-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PZ3AM/mV4D9Q2upkKNEqTnuFkLNOK/i2FRBnZvpvl2woX0U763oFuEQosB2NYNmW 5gRoUfz3qHV2KWWOUFiMXA== 0000931763-00-000662.txt : 20000328 0000931763-00-000662.hdr.sgml : 20000328 ACCESSION NUMBER: 0000931763-00-000662 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WELLS REAL ESTATE FUND VII L P CENTRAL INDEX KEY: 0000895347 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 582022629 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-25606 FILM NUMBER: 578948 BUSINESS ADDRESS: STREET 1: 3385 HOLCOMB BRIDGE ROAD CITY: NORCROSS STATE: GA ZIP: 30092 BUSINESS PHONE: 4044497800 MAIL ADDRESS: STREET 1: 3885 HOLCOMB BRIDGE ROAD CITY: NORCROSS STATE: GA ZIP: 30092 10-K 1 FUND VII, FORM 10-K 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, 1999 or -------------------------------------------------- [ ] 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 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) 6200 The Corners Parkway, Norcross, Georgia 30092 - -------------------------------------------- ------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (770) 449-7800 ------------------------ Securities registered pursuant to Section 12 (b) of the Act: Title of each class Name of exchange on which registered - ------------------- ------------------------------------ NONE NONE - ------------------- ------------------------------------ Securities registered pursuant to Section 12 (g) of the Act: CLASS A UNITS - ------------------------------------------------------------------------------- (Title of Class) CLASS B UNITS - ------------------------------------------------------------------------------- (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 --- --- Aggregate market value of the voting stock held by nonaffiliates: Not Applicable ------------------------- -1- PART I ITEM 1. BUSINESS General 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 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, 1999, 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"). Employees The Partnership has no direct employees. The employees of Wells Capital, Inc., 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. 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, 1999. -2- 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, the properties are adequately insured. 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. ITEM 2. PROPERTIES 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, 1999, the properties had an occupancy rate of 97.38%. As of December 31, 1998, the properties had an occupancy rate of 95.65%. As of December 31, 1997, the seven properties that were in operation had an occupancy rate of 89.2%. The following table shows lease expirations during each of the next ten years as of December 31, 1999, assuming no exercise of renewal options or termination rights:
Partnership Percentage Percentage Number Share of of Total of Total Year of of Square Annualized Annualized Square Annualized Lease Leases feet Gross Base Gross Base Feet Gross Base Expiration Expiring Expiring Rent(1) Rent (1) Expiring Rent - ---------- --------- --------- ------------- ------------ ------------- ----------- 2000 8 13,969 $ 181,719 $ 71,892 3.7% 3.4% 2001 16 52,791 832,245 316,775 13.8 15.5 2002 23 44,933 723,544 321,704 11.8 13.5 2003 10 21,342 306,899 124,365 5.6 5.7 2004 4 16,225 192,698 66,139 4.3 3.6 2005(2) 3 67,079 686,381 271,000 17.6 12.8 2006(3) 5 161,379 2,401,071 916,816 42.3 44.7 2007 1 3,600 44,250 4,739 0.9 0.8 2008 0 0 0 0 0.0 0.0 2009 0 0 0 0 0.0 0.0 --------- --------- ------------- ------------ ------------- ----------- 70 381,318 $ 5,368,807 $ 2,093,430 100.0% 100.0% ========= ========= ============= ============ ============= ===========
(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. -3- The following describes the properties in which the Partnership owns an interest as of December 31, 1999: Fund V-VI-VII Joint Venture On September 8, 1994, the Partnership, Wells Real Estate Fund V, L.P. ("Wells Fund V") and Wells Real Estate Fund VI, L.P. ("Wells Fund VI"), both of which are Georgia public limited partnerships affiliated with the Partnership through common general partners, entered into a Joint Venture Agreement known as Fund V, Fund VI and Fund VII Associates (the "Fund V-VI- VII Joint Venture"). The investment objectives of Wells Fund V and Wells Fund VI are substantially identical to those of the Partnership. The Partnership owns a 42% interest in the following property through the Fund V-VI-VII Joint Venture: The Marathon Building 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 acquisition costs. 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 1999, 1998, and 1997. The average effective annual rental per square foot in the Marathon Building was $12.78 for 1999 and 1998, $12.74 for 1997, and $12.78 for 1996 and 1995. Fund VI-Fund VII Joint Venture On December 9, 1994, the Partnership and Wells Fund VI entered into a Joint Venture Agreement known as Fund VI and Fund VII Associates ("Fund VI-Fund VII Joint Venture"). As of December 31, 1999, the Partnership had contributed $3,358,633 and Wells Fund VI had contributed $2,604,916, 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, 1999, the Partnership's equity interest in the Fund VI-VII Joint Venture was approximately 56.3%, and Wells Fund VI's equity interest in the Fund VI-VII Joint Venture was approximately 43.7%. The Partnership owns interests in the following two properties through the Fund VI-Fund VII Joint Venture: Stockbridge Village III 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 -4- 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, 1999, 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. The first building is a 3,200 square foot restaurant, which was completed in March 1995, at a cost of approximately $400,000 excluding land. The space is now being leased by RMS/Fazoli's, which signed a 13-year lease that commenced on December 10, 1998. Construction began in January 1995, on a second out-parcel building containing approximately 15,000 square feet for approximately $1,500,000 excluding land. In October 1995, Damon's Clubhouse occupied 6,732 square feet and the other five tenants occupied 8,268 square feet. The term of the lease is for nine years and 11 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 Property was 100% in 1999, 1998, and 1997. The average effective annual rental per square foot at the Stockbridge Village III Property was $17.08 for 1999, $13.08 for 1998, $15.67 for 1997, $14.15 for 1996, and $4.85 for 1995, the first year of occupancy. Stockbridge Village I Expansion On June 7, 1995, the Fund VI-Fund VII Joint Venture purchased 3.38 acres of real property located in Clayton County, Georgia for a total price of approximately $718,000. The Stockbridge Village I Expansion consists of a multi-tenant shopping center containing approximately 29,200 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. Eleven additional tenants have occupied 17,600 square feet at the property in 1997, 1998, and 1999. Negotiations are being conducted to lease the remaining space. As of December 31, 1999, the Partnership had contributed a total of $1,441,150, and Wells Fund VI had contributed a total of $1,571,631, for a total contribution of approximately $3,026,922 toward the development and construction of the Stockbridge Village I Expansion. The occupancy rate at the Stockbridge Village I Expansion was 86% at year end 1999, 81% for 1998, and 74% for 1997. The average effective annual rental per square foot was $10.74 for 1999, $10.08 for 1998, $6.82 for 1997, and $2.69 for 1996, the first year of occupancy. Fund II-III-VI-VII Joint Venture--Holcomb Bridge Road Property 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- -5- 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. 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 for the development and construction on two buildings containing a total of approximately 49,534 square feet. Fifteen tenants occupied the Holcomb Bridge Road Property as of December 31, 1999, for an occupancy rate of 100% in 1999, and 94% in 1998 and 1997. The average effective annual rental was $19.26 for 1999, $17.63 for 1998, $13.71 for 1997, and $9.87 for 1996, the first year of occupancy. As of December 31, 1999, Fund II-Fund III Joint Venture had contributed $1,729,116 in land and improvements for an equity interest of approximately 24.1%, Wells Fund VI had contributed $1,929,541 for an equity interest of approximately 26.9%, and the Partnership had contributed $3,525,041 for an equity interest of approximately 49.0%. The total cost to develop the Holcomb Bridge Road Property is approximately $5,454,582, excluding land. Fund VII-Fund VIII Joint Venture On February 10, 1995, the Partnership and Wells Real Estate Fund VIII, L.P. ("Wells Fund VIII"), a Georgia public limited partnership affiliated with the Partnership through common general partners, entered into a Joint Venture Agreement known as Fund VII and Fund VIII Associates (the "Fund VII-Fund VIII Joint Venture"). The investment objectives of Wells Fund VIII are substantially identical to those of the Partnership. The Partnership holds an approximate 37% equity interest and Wells Fund VIII holds an approximate 63% 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, 1999, the Partnership had contributed $2,448,923 and Wells Fund VIII had contributed $4,267,721 for a total cost of $6,742,446 to the Fund VII-Fund VIII Joint Venture for the acquisition and development of the property. The Hannover Property 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 12,080 square foot, single story combination retail/office building. As of December 31, 1999, the Partnership had funded approximately $1,437,801 for the development of the Hannover property, in addition to the cost of the land, and Wells Fund VIII had contributed $190,311 to the joint venture for the development of the property. A nine year, 11-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 -6- 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 11 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 June 22, 1996. The lease will expire in 2006. Two additional tenants leased the remaining space at the property. The average effective annual rental per square foot at the Hannover Property was $15.97 for 1999, $10.05 for 1998, $8.92 for 1997, and $8.14 for 1996, the first year of occupancy. The occupancy rate for the years ended December 31, 1999 and 1998 was 100%, and 50% for 1997. CH2M Hill at Gainesville 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 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. The average effective annual rental per square foot at the Gainesville Property was $9.37 for 1999, $9.19 for 1998, $8.63 for 1997, $8.69 for 1996, and $8.63 for 1995. The occupancy rate for the years ended December 31, 1999 and 1998 was 100%, and 94% for 1997. 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, 1999, the Partnership had contributed $1,036,923, and Wells Fund VIII had contributed $4,077,310 to the Fund VII-Fund VIII Joint Venture toward the completion of this project. Fund VI-VII-VIII Joint Venture 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, 1999, the Partnership had contributed approximately $5,932,312 for an approximately 33.4% equity interest in the Fund VI-VII-VIII Joint Venture, which owns an office building in Jacksonville, Florida and a multi-tenant retail center in Clemmons, North Carolina. As of December 31, 1999, Wells Fund VIII had contributed $5,700,000 for an equity interest in the Fund VI-VII-VIII Joint Venture of approximately 32.3%, and Wells Fund VI had 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. -7- BellSouth Property On April 25, 1995, the Fund VI-VII-VIII Joint Venture purchased a 5.55 acre parcel of land in Jacksonville, Florida for a total of $1,245,059 including closing costs. 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 3,901 square feet in December 1996. The land purchase and construction costs totaling approximately $9 million 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 $16.36 for 1999 and 1998, $16.40 for 1997, and $14.15 for 1996, the first year of occupancy. The occupancy rate was 100% for 1999, 1998, and 1997. 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. The Fund VI-VII-VIII Joint Venture constructed one large strip shopping center building containing approximately 67,320 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 are held for future development or resale. As of December 31, 1999, 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 incurred by the Fund VI-VII-VIII Joint Venture for the acquisition, development, construction and completion of the shopping center is approximately $8,700,000. Construction of the project was substantially completed in the first quarter of 1997. As of December 31, 1999, the Joint Venture had $236,000 reserved to complete the remaining tenant improvement cost. 