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 March 31, 2022
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.) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
NONE | | UNITS OF LIMITED PARTNERSHIP INTEREST |
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. ☒ 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). ☒ 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 ☒ 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 ☒ 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
ITEM 1. FINANCIAL STATEMENTS
SB PARTNERS |
(A New York Limited Partnership) |
| |
CONSOLIDATED BALANCE SHEETS (unaudited) |
| | | March 31, | | | December 31, | |
| | | 2022 | | | 2021 | |
| | | | | | | | | |
Assets: | | | | | | | | |
Investments - | | | | | | | | |
Real estate, at cost | | | | | | | | |
Land | | $ | 470,000 | | | $ | 470,000 | |
Buildings, furnishings and improvements | | | 6,152,351 | | | | 5,671,101 | |
Less - accumulated depreciation | | | (2,765,573 | ) | | | (2,724,450 | ) |
| | | | 3,856,778 | | | | 3,416,651 | |
| | | | | | | | | |
Investment in Sentinel Omaha, LLC | | | 3,355,473 | | | | 30,386,569 | |
| | | | 7,212,251 | | | | 33,803,220 | |
| | | | | | | | | |
Other Assets - | | | | | | | | |
Cash and cash equivalents | | | 28,609,248 | | | | 2,109,596 | |
Other | | | 6,824 | | | | 11,688 | |
| | | | | | | | | |
Total assets | | $ | 35,828,323 | | | $ | 35,924,504 | |
| | | | | | | | | |
| Liabilities: | | | | | | | | |
Accounts payable | | $ | 228,833 | | | $ | 149,992 | |
Tenant security deposit | | | 0 | | | | 112,606 | |
Distribution payable | | | 25,586,550 | | | | 0 | |
| | | | | | | | | |
Total liabilities | | | 25,815,383 | | | | 262,598 | |
| | | | | | | | | |
Partners' Equity (Deficit): | | | | | | | | |
Units of partnership interest without par value; | | | | | | | | |
Limited partner - 7,753 units | | | 10,030,084 | | | | 35,675,742 | |
General partner - 1 unit | | | (17,144 | ) | | | (13,836 | ) |
| | | | | | | | | |
Total partners' equity | | | 10,012,940 | | | | 35,661,906 | |
| | | | | | | | | |
Total liabilities and partners' equity | | $ | 35,828,323 | | | $ | 35,924,504 | |
See notes to consolidated financial statements |
SB PARTNERS |
(A New York Limited Partnership) |
| |
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) |
| | | For the Three Months Ended March 31, | |
| | | 2022 | | | 2021 | |
Revenues: | | | | | | | | |
Rental income | | $ | 274,891 | | | $ | 302,623 | |
Interest income | | | 641 | | | | 2,005 | |
| | | | | | | | | |
Total revenues | | | 275,532 | | | | 304,628 | |
| | | | | | | | | |
Expenses: | | | | | | | | |
Real estate operating expenses | | | 83,785 | | | | 78,070 | |
Depreciation | | | 41,123 | | | | 41,123 | |
Real estate taxes | | | 39,680 | | | | 39,927 | |
Management fees | | | 110,364 | | | | 248,122 | |
Other | | | 31,900 | | | | 32,820 | |
| | | | | | | | | |
Total expenses | | | 306,852 | | | | 440,062 | |
| | | | | | | | | |
Loss from operations | | | (31,320 | ) | | | (135,434 | ) |
| | | | | | | | | |
Equity in net income (loss) of investment | | | (31,096 | ) | | | 3,318,451 | |
| | | | | | | | | |
Decrease in reserve for value of investment | | | 0 | | | | 1,496,294 | |
| | | | | | | | | |
Net income (loss) | | | (62,416 | ) | | | 4,679,311 | |
| | | | | | | | | |
Income (loss) allocated to general partner | | | (8 | ) | | | 604 | |
| | | | | | | | | |
Income (loss) allocated to limited partners | | $ | (62,408 | ) | | $ | 4,678,707 | |
| | | | | | | | | |
Income (loss) per unit of limited partnership interest (basic and diluted) | | | | | | | | |
| | | | | | | | | |
Net income (loss) | | $ | (8.05 | ) | | $ | 603.55 | |
| | | | | | | | | |
Weighted Average Number of Units of Limited Partnership Interest Outstanding | | | 7,753 | | | | 7,753 | |
See notes to consolidated financial statements |
SB PARTNERS |
(A New York Limited Partnership) |
| |
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT) (Unaudited) |
| |
For the Three Months Ended March 31, 2022 and 2021 |
| |
Limited Partners: |
| | | Units of Partnership Interest | | | | | | | | | | | | | |
| | | Number | | | Amount | | | Cumulative Cash Distributions | | | Accumulated Income | | | Total | |
