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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 March 31, 2005
-------------------------------------
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
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(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
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SB PARTNERS
INDEX
Part I Financial Information (Unaudited)
Consolidated Balance Sheets as of
March 31, 2005 and December 31, 2004..............................1
Consolidated Statements of Operations
for the three months ended March 31, 2005 and 2004................2
Consolidated Statement of Changes in Partners' Capital
for the three months ended March 31, 2005.........................3
Consolidated Statements of Cash Flows
for the three months ended March 31, 2005 and 2004................4
Notes to Consolidated Financial Statements........................5 - 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations................8 - 11
Quantitative and Qualitative Disclosures about Market Risk...........12
Controls and Procedures..............................................12
Part II
Other Information....................................................12
Signatures...........................................................13
Exhibit 31......................................................14 - 15
Exhibit 32...........................................................16
1
ITEM 1. FINANCIAL STATEMENTS
SB PARTNERS
(A New York Limited Partnership)
------------------------------
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, 2005 and December 31, 2004
-----------------------------------------------------
March 31, December 31,
2005 2004
----------- -----------
Assets:
Investments -
Real estate, at cost
Land $ 3,520,843 $ 3,520,842
Buildings, furnishings and improvements 35,433,901 35,313,196
Less - accumulated depreciation (6,963,675) (6,719,624)
----------- -----------
31,991,069 32,114,414
Real estate held for sale 0 20,221,129
Investment in joint venture 2,792,575 2,813,589
----------- -----------
34,783,644 55,149,132
Other assets -
Cash and cash equivalents 4,992,470 126,361
Cash held by lenders in escrow 377,668 299,199
Other 200,702 264,435
Other assets in discontinued operations 380,556 471,098
----------- -----------
Total assets $40,735,040 $56,310,225
=========== ===========
Liabilities:
Mortgage notes payable $13,176,282 $17,124,089
Accounts payable and accrued expenses 887,270 765,973
Tenant security deposits 161,451 172,807
Deferred revenue 21,500 23,000
Other liabilities in discontinued operations, including
$0 and $15,904,543 of mortgage notes payable, respectively 15,711 15,957,511
----------- -----------
Total liabilities 14,262,214 34,043,380
----------- ------------
Partners' Capital:
Units of partnership interest without par value;
Limited partners - 7,753 units 26,487,846 22,282,408
General partner - 1 unit (15,020) (15,563)
----------- -----------
Total partners' capital 26,472,826 22,266,845
----------- -----------
Total liabilities and partners' capital $40,735,040 $56,310,225
=========== ===========
See notes to consolidated financial statements.
2
SB PARTNERS
(A New York Limited Partnership)
------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
-------------------------------------------------
For The Three Months
Ended March 31,
---------------------------
2005 2004
----------- -----------
Revenues:
Base rental income $ 1,290,518 $ 1,227,646
Other rental income 144,042 150,329
Interest on short-term investments 0 2,235
----------- -----------
Total revenues 1,434,560 1,380,210
----------- -----------
Expenses:
Real estate operating expenses 662,829 652,208
Interest on mortgage notes payable 293,163 278,706
Depreciation and amortization 253,079 250,720
Real estate taxes 155,282 159,244
Management fees 170,630 176,728
Other 11,882 15,655
----------- -----------
Total expenses 1,546,865 1,533,261
----------- -----------
Operations (112,305) (153,051)
Equity in net loss of joint venture (171,014) (111,042)
----------- -----------
Loss from continuing operations (283,319) (264,093)
Loss from discontinued operations (1,551,331) (138,059)
Net gain on sale of investment in real estate property 6,350,771 0
----------- -----------
Net income (loss) 4,516,121 (402,152)
Income (loss) allocated to general partner 583 (52)
----------- -----------
Income (loss) allocated to limited partners $ 4,515,538 $ (402,100)
=========== ===========
Earnings Per Unit of Limited Partnership Interest
(Basic and Diluted):
Continuing operations $ (36.54) $ (34.06)
=========== ===========
Discontinued operations $ (200.08) $ (17.80)
=========== ===========
Net income (loss) $ 582.46 $ (51.86)
=========== ===========
Weighted Average Number of Units of Limited
Partnership Interest Outstanding 7,753 7,753
=========== ===========
See notes to consolidated financial statements.
