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
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1999
-----------------------------------------
or
[] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ---------------------to------------------
(Amended by Exch Act Rel No. 312905. eff 4/26/93.)
Commission File Number: 0-8952
------------------------------------------------
SB PARTNERS
- ------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
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)
(212) 408-2900
- ------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- ------------------------------------------------------------------------
(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. [x] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ] Yes [ ] No
Not Applicable
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Not Applicable
<PAGE>
SB PARTNERS
INDEX
Part I Financial Information
Consolidated Balance Sheets
June 30, 1999 and December 31, 1998 . . . . . . . . . . . . 1
Consolidated Statements of Operations
For the three and six months ended June 30, 1999 and 1998 . 2
Consolidated Statements of Changes in Partners' Capital
For the six months ended June 30, 1999
and the years ended December 31, 1998 and 1997 . . . . . . . 3
Consolidated Statements of Cash Flows
For the six months ended June 30, 1999 and 1998 . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . 5 - 9
Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . 10 15
Quantitative and Qualitative Disclosures About Market Risk . . . 16
Part II Other Information . . . . . . . . . . . . . . . . . . . . . 16
<PAGE>1
<TABLE>
SB PARTNERS
(A New York Limited Partnership)
------------------------------
CONSOLIDATED BALANCE SHEETS
June 30, 1999 (Not Audited) and
December 31, 1998 (Audited, but not covered by the report of independent public accountants)
--------------------------------------------------------------------------------------------
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Assets:
Investments:
Real estate, at cost
Land $ 6,444,653 $ 6,444,653
Buildings, furnishings and improvements 62,728,853 61,733,637
Less - accumulated depreciation (15,568,772) (14,608,682)
----------- ------------
53,604,734 53,569,608
Other assets:
Cash and cash equivalents 5,178,155 6,585,252
Other 1,971,905 1,933,798
------------ ------------
Total assets $ 60,754,794 $ 62,088,658
============ ============
Liabilities:
Mortgage notes payable $ 41,633,103 $ 41,917,726
Accounts payable and accrued expenses 636,322 527,122
Tenant security deposits 250,235 243,173
------------ ------------
Total liabilities 42,519,660 42,688,021
------------ ------------
Partners' Capital:
Units of partnership interest without par value;
Limited partners - 7,753 units 18,251,217 19,416,570
General partner - 1 unit (16,083) (15,933)
------------ ------------
Total partners' capital 18,235,134 19,400,637
------------ ------------
Total liabilities & partners' capital $ 60,754,794 $ 62,088,658
============ ============
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,
------------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Rental income $2,415,272 $2,322,448 $4,811,121 $4,932,996
Interest on short-term investments 63,167 25,920 137,330 44,544
Other 132,058 232,951 229,683 472,833
---------- ---------- ---------- ----------
Total revenues 2,610,497 2,581,319 5,178,134 5,450,373
---------- ---------- ---------- ----------
Expenses:
Real estate operating expenses 1,076,964 1,397,973 2,097,479 2,850,975
Interest on mortgage notes payable 740,338 483,081 1,483,237 1,033,584
Depreciation and amortization 511,623 284,120 996,241 611,390
Real estate taxes 239,553 173,096 474,990 382,460
Management fees 181,358 103,333 359,063 374,296
Other 96,492 47,571 157,277 145,326
---------- ---------- ---------- ----------
Total expenses 2,846,328 2,489,174 5,568,287 5,398,031
---------- ---------- ---------- ----------
Income (loss) from operations (235,831) 92,145 (390,153) 52,342
Gain on sale of investments in real estate 0 3,873,733 0 3,873,733
---------- ---------- ---------- ----------
Net income (loss) (235,831) 3,965,878 (390,153) 3,926,075
Income (loss) allocated to general partner (30) 511 (50) 506
---------- ---------- ---------- ----------
Income (loss) allocated to limited partners $ (235,801) $3,965,367 $ (390,103) $3,925,569
========== ========== ========== ==========
Net income (loss) per unit of limited partnership interest $ (30.42) $ 511.46 $ (50.32) $ 506.33
========== ========== ========== ==========
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, 1999 (Not Audited) and
for the years ended December 31, 1998 and 1997 (Audited, but not covered by the report of independent public accountants)
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Limited Partners:
Units of
Partnership
Interest Cumulative Accumulated
----------- Cash Earnings
Number Amount Distributions (Losses) Total
