UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20182020
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 001-08499
CAPITAL PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
Rhode Island |
| 05-0386287 |
(State or other jurisdiction of |
| (IRS Employer |
incorporation or organization) |
| identification No.) |
5 Steeple Street, Unit 303 |
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Providence, Rhode Island |
| 02903 |
(Address of principal executive offices) |
| (Zip Code) |
(401) 435-7171
(Registrant’s telephone number, including area code)code: (401) 435-7171
Securities registered pursuant to Section 12 (b)(g) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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Securities registered pursuant to Section 12 (g) of the Act:
Class A Common Stock, $.01 par value
CPTP
OTCQX
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of the "large accelerated filer," "accelerated filer," "non-accelerated filer," "smaller reporting company" and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer | ☐ | Accelerated Filer | ☐ |
| Emerging Growth Company | ☐ |
Non-Accelerated Filer | ☐ | Smaller reporting company | ☒ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to it management’s assessment of the effectiveness of its internal control over financial reporting under Section 404 (b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued it audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of June 30, 2018,2020, the aggregate market value of the Class A voting stock held by non-affiliates of the Company was $29,700,000,$24,200,000, which excludes voting stock held by directors, executive officers and holders of 5% or more of the voting power of the Company’s common stock (without conceding that such persons are “affiliates” of the Company for purposes of federal securities laws). The Company has no outstanding non-voting common equity.
As of March 1, 2019,2, 2021, the Company had 6,599,912 shares of Class A Common Stock outstanding.outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’s Proxy Statement for the 20192021 Annual Meeting of Shareholders to be held on April 30, 2019,28, 2021, are incorporated by reference into Part III of this Form 10-K.
CAPITAL PROPERTIES, INC.
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 20182020
TABLE OF CONTENTS
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Item 1. | 3 | |
Item 2. | 6 | |
Item 3. | 6 | |
Item 4. | 6 | |
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Item 5. | Markets for Registrant’s Common Equity and Related Shareholder Matters | 7 |
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 8 |
Item 8. |
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Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosures |
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Item 10. |
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Item 11. |
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Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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Item 13. | Certain Relationships and Related Transactions and Director Independence |
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Item 15. |
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| 26 |
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Certain portions of this report, and particularly the Management’s Discussion and Analysis of Financial Condition and Results of Operations, contain forward-looking statements within the meaning of Sections 27A of the Securities Act of 1933, as amended, and Sections 21E of the Securities Exchange Act of 1934, as amended, which represent the Company’s expectations or beliefs concerning future events. The Company cautions that these statements are further qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements, including, without limitation, the following: the ability of the Company to generate adequate amounts of cash; the collectibilitycollectability of the accrued leasing revenuesexcess of straight-line over contractual rent when due over the terms of the long-term land leases and the early termination of the Parcel 6C land lease;leases; the commencement of additional long-term land leases; changes in economic conditions that may affect either the current or future development on the Company’s parcels; the impact of the COVID-19 pandemic on the economy, parking operations and the Company’s financial performance and exposure to remediation costs associated with its former ownership of a petroleum storage facility. The Company does not undertake the obligation to update forward-looking statements in response to new information, future events or otherwise.
Organizational History
The Company was organized as a business corporation under the laws of Rhode Island in 1983 as Providence and Worcester Company and is the successor by merger in 1983 to a corporation also named Providence and Worcester Company which was organized under the laws of Delaware in 1979. In 1984, the Company’s name was changed to Capital Properties, Inc.
Segments
Prior to February 10, 2017, the Company operated in two segments: leasing and petroleum storage. On February 10, 2017, the company sold its petroleum storage facility and related assets (the “Terminal”) owned or controlled by the Company’s subsidiaries, Capital Terminal Company and Dunellen LLC to Sprague Operating Resources, LLC (“Sprague”). The sale of the Terminal results in the segment being classified as discontinued operations for all periods presented. See Note 7 to the Consolidated Financial Statements. With the sale of the Terminal, the Board of Directors determined that there was no longer a need to maintain Capital Terminal Company and Dunellen, LLC and at its April 24, 2018 regularly scheduled Board meeting, it voted to liquidate and dissolve these two companies.
As a result of the sale of the Terminal, the Company’s operations are limited to leasing its real estate interests.
Leasing Business
Capital Center AreaBusiness:
The Company’s principal business is the leasing of Company-owned land in Capital Center (“Capital Center”) and property adjacent to the Capital Center (Parcel 20) in downtown Providence, Rhode Island under long-term ground leases as well as Parcel 20 which is adjacent to Capital Center.with terms of 99 years or more. (Hereinafter, the land in Capital Center and Parcel 20 are referred to as parcels within the “Capital Center Area”). The Company owns approximately 18 acres in the Capital Center consisting of 13 individual parcels. The Capital Center (approximately 77 acres of land) is the result of a development project undertaken by the State of Rhode Island, the City of Providence, the National Railroad Passenger Corporation (“Amtrak”) and the Company during the 1980’s in which two rivers, the Moshassuck and the Woonasquatucket, were moved, Amtrak’s Northeast Corridor rail line was relocated, a new Amtrak/commuter railroad station was constructed and significant public improvements were made to improve pedestrian and vehicular traffic in the area.
Generally speaking, a ground lease is a lease by the owner of the land (in this case, the Company) to the owners/operators of the real estate improvements built thereon (“Ground Leases”). The Company has not acted, and does not intend to act, as a developer with respect to any improvements constructed on Company-owned parcels. Rather,
Under our standard Ground Leases, the Company offers individual parcelstenant is responsible for lease pursuant to long-term ground leasesall property related operating expenses, such as real estate taxes, maintenance and insurance as well as all costs associated with termsthe development and construction of 99 years or more.the related improvements. Each lease contains provisions permitting the tenant to develop the parcel under certain terms and conditions. Each lease providesconditions and provide for periodic rent adjustments of various kinds. Under the leases,increases based on either a specific percentage, consumer price index (“CPI”), appraisal or combination thereof and sometimes includes percentage rent participation (contingent rent). The Ground Leases also provide that the tenants are responsible for insuring the Company against various hazards and events. Each tenant is required to indemnifyevents as well as indemnifying the Company with respect to all of the tenant’s activities on the land. The leases contain other terms and conditions customary to such instruments.
3
The Company first began offering parcels for lease in the Capital Center Area in the late 1980’s. As of December 31, 2018, ten parcels within the Capital Center Area have been leased by the Company under long-term leases of 99 years or more. Of the ten parcels, eight have improvements constructed thereon or under construction as follows:
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While seeking developers, the Company also leases Parcels 3E, 3W, 4E and 4W in the Capital Center area for public parking purposes to Metropark, Ltd.
3
Parcel 20
Parcel 20 Adjacent to Capital Center
Since the 1980’s, the Company has owned an undevelopedconsists of a parcel of land adjacent to the Capital Center, part of which was leased out for public parking purposes on a short-term basis. In 2007, the Company purchased the adjacent parcel containingis undeveloped and part of which contains a three/four-story 20,000 square foot building (the “Steeple Street Building”) and related land for $2,329,000, which, together with the previously-owned land, now comprises Parcel 20, containing 26,600 square feet..
On September 28, 2017, the Company entered into a long- term ground lease for Parcel 20. Under the terms of the ground lease, until the lessee took possession, the Company received all rents from existing tenants and paid all expenses with respect to Parcel 20.
On May 14, 2018 the Company and the lesseetenant entered into an Amended and Restated Ground Lease. The lesseeOn December 1, 2018, the tenant took possession of Parcel 20 on December 1, 2018 and the Company conveyed title to the Steeple Street Building to the lessee.tenant. In addition to the ground lease rent, for 360 months following December 1, 2018, the lessee willtenant is obligated to pay acquisition period rent consisting of monthly payments of $7,471 for the first thirty-six months and monthly payments thereafter of $8,488 plus an amount equal to 1/12th of the product of (a) 5.5% and (b) the difference between (x) $2,750,000 and (y) the aggregate of the prior monthly payments of $8,488. The Amended and Restated Ground Lease is a triple net lease.
The Amended and Restated Ground Lease for Parcel 20, as it relates specifically to the Steeple Street Building and the land underneath the building, wasis accounted for as a sales-type lease due to the transfer of title to the Steeple Street Building to the lessee.tenant. The land directly under the Steeple Street Building was allocated in the determination of the value of the property transferred in accordance with ASC 360-20, Property, Plant and Equipment - Real Estate Sales. Since the initial investment by the lesseetenant is insufficient to recognize the transaction as a sale, in accordance with ASC 360-20 the Company will report the acquisition period rent and an allocable portion of the ground rent collected as a deposit liabilitydeferred revenue on its consolidated balance sheet and will continue to include the property transferred in properties and equipment until the transaction can be reported as a sale in accordance with accounting principles generally accepted in the United States (“GAAP”). As the carrying value of the property transferred to the lessee exceeds its fair value, the Company has recognized an impairment loss of $1,832,000 as of December 31, 2018. The long-term ground lease of the undeveloped land on Parcel 20 (exclusive of the Steeple Street Building) is accounted for as an operating lease, consistent with the Company’s other long-term ground leases.
All of the properties described above are shown on a map contained in Exhibit 20.
Billboard Lease
The Company, through aits wholly-owned subsidiary Tri-State Displays, Inc. leases 23 outdoor advertising locations containing 44 billboard faces along interstate and primary highways in Rhode Island and Massachusetts to Lamar Outdoor Advertising, LLC (“Lamar”) under a lease which expires in 2045.2049 (the “Lamar Lease”). All but one of these locations are controlled by the Company through permanent easements granted to the
4
Company pursuant to an agreement between the Company and Providence & Worcester Railroad Company (“Railroad”); the remaining location is leased by the Company from a third party with a remaining term of two years.
Lamar has a right of first refusal for additional billboard location sites acquired by the Company in New England and Metropolitan New York City.
The Lamar lease with Lamar provides, among other things for the following: (1) theannual base rent increases annually at the rate of 2.75% in June for each leased billboard location commencing June 1, 2006; and (2)participation in addition to base rent, forthe revenue generated by each 12-month period commencing each June 1, Lamar must pay tobillboard, as defined in the Company 30% of the gross revenues from each standard billboard and 20% of the gross revenues from each electronic billboard for such 12-month period, reduced by the sum of (a) commissions paid to third parties and (b) the base monthly rent for each leased billboard display for such 12-month period.agreement. The Lamar lease contains other terms and conditions customary to such instruments.
4
A summary of the long-term leases which have commenced is as follows:
Parcels in Capital Center Area |
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Parcel Number |
| Description of Usage |
| Initial Term of Lease (Years) |
| Termination Date |
| Options to Extend Lease |
| Current Annual Contractual Rent |
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| Contingent Rent |
| Next Periodic Rent Adjustment |
| Annual Rent After Next Adjustment or Type of Next Adjustment |
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2 |
| Residential/Office |
| 103 |
| 2108 |
| Two 75-Year |
| $ | 503,000 |
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| None |
| 2108 |
| Cost-of-living Adjustment |
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3S |
| Office |
| 99 |
| 2087 |
| None |
| $ | 618,000 |
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| None |
| 2019 |
| Appraisal |
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5 |
| Residential |
| 149 |
| 2142 |
| None |
| $ | 540,000 |
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| 1% Gross Revenue |
| 2033 |
| Appraisal |
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6A |
| Residential |
| 99 |
| 2107 |
| Two 50-Year |
| $ | 334,000 |
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| None |
| 2019 |
| $ | 367,000 |
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6B |
| Residential |
| 99 |
| 2107 |
| Two 50-Year |
| $ | 195,000 |
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| None |
| 2019 |
| $ | 214,000 |
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6C |
| Undeveloped |
| 99* |
| 2107 |
| Two 50-Year |
| $ | 200,000 |
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| None |
| 2019 |
| $ | 220,000 |
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7A |
| Garage |
| 99 |
| 2104 |
| Two 75-Year |
| $ | 153,000 |
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| None |
| 2022 |
| Cost-of-living Adjustment |
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| Office |
| 99 |
| 2090 |
| None |
| $ | 290,000 |
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| 1% Gross Revenue |
| 2020 |
| Appraisal |
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9 |
| Office |
| 149 |
| 2153 |
| None |
| $ | 378,000 |
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| None |
| 2021 |
| $ | 397,000 |
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20 |
| Office/Planned Residential |
| 99 |
| 2117 |
| Five 10-Year |
| $ | 33,330 |
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| None |
| 2020 |
| $ | 66,600 |
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Billboard Lease |
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NA |
| Billboard |
| 39 |
| 2045 |
| See Billboard Lease above |
| $ | 925,000 |
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| See Billboard Lease above |
| 2019 |
| $ | 950,000 |
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| Type of Building (s) |
| Building Gross Square Feet |
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| Number of Residential Units |
| Term of Lease (Years) |
| Termination Date |
| Options to Extend Lease |
| Current Annual Contractual Rent |
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| Next Periodic Rent Adjustment |
| Annual Rent After Next Adjustment or Type of Next Adjustment |
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2 |
| 17-story & 19-story Residential and |
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| 307,000 |
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| 193 |
| 103 |
| 2108 |
| Two 75-Year |
| $ | 503,000 |
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| 2023 |
| COLA |
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| 325,000 |
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3S |
| 13-story Office |
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| 235,000 |
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| 99 |
| 2087 |
| None |
| $ | 618,000 |
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| 2024 |
| $ | 788,000 |
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5 |
| 8-story Residential |
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| 454,000 |
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| 225 |
| 149 |
| 2142 |
| None |
| $ | 540,000 |
| * |
| 2033 |
| Appraisal |
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6A |
| 4-6 story Residential |
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| 120,000 |
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| 96 |
| 99 |
| 2107 |
| Two 50-Year |
| $ | 367,000 |
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| 2024 |
| $ | 404,000 |
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6B |
| 2-6 story Residential |
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| 248,000 |
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| 169 |
| 99 |
| 2107 |
| Two 50-Year |
| $ | 214,000 |
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| 2024 |
| $ | 235,000 |
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7A |
| Underground Public Parking Garage |
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| 99 |
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| 330 parking spaces |
| 99 |
| 2104 |
| Two 75-Year |
| $ | 164,000 |
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| 2022 |
| COLA |
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8 |
| 4-story Office |
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| 114,000 |
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| 99 |
| 2090 |
| None |
| $ | 290,000 |
| * |
| 2025 |
| COLA |
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9 |
| 10-story Office |
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| 210,000 |
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| 149 |
| 2153 |
| None |
| $ | 378,000 |
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| 2021 |
| $ | 397,000 |
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20 |
| 3-11 story Planned Office/Residential |
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| 99 |
| 2117 |
| Five 10-Year |
| $ | 66,600 |
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| 2021 |
| $ | 133,000 |
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| & 3-4 story Historic Office |
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| 20,000 |
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Billboard Lease |
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NA |
| Billboard |
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| 39 |
| 2049 |
| ** |
| $ | 966,000 |
| *** |
| 2021 |
| $ | 993,000 |
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COLA |
| Cost-of-living adjustment |
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* |
| Lease provides for rent participation (contingent rent) equal to 1% of Gross Revenue. |
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** |
| Lease term is extended for four (4) years if an electronic billboard is constructed on a leased location. |
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*** |
| Lease provides for rent participation equal to 30% of Revenue, as defined in the agreement for each standard billboard and 20% of Revenue for each electronic billboard. |
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5
Major tenants:
The following table sets forth those major tenants whose revenues exceed 10 percent of the Company’s leasing revenues for the years ended December 31, 20182020 and 2017:2019:
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| 2017 |
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| 2020 |
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| 2019 |
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Lamar Outdoor Advertising, LLC |
| $ | 1,034,000 |
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| $ | 998,000 |
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| $ | 1,105,000 |
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| $ | 1,073,000 |
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Avalon Properties, Inc. |
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| 620,000 |
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| 623,000 |
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1701 R.C. Sarasota Invest, LLC |
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| 618,000 |
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| 618,000 |
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Waterplace Condominiums |
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| 503,000 |
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| 503,000 |
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Metropark, LTD |
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| 697,000 |
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| 721,000 |
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| 163,000 |
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| 643,000 |
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One Citizens Plaza Holdings, LLC/Radix LLC |
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| 618,000 |
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| 618,000 |
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AvalonBay Communities, Inc. |
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| 615,000 |
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| 615,000 |
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| $ | 2,964,000 |
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| $ | 2,952,000 |
|
| $ | 3,009,000 |
|
| $ | 3,460,000 |
|
Competition
The Company competes for tenants with other owners of undeveloped real property in downtown Providence. The Company maintains no listing of other competitive properties and will not engage in a competitive bid arrangement with proposed developers. The Company’s refusal to sell the land that it owns may restrict the number of interested developers.
Employees
As of December 31, 2018,2020, the Company has three employees.
Environmental
InPrior to February 2017, the Company operated a petroleum storage facility (“Terminal”) through two of its wholly owned subsidiaries. On February 10, 2017, the Terminal was sold to Sprague Operating Resources, LLC (“Sprague”) which results in the Terminal’s operations being classified as discontinued operations for all periods presented. As part of the Terminal Sale Agreement, the Company agreed to complete the environmental remediation and pay for the costs related to a 1994 a leak was discovered in a storage tank at the Terminalfuel oil leak which allowed the escape of a small amount of fuel oil. Since that time,In February 2020, the Company and its consultants have continued to workfiled a revised Remediation Action Work Plan (“RAWP”) with the Rhode Island Department of Environmental Management (“RIDEM”) throughto incorporate technical details associated with the various phases of remediation and are now working to complete the final remediation plan. Pursuant to the Sale Agreement with Sprague and related documentation, the Company is required to secure an approved remediation planpreferred remedial activities and to remediate this contaminated site at its expense. During 2017, remediation costs of $25,000 were incurred which reducedupdate the total accrual to remediate the site to $434,000.2018 RAWP. In 2018,2019 the Company incurred costs of $111,000$293,000 and, as a result of the proposed remediations included in the 2020 RAWP, the accrual was increased by $846,000 primarily due to design changes necessary to meet the amount accrued by $56,000requirements of applicable life safety codes resulting in aan environmental remediation liability of $490,000.$1,043,000 at December 31, 2019. In 2020, the Company incurred costs of $553,000 resulting in an environmental remediation liability of $490,000 at December 31, 2020. Any subsequent increases or decreases to the expected cost of remediation will be recorded in the Company’s consolidated income statement as income or expense from discontinued operations.
Insurance
The Company maintains what management believes to be adequate levels of insurance.
The Company owns approximately 18 acres in and adjacent to the Capital Center DistrictArea in Providence, Rhode Island. Effective December 1, 2018,With the Company entered into a land leaseexception of Parcel 20 and a sales-type lease that transferred the Steeple Street Building located on the premises to the lessee. All6C, all of the Company’s real property and a portion of the building (through December 1, 2018) are/wereis leased either under long-term leases or short-term leases as more particularly described in Item 1, Leasing Business. Effective August 29, 2020, the Parcel 6C lease was terminated by the tenant. The Company also owns or controls 23 locations on which 44 billboard faces have been constructed. All but one of these locations are owned by the Company under permanent easements from the Railroad; the remaining location is leased from an unrelated third party with a remaining term of two years.
Item 3. Legal Proceedings – None
Item 4. Mine Safety Disclosure - Not applicable
6
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
The Company’s Class A Common Stock is traded on the OTCQX, symbol “CPTP.” The following table shows the high and low trading prices for the Company’s Class A Common Stock during the quarterly periods indicated as obtained from the OTCQX, together with cash dividends paid per share during such periods.
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| Trading Prices |
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| Dividends |
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| Trading Prices |
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| Dividends |
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| High |
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| Low |
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| Declared |
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| High |
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| Low |
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| Declared |
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2018 |
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2020 |
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1st Quarter |
| $ | 14.35 |
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| $ | 13.20 |
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| $ | - |
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| $ | 16.50 |
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| $ | 12.07 |
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| $ | 0.07 |
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2nd Quarter |
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| 16.00 |
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| 14.15 |
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| 0.07 |
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| 15.05 |
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| 11.20 |
|
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| - |
| * |
3rd Quarter |
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| 16.20 |
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| 15.00 |
|
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| 0.07 |
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| 15.00 |
|
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| 12.10 |
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| 0.07 |
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4th Quarter |
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| 16.40 |
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| 14.75 |
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| 0.82 |
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| 14.70 |
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| 12.35 |
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| 0.07 |
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2017 |
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2019 |
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1st Quarter |
| $ | 14.19 |
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| $ | 12.62 |
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| $ | - |
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| $ | 15.43 |
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| $ | 13.91 |
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| $ | 0.07 |
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2nd Quarter |
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| 14.30 |
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| 13.00 |
|
|
| - |
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|
|
| 16.49 |
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|
| 13.50 |
|
|
| 0.07 |
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3rd Quarter |
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| 14.00 |
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| 13.05 |
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| - |
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|
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| 16.10 |
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| 13.57 |
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| 0.07 |
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4th Quarter |
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| 14.35 |
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| 13.25 |
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| 0.07 |
| * |
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| 16.35 |
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| 15.00 |
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| 0.24 |
| ** |
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* Not declared due to uncertainty of potential coronavirus pandemic impact on Company. | * Not declared due to uncertainty of potential coronavirus pandemic impact on Company. | |||||||||||||||||||||||||
** Includes Special Dividend of $0.17 in 2019. | ** Includes Special Dividend of $0.17 in 2019. |
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At March 1, 2019,2, 2021, there were 377334 holders of record of the Company’s Class A Common Stock.
7
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our consolidated financial statements are prepared in accordance with GAAP. The following discussion of our financial condition and results of operations excludes the results of our discontinued operations unless otherwise noted. See Note 7, Discontinued“Discontinued operations and environmental incidentincident” in the accompanying Consolidated Financial Statements for further discussion of these operations.
1. | Overview: |
Critical accounting policies:
The Securities and Exchange Commission (“SEC”) has issued guidance for the disclosure of “critical accounting policies.” The SEC defines such policies as those that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.
The Company’s significant accounting policies are described in Note 2 in the accompanying Consolidated Financial Statements. Not all of these significant accounting policies require management to make difficult, subjective or complex judgments or estimates. Management believes that the Company’s revenue recognition policy for long-term leases with scheduled rent increases meets the SEC definition of “critical.”
Certain of theThe Company’s long-term leases (land and billboard) have original terms of 30 to 149 years and contain scheduled rent increases whereyears. The Company follows generally accepted accounting principles (“GAAP”) in accounting for its leases by recognizing rental income on the future dollar increases are known atstraight-line basis over the timeterm of the commencementleases. Where the straight-line income exceeds the actual contractual payments (“Excess”), the Company evaluates the collectability of the entire stream of remaining lease or atpayments on a subsequent date.
The first suchlease-by-lease basis. If the remaining lease commencedpayments are not deemed to be probable of collection, in 1988, had an original term of 99 years and provides for fixed percentage increases at specified intervals (as well as reappraisal increases). In accordance with GAAP, in accounting for leases,lease revenue is recorded at the lower of straight-line rental income related to the fixed percentage increases that are presently known should be recognized on a straight-line basis. To calculate the annual straight-line amount, the 99 known annual rental amounts are totaled and this total is divided by 99.
In 2009, a scheduled appraisal occurred, resulting in a rental increase. The Company recalculated the future annual straight-line amount using the remaining years under the lease. The turnaround date discussed below did not change.
For this lease, the calculated annual straight-line amount for 1988 was eight times (multiple) the amount paid by the tenant under the terms of the lease (the “contractual amount”). In subsequent years, as the tenant pays higher rents, the multiple gradually decreases until the 57th year of the lease, at which timeor the contractual amount paid by the tenant will exceed the calculated straight-line amount. If the Company were to report annual revenue for this lease using the straight-line amount, it would record a significant receivable for each of the first 56 years, which receivable would grow to approximately $34,000,000. Management does not believe that the Company should record a receivable that would not begin to be collected until the 56th year (the “turnaround date”) since management could not be assured of collection.
In 1988, management met with the SEC accounting staff to discuss its concerns in applying GAAP as it related to a lease of this length which results in the recording of such a significant receivable that would remain on the Company’s balance sheet and continue to grow on an annual basis with a turnaround date so far in the future. The Company presented the SEC accounting staff with an application of the accounting policy whereby management would evaluate the collectibility of the receivable on an annual basis and report as leasing revenue only that portion of the receivable that management could presently conclude would be collectible. The SEC accounting staff did not object to this application by the Company.
Through December 31, 2018, the receivable on this lease has grown to $24,470,000 (cumulative excess of straight-line over contractual rentals) and management has not been able to conclude that any portion is collectible as the turnaround date is still 27 years away.
In 2004, a second such lease commenced with an original term of 149 years and provides for fixed minimum percentage increases at specified intervals (as well as reappraisal increases). For this lease, the contractual amount paid by the tenant will not exceed the calculated straight-line amount until the 87th year of the lease. Through December 31, 2018, the receivable on this lease is $32,940,000 (cumulative excess of straight-line over contractual rentals) and management has not been able to conclude that any portion is collectible as the turnaround date is 79 years away.
In 2006, the Company entered into an Amended and Restated Agreement of its lease with Lamar which provides for fixed percentage increases annually. In 2013, the lease was extended to 2045 following the conversion of billboards at two locations to electronic boards, as required by the lease. For this lease, the contractual amount paid by Lamar will not exceed
8
the calculated straight-line amount until the 23rd year of the extended lease. Through December 31, 2018, the receivable on this lease is $3,050,000 (cumulative excess of straight-line over contractual rentals) and management has not been able to conclude that any portion is collectible as the turnaround date is 11 years away.
Accordingly, the Company has not reported any portion of these amounts as leasing revenue in its consolidated financial statements and does not anticipate that it can reach such a conclusion until the turnaround dates are closer.
Although the Company’s other long-term land leases provide for scheduled rent increases, the provisions of the leases are such that certain future dollar amounts could not be calculated either at the time of the commencement of the lease or now, as such amounts are based on factors that are not presently known, i.e., future cost-of-living adjustments or future appraised values. Through December 31, 2018, the receivable on these leases is $17,009,000 and management has not been able to conclude that any portion is collectible as the turnaround dates are approximately 42 years away.
In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (“ASU”) No. 2016-02, which requires lessors to classify leases as sales-type, direct financing, or operating leases. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No, 2018-111, Targeted Improvements. A lease is a sales-type lease if any one of five criteria are met, each of which indicate that the lease, in effect, transfers control of the underlying asset to the lessee. If none of the five criteria are met, but two additional criteria are both met, indicating that the lessor has transferred substantially all of the risks and benefits of the underlying asset to the lessee and a third party, the lease is a direct financing lease. All leases that are not sales-type or direct financing leases are operating leases.paid.
The new standard is effective for the company on January 1, 2019. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented as its date of initial application. The Company adopted the new standard on January 1, 2019 and will use the effective date as the date of initial application.
The new standard provides a number of practical expedients in transition. The Company elected the “package of practical expedients”, which permits the Company not to reassess under the new standard prior conclusions about lease identification, lease classification and initial direct costs. For additional informationyears remaining on the Company’s leases see Note 5 inrange from twenty-nine (29) years to one hundred-thirty-three (133) years with total rent yet to be collected (without regard to CPI and appraisal adjustments) under the accompanying Consolidated Financial Statements.lease ranging from $10.4 million to $364.2 million. Given the length of the remaining lease term and the magnitude of the amount yet to be collected, along with the consideration of other factors, the Company has concluded that the remaining stream of lease payments is not probable of collection and as such, reports lease revenue based on the contractual amount paid.
2. | Liquidity and capital resources: |
Historically, the Company generates adequate liquidity to fund its operations.
Cash and cash commitments:
At December 31, 2018,2020, the Company had cash and cash equivalents of $1,147,000.$1,642,000. At December 31, 20182020 and 2019, cash equivalents consist of a money market accountaccounts totaling $1,048,000. At December 31, 2017, cash equivalents consist of United States zero-coupon treasury bills that matured in March 2018 totaling $2,993,000.$1,555,000 and $1,039,000, respectively. The Company and its subsidiariessubsidiary each maintain a checking account in the same bank and the Company maintains a checking and money market accountaccounts in another bank,two financial institutions, all of which are insured by the Federal Deposit Insurance Corporation to a maximum of $250,000. The Company periodically evaluates the financial stability of the financial institutions at which the Company’s funds are held.
Under the terms of theeach applicable long-term land lease, on Parcel 2, the contractual rent was adjusted in May 2018 by a costadjustments for the last two year were:
Parcel Number |
| Monthly Increase |
| Effective Date of Increase |
| Type of Adjustment |
Parcels 6A, 6B and 6C |
| $6,100 |
| July 2019 |
| 10% |
Parcel 3S |
| $0 |
| October 2019 |
| 2019 Appraisal resulted in no rent increase |
Parcel 20 |
| $2,800 |
| June 1, 2020 |
| Base ground rent increase |
8
On July 30, 2020, the Company received notice that the tenant of living adjustment as provided inParcel 6C exercised its right to terminate the ground lease agreement resulting in a monthly rent increase of $4,000.
effective August 29, 2020. On April 1, 2017, the scheduledtermination date, the annual contractual rent on Parcel 7A increased $10,0006C was $220,000 and will increasethe annual real estate taxes paid by $6,000 per year over the following four years.
In 2019,tenant were $311,000. Upon termination, the termsreal estate taxes became an obligation of the long-term leasesCompany effective with the taxes assessed as on Parcels 6A, 6BDecember 31, 2020. The Company believes that the assessed value of Parcel 6C as contained in a tax treaty between the City of Providence (“City”) and 6C providesthe tenant is much greater than similar parcels in the Capital Center area. The Company is not a party to the tax treaty. Accordingly, the Company has commenced negotiations with the City for a costlower assessment.
Through March 10, 2021 all tenants have paid their monthly rent in accordance with their lease agreements except for Metropark, the tenant that operates public parking on the Company’s undeveloped parcels other than Parcel 6C. The coronavirus (COVID-19) pandemic and Rhode Island’s stay-at-home order has had a significant adverse impact on Metropark. The Company does not know when or if Metropark’s operations will return to normal. Metropark has not fully paid the rent for April 2020 through March 2021. The total rent arrearage as of living adjustment of not less than 10% effectiveDecember 31, 2020 is $340,000 and has been fully reserved by the Company. On July 1, 201931, 2020, Metropark and the leaseCompany entered into an agreement for Parcel 3S provides for an appraisal adjustment on October 1, 2019.
At December 31, 2017,revenue sharing at various percentages until parking revenues received by Metropark equal or exceed $70,000 per month whereupon Metropark would be obligated to resume regularly scheduled rental payments under its lease. Upon resumption of regularly scheduled rent payments, Metropark and the Company had four tenants occupying 49will share fifty (50) percent of the Steeple Street Building under short-term leases (five years or less). Withrevenue in excess of $70,000 until the executionarrearage has been paid in full. If prior to payment in full of the Parcel 20arrearage one or more of the lots is removed from the Metropark lease for development, the Steeple Street Building was transferredamount of the then unpaid arrearage in the ratio of the number of parking spaces on the removed lot to the lesseetotal parking spaces on December 1, 2018.
On February 24, 2017,all lots prior to such lot’s removal shall be deemed paid in full. Pending this recovery, the Company issuedwill continue to recognize Metropark’s rent on a noticecash basis.
The Company expects that revenue from Metropark will continue to be recognized on a cash basis all of mandatory redemption of2021 and that the entire remaining outstanding balance of its Dividend Notes. The principal balance plus accrued interest to2021 contingent rent from Lamar may be significantly less than the date of redemption was $10,764,000. The$139,000 received in 2020.
In February 2019, the Company
9
received $19,794,000the final escrow disbursement ($862,000) from the sale of itsthe Terminal.
The Terminal after giving effect to escrows, a credit to Sprague for the cost of constructing a breasting dolphin adjacent to the Pier, and other customary closing costs. The cash outlay for federal and state income taxes arising from the sale totaled $6,503,000. Most of the remaining proceeds from the sale were used to effect the redemption of the Dividend Notes on March 31, 2017.
Pursuant to the Sale Agreement and related documentation provides that the Company is required at its expense, to secure an approved remediation plan and to remediate contamination caused by a 1994 leak in 1994 from a 25,000 barrel storage tank at the Terminal. At December 31, 2020, the Company’s accrual for the remaining cost of remediation was $490,000 of which $95,000 is expected to be incurred in 2021. On March 9, 2021, the Company commenced operation of the remediation system. The Terminal Sale Agreement also contained a cost sharing provision for a breasting dolphin whereby any costs incurred in connection with the construction of the breasting dolphin in excess of the initial estimate of $1,040,000 would be borne equally by Sprague and the Company subject to certain limitations, including, in the Company’s opinion, a 20% cap on the increase from the initial estimate subject to the sharing arrangement. In November 2019, the Company received a demand letter from Sprague asserting that they were owed $427,000, which amount represents 50% of the actual costs incurred ($1,894,008) in excess of $1,040,000. The Company asserts that its obligation cannot exceed $104,000. See Note 7, “Discontinued operations and environmental incident” in the accompanying Consolidated Financial Statements. The Company submitted its final remediation planand Sprague have agreed to the Rhode Island Department of Environmental Management (RIDEM)engage in June 2018 and a responsemediation with respect to RIDEM comments was submitted in November 2018. At December 31, 2018, the Company’s accrualSprague’s claim. The mediation is currently scheduled for the cost of remediation was increased to $490,000. late April 2021.
In 2018,2020, the Company declared and paid dividends of $6,798,000$1,386,000 or $1.03 per share which included a special dividend of $0.75$0.21 per share. The special dividend resulted from the Board of Director’s determination that the Company had cash on hand in excess of the amount needed to meet normal operating and capital requirements due to the sale of the Terminal and transfer of the Steeple Street Building.
The declaration of future dividends will depend on future earnings and financial performance.
3. | Results of operations: |
Year Ended December 31, 20182020 Compared to Year Ended December 31, 2017:2019:
Continuing operations:
Revenue, leasing from continuing operations increased $27,000decreased $528,000 from 20172019 due principally to a decrease in rent ($88,000) associated with fewer tenants inMetropark ($480,000), the Steeple Street Building along with the transfertermination of the building to the lessee of Parcel 20 effective December 1, 2018 offset by cost of living increases in two of the Parcels6C lease ($49,000)60,000), increases in short-term lease rents ($23,000), increasea decline in contingent rent applicable to long-term leases ($8,000) and20,000) offset by an increase ($35,000) in both contractualrent (contractual and contingent rent under therent) from Lamar lease. Interest income results from earnings on certificates of deposit and a money market account.($32,000).
Operating expenses decreased $379,000increased $53,000 due principally to: reduced costs associated with legal fees incurred in connection with the review of tenant compliance with the insurance requirements provided in the Company’s long-term land leases ($111,000), general liabilityincreased property tax expense and property insurance costs ($49,000), legal costs associated with the eviction of a Steeple Street tenant due to nonpaymentthe termination of rent and common area chargesthe Parcel 6C lease ($75,000), bad debt expense71,000) offset by a decrease in various other expenses ($64,000) in connection with the evicted tenant and repairs and maintenance at the Steeple Street Building ($61,000)18,000).
General and administrative expense decreased $594,000increased $39,000 due principally to payroll and payroll related costs ($30,000) as 2017 includeda result of cost-of-living increases and increased medical costs, associated with wages and severance paid to the Company’s former Vice-President ($311,000), bonus and supplemental retirement benefit paid to the Company’s former treasurer ($250,000) and the reduction in salaries due to changed roles and responsibilities ($76,000) for employees hired in 2017. Contributing further to the decline in 2018 was a reduction in workers’ compensation insurance ($20,000),increased professional fees related to accounting ($49,000) and computer related services ($13,000) and an overall reduction in various general and administrative expenses ($69,000). These aforementioned decreases were53,000) offset by an increasea decrease in legal fees related to development opportunities($38,000) and strategic initiativesa net decrease in various other expenses ($189,000)6,000).
For the year ended December 31, 2017 interest expense on the Dividend Notes was $112,000. The Dividend Notes were entirely redeemed on March 31, 2017 following the sale of the petroleum storage business.
Discontinued operations:
The sale of the Terminal results in the segment being classified as discontinued operations for all periods presented. In 2018, operating expenses represent legal2020 and professional fees associated with the environmental remediation costs associated with a 1994 storage tank leak. For 2017, revenues and operating expenses reflect the results of operations through the date of sale (February 10, 2017) including bonuses totaling $426,000 paid to2019, the Company’s former Vice President and Terminal employees.
10
On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the "Act") which, among other things, lowered the U.S. Federal corporateeffective income tax rate is 27% and 28% of income from 35% to 21%. The Company recorded a net tax benefit to reflect the impact of the Act as of December 31, 2017, as it is required to reflect the change in the period in which the law is enacted. The benefits recorded in 2017 related to the revaluation of deferred tax assets and liabilities which resulted in a deferred tax benefit of $406,000. Tax expense for the year ended December 31, 2018 reflects a U.S. Federal corporate rate of 21%.continuing operations.
119
Item 8. FinancialFinancial Statements and Supplementary Data
CAPITAL PROPERTIES, INC. AND SUSIDIARIESSUSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
1210
REPORTREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Capital Properties, Inc.
Providence, Rhode Island
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Capital Properties, Inc. (the “Company”) as of December 31, 20182020 and 2017,2019, and the related consolidated statements of income and retained earnings, and cash flows for each of the years in the two-year period ended December 31, 2018,2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20182020 and 2017,2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2018,2020, in conformity with U.S.accounting principles generally accepted accounting principles.in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition – Refer to Note 2 to the Consolidated Financial Statements
Critical Audit Matter Description
The Company derives revenue from long-term leases with original terms ranging from 39 years to 149 years. Effective January 1, 2019 the Company adopted ASC 842, Leases, and elected the “package of practical expedients” which permits the Company not to reassess under the new standard prior conclusions about lease identification, lease classification, and initial indirect costs and determined that all pre-existing leases were properly accounted for as operating. The long-term leases contain periodic rent increases based on either a specific percentage, market appraisals, changes in the consumer price index or combination thereof. In accordance with generally accepted accounting principles, lease income should be recognized on a straight-line basis. Where straight-line income exceeds the actual contractual payments (the “Excess”), the Excess should only be recognized to the extent it is collectible. In accordance with ASC 842, if collectability of the lease payments is not probable, lease income shall be limited to
11
the lesser of the income that would be recognized in accordance with ASC 842 (straight-line basis) or the actual lease payment, including variable payments that have been collected from the lessee. The Company evaluates the entire stream of remaining lease payments on a lease-by-lease basis. Analysis of collectability from the lessee (tenant) is subjective and complex and is dependent on many factors including historical experience and the creditworthiness of the tenant. The creditworthiness of the tenant can, and often is, significantly influenced by major factors including the creditworthiness of multiple sub-tenants. The inability to access reliable credit information on all parties impacting the probability of collection creates a collectability constraint. Management updates its collectability analysis of long-term leases annually and has determined that collection of the entire remaining stream of remaining lease payments is not probable. Accordingly lease revenue, including variable payments, is recorded when received from the lessee.
How the Critical Audit Matter was Addressed in the Audit
Our audit procedures related to the recognition of long-term lease revenue on a straight-line basis included the following, among others:
We tested the effectiveness of controls over lease revenue recognition, including managements analysis of and conclusions regarding collection probability.
We evaluated the application of the Company’s accounting policies in the context of the applicable accounting standards (ASC842) as adopted on January 1, 2019.
We evaluated the appropriateness and consistency of methods and assumptions used by management to determine and support its collection probability conclusion.
We considered changes in the lease terms, including tenant payment patterns or other information, and determined such information was properly considered by management in its analysis.
/s/ Stowe & Degon, LLC
We have served as the Company’s auditor since 2016.
Westborough, Massachusetts
March 18, 201919, 2021
1312
CAPITAL PROPERTIES, INC. AND SUBSIDIARIESSUBSIDIARY
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|
Properties and equipment (net of accumulated depreciation) |
| $ | 6,951,000 |
|
| $ | 8,953,000 |
| ||||||||
Properties and equipment (net of accumulated depreciation) (Note 3) |
| $ | 6,756,000 |
|
| $ | 6,849,000 |
| ||||||||
Cash and cash equivalents |
|
| 1,147,000 |
|
|
| 5,202,000 |
|
|
| 1,642,000 |
|
|
| 1,262,000 |
|
Funds on deposit with agent |
|
| — |
|
|
| 462,000 |
| ||||||||
Prepaid and other |
|
| 297,000 |
|
|
| 434,000 |
|
|
| 149,000 |
|
|
| 206,000 |
|
Deferred income taxes associated with discontinued operations |
|
| 132,000 |
|
|
| 108,000 |
| ||||||||
Deferred income taxes, discontinued operations |
|
| 132,000 |
|
|
| 282,000 |
| ||||||||
|
| $ | 8,527,000 |
|
| $ | 15,159,000 |
|
| $ | 8,679,000 |
|
| $ | 8,599,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends payable |
| $ | — |
|
| $ | 462,000 |
| ||||||||
Property taxes |
|
| 224,000 |
|
|
| 224,000 |
|
| $ | 210,000 |
|
| $ | 157,000 |
|
Other |
|
| 402,000 |
|
|
| 571,000 |
|
|
| 563,000 |
|
|
| 504,000 |
|
Deferred income taxes, net |
|
| 338,000 |
|
|
| 803,000 |
|
|
| 234,000 |
|
|
| 310,000 |
|
Liabilities associated with discontinued operations (Note 7) |
|
| 490,000 |
|
|
| 489,000 |
| ||||||||
Environmental remediation accrual, discontinued operations (Note 7) |
|
| 490,000 |
|
|
| 1,043,000 |
| ||||||||
|
|
| 1,454,000 |
|
|
| 2,549,000 |
|
|
| 1,497,000 |
|
|
| 2,014,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock, $.01 par; authorized 10,000,000 shares; issued and outstanding 6,599,912 shares |
|
| 66,000 |
|
|
| 66,000 |
|
|
| 66,000 |
|
|
| 66,000 |
|
Capital in excess of par |
|
| 782,000 |
|
|
| 782,000 |
|
|
| 782,000 |
|
|
| 782,000 |
|
Retained earnings |
|
| 6,225,000 |
|
|
| 11,762,000 |
|
|
| 6,334,000 |
|
|
| 5,737,000 |
|
|
|
| 7,073,000 |
|
|
| 12,610,000 |
|
|
| 7,182,000 |
|
|
| 6,585,000 |
|
|
| $ | 8,527,000 |
|
| $ | 15,159,000 |
|
|
|
|
|
|
|
|
|
|
| $ | 8,679,000 |
|
| $ | 8,599,000 |
|
See accompanying notes to Consolidated Financial Statements.
1413
CAPITAL PROPERTIES, INC. AND SUBSIDIARIESSUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2018 |
|
| 2017 |
|
| 2020 |
|
| 2019 |
| ||||
Revenue and other income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue, leasing |
| $ | 5,238,000 |
|
| $ | 5,211,000 |
|
| $ | 4,585,000 |
|
| $ | 5,113,000 |
|
Other income, interest |
|
| 94,000 |
|
|
| 36,000 |
|
|
| 8,000 |
|
|
| 56,000 |
|
|
|
| 5,332,000 |
|
|
| 5,247,000 |
|
|
| 4,593,000 |
|
|
| 5,169,000 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
| 941,000 |
|
|
| 1,320,000 |
|
|
| 567,000 |
|
|
| 514,000 |
|
General and administrative |
|
| 1,651,000 |
|
|
| 2,245,000 |
|
|
| 1,309,000 |
|
|
| 1,270,000 |
|
Impairment loss (Note 5) |
|
| 1,832,000 |
|
|
| — |
| ||||||||
Interest on dividend notes |
|
| — |
|
|
| 112,000 |
| ||||||||
|
|
| 4,424,000 |
|
|
| 3,677,000 |
|
|
| 1,876,000 |
|
|
| 1,784,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
| 908,000 |
|
|
| 1,570,000 |
|
|
| 2,717,000 |
|
|
| 3,385,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
| 657,000 |
|
|
| 673,000 |
|
|
| 810,000 |
|
|
| 979,000 |
|
Deferred |
|
| (465,000 | ) |
|
| (275,000 | ) |
|
| (76,000 | ) |
|
| (28,000 | ) |
|
|
| 192,000 |
|
|
| 398,000 |
|
|
| 734,000 |
|
|
| 951,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
| 716,000 |
|
|
| 1,172,000 |
|
|
| 1,983,000 |
|
|
| 2,434,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations: |
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
| ||||||||
Loss from discontinued operations, net of taxes |
|
| (119,000 | ) |
|
| (251,000 | ) | ||||||||
Gain on sale of discontinued operations, net of taxes |
|
| 664,000 |
|
|
| 5,080,000 |
| ||||||||
Income from discontinued operations |
|
| 545,000 |
|
|
| 4,829,000 |
| ||||||||
Gain on sale of discontinued operations, net of taxes (Note 7) |
|
| - |
|
|
| 48,000 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| 1,261,000 |
|
|
| 6,001,000 |
|
|
| 1,983,000 |
|
|
| 2,482,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings, beginning |
|
| 11,762,000 |
|
|
| 6,223,000 |
|
|
| 5,737,000 |
|
|
| 6,225,000 |
|
Dividends on common stock based upon 6,599,912 shares outstanding |
|
| (6,798,000 | ) |
|
| (462,000 | ) |
|
| (1,386,000 | ) |
|
| (2,970,000 | ) |
Retained earnings, ending |
| $ | 6,225,000 |
|
| $ | 11,762,000 |
|
| $ | 6,334,000 |
|
| $ | 5,737,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per common share based upon 6,599,912 shares outstanding: |
|
|
|
|
|
|
|
| ||||||||
Basic income per common share based upon 6,599,912 shares outstanding: |
|
|
|
|
|
|
|
| ||||||||
Continuing operations |
| $ | 0.11 |
|
| $ | 0.18 |
|
| $ | 0.30 |
|
| $ | 0.37 |
|
Discontinued operations |
|
| (0.02 | ) |
|
| (0.04 | ) |
|
| - |
|
|
| 0.01 |
|
Gain on sale of discontinued operations |
|
| 0.10 |
|
|
| 0.77 |
| ||||||||
Total basic income per common share |
| $ | 0.19 |
|
| $ | 0.91 |
|
| $ | 0.30 |
|
| $ | 0.38 |
|
See accompanying notes to Consolidated Financial Statements.
1514
CAPITAL PROPERTIES, INC. AND SUBSIDIARIESSUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2018 |
|
| 2017 |
|
| 2020 |
|
| 2019 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
| $ | 716,000 |
|
| $ | 1,172,000 |
|
| $ | 1,983,000 |
|
| $ | 2,434,000 |
|
Adjustments to reconcile income from continuing operations to net cash provided by operating activities, continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
| 170,000 |
|
|
| 185,000 |
|
|
| 93,000 |
|
|
| 102,000 |
|
Deferred income taxes |
|
| (465,000 | ) |
|
| (275,000 | ) |
|
| (76,000 | ) |
|
| (28,000 | ) |
Impairment loss |
|
| 1,832,000 |
|
|
| — |
| ||||||||
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid and other |
|
| 137,000 |
|
|
| (250,000 | ) |
|
| 57,000 |
|
|
| 91,000 |
|
Property taxes and other |
|
| (169,000 | ) |
|
| 344,000 |
|
|
| 10,000 |
|
|
| (62,000 | ) |
Net cash provided by operating activities, continuing operations |
|
| 2,221,000 |
|
|
| 1,176,000 |
|
|
| 2,067,000 |
|
|
| 2,537,000 |
|
Net cash (used in) operating activities, discontinued operations |
|
| (340,000 | ) |
|
| (7,693,000 | ) | ||||||||
Net cash provided by (used in) operating activities |
|
| 1,881,000 |
|
|
| (6,517,000 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
| ||||||||
Continuing operations: |
|
|
|
|
|
|
|
| ||||||||
Purchase of: |
|
|
|
|
|
|
|
| ||||||||
Investments |
|
| (2,025,000 | ) |
|
| — |
| ||||||||
Properties and equipment |
|
| — |
|
|
| (11,000 | ) | ||||||||
Proceeds from sale of investments |
|
| 2,025,000 |
|
|
| — |
| ||||||||
Cash flows from investing activities, continuing operations, proceeds from |
|
|
|
|
|
|
|
| ||||||||
Deferred revenue, Parcel 20 |
|
| 102,000 |
|
|
| 97,000 |
| ||||||||
|
|
| — |
|
|
| (11,000 | ) |
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of properties and equipment |
|
| — |
|
|
| (118,000 | ) | ||||||||
Proceeds from sale of assets |
|
| 862,000 |
|
|
| 19,794,000 |
|
|
| - |
|
|
| 862,000 |
|
Cash used to settle obligations |
|
| (553,000 | ) |
|
| (261,000 | ) | ||||||||
Noncash adjustment to gain on sale of discontinued operations |
|
| 150,000 |
|
|
| (150,000 | ) | ||||||||
|
|
| 862,000 |
|
|
| 19,676,000 |
|
|
| (403,000 | ) |
|
| 451,000 |
|
Net cash provided by investing activities |
|
| 862,000 |
|
|
| 19,665,000 |
| ||||||||
Net cash provided by (used in) investing activities |
|
| (301,000 | ) |
|
| 548,000 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
| ||||||||
Payment of dividends |
|
| (7,260,000 | ) |
|
| — |
| ||||||||
Redemption of dividend notes payable |
|
| — |
|
|
| (10,608,000 | ) | ||||||||
Funds provided by (on deposit with) agent |
|
| 462,000 |
|
|
| (462,000 | ) | ||||||||
Net cash used in financing activities |
|
| (6,798,000 | ) |
|
| (11,070,000 | ) | ||||||||
Cash flows from financing activities, payment of dividends |
|
| (1,386,000 | ) |
|
| (2,970,000 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
| (4,055,000 | ) |
|
| 2,078,000 |
| ||||||||
Increase in cash and cash equivalents |
|
| 380,000 |
|
|
| 115,000 |
| ||||||||
Cash and cash equivalents, beginning |
|
| 5,202,000 |
|
|
| 3,124,000 |
|
|
| 1,262,000 |
|
|
| 1,147,000 |
|
Cash and cash equivalents, ending |
| $ | 1,147,000 |
|
| $ | 5,202,000 |
|
| $ | 1,642,000 |
|
| $ | 1,262,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
| $ | 652,000 |
|
| $ | 923,000 |
|
| $ | 696,000 |
|
| $ | 867,000 |
|
Discontinued operations, sale of assets |
|
| 198,000 |
|
|
| 6,503,000 |
|
|
| - |
|
|
| 118,000 |
|
|
| $ | 850,000 |
|
| $ | 7,426,000 |
|
| $ | 696,000 |
|
| $ | 985,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on Dividend Notes payable |
| $ | — |
|
| $ | 156,000 |
| ||||||||
|
|
|
|
|
|
|
|
|
See accompanying notes to Consolidated Financial Statements.
1615
CAPITAL PROPERTIES, INC. AND SUBSIDIARIESSUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 20182020 AND 20172019
1. | Description of business: |
The operations of Capital Properties, Inc. and its wholly-owned subsidiaries,subsidiary, Tri-State Displays, Inc., Capital Terminal Company and Dunellen, LLC (collectively referred to as(collectively “the Company”) for many years operated in two segments, leasing and petroleum storage. On February 10, 2017, the Company sold its petroleum storage facility and related assets (the “Terminal”) owned or controlled by the Company’s subsidiaries, Capital Terminal Company and Dunellen LLC to Sprague Operating Resources, LLC (“Sprague”). The sale of the Terminal results in the segment being classified as discontinued operations for all periods presented. See Note 7 to the Consolidated Financial Statements. With the sale of the Terminal, the Board of Directors determined that there was no longer a need to maintain Capital Terminal Company and Dunellen, LLC and at its April 24, 2018 regularly scheduled Board meeting, it voted to liquidate and dissolve these two companies.
As a result of the sale of the Terminal, the Company’s operations consist of the long-term leasing of certain of its real estate interests in the Capital Center area in downtown Providence, Rhode Island (upon the commencement of which the tenants have been required to construct buildings thereon, with the exception of the parking garage and Parcel 6C), the leasing of a portion of its building (“Steeple Street Building”) under short-term leasing arrangements through December 1, 201820) and the leasing of locations along interstate and primary highways in Rhode Island and Massachusetts to Lamar Outdoor Advertising, LLC (“Lamar”) which has constructed outdoor advertising boards thereon. The Company anticipates that the future development of its remaining properties in and adjacent to the Capital Center area will consist primarily of long-term ground leases. Pending this development, the Company leases these undeveloped parcels (other than Parcel 6C) for public parking to Metropark, Ltd.
2. | Summary of significant accounting policies: |
Principles of consolidation:
The accompanying consolidated financial statements include the accounts and transactions of the Company and its wholly-owned subsidiaries.subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of estimates:
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) 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. Estimates also affect the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
Fair value of financial instruments:
The Company believes that the fair values of its financial instruments, including cash and cash equivalents and payables, approximate their respective book values because of their short-term nature. The fair values described herein were determined using significant other observable inputs (Level 2) as defined by GAAP.
Properties and equipment:
Properties and equipment are stated at cost. Acquisitions and additions are capitalized while routine maintenance and repairs, which do not improve the asset or extend its life, are charged to expense when incurred. Depreciation is being provided by the straight-line method over the estimated useful lives of the respective assets.
The Company reviews properties and equipment for impairment whenever events or changes in circumstances indicate that the net book value of the asset may not be recoverable. An impairment loss will be recognized if the sum of the expected future cash flows (undiscounted and before interest) from the use of the asset is less than the net book value of the asset. Generally, the amount of the impairment loss is measured as the difference between the net book value and the estimated fair value of the asset.
Cash and cash equivalents:
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. AtCash equivalents include money market accounts totaling $1,555,000 and $1,039,000, at December 31, 2018 cash equivalents consist of a money market account totaling $1,048,000. At December 31, 2017, cash equivalents consisted of United States zero-coupon treasury bills that matured in March 2018 totaling $2,993,000.2020 and 2019, respectively. The Company and its subsidiariessubsidiary each maintain a checking account in the same bank and the Company
17
maintains a checking and money market account in another bank,two banks, all of which are insured by the Federal Deposit Insurance Corporation to a maximum of $250,000. The Company has not experienced any losses in such accounts.
Environmental incidents:
The Company accrues a liability when an environmental incident has occurred and the costs are estimable. The Company does not record a receivable for recoveries from third parties for environmental matters until it has determined that the amount of the collection is reasonably assured. The accrued liability is relieved when the Company pays the liability or a third party assumes the liability. Upon determination that collection is reasonably assured or a third party assumes the liability, the Company records the amount as a reduction of expense.
16
Revenues:
The Company’s properties leased to others are under operating leases. The Company reports leasing revenue when earned under the operating method.
Certain of the Company’s long-term leases (land and billboard) provide for presently known scheduled rent increases over the remaining terms (26(29 to 136134 years). The Company follows GAAP in accounting for leases by recognizing leasing revenue on the straight-line basis over the terms of the leases; however, the Company does not report as revenue that portion of such straight-line rentals which management is unable to conclude is realizable (collectible) due to the magnitude of the remaining lease payments to be collected, the length of the lease terms and other related uncertainties.
The Company reports contingent revenue in the period in which the factors occur on which the contingent payments are predicated.
Income taxes:
The Company and its subsidiariessubsidiary file consolidated income tax returns.
The Company provides for income taxes based on income reported for financial reporting purposes. The provision for income taxes differs from the amounts currently payable because of temporary differences associated with the recognition of certain income and expense items for financial reporting and tax reporting purposes.
In December 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted. The Act includes a number of changes to existing U.S. federal tax laws that impact the Company, most notably a reduction of the U.S. federal corporate income tax rate from a maximum of 35 percent to a flat 21 percent for tax years effective January 1, 2018.
The Company has elected to recognize the income tax effects of the Act in its financial statements in accordance with Staff Accounting Bulletin No. 118 (SAB 118), which provides guidance for the application of ASC Topic 740 Income Taxes, in the reporting period in which the Act was signed into law. Under SAB 118 when the Company does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act it will recognize provisional amounts if a reasonable estimate can be made. If a reasonable estimate cannot be made, then no impact is recognized for the effect of the Act. SAB 118 permits an up to one- year measurement period to finalize the measurement of the impact of the Act. There were no adjustments made to the statement of income and retained earnings for the year ended December 31, 2018 related to finalizing the measurement of the impact of the Act.
Based on its evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition in the consolidated financial statements. The Company will report any tax-related interest and penalties related to uncertain tax positions as a component of income tax expense. The Company’s federal and state income tax returns are generally open for examination for the past three years.
Legal fees:
The Company recognizes legal fees as incurred.
Basic earnings per common share:
Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding during the period.
18
RecentRecently adopted accounting pronouncements:
In February 2016,August 2018, the FASB established Topic 842, Leases, by issuingissued Accounting StandardsStandard Update No. 2016-02,2018-13, Changes to Disclosure Requirements for Fair Value Measurements (Topic 820) (ASU 2018-13), which requires lessors to classify leases as sales-type, direct financing, or operating leases. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedientimproved the effectiveness of disclosure requirements for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases;recurring and ASU No, 2018-111, Targeted Improvements. A lease is a sales-type lease if any one of five criteria are met, each of which indicate that the lease, in effect, transfers control of the underlying asset to the lessee. If none of the five criteria are met, but two additional criteria are both met, indicating that the lessor has transferred substantially all of the risksnonrecurring fair value measurements. The standard removes, modifies, and benefits of the underlying asset to the lessee and a third party, the lease is a direct financing lease. All leases that are not sales-type or direct financing leases are operating leases.
