<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark one)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1998 or
----------------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
---------- ----------
Commission file number 0-25606
-------
Wells Real Estate Fund VII, L.P.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-2022629
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
3885 Holcomb Bridge Road, Norcross, Georgia 30092
----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 449-7800
--------------
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
<PAGE>
Form 10-Q
---------
Wells Real Estate Fund VII, L.P.
--------------------------------
INDEX
-----
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets September 30, 1998
and December 31, 1997................................................... 3
Statements of Income for the Three Months and Nine Months
Ended September 30, 1998 and 1997....................................... 4
Statements of Partners' Capital for the Year Ended
December 31, 1997 and the Nine Months Ended
September 30, 1998...................................................... 5
Statements of Cash Flows for the Nine
Months Ended September 30, 1998 and 1997................................ 6
Condensed Notes to Financial Statements................................. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........................... 8
PART II. OTHER INFORMATION................................................................ 20
</TABLE>
2
<PAGE>
WELLS REAL ESTATE FUND VII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
Assets September 30, 1998 December 31, 1997
------ ------------------ -----------------
<S> <C> <C>
Investment in joint ventures (Note 2) $18,585,130 $19,039,835
Cash and cash equivalents 58,831 194,420
Due from affiliates 357,784 416,360
Deferred project costs 0 4,070
Organizational costs,
less accumulated amortization of $28,125 in
1998 and $18,750 in 1997 3,125 7,812
Prepaid expenses and other assets 2,746 3,797
----------- -----------
Total assets $19,007,616 $19,666,294
=========== ===========
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Accounts payable $ 1,655 $ 0
Partnership distributions payable 406,833 404,129
----------- -----------
Total liabilities 408,488 404,129
----------- -----------
Partners' capital:
Limited partners
Class A - 1,992,742 Units outstanding 16,843,067 16,701,193
Class B - 475,275 Units outstanding 1,756,061 2,560,972
----------- -----------
Total partners' capital 18,599,128 19,262,165
----------- -----------
Total liabilities and partners' capital $19,007,616 $19,666,294
=========== ===========
</TABLE>
See accompanying condensed notes to financial statements.
3
<PAGE>
WELLS REAL ESTATE FUND VII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-----------------------------------------------------------------------------
Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1998 Sept. 30, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Equity in income of joint
ventures (Note 2) $ 207,089 $ 206,596 $ 623,694 $ 588,738
Interest income 1,515 6,595 7,110 26,935
--------- --------- ---------- ----------
208,604 213,191 630,804 615,673
--------- --------- ---------- ----------
Expenses:
Legal and accounting 489 1,310 15,547 17,851
Partnership administration 18,334 10,509 41,630 42,854
Amortization of organization
cost costs 1,562 1,562 4,687 4,687
--------- --------- ---------- ----------
20,385 13,381 61,864 65,392
--------- --------- ---------- ----------
Net income $ 188,219 $ 199,810 $ 568,940 $ 550,281
========= ========= ========== ==========
Net income allocated to Class
A Limited Partners $ 426,322 $ 437,946 $1,290,354 $1,194,894
Net loss allocated to Class B
Limited Partners $(238,103) $(238,136) $ (721,414) $ (644,613)
Net income per Class A
Limited Partner Unit $ 0.22 $ 0.23 $ 0.66 $ 0.64
Net loss per Class B Limited
Partner Unit $ (0.50) $ (0.43) $ (1.62) $ (1.15)
Cash distribution per class A
Limited Partner Unit $ 0.20 $ 0.20 $ 0.62 $ 0.58
</TABLE>
See accompanying condensed notes to financial statements
4
<PAGE>
WELLS REAL ESTATE FUND VII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Limited Partners
-------------------------------------------------
Class A Class B Total
------------------------ ----------------------- General Partners'
Units Amounts Units Amounts Partners Capital
----- ------- ----- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1996 1,826,830 $15,698,900 591,187 $4,317,124 $0 $20,016,024
Net income (loss) 0 1,615,965 0 (882,816) 0 733,149
Partnership distributions 0 (1,487,008) 0 0 0 (1,487,008)
Class B conversion elections 144,569 873,336 (144,569) (873,336) 0 0
--------- ----------- -------- ---------- -- -----------
BALANCE,
DECEMBER 31, 1997 1,971,399 $16,701,193 446,618 $2,560,972 $0 $19,262,165
Net income (loss) 0 1,290,354 0 (721,414) 0 568,940
Partnership distributions 0 (1,231,977) 0 0 0 (1,231,977)
Class B conversion elections 21,343 83,497 (21,343) (83,497) 0 0
--------- ----------- -------- ---------- -- -----------
BALANCE,
SEPTEMBER 30, 1998 1,992,742 $16,843,067 475,275 $1,756,061 $0 $18,599,128
========= =========== ======== ========== == ===========
</TABLE>
See accompanying condensed notes to financial statements.
