(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 SecuritiesExchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).   Yes ☐   No ☒ 

As of September 30, 2017,2020, the Company had 6,599,912 shares of Class A Common Stock outstanding.

CAPITAL PROPERTIES, INC.

FORM10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 20172020

TABLE OF CONTENTS

2

PARTPART I

CAPITAL PROPERTIES, INC. AND SUBSIDIARIESSUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

See notes to condensed consolidated financial statements.

3

CAPITAL PROPERTIES, INC. AND SUBSIDIARIESSUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND SHAREHOLDERS’ EQUITY

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 20172020 AND 20162019

(Unaudited)

See notes to condensed consolidated financial statements.

4

CAPITAL PROPERTIES, INC. AND SUBSIDIARIESSUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 20172020 AND 20162019

(Unaudited)

See notes to condensed consolidated financial statements.

5

CAPITAL PROPERTIES, INC. AND SUBSIDIARIESSUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 20172020 AND 20162019

(Unaudited)

The operations of Capital Properties, Inc. and its wholly-owned subsidiaries,subsidiary, Tri-State Displays, Inc., Capital Terminal Company and Dunellen, LLC (collectively referred to as “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), the leasing of a portion of its building (“Steeple Street Building”) under short-term leasing arrangements20) 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 (other than Parcel 6C) for public parking to Metropark, Ltd.

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

The accompanying condensed consolidated balance sheet as of December 31, 2016,2019 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, 2019.

Historically, the Company has made financial statement footnote disclosure of the excess of straight-line rentals over contractual payments and its determination of collectability of such excess. Included in the amount of the excess were payments which under ASC 842 are deemed variable payments. As part of its ongoing review of the requirements of ASC 842, the Company has concluded that under ASC 842 variable rental payments should not be included in the straight-line rental amount.  To the extent the Company determines that the excess of straight-line rentals over contractual payments is not collectible, such excess is not recognized as revenue. Consistent with prior conclusions, the Company has determined that, at this time, the excess of straight-line rentals over contractual payments is not probable of collection.  Accordingly, the Company has not included any part of that amount in revenue. As a matter of information only, as of September 30, 2020 the excess of straight-line rentals (calculated by excluding variable payments) over contractual payments was $79,715,000.

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, 20172020 and the results of operations for the three and nine months ended September 30, 20172020 and 2016,2019, and cash flows for the nine months ended September 30, 20172020 and 2016.2019.

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 ASUNo. 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 requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The ASU is 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 apply the new standard retrospectively to all periods presented or retrospectively using a cumulative effect adjustment in the year of adoption. The Company is still assessing the impact of adopting the ASU but expects that its leases where it is the lessor will be accounted for as operating leases similar to its current accounting. For additional information on the Company’s leases, see Note 6 herein.

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.

6

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

Long-term land leases:

As ofThrough September 30, 2017,2020, excluding the Parcel 6C lease, the Company had entered into tennine long-term land leases.  The various tenantslessee of Parcel 6C had the right to terminate its lease at any time during the remaining term of the lease upon thirty days’ notice.  On July 30, 2020, the Company received notice that the lessee would exercise their right to terminate the ground lease effective August 29, 2020. As of September 30, 2020, eight of the nine parcels under lease (excluding Parcel 20) have completed construction of improvements thereon.  The leases generally have a term of 99 years or more, are triple net, provide for periodic adjustment in rent of various types depending on seventhe particular lease, and otherwise contain terms and conditions normal for such instruments.

With the exception of the parcels. OnMetropark Lease and Parcel 6B, construction20 Lease, all of a169-unit residential complex commencedthe Company’s tenants were current in their lease payment obligations as of November 2016 and is not yet completed.6, 2020.

The Restated Lease for Parcel 6C is being used20 (“Parcel 20 Lease”), as it relates specifically to the Steeple Street Building, was accounted for as a construction staging area forsales-type lease due to the construction on Parcel 6B. On September 28, 2017,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 insufficient to recognize the transaction as a sale, in accordance with ASC 360-20, the Company entered intowill report the acquisition period rent and an allocable portion of the ground rent collected as deferred revenue, which is included in other liabilities on its condensed consolidated balance sheets, and will continue to include the property transferred in properties and equipment until the transaction can be reported as a long termsale in accordance with GAAP.  The long-term ground lease of the land on Parcel 20. Under the terms20 (exclusive of the Steeple Street Building) is accounted for as an operating lease, tenant possession will not occur until such time asconsistent with 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 payCompany’s other long-term 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.leases.

Under the nine 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.income and shareholders’ equity.  Real property taxes attributable to the Company’s land under these leases totaled $310,000$315,000 and $927,000$997,000 for the three and nine months ended September 30, 2017,2020 and $305,000$341,000 and $910,000, respectively,$1,023,000 for the three and nine months ended September 30, 2016.2019.