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 $11.48 for 1999, $10.96 for 1998, and $9.12 for 1997, the first year of occupancy. The occupancy rate was 91 % for 1999 and 1998 and 86% for 1997. -8- Fund I-II-II-OW-VI-VII Joint Venture On August 1, 1995, the Partnership, Wells Real Estate Fund I ("Wells Fund I"), a Georgia public limited partnership, the Fund II-Fund II-0W Joint Venture and Wells Fund VI, entered into a joint venture agreement 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 Property 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 The Cherokee Property consists of a retail shopping center known as "Cherokee Commons Shopping Center" located in metropolitan Atlanta, Cherokee County, Georgia (the "Cherokee Property"). The Cherokee Property has been expanded to consist of approximately 103,755 net leasable square feet. The Cherokee Property was initially developed through a joint venture between Wells Fund I and the Fund II-Fund II- OW Joint Venture, which contributed the Cherokee Property to the Fund I-II-II-OW-VI-VII Joint Venture on August 1, 1995 to complete the required funding for the expansion. As of December 31, 1999, 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, 1999, 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, 1999, the Cherokee Property was approximately 97% occupied by 21 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. 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 97% in 1999, 91% in 1998, 94% in 1997, $8.59 for 1996. The average effective annual rental per square foot at the Cherokee Property was $9.11 for 1999, $8.78 for 1998, $8.49 for 1997, $8.59 for 1996, and $7.50 for 1995. -9- ITEM 3. LEGAL PROCEEDINGS There were no material pending legal proceedings or proceedings known to be contemplated by governmental authorities involving the Partnership during 1999. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Limited Partners for the year of 1999. -10- PART II ITEM 5. MARKET FOR PARTNERSHIP'S UNITS AND RELATED SECURITY HOLDER MATTERS As of February 28, 2000, the Partnership had 2,036,267 outstanding Class A Status Units held by a total of 1,666 Limited Partners and 381,750 of Class B Status held by a total of 250 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, 1999 to be $10.91 per A unit and $14.29 per B unit based on market conditions existing in early December 1999. 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. 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, but are initially allocated none of the depreciation, amortization, cost recovery, and interest expense. These items are allocated to Class B Unit holders until their capital account balances have been reduced to zero. 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. No distributions have been made to the General Partner as of December 31, 1999. Cash distributions made to Limited Partners holding Class A Units (and Limited Partners holding Class B Units that have elected a conversion right) during 1999 and 1998 were as follows:
Per Class A Per Class A Per Class B Distribution Total Unit Unit Unit for Quarter Cash Investment Return of Return of Ended Distributed Income Capital Capital - ----------------------------------------- --------------- -------------- -------------- ------------- March 31, 1998 $407,411 $0.21 $0.00 $0.00 June 30, 1998 417,733 0.21 0.00 0.00 September 30, 1998 406,832 0.20 0.00 0.00 December 31, 1998 397,126 0.20 0.00 0.00 March 31, 1999 415,133 0.21 0.00 0.00 June 30, 1999 433,974 0.22 0.00 0.00 September 30, 1999 442,683 0.22 0.00 0.00 December 31, 1999 458,148 0.22 0.00 0.00
-11- The fourth quarter distribution was accrued for accounting purposes in 1999, and was not actually paid to Limited Partners holding Class A Units until February 2000. The General Partners anticipate that cash distributions to Limited Partners holding Class A units will continue in 2000 at a level at least comparable with 1999 cash distributions on an annual basis. ITEM 6. SELECTED FINANCIAL DATA The following sets forth a summary of the selected financial data for the fiscal years ended December 31, 1999, 1998, 1997, 1996, and 1995:
1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- Total assets $17,993,904 $18,789,678 $19,666,294 $20,312,730 $20,830,683 Total revenues 982,630 846,306 816,237 543,291 925,246 Net income 895,795 754,334 733,149 452,776 804,043 Net (loss) allocated to general partners 0 0 0 0 (280) Net income allocated to Class A limited partners 1,879,410 1,704,213 1,615,965 1,062,605 950,826 Net loss allocated to Class B limited partners (983,615) (949,879) (882,816) (609,829) (146,503) Net income per weighted average Class A limited partner unit (1) $ 0.93 $ 0.85 $ 0.86 $ 0.62 $ 0.57 Net loss per weighted average Class B limited partner unit (1) (2.48) (2.24) (1.68) (.98) .20 Cash distributions per weighted average Class A limited partner unit: (1) Investment income 0.87 0.82 0.79 0.50 0.55 Return of capital 0.00 0.00 0.00 0.00 0.00
(1) The weighted average unit is calculated by averaging units over the period they are outstanding during the time units are still being purchased or converted by limited partners in the Partnership. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL AND CONDITIONS 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. -12- Results of Operations and Changes in Financial Conditions General Gross revenue of the Partnership increased to $982,630 in 1999 from $846,306 in 1998 due primarily to increased income from the joint ventures, primarily due to increased occupancy at the Holcomb Bridge Road Property and Stockbridge Expansion. Net income of the Partnership was $895,795 for the fiscal year ended December 31, 1999, compared to $754,334 in 1998 due primarily to the increase in revenues discussed above. The Partnership made cash distributions to the Limited Partners holding Class A Units of $0.87 per unit for the fiscal year ended December 31, 1999, $0.82 per unit for fiscal year ended December 31, 1998, and $0.79 per Unit for the fiscal year ended December 31, 1997. No cash distributions were made to the Limited Partners holding Class B Units for the fiscal years ended December 31, 1999, December 31, 1998, and December 31, 1997. Distributions were accrued for the fourth quarter of 1999 and paid in February 2000. No distributions were made to General Partners. Property Operations As of December 31, 1999, 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, 56.3% in the Fund VI-Fund VII Joint Venture, 36.7% in the Fund VII-Fund VIII Joint Venture, 49.1% in the Fund II-III-VI-VII Joint Venture, and 33.4% in the Fund VI-VII-VIII Joint Venture. As of December 31, 1999, the Partnership owned interests in the following operational properties through its ownership of the foregoing joint ventures: -13- The Marathon Building/Fund V-VI-VII Joint Venture
For the Year Ended December 31 ----------------------------------------- 1999 1998 1997 ----------- ----------- ------------ Revenues: Rental income $971,051 $971,447 $968,219 -------- -------- -------- Expenses: Depreciation 350,585 350,585 350,585 Management and leasing expenses 39,659 34,632 39,671 Other operating expenses 19,441 12,261 11,905 -------- -------- -------- 409,685 397,478 402,161 -------- -------- -------- Net income $561,366 $573,969 $566,058 ======== ======== ======== Occupied percentage 100% 100% 100% ======== ======== ======== Partnership ownership percentage 41.7% 41.7% 41.7% ======== ======== ======== Cash distributed to the Partnership $383,958 $388,835 $387,442 ======== ======== ======== Net income allocated to the Partnership $234,146 $239,403 $236,103 ======== ======== ========
Real estate taxes and all operational expenses for the building are the responsibility of the tenant. Rental income remained relatively stable in 1999, 1998 and 1997. Management and leasing fees increased, as compared to 1998, due to an under-accrual of fees in 1998. Operating expenses increased slightly due primarily to increases in accounting and administrative fees. Cash distribution to the Partnership and net income allocated to Partnership remained relatively stable for 1999. 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. -14- Stockbridge Village III/Fund VI - Fund VII Joint Venture
For the Year Ended December 31 ------------------------------------------ 1999 1998 1997 --------- --------- -------- Revenues: Rental income $310,887 $238,098 $285,256 -------- -------- -------- Expenses: Depreciation 86,459 91,053 86,626 Management and leasing expenses 36,146 32,844 30,722 Other operating expenses 26,158 145,402 22,501 -------- -------- -------- 148,763 269,299 139,849 -------- -------- -------- Net income (loss) $162,124 $(31,206) $145,407 ======== ======== ======== Occupied percentage 100% 100% 100% ======== ======== ======== Partnership ownership percentage 56.3% 56.3% 57.5% ======== ======== ======== Cash distribution to the Partnership $139,292 $ 36,772 $133,729 ======== ======== ======== Net income (loss) allocated to the Partnership $ 91,273 $(17,686) $ 83,256 ======== ======== ========
Rental income increased in 1999 as compared to 1998 and 1997 due primarily to 100% occupancy for the whole year 1999 at the property. A tenant vacated its space in early 1998 and the space was released late in 1998. Management and leasing expenses increased as the rental income increased. Other operating expenses were higher in 1998 due to bed debt expense recorded in 1998. The Stockbridge Village III Project incurred property taxes of $26,211 for 1999, $25,248 for 1998, and $25,009 for 1997. The Partnership's ownership percentage in the Fund VI-Fund VII Joint Venture decreased to 56.3% for 1999 and 1998, as compared to 57.5% in 1997, due to additional funding by Wells Fund VI, which decreased the Partnership's 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 the property, tenants, etc. see Item 2, Properties, page 3. -15- Stockbridge Village I Expansion--Fund VI-Fund VII Joint Venture
For the Year Ended December 31 --------------------------------------- 1999 1998 1997 -------- ------------ ---------- Revenues: Rental income $313,566 $294,318 $199,090 Expenses: -------- -------- -------- Depreciation 149,132 141,843 111,990 Management and leasing expenses 43,918 44,398 25,268 Other operating expenses 12,461 18,181 38,757 -------- -------- -------- 205,511 204,422 176,015 -------- -------- -------- Net income $108,055 $ 89,896 $ 23,075 ======== ======== ======== Occupied percentage 86% 81% 74% ======== ======== ======== Partnership ownership percentage 56.3% 56.3% 57.5% ======== ======== ======== Cash distribution to the Partnership $157,919 $127,292 $ 65,574 ======== ======== ======== Net income allocated to the Partnership $ 60,833 $ 51,067 $ 13,243 ======== ======== ========
Rental income, net income, and cash distributions have increased due primarily to increased occupancy. Other operating expenses were higher in 1997 due primarily to common area maintenance billings to tenant that were underestimated in 1997. Tenants are billed as estimated amount for the current year common area maintenance which is then reconciled the following year and the difference billed to the tenant. The Stockbridge Village I Expansion incurred property taxes of $23,085 for 1999, $22,565 for 1998, and $25,608 for 1997. The Partnership's ownership percentage in the Fund VI-Fund VII Joint Venture decreased to 56.3% for 1999 and 1998, as compared to 57.5% in 1997, due to additional funding by Wells Fund VI, which decreased the Partnership's ownership in the Fund VI-Fund VII Joint Venture. For comments on the general competitive condition 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. -16- Holcomb Bridge Road Property/Fund II-III-VI-VII Joint Venture
For the Year Ended December 31 ------------------------------------------- 1999 1998 1997 ---------- --------- ---------- Revenues: Rental income $953,952 $872,978 $679,268 Other income 23,843 36,000 0 -------- -------- -------- 977,795 908,978 679,268 -------- -------- -------- Expenses: Depreciation 415,165 376,290 325,974 Management and leasing expenses 129,797 97,701 48,962 Other operating expenses 93,535 107,418 195,567 -------- -------- -------- 638,497 581,409 570,503 -------- -------- -------- Net income $339,298 $327,569 $108,765 ======== ======== ======== Occupied percentage 100% 94% 94% ======== ======== ======== Partnership ownership percentage 49.1% 49.0% 48.9% ======== ======== ======== Cash distribution to the Partnership $372,838 $365,964 $214,414 ======== ======== ======== Net income allocated to the Partnership $166,494 $160,864 $ 53,143 ======== ======== ========
Rental income increased in 1999 as compared to 1998 due primarily to increased tenant occupancy. The lower rental income in 1997 is due to the 94% occupancy starting in late 1997. Depreciation expense increased as occupancy rate increased due to tenant improvements taking place when tenants moved in. Management and leasing expenses increased due primarily to increased management fees that are charged based on rental income. Other operating expenses decreased in 1999 as compared to 1998 due primarily to an over accrual of property tax in 1998. Other operating expenses were higher in 1997 due primarily to water/sewer reimbursement paid by Fulton County Water which did not begin until 1998. Real estate taxes were $53, 896 for 1999, $52,162 for 1998, and $85,230 for 1997. 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. -17- The Hannover Center/Fund VII - Fund VIII Joint Venture
For the Year Ended December 31 ---------------------------------------------- 1999 1998 1997 --------- ------------- ------------- Revenues: Rental income $192,913 $121,056 $107,379 -------- -------- -------- Expenses: Depreciation 84,403 43,925 43,925 Management and leasing expenses 20,489 11,487 11,237 Other operating expenses 20,290 20,482 25,813 -------- -------- -------- 125,182 75,894 80,975 -------- -------- -------- Net income $ 67,731 $ 45,162 $ 26,404 ======== ======== ======== Occupied percentage 100% 100% 50% ======== ======== ======== Partnership ownership percentage 36.7% 36.7% 38.0% ======== ======== ======== Cash distribution to the Partnership $ 53,227 $ 16,607 $ 23,178 ======== ======== ======== Net income allocated to the Partnership $ 24,823 $ 6,962 $ 10,022 ======== ======== ========