The new standard is effective for the company on January 1, 2019. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented as its date of initial application.adds certain disclosure requirements. The Company adopted the new standard oneffective January 1, 2019 and will use the effective date as the date of initial application. Consequently, financial information will not be updated2020, and the disclosures required underprovision of ASU 2018-13 did not have a material effect on our consolidated financial statements.
Recently issued accounting pronouncements
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with a forward-looking expected credit loss model which will result in earlier recognition of credit losses. The Company will adopt the new standard will not be provided for dates and periods beforeeffective January 1, 2019.
The new standard provides a number of practical expedients in transition.2023. The Company electedis currently evaluating the “package of practical expedients”, which permits the Company not to reassess under the new standard prior conclusions about lease identification, lease classification and initial direct costs. While most of our leases will continue to be classified as operating leases in accordance with the package of practical expedients, leases that commence on or after the effective dateimpact of the new standard,guidance on our consolidated financial statements.
In December 2019, the FASB issued Accounting Standard Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes. This guidance will be effective for the Company in the first quarter of 2021 on a prospective basis, and that would be classified as operating leases under current GAAP, may be classified as sales-type leases underearly adoption is permitted. The Company is currently evaluating the new standard. We do not expect adoptionimpact of the new standard will have a significant impactguidance on our leasing activities. For additional information on the Company’s leases, see Note 5consolidated financial statements.
17
3. | Properties and equipment: |
Properties and equipment consist of the following:
|
| Estimated Useful |
|
| December 31, |
|
| Estimated Useful |
|
| December 31, |
| ||||||||||||
|
| Life in Years |
|
| 2018 |
|
| 2017 |
|
| Life in Years |
|
| 2020 |
|
| 2019 |
| ||||||
Properties on lease or held for lease: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Land and land improvements |
|
|
|
|
| $ | 4,010,000 |
|
| $ | 4,701,000 |
| ||||||||||||
Building and improvements, Steeple Street |
| 39 |
|
|
| — |
|
|
| 5,831,000 |
| |||||||||||||
|
|
|
|
|
|
| 4,010,000 |
|
|
| 10,532,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and land improvements on lease or held for lease |
|
|
|
|
| $ | 4,010,000 |
|
| $ | 4,010,000 |
| ||||||||||||
Steeple Street property under contract (Note 5) |
|
| 30 |
|
|
| 3,011,000 |
|
|
| 3,011,000 |
| ||||||||||||
Office equipment |
| 5-10 |
|
|
| 95,000 |
|
|
| 95,000 |
|
| 5-10 |
|
|
| 67,000 |
|
|
| 67,000 |
| ||
Steeple Street property under contract (Note 5) |
|
| 30 |
|
|
| 3,011,000 |
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
| 7,116,000 |
|
|
| 10,627,000 |
|
|
|
|
|
|
| 7,088,000 |
|
|
| 7,088,000 |
|
Less accumulated depreciation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties on lease or held for lease |
|
|
|
|
|
| 79,000 |
|
|
| 1,593,000 |
| ||||||||||||
Land improvements on lease or held for lease |
|
|
|
|
|
| 93,000 |
|
|
| 87,000 |
| ||||||||||||
Steeple Street property under contract (Note 5) |
|
|
|
|
|
| 172,000 |
|
|
| 86,000 |
| ||||||||||||
Office equipment |
|
|
|
|
|
| 86,000 |
|
|
| 81,000 |
|
|
|
|
|
|
| 67,000 |
|
|
| 66,000 |
|
|
|
|
|
|
|
| 165,000 |
|
|
| 1,674,000 |
|
|
|
|
|
|
| 332,000 |
|
|
| 239,000 |
|
|
|
|
|
|
| $ | 6,951,000 |
|
| $ | 8,953,000 |
|
|
|
|
|
| $ | 6,756,000 |
|
| $ | 6,849,000 |
|
4. | Liabilities, other: |
Liabilities, other consist of the following:
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2018 |
|
| 2017 |
|
| 2020 |
|
| 2019 |
| ||||
Deferred revenue, Parcel 20 |
| $ | 199,000 |
|
| $ | 97,000 |
| ||||||||
Accrued professional fees |
|
| 152,000 |
|
|
| 149,000 |
| ||||||||
Deposits and prepaid rent |
| $ | 110,000 |
|
| $ | 88,000 |
|
|
| 121,000 |
|
|
| 119,000 |
|
Accrued payroll and related costs |
|
| 121,000 |
|
|
| 333,000 |
|
|
| 75,000 |
|
|
| 111,000 |
|
Accrued professional fees |
|
| 157,000 |
|
|
| 45,000 |
| ||||||||
Other |
|
| 14,000 |
|
|
| 105,000 |
|
|
| 16,000 |
|
|
| 28,000 |
|
|
| $ | 402,000 |
|
| $ | 571,000 |
|
| $ | 563,000 |
|
| $ | 504,000 |
|
19
Long-term land leases:
As ofThrough December 31, 2018,2020, excluding Parcel 6C, the Company had entered into tennine long-term land leases. The various tenantsOn July 30, 2020 the tenant of Parcel 6C exercised its right to terminate its lease effective August 29, 2020. As of December 31, 2020, eight of the nine parcels under lease have completed construction of improvements thereon. The leases generally have a term of 99 years or more, are triple net, and provide for periodic adjustment in rent of various types depending on seven of the parcels. On Parcel 6B, construction of a 169-unit residential complex commenced in November 2016particular lease, and is substantially complete. Parcel 6C is being used as a construction staging areaotherwise contain terms and conditions normal for the construction on Parcel 6B.such instruments.
On September 28, 2017 the Company entered into a long-term ground lease of Parcel 20. Under the terms of the ground lease until the lessee took possession, the Company received all rents from existing tenants and paid all expenses with respect to Parcel 20. On May 14, 2018, the Company and the lesseetenant of Parcel 20 entered into an Amended and Restated Ground Lease. The lesseeLease (“Lease”). On December 31, 2018, the tenant took possession of Parcel 20 on December 1, 2018 and the Company conveyed title to the existing building. In addition to the ground lease rent, for 360 months following December 1, 2018, the lessee willtenant is obligated to pay acquisition period rent consisting of monthly payments $7,471 foras defined in the first thirty-six months and monthly payments thereafter of $8,488 plus an amount equal to 1/12th of the product of (a) 5.5% and the difference between (x) $2,750,000 and (y) the aggregate of the prior monthly payments of $8,488. The Restated Lease is a triple net lease. Lease.
The Restated Ground Lease, for Parcel 20, as it relates specifically to the Parcel 20 Steeple Street Building (“Building”), was accounted for as a sales-type lease due to the transfer of the Steeple Street Building to the lessee.tenant. The land directly under the Steeple Street Building was allocated in the determination of the value of the property transferred in accordance with ASC 360-20, Property, Plant and Equipment - Real Estate Sales. Since the initial investment by the lesseetenant is and continues to be insufficient to recognize the transaction as a sale, in accordance with ASC 360-20, the Company will report the acquisition period rent and an allocable portion of the ground rent collected as a deposit liabilitydeferred revenue on its consolidated balance sheet and will continue to include the property transferred in properties and equipment untilequipment. When the transactionCompany determines that the tenant’s investment is sufficient or payments can be reported as areasonably assured, the sale will be recognized in accordance with GAAP. The fair value of the property was determined under a present value technique using the rental payments to be made under the lease (significant other observable inputs (Level 2) as defined by GAAP). As the carrying value of the property transferred to the lessee exceeds its fair value, the Company has recognized an impairment loss of $1,832,000 as of December 31, 2018, which amount is included in expenses on the accompanying consolidated statements of income and retained earnings for the years ended December 31, 2018. The long-term ground lease of the land on Parcel 20 (exclusive of the Steeple Street Building) is accounted for as an operating lease, consistent with the Company’s other long-term ground leases.
18
Minimum future contractual rental payments to be received from the sales-type lease on Parcel 20 as of December 31, 20182020 are:
Year ending December 31, |
|
|
|
|
|
|
|
|
2019 |
| $ | 97,000 |
| ||||
2020 |
|
| 110,000 |
| ||||
2021 |
|
| 128,000 |
|
| $ | 128,000 |
|
2022 |
|
| 281,000 |
|
|
| 281,000 |
|
2023 |
|
| 275,000 |
|
|
| 275,000 |
|
2024 - 2153 |
|
| 5,135,000 |
| ||||
2024 |
|
| 270,000 |
| ||||
2025 |
|
| 264,000 |
| ||||
2026 - 2153 |
|
| 4,610,000 |
| ||||
|
| $ | 6,026,000 |
|
| $ | 5,828,000 |
|
Under the tennine land leases, the tenants may negotiate tax stabilization treaties or other arrangements, appeal any changes in real property assessments, and pay real property taxes assessed on land and improvements under these arrangements. Accordingly, with the exception of Parcel 20 through December 1, 2018, real property taxes payable by the tenants are excluded from leasing revenues and leasing expenses on the accompanying consolidated statements of income and retained earnings. For the years ended December 31, 20182020 and 2017,2019, the real property taxes attributable to the Company’s land under leases were $1,230,000.$1,261,000 and $1,302,000, respectively.
Under two of the long-term land leases, the Company receives contingent rentals (based on a fixed percentage of gross revenue received by the tenants) which totaled $109,000$99,000 and $101,000$119,000 for the years ended December 31, 20182020 and 2017,2019, respectively.
With respect to Parcel 6C lease, on the lessee hastermination date the right to terminate its lease at any time during the remaining term of that lease upon thirty days’ notice. To date, no notice of termination has been receivedannual rent was $220,000 and annual real estate taxes paid by the Company.tenant equaled $311,000. The current annual rents onCompany believes that the assessed value of Parcel 6C as agreed to by the City of Providence (“City”) and the former tenant of Parcel 6C is $200,000.much greater than similar parcels in the Capital Center area and accordingly, the Company has commenced negotiations with the City to reduce the assessment.
20
The Company, through a wholly-owned subsidiary,Tri-State Display’s, Inc., leases 23 outdoor advertising locations containing 44 billboard faces along interstate and primary highways in Rhode Island and Massachusetts to Lamar under a lease which expires in 2045.2049. The Lamar lease provides, among other things, for the following: (1) the base rent will increase annually at the rate of 2.75% for each leased billboard location on June 1 of each year, and (2) in addition to base rent, for each 12-month period commencing each June 1, Lamar must pay to the Company within thirty days after the close of the lease year 30% of the gross revenues from each standard billboard and 20% of the gross revenues from each electronic billboard for such 12-month period, reduced by the sum of (a) commissions paid to third parties and (b) base monthly rent for each leased billboard display for each 12-month period. For the lease years ended May 31, 20182020 and 2017,2019, the percentage rent totaled $119,000$139,000 and $108,000,$133,000, respectively, which amounts are included in operating revenues on the accompanying consolidated statements of income and retained earnings for the years ended December 31, 20182020 and 2017.2019.
Parking lease:
The Company leases the undeveloped parcels of land in or adjacent to the Capital Center area (other than Parcel 6C) for public parking purposes to Metropark under a ten-year lease. The lease is cancellable as to all or any portion of the leased premises at any time on thirty day’s written notice in order for the Company or any new tenant of the Company to develop all or any portion of the leased premises. The parking lease provides for contingent rentals (basedrent based on a fixed percentage of gross revenue in excess of the base rent) which totaled $72,000 and $78,000rent as defined in the agreement. For the year ended December 31, 2020, revenue includes a $34,000 reduction due to the revision of the estimate of 2019’s contingent rent. Contingent rent was $119,000 for the years ended December 31, 20182019.
The COVID-19 pandemic and 2017, respectively. stay-at-home orders have had a significant adverse impact on Metropark’s parking operations. On July 31, 2020, Metropark and the Company entered into an agreement for revenue sharing at various percentages until parking revenues received by Metropark equal or exceed $70,000 per month whereupon Metropark would be obligated to resume regularly scheduled rental payments under its lease. Upon resumption of regularly scheduled rent payments, Metropark and the Company will share fifty (50) percent of the revenue in excess of $70,000 until the arrearage has been paid in full. If prior to payment in full of the arrearage one or more of the lots is removed from the Metropark lease for development, the amount of the then unpaid arrearage in the ratio of the number of parking spaces on the removed lot to the total parking spaces on all lots prior to such lot’s removal shall be deemed paid in full.
At December 31, 2020 the receivable from Metropark equaled $340,000 and was fully reserved. The Company will continue to recognize Metropark’s rent on a cash basis.
19
Minimum future contractual rental payments, inclusive of presently known scheduled rent increases to be received from non-cancellable long-term leases as of December 31, 20182020 are:
Year ending December 31, |
|
|
|
|
|
|
|
|
2019 |
| $ | 4,217,000 |
| ||||
2020 |
|
| 4,276,000 |
| ||||
2021 |
|
| 4,339,000 |
|
| $ | 4,167,000 |
|
2022 |
|
| 4,393,000 |
|
|
| 4,222,000 |
|
2023 |
|
| 4,420,000 |
|
|
| 4,250,000 |
|
2024 - 2153 |
|
| 800,212,000 |
| ||||
2024 |
|
| 4,350,000 |
| ||||
2025 |
|
| 4,537,000 |
| ||||
2026 - 2153 |
|
| 800,119,000 |
| ||||
|
| $ | 821,857,000 |
|
| $ | 821,645,000 |
|
For those leases with presently known scheduled rent increases at December 31, 2018 and 2017,Historically, the cumulative excess of straight-line over contractual rentals (considering scheduled rent increases over the initial 30 to 149 year terms of the leases) and the portionCompany has made financial statement footnote disclosure of the excess of straight-line rentals over contractual rentalspayments and its determination of collectability of such excess. Included in the amount of the excess were payments which managementunder ASC 842 are deemed variable payments. As part of its ongoing review of the requirements of ASC 842, the Company has concluded that under ASC 842 variable rental payments should not be included in the straight-line rental amount. To the extent the Company determines that the excess of straight-line rentals over contractual payments is realizable when payablenot collectible, such excess is not recognized as revenue. Consistent with prior conclusions, the Company has determined that, at this time, the excess of straight-line rentals over contractual payments is not probable of collection. Accordingly, the termsCompany has not included any part of the leases atthat amount in revenue. As a matter of information only, as of December 31, 2018 and 2017 are as follows:2020 the excess of straight-line rentals (calculated by excluding variable payments) over contractual payments was $82,938,000.
|
| 2018 |
|
| 2017 |
| ||
Cumulative excess of straight-line over contractual rentals |
| $ | 77,469,000 |
|
| $ | 73,637,000 |
|
Amount management has not been able to conclude is collectible |
|
| (77,414,000 | ) |
|
| (73,592,000 | ) |
Accrued leasing revenues, which are included in prepaid and other on the accompanying consolidated balance sheets |
| $ | 55,000 |
|
| $ | 45,000 |
|
In the event of tenant default, the Company has the right to reclaim its leased land together with any improvements thereon, subject to the right of any leasehold mortgagee to enter into a new lease with the Company with the same terms and conditions as the lease in default.
The following table sets forth those major tenants whose revenues exceed 10 percent of the Company’s revenues for the years ended December 31, 20182020 and 2017:2019:
|
| 2018 |
|
| 2017 |
| ||
Lamar Outdoor Advertising, LLC |
| $ | 1,034,000 |
|
| $ | 998,000 |
|
Metropark, Ltd. |
|
| 697,000 |
|
|
| 721,000 |
|
One Citizens Plaza Holdings, LLC/Radix LLC |
|
| 618,000 |
|
|
| 618,000 |
|
AvalonBay Communities, Inc. |
|
| 615,000 |
|
|
| 615,000 |
|
|
| $ | 2,964,000 |
|
| $ | 2,952,000 |
|
|
| 2020 |
|
| 2019 |
| ||
| $ | 1,105,000 |
|
| $ | 1,073,000 |
| |
Avalon Properties, Inc. |
|
| 620,000 |
|
|
| 623,000 |
|
1701 R.C. Sarasota Invest, LLC |
|
| 618,000 |
|
|
| 618,000 |
|
Waterplace Condominiums |
|
| 503,000 |
|
|
| 503,000 |
|
Metropark, LTD |
|
| 163,000 |
|
|
| 643,000 |
|
|
| $ | 3,009,000 |
|
| $ | 3,460,000 |
|
6. | Income taxes, continuing operations: |
For the years ended December 31, 20182020 and 2017,2019, income tax expense (benefit) forfrom continuing operations is comprised of the following components:
|
| 2018 |
|
| 2017 |
|
| 2020 |
|
| 2019 |
| ||||
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
| $ | 499,000 |
|
| $ | 542,000 |
|
| $ | 598,000 |
|
| $ | 699,000 |
|
State |
|
| 158,000 |
|
|
| 131,000 |
|
|
| 212,000 |
|
|
| 280,000 |
|
|
|
| 657,000 |
|
|
| 673,000 |
|
|
| 810,000 |
|
|
| 979,000 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
| (367,000 | ) |
|
| (302,000 | ) |
|
| (57,000 | ) |
|
| (22,000 | ) |
State |
|
| (98,000 | ) |
|
| 27,000 |
|
|
| (19,000 | ) |
|
| (6,000 | ) |
|
|
| (465,000 | ) |
|
| (275,000 | ) |
|
| (76,000 | ) |
|
| (28,000 | ) |
|
| $ | 192,000 |
|
| $ | 398,000 |
|
| $ | 734,000 |
|
| $ | 951,000 |
|
20
For the years ended December 31, 20182020 and 2017,2019, a reconciliation of the income tax provision forfrom continuing operations as computed by applying the United States income tax rate (21% in 2018 and 35% in 2017)of 21% to income before income taxes is as follows:
|
| 2018 |
|
| 2017 |
|
| 2020 |
|
| 2019 |
| ||||
Computed "expected" tax |
| $ | 191,000 |
|
| $ | 548,000 |
|
| $ | 570,000 |
|
| $ | 711,000 |
|
Increase in "expected" tax resulting from state income tax, net of federal income tax benefit |
|
| 53,000 |
|
|
| 103,000 |
|
|
| 141,000 |
|
|
| 207,000 |
|
Effect of federal rate reduction |
|
| — |
|
|
| (406,000 | ) | ||||||||
Nondeductible expenses and other |
|
| (52,000 | ) |
|
| 153,000 |
|
|
| 23,000 |
|
|
| 33,000 |
|
|
| $ | 192,000 |
|
| $ | 398,000 |
|
| $ | 734,000 |
|
| $ | 951,000 |
|
Deferred income taxes are recorded based upon differences between financial statement and tax basis amounts of assets and liabilities. The tax effects of temporary differences forfrom continuing operations which give rise to deferred tax assets and liabilities were as follows:
|
| 2018 |
|
| 2017 |
| ||
Gross deferred tax liabilities: |
|
|
|
|
|
|
|
|
Property having a financial statement basis in excess of tax basis: |
|
|
|
|
|
|
|
|
Cost differences |
| $ | 362,000 |
|
| $ | 898,000 |
|
Depreciation differences |
|
| 2,000 |
|
|
| (73,000 | ) |
|
|
| 364,000 |
|
|
| 825,000 |
|
Insurance premiums and accrued leasing revenues |
|
| 25,000 |
|
|
| 14,000 |
|
|
|
| 389,000 |
|
|
| 839,000 |
|
Deferred tax assets |
|
| (51,000 | ) |
|
| (36,000 | ) |
|
| $ | 338,000 |
|
| $ | 803,000 |
|
|
| 2020 |
|
| 2019 |
| ||
Gross deferred tax liabilities: |
|
|
|
|
|
|
|
|
Property having a financial statement basis in excess of tax basis |
| $ | 361,000 |
|
| $ | 364,000 |
|
Accounts receivable |
|
| 98,000 |
|
| - |
| |
Deferred income - conversion to cash basis of accounting for tax purposes |
|
| 56,000 |
|
| - |
| |
Insurance premiums and accrued leasing revenues |
|
| 19,000 |
|
|
| 29,000 |
|
|
|
| 534,000 |
|
|
| 393,000 |
|
Gross deferred tax assets: |
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
| (91,000 | ) |
| - |
| |
Prepaid rent |
|
| (24,000 | ) |
|
| (16,000 | ) |
Accounts payable and accrued expenses |
|
| (75,000 | ) |
|
| (41,000 | ) |
Accrued property taxes |
|
| (56,000 | ) |
| - |
| |
Deferred income, Parcel 20 |
|
| (54,000 | ) |
|
| (26,000 | ) |
|
|
| (300,000 | ) |
|
| (83,000 | ) |
|
| $ | 234,000 |
|
| $ | 310,000 |
|
7. | Discontinued operations and environmental incident: |
Prior to February 2017, the Company operated a petroleum storage facility (“Terminal”) through two of its wholly owned subsidiaries. On February 10, 2017, the companyTerminal was sold the Terminal to Sprague for $23 Million subject to certain adjustments.Operating Resources, LLC (“Sprague”). In accordance with ASC 205-20, Presentation of Financial Statements – Discontinued Operations, the sale of the Terminal is accounted for as a discontinued operation. The liabilities associated with the discontinued operations are separately identified on the Company’s consolidated balance sheets. These liabilities were not assumed by Sprague and remain obligations of the Company until settled. The Petroleum Segment discontinued operations is reported after income from continuing operations.
Pursuant to the Terminal Sale Agreement, the Sale Price was reduced by $1,040,000, the estimated cost of a breasting dolphin to be constructed by Sprague adjacent to the Pier in order that the Pier can berth Panamax sized vessels;vessels and $1,725,000 of the Sale Price was placed in escrow to secure the Company’s indemnity obligations under the Sale Agreement and $441,000 in normal closing adjustments, transfer taxes, investment banking and other fees, other than federal and state income taxes.
22
The net proceeds delivered to the Company amounted to $19.8 Million. Provided there are no breaches, the aforementioned escrow will be returned to the Company, 50 percent after 12 months and the remainder after 24 months. As the release of the funds held in escrow is contingent on no breaches in the Company’s representations, warranties and covenants, the Company will report as income the escrow funds when received.
The Sales Agreement also contains a cost sharing provision for the breasting dolphin whereby any variance from the initial estimate of $1,040,000 will be borne equally by Sprague and the Company subject to certain limitations.Agreement. In May 2018February 2019 the Company received noticethe final escrow disbursement ($862,000) from Sprague that Sprague had received bids for the breasting dolphin and that the costsale of the Project was estimated at $1,923,284. Sprague requested thatTerminal, which amount is included in net gain from sale of discontinued operation on the Company acknowledge that it was obligated to pay 50%accompanying consolidated statement of income and retained earnings.
As part of the cost in excess of $1,040,000, or $441,642. The Company replied that pursuant to the letter agreement between the Company and Sprague (the “Letter Agreement”) the Company’s obligation cannot exceed $104,000 assuming, among other things, that Sprague had been timely in securing bids for the breasting dolphin and the scope of the work as bid was consistent with the Letter Agreement.
In accordance with theTerminal Sale Agreement, the Company has agreed to retain and pay for the environmental remediation costs associated with a 1994 storage tank fuel oil leak which allowed the escape of a small amount of fuel oil. Since 1994,In February 2020, the Company and its consultants have continued to workedfiled a revised Remediation Action Work Plan (“RAWP”) with the Rhode Island Department of Environmental Management (“RIDEM”) throughto describe the various phases of remediationtechnical details associated with the preferred remedial activities and are now working to completeupdate the final remediation plan. During 2017,previously filed RAWP. In 2019, the Company incurred remediation costs of $25,000 were incurred which reduced$293,000 and, as a result of the totalrevised remedial activities included in the 2020 RAWP, the remediation accrual was increased by $846,000 primarily due to remediatedesign changes necessary to meet the site to $434,000.requirements of applicable life safety codes resulting in an environmental remediation liability of $1,043,000 at December 31, 2019. In 2018,2020, the Company incurred costs of $111,000 and increased$553,000 which reduced the amount accrued by $56,000 resulting in a remediation liability of $490,000.to $490,000 at December 31, 2020. Any subsequent increases or decreases to the expected cost of remediation will be recorded in the Company’s consolidated income statement as income or expense from discontinued operations. On March 9, 2021, the Company commenced operation of the remediation system.
21
The Terminal Sale Agreement also contained a cost sharing provision for the breasting dolphin whereby any cost incurred in connection with the construction of the breasting dolphin in excess of the initial estimate of $1,040,000 will be borne equally by Sprague and the Company subject to certain limitations, including, in the Company’s opinion, a 20% cap on the increase from the initial estimate, subject to a sharing arrangement. In February 2018,November 2019, the Company received 50 percenta demand letter from Sprague asserting that they were owed $427,000, which amount represents 50% of the aforementioned escrow, or $862,000, which amountactual costs incurred ($1,894,008) in excess of $1,040,000. The Company asserts that its obligation cannot exceed $104,000. The Company and Sprague have agreed to engage in mediation with respect to Sprague’s claim. The mediation is reported net of income taxes as “Gain on sale of discontinued operations, net of taxes.”
A reconciliation of the major classes of liabilities associated with the discontinued operations as of December 31, 2018 and 2017 is as follows:
|
| 2018 |
|
| 2017 |
| ||
Environmental remediation |
| $ | 490,000 |
|
| $ | 434,000 |
|
Accounts payable, income taxes and other |
|
| — |
|
|
| 55,000 |
|
|
| $ | 490,000 |
|
| $ | 489,000 |
|
Revenue and loss from discontinued operations, net of taxescurrently scheduled for the years ended December 31, 2018 and 2017 are as follows:
|
| December 31, |
| |||||
|
| 2018 |
|
| 2017 |
| ||
Revenues |
| $ | — |
|
| $ | 365,000 |
|
Operating expenses |
|
| 167,000 |
|
|
| 962,000 |
|
Loss from discontinued operations before income taxes |
|
| (167,000 | ) |
|
| (597,000 | ) |
Income tax (benefit) |
|
| (48,000 | ) |
|
| (346,000 | ) |
Loss from discontinued operations, net of taxes |
| $ | (119,000 | ) |
| $ | (251,000 | ) |
late April 2021.
The net gain from sale of discontinued operations as of December 31, 20182020 and 2017,2019, was calculated as follows:
|
| December 31, |
| |||||
|
| 2018 |
|
| 2017 |
| ||
Gain from sale of discontinued operations before income taxes |
| $ | 862,000 |
|
| $ | 8,640,000 |
|
Less income tax expense: |
|
|
|
|
|
|
|
|
Current tax expense |
|
| 198,000 |
|
|
| 6,870,000 |
|
Deferred tax benefit |
|
| — |
|
|
| (3,310,000 | ) |
|
|
| 198,000 |
|
|
| 3,560,000 |
|
Net gain from sale of discontinued operations |
| $ | 664,000 |
|
| $ | 5,080,000 |
|
|
| December 31, |
| |||||
| 2020 |
|
| 2019 |
| |||
Indemnification escrow proceeds |
| $ | - |
|
| $ | 862,000 |
|
Environmental remediation expense |
|
| - |
|
|
| 846,000 |
|
Gain from discontinued operations before income taxes |
|
| - |
|
|
| 16,000 |
|
Income tax expense (benefit): |
|
|
|
|
|
|
|
|
Current |
|
| (150,000 | ) |
|
| 118,000 |
|
Deferred |
|
| 150,000 |
|
|
| (150,000 | ) |
|
|
| - |
|
|
| (32,000 | ) |
Gain from discontinued operations, net of taxes |
| $ | - |
|
| $ | 48,000 |
|
|
|
|
|
|
|
|
|
|
23
At its January 30, 201927, 2021 regularly scheduled quarterly Board meeting, the Board of Directors voted to declare a quarterly dividend of $.07 per share for shareholders of record on February 11, 2019,12, 2021, payable February 22, 2019.
In February 2019, the Company received the balance of the escrow of $862,500 plus interest of $23,000 from the sale of the Terminal to Sprague. 26, 2021.
2422
Item 9. Changes in and Disagreements with AccountantsAccountants on Accounting and Financial Disclosure
There were no changes in, or disagreements with, accountants on accounting or financial disclosure as defined by Item 304 of Regulation S-K.
Item 9A. Controls and Procedures
Under the supervision of the Company’s management, including its principal executive officer and principal financial officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15 under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon this evaluation, the principal executive officer and principal financial officer have concluded that, as of such date, the Company’s disclosure controls and procedures were effective in making them aware on a timely basis of the material information relating to the Company required to be included in the Company’s periodic filings with the Securities and Exchange Commission.
Management's Annual Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of its financial reporting and the preparation of published financial statements in accordance with United States generally accepted accounting principles.
However, because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or the degree of compliance with policies may deteriorate.
Management conducted its evaluation of the effectiveness of its internal control over financial reporting based on the framework in “2013 Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) as of December 31, 2018.2020.
Based on this assessment, the principal executive officer and principal financial officer believe that as of December 31, 2018,2020, the Company’s internal control over financial reporting was effective based on criteria set forth by COSO in “2013 Internal Control-Integrated Framework.”
This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Changes in Internal Control over Financial Reporting
During the quarter ended December 31, 2018,2020, there has been no change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
2523
Item 10. Directors, Executive Officers and Corporate Governance
The information concerning directors required by this item, including the Audit Committee and the Audit Committee financial expert, is incorporated by reference to the Sections entitled “Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Security Ownership of Certain Beneficial Owners and Management” and “Audit Committee Report” in the Company’s Definitive Proxy for the 20192021 Annual Meeting of Shareholders to be filed with the SEC.
The following are (were) the executive officers of the Registrant:
Name |
| Age |
| Office Held at Capital Properties, Inc. |
| Date of First Election to Office |
| Age |
| Office Held at Capital Properties, Inc. |
| Date of First Election to Office |
Robert H. Eder |
| 86 |
| Chairman/President |
| 1995 |
| 88 |
| Chairman/President |
| 1995 |
P. Scott Conti |
| 61 |
| President (until October 31, 2018) |
| 2017 | ||||||
Susan R. Johnson |
| 59 |
| Treasurer |
| 2017 |
| 61 |
| Treasurer |
| 2017 |
Stephen J. Carlotti |
| 76 |
| Secretary |
| 1998 |
| 78 |
| Secretary |
| 1998 |
All officers hold their respective offices until their successors are duly elected and qualified. Mr. Conti served as President and Chief Operating Officer of the Providence and Worcester Railroad from 2005 to 2017. Mr. Conti resigned from the Company effective October 31, 2018 and Robert H. Eder became President. Mr. Carlotti is a partner in the law firm, Hinckley, Allen & Snyder LLP, which firm provides legal services to the Company.
Code of Ethics:
The Company has adopted a Code of Ethics which applies to all directors, officers and employees of the Company and its subsidiariessubsidiary including the Principal Executive Officer and the Treasurer (who is both the principal accounting and financial officer), which meets the requirement of a “code of ethics” as defined in Item 406 of Regulation S-K. The Company will provide a copy of the Code to shareholders pursuant to any request directed to the Treasurer at the Company’s principal offices. The Company intends to disclose any amendments to, or waiver of, any provisions of the Code for the Principal Executive Officer or Treasurer, or any person performing similar functions.
The additional information required by this item is incorporated by reference to the Section entitled “Corporate Governance” in the Company’s Definitive Proxy Statement for the 20192021 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to the Sections entitled “Compensation of Directors,” “Compensation Discussion and Analysis,” and “Executive Compensation” in the Company’s Definitive Proxy Statement for the 20192021 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated by reference to the Section entitled “Security Ownership of Certain Beneficial Owners and Management” in the Company’s Definitive Proxy Statement for the 20192021 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission.
Item 13. Certain Relationships and Related Transactions and Director Independence
The information required by this item is incorporated by reference to the Sections entitled “Election of Directors” and “Transactions with Management” in the Company’s Definitive Proxy Statement for the 20192021 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission.
Item 14. Principal Accountant Fees and Services
The information required by this item is incorporated by reference to the Section entitled “Independent Registered Public Accountants” in the Company’s Definitive Proxy Statement for the 20192021 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission.
2624
Item 15. Exhibits and Financial Statement Schedules
(a) and (c) | The consolidated financial statements are included in Item 8. |
(b) | Exhibits: |
2.1 |
| |||
|
|
| ||
3.1 |
| |||
|
|
| ||
3.2 |
| |||
|
|
| ||
10 |
| |||
| Lease between Metropark, | |||
|
|
| ||
20 |
| Map of the | ||
|
|
| ||
21 |
| |||
|
|
| ||
31.1 |
| Rule 13a-14(a) Certification of Chairman and Principal Executive Officer | ||
|
|
| ||
31.2 |
| Rule 13a-14(a) Certification of Treasurer and Principal Financial Officer | ||
|
|
| ||
32.1 |
| |||
|
|
| ||
32.2 |
| |||
|
|
| ||
101 |
| The following financial information from the Company’s Annual Report on Form 10-K for the year ended December 31, | ||
|
|
| ||
| (i) | Consolidated Balance Sheets as of December 31, | ||
|
|
| ||
| (ii) | Consolidated Statements of Income and Retained Earnings for the Years ended December 31, | ||
|
|
| ||
| (iii) | Consolidated Statements of Cash Flows for the Years ended December 31, | ||
|
|
| ||
| (iv) | Notes to Consolidated Financial Statements. |
* | Pursuant to Item 601(b)(2) of Regulation S-K promulgated by the SEC, certain schedules to the Asset Purchase Agreement have been omitted. The registrant hereby agrees to furnish supplementally to the SEC, upon its request, any or all omitted schedules. |
2725
In accordance with the requirements of the Exchange Act, the Issuer caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CAPITAL PROPERTIES, INC. | |
|
|
By | /s/ Robert H. Eder |
| Robert H. Eder |
|
|
DATED: March 18, 201919, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Company and on the dates indicated.
| March | |
Robert H. Eder |
|
|
|
|
|
Principal Executive Officer |
|
|
|
|
|
/s/ Susan R. Johnson |
| March |
Susan R. Johnson |
|
|
Treasurer, Principal Financial Officer |
|
|
and Principal Accounting Officer |
|
|
|
|
|
/s/ Alfred J. Corso |
| March |
Alfred J. Corso |
|
|
Director |
|
|
|
|
|
/s/ Steven G. Triedman |
| March |
Steven G. Triedman |
|
|
Director |
|
|
2826