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UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


_______________________________________


FORM 10-Q


_______________________________________


(Mark One)xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31, 2011


or


oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For 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)


_______________________________________


Georgia58-2438242(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification Number)6200 The Corners Pkwy., Norcross, Georgia30092-3365(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 fileroAccelerated fileroNon-accelerated filerx(Do not check if a smaller reporting company)Smaller reporting companyo


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











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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS


Certain statements contained in this Form 10-Q of Wells Real Estate Fund XII, 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.


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WELLS REAL ESTATE FUND XII, L.P.


TABLE OF CONTENTS


Page No.PART I.FINANCIAL INFORMATIONItem 1.Financial Statements4Balance Sheets – March 31, 2011 (unaudited) and December 31, 20105Statements of Operations for the Three Months Ended March 31, 2011 (unaudited) and 2010 (unaudited)6Statements of Partners’ Capital for the Year Ended December 31, 2010 and the Three Months Ended March 31, 2011 (unaudited)7Statements of Cash Flows for the Three Months Ended March 31, 2011 (unaudited) and 2010 (unaudited)8Condensed Notes to Financial Statements (unaudited)9Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations14Item 3Quantitative and Qualitative Disclosures about Market Risk18Item 4.Controls and Procedures18PART II.OTHER INFORMATIONItem 1.Legal Proceedings18Item 1A.Risk Factors18Item 2.Unregistered Sales of Equity Securities and Use of Proceeds18Item 3.Defaults Upon Senior Securities19Item 4.REMOVED ANDRESERVED19Item 5.Other Information19Item 6.Exhibits19











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PART I.        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 both in 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.





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WELLS REAL ESTATE FUND XII, L.P.


BALANCE SHEETS





(Unaudited)March 31, 2011December 31, 2010Assets:Investment in joint ventures$14,394,187$14,511,735Cash and cash equivalents476,207436,140Due from joint ventures373,020372,433Other assets13,30420,000Total assets$15,256,718$15,340,308Liabilities:Accounts payable and accrued expenses$24,776$32,665Due to affiliates8,1238,551Partnership distributions payable251,024276,127Total liabilities283,923317,343Commitments and ContingenciesPartners' CapitalLimited Partners:Cash Preferred – 3,044,188 units issued and outstanding14,972,79515,022,965Tax Preferred – 516,931 units issued and outstanding——General Partners——Total partners’ capital14,972,79515,022,965Total liabilities and partners’ capital$15,256,718$15,340,308


See accompanying notes.





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WELLS REAL ESTATE FUND XII, L.P.


STATEMENTS OF OPERATIONS


(Unaudited)Three Months EndedMarch 31,20112010Equity in Income of Joint Ventures$255,472$239,378General and Administrative Expenses54,61867,722Net Income$200,854$171,656Net Income Allocated to Limited Partners:Cash Preferred$200,854$171,656Tax Preferred$—$—Net Income per Weighted-Average Limited Partner Unit:Cash Preferred$0.07$0.06Tax Preferred$0.00$0.00Weighted-Average Limited Partner Units Outstanding:Cash Preferred3,044,1883,044,188Tax Preferred516,931516,931


See accompanying notes.





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WELLS REAL ESTATE FUND XII, L.P.


STATEMENTS OF PARTNERS’ CAPITAL


FOR THE YEAR ENDED DECEMBER 31, 2010 AND


FOR THE THREE MONTHS ENDED MARCH 31, 2011 (UNAUDITED)


Limited PartnersGeneralPartnersTotalPartners’CapitalCash PreferredTax PreferredUnitsAmountUnitsAmountBALANCE, December 31, 20093,044,188$15,352,868516,931$—$—$15,352,868Net income—774,604———774,604Distributions of operating cash flow($0.36 per weighted-averageCash Preferred Unit)—(1,104,507)———(1,104,507)BALANCE, December 31, 20103,044,18815,022,965516,931——15,022,965Net income—200,854———200,854Distributions of operating cash flow($0.08 per weighted-averageCash Preferred Unit)—(251,024)———(251,024)BALANCE, March 31, 20113,044,188$14,972,795516,931$—$—$14,972,795


See accompanying notes.





