Company Quick10K Filing
Quick10K
SB Partners
10-Q 2019-09-30 Quarter: 2019-09-30
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2018-10-04 Enter Agreement, Off-BS Arrangement, Exhibits
SYNT Syntel 3,176
BVX Bovie Medical 176
TTCM Tautachrome 34
PTRC Petro River Oil 26
ZMTP Zoom Telephonics 19
BSPRT Benefit Street Partners Realty Trust 0
GRAS Greenfield Farms Food 0
TMCC Toyota Motor Credit 0
DDDR DD's Deluxe Rod Holder 0
MTII Monitronics International 0
SBP 2019-09-30
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis Of Financial Condition and Results of Operations For The Three and Nine Months Ended September 30, 2019 and 2018
Item 3.
Item 4.
Part II - Other Information
Item 6.
EX-31.1 ex_163283.htm
EX-31.2 ex_163284.htm
EX-32.1 ex_163285.htm
EX-32.2 ex_163286.htm

SB Partners Earnings 2019-09-30

SBP 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 sbp20190930_10q.htm FORM 10-Q sbp20190930_10q.htm
 

 

Table of Contents

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)

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2019

 

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, 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 every Interactive Data File required to be submitted 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 such files). [ X ] Yes [ ] No

 

 

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

[ ] large accelerated filer     [ ] accelerated filer [X] non-accelerated filer     [ ] small reporting company [ ] emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act [ ]

 

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, 2019 (unaudited) and December 31, 2018 (audited)

1

     
 

Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2019 and 2018

2

     
 

Consolidated Statements of Changes in Partners' Equity (Deficit) (unaudited) for the nine months ended September 30, 2019 

3

     
 

Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2019 and 2018

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 3

Quantitative and Qualitative Disclosures about Market Risk

12

     

Item 4T

Controls and Procedures

12

     
     

Part II

Other Information

12

     
 

Signatures

13

     
 

Exhibit 31

 

     
     

 

Exhibit 32

 

 

 

 

1

 

ITEM 1. FINANCIAL STATEMENTS

 

 

SB PARTNERS

(A New York Limited Partnership)

 

CONSOLIDATED BALANCE SHEETS

 

   

September 30,

   

December 31,

 
   

2019 (Unaudited)

   

2018 (Audited)

 
                 

Assets:

               

Investments -

               

Real estate, at cost

               

Land

  $ 470,000     $ 470,000  

Buildings, furnishings and improvements

    5,638,551       5,239,859  

Less - accumulated depreciation

    (2,356,815 )     (2,249,190 )
      3,751,736       3,460,669  
                 

Investment in Sentinel Omaha, LLC, net of reserve for fair value of $9,558,611 and $10,709,724 at September 30, 2019 and December 31, 2018, respectively

    38,234,422       42,838,890  
      41,986,158       46,299,559  
                 

Other Assets -

               

Cash and cash equivalents

    1,053,706       338,239  

Other

    38,808       7,789  
                 

Total assets

  $ 43,078,672     $ 46,645,587  
                 

Liabilities:

               

Accounts payable

  $ 132,312     $ 561,800  

Tenant security deposit

    105,611       104,212  

Accrued expenses

    12,344       3,408,317  
                 

Total liabilities

    250,267       4,074,329  
                 

Partners' Equity (Deficit):

               

Units of partnership interest without par value;

               

Limited partner - 7,753 units

    42,841,317       42,584,203  

General partner - 1 unit

    (12,912 )     (12,945 )
                 

Total partners' equity

    42,828,405       42,571,258  
                 

Total liabilities and partners' equity

  $ 43,078,672     $ 46,645,587  

 

See notes to consolidated financial statements

 

 

2

 

 

SB PARTNERS

(A New York Limited Partnership)

 

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

   

For the Three Months Ended September 30,

   

For the Nine Months Ended September 30,

 
   

2019

   

2018

   

2019

   

2018

 

Revenues:

                               

Base rental income

  $ 189,785     $ 187,924     $ 569,355     $ 556,330  

Other rental income

    88,532       87,041       265,596       261,123  

Interest income

    1,452       5,825       2,167       14,187  
                                 

Total revenues

    279,769       280,790       837,118       831,640  
                                 

Expenses:

                               

Real estate operating expenses

    73,742       66,265       225,393       206,058  

Amortization of deferred financing costs

    -       -       -       7,280  

Depreciation

    35,875       39,765       107,625       119,295  

Real estate taxes

    32,873       30,467       97,597       91,401  

Management fees

    252,343       228,463       755,343       683,530  

Other

    26,621       32,320       88,145       93,529  
                                 

Total expenses

    421,454       397,280       1,274,103       1,201,093  
                                 

Loss from operations

    (141,685 )     (116,490 )     (436,985 )     (369,453 )
                                 

Equity in net income of investment

    1,439,584       1,899,156       2,644,419       4,126,946  
                                 

Decrease (increase) in reserve for value of investment

    (287,916 )     (379,831 )     1,151,113       1,679,933  
                                 

Net income

    1,009,983       1,402,835       3,358,547       5,437,426  
                                 

Income allocated to general partner

    130       181       433       701  
                                 

Income allocated to limited partners

  $ 1,009,853     $ 1,402,654     $ 3,358,114     $ 5,436,725  
                                 

Income per unit of limited partnership interest (basic and diluted)

                               
                                 

Net income

  $ 130.27     $ 180.94     $ 433.19     $ 701.33  
                                 

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' EQUITY (DEFICIT) (UNAUDITED)

 

For the Nine Months Ended September 30, 2019

 

 

Limited Partners:

                                       
   

Units of Partnership Interest

                         
                                         
   

Number

   

Amount

   

Cumulative Cash

Distributions

   

Accumulated

Income

   

Total

 
                                         

Balance, January 1, 2019

    7,753     $ 119,968,973     $ (111,721,586 )   $ 34,336,816     $ 42,584,203  

Net income for the period

    -       -       -       3,358,114       3,358,114  

Distribution paid

    -       -       (3,101,000 )     -       (3,101,000 )
                                         

Balance, September 30, 2019

    7,753     $ 119,968,973     $ (114,822,586 )   $ 37,694,930     $ 42,841,317  

 

 

 

 

 

General Partner:

                                       
   

Units of Partnership Interest

                         
                                         
   

Number

   

Amount

   

Cumulative Cash

Distributions

   

Accumulated

Income

   

Total

 
                                         

Balance, January 1, 2019

    1     $ 10,000     $ (26,364 )   $ 3,419     $ (12,945 )

Net income for the period

    -       -       -       433       433  

Distribution paid

    -       -       (400 )     -       (400 )
                                         

Balance, September 30, 2019

    1     $ 10,000     $ (26,764 )   $ 3,852     $ (12,912 )

 

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,

 
   

2019

   

2018

 
                 

Cash Flows From Operating Activities:

               

Net income

  $ 3,358,547     $ 5,437,426  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Equity in net (income) of investment

    (2,644,419 )     (4,126,946 )

(Decrease) in reserve for value of investment

    (1,151,113 )     (1,679,932 )

Depreciation and amortization

    107,625       126,574  

Net decrease in operating assets

    (31,019 )     (30,005 )

Net (decrease) in accounts payable

    (429,488 )     (1,994 )

Net increase in tenant security deposit

    1,399       1,399  

Net (decrease) increase in accrued expenses

    (3,395,973 )     363,849  

Distributions from investment in Sentinel Omaha, LLC

    8,400,000       -  
                 

Net cash provided by operating activities

    4,215,559       90,371  
                 

Cash Flows From Investing Activities:

               

Capital additions to real estate owned

    (398,692 )     (158,494 )
                 

Net cash used in investing activities

    (398,692 )     (158,494 )
                 

Cash Flows From Financing Activities:

               

Distribution paid to partners

    (3,101,400 )     -  

Repayment of loan payable

    -       (32,714 )
                 

Net cash used in financing activities

    (3,101,400 )     (32,714 )
                 

Net change in cash and cash equivalents and cash in escrow

    715,467       (100,837 )
                 

Cash and cash equivalents and cash in escrow at beginning of period

    338,239       1,954,705  
                 

Cash and cash equivalents and cash in escrow at end of period

  $ 1,053,706     $ 1,853,868  

 

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 nine month period ended September 30, 2019 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, 2018.

 

 

(2) INVESTMENTS IN REAL ESTATE

 

As of September 30, 2019, the Partnership owns an industrial flex property in Maple Grove, Minnesota. The following is the cost basis and accumulated depreciation of the real estate investment owned by the Partnership at September 30, 2019 and December 31, 2018.

