WELLS REAL ESTATE FUND XII LP - 10-Q Quarterly Report

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UNITED STATES

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, 2005 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 0-30287

WELLS REAL ESTATE FUND XII, L.P.

(Exact name of registrant as specified in its charter)


Georgia		58-2438242
(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 XII, 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.

Enterprise risks

•

Our dependency on Wells Capital, Inc. (“Wells Capital”) and its affiliates and their key personnel for various administrative services; and

•

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

Real estate risks

•

Ability to achieve appropriate occupancy levels resulting in rental amounts sufficient to cover operating costs;

•

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;

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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 at our properties;

•

Ability to fund foreseen and unforeseen capital expenditures, including those related to tenant build-out projects, tenant improvements, and lease-up costs, out of operating cash flow or net property sale proceeds; 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

•

Our reliance on Wells Management Company, Inc. (“Wells Management”) or third parties to manage our properties;

•

Increases in our administrative operating expenses, including increased expenses associated with operating as a public company in the current regulatory environment;

•

Ability to comply with governmental, tax, real estate, environmental, and zoning laws or regulations and funding the related costs of compliance; 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 XII, L.P.

TABLE OF CONTENTS


			Page No.
PART I.	FINANCIAL INFORMATION

	Item 1	Financial Statements

		Balance Sheets—March 31, 2005 (unaudited) and December 31, 2004	5

		Statements of Operations for the Three Months Ended March 31, 2005 (unaudited) and 2004 (unaudited)	6

		Statements of Partners’ Capital for the Year Ended December 31, 2004 and Three Months Ended March 31, 2005 (unaudited)	7

		Statements of Cash Flows for the Three Months Ended March 31, 2005 (unaudited) and 2004 (unaudited)	8

		Condensed Notes to Financial Statements (unaudited)	9

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

	Item 3	Quantitative and Qualitative Disclosures about Market Risk	22

	Item 4.	Controls and Procedures	22

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	23

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23

	Item 3.	Defaults Upon Senior Securities	23

	Item 4.	Submission of Matters to a Vote of Security Holders	23

	Item 5.	Other Information	23

	Item 6.	Exhibits	23

Page 4

WELLS REAL ESTATE FUND XII, L.P.

BALANCE SHEETS

ASSETS


	March 31, 2005 (unaudited)		December 31, 2004
Investments in joint ventures	$	25,778,678	$	25,918,247
Cash and cash equivalents		1,997,974		1,885,089
Due from affiliate		0		1,010
Due from joint ventures		585,443		575,686

Total assets	$	28,362,095	$	28,380,032


LIABILITIES AND PARTNERS’ CAPITAL
LIABILITIES:
Accounts payable and accrued expenses	$	62,975	$	35,707
Due to affiliates		7,081		3,135
Partnership distributions payable		533,609		440,857

Total liabilities		603,665		479,699

PARTNERS’ CAPITAL:
Limited partners:
Cash Preferred—2,944,050 and 2,939,050 units issued and outstanding as of March 31, 2005 and December 31, 2004, respectively		25,931,837		25,907,456
Tax Preferred—617,069 and 622,069 units issued and outstanding as of March 31, 2005 and December 31, 2004, respectively		1,826,593		1,992,877
General partners		0		0

Total partners’ capital		27,758,430		27,900,333

Total liabilities and partners’ capital	$	28,362,095	$	28,380,032

See accompanying notes.

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WELLS REAL ESTATE FUND XII, L.P.

STATEMENTS OF OPERATIONS

(unaudited)


	Three Months Ended March 31,
	2005			2004
EQUITY IN INCOME OF JOINT VENTURES	$	445,874		$	413,146

EXPENSES:
Partnership administration		49,716			15,726
Legal and accounting		11,598			8,794
Other general and administrative		263			282

Total expenses		61,577			24,802

INTEREST AND OTHER INCOME		7,409			0

NET INCOME	$	391,706		$	388,344

NET INCOME (LOSS) ALLOCATED TO LIMITED PARTNERS:
CASH PREFERRED	$	541,972		$	666,570

TAX PREFERRED	$	(150,266	)	$	(278,226	)

NET INCOME (LOSS) PER WEIGHTED-AVERAGE LIMITED PARTNER UNIT:
CASH PREFERRED	$	0.18		$	0.23

TAX PREFERRED	$	(0.24	)	$	(0.44	)

WEIGHTED-AVERAGE LIMITED PARTNER UNITS OUTSTANDING:
CASH PREFERRED		2,944,050			2,924,050

TAX PREFERRED		617,069			637,069

See accompanying notes.

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WELLS REAL ESTATE FUND XII, L.P.

