10-Q

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, 2016

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 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, 2016 (unaudited) and December 31, 2015 (audited)	1
	Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2016 and 2015	2
	Consolidated Statements of Changes in Partners' Equity (Deficit) (unaudited) for the nine months ended September 30, 2016	3
	Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2016 and 2015	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
	Exhibit 32

ITEM 1. FINANCIAL STATEMENTS

SB PARTNERS

(A New York Limited Partnership)

CONSOLIDATED BALANCE SHEETS

	September 30, 2016 (Unaudited)			December 31, 2015 (Audited)
Assets:
Investments -
Real estate, at cost
Land	$	470,000		$	470,000
Buildings, furnishings and improvements		5,016,185			5,016,185
Less - accumulated depreciation		(1,887,990	)		(1,769,982	)
		3,598,195			3,716,203
Investment in Sentinel Omaha, LLC, net of reserve for fair value of $19,513,132 and $14,445,826 at September 30, 2016 and December 31, 2015, respectively		19,513,132			14,445,826
		23,111,327			18,162,029
Other Assets -
Cash and cash equivalents		1,228,718			1,206,899
Restricted cash		-			200,000
Cash in escrow		500,677			500,244
Other		37,668			13,887
Total assets	$	24,878,390		$	20,083,059
Liabilities:
Loan payable, net of unamortized deferred finance costs of $34,577 and $50,956 at September 30, 2016 and December 31, 2015, respectively	$	5,725,896		$	5,935,932
Accounts payable		374,676			370,209
Tenant security deposit		97,217			95,818
Accrued expenses		2,351,344			2,019,239
Total liabilities		8,549,133			8,421,198
Partners' Equity (Deficit):
Units of partnership interest without par value;
Limited partner - 7,753 units		16,345,587			11,678,793
General partner - 1 unit		(16,330	)		(16,932	)
Total partners' equity		16,329,257			11,661,861
Total liabilities and partners' equity	$	24,878,390		$	20,083,059

See notes to consolidated financial statements

1

SB PARTNERS

(A New York Limited Partnership)

CONSOLIDATED STATEMENTS OF OPERATIONS 

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2016			2015			2016			2015
Revenues:
Base rental income	$	177,012		$	169,067		$	523,996		$	489,499
Other rental income		88,238			87,936			264,714			263,808
Interest on short-term investments		1,054			342			2,687			1,012
Total revenues		266,304			257,345			791,397			754,319
Expenses:
Real estate operating expenses		60,016			81,253			210,353			238,148
Interest on loan payable		-			113,380			-			363,784
Depreciation and amortization		44,796			40,850			134,388			115,132
Real estate taxes		31,665			31,362			94,996			94,086
Management fees		218,456			215,068			651,786			656,829
Other		31,800			41,662			99,784			115,588
Total expenses		386,733			523,575			1,191,307			1,583,567
Loss from operations		(120,429	)		(266,230	)		(399,910	)		(829,248	)
Equity in net increase in net assets
of investment		4,872,219			11,337,038			10,134,611			13,620,447
Reserve for value of investment		(2,436,110	)		(1,152,038	)		(5,067,305	)		(3,435,447	)
Income from continuing operations		2,315,680			9,918,770			4,667,396			9,355,752
Income from discontinued operations		-			113,823			-			407,718
Gain on sale of investment in real estate		-			3,569,246			-			3,569,246
Net income		2,315,680			13,601,839			4,667,396			13,332,716
Income allocated to general partner		299			1,754			602			1,720
Income allocated to limited partners	$	2,315,381		$	13,600,085		$	4,666,794		$	13,330,996
Income per unit of limited partnership interest (basic and diluted)
Income from continuing operations	$	298.68		$	1,279.35		$	602.01		$	1,206.73
Income from discontinued operations (including gain on sale)	$	-		$	475.05		$	-		$	512.95
Net income	$	298.68		$	1,754.40		$	602.01		$	1,719.68
Weighted Average Number of Units of Limited Partnership Interest Outstanding		7,753			7,753			7,753			7,753

See notes to consolidated financial statements

2

SB PARTNERS

(A New York Limited Partnership)

CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT)

For the Nine Months Ended September 30, 2016 (Unaudited)

Limited Partners:
	Units of Partnership Interest
	Number		Amount		Cumulative Cash Distributions			Accumulated Income		Total
Balance, January 1, 2016		7,753	$	119,968,973	$	(111,721,586	)	$	3,431,406	$	11,678,793
Net income for the period		-		-		-			4,666,794		4,666,794
Balance, September 30, 2016		7,753	$	119,968,973	$	(111,721,586	)	$	8,098,200	$	16,345,587

General Partner:
	Units of Partnership Interest
	Number		Amount		Cumulative Cash Distributions			Accumulated (Losses)			Total
Balance, January 1, 2016		1	$	10,000	$	(26,364	)	$	(568	)	$	(16,932	)
Net income for the period		-		-		-			602			602
Balance, September 30, 2016		1	$	10,000	$	(26,364	)	$	34		$	(16,330	)

See notes to consolidated financial statements.

