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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 June 30, 2004
------------------------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from to
------------------- ----------- -----
(Amended by Exch Act Rel No. 312905. eff 4/26/93.)
Commission File Number: 0-8952
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SB PARTNERS
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 13-6294787
- ------------------------------- --------------------------
(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
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(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
--------------
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
--------------
SB PARTNERS
INDEX
Part I Financial Information (Unaudited)
Consolidated Balance Sheets as of
June 30, 2004 and December 31, 2003.........................1
Consolidated Statements of Operations
for the three and six months ended June 30, 2004 and 2003...2
Consolidated Statements of Changes in Partners' Capital
for the six months ended June 30, 2004......................3
Consolidated Statements of Cash Flows
for the six months ended June 30, 2004 and 2003.............4
Notes to Consolidated Financial Statements......................5 - 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations...............8 - 14
Quantitative and Qualitative Disclosures about Market Risk......15
Controls and Procedures.........................................15
Part II
Other Information...............................................15
Signatures......................................................16
Exhibit 31......................................................17 - 18
Exhibit 32......................................................19
1
ITEM 1. FINANCIAL STATEMENTS
SB PARTNERS
(A New York Limited Partnership)
------------------------------
CONSOLIDATED BALANCE SHEETS(Unaudited)
June 30, 2004 and December 31, 2003
-----------------------------------------------
June 30, December 31,
2004 2003
----------- -----------
Assets:
Investments -
Real estate, at cost
Land $ 5,780,842 $ 5,780,842
Buildings, furnishings and improvements 56,483,646 56,233,849
Less - accumulated depreciation (9,558,309) (8,777,534)
----------- -----------
52,706,179 53,237,157
Investment in joint venture 2,985,320 3,100,596
----------- -----------
55,691,499 56,337,753
Other assets -
Cash and cash equivalents 184,359 186,390
Cash held by lenders in escrow 937,469 667,561
Other 434,857 619,006
----------- -----------
Total assets $57,248,184 $57,810,710
=========== ===========
Liabilities:
Mortgage notes payable $33,255,125 $32,773,875
Accounts payable and accrued expenses 788,104 857,312
Tenant security deposits 236,840 272,302
Deferred revenue 30,000 0
----------- -----------
Total liabilities 34,310,069 33,903,489
----------- -----------
Partners' Capital:
Units of partnership interest without par value;
Limited partners - 7,753 units 22,953,592 23,922,573
General partner - 1 unit (15,477) (15,352)
----------- -----------
Total partners' capital 22,938,115 23,907,221
----------- -----------
Total liabilities and partners' capital $57,248,184 $57,810,710
=========== ===========
See notes to consolidated financial statements.
2
SB PARTNERS
(A New York Limited Partnership)
------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
-------------------------------------------------
For The Three Months For The Six Months
Ended June 30, Ended June 30,
----------------------- -----------------------
2004 2003 2004 2003
---------- ----------- ---------- -----------
Revenues
Base rental income $1,931,361 $1,791,463 $3,823,932 $ 3,709,370
Other rental income 155,525 205,576 350,293 353,862
Interest on short-term investments 1,008 1,294 3,243 6,044
---------- ---------- ---------- -----------
Total revenues 2,087,894 1,998,333 4,177,468 4,069,276
---------- ---------- ---------- -----------
Expenses:
Real estate operating expenses 935,713 934,803 1,918,563 1,831,340
Interest on mortgage notes payable 547,947 551,966 1,093,264 1,090,368
Depreciation and amortization 400,430 419,060 807,689 838,053
Real estate taxes 231,339 253,635 479,446 508,437
Management fees 177,924 177,132 354,652 353,665
Other 17,121 19,970 37,544 31,459
---------- ---------- ---------- -----------
Total expenses 2,310,474 2,356,566 4,691,158 4,653,322
---------- ---------- ---------- -----------
Loss from operations (222,580) (358,233) (513,690) (584,046)
Equity in net loss of joint venture (34,234) (43,741) (145,276) (164,757)
---------- ---------- ---------- -----------
Net loss (256,814) (401,974) (658,966) (748,803)
Loss allocated to general partner (33) (52) (85) (97)
---------- ---------- ---------- -----------
Loss allocated to limited partners $ (256,781) $ (401,922) $ (658,881) $(748,706)
========== ========== ========== ===========
Net Loss
Per Unit of Limited Partnership Interest
(Basic and Diluted) $ (33.12) $ (51.84) $ (84.98) $ (96.58)
========== ========== ========== ===========
Weighted Average Number of Units of Limited
Partnership Interest Outstanding 7,753 7,753 7,753 7,753
========== ========== ========== ===========
See notes to consolidated financial statements.
