(401)435-7171

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒   No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)    Yes  ☒   No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company or an emerging growth company.

Indicate by check mark whether See the registrant is a shell company (as defineddefinitions of the "large accelerated filer," "accelerated filer," "non-accelerated filer," "smaller reporting company" and “emerging growth company” in Rule12b-2 of the Exchange Act).    Yes  ☐    No  ☒Act.

Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B)section 13(a) of the Exchange Act. ☐

Securities Act.  ☐registered pursuant to Section 12 (g) of the Act:

As of September 30, 2017,March 31, 2019, the Company had 6,599,912 shares of Class A Common Stock outstanding.

CAPITAL PROPERTIES, INC.

FORM10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2017MARCH 31, 2019

TABLE OF CONTENTS

2

PARTPART I

CAPITAL PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

See notes to condensed consolidated financial statements.

3

CAPITAL PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND SHAREHOLDERS’ EQUITY

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017MARCH 31, 2019 AND 20162018

(Unaudited)

See notes to condensed consolidated financial statements.

4

CAPITAL PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINETHREE MONTHS ENDED SEPTEMBER 30, 2017MARCH 31, 2019 AND 20162018

(Unaudited)

See notes to condensed consolidated financial statements.

5

CAPITAL PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017MARCH 31, 2019 AND 20162018

(Unaudited)

Capital Properties, Inc. and its wholly-owned subsidiaries,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,February 10, 2017, the Company’s Board of Directors authorized the sale of the Company’sCompany sold its petroleum storage facility and related assets including the Wilkesbarre Pier and petroleum transmission pipelines(the “Terminal”) owned or controlled by the Company’s subsidiaries, Capital Terminal Company and Dunellen, LLC to Sprague Operating Resources, LLC a subsidiary(“Sprague”). The sale of Sprague Resources, LP (collectively referredthe Terminal results in the segment being classified as discontinued operations for all periods presented.  See Note 7 to as “Sprague”) for $23 Million subject to certain adjustments. The Company concluded thatthe consolidated financial statements.  With the sale of the petroleum storage facility metTerminal, the criteria ofBoard determined that there was no longer 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, theneed to maintain Capital Terminal Company and Sprague entered into a definitive purchaseDunellen, LLC, and sale agreement (the “Sale Agreement”). The sale closed on February 10, 2017. See Note 10.at its April 24, 2018 regularly scheduled Board meeting, it voted to liquidate and dissolve these two companies.

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 Terminal, 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 downtown Providence, Rhode Island (upon the commencement of which the tenants have been required to construct buildings thereon, with the exception of the parking garage and Parcel 6C), the leasing of a portion of its building (“Steeple Street Building”) under short-term leasing arrangements through December 1, 2018 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 to Metropark, Ltd.

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

The accompanying condensed consolidated balance sheet as of December 31, 2016,2018 has been derived from audited financial statements and thestatements.  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 GAAPaccounting principles generally accepted in the United States (“GAAP”) 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 consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s latest Form10-K. 10-K for the year ended December 31, 2018. 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, 2017March 31, 2019 and the results of operations for the three and nine months ended September 30, 2017March 31, 2019 and 2016,2018, and cash flows for the ninethree months ended September 30, 2017March 31, 2019 and 2016.2018.

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

Environmental incidents:

The Company accrues a liability when an environmental incident has occurred and the costs are estimable.  The Company does not record a receivable for recoveries from third parties for environmental matters until it has determined that the amount of the collection is reasonably assured.  The accrued liability is relieved when the

Company pays the liability or a third party assumes the liability.  Upon determination that collection is reasonably assured or a third party assumes the liability, the Company records the amount as a reduction of expense.

Cash and cash equivalents:

For purposes of the statements of cash flows, the Company considers all highly liquid deposits purchased with a maturity of three months or less to be cash equivalents.

Retrospective adjustment:

Certain amounts in the consolidated financial statements for 2016 have been retrospectively adjusted as described in Note 10 hereof.