| | | | | | | | | | | | | | | | | | | | | |
Balance, January 1, 2022 | | | 7,753 | | | $ | 119,968,973 | | | $ | (161,337,586 | ) | | $ | 77,044,355 | | | $ | 35,675,742 | |
Net (loss) for the three months ended March 31, 2022 | | | - | | | | 0 | | | | 0 | | | | (62,408 | ) | | | (62,408 | ) |
Distribution | | | - | | | | 0 | | | | (25,583,250 | ) | | | 0 | | | | (25,583,250 | ) |
Balance, March 31, 2022 | | | 7,753 | | | $ | 119,968,973 | | | $ | (186,920,836 | ) | | $ | 76,981,947 | | | $ | 10,030,084 | |
| | | | | | | | | | | | | | | | | | | | | |
Balance, January 1, 2021 | | | 7,753 | | | $ | 119,968,973 | | | $ | (114,822,586 | ) | | $ | 46,434,595 | | | $ | 51,580,982 | |
Net income for the three months ended March 31, 2021 | | | - | | | | 0 | | | | 0 | | | | 4,678,707 | | | | 4,678,707 | |
Distribution | | | - | | | | 0 | | | | (10,078,250 | ) | | | 0 | | | | (10,078,250 | ) |
Balance, March 31, 2021 | | | 7,753 | | | $ | 119,968,973 | | | $ | (124,900,836 | ) | | $ | 51,113,302 | | | $ | 46,181,439 | |
| | | Units of Partnership Interest | | | | | | | | | | | | | |
| | | Number | | | Amount | | | Cumulative Cash Distributions | | | Accumulated Income | | | Total | |
| | | | | | | | | | | | | | | | | | | | | |
Balance, January 1, 2022 | | | 1 | | | $ | 10,000 | | | $ | (32,764 | ) | | $ | 8,928 | | | $ | (13,836 | ) |
Net (loss) for the three months ended March 31, 2022 | | | - | | | | 0 | | | | 0 | | | | (8 | ) | | | (8 | ) |
Distribution | | | - | | | | 0 | | | | (3,300 | ) | | | 0 | | | | (3,300 | ) |
Balance, March 31, 2022 | | | 1 | | | $ | 10,000 | | | $ | (36,064 | ) | | $ | 8,920 | | | $ | (17,144 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Balance, January 1, 2021 | | | 1 | | | $ | 10,000 | | | $ | (26,764 | ) | | $ | 4,979 | | | $ | (11,785 | ) |
Net income for the three months ended March 31, 2021 | | | - | | | | 0 | | | | 0 | | | | 604 | | | | 604 | |
Distribution | | | - | | | | 0 | | | | (1,300 | ) | | | 0 | | | | (1,300 | ) |
Balance, March 31, 2021 | | | 1 | | | $ | 10,000 | | | $ | (28,064 | ) | | $ | 5,583 | | | $ | (12,481 | ) |
See notes to consolidated financial statements. |
SB PARTNERS |
(A New York Limited Partnership) |
| |
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) |
| |
| | | For the Three Months Ended March 31, | |
| | | 2022 | | | 2021 | |
| | | | | | | | | |
Cash Flows From Operating Activities: | | | | | | | | |
Net income (loss) | | $ | (62,416 | ) | | $ | 4,679,311 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | | |
Equity in net loss (income) of investment | | | 31,096 | | | | (3,318,451 | ) |
(Decrease) in reserve for value of investment | | | 0 | | | | (1,496,294 | ) |
Depreciation | | | 41,123 | | | | 41,123 | |
Net decrease in other assets | | | 4,864 | | | | 4,164 | |
Net increase (decrease) in accounts payable | | | 78,841 | | | | 62,793 | |
Net (decrease) in tenant security deposit | | | (112,606 | ) | | | 0 | |
Distributions from investment in Sentinel Omaha, LLC | | | 0 | | | | 10,800,000 | |
| | | | | | | | | |
Net cash provided by (used in ) operating activities | | | (19,098 | ) | | | 10,772,646 | |
| | | | | | | | | |
Cash Flows From Investing Activities: | | | | | | | | |
Return of investment in Sentinel Omaha | | | 27,000,000 | | | | 0 | |
Capital additions to real estate owned | | | (481,250 | ) | | | 0 | |
| | | | | | | | | |
Net cash provided by investing activities | | | 26,518,750 | | | | 0 | |
| | | | | | | | | |
Cash Flows From Financing Activities: | | | | | | | | |
Distribution paid to partners | | | 0 | | | | (10,079,550 | ) |
| | | | | | | | | |
Net cash used in financing activities | | | 0 | | | | (10,079,550 | ) |
| | | | | | | | | |
Net change in cash and cash equivalents | | | 26,499,652 | | | | 693,096 | |
| | | | | | | | | |
Cash and cash equivalents at beginning of period | | | 2,109,596 | | | | 549,195 | |
| | | | | | | | | |
Cash and cash equivalents at end of period | | $ | 28,609,248 | | | $ | 1,242,291 | |
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 month period ended March 31, 2022 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, 2021.