------ ------ ------------- ----------- -----
<S> <C> <C> <C> <C> <C>
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 3,413,818 3,413,818
----- ------------ ------------ ----------- -----------
Balance, December 31, 1998 7,753 119,968,973 (97,728,323) (2,824,080) 19,416,570
Net loss for the period 0 0 0 (390,103) (390,103)
Cash distributions 0 0 (775,250) 0 (775,250)
----- ------------ ------------ ------------ -----------
Balance, June 30, 1999 7,753 $119,968,973 $(98,503,573) $ (3,214,183) $18,251,217
===== ============ ============ ============ ===========
General Partner:
Units of
Partnership Cumulative Accumulated
Interest Cash Earnings
Number Amount Distributions (Losses) Total
------ ------ ------------- ------------ ---------
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 0 440 440
----- ------- -------- ------- --------
Balance, December 31, 1998 1 10,000 (24,559) (1,374) (15,933)
Net loss for the period 0 0 0 (50) (50)
Cash distributions 0 0 (100) 0 (100)
------ ------- -------- ------- --------
Balance, June 30, 1999 1 $10,000 $(24,659) $(1,424) $(16,083)
====== ======= ======== ======= ========
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,
---------------------------
1999 1998
----------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ (390,153) $ 3,926,075
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Gain on sale of investments in real estate 0 (3,873,733)
Depreciation and amortization 996,241 611,390
(Increase) decrease in other assets (43,149) 217,327
Increase (decrease) in other liabilities 116,262 (410,999)
----------- -----------
Net cash provided by operating activities 679,201 470,060
----------- -----------
Cash Flows From Investing Activities:
Proceeds from sales of investments in real estate 0 29,210,371
Capital additions to real estate owned (995,216) (710,655)
----------- -----------
Net cash provided by (used in) investing activities (995,216) 28,499,716
----------- -----------
Cash Flows From Financing Activities:
Proceeds from mortgage note payable 0 3,800,000
Retirement of mortgage note and other loans payable 0 (7,514,832)
Cash distributions paid to partners (775,350) 0
Principal payments on mortgage notes payable (284,623) (174,752)
Increase in deferred financing costs (31,109) (3,984)
----------- -----------
Net cash used in financing activities (1,091,082) (3,893,568)
----------- -----------
Net increase (decrease) in cash and cash equivalents (1,407,097) 25,076,208
Cash and cash equivalents at beginning of period 6,585,252 549,760
----------- -----------
Cash and cash equivalents at end of period $ 5,178,155 $25,625,968
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 1,484,314 $ 1,052,361
=========== ===========
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, 1999
-----------------------------------
(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, 1999 and 1998 included herein are unaudited;
however, the information reflects all adjustments (consisting solely of
normal, recurring adjustments) that, in the opinion of management, are
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,
however, the Registrant believes that the disclosures are sufficient 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, 1999 and 1998 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. Certain prior period amounts have been
reclassified to make them comparable to the current period
presentation.
<PAGE>6
(b) Each partner is individually responsible for reporting its 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.
(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 30 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 on a straight-line basis over the
term of the related mortgage notes. Amortization of leasing
commissions and tenant improvements is computed by amortizing the
cost on a straight-line basis 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.
<PAGE>7
(2) INVESTMENTS IN REAL ESTATE
As of June 30, 1999 and December 31, 1998, the Partnership owned
apartment projects in Greenville, South Carolina; Reno, Nevada; and
Holiday and Orlando, Florida; as well as 13.9 acres of land in
Holiday, Florida. Following is the cost basis and accumulated
depreciation of the real estate investments owned by the Partnership
as of June 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
Real Estate at Cost
No.of Year of -------------------
Type Prop. Acquisition Description 6/30/99 12/31/98
- ---- ----- ----------- ----------- ------- --------
<S> <C> <C> <C> <C> <C>
Residential properties 4 1983-98 1,544 Apt. Units $ 69,129,119 $ 68,133,903
Undeveloped land 1 1978 13.9 Acres 44,387 44,387
------------ ------------
69,173,506 68,178,290
Less: Accumulated depreciation (15,568,772) (14,608,682)
------------ ------------
$ 53,604,734 $ 53,569,608
============ ============
<FN>
Note: Information is provided for all properties owned as of the end of the periods presented.
</TABLE>
(3) REAL ESTATE TRANSACTIONS
On December 23, 1998, the Partnership acquired Halton Place
Apartments, a 246-unit apartment community located in Greenville,
South Carolina for $12,600,000 in an all cash transaction. On August
20, 1998, the Partnership purchased Cypress Key Apartments, a 360-unit
apartment community located in Orlando, Florida, for $22,600,000, also
in an all cash transaction.
On April 16, 1998, the Partnership sold Cherry Hill Office Center for
a contract price of $4,825,000, and on June 30, 1998, sold Riverbend
Apartments for a contract price of $24,500,000. Both of these sales
were all cash transactions. As a result of these sales, the
Partnership recognized gains for financial reporting purposes of
approximately $506,000 and $3,368,000, respectively, for the three and
six months ended June 30, 1998.
<PAGE>8
(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
the Investor 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 Partnership sold Riverbend
Apartments on June 30, 1998 (see Note 3).
(5) MORTGAGE NOTES PAYABLE
Mortgage notes 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 (b) at Maturity 1999 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Holiday Park 6.895% 2/08 $ 300,169 $ 3,277,785 $ 3,746,869 $ 3,767,366
Meadow Wood 7.55% 1/04 1,914,996 18,979,461 20,729,178 20,900,360
Cypress Key (a) 6.605% 1/09 1,322,707 14,772,418 17,157,056 17,250,000
----------- -----------
$41,633,103 $41,917,726
=========== ===========
<FN>
(a) Mortgage note was secured in December 1998, and payments began in February 1999.
(b) Annual installment payments include principal and interest.
</TABLE>
(6) DISTRIBUTION
In March 1999, the Partnership paid a cash distribution of $100 per
weighted average unit outstanding which totaled $775,350 based on
7,753.5 weighted average number of units outstanding.
<PAGE>9
(7) 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 (the
"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 moved to stay the
class action and compel arbitration of any individual claim of the
plaintiff. On September 27, 1998 the Supreme Court of the State of
New York granted the Partnership's motion. In December 1998, Spencer
and Norma Schulze, another limited partner who holds 2 1/2 units in
the Partnership, filed a Demand for Arbitration (the "Demand") with
the American Arbitration Association. Other than omitting the class
action allegations, the Demand contains substantially the same
allegations as those contained in the Complaint. The Partnership, as
well as the other respondents, have moved to stay the arbitration to
the extent it seeks to recover attorneys' fees. Those motions are sub
judice. The arbitration panel of three arbitrators was chosen and a
preliminary hearing was held on May 6, 1999. On July 30, 1999, the
Partnership and the other respondents to the arbitration filed a
motion for summary judgment seeking the dismissal of all claims, which
is subject to further briefing in August and September. The
Partnership believes that the final outcome of this matter 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, 1999
----------------------------------------------------------
General
- -------
The consolidated financial statements as of and for the three and six
month period ended June 30, 1999 reflect the operations of four residential
garden apartment properties. 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.
Total revenues for the three months ended June 30, 1999 increased
$29,000 to approximately $2,610,000 from approximately $2,581,000 for the three
months ended June 30, 1998. The net loss of approximately $236,000 for the
three months ended June 30,1999 was $4,202,000 lower than the net income of
approximately $3,966,000 for the three months ended June 30, 1998.
Total revenues for the six months ended June 30, 1999 decreased
$272,000 to approximately $5,178,000 from approximately $5,450,000 for the six
months ended June 30, 1998. The net loss of approximately $390,000 for the
six months ended June 30,1999 was $4,316,000 lower than the net income of
approximately $3,926,000 for the six months ended June 30, 1998.
The changes in total revenues and net losses are attributable mainly
to the change in composition of the portfolio from 1998 to 1999. As mentioned
in Footnote 3 to the financial statements, the Registrant sold Cherry Hill
Office Center in April 1998, and Riverbend Apartments in June 1998. The
Registrant then began to rebuild the portfolio by purchasing Cypress Key
Apartments in August. By placing a mortgage note on this new acquisition, the
Registrant was able to use the proceeds of the mortgage to add Halton Place
Apartments to the portfolio in December, 1998. Please see Forms 8-K, as
amended, filed in connection with these transactions. Included in net income
for the six months ended June 30, 1998, is a net gain on sale of investments in
real estate of approximately $3,874,000, with $506,000 a result of the sale of
Cherry Hill Office Center and $3,368,000 from the sale of Riverbend Apartments.
The three and six months ended June 30, 1998 include revenues of
$1,152,000 and $2,282,000, respectively, from Riverbend Apartments and $35,000
and $417,000, respectively, from Cherry Hill Office Center. Operating expenses
for the three and six months ended June 30, 1998 totaled $742,000 and
$1,377,000, respectively, for Riverbend Apartments, and $52,000 and $250,000,
respectively, for Cherry Hill Office Center. As these properties were sold in
1998, no revenues or expenses are attributable to these two properties for the
three and six month periods ended June 30, 1999.
<PAGE>11
The statement of operations for the three and six months ended June
30, 1999 include $715,000 and $1,401,000, respectively, of revenues from
Cypress Key Apartments, and $404,000 and $821,000, respectively, of revenues
from Halton Place Apartments. Operating expenses for the three and six months
ended June 30, 1999 totaled $268,000 and $545,000, respectively, for Cypress
Key Apartments, and $167,000 and $303,000, respectively, for Halton Place
Apartments. In addition, depreciation expense recorded for the three and six
month periods in 1999 include $133,000 and $264,000, respectively, for Cypress
Key Apartments and $71,000 and $142,000, respectively, for Halton Place
Apartments. For additional analysis, please refer to the discussions of the
individual properties below.
This report on Form 10-Q includes statements that constitute "forward
looking statements" within the meaning of Section 27(A) of the Securities Act
of 1933 and Section 21(E) of the Securities Exchange Act of 1934 and that are
intended to come within the safe harbor protection provided by those sections.
By their nature, all forward looking statements involve risks and
uncertainties. Actual results may differ materially from those contemplated by
the forward looking statements.
Year 2000 Compliance
- --------------------
The Registrant has examined the problem presented by the inability of
many computer programs to distinguish the year 2000 from the year 1900
(referred to as the "Year 2000 Problem"). The primary software packages used
by the Registrant are designed by outside vendors who have represented that the
software is generally Year 2000 compliant (that is, not to be negatively
affected by the occurrence or use of a date in the year 2000 or beyond). The
Registrant has implemented required software modifications for software which
is known to be noncompliant and is testing those modifications for compliance.
It is the intention of the Registrant to have testing completed by mid-fourth
quarter, 1999. Furthermore, the Registrant expects that the cost to remediate
Year 2000 technology issues will be minimal. Although there can be no
assurances, at the present time the Registrant does not believe problems likely
to be faced by its vendors, lenders or customers because of the Year 2000
Problem would be likely to have a material adverse impact on the Registrant or
the results of its operations. The Registrant could be affected by systemic
problems in the economy resulting from the Year 2000 Problem, such as
disruptions of communication systems or overall economic dislocation. For
example, the Registrant's activities could be disrupted if banks, as a result
of the Year 2000 Problem, are unable to effect transactions in the normal
course of business. At the present time, the Registrant does not believe it is
possible to measure the effect of potential complications. The Registrant will
continually monitor and evaluate these areas and develop contingency plans on
an as needed basis.
<PAGE>12
Liquidity and Capital Resources
- -------------------------------
As of June 30, 1999, the Registrant had cash and cash equivalents of
$5,178,000 in addition to $1,266,000 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 $1,002,000 less than
cash, cash equivalents, and deposits held in escrow on December 31, 1998. Cash
provided by operating activities for the six months ended June 30, 1999
amounted to approximately $679,000. Cash and cash equivalents were reduced by
cash distributions amounting to $775,350, paid in March 1999 to Unitholders of
record on December 31, 1998. In addition, approximately $995,000 was invested
in capital additions to the properties during the six months ended June 30,
1999. Further offsets include principal payments on mortgage notes payable of
approximately $285,000.
Debt at June 30, 1999, consisted of approximately $41,633,000 of
nonrecourse first mortgage notes payable secured by three apartment properties
owned by the Registrant (See Note 5 to the Financial Statements). Scheduled
maturities through monthly payments of principal and interest will be
approximately $294,000 for the remainder of 1999. Terms 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.
Halton Place is currently unencumbered, however, a mortgage note may
be placed on the property with the proceeds used to continue the expansion of
the portfolio through the acquisition of additional investments in real estate
properties. Investigations of appropriate new acquisitions are underway.
Inflation and changing prices during the current period did not
significantly affect the markets in which the Registrant conducts its business.
In view of the low rate of inflation, its impact on the Registrant's business
has not been significant.
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.
<PAGE>13
Holiday Park Apartments
- -----------------------
Total revenues for the three months ended June 30, 1999 decreased
$9,000 to $307,000 from $316,000 for the three months ended June 30, 1998. Net
income after depreciation and mortgage interest expense for the three months
ended June 30,1999 decreased $5,000 to $29,000 from $34,000 for the three
months ended June 30, 1998. The decline in total revenues is due primarily to a
decrease in average occupancy of 5.0%, to 92.1% from 97.1% for the period a
year earlier, which reduced revenues by $18,000. This decrease was partially
offset by an increase in rental rates charged at the property which added
$9,000 to the revenues for the period. The decrease in net income is due
primarily to the decrease in revenues, partially offset by decreases in
operating expenses, primarily a decrease in depreciation expense of $6,000.
Total revenues for the six months ended June 30, 1999 decreased
$18,000 to $610,000 from $628,000 for the six months ended June 30, 1998. Net
income after depreciation and mortgage interest expense for the six month
period ended June 30,1999 increased $61,000 to net income of $59,000 from a net
loss of $2,000 for the six months ended June 30, 1998. The decrease in
revenues was primarily due to lower occupancy, which reduced revenues by
$35,000, while tenant concessions increased $3,000 and miscellaneous other
income decreased approximately $2,000. These reductions in revenues were
partially offset by an increase in rental rates implemented at the property
which increased revenues $22,000. The decrease in occupancy is due to low
interest rates available to consumers which make homebuying a viable
alternative to apartment living. The majority of move out notices that Holiday
Park has received of late are due to home purchases. Holiday Park has
increased outside marketing and advertising in an effort to reverse this
occupancy trend. The increase in net income is a result of lower operating
costs and reduced debt service costs. Operating expenses decreased $12,000,
due primarily to decreases in repairs and maintenance costs of $8,000 and
payroll costs of $4,000. Certain non-recurring costs for repairs made during
the first half of 1998, such as the installation of new signs and repairs to
the elevators, did not need to be made in the current year. In addition, a
non-recurring adjustment for workers compensation insurance recorded in 1998
was not repeated in the current year. Interest expense for the period
decreased $10,000 from the prior period as a result of refinancing the mortgage
note at a lower interest rate during 1998. Furthermore, amortization of costs
associated with the financing of the loan encumbering the property decreased
$46,000. In 1998, a one-time charge against earnings of $43,000 was recorded
to write off the unamortized costs associated with the loan that was retired.
<PAGE>14
Meadow Wood Apartments
- ----------------------
Total revenues for the three months ended June 30, 1999 increased
$67,000 to $1,119,000 from $1,052,000 for the three months ended June 30, 1998.
