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, 1996 Commission File Number 0-8952
------------------ ------
SB PARTNERS
- ---------------------------------------------------------------------------
New York 13-6294787
- -------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
666 Fifth Avenue N.Y., N.Y. 10103
- --------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 408-2900
-----------------------
- --------------------------------------------------------------------------
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.
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).
Not Applicable<PAGE>
SB PARTNERS
INDEX
Part I Financial Information
Balance Sheets
March 31, 1996 and December 31, 1995 . . . . . . . . . . 1
Statements of Operations
For the three months ended March 31, 1996
and 1995 . . . . . . . . . . . . . . . . . . . . . . . . 2
Statements of Changes in Partners' Capital
For the years ended December 31, 1995 and 1994
and the three months ended March 31, 1996 . . . . . . . . 3
Statements of Cash Flows
For the three months ended March 31, 1996
and 1995 . . . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Financial Statements . . . . . . . . . . . . 5 - 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . 7 - 11
Part II Other Information . . . . . . . . . . . . . . . . . . . . 12
<PAGE>1
<TABLE>
SB PARTNERS
(A New York Limited Partnership)
BALANCE SHEETS
March 31, 1996 (Not Audited) and
December 31, 1995 (Audited, but not covered by the report of independent accountants)
<CAPTION>
March 31, December 31,
1996 1995
<S> <C> <C>
Assets:
Investments -
Real Estate, at cost
Land $ 12,092,365 $ 12,092,365
Buildings, furnishings and improvements 140,798,188 140,331,546
Less - accumulated depreciation and valuation allowance (46,699,900) (45,560,951)
------------ ------------
106,190,653 106,862,960
Investment in joint venture 10,647,788 10,697,225
------------ ------------
116,838,441 117,560,185
Other assets-
Cash and cash equivalents 1,196,203 3,304,968
Accounts receivable, accrued interest and other 5,876,779 6,394,068
------------ ------------
Total assets $123,911,423 $127,259,221
============ ============
Liabilities:
Mortgage notes payable $101,713,725 $103,407,513
Accounts payable and accrued expenses 11,312,517 11,271,026
Tenants security deposits 1,315,555 1,306,052
------------ ------------
Total liabilities 114,341,797 115,984,591
------------ ------------
Partners' Capital:
Units of partnership interest without par value;
Limited partners - 7,753 units 9,586,827 11,291,611
General partner - 1 unit (17,201) (16,981)
------------ ------------
9,569,626 11,274,630
------------ ------------
Total liabilities & partners' capital $123,911,423 $127,259,221
============ ============
The accompanying notes are an integral part of these balance sheets.
</TABLE>
<PAGE>2
<TABLE>
SB PARTNERS
(A New York Limited Partnership)
STATEMENTS OF OPERATIONS (Not Audited)
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
1996 1995
<S> <C> <C>
Revenues:
Rental income $ 5,288,589 $ 5,667,084
Interest on short-term investments 20,858 20,118
Other 131,473 214,580
----------- -----------
Total revenues 5,440,920 5,901,782
----------- -----------
Expenses
Interest on mortgage notes payable 2,379,543 2,871,374
Real estate operating expenses 2,583,677 2,547,298
Depreciation and amortization 1,217,969 1,194,551
Real estate taxes 445,330 496,933
Management fees 484,750 483,717
Other 220,112 127,809
----------- -----------
Total expenses 7,331,381 7,721,682
----------- -----------
Loss from operations (1,890,461) (1,819,900)
Equity in net income (loss) of joint venture 185,457 (45,673)
----------- -----------
Net loss
(1,705,004) (1,865,573)
Loss allocated to general partner (220) (241)
----------- -----------
Loss allocated to limited partners $(1,704,784) $(1,865,332)
=========== ===========
Net Loss Per Unit of Limited Partnership Interest $(219.89) $(240.59)
=========== ===========
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>
<PAGE>3
<TABLE>
SB PARTNERS
(A New York Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the three months ended March 31, 1996 (Not Audited) and
for the years ended December 31, 1995 and 1994 (Audited, but not covered by the report of independent public accountants)
<CAPTION>
Limited Partners:
Units of
Partnership Cumulative
Interest Cash Accumulated
Number Amount Distributions Earnings Total