Recent accounting pronouncements:

In November 2015, the FASB issued ASUNo. 2015-17,Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. The new standard eliminates the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, organizations will be required to classify all deferred tax assets and liabilities as noncurrent. The amendments are effective for financial statements issued for annual periods beginning after December 15, 2016 and interim periods within those annual periods. ASU2015-17 will not affect the Company’s balance sheet presentation in future periods because the Company does not present a classified balance sheet. See Note 9 herein.

In February 2016, the FASB issued ASUestablished Topic 842, Leases, by issuing Accounting Standards Update No. 2016-02,Leases (Topic 842),to increase transparency and comparability among organizations by recognizing all lease transactions (with terms in excess of 12 months) on the balance sheet as a lease liability and aright-of-use asset (as defined). The ASU which requires lessors to accountclassify leases as sales-type, direct financing, or operating leases.  Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No, 2018-111, Targeted Improvements.  A lease is a sales-type lease if any one of five criteria are met, each of which indicate that the lease, in effect, transfers control of the underlying asset to the lessee.  If none of the five criteria are met, but two additional criteria are both met, indicating that the lessor has transferred substantially all of the risks and benefits of the underlying asset to the lessee and a third party, the lease is a direct financing lease.  All leases using an approach that is substantially equivalent to existing guidance forare not sales-type leases,or direct financing leases andare operating leases.

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The ASU isnew standard was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with earlier application permitted. Upon adoption, the lessee and lessor will applyCompany on January 1, 2019.  A modified retrospective transition approach was required by applying the new standard retrospectively to all periodsleases existing at the date of initial application.   An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented or retrospectively using a cumulative effect adjustment in the yearas its date of adoption.initial application.  The Company is still assessingadopted the impactnew standard on January 1, 2019 and used the effective date as our date of adoptinginitial application.  Consequently, financial information will not be updated and the ASU but expects that itsdisclosures required under the new standard will not be provided for dates and periods before January 1, 2019.  

The new standard provides a number of practical expedients in transition.  The Company elected the “package of practical expedients”, which permits the Company not to reassess under the new standard prior conclusions about lease identification, lease classification and initial direct costs.  While most of our leases where it is the lessor will continue to be accounted forclassified as operating leases similar to its current accounting.in accordance with the package of practical expedients, leases that commence on or after the effective date of the new standard, and that would be classified as operating leases under prior GAAP, may be classified as a sales-type lease under the new standard.  We do not expect the adoption of the new standard will have a significant impact on our leasing activities.   For additional information on the Company’s leases, see Note 6 herein.5 to the condensed consolidated financial statements.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements.  Estimates also affect the reported amounts of income and expenses during the reporting period.  Actual results could differ from those estimates.

Properties and equipment (exclusive of assets held for sale) consist of the following:

Long-term land leases:

As of September 30, 2017,March 31, 2019, the Company had entered into ten long-term land leases.  The various tenantsSeven of the ten parcels have completed construction of improvements on seven of the parcels.thereon.  On Parcel 6B, construction of a169-unit residential complex commenced in November 2016 and is not yet completed.substantially complete.  Parcel 6C is being used as a construction staging area for the construction on Parcel 6B.

On September 28, 2017, the Company entered into a long termlong-term ground lease of Parcel 20.  Under the terms of the lease tenant possession will not occur until such time as the tenant hastook possession, the Company received all necessary approvals for constructionrents from the existing tenants and paid all expenses with respect to Parcel 20.  On May 4, 2018, the Company and the lessee entered into an Amended and Restated Ground Lease (“Restated Lease”).  The lessee took possession of not less than 100,000 square feet of mixed use improvements. Prior to transfer of possession, no rent is being paid by the tenantParcel 20 on December 1, 2018 and the Company receives all rents fromconveyed title to the existing tenantsbuilding.  In addition to the ground lease rent, for 360 months following December 1, 2018, the lessee will pay acquisition period rent consisting of monthly payments of $7,471 for the first thirty-six months and remains responsiblemonthly payments thereafter of $8,488 plus an amount equal to 1/12^th of the product of (a) 5.5% and the difference between (x) $2,750,000 and (y) the aggregate of the prior monthly payments of $8,488.  The Restated Lease is a triple net lease.

