ITEM 1. BUSINESS -------- Description of SB Partners (the "Registrant") - ---------------------------------------------
The Registrant is a New York limited partnership engaged in acquiring, operating and holding for investment a varying portfolio of real properties. The Registrant's initial public offering was in 1971, the year it began operations. As of December 31, 2000, the Registrant owned apartment projects in St. Louis, Missouri; Greenville, South Carolina; Reno, Nevada; and Holiday and Orlando, Florida; as well as 13.9 acres of land in Holiday, Florida.
The principal objectives of the Registrant are, first, to obtain capital appreciation through equity investments in real estate; second, to generate cash available for distribution, a portion of which may not be currently taxable; and third, to the extent still permitted under the Internal Revenue Code of 1986, as amended, to generate tax losses which may offset the limited partners' income from the Registrant and certain other sources.
Recent Developments and Real Estate Investment Factors - ------------------------------------------------------
The United States economy continued to expand appreciably during the first half of 2000. Constraints on the availability of labor created upward pressure on wages and the threat of inflation as consumer price indexes showed indications of accelerating increases. In the real estate sector, occupancy rates were steady, and construction activity remained strong. As the economy continued to expand, the threat of inflationary pressures and an overheated economy prompted the United States Federal Reserve Board to raise interest rates three times during the year. Despite rising interest rates, sales of new and existing homes were strong in many areas of the country.
During the latter half of 2000, the economy showed signs of becoming sluggish. Inflation rates were generally higher than in the previous three to five years and stock markets underwent dramatic reversals of gains amassed over the prior two years. Continued labor shortages and higher energy prices added to the cost of operating rental properties. Real estate construction activity slowed in some areas. Many banking institutions reported a general tightening of credit policy, although interest rates were declining from levels seen earlier in 2000 in anticipation of a decision by the Federal Reserve Board to reduce interest rates.
Despite the tightening of credit standards towards the end of the year, debt and equity capital was generally more available to real estate companies and at lower costs. In particular, many apartment owners and investors benefited from a lower interest rate environment with decreased mortgage borrowing rates of approximately 100 basis points in the last six months of the year. Lower interest rates provided strong demand for apartment properties and the Registrant believes that values in many, but not all, areas remained stable during the year.
General Real Estate Risks - -------------------------
This report on Form 10-K 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. Actual results may differ materially from those contemplated by the forward looking statements for a number of reasons, including, but not limited to, those risks described below:
General - -------
The Registrant's investments generally consist of investments in real property and as such will be subject to varying degrees of risk generally incident to the ownership of real estate assets. The underlying value of the Registrant's real estate investments and the Registrant's financial condition will be dependent upon its ability to operate its properties in a manner sufficient to maintain or increase revenues and to generate sufficient income in excess of operating expenses. Income from the properties may be adversely affected by changes in national and local economic conditions such as oversupply of apartment units or a reduction in demand for apartment units in the Registrant's markets, the attractiveness of the properties to tenants, changes in interest rates and in the availability, cost and terms of mortgage financing, the ongoing need for capital improvements, particularly in older structures, changes in real estate tax rates, adverse changes in governmental rules and fiscal policies, adverse changes in zoning laws, civil unrest, acts of God, including natural disasters (which may result in uninsured losses), and other factors which are beyond the control of the Registrant. If the Registrant were unable to promptly renew or relet the leases of a significant number of tenants, or, if the rental rates upon such renewal or reletting were significantly lower than expected rates, the Registrant's results of operations, financial condition and ability to make distributions to Unitholders may be adversely affected.
Risks of Liability and Loss - ---------------------------
The development and ownership of real estate may result in liability to third parties, due to conditions existing on a property which may result in injury. In addition, real estate may suffer a loss in value due to casualties such as fire or hurricane. Such liability or loss may be uninsurable in some circumstances or may exceed the limits of insurance maintained at typical amounts for the type and condition of the property. Real estate may also be taken, in whole or in part, by public authorities for public purposes in eminent domain proceedings. Awards resulting from such proceedings may not adequately compensate the Registrant for the value lost.
Value and Non-liquidity of Real Estate - --------------------------------------
Real estate investments are relatively non-liquid. The Registrant's ability to vary its portfolio in response to changes in economic and other conditions will therefore be limited. If the Registrant must sell an investment, there can be no assurance that it will be able to dispose of the investment in the time period it desires or that the sales price of the investment will recoup or exceed the amount of the Registrant's cost of the investment.
Potential Adverse Effect on Results of Operations Due to Operating Risks - -------------------------------------------------------------------------
The Registrant's properties are subject to operating risks common to real estate in general, any and all of which may adversely affect occupancy or rental rates. The Registrant's properties are subject to increases in operating expenses such as cleaning, electricity, heating, ventilation and air conditioning, and maintenance; insurance and administrative costs; marketing and payroll costs; and other general costs associated with security, landscaping, repairs and maintenance. Tenants in commercial properties generally are obligated to pay these escalating costs, although there can be no assurance that tenants will agree to pay such costs upon renewal or that new tenants will agree to pay such costs. The cost of these expenses must be borne by the Registrant for any portion of a commercial property which is not leased. In the case of apartment communities, the Registrant must bear all such increased expenses, except in those markets where passing the cost of certain utilities to tenants is customary. If operating expenses increase, the local rental market may limit the extent to which rents may be increased to meet such additional expenses without lowering occupancy rates. While the Registrant implements cost-saving incentive measures at each of its properties, should any of the foregoing occur, the Registrant's results of operations, financial condition and its ability to pay distributions to Unitholders could be adversely affected. Furthermore, the inability of existing tenants to meet their obligations under the terms of their leases, may in turn adversely affect the performance and financial condition of the Registrant.
Debt Servicing and Financing - ----------------------------
If the Registrant does not have funds sufficient to repay its indebtedness at maturity, the Registrant may need to refinance indebtedness through additional debt financing or equity offerings. If the Registrant 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 available for distribution to Unitholders. 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 would increase, which would adversely affect the Registrant's results of operations, financial condition and its ability to pay expected distributions to Unitholders, or it may be restricted from obtaining a loan which will be sufficient to retire the existing loan based on lower debt service coverage. Further, if any of the Registrant's properties are mortgaged to secure payment of indebtedness and the Registrant is unable to meet mortgage payments, the mortgagee could foreclose or otherwise transfer the property, with a consequent loss of income and asset value to the Registrant.