3

SB PARTNERS

(A New York Limited Partnership)

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	For the Nine Months Ended September 30,
	2016			2015
Cash Flows From Operating Activities:
Net income	$	4,667,396		$	13,332,716
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in net increase in net assets of investment		(10,134,611	)		(13,620,447	)
Reserve for fair value of investment		5,067,305			3,435,447
Gain on sale of real estate investment		-			(3,569,246	)
Depreciation and amortization		134,388			117,100
Net decrease in operating assets		(23,781	)		(5,464	)
Net increase (decrease) in accounts payable		4,466			(8,886	)
Net increase in tenant security deposit		1,399			1,398
Net increase (decrease) in accrued expenses		332,105			(776,190	)
Net cash provided by (used in) operating activites		48,667			(1,093,572	)
Cash Flows From Investing Activities:
Net proceeds from sale of investment in real estate owned					15,595,492
Interest earned on capital reserve escrow acount		(433	)		(38	)
Capital additions to real estate owned		-			(149,213	)
Net cash provided by (used in) investing activites		(433	)		15,446,241
Cash Flows From Financing Activities:
Repayment of mortgage note in discontinued operations		-			(10,000,000	)
Repayment of loan payable		(226,415	)		(3,966,148	)
Decrease in restricted cash		200,000			-
Net cash (used in) financing activities		(26,415	)		(13,966,148	)
Net change in cash and cash equivalents		21,819			386,521
Cash and cash equivalents at beginning of period		1,206,899			933,373
Cash and cash equivalents at end of period	$	1,228,718		$	1,319,894
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	-		$	1,731,395

See notes to consolidated financial statements

4

SB PARTNERS

Notes to Consolidated Financial Statements (Unaudited)

(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

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

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

The results of operations for the three and nine month periods ended September 30, 2016 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, 2015.

(2) RECLASSIFICATION

In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-3, Simplifying the Presentation of Debt Issuance Costs (ASU 2015-3), which changes the presentation of debt issuance costs in financial statements. ASU 2015-3 requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. ASU 2015-3 is effective for annual reporting periods beginning after December 15, 2015. The new guidance has been applied retrospectively to each prior period presented.

The consolidated balance sheets for the periods ended September 30, 2016 and December 31, 2015 report the unamortized deferred financing costs as deductions from the loan payable.

(3) INVESTMENTS IN REAL ESTATE

As of September 30, 2016, 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, 2016 and December 31, 2015.

	No. of		Year of				Real Estate at Cost
Type	Prop.		Acquisition		Description		9/30/2016			12/31/2015
Industrial flex property		1		2002		60,345 sf	$	5,486,185		$	5,486,185
Less: Accumulated depreciation								(1,887,990	)		(1,769,982	)
Investment in real estate							$	3,598,195		$	3,716,203

(4) REAL ESTATE TRANSACTION

On September 17, 2015, the Partnership sold Lino Lakes for $16,050,000 in an all cash transaction. The net proceeds from the sale were used, in part, to retire the mortgage note of $10,000,000 that had been secured by the property and to pay down the Partnership’s loan. The results of operations for the three and nine months ended September 30, 2015 are reflected as income from discontinued operations in the accompanying consolidated statements of operations.

(5) 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, 2016 owns 14 multifamily properties in 10 markets. Omaha is an affiliate of the Registrant’s general partner. The investment represents a 30% ownership interest in Omaha.

5

The following are the condensed financial statements (000’s omitted) of Omaha as of and for the periods ended September 30, 2016 and December 31, 2015.

Balance Sheet	(Unaudited) September 30, 2016			(Audited) December 31, 2015
Investment in real estate, net	$	381,200		$	355,615
Other assets		10,553			13,552
Debt		(257,103	)		(267,674	)
Other liabilities		(4,562	)		(5,187	)
Member's equity	$	130,088		$	96,306

Statement of Operations	(Unaudited) September 30, 2016
Rent and other income	$	32,986
Real estate operating expenses		(15,751	)
Other expenses		(5,072	)
Net unrealized income		21,619
Net increase in net assets	$	33,782

(6) LOAN PAYABLE

      Loan payable consists of the following non-recourse first lien:

						Annual				Net Carrying Amount
Property	Interest Rate			Maturity Date		Installment Payments		Amount Due at Maturity		September 30, 2016			December 31, 2015
Bank Loan (a):
Note B		0.000	%		Apr-18		-		5,760,473	$	5,760,473		$	5,986,888
Less: unamortized finance costs											(34,577	)		(50,956	)
Loan payable										$	5,725,896		$	5,935,932

(a) 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. The Partnership and Holder continued discussions and following a period of negotiation relating to the Partnership’s inability to pay off the loan at maturity, 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”).

2) Note A which had a balance of $3,768,751 as of September 18, 2015 was paid off in full using proceeds from the sale of Lino Lakes.

3) Note B in the amount of $5,760,473 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 previously accrued interest at an annual fixed rate of 5% but only until all interest and principal had been paid in full on Note A. Thereafter Note B does not accrue any interest. Except as discussed below, payments of principal are deferred until Registrant’s investment in Sentinel Omaha LLC (“Omaha”) pays distributions to the Partnership or the Partnership sells Eagle Lake Business Center IV or its investment in Omaha. Distributions from Omaha or net proceeds from the sale of Eagle IV or Omaha would be used first to pay the outstanding principal balance of Note B. If there are no distributions from Omaha prior to the Note B maturity, principal is due at maturity, subject to the above mentioned extensions.

4) Note B 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.

6

5) On September 17, 2015, the Partnership sold Lino Lakes (see note 4). $200,000 of net sales proceeds had been held in reserve pending the expiration of the representations and warranties period as stipulated in the sales contract. On March 15, 2016, the representation and warranties period expired. There were no charges made against this reserve, therefore in March 2016, the $200,000 was used to further pay down the principal balance of the Note B in accordance with the terms of the Loan Agreement. Until the Partnership’s obligations under Note B is 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 Note B while retaining the other portion to increase cash reserves. On May 16, 2016, the partnership paid $26,415 to the Holder to pay down a portion of the outstanding balance of Note B. While the obligation under Note B is 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 Note B remains outstanding. As of September 30, 2016 and December 31, 2015, $2,351,344 and $2,019,239, respectively of investment management fees have been accrued and are included in accrued expenses on the balance sheet.

