SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q. - QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended March 31, 2003
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or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from to
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(Amended by Exch Act Rel No. 312905. eff 4/26/93.)
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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1251 Avenue of the Americas, N.Y., N.Y 10020
- --------------------------------------- ---------------------------
(Address of principal executive offices) (Zip Code)
(212) 408-5000
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
APPLICABLE ONLY TO ISSUERS 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 Sections 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 ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Not Applicable
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SB PARTNERS
INDEX
Part I Financial Information (Unaudited)
Consolidated Balance Sheets as of
March 31, 2003 and December 31, 2002..............................1
Consolidated Statements of Operations
for the three months ended March 31, 2003 and 2002................2
Consolidated Statements of Changes in Partners' Capital
for the three months ended March 31, 2003.........................3
Consolidated Statements of Cash Flows
for the three months ended March 31, 2003 and 2002................4
Notes to Consolidated Financial Statements........................5 - 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations................9 - 13
Quantitative and Qualitative Disclosures about Market Risk...........14
Controls and Procedures..............................................14
Part II Other Information....................................................14
Signatures...........................................................15
Certifications..................................................16 - 17
1
ITEM 1. FINANCIAL STATEMENTS
SB PARTNERS
(A New York Limited Partnership)
------------------------------
CONSOLIDATED BALANCE SHEETS
March 31, 2003 (Unaudited) and December 31, 2002
------------------------------------------------
March 31, December 31,
2003 2002
----------- -----------
Assets:
Investments -
Real estate, at cost
Land $ 5,780,842 $ 5,780,842
Buildings, furnishings and improvements 55,635,875 55,557,251
Less - accumulated depreciation (7,566,934) (7,166,894)
----------- -----------
53,849,783 54,171,199
Investment in joint venture 3,268,573 3,385,182
----------- -----------
57,118,356 57,556,381
Other assets -
Cash and cash equivalents 410,527 1,693,069
Cash held by lenders in escrow 781,723 590,631
Other 581,352 668,275
----------- -----------
Total assets $58,891,958 $60,508,356
=========== ===========
Liabilities:
Mortgage notes payable $32,888,062 $30,239,203
Accounts payable and accrued expenses 667,277 712,056
Tenant security deposits 248,322 245,221
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Total liabilities 33,803,661 31,196,480
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Partners' Capital:
Units of partnership interest without par value;
Limited partners - 7,753 units 25,103,497 29,326,531
General partner - 1 unit (15,200) (14,655)
----------- -----------
Total partners' capital 25,088,297 29,311,876
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Total liabilities and partners' capital $58,891,958 $60,508,356
=========== ===========
See notes to consolidated financial statements.
2
SB PARTNERS
(A New York Limited Partnership)
------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
-------------------------------------------------
For the Three Months Ended March 31,
------------------------------------
2003 2002
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Revenues:
Base rental income $1,917,907 $3,060,973
Other rental income 148,286 159,266
Interest on short-term investments 4,750 5,459
---------- ----------
Total revenues 2,070,943 3,225,698
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Expenses:
Real estate operating expenses 896,537 1,357,723
Interest on mortgage notes payable 538,402 917,069
Depreciation and amortization 418,993 378,416
Real estate taxes 254,802 285,471
Management fees 176,533 211,204
Other 11,489 14,125
---------- ----------
Total expenses 2,296,756 3,164,008
---------- ----------
Income (loss) from operations (225,813) 61,690
Equity in net loss of joint venture (121,016) 0
Net gain on sale of water rights 0 379,725
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Net income (loss) (346,829) 441,415
Income (loss) allocated to general partner (45) 57
---------- ----------
Income (loss) allocated to limited partners $ (346,784) $ 441,358
========== ==========
Net Income (Loss)
Per Unit of Limited Partnership Interest
(Basic and Diluted) $ (44.73) $ 56.93
========== ==========
Weighted Average Number of Units of Limited
Partnership Interest Outstanding 7,753 7,753
========== ==========
See notes to consolidated financial statements.
