##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 001-08499
 CAPITAL PROPERTIES, INC.
  Rhode Island
    
    05-0386287(State or other jurisdiction of
    
    (IRS Employerincorporation or organization)
    
    Identification No.)
 100 Dexter Road
East Providence, Rhode Island 02914
 (401) 435-7171
  Title of each class
    
    Name of each exchange on which registeredClass A Common Stock, $.01 par value
    
    OTCQX (Pink Sheets)
 
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 o þ
 þ o
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  Large accelerated filer o
    
    Accelerated filer
o
    
    Non-accelerated filer o
    
    Smaller reporting company
þ(Do not check if a smaller reporting company)
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##### 



CAPITAL PROPERTIES, INC.
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2009
 TABLE OF CONTENTS
 PagePART IItem 1. Business
    
    
    3Item 2. Properties
    
    
    7Item 3. Legal Proceedings
    
    
    8Item 4. Reserved
    
    
    8PART IIItem 5 Market for Registrants Common Equity and Related Stockholder Matters
    
    
    9Item 7 Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    10Item 8 Consolidated Financial Statements
    
    
    15Item 9 Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure
    
    
    30Item 9A(T) Controls and Procedures
    
    
    30Part IIIItem 10. Directors, Executive Officers and Corporate Governance of the Registrant
    
    
    31Item 11. Executive Compensation
    
    
    31Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
    
    
    31Item 13. Certain Relationships and Related Transactions and Director Independence
    
    
    31Item 14. Principal Accountant Fees and Services
    
    
    31PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    32Signatures
    
    
    33EX-20.1EX-20.2EX-21EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



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
  General Economic Conditions
  Segments
  Leasing
 Capital Center
   3




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##### Table of Contents




    
    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 building and a 19-story building containing 193 condominiums (307,000 gross
square feet) and a 10-story office building (307,000 gross square feet), and
    
    330-car public parking garage.
   Parcel 20 Adjacent to the Capital Center
   Lamar Lease
   4




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##### Table of Contents



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 Lease
    
    Two
 75-Year
    
    None
    
    None
    
    Two 
50-Year
    
    Two 
50-Year
    
    Two 
50-Year
    
    Two 
75-Year
    
    None
    
    None
    
    See Lamar 
LeaseaboveCurrent Annual Contractual Rental
    

        $72,000
    
   $485,000
    
   $468,000
    
   $48,000
    
   $48,000
    
   $24,000
    
   $100,000
    
   $223,000
    
   $100,000
    
   $733,000Contingent Rent
    
    None
    
    None
    
    1% Gross
 Revenues
    
    None
    
    None
    
    None
    
    None
    
    None
    
    None
    
    See Lamar 
LeaseaboveNext Periodic Rental Adjustment
    2011
    2014
    2013
    2010
    2012
    2012
    2010
    2010
    2011
    2010Annual Rent after Next
Adjustment and/or Type of Next
Adjustment
    
   $456,000
    
   $618,000
    
    Appraisal
    
   $300,000
    
   $175,000
    
   $48,000
    
    Cost of Living 
Adjustment
    
    Appraisal and 
1% Gross 
Receipts Rent
    
   $360,000
    
   $755,000
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##### Table of Contents



Major tenants:
  2009
    
    
    2008Lamar Outdoor Advertising, LLC
    
    $
    793,000
    
    
    $
    842,000Metropark, Ltd
    
    
    543,000
    
    
    
    587,000Gramercy Capital Corp
    
    
    472,000
    
    
    
    468,000AvalonBay Communities, Inc.
    
    
    397,000
    
    
    
    401,000$
    2,205,000
    
    
    $
    2,298,000
 Competition
  Employees
  Petroleum Storage
 Terminal and Pier Facility
  Environmental
    6




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Insurance
  Competition
  Employees
  
 Item 2.
    
    Properties
  7




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Item 3.
    
    Legal Proceedings
  
 Item 4.
    
