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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 10-Q
 
(Mark One)
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    
 
SECURITIES EXCHANGE ACT OF 1934
 
    
 
For the quarterly period ended June 30, 2002
 
OR
 
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    
 
SECURITIES EXCHANGE ACT OF 1934
 
    
 
For the transition period from                      to                     
 
Commission file number 0-21580
 

 
WELLS REAL ESTATE FUND V, L.P.
(Exact name of registrant as specified in its charter)
 
Georgia
(State of other jurisdiction of
incorporation or organization)
 
58-1936904
(I.R.S. Employer
Identification No.)
 
6200 The Corners Parkway, Suite 250, Atlanta, GA
 
30092
(Address of principal executive offices)
 
(Zip Code)
 
Registrant’s telephone number, including area code (770) 449-7800
 
(Former name, former address and former fiscal year, if changed since last report)
 

 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  ¨
 


Table of Contents
 
FORM 10-Q
 
WELLS REAL ESTATE FUND V, L.P.
(A Georgia Public Limited Partnership)
 
INDEX
 
          
Page No.

PART I.     FINANCIAL INFORMATION
      
          
3
Item 1.
        
            
        
4
            
        
5
            
        
6
            
        
7
            
        
8
            
Item 2.
      
11
            
PART II.     OTHER INFORMATION
    
14
            
    
15
            
      
            
      

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Table of Contents
 
PART I.    FINANCIAL INFORMATION
 
Effective July 3, 2002, Wells Real Estate Fund V (the “Partnership”) engaged Ernst & Young LLP (“Ernst & Young”) as its principal accountants to audit the Partnership’s financial statements. In accordance with the relief granted to former auditing clients of Arthur Andersen LLP in SEC Release No. 34-45589, Ernst & Young completed its review of the unaudited financial statements of the Partnership for the quarter ended March 31, 2002 pursuant to Rule 10-01(d) of Regulation S-X within the 60-day period allowed pursuant to the SEC Release, and no material modifications to the previously reported financial information were required.

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WELLS REAL ESTATE FUND V, L.P.
(A Georgia Public Limited Partnership)
 
BALANCE SHEETS
 
    
(unaudited)
June 30,
2002

  
December 31,
2001

ASSETS:
             
Investments in joint ventures (Note 2)
  
$
10,791,666
  
$
11,133,823
Cash and cash equivalents
  
 
32,810
  
 
26,219
Due from affiliates
  
 
275,109
  
 
295,198
    

  

Total assets
  
$
11,099,585
  
$
11,455,240
    

  

LIABILITIES AND PARTNERS’ CAPITAL
             
Liabilities:
             
Accounts payable
  
$
0
  
$
2,460
Partnership distributions payable
  
 
254,542
  
 
284,008
    

  

Total liabilities
  
 
254,542
  
 
286,468
    

  

Partners’ capital:
             
Limited partners:
             
Class A—1,566,416 units outstanding
  
 
10,845,043
  
 
11,168,772
Class B—134,186 units outstanding
  
 
0
  
 
0
    

  

Total partners’ capital
  
 
10,845,043
  
 
11,168,772
    

  

Total liabilities and partners’ capital
  
$
11,099,585
  
$
11,455,240
    

  

 
 
 
The accompanying notes are an integral part of these balance sheets.

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WELLS REAL ESTATE FUND V, L.P.
(A Georgia Public Limited Partnership)
 
STATEMENTS OF INCOME
 
    
(unaudited)
Three Months Ended

  
(unaudited)
Six Months Ended

    
June 30,
2002

  
June 30,
2001

  
June 30,
2002

  
June 30,
2001

REVENUES:
                           
Equity in income of joint ventures (Note 2)
  
$
91,681
  
$
173,821
  
$
256,335
  
$
344,662
Interest income
  
 
0
  
 
0
  
 
790
  
 
393
    

  

  

  

    
 
91,681
  
 
173,821
  
 
257,125
  
 
345,055
    

  

  

  

EXPENSES:
                           
Legal and accounting
  
 
2,514
  
 
2,500
  
 
9,643
  
 
11,150
Computer costs
  
 
1,745
  
 
4,708
  
 
3,729
  
 
5,507
Partnership administration
  
 
16,165
  
 
19,362
  
 
29,024
  
 
28,866
    

  

  

  

    
 
20,424
  
 
26,570
  
 
42,396
  
 
45,523
    

  

  

  

NET INCOME
  
$
71,257
  
$
147,251
  
$
214,729
  
$
299,532
    

  

  

  

NET INCOME ALLOCATED TO CLASS A LIMITED PARTNERS
  
$
71,257
  
$
147,251
  
$
214,729
  
$
299,532
    

  

  

  

NET LOSS ALLOCATED TO CLASS B LIMITED PARTNERS
  
$
0
  
$
0
  
$
0
  
$
0
    

  

  

  

NET INCOME PER CLASS A LIMITED PARTNER UNIT
  
$
0.04
  
$
0.09
  
$
0.13
  
$
0.19
    

  

  

  

NET LOSS PER CLASS B LIMITED PARTNER UNIT
  
$
0
  
$
0
  
$
0
  
$
0
    

  

  

  

CASH DISTRIBUTION PER CLASS A LIMITED PARTNER UNIT
  
$
0.16
  
$
0.18
  
$
0.34
  
$
0.35
    

  

  

  

 
The accompanying notes are an integral part of these statements.

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WELLS REAL ESTATE FUND V, L.P.
(A Georgia Public Limited Partnership)
 
STATEMENTS OF PARTNERS’ CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 2001
AND THE SIX MONTHS ENDED JUNE 30, 2002 (UNAUDITED)
 
    
Limited Partners

  
Total
Partners’
Capital

 
    
Class A

    
Class B

  
    
Units

  
Amount

    
Units

  
Amount

  
BALANCE, December 31, 2000
  
1,566,416
  
$
11,675,654
 
  
134,186
  
$
0
  
$
11,675,654
 
Net income
  
0
  
 
629,113
 
  
0
  
 
0
  
 
629,113
 
Partnership distributions
  
0
  
 
(1,135,995
)
  
0
  
 
0
  
 
(1,135,995
)
    
  


  
  

  


BALANCE, December 31, 2001
  
1,566,416
  
 
11,168,772
 
  
134,186
  
 
0
  
 
11,168,772
 
Net income
  
0
  
 
214,729
 
  
0
  
 
0
  
 
214,729
 
Partnership distributions
  
0
  
 
(538,458
)
  
0
  
 
0
  
 
(538,458
)
    
  


  
  

  


BALANCE, June 30, 2002 (unaudited)
  
1,566,416
  
$
10,845,043
 
  
134,186
  
$
0
  
$
10,845,043
 
    
  


  
  

  


 
The accompanying notes are an integral part of these statements.

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WELLS REAL ESTATE FUND V, L.P.
(A Georgia Public Limited Partnership)
 
STATEMENTS OF CASH FLOWS
 
    
(unaudited)
Six Months Ended

 
    
June 30, 2002

    
June 30, 2001

 
CASH FLOW FROM OPERATING ACTIVITIES:
                 
Net income
  
$
214,729
 
  
$
299,532
 
Adjustments to reconcile net income to net cash used in operating activities:
                 
Equity in income of joint venture
  
 
(256,335
)
  
 
(344,662
)
Changes in assets and liabilities:
                 
Accounts receivable
  
 
0
 
  
 
1,395
 
Accounts payable
  
 
(2,460
)
  
 
(2,000
)
    


  


Net cash used in operating activities
  
 
(44,066
)
  
 
(45,735
)
    


  


CASH FLOW FROM INVESTING ACTIVITIES:
                 
Distributions received from joint ventures
  
 
618,581
 
  
 
592,922
 
    


  


CASH FLOW FROM FINANCING ACTIVITIES:
                 
Partnership distributions paid
  
 
(567,924
)
  
 
(577,790
)
    


  


NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
  
 
6,591
 
  
 
(30,603
)
CASH AND CASH EQUIVALENTS, beginning of year
  
 
26,219
 
  
 
54,981
 
    


  


CASH AND CASH EQUIVALENTS, end of period
  
$
32,810
 
  
$
24,378
 
    


  


 
 
 
 
The accompanying notes are an integral part of these statementss.

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Table of Contents
 
WELLS REAL ESTATE FUND V, L.P.
(A Georgia Public Limited Partnership)
 
CONDENSED NOTES TO FINANCIAL STATEMENTS
June 30, 2002
(Unaudited)
 
1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
(a)  Organization and Business
 
Wells Real Estate Fund V, L.P. (“the Partnership”) is a Georgia public limited partnership with Leo F. Wells, III and Wells Partners, L.P. (“Wells Partners”), a Georgia non-public limited partnership, serving as the General Partners. The Partnership was formed on October 25, 1990, for the purpose of acquiring, developing, owning, operating, improving, leasing, and otherwise managing income producing properties for investment purposes. The Partnership has two classes of limited partnership interests, Class A and Class B units. Class B limited partners shall have a one-time right to elect to have all of their units treated as Class A units. Limited partners may vote to, among other things, (a) amend the partnership agreement, subject to certain limitations, (b) change the business purpose or investment 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 partner unit has equal voting rights, regardless of class.
On March 6, 1992, 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 filed on Form S-11 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 27, 1992. The offering was terminated on March 3, 1993, at which time the Partnership had sold 1,520,967 Class A units and 179,635 Class B units representing capital contributions of $17,006,020 from investors who were admitted to the Partnership as limited partners.
 
The Partnership owns interests in all of its real estate assets through joint ventures with other Wells Real Estate Funds. As of June 30, 2002, the Partnership owned interests in the following 5 properties through the affiliated joint ventures listed below:
 
Joint Venture
 
Joint Venture Partners
 
Properties

Fund IV-V Associates
 
—  Wells Real Estate Fund IV, L.P.
—  Wells Real Estate Fund V, L.P.

 
1.     Village Overlook Property
Two substantially identical two-story office buildings located Clayton County, Georgia
2.     IBM Jacksonville Building
A four-story office building located in Jacksonville, Florida

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Fund V-VI Associates
 
—  Wells Real Estate Fund V, L.P.
—  Wells Real Estate Fund VI, L.P

 
3.     Hartford Building
A four-story office building located in Hartford, Connecticut
4.     Stockbridge Village II
Two retail buildings located in Clayton County, Georgia

Fund V-VI-VII Associates
 
—  Wells Real Estate Fund V, L.P.
—  Wells Real Estate Fund VI, L.P.
—  Wells Real Estate Fund VII, L.P.
 
5.     Marathon Building
A three-story office building located in Appleton, Wisconsin

 
Each of the aforementioned properties was acquired on an all cash basis. For further information regarding the foregoing joint ventures and properties, refer to the report filed for the Partnership Form 10-K for the year ended December 31, 2001.
 
(b)  Basis of Presentation
 
The financial statements of the Partnership have been prepared in accordance with instructions for Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles (“GAAP”) for complete financial statements. The quarterly statements included herein have not been examined by independent accountants. However, in the opinion of the General Partners, the statements for the unaudited interim periods presented include all adjustments that are of a normal and recurring nature and necessary to fairly present the results for those periods. Interim results for 2002 are not necessarily indicative of results for the year. For further information, refer to the financial statements and footnotes included in the Partnership’s Form 10-K filed for the year ended December 31, 2001.
 
(c)  Distributions of Net Cash From Operations
 
As defined by the partnership agreement, cash available for distributions is distributed quarterly on a cumulative non-compounded basis to the limited partners as follows:
 
 
 
First, to all Class A limited partners until such limited partners have received distributions equal to a 10% per annum return on their respective adjusted capital contributions, as defined.
 
 
 
Second, to the General Partners until each general partner has received distributions equal to 10% of the total distributions declared by the Partnership per annum.
 
 
 
Third, to the Class A limited partners and the General Partners allocated on a basis of 90% and 10%, respectively.
 
No distributions will be made to the limited partners holding Class B units.
 
(d)  Impairment of Real Estate Assets
 
On January 1, 2002, the Partnership adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Under the new guidance, management reviews each of the properties in which it holds an interest for impairment when there is an event or change in circumstances that indicates the carrying amount of the asset may not be recoverable and the future undiscounted cash

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flows expected to be generated by the asset are less than its carrying amount. If such assets are considered to be impaired, the Partnership records impairment losses and reduces the carrying amount of impaired assets to an amount that reflects the fair value of the assets at the time impairment is evident. Management also reviews estimated selling prices of assets held for sale and records impairment losses to reduce the carrying amount of assets held for sale when the carrying amounts exceed the estimated selling prices less costs to sell. Also, material long-lived assets held for sale are separately identified in the balance sheets and their related net operating income is segregated as income from discontinued operations in the statements of income. In addition, depreciation of long-lived assets held for sale is not recorded. If an asset held for sale reverts to an asset used in operations, the asset will be measured at the lower of the original carrying cost, adjusted for the forgone depreciation, or the fair value at the date of the decision to hold the asset.
 
2.    INVESTMENT IN JOINT VENTURES
 
(a)  Basis of Presentation
 
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 using the equity method. For further information, refer to the financial statements and footnotes included in the Partnership’s Form 10-K filed for the year ended December 31, 2001.
 
(b)  Summary of Operations
 
The following information summarizes the operations of the unconsolidated joint ventures in which the Partnership held ownership interests for the three and six months ended June 30, 2002 and 2001:
 
    
Total Revenues

  
Net Income

  
Partnership’s
Share of Net Income

    
Three Months Ended

  
Three Months Ended

  
Three Months Ended

    
June 30,
2002

  
June 30,
2001

  
June 30,
2002

  
June 30,
2001

  
June 30,
2002

  
June 30,
2001

Fund IV-V Associates
  
$
402,421
  
$
534,778
  
$
16,611
  
$
142,137
  
$
10,354
  
$
88,599
Fund V-VI Associates
  
 
250,640
  
 
259,906
  
 
122,654
  
 
130,371
  
 
56,915
  
 
60,496
Fund V-VI-VII Associates
  
 
243,288
  
 
244,677
  
 
148,307
  
 
150,221
  
 
24,412
  
 
24,726
    

  

  

  

  

  

    
$
896,349
  
$
1,039,361
  
$
287,572
  
$
422,729
  
$
91,681
  
$
173,821
    

  

  

  

  

  

 
    
Total Revenues

  
Net Income

  
Partnership’s
Share of Net Income

    
Six Months Ended

  
Six Months Ended

  
Six Months Ended

    
June 30,
2002

  
June 30,
2001

  
June 30,
2002

  
June 30,
2001

  
June 30,
2002

  
June 30,
2001

Fund IV-V Associates
  
$
919,494
  
$
1,050,924
  
$
144,267
  
$
283,589
  
$
89,926
  
$
176,770
Fund V-VI Associates
  
 
758,265
  
 
518,754
  
 
255,930
  
 
255,984
  
 
118,758
  
 
118,784
Fund V-VI-VII Associates
  
 
486,818
  
 
491,525
  
 
289,499
  
 
298,345
  
 
47,651
  
 
49,108
    

  

  

  

  

  

    
$
2,164,577
  
$
2,061,203
  
$
689,696
  
$
837,918
  
$
256,335
  
$
344,662
    

  

  

  

  

  

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following discussion and analysis should be read in conjunction with the Partnership’s accompanying financial statements and notes thereto.
 
(a)  Forward Looking Statements
 
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, including construction costs which may exceed estimates, construction delays, lease-up risks, inability to obtain new tenants upon expiration of existing leases, and the potential need to fund tenant improvements or other capital expenditures out of operating cash flows.
 
(b)  Results of Operations
 
Revenues
 
Gross revenues decreased to $257,125 for the six months ended June 30, 2002 compared to $345,055 for the six months ended June 30, 2001 due to (i) a decrease in rental revenues for the IBM Jacksonville Building resulting from several vacancies during the first six months of the year 2002 and (ii) additional sales tax assessment for the IBM Jacksonville Building in the fourth quarter of 2001.
 
Expenses
 
Expenses decreased to $42,396 for the six months ended June 30, 2002 compared to $45,523 for the six months ended June 30, 2002 primarily due to a decrease in legal and accounting expense, partially offset by an increase in partnership administration expense, both of which resulted from a change in the timing of services rendered during 2002 compared to 2001.
 
As a result, net income decreased to $214,729 for the six months ended June 30, 2002 as compared to $299,532 for the six months ended June 30, 2001.
 
Distributions
 
The Partnership declared cash distributions to the limited partners holding Class A units of $0.34 per unit for the six months ended June 30, 2002 and $0.35 per unit for the same period in 2001. No cash distributions were made to the limited partners holding Class B units.
 
(c)  Liquidity and Capital Resources
 
Net cash used in operating activities remained relatively constant at $44,066 for the six months ended June 30, 2002 compared to $45,735 for the same period in 2001. Cash provided by investing activities increased to $618,581 for the six months ended June 30, 2002 from $592,922 for the same period in 2001 due to a corresponding increase in cash generated from joint ventures during the first quarter of 2002 as compared to the first quarter of 2001; the Partnership receives distributions based on the cash generated from joint ventures during the respective immediately preceding quarterly accounting periods. Cash flows used in financing activities decreased to $567,924 for the six months ended June 30, 2002 from $577,790 for the same period in 2001 primarily due to the reduction in

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cash available for distributions to limited partners resulting from the decrease in cash flows generated from the IBM Jacksonville Building as described in previous section.
 
The Partnership’s distributions payable for 2002 have been paid from net cash from operations and from distributions received from its investments in joint ventures. While there is no guarantee, the General Partners anticipate that cash distributions to limited partners holding Class A units will continue in 2002 at a level at least comparable with 2001 cash distributions on an annual basis. The Partnership expects to continue to meets its short-term liquidity requirements generally through net cash provided by operations, which the Partnership believes will continue to be adequate to meet both operating requirements and provide for distributions to limited partners.
 
Partnership distributions decreased for the second quarter of 2002, as compared to the first quarter of 2002, as a result of reserving cash available for distributions in order to fund significant tenant improvements and leasing costs associated with re-leasing space at the Hartford Building and the IBM Jacksonville Building, which is anticipated to occur during the fourth quarter of 2002.
 
(d)  Inflation
 
The real estate market has not been affected significantly by inflation in the past three years due to the relatively low inflation rate. There are provisions in the majority of tenant leases executed by the Partnership to protect the Partnership from the impact of inflation. Most leases contain provisions for common area maintenance, real estate tax and insurance reimbursements from tenants either on a per square foot basis, or above a certain allowance per square foot annually. 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 remaining terms of less than five years, which may allow the Partnership to enter into new leases at higher base rental rates in the event that market rental rates rise above the existing lease rates. There is no assurance, however, that the Partnership would be able to replace existing leases with new leases at higher base rental rates.
 
(e)  Critical Accounting Policies
 
The Partnership’s accounting policies have been established and conformed to in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to use judgments in the application of accounting policies, including making estimates and assumptions. These judgments may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the financial statements presented and the reported amounts of revenues and expenses during the respective reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied; thus, resulting in a different presentation of our financial statements.
 
The accounting policies that we consider to be critical, in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain, are discussed below. For further information related to the Partnership’s accounting policies, including the critical accounting policies described below, refer to the report filed for the Partnership on Form 10-K for the year ended December 31, 2001.

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Straight-Lined Rental Revenues
 
The Partnership recognizes rental income generated from all leases on real estate assets in which the Partnership has an ownership interest through its investments in joint ventures on a straight-line basis over the terms of the respective leases. Should tenants encounter financial difficulties in future periods, the amounts recorded as receivables may not be fully realized.
 
Operating Cost Reimbursements
 
The Partnership generally bills tenants for operating cost reimbursements through its investments in joint ventures on a monthly basis at amounts estimated largely based on actual prior period activity and the respective tenant lease terms. Such billings are generally adjusted on an annual basis to reflect reimbursements owed to the landlord based on the actual costs incurred during the period and the respective tenant lease terms. Should tenants encounter financial difficulties in future periods, the amounts recorded as receivables may not be fully realized.
 
Real Estate
 
Management continually monitors events and changes in circumstances indicating that the carrying amounts of the real estate assets in which the Partnership has ownership interests through its investments in joint ventures may not be recoverable. When such events or changes in circumstances are present, management assesses the potential impairment by comparing the fair market value of the underlying assets, estimated at amounts equal to the future undiscounted operating cash flows expected to be generated from tenants over the life of the assets and from their eventual disposition, to the carrying value of the assets. In the event that the carrying amount exceeds the estimated fair market value, the Partnership would recognize an impairment loss in the amount required to adjust the carrying amount of the asset to its estimated fair market value. Neither the Partnership nor its joint ventures have recognized impairment losses on real estate assets in 2002, 2001 or 2000.

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PART II—OTHER INFORMATION
 
Item 6(b)
 
During the second quarter of 2002, the Registrant filed a Current Report on Form 8-K dated May 16, 2002 disclosing the dismissal of Arthur Andersen LLP as its independent public accountants.
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
Date:    August 12, 2002

  
WELLS REAL ESTATE FUND V, L.P.
(Registrant)
 
By:                     /s/    LEO F. WELLS, III

Leo F. Wells, III, as Individual
General Partner, and as President,
Sole Director of Wells Capital, Inc., the
General Partner of Wells Partners, L.P.
 
 
Date:    August 12, 2002

  
 
By:                   /s/    DOUGLAS P. WILLIAMS

As Chief Financial Officer

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EXHIBIT INDEX
TO
SECOND QUARTER FORM 10-Q
OF
WELLS REAL ESTATE FUND V, L.P.
 
Exhibit No.

  
Description

99.1
  
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2
  
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

15