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

7

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015 

General

The consolidated financial statements for the three and nine months ended September 30, 2016 reflect the operations of one wholly owned industrial flex property located in Maple Grove, Minnesota and a 30% interest in Omaha. The consolidated financial statements for the three and nine months ended September 30, 2015 reflect the operations of the industrial flex property located in Maple Grove, Minnesota and one warehouse distribution center located in Lino Lakes, Minnesota as well as a 30% interest in Omaha. The warehouse distribution space was sold on September 17, 2015.

Registrant’s wholly owned property located in Maple Grove, Minnesota is 100% leased to a single tenant whose lease expires October 31, 2019. The tenant has an option to terminate the lease after July 31, 2017 under certain conditions. One of the conditions is the payment of an early termination penalty the calculation of which is based on the remaining time period in the lease. Another condition is the tenant must provide notice twelve months prior to the termination. As of September 30, 2016, Registrant has not received any notice from the tenant. 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.

Sentinel Omaha LLC’s portfolio consists of 13 garden apartment properties and one high rise apartment property. Leases generally are for one year or less. Tenants generally pay fixed rent plus utilities used by tenant.

Results of Operations

Total revenues from continuing operations for the three months ended September 30, 2016 increased $9,000 to approximately $266,000 as compared to approximately $257,000 for the three months ended September 30, 2015. Total revenues increased due to an increase in base rental income. Base rental income increased $8,000 to approximately $177,000 for the three months ended September 30, 2016 as compared to the same period in 2015 due to an increase in base rent at Registrant’s property located in Maple Grove, MN. Other rental income and interest income increased slightly.

The Registrant reported a net loss from operations of approximately $120,000 for the three months ended September 30, 2016, an improvement of $146,000 as compared to a net loss from operations of approximately $266,000 for the same period in 2015. 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 due to lower total expenses combined with higher total revenues. Total expenses from operations for 2016 decreased $137,000 to approximately $387,000 from approximately $524,000 in 2015, due primarily to a decrease in interest expense of $113,000 combined with small decreases in professional fees and real estate operating expenses. This decrease was partially offset by an increase in depreciation and amortization expense of $4,000.

Total revenues from continuing operations for the nine months ended September 30, 2016 increased $37,000 to approximately $791,000 as compared to approximately $754,000 for the nine months ended September 30, 2015. Total revenues increased due to an increase in base rental income. Base rental income increased $34,000 to approximately $524,000 for the nine months ended September 30, 2016 as compared to the same period in 2015 due to an increase in base rent at Registrant’s property located in Maple Grove, MN. Other rental income and interest income increased slightly.

The Registrant reported a net loss from operations of approximately $400,000 for the nine months ended September 30, 2016, an improvement of $429,000 as compared to a net loss from operations of approximately $829,000 for the same period in 2015. Net loss from operations consists of net income from the Maple Grove property offset by partnership income and expenses. The decrease in loss from operations was due to lower total expenses combined with higher total revenues. Total expenses from operations for 2016 decreased $393,000 to approximately $1,191,000 from approximately $1,584,000 in 2015, due primarily to a decrease in interest expense of $364,000 combined with small decreases in professional fees and real estate operating expenses. This decrease was partially offset by an increase in depreciation and amortization expense of $19,000.

The Registrant has a 30% non-controlling interest in Omaha that is accounted for on a fair value basis. Under the terms of its unsecured bank loan Omaha is precluded from making distributions to its investors until its unsecured loan is paid in full. Net increase in net assets decreased $11,619,000 to approximately $33,782,000 for the nine months ended September 30, 2016 compared to net increase in net assets of approximately $45,401,000 for the same period in 2015. Omaha reports on a fair value basis and due to the mortgage crisis, stagnant real estate market and slow economy, Omaha reported a significant write-down in the value of its real estate portfolio of approximately $100,852,000 during 2008 to 2014. For the year 2015 and the first nine months of 2016, as real estate values recovered Omaha reported an increase in the value of its portfolio of $72,315,000 and $25,585,000, respectively.

8

On September 30, 2015, Omaha refinanced six properties which had been encumbered by a single secured credit facility with a high fixed interest rate. Previously, a refinancing of the secured credit facility would have required significant prepayment penalties which made a refinancing cost prohibitive. On September 30, 2015, the prepayment penalties were low enough that combined with higher valuations, each property’s borrowing capacity was sufficient to support a new separate mortgage with enough combined proceeds to pay off the credit facility and the prepayment penalties. The six new mortgages have lower interest rates than the loan they replaced although the new interest rates are floating rates, subject to changes in the credit markets. Based on a review of the 2015 property operations and considering the more advantageous terms of the new mortgages and barring any unforeseen downturn in the real estate and capital markets, Registrant concludes that looking forward, Omaha has a more likely than not chance to continue to improve the operations of its real estate assets, sell or refinance the assets with proceeds sufficient to pay off the underlying mortgages, pay off the unsecured bank loan, and subsequently make distributions to its investors for a portion of the original capital invested. Therefore, Registrant as of the period ended September 30, 2016 and as of the year ended December 31, 2015 has recognized a value for the Omaha investment equal to Registrant’s 30% portion of the equity reported on Omaha’s balance sheet for each period less a 50% reserve.

On September 17, 2015, Registrant sold its warehouse distribution property located in Lino Lakes, Minnesota. The results of operations for this property for the three and nine months ended September 30, 2015 are reflected as income from discontinued operations in the accompanying consolidated statements of operations.

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, 2015. There were no significant changes to such policies in 2016 except as described in Note 2 to the financial statements. 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, 2016, the Registrant had cash and cash equivalents of approximately $1,229,000. These balances are approximately $22,000 higher than cash and cash equivalents held on December 31, 2015. Cash and cash equivalents increased slightly during the nine months ended September 30, 2016 due to cash flow generated from operating activities at Registrant’s wholly owned property partially offset by partnership expenses.

