[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2010
  [   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
  CAPITAL PROPERTIES, INC.
  Rhode Island
(State or other jurisdiction of 
incorporation or organization)
    
    05-0386287
(IRS Employer
Identification No.)
 100 Dexter Road
East Providence, Rhode Island 02914
 (401) 435-7171
   Title of each classClass A Common Stock, $.01 par value
    
    Name of each exchange on which registeredOTCQX




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CAPITAL PROPERTIES, INC.
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2010
 TABLE OF CONTENTS
 PagePART IItem 1
    
    Business
    
    
    3Item 2
    
    Properties
    
    
    9Item 3
    
    Legal Proceedings
    
    
    9Item 4
    
    Reserved
    
    
    9PART IIItem 5
    
    Market for Registrants Common
Equity and Related Stockholder Matters
    
    
    10Item 7
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    11Item 8
    
    Consolidated Financial Statements
    
    
    16Item 9
    
    Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
    
    
    32Item 9A
    
    Controls and Procedures
    
    
    32Part IIIItem 10
    
    Directors, Executive Officers and Corporate Governance of
the Registrant
    
    
    33Item 11
    
    Executive Compensation
    
    
    33Item 12
    
    Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters
    
    
    33Item 13.
    
    Certain Relationships and Related
Transactions and Director Independence
    
    
    33Item 14.
    
    Principal Accountant Fees and Services
    
    
    33PART IVItem 15
    
    Exhibits and Financial Statement Schedules
    
    
    34Signatures
    
    
    35Exhibit 20.1
    
    Map of the Companys Parcels in Downtown Providence, Rhode IslandExhibit 20.2
    
    Map of the Companys Petroleum Storage Facility in East Providence, Rhode IslandExhibit 21
    
    Subsidiaries of the CompanyExhibits 31
    
    Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Exhibits 32
    
    Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
 2




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PART I
 FORWARD-LOOKING STATEMENTS
 Certain portions of this report, and particularly the Managements Discussion and
Analysis of Financial Condition and Results of Operations, and the Notes to
Consolidated Financial Statements, contain forward-looking statements within the
meaning of Sections 27A of the Securities Act of 1933, as amended, and Sections 21E
of the Securities Act of 1934, as amended, which represent the Companys
expectations or beliefs concerning future events. The Company cautions that these
statements are further qualified by important factors that could cause actual
results to differ materially from those in the forward-looking statements,
including, without limitation, the following: the ability of the Company to generate
adequate amounts of cash; the collectibility of the accrued leasing revenues when
due over the terms of the long-term land leases; the commencement of additional
long-term land leases; changes in economic conditions that may affect either the
current or future development on the Companys parcels; and exposure to
contamination, remediation or similar costs associated with the operation of the
petroleum storage facility. The Company does not undertake the obligation to update
forward-looking statements in response to new information, future events or
otherwise.
 
 Item 1. Business
 Business Development
 The Company 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. In
1984, the Companys name was changed to Capital Properties, Inc.
 General Economic Conditions
 The current economic conditions have had limited impact on the Companys results of operations to
date. In 2009, the Company granted rent concessions to two tenants of its leasing segment, which
concessions terminated July 1, 2010, for a total increase of $93,000 annually. As none of the
Companys leases require the tenant to provide financial information, the Company has no
information concerning the impact of current economic conditions on its major tenants and,
therefore, cannot predict whether any other tenants will request rent relief or concessions.
 Segments
 The Company operates in two segments: leasing and petroleum storage. For financial information,
see Note 9 of Notes to Consolidated Financial Statements in Item 8.
 Leasing
 Capital Center
 The leasing segment is principally devoted to the leasing of Company-owned land in the Capital
Center area (Capital Center) in downtown Providence, Rhode Island under long-term ground leases.
The Company owns approximately 18 acres in the Capital Center consisting of 11 individual parcels.
The Capital Center (approximately 77 acres of land) is the result of a development project
undertaken by the State of Rhode Island, the City of Providence, the National Railroad Passenger
Corporation (Amtrak) and the Company during the 1980s in which two rivers, the Moshassuck and
the Woonasquatucket, were moved, Amtraks Northeast Corridor rail was relocated, a new railroad
station (the Railroad Station) was constructed and significant public improvements were made to
improve pedestrian and vehicular traffic in the area.
 With the exception of the Steeple Street property, the Company has not acted, and does not intend
to act, as a developer with respect to any improvements constructed on Company-owned parcels.
Rather, the Company offers individual parcels for lease pursuant to long-term ground leases with
terms of 99 years or more. Each lease contains provisions permitting the tenant to develop the
parcel under certain terms and conditions. Each lease provides for periodic rent adjustments of
various kinds. Under the leases, the tenants are responsible for insuring the Company
 3




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##### 



against various hazards and events. Each tenant is required to indemnify the Company with
respect to all of the tenants activities on the land. The leases contain other terms and
conditions customary to such instruments.
 As part of the construction of the Railroad Station, the Federal Railroad Administration
constructed a 330-car parking garage on the Companys land adjacent to the Railroad Station, and
the Company paid one-half of the construction cost. Subsequently, the Company became the sole
owner of the parking garage. In 2005, the Company sold the parking garage for $2,500,000 in cash
and leased the underlying land to the buyer for 99 years at an initial annual contractual rental
of $100,000. Under the lease the buyer is responsible for all real estate taxes and other expenses
relating to the parking garage. The sale of the parking garage, while retaining title to the
underlying land, is consistent with the Companys policy not to act as a developer with respect to
improvements constructed on land that it currently owns or may hereafter acquire.
 The Company first began offering parcels for lease in the Capital Center area in the late
1980s. As of December 31, 2010, six developed parcels have been leased by the Company under
long-term leases of 99 years or more. Located on these parcels are the following:
 
    
    13-story office building (235,000 gross square feet)
    
    8-story 225-unit apartment building (454,000 gross square feet)
    
    4-story office building (114,000 gross square feet)
    
    10-story office building (210,000 gross square feet)
    
    17-story and a 19-story apartment building containing 193 apartments (307,000 gross
square feet) and a 10-story office building (307,000 gross square feet), and
    
    330-car public parking garage.
 In addition, in 2005 a long-term land lease commenced on an undeveloped parcel on which two
residential buildings were planned. One building containing 96 apartments (120,000 gross square
feet) was completed in September 2009. The other building has not progressed beyond the early
stages of site preparation, and the timing of construction and completion is uncertain.
 While seeking developers, the Company also leases Parcels 3E, 3W, 4E and 4W in the Capital Center
area for public parking purposes on a short-term basis to Metropark, Ltd.
 Parcel 20 Adjacent to the Capital Center
 Since the 1980s, the Company has owned an undeveloped parcel of land adjacent to the Capital
Center containing 20,600 square feet, which is leased out for public parking purposes on a short-term
basis. In 2007, the Company purchased the adjacent parcel containing a three/four-story
18,000 square foot building (the Steeple Street Building) and related land for $2,329,000,
which, with the previously-owned land, now comprises Parcel 20. The Steeple Street Building is on
the State Registry of Historic Buildings. At the time of acquisition, the Steeple Street Building
had both residential and commercial tenants. It now has two commercial tenants. While seeking a
developer for the entire 26,600 square foot parcel, in June 2009 the Company commenced the
construction of the historic restoration and utility infrastructure of the building, which was
completed in December 2010, at a total cost of $3,178,000 plus tenant improvements of $191,000.
 All of the properties described above are shown on a map contained in Exhibit 20.1.
 Lamar Lease
 The Company, through a wholly-owned subsidiary, leases certain outdoor advertising locations along
interstate and primary highways in Rhode Island and Massachusetts to Lamar under a lease which
expires in 2033. Presently, there are 24 locations under lease, containing 46 billboard faces. Of
these locations, 22 are controlled by the Company through permanent easements granted to the
Company pursuant to an agreement between the Company and Providence & Worcester Railroad Company,
a related company (Railroad), and two are leased by the Company from third parties under leases
with remaining terms of five years or less. The term of the Lamar lease is extended for two years
for each additional location added. Although no new locations have been added since 2002, one
structure was moved to a different location and the lease was extended for two years. Lamar has a
right of first refusal for additional billboard location sites acquired by the Company in New
England and Metropolitan New York City.Effective June 1, 2006, the Company entered into an Amended and Restated Agreement with
Lamar which, among other things, provides the following: (1) the base rent will increase annually
at the rate of 2.75% for each leased billboard location commencing June 1, 2006 and on each June
1 thereafter; and (2) in addition to base rent, for each 12-month period commencing each June 1,
Lamar must pay to the Company 30% of the gross revenues from each standard billboard and 20% of
the gross revenues from each electronic billboard for such 12-month period, reduced
 4




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##### 



by the sum of (a) commissions paid to third parties and (b) the base monthly rent for each leased
billboard display for such 12-month period. In all other respects, the lease remains substantially
unchanged.The Company has the right to require the Railroad to grant to it additional permanent easements for
the location of billboards along the Railroads right-of-way on commercially reasonable terms.
 5




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A summary of the long-term leases which have commenced is as follows:
 Parcels in Capital Center Area2
    
    
    
    3S
    
    
    
    5
    
    
    
    6, Phase I
    
    
    
    6, Phase II
    
    
    
    6, Phase III
    
    
    
    7A
    
    
    
    8
    
    
    
    9
    
    
    
    LamarDescription
of Usage
    
    
    Residential/Office
    
    
    Office
    
    
    Residential
    
    
    Residential
    
    
    Residential/Office
    
    
    Residential/Office
    
    
    Garage
    
    
    Office
    
    
    Office
    
    
    BillboardTerm of Lease
    
    
    103 Yrs.
    
    
    99 Yrs.
    
    
    149 Yrs.
    
    
    99 Yrs.
    
    
    99 Yrs.
    
    
    99 Yrs.
    
    
    99 Yrs.
    
    
    99 Yrs.
    
    
    149 Yrs.
    
    
    27 Yrs.Termination Date
    
    

    2108

    
    

    2087

    
    

    2142

    
    

    2103

    
    

    2103

    
    

    2103

    
    

    2104

    
    

    2090

    
    

    2153

    
    

    2033Options to Extend
    
    
    Two
    
    
    None
    
    
    None
    
    
    Two
    
    
    Two
    
    
    Two
    
    
    Two
    
    
    None
    
    
    None
    
    
    See LamarLease
    
    
    75-Year
    
    
    
    
    
    
    
    
    
    
    
    
    50-Year
    
    
    50-Year
    
    
    50-Year
    
    
    75-Year
    
    
    
    
    
    
    
    
    
    
    
    
    Lease aboveCurrent Annual
Contractual Rental
    
    
    $72,000
    
    
    $485,000

    
    
    $344,000

    
    
    $300,000
    
    
    $48,000
    
    
    $24,000
    
    
    $113,000
    
    
    $270,000
    
    
    $100,000
    
    
    $755,000Contingent Rent
    
    
    None
    
    
    None
    
    
    1% Gross Revenues
    
    
    None
    
    
    None
    
    
    None
    
    
    None
    
    
    1% Gross Revenues
    
    
    None
    
    
    See Lamar LeaseaboveNext Periodic
Rental Adjustment
    
    

    2011

    
    

    2014

    
    

    2013

    
    

    2014

    
    

    2012

    
    

    2012

    
    

    2015

    
    

    2015

    
    

    2011

    
    

    2011Annual Rent after
Next Adjustment
and/or Type of Next
Adjustment
    
    

    $456,000

    
    

    $618,000

    
    
    Appraisal
    
    

    $330,000

    
    

    $175,000

    
    

    $48,000

    
    
    Cost-of-Living Adjustment
    
    
    Cost-of-Living Adjustment
    
    

    $360,000

    
    

    $774,000
 6




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Major tenants:
 The following table sets forth those major tenants whose revenues exceed 10% of the Companys
leasing segment revenues:
 2010
    
    
    2009Lamar Outdoor Advertising, LLC
    
    $
    810,000
    
    
    $
    793,000Metropark, Ltd.
    
