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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
[Fee Required]
For the fiscal year ended December 31, 1997 or
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[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
[No Fee Required]
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.
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(Exact name of registrant as specified in its charter)
Georgia 58-2022629
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
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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Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of exchange on which registered
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NONE NONE
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Securities registered pursuant to Section 12 (g) of the Act:
CLASS A UNITS
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(Title of Class)
CLASS B UNITS
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(Title of Class)
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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Aggregate market value of the voting stock held by non-affiliates:
Not Applicable
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PART I
ITEM 1. BUSINESS
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General
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Wells Real Estate Fund VII, L.P. (the "Partnership"), is a Georgia public
limited partnership organized on December 1, 1992, under the laws of the state
of Georgia, having Leo F. Wells, III and Wells Partners, L.P., a Georgia non-
public 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 5, 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 did not commence active operations until 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, composed of
two classes of limited partnership interests, Class A and Class B limited
partnership units.
The Partnership owns interests in properties through ownership in the following
joint ventures: (i) Fund V, Fund VI, Fund VII Associates, a joint venture among
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 among the Partnership, Wells Fund II-III Joint Venture and Wells Real
Estate Fund VI, 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 among 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 among 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 December 31, 1997, 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 ("Holcomb Bridge Road"); (iv) a retail center located in
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").
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EMPLOYEES
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The Partnership has no direct employees. The employees of Wells Capital, Inc.,
the sole general partner of Wells Partners, L.P., a General Partner, perform a
full range of real estate services including leasing and property management,
accounting, asset management and investor relations for the Partnership. See
Item 11 - "Compensation of General Partners and Affiliates," for a summary of
the fees paid to the General Partners and their affiliates during the fiscal
year ended December 31, 1997.
INSURANCE
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Wells Management Company, Inc., an affiliate of the General Partner, 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.
COMPETITION
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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.
ITEM 2. PROPERTIES.
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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 December 31, 1997, the
properties had an occupancy rate of 87.96%. As of December 31, 1996, the seven
properties that were in operation had an occupancy rate of 89.2%. As of
December 31, 1995, the four properties that were in operation had an occupancy
rate of 89.6%.
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The following table shows lease expirations during each of the next ten years
for all leases as of December 31, 1997, assuming no exercise of renewal options
or termination rights:
<TABLE>
<CAPTION>
Partnership's Percentage
Share of Percentage of Total
Year of Number of Annualized Annualized of Total Annualized
Lease Leases Square Feet Gross Base Gross Base Square Feet Gross Base
Expiration Expiring Expiring Rent (1) Rent Expiring Rent
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<S> <C> <C> <C> <C> <C> <C>
1998 3 4,200 45,997 4,926 1.17% 0.91%
1999 10 15,847 201,651 82,182 4.42% 3.98%
2000 7 17,473 263,231 111,756 4.88% 5.20%
2001 11 43,177 685,492 273,275 12.05% 13.53%
2002 19 37,003 577,451 254,238 10.33% 11.40%
2003 2 2,450 38,820 12,966 0.68% 0.77%
2004 1 5,600 87,120 29,098 1.56% 1.72%
2005 (2) 3 67,479 718,989 309,667 18.84% 14.20%
2006 (3) 5 161,379 2,399,130 917,207 45.05% 47.37%
2007 1 3,600 46,793 5,012 1.01% 0.92%
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62 358,208 $5,064,674 $2,000,327 100.00% 100.00%
</TABLE>
(1) Average monthly gross rent over the life of the lease, annualized.
(2) Primarily expiration of CH2M Hill lease, Gainesville, Florida.
(3) Reflects expirations of Marathon Building, BellSouth, and Bertucci's.
The following describes the properties in which the Partnership owned an
interest as of December 31, 1997:
FUND V-VI-VII JOINT VENTURE
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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 a 42% interest in
the following property through the Fund V-VI-VII Joint Venture:
The Marathon Building
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On September 16, 1994, the 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 76,000 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 the Fund V-VI-VII Joint Venture of $8,279,421 including
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acquisition costs. The Partnership owns an 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 1997, 1996, 1995, and
the last three and one-half months of 1994. The average annual rental per
square foot in the Marathon Building was $12.74 for 1997, and $12.78 for 1996
and 1995.
FUND VI - FUND VII JOINT VENTURE
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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 December 31, 1997, the Partnership contributed $3,367,483
and Wells Fund VI had contributed $2,483,285, including its cost to acquire
land, to the Fund VI-Fund VII Joint Venture for the acquisition and development
of the Stockbridge Village III and the Stockbridge Village I Expansion. As of
December 31, 1997, the Partnership's equity interest in the Fund VI-VII Joint
Venture was approximately 57.5%, and Wells Fund VI's equity interest in the Fund
VI-VII Joint Venture was approximately 42.5%. The Partnership owns interests in
the following two properties through the Fund VI-Fund VII Joint Venture:
Stockbridge Village III
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In April 1994, Wells Fund VI purchased 3.27 acres of real property located on
the north side of Georgia 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.
As of December 31, 1997, the Partnership had contributed $1,917,483, and Wells
Fund VI had contributed $1,033,285 to the Fund VI-Fund VII Joint Venture for the
acquisition and development of the Stockbridge Village III Property. As of
December 31, 1997, the Partnership's equity interest in the Fund VI-Fund VII
Joint Venture was approximately 57.5%, and Wells Fund VI's equity interest in
the Fund VI-Fund VII Joint Venture was approximately 42.5%.
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
annual base rent payable is $82,320. In the fifth year, the annual base rent
payable increases to $87,600.
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Construction began in January, 1995, on a second out-parcel 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 occupied 6,500 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.
The occupancy rate at year end at the Stockbridge Village III Project was 100%
in 1997, 87% in 1996 and 71% in 1995, the first year of occupancy. The average
effective annual rental per square foot at the Stockbridge Village III Project
was $15.67 for 1997, $14.15 for 1996 and $4.85 for the partial year of occupancy
in 1995.
Stockbridge Village I Expansion
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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. Construction was
substantially complete in April, 1996, with Cici's Pizza occupying a 4,000
square foot restaurant. The term of the lease is for 9 years and 11 months
commencing in April, 1996. The initial annual 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. Ten additional tenants have occupied
17,600 square feet at the property in 1996 and 1997. Negotiations are being
conducted to lease the remaining space.
As of December 31, 1997, the Partnership contributed a total of $1,450,000, and
Wells Fund VI had contributed a total of $1,450,000, for a total contribution of
approximately $2,900,000 toward the development and construction of the
Stockbridge Village I Expansion.
The occupancy rate at the Stockbridge Village 1 Expansion was 74% for 1997, and
36% for 1996, the first year of occupancy. The average effective annual rental
per square foot was $6.82 for 1997 and $2.69 for 1996.
FUND II-III-VI-VII JOINT VENTURE/HOLCOMB BRIDGE ROAD PROPERTY
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On January 10, 1995, the Partnership, Fund II-Fund III Joint Venture, and Wells
Fund VI entered into a Joint Venture Agreement known as Fund II, III, VI and VII
Associates ("Fund II-III-VI-VII Joint Venture"). The Fund II-Fund III Joint
Venture is a joint venture between Wells Real Estate Fund III, L.P., 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.
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In January 1995, the Fund II-Fund III Joint Venture contributed to the Fund II-
III-VI-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 Road Property") including land improvements. Development is
substantially complete on two buildings containing a total of approximately
49,500 square feet. Fourteen tenants occupied the Holcomb Bridge Road Property
as of December 31, 1997, for an occupancy rate of 94%. The average effective
annual rental was $13.71 for 1997, and $9.87 per square foot for 1996.
As of December 31, 1997, Fund II - Fund III Joint Venture had contributed
$1,729,116 in land and improvements for an equity interest of approximately
24.2%, Wells Fund VI had contributed $1,812,579 for an equity interest of
approximately 26.9%, and the Partnership had contributed $3,335,121 for an
equity interest of approximately 48.9%. The total cost to develop the Holcomb
Bridge Road Property is currently estimated to be approximately $5,214,000,
excluding land. It is anticipated that the remaining cost of approximately
$66,000 will be funded from reserves of Wells Fund VI and the Partnership,
which have reserved sufficient funds for this purpose.
FUND VII - FUND VIII JOINT VENTURE
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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 38%
equity interest and Wells Fund VIII holds an approximate 62% equity interest in
the Fund VII-Fund VIII Joint Venture which owns and operates an office building
and a retail/office building as described below. As of December 31, 1997, the
Partnership had contributed $2,448,924 and Wells Fund VIII had contributed
$4,002,732 for a total cost of $6,451,656 to the Fund VII - Fund VIII Joint
Venture for the acquisition and development of the property. Although the
ultimate percentages of ownership have not yet been finalized, it is currently
anticipated that the remaining costs of approximately $130,000 in the
Gainesville Property and $76,000 in the Hannover Property will be contributed by
Wells Fund VIII, in which event, upon completion, the Partnership will own an
approximately 37% equity interest in the Fund VII - Fund VIII Joint Venture.
Wells Fund VIII has reserved sufficient funds from Limited Partners'
contributions for this purpose.
The Hannover Property
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On April 1, 1996, the Partnership contributed 1.01 acres of land located in
Clayton County, Georgia, and improvements thereon, valued at $512,000, to the
Fund VII-Fund VIII Joint Venture for the development of a 12,040 square foot,
single story combination retail/office building. As of December 31, 1997, the
Partnership had funded approximately $1,412,001 for the development of the
Hannover property, in addition to the cost of the land, and Wells Fund VIII had
contributed $150,000 to the joint venture for the development of the property.
The total cost to develop this property, including land, is estimated to be
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approximately $1,638,000, and Wells Fund VIII has reserved the remaining
approximately $76,000 to complete the development.
A nine year, eleven month lease has been signed with Moovies, Inc., a video sale
and rental store, to occupy 6,020 square feet. The annual base rent for the
initial term of 36 months is $93,310, for the second term of 36 months,
$102,340, for the third term of 36 months, $111,370, and the final term of
eleven months, $110,367. The lease provides for two five year extensions at
market rate. The tenant, which provided its own build-out from the existing
shell, moved into the building and opened for business September 22, 1996. The
lease will expire in 2006.
The average effective annual rental per square foot at the Hannover Property was
$8.92 for 1997 and $8.14 for 1996, the first year of occupancy. The occupancy
rate for the years ended December 31, 1997 and 1996 was 50%.
CH2M Hill at Gainesville
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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. Construction of a 62,975 square foot office building,
containing 61,468 rentable square feet was completed in December, 1995. It is
anticipated that the total cost of the building will be approximately
$5,019,000, and Wells Fund VIII has reserved $130,000 to complete the remaining
unoccupied tenant space. The average effective annual rental per square foot at
the Gainesville Property was $8.63 for 1997, $8.69 for 1996 and $8.63 for 1995.
The variance in the effective annual rate in 1996 is due to an adjustment to
rent for 1995. The occupancy rate for 1997, 1996 and 1995 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 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.
As of December 31, 1997, the Partnership had contributed $1,036,923, and Wells
Fund VIII had contributed $3,852,732 to the Fund VII - Fund VIII Joint Venture
toward the completion of this project.
FUND VI-VII-VIII JOINT VENTURE
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On April 17, 1995, the Partnership, Wells Fund VI and Wells Real Estate Fund
VIII, L.P. ("Wells Fund VIII"), a Georgia public limited partnership affiliated
with the Partnership through common general partners, formed a joint venture
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 December 31,
1997, the Partnership contributed approximately $5,932,312 for an approximately
33.4% equity interest in the Fund VI-VII-VIII Joint Venture, which owns an
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office building in Jacksonville, Florida and a multi-tenant retail center under
development in Forsyth County, North Carolina. As of December 31, 1997, Wells
Fund VIII contributed $5,700,000 for an equity interest in the Fund VI-VII-VIII
Joint Venture of approximately 32.3%, and Wells Fund VI contributed
approximately $6,067,688 for an equity interest in the Fund VI-VII-VIII Joint
Venture of approximately 34.3%. The total cost to complete both properties is
approximately $17,700,000
BellSouth Property
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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. In May 1996, the 92,964 square foot office building was completed
with BellSouth Advertising and Publishing Corporation, a subsidiary of BellSouth
Company, occupying approximately 66,333 square feet and American Express Travel
Related Services Company, Inc. occupying approximately 22,607 square feet.
BellSouth occupied an additional 3,091 square feet in December, 1996. The land
purchase and construction costs totaling approximately $9,000,000 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.
The BellSouth lease is for a term of nine years and eleven months with an option
to extend for an additional five-year period at market rate. The annual base
rent during the initial term is $1,094,426 during the first five years and
$1,202,034 for the balance of the initial lease term. The American Express
lease is for a term of five years at an annual base rent of $369,851. BellSouth
and American Express are required to pay additional rent equal to their share of
operating expenses during their respective lease terms.
The average effective annual rental per square foot at the BellSouth Property
was $16.40 for the year ended December 31, 1997 and $14.15 for the year ended
December 31, 1996, the first year of occupancy. The occupancy rate was 100% for
1997 and 1996.
Tanglewood Commons Shopping Center
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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. The
Fund VI-VII-VIII Joint Venture is constructing 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 consists of four out-
parcels which have been graded and will be held for future development or
resale. As of December 31, 1997, the Partnership had contributed $2,432,312,
Wells Fund VI had contributed $2,567,688 and Wells Fund VIII had contributed
$3,700,000 for the development of this project.
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. Construction of the project
began in March, 1996 and was substantially completed in the first quarter of
1997.
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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 with extension
options of four successive five year periods with the same terms as the initial
lease. The annual base rent during the initial term is $488,250. 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 $35,000,000 for any lease
year.
The average effective annual rental per square foot at Tanglewood Commons was
$8.36 as of December 31, 1997, the first year of occupancy. The occupancy rate
was 86% as of December 31, 1997.
FUND I-II-II-OW-VI-VII ASSOCIATES
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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 formed a joint venture known as Fund I, II, II-OW, VI, and VII
Associates (the "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.
CHEROKEE PROPERTY/FUND I-II-II-OW-VI-VII JOINT VENTURE
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The Cherokee Property consists of a retail shopping center known as "Cherokee
Commons Shopping Center" located in metropolitan Atlanta, Cherokee County,
Georgia (the "Cherokee Project"). The Cherokee Project has been expanded to
consist of approximately 103,755 net leasable square feet. The Cherokee Project
was initially developed through a joint venture between Wells Fund I and the
Fund II-Fund II-OW Joint Venture, which contributed the Cherokee Project 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 December 31, 1997, Wells Fund I had contributed property with a book value
of $2,139,900, the Fund II-Fund II-OW Joint Venture had contributed property
with a book value of $4,860,100, Wells Fund VI had contributed cash in the
amount of $953,798 and the Partnership had contributed cash in the amount of
$953,798 to the Fund I-II -II-OW-VI-VII Joint Venture. As of December 31, 1997,
the equity interests in the Fund I-II-II-OW-VI-VII Joint Venture were
approximately as follows: Wells Fund I - 24%, Fund II-Fund II-OW Joint Venture
- - 54%, 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
December 31, 1997, the Cherokee Property was approximately 94% occupied by 20
tenants, including Kroger. Kroger, a retail grocery chain, is the only tenant
occupying ten percent or more of the rentable square footage. The other tenants
in the shopping center provide typical retail shopping services.
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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 at the same rental rate
as the original lease.
The occupancy rate at the Cherokee Property at year end was 94% in 1997, 93% in
1996, 94% in 1995, 91% in 1994, and 89% in 1993.
The average effective annual rental per square foot at the Cherokee Property was
$8.49 for 1997, $8.59 for 1996, $7.50 for 1995, $5.33 for 1994, and $6.47 for
1993.
ITEM 3. LEGAL PROCEEDINGS
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There were no material pending legal proceedings or proceedings known to be
contemplated by governmental authorities involving the Partnership during 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted to a vote of the Limited Partners during the fourth
quarter of 1997.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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PART II
ITEM 5. MARKET FOR PARTNERSHIP'S UNITS AND RELATED SECURITY
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HOLDER MATTERS
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The offering for sale of Units in the Partnership terminated on January 5, 1995,
at which time the Partnership had 1,678,810 outstanding Class A Units held by a
total of 1,590 Limited Partners and 739,208 outstanding Class B Units held by a
total of 320 Limited Partners. The capital contribution per unit is $10.00.
There is no established public trading market for the Partnership's limited
partnership units, and it is not anticipated that a public trading market for
the units will develop. Under the Partnership Agreement, the General Partners
have the right to prohibit transfers of units.
As of February 28, 1998, the Partnership had 1,972,498 outstanding Class A
Status Units held by a total of 1,648 Limited Partners and 445,520 outstanding
Class B Status Units held by a total of 269 Limited Partners. There is no
established public trading for the Partnership's limited partnership units, and
it is not anticipated that a public trading market for the units will develop.
Under the Partnership Agreement, the General Partners have the right to prohibit
transfers of units.