With respect toUnder two of the Parcel 6Blong-term land leases, the Company receives contingent rentals (based on a fixed percentage of gross revenue received by the tenants) which totaled $18,000 and 6C leases, each lessee has$76,000 for the right to terminate its lease at any time duringthree and nine months ended September 30, 2020 and  $24,000 and $87,000 for the remaining term of that lease upon thirty days’ notice. The currentthree and nine months ended September 30, 2019, respectively.  

On the termination date, the annual rent on Parcel 6B6C was $220,000 and 6C is $195,000 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 equaled $311,000.

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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 the positive difference, if any, between (a) 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 unrelated third parties but in no event more than 15% as to each billboard face; and (b) base monthlylocation rent paid for each leased billboard display for each12-month period. period (“percentage rent”). For the lease years ended May 31, 20172020 and 2016,2019, the percentage rent totaled $108,000$139,000 and $118,000,$133,000, respectively, which amounts are included in operating revenuesleasing revenue on the accompanying condensed consolidated statements of income for the nine months ended September 30, 2017 and 2016.shareholders’ equity.

Other leases:Parking lease:

The Company leases the undeveloped parcels of land in or adjacent to the Capital Center area (other than Parcel 6C) for public parking purposes to Metropark under aten-year lease. lease (the “Parking 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’ 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 inno contingent rent for 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 Agreementthree months ended September 30, 2020 and were included in income (loss) from discontinued operations, net on the accompanying consolidated statements of incomerevenue for the nine months ended September 30, 2017 and2020 includes a $34,000 reduction due to the revision of the estimate of 2019’s contingent rent.  Revenue for the three and nine months ended September 30, 2016. At March2019 includes contingent rent which totaled $24,000 and $95,000, respectively.  

The COVID-19 pandemic and stay-at-home orders have had a significant adverse impact on Metropark’s parking operations.  On July 31, 2017, the balance was fully written off.

Environmental incident (2002):

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. Laboratory analysis indicated that the product was gasoline, which is not a product the Company ever stored at the Terminal. 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 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 the gasoline discharge. All other parties other than Power Test2020, Metropark and the Company were dismissedentered into an agreement for revenue sharing at various percentages until parking revenues received by Metropark equal or exceed $70,000 per month whereupon Metropark would be obligated to resume regularly scheduled rental payments under its lease.  Upon resumption of regularly scheduled rent payments, Metropark and the Company will share fifty (50) percent of the revenue in excess of $70,000 until the arrearage has been paid in full.  If prior to payment in full of the arrearage one or more of the lots is removed from the proceedings. OnMetropark 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.

For the three months ended September 12, 2016,30, 2020, Metropark paid $11,000 towards the Company and Power Test entered intorent due for this period resulting in a Tolling Agreement underreceivable of $227,000 which the statute of limitations is tolled to not later than sixty days following the implementation by Power Test of a RIDEM approved remediation plan. On September 19, 2016, the parties dismissed the litigation.

Since January 2003, the Company has not incurred significant costs in connection with this 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 amount 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.fully reserved.  The Company and its consulting engineers beganwill continue to report as revenue only thepre-design testing amount collected from Metropark until their operations return to approximately 80% 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, the Company had accrued $436,000 to cover these costs. Any subsequent increase or decrease to the expected cost of remediation will be recorded in the Company’s consolidated income statement as income or expense from discontinued operations.pre-pandemic levels.

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:

8

On December 20, 2016,Pursuant to an agreement (the “Sale Agreement”), on February 10, 2017, the Company’s Board of Directors voted to authorize the sale ofCompany sold its East Providence petroleum storage facility and related assets including the Pier and petroleum transmission pipelines(the “Terminal”) owned or controlled by its wholly-ownedthe Company’s former subsidiaries, Capital Terminal Company (“CTC”) and Dunellen, LLC (“Dunellen”) (“Petroleum Segment”) to Sprague Operating Resources, LLC (“Sprague”) 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 SegmentTerminal’s discontinued operations areis reported after income from continuing operations.

A reconciliationIn 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 a small amount of fuel oil.  Since 1994, the major classesCompany and its consultants have continued to work with the Rhode Island Department of assets reported held for sale asEnvironmental Management (“RIDEM”) through the various phases of September 30, 2017remediation and December 31, 2016 is as follows:

A reconciliation ofare now working to complete the major classes of liabilitiesfinal remediation. In February 2020, the Company submitted its revised Remedial Action Work Plan (“RAWP”) to RIDEM and obtained final approval to proceed in April 2020.  Based on remediation cost estimates associated with the revised RAWP submitted in February 2020, which incorporates design changes necessary to meet the requirements of applicable life safety codes, the remediation accrual was increased by $846,000 resulting in an accrual of $1,043,000 at December 31, 2019.  Through September 30, 2020, the Company incurred costs of $187,000 which decreased the amount accrued to $856,000.  The Company anticipates that costs of approximately $480,000 of the amount accrued will be paid in 2021 and beyond.  Any subsequent increases or decreases to the expected cost of remediation will be recorded in gain (loss) on sale of discontinued operations, asnet of September 30, 2017taxes.

