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
For Quarter ended March 31, 1994 Commission File Number 0-8952
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SB PARTNERS
- - -----------------------------------------------------------------
New York 13-6294787
- - ------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1290 Avenue of the Americas, N.Y., N.Y. 10104
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 408-2900
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NONE
- - ------------------------------------------------------------------
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 Actof 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
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date
(applicable only to corporate issuers).
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SB PARTNERS
INDEX
Part I Financial Information
Balance Sheets
March 31, 1994 and December 31, 1993 1
Statements of Operations
For the three months ended March 31, 1994
and 1993 2
Statements of Cash Flows
For the three months ended March 31, 1994
and 1993 3
Statements of Changes in Partners' Capital
For the years ended December 31, 1993 and 1992
and three months ended March 31, 1994 4
Notes to Financial Statements 5 - 6
Managements' Discussion and Analysis of
Financial Condition and Results of Operations 7 - 11
Part II Other Information 12
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<TABLE>
SB PARTNERS
(a limited partnership)
BALANCE SHEETS
March 31, 1994 (Not Audited) and
December 31, 1993 (Audited, but not covered by the report of independent accountants)
March 31, December 31,
1994 1993
<S> <C> <C>
Assets: ---------- ------------
Investments -
Real Estate, at cost
Land $16,237,371 $16,226,405
Buildings, furnishings
and improvements 165,588,645 164,919,564
Less - accumulated depreciation (45,604,951) (44,396,664)
----------- ------------
136,221,065 136,749,305
----------- ------------
Mortgage notes receivable, net of allowance
for possible loan losses of $5,212,248 and
$5,212,248 respectively and deferred gains of
$5,178,632 and $5,178,632 respectively 6,032,811 5,933,929
Investment in joint venture 11,430,420 11,635,207
------------ ------------
153,684,296 154,318,441
Other assets:
Cash and cash equivalents 426,915 423,262
Accounts receivable, accrued interest and other 8,562,365 8,628,406
------------ ------------
Total assets $162,673,576 $163,370,109
============ ============
Liabilities:
Mortgage notes payable, net of unamortized
discount of $574,197 and $654,764 respectively $135,890,167 $136,003,934
Accounts payable and accrued expenses 5,716,791 3,826,033
Tenants security deposits 1,207,109 1,163,546
------------ ------------
Total liabilities 142,814,067 140,993,513
------------ ------------
Partners' Capital:
Units of partnership interest without par value;
Limited partner - 7,753 units 19,875,383 22,392,145
General partner - 1 unit (15,874) (15,549)
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19,859,509 22,376,596
------------ ------------
Total liabilities & partners' capital $162,673,576 $163,370,109
============ ============
The accompanying notes are an integral part of these balance sheets.
</TABLE>
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<TABLE>
SB PARTNERS
(a limited partnership)
STATEMENTS OF OPERATIONS (Not Audited)
For the Three Months Ended March 31,
1994 1993
<S> <C> <C>
Revenues: ------------- -------------
Rental income $6,437,192 $6,755,989
Interest on mortgage notes receivable 247,500 323,729
Interest on short-term investments 15,086 12,226
Other 178,786 442,170
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Total revenues 6,878,564 7,534,114
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Expenses:
Interest on mortgage notes payable 3,456,387 3,500,547
Real estate operating expenses 2,999,380 2,551,320
Depreciation and amortization 1,328,434 1,376,270
Real estate taxes 650,578 525,056
Management fees 531,770 485,000
Other 224,315 176,536
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Total expenses 9,190,864 8,614,729
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Loss (2,312,300) (1,080,615)
Equity in net loss of joint venture (204,787) (70,113)
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Net Loss (2,517,087) (1,150,728)
Less - Net Loss allocated to general partner (325) (148)
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Net Loss allocated to limited partners ($2,516,762) ($1,150,580)
============= =============
Net Loss Per Unit of Limited Partnership Interest:
Net Loss ($324.62) ($148.40)
============= =============
Weighted Average Number of Units of Limited
Partnership Interest Outstanding 7,753 7,753
============= =============
The accompanying notes are an integral part of these statements.
</TABLE>
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<TABLE>
SB PARTNERS
(a limited partnership)
STATEMENTS OF CASH FLOWS (Not Audited)
For the Three Months Ended March 31,
1994 1993
<S> <C> <C>
Cash Flows From Operating Activities: ------------- ------------
Net Loss ($2,517,087) ($1,150,728)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Equity in net loss of joint venture 204,787 70,113
Depreciation and amortization 1,328,434 1,376,270
Amortization of discount on mortgage notes payable 80,567 70,502
Increase in other assets (251,870) (2,544,931)
Increase in other liabilities 1,934,321 908,144
------------ ------------
Net cash provided by (used in) operating activities 779,152 (1,270,630)
------------ ------------
Cash Flows From Investing Activities:
Net principal collections on mortgage notes receivable 289,034
Capital additions to real estate (680,047) (363,974)
Additional advances under guarantees 98,882 131,028
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Net cash provided by (used in) investing activities (581,165) 56,088
------------ ------------
Cash Flows From Financing Activities:
Principal payments on mortgage notes payable (194,334) 39,162
------------ ------------
Net cash used in financing activities (194,334) 39,162
------------ ------------
Net increase (decrease) in cash and cash equivalents 3,653 (1,175,380)
Cash and cash equivalents at beginning of period 423,262 1,937,778
------------ ------------
Cash and cash equivalents at end of period $426,915 $762,398
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $2,588,973 $3,430,045
============ ============
The accompanying notes are an intregal part of these statements.
</TABLE>
<PAGE>
<TABLE>
SB PARTNERS
(a limited partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the three months ended March 31, 1994 (Not Audited) and for the years ended
December 31, 1993 and 1992 (Audited, but not covered by the report of independent public accountants)
Limited Partners:
Units of
Partnership
Interest Cumulative
----------------------- Cash Accumulated
Number Amount Distributions Earnings Total
------- ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1991 7,753 $119,968,973 ($97,728,323) $18,544,277 $40,784,927
Net loss for the period - - - (9,415,946) (9,415,946)
------- ------------ ------------ ----------- -----------
Balance, December 31, 1992 7,753 119,968,973 (97,728,323) 9,128,331 31,368,981
Net loss for the period - - - (8,976,836) (8,976,836)
------- ------------ ------------ ----------- -----------
Balance, December 31, 1993 7,753 119,968,973 (97,728,323) 151,495 22,392,145
Net loss for the period - - - (2,516,762) (2,516,762)
------- ------------ ------------ ----------- -----------
Balance, March 31, 1994 7,753 $119,968,973 ($97,728,323) ($2,365,267) $19,875,383
======= ============ ============ =========== ===========
</TABLE>
<TABLE>
General Partner:
Units of
Partnership
Interest Cumulative
---------------------- Cash Accumulated
Number Amount Distributions Earnings Total
------- -------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1991 1 $10,000 ($24,559) $1,383 ($13,176)
Net loss for the period - - - (1,215) (1,215)
------- -------- --------- -------- -------
Balance, December 31, 1992 1 10,000 (24,559) 168 (14,391)
Net loss for the period - - - (1,158) (1,158)
------- -------- --------- --------- -------
Balance, December 31, 1993 1 10,000 (24,559) (990) (15,549)
Net loss for the period - - - (325) (325)
------- -------- --------- -------- -------
Balance, March 31, 1994 1 $10,000 ($24,559) ($1,315) ($15,874)
======= ========= ========= ======== ========
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
SB PARTNERS
-----------
(a limited partnership)
-----------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited)
-----------------------------------------
(1) Accounting and Financial Reporting
----------------------------------
The financial statements included herein are unaudited;
however, the information reflects all adjustments (consisting
solely of normal recurring adjustments) that are, in the
opinion of management, necessary to a fair presentation of the
financial position, results of operations and cash flows for
the interim periods. Certain information and footnote
disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and
regulations, although the Registrant believes that the
disclosures are adequate to make the information presented not
misleading. It is suggested that these financial statements
be read in conjunction with the financial statements and the
notes thereto included in the Registrant's latest annual
report on Form 10-K.
The results of operations for the three month period
ended March 31, 1994 and 1993 are not necessarily indicative
of the results to be expected for the full year.
(2) Commitments and Contingencies
-----------------------------
In connection with the sale of one property, the
Registrant entered into a management agreement whereby it is
obligated to advance funds to the buyer, on a secured basis,
to fund cash flow deficits, as defined. Advances made during
the three months ended March 31, 1994 were approximately
$ 99,000.
The Registrant has secured irrevocable letters of credit
of approximately $ 1,934,000 which primarily serve as
additional collateral securing certain financing, and utility
and tenant security deposit bonds.
5
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Other Matters
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Due to the continuing decline in commercial office rents
in the downtown Los Angeles office market, cash flow generated
by the International Jewelry Center has not been sufficient to
carry debt service on the mortgage encumbering the property.
Discussions with the lender on restructuring the terms of the
mortgage note are on going and during this time, the
Registrant has only been paying debt service based on
available cash flow from the building to be applied to debt
service and ground rent. Although discussions with the lender
have been open and cooperative, the lender declared the loan
in default in November 1993. The lender has not taken any
action to accelerate the mortgage debt or foreclose upon the
property, however, there can be no assurance that a permanent
restructuring will be agreed upon or that the rental market
will stabilize or improve so that the Registrant will be able
to perform such a restructuring and allow the Registrant to
continue to hold this property.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1994
General
The financial statements as of and for the three month
period ended March 31, 1994 reflect the operations of three
office properties, one shopping center, four residential
garden apartment properties and two joint ventures.
Changes in Total Income and Net Loss are in part
attributable to the sale of 400 Office Park office building
and Oakwood mortgage note, and the reacquisition of Cherry
Hill Office Center in the third quarter of 1993.
Total income for the three months ended March 31, 1994
decreased to approximately $ 6,879,000 from approximately
$ 7,534,000 for the three months ended March 31, 1993 and
there was a loss after gain on sale of investments in real
estate of approximately $ 2,517,000 for the three months ended
March 31, 1994 compared to loss of $ 1,151,000 for the three
months ended March 31, 1993.
Holiday Park Apartments
-----------------------
Total revenues for the three months ended March 31, 1994
increased to $ 269,000 from $ 263,000 for the three months
ended March 31, 1993. There was a net loss after depreciation
and mortgage interest expense for the three months ended March
31, 1994 of $ 10,000 compared with net income of $ 5,000 for
the three months ended March 31,1993. The decrease in net
income is due to primary increases in repair and maintenance
costs of $ 11,000.
Meadow Wood Apartments
----------------------
Total revenues for the three months ended March 31, 1994
increased to $ 1,062,000 from $ 987,000 for the three months
ended March 31,1993. There was a net loss after depreciation
and mortgage interest expense for the three months ended March
31, 1994 of $ 5,000 compared with a net income of $ 55,000 for
the three months ended March 31, 1993.
7
<PAGE>
The increase in revenues is primarily the result of a
stronger apartment market, as evidenced by implementing
increases in rental rates at the property during the past
year. Operating expenses are higher primarily due to
increases in payroll costs ($ 9,000) and project
administration costs ($ 8,000).
Sahara Palms Apartments
-----------------------
Total revenues for the three months ended March 31, 1994
increased to $ 495,000 from $ 457,000 for the three months
ended March 31, 1993. There was a net loss after depreciation
and mortgage interest expense for the three months ended March
31, 1994 of $ 30,000 compared with a net los of $ 58,000 for
the three months ended March 31, 1993.
The increase in revenues is primarily the result of an
increase in occupancy from 94% at March 31, 1993 to 98% at
March 31, 1994. Operating expenses are higher primarily due to
an increase in payroll costs ($ 9,000).
Woodlake Village / Redwood Village
----------------------------------
Total revenues for the three months ended March 31, 1994
increased to $ 944,000 from $939,000 for the three months
ended March 31, 1993. There was a net loss after depreciation
and mortgage interest expense for the three months ended March
31, 1994 of $ 123,000 compared with a net loss of $ 130,000
for the three months ended March 31, 1993. The increase in
revenues is primarily the result of a decease in rent
concessions.
International Jewelry Center
----------------------------
Total income for the three months ended March 31, 1994 of
$ 1,650,000 was $ 504,000 less than total income of $2,153,000
for the three months ended March 31, 1993. Net loss for the
three months ended March 31, 1994 of $ 810,000 was an increase
of $ 647,000 over net loss of $ 164,000 for the three months
ended March 31, 1993.
The reduction in total income was due to an increase in
vacancy and decrease in average base rental of renewal and
restructured leases ($ 984,000 ), partially offset by the
receipt of a settlement of $ 480,000 from a bankrupt tenant
during the three months ended March 31, 1993. In addition to
the reduction in total income, the increase in net loss was
primarily due to an increase in real estate and other taxes
($ 56,000), an increase in security costs ($ 46,000) and
increases in repairs and maintenance costs ($ 35,000).
8
<PAGE>
Plantation Shopping Center
--------------------------
Total income for the three months ended March 31, 1994 of
$ 254,000 was $ 43,000 less than total income of $ 296,000 for
the three months ended March 31, 1993. Net loss for the for
three months ended March 31, 1994 of $ 313,000 was an increase
of $ 123,000 over a net loss of $ 190,000 for the three months
ended March 31, 1993.
The decrease in income was due to a decrease in
occupancy. In addition to the decrease in total income, legal
fees incurred in connection with a tenant collection matter
also contributed to the increase in net loss.
1010 Market Street
------------------
Total income for the three months ended March 31, 1994 of
$ 1,438,000 was $ 124,000 higher than total income of
$ 1,314,000 for the three months ended March 31, 1993. Net
loss for the three months ended March 31, 1994 of $ 215,000
was $ 75,000 lower than net loss of $ 290,000 for the three
months ended March 31, 1993.
The increase in total income and decrease in net loss is
due to an increase in property occupancy ($ 79,000) and an
increase in escalation income ($ 37,000), partially offset by
lower effective base rents for new and renewal leases
($ 43,000).
Cherry Hill Office Center
-------------------------
Cherry Hill Office Center was reacquired by the
Registrant by credit bid of its mortgage, such bid was approved
by the bankruptcy court in September 1993. Total income was
$ 383,000 and net income was $ 93,000 for the three months
ended March 31, 1994.
Mortgage Notes Receivable Portfolio
-----------------------------------
Interest income from the mortgage notes receivable
portfolio decreased $ 76,000 for the three months ended March
31, 1994 as compared with the three month period ended March
31, 1993. The decrease reflects the acquisition of Cherry
Hill Office Center through foreclosure in September 1993.
Interest earning for the three months ended March 31, 1993
includes only amounts received from the former Cherry Hill
borrower as that entity was operating under bankruptcy court
protection at that time.
9
<PAGE>
Investment in Joint Venture
---------------------------
Equity in loss of joint venture for the three months
ended March 31, 1994 increased to $ 205,000 from $ 70,000 for
the three months ended March 31, 1993.
The increase in the loss was due primarily to high
utility usage from slightly higher occupancy and a more severe
winter for the three months ended March 31, 1994 as compared
to the three months ended March 31, 1993.
Liquidity and Capital Resources
-------------------------------
As of March 31, 1994, the Registrant had cash and cash
equivalents of $ 427,000 in addition to $ 2,241,000 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 $100,000
more than cash and deposits held in escrow on December 31,
1993.
The mortgage note receivable portfolio consists of notes
secured liens on Nob Hill Apartments. While a repayment of
these loans in full would result in significant improvement in
the Registrant's liquidity, such a prepayment is unlikely due
to the underlying value of the collateral. The carrying
amount of mortgage notes receivable ,net of deferred gains and
allowances for possible loan losses, was approximately
$ 6,032,000 as of March 31, 1994.
Debt at September 30, 1993 consisted of approximately
$ 135.9 million of first mortgage notes payable secured by
real estate owned by the Registrant. Scheduled principal
payments will approximate $ 1,016,000 for 1994 and the terms
of certain mortgage notes require monthly escrow of estimated
annual real estate tax and insurance and reserves for repairs,
maintenance and improvements to the secured property in
addition to the payments of principal and interest. The
Registrant has no other debt except normal trade accounts
payable and expenses, although it has a commitment referred
to in the financial statements to fund cash flow deficits on
the Nob Hill property.
Rental revenue from the Registrant's apartment and retail
properties has been stable. Cash flow from all sources is
projected to be sufficient to cover operating, financing and
improvement costs in the near future at such properties.
Office markets where the Registrant owns properties, have
experienced extended periods of high vacancy rates,
significantly lower effective rental rates, reduced demand,
and high risks of tenant failures and overbuilding. Terms of
10
<PAGE>
new and renewals of existing leases are being made that are
significantly more in favor of tenants with reduced rental
rates, period of free or reduced rent and costs of altering
and improving rented premises being borne by the landlord.
All of the Registrant's mortgage obligations are without
recourse to the Registrant and are limited to the encumbered
property. Accordingly, the Registrant has the power to limit
the effect of the negative cash flow of a particular property
to that property (other than Nob Hill) and, if the Registrant
is unable to restructure the terms of the mortgage
indebtedness or otherwise to cure the cause of the cash flow
deficit, may choose to turn over such property to its
mortgagee. As noted in the notes to the Financial Statements,
the Registrant is currently undertaking negotiations with
respect to the International Jewelry Center for the
restructuring of the indebtedness on that property, and if the
results of those negotiations do not produce a debt service
consistent with the rental income and capital expenditures
required by that property, the Registrant may turn over that
property to the mortgage lender.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
All other item numbers are not submitted
because they are not applicable.
12
<PAGE>
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 12, 1994 By: /s/ John H. Streicker
John H. Streicker
President
Dated: May 12, 1994 By: /s/ Elizabeth B. Longo
Elizabeth B. Longo
Chief Financial Officer
Dated: May 12, 1994 By: /s/ George N. Tietjen
George N. Tietjen III
Vice President and Controller
