1,450,000 and
Wells Fund VI contributed a total of $1,450,000 for a total cost of
approximately $2,900,000 toward the development and construction on the
Stockbridge Village I Expansion.
11
<PAGE>
As of March 31, 1996, the Partnership contributed $3,271,834, and Wells Fund VI
contributed $2,467,907, including its cost to acquire land, to the Fund VI -
Fund VII Joint Venture for the acquisition and development of the Stockbridge
Village III Property and the Stockbridge Village I Expansion. As of March 31,
1996, the Partnership's equity interest in the Fund VI - VII Joint Venture was
approximately 57% and Wells Fund VI's equity interest in the Fund VI - VII Joint
Venture was approximately 43%. It is anticipated that the Partnership will
contribute the remaining approximately $60,000 needed to complete Stockbridge
Village III in which event it is estimated Wells Fund VI and the Partnership's
interest will remain at 43% and 57%, respectively. The Partnership has reserved
sufficient funds for this purpose.
Fund II, III, VI and VII Associates/Holcomb Bridge Project
- ----------------------------------------------------------
On January 10, 1995, the Partnership, Fund II-Fund III Joint Venture, Wells Fund
VI entered into a Joint Venture Agreement known as Fund II, III, VI and VII
Associates ("Fund II, III, VI and VII Joint Venture"). The Fund II-Fund III
Joint Venture is a joint venture between Wells Real Estate Fund III, a Georgia
public limited partnership having Leo F. Wells, III and Wells Capital, Inc., as
general partners, and an existing joint venture (the "Fund II-Fund II-OW Joint
Venture") formed by Wells Real Estate Fund II ("Wells Fund II"), a Georgia
public limited partnership having Leo F. Wells, III and Wells Capital, Inc., as
general partners, and Wells Real Estate Fund II-OW ("Wells Fund II-OW"), a
Georgia public limited partnership having Leo F. Wells, III and Wells Capital,
Inc., as general partners. The investment objectives of Wells Fund II, Wells
Fund II-OW, Wells Fund III and Wells Fund VI 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 and 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 Property") including land improvements.
Development is underway on two buildings containing a total of approximately
49,500 square feet. As of March 31, 1996, leases have been signed with
Bertucci's Restaurant Corporation for 5,935 square feet, Air Touch Cellular for
3,046 square feet and Townsend Tax for 1,389 square feet. Three tenants
occupied the 880 Holcomb Bridge property as of March 31, 1996 for an occupancy
rate of 21%. The average effective annual rental was $0.81 per square foot for
the first quarter of 1996.
As of March 31, 1996, Fund II-Fund III Joint Venture contributed $1,729,116 in
land and improvements for an approximate 32.75% equity interest, Wells Fund VI
contributed $982,691 toward the construction for an approximate 19.48% equity
interest, and the Partnership contributed $2,500,000 for an approximate 47.77%
equity interest. The total costs to develop the Holcomb Bridge Road Property is
currently estimated to be approximately $4,000,000 excluding land. It is
anticipated that of the remaining cost of approximately $517,000, $260,000 will
be contributed by Wells Fund VI and $257,000 by the Partnership for an
anticipated equity interest of 48.1% by the Partnership, 30.2% by the Fund II-
Fund III Joint Venture and 21.7% by Wells Fund VI. The Partnership has reserved
sufficient funds for this purpose.
12
<PAGE>
The Hanover Retail Center
- -------------------------
On January 16, 1995, the Partnership purchased 1.01 acres of land located in
Clayton County, Georgia for a total price of approximately $512,000. In July
1995, construction began on a 15,000 square foot, single story combination
retail/office building, which was completed in February, 1996. As of March 31,
1996, the Partnership had contributed $822,192 to the Hanover property in
addition to the cost of the land. The total cost to develop this property is
estimated to be approximately $1,490,000, and the Partnership has reserved the
remaining approximately $155,803 to complete the development.
Fund VII - Fund VIII Joint Venture
- ----------------------------------
On February 10, 1995, the Partnership and Wells Real Estate Fund VIII, L.P.