Environmental Issues - --------------------
Under various Federal, state and local environmental laws, ordinances and regulations, an owner or operator of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances on such property. These laws often impose environmental liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. The presence of such substances, or the failure to properly remediate such substances, may adversely affect the owner's or operator's ability to sell or rent the property or to borrow using the property as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of such substances at a disposal or treatment facility, whether or not such facility is owned or operated by such person. Certain third parties may seek recovery from owners or operators of such properties or persons who arranged for the disposal or treatment of hazardous or toxic substances and, therefore, are potentially liable for removal or remediation costs, as well as certain other related costs, including governmental fines and injuries to persons and property.
Competition - -----------
The Registrant competes for tenants with many other real estate owners. The success of the Registrant in attracting tenants for its properties will depend upon its ability to maintain its properties and their attractiveness to tenants, neighborhood conditions, and changing demographic trends, et cetera. All of the Registrant's properties are located in developed areas that include other, similar properties. The number of competitive properties in a particular area could have a material effect on the Registrant's ability to lease apartment units at its properties and on the rents charged at such properties. In addition, other forms of housing, including manufactured housing community properties and single-family housing, provide alternatives to potential residents of multi-family residential properties.
Tax Matters - -----------
In August 1993, Congress passed and President Clinton signed into law the Omnibus Budget Reconciliation Act of 1993 (the "Act"). The Act includes several provisions designed to help revive the real estate industry, including relaxed rules for pension fund investments in real estate, passive-loss relief for developers, extension of the low-income housing credit, and an easing of the rules on recognizing cancellation of certain real estate debt. On the negative side, the Act extended the recovery period by 7.5 years (from 31.5 to 39) for nonresidential real estate purchased subsequent to the effective date of the Act.
The Act relaxes the "per se" passive characterization of certain rental real estate operations. For tax years beginning after 1993, eligible taxpayers, who materially participate in rental real estate activities, are able to deduct losses from rental activities against other income. For all other nonmaterially participating taxpayers, the provisions enacted as part of the Tax Reform Act of 1986 and the Technical and Miscellaneous Revenue Act of 1988 (as discussed below) continue to apply. The Act also provides some relief by allowing taxpayers, other than corporations, to elect to exclude from income some cancellation of "qualified real property business indebtedness", effective for certain discharges after December 31, 1992. The amount of the exclusion is limited to the basis of the taxpayer's business real property or the excess of the principal amount of the debt over the fair market value of business real property that secures the debt, whichever is less. The basis of the taxpayer's business real property must be reduced by the amount of excluded income. The provision does not apply to foreclosures or "deeds in lieu" with respect to nonrecourse debt.
Tax Reform Act of 1986 and the Technical and Miscellaneous Revenue Act of 1988 - ----------------------------------------
On October 22, 1986, the Tax Reform Act of 1986 (the "1986 Act") was signed into law. The Technical and Miscellaneous Revenue Act of 1988 ("TAMRA 88") was enacted on November 10, 1988. Generally the principal provisions of the 1986 Act and TAMRA 88 impacting the Registrant and its Limited Partners are:
-Passive activity loss limitations have limited the ability of the partners to offset their allocated share of taxable passive losses (essentially losses from rental real estate operations) of the Registrant against other earned or portfolio income.
-The limitation of losses to amounts that partners have "at risk" was extended to passive real estate investments. The amount a partner has "at risk" generally includes its proportionate share of qualified non-recourse financing, and is also subject to other limitations.
-The 1986 Act limits the deduction of investment interest expense, as defined, to the amount of net investment income generated for the year, as defined, with an unlimited carryover for excess expense.
The effect of these and other changes in income tax laws will vary depending upon each partner's individual tax situation. The Registrant believes that its characterization of, and allocation of, passive and portfolio income and losses from its operations are in compliance with existing regulations, but it can provide no assurances that the Internal Revenue Service ("IRS") will not challenge such treatment and allocations in the event of an audit.
Other Tax Matters - ------------------
The Taxpayer Relief Act of 1997 contains significant changes to the taxation of capital gains of individuals, trusts and estates. For gains realized after July 28, 1997, and subject to certain exceptions, the maximum rate of tax on net capital gains of individuals, trusts and estates from the sale or exchange of capital assets held for more than 18 months has been reduced to 20%, and the maximum rate is reduced to 18% for assets acquired after December 31, 2000 and held for more than five years. However, the maximum rate for long-term capital gains attributable to the sale of depreciable real property held for more than 18 months is 25% to the extent of the deductions for depreciation with respect to such property. Therefore, that portion of capital gain that is attributable to depreciation previously allocated to the Unitholders will be subject to the 25% rate. The maximum rate of capital gains tax for capital assets held for more than one year (but not more than 18 months) remains at 28%. The taxation of capital gains of corporations was not changed by the Taxpayer Relief Act.
The IRS Restructuring and Reform ACT of 1998 (the "1998 ACT") eliminated the 18-month holding period that was required in order to take advantage of the lowest capital gain tax rates. This holding period change is generally effective for tax years ending after December 31, 1997. Thus, in tax years ending after 1997, capital gains on most property held more than 12 months will be eligible for the 10, 20, or 25 percent capital gains rates introduced in the 1997 ACT.
The 1998 ACT also made the following changes to the maximum capital gains rate provisions, and is generally effective for tax years ending after May 6, 1997: 1) The regular tax and minimum tax "minimum capital gains rate" rules were reorganized for the sake of clarity, while retaining the substance of the rules. In particular, the definition of "adjusted net capital gain" was clarified. 2) Several conforming amendments were in the 1998 Act to coordinate the multiple holding periods introduced under the Taxpayer Relief Act of 1997 with other tax law provisions. For example, inherited property and certain patents are now deemed to have a holding period of more than 18 months, allowing the 10 and 20 percent rates to apply.
