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 ($10.00 per unit) pursuant to a Registration Statement on Form S-11 filed under the Securities Act of 1933. The Partnership did not commence active operations until it received and accepted subscriptions for a minimum of 125,000 units on April 26, 1994. The Partnership terminated its offering on January 5, 1995, and received gross proceeds of $24,180,174 representing subscriptions from 1910 Limited Partners, composed of two classes of limited partnership interests, Class A and Class B limited partnership units.
The Partnership owns interests in properties through ownership in the following joint ventures: (i) Fund V, Fund VI, Fund VII Associates, a joint venture among the Partnership, Wells Real Estate Fund V, L.P., and Wells Real Estate Fund VI, L.P. ("Fund V-VI-VII Joint Venture"); (ii) Fund VI and Fund VII Associates, a joint venture between the Partnership and Wells Real Estate Fund VI, L.P. ("Fund VI-Fund VII Joint Venture"); (iii) Fund II, III, VI and VII Associates, a joint venture among the Partnership, Wells Fund II-III Joint Venture and Wells Real Estate Fund VI, L.P (the "Fund II-III-VI-VII Joint Venture"); (iv) Fund VII and Fund VIII Associates, a joint venture between the Partnership and Wells Real Estate Fund VIII, L.P. ("Fund VII-Fund VIII Joint Venture"); (v) Fund VI, Fund VII and Fund VIII Associates, a joint venture among the Partnership, Wells Real Estate Fund VI, L.P., and Wells Real Estate Fund VIII, L.P. (the "Fund VI-VII- VIII Joint Venture"); and (vi) Fund I, II, II-OW, VI, VII Associates, a joint venture among the Partnership, Wells Real Estate Fund I, the Fund II and Fund II-OW Joint Venture and Wells Real Estate Fund VI, L.P. (the "Fund I, II, II-OW, VI, VII Joint Venture").
As of December 31, 1998, the Partnership owned interests in the following properties through its ownership of the foregoing joint ventures: (i) a three- story office building located in Appleton, Wisconsin (the "Marathon Building"); (ii) two retail buildings located in Stockbridge, Georgia ("Stockbridge Village III") and a retail shopping center expansion in Stockbridge, Georgia ("Stockbridge Village I Expansion"); (iii) an office/retail center located in Roswell, Georgia ("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., the sole general partner of Wells Partners, L.P., a General Partner, perform a full range of real estate services including leasing and property management, accounting, asset management and investor relations for the Partnership. See Item 11 - "Compensation of General Partners and Affiliates," for a summary of the fees paid to the General Partners and their affiliates during the fiscal year ended December 31, 1998.
Insurance - - ---------
Wells Management Company, Inc., an affiliate of the General Partner, carries comprehensive liability and extended coverage with respect to all the properties owned directly or indirectly by the Partnership. In the opinion of management of the registrant, the properties are adequately insured.
Competition - - -----------
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.
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, 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%. As of December 31, 1996, the four 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 for all leases as of December 31, 1998, assuming no exercise of renewal options or termination rights:
(1) Average monthly gross rent over the life of the lease, annualized.
(2) Primarily expiration of CH2M Hill lease, Gainesville, Florida.
(3) Reflects expirations of Marathon Building, BellSouth, and Bertucci's.
The following describes the properties in which the Partnership owned an interest as of December 31, 1998:
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 Partnership owns an approximately 42% equity interest in the Fund V-VI-VII Joint Venture.
The entire Marathon Building is leased to Jaakko Poyry Fluor Daniel for a period of twelve years, three and one-half months, with options to renew the lease for two additional five-year periods. The annual base rent is $910,000. The current lease expires on December 31, 2006. The lease agreement is a net lease in that the tenant is responsible for the operational expenses including real estate taxes.
The occupancy rate at the Marathon Building was 100% for 1998, 1997, and 1996. The average annual rental per square foot in the Marathon Building was $12.78 for 1998, $12.74 for 1997, and $12.78 for 1996.
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, 1998, the Partnership contributed $3,372,774 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, 1998, 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 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, 1998, 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.
Kenny Rogers first occupied the 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. The term of the lease is for nine years and eleven months commencing October, 1995. The initial annual base rent is $102,375 through March, 2001 and $115,375 thereafter.
The occupancy rate at year end at the Stockbridge Village III Project was 100% in 1998, and 1997 and 87% in 1996. The average effective annual rental per square foot at the Stockbridge Village III Project was $13.08 for 1998, $15.67 for 1997 and $14.15 for 1996.
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 1996, 1997 and 1998. Negotiations are being conducted to lease the remaining space.
As of December 31, 1998, the Partnership contributed a total of $1,455,291, 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 1 Expansion was 81% at year end 1998, 74% for 1997, and 36% for 1996, the first year of occupancy. The average effective annual rental per square foot was $10.08 for 1998, $6.82 for 1997 and $2.69 for 1996.
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-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. Development is substantially complete on two buildings containing a total of approximately 49,500 square feet. Fifteen tenants occupied the Holcomb Bridge Road Property as of December 31, 1998, for an occupancy rate of 94% in 1997 and 63% in 1996.. The average effective annual rental was $17.41 for 1998, $13.71 for 1997, and $9.87 per square foot for 1996.
As of December 31, 1998, Fund II - Fund III Joint Venture had contributed $1,729,116 in land and improvements for an equity interest of approximately 24.0%, Wells Fund VI had contributed $1,817,179 for an equity interest of approximately 26.9%, and the Partnership had contributed $3,489,170 for an equity interest of approximately 49.1%. The total cost to develop the Holcomb Bridge Road Property is approximately $5,902,000, 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, 1998, the Partnership had contributed $2,474,725 and Wells Fund VIII had contributed $4,267,721 for a total cost of $6,742,345 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 12,040 square foot, single story combination retail/office building. As of December 31, 1997, 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, eleven month lease has been signed with Moovies, Inc., a video sale and rental store, to occupy 6,020 square feet. The annual base rent for the initial term of 36 months is $93,310, for the second term of 36 months, $102,340, for the third term of 36 months, $111, 370, and the final term of eleven months, $110,367. The lease provides for two five year extensions at market rate. The tenant, which provided its own build-out from the existing shell, moved into the building and opened for business September 22, 1996. The lease will expire in 2006. Two additional tenants leased the remaining space at the property.
The average effective annual rental per square foot at the Hannover Property was $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, 1998 and 1997 was 100%.
