SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998 Commission file number 0-8952
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SB Partners
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(Exact name of registrant as specified in its charter)
New York 13-6294787
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(State of other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
666 Fifth Avenue, N.Y., N.Y. 10103
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(Address of Principal Executive Offices) Zip Code
(212) 408-2900
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Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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NONE
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Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interests
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(Title of Class)
<PAGE>2
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of regulation S-K (sec.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this form 10-K (x).
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.
(See definition of affiliate in Rule 405, 17 CFR 203.405).
NOTE: If a determination as to whether a particular person or entity is an
affiliate cannot be made without involving unreasonable effort and expense, the
aggregate market value of the common stock held by non-affiliates may be
calculated on the basis of assumptions reasonable under the circumstances,
provided that the assumptions are set forth in the Form.
Not Applicable
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APPLICABLE ONLY TO REGISTRANTS 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 Section 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
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Not Applicable
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(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Not Applicable
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DOCUMENTS INCORPORATED BY REFERENCE.
List hereunder the following documents if incorporated by reference and the
Part of the Form 10-K (e.g. Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g. annual report to security holders
for fiscal year ended December 24, 1980).
None
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<PAGE>3
PART I
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ITEM 1. BUSINESS
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Description of SB Partners (the "Registrant")
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The Registrant is an existing New York limited partnership, which has been
engaged in acquiring, operating and holding for investment a varying portfolio
of real properties since April 1971. The Registrant's initial public offering
was in 1971. As of December 31, 1998, the Registrant owned apartment projects
in Greenville, South Carolina; Reno, Nevada; Orlando and Holiday, Florida; and
13.9 acres of land adjacent to the apartment project in Holiday, Florida.
The principal objectives of the Registrant are, first, to obtain capital
appreciation through equity investments in real estate; second, to generate
cash available for distribution, a portion of which may not be currently
taxable; and third, to the extent still permitted under the Internal Revenue
Code of 1986, as amended, to generate tax losses which may offset the limited
partners' income from the Registrant and certain other sources. The Registrant
ended 1998 with net income before extraordinary items of $3,414,000, a
substantial increase over the past four years.
Recent Developments and Real Estate Investment Factors
- ------------------------------------------------------
Although specific markets and real estate asset classes have stabilized or
improved since the real estate downturn of the early to mid 1990's, certain
economic events affected real estate markets directly or indirectly in the
latter half of 1998.
The downturn in the early part of the decade was caused by many factors such as
reduced tenant demand, lack of available debt and equity capital for real
estate investment, overbuilding, and changes in legislation including tax
legislation, among other things. These events resulted in decreased earnings
and cash flow generated by real estate investments, reduced asset values, and
increased numbers of foreclosures and negotiated transfers of real estate to
lenders by borrowers, including negative tax consequences caused by such
transfers.
The general improvement and stabilization of certain real estate investments
reflect the strengthening and prolonged growth of national and global
economies. As tenant demand improved in the latter half of the 1990's,
landlords in certain submarkets were better able to lease available space.
Borrowers were able to take advantage of lower capital costs and greater
availability of debt and equity capital. Over time, more potential buyers of
real estate entered the market, including real estate investment trusts (REITs)
and opportunity funds, contributing to increased demand for real estate
investments. These favorable conditions led to renewed construction activity,
which, in turn, led to some overbuilding in some submarkets, although not to
the extent seen earlier in this decade and the late 1980's. In 1998, turmoil
in global financial markets disrupted capital markets in the United States, and
equity REITs and other potential acquirers of real estate investments began
experiencing difficulty raising debt and equity capital, debt capital costs
increased, and borrowers were confronted with reduced availability of funds.
Since then, the acquisition programs of many REITs decreased significantly,
reducing demand for real estate investments from the level experienced in the
early part of 1998.
<PAGE>4
Other than some overbuilding in certain submarkets negatively impacting
performance at Meadowwood Apartments in Reno, Nevada, the matters described
above have not generally affected the Registrant as it has taken action to
rebuild the portfolio. The Registrant has sold properties that it believed had
reached maximum value to the Registrant, including Cherry Hill Office Center in
April 1998, and Riverbend Apartments in June 1998. Mortgage notes on certain
of its remaining properties have been refinanced on more favorable terms, so as
to best preserve the value of the property and the equity interest of the
partners. The Registrant was able to successfully place financing on Cypress
Key Apartments, a property acquired in August 1998, and to use those funds to
acquire Halton Place Apartments in December 1998. (Please refer to Footnotes 4
and 6 of the Consolidated Financial Statements, Item 7. - Management's
Discussion and Analysis of Financial Condition and Results of Operations, and
Forms 8-K, as amended, filed in connection with these transactions.)
General Real Estate Risks
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This report on Form 10-K 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 for a number of reasons, including, but not limited to, those risks
described below:
General
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The Registrant's investments generally consist of investments in real property
and as such will be subject to varying degrees of risk generally incident to
the ownership of real estate assets. The underlying value of the Registrant's
real estate investments and the Registrant's financial condition will be
dependent upon its ability to operate its properties in a manner sufficient to
maintain or increase revenues and to generate sufficient income in excess of
operating expenses. Income from the properties may be adversely affected by
changes in national and local economic conditions such as oversupply of
apartment units or a reduction in demand for apartment units in the
Registrant's markets, the attractiveness of the properties to tenants, changes
in interest rates and in the availability, cost and terms of mortgage
financing, the ongoing need for capital improvements, particularly in older
structures, changes in real estate tax rates or operating expenses, adverse
changes in governmental rules and fiscal policies, adverse changes in zoning
laws, civil unrest, acts of God, including natural disasters (which may result
in uninsured losses), and other factors which are beyond the control of the
Registrant. If the Registrant were unable to promptly renew or relet the
leases of a significant number of tenants, or, if the rental rates upon such
renewal or reletting were significantly lower than expected rates, the
Registrant's results of operations, financial condition and ability to make
distributions to Unitholders may be adversely affected.
<PAGE>5
Risks of Liability and Loss
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The development and ownership of real estate may result in liability to third
parties, due to conditions existing on a property which result in injury. In
addition, real estate may suffer a loss in value due to casualties such as fire
or hurricane. Such liability or loss may be uninsurable in some circumstances
or may exceed the limits of insurance maintained at typical amounts for the
type and condition of the property. Real estate may also be taken, in whole or
in part, by public authorities for public purposes in eminent domain
proceedings. Awards resulting from such proceedings may not adequately
compensate the Registrant for the value lost.
Value and Non-liquidity of Real Estate
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Real estate investments are relatively non-liquid. The Registrant's ability to
vary its portfolio in response to changes in economic and other conditions will
therefore be limited. If the Registrant must sell an investment, there can be
no assurance that it will be able to dispose of the investment in the time
period it desires or that the sales price of the investment will recoup or
exceed the amount of the Registrant's cost for the investment.
Potential Adverse Effect on Results of Operations Due to Operating Risks
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The Registrant's properties are subject to operating risks common to real
estate in general, any and all of which may adversely affect occupancy or
rental rates. The Registrant's properties are subject to increases in operating
expenses such as cleaning, electricity, heating, ventilation and air
conditioning, and maintenance; insurance and administrative costs; and other
general costs associated with security, landscaping, repairs and maintenance.
Tenants in commercial properties generally are obligated to pay these
escalating costs, although there can be no assurance that tenants will agree to
pay such costs upon renewal or that new tenants will agree to pay such costs.
The cost of these expenses must be borne by the Registrant for any portion of a
commercial property which is not leased. In the case of apartment communities,
the Registrant must bear all such increased expenses. If operating expenses
increase, the local rental market may limit the extent to which rents may be
increased to meet such increased expenses without decreasing occupancy rates.
While the Registrant implements cost-saving incentive measures at each of its
properties, if any of the foregoing occurs, the Registrant's results of
operations, financial condition and its ability to pay distributions to
Unitholders could be adversely affected. Furthermore, the inability of
existing tenants to meet their obligations under the terms of their leases, may
in turn adversely affect the performance and financial condition of the
Registrant.
<PAGE>6
Debt Servicing and Financing
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If the Registrant does not have funds sufficient to repay its indebtedness at
maturity, the Registrant may need to refinance indebtedness through additional
debt financing or equity offerings. If the Registrant is unable to refinance
this indebtedness on acceptable terms, the Registrant may be forced to dispose
of properties upon disadvantageous terms, which could result in losses to the
Registrant and adversely affect the amount of cash available for distribution
to Unitholders. If prevailing interest rates or general economic conditions
result in higher interest rates at a time when the Registrant must refinance
its indebtedness, the Registrant's interest expense would increase, which would
adversely affect the Registrant's results of operations, financial condition
and its ability to pay expected distributions to Unitholders, or it may be
restricted from obtaining a loan which will be sufficient to retire the
existing loan based on lower debt service coverage. Further, if any of the
Registrant's properties are mortgaged to secure payment of indebtedness and the
Registrant is unable to meet mortgage payments, the mortgagee could foreclose
or otherwise transfer the property, with a consequent loss of income and asset
value to the Registrant.