Restricted cash as of December 31, 2015 consisted of a portion of net proceeds from the sale of the Lino Lakes property. $200,000 of net sales proceeds had been held in reserve pending the expiration of the representations and warranties period as stipulated in the sales contract. On March 15, 2016, the representation and warranties period expired. There were no charges made against this reserve, therefore in March 2016, the $200,000 was used to further pay down the principal balance of the Note B in accordance with the terms of the Loan Agreement.

Currently, Registrant’s only source of cash is rental income received from the tenant who 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. A portion of any remaining annual cash flow is used to pay down the principal balance of Note B in accordance with the Loan Agreement while the remaining cash income is retained by Registrant as cash reserves. As part of Registrant and the Holder restructuring the bank loan in 2011, Registrant set aside $500,000 in escrow to be held and used only to pay the costs to re-tenant the space at Registrant’s wholly owned property if Registrant’s tenant defaults on its lease or exercises its right to terminate the lease early or fails to renew.

Total outstanding debt at September 30, 2016 consists of Note B at $5,760,473. Under the terms of the Loan Agreement, when the A Note was paid off, interest on the Note B stopped accruing. Note B loan matures April 2018. If the Registrant does not have funds on hand sufficient to repay its indebtedness at maturity, the Registrant may need to refinance such indebtedness with new debt financing or provide necessary funds through equity offering(s). The Registrant may be unable to obtain a loan which will be sufficient to retire the existing loan. If it is unable to refinance this indebtedness on acceptable terms, the Registrant may be forced to liquidate its remaining assets upon disadvantageous terms, which could result in losses to the Registrant and adversely affect the amount of cash reserves. If general economic conditions result in higher interest rates at a time when the Registrant must refinance its indebtedness, the Registrant's interest expense could increase, which would adversely affect the Registrant's results of operations and financial condition. The Registrant has no other 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.

Registrant anticipates cash flow generated from the property located in Maple Grove and current cash reserves will be sufficient to cover operating and capital improvement costs and other working capital requirements of the Registrant so long as the tenant remains in place.

9

Eagle Lake Business Center IV (Maple Grove, Minnesota)

Total revenues for the three months ended September 30, 2016 increased $8,000 to approximately $265,000 as compared to approximately $257,000 for the three months ended September 30, 2015. The property reported higher base rental income and slightly higher other rental income. Base rental income was higher in 2016 due to an increase in the base rent when the tenant’s lease was extended in 2015. Net operating income, which includes deductions for depreciation, increased $10,000 for the three months ended September 30, 2016 to approximately $163,000 from approximately $153,000 for the three months ended September 30, 2015 due primarily to higher total revenues. Operating expenses remained approximately the same from 2015 to 2016.

Total revenues for the nine months ended September 30, 2016 increased $36,000 to approximately $789,000 as compared to approximately $753,000 for the nine months ended September 30, 2015. The property reported higher base rental income and slightly higher other rental income. Base rental income was higher in 2016 due to an increase in the base rent when the tenant’s lease was extended in 2015. Net operating income, which includes deductions for depreciation, increased $37,000 for the nine months ended September 30, 2016 to approximately $473,000 from approximately $436,000 for the nine months ended September 30, 2015 due primarily to higher total revenues. Operating expenses remained approximately the same from 2015 to 2016.

435 Park Court (Lino Lakes, Minnesota)

On September 17, 2015, Registrant sold its warehouse distribution property located in Lino Lakes, Minnesota. The results of operations for this property for the three and nine months ended September 30, 2015 are reflected as income from discontinued operations in the accompanying consolidated statements of operations. Registrant did not report any activity for this property in 2016.

Investment in Sentinel Omaha, LLC

Comparison of three months ended September30, 2016 to September 30, 2015:

As of September 30, 2016, the Omaha portfolio consisted of 14 multi-family properties located in 10 markets. Omaha’s total revenues for the three months ended September 30, 2016 were approximately $11,213,000. Income before net unrealized income was approximately $4,017,000. Major expenses included approximately $1,647,000 for interest expense, $1,064,000 for repairs and maintenance, $1,496,000 for payroll, and $1,134,000 for real estate taxes. Omaha reported net unrealized income of approximately $12,225,000 resulting in net increase in net assets of approximately $16,242,000. For the three months ended September 30, 2016, the Registrant’s 30% equity interest in the net increase in net assets of Omaha was approximately $4,872,000. Registrant continues to reserve 50% of the reported value of Omaha on its balance sheet. The reserve for value was adjusted in conjunction with recording the equity income for the quarter ended September 30, 2016. As a result, Registrant reported net equity in net increase in net assets of Omaha for the quarter ended September 30, 2016 of $2,436,000.

Omaha’s total revenues for the three months ended September 30, 2015 were approximately $10,700,000. Loss before net unrealized income was approximately $732,000. Major expenses included approximately $4,964,000 for interest expense, $979,000 for repairs and maintenance, $1,261,000 for payroll, and $1,219,000 for real estate taxes. Omaha reported net unrealized income of approximately $38,522,000 resulting in net income of approximately $37,790,000. For the three months ended September 30, 2015, the Registrant’s equity interest in the income of Omaha was approximately $11,337,000. Registrant has reserved 50% of the reported value of Omaha on its balance sheet. The reserve for value was adjusted in conjunction with recording the equity income for the quarter ended September 30, 2015. As a result, Registrant reported a net $10,185,000 increase in equity in investment in Omaha for the quarter ended September 30, 2015.

