<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1996 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 0-27888
----------------
Wells Real Estate Fund VIII, L.P.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-2126618
- ------------------------------------ -----------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification no.)
3885 Holcomb Bridge Road, Norcross, Georgia 30092
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 449-7800
--------------
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Form 10-Q
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Wells Real Estate Fund VIII,L.P.
--------------------------------
INDEX
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Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - June 30, 1996
and December 31, 1995.................................. 3
Statements of Income for the Three
Months and Six Months Ended June 30, 1996
and 1995............................................... 4
Statement of Partners' Capital
for the Year Ended December 31, 1995,
and the Six Months Ended June 30, 1996................. 5
Statements of Cash Flows for the Six Months
Ended June 30, 1996 and 1995........................... 6
Condensed Notes to Financial Statements.................. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................................. 14
PART II. OTHER INFORMATION............................................... 19
2
<PAGE>
WELLS REAL ESTATE FUND VIII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
Assets June 30, 1996 December 31, 1995
------ ------------- -----------------------
<S> <C> <C>
Investment in joint ventures (Note 2) $ 6,691,847 $ 5,786,364
Cash and cash equivalents (Note 1) 19,743,111 19,441,918
Due from affiliates (Note 5) 86,149 23,852
Deferred project costs (Note 3) 842,774 816,147
Deferred offering costs (Note 4) 0 96,972
Organization costs, less accumulated
amortization of $6,250 in December
1995 and $9,375 in June 1996 21,875 25,000
Prepaid expenses and other assets 74,000 64,000
----------- -----------
Total assets $ 27,459,756 $ 26,254,253
=========== ===========
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Accounts payable and accrued expenses $ 2,451 $ 5,450
Sales commissions payable 367 180,404
Partnership distribution payable 275,227 295,926
Due to affiliates 0 139,775
----------- -----------
Total liabilities 278,045 621,555
----------- -----------
Partners' capital:
General partners 0 297
Limited partners:
Class A 22,413,112 20,902,202
Class B 4,768,499 4,730,099
Original limited partner 100 100
----------- -----------
Total partners' capital 27,181,711 25,632,698
----------- -----------
Total liabilities and partners' capital $27,459,756 $26,254,253
=========== ===========
</TABLE>
See accompanying condensed notes to financial statements.
3
<PAGE>
WELLS REAL ESTATE FUND VIII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------------- -----------------------------
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
----------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Equity in earnings of joint ventures
(Note 2) $ 33,765 $ 0 $ 97,356 $ 0
Interest income 223,711 72,371 454,528 75,371
-------- ------- --------- -------
257,476 72,371 551,884 75,371
Expenses:
Legal and accounting 19,747 2,109 24,266 3,109
Computer costs 1,004 598 2,010 3,351
Amortization of organization costs 1,563 0 3,125 0
Printing 2,052 34,179 5,422 34,179
Administrative salaries 5,910 11,259 14,385 15,296
Office expense 1,421 4,009 4,012 5,275
Postage 4,363 1,611 8,972 1,772
Taxes and licenses 0 0 15 15
Other 138 0 801 0
-------- ------- --------- -------
36,198 53,765 63,008 62,997
-------- ------- --------- -------
Net income $221,278 $18,606 $ 488,876 $12,374
======== ======= ========= =======
Net income (loss) allocated to General
Partners $ 0 $ 62 $ (297) $ 0
Net income allocated to Class A Limited
Partners $273,502 $12,374 $ 590,735 $12,374
Net income (loss) allocated to Class B
Limited Partners $(52,224) $ 6,170 $(101,562) $ 0
Net income per Class A Limited Partner Unit $ 0.11 $ 0.03 $ 0.23 $ 0.03
Net income (loss) per Class B Limited
Partner Unit $ (0.09) $ 0.15 $ (0.18) $ 0.00
Cash distribution per Class A Limited Partner Unit $ 0.10 $ 0 $ 0.21 $ 0
</TABLE>
See accompanying condensed notes to financial statements.