    Reserved
 8




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##### Table of Contents



PART II
 
 Item 5. Market for Registrants Common Equity and Related Stockholder Matters
   Trading Prices
    
    DividendsHigh
    
    Low
    
    Paid20091st Quarter
    
    
    10.01
    
    
    
    6.50
    
    
    
    .032nd Quarter
    
    
    8.75
    
    
    
    6.85
    
    
    
    .033rd Quarter
    
    
    8.25
    
    
    
    7.22
    
    
    
    .034th Quarter
    
    
    10.00
    
    
    
    7.01
    
    
    
    .0320081st Quarter
    
    
    11.75
    
    
    
    8.875
    
    
    
    .032nd Quarter
    
    
    11.00
    
    
    
    8.75
    
    
    
    .033rd Quarter
    
    
    13.175
    
    
    
    11.00
    
    
    
    .034th Quarter
    
    
    11.75
    
    
    
    6.50
    
    
    
    .03
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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
the 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 $33,000,000. 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, 2009, the receivable on this lease has grown to $18,572,000 (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 36 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, 2009, the receivable on
this lease is $13,646,000 (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
89 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 26 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, 2009, the receivable on this lease is $806,000 (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 12 years away.
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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. The
Company is reporting the annual rental revenues under these leases using the contractual amounts in
accordance with Unites States generally accepted accounting principles in accounting for leases.
The Company has recorded excess of straight-line over contractual revenues on these leases totaling
$7,147,000 at December 31, 2009. 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 building acquired in November 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, Ltd.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 expenses, including a portion of the
real property taxes, as well as capital improvements at the Facility.Changes in capital structure: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 share equally in dividends declared by the Company.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 anytime.The Class A Common Stock is listed on the Premier QX Tier of the OTCQX (Pink Sheets). 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 (Pink
Sheets).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
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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% 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.
 2.
    
    Results of operations:Year Ended December 31, 2009 Compared to Year Ended December 31, 2008Leasing segment:
 Increase2009
    
    
    2008
    
    
    (Decrease)Leasing revenues
    
    $
    2,908,000
    
    
    $
    2,980,000
    
    
    $
    (72,000
    )Leasing expense
    
    
    982,000
    
    
    
    696,000
    
    
    $
    286,000$
    1,926,000
    
    
    $
    2,284,000
 2009 leasing revenue decreased from the 2008 level due to rent relief granted to two tenants. The
Company agreed not to increase the rent of Metropark, Ltd. for the period January 1, 2009 to March
31, 2009 and further agreed to reduce the rent by 10% for the balance of 2009. The Company granted
Lamar rent relief for the period January 1, 2009 to May 31, 2010. The impact of these two rent
reliefs for 2009 was $69,000. In addition, contingent revenue under the billboard lease decreased
$28,000 from 2008. These decreases were offset by scheduled increases in rental under long-term
land leases. Leasing expense increased due to the hiring of a temporary employee, legal fees in
connection with two leases and a bad debt expense. Under one of its long-term land leases, the
Company incurred legal fees totaling $77,000 in connection with disputes under the lease which have
not been resolved to date. The Company also incurred legal fees totaling $104,000 in disputes with
one of its tenants in the Steeple Street Building. The tenant filed for receivership in November
2009, and there has been no determination if this tenant will remain in operation. At December 31,
2009, this tenant owed the Company $40,000 and an allowance for a doubtful account for the full
amount has been recorded.Petroleum storage segment:
 Increase2009
    
    
    2008
    
    
    (Decrease)Petroleum storage facility revenues
    
    $
    3,756,000
    
    
    $
    3,777,000
    
    
    $
    (21,000
    )Petroleum storage facility expense
    
    
    2,325,000
    
    
    
    2,187,000
    
    
    $
    138,000$
    1,431,000
    
    
    $
    1,590,000
 Petroleum storage facility revenue decreased as a result of an $84,000 decrease in contingent
revenue in 2009 due to lower throughput, offset in part by higher monthly rent resulting from the
annual cost-of-living adjustment May 1, 2008 and payments by Global for certain repairs.
Petroleum storage facility expense increased due to the hiring of a new employee, repairs on the
Wilkesbarre Pier and litigation against Power Test Realty Partnership in connection with the
environmental incident in 2002 in which the Company is seeking remediation of the site, or, in the
alternative, the cost of remediation.Due to a decrease in the cost-of-living index, there was no rent adjustment under the lease for the
petroleum storage facility for the contract year commencing May 1, 2009.General:General and administrative expense decreased $261,000 from 2008 due principally to costs of
$232,000 incurred by the Company in 2008 in connection with the proposed reverse stock split and
the amendment to its Articles of Incorporation, including legal, consulting and printing.
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Other income:The Company did not earn any interest income in 2009 because it elected in February 2009 to
maintain all of its cash in a non-interest bearing checking account which was fully insured by the
Federal Deposit Insurance Corporation through year-end.3.
    
