Results
Capital Properties Inc.
11/01/2024 | Press release | Distributed by Public on 11/01/2024 13:01
Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)
10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2024
OR
|
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-08499
CAPITAL PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
|
Rhode Island |
05-0386287 |
|
|
(State or other jurisdiction of |
(IRS Employer |
|
|
incorporation or organization) |
identification No.) |
|
5 Steeple Street, Unit 303 |
||
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Providence, Rhode Island |
02903 |
|
|
(Address of principal executive offices) |
(Zip Code) |
(401) 435-7171
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (g) of the Act:
|
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
|
Class A Common Stock, $.01 par value |
CPTP |
OTCQX |
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 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.) 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.
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Large Accelerated Filer |
☐ |
Accelerated Filer |
☐ |
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Non-Accelerated Filer |
☐ |
Smaller reporting company |
☒ |
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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 13(a) of the Exchange 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, 2024, the Company had 6,599,912shares of Class A Common Stock outstanding.
CAPITAL PROPERTIES, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2024
TABLE OF CONTENTS
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Page |
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PART I - FINANCIAL INFORMATION |
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Item 1. |
Financial Statements |
3 |
|
Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
11 |
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Item 4. |
Controls and Procedures |
13 |
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PART II - OTHER INFORMATION |
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Item 6. |
Exhibits |
14 |
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Signatures |
15 |
2
PART I
Item 1. Financial Statements
CAPITAL PROPERTIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
|
September 30, 2024 (Unaudited) |
December 31, |
|||||||
|
ASSETS |
||||||||
|
Properties and equipment (net of accumulated depreciation) (Note 4) |
$ |
6,434,000 |
$ |
6,498,000 |
||||
|
Cash and cash equivalents |
973,000 |
652,000 |
||||||
|
Investments |
1,294,000 |
1,244,000 |
||||||
|
Prepaid and other |
274,000 |
387,000 |
||||||
|
Prepaid income taxes |
- |
57,000 |
||||||
|
Deferred income taxes, discontinued operations |
99,000 |
109,000 |
||||||
|
$ |
9,074,000 |
$ |
8,947,000 |
|||||
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||||
|
Liabilities: |
||||||||
|
Property taxes |
$ |
340,000 |
$ |
340,000 |
||||
|
Other |
480,000 |
330,000 |
||||||
|
Income tax payable |
31,000 |
- |
||||||
|
Deferred income taxes, net |
215,000 |
284,000 |
||||||
|
Environmental remediation accrual, discontinued operations (Note 9) |
365,000 |
402,000 |
||||||
|
1,431,000 |
1,356,000 |
|||||||
|
Shareholders' equity: |
||||||||
|
Class A common stock, $.01par; authorized 10,000,000shares; issued and |
66,000 |
66,000 |
||||||
|
Capital in excess of par |
782,000 |
782,000 |
||||||
|
Retained earnings |
6,795,000 |
6,743,000 |
||||||
|
7,643,000 |
7,591,000 |
|||||||
|
$ |
9,074,000 |
$ |
8,947,000 |
|||||
|
See notes to condensed consolidated financial statements. |
3
CAPITAL PROPERTIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND SHAREHOLDERS' EQUITY
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
|