 

   

No. of

   

Year of

     

Real Estate at Cost

 

Type

 

Prop.

   

Acquisition

 

Description

 

9/30/2019

   

12/31/2018

 
                                   

Industrial flex property

    1       2002  

60,345 sf

  $ 6,108,551     $ 5,709,859  
                                   

Less: Accumulated depreciation

                      (2,356,815 )     (2,249,190 )
                                   

Investment in real estate

                    $ 3,751,736     $ 3,460,669  

 

The Partnership’s wholly owned property located in Maple Grove, Minnesota is 100% leased to a single tenant to October 31, 2024. The tenant pays fixed base rent which increases approximately 3% each year. The tenant pays directly or reimburses the Partnership for all utilities, real estate taxes, insurance and most of the property operating expenses and property management fees.

 

 

(3) ASSETS MEASURED AT FAIR VALUE

 

The accounting guidance for Fair Value Measurements establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in determining fair value. The hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level of input that is significant to the fair value measurement.

 

 

6

 

Fair value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value is calculated based on the assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity.

 

The three levels of fair value hierarchy are described below:

 

 

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities;

 

 

Level 2 - Quoted prices in active markets for similar assets and liabilities or quoted prices in less active dealer or broker markets;

 

 

Level 3 - Prices or valuations that require inputs that are both significant to the fair value measurement and are unobservable.

 

The following major categories of assets were measured at fair value as of September 30, 2019 and December 31, 2018:

 

   

Level 3:

   

September 30,

 
   

Significant

   

2019

 
   

Unobservable

   

(Unaudited)

 
   

Inputs

   

Total

 
                 

Assets

               

Investment in Sentinel Omaha, LLC ("Omaha")

  $ 47,793,033     $ 47,793,033  

Reserve for fair value of investment

    (9,558,611 )     (9,558,611 )
                 

Total assets

  $ 38,234,422     $ 38,234,422  

 

   

Level 3:

   

December 31,

 
   

Significant

   

2018

 
   

Unobservable

   

(Audited)

 
   

Inputs

   

Total

 
                 

Assets

               

Investment in Sentinel Omaha, LLC

  $ 53,548,614     $ 53,548,614  

Reserve for fair value of investment

    (10,709,724 )     (10,709,724 )
                 

Total assets

  $ 42,838,890     $ 42,838,890  

 

 

The following is a reconciliation of the beginning and ending balances for assets measured at fair value using significant unobservable inputs (Level 3) during the periods ended September 30, 2019 and December 31, 2018:

 

   

Investment in

   

Reserve for

         
   

Sentinel

   

fair value

         
   

Omaha, LLC

   

of investment

   

Total

 
                         

Balance at January 1, 2018

  $ 50,106,432     $ (12,526,608 )   $ 37,579,824  

Equity in net income of investment

    5,842,182       -       5,842,182  

Distribution from investment

    (2,400,000 )     -       (2,400,000 )

Decrease in reserve

    -       1,816,884       1,816,884  

Balance at December 31, 2018

    53,548,614       (10,709,724 )     42,838,890  

Equity in net income of investment

    2,644,419       -       2,644,419  

Distribution from investment

    (8,400,000 )             (8,400,000 )

Decrease in reserve

    -       1,151,113       1,151,113  

Balance at September 30, 2019

  $ 47,793,033     $ (9,558,611 )   $ 38,234,422  

 

 

7

 

 

(4) 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, 2019 owns six multifamily properties in three markets. Omaha is an affiliate of the Partnership’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 September 30, 2019 and December 31, 2018 and the nine months ended September 30, 2019 and 2018.

 

   

(Unaudited)

   

(Audited)

 

Balance Sheet

 

September 30, 2019

   

December 31, 2018

 
                 

Investment in real estate, net

  $ 218,800     $ 290,500  

Other assets

    17,482       13,960  

Debt

    (74,023 )     (121,481 )

Other liabilities

    (2,948 )     (4,484 )

Members equity

  $ 159,311     $ 178,495  

 

   

(Unaudited)

   

(Unaudited)

 

Statement of Operations

 

September 30, 2019

   

September 30, 2018

 
                 

Rent and other income

  $ 20,333     $ 25,739  

Real estate operating expenses

    (9,898 )     (12,724 )

Other expenses

    (2,726 )     (4,036 )

Net realized gains

    13,635       9,940  

Net unrealized (losses)

    (12,528 )     (5,162 )
                 

Net increase in net assets

  $ 8,816     $ 13,757  

 

 

During the first quarter of 2018, Omaha sold its garden apartment property in Asheville, North Carolina and its garden apartment property in Fresno, California. Net sales proceeds were used first to paying selling expenses and to pay off the mortgage securing each property. Remaining proceeds were used to fully retire the remaining balance of Omaha’s unsecured loan. Omaha was precluded from making distributions to its investors until its unsecured loan was paid in full. On October 16, 2018, following the retirement of the unsecured loan, Sentinel Omaha paid a distribution to the Partnership in the amount of $2,400,000. The Partnership used these funds to retire the Partnership’s unsecured loan at a discount. During the first nine months of 2019, Omaha sold its garden apartment property located in Independence, Missouri and its garden apartment property located in Columbus, Ohio. Net sales proceeds in each transaction were used to first pay selling expenses and retire each property’s related secured mortgage loan. Remaining net sales proceeds were used to retire Omaha’s secured mortgage loan encumbering its garden apartment property located in Charleston, South Carolina to further pay down Omaha’s debt. During 2019, Omaha paid two distributions to its investors including an aggregate of $8,400,000 to the Partnership.

 

 

(5) ACCRUED EXPENSES

 

The Partnership, its general partner and the holder of the unsecured loan had 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 unsecured loan remained outstanding. On October 4, 2018, the Partnership retired the unsecured loan. During the quarter ending June 30, 2019, Omaha paid distributions to the Partnership. A portion of the distributions was used to pay down the accrued expenses. As of September 30, 2019 and December 31, 2018, $12,344 and $3,408,317, respectively of investment management fees have been accrued and are included in accrued expenses on the balance sheet.

 

 

(6) DISTRIBUTION TO PARTNERS

 

On April 16, 2019, the general partner declared a distribution of $400 per full unit for all partners holding units or participations on May 31, 2019. The distribution totaling $3,101,400 was paid on June 4, 2019.

 

 

8

 

 
ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

 

                              

General

 

The consolidated financial statements for the three and nine months ended September 30, 2019 and 2018 reflect the operation of one wholly owned industrial flex property located in Maple Grove, Minnesota and a 30% interest in Omaha.

 

Registrant’s wholly owned property located in Maple Grove, Minnesota is 100% leased to a single tenant to October 31, 2024. The tenant pays fixed base rent which increases approximately 3% each year. The tenant pays directly or reimburses Registrant for all utilities, real estate taxes, insurance and most of the property operating expenses and property management fees.

 

Omaha’s portfolio as of January 1, 2019 consisted of eight garden apartment properties located in five markets. Leases generally are for one year or less. Tenants generally pay fixed rent plus utilities used by tenant. On April 6, 2019, Omaha sold its garden apartment property in Independence, Missouri. Net sales proceeds were used to first pay selling expenses and retire the property’s related secured mortgage loan. On May 6, 2019, Omaha sold its garden apartment property in Columbus, Ohio. Net sales proceeds were used to pay selling expenses and were used to retire Omaha’s secured mortgage loan encumbering its garden apartment property located in Charleston, South Carolina to further pay down Omaha’s debt.

 

Results of Operations

 

Total revenues from continuing operations for the three months ended September 30, 2019 decreased $1,000 to approximately $280,000 as compared to approximately $281,000 for the three months ended September 30, 2018. Total revenues decreased due to a decrease in interest income partially offset by an increase in base rental income and other income. Interest income decreased due to a decrease in cash reserves. Base rental income increased $2,000 to approximately $190,000 for the three months ended September 30, 2019 as compared to the same period in 2018 due to a scheduled increase in base rent at Registrant’s property located in Maple Grove, MN. Other income increased due to an increase in real estate taxes charged back to the tenant.

 

The Registrant reported a net loss from operations of approximately $142,000 for the three months ended September 30, 2019, an increase of $26,000 as compared to a net loss from operations of approximately $116,000 for the same period in 2018. Net loss from operations consists of net income from the Maple Grove property offset by partnership income and expenses. The increase of loss from operations was primarily due to higher total expenses. Total expenses from operations for 2019 increased $24,000 to approximately $421,000 from approximately $397,000 in 2018, due primarily to an increase in management fee expense of $24,000 and an increase in repairs and maintenance expense of $12,000. This was partially offset by a decrease in administration expense of $6,000 and a decrease in professional fees expense of $6,000.

 

Total revenues from continuing operations for the nine months ended September 30, 2019 increased $5,000 to approximately $837,000 as compared to approximately $832,000 for the nine months ended September 30, 2018. Total revenues increased due to an increase in base rental income and other income. Base rental income increased $13,000 to approximately $569,000 for the nine months ended September 30, 2019 as compared to the same period in 2018 due to a scheduled increase in base rent at Registrant’s property located in Maple Grove, MN. Other income increased due to an increase in real estate taxes charged back to the tenant. Interest income decreased due to a decrease in cash reserves.

 

The Registrant reported a net loss from operations of approximately $437,000 for the nine months ended September 30, 2019, an increase of $68,000 as compared to a net loss from operations of approximately $369,000 for the same period in 2018. Net loss from operations consists of net income from the Maple Grove property offset by partnership income and expenses. The increase of loss from operations was due to higher total expenses partially offset by higher total revenue. Total expenses from operations for 2019 increased $73,000 to approximately $1,274,000 from approximately $1,201,000 in 2018, due primarily to an increase in management fee expense of $72,000, an increase in repairs and maintenance expenses of $7,000 and an increase in administration costs of $12,000. This increase was partially offset by a decrease in professional fee expense of $5,000, a decrease in depreciation expense of $12,000 and a decrease in amortization cost of $7,000.

 

 

9

 

The Registrant has a 30% non-controlling interest in Omaha that is accounted for on a fair value basis. Net increase in net assets decreased $4,941,000 to approximately $8,816,000 for the nine months ended September 30, 2019 compared to net increase in net assets of approximately $13,757,000 for the same period in 2018. During 2018, Omaha sold its garden apartment property located in Asheville, North Carolina, its garden apartment property located in Fresno, California and its high rise apartment property located in Omaha, Nebraska. Net sales proceeds in each transaction were used to first pay selling expenses and retire each property’s related secured mortgage loan. Remaining net sales proceeds were used to retire Omaha’s unsecured loan and were used to retire Omaha’s secured mortgage loan encumbering its garden apartment property located in Columbus, Ohio to further pay down Omaha’s debt. Retirement of the unsecured loan removed certain restrictions placed on Omaha by the lender including making distributions to its members including Registrant. During the first nine months of 2019, Omaha sold its garden apartment property located in Independence, Missouri and its garden apartment property located in Columbus, Ohio. Net sales proceeds in each transaction were used to first pay selling expenses and retire each property’s related secured mortgage loan. Remaining net sales proceeds were used to retire Omaha’s secured mortgage loan encumbering its garden apartment property located in Charleston, South Carolina to further pay down Omaha’s debt. During the nine months ended September 30, 2019, Omaha reported a net decrease in the value of its remaining real estate portfolio of $2,600,000.

 

During 2018, the variable interest rates on Omaha loans increased as short term LIBOR rates increased. The one month LIBOR rate increased from an average of (1.4925%) during December 2017 to an average of (2.4582%) during December 2018. The one month LIBOR rate decreased to an average of (2.0432%) during September 2019. Fixed mortgage interest rates for multi-family properties of similar class and location as Omaha’s portfolio also increased during 2018 from an approximate range of 4.35% to 4.50% near the end of 2017 to 5.05% to 5.10% near the end of 2018. Fixed mortgage interest rates have decreased during 2019 to an average of 3.90% to 3.97% in September 2019. Although changes in fixed mortgage rates do not impact the operating cash flow of the Omaha properties directly, increases in fixed and floating rates on commercial mortgage debt can have a negative impact on capitalization rates and the sales prices Sentinel Omaha may achieve in the future.

 

The investment in a 30% non-controlling interest is valued at a discount due to the lack of liquidity and ownership of a non-controlling (minority) interest. Registrant has reported a reserve on the value of Omaha on its books of 20% since September 30, 2018.

 

On April 11, 2019, Sentinel Omaha paid a distribution to Registrant in the amount of $5,100,000. On April 16, 2019, the general

partner declared a distribution of $400 per full unit for all partners holding units or participations on May 31, 2019. The distribution was paid on September 4, 2019. On May 31, 2019, Sentinel Omaha paid a distribution to Registrant in the amount of $3,300,000. The distribution was used to pay accrued investment management fees and accrued expenses and to increase cash reserves of the Registrant.

 

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, 2018. There were no significant changes to such policies in 2019. 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, 2019, the Registrant had cash and cash equivalents of approximately $1,054,000. These balances are approximately $716,000 higher than cash and cash equivalents held on December 31, 2018. Cash and cash equivalents increased during the nine months ended September 30, 2019 due to distributions received from Omaha combined with cash flow generated from operating activities at Registrant’s wholly owned property. This increase was partially offset by a distribution paid to the partners and payments of accrued investment management fees and accrued expenses, payments to replace the roof at Registrant’s wholly owned property as well as partnership expenses paid.

 

Currently, Registrant’s only consistent source of cash is rental income received from the tenant that leases 100% of the leasable space at Registrant’s wholly owned property in Maple Grove. The tenant reimburses Registrant for real estate taxes, insurance and most of the properties’ operating expenses leaving a significant portion of the base rent received available to fund capital improvements and partnership administrative expenses.

 

 

10

Registrant pays the General Partner and an affiliate of the General Partner fees for services performed. A portion of the fees during 2011 to 2018 were accrued while Registrant’s unsecured loan was outstanding. Since the unsecured loan has been retired, Registrant was allowed to pay the accrued fees and current fees. On April 11, 2019, Sentinel Omaha paid a distribution to Registrant in the amount of $5,100,000. On April 16, 2019, the general partner declared a distribution of $400 per full unit for all partners holding units or participations on May 31, 2019. The distribution was paid on June 4, 2019. On May 31, 2019, Sentinel Omaha paid a distribution to Registrant in the amount of $3,300,000. The distribution was used to pay accrued investment management fees and accrued expenses and to increase cash reserves of the Registrant. Registrant anticipates cash flow generated from the property located in Maple Grove and current cash reserves will be sufficient to pay ongoing operating and capital improvement costs, other working capital requirements of the Registrant and current fees due to the General Partner and its affiliate. The Registrant has no debt except normal trade accounts payable and accrued investment management fees.

 

During the quarter, inflation and changing prices did not significantly affect the markets in which the Registrant conducts its business, or the Registrant's business overall.

 

Eagle Lake Business Center IV (Maple Grove, Minnesota)

 

Total revenues for the three months ended September 30, 2019 increased $3,000 to approximately $278,000 as compared to approximately $275,000 for the three months ended September 30, 2018. The property reported higher base rental income and higher other rental income. Base rental income was higher in 2019 due to a scheduled increase in the base rent. Other income increased due to an increase in real estate taxes charged back to the tenant. Net operating income, which includes deductions for depreciation, decreased $6,000 for the three months ended September 30, 2019 to approximately $167,000 from approximately $173,000 for the three months ended September 30, 2018 due primarily to higher operating expenses partially offset by higher total revenues. Operating expenses were higher due to higher repairs and maintenance expense and real estate tax expense.

 

Total revenues for the nine months ended September 30, 2019 increased $18,000 to approximately $835,000 as compared to approximately $817,000 for the nine months ended September 30, 2018. The property reported higher base rental income and higher other rental income. Base rental income was higher in 2019 due to a scheduled increase in the base rent. Other income increased due to an increase in real estate taxes charged back to the tenant. Net operating income, which includes deductions for depreciation, increased $17,000 for the nine months ended September 30, 2019 to approximately $510,000 from approximately $493,000 for the nine months ended September 30, 2018 due primarily to higher total revenues. Operating expenses were flat due to lower depreciation expense partially offset by higher real estate tax expense and higher repairs and maintenance expenses.

 

Investment in Sentinel Omaha, LLC

 

Comparison of three months ended September 30, 2019 to September 30, 2018:

 

As of September 30, 2019, the Omaha portfolio consisted of six multi-family properties located in three markets. Omaha’s total revenues for the three months ended September 30, 2019 were approximately $6,220,000. Income before net unrealized losses was approximately $2,485,000. Major expenses included approximately $534,000 for interest expense, $615,000 for repairs and maintenance, $835,000 for payroll, and $767,000 for real estate taxes. Omaha reported net unrealized gains of approximately $2,313,000 resulting in a net increase in net assets of approximately $4,799,000. For the three months ended September 30, 2019, the Registrant’s 30% equity interest in the income of Omaha was approximately $1,440,000. Registrant reserves 20% of the reported value of Omaha on its balance sheet for September 30, 2019. The reserve for value was adjusted in conjunction with recording the equity income for the quarter ended September 30, 2019. As a result, Registrant reported net income from equity interest in income of Omaha for the quarter ended September 30, 2019 of $1,152,000.

 

As of September 30, 2018, the Omaha portfolio consisted of nine multi-family properties located in six markets Omaha’s total revenues for the three months ended September 30, 2018 were approximately $8,224,000. Income before net unrealized income and net realized gains was approximately $2,773,000. Major expenses included approximately $1,130,000 for interest expense, $750,000 for repairs and maintenance, $1,133,000 for payroll, and $1,061,000 for real estate taxes. Omaha reported net unrealized gains of approximately $3,558,000 resulting in a net increase in net assets of approximately $6,331,000. For the three months ended September 30, 2018, the Registrant’s 30% equity interest in the income of Omaha was approximately $1,899,000. Registrant reserves 20% of the reported value of Omaha on its balance sheet for September 30, 2018. The reserve for value was adjusted in conjunction with recording the equity income for the quarter ended September 30, 2018. As a result, Registrant reported net income from equity interest in income of Omaha for the quarter ended September 30, 2018 of $1,519,000.

 

 

11

 

Comparison of nine months ended September 30, 2019 to September 30, 2018:

 

Omaha’s total revenues for the nine months ended September 30, 2019 were approximately $20,333,000. Income before net unrealized losses and net realized gains was approximately $7,709,000. Major expenses included approximately $2,629,000 for interest expense, $1,743,000 for repairs and maintenance, $2,724,000 for payroll, and $2,187,000 for real estate taxes. Omaha reported net unrealized losses of approximately $12,528,000 and net realized gains of approximately $13,635,000 resulting in a net increase in net assets of approximately $8,816,000. For the nine months ended September 30, 2019, the Registrant’s 30% equity interest in the income of Omaha was approximately $2,644,000. Registrant reserves 20% of the reported value of Omaha on its balance sheet for September 30, 2019. The reserve for value was adjusted in conjunction with recording the equity income for the nine months ended September 30, 2019. As a result, Registrant reported net income from equity interest in income of Omaha for the nine months ended September 30, 2019 of $3,796,000.

 

Omaha’s total revenues for the nine months ended September 30, 2018 were approximately $25,739,000. Income before net unrealized losses and net realized gains was approximately $8,979,000. Major expenses included approximately $3,961,000 for interest expense, $2,101,000 for repairs and maintenance, $3,364,000 for payroll, and $3,091,000 for real estate taxes. Omaha reported net unrealized losses of approximately $5,162,000 and net realized gains of approximately $9,940,000 resulting in a net increase in net assets of approximately $13,757,000. For the nine months ended September 30, 2018, the Registrant’s 30% equity interest in the income of Omaha was approximately $4,127,000. Registrant reserves 20% of the reported value of Omaha on its balance sheet for September 30, 2018. The reserve for value was adjusted in conjunction with recording the equity income for the nine months ended September 30, 2018. As a result, Registrant reported net equity in net increase in net assets of Omaha for the nine months ended September 30, 2018 of $5,807,000.

 

 

12

 

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, 2019 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, 2019 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

 

101.INS**

XBRL Instance

 

101.SCH**

XBRL Taxonomy Extension Schema

 

101.CAL**

XBRL Taxonomy Extension Calculation

 

101.DEF**

XBRL Taxonomy Extension Definition

 

101.LAB**

XBRL Taxonomy Extension Labels

 

101.PRE**

XBRL Taxonomy Extension Presentation

 

** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

 

13

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, 2019

By:

/s/ George N. Tietjen III

 
   

George N. Tietjen III

 
   

Chief Executive Officer

 
       
   

Principal Financial & Accounting Officer

 
       
       
       

Dated: November 13, 2019

By:

/s John H. Zoeller

 
   

John H. Zoeller

 
   

Chief Financial Officer