SB Partners 10-Q 2014 Q3 Quarterly report

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, 2014

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 incorporation or organization)	(I.R.S. Employer 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, 2014 (unaudited) and December 31, 2013 (audited)	1
	Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2014 and 2013	2
	Consolidated Statements of Changes in Partners' Deficit (unaudited) for the nine months ended September 30, 2014	3
	Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2014 and 2013	4
	Notes to Consolidated Financial Statements (unaudited)	5 – 7
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	8 – 11
Item 3	Quantitative and Qualitative Disclosures about Market Risk	12
Item 4T	Controls and Procedures	12
Part II	Other Information	12
	Signatures	13
	Exhibit 31
	Exhibit 32

ITEM 1. FINANCIAL STATEMENTS

SB PARTNERS

(A New York Limited Partnership)

CONSOLIDATED BALANCE SHEETS

	September 30, 2014			December 31, 2013
	(Unaudited)			(Audited)
Assets:
Investments -
Real estate, at cost
Land	$	1,985,000		$	1,985,000
Buildings, furnishings and improvements		18,648,009			18,648,009
Less - accumulated depreciation		(4,780,946	)		(4,420,952	)
		15,852,063			16,212,057
Investment in Sentinel Omaha, LLC, net of reserve for fair value of $4,564,383 and $1,668,952 at September 30, 2014 and December 31, 2013, respectively		-			-
		15,852,063			16,212,057
Other Assets -
Cash and cash equivalents		773,450			624,191
Cash in escrow		500,181			500,144
Other		92,605			146,042
Total assets	$	17,218,299		$	17,482,434
Liabilities:
Mortgage note and unsecured loan payable	$	19,953,036		$	19,967,009
Accounts payable		241,759			364,346
Tenant security deposits		116,622			115,223
Accrued expenses		2,493,100			1,935,870
Total liabilities		22,804,517			22,382,448
Partners' Deficit:
Units of partnership interest without par value;
Limited partner - 7,753 units		(5,567,061	)		(4,880,946	)
General partner - 1 unit		(19,157	)		(19,068	)
Total partners' deficit		(5,586,218	)		(4,900,014	)
Total liabilities and partners' deficit	$	17,218,299		$	17,482,434

  See notes to consolidated financial statements 

1

SB PARTNERS

(A New York Limited Partnership)

CONSOLIDATEDSTATEMENTS OF OPERATIONS (Unaudited)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2014			2013			2014			2013
Revenues:
Base rental income	$	469,079		$	449,672		$	1,373,723		$	1,339,963
Other rental income		222,468			179,443			635,694			538,328
Interest on short-term investments		218			30			531			44
Total revenues		691,765			629,145			2,009,948			1,878,335
Expenses:
Real estate operating expenses		104,693			109,333			349,290			362,854
Interest on mortgage note and unsecured loan payable		270,511			270,690			811,571			810,773
Depreciation and amortization		134,020			136,306			402,060			408,919
Real estate taxes		122,865			127,864			368,595			383,594
Management fees		217,833			214,499			651,910			643,314
Other		38,032			37,075			112,726			111,997
Total expenses		887,954			895,767			2,696,152			2,721,451
Loss from operations		(196,189	)		(266,622	)		(686,204	)		(843,116	)
Equity in net income (loss) of investment		1,435,648			(58,597	)		2,895,431			4,541,080
Reserve for value of investment		(1,435,648	)		58,597			(2,895,431	)		(4,541,080	)
Net loss		(196,189	)		(266,622	)		(686,204	)		(843,116	)
Loss allocated to general partner		(25	)		(34	)		(89	)		(109	)
Loss allocated to limited partners	$	(196,164	)	$	(266,588	)	$	(686,115	)	$	(843,007	)
Loss per unit of limited partnership interest
(basic and diluted)
Net loss	$	(25.30	)	$	(34.39	)	$	(88.51	)	$	(108.75	)
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' DEFICIT

For the nine months ended September 30, 2014 (Unaudited)

