WELLS REAL ESTATE FUND I - 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 March 31, 2004

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 0-14463

WELLS REAL ESTATE FUND I

(Exact name of registrant as specified in its charter)


Georgia		58-1565512
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

6200 The Corners Parkway, Norcross, 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 ¨

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Form 10-Q of Wells Real Estate Fund I (the “Partnership”) other than historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements include, in particular, statements about our plans, strategies, and prospects and are subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” or other similar words. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this report is filed with the Securities and Exchange Commission. Neither the Partnership nor the general partners make any representations or warranties (expressed or implied) about the accuracy of any such forward-looking statements. Actual results could differ materially from any forward-looking statements contained in this Form 10-Q, and we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Any such forward-looking statements are subject to known and unknown risks, uncertainties, and other factors and are based on a number of assumptions involving judgments with respect to, among other things, future economic, competitive, and market conditions, all of which are difficult or impossible to predict accurately. To the extent that our assumptions differ from actual results, our ability to meet such forward-looking statements, including our ability to generate positive cash flow from operations; provide distributions to limited partners; and maintain the value of our real estate properties, may be significantly hindered. Following are some of the risks and uncertainties, although not all risks and uncertainties, which could cause actual results to differ materially from those presented in certain forward-looking statements:

General economic risks

•

Adverse changes in general economic conditions or local conditions;

•

Adverse economic conditions affecting the particular industry of one or more of our tenants;

Real estate risks

•

Our ability to achieve appropriate occupancy levels resulting in sufficient rental amounts;

•

Supply of or demand for similar or competing rentable space, which may adversely impact our ability to retain or obtain new tenants at lease expiration at acceptable rental amounts;

•

Tenant ability or willingness to satisfy obligations relating to our existing lease agreements;

•

Our potential need to fund tenant improvements, lease-up costs, or other capital expenditures out of operating cash flow;

•

Increases in property operating expenses, including property taxes, insurance, and other costs at our properties;

•

Our ability to secure adequate insurance at reasonable and appropriate rates to avoid uninsured losses or losses in excess of insured amounts;

•

Discovery of previously undetected environmentally hazardous or other undetected adverse conditions at our properties;

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•

Unexpected costs of capital expenditures related to tenant build-out projects or other unforeseen capital expenditures;

•

Our ability to sell a property when desirable at an acceptable return, including the ability of the purchaser to satisfy any continuing obligations to us;

Other operational risks

•

Our dependency on Wells Capital, Inc., our corporate General Partner, its key personnel, and its affiliates for various administrative services;

•

Wells Capital, Inc.’s ability to attract and retain high-quality personnel who can provide acceptable service levels to us and generate economies of scale for us over time;

•

Increases in our operating expenses, including increased expenses associated with litigation involving the Partnership and operating as a public company;

•

Changes in governmental, tax, real estate, environmental, and zoning laws and regulations and the related costs of compliance;

•

Our ability to prove compliance with any governmental, tax, real estate, environmental, and zoning in the event that any such position is questioned by the respective authority; and

•

Actions of our joint venture partners including potential bankruptcy, business interests differing from ours, or other actions that may adversely impact the operations of joint ventures.

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TABLE OF CONTENTS


			Page No.
PART I.	FINANCIAL INFORMATION

	Item 1.	Consolidated Financial Statements

		Consolidated Balance Sheets – March 31, 2004 (unaudited) and December 31, 2003	5

		Consolidated Statements of Operations for the Three Months Ended March 31, 2004 (unaudited) and 2003 (unaudited)	6

		Consolidated Statements of Partners’ Capital for the Year Ended December 31, 2003 and the Three Months Ended March 31, 2004 (unaudited)	7

		Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 (unaudited) and 2003 (unaudited)	8

		Condensed Notes to Consolidated Financial Statements (unaudited)	9

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

	Item 3.	Quantitative and Qualitative Disclosures about Market Risks	21

	Item 4.	Controls and Procedures	21

PART II.	OTHER INFORMATION		21

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WELLS REAL ESTATE FUND I AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

ASSETS


	(unaudited) March 31, 2004		December 31, 2003
Real estate assets, at cost:
Building and improvements, less accumulated depreciation of $6,484,598 in 2004 and $6,347,730 in 2003	$	4,042,693	$	4,174,103
Land		1,238,819		1,238,819
Assets held for sale		577,990		588,878

Total real estate assets		5,859,502		6,001,800
Cash and cash equivalents		11,570,142		11,792,983
Investments in joint ventures		2,202,114		2,263,584
Deferred lease acquisition costs		132,191		140,160
Prepaid expenses and other assets		167,085		121,111
Accounts receivable, net		116,028		102,518
Due from joint ventures		18,842		17,616

Total assets	$	20,065,904	$	20,439,772


LIABILITIES AND PARTNERS’ CAPITAL

Liabilities:
Due to affiliate	$	2,074,126	$	2,058,935
Accounts payable, accrued expenses, and refundable security deposits		259,122		303,958
Partnership distributions payable		164,908		164,908
Minority interest		35,022		34,777

Total liabilities		2,533,178		2,562,578

Partners’ capital:
Limited partners:
Class A – 98,716 units outstanding		17,532,726		17,877,194
Class B – 42,568 units outstanding		0		0
General partners		0		0

Total partners’ capital		17,532,726		17,877,194

Total liabilities and partners’ capital	$	20,065,904	$	20,439,772

See accompanying notes.

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WELLS REAL ESTATE FUND I AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS


	(unaudited) Three Months Ended March 31,
	2004			2003
REVENUES:
Rental income	$	248,658		$	247,539
Tenant reimbursements		28,148			37,279
Interest income		21,786			42,616
Equity in (loss) income of joint ventures (Note 2)		(14,805	)		47,940
Other income		0			2,181

		283,787			377,555

EXPENSES:
Legal and accounting		319,399			46,154
Depreciation		136,869			133,025
Operating costs – rental properties		119,151			107,956
Partnership administration		27,081			31,768
Management and leasing fees		27,042			24,266
Other		903			4,467

		630,445			347,636

NET (LOSS) INCOME FROM CONTINUING OPERATIONS		(346,658	)		29,919
DISCONTINUED OPERATIONS:
Operating income (loss)		2,190			(844	)

INCOME (LOSS) FROM DISCONTINUED OPERATIONS		2,190			(844	)

NET (LOSS) INCOME	$	(344,468	)	$	29,075

NET (LOSS) INCOME ALLOCATED TO CLASS A LIMITED PARTNERS	$	(344,468	)	$	29,075

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

NET (LOSS) INCOME PER CLASS A LIMITED PARTNER UNIT	$	(3.49	)	$	0.29

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

CASH DISTRIBUTION PER CLASS A LIMITED PARTNER UNIT	$	0.00		$	2.50

See accompanying notes.

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WELLS REAL ESTATE FUND I AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 2003

AND THE THREE MONTHS ENDED MARCH 31, 2004 (unaudited)


	Limited Partners							General Partners		Total Partners’ Capital
	Class A				Class B
	Units	Amounts			Units	Amounts
BALANCE, December 31, 2002	98,716	$	18,632,747		42,568	$	0	$	0	$	18,632,747

Net loss	0		(508,763	)	0		0		0		(508,763	)
Partnership distributions	0		(246,790	)	0		0		0		(246,790	)

BALANCE, December 31, 2003	98,716		17,877,194		42,568		0		0		17,877,194

Net loss	0		(344,468	)	0		0		0		(344,468	)

BALANCE, March 31, 2004	98,716	$	17,532,726		42,568	$	0	$	0	$	17,532,726

See accompanying notes.

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WELLS REAL ESTATE FUND I AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS


	(unaudited) Three Months Ended March 31,
	2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income from continuing operations	$	(346,658	)	$	29,919
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Equity in loss (income) of joint ventures		14,805			(47,940	)
Depreciation		136,869			133,024
Write-off of real estate asset		0			2,459
Amortization of deferred lease costs		7,500			9,258
Changes in assets and liabilities:
Accounts receivable, net		(6,733	)		(14,668	)
Prepaid expenses and other assets		(45,868	)		(23,013	)
Accounts payable, accrued expenses, and refundable security deposits		(49,504	)		(26,399	)
Due to affiliate		13,308			12,012

Net cash (used in) provided by continuing operations		(276,281	)		74,652
Net cash provided by discontinued operations		13,460			23,829

Net cash (used in) provided by operating activities		(262,821	)		98,481

CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions received from joint ventures		45,439			129,745
Investment in real estate		(5,459	)		0

Net cash provided by investing activities		39,980			129,745

CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to limited partners		0			(246,776	)

Net cash used in financing activities—continuing operations		0			(246,776	)
Minority interest distributions—discontinued operations		0			(6,245	)

Net cash used in financing activities		0			(253,021	)

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