5
<PAGE>
WELLS REAL ESTATE FUND VII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------------------
Sept. 30, 1998 Sept. 30, 1997
---------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 568,940 $ 550,281
----------- -----------
Adjustments to reconcile net income to net cash
used in operating activities:
Equity in income of joint ventures (623,694) (588,738)
Amortization of organization costs 4,687 4,687
Changes in assets and liabilities:
Prepaids and other assets 1,051 2,000
Due to affiliates 0 0
Accounts payable 1,655 95
----------- -----------
Total adjustments (616,302) (581,956)
----------- -----------
Net cash used in operating activities (47,361) (31,675)
----------- -----------
Cash flow from investing activities:
Investment in joint ventures (158,564) (30,600)
Distributions received from joint ventures 1,299,610 1,029,123
----------- -----------
Net cash provided by
investing activities 1,141,046 998,523
Cash flow from financing activities:
Partnership distributions paid (1,229,274) (1,006,303)
----------- -----------
Net decrease in cash and cash equivalents (135,589) (39,455)
Cash and cash equivalents, beginning of year 194,420 366,301
----------- -----------
Cash and cash equivalents, end of period $ 58,831 $ 326,846
=========== ===========
Supplemental disclosure of noncash investing
activities:
Deferred project costs applied to real estate
and joint venture property $ 4,070 $ 1,381
=========== ===========
</TABLE>
See accompanying condensed notes to financial statements.
6
<PAGE>
WELLS REAL ESTATE FUND VII, L.P.
(A Georgia Public Limited Partnership)
Condensed Notes to Financial Statements
September 30, 1998
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) General
------------
Wells Real Estate Fund VII, L.P. (the "Partnership") is a Georgia public
limited partnership, having Leo F. Wells, III and Wells Partners, L.P., a
Georgia limited partnership, as general partners. The Partnership was
formed on December 1, 1992, for the purpose of acquiring, developing,
owning, operating, improving, leasing, and otherwise managing for
investment purposes income-producing commercial properties.
On April 6, 1994, the Partnership commenced an offering of up to
$25,000,000 of Class A or Class B limited partnership units ($10.00 per
unit) pursuant to a Registration Statement on Form S-11 filed under the
Securities Act of 1933. The Partnership commenced active operations when
it received and accepted subscriptions for a minimum of 125,000 units on
April 26, 1994. The Partnership terminated its offering on January 5,
1995, and received gross proceeds of $24,180,174 representing subscriptions
from 1910 Limited Partners.
The Partnership owns interests in properties through ownership in the
following joint ventures: (i) Fund V, Fund VI, Fund VII Associates, a
joint venture between the Partnership, Wells Real Estate Fund V, L.P., and
Wells Real Estate Fund VI, L.P. ("Fund V-VI-VII Joint Venture"); (ii) Fund
VI and Fund VII Associates a joint venture between the Partnership and
Wells Real Estate Fund VI L.P. ("Fund VI-Fund VII Joint Venture"); (iii)
Fund II, III, VI and VII Associates, a joint venture between the
Partnership, Wells Fund II-III Joint Venture, Wells Real Estate Fund VI,
L.P., and Wells Real Estate Fund VII, L.P. (the "Fund II-III-VI-VII Joint
Venture"); (iv) Fund VII and Fund VIII Associates, a joint venture between
the Partnership and Wells Real Estate Fund VIII, L.P. ("Fund VII-Fund VIII
Joint Venture"); (v) Fund VI, Fund VII and Fund VIII Associates, a joint
venture between the Partnership, Wells Real Estate Fund VI, L.P., and Wells
Real Estate Fund VIII, L.P. (the "Fund VI-VII-VIII Joint Venture"); and
(vi) Fund I, II, II-OW, VI, VII Associates, a joint venture between the
Partnership, Wells Real Estate Fund I, the Fund II and Fund II-OW Joint
Venture and Wells Real Estate Fund VI, L.P. (the "Fund I, II, II-OW, VI,
VII Joint Venture").
