Capital Properties, Inc. and its wholly-owned subsidiaries,subsidiary, Tri-State Displays, Inc., Capital Terminal Company and Dunellen, LLC (collectively referred to as “the Company”) for many years operated in two segments, leasing and petroleum storage. On December 20, 2016, the Company’s Board of Directors authorized the sale of the Company’s petroleum storage facility and related assets, including the Wilkesbarre Pier and petroleum transmission pipelines owned or controlled by the Company’s subsidiaries, Capital Terminal Company and Dunellen, LLC, to Sprague Operating Resources, LLC, a subsidiary of Sprague Resources, LP (collectively referred to as “Sprague”) for $23 Million subject to certain adjustments. The Company concluded that the sale of the petroleum storage facility met the criteria of a discontinued operation in conformity with United States generally accepted accounting principles (“GAAP”) and therefore the petroleum storage segment is reported as a discontinued operation for all periods presented. On January 24, 2017, the Company and Sprague entered into a definitive purchase and sale agreement (the “Sale Agreement”). The sale closed on February 10, 2017. See Note 10.

The Board’s decision to authorize the sale to Sprague, which had been exclusively leasing the petroleum storage facility and related assets since May 1, 2014, was based on an evaluation of the facility’s economic future as solely a distillate terminal and the significant capital investment and substantial risk related to converting the facility to gasoline in order to increase revenue. The Board concluded that a sale to Sprague was in the best interest of the Company’s shareholders. As a result of the sale of its petroleum storage and related assets, the Company’s operations are limited to leasing its real estate interests.

The Company’s continuing 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)garage), the leasing of a portion of its building (“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 undeveloped parcels (other than Parcel 6C) for public parking to Metropark, Ltd.

CashFair value of financial instruments:

In 2012,March 2021, the Company issued $11,787,000 in principal face amountentered into a financing agreement (“Agreement”) with BankRI that provides for a revolving line-of-credit (“Line”) with a maximum borrowing capacity of 5% dividend notes due December 26, 2022 (the “Dividend Notes”)$2,000,000 through March 2024. The Dividend Notes were unsecured general obligationsAfter June 30, 2023, amounts outstanding under the Agreement bear interest at the rate of the Company.

In June 2016,Secured Overnight Financing Rate ("SOFR") plus the one-month SOFR Spread Adjustment of .11448%, but not less than 3.25% or, at the option of the Company, redeemed 10 percentthe Wall Street Journal Prime Rate. Borrowings under the Line are secured by a First Mortgage on Parcel 5 in the Capital Center District in Providence, Rhode Island (the “Property”). The Line requires the maintenance of a debt service coverage ratio of not less than 1.25 to 1.0 on the face valueProperty and 1.20 to 1.0 for the Company. The Agreement contains other restrictive covenants, including, among others, a $250,000 limitation on the purchase of its outstanding capital stock in any twelve-month period.No advances have been made under the outstanding Dividend Notes ($1,179,000) to noteholdersLine.

On February 24, 2017, following the sale of the Company’s petroleum storage facility and related assets to Sprague on February 10, 2017, the Company issued a notice of mandatory redemption of 100% of the remaining Dividend Notes for a redemption price equal to the outstanding principal face amount of $10,608,000 plus accrued interest of $156,000. The Notes were redeemed on March 31, 2017.

Long-term land leases:

As ofThrough September 30, 2017,2023 the Company had entered into teneight long-term land leases. The various tenantsleases, all of which have completed construction of improvements thereon. The Company’s leases generally have a term of 99 years or more, are triple net and provide for periodic rent adjustments of various types depending on seven of the parcels. On Parcel 6B, construction of a169-unit residential complex commenced in November 2016particular lease, and is not yet completed. Parcel 6C is being used as a construction staging areaotherwise contain terms and conditions normal for the construction on Parcel 6B. On September 28, 2017, the Company entered into a long term ground lease of Parcel 20. such instruments.

Under the terms of the lease, tenant possession will not occur until such time as the tenant 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 and the Company receives all rents from existing tenants and remains responsible for all expenses, including real estate taxes, related to Parcel 20. Following tenant possession, tenant is obligated not only to pay ground rent for the parcel but also to pay the Company an additional amount for twenty years to compensate the Company for the buildings presently located on the premises.

Under the nineeight land leases, the tenants are required tomay negotiate any tax stabilization treaties or other arrangements, appeal any changes in real property assessments, and must pay real property taxes assessed on land and improvements under these arrangements.improvements. Accordingly, real property taxes payable by thesethe tenants are excluded from both leasing revenues and leasing expenses on the accompanying condensed consolidated statements of income. Realincome and shareholders’ equity. For the three and nine months ended September 30, 2023 real property taxes attributable to the Company’s land under these leases totaled $310,000$236,000 and $927,000$708,000, respectively, and were $174,000 and $522,000 for the same periods in 2022.

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 $24,000 and $84,000 for the three and nine months ended September 30, 2017,2023, respectively and $305,000were $21,000 and $910,000, respectively,$63,000 for the three and nine months ended September 30, 2016.same periods in 2022.

With respect to the Parcel 6B and 6C7

Tri-State Displays Inc. leases each lessee has the right to terminate its lease at any time during the remaining term of that lease upon thirty days’ notice. The current annual rent on Parcel 6B and 6C is $195,000 and $200,000, respectively. The Tenant of Parcel 20 has the right to terminate the lease if it does not receive approvals for construction of its proposed improvements. The Company has not received any notice of termination with respect to any of the foregoing leases.

Lamar lease:

The Company, through a wholly-owned subsidiary, 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%2.75% for each leased billboard location on June 1 of each year, and (2) in addition to base rent, for each12-month12-month period commencing each June 1 (each 12-month period a “Lease Year”), Lamar must pay to the Company within thirty days after the close of the lease year 30%Lease Year, 30% of the gross revenues from each standard billboard and 20%20% of the gross revenues from each electronic billboard for such12-month period, Lease Year, reduced by the sum of (a) commissions paid to unrelated third parties and (b) base monthly rent paid to the Company for each leased billboard display for each12-month period. For the lease years ended May 31, 2017location. Leasing revenue includes $189,000 and 2016, the percentage rent totaled $108,000 and $118,000, respectively, which amounts are included in operating revenues on the accompanying consolidated statements of income$235,000 for the nine months ended September 30, 20172023 and 2016.2022, respectively, related to this agreement.

Other leases:Parking lease:

The Company leases the undeveloped parcels of land in or adjacent to the Capital Center area (other than Parcel 6C) and Parcel 20 for public parking purposes to Metropark under aten-year lease. lease (the “Parking Lease”). The Company has the right to terminate the leaseParking Lease is cancellable as to the wholeall or any partportion of the property leased premises at any time on thirty days’days’ written notice in order to proceed with development, whether by sale, lease or otherwise.

At September 30, 2017,for the Company has five tenants occupying 68 percentor any new tenant of the Steeple Street Building under short-term leasesCompany to develop all or any portion of five years or less at a current annual rental of $169,000.the leased premises. The Company recognizes the revenue from these leasesParking Lease provides for contingent rentals (based on a straight-line basis over the termsfixed percentage of the leases. At September 30, 2017 and 2016, there was no excess of straight-line over contractual rentals. The Company also reports asgross revenue tenant reimbursements for common area costs and real property taxes. The Company’s main office occupies 12 percent of the Steeple Street Building and the remainder of the Building is currently being marketed.

Terminal and pier facility:

On February 10, 2017, the Company sold its petroleum storage facility and related assets (the Facility) to Sprague. See Note 10. The Facility had been leased to Sprague under a Petroleum Storage Services Agreement (“the Services Agreement”) since May 1, 2014. The annual base rent under the Services Agreement was $3,500,000, subject to annualcost-of-living adjustments on May 1 of each year. On May 1, 2016, the annual rent increased $39,000. Commencing on April 1, 2016 and each April 1 thereafter during the initial term and any extension term of the Services Agreement, either party during the following thirty days had the right to terminate the Services Agreement as of April 30 of the year next following the year in which notice of termination was given. On April 28, 2016, the Company received notice from Sprague that, effective April 30, 2017, Sprague would terminate the Services Agreement.

Commencing May 1, 2015, Sprague was obligated to reimburse the Company for any real property taxes in excess of $290,000. For the year 2016, therebase rent). There was an increase in the assessment but a decrease in the tax rate, resulting in no additional payment being due from Sprague.

The Company incurred $108,000 in fees in connection with the execution of the Services Agreement, which amounts were being amortized using the straight-line method over the three-yearnon-cancellable portion of the term of the Services Agreement and were included in income (loss) from discontinued operations, net on the accompanying consolidated statements of income contingent rent for the nine months ended September 30, 2017 and the three and nine months ended September 30, 2016. 2023 and 2022.

The move by many companies to a hybrid workplace model (one that mixes in-office and remote work) has resulted in lower demand for parking spaces and continues to have an adverse impact on Metropark’s parking operations. The Company and Metropark continue to operate under the June 30, 2020 revenue sharing agreement that provides 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 March 31, 2017,September 30, 2023 the balancereceivable from Metropark equaled $1,115,000 and was fully written off.reserved. The Company continues to recognize Metropark’s rent on a cash basis and will continue to do so until the resumption of regularly scheduled rental payments under its lease. Included in leasing revenue on the accompanying condensed consolidated statements of income and retained earnings for the three and nine months ended September 30, 2023 are cash collections from Metropark totaling $111,000 and $324,000, respectively, and $71,000 and $187,000 for the same periods in 2022.

Environmental incident (2002):

In 2002, during testing of monitoring wells atHistorically, the Terminal, the Company’s consulting engineer discovered free floating phase product in a groundwater monitoring well located on that portionCompany has made financial statement footnote disclosure of the Terminal purchased in 2000. Laboratory analysis indicated thatexcess of straight-line rentals over contractual payments and its determination of collectability of such excess. To the product was gasoline, which is not a productextent the Company ever stored at the Terminal. The Company commenced an environmental investigation and analysis, the results of which indicatedetermines that, the gasoline did not come from the Terminal. The Company notified the Rhode Island Department of Environmental Management (“RIDEM”). RIDEM subsequently identified Power Test Realty Partnership (“Power Test”), the owner of an adjacent parcel, as a potentially responsible party for the contamination. Getty Properties Corp. is the general partner of Power Test. Power Test challenged that determination and, after an administrative hearing, in October 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. In November 2008, Power Test appealed the decision. In March 2016, the Rhode Island Supreme Court affirmed the RIDEM decision.

In April 2009, the Company sued Power Test and certain other firms with respect to any of its leases, the gasoline discharge. All other parties other than Power Test andexcess of straight-line rentals over contractual payments is not collectible, such excess is not recognized as revenue. Consistent with prior conclusions, the Company were dismissed fromhas determined that, at this time, the proceedings. On September 12, 2016, the Company and Power Test entered into a Tolling Agreement under which the statuteexcess of limitationsstraight-line rentals over contractual payments is tolled to not later than sixty days following the implementation by Power Testprobable of a RIDEM approved remediation plan. On September 19, 2016, the parties dismissed the litigation.

Since January 2003,collection. Accordingly, the Company has not incurred significant costsincluded any part of that amount in connection with thisrevenue. As a matter other than ongoing litigation costs.