2000 Legislation: - -----------------
On December 21, 2000, the President signed into law an end-of-session budget bill (H.R. 4577) containing a 10-year, $32 billion tax relief package. The Community Renewal Tax Relief Act of 2000 primarily contains incentives for economically distressed urban and rural areas. For example, the bill extends and expands empowerment zones and creates "renewal communities" eligible for empowerment zone-type tax benefits. Other provisions extend and expand the low-income housing credit, enhance the deduction for corporate donations of computer equipment and permit expensing of "brownfield" cleanup costs.
Repealing legislation enacted in 1999, the President also signed the Installment Tax Correction Act of 2000 into law. This bill retroactively reinstates the installment method for accrual basis taxpayers, effective for sales or other dispositions occurring on or after December 17, 1999.
Unitholders are urged to consult their own tax advisors with respect to the tax consequences arising under the federal law and the laws of any state, municipality or other taxing jurisdiction, including tax consequences arising from such Unitholder's own tax characteristics.
The Revenue Act of 1987 retroactively changed the treatment of income and loss of publicly-traded partnerships ("PTP") to characterize a partner's share of income as portfolio instead of passive, and limits the current deductibility of losses.
The term PTP refers to any partnership whose interests are traded on an established securities market or are readily tradable on a secondary market (or the substantial equivalent thereof). The Registrant believes that it is not a PTP pursuant to such definition and therefore its holders will not be subject to the Revenue Act of 1987 provisions. However, due to the complexities of the regulations, no assurance can be provided that the IRS may not challenge the treatment of income and losses in the event of an audit.
In 1989, the Registrant made an election under IRC Section 754 which provides for an adjustment of the adjusted tax basis of depreciable property which may result in additional depreciation deductions to purchasing partners and those partners who inherit their interests in the Registrant. These adjustments, however, are subject to the passive loss rules discussed above and may or may not provide current benefit to a particular partner. The Registrant will be bound by the Section 754 election for all subsequent years.
General - -------
Efforts required in complying with Federal, state and local environmental regulations may have and may continue to have an adverse effect on the Registrant's operations in the future, although such costs have not historically been significant in amount.
There are approximately 45 full and part-time on-site project personnel employed at the Registrant's properties.
The Registrant's real estate investments are not generally subject to seasonal fluctuations, although net income (loss) may vary somewhat from quarter to quarter based upon changes in utility consumption and seasonal maintenance expenditures at each property.
The Registrant considers itself to be engaged in only one industry segment, real estate investment, and therefore information regarding industry segments is not applicable and has not been provided.
The Registrant reports to its Unitholders on a quarterly and annual basis. The annual report is audited by an independent public accountant who expresses an opinion on the Registrant's financial statements. Refer to the Consolidated Financial Statements and Notes included elsewhere in this annual report on Form 10-K.
ITEM 2.
ITEM 2.PROPERTIES ----------
The properties owned by the Registrant as of December 31, 2000 are set forth on the Summary of Properties schedule on the page immediately following.
ITEM 3.
ITEM 3.LEGAL PROCEEDINGS -----------------
The Registrant is a party to certain actions directly arising from its normal business operations. While the ultimate outcome is not presently determinable with certainty, the Registrant believes that the resolution of these matters will not have a material effect on its financial position or results of operations.
ITEM 4.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF UNITHOLDERS ---------------------------------------------- NONE.
13 PART II -------
ITEM 5.
ITEM 5.MARKET FOR REGISTRANT'S UNITS OF PARTNERSHIP INTEREST AND RELATED UNITHOLDER MATTERS --------------------------------------------
The transfer of Units or Participations (equivalent to one-half Unit) is subject to certain limitations, including the consent of the General Partner. There is no public market for the Units and it is not anticipated that any such public market will develop. The number of Unitholders as of December 31, 2000 was 3,526.
At various times, the Registrant has generated and distributed cash to the Unitholders. With the repositioning of the portfolio, the Registrant was able to resume distributions to the limited partners in 1999. A distribution of $100 per unit totaling $775,350 was paid in March 2001 to Unitholders of record on December 31, 2000. Including the current amount, distributions to date have totaled $100,195,235, however, there is no requirement to make such distributions nor can there be any assurance that future operations will generate cash available for distribution.
ITEM 6.
ITEM 6.SELECTED FINANCIAL DATA -----------------------
Selected Financial Data is set forth on the table on the following page. This information should be read in conjunction with the Consolidated Financial Statements and Notes thereto, and Management's Discussion and Analysis of Financial Condition and Results of Operations, included elsewhere in this annual report on Form 10-K.
ITEM 7.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES - -------------------------------
As of December 31, 2000, the Registrant had cash and cash equivalents of approximately $475,000 in addition to $1,138,000 of deposits held in escrow by certain lenders for the payment of insurance, real estate taxes and certain capital and maintenance costs. These balances are approximately $1,095,000 less than cash, cash equivalents and deposits held in escrow on December 31, 1999. After decreasing deposits held in escrow by $225,000, operating activities for the year ended December 31, 2000 generated approximately $1,721,000 of cash flow; of which, $986,000 was invested in capital additions to the properties and $713,000 of principal payments were made on mortgage notes payable during the year. In addition, cash distributions amounting to approximately $892,000 were paid in March 2000 to Unitholders of record on December 31, 1999.
Total outstanding debt at December 31, 2000 consisted of approximately $50,900,000 of nonrecourse first mortgage notes secured by real estate owned by the Registrant. Scheduled maturities through regularly scheduled monthly payments will be approximately $766,000 in 2001. The terms of certain mortgage notes require monthly escrow of estimated annual real estate tax, insurance and reserves for repairs, maintenance and improvements to the secured property, in addition to the payment of principal and interest. The Registrant has no other debt except normal trade accounts payable and accrued interest on mortgage notes payable.
As of December 31, 2000, Halton Place Apartments was unencumbered. However, on March 1, 2001, the Registrant entered into a revolving credit facility agreement with a bank in the amount of $7,500,000 which is secured by the apartment community. The credit facility is for a term of two years. In March 2001, the Registrant borrowed $700,000 under the credit facility. Borrowings, which bear interest at LIBOR plus 1.95%, may be used for working capital and/or acquisitions. Investigations of appropriate new acquisitions are ongoing.
