SB PARTNERS - FORM 10-Q - July 27, 2011

Attached files

file	filename
EX-31.1 - SBP10Q 6_30_11 EX31.1 - SB PARTNERS	sbp10q63011ex311.htm
EX-31.2 - SBP10Q 6_30_11 EX31.2 - SB PARTNERS	sbp10q63011ex312.htm
EX-32.2 - SBP10Q 6_30_11 EX32.2 - SB PARTNERS	sbp10q63011ex322.htm
EX-32.1 - SBP10Q 6_30_11 EX32.1 - SB PARTNERS	sbp10q63011ex321.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q – QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2011

o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from __________________ to __________________

Commission File Number:

0-8952

SB PARTNERS
(Exact name of registrant as specified in its charter)

New York		13-6294787
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)


1 New Haven Avenue, Box 11, Suite 207, Milford, CT.		06460
(Address of principal executive offices)		(Zip Code)

(203) 283-9593

(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer”, “non-accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.

[ ] large accelerated filer [ ] accelerated filer [x] non-accelerated filer [ ] small reporting company

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). [ ] Yes [X] 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

Item 1	Financial Statements
	Consolidated Balance Sheets as of June 30, 2011 (unaudited) and December 31, 2010 (audited)	1
	Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2011 and 2010 (as restated)	2

	Consolidated Statements of Changes in Partners' Deficit (unaudited) for the six months ended June 30, 2011	3

	Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2011 and 2010 (as restated)	4

	Notes to Consolidated Financial Statements (unaudited)	5 – 7

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	8 – 11

Item 4T	Controls and Procedures	12


Part II	Other Information	12

	Signatures	13

	Exhibit 31

	Exhibit 32

ITEM 1. FINANCIAL STATEMENTS

SB PARTNERS
(A New York Limited Partnership)

CONSOLIDATED BALANCE SHEETS

			June 30,			December 31,
			2011			2010
			(Unaudited)			(Audited)
Assets:
Investments -
	Real estate, at cost
	Land		$	1,985,000		$	1,985,000
	Buildings, furnishings and improvements			18,560,518			18,560,518
	Less - accumulated depreciation			(3,190,076	)		(2,943,492	)
				17,355,442			17,602,026

	Investment in Sentinel Omaha, LLC, net of reserve
	for fair value of $8,192,961 and $4,109,076 at
	June 30, 2011 and December 31, 2010, respectively			-			-
				17,355,442			17,602,026

Other Assets -
	Cash and cash equivalents			278,443			12,932,100
	Cash in escrow			500,000			-
	Other			188,873			68,629

		Total assets	$	18,322,758		$	30,602,755

Liabilities:
	Mortgage note and unsecured loan payable		$	20,069,570		$	32,000,000
	Accounts payable and accrued expenses			234,867			159,366
	Tenant security deposits			106,829			106,830

		Total liabilities		20,411,266			32,266,196

Partners' Deficit:
	Units of partnership interest without par value;
	Limited partner - 7,753 units			(2,069,803	)		(1,644,791	)
	General partner - 1 unit			(18,705	)		(18,650	)

		Total partners' deficit		(2,088,508	)		(1,663,441	)

		Total liabilities and partners' deficit	$	18,322,758		$	30,602,755

See notes to consolidated financial statements

SB PARTNERS

(A New York Limited Partnership)

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)


	For the Three Months						For the Six Months
	Ended June 30,						Ended June 30,
				(As Restated)						(As Restated)
	2011			2010			2011			2010
Revenues:
Base rental income	$	437,904		$	433,831		$	873,093		$	864,947
Other rental income		166,741			288,837			371,305			465,281
Interest on short-term investments and other		7,312			-			30,095			-

Total revenues		611,957			722,668			1,274,493			1,330,228

Expenses:
Real estate operating expenses		102,842			103,312			217,149			224,884
Interest on mortgage notes and unsecured loan payable		274,385			270,848			540,957			535,737
Depreciation and amortization		130,811			122,838			253,991			246,361
Real estate taxes		109,322			161,721			258,352			301,052
Management fees		193,261			212,028			357,727			432,700
Other		31,884			40,154			69,079			80,058