Three Months Ended |
Nine Months Ended |
||||||||||||||
|
2024 |
2023 |
2024 |
2023 |
||||||||||||
|
Revenue |
$ |
1,372,000 |
$ |
1,313,000 |
$ |
4,208,000 |
$ |
4,056,000 |
|||||||
|
Expenses: |
|||||||||||||||
|
Operating |
259,000 |
227,000 |
745,000 |
659,000 |
|||||||||||
|
General and administrative |
357,000 |
332,000 |
1,050,000 |
1,007,000 |
|||||||||||
|
616,000 |
559,000 |
1,795,000 |
1,666,000 |
||||||||||||
|
Income from continuing operations before income taxes |
756,000 |
754,000 |
2,413,000 |
2,390,000 |
|||||||||||
|
Income tax expense (benefit): |
|||||||||||||||
|
Current |
236,000 |
218,000 |
730,000 |
732,000 |
|||||||||||
|
Deferred |
(27,000 |
) |
- |
(69,000 |
) |
(70,000 |
) |
||||||||
|
209,000 |
218,000 |
661,000 |
662,000 |
||||||||||||
|
Income from continuing operations |
547,000 |
536,000 |
1,752,000 |
1,728,000 |
|||||||||||
|
Loss on sale of discontinued operations, net of tax (Note 9) |
(25,000 |
) |
(2,000 |
) |
(314,000 |
) |
(22,000 |
) |
|||||||
|
Net income |
522,000 |
534,000 |
1,438,000 |
1,706,000 |
|||||||||||
|
Retained earnings, beginning |
6,735,000 |
6,512,000 |
6,743,000 |
6,264,000 |
|||||||||||
|
Dividends on common stock based on 6,599,912shares outstanding |
(462,000 |
) |
(462,000 |
) |
(1,386,000 |
) |
(1,386,000 |
) |
|||||||
|
Retained earnings, ending |
6,795,000 |
6,584,000 |
6,795,000 |
6,584,000 |
|||||||||||
|
Class A common stock |
66,000 |
66,000 |
66,000 |
66,000 |
|||||||||||
|
Capital in excess of par |
782,000 |
782,000 |
782,000 |
782,000 |
|||||||||||
|
Shareholders' equity, ending |
$ |
7,643,000 |
$ |
7,432,000 |
$ |
7,643,000 |
$ |
7,432,000 |
|||||||
|
Basic income (loss) per common share based upon 6,599,912shares |
|||||||||||||||
|
Continuing operations |
$ |
0.08 |
$ |
0.08 |
$ |
0.27 |
$ |
0.26 |
|||||||
|
Discontinued operations |
(0.00 |
) |
(0.00 |
) |
(0.05 |
) |
(0.00 |
) |
|||||||
|
Total basic income per common share |
$ |
0.08 |
$ |
0.08 |
$ |
0.22 |
$ |
0.26 |
|||||||
|
See notes to condensed consolidated financial statements. |
4
CAPITAL PROPERTIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
|
Nine Months Ended |
||||||||
|
2024 |
2023 |
|||||||
|
Cash flows from operating activities: |
||||||||
|
Continuing operations: |
||||||||
|
Income from continuing operations |
$ |
1,752,000 |
$ |
1,728,000 |
||||
|
Adjustments to reconcile income from continuing operations to net |
||||||||
|
Depreciation |
64,000 |
64,000 |
||||||
|
Deferred income taxes |
(69,000 |
) |
(70,000 |
) |
||||
|
Changes in assets and liabilities: |
||||||||
|
Income taxes |
88,000 |
129,000 |
||||||
|
Other, net changes in prepaids, property tax payable and other |
263,000 |
208,000 |
||||||
|
Net cash provided by operating activities, continuing operations |
2,098,000 |
2,059,000 |
||||||
|
Cash flows from investing activities: |
||||||||
|
Investments: |
||||||||
|
Purchase |
(1,294,000 |
) |
(1,000,000 |
) |
||||
|
Maturity |
1,244,000 |
1,000,000 |
||||||
|
Net cash used in investing activities, continuing operations |
(50,000 |
) |
- |
|||||
|
Discontinued operations, cash used to settle obligations |
(341,000 |
) |
(22,000 |
) |
||||
|
Net cash used in investing activities |
(391,000 |
) |
(22,000 |
) |
||||
|
Cash flows used in financing activities, payment of dividends |
(1,386,000 |
) |
(1,386,000 |
) |
||||
|
Increase in cash and cash equivalents |
321,000 |
651,000 |
||||||
|
Cash and cash equivalents, beginning |
652,000 |
1,476,000 |
||||||
|
Cash and cash equivalents, ending |
$ |
973,000 |
$ |
2,127,000 |
||||
|
Supplemental disclosures: |
||||||||
|
Cash paid for income taxes |
$ |
515,000 |
$ |
595,000 |
||||
|
See notes to condensed consolidated financial statements. |
5
CAPITAL PROPERTIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
1.
