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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FORM 10-K.-ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
[Fee Required]
For the fiscal year ended December 31, 1999
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or
[ ]Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
[No Fee Required]
For the transition period from to
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Commission file Number 0-8952
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SB Partners
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(Exact name of registrant as specified in its charter)
New York 13-6294787
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(State of other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
666 Fifth Avenue, N.Y., N.Y. 10103
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 408-2900
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Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
NONE
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- ------------------------------------ -----------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interests
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(Title of Class)
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(Title of Class)
2
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. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (sec.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. (x) (Amended by Exch Act Rel No.
28869, eff. 5/1/91.)
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.
(See definition of affiliate in Rule 405, 17 CFR 230.405).
NOTE: If a determination as to whether a particular person or entity is an
affiliate cannot be made without involving unreasonable effort and expense, the
aggregate market value of the common stock held by non-affiliates may be
calculated on the basis of assumptions reasonable under the circumstances,
provided that the assumptions are set forth in this Form.
Not Applicable
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APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12,13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [] Yes [] NO
Not Applicable
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(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Not Applicable
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DOCUMENTS INCORPORATED BY REFERENCE.
List hereunder the following documents if incorporated by reference and the
Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g. annual report to security holders
for fiscal year ended December 24, 1980).
None
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3
PART I
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ITEM 1. BUSINESS
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Description of SB Partners (the "Registrant")
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The Registrant is a New York limited partnership engaged in acquiring, operating
and holding for investment a varying portfolio of real properties. The
Registrant's initial public offering was in 1971, the year it began operations.
As of December 31, 1999, the Registrant owned apartment projects in St. Louis,
Missouri; Greenville, South Carolina; Reno, Nevada; and Holiday and Orlando,
Florida; as well as 13.9 acres of land in Holiday, Florida.
The principal objectives of the Registrant are, first, to obtain capital
appreciation through equity investments in real estate; second, to generate cash
available for distribution, a portion of which may not be currently taxable; and
third, to the extent still permitted under the Internal Revenue Code of 1986, as
amended, to generate tax losses which may offset the limited partners' income
from the Registrant and certain other sources.
Recent Developments and Real Estate Investment Factors
- ------------------------------------------------------
In 1999, a strong economy, full employment and low interest rates combined to
create an extraordinarily high level of home-ownership. Nearly two thirds of all
households now own the dwelling in which they reside. In many markets in which
the Registrant owns properties, competition from single family homes intensified
as tenants left the rental market to buy their homes.
The availability of capital at low interest rates has also stepped up
competition among owners and operators of multifamily apartment communities. The
demand for multifamily real estate investments grew in 1999 and new construction
activity remained robust in many markets.
Increased competition from single-family homes and newly constructed apartment
properties calls for aggressive marketing efforts, including rental concessions
and other discounts offered to tenants as inducements to enter into leases.
Those marketing efforts, combined with higher payroll costs caused by high
employment levels, and higher maintenance costs from work to enhance the
appearance of properties to make them more attractive to prospective and
renewing tenants, have raised operating costs for many owners of real estate.
During 1999, the Registrant targeted and entered a new market in the St. Louis,
Missouri, MSA with the acquisition in September of Le Coeur du Monde Apartments,
a 192-unit apartment community. The property was constructed 10 years ago and is
located in the suburb of Creve Coeur, an area experiencing strong apartment
demand and limited new construction. Nearly 80% of the purchase price was
financed with a mortgage loan with interest at 7.805% per annum for a term of 10
years. (Please refer to Footnotes 4 and 6 of the Consolidated Financial
Statements, Item 7. - Management's Discussion and Analysis of Financial
Condition and Results of Operations, and Form 8-K, as amended, filed in
connection with these transactions.)
4
General Real Estate Risks
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This report on Form 10-K includes statements that constitute "forward looking
statements" within the meaning of Section 27(A) of the Securities Act of 1933
and Section 21(E) of the Securities Exchange Act of 1934 and that are intended
to come within the safe harbor protection provided by those sections. By their
nature, all forward looking statements involve risks and uncertainties. Actual
results may differ materially from those contemplated by the forward looking
statements for a number of reasons, including, but not limited to, those risks
described below:
General
- -------
The Registrant's investments generally consist of investments in real property
and as such will be subject to varying degrees of risk generally incident to the
ownership of real estate assets. The underlying value of the Registrant's real
estate investments and the Registrant's financial condition will be dependent
upon its ability to operate its properties in a manner sufficient to maintain or
increase revenues and to generate sufficient income in excess of operating
expenses. Income from the properties may be adversely affected by changes in
national and local economic conditions such as oversupply of apartment units or
a reduction in demand for apartment units in the Registrant's markets, the
attractiveness of the properties to tenants, changes in interest rates and in
the availability, cost and terms of mortgage financing, the ongoing need for
capital improvements, particularly in older structures, changes in real estate
tax rates, adverse changes in governmental rules and fiscal policies, adverse
changes in zoning laws, civil unrest, acts of God, including natural disasters
(which may result in uninsured losses), and other factors which are beyond the
control of the Registrant. If the Registrant were unable to promptly renew or
relet the leases of a significant number of tenants, or, if the rental rates
upon such renewal or reletting were significantly lower than expected rates, the
Registrant's results of operations, financial condition and ability to make
distributions to Unitholders may be adversely affected.
Risks of Liability and Loss
- ---------------------------
The development and ownership of real estate may result in liability to third
parties, due to conditions existing on a property which may result in injury. In
addition, real estate may suffer a loss in value due to casualties such as fire
or hurricane. Such liability or loss may be uninsurable in some circumstances or
may exceed the limits of insurance maintained at typical amounts for the type
and condition of the property. Real estate may also be taken, in whole or in
part, by public authorities for public purposes in eminent domain proceedings.
Awards resulting from such proceedings may not adequately compensate the
Registrant for the value lost.
Value and Non-liquidity of Real Estate
- --------------------------------------
Real estate investments are relatively non-liquid. The Registrant's ability to
vary its portfolio in response to changes in economic and other conditions will
therefore be limited. If the Registrant must sell an investment, there can be no
assurance that it will be able to dispose of the investment in the time period
it desires or that the sales price of the investment will recoup or exceed the
amount of the Registrant's cost of the investment.
5
Potential Adverse Effect on Results of Operations Due to Operating Risks
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The Registrant's properties are subject to operating risks common to real estate
in general, any and all of which may adversely affect occupancy or rental rates.
The Registrant's properties are subject to increases in operating expenses such
as cleaning, electricity, heating, ventilation and air conditioning; insurance
and administrative costs; marketing and payroll costs; and other general costs
associated with security, landscaping, repairs and maintenance. Tenants in
commercial properties generally are obligated to pay these escalating costs,
although there can be no assurance that tenants will agree to pay such costs
upon renewal or that new tenants will agree to pay such costs. The cost of these
expenses must be borne by the Registrant for any portion of a commercial
property which is not leased. In the case of apartment communities, the
Registrant must bear all such increased expenses, except in those markets where
passing the cost of certain utilities to tenants is customary. If operating
expenses increase, the local rental market may limit the extent to which rents
may be increased to meet such additional expenses without lowering occupancy
rates. While the Registrant implements cost-saving incentive measures at each of
its properties, should any of the foregoing occur, the Registrant's results of
operations, financial condition and its ability to pay distributions to
Unitholders could be adversely affected. Furthermore, the inability of existing
tenants to meet their obligations under the terms of their leases, may in turn
adversely affect the performance and financial condition of the Registrant
Debt Servicing and Financing
- ----------------------------
If the Registrant does not have funds sufficient to repay its indebtedness at
maturity, the Registrant may need to refinance indebtedness through additional
debt financing or equity offerings. If the Registrant is unable to refinance
this indebtedness on acceptable terms, the Registrant may be forced to dispose
of properties upon disadvantageous terms, which could result in losses to the
Registrant and adversely affect the amount of cash available for distribution to
Unitholders. If prevailing interest rates or general economic conditions result
in higher interest rates at a time when the Registrant must refinance its
indebtedness, the Registrant's interest expense would increase, which would
adversely affect the Registrant's results of operations, financial condition and
its ability to pay expected distributions to Unitholders, or it may be
restricted from obtaining a loan which will be sufficient to retire the existing
loan based on lower debt service coverage. Further, if any of the Registrant's
properties are mortgaged to secure payment of indebtedness and the Registrant is
unable to meet mortgage payments, the mortgagee could foreclose or otherwise
transfer the property, with a consequent loss of income and asset value to the
Registrant.
6
Environmental Issues
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Under various Federal, state and local environmental laws, ordinances and
regulations, an owner or operator of real estate may be liable for the costs of
removal or remediation of certain hazardous or toxic substances on such
property. These laws often impose environmental liability without regard to
whether the owner or operator knew of, or was responsible for, the presence of
such hazardous or toxic substances. The presence of such substances, or the
failure to properly remediate such substances, may adversely affect the owner's
or operator's ability to sell or rent the property or to borrow using the
property as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances may also be liable for the costs of removal or
remediation of such substances at a disposal or treatment facility, whether or
not such facility is owned or operated by such person. Certain third parties may
seek recovery from owners or operators of such properties or persons who
arranged for the disposal or treatment of hazardous or toxic substances and,
therefore, are potentially liable for removal or remediation costs, as well as
certain other related costs, including governmental fines and injuries to
persons and property.
