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)

Or

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

INDEX

ITEM 1. FINANCIAL STATEMENTS

SB PARTNERS

Notes to Consolidated Financial Statements (Unaudited)

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014

General

The consolidated financial statements for the three and six months ended June 30, 2015 and 2014 reflect the operations of one industrial flex property and one warehouse distribution center as well as a 30% interest in Omaha.

Registrant’s wholly owned property located in Lino Lakes, Minnesota is 100% leased to a single tenant until September 30, 2017. The tenant’s base rent is fixed and there are no remaining increases scheduled during the initial lease period. The tenant has two options to renew its lease for five years each at a yet undetermined market rate. Tenant either pays directly or reimburses Registrant for all utilities, real estate taxes, insurance and most of the property operating expenses and property management fees. Registrant’s wholly owned property located in Maple Grove, Minnesota is 100% leased to a single tenant until October 31, 2019. However, tenant has on ongoing option to terminate the lease after July 31, 2017 under certain conditions as set forth in the lease terms as amended. One of the conditions is the payment of an early termination penalty the calculation of which is based on the remaining time period in the lease. Another condition is the tenant must provide notice twelve months prior to the termination. The tenant pays fixed base rent which increases approximately 3% each year. The tenant pays directly or reimburses Registrant for all utilities, real estate taxes, insurance and most of the property operating expenses and property management fees. Sentinel Omaha LLC’s portfolio consists of 13 garden apartment properties and one high rise apartment property. Leases generally are for one year or less. Tenants generally pay fixed rent plus utilities used by tenant.

Registrant’s property located in Lino Lakes, MN is encumbered by a $10,000,000 mortgage which matures October 5, 2015. It is unlikely Registrant will be able to refinance or extend the maturity date of the mortgage due to the remaining short term of the single tenant who currently leases 100% of the space. Accordingly, Registrant engaged a broker to market the property for sale. On July 20, 2015, Registrant executed a contract to sell the property for $16,050,000 to an unrelated buyer. The sale is expected to be completed in September 2015. Net proceeds will be used first to pay off the property mortgage and all closing costs. All of the remaining proceeds will be used to pay down the Registrant’s bank loan.

Results of Operations

Total revenues from continuing operations for the three months ended June 30, 2015 decreased $45,000 to approximately $248,000 as compared to approximately $293,000 for the three months ended June 30, 2014. Total revenues decreased due to a decrease in other rental income partially offset by an increase in base rental income. Base rental income increased $4,000 to approximately $160,000 for the three months ended June 30, 2015 as compared to the same period in 2014 due to a scheduled increase in base rent at Registrant’s property located in Maple Grove, MN. Other rental income decreased $49,000 to approximately $88,000 for the three months ended June 30, 2015 from approximately $137,000 for the same period in 2014 due to lower expense reimbursement from the tenant at Registrant’s property located in Maple Grove, MN.

Loss from continuing operations increased $22,000 to a loss of approximately $271,000 for the three months ended June 30, 2015, as compared to an approximate loss of $249,000 for the three months ended June 30, 2014 due to the aforementioned decrease in revenues partially offset by a decrease in total expenses. Total expenses from operations for the three months ended June 30, 2015, decreased $23,000 to approximately $519,000 from approximately $542,000 for the three months ended June 30, 2014. Total operating expenses decreased due to lower real estate operating expenses combined with lower amortization costs. Operating expenses were lower due to lower repairs and maintenance and administrative costs at Registrant’s property located in Maple Grove, MN.

Total revenues from continuing operations for the six months ended June 30, 2015 decreased $24,000 to approximately $497,000 as compared to approximately $521,000 for the six months ended June 30, 2014. Total revenues decreased due to a decrease in other rental income partially offset by an increase in base rental income. Base rental income increased $9,000 to approximately $320,000 for the six months ended June 30, 2015 as compared to the same period in 2014 due to a scheduled increase in base rent at Registrant’s property located in Maple Grove, MN. Other rental income decreased $34,000 to approximately $176,000 for the six months ended June 30, 2015 from approximately $210,000 for the same period in 2014 due to lower expense reimbursement from the tenant at Registrant’s property located in Maple Grove, MN.