    
    558,000
    
    
    
    543,000Gramercy Capital Corp
    
    
    485,000
    
    
    
    472,000AvalonBay Communities, Inc.
    
    
    398,000
    
    
    
    397,000$
    2,251,000
    
    
    $
    2,205,000
 Competition
 The Company competes for tenants with other owners of undeveloped real property in downtown
Providence. The Company maintains no listing of other competitive properties and will not engage
in a competitive bid arrangement with proposed developers. The Companys refusal to sell the land
that it owns may restrict the number of interested developers. As to the Steeple Street Building,
the Company competes for tenants with other office and commercial buildings located in downtown
Providence.
 Employees
 The leasing segment has two employees.
 Petroleum Storage
 Terminal and Pier Facility
 The Company, through its wholly-owned subsidiary, Dunellen, LLC, owns a petroleum storage terminal
with a capacity of approximately 1,000,000 barrels (the Terminal) and the Wilkesbarre Pier (the
Pier), collectively referred to as the Facility, located in East Providence, Rhode Island. The
Facility is leased to Global Companies, LLC (Global) for the storage and sale of petroleum
distillates. The Terminal utilizes the Pier and pipelines connecting the Pier to the Terminal. The
Company operates the Facility for Global pursuant to a contract with another Company subsidiary,
Capital Terminal Company. The lease provides for a fixed monthly rent which is subject to annual
cost-of-living adjustments. The lease expires April 30, 2013, but will continue thereafter on a
year-to-year basis unless terminated by either party upon ninety days written notice. Global may
terminate the lease on the anniversary date (April 30) provided it gives at least one years
written notice. The lease includes provisions for additional payments based upon petroleum
throughput in any twelve-month period beginning on May 1 of each year and ending on April 30 of the
subsequent year at the rate of $.10 per barrel for every barrel in excess of 4,000,000 barrels, and
for real property taxes in excess of $106,000 annually. The Company bears all of the operating
costs with respect to the Facility, including a portion of the real property taxes and insurance.
In addition, Global has an option to purchase the Facility at any time during the term of the lease
(other than the last year thereof) on the terms and conditions set forth in a separate option
agreement. Under a companion agreement, Global has agreed to pay 50% of the cost of all
improvements to the Pier but not more than $1,000,000; to date Global has paid $966,000.EnvironmentalThe operation of a petroleum storage facility carries with it the risk of environmental
contamination.Environmental incident (2010):On August 30, 2010, during a regular facility inspection of the
Terminal, a release of petroleum-contaminated water was discovered from the tank bottom of one of
the Companys 150,000 barrel tanks (Tank 153). The Company notified the Rhode Island Department
of Environmental Management (RIDEM), the Environmental Protection Agency and the United States
Coast Guard. It also notified its insurance carriers of the release and the damage to the tank.The tank was emptied of product and the cleaning of the tank bottom was completed in September
2010. The petroleum-contaminated water released from the tank was contained on the secondary
containment liner under the tank bottom, preventing contamination of the groundwater. The Company
engaged an outside engineering firm to inspect the tank bottom to determine the cause and location
of the release, as well as the extent of the required repairs. The findings of the inspection
indicated that aggressive corrosion from inside the tank occurred, causing two holes in the
immediate vicinity of the observed release, as well as several other holes or potential holes in
other areas of the tank bottom. The report indicates that the corrosion was caused by microbial
contamination, which was affirmed by a corrosion specialist.
 
 7




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The total cost of the cleanup, inspection and repair of the tank was $550,000. Tank 153 was
placed back in service in February 2011.The testing of certain of the Companys other tanks revealed the presence of corrosive microbial
contaminants in Tanks 151 and 32. Both tanks were treated with a biocide and continue to be
monitored and treated as necessary. Since Tank 32 had been inspected in June 2010, the Company
believes that the contaminants have not affected the integrity of this tank bottom. However,
since Tank 151 had not been inspected since construction in 2006, the Company took this tank out
of service in the first quarter of 2011 for a complete inspection of the tank bottom.At this time, management does not know which costs, if any, will be recovered under its insurance
policies; however, the Company has put its insurance carrier on notice under the property policy
with its insurance carrier to recover the repair costs. The deductibles on the Companys insurance
policies are $50,000 for environmental and $75,000 for property. In addition, the Company is
reviewing all of the facts and circumstances to determine if it has a claim against third parties
for costs of cleanup, inspection and repair. The Company cannot determine with any certainty what
amount may be recovered from a third party and, accordingly, has not recorded any receivable at
December 31, 2010.Environmental incident (2002):In 2002, during testing of monitoring wells at the Terminal, the
Companys consulting engineer discovered free floating phase product in a groundwater monitoring
well located on that portion of the Terminal purchased in 2000. Laboratory analysis indicated that
the product was gasoline, which is not a product the Company ever stored at the Terminal. The
Company commenced an environmental investigation and analysis, the results of which indicate that
the gasoline did not come from the Terminal. The Company notified RIDEM. RIDEM subsequently
identified Power Test Realty Partnership (Power Test), the owner of an adjacent parcel, as a
potentially responsible party for the contamination. Getty Properties Corp. is the general partner
of Power Test. Power Test challenged that determination and, after an administrative hearing, on
October 20, 2008, a RIDEM Hearing Officer determined that Power Test is responsible for the
discharge of the petroleum product under the Rhode Island Oil Pollution Control Act, R.I.G.L.
Section 46-12.5.1-3 and Rule 6(a) and 12(b) of the Oil Pollution Control Regulations. The RIDEM
Decision and Order requires Power Test to remediate the contamination as directed by RIDEM and
remanded the proposed penalty to RIDEM for recalculation. In November 2008, Power Test appealed the
decision to the Rhode Island Superior Court. In addition, in November 2008, Power Test sought, and
received, a stay of the Decision and Order of the Hearing Officer pending a clarification by RIDEM
of the amount of the proposed penalty. On October 2, 2009, RIDEM issued a recalculated
administrative penalty, and, subsequently, the RIDEM Hearing Officer issued a recommended amended
decision, which was affirmed as a final decision by the RIDEM Director on December 23, 2009. On
January 20, 2010, Power Test appealed that decision to Superior Court. There can be no assurance
that the Superior Court will affirm the final RIDEM decision.In April 2009, the Company sued Power Test and Getty Properties Corp. in the Rhode Island
Superior Court seeking remediation of the site or, in the alternative, the cost of the
remediation. On May 1, 2009, Power Test and Getty Properties Corp. removed the action to the
United States District Court for the District of Rhode Island. On May 22, 2009, Power Test and
Getty Properties Corp. answered the Complaint and filed a Counterclaim against Dunellen, LLC and
Capital Terminal Company alleging that Dunellen, LLC and Capital Terminal Company are responsible
for the contamination. Getty Properties Corp. and Power Test have joined Getty Petroleum
Marketing, Inc., the tenant under a long-term lease with Getty Properties Corp. of the adjacent
property, as a defendant. The Company has amended its Complaint to add Getty Petroleum Marketing,
Inc. as a defendant. In February 2011, the Company was notified by the United States District
Court for the District of Rhode Island that the case was being transferred to the United States
District Court for the District of New Hampshire due to a backlog of cases in Rhode Island.The parties are now engaged in discovery. There can be no assurance that the Company will
prevail in this litigation.Since January 2003, the Company has not incurred significant costs in connection with this
matter, other than ongoing litigation costs, and is unable to determine the costs it might incur
to remedy the situation, as well as any costs to investigate, defend and seek reimbursement from
the responsible party with respect to this contamination. This situation does not affect current
operations at the Facility but may affect the Companys ability to sell the Facility should it
determine to do so.Environmental remediation (1994):In 1994, a leak was discovered in a 25,000 barrel storage tank
at the Terminal which allowed the escape of a small amount of fuel oil. All required notices were
made to RIDEM. In 2000, the tank was demolished and testing of the groundwater indicated that
there was no large pooling of contaminants. In 2001, RIDEM approved a plan pursuant to which the
Company installed a passive system consisting of three wells and commenced monitoring the wells.In 2003, RIDEM decided that the passive monitoring system previously approved was not
sufficient and required the Company to design an active remediation system for the removal of
product from the contaminated site. The Company and its consulting engineers began the pre-design
testing of the site in the fourth quarter of 2004. The consulting engineers estimated a total
cost of $200,000 to design, install and operate the system, which amount was accrued in 2004.
Through 2006, the Company had expended $119,000 and has not incurred any additional costs
 8




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##### 



since then. RIDEM has not taken any action on the Companys proposed plan. As designed, the system
will pump out the contaminants which will be disposed of in compliance with applicable
regulations. After a period of time, the groundwater will be tested to determine if sufficient
contaminants have been removed. While the Company and its consulting engineers believe that the
proposed active remediation system will correct the situation, it is possible that RIDEM could
require the Company to expand remediation efforts, which could result in the Company incurring
additional costs.The Company manages its exposure to contamination, remediation or similar costs associated
with the Facility through adherence to established procedures for operations and equipment
maintenance.InsuranceThe Company maintains what management believes to be adequate levels of insurance, including
environmental insurance. The Company notified its insurance company of the gasoline contamination
associated with the incident in 2002. The insurance company advised the Company that coverage is
only provided under policies in place at the time the contamination occurs.CompetitionThe Facility competes with several other similar facilities located on and adjacent to the
Providence Harbor. The Terminal has approximately 42% of the total distillate storage capacity
in the Providence area. Global competes with other terminal operators on the basis of price,
availability, and a willingness to advance credit to local wholesalers. The amount of petroleum
throughput at the Terminal is a function of Globals ability to compete effectively in the
marketplace.EmployeesThe Terminal employs seven people on a full-time basis and one person on a part-time basis.
 