Competition
- -----------
The Registrant competes for tenants with many other real estate owners. The
success of the Registrant in attracting tenants for its properties will depend
upon its ability to maintain its properties and their attractiveness to tenants,
neighborhood conditions, and changing demographic trends, et cetera. All of the
Registrant's properties are located in developed areas that include other,
similar properties. The number of competitive properties in a particular area
could have a material effect on the Registrant's ability to lease apartment
units at its properties and on the rents charged at such properties. In
addition, other forms of housing, including manufactured housing community
properties and single-family housing, provide alternatives to potential
residents of multi-family residential properties.
7
Tax Matters
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In August 1993, Congress passed and President Clinton signed into law the
Omnibus Budget Reconciliation Act of 1993 (the "Act"). The Act includes several
provisions designed to help revive the real estate industry, including relaxed
rules for pension fund investments in real estate, passive-loss relief for
developers, extension of the low-income housing credit, and an easing of the
rules on recognizing cancellation of certain real estate debt. On the negative
side, the Act extended the recovery period by 7.5 years (from 31.5 to 39) for
nonresidential real estate purchased subsequent to the effective date of the
Act.
The Act relaxes the "per se" passive characterization of certain rental real
estate operations. For tax years beginning after 1993, eligible taxpayers, who
materially participate in rental real estate activities, are able to deduct
losses from rental activities against other income. For all other nonmaterially
participating taxpayers, the provisions enacted as part of the Tax Reform Act of
1986 and the Technical and Miscellaneous Revenue Act of 1988 (as discussed
below) continue to apply. The Act also provides some relief by allowing
taxpayers, other than corporations, to elect to exclude from income some
cancellation of "qualified real property business indebtedness", effective for
certain discharges after December 31, 1992. The amount of the exclusion is
limited to the basis of the taxpayer's business real property or the excess of
the principal amount of the debt over the fair market value of business real
property that secures the debt, whichever is less. The basis of the taxpayer's
business real property must be reduced by the amount of excluded income. The
provision does not apply to foreclosures or "deeds in lieu" with respect to
nonrecourse debt.
Tax Reform Act of 1986 and the Technical
and Miscellaneous Revenue Act of 1988
- ----------------------------------------
On October 22, 1986, the Tax Reform Act of 1986 (the "1986 Act") was signed into
law. The Technical and Miscellaneous Revenue Act of 1988 ("TAMRA 88") was
enacted on November 10, 1988. Generally the principal provisions of the 1986 Act
and TAMRA 88 impacting the Registrant and its Limited Partners are:
-Passive activity loss limitations have limited the ability of the
partners to offset their allocated share of taxable passive losses
(essentially losses from rental real estate operations) of the Registrant
against other earned or portfolio income.
-The limitation of losses to amounts that partners have "at risk" was
extended to passive real estate investments. The amount a partner has "at
risk" generally includes its proportionate share of qualified non-recourse
financing, and is also subject to other limitations.
-The 1986 Act limits the deduction of investment interest expense, as
defined, to the amount of net investment income generated for the year, as
defined, with an unlimited carryover for excess expense.
The effect of these and other changes in income tax laws will vary depending
upon each partner's individual tax situation. The Registrant believes that its
characterization of, and allocation of, passive and portfolio income and losses
from its operations are in compliance with existing regulations, but it can
provide no assurances that the Internal Revenue Service ("IRS") will not
challenge such treatment and allocations in the event of an audit.
8
Other Tax Matters
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The Taxpayer Relief Act of 1997 contains significant changes to the taxation of
capital gains of individuals, trusts and estates. For gains realized after July
28, 1997, and subject to certain exceptions, the maximum rate of tax on net
capital gains of individuals, trusts and estates from the sale or exchange of
capital assets held for more than 18 months has been reduced to 20%, and the
maximum rate is reduced to 18% for assets acquired after December 31, 2000 and
held for more than five years. However, the maximum rate for long-term capital
gains attributable to the sale of depreciable real property held for more than
18 months is 25% to the extent of the deductions for depreciation with respect
to such property. Therefore, that portion of capital gain that is attributable
to depreciation previously allocated to the Unitholders will be subject to the
25% rate. The maximum rate of capital gains tax for capital assets held for more
than one year (but not more than 18 months) remains at 28%. The taxation of
capital gains of corporations was not changed by the Taxpayer Relief Act.
The IRS Restructuring and Reform ACT of 1998 (the "1998 ACT") eliminated the
18-month holding period that was required in order to take advantage of the
lowest capital gain tax rates. This holding period change is generally effective
for tax years ending after December 31, 1997. Thus, in tax years ending after
1997, capital gains on most property held more than 12 months will be eligible
for the 10, 20, or 25 percent capital gains rates introduced in the 1997 ACT.
The 1998 ACT also made the following changes to the maximum capital gains rate
provisions, and is generally effective for tax years ending after May 6, 1997:
1) The regular tax and minimum tax "minimum capital gains rate" rules were
reorganized for the sake of clarity, while retaining the substance of the rules.
In particular, the definition of "adjusted net capital gain" was clarified. 2)
Several conforming amendments were in the 1998 Act to coordinate the multiple
holding periods introduced under the Taxpayer Relief Act of 1997 with other tax
law provisions. For example, inherited property and certain patents are now
deemed to have a holding period of more than 18 months, allowing the 10 and 20
percent rates to apply.
Unitholders are urged to consult their own tax advisors with respect to the tax
consequences arising under the federal law and the laws of any state,
municipality or other taxing jurisdiction, including tax consequences arising
from such Unitholder's own tax characteristics.
9
The Revenue Act of 1987 retroactively changed the treatment of income and loss
of publicly-traded partnerships ("PTP") to characterize a partner's share of
income as portfolio instead of passive, and limits the current deductibility of
losses.
The term PTP refers to any partnership whose interests are traded on an
established securities market or are readily tradable on a secondary market (or
the substantial equivalent thereof). The Registrant believes that it is not a
PTP pursuant to such definition and therefore its holders will not be subject to
the Revenue Act of 1987 provisions. However, due to the complexities of the
regulations, no assurance can be provided that the IRS may not challenge the
treatment of income and losses in the event of an audit.
In 1989, the Registrant made an election under IRC Section 754 which provides
for an adjustment of the adjusted tax basis of depreciable property which may
result in additional depreciation deductions to purchasing partners and those
partners who inherit their interests in the Registrant. These adjustments,
however, are subject to the passive loss rules discussed above and may or may
not provide current benefit to a particular partner. The Registrant will be
bound by the Section 754 election for all subsequent years.
General
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Efforts required in complying with Federal, state and local environmental
regulations may have and may continue to have an adverse effect on the
Registrant's operations in the future, although such costs have not historically
been significant in amount.
There are approximately 30 full and part-time on-site project personnel employed
at the Registrant's properties.
The Registrant's real estate investments are not generally subject to seasonal
fluctuations, although net income (loss) may vary somewhat from quarter to
quarter based upon changes in utility consumption and seasonal maintenance
expenditures at each property.
The Registrant considers itself to be engaged in only one industry segment, real
estate investment, and therefore information regarding industry segments is not
applicable and has not been provided.
The Registrant reports to its Unitholders on a quarterly and annual basis. The
annual report is audited by an independent public accountant who expresses an
opinion on the financial information. Refer to the Consolidated Financial
Statements and Notes included elsewhere in this annual report on Form 10-K.
10
ITEM 2.PROPERTIES
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The properties owned by the Registrant as of December 31, 1999 are set forth on
the Summary of Properties schedule on the page immediately following.
ITEM 3.LEGAL PROCEEDINGS
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The Registrant is a party to certain actions directly arising from its normal
business operations. While the ultimate outcome is not presently determinable
with certainty, the Registrant believes that the resolution of these matters
will not have a material effect on its financial position or results of
operations.
On November 6, 1997, Hugh Spencer, a limited partner who holds two units in the
Registrant, filed a purported class action (the "Complaint"), on behalf of
himself and other persons similarly situated, against the Registrant and its
general partner and other affiliates in the Supreme Court of the State of New
York, County of New York, entitled Spencer v. SB Partners et. al., Index No.
120673/97. The Complaint alleged, inter alia, that the business of the
Registrant can only be carried on at a loss, and that the general partner
breached the partnership agreement and its fiduciary duties, and seeks a court
decree of dissolution of the partnership pursuant to Sections 63 and 99 of the
New York Partnership Law, an accounting from the general partner, the
appointment of a receiver to wind up the Registrant's affairs and an award of
costs and attorneys' fees to the plaintiff and the putative class. The
Registrant moved to stay the class action and compel arbitration of any
individual claim of the plaintiff. On September 27, 1998 the Supreme Court of
the State of New York granted the Registrant's motion. In December 1998, Spencer
and Norma Schulze, another limited partner who holds 2 1/2 units in the
Registrant, filed a Demand for Arbitration (the "Demand") with the American
Arbitration Association. Other than omitting the class action allegations, the
Demand contained substantially the same allegations as those contained in the
Complaint. The Registrant, as well as the other respondents, moved for summary
judgement dismissing all of the claims. The Arbitration panel held oral argument
on that motion on October 12, 1999 and, on January 27, 2000, the American
Arbitration Association released the panel's award denying the Claimants' claims
in their entirety.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF UNITHOLDERS
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NONE.
