sbp20180930_10q.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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

OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2018

☐	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.)

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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, a smaller reporting company or a emerging growth 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 [ ] emerging growth company

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

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). [ ] Yes [X] No

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. [ ] Yes [ ] No

Not Applicable

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Not Applicable

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	September 30,			December 31,
	2018 (Unaudited)			2017 (Audited)

Assets:
Investments -
Real estate, at cost
Land	$	470,000		$	470,000
Buildings, furnishings and improvements		5,239,859			5,081,365
Less - accumulated depreciation		(2,204,141	)		(2,084,846	)
		3,505,718			3,466,519

Investment in Sentinel Omaha, LLC, net of reserve for fair value of $10,846,676 and $12,526,608 at September 30, 2018 and December 31, 2017, respectively		43,386,702			37,579,824
		46,892,420			41,046,343

Other Assets -
Cash and cash equivalents		1,343,903			1,449,927
Cash in escrow		509,965			504,778
Other		37,024			7,019

Total assets	$	48,783,312		$	43,008,067

Liabilities:
Loan payable, net of unamortized deferred finance costs of $0 and $7,279 at September 30, 2018 and December 31, 2017, respectively	$	5,693,876		$	5,719,311
Accounts payable		514,799			516,793
Tenant security deposit		102,813			101,414
Accrued expenses		3,286,792			2,922,943

Total liabilities		9,598,280			9,260,461

Partners' Equity (Deficit):
Units of partnership interest without par value;
Limited partner - 7,753 units		39,198,414			33,761,689
General partner - 1 unit		(13,382	)		(14,083	)

Total partners' equity		39,185,032			33,747,606

Total liabilities and partners' equity	$	48,783,312		$	43,008,067

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2018			2017			2018			2017
Revenues:
Base rental income	$	187,924		$	182,393		$	556,330		$	539,937
Other rental income		87,041			87,452			261,123			262,356
Interest income		5,825			1,774			14,187			4,504

Total revenues		280,790			271,619			831,640			806,797

Expenses:
Real estate operating expenses		66,265			70,610			206,058			206,441
Amortization of deferred financing costs		-			5,460			7,279			16,380
Depreciation		39,765			39,345			119,295			118,035
Real estate taxes		30,467			30,881			91,401			92,644
Management fees		228,463			222,090			683,530			664,191
Other		32,320			32,730			93,529			97,035

Total expenses		397,280			401,116			1,201,092			1,194,726

Loss from operations		(116,490	)		(129,497	)		(369,452	)		(387,929	)

Equity in net income of investment		1,899,156			4,013,490			4,126,946			9,397,455

(Increase) decrease in reserve for value of investment		(379,831	)		1,205,146			1,679,932			1,529,276

Net income		1,402,835			5,089,139			5,437,426			10,538,802

Income allocated to general partner		181			656			701			1,359

Income allocated to limited partners	$	1,402,654		$	5,088,483		$	5,436,725		$	10,537,443

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

Net income	$	180.94		$	656.41		$	701.33		$	1,359.32

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

	For the Nine Months Ended September 30,
	2018			2017

Cash Flows From Operating Activities:
Net income	$	5,437,426		$	10,538,802
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in net (income) of investment		(4,126,946	)		(9,397,455	)
(Decrease) in reserve for value of investment		(1,679,932	)		(1,529,276	)
Depreciation and amortization		126,574			134,414
Net (increase) decrease in operating assets		(30,005	)		4,763
Net (decrease) in accounts payable		(1,994	)		(9,083	)
Net increase in tenant security deposit		1,399			1,399
Net increase in accrued expenses		363,849			344,512

Net cash provided by operating activites		90,371			88,076

Cash Flows From Investing Activities:
Capital additions to real estate owned		(158,494	)		-

Net cash (used in) investing activites		(158,494	)		-

Cash Flows From Financing Activities:
Repayment of loan payable		(32,714	)		(33,883	)

Net cash (used in) financing activities		(32,714	)		(33,883	)

Net change in cash and cash equivalents and cash in escrow		(100,837	)		54,193

Cash and cash equivalents and cash in escrow at beginning of period		1,954,705			1,828,342

Cash and cash equivalents and cash in escrow at end of period	$	1,853,868		$	1,882,535

(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, 2018 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, 2017.

