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 June 30, 1998 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
Consolidated Balance Sheets
June 30, 1998 and December 31, 1997 . . . . . . . . . . . . 1
Consolidated Statements of Operations
For the three and six months ended June 30, 1998 and 1997 . 2
Consolidated Statements of Changes in Partners' Capital
For the years ended December 31, 1996 and 1997
and the six months ended June 30, 1998 . . . . . . . . . . . 3
Consolidated Statements of Cash Flows
For the six months ended June 30, 1998 and 1997 . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . 5 - 9
Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . 10 - 15
Part II Other Information . . . . . . . . . . . . . . . . . . . . 16
<PAGE>1
<TABLE>
SB PARTNERS
(a New York limited partnership)
------------------------------
CONSOLIDATED BALANCE SHEETS
June 30, 1998 (Not Audited) and
December 31, 1997 (Audited, but not covered by the report of independent accountants)
-------------------------------------------------------------------------------------
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Assets:
Investments:
Real estate, at cost
Land $ 2,924,653 $ 2,924,653
Buildings, furnishings and improvements 29,318,059 28,867,658
Less - accumulated depreciation (13,830,104) (13,290,104)
------------ ------------
18,412,608 18,502,207
Real estate assets held for sale 0 24,925,795
------------ ------------
18,412,608 43,428,002
Other assets:
Cash and cash equivalents 25,625,968 549,760
Other 1,254,044 1,689,366
------------ ------------
Total assets $ 45,292,620 $ 45,667,128
============ ============
Liabilities:
Mortgage notes and other loans payable $ 24,852,391 $ 28,741,975
Accounts payable and accrued expenses 388,209 628,938
Tenant security deposits 139,566 309,836
------------ ------------
Total liabilities 25,380,166 29,680,749
------------ ------------
Partners' Capital:
Units of partnership interest without par value;
Limited partners - 7,753 units 19,928,321 16,002,752
General partner - 1 unit (15,867) (16,373)
------------ ------------
Total partners' capital 19,912,454 15,986,379
------------ ------------
Total liabilities & partners' capital $ 45,292,620 $ 45,667,128
============ ============
The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>
<PAGE>2
<TABLE>
SB PARTNERS
(a New York limited partnership)
------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (Not Audited)
---------------------------------------------------
<CAPTION>
For The Three Months For The Six Months
Ended June 30, Ended June 30,
---------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Rental income $2,322,448 $2,339,221 $4,932,996 $4,356,390
Interest on short-term investments 25,920 30,037 44,544 59,743
Other 232,951 126,777 472,833 232,966
---------- ---------- ---------- ----------
Total revenues 2,581,319 2,496,035 5,450,373 4,649,099
---------- ---------- ---------- ----------
Expenses:
Real estate operating expenses 1,397,973 858,210 2,850,975 1,815,852
Interest on mortgage notes payable 483,081 596,564 1,033,584 1,197,844
Depreciation and amortization 284,120 479,080 611,390 948,718
Real estate taxes 173,096 233,514 382,460 444,602
Management fees 103,333 300,013 374,296 597,557
Other 47,571 28,416 145,326 65,709
---------- ---------- ---------- ----------
Total expenses 2,489,174 2,495,797 5,398,031 5,070,282
---------- ---------- ---------- ----------
Income (loss) from operations 92,145 238 52,342 (421,183)
Equity in net income of joint venture 0 55,339 0 46,812
Gain (loss) on sale of investments in real estate 3,873,733 0 3,873,733 (65,163)
---------- ---------- ---------- ----------
Net income (loss) 3,965,878 55,577 3,926,075 (439,534)
Income (loss) allocated to general partner 511 7 506 (57)
---------- ---------- ---------- ----------
Income (loss) allocated to limited partners $3,965,367 $ 55,570 $3,925,569 $ (439,477)
========== ========== ========== ==========
Net Income (Loss) Per Unit of Limited Partnership Interest $ 511.46 $ 7.17 $ 506.33 $ (56.68)
========== ========== ========== ==========
Weighted Average Number of Units of Limited
Partnership Interest Outstanding 7,753 7,753 7,753 7,753