The General Partners have estimated the investment value of properties held by
the Partnership as of December 31, 1997 to be $11.11 per unit based on market
conditions existing in early December, 1997. This value was confirmed as
reasonable by an independent MAI appraiser, David L. Beal Company, although no
actual MAI appraisal was performed due to the inordinate expense involved with
such an undertaking. The valuation does not include any fractional interest
valuation or any distinction between different Classes of Partnership Units.
Cash distribution from Net Cash from Operations are distributed to the Limited
Partners on a quarterly basis unless Limited Partners elect to have their cash
distributions paid monthly. Net Cash from Operations is defined in the
Partnership Agreement as Cash Flow less adequate cash reserves for other
obligations of the Partnership for which there is no provision. Under the
Partnership Agreement, distributions are allocated first to the Limited Partners
holding Class A Units (and limited partners holding Class B Units that have
elected a conversion right that allows them to share in the distribution rights
of limited partners holding Class A Units) until they have received 10% of their
adjusted capital contributions, as defined. Cash available for distribution is
then distributed to the General Partners until they have received an amount
equal to 10% of cash distributions. Any remaining cash available for
distribution is split between the Limited Partners holding Class A Units and the
General Partners in a ratio of 90% and 10% respectively. No distributions will
be made to the Limited Partners holding Class B Units. Holders of Class A Units
will, except in limited circumstances, be allocated none of the Partnership's
Net Loss, depreciation, amortization and cost recovery deductions. These
deductions will be allocated to Class B Units until their Capital account
balances have been reduced to zero.
12
<PAGE>
No distributions have been made to the General Partner as of December 31, 1997.
Cash distributions made to Limited Partners holding Class A Units (and Limited
Partners holding Class B Units that have elected a conversion right) during 1996
and 1997 were as follows:
<TABLE>
<CAPTION>
Per Class A Per Class A Per Class B
Unit Unit Unit
Distributions for Total Cash Investment Return of Return of
Quarter Ended Distributed Income Capital Capital
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 31, 1996 $181,535 $0.11 $0.00 $0.00
June 30, 1996 $193,460 $0.10 $0.00 $0.00
September 30, 1996 $224,935 $0.12 $0.00 $0.00
December 31, 1996 $297,534 $0.17 $0.00 $0.00
March 31, 1997 $345,613 $0.19 $0.00 $0.00
June 30, 1997 $363,187 $0.19 $0.00 $0.00
September 30, 1997 $374,078 $0.20 $0.00 $0.00
December 31, 1997 $404,130 $0.21 $0.00 $0.00
</TABLE>
The fourth quarter distribution was accrued for accounting purposes in 1997, and
was not actually paid to Limited Partners holding Class A Units until February
1998. The General Partners anticipate that cash distributions to Limited
Partners holding Class A units will continue in 1998 at a level at least
comparable with 1997 cash distributions on an annual basis.
ITEM 6. SELECTED FINANCIAL DATA
- --------- -----------------------
The following sets forth a summary of the selected financial data for the twelve
months ended December 31, 1995, 1996, and 1997.
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------------------
<S> <C> <C> <C>
Total Assets $19,666,294 $20,312,730 $20,830,683
Total Revenues 816,237 543,291 925,246
Net Income 733,149 452,776 804,043
Net Loss Allocated to
General Partners 0 0 (280)
Net Income Allocated to
Class A Limited Partners 1,615,965 1,062,605 950,826
Net Loss Allocated to
Class B Limited Partners (882,816) (609,829) (146,503)
Net Income per Weighted Average (1)
Class A Limited Partner Unit .86 .62 .57
Net Loss per Weighted Average (1)
Class B Limited Partner Unit (1.68) (.98) (.20)
Cash Distributions per Weighted Average (1)
Class A Limited Partner Unit:
Investment Income .79 .50 .55
Return of Capital .00 .00 .00
</TABLE>
(1) The weighted average unit is calculated by averaging units over the period
they are outstanding during the time units are still being purchased by
Limited Partners in the Partnership.
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- --------- -------------------------------------------------
CONDITIONS AND RESULTS OF OPERATION
-----------------------------------
The following discussion and analysis should be read in conjunction with the
Selected Financial Data and 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.
RESULTS OF OPERATIONS AND CHANGES IN FINANCIAL CONDITIONS
- ---------------------------------------------------------
General
- -------
As of December 31, 1997, the developed properties owned by the Partnership were
92% occupied. Depreciation expenses increased from 1995 to 1996 and 1997 due to
a change in the estimated useful lives of buildings and improvements from 40
years to 25 years which became effective in the fourth quarter of 1995. For
further discussion of depreciation expense, please refer to the notes to the
accompanying financial statements.
Gross revenue of the Partnership increased to $816,237 in 1997 from $543,291 in
1996 due primarily to increased income from the joint ventures, primarily due to
increased occupancy at the Holcomb Bridge Road Property, Stockbridge Village III
and Stockbridge Expansion, and Tanglewood Commons. Gross revenue of the
Partnership decreased to $543,291 in 1996 from $925,246 in 1995 due primarily to
the decreased interest income on uninvested funds.
Expenses of the Partnership decreased in 1997 as compared to 1996 due to
decreases in legal and accounting fees paid by the Partnership. The decrease of
approximately $30,000 in 1996, compared to 1995 was due to a decrease in
administrative expenses.
14
<PAGE>
Net income of the Partnership was $733,149 for the fiscal year ended December
31, 1997, compared to $452,776 in 1996 due primarily to the increase in revenues
discussed above. The decrease in net income to $452,776 from $804,043 in 1995
was mainly the result of decreased interest earned in 1996.
The Partnership made cash distributions to the Limited Partners holding Class A
Units of $0.79 per unit for the fiscal year ended December 31, 1997, $0.50 per
unit for fiscal year ended December 31, 1996, and $0.55 per Unit for the fiscal
year ended December 31, 1995. No cash distributions were made to the Limited
Partners holding Class B Units for the fiscal years ended December 31, 1997,
December 31, 1996 and December 31, 1995. Distributions were accrued for the
fourth quarter of 1997 and paid in February, 1998.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed of", which is
effective for fiscal years beginning after December 15, 1995. SFAS No. 121
established standards for determining when impairment losses on long-lived
assets have occurred and how impairment losses should be measured. The joint
ventures adopted SFAS No. 121, effective January 1, 1995. The impact of
adopting SFAS No. 121 was not material to the financial statements of the joint
ventures.
PROPERTY OPERATIONS
- -------------------
As of December 31, 1997, the Partnership's percentage ownership in properties
was as follows: 10.7% in the Fund I-II-II-OW-VI-VII Joint Venture, 41.7% in the
Fund V-VI-VII Joint Venture, 57.5% in the Fund VI-Fund VII Joint Venture, 37.9%
in the Fund VII-Fund VIII Joint Venture, 48.9% in the Fund II-III-VI-VII Joint
Venture, and 33.4% in the Fund VI-VII-VIII Joint Venture.
As of December 31, 1997, the Partnership owned interests in the following
operational properties through its ownership of the foregoing joint ventures:
15
<PAGE>
The Marathon Building/Fund V-VI-VII Joint Venture
- -------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31
-------------------------------
1997 1996 1995
----------- -------- --------
<S> <C> <C> <C>
Revenues:
Rental Income $968,219 $971,017 $971,017
Expenses:
Depreciation 350,585 350,585 243,428
Management and
leasing expenses 39,671 38,841 38,841
Other operating expenses 11,905 14,636 25,557
-------- -------- --------
402,161 404,062 307,826
-------- -------- --------
Net income $566,058 $566,955 $663,191
======== ======== ========
Occupied % 100.00% 100.00% 100.00%
Partnership Ownership % in
the Fund V-VI-VII Joint Venture 41.70% 41.70% 41.70%
Cash distributed to
the Partnership $387,442 $358,274 $353,719
Net income allocated
the Partnership $236,103 $236,477 $276,617
</TABLE>
Rental income remained relatively stable in 1997, 1996 and 1995. Net income was
lower in 1997 and 1996 than in 1995 due primarily to increases in depreciation
expenses as a result of the change in estimated useful lives of buildings and
improvements which became effective in the fourth quarter of 1995, as previously
discussed under "General" section of "Results of Operations and Changes in
Financial Conditions".
Real estate taxes and all operational expenses for the building are the
responsibility of the tenant.
The Partnership has an equity interest of 41.70% in the Marathon Property
through is ownership in the Fund V-VI-VII Joint Venture.
For comments on the general competitive conditions to which the property may be
subject, See Item 1, Business, page 2. For additional information on tenants,
etc., refer to Item 2, Properties, Page 3.
16
<PAGE>
Stockbridge Village III/Fund VI - Fund VII Joint Venture
- --------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended 8 Months Ended
--------------------------------------- -----------------
December 31, 1997 December 31, 1996 December 31, 1995
------------------- ------------------ -----------------
<S> <C> <C> <C>
Revenues:
Rental Income $285,256 $257,571 $88,239
Expenses:
Depreciation 86,626 84,642 28,273
Management and
leasing expenses 30,722 51,107 8,999
Other operating expenses 22,501 59,168 43,082
-------- -------- -------
139,849 194,917 80,354
-------- -------- -------
Net income $145,407 $ 62,654 $ 7,885
======== ======== =======
Occupied % 100.0% 87.0% 71.0%
Partnership Ownership % in the
Fund VI - Fund VII Joint Venture 57.5% 42.8% 43.9%
Cash distributed to
the Partnership $133,729 $62,756 $0
Net income allocated
the Partnership $83,256 $26,845 $4,107
</TABLE>
In April 1994, Wells Fund VI purchased 3.27 acres of land located in Clayton
County, Georgia. On December 9, 1994, Fund VI 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 beginning 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 increases to $115,375 for the remainder of the lease. The
remaining 8,268 square feet were fully occupied as of December 31, 1997.
The Stockbridge Village III Project incurred $25,009 for 1997, $23,026 for 1996
and $13,368 for 1995 property taxes.
17
<PAGE>
The Partnership has an equity interest of 57.5% in the Stockbridge Village III
Property through its ownership in the Fund VI--Fund VII Joint Venture.
For comments on the general competitive conditions to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
etc. refer to Item 2, Properties, page 3.
Stockbridge Village I Expansion/Fund VI - Fund VII Joint Venture
- ----------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended Nine Months Ended
December 31, 1997 December 31, 1996
------------------------- -------------------------
<S> <C> <C>
Revenues:
Rental income $199,090 $59,006
Expenses:
Depreciation 111,990 52,780
Management & leasing expenses 25,268 3,238
Other operating expenses 38,757 28,810
-------- --------
176,015 84,828
-------- --------
Net income (loss)
$23,075 $(25,822)
======== ========
Occupied % 74.0% 36.0%
Partnership's Ownership % in the
Fund VI - VII Joint Venture 57.5% 57.2%
Cash distribution to Partnership $65,574 $0
Net income (loss) allocated to the
Partnership $13,243 $(11,070)
</TABLE>
On June 7, 1995, the Fund VI - Fund VII Joint Venture purchased 3.38 acres of
real property located in Clayton County, Georgia. The Stockbridge Village I
Expansion consists of a multi-tenant shopping center containing approximately
29,000 square feet. The majority of construction was completed in April, 1996
with Cici's Pizza tenants occupying a 4,000 square foot restaurant. The term of
the lease is for nine years and eleven months commencing April, 1996. The
initial base rent is $48,000. In the third year, annual base rent increases to
$50,000, in the sixth year to $52,000, and in the ninth year to $56,000. Ten
additional tenants have occupied 17,600 square feet at the property as of
December 31, 1997. Negotiations are being conducted to lease the remaining
space.
Since this property opened in 1996, comparable financial information for prior
years is not available. The Stockbridge Village I Expansion incurred $25,608 for
1997 and $9,182 for 1996 property taxes.
18
<PAGE>
It is projected that no additional funding will be required to complete tenant
build-out by the Partnership or Wells Fund VI.
For comments on the general competitive condition to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
etc., refer to Item 2, Properties, page 3.
Holcomb Bridge Road Property/Fund II-III-VI-VII Joint Venture
- -------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended Nine Months Ended
December 31, 1997 December 31, 1996
------------------------- -------------------------
<S> <C> <C>
Revenues:
Rental income $679,268 $255,062
Expenses:
Depreciation 325,974 181,798
Management & leasing expenses 48,962 28,832
Other operating expenses 195,567 101,600
-------- --------
570,503 312,230
-------- --------
Net income (loss) $108,765 $(57,168)
======== ========
Occupied % 94.12% 62.90%
Partnership's Ownership % in the
Fund II, III, VI, VII Joint Venture 48.90% 48.80%
Cash distribution to the Partnership $214,414 $37,237
Net income (loss) allocated to the
Partnership $53,143 $(27,597)
</TABLE>
Since the Holcomb Bridge Road Property was under construction and not occupied
until first quarter 1996, comparative income and expense figures for the years
ending December 31, 1997 and 1996 are not available.
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-VII
Joint Venture. Development has been substantially completed on two buildings
with a total of approximately 49,500 square feet. As of December 31, 1997,
fourteen tenants occupied approximately 46,600 square feet of space in the
retail/office building under leases of varying lengths.
19
<PAGE>
As of December 31, 1997, the Fund II-Fund III Joint Venture contributed
$1,729,116 in land and land improvements for an equity interest of approximately
24.2%, Wells Fund VI had contributed $1,812,579 for an equity interest of
approximately 26.9%, and the Partnership had contributed $3,335,121 for an
equity interest of approximately 48.9% in the Fund II-III-VI-VII Joint Venture.
The total cost to develop the Holcomb Bridge Road Property is currently
estimated to be approximately $5,214,000, excluding land. It is currently
anticipated that approximately $66,000 will be required to complete the
development of the Holcomb Bridge Road Project, which amounts are anticipated to
be funded by additional capital contributions from the Partnership and Wells
Fund VI, which have reserved sufficient funds for this purpose.
Real estate taxes were $85,230 for 1997 and $37,191 for 1996.
The Partnership's ownership percentage was 48.9% in 1997 and 48.8% in 1996.
For comments on the general competitive conditions to which the property may be
subject, see Item 1, Business, page 2. For additional information on the
property, tenants, etc., see Item 2, Properties, page 3.
The Hannover Center/Fund VII - Fund VIII Joint Venture
- ------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended Six Months Ended
December 31, 1997 December 31, 1996
------------------------- -------------------------
<S> <C> <C>
Revenues:
Rental income $107,379 $48,988
Expenses:
Depreciation 43,925 31,391
Management & leasing expenses 11,237 4,424
Other operating expenses 25,813 28,812
------ ------
80,975 64,627
------ --------
Net income (loss) $26,404 $(15,639)
======= ========
Occupied % 50.00% 50.00%
Partnership's Ownership % in the
Fund VII - VIII Joint Venture 37.95% 37.95%
Cash distribution to Partnership $23,178 $3,520
Net income (loss) allocated to the
Partnership $10,022 $(5,936)
</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.
20
<PAGE>
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. Accordingly, no comparative financial data is available for
prior years.
Real estate taxes were $12,219 for 1997 and $9,650 for 1996.
For comments on the general competitive condition to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
etc., refer to Item 2, Properties, page 3.
CH2M Hill at Gainesville/Fund VII - Fund VIII Joint Venture
- -----------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1997 December 31, 1996
------------------------ -----------------------
<S> <C> <C>
Revenues:
Rental Income $530,493 $534,276
Expenses:
Depreciation 218,181 222,328
Management & leasing expenses 78,850 80,258
Other operating expenses (66,963) (1,380)
-------- --------
230,068 301,206
-------- --------
Net income $300,425 $233,070
======== ========
Occupied % 94.0% 94.0%
Partnership's Ownership % in the Fund VII
- VIII Joint Venture 37.95% 37.95%
Cash Distribution to Partnership $198,523 $142,394
Net Income Allocated to the Partnership $114,023 $76,702
</TABLE>
In February, 1995, the Fund VII - Fund VIII Joint Venture acquired a 5.0 acre
tract 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. CH2M Hill occupied their portion of the building in mid-December, 1995.
Accordingly, no comparative financial data is available for 1995.
Net income and cash distributions have increased in 1997 over 1996 due primarily
to decreased operating expenses and increased common area billings to the
tenant.
Real estate taxes were $75 for 1995, based on undeveloped land, $79,235 for 1996
and $79,428 for 1997.
21
<PAGE>
For comments on the general competitive condition to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
etc., refer to Item 2, Properties, page 3.
BellSouth Property/Fund VI-VII-VIII Joint Venture
- -------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended Eight Months Ended
December 31, 1997 December 31, 1996
------------------------- -------------------------
<S> <C> <C>
Revenues:
Rental income $1,524,708 $876,711
Interest income 8,188 60,092
---------- --------
1,532,896 936,803
---------- --------
Expenses:
Depreciation 443,544 290,407
Management & leasing expenses 191,176 99,330
Other operating expenses 414,754 288,665
---------- --------
1,049,474 678,402
---------- --------
Net income $ 483,422 $258,401
========== ========
Occupied % 100% 100%
Partnership's Ownership % in the
Fund VI- VII - VIII Joint Venture 33.4% 35.5%
Cash distribution to Partnership $327,460 $170,963
Net income allocated to the Partnership $166,136 $98,142
</TABLE>
On April 25, 1995, the Fund VI-VII-VIII Joint Venture purchased 5.55 acres of
land located in Jacksonville, Florida. In May, 1996, the 92,964 square foot
office building was completed, with BellSouth Advertising and Publishing
Corporation occupying approximately 66,333 square feet and American Express
occupying approximately 22,607 square feet. Approximately 2,900 square feet of
additional space was occupied by BellSouth commencing in December, 1996,
bringing occupancy to 100%.