As of September 30, 1998, the Partnership owned interests in the following
properties through its ownership of the foregoing joint ventures: (i) a
three-story office building located in Appleton, Wisconsin (the "Marathon
Building"); (ii) two retail buildings located in Stockbridge, Georgia
("Stockbridge Village III"), and a retail shopping center
7
<PAGE>
expansion in Stockbridge, Georgia ("Stockbridge Village I Expansion");
(iii) an office/retail center located in Roswell, Georgia ("880 Holcomb
Bridge Road"); (iv) a retail center located in Stockbridge, Georgia ("the
Hannover Center"); (v) a four-story office building located in
Jacksonville, Florida ("BellSouth"); (vi) an office building located in
Gainesville, Florida ("CH2M Hill"); (vii) a retail center in Winston-Salem,
North Carolina ("Tanglewood Commons"); and (viii) a retail center located
in Cherokee County, Georgia ("Cherokee Commons").
(b) Basis of Presentation
---------------------------
The consolidated financial statements of Wells Real Estate Fund VII, L.P.
(the "Partnership") have been prepared in accordance with instructions to
Form 10-Q and do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial
statements. These quarterly statements have not been examined by
independent accountants, but in the opinion of the General Partners, the
statements for the unaudited interim periods presented include all
adjustments, which are of a normal and recurring nature, necessary to
present a fair presentation of the results for such periods. For further
information, refer to the financial statements and footnotes included in
the Partnership's Form 10-K for the year ended December 31, 1997.
(2) Investments in Joint Ventures
-----------------------------
The Partnership owns interests in nine properties through its ownership in
joint ventures of which three are office buildings and six are retail
centers. The Partnership does not have control over the operations of the
joint ventures; however, it does exercise significant influence.
Accordingly, investment in joint ventures is recorded on the equity method.
For a description of the joint ventures and properties owned by the
Partnership, please refer to the Partnership's Form 10-K for the year ended
December 31, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS.
---------------------
The following discussion and analysis should be read in conjunction with
the accompanying financial statements of the Partnership and notes thereto.
This Report contains forward-looking statements, within the meaning of
Section 27A of the Securities Act of 1933 and 21E of the Securities
Exchange Act of 1934, including discussion and analysis of the financial
condition of the Partnership, anticipated capital expenditures required to
complete certain projects, amounts of cash distributions anticipated to be
distributed to Limited Partners in the future and certain other matters.
Readers of this Report should be aware that there are various factors that
could cause actual results to differ materially from any forward-looking
statement made in this Report, which include construction costs which may
exceed estimates, construction delays, lease-up risks, inability to obtain
new tenants upon the expiration of existing leases, and the potential
8
<PAGE>
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 September 30, 1998, the developed properties owned by the Partnership
were 93.9% occupied. Gross revenues of the Partnership were $630,804 and
$615,673 for the nine months ended September 30, 1998 and September 30,
1997, respectively. The revenues increased in 1998 compared to 1997 due to
the increase in income from the joint ventures which was generated by an
occupancy increase at several properties. Expenses of the Partnership
decreased primarily due to a decrease in administrative costs, legal and
accounting fees.
Net income per Unit for Class A Limited Partners was $0.66 for the nine
months ended September 30, 1998. Net loss per Unit for Class B and
converted Class A Limited Partners was $1.54 for the nine months ended
September 30, 1998.
The Partnership made cash distributions to the Limited Partners holding
Class A Units of $.20 per Unit for the three months ended September 30,
1998 and $.20 per Unit for the three months ended September 30, 1997. No
cash distributions were made to the Limited Partners holding Class B Units
or to the General Partners. The Partnership's distributions paid and
payable through the third quarter of 1998 have been paid from net cash from
operations and from distributions received from its equity investment in
joint ventures, and the Partnership anticipates that distributions will
continue to be paid on a quarterly basis from such sources.
The Partnership's net cash used in operating activities increased from
$31,675 in 1997 to $47,361 in 1998. Net cash provided by investing
activities increased from $998,523 in 1997 to $1,141,046 in 1998, due
primarily to the increase in distributions received from the joint
ventures.
The Partnership expects to continue to meet its short-term liquidity
requirements and budget demands generally through net cash provided by
operations which the Partnership believes will continue to be adequate to
meet both operating requirements and distributions to Limited Partners. At
this time, given the nature of the joint ventures in which the Partnership
has invested, there are no known improvements and renovations to the
properties expected to be funded from cash flow from operations.
