UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-9380
CAPITAL PROPERTIES, INC.
(Exact name of small business issuer as specified in its charter)
Rhode Island 05-0386287
(State or other jurisdiction of IRS Employer Identification No.
incorporation or organization)
100 Dexter Road, East Providence, Rhode Island 02914
(Address of principal executive offices)
(401) 435-7171
(Issuer's telephone number)
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
State the number of shares outstanding of each of the Issuer's classes common
equity, as of the latest practicable date:
As of August 4, 1999, the Issuer had 3,000,000 shares of common stock
outstanding.
Transitional Small Business Disclosure Format (Check one): Yes No X
<PAGE>
PART I
Item 1. Financial Statements
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(Unaudited)
ASSETS
<TABLE>
<S> <C>
Properties and equipment (net of accumulated
depreciation) $ 8,706,000
Cash and cash equivalents 4,763,000
Receivables:
Tenant property tax reimbursements 216,000
Other 66,000
Accrued rental income 506,000
Prepaid and other 112,000
$14,369,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses:
Property taxes $ 603,000
Other 162,000
Deferred income taxes 1,161,000
1,926,000
Contingencies (Note 3)
Shareholders' equity:
Common stock, $1 par; authorized, issued and
and outstanding 3,000,000 shares 3,000,000
Capital in excess of par 8,828,000
Retained earnings 615,000
12,443,000
$14,369,000
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
(\CAPTION)
<S> <C> <C> <C> <C>
Income:
Revenues:
Leasing $ 554,000 $ 479,000 $ 1,047,000 $ 917,000
Petroleum storage facilities,
net of cost of product sold
for the three and six months
ended June 30, 1998 of
$77,000 and $139,000,
respectively 283,000 112,000 624,000 162,000
837,000 591,000 1,671,000 1,079,000
Interest:
Providence and Worcester
Railroad Company 98,000
Other 48,000 52,000 97,000 61,000
885,000 643,000 1,768,000 1,238,000
Expenses:
Expenses applicable to:
Leasing 269,000 335,000 590,000 584,000
Petroleum storage facilities 223,000 201,000 391,000 378,000
General and administrative 211,000 250,000 432,000 605,000
703,000 786,000 1,413,000 1,567,000
Income (loss) before income taxe 182,000 (143,000) 355,000 (329,000)
Income tax expense (benefit) 76,000 (57,000) 145,000 (125,000)
Net income (loss) $106,000 $ (86,000) $ 210,000 $(204,000)
Basic earnings (loss) per
common share $ .04 $(.03) $ .07 $(.07)
Dividends per common share $ .05 $ .05 $ .05 $ .05
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
<TABLE>
<S> <C> <C>
1999 1998
Cash flows from operating activities:
Net income (loss) $ 210,000 $ (204,000)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation 42,000 174,000
Deferred income taxes (12,000) (33,000)
Other, principally net changes in
receivables, prepaids, accounts payable
and accrued expenses 217,000 433,000
Net cash provided by operating activities 457,000 370,000
Cash flows from investing activities:
Purchase of properties and equipment (287,000) (98,000)
Proceeds from collection of note receivable,
Providence and Worcester Railroad Company 3,993,000
Net cash provided by (used in) investing
activities (287,000) 3,895,000
Cash used in financing activities, payment of
dividends (150,000) (150,000)
Increase in cash and cash equivalents 20,000 4,115,000
Cash and cash equivalents, beginning 4,743,000 793,000
Cash and cash equivalents, ending $4,763,000 $4,908,000
Supplemental disclosures, cash paid for
income taxes $ 87,000 $ 49,000
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
1. Basis of presentation:
The accompanying consolidated financial statements have been prepared by
the Company. Certain information and note disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. In the opinion of
management, the accompanying consolidated financial statements contain all
adjustments necessary to present fairly the financial position as of June
30, 1999 and the results of operations for the three and six months ended
June 30, 1999 and 1998, and the cash flows for the six months ended June
30, 1999 and 1998.
The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year.
The Company has adopted the provisions of Statement of Financial
Accounting Standards (FAS) No. 131 (Disclosures about Segments of an
Enterprise and Related Information) which changes the manner in which the
Company determines its operating business segments. FAS No. 131 defines
operating segments as components of an enterprise about which separate
financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and
in assessing performance.
The provisions of FAS No. 131 result in the Company's reporting two
operating segments:
* the leasing of certain of its real estate interests in downtown
Providence, Rhode Island, and locations along interstate and primary
highways in Rhode Island and Massachusetts for outdoor advertising
purposes; and
* the operation of its petroleum storage facilities (the Facilities) in
East Providence, Rhode Island.
2. Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
3. Litigation with the State of Rhode Island and the City of Providence:
Condemnation case:
On January 16, 1987, the Company entered into an Agreement with the State
of Rhode Island (the State) relating to the State's obligation with
respect to the condemnation of a portion of the Company's property in
connection with the proposed River Relocation in Providence, Rhode Island
(CPI/State Agreement). In November 1987, the State condemned the property
and paid the Company a condemnation award of $2,600,000. Under the
CPI/State Agreement, the Company acquired Parcel 9 in the Capital Center
Project area (Disputed Parcel) from the State and was required to return
to the State a portion of the condemnation award.