Loss from continuing operations decreased $20,000 to a loss of approximately $563,000 for the six months ended June 30, 2015, as compared to an approximate loss of $583,000 for the six months ended June 30, 2014 due to the aforementioned decrease in revenues partially offset by a decrease in total expenses. Total expenses from operations for the six months ended June 30, 2015, decreased $44,000 to approximately $1,060,000 from approximately $1,104,000 for the six months ended June 30, 2014. Total operating expenses decreased due to lower real estate operating expenses combined with lower amortization costs. Operating expenses were lower due to lower repairs and maintenance and administrative costs at Registrant’s property located in Maple Grove, MN.

The Registrant has a 30% non-controlling interest in Omaha that is accounted for on a fair value basis. Due to the global financial crisis, stagnant real estate market and slowing economy, Omaha reported a net write-down of the value of its real estate portfolio of approximately $100,852,000 (-18.6%) during 2008 to 2014. During 2014 and 2015 capitalization rates for older properties in tertiary markets where Omaha owns most of its properties, generally were lower than for the prior year. Occupancy improved at some of the properties while occupancy went down at others. Job growth continued to improve but at a slow pace. For the six months ended June 30, 2015, Omaha reported net income of approximately $7,611,000. Registrant’s share was approximately $2,283,000. On September 30, 2013, Omaha executed a modification and extension of its unsecured loan to December 31, 2017. Omaha is precluded from making distributions to its investors until its unsecured loan is paid in full. As a result of the aforementioned, Registrant does not anticipate receiving any distributions from Omaha during the foreseeable future and had reserved 100% of the reported value of its investment in Omaha on the balance sheet as of June 30, 2015 and December 31, 2014.

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, 2014. There were no significant changes to such policies in 2015. There are no accounting pronouncements or interpretations that have been issued, but not yet adopted, that Registrant believes will have a material impact on its consolidated financial statements.

Liquidity and Capital Resources

As of June 30, 2015, the Registrant had cash and cash equivalents of approximately $906,000. These balances are approximately $27,000 lower than cash and cash equivalents held on December 31, 2014. Cash and cash equivalents decreased during the six months ended June 30, 2015 due to interest and principal payments on Registrant’s bank loan and partnership expenses partially offset by cash flow generated from operating activities at Registrant’s two wholly owned properties.

As of June 30, 2015, Registrant’s only source of cash is rental income received from two tenants who lease 100% of the leasable space at Registrant’s two wholly owned properties. The tenants either pay directly or reimburse Registrant for real estate taxes, insurance and most of the properties’ operating expenses leaving a significant portion of the base rent received available to pay property debt service, current debt service on Registrant’s Note A, capital improvements and partnership administrative expenses. A portion of any remaining annual cash flow is used to pay down the principal balance of Note A in accordance with the Loan Agreement while the remainder cash income is retained by Registrant as cash reserves. As part of Registrant and the Holder restructuring the bank loan in 2011, Registrant set aside $500,000 in escrow to be held and used only to pay the costs to re-tenant the space at either of Registrant’s wholly owned properties if one or both of Registrant’s tenants default on their lease or fail to renew. See below Registrant’s discussion regarding the sale of the property located in Lino Lakes, MN.

Total outstanding debt at June 30, 2015 consisted of a $10,000,000 long-term non-recourse first mortgage note secured by real estate owned by the Registrant due in October 2015 and $9,828,751 under a loan agreement with a bank.

Registrant’s property located in Lino Lakes, MN is encumbered by a $10,000,000 mortgage which matures October 5, 2015. It is unlikely Registrant will be able to refinance or extend the maturity date of the mortgage due to the remaining short term of the single tenant who currently leases 100% of the space. During February, 2015, Registrant engaged a broker to market the property for sale. On July 20, 2015, Registrant executed a contract to sell the property for $16,050,000 to an unrelated buyer. The sale is expected to be completed in September 2015. Net proceeds will be used first to pay off the property mortgage and all closing costs. All of the remaining proceeds will be used to pay down the Registrant’s bank loan as described below.

The bank loan consists of Note A in the amount of $3,828,751 which matures July 2016 and Note B in the amount of $6,000,000 which matures April 2018. Many borrowers are still finding it difficult to secure debt at acceptable terms as lenders have imposed stricter terms on borrowers. If the Registrant does not have funds on hand sufficient to repay its indebtedness at maturity, the Registrant may need to refinance such indebtedness with new debt financing or provide necessary funds through equity offering(s). The Registrant may be unable to obtain a loan which will be sufficient to retire the existing loan. If it is unable to refinance this indebtedness on acceptable terms, the Registrant may be forced to dispose of properties upon disadvantageous terms, which could result in losses to the Registrant and adversely affect the amount of cash reserves. If prevailing interest rates or general economic conditions result in higher interest rates at a time when the Registrant must refinance its indebtedness, the Registrant's interest expense could increase, which would adversely affect the Registrant's results of operations and financial condition. Further, to the extent the Registrant's properties are mortgaged to secure payment of indebtedness and the Registrant is unable to meet the mortgage payments, mortgagee could foreclose or otherwise transfer the property, with a consequent loss of income and asset value to the Registrant. The Registrant has no other debt except normal trade accounts payable, accrued interest on mortgage notes payable and accrued investment management fees.

