Attached files
| file | filename |
|---|---|
| EX-32.2 - SB PARTNERS 10Q 9_30_12 EX322 - SB PARTNERS | sbpartners10q93012ex322.htm |
| EX-31.1 - SB PARTNERS 10Q 9_30_12 EX311 - SB PARTNERS | sbpartners10q93012ex311.htm |
| EX-32.1 - SB PARTNERS 10Q 9_30_12 EX321 - SB PARTNERS | sbpartners10q93012ex321.htm |
| EXCEL - IDEA: XBRL DOCUMENT - SB PARTNERS | Financial_Report.xls |
| EX-31.2 - SB PARTNERS 10Q 9_30_12 EX312 - SB PARTNERS | sbpartners10q93012ex312.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 September 30, 2012
|
Or
|
[ ]
|
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 3, Suite 102A, 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). [ X ] 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 September 30, 2012 (unaudited) and December 31, 2011 (audited)
|
1
|
|
|
Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2012 and 2011
|
2
|
|
|
Consolidated Statements of Changes in Partners' Deficit (unaudited) for the nine months ended September 30, 2012
|
3
|
|
|
Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2012 and 2011
|
4
|
|
|
Notes to Consolidated Financial Statements (unaudited)
|
5 – 7
|
|
|
Item 2
|
Management's Discussion and Analysis of Financial Condition and Results of Operations
|
8 – 10
|
|
Item 3
|
Quantitative and Qualitative Disclosures about Market Risk
|
11
|
|
Item 4T
|
Controls and Procedures
|
11
|
|
Part II
|
Other Information
|
11
|
|
Signatures
|
12
|
|
|
Exhibit 31
|
13-14
|
|
|
Exhibit 32
|
15
|
1
ITEM 1. FINANCIAL STATEMENTS
|
September 30,
|
December 31,
|
|||||||||
|
2012
|
2011
|
|||||||||
|
(Unaudited)
|
(Audited)
|
|||||||||
|
Assets:
|
||||||||||
|
Investments -
|
||||||||||
|
Real estate, at cost
|
||||||||||
|
Land
|
$ | 1,985,000 | $ | 1,985,000 | ||||||
|
Buildings, furnishings and improvements
|
18,581,164 | 18,581,164 | ||||||||
|
Less - accumulated depreciation
|
(3,808,245 | ) | (3,437,522 | ) | ||||||
| 16,757,919 | 17,128,642 | |||||||||
|
Investment in Sentinel Omaha, LLC, net of reserve
|
||||||||||
|
for fair value of $0 and $3,346,444 at
|
||||||||||
|
September 30, 2012 and December 31, 2011, respectively
|
- | - | ||||||||
| 16,757,919 | 17,128,642 | |||||||||
|
Other Assets -
|
||||||||||
|
Cash and cash equivalents
|
281,898 | 313,717 | ||||||||
|
Cash in escrow
|
500,034 | 500,034 | ||||||||
|
Other
|
212,712 | 259,405 | ||||||||
|
Total assets
|
$ | 17,752,563 | $ | 18,201,798 | ||||||
|
Liabilities:
|
||||||||||
|
Mortgage note and unsecured loan payable
|
$ | 19,983,464 | $ | 20,069,570 | ||||||
|
Accounts payable
|
172,989 | 251,024 | ||||||||
|
Tenant security deposits
|
109,627 | 109,627 | ||||||||
|
Accrued expenses
|
1,037,767 | 462,959 | ||||||||
|
|
Total liabilities
|
21,303,847 | 20,893,180 | |||||||
|
Partners' Deficit:
|
||||||||||
|
Units of partnership interest without par value;
|
||||||||||
|
Limited partner - 7,753 units
|
(3,532,390 | ) | (2,672,599 | ) | ||||||
|
General partner - 1 unit
|
(18,894 | ) | (18,783 | ) | ||||||
|
Total partners' deficit
|
(3,551,284 | ) | (2,691,382 | ) | ||||||
|
|
Total liabilities and partners' deficit
|
$ | 17,752,563 | $ | 18,201,798 | |||||
|
See notes to consolidated financial statements
|
||||||||||
2
SB PARTNERS
(A New York Limited Partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
|
For the Three Months
|
For the Nine Months
|
||||||||||||||||
|
Ended September 30,
|
Ended September 30,
|
||||||||||||||||
|
2012
|
2011
|
2012
|
2011
|
||||||||||||||
|
Revenues:
|
|||||||||||||||||
|
Base rental income
|