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 6,060 square feet was leased to Norwest Financial and Prudential Realty, which commenced in October 1998. Rental income, net income and cash distributions have increased as compared to 1998 due to 100% occupancy starting in late 1998. Depreciation expense increased due to tenant improvement built out at the end of 1998. Distributions decreased in 1998 due to $44,000 in construction being funded by operating cash flow in 1998. Real estate taxes were $12,995 for 1999, 12,668 for 1998, and $12,219 for 1997. For comments on the general competitive condition 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. -18- CH2M Hill at Gainesville/Fund VII-Fund VIII Joint Venture
For the Year Ended December 31 --------------------------------------- 1999 1998 1997 -------- -------- -------- Revenues: Rental income $576,139 $564,683 $530,493 -------- -------- -------- Expenses: Depreciation 263,243 251,783 218,181 Management and leasing expenses 103,551 82,031 8,850 Other operating expenses (5,810) 49,250 (66,963) -------- -------- -------- 360,984 383,064 230,068 -------- -------- -------- Net income $215,155 $181,619 $300,425 ======== ======== ======== Occupied percentage 100% 100% 94% ======== ======== ======== Partnership ownership percentage 36.7% 36.7% 38.0% ======== ======== ======== Cash distributed to the Partnership $176,609 $161,604 $198,523 ======== ======== ======== Net income allocated to the Partnership $ 78,854 $ 67,105 $114,023 ======== ======== ========
Rental income, net income, depreciation and management and leasing expenses increased due primarily to a full year occupancy of Affiliated Engineers in 1999 as compared to 1998. Other operating expenses decreased due primarily to common area maintenance billings to tenant that were under estimated in 1998. Tenants are billed an estimated amount for the current year common area maintenance which is then reconciled the following year and the difference is billed to the tenant. Real estate taxes were $81,703 for 1999, $79,407 for 1998, and $79,428 for 1997. For comments on the general competitive condition 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. -19- BellSouth Property/Fund VI-VII-VIII Joint Venture
For the Year Ended December 31 ----------------------------------------- 1999 1998 1997 ---------- ---------- ---------- Revenues: Rental income $1,521,109 $1,521,109 $1,524,708 Interest income 4,763 7,086 8,188 Other income 360 9,373 360 ---------- ---------- ---------- 1,526,232 1,538,288 1,533,256 ---------- ---------- ---------- Expenses: Depreciation 446,429 444,448 443,544 Management and leasing expenses 192,716 190,025 191,176 Other operating expenses 415,562 436,403 415,114 ---------- ---------- ---------- 1,054,707 1,070,876 1,049,834 ---------- ---------- ---------- Net income $ 471,525 $ 467,412 $ 483,422 ========== ========== ========== Occupied percentage 100% 100% 100% ========== ========== ========== Partnership ownership percentage in the Fund 33.4% 33.4% 33.4% VI-VII-VIII Joint Venture ========== ========== ========== Cash distribution to the Partnership $ 317,821 $ 315,661 $ 327,460 ========== ========== ========== Net income allocated to the Partnership $ 157,467 $ 156,093 $ 166,136 ========== ========== ==========
Rental income, depreciation, and management and leasing expenses have remained relatively stable. While other operating expenses have fluctuated from $415,114 for 1997, to $436,403 for 1998, and $415,114 for 1999. HVAC and various other operating expenses were higher in 1998. This created a greater common area maintenance billing to the tenants in 1999. Tenants are billed an estimated amount for the current year common area maintenance which is then reconciled the following year and the difference billed to the tenant. Net income has decreased in 1999 and 1998 as compared to 1997 due primarily to increased costs for HVAC repairs and various other building expenses. Cash distributions and net income allocated to the partnership decreased in 1999 and 1998 over 1997 levels due primarily to additional funding by Wells Fund VIII in early 1997, which decreased the partnership ownership in the Fund VI-VII-VIII Joint Venture. The BellSouth Property incurred property taxes of $166,706 for 1999, $171,629 for 1998 and $164,400 for 1997. For comments on the general competitive condition 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. -20- Tanglewood Commons/Fund VI-VII-VIII Joint Venture
Eleven Months For the Year Ended Ended December 31, December 31, -------------------------- 1999 1998 1997 -------- ---------- ------------ Revenues: Rental income $772,907 $ 737,862 $ 562,880 Interest income 10,174 17,610 11,276 -------- ---------- ---------- 783,081 1,538,288 1,523,896 -------- ---------- ---------- Expenses: Depreciation 255,456 244,311 191,155 Management and leasing expenses 66,637 61,562 41,589 Other operating expenses 67,726 49,338 88,873 -------- ---------- ---------- 389,819 355,211 321,617 -------- ---------- ---------- Net income $393,262 $ 400,261 $ 252,539 ======== ========== ========== Occupied percentage 91% 91% 86% ======== ========== ========== Partnership ownership percentage 33.4% 33.4% 33.4% ======== ========== ========== Cash distribution to the Partnership $218,381 $ 212,954 $ 129,340 ======== ========== ========== Net income allocated to the Partnership $131,330 $ 133,667 $ 85,540 ======== ========== ==========
Rental income has increased in 1999 as compared to 1998 due to an increase in occupancy in late 1998. Depreciation, management, and leasing expense and other operating expenses have also increased due to the increased occupancy creating a slight decrease in net income. Common area maintenance billings to tenants were lower in 1999 as compared to 1998 by approximately $9,000. Tenants are billed an estimated amount for the current year common area maintenance which is then reconciled the following year and the difference billed to the tenant. Since this property commenced operations in February 1997, comparable income and expense figures for 1997 are not available. Tanglewood Commons incurred property taxes of $53,259 in 1999, $52,229 for 1998 and $58,466 for 1997, the first year of occupancy. 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. -21- Cherokee Commons Shopping Center/Fund I-II-II-OW-VI and VII Joint Venture
For the Year Ended December 31 --------------------------------------- 1999 1998 1997 -------- -------- -------- Revenues: Rental income $945,222 $909,831 $880,652 Interest income 68 84 67 -------- -------- -------- 945,290 909,915 880,719 -------- -------- -------- Expenses: Depreciation 447,969 444,660 440,882 Management and leasing expenses 94,149 82,517 78,046 Other operating expenses 68,090 84,676 138,294 -------- -------- -------- 610,208 611,853 657,222 -------- -------- -------- Net income $335,082 $298,062 $223,497 ======== ======== ======== Occupied percentage 97% 91% 94% ======== ======== ======== Partnership ownership percentage 10.7% 10.7% 10.7% ======== ======== ======== Cash distribution to the Partnership $ 83,485 $ 79,238 $ 65,047 ======== ======== ======== Net income allocated to the Partnership $ 35,881 $ 31,916 $ 23,932 ======== ======== ========
Rental income increased from $909,821 in 1998 to $945,222 in 1999 due to an increase in occupancy from 91% in 1998 to 97% in 1999. Rental income increased in 1998 over 1997 due primarily to a one time adjustment made to the straight line rent schedule in 1997. Management and leasing expenses increased from $82,517 in 1998 to $94,149 in 1999 due to an increase in occupancy and rental renewal rates. Operating expenses of the property decreased to $68,090 in 1999, from $84,676 in 1998 due to increased CAM billings to tenants that were under- accrued in 1998 offset by increased expenditures for tenant improvements, HVAC repairs and a partial demolition of a tenant suit in 1999, and decreased from $138,294 in 1997 to $84,676 in 1998 due to decreased expenditures for tenant improvements, common area expenses and legal fees. Tenants are billed an estimate amount for the current year common area maintenance which is then reconciled to the following year and the difference billed to the tenant. Net income of the property increased to $335,082 in 1999, from $298,062 in 1998, and $223,497 in 1997 due to the reasons discussed above. Real estate taxes were $87,411 for 1999, $ 77,311 for 1998, and $67,259 for 1997. 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 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 -22- 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 $3,358,633 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, $3,525,041 in the Fund II-III-VI-VII Joint Venture, $2,547 in other acquisition expenses, the Partnership is holding a balance of $14,630 as working reserves. 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. Net cash used in operating activities increased from $72,194 in 1998 to $82,763 in 1999 due primarily to the decrease in interest income which resulted from expending remaining funds on joint ventures as discussed above. Net cash provided by investing activities increased in 1999 compared to 1998 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 1999 compared to 1998 is the result of the increase in distributions to partners. Cash and cash equivalents have increased from $75,740 in 1998 to $81,697 in 1999, and decreased from $194,420 in 1997 to $75,740 in 1998 due primarily to investments made in joint ventures in 1998. 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 $0.87 per weighted average Unit were made to Class A Limited Partners for the year ended December 31, 1999. The Partnership's distributions for the fourth quarter of 1999 will be paid in February 2000 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 1999. 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. There are provisions in the majority of tenant leases executed by the Partnership to protect the Partnership from the impact of inflation. Most leases contain common area maintenance charges ("CAM charges"), real estate tax and insurance reimbursements on a per square foot bases, or in some -23- 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 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. Year 2000 The Partnership made the transaction into the year 2000 without any information systems, business operations or facilities related system problems. Management believes that there are no other Y2K related issues that may require disclosure. 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 There were no disagreements with the Partnership's accountants or other reportable events during 1999. -24- 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 6200 The Corners Parkway, Norcross, Georgia 30092. Leo F. Wells, III. Mr. Wells is a resident of Atlanta, Georgia, is 56 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 Wells 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., and Wells Management Company, 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. 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, 1999:
(A) (B) (C) Name of Individual Capacities in Which Served Cash or Number in Group Form of Compensation Compensation - ------------------------------------ ------------------------------------- ---------------------- Leo F. Wells, III General Partner $ 0 Wells Management Company, Inc. Property Manager--Management $199,571(1) And Leasing Fees
(1) The majority of these fees are not paid directly by the Partnership but are paid by the joint venture entities which own properties to which the property management and leasing services relate and include management and leasing fees. 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. -25- Set forth below is the security ownership of management as of December 31, 1999. (1) (2) (3) (4) Name and Address of Amount and Nature of Title of Class Beneficial Owner Beneficial Ownership Percent of Class - ------------------- --------------------------- ---------------------------- ---------------------- Class A units Leo F. Wells, III 69.180 Units Less than 1%
No arrangements exist which would, upon implementation, result in a change in control of the Partnership. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The following are 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. 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, 1999. 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) % 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) n 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 $199,571 in property management and leasing fees relating to the Partnership in 1999. 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 -26- 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. During 1999, no real estate commissions were paid to the General Partners or their affiliates. (THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.) -27- 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-35 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 year of 1999. (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. (THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK) -28- 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 27th day of March 2000. Wells Real Estate Fund VII (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.
