Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission file number 0-8952
----------------- -------
SB Partners
--------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 13-6294787
--------------------------------------------------------------------------
(State of other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
666 Fifth Avenue, N.Y., N.Y. 10103
--------------------------------------------------------------------------
(Address of Principal Executive Offices) Zip Code
(212) 408-2900
--------------------------------------------------------------------------
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
NONE
------------------- -----------------------------------------
------------------- -----------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interests
-------------------------------------------------------------------------
(Title of Class)
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. YES X NO
STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES
OF THE REGISTRANT. (THE AGGREGATE MARKET VALUE SHALL BE COMPUTED BY
REFERENCE TO THE PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE BID AND
ASKED PRICES OF SUCH STOCK, AS OF A SPECIFIED DATE WITHIN 60 DAYS PRIOR TO
THE DATE OF FILING.)
Not Applicable
--------------
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE (APPLICABLE
ONLY TO CORPORATE REGISTRANTS).
Not Applicable
--------------
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K (x).
DOCUMENTS INCORPORATED BY REFERENCE: LIST THE FOLLOWING DOCUMENTS IF
INCORPORATED BY REFERENCE AND THE PART OF THE FORM 10-K INTO WHICH THE
DOCUMENT IS INCORPORATED: (1) ANY ANNUAL REPORT TO SECURITY HOLDERS; (2)
ANY PROXY OR INFORMATION STATEMENT; AND (3) ANY PROSPECTUS FILED PURSUANT
TO RULE 424(b) OR (c) UNDER THE SECURITIES ACT OF 1933. (THE LISTED
DOCUMENTS SHOULD BE CLEARLY DESCRIBED FOR IDENTIFICATION PURPOSES.)
None
----
Page 1 of 39
2
PART I
------
ITEM 1. BUSINESS
--------
Description of SB Partners (the "Registrant")
---------------------------------------------
The Registrant is an existing New York limited partnership, which has been
engaged in acquiring, operating and holding for investment a varying
portfolio of real properties since April, 1971. The Registrant's initial
public offering was in 1971. In 1973, 1978, 1980, 1982 and 1985, the
Registrant sold additional limited partnership interests. As of December
31, 1996, the Registrant owned a shopping center in Plantation, Florida;
office buildings in Cherry Hill, New Jersey; and apartment projects in
Holiday, Florida, and Reno, Nevada. In addition, the Registrant owned an
undivided 10% interest in an apartment project in Orlando, Florida, a 60%
interest in an apartment project in Atlanta, Georgia, and 13.9 acres of
land in Holiday, Florida.
The principal objectives of the Registrant are, first, to obtain capital
appreciation through equity investments in real estate, second, to
generate cash available for distribution, a portion of which may not be
currently taxable, and third, to the extent still permitted under the
Internal Revenue Code of 1986, as amended, to generate tax losses which
may offset the Limited Partners' income from the Registrant and certain
other sources. In recent years, the ability of the Registrant to meet
these objectives has been impacted negatively by factors discussed
elsewhere in this annual report on Form 10-K, among other things.
The Registrant incurred losses before gain or loss on sale of investments
in real estate during each year of its existence, except for calendar
years 1982, 1987, and 1988. The accumulated tax losses and accumulated
financial statement losses before gain on sale of investments in real
estate as of December 31, 1996 were $159,602,698 and $111,016,796,
respectively. The accumulated tax gains and the accumulated financial
statement gains on sale of investments in real estate as of December 31,
1996, were $140,549,918 and $104,377,314 respectively. Aggregate cash
distributions made to partners as of December 31, 1996 were $97,752,882.
Refer to the Registrant's 1996 Annual Audited Financial Statements, which
are contained in this annual report on Form 10-K, Note 7 of Notes to
Financial Statements, for a reconciliation of net income (loss) for
financial reporting purposes to net income (loss) for Federal income tax
reporting purposes for each of the three years in the period ended
December 31, 1996.
3
Recent Developments and Real Estate Investment Factors
------------------------------------------------------
During the last ten years, overbuilding in many markets, significant
changes in federal income tax legislation, stricter government regulations
with respect to lending practices of banking and savings and loan
institutions, and the Resolution Trust Corporation's administration and
disposition of billions of dollars of real estate, had a significant
negative impact on the value and operation of real estate investments.
The trend of corporate downsizing in recent years and businesses
relocating have had negative impacts on some markets in particular. Some
markets and asset classes became unstable and some have now stabilized at
a level where current rental rates less operating, financing and tenanting
costs are insufficient to support debt and equity structures created in
the 1980's and early 1990's. Certain central business district office
buildings are typical of these latter situations. During such periods of
declining values, the use of leverage caused equity values and property
cash flow to decrease more rapidly and more substantially than instances
where leverage was not used. In many instances, the estimated value of
these properties proved to be less than mortgage notes encumbering such
properties. Owners of such leveraged real estate investments, including
the Registrant, may take actions with respect to these nonrecourse
mortgage notes, including renegotiating terms of the loans with the
lender, or turning the properties over to the lender in full satisfaction
of the debt.
Recently, certain markets and real estate asset classes have stabilized or
exhibited improvement from improved tenant demand and reduced building
activity, lower cost and greater availability of debt, lower equity
capital costs, and more potential buyers of real estate including real
estate investment trusts and opportunistic real estate funds, among other
factors. While not all asset classes have shown improvement, apartment
properties are typical of an improving asset class. When real estate
values are stable or improving, the use of leverage, where the cost of
debt is exceeded by the return on capital generated by property
operations, enhances the value of the investment portfolio, yielding a
return to the investor greater than that which would be possible without
the use of such leverage. In such instances, the owners of real estate
investments, including the Registrant, may choose to place mortgage loans
on such properties, to the benefit of the investor.
Due to the tendency of real estate to be relatively non-liquid, the
ability of the Registrant and other owners of real estate to vary their
portfolios in response to changing general and local economic, financial
and investment conditions has been limited in the past and may be limited
in the future. The Registrant has taken what it believes to have been the
best available course of action with respect to its investments in various
properties in different markets, in order to protect and preserve the
interests of the partnership. While this resulted in relinquishing
ownership to certain properties where the value of the mortgage note
encumbering the property exceeded the equity in the underlying property,
the Registrant has also replaced the mortgage notes for certain properties
so as to best preserve the value of the property and the equity interest
of the investors. (Refer also to Item 7. - Management's Discussion and
Analysis of Financial Condition and Results of Operations.)
4
Competition
-----------
The Registrant competes for tenants with many other real estate owners.
The success of the Registrant in attracting tenants for its properties
will depend upon its ability to maintain its properties and their
attractiveness to tenants, neighborhood conditions, and changing
demographic trends, among other things. Furthermore, the inability of
existing tenants to meet their obligations under the terms of their
leases, may in turn adversely affect the performance and financial
condition of the Registrant.
Tax Matters
-----------
In August 1993, Congress passed and President Clinton signed into law the
Omnibus Budget Reconciliation Act of 1993 (the "Act"). The Act includes
several provisions designed to help revive the real estate industry,
including relaxed rules for pension fund investments in real estate,
passive-loss relief for developers, extension of the low-income housing
credit, and an easing of the rules on recognizing cancellation of certain
real estate debt. On the negative side, the Act extended the recovery
period by 7.5 years (from 31.5 to 39) for nonresidential real estate
purchased subsequent to the effective date of the Act.
The Act relaxes the "per se" passive characterization of certain rental
real estate operations. For tax years beginning after 1993, eligible
taxpayers, who materially participate in rental real estate activities,
are able to deduct losses from rental activities against other income.
For all other nonmaterial participating taxpayers, the provisions enacted
as part of the Tax Reform Act of 1986 and the Technical and Miscellaneous
Revenue Act of 1988 (as discussed below) continue to apply. The Act also
provides some relief by allowing taxpayers, other than corporations, to
elect to exclude from income some cancellation of "qualified real property
business indebtedness", effective for certain discharges after December
31, 1992. The amount of the exclusion is limited to the basis of the
taxpayer's business real property or the excess of the principal amount of
the debt over the fair market value of business real property that secures
the debt, whichever is less. The basis of the taxpayer's business real
property must be reduced by the amount of excluded income. The provision
does not apply to foreclosures or "deeds in lieu" with respect to
nonrecourse debt.
5
Tax Reform Act of 1986 and the Technical
and Miscellaneous Revenue Act of 1988
----------------------------------------
On October 22, 1986, the Tax Reform Act of 1986 (the "1986 Act") was
signed into law. The Technical and Miscellaneous Revenue Act of 1988
("TAMRA 88") was enacted on November 10, 1988. Generally the principal
provisions of the 1986 Act and TAMRA 88 impacting the Registrant and its
Limited Partners are:
-Passive activity loss limitations have limited the ability of the
partners to offset their allocated share of taxable passive losses
(essentially losses from rental real estate operations) of the
Registrant against other earned or portfolio income.