Limited Partners:
	Units of Partnership Interest
	Number		Amount		Cumulative Cash Distributions			Accumulated (Losses)			Total
Balance, January 1, 2014		7,753	$	119,968,973	$	(111,721,586	)	$	(13,128,333	)	$	(4,880,946	)
Net loss for the period		-		-		-			(686,115	)		(686,115	)
Balance, September 30, 2014		7,753	$	119,968,973	$	(111,721,586	)	$	(13,814,448	)	$	(5,567,061	)

General Partner:
	Units of Partnership Interest
	Number		Amount		Cumulative Cash Distributions			Accumulated (Losses)			Total
Balance, January 1, 2014		1	$	10,000	$	(26,364	)	$	(2,704	)	$	(19,068	)
Net loss for the period		-		-		-			(89	)		(89	)
Balance, September 30, 2014		1	$	10,000	$	(26,364	)	$	(2,793	)	$	(19,157	)

See notes to consolidated financial statements.

3

SB PARTNERS

(A New York Limited Partnership)

CONSOLIDATEDSTATEMENTS OF CASHFLOWS (Unaudited)

		For the Nine Months Ended September 30,
		2014			2013
Cash Flows From Operating Activities:
Net loss		$	(686,204	)	$	(843,116	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Equity in net (income) of investment			(2,895,431	)		(4,541,080	)
Reserve for fair value of investment			2,895,431			4,541,080
Depreciation and amortization			402,060			408,919
Net decrease in operating assets			11,370			49,423
Net (decrease) in accounts payable			(122,587	)		(11,944	)
Net increase in tenant security deposits			1,399			-
Net increase in accrued expenses			557,230			554,581
Net cash provided by operating activites			163,268			157,863
Cash Flows From Investing Activities:
Interest earned on capital reserve escrow acount			(36	)		-
Capital additions to real estate owned			-			(66,845	)
Net cash (used in) investing activites			(36	)		(66,845	)
Cash Flows From Financing Activities:
Repayment of unsecured note payable			(13,973	)		(16,455	)
Net cash (used in) financing activities			(13,973	)		(16,455	)
Net change in cash and cash equivalents			149,259			74,563
	��
Cash and cash equivalents at beginning of year			624,191			402,874
Cash and cash equivalents at end of year		$	773,450		$	477,437
Supplemental disclosure of cash flow information:
Cash paid during the year for interest		$	585,172		$	585,773

  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 nine month period ended September 30, 2014 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, 2013.

(2) INVESTMENTS IN REAL ESTATE

As of September 30, 2014, the Partnership owns an industrial flex property in Maple Grove, Minnesota and a warehouse distribution center in Lino Lakes, Minnesota. The following is the cost basis and accumulated depreciation of the real estate investments owned by the Partnership at September 30, 2014 and December 31, 2013:

	No. of		Year of			Real Estate at Cost
Type	Prop.		Acquisition		Description	9/30/2014			12/31/2013
Industrial flex property		1		2002	60,345 sf	$	5,336,973		$	5,336,973
Warehouse distribution property		1		2005	226,000 sf		15,296,036			15,296,036
Total cost							20,633,009			20,633,009
Less: Accumulated depreciation							(4,780,946	)		(4,420,952	)
Investment in real estate						$	15,852,063		$	16,212,057

5

(3)    INVESTMENT IN SENTINEL OMAHA, LLC

In 2007, the Partnership made an investment in the amount of $37,200,000 in Sentinel Omaha, LLC (“Omaha”). Omaha is a real estate investment company which as of September 30, 2014 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, 2014 and December 31, 2013.

	(Unaudited)			(Audited)
Balance Sheet	September 30, 2014			December 31, 2013
Investment in real estate, net	$	275,400		$	267,600
Other assets		10,161			9,996
Debt		(265,868	)		(266,254	)
Other liabilities		(4,478	)		(5,779	)
Member's equity	$	15,215		$	5,563

	(Unaudited)
Statement of Operations	September 30, 2014
Rent and other income	$	29,117
Real estate operating expenses		(14,933	)
Other expenses		(7,990	)
Net unrealized income		3,458
Net income	$	9,652

(4) MORTGAGE NOTE AND UNSECURED LOAN PAYABLE

Mortgage note and unsecured loan payable consist of the following non-recourse first liens:

					Annual					Net Carrying Amount
	Interest				Installment			Amount Due		September 30,		December 31,
Property	Rate			Maturity Date	Payments			at Maturity		2014		2013
Lino Lakes		5.800	%	October, 2015	$	580,000	(a)	$	10,000,000	$	10,000,000	$	10,000,000
Bank Loan (b):
Note A											3,953,036		3,967,009
Note B											6,000,000		6,000,000
										$	19,953,036	$	19,967,009

(a) Annual installment payments include interest only.