Environmental Issues
- --------------------
Under various Federal, state and local environmental laws, ordinances and
regulations, an owner or operator of real estate may be liable for the costs of
removal or remediation of certain hazardous or toxic substances on such
property. These laws often impose environmental liability without regard to
whether the owner or operator knew of, or was responsible for, the presence of
such hazardous or toxic substances. The presence of such substances, or the
failure to properly remediate such substances, may adversely affect the owner's
or operator's ability to sell or rent the property or to borrow using the
property as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances may also be liable for the costs of removal or
remediation of such substances at a disposal or treatment facility, whether or
not such facility is owned or operated by such person. Certain third parties
may seek recovery from owners or operators of such properties or persons who
arranged for the disposal or treatment of hazardous or toxic substances and,
therefore, are potentially liable for removal or remediation costs, as well as
certain other related costs, including governmental fines and injuries to
persons and property.
Competition
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The Registrant competes for tenants with many other real estate owners. The
success of the Registrant in attracting tenants for its properties will depend
upon its ability to maintain its properties and their attractiveness to
tenants, neighborhood conditions, and changing demographic trends, et cetera.
All of the Registrant's properties are located in developed areas that include
other, similar properties. The number of competitive properties in a
particular area could have a material effect on the Registrant's ability to
lease space at its properties and on the rents charged at such properties. In
addition, other forms of housing, including manufactured housing community
properties and single-family housing provide alternatives to potential
residents of multi-family residential properties.
<PAGE>7
Tax Matters
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In August 1993, Congress passed and President Clinton signed into law the
Omnibus Budget Reconciliation Act of 1993 (the "Act"). The Act includes
several provisions designed to help revive the real estate industry, including
relaxed rules for pension fund investments in real estate, passive-loss relief
for developers, extension of the low-income housing credit, and an easing of
the rules on recognizing cancellation of certain real estate debt. On the
negative side, the Act extended the recovery period by 7.5 years (from 31.5 to
39) for nonresidential real estate purchased subsequent to the effective date
of the Act.
The Act relaxes the "per se" passive characterization of certain rental real
estate operations. For tax years beginning after 1993, eligible taxpayers, who
materially participate in rental real estate activities, are able to deduct
losses from rental activities against other income. For all other
nonmaterially participating taxpayers, the provisions enacted as part of the
Tax Reform Act of 1986 and the Technical and Miscellaneous Revenue Act of 1988
(as discussed below) continue to apply. The Act also provides some relief by
allowing taxpayers, other than corporations, to elect to exclude from income
some cancellation of "qualified real property business indebtedness", effective
for certain discharges after December 31, 1992. The amount of the exclusion is
limited to the basis of the taxpayer's business real property or the excess of
the principal amount of the debt over the fair market value of business real
property that secures the debt, whichever is less. The basis of the taxpayer's
business real property must be reduced by the amount of excluded income. The
provision does not apply to foreclosures or "deeds in lieu" with respect to
nonrecourse debt.
<PAGE>8
Tax Reform Act of 1986 and the Technical
and Miscellaneous Revenue Act of 1988
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On October 22, 1986, the Tax Reform Act of 1986 (the "1986 Act") was signed
into law. The Technical and Miscellaneous Revenue Act of 1988 ("TAMRA 88") was
enacted on November 10, 1988. Generally the principal provisions of the 1986
Act and TAMRA 88 impacting the Registrant and its Limited Partners are:
-Passive activity loss limitations have limited the ability of the
partners to offset their allocated share of taxable passive losses
(essentially losses from rental real estate operations) of the Registrant
against other earned or portfolio income.
-The limitation of losses to amounts that partners have "at risk" was
extended to passive real estate investments. The amount a partner has "at
risk" generally includes its proportionate share of qualified non-recourse
financing, and is also subject to other limitations.
-The 1986 Act limits the deduction of investment interest expense, as
defined, to the amount of net investment income generated for the year, as
defined, with an unlimited carryover for excess expense.
The effect of these and other changes in income tax laws will vary depending
upon each partner's individual tax situation. The Registrant believes that its
characterization of, and allocation of, passive and portfolio income and losses
from its operations are in compliance with existing regulations, but it can
provide no assurances that the Internal Revenue Service ("IRS") will not
challenge such treatment and allocations in the event of an audit.
<PAGE>9
Recent Legislation
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The Taxpayer Relief Act of 1997 contains significant changes to the taxation of
capital gains of individuals, trusts and estates. For gains realized after
July 28, 1997, and subject to certain exceptions, the maximum rate of tax on
net capital gains of individuals, trusts and estates from the sale or exchange
of capital assets held for more than 18 months has been reduced to 20%, and the
maximum rate is reduced to 18% for assets acquired after December 31, 2000 and
held for more than five years. However, the maximum rate for long-term capital
gains attributable to the sale of depreciable real property held for more than
18 months is 25% to the extent of the deductions for depreciation with respect
to such property. Therefore, that portion of capital gain that is attributable
to depreciation previously allocated to the Unitholders will be subject to the
25% rate. The maximum rate of capital gains tax for capital assets held for
more than one year (but not more than 18 months) remains at 28%. The taxation
of capital gains of corporations was not changed by the Taxpayer Relief Act.
The IRS Restructuring and Reform ACT of 1998 (the "1998 ACT") eliminated the
18-month holding period that was required in order to take advantage of the
lowest capital gain tax rates. This holding period change is generally
effective for tax years ending after December 31, 1997. Thus, in tax years
ending after 1997, capital gains on most property held more than 12 months will
be eligible for the 10, 20, or 25 percent capital gains rates introduced in the
1997 ACT.
The 1998 ACT also made the following changes to the maximum capital gains rate
provisions, and is generally effective for tax years ending after May 6, 1997:
1) The regular tax and minimum tax "minimum capital gains rate" rules were
reorganized for the sake of clarity, while retaining the substance of the
rules. In particular, the definition of "adjusted net capital gain" was
clarified.
2) Several conforming amendments were in the 1998 Act to coordinate the
multiple holding periods introduced under the Taxpayer Relief Act of 1997 with
other tax law provisions. For example, inherited property and certain patents
are now deemed to have a holding period of more than 18 months, allowing the 10
and 20 percent rates to apply.
Unitholders are urged to consult their own tax advisors with respect to the tax
consequences arising under the federal law and the laws of any state,
municipality or other taxing jurisdiction, including tax consequences arising
from such Unitholder's own tax characteristics.
<PAGE>10
Other Tax Matters
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The Revenue Act of 1987 retroactively changed the treatment of income and loss
of publicly-traded partnerships ("PTP") to characterize a partner's share of
income as portfolio instead of passive, and limits the current deductibility of
losses.
The term PTP refers to any partnership whose interests are traded on an
established securities market or are readily tradable on a secondary market (or
the substantial equivalent thereof). The Registrant believes that it is not a
PTP pursuant to such definition and therefore its holders will not be subject
to the Revenue Act of 1987 provisions. However, due to the complexities of the
regulations, no assurance can be provided that the IRS may not challenge the
treatment of income and losses in the event of an audit.
In 1989, the Registrant made an election under IRC Section 754 which provides
for an adjustment of the adjusted tax basis of depreciable property which may
result in additional depreciation deductions to purchasing partners and those
partners who inherit their interests in the Registrant. These adjustments,
however, are subject to the passive loss rules discussed above and may or may
not provide current benefit to a particular partner. The Registrant will be
bound by the Section 754 election for all subsequent years.
General
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Efforts required in complying with Federal, state and local environmental
regulations may have and may continue to have an adverse effect on the
Registrant's operations in the future, although such costs have not
historically been significant in amount.
There are approximately 31 full and part-time on-site project personnel
employed at the Registrant's properties.
The Registrant's real estate investments are not generally subject to seasonal
fluctuations, although net income (loss) may vary somewhat from quarter to
quarter based upon changes in utility consumption and seasonal maintenance
expenditures at each property.
The Registrant considers itself to be engaged in only one industry segment,
real estate investment, and therefore information regarding industry segments
is not applicable and has not been provided.
<PAGE>11
YEAR 2000 COMPLIANCE
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The Registrant is examining 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 expects to have any required software modifications implemented by
the end of the third 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
ITEM 2.PROPERTIES
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The properties owned by the Registrant as of December 31, 1998 are set forth on
the Summary of Properties schedule on the page immediately following.
ITEM 3.LEGAL PROCEEDINGS
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The Registrant is a party to certain actions directly arising from its normal
business operations. While the ultimate outcome is not presently determinable
with certainty, the Registrant 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
Registrant, filed a purported class action (the "Complaint"), on behalf of
himself and other persons similarly situated, against the Registrant 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
Registrant 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 Registrant's affairs and an award of
costs and attorneys' fees to the plaintiff and the putative class. The
Registrant 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 Registrant's motion. In December 1998,
Spencer and Norma Schulze, another limited partner who holds 2 1/2 units in the
Registrant, 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 Registrant, 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 has been
chosen and a preliminary hearing has been scheduled for April 6, 1999. The
Registrant believes that the final outcome of this matter will not have a
material adverse effect on its financial position or results of operations.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF UNITHOLDERS
----------------------------------------------
NONE.