3
SB PARTNERS
(A New York Limited Partnership)
------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN
PARTNERS' CAPITAL For the six months ended
June 30, 2004 (Unaudited)
------------------------------------------
Limited Partners:
Units of
Partnership
Interest Cumulative Accumulated
------------ Cash Earnings
Number Amount Distributions (Losses) Total
------ ------------ ------------- ----------- -----------
Balance, January 1, 2004 7,753 $119,968,973 $(104,821,861) $ 8,775,461 $23,922,573
Cash distributions 0 0 (310,100) (310,100)
Net loss for the period 0 0 0 (658,881) (658,881)
----- ------------ ------------- ----------- -----------
Balance, June 30, 2004 7,753 $119,968,973 $(105,131,961) $ 8,116,580 $22,953,592
===== ============ ============= =========== ===========
General Partner:
Units of
Partnership
Interest Cumulative Accumulated
------------ Cash Earnings
Number Amount Distributions (Losses) Total
------ ------------ ------------- ----------- -----------
Balance, January 1, 2004 1 $ 10,000 $ (25,474) $ 122 $ (15,352)
Cash distributions 0 0 (40) 0 (40)
Net loss for the period 0 0 0 (85) (85)
----- ------------ ------------- ----------- -----------
Balance, June 30, 2004 1 $ 10,000 $ (25,514) $ 37 $ (15,477)
===== ============ ============= =========== ===========
See notes to consolidated financial
statements.
4
SB PARTNERS
(A New York Limited Partnership)
------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
------------------------------------------------
For the Six Months Ended
June 30,
-----------------------
2004 2003
---------- ------------
Cash Flows From Operating Activities:
Net loss $ (658,966) $ (748,803)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Equity in net loss of joint venture 145,276 164,757
Depreciation and amortization 807,689 838,053
Net increase in operating assets (112,673) (227,430)
Net (decrease) increase in operating liabilities (74,670) 65,357
---------- -----------
Net cash provided by operating activities 106,656 91,934
---------- -----------
Cash Flows From Investing Activities:
Capital additions to real estate owned (249,797) (167,538)
Investment in joint venture (30,000) (4,407)
---------- -----------
Net cash used in investing activities (279,797) (171,945)
---------- -----------
Cash Flows From Financing Activities:
Borrowings under revolving credit facility 700,000 2,750,000
Principal payments on mortgage notes payable (218,750) (204,055)
Distributions paid to partners (310,140) (3,876,750)
---------- -----------
Net cash provided by (used in) financing activities 171,110 (1,330,805)
---------- ------------
Net decrease in cash and cash equivalents (2,031) (1,410,816)
Cash and cash equivalents at beginning of period 186,390 1,693,069
---------- -----------
Cash and cash equivalents at end of period $ 184,359 $ 282,253
========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $1,093,264 $ 1,084,375
========== ===========
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 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 Partnership's latest annual report on Form 10-K.
The results of operations for the three and six month periods ended
June 30, 2004 and 2003 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 wholly owned subsidiaries.