(b) On September 17, 2007, the Partnership entered into a bank loan (the “Loan”) with a bank (“Holder”) in the amount of $22,000,000, which matured on October 1, 2008 and provided for interest only monthly payments based upon LIBOR plus 1.95% and had entered into discussions as to terms for extending the debt on a longer term basis. On April 29, 2011, the Partnership and Holder executed the new loan agreement (“Loan Agreement”) on the following terms:

1) In connection with the execution of the Loan Agreement, the Partnership was required to make an immediate payment to Holder of $11,930,430, reducing the balance due under the unsecured credit facility to $10,069,570. The payment was made from proceeds resulting from the sale of 175 Ambassador Drive. Additional proceeds from the sale were used to pay Holder’s legal and appraisal costs and to fund a reserve account for future tenant improvement and leasing costs, as needed. The remaining outstanding obligation in the amount of $10,069,570 was divided into two notes (“Note A” and “Note B;” together, the “Notes”).

6

2) Note A with a current balance of $3,953,036 has a maturity of July 31, 2014. The Partnership has two 1-year options to extend the maturity if certain conditions are satisfied. Note A requires monthly payments of accrued interest at an annual fixed rate of 5% until paid in full. If extended, the Partnership is required to make an additional fixed principal payment of $9,570 on April 1, 2015 and $30,000 monthly thereafter until paid in full. On May 5, 2014, the Partnership sent notification to Holder to exercise its first option to extend the maturity date of Note A to July 31, 2015. Holder responded that there were no issues regarding the extension to July 31, 2015.

3) Note B in the amount of $6,000,000 has a maturity date of April 29, 2018. The Partnership has three 1-year options to extend the maturity date if certain conditions are satisfied. Note B accrues interest at an annual fixed rate of 5% but only until all interest and principal have been paid in full on Note A. Thereafter Note B does not accrue any interest. Payments of interest and principal are deferred until Registrant’s investment in Sentinel Omaha LLC (“Omaha”) pays distributions to the Partnership. Distributions from Omaha would be used first to pay accrued interest on the Note B obligation, then principal on the Note B obligation. If there are no distributions from Omaha prior to the Note B maturity, all interest and principal is due at maturity, subject to the above mentioned extensions. As of September 30, 2014 and December 31, 2013, $1,034,167 and $809,167, respectively of Note B interest has been accrued and is included in accrued expenses on the balance sheet.

4) The Notes may be voluntarily prepaid upon notice to the Holder, subject to certain requirements as to the application of payments. The Partnership’s obligations under the Notes may be accelerated upon default.

5) Until the Partnership’s obligations under the Notes are satisfied in full, the Partnership is required to pay a portion of its net operating income (after payment of certain permitted expenses), and the net proceeds from the sale, transfer or refinancing of its remaining properties and investments, toward the Notes while retaining the other portion to increase cash reserves. On May 30, 2014, the partnership paid $13,973 to the Holder to pay down a portion of the outstanding balance of Note A. The proceeds represented excess net operating income, as defined, for the year ended April 30, 2014. While the obligations under the Notes are outstanding the Partnership is precluded from making distributions to its partners.

6) The Partnership, its general partner and the Holder also entered into a Management Subordination Agreement accruing a portion of the investment management fee payable by the Partnership to its general partner so long as the Notes remain outstanding. As of September 30, 2014 and December 31, 2013, $1,458,933 and 1,126,703, 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 properties and investments.