3
SB PARTNERS
(A New York Limited Partnership)
------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN
PARTNERS' CAPITAL For the three months ended
March 31, 2005 (Unaudited)
--------------------------------------------------------
Limited Partners:
Units of
Partnership
Interest Cumulative Accumulated
----------- Cash Earnings
Number Amount Distributions (Losses) Total
------ ------------ ------------- ----------- -----------
Balance, January 1, 2005 7,753 $119,968,973 $(105,131,961) $ 7,445,396 $22,282,408
Cash distributions 0 0 (310,100) 0 (310,100)
Net income 0 0 0 4,515,538 4,515,538
------ ------------ ------------- ----------- -----------
Balance, March 31, 2005 7,753 $119,968,973 $(105,442,061) $11,960,934 $26,487,846
====== ============ ============= =========== ===========
General Partner:
Units of
Partnership
Interest Cumulative Accumulated
----------- Cash Earnings
Number Amount Distributions (Losses) Total
------ ------------ ------------- ----------- -----------
Balance, January 1, 2005 1 $10,000 $(25,514) $ (49) $(15,563)
Cash distributions 0 0 (40) 0 (40)
Net income 0 0 0 583 583
------ ------------ ------------- ----------- -----------
Balance, March 31, 2005 1 $10,000 $(25,554) $ 534 $(15,020)
====== ============ ============= =========== ===========
See notes to consolidated financial
statements.
4
SB PARTNERS
(A New York Limited Partnership)
------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
------------------------------------------------
For the Three Months Ended
March 31,
---------------------------
2005 2004
----------- -----------
Cash Flows From Operating Activities:
Net income (loss) $ 4,516,121 $ (402,152)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Gain on sale of investment in real estate property (6,350,771) 0
Equity in net loss of joint venture 171,014 111,042
Depreciation and amortization 386,840 407,259
Net increase in operating assets (66,982) (79,865)
Net increase (decrease) in operating liabilities 71,184 (145,353)
----------- -----------
Net cash used in operating activities (1,272,594) (109,069)
----------- -----------
Cash Flows From Investing Activities:
Net proceeds from sale of investment in real estate property 26,581,743 0
Capital additions to real estate owned (130,550) (107,579)
Investment in joint venture (150,000) 0
----------- -----------
Net cash provided by (used in) investing activities 26,301,193 (107,579)
----------- -----------
Cash Flows From Financing Activities:
Additional borrowings under revolving credit facility 200,000 700,000
Payments of principal on mortgage notes payable (93,300) (108,425)
Distributions paid to partners (310,140) (310,140)
Repayments of borrowings under revolving credit facility (4,100,000) 0
Repayment of borrowings under mortgage note payable (15,859,050) 0
----------- -----------
Net cash (used in) provided by financing activities (20,162,490) 281,435
----------- -----------
Net increase in cash and cash equivalents 4,866,109 64,787
Cash and cash equivalents at beginning of period 126,361 186,390
----------- -----------
Cash and cash equivalents at end of period $ 4,992,470 $ 251,177
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 2,031,443 $ 545,316
=========== ===========
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 March 31, 2005 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 their
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 March 31, 2005, the Partnership owned apartment communities in
St. Louis, Missouri; Greenville, South Carolina; and Holiday, Florida;
as well as an industrial flex property in Maple Grove, Minnesota and
13.9 acres of land in Holiday, Florida. The following is the cost basis
and accumulated depreciation of the real estate investments owned by
the Partnership at March 31, 2005 and December 31, 2004:
Real Estate at Cost
No.of Year of --------------------------
Type Prop. Acquisition Description 3/31/05 12/31/04
- ---- ----- ----------- ------------- ----------- -----------
Residential properties 3 1991-99 682 Apts. $34,118,896 $34,025,199
Industrial flex property 1 2002 60,345 sf 4,791,461 4,764,452
Undeveloped land 1 1978 13.9 Acres 44,387 44,387
----------- -----------
Total cost 38,954,744 38,834,038
Less: accumulated depreciation (6,963,675) (6,719,624)
----------- -----------
31,991,069 32,114,414
Real estate held for sale 0 20,221,129
----------- -----------
Net book value $31,991,069 $52,335,543
=========== ===========
(3) REAL ESTATE TRANSACTION
On March 28, 2005, the Partnership sold Cypress Key Apartments, a
360-unit apartment community located in Orlando, Florida, for
$27,000,000 in an all cash transaction. The carrying value of the
property at the time of sale was $20,230,974 which resulted in a net
gain for financial reporting purposes of $6,350,771 after
the closing costs of $418,255. The historical cost of the property at
the time of sale was $23,843,606. The mortgage note secured by Cypress
Key Apartments was paid in full and retired concurrently.