4
<PAGE>
WELLS REAL ESTATE FUND VIII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1995 AND SIX MONTHS ENDED
JUNE 30, 1996
<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 0 $ 0 0 $ 0 $ 500 $ 600
Net income (loss) 0 0 294,221 0 (20,104) (203) 273,914
Limited
Partnership
contributions 0 2,456,287 24,562,868 558,167 5,581,674 0 30,144,542
Partnership
distributions 0 0 (295,926) 0 0 0 (295,926)
Sales commissions &
discounts 0 0 (2,456,287) 0 (558,168) 0 (3,014,455)
Other offering
expenses 0 0 (1,202,674) 0 (273,303) 0 (1,475,977)
---- --------- ----------- ------- ---------- ----- -----------
BALANCE, DECEMBER 31, 1995 $100 2,456,287 $20,902,202 558,167 $4,730,099 $ 297 $25,632,698
Net income (loss) 0 0 590,735 0 (101,562) (297) 488,876
Limited
Partnership
contributions 0 155,247 1,552,471 34,568 345,676 0 1,898,147
Partnership
distributions 0 0 (553,288) 0 0 0 (553,288)
Sales
commissions
& discounts 0 0 (155,247) 0 (34,567) 0 (189,815)
Other offering
expenses 0 0 (77,624) 0 (17,284) 0 (94,907)
Conversion elections 0 18,098 153,863 (18,098) (153,863) 0 0
---- --------- ----------- ------- ---------- ----- -----------
BALANCE, JUNE 30, 1996 $100 2,629,632 $22,413,112 574,637 $4,768,499 $ 0 $27,181,711
==== ========= =========== ======= ========== ===== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
WELLS REAL ESTATE FUND VIII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended
---------------------------------
June 30, 1996 June 30, 1995
---------------- ---------------
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 488,876 $ 12,374
Adjustments to reconcile net earnings to net
cash used in operating activities:
Equity in income of joint venture (97,356) 0
Distributions received from joint
ventures 96,347 0
Distributions to partners from
accumulated earnings (573,987) 0
Amortization of organization costs 3,125 0
Changes in assets and liabilities:
Prepaids and other assets (10,000) (25,000)
Accounts payable (3,000) 2,578
Due to affiliates (42,803) 101,640
----------- -----------
Net cash provided by (used in)
operating activities (138,798) 91,592
----------- -----------
Cash flow from investing activities:
Investment in joint ventures (926,962) (2,872,288)
Deferred Project Costs Paid (66,435) (375,243)
----------- -----------
Net cash used in investing activities (993,397) (3,247,531)
----------- -----------
Cash flows from financing activities:
Limited partners' contributions 1,898,147 10,721,219
Sales commissions paid (369,852) (958,098)
Offering costs paid (94,907) (536,061)
----------- -----------
Net cash provided by financing
activities 1,433,388 9,227,060
----------- -----------
Net increase in cash and cash equivalents 301,193 6,071,121
Cash and cash equivalents, beginning of year 19,441,918 600
----------- -----------
Cash and cash equivalents, end of period $19,743,111 $ 6,071,721
=========== ===========
Supplemental disclosure of noncash
investing activities:
Deferred project costs applied to
joint venture property $ 39,808 $ 0
=========== ===========
</TABLE>
6
<PAGE>
WELLS REAL ESTATE FUND VIII, L.P.
(A Georgia Public Limited Partnership)
Condensed Notes to Financial Statement
June 30, 1996
(1) Summary of Significant Accounting Policies
-----------------------------------------
(a) General
- -----------
Wells Real Estate Fund VIII, L.P. (the "Partnership") is a Georgia public
limited partnership having Leo F. Wells, III and Wells Partners, L.P., as
General Partners. The Partnership was formed on August 15, 1994, for the
purpose of acquiring, developing, owning, operating, improving, leasing, and
otherwise managing for investment purposed income producing commercial
properties.