========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE>3
<TABLE>
SB PARTNERS
(a New York limited partnership)
------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the six months ended June 30, 1998 (Not Audited) and
for the years ended December 31, 1997 and 1996 (Audited, but not covered by the report of independent public accountants)
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Limited Partners:
Units of
Partnership
Interest Cumulative
----------- Cash Accumulated
Number Amount Distributions Earnings Total
------ ------ ------------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 7,753 $119,968,973 $(97,728,323) $(10,949,039) $11,291,611
Net income for the period 0 0 0 4,311,423 4,311,423
----- ------------ ------------ ------------ -----------
Balance, December 31, 1996 7,753 119,968,973 (97,728,323) (6,637,616) 15,603,034
Net income for the period 0 0 0 399,718 399,718
----- ------------ ------------ ------------ -----------
Balance, December 31, 1997 7,753 119,968,973 (97,728,323) (6,237,898) 16,002,752
Net income for the period 0 0 0 3,925,569 3,925,569
----- ------------ ------------ ------------ -----------
Balance, June 30, 1998 7,753 $119,968,973 $(97,728,323) $ (2,312,329) $19,928,321
===== ============ ============ ============ ===========
General Partner:
Units of
Partnership Cumulative
Interest Cash Accumulated
Number Amount Distributions Earnings Total
------ ------ ------------- ----------- -----
Balance, December 31, 1995 1 $10,000 $(24,559) $(2,422) $(16,981)
Net income for the period 0 0 0 556 556
----- ------- -------- ------- --------
Balance, December 31, 1996 1 10,000 (24,559) (1,866) (16,425)
Net income for the period 0 0 0 52 52
----- ------- -------- ------- --------
Balance, December 31, 1997 1 10,000 (24,559) (1,814) (16,373)
Net income for the period 0 0 0 506 506
----- ------- -------- ------- --------
Balance, June 30, 1998 1 $10,000 $(24,559) $(1,308) $(15,867)
===== ======= ======== ======= ========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE>4
<TABLE>
SB PARTNERS
(a New York limited partnership)
------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (Not Audited)
---------------------------------------------------
<CAPTION>
For the Six Months Ended
June 30,
---------------------------
1998 1997
----------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss) $ 3,926,075 $ (439,534)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Gain (loss) on sale of investments in real estate (3,873,733) 65,163
Equity in net income of joint venture 0 (46,812)
Depreciation and amortization 611,390 500,019
Decrease in other assets 213,343 948,718
Decrease in other liabilities (410,999) (95,164)
----------- -----------
Net cash provided by operating activities 466,076 932,390
----------- -----------
Cash Flows From Investing Activities:
Proceeds from sales of investments in real estate 29,210,371 45,000
Capital additions to real estate (710,655) (386,929)
----------- -----------
Net cash provided by (used in) investing activities 28,499,716 (341,929)
----------- -----------
Cash Flows From Financing Activities:
Proceeds from mortgage notes payable 3,800,000 0
Retirement of mortgage notes and other loans payable (7,514,832) (326,267)
Principal payments on mortgage notes payable (174,752) (161,444)
----------- -----------
Net cash used in financing activities (3,889,584) (487,711)
----------- -----------
Net increase (decrease) in cash and cash equivalents 25,076,208 102,750
Cash and cash equivalents at beginning of period 549,760 2,019,321
----------- -----------
Cash and cash equivalents at end of period $25,625,968 $ 2,122,071
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 1,052,361 $ 1,059,228
=========== ===========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE>5
SB PARTNERS
(A New York Limited Partnership)
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
------------------------------------------------------
FOR THE PERIODS ENDED JUNE 30, 1998
-----------------------------------
(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 properties. SB Partners Real Estate Corporation (the "General
Partner") serves as the general partner of the Partnership.
