SB Partners 10-Q 2015 Q2 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 June 30, 2015

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

INDEX

Part I	Financial Information
Item 1	Financial Statements
	Consolidated Balance Sheets as of June 30, 2015 (unaudited) and December 31, 2014 (audited)	1
	Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2015 and 2014	2
	Consolidated Statements of Changes in Partners' Deficit (unaudited) for the six months ended June 30, 2015	3
	Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2015 and 2014	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 4	Controls and Procedures	12
Part II	Other Information	12
	Signatures	13
	Exhibit 31
	Exhibit 32

i 

ITEM 1. FINANCIAL STATEMENTS

SB PARTNERS

(A New York Limited Partnership)

CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
	2015 (Unaudited)			2014 (Audited)
Assets:
Investments -
Real estate, at cost
Land	$	470,000		$	470,000
Buildings, furnishings and improvements		4,973,553			4,866,973
Less - accumulated depreciation		(1,694,420	)		(1,631,056	)
		3,749,133			3,705,917
Real estate held for sale		12,026,246			12,026,246
Investment in Sentinel Omaha, LLC, net of reserve for fair value of $9,032,963 and $6,749,554 at June 30, 2015 and December 31, 2014, respectively		-			-
		15,775,379			15,732,163
Other Assets -
Cash and cash equivalents		905,988			933,373
Cash in escrow		500,218			500,194
Other		63,928			83,508
Other assets in discontinued operations		3,400			22,549
Total assets	$	17,248,913		$	17,271,787
Liabilities:
Unsecured loan payable	$	9,828,751		$	9,953,036
Mortgage note in discontinued operations		10,000,000			10,000,000
Accounts payable		282,657			292,993
Tenant security deposits		94,419			93,021
Accrued expenses		3,062,499			2,683,030
Other liabilities in discontinued operations		25,000			25,000
Total liabilities		23,293,326			23,047,080
Partners' Deficit:
Units of partnership interest without par value;
Limited partner - 7,753 units		(6,025,197	)		(5,756,112	)
General partner - 1 unit		(19,216	)		(19,181	)
Total partners' deficit		(6,044,413	)		(5,775,293	)
Total liabilities and partners' deficit	$	17,248,913		$	17,271,787

See notes to consolidated financial statements

1

SB PARTNERS

(A New York Limited Partnership)

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2015			2014			2015			2014
Revenues:
Base rental income	$	160,216		$	155,539		$	320,432		$	311,078
Other rental income		87,936			136,982			175,872			209,626
Interest on short-term investments and other		337			188			670			313
Total revenues		248,489			292,709			496,974			521,017
Expenses:
Real estate operating expenses		66,179			82,192			156,895			196,617
Interest on unsecured loan payable		126,540			126,472			250,404			251,060
Depreciation and amortization		37,141			45,126			74,282			90,252
Real estate taxes		31,362			32,665			62,724			57,636
Management fees		221,700			218,028			441,761			434,077
Other		36,520			37,185			73,923			74,694
Total expenses		519,442			541,668			1,059,989			1,104,336
Loss from operations		(270,953	)		(248,959	)		(563,015	)		(583,319	)
Equity in net income of investment		1,130,278			854,900			2,283,409			1,459,783
Reserve for value of investment		(1,130,278	)		(854,900	)		(2,283,409	)		(1,459,783	)
Loss from continuing operations		(270,953	)		(248,959	)		(563,015	)		(583,319	)
Income from discontinued operations		142,554			43,227			293,895			93,304
Net loss		(128,399	)		(205,732	)		(269,120	)		(490,015	)
Loss allocated to general partner		(17	)		(27	)		(35	)		(63	)
Loss allocated to limited partners	$	(128,382	)	$	(205,705	)	$	(269,085	)	$	(489,952	)
Loss per unit of limited partnership interest
(basic and diluted)
Loss from continuing operations	$	(34.95	)	$	(32.11	)	$	(72.62	)	$	(75.24	)
Income from discontinued operations	$	18.39		$	5.58		$	37.91		$	12.03
Net loss	$	(16.56	)	$	(26.54	)	$	(34.71	)	$	(63.20	)
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 Six Months Ended June 30, 2015

Limited Partners:
	Units of Partnership Interest
					Cumulative Cash			Accumulated
	Number		Amount		Distributions			(Losses)			Total
Balance, January 1, 2015		7,753	$	119,968,973	$	(111,721,586	)	$	(14,003,499	)	$	(5,756,112	)
Net loss for the period		-		-		-			(269,085	)		(269,085	)
Balance, June 30, 2015		7,753	$	119,968,973	$	(111,721,586	)	$	(14,272,584	)	$	(6,025,197	)

General Partner:
	Units of Partnership Interest
					Cumulative Cash			Accumulated
	Number		Amount		Distributions			(Losses)			Total
Balance, January 1, 2015		1	$	10,000	$	(26,364	)	$	(2,817	)	$	(19,181	)
Net loss for the period		-		-		-			(35	)		(35	)
Balance, June 30, 2015		1	$	10,000	$	(26,364	)	$	(2,852	)	$	(19,216	)

See notes to consolidated financial statements.