On January 6, 1995, the Partnership commenced a public offering of up to
$35,000,000 of 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 on February 24, 1995, when it received
and accepted subscriptions for 125,000 units. The offering was terminated on
January 5, 1996, at which time the Partnership had sold 2,613,534 Class A Status
Units, and 590,735 Class B Status Units, held by a total of 1,939 and 302
Limited Partners respectively, for total Limited Partner capital contributions
of $32,042,689.
As of June 30, 1996, the Partnership owned interests in five properties through
ownership in joint ventures, an office building in Gainesville, Florida, an
office building in Jacksonville, Florida, a retail shopping center under
construction in Clemmons, North Carolina, a combined retail/office building in
Stockbridge, Georgia, and land for an office building in Madison, Wisconsin.
(b) Employees
- -------------
The Partnership has no direct employees. The employees of Wells Capital, Inc.,
the sole general partner of Wells Partners, L.P., a General Partner of the
Partnership, perform a full range of real estate services including leasing and
property management, accounting, asset management and investor relations for the
Partnership.
7
<PAGE>
(c) Insurance
- -------------
Wells Management Company, Inc., an affiliate of the General Partners, carries
comprehensive liability and extended coverage with respect to all the properties
owned directly or indirectly by the Partnership. In the opinion of management
of the registrant, the properties are adequately insured.
(d) Competition
- ---------------
The Partnership will experience competition for tenants from owners and managers
of competing projects which may include the General Partners and their
affiliates. As a result, the Partnership may be required to provide free rent,
reduced charges for tenant improvements and other inducements, all of which may
have an adverse impact on results of operations. At the time the Partnership
elects to dispose of its properties, the Partnership will also be in competition
with sellers of similar properties to locate suitable purchasers for its
properties.
(e) Basis of Presentation
- -------------------------
The financial statements of Wells Real Estate Fund VIII, L.P. (the
"Partnership") have been prepared in accordance with instructions to Form 10-Q
and do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. These
quarterly statements have not been examined by independent accountants, but in
the opinion of the General Partners, the statements for the unaudited interim
periods presented include all adjustments, which are of a normal and recurring
nature, necessary to present a fair presentation of the results for such
periods. For further information, refer to the financial statements and
footnotes included in the Partnership's Form 10-K for the year ended December
31, 1995.
(f) Partnership Distributions
- -----------------------------
Net Cash From Operations, as defined in the Partnership Agreement, will be
distributed first to Limited Partners holding Class A Status Units on a per Unit
basis until they have received a 10% annual return on their Net Capital
Contributions, as defined in the Partnership Agreement. Further distributions
of Net Cash From Operations will be made to the General Partners until they
receive distributions equal to 10% of the total amount of Net Cash From
Operations distributed. Thereafter, the Limited Partners holding Class A Status
Units will receive 90% of Net Cash From Operations and the General Partners will
receive 10%. No Net Cash From Operations will be distributed to Limited
Partners holding Class B Status Units.
(g) Income Taxes
- ----------------
The Partnership has not requested a ruling from the Internal Revenue Service to
the effect that it will be treated as a partnership and not an association
taxable as a corporation for Federal income tax purposes. The Partnership
received an opinion of counsel as to its tax status, but such opinion is not
binding upon the Internal Revenue Service.
8
<PAGE>
(h) Statement of Cash Flows
- ---------------------------
For the purpose of the statement of cash flows, the Partnership considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents. Cash equivalents include cash and short-
term investments.
2) Investment in Joint Venture
---------------------------
The Partnership owns interests in three office buildings and two retail centers
through its ownership in joint ventures. The Partnership does not have control
over the operations of the joint ventures; however, it does exercise significant
influence. Accordingly, investment in joint ventures is recorded on the equity
method.
