SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1994
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: 1-7003
PROPERTY CAPITAL TRUST
(Exact name of registrant as specified in its charter)
Massachusetts 04-2452367
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
One Post Office Square, Boston, Massachusetts 02109
(Address of principal executive offices)
(zip code)
Registrant's telephone number, including area code:
(617) 451-2400
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 at least the past 90 days.
Yes X No .
Number of shares of Common Shares outstanding as of April 30, 1994: 9,030,585
<PAGE>
PROPERTY CAPITAL TRUST
INDEX
Page
Part I. Financial Information Number
Consolidated Balance Sheet - April 30, 1994 (unaudited)
and July 31, 1993 2
Consolidated Statement of Operations -
Three and Nine Months Ended April 30, 1994 and 1993 (unaudited) 3
Consolidated Statement of Cash Flows -
Nine Months Ended April 30, 1994 and 1993 (unaudited) 4
Consolidated Statement of Shareholders' Equity -
Nine Months Ended April 30, 1994 and 1993 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6-7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
Part II. Other Information 12
1
<PAGE>
Property Capital Trust
Consolidated Balance Sheet
<TABLE>
<CAPTION>
April 30, July 31,
1994 1993
____________________________________________________________________________________________________
(Unaudited)
<S> <C> <C>
Assets
Real Estate Investments
Owned Properties (net of accumulated depreciation) $105,867,000 $101,570,000
Investment Partnerships 52,055,000 52,172,000
Structured Transactions 33,084,000 43,066,000
______________ ______________
191,006,000 196,808,000
Less: Provision for possible investment losses (18,129,000) (20,129,000)
______________ ______________
172,877,000 176,679,000
Cash 393,000 324,000
Interest and rents receivable
Owned Properties 1,589,000 1,598,000
Structured Transactions 945,000 965,000
Other assets 890,000 548,000
______________ ______________
$176,694,000 $180,114,000
______________ ______________
______________ ______________
Liabilities and Shareholders' Equity
Liabilities
Accounts payable and accrued expenses $2,624,000 $2,924,000
Accrued interest 1,537,000 564,000
Bank note payable 10,400,000 16,530,000
Non-recourse mortgage notes payable 36,805,000 36,593,000
9 3/4% Convertible Subordinated Debentures 2,546,000 2,546,000
10% Convertible Subordinated Debentures 30,823,000 30,823,000
______________ ______________
84,735,000 89,980,000
______________ ______________
Shareholders' Equity
Common Shares (without par value, unlimited shares
authorized, 9,030,585 issued and outstanding at April 30, 1994,
9,028,585 at July 31, 1993) 106,060,000 106,052,000
Accumulated deficit (14,101,000) (15,918,000)
______________ ______________
Total Shareholders' Equity 91,959,000 90,134,000
______________ ______________
$176,694,000 $180,114,000
______________ ______________
______________ ______________
</TABLE>
2
<PAGE>
Property Capital Trust
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30, April 30,
__________________________ __________________________
1994 1993 1994 1993
_________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Revenues
Owned Properties $4,240,000 $2,083,000 $9,849,000 $5,537,000
Income from unconsolidated Investment Partnerships 668,000 277,000 1,759,000 1,017,000
Structured Transactions
Base income 582,000 1,175,000 2,403,000 3,696,000
Overage income 468,000 631,000 1,512,000 1,409,000
____________ ___________ ___________ __________
5,958,000 4,166,000 15,523,000 11,659,000
Advisory fee income 67,000 60,000 214,000 202,000
Interest income 1,000 1,000 1,000 2,000
____________ ___________ ___________ __________
6,026,000 4,227,000 15,738,000 11,863,000
____________ ___________ ___________ __________
Expenses
Expenses on Owned Properties 2,106,000 1,172,000 4,914,000 3,193,000
Interest 1,940,000 1,347,000 5,075,000 3,848,000
Depreciation 1,030,000 596,000 2,594,000 1,694,000
General and administrative expenses 539,000 503,000 1,549,000 1,409,000
Professional fees 89,000 104,000 277,000 347,000
Trustees' fees and expenses 44,000 46,000 126,000 147,000
____________ ___________ ___________ __________
5,748,000 3,768,000 14,535,000 10,638,000
____________ ___________ ___________ __________
Income before Gain (Loss) on
Real Estate Investments 278,000 459,000 1,203,000 1,225,000
____________ ___________ ___________ __________
Gain (Loss) on Real Estate Investments