Signature TITLE Date - ----------------------------- -------------------------------- ----------------------- /s/ Leo F. Wells, III - ----------------------------- Leo F. Wells, III Individual General Partner, March 27, 2000 President and Sole Director of Wells Capital, Inc., the General Partner of Wells Partners, L.P.
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. -29- INDEX TO FINANCIAL STATEMENTS
Financial Statements Page - --------------------------------------------------------------------------------------- ------------ Independent Auditors' Report F2 Balance Sheets as of December 31, 1999 and 1998 F3 Statements of Income for the Years ended December 31, 1999, 1998, and 1997 F4 Statements of Partners' Capital for the Years Ended December 31, 1999, 1998, and 1997 F5 Statements of Cash Flows for the Years Ended December 31, 1999, 1998, and 1997 F6 Notes to Financial Statements for December 31, 1999, 1998, and 1997 F7
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To 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, 1999 and 1998 and the related statements of income, partners' capital, and cash flows for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted in the United States. 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, 1999 and 1998 and the results of its operations and its cash flows each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. 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, 1999 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 20, 2000 F-2 WELLS REAL ESTATE FUND VII, L.P. (A Georgia Public Limited Partnership) BALANCE SHEETS DECEMBER 31, 1999 AND 1998
ASSETS 1999 1998 ----------- ----------- INVESTMENT IN JOINT VENTURES $17,446,299 $18,368,726 CASH AND CASH EQUIVALENTS 81,697 75,740 DUE FROM AFFILIATES 465,908 339,387 ORGANIZATIONAL COSTS, less accumulated amortization of $31,250 in 1999 and $29,688 in 1998 0 1,562 PREPAID EXPENSES AND OTHER ASSETS 0 4,263 ----------- ----------- Total assets $17,993,904 $18,789,678 =========== =========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES: Accounts payable and accrued expenses $ 1,929 $ 5,208 Partnership distributions payable 458,148 396,500 ----------- ----------- Total liabilities 460,077 401,708 ----------- ----------- COMMITMENTS AND CONTINGENCIES PARTNERS' CAPITAL: Limited partners: Class A--2,036,267 units and 2,009,517 units as of December 31, 1999 and 1998, respectively 17,125,194 16,935,935 Class B--381,750 units and 408,500 units as of December 31, 1999 and 1998, respectively 408,633 1,452,035 ----------- ----------- Total partners' capital 17,533,827 18,387,970 ----------- ----------- Total liabilities and partners' capital $17,993,904 $18,789,678 =========== ===========
The accompanying notes are an integral part of these balance sheets. F-3 WELLS REAL ESTATE FUND VII, L.P. (A Georgia Public Limited Partnership) STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
1999 1998 1997 ---------- ---------- ---------- REVENUES: Equity in income of joint ventures $ 981,104 $ 839,037 $ 785,398 Interest income 1,526 7,269 30,839 ---------- ---------- ---------- 982,630 846,306 816,237 ---------- ---------- ---------- EXPENSES: Partnership administration 65,049 66,168 54,435 Legal and accounting 20,224 19,554 22,403 Amortization of organization costs 1,562 6,250 6,250 ---------- ---------- ---------- 86,835 91,972 83,088 ---------- ---------- ---------- NET INCOME $ 895,795 $ 754,334 $ 733,149 ========== ========== ========== NET INCOME ALLOCATED TO CLASS A LIMITED PARTNERS $1,879,410 $1,704,213 $1,615,965 ========== ========== ========== NET LOSS ALLOCATED TO CLASS B LIMITED PARTNERS $ (983,615) $ (949,879) $ (882,816) ========== ========== ========== NET INCOME PER WEIGHTED AVERAGE CLASS A LIMITED PARTNER UNIT $ 0.93 $ 0.85 $ 0.86 ========== ========== ========== NET LOSS PER WEIGHTED AVERAGE CLASS B LIMITED PARTNER UNIT $ (2.48) $ (2.24) $ (1.68) ========== ========== ========== CASH DISTRIBUTION PER WEIGHTED AVERAGE CLASS A LIMITED PARTNER UNIT $ 0.87 $ 0.82 $ 0.79 ========== ========== ==========
The accompanying notes are an integral part of these statements. F-4 WELLS REAL ESTATE FUND VII, L.P. (A Georgia Public Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
Limited Partners Total ----------------------------------------------------- Class A Class B Partners' ------------------------- ----------------------- Units Amount Units Amount Capital --------- ----------- -------- ---------- ----------- BALANCE, December 31, 1996 1,826,830 $15,698,900 591,187 $4,317,124 $20,016,024 Net income (loss) 0 1,615,965 0 (882,816) 733,149 Partnership distributions 0 (1,487,008) 0 0 (1,487,008) Class B conversion elections 144,569 873,336 (144,569) (873,336) 0 --------- ----------- -------- ---------- ----------- BALANCE, December 31, 1997 1,971,399 16,701,193 446,618 2,560,972 19,262,165 Net income (loss) 0 1,704,213 0 (949,879) 754,334 Partnership distributions 0 (1,628,529) 0 0 (1,628,529) Class B conversion elections 38,118 159,058 (38,118) (159,058) 0 --------- ----------- -------- ---------- ----------- BALANCE, December 31, 1998 2,009,517 16,935,935 408,500 1,452,035 18,387,970 Net income (loss) 0 1,879,410 0 (983,615) 895,795 Partnership distributions 0 (1,749,938) 0 0 (1,749,938) Class B conversion elections 26,750 59,787 (26,750) (59,787) 0 --------- ----------- -------- ---------- ----------- BALANCE, December 31, 1999 2,036,267 $17,125,194 381,750 $ 408,633 $17,533,827 ========= =========== ======== ========== ===========
The accompanying notes are an integral part of these statements. F-5 WELLS REAL ESTATE FUND VII, L.P. (A Georgia Public Limited Partnership) STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
1999 1998 1997 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 895,795 $ 754,334 $ 733,149 ----------- ----------- ----------- Adjustments to reconcile net income to net cash used in operating activities: Equity in income of joint ventures (981,104) (839,037) (785,398) Amortization of organization costs 1,562 6,250 6,250 Changes in assets and liabilities: Prepaid expenses and other assets 4,263 1,051 2,749 Accounts payable and accrued expenses (3,279) 5,208 0 ----------- ----------- ----------- Total adjustments (978,558) (826,528) (776,399) ----------- ----------- ----------- Net cash used in operating activities (82,763) (72,194) (43,250) ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Distributions received from joint ventures 1,777,010 1,770,742 1,420,126 Investment in joint ventures 0 (181,070) (169,172) ----------- ----------- ----------- Net cash provided by investing activities 1,777,010 1,589,672 1,250,954 ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions to partners from accumulated earnings (1,688,290) (1,636,158) (1,379,585) ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,957 (118,680) (171,881) CASH AND CASH EQUIVALENTS, beginning of year 75,740 194,420 366,301 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, end of year $ 81,697 $ 75,740 $ 194,420 =========== =========== =========== SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES: Deferred project costs contributed to joint ventures $ 0 $ 4,070 $ 4,932 =========== =========== ===========
The accompanying notes are an integral part of these statements. F-6 WELLS REAL ESTATE FUND VII, L.P. (A Georgia Public Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998, AND 1997 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 December 1, 1992 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. The carrying values of real estate 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, F-7 and an appropriate level of operating expenses in future years. Management believes that the steps that 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 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 and amortization. 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, and amortization 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 F-8 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 and amortization 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 and amortization 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. 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 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, 1999. Depreciation for buildings and improvements is calculated using the straight-line method over 25 years. 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. F-9 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, 1999, 1998, and 1997 is computed based on the weighted average number of units outstanding during the period. Reclassifications Certain prior year amounts have been reclassified to conform with the current year financial statement presentation. 2. RELATED-PARTY TRANSACTIONS Due from affiliates at December 31, 1999 and 1998 represents the Partnership's share of cash to be distributed from its joint venture investments for the fourth quarters of 1999 and 1998, respectively, as follows:
1999 1998 ---------- ----------- Fund I, II, II-OW, VI, and VII Associates--Cherokee $ 20,175 $ (6,707) Fund II, III, VI, VII Associates 122,712 102,908 Fund V, VI, and VII Associates 99,145 98,432 Fund VI and VII Associates 73,394 38,270 Fund VI, VII, and VIII Associates 101,617 90,130 Fund VII and VIII Associates 48,865 16,354 ----------- ----------- $ 465,908 $ 339,387 =========== ===========
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. The Partnership incurred management and leasing fees and lease acquisition costs, at the joint venture level, of $199,571, $144,379, and $211,201 for the years ended December 31, 1999, 1998, and 1997, respectively, which were paid to Wells Management. Wells Capital, Inc. (the "Company") performs certain administrative services for the Partnership, such as accounting and other partnership administration, and incurs the related expenses. Such expenses are F-10 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 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. 3. INVESTMENT IN JOINT VENTURES The Partnership's investment and percentage ownership in joint ventures at December 31, 1999 and 1998 are summarized as follows:
1999 1998 ---------------------------- -------------------------- Amount Percent Amount Percent --------------- ------- ------------- ------- Fund I, II, II-OW, VI, and VII $ 793,858 11% $ 841,460 11% Fund II, III, VI, and VII Associates 2,995,463 49 3,201,805 49 Fund V, VI, and VII Associates 2,955,059 42 3,104,872 42 Fund VI and VII Associates 3,089,767 56 3,234,873 56 Fund VI, VII, and VIII Associates 5,420,549 33 5,667,955 33 Fund VII and VIII Associates 2,191,603 37 2,317,761 37 --------------- ------------- $ 17,446,299 $18,368,726 =============== =============