STATEMENTS OF PARTNERS’ CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 2004 AND

FOR THE THREE MONTHS ENDED MARCH 31, 2005 (unaudited)


	Limited Partners										General Partners		Total Partners’ Capital
	Cash Preferred					Tax Preferred
	Units		Amounts			Units		Amounts
BALANCE, December 31, 2003	2,934,050		$	25,536,652		627,069		$	2,354,951		$	0	$	27,891,603

Cash preferred conversion elections	(35,000	)		(305,626	)	35,000			305,626			0		0
Tax preferred conversion elections	40,000			125,888		(40,000	)		(125,888	)		0		0
Net income (loss)	0			2,489,975		0			(541,812	)		0		1,948,163
Distributions of operating cash flows ($0.66 per Cash Preferred Unit)	0			(1,939,433	)	0			0			0		(1,939,433	)

BALANCE, December 31, 2004	2,939,050			25,907,456		622,069			1,992,877			0		27,900,333

Tax preferred conversion elections	5,000			16,018		(5,000	)		(16,018	)		0		0
Net income (loss)	0			541,972		0			(150,266	)		0		391,706
Distributions of operating cash flows ($0.18 per Cash Preferred Unit)	0			(533,609	)	0			0			0		(533,609	)

BALANCE, March 31, 2005	2,944,050		$	25,931,837		617,069		$	1,826,593		$	0	$	27,758,430

See accompanying notes.

Page 7

WELLS REAL ESTATE FUND XII, L.P.

STATEMENTS OF CASH FLOWS

(unaudited)


	Three Months Ended March 31,
	2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	391,706		$	388,344
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in income of joint ventures		(445,874	)		(413,146	)
Operating distributions received from joint ventures		575,686			852,640
Changes in operating assets and liabilities:
Due from affiliate		1,010			0
Due to affiliates		3,946			1,377
Accounts payable and accrued expenses		27,268			11,428

Total adjustments		162,036			452,299

Net cash provided by operating activities		553,742			840,643

CASH FLOWS FROM FINANCING ACTIVITIES:
Operating distributions paid to limited partners		(440,857	)		(660,160	)

NET INCREASE IN CASH AND CASH EQUIVALENTS		112,885			180,483

CASH AND CASH EQUIVALENTS, beginning of period		1,885,089			14,922

CASH AND CASH EQUIVALENTS, end of period	$	1,997,974		$	195,405

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Partnership distributions payable	$	533,609		$	621,361

See accompanying notes.

Page 8

WELLS REAL ESTATE FUND XII, L.P.

CONDENSED NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2005 (unaudited)

1.	ORGANIZATION AND BUSINESS

Wells Real Estate Fund XII, L.P. (the “Partnership”) is a Georgia public limited partnership with Leo F. Wells, III and Wells Partners, L.P. (“Wells Partners”), a Georgia non-public limited partnership, serving as its general partners (collectively, the “General Partners”). Wells Capital, Inc. (“Wells Capital”) serves as the corporate general partner of Wells Partners. Wells Capital is a wholly-owned subsidiary of Wells Real Estate Funds, Inc. Leo F. Wells, III is the president and sole director of Wells Capital and the sole owner of Wells Real Estate Funds, Inc. The Partnership was formed on September 15, 1998 for the purpose of acquiring, developing, constructing, owning, operating, improving, leasing and managing income-producing commercial properties for investment purposes. Upon subscription, limited partners elect to treat their units as Cash Preferred Units or Tax Preferred Units. Thereafter, the limited partners have the right to change their prior elections to have some or all of their units treated as Cash Preferred Units or Tax Preferred Units one time during each quarterly accounting period. 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; (c) add or remove a general partner; (d) elect a new general partner; (e) dissolve the Partnership; and (f) approve a sale involving all or substantially all of the Partnership’s assets, subject to certain limitations. The majority vote on any of the matters described above will bind the Partnership without the concurrence of the General Partners. Each limited partnership unit has equal voting rights regardless of class.

The Partnership was formed to acquire and operate commercial real estate properties, including properties, which are either to be developed, are currently under construction, are newly constructed, or have operating histories.

On September 15, 1998, the Partnership was organized under the laws of the state of Georgia. On March 22, 1999, the Partnership commenced an offering of up to $70,000,000 of Cash Preferred or Tax Preferred limited partnership units ($10.00 per unit) pursuant to a Registration Statement filed on Form S-11 under the Securities Act of 1933. The Partnership commenced active operations upon receiving and accepting subscriptions for 125,000 units on June 1, 1999. The offering was terminated on March 21, 2001, at which time the Partnership had sold approximately 2,688,861 Cash Preferred Units and 872,258 Tax Preferred Units to 1,227 and 106 Cash Preferred and Tax Preferred Limited Partners, respectively, for total limited partner Capital Contributions of $35,611,192.

The Partnership owns 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”) and properties:


Joint Venture	Joint Venture Partners	Properties
The Wells Fund XI–Fund XII–REIT Joint Venture

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