11
SB PARTNERS
Summary of Properties
As of December 31, 1999
Occupancy
Description Acquisition Percent at Mortgage
Property Location Sq. Ft. Units Acres Date Ownership 12/31/99 Payable
Apartments:
Meadowwood Apts. Reno, NV 529,000 704 30.0 May 1983 100% 90.6% $20,551,431
Holiday Park Apts. Holiday, FL 220,000 244 21.5 Jan 1991 100% 91.8% $ 3,725,654
Cypress Key Apts. Orlando, FL 323,000 360 22.7 Aug 1998 100% 91.9% $17,061,002
Halton Place Apts. Greenville, SC 233,000 246 20.6 Dec 1998 100% 87.0% $ 0
Le Coeur du Monde Apts. St. Louis, MO 177,000 192 12.3 Sep 1999 100% 93.2% $10,288,571
--------- ------ -----
1,482,000 1,746 107.1
========= ===== =====
Land:
Unimproved land (a) Holiday, FL n/a n/a 13.9 Jul 1978 100% n/a $ 0
Additional information regarding properties owned by the Registrant:
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Average Occupancy (b)
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Meadowwood Apts. 91.5% 85.5% 88.8% 94.9% 96.9%
Holiday Park Apts. 91.0% 94.0% 93.2% 91.0% 91.6%
Cypress Key Apts. 91.0% 88.0% n/a n/a n/a
Halton Place Apts. 91.0% 95.0% n/a n/a n/a
Le Coeur du Monde Apts. 96.0% n/a n/a n/a n/a
Effective Annual Rent (c)
- --------------------
Meadowwood Apts. $6,143 $5,717 $5,987 $6,372 $6,140
Holiday Park Apts. $4,772 $4,800 $4,604 $4,335 $4,238
Cypress Key Apts. $7,661 $7,475 n/a n/a n/a
Halton Place Apts. $6,333 $5,495 n/a n/a n/a
Le Coeur du Monde Apts. $9,383 n/a n/a n/a n/a
(a) Land is adjacent to Holiday Park Apartments.
(b) For period of ownership.
(c) Per apartment unit. Gross potential rent, less concessions and vacancies, divided by
the total number of units at the property. Annualized for periods of ownership of less than one year.
12 PART II
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ITEM 5.MARKET FOR REGISTRANT'S UNITS OF PARTNERSHIP
INTEREST AND RELATED UNITHOLDER MATTERS
--------------------------------------------
The transfer of Units or Participations (equivalent to one-half Unit) is subject
to certain limitations, including the consent of the General Partner. There is
no public market for the Units and it is not anticipated that any such public
market will develop. The number of Unitholders as of December 31, 1999 was
3,716.
At various times the Registrant has generated and distributed cash to the
Unitholders. With the repositioning of the portfolio, the Registrant was able to
resume distributions to the limited partners in 1999. A distribution of $115 per
unit totaling $891,653 was paid in March 2000 to Unitholders of record on
December 31, 1999. Including the current amount, distributions to date have
totaled $99,419,885. However, there is no requirement to make such distributions
nor can there be any assurance that future operations will generate cash
available for distribution.
ITEM 6.SELECTED FINANCIAL DATA
-----------------------
Selected Financial Data is set forth on the table on the following page. This
information should be read in conjunction with the Consolidated Financial
Statements and Notes thereto, and Management's Discussion and Analysis of
Financial Condition and Results of Operations, included elsewhere in this annual
report on Form 10-K.
13
SELECTED FINANCIAL DATA
The following table sets forth selected financial data regarding the
Registrant's financial condition and results of operations determined in
accordance with generally accepted accounting principles. This data should be
read in conjunction with the Audited Consolidated Financial Statements and Notes
thereto included elsewhere in this annual report on Form 10-K.
For the Years Ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In Thousands, Except Unit Data)
Income Statement Data:
Rental, Interest and Other Revenues $11,063 $ 9,512 $ 9,066 $ 15,430 $ 23,324
Operating Expenses, less
Depreciation and Amortization (9,854) (8,545) (8,663) (20,029) (26,180)
Depreciation and Amortization (2,123) (1,426) (1,723) (3,466) (5,176)
------- ------- ------- -------- -------
Loss from Operations (914) (459) (1,320) (8,065) (8,032)
Gain on Sale of Investments in Real Estate 0 3,873 1,404 0 3,964
Equity in Net Income (Loss) of Joint Venture 0 0 316 426 725
------- ------- ------- -------- --------
Net Income (Loss) before Extraordinary Gain (914) 3,414 400 (7,639) (3,343)
Gain on Dispositions of Investments in Real Estate
through Discharge of Indebtedness 0 0 0 11,951 0
------- ------- ------- -------- --------
Net Income (Loss) $ (914) $ 3,414 $ 400 $ 4,312 $ (3,343)
======= ======= ======= ======== ========
Net Income (Loss) per Unit of Partnership Interest:
Net Income (Loss) before Extraordinary Gain $ (118) $ 440 $ 52 $ (985) $ (431)
Extraordinary Gain $ 0 $ 0 $ 0 $ 1,541 $ 0
Net Income (Loss) $ (118) $ 440 $ 52 $ 556 $ (431)
Weighted Average Number of
Partnership Units Outstanding 7,754 7,754 7,754 7,754 7,754
Balance Sheet Data at Year End:
Real Estate, net $66,687 $53,570 $18,502 $ 32,357 $106,893
Real Estate Assets Held for Sale $ 0 $ 0 $24,926 $ 0 $ 0
Investment in Joint Venture $ 0 $ 0 $ 0 $ 10,742 $ 10,697
Total Assets $70,301 $62,089 $45,667 $ 47,775 $127,259
Mortgage Notes Payable $51,627 $41,918 $28,742 $ 30,752 $103,408
14
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of December 31, 1999, the Registrant had cash and cash equivalents of
approximately $1,345,000 in addition to $1,363,000 of deposits held in escrow by
certain lenders for the payment of insurance, real estate taxes and certain
capital and maintenance costs. These balances are approximately $4,738,000 less
than cash, cash equivalents and deposits held in escrow on December 31, 1998.
The decrease in cash held is primarily due to the purchase of Le Coeur du Monde
Apartments on September 29, 1999. The cash outlay for the purchase of this
apartment community, net of the proceeds and costs of the mortgage loan of
$10,303,000 placed on the property, was approximately $3,186,000. After
increasing deposits held in escrow by $502,000, operating activities for the
year ended December 31, 1999 generated approximately $1,139,000 of cash flow; of
which, $1,792,000 was invested in capital additions to the properties and
$594,000 was used to make principal payments on mortgage notes payable during
the year. In addition, cash distributions amounting to $775,350, were paid in
March 1999 to Unitholders of record on December 31, 1998.
On September 29, 1999, the Registrant purchased Le Coeur du Monde Apartments, a
192-unit apartment community located in St. Louis, Missouri, for $13,325,000. In
connection with the purchase, the Registrant obtained a first mortgage loan of
$10,303,000 with a FNMA DUS program lender. The mortgage loan is secured by the
property, bears interest at 7.805% per annum and matures on October 1, 2009.
Total outstanding debt at December 31, 1999 consisted of approximately
$51,627,000 of nonrecourse first mortgage notes secured by real estate owned by
the Registrant. Scheduled maturities through regularly scheduled monthly
payments will be approximately $712,000 in 2000. The terms of certain mortgage
notes require monthly escrow of estimated annual real estate tax, insurance and
reserves for repairs, maintenance and improvements to the secured property, in
addition to the payment of principal and interest. The Registrant has no other
debt except normal trade accounts payable and accrued interest on mortgage notes
payable.
Halton Place is currently unencumbered, however, a mortgage note may be placed
on the property with the proceeds used to continue the expansion of the
portfolio through the acquisition of additional investments in real estate
properties. Investigations of appropriate new acquisitions are underway.
Inflation and changing prices during the current period did not significantly
affect the markets in which the Registrant conducts its business, or the
Registrant's business overall.
With the repositioning of the portfolio, the Registrant was again able to make
distributions to the limited partners in 1999. A distribution of $115 per unit
totaling $891,653 was paid in March 2000 to Unitholders of record on December
31, 1999. However, there is no requirement to make such distributions nor can
there be any assurance that future operations will generate cash available for
distribution.
The Registrant's properties are expected to generate sufficient cash flow to
cover operating, financing, capital improvement costs, and other working capital
requirements of the Registrant for the foreseeable future.
15
MANAGEMENT'S DISCUSSION OF RESULTS OF OPERATIONS
- ------------------------------------------------
1999 VS. 1998
- -------------
Total revenues increased $1,551,000 to $11,063,000 in 1999 from $9,512,000 in
1998. Loss from operations increased $455,000 to $914,000 in 1999 from $459,000
in 1998. Net loss increased $4,328,000 to $914,000 in 1999 from net income of
$3,414,000 in 1998. Net income for 1998 included gains on sales of investments
in real estate of approximately $3,368,000 and $506,000 from the sales of
Riverbend Apartments and Cherry Hill Office Center, respectively.
The changes in total revenues and operating income/loss reflect the changes in
the composition of the portfolio from year to year. The new additions to the
portfolio, Cypress Key, Halton Place and Le Coeur du Monde, added nearly
$4,000,000 to total revenues in the current year. Efforts to retain market share
in the Reno submarket began to yield results in 1999 as improved occupancy at
Meadowwood Apartments boosted total revenues at that property $316,000. This
growth in revenues was partially offset by the absence of revenues from the two
properties sold in the prior year, Riverbend Apartments and Cherry Hill Office
Center, which accounted for approximately $2,300,000 and $400,000 of total
revenues in 1998, respectively.
In December of 1998, the Registrant placed a mortgage loan on Cypress Key
Apartments to continue the expansion and rebuilding of the portfolio. The
increase in interest expense from 1998 to 1999 is primarily due to the interest
incurred for this new loan.