7

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THETHREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

General

The consolidated financial statements for the three and nine months ended September 30, 2014 and 2013 reflect the operations of one industrial flex property and one warehouse distribution center as well as a 30% interest in Omaha.

Registrant’s wholly owned property located in Lino Lakes, Minnesota is 100% leased to a single tenant until September 30, 2017. The tenant’s base rent is fixed and there are no increases scheduled during the initial lease period. The tenant has two options to renew its lease for five years each at a yet undetermined market rate. Tenant either pays directly or reimburses Registrant for all utilities, real estate taxes, insurance and most of the property operating expenses and property management fees. Registrant’s wholly owned property located in Maple Grove, Minnesota is 100% leased to a single tenant until July 31, 2015. The tenant pays fixed base rent which increases 3% each year. The tenant has no renewal options available. 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.

The tenant at Registrant’s property located in Maple Grove has informed Registrant that it does not intend to lease the space for a long term period beyond the expiration in July 2015 but has requested a short term extension for 2 years only. Registrant is continuing discussions with the tenant regarding the terms of an extension but. there is no assurance the current tenant and Registrant will agree on terms for an extension beyond July 2015.

Results of Operations

Total revenues from operations for the three months ended September 30, 2014 increased $63,000 to approximately $692,000 as compared to approximately $629,000 for the three months ended September 30, 2013. Total revenues increased due to increases in base rental income and increases in other income. Base rental income increased $19,000 to approximately $469,000 for the three months ended September 30, 2014 as compared to the same period in 2013 due to a scheduled increase in base rent at both of Registrant’s properties. Other income increased $43,000 to approximately $222,000 for the three months ended September 30, 2014 from approximately $179,000 for the same period in 2013 due to higher expense reimbursement from the tenant at Registrant’s property located in Maple Grove, MN partially offset by lower expense reimbursement from the tenant at Registrant’s property located in Lino Lakes, MN.

Total revenues from operations for the nine months ended September 30, 2014 increased $132,000 to approximately $2,010,000 as compared to approximately $1,878,000 for the nine months ended September 30, 2013. Total revenues increased due to increases in base rental income and increases in other income. Base rental income increased $34,000 to approximately $1,374,000 for the nine months ended September 30, 2014 as compared to the same period in 2013 due to a scheduled increase in base rent at both of Registrant’s properties. Other income increased $98,000 to approximately $636,000 for the nine months ended September 30, 2014 from approximately $538,000 for the same period in 2013 due to higher expense reimbursement from the tenant at Registrant’s property located in Maple Grove, MN partially offset by lower expense reimbursement from the tenant at Registrant’s property located in Lino Lakes, MN.

Net loss from operations decreased $71,000 to a loss of approximately $196,000 for the three months ended September 30, 2014, as compared to an approximate loss of $267,000 for the three months ended September 30, 2013 due to the aforementioned increase in total revenues combined with a decrease in total expenses. Total expenses from operations for the three months ended September 30, 2014, decreased $8,000 to approximately $888,000 from approximately $896,000 for the three months ended September 30, 2013. Total operating expenses decreased due to lower real estate operating expenses combined with lower real estate taxes. Operating expenses were lower due to lower utility costs at Registrant’s property located in Maple Grove, MN. Real estate tax was lower at Registrant’s property located in Lino Lake, MN due to a lower tax assessment.

Net loss from operations decreased $157,000 to a loss of approximately $686,000 for the nine months ended September 30, 2014, as compared to an approximate loss of $843,000 for the nine months ended September 30, 2013 due to the aforementioned increase in total revenues combined with a decrease in total expenses. Total expenses from operations for the nine months ended September 30, 2014, decreased $25,000 to approximately $2,696,000 from approximately $2,721,000 for the nine months ended September 30, 2013. Total operating expenses decreased due to lower real estate operating expenses combined with lower real estate taxes. Operating expenses were lower due to lower utility costs at Registrant’s property located in Maple Grove, MN combined with lower partnership administrative costs. Real estate tax was lower at Registrant’s property located in Lino Lake, MN due to a lower tax assessment.