All significant intercompany accounts and transactions have
been eliminated. The consolidated financial statements are
prepared using the accrual basis of accounting in accordance
with 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 such 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 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 is 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 June 30, 2004 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 joint venture
under the equity method of accounting as the Partnership owns a
non-controlling interest in the joint venture.
(h) Deferred revenue represents amounts received under a contract
that are recognized as earned over the contract period.
(i) 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.
(j) 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.
(k) 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.
(l) 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 the
periods presented.
(m) 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.
(n) Certain prior year amounts have been reclassified to conform
to the current year presentation.
7
(2) INVESTMENTS IN REAL ESTATE
As of June 30, 2004, the Partnership owned apartment communities 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 June 30, 2004 and December 31,
2003:
Real Estate at Cost
No.of Year of ---------------------------
Type Prop. Acquisition Description 6/30/04 12/31/03
- ---- ----- ----------- ------------- ----------- -----------
Residential properties 4 1991-99 1,042 Apts. $57,458,235 $57,208,641
Industrial flex property 1 2002 60,345 sf 4,761,866 4,761,663
Undeveloped land 1 1978 13.9 Acres 44,387 44,387
----------- -----------
Total cost 62,264,488 62,014,691
Less: accumulated depreciation (9,558,309) (8,777,534)
----------- -----------
Net book value $52,706,179 $53,237,157
=========== ===========
(3) INVESTMENT IN JOINT VENTURE
On April 30, 2002, the Partnership purchased a 75% non-controlling
interest in a partnership that owns Waterview Apartments in West
Chester, Pennsylvania. Waterview Apartments comprises 203 apartment
units and 6,000 square feet of commercial space.
(4) MORTGAGE NOTES PAYABLE
Mortgage notes payable consist of the following non-recourse first liens:
Net Carrying Amount
Annual June 30, December 31,
Interest Maturity Installment Amount Due ----------- ------------
Property Rate Date Payments(a) at Maturity 2004 2003
- --------------------------------------------------------------------------------------------
Halton Place(b) 3.1039% 09/05 Interest Only $ 3,900,000 $ 3,900,000 $ 3,200,000
Holiday Park 6.895% 02/08 300,169 3,277,785 3,498,029 3,526,935
Cypress Key 6.605% 01/09 1,322,707 14,772,418 16,038,065 16,167,261
Le Coeur du Monde 7.805% 10/09 890,447 9,075,763 9,819,031 9,879,679
----------- -----------
$33,255,125 $32,773,875
=========== ===========
(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 term of the agreement has been
extended an additional two months to September 1, 2005. Borrowings bear
interest at the one-month LIBOR plus 1.95%. The agreement requires the
Borrower, Halton Place Carolina, LLC., a subsidiary of 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 June 30, 2004, 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 2004, the Partnership paid a cash distribution of $40 per unit
to Unitholders of record as of December 31, 2003, which totaled
$310,140 based on 7,753 units outstanding.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AS OF JUNE 30,2004 AND FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003
- --------------------------------------------------------------------------------
General
The consolidated financial statements for the three and six months ended
June 30, 2004 and 2003 reflect the operations of four residential garden
apartment properties, a joint venture and an industrial flex property.
Results of Operations -
Total revenues for the three months ended June 30, 2004 increased $90,000
to approximately $2,088,000 from approximately $1,998,000 for the three months
ended June 30, 2003. Net loss decreased $145,000, to a net loss of approximately
$257,000 for the three months ended June 30, 2004, from net loss of
approximately $402,000 for the three months ended June 30, 2003. Total expenses
for the three months ended June 30, 2004 decreased approximately $465,000 from
the three months ended June 30, 2003. Such decrease was primarily the result of
a decrease in depreciation expense in the amount of $19,000 and a $22,000
decrease in real estate taxes. In addition, equity in net loss from joint
venture decreased by $10,000 to $34,000 for the three months ended June 30, 2004
from $44,000 for the same period ended June 30, 2003.