 Item 2. Properties
 The Company owns approximately 18.5 acres and a historic building in and adjacent to the Capital
Center District in Providence, Rhode Island. All of the property and a portion of the building are
leased either under long-term leases or short-term leases as more particularly described in Item 1,
Leasing Segment. The Company also owns or controls 24 locations on which billboards have been
constructed. Of these, 22 are owned by the Company under permanent easements from a related
company, the Railroad, and two are leased from unrelated third parties with terms remaining terms
of five years or less. The Company owns an approximate 10-acre site in East Providence, Rhode
Island on which there are located nine petroleum storage tanks and related distribution racks
together with a 3,000 square foot single-story office building in which the Companys headquarters
and other support operations are located. In 2006, the Company completed the development of the
land currently owned by the Company at the Terminal. In addition, the Company is the owner of the
Pier located in East Providence, Rhode Island. The Pier, which has a deep water draft capacity of
-40 feet MLW, can accommodate ships up to eight hundred feet in length. The Company has a permanent
right to use the pipelines connecting the Pier to the Terminal.
 
 Item 3. Legal Proceedings
 None.
 
 Item 4. Reserved
 
 9




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PART II
 
 Item 5. Market for Registrants Common Equity and Related Stockholder Matters
 The Companys Class A Common Stock is traded on the OTCQX, symbol CPTP. The following table shows
the high and low trading prices for the Companys Class A Common Stock during the quarterly periods
indicated as obtained from the OTCQX, together with cash dividends paid per share during such
periods.
 Trading Prices
    
    DividendsHigh
    

Low
    

Paid20101st Quarter
    
    
    9.25
    
    
    
    7.25
    
    
    
    .032nd Quarter
    
    
    9.00
    
    
    
    6.45
    
    
    
    .863rd Quarter
    
    
    8.25
    
    
    
    6.98
    
    
    
    .034th Quarter
    
    
    10.01
    
    
    
    8.25
    
    
    
    .0320091st Quarter
    
    
    10.01
    
    
    
    6.50
    
    
    
    .032nd Quarter
    
    
    8.75
    
    
    
    6.85
    
    
    
    .033rd Quarter
    
    
    8.25
    
    
    
    7.22
    
    
    
    .034th Quarter
    
    
    10.00
    
    
    
    7.01
    
    
    
    .03
 Information with respect to the high and low trading prices for the Class B Common Stock is not
available because the stock is not listed on any exchange, is not quoted by any quotation service,
and there is no known market for such Class B Common Stock.At March 1, 2011, there were 634 holders of record of the Companys Class A Common Stock and 552
holders of record of the Companys Class B Common Stock.
 10




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##### 



Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 1.
    
    Overview:
 Critical accounting policies:
 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.
 The Companys significant accounting policies are described in Note 2 of Notes to
Consolidated Financial Statements in Item 8. Not all of these significant accounting policies
require management to make difficult, subjective or complex judgments or estimates.
Management believes that the Companys revenue recognition policy for long-term leases with
scheduled rent increases (leasing segment) meets the SEC definition of critical.
 Certain of the Companys long-term land leases have original terms of 30 to 149 years and
contain scheduled rent increases where the future dollar increases are known at the time of
the commencement of the lease or at a subsequent date.
 The first such lease commenced in 1988, had an original term of 99 years and provides for
fixed percentage increases at specified intervals (as well as reappraisal increases). In
accordance with United States generally accepted accounting principles in accounting for
leases, rental income related to the fixed percentage increases that are presently known
should be recognized on a straight-line basis. To calculate the annual straight-line amount,
the 99 known annual rental amounts are totaled and this total is divided by 99.
 In 2009, a scheduled appraisal occurred, resulting in a rental increase. The Company
recalculated the future annual straight-line amount using the remaining years under the lease.
The turnaround date discussed below did not change.
 For this lease, the calculated annual straight-line amount for 1988 was eight times (multiple)
the amount paid by the tenant under the terms of the lease (the contractual amount). In
subsequent years, as the tenant pays higher rents, the multiple gradually decreases until the
57th year of the lease, at which time the contractual amount paid by the
tenant will exceed the calculated straight-line amount. If the Company were to report annual
revenue for this lease using the straight-line amount, it would record a significant receivable
for each of the first 56 years, which receivable would grow to approximately $34,000,000.
Management does not believe that the Company should record a receivable that would not begin to
be collected until the 56th year (the turnaround date) since
management could not be assured of collection.
 In 1988, management met with the SEC accounting staff to discuss its concerns in applying United
States generally accepted accounting principles as they related to a lease of this length which
results in the recording of such a significant receivable that would remain on the Companys
balance sheet and continue to grow on an annual basis with a turnaround date so far in the
future. The Company presented the SEC accounting staff with an application of the accounting
policy whereby management would evaluate the collectibility of the receivable on an annual basis
and report as leasing revenue only that portion of the receivable that management could
presently conclude would be collectible. The SEC accounting staff did not object to this
application by the Company.
 Through December 31, 2010, the receivable on this lease has grown to $19,290,000 (cumulative
excess of straight-line over contractual rentals) and management has not been able to conclude
that any portion is collectible as the turnaround date is still 35 years away.
 In 2004, a second such lease commenced with an original term of 149 years and provides for
fixed minimum percentage increases at specified intervals (as well as reappraisal increases).
For this lease, the contractual amount paid by the tenant will not exceed the calculated
straight-line amount until the 94th year of the lease. Through December
31, 2010, the receivable on this lease is $16,019,000 (cumulative excess of straight-line over
contractual rentals) and management has not been able to conclude that any portion is
collectible as the turnaround date is 87 years away.
 In 2006, the Company entered into an Amended and Restated Agreement of its lease with Lamar
Outdoor Advertising LLC (Lamar) with a current remaining term of 25 years which provides for
fixed percentage increases annually. For this lease, the contractual amount paid by Lamar will
not exceed the calculated straight-line amount until the 16th year of the
lease. Through December 31, 2010, the receivable on this lease is $1,021,000 (cumulative excess
of straight-line over contractual rentals) and management has not been able to conclude that any
portion is collectible as the turnaround date is 11 years away.
 
 11




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##### 



Accordingly, the Company has not reported any portion of these amounts as leasing revenue
in its consolidated financial statements and does not anticipate that it can reach such a
conclusion until the turnaround dates are closer.
 Although the Companys other long-term land leases provide for scheduled rent increases,
the provisions of the leases are such that certain future dollar amounts could not be
calculated either at the time of the commencement of the lease or now, as such amounts are
based on factors that are not presently known, i.e., future cost-of -living adjustments or
future appraised values. Through December 31, 2010, the receivable on these leases is
$8,820,000 and management has not been able to conclude that any portion is collectible as the
turnaround dates are approximately 50 years away.
 The Company continues to recognize accrued leasing revenue from two leases which were recorded
in prior years.
 Segments:
 The Company operates in two segments: leasing and petroleum storage.
 The leasing segment consists of the long-term leasing of certain of its real estate interests in
downtown Providence, Rhode Island (upon the commencement of which the tenants have been required
to construct buildings thereon, with the exception of a parking garage), the leasing of a
portion of the Steeple Street Building acquired in 2007 under short-term leasing arrangements
and the leasing of locations along interstate and primary highways in Rhode Island and
Massachusetts to Lamar which has constructed outdoor advertising boards thereon. The Company
anticipates that the future development of its remaining properties in and adjacent to the
Capital Center area will consist primarily of long-term ground leases. Pending this development,
the Company leases these parcels for public parking under short-term leasing arrangements to
Metropark.
 The petroleum storage segment consists of operating the Facility in East Providence, Rhode
Island, for Global Companies, LLC (Global).
 The principal difference between the two segments relates to the nature of the
operations. In the leasing segment, the tenants under the long-term land leases incur
substantially all of the development and operating costs of the assets constructed on the
Companys land, including the payment of real property taxes on both the land and any
improvements constructed thereon; whereas the Company is responsible for the operating and
maintenance expenditures, including a portion of the real property taxes, as well as certain
capital improvements at the Facility.
 2.
    
    Results of operations:
 Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
 Leasing segment:
 2010
    
    
    2009
    
    
    IncreaseLeasing revenues
    
    $
    3,135,000
    
    
    $
    2,908,000
    
    
    $
    227,000Leasing expense
    
    
    998,000
    
    
    
    982,000
    
    
    $
    16,000$
    2,137,000
    
    
    $
    1,926,000
 Leasing revenues increased due to the termination of the rent relief granted Lamar and
Metropark in 2009 (which rents were restored to their scheduled level on July 1, 2010) and
scheduled increases in rentals under long-term land leases. Leasing expense increased due to
higher legal fees in connection with two leases, an increase in property taxes and depreciation
on the Steeple Street Building. These increases were offset in part by the reversal of an
allowance for a doubtful account of $40,000.
 Petroleum storage segment:
 2010
    
    
    2009
    
    
    IncreasePetroleum storage facility revenues
    
    $
    3,808,000
    
    
    $
    3,756,000
    
    
    $
    52,000Petroleum storage facility expense
    
    
    2,867,000
    
    
    
    2,325,000
    
    
    $
    542,000$
    941,000
    
    
    $
    1,431,000
 Petroleum storage facility revenues increased due to the May 1, 2010 annual cost-of-living
adjustment of $82,000 under the lease for the petroleum storage facility. Petroleum storage
facility expense increased due to costs of $550,000 recorded in connection with the leak in
Tank 153 in August 2010.
 
 12




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##### 



General:
 For the year ended December 31, 2010, general and administrative expense remained at the 2009
level.
 Interest expense:
 In April 2010,the Company borrowed $6,000,000 from a bank. The loan bears interest at an
annual rate of 6 percent and has a term of ten years with repayments on a twenty-year
amortization schedule (monthly principal payments of $25,000 plus interest).
 Income taxes:
 The income tax provision for the year ended December 31, 2010 does not bear the customary
relationship between income tax expense and pretax accounting income. The Company determined
that the expenditures in connection with the historic restoration of the Steeple Street
Building qualified for federal historic income tax credits in 2010 totaling approximately
$588,000 and has incorporated the credit in determining the effective tax rate for 2010.
 3.
    