Pursuant to the Sale Agreement, at the closing the Company and December 31, 2016 is as follows:

The operating resultsSprague entered into a letter agreement (the “Letter Agreement”) providing that if the cost of construction of a new breasting dolphin exceeded the initial estimate of $1,040,000, such excess would 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 Petroleum Segment, including those relatedconstruction was estimated at $1,923,284.  Sprague requested that the Company acknowledge that it was obligated to prior years, havepay 50% of the cost in excess of $1,040,000, or $441,642. The Company replied that pursuant to the Letter Agreement, the Company’s obligation cannot exceed $104,000 assuming, among other things, that Sprague had been retrospectively adjustedtimely in securing bids for the breasting dolphin and the scope of the work as bid was consistent with the Letter Agreement.  In November 2019, the Company received a demand letter from continuing operationsSprague asserting that Sprague was owed $427,000, which amount according to the letter represents 50% of the actual costs incurred ($1,894,000) in excess of $1,040,000.  The Company continues to assert that its obligation cannot exceed $104,000.   Subsequently, representatives from the accompanying consolidated statementsCompany and Sprague met to discuss the claim but no agreement was reached.

Gain on sale of income. Revenue and income before income taxes attributable to discontinued operations for the three and nine months ended September 30, 20172020 and 20162019 are as follows:

The net gain from sale of discontinued operations as of September 30, 2017, was calculated as follows:

9

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.

OnAt its October 25, 2017, the Company’s Treasurer and Chief Financial Officer, announced her retirement effective December 31, 2017. On the same date,28, 2020 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,November 13, 2020, payable January 3, 2018.November 24, 2020.

Item 2. Management’s DiscussionAs of November 6, 2020, with the exception of the Metropark Lease and AnalysisParcel 20 Lease, all of Financial Conditionthe Company’s tenants are current in terms of required monthly lease payments.  The total rent arrearage at November 6, 2020 is $309,000 and Results of Operations$13,000, respectively, for Metropark and Parcel 20.

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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 terminationleases; tenant default under one or more of the Parcel 6B and Parcel 6C 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; the impact of the COVID-19 pandemic on the economy, parking operations, and the Company’s financial performance; 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, 2016.2019. There have been no changes to the application of this accounting policy since December 31, 2016.2019.

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

Cash and cash commitments:

At September 30, 2017,2020, the Company had cash and cash equivalents of $5,498,000.$2,008,000.  The Company and its three subsidiary companies each maintain a checking and money market account in the same bank, eachtwo banks, 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.

UnderEffective July 1, 2019, the termsParcel 6A, 6B, and 6C leases provided for a cost of a long-term landliving adjustment of not less than 10%, the effect of which was an aggregate monthly rent increase of $6,100.  

On July 30, 2020, the Company received notice that the lessee of Parcel 6C would exercise their right to terminate the ground lease effective August 29, 2020.  On the termination date, the annual rent on Parcel 7A,6C was $220,000 and the land was appraised resulting inannual real estate taxes paid by the lessee equaled $311,000. Upon termination, the real estate taxes became an increase in annual rent from $122,000 to $170,000. However, the increase was more than 20 percent over the existing rent. Under the termsobligation of the Company.  The Company believes that the assessed value of Parcel 6C by the City of Providence (“City”) is much greater than similar parcels in the Capital Center area and accordingly has filed an appeal with the City’s Tax Assessor.    

Through June 30, 2020 all lessees have paid their monthly rent in accordance with their lease agreements except for Metropark.  The coronavirus (COVID-19) pandemic and Rhode Island’s stay-at-home order has had a significant adverse impact on Metropark, the annual increase effectivelessee that operates public parking on the Company’s undeveloped parcels.  In mid-March, Metropark closed their lots as there were few parking customers given the stay-at-home order.   The Company does not know when or if Metropark’s operations will return to normal.  Metropark has not fully paid the rent for April 1, 2017 was limitedthrough September. The total rent arrearage as of September 30, 2020 is $227,000 and has been fully reserved by the Company. On July 31, 2020, Metropark and the Company entered into an agreement for revenue sharing at various percentages until parking revenues received by Metropark equal or exceed $70,000 per month whereupon Metropark would be obligated to 20resume 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 existing rent, or $24,400, withrevenue in excess of $70,000 until the balancearrearage has been paid in full.  If prior to payment in full of the increasearrearage 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 effective ratably over four years beginning April 1, 2018.deemed paid in full.  See Note 9 to the Condensed Consolidated Financial Statements.  Pending this recovery, the Company will continue to recognize Metropark’s rent on a cash basis.      