Comparison of nine months ended September 30, 2016 to September 30, 2015

Omaha’s total revenues for the nine months ended September 30, 2016 were approximately $32,986,000. Income before net unrealized income was approximately $12,163,000. Major expenses included approximately $4,880,000 for interest expense, $2,811,000 for repairs and maintenance, $4,428,000 for payroll, and $3,345,000 for real estate taxes. Omaha reported net unrealized income of approximately $21,619,000 resulting in net increase in net assets of approximately $33,782,000. For the nine months ended September 30, 2016, the Registrant’s 30% equity interest in the net increase in net assets of Omaha was approximately $10,135,000. Registrant continues to reserve 50% of the reported value of Omaha on its balance sheet. The reserve for value was adjusted in conjunction with recording the equity income for the nine months ended September 30, 2016. As a result, Registrant reported net equity in net increase in net assets of Omaha for the nine months ended September 30, 2016 of $5,067,000.

Total revenues for the nine months ended September 30, 2015 were approximately $31,052,000. Income before net unrealized income was approximately $3,747,000. Major expenses included approximately $9,339,000 for interest expense, $2,660,000 for repairs and maintenance, $4,021,000 for payroll and $3,514,000 for real estate taxes. Omaha reported a net unrealized income of approximately $41,654,000 resulting in net income of approximately $45,401,000. For the nine months ended September 30, 2015, the Registrant’s equity interest in the income of Omaha was approximately $13,620,000. Registrant has reserved 50% of the reported value of Omaha on its balance sheet. The reserve for value was adjusted in conjunction with recording the equity income for the nine months ended September 30, 2015. As a result, Registrant reported a net $10,185,000 increase in equity in investment in Omaha for the nine months ended September 30, 2015.

10

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, 2016 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, 2016 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.

11

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 9, 2016	By:	/s/ David Weiner
		David Weiner
		Chief Executive Officer
		Principal Financial & Accounting Officer
Dated: November 9, 2016	By:	/s/ John H. Zoeller
		John H. Zoeller
		Chief Financial Officer

12

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT 0F 2002

I, David Weiner, certify that:

(1) I have reviewed this quarterly report on Form 10-Q of SB Partners;

(2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

(3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report;

(4) The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this quarterly report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

(5) The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

 

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Dated: November 9, 2016	By:	/s/ David Weiner
		David Weiner
		Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT 0F 2002

I, John H. Zoeller, certify that:

(1) I have reviewed this quarterly report on Form 10-Q of SB Partners;

(2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

(3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report.

(4) The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this quarterly report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting;

(5) The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation over internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent function):

 

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

		Principal Financing & Accounting Officer
Dated: November 9, 2016	By:	/s/ John H. Zoeller
		John H. Zoeller
		Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, David Weiner, hereby certify that to the best of my knowledge, the Quarterly Report of SB Partners (the “Partnership”) on Form 10-Q for the period ended September 30, 2016 the “Report” fully complies with the requirements of either Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.

Dated: November 9, 2016	By:	/s/ David Weiner
		David Weiner
		Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, John H. Zoeller, hereby certify that to the best of my knowledge, the Quarterly Report of SB Partners (the “Partnership”) on Form 10-Q for the period ended September 30, 2016 the “Report” fully complies with the requirements of either Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.

		Principal Financing & Accounting Officer
Dated: November 9, 2016	By:	/s/ John H. Zoeller
		John H. Zoeller
		Chief Financial Officer

XML

Document And Entity Information	9 Months Ended
	Sep. 30, 2016 shares
Document Information [Line Items]
Entity Registrant Name	SB PARTNERS
Entity Central Index Key	0000087047
Trading Symbol	sbp
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)	0
Document Type	10-Q
Document Period End Date	Sep. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Assets:
Land	$ 470,000	$ 470,000
Buildings, furnishings and improvements	5,016,185	5,016,185
Less - accumulated depreciation	(1,887,990)	(1,769,982)
	3,598,195	3,716,203
Investment in Sentinel Omaha, LLC, net of reserve for fair value of $19,513,132 and $14,445,826 at September 30, 2016 and December 31, 2015, respectively	19,513,132	14,445,826
	23,111,327	18,162,029
Other Assets -
Cash and cash equivalents	1,228,718	1,206,899
Restricted Cash and Cash Equivalents		200,000
Cash in escrow	500,677	500,244
Other	37,668	13,887
Total assets	24,878,390	20,083,059
Liabilities:
Loan payable, net of unamortized deferred finance costs of $34,577 and $50,956 at September 30, 2016 and December 31, 2015, respectively	5,725,896	5,935,932
Accounts payable	374,676	370,209
Tenant security deposit	97,217	95,818
Accrued expenses	2,351,344	2,019,239
Total liabilities	8,549,133	8,421,198
Partners' Equity (Deficit):
Limited partner - 7,753 units	16,345,587	11,678,793
General partner - 1 unit	(16,330)	(16,932)
Total partners' equity	16,329,257	11,661,861
Total liabilities and partners' equity	$ 24,878,390	$ 20,083,059

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Investment in Sentinel Omaha, LLC, reserve for fair value	$ 19,513,132	$ 14,445,826
Deferred finance costs	$ 34,577	$ 50,956
Limited partner - units (in shares)	7,753	7,753
General partner - units (in shares)	1	1