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 7,753 $119,968,973 $(97,728,323) $ 151,495 $22,392,145
Net loss for the period - - - (7,757,685) (7,757,685)
----- ------------ ------------ ------------ -----------
Balance, December 31, 1994 7,753 119,968,973 (97,728,323) (7,606,190) 14,634,460
Net loss for the period - - - (3,342,849) (3,342,849)
----- ------------ ------------ ------------ -----------
Balance, December 31, 1995 7,753 119,968,973 (97,728,323) (10,949,039) 11,291,611
Net loss for the period - - - (1,704,784) (1,704,784)
----- ------------ ------------ ------------ -----------
Balance, March 31, 1996 7,753 $119,968,973 $(97,728,323) $(12,653,823) $ 9,586,827
===== ============ ============ ============ ===========
General Partner:
Units of
Partnership Cumulative
Interest Cash Accumulated
Number Amount Distributions Earnings Total
Balance, December 31, 1993 1 $10,000 $(24,559) $ (990) $(15,549)
Net loss for the period - - - (1,001) (1,001)
----- ------- -------- ------- --------
Balance, December 31, 1994 1 10,000 (24,559) (1,991) (16,550)
Net loss for the period - - - (431) (431)
----- ------- -------- ------- --------
Balance, December 31, 1995 1 10,000 (24,559) (2,422) (16,981)
Net loss for the period - - - (220) (220)
----- ------- -------- ------- --------
Balance, March 31, 1996 1 $10,000 $(24,559) $(2,642) $(17,201)
===== ======= ======== ======= ========
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>4
<TABLE>
SB PARTNERS
(A New York Limited Partnership)
STATEMENTS OF CASH FLOWS (Not Audited)
<CAPTION>
For the Three Months Ended
March 31,
--------------------------
1996 1995
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $(1,705,004) $(1,865,573)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Equity in net (income) loss of joint venture (185,457) 45,673
Depreciation and amortization 1,217,969 1,194,551
Amortization of discount on mortgage notes payable 0 92,163
Decrease in other assets 380,063 86,264
Increase in other liabilities 50,994 817,642
----------- -----------
Net cash provided by (used in) operating activities (241,435) 370,720
----------- -----------
Cash Flows From Investing Activities:
Capital additions to real estate (466,642) (449,576)
Payments and distributions received from joint venture 293,100 52,998
----------- -----------
Net cash used in investing activities (173,542) (396,578)
----------- -----------
Cash Flows From Financing Activities:
Principal payments on mortgage notes payable (1,693,788) (174,102)
----------- -----------
Net cash used in financing activities (1,693,788) (174,102)
----------- -----------
Net decrease in cash and cash equivalents (2,108,765) (199,960)
Cash and cash equivalents at beginning of period 3,304,968 1,074,985
----------- -----------
Cash and cash equivalents at end of period $ 1,196,203 $ 875,025
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 1,668,988 $ 2,001,166
=========== ===========
The accompanying notes are an intregal part of these statements.
</TABLE>
<PAGE>5
SB PARTNERS
(A New York 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. Certain prior year amounts have been reclassified to make them
comparable with the current year presentation.
The results of operations for the three month periods ended March
31, 1996 and 1995 are not necessarily indicative of the results to be
expected for a full year.
(2) Commitments and Contingencies
-----------------------------
The Registrant has secured irrevocable letters of credit of
approximately $1,038,000 which primarily serve as additional collateral
securing certain financing.
(3) Other Matters/Subsequent Events
-------------------------------
During 1993, the Partnership stopped making regular monthly payments
of debt service to its lender on the mortgage note secured by the
International Jewelry Center. In the interim, the Partnership has paid
available cash flow from the building to the lender under an informal
agreement. In November 1993, the lender declared the loan in default and
on March 3, 1995, filed a Notice of Default and Election to Sell. On April
24, 1996, the lender caused to be filed a Notice of Trustee's Sale. It is
unlikely that the Registrant will be able to restructure the loan terms
and continues to cooperate with the lender to transfer title to the
property to a tenant group. A transfer of title may result in negative
tax consequences for some partners. (Please refer also to the Liquidity
and Capital Resources section of the Management Discussion and Analysis.)
<PAGE>6
The Partnership is a party to certain actions directly related to its
normal business operations. While the ultimate outcome is not presently
determinable with certainty, the Partnership believes that the resolution
of these matters will not have a material effect on its financial position
and operations.
<PAGE>7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996
----------------------------------
General
- -------
The financial statements as of and for the three month period ended March
31, 1996 reflect the operations of three office properties, one shopping
center, two residential garden apartment properties and two joint ventures.
The financial statements as of and for the three month period ended March 31,
1995 reflect the operations of three office properties, one shopping center,
three residential garden apartment properties and two joint ventures.
Total income for the three months ended March 31, 1996 decreased $461,000
to approximately $5,441,000 from approximately $5,902,000 for the three months
ended March 31, 1995, and the net loss decreased $161,000 to approximately
$1,705,000 for the three months ended March 31, 1996 compared to a loss of
approximately $1,866,000 for the three months ended March 31, 1995.
Changes in total income and net loss are in part attributable to the sale
of Sahara Palms Apartments during 1995.
Liquidity and Capital Resources
- -------------------------------
As of March 31, 1996, the Registrant had cash and cash equivalents of
$1,196,000 in addition to $881,000 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 $2,373,000 less than
cash, cash equivalents, and deposits held in escrow on December 31, 1995. The
decrease was caused primarily by a required principal reduction of $1,500,000
on the mortgage note secured by Plantation Shopping Center.
Debt at March 31, 1996 consisted of approximately $102 million of
nonrecourse first mortgage notes payable secured by real estate owned by the
Registrant. The scheduled maturity of the mortgage note secured by Plantation
Shopping Center, with a principal balance outstanding of $5,243,000 at March
31, 1996, has been extended to June 28, 1996 by the mortgagee. As a condition
to the extension, the mortgagee required a principal reduction of $1,500,000
which was made on February 29, 1996. The Registrant does not believe that,
prior to the loan's maturity, it will be able to consummate a sale of
Plantation Shopping Center which reflects the value of the property. As such,
negotiations with a bank for a short term secured loan, the proceeds of which
will be used to retire the existing mortgage loan, have been initiated. The
Registrant is
<PAGE>8
also negotiating with the existing lender for the mortgage loan secured by
Meadowwood Apartments to extend the maturity of the loan, increase the loan
amount, and reduce the interest rate. Other scheduled maturities through
regularly scheduled monthly payments of principal and interest will be
approximately $506,000 for the last three fiscal quarters of 1996. The terms
of certain mortgage notes require monthly escrow of estimated annual real
estate tax, insurance, and reserves for repairs, maintenance and improvements
to the secured property, in addition to the payments of principal and interest.
As of March 31, 1996, the Registrant has secured irrevocable letters of
credit in the amount of $1,038,000 which primarily serve as additional
collateral securing financing for 1010 Market Street office building. The
Registrant has no other debt except normal trade accounts payable and expenses,
and accrued interest on previously discussed mortgage notes payable.
Cash flow from the Registrant's apartment properties has been increasing
moderately, reflecting the strong Atlanta and Reno apartment submarkets.
Office markets where the Registrant owns properties have experienced and are
likely to continue experiencing extended periods of high vacancy rates,
significantly lower effective rental rates, reduced demand, and high risks of
tenant failures and overbuilding. New leases and renewals of existing leases
are being made on terms that are significantly more in favor of tenants with
reduced rental rates, periods of free or reduced rent, and costs of altering
and improving rented premises being borne by the landlord. Consequently,
rental revenues, for certain properties, in recent years have been and may
continue to be insufficient to cover operating costs, tenant improvement costs
and other capital expenditures and scheduled debt service payments. Funds
generated from other sources, including, but not limited to, sales or joint
venturing of real estate investments or additional secured or unsecured
borrowing, have at times been utilized to offset cash flow deficits resulting
from operating these properties. Although it expects to generate sufficient
cash flow from all sources to cover possible shortfalls at certain commercial
properties in 1996, the Registrant may elect not to fund such deficits for
certain properties.
Due to the impact of the conditions discussed above and the continuing
decline in commercial office rents in the downtown Los Angeles office market,
cash flow generated by International Jewelry Center has not been sufficient to
carry debt service on the mortgage encumbering the property. The Registrant
ceased paying scheduled debt service in May 1993 and since then has only been
paying debt service based on available cash flow from the building. The loan
was declared in default by the lender in November 1993, and the lender
<PAGE>9
filed a Notice of Default and Election to Sell on March 3, 1995. The lender
caused to be filed a Notice of Trustee's Sale on April 24, 1996. It is unlikely
that the Registrant will be able to restructure the loan terms and continues to
cooperate with the lender to transfer title to the property to a tenant group.
A transfer of title may result in negative tax consequences for some partners.
In 1994 and 1995, Southwestern Bell, formerly the largest non-governmental
tenant in the St. Louis Central Business District, relocated its headquarters
and other operations to San Antonio, Texas and other cities. The St. Louis CBD
continues to suffer from significant decreases in rental rates charged for new
and renewal leases and high vacancy rates caused by other tenants downsizing,
ceasing operations, or relocating to suburban locations or other cities. This
has, and will continue to, adversely affect the operation of 1010 Market Street
in St. Louis.
During 1996 and the first seven months of 1997, leases for approximately
170,000 square feet of space at 1010 Market Street expire. Included in this
total is one tenant previously occupying approximately 35,000 square feet which
it vacated by late 1995, although it paid rent through the expiration of its
lease in March 1996. As such, it is unlikely that operating cash flow from the
1010 Market Street office building will be sufficient to cover debt service in
1996.
Holiday Park Apartments
- -----------------------
Total revenues for the three months ended March 31, 1996 increased $8,000
to $273,000 from $265,000 for the three months ended March 31, 1995. Net loss
after depreciation and mortgage interest expense for the three months ended
March 31, 1996 decreased $15,000 to $26,000 from the net loss of $41,000 for
the three months ended March 31, 1995.
The increase in total revenues is primarily due to increases in rental
rates charged at the property which increased revenues $6,000. The decrease in
net loss is primarily due to the increase in revenue, and a decrease in repairs
and maintenance costs of $8,000.
Meadow Wood Apartments
- ----------------------
Total revenues for the three months ended March 31, 1996 increased $28,000
to $1,149,000 from $1,121,000 for the three months ended March 31, 1995. Net
income after depreciation and mortgage interest expense for the three months
ended March 31, 1996 increased $27,000 to net income of $21,000 from net loss
of $6,000 for the three months ended March 31, 1995.
<PAGE>10
The increase in revenues is primarily the result of increases in rental
rates implemented at the property during the past year which increased income
$27,000. The increase in net income is primarily due to the increased
revenues, as total expenses remained relatively unchanged from the period a
year earlier.
International Jewelry Center
- ----------------------------
Total revenues for the three months ended March 31, 1996 increased $90,000 to
$1,759,000 from $1,669,000 for the three months ended March 31, 1995. Net loss
after depreciation and mortgage interest expense for the three months ended
March 31, 1996 increased $235,000 to $1,027,000 from the net loss of $792,000
for the three months ended March 31, 1995.
The increase in total revenues is primarily due to increases in rental
rates charged on new and renewal leases. The increase in net loss is primarily
due to increases in repairs and maintenance expense of $115,000, depreciation
expense of $112,000, and security costs of $45,000. (Refer to the Liquidity and
Capital Resources Section, and Footnote 3 of the Financial Statements).
Plantation Shopping Center
- --------------------------
Total revenues for the three months ended March 31, 1996 increased $10,000
to $407,000 from $397,000 for the three months ended March 31, 1995. Net
income after depreciation and mortgage interest expense for the three months
ended March 31, 1996 increased $96,000 to net income of $2,000 from a net loss
of $94,000 for the three months ended March 31, 1995.