The continuation of the COVID-19 pandemic may affect market conditions in which the Registrant and Omaha operates creating a challenging and uncertain economic environment. Financial and real estate companies may be affected by liquidity, disparity of real estate values and financing issues. There is no assurance that such conditions will not result in decreased cash flows which could result in the sale of investments at amounts less than the reported values at March 31, 2022.
(3) | COMMON AREA MAINTENANCE REIMBURSEMENTS |
In connection with the adoption of ASC Topic 842, the Partnership elected the practical expedient concerning the treatment of CAM costs. CAM is a non-lease component of the lease contract under ASC 842, and therefore would be accounted for under ASC Topic 606, Revenue from Contracts with Customers, and presented separate from rental income based on an allocation of the overall contract price, which is not necessarily the amount that would be billable to the tenant for CAM reimbursements per the term of the lease contract. As the timing and pattern of providing the CAM service to the tenant is the same as the timing and pattern of the tenant’s use of the underlying lease asset, the Partnership elected, under the practical expedient, to combine CAM and other Recoverable Costs with the remaining lease components, and recognize them together as rental income in the accompanying Consolidated Statements of Operations.
The following table provides a disaggregation of rental income recognized by the Partnership for the three months ended March 31, 2022 and 2021:
| | | 2022 | | | 2021 | |
Operating lease income: | | | | | | | | |
Fixed lease income (Base Rent) | | $ | 213,667 | | | $ | 207,443 | |
Variable lease income (Recoverable Costs) | | | 61,224 | | | | 95,180 | |
| | | | | | | | | |
Total Rental Income | | $ | 274,891 | | | $ | 302,623 | |
(4) | INVESTMENTS IN REAL ESTATE |
As of March 31, 2022, 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 as of March 31, 2022 and December 31, 2021.
| | | No. of | | | Year of | | | | Real Estate at Cost | |
Type | | Prop. | | | Acquisition | | Description | | 3/31/2022 | | | 12/31/2021 | |
| | | | | | | | | | | | | | | | | | |
Industrial flex property | | | 1 | | | | 2002 | | 60,345 sf | | $ | 6,622,351 | | | $ | 6,141,101 | |
| | | | | | | | | | | | | | | | | | |
Less: Accumulated depreciation | | | | | | | | | | | | (2,765,573 | ) | | | (2,724,450 | ) |
| | | | | | | | | | | | | | | | | | |
Investment in real estate | | | | | | | | | | | $ | 3,856,778 | | | $ | 3,416,651 | |
The Partnership’s wholly owned property located in Maple Grove, Minnesota is 100% leased to a single tenant to October 31, 2031. 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.
On February 28, 2022, the tenant and the Partnership executed the Sixth Amendment (“Amendment”) to the lease. The Amendment extends the term of the lease from October 31, 2024 to October 31, 2031. The Amendment reduces the fixed monthly base rent stipulated in the fifth amendment from November 1, 2021 to October 31, 2024 as follows:
From November 1, 2021 to October 31, 2022, $71,222 per month to $62,859 per month.
From November 1, 2022 to October 31, 2023, $73,359 per month to $64,745 per month.
From November 1, 2023 to October 31, 2024, $75,560 per month to $66,688 per month.
Monthly base rent for the extended term increases approximately 3% per annum. The Partnership has agreed to provide a tenant improvement allowance of $175,000 for HVAC replacements. Tenant has a one time right to extend the lease an additional five years. The Partnership has agreed to pay for a leasing commission to the tenant’s broker. In addition, an affiliate of the Partnership will earn a landlord leasing commission in accordance with the property management agreement. All the other relevant terms of the lease remain the same.
(5) 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.
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 March 31, 2022 and December 31, 2021:
| | | Level 2: | | | March 31, | |
| | | Significant | | | 2022 | |
| | | Unobservable | | | (Unaudited) | |
| | | Inputs | | | Total | |
| | | | | | | | | |
Assets | | | | | | | | |
Investment in Sentinel Omaha, LLC ("Omaha") | | $ | 3,355,473 | | | $ | 3,355,473 | |
| | | | | | | | | |
Total assets | | $ | 3,355,473 | | | $ | 3,355,473 | |
| | | Level 2: | | | December 31, | |
| | | Significant | | | 2021 | |
| | | Unobservable | | | (Audited) | |
| | | Inputs | | | Total | |
| | | | | | | | | |
Assets | | | | | | | | |
Investment in Sentinel Omaha, LLC | | $ | 30,386,569 | | | $ | 30,386,569 | |
| | | | | | | | | |
Total assets | | $ | 30,386,569 | | | $ | 30,386,569 | |
The following is a reconciliation of the beginning and ending balances for assets measured at fair value using significant unobservable inputs (Level 2) during the periods ended March 31, 2022 and December 31, 2021:
| | | Investment in | | | Reserve for | | | | | |
| | | Sentinel | | | fair value | | | | | |
| | | Omaha, LLC | | | of investment | | | Total | |
| | | | | | | | | | | | | |
Balance at January 1, 2021 | | $ | 59,615,139 | | | $ | (11,923,033 | ) | | $ | 47,692,106 | |
Equity in net income of investment | | | 19,251,430 | | | | - | | | | 19,251,430 | |
Distribution from investment | | | (48,480,000 | ) | | | - | | | | (48,480,000 | ) |
Decrease in reserve | | | 0 | | | | 11,923,033 | | | | 11,923,033 | |
Balance at December 31, 2021 | | | 30,386,569 | | | | 0 | | | | 30,386,569 | |
Equity in net (loss) of investment | | | (31,096 | ) | | | - | | | | (31,096 | ) |
Distribution from investment | | | (27,000,000 | ) | | | - | | | | (27,000,000 | ) |
Balance at March 31, 2022 | | $ | 3,355,473 | | | $ | - | | | $ | 3,355,473 | |
(6) 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. During the quarter ended March 31, 2022 Omaha sold its last real estate property. Omaha is an affiliate of the Partnership’s general partner. The investment represents a 30% ownership interest in Omaha.
During the quarter ended March 31, 2022, Omaha paid a distribution of $90,000,000 to its investors. The Partnership’s 30% share of the distribution was $27,000,000
The following are the condensed financial statements (000’s omitted) of Omaha as of March 31, 2022 and December 31, 2021 and the three months ended March 31, 2022 and 2021.
| | | (Unaudited) | | | (Audited) | |
Balance Sheet | | March 31, 2022 | | | December 31, 2021 | |
| | | | | | | | | |
Investment in real estate, net | | $ | 0 | | | $ | 56,777 | |
Cash and cash equivalents | | | 8,962 | | | | 37,268 | |
Other assets | | | 2,320 | | | | 7,865 | |
Other liabilities | | | (99 | ) | | | (617 | ) |
Members equity | | $ | 11,183 | | | $ | 101,293 | |
| | | (Unaudited) | | | (Unaudited) | |
Statement of Operations | | March 31, 2022 | | | March 31, 2021 | |
| | | | | | | | | |
Rent and other income | | $ | 139 | | | $ | 4,890 | |
Real estate operating expenses | | | (235 | ) | | | (2,417 | ) |
Other expenses | | | (17 | ) | | | (160 | ) |
Net realized income | | | 34,412 | | | | 0 | |
Net unrealized income (losses) | | | (34,409 | ) | | | 8,749 | |
| | | | | | | | | |
Net increase (decrease) in net assets | | $ | (110 | ) | | $ | 11,062 | |
During April 2021, Omaha sold its garden apartment property located in Charleston, South Carolina for a sale price of $47,250,000. Net sales proceeds were used to first pay selling expenses. The remaining net sales proceeds have been reserved to retire Omaha’s secured mortgage loan encumbering a garden apartment property located in Nashville, Tennessee and to retire Omaha’s secured mortgage loan encumbering a garden apartment property located in Aurora, Illinois to payoff Omaha’s long term debt.
During August 2021, Omaha sold one of its garden apartment properties located in Nashville, Tennessee for a sale price of $77,235,000. Net sales proceeds were used to first pay selling expenses. The remaining portion of the sales proceeds were used to pay a distribution of $73,000,000 to its investors. The Partnership’s 30% allocation of the distribution was $21,900,000.
During November 2021, Omaha sold its garden apartment property located in Aurora, Illinois for a sale price of $34,500,000. Net sales proceeds were used to first pay selling expenses. The remaining portion of the sales proceeds were used along with cash reserves to pay a distribution of $52,600,000 to its investors. The Partnership’s 30% allocation of the distribution was $18,410,000.
During January 2022 sold its last real estate property which was located in Nashville, Tennessee for a price of $57,350,000. Net sales proceeds were used to first pay selling expenses. The remaining portion of the sales proceeds were used along with cash reserves to pay a distribution of $90,000,000 to its investors. The Partnership’s 30% allocation of the distribution was $27,000,000.
(7) DISTRIBUTION PAYABLE
On March 22, 2022 the General Partner declared a distribution of $3,300 for a full unit for all partners holding units or participations on March 22, 2022. The distribution will be paid during June 2022.
(8) SUBSEQUENT EVENTS
In April 2022 the General Partner engaged a brokerage firm to commenced marketing its industrial flex property located in Maple Grove, Minnesota for a sale.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021 |
General
The consolidated financial statements for the three months ended March 31, 2022 and 2021 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, 2031. 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.
On February 28, 2022, the tenant and the Partnership executed the Sixth Amendment (“Amendment”) to the lease. The Amendment extends the term of the lease from October 31, 2024 to October 31, 2031. The Amendment reduces the fixed monthly base rent stipulated in the fifth amendment from November 1, 2021 to October 31, 2024 as follows:
From November 1, 2021 to October 31, 2022, $71,222 per month to $62,859 per month.
From November 1, 2022 to October 31, 2023, $73,359 per month to $64,745 per month.
From November 1, 2023 to October 31, 2024, $75,560 per month to $66,688 per month.
Monthly base rent for the extended term increases approximately 3% per annum. The Partnership has agreed to provide a tenant improvement allowance of $175,000 for HVAC replacements. Tenant has a onetime right to extend the lease an additional five years. The Partnership has agreed to pay for a leasing commission to the tenant’s broker. In addition, an affiliate of the Partnership will earn a landlord leasing commission in accordance with the property management agreement. All the other relevant terms of the lease remain the same.
During January 2022 Omaha sold its last real estate property which was located in Nashville, Tennessee for a price of $57,350,000. Net sales proceeds were used to first pay selling expenses and the remaining portion of the net sales proceeds were used along with cash reserves to pay a distribution of $90,000,000 to its investors. The Partnership’s 30% share of the distribution was $27,000,000. As of March 31, 2022 Omaha’s net assets consists of operating cash and other assets and operating liabilities.
COVID-19
Due to the COVID-19 outbreak, the Registrant and Omaha may be operating in a challenging and uncertain economic environment.
Financial and real estate companies may be affected by liquidity, disparity of real estate values and financing issues. Should market conditions deteriorate, there is no assurance that such conditions will not result in decreased cash flows which could result in the sale of investments at amounts less than the reported value at March 31, 2022.
Results of Operations
Total revenues from continuing operations for the three months ended March 31, 2022 decreased $29,000 to approximately $276,000 as compared to approximately $305,000 for the three months ended March 31, 2021. Total revenues decreased due to a decrease in other income and interest income partially offset by an increase in base rental income. Other income decreased due to an adjustment made for operating expenses charged to the tenant in a prior year partially offset by an increase for real estate taxes charged back to the tenant in a prior year. Interest income decreased slightly due to lower cash balances invested during 2022. Base rental income increased $6,000 to approximately $214,000 for the three months ended March 31, 2022 as compared to the same period in 2021 due to a scheduled increase in base rent at Registrant’s property located in Maple Grove, MN.
