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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 September 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
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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
- --------------------------------------------------------------------------------
(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
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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
--------------
SB PARTNERS
INDEX
Part I Financial Information (Unaudited)
Consolidated Balance Sheets as of
September 30, 2004 and December 31, 2003.........................1
Consolidated Statements of Operations
for the three and nine months ended September 30, 2004 and 2003..2
Consolidated Statements of Changes in Partners' Capital
for the nine months ended September 30, 2004.....................3
Consolidated Statements of Cash Flows
for the nine months ended September 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 - 12
Quantitative and Qualitative Disclosures about Market Risk..........13
Controls and Procedures.............................................13
Part II
Other Information...................................................13
Signatures..........................................................14
Exhibit 31.....................................................15 - 16
Exhibit 32..........................................................17
1
ITEM 1. FINANCIAL STATEMENTS
SB PARTNERS
(A New York Limited Partnership)
------------------------------
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, 2004 and December 31, 2003
-----------------------------------------------------
September 30, December 31,
2004 2003
----------- -----------
Assets:
Investments -
Real estate, at cost
Land $ 5,780,842 $ 5,780,842
Buildings, furnishings and improvements 56,596,345 56,233,849
Less - accumulated depreciation (9,945,283) (8,777,534)
----------- -----------
52,431,904 53,237,157
Investment in joint venture 2,925,015 3,100,596
----------- -----------
55,356,919 56,337,753
Other assets -
Cash and cash equivalents 159,843 186,390
Cash held by lenders in escrow 1,037,074 667,561
Other 503,360 619,006
----------- -----------
Total assets $57,057,196 $57,810,710
=========== ===========
Liabilities:
Mortgage notes payable $33,142,863 $32,773,875
Accounts payable and accrued expenses 970,807 857,312
Tenant security deposits 232,282 272,302
Deferred revenue 25,000 -
----------- -----------
Total liabilities 34,370,952 33,903,489
----------- -----------
Partners' Capital:
Units of partnership interest without par value;
Limited partners - 7,753 units 22,701,753 23,922,573
General partner - 1 unit (15,509) (15,352)
----------- -----------
Total partners' capital 22,686,244 23,907,221
----------- -----------
Total liabilities and partners' capital $57,057,196 $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 Nine Months
Ended September 30, Ended September 30,
--------------------- ---------------------
2004 2003 2004 2003
---------- ---------- ---------- -----------
Revenues:
Base rental income $1,946,098 $ 1,886,173 $5,770,030 $ 5,595,543
Other rental income 183,731 193,568 534,024 547,430
Interest on short-term investments 1,267 617 4,510 6,661
---------- ----------- ---------- -----------
Total revenues 2,131,096 2,080,358 6,308,564 6,149,634
---------- ----------- ---------- -----------
Expenses:
Real estate operating expenses 945,159 1,003,492 2,863,722 2,834,832
Interest on mortgage notes payable 548,747 545,646 1,642,011 1,636,014
Depreciation and amortization 400,431 418,325 1,208,120 1,256,378
Real estate taxes 234,080 253,035 713,526 761,472
Management fees 179,798 178,049 534,450 531,714
Other 14,447 12,408 51,991 43,867
---------- ----------- ---------- -----------
Total expenses 2,322,662 2,410,955 7,013,820 7,064,277
---------- ----------- ---------- -----------
Loss from operations (191,566) (330,597) (705,256) (914,643)
Equity in net loss of joint venture (60,305) (10,370) (205,581) (175,127)
---------- ----------- ---------- -----------
Net loss (251,871) (340,967) (910,837) (1,089,770)
Loss allocated to general partner (32) (44) (117) (141)
---------- ----------- ----------- -----------
Loss allocated to limited partners $ (251,839) $ (340,923) $(910,720) $(1,089,629)
========== =========== =========== ===========
Net loss
Per Unit of Limited Partnership Interest
(Basic and Diluted) $ (32.48) $ (43.98) $ (117.47) $ (140.55)
========== =========== ========== ===========
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 nine months ended
September 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) 0 (310,100)
Net loss for the period 0 0 0 (910,720) (910,720)
------ ------------ ------------- ----------- -----------
Balance, September 30, 2004 7,753 $119,968,973 $(105,131,961) $ 7,864,741 $22,701,753
====== ============ ============= =========== ===========
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 (117) (117)
------ ------------ ------------- ----------- -----------
Balance, September 30, 2004 1 $10,000 $(25,514) $ 5 $(15,509)
====== ============ ============= =========== ===========
See notes to consolidated financial statements.