The following is a rollforward of the Partnership's investment in joint ventures for the years ended December 31, 1999 and 1998:
1999 1998 ----------- ----------- Investment in joint ventures, beginning of year $18,368,726 $19,039,835 Equity in income of joint ventures 981,104 839,037 Contributions to joint ventures 0 185,140 Distributions from joint ventures (1,903,531) (1,695,286) ----------- ----------- Investment in joint ventures, end of year $17,446,299 $18,368,726 =========== ===========
Fund I, II, II-OW, VI, and VII Associates--Cherokee In August 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 F-11 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-12 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, 1999 and 1998
Assets 1999 1998 ---------- ---------- Real estate assets, at cost: Land $1,219,704 $1,219,704 Building and improvements, less accumulated depreciation of $3,165,778 6,067,174 6,500,995 ---------- ---------- Total real estate assets 7,286,878 7,720,699 Cash and cash equivalents 206,540 222,814 Accounts receivable 27,703 35,517 Prepaid expenses and other assets 89,846 90,979 ---------- ---------- Total assets $7,610,967 $8,070,009 ========== ========== Liabilities and Partners' Capital Liabilities: Accounts payable and accrued expenses $ 34,857 $ 107,129 Partnership distributions payable 192,184 130,838 Due to affiliates 122,272 109,267 ---------- ---------- Total liabilities 349,313 347,234 ---------- ---------- Partners' capital: Wells Real Estate Fund I 1,618,133 1,741,492 Fund II and II-OW 4,053,105 4,295,663 Wells Real Estate Fund VI 796,558 844,160 Wells Real Estate Fund VII 793,858 841,460 ---------- ---------- Total partners' capital 7,261,654 7,722,775 ---------- ---------- Total liabilities and partners' capital $7,610,967 $8,070,009 ========== ==========
F-13 Fund I, II, II-OW, VI and VII Associates--Cherokee (A Georgia Joint Venture) Statements of Income for the Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997 --------- -------- -------- Revenues: Rental income $ 945,222 $909,831 $880,652 Interest income 68 84 67 --------- -------- -------- 945,290 909,915 880,719 --------- -------- -------- Expenses: Depreciation 447,969 444,660 440,882 Operating costs, net of reimbursements 37,583 35,715 70,017 Partnership administration 24,882 22,934 26,260 Management and leasing fees 94,149 82,517 78,046 Legal and accounting 5,624 7,363 9,385 Bad debt expense 0 18,664 0 Loss on real estate assets 0 0 32,632 --------- -------- -------- 610,207 611,853 657,222 --------- -------- -------- Net income $ 335,083 $298,062 $223,497 ========= ======== ======== Net income allocated to Wells Real Estate Fund I $ 80,496 $ 71,604 $ 53,691 ========= ======== ======== Net income allocated to Fund II and II-OW $ 182,825 $162,626 $121,942 ========= ======== ======== Net income allocated to Wells Real Estate Fund VI $ 35,881 $ 31,916 $ 23,932 ========= ======== ======== Net income allocated to Wells Real Estate Fund VII $ 35,881 $ 31,916 $ 23,932 ========= ======== ========
Fund I, II, II-OW, VI and VII Associates--Cherokee (A Georgia Joint Venture) Statements of Partners' Capital for the Years Ended December 31, 1999, 1998, and 1997
Wells Real Fund II Wells Real Wells Real Total Estate and Estate Estate Partners' Fund I II-OW Fund VI Fund VII Capital ----------- ---------- ---------- ---------- ---------- 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 Net income 71,604 162,626 31,916 31,916 298,062 Partnership distributions (193,285) (403,744) (79,238) (79,238) (755,505) ----------- ---------- ---------- ---------- ---------- Balance, December 31, 1998 1,741,492 4,295,663 844,160 841,460 7,722,775 Net income 80,496 182,825 35,881 35,881 335,083 Partnership distributions (203,855) (425,383) (83,483) (83,483) (796,204) ----------- ---------- ---------- ---------- ---------- Balance, December 31, 1999 $ 1,618,133 $4,053,105 $ 796,558 $ 793,858 $7,261,654 =========== ========== ========== ========== ==========
F-14 Fund I, II, II-OW, VI, and VII Associates--Cherokee (A Georgia Joint Venture) Statements of Cash Flows for the Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997 -------- -------- -------- Cash flows from operating activities: Net income $335,083 $ 298,062 $ 223,497 -------- --------- --------- Adjustments to reconcile net income to net cash provided by Depreciation 447,969 444,660 440,882 Loss on real estate assets 0 0 32,632 Changes in assets and liabilities: Accounts receivable 7,814 56,999 1,386 Prepaid expenses and other assets 1,133 8,890 (21,342) Accounts payable and accrued expenses (72,272) 70,278 13,721 Due to affiliates 13,005 15,327 15,565 -------- --------- --------- Total adjustments 397,649 596,154 482,844 -------- --------- --------- Net cash provided by operating activities 732,732 894,216 706,341 -------- --------- --------- Cash flows from investing activities: Investment in real estate (14,148) (5,771) (83,424) -------- --------- --------- Cash flows from financing activities: Distributions to joint venture partners (734,858) (818,790) (541,104) -------- --------- --------- Net (decrease) increase in cash and cash equivalents (16,274) 69,655 81,813 Cash and cash equivalents, beginning of year 222,814 153,159 71,346 -------- --------- --------- Cash and cash equivalents, end of year $206,540 $ 222,814 $ 153,159 ======== ========= =========
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 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 1998, 1997, and 1996, the Partnership and Fund VI made contributions to the joint venture. Ownership percentage interests were 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: F-15 Fund II, III, VI, and VII Associates (A Georgia Joint Venture) Balance Sheets December 31, 1999 and 1998
Assets 1999 1998 ---------- ---------- Real estate assets, at cost: Land $1,325,242 $1,325,242 Building and improvements, less accumulated depreciation of $1,299,227 4,418,932 4,773,062 Construction in progress 0 41,263 ---------- ---------- Total real estate assets 5,744,174 6,139,567 Cash and cash equivalents 189,404 308,788 Accounts receivable 162,464 111,460 Prepaid expenses and other assets 213,443 233,965 ---------- ---------- Total assets $6,309,485 $6,793,780 ========== ========== Liabilities and Partners' Capital Liabilities: Accounts payable and accrued expenses $ 87,926 $ 192,072 Partnership distributions payable 250,075 209,716 ---------- ---------- 338,001 401,788 ---------- ---------- Partners' capital: Fund II and III Associates 1,406,591 1,507,807 Wells Real Estate Fund VI 1,569,430 1,682,380 Wells Real Estate Fund VII 2,995,463 3,201,805 ---------- ---------- Total partners' capital 5,971,484 6,391,992 ---------- ---------- Total liabilities and partners' capital $6,309,485 $6,793,780 ========== ==========
F-16 Fund II, III, VI, and VII Associates (A Georgia Joint Venture) Statements of Income for the Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997 --------- --------- -------- Revenues: Rental income $ 953,952 $ 872,978 $679,268 Other income 23,843 36,000 0 --------- --------- -------- 977,795 908,978 679,268 --------- --------- -------- Expenses: Depreciation 415,165 376,290 325,974 Operating costs, net of reimbursements 68,691 85,983 122,261 Management and leasing fees 129,798 97,701 99,834 Legal and accounting 4,952 6,509 4,885 Partnership administration 19,891 14,926 17,321 Computer costs 0 0 228 --------- --------- -------- 638,497 581,409 570,503 --------- --------- -------- Net income $339,298 $ 327,569 $108,765 ========= ========= ======== Net income allocated to Fund II and III Associates $ 81,669 $ 78,791 $ 27,213 ========= ========= ======== Net income allocated to Wells Real Estate Fund VI $ 91,135 $ 87,914 $ 28,409 ========= ========= ======== Net income allocated to Wells Real Estate Fund VII $ 166,494 $ 160,864 $ 53,143 ========= ========= ========
Fund II, III, VI, and VII Associates (A Georgia Joint Venture) Statements of Partners' Capital for the Years Ended December 31, 1999, 1998, and 1997
Fund II Wells Wells Real Total and III Real Estate Estate Partners' Associates Fund VI Fund VII Capital ----------- ------------ ----------- ----------- 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 Partnership contributions 0 4,600 154,049 158,649 Partnership distributions (179,199) (199,945) (365,964) (745,108) Net income 78,791 87,914 160,864 327,569 ----------- ------------ ----------- ----------- Balance, December 31, 1998 1,507,807 1,682,380 3,201,805 6,391,992 Partnership distributions (182,885) (204,085) (372,836) (759,806) Net income 81,669 91,135 166,494 339,298 ----------- ------------ ----------- ----------- Balance, December 31, 1999 $ 1,406,591 $ 1,569,430 $ 2,995,463 $ 5,971,484 =========== ============ =========== ===========
F-17 Fund II, III, VI, and VII Associates (A Georgia Joint Venture) Statements of Cash Flows for the Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997 --------- -------- -------- Cash flows from operating activities: Net income $ 339,298 $ 327,569 $ 108,765 --------- --------- --------- Adjustments to reconcile net income to net cash provided by Depreciation 415,165 376,290 325,974 Changes in assets and liabilities: Accounts receivable (51,004) (56,936) 12,810 Prepaid expenses and other assets 20,522 35,603 (123,748) Accounts payable and accrued expenses (104,146) 21,296 (34,194) --------- --------- --------- Total adjustments 280,537 376,253 180,842 --------- --------- --------- Net cash provided by operating activities 619,835 703,822 289,607 --------- --------- --------- Cash flows from investing activities: Investment in real estate (19,772) (102,122) (620,059) --------- --------- --------- Cash flows from financing activities: Contributions from joint venture partners 0 154,996 230,699 Distributions to joint venture partners (719,447) (667,299) (356,559) --------- --------- --------- Net cash used in financing activities (719,447) (512,303) (125,860) --------- --------- --------- Net (decrease) increase in cash and cash equivalents (119,384) 89,397 (456,312) Cash and cash equivalents, beginning of year 308,788 219,391 675,703 --------- --------- --------- Cash and cash equivalents, end of year $ 189,404 $ 308,788 $ 219,391 ========= ========= ========= Supplemental disclosure of noncash activities: Deferred project costs contributed to joint venture $ 0 $ 3,653 $ 7,552 ========= ========= =========