The initial term of the BellSouth lease is nine years and eleven months. The
annual base rent during the initial term is $1,048,061 for the first five years
and $1,150,878 for the balance of the initial lease term. The American Express
lease is for a term of five years at an annual base rent of $369,851. BellSouth
and American Express are required to pay additional rent equal to their share of
operating expenses during their respective lease terms.
22
<PAGE>
Interest income was generated from construction dollars, not as yet funded on
construction, being invested in interest bearing accounts.
Since the building opened in May 1996, comparative income and expense figures
for prior years are not available. The BellSouth Property incurred property
taxes of $164,400 for 1997 and $23,234 for 1996, the first year of occupancy.
For comments on the general competitive condition to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
etc., refer to Item 2, Properties, page 3.
Tanglewood Commons/Fund VI - VII - VIII Joint Venture
- ---------------------------------------------------
<TABLE>
<CAPTION>
Eleven Months Ended
December 31, 1997
--------------------------------
<S> <C>
Revenues:
Rental income $562,880
Interest income 11,276
--------
574,156
--------
Expenses:
Depreciation 191,155
Management & leasing expense 41,589
Other operating expenses 88,873
--------
321,617
--------
Net income $252,539
========
Occupied % 86.0%
Partnership's Ownership % in the
Fund VI - Fund VII - Fund VIII Joint Venture 33.4%
Cash distribution to Partnership $129,340
Net income allocated to Partnership $85,540
</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. The
land purchase costs were funded by a capital contribution made by Wells Fund VI.
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
were approximately $8,700,000. A strip shopping center containing approximately
67,320 gross square feet opened on the site on February 26, 1997.
23
<PAGE>
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 rents equal to one percent of the amount by
which Harris Teeter's gross sales exceed $35,000,000 for any lease year.
Tanglewood Commons incurred property taxes of $58,466 for 1997, the first year
of occupancy. Since this property commenced operations in February 1997,
comparable income and expense figures for prior year are not available.
Cherokee Commons Shopping Center/Fund I-II-II-OW-VI and VII Joint Venture
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31
------------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Revenues:
Rental Income $880,652 $890,951 $778,204
Interest Income 67 73 180
-------- -------- -------
880,719 891,024 778,384
-------- -------- -------
Expenses:
Depreciation $440,882 429,419 277,099
Management and
Leasing Expenses 78,046 48,882 36,303
Other Operating Expenses 138,294 180,841 115,885
-------- -------- --------
657,222 659,142 429,287
-------- -------- --------
Net Income $223,497 $231,882 $349,097
======== ======== ========
Occupied % 94.41% 93.00% 94.00%
Partnership Ownership % 10.70% 10.70% 10.70%
Cash distributed to the
Partnership $65,047 $72,510 $36,070
Net income allocated
to the Partnership $23,932 $24,830 $18,381
</TABLE>
Rental income decreased in 1997 compared to 1996 due to decreased occupancy at
the property for the first three quarters of 1997. Rental income increased in
1996 over 1995 due to the Kroger expansion which was completed in November 1994.
The increase in occupancy in 1997 is due to a new 1,200 square foot lease
executed in 1997. Operating expenses of the property decreased to $138,294 in
1997 from $180,841 in 1996, and increased from $115,885 in 1995. The decrease
in operating expenses in 1997 as compared to 1996 is due to timing differences
in billing of common and maintenance charges and property taxes which was
partially offset by increases in plumbing repairs and contract labor expenses.
The increase from 1995 to 1996 is due primarily to repairs and maintenance (roof
repairs, painting and tenant finish) and general and administrative expenses.
The increase in depreciation expenses for 1997 and 1996 as compared to 1995 is a
24
<PAGE>
result of the change in the estimated useful lives of buildings and improvements
which became effective in the fourth quarter of 1995, as previously discussed.
Net income of the property decreased to $223,497 in 1997 and decreased to
$231,882 in 1996 from $349,097 in 1995, due to the reasons discussed above.
Real estate taxes were $67,259 for 1997, $63,696 for 1996, and $63,694 for 1995.
For comments on the general conditions to which the property may be subject, see
Item 1, Business, page 2. For additional information on the property, tenants,
etc., see Item 2, Properties, page 3.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
On April 5, 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
offering was terminated on January 5, 1995, at which time the Partnership had
sold 1,678,810 Class A Units and 739,208 Class B Units, held by a total of 1,591
and 319 Limited Partners respectively, for total Limited Partner capital
contributions of $24,180,174. After payment of $846,306 in acquisition and
expense fees, payment of $3,627,026 in selling commissions and organization and
offering expenses and the investment of the Partnership of $3,356,278 in the
Fund VI-Fund VII Joint Venture, $3,470,958 in the Fund V-VI-VII Joint Venture,
$2,448,923 in the Fund VII-Fund VIII Joint Venture, 5,932,312 in the Fund VI-
VII-VIII Joint Venture, $953,798 in the Fund I-II-II-OW-VI-VII Joint Venture,
$3,300,225 in the Fund II-III-VI-VII Joint Venture, $2,547 in other acquisition
expenses, and $55,772 of amounts previously being held as working capital
reserves, the Partnership is holding a balance of $186,030 as working reserves.
Of the original working capital reserves of $241,802, the Partnership has
contributed $11,205 to the Fund VI - Fund VII Joint Venture and $44,567 to the
Fund II-III-VI-VII Joint Venture leaving the $186,030 balance shown above. It
is anticipated that the remaining cost to complete the Holcomb Bridge Road
Project of approximately $66,000 will be funded from reserves of the Partnership
and Wells Fund VI.
Pursuant to the terms of the Partnership Agreement, the Partnership is required
to maintain working capital reserves in an amount equal to the cash operating
expenses required to operate the Partnership for a six-month period not to be
reduced below 1% of Limited Partners' capital contributions. As set forth
above, in order to fund a portion of Holcomb Bridge Road Property and
Stockbridge Village III Project, the General Partners have used a portion of the
Partnership's working capital reserves to reduce the balance below this minimum
amount, rather than funding the tenant improvements out of operating cash flow,
which would have the effect of reducing cash flow distributions to Limited
Partners. It is currently anticipated that future rental revenues associated
with the Holcomb Bridge Road Property and Stockbridge Village III Project will
be allocated to restore the Partnership's minimum working capital reserve levels
over time in the future.
Net cash provided by operating activities in the amount of approximately $21,000
in 1996 decreased in 1997 to approximately $43,000 used in operating activities
25
<PAGE>
due primarily to the decrease in interest income which resulted from expending
remaining funds on joint ventures as discussed above. Net cash used in
operating activities decreased in 1996 as compared to 1995 due primarily to the
decrease in income from the joint ventures which resulted from the change in
depreciation discussed previously.
Net cash provided by investing activities increased in 1997 compared to 1996 due
primarily to the increase in the distributions from joint ventures coupled with
the decrease in investments in joint ventures. The increase in net cash used in
financing activities in 1997 compared to 1996 is the result of the increase in
distributions to partners. The increase in net cash used in financing
activities in 1996 compared to 1995 is due primarily to the decrease in
contributions which resulted when the fund closed and paid the final expenses
for the fund at the end of 1995. Cash and cash equivalents have decreased from
$366,301 in 1996 to $194,420 in 1997, and from $1,114,066 in 1995 to $366,301 in
1996 due primarily to investments made in joint ventures in 1996 and 1997.
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.
Since properties are acquired on an all-cash basis, the Partnership has no
permanent long-term liquidity requirements.
Cash distributions of $0.79 per weighted average Unit were made to Class A
Limited Partners for the year ended December 31, 1997. The Partnership's
distributions for the fourth quarter of 1997 will be paid in February 1998 from
Net Cash from Operations. The Partnership anticipates that distributions will
continue to be paid on a quarterly basis from such sources on a level at least
consistent with 1997.
The Partnership is unaware of any known demands, commitments, events or capital
expenditures other than that which is required for the normal operations of its
properties that will result in the Partnership's liquidity increasing or
decreasing in any material way. The Partnership intends to fund any cash
requirements through operating cash flow.
INFLATION
- ---------
Real estate has not been affected significantly by inflation in the past three
years due to the relatively low inflation rate. It is common practice for the
Partnership to execute provisions in the majority of tenant leases to protect
the Partnership from the impact of inflation. These leases contain common area
maintenance charges (CAM charges), real estate tax and insurance reimbursements
on a per square foot basis, or in some cases, annual reimbursement of operating
expenses above a certain per square foot allowance. These provisions should
reduce the Partnership's exposure to increases in costs and operating expenses
resulting from inflation. In addition, a number of the Partnership's leases are
26
<PAGE>
for terms of less than five years which may permit the Partnership to replace
existing leases with new leases at higher base rental rates if the existing
leases are below market rate. There is no assurance, however, that the
Partnership would be able to replace existing leases with new leases at higher
base rentals.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- --------- -------------------------------------------
The Financial Statements of the Registrant and supplementary data are detailed
under Item 14(a) and filed as part of the report on the pages indicated.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- --------- -------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
The Partnership's change in accountants during 1995 was previously reported in
the Partnership's Form 8-K dated September 11, 1995. There were no
disagreements with the Partnership's accountants or other reportable events
during 1997.
27
<PAGE>
PART III
ITEM 10. GENERAL PARTNERS OF THE PARTNERSHIP
- ---------- -----------------------------------
WELLS PARTNERS, L.P. Wells Partners, L.P. is a private Georgia limited
- --------------------
partnership formed on October 25, 1990. The sole General Partner of Wells
Partners, L.P. is Wells Capital, Inc., ("Capital") a Georgia corporation. The
executive offices of Wells Capital, Inc. are located at 3885 Holcomb Bridge
Road, Norcross, Georgia 30092.
LEO F. WELLS, III. Mr. Wells is a resident of Atlanta, Georgia, is 54 years of
- -----------------
age and holds a Bachelor of Business Administration Degree in Economics from the
University of Georgia. Mr. Wells is the President and sole Director of Capital.
Mr. Wells is the President of Wells & Associates, Inc., a real estate brokerage
and investment company formed in 1976 and incorporated in 1978, for which he
serves as principal broker. Mr. Wells is also currently the sole Director and
President of Wells Management Company, Inc., a property management company he
founded in 1983. In addition, Mr. Wells is the President and Chairman of the
Board of Wells Investment Securities, Inc., Wells & Associates, Inc., Wells
Management Company, Inc. and Wells Investment Securities, Inc. which are
affiliates of the General Partners. From 1980 to February 1985, Mr. Wells
served as Vice-President of Hill-Johnson, Inc., a Georgia corporation engaged in
the construction business. From 1973 to 1976, he was associated with Sax Gaskin
Real Estate Company and from 1970 to 1973, he was a real estate salesman and
property manager for Roy D. Warren & Company, an Atlanta real estate company.
28
<PAGE>
ITEM 11. COMPENSATION OF GENERAL PARTNERS AND AFFILIATES
- ---------- -----------------------------------------------
The following table summarizes the compensation and fees paid to the General
Partners and their affiliates during the year ended December 31, 1997:
<TABLE>
<CAPTION>
( A ) ( B ) ( C )
Name of Individual or Number in Capacities in which served Form of
Group Compensation Cash Compensation
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Leo F. Wells, III General Partner $0.00
Wells Management Company, Inc. Property Manager -
Management & Leasing Fees $211,201(1)
</TABLE>
(1) The majority of these fees are not paid directly by the Partnership but are
paid by the joint venture entities which own properties for which the
property management and leasing services relate and include management and
leasing fees which were accrued for accounting purposes in 1997 but not
actually paid until January, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ---------- --------------------------------------------------------------
No Limited Partner is known by the Partnership to own beneficially more than 5%
of the outstanding units of the Partnership.
Set forth below is the security ownership of management as of February 28, 1997.
<TABLE>
(1) (2) (3) (4)
Name and Address of Amount and Nature of
Title of Class Beneficial Owner Beneficial Ownership Percent of Class
- --------------------------- ---------------------------- --------------------------- -------------------
<S> <C> <C> <C>
Class A Units Leo F. Wells, III 69.322 Units Less than 1%
(IRA, 401 (k) Plan)
</TABLE>
No arrangements exist which would, upon operation, result in a change in control
of the Partnership.
29
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ---------- ----------------------------------------------
The compensation and fees paid or to be paid by the Partnership to the General
Partners and their affiliates in connection with the operation of the
Partnership are as follows:
INTEREST IN PARTNERSHIP CASH FLOW AND NET SALE PROCEEDS
- -------------------------------------------------------
The General Partners will receive a subordinated participation in net cash flow
from operations equal to 10% of net cash flow from operations after the Limited
Partners holding Class A Units have received preferential distributions equal to
10% of their adjusted capital contribution. The General Partners will also
receive a subordinated participation in net sale proceeds and net financing
proceeds equal to 20% of residual proceeds available for distribution after the
Limited Partners holding Class B Units have received a return of their adjusted
capital contribution plus a 15% cumulative return on their adjusted capital
contribution; however, that in no event shall the General Partners receive in
the aggregate in excess of 15% of net sale proceeds and net financing proceeds
remaining after payments to Limited Partners from such proceeds of amounts equal
to the sum of their adjusted capital contributions plus a 6% cumulative return
on their adjusted capital contributions. The General Partners did not receive
any distributions from net cash flow from operations or net sale proceeds for
the year ended December 31, 1997.
Property Management and Leasing Fees
- ------------------------------------
Wells Management Company, Inc., an affiliate of the General Partners, will
receive compensation for supervising the management of the Partnership
properties equal to the lesser of: (A)(i) 3% of the gross revenues for leasing
(aggregate maximum of 6%) plus a separate one-time fee for initial lease-up of
newly constructed properties in an amount not to exceed the fee customarily
charged in arm's-length transactions by others rendering similar services in the
same geographic area for similar properties; and (ii) in the cash of industrial
and commercial properties which are leased on a long-term basis (ten or more
years), 1% of the gross revenues except for initial leasing fees equal to 3% of
the gross revenues over the first five years of the lease term; or (B) the
amounts charged by unaffiliated persons rendering comparable services in the
same geographic area. Wells Management Company, Inc. received $211,201 in
property management and leasing fees relating to the Partnership in 1997.
REAL ESTATE COMMISSIONS
- -----------------------
In connection with the sale of Partnership properties, the General Partners or
their affiliates may receive commissions not exceeding the lesser of (A) 50% of
the commissions customarily charged by other brokers in arm's-length
transactions involving comparable properties in the same geographic area or (B)
3% of the gross sales price of the property, and provided that payments of such
commissions will be made only after Limited Partners have received prior
distributions totaling 100% of their capital contributions plus a 6% cumulative
return on their adjusted capital contributions. No real estate commissions were
paid to the General Partners or affiliates for the year ended December 31, 1997.
30
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
- --------- -----------------------------------------------------
ON FORM 8-K
-----------
(a)1. The Financial Statements are contained on Pages F-2 through F-41 of this
Annual Report on Form 10-K, and the list of the Financial Statements
contained herein is set forth on page F-1, which is hereby incorporated by
reference.
(a)2. Financial Statement Schedule III
Information with respect to this Item begins on Page S-1 of this Annual
Report on Form 10-K.
(a)3. The Exhibits filed in response to Item 601 of Regulation S-K are listed on
the Exhibit Index attached hereto.
(b) No reports on Form 8-K were filed with the Commission during the fourth
quarter of 1997.
(c) The Exhibits filed in response to Item 601 of Regulation S-K are listed on
the Exhibit Index attached hereto.
(d) See (a)2 above.
31
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized this 17th day of March,
1998.
WELLS REAL ESTATE FUND VII, L.P.
(Registrant)
By: /s/ Leo F. Wells, III
--------------------------
LEO F. WELLS, III
Individual General Partner and as President
and Chief Financial Officer of Wells
Capital, Inc., the General Partner of Wells
Partners, L.P.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person on behalf of the registrant and in
the capacity as and on the date indicated.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C> <C>
/s/ Leo F. Wells, III Individual General Partner, President March 17, 1998
- ------------------------------------ and Sole Director of Wells Capital,
Leo F. Wells, III Inc., the General Partner of Wells
Partners, L.P.
</TABLE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRARS WHICH HAVE NOT BEEN REGISTERED PURSUANT TO
SECTION 12 OF THE ACT.
No annual report or proxy material relating to an annual or other meeting of
security holders has been sent to security holders.