Description of business:
The operations of Capital Properties, Inc. and its wholly-owned subsidiary, Tri-State Displays, Inc. (collectively "the Company") 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 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 the Capital Center area will consist primarily of long-term ground leases. Pending this development, the Company leases these undeveloped parcels (other than Parcel 6C) for public parking to Metropark, Ltd.
2.
Basis of presentation and summary of significant accounting policies:
Principles of consolidation:
The accompanying condensed consolidated financial statements include the accounts and transactions of the Company. All significant intercompany accounts and transactions have been eliminated in consolidation.
The accompanying condensed consolidated balance sheet as of December 31, 2023 has been derived from audited financial statements. 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 accounting 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 Form 10-K for the year ended December 31, 2023.
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, 2024 and the results of operations for the three and nine months ended September 30, 2024 and 2023, and cash flows for the nine months ended September 30, 2024 and 2023.
The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.
Use of estimates:
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 financial statements. Estimates also affect the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
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.
Fair value of financial instruments:
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. The fair values described herein were determined using quoted prices in an active market (Level 1) and significant other observable inputs (Level 2) as defined by GAAP.
3.
Investments:
At September 30, 2024 Investments consist of U.S. Treasury securities that yield 4.86% and mature in March 2025. The Company classifies its U. S. Treasury securities as held-to-maturity in accordance with ASC 320 "Investments - Debt and Equity Securities". Held-to-maturity securities are those securities which the Company has the ability and intent to hold until maturity. Held-to-maturity treasury securities are recorded at amortized cost on the accompanying consolidated balance sheet and adjusted for the amortization or accretion of premiums or discounts.
6
4.
Properties and equipment:
Properties and equipment consist of the following:
|
September 30, |
December 31, |
||||||||
|
Land and land improvements on lease or held for lease |
$ |
4,439,000 |
$ |
4,439,000 |
|||||
|
Building and improvements, Steeple Street (Note 7) |
2,582,000 |
2,582,000 |
|||||||
|
7,021,000 |
7,021,000 |
||||||||
|
Less accumulated depreciation: |
|||||||||
|
Land improvements on lease or held for lease |
93,000 |
93,000 |
|||||||
|
Steeple Street (Note 7) |
494,000 |
430,000 |
|||||||
|
587,000 |
523,000 |
||||||||
|
$ |
6,434,000 |
$ |
6,498,000 |
5.
Liabilities, other:
Liabilities, other consist of the following:
|
September 30, |
December 31, |
|||||||
|
Accrued professional fees |
$ |
144,000 |
$ |
157,000 |
||||
|
Deposits and prepaid rent |
185,000 |
146,000 |
||||||
|
Other |
151,000 |
27,000 |
||||||
|
$ |
480,000 |
$ |
330,000 |
6.
Note Payable - Revolving Credit Line:
The Company's financing agreement ("Agreement") with BankRI provides for a revolving line-of-credit ("Line") with a maximum borrowing capacity of $2,000,000through March 2027. Amounts outstanding under the Agreement bear interest at the Secured Overnight Financing Rate ("SOFR") plus 200 basis points. Borrowings under the Line are secured by a First Mortgage on Parcel 5 in the Capital Center District in Providence, Rhode Island (the "Property").The Line requires the maintenance of a debt service coverage ratio of not less than 1.25to 1.0on the Property and 1.20to 1.0for the Company. The Agreement contains other restrictive covenants, including, among others, a $250,000limitation on the purchase of its outstanding capital stock in any twelve-month period. Noadvances have been made under the Line.
7.
Description of leasing arrangements:
Long-term land leases:
Through September 30, 2024the Company had entered into ninelong-term land leases, eightof which have completed construction of improvements thereon. The Company's leases generally have a term of 99years or more, are triple net and provide for periodic rent adjustments of various types depending on the particular lease, and otherwise contain terms and conditions normal for such instruments.
Under the eightland 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. 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 and nine months ended September 30, 2024and 2023, real property taxes attributable to the Company's land under lease totaled $236,000and $708,000, respectively.