    Liquidity and capital resources:Historically, the Company has had adequate liquidity to fund its operations. A summary of cash
flows by year is as follows:
 2009
    
    
    2008Operating activities
    
    $
    1,742,000
    
    
    $
    2,654,000Investing activities
    
    $
    (2,030,000
    )
    
    $
    (441,000
    )Financing activities
    
    $
    (792,000
    )
    
    $
    (792,000
    )
 Operating activities:In 2009, the Companys operating activities provided $1,742,000 of cash.
Cash and cash equivalents decreased $1,080,000 for the same period, principally due to payments for
the construction of the Steeple Street Building of $1,962,000 and dividends of $792,000.Investing activities:The cash used in investing activities was for the improvement and
restoration of properties.Financing activities:The cash used in financing activities was for the payment of dividends.Cash and cash equivalents and cash commitments:At December 31, 2009, the Company had cash and cash equivalents of $2,315,000. Effective February
2009, the Company maintains all of its cash in a non-interest bearing checking account.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.
However, if as a result of such appraisal the annual rent is calculated to be less than the then
current rent, the annual rent will remain at the current level.
 
    
    The first of such scheduled appraisals on Parcel 3S was completed in the second quarter
of 2009, resulting in an annual increase in rent from $468,000 to $485,000 ($9.92 per
square foot) effective October 1, 2009.
    
    A second appraisal on Parcel 8 commenced in November 2009 to determine what amount, if
any, the annual rent will be increased February 1, 2010. The current annual rent is
$223,000 ($6.16 per square foot).
 In June 2009, the Company commenced the construction of the historic restoration and utility
infrastructure of the Steeple Street Building at an original estimated cost of $2,100,000. The
Company anticipates that the restoration will be completed in the spring of 2010 at a total cost of
$2,500,000, including tenant improvements not originally budgeted of $153,000. The Company expects
to continue paying for the remaining restoration from available cash. Through December 31, 2009,
the Company has incurred costs of $2,246,000. The Company anticipates that the expenditures will
qualify for Federal historic tax credits in 2010 totaling approximately $350,000. The Company is
currently marketing the remaining portions of the building for lease.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 on September 1, 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.The current economic conditions have had limited impact on the Companys results of operations to
date. Leasing revenues decreased due to rent relief granted to two tenants. The Company agreed
not to increase Metroparks rent
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under the short-term parking lease for the period January 1, 2009 to March 31, 2009 and further
agreed to reduce the rent by 10% for the balance of 2009. This reduction has been further extended
to June 30, 2010, at which time the Company anticipates that the rent will return to the January 1,
2009 level. The Company granted Lamar rent relief under a long-term land lease for various
billboard locations for the period January 1, 2009 to May 31, 2010, at which time the rent will
return to the then current level. The impact for 2009 of these two rent reliefs was $69,000. As
none of the Companys leases require the tenant to provide financial information, the Company has
no information concerning the impact of current conditions on its major tenants and, therefore,
cannot predict whether any other tenants will request such relief or concessions.The Company leases a portion of the Steeple Street Building to a tenant under a five-year lease at
a current annual rental of $85,000. The tenant filed for receivership in November 2009, and there
has been no determination if the tenant will remain in operation. At December 31, 2009, the tenant
owed the Company $40,000 and the Company cannot determine whether it will collect the past due
rent. The Company is monitoring the receivership proceedings to evaluate whether it will continue
to accrue rental income.Under the Companys lease with Global, in previous years, the Company has earned contingent revenue
based upon petroleum throughput in excess of 4,000,000 barrels in any contract year. In 2008, the
contingent revenue earned was $88,000. For the contract year ending April 30, 2009, the Company
earned $2,000. The Company does not anticipate earning any contingent revenue for the contract
year ending April 30, 2010. Due to a decrease in the cost-of-living index, there was no rent
adjustment on May 1, 2009. The Company is unable to determine if there will be an annual
cost-of-living adjustment on May 1, 2010.Under one of the Companys long-term leases, 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, which credit
now totals $520,000, the maximum amount. In connection with Phase I of the tenants project,
commencing July 1, 2010, the annual rental will increase from $48,000 to $300,000. At that time,
the tenant will not be required to make cash payments for rent for the next 21 months, and the
Company will reclassify each month $25,000 of deferred leasing revenues to leasing revenues.In January 2010, the Company declared a quarterly dividend of $198,000 ($.03 per common share),
which dividend was paid in February 2010. The declaration of future dividends and the amount
thereof will depend on the Companys future earnings, financial factors and other events.The Company expects that cash generated from current operations will continue to be sufficient to
meet operating expenses, ordinary capital expenditures, the remaining cost of the Steeple Street
Building construction and the current level of dividends. In the event temporary additional
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, 2009, 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.
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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
    