("Wells Fund VIII"), a Georgia public limited partnership affiliated with the
Partnership through common General Partners, entered into a Joint Venture
Agreement known as Fund VII and Fund VIII Associates (the "Fund VII - Fund VIII
Joint Venture"). The investment objectives of Wells Fund VIII are substantially
identical to those of the Partnership. The Partnership holds an approximate 21%
equity interest in the Fund VII - Fund VIII Joint Venture, which owns and
operates an office building as described below. As of March 31, 1996, the
Partnership had contributed $1,021,923 and Wells Fund VIII had contributed
$3,852,732 for a total cost of $4,874,655 to the Fund VII - Fund VIII Joint
Venture for the acquisition and development of the office building.
Gainesville Property
- ---------------------
The Partnership made an initial contribution to the Fund VII - Fund VIII Joint
Venture of $677,534, which constituted the total purchase price and all other
acquisition and development costs expended by the Fund VII - Fund VIII Joint
Venture for the purchase of a 5.0 acre parcel of land in Gainesville, Alachua
County, Florida. An agreement was signed with ADEVCO Corporation to supervise,
manage and coordinate the planning, design, construction and completion of a
62,975 square foot office building containing 61,468 rentable square feet.
Integra Construction, Inc. acted as the general contractor, and Smallwood,
Reynolds, Stewart, Stewart and Associates, Inc. as the architect. Construction
was completed in December, 1995. It is anticipated that the total cost of the
building will be approximately $4,900,000 after the remaining unoccupied tenant
space is completed. The occupancy rate as of March 31, 1996 was 93.5%.
A 9 year, 11 month lease to occupy 57,457 square feet has been signed with CH2M
Hill, Engineers, Planners, Economists, Scientists, with an option to extend for
an additional five year period. The annual base rent during the initial term
from 1996 through 1997 is $530,313 payable in equal monthly installments of
$44,193. The annual rent for the extended term will be at market rate.
Assuming no options or termination rights, the lease with CH2M Hill will expire
in the year 2005.
13
<PAGE>
As of March 31, 1996, the Partnership had contributed $1,021,923 and Wells Fund
VIII had contributed $3,852,732 to the Fund VII - Fund VIII Joint Venture toward
the completion of this project. As of March 31, 1996, the Partnership's equity
interest in the Fund VII - Fund VIII Joint Venture was approximately 21% and
Wells Fund VIII's equity interest in the Fund VII - Fund VIII was approximately
79%. Although the ultimate percentages of ownership in this property have not
yet been finalized, it is currently anticipated that the remaining cost of
approximately $25,500 to complete the project will be contributed by the Wells
Fund VIII, in which event, upon completion of the project, the Partnership will
own an approximately 20.8% equity interest in the Fund VII-Fund VIII Joint
Venture.
Fund VI - VII - VIII Joint Venture
- ----------------------------------
On April 17, 1995, the Partnership, Wells Fund VIII and Wells Fund VI entered
into a Joint Venture Agreement known as the Fund VI, Fund VII and Fund VIII
Associates (the "Fund VI, VII, VIII Joint Venture"). The investment objectives
of Wells Fund VI and Wells Fund VIII are substantially identical to those of the
Partnership. As of March 31, 1996, the Partnership had contributed approximately
$6,432,312 for an approximately 43% equity interest in the Fund VI, VII, VIII
Joint Venture, which is developing an office building in Jacksonville, Florida
and a multi-tenant retail center in Clemmons, NC. As of March 31, 1996, Wells
Fund VI contributed $6,567,688 for an equity interest in the Fund VI - VII -
VIII Joint Venture of approximately 44% and Wells Fund VIII had contributed
approximately $2,000,000 for an equity interest in the Fund VI - VII - VIII
Joint Venture of approximately 13%. The total cost to complete both properties
is anticipated to be approximately $17,700,000. Although the ultimate
percentages of equity interest in the Fund VI -VII - VIII Joint Venture have not
yet been finally determined, it is anticipated that Wells Fund VIII will
contribute the remaining cost of approximately $2,700,000 needed to complete
construction of both projects, in which event the ultimate equity interests in
the Fund VI - VII -VIII Joint Venture of the Partnership, Wells Fund VI and
Wells Fund VIII would be approximately 36%, 37% and 27%, respectively. The
Partnership owns interest in the following two properties through the Fund VI -
VII - VIII Joint Venture:
BellSouth Property
- -------------------
On April 25, 1995, the Fund VI - VII - VIII Joint Venture purchased a 5.55 acre
parcel of land in Jacksonville, Florida for a total of $1,245,059 including
closing costs. The land purchase and future construction costs were funded by
capital contributions of $3,500,000 by the Partnership, $3,500,000 by Wells Fund
VI, and $2,000,000 by Wells Fund VIII.