-The limitation of losses to amounts that partners have "at risk" was
extended to passive real estate investments. The amount a partner has
"at risk" generally includes their proportionate share of qualified
non-recourse financing, and is also subject to other limitations.
-The 1986 Act limits the deduction of investment interest expense, as
defined, to the amount of net investment income generated for the
year, as defined, with an unlimited carryover for excess expense.
The effect of these and other changes in income tax laws will vary
depending upon each partner's individual tax situation. The Registrant
believes that its characterization of and allocation of passive and
portfolio income and losses from its operations are in compliance with
existing regulations, but it can provide no assurances that the Internal
Revenue Service ("IRS") will not challenge such treatment and allocations
in the event of an audit.
Other Tax Matters
-----------------
The Revenue Act of 1987 retroactively changed the treatment of income and
loss of publicly-traded partnerships ("PTP") to characterize a partner's
share of income as portfolio instead of passive, and limits the current
deductibility of losses.
The term PTP refers to any partnership whose interests are traded on an
established securities market or are readily tradeable on a secondary
market (or the substantial equivalent thereof). The Registrant believes
that it is not a PTP pursuant to such definition and therefore its holders
will not be subject to the Revenue Act of 1987 provisions. However, due
to the complexities of the regulations, no assurance can be provided that
the IRS may not challenge the treatment of income and losses in the event
of an audit.
6
In 1989, the Registrant made an election under IRC Section 754 which
provides for an adjustment of the adjusted tax basis of depreciable
property which may result in additional depreciation deductions to
purchasing partners and those partners who inherit their interests in the
Registrant. These adjustments, however, are subject to the passive loss
rules discussed above and may or may not provide current benefit to a
particular partner. The Registrant will be bound by the Section 754
election for all subsequent years.
General
-------
Efforts required in complying with Federal, state and local environmental
regulations may have and may continue to have an adverse effect on the
Registrant's operations in the future, although such costs have not
historically been significant in amount.
There are approximately 36 full and part-time on site project personnel
employed at the Registrant's properties.
The Registrant's real estate investments are not generally subject to
seasonal fluctuations, although net income (loss) may vary somewhat from
quarter to quarter based upon changes in utility consumption and seasonal
maintenance expenditures at each property.
The Registrant considers itself to be engaged in only one industry
segment, real estate investment, and therefore information regarding
industry segments is not applicable and has not been provided.
ITEM 2.PROPERTIES
----------
The properties owned by the Registrant as of December 31, 1996 are set
forth on the Summary of Properties Schedule on the page immediately
following.
ITEM 3.LEGAL PROCEEDINGS
-----------------
NONE.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF UNITHOLDERS
----------------------------------------------
NONE.
7
SB PARTNERS
Summary of Properties
As of December 31, 1996
Description Percent
----------------------- Acquisition ------------- Mortgage
Property Location Sq. Ft. Units Acres Date Ownership Occupancy Payable
Apartments:
Holiday Park Apts. Holiday, FL 220,000 244 21.5 Jan 1991 100% 91.8% $ 3,556,683
Summerwalk Apts. (1) Orlando, FL 252,000 304 12.8 Mar 1978 10% 100.0% -
Riverbend Apts. (2) Atlanta, GA 557,000 594 49.8 Jan 1989 60% 81.0% -
Meadowwood Apts. Reno, NV 529,000 704 30.0 May 1983 100% 93.2% 21,500,000
--------- ----- -----
1,558,000 1,846 114.1
Office: ========= ===== =====
Cherry Hill Office Center Cherry Hill, NJ 138,000 n/a 3.4 Sep 1993 100% 78.6% 345,695
Retail:
Plantation Center Plantation, FL 238,000 n/a 18.6 July 1981 100% 77.6% 5,350,000
Land:
Unimproved land (3) Holiday, FL n/a n/a 13.9 July 1978 100% n/a -
(1) Registrant owns a 10% interest in property. This interest was sold in January, 1997.
(2) Property contributed to 60% owned joint venture on January 6, 1992. Refer also to the Registrant's 1996
Annual Audited Financial Statements. The property is included in "Investment in Joint Venture" in the 1996
Annual Audited Financial Statements.
(3) Land is adjacent to Holiday Park Apartments.
8 PART II
-------
ITEM 5.MARKET FOR REGISTRANT'S UNITS OF PARTNERSHIP
INTEREST AND RELATED UNITHOLDER MATTERS
--------------------------------------------
The transfer of Units or Participations (equivalent to one-half Unit) is
subject to certain limitations, including the consent of the General
Partner. There is no public market for the Units and it is not
anticipated that any such public market will develop.
The number of Unitholders as of December 31, 1996 was 3,908.
Although at various times the Registrant has generated and distributed
cash to the Unitholders, there is no requirement to make such
distributions nor can there be any assurance that future operations will
generate cash available for distribution. The Registrant has not paid
distributions since 1990 and has no current plans to recommence paying
distributions.
ITEM 6.SELECTED FINANCIAL DATA
-----------------------
Selected Financial Data is set forth on the table on the following page.
This information should be read in conjunction with the Financial
Statements and Notes thereto, and Management's Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere in this
annual report on Form 10-K.
9
SELECTED FINANCIAL DATA
The following table sets forth selected financial data regarding the Registrant's
financial condition and results of operations determined in accordance with
generally accepted accounting principles. This data should be read in conjunction
with the Audited Financial Statements and Notes thereto included elsewhere in this
annual report on Form 10-K.
For the Years Ended December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In Thousands, Except Per Unit Data)
Income Statement Data:
Rental, Interest and Other Revenues $15,430 $ 23,324 $ 25,544 $ 27,019 $ 30,221
Operating Expenses, including
Depreciation and Amortization (23,495) (31,356) (35,648) (35,424) (35,659)
Provision for loan losses, net of recoveries 0 0 0 (129) (1,834)
Writedown and Reserves of Investments in Real Estate 0 0 (4,162) 0 (1,295)
Interest Expense on Unsecured and Secured Loans 0 0 0 0 (53)
------- -------- --------- --------- ---------
Loss from Operations (8,065) (8,032) (14,266) (8,534) (8,620)
Gain (Loss) on Sale of Investments in Real Estate 0 3,964 6,859 (72) 125
Equity in Net Income (Loss) of Joint Venture 426 725 (352) (372) (922)
------- -------- --------- --------- ---------
Net Loss before Extraordinary Gain (7,639) (3,343) (7,759) (8,978) (9,417)
Gain on Dispositions of Investments in Real Estate
through Discharge of Indebtedness 11,951 0 0 0 0
------- -------- --------- --------- ---------
Net Income (Loss) $ 4,312 ($ 3,343) ($ 7,759) ($ 8,978) ($ 9,417)
======= ======== ========= ========= =========
Net Income (Loss) per Unit of Partnership Interest:
Net Loss before Extraordinary Gain ($ 985) ($ 431) ($ 1,001) ($ 1,158) ($ 1,215)
Extraordinary Gain $ 1,541 $ 0 $ 0 $ 0 $ 0
Net Income (Loss) $ 556 ($ 431) ($ 1,001) ($ 1,158) ($ 1,215)
Weighted Average Number of
Partnership Units Outstanding 7,754 7,754 7,754 7,754 7,754
Balance Sheet Data at Year End:
Real Estate, net $32,357 $106,893 $116,253 $136,749 $136,069
Investment in Joint Venture $10,742 $ 10,697 $ 11,134 $ 11,635 $ 12,122
Mortgage Notes Receivable, net $ 0 $ 0 $ 0 $ 5,934 $ 10,006
Total Assets $47,775 $127,259 $135,238 $163,370 $170,311
Mortgage Notes Payable, net $30,752 $103,408 $112,254 $136,004 $136,436
10
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
As of December 31, 1996, the Registrant had cash and cash equivalents of
approximately $2,019,000 in addition to $592,000 of deposits held in
escrow by certain lenders for the payment of insurance, real estate taxes
and certain capital and maintenance costs. These balances are
approximately $1,839,000 less than cash, cash equivalents and deposits
held in escrow on December 31, 1995. Although the refinancing of an
existing mortgage note secured by Meadowwood Apartments increased cash and
cash equivalents by approximately $3,260,000, total cash and cash
equivalents decreased, primarily due to the payment of approximately
$3,005,000 of principal on the Registrant's mortgage notes. Included in
the total paid is a required principal reduction of $1,500,000 paid to the
former lender of the mortgage note secured by Plantation Shopping Center,
payment of $1,038,000 to reimburse the letters of credit which secured the
financing for 1010 Market Street office building, and approximately
$467,000 of mortgage principal paid through regularly scheduled payments.
