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Capital Properties Inc./RI – ‘10-Q’ for 6/30/22

On:  Wednesday, 8/3/22, at 4:16pm ET   ·   For:  6/30/22   ·   Accession #:  1564590-22-27767   ·   File #:  1-08499

Previous ‘10-Q’:  ‘10-Q’ on 4/29/22 for 3/31/22   ·   Next:  ‘10-Q’ on 10/28/22 for 9/30/22   ·   Latest:  ‘10-Q’ on 10/27/23 for 9/30/23   ·   3 References:   To:  Capital Properties Inc./RI – ‘10-K’ on 3/19/18 for 12/31/17 To:  Capital Properties Inc./RI – ‘8-K’ on / for 10/25/17 To:  Capital Properties Inc./RI – ‘8-K’ on 4/24/13 for 4/23/13 

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 8/03/22  Capital Properties Inc./RI        10-Q        6/30/22   44:3M                                     ActiveDisclosure/FA

Document/Exhibit                   Description                      Pages   Size 

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15: R3          Condensed Consolidated Balance Sheets               HTML     23K 
                (Parenthetical)                                                  
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                Shareholders' Equity                                             
17: R5          Condensed Consolidated Statements of Income and     HTML     21K 
                Shareholders' Equity (Parenthetical)                             
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21: R9          Properties and equipment                            HTML     52K 
22: R10         Liabilities, other                                  HTML     37K 
23: R11         Notes Payable                                       HTML     22K 
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM  i 10-Q

For the quarterly period ended  i June 30,  i 2022 / 

OR 

For the transition period from                    to                  

Commission File Number  i 001-08499

 i CAPITAL PROPERTIES, INC.

(Exact name of registrant as specified in its charter)

( i 401)  i 435-7171

(Registrant’s telephone number, including area code)

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

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.    i Yes  ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.)    i Yes   ☒    No ☐

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

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 13(a) of the Exchange Act.   i ☐

Indicate by check mark whether the registrant has filed a report on and attestation to it management’s assessment of the effectiveness of its internal control over financial reporting under Section 404 (b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued it audit report.   ☐

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

As of June 30, 2022, the Company had  i 6,599,912 shares of Class A Common Stock outstanding.

CAPITAL PROPERTIES, INC.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2022

TABLE OF CONTENTS

2

PART I

CAPITAL PROPERTIES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

See notes to condensed consolidated financial statements.

3

CAPITAL PROPERTIES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND SHAREHOLDERS’ EQUITY

THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(Unaudited)

See notes to condensed consolidated financial statements.

4

CAPITAL PROPERTIES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(Unaudited)

See notes to condensed consolidated financial statements.

5

CAPITAL PROPERTIES, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(Unaudited)

6

7

equity.  With the termination of the Parcel 20 lease, the Company became obligated for the real property taxes which currently total $ i 134,000 annually and the operating expense associated with its operation.

Under the  i eight land leases, the tenants may negotiate 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, real property taxes payable by the tenants are excluded from both leasing revenues and leasing expenses on the accompanying condensed consolidated statements of income and shareholders’ equity.  For the three months ended June 30, 2022, real property taxes attributable to the Company’s land leases totaled $ i 174,000 and $ i 384,000, respectively and were $ i 227,000 and $ i 454,000 for the same period in 2021.

Under  i 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 $ i  i  i  i 21,000 /  /  /  for each of the three and six months ended June 30, 2022 and 2021.

Tri-State Displays Inc. leases  i 23 outdoor advertising locations containing  i 44 billboard faces along interstate and primary highways in Rhode Island and Massachusetts to Lamar under a lease which expires in  i 2049.  The Lamar lease provides, among other things, for the following:  (1) the base rent will increase annually at the rate of  i 2.75% for each leased billboard location on June 1 of each year, and (2) in addition to base rent, for each  i 12-month period commencing each June 1 (each 12-month period a “Lease Year”), Lamar must pay to the Company within  i thirty days after the close of the Lease Year,  i 30% of the gross revenues from each standard billboard and  i 20% of the gross revenues from each electronic billboard for such Lease Year, reduced by the sum of (a) commissions paid to unrelated third parties and (b) base rent paid to the Company for each leased billboard location.  Leasing revenue includes $ i  i 235,000 /  and $ i  i 136,000 /  for both the three and six months ended June 30, 2022 and 2021, respectively, related to this agreement.

Parking lease:

The Company leases the undeveloped parcels of land in the Capital Center area (other than Parcel 6C) and, effective November 1, 2021 as a result of the lease termination, Parcel 20 for public parking purposes to Metropark under a ten-year lease (the “Parking Lease”).  The Parking Lease is cancellable as to all or any portion of the leased premises at any time on  i thirty days’ written notice in order for the Company or 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).   There was  i  i  i  i no /  /  /  contingent rent for the three and six months ended June 30, 2022 and 2021.  

The COVID-19 pandemic and the post-pandemic return to the office continues to adversely impact Metropark’s parking operations. 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 $ i 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 ( i 50) percent of the revenue in excess of $ i 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 June 30, 2022 the receivable from Metropark equaled $ i 922,000 and was fully 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. For the three and six months ended June 30, 2022, cash collections totaled $ i 71,000 and $ i 116,000, respectively and were $ i 21,000 and $ i 23,000 for the same periods in 2021 and is included in leasing revenue on the accompanying condensed consolidated statements of income and retained earnings.

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, with respect to any of its leases, 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 June 30, 2022 the excess of straight-line rentals (calculated by excluding variable payments) over contractual payments was $ i 87,746,000.

8

9

FORWARD LOOKING STATEMENTS

Certain portions of this report, and particularly the Management’s Discussion and Analysis of Financial Condition and Results of Operations, contain forward-looking statements within the meaning of Sections 27A of the Securities Act of 1933, as amended, and Sections 21E of the Securities Exchange Act of 1934, as amended, which represent the Company’s expectations or beliefs concerning future events.  The Company cautions that these statements are further qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements, including, without limitation, the following:  the ability of the Company to generate adequate amounts of cash; the collectability of the excess of straight-line over contractual rents when due over the terms of the long-term leases; tenant default under one or more of the 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; exposure to remediation costs associated with its former operation of the petroleum storage facility and resolution of the Sprague action against the Company in connection with the construction of the breasting dolphin at the Terminal’s Pier.  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 meets the definition of a critical accounting policy which is discussed in the Company’s Form 10-K for the year ended December 31, 2021. There have been no changes to the application of this accounting policy since December 31, 2021.

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

Cash and cash commitments:

At June 30, 2022, the Company had cash and cash equivalents of $1,761,000.  The Company and its subsidiary each maintain checking accounts and a money market account in one bank, all of which are insured by the Federal Deposit Insurance Corporation to a maximum of $250,000.  The Company periodically evaluates the financial stability of the financial institutions at which the Company’s funds are held.

Upon termination of the Parcel 20 lease effective October 31, 2021, the annual real estate taxes previously paid by the tenant of $134,000 became an obligation of the Company and the Company no longer collects the annual ground and acquisition period rent of $195,000.  Annual leasing revenue to be derived from the operation of the Steeple Street Building and adjacent parking in 2022 is expected to approximate $275,000 with estimated annual operating expenses of $269,000, exclusive of depreciation expense.  The Company has engaged an experienced commercial realtor to market the available space (60%) within the Steeple Street Building.  The Company continues to maintain its corporate office in the Steeple Street Building.

The City of Providence (“City”) conducted a City-wide property revaluation for 2022.  This revaluation increased the assessed value of the Company’s parcels that are available for lease by 26.5%, resulting in an annual property tax increase of $139,000 that will be borne entirely by the Company.  The Company continues to evaluate whether it will appeal the City’s 2022 assessed values.  

As of August 3, 2022, all tenants have paid their monthly rent in accordance with their lease agreements except for Metropark.  The coronavirus (COVID-19) pandemic and the post-pandemic return to the office continues to have an adverse impact on Metropark.   At June 30, 2022 its total rent arrearage is $922,000 and has been fully reserved. The Company does not know when or if Metropark’s operations will return to normal.  Until parking revenues received by Metropark equal or exceed $70,000 per month, whereupon Metropark is obligated to resume regularly scheduled rental payments under its lease, the Company will continue to recognize revenue from Metropark on a cash basis.  

For the three and six months ended June 30, 2022, cash collections totaled $71,000 and $116,000, respectively and were $21,000 and $23,000 for the same periods in 2021.

10

The Terminal Sale Agreement and related documentation provides that the Company is required to secure an approved remediation plan and to remediate contamination caused by a leak in 1994 from a storage tank at the Terminal. At June 30, 2022, the Company’s accrual for the remaining cost of remediation was $298,000 of which $11,000 is expected to be incurred in the remaining quarters of 2022.  Any subsequent increases or decreases to the expected cost of remediation will be recorded in gain (loss) on sale of discontinued operations, net of taxes.

The Terminal Sale Agreement also contained a cost sharing provision for a breasting dolphin whereby any costs incurred in connection with the construction of the breasting dolphin in excess of the initial estimate of $1,040,000 would be borne equally by Sprague and the Company subject to certain limitations, including, in the Company’s opinion, a 20% cap on the increase from the initial estimate subject to the sharing arrangement.  In November 2019, the Company received a demand letter from Sprague asserting that it is owed $427,000, which amount represents 50% of the actual costs incurred ($1,894,000) in excess of $1,040,000.  The Company asserts that its obligation cannot exceed $104,000. On June 17, 2021 the Company and Sprague met with a mediator to review Sprague’s claim. On July 15, 2021, Sprague commenced an action against the Company in the Rhode Island Superior Court seeking monetary damages of $427,000, interest and attorney’s fees.  The Company intends to vigorously defend against the claims being asserted by Sprague.

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

Three months ended June 30, 2022 compared to three months ended June 30, 2021:

Leasing revenue increased $236,000 from 2021, due principally to increased cash collections from Metropark ($50,000), rent from the leasing of the Steeple Street building and adjacent parking lot ($69,000), and from scheduled rent increases and contingent rent from Lamar ($108,000).

Operating expenses increased $123,000 due principally to increased property taxes as a result of the City’s revaluation ($54,000) and expenses associated with the ongoing operations of the Steeple Street building ($68,000).  

General and administrative expense decreased $27,000 due principally to lower payroll related costs ($9,000), elimination of rental expense due to the termination of the Parcel 20 lease ($7,000) and decreases in other various expenses.

For the three months ended June 30, 2022 and 2021, the Company’s effective income tax rate is approximately 28% of income before income taxes.

Six months ended June 30, 2022 compared to six months ended June 30, 2021:

Leasing revenue increased $351,000 from 2021, due principally to increased cash collections from Metropark ($93,000), rent from the leasing of the Steeple Street building and adjacent parking lot ($147,000), and scheduled rent increases and contingent rent from Lamar ($114,000).

Operating expenses increased $212,000 due to increased property taxes as a result of the City’s revaluation ($54,000) and expenses associated with the ongoing operations of the Steeple Street building ($156,000).  

General and administrative expense increased $11,000 due principally to greater payroll related costs ($23,000) and professional fees ($18,000), offset by reductions due to the elimination of rental expense as a result of the termination of the Parcel 20 lease ($14,000) and decreases in other various expenses.

For the six months ended June 30, 2022 and 2021, the Company’s effective income tax rate is approximately 27% of income before income taxes.  

11

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

There was no significant change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to affect, the Company's internal control over financial reporting.  

12

PART II – OTHER INFORMATION

13

SIGNATURES

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: August 3, 2022

14

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Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-Q’ Filing		Date		Other Filings
		8/26/22
		8/12/22
Filed on:		8/3/22
		7/27/22
For Period end:		6/30/22
		12/31/21		10-K
		11/1/21
		10/31/21
		10/18/21
		10/6/21
		9/30/21		10-Q
		7/15/21
		6/30/21		10-Q
		6/17/21
		7/31/20
		2/10/17		8-K
				List all Filings

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3 Previous Filings that this Filing References

As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 3/19/18 Capital Properties Inc./RI 10-K 12/31/17 55:3.4M Donnelley … Solutions/FA 10/25/17 Capital Properties Inc./RI 8-K:5,8,9 10/25/17 2:51K Hinckley Allen & Sn… LLP 4/24/13 Capital Properties Inc./RI 8-K:5,9 4/23/13 2:120K Hinckley Allen & Sn… LLP

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Filing Submission 0001564590-22-027767   –   Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

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