<PAGE>13
<TABLE>
SB PARTNERS
Summary of Properties
As of December 31, 1998
<CAPTION>
Occupancy
Description Acquisition Percent at Mortgage
Property Location Sq. Ft. Units Acres Date Ownership 12/31/98 Payable
<S> <C> <C> <C> <C> <S> <C> <C> <C>
Apartments:
Holiday Park Apts. Holiday, FL 220,000 244 21.5 Jan 1991 100% 93.4% $ 3,767,366
Meadowwood Apts. Reno, NV 529,000 704 30.0 May 1983 100% 88.6% 20,900,360
Cypress Key Apts. Orlando, FL 323,000 360 22.7 Aug 1998 100% 81.7% 17,250,000
Halton Place Apts. Greenville, SC 233,000 246 20.6 Dec 1998 100% 95.5% 0
--------- ----- ----
1,305,000 1,554 94.8
========= ===== ====
Land:
Unimproved land (1) Holiday, FL n/a n/a 13.9 Jul 1978 100% n/a 0
Additional information regarding properties owned by the Registrant:
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Average Occupancy
- -----------------
Holiday Park Apts. 94.0% 93.2% 91.0% 91.6% 93.5%
Meadowwood Apts. 85.5% 88.8% 94.9% 96.9% 96.3%
Cypress Key Apts.(a) 88.0% n/a n/a n/a n/a
Halton Place Apts.(a) 95.0% n/a n/a n/a n/a
Effective Annual Rent
- --------------------
Holiday Park Apts. $4,800 $4,604 $4,335 $4,238 $4,237
Meadowwood Apts. $5,717 $5,987 $6,372 $6,140 $5,914
Cypress Key Apts.(b) $7,475 n/a n/a n/a n/a
Halton Place Apts.(b) $5,495 n/a n/a n/a n/a
(a) For period of ownership.
(b) Annualized for properties owned for less than one year.
<FN>
(1) Land is adjacent to Holiday Park Apartments.
</TABLE>
<PAGE>14 PART II
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ITEM 5.MARKET FOR REGISTRANT'S UNITS OF PARTNERSHIP
INTEREST AND RELATED UNITHOLDER MATTERS
--------------------------------------------
The transfer of Units or Participations (equivalent to one-half Unit) is
subject to certain limitations, including the consent of the General Partner.
There is no public market for the Units and it is not anticipated that any such
public market will develop. The number of Unitholders as of December 31, 1998
was 3,785.
At various times the Registrant has generated and distributed cash to the
Unitholders. To date, such distributions have totalled $97,752,882. With the
repositioning of the portfolio, the Registrant was able to resume distributions
to the limited partners. However, there is no requirement to make such
distributions nor can there be any assurance that future operations will
generate cash available for distribution. A distribution of $100 per unit
totaling $775,300 was paid in March 1999 to Unitholders of record on
December 31, 1998.
ITEM 6.SELECTED FINANCIAL DATA
-----------------------
Selected Financial Data is set forth on the table on the following page. This
information should be read in conjunction with the Consolidated Financial
Statements and Notes thereto, and Management's Discussion and Analysis of
Financial Condition and Results of Operations, included elsewhere in this
annual report on Form 10-K.
<PAGE>15
<TABLE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial data regarding the Registrant's
financial condition and results of operations determined in accordance with
generally accepted accounting principles. This data should be read in conjunction
with the Audited Consolidated Financial Statements and Notes thereto included elsewhere in this
annual report on Form 10-K.
<CAPTION>
For the Years Ended December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In Thousands, Except Unit Data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Rental, Interest and Other Revenues $ 9,512 $ 9,066 $ 15,430 $ 23,324 $ 25,544
Operating Expenses, including
Depreciation and Amortization (9,971) (10,386) (23,495) (31,356) (35,648)
Writedown and Reserves of Investments in Real Estate 0 0 0 0 (4,162)
------- -------- -------- -------- --------
Loss from Operations (459) (1,320) (8,065) (8,032) (14,266)
Gain on Sale of Investments in Real Estate 3,873 1,404 0 3,964 6,859
Equity in Net Income (Loss) of Joint Venture 0 316 426 725 (352)
------- -------- -------- -------- --------
Net Income (Loss) before Extraordinary Gain 3,414 400 (7,639) (3,343) (7,759)
Gain on Dispositions of Investments in Real Estate
through Discharge of Indebtedness 0 0 11,951 0 0
------- -------- -------- -------- --------
Net Income (Loss) $ 3,414 $ 400 $ 4,312 $ (3,343) $ (7,759)
======= ======== ======== ======== ========
Net Income (Loss) per Unit of Partnership Interest:
Net Income (Loss) before Extraordinary Gain $ 440 $ 52 $ (985) $ (431) $ (1,001)
Extraordinary Gain $ 0 $ 0 $ 1,541 $ 0 $ 0
Net Income (Loss) $ 440 $ 52 $ 556 $ (431) $ (1,001)
Weighted Average Number of
Partnership Units Outstanding 7,754 7,754 7,754 7,754 7,754
Balance Sheet Data at Year End:
Real Estate, net $53,570 $ 18,502 $ 32,357 $106,893 $116,253
Real Estate Assets Held for Sale $ 0 $ 24,926 $ 0 $ 0 $ 0
Investment in Joint Venture $ 0 $ 0 $ 10,742 $ 10,697 $ 11,134
Total Assets $62,089 $ 45,667 $ 47,775 $127,259 $135,238
Mortgage Notes Payable, net $41,918 $ 28,742 $ 30,752 $103,408 $112,254
</TABLE>
<PAGE>16
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of December 31, 1998, the Registrant had cash and cash equivalents of
approximately $6,585,000 in addition to $861,000 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 $6,194,000
more than cash, cash equivalents and deposits held in escrow on December 31,
1997. The increase in cash and cash equivalents is primarily a result of the
continued repositioning of the portfolio, as cash generated from the sales of
properties previously owned by the Registrant and through the financing of
properties held by the Registrant is reinvested in new real estate properties.
During 1998, the Registrant sold Riverbend Apartments and Cherry Hill Office
Center for $24,500,000 and $4,825,000, respectively, in all cash transactions.
The proceeds from the sale of Cherry Hill Office Center 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 in 1997 of the forty percent interest
in Riverbend Apartments owned by the Registrant's former co-venturer. With the
proceeds of the sale of Riverbend Apartments, the Registrant purchased Cypress
Key Apartments in August 1998 for $22,600,000 in an all cash transaction. The
Registrant was then able to negotiate a mortgage note of $17,250,000 secured by
Cypress Key Apartments. Proceeds from this note were then used to purchase
Halton Place Apartments for $12,600,000 in an all cash transaction on
December 23, 1998.
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 December 1998, the Registrant negotiated a mortgage note with a FNMA
DUS program lender in the principal amount of $17,250,000, securing the note
with Cypress Key Apartments. The mortgage note bears interest at 6.605% per
annum and matures on January 1, 2009.
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.
<PAGE>17
Total outstanding debt at December 31, 1998 consisted of approximately
$41,918,000 of nonrecourse first mortgage notes secured by real estate owned by
the Registrant. Scheduled maturities through regularly scheduled monthly
payments will be approximately $563,000 in 1999. 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 payment of principal and interest. The Registrant has no other
debt except normal trade accounts payable and accrued interest on mortgage
notes payable.
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 moderate rate of inflation, its impact on the Registrant's business has not
been significant.
With the repositioning of the portfolio, the Registrant was able to resume
distributions to the limited partners. However, there is no requirement to
make such distributions nor can there be any assurance that future operations
will generate cash available for distribution. A distribution of $100 per unit
totaling $775,300 was paid in March 1999 to Unitholders of record on
December 31, 1998.
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.
MANAGEMENT'S DISCUSSION OF RESULTS OF OPERATIONS
- ------------------------------------------------
1998 VS. 1997
- -------------
Total revenues increased $446,000 to $9,512,000 in 1998 from $9,066,000 in
1997. Loss from operations decreased $862,000 to $459,000 in 1998 from
$1,321,000 in 1997. Net income increased $3,014,000 to $3,414,000 in 1998 from
$400,000 in 1997. Net income for 1998 includes gains on sales of investments in
real estate of approximately $3,368,000 and $506,000 from the sales of
Riverbend Apartments and Cherry Hill Office Center, respectively. Net income
for 1997 included a gain on sale of investment in real estate of approximately
$1,404,000 from the sale of Plantation Shopping Center.
The increase in revenues from 1997 to 1998 is primarily attributable to the
continued repositioning of the portfolio. In December 1997, the Registrant
purchased, through a limited liability company, the forty-percent interest in
Riverbend Apartments formerly owned by its co-venturer, thus effectively
becoming the owner of a 100% interest in the property. Revenues of $2,273,000
from Riverbend Apartments were included in the total revenues of the Registrant
for 1998, whereas only $184,000 of revenues from Riverbend Apartments were
included in the total revenues for the prior year. The acquisition of Cypress
Key Apartments in August 1998 added $1,034,000 of revenues to the total for
1998, whereas the sales of Plantation Shopping Center in December 1997 and
Cherry Hill Office Center in April 1998 decreased the total revenues of the
portfolio by approximately $1,700,000 and $1,087,000, respectively. Other
changes in revenues are due to changes in rental rates and occupancy at the
other properties owned by the Registrant.
<PAGE>18
Real estate operating expenses increased $753,000 primarily as a result of the
inclusion of the operating expenses of Riverbend Apartments and Cypress Key
Apartments in the portfolio, which were higher than the operating costs
associated with the commercial properties that were sold. Total expenses of
the portfolio decreased as decreases in interest expense of $171,000, write-off
of uncollectible accounts of $370,000, depreciation and amortization expense of
$298,000, real estate taxes of $117,000 and management fees of $361,000 more
than offset the increased real estate operating expenses.