Gain on Sale of Real Estate Investments 2,410,000 - 2,510,000 7,700,000
Provision for Possible Investment Losses - - - (10,000,000)
____________ ___________ ___________ __________
2,410,000 - 2,510,000 (2,300,000)
____________ ___________ ___________ __________
Net Income (Loss) $2,688,000 $459,000 $3,713,000 ($1,075,000)
____________ ___________ ___________ __________
____________ ___________ ___________ __________
Net Income (Loss) per Share
Income before Gain (Loss) on
Real Estate Investments $0.03 $0.05 $0.13 $0.13
________ ________ ________ ________
Gain (Loss) on Real Estate Investments
Gain on Sale of Real Estate Investments 0.27 - 0.28 0.85
Provision for Possible Investment Losses - - - (1.11)
________ ________ ________ ________
0.27 - 0.28 (0.26)
________ ________ ________ ________
Net Income (Loss) per Share $0.30 $0.05 $0.41 ($0.13)
________ ________ ________ ________
________ ________ ________ ________
</TABLE>
3
<PAGE>
Property Capital Trust
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
April 30,
_____________________________________________
1994 1993
________________________________________________________________________________________________________________
<S> <C> <C>
Operating Activities
Net Income (Loss) $3,713,000 ($1,075,000)
Adjustments to Net Income (Loss)
Gain on sale of real estate investments (2,510,000) (7,700,000)
Increase in provision for possible investment losses - 10,000,000
Depreciation and amortization 2,594,000 1,694,000
Income from unconsolidated Investment Partnerships (1,759,000) (1,017,000)
Distributions of earnings from Investment Partnerships 1,876,000 1,104,000
Changes in assets and liabilities
Decrease (increase) in interest and rents receivable 29,000 (992,000)
(Increase) decrease in other assets, net (342,000) 1,624,000
Increase in accounts payable, accrued expenses,
and accrued interest 673,000 594,000
____________ ____________
Net Cash Provided by Operating Activities 4,274,000 4,232,000
____________ ____________
Investing Activities
Owned Properties
Dispositions 12,567,000 -
Additions (7,584,000) (9,879,000)
Structured Transactions
Dispositions 5,095,000 10,865,000
Additions - (587,000)
____________ ____________
Net Cash Provided by Investing Activities 10,078,000 399,000
____________ ____________
Financing Activities
Repayment of bank note payable (6,130,000) (8,580,000)
Cash dividends paid (1,896,000) (1,805,000)
Amortization of non-recourse mortgage
notes payable (355,000) (192,000)
Proceeds from exercise of stock options 8,000 -
(Repayment of) proceeds from non-recourse
mortgage notes payable (5,910,000) 6,000,000
____________ ____________
Net Cash Used In Financing Activities (14,283,000) (4,577,000)
____________ ____________
Net Increase in Cash 69,000 54,000
Cash at Beginning of Period 324,000 207,000
____________ ____________
Cash at End of Period $393,000 $261,000
____________ ____________
____________ ____________
</TABLE>
4
<PAGE>
Property Capital Trust
Consolidated Statement of Shareholders' Equity
(Unaudited)
Nine Months Ended
April 30,
__________________________________
1994 1993
_____________________________________________________________________________
Common Shares
Balance at beginning of period $106,052,000 $106,052,000
Stock options exercised 8,000 -
______________ ______________
Balance at end of period 106,060,000 106,052,000
______________ ______________
Accumulated Deficit
Balance at beginning of period (15,918,000) (12,850,000)
Net income (loss) 3,713,000 (1,075,000)
Cash dividends paid (1,896,000) (1,805,000)
______________ ______________
Balance at end of period (14,101,000) (15,730,000)
______________ ______________
Total Shareholders' Equity $91,959,000 $90,322,000
______________ ______________
______________ ______________
Number of Common Shares
Common Shares issued and outstanding
at beginning of period 9,028,585 9,028,585
Stock options exercised 2,000 -
______________ ______________
Common Shares issued and outstanding
at end of period 9,030,585 9,028,585
______________ ______________
______________ ______________
5
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
In the opinion of management of Property Capital Trust (the "Trust"), the
accompanying unaudited consolidated financial statements contain all
adjustments necessary to present fairly the Trust's financial position as
of April 30, 1994 and the results of its operations and its cash flows for
the nine months ended April 30, 1994 and 1993.