In addition, the Registrant made expenditures of approximately $2,078,000
for capital additions to existing properties during the year.
Outstanding debt at December 31, 1996 consisted of approximately
$25,402,000 of nonrecourse first mortgage notes secured by real estate
owned by the Registrant, and a recourse note of $5,350,000 secured by
Plantation Shopping Center. Scheduled maturities through regularly
scheduled monthly payments will be $395,000 in 1997. 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.
During 1996, the prior existing mortgage note secured by Plantation
Shopping Center, with a balance of $5,173,000, was retired and a short-
term secured note of $5,350,000 obtained from a bank was placed on the
property. Payment terms of the new note include interest only, based upon
a fixed spread over a LIBOR index, until the maturity of the note at the
end of 1997. The Registrant expects to evaluate the potential for a sale
of the shopping center or to refinance the new short-term loan with more
conventional long-term financing prior to the maturity of the note. If it
fails to do so, the Registrant may be required to secure funds from other
sources to retire the mortgage loan.
11
In December, 1996, the Registrant successfully completed negotiations with
the lender for the mortgage loan secured by Meadowwood Apartments to
refinance the loan. The maturity of the loan was extended through January
2004, the loan amount was increased to $21,500,000, and the interest rate
was reduced from 9.5% to 7.55% per annum.
As previously reported, cash flow generated by International Jewelry
Center, located in Los Angeles, California, had not been sufficient to
carry debt service on the mortgage encumbering the property. The
Registrant ceased paying scheduled debt service in May 1993, and since
then had been paying debt service based on available cash flow from the
building. A reserve for real estate losses of $4,162,000 was recorded for
the year ended December 31, 1994 in connection with this property. The
loan was declared in default by the lender in November 1993, and the
lender filed a Notice of Default and Election to Sell on March 3, 1995 and
a Notice of Trustee's Sale on April 24, 1996. Negotiations with the
lender were concluded on May 22, 1996, when the title to the property was
transferred to a designee of the lender. Consideration for this
conveyance was $238,000, subject to the first leasehold note and deed of
trust, the balance of which was $33,898,520, and the assumption by the
designee of the ground lease. The Registrant recognized a gain of
approximately $7,536,000 associated with the disposition. The disposition
will have negative tax consequences for the partners.
Also as previously reported, in 1994 and 1995, Southwestern Bell, formerly
the largest non-governmental tenant in the St. Louis Central Business
District, relocated its headquarters and other operations to San Antonio,
Texas and other cities. The St. Louis CBD continues to suffer from
significant decreases in rental rates charged for new and renewal leases
and high vacancy rates caused by other tenants downsizing, ceasing
operations, or relocating to suburban locations or other cities. This
adversely affected the operation of 1010 Market Street in St. Louis. The
Registrant stopped making regularly scheduled payments on the mortgage
note secured by 1010 Market Street office building in May, 1996. The
lender filed a Notice of Default on May 9, a notice of Acceleration of
Debt on May 22, and a Notice of Foreclosure Sale on August 1, 1996. The
property was sold on August 28, 1996 in a foreclosure sale, effectively
extinguishing the mortgage note outstanding. The balance of the mortgage
note at the date of foreclosure was $39,563,617, resulting in a net gain
of approximately $4,415,000. The foreclosure will have negative tax
consequences for the partners.
12
Cash flow from the Registrant's remaining apartment properties has been
increasing moderately, reflecting improving markets. Based upon the
refinancing of the loan with a significantly lower interest rate and debt
service requirement, Plantation Center is expected to generate positive
cash flow from operations during 1997. The dispositions of International
Jewelry Center and 1010 Market Street from the Registrant's portfolio of
investments will not have a significant impact on cash flows since, during
recent years, the Registrant paid debt service to the lender equal to the
cash flow from the operations of the properties. The Registrant's
remaining properties are expected to generate sufficient cash flow to
cover operating, financing and capital improvement costs of the Registrant
for the foreseeable future.
MANAGEMENT'S DISCUSSION OF RESULTS OF OPERATIONS
------------------------------------------------
1996 VS. 1995
-------------
Total revenues decreased $7,894,000 to $15,430,000 in 1996 from
$23,324,000 in 1995. Loss from operations increased $33,000 to $8,065,000
in 1996 from $8,032,000 in 1995. Net income increased $7,655,000 to net
income of $4,312,000 in 1996 from a net loss of $3,343,000 in 1995.
Net income for 1996 includes an extraordinary gain on dispositions of
investments in real estate through discharge of indebtedness of
$11,951,000. The net loss for 1995 is net of a gain on sale of investment
in real estate of $3,964,000.
Meadowwood Apartments (Reno, Nevada)
---------------------
Total revenues increased $191,000 to $4,673,000 in 1996 from $4,482,000 in
1995. Net loss after depreciation and mortgage interest expense increased
$1,000 to $41,000 in 1996 from $40,000 in 1995.
The increase in total revenues was primarily due to the strong apartment
market, evidenced by increases in rental rates implemented at the property
which increased revenues $269,000, and increases in miscellaneous income
which increased revenues $28,000. However, the rental increases were
partially offset by decreases in occupancy in the early part of the year
which decreased revenues $106,000. Net loss after depreciation and
amortization remained approximately unchanged from 1995 since the
increased revenues were offset by increased expenses, primarily the
acceleration of the amortization of $135,000 of costs associated with the
loan which was replaced, (see also the Liquidity and Capital Resources
Section.) Other increases in operating expenses in 1996 included an
increase in repair and maintenance costs of $79,000. The increases in
costs were partially offset by decreases in other expenses, including a
decrease in depreciation expense of $21,000.
13
Holiday Park Apartments (Holiday, Florida)
-----------------------
Total revenues increased $26,000 to $1,097,000 in 1996 from $1,071,000 in
1995. Net loss after depreciation and mortgage interest expense decreased
$19,000 to $101,000 in 1996 from $120,000 in 1995.
The increase in total revenues was primarily due to the strength of the
Tampa Bay area apartment market, as evidenced by increases in rental rates
charged at the property which increased revenues $18,000, while occupancy
at the property increased moderately increasing revenues $4,000. The
decrease in net loss was primarily due to the increased revenues, and
decreased mortgage interest expense of $3,000, partially offset by
increased depreciation expense of $10,000.
Plantation Shopping Center (Plantation, Florida)
--------------------------
Total revenues decreased $96,000 to $1,425,000 in 1996 from $1,521,000 in
1995. Net loss after depreciation and mortgage interest expense decreased
$267,000 to $168,000 in 1996 from $435,000 in 1995.
The decrease in total revenues was primarily due to decreases in rental
rates charged at the property which decreased income $76,000, decreases in
average occupancy which decreased income $10,000, and decreases in
escalation income which decreased income $27,000, partially offset by
increased percentage rents of $20,000. The decrease in net loss was
primarily due to decreased interest expense of $510,000 as a result of the
refinancing of the mortgage note securing the property at a substantially
reduced balance and lower interest rate. (See also the Liquidity and
Capital Resources Section.) The decreased interest expense was partially
offset by the decreased revenues and increases of $74,000 in depreciation
expense and $73,000 in real estate tax expense.
Due to increased leasing activity in the latter half of 1996, new leases
have been entered into with tenants, and occupancy for 1997 is expected to
exceed 1996 levels.
14
1010 Market Street (St. Louis, Missouri)
------------------
The office building at 1010 Market Street was sold in a foreclosure sale
on August 28, 1996 effectively extinguishing the mortgage note
outstanding, which resulted in a net gain of approximately $4,415,000.
(Refer also to the Liquidity and Capital Resources Section and Footnote 4
of the Financial Statements.)
Total revenues decreased $2,156,000 to $3,816,000 in 1996 from $5,972,000
in 1995. Net loss before gain on disposition and after depreciation and
mortgage interest expense increased $1,169,000 to $1,687,000 in 1996 from
$518,000 in 1995.
Due to the disposition of the property by the Registrant, the reporting
period for 1010 Market Street office building ended on August 28, 1996.
The changes in revenues and net loss are substantially due to the
shortened reporting periods. Also included in the activity for the
reporting period is a write-off to bad debt expense of approximately
$600,000 of uncollectible accounts receivable, originally recorded
pursuant to the straight-lining of rents in accordance with FAS 13, which
increased the net loss reported for the year.