The increase in revenues is primarily due to an increase in percentage
rental revenues which increased income $15,000, but was partially offset by
decreases in other types of income. In addition to the increase in total
revenues, the increase in net income is attributable to a decrease in interest
expense of $104,000 as a result of the full amortization of the mortgage
discount in 1995 and decrease in the loan balance in February 1996. This
decrease in expense was partially offset by increases in other expenses,
primarily depreciation expense which increased $22,000.
1010 Market Street
- ------------------
Total revenues for the three months ended March 31, 1996 decreased $43,000
to $1,453,000 from $1,496,000 for the three months ended March 31, 1995. Net
loss after depreciation and mortgage interest expense for the three months
ended March 31, 1996 increased $22,000 to $172,000 from $150,000 for the three
months ended March 31, 1995.
<PAGE> 11
The decrease in revenues is primarily due to decreases in rental rates
negotiated on new and renewal leases at the property, decreasing revenues
$38,000, and decreases in escalation income of $12,000, partially offset by
increased income of $9,000 due to a marginal increase in average occupancy.
The increase in net loss is primarily due to the decrease in revenues,
partially offset by decreases in interest expense of $9,000, depreciation
expense of $8,000, and repairs and maintenance expense of $5,000.
Cherry Hill Office Center
- -------------------------
Total revenues for the three months ended March 31, 1996 increased $24,000
to $367,000 from $343,000 for the three months ended March 31, 1995. Net
income after depreciation and mortgage interest expense for the three months
ended March 31, 1996 decreased $65,000 to a net loss of $10,000 from net income
of $55,000 for the three months ended March 31, 1995.
The increase in revenues is primarily due to an increase in average
occupancy during the three months ended March 31, 1996 of approximately 3.8%,
to 75.5%, from 71.7% during the same period a year earlier. In addition to the
increase in occupancy which increased income $18,000, increased average base
rental of renewal and restructured leases increased income $2,000, and an
increase in escalation income increased total revenues $3,000. The increase in
revenues was offset by increased expenses, primarily an increase of $70,000 in
utility expense due to the severe winter of 1996 as compared to the mild winter
a year earlier. In addition, increases of $29,000 in repairs and maintenance
expenses and $9,000 of depreciation expense, partially offset by a decrease in
real estate tax expense of $27,000, contributed to the net loss for the period
ended March 31, 1996.
Investment in Joint Venture
- ---------------------------
Equity in income (loss) of joint venture for the three months ended March
31, 1996 increased $231,000 to net income of $185,000 from a net loss of
$46,000 for the three months ended March 31, 1995.
The increase in income was primarily due to an increase in rental rates
charged on new and renewal leases at the property which increased income
$87,000, as well as increased income of $13,000 due to an increase in the
average property occupancy rate in the first quarter of 1996 of 1% to 92% as
compared with 91% in the first quarter of 1995. In addition, increases in
miscellaneous income of $18,000, and decreases in repairs and maintenance
expense of $27,000, increased total income from the joint venture.
<PAGE>12
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 omitted
because they are not applicable.
<PAGE>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: May 14, 1996 By: /s/ John H. Streicker
--------------------------
John H. Streicker
President
Dated: May 14, 1996 By: /s/ Elizabeth B. Longo
---------------------------
Elizabeth B. Longo
Chief Financial Officer
Dated: May 14, 1996 By: /s/ George N. Tietjen
---------------------------
George N. Tietjen III
Vice President and Controller<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,196,203
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,876,779
<PP&E> 163,538,341
<DEPRECIATION> (46,699,900)
<TOTAL-ASSETS> 123,911,423
<CURRENT-LIABILITIES> 12,628,072
<BONDS> 101,713,725
<COMMON> 0
0
0
<OTHER-SE> 9,569,626
<TOTAL-LIABILITY-AND-EQUITY> 123,911,423
<SALES> 0
<TOTAL-REVENUES> 5,626,377
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,951,838
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,379,543
<INCOME-PRETAX> (1,705,004)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,705,004)
<EPS-PRIMARY> (220)
<EPS-DILUTED> (220)
</TABLE>