Total revenues for the six months ended June 30, 2004 increased $108,000
to approximately $4,177,000 from approximately $4,069,000 for the six months
ended June 30, 2003. Net loss decreased approximately $90,000, to a net loss of
approximately $659,000 for the six months ended June 30, 2004, from net loss of
approximately $749,000 for the six months ended June 30, 2003. Total expenses
increased $38,000 for the six months ended June 30, 2004 when compared with the
same period for 2003. In addition, equity in net loss from joint venture
decreased by $20,000 to $145,000 for the six months ended June 30, 2004 from
$165,000 for the same period ended June 30, 2003.
Revenues generated by the apartment property owned by the partnership in
which the Registrant has a 75% non-controlling joint venture interest are not
included in total revenues, nor are the expenses from this investment included
in total expenses. However, the equity in net loss of joint venture is the net
of revenues collected and expenses incurred by Waterview Apartments for the
three and six months ended June 30, 2004 and 2003.
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.
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, 2003. There were no
significant changes to such policies in 2004. There are no accounting
pronouncements or interpretations that have been issued, but not yet adopted
that the partnership believes will have a material impact on its consolidated
financial statements.
9
Liquidity and Capital Resources
- -------------------------------
As of June 30, 2004, the Registrant had cash and cash equivalents of
approximately $184,000 in addition to approximately $938,000 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 $268,000
higher than the cash, cash equivalents and deposits held in escrow on December
31, 2003. After adding approximately $270,000 to deposits held in escrow,
operating activities generated approximately $1076,000 of cash flow during the
six months ended June 30, 2004. During the same period, the Registrant borrowed
an additional $700,000 under the revolving credit facility that is secured by
Halton Place Apartments. Uses of cash during the period included distributions
amounting to approximately $310,140 that were paid to Unitholders of record as
of December 31, 2003, capital additions to existing real estate properties
totaling approximately $250,000 during the period, and principal payments of
approximately $219,000 made on mortgage notes payable.
Total outstanding debt at June 30, 2004 consisted of approximately
$29,355,000 of long-term non-recourse first mortgage notes, and $3,900,000 under
a revolving credit facility, all secured by real estate owned by the Registrant
(see Note 4 to the Consolidated Financial Statements). The maturity date of the
credit facility was extended to September 1, 2005. Scheduled maturities through
regularly scheduled monthly payments will be approximately $226,000 for the
remainder of 2004. 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 2004, the Registrant made a distribution of $40 per unit to
Unitholders of record as of December 31, 2003. 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.
10
Holiday Park Apartments (Holiday, Florida)
- -----------------------
Total revenues for the three months ended June 30, 2004 increased $20,000
to $369,000 from $349,000 for the three months ended June 30, 2003. Net income,
which includes deductions for depreciation and mortgage interest expense, for
the three months ended June 30, 2004 decreased $3,000 to $35,000 from $38,000
for the three months ended June 30, 2003. Higher revenues were due to an
increase in average occupancy of approximately 0.2%, to 96.1% from 95.9% for the
three months ended June 30, 2003, which added approximately $8,000 to revenues.
Higher rental rates on new and renewing leases added approximately $19,000 to
revenues. These increases in revenues were partially offset by increased rental
concessions, which lowered revenues approximately $2,000. Such decrease in net
income was the result of higher revenue, offset by a $23,000 increase in
expenses, as the result of higher contract security costs, $12,000, repairs and
maintenance $2,000 and turnover costs $3,000.
Total revenues for the six months ended June 30, 2004 increased $23,000 to
$728,000 from $705,000 for the six months ended June 30, 2003. Net income, which
includes deductions for depreciation and mortgage interest expense, for the six
months ended June 30, 2004 decreased $17,000 to $78,000 from $95,000 for the six
months ended June 30, 2003. Increased revenue is primarily attributable to an
increase in rental rates implemented at the property on new and renewing leases
which increased revenues approximately $37,000. This increase in revenue was
partially offset by increased rental concessions, which lowered revenues
approximately $5,000, and a decrease in occupancy of 2.4% to 93.7% which
decreased revenues $12,000. The decrease in net income was the result of
increased expenses of $40,000, offset by the aforementioned $23,000 increase in
income. Contract security increased $22,000 when compared to the same period in
2003. In addition, turnover and replacement costs increased $6,000 and $5,000
respectively when compared to the same six month period for 2003. Utilities
expense also increased $5,000 when compared to the six month period ended June
30, 2003.
11
Cypress Key Apartments (Orlando, Florida)
- ----------------------
Total revenues for the three months ended June 30, 2004 increased $33,000
to $711,000 from $678,000 for the three months ended June 30, 2003. Net loss,
which includes deductions for depreciation and mortgage interest expense, for
the three months ended June 30, 2004 decreased $66,000 to $86,000 from $152,000
for the three months ended June 30, 2003. Higher revenues were due to an
increase in average occupancy at the property of 5.0% to 92.0% from 87.0% for
the three months ended June 30, 2003, which increased revenues approximately
$35,000. Additionally, a rise in rental rates on new and renewing leases
increased rental revenue $5,000. These revenue increases were offset by a $7,000
decrease in other fee income. The decrease in net loss was the result of the
previously discussed increase in revenues in addition to a decrease in expenses
of $33,000 as compared to the same period in 2003. Repairs and maintenance costs
decreased $12,000 primarily due to lower maintenance supplies in the current
period and repair costs necessary to retenant units decreased $14,000 as
compared to the same period in 2003.
Total revenues for the six months ended June 30, 2004 increased $30,000 to
$1,420,000 from $1,390,000 for the six months ended June 30, 2003. Net loss,
which includes deductions for depreciation and mortgage interest expense, for
the six months ended June 30, 2004 decreased $42,000 to $224,000 from $266,000
for the six months ended June 30, 2003. Average occupancy increased 2.3%, to
90.0% from 87.7% for the comparable period in 2003, which increased revenues
$29,000. Although rental rates on new and renewing leases were raised, greater
concessions were offered to prospective tenants, resulting in a net decrease in
rental revenues of $2,000. The decrease in net loss was a result of increased
revenues, in addition to a decrease in expenses of $12,000. The decrease in
expenses was primarily due to an $11,000 decrease in repairs and maintenance
expenses.
12
Halton Place Apartments (Greenville, South Carolina)
- -----------------------
Total revenues for the three months ended June 30, 2004 increased $37,000
to $384,000 from $347,000 for the three months ended June 30, 2003. Net income,
which includes deductions for depreciation and interest expense, for the six
months ended June 30, 2004 increased $52,000 to $60,000 from $8,000 for the six
months ended June 30, 2003. The increase in revenues is due primarily to higher
occupancy at the property. Average occupancy for the three months ended June 30,
2004 increased 7.1%, to 89.5% from 82.4% for the three months ended June 30,
2003, which increased revenues $40,000. Such increase was offset by a $6,000
increase in collection loss when compared to the same period for 2003. Higher
revenues and a decrease in expenses of $15,000 resulted in the increase in net
income. Real estate taxes and turnover costs decreased $6,000 and $3,000
respectively when compared to the same period for 2003.
Total revenues for the six months ended June 30, 2004 increased $75,000 to
$769,000 from $694,000 for the six months ended June 30, 2003. Net income, which
includes deductions for depreciation and interest expense, for the six months
ended June 30, 2004 increased $80,000 to $106,000 from $26,000 for the six
months ended June 30, 2003. Average occupancy increased 7.7%, to 89.7% from
82.0% for the comparable period in 2003, which increased rental revenue $75,000.
The increase in net income was the result of higher revenues and a $5,000
decrease in expenses. Repairs and maintenance and turnover expenses decreased
$2,000 and $8,000 respectively. Such decreases were partially offset by a $6,000
increase in general and administrative expenses.