7
(4) MORTGAGE NOTES PAYABLE
Mortgage notes payable consist of the following non-recourse first
liens:
Net Carrying Amount
Annual March 31, December 31,
Interest Maturity Installment Amount Due ----------- -----------
Property Rate Date Payments(a) at Maturity 2005 2004
- ----------------------------------------------------------------------------------------------------------
Halton Place(b) N/A 09/05 Interest Only $ 0 $ 0 $ 3,900,000
Holiday Park 6.895% 02/08 300,169 3,277,785 3,452,763 3,468,112
Le Coeur du Monde 7.805% 10/09 890,447 9,075,763 9,723,519 9,755,977
----------- -----------
13,176,282 17,124,089
Other liabilities in discontinued operations:
Cypress Key (c) 6.605% 01/09 1,322,707 14,772,418 0 15,904,543
----------- -----------
$13,176,282 $33,028,632
=========== ===========
(a) Annual installment payments include principal and interest.
(b) On March 1, 2001, the Partnership entered into a revolving credit
facility agreement with a bank in the amount of $7,500,000, which is
secured by Halton Place Apartments. The credit facility was for a term of
two years, which was extended to September 1, 2005. Borrowings bear
interest at 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. On March 31, 2005, the Partnership repaid $4,100,000,
reducing the outstanding balance to zero.
(c) The property incurred a prepayment penalty of approximately $1,476,000
related to the early retirement of the mortgage note payable in
connection with the sale of the property on March 28, 2005 (See Note 3).
The prepayment penalty is included in loss from discontinued operations.
(5) DISTRIBUTIONS
On March 1, 2005, the Partnership made a cash distribution of $40 per
unit, totaling $310,140, to Unitholders of record as of December 31,
2004.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
-------------------------------------------------------------------------------
General
- -------
The consolidated financial statements for the three months ended March 31,
2005 and 2004, reflect the operations of three residential garden apartment
properties, a joint venture interest and an industrial flex property.
Results of Operations -
Total revenues from continuing operations for the three months ended March
31, 2005 increased $55,000 to approximately $1,435,000 from approximately
$1,380,000 for the three months ended March 31, 2004. Net loss from continuing
operations for the three months ended March 31, 2005 decreased approximately
$41,000 to a net loss of approximately $112,000 from a net loss of approximately
$153,000 for the three months ended March 31, 2004. In addition, equity in net
loss from joint venture increased by $60,000 to $171,000 for the three months
ended March 31, 2005 from $111,000 for the same period ended March 31, 2004.
Income from discontinued operations after gain on sale of investment in real
estate for the three months ended March 31, 2005 increased approximately
$4,937,000 to income of approximately $4,799,000 from a loss of approximately
$138,000 for the three months ended March 31, 2004. The changes in income are
the result of the gain on sale of Cypress Key Apartments net of the approximate
$1,434,000 yield maintenance charge upon retirement of the mortgage secured by
Cypress Key Apartments.
Total expenses from continuing operations for the three months ended March
31, 2005 increased approximately $14,000 to approximately $1,547,000 from
$1,533,000 for the three months ended March 31, 2004.
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 months ended March 31, 2005 and 2004.
On March 28, 2005, the Registrant sold Cypress Key Apartments, a 360-unit
apartment community in Orlando, Florida, for $27,000,000 in an all cash
transaction, and retired the mortgage note payable that had been secured by the
property. As the property was sold three days prior to the end of the quarter,
there was no material effect on the results of operations other than the
aforementioned gain on sale and yield maintenance charge.