Inflation and changing prices during the current period did not significantly affect the markets in which the Registrant conducts its business, or the Registrant's business overall.
For the third consecutive year since the repositioning of the portfolio, the Registrant made a distribution to the Unitholders. In March 2001, a distribution of $100 per Unit was made to Unitholders of record as of December 31, 2000. However, there is no requirement to make such distributions, nor can there be any assurance that future operations will generate cash available for distribution.
The Registrant's properties are expected to generate sufficient cash flow to cover operating, financing, capital improvement costs, and other working capital requirements of the Registrant for the foreseeable future.
MANAGEMENT'S DISCUSSION OF RESULTS OF OPERATIONS - ------------------------------------------------ 2000 VS. 1999 - -------------
Total revenues increased $1,438,000 to $12,501,000 in 2000 from $11,063,000 in 1999. Net loss increased $52,000 to $966,000 in 2000 from $914,000 in 1999.
The changes in total revenues and net loss reflect the changes in the composition of the portfolio from year to year. The most recent addition to the portfolio, Le Coeur du Monde Apartments, added nearly $1,200,000 to total revenues in the current year. Efforts to regain market share in the Reno submarket continued to yield results in 2000 as improved occupancy and higher rental rates at Meadowwood Apartments added $193,000 to total revenues in 2000.
Operating expenses were higher in 2000 principally because Le Coeur du Monde Apartments was operated for a full year and incurred a full year's expenses in 2000, whereas expenses for 1999 reflect only three months of operation for this apartment community. Furthermore, to remain competitive and increase occupancy rates, repairs and maintenance efforts were intensified at all the properties and additional costs were incurred.
In September of 1999, the Registrant obtained a mortgage loan on Le Coeur du Monde Apartments in connection with the acquisition of the property. The increase in interest expense from 1999 to 2000 is primarily due to the interest incurred for this loan which was outstanding for the entire year of 2000 but only for the period of ownership during 1999.
The changes in depreciation expense and real estate taxes also reflect the different periods of ownership of Le Coeur du Monde Apartments. In 2000, a full year of depreciation and real estate taxes were recorded.
For additional analysis, please refer to the discussions of the individual properties below.
Meadowwood Apartments (Reno, Nevada) - ---------------------
Total revenues increased $193,000 to $4,715,000 in 2000 from $4,522,000 in 1999. Net income after depreciation and mortgage interest expense increased $102,000 to net income of $45,000 in 2000 from a net loss of $57,000 in 1999.
The increase in total revenues was primarily the result of higher rental rates implemented at the property on new and renewing leases, which added $99,000 to revenue. An increase in average occupancy of 2.0%, to 93.5% in 2000 from 91.5% in 1999, added approximately $89,000 to total revenues, and lower rent concessions also added $16,000 to revenues. Partially offsetting the higher revenues was a decrease in miscellaneous income which reduced revenue by $26,000. Occupancy has improved as a result of regaining market share previously lost to newly constructed multifamily apartment communities as the capital improvement program implemented in 1998 continued to attract new tenants to the property. The increase in net income after depreciation and mortgage interest expense is due primarily to the increase in revenues, partially offset by an increase of $91,000 in total expenses. Additional costs of operating the property at higher occupancy levels included increases in advertising and promotion costs of $13,000, general and administrative costs of $17,000, and other fees of $27,000. Utility costs were also $38,000 higher in 2000, due, in part, to higher rates charged by providers. The registrant is working with a utility provider and may possibly recover a portion of 2000 expenses. Depreciation of the upgrades completed in the capital improvement program added $27,000 to depreciation expense in 2000. A reduction of $27,000 in interest expense served to offset the additional depreciation expense, as cumulative payments on the principal outstanding reduced the interest due on the loan during the year.
Holiday Park Apartments (Holiday, Florida) - -----------------------
Total revenues increased $49,000 to $1,262,000 in 2000 from $1,213,000 in 1999. Net income after depreciation and mortgage interest expense decreased $25,000 to $72,000 in 2000 from $97,000 in 1999.
The increase in revenues was primarily a result of higher miscellaneous income, primarily from the utility billback program, which increased revenues $27,000. In addition, an increase in rental rates implemented at the property increased revenues $24,000. The decrease in net income after depreciation and mortgage interest expense is due primarily to an increase of $74,000 in total expenses, more than offsetting the increase in total revenues. Increased costs of operating the property included an increase in repair and maintenance of $16,000 and payroll costs of $5,000. Utility expenses increased $12,000 primarily due to a retroactive adjustment charged by a utility provider. Advertising and promotion increased $5,000 as the property maintained efforts to retain market share. In addition, real estate taxes increased $17,000, other fees increased $13,000, and depreciation expense was $3,000 higher as assets recently placed in service were depreciated.
Cypress Key Apartments (Orlando, Florida) - ---------------------- Total revenues increased $120,000 to $3,049,000 in 2000 from $2,929,000 in 1999. Net loss after depreciation and mortgage interest expense increased $57,000 to $310,000 in 2000 from $253,000 in 1999.
The increase in total revenues was due primarily to an increase in average occupancy of 3.0%, to 94.0% in 2000 from 91.0% in 1999, which added approximately $86,000 to total revenues. Miscellaneous income was also higher, by $61,000, in large part due to income from the utility billback program. An increase in tenant concessions reduced income by $34,000, partially offsetting the other increases in revenues. The increase in net loss after depreciation and mortgage interest expense was due primarily to an increase of $178,000 in expenses, more than offsetting the higher revenues from the property. As the occupancy rate rose, turnover costs followed, including increases in repairs and maintenance costs of $128,000, payroll of $26,000, and administrative costs of $20,000. Utility costs decreased $18,000, in large part as a result of lower utility costs incurred to maintain the lower number of vacant units. Depreciation expense increased $19,000 as new assets were placed in service and depreciated. A reduction of $13,000 in interest expense served to offset some of the operating expenses, as cumulative payments on the principal outstanding reduced the interest due on the loan.
Halton Place Apartments (Greenville, South Carolina) - -----------------------
Total revenues increased $75,000 to $1,711,000 in 2000 from $1,636,000 in 1999. Net income after depreciation expense increased $26,000 to $539,000 in 2000 from $513,000 in 1999.
