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 September 30, 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 0-23719
WELLS REAL ESTATE FUND X, L.P.
(Exact name of registrant as specified in its charter)
| Georgia | 58-2250093 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
| 6200 The Corners Pkwy., Norcross, Georgia |
30092-3365 | |
| (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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-Q of Wells Real Estate Fund X, 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. Specifically, among others, we consider statements concerning projections of future operating results and cash flows, our ability to meet future obligations, and the amount and timing of future distributions to limited partners to be forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date that 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. 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 follow:
General economic risks
| • | Adverse changes in general or local economic conditions; and |
| • | Adverse economic conditions affecting the particular industry of one or more tenants in properties owned by our joint ventures. |
Real estate risks inherent in properties owned through joint ventures
| • | 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 retaining or obtaining new tenants upon lease expiration at acceptable rental amounts; |
| • | Tenant ability or willingness to satisfy obligations relating to our existing lease agreements; |
| • | Potential need to fund tenant improvements, lease-up costs, or other capital expenditures out of operating cash flow or net sale proceeds; |
| • | Increases in property operating expenses, including property taxes, insurance, and other costs not recoverable from tenants; |
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| • | 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; |
| • | Unexpected costs of capital expenditures related to tenant build-out projects or other unforeseen capital expenditures; and |
| • | Ability to sell a property when desirable at an acceptable return, including the ability of the purchaser to satisfy any and all closing conditions. |
Other operational risks
| • | Dependency on Wells Capital, Inc. (“Wells Capital”), the corporate general partner of one of our General Partners, its key personnel, and its affiliates for various administrative services; |
| • | Wells Capital’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 in the current regulatory environment; |
| • | Changes in governmental, tax, real estate, environmental, and zoning laws and regulations and the related costs of compliance; |
| • | Ability to demonstrate compliance with any governmental, tax, real estate, environmental, and zoning law or regulation 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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WELLS REAL ESTATE FUND X, L.P.
| Page No. | ||||||
| PART I. |
FINANCIAL INFORMATION | |||||
| Item 1. | Financial Statements | |||||
| Balance Sheets—September 30, 2004 (unaudited) and December 31, 2003 | 5 | |||||
| 6 | ||||||
| 7 | ||||||
| 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 | ||||
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WELLS REAL ESTATE FUND X, L.P.
ASSETS
| (unaudited) September 30, |
December 31, 2003 | |||||
| Investments in joint ventures |
$ | 16,580,017 | $ | 16,642,806 | ||
| Cash and cash equivalents |
1,838,476 | 1,809,328 | ||||
| Due from joint ventures |
91,858 | 478,980 | ||||
| Total assets |
$ | 18,510,351 | $ | 18,931,114 | ||
| LIABILITIES AND PARTNERS’ CAPITAL | ||||||
| Liabilities: |
||||||
| Accounts payable and accrued expenses |
$ | 30,395 | $ | 17,732 | ||
| Partnership distributions payable |
0 | 430,713 | ||||
| Total liabilities |
30,395 | 448,445 | ||||
| Partners’ capital: |
||||||
| Limited partners: |
||||||
| Class A—2,386,583 units and 2,376,350 units outstanding as of September 30, 2004 and December 31, 2003, respectively |
18,479,956 | 18,482,669 | ||||
| Class B—326,308 units and 336,541 units outstanding as of September 30, 2004 and December 31, 2003, respectively |
0 | 0 | ||||
| General partners |
0 | 0 | ||||
| Total partners’ capital |
18,479,956 | 18,482,669 | ||||
| Total liabilities and partners’ capital |
$ | 18,510,351 | $ | 18,931,114 | ||
See accompanying notes.
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WELLS REAL ESTATE FUND X, L.P.
(unaudited)
| Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||
| 2004 |
2003 |
2004 |
2003 | |||||||||
| EQUITY IN INCOME OF JOINT VENTURES (Note 2) |
$ | 289,790 | $ | 194,831 | $ | 790,597 | $ | 768,113 | ||||
| EXPENSES: |
||||||||||||
| Partnership administration |
22,092 | 19,060 | 106,603 | 84,784 | ||||||||
| Legal and accounting |
9,681 | 208 | 26,359 | 7,718 | ||||||||
| General and administrative |
1,080 | 0 | 2,127 | 8,267 | ||||||||
| Total expenses |
32,853 | 19,268 | 135,089 | 100,769 | ||||||||
| OTHER INCOME |
4,381 | 516 | 12,422 | 579 | ||||||||
| NET INCOME |
$ | 261,318 | $ | 176,079 | $ | 667,930 | $ | 667,923 | ||||
| NET INCOME ALLOCATED TO CLASS A LIMITED PARTNERS |
$ | 261,318 | $ | 176,079 | $ | 667,930 | $ | 667,923 | ||||
| NET INCOME ALLOCATED TO CLASS B LIMITED PARTNERS |
$ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||
| NET INCOME PER WEIGHTED-AVERAGE LIMITED PARTNER UNIT: |
||||||||||||
| CLASS A |
$ | 0.11 | $ | 0.07 | $ | 0.28 | $ | 0.28 | ||||
| CLASS B |
$ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | ||||
| DISTRIBUTION OF OPERATING CASH PER WEIGHTED-AVERAGE LIMITED PARTNER UNIT: |
||||||||||||
| CLASS A |
$ | 0.00 | $ | 0.21 | $ | 0.28 | $ | 0.58 | ||||
| CLASS B |
$ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | ||||
| WEIGHTED-AVERAGE LIMITED PARTNER UNITS OUTSTANDING: |
||||||||||||
| CLASS A |
2,390,450 | 2,374,350 | 2,386,583 | 2,355,528 | ||||||||
| CLASS B |
322,441 | 338,541 | 326,308 | 357,363 | ||||||||
See accompanying notes.
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WELLS REAL ESTATE FUND X, L.P.
STATEMENTS OF PARTNERS’ CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 2003
AND THE NINE MONTHS ENDED SEPTEMBER 30, 2004 (unaudited)
| Limited Partners |
General Partners |
Total Partners’ Capital |
|||||||||||||||||
| Class A |
Class B |
||||||||||||||||||
| Units |
Amounts |
Units |
Amounts |
||||||||||||||||
| BALANCE, December 31, 2002 |
2,328,014 | $ | 19,426,530 | 384,877 | $ | 0 | $ | 0 | $ | 19,426,530 | |||||||||
| Net income |
0 | 856,732 | 0 | 0 | 0 | 856,732 | |||||||||||||
| Distributions of operating cash flow |
0 | (1,800,593 | ) | 0 | 0 | 0 | (1,800,593 | ) | |||||||||||
| Class B conversions |
48,336 | 0 | (48,336 | ) | 0 | 0 | 0 | ||||||||||||
| BALANCE, December 31, 2003 |
2,376,350 | 18,482,669 | 336,541 | 0 | 0 | 18,482,669 | |||||||||||||
| Net income |
0 | 667,930 | 0 | 0 | 0 | 667,930 | |||||||||||||
| Distributions of operating cash flow |
0 | (670,643 | ) | 0 | 0 | 0 | (670,643 | ) | |||||||||||
| Class B conversions |
10,233 | 0 | (10,233 | ) | 0 | 0 | 0 | ||||||||||||
| BALANCE, September 30, 2004 |
2,386,583 | $ | 18,479,956 | 326,308 | $ | 0 | $ | 0 | $ | 18,479,956 | |||||||||
See accompanying notes.
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WELLS REAL ESTATE FUND X, L.P.
(unaudited)
| Nine Months Ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net income |
$ | 667,930 | $ | 667,923 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Equity in income of joint ventures |
(790,597 | ) | (768,113 | ) | ||||
| Operating distributions received from joint ventures |
1,240,508 | 1,424,260 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts payable and accrued expenses |
12,663 | (4,681 | ) | |||||
| Total adjustments |
462,574 | 651,466 | ||||||
| Net cash provided by operating activities |
1,130,504 | 1,319,389 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Net sale proceeds received from joint ventures |
0 | 1,802,962 | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Distributions paid to limited partners |
(1,101,356 | ) | (1,360,034 | ) | ||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS |
29,148 | 1,762,317 | ||||||
| CASH AND CASH EQUIVALENTS, beginning of period |
1,809,328 | 153,072 | ||||||
| CASH AND CASH EQUIVALENTS, end of period |
$ | 1,838,476 | $ | 1,915,389 | ||||
| SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: |
||||||||
| Partnership distributions payable |
$ | 0 | $ | 504,550 | ||||
See accompanying notes.
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WELLS REAL ESTATE FUND X, L.P.
CONDENSED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2004 (unaudited)
| 1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
| (a) | Organization and Business |
Wells Real Estate Fund X, 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 (collectively, the “General Partners”). The Partnership was formed on June 20, 1996 for the purpose of acquiring, developing, owning, operating, improving, leasing, and managing income-producing commercial properties for investment purposes. Upon subscription, the limited partners elect to have their units treated as 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 Units or Class B Units one time during each annual 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) 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 partnership unit has equal voting rights regardless of class.
On December 31, 1996, the Partnership commenced a public offering of up to $35,000,000 of limited partnership units pursuant to a Registration Statement filed on Form S-11 under the Securities Act of 1933. The Partnership commenced active operations on February 4, 1997 upon receiving and accepting subscriptions for 125,000 units. The offer terminated on December 30, 1997, at which time the Partnership had sold approximately 2,116,099 Class A Units and 596,792 Class B Units for total limited partner capital contributions of $27,128,912.
The Partnership owns indirect interests in all of its real estate assets through joint ventures with other entities affiliated with the General Partners. During the periods presented, the Partnership owned interests in the following joint ventures (the “Joint Ventures”):