Net loss after depreciation and mortgage interest expense for the three months
ended June 30,1999 increased $7,000 to $40,000 from $33,000 for the three
months ended June 30, 1998. The increase in revenues is due primarily to an
increase in average occupancy of 7.7% to 91.0% from 83.3% for the same period a
year earlier, which increased revenues $91,000. This was offset by a modest
decrease in rental rates charged at the property which lowered revenues
$10,000, and an increase of $14,000 in tenant concessions. The increase in net
loss is due primarily to increases in expenses totaling $73,000 which were
necessary to keep pace with the improved occupancy, including approximately
$54,000 in repairs and maintenance and apartment turnover costs. Depreciation
expense has also increased approximately $25,000 during the second quarter of
1999 compared to the same period in 1998, as the capital improvement program
implemented in 1998 was completed and the depreciation period of these upgrades
has begun.
Total revenues for the six months ended June 30,1999 increased
$128,000 to $2,206,000 from $2,078,000 for the six months ended June 30, 1998.
Net loss after depreciation and mortgage interest expense decreased $78,000 to
$62,000 from $140,000 for the six months ended June 30, 1998. The higher
revenues are primarily the result of the increase in average occupancy of 9.3%
to 92.7% from 83.4% for the same period last year. The greater average
occupancy increased revenues $150,000, and a reduction in tenant concessions
increased revenues $5,000; however, a decrease in rental rates charged at the
property lowered revenues $23,000 and reduced miscellaneous income decreased
revenues $4,000. The decrease in the net loss for the period is due primarily
to the higher rental revenue, partially offset by a net increase in total
expenses of $50,000. Depreciation expense increased approximately $25,000,
repairs and maintenance increased approximately $18,000, both as discussed
above, and payroll expense rose approximately $8,000 from the comparable period
in 1998.
<PAGE>15
Cypress Key Apartments
- ----------------------
On August 20, 1998, the Registrant purchased Cypress Key Apartments, a
360-unit apartment community located in Orlando, Florida, for $22,600,000 in an
all cash transaction. Please see Form 8-K, as amended, filed in connection
with this transaction. (Refer also to Footnote 3 of the Financial Statements).
Total revenues for the three months ended June 30, 1999 were $715,000.
Net loss after depreciation and mortgage interest expense was $84,000. Total
revenues for the six month period ended June 30, 1999 were $1,401,000. Net
loss after depreciation and mortgage interest expense was $202,000. Average
occupancy for the six month period was 88.6%. Certain leases entered into by
the former owner were not up to the standards employed by the Registrant and
were not renewed. This caused a temporary increase in the vacancy rate at the
property in the early part of the year. However, for the three months ended
June 30, 1999, the average occupancy was 91.5%. Future occupancy rates are
expected to remain above 90%.
Halton Place Apartments
- -----------------------
On December 23, 1998, the Registrant purchased Halton Place
Apartments, a 246-unit apartment community located in Greenville, South
Carolina, for $12,600,000 in an all cash transaction. Please see Form 8-K, as
amended, filed in connection with this transaction. (Refer also to Footnote 3
of the Financial Statements). At the present time, there is no mortgage note
on this property.
Total revenues for the three months ended June 30, 1999 were 404,000.
Net income after depreciation expense was $127,000. Total revenues for the six
month period ended June 30, 1999 were $821,000. Net income after depreciation
expense was $299,000. Average occupancy for the three and six month periods
was 91.5% and 89.6%, respectively. Since acquisition, occupancy has been
steady; however, changes in the resident profile are being made as new
applicants are screened. In the first quarter of the year, lighting
conversions were made throughout the property and landscaping was improved by
clearing out some trees. In the second quarter of the year, work to improve
the tennis courts was completed. During the rest of the year, other projects
are planned to improve curb appeal and maintain market share.
<PAGE>16
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1999
------------------------------------------------
Not Applicable
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
None.
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 16, 1999 By:/s/ John H. Streicker
-----------------------------
John H. Streicker
President
Dated: August 16, 1999 By:/s/ Elizabeth B. Longo
-----------------------------
Elizabeth B. Longo
Chief Financial Officer
(Principal Financial Officer)
Dated: August 16, 1999 By:/s/ George N. Tietjen
-----------------------------
George N. Tietjen III
Vice President
(Principal Accounting Officer)
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