Meadowwood Apartments (Reno, Nevada)
- ---------------------
Total revenues decreased $197,000 to $4,205,000 in 1998 from $4,402,000 in
1997. Net loss after depreciation and mortgage interest expense increased
$149,000 to $277,000 in 1998 from $128,000 in 1997.
The decline in total revenues was due primarily to a decrease in average
occupancy of 3.3%, to 85.5% in 1998 from 88.8% in 1997, which reduced revenues
$197,000, while rental rates charged at the property remained unchanged. The
decrease in occupancy is a result of the competitive apartment market in the
Reno area. Certain submarkets in Reno have been experiencing an oversupply of
housing as new construction has been completed and apartments have become
available. This is especially true in the northwest and southeast sections of
the area. Meadowwood is located in the southeast section and is working to
maintain its market share, although it continues to experience lower occupancy
and increased turnover of renters. An extensive capital improvement program at
the property is nearing completion. It is expected to enhance the property's
appeal to prospective tenants, resulting in higher occupancy in the coming
years. The increase in net loss after depreciation and mortgage interest
expense is due primarily to the lower revenues, partially offset by a decrease
in total expenses of $48,000. The decrease in total expenses is primarily
attributable to a decrease in repair and maintenance costs, as the strategy
moved to making more long-term improvements which enhance the value of the
property and fewer short-term repairs. Repair and maintenance costs decreased
$158,000 while expenditures for capital improvements increased over $555,000
from 1997. The lower repairs and maintenance costs and a reduction in interest
expense of $24,000 were partially offset by increases in other operating
expenses. Advertising and promotional expenses increased $35,000 as efforts to
retain existing tenants and attract new tenants were intensified. Utilities
expense increased $21,000 over the prior year due to the increased cost of
utilities for unoccupied units. Other increases in expenses include higher
professional fees of $31,000, payroll and related costs of $17,000,
depreciation of $16,000, and real estate tax expense of $14,000.
<PAGE>19
Holiday Park Apartments (Holiday, Florida)
- -----------------------
Total revenues increased $52,000 to $1,217,000 in 1998 from $1,165,000 in 1997.
Net income after depreciation and mortgage interest expense increased $114,000
to net income of $58,000 in 1998 from a net loss after depreciation and
mortgage interest expense of $56,000 in 1997.
The increase in total revenues was due primarily to the continued strength of
the Tampa Bay area apartment market. This was reflected in higher rental rates
charged at the property which increased revenues $47,000, even as average
occupancy at the property rose a slight 0.8% for the year. Miscellaneous
income also increased $5,000. The increase in net income was due primarily to
the increased revenues and decreased interest expense. Total interest expense
decreased $54,000, to $264,000 in 1998 from $310,000 in 1997, resulting from
the refinancing of the mortgage note encumbering the property which decreased
the interest rate to 6.895% from 9.00%. Lower insurance expense of $8,000 also
added to the increase in net income from the prior year.
Cypress Key Apartments (Orlando, Florida)
- ----------------------
On August 20, 1998, the Registrant purchased Cypress Key Apartments for
$22,600,000 in an all cash transaction. Proceeds from the sale of Riverbend
Apartments on June 30, 1998 were used to consummate this transaction. (Refer
also to the Liquidity and Capital Resources Section and Footnote 4 of the
Financial Statements.)
Total revenues for the period of ownership were $1,034,000. Net income after
depreciation and mortgage interest expense was $292,000. Average occupancy for
the period was 88.0%. Major components of expense included real estate
operating costs of $308,000, depreciation expense of $214,000, real estate
taxes of $120,000 and interest expense of $92,000.
In December, 1998, the Registrant placed a mortgage note of $17,250,000 on the
property. (Refer also to the Liquidity and Capital Resources Section and
Footnote 6 of the Financial Statements.) Regularly scheduled monthly payments
on the note began in February 1999. The proceeds of this mortgage note were
used, in part, to purchase Halton Place Apartments (see below).
Halton Place Apartments (Greenville, South Carolina)
- -----------------------
On December 23, 1998, the Registrant purchased Halton Place Apartments for
$12,600,000 in an all cash transaction. The proceeds from the mortgage note of
$17,250,000 placed on Cypress Key Apartments were used to consummate this
transaction. (Refer also to the Liquidity and Capital Resources Section and
Footnote 4 of the Financial Statements).
Total revenues for the period of ownership were $33,000. Net income after
depreciation expense was $2,000. Average occupancy for the period was 95.0%.
<PAGE>20
Cherry Hill Office Center (Cherry Hill, New Jersey)
- -------------------------
Cherry Hill Office Center was sold on April 16, 1998 for $4,825,000. 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 in 1997 of the forty-percent interest in Riverbend Apartments owned by
its former co-venturer. (Refer also to the Liquidity and Capital Resources
Section and Footnote 4 of the Financial Statements.)
Total revenues decreased $1,087,000 to $417,000 in 1998 from $1,504,000 in
1997. Net income after depreciation and mortgage interest expense decreased
$145,000, to net income before gain on sale of investment in real estate of
$87,000 in 1998 from $232,000 in 1997.
Due to the disposition of the property by the Registrant, the reporting period
for Cherry Hill Office Center ended on April 16, 1998. The changes in revenues
and net income are substantially due to the shortened reporting period.
Riverbend Apartments (Atlanta, Georgia)
- --------------------
Riverbend Apartments was sold on June 30, 1998 for $24,500,000. Proceeds from
the sale were used to acquire Cypress Key Apartments in August, 1998. (Refer
also to the Liquidity and Capital Resources section and Footnote 4 of the
Financial Statements.)
Total revenues increased $2,089,000 to $2,273,000 in 1998 from $184,000 in
1997. Net income after depreciation and mortgage interest increased $384,000,
to net income before gain on sale of investment in real estate of $434,000 in
1998 from $50,000 in 1997.
The changes in revenue and net income are due to the different reporting
periods in 1998 and 1997. The reporting period for 1998 was for six months, as
the property was sold on June 30, 1998, whereas the reporting period for 1997
was for less than a month as the Registrant purchased the forty percent
interest in Riverbend Apartments, formerly owned by its co-venturer, on
December 15, 1997. Equity in income of the joint venture decreased $316,000 to
$0 in 1998 from $316,000 in 1997 as the income and expenses of Riverbend
Apartments were consolidated with those of the Partnership for all of 1998,
but for most of 1997, were reflected as the 60% equity in the net income
of the joint venture.
<PAGE>21
MANAGEMENT'S DISCUSSION OF RESULTS OF OPERATIONS
- ------------------------------------------------
1997 VS. 1996
- -------------
Total revenues decreased $6,364,000 to $9,066,000 in 1997 from $15,430,000 in
1996. Loss from operations decreased $6,744,000 to $1,321,000 in 1997 from
$8,065,000 in 1996. Net income before extraordinary gain increased $8,039,000
to $400,000 in 1997 from a net loss of $7,639,000 in 1996.
Net income for 1996 includes extraordinary gain on dispositions of investments
in real estate through discharge of indebtedness of $11,951,000. Because of
the extraordinary gain in 1996, net income after extraordinary gain decreased
$3,912,000 to $400,000 in 1997 from $4,312,000 in 1996.
The decrease in revenues from 1996 to 1997 is primarily attributable to the
dispositions of International Jewelry Center and 1010 Market Street Office
Building in 1996. Together, these two properties accounted for $6,474,000 of
the revenues reported in 1996. Similarly, decreases in interest expense of
$4,686,000, real estate operating expenses of $2,761,000, write-off of
uncollectible accounts of $2,100,000, depreciation and amortization expense of
$1,440,000, real estate taxes of $260,000, management fees of $395,000, and
other expenses of $165,000 are directly attributable to the dispositions and
discontinuance of operations of these two large commercial properties.
Meadowwood Apartments (Reno, Nevada)
- ---------------------
Total revenues decreased $271,000 to $4,402,000 in 1997 from $4,673,000 in
1996. Net loss after depreciation and mortgage interest expense increased
$87,000 to $128,000 in 1997 from $41,000 in 1996.
The decrease in total revenues was primarily due to a decrease in average
occupancy to 88.8% in 1997 from 94.9% in 1996, which decreased revenues
$312,000, and an increase in tenant concessions which decreased revenues
$52,000. These decreases in revenues were partially offset by increased rental
rates charged at the property which increased revenues $93,000. 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 as new construction is completed and apartments become
available. This is especially true in the northwest and southeast sections of
the area. Meadowwood is located in the southeast section and is working to
maintain its market share, although it has experienced a decrease in occupancy
and increased turnover of renters. The increase in net loss after depreciation
and mortgage interest expense is primarily due to the decrease in revenues and
an increase of $156,000 in repairs and maintenance expense due to, among other
things, increased maintenance costs associated with the higher turnover of
tenants at the property. The decreases in net income were partially offset by
a decrease in total financing expenses of $341,000. Interest expense decreased
$93,000 from the prior year resulting from the refinancing of the mortgage note
encumbering the property which decreased the interest rate to 7.55% from 9.5%.
Unamortized financing fees of $135,000 associated with the old loan were
written off in 1996, and that, coupled with reduced amortization expense of the
decreased costs of the new loan, decreased the amortization of financing costs
$248,000.
<PAGE>22
Holiday Park Apartments (Holiday, Florida)
- -----------------------
Total revenues increased $68,000 to $1,165,000 in 1997 from $1,097,000 in 1996.
Net loss after depreciation and mortgage interest expense decreased $45,000 to
$56,000 in 1997 from $101,000 in 1996.
The increase in total revenues was primarily due to the continued strength of
the Tampa Bay area apartment market, as evidenced by increases in rental rates
charged at the property which increased revenues $30,000, while an increase in
average occupancy at the property increased revenues $37,000. The decrease in
net loss was primarily due to the increased revenues, partially offset by
increased payroll expenses of $12,000 and repairs and maintenance expense of
$14,000. Repairs and maintenance expense increased in connection with a higher
rate of turnover at the property. The increase in payroll and related costs
was the result of the hiring of two maintenance staff at the property. For a
portion of 1996, the property was not fully staffed and the hiring of these two
new employees during 1997 fully staffed the property.
Plantation Shopping Center (Plantation, Florida)
- --------------------------
Plantation Shopping Center was sold on December 8, 1997 for $11,000,000.
Proceeds from the sale were used to retire the mortgage note secured by the
property and interest accumulated to the date of sale, together totaling
$5,358,000. The balance of the proceeds were used to acquire the former co-
venture's 40% interest in Riverbend Apartments. (Refer also to the Liquidity
and Capital Resources Section and Footnote 4 of the Financial Statements.)
Total revenues increased $274,000 to $1,699,000 in 1997 from $1,425,000 in
1996. Net income after depreciation and mortgage interest expense increased
$169,000, to net income before gain on sale of investment in real estate of
$1,000 in 1997 as compared with a net loss of $168,000 in 1996.
The increase in total revenues was primarily due to increases in rental rates
charged at the property which increased revenues $109,000, increases in
escalation income which increased revenues $133,000, and increases in
miscellaneous income which increased revenues $29,000. The increase in net
income was primarily due to the increase in revenues and decreases in various
expenses. Mortgage interest expense decreased $108,000 as a result of the
refinancing of the mortgage note secured by the property at a substantially
reduced balance and lower interest rate during 1996. There was a decrease in
depreciation expense of $81,000, since the property was classified as "real
estate held for sale" as of September 30, 1997. In accordance with generally
accepted accounting principles, no depreciation was charged to expense after
this time. Roofing repairs were substantially completed in 1996, resulting in
a decrease in repairs and maintenance costs of $24,000 in 1997 versus the prior
year. A decrease of $19,000 in real estate tax expense is directly
attributable to the shortened period that the property was owned by the
Registrant in 1997. These decreases in expenses were partially offset by an
increase of $11,000 in professional fees resulting from additional tenant
related matters as the occupancy of the property increased over the prior year.
Also included in the activity for the reporting period is a write-off of
approximately $329,000 of uncollectible accounts, originally recorded pursuant
to the straight-lining of rents in accordance with SFAS 13, which partially
offset the increased revenues and decreases in other expenses of the property.
<PAGE>23
Cherry Hill Office Center (Cherry Hill, New Jersey)
- -------------------------
Total revenues decreased $2,000 to $1,504,000 in 1997 from $1,506,000 in 1996.
Net income after depreciation and mortgage interest expense increased $204,000
to $232,000 in 1997 from $28,000 in 1996.
Total revenues remained virtually unchanged as increases in escalation income
of $55,000, other income of $3,000, and rental revenues of $41,000 resulting
from increased average occupancy, were offset by decreases in base rent charged
to tenants which decreased revenue $102,000. The increase in net income was
primarily due to decreased property operating costs, including decreased
utility costs of $76,000 due to the mild winter of 1997 as compared to the
excessively harsh winter of 1996. Other decreases in expenses included a
decrease in repairs and maintenance costs of $44,000 primarily due to reduced
snow removal costs in 1997. The property experienced some turnover of
personnel during the year, which enabled the Registrant to hire new employees
at lower salaries and realize a decrease in payroll costs of $37,000.
Depreciation expense decreased $24,000 since the property was classified as
"real estate held for sale" as of September 30, 1997. In accordance with
generally accepted accounting principles, no depreciation was charged to
expense after this time. Because the mortgage note secured by the property was
paid in full on June 30,1997, interest expense decreased $21,000 for the year.
Investment in Joint Venture (Riverbend Apartments; Atlanta, Georgia)
- -------------------------------------------------------------------
Equity in net income of joint venture decreased $110,000 to $316,000 in 1997
from $426,000 in 1996. The decrease in net income was primarily due to
decreased rental revenues resulting from decreased demand for housing in the
Atlanta area following the conclusion of the Olympic Games in 1996. A higher
vacancy rate in the current year reduced income $113,000, and diminished
receipts of miscellaneous income reduced revenues $46,000. These reductions in
revenue were partially offset by a decrease in utilities expense of $147,000.
Depreciation expense also decreased as the Venture classified the property as
"real estate held for sale" as of September 30, 1997. In accordance with
generally accepted accounting principles, no depreciation was charged to the
accounts after this time, reducing depreciation expense $181,000 from the prior
year. These decreased expenses were partially offset by increases in other
expenses incurred in connection with the higher rate of turnover at the
property, including increases in repairs and maintenance of $61,000 and
advertising costs of $22,000. Payroll expense increased $49,000, reflecting
the costs of compensation paid to employees through a housing program
implemented early in 1997, and an increase in real estate tax expense of
$34,000 also contributed to the decrease in net income for the year.
On December 15, 1997, the Registrant purchased the 40% interest in Riverbend
Apartments formerly owned by its co-venturer, and became sole owner of the
property. For the remainder of 1997, the Registrant recorded $184,000 of
revenues and net income of $50,000 from this investment. The property is
included in "real estate assets held for sale" on the Registrant's 1997
consolidated balance sheet and is expected to be sold within the year (see also
the Liquidity and Capital Resources section).
<PAGE>24
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
NONE.
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The Financial Statements required by this item, together with the Report of
Independent Public Accountants thereon, are contained herein on pages 30
through 42 of this annual report on Form 10-K. Supplementary financial
information required by this item is contained herein on pages 43 through 46 of
this report.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
NONE.
<PAGE>25
PART III
--------
ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The Registrant has no executive officers or directors. All of its business
affairs are handled by its General Partner, SB Partners Real Estate Corporation
("General Partner").
The directors and executive officers of the General Partner are elected by
Sentinel Holdings Corporation ("SHC") as its sole shareholder to serve until
their successors are duly elected and qualified. The limited partners of the
Registrant are not entitled to vote in their election.
The directors and executive officers of the General Partner who are active in
the Registrant's operations are:
Name Age Position
---- --- --------
John H. Streicker 56 President & Director
Michael J. Weinberger 63 Director
Millie C. Cassidy 53 Director
David Weiner 63 Director
Christine Kurtz 44 Director
Elizabeth B. Longo 47 Treasurer
Noel Belli 45 Senior Vice President
Mr. Streicker joined the General Partner in May 1976. He has been President
and a Director since April 1984. He is President of SHC and its parent
company, J.H. Streicker & Co., Inc.
Mr. Weinberger, a Certified Property Manager, joined the General Partner in
February 1973, and has been a Director since April 1984. He is the residential
portfolio manager for the Western region.
Ms. Cassidy joined the General Partner in August 1982. She has been a Director
of the General Partner since March 1988.
Mr. Weiner joined the General Partner in April 1984. He is a portfolio manager
and manager of investor relations. He has been a Director of the General
Partner since March 1988.
Ms. Kurtz joined the General Partner in 1980 and has been a Director since
1991. She is the portfolio manager responsible for commercial property
transactions and management.
Ms. Longo joined the General Partner in 1988 and serves as its chief financial
officer. She is a certified public accountant with over twenty-four years of
real estate related financial experience.
Mr. Belli joined the General Partner in 1985. He is the portfolio manager
responsible for residential property transactions and management for the
Eastern region.
<PAGE>26
ITEM 11.EXECUTIVE COMPENSATION
----------------------
The Registrant has no executive officers or directors.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN
-----------------------------
BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------
(a) At December 31, 1998, an institutional investor of record owned 7.13% of
the outstanding Units of Limited Partnership Interests. On January 13,
1993, a group of unitholders of record, including the institutional
investor referred to above, entered into a collective agreement with
respect to their ownership interest in the Registrant. The aggregate
number of Units beneficially owned by the group is 676 Units, representing
8.7% of the total number of outstanding Units of Limited Partnership
Interest on that date. Each unitholder has disclaimed beneficial ownership
of all Units owned by the other unitholders in this group. The foregoing
information is based upon a 13-D filing made by the respective unitholders.
(b) As of December 31, 1998, none of the Directors of the General Partner owned
any outstanding Units of Limited Partnership Interest. However, an
Assistant Secretary of the General Partner owned four Units of Limited
Partnership Interest. No Officers or Directors of SHC owned any outstanding
Units of Limited Partnership Interest. SRE Clearing Services, Inc.
(formerly known as SRE Investor Services, Inc.), an affiliate of the
General Partner, owned 480.75 Units of Limited Partnership Interest
representing 6.20% of the outstanding number of Units on December 31, 1998.
In accordance with SEC regulations, SRE Clearing Services filed Form 13-D
on April 14, 1998, after the total number of units held surpassed 6% of the
outstanding number of units.