Total expenses		842,505			910,901			1,697,255			1,820,792

Loss from operations		(230,548	)		(188,233	)		(422,762	)		(490,564	)

Equity in net income (loss) of investment		2,078,807			656,566			4,083,885			(1,535,447	)

Reserve for value of investment		(2,078,807	)		(656,566	)		(4,083,885	)		1,535,447

Loss from continuing operations		(230,548	)		(188,233	)		(422,762	)		(490,564	)

Income (loss) from discontinued operations		(2,305	)		101,137			(2,305	)		201,678

Net loss		(232,853	)		(87,096	)		(425,067	)		(288,886	)

Loss allocated to general partner		(30	)		(11	)		(55	)		(37	)

Loss allocated to limited partners	$	(232,823	)	$	(87,085	)	$	(425,012	)	$	(288,849	)

(Loss) earnings per unit of limited partnership interest
(basic and diluted)

Continuing operations	$	(29.73	)	$	(24.28	)	$	(54.53	)	$	(63.27	)

Discontinued operations	$	(0.30	)	$	13.04		$	(0.30	)	$	26.01

Net loss	$	(30.03	)	$	(11.23	)	$	(54.83	)	$	(37.26	)

Weighted Average Number of Units of Limited
Partnership Interest Outstanding		7,753			7,753			7,753			7,753


See notes to consolidated financial statements

SB PARTNERS

(A New York Limited Partnership)

CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT

For the six months ended June 30, 2011 (Unaudited)

Limited Partners:
	Units of Partnership Interest

	Number		Amount		Cumulative Cash Distributions			Accumulated Earnings (Losses)			Total

Balance, January 1, 2011		7,753	$	119,968,973	$	(111,721,586	)	$	(9,892,178	)	$	(1,644,791	)
Net loss									(425,012	)		(425,012	)

Balance, June 30, 2011		7,753	$	119,968,973	$	(111,721,586	)	$	(10,317,190	)	$	(2,069,803	)




General Partner:
	Units of Partnership Interest

	Number		Amount		Cumulative Cash Distributions			Accumulated Earnings (Losses)			Total

Balance, January 1, 2011		1	$	10,000	$	(26,364	)	$	(2,286	)	$	(18,650	)
Net loss		-		-		-			(55	)		(55	)
Balance, June 30, 2011		1	$	10,000	$	(26,364	)	$	(2,341	)	$	(18,705	)


See notes to consolidated financial statements.

SB PARTNERS

(A New York Limited Partnership)

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	For the six months ended June 30,
	2011			2010
				(As Restated)
Cash Flows From Operating Activities:
Net loss	$	(425,067	)	$	(288,886	)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Equity in net (income) loss of investment		(4,083,885	)		1,535,447
Reserve for fair value of investment		4,083,885			(1,535,447	)
Depreciation and amortization		253,991			498,557
Net decrease in operating assets		25,705			16,083
Net decrease in operating assets in
discontinued operation		-			31,117
Net increase in operating liabilities		75,501			4,418
Net (decrease) in operating liabilities in
discontinued operation		-			(35,495	)

Net cash (used in) provided by operating activites		(69,870	)		225,794

Cash Flows From Investing Activities:
Payment to capital reserve escrow account		(500,000	)		-
Capital reimbursements to real estate owned		-			113,950

Net cash provided by investing activites		(500,000	)		113,950

Cash Flows From Financing Activities:
Repayment of unsecured loan payable		(11,930,430	)		-
Principal payments on mortgage notes payable		-			(83,052	)
Payment of deferred financing cost		(153,357	)		-

Net cash (used in) financing activities		(12,083,787	)		(83,052	)

