WELLS REAL ESTATE FUND XIV LP - FORM 10-Q - May 12, 2011

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EX-31.1 - SECTION 302 PEO CERTIFICATION - WELLS REAL ESTATE FUND XIV LPfund14q12011ex311.htm
EX-32.1 - SECTION 906 PEO AND CFO CERTIFICATIONS - WELLS REAL ESTATE FUND XIV LPfund14q12011ex321.htm
EX-31.2 - SECTION 302 CFO CERTIFICATION - WELLS REAL ESTATE FUND XIV LPfund14q12011ex312.htm

 
 
 
 
 
 
UNITED STATES
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, 2011
or
o
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 000-50647
___________________________ 
WELLS REAL ESTATE FUND XIV, L.P.
(Exact name of registrant as specified in its charter)
___________________________ 
Georgia
 
01-0748981
(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
 
N/A
(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  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [Not yet applicable to registrant.]    Yes  o    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer  o                 Accelerated filer  o
Non-accelerated filer  x (Do not check if a smaller reporting company)                 Smaller reporting company  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  o    No  x
 
 
 
 
 
 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-Q of Wells Real Estate Fund XIV, L.P. (the “Partnership” or the “Registrant”) other than historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, 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, we consider, among others, statements concerning future operating results and cash flows, our ability to meet future obligations, and the amount and timing of any 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 this report is filed with the Securities and Exchange Commission. We make no representations or warranties (express or implied) about the accuracy of any such 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 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 partners, and maintain the value of our real estate properties, may be significantly hindered. See Item 1A. in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2010 for a discussion of some of the risks and uncertainties, although not all risks and uncertainties, which could cause actual results to differ materially from those presented in our forward-looking statements.
 
 

Page 2

WELLS REAL ESTATE FUND XIV, L.P.
 
TABLE OF CONTENTS
 
 
  
 
 
Page No.
 
 
 
 
 
 
PART I.
  
 
 
 
 
 
 
 
 
 
  
Item 1.
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
  
Item 2.
 
 
 
 
 
 
 
 
  
Item 3.
 
 
 
 
 
 
 
 
  
Item 4.
 
 
 
 
 
 
 
PART II.
  
 
 
 
 
 
 
 
 
 
  
Item 1.
 
 
 
 
 
 
 
 
  
Item 1A.
 
 
 
 
 
 
 
 
  
Item 2.
 
 
 
 
 
 
 
 
  
Item 3.
 
 
 
 
 
 
 
 
  
Item 4.
REMOVED AND RESERVED
 
 
 
 
 
 
 
 
  
Item 5.
 
 
 
 
 
 
 
 
  
Item 6.
 
 

Page 3

PART 1.     FINANCIAL INFORMATION
 
ITEM 1.     FINANCIAL STATEMENTS
 
The information presented in the Partnership’s accompanying balance sheets and statements of operations, partners’ capital, and cash flows reflects all adjustments that are, in management’s opinion, necessary for a fair and consistent presentation of the aforementioned financial statements.
 
The accompanying financial statements should be read in conjunction with the notes to the Partnership’s financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in both this report on Form 10-Q and in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2010. The Partnership’s results of operations for the three months ended March 31, 2011 are not necessarily indicative of the operating results expected for the full year.
 

Page 4

WELLS REAL ESTATE FUND XIV, L.P.
 
BALANCE SHEETS
 
 
(Unaudited)
 
 
 
March 31,
2011
 
December 31,
2010
Assets:
 
 
 
Real estate, at cost:
 
 
 
Land
$
2,470,930
 
 
$
2,470,930
 
Building and improvements, less accumulated depreciation of $1,455,105 and
$1,377,504 as of March 31, 2011 and December 31, 2010, respectively
6,056,002
 
 
6,133,603
 
Intangible lease assets, less accumulated amortization of $212,410 and $202,132 as
of March 31, 2011 and December 31, 2010, respectively
65,093
 
 
75,371
 
Total real estate assets
8,592,025
 
 
8,679,904
 
 
 
 
 
Investment in joint venture
4,354,989
 
 
4,430,074
 
Cash and cash equivalents
402,194
 
 
732,451
 
Tenant receivables, net of allowance for doubtful accounts of $116,720 and $0 as of
March 31, 2011 and December 31, 2010, respectively
837,941
 
 
676,389
 
Due from joint venture
163,457
 
 
107,053
 
Other assets
89,077
 
 
76,757
 
Deferred leasing costs, less accumulated amortization of $162,737 and $118,214 as of
March 31, 2011 and December 31, 2010, respectively
1,253,000
 
 
1,297,523
 
Intangible lease origination costs, less accumulated amortization of $162,387 and
$154,530 as of March 31, 2011 and December 31, 2010, respectively
49,764
 
 
57,621
 
Total assets
$
15,742,447
 
 
$
16,057,772
 
 
Liabilities:
 
 
 
Accounts payable, accrued expenses, and refundable security deposits
$
59,345
 
 
$
40,103
 
Accrued deferred leasing costs
—
 
 
449,286
 
Deferred income
77,930
 
 
21,495
 
Due to affiliates
8,636
 
 
9,895
 
Total liabilities
145,911
 
 
520,779
 
 
 
 
 
Commitments and Contingencies
 
 
 
 
 
 
 
Partners' Capital:
 
 
 
Limited Partners:
 
 
 
Cash Preferred – 2,648,615 units issued and outstanding
15,595,940
 
 
15,536,993
 
Tax Preferred – 825,508 units issued and outstanding
—
 
 
—
 
General Partners
596
 
 
—
 
Total partners’ capital
15,596,536
 
 
15,536,993
 
Total liabilities and partners’ capital
$
15,742,447
 
 
$
16,057,772
 
See accompanying notes.
 
 
 

Page 5

WELLS REAL ESTATE FUND XIV, L.P.
 
STATEMENTS OF OPERATIONS
 
 
(Unaudited)
 
Three Months Ended
 
March 31,
 
2011
 
2010
Revenues:
 
 
 
Rental income
$
287,430
 
 
$
174,700
 
Tenant reimbursements
77,659
 
 
77,037
 
Interest and other income
9
 
 
8
 
Total revenues
365,098
 
 
251,745
 
 
 
 
 
Expenses:
 
 
 
Property operating costs
64,085
 
 
115,346
 
Management and leasing fees:
 
 
 
Related-party
759
 
 
6,935
 
Other
6,300
 
 
7,110
 
Depreciation
77,601
 
 
59,236
 
Amortization
47,061
 
 
276,476
 
Bad debt expense
116,720
 
 
—
 
General and administrative
81,401
 
 
66,691
 
Total expenses
393,927
 
 
531,794
 
 
 
 
 
Equity in Income of Joint Venture
88,372
 
 
121,439
 
Net Income (Loss)
$
59,543
 
 
$
(158,610
)
 
 
 
 
Net Income (Loss) Allocated to:
 
 
 
Cash Preferred Limited Partners
$
58,947
 
 
$
(157,024
)
Tax Preferred Limited Partners
$
—
 
 
$
—
 
General Partners
$
596
 
 
$
(1,586
)
 
 
 
 
Net Income (Loss) per Weighted-Average Limited Partner Unit:
 
 
 
Cash Preferred
$
0.02
 
 
$
(0.06
)
Tax Preferred
$
0.00
 
 
$
0.00
 
 
 
 
 
Weighted-Average Limited Partner Units Outstanding:
 
 
 
Cash Preferred
2,648,615
 
 
2,648,615
 
Tax Preferred
825,508
 
 
825,508
 
See accompanying notes.
 