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The Restated Lease for all expenses, including real estate taxes, relatedParcel 20, as it relates specifically to Parcel 20. Following tenant possession, tenantthe Steeple Street Building, was accounted for as a sales-type lease due to the transfer of the Steeple Street Building to the lessee.  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 lessee is obligated not onlyinsufficient to payrecognize 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 forcollected as a deposit liability, which is included in other liabilities, on its condensed consolidated balance sheets and will continue to include the parcel but alsoproperty transferred in properties and equipment until the transaction can be reported as a sale in accordance with GAAP.  The fair value of the property transferred was determined under a present value technique using the rental payments to paybe made under the lease (significant other observable inputs (Level 2) as defined by GAAP).  As the carrying value of the property transferred to the lessee exceeds its fair value, the Company recognized an additional amountimpairment loss of $1,832,000 as of December 31, 2018.  The long-term ground lease of the land on Parcel 20 (exclusive of the Steeple Street Building) is accounted for twenty years to compensateas an operating lease, consistent with the Company for the buildings presently located on the premises.Company’s other long-term ground leases.

Under the nineten 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.  Accordingly, with the exception of Parcel 20 through December 1, 2018, real property taxes payable by thesethe tenants are excluded from leasing revenues and leasing expenses on the accompanying condensed consolidated statements of income.income and retained earnings.  Real property taxes attributable to the Company’s land under these leases totaled $310,000$341,000 and $927,000$308,000 for the three and nine months ended September 30, 2017,March 31, 2019 and $305,0002018.  

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 $27,000 and $910,000, respectively,$29,000 for the three and nine months ended September 30, 2016.March 31, 2019 and 2018.

With respect to the Parcel 6B and 6C, leases, eachthe lessee has the right to terminate its lease at any time during the remaining term of thatthe lease upon thirty days’ notice.  To date, no notice of termination has been received by the Company.  The current annual rent on Parcel 6B andParcels 6C is $195,000$200,000 and $200,000, respectively. The Tenant of Parcel 20 hasannual real estate taxes paid by 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.lessee equals $311,000.

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.  The Lamar lease provides, among other things, for the following:  (1) the base rent will increase annually at the rate of 2.75% for each leased billboard location on June 1 of each year, and (2) in addition to base rent, for each12-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 yearLease Year 30% of the gross revenues from each standard billboard and 20% of the gross revenues from each electronic billboard for such12-month period, reduced by the sum of (a) commissions paid to third parties and (b) base monthly rent for each leased billboard display for each12-month period. For the lease years ended May 31, 2017 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 for the nine months ended September 30, 2017 and 2016. Lease Year.

Other leases:Parking lease:

The Company leases the undeveloped parcels of land in or adjacent to the Capital Center area and, through December 1, 2018 the undeveloped Parcel 20 land, for public parking purposes to Metropark under aten-year ten year lease.    The Company has the right to terminate the lease is cancellable as to the wholeall or any partportion of the property leased premises at any time on thirty days’day’s written notice in order to proceed with development, whether by sale, lease or otherwise.

At September 30, 2017,for the Company has fiveor any new tenant of the Company to develop all or any portion of the leased premises.  The parking lease provides for contingent rentals (based on a fixed percentage of gross revenue in excess of the base rent) which totaled $47,000 and $21,000 for the three months ended March 31, 2019 and 2018, respectively, inclusive of an additional $23,000 in 2019 for contingent rent in excess of the 2018 estimate.  

Parcel 20, Steeple Street:

With the execution of the Parcel 20 lease, effective December 1, 2018, the lessee receives all rental income associated with the Steeple Street building and the Parcel 20 undeveloped land leased to Metropark pending its development.  At March 31, 2018 the Company had four tenants occupying 6849 percent of the Steeple Street Building under short-term leases of five years or less at a currentan annual rental of $169,000. The$95,000 and the Company recognizes the revenue from these leases on a straight-line basis over the terms of the leases. At September 30, 2017 and 2016, there was no excess of straight-line over contractual rentals. The Company also reportsreported as revenue tenant reimbursements for common area costs and real property taxes. The Company’s main office occupies 12 percenttaxes in the amount of the Steeple Street Building and the remainder of the Building is currently being marketed.$9,000 through March 31, 2018.

