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PART I

FORWARD-LOOKING STATEMENTS

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 collectability of the excess of straight-line over contractual rent when due over the terms of the long-term 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; cyber-penetrations; the long-term impact of the COVID-19 pandemic on the economy, parking operations, and the Company’s financial performance, and exposure to remediation and other 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.

Item 1. Business

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.

Business:

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 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 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 Company-owned parcels.

Under ourthe Company’s standard Ground Leases, the tenant is responsible for all property related operating expenses, such as real estate taxes, maintenance and insurance as well as all costs associated with the development and construction of the related improvements. Each leaseGround Lease contains provisions permitting the tenant to develop the parcel under certain terms and conditions and provideprovides for periodic rent 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 as well as indemnifying the Company with respect to all of the tenant’s activities on the land. The leasesGround Leases contain other terms and conditions customary to such instruments.

While seeking developers, the Company also leases Parcels 3E, 3W, 4E, 4W and 4Wa portion of Parcel 20 in the Capital Center areaArea for public parking purposes to Metropark, Ltd.

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Parcel 20

Parcel 20 consists of a parcel of land adjacent to the Capital Center, part of which is undeveloped and part of which contains a three/four-story 20,000 square foot building (the “Steeple Street Building”).

On May 14, 2018January 25, 2024, the Company andentered into a long-term ground lease of Parcel 20. Under the terms of the lease, tenant's possession will not occur until such time as the tenant entered into an Amended and Restated Ground Lease. On December 1, 2018,has received all necessary approvals for construction of not less than 100,000 square feet of mixed use improvements. Prior to transfer of possession, no rent is being paid by the tenant took possession of Parcel 20 and the Company conveyed titlereceives all rents from existing tenants and parking lease revenue and remains responsible for all expenses, including real estate taxes, related to the Steeple Street Building to the tenant.  In addition to the ground lease rent, for 360 months following December 1, 2018, theParcel 20. Following tenant's possession, tenant is obligated to pay acquisition periodground rent consisting of monthly payments of $7,471 for the first thirty-six monthsparcel and to purchase the building presently located on the premises for an additional amount payable monthly payments thereafter of $8,488 plus an amount equal to 1/12^thover twenty years.

*Generally speaking, a ground lease is a lease by the owner of the product of (a) 5.5% and (b)land (in this case, the difference between (x) $2,750,000 and (y)Company) to the aggregateowners/operators of the prior monthly payments of $8,488.  The Amended and Restated real estate improvements built thereon by such owners/operators (“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, is accounted for as a sales-type lease due to the transfer of title to the Steeple Street Building to the 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 tenant 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 deferred 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”Leases”).  The ground lease of the undeveloped land on Parcel 20 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 athe map contained in Exhibit 20.

Billboard Lease

The Company, through its 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 20492053 (the “Lamar Lease”). All but one of these locations are controlled by the Company through permanent easements granted to the Company pursuant to an agreement between the Company and the 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 provides, among other things, for annual base rent increases of 2.75% in June for each leased billboard location and participation in the revenue generated by each billboard, as defined in the agreement. The Lamar lease contains other terms and conditions customary to such instruments.

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A summary of the long-term leases which have commenced is as follows:

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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, 20202023 and 2019:2022:

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, 2020,2023, the Company has three employees.two full-time and one part-time employee.

Environmental

Prior 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 storage tank fuel oil leak which allowed the escape of a small amount of fuel oil. In February 2020, the Company filed a revised Remediation Action Work Plan (“RAWP”) with Rhode Island Department of Environmental Management (“RIDEM”) to incorporate technical details associated with the preferred remedial activities and to update the 2018 RAWP. In 2019During 2022, the remediation system was modified to address operational issues which impeded remediation activities. For the year ended December 31, 2023, the Company incurred costs of $293,000 and, as a result$79,000 of which $4,000 was charged against the proposed remediations included in the 2020 RAWP, theenvironmental remediation accrual was increased by $846,000 primarily due to design changes necessary to meet the requirements of applicable life safety codes resulting in an environmental remediationa liability of $1,043,000$402,000 at December 31, 2019.  In 2020,2023 with the Company incurred costs of $553,000 resulting in an environmental remediation liability of $490,000 at December 31, 2020.balance charged to other liabilities. Any subsequent increases or decreases to the expected cost of remediation will be recorded in the Company’s consolidated income statementstatements as incomegain or expense fromloss on sale of discontinued operations.

Insurance

The Company maintains what management believes to be adequate levels of insurance.

Item 1C. Cybersecurity

Risk Management

The Company’s corporate information technology, communication networks, and accounting and financial reporting platforms are necessary for the operation of its business. The Company uses these systems, along with others, to manage its tenant and vendor relationships, for internal and external communications and for accounting to operate recordkeeping and reporting functions. The Company has implemented and maintains various information security processes designed to identify, assess and manage material risks from cybersecurity threats to its critical computer networks, third-party hosted services, communications systems, hardware and software, and our critical data, including confidential information.

Management works primarily with third parties (principally professional services and consulting firms) that assist management in identifying, assessing, and managing cybersecurity risks. To operate its business, the Company utilizes certain third-party service providers to perform a variety of functions and seeks to engage reliable, reputable service providers that maintain cybersecurity programs. The Company is not aware of any risks from cybersecurity threats, including as a result of any cybersecurity incidents, which have materially affected or are reasonably likely to materially affect it, including its business strategy, results of operations, or financial condition.

Governance:

The Board of Directors oversees the Company’s strategy and risk management, including material risks related to cybersecurity threats. The Board has delegated to the Audit Committee oversight of cybersecurity matters.

Management is responsible for day-to-day assessment and management of cybersecurity risks. The Treasurer has primary oversight of material risks from cybersecurity threats and works primarily with third parties to identify, assess, and manage cybersecurity risks. The Treasurer meets with the Audit Committee periodically to review the Company’s information technology systems and discuss key cybersecurity risks.

Item 2. Properties

The Company owns approximately 18 acres and a historic building in the Capital Center Area inof Providence, Rhode Island. With the exception of Parcel 6C and the Steeple Street Building, all of the Company’s real property is leased either under long-term leases or short-term leases as more particularly described in Item 1, Business. Effective August 29, 2020, the Parcel 6C lease was terminated by the tenant.  The Company also owns or controls 23 locations in Rhode Island and Massachusetts 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

In connection with the sale of the Company’s petroleum storage terminal in 2017, the Company and Sprague entered into an agreement relating to the construction of a breasting dolphin pursuant to which any construction costs incurred in excess of the contract cost of the construction would be shared equally between the Company and Sprague subject to certain limitations. In November 2019, Sprague asserted that it was owed $427,000 and the Company asserted that its obligation under the Agreement could not exceed $104,000. Mediation efforts were unsuccessful and in July 2021, Sprague commenced an action against the Company in the Rhode Island Superior Court (Superior Court) seeking monetary damages of $427,000, interest and attorney’s fees. In December 2022, the Superior Court denied Sprague’s Motion for Summary Judgment filed in September 2022 and granted in part and denied in part the Company’s Cross Motion for Summary Judgment also filed in September 2022. The Company anticipates that the matter will go to trial within the next six months. The Company intends to vigorously defend against the claims being asserted by Sprague.

Item 4. Mine Safety Disclosure -– Not applicable

PART II

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.

At March 2, 2021,February 16, 2024, there were 334322 holders of record of the Company’s Class A Common Stock.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our consolidated financial statements are prepared in accordance with GAAP.accounting principles generally accepted in the United States (“GAAP”). The following discussion of our financial condition and results of operations excludes the results of our discontinued operations unless otherwise noted. See Note 7,9, “Discontinued operations and environmental incident” in the accompanying Consolidated Financial Statements for further discussion of these operations.