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WELLS REAL ESTATE FUND XII, L.P.


STATEMENTS OF CASH FLOWS


(Unaudited)Three Months EndedMarch 31,20112010Cash Flows from Operating Activities:Net income$200,854$171,656Operating distributions received from joint ventures372,433300,200Adjustments to reconcile net income to net cash provided by operatingactivities:Equity in income of joint ventures(255,472)(239,378)Changes in assets and liabilities:Decrease in other assets6,696—Decrease in accounts payable and accrued expenses(7,889)(2,911)Decrease in due to affiliates(428)(897)Net cash provided by operating activities316,194228,670Cash Flows from Financing Activities:Operating distributions paid to limited partners(276,127)(276,127)Net Increase (Decrease) in Cash and Cash Equivalents40,067(47,457)Cash and Cash Equivalents, beginning of period436,140377,835Cash and Cash Equivalents, end of period$476,207$330,378Supplemental Disclosures on Noncash Financing Activities:Partnership distributions payable$251,024$276,127


See accompanying notes.





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WELLS REAL ESTATE FUND XII, L.P.


CONDENSED NOTES TO FINANCIAL STATEMENTS


MARCH 31, 2011 (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 nonpublic 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. (“WREF”). Leo F. Wells, III is the president and sole director of Wells Capital and the president, sole director, and sole owner of WREF. 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 elected to have their units treated 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. 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 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.


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, as amended. 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 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 and Piedmont Operating Partnership, LP (“Piedmont OP”), formerly known as Wells Operating Partnership, L.P. Piedmont OP is a Delaware limited partnership with Piedmont Office Realty Trust, Inc. (“Piedmont REIT”), formerly known as Wells Real Estate Investment Trust, Inc., serving as its general partner. Piedmont REIT is a Maryland corporation that qualifies as a real estate investment trust. During the periods presented, the Partnership owned interests in the following joint ventures (the “Joint Ventures”) and properties:


Joint VentureJoint Venture PartnersPropertiesThe Wells Fund XI–Fund XII–REITJoint Venture(“Fund XI-XII-REIT Associates”)•Wells Real Estate Fund XI, L.P.•Wells Real Estate Fund XII, L.P.•Piedmont Operating Partnership, LP1.20/20 BuildingA three-story office building located inLeawood, KansasWells Fund XII-REIT Joint Venture Partnership(“Fund XII-REIT Associates”)•Wells Real Estate Fund XII, L.P.•Piedmont Operating Partnership, LP2.4685 Investment DriveA three-story office building located inTroy, Michigan3.Comdata BuildingA three-story office building located inBrentwood, Tennessee





Wells Real Estate Fund XI, 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 Ventures 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


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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 .


Investment in Joint Ventures


The Partnership has evaluated the Joint Ventures and concluded that none are variable interest entities. The Partnership does not have control over the operations of the Joint Ventures; however, it does exercise significant influence. Approval by the Partnership as well as the other joint venture partners is required for any major decision or any action that would materially affect the Joint Ventures, or their real property investments. Accordingly, the Partnership accounts for its investments in the Joint Ventures using the equity method of accounting, whereby original investments are 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 agreements, all income (loss) and distributions are allocated to 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 owned through the Partnership’s investment in the Joint Ventures may not be recoverable. When indicators of potential impairment are present, which suggest that the carrying amounts of real estate assets may not be recoverable, management assesses the recoverability of the real estate 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 the expected undiscounted future cash flows for assets held for use, or the estimated fair value, less costs to sell, for assets held for sale do not exceed the respective asset carrying value, management adjusts the real estate 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 recognizes 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.


Distributions of Net Cash from Operations


Net cash from operations, if available and unless reserved, is generally distributed quarterly to the limited partners as follows:


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|• | First, to all Cash Preferred limited partners on a per-unit basis until each limited partner has received distributions equal to a 10% per annum return on his respective net capital contributions, as defined.

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|• | Second, to the General Partners until the General Partners receive distributions equal to 10% of the total cumulative distributions paid by the Partnership to date.

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|• | 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 from operations will be made to limited partners holding Tax Preferred Units.