3

SB PARTNERS

(A New York Limited Partnership)

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	For the Six Months Ended June 30,
	2015			2014
Cash Flows From Operating Activities:
Net loss	$	(269,120	)	$	(490,015	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Equity in net (income) of investment		(2,283,409	)		(1,459,783	)
Reserve for fair value of investment		2,283,409			1,459,783
Depreciation and amortization		75,594			268,040
Net decrease in operating assets		26,499			24,629
Net increase (decrease) in accounts payable		(10,336	)		(97,421	)
Net increase in tenant security deposits		1,398			1,399
Net increase in accrued expenses		379,469			370,957
Net cash provided by operating activites		203,504			77,589
Cash Flows From Investing Activities:
Interest earned on capital reserve escrow acount		(24	)		(24	)
Capital additions to real estate owned		(106,580	)		-
Net cash (used in) investing activites		(106,604	)		(24	)
Cash Flows From Financing Activities:
Repayment of unsecured loan payable		(124,285	)		(13,973	)
Net cash (used in) financing activities		(124,285	)		(13,973	)
Net change in cash and cash equivalents		(27,385	)		63,592
Cash and cash equivalents at beginning of period		933,373			624,191
Cash and cash equivalents at end of period	$	905,988		$	687,783
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	388,171		$	391,060

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 six month periods ended June 30, 2015 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, 2014.

(2) INVESTMENTS IN REAL ESTATE

As of June 30, 2015, 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 June 30, 2015 and December 31, 2014. See footnote 3 regarding the Partnership’s marketing the Lino Lakes property for sale.

	No. of		Year of			Real Estate at Cost
Type	Prop.		Acquisition		Description	6/30/2015			12/31/2014
Industrial flex property		1		2002	60,345 sf	$	5,443,553		$	5,336,973
Less: Accumulated depreciation							(1,694,420	)		(1,631,056	)
Investment in real estate						$	3,749,133		$	3,705,917
Real estate held for sale:
Warehouse distribution property		1		2005	226,000 sf	$	12,026,246		$	12,026,246

(3) REAL ESTATE HELD FOR SALE

During February 2015 the Partnership initiated a sales effort for Lino Lakes, its warehouse distribution property located in Lino Lakes, MN. On July 20, 2015, the Partnership executed a contract to sell Lino Lakes for a sale price of $16,050,000 to an unrelated buyer. The assets and liabilities for this property at June 30, 2015 and December 31, 2014 are reflected as assets and liabilities from discontinued operations in the accompanying consolidated balance sheets and the results of operations for the three and six months ended June 30, 2015 and 2014 are reflected as income from discontinued operations in the accompanying consolidated statements of operations.

5

(4)    INVESTMENT IN SENTINEL OMAHA, LLC

In 2007, the Partnership made an investment in the amount of $37,200,000 in Sentinel Omaha, LLC (“Omaha”). Omaha is a real estate investment company which as of June 30, 2015 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 June 30, 2015 and December 31, 2014.

	(Unaudited)			(Audited)
Balance Sheet	June 30, 2015			December 31, 2014
Investment in real estate, net	$	288,300		$	283,300
Other assets		10,933			11,707
Debt		(265,380	)		(267,495	)
Other liabilities		(3,743	)		(5,013	)
Member's equity (deficit)	$	30,110		$	22,499

	(Unaudited)
Statement of Operations	June 30, 2015
Rent and other income	$	20,351
Real estate operating expenses		(10,110	)
Other expenses		(5,763	)
Net unrealized income		3,133
Net income	$	7,611

(5) MORTGAGE NOTE AND UNSECURED LOAN PAYABLE

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

					Annual				Net Carrying Amount
	Interest				Installment		Amount Due		June 30,		December 31,
Property	Rate			Maturity Date	Payments		at Maturity		2015		2014
Unsecured loan payable:
Bank Loan (b):
Note A									$	3,828,751	$	3,953,036
Note B										6,000,000		6,000,000
									$	9,828,751	$	9,953,036
Mortgage note in discontinued operations:
Lino Lakes		5.800	%	October, 2015	$	580,000	$	10,000,000	$	10,000,000	$	10,000,000

(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. 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 in the amount of $3,828,751 as of June 30, 2015 has a maturity of July 31, 2016. Note A requires monthly payments of accrued interest at an annual fixed rate of 5% until paid in full. The Partnership made an additional principal payment of $9,570 in March 2015 and is required to pay fixed principal payments of $30,000 monthly thereafter until paid in full. On May 4, 2015, the Partnership sent notification to Holder to exercise its second option to extend the maturity date of Note A to July 31, 2016. Holder responded that there were no issues regarding the extension to July 31, 2016.

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 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 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 June 30, 2015 and December 31, 2014, $1,264,167 and $1,113,339, 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. 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 June 30, 2015 and December 31, 2014, $1,798,332 and 1,569,691, 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 ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THETHREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014

General

The consolidated financial statements for the three and six months ended June 30, 2015 and 2014 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 remaining 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 October 31, 2019. However, tenant has on ongoing option to terminate the lease after July 31, 2017 under certain conditions as set forth in the lease terms as amended. 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. 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.

Registrant’s property located in Lino Lakes, MN is encumbered by a $10,000,000 mortgage which matures October 5, 2015. It is unlikely Registrant will be able to refinance or extend the maturity date of the mortgage due to the remaining short term of the single tenant who currently leases 100% of the space. Accordingly, Registrant engaged a broker to market the property for sale. On July 20, 2015, Registrant executed a contract to sell the property for $16,050,000 to an unrelated buyer. The sale is expected to be completed in September 2015. Net proceeds will be used first to pay off the property mortgage and all closing costs. All of the remaining proceeds will be used to pay down the Registrant’s bank loan.

Results of Operations

Total revenues from continuing operations for the three months ended June 30, 2015 decreased $45,000 to approximately $248,000 as compared to approximately $293,000 for the three months ended June 30, 2014. Total revenues decreased due to a decrease in other rental income partially offset by an increase in base rental income. Base rental income increased $4,000 to approximately $160,000 for the three months ended June 30, 2015 as compared to the same period in 2014 due to a scheduled increase in base rent at Registrant’s property located in Maple Grove, MN. Other rental income decreased $49,000 to approximately $88,000 for the three months ended June 30, 2015 from approximately $137,000 for the same period in 2014 due to lower expense reimbursement from the tenant at Registrant’s property located in Maple Grove, MN.

Loss from continuing operations increased $22,000 to a loss of approximately $271,000 for the three months ended June 30, 2015, as compared to an approximate loss of $249,000 for the three months ended June 30, 2014 due to the aforementioned decrease in revenues partially offset by a decrease in total expenses. Total expenses from operations for the three months ended June 30, 2015, decreased $23,000 to approximately $519,000 from approximately $542,000 for the three months ended June 30, 2014. Total operating expenses decreased due to lower real estate operating expenses combined with lower amortization costs. Operating expenses were lower due to lower repairs and maintenance and administrative costs at Registrant’s property located in Maple Grove, MN.

Total revenues from continuing operations for the six months ended June 30, 2015 decreased $24,000 to approximately $497,000 as compared to approximately $521,000 for the six months ended June 30, 2014. Total revenues decreased due to a decrease in other rental income partially offset by an increase in base rental income. Base rental income increased $9,000 to approximately $320,000 for the six months ended June 30, 2015 as compared to the same period in 2014 due to a scheduled increase in base rent at Registrant’s property located in Maple Grove, MN. Other rental income decreased $34,000 to approximately $176,000 for the six months ended June 30, 2015 from approximately $210,000 for the same period in 2014 due to lower expense reimbursement from the tenant at Registrant’s property located in Maple Grove, MN.

Loss from continuing operations decreased $20,000 to a loss of approximately $563,000 for the six months ended June 30, 2015, as compared to an approximate loss of $583,000 for the six months ended June 30, 2014 due to the aforementioned decrease in revenues partially offset by a decrease in total expenses. Total expenses from operations for the six months ended June 30, 2015, decreased $44,000 to approximately $1,060,000 from approximately $1,104,000 for the six months ended June 30, 2014. Total operating expenses decreased due to lower real estate operating expenses combined with lower amortization costs. Operating expenses were lower due to lower repairs and maintenance and administrative costs at Registrant’s property located in Maple Grove, MN.

8

The Registrant has a 30% non-controlling interest in Omaha that is accounted for on a fair value basis. Due to the global financial crisis, stagnant real estate market and slowing economy, Omaha reported a net write-down of the value of its real estate portfolio of approximately $100,852,000 (-18.6%) during 2008 to 2014. During 2014 and 2015 capitalization rates for older properties in tertiary markets whereOmaha owns most of its properties, generally were lower than for the prior year. Occupancy improved at some of the properties while occupancy went down at others. Job growth continued to improve but at a slow pace. For the six months ended June 30, 2015, Omaha reported net income of approximately $7,611,000. Registrant’s share was approximately $2,283,000. On September 30, 2013, Omaha executed a modification and extension of its unsecured loan to December 31, 2017. 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 June 30, 2015 and December 31, 2014.

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, 2014. There were no significant changes to such policies in 2015. 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 June 30, 2015, the Registrant had cash and cash equivalents of approximately $906,000. These balances are approximately $27,000 lower than cash and cash equivalents held on December 31, 2014. Cash and cash equivalents decreased during the six months ended June 30, 2015 due to interest and principal payments on Registrant’s bank loan and partnership expenses partially offset by cash flow generated from operating activities at Registrant’s two wholly owned properties.

As of June 30, 2015, 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 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 either of Registrant’s wholly owned properties if one or both of Registrant’s tenants default on their lease or fail to renew. See below Registrant’s discussion regarding the sale of the property located in Lino Lakes, MN.

Total outstanding debt at June 30, 2015 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 $9,828,751 under a loan agreement with a bank.

Registrant’s property located in Lino Lakes, MN is encumbered by a $10,000,000 mortgage which matures October 5, 2015. It is unlikely Registrant will be able to refinance or extend the maturity date of the mortgage due to the remaining short term of the single tenant who currently leases 100% of the space. During February, 2015, Registrant engaged a broker to market the property for sale. On July 20, 2015, Registrant executed a contract to sell the property for $16,050,000 to an unrelated buyer. The sale is expected to be completed in September 2015. Net proceeds will be used first to pay off the property mortgage and all closing costs. All of the remaining proceeds will be used to pay down the Registrant’s bank loan as described below.

The bank loan consists of Note A in the amount of $3,828,751 which matures July 2016 and Note B in the amount of $6,000,000 which matures April 2018. 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 mortgage 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 bothtenants could default on their respective leases. While the national industrial market improved in 2014, 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 2015 and 2014 most of the markets where Omaha has properties had reported a small improvement in employment and job growth.

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 foreseeable future.

Sale of Real Estate Property

The sale of Registrant’s property located in Lino Lakes, MN is anticipated to be completed in September 2015. Sales proceeds after closing expenses will be used first to pay off the $10,000,000 mortgage held on the property and all remaining proceeds will be used to pay down the bank loan. It is anticipated that the excess sales proceeds after the selling expenses and the property mortgage will be sufficient to pay off the Bank Loan A Note and a portion of the Bank Loan B Note. If the A Note is paid off, interest on the B Note stops accruing.

After the sale of the property in Lino Lakes, MN, Registrant’s only current source of cash flow is from Registrant’s property located in Maple Grove, MN. Registrant expects cash flow from the Maple Grove property and capital reserves to cover operating and capital improvement costs, and other working capital requirements of the Registrant for the foreseeable future.

Eagle Lake Business Center IV (Maple Grove, Minnesota)

Total revenues for the three months ended June 30, 2015 decreased $45,000 to approximately $248,000 as compared to approximately $293,000 for the three months ended June 30, 2014. The property reported lower other rental income partially offset by higher base rental income. Base rental income was higher in 2015 as the tenant received a scheduled rent increase. Other rental income was lower due to a decrease in operating expense reimbursements from the tenant. Net income, which includes deductions for depreciation, decreased $40,000 for the three months ended June 30, 2015 to approximately $144,000 from approximately $184,000 for the three months ended June 30, 2014 due primarily to the aforementioned lower revenues partially offset by lower operating expenses. Operating expenses were lower due to lower repair and maintenance costs and utilities.

Total revenues for the six months ended June 30, 2015 decreased $25,000 to approximately $496,000 as compared to approximately $521,000 for the six months ended June 30, 2014. The property reported lower other rental income partially offset by higher base rental income. Base rental income was higher in 2015 as the tenant received a scheduled rent increase. Other rental income was lower due to a decrease in operating expense reimbursements from the tenant. Net income, which includes deductions for depreciation, increased $2,000 for the six months ended June 30, 2015 to approximately $284,000 from approximately $282,000 for the six months ended June 30, 2014 due primarily to lower operating expenses partially offset by the aforementioned lower revenues. Operating expenses were lower due to lower repair and maintenance costs and utilities.

