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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 March 31, 2004

 

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 0-25606

 

 

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.,
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  ¨

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain statements contained in this Form 10-Q of Wells Real Estate Fund VII, 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., the corporate general partners of one of our General Partners, 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, 2002

    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

   15
   

Item 3.

   

Quantitative and Qualitative Disclosures about Market Risks

   22
   

Item 4.

   

Controls and Procedures

    22

PART II.

  

OTHER INFORMATION

   22

 

 

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WELLS REAL ESTATE FUND VII, L.P.

 

BALANCE SHEETS

 

ASSETS

 

    

(unaudited)

March 31,
2004

   

December 31,

2003

Investments in joint ventures

    $ 13,482,564    $ 13,397,571

Due from joint ventures

      457,974      407,105

Cash and cash equivalents

      76,854      1,078,108
    
  

Total assets

    $ 14,017,392    $ 14,882,784
    
  

LIABILITIES AND PARTNERS’ CAPITAL

Liabilities:

              

Partnership distributions payable

    $ 156,490    $ 368,497

Accounts payable

      9,513      13,623
    
  

Total liabilities

      166,003      382,120
    
  

Partners’ capital:

              

Limited partners:

              

Class A—2,112,847 units and 2,105,697 units outstanding, as of March 31, 2004 and December 31, 2003, respectively

      13,851,389      14,500,664

Class B—305,170 units and 312,320 units outstanding, as of March 31, 2004 and December 31, 2003, respectively

      0      0

General partners

      0      0
    
  

Total partners’ capital

      13,851,389      14,500,664
    
  

Total liabilities and partners’ capital

    $ 14,017,392    $ 14,882,784
    
  

 

See accompanying notes.

 

 

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WELLS REAL ESTATE FUND VII, L.P.

 

STATEMENTS OF OPERATIONS

 

    

(unaudited)

Three Months Ended
March 31,

     2004
     2003

REVENUES:

               

Equity in income of joint ventures (Note 2)

    $ 269,084     $ 244,589

Other income

      2,170       1,660
    
 
       271,254       246,249
    
 

EXPENSES:

               

Partnership administration

      21,793       18,427

Legal and accounting

      6,853       4,303

Other general and administrative

      393       1,414
    
 
       29,039       24,144
    
 

NET INCOME

    $ 242,215     $ 222,105
    
 

NET (LOSS) INCOME ALLOCATED TO CLASS A LIMITED PARTNERS

    $ (229,668 )   $ 222,105
    
 

NET INCOME ALLOCATED TO CLASS B LIMITED PARTNERS

    $ 471,883     $ 0
    
 

NET (LOSS) INCOME PER WEIGHTED-AVERAGE CLASS A LIMITED PARTNER UNIT

    $ (0.11 )   $ 0.11
    
 

NET INCOME PER WEIGHTED-AVERAGE CLASS B LIMITED PARTNER UNIT

    $ 1.55     $ 0.00
    
 

CASH DISTRIBUTION PER WEIGHTED-AVERAGE CLASS A LIMITED PARTNER UNIT

    $ 0.20     $ 0.18
    
 

CASH DISTRIBUTION PER WEIGHTED-AVERAGE CLASS B LIMITED PARTNER UNIT

    $ 1.55     $ 0.00
    
 

WEIGHTED-AVERAGE LIMITED PARTNER UNITS OUTSTANDING:

               

CLASS A

      2,112,847       2,097,547
    
 

CLASS B

      305,170       320,470
    
 

 

See accompanying notes.

 

 

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WELLS REAL ESTATE FUND VII, L.P.

 

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

    2,092,547    $ 14,932,843     325,470     $ 0     $ 0    $ 14,932,843  

Net income

    0      1,039,461     0       0       0      1,039,461  

Partnership distributions

    0      (1,471,640 )   0       0       0      (1,471,640 )

Class B conversion elections

    13,150      0     (13,150 )     0       0      0  
    
  
 
 
 
  

BALANCE, December 31, 2003

    2,105,697      14,500,664     312,320       0       0      14,500,664  

Net (loss) income

    0      (229,668 )   0       471,883       0      242,215  

Partnership distributions

    0      (419,607 )   0       (471,883 )     0      (891,490 )

Class B conversion elections

    7,150      0     (7,150 )     0       0      0  
    
  
 
 
 
  

BALANCE, March 31, 2004

    2,112,847    $ 13,851,389     305,170     $ 0     $ 0    $ 13,851,389  
    
  
 
 
 
  

 

See accompanying notes.

 

 

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WELLS REAL ESTATE FUND VII, L.P.

 

STATEMENTS OF CASH FLOWS

 

    

(unaudited)

Three Months Ended
March 31,

  
     2004
     2003
  

CASH FLOWS FROM OPERATING ACTIVITIES:

                 

Net income

    $ 242,215     $ 222,105  

Adjustments to reconcile net income to net cash used in operating activities:

                 

Equity in income of joint ventures

      (269,084 )     (244,589 )

Changes in assets and liabilities:

                 

Accounts payable

      (4,110 )     4,026  
    
 

Net cash used in operating activities

      (30,979 )     (18,458 )
    
 

CASH FLOWS FROM INVESTING ACTIVITIES:

                 

Distributions received from joint ventures

      410,593       581,993  

Investment in joint ventures

      (277,371 )     0  
    
 

Net cash provided by investing activities

      133,222       581,993  
    
 

CASH FLOWS FROM FINANCING ACTIVITIES:

                 

Partnership distributions paid

      (1,103,497 )     (392,354 )
    
 

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

      (1,001,254 )     171,181  

CASH AND CASH EQUIVALENTS, beginning of period

      1,078,108       993,780  
    
 

CASH AND CASH EQUIVALENTS, end of period

    $ 76,854     $ 1,164,961  
    
 

SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:

                 

Due from joint ventures

    $ 437,974     $ 399,969  
    
 

Partnership distributions payable

    $ 156,490     $ 367,075  
    
 

 

See accompanying notes.

 

 

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WELLS REAL ESTATE FUND VII, L.P.

 

CONDENSED NOTES TO FINANCIAL STATEMENTS

 

March 31, 2004 (unaudited)

 

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

(a)   Organization and Business

 

Wells Real Estate Fund VII, L.P. (the “Partnership”) is a public limited partnership organized on December 1, 1992 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 (collectively, the “General Partners”). Upon subscription, limited partners elect to have their units treated as either Class A Units or 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 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 representing capital contributions of $24,180,174 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. During the periods presented, the Partnership owned interests in the following eight properties through the affiliated joint ventures listed below (the “Joint Ventures”):

 

Joint Venture    Joint Venture Partners    Properties

Fund II, III, VI, and VII Associates (“Fund II-III-VI-VII Associates”)

   

•   Fund II and Fund III Associates
(“Fund II-III Associates”)*

•   Wells Real Estate Fund VI, L.P.

•   Wells Real Estate Fund VII, L.P.

   

1. Holcomb Bridge Property

Office/retail center located in Roswell, Georgia

 

Fund V, Fund VI, and Fund VII Associates

(“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.

   

2. Marathon Building

A three-story office building located in Appleton, Wisconsin

 

Fund VI and Fund VII Associates (“Fund VI-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 center expansion located in Stockbridge, Georgia

 

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