    
    16Consolidated Balance Sheets as of December 31, 2009 and 2008
    
    
    17Consolidated Statements of Income and Retained Earnings for the
Years Ended December 31, 2009 and 2008
    
    
    18Consolidated Statements of Cash Flows for the Years Ended
December 31, 2009 and 2008
    
    
    19Notes to Consolidated Financial Statements
    
    
    20-30
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(LGCD LOGO)
    
    Lefkowitz, Garfinkel, Champi & DeRienzo P.C.
Certified Public Accountants/Business Consultants
 
 
 
    
  § § § § §
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CAPITAL PROPERTIES, INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS
 December 31,2009
    
    
    2008ASSETSProperties and equipment (net of accumulated depreciation)
    
    $
    22,069,000
    
    
    $
    20,447,000Cash and cash equivalents
    
    
    2,315,000
    
    
    
    3,395,000Income taxes receivable
    
    
    47,000
    
    
    
    Prepaid and other
    
    
    331,000
    
    
    
    485,000$
    24,762,000
    
    
    $
    24,327,000LIABILITIES AND SHAREHOLDERS EQUITYLiabilities:Accounts payable and accrued expenses:Property taxes
    
    $
    243,000
    
    
    $
    238,000Environmental remediation
    
    
    81,000
    
    
    
    81,000Other
    
    
    514,000
    
    
    
    416,000Deferred leasing revenues
    
    
    520,000
    
    
    
    520,000Income taxes:Current
    
    
    
    
    
    
    346,000Deferred, net
    
    
    5,305,000
    
    
    
    5,269,0006,663,000
    
    
    
    6,870,000Commitment (Note 3)Shareholders equity (Note 7):Class A common stock, $.01 par; authorized 10,000,000 shares;
issued and outstanding, 3,654,739 shares and 3,299,956 shares
at December 31, 2009 and 2008, respectively
    
    
    37,000
    
    
    
    33,000Class B common stock, $.01 par; authorized 3,500,000 shares;
issued and outstanding, 2,945,173 shares and 3,299,956 shares
at December 31, 2009 and 2008, respectively
    
    
    29,000
    
    
    
    33,000Excess stock, $.01 par; authorized 1,000,000 shares; none
issued and outstanding
    
    
    
    
    
    
    Capital in excess of par
    
    
    11,762,000
    
    
    
    11,762,000Retained earnings
    
    
    6,271,000
    
    
    
    5,629,00018,099,000
    
    
    
    17,457,000$
    24,762,000
    
    
    $
    24,327,000
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##### Table of Contents



CAPITAL PROPERTIES, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
 Years Ended December 31,2009
    
    
    2008Revenues and other income:Revenues:Leasing
    
    $
    2,908,000
    
    
    $
    2,980,000Petroleum storage facility
    
    
    3,756,000
    
    
    
    3,777,0006,664,000
    
    
    
    6,757,000Other income, interest
    
    
    
    
    
    
    21,0006,664,000
    
    
    
    6,778,000Expenses:Leasing
    
    
    982,000
    
    
    
    696,000Petroleum storage facility
    
    
    2,325,000
    
    
    
    2,187,000General and administrative
    
    
    951,000
    
    
    
    1,212,0004,258,000
    
    
    
    4,095,000Income before income taxes
    
    
    2,406,000
    
    
    
    2,683,000Income tax expense:Current
    
    
    936,000
    
    
    
    992,000Deferred
    
    
    36,000
    
    
    
    118,000972,000
    
    
    
    1,110,000Net income
    
    
    1,434,000
    
    
    
    1,573,000Retained earnings, beginning
    
    
    5,629,000
    
    
    
    4,848,000Dividends on common stock ($.12 per share based upon 6,599,912
shares outstanding) (Note 7)
    
    
    (792,000
    )
    
    
    (792,000
    )Retained earnings, ending
    
    $
    6,271,000
    
    
    $
    5,629,000Basic income per share, based upon 6,599,912
shares outstanding (Note 7)
    
    $
    .22
    
    
    $
    .24
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##### Table of Contents



CAPITAL PROPERTIES, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years Ended December 31,2009
    
    
    2008Cash flows from operating activities:Net income
    
    $
    1,434,000
    
    
    $
    1,573,000Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation
    
    
    691,000
    
    
    
    680,000Deferred income taxes
    
    
    36,000
    
    
    