The office building in Gainesville, Florida was completed and occupied, at a
rate of 93.7%, in mid-December, 1995. The office building in Jacksonville,
Florida, was completed and occupied at the rate of 92% in May, 1996. The first
tenant in the retail/office center in Stockbridge, Georgia opened for business
on June 22, 1996. A retail shopping center in Clemmons, North Carolina and the
office building in Madison, Wisconsin are still under construction. As of June
30, 1996, the Partnership still had approximately $19,600,000 available for
investment.
The following describes the properties in which the Partnership owns an interest
as of June 30, 1996:
FUND VII - FUND VIII JOINT VENTURE
- ----------------------------------
On February 10, 1995, the Partnership and Wells Real Estate Fund VII, L.P.
("Wells Fund VII"), a Georgia public limited partnership affiliated with the
Partnership through common general partners, entered into a Joint Venture
Agreement know as Fund VII and Fund VIII Associates (the "Fund VII - Fund VIII
Joint Venture"). The investment objectives of Wells Fund VII are substantially
identical to those of the Partnership. The Partnership holds an approximate 62%
equity interest in the Fund VII - Fund VIII Joint Venture, which owns and
operates the two properties described below. The total cost to complete both
properties is anticipated to be approximately $6,500,000. As of June 30, 1996,
the Partnership had contributed $4,002,732 and Wells Fund VII had contributed
$2,448,924 for total contributions of $6,451,656 to the Fund VII -Fund VIII
Joint Venture for the acquisition and development of the two properties.
As of June 30, 1996, the Partnership's equity interest in the Fund VII - Fund
VIII Joint Venture was approximately 62%, and Wells Fund VII's equity interest
in the Fund VII - Fund VIII Joint Venture was approximately 38%. It is currently
anticipated that the remaining costs of approximately $48,344 to complete the
final tenant build out of both projects will be contributed by the Partnership,
in which event, upon completion, the Partnership will own approximately 62.3%
equity interest in the Fund VII - Fund VII Joint Venture. The Partnership has
reserved sufficient funds for this purpose.
9
<PAGE>
Gainesville Property
- --------------------
Wells Fund VII made an initial contribution to the Fund VII - Fund VIII Joint
Venture of $677,534, which constituted the total purchase price and all other
acquisition and development costs expended by the Fund VII - Fund VIII Joint
Venture for the purchase of a 5.0 acre parcel of land in Gainesville, Alachua
County, Florida. An agreement was signed with ADEVCO Corporation to supervise,
manage and coordinate the planning, design, construction and completion of a
62,975 square foot office building, containing 61,468 rentable square feet.
Integra Construction, Inc. acted as the general contractor, and Smallwood,
Reynolds, Stewart, Stewart and Associates, Inc. as the architect. Construction
was completed in December, 1995. It is anticipated that the total cost of the
building will be approximately $4,900,000 after the remaining unoccupied tenant
space is completed. As of June 30, 1996, the Partnership had contributed
$3,852,732 and Wells Fund VII had contributed $1,036,923 to the Fund VII - Fund
VIII Joint Venture toward the completion of this project. The occupancy rate, as
of June 30, 1996, was 93.6%
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.
The Hannover Property
- ---------------------
On April 1, 1996, Wells Fund VII contributed 1.01 acres of land located in
Clayton County, Georgia, valued at $512,000 and a 12,000 square foot, single
story combination retail/office building to the Fund VII - Fund VIII Joint
Venture. As of June 30, 1996, Wells Fund VII had funded approximately $900,000
for the development of the Hannover property, in addition to the cost of the
land, and the Partnership had contributed $150,000 to the joint venture for the
development of the property. The total cost to develop this property is
estimated to be approximately $1,600,000, and the Partnership has reserved the
remaining approximately $38,000 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: (1) for
the initial term of 36 months is $93,310.00 payable in equal monthly
installments of $7,775.83; (2) for the second term of 36 months is $102,340.00
payable in equal monthly installments of $8,528.33; (3) for the third term of
36 months is $111,370.00, payable in monthly installments of $9,280.83 and (4)
for the final term of eleven months is $110,367.00 payable in monthly
installments of $10,033.33. Moovies, Inc. has the option to extend its lease
for two five year terms at market rate. The tenant, which provided its own
build-out from the existing shell, moved into the building and opened for
business June 22, 1996. The lease will expire in 2006.