The increase in total revenues is due primarily to lower tenant concessions of $44,000. In addition, occupancy rose 0.6% to 91.6% in 2000 from 91.0% in 1999, adding $12,000 to income. Miscellaneous income was also higher, by $13,000. The increase in net income is due to the increase in total revenues, partially offset by a $49,000 increase in total expenses. Repairs and maintenance costs were $17,000 higher in the current year as more apartments were prepared for new tenants. Utilities expense was $18,000 higher, primarily due to the severe weather experienced in the region during the early part of 2000, and higher costs for water and sewer charges in the current year. Depreciation expense increased $20,000 as new assets were placed in service and depreciated.
Le Coeur du Monde Apartments (St. Louis, Missouri) - ----------------------------
Total revenues increased $1,231,000 to $1,697,000 in 2000 from $466,000 in 1999. Net loss after interest and depreciation expense increased $197,000 to $99,000 in 2000 from net income of $98,000 in 1999.
As the property was purchased on September 29, 1999, the reporting period for that year was approximately three months long, whereas the reporting period for 2000 reflects a full year of ownership. In 2000, the Registrant has maintained occupancy levels at the property of approximately eighty-nine percent, while the resident profile has been improved to conform to higher leasing standards. During 2000, projects to improve curb appeal and maintain increased market share included the exterior walls, trim, railings and balconies.
MANAGEMENT'S DISCUSSION OF RESULTS OF OPERATIONS - ------------------------------------------------ 1999 VS. 1998 - -------------
Total revenues increased $1,551,000 to $11,063,000 in 1999 from $9,512,000 in 1998. Loss from operations increased $455,000 to $914,000 in 1999 from $459,000 in 1998. Net loss increased $4,328,000 to $914,000 in 1999 from net income of $3,414,000 in 1998. Net income for 1998 included gains on sales of investments in real estate of approximately $3,368,000 and $506,000 from the sales of Riverbend Apartments and Cherry Hill Office Center, respectively.
The changes in total revenues and operating income/loss reflect the changes in the composition of the portfolio from year to year. The new additions to the portfolio, Cypress Key, Halton Place and Le Coeur du Monde, added nearly $4,000,000 to total revenues in the current year. Efforts to retain market share in the Reno submarket began to yield results in 1999 as improved occupancy at Meadowwood Apartments boosted total revenues at that property $316,000. This growth in revenues was partially offset by the absence of revenues from the two properties sold in the prior year, Riverbend Apartments and Cherry Hill Office Center, which accounted for approximately $2,300,000 and $400,000 of total revenues in 1998, respectively.
In December of 1998, the Registrant placed a mortgage loan on Cypress Key Apartments to continue the expansion and rebuilding of the portfolio. The increase in interest expense from 1998 to 1999 is primarily due to the interest incurred for this new loan.
The changes in depreciation expense and real estate taxes reflect the different periods of ownership of the properties in the portfolio. In 1999, a full year of depreciation and real estate taxes was recorded for the 1998 acquisitions, Cypress Key and Halton Place, whereas the expense relating to these properties in the year of acquisition corresponded to the periods of ownership. Similarly, the real estate taxes for the properties sold, Riverbend Apartments and Cherry Hill Office Center, corresponded to the periods of ownership which were also for less than a full year. However, since the properties had been classified as "held for sale", in accordance with generally accepted accounting principles, no depreciation was recorded for those properties during 1998.
For additional analysis, please refer to the discussions of the individual properties below.
Meadowwood Apartments (Reno, Nevada) - ---------------------
Total revenues increased $317,000 to $4,522,000 in 1999 from $4,205,000 in 1998. Net loss after depreciation and mortgage interest expense decreased $220,000 to $57,000 in 1999 from $277,000 in 1998.
The increase in total revenues was due primarily to an increase in average occupancy of 6.0%, to 91.5% in 1999 from 85.5% in 1998. The greater average occupancy added approximately $300,000 to total revenues, and a corresponding increase in miscellaneous income added $16,000. Occupancy has improved as a result of regaining market share previously lost to newly constructed multifamily apartment communities. As the rate of new construction in the area slowed, the capital improvement program implemented in 1998 proved effective in attracting new tenants to the property. The decrease in net loss after depreciation and mortgage interest expense is due primarily to the increase in revenues, partially offset by an increase of $97,000 in total expenses. Additional costs of operating the property at higher occupancy levels included increases in repairs and maintenance costs of $35,000, payroll and related costs of $19,000, and professional fees of $20,000. Depreciation of the upgrades completed in the capital improvement program added $40,000 to depreciation expense in 1999. Real estate tax expense was slightly higher in 1999, increasing $6,000. A reduction of $25,000 in interest expense served to offset some of the operating expenses, as cumulative payments on the principal outstanding reduced the interest due on the loan.
Holiday Park Apartments (Holiday, Florida) - -----------------------
Total revenues decreased $4,000 to $1,213,000 in 1999 from $1,217,000 in 1998. Net income after depreciation and mortgage interest expense increased $39,000 to $97,000 in 1999 from $58,000 in 1998.
The decrease in revenues was primarily a result of lower occupancy, which reduced revenues by $37,000. Average occupancy decreased 3.0% to 91.0% in 1999 from 94.0% in 1998. Lower occupancy reflected the low interest rates available to consumers which made homebuying a viable alternative to apartment living. The majority of move-out notices that Holiday Park received in 1999 were due to home purchases by former residents. Nevertheless, an increase in rental rates implemented at the property increased revenues $40,000, while tenant concessions increased $10,000. There was also a small rise in miscellaneous income of $3,000 during the current year. Holiday Park had an increase in marketing and advertising expense of $5,000 in an effort to reverse the downward trend in occupancy, although the property reduced repairs and maintenance costs by $15,000 during the year. Since some assets have been fully depreciated, depreciation expense decreased approximately $4,000. However, net income improved primarily as a result of reduced debt service costs. Interest expense for the period decreased $6,000 from the prior period as a result of refinancing the mortgage loan at a lower interest rate during 1998. Furthermore, amortization of costs associated with the financing of the loan encumbering the property decreased $46,000. In 1998, a one-time charge against earnings of $43,000 was recorded to write off the unamortized costs associated with the loan that was refinanced.
Cypress Key Apartments (Orlando, Florida) - ---------------------- Total revenues increased $1,895,000 to $2,929,000 in 1999 from $1,034,000 in 1998. Net loss after depreciation and mortgage interest expense increased $545,000 to $253,000 in 1999 from net income of $292,000 in 1998.
As the property was purchased at the end of August 1998, the reporting period for that year was approximately four months long, whereas the income and expenses for 1999 reflect a full year of ownership. Revenues were nearly $1,895,000 higher in the current year, while operating expenses increased only $776,000. Real estate taxes and depreciation expense increased $265,000 and $320,000, respectively, principally because of the longer ownership period in the current year. Interest expense increased $1,042,000, as the expense for the prior year was only for the short period at the end of December during which the loan was outstanding.
Average occupancy for 1999 was 91.0%, while average occupancy from the date of purchase through December 31, 1998 was 88.0%. Certain leases entered into by the former owners were not up to the standards employed by the Registrant and were not renewed. This caused a temporary decline in occupancy, however, occupancy rates have risen steadily throughout 1999.
Halton Place Apartments (Greenville, South Carolina) - -----------------------
Total revenues increased $1,603,000 to $1,636,000 in 1999 from $33,000 in 1998. Net income after depreciation expense increased $511,000 to $513,000 in 1999 from net income of $2,000 in 1998.
As the property was purchased on December 23, 1998, the reporting period for that year was less than one month, whereas the reporting period for 1999 reflects a full year of ownership. Since acquisition, the Registrant has maintained occupancy levels at the property above ninety percent, while the resident profile has been improved to conform to higher leasing standards. During 1999, projects to improve curb appeal and maintain market share included lighting conversions throughout the property, improved landscaping, work to improve the tennis courts, and painting the trim and doors throughout the community.
Le Coeur du Monde Apartments (St. Louis, Missouri) - ----------------------------
On September 29, 1999, the Registrant purchased Le Coeur du Monde Apartments for $13,325,000. In connection with the purchase, the Registrant obtained a first mortgage loan of $10,303,000 with a FNMA DUS program lender. The mortgage loan is secured by the property, bears interest at 7.805% per annum and matures on October 1, 2009. (Refer also to the Liquidity and Capital Resources Section and Footnotes 4 and 6 of the Consolidated Financial Statements.)
Total revenues for the period of ownership were $466,000. Net income after depreciation and mortgage interest expense was $98,000. Average occupancy for the period of ownership was 96.0%. Major components of expense included real estate operating costs of $93,000, interest expense at $138,000, depreciation expense of $101,000 and real estate taxes of $32,000.
ITEM 7A
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ----------------------------------------------------------
On March 1, 2001, the Registrant entered into a revolving credit facility agreement with a bank under which interest incurred is determined based on current market rates. As such, the Registrant has market risk to the extent interest rates fluctuate during the two year term and funds are advanced by the bank under the agreement. The Registrant does not believe this limited exposure to market risk will have a material adverse effect on its financial position or results of its operations.
ITEM 8.
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA -------------------------------------------
The Financial Statements required by this item, together with the Report of Independent Public Accountants thereon, are contained herein on pages 28 through 38 of this annual report on Form 10-K. Supplementary financial information required by this item is contained herein on pages 39 through 42 of this report.
ITEM 9.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ------------------------------------------------ ACCOUNTING AND FINANCIAL DISCLOSURE -----------------------------------
NONE.
PART III -------- ITEM 10.
ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT --------------------------------------------------
The Registrant has no executive officers or directors. All of its business affairs are handled by its General Partner, SB Partners Real Estate Corporation (the "General Partner").
The directors and executive officers of the General Partner are elected by Sentinel Holdings Corporation ("SHC") as its sole shareholder to serve until their successors are duly elected and qualified. The limited partners of the Registrant are not entitled to vote in their election.
The directors and executive officers of the General Partner who are active in the Registrant's operations are:
Name Age Position ---- --- --------
John H. Streicker 58 President & Director
Michael J. Weinberger 65 Director
Millie C. Cassidy 55 Director
David Weiner 65 Director
Christine Kurtz 46 Director
Elizabeth B. Longo 49 Treasurer
Anita Breslin 44 First Vice President
Jacques Lewis 51 Vice President
Mr. Streicker joined the General Partner in May 1976. He has been President and a Director since April 1984. He is President of SHC and its parent company, J.H. Streicker & Co., Inc.
Mr. Weinberger, a Certified Property Manager, joined the General Partner in February 1973, and has been a Director since April 1984. He is the residential portfolio manager for the Southeastern region.
Ms. Cassidy joined the General Partner in August 1982. She has been a Director of the General Partner since March 1988.
Mr. Weiner joined the General Partner in April 1984. He is a portfolio manager and manager of investor relations. He has been a Director of the General Partner since March 1988.
Ms. Kurtz joined the General Partner in 1980 and has been a Director since 1991. She is the portfolio manager responsible for commercial property transactions and management.
Ms. Longo joined the General Partner in 1988 and serves as its chief financial officer. She is a certified public accountant with over twenty-six years of real estate related financial experience.
Ms. Breslin joined the General Partner in 1978. She is the portfolio manager responsible for residential property transactions and management for the Northeastern region.
Mr. Lewis joined the General Partner in 1994. He is the portfolio manager responsible for residential property transactions and management for the Northwestern region.
ITEM 11.
ITEM 11.EXECUTIVE COMPENSATION ----------------------
The Registrant has no executive officers or directors.
ITEM 12.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN ----------------------------- BENEFICIAL OWNERS AND MANAGEMENT --------------------------------
(a) At December 31, 2000, an institutional investor of record owned 7.13% of the outstanding Units of Limited Partnership Interests. On January 13, 1993, a group of Unitholders of record, including the institutional investor referred to above, entered into a collective agreement with respect to their ownership interest in the Registrant. The aggregate number of Units beneficially owned by the group is 676 Units, representing 8.7% of the total number of outstanding Units of Limited Partnership Interest on that date. Each Unitholder has disclaimed beneficial ownership of all Units owned by the other Unitholders in this group. The foregoing information is based upon a 13-D filing made by the respective Unitholders.