(3) INVESTMENTS IN REAL ESTATE

As of September 30, 2018, 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, 2018 and December 31, 2017.

	No. of		Year of				Real Estate at Cost
Type	Prop.		Acquisition		Description		9/30/2018			12/31/2017

Industrial flex property		1		2002		60,345 sf	$	5,709,859		$	5,551,365

Less: Accumulated depreciation								(2,204,141	)		(2,084,846	)

Investment in real estate							$	3,505,718		$	3,466,519

The Partnership’s wholly owned property located in Maple Grove, Minnesota is 100% leased to a single 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. On July 26, 2018, the Partnership and the tenant executed the Fifth Amendment to the lease agreement which extends the expiration date to October 31, 2024. The tenant’s base rent will continue to increase 3% each year and the tenant’s option to terminate the lease early has been eliminated. All other significant terms of the lease remain the same. In accordance with the property management agreement, an affiliate of the general partner was paid a leasing commission in connection with the lease extension. The fee in the amount of $158,494 was based on 75% of the estimated prevailing market rate a third party broker would charge for similar services.

(4) 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.

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

The three levels of fair value hierarchy are described below:

●

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

●

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

●

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

The following major categories of assets were measured at fair value as of September 30, 2018 and December 31, 2017:

	Level 3:			September 30,
	Significant			2018
	Unobservable			(Unaudited)
	Inputs			Total

Assets
Investment in Sentinel Omaha, LLC ("Omaha")	$	54,233,378		$	54,233,378
Reserve for fair value of investment		(10,846,676	)		(10,846,676	)

Total assets	$	43,386,702		$	43,386,702

	Level 3:			December 31,
	Significant			2017
	Unobservable			(Audited)
	Inputs			Total

Assets
Investment in Sentinel Omaha, LLC	$	50,106,432		$	50,106,432
Reserve for fair value of investment		(12,526,608	)		(12,526,608	)

Total assets	$	37,579,824		$	37,579,824

The following is a reconciliation of the beginning and ending balances for assets measured at fair value using significant unobservable inputs (Level 3) during the periods ended September 30, 2018 and December 31, 2017:

	Investment in		Reserve for
	Sentinel		fair value
	Omaha, LLC		of investment			Total

Balance at January 1, 2017	$	38,786,395	$	(13,575,238	)	$	25,211,157
Equity in net income of investment		11,320,037		-			11,320,037
Decrease in reserve		-		1,048,630			1,048,630
Balance at December 31, 2017		50,106,432		(12,526,608	)		37,579,824
Equity in net income of investment		4,126,946		-			4,126,946
Decrease in reserve		-		1,679,932			1,679,932
Balance at September 30, 2018	$	54,233,378	$	(10,846,676	)	$	43,386,702

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Omaha was precluded from making distributions to its investors until its unsecured loan was paid in full. Omaha’s unsecured loan which, as of December 31, 2017 had a balance of $20,859,322, had a maturity date of December 31, 2017. During 2017, Omaha exercised its one option to extend the maturity date to June 30, 2018. Registrant as of the year ended December 31, 2017 had recognized a value in the Omaha investment equal to Registrant’s 30% portion of the equity reported on Omaha’s balance sheet as of December 31, 2017 less a 25% reserve. During the first quarter of 2018, Omaha sold its garden apartment property in Asheville, North Carolina and its garden apartment property in Fresno, California. Net sales proceeds were used first to paying selling expenses and to pay off the mortgage securing each property. Remaining proceeds were used to fully retire the remaining balance of Omaha’s unsecured loan. Registrant as of March 31, 2018 had reduced the reserve to 20%.