An agreement was signed with ADEVCO Corporation to supervise, manage and
coordinate the planning, design, construction and completion of a 92,964 square
foot office building. McDevitt Street Bovis, Inc. is acting as the general
contractor, and Mayes, Sudderth & Etheridge, Inc. as the architects.
Construction is anticipated to be completed in May, 1996 for a total cost of
approximately $9,000,000 with an expected move-in by BellSouth on June 1, 1996.
14
<PAGE>
BellSouth has executed a lease for 66,333 square feet with a term of nine years
and eleven months with an option to extend for an additional five-year period.
The annual base rent during the initial term is $1,016,789 payable in equal
monthly installments of $84,732 during the first five years and $1,116,853
payable in equal monthly installments of $93,071 for the balance of the initial
lease term. The annual rent for the extended term will be at the market rate.
Tanglewood Commons Shopping Center
- ----------------------------------
On May 31, 1995, the Fund VI - VII - VIII Joint Venture purchase a 14.683 acre
tract of real property located in Clemmons, Forsyth County, North Carolina. The
land purchase costs were funded by a capital contribution made by the Wells Fund
VI. As of March 31, 1996, Fund VI had contributed $3,067,688, and the
Partnership had contributed $2,932,312 to the development of this project. The
Wells Fund VIII has not yet contributed.
The Fund VI - VII VIII Joint Venture will develop and construct one large strip
shopping center building containing approximately 81,000 gross square feet on a
12.48 acre tract. The remaining 2.2 acre portion of the property will remain in
a vegetative or natural state.
Total costs and expenses to be incurred by the Fund VI - VII - VIII Joint
Venture for the acquisition, development, construction and completion of the
shopping center are anticipated to total approximately $8,700,000. An agreement
was signed with Norcom Development, Inc. to supervise, manage and coordinate the
planning, design and construction of the property. Shook Design Group, Inc. has
been signed as the general contractor, and John S. Clark and Company as the
architect. Ground breaking began in March, 1996.
Harris Teeter, Inc., a regional supermarket chain, executed a lease for a
minimum of 45,000 square feet with an initial term of 20 years. The annual base
rent during the initial term is $448,250, payable in equal monthly installments
of $40,688. In addition, Harris Teeter has agreed to pay percentage rents equal
to one percent of the amount by which Harris Teeter's gross sales exceed the sum
of $35,000,000 for any lease year.
Fund I, II, II - OW, VI, VII Associates
- ---------------------------------------
On August 1, 1995, the Partnership, Wells Real Estate Fund I, a Georgia public
limited partnership ("Wells Fund I"), the Fund II-Fund II-OW Joint Venture and
Wells Fund VI entered into a Joint Venture Agreement known as Fund I, II, II-OW,
VI and VII Associates ("Fund I, II, II-OW, VI, VII Joint Venture"), which was
formed to own and operate the Cherokee Project described below. Wells Fund I is
a Georgia limited partnership having Leo F. Wells, III and Wells Capital, Inc.,
as general partners. The investment objectives of Wells Fund I, the Fund II-
Fund II-OW Joint Venture and Wells Fund VI are substantially identical to those
of the Partnership.
15
<PAGE>
The Cherokee Property
- ---------------------
The Cherokee Property consists of a retail shopping center known as the
"Cherokee Commons Shopping Center" located in metropolitan Atlanta, Cherokee
County, Georgia (the "Cherokee Property"). The Cherokee Property has been
expanded to consist of approximately 103,755 net leaseable square feet. The
Cherokee Property was initially developed through a joint venture between Wells
Fund I and the Fund II-Fund II-OW Joint Venture, which contributed the Cherokee
Property to the Fund I-II-II-OW-VI-VII Joint Venture on August 1, 1995 to
complete the required funding for the expansion.