    Liquidity and capital resources:
 Historically, the Company has had adequate liquidity to fund its operations.
 In April 2010, the Board of Directors of the Company declared a special dividend of $5,478,000
($.83 per common share) on the Class A and Class B common stock to shareholders of record on May
12, 2010 payable on May 26, 2010. The dividend represented the payout to the shareholders of the
Companys earnings and profits as calculated for federal income tax purposes at December 31,
2009. The Company has expressed its intention in the future to convert to a pass-through entity
for income tax purposes. In order to effectuate such a conversion, the Company will be required
to pay out its accumulated earnings and profits. The Board of Directors determined that it would
be in the best interest of the shareholders to make the distribution of the earnings and profits
while the tax laws were still favorable, since management at that time expected that the federal
income tax rate on dividends would rise substantially on January 1, 2011.
 In order to fund the special dividend, the Company borrowed $6,000,000 from a bank. The loan
bears interest at an annual rate of 6 percent and has a term of ten years with repayments on a
twenty-year amortization schedule (monthly principal payments of $25,000 plus interest). The
loan matures April 26, 2020, contains the customary covenants, terms and conditions, and
permits prepayment, in whole or in part, at any time without penalty if the prepayment is made
from internally generated funds. As collateral for the loan, the Company granted the bank a
mortgage on Parcels 3S and 5 in the Capital Center.
 During 2010, the Companys operating activities provided an additional $1,994,000 of cash. The
Company made cash payments of $6,270,000 for dividends, $1,414,000 principally for the
restoration of the Steeple Street Building and $175,000 in principal payments on the note
payable. Cash increased $80,000 from the 2009 level.
 Cash and cash commitments:
 At December 31, 2010, the Company had cash of $2,395,000. The Company maintains all of its
cash in a non-interest bearing checking account which is fully insured by the Federal
Deposit Insurance Corporation.
 In July 2009, the Company received notice from the holder of the leasehold mortgage on Parcel 8
that the Parcel 8 tenant was in default. A foreclosure sale was held in September 2009, and the
building was sold to the leasehold mortgagee. Under the terms of the Parcel 8 long-term land
lease, upon the foreclosure of the leasehold mortgage, the Company is required to enter into a
new long-term lease with the leasehold mortgagee or its assignee on substantially the same
terms and conditions as the existing lease for Parcel 8. No new lease has been entered into to
date. In such circumstances, the new tenant is required to cure any prior monetary defaults.
The rent has continued to be paid in a timely fashion, and the Company has no reason to believe
that the leasehold mortgagee will not continue to pay the rent and property taxes to the City
of Providence in a timely fashion.
 Under the terms of the Companys long-term land leases, appraisals of the premises are
periodically required at various stated intervals to provide the basis for recalculating the
annual rent. The appraisal process for Parcel 8 commenced in November 2009 and the final
appraisal was completed in September 2010, resulting in an annual increase of $47,000
retroactive to February 1, 2010.
 13




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##### 



Under the lease which commenced in 2005, the tenant is entitled to a credit for future rents equal
to a portion of the real property taxes paid by the tenant through April 2007. In connection with
Phase I of the tenants project, commencing July 1, 2010, the annual rent increased from $48,000
to $300,000. As a result of the rent credit, the tenant will not be required to make cash payments
for rent until May 2012. Commencing July 1, 2010, the Company is reclassifying each month $25,000
of deferred leasing revenues to leasing revenues. At December 31, 2010, the remaining credit is
$370,000.Under the Companys long-term land lease on Parcel 9, on April 1, 2011, the scheduled contractual
rent will increase $260,000 annually. Under the Companys long-term land lease on Parcel 2, on May
1, 2011, the scheduled contractual rent will increase $384,000 annually.The current economic conditions have had limited impact on the Companys results of operations to
date. In 2009, the Company granted rent concessions to two tenants of its leasing segment, which
concessions terminated July 1, 2010, for a total increase of $93,000 annually. As none of the
Companys leases require the tenant to provide financial information, the Company has no
information concerning the impact of current economic conditions on its major tenants and,
therefore, cannot predict whether any other tenants will request rent relief or concessions.In June 2009, the Company commenced the construction of the historic restoration and utility
infrastructure of the Steeple Street Building, which was completed in December 2010 at a total
cost of $3,178,000 plus tenant improvements of $191,000. The Company has determined that certain
expenditures qualify for federal historic tax credits in 2010 totaling $588,000.At December 31, 2010, the Company has two tenants in a portion of the Steeple Street Building
(including the new tenant who assumed the lease) under short-term leases (five years or less) at a
current annual rental of $88,000. The Company is currently marketing the remaining portions of the
building for lease.Under the Companys lease with Global, the annual cost-of-living adjustment was $82,000 effective
May 1, 2010.On August 30, 2010, during a regular facility inspection of the Terminal, a release of
petroleum-contaminated water was discovered from the tank bottom of one of the Companys 150,000
barrel tanks (Tank 153). The Company notified the Rhode Island Department of Environmental
Management (RIDEM), the Environmental Protection Agency and the United States Coast Guard. It also
notified its insurance carriers of the release and the damage to the tank.The tank was emptied of product and the cleaning of the tank bottom was completed in September. The
petroleum-contaminated water released from the tank was contained on the secondary containment
liner under the tank bottom, preventing contamination of the groundwater. The Company engaged an
outside engineering firm to inspect the tank bottom to determine the cause and location of the
release, as well as the extent of the required repairs. The findings of the inspection indicated
that aggressive corrosion from inside the tank occurred, causing two holes in the immediate
vicinity of the observed release, as well as several other holes or potential holes in other areas
of the tank bottom. The report indicates that the corrosion was caused by microbial contamination,
which was affirmed by a corrosion specialist.The total cost of the cleanup, inspection and repair of the tank was $550,000 (of which
$273,000 has been paid through December 31, 2010). The tank was placed back in service in
February 2011.The testing of certain of the Companys other tanks revealed the presence of corrosive microbial
contaminants in Tanks 151 and 32. Both tanks were treated with a biocide and continue to be
monitored and treated as necessary. Since Tank 32 had been inspected in June 2010, the Company
believes that the contaminants have not affected the integrity of this tank bottom. However,
since Tank 151 had not been inspected since construction in 2006, the Company took this tank out
of service in February 2011 for approximately one month for a complete inspection of the tank
bottom.At this time, management does not know which costs, if any, will be recovered under its insurance
policies; however, the Company has put its insurance carrier on notice under the property policy
with its insurance carrier to recover the repair costs. The deductibles on the Companys insurance
policies are $50,000 for environmental and $75,000 for property. In addition, the Company is
reviewing all of the facts and circumstances to determine if it has a claim against third parties
for costs of cleanup, inspection and repair. The Company cannot determine with any certainty what
amount may be recovered from a third party and, accordingly, has not recorded any receivable at
December 31, 2010.In January 2011, the Company declared a quarterly dividend of $198,000 ($.03 per common share)
which was paid in February 2011. The declaration of future dividends and the amount thereof will
depend on the Companys future earnings, financial factors and other events.
 14




---



##### 



The Company expects that cash generated from current operations will continue to be sufficient to
meet operating expenses, debt service, ordinary capital expenditures and the current level of
quarterly dividends. In the event temporary liquidity is required, the Company believes that a
line of credit or other arrangements could be obtained by pledging some or all of its
unencumbered assets as collateral.At December 31, 2010, the Company has no noncancellable contract obligations other than two
operating leases for billboard locations for which the rent expense is not material in amount.
 15




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##### 



Item 8.
    
    Consolidated Financial Statements
 CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm
    
    
    17Consolidated Balance Sheets as of December 31, 2010 and 2009
    
    
    18Consolidated Statements of Income and Retained Earnings for the
Years Ended December 31, 2010 and 2009
    
    
    19Consolidated Statements of Cash Flows for the Years Ended
December 31, 2010 and 2009
    
    
    20Notes to Consolidated Financial Statements
    
    
    21-31
 16




---



##### 



(LOGO)
    

Lefkowitz,
Garfinkel, Champi & DeRienzo P.C.
Certified Public Accountants / Business Consultants
 
 
 
    
   17




---



##### 



CAPITAL PROPERTIES, INC. AND SUBSIDIARIES  CONSOLIDATED BALANCE SHEETS
 December 31,2010
    
    
    2009ASSETSProperties and equipment (net of accumulated depreciation)
    
    $
    22,500,000
    
    
    $
    22,069,000Cash
    
    
    2,395,000
    
    
    
    2,315,000Income taxes receivable
    
    
    769,000
    
    
    
    47,000Prepaid and other
    
    
    496,000
    
    
    
    331,000$
    26,160,000
    
    
    $
    24,762,000LIABILITIES AND SHAREHOLDERS EQUITYLiabilities:Note payable ($300,000 due within one year)
    
    $
    5,825,000
    
    
    $
    --Accounts payable and accrued expenses:Property taxes
    
    
    267,000
    
    
    
    243,000Tank repairs
    
    
    277,000
    
    
    
    --Environmental remediation
    
    
    81,000
    
    
    
    81,000Other
    
    
    457,000
    
    
    
    514,000Deferred:Leasing revenues
    
    
    370,000
    
    
    
    520,000Income taxes, net
    
    
    5,552,000
    
    
    
    5,305,00012,829,000
    
    
    
    6,663,000Shareholders equity:Class A common stock, $.01 par; authorized 10,000,000 shares;
issued and outstanding, 3,727,874 shares and 3,654,739 shares
at December 31, 2010 and 2009, respectively
    
    
    37,000
    
    
    
    37,000Class B common stock, $.01 par; authorized 3,500,000 shares;
issued and outstanding, 2,872,038 shares and 2,945,173 shares
at December 31, 2010 and 2009, respectively
    
    
    29,000
    
    
    
    29,000Excess stock, $.01 par; authorized 1,000,000 shares; none
issued and outstanding
    
    
    --
    
    
    
    --Capital in excess of par
    
    
    11,762,000
    
    
    
    11,762,000Retained earnings
    
    
    1,503,000
    
    
    
    6,271,00013,331,000
    
    
    
    18,099,000$
    26,160,000
    
    
    $
    24,762,000
  18




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##### 



CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
 Years Ended December 31,2010
    
    
    2009Revenues:Leasing
    
    $
    3,135,000
    
    
    $
    2,908,000Petroleum storage facility
    
    
    3,808,000
    
    
    
    3,756,0006,943,000
    
    
    
    6,664,000Expenses:Leasing
    
    
    998,000
    
    
    
    982,000Petroleum storage facility
    
    
    2,867,000
    
    
    
    2,325,000General and administrative
    
    
    939,000
    
    
    
    951,000Interest
    
    
    248,000
    
    
    
    5,052,000
    
    
    
    4,258,000Income before income taxes
    
    
    1,891,000
    
    
    
    2,406,000Income tax expense:Current
    
    
    142,000
    
    
    
    936,000Deferred
    
    
    247,000
    
    
    
    36,000389,000
    
    
    
    972,000Net income
    
    
    1,502,000
    
    
    
    1,434,000Retained earnings, beginning
    
    
    6,271,000
    
    
    
    5,629,000Dividends on common stock based upon 6,599,912 shares
outstanding ($.95 and $.12 per share for the years ended
December 31, 2010 and 2009, respectively)
    
    
    (6,270,000
    )
    
    
    (792,000
    )Retained earnings, ending
    
    $
    1,503,000
    
    
    $
    6,271,000Basic income per share, based upon 6,599,912
shares outstanding
    
    $
    .23
    
    
    $
    .22
  19




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##### 



CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years Ended December 31,2010
    
    
    2009Cash flows from operating activities:Net income
    
    $
    1,502,000
    
    
    $
    1,434,000Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation
    
    
    733,000
    
    
    
    691,000Amortization of deferred financing fees
    
    
    4,000
    
    
    
    --Deferred:Income taxes
    
    
    247,000
    
    
    
    36,000Leasing revenues
    
    
    (150,000
    )
    
    
    --Changes in assets and liabilities:Increase in:Income taxes receivable
    
    
    (722,000
    )
    
    
    (47,000
    )Prepaid and other
    
    
    (114,000
    )
    
    
    --Accounts payable and accrued expenses
    
    
    494,000
    
    
    
    --Decrease in:Prepaid and other
    
    
    --
    
    
    
    154,000Accounts payable and accrued expenses
    
    
    --
    
    
    
    (180,000
    )Current income taxes payable
    
    
    --
    
    
    
    (346,000
    )Net cash provided by operating activities
    
    
    1,994,000
    
    
    
    1,742,000Cash used in investing activities: payments for properties
and equipment
    
    
    (1,414,000
    )
    
    
    (2,030,000
    )Cash flows from financing activities:Proceeds from note payable
    
    
    6,000,000
    
    
    
    --Payments:Note payable
    
    
    (175,000
    )
    
    
    --Deferred financing fees
    
    
    (55,000
    )
    
    
    --Dividends
    
    
    (6,270,000
    )
    
    
    (792,000
    )Net cash used in financing activities
    
    
    (500,000
    )
    
    
    (792,000
    )Increase (decrease) in cash
    
    
    80,000
    
    
    
    (1,080,000
    )Cash, beginning
    
    
    2,315,000
    
    
    
    3,395,000Cash, ending
    
    $
    2,395,000
    
    
    $
    2,315,000Supplemental disclosure:Cash paid for:Income taxes
    
    $
    876,000
    
    
    $
    1,329,000Interest
    
    $
    218,000
    
    
    $
    --Non-cash investing and financing activities:Capital expenditures financed through accounts payable
    
    $
    118,000
    
    
    $
    368,000Conversion of Class B common stock into Class A
common stock
    
    $
    --
    
    
    $
    4,000
  20




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##### 



CAPITAL PROPERTIES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2010 AND 2009
 1.
    
    Description of business:
 Capital Properties, Inc. and its wholly-owned subsidiaries, Tri-State Displays, Inc., Capital
Terminal Company and Dunellen, LLC (collectively referred to as the Company) operate in two
segments: (1) Leasing and (2) Petroleum Storage.The leasing segment consists of the long-term leasing of certain of its real estate
interests in downtown Providence, Rhode Island (upon the commencement of which the tenants
are required to construct buildings thereon, with the exception of a parking garage), the
leasing of a portion of its building (Steeple Street Building) under short-term leasing
arrangements and the leasing of locations along interstate and primary highways in Rhode
Island and Massachusetts to Lamar Outdoor Advertising, LLC (Lamar) which has constructed
outdoor advertising boards thereon. The Company anticipates that the future development of
its remaining properties in and adjacent to the Capital Center area will consist primarily of
long-term ground leases. Pending this development, the Company leases these parcels for
public parking under short-term leasing arrangements to Metropark, Ltd. (Metropark).The petroleum storage segment consists of operating the petroleum storage terminal (the
Terminal) and the Wilkesbarre Pier (the Pier), collectively referred to as the Facility,
located in East Providence, Rhode Island, for Global Companies, LLC (Global) which stores and
distributes petroleum distillates.The principal difference between the two segments relates to the nature of the
operations. In the leasing segment, the tenants under long-term land leases incur
substantially all of the development and operating costs of the assets constructed on the
Companys land, including the payment of real property taxes on both the land and any
improvements constructed thereon; whereas the Company is responsible for the operating and
maintenance expenditures, including a portion of the real property taxes, as well as certain
capital improvements at the Facility.
 2.
    
    Summary of significant accounting policies:
 Principles of consolidation:The accompanying consolidated financial statements include the accounts and transactions of
the Company and its subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation.Use of estimates:The preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States 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.Fair value of financial instruments:The Company believes that the fair values of its financial instruments, including
receivables, payables and the note payable approximate their respective book values at
December 31, 2010 and 2009. The fair value of the note payable was determined using borrowing
rates currently available to the Company for loans with similar terms and maturities.Properties and equipment:Properties and equipment are stated at cost. Acquisitions and additions are capitalized while
routine maintenance and repairs, which do not improve the asset or extend its life, are charged
to expense when incurred. Depreciation is being provided by the straight-line method over the
estimated useful lives of the respective assets.The Company follows United States generally accepted accounting principles when accounting
for the impairment or disposal of long-lived assets, which requires that properties 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.
 21




---



##### 



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. At December 31, 2010 and 2009, the Company had no cash
equivalents. The Company maintains all of its cash in non-interest bearing checking accounts in one
bank which are fully insured by the Federal Deposit Insurance Corporation.Environmental remediation:The Company accrues a liability when an environmental remediation is probable and the costs are
estimable. The Company charges to expense those costs that do not extend the life, increase the
capacity or improve the safety or efficiency of the property owned by the Company. The Company
does not record a receivable for recoveries from third parties for environmental matters until it
has determined that the amount of the collection is assured.Revenues:Leasing  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, including the outdoor advertising locations,
provide for presently known scheduled rent increases over the remaining terms (23 to 144 years).
The Company follows United States generally accepted accounting principles in accounting for leases
by recognizing leasing revenue on the straight-line basis over the terms of the leases; however,
the Company does not report as revenue 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.Petroleum storage facility  The Company reports revenue from the operations of the Facility
when earned and reports as revenue the tenants portion of the real property taxes as required
by the lease.Contingent  The Company reports contingent revenue in the period in which the factors
occur on which the contingent payments are predicated.Income taxes:The Company and its subsidiaries file consolidated income tax returns.The Company provides for income taxes based on income reported for financial reporting purposes.
The provision for income taxes differs from the amounts currently payable because of temporary
differences associated with the recognition of certain income and expense items for financial
reporting and tax reporting purposes.The Company follows United States generally accepted accounting principles in accounting for
uncertainty in income taxes. Based on its evaluation, the Company has concluded that there
are no significant uncertain tax positions requiring recognition in the consolidated
financial statements.Legal fees:The Company recognizes legal fees as incurred.New accounting standards:The Company reviews new accounting standards as issued. Although some of these accounting
standards may be applicable to the Company, the Company has not identified any standards that it
believes merit further discussion. The Company expects that none of the new standards will have
a significant impact on its consolidated financial statements.
 22




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##### 



3.
    
    Properties and equipment:
 Properties and equipment consist of the following:
 EstimatedUseful Life
    
    
    December 31,in Years
    
    
    2010
    
    
    2009Properties on lease or held for lease:Land and land improvements
    
    
    --
    
    
    $
    4,701,000
    
    
    $
    4,621,000Building and improvements, Steeple Street
    
    
    39
    
    
    
    5,068,000
    
    
    
    1,772,000Construction in progress, Steeple Street
    
    
    --
    
    
    
    --
    
    
    
    2,446,0009,769,000
    
    
    
    8,639,000Petroleum storage facility, on lease:Land and land improvements
    
    
    --
    
    
    
    5,591,000
    
    
    
    5,591,000Buildings and structures
    
    
    30
    
    
    
    1,777,000
    
    
    
    1,744,000Tanks and equipment
    
    
    15-20
    
    
    
    14,589,000
    
    
    
    14,600,00021,957,000
    
    
    
    21,935,000Equipment
    
    
    5-10
    
    
    
    83,000
    
    
    
    131,00031,809,000
    
    
    
    30,705,000Less accumulated depreciation:Properties on lease or held for lease
    
    
    
    
    
    
    188,000
    
    
    
    104,000Petroleum storage facility, on lease
    
    
    
    
    
    
    9,060,000
    
    
    
    8,430,000Equipment
    
    
    
    
    
    
    61,000
    
    
    
    102,0009,309,000
    
    
    
    8,636,000$
    22,500,000
    
    
    $
    22,069,000
 In June 2009, the Company commenced the construction of the historic restoration and utility
infrastructure of the Steeple Street Building, which was completed in December 2010 at a
total cost of $3,178,000 plus tenant improvements of $191,000.In 2010, the Company wrote off fully depreciated equipment no longer in service totaling
$60,000.
 4.
    
    Note payable:
 In April 2010,the Company borrowed $6,000,000 from a bank. The loan bears interest an annual
rate of 6 percent and has a term of ten years with repayments on a twenty-year amortization
schedule (monthly principal payments of $25,000 plus interest). The loan matures April 26,
2020, contains the customary covenants, terms and conditions, and permits prepayment, in whole
or in part, at any time without penalty if the prepayment is made from internally generated
funds. As collateral for the loan, the Company granted the bank a mortgage on Parcels 3S and 5
in the Capital Center.In May 2010, the proceeds from the loan were used principally to fund a special dividend of
$5,478,000 to shareholders, which represented the Companys earnings and profits as calculated
for federal income tax purposes at December 31, 2009.The following is a schedule of principal payments for the remaining term of the note payable:Year ending December 31,
 2011
    
    $
    300,0002012
    
    
    300,0002013
    
    
    300,0002014
    
    
    300,0002015
    
    
    300,0002016 to 2020
    
    
    4,325,000$
    5,825,000
 In connection with the borrowing, the Company incurred financing fees totaling $55,000, which
are included in prepaid and other assets on the accompanying consolidated balance sheet at
December 31, 2010. These fees are being amortized on the straight-method over the 10-year
term of the note, which approximates the effective interest rate method. The amortization
expense is $4,000 for the year ended December 31, 2010 and is included in interest
 23




---



##### 



expense on the accompanying consolidated statement of income and retained earnings for the
year ended December 31, 2010.
 5.
    
