CAPITAL PROPERTIES INC /RI/, 10KSB, 2000-03-16

CAPITAL PROPERTIES INC /RI/
10KSB, 2000-03-16
LESSORS OF REAL PROPERTY, NEC

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<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-KSB

X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
- ---- OF 1934 For the fiscal year ended DECEMBER 31, 1999
OR
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.
------------------------
(Name of small business issuer in its charter)

Rhode Island 05-0386287
------------ ----------
(State or other jurisdiction of IRS Employer Identification
incorporation or organization) No.

100 Dexter Road, East Providence, Rhode Island 02914
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)

Issuer's telephone number (401) 435-7171
-----------------------------------------------------

Securities registered under Section 12(b) of the Exchange Act:

Name of each exchange
Title of each class on which registered
---------------------------- -----------------------
Common Stock-$1.00 par value American Stock Exchange

Securities registered under Section 12(g) of the Exchange Act:

None
------------------------------------------------------------
(Title of Class)

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
--- ---

Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]

For the year ended December 31, 1999, the Issuer's revenues totaled $9,588,000.

<PAGE> 2

As of March 1, 2000, the aggregate market value of the voting stock held by
non-affiliates of the Issuer was $10,713,000, which excludes voting stock held
by directors, executive officers and holders of 5% or more of the voting power
of the Issuer's common stock (without conceding that such persons are
"affiliates" of the Issuer for purposes of federal securities law.) The Issuer
has no outstanding non-voting common equity.

As of March 1, 2000, the Issuer had 3,000,000 shares of Common Stock
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE - Portions of the proxy statement for the
2000 annual meeting of shareholders are incorporated by reference into Part III.
Portions of the annual report to shareholders of Capital Properties, Inc. for
the year ended December 31, 1999 are incorporated by reference into Parts I, II,
and III.

Transitional Small Business Disclosure Format. Yes No X
--- ---

<PAGE> 3

PART I
------
ITEM 1. - DESCRIPTION OF BUSINESS

BUSINESS DEVELOPMENT

The Issuer was organized as a business corporation under the laws of Rhode
Island in 1983 as Providence and Worcester Company and is the successor by
merger in 1983 to a corporation also named Providence and Worcester Company
which was organized under the laws of Delaware in 1979. The Issuer's corporate
name was changed to Capital Properties, Inc. in 1984.

BUSINESS OF ISSUER

The Issuer owns certain properties in downtown Providence, Rhode Island which it
leases or is holding for lease to third parties (see "Properties Under Long-Term
Leases" and "Properties Under Short-Term Leases," in Item 2 below). The Issuer
is the largest single landowner in the Capital Center Project area but is
nevertheless subject to some measure of competition from other landowners.

The Issuer owns all of the outstanding capital stock of Tri-State Displays,
Inc., (through which the Issuer leases land for billboards along interstate and
primary highways for outdoor advertising purposes) and all of the outstanding
capital stock of Capital Terminal Company which was incorporated in 1996
(through which the Issuer operates its petroleum storage facilities). (See
"Petroleum Storage Facilities" in Item 2 below.)

References hereinafter to the "Issuer" are, unless the context indicates
otherwise, collectively to the Issuer and its wholly-owned subsidiaries and its
predecessors.

MISCELLANEOUS

For information relating to the Issuer's dependence on one or a few major
customers, see Note 11 of Notes to Consolidated Financial Statements in the
Issuer's 1999 Annual Report to shareholders attached hereto as Exhibit 13
(hereinafter referred as the "1999 Annual Report"), which Note is incorporated
herein by reference.

During the last two years, no monies were expended by the Issuer and its
subsidiary on material research and development activities.

Compliance with federal, state and local provisions which have been enacted or
adopted regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment, has not had a material effect
upon the capital expenditures, earnings or competitive position of the Issuer.

On December 31, 1999, the Issuer employed a total of 9 full-time employees and 1
part-time employee.

I-1
<PAGE> 4

ITEM 2. - DESCRIPTION OF PROPERTY

PRINCIPAL FACILITIES

The Issuer's principal executive offices are located at its petroleum storage
facilities at 100 Dexter Road, East Providence, Rhode Island 02914.

INVESTMENT POLICIES AND INVESTMENTS IN REAL ESTATE

The Issuer has no established policy for the purchase of additional developed or
undeveloped property. However, should suitable parcels become available in the
general area of the Issuer's current land holdings, the Issuer would consider
such an acquisition depending on current levels of cash and the availability of
financing. Any properties acquired would most likely be leased primarily to
developers under long-term leases. The Issuer periodically invests its excess
cash in United States government and governmental agency obligations maturing in
not more than eighteen months.

DESCRIPTION OF REAL ESTATE AND OPERATING DATA

All of the properties described below (except the petroleum storage facilities)
are shown on a map on page 7 of the Issuer's 1999 Annual Report, which map is
incorporated herein by reference.

All the properties described below (except for the air rights) are owned in fee
by the Issuer. There are no mortgages, liens or other encumbrances on such
properties.

In the opinion of management, all of the properties described below are
adequately covered by insurance. Insurance is also required of all tenants, with
the Issuer being named as an additional insured.

PETROLEUM STORAGE FACILITIES - The Issuer holds title to approximately 8 acres
of land fronting on the Seekonk River in East Providence, Rhode Island. The
property is used and operated primarily as a petroleum storage facility (the
Facilities) with aggregate storage capacity of 340,000 barrels. Although the
Issuer has received a height variance from the zoning board of appeals on any
new tanks to be erected, it has no present plans to erect any tanks at this
time. The property can be further developed to contain several additional tanks
with an aggregate storage capacity at least equal to the current capacity. The
Issuer is constructing in two phases a new expanded truck rack which will be
fully automated and will have both top and bottom loading capabilities at an
estimated cost of construction of $2.2 million. The first phase was completed in
December 1999. It is anticipated that the second phase will be completed during
the first quarter of 2000 at an estimated cost of $880,000.

In January 1998, the Issuer purchased the Wilkesbarre Pier in the Port of
Providence and its deep-water berth for receiving petroleum products by tanker.
In January 1998, the Issuer also purchased the perpetual right to transport
petroleum products from the Pier to its terminal property through pipelines
owned by a third party.

I-2

<PAGE> 5

This property is the only independent petroleum storage facility with deep-water
access in the market area. All of the petroleum storage tanks and buildings are
owned by the Issuer.

In October 1996, the Issuer resumed possession of the Facilities. In September
1998, the Issuer entered into a short-term arrangement with Global Companies,
L.L.C. under which the Issuer operates the entire Facilities for Global. In May
1999, the Issuer entered into an agreement with Global extending the arrangement
for an additional three years plus options to extend on an annual basis.

The following schedule sets forth certain information on the federal tax basis
of that portion of the petroleum terminal property which is depreciated:

<TABLE>
<CAPTION>
Land
Improvements Buildings Tanks Equipment
------------ --------- ----- ---------
<S> <C> <C> <C> <C>
Federal Tax Basis (cost) $367,921 $173,051 $2,246,787 $1,537,117
Rate per year 6.67% 2.5% to 5% 3.3% to 20% 40%
Method S/L S/L S/L 200% DDB
Life (Years) 15 20 to 40 5 to 33 5
</TABLE>

The 1999 real estate taxes are $43,477 for the petroleum storage facilities and
$35,702 for the Wilkesbarre Pier at a $23.05 per Thousand Dollars of assessed
valuation tax rate. It is not known what the tax assessment will be on the
equipment and land improvements put into service in 1999.

PROPERTIES UNDER LONG-TERM LEASES - The Issuer owns approximately 20.5 acres of
land within the Capital Center Project area of downtown Providence, including
1.9 acres of air rights over Amtrak's Northeast Corridor railroad tracks which
run through downtown Providence. (The land underlying the Parking Garage
described below is also included in this acreage.) See the map on page 7 of the
Issuer's 1999 Annual Report, which map is incorporated herein by reference.

At December 31, 1999, land leases for three separate land parcels within this
area have commenced with remaining terms of up to 143 years. These leases have
scheduled rent increases over their terms. For further information on the
development of these parcels by the tenants, reference is made to the
President's Report at pages 2 and 3 in the Issuer's 1999 Annual Report, which
report is incorporated herein by reference.

As of December 31, 1999, the Issuer had entered into a land lease for 149 years
under which the developer proposes to construct a building of approximately
350,000 square feet of commercial space and a minimum of 200 public parking
spaces. The lease provides 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 developer will be
able to satisfy the conditions precedent to proceeding with the development. The
Issuer is unable to determine at this time when construction will begin and
therefore the time at which the term of each lease will commence.

I-3

<PAGE> 6

PROPERTIES UNDER SHORT-TERM LEASES:

PARKING GARAGE - The Issuer owns a 360-car parking garage adjacent to a rail
passenger station in downtown Providence, Rhode Island, together with the
underlying land (the Parking Garage), which is leased under a short-term
cancelable lease to a firm experienced in parking operations. The annual rent is
$121,000 ($.79 per square foot). The federal tax cost basis of the Parking
Garage (exclusive of the underlying land) is $2,500,000, which is being
depreciated on the straight-line method at the rate of 2.5% per year over a
40-year life. The 1999 real estate taxes are $103,527 on the Parking Garage and
$63,686 on the underlying land using a $33.44 per Thousand Dollars of assessed
valuation tax rate. (For a discussion of the litigation currently pending with
the State of Rhode Island and the Federal Railroad Administration concerning the
parking rates in the garage, reference is made to the President's Report at page
5, which report is incorporated herein by reference.)

Parcels 3E, 3W, 4E, 4W and 6 in the Capital Center Project area and Parcels 21
and 22 immediately adjacent to this area are leased for surface parking purposes
to the same firm that leases the Parking Garage described above. The Issuer
continues to seek developers for the remaining parcels, and these leases can be
terminated on short notice should suitable development opportunities arise or
when construction on a parcel commences as described above.

In connection with Parcel 4E, in 1989 the Issuer entered into a non-binding
letter of intent with a developer who proposes to construct an office building.
The developer has delayed the project until such time as it has located a major
tenant to occupy the building.

ITEM 3. LEGAL PROCEEDINGS

PETITION FOR ASSESSMENT OF DAMAGES - For a discussion of the litigation
currently pending with the State of Rhode Island, reference is made to Note 2 of
Notes to Consolidated Financial Statements in the Issuer's 1999 Annual Report,
which note is incorporated herein by reference.

For a discussion of the litigation with the National Railroad Passenger
Corporation currently pending, reference is made to Note 3 of Notes to
Consolidated Financial Statements in the Issuer's 1999 Annual Report, which note
is incorporated herein by reference.

For a discussion of the litigation currently pending with the State of Rhode
Island and the Federal Railroad Administration, reference is made to the
President's Report at page 5, which report is incorporated herein by reference.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

I-4

<PAGE> 7

PART II
-------
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

See page 32 of the Issuer's 1999 Annual Report, which page is incorporated
herein by reference.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

See pages 8 through 13 of the Issuer's 1999 Annual Report, which pages are
incorporated herein by reference.

ITEM 7. FINANCIAL STATEMENTS

The following consolidated financial statements of the Issuer and its
subsidiaries, set forth at pages 15 through 30 of the Issuer's 1999 Annual
Report, are incorporated herein by reference:

Consolidated balance sheet--December 31, 1999

Consolidated statements of income (loss) and retained earnings--years ended
December 31, 1999 and 1998

Consolidated statements of cash flows--years ended December 31, 1999 and
1998

Notes to consolidated financial statements--years ended December 31, 1999
and 1998

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

II-1

<PAGE> 8

PART III
--------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
ISSUER

For information with respect to the directors and control persons of the Issuer,
see Pages 3, 4 and 5 of the Issuer's definitive proxy statement for the 2000
annual meeting of its shareholders, which pages are incorporated herein by
reference.

The following are the executive officers of the Issuer:

<TABLE>
<CAPTION>
Date of First
Name Age Office Held Election to Office
- ---- --- ----------- ------------------
<S> <C> <C> <C>
Robert H. Eder 67 Chairman 1995
Ronald P. Chrzanowski 57 President 1997
Barbara J. Dreyer 61 Treasurer 1997
Stephen J. Carlotti 57 Secretary 1998
</TABLE>

All officers hold their respective offices until their successors are duly
elected and qualified. Mr. Chrzanowski served as Vice President of the Issuer
from November 12, 1997 to December 31, 1997, and as President since that date.
Ms. Dreyer served as Secretary-Treasurer of the Issuer from 1987 to 1995; as
President and Treasurer from 1995 to December 31, 1997 and as Treasurer since
that date.

ITEM 10. EXECUTIVE COMPENSATION

See page 3 of the Issuer's definitive proxy statement for the 2000 annual
meeting of its shareholders, which page is incorporated herein by reference.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

See pages 3 and 4 of the Issuer's definitive proxy statement for the 2000 annual
meeting of its shareholders, which pages are incorporated herein by reference.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

See pages 4 and 5 of the Issuer's definitive proxy statement for the 2000 annual
meeting of its shareholders, which pages are incorporated herein by reference.

III-1
<PAGE> 9

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Index of Exhibits:

(3) (a) Restated articles of incorporation (incorporated by reference to
Exhibit 3 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 September 30, 1999).

(10) Material contracts:
(a) Leases between Metropark, Ltd., and Issuer:
(i) Dated December 1, 1999; see page III-3;

(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); and

(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).

(13) Annual report to shareholders for the year ended December 31, 1999;
see page III-4.

(21) Subsidiaries of the Issuer; see page III-5.

(22) Plan of the Issuer's parcels in Downtown Providence (incorporated by
reference to page 7 of the Issuer's annual report to shareholders for
the year ended December 31, 1999), filed as Exhibit 13 hereto.

(27) Financial Data Schedule.

(b) A report on Form 8-K was filed on December 2, 1999, reporting that the
Rhode Island Supreme Court affirmed the judgment of the Rhode Island
Superior Court ordering to the State of Rhode Island to pay a condemnation
award owed to the Company.

III-2
<PAGE> 10

SIGNATURES
----------
In accordance with Section 13 or 15(d) 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 and Principal
Executive Officer

Dated: March 8, 2000

In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Issuer and in the capacities and on the
dates indicated.

SIGNATURE

/s/ Robert H. Eder March 9, 2000
- --------------------------------------
Robert H. Eder
Chairman and Director

/s/ Ronald P. Chrzanowski March 8, 2000
- --------------------------------------
Ronald P. Chrzanowski
President and Director
(Principal Executive Officer)

/s/ Barbara J. Dreyer March 8, 2000
- --------------------------------------
Barbara J. Dreyer
Treasurer, Principal Financial Officer
and Principal Accounting Officer

/s/ James H. Dodge March 8, 2000
- --------------------------------------
James H. Dodge, Director

<PAGE> 1
EXHIBIT 10(a)(i)
----------------

LEASE

BETWEEN

METROPARK, LTD.

AND

CAPITAL PROPERTIES, INC.

DATED AS OF DECEMBER 1, 1999

(COVERING PARCELS 3W AND 4W)

III-3
<PAGE> 2

L E A S E
---------

THIS INDENTURE OF LEASE made as of the 1st day of December, 1999, by and
between CAPITAL PROPERTIES, INC., a Rhode Island corporation (hereinafter
referred to as "Landlord"), and METROPARK, LTD., a Rhode Island corporation
(hereinafter referred to as "Tenant").

W I T N E S S E T H T H A T:
------------------- --------

In consideration of the rents, covenants and agreements to be paid, kept
and performed by Tenant, as hereinafter provided, Landlord hereby demises and
leases to Tenant, and Tenant hereby hires and takes from Landlord the real
property known as Parcels 3W and 4W in the Capital Center, in Providence, Rhode
Island, as shown on a plan attached to this Lease as Exhibit A (hereinafter
called the "Premises").

TO HAVE AND TO HOLD the Premises, together with all rights, privileges,
easements and appurtenances thereunto belonging and attaching, unto Tenant for a
term of two (2) years (hereinafter called the "Term") commencing as of December
1, 1999, and ending on November 30, 2001.

This Lease is made upon the covenants and agreements herein set forth on
the part of the respective parties, all of which the parties respectively agree
to observe and comply with during the term hereof.

1. Rental.
------

During the period from December 1, 1999 to November 30, 2000, Tenant shall
pay to Landlord an annual rental of One Hundred Fifty Thousand ($150,000)
Dollars payable in monthly installments of Twelve Thousand Five Hundred
($12,500) Dollars on the first day of each month without offset, deduction or
abatement.

During the period from December 1, 2000 to November 30, 2001, Tenant shall
pay to Landlord an annual rental of One Hundred Fifty-six Thousand ($156,000)
Dollars payable in monthly installments of Thirteen Thousand ($13,000) Dollars
on the first day of each month.

2. Utilities and Other Charges.
---------------------------

Tenant will pay directly before the same become delinquent all charges,
duties, rates, license and permit fees and other amounts of every description to
which the Premises or any part thereof or any improvement thereon erected or
used by Tenant may, during the term hereof, be assessed or become liable for
electricity, refuse collection, telephone or any other utilities or services or
any connection or meters therefor, whether assessed to or payable by Landlord or
Tenant. Tenant will, within ten (10) days after receipt of written demand by
Landlord, furnish Landlord with receipts or other evidence indicating that all
such amounts have been paid. Provided, however, that Tenant shall only be
responsible for those charges and assessments which are for the period of its
occupancy of the Premises.

3. Taxes and Assessments.
---------------------
<PAGE> 3

Landlord will pay and keep current the real estate taxes assessed against
the premises.

4. Compliance with Laws and Regulations.
------------------------------------

Tenant will at all times during the term hereof keep the Premises in good
order and a strictly sanitary condition and observe and perform all laws,
ordinances, orders, rules and regulations now or hereafter made by any
governmental authority for the time being applicable to the Premises or any
improvement thereon or use thereof, and with the orders, rules and regulations
of the National Board of Fire Underwriters or similar organization so far as the
same may relate to the use of the Premises, and will indemnify Landlord against
all actions, suits, damages and claims by whomsoever brought or made by reason
of the nonobservance or nonperformance of such laws, ordinances, orders, rules
and regulations, or of this covenant. Nothing herein shall obligate the Tenant
to construct any additional improvements on the Premises.

5. Inspection.
----------

Tenant will permit Landlord and its agents at all reasonable times during
the term hereof to enter the Premises and examine the state of repair and
condition thereof, and the use being made of the same. Landlord may also enter
upon the Premises to perform any repairs or maintenance which Tenant has failed
to perform hereunder, and to show the premises to prospective purchasers,
tenants and mortgagees. Further, Landlord shall have the right to have test
borings done on the premises, and will use reasonable, good faith effort to
avoid unreasonable interference with the Tenant's business thereon.

6. Repair and Maintenance.
----------------------

Tenant will, at its own expense, from time to time and at all times during
the term hereof, well and substantially repair, maintain, amend and keep the
Premises, together with all fixtures and items of personal property used or
useful in connection therewith, with all necessary reparations and amendments
whatsoever in as good order and condition as they now are or may be put in,
reasonable wear and tear and damage by the elements and such unavoidable
casualty against which insurance is not required hereunder excepted. Tenant will
maintain the signs on the Premises and fix all potholes that may develop. Tenant
will have the benefit of all warranties pertaining thereto. Tenant will remove
snow from the Premises and keep the sidewalks clean and free from ice and snow.
Landlord will be responsible for any capital improvements.

7. Use.
---

Tenant shall use the Premises only for the operation of a parking lot and
other accessories related to a parking lot which are approved by Landlord.

8. Notices re Premises.
-------------------
<PAGE> 4

Landlord will forthwith furnish Tenant copies of any notices it receives
regarding the Premises from any third parties which notices relate to the
Tenant's use and occupancy of the Premises.

9. Cancellation of Lease.
---------------------

Either Landlord or Tenant may cancel this Lease upon thirty (30) days'
written notice to the other.

10. Insurance.
---------

Tenant agrees to maintain at all times public liability insurance on an
occurrence basis against all claims and demands for personal injury liability
(including, without limitation, bodily injury, sickness, disease, and death) and
damage to property which may be claimed to have occurred on the Land or in the
Building in the event of injury to any number of persons or damage to property,
arising out of any one occurrence, which shall, at the beginning of the Term, be
at least equal to $1,000,000, and to name Landlord and any mortgagees and ground
lessors designated by landlord as additional insured and furnish landlord with
the certificates thereof; such insurance shall contain a provision that the
Landlord, and each such mortgagee and ground lessor although named as an
insured, shall nevertheless be entitled to recovery under said policy for any
loss occasioned to it, its servants, agents and employees by reason of the
negligence of the Tenant; all insurance required under the terms of this Lease
shall be effected with insurers having a general policyholders rating of not
less than A in Best's latest rating guide and shall not be canceled or modified
without at least 30 days' prior written notice to each insured named therein.
Tenant shall provide landlord with certificates of all insurance required to be
carried by Tenant under the Lease at or prior to the Commencement Date and prior
to the expiration of each such policy.

11. Landlord's Costs and Expenses.
-----------------------------

If Tenant shall fail to comply with any of its obligations hereunder,
landlord may, upon ten (10) days' prior written notice to Tenant (or without
notice in case of emergency), take any such action as may be reasonably required
to cure any such default by Tenant. Tenant will pay to Landlord, on demand, all
costs and expenses, including reasonable attorneys' fees, incurred by Landlord
in collecting any delinquent rents, or other charges payable by Tenant
hereunder, or in connection with any litigation commenced by or against Tenant
(other than condemnation proceedings) to which Landlord, without any fault on
its part, shall be made a party. All such amounts owing to Landlord shall
constitute additional rent hereunder.

12. Indemnification of Landlord.
---------------------------

12.1. Tenant shall indemnify and save harmless Landlord (regardless of
Tenant's covenant to insure) against and from any and all claims by or on behalf
of any person or persons, firm or firms, corporation or corporations, arising
from the use, occupancy, conduct or management of the Premises, unless done by
or contributed to Landlord, any of its agents, contractors, servants, employees
or licensees, and shall further indemnify and save Landlord harmless against and
from any and all claims arising during the term hereof from any condition of the
Premises, or arising from any breach or default on the part of Tenant in the
performance of any covenant or agreement on the part of Tenant to be performed
pursuant to the terms of this Lease, or arising from any act of Tenant or any of
its agents, contractors, servants or employees to any person, firm or
corporation occurring

<PAGE> 5

during the term hereof in or about the Premises or upon or under said areas, and
from and against all costs, counsel fees, expenses or liabilities incurred in or
about any such claim or action or proceeding brought thereon.

12.2. Tenant shall pay and indemnify Landlord against all legal costs
and charges incurred in obtaining possession of the Premises after the default
of Tenant or upon expiration or earlier termination of the term hereof, other
than by reason of any default of Landlord, or in enforcing any covenant or
agreement of Tenant herein contained.

13. Liens.
-----

13.1. Tenant will not commit, suffer any act or neglect whereby the
Premises or any improvements thereon or the estate of Landlord therein shall at
any time during the term hereof become subject to any attachment, judgment,
lien, charge or encumbrance whatsoever, except as herein expressly provided, and
will indemnify and hold Landlord harmless from and against all loss, costs and
expenses, including reasonable attorneys' fees, with respect thereto.

13.2. If due to any act or neglect of Tenant, any mechanic's,
laborer's or materialmen's lien shall at any time be filed against the premises
or any part hereof, Tenant, within thirty (30) days after notice of the filing
thereof shall cause the same to be discharged of record by payment, bonding or
otherwise, and if Tenant shall fail to cause the same to be discharged, then
Landlord may, in addition to any other right or remedy, cause the same to be
discharged, either by paying the amount claimed to be due, or by procuring the
discharge of such lien by deposit or by bonding proceedings, and all amounts so
paid by landlord, together with all reasonable costs and expenses incurred in
connection therewith, and together with interest thereon at the rate of ten
percent (10%) per annum from the respective dates of payment, shall be paid by
Tenant to Landlord, on demand, as additional rent hereunder.

13.3. Nothing in this lease contained shall be deemed or construed in
any way as constituting the consent or request of Landlord, express or implied
by inference or otherwise, to any contractor, subcontractor, laborer,
materialmen, architect or engineer for the performance of any labor or the
furnishing of any materials or services for or in connection with the Premises
or any part thereof. Notice is hereby given that Landlord shall not be liable
for any labor or materials or services furnished or to be furnished to Tenant
upon credit, and that no mechanic's or other lien for any such labor, materials,
or services shall attach to or affect the fee or reversionary or other estate or
interest of Landlord in the Premises of and in this Lease.

14. Default.
-------

14.1. In the event that during the term hereof any of the following
events shall occur (each of which shall be an "Event of Default");

(a) Tenant shall default in the payment of any installment of the
Rent for ten (10) days after the same shall become due, during which ten-day
period Tenant may cure the default;

(b) Tenant or any permitted assignee of Tenant shall (i) apply
for or consent to an appointment of a receiver, a trustee or liquidator of it or
of all or a substantial part of its assets; (ii) make a general assignment for
the benefit of creditors; (iii) be adjudicated a bankrupt or insolvent; (iv)
file a voluntary petition in bankruptcy or a petition or an answer seeking

<PAGE> 6

reorganization or an arrangement with creditors to take advantage of any
insolvency law or an answer admitting the material allegations of a petition
filed against it in any bankruptcy, reorganization or insolvency proceeding or
corporate action shall be taken by it for the purpose of effecting any of the
foregoing;

(c) An order, judgment or decree shall be entered, without the
application, approval or consent of Tenant or any permitted assignee of Tenant
by any court of competent jurisdiction, approving a petition seeking
reorganization of Tenant or such assignee or appointing a receiver, trust or
liquidator of Tenant or such assignee or of all or a substantial part of its
assets and such order, judgment or decree shall continue unstayed and in effect
for any period of sixty (60) consecutive days; or

(d) Any other default by Tenant in performing any of its other
obligations hereunder shall continue uncorrected for ten (10) days after receipt
of written notice thereof from Landlord, during which period Tenant or such
assignee may cure the default; then landlord may, by giving written notice to
Tenant, either (a) terminate this Lease, (b) re-enter the Premises by summary
proceedings or otherwise, expelling Tenant and removing all of Tenant's property
therefrom, and relet the Premises and receive the rent therefrom, or (c)
exercise any other remedies permitted by law. Tenant shall also be liable for
the reasonable cost of obtaining possession of and reletting the Premises and of
any repairs and alterations or other payments necessary to prepare them for
reletting. Any and all such amounts shall be payable to Landlord upon demand.
Notwithstanding anything contained herein to the contrary, no termination of
this Lease prior to the last day of the term hereof, except as provided in
Section 15 hereof, shall relieve Tenant of its liability and obligations under
this Lease, and such liability and obligations shall survive any such
termination.

14.2. In the event of any breach by Tenant of any of the covenants,
agreements, terms or conditions contained in this Lease, Landlord shall be
entitled to enjoin such breach or threatened breach and shall have the right to
invoke any right and remedy allowed at law or in equity, or by statute or
otherwise, as though reentry, summary proceedings and other remedies were not
provided for in this Lease.

14.3. Each right and remedy of Landlord provided for in this Lease
shall be cumulative and shall be in addition to every other right or remedy
provided for in this Lease or now or hereafter existing, at law or in equity, or
by statute or otherwise, and the exercise or beginning of the exercise by
Landlord of any one or more of the rights or remedies provided for in this
Lease, or now or hereafter existing at law or in equity, or by statute or
otherwise, shall not preclude the simultaneous or later exercise by Landlord of
any or all other rights or remedies provided for in this Lease, or now or
hereafter existing at law or in equity, or by statute or otherwise.

15. Eminent Domain.
--------------

If the whole or any part of the demised premises shall be condemned or
acquired by eminent domain for any public or quasi-public use or purpose, then
the term of this Lease shall cease and terminate as of the date of vesting of
title in such proceeding and all rentals shall be paid up to the date of the
vacating of the premises by Tenant and Tenant shall have no claim against
Landlord nor the condemning authority for the value of any unexpired term of
this Lease.

In the event of any condemnation or taking as aforesaid, whether whole or
partial, Tenant shall not be entitled to any part of the award paid for such
condemnation and Landlord is to receive

<PAGE> 7

the full amount of such award, Tenant hereby expressly waiving any right or
claim to any part thereof.

16. Condition of Premises.
---------------------

Tenant represents that the Premises, the sidewalks and structures adjoining
the same, and any subsurface conditions thereof, and the present uses and
non-uses thereof, have been examined by Tenant, and Tenant agrees that it will
accept the same in the condition or state in which they, or any of them, now
are, without representation or warranty, express or implied in fact or by law,
by Landlord, and without recourse to Landlord as to the nature, condition or
usability thereof, or the use or uses to which the Premises, or any part
thereof, may be put.

17. Independent Covenants--No Waiver.
--------------------------------

17.1. Each and every of the covenants and agreements contained in this
Lease shall be for all purposes construed to be separate and independent
covenants and the waiver of the breach of any covenant contained hereby by
Landlord shall in no way or manner discharge or relieve Tenant from Tenant's
obligation to perform each and every of the covenants contained herein.

17.2. If any term or provision of this Lease or the application
thereof to any person or circumstance shall to any extent be invalid or
unenforceable, the remainder of this Lease, or the application of such term or
provision to persons or circumstances other than those as to which it is invalid
or unenforceable, shall not be affected thereby, and each term and provision of
this Lease shall be valid and shall be enforced to the fullest extent permitted
by law.

17.3. The failure of Landlord to insist in any one or more cases upon
the strict performance of any of the covenants of this Lease shall not be
construed as a waiver or a relinquishment for the future of such covenant. A
receipt by Landlord of rent with knowledge of the breach of any covenant hereof
shall not be deemed a waiver of such breach, and no waiver by landlord of any
provision of this Lease shall be deemed to have been made unless expressed in
writing and signed by Landlord. All remedies to which landlord may resort under
the terms of this Lease or by law provided shall be cumulative.

18. Subordination.
-------------

This Lease and the rights of Tenant hereunder are subject and subordinate
in all respects to all matters of record, including, without limitation, deeds
and all mortgages which may now or hereafter be placed on or affect the
Premises, or any part thereof, and/or Landlord's interest or estate therein, and
to each advance made and/or hereafter to be made under any such mortgages, and
to all renewals, modifications, consolidations, replacements and extensions
thereof, and all substitutions.

19. Quiet Enjoyment.
---------------

Landlord covenants that Tenant, upon paying the rent and performing the
covenants hereof on the part of Tenant to be performed shall and may peaceably
and quietly have, hold and enjoy the Premises and all related appurtenances,
rights, privileges and easements throughout the term hereof without any lawful
hindrance by landlord and any person claiming by, through or under it.

20. Return of Premises.
------------------
<PAGE> 8

At the expiration or other temination of the term hereof, Tenant will
remove from the Premises its property and that of all claiming under it and will
peaceably yield up to Landlord the Premises in as good condition in all respects
as the same were at the commencement of this Lease, except for ordinary wear and
tear, damage by the elements, by any exercise of the right of eminent domain or
by public or other authority, or damage which Landlord is required herein to
replace, restore or rebuild or damage for which no insurance is required
hereunder.

21. Holdover.
--------

Tenant agrees to pay to landlord twice the total of all rent then
applicable for each month or portion thereof Tenant shall retain possession of
the Premises or any part thereof after the termination of this Lease (unless and
to the extent such holding over shall be pursuant to a written agreement between
Landlord and Tenant), whether by lapse of time or otherwise, and also to pay all
damages sustained by landlord on account thereof; the provisions of this
subsection shall not operate as a waiver by Landlord of any right of re-entry
provided in this Lease or under law. Tenant shall also pay all reasonable legal
fees and damages incurred by Landlord as a result of such holdover.

22. Limitation of Liability.
-----------------------

Tenant shall neither assert nor seek to enforce any claim for breach of
this Lease against any of Landlord's assets other than Landlord's interest in
the Premises, and Tenant agrees to look solely to such interest for the
satisfaction of any liability of Landlord under this Lease, it being
specifically agreed that in no event shall landlord (which term shall include,
without limitation, any of the officers, employees, agents, attorneys, trustees,
directors, partners, beneficiaries, joint venturers, members, stockholders or
other principals or representatives, disclosed or undisclosed, thereof) ever be
personally liable for any such liability.

23. No Recording of Lease.
---------------------

Tenant hereby acknowledges and agrees that it shall not record this Lease
or any notice or memorandum of this Lease in any land evidence records or any
other public record without the express prior written consent of Landlord. In
the event of any such recording, Tenant shall be in default of this Agreement
and Landlord shall have all rights and remedies available under law or in equity
as a result of such recordation including, without limitation, the right to
terminate this Lease.

24. Assignment and Subletting.
-------------------------

Tenant will not assign this Lease, in whole or in part, nor sublet all or
any part of the Premises, nor license, nor pledge or encumber by mortgage or
other instruments its interest in this Lease without landlord's prior written
consent, which consent may be withheld by landlord in its sole and absolute
discretion. This prohibition includes any subletting or assignment which would
otherwise occur by operation of law, merger, consolidation, reorganization,
transfer or other change of Tenant's corporate or trustee in any federal or
state bankruptcy, insolvency, or other proceedings. Consent by landlord to any
assignment or subletting shall not constitute a waiver of the foregoing
prohibition with respect to any subsequent assignment or subletting.

25. Use of Hazardous Material.
-------------------------
<PAGE> 9

Tenant shall not cause or permit any Hazardous Material to be brought upon,
kept or used in or about the Premises by Tenant, its agents, employees,
contractors or invitees without the prior written consent of Landlord. If Tenant
breaches the obligations stated in the preceding sentence, or if contamination
of the Premises by Hazardous Material otherwise occurs, Tenant shall indemnify,
protect, defend and hold Landlord harmless from any and all claims, judgments,
damages, penalties, fines, costs, liabilities or losses (including, without
limitation, diminution in value of the Premises, damages for the loss or
restriction on use of rentable Premises or usable space or of any amenity of the
Premises, damages arising from any adverse impact on marketing of Premises
space, and sums paid in settlement of claims, attorneys' fees, consultant fees
and expert fees) which arise during or after the Term as a result of such
contamination. This indemnification of Landlord by Tenant includes, without
limitation, costs incurred in connection with any investigation of site
conditions or any clean-up, remedial, removal or restoration work required by
any federal, state or local government agency or political subdivision because
of Hazardous Material present in the sole, surface water or groundwater on, near
or under the Premises.

As used herein, the term "Hazardous Material" means any hazardous or toxic
substance, material or waste, including, but not limited to, those substances,
materials, and wastes listed in the United States Department of Transportation
Hazardous materials Table (49 CFR 172.101) or by the Environmental Protection
Agency as hazardous substances (40CFR part 302) and amendments thereto, or such
substances, materials and wastes that are or become regulated under any
applicable local, state or federal law.

Landlord and its agents shall have the right, but not the duty, to inspect
the Premises at any time to determine whether Tenant is complying with the terms
of this Lease.

26. Construction.
------------

The mention of the parties hereto by name or otherwise shall be construed
as including and referring to their respective successors and assigns as well as
to the parties themselves whenever such construction is required or admitted by
the provisions hereof; and all covenants, agreements, conditions, rights, powers
and privileges hereinbefore contained shall inure to the benefit of and be
binding upon the successors and assigns of such parties, unless otherwise
provided.

27. Permits.
-------

Tenant, at its cost, shall obtain any necessary permits for the Premises
from the City of Providence.

28. Notices.
-------

Whenever notice shall be given under this Lease, the same shall be in
writing and shall be sent by certified or registered mail, return receipt
requested as follows:

To the Landlord: 100 Dexter Road
East Providence, Rhode Island 02914

To the Tenant: c/o Charles Meyers
56 Pine Street
Providence, Rhode Island 02903
<PAGE> 10

To the Tenant's Charles Koutsogiane
Attorney: One Grove Avenue
East Providence, Rhode Island 02914

or to such other address or addresses as each party may from time to time
designate by like notice to the other. Said notice shall be valid and times
begin to run hereunder upon receipt of the party to which said notice is given.

IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed in duplicate as of the day and year first above written.

CAPITAL PROPERTIES, INC. METROPARK, LTD.

By /s/Ronald P. Chrzanowski By /s/Charles Meyers
--------------------------- --------------------------
Ronald P. Chrzanowski Charles Meyers, President
President

<PAGE> 11

STATE OF RHODE ISLAND
COUNTY OF PROVIDENCE

In Providence, in said County on the 14th day of September, 1999, before me
personally appeared RONALD P. CHRZANOWSKI, President of CAPITAL PROPERTIES,
INC., to me known and known by me to be the person executing the foregoing
instrument on behalf of said corporation, and he acknowledged said instrument by
him executed to be his free act and deed and the free act and deed of said
corporation.

/s/ Gloria P. Hopkins
---------------------------
Notary Public
Gloria P. Hopkins
My Commission Expires June 23, 2001

STATE OF RHODE ISLAND
COUNTY OF PROVIDENCE

In Providence, in said County on the 15th day of September, 1999, before me
personally appeared CHARLES MEYERS, President of METROPARK, LTD., to me known
and known by me to be the person executing the foregoing instrument on behalf of
said corporation, and he acknowledged said instrument by him executed to be his
free act and deed and the free act and deed of said corporation.

/s/ Carolyn M. Bouchard
---------------------------
Notary Public

<PAGE> 12

GUARANTEE
---------

In consideration of the execution of the foregoing lease by the Landlord, the
undersigned (jointly and severally, if more than one) guarantees that the Tenant
will pay all rent thereunder and will perform all other terms, conditions or
agreements on its part to be performed or fulfilled, and agrees that the
foregoing lease may be amended from time to time by the parties thereto without
notice to the undersigned. The undersigned consents that extensions of time of
payment or any other indulgences may be granted to the Tenant without notice to
and without releasing or affecting in any way the liability of the undersigned
and the undersigned waives demand and notice of default. This guarantee is in
addition to any other security which the Landlord may have for the performance
of the Tenant's obligations and the Landlord may have the recourse to this
guarantee without first pursuing the Landlord's remedies against such other
security, if any. The Landlord may release, in whole or in part, any other
security without releasing or affecting in any way the liability of the
undersigned. In addition, the undersigned will pay to the Landlord all costs and
expenses (including attorneys' fees) incurred in connection with the enforcement
of this guarantee. Executed this 15th day of September, 1999.

/s/ Charles Meyers
---------------------------
Charles Meyers

<PAGE> 1
EXHIBIT 13

ANNUAL REPORT 1999

CAPITAL PROPERTIES, INC.

III-4
<PAGE> 2

BRIEF DESCRIPTION OF
THE COMPANY'S BUSINESS

The Company's business consists of the leasing of certain of its real estate
interests in downtown Providence, Rhode Island. Through its wholly-owned
subsidiary, Tri-State Displays, Inc., the Company leases locations along
interstate and primary highways in Rhode Island and Massachusetts for outdoor
advertising purposes. Through its wholly-owned subsidiary, Capital Terminal
Company, the Company operates its petroleum storage facilities in East
Providence, Rhode Island.

<PAGE> 3

PRESIDENT'S REPORT

In the accompanying financial statements, the Company is reporting net income of
$3,858,000 for the calendar year 1999, resulting in earnings per share of $1.29.

The Company's common stock is listed on the American Stock Exchange under the
symbol "CPI." During 1999, the Company paid a dividend of $.11 per share on the
Company's outstanding stock.

In December 1999, after twelve years of litigation in connection with the
condemnation of a portion of the Company's parcels in the Capital Center Project
area, the State of Rhode Island paid the Company $5,977,000. This matter is
discussed more fully below.

DOWNTOWN PROVIDENCE REAL ESTATE

The Company owns approximately 20.5 acres of land within the Capital Center
Project area (Capital Center) in downtown Providence, Rhode Island, including
1.9 acres of air rights over Amtrak's Northeast Corridor (Boston to New York
City) railroad right of way. These properties, shown on the plan which appears
on page 7 of this Report, are Parcels 2, 3S, 3W, 3E, 4W, 4E, 5, 6, 7A, 8 and 9.
The Company also owns a 15,000 square foot parcel (Parcel 22) and a 3,000 square
foot parcel (Parcel 21) located outside of, but immediately adjacent to, Capital
Center.

The Company has entered into long-term land leases on some of its parcels with
private developers and has entered into one letter of intent on another parcel.

On Parcel 3S is a 13-story office building containing approximately 235,000
square feet owned by CFG Associates, L. P. (CFG). The general partner in CFG is
a subsidiary of Citizens Financial Group, Inc. whose commercial banking
affiliate is the building's principal tenant and the building serves as its
corporate headquarters. Citizens Financial Group, Inc. is, in turn, an affiliate
of Royal Bank of Scotland. The Company's lease with CFG terminates in 2087.

On Parcel 5 is an 8-story apartment building containing approximately 454,000
square feet with 225 units owned by AvalonBay Communities Inc. (Avalon), a real
estate investment trust listed on the New York Stock Exchange. The Company's
lease with Avalon terminates in 2142.

The Company owns a below-grade parking garage on Parcel 7A containing 360 public
parking spaces adjacent to the Amtrak rail passenger station.

On Parcel 8 is a 4-story office building containing approximately 114,000 square
feet owned by Gateway Eight Limited Partnership (Gateway Eight), an affiliate of
Congress Group Ventures, Inc. of Cambridge, Massachusetts. The building is
currently subleased by Boston Financial Data Services, Inc., which sublease
expires December 31, 2009. The Company's lease with Gateway Eight terminates in
2090.

The Company has entered into a long-term lease for 149 years on Parcel 9 with FC
Acquisitions Associates, L.L.C. (FC), an affiliate of Forest City Ratner
Companies of Brooklyn, New York, for the construction of a building containing
approximately 350,000 square feet of commercial space and a minimum of 200
public parking spaces. The lease provides a period of time within which FC may
perform its due diligence, seek the approval of the plans for the project from
the Capital Center Commission and enter into a tax stabilization agreement with
the City of Providence. The term of this lease will not commence until
construction begins.

2
<PAGE> 4

The parking garage on Parcel 7A and Parcels 3E, 3W, 4E, 4W, 6, 21 and 22 have
been leased to a firm experienced in parking operations. These leases can be
terminated on short notice as suitable development opportunities arise.

Providence Place Mall, a regional shopping mall owned and operated by
Commonwealth Development Group, L.L.C., contains 1.2 million square feet of
retail space and a 4,000 car garage. The mall was substantially opened during
1999 on a 13.2 acre site to the west of the Company's Parcel 9 in Capital Center
(marked "PPM" on the plan). The Mall's anchor stores include Nordstrom, Filene's
and Lord & Taylor.

LITIGATION

During 1999, the Company was party to several lawsuits involving various
governmental and quasi-governmental entities.

In 1997, the City of Providence (the City) revalued the Company's properties
within Capital Center (with the exception of Parcels 7A and 8 which were then
under agreements with the City) and reached back six years to assess over
$13,000,000 in back taxes, interest and penalties on the properties. The Company
contended that this action by the City was both unprecedented and illegal. The
Company contended that under Rhode Island law, tax assessments can only be
changed as part of an overall city-wide revaluation, the last of which occurred
in 1987. Additionally, the Company contended that back taxes can only be
assessed pursuant to a statute which does not apply in this situation.

The Company was also in dispute with the City over ownership of Parcel 9.
Pursuant to the terms of an agreement dated January 16, 1987 between the City
and the State of Rhode Island (City/State Agreement), the City was obligated to
convey Parcel 9 to the State and to pay 50% of the costs for land acquisition
for the then proposed River Relocation. Under a separate January 16, 1987
agreement between the Company and the State (CPI/State Agreement), the State was
obligated to convey Parcel 9 to the Company. In 1989, the City conveyed Parcel 9
to the State and the State reconveyed Parcel 9 to the Company. The City claimed
that its execution of the City/State Agreement was invalid, the conveyance of
Parcel 9 to the State was void, and hence the City was the true owner of Parcel
9. Moreover, in December 1998, the City adopted an ordinance authorizing the
Providence Redevelopment Agency to condemn Parcel 9 as an "arrested,"
"blighted," and "substandard" parcel of land. The Company contested both the
City's claim of ownership and the City's attempt to condemn Parcel 9.

The Company's dispute with the State of Rhode Island (the State) concerned the
1987 condemnation of a portion of the Company's property by the State for River
Relocation pursuant to the terms of the CPI/State Agreement. The State
originally paid the Company $2,600,000 in condemnation proceeds and in 1997 the
Rhode Island Superior Court awarded to the Company an additional $6,101,000 in
condemnation proceeds as well as interest on the judgment through May 6, 1997 in
the amount of $4,552,000. This judgment was affirmed by the Rhode Island Supreme
Court in April 1998. As discussed previously, pursuant to the terms of the
City/State Agreement, the City and the State were to share equally in the cost
of condemnation. Pursuant to the terms of the CPI/State Agreement, the Company
was obligated to reimburse the State for the State's share of the cost of
condemnation in return for the conveyance to the Company of Parcel 9.
Notwithstanding that the State had sole authority to condemn for River
Relocation, that under

3
<PAGE> 5

the CPI/State Agreement the State was the condemning authority, and that the
Company was not a party to the City/State Agreement or any other pertinent
agreement with the City, the State contended that the Company must proceed
solely against the City to recover the judgment. The State also contended that
the conveyance of Parcel 9 to the Company relieved the State of any further
obligation under the CPI/State Agreement to the Company for the condemnation.
Finally, the State contended that the Company waived its contract claims against
the State. The Company contended that the State breached the CPI/State Agreement
by refusing to pay the judgment, by unilaterally reducing the interest rate
payable under the condemnation between the time the CPI/State Agreement was
executed and the final judgment, and finally, if the City were correct as to the
ownership of Parcel 9, the State had not fulfilled its portion of the CPI/State
Agreement. The Company also contended that the CPI/State Agreement, at most,
requires the Company to repay to the State one-half of the condemnation award,
but not the interest.

In December 1998, the Rhode Island Supreme Court directed that the various
disputes between the Company, City and State be consolidated before a single
justice of the Superior Court.

In July 1999, the Rhode Island Superior Court ruled in favor of the Company in
its disputes with both the City and the State 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.

All of the Superior Court's decisions were appealed by the State and City and
reviewed by the Rhode Island Supreme Court. On December 2, 1999, the Supreme
Court issued an opinion denying and dismissing the appeals of the State and the
City, and adopting as their own the opinion of the Rhode Island Superior Court
in its entirety as it concerns the Providence tax dispute and Parcel 9 and, with
certain modifications, as it concerns the condemnation by the State. The Supreme
Court ordered the State to pay to the Company by December 22, 1999, 50% of the
condemnation award, which, together with interest, amounted to approximately
$6,700,000. With respect to the remainder of the condemnation award, during oral
argument before the Supreme Court, the Company's counsel, at the Company's
direction, offered to allow the State to retain half of the judgment and the
interest thereon until the Company's claims with respect thereto can be
litigated.

Following that opinion, the parties raised two issues: (1) the State asserted
for the first time that the post-judgment interest rate set forth in the writ of
mandamus issued by a Superior Court judge, confirmed by the Superior Court and
affirmed by the Supreme Court, was incorrect and should be lowered from 12% to
the U. S. Treasury bill rate; and (2) the Company sought to confirm that the
Superior Court had not decided its contractual claims under the 1987 CPI/State
Agreement. On December 20, 1999, the Supreme Court entered an order directing
that the Company's claims for breach of contract and the State's claim that
post-judgment interest be reduced, be presented to the Superior Court for
determination. The Company has filed a motion for summary judgment on those
issues, and that matter is now pending before the Superior Court, briefs having
been filed.

On December 22, 1999, the State paid the Company $5,977,000, representing 50% of
the condemnation award plus pre-judgment and post-judgment interest at the U. S.
Treasury bill rate.

The Court's decision with respect to the Providence taxes and Parcel 9 now
removes a major barrier to further development of the Company's property in
Capital Center. We are hopeful that this action will encourage a number of
developers to proceed with their projects.

4
<PAGE> 6

The Company is also in dispute with the National Railroad Passenger Corporation
(Amtrak) concerning various trespasses. As part of the Capital Center Project,
during the 1980's the Company, State, City and Amtrak each conveyed parcels of
land in Capital Center so that each party had the land it needed for its
designated functions. Pursuant to this arrangement, the Company was conveyed
approximately 1.9 acres of air rights over Amtrak's Northeast Corridor, which
rights are 19.3 feet above the top of rail within Parcel 6. Following that
conveyance, the railroad station and the Company's adjacent parking garage were
constructed and partially financed by the Federal Railroad Administration (FRA).
Many of the utilities needed to service the railroad station were built within
the confines of Parcel 7A (the parking garage parcel). Over the years, the
Company did not charge Amtrak for this intrusion on its property; and over the
years Amtrak assumed the cost of electricity provided to the parking garage. In
1997, Amtrak unilaterally refused to pay for the electricity, and the Company
brought suit in the United States District Court for the District of Rhode
Island seeking an order requiring Amtrak to remove its encroachments from Parcel
7A.

In the fall of 1998, as part of Amtrak's electrification of the Northeast
Corridor, Amtrak erected catenaries within the air rights over Parcel 6 (the
tops of which vary in height between 27 and 31 feet above the tracks) and a
42-foot signal bridge. The Company amended its complaint against Amtrak to
include these trespasses into the Company's air rights suit.

Amtrak has condemnation powers, and in July 1999 condemned all the air rights
owned by the Company for a three-year temporary easement retroactive to August
1998. In October 1999, the Company received from Amtrak $335,000, the sum
estimated by Amtrak to be just compensation for the property taken.

In July 1999, Amtrak also condemned a permanent easement within a portion of the
parking garage parcel upon which Amtrak had placed improvements. In October
1999, the Company received from Amtrak $60,000, the sum estimated by Amtrak to
be just compensation for the property taken.

Following the receipt of the condemnation proceeds, the initial litigation
between Amtrak and the Company and the Amtrak condemnation cases were
consolidated for trial. Amtrak has petitioned the Court to bring the State of
Rhode Island Department of Transportation into the litigation as a third-party
defendant on the grounds that they are responsible, in part, for the costs of
condemnation. The case is seeking a determination of the value of the properties
condemned and the parties' rights and liabilities, if any, concerning the
trespasses. The case is scheduled to be heard during the second quarter of 2000.

In 1988, the Company extended a reduced rate to Massachusetts Bay Transit
Authority commuters to encourage use of the parking garage adjacent to the
Amtrak train station at a time when the garage had little demand for public
parking. Demand for public parking has increased over the years; and in October
1999, the Company attempted to increase the rates in the parking garage
applicable to commuters. The State of Rhode Island filed suit against the
Company opposing the increase, and a preliminary injunction was entered, which
the Company appealed to the United States Court of Appeals for the First
Circuit. In accordance with the preliminary injunction, the Company requested
approval from FRA to increase the rates, which FRA denied. The Company then
filed suit against FRA in the United States Court of Federal Claims seeking
money damages and injunctive relief in connection with FRA's unreasonable denial
of approval. FRA has filed a motion to dismiss the Company's claims for
injunctive relief. The matter is now pending.

5
<PAGE> 7

CAPITAL TERMINAL COMPANY

Capital Terminal Company, a wholly-owned subsidiary, operates the Company's
petroleum storage facilities (the Facilities). In June 1998, the Company entered
into a short-term agreement for the warehousing of product in three of its tanks
with Global Companies, L.L.C. (Global) of Waltham, Massachusetts, 51% of which
is owned by Yacimientos Petroliferos Fiscales SA (YPF), which, in turn, is 98.2%
owned by Repsol SA, the Spanish oil company. In September 1998, the Company and
Global entered into a short-term arrangement under which the Company operates
the Facilities for Global. In May 1999, the Company and Global entered into an
agreement extending the arrangement for an additional three-year period plus
options to extend on an annual basis. The agreement further provides that the
Company will receive an additional $.10 per barrel for every barrel in excess of
2,000,000 barrels of throughput in an agreement year. The Company reached
2,000,000 barrels in February 2000 and will receive additional revenue for each
barrel of throughput until April 30, 2000, when the second agreement year will
commence.

During 1999, the Company began a project in two phases that would replace the
existing 4-bay truck rack which had top loading capabilities only, to a modern
8-bay truck rack, which has both top and bottom loading capabilities. The new
truck rack will be fully automated and have nineteen different positions for
truck loading. In order to make room for the truck rack, the old terminal
building was demolished. Capital Terminal Company and Capital Properties, Inc.
were relocated to a vacant building on the property from which all dispatching
for the Facilities is performed. The tank farm dikes were also extended to the
northern property lines in the event of future tank expansion. The first phase
of the project was completed in December 1999, and it is anticipated that the
second phase will be completed during the first quarter of 2000.

According to a Providence Journal newspaper article on January 25, 2000, during
the past decade, the petroleum storage capacity in the State of Rhode Island has
been reduced from 300 million gallons to 125 million gallons, of which the
Company has 11%. This reduction results from the closing of terminals and the
scheduled closing of other terminals in the near future. January 2000 was a
bitterly cold month in southeastern New England, resulting in the throughput of
a huge quantity of heating oil at the Facilities. During this cold snap, the
supply of product in the area was quickly depleted, and, at one point, only the
Company's facilities and one other terminal in the State of Rhode Island had a
supply of heating oil. The Company feels that expansion of its capacity for the
storage of oil is essential in order to supply the future needs of the area.

TRI-STATE DISPLAYS, INC.

Tri-State Displays, Inc., another wholly-owned subsidiary, owns or controls
various locations along interstate and primary highways in Rhode Island and
Massachusetts which are leased for commercial advertising purposes to Lamar
Advertising Company (Lamar) of Baton Rouge, Louisiana, which acquired Chancellor
Media Whiteco Outdoor Corporation in September 1999. At December 31, 1999, the
Company had under lease 45 billboard faces.

On behalf of the officers and directors, I wish to express our appreciation to
the shareholders for your continued confidence and support.

Sincerely,

/s/ Ronald P. Chrzanowski
Ronald P. Chrzanowski
President
February 18, 2000

<PAGE> 8

MAP IN ANNUAL REPORT

The map in the Annual Report to Shareholders is a plan of a portion of
downtown Providence, Rhode Island, which indicates those parcels owned by the
Issuer in that area known as "Capital Center" and immediately adjacent thereto.
A legend contains the Parcel Number, the Parcel Size and the Development on the
Parcels as follows:

<TABLE>
<CAPTION>
Parcel No. Square Feet
CAPITAL PARCEL SIZE DEVELOPMENT ON PARCELS
CENTER
<S> <C> <C>
2 92,000
3S 48,000.................... 13 Story Office Building -
235,000 gross square feet
3W 35,000
3E 24,000
4W 46,000
4E 22,000
5 54,000.................... 8 Story Luxury Apartment Building -
454,000 gross square feet
6 386,000................... (Land, 303,000; Air Rights, 83,000)
7A 76,000.................... 360 Car Public Parking Garage
8 36,000.................... 4 Story Office Building - 114,000 gross
square feet
9 72,000

OUTSIDE
CAPITAL
CENTER
21 3,000
22 15,000
</TABLE>

(See President's Report, pages 2 and 3, for discussion of the development on the
parcels.)

<PAGE> 9

CAPITAL PROPERTIES, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FINANCIAL CONDITION:

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 December 31, 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.

As of December 31, 1999, the Company had entered into a land lease for 149 years
under which the developer proposes to construct a building of approximately
350,000 square feet of commercial space and a minimum of 200 public parking
spaces. The lease provides 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 developer will be
able to satisfy the conditions precedent to proceeding with the development. The
Company is unable to determine at this time when construction will begin and
therefore the time at which the term of the lease will commence.

The Company had entered into two additional land leases under the terms of which
the developer of each parcel has until April 1, 2000 to begin construction. The
Company believes that neither project will move forward and is actively seeking
new developers for these parcels. 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 cancellable 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.

The Company leases to one tenant locations along interstate and primary highways
in Massachusetts and Rhode Island for outdoor advertising purposes. At December
31, 1999, these locations contained a total of 45 billboard faces. The lease
currently expires in 2025; however, the term of the lease is extended two years
for each additional location added. The Company did not add any billboard faces
during 1999.

Certain of the Company's long-term land leases provide for scheduled rent
increases over their terms which extend to the year 2142. In accordance with the
provisions of Statement of Financial Accounting Standards (FAS) No. 13
(Accounting for Leases) and certain of its interpretations, the Company
recognizes the rental income on the straight-line basis over the term of each
lease; however, the Company does not report as income that portion of such
straight-line rentals which management is unable to conclude is realizable
(collectible) due to the length of the lease terms and other related
uncertainties. At December 31, 1999, the cumulative amount not reported as
income is $11,993,000.

8
<PAGE> 10

In January 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. In April 1998, the Supreme Court entered an order
affirming the Condemnation Judgment of the Superior Court. Interest continued to
accrue on the judgment.

The State filed several motions and a separate action to prevent the Company
from collecting the Condemnation Judgment. 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
(the City), be consolidated before and decided by a single justice of the
Superior Court. Each of the four consolidated cases decided by the single
justice in July 1999 is described below.

In August 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. In addition, 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. Subsequent real property
tax bills for taxes assessed as of December 31, 1997 and 1998, continued to
reflect the higher assessments.

The Company believed that the changes in the assessed values were related to the
May 1997 Condemnation Judgment and that the increase in the assessed values for
1997 and prior periods were illegal. In August 1997, the Company filed a lawsuit
against the City in the Superior Court.

In July 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.

9
<PAGE> 11

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.

The City claimed 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 was 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 contested both the City's claim of
ownership and the City's attempt to condemn the Disputed Parcel. 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. In July 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.

In May 1998, the State filed an action in the Superior Court in which it
maintained that it was 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
relieved it from the obligation to pay one-half of the Condemnation Judgment and
(2) the City, not the State, was obligated to pay the other half of the
Condemnation Judgment.

In July 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 Superior Court's decisions in each of the four consolidated cases were
appealed by the State and City and reviewed by the Rhode Island Supreme Court.
On December 2, 1999, the Supreme Court issued an opinion denying and dismissing
the appeals of the State and the City, and adopting as their own the opinion of
the Rhode Island Superior Court in its entirety, as it concerns the Providence
tax dispute and Parcel 9, and with certain modifications, as it concerns the
condemnation by the State. The Supreme Court ordered the State to pay to the
Company by December 22, 1999, 50% of the condemnation award, which, together
with interest, amounted to approximately $6,700,000. With respect to the
remainder of the condemnation award, during oral argument before the Supreme
Court, the Company's counsel, at the Company's direction, offered to allow the
State to retain half of the judgment and the interest thereon until the
Company's claims with respect thereto can be litigated.

10
<PAGE> 12

On December 22, 1999, the State paid the Company $5,977,000, representing 50% of
the condemnation award plus pre-judgment and post-judgment interest at the U. S.
Treasury bill rate. Upon consultation with counsel, the Company is presently
unable to determine what additional amounts, if any, it will receive.

The Company is in dispute with the National Railroad Passenger Corporation
(Amtrak) concerning various trespasses. As part of the Capital Center Project,
during the 1980's the Company, State, City and Amtrak each conveyed parcels of
land in Capital Center so that each party had the land it needed for its
designated functions. Pursuant to this arrangement, the Company was conveyed
approximately 1.9 acres of air rights over Amtrak's Northeast Corridor, which
rights are 19.3 feet above the top of rail within Parcel 6. Following that
conveyance, the railroad station and the Company's adjacent parking garage were
constructed and partially financed by the Federal Railroad Administration. Many
of the utilities needed to service the railroad station were built within the
confines of Parcel 7A (the parking garage parcel). Over the years, the Company
did not charge Amtrak for this intrusion on its property; and over the years
Amtrak assumed the cost of electricity provided to the parking garage. In 1997,
Amtrak unilaterally refused to pay for the electricity, and the Company brought
suit in the United States District Court for the District of Rhode Island
seeking an order requiring Amtrak to remove its encroachments from Parcel 7A.

Effective September 1, 1998, the Company entered into a short-term arrangement
with a petroleum company (Petroleum Company) under which the Company operates
the entire Facilities for Petroleum Company. The Company is responsible for
labor, insurance, property taxes and other operating expenses. The Company and
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. The agreement further provides that the Company will
receive an additional $.10 per barrel for every barrel in excess of 2,000,000
barrels of throughput

11
<PAGE> 13

in an agreement year. The Company exceeded the 2,000,000 barrels in the first
quarter of 2000 but is unable to estimate the amount of total additional revenue
it will receive.

The Company manages its exposure to contamination, cleanup or similar costs
associated with the Facilities through its adherence to established procedures
for operations and equipment maintenance. In addition, the Company maintains
what it believes to be adequate levels of insurance.

The Company is constructing in two phases a new expanded truck rack at the
Facilities which will be fully automated and will have both top and bottom
loading capabilities. The first phase was completed in the fourth quarter of
1999. It is anticipated that the second phase will be completed during the first
quarter of 2000 at an estimated cost of $880,000.

The Company has entered into a Purchase and Sale Agreement to acquire real
estate consisting of 2.275 acres of land and a building (which property abuts
the Facilities) for $533,000. The Company plans to demolish the building to
provide additional acreage for future expansion. An environmental study of the
property has been conducted and the estimated cost of demolition and clean-up is
approximately $317,000. The Company anticipates paying for the remaining
construction of the rack and the acquisition of the real estate and the costs
associated therewith 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.

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 paid dividends of $.11 and $.10 per share in 1999 and 1998,
respectively, on the Company's outstanding common stock. In February 2000, the
Company paid its regular quarterly dividend of $.03 per share and a special
dividend of $.50 per share on the Company's outstanding common stock. The
special dividend represented a portion of the interest received and expected to
be received from the State of Rhode Island in connection with a condemnation
award affirmed in December 1999 by the Rhode Island Supreme Court after
deducting therefrom the expenses and income taxes related thereto. The Company
expects to be in a position to continue dividend payments on a quarterly basis;
however, the declaration of any dividend and the amount thereof will depend on
the Company's future earnings, financial condition and other relevant factors.

The Company's consolidated balance sheet reports a current income tax liability
of $1,817,000 which is payable in March 2000. Since the condemnation proceeds
were not received until late December 1999, the Company was permitted to exclude
the proceeds from the required estimated income tax payments due during 1999.

Certain portions of this Annual Report to Shareholders, 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

12
<PAGE> 14

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 Amtrak litigations; and exposure to contamination, cleanup or
similar costs associated with the operation of the Facilities.

RESULTS OF OPERATIONS:

The Company's total income is $9,588,000 and $2,793,000 for 1999 and 1998,
respectively, which increase results principally from the receipt of permanent
condemnation proceeds and interest totaling $6,037,000.

The Company has adopted the provisions of FAS No. 131 (Disclosures about
Segments of an Enterprise and Related Information) and has reported its revenues
and expenses applicable to two operating segments--Leasing and Petroleum Storage
Facilities.

Leasing revenue for 1999 increased 15% from the 1998 level principally due to
revenue from temporary condemnations, the addition of two billboard locations in
late 1998 and scheduled increases in the long-term land leases. Expenses
applicable to leasing increased 6% from the 1998 level principally due to an
increase in property taxes and an increase in legal fees in connection with the
condemnation case and the property tax dispute with the City of Providence.

Revenue from petroleum storage facilities for 1999 increased 87% from the 1998
level resulting principally from income from an arrangement to operate the
Facilities which commenced in September 1998. Expenses applicable to petroleum
storage facilities for 1999 decreased 4% from the 1998 level resulting
principally from a decrease in repairs and maintenance and depreciation expense,
offset in part by an increase in payroll and related costs as a result of an
increased number of employees. The decrease in depreciation resulted from the
fact that the tanks became fully depreciated at the end of 1998; however,
depreciation expense will increase in 2000 upon the completion of the truck
rack.

The general and administrative expenses for 1999 decreased 11% from the 1998
level due principally to lower professional fees in connection with corporate
planning matters offset in part by an increase in payroll and related costs.

13
<PAGE> 15

Lefkowitz, Garfinkel, Champi & DeRienzo P.C
10 Weybosset Street
Suite 700
Providence, Rhode Island 02903

INDEPENDENT AUDITORS' REPORT

Board of Directors
Capital Properties, Inc.
East Providence, Rhode Island

We have audited the accompanying consolidated balance sheet of Capital
Properties, Inc. and subsidiaries as of December 31, 1999, and the related
consolidated statements of income (loss) and retained earnings and cash flows
for the years ended December 31, 1999 and 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Capital Properties, Inc. and
subsidiaries as of December 31, 1999, and the results of their operations and
their cash flows for the years ended December 31, 1999 and 1998, in conformity
with generally accepted accounting principles.

/s/ Lefkowitz, Garfinkel, Champi & DeRienzo P. C.

February 18, 2000

14
<PAGE> 16

CAPITAL PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999

<TABLE>
<S> <C>
ASSETS

Properties and equipment (net of accumulated depreciation)............. $ 10,612,000
Cash and cash equivalents.............................................. 9,395,000
Receivables, tenant property tax reimbursements........................ 203,000
Accrued rental income.................................................. 483,000
Prepaid and other...................................................... 253,000
------------
$ 20,946,000
============

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
Accounts payable and accrued expenses:
Property taxes.................................................... $ 609,000
Other............................................................. 555,000
Income taxes:
Current........................................................... 1,817,000
Deferred.......................................................... 1,868,000
Deferred condemnation proceeds...................................... 186,000
------------
5,035,000
------------

Shareholders' equity:
Common stock, $1 par; authorized, issued
and outstanding 3,000,000 shares.................................. 3,000,000
Capital in excess of par............................................ 8,828,000
Retained earnings................................................... 4,083,000
------------
15,911,000
------------
$ 20,946,000
============
</TABLE>

See notes to consolidated financial statements.

<PAGE> 17

CAPITAL PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1999 AND 1998

<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Income:
Revenues:
Leasing, including temporary condemnation
of $149,000 in 1999............................... $ 2,196,000 $ 1,908,000
Petroleum storage facilities, net of cost of
product sold of $240,000 in 1998................... 1,162,000 620,000
----------- -----------
3,358,000 2,528,000
Condemnation proceeds, permanent, including
interest of $2,928,000............................... 6,037,000
Interest:
Providence and Worcester Railroad Company............ 98,000
Other................................................ 193,000 167,000
----------- -----------
9,588,000 2,793,000
----------- -----------
Expenses:
Expenses applicable to:
Leasing.............................................. 1,220,000 1,148,000
Petroleum storage facilities......................... 905,000 948,000
General and administrative............................ 923,000 1,033,000
----------- -----------
3,048,000 3,129,000
----------- -----------

Income (loss) before income taxes........................ 6,540,000 (336,000)
----------- -----------

Income tax expense (benefit):

Current............................................... 1,987,000 (22,000)
Deferred.............................................. 695,000 (113,000)
----------- -----------
2,682,000 (135,000)
----------- -----------

Net income (loss)........................................ 3,858,000 (201,000)

Retained earnings, beginning............................. 555,000 1,056,000

Dividends on common stock (1999, $.11; 1998, $.10)....... (330,000) (300,000)
----------- -----------

Retained earnings, ending................................ $ 4,083,000 $ 555,000
=========== ===========

Basic earnings (loss) per share.......................... $1.29 $(.07)
===== =====
</TABLE>

See notes to consolidated financial statements.

16
<PAGE> 18

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998

<TABLE>
<CAPTION>
1999 1998
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).......................................... $ 3,858,000 $ (201,000)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Condemnation proceeds, permanent........................ (6,037,000)
Depreciation............................................ 78,000 347,000
Accrued rental income................................... 16,000 (47,000)
Deferred income taxes................................... 695,000 (113,000)
Deferred condemnation proceeds.......................... 186,000
Changes in assets and liabilities:
Increase in:
Prepaid and other..................................... 6,000
Accounts payable and accrued expenses................. 120,000 39,000
Current income taxes payable.......................... 1,817,000
Decrease in:
Receivables........................................... 186,000 133,000
Prepaid and other..................................... 243,000
----------- -----------
Net cash provided by operating activities.................. 925,000 401,000
----------- -----------

Cash flows from investing activities:
Proceeds from:
Condemnation proceeds, permanent.......................... 6,037,000
Collection of note receivable, Providence and
Worcester Railroad Company.............................. 3,993,000
Purchase of properties and equipment....................... (1,980,000) (144,000)
---------- -----------
Net cash provided by investing activities.................. 4,057,000 3,849,000
----------- -----------

Cash used in financing activities, payment of dividends....... (330,000) (300,000)
----------- -----------

Increase in cash and cash equivalents......................... 4,652,000 3,950,000
Cash and cash equivalents, beginning.......................... 4,743,000 793,000
----------- -----------
Cash and cash equivalents, ending............................. $ 9,395,000 $ 4,743,000
=========== ===========

Supplemental disclosures, cash paid for income taxes.......... $ 148,000 $ 107,000
=========== ===========
</TABLE>

See notes to consolidated financial statements.

<PAGE> 19

CAPITAL PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998

1. Basis of presentation and summary of significant accounting policies:

Basis of presentation and principles of consolidation:

The accompanying consolidated financial statements include the accounts of
Capital Properties, Inc. (the Company) and its wholly-owned subsidiaries,
Tri-State Displays, Inc. and Capital Terminal Company. All significant
intercompany accounts and transactions between the Company and its
subsidiaries have been eliminated in consolidation.

Description of business:

The Company operates in two operating segments: (1) 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 (2) the operation of
its petroleum storage facilities (the Facilities) in East Providence, Rhode
Island.

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.

Cash and cash equivalents:

The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Cash
equivalents, which consist of U. S. Treasury bills and a short-term
uninsured repurchase agreement which the Company routinely purchases,
totaled $9,375,000 at December 31, 1999.

Properties and equipment:

Properties and equipment are stated at cost. Depreciation is being provided
by the straight-line method over the estimated useful lives of the
respective assets.

The Company follows the provisions of Statement of Financial Accounting
Standards (FAS) No. 121 (Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of) which requires that property
and equipment held and used by the Company be reviewed for impairment
whenever events or changes in circumstances indicate that the net book
value of the asset may not be recoverable. An impairment loss will be
recognized if the sum of the expected future cash flows (undiscounted and
before interest) from the use of the asset is less than the net book value
of the asset. Generally, the amount of the impairment loss is measured as
the difference between the net book value and the estimated fair value of
the asset.

Income taxes:

The Company and its subsidiaries file a consolidated Federal income tax
return.

18
<PAGE> 20

Income taxes are provided based on income reported for financial statement
purposes. The provision for income taxes differs from the amounts currently
payable because of temporary differences in the recognition of certain
income and expense items for financial reporting and tax reporting
purposes.

Leasing revenue:

The Company's properties leased to others are under operating leases. The
Company reports leasing revenue when earned under the operating method.

Certain of the Company's long-term land leases provide for scheduled rent
increases over their remaining terms (26 to 145 years). In accordance with
the provisions of FAS No. 13 (Accounting for Leases) and certain of its
interpretations, the Company is recognizing leasing revenue on the
straight-line basis over the terms of the leases; however, the Company does
not report as income that portion of such straight-line rentals which
management is unable to conclude is realizable (collectible) due to the
length of the lease terms and other related uncertainties.

Condemnation proceeds:

The Company recognizes revenue from a permanent condemnation in the period
in which the cash is received and recognizes revenue from a temporary
condemnation on a straight-line basis over its term. Deferred condemnation
proceeds represent the portion of the temporary condemnation applicable to
future periods.

2. Litigation with the State of Rhode Island and the City of Providence:

Condemnation case:

In January 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.

19
<PAGE> 21

CAPITAL PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998

2. Litigation with the State of Rhode Island and the City of Providence
(continued):

Condemnation case (continued):

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. In April 1998, the
Supreme Court entered an order affirming the Condemnation Judgment of the
Superior Court.

Interest continued to accrue on the judgment.

The State filed several motions and a separate action to prevent the
Company from collecting the Condemnation Judgment. 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 on an expedited basis.
Each of the four consolidated cases decided by the single justice in July
1999 is described below.

Property tax disputes with the City of Providence:

In August 1997, the Company received from the City of Providence (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. In addition, 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. Subsequent real
property tax bills for taxes assessed as of December 31, 1997 and 1998,
continued to reflect the higher assessments.

The Company believed that the changes in the assessed values were related
to the May 1997 Condemnation Judgment and that the increase in the assessed
values for 1997 and prior periods was illegal. In August 1997, the Company
filed a lawsuit against the City in the Superior Court.

During the period of litigation, the Company reported and paid property
taxes based on the assessed valuations prior to the commencement of the
suit.

In July 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.

Dispute over ownership of Disputed Parcel:

20
<PAGE> 22

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.

The City claimed 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 was 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 contested
both the City's claim of ownership and the City's attempt to condemn the
Disputed Parcel. 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. In July 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:

In May 1998, the State filed an action in the Superior Court in which it
maintained that it was not responsible for paying any portion of the
Condemnation Judgment to the Company. The Supreme Court ordered the
Superior Court to determine these claims. The State alleged, among other
things, that (1) its conveyance of the Disputed Parcel to the Company
relieved it from the obligation to pay one-half of the Condemnation
Judgment and (2) the City, not the State, was obligated to pay the other
half of the Condemnation Judgment.

In July 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.

Appeal of the consolidated cases:

The Superior Court's decisions in each of the four consolidated cases were
appealed by the State and City and reviewed by the Rhode Island Supreme
Court. On December 2, 1999, the Supreme Court issued an opinion denying and
dismissing the appeals of the State and the City, and adopting as their own
the opinion of the Rhode Island Superior Court in its entirety, as it
concerns the Providence tax dispute and Parcel 9, and with certain
modifications, as it concerns the condemnation by the State. The Supreme
Court ordered the State to pay to the Company by December 22, 1999, 50% of
the condemnation award, which, together with interest, amounted to
approximately $6,700,000. With respect to the remainder of the condemnation
award, during oral argument before the Supreme Court, the Company's
counsel, at the Company's direction, offered to allow the State to retain
half of the judgment and the interest thereon until the Company's claims
with respect thereto can be litigated.

21
<PAGE> 23

CAPITAL PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998

2. Litigation with the State of Rhode Island and the City of Providence
(continued):

Appeal of the consolidated cases (continued):

should be lowered from 12% to the U. S. Treasury bill rate; and (2) the
Company sought to confirm that the Superior Court had not decided its
contractual claims under the 1987 CPI/State Agreement. On December 20,
1999, the Supreme Court entered an order directing that the Company's
claims for breach of contract and the State's claim that post-judgment
interest be reduced, be presented to the Superior Court for determination.
The Company has filed a motion for summary judgment on those issues, and
that matter is now pending before the Superior Court.

On December 22, 1999, the State paid the Company $5,977,000, representing
50% of the condemnation award plus pre-judgment and post-judgment interest
at the U. S. Treasury bill rate.

Upon consultation with counsel, the Company is presently unable to
determine what additional amounts, if any, it will receive.

3. Dispute with Amtrak:

The Company is in dispute with the National Railroad Passenger Corporation
(Amtrak) concerning various trespasses. As part of the Capital Center
Project, during the 1980's the Company, State, City and Amtrak each
conveyed parcels of land in Capital Center so that each party had the land
it needed for its designated functions. Pursuant to this arrangement, the
Company was conveyed approximately 1.9 acres of air rights over Amtrak's
Northeast Corridor, which rights are 19.3 feet above the top of rail within
Parcel 6. Following that conveyance, the railroad station and the Company's
adjacent parking garage were constructed and partially financed by the
Federal Railroad Administration. Many of the utilities needed to service
the railroad station were built within the confines of Parcel 7A (the
parking garage parcel). Over the years, the Company did not charge Amtrak
for this intrusion on its property; and over the years Amtrak assumed the
cost of electricity provided to the parking garage. In 1997, Amtrak
unilaterally refused to pay for the electricity, and the Company brought
suit in the United States District Court for the District of Rhode Island
seeking an order requiring Amtrak to remove its encroachments from Parcel
7A.

In the fall of 1998, as part of Amtrak's electrification of the Northeast
Corridor, Amtrak erected catenaries within the air rights over Parcel 6
(the tops of which vary in height between 27 and 31 feet above the tracks)
and a 42-foot signal bridge. The Company amended its complaint against
Amtrak to include these trespasses into the Company's air rights suit.

Amtrak has condemnation powers, and in July 1999 condemned all the air
rights owned by the Company for a three-year temporary easement retroactive
to August 1998. In October 1999, the Company received from Amtrak $335,000,
the sum estimated by Amtrak to be just compensation for the property taken.

22
<PAGE> 24

In July 1999, Amtrak also condemned a permanent easement within a portion
of the parking garage parcel upon which Amtrak had placed improvements. In
October 1999, the Company received from Amtrak $60,000, the sum estimated
by Amtrak to be just compensation for the property taken.

Following the receipt of the condemnation proceeds, the initial litigation
between Amtrak and the Company and the Amtrak condemnation cases were
consolidated for trial. Amtrak has petitioned the Court to bring the State
of Rhode Island Department of Transportation into the litigation as a
third-party defendant on the grounds that they are responsible, in part,
for the costs of condemnation. The case is seeking a determination of the
value of the properties condemned and the parties' rights and liabilities,
if any, concerning the trespasses. The case is scheduled to be heard during
the second quarter of 2000.

4. Properties and equipment:

<TABLE>
<S> <C>
Properties on lease or held for lease:
Land and land improvements..................... $ 4,365,000
Parking garage................................. 2,500,000
------------
6,865,000
------------
Petroleum storage facilities:
Land and land improvements.................... 2,727,000
Buildings and structures...................... 324,000
Tanks and equipment........................... 5,712,000
------------
8,763,000
------------
Office equipment................................. 73,000
------------
15,701,000
------------
Less accumulated depreciation:
Properties on lease or held for lease......... 739,000
Petroleum storage facilities.................. 4,298,000
Office equipment.............................. 52,000
------------
5,089,000
------------
$ 10,612,000
============
</TABLE>

The Company is constructing in two phases a new expanded truck rack at the
Facilities which will be fully automated and will have both top and bottom
loading capabilities. The first phase was completed in December 1999. It is
anticipated that the second phase will be completed during the first
quarter of 2000 at an estimated cost of $880,000.

The Company has entered into a Purchase and Sale Agreement to acquire real
estate consisting of 2.275 acres of land and a building (which property
abuts the Facilities) for $533,000. The Company plans to demolish the
building to provide additional acreage for future expansion. An
environmental study of the property has been conducted and the estimated
cost of demolition and clean-up is approximately $317,000.

23
<PAGE> 25

CAPITAL PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998

5. Description of leasing arrangements:

As lessor:

At December 31, 1999, the Company had entered into long-term land leases
for four separate land parcels, one 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 26 years and for
public parking purposes under short-term cancellable 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
$12,476,000 through December 31, 1999. Management has concluded that a
portion of the excess of straight-line over contractual rentals ($483,000
at December 31, 1999) is realizable when payable over the terms of the
leases.

Minimum future contractual rental payments to be received from
noncancellable leases as of December 31, 1999 are:

<TABLE>
<CAPTION>
Year ending December 31,

In the event of tenant default, the Company has the right to reclaim its
leased land together with any improvements thereon.

Several leases provide that the tenants reimburse the Company for property
taxes, which amounts are excluded from leasing revenues and expenses
applicable to leasing on the accompanying consolidated statements of income
(loss) and retained earnings. These reimbursements totaled $369,000 and
$377,000 in 1999 and 1998, respectively.

As lessee:

The Company leases certain properties for outdoor advertising purposes
under noncancellable leases which expire at various dates to 2005. In most
cases, management expects that in the normal course of business, leases
that expire will be renewed or replaced by other leases. Rent expense
(including the Company's corporate offices through February 1998) amounted
to $40,000 and $51,000 in 1999 and 1998, respectively. Future minimum lease
payments under noncancellable leases at December 31, 1999 are as follows:
2000, $36,000; 2001, $28,000; 2002, $23,000; 2003, $23,000; 2004, $24,000
and thereafter, $18,000.

24
<PAGE> 26

6. Petroleum storage facilities:

Current operations:

During 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 a short-term
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. The agreement further provides that the Company will receive
an additional $.10 per barrel for every barrel in excess of 2,000,000
barrels of throughput in an agreement year.

Environmental incident:

In 1994, a leak was discovered in a 25,000 barrel storage tank at the
Facilities which allowed the escape of a small amount of fuel oil. All
required notices were made to the appropriate environmental agency (the
Agency). To date, monitoring wells have shown no ground water
contamination, and the leak has been contained in the soil under the tank.
The Company's engineering consultants (the Consultants) are working with
the Agency to determine the extent of remediation. The Consultants proposed
several acceptable options and determined a range of estimated costs
(including professional fees) to be $45,000 (for the capping of the
contaminated area) to $410,000 (for the complete removal of the
contaminated soil and its off-site disposal). The Agency has advised the
Company that it will accept the capping of the contaminated area as an
appropriate remediation measure, subject to the placement of a notice on
the Company's deed describing the location of the contaminated area. The
Company has provided for the estimated costs to remediate the contaminated
soil by reporting a liability of $45,000, which amount is included in
accounts payable and accrued expenses, other on the accompanying
consolidated balance sheet.

Wilkesbarre Pier:

The Wilkesbarre Pier (the Pier) is a deep-water pier in East Providence,
Rhode Island, which is integral to the operation of the Facilities. The
Pier and the Facilities are connected by two petroleum pipelines. In 1995,
the Company and Providence and Worcester Railroad Company (Railroad) (the
owner of the Pier) entered into an agreement which, among other provisions,
gave the Company the right to acquire the Pier for $1.

Effective January 1, 1998, Railroad and a company which uses the Pier to
off-load product (Oil Company) entered into an agreement (the Agreement)
whereby Oil Company agreed to pay annual fees for five years (1998,
$185,000; 1999 and 2000, $235,000; and 2001 and 2002, $185,000), plus a
throughput fee based upon usage. Under the terms of the Agreement, the
owner of the Pier is not required to make any repairs to the Pier. The
Agreement may be terminated by Oil Company upon ninety (90) days notice
only in the event of a failure of a component of the Pier that the owner
does not repair.

25
<PAGE> 27

CAPITAL PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998

6. Petroleum storage facilities (continued):

Wilkesbarre Pier (continued):

In January 1998, the Company exercised its right and acquired the Pier; and
Railroad assigned its rights under the Agreement to the Company.

Included in revenues, petroleum storage facilities on the accompanying
consolidated statements of income (loss) and retained earnings are fees
paid by Oil Company of $285,000 and $185,000 for 1999 and 1998,
respectively.

7. Income taxes:

A reconciliation of the income tax provision as computed by applying the
United States income tax rate (34%) to income (loss) before income taxes is
as follows:

<TABLE>
<CAPTION>
1999 1998
---------- ------------
<S> <C> <C>
Computed "expected" tax expense (benefit)............. $ 2,224,000 $ (114,000)
Increase (decrease) in taxes resulting from:
State income tax, net of Federal income
tax benefit...................................... 379,000 (2,000)
Other.............................................. 79,000 (19,000)
----------- -----------
$ 2,682,000 $ (135,000)
=========== ==========-
</TABLE>

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 December 31, 1999 were as follows:

<TABLE>
<S> <C>
Gross deferred tax liabilities:
Property having a financial statement basis
in excess of its tax basis................... $1,301,000
Accrued rental income.......................... 193,000
Condemnation proceeds.......................... 392,000
----------
1,886,000
Gross deferred tax assets......................... (18,000)
----------
$1,868,000
==========
</TABLE>

8. Note receivable, Providence and Worcester Railroad Company:

In 1988, in accordance with a plan of distribution, the Company transferred
the ownership of 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.

26
<PAGE> 28

9. Fourth quarter transactions for 1999:

The Company reported as income condemnation proceeds and interest in the
total amount of $5,977,000. (See Note 2.)

The Company received from Amtrak condemnation proceeds of $395,000, of
which $209,000 is reported as income. (See Note 3.)

10. Fair value of financial instruments:

The carrying amounts of the Company's financial instruments approximate
their fair values at December 31, 1999, due to the short maturities of cash
and cash equivalents, receivables and accounts payable and accrued
expenses.

11. 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 cancellable leasing arrangements.

The Petroleum Storage Facilities segment consists of the operating of the
Facilities in East Providence under a three-year agreement at a fixed
monthly rate for the Petroleum Company which stores and distributes
petroleum products. The Agreement includes options to extend on an annual
basis and additional payments based upon throughput.

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
proceeds from permanent condemnations, interest income, and certain
corporate expenses. The accounting policies of the segments are the same as
those described in the Summary of Significant Accounting Policies (see Note
1).

There are no inter-segment revenues. The Company did not incur interest
expense during the two years ended December 31, 1999.

27
<PAGE> 29

CAPITAL PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998

11. Operating segment disclosure (continued):

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>
<CAPTION>
Petroleum
Storage
Leasing Facilities Total
----------- ----------- ------------
<S> <C> <C> <C>
Year ended December 31, 1999:
Revenues:
Contractual.................................... $ 2,063,000 $ 1,162,000 $ 3,225,000
Condemnation, temporary........................ 149,000 149,000
Noncash, excess of contractual
over straight-line rentals.................. (16,000) (16,000)
----------- ----------- ------------
$ 2,196,000 $ 1,162,000 $ 3,358,000
=========== =========== ============

Interest income.................................... $ --- $ --- $ ---
=========== =========== ============

Depreciation....................................... $ 59,000 $ 19,000 $ 78,000
=========== =========== ============

Income before income taxes......................... $ 976,000 $ 257,000 $ 1,233,000
=========== =========== ============

Assets............................................. $ 6,785,000 $ 4,725,000 $ 11,510,000
=========== =========== ============

Additions to properties and equipment.............. $ 158,000 $ 2,071,000 $ 2,229,000
=========== =========== ============

Year ended December 31, 1998:
Revenues:
Contractual.................................... $ 1,861,000 $ 620,000 $ 2,481,000
Noncash, excess of straight-line over
contractual rentals.......................... 47,000 47,000
----------- ----------- ------------
$ 1,908,000 $ 620,000 $ 2,528,000
=========== =========== ============

Interest income.................................... $ --- $ --- $ ---
=========== =========== ============

Depreciation....................................... $ 63,000 $ 276,000 $ 339,000
=========== =========== ============

Income (loss) before income taxes.................. $ 760,000 $ (328,000) $ 432,000
=========== =========== ============

Assets............................................. $ 6,866,000 $ 2,562,000 $ 9,428,000
=========== =========== ============

Additions to properties and equipment.............. $ --- $ 136,000 $ 136,000
=========== =========== ============
</TABLE>

28
<PAGE> 30

The following is a reconciliation of the segment information to the amounts
reported in the accompanying consolidated financial statements:

<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Income:
Revenues for operating segments................ $ 3,358,000 $ 2,528,000
Condemnation proceeds, permanent............... 6,037,000
Interest income................................ 193,000 265,000
------------ ------------
Total consolidated income.................... $ 9,588,000 $ 2,793,000
============ ============

Depreciation:
Depreciation for operating segments............ $ 78,000 $ 339,000
Unallocated corporate depreciation............. 8,000
------------ ------------
Total consolidated depreciation.............. $ 78,000 $ 347,000
============ ============

Income (loss) before income taxes:
Income for operating segments.................. $ 1,233,000 $ 432,000
Condemnation proceeds, permanent............... 6,037,000
Interest income................................ 193,000 265,000
Unallocated corporate expenses................. (923,000) (1,033,000)
------------ ------------
Total consolidated income (loss)
before income taxes....................... $ 6,540,000 $ (336,000)
============ ============

Assets:
Assets for operating segments.................. $ 11,510,000 $ 9,428,000
Corporate cash and cash equivalents............ 9,375,000 4,632,000
Income tax receivable.......................... 175,000
Other unallocated amounts...................... 61,000 46,000
------------ ------------
Total consolidated assets.................... $ 20,946,000 $ 14,281,000
============ ============

Additions to properties and equipment:
Additions for operating segments............... $ 2,229,000 $ 136,000
Unallocated corporate additions................ 8,000
------------ ------------
Total consolidated additions................. $ 2,229,000 $ 144,000
============ ============
</TABLE>

29
<PAGE> 31

CAPITAL PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998

11. Operating segment disclosure (continued):

The following table sets forth those customers whose revenues exceed 10% of
the Company's total consolidated revenue:

<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Leasing segment:
A............................................... $ 630,000 $ 603,000
B............................................... 587,000 553,000
C............................................... 307,000 287,000
D............................................... 301,000 301,000
----------- -----------
$ 1,825,000 $ 1,744,000
=========== ===========

Petroleum Storage Facilities segment (one
customer)....................................... $ 876,000 $ 473,000
=========== ===========
</TABLE>

12. Subsequent event:

In January 2000, the Company declared a regular quarterly dividend of $.03
per share ($90,000) and a special dividend of $.50 per share ($1,500,000)
on the Company's outstanding stock payable on February 22, 2000 to
shareholders of record as of the close of business on February 8, 2000.

<PAGE> 32

DIRECTORS AND OFFICERS

OF CAPITAL PROPERTIES, INC.

Robert H. Eder, Director Chairman of Capital Properties, Inc.
Chairman

Ronald P. Chrzanowski, Director President of Capital Properties, Inc.
President

Barbara J. Dreyer, Treasurer Treasurer of Capital Properties, Inc.

Stephen J. Carlotti, Secretary Attorney, Hinckley, Allen & Snyder
Providence, Rhode Island

James H. Dodge, Director Chairman of Providence Energy
Corporation

Providence, Rhode Island

Harold J. Harris, Director President of Wm. H. Harris, Inc.
(Retailer)

Providence, Rhode Island

Henry S. Woodbridge, Jr., Director Consultant
Pomfret, Connecticut

TRANSFER AGENT INDEPENDENT AUDITORS

American Stock Transfer Lefkowitz, Garfinkel, Champi &
& Trust Company DeRienzo P.C.
40 Wall Street 10 Weybosset Street
New York, New York 10005 Providence, Rhode Island 02903

<PAGE> 33

MARKET FOR THE COMPANY'S COMMON STOCK

AND

RELATED SECURITY HOLDER MATTERS

The Company's common stock is traded on the American Stock Exchange, symbol
"CPI." The following table shows the high and low trading prices for the
Company's common stock during the quarterly periods indicated as obtained from
the American Stock Exchange, together with dividends paid per share during such
periods.

<TABLE>
<CAPTION>
Trading Prices
-------------- Dividends
High Low Paid
---- --- ---------
<S> <C> <C> <C>
1999
----
1st Quarter................. 7 1/2 5 5/8 .00
2nd Quarter................. 6 3/8 5 1/2 .05
3rd Quarter................. 8 1/8 6 .03
4th Quarter................. 9 7 1/2 .03

1998
----
1st Quarter................. 8 5/8 7 .00
2nd Quarter................. 8 7/8 8 1/8 .05
3rd Quarter................. 8 13/16 6 13/16 .00
4th Quarter................. 7 1/4 5 7/8 .05
</TABLE>

At March 1, 2000 there were 445 holders of record of the Company's common stock.

<PAGE> 1

EXHIBIT 21
----------

CAPITAL PROPERTIES, INC. AND SUBSIDIARIES

SUBSIDIARIES OF THE ISSUER

(AS OF MARCH 1, 2000)

Subsidiary State of Incorporation
---------- ----------------------

Tri-State Displays, Inc. Rhode Island

Capital Terminal Company Rhode Island

III-5

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 9,395,000
<SECURITIES> 0
<RECEIVABLES> 203,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 15,701,000
<DEPRECIATION> 5,089,000
<TOTAL-ASSETS> 20,946,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 3,000,000
<OTHER-SE> 12,911,000
<TOTAL-LIABILITY-AND-EQUITY> 20,946,000
<SALES> 0
<TOTAL-REVENUES> 9,588,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,048,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,540,000
<INCOME-TAX> 2,682,000
<INCOME-CONTINUING> 3,858,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,858,000
<EPS-BASIC> 1.29
<EPS-DILUTED> 0

</TABLE>