(b) As of December 31, 2000, none of the Directors of the General Partner owned any outstanding Units of Limited Partnership Interest, however, an Assistant Secretary of the General Partner owned four Units of Limited Partnership Interest. No Officers or Directors of SHC owned any outstanding Units of Limited Partnership Interest. SRE Clearing Services, Inc. (formerly known as SRE Investor Services, Inc.), an affiliate of the General Partner, owned 955.8 Units of Limited Partnership Interest representing 12.3% of the outstanding number of Units on December 31, 2000. In accordance with SEC regulations, SRE Clearing Services filed Form 13-D/A on December 22, 2000, when the total number of Units held surpassed 12% of the outstanding number of Units.
(c) During the year ended December 31, 2000, there have been no changes in control of the Registrant or the General Partner.
ITEM 13.
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ----------------------------------------------
The General Partner, among other things, furnishes services and advice to the Registrant and is paid a variable annual fee for such services based on calculations prescribed in the Registrant's Partnership Agreement. For these services, the General Partner receives a management fee equal to 2% of the average amount of capital invested in real estate plus cumulative mortgage amortization payments and 0.5% of capital not invested in real estate, as defined in the partnership agreement. The management fee amounted to $806,818, $734,050, and $835,502 for the years ended December 31, 2000, 1999, and 1998, respectively. In addition, the General Partner is entitled to 25% of cash distributions in excess of the annual distribution preferences, as defined in the partnership agreement. No such amounts were due for the years ended December 31, 2000, 1999 or 1998.
Certain affiliates of the General Partner oversee the management and operations of various real estate properties, including those owned by the Registrant. Services performed by these affiliates applicable to the Registrant's properties are billed at actual or allocated cost, or percentage of revenues. The costs of such services are believed to be competitive with charges for similar services provided by unrelated management companies. Fees charged by these affiliates totaled $767,467, $705,772, and $582,791 in 2000, 1999, and 1998, respectively.
In connection with the mortgage financing of certain properties, the respective lenders required the Registrant to place the assets and liabilities of these properties into single asset limited partnerships or land trusts which hold, or held, title to these properties. A trust company affiliated with the General Partner holds, or held, the general partner interest in each single asset limited partnership as trustee for the Registrant. An affiliate of the General Partner is also the trustee of the land trust. For its services, the affiliate is paid an annual fee, which aggregated $86,561, $46,914, and $27,545 in 2000, 1999, 1998, respectively, and is based upon the trust company's standard rate schedule.
Reference is made to Items 10 and 11, and Notes 2 and 8 in the consolidated financial statements.
PART IV -------
ITEM 14.
ITEM 14.EXHIBITS, FINANCIAL STATEMENT ----------------------------- SCHEDULES AND REPORTS ON FORM 8-K ---------------------------------
(a) (1) Financial statements - The Registrant's 2000 Annual Audited Consolidated Financial Statements are included in this annual report on Form 10-K.
(2) Financial statement schedules - See Index to Consolidated Financial Statement Schedules on page 27. All other financial statement schedules are inapplicable or the required subject matter is contained in the consolidated financial statements or notes thereto.
(b) Exhibits Incorporated by Reference -
Incorporated by Description Reference to - ----------- --------------- Agreement of Limited Partnership Exhibit A to Registration Statement on Form S-11 as filed with the Securities and Exchange Commission on May 16, 1985.
SIGNATURES - ----------
Pursuant to the requirements of Section 13 or 15 (d) of the Securities 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 -----------
By: SB PARTNERS REAL ESTATE CORPORATION ----------------------------------- GENERAL PARTNER
April 2, 2001 /s/ John H. Streicker ----------------------------------- By: John H. Streicker President, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Position Date - --------- -------- ----
/s/ John H. Streicker Chief Executive Officer - --------------------- and Director April 2, 2001 John H. Streicker
/s/ Elizabeth B. Longo Chief Financial Officer - ---------------------- (Principal Financial Officer) April 2, 2001 Elizabeth B. Longo
/s/ George N. Tietjen III Vice President - ------------------------- (Principal Accounting Officer) April 2, 2001 George N. Tietjen III
SB PARTNERS
ITEMS 8 and 14 (a) (1) and (2)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA -------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND ---------------------------------------------- SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE -----------------------------------------
Report of Independent Public Accountants.............................28
Consolidated Balance Sheets as of December 31, 2000 and 1999.........29
Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998..........30
Consolidated Statements of Changes in Partners' Capital for the years ended December 31, 2000, 1999 and 1998..........31
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998..........32
Notes to Consolidated Financial Statements......................33 - 38
Supplemental Financial Statement Schedule:
Schedule III -- Real Estate and Accumulated Depreciation December 31, 2000........................................39 - 42
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of SB Partners:
We have audited the accompanying consolidated balance sheets of SB Partners (a New York limited partnership) and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, changes in partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements and the schedule referred to below are the responsibility of the general partner. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the general partner, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of SB Partners and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index of financial statements is presented for purposes of complying with the Securities and Exchange Commissions rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
New York, New York January 30, 2001
SB PARTNERS Notes to Consolidated Financial Statements
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES SB Partners, a New York limited partnership, and its subsidiaries (collectively, the "Partnership"), have been engaged since April 1971 in acquiring, operating and holding for investment a varying portfolio of real properties. SB Partners Real Estate Corporation (the "General Partner") serves as the general partner of the Partnership. The significant accounting and financial reporting policies of the Partnership are as follows: (a) The accompanying consolidated financial statements include the accounts of SB Partners and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. The consolidated financial statements are prepared using the accrual basis of accounting under generally accepted accounting principles. Revenues are recognized as earned and expenses are recognized as incurred. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain prior year amounts have been reclassified to make them comparable to the current year presentation. (b) Each partner is individually responsible for reporting his share of the Partnership's taxable income or loss. Accordingly, no provision has been made in the accompanying financial statements for Federal, state or local income taxes. (c) Depreciation of buildings, furnishings and improvements is computed using the straight-line method of depreciation, based upon the estimated useful lives of the related properties, as follows: Buildings and improvements 5 to 40 years Furnishings 5 to 7 years Investments in real estate are carried at historical cost and reviewed periodically for impairment. Expenditures for maintenance and repairs are expensed as incurred. Expenditures for improvements, renewals and betterments, which increase the useful life of the real estate, are capitalized. Upon retirement or sale of property, the related cost and accumulated depreciation are removed from the accounts. Amortization of deferred financing and refinancing costs is computed by amortizing the cost on a straight-line basis over the term of the related mortgage notes. Amortization of leasing commissions and tenant improvements is computed by amortizing the cost on a straight-line basis over the term of the related lease.