32
<PAGE>
INDEX TO FINANCIAL STATEMENTS
-----------------------------
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS PAGE
- -------------------- ----
<S> <C>
Independent Auditors' Reports F2
Balance Sheets as of December 31, 1997 and 1996 F3
Statements of Income for the Years Ended December 31, 1997, 1996,
and 1995 F4
Statements of Partners' Capital for the Years Ended
December 31, 1997, 1996, and 1995 F5
Statements of Cash Flows for the Years Ended
December 31, 1997, 1996, and 1995 F6
Notes to Financial Statements for December 31, 1997, 1996 and 1995 F7-F41
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Wells Real Estate Fund VII, L.P.:
We have audited the accompanying balance sheets of WELLS REAL ESTATE FUND VII,
L.P. (a Georgia public limited partnership) as of December 31, 1997 and 1996 and
the related statements of income, partners' capital, and cash flows for each of
the three years in the period ended December 31, 1997. These financial
statements and the schedule referred to below are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wells Real Estate Fund VII,
L.P. as of December 31, 1997 and 1996 and the results of its operations and its
cash flows each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule III--Real Estate Investments
and Accumulated Depreciation as of December 31, 1997 is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 9, 1998
F-2
<PAGE>
WELLS REAL ESTATE FUND VII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS
1997 1996
----------- -----------
<S> <C> <C>
INVESTMENT IN JOINT VENTURES $19,039,835 $19,625,041
CASH AND CASH EQUIVALENTS 194,420 366,301
DUE FROM AFFILIATES 416,360 291,778
DEFERRED PROJECT COSTS 4,070 9,002
ORGANIZATIONAL COSTS, less accumulated amortization of $23,438 in 1997 and
$17,188 in 1996 7,812 14,062
PREPAID EXPENSES AND OTHER ASSETS 3,797 6,546
----------- -----------
Total assets $19,666,294 $20,312,730
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Partnership distributions payable $ 404,129 $ 296,706
----------- -----------
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Limited partners:
Class A 16,701,193 15,698,900
Class B 2,560,972 4,317,124
----------- -----------
Total partners' capital 19,262,165 20,016,024
----------- -----------
Total liabilities and partners' capital $19,666,294 $20,312,730
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
WELLS REAL ESTATE FUND VII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ---------
<S> <C> <C>
REVENUES:
Equity in income of joint ventures $ 785,398 $ 457,144 $ 403,325
Interest income 30,839 86,147 521,921
---------- ---------- ---------
816,237 543,291 925,246
---------- ---------- ---------
EXPENSES:
Partnership administration 54,435 55,688 97,733
Legal and accounting 22,403 28,577 17,220
Amortization of organization costs 6,250 6,250 6,250
---------- ---------- ---------
83,088 90,515 121,203
---------- ---------- ---------
NET INCOME $ 733,149 $ 452,776 $ 804,043
========== ========== =========
NET LOSS ALLOCATED TO GENERAL PARTNERS $ 0 $ 0 $ (280)
========== ========== =========
NET INCOME ALLOCATED TO CLASS A LIMITED PARTNERS $1,615,965 $1,062,605 $ 950,826
========== ========== =========
NET LOSS ALLOCATED TO CLASS B LIMITED PARTNERS $ (882,816) $ (609,829) $(146,503)
========== ========== =========
NET INCOME PER WEIGHTED AVERAGE CLASS A LIMITED PARTNER UNIT $ 0.86 $ 0.62 $ 0.57
========== ========== =========
NET LOSS PER WEIGHTED AVERAGE CLASS B LIMITED PARTNER UNIT $ (1.68) $ (0.98) $ (0.20)
========== ========== =========
CASH DISTRIBUTION PER WEIGHTED AVERAGE CLASS A LIMITED
PARTNER UNIT $ 0.79 $ 0.50 $ 0.55
========== ========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
WELLS REAL ESTATE FUND VII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
LIMITED PARTNERS
---------------------------------------------------------
CLASS A CLASS B TOTAL
---------------------- --------------------- GENERAL PARTNERS'
ORIGINAL UNITS AMOUNT UNITS AMOUNT PARTNERS CAPITAL
-------- --------- ----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
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 B 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 1,062,605 0 (609,829) 0 452,776
Partnership distributions 0 0 (897,464) 0 0 0 (897,464)
Class B conversion elections 0 134,503 1,076,554 (134,503) (1,076,554) 0 0
----- --------- ----------- -------- ----------- ----- -----------
BALANCE, DECEMBER 31, 1996 0 1,826,830 15,698,900 591,187 4,317,124 0 20,016,024
Net income (loss) 0 0 1,615,965 0 (882,816) 0 733,149
Partnership distributions 0 0 (1,487,008) 0 0 0 (1,487,008)
Class B conversion elections 0 144,569 873,336 (144,569) (873,336) 0 0
----- --------- ----------- -------- ----------- ----- -----------
BALANCE, DECEMBER 31, 1997 $ 0 1,971,399 $16,701,193 446,618 $ 2,560,972 $ 0 $19,262,165
===== ========= =========== ======== =========== ===== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
WELLS REAL ESTATE FUND VII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 733,149 $ 452,776 $ 804,043
----------- ----------- ------------
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Equity in income of joint ventures (785,398) (457,144) (403,325)
Amortization of organization costs 6,250 6,250 6,250
Changes in assets and liabilities:
Prepaid expenses and other assets 2,749 23,001 24,760
Accounts payable 0 (4,000) 0
----------- ----------- ------------
Total adjustments (776,399) (431,893) (372,315)
----------- ----------- ------------
Net cash (used in) provided by operating activities (43,250) 20,883 431,728
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions received from joint ventures 1,420,126 760,628 424,304
Investment in joint ventures (169,172) (1,062,547) (13,890,625)
Return of contributions in joint venture 0 500,000 0
Deferred project costs paid 0 0 (28,182)
(Decrease) increase in construction payables 0 (174,413) 174,413
Investment in real estate 0 0 (1,226,608)
----------- ----------- ------------
Net cash provided by (used in) investing activities 1,250,954 23,668 (14,546,698)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners from accumulated earnings (1,379,585) (792,316) (887,739)
Limited partners' contributions 0 0 805,212
Sales commissions paid 0 0 (203,946)
Offering costs paid 0 0 (40,261)
Return of partner capital 0 0 (100)
----------- ----------- ------------
Net cash used in financing activities (1,379,585) (792,316) (326,834)
----------- ----------- ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (171,881) (747,765) (14,441,804)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 366,301 1,114,066 15,555,870
----------- ----------- ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 194,420 $ 366,301 $ 1,114,066
=========== =========== ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Deferred project costs applied to real estate and joint
venture properties, net of deferred project costs
transferred between joint venture properties $ 4,932 $ 117,611 $ 614,527
=========== =========== ============
Transfer of real estate assets to joint venture for
partnership interest $ 0 $ 1,371,913 $ 0
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
WELLS REAL ESTATE FUND VII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Wells Real Estate Fund VII, L.P. (the "Partnership") is a public limited
partnership organized on April 5, 1994 under the laws of the state of
Georgia. The general partners are Leo F. Wells, III and Wells Partners, L.P.
("Wells Partners"), a Georgia nonpublic limited partnership. The Partnership
has two classes of limited partnership interests, Class A and Class B units.
Limited partners shall have the right to change their prior elections to
have some or all of their units treated as Class A units or Class B units
one time during each quarterly accounting period. Limited partners may vote
to, among other things, (a) amend the partnership agreement, subject to
certain limitations, (b) change the business purpose or investment
objectives of the Partnership, and (c) remove a general partner. A majority
vote on any of the above described matters will bind the Partnership,
without the concurrence of the general partners. Each limited partnership
unit has equal voting rights, regardless of class.
The Partnership was formed to acquire and operate commercial real
properties, including properties which are either to be developed, currently
under development or construction, newly constructed, or have operating
histories. The Partnership owns an interest in the following properties
through joint ventures between the Partnership and other Wells Real Estate
Funds: (i) a shopping center located in Cherokee County, Georgia, the
Cherokee Commons Shopping Center ("Cherokee Commons"); (ii) an office/retail
center in Roswell, Georgia; (iii) the Marathon Building, a three-story
office building located in Appleton, Wisconsin; (iv) the Stockbridge Village
III Retail Center, two retail buildings located in Stockbridge, Georgia; (v)
a retail center expansion in Stockbridge, Georgia; (vi) a four-story office
building located in Jacksonville, Florida ("the BellSouth property"); (vii)
a retail shopping center in Clemmon, Forsyth County, North Carolina; (viii)
an office building located in Gainesville, Florida; and (ix) a retail office
building in Stockbridge, Georgia.
USE OF ESTIMATES AND FACTORS AFFECTING THE PARTNERSHIP
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-7
<PAGE>
The carrying values of the real estate assets are based on management's
current intent to hold the real estate assets as long-term investments. The
success of the Partnership's future operations and the ability to realize the
investment in its assets will be dependent on the Partnership's ability to
maintain rental rates, occupancy, and an appropriate level of operating
expenses in future years. Management believes that the steps it is taking
will enable the Partnership to realize its investment in its assets.
INCOME TAXES
The Partnership is not subject to federal or state income taxes, and
therefore, none have been provided for in the accompanying financial
statements. The partners are required to include their respective shares of
profits and losses in their individual income tax returns.
DISTRIBUTION OF NET CASH FROM OPERATIONS
Cash available for distribution, as defined by the partnership agreement, is
distributed to the limited partners quarterly. In accordance with the
partnership agreement, distributions are paid first to limited partners
holding Class A units until they have received a 10% per annum return on
their adjusted 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. Any remaining cash available for
distribution is split between the limited partners holding Class A units and
the general partners on a basis of 90% and 10%, respectively. No
distributions will be made to the limited partners holding Class B units.
DISTRIBUTION OF SALES PROCEEDS
Upon sales of properties, the net sales proceeds are distributed in the
following order:
. To limited partners, on a per unit basis, until all limited partners
have received 100% of their adjusted capital contributions, as
defined
. To limited partners holding Class B units until they receive an
amount equal to the net cash available for distribution received by
the limited partners holding Class A units
. To all limited partners until they receive a cumulative 10% per annum
return on their adjusted capital contributions, as defined
. To all limited partners until they receive an amount equal to their
respective cumulative distributions, as defined
. To the general partners until they have received 100% of their
capital contributions, as defined
. Thereafter, 80% to the limited partners and 20% to the general
partners
F-8
<PAGE>
ALLOCATION OF NET INCOME, NET LOSS, AND GAIN ON SALE
Net income is defined as net income recognized by the Partnership, excluding
deductions for depreciation, amortization, and cost recovery. Net income, as
defined, of the Partnership will be allocated each year in the same
proportions that net cash from operations is distributed to the partners. To
the extent the Partnership's net income in any year exceeds net cash from
operations, it will be allocated 99% to the limited partners holding Class A
units and 1% to the general partners.
Net loss, depreciation, amortization, and cost recovery deductions for each
fiscal year will be allocated as follows: (a) 99% to the limited partners
holding Class B units and 1% to the general partners until their capital
accounts are reduced to zero, (b) then to any partner having a positive
balance in his capital account in an amount not to exceed such positive
balance, and (c) thereafter to the general partners.
Gain on the sale or exchange of the Partnership's properties will be
allocated generally in the same manner that the net proceeds from such sale
are distributed to partners after the following allocations are made, if
applicable: (a) allocations made pursuant to a qualified income offset
provision in the partnership agreement, (b) allocations to partners having
negative capital accounts until all negative capital accounts have been
restored to zero, (c) allocations to Class B limited partners in amounts
equal to deductions for depreciation, amortization, and cost recovery
previously allocated to them with respect to the specific partnership
property sold, but not in excess of the amount of gain on sale recognized by
the Partnership with respect to the sale of such property, and (d)
allocations to Class A limited partners and general partners in amounts equal
to the deductions for depreciation, amortization, and cost recovery
previously allocated to them with respect to the specific partnership
property sold, but not in excess of the amount of gain on sale recognized by
the Partnership with respect to the sale of such property.
INVESTMENT IN JOINT VENTURES
BASIS OF PRESENTATION. The Partnership does not have control over the
operations of the joint ventures; however, it does exercise significant
influence. Accordingly, investments in joint ventures are recorded using the
equity method of accounting.
REAL ESTATE ASSETS. Real estate assets held by the joint ventures are stated
at cost less accumulated depreciation. Major improvements and betterments
are capitalized when they extend the useful life of the related asset. All
repairs and maintenance are expensed as incurred.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which is effective for fiscal years beginning after December 15, 1995. SFAS
No. 121 establishes standards for determining when impairment losses on long-
lived assets have occurred and how impairment losses should be measured. The
joint ventures adopted SFAS No. 121 effective January 1, 1995. The impact of
adopting SFAS No. 121 was not material to the financial statements of the
Partnership or its affiliated joint ventures.
F-9
<PAGE>
Management continually monitors events and changes in circumstances which
could indicate that carrying amounts of real estate assets may not be
recoverable. When events or changes in circumstances are present which
indicate that the carrying amounts of real estate assets may not be
recoverable, management assesses the recoverability of real estate assets
under SFAS No. 121 by determining whether the carrying value of such real
estate assets will be recovered through the future cash flows expected from
the use of the asset and its eventual disposition. Management has determined
that there has been no impairment in the carrying value of real estate assets
held by the Partnership or its affiliated joint ventures as of December 31,
1997.
Depreciation for buildings, building improvements, and land improvements is
calculated using the straight-line method over their useful lives. Effective
October 1, 1995, the Partnership and its affiliated joint ventures revised
their estimate of the useful lives of these assets from 40 to 25 years. This
change was made to better reflect the estimated periods during which such
assets will remain in service. The change had the effect on the Partnership,
through its ownership interest in joint ventures, of increasing depreciation
expense approximately $26,135 in the fourth quarter of 1995 and $228,415 and
$338,997 in the years ended December 31, 1996 and 1997, respectively. Tenant
improvements are amortized over the life of the related lease or the life of
the asset, whichever is shorter.
REVENUE RECOGNITION. All leases on real estate assets held by the joint
ventures are classified as operating leases, and the related rental income is
recognized on a straight-line basis over the terms of the respective leases.
PARTNERS' DISTRIBUTIONS AND ALLOCATIONS OF PROFIT AND LOSS. Cash available
for distribution and allocations of profit and loss to the Partnership by the
joint ventures are made in accordance with the terms of the individual joint
venture agreements. Generally, these items are allocated in proportion to
the partners' respective ownership interests. Cash is paid from the joint
ventures to the Partnership quarterly.
DEFERRED LEASE ACQUISITION COSTS. Costs incurred to procure operating leases
are capitalized and amortized on a straight-line basis over the terms of the
related leases.
CASH AND CASH EQUIVALENTS
For the purposes of the statements of cash flows, the Partnership considers
all highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. Cash equivalents include cash and
short-term investments. Short-term investments are stated at cost, which
approximates fair value, and consist of investments in money market accounts.
PER UNIT DATA
Net income (loss) per unit with respect to the Partnership for the years
ended December 31, 1997, 1996, and 1995 is computed based on the weighted
average number of units outstanding during the period.
F-10
<PAGE>
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year financial statement presentation.
2. DEFERRED PROJECT COSTS
The Partnership paid a percentage of limited partner contributions to Wells
Capital, Inc. (the "Company"), the general partner of Wells Partners, for
acquisition and advisory services. These payments, as stipulated by the
partnership agreement, can be up to 6% of the limited partner contributions,
subject to certain overall limitations contained in the partnership
agreement. Aggregate fees paid through December 31, 1997 were $1,358,722 and
amounted to 3.5% of the limited partners' contributions received. These fees
are allocated to specific properties, as they are purchased or developed and
are included in capitalized assets of the joint ventures. Deferred project
costs at December 31, 1997 and 1996 represent fees not yet applied to
properties.
3. RELATED-PARTY TRANSACTIONS
Due from affiliates at December 31, 1997 and 1996 represents the
Partnership's share of cash to be distributed for the fourth quarters of
1997 and 1996, respectively, as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Fund I, II, II-OW, VI, and VII
Associates--Cherokee $ 20,408 $ 18,925
Fund II, III, VI, VII Associates 64,466 24,215
Fund V, VI, and VII Associates 96,447 89,320
Fund VI and VII Associates 52,503 23,735
Fund VI, VII, and VIII Associates 129,035 95,300
Fund VII and VIII Associates 53,501 40,283
-------- --------
$416,360 $291,778
======== ========
</TABLE>
The Partnership entered into a property management agreement with Wells
Management Company, Inc. ("Wells Management"), an affiliate of the general
partners. In consideration for supervising the management of the
Partnership's properties, the Partnership will generally pay Wells
Management management and leasing fees equal to (a) 3% of the gross revenues
for management and 3% of the gross revenues for leasing (aggregate maximum
of 6%) plus a separate fee for the one-time initial lease-up of newly
constructed properties in an amount not to exceed the fee customarily
charged in arm's-length transactions by others rendering similar services in
the same geographic area for similar properties or (b) in the case of
commercial properties, which are leased on a long-term net basis (ten or
more years), 1% of the gross revenues except for initial leasing fees equal
to 3% of the gross revenues over the first five years of the lease term.
