SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-Q
– QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark
One)
x
|
Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the quarterly period ended September 30,
2009
|
Or
o
|
Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the transition period from __________________ to
__________________
|
Commission
File Number:
|
0-8952
|
SB
PARTNERS
|
||
(Exact
name of registrant as specified in its charter)
|
||
New
York
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13-6294787
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
|
incorporation
or organization)
|
Identification
No.)
|
|
1
New Haven Avenue, Suite 207, Milford, CT.
|
06460
|
|
(Address
of principal executive offices)
|
(Zip
Code)
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(203)
283-9593
|
(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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). [X]
Yes [ ] No
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer or a smaller reporting company. See definitions of “large
accelerated filer”, “accelerated filer”, “non-accelerated filer” and “small
reporting company”.in Rule 12b-2 of the Exchange Act.
[ ] large
accelerated
filer [
] accelerated
filer [X]
non-accelerated
filer [
] small reporting company
Indicate by check mark whether the
registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). [
] Yes [X] No
APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the
registrant has filed all documents and reports required to be filed by Sections
12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court. [ ] Yes
[ ] No
Not
Applicable
APPLICABLE
ONLY TO CORPORATE ISSUERS:
Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date.
Not
Applicable
SB
PARTNERS
INDEX
Part
I
|
Financial
Information
|
|
Item
1
|
Financial
Statements
|
|
Consolidated
Balance Sheets as of September 30, 2009 (unaudited) and December 31, 2008
(audited)
|
1
|
|
Consolidated
Statements of Operations (unaudited) for the three and nine months ended
September 30, 2009 and 2008
|
2
|
|
Consolidated
Statements of Changes in Partners' Capital (Deficit) (unaudited) for the
nine months ended September 30, 2009
|
||
3
|
||
Consolidated
Statements of Cash Flows (unaudited) for the nine months ended September
30, 2009 and 2008
|
4
|
|
Notes
to Consolidated Financial Statements (unaudited)
|
5 –
7
|
|
Item
2
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
8 –
11
|
Item
3
|
Quantitative
and Qualitative Disclosures about Market Risk
|
12
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Item
4T
|
Controls
and Procedures
|
12
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Part
II
|
Other
Information
|
12
|
Signatures
|
13
|
|
Exhibit
31
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14
– 15
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Exhibit
32
|
16
|
1
ITEM 1.
FINANCIAL STATEMENTS
SB
PARTNERS
|
||||||||||
(A New York Limited
Partnership)
|
||||||||||
CONSOLIDATED BALANCE SHEETS
|
||||||||||
September
30
|
December
31
|
|||||||||
2009
|
2008
|
|||||||||
(unaudited)
|
(audited)
|
|||||||||
Assets:
|
||||||||||
Investments
-
|
||||||||||
Real
estate, at cost
|
||||||||||
Land
|
$ | 3,595,000 | $ | 3,595,000 | ||||||
Buildings,
furnishings and improvements
|
32,771,710 | 32,771,710 | ||||||||
Less
- accumulated depreciation
|
(2,796,507 | ) | (2,166,282 | ) | ||||||
33,570,203 | 34,200,428 | |||||||||
Real
estate held for sale
|
4,462,607 | 4,379,087 | ||||||||
Investment
in Sentinel Omaha, LLC
|
14,051,367 | 22,851,207 | ||||||||
Less
- reserve for investment
|
||||||||||
in
Sentinel Omaha, LLC
|
(14,051,367 | ) | - | |||||||
38,032,810 | 61,430,722 | |||||||||
Other
Assets -
|
||||||||||
Cash
and cash equivalents
|
232,584 | 544,241 | ||||||||
Other
|
235,796 | 88,561 | ||||||||
Total
assets
|
$ | 38,501,190 | $ | 62,063,524 | ||||||
Liabilities:
|
||||||||||
Mortgage
notes and unsecured loan payable
|
$ | 38,688,316 | $ | 38,806,090 | ||||||
Accounts
payable and accrued expenses
|
345,237 | 556,892 | ||||||||
Tenant
security deposits
|
25,580 | 25,580 | ||||||||
Other
liabilities in discontinued operations
|
90,860 | 110,753 | ||||||||
|
Total
liabilities
|
39,149,993 | 39,499,315 | |||||||
Partners'
Capital (Deficit):
|
||||||||||