Net change in cash and cash equivalents		(12,653,657	)		256,692

Cash and cash equivalents at beginning of period		12,932,100			148,077

Cash and cash equivalents at end of period	$	278,443		$	404,769


Supplemental disclosure of cash flow information:
Cash paid during the year for interest	$	540,957		$	729,774


See notes to consolidated financial statements

SB PARTNERS

Notes to Consolidated Financial Statements (Unaudited)

(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

SB Partners, a New York limited partnership, and its subsidiaries (collectively, the "Partnership" or the “Registrant”), have been engaged since April 1971 in acquiring, operating, and holding for investment a varying portfolio of real estate interests. SB Partners Real Estate Corporation (the "General Partner") serves as the general partner of the Partnership.

The consolidated financial statements included herein are unaudited; however, the information reflects all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary to a fair presentation of the financial position, results of operations and cash flows for the interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Partnership’s latest annual report on Form 10-K.

The results of operations for the three and six month ended June 30, 2011 are not necessarily indicative of the results to be expected for a full year.

For a discussion of the significant accounting and financial reporting policies of the Partnership, refer to the Annual Report on Form 10–K for the year ended December 31, 2010.

(2) INVESTMENTS IN REAL ESTATE

As of June 30, 2011, the Partnership owns an industrial flex property in Maple Grove, Minnesota and a warehouse distribution center in Lino Lakes, Minnesota. The following is the cost basis and accumulated depreciation of the real estate investments owned by the Partnership at June 30, 2011 and December 31, 2010:


	No. of		Year of			Real Estate at Cost
Type	Prop.		Acquisition		Description	6/30/2011			12/31/2010

Industrial flex property		1		2002	60,345 sf	$	5,270,128		$	5,270,128

Warehouse distribution properties		1		2005	226,000 sf		15,275,390			15,275,390

Total cost							20,545,518			20,545,518

Less: Accumulated depreciation							(3,190,076	)		(2,943,492	)

Investment in real estate						$	17,355,442		$	17,602,026

(3) INVESTMENT IN SENTINEL OMAHA, LLC

In 2007, the Partnership made an investment in the amount of $37,200,000 in Sentinel Omaha, LLC (“Omaha”). Omaha is a real estate investment company which currently owns 23 multifamily properties in 16 markets. Omaha is an affiliate of the Registrant’s general partner. The investment represents a 30% ownership interest in Omaha.

The following are the condensed financial statements (000’s omitted) of Omaha as of and for the periods ended June 30, 2011 and December 31, 2010.

	(Unaudited)			(Audited)
Balance Sheet	June 30, 2011			December 31, 2010

Investment in real estate, net	$	360,800		$	348,750
Other assets		7,710			10,438
Debt		(335,708	)		(337,935	)
Other liabilities		(5,492	)		(7,556	)
Member's Equity	$	27,310		$	13,697

	(Unaudited)
Statement of Operations	June 30, 2011

Rent and other income	$	22,661
Real estate operating expenses		(12,214	)
Other income and expenses		(8,590	)
Net unrealized income		14,240
Realized loss on sale of real estate property		(2,484	)

Net income	$	13,613

(4) MORTGAGE NOTES AND UNSECURED LOAN PAYABLE

Mortgage notes and unsecured loan payable consist of the following non-recourse first liens:


					Annual					Net Carrying Amount
	Interest				Installment			Amount Due		June 30,		December 31,
Property	Rate			Maturity Date	Payments			at Maturity		2011		2010


Lino Lakes		5.800	%	October, 2015	$	580,000	(a)	$	10,000,000	$	10,000,000	$	10,000,000

Bank Loan (b):
Note A											4,069,570		-
Note B											6,000,000		-
Unsecured											-		22,000,000
										$	20,069,570	$	32,000,000

(a) Annual installment payments include interest only.

(b)

On September 17, 2007, the Partnership entered into a bank loan (the “Loan”) with a bank (“Holder”) in the amount of $22,000,000, which matured on October 1, 2008 and provided for interest only monthly payments based upon LIBOR plus 1.95%. The Holder of the unsecured debt formally extended the maturity to February 28, 2009 and had entered into discussions as to terms for extending the debt on a longer term basis.

