WELLS REAL ESTATE FUND VII L P - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2002

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-25606

WELLS REAL ESTATE FUND VII, L.P.

(Exact name of registrant as specified in its charter)

Georgia		58-2022629
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

6200 The Corners Pkwy., Atlanta, Georgia		30092
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (770) 449-7800

(Former name, former address, and former fiscal year, if changed since last report)

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

FORM 10-Q

WELLS REAL ESTATE FUND VII, L.P.

(A Georgia Public Limited Partnership)

INDEX

		Page No.

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Balance Sheets—June 30, 2002 (unaudited) and December 31, 2001	4

	Statements of Income for the Three Months and Six Months Ended June 30, 2002 (unaudited) and 2001 (unaudited)	5

	Statements of Partners’ Capital for the Year Ended December 31, 2001 and the Six Months Ended June 30, 2002 (unaudited)	6

	Statements of Cash Flows for the Six Months Ended June 30, 2002 (unaudited) and 2001 (unaudited)	7

	Condensed Notes to Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	12

PART II.	OTHER INFORMATION	15

Exhibit Index		16

Exhibit 99.1—Certification of Chief Executive Officer

Exhibit 99.2—Certification of Chief Financial Officer

PART I. FINANCIAL INFORMATION

Effective July 3, 2002, Wells Real Estate Fund VII, L.P. (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.

WELLS REAL ESTATE FUND VII, L.P.

(A Georgia Public Limited Partnership)

BALANCE SHEETS

	(unaudited)
	June 30, 2002		December 31, 2001
ASSETS:
Investments in joint ventures (Note 2)	$	14,475,492	$	15,772,696
Due from affiliates		1,280,589		460,193
Cash and cash equivalents		69,183		45,950

Total assets	$	15,825,264	$	16,278,839

LIABILITIES AND PARTNERS’ CAPITAL:
Liabilities:
Accounts payable	$	3,087	$	7,207
Partnership distributions payable		427,211		463,881

Total liabilities		430,298		471,088

Partners’ capital:
Limited partners:
Class A—2,071,318 units and 2,067,020 units as of June 30, 2002 and December 31, 2001, respectively		15,394,966		15,807,751
Class B—346,699 units and 350,997 units as of June 30, 2002 and December 31, 2001, respectively		0		0

Total partners’ capital		15,394,966		15,807,751

Total liabilities and partners’ capital	$	15,825,264	$	16,278,839

See accompanying condensed notes to financial statements.

WELLS REAL ESTATE FUND VII, L.P.

(A Georgia Public Limited Partnership)

STATEMENTS OF INCOME

	(unaudited)				(unaudited)
	Three Months Ended				Six Months Ended
	June 30, 2002		June 30, 2001		June 30, 2002		June 30, 2001
REVENUES:
Equity in income of joint ventures (Note 2)	$	256,167	$	233,225	$	488,212	$	446,246
Interest income		91		147		955		2,309

		256,258		233,372		489,167		448,555

EXPENSES:
Legal and accounting		3,422		3,000		12,708		12,727
Partnership administration		15,807		20,766		28,999		29,638
Computer costs		2,717		4,307		4,807		5,508

		21,946		28,073		46,514		47,873

NET INCOME	$	234,312	$	205,299	$	442,653	$	400,682

NET INCOME ALLOCATED TO CLASS A LIMITED PARTNERS	$	234,312	$	205,299	$	442,653	$	400,682

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

NET INCOME PER WEIGHTED AVERAGE CLASS A LIMITED PARTNER UNIT	$	0.11	$	0.10	$	0.21	$	0.20

NET LOSS PER WEIGHTED AVERAGE CLASS B LIMITED PARTNER UNIT	$	0.00	$	0.00	$	0.00	$	0.00

CASH DISTRIBUTION PER CLASS A LIMITED PARTNER UNIT	$	0.21	$	0.22	$	0.42	$	0.44

See accompanying condensed notes to financial statements.

WELLS REAL ESTATE FUND VII, 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	Amounts			Units		Amounts
BALANCE, December 31, 2000	2,045,427	$	16,534,159		372,590			0	$	16,534,159
Net income	0		1,113,684		0			0		1,113,684
Partnership distributions	0		(1,840,092	)	0			0		(1,840,092	)
Class B conversion elections	21,593		0		(21,593	)		0		0

BALANCE, December 31, 2001	2,067,020		15,807,751		350,997			0		15,807,751
Net income	0		442,653		0			0		442,653
Partnership distributions	0		(855,438	)	0			0		(855,438	)
Class B conversion elections	4,298		0		(4,298	)		0		0

BALANCE, June 30, 2002
(unaudited)	2,071,318	$	15,394,966		346,699		$	0	$	15,394,966

See accompanying condensed notes to financial statements.

WELLS REAL ESTATE FUND VII, L.P.

(A Georgia Public Limited Partnership)

STATEMENTS OF CASH FLOWS

	(unaudited)
	Six Months Ended
	June 30, 2002			June 30, 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	442,653		$	400,682
Adjustments to reconcile net income to net cash used in operating activities:
Equity in income of joint ventures		(488,212	)		(446,246	)
Changes in assets and liabilities:
Prepaid expenses and other assets		—			(72	)
Accounts payable		(4,120	)		(4,752	)

Net cash used in operating activities		(49,679	)		(50,388	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions received from joint ventures		965,020			943,216

CASH FLOWS FROM FINANCING ACTIVITIES:
Partnership distributions paid		(892,108	)		(915,788	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		23,233			(22,960	)
CASH AND CASH EQUIVALENTS, beginning of year		45,950			55,216

CASH AND CASH EQUIVALENTS, end of period	$	69,183		$	32,256

See accompanying condensed notes to financial statements.

WELLS REAL ESTATE FUND VII, 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 VII, L.P. (the “Partnership”) is a Georgia public limited partnership, with Leo F. Wells, III and Wells Partners, L.P. (“Wells Partners”), a Georgia nonpublic limited partnership, serving as the General Partners. The Partnership was formed on December 1, 1992 for the purpose of acquiring, developing, owning, operating, improving, leasing, and otherwise managing income-producing commercial properties for investment purposes. The Partnership has two classes of limited partnership interests, Class A and Class B units. Limited partners 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.

On April 6, 1994, the Partnership commenced an offering of up to $25,000,000 of Class A or Class B limited partnership units pursuant to a Registration Statement filed on Form S-11 under the Securities Act of 1933. The Partnership terminated its offering on January 5, 1995 upon receiving gross proceeds of $24,180,174 representing subscriptions for approximately 1,678,810 Class A units and 739,207 Class B units held by 1,591 and 319 limited partners, respectively.

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 8 properties through the affiliated joint ventures listed below:

Joint Venture	Joint Venture Partners	Properties

Fund II, III, VI, and VII Associates	—Fund II and III Associates* —Wells Real Estate Fund VI, L.P. —Wells Real Estate Fund VII, L.P.	1. Holcomb Bridge Property An office retail center located in Roswell, Georgia

Fund V, Fund VI, and Fund VII Associates	—Wells Real Estate Fund V, L.P. —Wells Real Estate Fund VI, L.P. —Wells Real Estate Fund VII, L.P.	2. Marathon Building A three-story office building located in Appleton, Wisconsin

Fund VI and Fund VII Associates	—Wells Real Estate Fund VI, L.P. —Wells Real Estate Fund VII, L.P.	3. Stockbridge Village III Two retail buildings located in Stockbridge, Georgia
		4. Stockbridge Village I Expansion A retail shopping enter expansion located in Stockbridge, Georgia


Fund VI, Fund VII, and VIII Associates	—Wells Real Estate Fund VI, L.P. —Wells Real Estate Fund VII, L.P. —Wells Real Estate Fund VIII, L.P.	5. BellSouth Building A four-story office building located in Jacksonville, Florida 6. Tanglewood Commons A retail center in Clemmons, North Carolina

Fund VII and Fund VIII Associates	—Wells Real Estate Fund VII, L.P. —Wells Real Estate Fund VIII, L.P.	7. Hannover Center A retail center located in Stockbridge, Georgia 8. CH2M Hill at Gainesville Property An office building located in Gainesville, Florida

Fund II-III Associates is a joint venture between Fund II and IIOW Associates and Wells Real Estate Fund III, L.P.; Fund II and Fund IIOW Associates is a joint venture between Wells Real Estate Fund II and Wells Real Estate Fund II-OW.

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.

On October 1, 2001, Fund I-II-IIOW-VI-VII Associates, a joint venture among the Partnership, Wells Real Estate Fund I, Fund II and IIOW Associates, and Wells Real Estate Fund VI, L.P., sold the Cherokee Commons property. The Cherokee Commons property is a retail shopping center located in Cherokee County, Georgia. The portion of the proceeds from the sale of the Cherokee Commons property attributable to the Partnership in the amount of $886,212 is included in due from affiliates

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