$ | 442,128 | $ | 437,904 | $ | 1,323,568 | $ | 1,310,997 | |||||||||
|
Other rental income
|
125,050 | 185,354 | 526,306 | 556,659 | |||||||||||||
|
Interest on short-term investments and other
|
9 | 14 | 31 | 30,109 | |||||||||||||
| Total revenues | 567,187 | 623,272 | 1,849,905 | 1,897,765 | |||||||||||||
|
Expenses:
|
|||||||||||||||||
|
Real estate operating expenses
|
118,460 | 133,768 | 338,325 | 350,917 | |||||||||||||
|
Interest on mortgage notes and unsecured loan payable
|
272,566 | 273,667 | 816,540 | 814,624 | |||||||||||||
|
Depreciation and amortization
|
137,596 | 140,392 | 412,788 | 394,383 | |||||||||||||
|
Real estate taxes
|
80,446 | 129,068 | 378,546 | 387,420 | |||||||||||||
|
Management fees
|
234,914 | 209,220 | 644,108 | 566,947 | |||||||||||||
|
Other
|
41,432 | 62,616 | 119,500 | 131,695 | |||||||||||||
|
Total expenses
|
885,414 | 948,731 | 2,709,807 | 2,645,986 | |||||||||||||
|
Loss from operations
|
(318,227 | ) | (325,459 | ) | (859,902 | ) | (748,221 | ) | |||||||||
|
Equity in net income (loss) of investment
|
(5,487,608 | ) | 213,029 | (3,346,444 | ) | 4,296,914 | |||||||||||
|
Reserve for value of investment
|
5,487,608 | (213,029 | ) | 3,346,444 | (4,296,914 | ) | |||||||||||
|
Loss from continuing operations
|
(318,227 | ) | (325,459 | ) | (859,902 | ) | (748,221 | ) | |||||||||
|
Loss from discontinued operations
|
- | - | - | (2,305 | ) | ||||||||||||
|
Net loss
|
(318,227 | ) | (325,459 | ) | (859,902 | ) | (750,526 | ) | |||||||||
|
Loss allocated to general partner
|
(41 | ) | (42 | ) | (111 | ) | (97 | ) | |||||||||
|
Loss allocated to limited partners
|
$ | (318,186 | ) | $ | (325,417 | ) | $ | (859,791 | ) | $ | (750,429 | ) | |||||
|
(Loss) earnings per unit of limited partnership interest
|
|||||||||||||||||
|
(basic and diluted)
|
|||||||||||||||||
|
Continuing operations
|
$ | (41.05 | ) | $ | (41.97 | ) | $ | (110.91 | ) | $ | (96.51 | ) | |||||
|
Discontinued operations
|
$ | - | $ | - | $ | - | $ | (0.30 | ) | ||||||||
|
Net loss
|
$ | (41.05 | ) | $ | (41.98 | ) | $ | (110.91 | ) | $ | (96.80 | ) | |||||
|
Weighted Average Number of Units of Limited
|
|||||||||||||||||
|
Partnership Interest Outstanding
|
7,753 | 7,753 | 7,753 | 7,753 | |||||||||||||
|
See notes to consolidated financial statements
|
|||||||||||||||||
3
SB PARTNERS
(A New York Limited Partnership)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
For the Nine Months Ended September 30, 2012 (Unaudited)
|
Limited Partners:
|
||||||||||||||||||||
|
Units of Partnership Interest
|
||||||||||||||||||||
|
Number
|
Amount
|
Cumulative Cash Distributions
|
Accumulated Earnings (Losses)
|
Total
|
||||||||||||||||
|
Balance, January 1, 2012
|
7,753 | $ | 119,968,973 | $ | (111,721,586 | ) | $ | (10,919,986 | ) | $ | (2,672,599 | ) | ||||||||
|
Net loss for the period
|
- | - | - | (859,791 | ) | (859,791 | ) | |||||||||||||
|
Balance, September 30, 2012
|
7,753 | $ | 119,968,973 | $ | (111,721,586 | ) | $ | (11,779,777 | ) | $ | (3,532,390 | ) | ||||||||
|
General Partner:
|
||||||||||||||||||||
|
Units of Partnership Interest
|
||||||||||||||||||||
|
Number
|
Amount
|
Cumulative Cash Distributions
|
Accumulated Earnings (Losses)
|
Total
|
||||||||||||||||
|
Balance, January 1, 2012
|
1 | $ | 10,000 | $ | (26,364 | ) | $ | (2,419 | ) | $ | (18,783 | ) | ||||||||
|
Net loss for the period
|
- | - | - | (111 | ) | (111 | ) | |||||||||||||
|
Balance, September 30, 2012
|
1 | $ | 10,000 | $ | (26,364 | ) | $ | (2,530 | ) | $ | (18,894 | ) | ||||||||
|
See notes to consolidated financial statements.