F-11
<PAGE>
The Partnership incurred management and leasing fees and lease acquisition
costs, at the joint venture level, of $211,201, $103,785, and $22,735 for
the years ended December 31, 1997, 1996, and 1995, respectively, which were
paid to Wells Management.
The Company performs certain administrative services for the Partnership,
such as accounting and other partnership administration, and incurs the
related expenses. Such expenses are allocated among the various Wells Real
Estate Funds based on time spent on each fund by individual administrative
personnel. In the opinion of management, such allocation is a reasonable
estimation of such expenses.
The general partners are also general partners in other Wells Real Estate
Funds. As such, there may exist conflicts of interest where the general
partners, while serving in the capacity as general partners for other Wells
Real Estate Funds, may be in competition with the Partnership for tenants in
similar geographic markets.
4. INVESTMENT IN JOINT VENTURES
The Partnership's investment and percentage ownership in joint ventures at
December 31, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------- -------------------------
AMOUNT PERCENT Amount Percent
----------- ------- ----------- -------
<S> <C> <C> <C> <C>
Fund I, II, II-OW, VI, and VII
Associates--Cherokee $ 888,782 11% $ 929,897 11%
Fund II, III, VI, and VII Associates 3,252,856 49 3,292,551 49
Fund V, VI, and VII Associates 3,254,304 42 3,405,643 42
Fund VI and VII Associates 3,360,265 57 3,410,542 57
Fund VI, VII, and VIII Associates 5,906,810 34 6,111,934 36
Fund VII and VIII Associates 2,376,818 38 2,474,474 38
----------- -----------
$19,039,835 $19,625,041
=========== ===========
</TABLE>
The following is a rollforward of the Partnership's investment in joint
ventures for the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Investment in joint ventures, beginning of year $19,625,041 $18,110,964
Equity in income of joint ventures 785,398 457,144
Contributions to joint ventures 174,104 2,474,253
Distributions from joint ventures (1,544,708) (895,581)
Return of capital 0 (521,739)
----------- -----------
Investment in joint ventures, end of year $19,039,835 $19,625,041
=========== ===========
</TABLE>
F-12
<PAGE>
FUND I, II, II-OW, VI, AND VII ASSOCIATES--CHEROKEE
On August 1, 1995, the Partnership entered into a joint venture agreement
with Wells Real Estate Fund I, Fund II and II-OW (a joint venture between
Wells Real Estate Fund II and Wells Real Estate Fund II-OW), and Wells Real
Estate Fund VI, L.P. ("Fund VI"). The joint venture, Fund I, II, II-OW, VI,
and VII Associates--Cherokee, was formed for the purpose of owning and
operating Cherokee Commons, a retail shopping center containing approximately
103,755 square feet located in Cherokee County, Georgia. Until the formation
of this joint venture, Cherokee Commons was part of the Fund I and II Tucker-
-Cherokee joint venture. Concurrent with the formation of the Fund I, II,
II-OW, VI, and VII Associates--Cherokee joint venture, Cherokee Commons was
transferred from the Fund I and II Tucker--Cherokee joint venture.
Percentage ownership interests in Fund I, II, II-OW, VI, and VII Associates--
Cherokee were determined at the time of formation based on contributions.
Under the terms of the joint venture agreement, Fund VI and Fund VII each
contributed approximately $1 million to the new joint venture in return for a
10.7% ownership interest. Fund I's ownership interest in the Cherokee joint
venture changed from 30.6% to 24%, and Fund II and II-OW joint venture's
ownership interest changed from 69.4% to 54.6%. The $2 million in cash
contributed to Cherokee was used to fund an expansion of the property for an
existing tenant.
F-13
<PAGE>
Following are the financial statements for Fund I, II, II-OW, VI, and VII
Associates--Cherokee:
FUND I, II, II-OW, VI, AND VII ASSOCIATES--CHEROKEE
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
Assets
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Real estate assets, at cost:
Land $1,219,704 $1,219,704
Building and improvements, less accumulated depreciation of $2,273,149 in
1997 and $1,847,476 in 1996 6,939,884 7,329,974
---------- ----------
Total real estate assets 8,159,588 8,549,678
Cash and cash equivalents 153,159 71,346
Accounts receivable 92,516 93,902
Prepaid expenses and other assets 99,869 78,527
---------- ----------
Total assets $8,505,132 $8,793,453
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 36,851 $ 23,130
Partnership distributions payable 194,123 112,817
Due to affiliates 93,940 78,375
---------- ----------
Total liabilities 324,914 214,322
---------- ----------
Partners' capital:
Wells Real Estate Fund I 1,863,173 1,970,363
Fund II and II-OW 4,536,781 4,746,274
Wells Real Estate Fund VI 891,482 932,597
Wells Real Estate Fund VII 888,782 929,897
---------- ----------
Total partners' capital 8,180,218 8,579,131
---------- ----------
Total liabilities and partners' capital $8,505,132 $8,793,453
========== ==========
</TABLE>
F-14
<PAGE>
FUND I, II, II-OW, VI AND VII ASSOCIATES--CHEROKEE
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Rental income $880,652 $890,951 $778,204
Interest income 67 73 180
-------- -------- --------
880,719 891,024 778,384
-------- -------- --------
Expenses:
Depreciation 440,882 429,419 277,099
Operating costs, net of reimbursements 70,017 126,367 51,663
Property administration 26,260 42,868 39,316
Management and leasing fees 64,807 35,598 29,015
Lease acquisition costs 13,239 13,284 7,288
Legal and accounting 9,385 8,362 20,273
Computer costs 0 3,244 4,633
Loss on real estate assets 32,632 0 0
-------- -------- --------
657,222 659,142 429,287
-------- -------- --------
Net income $223,497 $231,882 $349,097
======== ======== ========
Net income allocated to Wells Real Estate Fund I $ 53,691 $ 55,705 $ 95,490
======== ======== ========
Net income allocated to Fund II and II-OW $121,942 $126,517 $216,845
======== ======== ========
Net income allocated to Wells Real Estate Fund VI $ 23,932 $ 24,830 $ 18,381
======== ======== ========
Net income allocated to Wells Real Estate Fund VII $ 23,932 $ 24,830 $ 18,381
======== ======== ========
</TABLE>
F-15
<PAGE>
FUND I, II, II-OW, VI AND VII ASSOCIATES--CHEROKEE
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
WELLS REAL FUND II WELLS REAL WELLS REAL TOTAL
ESTATE AND ESTATE ESTATE PARTNERS'
FUND I II-OW FUND VI FUND VII CAPITAL
---------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $2,140,194 $5,081,851 $ 0 $ 0 $7,222,045
Net income 95,490 216,845 18,381 18,381 349,097
Partnership contributions 0 0 997,965 995,266 1,993,231
Partnership distributions (126,697) (269,900) (36,069) (36,070) (468,736)
Other (5,321) 0 0 0 (5,321)
---------- ---------- -------- -------- ----------
Balance, December 31, 1995 2,103,666 5,028,796 980,277 977,577 9,090,316
Net income 55,705 126,517 24,830 24,830 231,882
Partnership distributions (189,008) (409,039) (72,510) (72,510) (743,067)
---------- ---------- -------- -------- ----------
Balance, December 31, 1996 1,970,363 4,746,274 932,597 929,897 8,579,131
Net income 53,691 121,942 23,932 23,932 223,497
Partnership distributions (160,881) (331,435) (65,047) (65,047) (622,410)
---------- ---------- -------- -------- ----------
Balance, December 31, 1997 $1,863,173 $4,536,781 $891,482 $888,782 $8,180,218
========== ========== ======== ======== ==========
</TABLE>
F-16
<PAGE>
FUND I, II, II-OW, VI, AND VII ASSOCIATES--CHEROKEE
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 223,497 $ 231,882 $ 349,097
--------- --------- -----------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 440,882 429,419 277,099
Loss on real estate assets 32,632 0 0
Changes in assets and liabilities:
Accounts receivable 1,386 43,062 7,111
Prepaid expenses and other assets (21,342) 14,106 (42,937)
Accounts payable and accrued expenses
13,721 (4,624) (279,529)
Due to affiliates 15,565 9,613 9,909
--------- --------- -----------
Total adjustments 482,844 491,576 (28,347)
--------- --------- -----------
Net cash provided by operating activities 706,341 723,458 320,750
--------- --------- -----------
Cash flows from investing activities:
Investment in real estate (83,424) (28,231) (1,869,138)
--------- --------- -----------
Cash flows from financing activities:
Contributions from joint venture partners 0 0 2,100,403
Distributions to joint venture partners (541,104) (834,237) (376,011)
--------- --------- -----------
Net cash (used in) provided by financing
activities (541,104) (834,237) 1,724,392
--------- --------- -----------
Net increase (decrease) in cash and cash equivalents 81,813 (139,010) 176,004
Cash and cash equivalents, beginning of year 71,346 210,356 34,352
--------- --------- -----------
Cash and cash equivalents, end of year $ 153,159 $ 71,346 $ 210,356
========= ========= ===========
Supplemental disclosure of noncash investing activities:
Deferred project costs applied by partners $ 0 $ 0 $ 85,637
========= ========= ===========
</TABLE>
FUND II, III, VI, AND VII ASSOCIATES
On January 1, 1995, the Partnership entered into a joint venture agreement
with Fund II and III Associates and Fund VI. The joint venture, Fund II,
III, VI, and VII Associates, was formed for the purpose of acquiring,
developing, operating, and selling real properties. During 1995, Fund II and
III Associates contributed, at cost, a 4.3-acre tract of land from its 880
Property--Brookwood Grill to the Fund II, III, VI, and VII Associates joint
venture. During 1996 and 1997, the Partnership and Fund VI made
contributions to the joint venture. Ownership percentage interests were
F-17
<PAGE>
recomputed accordingly. Development was substantially completed in 1996 on
two buildings containing a total of approximately 49,500 square feet.
The following are the financial statements for Fund II, III, VI, and VII
Associates:
FUND II, III, VI, AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
Assets
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Real estate assets, at cost:
Land $1,325,242 $1,325,242
Building and improvements, less accumulated depreciation of $507,772 in
1997 and $181,798 in 1996 5,025,276 4,568,805
Construction in progress 59,564 214,398
---------- ----------
Total real estate assets 6,410,082 6,108,445
Cash and cash equivalents 219,391 675,703
Accounts receivable 54,524 67,334
Prepaid expenses and other assets 269,568 145,820
---------- ----------
Total assets $6,953,565 $6,997,302
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 170,776 $ 204,970
Partnership distributions payable 131,907 49,590
---------- ----------
302,683 254,560
---------- ----------
Partners' capital:
Fund II and III Associates 1,608,215 1,690,244
Wells Real Estate Fund VI 1,789,811 1,759,947
Wells Real Estate Fund VII 3,252,856 3,292,551
---------- ----------
Total partners' capital 6,650,882 6,742,742
---------- ----------
Total liabilities and partners' capital $6,953,565 $6,997,302
========== ==========
</TABLE>
F-18
<PAGE>
FUND II, III, VI, AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Revenues:
Rental income $679,268 $255,062
-------- --------
Expenses:
Depreciation 325,974 181,798
Operating costs, net of reimbursements 122,261 75,018
Management and leasing fees 48,962 16,376
Legal and accounting 4,885 14,928
Lease acquisition costs 50,872 12,456
Property administration 17,321 10,286
Computer costs 228 1,368
-------- --------
570,503 312,230
-------- --------
Net income (loss) $108,765 $(57,168)
======== ========
Net income (loss) allocated to Fund II and III Associates $ 27,213 $(19,378)
======== ========
Net income (loss) allocated to Wells Real Estate Fund VI $ 28,409 $(10,193)
======== ========
Net income (loss) allocated to Wells Real Estate Fund VII $ 53,143 $(27,597)
======== ========
</TABLE>
F-19
<PAGE>
FUND II, III, VI, AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
FUND II WELLS WELLS REAL TOTAL
AND III REAL ESTATE ESTATE PARTNERS'
ASSOCIATES FUND VI FUND VII CAPITAL
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, January 1, 1995 $ 0 $ 0 $ 0 $ 0
Partnership contributions 1,729,116 1,028,210 2,521,739 5,279,065
---------- ---------- ---------- ----------
Balance, December 31, 1995 1,729,116 1,028,210 2,521,739 5,279,065
Partnership contributions 0 761,259 835,646 1,596,905
Partnership distributions (19,494) (19,329) (37,237) (76,060)
Net loss (19,378) (10,193) (27,597) (57,168)
---------- ---------- ---------- ----------
Balance, December 31, 1996 1,690,244 1,759,947 3,292,551 6,742,742
Partnership contributions 0 116,675 121,576 238,251
Partnership distributions (109,242) (115,220) (214,414) (438,876)
Net income 27,213 28,409 53,143 108,765
---------- ---------- ---------- ----------
Balance, December 31, 1997 $1,608,215 $1,789,811 $3,252,856 $6,650,882
========== ========== ========== ==========
</TABLE>
F-20
<PAGE>
FUND II, III, VI, AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 108,765 $ (57,168) $ 0
--------- ----------- -----------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 325,974 181,798 0
Changes in assets and liabilities:
Accounts receivable 12,810 (67,334) 0
Prepaid expenses and other assets (123,748) (104,792) (41,028)
Accounts payable and accrued expenses (34,194) 88,532 22,256
--------- ----------- -----------
Total adjustments 180,842 98,204 (18,772)
--------- ----------- -----------
Net cash provided by (used in) operating activities 289,607 41,036 (18,772)
--------- ----------- -----------
Cash flows from investing activities:
(Decrease) increase in construction payables 0 (358,467) 452,649
Investment in real estate (620,059) (1,736,082) (2,595,190)
--------- ----------- -----------
Net cash used in investing activities (620,059) (2,094,549) (2,142,541)
--------- ----------- -----------
Cash flows from financing activities:
Contributions from joint venture partners 230,699 1,434,308 3,482,691
Distributions to joint venture partners (356,559) (26,470) 0
--------- ----------- -----------
Net cash (used in) provided by financing activities
(125,860) 1,407,838 3,482,691
--------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (456,312) (645,675) 1,321,378
Cash and cash equivalents, beginning of year 675,703 1,321,378 0
--------- ----------- -----------
Cash and cash equivalents, end of year $ 219,391 $ 675,703 $ 1,321,378
========= =========== ===========
Supplemental disclosure of noncash activities:
Contribution of real estate assets $ 0 $ 0 $ 1,729,116
========= =========== ===========
Deferred project costs applied by partners $ 7,552 $ 162,597 $ 67,257
========= =========== ===========
</TABLE>
FUND V, VI, AND VII ASSOCIATES
On September 8, 1994, the Partnership entered into a joint venture agreement
with Wells Real Estate Fund V, L.P. ("Fund V") and Fund VI. The joint
venture, Fund V, VI, and VII Associates, was formed for the purpose of
investing in commercial real properties. In September 1994, Fund V, VI, and
VII Associates purchased a 75,000-square-foot, three-story office building
known as the Marathon Building in Appleton, Wisconsin.