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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 for continuing operations which give rise to deferred tax assets and liabilities wereare as follows:

On December 20, 2016,February 10, 2017 the Company’s Board of Directors voted to authorizeCompany sold the sale of its East Providence petroleum storage facility and related assets, including the Pier and petroleum transmission pipelines owned or controlled by its wholly-owned subsidiaries, Capital Terminal Company (“CTC”) and Dunellen, LLC (“Dunellen”) (“Petroleum Segment”) to Sprague Operating Resources, LLC for $23 Million (the “Sale Price”), 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 ASC 205-20, 205-20,Presentation of Financial Statements – Discontinued Operations, the Petroleum Segmentsale of the Terminal is accounted for as a discontinued operation. Accordingly, the Petroleum Segment assets and liabilities that were to be sold were recorded as held for sale in 2016.  The liabilities associated with the discontinued operations are separately identified on the Company’s condensed consolidated balance sheets.  These liabilities were not assumed by Sprague and remain obligations of the Company until settled.  The Petroleum Segment discontinued operations areis reported after income from continuing operations.

A reconciliationPursuant to the Sale Agreement, the Sale Price was reduced by $1,040,000, the estimated cost of a breasting dolphin to be constructed by Sprague adjacent to the Pier in order that the Pier can berth Panamax sized vessels; $1,725,000 of the major classesSale Price was placed in escrow to secure the Company’s indemnity obligations under the Sale Agreement and $441,000 in normal closing adjustments, transfer taxes, investment banking and other fees, other than federal and state income taxes.  The net proceeds delivered to the Company amounted to $19.8 Million.  

In accordance with the Sale Agreement, the Company has agreed to retain and pay for the environmental remediation costs associated with a 1994 storage tank fuel oil leak which allowed the escape of assets reported held for sale asa small amount of September 30, 2017fuel oil.  Since 1994, the Company and its consultants have continued to worked with the Rhode Island Department of Environmental Management (“RIDEM”) through the various phases of remediation and are now working to complete the final remediation plan.  At December 31, 2016 is2017 the total accrual for the cost of remediation was $434,000.  In 2018, the Company incurred costs of $111,000 and increased the amount accrued by $56,000 resulting in a remediation liability of $490,000 at December 31, 2018.  Through March 31, 2019, the company incurred costs of $20,000 which reduce the total accrual to $470,000.   Any subsequent increases or decreases to the expected cost of remediation will be recorded as follows:income or expense from discontinued operations.

The Sale Agreement also contains a cost sharing provision for the breasting dolphin whereby any variance from the initial estimate of $1,040,000 will be borne equally by Sprague and the Company subject to certain limitations.  In May 2018 the Company received notice from Sprague that Sprague had received bids for the breasting dolphin and that the cost of the Project was estimated at $1,923,284.  Sprague requested that the Company acknowledge that it was obligated to pay 50% of the cost in excess of $1,040,000, or $441,642. The Company replied that pursuant to the letter agreement between the Company and Sprague (the “Letter Agreement”) the Company’s obligation cannot exceed $104,000 assuming, among other things, that Sprague had been timely in securing bids for the breasting dolphin and the scope of the work as bid was consistent with the Letter Agreement. In April 2019, Sprague notified the Company that the breasting dolphin should be completed by mid-June and that construction change orders to date were within the amount of the contract contingency originally included in the estimate of $1,923,284.  The Company continues to assert that its obligation cannot exceed $104,000.   

In February 2019 and 2018, the Company received 50 percent of the aforementioned escrow in each year or $862,000, which amounts are reported net of income taxes as “Gain on sale of discontinued operations, net of taxes.” Interest income includes $23,000 related to these funds in 2019.

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A reconciliation of the major classes of liabilities associated with the discontinued operations as of September 30, 2017March 31, 2019 and December 31, 20162018 is as follows:

The operating results of the Petroleum Segment, including those related to prior years, have been retrospectively adjusted from continuing operations in the accompanying consolidated statements of income.

Revenue and incomeloss before income taxes attributable to discontinued operations for the three and nine months ended September 30, 2017March 31, 2019 and 20162018 are as follows:

The net gain from sale of discontinued operations as of September 30, 2017,March 31, 2019 and 2018, was calculated as follows:

The Company believes that the fair values of its financial instruments, including cash and cash equivalents, receivables and payables, approximate their respective book values because of their short-term nature.  Upon review of current market conditions and other factors, at December 31, 2016, the Company believed that the fair value of the dividend notes payable approximated their book value. The fair values described herein were determined using significant other observable inputs (Level 2) as defined by GAAP.

On October 25, 2017, the Company’s Treasurer and Chief Financial Officer, announced her retirement effective December 31, 2017. On the same date,At its April 30, 2019 regularly scheduled quarterly Board meeting, the Board of Directors granted hervoted to declare a supplemental retirement benefit of $200,000.

On October 25, 2017, the Board of Directors reinstated a regular quarterly dividend of $.07 per share for shareholders of record on December 15, 2017,May 17, 2019, payable January 3, 2018.May 31, 2019.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations10

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 accrued leasing revenues when due over the terms of the long-term land leases and the early termination of the Parcel 6B and Parcel 6C land leases;lease; 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 theits former operation of the petroleum storage facility.  The Company does not undertake the obligation to update forward-looking statements in response to new information, future events or otherwise.

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 Form10-K for the year ended December 31, 2016.2018.  There have been no changes to the application of this accounting policy since December 31, 2016.2018.

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

Cash and cash commitments:

At September 30, 2017,March 31, 2019, the Company had cash and cash equivalents of $5,498,000.$2,407,000.  The Company and its three subsidiary companies each maintain a checking account in the same bank eachand the Company maintains a checking and money market account in another bank, all of which accounts isare insured by the Federal Deposit Insurance Corporation to a maximum of $250,000.  The Company periodically evaluates the financial stability of the financial institutioninstitutions at which the Company’s funds are held.

UnderThe contractual rent for Parcel 2 was adjusted in May 2018 by a cost of living adjustment as provided in the terms of a long-term land lease on Parcel 7A, the land was appraisedagreement resulting in anmonthly rent increase in annual rent from $122,000 to $170,000. However, the increase was more than 20 percent over the existing rent. Underof $4,000.

In 2019, the terms of the long-term leases with Parcels 6A, 6B, and 6C provides for a cost of living adjustment of not less than 10% effective July 1, 2019 and the lease the annual increase effective Aprilfor Parcel 3S provides for an appraisal adjustment on October 1, 2017 was limited to 20 percent of the existing rent, or $24,400, with the balance of the increase to be effective ratably over four years beginning April 1, 2018.2019.

At September 30,On February 10, 2017, the Company has five tenants occupying 68 percent ofsold the Steeple Street Building under short-term leases (five years or less) at a current annual rental of $169,000. The Company’s main office occupies 12 percent of the Steeple Street BuildingTerminal to Sprague and the remainder of the Building is currently being marketed.

On February 24, 2017, the Company issued a notice of mandatory redemption of the entire remaining outstanding balance of its Dividend Notes. The principal balance plus accrued interest to the date of redemption was $10,764,000. The Company received $19,794,000 from the sale of its petroleum storage business after giving effect to escrows, a credit to Sprague for the cost of constructing a turningbreasting dolphin adjacent to the Pier, and other

customary closing costs.  Pursuant to the Sale Agreement and related documentation, the Company is required, at its expense, to secure an approved remediation plan and to remediate contamination caused by a 1994 leak in a 25,000 barrel storage tank at the Terminal.  See Note 7 to the condensed consolidated financial statements.  At December 31, 2018, the total accrual for the cost of remediation was $490,000.  During 2019, remediation costs of $20,000 were incurred which reduced the total accrual to $470,000.  Any subsequent increases or decreases to the expected cost of remediation will be recorded in the Company’s consolidated income statement as income or expense from discontinued operations.

The Sale Agreement also contains a cost sharing provision for the breasting dolphin whereby any variance from the initial estimate of $1,040,000 will be borne equally by Sprague and the Company subject to certain limitations.  In May 2018 the Company received notice from Sprague that Sprague had received bids for the breasting dolphin and that the cost was estimated at $1,923,284.  Sprague requested that the Company acknowledge that it was obligated to pay 50% of the cost in excess of $1,040,000, or $441,642. The Company estimatesreplied that pursuant to the letter agreement between the Company and Sprague (the “Letter Agreement”), the Company’s obligation cannot exceed $104,000 assuming, among other things, that Sprague had been timely in securing bids for the breasting dolphin and the scope of the work as bid was consistent with the Letter Agreement. In April 2019, Sprague notified the Company that the cash outlay for federalproject should be completed by mid-June and state income taxes arising fromthat construction change orders to date were within the sale will total approximately $6,600,000. Mostamount of the remaining proceeds fromcontract contingency amount originally included in the sale were usedestimate of $1,923,284.  The Company continues to effect the redemption of the Dividend Notes on March 31, 2017.assert that its obligation cannot exceed $104,000.

On October 25, 2017, Barbara Dreyer, the company’s Treasurer and Chief Financial Officer, announced her retirement effective December 31, 2017. On the same date, the Board of Directors granted her a supplemental retirement benefit of $200,000. Also the Board of directors elected Susan Johnson, the Company’s Controller, as the Treasurer and Chief Financial Officer effective on Ms. Dreyer’s retirement.11

On October 25, 2017, the Board of Directors reinstated a regular quarterly dividend of $.07 per share ($462,000) for shareholders of record on December 15, 2017, payable January 3, 2018. The declaration of future dividends and the amount thereof will depend on the Company’s future earnings and financial factors and other events.performance.

Three months ended March 31, 2019 compared to three months ended March 31, 2018:

Revenues increased $18,000Leasing revenues decreased $26,000 over the 2016 level. Operating expenses increased $183,0002018 level due to increases in legal fees in connection with certain tenants and repair and maintenance costs atthe commencement of the Parcel 20 lease effective December 1, 2108 which transferred ownership of the Steeple Street Building to the lessee ($33,000) and a reduction in parking lease revenue associated with the Parcel 20 lease ($12,000) offset by an increase in part bylong-term land rent ($19,000).  Interest income results from earnings on money market funds and, in 2019 includes interest earned on the Sprague escrow funds.  Operating expenses decreased $149,000 due principally to lower legal fees associated with tenant insurance compliance reviews ($52,000) and elimination of operating costs associated with the Steeple Street building as a decrease in depreciation due to certain assets becoming fully depreciated in 2016.result of the Parcel 20 lease ($97,000).

General and administrative expense increased $38,000decreased $40,000 principally due to an additionalreduced payroll and related costs as a result of one less employee and lower than expected healthcare costs associated with moving the Company’s principal office.

For the three months ended September 30, 2016, the interest expense on the Dividend Notes was $132,000.

Revenues($60,000) offset by increased $30,000 over the 2016 level. Operating expenses increased $266,000 due to increases in legal fees in connection with certain tenants, repair and maintenance costs at the Steeple Street Building, and an increase in insurance costs offset in part by a decrease in depreciation due to certain assets becoming fully depreciated in 2016.($9,000), office rent expense ($10,000) and sundry other expenses ($1,000).

General and administrative expense increased $397,000 principally due to bonuses to officers totaling $245,000 and an additional employee, costs associated with moving the Company’s principal office, and an increase in professional fees.12

As required by Rule13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”"Exchange Act"), the Company carried out an evaluation of the effectiveness of the design and operation of the Company’sCompany'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’sCompany's management, including the Company’sCompany's principal executive officer and the Company’sCompany's principal financial officer.  Based upon that evaluation, the principal executive officer and the principal financial officer concluded that the Company’sCompany'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’sCompany's internal control over financial reporting that occurred during the Company’sCompany's most recent fiscal quarter that has materially affected, or is reasonably likely to affect, the Company’sCompany'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’sCompany's auditors.

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PART II – OTHEROTHER INFORMATION

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SIGNATURESIGNATURE

In accordance with the requirements of the Exchange Act, the Issuer caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

DATED: October 27, 2017

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