In April 1988, the Company filed a petition in the Rhode Island Superior
Court (Superior Court) for an increased condemnation award alleging that
the award paid in 1987 was inadequate. In January 1992, the Superior
Court awarded the Company an additional condemnation award of $401,000
plus interest from the date of the condemnation. The Company had asserted
in the Superior Court that it was entitled to an additional condemnation
award in excess of $6,000,000 plus interest, and accordingly, in February
1992, the Company appealed the decision of the Superior Court to the Rhode
Island Supreme Court (Supreme Court). In January 1994, the Supreme Court
overturned the Superior Court decision and returned the matter to the
Superior Court for a retrial of the case. The case was retried in 1995.
In May 1997, the Superior Court entered final judgment awarding
condemnation proceeds of $6,101,000 in favor of the Company and interest
on the judgment through that date of $4,552,000 (the Condemnation
Judgment). The State filed an appeal with the Supreme Court. On April
17, 1998, the Supreme Court entered an order affirming the Condemnation
Judgment of the Superior Court. Interest continues to accrue on the
judgment. The Supreme Court expressly stated that its decision was
"without prejudice to any party seeking to enforce any contractual
obligations that may be implicated by the enforcement of the Condemnation
Judgment." Under the CPI/State Agreement, the Company may be required to
return to the State a portion of the award.
The State filed several motions and a separate action to prevent the
Company from collecting the Condemnation Judgment, which now exceeds
$11,500,000 including interest. The Superior Court denied the State's
motions and ordered the State to pay the Condemnation Judgment by August
14, 1998. The State filed an appeal with the Supreme Court. In December
1998, the Supreme Court directed that the separate action filed by the
State, together with other disputes between the Company, the State and the
City of Providence, be consolidated before and decided by a single justice
of the Superior Court. Each of the four consolidated cases decided by the
single justice on July 13, 1999, is described below.
Property tax disputes with the City of Providence:
During 1995, the Company received notice from the City of Providence (the
City) of an increase in the assessed values of several of its parcels
within Capital Center. The increase in the assessed values was not the
result of a city-wide revaluation, pertained to 1995 and subsequent years,
and resulted in an annual increase in property taxes of $265,000. The
Company filed appeals for 1995 and 1996 but elected to make property tax
payments as due pending the outcome of the appeals. During the fourth
quarter of 1996, the City reduced the assessed value of one of the
parcels, resulting in an abatement of property taxes of $107,000 for 1995
and a reduction in the tax of $115,000 for 1996 and subsequent years. The
Company is unable to determine if the remaining appeals will result in an
abatement of the property taxes for 1995 and subsequent years.
On August 18, 1997, the Company received from the City real property tax
bills for taxes assessed as of December 31, 1996 reflecting an unexpected
200% increase in the assessed values of a majority of the Company's
parcels within Capital Center, resulting in an annual increase in property
tax expense of approximately $1,370,000. This increase was not part of a
city-wide revaluation.
On August 21, 1997, the Company received from the City real property tax
bills purporting to assess taxes for assessment years ending December 31,
1990 through December 31, 1995, based upon a $42,000,000 retroactive
increase in the assessed values of these same properties. These increases
were not part of a city-wide revaluation. The aggregate amount of such
taxes as billed was approximately $7,100,000, which amount did not include
any interest.
The Company believes that the changes in the assessed values is related to
the May 1997 Condemnation Judgment. The Company believes that the
increase in the assessed values for 1997 and prior periods are illegal and
on August 27, 1997 filed a lawsuit against the City in the Superior Court.
On October 14, 1997, the Company received from the City real property tax
bills for the second quarter of 1997 indicating interest due on the 1996
assessment of $76,000 and interest due on the purported assessed taxes for
the years 1990 through 1995 of $3,300,000. The City asserts that the
parcels subject to the retroactive assessment were under-assessed in the
prior assessment periods.
On November 14, 1997, the Company filed appeals of the 1997 real property
tax bills.
On August 5, 1998, the Company received from the City real property tax
bills for taxes assessed as of December 31, 1997, which taxes are based
upon the assessed valuations as of December 31, 1996. The Company has
appealed these assessments and on October 16, 1998, filed a lawsuit
against the City in the Superior Court claiming that the increased
assessments for 1998 are illegal. In December 1998, the Supreme Court
directed that the property tax disputes with the City, title to the
Disputed Parcel, and the condemnation case previously discussed be heard
by a single justice of the Superior Court.
The last real property tax bills were received by the Company in April
1999 from the City indicating that there remains unpaid taxes of
$11,645,000 and interest thereon of $5,589,000 for assessment dates of
December 31, 1990 through 1997. Interest continues to accrue at the rate
of 1 percent per month.
The Company is reporting for financial statement purposes (and paying)
property taxes based on the 1994 and 1995 assessed valuations while it
pursues its lawsuits and its administrative appeals. City of Providence
property tax expense reported on the accompanying consolidated statements
of income (loss) totaled $195,000 and $206,000 for the three months ended
June 30, 1999 and 1998, respectively; and $390,000 and $412,000 for the
six months ended June 30, 1999 and 1998, respectively.
On July 13, 1999, the Superior Court ruled in favor of the Company and
found that both the City's new tax assessments for assessment years 1997
and 1998 and back taxes for assessment years 1990-1996 are illegal and
void. The Superior Court entered judgment in favor of the Company and
sent the case to the Supreme Court for review.
The Company, upon consultation with counsel, believes that the Superior
Court's decision with respect to these assessments will be sustained on
review; however, such proceedings can be protracted and costly, and there
can be no assurance that the Company will be successful. The failure of
the Company to prevail in the proceedings contesting the retroactive
increase in assessed values would have a material adverse effect on the
Company's results of operations and financial condition and, while the
Company believes, upon consultation with counsel, that the likelihood of
such failure is remote, if a court were to require the Company to pay the
retroactive assessments and related interest, the Company could be forced
to seek the protection of the bankruptcy courts.
Dispute over ownership of Disputed Parcel:
Pursuant to the terms of an agreement dated January 1987 between the City
and the State (City/State Agreement), the City was obligated to convey
the Disputed Parcel to the State. As discussed above under the heading
"Condemnation Case," pursuant to the CPI/State Agreement, the State was
obligated to reconvey the Disputed Parcel to the Company. In 1989, the
City conveyed the Disputed Parcel to the State, and the State reconveyed
the Disputed Parcel to the Company. Contemporaneously, the Company
purchased a title insurance policy in the amount of $1,600,000 covering
the Disputed Parcel.
The City now claims that its execution of the City/State Agreement was
invalid, that its conveyance of the Disputed Parcel to the State was void,
and hence the City is the true owner of the Disputed Parcel. Moreover, in
December 1998, the City adopted an ordinance authorizing the Providence
Redevelopment Agency to condemn the Disputed Parcel. The Company is
contesting both the City's claim of ownership and the City's attempt to
condemn the Disputed Parcel.
The Company's carrying value of the Disputed Parcel is $57,000. The
Disputed Parcel's assessed value was increased to $7,909,000 by the City
as more fully discussed above under the heading "Property Tax Disputes
with the City of Providence." The last real property tax bill relating to
the Disputed Parcel received in April 1999 from the City indicates that
the unpaid taxes and interest total approximately $2,350,000 through that
date.
This dispute with the City was included in the matters heard by the single
justice of the Superior Court as directed by the Supreme Court. On July
13, 1999, the Superior Court ruled in favor of the Company and found that
the Company is the rightful owner of the Disputed Parcel and that the City
has no right to condemn the Disputed Parcel and therefore the ordinance
authorizing the condemnation is invalid. The Superior Court entered
judgment in favor of the Company and sent the case to the Supreme Court
for review.
Dispute regarding the payment of the Condemnation Award:
On May 26, 1998, the State filed an action in the Superior Court in which
it maintains that it is not responsible for paying any portion of the
Condemnation Judgment to the Company. The Supreme Court ordered the
Superior Court to determine these claims on an expedited basis. The State
alleged, among other things, that (1) its conveyance of the Disputed
Parcel to the Company relieves it from the obligation to pay one-half of
the Condemnation Judgment and (2) the City, not the State, is obligated to
pay the other half of the Condemnation Judgment.
On July 13, 1999 the Superior Court ruled in favor of the Company and
found that the State must pay the entire Condemnation Judgment to the
Company. The Superior Court left open the possibility that the Company
will have to return some portion of the Condemnation Judgment to the State
following the State's payment of the entire amount. The Superior Court
entered judgment in favor of the Company and sent the case to the Supreme
Court for review.
4. Properties and equipment:
<TABLE>
<S> <C>
Properties on lease or held for lease:
Land and land improvements $ 4,207,000
Parking garage 2,500,000
6,707,000
Petroleum storage facilities:
Land 2,201,000
Buildings and structures 501,000
Tanks and equipment 4,347,000
7,049,000
Office equipment 90,000
13,846,000
Less accumulated depreciation:
Properties on lease or held for lease 707,000
Petroleum storage facilities 4,349,000
Office equipment 84,000
5,140,000
$ 8,706,000
</TABLE>
During 1999, the Company plans to construct a new expanded truck rack at
the petroleum storage facilities which will be fully automated and will
have both top and bottom loading capabilities at an estimated cost of
$2,000,000.