XML

Consolidated Statements of Operations - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Revenues:
Base rental income	$ 177,012	$ 169,067	$ 523,996	$ 489,499
Other rental income	88,238	87,936	264,714	263,808
Interest on short-term investments	1,054	342	2,687	1,012
Total revenues	266,304	257,345	791,397	754,319
Expenses:
Real estate operating expenses	60,016	81,253	210,353	238,148
Interest on loan payable		113,380		363,784
Depreciation and amortization	44,796	40,850	134,388	115,132
Real estate taxes	31,665	31,362	94,996	94,086
Management fees	218,456	215,068	651,786	656,829
Other	31,800	41,662	99,784	115,588
Total expenses	386,733	523,575	1,191,307	1,583,567
Loss from operations	(120,429)	(266,230)	(399,910)	(829,248)
Equity in net increase in net assets of investment	4,872,219	11,337,038	10,134,611	13,620,447
Reserve for value of investment	(2,436,110)	(1,152,038)	(5,067,305)	(3,435,447)
Income from continuing operations	2,315,680	9,918,770	4,667,396	9,355,752
Income from discontinued operations		113,823		407,718
Gain on sale of investment in real estate		3,569,246		3,569,246
Net income	2,315,680	13,601,839	4,667,396	13,332,716
Income allocated to general partner	299	1,754	602	1,720
Income allocated to limited partners	$ 2,315,381	$ 13,600,085	$ 4,666,794	$ 13,330,996
Income per unit of limited partnership interest (basic and diluted)
Income from continuing operations (in dollars per share)	$ 298.68	$ 1,279.35	$ 602.01	$ 1,206.73
Income from discontinued operations (including gain on sale) (in dollars per share)		475.05		512.95
Net income (in dollars per share)	$ 298.68	$ 1,754.40	$ 602.01	$ 1,719.68
Weighted Average Number of Units of Limited Partnership Interest Outstanding (in shares)	7,753	7,753	7,753	7,753

XML

Consolidated Statements of Changes in Partners' Equity (Deficit) (Unaudited) - 9 months ended Sep. 30, 2016 - USD ($)	Limited Partner [Member] Units of Partnership [Member]	Limited Partner [Member] Cumulative Cash Distributions [Member]	Limited Partner [Member] Retained Earnings [Member]	Limited Partner [Member]	General Partner [Member] Units of Partnership [Member]	General Partner [Member] Cumulative Cash Distributions [Member]	General Partner [Member] Retained Earnings [Member]	General Partner [Member]	Total
Balance (in shares) at Dec. 31, 2015	7,753				1
Balance at Dec. 31, 2015	$ 119,968,973	$ (111,721,586)	$ 3,431,406	$ 11,678,793	$ 10,000	$ (26,364)	$ (568)	$ (16,932)	$ 11,661,861
Net income			4,666,794	4,666,794			602	602	4,667,396
Balance (in shares) at Sep. 30, 2016	7,753				1
Balance at Sep. 30, 2016	$ 119,968,973	$ (111,721,586)	$ 8,098,200	$ 16,345,587	$ 10,000	$ (26,364)	$ 34	$ (16,330)	$ 16,329,257

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Cash Flows From Operating Activities:
Net income	$ 4,667,396	$ 13,332,716
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in net increase in net assets of investment	(10,134,611)	(13,620,447)
Reserve for fair value of investment	5,067,305	3,435,447
Gain on sale of real estate investment		(3,569,246)
Depreciation and amortization	134,388	117,100
Net decrease in operating assets	(23,781)	(5,464)
Net increase (decrease) in accounts payable	4,466	(8,886)
Net increase in tenant security deposit	1,399	1,398
Net increase (decrease) in accrued expenses	332,105	(776,190)
Net cash provided by (used in) operating activites	48,667	(1,093,572)
Cash Flows From Investing Activities:
Net proceeds from sale of investment in real estate owned		15,595,492
Interest earned on capital reserve escrow acount	(433)	(38)
Capital additions to real estate owned		(149,213)
Net cash provided by (used in) investing activites	(433)	15,446,241
Cash Flows From Financing Activities:
Repayment of mortgage note in discontinued operations		(10,000,000)
Repayment of loan payable	(226,415)	(3,966,148)
Decrease in restricted cash	200,000
Net cash (used in) financing activities	(26,415)	(13,966,148)
Net change in cash and cash equivalents	21,819	386,521
Cash and cash equivalents at beginning of period	1,206,899	933,373
Cash and cash equivalents at end of period	1,228,718	1,319,894
Supplemental disclosure of cash flow information:
Cash paid during the period for interest		$ 1,731,395

XML

Note 1 - Organization and Significant Accounting Policies

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Text Block]

(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

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

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

The results of operations for the three and nine month periods ended September 30, 2016 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, 2015.

XML

Note 2 - Reclassification

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Reclassifications [Text Block]

(2) RECLASSIFICATION

In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-3,

Simplifying the Presentation of Debt Issuance Costs

(ASU 2015-3), which changes the presentation of debt issuance costs in financial statements. ASU 2015-3 requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. ASU 2015-3 is effective for annual reporting periods beginning after December 15, 2015. The new guidance has been applied retrospectively to each prior period presented.

The consolidated balance sheets for the periods ended September 30, 2016 and December 31, 2015 report the unamortized deferred financing costs as deductions from the loan payable.

XML

Note 3 - Investments in Real Estate

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Real Estate Disclosure [Text Block]

(3) INVESTMENTS IN REAL ESTATE

As of September 30, 2016, 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, 2016 and December 31, 2015.

	No. of		Year of				Real Estate at Cost
Type	Prop.		Acquisition		Description		9/30/2016			12/31/2015
Industrial flex property		1		2002		60,345 sf	$	5,486,185		$	5,486,185
Less: Accumulated depreciation								(1,887,990	)		(1,769,982	)
Investment in real estate							$	3,598,195		$	3,716,203

XML

Note 4 - Real Estate Transaction

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Real Estate Held for Sale [Text Block]

(4) REAL ESTATE TRANSACTION

On September 17, 2015, the Partnership sold Lino Lakes for $16,050,000 in an all cash transaction. The net proceeds from the sale were used, in part, to retire the mortgage note of $10,000,000 that had been secured by the property and to pay down the Partnership’s loan. The results of operations for the three and nine months ended September 30, 2015 are reflected as income from discontinued operations in the accompanying consolidated statements of operations.