The information contained in these interim financial statements should be
read in conjunction with the Trust's 1993 Annual Report on Form 10-K filed
with the Securities and Exchange Commission on October 20, 1993.
2. Investment Partnerships
Certain of the Trust's investments have been made through partnerships,
or participation agreements, in which the Trust is the general partner or
lead lender and other institutional investors are limited partners or
participants (the "Investment Partnerships").
During the third quarter of fiscal 1994, the Trust changed its method of
accounting for its Investment Partnerships to the equity method.
Previously, the Trust consolidated its share of the Investment
Partnerships' results of operations and related assets and liabilities.
Although the change did not affect the Trust's net income (loss) or
shareholders' equity prior period financial statements have been restated
to reflect the change as if it had occurred at the beginning of the
period. The change in accounting is to a preferable method based upon
generally accepted accounting principles and is more consistent with
current accounting practices in the real estate industry.
3. Real Estate Investments
The 6110 Executive Boulevard property, in Rockville, Maryland was acquired
by a wholly owned subsidiary of the Trust from the Trust's lessee on
February 1, 1994, subject to a first mortgage loan of $6,478,000. During
the quarter ended January 31, 1994, the Trust wrote down its investment
in 6110 Executive Boulevard by $2,000,000. This loss was charged against
the Trust's provision for possible investment losses.
On March 31, 1994, PCA Southwest Associates Limited Partnership
("Southwest") which held mortgages on and owned the land under 3,000
apartments in Houston, Texas, acquired for $427,000 its lessee's interest
in the seven projects subject to first mortgages aggregating approximately
$25,989,000. The Trust has a 45.5% general partner's interest in
Southwest.
4. Indebtedness
On March 31, 1994, the Trust sold Eagle apartments which it had owned
subject to a non-recourse first mortgage of $5,910,000.
On February 1, 1994, the Trust acquired its lessee's interest in 6110
Executive Boulevard subject to a non-recourse first mortgage of
$6,478,000, at an annual interest rate of 9.625%.
5. Gain (Loss) on Real Estate Investments
During the quarter ended April 30, 1994, the Trust sold two investments,
Village Oaks apartments and Eagle apartments. The Trust's Village Oaks
investment was purchased by the Trust's lessee for $3,500,000, resulting
in a gain of $2,500,000 ($.28 per share). The Trust's Eagle apartments
was purchased by an unrelated third party for approximately $12,570,000,
producing a loss of $90,000 ($.01 per share). The net proceeds from both
sales were used to pay down the Trust's bank note payable.
Continued
6
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Gain (Loss) on Real Estate Investments (continued)
During the quarter ended January 31, 1994, the Trust sold its land
investment in the Brown County Inn for $600,000, which produced a gain of
$100,000 ($.01 per share), and its $1,000,000 leasehold mortgage on the
property was prepaid at par.
6. Stock Option Plan
In January 1994, options to purchase 68,850 common shares of the Trust
were granted at $6.38 per share, the fair market value of a common share
at the date of grant, to certain Trust employees. All such options vest
over a five-year period from the date of grant and are subject to
termination under certain circumstances.
7
<PAGE>
PROPERTY CAPITAL TRUST
ITEM 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition, Liquidity and Capital Resources
The Trust's debt at April 30, 1994 was $80,574,000 as compared to
$86,492,000 at July 31, 1993. The Trust's debt to equity ratio decreased
to .88x at April 30, 1994 from .96x at July 31, 1993.