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-18 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, 1999 and 1998
Assets 1999 1998 ----------- ----------- Real estate assets, at cost: Land $ 314,591 $ 314,591 Building and improvements, less accumulated depreciation of $1,706,784 6,661,120 7,011,705 ----------- ----------- Total real estate assets 6,975,711 7,326,296 Cash and cash equivalents 235,250 235,991 Due from affiliates 2,450 0 Accounts receivable 112,645 121,594 ----------- ----------- Total assets $ 7,326,056 $ 7,683,881 =========== =========== Liabilities and Partners' Capital Liabilities: Partnership distributions payable $ 237,700 $ 235,990 Due to affiliates 4,506 4,864 ----------- ----------- Total liabilities 242,206 240,854 ----------- ----------- Partners' capital: Wells Real Estate Fund V 1,165,776 1,224,896 Wells Real Estate Fund VI 2,963,015 3,113,259 Wells Real Estate Fund VII 2,955,059 3,104,872 ----------- ----------- Total partners' capital 7,083,850 7,443,027 ----------- ----------- Total liabilities and partners' capital $ 7,326,056 $ 7,683,881 =========== ===========
F-19 Fund V, VI, and VII Associates (A Georgia Joint Venture) Statements of Income for the Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997 -------- -------- -------- Revenues: Rental income $971,051 $971,447 $968,219 -------- -------- -------- Expenses: Depreciation 350,585 350,585 350,585 Management and leasing fees 39,659 34,632 39,671 Legal and accounting 5,750 3,450 5,690 Partnership administration 12,302 7,439 3,878 Computer costs 0 0 107 Operating costs 1,389 1,372 2,230 -------- -------- -------- 409,685 397,478 402,161 -------- -------- -------- Net income $561,366 $573,969 $566,058 ======== ======== ======== Net income allocated to Wells Real Estate Fund V $ 92,401 $ 94,475 $ 93,173 ======== ======== ======== Net income allocated to Wells Real Estate fund VI $234,819 $240,091 $236,782 ======== ======== ======== Net income allocated to Wells Real Estate fund VII $234,146 $239,403 $236,103 ======== ======== ========
Fund V, VI, and VII Associates (A Georgia Joint Venture) Statements of Partners' Capital for the Years Ended December 31, 1999, 1998, and 1997
Wells Real Wells Real Wells Real Total Estate Estate Estate Partners' Fund V Fund VI Fund VII Capital --------------- -------------- --------------- -------------- 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 Net income 94,475 240,091 239,403 573,969 Partnership distributions (153,446) (389,953) (388,835) (932,234) ----------- ----------- ----------- ----------- Balance, December 31, 1998 1,224,896 3,113,259 3,104,872 7,443,027 Net income 92,401 234,819 234,146 561,366 Partnership distributions (151,521) (385,063) (383,959) (920,543) ----------- ----------- ----------- ----------- Balance, December 31, 1999 $1,165,776 $2,963,015 $2,955,059 $7,083,850 =========== =========== =========== ===========
F-20 Fund V, VI, and VII Associates (A Georgia Joint Venture) Statements of Cash Flows for the Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997 ---------- --------- --------- Cash flows from operating activities: Net income $ 561,366 $ 573,969 $ 566,058 ---------- --------- --------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 350,585 350,585 350,585 Changes in assets and liabilities: Accounts receivable 8,949 8,983 11,781 Due from affiliates (2,450) 0 0 Due to affiliates (358) (1,302) 471 ---------- ---------- ---------- Total adjustments 356,726 358,266 362,837 ---------- ---------- ---------- Net cash provided by operating activities 918,092 932,235 928,895 Cash flows from financing activities: Distributions to joint venture partners (918,833) (927,476) (911,808) ---------- ---------- ---------- Net (decrease) increase in cash and cash equivalents (741) 4,759 17,087 Cash and cash equivalents, beginning of year 235,991 231,232 214,145 ---------- ---------- ---------- Cash and cash equivalents, end of year $ 235,250 $ 235,991 $ 231,232 ========== ========== ==========
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 1997 and 1998, 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-21 Following are the financial statements for Fund VI and VII Associates: Fund VI and VII Associates (A Georgia Joint Venture) Balance Sheets December 31, 1999 and 1998
Assets 1999 1998 ---------- ---------- Real estate assets, at cost: Land $1,812,447 $1,812,447 Building and improvements, less accumulated depreciation of $832,798 in 1999 and $597,207 in 1998 3,485,011 3,720,105 ---------- ---------- Total real estate assets 5,297,458 5,532,552 Cash and cash equivalents 113,621 60,259 Accounts receivable 126,982 133,134 Prepaid expenses and other assets 115,743 130,683 ---------- ---------- Total assets $5,653,804 $5,856,628 ========== ========== Liabilities and Partners' Capital Liabilities: Accounts payable $ 35,235 $ 37,400 Partnership distributions payable 130,366 67,943 Due to affiliates 0 5,338 ---------- ---------- Total liabilities 165,601 110,681 ---------- ---------- Partners' capital: Wells Real Estate Fund VI 2,398,436 2,511,074 Wells Real Estate Fund VII 3,089,767 3,234,873 ---------- ---------- Total partners' capital 5,488,203 5,745,947 ---------- ---------- Total liabilities and partners' capital $5,653,804 $5,856,628 ========== ==========
F-22 Fund VI and VII Associates (A Georgia Joint Venture) Statements of Income for the Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997 -------- -------- -------- Revenues: Rental income $624,453 $532,410 $485,346 -------- -------- -------- Expenses: Depreciation 235,591 232,896 198,616 Operating costs, net of reimbursements (9,718) 36,099 19,833 Management and leasing fees 80,064 77,242 55,990 Partnership administration 33,090 22,119 20,803 Legal and accounting 15,247 26,676 21,622 Bad debt expense 0 78,689 0 -------- -------- -------- 354,274 473,721 316,864 -------- -------- -------- Net income $270,179 $ 58,689 $168,482 ======== ======== ======== Net income allocated to Wells Real Estate Fund VI $118,073 $ 25,308 $ 71,983 ======== ======== ======== Net income allocated to Wells Real Estate Fund VII $152,106 $ 33,381 $ 96,499 ======== ======== ========
Fund VI and VII Associates (A Georgia Joint Venture) Statements of Partners' Capital for the Years Ended December 31, 1999, 1998, and 1997
Wells Real Wells Real Total Estate Estate Partners' Fund VI Fund VII Capital ---------- ---------- ---------- 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 Net income 25,308 33,381 58,689 Partnership contributions 123,018 5,291 128,309 Partnership distributions (124,695) (164,064) (288,759) ----------- ----------- ----------- Balance, December 31, 1998 2,511,074 3,234,873 5,745,947 Net income 118,073 152,106 270,179 Partnership distributions (230,711) (297,212) (527,923) ----------- ----------- ----------- Balance, December 31, 1999 $2,398,436 $3,089,767 $5,488,203 =========== =========== ===========
F-23 Funds VI and VII Associates (A Georgia Joint Venture) Statements of Cash Flows for the Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997 -------- --------- --------- Cash flows from operating activities: Net income $ 270,179 $ 58,689 $ 168,482 --------- --------- --------- Adjustments to reconcile net income to net cash provided by operating actitivies: Depreciation 235,591 232,896 198,616 Changes in assets and liabilities: Accounts receivable 6,152 58,720 (98,688) Prepaid expenses and other assets 14,940 844 (48,821) Accounts payable (2,165) (27,644) 26,509 Due to affiliates (5,338) 732 2,194 --------- --------- --------- Total adjustments 249,180 265,548 79,810 --------- --------- --------- Net cash provided by operating activities 519,359 324,237 248,292 --------- --------- --------- Cash flows from investing activities: Decrease in construction payables 0 (30,000) (35,000) Investment in real estate (497) (83,957) (455,042) --------- --------- --------- Net cash used in investing activities (497) (113,957) (490,042) --------- --------- --------- Cash flows from financing activities: Contributions from joint venture partners 0 128,309 67,906 Distributions to joint venture partners (465,500) (312,251) (297,959) --------- --------- --------- Net cash used in financing activities (465,500) (183,942) (230,053) --------- --------- --------- Net increase (decrease) in cash and cash equivalents 53,362 26,338 (471,803) Cash and cash equivalents, beginning of year 60,259 33,921 505,724 --------- --------- --------- Cash and cash equivalents, end of year $ 113,621 $ 60,259 $ 33,921 ========= ========= =========
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-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. F-24 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, 1999 and 1998
Assets 1999 1998 ------------ ------------ Real estate assets, at cost: Land $ 4,461,819 $ 4,461,819 Building and improvements, less accumulated depreciation of $2,315,750 in 1999 and $1,613,865 in 1998 10,657,052 11,276,322 Construction in progress 0 17,866 ------------ ------------ Total real estate assets 15,118,871 15,756,007 Cash and cash equivalents 736,202 800,321 Accounts receivable 255,221 183,952 Prepaid expenses and other assets 545,816 633,589 ------------ ------------ Total assets $ 16,656,110 $ 17,373,869 ============ ============ Liabilities and Partners' Capital Liabilities: Accounts payable $ 84,159 $ 52,026 Partnership distributions payable 324,100 339,696 Due to affiliates 16,281 9,735 ------------ ------------ Total liabilities 424,540 401,457 ------------ ------------ Partners' capital: Wells Real Estate Fund VI 5,559,369 5,813,110 Wells Real Estate Fund VII 5,420,549 5,667,955 Wells Real Estate Fund VIII 5,251,652 5,491,347 ------------ ------------ Total partners' capital 16,231,570 16,972,412 ------------ ------------ Total liabilities and partners' capital $ 16,656,110 $ 17,373,869 ============ ============
F-25 Fund VI, VII, and VIII Associates (A Georgia Joint Venture) Statements of Income for the Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997 ----------- ----------- ---------- Revenues: Rental income $ 2,294,016 $ 2,258,971 $2,087,588 Interest income 14,937 25,416 19,464 Other income 360 9,373 360 ----------- ----------- ---------- 2,309,313 2,293,760 2,107,412 ----------- ----------- ---------- Expenses: Depreciation 701,885 688,759 634,699 Operating costs, net of reimbursements 444,156 451,299 460,873 Management and leasing fees 259,352 251,587 232,765 Legal and accounting 10,286 9,205 15,934 Partnership administration 27,804 25,109 27,180 Computer costs 1,043 128 0 ----------- ----------- ---------- 1,444,526 1,426,087 1,371,451 ----------- ----------- ---------- Net income $ 864,787 $ 867,673 $ 735,961 =========== =========== ========== Net income allocated to Wells Real Estate Fund VI $ 296,193 $ 297,181 $ 258,122 =========== =========== ========== Net income allocated to Wells Real Estate Fund VII $ 288,796 $ 289,760 $ 251,676 =========== =========== ========== Net income allocated to Wells Real Estate Fund VIII $ 279,798 $ 280,732 $ 226,163 =========== =========== ==========