    118,000Changes in assets and liabilities:Increase in:Income taxes receivable
    
    
    (47,000
    )
    
    
    Prepaid and other
    
    
    
    
    
    
    (151,000
    )Accounts payable and accrued expenses
    
    
    
    
    
    
    76,000Current income taxes payable
    
    
    
    
    
    
    346,000Decrease in:Prepaid and other
    
    
    154,000
    
    
    
    Income taxes receivable
    
    
    
    
    
    
    12,000Accounts payable and accrued expenses
    
    
    (180,000
    )
    
    
    Current income taxes payable
    
    
    (346,000
    )
    
    
    Net cash provided by operating activities
    
    
    1,742,000
    
    
    
    2,654,000Cash used in investing activities, payments for properties
and equipment
    
    
    (2,030,000
    )
    
    
    (441,000
    )Cash used in financing activities, payment of dividends
    
    
    (792,000
    )
    
    
    (792,000
    )Increase (decrease) in cash and cash equivalents
    
    
    (1,080,000
    )
    
    
    1,421,000Cash and cash equivalents, beginning
    
    
    3,395,000
    
    
    
    1,974,000Cash and cash equivalents, ending
    
    $
    2,315,000
    
    
    $
    3,395,000Supplemental disclosure:Cash paid for income taxes
    
    $
    1,329,000
    
    
    $
    634,000Non-cash investing and financing activities:Capital expenditures financed through accounts payable
    
    $
    368,000
    
    
    $
    85,000Conversion of Class B common stock into Class A
common stock
    
    $
    4,000
    
    
    $
    
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##### Table of Contents



CAPITAL PROPERTIES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2009 AND 2008
 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.The petroleum storage segment consists of the operating of 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 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.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, 2009, the Company had no cash equivalents. At
December 31, 2008, cash equivalents consisted of an overnight uninsured sweep with the Companys
principal bank totaling $3,188,000.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 Unites 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.
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##### Table of Contents



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.Revenues and other income: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 (24 to 145 years).
The Company follows Unites 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.Options  The Company reports option revenue when earned.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 relating to loss contingencies 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.
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##### Table of Contents



3.
    
    Properties and equipment:Properties and equipment consist of the following:
 EstimatedUseful Life
    
    
    December 31,in Years
    
    
    2009
    
    
    2008Properties on lease or held for lease:Land and land improvements
    
    
    
    
    
    $
    4,621,000
    
    
    $
    4,621,000Building, Steeple Street
    
    
    39
    
    
    
    1,772,000
    
    
    
    1,772,000Construction in progress, Steeple Street
    
    
    
    
    
    
    2,246,000
    
    
    
    8,639,000
    
    
    
    6,393,000Petroleum storage facility, on lease:Land and land improvements
    
    
    
    
    
    
    5,591,000
    
    
    
    5,591,000Buildings and structures
    
    
    33
    
    
    
    1,744,000
    
    
    
    1,684,000Tanks and equipment
    
    
    15-20
    
    
    
    14,600,000
    
    
    
    14,593,00021,935,000
    
    
    
    21,868,000Equipment
    
    
    5-10
    
    
    
    131,000
    
    
    
    131,00030,705,000
    
    
    
    28,392,000Less accumulated depreciation:Properties on lease or held for lease
    
    
    
    
    
    
    104,000
    
    
    
    60,000Petroleum storage facility, on lease
    
    
    
    
    
    
    8,430,000
    
    
    
    7,789,000Equipment
    
    
    
    
    
    
    102,000
    
    
    
    96,0008,636,000
    
    
    
    7,945,000$
    22,069,000
    
    
    $
    20,447,000
 In June 2009, the Company commenced the construction of the historic restoration and utility
infrastructure of the Steeple Street Building at an original estimated cost of $2,100,000. The
Company anticipates that the restoration will be completed in the spring of 2010 at a total cost of
$2,500,000, including tenant improvements not originally budgeted of $153,000. The Company expects
to continue paying for the remaining restoration from available cash. Through December 31, 2009,
the Company has incurred costs of $2,246,000.4.
    