The Registrant reported a net loss from operations of approximately $31,000 for the three months ended March 31, 2022, a decrease of loss of $104,000 as compared to a net loss from operations of approximately $135,000 for the same period in 2021. Net loss from operations consists of net income from the Maple Grove property offset by partnership income and expenses. The decrease of loss from operations was primarily due to lower total expense partially offset by lower total income. Total expenses from operations for 2022 decreased $133,000 to approximately $307,000 from approximately $440,000 in 2021, due primarily to a decrease in investment management fees of $138,000.
The Registrant has a 30% non-controlling interest in Omaha that is accounted for on a fair value basis.
During January 2022 Omaha sold its last real estate property which was located in Nashville, Tennessee for a price of $57,350,000. Net sales proceeds were used to first pay selling expenses and the remaining portion of the net sales proceeds were used along with cash reserves to pay a distribution of $90,000,000 to its investors. The Partnership’s 30% share of the distribution was $27,000,000. As of March 31, 2022 Omaha’s net assets consists of operating cash and other assets and operating liabilities.
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, 2021. There were no significant changes to such policies in 2022. 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 March 31, 2022, the Registrant had cash and cash equivalents of approximately $28,609,000. These balances are approximately $26,499,000 higher than cash and cash equivalents held on December 31, 2021. Cash and cash equivalents increased during the three months ended March 31, 2022 due to a distribution from Omaha added to cash reserves.
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 property’s operating expenses leaving a significant portion of the base rent received available to fund partnership administrative expenses.
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 affiliates. The Registrant has no debt except normal trade accounts payable and a security deposit held for the tenant at Registrant’s wholly owned property.
In March 2022 the General Partner declared a distribution of $3,300 for a full unit for all partners holding units or participations on March 22, 2022. The distribution will be paid during June 2022.
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 March 31, 2022 decreased $28,000 to approximately $275,000 as compared to approximately $303,000 for the three months ended March 31, 2021. Total revenues decreased due to a decrease in other income partially offset by an increase in base rental income. Other income decreased due to an adjustment made for operating expenses charged to the tenant in a prior year partially offset by an increase for real estate taxes charged back to the tenant in a prior year. Base rental income increased $6,000 to approximately $214,000 for the three months ended March 31, 2022 as compared to the same period in 2021 due to a scheduled increase in base rent. Net operating income, which includes deductions for depreciation, decreased $37,000 for the three months ended March 31, 2022 as compared to the same period in 2021. Net operating income decreased due to lower total revenue combined with higher operating expenses. Operating expenses were higher due to higher repairs and maintenance and administrative expense.
Investment in Sentinel Omaha, LLC
Comparison of three months ended March 31, 2022 to March 31, 2021:
During January 2022 Omaha sold its last real estate property which was located in Nashville, Tennessee for a price of $57,350,000. Omaha’s total revenues for the three months ended March 31, 2022 were approximately $139,000. The loss before net unrealized losses and realized gains was approximately $112,000. Major expenses included approximately $88,000 for payroll, and $31,000 for utilities. Omaha reported net change in unrealized losses of approximately $34,409,000 and a realized gain of approximately $34,412,000 resulting in a net decrease in net assets of approximately $110,000. For the three months ended March 31, 2022, the Registrant’s 30% equity interest in the loss of Omaha was approximately $31,000.
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 March 31, 2022 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 March 31, 2022 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** Inline XBRL Instance
101.SCH** Inline XBRL Taxonomy Extension Schema
101.CAL** Inline XBRL Taxonomy Extension Calculation
101.DEF** Inline XBRL Taxonomy Extension Definition
101.LAB** Inline XBRL Taxonomy Extension Labels
101.PRE** Inline XBRL Taxonomy Extension Presentation
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
** 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.
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 |
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Dated: May 13, 2022 | By: | George N Tietjen III |
| | | /s/ George N. Tietjen III |
| | | Chief Executive Officer |
| | | |
| | | |
| | | |
| | | Principal Financial & Accounting Officer |
| | | |
Dated: May 13, 2022 | By: | John H. Zoeller |
| | | /s/ John H. Zoeller |
| | | Chief Financial Officer |