 
 

Page 6

WELLS REAL ESTATE FUND XIV, L.P.
 
STATEMENTS OF PARTNERS’ CAPITAL
 
FOR THE YEAR ENDED DECEMBER 31, 2010
AND THE THREE MONTHS ENDED MARCH 31, 2011 (UNAUDITED)
 
 
Limited Partners
 
General
Partners
 
Total
Partners’
Capital
 
Cash Preferred
 
Tax Preferred
 
 
Units
 
Amount
 
Units
 
Amount
 
BALANCE, December 31, 2009
2,648,615
 
 
$
18,511,457
 
 
825,508
 
 
$
—
 
 
$
2,063
 
 
$
18,513,520
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
—
 
 
(2,974,464
)
 
—
 
 
—
 
 
(2,063
)
 
(2,976,527
)
BALANCE, December 31, 2010
2,648,615
 
 
15,536,993
 
 
825,508
 
 
—
 
 
—
 
 
15,536,993
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
—
 
 
58,947
 
 
—
 
 
—
 
 
596
 
 
59,543
 
BALANCE, March 31, 2011
2,648,615
 
 
$
15,595,940
 
 
825,508
 
 
$
—
 
 
$
596
 
 
$
15,596,536
 
See accompanying notes.
 
 
 
 

Page 7

WELLS REAL ESTATE FUND XIV, L.P.
 
STATEMENTS OF CASH FLOWS
 
 
(Unaudited)
 
Three Months Ended
 
March 31,
 
2011
 
2010
Cash Flows from Operating Activities:
 
 
 
Net income (loss)
$
59,543
 
 
$
(158,610
)
Operating distributions received from joint venture
107,053
 
 
152,168
 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation
77,601
 
 
59,236
 
Amortization
62,658
 
 
278,033
 
Bad debt expense
116,720
 
 
—
 
Equity in income of joint venture
(88,372
)
 
(121,439
)
Changes in assets and liabilities:
 
 
 
Increase in tenant receivables
(278,272
)
 
(12,123
)
Increase in other assets
(12,320
)
 
(44,074
)
Increase in accounts payable and accrued expenses
19,242
 
 
5,219
 
Increase in deferred income
56,435
 
 
727
 
Decrease in due to affiliates
(1,259
)
 
(3,727
)
Net cash provided by operating activities
119,029
 
 
155,410
 
 
 
 
 
Cash Flows from Investing Activities:
 
 
 
Payment of deferred leasing costs
(449,286
)
 
(463,210
)
Net Decrease in Cash and Cash Equivalents
(330,257
)
 
(307,800
)
 
 
 
 
Cash and Cash Equivalents, beginning of period
732,451
 
 
2,536,557
 
Cash and Cash Equivalents, end of period
$
402,194
 
 
$
2,228,757
 
 
 
 
 
Supplemental Disclosures on Noncash Investing Activities:
 
 
 
Accrued deferred leasing costs
$
—
 
 
$
495,721
 
 
See accompanying notes.
 
 
 
 

Page 8

WELLS REAL ESTATE FUND XIV, L.P.
 
CONDENSED NOTES TO FINANCIAL STATEMENTS
 
MARCH 31, 2011 (unaudited)
 
1.
ORGANIZATION AND BUSINESS
 
Wells Real Estate Fund XIV, 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”). 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 president, sole director, and sole owner of Wells Real Estate Funds, Inc. The Partnership was formed on October 25, 2002 for the purpose of acquiring, developing, owning, operating, improving, leasing, and managing income-producing commercial properties for investment purposes. Upon subscription, limited partners elected to have their units treated as Cash Preferred Units or Tax Preferred Units. Thereafter, 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. 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. A majority vote on any of the described matters will bind the Partnership, without the concurrence of the General Partners. Each limited partnership unit has equal voting rights, regardless of the class of the unit.
 
On May 14, 2003, the Partnership commenced an offering of up to $45,000,000 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, as amended. The offering was terminated on April 30, 2005, at which time the Partnership had sold approximately 2,531,031 Cash Preferred Units and 943,093 Tax Preferred Units representing total limited partner capital contributions of $34,741,238.
 
During the periods presented, the Partnership owned the following properties directly:
 
1.     150 Apollo Drive
A three-story office building located in Chelmsford, Massachusetts
2.     3675 Kennesaw Building
A one-story distribution warehouse building located in Kennesaw, Georgia
 
During the periods presented, the Partnership owned interests in the following joint venture (the “Joint Venture”) and property:
 
Joint Venture
  
Joint Venture Partners
  
Property
Fund XIII and Fund XIV Associates
(“Fund XIII-XIV Associates” or the “Joint Venture”)
  
•Wells Real Estate Fund XIII, L.P.
•Wells Real Estate Fund XIV, L.P.
  
Siemens– Orlando Building
Two single-story office buildings
located in Orlando, Florida
 
Wells Real Estate Fund XIII, L.P. is affiliated with the Partnership through common general partners. Each of the properties described above was acquired on an all-cash basis. For further information regarding the Joint Venture and foregoing properties, refer to the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2010.
 
2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation
 
The financial statements of the Partnership have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”), including the instructions to Form 10-Q and Article 10 of Regulation S-X, and in accordance with such rules and regulations, do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements. In the opinion of the General Partners, the statements for the unaudited interim periods presented include all adjustments that are of a normal and recurring nature and necessary to fairly and consistently present the results for these periods. Results for interim periods are not necessarily indicative of full-year results. For further information, refer to the financial statements and footnotes included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2010.
 
 

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Investment in Joint Venture
 
The Partnership has evaluated the Joint Venture and concluded that it is not a variable interest entity. The Partnership does not have control over the operations of the Joint Venture; however, it does exercise significant influence. Approval by the Partnership as well as the other joint venture partner is required for any major decision or any action that would materially affect the Joint Venture or its real property investments. Accordingly, the Partnership accounts for its investment in the Joint Venture using the equity method of accounting, whereby the original investment is recorded at cost and subsequently adjusted for contributions, distributions, and net income (loss) attributable to the Partnership. Pursuant to the terms of the joint venture agreement, all income (loss) and distributions are allocated to the joint venture partners in accordance with their respective ownership interests. Distributions of net cash from operations, if available, are generally distributed to the joint venture partners on a quarterly basis.
 