    Description of leasing arrangements:Long-term land leases:As of December 31, 2009, 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 states of site preparation and the timing of its construction and completion is
uncertain.Under one of the long-term land leases, the Company receives contingent rentals (based upon a fixed
percentage of gross revenue received by the tenant) which totaled $52,000 and $56,000 for the years
ended December 31, 2009 and 2008, 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 under these arrangements. Accordingly, the amounts paid 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, 2009 and 2008, the real property taxes
attributable to the Companys land under these seven leases are $1,199,000 and $1,437,000,
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, which credit now
totals $520,000, the maximum amount. In connection with Phase I of the tenants project, commencing
July 1, 2010, the annual rent will increase from $48,000 to $300,000. At that time, the tenant
will not be required to make cash payments for rent for the next 21 months, and the Company will
reclassify each month $25,000 of deferred leasing revenues to leasing revenues.
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##### Table of Contents



The Company also leases various parcels of land for outdoor advertising purposes to Lamar under a
lease having a remaining term of 24 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, 2009 and 2008, contingent revenues totaled $61,000 and
$88,000, respectively. In all other respects, the lease remains substantially unchanged.At December 31, 2009, there are 24 locations under lease with 46 billboard faces. Of these
locations, 22 are controlled through permanent easements and 2 are leased from third parties under
operating leases with remaining terms of one year.Minimum future contractual rental payments to be received from noncancellable long-term leases as
of December 31, 2009 are:
 Year ending December 31,2010
    
    $
    2,296,0002011
    
    
    2,904,0002012
    
    
    3,194,0002013
    
    
    3,290,0002014
    
    
    3,368,0002015 to 2153
    
    
    753,600,000$
    768,652,000
 For those leases with presently known scheduled rent increases at December 31, 2009 and 2008, the
cumulative excess of straight-line over contractual rentals (considering scheduled rent increases
over the 30 to 149 year terms of 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:
 2009
    
    
    2008Cumulative excess of straight-line over contractual rentals
    
    $
    40,171,000
    
    
    $
    35,231,000Amount management has not been able to conclude is collectible
    
    
    40,128,000
    
    
    
    35,189,000Accrued leasing revenues, which are included in prepaid and
other on the accompanying consolidated balance sheets
    
    $
    43,000
    
    
    $
    42,000
 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. The Company also
leases a portion of the Steeple Street Building to two tenants under short-term leases (five years
or less) at a current annual rental of $110,000. However, one of the tenants, whose annual rental
is $85,000, filed for receivership in November 2009, and there has been no determination if this
tenant will remain in operation. At December 31, 2009, this tenant owed the Company $40,000 and
the Company cannot determine whether it will collect the past due rent and has therefore recorded
an allowance for a doubtful account for the full amount. The Company is monitoring the
receivership proceedings to evaluate whether it will continue to accrue rental income.5.
    
    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 capital improvements.
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##### Table of Contents



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 years ended December 31, 2009 and 2008, the Company earned contingent revenue of $2,000 and
$86,000, respectively.The monthly rent at January 1, 2008 was $285,000 and increased to $296,000 in May 2008 as a result
of the scheduled annual cost-of-living adjustments in May of each year. Due to a decrease in the
cost-of-living index, there was no rent adjustment in May 2009.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 $319,000 in 2008. No improvements were made in 2009. [See Wilkesbarre Pier
below].Environmental remediation: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 the State of Rhode Island
Department of Environmental Management (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.Environmental incident: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. However, in the 1950s gasoline was stored on the Companys property by a predecessor
owner. 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. 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. Getty Properties Corp. is the general partner of Power
Test. 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 fine. There can
be no assurance that the Superior Court will affirm the decision of the Administrative Hearing
Officer. 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
 24




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##### Table of Contents



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 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.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.6.
    
    Income taxes:Income tax expense is comprised of the following components:
 2009
    
    
    2008Current:Federal
    
    $
    710,000
    
    
    $
    770,000State
    
    
    226,000
    
    
    
    222,000936,000
    
    
    
    992,000Deferred:Federal
    
    
    34,000
    
    
    
    85,000State
    
    
    2,000
    
    
    
    33,00036,000
    
    
    
    118,000$
    972,000
    
    
    $
    1,110,000
 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:
 2009
    
    
    2008Computed expected tax
    
    $
    818,000
    
    
    $
    913,000Increase in expected tax resulting from:State income tax, net of federal income tax benefit
    
    
    154,000
    
    
    
    164,000Non-deductible expenses
    
    
    
    
    
    
    33,000$
    972,000
    
    
    $
    1,110,000
 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 31,2009
    
    
    2008Gross deferred tax liabilities:Property having a financial statement basis in excess of tax basis:Cost differences
    
    $
    3,517,000
    
    
    $
    3,517,000Depreciation differences
    
    
    2,064,000
    
    
    
    1,996,0005,581,000
    
    
    
    5,513,000Insurance premiums and accrued leasing revenues
    
    
    69,000
    
    
    
    75,0005,650,000
    
    
    
    5,588,000Gross deferred tax assets
    
    
    (345,000
    )
    
    
    (319,000
    )$
    5,305,000
    
    
    $
    5,269,000
 The Companys federal and various state income tax returns for the years 2006, 2007 and 2008 remain
subject to examination.
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##### Table of Contents



7.
    
    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 Company
accounted for the stock split effective in the form of a dividend by transferring $33,000 from
capital in excess of par to Class B Common Stock on December 11, 2008.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 anytime. For the year ended December 31, 2009, 354,783 shares were
converted.The Class A Common Stock is listed on the Premier QX Tier of the OTCQX (Pink Sheets). 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 (Pink
Sheets).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% 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.8.
    
    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 income, and certain
corporate expenses.Inter-segment revenues are immaterial in amount. The Company did not incur interest expense during
the years ended December 31, 2009 and 2008.
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The following financial information is used for making operating decisions and assessing
performance of the Companys segments:
 December 31,2009
    
    
    2008Leasing:Revenues:Long-term leases:Contractual
    
    $
    2,140,000
    
    
    $
    2,122,000Contingent
    
    
    113,000
    
    
    
    144,000Excess of contractual over straight-line rentals
    
    
    1,000
    
    
    
    (1,000
    )Short-term leases
    
    
    654,000
    
    
    
    715,000$
    2,908,000
    
    
    $
    2,980,000Property tax expense
    
    $
    486,000
    
    
    $
    476,000Depreciation
    
    $
    44,000
    
    
    $
    44,000Income before income taxes
    
    $
    1,926,000
    
    
    $
    2,284,000Assets
    
    $
    8,726,000
    
    
    $
    6,521,000Properties and equipment, additions
    
    $
    2,246,000
    
    
    $
    73,000Petroleum storage:Revenues:Contractual
    
    $
    3,754,000
    
    
    $
    3,691,000Contingent
    
    
    2,000
    
    
    
    86,000Total revenues
    
    $
    3,756,000
    
    
    $
    3,777,000Property tax expense
    
    $
    212,000
    
    
    $
    205,000Depreciation
    
    $
    641,000
    
    
    $
    629,000Income before income taxes
    
    $
    1,431,000
    
    
    $
    1,590,000Assets
    
    $
    13,917,000
    
    
    $
    14,582,000Properties and equipment, additions
    
    $
    67,000
    
    
    $
    332,000
 The following is a reconciliation of the segment information to the amounts reported in the
accompanying consolidated financial statements:
 2009
    
    
    2008Revenues and other income:Revenues for operating segments:Leasing
    
    $
    2,908,000
    
    
    $
    2,980,000Petroleum storage
    
    
    3,756,000
    
    
    
    3,777,0006,664,000
    
    
    
    6,757,000Other income, interest
    
    
    
    
    
    
    21,000Total consolidated revenues and other income
    
    $
    6,664,000
    
    
    $
    6,778,000Property tax expense:Property tax expense for operating segments:Leasing
    
    $
    486,000
    
    
    $
    476,000Petroleum storage
    
    
    212,000
    
    
    
    205,000698,000
    
    
    
    681,000Unallocated corporate property tax expense
    
    
    2,000
    
    
    
    1,000Total consolidated property tax expense
    
    $
    700,000
    
    
    $
    682,000
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##### Table of Contents



2009
    
    
    2008Depreciation:Depreciation for operating segments:Leasing
    
    $
    44,000
    
    
    $
    44,000Petroleum storage
    
    
    641,000
    
    
    
    629,000685,000
    
    
    
    673,000Unallocated corporate depreciation
    
    
    6,000
    
    
    
    7,000Total consolidated depreciation
    
    $
    691,000
    
    
    $
    680,000Income before income taxes:Income for operating segments:Leasing
    
    $
    1,926,000
    
    
    $
    2,284,000Petroleum storage
    
    
    1,431,000
    
    
    
    1,590,0003,357,000
    
    
    
    3,874,000Interest income
    
    
    
    
    
    
    21,000Unallocated corporate expenses
    
    
    (951,000
    )
    
    
    (1,212,000
    )Total consolidated income before income taxes
    
    $
    2,406,000
    
    
    $
    2,683,000Assets:Assets for operating segments:Leasing
    
    $
    8,726,000
    
    
    $
    6,521,000Petroleum storage
    
    
    13,917,000
    
    
    
    14,582,00022,643,000
    
    
    