On April 29, 2011, the Holder of the unsecured credit facility and the Partnership executed a new Loan Agreement (“Loan Agreement”) on the following terms:

In connection with the execution of the Loan Agreement, the Partnership was required to make an immediate payment to Holder of $11,930,430, reducing the balance due under the unsecured credit facility to $10,069,570. The payment was made from proceeds resulting from the sale of 175 Ambassador Drive. Additional proceeds from the sale were used to pay Holder’s legal and appraisal

costs and to fund a reserve account for future tenant improvement and leasing costs, as needed. The remaining outstanding obligation in the amount of $10,069,570 was divided into two notes (“Note A” and “Note B;” together, the “Notes”).

Note A in the amount of $4,069,570 has a maturity of July 31, 2014. The Partnership has two 1-year options to extend the maturity if certain conditions are satisfied. Note A requires monthly payments of accrued interest at an annual fixed rate of 5% until paid in full. If extended, the Partnership is required to make an additional fixed principal payment of $9,570 on April 1, 2015 and $30,000 monthly thereafter until paid in full.

Note B in the amount of $6,000,000 has a maturity date of April 29, 2018. The Partnership has three 1-year options to extend the maturity date if certain conditions are satisfied. Note B accrues interest at an annual fixed rate of 5% but only until all interest and principal have been paid in full on Note A. Thereafter Note B does not accrue any interest. Payments of interest and principal are deferred until the Partnership’s investment in Sentinel Omaha LLC (“Omaha”) pays distributions to the Partnership. Distributions from Omaha would be used first to pay accrued interest on the Note B obligation, then principal on the Note B obligation. If there are no distributions from Omaha prior to the Note B maturity, all interest and principal is due at maturity, subject to the above mentioned extensions.

4)	The Notes may be voluntarily prepaid upon notice to the Holder, subject to certain requirements as to the application of payments. The Partnership’s obligations under the Notes may be accelerated upon default.

Until the Partnership’s obligations under the Notes are satisfied in full, the Partnership is required to pay a portion of its net operating income (after payment of certain permitted expenses), and the net proceeds from the sale, transfer or refinancing of its remaining properties and investments, toward the Notes while retaining the other portion to increase cash reserves. While the obligations under the Notes are outstanding the Partnership is precluded from making distributions to its partners.

6)	The Partnership, its general partner and the Holder also entered into a Management Subordination Agreement accruing a portion of the investment management fee payable by the Partnership to its general partner so long as the Notes remain outstanding.

As additional security for the Partnership’s payment of its obligations under the Loan Agreement, the Partnership, through its wholly-owned subsidiary Eagle IV Realty, LLC, has executed a Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Financing Statement (“Eagle IV Security Agreement”) and a Pledge Agreement (“Eagle IV Pledge Agreement”) in favor of Holder. The Eagle IV Security Agreement provides Holder with a security interest on the Partnership’s property located in Maple Grove, Minnesota (“Eagle IV”) of up to $5,000,000. The Eagle IV Pledge Agreement pledges to Holder the Partnership’s membership interest in Eagle IV Realty, LLC, the direct owner of Eagle IV. The Partnership has no other debt obligation secured by Eagle IV. The Loan Agreement also provides for a negative pledge on the Partnership’s remaining properties and investments.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010

General

The consolidated financial statements for the three and six months ended June 30, 2011, reflect the operations of one industrial flex property and one warehouse distribution center as well as a 30% interest in Omaha. The consolidated financial statements for the three and six months ended June 30, 2010 reflect the operations of one industrial flex property and two warehouse distribution centers as well as a 30% interest in Omaha.

