<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 Securities Exchange
Act of 1934
For the transition period from to
----------------------- ----------------------
Commission file number 0-25606
----------------------------------------------------------
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 Identification Number)
incorporation or organization)
3885 Holcomb Bridge Road, Norcross, Georgia 30092
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 449-7800
--------------
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
<PAGE>
Form 10-Q
---------
Wells Real Estate Fund VII, L.P.
--------------------------------
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.................................................. 20
2
<PAGE>
WELLS REAL ESTATE FUND VII, 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) $18,743,879 $19,039,835
Cash and cash equivalents 80,388 194,420
Due from affiliates 405,430 416,360
Deferred project costs 0 4,070
Organizational costs,
less accumulated amortization of $26,562 in
1998 and $18,750 in 1997 4,688 7,812
Prepaid expenses and other assets 2,746 3,797
----------- -----------
Total assets $19,237,131 $19,666,294
=========== ===========
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Accounts payable $ 1,655 $ 0
Partnership distributions payable 417,734 404,129
----------- -----------
Total liabilities 419,389 404,129
----------- -----------
Partners' capital:
Limited partners
Class A 1,998,998 Units outstanding 16,883,650 16,701,193
Class B 419,019 Units outstanding 1,934,092 2,560,972
----------- -----------
Total partners' capital 18,817,742 19,262,165
----------- -----------
Total liabilities and partners' capital $19,237,131 $19,666,294
=========== ===========
</TABLE>
See accompanying condensed notes to financial statements.
3
<PAGE>
WELLS REAL ESTATE FUND VII, 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
------------- ------------- ------------- -------------
Revenues:
<S> <C> <C> <C> <C>
Equity in income of joint
ventures (Note 2) $ 218,705 $ 201,079 $ 416,605 $ 382,142
Interest income 2,312 9,627 5,595 20,340
--------- --------- --------- ---------
221,017 210,706 422,200 402,482
Expenses:
Legal and accounting 10,287 5,947 15,058 16,541
Partnership administration 12,095 17,940 23,296 32,345
Amortization of organization cost
costs 1,563 1,563 3,125 3,125
-------- --------- --------- ---------
23,945 25,450 41,479 52,011
--------- --------- --------- ---------
Net income $ 197,072 $ 185,256 $ 380,721 $ 350,471
========= ========= ========= =========
Net income allocated to Class
A Limited Partners $ 432,142 $ 393,903 $ 864,032 $ 756,947
Net loss allocated to Class B
Limited Partners $(235,069) $(208,647) $(483,311) $(406,476)
Net income per Class A Limited
Partner Unit $ 0.22 $ 0.21 $ 0.44 $ 0.41
Net loss per Class B Limited Partner
Unit $ (0.56) $ (0.38) $ (1.12) $ (0.72)
Cash distribution per Class A
Limited Partner Unit $ 0.21 $ 0.19 $ 0.42 $ 0.38
</TABLE>
See accompanying condensed notes to financial statements
4
<PAGE>
WELLS REAL ESTATE FUND VII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998
<TABLE>
<CAPTION>
Limited Partners
-------------------------------------------------
Class A Class B Total
------------------------ ----------------------- GENERAL PARTNERS'
Units Amounts Units Amounts Partners Capital
----- ------- ----- ------- --------
BALANCE,
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996 1,826,830 $15,698,900 591,187 $4,317,124 $0 $20,016,024
Net income (loss) 0 1,615,965 0 (882,816) 0 733,149
Partnership distributions 0 (1,487,008) 0 0 0 (1,487,008)
Class B conversion elections 144,569 873,336 (144,569) (873,336) 0 0
--------- ----------- -------- ---------- -- -----------
BALANCE,
DECEMBER 31, 1997 1,971,399 $16,701,193 446,618 $2,560,972 $0 $19,262,165
Net income (loss) 0 864,032 0 $ (483,311) 0 380,721
Partnership distributions 0 (825,144) 0 0 0 (825,144)
Class B conversion elections 27,599 143,569 (27,599) (143,569) 0 0
--------- ----------- -------- ---------- -- -----------
BALANCE,
JUNE 30, 1998 1,998,998 $16,883,650 419,019 $1,934,092 0 $18,817,742
========= =========== ======== ========== == ===========
</TABLE>
See accompanying condensed notes to financial statements.
5
<PAGE>
WELLS REAL ESTATE FUND VII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
--------------------------------------
June 30, 1998 June 30, 1997
------------- -------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 380,721 $ 350,471
Adjustments to reconcile net income to net cash
used in operating activities:
Equity in income of joint ventures (416,605) (382,142)
Amortization of organization costs 3,125 3,125
Changes in assets and liabilities:
Prepaids and other assets 1,050 2,000
Accounts payable 1,655 0
--------- ---------
Total adjustments (410,775) (377,017)
--------- ---------
Net cash used in operating activities (30,053) (26,546)
--------- ---------
Cash flow from investing activities:
Investment in joint ventures (109,765) 0
Distributions received from joint ventures 837,326 651,676
--------- ---------
Net cash provided by
investing activities 727,561 651,676
Cash flow from financing activities:
Partnership distributions paid (811,541) (643,116)
--------- ---------
Net cash used in financing
activities (811,541) (643,116)
Net decrease in cash and cash equivalents (114,033) (17,986)
Cash and cash equivalents, beginning of year 194,420 366,301
--------- ---------
Cash and cash equivalents, end of period $ 80,388 $ 348,315
========= =========
Supplemental disclosure of noncash investing
activities:
Deferred project costs applied to real estate
and joint venture property $ 416 $ 0
========= =========
</TABLE>
See accompanying condensed notes to financial statements.
6
<PAGE>
WELLS REAL ESTATE FUND VII, 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 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 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.
The Partnership owns interests in properties through ownership in the
following joint ventures: (i) Fund V, Fund VI, Fund VII Associates, a
joint venture between the Partnership, Wells Real Estate Fund V, L.P., and
Wells Real Estate Fund VI, L.P. ("Fund V-VI-VII Joint Venture"); (ii) Fund
VI and Fund VII Associates a joint venture between the Partnership and
Wells Real Estate Fund VI L.P. ("Fund VI-Fund VII Joint Venture"); (iii)
Fund II, III, VI and VII Associates, a joint venture between the
Partnership, Wells Fund II-III Joint Venture, Wells Real Estate Fund VI,
L.P., and Wells Real Estate Fund VII, L.P. (the "Fund II-III-VI-VII Joint
Venture"); (iv) Fund VII and Fund VIII Associates, a joint venture between
the Partnership and Wells Real Estate Fund VIII, L.P. ("Fund VII-Fund VIII
Joint Venture"); (v) Fund VI, Fund VII and Fund VIII Associates, a joint
venture between the Partnership, Wells Real Estate Fund VI, L.P., and Wells
Real Estate Fund VIII, L.P. (the "Fund VI-VII-VIII Joint Venture"); and
(vi) Fund I, II, II-OW, VI, VII Associates, a joint venture between the
Partnership, Wells Real Estate Fund I, the Fund II and Fund II-OW Joint
Venture and Wells Real Estate Fund VI, L.P. (the "Fund I, II, II-OW, VI,
VII 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
three-story office building located in Appleton, Wisconsin (the "Marathon
Building"); (ii) two retail buildings located in Stockbridge, Georgia
("Stockbridge Village III"), and a retail shopping center expansion in
Stockbridge, Georgia ("Stockbridge Village I Expansion"); (iii) an
office/retail center located in Roswell, Georgia ("880 Holcomb Bridge
Road"); (iv) a retail center located in
7
<PAGE>
Stockbridge, Georgia ("the Hannover Center"); (v) a four-story office
building located in Jacksonville, Florida ("BellSouth"); (vi) an office
building located in Gainesville, Florida ("CH2M Hill"); (vii) a retail
center in Winston-Salem, North Carolina ("Tanglewood Commons"); and (viii)
a retail center located in Cherokee County, Georgia ("Cherokee Commons").
(b) 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, 1997.
(2) 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.
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, 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 this Report, which include construction costs which may
exceed estimates, construction delays, lease-up risks, inability to obtain
new tenants upon the expiration of existing leases, and the potential need
to fund tenant improvements or other capital expenditures out of operating
cash flow.
8
<PAGE>
Results of Operations and Changes in Financial Conditions
---------------------------------------------------------
General
-------
As of June 30, 1998, the developed properties owned by the Partnership were
93.5% occupied. Gross revenues of the Partnership were $422,200 and
$402,482 for the six months ended June 30, 1998 and June 30, 1997,
respectively. The revenues increased in 1998 compared to 1997 due to the
increase in income from the joint ventures. Expenses of the Partnership
decreased primarily due to a decrease in administrative costs.
Net income per Unit for Class A Limited Partners was $0.44 for the six
months ended June 30, 1998. Net loss per Unit for Class B and converted
Class A Limited Partners was $1.12 for the six months ended June 30, 1998.
Cash distributions of $0.42 per weighted average Unit were made to Class A
Limited Partners for the six months ended June 30, 1998. The Partnership
anticipates that distributions will continue to be paid on a quarterly
basis on a level at least consistent with 1997.
The Partnership's net cash used in operating activities increased from
$26,546 in 1997 to $30,053 in 1998. Net cash provided by investing
activities increased from $651,676 in 1997 to $727,561 in 1998, due
primarily to the increase in distributions received from the joint
ventures.
The Partnership expects to continue to meet its short-term liquidity
requirements and budget demands generally through net cash provided by
operations which the Partnership believes will continue to be adequate to
meet both operating requirements and distributions to Limited Partners. At
this time, given the nature of the joint ventures in which the Partnership
has invested, there are no known improvements and renovations to the
properties expected to be funded from 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>
Recent Accounting Pronouncements
--------------------------------
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income", requires certain transactions (e.g., unrealized
gains/losses on available for sale securities) that are not reflected in
net income to be displayed as other comprehensive income. The Statement
also requires an entity to report total comprehensive income (i.e., net
income plus other comprehensive income) for every period in which an income
statement is presented. SFAS No. 130 is effective for annual and interim
periods beginning after December 15, 1997. None of the transactions
required to be reported in other comprehensive income pertain to the
Partnership; consequently, adoption of this Statement had no impact on the
partnership's disclosures.
Effective April 3, 1998, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) 98-5, "Reporting on the
Costs of Start-Up Activities". SOP 98-5 is effective for fiscal years
beginning after December 15, 1998, and initial application is required to
be reported as a cumulative effect of change in accounting principle. This
SOP provides guidance on the financial reporting of start-up costs and
organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. Adoption of this Statement
by the Partnership in the first quarter of 1999 may result in the write-off
of certain capitalized organization costs. Adoption of this Statement is
not expected to have a material impact on the Partnership's results of
operations and financial condition.
10
<PAGE>
PROPERTY OPERATIONS
- -------------------
As of June 30, 1998, the Partnership owned an interest in the following
operational properties:
The Marathon Building/Fund V-VI-VII Joint Venture
- -------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------- -------------------------------
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
Revenues:
<S> <C> <C> <C> <C>
Rental income $243,184 $242,755 $485,938 $482,711
Expenses:
Depreciation 87,646 87,646 175,292 175,292
Management & leasing expenses 9,890 9,890 19,780 19,892
Other operating expenses 3,099 3,635 6,741 4,763
-------- -------- -------- --------
100,635 101,171 201,813 199,947
-------- -------- -------- --------
Net income $142,549 $141,584 $284,125 $282,764
======== ======== ======== ========
Occupied % 100% 100% 100% 100%
Partnership's Ownership % in the
Fund V-VI-VII Joint Venture 41.7% 41.7% 41.7% 41.7%
Cash distribution to Partnership $ 96,989 $ 96,586 $193,572 $194,217
Net income allocated to the
Partnership $ 59,457 $ 59,055 $118,508 $117,941
</TABLE>
Rental income increased for the six months ended June 30, 1998, compared to the
same period of 1997, due to a correction of straight-line rent in the first
quarter of 1997. Operating expenses increased slightly, due primarily to
accounting and administrative fees increasing, as compared to 1997. Cash
distributions to the Partnership and net income allocated to the Partnership
remained relatively stable for the six months ended June 30, 1998 and 1997.
11
<PAGE>
Stockbridge Village III/Fund VI-Fund VII Joint Venture
- ------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------- -------------------------------
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
Revenues:
<S> <C> <C> <C> <C>
Rental income $ 59,509 $ 71,388 $118,753 $ 139,961
Expenses:
Depreciation 22,778 21,451 45,492 42,903
Management & leasing expenses 8,133 8,499 16,364 15,982
Other operating expenses 36,137 (18,831) 69,354 (5,358)
------- -------- -------- --------
67,048 11,119 131,210 53,527
------- -------- -------- --------
Net (loss) income $(7,539) $ 60,269 $(12,457) $ 86,434
======= ======= ======== ========
Occupied % 82% 87% 82% 87%
Partnership's Ownership % in the
Fund VI-Fund VII Joint Venture 56.9% 57.2% 56.9% 57.2%
Cash distribution to Partnership $ 9,362 $ 53,650 $ 20,235 $ 73,735
Net (loss) income allocated to the
Partnership $(4,293) $ 38,277 $ (7,088) $ 49,467
</TABLE>
A net loss is reflected for the six months ended June 30, 1998, as compared to
net income of $86,434 for the same period in 1997. The loss was due to a
decrease in rental income and an increase in other operating expenses which were
the result of Kenny Rogers Roasters, a restaurant, which vacated its leased
space in the first quarter of 1998. A bad debt reserve is being recorded, and
the receivable due from this tenant has been turned over to lawyers for
collection. Efforts are being made to re-lease this space.
