Capital Properties, Inc.

What they do

The company operates in one segment: leasing Company-owned land in the Capital Center Area of downtown Providence, Rhode Island, mostly under ground leases of 99 years or more. Tenants are responsible for property operating expenses, taxes, insurance, and construction of improvements. It also leases certain parcels for public parking to Metropark, Ltd., and through subsidiary Tri-State Displays, Inc. leases 23 outdoor advertising locations with 44 billboard faces in Rhode Island and Massachusetts to Lamar Outdoor Advertising, LLC under a lease expiring in 2057.

Revenue drivers

• Ground leases — Long-term land leases in the Capital Center Area and Parcel 20, with periodic rent increases based on fixed percentages, CPI, appraisal, or combinations, and sometimes percentage rent; the primary revenue source.
• Parking lease — Leases Parcels 3E, 3W, 4E, 4W, and a portion of Parcel 20 to Metropark, Ltd. for public parking; Metropark returned to a fixed monthly rental of $57,000 effective January 1, 2024.
• Billboard lease — Tri-State Displays leases 23 outdoor advertising locations with 44 billboard faces to Lamar Outdoor Advertising under a lease expiring in 2057, with annual base rent increases of 2.75% each June and revenue participation.
• Parcel 20 ground lease — A long-term ground lease signed January 25, 2024; tenant possession awaits approvals for at least 100,000 square feet of mixed-use improvements, and until possession the company keeps existing rents and parking revenue.

Recent performance

For the third quarter of 2024, revenue was $1,372,000 compared with $1,313,000 in the third quarter of 2023, and income from continuing operations was $547,000 versus $536,000. For the nine months ended September 30, 2024, revenue was $4,208,000 compared with $4,056,000, and income from continuing operations was $1,752,000 versus $1,728,000. Total assets were $9,074,000 at September 30, 2024, with cash and cash equivalents of $973,000, investments of $1,294,000, and shareholders' equity of $7,643,000. For full-year 2024, revenue was not provided, but net income was $2.0 million and operating cash flow was $2.5 million.

Strategy

The company seeks developers for its undeveloped parcels while leasing land under long-term ground leases and does not intend to act as a developer. In January 2024, it entered a long-term ground lease for Parcel 20, where the tenant must first obtain approvals for at least 100,000 square feet of mixed-use improvements before taking possession. It also amended the Metropark lease in January 2024 to restore a fixed monthly rent of $57,000 and settled $1,127,000 of deferred rent for $150,000 payable in twenty quarterly installments with 4.73% interest. The company maintains a $2,000,000 unused line of credit and had investments maturing in March 2025 totaling $1,294,000.

Risks

• Tenant concentration — A significant portion of revenue comes from Metropark's parking lease and Lamar's billboard lease, so tenant financial difficulty or lease renegotiation could reduce revenue.
• Revenue recognition on long-term leases — Because remaining lease payments are not deemed probable of collection, the company reports lease revenue on the contractual amount paid rather than straight-line, which can cause revenue to lag contractual escalations.
• Development timing — The Parcel 20 ground lease requires tenant approvals for at least 100,000 square feet of mixed-use improvements before possession and rent commencement, so no rent is being paid yet and timing is uncertain.
• Environmental remediation — The company carries an environmental remediation accrual of $365,000 for discontinued operations, and future costs could exceed the recorded amount.

Outlook

Management does not provide specific financial guidance, but states that the company historically generates adequate liquidity to fund operations. Tenants paid monthly rent in accordance with lease agreements through February 7, 2025. The company has cash, investments maturing in March 2025, and a $2,000,000 unused line of credit as sources of funds. The Parcel 20 ground lease remains subject to tenant approvals before rent begins.