8

The Registrant has a 30% non-controlling interest in Omaha that is accounted for on a fair value basis. Due to the mortgage crisis, stagnant real estate market and slowing economy, Omaha reported a write-down of the value of its real estate portfolio of approximately $120,452,000 (-23%) during 2008 to 2012. During 2013, capitalization rates for older properties in tertiary markets where Omaha owns most of its properties showed little improvement. For 2013 Omaha reported a slight increase in the value of its portfolio of approximately $3,900,000. For the nine months ended September 30, 2014, Omaha reported net income of approximately $9,652,000. Registrant’s share was approximately $2,895,000. On September 30, 2013, Omaha executed a modification and extension of its unsecured loan to December 31, 2017. The modification and extension, among other items, requires Omaha to make specific periodic principal payments on the unsecured loan at scheduled dates through December 31, 2017. It has also reduced the pay rate on a portion of the unsecured loan to a float rate of 200 basis points over LIBOR while increasing the accrual rate on the same portion of the unsecured loan to 500 basis points over LIBOR.

However, the aforementioned accrued interest will be forgiven each time Omaha pays the above mentioned required principal payment timely, as defined in the loan agreement. Omaha is precluded from making distributions to its investors until its unsecured loan is paid in full. As a result of the aforementioned, Registrant does not anticipate receiving any distributions from Omaha during the foreseeable future and had reserved 100% of the reported value of its investment in Omaha on the balance sheet as of September 30, 2014 and December 31, 2013.

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 theSecurities 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, 2013. There were no significant changes to such policies in 2014. 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, 2014, the Registrant had cash and cash equivalents of approximately $773,000. These balances are approximately $149,000 higher than cash and cash equivalents held on December 31, 2013. Cash and cash equivalents increased during the nine months ended September 30, 2014 due to cash flow generated from operating activities at Registrant’s two wholly owned properties partially offset by interest on Registrant’s loan and partnership expenses.

Currently, Registrant’s only source of cash is rental income received from two tenants who lease 100% of the leasable space at Registrant’s two wholly owned properties. The tenants either pay directly or reimburse Registrant for real estate taxes, insurance and most of the properties’ operating expenses leaving a significant portion of the base rent received available to pay property debt service, current debt service on Registrant’s Note A, capital improvements and partnership administrative expenses. A portion of any remaining annual cash flow is used to pay down the principal balance of Note A in accordance with the Loan Agreement while the remainder cash income is retained by Registrant as cash reserves. As part of Registrant and the Holder restructuring the Unsecured Debt in 2011, Registrant set aside $500,000 in escrow to be held and used only to pay the costs to release the space at either of Registrant’s wholly owned properties if one or both of Registrant’s tenants default on their lease or fail to renew.

Total outstanding debt at September 30, 2014 consisted of a $10,000,000 long-term non-recourse first mortgage note secured by real estate owned by the Registrant due in October 2015 and $9,953,036 under a loan agreement with a bank. The loan agreement consists of Note A in the amount of $3,953,036 whose maturity has been extended to July 2015 and Note B in the amount of $6,000,000 which matures April 2018. Registrant has one remaining 1-year option to extend the maturity of Note A as long as (a) both wholly owned properties are 100% leased to the current tenants and (b) Registrant is not in default of its obligations under the terms of the Notes. On May 5, 2014, the Partnership sent notification to Holder to exercise its first option to extend the maturity date of Note A to July 31, 2015. Holder responded that there were no issues regarding the extension to July 31, 2015. Many borrowers are still finding it difficult to secure debt at acceptable terms as lenders have imposed stricter terms on borrowers. 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 dispose of properties upon disadvantageous terms, which could result in losses to the Registrant and adversely affect the amount of cash reserves. If prevailing interest rates or 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. Further, to the extent the Registrant's properties are mortgaged to secure payment of indebtedness and the Registrant is unable to meet the mortgage payments, mortgagee could foreclose or otherwise transfer the property, with a consequent loss of income and asset value to the Registrant. The Registrant has no other debt except normal trade accounts payable, accrued interest on notes payable and accrued investment management fees.