On January 25, 2024, the Company entered into a long-term ground lease of Parcel 20. Under the terms of the lease, tenant's possession will not occur until such time as the tenant has received all necessary approvals for construction of not less than 100,000square feet of mixed use improvements. Prior to transfer of possession, norent is being paid by the tenant and the Company receives all rents from existing tenants and parking lease revenue and remains responsible for all expenses, including real estate taxes, related to Parcel 20. Following tenant's possession, tenant is obligated to pay ground rent for the parcel and to purchase the historic building presently located on the premises for an additional amount payable monthly over twenty years.
7
Under twoof the long-term land leases, the Company receives contingent rentals (based on a fixed percentage of gross revenue received by the tenants) which totaled $30,000and $90,000for the three and nine months ended September 30, 2024and were $24,000and $84,000for the same periods in 2023.
Tri-State Displays Inc. leases 23outdoor advertising locations containing 44billboard faces along interstate and primary highways in Rhode Island and Massachusetts to Lamar under a lease which expires in 2053. 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 each 12-month period commencing each June 1 (each 12-month period a "Lease Year"), Lamar must pay to the Company within thirty daysafter the close of the Lease Year, 30% of the gross revenues from each standard billboard and 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 $147,000and $189,000for nine months ended September 30, 2024 and 2023, 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 Parcel 20 for public parking purposes to Metropark under a ten-yearlease (the "Parking Lease"). The Parking Lease is cancellable as to all or any portion of the leased premises at any time on 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 nocontingent rent for the three and nine months ended September 30, 2024 and 2023.
The COVID-19 pandemic had an adverse impact on Metropark's parking operations as the move by many companies to a hybrid workplace model (one that mixes in-office and remote work) resulted in lower demand for parking spaces. From June 2020 through December 31, 2023 revenue was recognized on a cash basis with the difference between the regularly scheduled rental payments and amounts paid ("deferred rent") recorded as accounts receivable and was fully reserved. At September 30, 2023 the receivable from Metropark was $1,115,000and was fully reserved.
Effective January 1, 2024, the Company entered into a Second Amendment to its Lease Agreement whereby Metropark agreed to return to a fixed monthly rental payment of $57,000per month subject to adjustment in accordance with the Lease Agreement. Additionally, the Company and Metropark settled the Company's claim for deferred rent for all prior periods which amounted to $1,127,000(fully reserved by the Company) for $150,000payable by Metropark in twenty (20) equal quarterly installments commencing on April 1, 2024 together with interest on the unpaid balance at the rate of 4.73% per annum. At September 30, 2024 and December 31, 2023, Prepaid and other includes $135,000and $150,000, respectively, related to this settlement.
For the three and nine months ended September 30, 2024, revenue from Metropark was $171,000and $513,000, respectively, and $146,000and $430,000for the same periods in 2023 and is included in revenue on the accompanying consolidated statement of income.
Historically, the Company has made financial statement disclosure of the excess of straight-line rentals over contractual payments and its determination of collectability of such excess. 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 September 30, 2024the excess of straight-line rentals (calculated by excluding variable payments) over contractual payments was $95,229,000.
8
8.
Income taxes, continuing operations:
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 are as follows:
|
September 30, |
December 31, |
|||||||
|
Gross deferred tax liabilities: |
||||||||
|
Property having a financial statement basis in excess of |
$ |
364,000 |
$ |
364,000 |
||||
|
Accounts receivable |
56,000 |
52,000 |
||||||
|
Insurance premiums and accrued leasing revenues |
17,000 |
49,000 |
||||||
|
437,000 |
465,000 |
|||||||
|
Gross deferred tax assets: |
||||||||
|
Prepaid rent |
(50,000 |
) |
(40,000 |
) |
||||
|
Accounts payable and accrued expenses |
(80,000 |
) |
(49,000 |
) |
||||
|
Accrued property taxes |
(92,000 |
) |
(92,000 |
) |
||||
|
(222,000 |
) |
(181,000 |
) |
|||||
|
$ |
215,000 |
$ |
284,000 |
9.
Discontinued operations:
Prior to February 2017, the Company operated a petroleum storage facility ("Terminal") through twowholly owned subsidiaries. On February 10, 2017, the Terminal was sold to Sprague Operating Resources, LLC ("Sprague"). In accordance with ASC 205-20, Presentation of Financial Statements - Discontinued Operations, the sale of the Terminal was accounted for as a discontinued operation.