(d) Gains on sales of investments in real estate are recognized in accordance with generally accepted accounting principles applicable to sales of real estate, which require minimum levels of initial and continuing investment by the purchaser, and certain other tests be met, prior to the full recognition of profit at the time of the sale. When the tests are not met, gains on sales are recognized on either the installment or cost recovery methods. (e) Leases generally have terms of one year or less. Rental income is recognized when earned pursuant to the terms of the leases with tenants. (f) Net income (loss) per unit of partnership interest has been computed based on the weighted average number of units of partnership interest outstanding during each year. There were no potentially dilutive securities outstanding during each year. (g) For financial reporting purposes, the Partnership considers all highly liquid, short-term investments with maturities of three months or less when purchased to be cash equivalents. (h) In connection with the mortgage financing on certain of its properties, the Partnership placed the assets and liabilities of these properties into single asset limited partnerships, limited liability companies or land trusts which hold, or held, title to the properties. The Partnership has effective control over such entities and holds 100% of the beneficial interest. Accordingly, the financial statements of these subsidiaries are consolidated with those of the Partnership. (i) Real estate properties are regularly evaluated on a property by property basis to determine if it is appropriate to write down carrying values to recognize an impairment of value. Impairment is determined by calculating the sum of the estimated undiscounted future cash flows including the projected undiscounted future net proceeds from the sale of the property. In the event such sum is less than the net carrying value of the property, the property will be written down to estimated fair market value. (j) The Partnership is engaged in only one industry segment, real estate investment, and therefore information regarding industry segments is not applicable and is not included in these consolidated financial statements.
(2) INVESTMENT MANAGEMENT AGREEMENT The Partnership has entered into a management agreement with the General Partner. Under the terms of this agreement, the General Partner is responsible for the acquisition, management and disposition of all investments, as well as performance of the day-to-day administrative operations and provision of office space for the Partnership.
For these services, the General Partner receives a management fee equal to 2% of the average amount of capital invested in real estate plus cumulative mortgage amortization payments, and 0.5% of capital not invested in real estate, as defined in the partnership agreement. The management fee amounted to $806,818, $734,050, and $835,502 for the years ended December 31, 2000, 1999, and 1998 respectively. In addition, the General Partner is entitled to 25% of cash distributions in excess of the annual distribution preferences, as defined in the partnership agreement. No such amounts were due for the years ended December 31, 2000, 1999 or 1998.
(3) INVESTMENTS IN REAL ESTATE As of December 31, 2000 and 1999, the Partnership owned apartment projects in St. Louis, Missouri; Greenville, South Carolina; Reno, Nevada; and Holiday and Orlando, Florida; as well as 13.9 acres of land in Holiday, Florida. The following is the cost basis and accumulated depreciation of the real estate investments owned by the Partnership at December 31, 2000 and 1999:
(4) REAL ESTATE TRANSACTIONS On September 29, 1999, the Partnership purchased Le Coeur du Monde Apartments, a 192-unit apartment community located in St. Louis, Missouri, for $13,325,000. In connection with the purchase, the partnership obtained a first mortgage loan of $10,303,000 from a FNMA DUS program lender. The mortgage loan is secured by the property, bears interest at 7.805% per annum and matures on October 1, 2009.
On December 23, 1998, the Partnership acquired Halton Place Apartments, a 246-unit apartment community located in Greenville, South Carolina, for $12,600,000 in an all cash transaction. On August 20, 1998, the Partnership purchased Cypress Key Apartments, a 360-unit apartment community located in Orlando, Florida, for $22,600,000, also in an all cash transaction.
On April 16, 1998, the Partnership sold Cherry Hill Office Center for a contract price of $4,825,000, and on June 30, 1998, sold Riverbend Apartments for a contract price of $24,500,000. Both of these sales were all cash transactions. As a result of these sales, the Partnership recognized gains for financial reporting purposes of approximately $506,000 and $3,368,000, respectively.
(6) MORTGAGE NOTES PAYABLE Mortgage notes payable consist of the following first liens:
(7) FEDERAL INCOME TAX INFORMATION A reconciliation of net income (loss) for financial reporting purposes to net income (loss) for Federal income tax reporting purposes is as follows:
As of December 31, 2000 and 1999, the tax bases of the Partnership's assets and liabilities were approximately $62,698,000 and $64,529,000 of assets, and $51,938,000 and $52,590,000 of liabilities, respectively.
(8) PROPERTY MANAGEMENT SERVICES Certain affiliates of the General Partner oversee the management and operations of various real estate properties, including those owned by the Partnership. Services performed by affiliates are billed at actual or allocated cost, percentage of revenues or net equity. For the years ended December 31, 2000, 1999 and 1998 such billings to the partnership amounted to $854,028, $752,686, and $610,336, respectively, and are included in real estate operating expenses.
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS The Partnership's financial instruments consist of cash and cash equivalents and mortgage notes payable. The carrying amount of the cash and cash equivalents are reasonable estimates of fair value. Mortgage notes payable have been valued by discounting future payments required under the terms of the obligations at rates currently available to the Partnership for debt with similar maturities, terms and underlying collateral. The fair value of the mortgage notes payable is estimated to be $51,319,831 and $50,149,130 at December 31, 2000 and 1999, respectively.
(10) COMMITMENTS AND CONTINGENCIES The Partnership is a party to certain actions directly arising from its normal business operations. While the ultimate outcome is not presently determinable with certainty, the Partnership believes that the resolution of these matters will not have a material adverse effect on its financial position or results of operations.