9

Although the two remaining commercial properties owned by the Registrant are 100% occupied, there remains a risk that one or both tenants could default on their respective leases. While the national industrial market improved in 2013, Registrant may require a long time period to replace one of its tenants should a default occur or should either or both of the tenants not renew their leases at the end of the lease term. In 2013 most of the markets where Omaha has properties had reported a small improvement in employment and job growth. This combined with a decline in apartment development has led to an increase in average physical and economic occupancy in the Omaha portfolio.

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.

The Registrant's properties are expected to generate sufficient cash flow to cover operating and capital improvement costs, and other working capital requirements of the Registrant for the next 9 to 15 months. Following that period there is greater uncertainty regarding Registrant’s cash flow and reserves. Registrant’s wholly owned property located in Maple Grove, MN is 100% leased to a single tenant until July 2015. The tenant has informed Registrant that it does not intend to lease the space for a long term beyond the expiration in July 2015 but has requested a short term extension for 2 years only. There is no assurance the current tenant and Registrant will agree on terms for an extension beyond July 2015.

Registrant’s mortgage related to its property in Lino Lakes, MN is due to mature in October 2015. The current balance and the maturity balance is $10,000,000. Either of the failure of the existing tenant at the Maple Grove, MN property to renew or failure to refinance the Lino Lakes mortgage combined with the required amortization payments on Note A could cause a significant drain on or exhaust Registrant’s cash reserves in 15 to 21 months.

Eagle Lake Business Center IV (Maple Grove, Minnesota)

Total revenues for the three months ended September 30, 2014 increased $53,000 to approximately $279,000 as compared to approximately $226,000 for the three months ended September 30, 2013. The property reported higher base rental income and higher other income. Base rental income was higher in 2014 as the tenant received a scheduled rent increase. Other income was higher due to an increase in operating expense reimbursements from the tenant. Net income, which includes deductions for depreciation, increased $63,000 for the three months ended September 30, 2014 to approximately $181,000 from approximately $119,000 for the three months ended September 30, 2013 due primarily to the aforementioned increase in total revenues. Operating expenses were lower due to lower utility costs.

Total revenues for the nine months ended September 30, 2014 increased $132,000 to approximately $800,000 as compared to approximately $668,000 for the nine months ended September 30, 2013. The property reported higher base rental income and higher other income. Base rental income was higher in 2014 as the tenant received a scheduled rent increase. Other income was higher due to an increase in operating expense reimbursements from the tenant. Net income, which includes deductions for depreciation, increased $132,000 for the nine months ended September 30, 2014 to approximately $464,000 from approximately $332,000 for the nine months ended September 30, 2013 due primarily to the aforementioned increase in total revenues. Total operating expenses were approximately the same as higher real estate taxes and repair and maintenance costs were offset by lower utility costs and depreciation costs.

435 Park Court (Lino Lakes, Minnesota)

Total revenues for the three months ended September 30, 2014 increased $9,000 to approximately $412,000 as compared to approximately $403,000 for the three months ended September 30, 2013. Total revenues were higher due to higher base rental income partially offset by lower real estate tax expense reimbursement from the tenant. Base rental income was higher in 2014 as the tenant received a scheduled rent increase. Net income, which includes deductions for interest expense and depreciation, increased $13,000 for the three months ended September 30, 2014 to approximately $53,000 from approximately $40,000 for the three months ended September 30, 2013 due to lower operating expenses combined with the aforementioned higher total revenues. Operating expenses decreased due to lower real estate tax expense as a result of a lower tax assessment.

Total revenues for the nine months ended September 30, 2014 decreased slightly to approximately $1,209,000 as compared to approximately $1,210,000 for the nine months ended September 30, 2013. Total revenues were slightly lower due to lower real estate tax expense reimbursement from the tenant offset by higher base rental income. Base rental income was higher in 2014 as the tenant received a scheduled rent increase. Net income, which includes deductions for interest expense and depreciation, increased $15,000 for the nine months ended September 30, 2014 to approximately $146,000 from approximately $131,000 for the nine months ended September 30, 2013 due to lower operating expenses. Operating expenses decreased due to lower real estate tax expense as a result of a lower tax assessment.