As part of the Terminal Sale Agreement, the Company agreed to retain and pay for the environmental remediation costs associated with a 1994 storage tank leak which allowed the escape of a small amount of fuel oil. The Company continues the remediation activities set forth in the Remediation Action Work Plan ("RAWP") filed with the Rhode Island Department of Environmental Management ("RIDEM"). The estimated future cost associated with the remediation is $365,000and is reported separately on the consolidated balance sheets as liability associated with discontinued operations. Any subsequent increases or decreases to the expected cost of remediation will be recorded in the Company's condensed consolidated statements of income as gain or loss from sale of discontinued operations.
The Terminal Sale Agreement also contained a cost sharing provision a the breasting dolphin whereby any construction costs incurred more than the contract cost of construction would be borne equally by Sprague and the Company subject to certain limitations, including, in the Company's opinion, a 20% cap on the increase from the initial estimate, subject to a sharing arrangement. In November 2019, Sprague asserted that it was owed $427,000and the Company asserted that its obligation under the Agreement cannot exceed $104,000. Mediation efforts were unsuccessful and in July 2021, Sprague commenced an action against the Company in the Rhode Island Superior Court (Superior Court) seeking monetary damages of $427,000, interest and attorney's fees ("Sprague Litigation"). In December 2022, the Superior Court denied Sprague's Motion for Summary Judgment filed in September 2022 and granted in part and denied in part the Company's Cross Motion for Summary Judgment also filed in September 2022. The matter went to trial before a Superior Court judge in May 2024. Post-trial briefs were filed on July 25, 2024. On October 28, 2024, the Superior Court rendered its decision and found that the Company's obligation with respect to the increased cost of constructing the breasting dolphin is $104,000. In accordance with Rhode Island law, the Court also awarded Sprague prejudgment interest of 12% per annum from the date the claim accrued which the Company anticipates that at the time judgment is entered by the Court will total approximately $45,000. The Company and Sprague each have thirty (30) days from the date of entry of the judgment by the Court to file a notice of appeal. The Company is still evaluating whether to appeal. At September 30, 2024 and December 31, 2023, Liabilities, other includes $149,000and $104,000, respectively, related to this matter.
Loss on sale of discontinued operations on the condensed consolidated statements of income and shareholders'equity includes legal and professional fees related to the Sprague Litigation of $10,000and $386,000for the three and nine months ended September 30, 2024, respectively and $4,000and $29,000in each of the same periods for 2023. For the three and nine months ended September 30, 2024, the loss also includes prejudgment interest of $45,000related to the Sprague Litigation.
9
10.
Subsequent events:
At its October 30, 2024regularly scheduled quarterly Board meeting, the Board of Directors voted to declare a quarterly dividend of $.07per share for shareholders of record on November 15, 2024, payable November 25, 2024.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
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; cyber penetrations; the long-term impact of the hybrid workplace model on future development, existing tenants and parking operations, and the Company's financial performance; and exposure to remediation and other costs associated with its 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.
1.
Overview:
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, 2023. There have been no changes to the application of this accounting policy since December 31, 2023.
2.
Liquidity and capital resources:
Historically, the Company has had adequate liquidity to fund its operations.
Cash and cash commitments:
At September 30, 2024, the Company had cash and cash equivalents of $973,000. In addition to these funds, the Company has $1,294,000 invested in U.S. Treasury securities that yield 4.86% and mature in March 2025. 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.
To date, all tenants have paid their monthly rent in accordance with their lease agreements.
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 September 30, 2024, the Company's accrual for the remaining cost of remediation was $365,000 of which $22,000 is expected to be incurred during the balance of 2024. 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 construction costs in excess of the contract cost of construction would be borne equally by Sprague and the Company subject to certain limitations, including, in the Company's opinion, a 20% cap on the increase from the initial estimate subject to the sharing arrangement. In November 2019, Sprague asserted that it was owed $427,000 and the Company asserted that its obligation under the Agreement could not exceed $104,000. Mediation efforts were unsuccessful and in July 2021, Sprague commenced an action against the Company in the Rhode Island Superior Court (Superior Court) seeking monetary damages of $427,000, plus interest and attorney's fees. In December 2022, the Superior Court denied Sprague's Motion for Summary Judgment filed in September 2022 and granted in part and denied in part the Company's Cross Motion for Summary Judgment also filed in September 2022. The matter went to trial before a Superior Court judge in May 2024. Post-trial briefs were filed on July 25, 2024. On October 28, 2024, the Superior Court rendered its decision and found that the Company's obligation with respect to the increased cost of constructing the breasting dolphin is $104,000. In accordance with Rhode Island law, the Court also awarded Sprague prejudgment interest of 12% per annum from the date the claim accrued which the Company anticipates that at the time judgment is entered by the Court will total approximately $45,000. The Company and Sprague each have thirty (30) days from the date of entry of the judgment by the Court to file a notice of appeal. The Company is still evaluating whether to appeal. At September 30, 2024 and December 31, 2023, Liabilities, other includes $149,000 and $104,000, respectively, related to this matter.
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Loss on sale of discontinued operations on the condensed consolidated statements of income and shareholders'equity includes legal and professional fees related to the Sprague Litigation of $10,000 and $386,000 for the three and nine months ended September 30, 2024, respectively and $4,000 and $29,000 in each of the same periods for 2023 related to the Sprague litigation. For the three and nine months ended September 30, 2024, the loss also includes prejudgment interest of $45,000 related to the Sprague Litigation.
The declaration of future dividends will depend on future earnings and financial performance.
3.
Results of operations:
Three months ended September 30, 2024 compared to three months ended September 30, 2023:
Revenue increased $59,000 from 2023 and consists of increased revenue from Metropark ($24,000), scheduled rent increases ($31,000) and a net increase in other sources of revenue ($4,000),
Operating expenses increased $32,000 due principally to professional fees related to the Company's billboard operations.
General and administrative expense increased $25,000 due principally to an increase in payroll and payroll related costs.
Nine months ended September 30, 2024 compared to nine months ended September 30, 2023:
Leasing revenue increased $152,000 from 2023, due principally to Metropark ($83,000), scheduled rent increases and contingent rent associated with our land leases ($66,000) along with an increase in other revenue ($26,000) offset by a net decline in rent from Lamar ($23,000) due to the decline in contingent rent.
Operating expenses increased $86,000 due to professional fees associated with billboard operations ($62,000), increased insurance costs ($16,000) and repairs and maintenance ($8,000).
General and administrative expense increased $43,000 due principally to increased payroll and payroll related costs.
For the nine months ended September 30, 2024 and 2023, the Company's effective income tax rate is approximately 27% of income before income taxes.
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Item 4. Controlsand Procedures
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.
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PART II - OTHER INFORMATION
Item 6. Exhibits
(b) Exhibits:
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3.1 |
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3.2 |
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10 |
Material contracts: |
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Lease between Metropark, Ltd. and the Company: |
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(b) |
Loan Agreement between Bank Rhode Island and the Company: |
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31.1 |
Rule 13a-14(a) Certification of Chairman and Principal Executive Officer |
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31.2 |
Rule 13a-14(a) Certification of Treasurer and Principal Financial Officer |
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32.1 |
Certification of Chairman and Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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32.2 |
Certification of Treasurer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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101 |
The following financial information from the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2024, filed with the Securities and Exchange Commission on November 1, 2024 formatted in iXBRL("Inline eXtensible Business Reporting Language"): |
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(i) |
Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023 |
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(ii) |
Condensed Consolidated Statements of Income and Shareholders' Equity for the Three and Nine Months ended September 30, 2024 and 2023 |
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(iii) |
Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2024 and 2023 |
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(iv) |
Notes to Condensed Consolidated Financial Statements. |
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104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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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.
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CAPITAL PROPERTIES, INC. |
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By |
/s/ Robert H. Eder |
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Robert H. Eder |
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Chairman and Principal Executive Officer |
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By |
/s/ Susan R. Johnson |
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Susan R. Johnson |
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Treasurer and Principal Financial Officer |
DATED: November 1, 2024
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