5. Note receivable, Providence and Worcester Railroad Company:
In 1988, in accordance with a plan of distribution, the Company
transferred the ownership of Providence and Worcester Railroad Company
(Railroad) to the Company's shareholders. The Company and Railroad have a
common controlling shareholder. As part of the plan, the Company received
a promissory note in the amount of $9,377,000 payable over a period of
twenty years with interest at 12% per year, (reduced to 10% in 1995)
prepayable at any time without penalty. In March 1998, Railroad prepaid
the note in full.
6. Description of leasing arrangements:
At June 30, 1999, the Company had entered into long-term land leases for
six separate land parcels, three of which will not commence until
construction begins. The Company also leases various parcels of land for
outdoor advertising purposes for remaining terms of up to 30 years and for
public parking purposes under short-term cancelable leases.
For those leases with scheduled rent increases, the cumulative excess of
straight-line over contractual rentals (considering scheduled rent
increases over the 30 to 149 year terms of the leases) amounted to
$12,081,000 through June 30, 1999. Management has concluded that a
portion of the excess of straight-line over contractual rentals ($506,000
at June 30, 1999) is realizable when payable over the terms of the leases.
7. Income taxes:
Deferred income taxes are recorded based upon differences between
financial statement and tax carrying amounts of assets and liabilities.
The tax effects of temporary differences which give rise to deferred tax
assets and liabilities at June 30, 1999 were as follows:
<TABLE>
<S> <C>
Gross deferred tax liabilities:
Property having a financial statement basis
in excess of its tax basis $1,192,000
Accrued rental income 203,000
1,395,000
Gross deferred tax assets, principally
professional fees in connection with
condemnation case (see Note 3) (234,000)
$1,161,000
</TABLE>
8. Petroleum storage facilities:
During 1997 and the first half of 1998, the Company purchased petroleum
products which it stored and resold at the Facilities and leased storage
tanks under short-term arrangements for the warehousing of petroleum
products. Effective September 1, 1998, the Company entered into an
arrangement with a petroleum company (Petroleum Company) under which the
Company operates the entire Facilities for the Petroleum Company. The
Company is responsible for labor, insurance, property taxes and other
operating expenses. The Company and the Petroleum Company entered into an
agreement effective May 1, 1999, extending the arrangement for an
additional three-year period plus options to extend on an annual basis
with a minimum monthly fee of $67,000, increasing 4.5% annually during the
extended term.
9. Operating segment disclosures:
The Company operates in two segments: (1) Leasing and (2) Petroleum
Storage Facilities.
The Leasing segment consists of the long-term leasing of certain of its
real estate interests in downtown Providence, Rhode Island (to tenants
that have constructed buildings thereon) and locations along interstate
and primary highways in Rhode Island and Massachusetts (to a company which
has constructed outdoor advertising boards thereon). The Company
anticipates that the future development of its remaining properties will
consist primarily of long-term ground leases. Pending this development,
the Company leases these parcels and an adjacent parking garage for public
parking purposes under short-term cancelable leasing arrangements.
The Petroleum Storage Facilities segment consists of operating the
Facilities in East Providence for the Petroleum Company which stores and
distributes petroleum products. The Company and the Petroleum Company
entered into an agreement effective May 1, 1999, extending the current
arrangement for an additional three-year period plus options to extend on
an annual basis.
The principal difference between the two segments relates to the nature of
the operations. The tenants in the Leasing segment incur substantially
all of the development and operating costs of the asset constructed on the
Company's land, whereas the Company is responsible for the operating and
maintenance expenditures of the Facilities.
The Company makes decisions relative to the allocation of resources and
evaluates performance based on income before income taxes, excluding
interest and other income, and certain corporate expenses.
There are no inter-segment revenues. The Company did not incur interest
expense during the six months ended June 30, 1999 and 1998.
The following financial information is used by the chief operating
decision maker for making operating decisions and assessing performance of
the Company's segments:
<TABLE>
<S> <C> <C> <C>
Petroleum
Storage
Leasing Facilities Total
Six months ended June 30, 1999:
Revenues:
Contractual $1,040,000 $ 624,000 $1,664,000
Noncash, excess of straight-line
over contractual rentals 7,000 7,000
$1,047,000 $ 624,000 $1,671,000
Depreciation $ 31,000 $ 9,000 $ 40,000
Income before income taxes $ 457,000 $ 233,000 $ 690,000
Six Months ended June 30, 1998:
Revenues:
Contractual $ 916,000 $ 162,000 $1,078,000
Noncash, excess of straight-line
over contractual rentals 1,000 1,000
$ 917,000 $ 162,000 $1,079,000
Depreciation $ 31,000 $ 137,000 $ 168,000
Income (loss) before income taxes $ 333,000 $ (216,000) $ 117,000
</TABLE>
The following is a reconciliation of the segment information to the
amounts reported in the accompanying consolidated financial statements for
the six months ended June 30, 1999 and 1998:
<TABLE>
<S> <C> <C>
1999 1998
Income:
Revenues for operating segments $1,671,000 $1,079,000
Interest income 97,000 159,000
Total consolidated income $1,768,000 $1,238,000
Depreciation:
Depreciation for operating segments $ 40,000 $ 168,000
Unallocated corporate depreciation 2,000 6,000
Total consolidated depreciation $ 42,000 $ 174,000
Income before income taxes:
Income for operating segments $ 690,000 $ 117,000
Interest income 97,000 159,000
Unallocated corporate expenses (432,000) (605,000)
Total consolidated income (loss)
before income taxes $ 355,000 $ (329,000)
</TABLE>
10. Subsequent events:
On July 19, 1999, National Railroad Passenger Corporation (Amtrak)
condemned all the air rights owned by the Company located above the
railroad corridor of Amtrak on Parcel 6 in the Capital Center Project area
for a three-year temporary easement. Amtrak deposited $335,000 in the
United States District Court for the District of Rhode Island (U. S.
District Court), the sum estimated by Amtrak to be just compensation for
the property taken. The Company has petitioned the Court to be paid the
deposited amount.
On July 30, 1999, Amtrak condemned a portion of Parcel 7A (the parking
garage parcel) in the Capital Center Project area upon which Amtrak had
placed improvements, for a permanent easement. Amtrak deposited $60,000
in the U. S. District Court, the sum estimated by Amtrak to be just
compensation for the property taken.
The Company anticipates receiving these deposited amounts prior to the end
of 1999. The Company is reviewing its course of action in connection with
these two condemnations.
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial condition:
In 1988, in accordance with a plan of distribution, the Company transferred
the ownership of Providence and Worcester Railroad Company (Railroad) to
the Company's shareholders. The Company and Railroad have a common
controlling shareholder. As part of the plan, the Company received a
promissory note in the amount of $9,377,000 payable over a period of twenty
years with interest at 12% per year, (reduced to 10% in 1995) prepayable at
any time without penalty. In March 1998, Railroad prepaid the note in full.
The Company's principal assets consist of land, a public parking garage,
petroleum storage facilities (the Facilities) and outdoor advertising sites.
A significant portion of the land consists of approximately 20.5 acres,
including 1.9 acres of air rights, in downtown Providence, Rhode Island, held
for development. At June 30, 1999, the Company is earning revenue from long-
term land leases for three separate land parcels. The tenants of each parcel
have constructed buildings which are substantially occupied.
The Company has entered into land leases for three additional land parcels
with terms of 95, 145 and 149 years. Under the 95-year land lease, the
developer proposes to construct a hotel containing approximately 265 suites
with parking. Under the 145-year land lease, the developer proposes to
construct an apartment complex containing approximately 250 individual units
with underground parking. Under the 149-year land lease, the developer
proposes to construct a building of approximately 350,000 square feet of
commercial space and a minimum of 200 public parking spaces. All leases
provide a period of time within which the developer may perform its due
diligence, seek the approval of the plans for its complex from the Capital
Center Commission and enter into a tax stabilization agreement with the City
of Providence. There can be no assurance that the developers, individually or
collectively, will be able to satisfy the conditions precedent to proceeding
with the developments. Each developer's ability to obtain a tax stabilization
agreement with the City of Providence may be adversely affected by the
litigation between the City and the Company with respect to prior year taxes
as discussed below. The Company is unable to determine at this time when
construction will begin and therefore the time at which the term of each lease
will commence.
The Company is engaged in discussions concerning the possible development of
the remaining parcels but is unable to predict when leases on these parcels
will commence. However, the Company will continue to lease all available
parcels which are suitable for public surface parking under short-term
cancelable leases. The Company anticipates that future development of the
remaining properties will consist primarily of long-term ground leases under
which the significant portion of future rental income will not be earned until
the buildings are completed by the developers and occupied.
Effective September 1, 1998, the Company entered into an arrangement with a
petroleum company (Petroleum Company) under which the Company operates the
entire Facilities for the Petroleum Company. The Company is responsible for
labor, insurance, property taxes and other operating expenses. The Company
and Petroleum Company have entered into an agreement effective May 1, 1999,
extending the arrangement for an additional three-year term plus options to
extend on an annual basis with a minimum monthly fee of $67,000, increasing
4.5% annually during the extended term.
During 1999, the Company plans to construct a new expanded truck rack at the
Facilities which will be fully automated and will have both top and bottom
loading capabilities at an estimated cost of $2.0 million. The Company
anticipates paying for the construction from available cash.
In management's opinion, the Company will continue to be able to generate
adequate amounts of cash to meet substantially all of its expenditures.
On January 16, 1987, the Company entered into an Agreement with the State of
Rhode Island (the State) relating to the State's obligation with respect to
the condemnation of a portion of the Company's property in connection with the
proposed River Relocation in Providence, Rhode Island (CPI/State Agreement).
In November 1987, the State condemned the property and paid the Company a
condemnation award of $2,600,000. Under the CPI/State Agreement, the Company
acquired Parcel 9 in the Capital Center Project area (Disputed Parcel) from
the State and was required to return to the State a portion of the
condemnation award.
In April 1988, the Company filed a petition in the Rhode Island Superior Court
(Superior Court) for an increased condemnation award alleging that the award
paid in 1987 was inadequate. In January 1992, the Superior Court awarded the
Company an additional condemnation award of $401,000 plus interest from the
date of the condemnation. The Company had asserted in the Superior Court that
it was entitled to an additional condemnation award in excess of $6,000,000
plus interest, and accordingly, in February 1992, the Company appealed the
decision of the Superior Court to the Rhode Island Supreme Court (Supreme
Court). In January 1994, the Supreme Court overturned the Superior Court
decision and returned the matter to the Superior Court for a retrial of the
case. The case was retried in 1995.
In May 1997, the Superior Court entered final judgment awarding condemnation
proceeds of $6,101,000 in favor of the Company and interest on the judgment
through that date of $4,552,000 (the Condemnation Judgment). The State filed
an appeal with the Supreme Court. On April 17, 1998, the Supreme Court
entered an order affirming the Condemnation Judgment of the Superior Court.
Interest continues to accrue on the judgment. The Supreme Court expressly
stated that its decision was "without prejudice to any party seeking to
enforce any contractual obligations that may be implicated by the enforcement
of the Condemnation Judgment." Under the CPI/State Agreement, the Company may
be required to return to the State a portion of the award.
The State filed several motions and a separate action to prevent the Company
from collecting the Condemnation Judgment, which now exceeds $11,500,000
including interest. The Superior Court denied the State's motions and ordered
the State to pay the Condemnation Judgment by August 14, 1998. The State
filed an appeal with the Supreme Court. In December 1998, the Supreme Court
directed that the separate action filed by the State, together with other
disputes between the Company, the State and the City of Providence, be
consolidated before and decided by a single justice of the Superior Court.
Each of the four consolidated cases decided by the single justice on July 13,
1999, is described below.
During 1995, the Company received notice from the City of Providence (the
City) of an increase in the assessed values of several of its parcels within
Capital Center. The increase in the assessed values was not the result of a
city-wide revaluation, pertained to 1995 and subsequent years, and resulted in
an annual increase in property taxes of $265,000. The Company filed appeals
for 1995 and 1996 but elected to make property tax payments as due pending the
outcome of the appeals. During the fourth quarter of 1996, the City reduced
the assessed value of one of the parcels, resulting in an abatement of
property taxes of $107,000 for 1995 and a reduction in the tax of $115,000 for
1996 and subsequent years. The Company is unable to determine if the
remaining appeals will result in an abatement of the property taxes for 1995
and subsequent years.
On August 18, 1997, the Company received from the City real property tax bills
for taxes assessed as of December 31, 1996 reflecting an unexpected 200%
increase in the assessed values of a majority of the Company's parcels within
Capital Center, resulting in an annual increase in property tax expense of
approximately $1,370,000. This increase was not part of a city-wide
revaluation.
On August 21, 1997, the Company received from the City real property tax bills
purporting to assess taxes for assessment years ending December 31, 1990
through December 31, 1995, based upon a $42,000,000 retroactive increase in
the assessed values of these same properties. These increases were not part
of a city-wide revaluation. The aggregate amount of such taxes as billed was
approximately $7,100,000, which amount did not include any interest.
The Company believes that the changes in the assessed values is related to the
May 1997 Condemnation Judgment. The Company believes that the increase in the
assessed values for 1997 and prior periods are illegal and on August 27, 1997
filed a lawsuit against the City in the Superior Court.
On October 14, 1997, the Company received from the City real property tax
bills for the second quarter of 1997 indicating interest due on the 1996
assessment of $76,000 and interest due on the purported assessed taxes for the
years 1990 through 1995 of $3,300,000. The City asserts that the parcels
subject to the retroactive assessment were under-assessed in the prior
assessment periods.
On November 14, 1997, the Company filed appeals of the 1997 real property tax
bills.
On August 5, 1998, the Company received from the City real property tax bills
for taxes assessed as of December 31, 1997, which taxes are based upon the
assessed valuations as of December 31, 1996. The Company has appealed these
assessments and on October 16, 1998, filed a lawsuit against the City in the
Superior Court claiming that the increased assessments for 1998 are illegal.
In December 1998, the Supreme Court directed that the property tax disputes
with the City, title to the Disputed Parcel, and the condemnation case
previously discussed be heard by a single justice of the Superior Court.
The last real property tax bills were received by the Company in April 1999
from the City indicating that there remains unpaid taxes of $11,645,000 and
interest thereon of $5,589,000 for assessment dates of December 31, 1990
through 1997. Interest continues to accrue at the rate of 1 percent per
month.
On July 13, 1999, the Superior Court ruled in favor of the Company and found
that both the City's new tax assessments for assessment years 1997 and 1998
and back taxes for assessment years 1990-1996 are illegal and void. The
Superior Court entered judgment in favor of the Company and sent the case to
the Supreme Court for review.
The Company, upon consultation with counsel, believes that the Superior
Court's decision with respect to these assessments will be sustained on
review; however, such proceedings can be protracted and costly, and there can
be no assurance that the Company will be successful. The failure of the
Company to prevail in the proceedings contesting the retroactive increase in
assessed values would have a material adverse effect on the Company's results
of operations and financial condition and, while the Company believes, upon
consultation with counsel, that the likelihood of such failure is remote, if a
court were to require the Company to pay the retroactive assessments and
related interest, the Company could be forced to seek the protection of the
bankruptcy courts.
Pursuant to the terms of an agreement dated January 1987 between the City and
the State (City/State Agreement), the City was obligated to convey the
Disputed Parcel to the State. As discussed above, pursuant to the CPI/State
Agreement, the State was obligated to reconvey the Disputed Parcel to the
Company. In 1989, the City conveyed the Disputed Parcel to the State, and the
State reconveyed the Disputed Parcel to the Company. Contemporaneously, the
Company purchased a title insurance policy in the amount of $1,600,000
covering the Disputed Parcel.
The City now claims that its execution of the City/State Agreement was
invalid, that its conveyance of the Disputed Parcel to the State was void, and
hence the City is the true owner of the Disputed Parcel. Moreover, in
December 1998, the City adopted an ordinance authorizing the Providence
Redevelopment Agency to condemn the Disputed Parcel. The Company is
contesting both the City's claim of ownership and the City's attempt to
condemn the Disputed Parcel.
The Company's carrying value of the Disputed Parcel is $57,000. The Disputed
Parcel's assessed value was increased to $7,909,000 by the City as more fully
discussed above. The last real property tax bill relating to the Disputed
Parcel received in April 1999 from the City indicates that the unpaid taxes
and interest total approximately $2,350,000 through that date.
This dispute with the City was included in the matters heard by the single
justice of the Superior Court as directed by the Supreme Court. On July 13,
1999, the Superior Court ruled in favor of the Company and found that the
Company is the rightful owner of the Disputed Parcel and that the City has no
right to condemn the Disputed Parcel and therefore the ordinance authorizing
the condemnation is invalid. The Superior Court entered judgment in favor of
the Company and sent the case to the Supreme Court for review.
On May 26. 1998, the State filed an action in the Superior Court in which it
maintains that it is not responsible for paying any portion of the
Condemnation Judgment to the Company. The Supreme Court ordered the Superior
Court to determine these claims on an expedited basis. The State alleged,
among other things, that (1) its conveyance of the Disputed Parcel to the
Company relieves it from the obligation to pay one-half of the Condemnation
Judgment and (2) the City, not the State, is obligated to pay the other half
of the Condemnation Judgment.
On July 13, 1999 the Superior Court ruled in favor of the Company and found
that the State must pay the entire Condemnation Judgment to the Company. The
Superior Court left open the possibility that the Company will have to return
some portion of the Condemnation Judgment to the State following the State's
payment of the entire amount. The Superior Court entered judgment in favor of
the Company and sent the case to the Supreme Court for review. The Company is
unable to determine when and what action the Supreme Court will take.
On July 19, 1999, National Railroad Passenger Corporation (Amtrak) condemned
all the air rights owned by the Company located above the railroad corridor of
Amtrak on Parcel 6 in the Capital Center Project area for a three-year
temporary easement. Amtrak deposited $335,000 in the United States District
Court for the District of Rhode Island (U. S. District Court), the sum
estimated by Amtrak to be just compensation for the property taken. The
Company has petitioned the Court to be paid the deposited amount.
On July 30, 1999, Amtrak condemned a portion of Parcel 7A (the parking garage
parcel) in the Capital Center Project area upon which Amtrak had placed
improvements, for a permanent easement. Amtrak deposited $60,000 in the U. S.
District Court, the sum estimated by Amtrak to be just compensation for the
property taken.
The Company anticipates receiving these deposited amounts prior to the end of
1999. The Company is reviewing its course of action in connection with these
two condemnations.
The Company has determined that the "Year 2000" issue will not materially
affect its business, financial condition or results of operations. The
Company employs nine people. Substantially all of the leasing revenue is in
the form of fixed monthly payments, and the operation of the Facilities is not
dependent upon date-sensitive equipment. Should the Company experience a
problem, it is entirely feasible to maintain its systems in a non-computer
environment and continue to operate the Facilities.
Certain portions of this report, and particularly the Management's Discussion
and Analysis of Financial Condition and Results of Operations and the Notes to
Consolidated Financial Statements, contain forward-looking statements 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
collectibility of the accrued rental income when due over the terms of the
long-term land leases; changes in economic conditions that may affect either
the current or future development on the Company's parcels; the final outcome
of the condemnation and property tax litigation and the dispute over the
ownership of a parcel in the Capital Center Project area; and exposure to
contamination, cleanup or similar costs associated with the operation of the
Facilities.
Results of operations:
For the three and six months ended June 30, 1999, total income increased 38%
and 43%, respectively, from the 1998 level.
For the three and six months ended June 30, 1999, leasing revenue increased 16%
and 14%, respectively, from the 1998 levels due principally to the renewal of
short-term leases and the addition of two billboard locations. For the three
months ended June 30, 1999, expenses applicable to leasing decreased 20% from
the 1998 level due principally to a decrease in legal fees in connection with
the condemnation case and the property tax disputes with the City of
Providence. For the six months ended June 30, 1999, expenses applicable to
leasing remained at the 1998 level.
For the three and six months ended June 30, 1999, revenue from petroleum
storage facilities increased over the 1998 levels resulting principally from
income from an arrangement to operate the Facilities which commenced September
1, 1998. For the three and six months ended June 30, 1999, expenses applicable
to petroleum storage facilities increased 11% and 3%, respectively, from the
1998 levels resulting principally from an increase in payroll and related costs
as a result of an increased number of employees and the filling of underground
storage tanks in compliance with environmental regulations. These increases
were offset by a decrease in depreciation expense, resulting from the fact that
the tanks became fully depreciated by the end of 1998; however, depreciation
expense will increase upon the completion of the truck rack in 1999.
The decrease in total interest income in 1999 from 1998 results from
Railroad's prepaying its note in full in March 1998, which note provided for a
10% rate. The Company is not able to invest the proceeds at comparable rates.
For the three and six months ended June 30, 1999, general and administrative
expenses decreased 16% and 29%, respectively, from the 1998 levels, due
principally to professional fees in connection with corporate planning matters.
<PAGE>
PART II
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders was held on April 27, 1999. Of the
3,000,000 shares entitled to vote, 2,827,168 shares of stock were present,
in person or by proxy.
All directors of the Issuer are elected on an annual basis and the following
were so elected at this Annual Meeting: Ronald P. Chrzanowski, James H.
Dodge, Robert H. Eder, Harold J. Harris and Henry S. Woodbridge, Jr. Each
director received 2,814,035 affirmative votes; 13,133 abstained.
Also presented for approval was a resolution for the appointment of Lefkowitz
Garfinkel, Champi & DeRienzo P.C. as independent auditors of the accounts of
the Issuer for the year 1999. The resolution received 2,806,483 affirmative
votes and 20,312 negative votes; and 373 abstained.
Also presented for approval was a resolution to amend the By-laws to
eliminate mandatory retirement age for directors of the Issuer. The
resolution received 2,073,859 affirmative votes and 46,505 negative votes;
and 1,533 abstained.
Also presented for approval was a resulution to amend the By-laws to
provide that further amendments to the By-laws may be adopted by a majority
vote of either the board of directors or the shareholders. The resolution
received 2,061,510 affirmative votes and 53,095 negative votes; and 8,292
abstained.
Item 6. Exhibits and Reports on Form 8-K
(a) Index of Exhibits:
(3) (a) Restated articles of incorporation (incorporated by reference to
Exhibit 4.1 to the Issuer's report on Form 8A dated June 6, 1997).
(b) By-laws, as amended (incorporated by reference to Exhibit 3(b)
to the Issuer's quarterly report on Form 10-QSB for
the quarter ended June 30, 1995).
(10) Material contracts:
(a) Note from Providence and Worcester Railroad Company to Issuer
dated January 1, 1988 (incorporated by reference to Exhibit 10(a)
to the Issuer's annual report on Form 10-KSB for the year ended
December 31, 1992) as modified by Agreement dated August 16, 1995
(incorporated by reference to Exhibit 10(a) to the Issuer's annual
report on Form 10-KSB for the year ended December 31, 1995).
(b) Leases between Metropark, Ltd., and Issuer:
(i) Dated December 1, 1997 (incorporated by reference to
Exhibit 10(b)(iii) to the Issuer's annual report on Form
10-KSB for the year ended December 31, 1997).
(ii) Dated as of November 1, 1998 (incorporated by reference to
Exhibit 10(b)(ii) to the Issuer's annual report on Form 10-KSB
for the year ended December 31, 1998).
(iii) Dated as of December 1, 1998 (incorporated by reference
to Exhibit 10(b)(iii) to the Issuer's annual report on
Form 10-KSB for the year ended December 31, 1998).
(iv) Dated as of January 1, 1999 (incorporated by reference to
Exhibit 10(b)(iv) to the Issuer's annual report on Form 10-KSB
for the year ended December 31, 1998).
(v) Dated as of January 1, 1999 (incorporated by reference to
Exhibit 10(b)(v) to the Issuer's annual report on Form 10-KSB
for the year ended December 31, 1998).
(b) For the quarter ended June 30, 1999, no reports on Form 8-K were
filed.
<PAGE>
SIGNATURE
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.
CAPITAL PROPERTIES, INC.
By /s/ Ronald P. Chrzanowski
Ronald P. Chrzanowski
President
By /s/ Barbara J. Dreyer
Barbara J. Dreyer
Treasurer and Principal
Financial Officer
DATED: August 4, 1999
<PAGE>
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