|
||||||||||||||||||||
4
SB PARTNERS
(A New York Limited Partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
|
For the Nine Months Ended September 30,
|
||||||||
|
2012
|
2011
|
|||||||
|
Cash Flows From Operating Activities:
|
||||||||
|
Net loss
|
$ | (859,902 | ) | $ | (750,526 | ) | ||
|
Adjustments to reconcile net loss to net cash
|
||||||||
|
provided by (used in) operating activities:
|
||||||||
|
Equity in net loss (income) of investment
|
3,346,444 | (4,296,914 | ) | |||||
|
Reserve for fair value of investment
|
(3,346,444 | ) | 4,296,914 | |||||
|
Depreciation and amortization
|
412,788 | 394,383 | ||||||
|
Net decrease (increase) in operating assets
|
4,628 | (122,073 | ) | |||||
|
Net (decrease) increase in accounts payable
|
(78,035 | ) | 420,760 | |||||
|
Net increase in accrued expenses
|
574,808 | - | ||||||
|
Net cash provided by (used in) operating activites
|
54,287 | (57,456 | ) | |||||
|
Cash Flows From Investing Activities:
|
||||||||
|
Payment to capital reserve escrow account
|
- | (500,000 | ) | |||||
|
Net cash used in investing activites
|
- | (500,000 | ) | |||||
|
Cash Flows From Financing Activities:
|
||||||||
|
Repayment of unsecured loan payable
|
(86,106 | ) | (11,930,430 | ) | ||||
|
Payment of deferred financing cost
|
- | (230,746 | ) | |||||
|
Net cash used in financing activities
|
(86,106 | ) | (12,161,176 | ) | ||||
|
Net change in cash and cash equivalents
|
(31,819 | ) | (12,718,632 | ) | ||||
|
Cash and cash equivalents at beginning of period
|
313,717 | 12,932,100 | ||||||
|
Cash and cash equivalents at end of period
|
$ | 281,898 | $ | 213,468 | ||||
|
Supplemental disclosure of cash flow information:
|
||||||||
|
Cash paid during the year for interest
|
$ | 588,207 | $ | 687,124 | ||||
|
See notes to consolidated financial statements
|
||||||||
5
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 month period ended September 30, 2012 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, 2011. Certain December 31, 2011 balances have been reclassified to conform to the September 30, 2012 presentation.