(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, 2018 owns nine multifamily properties in six 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 September 30, 2018 and December 31, 2017 and the nine months ended September 30, 2018 and 2017.

	(Unaudited)			(Audited)
Balance Sheet	September 30, 2018			December 31, 2017

Investment in real estate, net	$	303,800		$	368,600
Other assets		16,916			10,556
Debt		(135,485	)		(207,187	)
Other liabilities		(4,453	)		(4,948	)
Member's equity	$	180,778		$	167,021

	(Unaudited)			(Unaudited)
Statement of Operations	September 30, 2018			September 30, 2017

Rent and other income	$	25,739		$	21,750
Real estate operating expenses		(12,724	)		(11,094	)
Other expenses		(4,036	)		(3,463	)
Net realized gains (losses)		9,940			(20,794	)
Net unrealized (losses) gains		(5,162	)		31,548

Net increase in net assets	$	13,757		$	17,947

(6) LOAN PAYABLE

Loan payable consists of the following:

						Annual				Net Carrying Amount
	Interest					Installment		Amount Due		September 30,		December 31,
Property	Rate			Maturity Date		Payments		at Maturity		2018		2017

Bank Loan (a):
Note B		0.000	%		Apr-19		-	$	5,693,876	$	5,693,876	$	5,726,590
Less: unamortized finance costs											-		(7,279	)

Loan payable										$	5,693,876	$	5,719,311

(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. On April 29, 2011, the Holder and the Partnership executed a new Loan Agreement (“Loan Agreement”). Registrant paid down a portion of the Loan using the net sales proceeds from the sale of 175 Ambassador Drive in 2011. Registrant made a further pay down, including fully retiring Note A, using the net sales proceeds from the sale of Lino Lakes in 2015. The terms of the remaining bank loan are:

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Note B in the amount of $5,693,876 had a maturity date of April 29, 2018. The Partnership has three one-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. Accrued interest related to Note B in the amount of $1,335,833 was paid off in full on September 18, 2015 using sales proceeds from the sale of Lino Lakes. 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 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. On January 30, 2018, the Partnership sent notice to Holder to exercise its first one year option to extend the maturity date to April 29, 2019, which Holder has acknowledged.

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. See Note 7 below regarding the early retirement of the Loan on October 19, 2018.

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 14, 2018, the partnership paid $32,714 to the Holder to pay down a portion of the outstanding balance of Note B. On May 26, 2017, the partnership paid $33,883 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.

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, 2018 and December 31, 2017, $3,286,792 and $2,922,943, 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.

The consolidated financial statements for the three and nine months ended September 30, 2018 and 2017 reflect the operations 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 whose lease was to expire October 31, 2019. On July 26, 2018, Registrant and the tenant executed the Fifth Amendment to the lease agreement which extends the expiration date to October 31, 2024. The tenant pays fixed base rent which increases approximately 3% each year. The tenant pays directly or reimburses Registrant for all utilities, real estate taxes, insurance and most of the property operating expenses and property management fees.

Sentinel Omaha LLC’s portfolio consists of eight 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.

Total revenues from continuing operations for the three months ended September 30, 2018 increased $9,000 to approximately $281,000 as compared to approximately $272,000 for the three months ended September 30, 2017. Total revenues increased due to an increase in base rental income and interest income. Base rental income increased $6,000 to approximately $188,000 for the three months ended September 30, 2018 as compared to the same period in 2017 due to a scheduled increase in base rent at Registrant’s property located in Maple Grove, MN. Interest income increased due to an increase in interest rates. Other rental income decreased slightly.

