UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2008~~March 31, 2009


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 0-9380

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)		05-0386287 (IRS Employer Identification No.)

100 Dexter Road
East Providence, Rhode Island 02914
(Address of principal executive offices) (Zip Code)

(401) 435-7171
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Name of each exchange on which registered
Class A Common Stock, $.01 par value		~~American Stock Exchange~~OTCQX (Pink Sheets)

Securities registered pursuant to Section 12(g) of the Act:
NONE

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. Yesþ Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filero	Accelerated filer o		~~Accelerated filer~~o		Non-accelerated filerþo (Do not check if a smaller reporting company)		Smaller reporting companyoþ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

As of ~~October 30, 2008,~~March 31, 2009, the Company had ~~3,299,956~~3,319,034 shares of Class A Common Stock and 3,280,878 shares of Class B Common Stock outstanding.

PART I

Item 1. Consolidated Financial Statements

CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS


	September 30,		December 31,		March 31,
	2008		2007		2009		December 31,
	(unaudited)				(unaudited)		2008
ASSETS

Properties and equipment (net of accumulated depreciation)	$	20,368,000	$	20,717,000	$	20,421,000	$	20,447,000
Cash and cash equivalents		3,027,000		1,974,000		3,407,000		3,395,000
Income taxes receivable		—		12,000
Prepaid and other		658,000		334,000		311,000		485,000

	$	24,053,000	$	23,037,000	$	24,139,000	$	24,327,000


LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities:
Accounts payable and accrued expenses:
Property taxes	$	238,000	$	276,000	$	295,000	$	238,000
Environmental remediation		81,000		81,000		81,000		81,000
Other		253,000		333,000		189,000		416,000
Deferred leasing revenues		520,000		520,000		520,000		520,000
Income taxes:
Current		292,000		—		170,000		346,000
Deferred, net		5,244,000		5,151,000		5,259,000		5,269,000

		6,628,000		6,361,000		6,514,000		6,870,000
��

Shareholders’ equity:
Class A common stock, $.01 par; authorized 6,000,000 shares; issued and outstanding 3,299,956 shares		33,000		33,000

Commitment (Note 4)

Shareholders’ equity (Note 8):
Class A common stock, $.01 par; authorized 10,000,000 shares; issued and outstanding, 3,319,034 shares at March 31, 2009 and 3,299,956 shares at December 31, 2008						33,000		33,000
Class B common stock, $.01 par; authorized 3,500,000 shares; issued and outstanding 3,280,878 shares March 31, 2009 and 3,299,956 shares at December 31, 2008						33,000		33,000
Excess stock, $.01 par; authorized 1,000,000 shares; none issued and outstanding						—		—
Capital in excess of par		11,795,000		11,795,000		11,762,000		11,762,000
Retained earnings		5,597,000		4,848,000		5,797,000		5,629,000

		17,425,000		16,676,000		17,625,000		17,457,000

	$	24,053,000	$	23,037,000	$	24,139,000	$	24,327,000

CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 2009 AND 2008
(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30				September 30
	2008		2007		2008		2007		2009			2008
Revenues and other income:
Revenues:
Leasing	$	726,000	$	676,000	$	2,254,000	$	2,167,000	$	714,000		$	715,000
Petroleum storage facility		948,000		860,000		2,850,000		2,745,000		936,000			951,000

		1,674,000		1,536,000		5,104,000		4,912,000		1,650,000			1,666,000
Other income, interest		7,000		29,000		18,000		94,000		—			7,000

		1,681,000		1,565,000		5,122,000		5,006,000		1,650,000			1,673,000


Expenses:
Leasing		141,000		169,000		510,000		430,000		203,000			190,000
Petroleum storage facility		566,000		516,000		1,626,000		1,619,000		577,000			515,000
General and administrative		193,000		308,000		738,000		931,000		259,000			291,000

		900,000		993,000		2,874,000		2,980,000		1,039,000			996,000


Income before income taxes		781,000		572,000		2,248,000		2,026,000		611,000			677,000


Income tax expense:
Current		229,000		125,000		812,000		619,000		255,000			257,000
Deferred		74,000		114,000		93,000		205,000		(10,000	)		16,000

		303,000		239,000		905,000		824,000		245,000			273,000


Net income	$	478,000	$	333,000	$	1,343,000	$	1,202,000	$	366,000		$	404,000


Basic income per common share	$	.14	$	.10	$	.41	$	.36
Basic income per share based upon 6,599,912 shares outstanding (Note 8)									$	.06		$	.06


Dividends per share on common stock	$	.06	$	.06	$	.18	$	.16
Dividends per share on common stock based upon 6,599,912 shares outstanding (Note 8)									$	.03		$	.03

CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2009 AND 2008 ~~AND 2007~~
(Unaudited)


	2008			2007			2009			2008
Cash flows from operating activities:
Net income	$	1,343,000		$	1,202,000		$	366,000		$	404,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		517,000			515,000			173,000			179,000
Deferred income taxes		93,000			205,000			(10,000	)		16,000
Other, principally net changes in prepaids, accounts payable, accrued expenses, deferred leasing revenues and current income taxes		(34,000	)		170,000
Other, principally net changes in prepaids, accounts payable, accrued expenses and current income taxes								(172,000	)		51,000

