CAPITAL PROPERTIES INC RI

Previous wording

The Securities and Exchange Commission (“SEC”) has issued guidance for the disclosure of “critical accounting policies.” The SEC defines such policies as those that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

Current wording

The Securities and Exchange Commission (“SEC”) has issued guidance for the disclosure of “critical accounting estimates.” The SEC defines such estimates as those that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

Previous wording

The number of years remaining on the Company’s leases range from twenty-six (26) years to one hundred-thirty (130) years with total rents yet to be collected from tenants (without regard to CPI and appraisal adjustments) under the lease ranging from $19.2 million to $363.0 million. Given the length of the remaining lease term and the magnitude of the amount yet to be collected, along with the consideration of other factors, the Company has concluded that the remaining stream of lease payments is not probable of collection and as such, reports lease revenue based on the contractual amount paid.

Current wording

The number of years remaining on the Company’s leases range from thirty-two (32) years to one hundred twenty nine (129) years with total rents yet to be collected from tenants (without regard to CPI and appraisal adjustments) under the lease ranging from $18.9 million to $363.0 million. Given the length of the remaining lease term and the magnitude of the amount yet to be collected, along with the consideration of other factors, the Company has concluded that the remaining stream of lease payments is not probable of collection and as such, reports lease revenue based on the contractual amount paid.

Previous wording

The Company had cash and cash equivalents of $652,000 and $1,476,000 at December 31, 2023 and 2022, respectively, inclusive of a money market account totaling $461,000 and $1,273,000 in each of the aforementioned years. Additional sources of funds to fund operations include investments that mature in April 2024 totaling $1,244,000 along with a $2,000,000 unused line of credit (see Note 6 in the accompanying Consolidated Financial Statements). The Company and its subsidiary each maintain checking accounts and one money market account in a financial institution which is insured by the Federal Deposit Insurance Corporation to a maximum of $250,000. The Company periodically evaluates the financial stability of the financial institutions at which the Company’s funds are held.

Current wording

The Company had cash and cash equivalents of $850,000 and $652,000 at December 31, 2024 and 2023, respectively, inclusive of a money market account totaling $761,000 and $461,000 in each of the aforementioned years. Additional sources of funds to fund operations include investments that mature in March 2025 totaling $1,294,000 along with a $2,000,000 unused line of credit (see Note 6 in the accompanying Consolidated Financial Statements). The Company and its subsidiary each maintain checking accounts and one money market account in a financial institution which is insured by the Federal Deposit Insurance Corporation to a maximum of $250,000. The Company periodically evaluates the financial stability of the financial institutions at which the Company’s funds are held.

Previous wording

In January 2024, the Company entered into a Second Amendment to its Lease Agreement whereby Metropark agreed to return to a fixed monthly rental payment of $57,000 per month effective January 1, 2024 subject to adjustment in accordance with the Lease Agreement. Additionally, the Company and Metropark settled the Company’s claim for deferred rent for all prior periods which amounted to $1,127,000 (fully reserved on the Company’s books) for $150,000 payable by Metropark in twenty (20) equal quarterly installments commencing on April 1, 2024 together with interest on the unpaid balance in the amount of 4.73% per annum. At December 31, 2023, the $150,000 settlement is included in Prepaid and other and in Leasing revenue in the accompanying consolidated balance sheets and statements of income and retained earnings.

Current wording

In January 2024, the Company entered into a Second Amendment to its Lease Agreement whereby Metropark agreed to return to a fixed monthly rental payment of $57,000 per month effective January 1, 2024 subject to adjustment in accordance with the Lease Agreement. Additionally, the Company and Metropark settled the Company’s claim for deferred rent for all prior periods which amounted to $1,127,000 (fully reserved on the Company’s books) for $150,000 payable by Metropark in twenty (20) equal quarterly installments commencing on April 1, 2024 together with interest on the unpaid balance in the amount of 4.73% per annum. At December 31, 2024 and 2023, $128,000 and $150,000, respectively related to this settlement is included in Prepaid and other in the accompanying consolidated balance sheets and $150,000 is included in Leasing revenue in the accompanying statements of income and retained earnings in 2023.

Previous wording

The Terminal Sale Agreement and related documentation provides that the Company is required to secure an approved remediation plan and to remediate contamination caused by a leak in 1994 from a storage tank at the Terminal. At December 31, 2023, the Company’s accrual for the remaining cost of remediation was $402,000 of which $132,000 is expected to be expended in 2024. The Terminal Sale Agreement also contained a cost sharing provision for a breasting dolphin whereby any construction costs in excess of the contract cost of construction would be borne equally by Sprague and the Company subject to certain limitations, including, in the Company’s opinion, a 20% cap on the increase from the initial estimate subject to the sharing arrangement. In November 2019, Sprague asserted that it was owed $427,000 and the Company asserted that its obligation under the Agreement could not exceed $104,000. Mediation efforts were unsuccessful and in July 2021, Sprague commenced an action against the Company in the Rhode Island Superior Court (Superior Court) seeking monetary damages of $427,000, plus interest and attorney’s fees. In December 2022, the Superior Court denied Sprague’s Motion for Summary Judgment filed in September 2022 and granted in part and denied in part the Company’s Cross Motion for Summary Judgment also filed in September 2022. The Company anticipates that the matter will go to trial within the next six months. The Company intends to vigorously defend against the claims being asserted by Sprague. See Note 9, “Discontinued operations and environmental incident” in the accompanying Consolidated Financial Statements.

Current wording

The Terminal Sale Agreement and related documentation provides that the Company is required to secure an approved remediation plan and to remediate contamination caused by a leak in 1994 from a storage tank at the Terminal. At December 31, 2024, the Company’s accrual for the remaining cost of remediation was $343,000 of which $114,000 is expected to be expended in 2025. The Terminal Sale Agreement also contained a cost sharing provision for a breasting dolphin whereby any construction costs in excess of the contract cost of construction would be borne equally by Sprague and the Company subject to certain limitations, including, in the Company’s opinion, a 20% cap on the increase from the initial estimate subject to the sharing arrangement. In November 2019, Sprague asserted that it was owed $427,000 and the Company asserted that its obligation under the Agreement could not exceed $104,000. Mediation efforts were unsuccessful and in July 2021, Sprague commenced an action against the Company in the Rhode Island Superior Court (Superior Court) seeking monetary damages of $427,000, plus interest and attorney’s fees. In December 2022, the Superior Court denied Sprague’s Motion for Summary Judgment filed in September 2022 and granted in part and denied in part the Company’s Cross Motion for Summary Judgment also filed in September 2022. The matter went to trial before the Superior Court in May 2024. On October 28, 2024, the Superior Court rendered its decision and found that the Company’s obligation with respect to the increased cost of constructing the breasting dolphin is $104,000. On January 24, 2025 the Superior Court entered judgment for Sprague in the amount of $173,000 which includes, as required by law, prejudgment interest at 12% per annum. The $173,000 judgment was paid on January 29, 2025. The Company does not intend to appeal unless Sprague files an appeal. At December 31, 2024 and 2023 Liabilities, other includes $173,000 and $104,000, respectively, related to this matter. See Note 9, “Discontinued operations and environmental incident” in the accompanying Consolidated Financial Statements.

Previous wording

Leasing revenue increased $450,000 from 2022 due principally to an increase in cash collections from Metropark along with the $150,000 deferred rent settlement ($315,000) and a net increase in rent (contractual and contingent) from tenants ($135,000).

Current wording

Leasing revenue increased $101,000 from 2023 due principally to a net increase in rent (contractual and contingent) from tenants ($122,000) and an increase in other revenue of $21,000, offset by a net decrease in revenue from Metropark ($42,000) as 2023 included the settlement of $150,000 for rent that was deferred during the COVID-19 pandemic.

Previous wording

General and administrative expense increased $57,000 due principally to an increase in payroll and payroll related costs.

Current wording

General and administrative expense increased $52,000 due principally to an increase in payroll and payroll related costs ($72,000) offset by a net decrease in other general and administrative expenses ($20,000).