Units
of partnership interest without par value;
|
||||||||||
Limited
partner - 7,753 units
|
(630,284 | ) | 22,579,734 | |||||||
General
partner - 1 unit
|
(18,519 | ) | (15,525 | ) | ||||||
Total
partners' capital (deficit)
|
(648,803 | ) | 22,564,209 | |||||||
|
Total
liabilities and partners' capital (deficit)
|
$ | 38,501,190 | $ | 62,063,524 | |||||
See
notes to consolidated financial statements
|
2
SB
PARTNERS
(A New York Limited
Partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For
the Three Months
|
For
the Nine Months
|
||||||||||||||||
Ended
September 30,
|
Ended
September 30,
|
||||||||||||||||
2009
|
2008
|
2009
|
2008
|
||||||||||||||
Revenues:
|
|||||||||||||||||
Base
rental income
|
$ | 626,730 | $ | 604,464 | $ | 1,859,648 | $ | 1,813,362 | |||||||||
Other
rental income
|
148,643 | 67,320 | 426,196 | 329,050 | |||||||||||||
Interest
on short-term investments and other
|
11 | 2,615 | 165 | 14,856 | |||||||||||||
Total
revenues
|
775,384 | 674,399 | 2,286,009 | 2,157,268 | |||||||||||||
Expenses:
|
|||||||||||||||||
Real
estate operating expenses
|
76,038 | 79,416 | 316,575 | 306,954 | |||||||||||||
Interest
on mortgage notes & unsecured loan payable
|
369,203 | 494,489 | 1,120,760 | 1,557,590 | |||||||||||||
Depreciation
and amortization
|
215,201 | 225,926 | 645,605 | 677,778 | |||||||||||||
Real
estate taxes
|
89,413 | 25,482 | 312,447 | 226,346 | |||||||||||||
Management
fees
|
216,831 | 275,849 | 643,003 | 671,844 | |||||||||||||
Other
|
53,690 | 32,033 | 79,722 | 51,238 | |||||||||||||
Total
expenses
|
1,020,376 | 1,133,195 | 3,118,112 | 3,491,750 | |||||||||||||
Loss
from operations
|
(244,992 | ) | (458,796 | ) | (832,103 | ) | (1,334,482 | ) | |||||||||
Equity
in net income (loss) of investment
|
(4,796,879 | ) | 589,813 | (8,799,840 | ) | (25,468 | ) | ||||||||||
Reserve for
investment
|
(14,051,367 | ) | - | (14,051,367 | ) | - | |||||||||||
Income
(loss) from continuing operations
|
(19,093,238 | ) | 131,017 | (23,683,310 | ) | (1,359,950 | ) | ||||||||||
Income
from discontinued operations
|
123,740 | 87,797 | 470,298 | 213,707 | |||||||||||||
Net
income (loss)
|
(18,969,498 | ) | 218,814 | (23,213,012 | ) | (1,146,243 | ) | ||||||||||
Income
(loss) allocated to general partner
|
(2,447 | ) | 28 | (2,994 | ) | (148 | ) | ||||||||||
Income
(loss) allocated to limited partners
|
$ | (18,967,051 | ) | $ | 218,786 | $ | (23,210,018 | ) | $ | (1,146,095 | ) | ||||||
Earnings
(loss) per unit of limited partnership interest
|
|||||||||||||||||
(basic
and diluted)
|
|||||||||||||||||
Continuing
operations
|
$ | (2,462.69 | ) | $ | 16.90 | $ | (3,054.73 | ) | $ | (175.41 | ) | ||||||
Discontinued
operations
|
$ | 15.96 | $ | 11.32 | $ | 60.66 | $ | 27.56 | |||||||||
Net
income (loss)
|
$ | (2,446.73 | ) | $ | 28.22 | $ | (2,994.07 | ) | $ | (147.85 | ) | ||||||
Weighted
Average Number of Units of Limited
|
|||||||||||||||||
Partnership
Interest Outstanding
|
7,753 | 7,753 | 7,753 | 7,753 | |||||||||||||
See
notes to consolidated financial statements
|
3
SB
PARTNERS
(A New York Limited
Partnership)
CONSOLIDATED
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the nine months ended
September 30, 2009 (Unaudited
Limited
Partners:
|
||||||||||||||||||||
Units
of Partnership Interest
|
||||||||||||||||||||
Cumulative
|
Accumulated
|
|||||||||||||||||||
Number
|
Amount
|
Cash
Distributions
|
Earnings
(Losses)
|
Total
|
||||||||||||||||
Balance,
January 1, 2009
|
7,753 | $ | 119,968,973 | $ | (111,721,586 | ) | $ | 14,332,347 | $ | 22,579,734 | ||||||||||
Net
loss
|
- | - | - | (23,210,018 | ) | (23,210,018 | ) | |||||||||||||
Balance,
September 30, 2009
|
7,753 | $ | 119,968,973 | $ | (111,721,586 | ) | $ | (8,877,671 | ) | $ | (630,284 | ) | ||||||||
General
Partner:
|
||||||||||||||||||||
Units
of Partnership Interest
|
||||||||||||||||||||
Cumulative
|
Accumulated
|
|||||||||||||||||||
Number
|
Amount
|
Cash
Distributions
|
Earnings
(Losses)
|
Total
|
||||||||||||||||
Balance,
January 1, 2009
|
1 | $ | 10,000 | $ | (26,364 | ) | $ | 839 | $ | (15,525 | ) | |||||||||
Net
loss
|
- | - | - | (2,994 | ) | (2,994 | ) | |||||||||||||
Balance,
September 30, 2009
|
1 | $ | 10,000 | $ | (26,364 | ) | $ | (2,155 | ) | $ | (18,519 | ) | ||||||||
See notes
to consolidated financial statements.
4
SB
PARTNERS
(A New York Limited
Partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For
the Nine Months
|
||||||||
Ended
September 30,
|
||||||||
2009
|
2008
|
|||||||
Cash
Flows From Operating Activities:
|
||||||||
Net
loss
|
$ | (23,213,012 | ) | $ | (1,146,243 | ) | ||
Adjustments
to reconcile net loss to net cash
|
||||||||
(used
in) operating activities:
|
||||||||
Equity
in net loss of investment
|
8,799,840 | 25,468 | ||||||
Reserve
for investment
|
14,051,367 | - | ||||||
Depreciation
and amortization
|
645,605 | 777,557 | ||||||
Net
(increase) in operating assets
|
(162,616 | ) | (27,939 | ) | ||||
Net
increase (decrease) in operating liabilities
|
(211,654 | ) | 122,944 | |||||
Net
(decrease) in liabilities in discontinued operations
|
(19,893 | ) | - | |||||
Net
cash (used in) operating activites
|
(110,363 | ) | (248,213 | ) | ||||
Cash
Flows From Investing Activities:
|
||||||||
Capital
additions to real estate owned
|
(83,520 | ) | (14,102 | ) | ||||
Net
cash (used in) investing activites
|
(83,520 | ) | (14,102 | ) | ||||
Cash
Flows From Financing Activities:
|
||||||||
Principal
payments on mortgage notes payable
|
(117,774 | ) | (98,964 | ) | ||||
Distributions
paid to partners
|
- | (852,885 | ) | |||||
Net
cash (used in) financing activities
|
(117,774 | ) | (951,849 | ) | ||||
Net
change in cash and cash equivalents
|
(311,657 | ) | (1,214,164 | ) | ||||
Cash
and cash equivalents at beginning of period
|
544,241 | 1,679,152 | ||||||
Cash
and cash equivalents at end of period
|
$ | 232,584 | $ | 464,988 | ||||
Supplemental
disclosure of cash flow information:
|
||||||||
Cash
paid during the period for interest
|
$ | 1,120,760 | $ | 1,475,719 | ||||
|
||||||||
See notes
to consolidated financial statements.
5
SB
PARTNERS
Notes to
Consolidated Financial Statements (Unaudited)
(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 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 nine
month period ended September 30, 2009 are not necessarily indicative of the
results to be expected for a full year.
For a
discussion of the significant accounting and financial reporting policies of the
Partnership, refer to the Annual Report on Form 10–K for the year ended December
31, 2008.
(2)
INVESTMENTS IN REAL ESTATE
|
As
of September 30, 2009, the Partnership owns an industrial flex property in
Maple Grove, Minnesota and warehouse distribution centers in Lino Lakes,
Minnesota and Naperville, Illinois. The following is the cost
basis and accumulated depreciation of the real estate investments owned by
the Partnership at September 30, 2009 and December 31,
2008:
|
No.
of
|
Year
of
|
Real
Estate at Cost
|
|||||||||||||||
Type
|
Prop.
|
Acquisition
|
Description
|
9/30/2009
|
12/31/2008
|
||||||||||||
Warehouse
distribution properties
|
2 | 2005-06 596,605 sf | $ | 36,366,710 | $ | 36,366,710 | |||||||||||
Less:
Accumulated depreciation
|
(2,796,507 | ) | (2,166,282 | ) | |||||||||||||
33,570,203 | 34,200,428 | ||||||||||||||||
Real
estate held for sale
|
(a)
|
2002 60,345 sf | 4,422,673 | 4,379,087 | |||||||||||||
Total
investments in real estate
|
$ | 37,992,876 | $ | 38,579,515 | |||||||||||||
|
|
||||||||||||||||
(a)
At September 30, 2009 and December 31, 2008, real estate held for sale
includes Eagle Lake IV Business Center.
|
6
(3)
INVESTMENT IN SENTINEL OMAHA, LLC
In 2007,
the Partnership made an investment in the amount of $37,200,000 in Sentinel
Omaha, LLC (“Omaha”), the manager of which is an affiliate of the Partnership’s
General Partner. The investment represents a 30% ownership interest
in Omaha.
The
following are the condensed financial statements (000’s omitted) of Omaha as of
and for the periods ended September 30, 2009 and December 31, 2008.
(Unaudited)
|
(Audited)
|
|||||||
Balance
Sheet
|
September
30, 2009
|
December
31, 2008
|
||||||
Investment
in real estate, net
|
$ | 390,750 | $ | 444,500 | ||||
Other
assets
|
12,905 | 12,536 | ||||||
Debt
|
(349,462 | ) | (373,035 | ) | ||||
Other
liabilities
|
(7,335 | ) | (7,810 | ) | ||||
Member's
Equity
|
$ | 46,858 | $ | 76,191 | ||||
(Unaudited)
|
||||||||
Statement
of Operations
|
September
30, 2009
|
|||||||
Rent
and other income
|
$ | 38,251 | ||||||
Real
estate operating expenses
|
(20,918 | ) | ||||||
Other
income and expenses
|
(15,299 | ) | ||||||
Unrealized
losses
|
(31,900 | ) | ||||||
Realized
gain on sale
|
533 | |||||||
Net
loss
|
$ | (29,333 | ) |
The Omaha
investment reports on a fair value basis and due to the mortgage crisis,
stagnant real estate market and slowing economy, the investment in Omaha
reported an additional write-down in the value of its real estate portfolio of
approximately $32,757,000 (6.3%) for the nine months ended September 30,
2009. In addition, the Partnership made its own analysis of the
current and projected financial condition of Omaha. The Partnership
anticipates a continuing reduction of the values of the properties in the Omaha
portfolio. On July 1, 2009, Omaha executed an extension of its
unsecured mortgage. The extension, among other items, increased the
spread on the interest rate on the unsecured debt by approximately 390 basis
points. The current outstanding balance of the unsecured debt is
approximately $93 million increasing the interest expense on that balance by
approximately $3,600,000 per annum. The Partnership projects Omaha’s
cash reserves may be depleted during 2010 or 2011 due to higher interest rate
spreads on its unsecured loan. A comparison of the estimated current
value of the real estate portfolio to the total related mortgage debt reports an
approximate loan to value ratio of 89%. The Partnership expects Omaha
may not have new sources of cash available due to the continued constrained
credit market. Omaha may not be able to extend its unsecured mortgage
in 2011 or may default on the unsecured loan sooner due to not meeting debt
service and loan to value covenants. Also, under the terms of the
mortgage extension, Omaha is precluded from making distributions to its
investors until its unsecured mortgage is paid off. As a result of
the aforementioned, the Partnership has reserved 100% of the reported value of
its investment in Omaha on the balance sheet as of September 30,
2009.
(4) MORTGAGE
NOTES AND UNSECURED LOAN PAYABLE
Mortgage notes and unsecured loan
payable consist of the following non-recourse first liens:
Annual
|
Net
Carrying Amount
|
|||||||||||||||||||
Interest
|
Installment
|
Amount
Due
|
September
30,
|
December
31,
|
||||||||||||||||
Property
|
Rate
|
Maturity Date Payments |
at
Maturity
|
2009
|
2008
|
|||||||||||||||
Lino
Lakes
|
5.800 | % |
October,
2015
|
580,000 |
(a)
|
$ | 10,000,000 | $ | 10,000,000 | $ | 10,000,000 | |||||||||
Ambassador
Drive
|
5.880 | % |
October,
2010
|
554,178 |
(b)
|
6,508,785 | 6,688,316 | 6,806,090 | ||||||||||||
Bank
Loan:
|
||||||||||||||||||||
Unsecured
(c )
|
|
22,000,000 | 22,000,000 | |||||||||||||||||
$ | 38,688,316 | $ | 38,806,090 | |||||||||||||||||
7
(a) Annual
installment payments include interest only.
(b)
Annual installment payments include principal and interest.
(c)
On September 17, 2007, the Partnership entered into a bank loan (the “Loan”)
with a bank in the amount of $22,000,000,
that matured on October 1, 2008 and provided for interest only monthly payments
based upon LIBOR plus 1.95%. The outstanding amount of the Loan at September 30,
2009 was $22,000,000. The holder of the Loan formally extended the
maturity to February 28, 2009 and has continued negotiations for a longer term
extension. The Partnership has remained current on all monthly
interest payments under the terms of the original extension. On July
1, 2009 the Partnership received written notice from the holder of the Loan
which makes demand for the immediate payment of the Loan. If the
outstanding obligation is not paid, the holder may initiate appropriate action
to collect the outstanding obligations, including enforcement of its rights and
remedies under the loan documents or applicable law. The Partnership
and the holder continue discussions as to terms for extending the Loan on a
longer term basis. There can be no assurance that the holder will offer such
extension or that the Partnership will be able to comply with the terms offered
and conditions that may be imposed by the holder in exchange for such extension.
This matter raises substantial doubt regarding the Partnership’s ability to
continue as a going concern.
8
ITEM
2. MANAGEMENT'S
DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
General
The consolidated
financial statements for the three and nine months ended September 30, 2009 and
2008, reflect the operations of one industrial flex property and two warehouse
distribution centers as well as a 30% interest in Omaha.
Results
of Operations
Total revenues from continuing
operations for the three months ended September 30, 2009 increased approximately
$101,000 to approximately $775,000 from approximately $674,000 for the three
months ended September 30, 2008. Loss from continuing operations
increased approximately $19,224,000 to loss of approximately $19,093,000 for the
three months ended September 30, 2009, as compared to an approximate income of
$131,000 for the three months ended September 30, 2008. Income
from discontinued operations for the three months ended September 30, 2009
increased by approximately $36,000 to approximately $124,000 from an approximate
income of $88,000 for the same period in 2008. Total expenses from continuing
operations for the three months ended September 30, 2009 decreased approximately
$127,000 to approximately $1,020,000 from approximately $1,133,000 for the three
months ended September 30, 2008.
Total revenues from continuing
operations for the nine months ended September 30, 2009 increased approximately
$129,000 to approximately $2,286,000 from approximately $2,157,000 for the nine
months ended September 30, 2008. Loss from continuing operations
increased approximately $22,323,000 to a loss of approximately $23,683,000 for
the nine months ended September 30, 2009, as compared to an approximate loss of
$1,360,000 for the nine months ended September 30, 2008. Income
from discontinued operations for the nine months ended September 30, 2009
increased by approximately $257,000 to approximately $470,000 from an
approximate income of $214,000 for the same period in 2008. Total expenses from
continuing operations for the nine months ended September 30, 2009 decreased
approximately $388,000 to approximately $3,118,000 from approximately $3,492,000
for the nine months ended September 30, 2008.
The change in net loss from
continuing operations for the three and nine months ended September 30, 2009 is
primarily the result of the increase in equity in net loss of
investment. This increase in the equity in net loss of investment is
due to the further write-down by Omaha in the value of the properties and
mortgages in its portfolio coupled with Registrant’s reserving 100% of the
remaining estimated current value of its investment in Omaha. The
Omaha investment reports on a fair value basis and due to the mortgage crisis,
stagnant real estate market and slowing economy, the investment in Omaha
reported an additional write-down in the value of its real estate portfolio of
approximately $32,757,000 (6.3%) for the nine months ended September 30,
2009. In addition, Registrant made its own analysis of the
current and projected financial condition of Omaha. Registrant
anticipates a continuing reduction of the values of the properties in the Omaha
portfolio and projects Omaha’s cash reserves will be depleted due to higher
interest rate spreads on its unsecured loan. Registrant expects Omaha
may not have new sources of cash available due to the continued constrained
credit market. Omaha may not be able to extend its unsecured mortgage
in 2011 or may default on the unsecured loan sooner due to not meeting debt
service and loan to value covenants. Also, under the terms of the
mortgage extension Omaha signed effective July 1, 2009, Omaha is precluded from
making distributions to its investors until its unsecured mortgage is paid
off. As a result of the aforementioned, Registrant has reserved 100%
of the reported value of its investment in Omaha on the balance sheet as of
September 30, 2009.
The decrease in expenses for the
three and nine month period is primarily the result of lower interest expense on
mortgages due to lower floating rates. In addition, expenses were lower due to a
reduction in amortization of deferred financing costs. On December
18, 2008, Registrant started marketing its industrial flex property in Minnesota
for a sale. The asset was classified as an asset held for sale and
Registrant stopped recording depreciation expense on the asset. The reduction of
depreciation expense partially offset by a decrease in other income at the
industrial flex property is the reason for the increase in income from
discontinued operations for the three month period ended September 30, 2009 as
compared to 2008. The reduction of depreciation expense and an increase in other
income at the industrial flex property is the reason for the increase in income
from discontinued operations for the nine month period ended September 30, 2009
as compared to 2008. 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, 2008. There were no significant
changes to such policies in 2009. There are no accounting pronouncements or
interpretations that have been issued, but not yet adopted, that the Partnership
believes will have a material impact on its consolidated financial
statements.
9
Liquidity and Capital
Resources
As of September 30, 2009, the
Registrant had cash and cash equivalents of approximately $233,000. These
balances are approximately $312,000 lower than cash and cash equivalents held on
December 31, 2008. Cash and cash
equivalents were lower as Registrant paid down operating liabilities, scheduled
mortgage principal payments and capital costs for the industrial flex property
in Minnesota.
Total outstanding debt at September
30, 2009, consisted of approximately $16,688,000 of long-term non-recourse first
mortgage notes, secured by real estate owned by the Registrant and $22,000,000
under an unsecured credit facility (see Note 4 to the Consolidated Financial
Statements). The Registrant has no other debt except normal trade accounts
payable and accrued management fees.
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. However,
the real estate market continues to suffer through one of its worst debt
crises. Interest rates are still high and some borrowers still find
it difficult to secure debt at acceptable terms as lenders continue to impose
stricter terms on borrowers. Registrant’s unsecured credit facility matured
October 1, 2008. The holder of the unsecured debt formally
extended the maturity to February 28, 2009.
As
a result of Registrant’s inability to replace, extend or refinance the unsecured
credit facility, in their report dated May 27, 2009 as of and for the year ended
December 31, 2008, Registrant’s independent auditors expressed substantial doubt
as to Registrant’s ability to continue as a going concern. On July 1,
2009 Registrant received written notice from the holder of the Loan which makes
demand for the immediate payment of the Loan. If the outstanding
obligation is not paid, the holder may initiate appropriate action to collect
the outstanding obligations, including enforcement of its rights and remedies
under the loan documents or applicable law. The holder and Registrant continue
to discuss terms for extending the Loan on a longer term basis. There can be no
assurance that the holder will offer such extension or that Registrant will be
able to comply with the terms offered and conditions that may be imposed by the
holder in exchange for such extension.
The Registrant’s properties are
expected to generate sufficient cash flow to cover operating and capital
improvement costs and other working capital requirements of the Registrant for
the foreseeable future. If an extension of the Loan cannot be
obtained, Registrant would not have sufficient funds to pay the
obligation.
The Omaha
investment reports on a fair value basis and due to the mortgage crisis,
stagnant real estate market and slowing economy, the investment in Omaha
reported an additional write-down in the value of its real estate portfolio of
approximately $32,757,000 (6.3%) for the nine months ended September 30,
2009. In addition, Registrant made its own analysis of the
current and projected financial condition of Omaha. Registrant
anticipates a continuing reduction of the values of the properties in the Omaha
portfolio. On July 1, 2009, Omaha executed an extension of its
unsecured mortgage. The extension, among other items, increased the
spread on the interest rate on the unsecured debt by approximately 390 basis
points. The current outstanding balance of the unsecured debt is
approximately $93 million increasing the interest expense on that balance by
approximately $3,600,000 per annum. Registrant projects Omaha’s cash
reserves may be depleted during 2010 or 2011 due to higher interest rate spreads
on its unsecured loan. A comparison of the current value of the real
estate portfolio to the total related mortgage debt reports an approximate loan
to value ratio of approximately 89%. Registrant expects Omaha may not
have new sources of cash available due to the continued constrained credit
market. Omaha may not be able to extend its unsecured mortgage in
2011 or may default on the unsecured loan sooner due to not meeting debt service
and loan to value covenants. Also, under the terms of the mortgage
extension, Omaha is precluded from making distributions to its investors until
its unsecured mortgage is paid off. As a result of the
aforementioned, Registrant does not anticipate receiving any distributions from
Omaha during the foreseeable future and has reserved 100% of the reported value
of its investment in Omaha on the balance sheet as of September 30,
2009.
2009 vs.
2008
Eagle Lake Business Center
IV (Maple Grove, Minnesota)
Total revenues for the three months
ended September 30, 2009, decreased approximately $12,000 to approximately
$190,000 from approximately $202,000. Other income decreased
approximately $16,000. Earlier in the current year, the tenant was
billed for additional operating expense reimbursements related to prior year
costs. During the past quarter, a portion of this extra billing was
reversed. Rental income was slightly higher for the three months
ended September 30, 2009 as compared to 2008. Net income for the three months
ended September 30, 2009 increased approximately $36,000 to approximately
$124,000 from $88,000 for the three months ended September 30, 2008 due
primarily to lower depreciation and amortization expense partially offset by the
aforementioned decrease in operating expense reimbursements. Recording
depreciation expense was discontinued as of December 18, 2008 due to Registrant
classifying the property as real estate held for sale.
Total revenues for the nine months
ended September 30, 2009, increased approximately $149,000 to approximately
$718,000 from approximately $569,000. Other income increased
approximately $103,000 due to billing the tenant additional operating expense
reimbursements for the prior year. Rental income was also higher for
the nine months ended September 30, 2009 as compared to 2008. In 2008
the tenant received a scheduled abatement for rent for January
2008. Net income for the nine months ended September 30, 2009
increased approximately $256,000 to approximately $470,000 from $214,000 for the
nine months ended September 30, 2008 due primarily to lower depreciation and
amortization expense as well as the aforementioned increases in total revenues.
Recording depreciation expense was discontinued as of December 18, 2008 due to
Registrant classifying the property as real estate held for sale.
10
435 Park Court (Lino Lakes,
Minnesota)
Total revenues for the three months
ended September 30, 2009 increased approximately $100,000 to approximately
$420,000 from approximately $320,000 for the three months ended September 30,
2008. Other Income increased approximately $86,000 due to an increase in real
estate tax reimbursement. Rental Income increased approximately
$14,000 due to a scheduled rate increase. Net income, which includes
deductions for interest expense and depreciation, increased approximately
$36,000 to approximately $63,000 as compared to approximately $28,000 for the
three months ended September 30, 2008. The aforementioned increase in
other income and rental income was partially offset by an increase in real
estate tax expense.
Total revenues for the nine months
ended September 30, 2009 increased approximately $126,000 to approximately
$1,233,000 from approximately $1,107,000 for the nine months ended September 30,
2008. Other Income increased approximately $110,000 due to an increase in real
estate tax reimbursement. Rental Income increased approximately
$16,000 due to a scheduled rate increase. Net income, which includes
deductions for interest expense and depreciation, increased approximately
$39,000 to approximately $124,000 as compared to approximately $85,000 for the
nine months ended September 30, 2008. The aforementioned increase in
other income and rental income was partially offset by an increase in real
estate tax expense.
175 Ambassador Drive
(Naperville, Illinois)
Total
revenues for the three months ended September 30, 2009, increased approximately
$13,000 to approximately $355,000 from approximately $342,000 for the three
months ended September 30, 2008 due to higher rental and other
income. Rental Income increased due to a scheduled rate
increase. Net income, which includes deductions for interest and
depreciation, for the three months ended September 30, 2009 increased
approximately $18,000 to approximately $104,000 from $86,000 for the three
months ended September 30, 2008 due primarily to an increase in rental income
combined with decreases in interest expense and insurance expense.
Total revenues for the nine months
ended September 30, 2009, increased approximately $30,000 to approximately
$1,053,000 from approximately $1,023,000 for the nine months ended September 30,
2008 due to higher rental income. Rental Income increased due to a
scheduled rate increase. Other Income remained approximately the
same. Net income, which includes deductions for interest and
depreciation, for the nine months ended September 30, 2009 increased
approximately $47,000 to approximately $286,000 from $239,000 for the nine
months ended September 30, 2008 due primarily to an increase in rental income
combined with decreases in interest expense, insurance and administrative
expense.
Investment in Sentinel
Omaha, LLC
During the second and third quarters
of 2007, the Registrant acquired a 30% interest in Sentinel Omaha, LLC for
$37,200,000. On September 18, 2007, Omaha acquired all the
outstanding common shares of America First Apartment Investors, Inc. (“AFAI”) in
a transaction valued at $532 million, including the assumption of outstanding
debt and excluding transaction costs. At the time of the acquisition,
AFAI’s portfolio was comprised of 31 apartment communities and one office
complex. As of September 30, 2009, Omaha has sold seven of the 31
apartment communities including two apartment communities in Oklahoma City, OK
and Omaha, NE during the third quarter 2009 to further its continuing goal of
reducing the level of its debt obligations.
Total revenues for the three months
ended September 30, 2009 were approximately $12,160,000. Loss before
unrealized and realized net losses was $280,000. Major expenses
included approximately $4,713,000 for interest expense, $1,441,000 for repairs
and maintenance, $2,010,000 for payroll and $1,398,000 for real estate taxes.
Omaha reported unrealized net losses of approximately $16,243,000 from the
valuation of its real estate portfolio and its related
mortgages. Omaha reported realized net gains of approximately
$533,000 on the sale of properties in Oklahoma City, OK and Omaha, NE during the
third quarter 2009. For the three months ended September 30, 2009,
Registrant’s equity interest in the loss of Omaha was approximately
$4,797,000. Total revenues for the three months ended September 30,
2008 were approximately $13,599,000. The revenues decreased for the three months
ended September 30, 2009 as compared to 2008 due to the sale of two properties
in July 2009 as well as a decrease in average occupancy which has lead to an
increase in concession costs at the apartment properties. Income before
deductions for unrealized losses and realized losses was $187,000 for the three
months ended September 30, 2008. The primary reason income decreased
for the three months ended September 30, 2009 as compared to 2008 was lower
total revenues and higher interest expense partially offset by lower operating
expenses. Interest expense increased due to a significant increase in
the interest rate spread for the unsecured mortgage as part of an extension
agreement effective May 31, 2009. Operating expenses decreased due to
the aforementioned sale of the properties in Oklahoma City, OK and Omaha,
NE. Major expenses for the three months ended September 30, 2008
included approximately $4,927,000 for interest expense, $1,784,000 for repairs
and maintenance, $2,138,000 for payroll and $1,510,000 for real estate taxes. In
addition, Omaha reported realized gains on sales of two apartment properties of
approximately $1,099,000 for the three months ended September 30, 2008. The
properties sold were located in Bristol, Tennessee and Tulsa, Oklahoma. In
addition, Omaha reported unrealized gains of approximately
$679,000. For the three months ended September 30, 2008, the
Registrant’s equity interest in the income of Omaha was approximately
$590,000.
11
Total revenues for the nine months
ended September 30, 2009 were approximately $38,251,000 as compared to
$41,178,000 for the nine months ended September 30, 2008. The revenues decreased
for the nine months ended September 30, 2009 as compared to 2008 due to the sale
of two properties during the third quarter of 2009. In addition,
average occupancy declined which has lead to an increase in concession
costs at the apartment properties. The decline in occupancy and the increase in
concessions costs are due to the significant slowing of the U.S. economy and the
higher unemployment. Also many renters are buying homes due to the
dramatic reduction in price as well as the Federal government’s one time buyer’s
tax credit. Income before unrealized losses and realized gains was
$2,034,000 for the nine months ended September 30, 2009 as compared to
$1,871,000 for the nine months ended September 30, 2008. The primary
reason income increased for the nine months ended September 30, 2009 as compared
to 2008 was lower interest expense due to lower variable rates partially offset
by the aforementioned lower revenues. During the nine months ended September 30,
2009, Omaha reported unrealized net losses of approximately $31,900,000 from the
valuation of its real estate portfolio and the its related mortgages as compared
to unrealized net losses of $984,000 for the nine months ended September 30,
2008. In addition, Omaha reported a net realized gain on the sale of
two properties of $533,000 for the nine months ended September 30, 2009 as
compared to realized losses on sales of five apartment properties of
approximately $1,652,000 for the nine months ended September 30,
2008. The properties sold in 2009 were located in Oklahoma City, OK
and Omaha, NE. The properties sold in 2008 were located in
Southfield, Michigan, Ann Arbor, Michigan, Newport News, Virginia, Bristol,
Tennessee and Tulsa, Oklahoma. For the nine months ended September 30, 2009, the
Registrant’s equity interest in the losses of Omaha was approximately $8,800,000
as compared to an approximate loss of $25,000 for the nine months ended
September 30, 2008.
12
ITEM
3.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES
ABOUT
MARKET RISK
AS OF AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 2009
On
September 17, 2007, the Registrant entered into an unsecured 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. Based on the weighted average outstanding balance
under the credit facility for the three months ended September 30, 2009, a 1%
change in LIBOR would impact the Registrant’s three and nine month net loss and
cash flows by approximately $55,000 and $110,000, respectively.
ITEM
4T.
CONTROLS AND
PROCEDURES
|
(a)
|
The
Chief Executive Officer and the Principal Accounting & Financial
Officer of the general partner of SB Partners have evaluated the
disclosure controls and procedures relating to the Registrant’s Quarterly
Report on Form 10-Q for the period ended September 30, 2009 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 over financial
reporting during the quarter ended September 30, 2009 have materially
affected or are reasonably likely to materially affect the Registrant’s
internal controls over financial
reporting.
|
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
|
||
Dated:
December 1, 2009
|
By:
|
/s/ David Weiner
|
David
Weiner
|
||
Chief
Executive Officer
|
||
Principal
Financial & Accounting Officer
|
||
Dated:
December 1, 2009
|
By:
|
/s/ John H. Zoeller
|
John
H. Zoeller
|
||
Chief
Financial Officer
|
||
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)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the Registrant and
have:
|
|
(a)
|
designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
|
|
(b)
|
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.
|
Dated:
December 1, 2009
|
By:
|
/s/ David Weiner
|
David
Weiner
|
||
Chief
Executive Officer
|
15
John H.
Zoeller, certify that:
|
(1)
|
I
have reviewed this quarterly report on Form 10-Q of SB
Partners;
|
|
(2)
|
Based
on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|
|
(3)
|
Based
on my knowledge, the financial statements, and other financial information
included in this quarterly report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this quarterly
report.
|
|
(4)
|
The
Registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the Registrant and
have:
|
|
(a)
|
designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
|
|
(b)
|
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 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.
|
Dated:
December 1, 2009
|
By:
|
Principal
Financing & Accounting Officer
|
/s/ John H. Zoeller
|
||
John
H. Zoeller
|
||
Chief
Financial Officer
|
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 September 30, 2009 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.
|
Dated: December
1, 2009
|
By:
|
/s/ David Weiner
|
David
Weiner
|
||
Chief
Executive Officer
|
CERTIFICATION
PURSUANT TO
18 U.S.C.
SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report of SB Partners (the “Partnership”) on Form
10-Q for the period ended September 30, 2009 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.
|
Dated: December
1, 2009
|
By:
|
Principal
Financing & Accounting Officer
|
/s/ John H. Zoeller
|
||
John
H. Zoeller
|
||
Chief
Financial Officer
|