The Trust's bank note payable, which is due and payable on demand,
represents borrowings under a $35,000,000 revolving line of credit. The
interest rate on the bank line is at the bank's prime rate plus 1/4% on
borrowings up to $23,250,000. The interest rate on borrowings in excess
of $23,250,000 is at the bank's prime rate plus 1-1/2% and such excess
borrowings must be secured by a second lien on Loehmann's Fashion Island.
At April 30, 1994, the bank's prime rate was 6.75%. The Trust's bank note
payable decreased to $10,400,000 at April 30, 1994 from $16,530,000 at
July 31, 1993 due to the application of the proceeds from the sales of
three of the Trust's investments. During the remainder of fiscal 1994 the
Trust expects to use the bank line to fund the redevelopment costs at
Loehmann's Fashion Island of approximately $2,500,000 and to fund capital
expenditures on other Owned Properties of approximately $1,500,000.
The Trust's mortgage notes payable increased in the third quarter of
fiscal 1994 from $36,593,000 at July 31, 1993 to $36,805,000 at April 30,
1994, primarily due the Trust's acquisition of its lessee's interest in
6110 Executive Boulevard which is subject to a non-recourse $6,478,000
first mortgage, offset by a reduction in non-recourse mortgage notes
payable of $5,910,000 due to the sale of Eagle apartments. The average
interest rate on the non-recourse mortgage notes payable at April 30, 1994
was 8.8%.
During the third quarter, the Trust obtained a first mortgage commitment
to refinance the Loehmann's Fashion Island shopping center. The commitment
is for a four year loan of up to $30,000,000, at an interest rate of prime
plus 1/4%, with the Trust having the option to convert to a fixed interest
rate. At April 30, 1994, the current first mortgage, which will be repaid
with proceeds of the new loan, had a remaining principal balance of
$11,648,000 at an interest rate of 10.125%. The Trust anticipates this
refinancing will close in July with a first draw of approximately
$20,000,000 and additional advances as the property satisfies certain
earn-out requirements. Proceeds of the refinancing in excess of the
amount used to discharge the existing first mortgage will be used to
reduce the bank note payable.
Review of Real Estate Activity During the Nine Months ended April 30, 1994
Apartments
On March 31, 1994 the Investment Partnership which held the mortgage on
and owned the land under the Houston apartments acquired its lessee's
interest in the properties for $427,000, subject to first mortgage
financing aggregating $25,989,000. As a result, the Investment
Partnership (in which the Trust invested $10,000,000) now owns 3,000
apartment units and has direct control over their management, renovation
and eventual disposition. At April 30, 1994, these apartments were 84%
leased, down from 93% at July 31, 1993. The Trust's management believes
that this decline resulted from operating decisions made by the Investment
Partnership's former lessee and not from a change in the rental markets.
On March 31, 1994, the Trust's lessee purchased the Trust's investment in
the Village Oaks apartments in Westmont, Illinois, for $3,500,000,
resulting in a gain of $2,500,000. On that same date, the Trust sold the
Eagle Apartments in Scottsdale, Arizona, for approximately $12,570,000,
resulting in a loss of $90,000. The property was owned subject to a first
mortgage of $5,910,000. The net proceeds from both sales, approximately
$10,160,000, were used to reduce the Trust's bank note payable.
Shopping Centers
Loehmann's Fashion Island, the Trust's 280,000 square foot shopping center
in Aventura, Florida, which is under redevelopment in Aventura, Florida,
is now 88% leased and 81% occupied.
In November 1993, the owner of the Rapids Mall, located in Wisconsin
Rapids, Wisconsin, defaulted on its obligation
8
<PAGE>
PROPERTY CAPITAL TRUST
Review of Real Estate Activity During the Nine Months ended April 30, 1994
(continued)
Shopping Centers (continued)
to pay interest due the Trust on the Trust's $500,000 mortgage loan.
Subsequently, the mortgage was brought current
and the mortgagor was granted an option to prepay the mortgage for
$350,000. On June 8, 1994 the prepayment was consummated. The resulting
loss of $150,000 was previously provided for in the Trust's provision for
possible investment losses.