As of March 31, 1996, Wells Fund I had contributed a total of $2,139,000, the
Fund II-Fund II-OW Joint Venture had contributed a total of $4,860,100, Wells
Fund VI had contributed $953,798, and the Partnership had contributed $953,798
to the Fund I-II-II-OW-VI-VII Joint Venture. As of March 31, 1996, the equity
interest in the Cherokee Property was Wells Fund I-23% , Fund II-Fund II-OW
Joint Venture-55%, Wells Fund VI-11%, and the Partnership-11%.
The Cherokee Property is anchored by a 67,115 square foot lease with Kroger
Food/Drug which expires in 2011. Kroger's original lease was for 45,528 square
feet. In 1994, Kroger expanded to the current 67,115 square feet which is
approximately 65% of the total rentable square feet in the property. As of
March 31, 1996, the Cherokee Property was approximately 95% occupied by 19
tenants, including Kroger. Kroger, a retail grocery chain, is the only tenant
occupying 10% or more of the rentable square footage. The other tenants in the
shopping center provide typical retail shopping services.
The Kroger lease provides for an annual rent of $392,915 which increased to
$589,102 on August 16, 1995 due to the expansion from 45,528 square feet to
67,115 square feet. The lease expires March 31, 2011 with Kroger entitled to
five successive renewals each for a term of five years.
The occupancy rate at the Cherokee Property was 95% in 1996 and 1995, 91% in
1994, 89% in 1993, 88% in 1992, and 85% in 1991.
The average effective annual rental per square foot at the Cherokee Property was
$8.58 for 1996, $7.50 for 1995, $5.33 for 1994, $6.47 for 1993, and $6.46 for
1992, and $6.52 for 1991.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS 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 this Report, which include
construction costs which may exceed estimates, constructions 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
- -------
During its offering, which terminated on January 5, 1995, the Partnership raised
a total of $24,180,174 in capital through the sale of 2,418,017 units. No
additional units will be sold by the Partnership. From the original funds
raised, as of March 31, 1996, the Partnership has incurred $4,473,332 in sales
commissions, acquisition and advisory fees, and organizational and offering
costs; has invested $18,985,017 in properties; has reserved $241,802 as working
capital reserves; and is currently holding net offering proceeds of
approximately $480,023 which is available for investment in properties. As set
forth above, it is currently anticipated that approximately $60,000 will be
contributed to the Fund VI - Fund VII Joint Venture for the completion of the
Stockbridge Village I Expansion, that approximately $257,000 will be contributed
to the Fund II, III, VI and VII Joint Venture for the completion of the Holcomb
Bridge Road Project, and that approximately $155,803 will be expended for the
completion of the Hanover Retail Center, leaving approximately $7,200 of the
Partnership's net offering proceeds available for investment in additional
properties.
As of March 31, 1996, the developed properties owned by the Partnership were 76%
occupied. Depreciation expense increased from 1995 to 1996 due to a change in
the estimated useful lives of buildings and improvements from 40 years to 25
years, which was effective in the fourth quarter of 1995. Gross revenues of the
Partnership were $157,876 and $272,915 for the three months ended March 31, 1996
and March 31, 1995, respectively. The revenues decreased in 1996 compared to
1995 due to the investment of $13,278,821 in joint ventures for the year and the
resulting decrease in interest income. Expenses of the Partnership decreased
approximately $15,000 due primarily to the decrease in administrative expenses.
Net income per weighted average Unit for Class A Limited Partners were $ 0.130
for the three months ended March 31, 1996. Net loss per weighted average Unit
for Class B and converted Class A Limited Partners was $ 0.121 for the three
months ended March 31, 1996.
Cash distributions of $0.11 per weighted average Unit were made to Class A
Limited Partners for the quarter ended March 31, 1996.
Net decrease in cash and cash equivalents is primarily the result of investments
in real estate and joint ventures.