    Description of leasing arrangements:
 Long-term land leases:As of December 31, 2010, the Company had entered into six long-term land leases for six
separate parcels upon which the improvements have been completed (developed parcels). In
addition, in 2005 a long-term land lease commenced on an undeveloped parcel on which two
residential buildings were planned. One building was completed in September 2009. The other
building has not progressed beyond the early stages of site preparation and the timing of its
construction and completion is uncertain.Under two of the long-term land leases, the Company receives contingent rentals (based upon a
fixed percentage of gross revenue received by the tenants) which totaled $55,000 and $52,000
for the years ended December 31, 2010 and 2009, respectively.Under the seven land leases, the tenants are required to negotiate any tax stabilization treaty
or other arrangements, appeal any changes in real property assessments, and pay real property
taxes assessed on land and improvements under these arrangements. Accordingly, real property
taxes payable by the tenants are excluded from leasing revenues and leasing expenses on the
accompanying consolidated statements of income and retained earnings. For the years ended
December 31, 2010 and 2009, the real property taxes attributable to the Companys land under
these seven leases are $1,109,000 and $1,199,000, respectively.Under the lease which commenced in 2005, the tenant is entitled to a credit for future rents
equal to a portion of the real property taxes paid by the tenant through April 2007. In
connection with Phase I of the tenants project, commencing July 1, 2010, the annual rent
increased from $48,000 to $300,000. As a result of the rent credit, the tenant will not be
required to make cash payments for rent until May 2012. Commencing July 1, 2010, the Company
is reclassifying each month $25,000 of deferred leasing revenues to leasing revenues. At
December 31, 2010, the remaining credit is $370,000.The Company also leases various parcels of land for outdoor advertising purposes to Lamar
under a lease having a remaining term of 23 years. Effective June 1, 2006, the Company entered
into an Amended and Restated Agreement with Lamar which among other things provides the
following: (1) the base rent will increase annually in fixed increases of 2.75% for each
leased billboard location commencing June 1, 2006 and on each June 1 thereafter; and (2) in
addition to base rent, for each 12-month period commencing each June 1, Lamar must pay to the
Company the difference between 30% of the gross revenues from each standard billboard and 20%
of the gross revenues from each electronic billboard for such 12-month period reduced by the
sum of (a) commissions paid to third parties and (b) the base monthly rent for each leased
billboard display for such 12-month period (contingent revenue). For the years ended
December 31, 2010 and 2009, contingent revenues totaled $55,000 and $61,000, respectively. In
all other respects, the lease remains substantially unchanged.At December 31, 2010, there are 24 locations under lease with 46 billboard faces. Of these
locations, 22 are controlled through permanent easements and two are leased from third parties
under operating leases with remaining terms of five years or less.Minimum future contractual rental payments to be received from noncancellable long-term
leases as of December 31, 2010 are:Year ending December 31,
 2011
    
    $
    2,964,0002012
    
    
    3,253,0002013
    
    
    3,350,0002014
    
    
    3,427,0002015
    
    
    3,606,0002016 to 2153
    
    
    753,558,000$
    770,158,000
 For those leases with presently known scheduled rent increases at December 31, 2010 and 2009,
the cumulative excess of straight-line over contractual rentals (considering scheduled rent
increases over the 30 to 149 year terms of
 24




---



##### 



the leases) and the portion of the excess of straight-line over contractual rentals which
management has concluded is realizable when payable over the terms of the leases are as
follows:
 2010
    
    
    2009Cumulative excess of straight-line over contractual rentals
    
    $
    45,150,000
    
    
    $
    40,171,000Amount management has not been able to conclude is collectible
    
    
    45,107,000
    
    
    
    40,128,000Accrued leasing revenues, which are included in prepaid and

other on the accompanying consolidated balance sheets
    
    $
    43,000
    
    
    $
    43,000
 In the event of tenant default, the Company has the right to reclaim its leased land together
with any improvements thereon, subject to the right of any leasehold mortgagee to enter into
a new lease with the Company with the same terms and conditions as the lease in default.Short-term leases:The Company leases the undeveloped parcels of land in or adjacent to the Capital Center
area for public parking purposes to Metropark, Ltd. under short-term cancellable leases.A former tenant of the Steeple Street Building filed for receivership in November 2009. At
December 31, 2009, the former tenant owed the Company $40,000 and the Company recorded an
allowance for a doubtful account of $40,000. In June 2010, the former tenant sold its
operations to a new tenant who assumed the lease and paid the Company in full; the Company
reversed the allowance for doubtful accounts for the full amount.At December 31, 2010, the Company has two tenants in a portion of the Steeple Street Building
(including the new tenant who assumed the lease) under short-term leases of five years or
less at a current annual rental of $88,000. The Company is presently marketing the remaining
portions of the building for lease.
 6.
    
    Petroleum storage facility:
 Current operations:The Company and Global are parties to a lease agreement whereby the Company operates the
entire Facility for Global. The Company is responsible for labor, insurance, property taxes
and other operating expenses, as well as certain capital improvements.The lease provides as follows:
 
    
    The lease expires April 30, 2013, but will continue
thereafter on a year-to-year basis unless terminated by either party
upon ninety days written notice;
    
    Global may terminate the lease on the anniversary date (April 30)
provided it gives at least one years written notice;
    
    Global will pay a monthly rent subject to annual cost-of-living
adjustments;
    
    Global will reimburse the Company for real property taxes in excess
of $106,000 annually; and
    
    The Company will receive an additional $.10 per barrel for every
barrel in excess of 4,000,000 barrels of throughput in any lease year (contingent
revenue).
 For the year ended December 31, 2009, the Company earned contingent revenue of $2,000;
however, no contingent revenue was earned in 2010.The monthly rent at January 1, 2009 was $296,000; due to a decrease in the cost-of-living
index, there was no rent adjustment in May 2009. In May 2010, the monthly rent increased to
$303,000 as a result of the annual cost-of-living adjustment.Effective May 2003, Global has an option to purchase the Facility at any time during the term
of the lease (other than the last year thereof) on the terms and conditions set forth in a
separate option agreement. Under a companion agreement, Global agreed to make certain
improvements at the Pier which totaled $77,000 in 2010. No improvements were made in 2009.
[See Wilkesbarre Pierbelow].Environmental incident (2010):On August 30, 2010, during a regular facility inspection of the Terminal, a release of
petroleum-contaminated
water was discovered from the tank bottom of one of the Companys 150,000 barrel tanks (Tank
153). The Company notified the Rhode Island Department of Environmental Management (RIDEM),
the Environmental Protection Agency and the United States Coast Guard. It also notified its
insurance carriers of the release and the damage to the tank.
 25




---



##### 



The tank was emptied of product and the cleaning of the tank bottom was completed by
September 11, 2010. The petroleum-contaminated water released from the tank was contained on the
secondary containment liner under the tank bottom, preventing contamination of the groundwater.
The Company engaged an outside engineering firm to inspect the tank bottom to determine the cause
and location of the release, as well as the extent of the required repairs. The findings of the
inspection indicated that aggressive corrosion from inside the tank occurred, causing two holes in
the immediate vicinity of the observed release, as well as several other holes or potential holes
in other areas of the tank bottom. The report indicates that the corrosion was caused by microbial
contamination, which was affirmed by a corrosion specialist.The total cost of the cleanup, inspection and repair of the tank was $550,000 (of which $273,000
has been paid through December 31, 2010), which amount is included in petroleum storage facility
expenses on the accompanying consolidated statement of income and retained earnings for the year
ended December 31, 2010. The tank was placed back in service in February 2011.The testing of certain of the Companys other tanks revealed the presence of corrosive microbial
contaminants in Tanks 151 and 32. Both tanks were treated with a biocide and continue to be
monitored and treated as necessary. Since Tank 32 had been inspected in June 2010, the Company
believes that the contaminants have not affected the integrity of this tank bottom. However,
since Tank 151 had not been inspected since construction in 2006, the Company took this tank out
of service in February 2011 for approximately one month for a complete inspection of the tank
bottom.At this time, management does not know which costs, if any, will be recovered under its insurance
policies; however, the Company has put its insurance carrier on notice under the property policy
with its insurance carrier to recover the repair costs. The deductibles on the Companys insurance
policies are $50,000 for environmental and $75,000 for property. In addition, the Company is
reviewing all of the facts and circumstances to determine if it has a claim against third parties
for costs of cleanup, inspection and repair. The Company cannot determine with any certainty what
amount may be recovered from a third party and, accordingly, has not recorded any receivable at
December 31, 2010.Environmental incident (2002):In 2002, during testing of monitoring wells at the Terminal, the Companys consulting engineer
discovered free floating phase product in a groundwater monitoring well located on that portion of
the Terminal purchased in 2000. Laboratory analysis indicated that the product was gasoline, which
is not a product the Company ever stored at the Terminal. The Company commenced an environmental
investigation and analysis, the results of which indicate that the gasoline did not come from the
Terminal. The Company notified RIDEM. RIDEM subsequently identified Power Test Realty Partnership
(Power Test), the owner of an adjacent parcel, as a potentially responsible party for the
contamination. Getty Properties Corp. is the general partner of Power Test. Power Test challenged
that determination and, after an administrative hearing, on October 20, 2008, a RIDEM Hearing
Officer determined that Power Test is responsible for the discharge of the petroleum product under
the Rhode Island Oil Pollution Control Act, R.I.G.L. Section 46-12.5.1-3 and Rule 6(a) and 12(b)
of the Oil Pollution Control Regulations. The RIDEM Decision and Order requires Power Test to
remediate the contamination as directed by RIDEM and remanded the proposed penalty to RIDEM for
recalculation. In November 2008, Power Test appealed the decision to the Rhode Island Superior
Court. In addition, in November 2008, Power Test sought, and received, a stay of the Decision and
Order of the Hearing Officer pending a clarification by RIDEM of the amount of the proposed
penalty. On October 2, 2009, RIDEM issued a recalculated administrative penalty, and,
subsequently, the RIDEM Hearing Officer issued a recommended amended decision, which was affirmed
as a final decision by the RIDEM Director on December 23, 2009. On January 20, 2010, Power Test
appealed that decision to Superior Court. There can be no assurance that the Superior Court will
affirm the final RIDEM decision.In April 2009, the Company sued Power Test and Getty Properties Corp. in the Rhode Island
Superior Court seeking remediation of the site or, in the alternative, the cost of the
remediation. On May 1, 2009, Power Test and Getty Properties Corp. removed the action to the
United States District Court for the District of Rhode Island. On May 22, 2009, Power Test and
Getty Properties Corp. answered the Complaint and filed a Counterclaim against Dunellen, LLC and
Capital Terminal Company alleging that Dunellen, LLC and Capital Terminal Company are responsible
for the contamination. Getty Properties Corp. and Power Test have joined Getty Petroleum
Marketing, Inc., the tenant under a long-term lease with Getty Properties Corp. of the adjacent
property, as a defendant. The Company has amended its Complaint to add Getty Petroleum Marketing,
Inc. as a defendant. In February 2011, the Company was notified by the United States District
Court for the District of Rhode Island that the case was being transferred to the United States
District Court for the District of New Hampshire due to a backlog of cases in Rhode Island.The parties are now engaged in discovery. There can be no assurance that the Company will
prevail in this litigation.Since January 2003, the Company has not incurred significant costs in connection with this
matter, other than ongoing litigation costs, and is unable to determine the costs it might incur
to remedy the situation, as well as any costs to investigate, defend and seek reimbursement from
the responsible party with respect to this contamination.
 26