Cherry Hill Office Center (Cherry Hill, New Jersey)
-------------------------
Total revenues increased $123,000 to $1,506,000 in 1996 from $1,383,000 in
1995. Net income after depreciation and mortgage interest expense
decreased $95,000 to $28,000 in 1996 from $123,000 in 1995.
The increase in total revenue was primarily due to increases in base rent
charged to tenants which increased income $68,000, and increased average
occupancy which increased income $38,000, and an increase in escalation
income of $16,000. The decrease in net income was primarily due to
increased property operating costs, including increased utility costs of
$125,000 due both to the excessively harsh winter of 1996, and a general
rate increase imposed by the utility company in 1996. Other increases in
expenses included an increase in repairs and maintenance costs of $54,000,
and increased depreciation and amortization expense of $39,000.
15
International Jewelry Center (Los Angeles, California)
----------------------------
Through negotiations with the former lender, the Registrant transferred
title to the International Jewelry Center on May 22, 1996, in full
satisfaction of the mortgage note outstanding, which resulted in a net
gain on disposition of approximately $7,536,000. (Please refer also to
the Liquidity and Capital Resources Section and Footnote 4 of the
Financial Statements.)
Total revenues decreased $3,930,000 to $2,849,000 in 1996 from $6,779,000
in 1995. Net loss before gain on disposition and after depreciation and
mortgage interest expense increased $100,000 to $3,487,000 in 1996 from
$3,387,000 in 1995.
Due to the disposition of the property by the Registrant, the reporting
period for the International Jewelry Center ended on May 22, 1996. The
changes in revenues and net loss are substantially due to the shortened
reporting period. Also included in the reporting period is a write-off to
bad debt expense of approximately $1,931,000 of uncollectible accounts
receivable, originally recorded pursuant to the straight-lining of rents
in accordance with FAS 13, which increased the net loss for the year.
Investment in Joint Venture
---------------------------
Equity in net income of joint venture decreased $299,000 to $426,000 in
1996 from $725,000 in 1995. The decrease in net income was primarily due
to a decrease in average occupancy of 9% during the latter half of the
year ended December 31, 1996 to approximately 84% from approximately 93%
during the year ended December 31, 1995. This lower occupancy,
attributable to decreased demand for housing in the Atlanta area due to
the conclusion of the Olympic Games, reduced income $167,000 as compared
to the prior year. In addition, net income was lower due to increases in
operating expenses, primarily increases in utilities expense of $156,000,
professional fees of $64,000, and real estate tax expense of $54,000.
16
MANAGEMENT'S DISCUSSION OF RESULTS OF OPERATIONS
------------------------------------------------
1995 VS. 1994
-------------
Total revenues decreased $2,220,000 to $23,324,000 in 1995 from
$25,544,000 in 1994. Loss from operations decreased $6,234,000 to
$8,032,000 in 1995 from $14,266,000 in 1994. Net loss decreased
$4,415,000 to $3,343,000 in 1995 from $7,758,000 in 1994.
The net loss for 1995 includes a gain on sale of real estate of
$3,964,000. The net loss for 1994 includes a net gain on sales of real
estate of $6,859,000 and a reserve for real estate losses of $4,162,000.
Meadowwood Apartments (Reno, Nevada)
---------------------
Total revenues increased $161,000 to $4,482,000 in 1995 from $4,321,000 in
1994. Net loss after depreciation and mortgage interest expense decreased
$60,000 to $40,000 in 1995 from $100,000 in 1994.
The increase in total revenues was primarily due to the strong apartment
market, evidenced by increases in rental rates implemented at the property
which increased revenues $132,000, and increased occupancy which increased
revenues $27,000. The decrease in net loss was primarily attributable to
the increases in income, partially offset by increases in repairs and
maintenance costs of $43,000, real estate taxes of $41,000, payroll and
related costs of $8,000, and insurance expense of $7,000.
Sahara Palms Apartments (Las Vegas, Nevada)
-----------------------
Sahara Palms Apartments was sold on December 28, 1995, for $12,000,000,
resulting in a gain on sale of $3,964,000. Revenues before gain on sale
increased $18,000 to $2,001,000 in 1995 from $1,983,000 in 1994. Net loss
before gain on sale and after depreciation and mortgage interest expense
increased $95,000 to $285,000 in 1995 from $190,000 in 1994.
The increase in total revenues was primarily due to increases in rental
rates implemented at the property during the year which increased income
$8,000 and increases in incidental income of $10,000. The increase in net
loss was primarily due the write-off of deferred financing costs of
$94,000, as well as increases in advertising costs of $11,000 and other
costs which were partially offset by the increases in income.
17
Holiday Park Apartments (Holiday, Florida)
-----------------------
Total revenues increased $6,000 to $1,071,000 in 1995 from $1,065,000 in
1994. Net loss after depreciation and mortgage interest expense increased
$21,000 to $120,000 in 1995 from $99,000 in 1994.
The increase in total revenues was primarily due to increases in
incidental income during the year. The increase in net loss was primarily
due to increases in repairs and maintenance of $11,000, insurance of
$4,000, utilities of $3,000, depreciation of $2,000 and professional fees
of $2,000.
Plantation Shopping Center (Plantation, Florida)
--------------------------
Total revenues increased $281,000 to $1,521,000 in 1995 from $1,240,000 in
1994. Net loss after depreciation and mortgage interest expense decreased
$489,000 to $435,000 in 1995 from $924,000 in 1994.
The increase in total revenues was primarily due to increases in rental
rates charged at the property which increased income $223,000, increases
in average occupancy which increased income $25,000, and increases in
escalation income which increased income $27,000. The decrease in net
loss was primarily due to the increased revenues, and decreases in
professional fees expense of $213,000. Legal fees incurred in the prior
year pertained to a tenant collection matter which has since been
resolved.
1010 Market Street (St. Louis, Missouri)
------------------
Total revenues increased $396,000 to $5,972,000 in 1995 from $5,576,000 in
1994. Net loss after depreciation and mortgage interest expense decreased
$499,000 to $518,000 in 1995 from $1,017,000 in 1994.
The increase in total revenues was primarily due to increases in
escalations and other income of $352,000, and increases in miscellaneous
income of $38,000. The decrease in net loss was primarily due to the
increase in revenues, and decreases in repairs and maintenance expense of
$89,000 and utilities of $26,000.
18
Cherry Hill Office Center (Cherry Hill, New Jersey)
-------------------------
Total revenues decreased $125,000 to $1,383,000 in 1995 from $1,508,000 in
1994. Net income after depreciation and mortgage interest expense
decreased $125,000 to $123,000 in 1995 from $248,000 in 1994.
The decrease in total revenues was primarily due to decreases in base rent
charged to tenants which decreased income $34,000, and decreased average
occupancy which decreased income $78,000, and a decrease in escalation
income of $14,000. The decrease in net income was primarily due to the
decrease in revenues, as total expenses remained relatively constant.
International Jewelry Center (Los Angeles, California)
----------------------------
Total revenues decreased $222,000 to $6,779,000 in 1995 from $7,001,000 in
1994. Net loss after depreciation and mortgage interest expense decreased
$4,348,000 to $3,387,000 in 1995 from $7,735,000 in 1994. As previously
discussed in Liquidity and Capital Resources, a reserve for real estate
losses of $4,162,000 was recorded in 1994. The net loss excluding the
reserve for real estate losses decreased $186,000 to $3,387,000 in 1995
from $3,573,000 in 1994.
The decrease in total revenues was primarily due to a decrease in average
base rents charged to tenants which decreased income $251,000, and
decreases in escalation income of $109,000 and in other income of $70,000.
These decreases were partially offset by an increase in income of $207,000
which resulted from an increase in average occupancy of 4% to 71% in 1995
from 67% in 1994. The decrease in net loss was primarily due to decreases
in bad debt expense of $417,000, real estate taxes of $203,000, and
repairs and maintenance of $138,000, partially offset by the decrease in
revenues and increases in depreciation expense of $289,000, payroll and
related costs of $37,000, and utilities expense of $22,000.
The International Jewelry Center was severely adversely affected by the
softening of the jewelry business in general, and the migration of tenants
and potential tenants to suburban areas perceived to be safer than
downtown Los Angeles. As a result, cash flow generated by the
International Jewelry Center was not sufficient to carry ground rent and
debt service on the mortgage encumbering the property. The positive
effects of improvements in property occupancy were minimized by continuing
reductions in rental rates paid by new and renewal tenants, tenant
failures and costs of improving such space for the tenants at the
Registrant's cost. Additionally, given the nature of the tenancy at the
building, many of whom manufacture and clean jewelry in the building, the
City of Los Angeles has imposed additional requirements in respect of the
waste water treatment plant and indoor air monitoring system.
19
Mortgage Notes Receivable Portfolio
-----------------------------------
Interest income from the mortgages receivable portfolio decreased to $-0-
from $497,000 in 1994. The decrease was caused by the reacquisition of
Nob Hill Apartments in July, 1994. The Registrant has not owned interests
in mortgage notes receivable since that time.
Investment in Joint Venture
---------------------------
Equity in net income (loss) of joint venture increased $1,076,000 to
income of $725,000 in 1995 from a net loss of $351,000 in 1994. The
increase in net income was primarily due to increases in average occupancy
of approximately 7% to approximately 93% during the year ended December
31, 1995 from approximately 86% for the year ended December 31, 1994. In
addition to increased occupancy, increases in base rentals charged to
tenants accounted for $166,000 of the total increase in net income for the
year.
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The Financial Statements required by this item, together with the Report
of Independent Public Accountants, thereon, are contained herein on pages
25 through 37 of this annual report on Form 10-K. Supplementary financial
information required by this item is contained herein on pages 38 and 39
of this report.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
NONE.
20
PART III
--------
ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The Registrant has no executive officers or directors. All of its
business affairs are handled by its General Partner, SB Partners Real
Estate Corporation ("General Partner").
The directors and executive officers of the General Partner are elected by
Sentinel Holdings Corporation ("SHC") as its sole shareholder to serve
until their successors are duly elected and qualified. The Limited
Partners of the Registrant are not entitled to vote in their election.
The directors and executive officers of the General Partner who are active
in the Registrant's operations are:
Name Age Position
John H. Streicker 54 President & Director
Michael J. Weinberger 61 Director
Millie C. Cassidy 51 Director
David Weiner 61 Director
Christine Kurtz 42 Director
Mr. Streicker joined the General Partner in May, 1976. He has been
President since April, 1984. He is President of SHC and its parent
company, J.H. Streicker & Co., Inc.
Mr. Weinberger, a Certified Property Manager, joined the General Partner
in February, 1973. He is the residential portfolio manager for the
Western region.
Ms. Cassidy joined the General Partner in August, 1982. She has been a
Director of the General Partner since March, 1988.
Mr. Weiner joined the General Partner in April, 1984. He is a portfolio
manager and manager of investor relations. He has been a Director of the
General Partner since March, 1988.
Ms. Kurtz joined the General Partner in 1980. Ms. Kurtz is a Director and
portfolio manager responsible for commercial property transactions and
management.
21
ITEM 11.EXECUTIVE COMPENSATION
----------------------
The Registrant has no executive officers or directors.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN
-----------------------------
BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------
(a) At December 31, 1996, an institutional investor of record owned 7.13%
of the outstanding Units of Limited Partnership Interests. On January
13, 1993, a group of unitholders of record, including the
institutional investor referred to above, entered into a collective
agreement with respect to their ownership interest in the Registrant.
The aggregate number of Units beneficially owned by the group is 676
Units, representing 8.7% of the total number of outstanding Units of
Limited Partnership Interest on that date. Each unitholder has
disclaimed beneficial ownership of all Units owned by the other
unitholders in this group. The foregoing information is based upon a
13-D filing made by the respective unitholders.
(b) As of December 31, 1996, none of the Directors of the General Partner
owned any outstanding Units of Limited Partnership Interest. However,
an Assistant Secretary of the General Partner owned four Units of
Limited Partnership Interest. No officers or Directors of SHC owned
any outstanding Units of Limited Partnership Interest. SRE Clearing
Services, Inc. (formerly known as SRE Investor Services, Inc.), an
affiliate of the General Partner, owned 343.5 Units of Limited
Partnership Interest representing 4.4% of the outstanding number of
Units on December 31, 1996.
(c) During the year ended December 31, 1996, there have been no changes in
control of the Registrant or the General Partner.
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The General Partner, among other things, furnishes services and advice to
the Registrant and is paid a variable annual fee for such services based
on calculations prescribed in the Registrant's Partnership Agreement.
Certain affiliates of the General Partner oversee the management and
operations of various real estate properties, including those owned by the
Registrant. Services performed by these affiliates applicable to the
Registrant's properties are billed at actual or allocated cost, percentage
of revenues or net equity. The costs of such services are believed to be
competitive with charges for similar services provided by unrelated
management companies. Fees charged by these affiliates totalled
$1,196,395, $1,839,832, and $2,073,339 in 1996, 1995, and 1994,
respectively.
22
In connection with the mortgage financing of certain properties, the
respective lenders required the Registrant to place the assets and
liabilities of these properties into single asset limited partnerships and
limited liability companies which hold, or held, title to these
properties. A trust company affiliated with the General Partner holds, or
held, the general partner interest in each single asset limited
partnership as trustee for the Registrant. For its services, the
affiliate is paid an annual fee, which aggregated $54,227, $129,580, and
$134,086 in 1996, 1995, and 1994, respectively, and is based upon the
trust company's standard rate schedule.
Reference is made to Items 10 and 11, and Notes 2 and 8 in the financial
statements.
PART IV
-------
ITEM 14.EXHIBITS, FINANCIAL STATEMENT
-----------------------------
SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------
(a) (1) Financial statements - The Registrant's 1996 Annual Audited
Financial Statements are included in this annual report on Form
10-K.
(2) Financial statement schedules - See Index to Financial Statement
Schedules on page 24. All other financial statement schedules are
inapplicable or the required subject matter is contained in the
financial statements or notes thereto.
(b) There were no current reports on Form 8-K filed with the SEC during
the quarter ended December 31, 1996.
(c) Financial data schedule
(d) Exhibits Incorporated by Reference -
Incorporated by
Description Reference to
----------- ---------------
Agreement of Exhibit A to Registration Statement
Limited Partnership on Form S-11 as filed with the
Securities and Exchange Commission
on May 16, 1985.
23
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SB PARTNERS
-----------
By: SB PARTNERS REAL ESTATE CORPORATION
-----------------------------------
GENERAL PARTNER
March 31, 1997 /s/ John H. Streicker
----------------------------------
By: John H. Streicker
President, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Position Date
--------- -------- ----
/s/ John H. Streicker Chief Executive Officer
--------------------- and Director March 31, 1997
John H. Streicker
/s/ Elizabeth B. Longo Chief Financial Officer March 31, 1997
----------------------
Elizabeth B. Longo
/s/ George N. Tietjen III Vice President March 31, 1997
-------------------------
George N. Tietjen III
24
SB PARTNERS
ITEMS 8 and 14 (a) (1) and (2)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
INDEX TO FINANCIAL STATEMENTS AND
---------------------------------
SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE
-----------------------------------------
Report of Independent Public Accountants . . . . . . . . . . . 25
Balance Sheets as of December 31, 1996 and 1995 . . . . . . . . 26
Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 . . . . . . . . . . . . 27
Statements of Changes in Partners' Capital for the
years ended December 31, 1996, 1995 and 1994 . . . . . . 28
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 . . . . . . . . . . . . 29
Notes to Financial Statements . . . . . . . . . . . . . . . . . 30
Supplemental Financial Statement Schedule:
Schedule III -- Real Estate and Accumulated
Depreciation -- December 31, 1996 . . . . . . . . . . . 38
25
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of SB Partners:
We have audited the accompanying balance sheets of SB Partners (a
New York limited partnership) as of December 31, 1996 and 1995, and the
related statements of operations, changes in partners' capital and cash
flows for each of the three years in the period ended December 31, 1996.
These financial statements and the schedule referred to below are the
responsibility of the general partner. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by the
general partner, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of SB Partners as
of December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31,
1996 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed in the
index to financial statements is presented for purposes of complying with
the Securities and Exchange Commission rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in
our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
/s/ Arthur Andersen LLP
New York, New York
January 29, 1997
26
SB PARTNERS
BALANCE SHEETS
As of December 31,
1996 1995
-----------------------------
ASSETS:
Investments -
Real Estate, at cost
Land $ 5,113,690 $ 12,092,365
Buildings, furnishings and improvements 45,521,700 140,331,546
Less - accumulated depreciation and valuation allowance (18,278,229) (45,560,951)
----------- ------------
32,357,161 106,862,960
Investment in joint venture 10,742,193 10,697,225
----------- ------------
43,099,354 117,560,185
Other Assets -
Cash and cash equivalents 2,019,321 3,304,968
Other 2,656,255 6,394,068
----------- ------------
Total assets $47,774,930 $127,259,221
=========== ============
LIABILITIES:
Mortgage notes payable $30,752,378 $103,407,513
Accounts payable and accrued expenses 1,113,122 11,271,026
Tenants' security deposits 322,821 1,306,052
----------- ------------
Total liabilities 32,188,321 115,984,591
----------- ------------
PARTNERS' CAPITAL:
Units of partnership interest without par value;
Limited partners - 7,753 units 15,603,034 11,291,611
General partner - 1 unit (16,425) (16,981)
----------- ------------
Total partners' capital 15,586,609 11,274,630
----------- ------------
Total liabilities and partners' capital $47,774,930 $127,259,221
=========== ============
The accompanying notes are an integral part of these statements.