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 5.0 acre parcel of land in Gainesville, Alachua County, Florida. Construction of a 62,975 square foot office building,
containing 61,468 rentable square feet was completed in December, 1995. The average effective annual rental per square foot at the Gainesville Property was $9.19 for 1998, $8.63 for 1997 and $8.69 for 1996. The occupancy rate for 1998 is 100%.
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, 1998, 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, 1998, the Partnership contributed approximately $5,932,312 for an approximately 33.4% equity interest in the Fund VI-VII-VIII Joint Venture, which owns an office building in Jacksonville, Florida and a multi-tenant retail center under development in Forsyth County, North Carolina. As of December 31, 1998, Wells Fund VIII contributed $5,700,000 for an equity interest in the Fund VI-VII-VIII Joint Venture of approximately 32.3%, and Wells Fund VI contributed approximately $6,067,688 for an equity interest in the Fund VI-VII-VIII Joint Venture of approximately 34.3%. The total cost to complete both properties is approximately $17,700,000
BellSouth Property - - ------------------
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 $9,000,000 were funded by capital contributions of $3,500,000 by the Partnership, $3,500,000 by Wells Fund VI, and $2,000,000 by Wells Fund VIII.
The BellSouth lease is for a term of nine years and eleven months with an option to extend for an additional five-year period at market rate. The annual base rent during the initial term is $1,094,426 during the first five years and $1,202,034 for the balance of the initial lease term. The American Express lease is for a term of five years at an annual base rent of $369,851. BellSouth and American Express are required to pay additional rent equal to their share of operating expenses during their respective lease terms.
The average effective annual rental per square foot at the BellSouth Property was $ 16.36 for 1998, $16.40 for December 31, 1997 and $14.15 for the year ended December 31, 1996, the first year of occupancy. The occupancy rate was 100% for 1998, 1997 and 1996.
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 is constructing 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 will be held for future development or resale. As of December 31, 1998, the Partnership had contributed $2,432,312, Wells Fund VI had contributed $2,567,688 and Wells Fund VIII had contributed $3,700,000 for the development of this project.
Total cost and expenses to be incurred by the Fund VI-VII-VIII Joint Venture for the acquisition, development, construction and completion of the shopping center are anticipated to be approximately $8,700,000. Construction of the project began in March, 1996 and was substantially completed in the first quarter of 1997. As of December 31, 1998, the Joint Venture had $319,000, reserved to fund 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 $10.96 for 1998 and $9.12 1997, the first year of occupancy. The occupancy rate was 91 % for 1998 and 86% for 1997.
Fund I 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-OW Joint Venture and Wells Fund VII, entered into a joint venture known as Fund I, II, II-OW, VI and VII Associates (the "Fund I-II-II-OW-VI-VII Joint Venture"), which was formed to own and operated the Cherokee Project described below. Well Fund I is a Georgia limited partnership having Leo F. Wells, III and Wells Capital, Inc., a general partners. The investment objectives of Wells Fund I, the Fund II-Fund II-OW Joint Venture and Wells Fund VII are substantially identical to those of the Partnerships.
Cherokee Property/Fund I-II-II-OW-VI-VII Joint Venture - - ------------------------------------------------------
The Cherokee Property consists of a retail shopping center known as "Cherokee Commons Shopping Center" located in metropolitan Atlanta, Cherokee County, Georgia (the "Cherokee Project"). The Cherokee Project has been expanded to consist of approximately 103,755 net leasable square feet. The Cherokee Project was initially developed through a joint venture between Wells Fund I and the Fund II-Fund II-OW Joint Venture, which contributed the Cherokee Project to the Fund I-II-II-OW-VI-VII Joint Venture on August 1, 1995 to complete the required funding for the expansion.
As of December 31, 1998, 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, 1998, 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, 1998, the Cherokee Property was approximately 91% occupied by 20 tenants, including Kroger. Kroger, a retail grocery chain, is the only tenant occupying ten percent or more of the rentable square footage. The other tenants in the shopping center provide typical retail shopping services.
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 91% in 1998 and 94% in 1997 and 93% in 1996.
The average effective annual rental per square foot at the Cherokee Property was $ 8.78 for 1998, $8.49 for 1997, $8.59 and 1996.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS - - ---------------------------
There were no material pending legal proceedings or proceedings known to be contemplated by governmental authorities involving the Partnership during 1998.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - - -------------------------------------------------------------
No matters were submitted to a vote of the Limited Partners during the fourth quarter of 1998.
PART II
ITEM 5.
ITEM 5. MARKET FOR PARTNERSHIP'S UNITS AND RELATED SECURITY HOLDER MATTERS - - ----------------------------------------------------------------------------
The offering for sale of Units in the Partnership terminated on January 5, 1995, at which time the Partnership had 1,678,810 outstanding Class A Units held by a total of 1,590 Limited Partners and 739,208 outstanding Class B Units held by a total of 320 Limited Partners. The capital contribution per unit is $10.00. There is no established public trading market for the Partnership's limited partnership units, and it is not anticipated that a public trading market for the units will develop. Under the Partnership Agreement, the General Partners have the right to prohibit transfers of units.
As of February 28, 1999, the Partnership had 2,009,516 outstanding Class A Status Units held by a total of 1,648 Limited Partners and 408,500 of Class B Status held by a total of 259 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, 1998 to be $10.72 per A unit and 13.28 per B Unit based on market conditions existing in early December, 1998. 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. 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, 1998. Cash distributions made to Limited Partners holding Class A Units (and Limited Partners holding Class B Units that have elected a conversion right) during 1998 and 1997 were as follows:
The fourth quarter distribution was accrued for accounting purposes in 1998, and was not actually paid to Limited Partners holding Class A Units until February 1999. The General Partners anticipate that cash distributions to Limited Partners holding Class A units will continue in 1999 at a level at least comparable with 1998 cash distributions on an annual basis.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA - - ---------------------------------
The following sets forth a summary of the selected financial data for the twelve months ended December 31, 1998, 1997, 1996 and 1995.
(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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND - - -------------------------------------------------------------------------- RESULTS RESULTS OF OPERATION ----------------------------
The following discussion and analysis should be read in conjunction with the Selected Financial Data and the accompanying financial statements of the Partnership and notes thereto.
This Report contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934, including discussion and analysis of the financial condition of the Partnership, anticipated capital expenditures required to complete certain projects, amounts of cash distributions anticipated to be distributed to Limited Partners in the future and certain other matters. Readers of this Report should be aware that there are various factors that could cause actual results to differ materially from any forward-looking statement made in this Report, which include construction costs which may exceed estimates, construction delays, lease-up risks, inability to obtain new tenants upon the expiration of existing leases, and the potential need to fund tenant improvements or other capital expenditures out of operating cash flow.
Results of Operations and Changes in Financial Conditions - - ---------------------------------------------------------
General - - -------
Gross revenue of the Partnership increased to $846,306 in 1998 from $816,237 in 1997 due primarily to increased income from the joint ventures, primarily due to increased occupancy at the Holcomb Bridge Road Property, Stockbridge Village III and Stockbridge Expansion, and Tanglewood Commons.
Net income of the Partnership was $754,344 for the fiscal year ended December 31, 1998, compared to $733,149 in 1997 due primarily to the increase in revenues discussed above.
The Partnership made cash distributions to the Limited Partners holding Class A Units of $0.82 per unit for the fiscal year ended December 31, 1998, $0.79 per unit for fiscal year ended December 31, 1997, and $0.50 per Unit for the fiscal year ended December 31, 1996. No cash distributions were made to the Limited Partners holding Class B Units for the fiscal years ended December 31, 1998, December 31, 1997 and December 31, 1996. Distributions were accrued for the fourth quarter of 1998 and paid in February, 1999. No distributions were made to General Partners.
Property Operations - - -------------------
As of December 31, 1998, 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, 37.9% 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, 1998, the Partnership owned interests in the following operational properties through its ownership of the foregoing joint ventures:
The Marathon Building/Fund V-VI-VII Joint Venture - - -------------------------------------------------
Real estate taxes and all operational expenses for the building are the responsibility of the tenant.
Rental income remained relatively stable in 1998, 1997 and 1996. Operating expenses increased slightly due to accounting fees and administrative fees increasing, as compared to 1997.
Cash distribution to the Partnership and net income allocated to Partnership remained relatively stable for 1998.
For comments on the general competitive conditions to which the property may be subject, See Item 1, Business, page 2. For additional information on tenants, etc., refer to Item 2, Properties, Page 3.
Stockbridge Village III/Fund VI - Fund VII Joint Venture - - --------------------------------------------------------
In April 1994, Wells Fund VI purchased 3.27 acres of land located in Clayton County, Georgia. On December 9, 1994, Fund VI contributed the Stockbridge Village III property ("Stockbridge Village III") as a capital contribution to the Fund VI - Fund VII Joint Venture.
A net loss is reflected for December 31, 1998, as compared to net income of $145,407 for December 31, 1997. The net loss was due to increase in rental income an increase other operating expense which was due to Kenny Rogers Roasters, which vacated in the first quarter of 1998. A bad debt reserved is being recorded in other operating expenses. The space is now being leased by RMS / Fazoli's, which signed a 13 year lease that commenced December 14, 1998.
The second multi-tenant retail building containing approximately 15,000 square feet was completed in October, 1995. Damon's Clubhouse, a restaurant, occupied approximately 6,732 square feet beginning in October. The Damon's lease is for a term of nine years and eleven months with initial base rent of $102,375 for five years and increases to $115,375 for the remainder of the lease. The remaining 8,268 square feet were fully occupied by December 31, 1997.
The Stockbridge Village III Project incurred property taxes of $25,248 for 1998, $25,009 for 1997 and $23,026 for 1996.
The Partnership has an equity interest of 56.3% in the Stockbridge Village III Property through its ownership in the Fund VI Fund VII Joint Venture.
For comments on the general competitive conditions to which the property may be subject, see Item 1, Business, page 2. For additional information on tenants, etc. refer to Item 2, Properties, page 3.
Stockbridge Village I Expansion/Fund VI - Fund VII Joint Venture - - ----------------------------------------------------------------
On June 7, 1995, the Fund VI - Fund VII Joint Venture purchased 3.38 acres of real property located in Clayton County, Georgia. The Stockbridge Village I Expansion consists of a multi-tenant shopping center containing approximately 29,000 square feet. The majority of construction was completed in April, 1996 with Cici's Pizza tenants occupying a 4,000 square foot restaurant. The term of the lease is for nine years and eleven months commencing April, 1996. The initial base rent is $48,000. In the third year, annual base rent increases to $50,000, in the sixth year to $52,000, and in the ninth year to $56,000. Eleven additional tenants have occupied 17,600 square feet at the property as of December 31, 1998. Negotiations are being conducted to lease the remaining space.
Rental income, net income and cash distributions have increased due primarily to increase occupancy. The Stockbridge Village I Expansion incurred $22,565 for 1998, $25,608 for 1997 and $9,182 for 1996 property taxes.
It is projected that no additional funding will be required to complete tenant build-out by the Partnership or Wells Fund VI.
For comments on the general competitive condition to which the property may be subject, see Item 1, Business, page 2. For additional information on tenants, etc., refer to Item 2, Properties, page 3.
Holcomb Bridge Road Property/Fund II-III-VI-VII Joint Venture - - -------------------------------------------------------------
Since the Holcomb Bridge Road Property was under construction and not occupied until first quarter 1996, comparative income and expense figures for the years ending December 31, 1997 and 1996 are not available.
In January, 1995, the Fund II - Fund III Joint Venture contributed 4.3 acres of land and land improvements at 880 Holcomb Bridge Road to the Fund II-III-VI-VII Joint Venture. Development has been substantially completed on two buildings with a total of approximately 49,500 square feet. As of December 31, 1998, fifteen tenants occupied approximately 49,530 square feet of space in the retail/office building under leases of varying lengths.
Income, depreciation, management and leasing expenses increased compared to 1997, due primarily to occupancy late in the fourth quarter. Since the Holcomb Bridge Road property was under construction and not occupied until the first quarter 1996, 12-month income and expenses figures are not available.
Real estate taxes were $ 52,162 for 1998, $85,230 for 1997 and $37,191 for 1996.
For comments on the general competitive conditions to which the property may be subject, see Item 1, Business, page 2. For additional information on the property, tenants, etc., see Item 2, Properties, page 3.
The Hannover Center/Fund VII - Fund VIII Joint Venture - - -----------------------------------------------------
On April 1, 1996, Fund VII - Fund VIII Joint Venture acquired a 1.01 acre tract of land and a 12,000 square foot combination retail/office building known as the Hannover Retail Center.
Moovies, Inc., a video sales and rental store, signed a nine year, eleven month lease for 6,020 square feet and occupied the space and opened for business on June 22, 1996. Accordingly, no comparative financial data is available for 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.
Distributions decreased in 1998 due to the 44,000 construction being funded by operating cash flow in 1998.
Real estate taxes were $12,668 for 1998, 12,219 for 1997 and $9,650 for 1996.
For comments on the general competitive condition to which the property may be subject, see Item 1, Business, page 2. For additional information on tenants, etc., refer to Item 2, Properties, page 3.
CH2M Hill at Gainesville/Fund VII-Fund VIII Joint Venture - - ---------------------------------------------------------
In February, 1995, the Fund VII - Fund VIII Joint Venture acquired a 5.0 acre of land located in Gainesville, Alachua County, Florida for the purpose of constructing a 62,975 square foot (61,468 rentable square feet) office building. A 9 year, 11 month lease to occupy 57,457 square feet was signed by CH2M Hill. The annual base rent is $530,313 payable in equal monthly installments of $44,193. CH2M Hill occupied their portion of the building in mid-December, 1995.
Affiliated Engineers signed a five-year lease beginning March 27, 1998, which occupied the remaining space. Depreciation, management and leasing expenses increased compared to 1997 due primarily to occupancy.
Operating expense increased for 1998 due primarily to a refund to the tenant of property taxes overpaid in 1997. Income and distribution to the partnership decreased due to refund of property taxes over paid to tenant.
Real estate taxes were $79,235 for 1996, $79,428 for 1997 and $79,407 for 1998.
For comments on the general competitive condition to which the property may be subject, see Item 1, Business, page 2. For additional information on tenants, etc., refer to Item 2, Properties, page 3.
BellSouth Property/Fund VI-VII-VIII Joint Venture - - -------------------------------------------------
On April 25, 1995, the Fund VI-VII-VIII Joint Venture purchased 5.55 acres of land located in Jacksonville, Florida. In May, 1996, the 92,964 square foot office building was completed, with BellSouth Advertising and Publishing Corporation occupying approximately 66,333 square feet and American Express occupying approximately 22,607 square feet. Approximately 2,900 square feet of additional space was occupied by BellSouth commencing in December, 1996, bringing occupancy to 100%.
Net income has decreased in 1998 as compared to 1997 due primarily to increased costs for HVAC repairs and various other building expenses. Cash distribution and net income allocated to be Partnership decreased in 1998 over 1997 levels due primarily to additional funding by Wells Fund VIII in early 1997, which decreased to Partnership ownership in the Fund VI-VII-VIII Joint Venture. Interest income was generated from construction dollars, not as yet funded on construction, being invested in interest bearing accounts. Since the building opened in May 1996, comparative income and expense figures for 1996 are not available.
The BellSouth Property incurred property taxes of $171,629 for 1998, $164,400 for 1997 and $23,234 for 1996, the first year of occupancy.
For comments on the general competitive condition to which the property may be subject, see Item 1, Business, page 2. For additional information on tenants, etc., refer to Item 2, Properties, page 3.
Tanglewood Commons/Fund VI - VII - VIII Joint Venture - - -----------------------------------------------------
On May 31, 1995, the Fund VI-VII-VIII Joint Venture purchased a 14.683 acre tract of real property located in Clemmons, Forsyth County, North Carolina. The land purchase costs were funded by a capital contribution made by Wells Fund VI. Total cost and expenses to be incurred by the Fund VI-VII-VIII Joint Venture for the acquisition, development, construction and completion of the shopping center were approximately $8,700,000. A strip shopping center containing approximately 67,320 gross square feet opened on the site on February 26, 1997.
In February 1997, Harris Teeter, Inc., a regional supermarket chain, occupied its leased space of 46,120 square feet with an initial term of 20 years. The annual base rent during the initial term is $488,250. In addition, Harris Teeter has agreed to pay percentage rents equal to one percent of the amount by which Harris Teeter's gross sales exceed $35,000,000 for any lease year. Tanglewood Commons incurred property taxes of $35,542 for 1998 and $58,466 for 1997, the first year of occupancy. Since this property commenced operations in February 1997, comparable income and expense figures for prior year are not available.
Cherokee Commons Shopping Center/Fund I-II-II-OW-VI and VII Joint Venture - - -------------------------------------------------------------------------
Rental income increased in 1998 over 1997 due primarily to a one time adjustment made to the straight line rent schedule. Rental income decreased in 1997 compared to 1996 due to decreased occupancy at the property for the first three quarters of 1997. The increase in occupancy in the fourth quarter of 1997 is due to a new 1,200 square foot lease executed in 1997. Operating expenses of the property decreased to $84,676 in 1998 from $138,294 in 1997, and decreased from $180,841 in 1996. The decrease in operating expense in 1998 as compared to 1997 is due to decreased expenditures for tenant improvements, common area expenses and legal fees. The decrease in operating expenses in 1997 as compared to 1996 is due to a change in estimate in billing of common and maintenance charges and property taxes which was partially offset by increases in plumbing repairs and contract labor expenses. Net income of the property increased to $298,062 in 1998 and decreased to $223,497 in 1997 from $231,882 in 1996, due to the reasons discussed above.
Real estate taxes were $ 77,311 for 1998, $67,259 for 1997 and $63,696 for 1996.
For comments on the general conditions to which the property may be subject, see Item 1, Business, page 2. For additional information on the property, tenants, etc., see Item 2, Properties, page 3.
Liquidity and Capital Resources - - -------------------------------
On April 5, 1994, the Partnership commenced an offering of up to $25,000,000 of Class A or Class B Limited Partnership Units ($10.00 per unit) pursuant to a Registration Statement on Form S-11 filed under the Securities Act of 1933. The offering was terminated on January 5, 1995, at which time the Partnership had sold 1,678,810 Class A Units and 739,208 Class B Units, held by a total of 1,591 and 319 Limited Partners respectively, for total Limited Partner capital contributions of $24,180,174. After payment of $846,306 in acquisition and expense fees, payment of $3,627,026 in selling commissions and organization and offering expenses and the investment of the Partnership of $3,356,278 in the Fund VI-Fund VII Joint Venture, $3,470,958 in the Fund V-VI-VII Joint Venture, $2,448,923 in the Fund VII-Fund VIII Joint Venture, 5,932,312 in the Fund VI- VII-VIII Joint Venture, $953,798 in the Fund I-II-II-OW-VI-VII Joint Venture, $3,300,225 in the Fund II-III-VI-VII Joint Venture, $2,547 in other acquisition expenses, and $55,772 of amounts previously being held as working capital reserves, the Partnership is holding a balance of $186,030 as working reserves. Of the original working capital reserves of $241,802, the Partnership has contributed $11,205 to the Fund VI - Fund VII Joint Venture and $44,567 to the Fund II-III-VI-VII Joint Venture leaving the $186,030 balance shown above. It is anticipated that the remaining cost to complete the Holcomb Bridge Road Project of approximately $66,000 will be funded from reserves of the Partnership and Wells Fund VI.
Pursuant to the terms of the Partnership Agreement, the Partnership is required to maintain working capital reserves in an amount equal to the cash operating expenses required to operate the Partnership for a six-month period not to be reduced below 1% of Limited Partners' capital contributions. As set forth above, in order to fund a portion of Holcomb Bridge Road Property and Stockbridge Village III Project, the General Partners have used a portion of the Partnership's working capital reserves to reduce the balance below this minimum amount, rather than funding the tenant improvements out of operating cash flow, which would have the effect of reducing cash flow distributions to Limited Partners.
Net cash provided by operating activities in the amount of approximately $43,000 in 1997 decreased in 1998 to approximately $72,194 used in operating activities 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 1998 compared to 1997 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 1998 compared to 1997 is the result of the increase in distributions to partners. Cash and cash equivalents have decreased from $366,301 in 1997 to $194,420 in 1998, and from $1,114,066 in 1996 to $366,301 in 1997 due primarily to investments made in joint ventures in 1996 and 1997.
The Partnership expects to continue to meet its short-term liquidity requirements and budget demands generally through net cash provided by operations which the Partnership believes will continue to be adequate to meet both operating requirements and distributions to limited partners. At this time, given the nature of the joint ventures in which the Partnership has invested, there are
no known improvements and renovations to the properties expected to be funded from cash flow from operations.
Since properties are acquired on an all-cash basis, the Partnership has no permanent long-term liquidity requirements.
Cash distributions of $0.82 per weighted average Unit were made to Class A Limited Partners for the year ended December 31, 1998. The Partnership's distributions for the fourth quarter of 1998 will be paid in February 1999 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 1998.
The Partnership is unaware of any known demands, commitments, events or capital expenditures other than that which is required for the normal operations of its properties that will result in the Partnership's liquidity increasing or decreasing in any material way. The Partnership intends to fund any cash requirements through operating cash flow.
Inflation - - ---------
Real estate has not been affected significantly by inflation in the past three years due to the relatively low inflation rate. It is common practice for the Partnership to execute provisions in the majority of tenant leases to protect the Partnership from the impact of inflation. These leases contain common area maintenance charges (CAM charges), real estate tax and insurance reimbursements on a per square foot basis, or in some cases, annual reimbursement of operating expenses above a certain per square foot allowance. These provisions should reduce the Partnership's exposure to increases in costs and operating expenses resulting from inflation. In addition, a number of the Partnership's leases are 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 is presently reviewing the potential impact of Year 2000 compliance issues on its information systems and business operations. A full assessment of Year 2000 compliance issues was begun in late 1997 and is expected to be completed by March 31, 1999. Renovations and replacements of equipment have been and are being made as warranted as the assessment progresses. The costs incurred by the Partnership and its affiliates thus far for renovations and replacements have been immaterial. Some testing of systems has begun and all testing is expected to be complete by June 30, 1999.
As to the status of the Partnership's information technology systems, it is presently believed that all major systems and software packages with the exception of the accounting and property management package are Year 2000 compliant. The Partnership's affiliated entities are purchasing the upgrade for the accounting and property management package system; however, it is not slated to be available until the end of the first quarter of 1999. At the present time, it is believed that all major
non-information technology systems are Year 2000 compliant. The cost to upgrade any non-compliant systems is believed to be immaterial.
The Partnership is in the process of confirming with the Partnership's vendors, including third-party service providers such as banks, that their systems will be Year 2000 compliant. Based on the information received thus far, the primary third-party service providers with which the Partnership has relationships have confirmed their Year 2000 readiness.
The Partnership relies on computers and operating systems provided by equipment manufacturers, and also on application software designed for use with its accounting, property management and investment portfolio tracking. The Partnership has preliminarily determined that any costs, problems or uncertainties associated with the potential consequences of Year 2000 issues are not expected to have a material impact on the future operations or financial condition of the Partnership. The Partnership will perform due diligence as to the Year 2000 readiness of each property owned by the Partnership and each property contemplated for purchase by the Partnership.
The Partnership's reliance on embedded computer systems (i.e., microcontrollers) is limited to facilities related matters, such as office security systems and environmental control systems.
The Partnership is currently formulating contingency plans to cover any areas of concern. Alternate means of operating the business are being developed in the unlikely circumstance that the computer and phone systems are rendered inoperable. An off-site facility from which the Partnership could operate is being sought as well as alternate means of communication with key third-party vendors. A written plan is being developed for testing and dispensation to each staff member of the Advisor of the Partnership.
Management believes that the Partnership's risk of Year 2000 problems is minimal. In the unlikely event there is a problem, the worst case scenarios would include the risks that the elevator or security systems within the Partnership's properties would fail or the key third-party vendors upon which the Partnership relies would be unable to provide accurate investor information. In the event that the elevator shuts down, the Partnership has devised a plan for each building whereby the tenants will use the stairs until the elevators are fixed. In the event that the security system shuts down, the Partnership has devised a plan for each building to hire temporary on-site security guards. In the event that a third-party vendor has Year 2000 problems relating to investor information, the Partnership intends to perform a full system back-up of all investor information as of December 31, 1999 so that the Partnership will have accurate hard-copy investor information.
ITEM 8.
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.
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 1998.
PART III
ITEM 10.
ITEM 10. GENERAL PARTNERS OF THE PARTNERSHIP - - ----------------------------------------------
Wells Partners, L.P. Wells Partners, L.P. is a private Georgia limited - - -------------------- partnership formed on October 25, 1990. The sole General Partner of Wells Partners, L.P. is Wells Capital, Inc., ("Capital") a Georgia corporation. The executive offices of Wells Capital, Inc. are located at 3885 Holcomb Bridge Road, Norcross, Georgia 30092.
Leo F. Wells, III. Mr. Wells is a resident of Atlanta, Georgia, is 54 years of - - ----------------- age and holds a Bachelor of Business Administration Degree in Economics from the University of Georgia. Mr. Wells is the President and sole Director of Capital. Mr. Wells is the President of Wells & Associates, Inc., a real estate brokerage and investment company formed in 1976 and incorporated in 1978, for which he serves as principal broker. Mr. Wells is also currently the sole Director and President of Wells Management Company, Inc., a property management company he founded in 1983. In addition, Mr. Wells is the President and Chairman of the Board of Wells Investment Securities, Inc., Wells & Associates, Inc., Wells Management Company, Inc. and Wells Investment Securities, Inc. which are affiliates of the General Partners. From 1980 to February 1985, Mr. Wells served as Vice-President of Hill-Johnson, Inc., a Georgia corporation engaged in the construction business. From 1973 to 1976, he was associated with Sax Gaskin Real Estate Company and from 1970 to 1973, he was a real estate salesman and property manager for Roy D. Warren & Company, an Atlanta real estate company.
ITEM 11.
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, 1998:
(1) The majority of these fees are not paid directly by the Partnership but are paid by the joint venture entities which own properties for which the property management and leasing services relate and include management and leasing fees which were accrued for accounting purposes in 1998 but not actually paid until January, 1999.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - - -------------------------------------------------------------------------
No Limited Partner is known by the Partnership to own beneficially more than 5% of the outstanding units of the Partnership.
Set forth below is the security ownership of management as of February 28, 1999.
No arrangements exist which would, upon operation, result in a change in control of the Partnership.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - - ---------------------------------------------------------
The compensation and fees paid or to be paid by the Partnership to the General Partners and their affiliates in connection with the operation of the Partnership are as follows:
Interest in Partnership Cash Flow and Net Sale Proceeds - - -------------------------------------------------------
The General Partners will receive a subordinated participation in net cash flow from operations equal to 10% of net cash flow from operations after the Limited Partners holding Class A Units have received preferential distributions equal to 10% of their adjusted capital contribution. The General Partners will also receive a subordinated participation in net sale proceeds and net financing proceeds equal to 20% of residual proceeds available for distribution after the Limited Partners holding Class B Units have received a return of their adjusted capital contribution plus a 15% cumulative return on their adjusted capital contribution; however, that in no event shall the General Partners receive in the aggregate in excess of 15% of net sale proceeds and net financing proceeds remaining after payments to Limited Partners from such proceeds of amounts equal to the sum of their adjusted capital contributions plus a 6% cumulative return on their adjusted capital contributions. The General Partners did not receive any distributions from net cash flow from operations or net sale proceeds for the year ended December 31, 1998.
Property Management and Leasing Fees - - ------------------------------------
Wells Management Company, Inc., an affiliate of the General Partners, will receive compensation for supervising the management of the Partnership properties equal to the lesser of: (A)(i) 3% of the gross revenues for leasing (aggregate maximum of 6%) plus a separate one-time fee for initial lease-up of newly constructed properties in an amount not to exceed the fee customarily charged in
arm's-length transactions by others rendering similar services in the same geographic area for similar properties; and (ii) in the cash of industrial and commercial properties which are leased on a long-term basis (ten or more years), 1% of the gross revenues except for initial leasing fees equal to 3% of the gross revenues over the first five years of the lease term; or (B) the amounts charged by unaffiliated persons rendering comparable services in the same geographic area. Wells Management Company, Inc. received $144,379 in property management and leasing fees relating to the Partnership in 1998.
Real Estate Commissions - - -----------------------
In connection with the sale of Partnership properties, the General Partners or their affiliates may receive commissions not exceeding the lesser of (A) 50% of the commissions customarily charged by other brokers in arm's-length transactions involving comparable properties in the same geographic area or (B) 3% of the gross sales price of the property, and provided that payments of such commissions will be made only after Limited Partners have received prior distributions totaling 100% of their capital contributions plus a 6% cumulative return on their adjusted capital contributions. No real estate commissions were paid to the General Partners or affiliates for the year ended December 31, 1998.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - - ---------------------------------------------------------------------------
(a)1. The Financial Statements are contained on Pages through of this Annual Report on Form 10-K, and the list of the Financial Statements contained herein is set forth on page, which is hereby incorporated by reference.
(a)2. Financial Statement Schedule III Information with respect to this Item begins on Page S-1 of this Annual Report on Form 10-K.
(a)3. The Exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto.
(b) No reports on Form 8-K were filed with the Commission during the fourth quarter of 1998.
(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.
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 26th day of March, 1999.
Wells Real Estate Fund VII, L.P. (Registrant)
By: /s/Leo F. Wells, III -------------------- Leo F. Wells, III Individual General Partner and as President and Chief Financial Officer of Wells Capital, Inc., the General Partner of Wells Partners, L.P.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the registrant and in the capacity as and on the date indicated.
Signature Title - - --------- -----
/s/Leo F. Wells, III Individual General Partner, March 26, 1999 - - ------------------------------ President and Sole Director Leo F. Wells, III 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.
-----------------------------
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, 1998 and 1997 and the related statements of income, partners' capital, and cash flows for each of the three years in the period ended December 31, 1998. These financial statements and the schedule referred to below are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and schedule are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Wells Real Estate Fund VII, L.P. as of December 31, 1998 and 1997 and the results of its operations and its cash flows each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule III--Real Estate Investments and Accumulated Depreciation as of December 31, 1998 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 27, 1999
WELLS REAL ESTATE FUND VII, L.P.
(A Georgia Public Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
LIABILITIES AND PARTNERS' CAPITAL
The accompanying notes are an integral part of these balance sheets.
WELLS REAL ESTATE FUND VII, L.P.
(A Georgia Public Limited Partnership)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
The accompanying notes are an integral part of these statements.
WELLS REAL ESTATE FUND VII, L.P.
(A Georgia Public Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
The accompanying notes are an integral part of these statements.
WELLS REAL ESTATE FUND VII, L.P.
(A Georgia Public Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
The accompanying notes are an integral part of these statements.
WELLS REAL ESTATE FUND VII, L.P.
(A Georgia Public Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Wells Real Estate Fund VII, L.P. (the "Partnership") is a public limited partnership organized on April 5, 1994 under the laws of the state of Georgia. The general partners are Leo F. Wells, III and Wells Partners, L.P. ("Wells Partners"), a Georgia nonpublic limited partnership. The Partnership has two classes of limited partnership interests, Class A and Class B units. Limited partners shall have the right to change their prior elections to have some or all of their units treated as Class A units or Class B units one time during each quarterly accounting period. Limited partners may vote to, among other things, (a) amend the partnership agreement, subject to certain limitations, (b) change the business purpose or investment objectives of the Partnership, and (c) remove a general partner. A majority vote on any of the above described matters will bind the Partnership, without the concurrence of the general partners. Each limited partnership unit has equal voting rights, regardless of class.
The Partnership was formed to acquire and operate commercial real properties, including properties which are either to be developed, currently under development or construction, newly constructed, or have operating histories. The Partnership owns an interest in the following properties through joint ventures between the Partnership and other Wells Real Estate Funds: (i) a shopping center located in Cherokee County, Georgia, the Cherokee Commons Shopping Center ("Cherokee Commons"); (ii) an office/retail center in Roswell, Georgia; (iii) the Marathon Building, a three-story office building located in Appleton, Wisconsin; (iv) the Stockbridge Village III Retail Center, two retail buildings located in Stockbridge, Georgia; (v) a retail center expansion in Stockbridge, Georgia; (vi) a four-story office building located in Jacksonville, Florida ("the BellSouth property"); (vii) a retail shopping center in Clemmon, Forsyth County, North Carolina; (viii) an office building located in Gainesville, Florida; and (ix) a retail office building in Stockbridge, Georgia.
Use of Estimates and Factors Affecting the Partnership
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The carrying values of the real estate assets are based on management's current intent to hold the real estate assets as long-term investments. The success of the Partnership's future operations and the ability to realize the investment in its assets will be dependent on the Partnership's ability to maintain rental rates, occupancy, and an appropriate level of operating expenses in future years. Management believes that the steps it is taking will enable the Partnership to realize its investment in its assets.
Income Taxes
The Partnership is not subject to federal or state income taxes, and therefore, none have been provided for in the accompanying financial statements. The partners are required to include their respective shares of profits and losses in their individual income tax returns.
Distribution of Net Cash From Operations
Cash available for distribution, as defined by the partnership agreement, is distributed to the limited partners quarterly. In accordance with the partnership agreement, distributions are paid first to limited partners holding Class A units until they have received a 10% per annum return on their adjusted capital contributions, as defined. Cash available for distribution is then paid to the general partners until they have received an amount equal to 10% of distributions. Any remaining cash available for distribution is split between the limited partners holding Class A units and the general partners on a basis of 90% and 10%, respectively. No distributions will be made to the limited partners holding Class B units.
Distribution of Sales Proceeds
Upon sales of properties, the net sales proceeds are distributed in the following order:
. To limited partners, on a per unit basis, until all limited partners have received 100% of their adjusted capital contributions, as defined
. To limited partners holding Class B units until they receive an amount equal to the net cash available for distribution received by the limited partners holding Class A units
. To all limited partners until they receive a cumulative 10% per annum return on their adjusted capital contributions, as defined
. To all limited partners until they receive an amount equal to their respective cumulative distributions, as defined
. To the general partners until they have received 100% of their capital contributions, as defined
. Thereafter, 80% to the limited partners and 20% to the general partners
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 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, 1998.
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.
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, 1998, 1997, and 1996 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. DEFERRED PROJECT COSTS
The Partnership paid a percentage of limited partner contributions to Wells Capital, Inc. (the "Company"), the general partner of Wells Partners, for acquisition and advisory services. These payments, as stipulated by the partnership agreement, can be up to 6% of the limited partner contributions, subject to certain overall limitations contained in the partnership agreement. Aggregate fees paid through December 31, 1998 were $1,358,722 and amounted to 3.5% of the limited partners' contributions received. These fees are allocated to specific properties, as they are purchased or developed and are included in capitalized assets of the joint ventures. All deferred project costs were applied to properties at December 31, 1998.
3. RELATED-PARTY TRANSACTIONS
Due from affiliates at December 31, 1998 and 1997 represents the Partnership's share of cash to be distributed from its joint venture investments for the fourth quarters of 1998 and 1997, respectively, as follows:
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 $144,379, $211,201, and $103,785 for the years ended December 31, 1998, 1997, and 1996, respectively, which were paid to Wells Management.
The Company performs certain administrative services for the Partnership, such as accounting and other partnership administration, and incurs the related expenses. Such expenses are allocated among the various Wells Real Estate Funds based on time spent on each fund by individual administrative personnel. In the opinion of management, such allocation is a reasonable estimation of such expenses.
The general partners are also general partners in other Wells Real Estate Funds. As such, there may exist conflicts of interest where the general partners in the capacity as general partners for other Wells Real Estate Funds may be in competition with the Partnership for tenants in similar geographic markets.
4. INVESTMENT IN JOINT VENTURES
The Partnership's investment and percentage ownership in joint ventures at December 31, 1998 and 1997 are summarized as follows:
The following is a rollforward of the Partnership's investment in joint ventures for the years ended December 31, 1998 and 1997:
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 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.
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, 1998 and 1997
Assets
Fund I, II, II-OW, VI and VII Associates--Cherokee (A Georgia Joint Venture) Statements of Income for the Years Ended December 31, 1998, 1997, and 1996
Fund I, II, II-OW, VI and VII Associates--Cherokee (A Georgia Joint Venture) Statements of Partners' Capital for the Years Ended December 31, 1998, 1997, and 1996
Fund I, II, II-OW, VI, and VII Associates--Cherokee (A Georgia Joint Venture) Statements of Cash Flows for the Years Ended December 31, 1998, 1997, and 1996
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 1996, 1997, and 1998, 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:
Fund II, III, VI, and VII Associates
(A Georgia Joint Venture)
Balance Sheets
December 31, 1998 and 1997
Assets
Fund II, III, VI, and VII Associates (A Georgia Joint Venture) Statements of Income (Loss) for the Years Ended December 31, 1998, 1997, and 1996
Fund II, III, VI, and VII Associates (A Georgia Joint Venture) Statements of Partners' Capital for the Years Ended December 31, 1998, 1997, and 1996
Fund II, III, VI, and VII Associates (A Georgia Joint Venture) Statements of Cash Flows for the Years Ended December 31, 1998, 1997, and 1996
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.
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, 1998 and 1997
Assets
Fund V, VI, and VII Associates (A Georgia Joint Venture) Statements of Income for the Years Ended December 31, 1998, 1997, and 1996
Fund V, VI, and VII Associates (A Georgia Joint Venture) Statements of Partners' Capital for the Years Ended December 31, 1998, 1997, and 1996
Fund V, VI, and VII Associates (A Georgia Joint Venture) Statements of Cash Flows for the Years Ended December 31, 1998, 1997, and 1996
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.
Following are the financial statements for Fund VI and VII Associates:
Fund VI and VII Associates (A Georgia Joint Venture) Balance Sheets December 31, 1998 and 1997
Assets
Fund VI and VII Associates (A Georgia Joint Venture) Statements of Income for the Years Ended December 31, 1998, 1997, and 1996
Fund VI and VII Associates (A Georgia Joint Venture) Statements of Partners' Capital for the Years Ended December 31, 1998, 1997, and 1996
Funds VI and VII Associates (A Georgia Joint Venture) Statements of Cash Flows for the Years Ended December 31, 1998, 1997, and 1996
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.
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, 1998 and 1997
Assets
Fund VI, VII, and VIII Associates (A Georgia Joint Venture) Statements of Income for the Years Ended December 31, 1998, 1997, and 1996
Fund VI, VII, and VIII Associates (A Georgia Joint Venture) Statements of Partners' Capital for the Years Ended December 31, 1998, 1997, and 1996
Fund VI, VII, and VIII Associates (A Georgia Joint Venture) Statements of Cash Flows for the Years Ended December 31, 1998, 1997, and 1996
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.
Fund VII and VIII Associates (A Georgia Joint Venture) Balance Sheets December 31, 1998 and 1997
Assets
Fund VII and VIII Associates (A Georgia Joint Venture) Statements of Income for the Years Ended December 31, 1998, 1997, and 1996
Fund VII And VIII Associates (A Georgia Joint Venture) Statements of Partners' Capital for the Years Ended December 31, 1998, 1997, and 1996
Fund VII and VIII Associates (A Georgia Joint Venture) Statements of Cash Flows for the Years Ended December 31, 1998, 1997, and 1996
5. INCOME TAX BASIS NET INCOME AND PARTNERS' CAPITAL
The Partnership's income tax basis net income for the years ended December 31, 1998, 1997, and 1996 is calculated as follows:
The Partnership's income tax basis partners' capital at December 31, 1998 is computed as follows:
6. RENTAL INCOME
The future minimum rental income due from the Partnership's respective ownership interests in joint ventures under noncancelable operating leases at December 31, 1998 is as follows:
Two significant tenants contributed approximately 29% and 16% of rental income, which is included in equity in income of joint ventures, for the year ended December 31, 1998. In addition, three significant tenants will contribute approximately 21%, 21%, 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, 1998 is as follows:
One significant tenant contributed approximately 65% of rental income for the year ended December 31, 1998 and will contribute approximately 88% 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, 1998 is as follows:
Four significant tenants contributed approximately 15%, 14%, 13%, and 12% of rental income for the year ended December 31, 1998. In addition, two significant tenants will contribute approximately 31% and 14% of future minimum rental income.
The future minimum rental income due Fund V, VI, and VII Associates under noncancelable operating leases at December 31, 1998 is as follows:
One tenant contributed 100% of rental income for the year ended December 31, 1998 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, 1998 is as follows:
One significant tenant contributed approximately 19% of rental income for the year ended December 31, 1998. In addition, three significant tenants will contribute approximately 29%, 18%, and 15% of future minimum rental income.
The future minimum rental income due Fund VI, VII, and VIII Associates under noncancelable operating leases at December 31, 1998 is as follows:
Three significant tenants contributed approximately 46%, 24%, and 16% of rental income for the year ended December 31, 1998. In addition, two significant tenants will contribute approximately 48% and 40% of future minimum rental income.
The future minimum rental income due Fund VII and VIII Associates under noncancelable operating leases at December 31, 1998 is as follows:
Two significant tenants contributed approximately 77% and 15% of rental income for the year ended December 31, 1998. In addition, two significant tenants will contribute approximately 70% and 16% of future minimum rental income.
7. QUARTERLY RESULTS (UNAUDITED)
Presented below is a summary of the unaudited quarterly financial information for the years ended December 31, 1998 and 1997:
(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.
8. COMMITMENTS AND CONTINGENCIES
Management, after consultation with legal counsel, is not aware of any significant litigation or claims against the Partnership or the Company. In the normal course of business, the Partnership or the Company may become subject to such litigation or claims.
WELLS REAL ESTATE FUND VII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION DECEMBER 31, 1998
(a) The Marathon Building is a three-story, 75,000-square-foot building located in Appleton, Wisconsin. It is owned by Fund V, VI, and VII Associates. The Partnership owned a 42% interest in Fund V, VI, and VII Associates as of December 31, 1998.
(b) Stockbridge Village III consists of two retail buildings located in Stockbridge, Georgia. It is owned by Fund VI and VII Associates. The Partnership owned a 56% interest in Fund VI and VII Associates as of December 31, 1998.
(c) Stockbridge Village I Expansion is a 3.38-acre tract of real property under development located in Clayton County, Georgia. It is owned by Fund VI and VII Associates. The Partnership owned a 56% interest in Fund VI and VII Associates as of December 31, 1998.
(d) The 880 Property is a 4.3-acre tract of real property under development in Roswell, Georgia. It is owned by Fund II, III, VI, and VII Associates. The Partnership owned a 50% interest in Fund II, III, VI, and VII Associates as of December 31, 1998.
(e) The BellSouth Property is a four story, 92,964 square foot building located in Jacksonville, Florida. It is owned by Fund VI, VII, and VIII Associates. The Partnership owned a 34% interest in Fund VI, VII, and VIII Associates as of December 31, 1998.
(f) Tanglewood Commons is a 14.68-acre tract of real property under construction in Clemmons, Forsyth County, North Carolina. It is owned by Fund VI, VII, and VIII Associates. The Partnership owned a 34% interest in Fund VI, VII, and VIII Associates as of December 31, 1998.
(g) Cherokee Commons is a retail shopping center located in Cherokee County, Georgia. It is owned by Fund I, II, II-OW, VI, and VII Associates--Cherokee. The Partnership owned an 11% interest in Fund I, II, II-OW, VI, and VII Associates--Cherokee at December 31, 1998.
(h) The Hannover Property consists of a one-story building located in Stockbridge, Georgia. It is owned by Fund VII and VIII Associates. The Partnership owned a 37% interest in Fund VII and VIII Associates as of December 31, 1998.
(i) The Gainesville Property consists of a two-story building located in Gainesville, Florida. It is owned by Fund VII and VIII Associates. The Partnership owned a 37% interest in Fund VII and VIII Associates as of December 31, 1998.
(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.
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WELLS REAL ESTATE FUND VII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
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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.