PROPERTY OPERATIONS
- -------------------
As of March 31, 1996, the Partnership owned interest in the following
operational properties:
<TABLE>
<CAPTION>
The Marathon Building/Fund V-VI-VIII Joint Venture
- ----------------------------------------------------
Three Months Ended March 31
----------------------------
1996 1995
------------ --------------
<S> <C> <C>
Revenues:
Rental income $242,754 $242,754
Expenses:
Depreciation 87,646 52,299
Management and leasing expenses 9,710 9,710
Other operating expenses 3,698 11,007
-------- --------
101,054 73,016
-------- --------
Net income $141,700 $169,738
======== ========
Occupied % 100% 100%
Partnership's Ownership % in Property 41.7% 41.7%
Cash Distributed to the Partnership $ 89,552 $ 86,504
Net Income Allocated to the Partnership $ 59,103 $ 70,798
</TABLE>
Net income decreased and expenses increased in 1996 as compared to 1995 due
primarily to lower expenditures for legal and accounting and an increase in
depreciation expense due to the change in estimate useful lives of buildings and
improvements as previously discussed under "General" section of "Results of
Operations and Changes in Financial Condition".
17
<PAGE>
<TABLE>
<CAPTION>
Stockbridge Village III - Fund VI - Fund VII Joint Venture
- ------------------------------------------------------------
Three Months Ended
-------------------
March 31, 1996
-------------------
<S> <C>
Revenues:
Rental income $56,924
Expenses:
Depreciation 20,377
Management and leasing expenses 3,977
Other operating expenses 17,990
-------
42,344
-------
Net income $14,580
=======
Occupied % 77%
Partnership's Ownership % in the
Fund VI - Fund VII Joint Venture 56.9%
Cash Distributed to the Partnership $16,375
Net Income Allocated to the Partnership $ 8,305
</TABLE>
In April 1994, the Partnership purchased 3.27 acres of land located in Clayton
County, Georgia. On December 9, 1994, the Partnership contributed the
Stockbridge Village III property ("Stockbridge Village III") as a capital
contribution to the Fund VI - Fund VII Joint Venture.
Construction was completed on a 3,200 square foot restaurant in March, 1995.
This retail building is leased to Kenny Rogers Roasters, a restaurant, for a
term of nine years and eleven months. The initial base rent is $82,320 with an
increase in the fifth year to $87,600 annually.
The second multi-tenant retail building containing approximately 15,000 square
feet was completed in October, 1995. Damon's Clubhouse, a restaurant, occupied
approximately 6,732 square feet in October. The Damon's lease is for a term of
nine years and eleven months with initial base rent of $102,375 for five years
and increasing to $115,375 for the remainder of the lease. Three additional
tenants occupied approximately 4,125 square feet as of March 31, 1996.
18
<PAGE>
<TABLE>
<CAPTION>
880 Holcomb Bridge - Fund II, III, VI, VII
- --------------------------------------------
Three Months Ended
-------------------
March 31, 1996
-------------------
<S> <C>
Revenues:
Rental income $ 9,421
Expenses:
Depreciation 6,120
Management and leasing expenses 1,051
Other operating expenses 18,839
--------
26,010
--------
Net Loss $(16,589)
========
Occupied % 71%
Partnership's Ownership % in the
Fund II, III, VI VII Joint Venture 47.8%
Cash Distribution to the Partnership $ 0
Net Loss Allocated to the Partnership $ (7,924)
</TABLE>
In January 1995, the Fund II - Fund III Joint Venture contributed 4.3 acres of
land and land improvements at 880 Holcomb Bridge Road to the Fund II, III, VI
and VII Joint Venture. Development is being completed on two buildings with a
total of approximately 49,500 square feet. As of March 31, 1996, three tenants
are occupying approximately 10,370 square feet of space in the retail building
under leases of varying lengths. Since the property was not developed as of
March 31, 1995, no comparative figures are available for the quarter.
As of March 31, 1996, Fund II-Fund III Joint Venture contributed $1,729,116 in
land and improvements for an approximate 32.7% equity interest, Wells Fund VI
contributed $982,691 toward the construction for an approximate 19.5% equity
interest, and the Partnership contributed $2,500,000 for an approximate 47.8%
equity interest. The total costs to develop the Holcomb Bridge Road Project is
currently estimated to be approximately $4,000,000, excluding land. It is
anticipated that of the remaining cost of approximately $517,000, $260,000 will
be contributed by Wells Fund VI and $257,000 by the Partnership for an
anticipated equity interest of 48.1% by the Partnership, 30.2% by the Fund II-
Fund III Joint Venture and 21.7% by Wells Fund VI.
19
<PAGE>
<TABLE>
<CAPTION>
Gainesville Property/Fund VII-Fund VIII Joint Venture
- -------------------------------------------------------
Three Months Ended
-------------------
March 31, 1996
-------------------
<S> <C>
Revenues:
Rental income $136,542
Expenses:
Depreciation 54,337
Management and leasing expenses 13,398
Other operating expenses (651)
--------
67,084
--------
Net Income $ 69,458
========
Occupied % 93.5%
Partnership's Ownership % 21.0%
Cash Distribution to the Partnership $ 16,960
Net income allocated to the Partnership $ 14,605
</TABLE>
In February, 1995, the Fund VII - Fund VIII Joint Venture acquired a 5.0 acre of
land located in Gainesville, Alachua County, Florida for the purpose of
constructing a 62,975 square foot (61,468 rentable square feet) office building.
A 9 year, 11 month lease to occupy 57,457 square feet was signed by CH2M Hill.
The annual base rent is $530,313 payable in equal monthly installments of
$44,193. The average effective annual rental rate at CH2M Hill property was
$9.22 per square foot. CH2M Hill occupied their portion of the building in mid-
December, 1995, and therefore no comparative financial information is available.
20
<PAGE>
<TABLE>
<CAPTION>
Cherokee Commons Shopping Center
- -----------------------------------------
Three Months Ended March 31
----------------------------
1996 1995
--------- ----------
<S> <C> <C>
Revenues:
Rental income $222,621 $145,838
Interest income 19 25
-------- --------
222,640 145,863
Expenses:
Depreciation 107,183 45,527
Management and leasing expenses 12,634 7,068
Other operating expenses 48,872 45,223
-------- --------
168,689 97,818
-------- --------
Net income $ 53,951 $ 48,045
======== ========
Occupied %............................... 94% 95%
Partnership's Ownership % 11% 0%
Cash Distribution to the Partnership $ 16,488 $ 0
Net Income allocated to the Partnership $ 5,777 $ 0
</TABLE>
Rental income increased in 1996 over 1995 due to the Kroger expansion which was
completed in November 1994; however, the additional rent was billed
retroactively and paid in September, 1995. The increase in depreciation expense
for 1996 as compared to 1995 is a result of the change in the estimated useful
lives of the buildings and improvements as previously discussed under the
"General" section of "Results of Operations and Changes in Financial Condition".
Management and leasing expenses increased in 1996 as compared to 1995 due to the
increased revenue. Net income of the property increased to $53,951 in 1996 from
$48,045 in 1995 due to the increase in revenue.
In 1994, a lease amendment was entered into with Kroger providing for an
expansion of its existing store at the Cherokee Commons Shopping Center from
45,528 square feet to 66,918 square feet. In November, 1994, construction was
completed on the Kroger expansion and remodeling of the center. The total cost
for both the Kroger expansion and remodeling of the Center was $2,807,367. The
costs of this expansion were funded in the following amounts: Wells Fund I
$94,679 and the Fund II-Fund II-OW Joint Venture $805,092, Wells Fund VI
$953,798, and the Partnership $953,798. Wells Fund VI and the Partnership did
not make their respective contributions until August, 1995; therefore, cash
distributions and net income were not allocated to the Partnership for the first
quarter of 1995.
21
<PAGE>
PART II - OTHER INFORMATION
----------------------------
Item 6(b). No reports were filed on Form 8-K during the first quarter of 1996.
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 VII, L.P.
(Registrant)
Dated: May 13, 1996 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.
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 726,610
<SECURITIES> 18,169,292
<RECEIVABLES> 155,878
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 145,787
<PP&E> 1,412,288
<DEPRECIATION> (12,500)
<TOTAL-ASSETS> 20,597,355
<CURRENT-LIABILITIES> 184,807
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 20,412,548
<TOTAL-LIABILITY-AND-EQUITY> 20,597,355
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