F-26 Fund VI, VII, and VIII Associates (A Georgia Joint Venture) Statements of Partners' Capital for the Years Ended December 31, 1999, 1998, and 1997
Wells Real Wells Real Wells Real Total Estate Estate Estate Partners' Fund VI Fund VII Fund VIII Capital ----------- ----------- ---------- ----------- 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 Net income 297,181 289,760 280,732 867,673 Partnership distributions (542,153) (528,615) (512,146) (1,582,914) ----------- ----------- ---------- ----------- Balance, December 31, 1998 5,813,110 5,667,955 5,491,347 16,972,412 Net income 296,193 288,796 279,798 864,787 Partnership distributions (549,934) (536,202) (519,493) (1,605,629) ----------- ----------- ---------- ----------- Balance, December 31, 1999 $ 5,559,369 $ 5,420,549 $5,251,652 $16,231,570 =========== =========== ========== ===========
Fund VI, VII, and VIII Associates (A Georgia Joint Venture) Statements of Cash Flows for the Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997 ----------- ----------- ----------- Cash flows from operating activities: Net income $ 864,787 $ 867,673 $ 735,961 ----------- ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 701,885 688,759 634,699 Changes in assets and liabilities: Accounts receivable (71,269) (79,931) (76,170) Prepaid expenses and other assets 87,773 79,225 (21,073) Accounts payable 32,133 6,234 8,312 Due to affiliates 6,546 4,558 3,622 ----------- ----------- ----------- Total adjustments 757,068 698,845 549,390 ----------- ----------- ----------- Net cash provided by operating activities 1,621,855 1,566,518 1,285,351 ----------- ----------- ----------- Cash flows from investing activities: Decrease in construction payables 0 (55,000) (110,795) Investment in real estate (64,749) (140,590) (828,992) ----------- ----------- ----------- Net cash used in investing activities (64,749) (195,590) (939,787) ----------- ----------- ----------- Cash flows from financing activities: Contributions received from joint venture partners 0 0 1,000,000 Distributions to joint venture partners (1,621,225) (1,629,608) (1,216,246) ----------- ----------- ----------- Net cash used in financing activities (1,621,225) (1,629,608) (216,246) ----------- ----------- ----------- Net (decrease) increase in cash and cash equivalents (64,119) (258,680) 129,318 Cash and cash equivalents, beginning of year 800,321 1,059,001 929,683 ----------- ----------- ----------- Cash and cash equivalents, end of year $ 736,202 $ 800,321 $ 1,059,001 =========== =========== =========== Supplemental disclosure of noncash items: Deferred project costs contributed to joint venture $ 0 $ 0 $ 55,900 =========== =========== ===========
F-27 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. 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, 1999 and 1998
Assets 1999 1998 ----------- ----------- Real estate assets, at cost: Land $ 822,320 $ 882,320 Building and improvements, less accumulated depreciation of $1,056,143 in 1999 and $735,803 in 1998 4,864,790 5,119,836 Personal property, less accumulated depreciation of $116,671 in 1999 in 1999 and $89,365 in 1998 181,212 208,518 ----------- ----------- Total real estate assets 5,868,322 6,210,674 Cash and cash equivalents 68,008 124,696 Accounts receivable 111,285 48,581 Prepaid expenses and other assets 90,350 104,269 ----------- ----------- Total assets $ 6,137,965 $ 6,488,220 =========== =========== Liabilities and Partners' Capital Liabilities: Accounts payable $ 20,761 $ 24,468 Due to affiliates 2,227 1,500 Partnership distributions payable 133,324 136,377 ----------- ----------- Total liabilities 156,312 162,345 ----------- ----------- Partners' capital: Wells Real Estate Fund VII 2,191,603 2,317,761 Wells Real Estate Fund VIII 3,790,050 4,008,114 ----------- ----------- Total partners' capital 5,981,653 6,325,875 ----------- ----------- Total liabilities and partners' capital $ 6,137,965 $ 6,488,220 =========== ===========
F-28 Fund VII and VIII Associates (A Georgia Joint Venture) Statements of Income for the Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997 ---------- ---------- ---------- Revenues: Rental income $ 769,052 $ 685,637 $ 637,692 Other income 300 0 180 ---------- ---------- ---------- 769,352 685,637 637,872 ---------- ---------- ---------- Expenses: Depreciation 347,646 295,708 262,106 Management and leasing fees 124,040 93,519 90,087 Legal and accounting 13,952 9,450 9,973 Partnership administration 29,182 26,095 24,830 Computer costs 0 0 107 Operating costs, net of reimbursements (28,354) 34,084 (76,060) ---------- ---------- ---------- 486,466 458,856 311,043 ---------- ---------- ---------- Net income $ 282,886 $ 226,781 $ 326,829 ========== ========== ========== Net income allocated to Wells Real Estate Fund VII $ 103,681 $ 83,713 $ 124,045 ========== ========== ========== Net income allocated to Wells Real Estate Fund VIII $ 179,205 $ 143,068 $ 202,784 ========== ========== ==========
Fund VII And VIII Associates (A Georgia Joint Venture) Statements of Partners' Capital for the Years Ended December 31, 1999, 1998, and 1997
Wells Real Wells Real Total Estate Estate Partners' Fund VII Fund VIII Capital ------------ ------------ ------------ 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 Net income 83,713 143,068 226,781 Partnership contributions 25,800 279,626 305,426 Partnership distributions (168,570) (287,602) (456,172) ------------ ------------ ------------ Balance, December 31, 1998 2,317,761 4,008,114 6,325,875 Net income 103,681 179,205 282,886 Partnership distributions (229,839) (397,269) (627,108) ------------ ------------ ------------ Balance, December 31, 1999 $2,191,603 $3,790,050 $5,981,653 ============ ============ ============
F-29 Fund VII and VIII Associates (A Georgia Joint Venture) Statements of Cash Flows for the Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997 --------- --------- --------- Cash flows from operating activities: Net income $ 282,886 $ 226,781 $ 326,829 --------- --------- --------- Adjustments to reconcile net income to net cash provided by operating activities Depreciation 347,646 295,708 262,106 Changes in assets and liabilities: Accounts receivable (62,704) (34,183) (14,398) Prepaid expenses and other assets 13,919 (26,375) (5,931) Accounts payable (3,707) (2,485) (24,340) Due to affiliates 727 656 844 --------- --------- --------- Total adjustments 295,881 233,321 218,281 --------- --------- --------- Net cash provided by operating activities 578,767 460,102 545,110 --------- --------- --------- Cash flows from investing activities: Investment in real estate (5,294) (406,380) (6,016) --------- --------- --------- Cash flows from financing activities: Contributions from partners 0 293,511 0 Distributions to joint venture partners (630,161) (460,759) (549,304) --------- --------- --------- Net cash used in financing activities (630,161) (167,248) (549,304) --------- --------- --------- Net decrease in cash and cash equivalents (56,688) (113,526) (10,210) Cash and cash equivalents, beginning of year 124,696 238,222 248,432 --------- --------- --------- Cash and cash equivalents, end of year $ 68,008 $ 124,696 $ 238,222 ========= ========= ========= Supplemental disclosure of noncash activities: Deferred project costs contributed to joint venture $ 0 $ 11,915 $ 0 ========= ========= =========
F-30 4. INCOME TAX BASIS NET INCOME AND PARTNERS' CAPITAL The Partnership's income tax basis net income for the years ended December 31, 1999, 1998, and 1997 is calculated as follows:
1999 1998 1997 ----------- ----------- ----------- Financial statement net income $ 895,795 $ 754,334 $ 733,149 Increase (decrease) in net income resulting from: Depreciation expense for financial reporting purposes in excess of amounts for income tax purposes 406,751 394,084 338,997 Expenses deducted for financial reporting purposes, capitalized for income tax purposes 2,865 3,315 4,018 Rental income accrued for financial reporting purposes in excess of amounts for income tax purposes (49,745) (42,637) (67,796) ----------- ----------- ----------- Income tax basis net income $ 1,255,666 $ 1,109,096 $ 1,008,368 =========== =========== ===========
The Partnership's income tax basis partners' capital at December 31, 1999 is computed as follows:
1999 1998 1997 ----------- ----------- ----------- Financial statement partners' capital $17,533,827 $18,387,970 $19,262,165 Increase (decrease) in partners' capital resulting from: Depreciation expense for financial reporting purposes in excess of amounts for income tax purposes 1,394,382 987,631 593,547 Joint venture change in ownership 7,814 7,814 7,814 Capitalization of syndication costs 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 (233,897) (184,152) (141,515) Accumulated expenses deducted for financial reporting purposes, capitalized for income tax purposes 26,384 23,519 20,204 Partnership's distributions payable 458,148 396,500 404,129 ----------- ----------- ----------- Income tax basis partners' capital $22,782,434 $23,215,058 $23,742,120 =========== =========== ===========
F-31 5. 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, 1999 is as follows:
Year ending December 31: 2000 $ 2,255,072 2001 2,160,557 2002 1,870,787 2003 1,646,160 2004 1,546,337 Thereafter 4,803,048 -------------- $ 14,281,961 ==============
Two tenants contributed approximately 24% and 13% of rental income. In addition, three tenants will contribute approximately 22%, 20%, and 17% 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, 1999 is as follows:
Year ending December 31: 2000 $ 914,317 2001 828,960 2002 762,564 2003 692,708 2004 771,053 Thereafter 3,847,339 ------------ $7,816,941 ============
One tenant contributed approximately 62% of rental income for the year ended December 31, 1999 and will contribute approximately 85% of future minimum rental income. The future minimum rental income due Fund II, III, VI, and VII Associates under noncancelable operating leases at December 31, 1999 is as follows:
Year ending December 31: 2000 $ 901,595 2001 847,296 2002 469,628 2003 197,540 2004 175,331 Thereafter 149,157 ------------ $2,740,547 ============
Three tenants contributed approximately 13%, 13%, and 11% of rental income for the year ended December 31, 1999. In addition, four tenants will contribute approximately 29%, 14%, 14%, and 11% of future minimum rental income. F-32 The future minimum rental income due Fund V, VI, and VII Associates under noncancelable operating leases at December 31, 1999 is as follows:
Year ending December 31: 2000 $ 980,000 2001 980,000 2002 990,000 2003 990,000 2004 990,000 Thereafter 1,980,000 ------------ $6,910,000 ============
One tenant contributed 100% of rental income for the year ended December 31, 1999 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, 1999 is as follows:
Year ending December 31: 2000 $ 462,265 2001 423,279 2002 337,097 2003 259,812 2004 243,388 Thereafter 936,787 ------------ $2,662,628 ============
Two tenants contributed approximately 16% and 11% of rental income for the year ended December 31, 1999. In addition, three tenants will contribute approximately 40%, 25%, and 13% of future minimum rental income. The future minimum rental income due Fund VI, VII, and VIII Associates under noncancelable operating leases at December 31, 1999 is as follows:
Year ending December 31: 2000 $ 2,239,045 2001 2,126,978 2002 1,972,479 2003 1,912,574 2004 1,763,419 Thereafter 8,130,020 ------------- $18,144,515 =============
Three tenants contributed approximately 46%, 23%, and 16% of rental income for the year ended December 31, 1999. In addition, two tenants will contribute approximately 51% and 39% of future minimum rental income. F-33 The future minimum rental income due Fund VII and VIII Associates under noncancelable operating leases at December 31, 1999 is as follows:
Year ending December 31: 2000 $ 780,472 2001 784,375 2002 792,225 2003 745,862 2004 641,683 Thereafter 652,172 ------------ $4,396,789 ============
Two tenants contributed approximately 69% and 13% of rental income for the year ended December 31, 1999. In addition, two tenants will contribute approximately 71% and 16% of future minimum rental income. 6. QUARTERLY RESULTS (UNAUDITED) Presented below is a summary of the unaudited quarterly financial information for the years ended December 31, 1999 and 1998:
1999 Quarters Ended -------------------------------------------------------------- March 31 June 30 September 30 December 31 ------------ ----------- ---------------- --------------- Revenues $ 242,414 $ 266,916 $ 236,372 $ 236,928 Net income 213,658 242,660 221,802 217,675 Net income allocated to Class A limited partners 454,393 480,530 468,238 476,249 Net loss allocated to Class B limited partners (240,735) (237,870) (246,436) (258,574) Net income per weighted average Class A limited partner unit $ 0.23 $ 0.24 $ 0.23 $ 0.23 Net loss per weighted average Class B limited partner unit (a) (0.60) (0.57) (0.62) (0.68) Cash distribution per weighted average Class A limited partner unit 0.21 0.22 0.22 0.22
(a) The totals of the four quarterly amounts for the year ended December 31, 1999 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. F-34
1998 Quarters Ended -------------------------------------------------------------- March 31 June 30 September 30 December 31 ------------ ----------- ---------------- --------------- Revenues $ 201,183 $ 221,017 $ 208,604 $ 215,502 Net income 183,649 197,072 188,219 185,394 Net income allocated to Class A limited partners 431,890 432,142 426,322 413,859 Net loss allocated to Class B limited partners (248,241) (235,069) (238,103) (228,466) Net income per weighted average Class A limited partner unit (a) $ 0.22 $ 0.22 $ 0.22 $ 0.21 Net loss per weighted average Class B limited partner unit (0.56) (0.56) (0.56) (0.56) Cash distribution per weighted average Class A limited partner unit 0.21 0.21 0.20 0.20
(a) The totals of the four quarterly amounts for the year ended December 31, 1998 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. 7. 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-35 WELLS REAL ESTATE FUND VII, L.P. (A Georgia Public Limited Partnership) SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION DECEMBER 31, 1999
Initial Cost Costs of ----------------------------- Buildings and Capitalized Description Ownership Encumbrances Land Improvements Improvements - ------------------------------------- ------------- --------------- ------------- --------------- -------------- MARATHON BUILDING (a) 42% None $ 314,591 $ 8,367,904 $ 0 STOCKBRIDGE VILLAGE III (b) 56 None 1,015,674 0 1,994,829 STOCKBRIDGE VILLAGE I EXPANSION (c) 56 None 712,234 0 2,407,022 880 PROPERTY (d) 49 None 1,325,242 0 5,718,159 BELLSOUTH PROPERTY (e) 34 None 1,244,256 0 7,425,154 TANGLEWOOD COMMONS (f) 34 None 3,020,040 0 5,745,172 CHEROKEE COMMONS (g) 11 None 1,142,663 6,462,837 2,847,156 HANNOVER PROPERTY (h) 37 None 512,001 869,037 337,752 GAINESVILLE PROPERTY (i) 37 None 222,627 0 5,094,425 ------------ ------------ -------------- Total $ 9,509,328 $ 15,699,778 $ 31,569,669 ============ ============ ============== Gross Amount at Which Carried at December 31, 1999 ----------------------------------------------------------------- Buildings and Construction Accumulated Description Land Improvements in Progress Total Depreciation - ------------------------------------ -------------- ------------------ ----------------- ------------- ----------------- MARATHON BUILDING (a) $ 314,591 $ 8,367,904 $0 $ 8,682,495 $ 1,706,784 STOCKBRIDGE VILLAGE III (b) 1,062,720 1,947,783 0 3,010,503 376,556 STOCKBRIDGE VILLAGE I EXPANSION (c) 749,727 2,369,529 0 3,119,256 455,745 880 PROPERTY (d) 1,325,242 5,718,159 0 7,043,401 1,299,227 BELLSOUTH PROPERTY (e) 1,301,890 7,367,520 0 8,669,410 1,624,828 TANGLEWOOD COMMONS (f) 3,159,928 5,605,284 0 8,765,212 690,922 CHEROKEE COMMONS (g) 1,219,704 9,232,952 0 10,450,707 3,163,831 HANNOVER PROPERTY (h) 534,262 1,184,528 0 1,718,790 203,159 GAINESVILLE PROPERTY (i) 288,058 5,028,994 0 5,317,052 968,910 ----------- ------------ -- ------------ ------------ Total $ 9,956,122 $ 46,822,653 $0 $ 56,776,826 $ 10,489,962 =========== ============ == ============ ============ Life on Which Date of Date Depreciation Description Construction Acquired Is Computed (j) - -------------------------------- ------------------ ------------ ---------------- MARATHON BUILDING (a) 1991 09/16/94 20 to 25 years STOCKBRIDGE VILLAGE III (b) 1995 04/07/94 20 to 25 years STOCKBRIDGE VILLAGE I EXPANSION (c) 1996 06/07/95 20 to 25 years 880 PROPERTY (d) 1996 01/31/90 20 to 25 years BELLSOUTH PROPERTY (e) 1996 04/25/95 20 to 25 years TANGLEWOOD COMMONS (f) 1997 05/31/95 20 to 25 years CHEROKEE COMMONS (g) 1986 06/09/87 20 to 25 years HANNOVER PROPERTY (h) 1996 01/16/95 20 to 25 years GAINESVILLE PROPERTY (i) 1995 01/20/95 20 to 25 years Total
(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. (b) Stockbridge Village III consists of two retail buildings located in Stockbridge, Georgia. It is owned by Fund VI and VII Associates. (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. (d) The 880 Property is an office-retail shopping center located in Roswell, Georgia. It is owned by Fund II, III, VI, and VII Associates. (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. (f) Tanglewood Commons is a retail shopping center located in Clemmons, Forsyth County, North Carolina. It is owned by Fund VI, VII, and VIII Associates. (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. (h) The Hannover Property consists of a one-story building located in Stockbridge, Georgia. It is owned by Fund VII and VIII Associates. (i) The Gainesville Property consists of a two-story building located in Gainesville, Florida. It is owned by Fund VII and VIII Associates. (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 WELLS REAL ESTATE FUND VII, L.P. (A Georgia Public Limited Partnership) SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION DECEMBER 31, 1999
Accumulated Cost Depreciation ------------ -------------- 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 5,605,362 1998 additions 752,498 2,307,942 ----------- ------------ BALANCE AT DECEMBER 31, 1998 56,678,215 7,913,304 1999 additions 98,611 2,576,658 ----------- ------------ BALANCE AT DECEMBER 31, 1999 $56,776,826 $ 10,489,962 =========== ============
S-2 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. Exhibit Sequential Number Description of Document Page Number - ------- ----------------------- ----------- *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) Exhibit Sequential Number Description of Document Page Number - ------- ----------------------- ----------- *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) Exhibit Sequential Number Description of Document Page Number - ------- ----------------------- ----------- *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) Exhibit Sequential Number Description of Document Page Number - ------- ----------------------- ----------- *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) *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) Exhibit Sequential Number Description of Document Page Number - ------- ----------------------- ----------- *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 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) Exhibit Sequential Number Description of Document Page Number - ------- ----------------------- ----------- *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) Exhibit Sequential Number Description of Document Page Number - ------- ----------------------- ----------- *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) Exhibit Sequential Number Description of Document Page Number - ------- ----------------------- ----------- *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 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 N/A Associates dated August 1, 1995 (Exhibit 10(ii) 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(mm) Lease Modification Agreement No. 3 with The Kroger Co. N/A dated December 31, 1993 (Exhibit 10(k) to Form 10-K of 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, (Exhibit 10 (nn) to form 10-K of Wells Real Estate Fund VII, L.P. for the fiscal year ended December 31, 1996, File No. 0-25606) *10(oo) Lease Agreement with Moovies, Inc. dated May 20, 1996, N/A (Exhibit 10 (oo) to Form 10-K of Wells Real Estate Fund VII, L.P. for the fiscal year ended December 31, 1996, File No. 0-25606) EX-27 2 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 81,697 17,446,299 465,908 0 0 0 0 0 17,993,904 460,077 0 0 0 0 17,533,827 17,993,904 0 982,630 0 86,835 0 0 0 895,795 0 895,795 0 0 0 895,795 0.93 0
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