Net cash provided by operating activities		1,919,000			2,092,000			357,000			650,000

Cash used in investing activities, payments for properties and equipment, including $116,000 in 2008 relating to 2007 purchases		(272,000	)		(443,000	)
Cash used in investing activities, payments for properties and equipment								(147,000	)		(130,000	)

Cash used in financing activities, payment of dividends		(594,000	)		(528,000	)		(198,000	)		(198,000	)


Increase in cash and cash equivalents		1,053,000			1,121,000			12,000			322,000
Cash and cash equivalents, beginning		1,974,000			2,992,000			3,395,000			1,974,000

Cash and cash equivalents, ending	$	3,027,000		$	4,113,000		$	3,407,000		$	2,296,000


Supplemental disclosure, cash paid for income taxes	$	507,000		$	518,000		$	431,000		$	56,000

CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2009 AND ~~NINE MONTHS ENDED SEPTEMBER 30,~~ 2008 ~~AND 2007~~
(Unaudited)

	1.		Description of business:

			Capital Properties, Inc. and its wholly-owned subsidiaries, Tri-State Displays, Inc., Capital Terminal Company and Dunellen, LLC (collectively referred to as “the Company”), operate in two segments: (1) Leasing and (2) Petroleum Storage.

			The leasing segment consists of the long-term leasing of certain of its real estate interests in downtown Providence, Rhode Island (upon the commencement of which the tenants are required to construct buildings thereon, with the exception of a parking garage), the leasing of a portion of ~~the~~its building ~~acquired in November 2007~~ (“Steeple Street Building”) under short-term leasing arrangements 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 parcels for public parking under short-term leasing arrangements.

			The petroleum storage segment consists of operating the petroleum storage terminal (the “Terminal”) and the Wilkesbarre Pier (the “Pier”), collectively referred to as the “Facility,” located in East Providence, Rhode Island, for Global Companies, LLC (“Global”) which stores and distributes petroleum products.

			The principal difference between the two segments relates to the nature of the operations. The tenants ~~under~~in the ~~long-term land leases~~leasing segment incur substantially all of the development and operating costs of the assets constructed on the Company’s land, including the payment of real property taxes on both the land and any improvements constructed thereon; whereas the Company is responsible for the operating and maintenance expenditures, including a portion of the real property taxes, as well as capital improvements at the Facility.

	2.		Principles of consolidation and basis of presentation:

			The accompanying condensed consolidated financial statements include the accounts and transactions of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

			The accompanying condensed consolidated balance sheet as of December 31, ~~2007,~~2008, has been derived from audited financial statements and the unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. It is suggested that these condensed financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s latest Form 10-K. In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position as of ~~September 30, 2008,~~March 31, 2009 and the results of operations ~~for the three and nine months ended September 30, 2008 and 2007~~ and cash flows for the ~~nine~~three months ended ~~September 30, 2008~~March 31, 2009 and ~~2007.~~2008.

			The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

			Recent pronouncements:

			In April 2009, the Financial Accounting Standards Board (“FASB”) released Staff Position (“FSP”) 107-1 and APB 28-1 (Interim Disclosures About Fair Value of Financial Instruments). The FSP requires disclosure about fair value of financial instruments in interim financial statements as well as in annual financial statements. The Company elected to adopt the FSP prior to its effective date.

			As of January 1, 2008, the Company adopted Statement of Financial Accounting Standards (“FAS”) No. 157 (Fair Value Measurements) for items that are recognized or disclosed at fair value in the financial statements on a recurring basis and is utilizing Level 1 inputs to measure their fair market value. FASB issued FSP 157-2, which permitted a delay in the effective date of FAS No. 157 to fiscal years beginning after November 15, 2008, for nonfinancial assets and liabilities measured or disclosed on a non-recurring basis. The effect of the adoption of this Statement is not material.

			The Company believes that the fair value of financial instruments, including cash and accounts payable and accrued expenses, approximate their respective book values at March 31, 2009.

			New accounting standards:

			The Company reviews new accounting standards as issued. Although some of these accounting standards may be applicable to the Company, the Company has not identified any standards that it believes merit further discussion. The Company expects that none of the new standards would have a significant impact on its consolidated financial statements.

	3.		Use of estimates:

			The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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.

	4.		Properties and equipment:

			Properties and equipment consists of the following:


	September 30,		December 31,		March 31,		December 31,
	2008		2007		2009		2008
Properties on lease or held for lease:
Land and land improvements	$	4,621,000	$	4,621,000	$	4,621,000	$	4,621,000
Building		1,732,000		1,699,000		1,864,000		1,772,000

		6,353,000		6,320,000		6,485,000		6,393,000


Petroleum storage facility, on lease:
Land and land improvements		5,584,000		5,561,000		5,591,000		5,591,000
Buildings and structures		1,504,000		1,406,000		1,739,000		1,684,000
Tanks and equipment		14,578,000		14,569,000		14,593,000		14,593,000

		21,666,000		21,536,000		21,923,000		21,868,000


Office equipment		131,000		126,000		131,000		131,000

		28,150,000		27,982,000		28,539,000		28,392,000


Less accumulated depreciation:
Properties on lease or held for lease		49,000		16,000		71,000		60,000
Petroleum storage facility, on lease		7,640,000		7,160,000		7,950,000		7,789,000
Office equipment		93,000		89,000		97,000		96,000

		7,782,000		7,265,000		8,118,000		7,945,000

	$	20,368,000	$	20,717,000	$	20,421,000	$	20,447,000

5.		Description of leasing arrangements:

		As of ~~September 30, 2008,~~March 31, 2009, the Company had entered into five long-term land leases for five separate parcels upon which the improvements have been completed ~~(developed parcels)~~(“developed parcels”). In 2005, two additional long-term land leases commenced (undeveloped parcels) and construction of the improvements is in process on both parcels.

		Under the seven land leases, ~~which have commenced,~~ the tenants are required to negotiate any tax stabilization treaty or other arrangements, appeal any changes in real property assessments, and pay real property taxes assessed under these arrangements. Accordingly, the amounts paid by the tenants are excluded from leasing revenues and leasing ~~expense~~expenses on the accompanying consolidated statements of income. ~~The~~For the three months ended March 31, 2009 and 2008, the real property taxes attributable to the Company’s land under these ~~seven~~ leases ~~totaled $344,000~~are $360,000 and ~~$1,078,000, respectively, for the three and nine months ended September 30, 2008, and $417,000 and $1,078,000, respectively, for the three and nine months ended September 30, 2007.~~$365,000 respectively.

		Under one of the leases which commenced in 2005, the tenant is entitled to a credit for future rents equal to a portion of the real property taxes paid by the tenant through April 2007, which credit now totals $520,000, the maximum ~~amount. For real estate taxes prior to 2007,~~amount and is reported as deferred leasing revenues on the ~~Company reported the portion of the real property taxes subject to the future credit as property tax expense on its consolidated statements of income and as accrued property taxes on its~~accompanying consolidated balance sheets. ~~As the tenant made the tax payment, the amount of the payment was reclassified from accrued property taxes to deferred leasing revenues.~~ During the periods that the tenant is entitled to the credit (commencing in 2010), the Company will reclassify deferred leasing revenues to leasing revenues.

	In September 2008 the Company received the 2008 real property tax bills from the City of Providence totaling $475,000. The Company had recorded property tax expense of $267,000 through June 30, 2008 based upon the 2007 tax level adjusted for an estimated inflation increase of 3 percent of the tax rate. However, due to a consolidation of the Steeple Street lots by the City of Providence, the increase was less than estimated, resulting in property tax expense of $91,000 for the three months ended September 30, 2008.

6.	Petroleum storage facility:

		Environmental remediation:

		In 1994, a leak was discovered in a 25,000 barrel storage tank at the Terminal which allowed the escape of a small amount of fuel oil. All required notices were made to the State of Rhode Island Department of Environmental Management (“RIDEM”). In 2000, the tank was demolished and testing of the groundwater indicated that there was no large pooling of contaminants. In 2001, RIDEM approved a plan pursuant to which the Company installed a passive system consisting of three wells and commenced monitoring the wells.

		In 2003, RIDEM decided that the passive monitoring system previously approved was not sufficient and required the Company to design an active remediation system for the removal of product from the contaminated site. The Company and its consulting engineers began the pre-design testing of the site in the fourth quarter of 2004. The consulting engineers estimated a total cost of $200,000 to design, install and operate the system, which amount was accrued in 2004. Through ~~September 30, 2008,~~March 31, 2009, the Company has expended $119,000. RIDEM has not taken any action on the Company’s proposed plan. As designed, the system will pump out the contaminants which will be disposed of in compliance with applicable regulations. After a period of time, the groundwater will be tested to determine if sufficient contaminants have been removed. While the Company and its consulting engineers believe that the proposed active remediation system will correct the situation, it is possible that RIDEM could require the Company to expand remediation efforts, which could result in the Company incurring additional costs.

		Environmental incident:

		In 2002, during testing of monitoring wells at the Terminal, the Company’s consulting engineer discovered free floating phase product in a groundwater monitoring well located on that portion of the Terminal purchased in 2000. ~~Preliminary laboratory~~Laboratory analysis indicated that the product was gasoline, which is not a product the Company ever stored at the Terminal. However, in the 1950’s gasoline was stored on the Company’s property by a predecessor owner. The Company commenced an environmental investigation and analysis, the results of which indicate that the gasoline did not come from the Terminal. The Company notified RIDEM. RIDEM subsequently identified Power Test Realty Partnership (Power Test), the owner of an adjacent parcel, as a potentially responsible party for the contamination. Power Test challenged that determination and, after an administrative hearing, onin October ~~20,~~ 2008, a RIDEM Hearing Officer determined that Power Test is responsible for the discharge of the petroleum product under the Rhode Island Oil Pollution Control Act, R.I.G.L. Section 46-12.5.1-3 and Rule 6(a) and 12(b) of the Oil Pollution Control Regulations. The RIDEM Decision and Order requires Power Test to remediate the contamination as directed by RIDEM. Getty Properties Corp. is the general partner of Power Test. In November 2008, Power Test ~~has the right to appeal~~appealed the decision to the Rhode Island Superior Court. In addition, in November 2008, Power Test sought, and ~~if appealed, there is~~received, a stay of the Decision and Order of the Hearing Officer pending a clarification by RIDEM of the amount of the proposed fine. There can be no assurance that the ~~decision~~Superior Court will ~~be affirmed by~~affirm the ~~appellate tribunal. In addition, the scope~~decision of the Administrative Hearing Officer. On April 2, 2009, the Company sued Power Test in the Rhode Island Superior Court seeking remediation ~~plan and~~of the ~~timing~~site or, in the alternative, the cost of ~~its issuance cannot~~the remediation. There can be ~~predicted at~~no assurance that the Company will prevail in this ~~time.~~litigation.