The Partnership's ownership percentage in the Fund VI-Fund VII Joint Venture
decreased to 56.9% for 1998, as compared to 57.2% in 1997, due to additional
fundings by Wells Fund VI, which decreased the Partnership's ownership in the
Fund VI-Fund VII Joint Venture.
12
<PAGE>
Stockbridge Village I Expansion/Fund VI-Fund VII Joint Venture
- --------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------- -------------------------------
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
Revenues:
<S> <C> <C> <C> <C>
Rental income $74,595 $39,974 $145,682 $71,884
Expenses:
Depreciation 35,002 23,754 69,654 46,128
Management & leasing expenses 10,229 5,077 19,737 8,486
Other operating expenses 4,856 15,291 14,377 23,813
------- ------- -------- -------
50,087 44,122 103,768 78,427
------- ------- -------- -------
Net income (loss) $24,508 $(4,148) $ 41,914 $(6,543)
======= ======= ======== =======
Occupied % 79% 49% 79% 49%
Partnership Ownership % 56.9% 57.2% 56.9% 57.2%
Cash distributed to the Partnership $31,076 $ 9,636 $ 59,682 $15,698
Net income (loss) allocated to the
Partnership $13,954 $(2,374) $ 23,894 $(3,745)
</TABLE>
Rental income, expenses and net income increased for the six months ended June
30, 1998, as compared to the same period in 1997, due primarily to lease up
efforts and increased occupancy at this property. Negotiations are being
conducted to lease the remaining space.
The Partnership's ownership percentage in the Fund VI-Fund VII Joint Venture
decreased to 56.9% for 1998, as compared to 57.2% in 1997, due to additional
funding by Wells Fund VI which decreased the Partnership's ownership interest in
the Fund VI-Fund VII Joint Venture.
13
<PAGE>
880 Holcomb Bridge Road Property/Fund II, III, VI, VII Joint Venture
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------- -------------------------------
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
Revenues:
<S> <C> <C> <C> <C>
Rental income $208,645 $135,912 $421,880 $296,097
Expenses:
Depreciation 94,129 69,982 188,033 136,112
Management & leasing expenses 29,888 22,483 59,252 43,063
Other operating expenses 13,797 13,633 36,830 43,940
-------- -------- -------- --------
137,814 106,098 284,115 223,115
-------- -------- -------- --------
Net income $ 70,831 $ 29,814 $137,765 $ 72,982
======== ======== ======== ========
Occupied % 100.0% 72.7% 100.0% 72.7%
Partnership Ownership % 49.9% 48.8% 49.9% 48.8%
Cash distributed to the Partnership $ 86,732 $ 50,146 $170,469 $103,530
Net income allocated to the
Partnership $ 34,984 $ 14,558 $ 67,789 $ 35,637
</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 (the "880 Holcomb Bridge
Road Property") to the Fund II, III, VI, VII Joint Venture. Development is
being completed on two buildings with a total of approximately 49,500 square
feet.
As of June 30, 1998, fourteen tenants are occupying approximately 49,500 square
feet of space in the retail and office building under leases of varying lengths.
Increases in revenues, expenses and net income for the quarter and six months
ended June 30, 1998, compared to the same quarter of 1997, are due to the
property being 100% occupied as of June 30, 1998, as compared to the same period
of 1997.
The Partnership's ownership percentage in the Fund II, III, VI, VII Joint
Venture increased to 49.9% in 1998, as compared to 48.9% in 1997, due to
additional funding by the Partnership.
14
<PAGE>
The Hannover Center/Fund VII - Fund VIII Joint Venture
- ------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------- -------------------------------
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
Revenues:
<S> <C> <C> <C> <C>
Rental income $26,061 $26,061 $52,122 $55,257
Expenses:
Depreciation 10,982 10,982 21,963 21,963
Management & leasing expenses 2,661 2,434 5,322 5,004
Other operating expenses 6,173 5,472 14,289 14,153
------- ------- ------- -------
19,816 18,888 41,574 41,120
------- ------- ------- -------
Net income $ 6,245 $ 7,173 $10,548 $14,137
======= ======= ======= =======
Occupied % 50% 50% 50% 50%
Partnership's Ownership % in the
Fund VII - VIII Joint Venture 36.6% 37.9% 36.6% 37.9%
Cash distribution to Partnership $ 5,725 $ 6,163 $10,846 $11,126
Net income allocated to the
Partnership $ 2,301 $ 2,722 $ 3,918 $ 5,365
</TABLE>
On April 1, 1996, Fund VII-Fund VIII Joint Venture acquired a 1.01 acre tract of
land and a 12,000 square foot combination retail/office building known as the
Hannover Retail Center (the "Hannover Center").
Moovies, Inc., a video sales and rental store, signed a nine year, eleven month
lease for 6,020 square feet and occupied the space and opened for business on
June 22, 1996. As of June 30, 1998, the remaining space at the Hannover Center
has been leased.
Rental income decreased for 1998, compared to 1997, due to a correction in
straight line rent made in the first quarter of 1997. Expenses remained
relatively stable and the decrease in net income was primarily the result of the
aforementioned straight line adjustment.
15
<PAGE>
CH2M Hill/Fund VII - Fund VIII Joint Venture
- --------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------- -------------------------------
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
Revenues:
<S> <C> <C> <C> <C>
Rental income $144,440 $132,579 $277,018 $265,157
Expenses:
Depreciation 59,346 54,548 113,891 106,132
Management & leasing expenses 22,568 21,308 50,689 42,617
Other operating expenses 13,584 (14,649) 29,065 (34,273)
-------- -------- -------- --------
95,498 61,207 193,645 114,476
-------- -------- -------- --------
Net income $ 48,942 $ 71,372 $ 83,373 $150,681
======== ======== ======== ========
Occupied % 100% 94% 100% 94%
Partnership's Ownership % in the
Fund VII-VIII Joint Venture 36.6% 37.9% 36.6% 37.9%
Cash distribution to Partnership $ 41,400 $ 48,212 $ 73,230 $ 98,316
Net income allocated to the
Partnership $ 18,061 $ 27,086 $ 31,068 $ 57,189
</TABLE>
Rental income increased in 1998, as compared to 1997, due to a new tenant
occupying the remaining space in the building in late March 1998. Depreciation,
management and leasing expenses increased compared to 1997, due primarily to the
increased occupancy. Other operating expenses increased for the six months
ended June 30, 1998, as compared to the same period of 1997, due primarily to a
decrease in CAM reimbursements, which is the result of a refund to the tenant of
property taxes overpaid in 1997 which was identified during a CAM reconciliation
process performed after year end. Income and distribution to the Partnership
have decreased primarily due to refund of taxes to the tenant noted above.
16
<PAGE>
BellSouth Building/Fund VI - Fund VII - Fund VIII Joint Venture
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------- -------------------------------
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
Revenues:
<S> <C> <C> <C> <C>
Rental income $380,277 $407,513 $760,554 $786,563
Interest income 2,098 2,041 4,172 4,017
-------- -------- -------- --------
382,375 409,554 764,726 790,580
-------- -------- -------- --------
Expenses:
Depreciation 110,953 110,889 221,842 221,778
Management & leasing expenses 47,381 51,286 95,196 96,459
Other operating expenses 102,655 143,280 190,065 227,247
-------- -------- -------- --------
260,989 305,455 507,103 545,484
-------- -------- -------- --------
Net income $121,386 $104,099 $257,623 $245,096
======== ======== ======== ========
Occupied % 100% 100% 100% 100%
Partnership's Ownership % in the
Fund VI - VII Fund VIII Joint
Venture 33.4% 34.4% 33.4% 34.4%
Cash distribution to Partnership $ 80,376 $ 77,277 $165,690 $168,620
Net income allocated to the
Partnership $ 40,536 $ 35,820 $ 86,033 $ 85,836
</TABLE>
Net income has increased slightly due primarily to differences in the annual
adjustment for prior year common area maintenance billings to tenants. Cash
distributions and net income allocated to the Partnership increased in 1998 as
compared to 1997, due primarily to additional funding by the Partnership, which
increased the Partnership's ownership interest in the Fund VI VII VIII Joint
Venture.
17
<PAGE>
Tanglewood Commons/Fund VI,VII,VIII 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 $182,139 $160,049 $364,752 $209,583
Interest income 4,587 2,785 9,725 6,385
-------- -------- -------- --------
186,726 162,834 374,477 215,968
-------- -------- -------- --------
Expenses:
Depreciation 61,059 51,145 121,486 82,251
Management & leasing expenses 15,032 10,173 29,851 13,337
Other operating expenses (19,872) 29,706 5,230 51,612
-------- -------- -------- --------
56,219 91,024 156,567 147,200
-------- -------- -------- --------
Net income $130,507 $ 71,810 $217,910 $ 68,768
======== ======== ======== ========
Occupied % 87% 78% 87% 78%
Partnership's Ownership % in the
Fund VI - VII Fund VIII Joint
Venture 33.4% 34.4% 33.4% 34.4%
Cash distribution to Partnership $ 63,926 $ 25,984 $112,807 $ 35,939
Net income allocated to the
Partnership $ 43,583 $ 24,709 $ 72,771 $ 23,630
</TABLE>
On May 31, 1995, the Fund VI-VII-VIII Joint Venture purchased a 14.683 acre
tract of real property located in Clemmons, Forsyth County, North Carolina.
Total cost 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 be approximately $8,700,000 when all tenant improvements are
completed.
The Fund VI-VII-VIII Joint Venture developed a large strip shopping center
building containing approximately 67,320 gross square feet which opened on
February 26, 1997, on a 12.48 acre tract. The remaining 2.2 acre portion of
the property will remain in a vegetative or natural state.
In February, 1997, Harris Teeter, Inc., a regional supermarket chain, occupied
its leased space of 46,120 square feet with an initial term of 20 years. The
annual base rent during the initial term is $488,250. In addition, Harris
Teeter has agreed to pay percentage rent equal to one percent of the amount by
which Harris Teeter gross sales exceed $35,000,000 for any lease year.
Since this property commenced operations in February, 1997, comparable income
and expense figures for the six months ended June 30, 1998 and 1997 are not
available. Income has increased for the three months ended June 30, 1998, as
compared to the same period in 1997, due to increased occupancy at the shopping
center while expenses have decreased due primarily to differences in the annual
adjustment for prior year common area maintenance billings to tenants.
18
<PAGE>
Cherokee Property - Fund I, II, II-OW, VI, VII Joint Venture
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------- -------------------------------
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
Revenues:
<S> <C> <C> <C> <C>
Rental income $225,705 $215,973 $454,682 $433,412
Interest income 19 19 41 37
-------- -------- -------- --------
225,724 215,992 454,723 433,449
Expenses:
Depreciation 110,564 109,697 221,127 217,222
Management & leasing expenses 18,737 19,323 44,488 50,864
Other operating expenses 1,919 40,203 5,050 64,322
-------- -------- -------- --------
131,220 169,223 270,665 332,408
-------- -------- -------- --------
Net income $ 94,504 $ 46,769 $184,058 $101,041
======== ======== ======== ========
Occupied % 91.0% 92.0% 91.0% 92.0%
Partnership Ownership % 10.7% 10.7% 10.7% 10.7%
Cash distributed to the Partnership $ 22,720 $ 16,592 $ 42,876 $ 36,163
Net income allocated to the
Partnership $ 10,120 $ 5,008 $ 19,709 $ 10,819
</TABLE>
Rental income increased in 1998 over 1997, due primarily to the one time
adjustment made to the straight line rent schedule in 1997. Management and
leasing expenses decreased in 1998, as compared to 1997, due to decreased
leasing commissions. The decrease in operating expenses in 1998, as compared to
1997, are due to decreased expenditures for tenant improvements, common area
expenses, and legal fees.
19
<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 VII, 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.
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> JUN-30-1998
<CASH> 80,388
<SECURITIES> 18,743,879
<RECEIVABLES> 405,430
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,434
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,237,131
<CURRENT-LIABILITIES> 419,389
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 18,817,742
<TOTAL-LIABILITY-AND-EQUITY> 19,237,131
<SALES> 0
<TOTAL-REVENUES> 422,200
<CGS> 0
<TOTAL-COSTS> 41,479
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 380,721
<INCOME-TAX> 380,721
<INCOME-CONTINUING> 380,721
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 380,721
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0
</TABLE>