F-21
<PAGE>
Following are the financial statements for Fund V, VI, and VII Associates:
FUND V, VI, AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Assets
1997 1996
----------- ----------
<S> <C> <C>
Real estate assets, AT COST:
Land $ 314,591 $ 314,591
Building and improvements, less accumulated depreciation of $1,005,614 in
1997 and $655,029 in 1996 7,362,290 7,712,875
---------- ----------
Total real estate assets 7,676,881 8,027,466
Cash and cash equivalents 231,232 214,145
Accounts receivable 130,577 142,358
---------- ----------
Total assets $8,038,690 $8,383,969
========== ==========
Liabilities and Partners' Capital
Liabilities:
Partnership distributions payable $ 231,232 $ 214,145
Due to affiliates 6,166 5,695
---------- ----------
Total liabilities 237,398 219,840
---------- ----------
Partners' capital:
Wells Real Estate Fund V 1,283,867 1,343,590
Wells Real Estate Fund VI 3,263,121 3,414,896
Wells Real Estate Fund VII 3,254,304 3,405,643
---------- ----------
Total partners' capital 7,801,292 8,164,129
---------- ----------
Total liabilities and partners' capital $8,038,690 $8,383,969
========== ==========
</TABLE>
F-22
<PAGE>
FUND V, VI, AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Rental income $968,219 $971,017 $971,017
-------- -------- --------
Expenses:
Depreciation 350,585 350,585 243,428
Management and leasing fees 39,671 38,841 38,841
Legal and accounting 5,690 7,331 13,715
Property administration 3,878 4,641 8,150
Computer costs 107 1,410 1,749
Operating costs 2,230 1,254 1,943
-------- -------- --------
402,161 404,062 307,826
-------- -------- --------
Net income $566,058 $566,955 $663,191
======== ======== ========
Net income allocated to Wells Real Estate Fund V $ 93,173 $ 93,321 $109,161
======== ======== ========
Net income allocated to Wells Real Estate Fund VI $236,782 $237,157 $277,413
======== ======== ========
Net income allocated to Wells Real Estate Fund VII $236,103 $236,477 $276,617
======== ======== ========
</TABLE>
FUND V, VI, AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
WELLS REAL WELLS REAL WELLS REAL TOTAL
ESTATE ESTATE ESTATE PARTNERS'
FUND V FUND VI FUND VII CAPITAL
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 $1,422,081 $3,614,367 $3,604,542 $8,640,990
Net income 109,161 277,413 276,617 663,191
Partnership distributions (139,588) (354,736) (353,719) (848,043)
---------- ---------- ---------- ----------
Balance, December 31, 1995 1,391,654 3,537,044 3,527,440 8,456,138
Net income 93,321 237,157 236,477 566,955
Partnership distributions (141,385) (359,305) (358,274) (858,964)
---------- ---------- ---------- ----------
Balance, December 31, 1996 1,343,590 3,414,896 3,405,643 8,164,129
Net income 93,173 236,782 236,103 566,058
Partnership distributions (152,896) (388,557) (387,442) (928,895)
---------- ---------- ---------- ----------
Balance, December 31, 1997 $1,283,867 $3,263,121 $3,254,304 $7,801,292
========== ========== ========== ==========
</TABLE>
F-23
<PAGE>
FUND V, VI, AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 566,058 $ 566,955 $ 663,191
--------- --------- ---------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 350,585 350,585 243,428
Changes in assets and liabilities:
Accounts receivable 11,781 (61,017) (61,017)
Accounts payable 0 0 (3,000)
Due to affiliates 471 2,441 2,441
--------- --------- ---------
Total adjustments 362,837 292,009 181,852
--------- --------- ---------
Net cash provided by operating activities
928,895 858,964 845,043
Cash flows from financing activities:
Distributions to joint venture partners (911,808) (853,946) (835,231)
--------- --------- ---------
Net increase in cash and cash equivalents 17,087 5,018 9,812
Cash and cash equivalents, beginning of year 214,145 209,127 199,315
--------- --------- ---------
Cash and cash equivalents, end of year $ 231,232 $ 214,145 $ 209,127
========= ========= =========
</TABLE>
FUND VI AND VII ASSOCIATES
On December 9, 1994, the Partnership entered into a joint venture agreement
with Fund VI. The joint venture, Fund VI and VII Associates, was formed for
the purpose of investing in commercial properties. In December 1994, the
Partnership contributed its interest in a parcel of land, the Stockbridge
Village III Retail Center property, located in Stockbridge, Georgia, to the
joint venture. The Stockbridge Village III Retail Center property is
comprised of two separate outparcel buildings totaling approximately 18,500
square feet. One of the outparcel buildings began operations during 1995.
The other outparcel began operations during 1996. On June 7, 1995, Fund VI
and VII Associates purchased 3.38 acres of real property located in
Stockbridge, Georgia. The retail center expansion consists of a multi-tenant
shopping center containing approximately 29,000 square feet.
During 1995 and 1997, both the Partnership and Fund VI made contributions to
Fund VI and VII Associates, and during 1996, the Partnership made additional
contributions to the joint venture. Ownership percentage interests were
recomputed accordingly.
F-24
<PAGE>
Following are the financial statements for Fund VI and VII Associates:
FUND VI AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
Assets
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Real estate assets, AT COST:
Land $1,812,447 $1,812,447
Building and improvements, less accumulated depreciation of $364,311 in
1997 and $165,695 in 1996 3,834,375 3,497,180
Construction in progress 34,669 115,438
---------- ----------
Total real estate assets 5,681,491 5,425,065
Cash and cash equivalents 33,921 505,724
Accounts receivable 191,854 93,166
Prepaid expenses and other assets 131,527 82,706
---------- ----------
Total assets $6,038,793 $6,106,661
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 95,044 $ 103,535
Partnership distributions payable 91,435 41,473
Due to affiliates 4,606 2,412
---------- ----------
Total liabilities 191,085 147,420
---------- ----------
Partners' capital:
Wells Real Estate Fund VI 2,487,443 2,548,699
Wells Real Estate Fund VII 3,360,265 3,410,542
---------- ----------
Total partners' capital 5,847,708 5,959,241
---------- ----------
Total liabilities and partners' capital $6,038,793 $6,106,661
========== ==========
</TABLE>
F-25
<PAGE>
FUND VI AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Revenues:
Rental income $485,346 $316,487 $88,239
-------- -------- -------
Expenses:
Depreciation 198,616 137,422 28,273
Operating costs, net of reimbursements 19,833 50,299 31,835
Lease acquisition costs 25,619 34,153 2,546
Management and leasing fees 30,371 20,192 6,453
Property administration 20,803 19,123 6,871
Legal and accounting 21,622 14,277 3,240
Computer costs 0 4,188 1,136
-------- -------- -------
316,864 279,654 80,354
-------- -------- -------
Net income $168,482 $ 36,833 $ 7,885
======== ======== =======
Net income allocated to Wells Real Estate Fund VI $ 71,983 $ 15,775 $ 4,107
======== ======== =======
Net income allocated to Wells Real Estate Fund VII $ 96,499 $ 21,058 $ 3,778
======== ======== =======
</TABLE>
F-26
<PAGE>
FUND VI AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
WELLS REAL WELLS REAL TOTAL
ESTATE ESTATE PARTNERS'
FUND VI FUND VII CAPITAL
---------- ---------- ----------
<S> <C> <C> <C>
Balance, December 31, 1994 $1,053,648 $ 188,684 $1,242,332
Net income 4,107 3,778 7,885
Partnership contributions 1,529,340 3,118,321 4,647,661
Other 3,725 4,612 8,337
---------- ---------- ----------
Balance, December 31, 1995 2,590,820 3,315,395 5,906,215
Net income 15,775 21,058 36,833
Partnership contributions 0 151,306 151,306
Partnership distributions (57,896) (77,217) (135,113)
---------- ---------- ----------
Balance, December 31, 1996 2,548,699 3,410,542 5,959,241
Net income 71,983 96,499 168,482
Partnership contributions 15,378 52,528 67,906
Partnership distributions (148,617) (199,304) (347,921)
---------- ---------- ----------
Balance, December 31, 1997 $2,487,443 $3,360,265 $5,847,708
========== ========== ==========
</TABLE>
F-27
<PAGE>
FUNDS VI AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 168,482 $ 36,833 $ 7,885
--------- ----------- -----------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 198,616 137,422 28,273
Changes in assets and liabilities:
Accounts receivable (98,688) (59,241) (33,925)
Prepaid expenses and other assets (48,821) (13,757) (68,949)
Accounts payable 26,509 21,049 17,486
Due to affiliates 2,194 (4,485) 6,897
--------- ----------- -----------
Total adjustments 79,810 80,988 (50,218)
--------- ----------- -----------
Net cash provided by (used in)
operating activities 248,292 117,821 (42,333)
--------- ----------- -----------
Cash flows from investing activities:
(Decrease) increase in construction payables (35,000) (14,116) 49,116
Investment in real estate (455,042) (1,060,466) (3,000,848)
--------- ----------- -----------
Net cash used in investing activities (490,042) (1,074,582) (2,951,732)
--------- ----------- -----------
Cash flows from financing activities:
Contributions from joint venture partners 67,906 145,002 4,396,851
Distributions to joint venture partners (297,959) (79,332) (5,971)
--------- ----------- -----------
Net cash (used in) provided by financing activities (230,053) 65,670 4,390,880
--------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (471,803) (891,091) 1,396,815
Cash and cash equivalents, beginning of year 505,724 1,396,815 0
--------- ----------- -----------
Cash and cash equivalents, end of year $ 33,921 $ 505,724 $ 1,396,815
========= =========== ===========
Supplemental disclosure of noncash items:
Deferred project costs applied by partners $ 0 $ 6,304 $ 250,810
========= =========== ===========
</TABLE>
Fund VI, VII, and VIII Associates
On April 17, 1995, the Partnership entered into a joint venture with Fund VI
and Wells Real Estate Fund VIII, L.P. ("Fund VIII"). The joint venture, Fund
VI, VII, and VIII Associates, was formed to acquire, develop, operate, and
sell real properties. On April 25, 1995, the joint venture purchased a 5.55-
acre parcel of land in Jacksonville, Florida. A 92,964-square-foot office
building, known as the BellSouth property, was completed and commenced
operations in 1996. On May 31, 1995, the joint venture purchased a 14.683-
F-28
<PAGE>
<PAGE>
acre parcel of land located in Clemmons, Forsyth County, North Carolina. A
retail shopping center was developed and was substantially complete at
December 31, 1997.
During 1996, Fund VI and the Partnership each withdrew $500,000 from the
joint venture in order to contribute needed funds to Fund II, III, VI, and
VII Associates. In addition, deferred project costs related to Fund VI and
the Partnership of $23,160 and $21,739, respectively, were unapplied when the
contributions were withdrawn. During 1996, Fund VIII made an additional
contribution of $2,815,965, which included $115,965 of deferred project costs
that were applied. Ownership percentage interests were recomputed
accordingly.
Following are the financial statements for Fund VI, VII, and VIII Associates:
FUND VI, VII, AND VIII ASSOCIATES
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Assets
1997 1996
----------- -----------
<S> <C> <C>
Nonoperating real estate assets, at cost:
Land $ 0 $ 3,159,929
Construction in progress 0 4,587,178
----------- -----------
Total nonoperating real estate assets 0 7,747,107
----------- -----------
Operating real estate assets, at cost:
Land 4,461,819 1,301,890
Building and improvements, less accumulated depreciation of $925,106 in
1997 and $290,407 in 1996 11,747,642 7,004,986
Construction in progress 94,715 0
----------- -----------
Total operating real estate assets 16,304,176 8,306,876
----------- -----------
Total real estate assets 16,304,176 16,053,983
----------- -----------
Cash and cash equivalents 1,059,001 929,683
Accounts receivable 104,021 27,851
Prepaid expenses and other assets 712,814 691,741
----------- -----------
Total assets $18,180,012 $17,703,258
=========== ===========
</TABLE>
F-29
<PAGE>
<TABLE>
<CAPTION>
Liabilities and Partners' Capital
<S> <C> <C>
Liabilities:
Accounts payable $ 100,792 $ 203,275
Partnership distributions payable 386,390 268,656
Due to affiliates 5,177 1,555
----------- -----------
Total liabilities 492,359 473,486
----------- -----------
Partners' capital:
Wells Real Estate Fund VI 6,058,082 6,268,458
Wells Real Estate Fund VII 5,906,810 6,111,934
Wells Real Estate Fund VIII 5,722,761 4,849,380
----------- -----------
Total partners' capital 17,687,653 17,229,772
----------- -----------
Total liabilities and partners' capital $18,180,012 $17,703,258
=========== ===========
</TABLE>
FUND VI, VII, AND VIII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FOR THE PERIOD FROM INCEPTION (APRIL 17, 1995) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Rental income $2,087,588 $ 876,711 $ 0
Interest income 19,464 147,581 270,723
Other income 360 150 0
---------- --------- --------
2,107,412 1,024,442 270,723
Expenses:
Depreciation 634,699 290,407 0
Operating costs 460,873 262,090 12,792
Lease acquisition costs 97,457 50,388 0
Management and leasing fees 135,308 48,942 0
Legal and accounting 15,934 17,251 0
Property administration 27,180 15,975 10,980
Computer costrs 0 642 0
---------- -------- --------
1,371,451 685,695 23,772
---------- -------- --------
Net income $ 735,961 $338,747 $246,951
========== ======== ========
Net income allocated to Wells Real Estate Fund VI $ 258,122 $134,875 $108,199
========== ======== ========
Net income allocated to Wells Real Estate Fund VII $ 251,676 $131,609 $105,848
========== ======== ========
Net income allocated to Wells Real Estate Fund VIII $ 226,163 $ 72,263 $ 32,904
========== ======== ========
</TABLE>
F-30
<PAGE>
FUND VI, VII, AND VIII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FOR THE PERIOD FROM INCEPTION (APRIL 17, 1995) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
WELLS REAL Wells Real Wells Real Total
ESTATE ESTATE ESTATE PARTNERS'
Fund VI Fund VII Fund VIII Capital
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Balance, April 17, 1995 $ 0 $ 0 $ 0 $ 0
Net income 108,199 105,848 32,904 246,951
Partnership contributions 6,871,903 6,711,976 2,085,890 15,669,769
Partnership distributions (113,803) (111,331) (34,609) (259,743)
---------- ---------- ---------- -----------
Balance, December 31, 1995 6,866,299 6,706,493 2,084,185 15,656,977
Net income 134,875 131,609 72,263 338,747
Partnership contributions 0 0 2,815,965 2,815,965
Partnership distributions (209,556) (204,429) (123,033) (537,018)
Return of contributions (523,160) (521,739) 0 (1,044,899)
---------- ---------- ---------- -----------
Balance, December 31, 1996 6,268,458 6,111,934 4,849,380 17,229,772
Net income 258,122 251,676 226,163 735,961
Partnership contributions 0 0 1,055,900 1,055,900
Partnership distributions (468,498) (456,800) (408,682) (1,333,980)
---------- ---------- ---------- -----------
Balance, DECEMBER 31, 1997 $6,058,082 $5,906,810 $5,722,761 $17,687,653
========== ========== ========== ===========
</TABLE>
F-31
<PAGE>
FUND VI, VII, AND VIII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FOR THE PERIOD FROM INCEPTION (APRIL 17, 1995) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 735,961 $ 338,747 $ 246,951
----------- ----------- -----------
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 634,699 290,407 0
Changes in assets and liabilities:
Accounts receivable (76,170) 5,149 (33,000)
Prepaid expenses and other assets (21,073) (427,363) (264,378)
Accounts payable 8,312 37,480 0
Due to affiliates 3,622 1,555 0
----------- ----------- -----------
Total adjustments 549,390 (92,772) (297,378)
----------- ----------- -----------
Net cash provided by (used in) operating activities 1,285,351 245,975 (50,427)
----------- ----------- -----------
Cash flows from investing activities:
(Decrease) increase in construction payables (110,795) (607,204) 772,999
Investment in real estate (828,992) (7,381,063) (8,892,261)
----------- ----------- -----------
Net cash used in investing activities (939,787) (7,988,267) (8,119,262)
----------- ----------- -----------
Cash flows from financing activities:
Contributions received from joint venture partners 1,000,000 2,700,000 15,669,769
Return of contributions from joint venture partners 0 (1,000,000) 0
Distributions to joint venture partners (1,216,246) (375,952) (152,153)
----------- ----------- -----------
Net cash (used in) provided by financing activities (216,246) 1,324,048 15,517,616
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 129,318 (6,418,244) 7,347,927
Cash and cash equivalents, beginning of period 929,683 7,347,927 0
----------- ----------- -----------
Cash and cash equivalents, end of period $ 1,059,001 $ 929,683 $ 7,347,927
=========== =========== ===========
Supplemental disclosure of noncash items:
Deferred project costs contributed by partners, net $ 55,900 $ 71,066 $ 669,769
=========== =========== ===========
</TABLE>
FUND VII AND VIII ASSOCIATES
On February 10, 1995, the Partnership entered into a joint venture agreement
with Fund VIII. The joint venture, Fund VII and VIII Associates, was formed
to acquire, develop, operate, and sell real properties. During 1995, the
joint venture purchased a five-acre parcel of land in Gainesville, Alachua
County, Florida. A 62,975-square-foot office building was constructed and
began operations during 1995. In April 1996, the Partnership contributed
1.01 acres of land located in Stockbridge, Georgia, and improvements thereon
to the joint venture for the development of a 12,000-square-foot, single-
story combination retail/office building. The building was completed and
commenced operations in 1996.
F-32
<PAGE>
The following are the financial statements for Fund VII and VIII Associates:
FUND VII AND VIII ASSOCIATES
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Assets
1997 1996
---------- ----------
<S> <C> <C>
Real estate assets, at cost:
Land $ 822,320 $ 822,320
Building and improvements, less accumulated depreciation of $467,401 in
1997 and $235,083 in 1996 5,020,941 5,250,058
Personal property, less accumulated depreciation of $62,059 in 1997 and
$32,270 in 1996 235,824 265,613
Construction in progress 9,002 6,186
---------- ----------
Total real estate assets 6,088,087 6,344,177
Cash and cash equivalents 238,222 248,432
Accounts receivable 14,398 0
Prepaid expenses and other assets 77,894 71,963
---------- ----------
Total assets $6,418,601 $6,664,572
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 26,953 $ 51,293
Due to affiliates 844 0
Partnership distributions payable 140,964 106,136
---------- ----------
Total liabilities 168,761 157,429
---------- ----------
Partners' capital:
Wells Real Estate Fund VII 2,376,818 2,474,474
Wells Real Estate Fund VIII 3,873,022 4,032,669
---------- ----------
Total partners' capital 6,249,840 6,507,143
---------- ----------
Total liabilities and partners' capital $6,418,601 $6,664,572
========== ==========
</TABLE>
F-33
<PAGE>
FUND VII AND VIII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FOR THE PERIOD FROM INCEPTION (FEBRUARY 10, 1995) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Revenues:
Rental income $637,692 $583,264 $15,995
Other income 180 320 0
-------- -------- -------
637,872 583,584 15,995
-------- -------- -------
Expenses:
Depreciation 262,106 249,262 18,091
Management and leasing fees 57,360 57,590 960
Lease acquisition costs 32,727 31,060 0
Legal and accounting 9,973 23,554 0
Property administration 24,830 17,202 0
Computer costs 107 2,073 0
Operating costs, net of reimbursements (76,060) (14,588) 2,770
-------- -------- -------
311,043 366,153 21,821
-------- -------- -------
Net income (loss) $326,829 $217,431 $(5,826)
======== ======== =======
Net income (loss) allocated to Wells Real Estate Fund VII $124,045 $ 70,767 $(1,299)
======== ======== =======
Net income (loss) allocated to Wells Real Estate Fund VIII $202,784 $146,664 $(4,527)
======== ======== =======
</TABLE>
F-34
<PAGE>
FUND VII AND VIII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FOR THE PERIOD FROM INCEPTION (FEBRUARY 10, 1995) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
WELLS REAL Wells Real Total
ESTATE ESTATE PARTNERS'
Fund VII Fund VIII Capital
---------- ---------- ----------
<S> <C> <C> <C>
Balance, February 10, 1995 $ 0 $ 0 $ 0
Net loss (1,299) (4,527) (5,826)
Partnership contributions 1,066,354 3,716,236 4,782,590
Partnership distributions (2,735) (9,530) (12,265)
---------- ---------- ----------
Balance, December 31, 1995 1,062,320 3,702,179 4,764,499
Net income 70,767 146,664 217,431
Partnership contributions 1,487,301 458,393 1,945,694
Partnership distributions (145,914) (274,567) (420,481)
---------- ---------- ----------
Balance, December 31, 1996 2,474,474 4,032,669 6,507,143
Net income 124,045 202,784 326,829
Partnership distributions (221,701) (362,431) (584,132)
---------- ---------- ----------
Balance, DECEMBER 31, 1997 $2,376,818 $3,873,022 $6,249,840
========== ========== ==========
</TABLE>
F-35
<PAGE>
FUND VII AND VIII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FOR THE PERIOD FROM INCEPTION (FEBRUARY 10, 1995) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 326,829 $ 217,431 $ (5,826)
--------- ---------- -----------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 262,106 249,262 18,091
Changes in assets and liabilities:
Accounts receivable (14,398) 15,995 (15,995)
Prepaid expenses and other assets (5,931) (71,963) 0
Accounts payable (24,340) 51,293 0
Due to affiliates 844 (960) 960
--------- ---------- -----------
Total adjustments 218,281 243,627 3,056
--------- ---------- -----------
Net cash provided by (used in) operating activities 545,110 461,058 (2,770)
--------- ---------- -----------
Cash flows from investing activities:
(Decrease) increase in construction payables 0 (285,787) 285,787
Investment in real estate (6,016) (136,623) (4,868,154)
Contributions from partners 0 536,394 4,585,137
--------- ---------- -----------
Net cash (used in) provided by investing activities (6,016) 113,984 2,770
--------- ---------- -----------
Cash flows from financing activities:
Distributions to joint venture partners (549,304) (326,610) 0
--------- ---------- -----------
Net (decrease) increase in cash and cash equivalents (10,210) 248,432 0
Cash and cash equivalents, beginning of year 248,432 0 0
--------- ---------- -----------
Cash and cash equivalents, end of year $ 238,222 $ 248,432 $ 0
========= ========== ===========
Supplemental disclosure of noncash activities:
Deferred project costs applied by partners, net of deferred
project costs transferred $ 0 $ 37,387 $ 197,453
========= ========== ===========
Contribution of real estate assets $ 0 $1,371,913 $ 0
========= ========== ===========
</TABLE>
F-36
<PAGE>
5. INCOME TAX BASIS NET INCOME AND PARTNERS' CAPITAL
The Partnership's income tax basis net income for the years ended December
31, 1997, 1996, and period from inception (April 5, 1994) to December 31,
1995 is calculated as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- -------- --------
<S> <C> <C> <C>
Financial statement net income $ 733,149 $452,776 $804,043
Increase (decrease) in net income resulting from:
Depreciation expense for financial reporting purposes in
excess of amounts for income tax purposes 338,997 228,415 26,135
Joint venture change in ownership 0 0 7,814
Expenses deductible when paid for income tax purposes,
accrued for financial reporting purposes 4,018 5,143 12,240
Rental income accrued for financial reporting purposes in
excess of amounts for income tax purposes (67,796) (28,891) (37,830)
---------- -------- --------
Income tax basis net income $1,008,368 $657,443 $812,402
========== ======== ========
</TABLE>
The Partnership's income tax basis partners' capital at December 31, 1997,
1996, and 1995 is computed as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
Financial statement partners' capital $19,262,165 $20,016,024 $20,460,712
Increase (decrease) in partners' capital resulting from:
Depreciation expense for financial reporting purposes in
excess of amounts for income tax purposes 593,547 254,550 26,135
Joint venture change in ownership 7,814 7,814 7,814
Capitalization of syndication cost for income tax
purposes, which are accounted for as cost of capital
for financial reporting purposes 3,595,776 3,595,776 3,595,776
Accumulated rental income accrued for financial
reporting purposes in excess of amounts for income tax
purposes (141,515) (73,719) (46,368)
Accumulated expenses deductible when paid for income tax
purposes, accrued for financial reporting purposes 20,204 16,186 12,582
Partnership's distributions payable 404,129 296,706 189,753
----------- ----------- -----------
Income tax basis partners' capital $23,742,120 $24,113,337 $24,246,404
=========== =========== ===========
</TABLE>
F-37
<PAGE>
6. RENTAL INCOME
The future minimum rental income due from the Partnership's respective
ownership interests in joint ventures under noncancelable operating leases at
December 31, 1997 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31:
1998 $ 2,102,376
1999 2,087,529
2000 1,990,890
2001 1,868,729
2002 1,513,280
Thereafter 7,302,300
-----------
$16,865,104
===========
</TABLE>
Three significant tenants contributed approximately 30%, 18%, and 13% of
rental income, which is included in equity of income of joint ventures, for
the year ended December 31, 1997. In addition, three significant tenants
will contribute approximately 22%, 20%, and 19% of future minimum rental
income.
The future minimum rental income due Fund I, II, II-OW, VI, and VII
Associates--Cherokee under noncancelable operating leases at December 31,
1997 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31:
1998 $ 833,808
1999 788,101
2000 725,527
2001 675,986
2002 653,869
Thereafter 5,061,423
----------
$8,738,714
==========
</TABLE>
One significant tenant contributed approximately 67% of rental income for the
year ended December 31, 1997. In addition, one significant tenant will
contribute approximately 89% of future minimum rental income.
F-38
<PAGE>
The future minimum rental income due Fund II, III, VI, and VII Associates
under noncancelable operating leases at December 31, 1997 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31:
1998 $ 811,017
1999 800,552
2000 655,056
2001 589,985
2002 335,261
Thereafter 385,280
----------
$3,577,151
==========
</TABLE>
Two significant tenants contributed approximately 18% and 15% of rental
income for the year ended December 31, 1997. In addition, two significant
tenants will contribute approximately 28% and 14% of future minimum rental
income.
The future minimum rental income due Fund V, VI, and VII Associates under
noncancelable operating leases at December 31, 1997 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31:
1998 $ 980,000
1999 980,000
2000 980,000
2001 980,000
2002 990,000
Thereafter 3,960,000
----------
$8,870,000
==========
</TABLE>
One significant tenant contributed 100% of rental income for the year ended
December 31, 1997 and will contribute 100% of future minimum rental income.
The future minimum rental income due Fund VI and VII Associates under
noncancelable operating leases at December 31, 1997 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31:
1998 $ 517,319
1999 505,102
2000 462,620
2001 383,707
2002 286,043
Thereafter 555,183
----------
$2,709,974
==========
</TABLE>
Two significant tenants contributed approximately 10% and 22% of rental
income for the year ended December 31, 1997. In addition, two significant
tenants will contribute approximately 17% and 33% of future minimum rental
income.
F-39
<PAGE>
The future minimum rental income due Fund VI, VII, and VIII Associates under
noncancelable operating leases at December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1998 $ 2,179,779
1999 2,183,002
2000 2,195,447
2001 2,082,905
2002 1,927,031
Thereafter 11,759,263
-----------
$22,327,427
===========
</TABLE>
Two significant tenants contributed 55% and 26% of rental income for the year
ended December 31, 1997. In addition, two significant tenants will
contribute approximately 43% and 46% of future minimum rental income.
The future minimum rental income due Fund VII and VIII Associates under
noncancelable operating leases at December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1998 $ 623,623
1999 628,138
2000 632,652
2001 632,653
2002 637,168
Thereafter 1,935,567
----------
$5,089,801
==========
</TABLE>
Two significant tenants contributed approximately 83% and 17% of rental
income for the year ended December 31, 1997. In addition, two significant
tenants will contribute approximately 82% and 18% of future minimum rental
income.
F-40
<PAGE>
7. QUARTERLY RESULTS (UNAUDITED)
Presented below is a summary of the unaudited quarterly financial information
for the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 Quarters Ended
--------------------------------------------------
March 31 June 30 September 30 December 31
--------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues $ 191,776 $ 210,706 $ 213,191 $ 200,564
Net income 165,215 185,256 199,810 182,868
Net income allocated to Class A limited partners 363,044 393,903 437,946 421,072
Net loss allocated to Class B limited partners (197,829) (208,647) (238,136) (238,204)
Net income per weighted average Class A limited partner
unit outstanding (a) $ 0.20 $ 0.21 $ 0.23 $ 0.22
Net loss per weighted average Class B limited partner unit
outstanding (0.34) (0.38) (0.43) (0.53)
Cash distribution per weighted average Class A limited
partner unit outstanding 0.19 0.19 0.20 0.21
</TABLE>
(a) The totals of the four quarterly amounts for net income per weighted
average Class A limited partner unit outstanding for the year ended
December 31, 1997 do not equal the totals for the year. This
difference results from the use of a weighted average to compute the
number of units outstanding for each quarter and the year.
<TABLE>
<CAPTION>
1996 Quarters Ended
-------------------------------------------------
March 31 June 30 September 30 December 31
--------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues $157,876 $ 64,932 $ 132,231 $ 188,252
Net income 133,370 29,133 116,876 173,397
Net income allocated to Class A limited partners 220,170 227,333 261,135 353,967
Net loss allocated to Class B limited partners (86,800) (198,200) (144,259) (180,570)
Net income per weighted average Class A limited partner unit
outstanding $ 0.13 $ 0.15 $ 0.14 $ 0.20
Net loss per weighted average Class B limited partner unit
outstanding (0.12) (0.32) (0.27) (0.27)
Cash distribution per weighted average Class A limited
partner unit outstanding 0.11 0.10 0.12 0.17
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
Management, after consultation with legal counsel, is not aware of any
significant litigation or claims against the Partnership or the Company. In
the normal course of business, the Partnership or the Company may become
subject to such litigation or claims.
F-41
<PAGE>
WELLS REAL ESTATE FUND VII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
<TABLE>
<CAPTION>
INITIAL COST GROSS AMOUNT AT WHICH CARRIED AT DECEMBER 31, 1997
------------------------ COSTS OF --------------------------------------------------
BUILDINGS AND CAPITALIZED BUILDINGS AND CONSTRUCTION
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS IN PROGRESS TOTAL
- ---------------------------------------- --------- -------------- ------------ ------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
MARATHON BUILDING (a) None $ 314,591 $8,367,904 $0 $ 314,591 $ 8,367,904 $ 0 $ 8,682,495
STOCKBRIDGE VILLAGE III (b) None 1,015,674 0 1,977,793 1,062,720 1,927,980 2,767 2,993,467
STOCKBRIDGE VILLAGE I
EXPANSION (c) None 712,234 0 2,340,101 749,727 2,270,706 31,902 3,052,335
880 PROPERTY (d) None 1,325,242 0 5,592,612 1,325,242 5,533,048 59,564 6,917,854
BELLSOUTH PROPERTY (e) None 1,244,256 0 7,353,027 1,301,890 7,295,393 0 8,597,283
TANGLEWOOD COMMONS (f) None 3,020,040 0 5,611,959 3,159,928 5,377,356 94,715 8,631,999
CHEROKEE COMMONS (g) None 1,142,663 6,462,837 2,827,237 1,219,704 9,210,142 2,891 10,432,737
HANNOVER PROPERTY (h) None 512,001 869,037 137,466 534,262 981,238 3,004 1,518,504
GAINESVILLE PROPERTY (i) None 222,627 0 4,876,416 288,058 4,804,987 5,998 5,099,043
---------- ----------- ----------- ---------- ---------- ---------- -----------
Total $9,509,328 $15,699,778 $30,716,611 $9,956,122 $45,768,754 $ 200,841 $55,925,717
========== =========== =========== ========== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
LIFE OF WHICH
ACCUMULATED DATE OF DATE DEPRECIATION
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED (j)
- ---------------------------- ------------ ------------ ---------- ----------------
<S> <C> <C> <C> <C>
MARATHON BUILDING (a) $1,005,614 1991 09/16/94 20 to 25 years
STOCKBRIDGE VILLAGE III (b) 199,541 1995 04/07/94 20 to 25 years
STOCKBRIDGE VILLAGE I
EXPANSION (c) 164,770 1996 06/07/95 20 to 25 years
880 PROPERTY (d) 507,772 1996 01/31/90 20 to 25 years
BELLSOUTH PROPERTY (e) 733,951 1996 04/25/95 20 to 25 years
TANGLEWOOD COMMONS (f) 191,155 1997 05/31/95 20 to 25 years
CHEROKEE COMMONS (g) 2,273,149 1986 06/09/87 20 to 25 years
HANNOVER PROPERTY (h) 75,316 1996 01/16/95 20 to 25 years
GAINESVILLE PROPERTY (i) 451,144 1995 01/20/95 20 to 25 years
----------
$5,605,412
==========
</TABLE>
- -------------
(a) The Marathon Building is a three-story, 75,000-square-foot building located
in Appleton, Wisconsin. It is owned by Fund V, VI, and VII Associates. The
Partnership owned a 42% interest in Fund V, VI, and VII Associates as of
December 31, 1997.
(b) Stockbridge Village III consists of two retail buildings located in
Stockbridge, Georgia. It is owned by Fund VI and VII Associates. The
Partnership owned a 57% interest in Fund VI and VII Associates as of
December 31, 1997.
(c) Stockbridge Village I Expansion is a 3.38-acre tract of real property under
development located in Clayton County, Georgia. It is owned by Fund VI and
VII Associates. The Partnership owned a 57% interest in Fund VI and VII
Associates as of December 31, 1997.
(d) The 880 Property is a 4.3-acre tract of real property under development in
Roswell, Georgia. It is owned by Fund II, III, VI, and VII Associates. The
Partnership owned a 49% interest in Fund II, III, VI, and VII Associates as
of December 31, 1997.
(e) The BellSouth Property is a four story, 92,964 square foot building located
in Jacksonville, Florida. It is owned by Fund VI, VII, and VIII Associates.
The Partnership owned a 34% interest in Fund VI, VII, and VIII Associates as
of December 31, 1997.
(f) Tanglewood Commons is a 14.68-acre tract of real property under construction
in Clemmons, Forsyth County, North Carolina. It is owned by Fund VI, VII,
and VIII Associates. The Partnership owned a 34% interest in Fund VI, VII,
and VIII Associates as of December 31, 1997.
(g) Cherokee Commons is a retail shopping center located in Cherokee County,
Georgia. It is owned by Fund I, II, II-OW, VI, and VII Associates--Cherokee.
The Partnership owned an 11% interest in Fund I, II, II-OW, VI, and VII
Associates--Cherokee at December 31, 1997.
(h) The Hannover Property consists of a one-story building located in
Stockbridge, Georgia. It is owned by Fund VII and VIII Associates. The
Partnership owned a 38% interest in Fund VII and VIII Associates as of
December 31, 1997.
(i) The Gainesville Property consists of a two-story building located in
Gainesville, Florida. It is owned by Fund VII and VIII Associates. The
Partnership owned a 38% interest in Fund VII and VIII Associates as of
December 31, 1997.
(j) Depreciation lives used for buildings were 40 years through September 30,
1995, changed to 25 years thereafter. Depreciation lives used for land
improvements are 20 years.
S-1
<PAGE>
WELLS REAL ESTATE FUND VII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
<TABLE>
<CAPTION>
ACCUMULATED
COST DEPRECIATION
----------- ------------
<S> <C> <C>
BALANCE AT DECEMBER 31, 1995 $43,197,196 $ 1,768,865
1996 additions 10,719,375 1,638,893
1996 deductions 0 0
----------- ----------
BALANCE AT DECEMBER 31, 1996 53,916,571 3,407,758
1997 additions 2,056,986 2,212,812
1997 deductions (47,840) (15,208)
----------- ----------
BALANCE AT DECEMBER 31, 1997 $55,925,717 $5,605,412
=========== ==========
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
-------------
(Wells Real Estate Fund VII, L.P.)