(c) During the year ended December 31, 1998, there have been no changes in
control of the Registrant or the General Partner.
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The General Partner, among other things, furnishes services and advice to the
Registrant and is paid a variable annual fee for such services based on
calculations prescribed in the Registrant's Partnership Agreement. For these
services, the General Partner receives a management fee equal to 2% of the
average amount of capital invested in real estate plus cumulative mortgage
amortization payments and 0.5% of capital not invested in real estate, as
defined in the partnership agreement. The management fee amounted to $835,502,
$1,196,611 and $1,634,397, for the years ended December 31, 1998, 1997 and
1996, respectively. In addition, the General Partner is entitled to 25% of
cash distributions in excess of the annual distribution preferences, as defined
in the partnership agreement. No such amounts were due for the years ended
December 31, 1998, 1997 and 1996.
<PAGE>27
Certain affiliates of the General Partner oversee the management and operations
of various real estate properties, including those owned by the Registrant.
Services performed by these affiliates applicable to the Registrant's
properties are billed at actual or allocated cost, or percentage of revenues.
The costs of such services are believed to be competitive with charges for
similar services provided by unrelated management companies. Fees charged by
these affiliates totaled $582,791, $492,992 and $1,196,395, in 1998, 1997 and
1996, respectively.
In connection with the mortgage financing of certain properties, the respective
lenders required the Registrant to place the assets and liabilities of these
properties into single asset limited partnerships or land trusts which hold, or
held, title to these properties. A trust company affiliated with the General
Partner holds, or held, the general partner interest in each single asset
limited partnership as trustee for the Registrant. An affiliate of the general
partner is also the trustee of the land trust. For its services, the affiliate
is paid an annual fee, which aggregated $27,545, $44,327 and $54,227, in 1998,
1997 and 1996, respectively, and is based upon the trust company's standard
rate schedule.
Reference is made to Items 10 and 11, and Notes 2 and 8 in the consolidated
financial statements.
PART IV
-------
ITEM 14.EXHIBITS, FINANCIAL STATEMENT
-----------------------------
SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------
(a) (1) Financial statements - The Registrant's 1998 Annual Audited
Consolidated Financial Statements are included in this annual report
on Form 10-K.
(2) Financial statement schedules - See Index to Consolidated Financial
Statement Schedules on page 29. All other financial statement
schedules are inapplicable or the required subject matter is contained
in the consolidated financial statements or notes thereto.
(b) On September 4, 1998, the Registrant filed Form 8-K to report the purchase
on August 20, 1998, of Cypress Key Apartments. On November 3, 1998, the
Registrant filed Form 8-K/A to amend this filing to include the requisite
financial statements. On January 7, 1999, the Registrant filed Form 8-K to
report the purchase on December 23, 1998, of Halton Place Apartments. On
March 8, 1999 the Registrant filed Form 8-K/A to amend this filing to
include the requisite financial statements.
(c) Financial data schedule
(d) Exhibits Incorporated by Reference -
Incorporated by
Description Reference to
- ----------- ---------------
Agreement of Exhibit A to Registration Statement
Limited Partnership on Form S-11 as filed with the
Securities and Exchange Commission on
May 16, 1985.
<PAGE>28
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15 (d) of the Securities 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
-----------
By: SB PARTNERS REAL ESTATE CORPORATION
-----------------------------------
GENERAL PARTNER
March 31, 1999 /s/ John H. Streicker
----------------------------------
By: John H. Streicker
President, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Position Date
- --------- -------- ----
/s/ John H. Streicker Chief Executive Officer
- --------------------- and Director March 31, 1999
John H. Streicker
/s/ Elizabeth B. Longo Chief Financial Officer
- ---------------------- (Principal Financial Officer) March 31, 1999
Elizabeth B. Longo
/s/ George N. Tietjen III Vice President
- ------------------------- (Principal Accounting Officer) March 31, 1999
George N. Tietjen III
<PAGE>29
SB PARTNERS
ITEMS 8 and 14 (a) (1) and (2)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
----------------------------------------------
SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE
-----------------------------------------
Report of Independent Public Accountants . . . . . . . . . . . 30
Consolidated Balance Sheets as of December 31, 1998 and 1997 . 31
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 . . . . . . . . . . . . 32
Consolidated Statements of Changes in Partners' Capital for the
years ended December 31, 1998, 1997 and 1996 . . . . . . 33
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 . . . . . . . . . . . . 34
Notes to Consolidated Financial Statements . . . . . . . . 35 - 42
Supplemental Financial Statement Schedule:
Schedule III -- Real Estate and Accumulated
Depreciation -- December 31, 1998 . . . . . . . . . 43 - 46
<PAGE>30
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of SB Partners:
We have audited the accompanying consolidated balance sheets of SB
Partners (a New York limited partnership) and subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of operations, changes
in partners' capital and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements and the schedule referred
to below are the responsibility of the general partner. Our responsibility is
to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by the general partner, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of SB Partners and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commissions rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
New York, New York
January 29, 1999
<PAGE>31
<TABLE>
SB PARTNERS
CONSOLIDATED BALANCE SHEETS
<CAPTION>
As of December 31,
1998 1997
----------------------------
<S> <C> <C>
ASSETS:
Investments -
Real Estate, at cost
Land $ 6,444,653 $ 2,924,653
Buildings, furnishings and improvements 61,733,637 28,867,658
Less - accumulated depreciation (14,608,682) (13,290,104)
------------ ------------
53,569,608 18,502,207
Real estate assets held for sale 0 24,925,795
------------ ------------
53,569,608 43,428,002
Other Assets -
Cash and cash equivalents 6,585,252 549,760
Other 1,933,798 1,689,366
------------ ------------
Total assets $ 62,088,658 $ 45,667,128
============ ============
LIABILITIES:
Mortgage notes and other loans payable $ 41,917,726 $ 28,741,975
Accounts payable and accrued expenses 527,122 628,938
Tenants' security deposits 243,173 309,836
------------ ------------
Total liabilities 42,688,021 29,680,749
------------ ------------
PARTNERS' CAPITAL:
Units of partnership interest without par value;
Limited partners - 7,753 units 19,416,570 16,002,752
General partner - 1 unit (15,933) (16,373)
------------ ------------
Total partners' capital 19,400,637 15,986,379
------------ ------------
Total liabilities and partners' capital $ 62,088,658 $ 45,667,128
============ ============
<FN>
The accompanying notes are an integral part of these consolidated balance sheets.
</FN>
</TABLE>
<PAGE>32
<TABLE>
SB PARTNERS
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
For the Years Ended December 31,
1998 1997 1996
------------------------------------------
<S> <C> <C> <C>
REVENUES
Rental income $8,541,709 $ 8,647,671 $14,940,374
Interest on short-term investments 331,210 110,680 50,615
Other 638,662 307,301 439,063
---------- ----------- -----------
Total revenues 9,511,581 9,065,652 15,430,052
---------- ----------- -----------
EXPENSES
Real estate operating expenses 4,578,613 3,826,057 6,993,394
Interest on mortgage notes and other loans payable 2,041,952 2,213,440 7,215,718
Depreciation and amortization 1,425,744 1,723,683 3,465,840
Management fees 835,502 1,196,611 1,634,397
Real estate taxes 698,144 815,086 1,086,477
Write-off of uncollectible accounts 0 369,635 2,531,517
Other 391,101 241,951 567,553
---------- ----------- -----------
Total expenses 9,971,056 10,386,463 23,494,896
---------- ----------- -----------
Loss from operations (459,475) (1,320,811) (8,064,844)
Equity in net income of joint venture 0 316,320 425,725
Gain on sale of investments in real estate 3,873,733 1,404,261 0
---------- ----------- -----------
NET INCOME (LOSS) BEFORE EXTRAORDINARY GAIN 3,414,258 399,770 (7,639,119)
Gain on dispositions of investments in real estate
through discharge of indebtedness 0 0 11,951,098
---------- ----------- -----------
NET INCOME 3,414,258 399,770 4,311,979
Income allocated to general partner 440 52 556
---------- ----------- -----------
Income allocated to limited partners $3,413,818 $ 399,718 $ 4,311,423
========== =========== ===========
NET INCOME (LOSS) PER UNIT OF LIMITED PARTNERSHIP INTEREST:
Net income (loss) before extraordinary gain $ 440 $ 52 $ (985)
========== =========== ===========
Extraordinary gain $ 0 $ 0 $ 1,541
========== =========== ===========
Net income $ 440 $ 52 $ 556
========== =========== ===========
WEIGHTED AVERAGE NUMBER OF UNITS OF LIMITED
PARTNERSHIP INTEREST OUTSTANDING 7,753 7,753 7,753
========== =========== ===========
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>
<PAGE>33
<TABLE>
SB PARTNERS
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Limited Partners:
<CAPTION>
Units of
Partnership
Interest Cumulative Accumulated
------------------ Cash Earnings
Number Amount Distributions (Losses) 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 year 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 year 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 year 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
===== ============ ============ ============ ===========
General Partner:
<CAPTION> Units of
Partnership
Interest Cumulative Accumulated
-------------------- Cash Earnings
Number Amount Distributions (Losses) Total
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 1 $10,000 $(24,559) $(2,422) $(16,981)
Net income for the year 0 0 0 556 556
--- ------- -------- ------- --------