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, 2004; there have been no
significant changes to such policies in 2005. 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 March 31, 2005, the Registrant had cash and cash equivalents of
approximately $4,992,000 in addition to approximately $718,000 of deposits held
in escrow by certain lenders for the payment of insurance, real estate taxes and
certain capital and maintenance costs, of which approximately $341,000 is
included in other assets in discontinued operations. These balances are
approximately $5,013,000 higher than the cash, cash equivalents and deposits
held in escrow on December 31, 2004. The higher cash balance is due primarily to
the sale of Cypress Key Apartments which provided approximately $10,723,000 of
cash flow after sale costs and retiring the mortgage note of approximately
$15,859,000 that was secured by the property. After adding approximately
$147,000 to deposits held in escrow, operating activities used approximately
$1,273,000 of cash flow during the three months ended March 31, 2005, of which
approximately $1,429,000 was used by discontinued operations including the yield
maintenance charge on the retirement of the mortgage secured by Cypress Key
Apartments. During the same period, the Registrant repaid $4,100,000 under the
revolving credit facility that is secured by Halton Place Apartments. Other uses
of cash during the period included an additional investment in joint venture
amounting to $150,000, capital additions to real estate properties totaling
approximately $131,000, of which approximately 9,800 were for real estate held
for sale, distributions paid of approximately $310,000 and principal payments of
approximately $93,000 made on mortgage notes payable, of which approximately
$45,000 was applied to other liabilities in discontinued operations.
Total outstanding debt at March 31, 2005 consisted of approximately
$13,176,000 of long-term non-recourse first mortgage notes all secured by real
estate owned by the Registrant (see Note 5 to the Consolidated Financial
Statements). Scheduled maturities through regularly scheduled monthly payments
will be approximately $149,000 for the remainder of 2005. 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.
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.
Holiday Park Apartments (Holiday, Florida)
- -----------------------
Total revenues for the three months ended March 31, 2005 increased $13,000
to $373,000 from $360,000 for the three months ended March 31, 2004. Net income,
which includes deductions for depreciation and mortgage interest expense, for
the three months ended March 31, 2005 decreased $30,000 to $14,000 from $44,000
for the three months ended March 31, 2004. Higher revenue was primarily the
result of increased rates on new and renewing leases which added $31,000, and a
$2,000 decrease in vacancy loss as the result of a 0.2% increase in average
occupancy to 91.6% for the three months ended March 31, 2005 from 91.4% for the
same period in 2004. These increases were offset by a $10,000 increase in tenant
concessions and a $5,000 decrease in other income. The decrease in net income
was the result of the higher revenues, offset by a $43,000 increase in expenses,
including $15,000 in repairs and maintenance, $12,000 of payroll and related
costs, and $12,000 in depreciation.
10
Cypress Key Apartments (Orlando, Florida)
- ----------------------
On March 28, 2005, the Registrant sold Cypress Key Apartments in Orlando,
Florida, for $27,000,000 in an all cash transaction. Proceeds from the sale were
used, in part, to retire the mortgage note of approximately $15,860,000 that had
been secured by the property. The sale of Cypress Key Apartments resulted in a
net gain for financial reporting purposes of approximately $6,351,000. (Please
refer to Form 8-K filed April 21, 2005, in connection with this transaction.)
The gain for tax purposes will be computed using the tax basis of the assets
sold, and will differ from the gain reported on the consolidated financial
statements.
Total revenues for the three months ended March 31, 2005 increased $20,000
to $729,000 from $709,000 for the three months ended March 31, 2005. Loss before
gain on sale, which includes a deduction for mortgage interest expense, for the
three months ended March 31, 2005 increased $1,413,000 to $1,551,000 from
$138,000 for the three months ended March 31, 2004.
Due to the sale of the property by the Registrant, the reporting period
for Cypress Key Apartments ended on March 28, 2005. The shortened reporting
period had no material effect on the operating results as the sale took place
three days before the end of the quarter. Furthermore, as Cypress Key Apartments
was a real estate asset held for sale as of October 19, 2004, no depreciation
was charged to expense in the current period, which decreased depreciation
expense $148,000, from the three month period of the prior year. Due to the
retirement before the maturity date of the mortgage note, interest expense
increased $1,472,000 primarily due to the yield maintenance payment of
approximately $1,476,000, and amortization expense increased $125,000 as the
balance of the costs incurred in connection with the mortgage note were written
off.