XML

Note 5 - Investment in Sentinel Omaha, LLC

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Equity Method Investments and Joint Ventures Disclosure [Text Block]

(5) 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, 2016 owns 14 multifamily properties in 10 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, 2016 and December 31, 2015.

Balance Sheet	(Unaudited) September 30, 2016			(Audited) December 31, 2015
Investment in real estate, net	$	381,200		$	355,615
Other assets		10,553			13,552
Debt		(257,103	)		(267,674	)
Other liabilities		(4,562	)		(5,187	)
Member's equity	$	130,088		$	96,306

Statement of Operations	(Unaudited) September 30, 2016
Rent and other income	$	32,986
Real estate operating expenses		(15,751	)
Other expenses		(5,072	)
Net unrealized income		21,619
Net increase in net assets	$	33,782

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Note 6 - Loan Payable

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Debt Disclosure [Text Block]

(6) LOAN PAYABLE

      Loan payable consists of the following non-recourse first lien:

						Annual				Net Carrying Amount
Property	Interest Rate			Maturity Date		Installment Payments		Amount Due at Maturity		September 30, 2016			December 31, 2015
Bank Loan (a):
Note B		0.000	%		Apr-18		-		5,760,473	$	5,760,473		$	5,986,888
Less: unamortized finance costs											(34,577	)		(50,956	)
Loan payable										$	5,725,896		$	5,935,932

(a) 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. The Partnership and Holder continued discussions and following a period of negotiation relating to the Partnership’s inability to pay off the loan at maturity, 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”).

2) Note A which had a balance of $3,768,751 as of September 18, 2015 was paid off in full using proceeds from the sale of Lino Lakes.

3) Note B in the amount of $5,760,473 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 previously accrued interest at an annual fixed rate of 5% but only until all interest and principal had been paid in full on Note A. Thereafter Note B does not accrue any interest. Except as discussed below, payments of principal are deferred until Registrant’s investment in Sentinel Omaha LLC (“Omaha”) pays distributions to the Partnership or the Partnership sells Eagle Lake Business Center IV or its investment in Omaha. Distributions from Omaha or net proceeds from the sale of Eagle IV or Omaha would be used first to pay the outstanding principal balance of Note B. If there are no distributions from Omaha prior to the Note B maturity, principal is due at maturity, subject to the above mentioned extensions.

4) Note B 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) On September 17, 2015, the Partnership sold Lino Lakes (see note 4). $200,000 of net sales proceeds had been held in reserve pending the expiration of the representations and warranties period as stipulated in the sales contract. On March 15, 2016, the representation and warranties period expired. There were no charges made against this reserve, therefore in March 2016, the $200,000 was used to further pay down the principal balance of the Note B in accordance with the terms of the Loan Agreement. Until the Partnership’s obligations under Note B is 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 Note B while retaining the other portion to increase cash reserves. On May 16, 2016, the partnership paid $26,415 to the Holder to pay down a portion of the outstanding balance of Note B. While the obligation under Note B is 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 Note B remains outstanding. As of September 30, 2016 and December 31, 2015, $2,351,344 and $2,019,239, respectively of investment management fees have been accrued and are included in accrued expenses on the balance sheet.

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

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Note 3 - Investments in Real Estate (Tables)

9 Months Ended

Sep. 30, 2016

Notes Tables

Schedule of Real Estate Properties [Table Text Block]

	No. of		Year of				Real Estate at Cost
Type	Prop.		Acquisition		Description		9/30/2016			12/31/2015
Industrial flex property		1		2002		60,345 sf	$	5,486,185		$	5,486,185
Less: Accumulated depreciation								(1,887,990	)		(1,769,982	)
Investment in real estate							$	3,598,195		$	3,716,203

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Note 5 - Investment in Sentinel Omaha, LLC (Tables)

9 Months Ended

Sep. 30, 2016

Statement of Operations [Member]

Notes Tables

Real Estate Investment Financial Statements, Disclosure [Table Text Block]

Statement of Operations	(Unaudited) September 30, 2016
Rent and other income	$	32,986
Real estate operating expenses		(15,751	)
Other expenses		(5,072	)
Net unrealized income		21,619
Net increase in net assets	$	33,782

Balance Sheet [Member]

Notes Tables

Real Estate Investment Financial Statements, Disclosure [Table Text Block]

Balance Sheet	(Unaudited) September 30, 2016			(Audited) December 31, 2015
Investment in real estate, net	$	381,200		$	355,615
Other assets		10,553			13,552
Debt		(257,103	)		(267,674	)
Other liabilities		(4,562	)		(5,187	)
Member's equity	$	130,088		$	96,306

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Note 6 - Loan Payable (Tables)

9 Months Ended

Sep. 30, 2016

Notes Tables

Schedule of Long-term Debt Instruments [Table Text Block]

						Annual				Net Carrying Amount
Property	Interest Rate			Maturity Date		Installment Payments		Amount Due at Maturity		September 30, 2016			December 31, 2015
Bank Loan (a):
Note B		0.000	%		Apr-18		-		5,760,473	$	5,760,473		$	5,986,888
Less: unamortized finance costs											(34,577	)		(50,956	)
Loan payable										$	5,725,896		$	5,935,932

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Note 3 - Investments in Real Estate - Summary of Investments in Real Estate (Details)	9 Months Ended
	Sep. 30, 2016 USD ($) ft²	Dec. 31, 2015 USD ($)
Industrial Flex Property [Member]
Industrial flex property	1
Industrial flex property	2002
Industrial flex property | ft²	60,345
Industrial flex property	$ 5,486,185	$ 5,486,185
Less: Accumulated depreciation	(1,887,990)	(1,769,982)
Investment in real estate	$ 3,598,195	$ 3,716,203

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Note 4 - Real Estate Transaction (Details Textual) - USD ($)		9 Months Ended
	Sep. 17, 2015	Sep. 30, 2016	Sep. 30, 2015
Property, Plant and Equipment, Disposals	$ 16,050,000
Repayments of Long-term Debt	$ 10,000,000		$ 10,000,000

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Note 5 - Investment in Sentinel Omaha, LLC (Details Textual) - Sentinel Omaha LLC [Member]	Sep. 30, 2016	Dec. 31, 2007 USD ($)
Investment Owned, at Cost		$ 37,200,000
Number of Multifamily Properties	14
Number of Markets	10
Equity Method Investment, Ownership Percentage	30.00%

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Note 5 - Investment in Sentinel Omaha, LLC - Balance Sheet (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Sentinel Omaha LLC [Member]
Investment in real estate, net	$ 381,200,000	$ 355,615,000
Other	10,553,000	13,552,000
Debt	(257,103,000)	(267,674,000)
Other liabilities	(4,562,000)	(5,187,000)
Member's equity	130,088,000	96,306,000
Other	37,668	13,887
Debt	$ (5,725,896)	$ (5,935,932)

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Note 5 - Investment in Sentinel Omaha, LLC - Statement of Operations (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Sentinel Omaha LLC [Member]
Rent and other income			$ 32,986,000
Real estate operating expenses			(15,751,000)
Other expenses			(5,072,000)
Net unrealized income			21,619,000
Net income			33,782,000
Rent and other income	$ 266,304	$ 257,345	791,397	$ 754,319
Real estate operating expenses	(60,016)	(81,253)	(210,353)	(238,148)
Other expenses	(31,800)	(41,662)	(99,784)	(115,588)
Net income	$ 2,315,680	$ 13,601,839	$ 4,667,396	$ 13,332,716

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Note 6 - Loan Payable (Details Textual)					1 Months Ended	9 Months Ended
		May 16, 2016 USD ($)	Sep. 17, 2015 USD ($)	Apr. 29, 2011 USD ($)	Mar. 31, 2016 USD ($)	Sep. 30, 2016 USD ($)		Sep. 30, 2015 USD ($)	Dec. 31, 2015 USD ($)		Sep. 18, 2015 USD ($)	Sep. 17, 2007 USD ($)
Note B [Member] | Notes Payable to Banks [Member]
Original Maturity Date						Apr. 29, 2018
Debt Instrument, Face Amount	[1]					$ 5,760,473
Long-term Debt						$ 5,760,473	[1]		$ 5,986,888	[1]	$ 5,760,473
Number of Extension Options						3
Term of Extension Options						1 year
Debt Instrument, Interest Rate, Stated Percentage						0.00%	[1]		5.00%
Repayments of Long-term Debt		$ 26,415			$ 200,000
Note A [Member] | Notes Payable to Banks [Member]
Long-term Debt											$ 3,768,751
Notes Payable to Banks [Member]
Debt Instrument, Face Amount												$ 22,000,000
Repayments of Unsecured Debt				$ 11,930,430
Long-term Debt				$ 10,069,570
Management Fee Payable						$ 2,351,344			$ 2,019,239
Security Interest on Partnership's Property Maximum						5,000,000
Lino Lakes [Member]
Restricted Cash and Cash Equivalents			$ 200,000
Repayments of Unsecured Debt						226,415		$ 3,966,148
Long-term Debt						5,725,896			5,935,932
Restricted Cash and Cash Equivalents									$ 200,000
Repayments of Long-term Debt			$ 10,000,000					$ 10,000,000

[1] 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. The Partnership and Holder continued discussions and following a period of negotiation relating to the Partnership's inability to pay off the loan at maturity, on April 29, 2011 the Partnership and Holder executed the new loan agreement ("Loan Agreement") on the following terms:

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Note 6 - Loan Payable - Summary of Notes and Loans Payable (Details) - USD ($)		Sep. 30, 2016		Dec. 31, 2015		Sep. 18, 2015	Apr. 29, 2011	Sep. 17, 2007
Notes Payable to Banks [Member] | Note B [Member]
Debt Instrument, Interest Rate, Stated Percentage		0.00%	[1]	5.00%
Debt Instrument, Face Amount	[1]	$ 5,760,473
Long-term Debt		5,760,473	[1]	$ 5,986,888	[1]	$ 5,760,473
Less: unamortized finance costs	[1]	(34,577)		(50,956)
Loan payable, net of unamortized deferred finance costs of $34,577 and $50,956 at September 30, 2016 and December 31, 2015, respectively		5,760,473	[1]	5,986,888	[1]	$ 5,760,473
Notes Payable to Banks [Member]
Debt Instrument, Face Amount								$ 22,000,000
Long-term Debt							$ 10,069,570
Loan payable, net of unamortized deferred finance costs of $34,577 and $50,956 at September 30, 2016 and December 31, 2015, respectively							$ 10,069,570
Long-term Debt		5,725,896		5,935,932
Less: unamortized finance costs		(34,577)		(50,956)
Loan payable, net of unamortized deferred finance costs of $34,577 and $50,956 at September 30, 2016 and December 31, 2015, respectively		$ 5,725,896		$ 5,935,932

[1] 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. The Partnership and Holder continued discussions and following a period of negotiation relating to the Partnership's inability to pay off the loan at maturity, on April 29, 2011 the Partnership and Holder executed the new loan agreement ("Loan Agreement") on the following terms: