SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q. - QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1999
------------------------------------------
or
[] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ---------------------to-------------------
(Amended by Exch Act Rel No. 312905. eff 4/26/93.)
Commission File Number: 0-8952
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SB PARTNERS
- -------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 13-6294787
- -------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
666 Fifth Avenue N.Y., N.Y. 10103
- --------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
(212) 408-2900
- -------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [x] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ] Yes [ ] No
Not Applicable
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Not Applicable
SB PARTNERS
INDEX
Part I Financial Information
Consolidated Balance Sheets
September 30, 1999 and December 31, 1998 . . . . . . . . . . 1
Consolidated Statements of Operations
For the three and nine months ended September 30, 1999
and 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Changes in Partners' Capital
For the nine months ended September 30, 1999
and the years ended December 31, 1998 and 1997 . . . . . . . 3
Consolidated Statements of Cash Flows
For the nine months ended September 30, 1999 and 1998 . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . 5 - 9
Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . 10 16
Quantitative and Qualitative Disclosures About Market Risk . . . 17
Part II Other Information . . . . . . . . . . . . . . . . . . . . . 17
<PAGE>1
<TABLE>
SB PARTNERS
(A New York Limited Partnership)
------------------------------
CONSOLIDATED BALANCE SHEETS
September 30, 1999 (Not Audited) and
December 31, 1998 (Audited, but not covered by the report of independent public accountants)
-------------------------------------------------------------------------------------------
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Assets:
Investments:
Real estate, at cost
Land $ 7,777,153 $ 6,444,653
Buildings, furnishings and improvements 75,228,260 61,733,637
Less - accumulated depreciation (16,052,724) (14,608,682)
------------ ------------
66,952,689 53,569,608
Other assets:
Cash and cash equivalents 1,630,129 6,585,252
Other 2,534,709 1,933,798
------------ ------------
Total assets $ 71,117,527 $ 62,088,658
============ ============
Liabilities:
Mortgage notes payable $ 51,789,918 $ 41,917,726
Accounts payable and accrued expenses 919,080 527,122
Tenant security deposits 312,005 243,173
------------ ------------
Total liabilities 53,021,003 42,688,021
------------ ------------
Partners' Capital:
Units of partnership interest without par value;
Limited partners - 7,753 units 18,112,625 19,416,570
General partner - 1 unit (16,101) (15,933)
------------ ------------
Total partners' capital 18,096,524 19,400,637
------------ ------------
Total liabilities & partners' capital $ 71,117,527 $ 62,088,658
============ ============
The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>
<PAGE>2
<TABLE>
SB PARTNERS
(A New York Limited Partnership)
------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (Not Audited)
---------------------------------------------------
<CAPTION>
For The Three Months For The Nine Months
Ended September 30, Ended September 30,
------------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Rental income $2,529,822 $1,600,792 $7,340,943 $6,533,788
Interest on short-term investments 60,003 204,149 197,333 248,693
Other 140,914 70,338 370,597 543,171
---------- ---------- ---------- ----------
Total revenues 2,730,739 1,875,279 7,908,873 7,325,652
---------- ---------- ---------- ----------
Expenses:
Real estate operating expenses 1,098,268 924,711 3,195,747 3,775,686
Interest on mortgage notes payable 742,196 461,806 2,225,433 1,495,390
Depreciation and amortization 503,141 365,500 1,499,382 976,890
Real estate taxes 239,881 136,683 714,871 519,143
Management fees 191,465 252,446 550,528 626,742
Other 94,398 64,324 251,675 209,650
---------- ---------- ---------- ----------
Total expenses 2,869,349 2,205,470 8,437,636 7,603,501
---------- ---------- ---------- ----------
Loss from operations (138,610) (330,191) (528,763) (277,849)
Gain on sale of investments in real estate 0 0 0 3,873,733
---------- ---------- ---------- ----------
Net income (loss) (138,610) (330,191) (528,763) 3,595,884
Income (loss) allocated to general partner (18) (43) (68) 464
---------- ---------- ----------- ----------
Income (loss) allocated to limited partners $ (138,592) $ (330,148) $ (528,695) $3,595,420
========== ========== =========== ==========
Net income (loss) per unit of limited partnership interest $ (17.88) $ (42.58) $ (68.20) $ 463.75
========== ========== =========== ==========
Weighted average number of units of limited
partnership interest outstanding 7,753 7,753 7,753 7,753
========== ========== =========== ==========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE>3
<TABLE>
SB PARTNERS
(A New York Limited Partnership)
------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the nine months ended September 30, 1999 (Not Audited) and
for the years ended December 31, 1998 and 1997 (Audited, but not covered by the report of independent public accountants)
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Limited Partners:
Units of
Partnership
Interest Cumulative Accumulated
----------- Cash Earnings
Number Amount Distributions (Losses) Total
------ ------ ------------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 7,753 $119,968,973 $(97,728,323) $(6,637,616) $15,603,034
Net income for the period 0 0 0 399,718 399,718
----- ------------ ------------ ----------- -----------
Balance, December 31, 1997 7,753 119,968,973 (97,728,323) (6,237,898) 16,002,752
Net income for the period 0 0 0 3,413,818 3,413,818
----- ------------ ------------ ----------- -----------
Balance, December 31, 1998 7,753 119,968,973 (97,728,323) (2,824,080) 19,416,570
Net loss for the period 0 0 0 (528,695) (528,695)
Cash distributions 0 0 (775,250) 0 (775,250)
----- ------------ ------------ ----------- -----------
Balance, September 30, 1999 7,753 $119,968,973 $(98,503,573) $(3,352,775) $18,112,625
===== ============ ============ =========== ===========
General Partner:
Units of
Partnership Cumulative Accumulated
Interest Cash Earnings
Number Amount Distributions (Losses) Total
------ ------ ------------- ------------ --------
Balance, December 31, 1996 1 $10,000 $(24,559) $(1,866) $(16,425)
Net income for the period 0 0 0 52 52
----- ------- -------- ------- --------
Balance, December 31, 1997 1 10,000 (24,559) (1,814) (16,373)
Net income for the period 0 0 0 440 440
----- ------- -------- ------- --------
Balance, December 31, 1998 1 10,000 (24,559) (1,374) (15,933)
Net loss for the period 0 0 0 (68) (68)
Cash distributions 0 0 (100) 0 (100)
------ ------- -------- ------- --------
Balance, September 30, 1999 1 $10,000 $(24,659) $(1,442) $(16,101)
====== ======= ======== ======= ========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE>4
<TABLE>
SB PARTNERS
(A New York Limited Partnership)
------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (Not Audited)
---------------------------------------------------
<CAPTION>
For the Nine Months Ended
September 30,
---------------------------
1999 1998
---------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ (528,763) $ 3,595,884
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Gain on sale of investments in real estate 0 (3,873,733)
Depreciation and amortization 1,499,382 976,890
(Increase) decrease in other assets (507,490) 309,766
Increase in other liabilities 460,790 30,098
----------- -----------
Net cash provided by operating activities 923,919 1,038,905
----------- -----------
Cash Flows From Investing Activities:
Proceeds from sales of investments in real estate 0 29,210,371
Acquisition of real estate investments (13,334,127) (22,671,425)
Capital additions to real estate owned (1,492,996) (967,336)
----------- -----------
Net cash provided by (used in) investing activities (14,827,123) 5,571,610
----------- -----------
Cash Flows From Financing Activities:
Proceeds from mortgage note payable 10,303,000 3,800,000
Retirement of mortgage note and other loans payable 0 (7,514,832)
Cash distributions paid to partners (775,350) 0
Principal payments on mortgage notes payable (430,808) (266,224)
Increase in deferred financing costs (148,761) (17,739)
----------- -----------
Net cash provided by (used in) financing activities 8,948,081 (3,998,795)
----------- -----------
Net increase (decrease) in cash and cash equivalents (4,955,123) 2,611,720
Cash and cash equivalents at beginning of period 6,585,252 549,760
----------- -----------
Cash and cash equivalents at end of period $ 1,630,129 $ 3,161,480
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 2,227,064 $ 1,514,681
=========== ===========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE>5
SB PARTNERS
(A New York Limited Partnership)
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
------------------------------------------------------
FOR THE PERIODS ENDED SEPTEMBER 30, 1999
----------------------------------------
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
SB Partners, a New York limited partnership, and its subsidiaries
(collectively, the "Partnership"), have been engaged since April 1971 in
acquiring, operating and holding for investment a varying portfolio of
real properties. SB Partners Real Estate Corporation (the "General
Partner") serves as the general partner of the Partnership.
The consolidated financial statements as of and for the three and nine
month periods ended September 30, 1999 and 1998 included herein are
unaudited; however, the information reflects all adjustments (consisting
solely of normal, recurring adjustments) that, in the opinion of
management, are necessary to a fair presentation of the financial
position, results of operations and cash flows for the interim periods.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations, however, the Registrant believes that the
disclosures are sufficient to make the information presented not
misleading. It is suggested that these financial statements be read in
conjunction with the financial statements and the notes thereto included
in the Registrant's latest annual report on Form 10-K.
The results of operations for the three and nine month periods ended
September 30, 1999 and 1998 are not necessarily indicative of the results
to be expected for a full year.
The significant accounting and financial reporting policies of the
Partnership are as follows:
(a) The accompanying consolidated financial statements include the
accounts of SB Partners and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated. The
consolidated financial statements are prepared using the accrual
basis of accounting under generally accepted accounting principles.
Revenues are recognized as earned and expenses are recognized as
incurred. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Certain prior
period amounts have been reclassified to make them comparable to the
current period presentation.
<PAGE>6
(b) Each partner is individually responsible for reporting its share of
the Partnership's taxable income or loss. Accordingly, no provision
has been made in the accompanying financial statements for Federal,
state or local income taxes.
(c) Depreciation of buildings, furnishings and improvements is computed
using the straight-line method of depreciation, based upon the
estimated useful lives of the related properties, as follows:
Buildings and improvements 30 to 40 years
Furnishings 5 to 7 years
Expenditures for maintenance and repairs are expensed as incurred.
Expenditures for improvements, renewals and betterments, which
increase the useful life of the real estate, are capitalized. Upon
retirement or sale of property, the related cost and accumulated
depreciation are removed from the accounts. Amortization of
deferred financing and refinancing costs is computed by amortizing
the cost on a straight-line basis over the term of the related
mortgage notes. Amortization of leasing commissions and tenant
improvements is computed by amortizing the cost on a straight-line
basis over the term of the related lease.
(d) Gains on sales of investments in real estate are recognized in
accordance with generally accepted accounting principles applicable
to sales of real estate, which require minimum levels of initial and
continuing investment by the purchaser, and certain other tests be
met, prior to the full recognition of profit at the time of the
sale. When the tests are not met, gains on sales are recognized on
either the installment or cost recovery methods.
(e) Net income (loss) per unit of partnership interest has been computed
based on the weighted average number of units of partnership
interest outstanding during each period. There were no potentially
dilutive securities outstanding during each period.
(f) For financial reporting purposes, the Partnership considers all
highly liquid, short-term investments with maturities of three
months or less to be cash equivalents.
<PAGE>7
(2) INVESTMENTS IN REAL ESTATE
As of September 30, 1999, the Partnership owned apartment projects in St.
Louis, Missouri; Greenville, South Carolina; Reno, Nevada; and Holiday
and Orlando, Florida; as well as 13.9 acres of land in Holiday, Florida.
Following is the cost basis and accumulated depreciation of the real
estate investments owned by the Partnership as of September 30, 1999 and
December 31, 1998:
<TABLE>
<CAPTION>
No.of Year of
Type Prop. Acquisition Description Real Estate at Cost
- ---- ----- ----------- ----------- -----------------------
1999 1998 1999 1998 9/30/99 12/31/98
---- ---- ---- ---- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Residential properties 5 4 1983-99 1,746 Apts. 1,554 Apts. $82,961,026 $68,133,903
Undeveloped land 1 1 1978 13.9 Acres 13.9 Acres 44,387 44,387
----------- -----------
83,005,413 68,178,290
Less: Accumulated depreciation (16,052,724) (14,608,682)
----------- -----------
$66,952,689 $53,569,608
=========== ===========
</TABLE>
(3) REAL ESTATE TRANSACTIONS
On September 29, 1999, the Partnership purchased Le Coeur du Monde
Apartments, a 192-unit apartment community located in St. Louis, Missouri,
for $13,325,000. In connection with the purchase, the Partnership obtained
a first mortgage loan of $10,303,000 with a FNMA DUS program lender. The
mortgage loan is secured by the property, bears interest at 7.805% per
annum and matures on October 1, 2009.
On December 23, 1998, the Partnership acquired Halton Place Apartments, a
246-unit apartment community located in Greenville, South Carolina, for
$12,600,000 in an all cash transaction. On August 20, 1998, the
Partnership purchased Cypress Key Apartments, a 360-unit apartment
community located in Orlando, Florida, for $22,600,000, also in an all cash
transaction.
On April 16, 1998, the Partnership sold Cherry Hill Office Center for a
contract price of $4,825,000, and on June 30, 1998, sold Riverbend
Apartments for a contract price of $24,500,000. Both of these sales were
all cash transactions. As a result of these sales, the Partnership
recognized gains for financial reporting purposes of approximately $506,000
and $3,368,000, respectively, for the nine months ended September 30, 1998.
<PAGE>8
(4) INVESTMENT IN JOINT VENTURE
During 1992, the Partnership and an institutional investor (the "Investor")
entered into a joint venture agreement where the Partnership contributed
Riverbend Apartments for an agreed equity value of $14,250,000 and the
Investor contributed $9,500,000 in cash. The Partnership and the Investor
held interests in the venture of 60% and 40%, respectively, and the
Investor was entitled to a guaranteed return of 9.5% of its average
investment, as defined in the joint venture agreement. For financial
reporting purposes, the Partnership recorded its investment in the joint
venture at its net carrying amount of the property contributed, and no gain
or loss was recognized. All significant matters affecting the joint
venture required the unanimous consent of the venturers.
On December 15, 1997, the Partnership purchased the 40% interest of the
Investor for $9,800,000 through a wholly-owned limited liability company,
and effectively became the sole owner of the property. All items of income
and expense of the property are included in the consolidated statements of
income of the Registrant for the nine months ended September 30, 1998. The
Partnership sold Riverbend Apartments on June 30, 1998 (see Note 3).
(5) MORTGAGE NOTES PAYABLE
Mortgage notes payable consist of the following first liens:
<TABLE>
<CAPTION>
Net Carrying Amount
Annual September 30, December 31,
Interest Maturity Installment Amount Due ------------- ------------
Property Rate Date Payments (c) at Maturity 1999 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Holiday Park 6.895% 2/08 $ 300,169 $ 3,277,785 $ 3,736,353 $ 3,767,366
Meadow Wood 7.55% 1/04 1,914,996 18,979,461 20,641,140 20,900,360
Cypress Key (a) 6.605% 1/09 1,322,707 14,772,418 17,109,425 17,250,000
Le Coeur du Monde (b) 7.805% 10/09 890,447 9,075,763 10,303,000 0
----------- -----------
$51,789,918 $41,917,726
=========== ===========
<FN>
(a) Mortgage note was secured in December 1998, and monthly payments of
principal and interest began in February 1999.
(b) Mortgage note was secured in September 1999. (See also Note 3.)
(c) Annual installment payments include principal and interest.
</TABLE>
(6) DISTRIBUTION
In March 1999, the Partnership paid a cash distribution of $100 per
weighted average unit outstanding which totaled $775,350 based on 7,753.5
weighted average number of units outstanding.
<PAGE>9
(7) COMMITMENTS AND CONTINGENCIES
The Partnership is a party to certain actions directly arising from its
normal business operations. While the ultimate outcome is not presently
determinable with certainty, the Partnership believes that the resolution
of these matters will not have a material effect on its financial
position or results of operations.
On November 6, 1997, Hugh Spencer, a limited partner who holds two units
in the Partnership, filed a purported class action (the "Complaint"), on
behalf of himself and other persons similarly situated, against the
Partnership and its General Partner and other affiliates in the Supreme
Court of the State of New York, County of New York, entitled Spencer v.
SB Partners et. al., Index No. 120673/97. The Complaint alleges, inter
alia, that the business of the Partnership can only be carried on at a
loss, and that the General Partner breached the partnership agreement and
its fiduciary duties, and seeks a court decree of dissolution of the
Partnership pursuant to Sections 63 and 99 of the New York Partnership
Law, an accounting from the general partner, the appointment of a
receiver to wind up the Partnership's affairs and an award of costs and
attorneys' fees to the plaintiff and the putative class. The Partnership
moved to stay the class action and compel arbitration of any individual
claim of the plaintiff. On September 27, 1998 the Supreme Court of the
State of New York granted the Partnership's motion. In December 1998,
Spencer and Norma Schulze, another limited partner who holds two and one-
half 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, moved to stay the arbitration to the
extent it seeks to recover attorneys' fees. Those motions were denied.
The arbitration panel of three arbitrators was chosen and a preliminary
hearing was held on May 6, 1999. On July 30, 1999, the Partnership and
the other respondents to the arbitration filed a motion for summary
judgment seeking the dismissal of all claims. The arbitration panel
heard oral argument on that motion on October 12, 1999, and the motion is
sub-judice. The Partnership believes that the final outcome of this
matter will not have a material adverse effect on its financial position
or results of operations.
<PAGE>10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999
----------------------------------------------------------------
General
- -------
The consolidated financial statements for the three and nine month
periods ended September 30, 1999 reflect the operations of four residential
garden apartment properties. The financial statements for the three months
ended September 30, 1998 reflect the operations of three residential garden
apartment properties. The financial statements for the nine months ended
September 30, 1998 reflect the operations of one office property and four
residential garden apartment properties.
Total revenues for the three months ended September 30, 1999 increased
$856,000 to approximately $2,731,000 from approximately $1,875,000 for the
three months ended September 30, 1998. The net loss for the three months ended
September 30, 1999 decreased $191,000 to approximately $139,000 from
approximately $330,000 for the three months ended September 30, 1998.
Total revenues for the nine months ended September 30, 1999 increased
$583,000 to approximately $7,909,000 from approximately $7,326,000 for the nine
months ended September 30, 1998. The net loss of approximately $529,000 for
the nine months ended September 30, 1999 was $4,125,000 lower than the net
income of approximately $3,596,000 for the nine months ended September 30,
1998. Included in net income for the nine months ended September 30, 1998, is
a net gain on sale of investments in real estate of approximately $3,874,000,
with $506,000 a result of the sale of Cherry Hill Office Center and $3,368,000
from the sale of Riverbend Apartments.
The changes in total revenues and net losses are attributable mainly to
the change in composition of the portfolio from 1998 to 1999. As discussed in
Note 3 to the Consolidated Financial Statements, the Registrant sold Cherry
Hill Office Center in April 1998, and Riverbend Apartments in June 1998. The
Registrant then began to rebuild the portfolio by purchasing Cypress Key
Apartments in August of that same year. By placing a mortgage note on this
acquisition, the Registrant was able to add Halton Place Apartments to the
portfolio in December 1998, using the proceeds of the new note. Recently, the
Registrant acquired Le Coeur du Monde Apartments in St. Louis, Missouri.
Please see Forms 8-K, as amended, filed in connection with these transactions.
The consolidated statements of operations for the nine months ended
September 30, 1998 include revenues of $2,285,000 from Riverbend Apartments,
and $417,000 from Cherry Hill Office Center. As these properties were sold in
1998, no revenues are attributable to them in 1999. As Cypress Key Apartments
was purchased on August 20, 1998, the reporting period for this apartment
property was less than two months during that year. The consolidated
statements of operations for the periods ended September 30, 1998 include
revenues of $342,000 from Cypress Key Apartments, whereas revenues of $776,000
for the thee months, and $2,177,000 for the nine months ended September 30,
1999, reflect full periods of ownership. The statements of operations for the
three and nine months ended September 30, 1999 include $399,000 and $1,220,000,
respectively, of revenues from Halton Place Apartments, and nominal amounts of
revenue from Le Coeur du Monde Apartments. However, no revenues are
attributable to these two properties for the periods ended in 1998.
<PAGE>11
Operating expenses also reflect the changes in the composition of the
portfolio. There were no operating expenses in 1999 from either of the two
properties sold in 1998. Operating expenses for the nine months ended
September 30, 1998 totaled $1,542,000 for Riverbend Apartments, and $250,000
for Cherry Hill Office Center. Operating expenses of $180,000 were incurred at
Cypress Key Apartments for the initial period in 1998, whereas $280,000 and
$825,000 were incurred for the three and nine month periods in 1999,
respectively. The statements of operations for the three and nine months ended
September 30, 1999 include $194,000 and $496,000, respectively, of operating
expenses of Halton Place Apartments, and nominal amounts of operating expenses
of Le Coeur du Monde Apartments. No operating expenses are attributable to
either of these two properties for the periods ended in 1998.
Interest expense for the three and nine month periods ended September 30,
1999 includes the interest accrued on three mortgage notes, while interest
expense for the comparable periods in 1998 includes only the two mortgage notes
that were outstanding during those periods and the short-term loan obtained in
connection with the purchase of the joint venture interest in Riverbend
Apartments. Depreciation expense for the periods ended September 30, 1999,
reflects full periods of ownership of four apartment properties, whereas
depreciation expense for the prior year includes full periods for only two of
the apartment properties, and a partial period of ownership for a third
apartment property.
For additional analysis, please refer to the discussions of the
individual properties below.
This report on Form 10-Q includes statements that constitute "forward
looking statements" within the meaning of Section 27(A) of the Securities Act
of 1933 and Section 21(E) of the Securities Exchange Act of 1934 and that are
intended to come within the safe harbor protection provided by those sections.
By their nature, all forward looking statements involve risks and
uncertainties. Actual results may differ materially from those contemplated by
the forward looking statements.
Year 2000 Compliance
- --------------------
The Registrant has examined the problem presented by the inability of
many computer programs to distinguish the year 2000 from the year 1900
(referred to as the "Year 2000 Problem"). The primary software packages used
by the Registrant are designed by outside vendors who have represented that the
software is generally Year 2000 compliant (that is, not to be negatively
affected by the occurrence or use of a date in the year 2000 or beyond). The
Registrant has implemented required software modifications for software which
was known to be noncompliant and has tested those modifications for compliance.
The Registrant is nearing completion of its Year 2000 compliance program and
expects to have all final modifications implemented and testing completed
before the end of the year. Furthermore, the cost to the Registrant to
remediate Year 2000 technology issues has been and is expected to continue to
be minimal. Although there can be no assurances, at the present time the
Registrant does not believe problems likely to be faced by its vendors, lenders
or customers because of the Year 2000 Problem would be likely to have a
material adverse impact on the Registrant or the results of its operations.
The Registrant could be affected by systemic problems in the economy resulting
from the Year 2000 Problem, such as disruptions of communication systems or
overall economic dislocation. For example, the Registrant's activities could
be disrupted if banks, as a result of the Year 2000 Problem, are unable to
effect transactions in the normal course of business. At the present time, the
Registrant does not believe it is possible to measure the effect of potential
complications. The Registrant will continually monitor and evaluate these
areas and develop contingency plans on an as-needed basis.
<PAGE>12
Liquidity and Capital Resources
- -------------------------------
As of September 30, 1999, the Registrant had cash and cash equivalents of
$1,630,129 in addition to $1,613,499 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 $4,202,000 less than
cash, cash equivalents, and deposits held in escrow on December 31, 1998. The
decrease in cash held is primarily due to the purchase of Le Coeur du Monde
Apartments on September 29, 1999. The cash outlay for the purchase of this
apartment community, net of the proceeds of the mortgage note of $10,303,000
placed on the property, was approximately $3,031,000. While operating
activities for the nine months ended September 30, 1999 provided approximately
$924,000 of operating cash flow, $1,493,000 was invested in capital additions
to the properties and $431,000 of principal payments were made on mortgage
notes payable during the period. In addition, cash distributions amounting to
$775,350, were paid in March 1999 to Unitholders of record on December 31,
1998.
Debt at September 30, 1999, consisted of approximately $51,790,000 of
nonrecourse first mortgage notes payable secured by four apartment properties
owned by the Registrant (See Footnote 5 to the Consolidated Financial
Statements). Included in this total is the new note obtained in connection
with the purchase of Le Coeur du Monde Apartments on September 29, 1999. The
Registrant obtained a first mortgage note of $10,303,000 with a FNMA DUS
program lender. The mortgage note is secured by the property, bears interest
at 7.805% per annum, and matures on October 1, 2009. Principal amortization
through monthly payments will be approximately $163,000 for the last three
months of 1999. Terms of the mortgage notes require monthly escrow of
estimated annual real estate tax, insurance, and reserves for repairs,
maintenance and improvements to the secured property, in addition to the
payments of principal and interest. The Registrant has no other debt except
normal trade accounts payable and expenses, and accrued interest on mortgage
notes payable.
Halton Place is currently unencumbered. However, a mortgage loan may be
placed on the property and the proceeds used to continue the expansion of the
portfolio through the acquisition of additional investments in real estate
properties. Investigations of appropriate new acquisitions are underway.
Inflation and changing prices during the current period did not
significantly affect the markets in which the Registrant conducts its business.
In view of the low rate of inflation, its impact on the Registrant's business
has not been significant.
The Registrant's properties are expected to generate sufficient cash flow
to cover operating, financing, capital improvement costs, and other working
capital requirements of the Registrant for the foreseeable future.
<PAGE>13
Holiday Park Apartments
- -----------------------
Total revenues for the three months ended September 30, 1999 increased
$10,000 to $300,000 from $290,000 for the three months ended September 30,
1998. Net income after depreciation and mortgage interest expense for the
three months ended September 30,1999 increased $10,000 to $17,000 from $7,000
for the three months ended September 30, 1998. The increase in total revenues
is due primarily to an increase in rental rates charged on new and renewing
leases at the property which added $10,000 to the revenues for the period. The
increase in net income is a result of the increase in revenues, as property
operating expenses remained relatively unchanged from the period a year
earlier.
Total revenues for the nine months ended September 30, 1999 decreased
$8,000 to $910,000 from $918,000 for the nine months ended September 30, 1998.
Net income after depreciation and mortgage interest expense for the nine month
period ended September 30,1999 increased $71,000 to $76,000 from $5,000 for the
nine months ended September 30, 1998. The decrease in revenues was primarily a
result of lower occupancy, which reduced revenues by $35,000, while tenant
concessions increased $6,000. These reductions in revenues were partially
offset by an increase in rental rates implemented at the property which
increased revenues $33,000. The decrease in occupancy reflected the low
interest rates available to consumers which make homebuying a viable
alternative to apartment living. The majority of move out notices that Holiday
Park has received of late are due to home purchases. Holiday Park has
increased its marketing and advertising in an effort to reverse this occupancy
trend. The increase in net income is primarily a result of lower operating
costs and reduced debt service costs. Since some assets have been fully
depreciated, depreciation expense decreased approximately $18,000. Interest
expense for the period decreased $11,000 from the prior period as a result of
refinancing the mortgage note at a lower interest rate during 1998.
Furthermore, amortization of costs associated with the financing of the loan
encumbering the property decreased $46,000. In 1998, a one-time charge against
earnings of $43,000 was recorded to write off the unamortized costs associated
with the loan that was retired. There was a net reduction of approximately
$5,000 in all other operating expenses.
<PAGE>14
Meadow Wood Apartments
- ----------------------
Total revenues for the three months ended September 30, 1999 increased
$146,000 to $1,183,000 from $1,037,000 for the three months ended September 30,
1998. Net income after depreciation and mortgage interest expense for the three
months ended September 30, 1999 increased $145,000 to $16,000 from a net loss
of $129,000 for the three months ended September 30, 1998. The increase in
revenues is due primarily to an increase in average occupancy of 6.0%, to 93.7%
from 87.7% for the same period a year earlier, which increased revenues
$123,000. There was a corresponding increase in miscellaneous income of
$27,000, and a marginal increase in rental rates charged at the property which
increased revenues $3,000, however, total income was offset by an increase in
tenant concessions of $7,000. Occupancy has improved as a result of the
capital improvement program begun in 1998 that has attracted new tenants to the
property and Meadow Wood has regained market share previously lost to new
construction in its Reno submarket. The increase in net income is due
primarily to the increase in revenues as net operating expenses remained
relatively unchanged from the period a year earlier.
Total revenues for the nine months ended September 30,1999 increased
$274,000 to $3,389,000 from $3,115,000 for the nine months ended September 30,
1998. Net loss after depreciation and mortgage interest expense decreased
$223,000 to $45,000 from $268,000 for the nine months ended September 30, 1998.
Higher revenues are primarily the result of an increase in average occupancy of
6.4%, to 91.3% from 84.9% for the same period last year, as discussed above.
The greater average occupancy added $273,000 to total revenues, and a
corresponding increase in miscellaneous income added $22,000. However, lower
rental rates charged on new and renewing leases reduced revenues $20,000, and a
small rise in tenant concessions decreased revenues $1,000. The decrease in
the net loss for the period is due primarily to the higher rental revenue,
offset partially by a net increase in total expenses of $51,000. Depreciation
expense increased approximately $39,000, repairs and maintenance increased
approximately $7,000 and utilities expense rose approximately $5,000 from the
comparable period in 1998. Depreciation expense increased as the capital
improvement program begun in 1998 was completed and the depreciation period of
these upgrades has begun.
<PAGE>15
Cypress Key Apartments
- ----------------------
On August 20, 1998, the Registrant purchased Cypress Key Apartments, a
360-unit apartment community located in Orlando, Florida, for $22,600,000 in an
all cash transaction. Please see Form 8-K filed on September 4, 1998, as
amended on October 3, 1998, filed in connection with this transaction. (Refer
also to Note 3 of the Consolidated Financial Statements).
Total revenues for the three months ended September 30, 1999 increased
$435,000 to $776,000 from $341,000 for the three months ended September 30,
1998. Net loss after depreciation and mortgage interest expense for the three
months ended September 30, 1999 of $38,000 was $199,000 less than the net
income of $161,000 for the three months ended September 30, 1998. Total
revenues for the nine months ended September 30, 1999 increased $1,836,000 to
$2,177,000 from $341,000 for the nine months ended September 30, 1998. Net
loss after depreciation and mortgage interest for the nine months ended
September 30, 1999 of approximately $240,000 was $401,000 less than the net
income of $161,000 for the nine months ended September 30, 1998. The changes
in revenue and net income/loss are due in part to the different reporting
periods in 1999 and 1998. As the property was purchased during the third
quarter of 1998, the reporting period for that year was less than two months,
whereas the reporting periods for 1999 reflect full periods of ownership.
Additionally, the prior year did not reflect mortgage interest expense, as the
Registrant did not place a mortgage note on the property until December 1998.
Average occupancy for the three and nine months ended September 30, 1999 was
94.6% and 90.6%, respectively, while average occupancy from the date of
purchase through September 30, 1998 was 93.8%. Certain leases entered into by
the former owner were not up to the standards employed by the Registrant and
were not renewed. This caused a temporary decline in the occupancy rate at the
property, however, occupancy rates have risen steadily throughout 1999 and are
expected to remain at their current levels.
Halton Place Apartments
- -----------------------
On December 23, 1998, the Registrant purchased Halton Place Apartments, a
246-unit apartment community located in Greenville, South Carolina, for
$12,600,000 in an all cash transaction. Please see Form 8-K filed on January
7, 1999, as amended on March 8, 1999, filed in connection with this
transaction. (Refer also to Note 3 of the Consolidated Financial Statements).
At the present time, there is no mortgage note on this property.
Total revenues for the three months ended September 30, 1999 were
$399,000. Net income after depreciation expense was $96,000. Total revenues
for the nine month period ended September 30, 1999 were $1,220,000. Net income
after depreciation expense was $395,000. Average occupancy for the three and
nine month periods was 90.2% and 91.1%, respectively. Since the acquisition of
the property, occupancy levels have been steady; however, changes in the
resident profile are being made as new applicants are screened. To date,
lighting conversions have been made throughout the property, landscaping was
improved, work to improve the tennis courts was completed, and the trim and
doors throughout the community were painted. During the remainder of the year,
additional projects are planned to improve curb appeal and maintain market
share.
<PAGE>16
Le Coeur du Monde Apartments
- ----------------------------
On September 29, 1999, the Registrant purchased Le Coeur du Monde
Apartments, a 192-unit apartment community located in St. Louis, Missouri, for
$13,325,000. In connection with the purchase, the Registrant obtained a first
mortgage note of $10,303,000 with a FNMA DUS program lender. The mortgage note
is secured by the property, bears interest at 7.805% per annum and matures on
October 1, 2009. Please see Form 8-K filed on October 14, 1999, in connection
with this transaction. (Refer also to the Liquidity and Capital Resources
Section and Notes 3 and 5 of the Consolidated Financial Statements). Due to
the short period of ownership, the Registrant recognized total revenues of
$10,000 and net income after depreciation and mortgage interest expense of
$2,000 for the three and nine month periods ended September 30, 1999.
<PAGE>17
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
------------------------------------------------------
Not Applicable
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
On October 14, 1999, the Registrant filed Form 8-K to
report the purchase on September 29, 1999 of Le Coeur
du Monde Apartments. Financial statements will be
provided in an amendment to this filing on or before
December 13, 1999.
All other item numbers are omitted because they are not
applicable.
<PAGE>18
SIGNATURES
- ----------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SB PARTNERS
-----------------------------------
(Registrant)
By:SB PARTNERS REAL ESTATE CORPORATION
-----------------------------------
General Partner
Dated: November 15, 1999 By:/s/ John H. Streicker
-----------------------------
John H. Streicker
President
Dated: November 15, 1999 By:/s/ Elizabeth B. Longo
-----------------------------
Elizabeth B. Longo
Chief Financial Officer
(Principal Financial Officer)
Dated: November 15, 1999 By:/s/ George N. Tietjen
-----------------------------
George N. Tietjen III
Vice President
(Principal Accounting Officer)
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,630,129
<SECURITIES> 0
<RECEIVABLES> 0
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<CURRENT-ASSETS> 2,534,709
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<COMMON> 0
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