---



##### 



Environmental remediation (1994):In 1994, a leak was discovered in a 25,000 barrel storage tank at the Terminal which allowed the
escape of a small amount of fuel oil. All required notices were made to RIDEM. In 2000, the tank
was demolished and testing of the groundwater indicated that there was no large pooling of
contaminants. In 2001, RIDEM approved a plan pursuant to which the Company installed a passive
system consisting of three wells and commenced monitoring the wells.In 2003, RIDEM decided that the passive monitoring system previously approved was not sufficient
and required the Company to design an active remediation system for the removal of product from
the contaminated site. The Company and its consulting engineers began the pre-design testing of
the site in the fourth quarter of 2004. The consulting engineers estimated a total cost of
$200,000 to design, install and operate the system, which amount was accrued in 2004. Through
2006, the Company had expended $119,000 and has not incurred any additional costs since then.
RIDEM has not taken any action on the Companys proposed plan. As designed, the system will pump
out the contaminants which will be disposed of in compliance with applicable regulations. After
a period of time, the groundwater will be tested to determine if sufficient contaminants have
been removed. While the Company and its consulting engineers believe that the proposed active
remediation system will correct the situation, it is possible that RIDEM could require the
Company to expand remediation efforts, which could result in the Company incurring additional
costs.Wilkesbarre Pier:The Pier is a deep-water pier in East Providence, Rhode Island owned by the Company which is
integral to the operation of the Terminal. The Pier and the Terminal are connected by two
petroleum pipelines which the Company has a permanent right to use. In 1995, the Company and
Providence and Worcester Railroad Company (the Railroad) (the then owner of the Pier) entered
into an agreement which, among other things, gave the Company the right to acquire the Pier for
One Dollar ($1.00). The Company acquired the Pier from the Railroad in 1998. The Company and the
Railroad have a common controlling shareholder.
 7.
    
    Income taxes:
 Income tax expense is comprised of the following components:
 2010
    
    
    2009Current:Federal
    
    $
    --
    
    
    $
    710,000State
    
    
    142,000
    
    
    
    226,000142,000
    
    
    
    936,000Deferred:Federal
    
    
    185,000
    
    
    
    34,000State
    
    
    62,000
    
    
    
    2,000247,000
    
    
    
    36,000$
    389,000
    
    
    $
    972,000
 For the year ended December 31, 2010, the income tax provision does not bear the customary
relationship between tax expense and pretax accounting income. The Company has determined that
certain expenditures in connection with the historic restoration of the Steeple Street Building
qualify for federal historic income tax credits in 2010 of $588,000, which credits were used in
determining the Companys current federal income tax provision for 2010 in the accompanying
consolidated financial statements. Of the total amount, $556,000 was used to reduce the current
provision and the remaining $32,000 was used to reduce the deferred tax provision.
 For the years ended December 31, 2010 and 2009, a reconciliation of the income tax provision
as computed by applying the United States income tax rate (34%) to income before income
taxes is as follows:
 2010
    
    
    2009Computed expected tax
    
    $
    643,000
    
    
    $
    818,000Increase in expected tax resulting from state income tax,
net of federal income tax benefit
    
    
    131,000
    
    
    
    154,000Net effect of historic tax credit
    
    
    (385,000
    )
    
    
    --$
    389,000
    
    
    $
    972,000
 27




---



##### 



Deferred income taxes are recorded based upon differences between financial statement and
tax basis amounts of assets and liabilities. The tax effects of temporary differences which
give rise to deferred tax assets and liabilities were as follows:
 December 31,2010
    
    
    2009Gross deferred tax liabilities:Property having a financial statement basis in excess of tax basis:Cost differences
    
    $
    3,752,000
    
    
    $
    3,517,000Depreciation differences
    
    
    2,027,000
    
    
    
    2,064,0005,779,000
    
    
    
    5,581,000Insurance premiums and accrued leasing revenues
    
    
    82,000
    
    
    
    69,0005,861,000
    
    
    
    5,650,000Gross deferred tax assets
    
    
    (309,000
    )
    
    
    (345,000
    )$
    5,552,000
    
    
    $
    5,305,000
 The Companys federal and various state income tax returns for the years 2007, 2008 and
2009 remain subject to examination.
 8.
    
    Shareholders equity:
 In November 2008, the Company restated its Articles of Incorporation:
 
    
    To create a new class of common stock of the Company to be
designated Class B Common Stock consisting of 3,500,000 shares, $.01 par
value per share;
    
    To increase the number of authorized shares of Class A Common Stock
from 6,000,000 to 10,000,000 shares; and
    
    To provide for certain transfer and ownership restrictions as set forth
therein.
 In December 2008, the Company issued (in the form of a stock dividend) 3,299,956 shares
of Class B Common Stock on a one-for-one basis for each share of Class A Common Stock
held.
 The holders of Class A and Class B Common Stock vote together as a single class on all
matters submitted to the shareholders of the Company except for the election of the Board of
Directors and except in connection with certain major corporate actions, including a sale of
the Company. The holders of Class A Common Stock, voting as a separate class, elect one-third
of the Board of Directors. The holders of Class B Common Stock, voting as a separate class,
elect the remainder of the Board of Directors.
 Class B Common Stock is convertible by the record owner thereof into the same number of shares of Class A Common Stock at any time. For the years ended December 31, 2010 and 2009,
the number of shares converted were 74,860 shares and 354,783 shares, respectively.
 The Class A Common Stock is listed on the Premier QX Tier of the OTCQX. The Class B Common
Stock is not listed on any national or regional stock exchange, or on the National
Association of Securities Dealers Automated Quotation National Market System or on the
OTCQX.
 The holders of Class A and Class B Common Stock share equally in the earnings of the Company
and in dividends declared by the Company.
 The Companys Restated Articles of Incorporation prohibits any shareholder from acquiring more
than a 5% interest in the Companys classes of common stock and prohibits any shareholder or
any beneficial owner who, at the time of the filing of the Restated Articles of Incorporation
owned 5% or more of the Companys classes of common stock from increasing their aggregate
percentage ownership of both classes of common stock. Should a shareholder acquire a number of shares that results in the limitation being exceeded, shares in excess of the limitation would
be automatically converted into an equal number of shares of Excess Stock, which class was
authorized pursuant to the 2001 Amendment to the Companys Articles of Incorporation. Excess
Stock is non-voting and is not entitled to dividends. However, the shareholder may designate a
qualifying transferee for shares of Excess Stock, at which time such shares would be converted
and reissued as Class A or Class B Common shares as the case may be.
 The purpose for creating the Class B Common Stock was to put the Company in the position to
qualify to be taxed as a real estate investment trust (REIT). One of the qualifications to
be taxed as a REIT is that no more than 50%
 28




---



##### 



of the shares of a company can be held by five or fewer individuals during the last half of
each taxable year. Currently, the majority shareholder controls 52.3% of the Companys
outstanding common stock and three other shareholders each own more than 5% of the Companys
outstanding common stock. In order for the Company to qualify to be taxed as a REIT, the major
shareholders ownership of the Companys issued and outstanding common stock would need to be
reduced below the 50% level.
 9.
    
    Operating segment disclosures:
 The Company operates in two segments: (1) Leasing and (2) Petroleum Storage.
 The Company makes decisions relative to the allocation of resources and evaluates
performance based on each segments respective income before income taxes, excluding
interest expense and certain corporate expenses.Inter-segment revenues are immaterial in amount.
 The following financial information is used for making operating decisions and assessing
performance of the Companys segments:
 December 31,2010
    
    
    2009Leasing:Revenues:Long-term leases:Contractual
    
    $
    2,379,000
    
    
    $
    2,140,000Contingent
    
    
    110,000
    
    
    
    113,000Excess of contractual over straight-line rentals
    
    
    --
    
    
    
    1,000Short-term leases
    
    
    646,000
    
    
    
    654,000$
    3,135,000
    
    
    $
    2,908,000Property tax expense
    
    $
    534,000
    
    
    $
    486,000Depreciation
    
    $
    84,000
    
    
    $
    44,000Income before income taxes
    
    $
    2,137,000
    
    
    $
    1,926,000Assets
    
    $
    9,850,000
    
    
    $
    8,726,000Properties and equipment, additions
    
    $
    1,130,000
    
    
    $
    2,246,000Petroleum storage:Revenues:Contractual
    
    $
    3,808,000
    
    
    $
    3,754,000Contingent
    
    
    --
    
    
    
    2,000Total revenues
    
    $
    3,808,000
    
    
    $
    3,756,000Property tax expense
    
    $
    234,000
    
    
    $
    212,000Depreciation
    
    $
    642,000
    
    
    $
    641,000Income before income taxes
    
    $
    941,000
    
    
    $
    1,431,000Assets
    
    $
    13,328,000
    
    
    $
    13,917,000Properties and equipment:Additions to properties and equipment
    
    $
    33,000
    
    
    $
    67,000Write-off of fully depreciated equipment no longer in service
    
    $
    12,000
    
    
    $
    --
 29




---



##### 



The following is a reconciliation of the segment information to the amounts reported in
the accompanying consolidated financial statements:
 2010
    
    
    2009Revenues for operating segments:Leasing
    
    $
    3,135,000
    
    
    $
    2,908,000Petroleum storage
    
    
    3,808,000
    
    
    
    3,756,000Total consolidated revenues
    
    $
    6,943,000
    
    
    $
    6,664,000Property tax expense:Property tax expense for operating segments:Leasing
    
    $
    534,000
    
    
    $
    486,000Petroleum storage
    
    
    234,000
    
    
    
    212,000768,000
    
    
    
    698,000Unallocated corporate property tax expense
    
    
    2,000
    
    
    
    2,000Total consolidated property tax expense
    
    $
    770,000
    
    
    $
    700,000Depreciation:Depreciation for operating segments:Leasing
    
    $
    84,000
    
    
    $
    44,000Petroleum storage
    
    
    642,000
    
    
    
    641,000726,000
    
    
    
    685,000Unallocated corporate depreciation
    
    
    7,000
    
    
    
    6,000Total consolidated depreciation
    
    $
    733,000
    
    
    $
    691,000Income before income taxes:Income for operating segments:Leasing
    
    $
    2,137,000
    
    
    $
    1,926,000Petroleum storage
    
    
    941,000
    
    
    
    1,431,0003,078,000
    
    
    
    3,357,000Unallocated corporate expenses
    
    
    (939,000
    )
    
    
    (951,000
    )Interest expense
    
    
    (248,000
    )
    
    
    --Total consolidated income before income taxes
    
    $
    1,891,000
    
    
    $
    2,406,000Assets:Assets for operating segments:Leasing
    
    $
    9,850,000
    
    
    $
    8,726,000Petroleum storage
    
    
    13,328,000
    
    
    
    13,917,00023,178,000
    
    
    
    22,643,000Corporate cash and cash equivalents
    
    
    2,190,000
    
    
    
    2,043,000Other unallocated amounts
    
    
    792,000
    
    
    
    76,000Total consolidated assets
    
    $
    26,160,000
    
    
    $
    24,762,000Properties and equipment:Additions to properties and equipment:Leasing
    
    $
    1,130,000
    
    
    $
    2,246,000Petroleum storage
    
    
    33,000
    
    
    
    67,000Total consolidated additions
    
    $
    1,163,000
    
    
    $
    2,313,000Write-off of fully depreciated equipment no longer in service:Operating segment, petroleum storage
    
    $
    12,000
    
    
    $
    --Unallocated
    
    
    48,000
    
    
    
    --Total consolidated write-off of fully depreciated
equipment no longer in service
    
    $
    60,000
    
    
    $
    --
 The following table sets forth those customers whose revenues exceed 10% of the Companys segment
revenues:
 2010
    
    
    2009Leasing segment:Lamar Outdoor Advertising, LLC
    
    $
    810,000
    
    
    $
    793,000Metropark, Ltd.
    
    
    558,000
    
    
    
    543,000Gramercy Capital Corp.
    
    
    485,000
    
    
    
    472,000AvalonBay Communities, Inc.
    
    
    398,000
    
    
    
    397,000$
    2,251,000
    
    
    $
    2,205,000Petroleum storage segment: Global Companies, LLC
    
    $
    3,808,000
    
    
    $
    3,756,000
 30




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10.
    
    Fourth quarter transactions in 2010 (unaudited):
 During the fourth quarter of 2010, the Company increased its estimate for the repair of
Tank 153 by $343,000. Unexpected changes in construction methods and procedures were
required due to site and tank conditions not originally identifiable. Inclement weather
caused further delay and expense.
 Also during the fourth quarter of 2010, the Companys annual effective income tax rate
decreased 9.4 percent from that used in the quarterly periods in 2010, due to the lower pre-tax
income than projected and a higher historic tax credit than was previously estimated. As a
result, the income tax provision as previously reported for the nine months ended September 30,
2010, was overstated by $142,000.
 11.
    
    Subsequent event:
 The Company evaluated subsequent events through the date the financial statements were issued.
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##### 



Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
 There were no changes in, or disagreements with, accountants on accounting or financial
disclosure as defined by Item 304 of Regulation S-K.
 
 Item 9A. Controls and Procedures
 Under the supervision of the Companys management, including its principal executive officer and
principal financial officer, the Company has evaluated the effectiveness of the design and
operation of its disclosure controls and procedures (as defined in Rule 13a-15 under the
Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon
this evaluation, the principal executive officer and principal financial officer have concluded
that, as of such date, the Companys disclosure controls and procedures were effective in making
them aware on a timely basis of the material information relating to the Company required to be
included in the Companys periodic filings with the Securities and Exchange Commission.Managements Annual Report on Internal Control over Financial ReportingThe Companys management is responsible for establishing and maintaining adequate internal control
over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act). The Companys internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of its financial reporting and the preparation of
published financial statements in accordance with generally accepted accounting principles.However, because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement preparation and presentation.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or the degree of compliance with
policies may deteriorate.Management conducted its evaluation of the effectiveness of its internal control over financial
reporting based on the framework in Internal Control-Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO) as of December 31, 2010.Based on this assessment, the principal executive officer and principal financial officer believe
that as of
December 31, 2010, the Companys internal control over financial reporting was effective based on
criteria set forth by COSO in Internal Control-Integrated Framework.This annual report does not include an attestation report of the Companys independent registered
public accounting firm regarding internal control over financial reporting. Managements report
was not subject to attestation by the Companys independent registered public accounting firm
pursuant to rules of the Securities and Exchange Commission that permit the Company to provide
only managements report in this annual report.Changes in Internal Control Over Financial ReportingDuring the quarter ended December 31, 2010, there has been no change in the Companys internal
control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange
Act) that has materially affected, or is reasonably likely to materially affect, the Companys
internal control over financial reporting.
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PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance of the Registrant
 The information concerning directors required by this item, including the Audit Committee and
the Audit Committee financial expert, is incorporated by reference to the Sections entitled
Election of Directors, Section 16(a) Beneficial Ownership Reporting Compliance, Security
Ownership of Certain Beneficial Owners and Management and Audit Committee Report in the
Companys Definitive Proxy for the 2011 Annual Meeting of the Shareholders to be filed with the
SEC.The following are the executive officers of the Registrant:
 Date of FirstName
    

Age
    

Office
Held
    

Election
to OfficeRobert H. Eder
    
    
    78
    
    
    President, Capital Properties, Inc.
    
    
    1995Barbara J. Dreyer
    
    
    72
    
    
    Treasurer, Capital Properties, Inc.
    
    
    1997Stephen J. Carlotti
    
    
    68
    
    
    Secretary, Capital Properties, Inc.
    
    
    1998Todd D. Turcotte
    
    
    39
    
    
    Vice President, Capital Properties, Inc.
    
    
    2008
 All officers hold their respective offices until their successors are duly elected and qualified.
Ms. Dreyer served as President and Treasurer of the Registrant from 1995 to 1997 and as Treasurer
since that date. Mr. Carlotti is a partner in the law firm, Hinckley, Allen & Snyder LLP, which
firm provides legal services to the Company.Code of Ethics:The Company has adopted a Code of Ethics which applies to all directors, officers and employees of
the Company and its subsidiaries including the Principal Executive Officer and the Treasurer (who
is both the principal accounting and financial officer), which meets the requirement of a code of
ethics as defined in Item 406 of Regulation S -K. The Company will provide a copy of the Code to
shareholders pursuant to any request directed to the Treasurer at the Companys principal offices.
The Company intends to disclose any amendments to, or waiver of, any provisions of the Code for the
Principal Executive Officer or Treasurer, or any person performing similar functions.
 The additional information required by this item is incorporated by reference to the Section
entitled Corporate Governance in the Companys Definitive Proxy Statement for the 2011 Annual
Meeting of the Shareholders to be filed with the Securities and Exchange Commission.
 
 Item 11. Executive Compensation
 The information required by this item is incorporated by reference to the Sections entitled
Compensation of Directors, Compensation Discussion and Analysis, and Executive Compensation
in the Companys Definitive Proxy Statement for the 2011 Annual Meeting of Shareholders to be
filed with the Securities and Exchange Commission.
 
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 The information required by this item is incorporated by reference to the Section entitled
Security Ownership of Certain Beneficial Owners and Management in the Companys Definitive
Proxy Statement for the 2011 Annual Meeting of Shareholders to be filed with the Securities and
Exchange Commission.
 
 Item 13. Certain Relationships and Related Transactions and Director Independence
 The information required by this item is incorporated by reference to the Sections entitled
Election of Directors and Transactions with Management in the Companys Definitive Proxy
Statement for the 2011 Annual Meeting of the Shareholders to be filed with the Securities and
Exchange Commission.
 
 Item 14. Principal Accountant Fees and Services
 The information required by this item is incorporated by reference to the Section entitled
Independent Registered Public Accountants in the Companys Definitive Proxy Statement for the
2011 Annual Meeting of the Shareholders to be filed with the Securities and Exchange Commission.
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##### 



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 (a) and (c)
    
    The consolidated financial statements are included in Item 8.
 (b)
    
    Exhibits:
 3.1
    
    Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1
to the registrants annual report on Form 10-K for the year ended December 31,
2008).3.2
    
    By-laws, as amended (incorporated by reference to Exhibit 3.2 to the
registrants annual report on Form 10-K for the year ended December 31, 2007).10
    
    Material contracts:
 (a)
    
    Loan Agreement between Bank Rhode Island and Company:(i) Dated April 26,2010 (incorporated by reference to Exhibit 10.1 to the
registrants report on Form 8-K filed on April 28, 2010).(b)
    
    Lease between Metropark, Ltd. and Company:(i) Dated January 1, 2005 (incorporated by reference to Exhibit 10(a) to
the registrants annual report on Form 10-KSB for the year ended December
31, 2004), as amended.(c)
    
    Miscellaneous contract:(i) Option Agreement to Purchase Real Property and Related
Assets, dated June 9, 2003, by
and between Dunellen, LLC and Global Companies, LLC (incorporated by
reference to Exhibit 10(b)(i) to the registrants report on Form 10-QSB/A
for the quarterly period ended June 30, 2003), as amended.
 20.1
    
    Map of the Companys parcels in Downtown Providence, Rhode Island20.2
    
    Map of the Companys petroleum storage facility in East
Providence, Rhode Island21
    
    Subsidiaries of the Company31.1
    
    Rule 13a-14(a) Certification of President and Principal Executive Officer31.2
    
    Rule 13a-14(a) Certification of Treasurer and Principal Financial Officer32.1
    
    Certification of President and Principal Executive Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Treasurer and Principal Financial Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 34




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##### 



SIGNATURES
  CAPITAL PROPERTIES, INC.By
    /s/ Robert H. EderRobert H. EderPresident and Principal Executive Officer DATED: March 17, 2011
 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by
the following persons on behalf of the Company and on the dates indicated.
 /s/ Robert H. Eder

Robert H. Eder
    
    March 17, 2011President and DirectorPrincipal Executive Officer/s/ Barbara J. Dreyer

Barbara J. Dreyer
    
    March 17, 2011Treasurer, Principal Financial Officerand Principal Accounting Officer/s/ Alfred J. Corso

Alfred J. Corso, Director
    
    March 17, 2011/s/ Harris N. Rosen

Harris N. Rosen, Director
    
    March 17, 2011
 35