Results of Operations

Total revenues from continuing operations for the three months ended June 30, 2011 decreased $111,000 to approximately $612,000 as compared to approximately $723,000 for the three months ended June 30, 2010. Total revenues decreased due to a decrease in other income partially offset by increases in base rental income and interest income. Base rental income increased $4,000 to approximately $438,000 for the three months ended June 30, 2011 as compared to approximately $434,000 for the same period in 2010. Base rental income increased due to a scheduled increase in base rent charged to the tenant leasing the space at Registrant’s property located in Maple Grove, MN. Other income decreased $122,000 to approximately $167,000 for the three months ended June 30, 2011 from approximately $289,000 for the same period in 2010. Other rental income decreased due to lower expense reimbursement from the tenants at Registrant’s two wholly owned properties. Interest income increased due to an increase in Registrant’s cash reserves. Registrant’s cash reserves increased due to the excess proceeds generated from the sale of Registrant’s Naperville, IL property which was sold on December 3, 2010. The net proceeds were used to partially to pay down Registrant’s unsecured loan on April 29, 2011.

Total revenues from continuing operations for the six months ended June 30, 2011 decreased $56,000 to approximately $1,274,000 as compared to approximately $1,330,000 for the six months ended June 30, 2010. Total revenues decreased due to a decrease in other income partially offset by increases in base rental income and interest income. Base rental income increased $8,000 to approximately $873,000 for the six months ended June 30, 2011 as compared to approximately $865,000 for the same period in 2010. Base rental income increased due to a scheduled increase in base rent charged to the tenant leasing the space at Registrant’s property located in Maple Grove, MN. Other income decreased $94,000 to approximately $371,000 for the six months ended June 30, 2011 from approximately $465,000 for the same period in 2010. Other rental income decreased due to lower expense reimbursement from the tenants at Registrant’s two wholly owned properties. Interest income increased due to an increase in Registrant’s cash reserves.

Loss from continuing operations increased $43,000 to a loss of approximately $231,000 for the three months ended June 30, 2011 as compared to an approximate loss of $188,000 for the three months ended June 30, 2010. Loss from continuing operations decreased $68,000 to a loss of approximately $423,000 for the six months ended June 30, 2011, as compared to an approximate loss of $491,000 for the six months ended June 30, 2010. The multifamily market continues to suffer from the effects of the national debt crisis. Potential buyers for multifamily properties are still struggling with wide spreads on lending rates, lower loan to value ratio requirements and far stricter credit terms. Even quality borrowers have limited financing available. This led to an increase in capitalization rates during 2008 and 2009 which had pushed values down significantly. During 2010 the increase in capitalization rates slowed and in many markets, reversed during the latter half of 2010. The stagnant national economy has kept unemployment higher and kept economic growth at a slower pace in 2010 in most markets in which Omaha owns properties. Omaha reports on a fair value basis and due to the mortgage crisis, stagnant real estate market and slowing economy, Omaha reported a write-down in the value of its real estate portfolio of approximately $69,749,000 (15%) for the twelve months ended December 31, 2009 in addition to the approximately $58,203,000 (10%) write-down recorded in 2008. In 2010 Omaha reported a small recovery of the value of its remaining real estate portfolio of approximately $12,450,000 (4%) and a further recovery of approximately $18,050,000 (6%) during the first six months of 2011. In 2009 and 2010 Registrant reviewed its own analysis of the current and projected financial condition of Omaha. On April 14, 2010, Omaha executed the fourth amendment to its unsecured loan which reduced the blended interest rate on the loan from LIBOR plus 585 basis points to LIBOR plus 386 basis points as of February 1, 2010. Additionally, Omaha’s financial ratio requirements were waived at December 31, 2009 and March 31, 2010 and were relaxed prospectively. Furthermore, the maturity date of the unsecured loan was extended from May 31, 2011 to May 31, 2012 with an option for an additional one year extension at which time an extension fee is to be paid on a portion of any remaining balance of the unsecured loan. However, Omaha is still precluded from making distributions to its investors until its unsecured loan is paid. As a result of the aforementioned, Registrant does not anticipate receiving any distributions from Omaha during the foreseeable future and has reserved 100% of the reported value of its investment in Omaha on the balance sheet. For the six months ended June 30, 2011, Registrant’s income in equity from its investment in Omaha was approximately $4,084,000. However, Registrant continues to reserve 100% of the reported value of Omaha on its balance sheet. The reserve for value was adjusted in conjunction with recording the income from equity for the six months ended June 30, 2011. As a result, Registrant reported a net zero income from equity in investment in Omaha for the six months ended June 30, 2011.