The following documents are filed as exhibits to this report. Those exhibits
previously filed and incorporated herein by reference are identified below by an
asterisk. For each such asterisked exhibit, there is shown below the
description of the previous filing. Exhibits which are not required for this
report are omitted.
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER Description of Document PAGE NUMBER
- ------- ----------------------- -----------
<S> <C> <C>
*3(a) Certificate of Limited Partnership of Wells Real Estate N/A
Fund VII, L.P. (Exhibit 3(d) to Form S-11 Registration
Statement of Wells Real Estate Fund VI, L.P. and Wells
Real Estate Fund VII, L.P., File No. 33-55908)
*4(a) Agreement of Limited Partnership of Wells Real Estate N/A
Fund VII, L.P. dated April 5, 1994 (Exhibit to Form 10-K
of Wells Real Estate Fund VII, L.P. for the fiscal year
ended December 31, 1994, File No. 0-25606)
*4(b) First Amendment to Agreement of Limited Partnership of N/A
Wells Real Estate Fund VII, L.P. dated April 5, 1994
(Exhibit to Form 10-K of Wells Real Estate Fund VII,
L.P. for the fiscal year ended December 31, 1994, File
No. 0-25606)
*10(a) Management Agreement dated April 5, 1994, between Wells N/A
Real Estate Fund VII, L.P. and Wells Management Company,
Inc. (Exhibit to Form 10-K of Wells Real Estate Fund
VII, L.P. for the fiscal year ended December 31, 1994,
File No. 0-25606)
*10(b) Leasing and Tenant Coordinating Agreement dated April 5, N/A
1994, between Wells Real Estate Fund VII, L.P. and Wells
Management Company, Inc. (Exhibit to Form 10-K of Wells
Real Estate Fund VII, L.P. for the fiscal year ended
December 31, 1994, File No. 0-25606)
*10(c) Custodial Agency Agreement dated April 1, 1994, between N/A
Wells Real Estate Fund VII, L.P. and NationsBank of
Georgia, N.A. (Exhibit 10(f) to Post-Effective Amendment
No. 5 to Form S-11 Registration Statement of Wells Real
Estate Fund VI, L.P. and Wells Real Estate Fund VII,
L.P., File No. 33-55908)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER Description of Document PAGE NUMBER
- ------- ----------------------- -----------
<S> <C> <C>
*10(d) Joint Venture Agreement of Fund V, Fund VI and Fund VII N/A
Associates dated September 8, 1994, among Wells Real
Estate Fund V, L.P., Wells Real Estate Fund VI, L.P. and
Wells Real Estate Fund VII, L.P. (Exhibit 10(j) to
Post-Effective Amendment No. 6 to Form S-11 Registration
Statement of Wells Real Estate Fund VI, L.P. and Wells
Real Estate Fund VII, L.P., File No. 33-55908)
*10(e) Agreement for the Purchase and Sale of Property dated N/A
August 24, 1994, between Interglobia Inc. - Appleton and
NationsBank of Georgia, N.A., as Agent for Fund V and
Fund VI Associates (Exhibit 10(k) to Post-Effective
Amendment No. 6 to Form S-11 Registration Statement of
Wells Real Estate Fund VI, L.P. and Wells Real Estate
Fund VII, L.P., File No. 33-55908)
*10(f) Assignment and Assumption of Agreement for the Purchase N/A
and Sale of Real Property dated
September 9, 1994, between NationsBank of Georgia, N.A.,
as Agent for Fund V and
Fund VI Associates, and NationsBank of Georgia, N.A., as
Agent for Fund V, Fund VI
and Fund VII Associates (Exhibit 10(l) to Post-Effective
Amendment No. 6 to Form S-11 Registration Statement of
Wells Real Estate Fund VI, L.P. and Wells Real Estate
Fund VII, L.P., File No. 33-55908)
*10(g) Building Lease dated February 14, 1991, between N/A
Interglobia Inc. - Appleton and Marathon
Engineers/Architects/Planners, Inc. (included as part of
Exhibit D to Exhibit 10(k) to Post-Effective Amendment
No. 6 to Form S-11 Registration Statement of Wells Real
Estate Fund VI, L.P. and Wells Real Estate Fund VII,
L.P., File No. 33-55908)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER Description of Document PAGE NUMBER
- ------- ----------------------- -----------
<S> <C> <C>
*10(h) Limited Guaranty of Lease dated January 1, 1993, by J. N/A
P. Finance OY and Fluor Daniel, Inc. for the benefit of
Interglobia Inc. - Appleton (included as Exhibit B to
Assignment, Assumption and Amendment of Lease referred
to as Exhibit 10(i) below, which is included as part of
Exhibit D to Exhibit 10(k) to Post-Effective Amendment
No. 6 to Form S-11 Registration Statement of Wells Real
Estate Fund VI, L.P. and Wells Real Estate Fund VII,
L.P., File No. 33-55908)
*10(i) Assignment, Assumption and Amendment of Lease dated N/A
January 1, 1993, among Interglobia Inc. - Appleton,
Marathon Engineers/Architects/Planners, Inc. and Jaakko
Poyry Fluor Daniel (included as part of Exhibit D to
Exhibit 10(k) to Post-Effective Amendment No. 6 to Form
S-11 Registration Statement of Wells Real Estate Fund
VI, L.P. and Wells Real Estate Fund VII, L.P., File No.
33-55908)
*10(j) Second Amendment to Building lease dated August 15, N/A
1994, between Interglobia Inc. - Appleton and Jaakko
Poyry Fluor Daniel (successor-in-interest to Marathon
Engineers/Architects/Planners, Inc.) (included as
Exhibit D-1 to Exhibit 10(k) to Post-Effective Amendment
No. 6 to Form S-11 Registration Statement of Wells Real
Estate Fund VI, L.P. and Wells Real Estate Fund VII,
L.P., File No. 33-55908)
*10(k) Assignment and Assumption of Lease dated September 6, N/A
1994, between Interglobia Inc. - Appleton and
NationsBank of Georgia, N.A., as Agent for Fund V, Fund
VI and Fund VII Associates (Exhibit 10(q) to
Post-Effective Amendment No. 6 to Form S-11 Registration
Statement of Wells Real Estate Fund VI, L.P. and Wells
Real Estate Fund VII, L.P., File No. 33-55908)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER Description of Document PAGE NUMBER
- ------- ----------------------- -----------
<S> <C> <C>
*10(l) Agreement for the Purchase and Sale of Real Property N/A
dated April 7, 1994, between 138 Industrial Ltd. and
NationsBank of Georgia, N.A., as Agent for Wells Real
Estate Fund VI, L.P. (Exhibit 10(s) to Form 10-K of
Wells Real Estate Fund VI, L.P. for the fiscal year
ended December 31, 1994, File No. 0-23656)
*10(m) Land and Building Lease Agreement dated August 22, 1994, N/A
between KRR Stockbridge, Inc. d/b/a Kenny Rogers
Roasters and NationsBank of Georgia, N.A., as Agent for
Wells Real Estate Fund VI, L.P. (Exhibit 10(t) to Form
10-K of Wells Real Estate Fund VI, L.P. for the fiscal
year ended December 31, 1994, File No. 0-23656)
*10(n) Joint Venture Agreement of Fund VI and Fund VII N/A
Associates dated December 9, 1994 (Exhibit 10(u) to Form
10-K of Wells Real Estate Fund VI, L.P. for the fiscal
year ended December 31, 1994, File No. 0-23656)
*10(o) Building Lease Agreement dated December 19, 1994, N/A
between Damon's of Stockbridge, LLC d/b/a Damon's
Clubhouse and NationsBank of Georgia, N.A., as Agent for
Fund VI and Fund VII Associates, (Exhibit 10(v) to Form
10-K of Wells Real Estate Fund VI, L.P. for the fiscal
year ended December 31, 1994, File No. 0-23656)
*10(p) Joint Venture Agreement of Fund II, III, VI and VII N/A
Associates dated January 10, 1995 (Exhibit 10(w) to Form
10-K of Wells Real Estate Fund VI, L.P. for the fiscal
year ended December 31, 1995, File No. 0-23606)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER Description of Document PAGE NUMBER
- ------- ----------------------- -----------
<S> <C> <C>
*10(q) Fund VII and Fund VIII Associates Joint Venture N/A
Agreement dated February 10, 1995 (Exhibit 10(g) to
Post-Effective Amendment No. 1 to Form S-11 Registration
Statement of Wells Real Estate Fund VIII, L.P. and Wells
Real Estate Fund IX, L.P., File No. 33-83852)
*10(r) Agreement for the Purchase and Sale of Real Property N/A
dated March 31, 1994 (Exhibit 10(h) to Post-Effective
Amendment No. 1 to Form S-11 Registration Statement of
Wells Real Estate Fund VIII, L.P. and Wells Real Estate
Fund IX, L.P., File No. 33-83852)
*10(s) Letter Agreement amending Agreement for the Purchase and N/A
Sale of Real Property dated July 27, 1994 (Exhibit 10(i)
to Post-Effective Amendment No. 1 to Form S-11
Registration Statement of Wells Real Estate Fund VIII,
L.P. and Wells Real Estate Fund IX, L.P., File No.
33-83852)
*10(t) Letter Agreement amending Agreement for the Purchase and N/A
Sale of Real Property dated October 27, 1994 (Exhibit
10(j) to Post-Effective Amendment No. 1 to Form S-11
Registration Statement of Wells Real Estate Fund VIII,
L.P. and Wells Real Estate Fund IX, L.P., File No.
33-83852)
*10(u) Letter Agreement between NationsBank of Georgia, N.A., N/A
as Agent for Wells Real Estate Fund VII, L.P., as
Landlord, and CH2M Hill, Inc., as Tenant (Exhibit 10(k)
to Post-Effective Amendment No. 1 to Form S-11
Registration Statement of Wells Real Estate Fund VIII,
L.P. and Wells Real Estate Fund IX, L.P., File No.
33-83852)
*10(v) First Amendment to Lease Agreement between NationsBank N/A
of Georgia, N.A., as Agent for Wells Real Estate Fund
VII, L.P., as Landlord, and CH2M Hill, Inc., as Tenant
(Exhibit 10(l) to Post-Effective Amendment No. 1 to Form
S-11 Registration Statement of Wells Real Estate Fund
VIII, L.P. and Wells Real Estate Fund IX, L.P., File No.
33-83852)
*10(w) Second Amendment to Lease Agreement between NationsBank N/A
of Georgia, N.A., as Agent for Wells Real Estate Fund
VII, L.P., as Landlord, and CH2M Hill, Inc, as Tenant
(Exhibit 10(m) to Post-Effective Amendment No. 1 to Form
S-11 Registration Statement of Wells Real Estate Fund
VIII, L.P. and Wells Real Estate Fund IX, L.P., File No.
33-83852)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER Description of Document PAGE NUMBER
- ------- ----------------------- -----------
<S> <C> <C>
*10(x) Development Agreement between Wells Real Estate Fund N/A
VII, L.P. and ADEVCO Corporation (Exhibit 10(n) to
Post-Effective Amendment No. 1 to Form S-11 Registration
Statement of Wells Real Estate Fund VIII, L.P. and Wells
Real Estate Fund IX, L.P., File No. 33-83852)
*10(y) Owner-Contractor Agreement between Wells Real Estate N/A
Fund VII, L.P., as Owner, and Integra Construction,
Inc., as Contractor (Exhibit 10(o) to Post-Effective
Amendment No. 1 to Form S-11 Registration Statement of
Wells Real Estate Fund VIII, L.P. and Wells Real Estate
Fund IX, L.P., File No. 33-83852)
*10(z) Architect's Agreement between Wells Real Estate Fund N/A
VII, L.P., as Owner, and Smallwood, Reynolds, Stewart,
Stewart & Associates, Inc., as Architect (Exhibit 10(p)
to Post-Effective Amendment No. 1 to Form S-11
Registration Statement of Wells Real Estate Fund VIII,
L.P. and Wells Real Estate Fund IX, L.P., File No.
33-83852)
*10(aa) Joint Venture Agreement of Fund VI, Fund VII and Fund N/A
VIII Associates dated April 17, 1995 (Exhibit 10(q) to
Post-Effective Amendment No. 3 to Form S-11 Registration
Statement of Wells Real Estate Fund VIII, L.P. and Wells
Real Estate Fund IX, L.P., File No. 33-83852)
*10(bb) Agreement for the Purchase and Sale of Real Property N/A
dated February 13, 1995, between G.L. National, Inc. and
Wells Capital, Inc. (Exhibit 10(r) to Post-Effective
Amendment No. 3 to Form S-11 Registration Statement of
Wells Real Estate Fund VIII, L.P. and Wells Real Estate
Fund IX, L.P., File No. 33-83852)
*10(cc) Agreement to Lease dated February 15, 1995, between N/A
NationsBank of Georgia, N.A., as Agent for Wells Real
Estate Fund VII, L.P., and BellSouth Advertising &
Publishing Corporation (Exhibit 10(s) to Post-Effective
Amendment No. 3 to Form S-11 Registration Statement of
Wells Real Estate Fund VIII, L.P. and Wells Real Estate
Fund IX, L.P., File No. 33-83852)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER Description of Document PAGE NUMBER
- ------- ----------------------- -----------
<S> <C> <C>
*10(dd) Development Agreement dated April 25, 1995, between Fund N/A
VI, Fund VII and Fund VIII Associates and ADEVCO
Corporation (Exhibit 10(t) to Post-Effective Amendment
No. 3 to Form S-11 Registration Statement of Wells Real
Estate Fund VIII, L.P. and Wells Real Estate Fund IX,
L.P., File No. 33-83852)
*10(ee) Owner-Contractor Agreement dated April 24, 1995, between N/A
Fund VI, Fund VII and Fund VIII Associates, as Owner,
and McDevitt Street Bovis, Inc., as Contractor (Exhibit
10(u) to Post-Effective Amendment No. 3 to Form S-11
Registration Statement of Wells Real Estate Fund VIII,
L.P. and Wells Real Estate Fund IX, L.P., File No.
33-83852)
*10(ff) Architect's Agreement dated February 15, 1995, between N/A
Wells Real Estate Fund VII, L.P., as Owner, and Mayes,
Suddereth & Etheredge, Inc., as Architect (Exhibit 10(v)
to Post-Effective Amendment No. 3 to Form S-11
Registration Statement of Wells Real Estate Fund VIII,
L.P. and Wells Real Estate Fund IX, L.P., File No.
33-83852)
*10(gg) First Amendment to Joint Venture Agreement of Fund VI N/A
and Fund VII Associates (Exhibit 10(dd) to Form 10-K of
Wells Real Estate Fund VI, L.P. for the fiscal year
ended December 31, 1995, File No. 0-23656)
*10(hh) First Amendment to Joint Venture Agreement of Fund VI, N/A
Fund VII and Fund VIII Associates dated May 30, 1995
(Exhibit 10(w) to Post-Effective Amendment No. 4 to Form
S-11 Registration Statement of Wells Real Estate Fund
VIII, L.P. and Wells Real Estate Fund IX, L.P., File No.
33-83852)
*10(ii) Real Estate Purchase Agreement dated April 13, 1995 N/A
(Exhibit 10(x) to Post-Effective Amendment No. 4 to Form
S-11 Registration Statement of Wells Real Estate Fund
VIII, L.P. and Wells Real Estate Fund IX, L.P., File No.
33-83852)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER Description of Document PAGE NUMBER
- ------- ----------------------- -----------
<S> <C> <C>
*10(jj) Lease Agreement dated February 27, 1995, between N/A
NationsBank of Georgia, N.A., as Agent for Wells Real
Estate Fund VII, L.P., and Harris Teeter, Inc. (Exhibit
10(y) to Post-Effective Amendment No. 4 to Form S-11
Registration Statement of Wells Real Estate Fund VIII,
L.P. and Wells Real Estate Fund IX, L.P., File No.
33-83852)
*10(kk) Development Agreement dated May 31, 1995, between Fund N/A
VI, Fund VII and Fund VIII Associates and Norcom
Development, Inc. (Exhibit 10(z) to Post- Effective
Amendment No. 4 to Form S-11 Registration Statement of
Wells Real Estate Fund VIII, L.P. and Wells Real Estate
Fund IX, L.P., File No. 33-83852)
*10(ll) Joint Venture Agreement of Fund I, II, II-OW, VI and VII
Associates dated August 1, 1995 (Exhibit 10(ii) to Form N/A
10-K of Wells Real Estate Fund VI, L.P. for the fiscal
year ended December 31, 1995, File No. 0-23656)
*10(mm) Lease Modification Agreement No. 3 with The Kroger Co.
dated December 31, 1993 (Exhibit 10(k) to Form 10-K of N/A
Wells Real Estate Fund I for the fiscal year ended
December 31, 1993, File No. 0-14463)
*10(nn) First Amendment to Joint Venture Agreement of Fund VII N/A
and Fund VIII Associates dated April 1, 1996, filed
herewith
*10(oo) Lease Agreement with Moovies, Inc. dated May 20, 1996, N/A
filed herewith
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