The consolidated financial statements as of and for the three and six
month periods ended June 30, 1998 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 and six month periods ended
June 30, 1998 and 1997 are not necessarily indicative of the results
to be expected for a full year.
The significant accounting and financial reporting policies of the
Partnership are as follows:
(a) The accompanying consolidated financial statements include the
accounts of SB Partners and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated. The
consolidated financial statements are prepared using the accrual
basis of accounting under generally accepted accounting
principles. Revenues are recognized as earned and expenses are
recognized as incurred. The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
(b) Each partner is individually responsible for reporting his share
of the Partnership's taxable income or loss. Accordingly, no
provision has been made in the accompanying financial statements
for Federal, state or local income taxes.
<PAGE>6
(c) Depreciation of buildings, furnishings and improvements is
computed using the straight-line method of depreciation, based
upon the estimated useful lives of the related properties, as
follows:
Buildings and improvements 5 to 40 years
Furnishings 5 to 7 years
Expenditures for maintenance and repairs are expensed as incurred.
Expenditures for improvements, renewals and betterments, which
increase the useful life of the real estate, are capitalized.
Upon retirement or sale of property, the related cost and
accumulated depreciation are removed from the accounts.
Amortization of deferred financing and refinancing costs is
computed by amortizing the cost over the term of the related
mortgage notes. Amortization of leasing commissions and tenant
improvements is computed by amortizing the cost over the term of
the related lease.
(d) Gains on sales of investments in real estate are recognized in
accordance with generally accepted accounting principles
applicable to sales of real estate, which require minimum levels
of initial and continuing investment by the purchaser, and certain
other tests be met, prior to the full recognition of profit at the
time of the sale. When the tests are not met, gains on sales are
recognized on either the installment or cost recovery methods.
(e) Net income (loss) per unit of partnership interest has been
computed based on the weighted average number of units of
partnership interest outstanding during each period. There were
no potentially dilutive securities outstanding during each period.
(f) For financial reporting purposes, the Partnership considers all
highly liquid, short-term investments with maturities of three
months or less to be cash equivalents.
(g) The Partnership accounted for its investment in a joint venture
using the equity method. Pursuant to the special allocations of
cash flow contained in the joint venture agreement, it recognized
income or loss to the extent of its allocable share of the change
in the net assets of the joint venture, after taking into account
preference distributions, as defined, for the period.
<PAGE>7
(2) INVESTMENTS IN REAL ESTATE AND REAL ESTATE ASSETS HELD FOR SALE
As of June 30, 1998, the Partnership owned apartment projects in
Holiday, Florida and Reno, Nevada, and 13.9 acres of land in Holiday,
Florida. The following is the cost basis and accumulated depreciation
of the real estate investments owned by the Partnership at June 30,
1998 and December 31, 1997, and the net carrying value of the real
estate assets held for sale at December 31, 1997:
<TABLE>
<CAPTION>
Real Estate at Cost
No.of Year of -------------------
Type Prop. Acquisition Description 6/30/98 12/31/97
- ---- ----- ----------- ----------- ------- --------
<S> <C> <C> <C> <C> <C>
Residential properties 2 1983-91 948 Apt. Units $32,198,325 $31,747,924
Undeveloped land 1 1978 13.9 Acres 44,387 44,387
----------- -----------
32,242,712 31,792,311
Less: Accumulated depreciation (13,830,104) (13,290,104)
----------- -----------
$18,412,608 $18,502,207
=========== ===========
<CAPTION>
Real Estate Held for Sale
No.of Year of -------------------------
Type Prop. Acquisition Description 6/30/98 12/31/97
- ---- ----- ----------- ----------- ------- --------
<S> <C> <C> <C> <C> <C>
Residential property 1 1997 594 Apt. Units $0 $20,832,762
Office property 1 1984-93 138,333 Sq. Ft. 0 4,093,033
-- -----------
$0 $24,925,795
== ===========
<FN>
Note: Information is provided for all properties owned as of the end
of the periods presented. The carrying amount of real estate assets
held for sale is the lower of depreciated cost or fair market value
and is included above at the net carrying amount. Cherry Hill Office
Center was sold on April 16, 1998, and Riverbend Apartments was sold
on June 30, 1998 (see Note 3).