Balance, December 31, 1996 1 10,000 (24,559) (1,866) (16,425)
Net income for the year 0 0 0 52 52
--- ------- -------- ------- --------
Balance, December 31, 1997 1 10,000 (24,559) (1,814) (16,373)
Net income for the year 0 0 0 440 440
--- ------- -------- ------- --------
Balance, December 31, 1998 1 $10,000 $(24,559) $(1,374) $(15,933)
=== ======= ======== ======= ========
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>
<PAGE>34
<TABLE>
SB PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the years ended December 31,
1998 1997 1996
-------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 3,414,258 $ 399,770 $ 4,311,979
Adjustments to reconcile net income to
net cash provided by operating activities:
Extraordinary gain on dispositions of investments
in real estate through discharge of indebtedness 0 0 (11,951,098)
Gain on sale of investments in real estate (3,873,733) (1,404,261) 0
Equity in net income of joint venture 0 (316,320) (425,725)
Write-off of uncollectible accounts 0 369,635 2,531,517
Depreciation and amortization 1,425,744 1,723,683 3,465,840
Distributions of earnings received from joint venture 0 100,000 425,725
(Increase) decrease in other operating assets (218,936) 482,523 698,084
Increase (decrease) in other operating liabilities (168,479) (518,880) 985,378
------------ ----------- ------------
Net cash provided by operating activities 578,854 836,150 41,700
------------ ----------- ------------
Cash Flows From Investing Activities:
Net proceeds from sales/dispositions of investments in real estate 29,210,371 10,520,801 92,327
Cash paid on acquisition of joint venture interest 0 (9,800,000) 0
Acquisition of real estate investments (35,305,088) 0 0
Capital additions to real estate owned (1,305,719) (898,970) (2,077,599)
Distributions received from joint venture
in excess of current year's equity in net income 0 0 148,132
------------ ----------- ------------
Net cash used in investing activities (7,400,436) (178,169) (1,837,140)
------------ ----------- ------------
Cash Flows From Financing Activities:
Proceeds from mortgage notes and other loans payable 21,050,000 4,000,000 26,850,000
Proceeds from short-term loan 0 0 1,038,370
Retirement of mortgage notes and other loans payable (7,514,832) (5,656,378) (23,037,409)
Principal payments on mortgage notes and other loans payable (359,417) (354,025) (3,005,589)
Increase in deferred financing costs (318,677) (117,139) (297,209)
Repayment of short-term loan 0 0 (1,038,370)
------------ ----------- ------------
Net cash provided by (used in) financing activities 12,857,074 (2,127,542) 509,793
------------ ----------- ------------
Net increase (decrease) in cash and cash equivalents 6,035,492 (1,469,561) (1,285,647)
Cash and cash equivalents at beginning of year 549,760 2,019,321 3,304,968
------------ ----------- ------------
Cash and cash equivalents at end of year $ 6,585,252 $ 549,760 $ 2,019,321
============ =========== ============
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 2,067,061 $ 2,241,162 $ 5,434,319
============ =========== ============
<FN>
Supplemental disclosures of non-cash investing and financing activities:
The dispositions of International Jewelry Center and 1010 Market Street in 1996, to the extent of the release from
liability from the underlying mortgage notes which had been secured by the properties with outstanding balances of
$33,899,000 and $39,564,000, respectively, represent non-cash investing and financing activities and have been excluded
from the consolidated statements of cash flows.
See also Note 4 to Financial Statements.
The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>
<PAGE>35
SB PARTNERS
Notes to Consolidated Financial Statements
(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 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 year amounts have
been reclassified to make them comparable to the current year
presentation.
(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.
(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
Investments in real estate are carried at historical cost and
reviewed periodically for impairment. 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.
<PAGE>36
(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 year. There were
no potentially dilutive securities outstanding during each year.
(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.
(h) In connection with the mortgage financing on certain of its
properties, the Partnership placed the assets and liabilities of
these properties into single asset limited partnerships, limited
liability companies or land trusts which hold, or held, title to
the properties. The Partnership has effective control over such
entities and holds 100% of the beneficial interest.
Accordingly, the financial statements of these subsidiaries are
consolidated with those of the Partnership.
(i) Real estate properties are regularly evaluated on a property by
property basis to determine if it is appropriate to write down
carrying values to recognize an impairment of value. Impairment
is determined by calculating the sum of the estimated
undiscounted future cash flows including the projected
undiscounted future net proceeds from the sale of the property.
In the event such sum is less than the net carrying value of the
property, the property will be written down to estimated fair
market value. Real estate investments which are under a binding
contract of sale or are otherwise expected to be disposed of
within one year of the balance sheet date are reflected on the
accompanying consolidated balance sheets as real estate assets
held for sale. Real estate assets held for sale are carried at
the lower of depreciated historical cost or fair value less cost
to dispose. Additionally, upon classification as a real estate
asset held for sale, the property is no longer depreciated.
<PAGE>37
(2) INVESTMENT MANAGEMENT AGREEMENT
The Partnership has entered into a management agreement with the
General Partner. Under the terms of this agreement, the General
Partner is responsible for the acquisition, management and disposition
of all investments, as well as performance of the day-to-day
administrative operations and provision of office space for the
Partnership.
For these services, the General Partner receives a management fee
equal to 2% of the average amount of capital invested in real estate
plus cumulative mortgage amortization payments and 0.5% of capital not
invested in real estate, as defined in the partnership agreement. The
management fee amounted to $835,502, $1,196,611, and $1,634,397, for
the years ended December 31, 1998, 1997 and 1996, respectively. In
addition, the General Partner is entitled to 25% of cash distributions
in excess of the annual distribution preferences, as defined in the
partnership agreement. No such amounts were due for the years ended
December 31, 1998, 1997, and 1996.
(3) INVESTMENTS IN REAL ESTATE AND REAL ESTATE ASSETS HELD FOR SALE
As of December 31, 1998, the Partnership owned apartment projects in
Greenville, South Carolina; Reno, Nevada; Orlando and Holiday,
Florida; 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 December 31, 1998 and 1997,
and the net carrying value of the real estate assets held for sale at
December 31, 1997:
<TABLE>
<CAPTION>
No.of Year of
Type Prop. Acquisition Description Real Estate at Cost Held for Sale
- ---- ----- ----------- ----------- ----------------------- -------------
1998 1997 1998 1997 1998 1997 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential properties 4 3 1983-98 1,544 Apts. 1542 Apts. $68,133,903 $31,747,924 $20,832,762
Office property 0 1 1984-93 0 Sq. Ft. 138,333 Sq. Ft. 0 0 4,093,033
Undeveloped land 1 1 1978 13.9 Acres 13.9 Acres 44,387 44,387 0
----------- ----------- -----------
68,178,290 31,792,311 24,925,795
Less: Accumulated depreciation 14,608,682 13,290,104 0
----------- ----------- -----------
$53,569,608 $18,502,207 $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.
</TABLE>
<PAGE>38
(4) 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, in
another 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.
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 year ended December 31, 1997. In December 1997,
the Partnership sold Plantation Shopping Center for $11,000,000 in an
all cash transaction. In connection with the sale, the underlying
mortgage note payable of $5,350,000 was retired and the Partnership
recognized a gain on sale of real estate investment of $1,469,000 for
the year ended December 31, 1997.
The Partnership ceased paying scheduled debt service on the mortgage
note secured by International Jewelry Center, located in Los Angeles,
California, in May 1993. Title to the property was transferred to a
designee of the lender on May 22, 1996. Consideration for this
conveyance was $238,000, subject to the first leasehold note and deed
of trust, the balance of which was $33,899,000, and the assumption by
the designee of the ground lease. The Partnership recognized an
extraordinary gain of $7,536,000 associated with the disposition.
The Partnership stopped making regularly scheduled payments on the
mortgage note secured by 1010 Market Street office building in May
1996. The property was sold on August 28, 1996 in a foreclosure sale.
The balance of the mortgage note at the date of foreclosure was
$39,564,000, which resulted in a net gain through discharge of
indebtedness of $4,415,000.
<PAGE>39
(5) 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.
The following are the condensed financial statements (000's omitted)
of the joint venture as of and for the period from January 1, 1997
through December 14, 1997 and the year ended December 31, 1996 (See
Note 1):
BALANCE SHEETS
1997 1996
---- ----
Investment in real estate, net $ --- $19,414
Current assets --- 127
Current liabilities --- (313)
------- -------
Venturers' capital $ --- $19,228
======= =======
STATEMENTS OF OPERATIONS
Rent and other income $ 4,253 $ 4,580
Real estate operating expenses (3,388) (3,680)
------- -------
Net income $ 865 $ 900
======= =======
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. The assets and liabilities
associated with ownership of the property are included in the consolidated
balances of the Partnership at December 31, 1997. The Partnership included
this investment in "real estate assets held for sale" as of December 31, 1997
on the accompanying consolidated balance sheets. The Partnership sold the
property for $24,500,000 in an all cash transaction on June 30, 1998 (see also
Note 4).