Office Buildings
With regard to the Trust's investment in 6110 Executive Boulevard in
Rockville, Maryland, effective February 1, 1994,
the Trust's lessee conveyed its interest in the property to the Trust
subject to a $6,478,000 non-recourse mortgage, at an interest rate of
9.625%. At January 31, 1994, the Trust utilized a portion of its
previously established provision for possible investment losses to write
down this $7,500,000 investment by $2,000,000 to $5,500,000.
On November 3, 1993 the Trust refinanced the $8,600,000 first mortgage on
the Park Place office building located in Clayton, Missouri. The result
of the refinancing is a reduction on the annual effective interest expense
from 8.25% to 5.65%, or an annual savings to the Trust of approximately
$220,000.
Hotels
During the second quarter, the Trust sold its land investment in the Brown
County Inn, Nashville, Indiana, for $600,000, resulting in a gain of
$100,000, and the Trust's $1,000,000 leasehold mortgage on the property
was prepaid at par. The net proceeds from this sale were used to reduce
the Trust's bank note payable.
Effective April 1, 1994, the Trust modified its land leaseback and
mortgage loan investments in the Cincinnati Marriott Inn. The
restructured transactions require fixed annual land rent and mortgage
interest payments aggregating $450,000, payable monthly. In addition,
the land lease provides for overage income to the extent the hotel's
revenues exceed stipulated amounts. The Trust's investments in the hotel
total $5,716,000. The restructuring was made in conjunction with an
affiliate of the hotel manager becoming the general partner of the Trust's
lessee.
Results of Operations for the Three and Nine Months ended April 30, 1994
versus the Three and Nine Months ended April 30, 1993.
Revenues
Revenues from Owned Properties (base rent plus expense reimbursements)
increased 104% and 78% for the three and nine months ended April 30, 1994
as compared to the same periods in the prior year, primarily due to the
Trust's acquisition of its lessees' interests in 6110 Executive Boulevard
(February 1994) and One Park West (March 1993), and an increase in rental
income from Loehmann's Fashion Island as additional tenants take occupancy
in the shopping center. This increase was offset in part by a decrease
in rental income due to the sale of Eagle apartments (March 1994).
The Trust's share of income from unconsolidated Investment Partnerships
increased 141% and 73% for the three and nine months ended April 30, 1994
as compared to the same periods in the prior year, primarily due to
improved operating results at the Trust's Investment Partnership which
owns the Overland Park, Kansas properties and the completion of the
lessee's bankruptcy proceedings with regard to Southwest.
Base income from Structured Transactions decreased 50% and 35% for the
three and nine months ended April 30, 1994 as compared to the same periods
in the prior year, primarily due to the conversion of 6110 Executive
Boulevard and One Park West to Owned Properties and the sale of the
Trust's investments in the Village Oaks apartments (March 1994) and Brown
County Inn (January 1994).
9
<PAGE>
PROPERTY CAPITAL TRUST
Results of Operations for the Three and Nine Months ended April 30, 1994
versus the Three and Nine Months ended April 30, 1993. (continued)
Revenues (continued)
Overage income decreased 26% for the three months ended April 30, 1994 as
compared to the same period in the prior year due primarily to the
recognition in the comparable quarter last year of additional overage
income from a certain Hotel investment as the result of an audit of the
hotels operations, and to the sale of certain Structured Transactions.
Overage income increased 7% for the nine months ended April 30, 1994, as
compared to the same period in the prior year, due primarily to the
receipt of overage income from two apartment investments in the first and
second quarters which did not pay overage income in the comparable periods
last year.
Expenses
Expenses on Owned Properties increased 80% and 54% for the three and nine
months ended April 30, 1994 as compared to the same periods in the prior
year. The increases were primarily due to the conversion of 6110
Executive Boulevard and One Park West to Owned Properties and an increase
in operating expenses at the redeveloped Loehmann's Fashion Island as
occupancy increased.
Interest expense increased 44% and 32% for the three and nine months ended
April 30, 1994 as compared to the same periods in the prior year. The
increases were due primarily to the interest expense incurred on the first
mortgages on 6110 Executive Boulevard and One Park West, and the expensing
of interest related to Loehmann's Fashion Island which had been
capitalized during construction, offset by a reduction in the interest
expense on Eagle apartments, which was sold, and the Park Place office
building, which was refinanced.
Depreciation expense increased 73% and 53% for the three and nine months
ended April 30, 1994 as compared to the same periods in the prior year due
primarily to the additions to Owned Properties noted above and the
increase in the depreciation of Loehmann's Fashion Island as portions of
the redeveloped center are placed in service, offset in part by the
elimination of depreciation on Eagle apartments, which was sold.
Income before Gain (loss) on Real Estate Investments
Income before gain (loss) on real estate investments decreased to $.03 per
share for the three months ended April 30, 1994 from $.05 per share for
the comparable quarter in the prior year primarily due to the reasons
noted above. Such income was substantially unchanged for the nine months
ended April 30, 1994 compared to the comparable period in the preceding
year.
Gain on Sale of Real Estate Investments
During the third quarter, the Trust sold two investments, Village Oaks
apartments and Eagle apartments. The Trust's Village Oaks apartments
investment was purchased by the Trust's lessee for $3,500,000, producing
a gain of $2,500,000 ($.28 per share). The Trust's Eagle apartments was
sold to an unrelated third party for approximately $12,570,000, resulting
in a loss of $90,000 ($.01 per share). During the second quarter the
Trust sold its land investment in the Brown County Inn, located in
Nashville, Indiana, for $600,000, resulting in a gain of $100,000.
Funds from Operations
Funds from operations for the three months ended April 30, 1994 were
$1,659,000 as compared to $1,353,000 for the same period in the prior year
and for the nine months ended April 30, 1994 were $4,748,000 as compared
to $3,763,000 for the same period in the prior year. Funds from
operations were calculated consistent with the National Association of
Real Estate Investment Trusts' definition (funds from operations equals
net income, excluding gains (or losses) from debt restructuring and sales
of properties, plus depreciation and amortization and after adjustments
for unconsolidated partnerships and joint ventures).
10
<PAGE>
PROPERTY CAPITAL TRUST
Results of Operations for the Three and Nine Months ended April 30, 1994
versus the Three and Nine Months ended April 30, 1993 (continued)
Dividends
Dividends declared for the first, second and third quarters of fiscal 1994
and 1993 were $.07 each. The Trust pays dividends approximately 55 days
following the end of each fiscal quarter.
<PAGE>
PROPERTY CAPITAL TRUST
Item 6. Exhibits and Reports on Form 8-K
Exhibit 18. Letter re change in accounting principles
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Trust has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROPERTY CAPITAL TRUST
Registrant
June 20, 1994 /s/ Robert M. Melzer
Date Robert M. Melzer
President and Chief Executive Officer
(Principal Financial Officer)
13
Exhibit 18
June 16, 1994
Mr. Robert M. Melzer
President and Chief Executive Officer
Property Capital Trust
One Post Office Square
Suite 2100
Boston, Massachusetts 02109
Dear Sir:
Note 2 of Notes to financial statements of Property Capital Trust included
in its Form 10-Q for the quarter ended April 30, 1994 describes a change
in the method of accounting for certain real estate investments.
Previously, the Trust consolidated its share of assets and liabilities and
the results of operations of these investments. The Trust now uses the
equity method of accounting to account for its investment in these real
estate partnerships. This change did not affect net income (loss) or
shareholders' equity. You have advised us that you believe the change is
to a preferable method in your circumstances based upon generally accepted
accounting principles and is more consistent with current accounting
practices in the real estate industry.
We conclude that the change in the method of accounting for these
investments is to an acceptable alternative method which, based on your
business judgement to make this change for the reasons cited above, is
preferable in your circumstances. We have not conducted an audit in
accordance with general accepted auditing standards of any financial
statements of the Company as of any date or for any period subsequent to
July 31, 1993, and therefore we do not express any opinion on any
financial statements of Property Capital Trust subsequent to that date.
Very truly yours,
ERNST & YOUNG
14
