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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 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 0-25731

 

 

WELLS REAL ESTATE FUND XI, L.P.

(Exact name of registrant as specified in its charter)

 

 

Georgia   58-2250094
(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

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain statements contained in this Form 10-Q of Wells Real Estate Fund XI, 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 and 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;

 

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  •   Increases in property operating expenses, including property taxes, insurance, and other costs not recoverable from tenants;

 

  •   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 XI, L.P.

 

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              Page No.

PART I.

   FINANCIAL INFORMATION     
   

Item 1.

    Financial Statements     
         Balance Sheets—September 30, 2004 (unaudited) and December 31, 2003    5
         Statements of Operations for the Three and Nine Months Ended September 30, 2004 (unaudited) and 2003 (unaudited)    6
         Statements of Partners’ Capital for the Year Ended December 31, 2003 and the Nine Months Ended September 30, 2004 (unaudited)    7
         Statements of Cash Flows for the Nine Months Ended September 30, 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    22
   

Item 4.

    Controls and Procedures    22

PART II.

   OTHER INFORMATION    23

 

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WELLS REAL ESTATE FUND XI, L.P.

 

BALANCE SHEETS

 

ASSETS

 

    

(unaudited)

September 30,
2004

    December 31,
2003

Investments in joint ventures

    $ 10,645,154    $ 10,826,635

Cash and cash equivalents

      1,567,942      1,362,761

Due from joint ventures

      93,219      252,452
    
  

Total assets

    $ 12,306,315    $ 12,441,848
    
  
LIABILITIES AND PARTNERS’ CAPITAL

Liabilities:

              

Accounts payable and accrued expenses

    $ 22,145    $ 207

Partnership distributions payable

      69,350      225,429
    
  

Total liabilities

      91,495      225,636
               

Partners’ capital:

              

Limited partners:

              

Class A—1,387,003 and 1,387,253 units outstanding as of September 30, 2004 and December 31, 2003, respectively

      12,214,820      12,119,023

Class B—266,277 and 266,027 units outstanding as of September 30, 2004 and December 31, 2003, respectively

      0      97,189

General partners

      0      0
    
  

Total partners’ capital

      12,214,820      12,216,212
    
  

Total liabilities and partners’ capital

    $ 12,306,315    $ 12,441,848
    
  

 

See accompanying notes.

 

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WELLS REAL ESTATE FUND XI, L.P.

 

STATEMENTS OF OPERATIONS

 

     (unaudited)  
     Three Months Ended
September 30,
     Nine Months Ended
September 30,
  
     2004
    2003
     2004
     2003
  

EQUITY IN INCOME OF JOINT VENTURES (Note 2)

    $ 74,865    $ 87,371     $ 395,964     $ 429,708  

EXPENSES:

                                

Partnership administration

      15,456      22,248       80,791       64,939  

Legal and accounting

      11,488      208       29,664       8,500  

Other general and administrative

      175      (1,356 )     1,154       7,690  
    
  
 
 

Total expenses

      27,119      21,100       111,609       81,129  

OTHER INCOME

      3,170      0       8,991       260  
    
  
 
 

NET INCOME

    $ 50,916    $ 66,271     $ 293,346     $ 348,839  
    
  
 
 

NET INCOME ALLOCATED TO CLASS A LIMITED PARTNERS

    $ 50,916    $ 177,808     $ 412,585     $ 701,550  
    
  
 
 

NET LOSS ALLOCATED TO CLASS B LIMITED PARTNERS

    $ 0    $ (111,537 )   $ (119,239 )   $ (352,711 )
    
  
 
 

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

                                

CLASS A

    $ 0.04    $ 0.13     $ 0.30     $ 0.51  
    
  
 
 

CLASS B

    $ 0.00    $ (0.41 )   $ (0.45 )   $ (1.30 )
    
  
 
 

DISTRIBUTION OF OPERATING CASH PER WEIGHTED-AVERAGE LIMITED PARTNER UNIT:

                                

CLASS A

    $ 0.04    $ 0.20     $ 0.21     $ 0.56  
    
  
 
 

CLASS B

    $ 0.00    $ 0.00     $ 0.00     $ 0.00  
    
  
 
 

WEIGHTED-AVERAGE LIMITED PARTNER UNITS OUTSTANDING:

                                

CLASS A

      1,387,003      1,381,753       1,387,086       1,381,055  
    
  
 
 

CLASS B

      266,277      271,527       266,194       272,225  
    
  
 
 

 

See accompanying notes.

 

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WELLS REAL ESTATE FUND XI, 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

    1,371,606     $ 12,091,903     281,674     $ 681,047     $         0    $ 12,772,950  

Net income (loss)

    0       999,612     0       (554,083 )     0      445,529  

Distributions of operating cash flow

    0       (1,002,267 )   0       0       0      (1,002,267 )

Class B conversions

    15,647       29,775     (15,647 )     (29,775 )     0      0  
    
 
 
 
 
  

BALANCE, December 31, 2003

    1,387,253       12,119,023     266,027       97,189       0      12,216,212  

Net income

    0       412,585     0       (119,239 )     0      293,346  

Distributions of operating cash flow

    0       (294,738 )   0       0       0      (294,738 )

Class A conversions

    (2,500 )     (22,050 )   2,500       22,050              0  

Class B conversions

    2,250       0     (2,250 )     0       0      0  
    
 
 
 
 
  

BALANCE, September 30, 2004

    1,387,003     $ 12,214,820     266,277     $ 0     $ 0    $ 12,214,820  
    
 
 
 
 
  

 

See accompanying notes.

 

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WELLS REAL ESTATE FUND XI, L.P.

 

STATEMENTS OF CASH FLOWS

 

     (unaudited)  
     Nine Months Ended
September 30,
  
     2004
     2003
  

CASH FLOWS FROM OPERATING ACTIVITIES:

                 

Net income

    $ 293,346     $ 348,839  

Adjustments to reconcile net income to net cash provided by operating activities:

                 

Equity in income of joint ventures

      (395,964 )     (429,708 )

Operating distributions received from joint ventures

      806,620       883,158  

Changes in operating assets and liabilities:

                 

Accounts payable and accrued expenses

      21,938       3,085  

Accounts receivable

      0       732  
    
 

Total adjustments

      432,594       457,267  
    
 

Net cash provided by operating activities

      725,940       806,106  

CASH FLOWS FROM INVESTING ACTIVITIES:

                 

Net sale proceeds received from joint ventures

      0       1,304,775  

Investments in joint ventures