</TABLE>
<PAGE>8
(3) REAL ESTATE TRANSACTIONS
On April 16, 1998, the Partnership sold Cherry Hill Office Center for
a contract price of $4,825,000 in an all cash transaction. The
proceeds from the sale were used, in part, to retire the short-term
bank loan of $4,000,000 the proceeds of which had been used to finance
a portion of the purchase of the forty percent co-venturer's interest
in Riverbend Apartments in December, 1997 (see also Note 4). As a
result of the sale, the Partnership recognized a gain for financial
reporting purposes of approximately $506,000. Please refer to the
Form 8-K filed April 30, 1998, in connection with the sale.
On June 30, 1998, the Partnership sold Riverbend Apartments for a
contract price of $24,500,000 in an all cash transaction. For
financial reporting purposes, the Partnership recognized a net gain on
sale of investment in real estate of approximately $3,368,000 in
connection with the sale. Please refer to the Form 8-K filed July 15,
1998, in connection with this transaction.
In January, 1997, the Partnership sold its 10% interest in an
apartment project in Orlando, Florida. The Partnership had been using
the cost method to account for this investment. In connection with
this sale, the Partnership recognized a loss on sale of real estate
investments of $65,000 for the six months ended June 30, 1997.
(4) INVESTMENT IN JOINT VENTURE
During 1992, the Partnership and an institutional investor (the
"Investor") entered into a joint venture agreement where the
Partnership contributed Riverbend Apartments for an agreed equity
value of $14,250,000 and the Investor contributed $9,500,000 in cash.
The Partnership and the Investor held interests in the venture of 60%
and 40%, respectively, and the Investor was entitled to a guaranteed
return of 9.5% of its average investment, as defined in the joint
venture agreement. For financial reporting purposes, the Partnership
recorded its investment in the joint venture at its net carrying
amount of the property contributed, and no gain or loss was
recognized. All significant matters affecting the joint venture
required the unanimous consent of the venturers.
On December 15, 1997, the Partnership purchased the 40% interest of
its former co-venturer for $9,800,000 through a wholly owned limited
liability company, and effectively became the sole owner of the
property. All items of income and expense of the property are
included in the consolidated statements of income of the Registrant
for the three and six months ended June 30, 1998. The assets and
liabilities associated with the property are included in the
consolidated balance sheet of the Registrant at December 31, 1997. As
the Partnership sold Riverbend Apartments on June 30, 1998 (see Note
3), the assets and liabilities of the property have been removed from
the consolidated balance sheet as of June 30, 1998.
<PAGE>9
(5) MORTGAGE NOTES AND OTHER LOANS PAYABLE
Mortgage notes and other loans payable consist of the following
first liens:
<TABLE>
<CAPTION>
Net Carrying Amount
Annual June 30, December 31,
Interest Maturity Installment Amount Due -------- ------------
Property Rate Date Payments(d) at Maturity(c) 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Holiday Park (b) 6.895% 1/08 $ 300,169 $ 3,277,785 $ 3,787,170 $ 3,517,983
Meadow Wood 7.55 1/04 1,914,996 18,979,461 21,065,221 21,223,992
Riverbend (a) Variable 4/98 Interest Only - 0 4,000,000
----------- -----------
$24,852,391 $28,741,975
=========== ===========
<FN>
(a) Unsecured demand note which was repaid and retired in April, 1998.
(See also Note 3.)
(b) Mortgage note was refinanced in January, 1998. (See also Liquidity
and Capital Resources section of Management's Discussion and
Analysis of Financial Condition and Results of Operations.)
(c) The mortgages are nonrecourse to the Partnership.
(d) Annual installment payments include principal and interest.
