WELLS REAL ESTATE FUND III 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 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 0-18407

WELLS REAL ESTATE FUND III, L.P.

(Exact name of registrant as specified in its charter)


Georgia		58-1800833
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

6200 The Corners Parkway, Norcross, 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 ¨

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Form 10-Q of Wells Real Estate Fund III, L.P. (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;

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•

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

•

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 administrative operating expenses, including increased expenses associated with 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.	Financial Statements

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

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

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

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

		Condensed Notes to Financial Statements (unaudited)	9

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

	Item 3.	Quantitative and Qualitative Disclosures about Market Risks	21

	Item 4.	Controls and Procedures	21

PART II.	OTHER INFORMATION		22

Page 4

WELLS REAL ESTATE FUND III, L.P.

BALANCE SHEETS

ASSETS


	(unaudited) March 31, 2004		December 31, 2003
Investments in joint ventures	$	9,796,507	$	9,906,037
Cash and cash equivalents		1,202,078		2,552,904
Due from joint ventures		259,008		200,239

Total assets	$	11,257,593	$	12,659,180


LIABILITIES AND PARTNERS’ CAPITAL:
Liabilities:
Accounts payable and accrued expenses	$	18,069	$	6,571
Partnership distributions payable		0		220,904

Total liabilities		18,069		227,475

Partners’ capital:
Limited partners:
Class A—19,635,965 units outstanding		11,239,524		12,431,705
Class B—2,544,540 units outstanding		0		0
General partners		0		0

Total partners’ capital		11,239,524		12,431,705

Total liabilities and partners’ capital	$	11,257,593	$	12,659,180

See accompanying notes.

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WELLS REAL ESTATE FUND III, L.P.

STATEMENTS OF OPERATIONS


	(unaudited) Three Months Ended March 31,
	2004		2003
REVENUES:
Equity in income of joint ventures (Note 2)	$	149,478	$	204,145
Interest income		2,909		4,195
Other income		0		1,533

		152,387		209,873

EXPENSES
Partnership administration		22,029		24,109
Legal and accounting		10,024		30,262
Other general and administrative		512		1,478

		32,565		55,849

NET INCOME FROM CONTINUING OPERATIONS		119,822		154,024

DISCONTINUED OPERATIONS:
Operating loss		0		(2,366	)

LOSS FROM DISCONTINUED OPERATIONS		0		(2,366	)

NET INCOME	$	119,822	$	151,658

NET INCOME ALLOCATED TO CLASS A LIMITED PARTNERS	$	31,008	$	151,658

NET INCOME ALLOCATED TO CLASS B LIMITED PARTNERS	$	88,814	$	0

NET INCOME PER CLASS A LIMITED PARTNER UNIT	$	0.00	$	0.01

NET INCOME PER CLASS B LIMITED PARTNER UNIT	$	0.03	$	0.00

CASH DISTRIBUTION PER CLASS A LIMITED PARTNER UNIT	$	0.06	$	0.01

CASH DISTRIBUTION PER CLASS B LIMITED PARTNER UNIT	$	0.03	$	0.00

See accompanying notes.

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WELLS REAL ESTATE FUND III, L.P.

STATEMENTS OF PARTNERS’ CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 2003

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


	Limited Partners										Total Partners’ Capital
	Class A				Class B				General Partners
	Units	Amounts			Units	Amounts			General Partners
BALANCE, December 31, 2002	19,635,965	$	13,311,090		2,544,540	$	0		$	0	$	13,311,090
Net loss	0		(13,276	)	0		0			0		(13,276	)
Partnership distributions	0		(866,109	)	0		0			0		(866,109	)

BALANCE, December 31, 2003	19,635,965		12,431,705		2,544,540		0			0		12,431,705
Net income	0		31,008		0		88,814			0		119,822
Partnership distributions	0		(1,223,189	)	0		(88,814	)		0		(1,312,003	)

BALANCE, March 31, 2004	19,635,965	$	11,239,524		2,544,540	$	0		$	0	$	11,239,524

See

accompanying notes.

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WELLS REAL ESTATE FUND III, L.P.

STATEMENTS OF CASH FLOWS


	(unaudited) Three Months Ended March 31,
	2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from continuing operations	$	119,822		$	154,024
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:
Equity in income of joint ventures		(149,478	)		(204,145	)
Changes in assets and liabilities:
Prepaid expenses and other assets		0			199
Accounts payable and accrued expenses		11,498			27,793

Net cash used in continuing operations		(18,158	)		(22,129	)
Net cash used in discontinued operations		0			(2,366	)

Net cash used in operating activities		(18,158	)		(24,495	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in joint ventures		0			(39,786	)
Distributions received from joint ventures		200,239			323,016

Net cash provided by investing activities		200,239			283,230


CASH FLOWS FROM FINANCING ACTIVITIES:
Partnership distribution paid		(1,532,907	)		(220,905	)


NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(1,350,826	)		37,830

CASH AND CASH EQUIVALENTS, beginning of period		2,552,904			2,612,963

CASH AND CASH EQUIVALENTS, end of period	$	1,202,078		$	2,650,793


SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
Due from joint ventures	$	259,008		$	183,265

Partnership distributions payable	$	0		$	220,905

See accompanying notes.

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WELLS REAL ESTATE FUND III, L.P.

CONDENSED NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2004 (unaudited)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Organization and Business

Wells Real Estate Fund III, L.P. (the “Partnership”) is a Georgia public limited partnership with Leo F. Wells, III and Wells Capital, Inc. (“Wells Capital”), a Georgia corporation, serving as its general partners (collectively, the “General Partners”). The Partnership was formed on July 31, 1988 for the purpose of acquiring, developing, constructing, owning, operating, improving, leasing, and managing income-producing commercial properties for investment purposes. The Partnership has two classes of limited partnership interests, Class A and Class B Units. The 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) add or 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 generally has equal voting rights regardless of class.

On October 24, 1988, the Partnership commenced a public offering of its limited partnership units pursuant to a Registration Statement filed on Form S-11 under the Securities Act of 1933. The offering was terminated on October 23, 1990 upon receiving and accepting $22,206,310 in limited partner capital contributions for a total of 22,206,310 Class A and Class B limited partner units at a price of $1.00 per unit. In 1990 and 1991, the Partnership repurchased 6,128 and 19,677 limited partnership units, respectively.

The Partnership owns interests in all of its real estate assets through joint ventures with other Wells Real Estate Funds. During the periods presented, the Partnership owned interests in the following five properties through the affiliated joint ventures listed below (the “Joint Ventures”):



Joint Venture	Joint Venture Partners	Properties

Fund II and Fund III Associates (“Fund II-III Associates “)	— Fund II and Fund II-OW* — Wells Real Estate Fund III, L.P.	1. Boeing at the Atrium A four-story office building located in Houston, Texas 2. Brookwood Grill A restaurant located in Fulton County, Georgia

Fund II, III, VI and VII Associates (“Fund II-III-VI-VII Associates”)	— Fund II-III Associates — Wells Real Estate Fund VI, L.P. — Wells Real Estate Fund VII, L.P.	3. Holcomb Bridge Property An office/retail center located in Roswell, Georgia

Fund III and Fund IV Associates (“Fund III-IV Associates”)	— Wells Real Estate Fund III, L.P. — Wells Real Estate Fund IV, L.P.	4. Stockbridge Village Shopping Center A retail shopping center located in Stockbridge, Georgia 5. 4400 Cox Road (formerly known as the “Reciprocal Group Building”) An office building located in Richmond, Virginia

Fund II and Fund II-OW (“Fund II-IIOW Associates”) is a joint venture between Wells Real Estate Fund II and Wells Real Estate Fund II-OW.

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Each of the aforementioned properties was acquired on an all-cash basis. The investment objectives of each of the joint venture partners listed in the above table are substantially identical to those of the Partnership. For further information regarding the foregoing joint ventures and properties, refer to the report filed for the Partnership on Form 10-K for the year ended December 31, 2003.

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