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Distribution of Net Sale Proceeds


Upon the sale of properties, unless reserved, net sale proceeds will be distributed in the following order:


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|• | In the event that the particular property sold is sold for a price that is less than the 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;

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|• | To limited partners holding units which at any time have been treated as Tax Preferred Units until each limited partner has received an amount necessary to equal the net cash available for distribution previously received by the limited partners holding Cash Preferred Units on a per-unit basis;

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|• | To limited partners on a per-unit basis until each limited partner has received 100% of his net capital contributions, as defined;

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|• | To all limited partners on a per-unit basis until each limited partner has received a cumulative 10% per annum return on his net capital contributions, as defined;

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|• | To limited partners on a per-unit basis until each limited partner has received an amount equal to his preferential limited partner return (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);

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|• | To the General Partners until they have received 100% of their capital contributions, as defined;

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|• | 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

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|• | 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, and cost recovery and the gain on the 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 Partners. 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, amortization, and cost recovery 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 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, amortization, and cost recovery 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.


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3.    INVESTMENT IN JOINT VENTURES


Summary of Financial Information


Condensed financial information for the Joint Ventures for the three months ended March 31, 2011 and 2010 , respectively, is presented below:


Total RevenuesNet Income (Loss)Three Months EndedThree Months EndedMarch 31,March 31,2011201020112010Fund XI-XII-REIT Associates$282,875$280,980$(14,856)$(18,916)Fund XII-REIT Associates938,058951,618573,512539,279$1,220,933$1,232,598$558,656$520,363


Due from Joint Ventures


As presented in the accompanying balance sheets, due from joint ventures as of March 31, 2011 and December 31, 2010 represents operating cash flow generated by the Joint Ventures 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


In accordance with the property management and leasing agreement, Wells Management Company, Inc. (“Wells Management”), an affiliate of the General Partners, receives compensation for the management and leasing of the Partnership’s properties owned through the Joint Ventures equal to the lesser of (a) 2.5% for management services and 2% for leasing services of the gross revenues collected monthly, plus a separate competitive fee for the one-time initial lease-up of newly constructed properties in an amount not to exceed the fee customarily charged in arm’s-length transactions by others rendering similar services in the same geographic area for similar properties, which is assessed periodically based on market studies, or (b) in the case of commercial properties leased on a long-term net 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 Ventures and, accordingly, are included in equity in income of joint ventures in the accompanying statements of operations. The Partnership’s share of management and leasing fees and lease acquisition costs incurred through the Joint Ventures and payable to Wells Management is $ 11,180 and $ 8,593 for the three months ended March 31, 2011 and 2010 , respectively.


Administrative Reimbursements


Wells Capital, the corporate general partner of Wells Partners, 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 $ 22,686 and $ 27,168 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. As presented in the accompanying balance sheets, due to affiliates as of March 31, 2011 and December 31, 2010 represents administrative reimbursements and bill-backs due to Wells Capital and/or Wells Management.


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, one of the Partnership's General Partners; Wells Capital, the corporate general partner of Wells Partners, the Partnership's other General Partner; 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.





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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.





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


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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


From time to time, the Partnership and its General Partners are parties to legal proceedings which arise in the ordinary course of our business. The Partnership is not currently involved in any litigation for which the outcome would, in the judgment of the General Partners based on information currently available, have a materially adverse impact on the results of operations or financial condition of the Partnership, nor is management aware of any such litigation threatened against us.





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


The Partnership typically operates in the following five life cycle phases and, during which, typically focuses on the following key operating objectives. 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.


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|• | Fundraising phase

The period during which the Partnership is raising capital through the sale and issuance of limited partner units to the public;


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|• | 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;


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|• | Holding phase

The period during which the Partnership owns and operates its real estate assets during the initial lease terms of the tenants;


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|- | --------------------------
|• | 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


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|- | ---------------------------------
|• | 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 have sold four of the seven properties in which we have held interests. Our focus at this time involves leasing and marketing efforts that we believe will ultimately result in the best disposition pricing of our assets for our investors.





Operating distributions payable to the limited partners holding Cash Preferred Units for the first quarter of 2011 decreased from level paid in the prior quarter to fund anticipated re-leasing costs and capital improvements forecasted in 2011 for the 20/20 Building. We anticipate that operating distributions will remain at a similar level or decline in the near-term due to (i) the continued volatility in the automotive industry and its potential impact on 4685 Investment Drive and (ii) funding our pro rata share of anticipated re-leasing costs and capital improvements at our remaining properties.


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


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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, or previously owned, by the Joint Ventures is provided below:


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|• | The Johnson Matthey Building was sold on October 5, 2004.

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|• | The Gartner Building was sold on April 13, 2005.

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|• | The AT&T Oklahoma Building was sold on April 13, 2005.

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|• | The 111 Southchase Boulevard property was sold on May 23, 2007.

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|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | The 20/20 Building, located in Leawood, Kansas, is 91% leased. The major leases for approximately 80% of the building extend through October 2012. We are actively working on re-leasing the remaining vacant space in this building.

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|• | The 4685 Investment Drive building, located in Troy, Michigan, is 100% leased through October 2015.

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|- | ----------------------------------------------------------------------------------------------------------
|• | The Comdata Building, located in Brentwood, Tennessee, outside Nashville, is 100% leased through May 2016.

Liquidity and Capital Resources


Overview


Our operating strategy entails funding expenditures related to the recurring operations of the Joint Ventures’ properties and the portfolio with operating cash flows, including current and prior period operating distributions received from the Joint Ventures, 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 operating cash flows, including operating distributions received from the Joint Ventures, of approximately $316,000. Operating distributions from the Joint Ventures generally consist of rental revenues and tenant reimbursements, less property operating expenses, management fees, general administrative expenses, and capital expenditures. We used net operating cash flows to fund operating distributions of approximately $276,000 to Cash Preferred limited partners and reserved the remainder to fund our pro rata share of anticipated capital improvements and re-leasing costs at our remaining properties. The extent to which any future operating distributions are paid to limited partners will be largely dependent upon the amount of cash generated from the Joint Ventures, 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 by the Joint Ventures. We anticipate that operating distributions from the Joint Ventures may fluctuate due to (i) the continued volatility in the automotive industry and its potential impact on 4685 Investment Drive and (ii) funding our pro rata share of anticipated re-leasing costs and capital improvements at the 20/20 Building.


We believe that the cash on hand and distributions due from the Joint Ventures are sufficient to cover our working capital needs, including those provided for within our total liabilities of approximately $284,000 , 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 properties owned by the Joint Ventures and net proceeds generated from the sale of those 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 properties owned through the Joint Ventures. We expect to continue to use substantially all future net cash flows from operations, including distributions received from the Joint Ventures, less expenses related to the recurring operations of the properties and the portfolio and reserves for known or anticipated capital expenditures, to pay operating distributions 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. Historically, our


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investment strategy has generally involved acquiring properties that are preleased to creditworthy tenants on an all-cash basis through joint ventures with affiliated partnerships.





The Joint Ventures incur 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 typically 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 Ventures to the Partnership approximately one month following calendar quarter-ends. However, the Joint Ventures 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 reserves, if available, would then be utilized. Any capital or other expenditures not funded from the operations of the Joint Ventures 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:


Property SoldNet SaleProceedsPartnership’sApproximateOwnership %Net  SaleProceedsAllocatedto thePartnershipUse ofNet Sale ProceedsNet Sale ProceedsDistributed toPartners as ofMarch 31, 2011Undistributed NetSale Proceeds as ofMarch 31, 2011AmountPurposeJohnson Matthey Building(sold in 2004)$9,675,00017.10%$1,653,361$——$1,653,361$—Gartner Building(sold in 2005)$12,396,85917.10%2,118,499——2,118,499—AT&T Oklahoma Building(sold in 2005)$21,307,57744.99%9,585,853——9,585,853—111 Southchase Boulevard(sold in 2007)$7,236,84117.10%1,236,704——1,222,28714,417Total$14,594,417$—$14,580,000$14,417





Upon evaluating the capital needs of the properties in which we currently own an interest, our General Partners have determined to reserve the remaining net sale proceeds.





Results of Operations


Equity in Income of Joint Ventures


Equity in income of Joint Ventures remained relatively stable at $239,378 for the three months ended March 31, 2010 and $255,472 for the three months ended March 31, 2011 .


Absent leasing activity at the 20/20 Building, we anticipate equity in income of Joint Ventures to remain at relatively similar levels in the near term.





General and Administrative Expenses


General and administrative expenses decreased from $67,722 for the three months ended March 31, 2010 to $54,618 for the three months ended March 31, 2011 . The decrease is primarily attributable to an adjustment to the 2010 Tennessee partnership franchise and excise taxes in the first quarter of 2011. We estimate Tennessee partnership franchise and excise taxes based on an estimate of the apportionment of income allocable to the Partnership from the property in Tennessee relative to income allocable to the Partnership from all properties as if earned ratably during the calendar year. Thus, our future estimates of Tennessee partnership franchise and excise tax expenses will fluctuate as the relationship of income earned by the Partnership from the property in Tennessee fluctuates relative to income earned by the Partnership from all properties in the future.


We anticipate that future general and administrative expenses will vary primarily based on future changes in our reporting and regulatory requirements.





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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 had been different, it is possible that different accounting policies would have been 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 Ventures, which are considered to be 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 Joint Ventures’ assets are depreciated using the straight-line method over the following useful lives:


Buildings40 yearsBuilding improvements5-25 yearsLand improvements20 yearsTenant improvementsShorter of lease term or economic life





In the event that the Joint Ventures utilize inappropriate useful lives or methods of depreciation, our net income would be misstated.


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 in which we have an ownership interest through investments in the Joint Ventures may not be recoverable. When indicators of potential impairment are present which suggest that the carrying amounts of real estate assets may not be recoverable, we assess the recoverability of the real estate 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 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 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 third quarter of 2008, Fund XI-XII-REIT Associates recorded an impairment loss at the 20/20 Building of approximately $3,678,000 (approximately $629,000 of which was allocated to the Partnership) to reduce the carrying value of the property to its estimated fair value based on the present value of future cash flows, primarily as a result of management refining its strategy for the disposition of this building.





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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 value of real estate assets held by the Joint Ventures and net income of the Partnership.


Related-Party Transactions


We have entered into agreements with Wells Capital and Wells Management, affiliates 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.





ITEM 4.    CONTROLS AND PROCEEDURES





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, the corporate general partner of Wells Partners, 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


We are from time to time a party to legal proceedings, which arise in the ordinary course of our business. We are not currently involved in any litigation the outcome of which would, in management’s judgment based on information currently available, have a material adverse effect on our results of operations or financial condition, nor is management aware of any such litigation threatened against us during the quarter ended March 31, 2011 , requiring disclosure under Item 103 of Regulation S-K. For a description of pending litigation involving certain related parties, see “Assertion of Legal Action Against Related-Parties” in Note 4 to our financial statements included in this report.





I TEM 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


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|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | We did not sell any equity securities that were not registered under the Securities Act of 1933, as amended, during the quarter endedMarch 31, 2011.

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|(b) | Not applicable.

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|(c) | We did not redeem any securities during the quarter endedMarch 31, 2011.




ITEM 3.    DEFAULTS UPON SENIOR SECURITIES


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|--- | ------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | We were not subject to any indebtedness and, therefore, did not default with respect to any indebtedness during the quarter endedMarch 31, 2011.

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|--- | ---------------
|(b) | Not applicable.




ITEM 4.    REMOVED AND RESERVED





ITEM 5.    OTHER INFORMATION


|    |                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | During the quarter endedMarch 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 XII, L.P.(Registrant)By:WELLS PARTNERS, L.P.(General Partner)By:WELLS CAPITAL, INC.(Corporate General Partner)May 12, 2011/s/ LEO F. WELLS, IIILeo F. Wells, IIIPresident, Principal Executive Officer,and Sole Director of Wells Capital, Inc.May 12, 2011/s/ DOUGLAS P. WILLIAMSDouglas P. WilliamsPrincipal Financial Officerof Wells Capital, Inc.





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EXHIBIT INDEX


TO FIRST QUARTER FORM 10-Q


OF


WELLS REAL ESTATE FUND XII, L.P.


ExhibitNumberDescription31.1Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002