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, 1998 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)
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
-----------------------
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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
March 31, 1998 and December 31, 1997 . . . . . . . . . . 1
Consolidated Statements of Operations
For the three months ended March 31, 1998
and 1997 . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Changes in Partners' Capital
For the years ended December 31, 1996 and 1997
and the three months ended March 31, 1998 . . . . . . . . 3
Consolidated Statements of Cash Flows
For the three months ended March 31, 1998
and 1997 . . . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . 5
Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . 10 - 14
Part II Other Information . . . . . . . . . . . . . . . . . . . . 15
<PAGE>1
<TABLE>
SB PARTNERS
(A New York Limited Partnership)
------------------------------
CONSOLIDATED BALANCE SHEETS
March 31, 1998 (Not Audited) and
December 31, 1997 (Audited, but not covered by the report of independent accountants)
------------------------------------------------------------------------------------
<CAPTION>
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
Assets:
Investments:
Real estate, at cost
Land $ 2,924,653 $ 2,924,653
Buildings, furnishings and improvements 28,998,552 28,867,658
Less - accumulated depreciation (13,560,104) (13,290,104)
----------- -----------
18,363,101 18,502,207
Real estate assets held for sale 24,984,134 24,925,795
----------- -----------
43,347,235 43,428,002
Other assets:
Cash and cash equivalents 1,001,907 549,760
Other 1,349,348 1,689,366
----------- -----------
Total assets $45,698,490 $45,667,128
=========== ===========
Liabilities:
Mortgage notes and other loans payable $28,942,173 $28,741,975
Accounts payable and accrued expenses 493,611 628,938
Tenant security deposits 316,130 309,836
----------- -----------
Total liabilities 29,751,914 29,680,749
----------- -----------
Partners' Capital:
Units of partnership interest without par value;
Limited partners - 7,753 units 15,962,954 16,002,752
General partner - 1 unit (16,378) (16,373)
----------- -----------
Total partners' capital 15,946,576 15,986,379
----------- -----------
Total liabilities & partners' capital $45,698,490 $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 Ended March 31,
------------------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues:
Rental income $ 2,610,548 $ 2,017,169
Interest on short-term investments 18,624 29,706
Other 239,882 106,189
----------- -----------
Total revenues 2,869,054 2,153,064
----------- -----------
Expenses:
Real estate operating expenses 1,453,002 957,642
Interest on mortgage notes payable 550,503 601,280
Depreciation and amortization 327,270 469,638
Management fees 270,963 297,544
Real estate taxes 209,364 211,088
Other 97,755 37,293
----------- -----------
Total expenses 2,908,857 2,574,485
----------- -----------
Loss from operations (39,803) (421,421)
Equity in net income (loss) of joint venture 0 (8,527)
Gain (loss) on sale of investments in real estate 0 (65,163)
----------- -----------
Net loss
(39,803) (495,111)
Loss allocated to general partner (5) (64)
----------- -----------
Loss allocated to limited partners $ (39,798) $ (495,047)
=========== ===========
Net Loss Per Unit of Limited Partnership Interest $ (5.13) $ (63.85)
=========== ===========
Weighted Average Number of Units of Limited
Partnership Interest Outstanding 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 three months ended March 31, 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 - - - 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 - - - 399,718 399,718
----- ------------ ------------ ------------ -----------
Balance, December 31, 1997 7,753 119,968,973 (97,728,323) (6,237,898) 16,002,752
Net loss for the period - - - (39,798) (39,798)
----- ------------ ------------ ------------ -----------
Balance, March 31, 1998 7,753 $119,968,973 $(97,728,323) $ (6,277,696) $15,962,954
===== ============ ============ ============ ===========
General Partner:
Units of
Partnership
Interest Cumulative
----------- Cash Accumulated
Number Amount Distributions Earnings Total
------ ------ ------------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 1 $10,000 $(24,559) $(2,422) $(16,981)
Net income for the period - - - 556 556
----- ------- -------- ------- --------
Balance, December 31, 1996 1 10,000 (24,559) (1,866) (16,425)
Net income for the period - - - 52 52
----- ------- -------- ------- --------
Balance, December 31, 1997 1 10,000 (24,559) (1,814) (16,373)
Net loss for the period - - - (5) (5)
----- ------- -------- ------- --------
Balance, March 31, 1998 1 $10,000 $(24,559) $(1,819) $(16,378)
===== ======= ======== ======= ========
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 Three Months Ended
March 31,
--------------------------
1998 1997
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $ (39,803) $ (495,111)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Gain (loss) on sale of investments in real estate 0 65,163
Equity in net (income) loss of joint venture 0 8,527
Depreciation and amortization 327,270 469,638
Decrease in other assets 282,748 600,777
Decrease in other liabilities (129,033) (368,971)
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Net cash provided by operating activities 441,182 280,023
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Cash Flows From Investing Activities:
Proceeds from sale of investment in real estate 0 45,000
Capital additions to real estate (189,233) (249,821)
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Net cash used in investing activities (189,233) (204,821)
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Cash Flows From Financing Activities:
Proceeds from mortgage note payable 3,800,000 0
Retirement of mortgage note payable (3,514,832) 0
Principal payments on mortgage notes payable (84,970) (77,557)
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Net cash provided by (used in) financing activities 200,198 (77,557)
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Net increase (decrease) in cash and cash equivalents 452,147 (2,355)
Cash and cash equivalents at beginning of period 549,760 2,019,321
---------- -----------
Cash and cash equivalents at end of period $1,001,907 $ 2,016,966
========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 542,380 $ 460,081
========== ===========
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 THREE MONTHS ENDED MARCH 31, 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 month
period ended March 31, 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 month periods ended March 31,
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 March 31, 1998, the Partnership owned an office center in Cherry
Hill, New Jersey, (see also Note 3); apartment projects in Holiday,
Florida, Reno, Nevada, and Atlanta, Georgia; 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
and the net carrying value of the real estate assets held for sale at
March 31, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
Real Estate at Cost
No.of Year of -------------------
Type Prop. Acquisition Description 3/31/98 12/31/97
- ---- ----- ----------- ----------- ------- --------
<S> <C> <C> <C> <C> <C>
Residential properties 2 1983-91 948 Apt. Units $31,878,818 $31,747,924
Undeveloped land 1 1978 13.9 Acres 44,387 44,387
----------- -----------
31,923,205 31,792,311
Less: Accumulated depreciation (13,560,104) (13,290,104)
----------- -----------
$18,363,101 $18,502,207
=========== ===========
<CAPTION>
Real Estate Held for Sale
No.of Year of -------------------------
Type Prop. Acquisition Description 3/31/98 12/31/97
- ---- ----- ----------- ----------- ------- --------
<S> <C> <C> <C> <C> <C>
Residential property 1 1997 594 Apt. Units $20,883,712 $20,832,762
Office property 1 1984-93 138,333 Sq. Ft. 4,100,422 4,093,033
----------- -----------
$24,984,134 $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 (see Note 3). The Partnership is in
negotiations for the sale of Riverbend Apartments.
</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. As a result of
the sale, the Partnership recognized a gain for financial reporting
purposes of approximately $630,000. This transaction, which occurred
after the date of the consolidated financial statements, is not
reflected in the accompanying financial statements as of and for the
period ended March 31. 1998. Please refer to the Form 8-K dated April
16, 1998, filed in connection with the sale.
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 three months ended March 31, 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. The assets, liabilities, and items of income and expense
associated with ownership of the property are included in the
consolidated statements of the Registrant as of and for the three
months ended March 31, 1998, and in the consolidated balance sheet at
December 31, 1997. The Partnership expects to consummate the sale of
the property within the year, and accordingly, has included this
investment in "real estate assets held for sale" on the accompanying
consolidated balance sheet.
<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 March 31, December 31,
Interest Maturity Installment Amount Due --------- ------------
Property Rate Date Payments(d) at Maturity 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Holiday Park (b) 6.895% 1/08 $ 300,169 $ 3,277,785 $ 3,796,820 $ 3,517,983
Meadow Wood 7.55 1/04 1,914,996 18,979,461 21,145,353 21,223,992
Riverbend (a) Variable 4/98 Interest Only 4,000,000 4,000,000 4,000,000
----------- -----------
$28,942,173 $28,741,975
=========== ===========
<FN>
(a) Unsecured demand note bearing interest at LIBOR plus 2.00%. The
interest rate charged at March 31, 1998 was 7.6875%. This note 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 with the exception
of the unsecured demand note (see (a) above).
(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 MONTHS ENDED MARCH 31, 1998
---------------------------------------------------
General
- -------
The consolidated financial statements as of and for the three month
period ended March 31, 1998 reflect the operations of one office property and
three residential garden apartment properties. The financial statements as of
and for the three month period ended March 31, 1997 reflect the operations of
one office property, one shopping center, two residential garden apartment
properties and a 60% owned joint venture that owned one garden apartment
property.
Total revenues for the three months ended March 31, 1998 increased
$716,000 to approximately $2,869,000 from approximately $2,153,000 for the
three months ended March 31, 1997. The net loss for the three months ended
March 31, 1998 decreased $455,000 to approximately $40,000 from approximately
$495,000 for the three months ended March 31, 1997.
The increase in total revenues and decrease in net loss are
attributable to the change in the composition of the portfolio from 1997 to
1998. In December, 1997, the Registrant sold Plantation Shopping Center and
purchased the forty-percent interest in the joint venture which owns Riverbend
Apartments from its former co-venturer. The statement of operations for the
three months ended March 31, 1997 includes $355,000 of revenues from Plantation
Shopping Center, but no revenues from Riverbend Apartments in which the
Registrant held a joint venture interest at the time. For the three months
ended March 31, 1998, there are no revenues from the shopping center, however,
the consolidated financial statements include $1,131,000 of revenues from
Riverbend Apartments, a 594 unit apartment community. Operating expenses from
the shopping center totalled $78,000 for the three months ended March 31, 1997,
while the operating expenses for the apartments totalled $635,000 for the
period ended March 31, 1998. Similarly, depreciation expense recorded for the
period ended in 1997 included $110,000 for the shopping center and $48,000 for
Cherry Hill Office Center. Since the shopping center was sold and the office
center and Riverbend Apartments are both classified as real estate assets held
for sale, no depreciation has been 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.
<PAGE>11
Liquidity and Capital Resources
- -------------------------------
As of March 31, 1998, the Registrant had cash and cash equivalents of
$1,102,000 in addition to $592,000 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 $442,000 more than
cash, cash equivalents, and deposits held in escrow on December 31, 1997.
Total cash and cash equivalents increased primarily as a result of the
refinancing of the mortgage note secured by Holiday Park Apartments. In
addition to an increase of $285,000 in the outstanding loan balance, $167,000
of funds held in an escrow account related to the refinanced loan were returned
by the lender as part of the terms of the new loan.
Riverbend Apartments, located in Atlanta, Georgia, and Cherry Hill
Office Center, located in Cherry Hill, New Jersey, have been classified as real
estate assets held for sale on the March 31, 1998 consolidated balance sheet.
On April 16, 1998, the Registrant sold Cherry Hill Office Center for
$4,825,000. The Registrant is in negotiations for the sale of Riverbend
Apartments and, while there can be no assurance that the sale of the apartments
will occur, if they are also sold, it is estimated that the amount of cash and
cash equivalents available for reinvestment by the Registrant will increase by
approximately $21 million. This will allow the resumption of acquisition
activities to rebuild the portfolio. Investigations of appropriate new
acquisitions are underway.
Debt at March 31, 1998, consisted of approximately $24,942,000 of
nonrecourse first mortgage notes payable secured by two apartment properties
owned by the Registrant, and a short-term bank loan of $4,000,000 (see Note 5
to the Financial Statements). Payment terms of the short-term bank loan were
interest only, based upon a fixed spread over a LIBOR index, until maturity.
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. In April,1998, the short-term bank loan was retired from the proceeds of
the sale of Cherry Hill Office Center. Scheduled maturities through monthly
payments of principal and interest will be approximately $274,000 for the
remainder of 1998. The terms of certain of the 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
mortgage notes payable.
The Registrant's properties, including those properties classified as
held for sale, 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.
<PAGE>12
Holiday Park Apartments
- -----------------------
Total revenues for the three months ended March 31, 1998 increased
$30,000 to $311,000 from $281,000 for the three months ended March 31, 1997.
Net loss after depreciation and mortgage interest expense for the three months
ended March 31, 1998 increased $12,000 to $36,000 from $24,000 for the three
months ended March 31, 1997.
The increase in total revenues is primarily due to increases in rental
rates charged at the property which increased revenues $13,000, coupled with an
increase in average occupancy of 6.2%, to 97.3% from 91.1% for the period a
year earlier, which increased revenues $16,000. The increase in net loss is
primarily due to the write-off of approximately $43,000 of unamortized costs
associated with the loan that was refinanced in January, partially offset by
the increase in revenues.