3
SB PARTNERS
(A New York Limited Partnership)
------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
For the three months ended March 31, 2003 (Unaudited)
------------------------------------------------------
Limited Partners:
Units of
Partnership
Interest Cumulative Accumulated
--------------------- Cash Earnings
Number Amount Distributions (Losses) Total
------ ------------ ------------- ----------- -----------
Balance, January 1, 2003 7,753 $119,968,973 $(100,945,611) $10,303,169 $29,326,531
Cash distributions 0 0 (3,876,250) 0 (3,876,250)
Net loss for the period 0 0 0 (346,784) (346,784)
------ ------------ ------------- ----------- -----------
Balance, March 31, 2003 7,753 $119,968,973 $(104,821,861) $ 9,956,385 $25,103,497
====== ============ ============= =========== ===========
General Partner:
Units of
Partnership
Interest Cumulative Accumulated
------------------ Cash Earnings
Number Amount Distributions (Losses) Total
------ ------- ------------- ----------- --------
Balance, January 1, 2003 1 $10,000 $(24,974) $ 319 $(14,655)
Cash distributions 0 0 (500) 0 (500)
Net loss for the period 0 0 0 (45) (45)
---- ------- -------- ------- --------
Balance, March 31, 2003 1 $10,000 $(25,474) $ 274 $(15,200)
==== ======= ======== ======= ========
See notes to consolidated financial statements.
4
SB PARTNERS
(A New York Limited Partnership)
------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
-------------------------------------------------
For the Three Months Ended
March 31,
---------------------------
2003 2002
----------- ----------
Cash Flows From Operating Activities:
Net income (loss) $ (346,829) $ 441,415
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Net gain on sale of water rights 0 (379,725)
Equity in net loss of joint venture 121,016 0
Depreciation and amortization 418,993 378,416
Net increase in operating assets (123,122) (243,002)
Net increase (decrease) in operating liabilities (41,678) 12,773
----------- ---------
Net cash provided by operating activities 28,380 209,877
----------- ---------
Cash Flows From Investing Activities:
Proceeds from sale of water rights 0 379,725
Investment in joint venture (4,407) 0
Capital additions to real estate owned (78,624) (187,463)
----------- ---------
Net cash provided by (used in) investing activities (83,031) 192,262
----------- ---------
Cash Flows From Financing Activities:
Borrowings under revolving credit facility 2,750,000 0
Principal payments on mortgage notes payable (101,141) (200,612)
Distributions paid to partners (3,876,750) (775,350)
----------- ---------
Net cash used in financing activities (1,227,891) (975,962)
----------- ---------
Net decrease in cash and cash equivalents (1,282,542) (573,823)
Cash and cash equivalents at beginning of period 1,693,069 634,029
----------- ---------
Cash and cash equivalents at end of period $ 410,527 $ 60,206
=========== =========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 538,402 $ 917,070
=========== =========
See notes to consolidated financial statements.
5
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
estate interests. SB Partners Real Estate Corporation (the "General Partner")
serves as the general partner of the Partnership.
The consolidated financial statements as of March 31, 2003 and for the
three-month periods ended March 31, 2003 and 2002 included herein are unaudited;
however, the information reflects all adjustments (consisting solely of normal
recurring adjustments) that are, in the opinion of management, necessary to a
fair presentation of the financial position, results of operations and cash
flows for the interim periods. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations, although management
believes that the disclosures are adequate to make the information presented not
misleading. It is suggested that these consolidated financial statements be read
in conjunction with the consolidated financial statements and the notes thereto
included in the Registrant's latest annual report on Form 10-K.
The results of operations for the three-month periods ended
March 31, 2003 and 2002 are not necessarily indicative of the results to be
expected for a full year.
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 accounting principles generally accepted
in the United States of America. 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.
(b) In connection with the mortgage financing on certain of its
properties, the Partnership placed the assets and liabilities of
those properties into single asset limited partnerships, limited
liability companies or land trusts which hold 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.
(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
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.
(d) 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 value. Based on the
Partnership's long-term hold strategy for its investments in real
estate, the carrying value of its properties at March 31, 2003 is
estimated to be fully realizable.
6
(e) Real estate held for sale is carried at the lower of cost or fair
value less selling costs. Upon determination that a property is held
for sale, all depreciation of such property is ceased.
(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 accounts for its investment in a joint venture under
the equity method of accounting as the Partnership owns a
non-controlling interest in the joint venture.
(h) Tenant leases at the residential properties generally have terms of
one year or less. Rental income at the residential properties is
recognized when earned pursuant to the terms of the leases. Leases
at the industrial flex property have terms that exceed one year.
Rental income at the industrial flex property is recognized on a
straight-line basis over the terms of the leases.
(i) Gains on sales of investments in real estate are recognized in
accordance with accounting principles generally accepted in the
United States of America applicable to sales of real estate, which
require that the purchaser maintain minimum levels of initial and
continuing investment, and that certain other tests be met, prior to
the full recognition of profit at the time of the sale.
(j) Each partner is individually responsible for reporting its share of
the Partnership's taxable income or loss. Accordingly, no provision
has been made in the accompanying consolidated financial statements
for Federal, state or local income taxes.
(k) 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 period. There were no potentially
dilutive securities outstanding during each period.
(l) 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.
(m) On January 1, 2002, the Partnership adopted Statement of Financial
Accounting Standards ("SFAS") No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (the "Statement"). The
Statement requires that the operations related to properties that
have been sold or properties that are intended to be sold be
presented as discontinued operations in the statements of operations
for all periods presented, and that properties intended to be sold
be designated as "held for sale" on the balance sheet. However,
long-lived assets classified as held for sale prior to the initial
application of the Statement are required to continue to be
accounted for in accordance with SFAS No. 121.
(n) In April 2002, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 145, "Rescission of SFAS No. 4, 22 and 64, Amendment
of SFAS No. 13 and Technical Corrections". SFAS No. 145, among other
things, rescinds SFAS No. 4, "Reporting Gains and Losses from
Extinguishment of Debt", and accordingly, the reporting of gains or
losses from the early extinguishment of debt as extraordinary items
will only be required if they meet the specific criteria for
extraordinary items included in Accounting Principles Board Opinion
No. 30, "Reporting the Results of Operations".
(o) Certain prior year amounts have been reclassified to conform with
the current year presentation.
7
(2) INVESTMENTS IN REAL ESTATE
As of March 31, 2003, the Partnership owned apartment projects in
St. Louis, Missouri; Greenville, South Carolina; and Holiday and
Orlando, Florida; as well as an industrial flex property in
Maple Grove, Minnesota and 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 March 31, 2003 and
December 31, 2002:
Real Estate at Cost
No.of Year of ---------------------------
Type Prop. Acquisition Description 3/31/03 12/31/02
- ---- ----- ----------- ----------- ----------- -----------
Residential properties 4 1991-99 1,042 Apts. $56,618,240 $56,539,616
Industrial flex property 1 2002 60,345 sf 4,754,090 4,754,090
Undeveloped land 1 1978 13.9 Acres 44,387 44,387
----------- -----------
Total cost 61,416,717 61,338,093
Less: accumulated depreciation (7,566,934) (7,166,894)
----------- -----------
Net book value $53,849,783 $54,171,199
=========== ===========
(3) GAIN ON SALE OF WATER RIGHTS
In February 2002, the Partnership sold the water rights at Meadowwood
Apartments for $389,725. As there was no identifiable cost basis for
the rights, the receipt, net of costs incurred in the transaction, has
been recognized as income and is reflected as net gain on sale of water
rights on the accompanying consolidated statements of operations.
8
(4) MORTGAGE NOTES PAYABLE
Mortgage notes payable consist of the following non-recourse first liens:
Net Carrying Amount
Annual March 31, December 31,
Interest Maturity Installment Amount Due ----------- -----------
Property Rate Date Payments(a) at Maturity 2003 2002
- ---------------------------------------------------------------------------------------------------
Halton Place(b) 3.2875% 07/03 Interest Only $ 3,000,000 $ 3,000,000 $ 250,000
Holiday Park 6.895% 02/08 $ 300,169 3,277,785 3,568,472 3,581,850
Cypress Key 6.605% 01/09 1,322,707 14,772,418 16,353,250 16,413,232
Le Coeur du Monde 7.805% 10/09 890,447 9,075,763 9,966,340 9,994,121
----------- -----------
$32,888,062 $30,239,203
=========== ===========
(a) Annual installment payments include principal and interest.
(b) On March 1, 2001, the Partnership entered into a revolving credit facility
agreement with a bank in the amount of $7,500,000 which is secured by Halton
Place Apartments. The credit facility expires July 1, 2003, however, the
Partnership is in negotiations with the lender to further extend the term of
the credit facility. Borrowings bear interest at one-month LIBOR plus 1.95%.
The agreement requires the Partnership to maintain a ratio of NOI, as
defined, to actual debt service, as defined, of not less than 1.2 to 1. As
of March 31, 2003, the Partnership is in compliance with the covenant. In
connection with this credit facility, the Partnership is subject to market
risk relating to potential future changes in interest rates.
(5) DISTRIBUTIONS
In March 2003, the Partnership paid a cash distribution of $500 per
unit to Unitholders of record as of December 31, 2002, which totaled
$3,876,750 based on 7,753.5 units outstanding.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
------------------------------------------------------------
General
- -------
The consolidated financial statements as of and for the three months ended
March 31, 2003 reflect the operations of four residential garden apartment
properties, a joint venture interest in a partnership that owns an apartment
property, and an industrial flex property. The consolidated financial statements
as of and for the three months ended March 31, 2002 reflect the operations of
five residential garden apartment properties.
Total revenues for the three months ended March 31, 2003 decreased
$1,155,000 to approximately $2,071,000 from approximately $3,226,000 for the
three months ended March 31, 2002. Net loss for the three months ended
March 31, 2003 increased by $788,000, to a net loss of approximately $347,000,
from net income of approximately $441,000 for the three months ended
March 31, 2002.
The changes in financial condition, total revenues and net income/loss are
the result of the changes from 2002 to 2003 in the composition of the portfolio.
On April 30, 2002, the Registrant purchased a 75% non-controlling interest in a
partnership that owns Waterview Apartments, a 203-unit apartment community in
West Chester, Pennsylvania. On May 9, 2002, the Registrant sold Meadowwood
Apartments, a 704-unit apartment community in Reno, Nevada, for $31,350,000 in
an all cash transaction, and retired the mortgage note payable that had been
secured by the property. In addition, on June 12, 2002, the Registrant purchased
Eagle Lake Business Center IV, a 60,345 square foot industrial flex property in
Maple Grove, Minnesota, for $4,700,000, in an all cash transaction.
During the first three months of 2002, rental revenues collected at
Meadowwood Apartments totaled approximately $1,274,000. In 2003, there were no
revenues from Meadowwood Apartments as the property was sold on May 9, 2002.
Partially offsetting the lack of revenues from the apartment property were the
revenues collected from the industrial flex property, Eagle Lake Business
Center IV, which totaled approximately $226,000 in 2003. Revenues generated by
the apartment property owned by the partnership in which the Registrant owns a
75% joint venture interest are not included in total revenues. However, the
equity in net loss of joint venture is net of the revenues collected from those
apartments during 2003.
Total expenses for the three months ended March 31, 2003 decreased
approximately $867,000, primarily because no expenses were attributable to
Meadowwood Apartments in 2003, while $111,000 of expenses were incurred at the
industrial flex property in Maple Grove, Minnesota.
For additional analysis, please refer to the discussions of the individual
properties below.
This report on Form 10-Q 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
as further described in the Registrant's latest annual report on Form 10-K.
Actual results may differ materially from those contemplated by the forward
looking statements.
10
CRITICAL ACCOUNTING POLICIES
- ----------------------------
The Partnership's critical accounting policies are described in its Annual
Report on Form 10-K for the year ended December 31, 2002; there were no
significant changes to such policies in 2003.
Liquidity and Capital Resources
- -------------------------------
As of March 31, 2003, the Registrant had cash and cash equivalents of
approximately $411,000 in addition to $782,000 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 $1,091,000 less
than the cash, cash equivalents and deposits held in escrow on
December 31, 2002. After adding approximately $191,000 to deposits held by
lenders in escrow, operating activities generated approximately $28,000 of cash
flow during the three months ended March 31, 2003. During the same period, the
Registrant borrowed an additional $2,750,000 under the revolving credit facility
that is secured by Halton Place Apartments. Uses of cash during the period
included distributions amounting to approximately $3,877,000 that were paid to
Unitholders of record as of December 31, 2002. Capital additions to existing
real estate properties totaled approximately $79,000, and principal payments of
approximately $101,000 were made on mortgage notes payable.
Total outstanding debt at March 31, 2003 consisted of approximately
$29,888,000 of long-term non-recourse first mortgage notes and $3,000,000 under
a revolving credit facility, all secured by real estate owned by the Registrant
(see Note 4 to the Consolidated Financial Statements). The credit facility
matures on July 1, 2003, however, the Registrant is in negotiations with the
lender to further extend the term of the credit facility. Scheduled maturities
through regularly scheduled monthly payments will be approximately $314,000 for
the remainder of 2003. 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.
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.
In March 2003, the Registrant made a distribution of $500 per unit to
Unitholders of record as of December 31, 2002. This is the fifth consecutive
annual distribution since the repositioning of the portfolio in the late 1990's.
However, there is no requirement to make such distributions, nor can there be
any assurance that future operations will generate cash available for
distributions.
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.
11
Holiday Park Apartments (Holiday, Florida)
- -----------------------
Total revenues for the three months ended March 31, 2003 increased $6,000
to $357,000 from $351,000 for the three months ended March 31, 2002. Net income,
which includes deductions for depreciation and mortgage interest expense, for
the three months ended March 31, 2003 increased $9,000 to $58,000 from $49,000
for the three months ended March 31, 2002.
Higher revenues were due primarily to greater collections from the water
and sewer billback program which added $9,000 to revenues. Average occupancy
increased 3.0%, to 96.3% from 93.3% for the three months ended March 31, 2002,
adding $7,000 to total revenues, and higher rental rates on new and renewing
leases added $9,000 to revenues. However, these increases in revenues were
offset by giving more rental concessions to tenants, which lowered revenues
$17,000. The increase in net income was the result of higher revenue and a
slight decrease in expenses. Repairs and maintenance costs decreased $17,000
primarily due to lower apartment turnover costs and replacement costs in the
current period. However, insurance costs were $8,000 higher, reflecting a
general rise in rates charged by the insurance industry. Depreciation expense
increased $2,000 as additional assets were placed into service over the course
of the last year. Real estate taxes increased $2,000 and other, miscellaneous
expenses also increased $2,000.
Cypress Key Apartments (Orlando, Florida)
- ----------------------
Total revenues for the three months ended March 31, 2003 decreased $30,000
to $712,000 from $742,000 for the three months ended March 31, 2002. Net loss,
which includes deductions for depreciation and mortgage interest expense, for
the three months ended March 31, 2003 increased $21,000 to $114,000 from $93,000
for the three months ended March 31, 2002.
The decrease in revenues was due primarily to lower average occupancy at
the property. Average occupancy decreased 3.4%, to 88.3% from 91.7% for the
comparable period in 2002, reducing revenues $27,000. Although rental rates on
new and renewing leases were raised slightly, greater concessions were offered
to new tenants, resulting in a net decrease in revenues of $5,000. The net loss
was a result of lower revenues, partially offset by a decrease of $9,000 in
expenses. Payroll expense for the current period was $15,000 lower, as overall
compensation paid to the staff was reduced from the prior year. Interest expense
was $4,000 less, as cumulative payments on the outstanding principal reduced the
cost of the debt. Other operating expenses decreased $7,000. These reductions in
expenses were partially offset by an increase in insurance expense of $13,000,
as higher insurance premiums were paid for coverage in the current period.
Depreciation expense was $4,000 higher as depreciation was computed on
additional assets placed into service over the course of the last year.
12
Halton Place Apartments (Greenville, South Carolina)
- -----------------------
Total revenues for the three months ended March 31, 2003 decreased $43,000
to $347,000 from $390,000 for the three months ended March 31, 2002. Net income,
which includes deductions for depreciation and interest expense, for the three
months ended March 31, 2003 decreased $66,000 to $18,000 from $84,000 for the
three months ended March 31, 2002.
Revenues were lower primarily because additional rental concessions were
given to tenants during the first three months of 2003, reducing revenues
$35,000 from the three month period in the prior year. Average occupancy of
81.5% for the three months ended March 31, 2003 was 2.7% lower than the
average occupancy of 84.2% for the three months ended March 31, 2002. This
lowered revenues by $13,000, although a modest increase in rental rates on new
and renewing leases was implemented, which increased revenues $4,000. The
decrease in net income was a result of lower revenues and a $23,000 increase in
expenses. Payroll expense increased $9,000, as a full-time groundskeeper was
hired in late 2002, filling a position that had been empty in the prior year.
Utility expense increased $8,000 due to usage and rate increases, and insurance
expense increased $7,000, reflecting an overall increase in insurance premiums.
Depreciation expense was $3,000 higher as additional assets were placed in
service over the course of the last year, however, real estate taxes decreased
$4,000 following a successful appeal of the tax assessment.
Le Coeur du Monde Apartments (St. Louis, Missouri)
- ----------------------------
Total revenues for the three months ended March 31, 2003 decreased $41,000
to $422,000 from $463,000 for the three months ended March 31, 2002. Net loss,
which includes deductions for depreciation and mortgage interest expense, for
the three months ended March 31, 2003 increased $38,000 to $61,000 from $23,000
for the three months ended March 31, 2002.
Lower revenues were due primarily to lower average occupancy in the
current period. The average occupancy rate declined 8.4%, to 86.4% in the
current period from 94.8% for the same period in the prior year, which lowered
total revenues $40,000. Marginal increases in rental rates increased revenues
$6,000, however, increased tenant concessions lowered revenues $7,000. The
increase in net loss was primarily a result of lower revenues in the current
period, as expenses remained comparable to the same period in 2002. Additional
insurance costs of $6,000 resulted from higher premiums charged when the
policies were renewed. Depreciation expense increased $4,000 as additional
assets were placed in service over the course of the last year. These
increases were partially offset by a decrease in other administrative expenses
of $5,000, a decrease in payroll costs of $3,000, and a reduction in interest
expense of $2,000, as cumulative payments on the mortgage have reduced the cost
of the debt.
13
Eagle Lake Business Center IV (Maple Grove, Minnesota)
- -----------------------------
On June 12, 2002, the Registrant purchased Eagle Lake Business
Center IV, a 60,345 square foot industrial flex property located in Maple Grove,
Minnesota, for $4,700,000, in an all cash transaction. The property is currently
100% occupied.
Total revenues for the three months ended March 31, 2003 were
approximately $226,000. Net income, which includes a deduction for depreciation
expense, was approximately $115,000 for the three months ended March 31, 2003.
Total revenues were comprised of rental income of approximately $185,000 and
escalation income of approximately $41,000. Expenses related primarily to real
estate taxes of approximately $45,000, depreciation expense of approximately
$27,000, repairs and maintenance expenses of approximately $15,000, insurance
expense of $3,000 and miscellaneous expenses which totaled approximately
$21,000.
Investment in Joint Venture
- ---------------------------
On April 30, 2002, the Registrant purchased a 75% non-controlling
interest in a partnership that owns Waterview Apartments located in West
Chester, Pennsylvania. Waterview Apartments comprises 203 apartment units and
6,000 square feet of commercial space.
Equity in net loss of joint venture for the three months ended
March 31, 2003 was approximately $121,000, which is net of $88,500, the
Registrant's portion of depreciation charged on the books of the joint venture.
14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 2003
---------------------------------------------------
On March 1, 2001, the Registrant entered into a revolving credit facility
agreement with a bank under which interest incurred is determined based on
current market rates that fluctuate with LIBOR. As such, the Registrant has
market risk to the extent interest rates fluctuate during the term of the credit
facility and funds are advanced by the bank under the agreement. Based on the
weighted average outstanding balance under the credit facility for the three
months ended March 31, 2003, a 1% change in LIBOR would impact the Registrant's
quarterly net loss and cash flows by approximately $2,800.
ITEM 4. CONTROLS AND PROCEDURES
-------------------------------
(a) The President and the Chief Financial Officer of the general
partner of SB Partners have evaluated the disclosure controls and
procedures relating to the Registrant's Quarterly Report on
Form 10-Q for the period ended March 31, 2003 as filed with the
Securities and Exchange Commission and have judged such controls
and procedures to be effective.
(b) There have been no changes in the Registrant's internal controls
during the quarter ended March 31, 2003 that could significantly
affect those controls subsequent to the date of evaluation.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
NONE.
15
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Each of the undersigned hereby certifies in his/her capacity as an officer of SB
Partners Real Estate Corporation, the general partner of SB Partners (the
"Partnership"), that the Quarterly Report of the Partnership on Form 10-Q for
the period ended March 31, 2003 fully complies with the requirements of Section
13(a) of the Securities and Exchange Act of 1934 and that the information
contained in such report fairly presents, in all material respects, the
financial condition of the Partnership at the end of such period and the results
of operations of the Partnership for such period.
SB PARTNERS
-----------------------------
(Registrant)
By: SB PARTNERS REAL ESTATE
CORPORATION
-----------------------------
General Partner
Dated: May 15, 2003 By: /s/ John H. Streicker
-----------------------------
John H. Streicker
President
Dated: May 15, 2003 By: /s/ Elizabeth B. Longo
-----------------------------
Elizabeth B. Longo
Chief Financial Officer
(Principal Financial Officer)
Dated: May 15, 2003 By: /s/ George N. Tietjen III
-----------------------------
George N. Tietjen III
Vice President
(Principal Accounting Officer)
16
I, John H. Streicker, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of SB Partners;
(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
(4) The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
(5) The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and to the
audit committee of the board of directors (or persons fulfilling the
equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Registrant's
ability to record, process, summarize and report financial data
and have identified for the Registrant's auditors any material
weakness in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and
(6) The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 15, 2003 /s/ John H. Streicker
---------------------
John H. Streicker
President
17
I, Elizabeth B. Longo, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of SB Partners;
(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
(4) The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
(5) The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and to the
audit committee of the board of directors (or persons fulfilling the
equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Registrant's
ability to record, process, summarize and report financial data
and have identified for the Registrant's auditors any material
weakness in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and
(6) The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 15, 2003 /s/ Elizabeth B. Longo
---------------------------
Elizabeth B. Longo
Chief Financial Officer