8.	Environmental remediation:

In 1994, a leak was discovered in a25,000-barrel storage tank at the Terminal which allowed the escape of a small amountinformation only, as of fuel oil. All required notices were made to 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 thepre-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 2006, the Company had expended $119,000 and has not incurred any significant costs since then. In 2011, RIDEM notified the company to proceed with the next phase of the approval process, notifying the abutters of the proposed remediation system even though RIDEM has not yet 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. In 2014, the Company engaged new consultants to work with RIDEM to develop the next phase of the approval process. The Company and RIDEM are working to complete a remediation plan. Pursuant to the Sale Agreement and related documentation between the Company and Sprague, the Company is required to secure an approved plan to remediate the contamination at its expense. At September 30, 2017,2023 the Company had accrued $436,000 to cover these costs. Any subsequent increase or decrease to the expected costexcess of remediation will be recorded in the Company’s consolidated income statement as income or expense from discontinued operations.straight-line rentals (calculated by excluding variable payments) over contractual payments was $91,900,000.

On December 20, 2016,Prior to February 2017, the Company’s Board of Directors voted to authorize the sale of its East ProvidenceCompany operated a petroleum storage facility and related assets, including(“Terminal”) through two wholly owned subsidiaries. On February 10, 2017, the Pier and petroleum transmission pipelines owned or controlled by its wholly-owned subsidiaries, Capital Terminal Company (“CTC”) and Dunellen, LLC (“Dunellen”) (“Petroleum Segment”)was sold to Sprague Operating Resources, LLC for $23 Million (the “Sale Price”(“Sprague”), subject to certain adjustments. On January 24, 2017, the Company and Sprague entered into the Sale Agreement. The sale closed on February 10, 2017.

Pursuant to the Sale Agreement, the Sale Price was reduced by $1,040,000, the estimated cost of a turning dolphin to be constructed by Sprague in order to provide access to Wilkesbarre Pier for larger vessels; $1,725,000 of the Sale Price was placed in escrow to secure the Company’s indemnity obligations under the Sale Agreement. The Company has elected to report as a gain from sale amounts held in escrow only when, and if, such amounts are released therefrom. In addition, the Company incurred normal closing adjustments, transfer taxes, investment banking and other fees, other than federal and state income taxes, of $441,000.

. In accordance with ASC205-20,Presentation of Financial Statements – Discontinued Operations, the Petroleum Segment issale of the Terminal was accounted for as a discontinued operation. Accordingly,

As part of the Petroleum Segment assetsTerminal Sale Agreement, the Company agreed to retain and liabilities that were to be sold were recorded as heldpay for salethe environmental remediation costs associated with a 1994 storage tank leak which allowed the escape of a small amount of fuel oil. The Company continues the remediation activities set forth in 2016.the Remediation Action Work Plan (“RAWP”) filed with the Rhode Island Department of Environmental Management (“RIDEM”). The liabilitiesestimated future cost associated with the discontinued operations areremediation is $406,000 and is reported 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 are reported after income from continuing operations.

A reconciliation of the major classes of assets reported held for salesheets as of September 30, 2017 and December 31, 2016 is as follows:

A reconciliation of the major classes of liabilitiesliability associated with discontinued operations. Any subsequent increases or decreases to the discontinued operations asexpected cost of September 30, 2017 and December 31, 2016 is as follows:

The operating results of the Petroleum Segment, including those related to prior years, have been retrospectively adjusted from continuing operationsremediation will be recorded in the accompanyingCompany’s condensed consolidated statements of income. Revenue and income before income taxes attributable to discontinued operations for the three and nine months ended September 30, 2017 and 2016 are as follows:

The net gain or loss from sale of discontinued operations asoperations. The Terminal Sale Agreement also contained a cost sharing provision for the breasting dolphin whereby any construction costs incurred more than the contract cost of construction 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 a sharing arrangement. In November 2019, Sprague asserted that it was owed $427,000 and the Company asserted that its obligation under the Agreement cannot 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 30, 2017, was calculated as follows:

2022 and granted in part and denied in part the Company’s Cross Motion for Summary Judgment also filed in September 2022. The Company believesanticipates that the fair valuesmatter will go to trial in the spring of 2024. The Company intends to vigorously defend against the claims being asserted by Sprague.