1

 

ITEM 1. FINANCIAL STATEMENTS

 

SB PARTNERS

(A New York Limited Partnership)

 

CONSOLIDATED BALANCE SHEETS

 

 

See notes to consolidated financial statements

 

 

2

 

SB PARTNERS

(A New York Limited Partnership)

 

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

 

See notes to consolidated financial statements

 

 

3

 

SB PARTNERS

(A New York Limited Partnership)

 

CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT) (UNAUDITED)

For the Three Months Ended March 31, 2020

 

Limited Partners:

 

 

 

General Partner:

 

 

See notes to consolidated financial statements.

 

 

4

 

SB PARTNERS

(A New York Limited Partnership)

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

See notes to consolidated financial statements

 

 

5

 

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 MONTHS ENDED MARCH 31, 2020 AND 2019

                              

General

 

The consolidated financial statements for the three months ended March 31, 2020 and 2019 reflect the operation of one wholly owned industrial flex property located in Maple Grove, Minnesota and a 30% interest in Omaha.

 

Registrant’s wholly owned property located in Maple Grove, Minnesota is 100% leased to a single tenant to October 31, 2024. 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.

 

Omaha’s portfolio as of March 31, 2020 consists of six garden apartment properties located in three markets. Leases generally are for one year or less. Tenants generally pay fixed rent plus utilities used by tenant.

 

COVID-19

 

Due to the COVID-19 outbreak, the Registrant and Omaha may be operating in a challenging and uncertain economic environment. Financial and real estate companies may be affected by liquidity, disparity of real estate values and financing issues. Should market conditions deteriorate, there is no assurance that such conditions will not result in decreased cash flows or ability to repay, refinance or extend Omaha's debt when it comes due, which could result in the sale of investments at amounts less than the reported value at March 31, 2020.

 

Results of Operations

 

Total revenues from continuing operations for the three months ended March 31, 2020 increased $15,000 to approximately $293,000 as compared to approximately $278,000 for the three months ended March 31, 2019. Total revenues increased due to an increase in base rental income and other income. Base rental income increased $11,000 to approximately $201,000 for the three months ended March 30, 2020 as compared to the same period in 2019 due to a scheduled increase in base rent at Registrant’s property located in Maple Grove, MN. Other income increased due to an increase in real estate taxes charged back to the tenant.

 

The Registrant reported a net loss from operations of approximately $137,000 for the three months ended March 31, 2020, a decrease of $1,000 as compared to a net loss from operations of approximately $138,000 for the same period in 2019. Net loss from operations consists of net income from the Maple Grove property offset by partnership income and expenses. The decrease of loss from operations was primarily due to higher total income offset by higher total expenses. Total expenses from operations for 2020 increased $15,000 to approximately $431,000 from approximately $416,000 in 2019, due primarily to an increase in depreciation expense of $5,000, an increase in repairs and maintenance expense of $4,000 and an increase in real estate taxes of $3,000.

 

The Registrant has a 30% non-controlling interest in Omaha that is accounted for on a fair value basis. Net increase in net assets increased $252,000 to approximately $1,615,000 for the three months ended March 31, 2020 compared to net increase in net assets of approximately $1,363,000 for the same period in 2019. During 2019, Omaha sold its garden apartment property located in Independence, Missouri and its garden apartment property located in Columbus, Ohio. Net sales proceeds in each transaction were used to first pay selling expenses and retire each property’s related secured mortgage loan. Remaining net sales proceeds were used to retire Omaha’s secured mortgage loan encumbering its garden apartment property located in Charleston, South Carolina to further pay down Omaha’s overall debt. During the three months ended March 31, 2020, Omaha reported a net decrease in the value of its remaining real estate portfolio of $900,000. The investment in a 30% non-controlling interest is valued at a discount due to the lack of liquidity and ownership of a non-controlling (minority) interest. Registrant has reported a reserve on the value of Omaha on its books of 20% since March 31, 2018.

 

During 2019, Omaha paid distributions totaling $28,000,000 to its members including $8,400,000 to Registrant. On April 16, 2019, the general partner declared a distribution of $400 per full unit for all partners holding units or participations on May 31, 2019. The distribution was paid on June 4, 2019.

 

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.

 

 

10

 

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, 2019. There were no significant changes to such policies in 2020. 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 March 31, 2020, the Registrant had cash and cash equivalents of approximately $890,000. These balances are approximately $97,000 lower than cash and cash equivalents held on December 31, 2019. Cash and cash equivalents decreased during the three months ended March 31, 2020 due to partnership expenses partially offset by cash flow generated from operating activities at Registrant’s wholly owned property.

 

Currently, Registrant’s only consistent source of cash is rental income received from the tenant that leases 100% of the leasable space at Registrant’s wholly owned property in Maple Grove. The tenant reimburses Registrant for real estate taxes, insurance and most of the properties’ operating expenses leaving a significant portion of the base rent received available to fund partnership administrative expenses.

 

Registrant anticipates cash flow generated from the property located in Maple Grove and current cash reserves will be sufficient to pay ongoing operating and capital improvement costs, other working capital requirements of the Registrant and current fees due to the General Partner and its affiliates. The Registrant has no debt except normal trade accounts payable and a security deposit held for the tenant at Registrant’s wholly owned property.

 

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.

 

Eagle Lake Business Center IV (Maple Grove, Minnesota)

 

Total revenues for the three months ended March 31, 2020 increased $15,000 to approximately $293,000 as compared to approximately $278,000 for the three months ended March 31, 2019. The property reported higher base rental income and higher other rental income. Base rental income was higher in 2020 due to a scheduled increase in the base rent. Other income increased due to an increase in real estate taxes charged back to the tenant. Net operating income, which includes deductions for depreciation, remained approximately the same at $180,000 for the three months ended March 31, 2020 as compared to the same period in 2019. Higher total revenue was offset by higher operating expenses. Operating expenses were higher due to higher depreciation expense, repairs and maintenance expense and real estate tax expense.

 

Investment in Sentinel Omaha, LLC

 

Comparison of three months ended March 31, 2020 to March 31, 2019:

 

As of March 31, 2020, the Omaha portfolio consisted of six multi-family properties located in three markets. Omaha’s total revenues for the three months ended March 31, 2019 were approximately $6,234,000. Income before net unrealized losses was approximately $2,776,000. Major expenses included approximately $492,000 for interest expense, $431,000 for repairs and maintenance, $891,000 for payroll, and $729,000 for real estate taxes. Omaha reported net unrealized losses of approximately $1,161,000 resulting in a net increase in net assets of approximately $1,615,000. For the three months ended March 31, 2019, the Registrant’s 30% equity interest in the income of Omaha was approximately $484,000. Registrant reserves 20% of the reported value of Omaha on its balance sheet for March 31, 2020. The reserve for value was adjusted in conjunction with recording the equity income for the quarter ended March 31, 2020. As a result, Registrant reported net income from equity interest in income of Omaha for the quarter ended March 31, 2020 of $387,000.

 

As of March 31, 2019, the Omaha portfolio consisted of eight multi-family properties located in five markets. Omaha’s total revenues for the three months ended March 31, 2019 were approximately $7,829,000. Income before net unrealized losses was approximately $2,937,000. Major expenses included approximately $1,085,000 for interest expense, $559,000 for repairs and maintenance, $1,045,000 for payroll, and $953,000 for real estate taxes. Omaha reported net unrealized losses of approximately $1,574,000 resulting in a net increase in net assets of approximately $1,363,000. For the three months ended March 31, 2019, the Registrant’s 30% equity interest in the income of Omaha was approximately $409,000. Registrant reserves 20% of the reported value of Omaha on its balance sheet for March 31, 2019. The reserve for value was adjusted in conjunction with recording the equity income for the quarter ended March 31, 2019. As a result, Registrant reported net income from equity interest in income of Omaha for the quarter ended March 31, 2019 of $327,000.

 

 

11

 

ITEM 3.

 

None

 

ITEM 4.

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 March 31, 2020 as filed with the Securities and Exchange Commission and have judged such controls and procedures to be effective.

 

(b)

The Chief Executive Officer and the Principal Accounting and Financial Officer of the general partner of SB Partners have evaluated the internal control over financial reporting relating to the Registrant’s Quarterly Report on form 10-Q for the period ended March 31, 2020 and have identified no changes in the Registrant’s internal controls that 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

 

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.

 

 

12

 

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: May 14, 2020	By:	/s/ George N. Tietjen III
		George N. Tietjen III
		Chief Executive Officer
		Principal Financial & Accounting Officer
Dated: May 14, 2020	By:	/s/ John H. Zoeller
		John H. Zoeller
		Chief Financial Officer