(2) INVESTMENTS IN REAL ESTATE
|
|
As of September 30, 2012, 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 September 30, 2012 and December 31, 2011:
|
|
No. of
|
Year of
|
Real Estate at Cost
|
||||||||
|
Type
|
Prop.
|
Acquisition
|
Description
|
9/30/2012
|
12/31/2011
|
|||||
|
Industrial flex property
|
1
|
2002
|
60,345 sf
|
$ 5,270,128
|
$ 5,270,128
|
|||||
|
Warehouse distribution properties
|
1
|
2005
|
226,000 sf
|
15,296,036
|
15,296,036
|
|||||
|
Total cost
|
20,566,164
|
20,566,164
|
||||||||
|
Less: Accumulated depreciation
|
(3,808,245)
|
(3,437,522)
|
||||||||
|
Investment in real estate
|
$ 16,757,919
|
$ 17,128,642
|
||||||||
6
(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 as of September 30, 2012 owns 20 multifamily properties in 13 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 September 30, 2012 and December 31, 2011.
|
(Unaudited)
|
(Audited)
|
|||||||
|
Balance Sheet
|
September 30, 2012
|
December 31, 2011
|
||||||
|
Investment in real estate, net
|
$ | 277,900 | $ | 321,600 | ||||
|
Other assets
|
7,874 | 17,595 | ||||||
|
Debt
|
(295,613 | ) | (320,144 | ) | ||||
|
Other liabilities
|
(5,417 | ) | (7,896 | ) | ||||
|
Member's equity (deficit)
|
$ | (15,256 | ) | $ | 11,155 | |||
|
(Unaudited)
|
||||||||
|
Statement of Operations
|
September 30, 2012
|
|||||||
|
Rent and other income
|
$ | 31,620 | ||||||
|
Real estate operating expenses
|
(16,585 | ) | ||||||
|
Other income and expenses
|
(11,338 | ) | ||||||
|
Net unrealized loss
|
(25,535 | ) | ||||||
|
Realized loss on sale of real estate property
|
(4,573 | ) | ||||||
|
Net loss
|
$ | (26,411 | ) | |||||
(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
|
September 30,
|
December 31,
|
||||||||||||||||||
|
Property
|
Rate
|
Maturity Date
|
Payments
|
at Maturity
|
2012
|
2011
|
||||||||||||||||
|
Lino Lakes
|
5.800 | % |
October, 2015
|
$ | 580,000 |
(a)
|
$ | 10,000,000 | $ | 10,000,000 | $ | 10,000,000 | ||||||||||
|
Bank Loan (b):
|
||||||||||||||||||||||
|
Note A
|
3,983,464 | 4,069,570 | ||||||||||||||||||||
|
Note B
|
6,000,000 | 6,000,000 | ||||||||||||||||||||
| $ | 19,983,464 | $ | 20,069,570 | |||||||||||||||||||
(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% and had entered into discussions as to terms for extending the debt on a longer term basis. On April 29, 2011, the Partnership and Holder executed the new loan agreement (“Loan Agreement”) on the following terms:
|
|
1)
|
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”).
|
7
|
2)
|
Note A in the amount of $3,983,464 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 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.
|
|
3)
|
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. Total deferred interest as of September 30, 2012 and December 31, 2011 is $432,500 and $204,167, respectively. Thereafter Note B does not accrue any interest. Payments of interest and principal are deferred until Registrant’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.
|
|
5)
|
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. On May 15, 2012, the Partnership paid $86,106 to the Holder to pay down a portion of the outstanding balance of Note A. The proceeds represented excess net operating income, as defined, for the year ended April 30, 2012. 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 of September 30, 2012 and December 31, 2011, $605,268 and $258,792, respectively of investment management fees have been accrued and are included in accrued expenses on the balance sheet.
|
|
7)
|
As additional security for the Partnership’s payment of its obligations under the Loan Agreement, 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 in 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.
|
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011
General
The consolidated financial statements for the three and nine months ended September 30, 2012 and 2011 reflect the operations of one industrial flex property and one warehouse distribution center as well as a 30% interest in Omaha.
Results of Operations
Total revenues from operations for the three months ended September 30, 2012 decreased $56,000 to approximately $567,000 as compared to approximately $623,000 for the three months ended September 30, 2011. Total revenues decreased due to decreases in other rental income partially offset by an increase in base rental income. Other rental income decreased $60,000 to approximately $125,000 for the three months ended September 30, 2012 as compared to the same period in 2011 due to lower net expense reimbursement from the tenants at Registrant’s two wholly owned properties. Base rental income increased $4,000 to approximately $442,000 for the three months as compared to the same period in 2011 due to a scheduled increase in base rent at Registrant’s property located in Maple Grove, MN.