10
<PAGE>
FUND VI - VII - VIII JOINT VENTURE
- ----------------------------------
On April 17, 1995, the Partnership, Wells Fund VII and Wells Real Estate Fund
VI, L.P. ("Wells Fund VI"), a Georgia public limited partnership, affiliated
with the Partnership through common general partners, entered into a Joint
Venture Agreement known as the Fund VI, Fund VII, and Fund VIII Associates (the
"Fund VI-VII-VIII Joint Venture"). The investment objectives of Wells Fund VI
are substantially identical to those of the Partnership. As of June 30, 1996,
the Partnership had contributed approximately $2,000,000 for an approximate 13%
equity interest in the Fund VI-VII-VIII Joint Venture, which owns an office
building in Jacksonville, Florida and a multi-tenant retail center, under
development, in Clemmons, North Carolina. As of June 30, 1996, Wells Fund VI
had contributed $6,567,688 for an equity interest in the Fund VI-VII-VIII Joint
Venture of approximately 44% , and Wells Fund VII had contributed approximately
$6,432,312 for an equity interest in the Fund VI-VII-VIII Joint Venture of
approximately 43%. The total cost to complete both properties is anticipated to
be approximately $17,700,000. Although the ultimate percentages of equity
interest in the Fund VI-VII-VIII Joint Venture have not yet been finally
determined, it is anticipated that the Partnership will contribute the remaining
cost of approximately $2,700,000 needed to complete construction of both
projects, in which event the ultimate equity interests in the Fund VI-VII-VIII
Joint Venture of the Partnership, Wells Fund VI and Wells Fund VII would be
approximately 27%, 37%, and 36%, respectively. The Partnership has reserved
sufficient funds for this purpose.
Bell South Property
- -------------------
On April 25, 1995, the Fund VI-VII-VIII Joint Venture purchased a 5.55 acre of
parcel of land in Jacksonville, Florida for a total of $1,245,059 including
closing costs. The land purchase and future construction costs, totaling
approximately $9 million dollars, were funded by capital contributions of
$3,500,000 by Wells Fund VI, $3,500,000 by Wells Fund VII and $2,000,000 by the
Partnership.
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.
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 $1,048,061 during 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 equals to their shares of
operating expenses during their respective lease terms.
11
<PAGE>
Tanglewood Commons Shopping Center
- ----------------------------------
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. As
of June 30, 1996, Wells Fund VI had contributed $3,067,688 and Wells Fund VII
contributed $2,932,312 to the development of this project. The Partnership has
not yet contributed.
The Fund VI-VII-VIII Joint Venture will develop and construct one large strip
shopping center building containing approximately 81,000 gross square feet on a
12.48 acre tract. The remaining 2.2 acre portion of the property consists of 4
outparcels which will be held for future development.
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. An agreement was signed with
Norcom Development, Inc. to supervise, manage and coordinate the planning,
design and construction of the property. Shook Design Group, Inc. has been
signed as the architect, and John S. Clark and Company as the general
contractor. Construction of the project began in March, 1996, and is scheduled
to be substantially completed in the first quarter of 1997.
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.
FUND VIII - FUND IX JOINT VENTURE
- ---------------------------------
On June 10, 1996, the Partnership and Wells Real Estate Fund IX, L.P. ("Wells
Fund IX"), a Georgia public limited partnership, affiliated with the Partnership
through common general partners, entered into a Joint Venture Agreement known as
Fund VIII and Fund IX Associates (the "Fund VIII - Fund IX Joint Venture"). The
investment objectives of Wells Fund IX are substantially identical to those of
the Partnership. As of June 30, 1996, the Partnership had contributed $487,444
for an approximately 49% equity interest, and Fund IX had contributed $512,444
for an approximately 51% equity interest in the Fund VIII - Fund IX Joint
Venture which is developing an office building in Madison, Wisconsin. The total
cost to complete the property is anticipated to be approximately $10,500,000.