Although the two remaining commercial properties owned by the Registrant are 100% occupied, there remains a risk that one or both tenants could default on their respective leases. While the national industrial market improved in 2014, Registrant may require a long time period to replace one of its tenants should a default occur or should either or both of the tenants not renew their leases at the end of the lease term. In 2015 and 2014 most of the markets where Omaha has properties had reported a small improvement in employment and job growth.

During the quarter, inflation and changing prices did not significantly affect the markets in which the Registrant conducts its business, or the Registrant's business overall.

The Registrant's properties are expected to generate sufficient cash flow to cover operating and capital improvement costs, and other working capital requirements of the Registrant for the foreseeable future.

Sale of Real Estate Property

The sale of Registrant’s property located in Lino Lakes, MN is anticipated to be completed in September 2015. Sales proceeds after closing expenses will be used first to pay off the $10,000,000 mortgage held on the property and all remaining proceeds will be used to pay down the bank loan. It is anticipated that the excess sales proceeds after the selling expenses and the property mortgage will be sufficient to pay off the Bank Loan A Note and a portion of the Bank Loan B Note. If the A Note is paid off, interest on the B Note stops accruing.

After the sale of the property in Lino Lakes, MN, Registrant’s only current source of cash flow is from Registrant’s property located in Maple Grove, MN. Registrant expects cash flow from the Maple Grove property and capital reserves to cover operating and capital improvement costs, and other working capital requirements of the Registrant for the foreseeable future.

Eagle Lake Business Center IV (Maple Grove, Minnesota)

Total revenues for the three months ended June 30, 2015 decreased $45,000 to approximately $248,000 as compared to approximately $293,000 for the three months ended June 30, 2014. The property reported lower other rental income partially offset by higher base rental income. Base rental income was higher in 2015 as the tenant received a scheduled rent increase. Other rental income was lower due to a decrease in operating expense reimbursements from the tenant. Net income, which includes deductions for depreciation, decreased $40,000 for the three months ended June 30, 2015 to approximately $144,000 from approximately $184,000 for the three months ended June 30, 2014 due primarily to the aforementioned lower revenues partially offset by lower operating expenses. Operating expenses were lower due to lower repair and maintenance costs and utilities.

Total revenues for the six months ended June 30, 2015 decreased $25,000 to approximately $496,000 as compared to approximately $521,000 for the six months ended June 30, 2014. The property reported lower other rental income partially offset by higher base rental income. Base rental income was higher in 2015 as the tenant received a scheduled rent increase. Other rental income was lower due to a decrease in operating expense reimbursements from the tenant. Net income, which includes deductions for depreciation, increased $2,000 for the six months ended June 30, 2015 to approximately $284,000 from approximately $282,000 for the six months ended June 30, 2014 due primarily to lower operating expenses partially offset by the aforementioned lower revenues. Operating expenses were lower due to lower repair and maintenance costs and utilities.

435 Park Court (Lino Lakes, Minnesota)

Total revenues for the three months ended June 30, 2015 increased $9,000 to approximately $409,000 as compared to approximately $400,000 for the three months ended June 30, 2014. Total revenues were higher due to higher rental income. Base rental income was higher in 2015 as the tenant received a scheduled rent increase in May 2014. Net income, which includes deductions for interest expense, increased $100,000 for the three months ended June 30, 2015 to approximately $143,000 from approximately $43,000 for the three months ended June 30, 2014 due primarily to lower depreciation expenses. The property stopped recognizing depreciation expense as of January 1, 2015 due to reclassifying the property as an asset held for sale.

Total revenues for the six months ended June 30, 2015 increased $22,000 to approximately $819,000 as compared to approximately $797,000 for the six months ended June 30, 2014. Total revenues were higher due to higher rental income. Base rental income was higher in 2015 as the tenant received a scheduled rent increase in May 2014. Net income, which includes deductions for interest expense, increased $201,000 for the six months ended June 30, 2015 to approximately $294,000 from approximately $93,000 for the six months ended June 30, 2014 due primarily to lower depreciation expenses. The property stopped recognizing depreciation expense as of January 1, 2015 due to reclassifying the property as an asset held for sale.

Investment in Sentinel Omaha, LLC

As of June 30, 2015, the Omaha portfolio consisted of 14 multi-family properties located in 10 markets.

Comparison of three months ended June 30, 2015 to June 30, 2014:

Omaha’s total revenues for the three months ended June 30, 2015 were approximately $10,333,000. Income before net unrealized income was approximately $3,037,000. Major expenses included approximately $2,138,000 for interest expense, $922,000 for repairs and maintenance, $1,372,000 for payroll, and $1,158,000 for real estate taxes. Omaha reported net unrealized income of approximately $730,000 resulting in net income of approximately $3,768,000. For the three months ended June 30, 2015, the Registrant’s equity interest in the income of Omaha was approximately $1,130,000. Registrant continues to reserve 100% of the reported value of Omaha on its balance sheet. The reserve for value was adjusted in conjunction with recording the equity income for the quarter ended June 30, 2015. As a result, Registrant reported a net zero income from equity in investment in Omaha for the quarter ended June 30, 2015.

Total revenues for the three months ended June 30, 2014 were approximately $9,679,000. Income before net unrealized income and net realized loss was approximately $2,157,000. Major expenses included approximately $2,399,000 for interest expense, $931,000 for repairs and maintenance, $1,347,000 for payroll and $1,147,000 for real estate taxes. Omaha reported a net unrealized income of approximately $692,000 resulting in net income of approximately $2,849,000. For the three months ended June 30, 2014, the Registrant’s equity interest in the income of Omaha was approximately $855,000. However, Registrant continues to reserve 100% of the reported value of Omaha on its balance sheet. The reserve for value was adjusted in conjunction with recording the equity income for the quarter ended June 30, 2014. As a result, Registrant reported a net zero income from equity in investment in Omaha for the quarter ended June 30, 2014.

Comparison of six months ended June 30, 2015 to June 30, 2014:

Total revenues for the six months ended June 30, 2015 were approximately $20,351,000. Income before net unrealized income and net realized loss was approximately $4,478,000. Major expenses included approximately $4,376,000 for interest expense, $1,681,000 for repairs and maintenance, $2,699,000 for payroll and $2,295,000 for real estate taxes. Omaha reported a net unrealized income of approximately $3,133,000 resulting in net income of approximately $7,611,000. For the six months ended June 30, 2015, the Registrant’s equity interest in the income of Omaha was approximately $2,283,000. Registrant continues to reserve 100% of the reported value of Omaha on its balance sheet. The reserve for value was adjusted in conjunction with recording the equity income for the six months ended June 30, 2015. As a result, Registrant reported a net zero income from equity in investment in Omaha for the six month ended June 30, 2015.

Total revenues for the six months ended June 30, 2014 were approximately $19,234,000. Income before net unrealized income and net realized loss was approximately $3,988,000. Major expenses included approximately $4,804,000 for interest expense, $1,678,000 for repairs and maintenance, $2,699,000 for payroll and $2,236,000 for real estate taxes. Omaha reported a net unrealized income of approximately $878,000 resulting in net income of approximately $4,866,000. For the six months ended June 30, 2014, the Registrant’s equity interest in the income of Omaha was approximately $1,460,000. Registrant continues to reserve 100% of the reported value of Omaha on its balance sheet. The reserve for value was adjusted in conjunction with recording the equity income for the six months ended June 30, 2014. As a result, Registrant reported a net zero income from equity in investment in Omaha for the quarter ended June 30, 2014.

ITEM 3.  Quantitative and Qualitative Disclosures about Market Risk

None

ITEM 4.  CONTROLS AND PROCEDURES

PART II – OTHER INFORMATION

ITEM 6. EXHIBITS

Exhibit No.          Description

31.1                  Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2                  Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1                  Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2                  Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS**       XBRL Instance

101.SCH**      XBRL Taxonomy Extension Schema

101.CAL**      XBRL Taxonomy Extension Calculation

101.DEF**      XBRL Taxonomy Extension Definition

101.LAB**      XBRL Taxonomy Extension Labels

101.PRE**      XBRL Taxonomy Extension Presentation

** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

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.

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