435 Park Court (Lino Lakes, Minnesota)

Total revenues for the three months ended June 30, 2015 increased $9,000 to approximately $409,000 as compared to approximately $400,000 for the three months ended June 30, 2014. Total revenues were higher due to higher rental income. Base rental income was higher in 2015 as the tenant received a scheduled rent increase in May 2014. Net income, which includes deductions for interest expense, increased $100,000 for the three months ended June 30, 2015 to approximately $143,000 from approximately $43,000 for the three months ended June 30, 2014 due primarily to lower depreciation expenses. The property stopped recognizing depreciation expense as of January 1, 2015 due to reclassifying the property as an asset held for sale.

Total revenues for the six months ended June 30, 2015 increased $22,000 to approximately $819,000 as compared to approximately $797,000 for the six months ended June 30, 2014. Total revenues were higher due to higher rental income. Base rental income was higher in 2015 as the tenant received a scheduled rent increase in May 2014. Net income, which includes deductions for interest expense, increased $201,000 for the six months ended June 30, 2015 to approximately $294,000 from approximately $93,000 for the six months ended June 30, 2014 due primarily to lower depreciation expenses. The property stopped recognizing depreciation expense as of January 1, 2015 due to reclassifying the property as an asset held for sale.

Investment in Sentinel Omaha, LLC

As of June 30, 2015, the Omaha portfolio consisted of 14 multi-family properties located in 10 markets.

Comparison of three months ended June 30, 2015 to June 30, 2014:

Omaha’s total revenues for the three months ended June 30, 2015 were approximately $10,333,000. Income before net unrealized income was approximately $3,037,000. Major expenses included approximately $2,138,000 for interest expense, $922,000 for repairs andmaintenance, $1,372,000 for payroll, and $1,158,000 for real estate taxes. Omaha reported net unrealized income of approximately $730,000 resulting in net income of approximately $3,768,000. For the three months ended June 30, 2015, the Registrant’s equity interest in the income of Omaha was approximately $1,130,000. 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 quarter ended June 30, 2015. As a result, Registrant reported a net zero income from equity in investment in Omaha for the quarter ended June 30, 2015.

10

Total revenues for the three months ended June 30, 2014 were approximately $9,679,000. Income before net unrealized income and net realized loss was approximately $2,157,000. Major expenses included approximately $2,399,000 for interest expense, $931,000 for repairs and maintenance, $1,347,000 for payroll and $1,147,000 for real estate taxes. Omaha reported a net unrealized income of approximately $692,000 resulting in net income of approximately $2,849,000. For the three months ended June 30, 2014, the Registrant’s equity interest in the income of Omaha was approximately $855,000. 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 June 30, 2014. As a result, Registrant reported a net zero income from equity in investment in Omaha for the quarter ended June 30, 2014.

Comparison of six months ended June 30, 2015 to June 30, 2014:

Total revenues for the six months ended June 30, 2015 were approximately $20,351,000. Income before net unrealized income and net realized loss was approximately $4,478,000. Major expenses included approximately $4,376,000 for interest expense, $1,681,000 for repairs and maintenance, $2,699,000 for payroll and $2,295,000 for real estate taxes. Omaha reported a net unrealized income of approximately $3,133,000 resulting in net income of approximately $7,611,000. For the six months ended June 30, 2015, the Registrant’s equity interest in the income of Omaha was approximately $2,283,000. 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 six months ended June 30, 2015. As a result, Registrant reported a net zero income from equity in investment in Omaha for the six month ended June 30, 2015.

Total revenues for the six months ended June 30, 2014 were approximately $19,234,000. Income before net unrealized income and net realized loss was approximately $3,988,000. Major expenses included approximately $4,804,000 for interest expense, $1,678,000 for repairs and maintenance, $2,699,000 for payroll and $2,236,000 for real estate taxes. Omaha reported a net unrealized income of approximately $878,000 resulting in net income of approximately $4,866,000. For the six months ended June 30, 2014, the Registrant’s equity interest in the income of Omaha was approximately $1,460,000. 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 six months ended June 30, 2014. As a result, Registrant reported a net zero income from equity in investment in Omaha for the quarter ended June 30, 2014.

11

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

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 June 30, 2015 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 June 30, 2015 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.

12

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: August 14, 2015	By:	/s/ David Weiner
		David Weiner
		Chief Executive Officer
		Principal Financial & Accounting Officer
Dated: August 14, 2015	By:	/s/John H. Zoeller
		John H. Zoeller
		Chief Financial Officer

13