13
Le Coeur du Monde Apartments (St. Louis, Missouri)
- ----------------------------
Total revenues for the three months ended June 30, 2004 decreased $7,000
to $410,000 from $417,000 for the three months ended June 30, 2003. Net loss,
which includes deductions for depreciation and mortgage interest expense, for
the three months ended
June 30, 2004 increased $15,000 to $95,000 from $80,000 for the three months
ended June 30, 2003. Average occupancy increased 8.2%, to 94.0% from 85.8% for
the same period in 2003, which increased revenues $36,000. This increase was
offset by an increase in rental concessions, which lowered revenues $31,000, and
a $15,000 decrease in prepaid rents. The increase in net loss was a result of
lower revenues and an $8,000 increase in expenses. Contract service expenses
increased $8,000 due to additional lawn and grounds maintenance costs.
Total revenues for the six months ended June 30, 2004 decreased $17,000 to
$822,000 from $839,000 for the six months ended June 30, 2003. Net loss, for the
six months ended June 30, 2004 which included deductions for depreciation and
mortgage interest
expense, increased $50,000 to $191,000 from $141,000 for the six months ended
June 30, 2003. The average occupancy rate increased 4.1%, to 90.2% in the
current year from 86.1% for the same period in the prior year, which increased
revenues $35,000. Tenant concessions increased due to competitive submarket
conditions, which in turn reduced revenues $43,000, and other income decreased
in the amount of $8,000 when compared to the same period for 2003. The increase
in net loss was a result of lower revenues and a $33,000 increase in expenses.
Payroll and related costs increased $15,000 in addition to turnover costs which
increased $14,000 over the same period from 2003.
14
Eagle Lake Business Center IV (Maple Grove, Minnesota)
- -----------------------------
Total revenues for the three months ended June 30, 2004 increased $7,000
to $213,000 from $206,000 for the three months ended June 30, 2003. Net income,
which includes deductions for depreciation, for the six months ended June 30,
2004 increased $18,000 to $121,000 from $103,000 for the six months ended June
30, 2003. The increase in net income was the result of increased revenues and an
$11,000 decrease in expenses. The decrease in expenses was primarily the result
of a $5,000 decrease in real estate taxes.
Total revenues for the six months ended June 30, 2004 increased $1,000 to
$433,000 from $432,000 for the six months ended June 30, 2003. Net income, which
includes deductions for depreciation, for the six months ended June 30, 2004
increased $21,000 to $240,000 from $219,000 for the six months ended June 30,
2003. The increase in net income was the result of increased revenues and a
$20,000 decrease in expenses. The decrease in expenses was mainly derived from a
reduction in real estate taxes for $5,000, snow removal for $6,000 and
professional fee expenses for $4,000.
Investment in Joint Venture (West Chester, Pennsylvania)
- ---------------------------
Equity in net loss of joint venture for the three months ended June 30,
2004 decreased $10,000 to $34,000 from $44,000 for the three months ended June
30, 2003. The Registrant's portion of revenue for the three months ended June
30, 2004 increased $54,000 primarily due to an 8% increase in corporate suite
revenue, offset by a $44,000 increase in the Registrant's expenses associated
with the increased corporate suites revenue.
Equity in net loss of joint venture for the six months ended June 30, 2004
decreased $20,000 to $145,000 from $165,000 for the six months ended June 30,
2003. The Registrant's portion of income increased approximately $107,000 while
its' share of expenses increased $87,000.
15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
AS OF AND FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004
----------------------------------------------------------
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 and
six months ended June 30, 2004, a 1% change in LIBOR would impact the
Registrant's three and six month net loss and cash flows by approximately $9,858
and $18,533, respectively.
ITEM 4. CONTROLS AND PROCEDURES
-----------------------
(a) The President and the Principal Accounting & 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 June 30, 2004 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 June 30, 2004 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
--------------------------------
Exhibit 31 - Incorporated herein.
Exhibit 32 - Incorporated herein.
16
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.
SB PARTNERS
------------------------------------------
(Registrant)
By: SB PARTNERS REAL ESTATE CORPORATION
------------------------------------------
General Partner
Dated: August 16, 2004 By: /s/ Millie C. Cassidy
------------------------------------------
Millie C. Cassidy
President
Dated: August 16, 2004 By: /s/ George N. Tietjen III
------------------------------------------
George N. Tietjen III
Managing Director
(Principal Accounting & Financial Officer)
17
Exhibit 31
- ----------
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT 0F 2002
I, Millie C. Cassidy, 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 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-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the Registrant and have:
(a) designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, 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) designed such internal control over financial
reporting, or caused such internal control over
financial reporting to be designed under our
supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the
preparation of financial statements for external
purposes in accordance with generally accepted
accounting principles;
(c) evaluated the effectiveness of the Registrant's
disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end
of the period covered by this report based on such
evaluation; and
(d) disclosed in this quarterly report any change in the
Registrant's internal control over financial reporting
that occurred during the Registrant's most recent
fiscal quarter (the Registrant's fourth fiscal quarter
in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect,
the Registrant's internal control over financial
reporting; and
(5) The Registrant's other certifying officer and I have
disclosed, based on our most recent evaluation over internal
control over financial reporting, to the Registrant's auditors
and the audit committee of the Registrant's board of directors
(or persons performing the equivalent function):
(a) all significant deficiencies and material weaknesses in
the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the Registrant's ability to record,
process, summarize and report financial information;
and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the Registrant's internal control over
financial reporting.
Date: August 16, 2004 /s/ Millie C. Cassidy
------------------------------------------
Millie C. Cassidy
President
18
George N. Tietjen III, 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 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-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the Registrant and have:
(a) designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, 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) designed such internal control over financial
reporting, or caused such internal control over
financial reporting to be designed under our
supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the
preparation of financial statements for external
purposes in accordance with generally accepted
accounting principles;
(c) evaluated the effectiveness of the Registrant's
disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end
of the period covered by this report based on such
evaluation; and
(d) disclosed in this quarterly report any change in the
Registrant's internal control over financial reporting
that occurred during the Registrant's most recent
fiscal quarter (the Registrant's fourth fiscal quarter
in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect,
the Registrant's internal control over financial
reporting;
(5) The Registrant's other certifying officer and I have
disclosed, based on our most recent evaluation over internal
control over financial reporting, to the Registrant's auditors
and the audit committee of the Registrant's board of directors
(or persons performing the equivalent function):
(a) all significant deficiencies and material weaknesses in
the design or operation of internal control which are
reasonably likely to adversely affect the Registrant's
ability to record, process, summarize and report
financial information; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the Registrant's internal control over
financial reporting.
Date: August 16, 2004 /s/ George N. Tietjen III
------------------------------------------
George N. Tietjen III, Managing Director
Principal Accounting & Financial Officer
19
Exhibit 32
- ----------
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of SB Partners (the "Partnership") on
Form 10-Q for the period ended June 30, 2004 as filed with the Securities and
Exchange Commission on the date hereof we hereby certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to my knowledge:
(1) The report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and (2) The information contained in the
report fairly presents, in all material respects, the financial condition and
results of operations of the Partnership.
Date: August 16, 2004 /s/ Millie C. Cassidy
------------------------------------------
Millie C. Cassidy
President
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of SB Partners (the "Partnership") on
Form 10-Q for the period ended June 30, 2004 as filed with the Securities and
Exchange Commission on the date hereof we hereby certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to my knowledge:
(3) The report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and (4) The information contained in the
report fairly presents, in all material respects, the financial condition and
results of operations of the Partnership.
Date: August 16, 2004 /s/ George N. Tietjen III
------------------------------------------
George N. Tietjen III, Managing Director
Principal Accounting & Financial Officer