Evaluating the Recoverability of Real Estate Assets
 
The Partnership continually monitors events and changes in circumstances that could indicate that the carrying amounts of the real estate assets and related intangible assets in which the Partnership has an ownership interest, either directly or through investments in the Joint Venture, may not be recoverable. When indicators of potential impairment are present, which suggest that the carrying amounts of real estate assets and related intangible assets may not be recoverable, management assesses the recoverability of the real estate assets and related intangible assets by determining whether the respective carrying values will be recovered through the estimated undiscounted future operating cash flows expected from the use of the assets and their eventual disposition for assets held for use, or with the estimated fair values, less costs to sell, for assets held for sale. In the event that such expected undiscounted future cash flows for assets held for use, or the estimated fair values less costs to sell, for assets held for sale, do not exceed the respective assets’ carrying values, management adjusts the real estate assets and related intangible assets to their respective estimated fair values, pursuant to the provisions of the property, plant, and equipment accounting standard for the impairment or disposal of long-lived assets, and recognize an impairment loss. Estimated fair values are determined based on the following information, dependent upon availability: (i) recently quoted market price(s) for the subject property, or highly comparable properties, under sufficiently active and normal market conditions, or (ii) the present value of future cash flows, including estimated residual value.
 
While various techniques and assumptions can be used to estimate fair value depending on the nature of the asset or liability, the accounting standard for fair value measurements and disclosures describes three levels of inputs that may be used to measure fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Partnership has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as little, if any, related market activity or information is available. Examples of Level 3 inputs include estimated holding periods, discount rates, market capitalization rates, expected lease rental rates, timing of new leases, and sales prices; additionally, the Partnership may assign an estimated probability-weighting to more than one fair value estimate based on the Partnership’s assessment of the likelihood of the respective underlying assumptions occurring as of the evaluation date. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Partnership’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
 
Tenant Receivables
Tenant receivables are comprised of rental and reimbursement billings due from tenants and the cumulative amount of future adjustments necessary to present rental income using the straight-line method. Upon receiving notification of a tenant's intention to terminate a lease, unamortized straight-line rent receivables are written off to lease termination expense. Management assesses the collectibility of tenant receivables on an ongoing basis and provides for allowances as such balances, or portions thereof, become uncollectible. Allowances of $116,720 and $0 have been recorded as of March 31, 2011 and December 31, 2010, respectively, in connection with the ongoing litigation at the 3675 Kennesaw Building (see Part II, Item 1 - Legal Proceedings for additional information).
 
 
 
 
 

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Distribution of Net Cash from Operations
 
Net cash from operations, if available and unless reserved, is generally distributed quarterly to the partners as follows:
•
First, to all Cash Preferred limited partners on a per-unit basis until such limited partners have received distributions equal to a 10% per annum return on their respective net capital contributions, as defined;
•
Second, to the General Partners until the General Partners receive distributions equal to 10% of the total cumulative distributions paid by the Partnership for such year; and
•
Third, to the Cash Preferred limited partners on a per-unit basis and the General Partners allocated on a basis of 90% and 10%, respectively.
 
No distributions of net cash flow from operations will be made to limited partners holding Tax Preferred Units.
 
Distribution of Net Sale Proceeds
 
Upon the sale of properties, unless reserved, net sale proceeds will be distributed in the following order:
 
•
In the event that the particular property sold is sold for a price that is less than its original property purchase price, to the limited partners holding Cash Preferred Units until they have received an amount equal to the excess of the original property purchase price over the price for which the property was sold, limited to the amount of depreciation, amortization, and cost recovery deductions taken by the limited partners holding Tax Preferred Units with respect to such property;
•
To limited partners holding units which at any time have been treated as Tax Preferred Units until each such limited partner has received an amount necessary to equal the net cash from operations previously distributed to the limited partners holding Cash Preferred Units on a per-unit basis;
•
To all limited partners on a per-unit basis until the limited partners have received 100% of their respective net capital contributions, as defined;
•
To all limited partners on a per-unit basis until the limited partners have received a cumulative 10% per annum return on their respective net capital contributions, as defined;
•
To limited partners on a per-unit basis until the limited partners have received an amount equal to their respective preferential limited partner returns (defined as the sum of a 10% per annum cumulative return on net capital contributions for all periods during which the units were treated as Cash Preferred Units and a 15% per annum cumulative return on net capital contributions for all periods during which the units were treated as Tax Preferred Units);
•
To the General Partners until they have received 100% of their respective capital contributions, as defined;
•
Then, if limited partners have received any excess limited partner distributions (defined as distributions to limited partners over the life of their investment in the Partnership in excess of their net capital contributions, as defined, plus their preferential limited partner return), to the General Partners until they have received distributions equal to 20% of the sum of any such excess limited partner distributions, plus distributions made to the General Partners pursuant to this provision; and
•
Thereafter, 80% to the limited partners on a per-unit basis and 20% to the General Partners.
 
Allocations of Net Income, Net Loss, and Gain on Sale
 
For the purpose of determining allocations per the partnership agreement, net income is defined as net income recognized by the Partnership, excluding deductions for depreciation, amortization, cost recovery, and the gain on sale of assets. Net income, as defined, of the Partnership will be allocated each year in the same proportion that net cash from operations is distributed to the partners holding Cash Preferred Units and the General Partner. To the extent the Partnership’s net income in any year exceeds net cash from operations, such excess net income will be allocated 99% to the limited partners holding Cash Preferred Units and 1% to the General Partners.
 
Net loss, depreciation, and amortization deductions for each fiscal year will be allocated as follows: (a) 99% to the limited partners holding Tax Preferred Units and 1% to the General Partners until their capital accounts are reduced to zero; (b) then, to any partner having a positive balance in his capital account in an amount not to exceed such positive balance; and (c) thereafter, to the General Partners.
 
Gain on the sale or exchange of the Partnership’s properties will be allocated generally in the same manner that the net proceeds from such sale are distributed to partners after the following allocations are made, if applicable: (a) allocations made pursuant to the qualified income offset provisions of the Partnership agreement; (b) allocations to partners having negative capital accounts

Page 11

until all negative capital accounts have been restored to zero; and (c) allocations to limited partners holding Tax Preferred Units in amounts equal to the deductions for depreciation and amortization previously allocated to them with respect to the specific partnership property sold, but not in excess of the amount of gain on sale recognized by the Partnership with respect to the sale of such property.
 
Recent Accounting Pronouncement
 
In January 2010, the Financial Accounting Standards Board clarified previously issued GAAP and issued new requirements related to Accounting Standards Codification Topic Fair Value Measurements and Disclosures (“ASU 2010-6”). The clarification component includes disclosures about inputs and valuation techniques used in determining fair value, and providing fair value measurement information for each class of assets and liabilities. The new requirements relate to disclosures of transfers between the levels in the fair value hierarchy, as well as the individual components in the rollforward of the lowest level (Level 3) in the fair value hierarchy. This change in GAAP became effective for the Partnership beginning January 1, 2010, except for the provision concerning the rollforward of activity of the Level 3 fair value measurement, which became effective for the Partnership on January 1, 2011. The adoption of ASU 2010-6 has not had a material impact on the Partnership's financial statements or disclosures.
 