Total revenues from operations for the nine months ended September 30, 2012 decreased $48,000 to approximately $1,850,000 as compared to approximately $1,898,000 for the nine months ended September 30, 2011. Total revenues decreased due to a decrease in other rental income and a decrease in interest income partially offset by an increase in base rental income. Other rental income decreased $31,000 due to lower net expense reimbursement from the tenant at Registrant’s property located in Maple Grove, MM. Interest income decreased due to a decrease in Registrant’s cash reserves. Base rental income increased $13,000 due to a scheduled increase in base rent at Registrant’s property located in Maple Grove, MN.
Net loss from continuing operations decreased $7,000 to approximately $318,000 for the three months ended September 30, 2012, as compared to an approximate loss of $325,000 for the three months ended September 30, 2011 due to a decrease in operating expenses partially offset by a decrease in revenues. Total expenses from continuing operations for the three months ended September 30, 2012, decreased $64,000 to approximately $885,000 from approximately $949,000 for the three months ended September 30, 2011. Total operating expenses decreased due to lower real estate taxes, professional fees and real estate operating expenses. Real estate taxes were lower due to a lower assessment at Registrant’s property located in Lino Lakes, MN. Professional fees were lower due to lower audit fees. Real estate operating expenses decreased due to lower repairs and maintenance expenses at Registrant’s property located in Maple Grove.
Net loss from continuing operations increased $112,000 to approximately $860,000 for the nine months ended September 30, 2012, as compared to an approximate loss of $748,000 for the nine months ended September 30, 2011 due to an increase in operating expenses combined with a decrease in revenues. Total expenses from continuing operations increased $64,000 to approximately $2,710,000 as compared to the same period in 2011. Total operating expenses increased due to higher investment management fees and amortization expense. Investment management fees were higher due to the higher fee rate applied to the cash reserves after the reserves were reinvested when they were used to pay down the unsecured credit facility in 2011. Amortization expense increased due to an increase in deferred finance costs related to the new loan agreement.
The Registrant has a 30% non-controlling interest in Omaha that is accounted for at fair value. The stagnant national economy had a negative effect on rental apartment operations during 2009 and early 2010. During the latter half of 2010 and 2011, most of Omaha’s markets reported improved although slow job growth and lower unemployment. 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, 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 exit fees are to be paid on a portion of any remaining balance of the unsecured loan. On May 11, 2012, the holder of the unsecured loan extended the maturity date to May 31, 2013. However, Omaha remains precluded from making distributions to its investors until its unsecured loan is paid in full. In addition, Omaha has certain mortgage maturities due in the next 12 months which are secured by certain of Omaha’s properties. If Omaha does not have funds sufficient to repay these mortgages at maturity, Omaha may need to refinance such indebtedness with new debt financing. Omaha may be unable to obtain loans sufficient to retire the existing loans. If it is unable to refinance these mortgages on acceptable terms, Omaha may be forced to dispose of properties upon disadvantageous terms. If prevailing interest rates are higher at a time when Omaha must refinance its indebtedness, Omaha's interest expense could increase. Omaha considered these factors when it reviewed the fair value of its portfolio and reduced the equity value dramatically during the quarter ended September 30, 2012. 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 its balance sheet. For the nine months ended September 30, 2012, Registrant’s loss in equity from its investment in Omaha, including $7,660,400 of net unrealized loss, was $7,923,969. The loss in equity for the quarter ended September 30, 2012 brought the Registrant’s value in its investment to below zero. The reserve for value was adjusted in conjunction with recording the loss from equity for the quarter ended September 30, 2012 but only to the extent that the investment was reduced to zero. Registrant reported a net zero income from equity in investment in Omaha for the quarter ended September 30, 2012.
For additional analysis, please refer to the discussions of the individual properties below.
9
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, 2011. There were no significant changes to such policies in 2012. There are no accounting pronouncements or interpretations that have been issued, but not yet adopted, that Registrant believes will have a material impact on its consolidated financial statements.