The changes in depreciation expense and real estate taxes reflect the different
periods of ownership of the properties in the portfolio. In 1999, a full year of
depreciation and real estate taxes was recorded for the 1998 acquisitions,
Cypress Key and Halton Place, whereas the expense relating to these properties
in the year of acquisition corresponded to the periods of ownership. Similarly,
the real estate taxes for the properties sold, Riverbend Apartments and Cherry
Hill Office Center, corresponded to the periods of ownership which were also for
less than a full year. However, since the properties had been classified as
"held for sale", in accordance with generally accepted accounting principles, no
depreciation was recorded for those properties during 1998.
For additional analysis, please refer to the discussions of the individual
properties below.
16
Meadowwood Apartments (Reno, Nevada)
- ---------------------
Total revenues increased $317,000 to $4,522,000 in 1999 from $4,205,000 in 1998.
Net loss after depreciation and mortgage interest expense decreased $220,000 to
$57,000 in 1999 from $277,000 in 1998.
The increase in total revenues was due primarily to an increase in average
occupancy of 6.0%, to 91.5% in 1999 from 85.5% in 1998. The greater average
occupancy added approximately $300,000 to total revenues, and a corresponding
increase in miscellaneous income added $16,000. Occupancy has improved as a
result of regaining market share previously lost to newly constructed
multifamily apartment communities. As the rate of new construction in the area
slowed, the capital improvement program implemented in 1998 proved effective in
attracting new tenants to the property. The decrease in net loss after
depreciation and mortgage interest expense is due primarily to the increase in
revenues, partially offset by an increase of $97,000 in total expenses.
Additional costs of operating the property at higher occupancy levels included
increases in repairs and maintenance costs of $35,000, payroll and related costs
of $19,000, and professional fees of $20,000. Depreciation of the upgrades
completed in the capital improvement program added $40,000 to depreciation
expense in 1999. Real estate tax expense was slightly higher in 1999, increasing
$6,000. A reduction of $25,000 in interest expense served to offset some of the
operating expenses, as cumulative payments on the principal outstanding reduced
the interest due on the loan.
Holiday Park Apartments (Holiday, Florida)
- -----------------------
Total revenues decreased $4,000 to $1,213,000 in 1999 from $1,217,000 in 1998.
Net income after depreciation and mortgage interest expense increased $39,000 to
$97,000 in 1999 from $58,000 in 1998.
The decrease in revenues was primarily a result of lower occupancy, which
reduced revenues by $37,000. Average occupancy decreased 3.0% to 91.0% in 1999
from 94.0% in 1998. Lower occupancy reflected the low interest rates available
to consumers which made homebuying a viable alternative to apartment living. The
majority of move-out notices that Holiday Park received in 1999 were due to home
purchases by former residents. Nevertheless, an increase in rental rates
implemented at the property increased revenues $40,000, although tenant
concessions increased $10,000. There was also a small rise in miscellaneous
income of $3,000 during the current year. Holiday Park incurred additional
marketing and advertising expenses of $5,000 in an effort to reverse the
downward trend in occupancy, but the property reduced repairs and maintenance
costs by $15,000 during the year, and, since some assets have been fully
depreciated, depreciation expense decreased approximately $4,000. However, net
income improved primarily as a result of reduced debt service costs. Interest
expense for the period decreased $6,000 from the prior period as a result of
refinancing the mortgage loan at a lower interest rate during 1998. Furthermore,
amortization of costs associated with the financing of the loan encumbering the
property decreased $46,000. In 1998, a one-time charge against earnings of
$43,000 was recorded to write off the unamortized costs associated with the loan
that was refinanced.
17
Cypress Key Apartments (Orlando, Florida)
- ----------------------
Total revenues increased $1,895,000 to $2,929,000 in 1999 from $1,034,000 in
1998. Net loss after depreciation and mortgage interest expense increased
$545,000 to $253,000 in 1999 from net income of $292,000 in 1998.
As the property was purchased at the end of August 1998, the reporting period
for that year was approximately four months long, whereas the income and
expenses for 1999 reflect a full year of ownership. Revenues were nearly
$1,895,000 higher in the current year, while operating expenses increased only
$776,000. Real estate taxes and depreciation expense increased $265,000 and
$320,000, respectively, principally because of the longer ownership period in
the current year. Interest expense increased $1,042,000, as the expense for the
prior year was only for the short period at the end of December during which the
loan was outstanding.
Average occupancy for 1999 was 91.0%, while average occupancy from the date of
purchase through December 31, 1998 was 88.0%. Certain leases entered into by the
former owners were not up to the standards employed by the Registrant and were
not renewed. This caused a temporary decline in occupancy, however, occupancy
rates have risen steadily throughout 1999 and the Registrant expects them to
remain at their current levels.
Halton Place Apartments (Greenville, South Carolina)
- -----------------------
Total revenues increased $1,603,000 to $1,636,000 in 1999 from $33,000 in 1998.
Net income after depreciation expense increased $511,000 to $513,000 in 1999
from net income of $2,000 in 1998.
As the property was purchased on December 23, 1998, the reporting period for
that year was less than one month, whereas the reporting period for 1999
reflects a full year of ownership. Since acquisition, the Registrant has
maintained occupancy levels at the property above ninety percent, while the
resident profile has been improved to conform to higher leasing standards.
During 1999, projects to improve curb appeal and maintain market share included
lighting conversions throughout the property, improved landscaping, work to
improve the tennis courts, and painting the trim and doors throughout the
community.
Le Coeur du Monde Apartments (St. Louis, Missouri)
- ----------------------------
On September 29, 1999, the Registrant purchased Le Coeur du Monde Apartments for
$13,325,000. In connection with the purchase, the Registrant obtained a first
mortgage loan of $10,303,000 with a FNMA DUS program lender. The mortgage loan
is secured by the property, bears interest at 7.805% per annum and matures on
October 1, 2009. (Refer also to the Liquidity and Capital Resources Section and
Footnotes 4 and 6 of the Consolidated Financial Statements.)
Total revenues for the period of ownership were $466,000. Net income after
depreciation and mortgage interest expense was $98,000. Average occupancy for
the period of ownership was 96.0%.
18
MANAGEMENT'S DISCUSSION OF RESULTS OF OPERATIONS
- ------------------------------------------------
1998 VS. 1997
- -------------
Total revenues increased $446,000 to $9,512,000 in 1998 from $9,066,000 in 1997.
Loss from operations decreased $862,000 to $459,000 in 1998 from $1,321,000 in
1997. Net income increased $3,014,000 to $3,414,000 in 1998 from $400,000 in
1997. Net income for 1998 includes gains on sales of investments in real estate
of approximately $3,368,000 and $506,000 from the sales of Riverbend Apartments
and Cherry Hill Office Center, respectively. Net income for 1997 includes a gain
on sale of investment in real estate of approximately $1,404,000 from the sale
of Plantation Shopping Center.
The increase in revenues from 1997 to 1998 is primarily attributable to the
continued repositioning of the portfolio. In December 1997, the Registrant
purchased, through a limited liability company, the forty-percent interest in
Riverbend Apartments formerly owned by its co-venturer, thus effectively
becoming the owner of a 100% interest in the property. Revenues of $2,273,000
from Riverbend Apartments were included in the total revenues of the Registrant
for 1998, whereas only $184,000 of revenues from Riverbend Apartments were
included in the total revenues for the prior year. The acquisition of Cypress
Key Apartments in August 1998 added $1,034,000 of revenues to the total for
1998, whereas the sales of Plantation Shopping Center in December 1997 and
Cherry Hill Office Center in April 1998 decreased the total revenues of the
portfolio by approximately $1,700,000 and $1,087,000, respectively. Other
changes in revenues are due to changes in rental rates and occupancy at the
other properties owned by the Registrant.
Real estate operating expenses increased $753,000 primarily as a result of the
inclusion of the operating expenses of Riverbend Apartments and Cypress Key
Apartments, which were higher than the operating costs associated with the
commercial properties that were sold. Total expenses decreased as decreases in
interest expense of $171,000, write-off of uncollectible accounts of $370,000,
depreciation and amortization expense of $298,000, real estate taxes of $117,000
and management fees of $361,000 more than offset the increased real estate
operating expenses.
19
Meadowwood Apartments (Reno, Nevada)
- ---------------------
Total revenues decreased $197,000 to $4,205,000 in 1998 from $4,402,000 in 1997.
Net loss after depreciation and mortgage interest expense increased $149,000 to
$277,000 in 1998 from $128,000 in 1997.
The decline in total revenues was due primarily to a decrease in average
occupancy of 3.3%, to 85.5% in 1998 from 88.8% in 1997, which reduced revenues
$197,000, while rental rates charged at the property remained unchanged. The
decrease in occupancy was a result of the competitive apartment market in the
Reno area. Certain submarkets in Reno have been experiencing an oversupply of
housing as new construction has been completed and apartments have become
available. This is especially true in the northwest and southeast sections of
the area. Meadowwood is located in the southeast section and has been working to
maintain its market share, although it experienced lower occupancy and increased
turnover of renters in 1998. An extensive capital improvement program at the
property was nearing completion at the end of the year. It is expected to
enhance the property's appeal to prospective tenants, resulting in higher
occupancy in the coming years. The increase in net loss after depreciation and
mortgage interest expense is due primarily to the lower revenues, partially
offset by a decrease in total expenses of $48,000. The decrease in total
expenses is primarily attributable to a decrease in repair and maintenance
costs, as the strategy moved to making more long-term improvements which enhance
the value of the property and fewer short-term repairs. Repair and maintenance
costs decreased $158,000 while expenditures for capital improvements increased
over $555,000 from 1997. The lower repairs and maintenance costs and a reduction
in interest expense of $24,000 were partially offset by increases in other
operating expenses. Advertising and promotional expenses increased $35,000 as
efforts to retain existing tenants and attract new tenants were intensified.
Utilities expense increased $21,000 over the prior year due to the increased
cost of utilities for unoccupied units. Other increases in expenses include
higher professional fees of $31,000, payroll and related costs of $17,000,
depreciation of $16,000, and real estate tax expense of $14,000.
20
Holiday Park Apartments (Holiday, Florida)
- -----------------------
Total revenues increased $52,000 to $1,217,000 in 1998 from $1,165,000 in 1997.
Net income after depreciation and mortgage interest expense increased $114,000
to net income of $58,000 in 1998 from a net loss after depreciation and mortgage
interest expense of $56,000 in 1997.
The increase in total revenues was due primarily to the continued strength of
the Tampa Bay area apartment market. This was reflected in higher rental rates
charged at the property which increased revenues $47,000, even as average
occupancy at the property rose a slight 0.8% for the year. Miscellaneous income
also increased $5,000. The increase in net income was due primarily to the
increased revenues and decreased interest expense. Total interest expense
decreased $54,000, to $264,000 in 1998 from $318,000 in 1997, resulting from the
refinancing of the mortgage loan encumbering the property which decreased the
interest rate to 6.895% from 9.00%. Lower insurance expense of $8,000 also added
to the increase in net income from the prior year.
Cypress Key Apartments (Orlando, Florida)
- ----------------------
On August 20, 1998, the Registrant purchased Cypress Key Apartments for
$22,600,000 in an all cash transaction. Proceeds from the sale of Riverbend
Apartments on June 30, 1998 were used to consummate this transaction. (Refer
also to Footnote 4 of the Financial Statements.)
Total revenues for the period of ownership were $1,034,000. Net income after
depreciation and mortgage interest expense was $292,000. Average occupancy for
the period was 88.0%. Major components of expense included real estate operating
costs of $308,000, depreciation expense of $214,000, real estate taxes of
$120,000 and interest expense of $92,000.
In December, 1998, the Registrant placed a mortgage loan of $17,250,000 on the
property. (Refer also to Footnote 6 of the Financial Statements.) Regularly
scheduled monthly payments on the loan began in February 1999. The proceeds of
this mortgage loan were used, in part, to purchase Halton Place Apartments (see
below).
Halton Place Apartments (Greenville, South Carolina)
- -----------------------
On December 23, 1998, the Registrant purchased Halton Place Apartments for
$12,600,000 in an all cash transaction. Part of the proceeds of $17,250,000 from
the mortgage loan placed on Cypress Key Apartments were used to consummate this
transaction. (Refer also to Footnote 4 of the Financial Statements).
Total revenues for the period of ownership were $33,000. Net income after
depreciation expense was $2,000. Average occupancy for the period was 95.0%.
21
Cherry Hill Office Center (Cherry Hill, New Jersey)
- -------------------------
Cherry Hill Office Center was sold on April 16, 1998 for $4,825,000. Proceeds
from the sale were used, in part, to retire the short-term bank loan of
$4,000,000, the proceeds of which had been used to finance a portion of the
purchase in 1997 of the forty-percent interest in Riverbend Apartments owned by
its former co-venturer. (Refer also to Footnote 4 of the Financial Statements.)
Total revenues decreased $1,087,000 to $417,000 in 1998 from $1,504,000 in 1997.
Net income after depreciation and mortgage interest expense decreased $145,000,
to net income before gain on sale of investment in real estate of $87,000 in
1998 from $232,000 in 1997.
Due to the disposition of the property by the Registrant, the reporting period
for Cherry Hill Office Center ended on April 16, 1998. The changes in revenues
and net income are substantially due to the shortened reporting period.
Riverbend Apartments (Atlanta, Georgia)
- --------------------
Riverbend Apartments was sold on June 30, 1998 for $24,500,000. Proceeds from
the sale were used to acquire Cypress Key Apartments in August, 1998. (Refer
also to Footnote 4 of the Financial Statements.)
Total revenues increased $2,089,000 to $2,273,000 in 1998 from $184,000 in 1997.
Net income after depreciation and mortgage interest increased $384,000, to
$434,000 in 1998 from $50,000 in 1997.
The changes in revenue and net income are due to the different reporting periods
in 1998 and 1997. The reporting period for 1998 was for six months, as the
property was sold on June 30, 1998, whereas the reporting period for 1997 was
for less than a month as the Registrant purchased the forty percent interest in
Riverbend Apartments, formerly owned by its co-venturer, on December 15, 1997.
Equity in income of the joint venture decreased $316,000 to $0 in 1998 from
$316,000 in 1997 as the income and expenses of Riverbend Apartments were
consolidated with those of the Partnership for all of 1998, but for most of
1997, were reflected as the 60% equity in the net income of the joint venture.
22
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
NONE.
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The Financial Statements required by this item, together with the Report of
Independent Public Accountants thereon, are contained herein on pages 28 through
40 of this annual report on Form 10-K. Supplementary financial information
required by this item is contained herein on pages 41 through 44 of this report.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
NONE.
23
PART III
--------
ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The Registrant has no executive officers or directors. All of its business
affairs are handled by its General Partner, SB Partners Real Estate Corporation
("General Partner").
The directors and executive officers of the General Partner are elected by
Sentinel Holdings Corporation ("SHC") as its sole shareholder to serve until
their successors are duly elected and qualified. The limited partners of the
Registrant are not entitled to vote in their election.
The directors and executive officers of the General Partner who are active in
the Registrant's operations are:
Name Age Position
---- --- --------
John H. Streicker 57 President & Director
Michael J. Weinberger 64 Director
Millie C. Cassidy 54 Director
David Weiner 64 Director
Christine Kurtz 45 Director
Elizabeth B. Longo 48 Treasurer
Noel Belli 46 Senior Vice President
Jacques Lewis 50 Vice President
24
Mr. Streicker joined the General Partner in May 1976. He has been President and
a Director since April 1984. He is President of SHC and its parent company, J.H.
Streicker & Co., Inc.
Mr. Weinberger, a Certified Property Manager, joined the General Partner in
February 1973, and has been a Director since April 1984. He is the residential
portfolio manager for the Western region.
Ms. Cassidy joined the General Partner in August 1982. She has been a Director
of the General Partner since March 1988.
Mr. Weiner joined the General Partner in April 1984. He is a portfolio manager
and manager of investor relations. He has been a Director of the General Partner
since March 1988.
Ms. Kurtz joined the General Partner in 1980 and has been a Director since 1991.
She is the portfolio manager responsible for commercial property transactions
and management.
Ms. Longo joined the General Partner in 1988 and serves as its chief financial
officer. She is a certified public accountant with over twenty-five years of
real estate related financial experience.
Mr. Belli joined the General Partner in 1985. He is the portfolio manager
responsible for residential property transactions and management for the Eastern
region.
Mr. Lewis joined the General Partner in 1994. He is the portfolio manager
responsible for residential property transactions and management for the Central
region.
25
ITEM 11.EXECUTIVE COMPENSATION
----------------------
The Registrant has no executive officers or directors.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN
-----------------------------
BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------
(a) At December 31, 1999, an institutional investor of record owned 7.13% of
the outstanding Units of Limited Partnership Interests. On January 13,
1993, a group of unitholders of record, including the institutional
investor referred to above, entered into a collective agreement with
respect to their ownership interest in the Registrant. The aggregate number
of Units beneficially owned by the group is 676 Units, representing 8.7% of
the total number of outstanding Units of Limited Partnership Interest on
that date. Each unitholder has disclaimed beneficial ownership of all Units
owned by the other unitholders in this group. The foregoing information is
based upon a 13-D filing made by the respective unitholders.
(b) As of December 31, 1999, none of the Directors of the General Partner owned
any outstanding Units of Limited Partnership Interest, however, an
Assistant Secretary of the General Partner owned four Units of Limited
Partnership Interest. No Officers or Directors of SHC owned any outstanding
Units of Limited Partnership Interest. SRE Clearing Services, Inc.
(formerly known as SRE Investor Services, Inc.), an affiliate of the
General Partner, owned 618.25 Units of Limited Partnership Interest
representing 7.97% of the outstanding number of Units on December 31, 1999.
In accordance with SEC regulations, SRE Clearing Services filed Form 13-D/A
on September 2, 1999 at the time the total number of units held surpassed
7% of the outstanding number of units. On February 18, 2000, SRE Clearing
Services again amended its 13-D filing to report the recent purchase of
Units of Limited Partnership Interest which brought the total number of
units owned to 621.8, equal to 8% of the total units outstanding.
(c) During the year ended December 31, 1999, there have been no changes in
control of the Registrant or the General Partner.
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The General Partner, among other things, furnishes services and advice to the
Registrant and is paid a variable annual fee for such services based on
calculations prescribed in the Registrant's Partnership Agreement. For these
services, the General Partner receives a management fee equal to 2% of the
average amount of capital invested in real estate plus cumulative mortgage
amortization payments, and 0.5% of capital not invested in real estate, as
defined in the partnership agreement. The management fee amounted to $734,050,
$835,502 and $1,196,611, for the years ended December 31, 1999, 1998 and 1997,
respectively. In addition, the General Partner is entitled to 25% of cash
distributions in excess of the annual distribution preferences, as defined in
the partnership agreement. No such amounts were due for the years ended December
31, 1999, 1998 or 1997.
26
Certain affiliates of the General Partner oversee the management and operations
of various real estate properties, including those owned by the Registrant.
Services performed by these affiliates applicable to the Registrant's properties
are billed at actual or allocated cost, or percentage of revenues. The costs of
such services are believed to be competitive with charges for similar services
provided by unrelated management companies. Fees charged by these affiliates
totaled $705,772, $582,791 and $492,992, in 1999, 1998 and 1997, respectively.
In connection with the mortgage financing of certain properties, the respective
lenders required the Registrant to place the assets and liabilities of these
properties into single asset limited partnerships or land trusts which hold, or
held, title to these properties. A trust company affiliated with the General
Partner holds, or held, the general partner interest in each single asset
limited partnership as trustee for the Registrant. An affiliate of the general
partner is also the trustee of the land trust. For its services, the affiliate
is paid an annual fee, which aggregated $46,914, $27,545 and $44,327, in 1999,
1998 and 1997, respectively, and is based upon the trust company's standard rate
schedule.
Reference is made to Items 10 and 11, and Notes 2 and 8 in the consolidated
financial statements.
PART IV
-------
ITEM 14.EXHIBITS, FINANCIAL STATEMENT
-----------------------------
SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------
(a) (1) Financial statements - The Registrant's 1999 Annual Audited
Consolidated Financial Statements are included in this annual report
on Form 10-K.
(2) Financial statement schedules - See Index to Consolidated Financial
Statement Schedules on page 27. All other financial statement schedules
are inapplicable or the required subject matter is contained in the
consolidated financial statements or notes thereto.
(b) On October 14, 1999, the Registrant filed Form 8-K to report the purchase
on September 29, 1999, of Le Coeur du Monde Apartments. On December 13,
1999, the Registrant filed Form 8-K/A to amend this filing to include the
requisite financial statements.
(c) Financial data schedule
(d) Exhibits Incorporated by Reference -
Incorporated by
Description Reference to
- ----------- ---------------
Agreement of Exhibit A to Registration Statement
Limited Partnership on Form S-11 as filed with the Securities
and Exchange Commission on May 16, 1985.
27
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15 (d) 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.
SB PARTNERS
-----------
By: SB PARTNERS REAL ESTATE CORPORATION
-----------------------------------
GENERAL PARTNER
March 30, 2000 /s/ John H. Streicker
----------------------------------
By: John H. Streicker
President, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Position Date
- --------- -------- ----
/s/ John H. Streicker Chief Executive Officer
- --------------------- and Director March 30, 2000
John H. Streicker
/s/ Elizabeth B. Longo Chief Financial Officer
- ---------------------- (Principal Financial Officer) March 30, 2000
Elizabeth B. Longo
/s/ George N. Tietjen III Vice President
- ------------------------- (Principal Accounting Officer) March 30, 2000
George N. Tietjen III
28
SB PARTNERS
ITEMS 8 and 14 (a) (1) and (2)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
----------------------------------------------
SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE
-----------------------------------------
Report of Independent Public Accountants.....................................28
Consolidated Balance Sheets as of December 31, 1999 and 1998.................29
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997......................................30
Consolidated Statements of Changes in Partners' Capital for the
years ended December 31, 1999, 1998 and 1997..........................31
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997......................................32
Notes to Consolidated Financial Statements..............................33 - 40
Supplemental Financial Statement Schedule:
Schedule III -- Real Estate and Accumulated
Depreciation -- December 31, 1999................................41 - 44
29
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of SB Partners:
We have audited the accompanying consolidated balance sheets of SB
Partners (a New York limited partnership) and subsidiaries as of December 31,
1999 and 1998, and the related consolidated statements of operations, changes in
partners' capital and cash flows for each of the three years in the period ended
December 31, 1999. These financial statements and the schedule referred to below
are the responsibility of the general partner. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
general partner, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of SB Partners and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commissions rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
New York, New York
February 8, 2000
30
SB PARTNERS
CONSOLIDATED BALANCE SHEETS
As of December 31,
1999 1998
-------------------------------
ASSETS:
Investments -
Real Estate, at cost
Land $ 7,777,153 $ 6,444,653
Buildings, furnishings and improvements 75,564,949 61,733,637
Less - accumulated depreciation (16,654,948) (14,608,682)
------------ ------------
66,687,154 53,569,608
Other Assets -
Cash and cash equivalents 1,344,906 6,585,252
Cash held by lenders in escrow 1,362,890 860,611
Other 905,734 1,073,187
------------ ------------
Total assets $ 70,300,684 $ 62,088,658
============ ============
LIABILITIES:
Mortgage notes payable $ 51,626,658 $ 41,917,726
Accounts payable and accrued expenses 670,253 527,122
Tenant security deposits 292,723 243,173
------------ ------------
Total liabilities 52,589,634 42,688,021
------------ ------------
PARTNERS' CAPITAL:
Units of partnership interest without par value;
Limited partners - 7,753 units 17,727,201 19,416,570
General partner - 1 unit (16,151) (15,933)
------------ ------------
Total partners' capital 17,711,050 19,400,637
------------ ------------
Total liabilities and partners' capital $ 70,300,684 $ 62,088,658
============ ============
The accompanying notes are an integral part of these consolidated balance sheets.
31
SB PARTNERS
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31,
1999 1998 1997
---------------------------------------------
REVENUES
Rental income $10,261,144 $8,541,709 $ 8,647,671
Interest on short-term investments 291,645 331,210 110,680
Other 510,021 638,662 307,301
----------- ---------- -----------
Total revenues 11,062,810 9,511,581 9,065,652
----------- ---------- -----------
EXPENSES
Real estate operating expenses 4,498,597 4,578,613 3,826,057
Interest on mortgage notes and other loans payable 3,094,484 2,041,952 2,213,440
Depreciation and amortization 2,123,464 1,425,744 1,723,683
Real estate taxes 958,002 698,144 815,086
Management fees 734,050 835,502 1,196,611
Write-off of uncollectible accounts 0 0 369,635
Other 568,450 391,101 241,951
----------- ---------- -----------
Total expenses 11,977,047 9,971,056 10,386,463
----------- ---------- -----------
Loss from operations (914,237) (459,475) (1,320,811)
Equity in net income of joint venture 0 0 316,320
Gain on sale of investments in real estate 0 3,873,733 1,404,261
----------- ---------- -----------
NET INCOME (LOSS) (914,237) 3,414,258 399,770
Income (loss) allocated to general partner (118) 440 52
----------- ---------- -----------
Income (loss) allocated to limited partners $ (914,119) $3,413,818 $ 399,718
=========== ========== ===========
NET INCOME (LOSS) PER UNIT OF LIMITED PARTNERSHIP INTEREST $ (118) $ 440 $ 52
=========== ========== ===========
WEIGHTED AVERAGE NUMBER OF UNITS OF LIMITED
PARTNERSHIP INTEREST OUTSTANDING 7,753 7,753 7,753
=========== ========== ===========
The accompanying notes are an integral part of these consolidated statements.
32
SB PARTNERS
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, 1997
Limited Partners:
Units of
Partnership
Interest Cumulative Accumulated
--------------------- Cash Earnings
Number Amount Distributions (Losses) Total
--------------------------------------------------------------------------
Balance, December 31, 1996 7,753 $119,968,973 $(97,728,323) $(6,637,616) $15,603,034
Net income for the year 0 0 0 399,718 399,718
----- ------------ ------------ ----------- -----------
Balance, December 31, 1997 7,753 119,968,973 (97,728,323) (6,237,898) 16,002,752
Net income for the year 0 0 0 3,413,818 3,413,818
----- ------------ ------------ ----------- -----------
Balance, December 31, 1998 7,753 119,968,973 (97,728,323) (2,824,080) 19,416,570
Cash distributions 0 0 (775,250) 0 (775,250)
Net loss for the year 0 0 0 (914,119) (914,119)
----- ------------ ------------ ----------- -----------
Balance, December 31, 1999 7,753 $119,968,973 $(98,503,573) $(3,738,199) $17,727,201
===== ============ ============ =========== ===========
General Partner:
Units of
Partnership
Interest Cumulative Accumulated
---------------------- Cash Earnings
Number Amount Distributions (Losses) Total
---------------------------------------------------------------------------
Balance, December 31, 1996 1 $10,000 $(24,559) $(1,866) $(16,425)
Net income for the year 0 0 0 52 52
--- ------- -------- ------- --------
Balance, December 31, 1997 1 10,000 (24,559) (1,814) (16,373)
Net income for the year 0 0 0 440 440
--- ------- -------- ------- --------
Balance, December 31, 1998 1 10,000 (24,559) (1,374) (15,933)
Cash distributions 0 0 (100) 0 (100)
Net loss for the year 0 0 0 (118) (118)
--- ------- -------- ------- --------
Balance, December 31, 1999 1 $10,000 $(24,659) $(1,492) $(16,151)
=== ======= ======== ======= ========
The accompanying notes are an integral part of these consolidated statements.
33
SB PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
1999 1998 1997
------------------------------------------------
Cash Flows From Operating Activities:
Net income (loss) $ (914,237) $ 3,414,258 $ 399,770
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Gain on sale of investments in real estate 0 (3,873,733) (1,404,261)
Depreciation and amortization 2,123,464 1,425,744 1,723,683
Equity in net income of joint venture 0 0 (316,320)
Distributions of earnings received from joint venture 0 0 100,000
Write-off of uncollectible accounts 0 0 369,635
(Increase) decrease in other operating assets (263,263) (218,936) 482,523
Increase (decrease) in other operating liabilities 192,681 (168,479) (518,880)
------------ ------------ -----------
Net cash provided by operating activities 1,138,645 578,854 836,150
------------ ------------ -----------
Cash Flows From Investing Activities:
Net proceeds from sales/dispositions of investments in real estate 0 29,210,371 10,520,801
Capital additions to real estate owned (1,791,677) (1,305,719) (898,970)
Cash paid on acquisition of joint venture interest 0 0 (9,800,000)
Acquisition of real estate investments (13,372,135) (35,305,088) 0
------------ ------------ -----------
Net cash used in investing activities (15,163,812) (7,400,436) (178,169)
------------ ------------ -----------
Cash Flows From Financing Activities:
Proceeds from mortgage notes and other loans payable 10,303,000 21,050,000 4,000,000
Retirement of mortgage notes and other loans payable 0 (7,514,832) (5,656,378)
Principal payments on mortgage notes and other loans payable (594,068) (359,417) (354,025)
Distributions paid to partners (775,350) 0 0
Increase in deferred financing costs (148,761) (318,677) (117,139)
------------ ------------ -----------
Net cash provided by (used in) financing activities 8,784,821 12,857,074 (2,127,542)
------------ ------------ -----------
Net increase (decrease) in cash and cash equivalents (5,240,346) 6,035,492 (1,469,561)
Cash and cash equivalents at beginning of year 6,585,252 549,760 2,019,321
------------ ------------ -----------
Cash and cash equivalents at end of year $ 1,344,906 $ 6,585,252 $ 549,760
============ ============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 3,096,680 $ 2,067,061 $ 2,241,162
============ ============ ==========-
The accompanying notes are an integral part of these consolidated statements.
34
SB PARTNERS
Notes to Consolidated Financial Statements
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
SB Partners, a New York limited partnership, and its subsidiaries
(collectively, the "Partnership"), have been engaged since April 1971 in
acquiring, operating and holding for investment a varying portfolio of real
properties. SB Partners Real Estate Corporation (the "General Partner") serves
as the general partner of the Partnership. The significant accounting and
financial reporting policies of the Partnership are as follows:
(a) The accompanying consolidated financial statements include the
accounts of SB Partners and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated. The
consolidated financial statements are prepared using the accrual
basis of accounting under generally accepted accounting
principles. Revenues are recognized as earned and expenses are
recognized as incurred. The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates. Certain prior year amounts have been
reclassified to make them comparable to the current year
presentation.
(b) Each partner is individually responsible for reporting his share
of the Partnership's taxable income or loss. Accordingly, no
provision has been made in the accompanying financial statements
for Federal, state or local income taxes.
(c) Depreciation of buildings, furnishings and improvements is
computed using the straight-line method of depreciation, based
upon the estimated useful lives of the related properties, as
follows:
Buildings and improvements 5 to 40 years
Furnishings 5 to 7 years
Investments in real estate are carried at historical cost and
reviewed periodically for impairment. Expenditures for
maintenance and repairs are expensed as incurred. Expenditures
for improvements, renewals and betterments, which increase the
useful life of the real estate, are capitalized. Upon retirement
or sale of property, the related cost and accumulated
depreciation are removed from the accounts. Amortization of
deferred financing and refinancing costs is computed by
amortizing the cost on a straight-line basis over the terms of
the related mortgage notes. Amortization of leasing commissions
and tenant improvements is computed by amortizing the cost on a
straight-line basis over the terms of the related leases.
35
(d) Gains on sales of investments in real estate are recognized in
accordance with generally accepted accounting principles
applicable to sales of real estate, which require minimum levels
of initial and continuing investment by the purchaser, and
certain other tests be met, prior to the full recognition of
profit at the time of the sale. When the tests are not met,
gains on sales are recognized on either the installment or cost
recovery methods.
(e) Net income (loss) per unit of partnership interest has been
computed based on the weighted average number of units of
partnership interest outstanding during each year. There were no
potentially dilutive securities outstanding during each year.
(f) For financial reporting purposes, the Partnership considers all
highly liquid, short-term investments with maturities of three
months or less when purchased to be cash equivalents.
(g) The Partnership accounted for its investment in a joint venture
using the equity method. Pursuant to the special allocations of
cash flow contained in the joint venture agreement, it
recognized income or loss to the extent of its allocable share
of the change in the net assets of the joint venture, after
taking into account preference distributions, as defined, for
the period.
(h) In connection with the mortgage financing on certain of its
properties, the Partnership placed the assets and liabilities of
these properties into single asset limited partnerships, limited
liability companies or land trusts which hold, or held, title to
the properties. The Partnership has effective control over such
entities and holds 100% of the beneficial interest. Accordingly,
the financial statements of these subsidiaries are consolidated
with those of the Partnership.
(i) Real estate properties are regularly evaluated on a property by
property basis to determine if it is appropriate to write down
carrying values to recognize an impairment of value. Impairment
is determined by calculating the sum of the estimated
undiscounted future cash flows including the projected
undiscounted future net proceeds from the sale of the property.
In the event such sum is less than the net carrying value of the
property, the property will be written down to estimated fair
market value.
(j) The Partnership is engaged in only one industry segment, real
estate investment, and therefore information regarding industry
segments is not applicable and is not included in these
consolidated financial statements.
36
(2) INVESTMENT MANAGEMENT AGREEMENT
The Partnership has entered into a management agreement with the
General Partner. Under the terms of this agreement, the General Partner
is responsible for the acquisition, management and disposition of all
investments, as well as performance of the day-to-day administrative
operations and provision of office space for the Partnership.
For these services, the General Partner receives a management fee equal
to 2% of the average amount of capital invested in real estate plus
cumulative mortgage amortization payments, and 0.5% of capital not
invested in real estate, as defined in the partnership agreement. The
management fee amounted to $734,050, $835,502, and $1,196,611, for the
years ended December 31, 1999, 1998, and 1997, respectively. In
addition, the General Partner is entitled to 25% of cash distributions
in excess of the annual distribution preferences, as defined in the
partnership agreement. No such amounts were due for the years ended
December 31, 1999, 1998 and 1997.
(3) INVESTMENTS IN REAL ESTATE
As of December 31, 1999, the Partnership owned apartment projects in
St. Louis, Missouri; Greenville, South Carolina; Reno, Nevada; and
Holiday and Orlando, Florida; as well as 13.9 acres of land in Holiday,
Florida. The following is the cost basis and accumulated depreciation
of the real estate investments owned by the Partnership at December 31,
1999 and 1998:
No.of Year of
Type Prop. Acquisition Description Real Estate at Cost
- ---- ----- ----------- ----------- -----------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
Residential properties 5 4 1983-99 1,746 Apts. 1,554 Apts. $ 83,297,715 $ 68,133,903
Undeveloped land 1 1 1978 13.9 Acres 13.9 Acres 44,387 44,387
------------ ------------
83,342,102 68,178,290
Less: Accumulated depreciation (16,654,948) (14,608,682)
------------ ------------
$ 66,687,154 $ 53,569,608
============ ============
37
(4) REAL ESTATE TRANSACTIONS
On September 29, 1999, the Partnership purchased Le Coeur du Monde
Apartments, a 192-unit apartment community located in St. Louis,
Missouri, for $13,325,000. In connection with the purchase, the
partnership obtained a first mortgage loan of $10,303,000 from a FNMA
DUS program lender. The mortgage loan is secured by the property, bears
interest at 7.805% per annum and matures on October 1, 2009.
On December 23, 1998, the Partnership acquired Halton Place Apartments,
a 246-unit apartment community located in Greenville, South Carolina,
for $12,600,000 in an all cash transaction. On August 20, 1998, the
Partnership purchased Cypress Key Apartments, a 360-unit apartment
community located in Orlando, Florida, for $22,600,000, also in an all
cash transaction.
On April 16, 1998, the Partnership sold Cherry Hill Office Center for a
contract price of $4,825,000, and on June 30, 1998, sold Riverbend
Apartments for a contract price of $24,500,000. Both of these sales
were all cash transactions. As a result of these sales, the Partnership
recognized gains for financial reporting purposes of approximately
$506,000 and $3,368,000, respectively.
In January 1997, the Partnership sold its 10% interest in an apartment
project in Orlando, Florida. The Partnership had been using the cost
method to account for this investment. In connection with this sale,
the Partnership recognized a loss on sale of real estate investments of
$65,000 for the year ended December 31, 1997. In December 1997, the
Partnership sold Plantation Shopping Center for $11,000,000 in an all
cash transaction. In connection with the sale, the underlying mortgage
note payable of $5,350,000 was retired and the Partnership recognized a
gain on sale of real estate investments of $1,469,000 for the year
ended December 31, 1997.
(5) INVESTMENT IN JOINT VENTURE
During 1992, the Partnership and an institutional investor (the
"Investor") entered into a joint venture agreement pursuant to which
the Partnership contributed Riverbend Apartments for an agreed equity
value of $14,250,000 and the Investor contributed $9,500,000 in cash.
The Partnership and the Investor held interests in the venture of 60%
and 40%, respectively. For financial reporting purposes, the
Partnership recorded its investment in the joint venture at its net
carrying amount of the property contributed, and no gain or loss was
recognized.
On December 15, 1997, the Partnership purchased the 40% interest of the
Investor for $9,800,000 through a wholly owned limited liability
company, and effectively became the sole owner of the property. All
items of income and expense of the property are included in the
consolidated statements of operations of the Partnership for the year
ended December 31, 1998. The Partnership sold the property for
$24,500,000 in an all cash transaction on June 30, 1998 (see also Note
4).
38
(6) MORTGAGE NOTES PAYABLE
Mortgage notes payable consist of the following first liens:
Net Carrying Amount
Annual December 31,
Original Interest Maturity Installment Amount Due ------------
Property Principal(a) Rate Date Payments(b) at Maturity 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
Holiday Park $ 3,800,000 6.895% February 2008 $ 300,169 $ 3,277,785 $ 3,725,654 $ 3,767,366
Meadowwood 21,500,000 7.550% January 2004 1,914,996 18,979,461 20,551,431 20,900,360
Cypress Key 17,250,000 6.605% January 2009 1,322,707 14,772,418 17,061,002 17,250,000
Le Coeur du Monde(c) 10,303,000 7.805% October 2009 890,447 9,075,763 10,288,571 n/a
----------- -----------
$51,626,658 $41,917,726
=========== ===========
(a) The mortgages are nonrecourse to the Partnership.
(b) Annual installment payments include principal and interest. Scheduled principal payments on mortgage notes payable are $712,268
for 2000; $765,853 for 2001; $823,492 for 2002; $885,484 for 2003; $19,304,578 for 2004; and $29,134,983 thereafter.
(c) The mortgage note was placed on the property at date of purchase (See Note 4).
39
(7) FEDERAL INCOME TAX INFORMATION
A reconciliation of net income (loss) for financial reporting purposes to
net income (loss) for Federal income tax reporting purposes is as follows:
For the Years Ended December 31,
1999 1998 1997
--------- ----------- ----------
Net income (loss) for financial reporting purposes $(914,237) $ 3,414,258 $ 399,770
Adjustment to net gain on sales of investments in real estate
to reflect differences between tax and financial reporting bases
of assets and liabilities disposed 0 (1,285,190) 4,437,640
Difference between tax and financial statement equity in net income
or loss of joint venture 0 (228,596) (566,673)
Difference between tax and financial statement depreciation 678,001 927,462 (640,157)
--------- ----------- ----------
Net income (loss) for Federal income tax reporting purposes $(236,236) $ 2,827,934 $3,630,580
========= =========== ==========
Net income (loss) per weighted average limited partnership unit
for Federal income tax reporting purposes:
Net ordinary income (loss) per unit of partnership interest $ (30) $ 12 $ (285)
Average Capital (Sec. 1231) gain per unit of
partnership interest 0 353 753
--------- ----------- ----------
$ (30) $ 365 $ 468
========= =========== ==========
Weighted average number of units of limited partnership
interest outstanding 7,753 7,753 7,753
========= =========== ==========
As of December 31, 1999 and 1998, the tax bases of the Partnership's assets
and liabilities were approximately $64,529,000 and $55,639,000 of assets,
and $52,590,000 and $42,688,000 of liabilities, respectively.
(8) PROPERTY MANAGEMENT SERVICES
Certain affiliates of the General Partner oversee the management and
operations of various real estate properties, including those owned by the
Partnership. Services performed by affiliates are billed at actual or
allocated cost, percentage of revenues or net equity. For the years ended
December 31, 1999, 1998 and 1997, such billings to the Partnership amounted
to $752,686, $610,336, and $537,319, respectively, and are included in real
estate operating expenses.
40
(9) COMMITMENTS AND CONTINGENCIES
The Partnership is a party to certain actions directly arising from its
normal business operations. While the ultimate outcome is not presently
determinable with certainty, the Partnership believes that the resolution
of these matters will not have a material effect on its financial position
or results of operations.
On November 6, 1997, Hugh Spencer, a limited partner who holds two units in
the Partnership, filed a purported class action (the "Complaint"), on
behalf of himself and other persons similarly situated, against the
Partnership and its general partner and other affiliates in the Supreme
Court of the State of New York, County of New York, entitled Spencer v. SB
Partners et. al., Index No. 120673/97. The Complaint alleged, inter alia,
that the business of the Partnership can only be carried on at a loss, and
that the general partner breached the partnership agreement and its
fiduciary duties, and seeks a court decree of dissolution of the
Partnership pursuant to Sections 63 and 99 of the New York Partnership Law,
an accounting from the general partner, the appointment of a receiver to
wind up the Partnership's affairs and an award of costs and attorneys' fees
to the plaintiff and the putative class. The Partnership moved to stay the
class action and compel arbitration of any individual claim of the
plaintiff. On September 27, 1998 the Supreme Court of the State of New York
granted the Partnership's motion. In December 1998, Spencer and Norma
Schulze, another limited partner who holds 2 1/2 units in the Partnership,
filed a Demand for Arbitration (the "Demand") with the American Arbitration
Association. Other than omitting the class action allegations, the Demand
contained substantially the same allegations as those contained in the
Complaint. The Partnership, as well as the other respondents, moved for
summary judgment dismissing all of the claims. The Arbitration panel held
oral argument on that motion on October 12, 1999 and, on January 27, 2000,
the American Arbitration Association released the Arbitration panel's award
denying the Claimants' claims in their entirety.
41
SB PARTNERS
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
Column A Column B Column C Column D
Initial Cost to the Registrant Costs
-------------------------------------- Capitalized
Buildings and Subsequent to
Description Encumbrances Land Improvements Total Acquisition
MULTI FAMILY RESIDENTIAL
Nevada -
Reno (Meadowwood) $20,551,431 $2,466,311 $19,057,859 $21,524,170 $6,923,222
Florida -
Holiday (Holiday Park -
Including undeveloped land) 3,725,654 458,342 4,043,354 4,501,696 874,018
Orlando (Cypress Key) 17,061,002 2,260,000 20,404,725 22,664,725 513,565
South Carolina -
Greenville (Halton Place) n/a 1,260,000 11,364,343 12,624,343 319,404
Missouri -
St. Louis (Le Coeur du Monde) 10,288,571 1,332,500 12,039,635 13,372,135 24,824
----------- ---------- ----------- ----------- ----------
$51,626,658 $7,777,153 $66,909,916 $74,687,069 $8,655,033
=========== ========== =========== =========== ==========
42
SB PARTNERS
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
DECEMBER 31, 1999
Column A Column E Column F
Gross amount at which Carried at End of Year
(Notes a & c)
Accumulated
Buildings and Depreciation
Description Land Improvements Total (Notes b & d)
MULTI FAMILY RESIDENTIAL
Nevada -
Reno (Meadowwood) $2,466,311 $25,981,081 $28,447,392 $13,799,480
Florida -
Holiday (Holiday Park -
including undeveloped land) 458,342 4,917,372 5,375,714 1,688,208
Orlando (Cypress Key) 2,260,000 20,918,290 23,178,290 748,873
South Carolina -
Greenville (Halton Place) 1,260,000 11,683,747 12,943,747 317,808
Missouri -
St. Louis (Le Coeur du Monde) 1,332,500 12,064,459 13,396,959 100,579
---------- ----------- ----------- -----------
$7,777,153 $75,564,949 $83,342,102 $16,654,948
========== =========== =========== ===========
43
SB PARTNERS
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
DECEMBER 31, 1999
Column A Column G Column H Column I
Life on which
Depreciation
in
Latest
Statement
Date of Date of Operations
Description Construction Acquired is Computed
MULTI FAMILY RESIDENTIAL
Nevada -
Reno (Meadowwood) 1974 - 1977 May 1983 5 to 30 years
Florida -
Holiday (Holiday Park -
including undeveloped land) 1972 - 1975 Jan 1991 7 to 30 years
Orlando (Cypress Key) 1988 Aug 1998 7 to 40 years
South Carolina -
Greenville (Halton Place) 1986 Dec 1998 7 to 40 years
Missouri -
St. Louis (Le Coeur du Monde) 1988-1989 Sept 1999 7 to 40 years
44
NOTES TO SCHEDULE III:
1999 1998 1997
---- ---- ----
(a) Reconciliation of amounts shown in Column E:
Balance at beginning of year $ 68,178,290 $ 56,718,106 $ 50,635,390
Additions -
Acquisitions (including cost of investment in joint venture
reclassified to cost of Riverbend Apartments - see below) 13,372,135 35,305,088 20,832,762
Cost of improvements 1,791,677 1,305,719 898,970
Deductions -
Dispositions of property 0 (25,150,623) (15,073,204)
Reclassification of accumulated depreciation of
real estate asset held for sale 0 0 (575,812)
------------ ------------ ------------
Balance at end of year $ 83,342,102 $ 68,178,290 $ 56,718,106
============ ============ ============
(b) Reconciliation of amounts shown in Column F:
Balance at beginning of year $ 14,608,682 $ 13,290,104 $ 18,278,229
Additions -
Depreciation expense for year 2,046,266 1,318,578 1,566,062
Deductions -
Accumulated depreciation on property disposed 0 0 (5,978,375)
Reclassification of accumulated depreciation of
real estate asset held for sale 0 0 (575,812)
------------ ------------ ------------
Balance at end of year $ 16,654,948 $ 14,608,682 $ 13,290,104
============ ============ ============
(c) Aggregate cost basis for Federal
income tax reporting purposes $ 85,946,598 $ 70,781,471 $ 70,024,970
============ ============ ============
(d) Accumulated depreciation for Federal
income tax reporting purposes $ 26,732,385 $ 25,364,120 $ 32,460,117
============ ============ ============
On December 15, 1997, the Registrant purchased the forty percent interest of its former co-venturer in
Riverbend Apartments, becoming the sole owner of the apartment community. The cost of the forty percent interest was
$9,800,000 and included the interest in the other assets of the Venture as well as the real estate, net of the
outstanding liabilities. The balance of the Registrant's investment in joint venture, $10,958,513 was reclassified to
the cost of the real estate acquired, and the entire balance was reclassified as real estate assets held for sale.