</TABLE>
(6) COMMITMENTS AND CONTINGENCIES
The Partnership is a party to certain actions directly arising from
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 or results of operations.
On November 6, 1997, Hugh Spencer, a limited partner who holds two
units in the Partnership, filed a purported class action complaint, on
behalf of himself and other persons similarly situated, against the
Partnership and its general partner and other affiliates in the
Supreme Court of the State of New York, County of New York, entitled
Spencer v. SB Partners et. al., Index No. 120673/97. The complaint
alleges, inter alia, that the business of the Partnership can only be
carried on at a loss, and that the general partner breached the
partnership agreement and its fiduciary duties, and seeks a court
decree of dissolution of the Partnership pursuant to Sections 63 and
99 of the New York Partnership Law, an accounting from the general
partner, the appointment of a receiver to wind up the Partnership's
affairs and an award of costs and attorneys' fees to the plaintiff and
the putative class. The Partnership believes that it has meritorious
defenses to the action and that the final outcome will not have a
material adverse effect on its financial position or results of
operations.
<PAGE>10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
AS OF AND FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998
----------------------------------------------------------
General
-------
The financial statements for the three months ended June 30,1998
reflect the operations of three residential garden apartment properties.
The financial statements for the six months ended June 30, 1998 reflect the
operations of one office property and three residential garden apartment
properties. The financial statements for the three and six months ended
June 30, 1997 reflect the operations of one office property, one shopping
center, two residential garden apartment properties, and one joint venture.
Total revenues for the three months ended June 30, 1998 increased
$85,000 to approximately $2,581,000 from approximately $2,496,000 for the
three months ended June 30, 1997. Net income for the three months ended
June 30,1998 increased $3,910,000 to approximately $3,966,000 from
approximately $56,000 for the three months ended June 30, 1997.
Total revenues for the six months ended June 30, 1998 increased
$801,000 to approximately $5,450,000 from approximately $4,649,000 for the
six months ended June 30, 1997. Net income for the six months ended June
30,1998 increased $4,366,000 to approximately $3,926,000 from a net loss of
approximately $440,000 for the six months ended June 30, 1997.
The increases in total revenue and net income are the results of the
changes from 1997 to 1998 in the composition of the portfolio. In December
1997, the Registrant sold Plantation Shopping Center and purchased from its
former co-venturer the forty-percent interest in the joint venture which
owned Riverbend Apartments, becoming the sole owner of this 594 unit
apartment community. On June 30, 1998, the Registrant then sold Riverbend
Apartments for $24,500,000 in an all cash transaction. In addition, on
April 16, 1998, the Registrant sold Cherry Hill Office Center. Included in
net income for the periods ended June 30, 1998, is a net gain on sale of
investments in real estate of approximately $3,874,000, $506,000 as a
result of the sale of the office center and $3,368,000 from the sale of the
apartment community.
The consolidated statements of operations for the three and six months
ended June 30,1997 include revenues from Plantation Shopping Center of
$442,000 and $849,000, respectively, but no revenues from Riverbend
Apartments in which the Registrant held a joint venture interest at the
time. Conversely, the consolidated statements of operations for the three
and six months ended June 30, 1998 include revenues of $1,152,000 and
$2,282,000, respectively, from Riverbend Apartments, but none from
Plantation Shopping Center. Due to the sale in 1998, revenues from Cherry
Hill Office Center decreased $409,000 and $369,000 from the three and six
month periods of the prior year.
<PAGE>11
Operating expenses for Riverbend Apartments totaled $824,000 for the
three months and $1,539,000 for the six months ended June 30, 1998, while
operating expenses for Plantation Shopping Center totaled $456,000 and
$639,000 for the respective periods ended June 30, 1997. Depreciation
expense recorded for the three and six month periods in 1997 include
$111,000 and $222,000, respectively, for Plantation Shopping Center and
$49,000 and $97,000, respectively, for Cherry Hill Office Center. Since
Plantation Shopping center was sold and Cherry Hill Office Center and
Riverbend Apartments were both classified as real estate assets held for
sale, no depreciation was recorded for these three properties in 1998. For
additional analyses, 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. Actual results may differ materially from those
contemplated by the forward looking statements.
Liquidity and Capital Resources
-------------------------------
As of June 30, 1998, the Registrant had cash and cash equivalents of
$25,626,000 in addition to $637,000 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
$25,011,000 more than cash, cash equivalents, and deposits held in escrow
on December 31, 1997. The increase is primarily due to the sales of
Riverbend Apartments and Cherry Hill Office Center during the period.
Although most of the proceeds from the sale of Cherry Hill Office Center,
$4,792,000, were used to retire the short term bank note of $4,000,000 used
for the purchase of the co-venturer's interest in Riverbend Apartments, the
net cash generated by the two sales totalled approximately $25,000,000.
The current level of liquidity and capital resources will allow the
Registrant to meet all its working capital requirements and to recommence
its investment activities. Various potential acquisitions are under review
and the first such acquisition is expected to take place during the third
quarter of 1998.
<PAGE>12
Debt at June 30, 1998 consisted of approximately $24,852,000 of non-
recourse first mortgage notes payable secured by two apartment properties
owned by the Registrant. In January, 1998, the Registrant successfully
refinanced the mortgage note secured by Holiday Park Apartments with the
existing lender. The loan amount was increased to $3,800,000, the maturity
was extended to 2008, and the interest rate was reduced from 9.00% to
6.895% per annum for the term of the loan. As noted above, the Registrant
used proceeds from the sale of Cherry Hill Office Center during the quarter
ended June 30, 1998, to retire the $4,000,000 unsecured demand note which
had been used to purchase the forty-percent interest in the joint venture
which owned Riverbend Apartments (see also Notes 3 and 5 to the
Consolidated Financial Statements). Scheduled maturities through regularly
scheduled monthly payments of principal and interest will be approximately
$185,000 for the last two fiscal quarters of 1998. 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.
The Registrant has no other debt except normal trade accounts payable and
expenses, and accrued interest on previously discussed mortgage notes
payable.
The Registrant's properties are expected to generate sufficient cash
flow to cover operating, financing, capital improvement costs, and other
working capital requirements of the Registrant for the foreseeable future.
Holiday Park Apartments
-----------------------
Total revenues for the three months ended June 30, 1998 increased
$31,000 to $316,000 from $285,000 for the three months ended June 30, 1997.
Net income after depreciation and mortgage interest expense for the three
months ended June 30,1998 increased $64,000 to net income of $34,000 from a
net loss of $30,000 for the three months ended June 30, 1997. The increase
in total revenues is primarily due to increases in rental rates charged at
the property which increased revenues $12,000, coupled with an increase in
average occupancy of 4.8%, to 97.1% from 92.3% for the period a year
earlier, which increased revenues $15,000, and an increase in miscellaneous
revenues of $3,000. The increase in net income is primarily due to the
increase in revenues and a decrease in operating expenses, primarily a
decrease in financing expenses of $22,000 and a decrease of $6,000 in
repairs and maintenance expense. The decreased financing expenses
resulting from the refinancing of the mortgage note encumbering the
property include a decrease of $14,000 in interest expense and a decrease
of $8,000 in amortization of costs associated with securing the new loan.
Total revenues for the six months ended June 30,1998 increased $62,000
to $628,000 from $565,000 for the six months ended June 30, 1997. Net loss
after depreciation and mortgage interest expense for the six month period
ended June 30,1998 decreased $52,000 to $2,000 from $54,000 for the six
months ended June 30, 1997. The increase in revenues was primarily due to
rental rate increases implemented at the property which increased revenues
$25,000, supplemented by an increased in occupancy which increased revenues
$28,000, while miscellaneous revenues increased $6,000. The decrease in
net loss is primarily due to the increase in revenues, partially offset by
an increase in expenses of $10,000, attributable to the write-off of
approximately $43,000 of unamortized costs associated with the loan that
was refinanced in January, partially offset by the decrease in interest and
amortization of costs of the new loan.