Liquidity and Capital Resources
As of September 30, 2012, the Registrant had cash and cash equivalents of approximately $282,000. These balances are approximately $32,000 lower than cash and cash equivalents held on December 31, 2011. Cash and cash equivalents decreased during the nine months ended September 30, 2012 due to the payment made to the Holder of the unsecured loan to partially pay down Note A partially offset by cash flow generated from operating activities at Registrant’s two wholly owned properties.
Total outstanding debt at September 30, 2012 consisted of $10,000,000 of a long-term non-recourse first mortgage note secured by real estate owned by the Registrant due in October 2015 and $9,983,464 under a loan agreement with a bank. The loan agreement consists of Note A in the amount of $3,983,464 which matures July 2014 and Note B in the amount of $6,000,000 which matures April 2018. In accordance with the terms of the new Loan Agreement interest on Note B is deferred until Registrant’s investment in Omaha pays distributions. Total deferred interest as of September 30, 2012 and December 31, 2011 is $432,500 and $204,167, respectively, and is included in accrued expenses on the balance sheet. Also, a portion of the investment management fee payable by Registrant to its general partner is deferred so long as the Notes remain outstanding. As of September 30, 2012, $605,268 of investment management fees have been accrued and are included in accrued expenses on the balance sheet. The Registrant has no other debt except normal trade accounts payable.
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. Some borrowers still find it difficult to secure debt at acceptable terms as lenders have imposed stricter terms on borrowers.
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. Cash in escrow on the balance sheet in the amount of $500,034 represents cash held by the Holder to pay for leasing costs and tenant improvement costs at Registrant’s two wholly owned properties. The funds are only to be used to procure a new tenant if one of the existing tenants vacates the property through either expiration of the existing lease or default.
Eagle Lake Business Center IV (Maple Grove, Minnesota)
Total revenues for the three months ended September 30, 2012 decreased $12,000 to approximately $215,000 from approximately $227,000 for the three months ended September 30, 2011 due to lower other rental income partially offset by higher base rental income. Base rental income was higher in 2012 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, increased $5,000 for the three months ended September 30, 2012 to approximately $117,000 from approximately $112,000 for the same period in 2011 due primarily to lower operating expenses partially offset by lower total revenues. Operating expenses were lower due to lower real estate taxes and repairs and maintenance costs.
Total revenues for the nine months ended September 30, 2012 decreased $21,000 to approximately $658,000 from approximately $679,000 for the nine months ended September 30, 2011 due to lower other rental income partially offset by higher base rental income. Base rental income was higher in 2012 as the tenant received a scheduled rent increase. Other rental income was lower due to a decrease in operating expense reimbursements from the tenant. Net income, which includes deductions for depreciation, increased $23,000 for the nine months ended September 30, 2012 to approximately $344,000 from approximately $321,000 for the same period in 2011 due primarily to lower operating expenses partially offset by lower total revenues. Operating expenses were lower due to lower real estate taxes and lower repairs and maintenance expenses.
435 Park Court (Lino Lakes, Minnesota)
Total revenues for the three months ended September 30, 2012 decreased $43,000 to approximately $352,000 as compared to approximately $395,000 for the three months ended September 30, 2011. 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, decreased $3,000 for the three months ended September 30, 2012 to approximately $39,000 as compared to approximately $42,000 for the three months ended September 30, 2011. Net income decreased primarily due to lower total revenues partially offset by lower total operating expenses. Operating expense decreased due to lower real estate taxes.
10
Total revenues for the nine months ended September 30, 2012 increased $6,000 to approximately $1,192,000 as compared to approximately $1,186,000 for the nine months ended September 30, 2011. Total revenues were higher due to higher real estate tax expense reimbursement from the tenant. Net income, which includes deductions for interest expense and depreciation, decreased $7,000 for the nine months ended September 30, 2012 to approximately $129,000 as compared to approximately $136,000 for the nine months ended September 30, 2011. Net income decreased primarily due to higher operating expenses partially offset by higher total revenues. Operating expense increased due to higher real estate taxes, insurance and project administration costs.