<PAGE>40
(6) MORTGAGE NOTES AND OTHER LOANS PAYABLE
Mortgage notes and other loans payable consist of the following first liens:
<TABLE>
<CAPTION>
Net Carrying Amount
Annual December 31,
Original Interest Maturity Installment Amount Due ------------
Property Principal(d) Rate Date Payments(e) at Maturity 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <S> <C> <C> <C> <C>
Holiday Park (b) $ 3,800,000 6.895% February 2008 $ 300,169 $ 3,277,785 $ 3,767,366 $ 3,517,983
Meadowwood 21,500,000 7.550% January 2004 1,914,996 18,979,461 20,900,360 21,223,992
Cypress Key (c) 17,250,000 6.605% January 2009 1,322,707 14,772,000 17,250,000 ---
Riverbend (a) 4,000,000 Variable April 1998 Interest Only --- --- 4,000,000
----------- -----------
$41,917,726 $28,741,975
=========== ===========
<FN>
(a) Property was sold and the unsecured demand note was retired in April 1998.
(b) The mortgage note was refinanced in January 1998. The previous note had an original principal balance of $3,700,000, bore
interest at 9% and was to mature in March 1999.
(c) The mortgage note was financed in December 1998, with payments to begin in February 1999.
(d) The mortgages are nonrecourse to the Partnership.
(e) Annual installment payments include principal and interest. Scheduled principal payments on mortgage notes payable are $563,409
for 1999; $621,648 for 2000; $667,901 for 2001; $717,615 for 2002; $771,042 for 2003; and $38,576,111 thereafter.
</TABLE>
<PAGE>41
(7) FEDERAL INCOME TAX INFORMATION
A reconciliation of net income for financial reporting purposes to net
income for Federal income tax reporting purposes is as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
1998 1997 1996
----------- ---------- -----------
<S> <C> <C> <C>
Net income for financial reporting purposes $ 3,414,258 $ 399,770 $ 4,311,979
Adjustment to net gain on sales/dispositions of investments in real estate
to reflect differences between tax and financial reporting bases
of assets and liabilities disposed (1,285,190) 4,437,640 23,749,150
Difference between tax and financial statement equity in net income
or loss of joint venture (228,596) (566,673) 200,293
Adjustment to interest expense to reflect non-deductibility of interest and
amortization of discount on mortgage notes payable recognized for
financial reporting purposes - - 1,793,018
Difference between tax and financial statement depreciation 927,462 (640,157) (2,356,788)
----------- ---------- -----------
Net income for Federal income tax reporting purposes $ 2,827,934 $3,630,580 $27,697,652
=========== ========== ===========
Net income (loss) per weighted average limited partnership unit
for Federal income tax reporting purposes:
Net ordinary income (loss) per unit of partnership interest $ 12 $ (285) $ (1,032)
Average Capital (Sec.1231) gain per unit of
Partnership interest 353 753 4,605
----------- ---------- -----------
$ 365 $ 468 $ 3,573
=========== ========== ===========
Weighted average number of units of limited partnership
interest outstanding 7,753 7,753 7,753
=========== ========== ===========
</TABLE>
As of December 31, 1998 and 1997, the tax bases of the Partnership's assets
and liabilities amounted to $55,639,000 and $39,804,000 of assets, and
$42,688,000 and $29,681,000 of liabilities, respectively.
(8) PROPERTY MANAGEMENT SERVICES
Certain affiliates of the General Partner oversee the management and
operations of various real estate properties, including those owned by the
Partnership. Services performed by affiliates are billed at actual or
allocated cost, percentage of revenues or net equity. For the years ended
December 31, 1998, 1997 and 1996, such billings to the Partnership amounted
to $610,336, $537,319, and $1,250,622, respectively, and are included in
real estate operating expenses.
<PAGE>42
(9) 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
has been chosen and a preliminary hearing has been scheduled for April 6,
1999. 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.
(10) COMMERCIAL OPERATING LEASES
The minimum rentals received on non-cancelable commercial operating leases
for the year ended December 31, 1998 totalled $513,654. There are no
minimum future rentals on non-cancelable commercial operating leases for
years ending after 1998.
<PAGE>43
<TABLE>
SB PARTNERS
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
<CAPTION>
Column A Column B Column C Column D
Initial Cost to the Registrant Costs
-------------------------------------- Capitalized
Buildings and Subsequent to
Description Encumbrances Land Improvements Total Acquisition
<S> <C> <C> <C> <C> <C>
MULTI FAMILY RESIDENTIAL
Nevada -
Reno (Meadowwood) $20,900,360 $2,466,311 $19,057,859 $21,524,170 $6,034,782
Florida -
Holiday (Holiday Park -
including undeveloped land) 3,767,366 458,342 4,043,354 4,501,696 720,519
Orlando (Cypress Key) 17,250,000 2,260,000 20,404,725 22,664,725 104,555
South Carolina -
Greenville (Halton Place) --- 1,260,000 11,364,343 12,624,343 3,500
----------- ---------- ----------- ----------- ----------
$41,917,726 $6,444,653 $54,870,281 $61,314,934 $6,863,356
=========== ========== =========== =========== ==========
</TABLE>
<PAGE>44
<TABLE>
SB PARTNERS
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
DECEMBER 31, 1998
<CAPTION>
Column A Column E Column F
Gross amount at which Carried at End of Year
(Notes a & c)
-------------------------------------------- Accumulated
Buildings and Depreciation
Description Land Improvements Total (Notes b & d)
<S> <C> <C> <C> <C>
MULTI FAMILY RESIDENTIAL
Nevada -
Reno (Meadowwood) $2,466,311 $25,092,641 $27,558,952 $12,870,620
Florida -
Holiday (Holiday Park -
including undeveloped land) 458,342 4,763,873 5,222,215 1,500,108
Orlando (Cypress Key) 2,260,000 20,509,280 22,769,280 214,271
South Carolina -
Greenville (Halton Place) 1,260,000 11,367,843 12,627,843 23,683
---------- ----------- ----------- -----------
$6,444,653 $61,733,637 $68,178,290 $14,608,682
========== =========== =========== ===========
</TABLE>
<PAGE>45
<TABLE>
SB PARTNERS
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
DECEMBER 31, 1998
<CAPTION>
Column A Column G Column H Column I
Life on which
Depreciation
in
Latest
Statement
Date of Date of Operations
Description Construction Acquired is Computed
<S> <S> <S> <S>
MULTI FAMILY RESIDENTIAL
Nevada -
Reno (Meadowwood) 1974 - 1977 May 1983 5 to 30 years
Florida -
Holiday (Holiday Park -
including undeveloped land) 1972 - 1975 Jan 1991 7 to 30 years
Orlando (Cypress Key) 1988 Aug 1998 7 to 40 years
South Carolina -
Greenville (Halton Place) 1986 Dec 1998 40 years
</TABLE>
<PAGE>46
<TABLE>
NOTES TO SCHEDULE III:
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
(a)Reconciliation of amounts shown in Column E:
Balance at beginning of year $ 56,718,106 $ 50,635,390 $ 152,423,911
Additions -
Acquisitions (including cost of investment in joint venture
reclassified to cost of Riverbend Apartments - see below) 35,305,088 20,832,762 0
Cost of improvements 1,305,719 898,970 2,077,599
Deductions -
Dispositions of property (25,150,623) (15,073,204) (103,866,120)
Reclassification of accumulated depreciation of
real estate asset held for sale 0 (575,812) 0
------------ ------------ -------------
Balance at end of year $ 68,178,290 $ 56,718,106 $ 50,635,390
============ ============ =============
(b)Reconciliation of amounts shown in Column F:
Balance at beginning of year $ 13,290,104 $ 18,278,229 $ 45,560,951
Additions -
Depreciation expense for year 1,318,578 1,566,062 3,014,931
Deductions -
Accumulated depreciation on property disposed 0 (5,978,375) (30,297,653)
Reclassification of accumulated depreciation of
real estate asset held for sale 0 (575,812) 0
------------ ------------ -------------
Balance at end of year $ 14,608,682 $ 13,290,104 $ 18,278,229
============ ============ =============
(c)Aggregate cost basis for Federal
income tax reporting purposes $ 70,781,471 $ 70,024,970 $ 58,977,612
============ ============ =============
(d)Accumulated depreciation for Federal
income tax reporting purposes $ 25,364,120 $ 32,460,117 $ 36,899,911
============ ============ =============
<FN>
On December 15, 1997, the Registrant purchased the forty percent interest of its former co-venturer in
Riverbend Apartments, becoming the sole owner of the apartment community. The cost of the forty percent interest was
$9,800,000 and included the interest in the other assets of the Venture as well as the real estate, net of the
outstanding liabilities. The balance of the Registrant's investment in joint venture, $10,958,513 was reclassified to
the cost of the real estate acquired, and the entire balance was reclassified as real estate assets held for sale.
(See also the Liquidity and Capital Resources section of Management's Discussion and Analysis and Form 8-K, as
amended, filed by the Registrant in connection with the purchase.)
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 6,585,252
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,933,798
<PP&E> 68,178,290
<DEPRECIATION> (14,608,682)
<TOTAL-ASSETS> 62,088,658
<CURRENT-LIABILITIES> 770,295
<BONDS> 41,917,726
0
0
<COMMON> 0
<OTHER-SE> 19,400,637
<TOTAL-LIABILITY-AND-EQUITY> 62,088,658
<SALES> 0
<TOTAL-REVENUES> 13,385,314
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,929,104
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,041,952
<INCOME-PRETAX> 3,414,258
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,414,258
<EPS-PRIMARY> 440
<EPS-DILUTED> 440
</TABLE>