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Investment in Sentinel Omaha, LLC

As of September 30, 2014, the Omaha portfolio consisted of 14 multi-family properties located in 10 markets.

Comparison of three months ended September 30, 2014 to September 30, 2013:

Total revenues for the three months ended September 30, 2014 were approximately $9,861,000. Income before net unrealized income and net realized loss was approximately $2,206,000. Major expenses included approximately $2,416,000 for interest expense, $922,000 for repairs and maintenance, $1,252,000 for payroll and $1,130,000 for real estate taxes. Omaha reported a net unrealized income of approximately $2,580,000 resulting in net income of approximately $4,786,000. For the three months ended September 30, 2014, the Registrant’s equity interest in the income of Omaha was approximately $1,436,000. However, Registrant continues to reserve 100% of the reported value of Omaha on its balance sheet. The reserve for value was adjusted in conjunction with recording the equity income for the quarter ended September 30, 2014. As a result, Registrant reported a net zero income from equity in investment in Omaha for the quarter ended September 30, 2014.

Total revenues for the three months ended September 30, 2013 were approximately $9,532,000. Income before net unrealized income and net realized loss was approximately $990,000. Major expenses included approximately $3,085,000 for interest expense, $937,000 for repairs and maintenance, $1,223,000 for payroll and $1,069,000 for real estate taxes. Omaha reported net unrealized loss of approximately ($1,185,000) resulting in a net loss of approximately ($195,000). For the three months ended September 30, 2013, the Registrant’s equity interest in the income of Omaha was approximately ($59,000).

Revenues increased from 2013 to 2014 primarily due to higher physical and economic occupancy partially offset by the sale by Omaha of one apartment property in November 2013. Operating expenses were lower due to the aforementioned sale combined with lower interest expense. Interest expense was lower due to the lower float rate on Omaha’s unsecured loan and proceeds from the sale of properties was used to partially pay down the unsecured loan.

Comparison of nine months ended September 30, 2014 to September 30, 2013:

Total revenues for the nine months ended September 30, 2014 were approximately $29,117,000. Income before net unrealized income and net realized loss was approximately $6,194,000. Major expenses included approximately $7,220,000 for interest expense, $2,599,000 for repairs and maintenance, $3,952,000 for payroll and $3,359,000 for real estate taxes. Omaha reported a net unrealized income of approximately $3,458,000 resulting in net income of approximately $9,652,000. For the nine months ended September 30, 2014, the Registrant’s equity interest in the income of Omaha was approximately $2,895,000. Registrant continues to reserve 100% of the reported value of Omaha on its balance sheet. The reserve for value was adjusted in conjunction with recording the equity income for the nine months ended September 30, 2014. As a result, Registrant reported a net zero income from equity in investment in Omaha for the quarter ended September 30, 2014.

Total revenues for the nine months ended September 30, 2013 were approximately $29,486,000. Income before net unrealized income and net realized loss was approximately $3,571,000. Major expenses included approximately $9,572,000 for interest expense, $2,799,000 for repairs and maintenance, $4,140,000 for payroll and $3,234,000 for real estate taxes. Omaha reported a net realized loss of ($20,783,000) and net unrealized income of approximately $33,528,000 resulting in net income of approximately $16,316,000. For the nine months ended September 30, 2013, the Registrant’s equity interest in the income of Omaha was approximately $4,895,000. However, Registrant reduced the net income reported from Omaha for the unrecognized loss of approximately $354,000 from 2012.

Revenues and operating expenses were lower for the nine months ended September 30, 2014 as compared to the same period in 2013 primarily due to the sales by Omaha of three apartment properties in March 2013, May 2013 and November 2013. Operating expenses were also lower due to lower interest expense. Interest expense was lower due to the lower float rate on Omaha’s unsecured loan and proceeds from the sale of properties was used to partially pay down the unsecured loan.

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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, 2014 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, 2014 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.

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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 12 , 2014	By:	/s/ David Weiner
		David Weiner
		Chief Executive Officer
		Principal Financial & Accounting Officer
Dated: November 12, 2014	By:	/s/John H. Zoeller
		John H. Zoeller
		Chief Financial Officer

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