Investment in Sentinel Omaha, LLC
During 2007, the Registrant acquired a 30% interest in Sentinel Omaha, LLC for $37,200,000. During the nine months ended September 30, 2012, Omaha sold one multifamily property located in Tampa, FL to further reduce its debt obligations. As of September 30, 2012, the Omaha portfolio consisted of 20 multi-family properties located in 13 markets.
Comparison of three months ended September 30, 2012 to September 30, 2011:
Total revenues for the three months ended September 30, 2012 were approximately $10,456,000. Income before net unrealized loss and realized loss on sale of real estate property was approximately $1,270,000. Major expenses included approximately $3,573,000 for interest expense, $1,130,000 for repairs and maintenance, $1,365,000 for payroll and $1,034,000 for real estate taxes. Revenues and operating expenses decreased from 2011 to 2012 primarily due to the sales by Omaha of two apartment properties in December 2011 and one in April 2012. Omaha reported net unrealized loss of approximately $34,817,000 for the three months ended September 30, 2012. For the three months ended September 30, 2012, the Registrant’s equity interest in the net loss of Omaha was approximately $10,064,000. The loss in equity for the quarter ended September 30, 2012 brought the Registrant’s value in its investment to below zero. 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 loss from equity for the quarter ended September 30, 2012 but only to the extent that the investment was reduced to zero. Registrant reported a net zero loss from equity in investment in Omaha for the quarter ended September 30, 2012.
Total revenues for the three months ended September 30, 2011 were approximately $11,662,000. Net investment income before deductions for net unrealized loss was approximately $1,131,000. Major expenses included approximately $3,952,000 for interest expense, $1,294,000 for repairs and maintenance, $1,754,000 for payroll and $1,125,000 for real estate taxes. Omaha reported a net unrealized loss of approximately $421,000 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 September 30, 2011, the Registrant’s equity interest in the income of Omaha was approximately $213,000.
Comparison of nine months ended September 30, 2012 to September 30, 2011:
Total revenues for the nine months ended September 30, 2012 were approximately $31,620,000. Income before net unrealized loss and realized loss on sale of real estate property was $3,697,000. Major expenses included approximately $10,991,000 for interest expense, $2,981,000 for repairs and maintenance, $4,568,000 for payroll and $3,220,000 for real estate taxes. Omaha reported a realized loss from the sale of one apartment property of $4,573,000. Omaha reported net unrealized loss of approximately $25,535,000. For the nine months ended September 30, 2012, the Registrant’s equity interest in the net loss of Omaha was approximately $7,923,000. 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 loss from equity for the quarter ended September 30, 2012 but only to the extent that the investment was reduced to zero. Registrant reported a net zero loss from equity in investment in Omaha for the nine months ended September 30, 2012.
Total revenues for the nine months ended September 30, 2011 were approximately $34,323,000. Income before deductions for realized and unrealized income was approximately $2,988,000. Major expenses included approximately $11,818,000 for interest expense, $3,535,000 for repairs and maintenance, $4,989,000 for payroll and $3,520,000 for real estate taxes. Revenues and operating expenses decreased from 2011 to 2012 primarily due to the sales by Omaha of two apartment properties in December 2011 and one in April 2012. 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 $13,819,000 from the valuation of its real estate properties, its mortgage notes and bonds and its interest rate cap and swap agreements. For the nine months ended September 30, 2011, the Registrant’s equity interest in the income of Omaha was approximately $4,297,000.
11
ITEM 3.
None
ITEM 4.
CONTROLS AND PROCEDURES
|
|
(a)
|
The Chief Executive Officer and the Principal Accounting & 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 September 30, 2012 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 September 30, 2012 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
12
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 13, 2012
|
By:
|
/s/ David Weiner
|
|
David Weiner
|
||
|
Chief Executive Officer
|
||
|
Principal Financial & Accounting Officer
|
||
|
Dated: November 13, 2012
|
By:
|
/s/ John H. Zoeller
|
|
John H. Zoeller
|
||
|
Chief Financial Officer
|
||