3.     INVESTMENT IN JOINT VENTURE
 
Summary of Financial Information
 
The following information summarizes the operations of the Joint Venture for the three months ended March 31, 2011 and 2010, respectively:
 
 
Total Revenues
 
Net Income
 
 
Three Months Ended
 
Three Months Ended
 
 
March 31,
 
March 31,
 
 
2011
 
2010
 
2011
 
2010
 
Fund XIII-XIV Associates
$
418,249
 
 
$
431,098
 
 
$
167,690
 
 
$
230,434
 
 
 
Due from Joint Venture
 
As presented in the accompanying balance sheets, due from joint venture as of March 31, 2011 and December 31, 2010 represents operating cash flow generated by the Joint Venture for the three months ended March 31, 2011 and December 31, 2010, respectively, which is attributable to the Partnership.
 
4.     RELATED-PARTY TRANSACTIONS
 
Management and Leasing Fees
 
The Partnership has entered into a property management, leasing, and asset management agreement with Wells Management Company, Inc. (“Wells Management”), an affiliate of the General Partners. In accordance with the property management, leasing, and asset management agreement, Wells Management receives compensation for the management and leasing of the Partnership’s properties owned directly or through the Joint Venture, equal to the lesser of (a) 4.5% of the gross revenues collected monthly; plus, a separate competitive fee for the one-time initial lease-up of newly constructed properties generally paid in conjunction with the receipt of the first month’s rent, or (b) fees that would be paid to a comparable outside firm, which is assessed periodically based on market studies. In the case of commercial properties leased on a long-term net-lease basis (ten or more years), the maximum property management fee from such leases shall be 1% of the gross revenues generally paid over the life of the leases, except for a one-time initial leasing fee of 3% of the gross revenues on each lease payable over the first five full years of the original lease term. Management and leasing fees are paid by the Joint Venture for the remaining property owned through the Joint Venture and, accordingly, are included in equity in income of joint venture in the accompanying statements of operations. Management and leasing fees are paid by the Partnership for the properties owned directly. The Partnership’s share of management, leasing and asset management fees and lease acquisition costs incurred by the properties owned directly and through the Joint Venture and payable to Wells Management is $4,177 and $11,410 for the three months ended March 31, 2011 and 2010, respectively.
 
 
 
 
 

Page 12

Administrative Reimbursements
 
Wells Capital, one of our General Partners, and Wells Management perform certain administrative services for the Partnership, relating to accounting, property management, and other partnership administration, and incur the related expenses. Such expenses are allocated among other entities affiliated with the General Partners based on time spent on each fund by individual administrative personnel. In the opinion of the General Partners, this allocation is a reasonable estimation of such expenses. The Partnership incurred administrative expenses of $25,223 and $28,272 payable to Wells Capital and Wells Management for the three months ended March 31, 2011 and 2010, respectively. In addition, Wells Capital and Wells Management pay for certain operating expenses of the Partnership (“bill-backs”) directly and invoice the Partnership for the reimbursement thereof on a quarterly basis.
 
Due to Affiliates
 
As of March 31, 2011 and December 31, 2010, due to affiliates was comprised of the following items due to Wells Capital, Wells Management, or their affiliates:
 
 
March 31,
2011
 
December 31,
2010
Administrative reimbursements
$
8,636
 
 
$
9,613
 
Management, leasing, and asset management fees
—
 
 
282
 
 
$
8,636
 
 
$
9,895
 
 
Assertion of Legal Action Against Related-Parties
 
On March 12, 2007, a stockholder of Piedmont REIT, filed a putative class action and derivative complaint, presently styled In re Wells Real Estate Investment Trust, Inc. Securities Litigation, in the United States District Court for the District of Maryland against, among others, Piedmont REIT; Leo F. Wells, III and Wells Capital, the Partnership’s General Partners; Wells Management, the Partnership’s property manager; certain affiliates of WREF; the directors of Piedmont REIT; and certain individuals who formerly served as officers or directors of Piedmont REIT prior to the closing of the internalization transaction on April 16, 2007.
 
The complaint alleged, among other things, violations of the federal proxy rules and breaches of fiduciary duty arising from the Piedmont REIT internalization transaction and the related proxy statement filed with the SEC on February 26, 2007, as amended. The complaint sought, among other things, unspecified monetary damages and nullification of the Piedmont REIT internalization transaction.
 
On June 27, 2007, the plaintiff filed an amended complaint, which attempted to assert class action claims on behalf of those persons who received and were entitled to vote on the Piedmont REIT proxy statement filed with the SEC on February 26, 2007, and derivative claims on behalf of Piedmont REIT.
 
On March 31, 2008, the Court granted in part the defendants’ motion to dismiss the amended complaint. The Court dismissed five of the seven counts of the amended complaint in their entirety. The Court dismissed the remaining two counts with the exception of allegations regarding the failure to disclose in the Piedmont REIT proxy statement details of certain expressions of interest in acquiring Piedmont REIT. On April 21, 2008, the plaintiff filed a second amended complaint, which alleges violations of the federal proxy rules based upon allegations that the proxy statement to obtain approval for the Piedmont REIT internalization transaction omitted details of certain expressions of interest in acquiring Piedmont REIT. The second amended complaint seeks, among other things, unspecified monetary damages, to nullify and rescind the internalization transaction, and to cancel and rescind any stock issued to the defendants as consideration for the internalization transaction. On May 12, 2008, the defendants answered and raised certain defenses to the second amended complaint.
 
On June 23, 2008, the plaintiff filed a motion for class certification. On September 16, 2009, the Court granted the plaintiff’s motion for class certification. On September 20, 2009, the defendants filed a petition for permission to appeal immediately the Court’s order granting the motion for class certification with the Eleventh Circuit Court of Appeals. The petition for permission to appeal was denied on October 30, 2009. On April 13, 2009, the plaintiff moved for leave to amend the second amended complaint to add additional defendants. The Court denied the plaintiff’s motion for leave to amend on June 23, 2009.
 
On December 4, 2009, the parties filed motions for summary judgment. On August 2, 2010, the Court entered an order denying the defendants’ motion for summary judgment and granting, in part, the plaintiff’s motion for partial summary judgment. The Court ruled that the question of whether certain expressions of interest in acquiring Piedmont REIT constituted “material” information required to be disclosed in the proxy statement to obtain approval for the Piedmont REIT internalization transaction raises questions of fact that must be determined at trial. A trial date has not been set.

Page 13

 
Mr. Wells, Wells Capital, and Wells Management believe that the allegations contained in the complaint are without merit and intend to vigorously defend this action. Any financial loss incurred by Wells Capital, Wells Management, or their affiliates could hinder their ability to successfully manage the Partnership’s operations and portfolio of investments.
 
5.     ECONOMIC DEPENDENCY
 
The Partnership has engaged Wells Capital and Wells Management to provide certain essential services, including supervision of the management and leasing of its properties, asset acquisition and disposition services, as well as other administrative responsibilities, including accounting services and investor communications and relations. These agreements are terminable by either party upon 60 days’ written notice. As a result of these relationships, the Partnership is dependent upon Wells Capital and Wells Management.
 
Wells Capital and Wells Management are both owned and controlled by WREF. The operations of Wells Capital and Wells Management represent substantially all of the business of WREF. Accordingly, the Partnership focuses on the financial condition of WREF when assessing the financial condition of Wells Capital and Wells Management. In the event that WREF were to become unable to meet its obligations as they become due, the Partnership might be required to find alternative service providers.
 
Future net income generated by WREF will be largely dependent upon the amount of fees earned by Wells Capital and Wells Management based on, among other things, the level of investor proceeds raised from the sale of common stock for certain WREF-sponsored programs and the volume of future acquisitions and dispositions of real estate assets by WREF-sponsored programs, as well as distribution income earned from its holdings of common stock of Piedmont REIT, which was acquired in connection with the Piedmont REIT internalization transaction (see “Assertion of Legal Action Against Related-Parties” above). As of March 31, 2011, the Partnership has no reason to believe that WREF does not have access to adequate liquidity and capital resources, including cash flow generated from operations, cash on hand, other investments and borrowing capacity, necessary to meet its current and future obligations as they become due.
 
The Partnership is also dependent upon the ability of its current tenants to pay their contractual rent amounts as they become due. The inability of a tenant to pay future rental amounts would be likely to have a negative impact on the Partnership’s results of operations. The Partnership is not currently aware of any reason why its existing tenants will not be able to pay their contractual rental amounts as they become due in all material respects. Situations preventing the tenants from paying contractual rents could result in a material adverse impact on the Partnership’s results of operations.
 
6.     COMMITMENTS AND CONTINGENCIES
 
3675 Kennesaw Building Litigation
On December 29, 2010, World Electric Supply, Inc. (“World Electric Supply”), the sole tenant of the 3675 Kennesaw Building, filed suit in the Superior Court of Fulton County, Georgia, against the lessor entity, Wells Fund XIV-3675 Kennesaw 75 Parkway, LLC, a Georgia limited liability company wholly owned by the Partnership. The lawsuit seeks a judicial declaration regarding the effectiveness of World Electric Supply's attempt to exercise its lease termination option in 2010 and asks the Court to declare that the lease was effectively terminated as of November 30, 2010. The Partnership believes that World Electric Supply's claims are without merit because the tenant did not comply with notification requirements of the termination option under the lease. Wells Fund XIV-3675 Kennesaw 75 Parkway, LLC has filed an answer and asserted a counterclaim in the lawsuit to recover from World Electric Supply all rental payments, service charges, and attorneys' fees that accrue through the end of the lease term based upon the failure of World Electric Supply to properly exercise its termination option under the lease.
 
ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion and analysis should be read in conjunction with the accompanying financial statements and notes thereto. See also “Cautionary Note Regarding Forward-Looking Statements” preceding Part I, as well as the notes to our financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations provided in our Annual Report on Form 10-K for the year ended December 31, 2010.
Overview
Management believes that the Partnership typically operates through the following five key life cycle phases. The duration of each phase is dependent upon various economic, industry, market, and other internal/external factors. Some overlap naturally exists in the transition from one phase to the next.

Page 14

 
•
Fundraising phase
The period during which the Partnership is raising capital through the sale and issuance of limited partner units to the public;
 
•
Investing phase
The period during which the Partnership invests the capital raised during the fundraising phase, less upfront fees, into the acquisition of real estate assets;
 
•
Holding phase
The period during which the Partnership owns and operates its real estate assets during the initial lease terms of the tenants;
 
•
Positioning-for-sale phase
The period during which the leases in place at the time of acquisition expire and, thus, the Partnership expends time, effort, and funds to re-lease such space to existing and/or new tenants. Following the holding phase, the Partnership continues to own and operate the real estate assets, evaluate various options for disposition, and market the real estate assets for sale; and
 
•
Disposition-and-liquidation phase
The period during which the Partnership sells its real estate investments, distributes net sale proceeds to the partners, liquidates, and terminates the Partnership.
Portfolio Overview
 
We are currently in the positioning-for-sale phase of our life cycle. We currently own a 100% interest in two properties and a partial interest in one additional property. Our focus in the near-term is to attempt to maintain the high occupancy level of our portfolio concentrating on re-leasing and marketing efforts that we believe will ultimately result in the best disposition pricing for our investors.
 
World Electric Supply vacated the 365 Kennesaw Building in July 2010, has ceased paying rent effective in January 2011, and has initiated litigation against the Partnership seeking a judicial declaration regarding the effectiveness of World Electric Supply's attempt to exercise its termination option in 2010 (see Part II, Item 1 - Legal Proceedings for additional information).
 
The first quarter 2011 operating distributions to limited partners holding Cash Preferred Units were reserved. We anticipate that operating distributions will continue to be reserved in the near-term as a result of anticipated re-leasing costs at the Siemens - Orlando Building and the 3675 Kennesaw Building.
Property Summary
 
As we move further into the positioning-for-sale phase, we will continue to focus on re-leasing vacant space and space that may become vacant upon the expiration of our current leases. In doing so, we will seek to maximize returns to our limited partners by negotiating long-term leases at market rental rates while attempting to minimize down time, re-leasing expenditures, ongoing property level costs, and portfolio costs. As properties are positioned for sale, our attention will shift to locating suitable buyers, negotiating purchase-sale contracts that will attempt to maximize the total return to our limited partners and minimize contingencies and potential post-closing obligations to buyers. As of April 30, 2011, we owned interests in three properties.
Information relating to the properties owned by the Partnership or its Joint Venture is presented below:
•
The 7500 Setzler Parkway property was sold on January 31, 2007.
•
The Randstad – Atlanta Building was sold on April 24, 2007.
•
The Siemens - Orlando Building, located in Orlando, Florida, is currently 100% leased to three tenants. The major lease extends to Siemens Shared Services LLC through September 2011.
•
The 150 Apollo Drive property, located in Chelmsford, Massachusetts, a suburb of Boston, is currently 100% leased to Harris through April 2018. We are currently marketing the property for disposition.
•
The 3675 Kennesaw Building, located in Kennesaw, Georgia, a suburb of Atlanta, is 100% leased to World Electric Supply through October 2012; however, World Electric Supply vacated the property in July 2010, has ceased paying rent effective in January 2011, and has initiated litigation against the Partnership seeking a judicial declaration regarding the effectiveness of World Electric Supply's attempt to exercise its termination option in 2010 (see Part II, Item 1 - Legal Proceedings for additional information). We are currently marketing the property for lease and sale.

Page 15

Liquidity and Capital Resources
Overview
Our operating strategy entails funding expenditures related to the recurring operations of the properties owned through the Joint Venture or directly by the Partnership and the portfolio with operating cash flows, including current and prior period operating distributions received from the Joint Venture, and assessing the amount of remaining cash flows that will be required to fund known future re-leasing costs and other capital improvements. Any residual operating cash flows are generally considered available for distribution to the Cash Preferred limited partners and, unless reserved, are generally paid quarterly. As a result, the ongoing monitoring of our cash position is critical to ensuring that adequate liquidity and capital resources are available. Economic downturns in one or more of our core markets could adversely impact the ability of one or more of our tenants to honor lease payments and our ability to re-lease space on favorable terms as leases expire or space otherwise becomes vacant. In the event of either situation, cash flows and, consequently, our ability to provide funding for capital needs could be adversely affected.
 
Short-Term Liquidity
 
During the three months ended March 31, 2011, we generated net cash flows from operating activities, including distributions received from the Joint Venture, of approximately $119,000. Operating distributions from the Joint Venture generally consist of rental revenues and tenant reimbursements, less property operating expenses, management fees, general administrative expenses, and capital expenditures. We continued to withhold the net operating cash flows generated in the first quarter of 2011 to fund our pro rata share of anticipated re-leasing costs at the Siemens - Orlando Building and the 3675 Kennesaw Building. The extent to which future operating distributions are paid to limited partners will be largely dependent upon the amount of cash generated by properties owned directly by the Partnership or through the Joint Venture, our expectations of future cash flows and determination of near-term cash needs to fund our share of tenant re-leasing costs and other capital improvements for properties owned directly by the Partnership or through the Joint Venture. We anticipate that operating distributions from the Joint Venture may decline in the near-term as a result of funding our pro rata share of anticipated re-leasing costs at the Siemens - Orlando Building.
We believe that the cash on hand and operating distributions due from the Joint Venture will be sufficient to cover our working capital needs, including those provided for within our total liabilities of approximately $146,000, as of March 31, 2011.
Long-Term Liquidity
 
We expect that our future sources of capital will be primarily derived from operating cash flows generated from the Joint Venture and our directly owned properties, and net proceeds generated from the sale of properties. Our future long-term liquidity requirements will include, but not be limited to, funding our share of tenant improvements, renovations, expansions, and other significant capital improvements necessary for the properties owned through the Joint Venture or by the Partnership directly. We expect to continue to use substantially all future net cash flows from operations, including distributions received from the Joint Ventures, to fund our pro rata share of property operating costs, leasing costs, and capital expenditures necessary to position our properties for sale. To the extent that residual operating cash flows remain after considering these funding requirements, we would then distribute such residual operating cash flow to the limited partners.
Capital Resources
The Partnership is an investment vehicle formed for the purpose of acquiring, owning, and operating income-producing real properties or investing in joint ventures formed for the same purpose, and has invested all of the partners’ original net offering proceeds available for investment. Thus it is unlikely that we will acquire interests in any additional properties or joint ventures. Historically, our investment strategy generally involves acquiring properties that are preleased to creditworthy tenants on an all-cash basis either directly by the Partnership or through the Joint Venture.
We fund capital expenditures primarily related to building improvements for the purpose of maintaining the quality of our properties, and tenant improvements for the purpose of readying our properties for re-leasing. As leases expire, we will attempt to re-lease space to an existing tenant or market the space to prospective new tenants. Generally, tenant improvements funded in connection with lease renewals require less capital than those funded in connection with new leases. However, external conditions, such as the supply of and demand for comparable space available within a given market, drive capital costs as well as rental rates.
 
Operating cash flows, if available, are generally distributed from the Joint Venture to the Partnership approximately one month following calendar quarter-ends. However, the Joint Venture will reserve operating distributions, or a portion thereof, as needed in order to fund known capital and other expenditures. Our cash management policy typically includes first utilizing current period operating cash flows until depleted, at which point operating reserves are utilized to fund capital and other required expenditures. In the event that current and prior period accumulated operating cash flows are insufficient to fund such costs, net sale proceeds

Page 16

reserves, if available, would then be utilized. Any capital or other expenditures not funded from the operations of the Joint Venture will be required to be funded by the Partnership and the other respective joint venture partners on a pro rata basis.
 
As of March 31, 2011, we have received, used, distributed, and held net sale proceeds allocated to the Partnership from the sale of properties as presented below:
 
 
 
Net Sale
Proceeds
 
Partnership’s
Approximate
Ownership %
 
Net Sale  Proceeds
Allocated to the
Partnership
 
Use of
Net Sale Proceeds
 
Net Sale  Proceeds
Distributed to
Partners as of
March 31, 2011
 
Undistributed Net
Sale Proceeds as of
March 31, 2011
Property Sold
 
Amount
 
Purpose
 
7500 Setzler Parkway
(sold in 2007)
 
$
8,723,080
 
 
52.7
%
 
$
4,597,063
 
 
$
—
 
 
—
 
 
$
4,597,063
 
 
$
—
 
Randstad – Atlanta Building
(sold in 2007)
 
$
8,992,600
 
 
52.7
%
 
4,739,100
 
 
—
 
 
—
 
 
4,692,937
 
 
46,163
 
Total
 
 
 
 
 
$
9,336,163
 
 
$
—
 
 
 
 
$
9,290,000
 
 
$
46,163
 
 
Upon evaluating the anticipated capital needs of the properties in which we currently own an interest, our General Partners have determined to reserve the remaining net sale proceeds to fund a portion of our pro rata share of anticipated re-leasing costs at the Siemens - Orlando Building and the 3675 Kennesaw Building.
Results of Operations
Comparison of the three months ended March 31, 2010 versus the three months ended March 31, 2011
Rental income at the properties we own directly increased from $174,700 for the three months ended March 31, 2010 to $287,430 for the three months ended March 31, 2011 primarily due to a higher average economic occupancy at 150 Apollo Drive in the first quarter of 2011 (100%) as compared to the first quarter of 2010 (50%). Absent future leasing activity, future levels of rental income at the properties we own directly may be dependent on the outcome of our pending litigation with World Electric Supply, the sole tenant of the 3675 Kennesaw Building (see Part II, Item 1 - Legal Proceedings for additional information).
Tenant reimbursements at the properties we own directly remained relatively stable from $77,037 for the three months ended March 31, 2010 to $77,659 for the three months ended March 31, 2011. Absent future leasing activity, future levels of tenant reimbursements at the properties we own directly may be dependent on the outcome of our pending litigation with World Electric Supply, the sole tenant of the 3675 Kennesaw Building (see Part II, Item 1 - Legal Proceedings for additional information).
Property operating costs at the properties we own directly decreased from $115,346 for the three months ended March 31, 2010 to $64,085 for the three months ended March 31, 2011. This decrease is primarily a result of the termination of the Avaya lease and the structure of the new lease in place at 150 Apollo Drive, whereby Harris Corporation pays a portion of the property operating costs directly. We anticipate property operating costs will remain at a relatively similar level in the near-term, as compared to the first quarter of 2011.
Management and leasing fees at the properties we own directly decreased from $14,045 for the three months ended March 31, 2010 to $7,059 for the three months ended March 31, 2011, due to a (i) a decrease in the collection of rental income at the 3675 Kennesaw Building due to World Electric Supply ceasing to pay its rent effective January 1, 2011 and (ii) a decrease in the collection of rental income and tenant reimbursements in connection with the rental abatement period at 150 Apollo Drive in place through February 2011. Management and leasing fees are incurred as a function of cash receipts collected from tenants (see “Related Party Transactions” in Note 4 to our financial statements included in this report). Therefore, future management and leasing fees are expected to fluctuate as a function of future receipts of rental income and tenant reimbursements.
Depreciation expense at the properties we own directly increased from $59,236 for the three months ended March 31, 2010 to $77,601 for the three months ended March 31, 2011, due to tenant improvements completed at 150 Apollo Drive in 2010. Absent future leasing activity, we anticipate depreciation expense will remain at a relatively similar level in the near-term, as compared to the first quarter of 2011.
Amortization expense at the properties we own directly decreased from $276,476 for the three months ended March 31, 2010 to $47,061 for the three months ended March 31, 2011, due to (i) the expiration of the original term of the Avaya lease in place at the time of acquisition at 150 Apollo Drive, which was terminated on a staged basis from January 2010 through April 2010, partially offset by (ii) the write-off of tenant-specific assets as a result of the partial termination of the Avaya lease at 150 Apollo Drive executed in the first quarter of 2010. Absent future leasing activity, we anticipate amortization expense will remain at a relatively similar level in the near-term, as compared to the first quarter of 2011.
 
 

Page 17

Bad debt expense increased from $0 for the three months ended March 31, 2010 to $116,720 for the three months ended March 31, 2011, due to World Electric Supply's default on it's contractual rental obligation effective in January 2011. We anticipate additional increases in bad debt expense until the litigation at the 3675 Kennesaw Building is resolved (see Part II, Item 1 - Legal Proceedings for additional information).
General and administrative expenses increased from $66,691 for the three months ended March 31, 2010 to $81,401 for the three months ended March 31, 2011. This increase is primarily attributable to an increase in legal fees incurred in connection with the ongoing litigation relating to the 3675 Kennesaw Building. We anticipate that future general and administrative expenses may increase in the near term as a result of incurring additional legal fees in connection with the 3675 Kennesaw Building litigation.
Equity in income of Joint Venture decreased from $121,439 for the three months ended March 31, 2010 to $88,372 for the three months ended March 31, 2011. This decrease is primarily due to an increase in depreciation expense at the Siemens - Orlando Building as a result of tenant improvements completed in 2010. We anticipate equity in income of Joint Venture to remain at a relatively similar level in the near-term, as compared to the first quarter of 2011; however, if the majority tenant of the Siemens - Orlando Building does not extend its current lease (which is currently scheduled to expire in September 2011) and we are unable to secure a suitable replacement tenant in a timely manner, equity in income of Joint Venture will be lower.
 
Inflation
 
We are exposed to inflation risk, as income from long-term leases is the primary source of our cash flows from operations. There are provisions in the majority of our tenant leases that are intended to help protect us from the impact of inflation. These provisions include rent steps, reimbursement billings for operating expense pass-through charges, real estate tax, and insurance reimbursements on a per-square-foot basis or, in some cases, annual reimbursement of operating expenses above a certain per-square-foot allowance. However, due to the long-term nature of our leases, the leases may not readjust their reimbursement rates frequently enough to cover inflation.
 
Application of Critical Accounting Policies
 
Summary
 
Our accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If management’s judgment or interpretation of the facts and circumstances relating to various transactions are different, it is possible that different accounting policies would be applied, thus resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses.
 
Below is a discussion of the accounting policies used by the Partnership and the Joint Venture, which are considered critical in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain.
 
Investment in Real Estate Assets
 
We are required to make subjective assessments as to the useful lives of our depreciable assets. We consider the period of future benefit of the assets to determine the appropriate useful lives. These assessments have a direct impact on net income. The estimated useful lives of the assets owned directly by the Partnership or through the Joint Venture are depreciated or amortized using the straight-line method over the following useful lives:
 
Buildings
  
40 years
Building improvements
  
5-25 years
Land improvements
  
20 years
Tenant improvements
  
Shorter of lease term or economic life
Intangible lease assets
  
Lease term
 
In the event that the Partnership or Joint Venture utilizes inappropriate useful lives or methods of depreciation or amortization, our net income would be misstated.
 
 

Page 18

Evaluating the Recoverability of Real Estate Assets
 
We continually monitor events and changes in circumstances that could indicate that the carrying amounts of the real estate assets and related intangible assets in which we have an ownership interest, either directly or through investments in the Joint Venture, may not be recoverable. When indicators of potential impairment are present which suggest that the carrying amounts of real estate assets and related intangible assets may not be recoverable, we assess the recoverability of the real estate assets and related intangible assets by determining whether the respective carrying values will be recovered through the estimated undiscounted future operating cash flows expected from the use of the assets and their eventual disposition for assets held for use, or with the estimated fair values, less costs to sell, for assets held for sale. In the event that such expected undiscounted future cash flows for assets held for use, or the estimated fair values less costs to sell, for assets held for sale, do not exceed the respective assets’ carrying values, we adjust the real estate assets and related intangible assets to their respective estimated fair values, pursuant to the provisions of the property, plant, and equipment accounting standard for the impairment or disposal of long-lived assets, and recognize an impairment loss. Estimated fair values are determined based on the following information, dependent upon availability: (i) recently quoted market price(s) for the subject property, or highly comparable properties, under sufficiently active and normal market conditions, or (ii) the present value of future cash flows, including estimated residual value. We have determined that there have been no additional impairments in the carrying value of our real estate assets and related intangible assets to date (see below for historical impairments); however, certain of our assets may be carried at an amount more than could be realized in a current disposition transaction.
 
In the fourth quarter of 2010, the Partnership recorded an impairment loss on the 3675 Kennesaw Building of approximately $854,000 to reduce the carrying value of the property to its estimated fair value, measured at the present value of the property's future projected cash flows.  We lowered our estimate of the property's future projected cash flows based primarily on current market leasing information obtained in connection with marketing the 3675 Kennesaw Building for lease in the fourth quarter of 2010 after World Electric Supply vacated the property.
 
In the second quarter of 2010, the Partnership recorded an impairment loss on 150 Apollo Drive of approximately $2,460,000 to reduce the carrying value of the property to its estimated fair value based on the present value of future cash flows based primarily on input received in connection with marketing 150 Apollo Drive for sale in the second quarter of 2010.
 
Projections of expected future cash flows require that we estimate future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, the number of months it takes to re-lease the property, and the number of years the property is held for investment, among other factors. The subjectivity of assumptions used in the future cash flow analysis, including discount rates, could result in an incorrect assessment of the property’s future cash flows and fair value, and could result in the misstatement of the carrying values of real estate assets and related intangible assets held by the Partnership or the Joint Venture and net income of the Partnership.
 
Allocation of Purchase Price of Acquired Assets
 
Upon acquisition of real properties, either owned directly by the Partnership or through its investment in the Joint Venture, the Partnership allocated the purchase price of properties to the identifiable tangible assets, which consist of land and building, and identifiable intangible assets and liabilities, which consist of the following items:
 
•
Direct costs associated with obtaining a new tenant, including commissions, tenant improvements and other direct costs are included in intangible lease origination costs in the accompanying balance sheets and are amortized to expense over the remaining terms of the respective leases.
•
The value of opportunity costs associated with lost rentals avoided by acquiring an in-place lease are included in intangible lease assets in the accompanying balance sheets and are amortized to expense over the remaining terms of the respective leases.
•
The value of tenant relationships is included in intangible lease assets in the accompanying balance sheets and amortized to expense over the remaining terms of the respective leases.
•
The value of effective rental rates of in-place leases that are above or below the market rates of comparable leases is recorded as intangible lease assets or liabilities and amortized as an adjustment to rental income over the remaining terms of the respective leases.
 
During the three months ended March 31, 2011 and March 31, 2010, the Partnership recognized the following amortization of acquired intangible lease assets:

Page 19

 
Intangible Lease Assets
 
Intangible
Lease
Origination
Costs
 
Above-Market
In-Place
Lease Asset
 
Absorption
Period Costs
 
For the three months ended March 31:
2011
$
1,557
 
 
$
8,721
 
 
$
7,857
 
2010
$
1,557
 
 
$
100,165
 
 
$
176,311
 
 
As of March 31, 2011 and December 31, 2010, the Partnership had the following gross intangible in-place lease assets:
 
 
Intangible Lease Assets
 
Intangible
Lease
Origination
Costs
 
Above-Market
In-Place
Lease Asset
 
Absorption
Period Costs
 
March 31, 2011
$
42,045
 
 
$
235,458
 
 
$
212,151
 
December 31, 2010
$
42,045
 
 
$
235,458
 
 
$
212,151
 
 
The remaining net intangible asset balances will be amortized as follows:
 
 
Intangible Lease Assets
 
Intangible
Lease
Origination
Costs
 
Above-Market
In-Place
Lease Asset
 
Absorption
Period Costs
 
For the year ending December 31:
2011
$
4,672
 
 
$
26,162
 
 
$
23,573
 
2012
5,190
 
 
29,069
 
 
26,191
 
Thereafter
—
 
 
—
 
 
—
 
 
$
9,862
 
 
$
55,231
 
 
$
49,764
 
 
Evaluating the Recoverability of Intangible Assets and Liabilities
 
The values of intangible lease assets and liabilities are determined based on assumptions made at the time of acquisition and have defined useful lives, which correspond with the lease terms. There may be instances in which intangible lease assets and liabilities become impaired and the Partnership is required to expense the remaining asset or liability immediately or over a shorter period of time. Lease restructurings, including but not limited to lease terminations and lease extensions, may impact the value and useful life of in-place leases. In-place leases that are terminated, partially terminated, or modified will be evaluated for impairment if the original in-place lease terms have been modified. In situations where the discounted cash flows of the modified in-place lease stream are less than the discounted cash flows of the original in-place lease stream, the Partnership reduces the carrying value of the intangible lease assets to reflect the modified lease terms and recognizes an impairment loss. For in-place lease extensions  that are executed  more than one year prior to the original in-place lease expiration date, the useful life of the in-place lease will be extended over the new lease term with the exception of those in-place lease components, such as lease commissions and tenant allowances, which have been renegotiated for the extended term. Renegotiated in-place lease components, such as lease commissions and tenant allowances, will be amortized over the shorter of the useful life of the asset or the new lease term. We have determined that there have been impairments in the carrying value of our intangible assets to date.
 
Related-Party Transactions
 
We have entered into agreements with Wells Capital, Wells Management, an affiliate of our General Partners, or their affiliates, whereby we pay certain fees and expense reimbursements to Wells Capital, Wells Management, or their affiliates for asset management; the management and leasing of our properties; administrative services relating to accounting, property management, and other partnership administration, and incur the related expenses. See Note 4 to our financial statements included in this report for a description of these fees and expense reimbursements we have incurred.
 
ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Since we do not borrow any money, make any foreign investments or invest in any market risk-sensitive instruments, we are not subject to risks relating to interest rates, foreign currency exchange rate fluctuations, or the other market risks contemplated by Item 305 of Regulation S-K.
 

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ITEM 4.     CONTROLS AND PROCEDURES
 
Management's Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures
 
We carried out an evaluation, under the supervision and with the participation of management of Wells Capital, our General Partner, including the Principal Executive Officer and the Principal Financial Officer of Wells Capital, of the effectiveness of the design and operation of the Partnership’s disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”) as of the end of the quarterly period covered by this report. Based upon that evaluation, the Principal Executive Officer and the Principal Financial Officer of Wells Capital concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report in providing a reasonable level of assurance that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in applicable SEC rules and forms, including providing a reasonable level of assurance that information required to be disclosed by us in the reports we file under the Exchange Act is accumulated and communicated to our management, including the Principal Executive Officer and the Principal Financial Officer of Wells Capital, as appropriate, to allow timely decisions regarding required disclosure.
 
Changes in Internal Control Over Financial Reporting
 
There were no changes in our internal control over financial reporting during the quarter ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
PART II.     OTHER INFORMATION
 
ITEM 1.     LEGAL PROCEEDINGS
 
On December 29, 2010, World Electric Supply, the sole tenant of the 3675 Kennesaw Building, filed suit in the Superior Court of Fulton County, Georgia, against the lessor entity, Wells Fund XIV-3675 Kennesaw 75 Parkway, LLC, a Georgia limited liability company wholly owned by the Partnership. The lawsuit seeks a judicial declaration regarding the effectiveness of World Electric Supply's attempt to exercise its lease termination option in 2010 and asks the Court to declare that the lease was effectively terminated as of November 30, 2010. The Partnership believes that World Electric Supply's claims are without merit because the tenant did not comply with notification requirements of the termination option under the lease. Wells Fund XIV-3675 Kennesaw 75 Parkway, LLC has filed an answer and asserted a counterclaim in the lawsuit to recover from World Electric Supply all rental payments, service charges, and attorneys' fees that accrue through the end of the lease term based upon the failure of World Electric Supply to properly exercise its termination option under the lease.
ITEM 1A.     RISK FACTORS
 
There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010.
 
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
(a)
We did not sell any equity securities that were not registered under the Securities Act of 1933, as amended, during the quarter ended March 31, 2011.
(b)
Not applicable.
(c)
We did not redeem any securities during the quarter ended March 31, 2011.
 
ITEM 3.     DEFAULTS UPON SENIOR SECURITIES
 
(a)
We were not subject to any indebtedness and, therefore, did not default with respect to any indebtedness during the quarter ended March 31, 2011.
(b)
Not applicable.
 
ITEM 4.     REMOVED AND RESERVED
 
ITEM 5.     OTHER INFORMATION
 
(a)
During the quarter ended March 31, 2011, there was no information required to be disclosed in a report on Form 8-K which was not disclosed in a report on Form 8-K.

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(b)
Not applicable.
 
ITEM 6.     EXHIBITS
The Exhibits to this report are set forth on Exhibit Index to First Quarter Form 10-Q attached hereto.
 
 
 

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
WELLS REAL ESTATE FUND XIV, L.P.
(Registrant)
 
 
 
 
By:
WELLS CAPITAL, INC.
(General Partner)
 
 
 
May 12, 2011
 
/s/ LEO F. WELLS, III
 
 
Leo F. Wells, III
President, Principal Executive Officer,
and Sole Director of Wells Capital, Inc.
 
 
 
May 12, 2011
 
/s/  DOUGLAS P. WILLIAMS
 
 
Douglas P. Williams
Principal Financial Officer
of Wells Capital, Inc.
 

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EXHIBIT INDEX
TO FIRST QUARTER FORM 10-Q
OF
WELLS REAL ESTATE FUND XIV, L.P.
 
Exhibit
Number
Description of Document
 
 
 
31.1
 
 
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
31.2
 
 
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
32.1
 
 
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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WELLS REAL ESTATE FUND XIV LP Reports