	Since January 2003, the Company has not incurred significant costs in connection with this matter and is unable to determine the costs it might incur to remedy the situation as well as any costs to investigate, defend, and seek reimbursement from the responsible party with respect to this contamination.

7.		Income taxes:

		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 which give rise to deferred tax assets and liabilities were as follows:


	September 30,			December 31,			March 31,			December 31,
	2008			2007			2009			2008
Gross deferred tax liabilities:
Property having a financial statement basis in excess of tax basis	$	5,480,000		$	5,391,000		$	5,516,000		$	5,513,000
Insurance premiums		80,000			80,000
Insurance premiums and accrued leasing revenue								67,000			92,000

		5,560,000			5,471,000			5,583,000			5,605,000
Gross deferred tax assets		(316,000	)		(320,000	)		(324,000	)		(336,000	)

	$	5,244,000		$	5,151,000		$	5,259,000		$	5,269,000

			In December 2008, the Company issued (in the form of a stock dividend) 3,299,956 shares of Class B Common Stock on a one-for-one basis for each share of Class A Common Stock held. The Company accounted for the stock split effective in the form of a dividend by transferring $33,000 from capital in excess of par to Class B Common Stock on December 11, 2008.

			The holders of Class A and the Class B Common Stock vote together as a single class on all matters submitted to the shareholders of the Company except for the election of the Board of Directors and except in connection with certain major corporate actions, including a sale of the Company. The holders of Class A Common Stock, voting as a separate class, elect one-third of the Board of Directors. The holders of Class B Common Stock, voting as a separate class, will elect the remainder of the Board of Directors.

			Class B Common Stock is convertible by the record owner thereof into the same number of shares of Class A Common Stock at anytime. For the three months ended March 31, 2009, 19,078 shares were converted.

			The Class A Common Stock is listed on the Premier QX Tier of the OTCQX (Pink Sheets). The Class B Common Stock is not listed on any national or regional stock exchange, or on the National Association of Securities Dealers Automated Quotation National Market System or on the OTCQX (Pink Sheets).

			The holders of Class A and Class B Common Stock share equally in the earnings of the Company.

			The holders of Class A and Class B Common Stock share equally in dividends declared by the Company. For the three months ended March 31, 2008, dividends on common stock and basic income per share on the accompanying consolidated statement of income and retained earnings have been restated to give effect to the additional shares outstanding.

			The Company’s Restated Articles of Incorporation prohibits any shareholder from acquiring more than a 5% interest in the Company’s classes of common stock and prohibits any shareholder or any beneficial owner who, at the time of the filing of the Restated Articles of Incorporation owned 5% or more of the Company’s classes of common stock from increasing their percentage ownership of either class of common stock. Should a shareholder acquire a number of shares that results in the limitation being exceeded, shares in excess of the limitation would be automatically converted into an equal number of shares of Excess Stock, which class was authorized pursuant to the 2001 Amendment to the Company’s Articles of Incorporation. Excess Stock is non-voting and is not entitled to

dividends. However, the shareholder may designate a qualifying transferee for shares of Excess Stock, at which time such shares would be converted and reissued as Class A or Class B Common shares as the case may be.

			The purpose for creating the Class B Common Stock was to put the Company in the position to qualify to be taxed as a real estate investment trust (“REIT”). One of the qualifications to be taxed as a REIT is that no more than 50% of the shares of a company can be held by five or fewer individuals during the last half of each taxable year. Currently, the majority shareholder controls 52.3% of the Company’s outstanding common stock and three other shareholders each own more than 5% of the Company’s outstanding common stock. In order for the Company to qualify to be taxed as a REIT, the major shareholders’ ownership of the Company’s issued and outstanding common stock would need to be reduced below the 50% level.

	9.		Operating segment disclosures:

			The Company operates in two segments: (1) Leasing and (2) Petroleum Storage.

			The Company makes decisions relative to the allocation of resources and evaluates performance based on each segment’s respective income before income taxes, excluding interest income, and certain corporate expenses.


			Inter-segment revenues are immaterial in amount. The Company did not incur interest expense during the ~~nine~~three months ended ~~September 30, 2008~~March 31, 2009 and ~~2007.~~2008.

			The following financial information is used for making operating decisions and assessing performance of each of the Company’s segments for the ~~nine~~three months ended ~~September 30, 2008~~March 31, 2009 and ~~2007:~~2008:


	2008		2007			2009		2008
Leasing:
Revenues:
Long-term leases:
Contractual	$	1,586,000	$	1,532,000		$	527,000	$	521,000
Contingent		130,000		116,000			12,000		14,000
Option		—		100,000
Short-term leases		538,000		419,000			175,000		180,000

Total revenues	$	2,254,000	$	2,167,000		$	714,000	$	715,000


Property tax expense	$	358,000	$	350,000		$	123,000	$	134,000


Depreciation	$	33,000	$	—		$	11,000	$	18,000


Income before income taxes	$	1,744,000	$	1,737,000		$	511,000	$	525,000


Assets	$	6,474,000	$	4,114,000		$	6,614,000	$	6,446,000


Additions to properties and equipment	$	33,000	$	—
Properties and equipment, additions						$	92,000	$	—


Petroleum storage:
Revenues:
Contractual	$	2,764,000	$	2,574,000		$	936,000	$	901,000
Contingent		86,000		171,000			—		50,000

Total revenues	$	2,850,000	$	2,745,000		$	936,000	$	951,000


Property tax expense	$	157,000	$	80,000		$	53,000	$	52,000


Depreciation	$	480,000	$	514,000		$	161,000	$	160,000


Income before income taxes	$	1,224,000	$	1,126,000		$	359,000	$	436,000


Assets	$	14,394,000	$	14,627,000		$	14,298,000	$	14,559,000


Properties and equipment:
Additions	$	130,000	$	428,000
Deletions		—		(73,000	)
Properties and equipment, additions						$	55,000	$	9,000

	$	130,000	$	355,000

The following is a reconciliation of the segment information to the amounts reported in the accompanying consolidated financial statements for the ~~nine~~three months ended ~~September 30, 2008~~March 31, 2009 and ~~2007:~~2008:


	2008		2007		2009			2008
Revenues and other income:
Revenues for operating segments:
Leasing	$	2,254,000	$	2,167,000	$	714,000		$	715,000
Petroleum storage		2,850,000		2,745,000		936,000			951,000

		5,104,000		4,912,000		1,650,000			1,666,000
Interest income		18,000		94,000		—			7,000

Total consolidated revenues and other income	$	5,122,000	$	5,006,000	$	1,650,000		$	1,673,000


Property tax expense:
Property tax expense for operating segments:
Leasing	$	358,000	$	350,000	$	123,000		$	134,000
Petroleum storage		157,000		80,000		53,000			52,000

		515,000		430,000		176,000			186,000
Unallocated corporate property tax expense		1,000		1,000		1,000			1,000

Total consolidated property tax expense	$	516,000	$	431,000	$	177,000		$	187,000


Depreciation:
Depreciation for operating segments:
Leasing					$	11,000		$	18,000
Petroleum storage segment:						161,000			160,000

						172,000			178,000
Unallocated corporate depreciation						1,000			1,000

Total consolidated depreciation					$	173,000		$	179,000


Income before income taxes:
Income before income taxes for operating segments:
Leasing					$	511,000		$	525,000
Petroleum storage						359,000			436,000

						870,000			961,000
Interest income						—			7,000
Unallocated corporate expenses						(259,000	)		(291,000	)

Total consolidated income before income taxes					$	611,000		$	677,000


Assets:
Assets for operating segments:
Leasing					$	6,614,000		$	6,446,000
Petroleum storage						14,298,000			14,559,000

						20,912,000			21,005,000
Corporate cash and cash equivalents						3,193,000			2,172,000
Other unallocated amounts						34,000			40,000

Total consolidated assets					$	24,139,000		$	23,217,000


Additions to properties and equipment:
Assets for operating segments:
Leasing					$	92,000		$	—
Petroleum storage						55,000			9,000

						147,000			9,000
Unallocated corporate additions to properties and equipment						—			5,000

Total consolidated additions					$	147,000		$	14,000

2008 2007
Depreciation:
Depreciation for operating segments:
Leasing $ 33,000 $ —
Petroleum storage 480,000 514,000

513,000 514,000
Unallocated corporate depreciation 4,000 1,000

Total consolidated depreciation $ 517,000 $ 515,000

Income before income taxes:
Income before income taxes for operating segments:
Leasing $ 1,744,000 $ 1,737,000
Petroleum storage 1,224,000 1,126,000

2,968,000 2,863,000
Interest income 18,000 94,000
Unallocated corporate expenses (738,000 ) (931,000 )

Total consolidated income before income taxes $ 2,248,000 $ 2,026,000

Assets:
Assets for operating segments:
Leasing $ 6,474,000 $ 4,114,000
Petroleum storage 14,394,000 14,627,000

20,868,000 18,741,000
Corporate cash and cash equivalents 2,987,000 4,113,000
Other unallocated amounts 198,000 23,000

Total consolidated assets $ 24,053,000 $ 22,877,000

Additions to properties and equipment:
Additions and deletions to operating segments, net:
Leasing $ 33,000 $ —
Petroleum storage 130,000 355,000

163,000 355,000
Unallocated corporate additions to properties and equipment 5,000 15,000

Total consolidated additions $ 168,000 $ 370,000

9.		~~Shareholders’ equity:~~

		In July 2008, the Company’s Board of Directors unanimously approved recommending to shareholders a reverse stock split of 75 to 1 with respect to the Company’s outstanding common stock. Under the terms of the proposed split, shareholders holding less than 75 shares of the Company’s common stock immediately before the reverse split would in lieu of owning fractional shares receive cash consideration of $25 per share and would no longer be shareholders. Conversely, shareholders holding 75 or more shares of the Company’s common stock immediately before the reverse stock split would receive 1 share of the Company’s common stock for each 75 shares held by them together with a cash payment for any fractional shares, and continue to be shareholders of the Company. In addition, the Directors also unanimously approved an amendment to the Company’s Articles of Incorporation to create a Class B common stock which, upon issuance, would, among other things, have the right to elect two-thirds of the Board of Directors. On October 27, 2008, the Company mailed to shareholders a definitive proxy statement notifying shareholders of a special meeting to be held on November 21, 2008 to consider the foregoing Board recommendations. The Board originally anticipated that the reverse stock split would result in the Company having less than 300 shareholders which would permit the Company to suspend the registration of its common stock under the Securities Exchange Act of 1934. As a result of an increase in the number of shareholders following the public announcement of the Board’s recommendations, the Company now believes that the reverse stock split standing by itself will not result in the Company having less than 300 shareholders. Accordingly, the shareholders are being asked to approve the reverse stock split and approve granting to the Board of Directors for a period of ninety (90) days following the approval of reverse stock split, the right to determine whether the reverse stock split should proceed even if it would result in the Company not having less than 300 shareholders. The Company anticipates that the total cost, including the payment for fractional shares, in connection with the reverse stock split should it be completed, will range between $575,000 and $975,000. At September 30, 2008, the Company has incurred costs of $160,000, which are included in prepaid and other on the accompanying consolidated balance sheet at September 30, 2008.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

~~FORWARD-LOOKING~~FORWARD LOOKING STATEMENTS

Certain portions of this report, and particularly the Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the Notes to Consolidated Financial Statements, contain forward-looking statements 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 collectibility of the accrued leasing revenues when due over the terms of the long-term land 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; and exposure to contamination, remediation or similar costs associated with the operation of the petroleum storage ~~facility; and the Company’s reverse stock split.~~facility.


1.		Overview:


		Critical accounting policies:

		The Company believes that its revenue recognition policy for long-term leases with scheduled rent increases (leasing segment) meets the definition of a critical accounting policy which is discussed in the Company’s Form 10-K for the year ended December 31, ~~2007.~~2008. There have been no changes to the application of this accounting policy since December 31, ~~2007.~~2008.

		Segments:

		The Company operates in two segments, leasing and petroleum storage.

		The leasing segment consists of the long-term leasing of certain of its real estate interests in downtown Providence, Rhode Island (upon the commencement of which the tenants are required to construct buildings thereon, with the exception of a parking garage), the leasing of a portion of the Steeple Street Building ~~acquired in November 2007~~ under short-term leasing arrangements 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 parcels for public parking under short-term leasing arrangements.

		The petroleum storage segment consists of operating ~~of petroleum storage terminal (the “Terminal”) and~~ the ~~Wilkesbarre Pier (the “Pier”), collectively referred to as the “Facility,”~~Facility located in East Providence, Rhode Island, for ~~Global Companies, LLC (“Global”) which stores and distributes petroleum products.~~Global.

		The principal difference between the two segments relates to the nature of the operations. The tenants ~~under~~in the ~~long-term land leases~~leasing segment incur substantially all of the development and operating costs of the assets constructed on the Company’s land, including the payment of real property taxes on both the land and any improvements constructed thereon; whereas the Company is responsible for the operating and maintenance expenditures, including a portion of the real property taxes, as well as capital improvements at the Facility.


2.		Results of operations:


		Three months ended ~~September 30, 2008~~March 31, 2009 compared to three months ended ~~September 30, 2007:~~March 31, 2008:

		Leasing segment:


	2008		2007		Difference			2009		2008		Difference
Leasing revenues	$	726,000	$	676,000	$	50,000		$	714,000	$	715,000	$	(1,000	)
Leasing expense		141,000		169,000	$	(28,000	)		203,000		190,000	$	13,000

	$	585,000	$	507,000				$	511,000	$	525,000

		Leasing ~~revenues~~revenue remained at the 2008 level. Leasing expense increased ~~in 2008~~ due to increases in rentals under short-term leases, including rentals from the Steeple Street Building purchased in November 2007. Leasing expense decreased from 2007. The Company had recorded real property tax expense for 2008 based upon the 2007 tax level adjusted for an estimated inflation increaserepairs and maintenance of 3 percent of the tax rate. In September 2008, the Company received the 2008 real property tax bills from the City of Providence which were lower than estimated due to a consolidation of the Steeple Street lots, resulting in a $54,000 decrease from 2007. This decrease was offset by expenses associated with the Steeple Street Building.

		Petroleum storage segment:


	2008		2007		Difference		2009		2008		Difference
Petroleum storage facility revenues	$	948,000	$	860,000	$	88,000	$	936,000	$	951,000	$	(15,000	)
Petroleum storage facility expense		566,000		516,000	$	50,000		577,000		515,000	$	62,000

	$	382,000	$	344,000			$	359,000	$	436,000

		~~Under the terms of its lease, the tenant of the petroleum~~Petroleum storage facility reimburses the Company for certain expenses incurred and recorded by the Company. For the three months ended September 30, 2008, the reimbursable expenses totaled $54,000 and are included in petroleum storage facility expense. The reimbursement of these expenses is recorded in contractual revenues. Exclusive of the $54,000, revenue ~~increased $34,000~~decreased due to no contingent revenue earned in 2009 because of lower throughput offset in part by higher monthly rent resulting from the annual cost-of-living adjustment May 1, ~~2008~~2008. Petroleum storage facility expense increased principally due to legal fees associated with a Wilkesbarre Pier litigation and a litigation against Power Test Realty Partnership in connection with the ~~remaining expenses were approximately at the 2007 level. In 2007,~~environmental incident in 2002 in which the Company ~~did not incur any tenant reimbursable expenses.~~is seeking remediation of the site or, in the alternative, the cost of remediation.

		Due to a decrease in the cost-of-living, there is no rent adjustment under the lease for the petroleum storage facility for the contract year commencing May 1, 2009.

		General:

		For the three months ended ~~September 30, 2008,~~March 31, 2009, general and administrative expense decreased ~~$115,000~~$32,000 from ~~2007 due to a decrease~~2008. In February 2008, the Company paid $28,000 in ~~payroll and related costs due~~listing fees to the ~~non-replacement of a retired employee and lower professional fees.~~American Stock Exchange from which the Company delisted in December 2008.

		Other income, interest:

		Interest income decreased ~~due~~because the Company elected in February 2009 to ~~lower levels of cash available for investment resulting from the cash purchase of the Steeple Street Building and lower interest rates.~~

		~~Nine months ended September 30, 2008 compared to nine months ended September 30, 2007:~~

		~~Leasing segment:~~

		~~General:~~

		For the nine months ended September 30, 2008, general and administrative expense decreased $193,000 from 2007 due to a decrease in payroll and related costs due to the non-replacement of a retired employee.

		~~Other income, interest:~~

		~~Interest income decreased due to lower levels of cash available for investment resulting in part from the cash purchase of the Steeple Street Building and lower interest rates.~~Federal Deposit Insurance Corporation.

3.		Liquidity and capital resources:

		Historically, the Company has had adequate liquidity to fund its operations.

		~~For~~During the ~~nine months ended September 30, 2008,~~first quarter of 2009, the Company’s operating activities produced ~~$1,919,000~~$357,000 of ~~cash, and cash~~cash. Cash and cash equivalents increased by ~~$1,053,000.~~$12,000 for the quarter. The principal utilization of cash during the ~~period~~quarter was for the payment of dividends of ~~$594,000~~$198,000 and the payment ~~for properties and equipment~~ of ~~$272,000,~~income taxes of ~~which $116,000 was for 2007 purchases.~~

		Currently, approximately 46 percent of the Steeple Street Building is rented under short-term arrangements. The Company is evaluating available alternatives for the remaining space, including the possibility of historic renovation.

		~~In management’s opinion, operations will continue to generate sufficient cash to enable the Company to meet its operating expenses, capital expenditures and dividend payments.~~$431,000.

		Cash ~~and cash equivalents~~ and cash commitments:

		At ~~September 30, 2008,~~March 31, 2009, the Company had cash ~~and cash equivalents~~ of ~~$3,027,000. In the fourth quarter of 2008,~~$3,407,000. Effective February 2009, the Company ~~anticipates making an additional $200,000~~maintains all of its cash in ~~improvements at~~a non-interest bearing checking account which is fully insured by the ~~Pier.~~Federal Deposit Insurance Corporation.

		Under the terms of the Company’s long-term land leases, appraisals of the premises are periodically required at various stated intervals to provide the basis for recalculating the annual rent. However, if as a result of such appraisal the annual rent is calculated to be less than the then current rent, the annual rent will remain at the current level.

	•		The first of such scheduled appraisals will commence in the second quarter of 2009 for Parcel 3S to determine what amount, if any, the annual rent will be increased October 1, 2009. The current annual rent is $468,000.

	•		A second appraisal commences later this year for Parcel 8 to determine what amount, if any, the annual rent will be increased February 1, 2010. The current annual rent is $223,000.

		In ~~October 2008,~~the next twelve months, the Company anticipates expending $2,100,000 from available cash for the historic restoration and improvements to the Steeple Street Building. The Company anticipates that the expenditures will qualify for Federal historic tax credits.

		The Company expects that cash generated from current operations will continue to be sufficient to meet operating expenses, ordinary capital expenditures and the current level of dividends.

		In April 2009, the Company declared a quarterly dividend of $198,000 ($~~.06~~.03 per common ~~share).~~share, which is the equivalent of the $.06 per common share paid prior to the stock dividend in December 2008), which dividend will be paid in May 2009. The declaration of future dividends and the amount thereof will depend on the Company’s future earnings, financial factors and other events.

		In July 2008, the Company’s Board of Directors unanimously approved recommending to shareholders a reverse stock split of 75 to 1 with respect to the Company’s outstanding common stock. Under the terms of the proposed split, shareholders holding less than 75 shares of the Company’s common stock immediately before the reverse split would in lieu of owning fractional shares receive cash consideration of $25 per share and would no longer be shareholders. Conversely, shareholders holding 75 or more shares of the Company’s common stock immediately before the reverse stock split would receive 1 share of the Company’s common stock for each 75 shares held by them together with a cash payment for any fractional shares, and continue to be shareholders of the Company. In addition, the Directors also unanimously approved an amendment to the Company’s Articles of Incorporation to create a Class B common stock which, upon issuance, would, among other things, have the right to elect two-thirds of the Board of Directors. On October 27, 2008, the Company mailed to shareholders a definitive proxy statement notifying shareholders of a special meeting to be held on November 21, 2008 to consider the foregoing Board recommendations. The Board originally anticipated that the reverse stock split would result in the Company having less than 300 shareholders which would permit the Company to suspend the registration of its common stock under the Securities Exchange Act of 1934. As a result of an increase in the number of shareholders following the public announcement of the Board’s recommendations, the Company now believes that the reverse stock split standing by itself will not result in the Company having less than 300 shareholders. Accordingly, the shareholders are being asked to approve the reverse stock split and approve granting to the Board of Directors for a period of ninety (90) days following the approval of reverse stock split, the right to determine whether the reverse stock split should proceed even if it would result in the Company not having less than 300 shareholders. The Company anticipates that the total cost, including the payment for fractional shares, in connection with the reverse stock split should it be completed, will range between $575,000 and $975,000.

		The current world-wide financial crisis has had ~~little or no~~some impact on the Company’s results of operations to date. At the request of the short-term parking tenant, the Company had agreed not to increase the rent for the period January 1, 2009 to March 31, 2009. The Company has further agreed to reduce the rent for the balance of 2009. Another tenant under a long-term land lease has requested temporary rent relief for the period of January 1, 2009 to May 31, 2010, which request the Company has granted. These rent reductions are not material. As none of the Company’s leases require the tenant to provide financial information, the Company has no information concerning the impact of the financial crisis on its major ~~tenants.~~tenants and, therefore, cannot predict whether any other tenants will request such relief or concessions.

		Under the Company’s lease with Global, in previous years, the Company has earned contingent revenue based upon petroleum throughput in excess of 4,000,000 barrels in any contract year. In 2008, the contingent revenue earned was $88,000. For the contract year ending April 30, 2009, the Company does not anticipate reaching 4,000,000 barrels of throughput and therefore will not earn any contingent revenue for the current contract year.

		In management’s opinion, the Company should be able to generate adequate amounts of cash to meet all of its anticipated obligations. In the event temporary additional liquidity is required, the Company believes that a line of credit or other arrangements could be obtained by pledging some or all of its unencumbered assets as collateral. ~~However, given the effect on the ability to secure financial resulting from the financial crisis, the Company is unable to determine if such an arrangement would be granted.~~

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Item ~~3. Quantitative and Qualitative Disclosures About Market Securities~~

The Company’s cash and cash equivalent balances are exposed to risk of changes in short-term interest rates. Reductions in short-term interest rates could result in a reduction in interest income; however, the impact on income would not be material in amount.

~~Item~~ 4. Controls and Procedures


		As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. This evaluation was carried out under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and the Company’s principal financial officer. Based upon that evaluation, the principal executive officer and the principal financial officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.

		There was no significant change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to affect, the Company’s internal control over financial reporting. The Company continues to enhance its internal controls over financial reporting, primarily by evaluating and enhancing process and control documentation. Management discusses with and discloses these matters to the Audit Committee of the Board of Directors and the Company’s auditors.

1415

PART II – OTHER INFORMATION

Item 6. Exhibits

(b)

Exhibits:

	3.1		~~Amended~~Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the registrant’s annual report on Form ~~8-K filed~~10-K for the year ended December ~~10, 2001)~~31, 2008).

	3.2		By-laws, as amended (incorporated by reference to Exhibit 3.2 to the registrant’s annual report on Form 10-K for the year ended December 31, 2007).

	10		Material contracts:

	(a)		Lease between Metropark, Ltd. and Company:

	(i)		Dated January 1, 2005 (incorporated by reference to Exhibit 10(a) to the registrant’s annual report on Form 10-KSB for the year ended December 31, 2004), as amended.

	(b)		Miscellaneous contract:

	(i)		Option Agreement to Purchase Real Property and Related Assets, dated June 9, 2003, by and between Dunellen, LLC and Global Companies, LLC (incorporated by reference to Exhibit 10(b)(i) to the registrant’s Report on Form 10-QSB/A for the quarterly period ended June 30, 2003), as amended.

	31.1		Rule 13a-14(a) Certification of President and Principal Executive Officer

	31.2		Rule 13a-14(a) Certification of Treasurer and Principal Financial Officer

	32.1		Certification of President and Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	32.2		Certification of Treasurer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

1516

	8.		Shareholders’ equity:

			In November 2008, the Company restated its Articles of Incorporation:

	•		To create a new class of common stock of the Company to be designated Class B Common Stock consisting of 3,500,000 shares, $.01 par value per share;

	•		To increase the number of authorized shares of Class A Common Stock from 6,000,000 to 10,000,000 shares; and

	•		To provide for certain transfer and ownership restrictions as set forth therein.

		Leasing revenues increased in 2008 principally due to increases in rentals under short-term leases, including rentals from the Steeple Street Building purchased in November 2007. This increase was offset in part by a one time payment of $100,000 in June 2007 in settlement of a former tenant’s premature terminationmaintain all of its ~~lease with the Company,~~cash in a non-interest bearing checking account which ~~amount was included in 2007 leasing revenues. Leasing expense increased principally due to expenses associated with the Steeple Street Building.~~

		~~Petroleum storage segment:~~


		CAPITAL PROPERTIES, INC.

		By		/s/ Robert H. Eder Robert H. Eder
				President and Principal Executive Officer

		By		/s/ Barbara J. Dreyer

				Barbara J. Dreyer
				Treasurer and Principal Financial Officer