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.”

The Company’s long-term leases (land and billboard) have original terms of 30 to 149 years. The Company follows generally accepted accounting principles (“GAAP”)GAAP in accounting for its leases by recognizing rental income on the straight-line basis over the term of the leases. Where the straight-line income exceeds the actual contractual payments (“Excess”), the Company evaluates the collectability of the entire stream of remaining lease payments on a lease-by-lease basis. If the remaining lease payments are not deemed to be probable of collection, in accordance with GAAP, lease revenue is recorded at the lower of straight-line rental income or the contractual amount paid.

The number of years remaining on the Company’s leases range from twenty-nine (29)twenty-six (26) years to one hundred-thirty-three (133)hundred-thirty (130) years with total rentrents yet to be collected from tenants (without regard to CPI and appraisal adjustments) under the lease ranging from $10.4$19.2 million to $364.2$363.0 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.

Historically, the Company generates adequate liquidity to fund its operations.

Cash and cash commitments:

At December 31, 2020, theThe Company had cash and cash equivalents of $1,642,000.  At$652,000 and $1,476,000 at December 31, 20202023 and 2019, cash equivalents consist2022, respectively, inclusive of a money market accountsaccount totaling $1,555,000$461,000 and $1,039,000, respectively.  $1,273,000 in each of the aforementioned years. Additional sources of funds to fund operations include investments that mature in April 2024 totaling $1,244,000 along with a $2,000,000 unused line of credit (see Note 6 in the accompanying Consolidated Financial Statements). The Company and its subsidiary each maintain checking accounts and one money market accountsaccount in twoa financial institutions, all ofinstitution which areis 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 each applicable long-term land lease, the contractual rent adjustments for the last two yearyears were:

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On July 30, 2020, the Company received notice that the tenant of Parcel 6C exercised its right to terminate the ground lease effective August 29, 2020.  On the termination date, the annual rent on Parcel 6C was $220,000 and the annual real estate taxes paid by the tenant were $311,000. Upon termination, the real estate taxes became an obligation of the Company effective with the taxes assessed as on December 31, 2020.  The Company believes that the assessed value of Parcel 6C as contained in a tax treaty between the City of Providence (“City”) conducted a City-wide property revaluation for 2022. This revaluation increased the assessed value of the Company’s parcels that are available for lease by 26.5%, resulting in an annual property tax increase of $139,000 that was to be borne entirely by the Company. The Company's appeal of the assessed values for certain of its parcels was successful and resulted in a reduction of the tenant is much greaterassessed value to an amount less than similar parcelsthe 2021 assessed value and in an annual property tax reduction in 2022 taxes as originally assessed of $165,000, which amount was recorded 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 lower assessment.      fourth quarter of 2022.

Through March 10, 2021February 16, 2024 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.   agreements.

The coronavirus (COVID-19)COVID-19 pandemic and Rhode Island’s stay-at-home order has had a significantan adverse impact on Metropark.  The Company does not know when or if Metropark’s parking operations will returnas the move by many companies to normal.  Metropark has not fully paid the renta hybrid workplace model (one that mixes in-office and remote work) resulted in lower demand for Aprilparking spaces. From June 2020 through March 2021.  The total rent arrearage as of December 31, 2020 is $340,000 and has been fully reserved by the Company. On July 31, 2020, Metropark and2023 the Company entered into an agreementand Metropark operated under a Revenue Sharing Agreement, dated June 30, 2020, that provided 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 theDuring this time, 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.  Pending this recovery, the Company will continue to recognize Metropark’s rent on a cash basis.      

The Company expects that revenue from Metropark will continue to bewas recognized on a cash basis all of 2021with the difference between the regularly scheduled rental payments and that the 2021 contingent rent from Lamar may be significantly less than the $139,000 received in 2020.amounts paid ("deferred rent") recorded as an accounts receivable and was fully reserved.