Meadow Wood Apartments
- ----------------------
Total revenues for the three months ended March 31, 1998 decreased
$120,000 to $1,026,000 from $1,146,000 for the three months ended March 31,
1997. Net loss after depreciation and mortgage interest expense for the three
months ended March 31, 1998 increased $150,000 to a net loss of $107,000 from
net income of $43,000 for the three months ended March 31, 1997.
The decrease in revenues is primarily the result of a decrease in
average occupancy at the property of approximately 9% to 84% for the three
months ended March 31, 1998 from 93% for the comparable period a year earlier.
The decrease in average occupancy decreased revenues $82,000, additional tenant
concessions decreased revenues $27,000, and reduced miscellaneous income
decreased revenues $10,000. The decrease in occupancy and increase in tenant
concessions are 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, and
increases in property operating costs including an increase in repairs and
maintenance costs of $18,000, advertising and promotion of $8,000 and payroll
costs of $4,000.
<PAGE>13
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. The assets,
liabilities, and items of income and expense associated with ownership of the
property are included in the consolidated balances of the Registrant as of and
for the three months ended March 31, 1998, and in the consolidated balance
sheet at December 31, 1997. For comparative purposes, information regarding
revenues, expenses and net income of the property is provided for the three
month period ended March 31, 1997, although these items were not included in
the consolidated financial statements of the Registrant.
Equity in net income (loss) of joint venture for the three months
ended March 31, 1998 increased $9,000 to $0 from a net loss of $9,000 for the
three months ended March 31, 1997 (see also Note 1 to the Financial
Statements).
Total revenues from the apartments for the three months ended March
31, 1998 increased $94,000 to $1,131,000 from $1,037,000 for the three months
ended March 31, 1997. Net income after depreciation and mortgage interest
expense for the three months ended March 31, 1998 increased $226,000 to
$339,000 from $113,000 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 of approximately 10%, to 90% for the three
months ended March 31, 1998 from 80% for the comparable period a year earlier,
which increased revenues $96,000, partially offset by a decrease in
miscellaneous income of $2,000. Net income increased due to the increased
revenues and a net decrease in expenses, in particular, a decrease of $198,000
in depreciation expense. Since Riverbend Apartments has been classified as a
real estate asset held for sale on the Registrant's balance sheets, no
depreciation is being charged to the property in the current year. Repairs and
maintenance costs decreased $27,000, and there was a decrease in utilities
expense of $8,000. These increases to net income were partially offset by
increases in certain property expenses, including an increase in payroll
expense of $24,000, reflecting the costs of compensation paid to employees
through a housing program implemented during 1997. An increase of $77,000 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>14
Cherry Hill Office Center
- -------------------------
Total revenues for the three months ended March 31, 1998 increased
$40,000 to $382,000 from $342,000 for the three months ended March 31, 1997.
Net income after depreciation and mortgage interest expense for the three
months ended March 31, 1998 increased $117,000 to $137,000 from $20,000 for the
three months ended March 31, 1997.
The increase in revenues is primarily due to an increase in average
base rental rates charged at the property which increased revenues $23,000, and
an increase in average occupancy of 2.2%, to 79.4% from 77.2% for the period a
year earlier, which increased revenues $10,000. Revenues from escalations also
increased $7,000 over the prior year. In addition to increased revenues, net
income increased due to decreases in expenses including depreciation, interest,
repairs and maintenance, and utility expenses. Because the property was
classified as a real estate asset held for sale at September 30, 1997, no
depreciation has been charged since that time and depreciation expense
decreased $48,000 from the prior year. Interest expense decreased $8,000 as a
result of the retirement in June of 1997 of the mortgage note which had
encumbered the property. Decreases in other expenses include a decrease of
$11,000 in repairs and maintenance expense, and a decrease of $9,000 in utility
expense.
<PAGE>15
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
On February 24, 1998, the Registrant
filed Form 8-K/A to amend the Form 8-K
filed in connection with the purchase
of Riverbend Apartments, to include
audited financial statements for the
years ended December 31, 1996, 1995
and 1994, and a financial statement
for the nine month period ended
September 30,1997.
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.
All other item numbers are omitted because
they are not applicable.
<PAGE>16
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 15, 1998 By: /s/ John H. Streicker
--------------------------
John H. Streicker
President
Dated: May 15, 1998 By: /s/ Elizabeth B. Longo
---------------------------
Elizabeth B. Longo
Chief Financial Officer
Dated: May 15, 1998 By: /s/ George N. Tietjen
---------------------------
George N. Tietjen III
Vice President
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,001,907
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0
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