<PAGE>13
Meadow Wood Apartments
----------------------
Total revenues for the three months ended June 30, 1998 decreased
$80,000 to $1,052,000 from $1,132,000 for the three months ended June 30,
1997. Net income after depreciation and mortgage interest expense for the
three months ended June 30,1998 decreased $65,000 to a net loss of $33,000
from net income of $32,000 for the three months ended June 30, 1997. This
decrease in revenues is primarily due a decrease in average occupancy which
decreased revenues $84,000. This decrease in occupancy is a result of the
increasingly competitive Reno apartment market. Reno is currently
experiencing an oversupply of housing which is expected to persist through
the end of 1998. This is especially true in the northwest and southeast
section of the area. Meadow Wood is working to maintain its market share in
the highly competitive submarket in southeastern Reno, although it has
experienced a decrease in occupancy and increased turnover of renters. The
increase in net loss is primarily due to the decrease in revenues, as total
expenses remained virtually unchanged from the prior year decreasing $7,000
which is attributable to decreased interest expense.
Total revenues for the six months ended June 30,1998 decreased
$200,000 to $2,078,000 from $2,278,000 for the six months ended June 30,
1997. Net loss after depreciation and mortgage interest decreased $214,000
to a net loss of approximately $140,000 from net income of $74,000 for the
six months ended June 30, 1997. The decrease in revenues is primarily the
result of a decrease in average occupancy as discussed above. The decrease
in average occupancy decreased revenues $166,000, additional tenant
concessions decreased revenues $25,000, and reduced miscellaneous income
decreased revenues $8,000. The increase in the net loss for the period is
primarily due to the decrease in revenues and a net increase in expenses of
$14,000. Increased expenses included increased utility costs of $35,000,
advertising and promotion of $18,000, professional fees of $17,000 and
$14,000 in payroll costs, partially offset by decreased repairs and
maintenance costs of $45,000 and decreased financing costs of $21,000.
Riverbend Apartments and Investment in Joint Venture
----------------------------------------------------
On December 15, 1997, the Registrant purchased the 40% interest of
its former co-venturer through a wholly owned limited liability company and
effectively became the sole owner of Riverbend Apartments. On June 30,
1998, the Registrant sold Riverbend Apartments for $24,500,000 in an all
cash transaction. (See also the Liquidity and Capital Resources Section
and Notes 3 and 5 to the Consolidated Financial Statements.) The assets
and liabilities associated with the property are included in the
consolidated balance sheet of the Registrant at December 31, 1997. The
items of income and expense associated with ownership of the property are
included in the consolidated statements of income of the Registrant for the
three and six months ended June 30, 1998. For comparative purposes,
information regarding revenues, expenses and net income of the property is
provided for the three and six month period ended June 30, 1997, although
these items were not included in the consolidated financial statements of
the Registrant.
<PAGE>14
Equity in net income of joint venture for the three and six months
ended June 30, 1998 decreased to $0 from $55,000 and $47,000, respectively,
for the periods a year earlier. (See also Note 1 to the Consolidated
Financial Statements.) All the items of income and expense of the property
were included in the consolidated statements of income of the Registrant
for the current year.
Total revenues from the apartments for the three months ended June
30, 1998 increased $41,000 to $1,152,000 from $1,111,000 for the three
months ended June 30, 1997. Net income before gain on sale and after
depreciation and mortgage interest expense for the three months ended June
30, 1998 increased $105,000 to $308,000 from $203,000 for the three months
ended March 31, 1997. The increase in revenues is primarily the result of
an increase in average occupancy at the property which increased revenues
$52,000, but was partially offset by a decrease in miscellaneous revenues
of $11,000. The increase in net income was partially attributable to the
increase in revenues, as well as to a net decrease in expenses, in
particular a decrease of $208,000 in depreciation expense. Since the
property had been classified as a real estate asset held for sale, no
depreciation expense was charged to the property in the current year. This
decrease in expenses was partially offset by increases in other property
operating costs, including increases of $76,000 in utilities, $45,000 in
repairs and maintenance costs, and $20,000 of interest expense.