    21,103,000Corporate cash and cash equivalents
    
    
    2,043,000
    
    
    
    3,189,000Other unallocated amounts
    
    
    76,000
    
    
    
    35,000Total consolidated assets
    
    $
    24,762,000
    
    
    $
    24,327,000Additions to properties and equipment:Leasing
    
    $
    2,246,000
    
    
    $
    73,000Petroleum storage
    
    
    67,000
    
    
    
    332,0002,313,000
    
    
    
    405,000Unallocated corporate additions to properties and equipment
    
    
    
    
    
    
    5,000Total consolidated additions
    
    $
    2,313,000
    
    
    $
    410,000
 The following table sets forth those customers whose revenues exceed 10% of the Companys segment
revenues:
 2009
    
    
    2008Leasing segment:Lamar Outdoor Advertising, LLC
    
    $
    793,000
    
    
    $
    842,000Metropark, Ltd
    
    
    543,000
    
    
    
    587,000Gramercy Capital Corp
    
    
    472,000
    
    
    
    468,000AvalonBay Communities, Inc.
    
    
    397,000
    
    
    
    401,000$
    2,205,000
    
    
    $
    2,298,000Petroleum storage segment: Global Companies, LLC
    
    $
    3,756,000
    
    
    $
    3,777,000
 9.
    
    Fourth quarter transactions in 2008:In July 2008, the Companys Board of Directors unanimously approved recommending to shareholders,
among other items, a reverse stock split of 75 to 1 with respect to the Companys outstanding
common stock. In addition, the Directors also unanimously approved an amendment to the Companys
Articles of Incorporation to create a Class B Common Stock (see Note 7). The Board originally
anticipated that the reverse stock split would result in the Company having less than 300
shareholders which would permit the Company to suspend the registration of its common stock under
the Securities Exchange Act of 1934. As a result of an increase in the number of shareholders
following the public announcement of the Boards recommendations, at a special shareholder meeting
held November 21, 2008, the shareholders were asked to approve the reverse stock split and approve
granting to the Board of Directors for a period of ninety (90) days following the approval of the
reverse stock split, the right to determine whether the reverse stock split should proceed even if
it would result in the Company not having less than 300 shareholders. Following the special
shareholders meeting, the Board of Directors decided not to implement the
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reverse stock split, given the cost to the Company and the relatively small benefit to be derived.
At September 30, 2008, the Company had incurred costs of $160,000, which were included in prepaid
and other on the consolidated balance sheet at September 30, 2008 pending the final decision
concerning the reverse stock split. Total costs of $232,000 (including the $160,000) were included
in general and administrative expense in the fourth quarter.10.
    
    Subsequent event:The Company evaluated subsequent events through the date the financial statements were issued.
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##### Table of Contents



Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
  
 Item 9A(T). Controls and Procedures
  Managements Annual Report on Internal Control over Financial Reporting.
      Changes in Internal Control Over Financial Reporting.
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##### Table of Contents



PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance of the Registrant
   Date of FirstName
    
    Age
    
    Office Held
    
    Election to OfficeRobert H. Eder
    
    
    77
    
    
    President, Capital Properties, Inc.
    
    
    1995Barbara J. Dreyer
    
    
    71
    
    
    Treasurer, Capital Properties, Inc.
    
    
    1997Stephen J. Carlotti
    
    
    67
    
    
    Secretary, Capital Properties, Inc.
    
    
    1998Todd D. Turcotte
    
    
    38
    
    
    President, Capital Terminal Company
and Vice President, Capital Properties, Inc.
    
    
    2008
  Code of Ethics:
   
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  
 Item 13. Certain Relationships and Related Transactions and Director Independence
  
 Item 14. Principal Accountant Fees and Services
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##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 (a) and (c)
 (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 December 10, 2007 (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)
    
    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.(b)
    
    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
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##### Table of Contents



SIGNATURES
  CAPITAL PROPERTIES, INC.By
    
    /s/ Robert H. Eder

Robert H. EderPresident and Principal Executive Officer
   /s/ Robert H. Eder
    
    March 15, 2010Robert H. EderPresident and DirectorPrincipal Executive Officer/s/ Barbara J. Dreyer
    
    March 15, 2010Barbara J. DreyerTreasurer, Principal Financial Officerand Principal Accounting Officer/s/ Alfred J. Corso
    
    March 15, 2010Alfred J. Corso, Director/s/ Harris N. Rosen
    
    March 15, 2010Harris N. Rosen, Director
 33