Although the ultimate percentages of ownership in the Fund VIII - Fund IX Joint
Venture have not yet been finally determined, it is anticipated that the
Partnership and Wells Fund IX will contribute equally the remaining cost of
approximately $9,500,000 for an approximately 50% equity interest each.
12
<PAGE>
Cellular One Property
- ---------------------
On June 17, 1996, the Fund VIII - Fund IX Joint Venture purchased a 7.09 acre
tract of real property in Madison, Dane County, Wisconsin for a total cost of
$859,255 including closing costs. The Fund VIII - Fund IX Joint Venture will
develop and construct a four-story office building containing approximately
96,750 rentable square feet on the site. An agreement was signed with ADEVCO
Corporation to supervise, manage and coordinate the planning, design,
construction and completion of the property. Kraemer Brothers, Inc. has been
signed as the general contractor and Strang, Inc. as the architect.
Cellular One, a subsidiary of BellSouth Corporation has executed a lease for
75,000 rentable square feet comprising approximately 78% of the building. The
initial term of the lease will be 9 years and 11 months beginning in June, 1997,
with the option to extend the initial term of the lease for two consecutive five
year periods. The annual base rent payable during the initial term is $862,500
payable in equal monthly installments of $71,875 during the first five years and
$975,000 payable in equal monthly installments of $81,250 during the last four
years and 11 months of the initial term. The annual base rent for each
extended term will be at market rental rate.
The total cost to complete the property, which is anticipated to be
approximately $10,500,000, will be contributed equally by the Partnership and
Wells Fund IX. The Partnership has reserved sufficient funds for this purpose.
For further information regarding the Cellular One Property, refer to the
Partnership's current report on Form 8-K dated June 19, 1996.
(3) Deferred Project Costs
- --------------------------
The Partnership pays Acquisitions and Advisory Fees to the General Partners for
acquisition and advisory services. These payments, as provided by the
Partnership Agreement, may not exceed 5% of the Limited Partners' capital
contributions. Acquisition and Advisory Fees paid as of June 30, 1996, amounted
to $1,121,494 and represented approximately 3.5% of the Limited Partners'
capital contributions received. These fees are allocated to specific properties
as they are purchased.
(4) Deferred Offering Costs
- ---------------------------
Wells Capital, Inc. (the "Company"), the general partner of Wells Partners,
L.P., pays all the offering expenses for the Partnership. The Company may be
reimbursed by the Partnership to extent that such offering expenses do not
exceed 5% of total Limited Partners' capital contributions. As of June 30,
1996, the Partnership had reimbursed the Company for $1,602,134 in offering
expenses, which amounted to approximately 5% of Limited Partners' capital
contributions.
13
<PAGE>
(5) Due To Affiliates
- ---------------------
Due to Affiliates consists of Acquisition and Advisory Fees, deferred offering
costs, and other operating expenses paid by the Company on behalf of the
Partnership.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
- -------------------------------------------------------------------------
RESULTS OF OPERATION.
- ---------------------
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
form 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 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
- ---------------------------------------------------------
(a) General
- -----------
The Partnership commenced active operations on February 24, 1995, when it
received and accepted subscriptions for 125,000 units. The offering was
terminated on January 5, 1996, at which time the Partnership had sold 2,613,534
Class A Status Units and 590,735 Class B Status Units, held by a total of 1,939
and 302 Limited Partners respectively, for total Limited Partner contributions
of $32,042,689. After payment of $1,121,494 in Acquisition and Advisory Fees,
payment of $4,806,403 in selling commissions and organization and offering
expenses, the investment by the Partnership of $4,002,732 in the Fund VII - Fund
VIII Joint Venture, $2,000,000 in the Fund VI-VII-VIII Joint Venture and
$512,444 in the Fund VIII - Fund IX Joint Venture, as of June 30, 1996, the
Partnership was holding net offering proceeds of $19,599,616 available for
investment in properties.
