CAPITAL PROPERTIES INC /RI/ Management’s Report of Financial Condition and Results of Operations (Form 10-Q)


Certain portions of this report, and in particular 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 regarding future events. The Company cautions that such 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 Company’s ability to generate adequate cash; the recoverability of the excess of linear rents over contractual rents when due over the term of long-term leases; default by the tenant under one or more of the leases; the start of additional long-term land leases; changes in economic conditions that could affect the current or future development of the Company’s parcels; the impact of the COVID-19 pandemic on the Company’s economy, parking operations and financial performance; exposure to reclamation costs associated with its former operation of the oil storage facility and the resolution of the Sprague action against the Company in connection with the construction of the dolphin at the terminal jetty. The Company does not undertake to update any forward-looking statements in response to new information, future events or otherwise. 1. Overview:

Critical accounting conventions:

The Company believes that its revenue recognition policy for long-term leases with anticipated rent increases meets the definition of a critical accounting policy which is described in the Company’s Form 10-K for the year ended
December 31, 2021. There has been no change in the application of this accounting policy since December 31, 2021. 2. Liquidity and capital resources:

Historically, the Company had sufficient liquidities to finance its activities.

Cash and cash commitments:

To March 31, 2022the Company had cash and cash equivalents $1,622,000. The Company and its subsidiary each hold checking accounts and a money market account in a bank, all insured by the Federal Deposit Insurance Corporation to a maximum of $250,000. The Company periodically assesses the financial stability of the financial institutions with which the Company’s funds are held.

On October 6, 2021 the tenant of the lease of Parcel 20 received a Notice of Termination of the Lease (“Notice of Termination”) advising that the lease would end on October 18, 2021 unless the non-payment of first quarter property taxes and related penalties and interest have been corrected. Subsequently, it was agreed that, provided the first and second quarter property taxes and related penalties and interest are paid in full by October 31, 2021, the lease would not be terminated. The tenant failed to make the required payments and as a result the lease was terminated. On the date of termination, the annual amount owed by the tenant of plot 20 in respect of land rent and acquisition rent amounted to $195,000 and the annual property taxes paid by the tenant equal $134,000. Upon termination, property taxes became an obligation of the Company. The expected annual cost of running the bell tower street buildingproperty taxes included ($134,000) and depreciation expense ($86,000) approximate $355,000 with tenant refunds estimated at $50,000.

From April 29, 2022, all tenants have paid their monthly rent in accordance with their lease agreements with the exception of Metropark. The coronavirus (COVID-19) pandemic continues to negatively impact Metropark. To March 31, 2022
his total rent arrears is $857,000 and has been fully booked by the Company. The Company does not know when or if Metropark operations will return to normal. Until parking revenue received by Metropark equals or exceeds $70,000 per month, after which Metropark is obligated to resume regular lease payments scheduled under its lease, the Company will continue to recognize Metropark’s revenue on a cash basis.

For the three months ended March 31, 2022 and 2021 rents collected from Metropark equaled $45,000 and $2,000respectively.

The Company does not expect to receive contingent rent from Metropark in 2022.

The terminal’s sales contract and related documentation stipulate that the company is required to obtain an approved remediation plan and address contamination caused by a 1994 leak from a storage tank at the terminal. To
March 31, 2022the accrual to be paid by the Company for the remainder of the cost of the remediation has been
$342,000 whose $71,000 should be


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incurred in the remaining quarters of 2022. Any subsequent increase or decrease in the expected cost of remediation will be recognized in the gain (loss) on sale of discontinued operations, net of tax.

The terminal sale agreement also contained a cost-sharing clause for a Duke of Alba under which all costs incurred in connection with the construction of the Duke of Alba beyond the initial estimate of $1,040,000 would be borne equally by Sprague and the Company subject to certain limitations, including, in the opinion of the Company, a cap of 20% on the increase over the original estimate subject to the agreement of share. In November 2019the Company has received a formal notice from Sprague stating that it is liable $427,000the amount of which represents 50% of the actual costs incurred ($1,894,000) in excess of
$1,040,000. The Company affirms 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, 2021Sprague brought an action against the Company in the
Superior Court of Rhode Island claiming pecuniary damages from $427,000, interest and attorney’s fees. The Company intends to vigorously defend itself against Sprague’s claims.

The declaration of future dividends will depend on future earnings and financial performance. 3. Results of operations:

Three months ended March 31, 2022 compared to three months ended March 31, 2021:

Turnover, leasing on the rise $115,000 from 2021, mainly due to increased inflows from Metropark ($43,000), rent from the rental of the bell tower street building ($78,000) offset by the termination of the lease for plot 20.

Operating expenses increased $89,000 due to expenses related to the day-to-day operations of the bell tower street building.

General and administrative expenses increased $39,000 primarily due to increased legal costs associated with the Sprague’s Dolphins case ($20,000), increase payroll and payroll-related expenses ($32,000) offset by the decrease in other miscellaneous expenses.

For the three months ended March 31, 2022 and 2021, the Company’s effective tax rate is approximately 28% of earnings before income taxes.


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