The Registrant reported a net loss from operations of approximately $116,000 for the three months ended September 30, 2018, an improvement of $13,000 as compared to a net loss from operations of approximately $129,000 for the same period in 2017. 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 higher total revenues combined with lower total expenses. Total expenses from operations for 2018 decreased $4,000 to approximately $397,000 from approximately $401,000 in 2017, due primarily to a decrease in amortization of financing costs of $5,000 and real estate operating expenses of $4,000 partially offset by an increase in management fee expense of $6,000.

Total revenues from continuing operations for the nine months ended September 30, 2018 increased $25,000 to approximately $832,000 as compared to approximately $807,000 for the nine months ended September 30, 2017. Total revenues increased due to an increase in base rental income and interest income. Base rental income increased $16,000 to approximately $556,000 for the nine months ended September 30, 2018 as compared to the same period in 2017 due to a scheduled increase in base rent at Registrant’s property located in Maple Grove, MN. Interest income increased due to an increase in interest rates. Other rental income decreased slightly.

The Registrant reported a net loss from operations of approximately $369,000 for the nine months ended September 30, 2018, an improvement of $19,000 as compared to a net loss from operations of approximately $388,000 for the same period in 2017. 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 higher total revenues partially offset by higher total expenses. Total expenses from operations for 2018 increased $6,000 to approximately $1,201,000 from approximately $1,195,000 in 2017, due primarily to an increase in management fee expense of $19,000 and an increase in repairs and maintenance costs of $16,000. This increase was partially offset by a decrease in administrative expenses of $14,000 and a decrease in amortization of financing cost of $9,000.

The Registrant has a 30% non-controlling interest in Omaha that is accounted for on a fair value basis. Net increase in net assets decreased $7,006,000 to approximately $6,331,000 for the three months ended September 30, 2018 compared to net increase in net assets of approximately $13,337,000 for the same period in 2017. During 2017, Omaha sold its garden apartment property in Daytona, Florida and sold both garden apartment properties located in Fayetteville, North Carolina. Net sales proceeds in each transaction were used to first pay selling expenses and pay off each property’s related secured mortgage loan. Remaining net sales proceeds were used to reduce Omaha’s unsecured loan. During the twelve months ended December 31, 2017, Omaha reported a net increase in the value of its remaining real estate portfolio of $33,815,000. During the nine months ended September 30, 2018, Omaha sold its garden apartment property in Asheville, North Carolina and its garden apartment property in Fresno, California. Net sales proceeds in each transaction were used to first pay selling expenses and pay off each property’s related secured mortgage loan. Remaining net sales proceeds were used to pay off Omaha’s unsecured loan and were used to pay off Omaha’s secured mortgage loan encumbering its high rise apartment property located in Omaha, NE to further pay down Omaha’s debt. Retirement of the unsecured loan removed certain restrictions placed on Omaha by the lender including making distributions. During the nine months ended September 30, 2018, Omaha reported a net increase in the value of its remaining real estate portfolio of $8,475,000.

During 2017 the variable rates on Omaha loans increased as short term LIBOR rates increased. The one month LIBOR rate increased from an average of (0.7164%) during December 2016 to an average of (1.4925%) during December 2017 and further to an average of (2.1755%) during September 2018. Fixed mortgage interest rates for multi-family properties of similar class and location as Omaha’s portfolio also increased during 2017 from an approximate range of 4.10% to 4.15% in early 2017 to 4.35% to 4.50% near the end of 2017 and further to an approximate range of 5.05% to 5.10% in September 2018. Mortgage interest rates may continue to increase in 2019 as the U.S. Federal Reserve has had a policy of increasing the Federal Funds Rate during the past few years. Although increases in fixed mortgage rates do not impact the operating cash flow of the Omaha properties directly, increases in fixed and floating rates on commercial mortgage debt can have a negative impact on capitalization rates and the sales prices Sentinel Omaha may achieve in the future.

Since Omaha has in the past two years fully retired its unsecured loan that restricted its activity, including making distributions to its investors, and has shown improving performance at the properties, the debt risk is estimated to be lower. The investment in a 30% non-controlling interest would still be valued at a discount due to the lack of liquidity and ownership of a non-controlling (minority) interest. Registrant will continue to report a reserve on the value of Omaha on its books but due to the retirement of Omaha's unsecured loan in 2017, the reserve was reduced from 25% as of December 31, 2017 to 20% as of March 31, 2018.

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.

The Registrant’s critical accounting policies are described in its Annual Report on Form 10-K for the year ended December 31, 2017. There were no significant changes to such policies in 2018. 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.

As of September 30, 2018, the Registrant had cash and cash equivalents of approximately $1,344,000. These balances are approximately $106,000 lower than cash and cash equivalents held on December 31, 2017. Cash and cash equivalents decreased during the nine months ended September 30, 2018 due to a leasing commission paid to an affiliate of the general partner in the amount of $158,494 related to the lease extension executed with the tenant at Registrant’s Maple Grove property combined with partnership expenses and a partial pay down of Registrant’s Note B. This was partially offset by cash flow generated from operating activities at Registrant’s wholly owned property.

Currently, Registrant’s only consistent source of cash is rental income received from the tenant that leases 100% of the leasable space at Registrant’s wholly owned property in Maple Grove. The tenant reimburses Registrant for real estate taxes, insurance and most of the properties’ operating expenses leaving a significant portion of the base rent received available to fund capital improvements and partnership administrative expenses. 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. On July 26, 2018, Registrant and the tenant executed the Fifth Amendment to the lease agreement which extends the expiration date to October 31, 2024. The tenant’s base rent will continue to increase 3% each year and the tenant’s option to terminate the lease early has been eliminated. All other significant terms of the lease remain the same.

Total outstanding debt at September 30, 2018 consists of Note B at $5,693,876. Under the terms of the Loan Agreement, when Note A was repaid, interest on the Note B stopped accruing. Note B matured April 29, 2018. Registrant has three one-year options to extend the maturity date if certain conditions are satisfied. On January 30, 2018, the Partnership sent notice to Holder to exercise its first one year option to extend the maturity date to April 29, 2019, which Holder has acknowledged. The Registrant has no other debt except normal trade accounts payable and accrued investment management fees.

On October 4, 2018, the Partnership and the Holder of the Loan executed a Discounted Payoff Agreement (“Payoff Agreement”) whereby the Partnership will make a one-time payment of $4,000,000 on or before October 30, 2018 to pay off and fully satisfy the balance of the Loan of $5,693,876 at a discount. On October 19, 2018 the Partnership paid the $4,000,000 to the Holder to pay off the Loan. The source of funds to pay off the Loan is a distribution from Sentinel Omaha, LLC of $2,400,000, cash escrow held by the Holder of approximately $510,000 and the remainder from partnership cash reserves to total $4,000,000. The payoff of $4,000,000 to satisfy the Loan is less than the outstanding balance of the Loan in the amount of $5,693,876. The difference of $1,693,876 will be recorded as Income from Forgiveness of Debt.

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.

Total revenues for the three months ended September 30, 2018 increased $5,000 to approximately $275,000 as compared to approximately $270,000 for the three months ended September 30, 2017. The property reported higher base rental income and slightly lower other rental income. Base rental income was higher in 2018 due to a scheduled increase in the base rent. Net operating income, which includes deductions for depreciation, increased $2,000 for the three months ended September 30, 2018 to approximately $173,000 from approximately $171,000 for the three months ended September 30, 2017 due primarily to higher total revenues partially offset by higher operating expenses. Operating expenses were higher due to higher repairs and administrative expenses.

Total revenues for the nine months ended September 30, 2018 increased $15,000 to approximately $817,000 as compared to approximately $802,000 for the three months ended September 30, 2017. The property reported higher base rental income and slightly lower other rental income. Base rental income was higher in 2018 due to a scheduled increase in the base rent. Net operating income, which includes deductions for depreciation, decreased $1,000 for the nine months ended September 30, 2018 to approximately $493,000 from approximately $494,000 for the three months ended September 30, 2017 due primarily to higher operating expenses total revenues partially offset by higher total revenues. Operating expenses were higher due to higher repairs and administrative expenses.

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

As of September 30, 2017, the Omaha portfolio consisted of 11 multi-family properties located in 8 markets. Omaha’s total revenues for the three months ended September 30, 2017 were approximately $9,867,000. Income before net unrealized income was approximately $3,225,000. Major expenses included approximately $1,554,000 for interest expense, $898,000 for repairs and maintenance, $1,286,000 for payroll, and $1,212,000 for real estate taxes. Omaha reported net unrealized income of approximately $10,152,000 resulting in net increase in net assets of approximately $13,377,000. For the three months ended September 30, 2017, the Registrant’s 30% equity interest in the net increase in net assets of Omaha was approximately $4,013,000. Registrant recognized a reserve of 25% 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, 2017. As a result, Registrant reported net equity in net increase in net assets of Omaha for the quarter ended September 30, 2017 of $5,219,000.

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

Omaha’s total revenues for the nine months ended September 30, 2017 were approximately $31,616,000. Income before realized losses and net unrealized income was approximately $10,419,000. Major expenses included approximately $4,837,000 for interest expense, $2,694,000 for repairs and maintenance, $4,301,000 for payroll, and $3,952,000 for real estate taxes. Omaha reported realized losses of $20,794,000 and net unrealized income of approximately $41,700,000 resulting in net increase in net assets of approximately $31,325,000. For the nine months ended September 30, 2017, the Registrant’s 30% equity interest in the net increase in net assets of Omaha was approximately $9,397,000. Registrant recognized a reserve of 25% 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, 2017. As a result, Registrant reported net equity in net increase in net assets of Omaha for the nine months ended September 30, 2017 of approximately $10,927,000.

(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, 2018 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.

** 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.

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.

Part I	Financial Information

Item 1	Financial Statements

	Consolidated Balance Sheets as of September 30, 2018 (unaudited) and December 31, 2017 (audited)	1

	Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2018 and 2017	2

	Consolidated Statements of Changes in Partners' Equity (Deficit) (unaudited) for the nine months ended September 30, 2018	3

	Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2018 and 2017	4

	Notes to Consolidated Financial Statements (unaudited)	5 – 8

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	9 – 12

Item 3	Quantitative and Qualitative Disclosures about Market Risk	13

Item 4T	Controls and Procedures	13


Part II	Other Information	13

	Signatures	14

	Exhibit 31

	Exhibit 32

Limited Partners:
	Units of Partnership Interest

	Number		Amount		Cumulative Cash Distributions			Accumulated Income		Total

Balance, January 1, 2018		7,753	$	119,968,973	$	(111,721,586	)	$	25,514,302	$	33,761,689
Net income for the period		-		-		-			5,436,725		5,436,725
Balance, September 30, 2018		7,753	$	119,968,973	$	(111,721,586	)	$	30,951,027	$	39,198,414

General Partner:
	Units of Partnership Interest

	Number		Amount		Cumulative Cash Distributions			Accumulated Income		Total

Balance, January 1, 2018		1	$	10,000	$	(26,364	)	$	2,281	$	(14,083	)
Net income for the period		-		-		-			701		701
Balance, September 30, 2018		1	$	10,000	$	(26,364	)	$	2,982	$	(13,382	)

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

		SB PARTNERS
		(Registrant)

	By:	SB PARTNERS REAL ESTATE CORPORATION
		General Partner

Dated: November 12, 2018	By:	/s/ George N. Tietjen III
		George N. Tietjen III
		Chief Executive Officer

		Principal Financial & Accounting Officer
Dated: November 12, 2018	By:	/s/ John H. Zoeller
		John H. Zoeller
		Chief Financial Officer