Total expenses from continuing operations for the three months ended June 30, 2011 decreased $69,000 to approximately $842,000 from approximately $911,000 for the three months ended June 30, 2010. Total operating expenses decreased due to lower management fees and lower real estate taxes. Management fees were lower due to the lower fee rate applied to the excess sales proceeds from the sale of 175 Ambassador Drive which had been held in cash reserves until Registrant used the excess proceeds to pay down a portion of the unsecured

credit facility on April 29, 2011. Real estate tax expense decreased due to a lower tax assessment related to the Registrant’s property located in Lino Lakes, MN. Total expenses from continuing operations for the six months ended June 30, 2011 decreased $124,000 to approximately $1,697,000 from approximately $1,821,000 for the same period in 2010.

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 as further described in the Registrant’s latest annual report on Form 10-K. Actual results may differ materially from those contemplated by the forward looking statements.

CRITICAL ACCOUNTING POLICIES

The Registrant’s critical accounting policies are described in its Annual Report on Form 10-K for the year ended December 31, 2010. There

were no significant changes to such policies in 2011. There are no accounting pronouncements or interpretations that have been issued, but not yet adopted, that the Partnership believes will have a material impact on its consolidated financial statements.

Liquidity and Capital Resources

As of June 30, 2011, the Registrant had cash and cash equivalents of approximately $278,443. These balances are $12,653,657 lower than cash and cash equivalents held on December 31, 2010. Cash and cash equivalents declined during the six months ended June 30, 2011 due primarily to Registrant’s restructuring its unsecured credit facility. On April 29, 2011, Registrant’s paid $12,539,983 to the Holder of the unsecured credit facility as part of replacing the unsecured credit facility with the new loan agreement and funding a cash reserve account in the amount of $500,000. The cash reserve account was set up to pay for future tenant replacement costs at Registrant’s two wholly owned properties, if needed.

Total outstanding debt at June 30, 2011, consisted of $10,000,000 of a long-term non-recourse first mortgage note secured by Registrant’s property located in Lino Lakes, Minnesota and $10,069,570 comprised of two long-term notes secured by Registrant’s property located in Maple Grove, MN as well as a negative pledge on Registrant’s remaining properties and investments. The Registrant has no other debt except normal trade accounts payable.

Registrant’s unsecured credit facility matured October 1, 2008. The Holder of the unsecured debt formally extended the maturity to February 28, 2009. The Holder had entered into discussions with Registrant as to terms for extending the unsecured debt on a longer term basis. On April 29, 2011, the Holder and Registrant executed a new loan agreement. The new loan agreement places significant restrictions on the Registrant’s use of cash (see Notes 4 to the Consolidated Financial Statements and Registrant’s Form 8-K dated April 29, 2011).

Inflation and changing prices during the current period did not significantly affect the markets in which the Registrant conducts its business, or the Registrant's business overall. However, the real estate market continues to suffer through one of its worst debt crises. Interest rates remain higher and some borrowers still find it difficult to secure debt at acceptable terms as lenders have imposed stricter terms on borrowers. If the Registrant does not have funds sufficient to repay its indebtedness at maturity, the Registrant may need to refinance such indebtedness with new debt financing or through equity offerings. The Registrant may be restricted from obtaining a loan which will be sufficient to retire the existing loan and which may be based on lower debt service coverage. If it 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 Unit holders. 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 could increase, which would adversely affect the Registrant's results of operations and financial condition and its ability to pay distributions to Unit holders. Further, if any of the Registrant's properties are mortgaged to secure payment of indebtedness and the Registrant is unable to meet mortgage payments, mortgagee could foreclose or otherwise transfer the property, with a consequent loss of income and asset value to the Registrant.

The Registrant’s properties are expected to generate sufficient cash flow to cover operating and capital improvement costs and other working capital requirements of the Registrant for the foreseeable future.

Eagle Lake Business Center IV (Maple Grove, Minnesota)

Total revenues for the three months ended June 30, 2011 decreased $67,000 to approximately $228,000 from approximately $295,000 for the three months ended June 30, 2010. Base rental income was higher in 2011 as the tenant received a scheduled rent increase. Other income was lower due to a decrease in operating expense reimbursements from the tenant. During 2010, the tenant paid additional reimbursements for 2009 based on an annual reconciliation. Net income, which includes deductions for depreciation, decreased $72,000 for the three months ended June 30, 2011 to approximately $118,000 from approximately $190,000 for the three months ended June 30, 2010 due primarily to lower total revenues combined with slightly higher operating expenses.

Total revenues for the six months ended June 30, 2011 decreased $54,000 to approximately $452,000 from approximately $506,000 for

the six months ended June 30, 2010. Base rental income was higher in 2011 as the tenant received a scheduled rent increase. Other income was lower due to a decrease in operating expense reimbursements from the tenant. Net income, which includes deductions for depreciation, decreased $51,000 for the six months ended June 30, 2011 to approximately $209,000 from approximately $260,000 for the same period in 2010 due primarily to lower total revenues combined with higher repairs and maintenance expense partially offset by lower professional fees. During 2010 Eagle Lake recorded professional fees related to the marketing of Eagle Lake IV for a sale during 2009. The marketing process was discontinued in late 2009 and Eagle Lake IV was reclassified as a component of continuing operations in 2010.

435 Park Court (Lino Lakes, Minnesota)

Total revenues for the three months ended June 30, 2011 decreased $52,000 to approximately $376,000 as compared to approximately $428,000 for the three months ended June 30, 2010. Total revenues were lower due to lower real estate tax expense reimbursement from the tenant. Net income, which includes deductions for interest expense and depreciation, increased $2,000 for the three months ended June 30, 2011 to approximately $42,000 as compared to approximately $40,000 for the three months ended June 30, 2010. Net income increased primarily due to lower total revenues partially offset by a decrease in real estate tax expense.

Total revenues for the six months ended June 30, 2011 decreased $34,000 to approximately $791,000 as compared to approximately $825,000 for the six months ended June 30, 2010. Total revenues were higher due to a higher real estate tax expense reimbursement from the tenant. Net income, which includes deductions for interest expense and depreciation, increased $3,000 for the six months ended June 30, 2011 to approximately $93,000 as compared to approximately $90,000 for the same period in 2010. Net income increased primarily due to lower total revenues partially offset by a decrease in real estate tax expense.

175 Ambassador Drive (Naperville, Illinois)

On December 3, 2010 the Registrant sold 175 Ambassador Drive for $19,500,000 to an unrelated party in an all cash transaction. The net proceeds from the sale were used, in part, to pay off the mortgage that had been secured by the property. See Registrant’s Form 8-K filed December 9, 2010, in connection with this transaction. The results of operations from the property for the three and six months ended June 30, 2010 are reflected as income from discontinued operations in the accompanying consolidated statement of operations. The property did not generate any revenue for the three and six months ended June 30, 2011 and reported a net loss of approximately $2,000 due to an unreimbursed insurance premium.

Investment in Sentinel Omaha, LLC

During 2007, the Registrant acquired a 30% interest in Sentinel Omaha, LLC for $37,200,000. During the six months ended June 30, 2011, Omaha sold one multifamily property located in High Point, NC to further reduce its debt obligations. As of June 30, 2011, the Omaha portfolio consisted of 23 multi-family properties located in 16 markets.