At September 30,11

The Company expects that revenue from contingent rent in 2020 will materially decline for both Metropark and Lamar.

Pursuant to an agreement, (the “Sale Agreement”), on February 10, 2017, the Company has five tenants occupying 68 percent of 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 Building 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 ofsold 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 turning dolphin adjacent to the Pier, and other

customary closing costs. The Company estimates that the cash outlay for federal and state income taxes arising from the sale will total approximately $6,600,000. Most of the remaining proceeds from the sale were used to effect the redemption of the Dividend Notes on March 31, 2017.

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.

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, financial factors and other events.

Revenues increased $18,000 over the 2016 level. Operating expenses increased $183,000 due to increases in legal fees in connection with certain tenants and repair and maintenance costs at the Steeple Street Building, offset in part by a decrease in depreciation due to certain assets becoming fully depreciated in 2016.

General and administrative expense increased $38,000 principally due to an additional employee and 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 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.

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.

For the nine months ended September 30, 2017 and 2016, the interest expense on the Dividend Notes was $112,000 and $445,000, respectively.

For information relating to the sale of the petroleum storage facility and related assets to Sprague see Note 10Operating Resources, LLC (“Sprague”).  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 a small amount of fuel oil.  Since 1994, the Company and its consultants have continued to work with the Rhode Island Department of Environmental Management (“RIDEM”) through the various phases of remediation and are now working to complete the final remediation. In February 2020, the Company submitted its revised Remedial Action Work Plan (“RAWP”) to RIDEM and obtained final approval to proceed in April 2020.  Based on remediation cost estimates associated with the Notesrevised RAWP submitted in February 2020, which incorporates design changes necessary to Consolidated Financial Statements.meet the requirements of applicable life safety codes, the remediation accrual was increased by $846,000 resulting in an accrual of $1,043,000 at December 31, 2019.  Through September 30, 2020, the Company incurred costs of $187,000 which decreased the amount accrued to $856,000.  The Company anticipates that costs of approximately $480,000 of the amount accrued will be paid in 2021 and beyond.  Any further expenses andsubsequent increases or decreases to the expected cost of remediation will be recorded in gain (loss) on sale of discontinued operations, net of taxes.

Pursuant to the Sale Agreement, at the closing the Company and Sprague entered into a letter agreement (the “Letter Agreement”) providing if the cost of construction of a new breasting dolphin exceeded the initial estimate of $1,040,000, such excess would 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 construction 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, 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 November 2019, the Company received a demand letter from Sprague asserting that Sprague was owed $427,000, which amount according to the letter represents 50% of the actual costs incurred ($1,894,000) in excess of $1,040,000.  The Company continues to assert that its obligation cannot exceed $104,000.   Subsequently, representatives from the Company and Sprague met to discuss the claim but no agreement was reached.

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

Three months ended September 30, 2020 compared to three months ended September 30, 2019:

Leasing revenues decreased $86,000 from 2019 due principally to the reduction in retained liabilities relatingparking lease payments ($145,000), the termination of the lease of Parcel 6C effective August 29, 2020 ($18,000) offset by a contingent rent adjustment of $77,000 for Lamar in 2019.  Interest income decreased $6,000 due to lower interest rates.  

Operating expenses increased $29,000 due principally to property taxes and legal costs associated with the termination of Parcel 6C’s lease effective August 29, 2020.

General and administrative expense decreased $7,000 due to a decline in various operating expenses ($20,000) offset by an increase in payroll and payroll related costs ($13,000).

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019:

Leasing revenue decreased $331,000 from 2019 due to the petroleum storage facilitydecline in revenue from Metropark ($345,000) and long-term land leases ($11,000) offset by an increase in revenue from Lamar ($25,000). Interest income declined by $40,000 due to lower interest rates and the receipt of interest earned on the Sprague escrow account in 2019.

Operating expenses increased $12,000 due principally to property taxes and legal costs associated with the termination of Parcel 6C’s lease effective August 29, 2020 ($29,000) offset by lower legal fees associated with tenant insurance compliance reviews ($10,000) and other net decreases of ($7,000).

General and administrative expenses increased $40,000 due principally to increased professional fees ($42,000) related assets will be recognized within discontinued operations.

Item 4. Controls and Procedures12

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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SIGNATURESIGNATURES

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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