4
SB PARTNERS
(A New York Limited Partnership)
------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
------------------------------------------------
For the Nine Months Ended
September 30,
-------------------------
2004 2003
----------- -----------
Cash Flows From Operating Activities:
Net loss $ (910,837) $(1,089,770)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Equity in net loss of joint venture 205,581 175,127
Depreciation and amortization 1,208,120 1,256,378
Net increase in operating assets (294,238) (484,408)
Net increase in operating liabilities 98,475 349,722
----------- -----------
Net cash provided by operating activities 307,101 207,049
----------- -----------
Cash Flows From Investing Activities:
Capital additions to real estate owned (362,496) (385,744)
Investment in joint venture (30,000) (4,407)
----------- ------------
Net cash used in investing activities (392,496) (390,151)
----------- -----------
Cash Flows From Financing Activities:
Borrowings under revolving credit facility 700,000 2,750,000
Principal payments on mortgage notes payable (331,012) (308,773)
Distributions paid to partners (310,140) (3,876,750)
----------- ------------
Net cash provided by(used in)financing activities 58,848 (1,435,523)
----------- -----------
Net decrease in cash and cash equivalents (26,547) (1,618,625)
Cash and cash equivalents at beginning of period 186,390 1,693,069
----------- -----------
Cash and cash equivalents at end of period $ 159,843 $ 74,444
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 1,642,011 $ 1,630,385
=========== ===========
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 interim periods 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, 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 September 30, 2004 is estimated to be fully realizable.
(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.
6
(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
with the current year presentation.
(2) INVESTMENTS IN REAL ESTATE
As of September 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 September 30, 2004 and
December 31, 2003:
Real Estate at Cost
No.of Year of ---------------------------
Type Prop. Acquisition Description 9/30/04 12/31/03
- ---- ----- ----------- ------------- ----------- -----------
Residential properties 4 1991-99 1,042 Apts. $57,568,393 $57,208,641
Industrial flex property 1 2002 60,345 sf 4,764,407 4,761,663
Undeveloped land 1 1978 13.9 Acres 44,387 44,387
----------- -----------
Total cost 62,377,187 62,014,691
Less: accumulated depreciation (9,945,283) (8,777,534)
----------- -----------
Net book value $52,431,904 $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.
7
(4) MORTGAGE NOTES PAYABLE
Mortgage notes payable consist of the following non-recourse first liens:
Net Carrying Amount
Annual September 30, December 31,
Interest Maturity Installment Amount Due ----------- -----------
Property Rate Date Payments(a) at Maturity 2004 2003
- --------------------------------------------------------------------------------------
Halton Place(b) 3.6417% 09/05 Interest Only $ 3,900,000 $ 3,900,000 $ 3,200,000
Holiday Park 6.895% 02/08 300,169 3,277,785 3,483,199 3,526,935
Cypress Key 6.605% 01/09 1,322,707 14,772,418 15,971,853 16,167,261
Le Coeur du Monde 7.805% 10/09 890,447 9,075,763 9,787,811 9,879,679
----------- -----------
$33,142,863 $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 September 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 SEPTEMBER 30, 2004
AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
- --------------------------------------------------------------------------------
General
- -------
The consolidated financial statements for the three and nine months ended
September 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 September 30, 2004 increased
$51,000 to approximately $2,131,000 from approximately $2,080,000 for the three
months ended September 30, 2003. Net loss decreased $89,000, to a net loss of
approximately $252,000 for the three months ended September 30, 2004, from net
loss of approximately $341,000 for the three months ended September 30, 2003.
Total expenses for the three months ended September 30, 2004 decreased
approximately $88,000 from the three months ended September 30, 2003. Such
decrease was primarily the result of a $45,000 decrease in repairs and
maintenance, a $16,000 decrease in depreciation expense and a $19,000 decrease
in real estate taxes. In addition, equity in net loss from joint venture
increased by $50,000 to $60,000 for the three months ended September 30, 2004
from $10,000 for the same period ended September 30, 2003.
Total revenues for the nine months ended September 30, 2004 increased
$159,000 to approximately $6,309,000 from approximately $6,150,000 for the nine
months ended September 30, 2003. Net loss decreased approximately $179,000, to a
net loss of approximately $911,000 for the nine months ended September 30, 2004,
from net loss of approximately $1,090,000 for the nine months ended September
30, 2003. Total expenses decreased $50,000 for the nine months ended September
30, 2004 when compared with the same period for 2003. The decrease was due to
$48,000 and $35,000 decreases in real estate tax and depreciation, offset by a
$27,000 increase in payroll and related costs. In addition, equity in net loss
from joint venture increased by $31,000 to $206,000 for the nine months ended
September 30, 2004 from $175,000 for the same period ended September 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 nine months ended September 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 Registrant's critical accounting policies are described in its Annual Report
on Form 10-K for the year ended December 31, 2003; there have been 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 Registrant believes will have a material impact on its consolidated
financial statements.
9
Liquidity and Capital Resources
- -------------------------------
As of September 30, 2004, the Registrant had cash and cash equivalents of
approximately $160,000 in addition to approximately $1,037,000 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 $343,000
higher than the cash, cash equivalents and deposits held in escrow on December
31, 2003. After adding approximately $370,000 to deposits held in escrow,
operating activities generated approximately $307,000 of cash flow during the
nine months ended September 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 $310,140 that were paid to Unitholders of record as
of December 31, 2003, capital additions to existing real estate properties
totaling approximately $362,000 during the period, and principal payments of
approximately $331,000 made on mortgage notes payable.
Total outstanding debt at September 30, 2004 consisted of approximately
$29,243,000 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 $114,000 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 September 30, 2004 increased
$31,000 to $380,000 from $349,000 for the three months ended September 30, 2003.
Net income, which includes deductions for depreciation and mortgage interest
expense, for the three months ended September 30, 2004 increased $7,000 to
$37,000 from $30,000 for the three months ended September 30, 2003. Average
occupancy at the property declined 0.5% to 94.4% from 94.9% for the same period
in 2003. Higher revenues were primarily due to an increase in rental rates on
new and renewing leases which added $22,000. The increase in net income was the
result of the higher revenues, offset by a $24,000 increase in expenses,
including $16,000 in repairs and maintenance and $6,000 of payroll and related
costs.
Total revenues for the nine months ended September 30, 2004 increased
$54,000 to $1,108,000 from $1,054,000 for the nine months ended September 30,
2003. Net income, which includes deductions for depreciation and mortgage
interest expense, for the nine months ended September 30, 2004 decreased $10,000
to $115,000 from $125,000 for the nine months ended September 30, 2003. Average
occupancy rose 0.1% to 95.8 from 95.7% for the same period in 2003. Increases in
rental rates on new and renewing leases accounted for additional revenues of
approximately $58,000. The decrease in net income was the result of a $64,000
increase in expenses, which was offset by the aforementioned $54,000 increase in
income. Repairs and maintenance increased $58,000 combined with $9,000 increases
in payroll and utilities as compared to the same nine-month period ending
September 30, 2003. These expense increases were offset by a $17,000 decrease in
depreciation.
Cypress Key Apartments (Orlando, Florida)
- ----------------------
Total revenues for the three months ended September 30, 2004 decreased
$15,000 to $704,000 from $719,000 for the three months ended September 30, 2003.
Net loss, which includes deductions for depreciation and mortgage interest
expense, for the three months ended September 30, 2004 decreased $82,000 to
$72,000 from $154,000 for the three months ended September 30, 2003. Lower
revenues were due to a decrease in average occupancy at the property of 3.8% to
89.8% from 93.6% for the three months ended September 30, 2003, which decreased
revenues approximately $33,000, offset by a decrease of $26,000 in tenant
concessions. In addition, utility income dropped $10,000. The decrease in net
loss was the result of a decrease in expenses of $97,000 as compared to the same
period in 2003. Repairs and maintenance costs decreased $84,000 primarily due to
a decrease in replacement costs as compared to the same period in 2003.
Total revenues for the nine months ended September 30, 2004 increased
$14,000 to $2,123,000 from $2,109,000 for the nine months ended September 30,
2003. Net loss, which includes deductions for depreciation and mortgage interest
expense, for the nine months ended September 30, 2004 decreased $124,000 to
$296,000 from $420,000 for the nine months ended September 30, 2003. Average
occupancy rose 0.1% to 89.8 from 89.7% for the same period in 2003. Higher
rental rates on new and renewing leases increased revenue by $15,000. In
addition, a decrease in concessions further enhanced revenue by $15,000. This
was offset by decreases to other income that totaled $17,000. The decrease in
net loss was a result of increased revenues, in addition to a decrease in
expenses of $110,000. The decrease in expenses was primarily due to a $94,000
decrease in repairs and maintenance expenses and $12,000 decrease in interest
expense.
11
Halton Place Apartments (Greenville, South Carolina)
- -----------------------
Total revenues for the three months ended September 30, 2004 increased
$20,000 to $371,000 from $351,000 for the three months ended September 30, 2003.
Net income, which includes deductions for depreciation and interest expense, for
the three months ended September 30, 2004 increased $24,000 to $29,000 from
$5,000 for the three months ended September 30, 2003. Average occupancy for the
three months ended September 30, 2004 increased 9.1%, to 92.0% from 82.9% for
the three months ended September 30, 2003, which increased revenues $41,000. The
occupancy increase was offset by a $23,000 increase in tenant concessions.
Higher revenues and a decrease in expenses of $4,000 resulted in the increase in
net income.
Total revenues for the nine months ended September 30, 2004 increased
$95,000 to $1,140,000 from $1,045,000 for the nine months ended September 30,
2003. Net income, which includes deductions for depreciation and interest
expense, for the nine months ended September 30, 2004 increased $103,000 to
$134,000 from $31,000 for the nine months ended September 30, 2003. Average
occupancy increased 8.2%, to 90.5% from 82.3% for the comparable period in 2003,
which increased revenue $116,000. The occupancy increase was offset by a $32,000
increase in tenant concessions. The increase in net income was the result of
higher revenues and a $9,000 decrease in expenses. Real estate taxes and
amortization decreased $19,000 and $13,000, respectively, offset by a $28,000
increase in interest expense due to additional drawings under the credit
facility.
Le Coeur du Monde Apartments (St. Louis, Missouri)
- ----------------------------
Total revenues for the three months ended September 30, 2004 increased
$33,000 to $456,000 from $423,000 for the three months ended September 30, 2003.
Net loss, which includes deductions for depreciation and mortgage interest
expense, for the three
months ended September 30, 2004 decreased $28,000 to $47,000 from $75,000 for
the three months ended September 30, 2003. The increase in revenue is primarily
due to an increase in average occupancy of 10.7%, to 98.0% from 87.3% for the
same period in 2003. The decrease in net loss was a result of higher revenues,
which was offset by a $6,000 increase in expenses. Repairs and maintenance
increased $19,000, which was offset by a $10,000 decrease in real estate taxes.
Total revenues for the nine months ended September 30, 2004 increased
$15,000 to $1,278,000 from $1,263,000 for the nine months ended September 30,
2003. Net loss, for the nine months ended September 30, 2004, which included
deductions for depreciation and mortgage interest expense, increased $22,000
to $238,000 from $216,000 for the nine months ended September 30, 2003. The
average occupancy rate increased 6.3%, to 92.8% in the current year from 86.5%
for the same period in the prior year, which increased revenues $85,000. This
was offset by increased tenant concessions of $43,000 caused by competitive
submarket conditions. In addition, termination fees decreased $11,000. The
increase in net loss was a result of higher revenues, which was more than
offset by a $37,000 increase in expenses. Payroll and related costs, repairs
and maintenance and advertising and promotion increased $20,000, $37,000 and
$14,000 respectively. This was offset by $19,000, $7,000 and $8,000 decreases
in real estate taxes, interest expense and depreciation.
12
Eagle Lake Business Center IV (Maple Grove, Minnesota)
- -----------------------------
Total revenues for the three months ended September 30, 2004 decreased
$17,000 to $218,000 from $235,000 for the three months ended September 30, 2003.
Net income, which includes deductions for depreciation, for the three months
ended September 30, 2004 decreased $11,000 to $120,000 from $131,000 for the
three months ended September 30, 2003. Reduced real estate tax recoveries
accounted for $11,000 of the decrease in revenue. The decrease in net income was
the result of the previously mentioned decreased revenues and a $5,000 increase
in expenses.
Total revenues for the nine months ended September 30, 2004 decreased
$16,000 to $651,000 from $667,000 for the nine months ended September 30, 2003.
Net income, which includes deductions for depreciation, for the nine months
ended September 30, 2004 increased $10,000 to $360,000 from $350,000 for the
nine months ended September 30, 2003. Reduced expense recoveries accounted for
$10,000 of the decrease in revenue. The increase in net income was the result of
a $26,000 decrease in expenses, offset by the aforementioned decrease in
revenues. The reduction in expenses was mainly attributable to decreases of
$10,000, $5,000 and $7,000 in repairs and maintenance, administrative costs and
real estate taxes, respectively.
Investment in Joint Venture (West Chester, Pennsylvania)
- ---------------------------
Equity in net loss of joint venture for the three months ended September
30, 2004 increased $50,000 to $60,000 from $10,000 for the three months ended
September, 2003. The Registrant's portion of revenue for the three months ended
September 30, 2004 decreased $30,000, in addition to a $20,000 increase in the
Registrant's share of expenses.
Equity in net loss of joint venture for the nine months ended September
30, 2004 increased $31,000 to $206,000 from $175,000 for the nine months ended
September 30, 2003. The Registrant's portion of income increased approximately
$77,000 while its share of expenses increased $108,000.
13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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
nine months ended September 30, 2004, a 1% change in LIBOR would impact the
Registrant's three and nine month net loss and cash flows by approximately
$9,858 and $28,500, 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 September 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 September 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.
14
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: November 15, 2004 By:/s/ Millie C. Cassidy
---------------------
Millie C. Cassidy
President
Dated: November 15, 2004 By:/s/ George N. Tietjen III
----------------------------
George N. Tietjen III
Managing Director
(Principal Accounting & Financial Officer)
15
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: November 15, 2004 /s/ Millie C. Cassidy
---------------------
Millie C. Cassidy
President
16
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: November 15, 2004 /s/ George N. Tietjen III
----------------------
George N. Tietjen III, Managing Director
Principal Accounting & Financial Officer
17
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 September 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: November 15, 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 September 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: November 15, 2004 /s/ George N. Tietjen III
----------------------
George N. Tietjen III, Managing Director
Principal Accounting & Financial Officer