Comparison of three months ended June 30, 2011 to June 30, 2010:

Total revenues for the three months ended June 30, 2011 were approximately $11,397,000. Income before deductions for unrealized income was approximately $1,192,000. Major expenses included approximately $3,934,000 for interest expense, $1,195,000 for repairs and maintenance, $1,534,000 for payroll and $1,183,000 for real estate taxes. Omaha reported net unrealized income of approximately $5,737,000 from the valuation of its real estate properties, its mortgage notes and bonds and its interest rate cap and swap agreements. For the three months ended June 30, 2011, the Registrant’s equity interest in the income of Omaha was approximately $2,079,000. However, Registrant continues to reserve 100% of the reported value of Omaha on its balance sheet. The reserve for value was adjusted in conjunction with recording the income from equity for the quarter ended June 30, 2011. As a result, Registrant reported a net zero income from equity in investment in Omaha for the quarter ended June 30, 2011.

Total revenues for the three months ended June 30, 2010 were approximately $11,576,000. Income before deductions for unrealized income was $1,130,000. Major expenses included approximately $4,113,000 for interest expense, $1,271,000 for repairs and maintenance, $1,551,000 for payroll and $1,136,000 for real estate taxes. Revenues and operating expenses decreased from 2010 to 2011 primarily due to the sales by Omaha of its only commercial property in November 2010 and one apartment property in January 2011. Omaha reported net unrealized income of approximately $1,058,000. For the three months ended June 30, 2010, the Registrant’s equity interest in the net income of Omaha was approximately $657,000.

Comparison of six months ended June 30, 2011 to June 30, 2010:

Total revenues for the six months ended June 30, 2011 were approximately $22,661,000. Income before deductions for realized and unrealized income was approximately $1,856,000. Major expenses included approximately $7,866,000 for interest expense, $2,241,000 for repairs and maintenance, $3,235,000 for payroll and $2,412,000 for real estate taxes. Omaha reported a realized loss on a fair value basis from the sale of one apartment property of $2,484,000. Omaha also reported net unrealized income of approximately $14,240,000 from the valuation of its real estate properties, its mortgage notes and bonds and its interest rate cap and swap agreements. For the six months ended June 30, 2011, the Registrant’s equity interest in the income of Omaha was approximately $4,084,000. However, Registrant continues to reserve 100% of the reported value of Omaha on its balance sheet. The reserve for value was adjusted in conjunction with recording the income from equity for the quarters ended March 31 and June 30, 2011. As a result, Registrant reported a net zero income from equity in

investment in Omaha for the six months ended June 30, 2011.

Total revenues for the six months ended June 30, 2010 were approximately $23,085,000. Income before deductions for unrealized losses was $2,134,000. Omaha reported a realized loss on a fair value basis from the sale of one apartment property of $2,712,000. Omaha also reported net unrealized losses of approximately $4,540,000 from the valuation of its real estate properties, its mortgage notes and bonds and its interest rate cap and swap agreements. For the six months ended June 30, 2010, the Registrant’s equity interest in the loss of Omaha was approximately $1,535,000.

ITEM 3.

None

ITEM 4.

CONTROLS AND PROCEDURES

(a)

The Chief Executive Officer and the Principal Accounting and Financial Officer of the general partner of SB Partners have evaluated the disclosure controls and procedures relating to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2011 as filed with the Securities and Exchange Commission and have judged such controls and procedures to be effective.

(b)

The Chief Executive Officer and the Principal Accounting and Financial Officer of the general partner of SB Partners have evaluated the internal control over financial reporting relating to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2011 and have identified no changes in the Registrant’s internal controls that have materially affected or are reasonably likely to materially affect the Registrant’s internal controls over financial reporting.

PART II – OTHER INFORMATION

ITEM 6.

EXHIBITS

Exhibit No. Description

31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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: July 27, 2011	By:	/s/ David Weiner
		David Weiner
		Chief Executive Officer

		Principal Financial & Accounting Officer
Dated: July 27, 2011	By:	/s/ John H. Zoeller
		John H. Zoeller
		Chief Financial Officer

Attached files

SB PARTNERS Reports

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