Total revenues for the six months ended June 30, 1998 increased
$135,000 to $2,283,000 from $2,148,000 for the six months ended June 30,
1997. Net income before gain on sale and after depreciation and mortgage
interest expense for the six months ended June 30, 1998 increased $336,000
to $648,000 from $312,000 for the six months ended June 30, 1997. The
increase in revenues is primarily the result of an increase in average
occupancy at the property which increased revenues $115,000, a decrease in
tenant concessions which increased revenues $13,000, and increases in
miscellaneous revenues of $6,000. The increase in net income was partially
attributable to the increase in revenues, as well as to a net decrease in
expenses, in particular a decrease of $406,000 in depreciation expense, as
discussed above for the three month period ended June 30. This decrease
was partially offset by increases in other expenses, including increases of
$96,000 in interest expense, $68,000 in utilities, $26,000 in payroll
costs, and $18,000 in repairs and maintenance costs. The increase of
$96,000 in interest expense is attributable to the short-term bank loan
used to finance a portion of the purchase of the forty percent co-
venturer's interest in the apartment community. This note was retired in
April, 1998. (See also the Liquidity and Capital Resources section.)
<PAGE>15
Cherry Hill Office Center
-------------------------
The Registrant sold Cherry Hill Office Center on April 16, 1998 for
$4,825,000 in an all cash transaction. (Please refer to Footnote 3 of the
Consolidated Financial Statements and Form 8-K filed April 30, 1998, in
connection with this transaction.)
Total revenues for the three months ended June 30, 1998 decreased
$409,000 to $35,000 from $444,000 for the three months ended June 30, 1997.
Net loss before gain on sale and after depreciation and mortgage interest
expense for the three months ended June 30, 1998 increased $191,000 to a
net loss of $35,000 from net income of $156,000 for the three months ended
June 30, 1997.
Total revenue for the six months ended June 30, 1998 decreased
$369,000 to $417,000 from $786,000 for the six months ended June 30, 1997.
Net income before gain on sale and after depreciation and mortgage interest
expense for the six months ended June 30, 1998 decreased $81,000 to $95,000
from $176,000 for the six months ended June 30, 1997.
Due to the sale of the property by the Registrant, the reporting period
for the Cherry Hill Office Center ended on April 16, 1998. The changes in
revenues and net loss are substantially due to the shortened reporting
periods.
<PAGE>16
PART II - OTHER INFORMATION
ITEM 5. OTHER INFOMATION
----------------
The Registrant has recently become aware of a mailing made
to some Unitholders offering to acquire units of limited
partnership interest for $275 each. The Registrant has not
authorized these offers, nor does it recommend that these
offers be considered. The price offered is significantly
less than the value of the units and the price that other
sellers of units have received in the last year.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
On April 30, 1998, the Registrant filed Form 8-K to
report the sale on April 16, 1998 of Cherry Hill
Office Center, and the retirement of the short-term
bank loan used to finance a portion of the purchase
of the forty percent interest of its former co-
venturer in Riverbend Apartments. Pro-forma
financial statements were included in the filing.
On July 15, 1998, the Registrant filed Form 8-K to
report the sale on June 30, 1998 of Riverbend
Apartments. Pro-forma financial statements were
included in the filing.
All other item numbers are omitted because they are not
applicable.
<PAGE>17
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: August 14, 1998 By:/s/ John H. Streicker
-----------------------------
John H. Streicker
President
Dated: August 14, 1998 By:/s/ Elizabeth B. Longo
-----------------------------
Elizabeth B. Longo
Chief Financial Officer
Dated: August 14, 1998 By:/s/ George N. Tietjen
-----------------------------
George N. Tietjen III
Vice President
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