It is anticipated that the Partnership will contribute an additional investment
in the Fund VII - Fund VIII Joint Venture of approximately $48,344 which will be
required to complete the tenant build-out of the Hannover and Gainesville
Properties. An additional investment in the Fund VI-VII-VIII Joint Venture of
approximately $2,700,000 will be required to complete both the BellSouth
Property and the Tanglewood Commons Shopping Center Property, and it is
anticipated that the Partnership will contribute approximately $2,700,000 to the
Fund VI - VII - VIII Joint Venture for completion of these projects. An
additional investment of approximately $9,500,000 will be required in the Fund
14
<PAGE>
VIII - Fund IX Joint Venture to complete the Cellular One Property, and it is
anticipated the Partnership will contribute approximately $4,750,000 to the Fund
VIII - Fund IX Joint Venture. Accordingly, the Partnership has reserved
$7,498,344 out of its net offering proceeds of $19,599,616 available for
investment in properties for these purposes.
Gross revenues of the Partnership of $257,476 for the three months and $551,884
for the six months ended June 30, 1996, and $72,371 for the three months ended
June 30, 1995, were attributable primarily to interest income earned on funds
held by the Partnership prior to the investment in joint ventures. The equity
in income of joint ventures of $33,765 for the three months and $97,356 for the
six months ended June 30, 1996, is primarily the result of CH2M Hill occupying
the Gainesville Property for the entire six months. Total expenses of the
Partnership remained relatively stable for the six months ended June 30, 1996
and 1995. Total expenses decreased from $53,765 for the three months ended June
30, 1995 to $36,198 for the three months ended June 30, 1996. The printing
expenses decreased as the Partnership entered its second year of operations.
This decrease was offset by increased audit fees due and additional SEC
reporting requirements. Net income of the Partnership was $488,876 for the six
months ended June 30, 1996, as compared to $12,374 for the same period in 1995
and $221,278 for the three months ended June 30, 1996, as compared to $18,606
for the same period in 1995, due to increased revenues.
For the six months ended June 30, 1996, net income allocated to Class A Limited
Partners was $0.23 per unit, net loss allocated to Class B Limited Partners was
$0.18 per unit and net loss allocated to General Partners was $297 for 1996.
The Partnership's net cash used by operating activities of $138,798 is due
primarily to interest earned on funds held by the Partnership prior to
investment in properties offset by distributions paid to Limited Partners. Net
cash used in investing activities of $993,397 is primarily the result of an
additional investment of $926,962 in the joint ventures. Net cash provided by
financing activities is primarily the result of raising $1,898,147 in Limited
Partners contributions before deducting commissions and offering expenses, and
therefore, increasing cash and cash equivalents to $19,743,111 as of June 30,
1996. The net increase in cash and cash equivalents from $600 of General
Partners' contributions at the beginning of the year to $6,071,721 as of June
30, 1995 was the result of raising $10,721,219 in Limited Partners'
contributions before deducting commissions and offering expenses.
The Partnership's distributions from Investment Income accrued to Limited
Partners holding Class A Status Units for the second quarter of 1996 was $0.10
per unit which will be paid in August, 1996.
15
<PAGE>
PROPERTY OPERATIONS
- -------------------
As of June 30, 1996, the Partnership owned interests in the following
operational properties:
Gainesville Property/Fund VII - Fund VIII Joint Venture
- -------------------------------------------------------
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, 1996 Ended June 30, 1996
--------------------- --------------------
<S> <C> <C>
Revenues:
Rental Income $132,578 $269,120
Expenses:
Depreciation 54,588 108,925
Management & leasing expenses 15,698 29,096
Other operating expenses (2,055) (2,706)
-------- --------
68,231 135,315
-------- --------
Net income $ 64,347 $133,805
======== ========
Occupied % 93.6% 93.6%
Partnership's Ownership % in the Fund VII
- VIII Joint Venture 62.0% 62.0%
Cash Distribution to Partnership $ 74,486 $138,242
Net Income Allocated to the Partnership $ 39,925 $ 94,778
</TABLE>
In February, 1995, the Fund VII - Fund VIII Joint Venture acquired a 5.0 acre of
land located in Gainesville, Alachua County, Florida for the purpose of
constructing a 62,975 square foot (61,468 rentable square feet) office building.
A 9 year, 11 month lease to occupy 57,457 square feet was signed by CH2M Hill.
The annual base rent is $530,313 payable in equal monthly installments of
$44,193. The average effective annual rental rate at the CH2M Hill property was
$9.22 per square foot. CH2M Hill occupied their portion of the building in mid-
December, 1995, and therefore, no comparative financial information is
available. The Partnership's ownership percentage decreased from 79%, as of
March 31, 1996, to 62% as of June 30, 1996, due to the contribution of the
Hannover Property by Wells Fund VII to the Fund VII - Fund VIII Joint Venture in
April 1996.
16
<PAGE>
The Hannover Retail Center / Fund VII - Fund VIII Joint Venture
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
For the Three Months
Ended June 30, 1996
---------------------
<S> <C>
Revenues:
Rental Income $ 2,325
Expenses:
Depreciation 11,355
Other operating expenses 8,325
--------
19,680
--------
Net loss $(17,355)
========
Occupied % 50.17%
Partnership's Ownership % in the
Fund VII - VIII Joint Venture
62.0%
Cash Distribution to the Fund VII -
VIII Joint Venture $ 0
Net Loss Allocated to the Partnership $(10,768)
</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.
Moovies, Inc., a video store and rental store, has signed a nine year, eleven
month lease to occupy 6,020 square feet. The tenant occupied the space and
opened for business on June 22, 1996, and therefore, no comparative financial
data is available.
17
<PAGE>
Bell South Property / Fund VI - Fund VII - Fund VIII Joint Venture
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Two Months
Ended June 30, 1996
--------------------
Revenues:
<S> <C>
Rental income $146,740
Interest income 56,634
--------
203,374
--------
Expenses:
Depreciation 76,976
Management & leasing expenses 17,928
Other operating expenses 65,960
--------
160,864
--------
Net income $ 42,510
========
Occupied % 96.0%
Partnership's Ownership % in the
Fund VI Fund VII - VIII Joint
Venture
13.3%
Cash Distribution to Partnership $ 16,437
Net Income Allocated to Partnership $ 5,658
</TABLE>
On April 25, 1995, the Fund VI - Fund VII - Fund 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 64,558 square feet and American
Express occupying approximately 22,607 square feet.
The initial term of the BellSouth lease is for nine years and eleven months. The
annual base rent during the initial term is $1,048,061 during 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.
During 1996, interest income was generated from construction dollars, not as yet
funded on construction, being invested in interest bearing accounts.
18
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
ITEM 6 (b). During the second quarter of 1996, the Partnership filed a
current report on Form 8-K dated June 19, 1996, to describe
the acquisition of the Cellular One Property in Madison, Wisconsin.
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 VIII, L.P.
(Registrant)
Dated: August 13, 1996 By: /s/ Leo F. Wells, III
---------------------------------
Leo F. Wells, III, as Individual
General Partner and as President,
Sole Director and Chief Financial
Officer of Wells Capital, Inc., the
General Partner of Wells Partners, L.P.
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 19,743,111
<SECURITIES> 6,691,847
<RECEIVABLES> 86,149
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 74,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 27,459,756
<CURRENT-LIABILITIES> 278,045
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 27,181,711
<TOTAL-LIABILITY-AND-EQUITY> 27,459,756
<SALES> 0
<TOTAL-REVENUES> 551,884
<CGS> 0
<TOTAL-COSTS> 63,008
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 488,876
<INCOME-TAX> 488,876
<INCOME-CONTINUING> 488,876
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 488,876
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0
</TABLE>