27
SB PARTNERS
STATEMENTS OF OPERATIONS
For the Years Ended December 31,
1996 1995 1994
--------------------------------------------
REVENUES
Rental income $14,940,374 $22,618,843 $24,244,843
Interest on mortgage notes receivable 0 0 496,834
Interest on short-term investments 50,615 73,984 114,946
Other 439,063 631,381 687,484
----------- ----------- -----------
Total revenues 15,430,052 23,324,208 25,544,107
----------- ----------- -----------
EXPENSES
Interest on mortgage notes payable 7,215,718 11,462,066 13,338,723
Real estate operating expenses 9,524,911 10,307,816 11,369,234
Depreciation and amortization 3,465,840 5,176,543 5,243,818
Real estate taxes 1,086,477 1,936,253 2,376,046
Management fees 1,634,397 1,929,127 2,141,519
Reserve of investment in real estate 0 0 4,161,531
Other 567,553 544,592 1,179,557
----------- ----------- -----------
Total expenses 23,494,896 31,356,397 39,810,428
----------- ----------- -----------
Loss from operations (8,064,844) (8,032,189) (14,266,321)
Equity in net income (loss) of joint venture 425,725 725,118 (351,586)
Gain on sale of investments in real estate 0 3,963,791 6,859,221
----------- ----------- -----------
NET LOSS BEFORE EXTRAORDINARY GAIN (7,639,119) (3,343,280) (7,758,686)
Gain on dispositions of investments in real estate
through discharge of indebtedness 11,951,098 0 0
----------- ----------- -----------
NET INCOME (LOSS) 4,311,979 (3,343,280) (7,758,686)
Income (loss) allocated to general partner 556 (431) (1,001)
----------- ----------- -----------
Income (loss) allocated to limited partners $ 4,311,423 ($ 3,342,849) ($ 7,757,685)
=========== =========== ===========
NET INCOME (LOSS) PER UNIT OF LIMITED PARTNERSHIP INTEREST:
Net loss before extraordinary gain ($ 985) ($ 431) ($ 1,001)
=========== =========== ===========
Extraordinary gain $ 1,541 $ 0 $ 0
=========== =========== ===========
Net income (loss) $ 556 ($ 431) ($ 1,001)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF UNITS OF LIMITED
PARTNERSHIP INTEREST OUTSTANDING 7,753 7,753 7,753
=========== =========== ===========
The accompanying notes are an integral part of these statements.
28
SB PARTNERS
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Limited Partners:
Units of
Partnership
Interest Cumulative Accumulated
-------------------- Cash Earnings
Number Amount Distributions (Losses) Total
-------------------------------------------------------------------------
Balance, December 31, 1993 7,753 $119,968,973 ($97,728,323) $ 151,495 $22,392,145
Net loss for the year - - - (7,757,685) (7,757,685)
----- ------------ ------------ ----------- -----------
Balance, December 31, 1994 7,753 119,968,973 (97,728,323) (7,606,190) 14,634,460
Net loss for the year - - - (3,342,849) (3,342,849)
----- ------------ ------------ ----------- -----------
Balance, December 31, 1995 7,753 119,968,973 (97,728,323) (10,949,039) 11,291,611
Net income for the year - - - 4,311,423 4,311,423
----- ------------ ------------ ----------- -----------
Balance, December 31, 1996 7,753 $119,968,973 ($97,728,323) ($ 6,637,616) $15,603,034
===== ============ ============ =========== ===========
General Partner:
Units of
Partnership
Interest Cumulative Accumulated
-------------------- Cash Earnings
Number Amount Distributions (Losses) Total
-------------------------------------------------------------------------
Balance, December 31, 1993 1 $10,000 ($24,559) ($ 990) ($15,549)
Net loss for the year - - - (1,001) (1,001)
--- ------- -------- ------- --------
Balance, December 31, 1994 1 10,000 (24,559) (1,991) (16,550)
Net loss for the year - - - (431) (431)
--- ------- -------- ------- --------
Balance, December 31, 1995 1 10,000 (24,559) (2,422) (16,981)
Net income for the year - - - 556 556
--- ------- -------- ------- --------
Balance, December 31, 1996 1 $10,000 ($24,559) ($1,866) ($16,425)
=== ======= ======== ======= ========
The accompanying notes are an integral part of these statements.
29
SB PARTNERS
STATEMENTS OF CASH FLOWS
For the years ended December 31,
1996 1995 1994
-------------------------------------------
Cash Flows From Operating Activities:
Net Income (Loss) $ 4,311,979 ($3,343,280) ($7,758,686)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Extraordinary gain on dispositions of investments
in real estate through discharge of indebtedness (11,951,098) 0 0
Gain on sale of investments in real estate 0 (3,963,791) (6,859,221)
Reserve of investment in real estate 0 0 4,161,531
Equity in net (income) loss of joint venture (425,725) (725,118) 351,586
Depreciation and amortization 3,465,840 5,176,543 5,243,818
Amortization of discount on mortgage notes payable 0 310,904 343,860
Decrease in other assets 2,932,392 187,050 969,920
Increase in other liabilities 985,378 3,886,240 3,376,486
----------- ---------- ----------
Net cash provided by (used in) operating activities (681,234) 1,528,548 (170,706)
----------- ---------- ----------
Cash Flows From Investing Activities:
Net proceeds from sales/dispositions of investments in real estate 92,327 3,569,190 4,877,352
Cash paid on real estate acquisitions 0 0 (710,384)
Capital additions to real estate (2,077,599) (3,024,145) (2,636,254)
Additional advances under guarantees 0 0 (113,651)
Distributions received from joint venture 573,857 882,749 150,000
----------- ---------- ----------
Net cash provided by (used in) investing activities (1,411,415) 1,427,794 1,567,063
----------- ---------- ----------
Cash Flows From Financing Activities:
Proceeds from mortgage notes payable 26,850,000 0 0
Proceeds from short-term loan 1,038,370 0 0
Retirement of mortgage notes payable (23,037,409) 0 0
Principal payments on mortgage notes payable (3,005,589) (726,359) (744,634)
Repayment of short-term loan (1,038,370) 0 0
----------- ---------- ----------
Net cash provided by (used in) financing activities 807,002 (726,359) (744,634)
----------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (1,285,647) 2,229,983 651,723
Cash and cash equivalents at beginning of year 3,304,968 1,074,985 423,262
----------- ---------- ----------
Cash and cash equivalents at end of year $ 2,019,321 $3,304,968 $1,074,985
=========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 5,434,319 $8,043,301 $9,410,407
=========== ========== ==========
Supplemental disclosures of non-cash investing and financing activities:
The dispositions of International Jewelry Center and 1010 Market Street in 1996, to the extent of the release from
liability from the underlying mortgage notes which had been secured by the properties, represent non-cash investing and
financing activities and have been excluded from the statements of cash flows. The proceeds from the sale of Sahara Palms
Apartments in 1995 and Nob Hill Apartments in 1994 are shown net of the retirement of the underlying mortgage notes which had
been secured by the properties. The sale of Woodlake Apartments, to the extent of the assumption of a mortgage note payable by
the purchaser, and the portion of the reacquisition of Nob Hill Apartments in exchange for mortgage notes receivable in 1994,
represent non-cash investing and financing activities and have been excluded from the statements of cash flows.
See also Note 4 to Financial Statements.
The accompanying notes are an integral part of these statements.
30
SB PARTNERS
Notes to Financial Statements
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
SB Partners (the "Partnership") is a New York limited partnership
which has been engaged since April 1971 in acquiring, operating and
holding for investment a varying portfolio of real properties. SB
Partners Real Estate Corporation (the "General Partner") serves as
the general partner of the Partnership. The significant accounting
and financial reporting policies of the Partnership are as follows:
(a) The accompanying financial statements are prepared using
the accrual basis of accounting under generally accepted
accounting principles. Revenues are recognized as earned
and expenses are recognized as incurred. The preparation
of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial
statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates. Certain prior year amounts
have been reclassified to make them comparable to the
current year presentation.
(b) Each partner is individually responsible for reporting his
share of the Partnership's taxable income or loss.
Accordingly, no provision has been made in the accompanying
financial statements for Federal, state or local income
taxes.
(c) Depreciation of buildings, furnishings and improvements is
computed using the straight-line method of depreciation,
based upon the estimated useful lives of the related
properties, as follows:
Buildings and improvements 5 to 40 years
Furnishings 5 to 7 years
Investments in real estate are carried at historical cost
and reviewed periodically for impairment. Expenditures for
maintenance and repairs are expensed as incurred.
Expenditures for improvements, renewals and betterments,
which increase the useful life of the real estate, are
capitalized. Upon retirement or sale of property, the
related cost and accumulated depreciation are removed from
the accounts. Amortization of deferred financing and
refinancing costs is computed by amortizing the cost over
the term of the related mortgage notes. Amortization of
leasing commissions and tenant improvements is computed by
amortizing the cost over the term of the related lease.
31
(d) Gains on sales of investments in real estate are recognized
in accordance with generally accepted accounting principles
applicable to sales of real estate, which require minimum
levels of initial and continuing investment by the
purchaser, and that certain other tests be met prior to the
full recognition of profit at the time of the sale. When
the tests are not met, gains on sales are recognized on
either the installment or cost recovery methods.
(e) Net loss per unit of partnership interest has been computed
based on the weighted average number of units of
partnership interest outstanding during each year. There
were no potentially dilutive securities outstanding during
each year.
(f) For financial reporting purposes, the Partnership considers
all highly liquid short-term investments purchased with an
original maturity of three months or less to be cash
equivalents.
(g) The Partnership accounts for its investment in a joint
venture using the equity method. Pursuant to the special
allocations of cash flow which are contained in the joint
venture agreement, it recognizes income or loss to the
extent of its allocable share of the change in the net
assets of the joint venture, taking into account preference
distributions, as defined, for the period.
(h) In connection with the mortgage financing on certain of its
properties, the Partnership placed the assets and
liabilities of these properties into single asset limited
partnerships and limited liability companies which hold, or
held, title to the properties. In these limited
partnerships, the Partnership holds a 99% limited partner
interest, and an affiliate of the General Partner holds a
1% general partner interest as trustee for the Partnership.
The financial statements of these subsidiaries are
consolidated with those of the Partnership.
(i) In 1996, the Partnership adopted Statement of Financial
Accounting Standards No.121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be
Disposed of". This statement establishes the recognition
and measurement standards related to the impairment of
long-lived assets. The adoption of this standard did not
have a material effect on the Partnership's financial
position or results of operations.
32
(2) INVESTMENT MANAGEMENT AGREEMENT
The Partnership has entered into a management agreement with the
General Partner. Under the terms of this agreement, the General
Partner is responsible for the acquisition, management and
disposition of all investments, as well as performance of the day-
to-day administrative operations and provision of office space for
the Partnership.
For these services, the General Partner receives a management fee
equal to 2% of the average amount of capital invested in real
estate plus cumulative mortgage payments and 0.5% of capital not
invested in real estate, as defined in the partnership agreement.
The management fee amounted to $1,634,397, $1,929,127, and
$2,141,519, for the years ended December 31, 1996, 1995 and 1994,
respectively. In addition, the General Partner is entitled to 25%
of cash distributions in excess of the annual distribution
preferences, as defined in the partnership agreement. No such
amounts were due for the years ended December 31, 1996, 1995, and
1994.
(3) INVESTMENTS IN REAL ESTATE
As of December 31, 1996, the Partnership owned a shopping center
in Plantation, Florida; office buildings in Cherry Hill, New
Jersey; apartment projects in Holiday, Florida, and Reno, Nevada,
and 13.9 acres of land in Holiday, Florida. The following is the
cost basis, and accumulated depreciation and valuation allowance
of the real estate investments owned by the Partnership at
December 31, 1996 and 1995:
Carrying Amount
No.of Year of ---------------
Type Prop. Acquisition Description 1996 1995
---- ----- ----------- ----------- ---- ----
Residential properties 2 1983-91 948 Apt. units $31,741,606 $ 30,811,051
Shopping center 1 1981 238,410 Sq. Ft. 14,294,724 13,983,133
Office buildings 3 1984-93 851,588 Sq. Ft. 4,554,673 107,585,340
Undeveloped land 1 1978 13.9 Acres 44,387 44,387
----------- ------------
50,635,390 152,423,911
Less: Accumulated depreciation and valuation allowance 18,278,229 45,560,951
----------- ------------
$32,357,161 $106,862,960
=========== ============
Note: Information is provided for all properties owned during the periods presented.
33
(4) REAL ESTATE TRANSACTIONS
The Partnership ceased paying scheduled debt service on the
mortgage note secured by International Jewelry Center, located in
Los Angeles, California, in May, 1993, and since then had been
paying debt service based on available cash flow from the
building. The loan was declared in default by the lender in
November 1993, and the lender filed a Notice of Default and
Election to Sell on March 3, 1995 and a Notice of Trustee's Sale
on April 24, 1996. Negotiations with the lender were concluded on
May 22, 1996, when the title to the property was transferred to a
designee of the lender. Consideration for this conveyance was
$238,000, subject to the first leasehold note and deed of trust,
the balance of which was $33,899,000, and the assumption by the
designee of the ground lease. The Partnership recognized an
extraordinary gain of $7,536,000 associated with the disposition.
The disposition will have negative tax consequences for the
partners.
The Partnership stopped making regularly scheduled payments on the
mortgage note secured by 1010 Market Street office building in
May, 1996. The lender filed a Notice of Default on May 9, a
notice of Acceleration of Debt on May 22, and a Notice of
Foreclosure Sale on August 1, 1996. The property was sold on
August 28, 1996 in a foreclosure sale. The balance of the
mortgage note at the date of foreclosure was $39,564,000, which
resulted in a net gain through discharge of indebtedness of
$4,415,000. The foreclosure will have negative tax consequences
for the partners.
In December 1995, the Partnership sold Sahara Palms Apartments for
$12,000,000 in an all cash transaction. The underlying mortgage
note payable of $8,431,000 was retired and the Partnership
recognized a net gain on sale of real estate investments of
$3,964,000 for the year ended December 31, 1995.
In June 1994, the Partnership sold Woodlake Apartments for
$22,055,000. In connection with the sale, the buyer assumed the
existing first mortgage note in the amount of $17,476,000 and paid
the balance in cash. In July 1994, the Partnership reacquired Nob
Hill Apartments for $700,000 cash, subject to existing liens
secured by the property. The property was recorded at $6,803,000
which in addition to cash paid was the aggregate carrying amount
of the liens, including those owned by the Partnership on the date
of acquisition, net of a deferred gain of $5,179,000 and allowance
for possible loan losses of $5,212,000. The junior liens owned by
the Partnership were effectively extinguished. In December 1994,
Nob Hill was sold for $7,400,000, all cash. The Partnership
recognized net gains on sale of real estate investments of
$6,859,000 for the year ended December 31, 1994.
34
(5) INVESTMENT IN JOINT VENTURE
During 1992, the Partnership and an institutional investor (the
"Investor") entered into a joint venture agreement where the
Partnership contributed Riverbend Apartments for an agreed equity
value of $14,250,000 and the Investor contributed $9,500,000 in
cash. The Partnership and the Investor hold interests in the
venture of 60% and 40%, respectively, and the Investor is entitled
to a guaranteed return of 9.5% of its average investment, as
defined in the joint venture agreement. For financial reporting
purposes, the Partnership recorded its investment in the joint
venture at its net carrying amount of the property contributed,
and no gain or loss was recognized. All significant matters
affecting the joint venture require the unanimous consent of the
venturers.
The following are the condensed financial statements (000's
omitted) of the joint venture as of and for the years ended
December 31, 1996, 1995, and 1994 (See Note 1):
BALANCE SHEETS
1996 1995 1994
---- ---- ----
Investment in real estate, net $19,414 $19,935 $20,532
Current assets 127 138 262
Current liabilities (313) (461) (407)
------- ------- -------
Venturers' capital $19,228 $19,612 $20,387
======= ======= =======
STATEMENTS OF OPERATIONS
Rent and other income $ 4,580 $ 4,395 $ 3,815
Real estate operating expenses (3,680) (3,353) (3,264)
------- ------- -------
Net income $ 900 $ 1,042 $ 551
======= ======= =======
35
(6) MORTGAGE NOTES PAYABLE
Mortgage notes payable consist of the following first liens:
Net Carrying Amount
Interest rate Annual December 31,
Original ------------- Installment Amount Due ------------
Property Principal(e) Coupon Effective Maturity date Payments(f) at Maturity 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
Holiday Park $ 3,700,000 9.00% 9.00% March 1999 $ 357,252 $ 3,494,467 $ 3,556,683 $ 3,592,065
Meadowwood (a) 21,500,000 7.55 7.55 January 2004 1,914,996 18,979,461 21,500,000 17,975,016
Plantation Center
Shopping Plaza (b) 5,350,000 Variable Variable December 1997 Interest Only 5,350,000 5,350,000 6,773,388
Cherry Hill 2,900,000 9.50 9.50 September 2000 109,941 --- 345,695 418,970
International
Jewelry Center (c) 35,000,000 12.40 12.40 --- 33,898,519
1010 Market St. (d) 42,000,000 8.00 8.00 --- 40,749,555
----------- ------------
$30,752,378 $103,407,513
=========== ============
(a) Mortgage was refinanced in December, 1996.
(b) Mortgage was refinanced in June, 1996. The new short-term note carries interest at 2% over the LIBOR rate.
The interest rate charged at December 31, 1996 was 7.625%
(c) Property was transferred to a designee of the former lender in May, 1996.
(d) Property was sold in a foreclosure sale in August, 1996.
(e) All mortgages are nonrecourse to the Partnership with the exception of the short-term note secured by Plantation Center.
(f) Annual installment payments include principal and interest.
Scheduled principal payments on mortgage notes payable are $5,745,273
for 1997; $454,522 for 1998; $3,921,929 for 1999; $455,429 for 2000;
$405,612 for 2001; and $19,769,613 thereafter.
36
(7) FEDERAL INCOME TAX INFORMATION
A reconciliation of net income (loss) for financial reporting purposes
to net income (loss) for Federal income tax reporting purposes is as
follows:
For the Years Ended December 31,
1996 1995 1994
----------- ----------- -----------
Net income (loss) for financial reporting purposes $ 4,311,979 ($3,343,280) ($7,758,686)
Adjustment to net gain on sales/dispositions of investments in real estate
to reflect differences between tax and financial reporting bases
of assets and liabilities disposed 23,749,150 3,772,180 360,131
Adjustment for provision for loan and reserves for real estate losses - 103,122 4,161,531
Difference between tax and financial statement equity in net income
or loss of joint venture 200,293 (275,132) 140,227
Adjustment to interest expense to reflect non-deductibility of interest and
amortization of discount on mortgage notes payable recognized for
financial reporting purposes 1,793,018 3,496,154 3,635,561
Difference between tax and financial statement depreciation (2,356,788) (4,196,258) (5,135,849)
Net change in accrual entries not recorded on tax basis and
prior tax adjustments - - 754,969
----------- ----------- -----------
Net income (loss) for Federal income tax reporting purposes $27,697,652 ($ 443,214) ($3,842,116)
=========== =========== ===========
Net income (loss) per weighted average limited partnership unit
for Federal income tax reporting purposes:
Net ordinary loss per unit of Partnership interest ($1,032) ($ 1,055) ($ 1,333)
Average Capital (Sec.1231) gain per unit of
Partnership interest 4,605 998 838
----------- ----------- ------------
$3,573 ($ 57) ($ 495)
=========== =========== ============
Weighted average number of units of limited partnership
interest outstanding 7,753 7,753 7,753
=========== =========== ============
As of December 31, 1996 and 1995, the tax bases of the Partnership's
assets and liabilities amounted to $38,681,000 and $88,303,000 of
assets, and $32,188,000 and $109,508,000 of liabilities, respectively.
(8) PROPERTY MANAGEMENT SERVICES
Certain affiliates of the General Partner oversee the management and
operations of various real estate properties, including those owned by
the Partnership. Services performed by affiliates are billed at
actual or allocated cost, percentage of revenues or net equity. For
the years ended December 31, 1996, 1995 and 1994, such billings to the
Partnership amounted to $1,250,622, $1,969,412, and $2,207,425,
respectively, and are included in real estate operating expenses.
37
(9) COMMITMENTS AND CONTINGENCIES
The Partnership is a party to certain actions directly related to its
normal business operations. While the ultimate outcome is not
presently determinable with certainty, the Partnership believes that
the resolution of these matters will not have a material effect on its
financial position or results of operations.
The Partnership had secured irrevocable letters of credit in the
amount of approximately $1,038,000 which primarily served as
additional collateral securing certain financing. These letters of
credit were called upon in connection with the foreclosure of the 1010
Market Street office building, and were repaid and retired in 1996.
(10) COMMERCIAL OPERATING LEASES
Minimum future rentals on noncancelable commercial operating leases
for each of the five succeeding fiscal years and thereafter are as
follows: 1997 - $2,660,783; 1998 - $2,452,422; 1999 - $2,207,025; 2000
- $1,681,011; 2001 - $1,115,602; and $2,715,755 thereafter. The
minimum rentals received on noncancelable commercial operating leases
for the year ended December 31, 1996 was $8,601,781.
38
SB PARTNERS
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
Column A Column B Column C Column D
Initial Cost to the Registrant Costs
-------------------------------------- Capitalized
Buildings and Subsequent to
Description Encumbrances Land Improvements Total Acquisition
MULTI FAMILY RESIDENTIAL
Nevada -
Reno (Meadowwood) $21,500,000 $2,466,311 $19,057,859 $21,524,170 $4,641,419
Florida -
Holiday (Holiday Park -
including undeveloped land) 3,556,683 458,342 4,043,354 4,501,696 695,553
Orlando (Summerwalk) - 30,456 370,284 400,740 22,415
----------- ---------- ----------- ----------- ----------
25,056,683 2,955,109 23,471,497 26,426,606 5,359,387
SHOPPING CENTER
Florida -
Plantation (Plantation
Shopping Center) 5,350,000 1,510,714 9,668,665 11,179,379 3,115,345
OFFICE BUILDINGS
New Jersey -
Cherry Hill (Cherry Hill Office Park) 345,695 647,867 3,163,115 3,810,982 743,691
----------- ---------- ----------- ----------- ----------
$30,752,378 $5,113,690 $36,303,277 $41,416,967 $9,218,423
=========== ========== =========== =========== ==========
SB PARTNERS
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
DECEMBER 31, 1996
Column A Column E Column F
Gross amount at which Carried at End of Year
(Notes a & c)
Accumulated
Buildings and Depreciation
Description Land Improvements Total (Notes b & d)
MULTI FAMILY RESIDENTIAL
Nevada -
Reno (Meadowwood) $2,466,311 $23,699,278 $26,165,589 $11,109,810
Florida -
Holiday (Holiday Park -
including undeveloped land) 458,342 4,738,907 5,197,249 1,098,326
Orlando (Summerwalk) 30,456 392,699 423,155 312,438
---------- ----------- ----------- -----------
2,955,109 28,830,884 31,785,993 12,520,574
SHOPPING CENTER
Florida -
Plantation (Plantation
Shopping Center) 1,510,714 12,784,010 14,294,724 5,328,847
OFFICE BUILDINGS
New Jersey -
Cherry Hill (Cherry Hill Office Park) 647,867 3,906,806 4,554,673 428,808
---------- ----------- ----------- -----------
$5,113,690 $45,521,700 $50,635,390 $18,278,229
========== =========== =========== ===========
SB PARTNERS
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
DECEMBER 31, 1996
Column A Column G Column H Column I
Life on which
Depreciation in
Latest Statement
Date of Date of Operations
Description Construction Acquired is Computed
MULTI FAMILY RESIDENTIAL
Nevada -
Reno (Meadowwood) 1974 - 1977 May 1983 5 to 30 years
Florida -
Holiday (Holiday Park -
including undeveloped land) Jan 1991 7 to 27.5 years
Orlando (Summerwalk) 1974 March 1978 7 to 31 years
SHOPPING CENTER
Florida -
Plantation (Plantation
Shopping Center) 1980 July 1981 5 to 40 years
OFFICE BUILDINGS
New Jersey -
Cherry Hill (Cherry Hill Office Park) 1970 Sept 1993 40 years
39
NOTES TO SCHEDULE III:
1996
----
(a)Reconciliation of amounts shown in Column E:
Balance at beginning of year $152,423,911
Additions -
Cost of improvements and adjustments 2,077,599
Deductions -
Dispositions of property 103,866,120
------------
Balance at end of year $ 50,635,390
============
(b)Reconciliation of amounts shown in Column F:
Balance at beginning of year $ 45,560,951
Additions -
Depreciation expense for year 3,014,931
Deductions -
Accumulated depreciation on property disposed 30,297,653
------------
Balance at end of year $ 18,278,229
============
(c)Aggregate cost basis for Federal
income tax reporting purposes $ 58,977,612
============
(d)Accumulated depreciation for Federal
income tax reporting purposes $ 36,899,911
============