Halton Place Apartments (Greenville, South Carolina)
- -----------------------
Total revenues for the three months ended March 31, 2005 decreased $3,000
to $382,000 from $385,000 for the three months ended March 31, 2004. Net income,
which includes deductions for depreciation and interest expense, for the three
months ended March 31, 2005 decreased $10,000 to $36,000 from $46,000 for the
three months ended March 31, 2004. Average occupancy for the three months ended
March 31, 2005 increased 4.5%, to 94.4% from 89.9% for the three months ended
March 31, 2004, which increased revenues by $23,000. This increase was offset by
a $18,000 increase in tenant concessions and a $6,000 decrease in other income.
Lower revenues and an increase in expenses of $7,000, including an increase in
interest expense of $18,000, resulted in the decrease in net income.
Le Coeur du Monde Apartments (St. Louis, Missouri)
- ----------------------------
Total revenues for the three months ended March 31, 2005 increased $47,000
to $459,000 from $412,000 for the three months ended March 31, 2004. Net loss,
which includes deductions for depreciation and mortgage interest expense, for
the three months
ended March 31, 2005 decreased $67,000 to $29,000 from $96,000 for the three
months ended March 31, 2004. The increase in revenues was primarily due to a
$37,000 decrease in vacancy loss resulting from a 7.7% increase in average
occupancy to 94.2% for the three months ended March 31, 2005 from 86.5% for the
same period in 2004, in addition to a $13,000 decrease in tenant concessions.
The decrease in net loss was due to higher revenues and a decrease in expenses
of $20,000, including decreases in depreciation of $7,000 and repairs and
maintenance of $8,000.
11
Eagle Lake Business Center IV (Maple Grove, Minnesota)
- -----------------------------
Total revenues for the three months ended March 31, 2005 decreased $2,000
to $217,000 from $219,000 for the three months ended March 31, 2004. Net income,
which includes deductions for depreciation, for the three months ended March 31,
2005 decreased $1,000 to $118,000 from $119,000 for the three months ended March
31, 2004. The decrease in net income was the result of the decrease in revenues
offset by a $1,000 decrease in expenses.
Investment in Joint Venture (West Chester, Pennsylvania)
- ---------------------------
Equity in net loss of joint venture for the three months ended March 31,
2005 increased $60,000 to $171,000 from $111,000 for the three months ended
March 31, 2004. The Registrant's portion of revenue for the three months ended
March 31, 2005 decreased $91,000, offset by a $31,000 decrease in the
Registrant's share of expenses.
12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 2005
----------------------------------------------------------
On March 1, 2001, the Registrant entered into a revolving credit facility
agreement with a bank under which interest incurred is determined based on
current market rates that fluctuate with LIBOR. As such, the Registrant has
market risk to the extent interest rates fluctuate during the term of the credit
facility and funds are advanced by the bank under the agreement. Based on the
weighted average outstanding balance under the credit facility for the three
months ended March 31, 2005, a 1% change in LIBOR would impact the Registrant's
three months net loss and cash flows by approximately $9,986.
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 March 31, 2005 as filed with the Securities and Exchange
Commission and have judged such controls and procedures to be
effective.
(b) There have been no changes in the Registrant's internal
controls during the quarter ended March 31, 2005 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.
13
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
Chief Executive Officer
Dated: May 16, 2005 By:/s/ David Weiner
-------------------------------------------
David Weiner
Vice Chairman
Principal Financial & Accounting Officer
Dated: May 16, 2005 By:/s/ George N. Tietjen III
-------------------------------------------
George N. Tietjen III
Chief Financial Officer & Treasurer
14
Exhibit 31
- ----------
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT 0F 2002
I, David Weiner, 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)) 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) 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
(c) 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.
Chief Executive Officer
Date: May 16, 2005 /s/ David Weiner
-------------------------------------------
David Weiner
Vice Chairman
15
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)) 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) 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
(c) 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.
Principal Financial & Accounting Officer
Date: May 16, 2005 /s/ George N. Tietjen III
-------------------------------------------
George N. Tietjen III
Chief Financial Officer & Treasuer
16
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 March 31, 2005 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.
Chief Executive Officer
Date: May 16, 2005 /s/ David Weiner
-------------------------------------------
David Weiner
Vice Chairman
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 March 31, 2005 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.
Principal Financial & Accounting Officer
Date: May 16, 2005 /s/ George N. Tietjen III
-------------------------------------------
George N. Tietjen III
Chief Financial Officer & Treasurer