The General Partners have verified that all operational computer systems
are year 2000 compliant. This includes systems supporting accounting,
property management and investor services. Also, as part of this review,
all building control systems have been verified as compliant. The current
line of business applications are based on compliant operating systems and
database servers. All of these products are scheduled for
9
<PAGE>
additional upgrades before the year 2000. Therefore, it is not anticipated
that the year 2000 will have significant impact on operations.
Recent Accounting Pronouncements
--------------------------------
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income", requires certain transactions (e.g., unrealized
gains/losses on available for sale securities) that are not reflected in
net income to be displayed as other comprehensive income. The Statement
also requires an entity to report total comprehensive income (i.e., net
income plus other comprehensive income) for every period in which an income
statement is presented. SFAS No. 130 is effective for annual and interim
periods beginning after December 15, 1997. None of the transactions
required to be reported in other comprehensive income pertain to the
Partnership; consequently, adoption of this Statement had no impact on the
partnership's disclosures.
Effective April 3, 1998, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) 98-5, "Reporting on the
Costs of Start-Up Activities". SOP 98-5 is effective for fiscal years
beginning after December 15, 1998, and initial application is required to
be reported as a cumulative effect of change in accounting principle. This
SOP provides guidance on the financial reporting of start-up costs and
organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. Adoption of this Statement
by the Partnership in the first quarter of 1999 may result in the write-off
of certain capitalized organization costs. Adoption of this Statement is
not expected to have a material impact on the Partnership's results of
operations and financial condition.
10
<PAGE>
PROPERTY OPERATIONS
- -------------------
As of September 30, 1998, the Partnership owned an interest in the following
operational properties:
The Marathon Building/Fund V-VI-VII Joint Venture
- -------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------ -------------------------------
Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1998 Sept. 30, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $242,755 $242,754 $728,693 $725,465
-------- -------- -------- --------
Expenses:
Depreciation 87,647 87,647 262,939 262,939
Management & leasing expenses 9,890 9,889 29,670 29,781
Other operating expenses 3,044 3,174 9,785 7,937
-------- -------- -------- --------
100,581 100,710 302,394 300,657
-------- -------- -------- --------
Net income $142,174 $142,044 $426,299 $424,808
======== ======== ======== ========
Occupied % 100% 100% 100% 100%
Partnership's Ownership % in the
Fund V-VI-VII Joint Venture 41.7% 41.7% 41.7% 41.7%
Cash distribution to Partnership $ 96,832 $ 96,778 $290,404 $290,995
Net income allocated to the
Partnership $ 59,301 $ 59,246 $177,809 $177,187
</TABLE>
Rental income increased slightly for the nine months ended September 30, 1998,
compared to the same period of 1997. Operating expenses increased slightly, due
primarily to accounting and administrative fees increasing, as compared to 1997.
Cash distributions to the Partnership and net income allocated to the
Partnership remained relatively stable for the nine months ended September 30,
1998 and 1997.
11
<PAGE>
Stockbridge Village III/Fund VI-Fund VII Joint Venture
- ------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------- ----------------------------------
Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1998 Sept. 30, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $59,652 $71,127 $178,405 $211,088
------- ------- -------- --------
Expenses:
Depreciation 22,781 21,452 68,273 64,355
Management & leasing expenses 20,952 6,730 37,316 22,712
Other operating expenses 22,325 2,891 91,679 (2,467)
------- ------- -------- --------
66,058 31,073 197,268 84,600
------- ------- -------- --------
Net (loss) income $(6,406) $40,054 $(18,863) $126,488
======= ======= ======== ========
Occupied % 82% 87% 82% 87%
Partnership's Ownership % in the
Fund VI-Fund VII Joint Venture 56.6% 57.3% 56.6% 57.3%
Cash distribution to Partnership $ 9,979 $35,525 $ 30,214 $109,260
Net (loss) income allocated to the
Partnership $(3,648) $22,927 $(10,736) $ 72,394
</TABLE>
A net loss is reflected for the nine months ended September 30, 1998, as
compared to net income of $126,488 for the same period in 1997. The loss was
due to a decrease in rental income and an increase in other operating expenses
which were the result of Kenny Rogers Roasters, a restaurant, which vacated its
leased space in the first quarter of 1998. A bad debt reserve is being recorded
in other operating expenses, and the receivable due from this tenant has been
turned over to lawyers for collection. Efforts are being made to re-lease this
space.
The Partnership's ownership percentage in the Fund VI-Fund VII Joint Venture
decreased to 56.6% for 1998, as compared to 57.3% in 1997, due to additional
fundings by Wells Fund VI, which decreased the Partnership's ownership in the
Fund VI-Fund VII Joint Venture.
12
<PAGE>
Stockbridge Village I Expansion/Fund VI-Fund VII Joint Venture
- --------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------------- -------------------------------
Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1998 Sept. 30, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $73,471 $53,719 $219,153 $125,603
------- ------- -------- --------
Expenses:
Depreciation 35,003 29,297 104,657 75,425
Management & leasing expenses 10,175 7,223 29,912 15,709
Other operating expenses (529) 6,066 13,848 29,879
------- ------- -------- --------
44,649 42,586 148,417 121,013
------- ------- -------- --------
Net income $28,822 $11,133 $ 70,736 $ 4,590
======= ======= ======== ========
Occupied % 79% 73% 79% 73%
Partnership Ownership % 56.6% 57.3% 56.6% 57.3%
Cash distributed to the Partnership $35,899 $21,842 $ 95,581 $ 37,540
Net income allocated to the
Partnership $16,382 $ 6,374 $ 40,276 $ 2,629
</TABLE>
Rental income, expenses and net income increased for the nine months ended
September 30, 1998, as compared to the same period in 1997, due primarily to
lease up efforts and increased occupancy at this property. Negotiations are
being conducted to lease the remaining space.
The Partnership's ownership percentage in the Fund VI-Fund VII Joint Venture
decreased to 56.6% for 1998, as compared to 57.3% in 1997, due to additional
funding by Wells Fund VI which decreased the Partnership's ownership interest in
the Fund VI-Fund VII Joint Venture.
13
<PAGE>
880 Holcomb Bridge Road Property/Fund II, III, VI, VII Joint Venture
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------- -------------------------------
Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1998 Sept. 30, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $226,233 $181,877 $648,113 $477,974
-------- -------- -------- --------
Expenses:
Depreciation 94,128 84,509 282,161 220,621
Management & leasing expenses 20,198 26,156 79,450 69,219
Other operating expenses 27,664 48,870 64,494 92,810
-------- -------- -------- --------
141,990 159,535 426,105 382,650
-------- -------- -------- --------
Net income $ 84,243 $ 22,342 $222,008 $ 95,324
======== ======== ======== ========
Occupied % 100% 87% 100% 87%
Partnership Ownership % 49% 49% 49% 49%
Cash distributed to the Partnership $ 92,587 $ 46,418 $263,056 $149,948
Net income allocated to the
Partnership $ 41,276 $ 10,923 $109,065 $ 46,560
</TABLE>
In January 1995, the Fund II-Fund III Joint Venture contributed 4.3 acres of
land and land improvements at 880 Holcomb Bridge Road (the "880 Holcomb Bridge
Road Property") to the Fund II, III, VI, VII Joint Venture. Development has
been completed on two buildings with a total of approximately 49,500 square
feet.
As of September 30, 1998, fourteen tenants are occupying approximately 49,500
square feet of space in the retail and office building under leases of varying
lengths. Increases in revenues, expenses and net income for the quarter and
nine months ended September 30, 1998, compared to the same quarter of 1997, are
due to the property being 100% occupied as of September 30, 1998, as compared to
the same period of 1997.
14
<PAGE>
The Hannover Center/Fund VII - Fund VIII Joint Venture
- ------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------- -------------------------------
Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1998 Sept. 30, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $26,061 $26,061 $78,183 $81,318
------- ------- ------- -------
Expenses:
Depreciation 10,981 10,981 32,944 32,944
Management & leasing expenses 2,661 2,775 7,983 7,779
Other operating expenses 2,133 4,872 16,422 19,025
------- ------- ------- -------
15,775 18,628 57,349 59,748
------- ------- ------- -------
Net income $10,286 $ 7,433 $20,834 $21,570
======= ======= ======= =======
Occupied % 50% 50% 50% 50%
Partnership's Ownership % in the
Fund VII - VIII Joint Venture 36.7% 38.0% 36.7% 38.0%
Cash distribution to Partnership $ 0 $ 6,390 $ 2,413 $17,516
Net income allocated to the
Partnership $ 3,773 $ 2,822 $ 7,691 $ 8,187
</TABLE>
On April 1, 1996, Fund VII-Fund VIII Joint Venture acquired a 1.01 acre tract of
land and a 12,000 square foot combination retail/office building known as the
Hannover Retail Center (the "Hannover Center").
Moovies, Inc., a video sales and rental store, signed a nine year, eleven month
lease for 6,020 square feet and occupied the space and opened for business on
June 22, 1996. As of September 30, 1998, the remaining space at the Hannover
Center had been leased and occupancy is due to commence in October 1998.
Distributions decreased for the three months ending September 30, 1998, due
primarily to approximately $44,000 in construction being funded by operating
cash flow in 1998.
15
<PAGE>
Tanglewood Commons/Fund VI-VII-VIII Joint Venture
- -------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Mths Ended Eight Mths Ended
-------------------------------- --------------- ----------------
Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1998 Sept. 30, 1997
-------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $183,587 $172,682 $548,339 $382,265
Interest income 4,345 3,890 14,070 10,275
-------- -------- -------- --------
187,932 176,572 562,409 392,540
-------- -------- -------- --------
Expenses:
Depreciation 61,235 53,435 182,721 135,686
Management & leasing expenses 14,953 13,390 44,804 26,727
Other operating expenses 19,150 20,740 24,380 72,352
-------- -------- -------- --------
95,338 87,565 251,905 234,765
-------- -------- -------- --------
Net income $ 92,594 $ 89,007 $310,504 $157,775
======== ======== ======== ========
Occupied % 90% 78% 90% 78%
Partnership's Ownership % in the
Fund VI - Fund VII - Fund VIII
Joint Venture 33.4% 33.4% 33.4% 33.4%
Cash distribution to Partnership $ 50,990 $ 45,106 $163,797 $ 81,045
Net income allocated to the
Partnership $ 30,922 $ 30,264 $103,693 $ 53,894
</TABLE>
On May 31, 1995, the Fund VI-VII-VIII Joint Venture purchased a 14.683 acre
tract of real property located in Clemmons, Forsyth County, North Carolina.
Total cost and expenses to be incurred by the Fund VI-VII-VIII Joint Venture for
the acquisition, development, construction and completion of the shopping center
are anticipated to be approximately $8,700,000.
The Fund VI-VII-VIII Joint Venture developed a large strip shopping center
building containing approximately 67,320 gross square feet which opened on
February 26, 1997, on a 12.48 acre tract. The remaining 2.2 acre portion of
the property will remain in a vegetative or natural state.
In February 1997, Harris Teeter, Inc., a regional supermarket chain, occupied
its leased space of 46,120 square feet with an initial term of 20 years. The
annual base rent during the initial term is $488,250. In addition, Harris
Teeter has agreed to pay percentage rents equal to one percent of the amount by
which Harris Teeter's gross sales exceed $35,000,000 for any lease year.
Since this property commenced operations in February 1997, comparable income and
expense figures for the complete nine months ended September 30, 1998 and 1997
are not available. Income has increased for the three months ended September
30, 1998, as compared to the same period in 1997, due to increased occupancy at
the shopping center while expenses have increased, due primarily to increased
depreciation.
16
<PAGE>
CH2M Hill/Fund VII - Fund VIII Joint Venture
- --------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------- -------------------------------
Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1998 Sept. 30, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $143,832 $132,578 $420,850 $397,735
-------- -------- -------- --------
Expenses:
Depreciation 68,946 56,025 182,837 162,157
Management & leasing expenses 14,330 21,473 65,019 64,090
Other operating expenses 14,902 (25,759) 43,967 (60,032)
-------- -------- -------- --------
98,178 51,739 291,823 166,215
-------- -------- -------- --------
Net income $ 45,654 $ 80,839 $129,027 $231,520
======== ======== ======== ========
Occupied % 100% 94% 100% 94%
Partnership's Ownership % in the
Fund VII-VIII Joint Venture 36.7% 38.0% 36.7% 38.0%
Cash distribution to Partnership $ 42,940 $ 52,369 $116,170 $150,685
Net income allocated to the
Partnership $ 16,762 $ 30,682 $ 47,830 $ 87,871
</TABLE>
Rental income increased in 1998, as compared to 1997, due to a new tenant
occupying the remaining space in the building in late March 1998. Depreciation,
management and leasing expenses increased compared to 1997, due primarily to the
increased occupancy. Other operating expenses increased for the nine months
ended September 30, 1998, as compared to the same period of 1997, due primarily
to a decrease in CAM reimbursements, which is the result of a refund to the
tenant of property taxes overpaid in 1997 which was identified during a CAM
reconciliation process performed after year end. Income and distribution to the
Partnership have decreased primarily due to refund of taxes to the tenant noted
above.
17
<PAGE>
BellSouth Building/Fund VI - Fund VII-Fund VIII Joint Venture
- -------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------- ----------------------------------------
September 30, 1998 September 30, 1997 September 30, 1998 September 30, 1997
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $380,278 $350,461 $1,140,832 $1,137,024
Interest income 2,096 2,097 6,268 6,114
-------- -------- ---------- ----------
382,374 352,558 1,147,100 1,143,138
-------- -------- ---------- ----------
Expenses:
Depreciation 110,985 110,889 332,827 332,667
Management & leasing
expenses 47,414 47,095 142,610 143,554
Other operating expenses 121,718 85,739 311,783 312,986
-------- -------- ---------- ----------
280,117 243,723 787,220 789,207
-------- -------- ---------- ----------
Net income $102,257 $108,835 $ 359,880 $ 353,931
======== ======== ========== ==========
Occupied % 100.0% 100.0% 100.0% 100.0%
Partnership's Ownership % in
the Fund VI - Fund VII -
Fund VIII Joint Venture 33.4% 33.4% 33.4% 33.4%
Cash distribution to
Partnership $ 72,998 $ 78,100 $ 239,688 $ 246,720
Net income allocated to the
Partnership $ 34,149 $ 37,056 $ 120,182 $ 122,892
</TABLE>
Net income has increased slightly in 1998 as compared to 1997. Cash
distributions allocated to the Partnership decreased in 1998 as compared to
1997, due primarily to additional funding by Wells Fund VIII in early 1997,
which decreased the Partnership's ownership interest in the Fund VI - VII - VIII
Joint Venture.
18
<PAGE>
Cherokee Property - Fund I, II, II-OW, VI, VII Joint Venture
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------ -------------------------------
Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1998 Sept. 30, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $226,733 $215,367 $681,415 $648,799
Interest income 2 10 43 47
-------- -------- -------- --------
226,735 215,377 681,458 648,826
Expenses:
Depreciation 111,285 110,037 332,412 327,259
Management & leasing expenses 18,478 7,017 62,966 57,881
Other operating expenses 20,630 39,455 25,680 103,777
-------- -------- -------- --------
150,393 156,509 421,058 488,917
-------- -------- -------- --------
Net income $ 76,342 $ 58,868 $260,400 $159,909
======== ======== ======== ========
Occupied % 91.0% 93.0% 91.0% 93.0%
Partnership Ownership % 10.7% 10.7% 10.7% 10.7%
Cash distributed to the Partnership $ 20,348 $ 8,475 $ 63,224 $ 44,639
Net income allocated to the
Partnership $ 8,175 $ 6,304 $ 27,884 $ 17,123
</TABLE>
Rental income increased in 1998 over 1997, due primarily to the one time
adjustment made to the straight line rent schedule in 1997. The decrease in
operating expenses in 1998, as compared to 1997, are due to decreased
expenditures for tenant improvements, plumbing, common area expenses, and legal
fees.
19
<PAGE>
PART II - OTHER INFORMATION
----------------------------
Item 6(b). No reports on Form 8-K were filed during the third quarter of 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
WELLS REAL ESTATE FUND VII, L.P.
(Registrant)
Dated: November 10, 1998 By: /s/Leo F. Wells, III
--------------------
Leo F. Wells, III, as Individual
General Partner and as President,
Sole Director and Chief Financial
Officer of Wells Capital, Inc., the
General Partner of Wells Partners, L.P.
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-03-1998
<PERIOD-END> SEP-30-1998
<CASH> $58,831
<SECURITIES> 18,585,130
<RECEIVABLES> 357,784
<ALLOWANCES> 3,125
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,746
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,007,616
<CURRENT-LIABILITIES> 408,488
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 18,599,128
<TOTAL-LIABILITY-AND-EQUITY> 19,007,616
<SALES> 0
<TOTAL-REVENUES> 630,804
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 61,864
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 568,940
<INCOME-TAX> 568,940
<INCOME-CONTINUING> 568,940
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 568,940
<EPS-PRIMARY> .62
<EPS-DILUTED> 0
</TABLE>