In February 2019,January 2024, the Company receivedentered into a Second Amendment to its Lease Agreement whereby Metropark agreed to return to a fixed monthly rental payment of $57,000 per month effective January 1, 2024 subject to adjustment in accordance with the final escrow disbursement ($862,000) fromLease Agreement. Additionally, the saleCompany and Metropark settled the Company’s claim for deferred rent for all prior periods which amounted to $1,127,000 (fully reserved on the Company’s books) for $150,000 payable by Metropark in twenty (20) equal quarterly installments commencing on April 1, 2024 together with interest on the unpaid balance in the amount of 4.73% per annum. At December 31, 2023, the Terminal.  $150,000 settlement is included in Prepaid and other and in Leasing revenue in the accompanying consolidated balance sheets and statements of income and retained earnings.

The Terminal Sale Agreement and related documentation provides that the Company is required to secure an approved remediation plan and to remediate contamination caused by a leak in 1994 from a storage tank at the Terminal. At December 31, 2020,2023, the Company’s accrual for the remaining cost of remediation was $490,000$402,000 of which $95,000$132,000 is expected to be incurredexpended in 2021. On March 9, 2021, the Company commenced operation of the remediation system.2024. 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 dolphincosts in excess of the initial estimatecontract cost of $1,040,000construction 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, Sprague asserted that it was owed $427,000 and 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 assertsasserted that its obligation cannotunder the Agreement could not exceed $104,000. Mediation efforts were unsuccessful and in July 2021, Sprague commenced an action against the Company in the Rhode Island Superior Court (Superior Court) seeking monetary damages of $427,000, plus interest and attorney’s fees. In December 2022, the Superior Court denied Sprague’s Motion for Summary Judgment filed in September 2022 and granted in part and denied in part the Company’s Cross Motion for Summary Judgment also filed in September 2022. The Company anticipates that the matter will go to trial within the next six months. The Company intends to vigorously defend against the claims being asserted by Sprague. See Note 7,9, “Discontinued operations and environmental incident” in the accompanying Consolidated Financial Statements.  The Company and Sprague have agreed to engage in mediation with respect to Sprague’s claim.  The mediation is currently scheduled for late April 2021.

In 2020,2023, the Company declared and paid dividends of $1,386,000$1,848,000 or $0.21$0.28 per share.

The declaration of future dividends will depend on future earnings and financial performance.

Year Ended December 31, 20202023 Compared to Year Ended December 31, 2019:2022:

Continuing operations:

Revenue, leasingLeasing revenue increased $450,000 from continuing operations decreased $528,000 from 20192022 due principally to an increase in cash collections from Metropark along with the $150,000 deferred rent settlement ($315,000) and a decrease in rent associated with Metropark ($480,000), the termination of the Parcel 6C lease ($60,000), a decline in contingent rent applicable to long-term leases ($20,000) offset by annet increase in rent (contractual and contingent rent)contingent) from Lamartenants ($32,000)135,000).

Operating expenses increased $53,000 due principally to: increaseddecreased $40,000 in 2023 as there were no professional fees associated with the property tax expense and legal costs due to the termination of the Parcel 6C lease ($71,000) offset by a decreaseappeal that occurred in various other expenses ($18,000).2022.

General and administrative expense increased $39,000$57,000 due principally to an increase in payroll and payroll related costs ($30,000) as a result of cost-of-living increases and increased medical costs, increased professional fees related to accounting ($53,000) offset by a decrease in legal fees ($38,000) and a net decrease in various other expenses ($6,000).costs.

For the yearyears ended December 31, 20202023 and 2019,2022, the Company’s effective income tax rate is 27% and 28% of income from continuing operations.operations is 27%.

Item 8. Financial StatementsStatements and Supplementary Data

CAPITAL PROPERTIES, INC. AND SUSIDIARY

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS