UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

For the quarterly period ended June 30, 2019March 31, 2020

OR

For the transition period from                   to                  

Commission File Number 001-08499

CAPITAL PROPERTIES, INC.

(Exact name of registrant as specified in its charter)

(401) 435-7171

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12 (g) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  ☒   No��No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.)   Yes  ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of the "large accelerated filer," "accelerated filer," "non-accelerated filer," "smaller reporting company" and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).   Yes ☐   No ☒ 

As of June 30, 2019,March 31, 2020, the Company had 6,599,912 shares of Class A Common Stock outstanding.

CAPITAL PROPERTIES, INC.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2019MARCH 31, 2020

TABLE OF CONTENTS

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PART I

CAPITAL PROPERTIES, INC. AND SUBSIDIARIESSUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

See notes to condensed consolidated financial statements.

3

CAPITAL PROPERTIES, INC. AND SUBSIDIARIESSUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND SHAREHOLDERS’ EQUITY

THREE AND SIX MONTHS ENDED JUNE 30,MARCH 31, 2020 AND 2019 AND 2018

(Unaudited)

See notes to condensed consolidated financial statements.

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CAPITAL PROPERTIES, INC. AND SUBSIDIARIESSUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

SIXTHREE MONTHS ENDED JUNE 30,MARCH 31, 2020 AND 2019 AND 2018

(Unaudited)

See notes to condensed consolidated financial statements.

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CAPITAL PROPERTIES, INC. AND SUBSIDIARIESSUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED JUNE 30,MARCH 31, 2020 AND 2019 AND 2018

(Unaudited)

Capital Properties, Inc.’s and its wholly-owned subsidiaries,subsidiary, Tri-State Displays, Inc., Capital Terminal Company and Dunellen, LLC’s (collectively referred to as “the Company”) for many years operated in two segments, leasing and petroleum storage.  On February 10, 2017, the Company sold its petroleum storage facility and related assets (the “Terminal”) owned or controlled by the Company’s subsidiaries, Capital Terminal Company and Dunellen, LLC to Sprague Operating Resources, LLC (“Sprague”). The sale of the Terminal results in the segment being classified as discontinued operations for all periods presented.  See Note 7 to the condensed consolidated financial statements.  With the sale of the Terminal, the Board determined that there was no longer a need to maintain Capital Terminal Company and Dunellen, LLC, and at its April 24, 2018 regularly scheduled Board meeting, it voted to liquidate and dissolve these two companies. The dissolution of Capital Terminal Company and Dunellen, LLC was completed as of July 16, 2019.

As a result of the sale of the Terminal, the Company’s operations consist 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 the parking garage, Parcel 6C and Parcel 6C), the leasing of a portion of its building (“Steeple Street Building”) under short-term leasing arrangements through December 1, 201820) 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 to Metropark, Ltd.

The accompanying condensed consolidated financial statements include the accounts and transactions of the Company and its wholly-owned subsidiaries.subsidiary.  All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying condensed consolidated balance sheet as of December 31, 20182019 has been derived from audited financial statements.  The unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.  It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s latest Form 10-K for the year ended December 31, 2018.2019. In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position as of June 30, 2019March 31, 2020 and the results of operations for the three and six months ended June 30,March 31, 2020 and 2019, and 2018, and cash flows for the sixthree months ended June 30, 2019March 31, 2020 and 2018.2019.

The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

Environmental incidents:

The Company accrues a liability when an environmental incident has occurred and the costs are estimable.  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 reasonably assured.  The accrued liability is relieved when the Company pays the liability or a third party assumes the liability.  Upon determination that collection is reasonably assured or a third party assumes the liability, the Company records the amount as a reduction of expense.

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Recent accounting pronouncements:

In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update No. 2016-02, which requires lessors to classify leases as sales-type, direct financing, or operating leases.  Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No, 2018-11, Targeted Improvements.  A lease is a sales-type lease if any one of five criteria are met, each of which indicate that the lease, in effect, transfers control of the underlying asset to the lessee.  If none of the five criteria are met, but two additional criteria are both met, indicating that the lessor has transferred substantially all of the risks and benefits of the underlying asset to the lessee and a third party, the lease is a direct financing lease.  All leases that are not sales-type or direct financing leases are operating leases.

The new standard was effective for the Company on January 1, 2019.  A modified retrospective transition approach was required by applying the new standard to all leases existing at the date of initial application.   An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented as its date of initial application.  The Company adopted the new standard on January 1, 2019 and used the effective date as our date of initial application.  Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.  

The new standard provides a number of practical expedients in transition.  The Company elected the “package of practical expedients”, which permits the Company not to reassess under the new standard prior conclusions about lease identification, lease classification and initial direct costs.  While most of our leases will continue to be classified as operating leases in

accordance with the package of practical expedients, leases that commence on or after the effective date of the new standard, and that would be classified as operating leases under prior GAAP, may be classified as a sales-type lease under the new standard.  We do not expect theThe adoption of the new standard willdid not have a significant impact on our leasing activities.  For additional information on the Company’s leases, see Note 5 to the condensed consolidated financial statements.

The Company also elected the land easement practical expedient which allows the Company to not assess whether all existing land easements that were not previously accounted for under Topic 840 are or contain a lease under Topic 842.

Reclassification of Prior Period Presentation:

The lossgain from discontinued operations, net of taxes for prior periods2019 has been reclassified for consistency purposes and is now included in gain (loss) on sale of discontinued operations, net of taxes. This reclassification had no effect on reported net income. On the condensed consolidated statements of cash flows, this change increased net cash provided by operating activities and increaseddecreased net cash used inprovided by investing activities by $317,000$15,000 for the sixthree months ended June 30, 2018.March 31, 2019.

The preparation of consolidated financial statements in conformity with GAAP 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 consolidated financial statements.  Estimates also affect the reported amounts of income and expenses during the reporting period.  Actual results could differ from those estimates.

Properties and equipment consist of the following:

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Long-term land leases:

As of June 30, 2019,March 31, 2020, the Company had entered into ten long-term land leases.  SevenEight of the ten parcels (excluding Parcel 6C and Parcel 20) have completed construction of improvements thereon.  On Parcel 6B, construction of a 169-unit residential complex commenced in November 2016 and is substantially complete.  Parcel 6C is being used as a construction staging area for the construction on Parcel 6B.

On September 28, 2017, the Company entered into a long-term ground lease of Parcel 20.  Under the terms of the lease until the tenant took possession, the Company received all rents from the existing tenants and paid all expenses with respect to Parcel 20.  On May 4, 2018, the Company and the lessee entered into an Amended and Restated Ground Lease (“Restated Lease”).  The lessee took possession of Parcel 20 on December 1, 2018 and the Company conveyed title to the existing building.  In addition to the ground lease rent, for 360 months following December 1, 2018, the lessee will pay acquisition period rent consisting of monthly payments of $7,471 for the first thirty-six months and monthly payments thereafter of $8,488 plus an amount equal to 1/12^th of the product of (a) 5.5% and the difference between (x) $2,750,000 and (y) the aggregate of the prior monthly payments of $8,488.  The Restated Lease is a triple net lease.

The Restated Lease for Parcel 20, as it relates specifically to the Steeple Street Building, was accounted for as a sales-type lease due to the transfer of the Steeple Street Building to the lessee.  The land directly under the Steeple Street Building was allocated in the determination of the value of the property transferred in accordance with ASC 360-20, Property, Plant and Equipment - Real Estate Sales.  Since the initial investment by the lessee is insufficient to recognize the transaction as a sale, in accordance with ASC 360-20, the Company will report the acquisition period rent and an allocable portion of the ground rent collected as a deposit liability,deferred revenue, which is included in other liabilities on its condensed consolidated balance sheets, and will continue to include the property transferred in properties and equipment until the transaction can be reported as a sale in accordance with GAAP.  The fair value of the property transferred was determined under a present value technique using the rental payments to be made under the lease (significant other observable inputs (Level 2) as defined by GAAP).  As the carrying value of the property transferred to the lessee exceeds its fair value, the Company recognized an impairment loss of $1,832,000 as of December 31, 2018.  The long-term ground lease of the land on Parcel 20 (exclusive of the Steeple Street Building) is accounted for as an operating lease, consistent with the Company’s other long-term ground leases.

Under the ten land leases, the tenants may negotiate tax stabilization treaties or other arrangements, appeal any changes in real property assessments, and must pay real property taxes assessed on land and improvements under these arrangements.  Accordingly, with the exception of Parcel 20 through December 1, 2018, real property taxes payable by the tenants are excluded from leasing revenues and leasing expenses on the accompanying condensed consolidated statements of income and shareholders’ equity.  Real property taxes attributable to the Company’s land under these leases totaled $341,000 and $682,000 for the three and six months ended June 30, 2019March 31, 2020 and $308,000 and $617,000 for the three and six months ended June 30, 2018.2019.   

Under two of the long-term land leases, the Company receives contingent rentals (based on a fixed percentage of gross revenue received by the tenants) which totaled $35,000$25,000 and $63,000$27,000 for the three and six months ended June 30,March 31, 2020 and 2019, and $25,000 and $54,000 for the three and six months ended June 30, 2018.respectively.  

With respect to the Parcel 6C, the lessee has the right to terminate its lease at any time during the remaining term of the lease upon thirty days’ notice.  To date, no notice of termination has been received by the Company.  The current annual rent on ParcelsParcel 6C is $200,000$220,000 and annual real estate taxes paid by the lessee equals $311,000.

Lamar lease:

The Company, through a wholly-owned subsidiary, leases 23 outdoor advertising locations containing 44 billboard faces along interstate and primary highways in Rhode Island and Massachusetts to Lamar under a lease which expires in 2045.  The Lamar lease provides, among other things, for the following:  (1) the base rent will increase annually at the rate of 2.75% for each leased billboard location on June 1 of each year, and (2) in addition to base rent, for each 12-month period commencing each June 1 (each 12-month period a “Lease Year”), Lamar must pay to the Company within thirty days after the close of the Lease Year, 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) base monthly rent for each leased billboard display for each 12-month period.  For the lease years ended May 31, 2019 and 2018, the period (“percentage rent totaled $210,000 and $100,000, respectively, which amounts are included in leasing revenue on the accompanying condensed consolidated statements of income and shareholders’ equity.  rent”).

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Parking lease:

The Company leases the undeveloped parcels of land in the Capital Center area and, through December 1, 2018 the undeveloped Parcel 20 land, for public parking purposes to Metropark under a ten year lease.  The lease is cancellable as to all or any portion of the leased premises at any time on thirty day’s written notice in order for the Company or any new tenant of the Company to develop all or any portion of the leased premises.  The parking lease provides for contingent rentals (based on a fixed percentage of gross revenue in excess of the base rent) which totaled $24,000 and $71,000.   Revenue for the three and six months ended June 30, 2019 (inclusive of an additional $23,000 in 2019 for contingent rent in excessMarch 31, 2020 was reduced by $34,000 due to the revision of the 2018 estimate), and $18,000 and $36,000 forestimate of 2019’s contingent rent.  For the three and six months ended June 30, 2018.  

Parcel 20, Steeple Street:March 31, 2019, revenue includes $47,000 in continent rent.

With the executionexception of the Parcel 20 lease, effective December 1, 2018, the lessee receivesParking Lease, all rental income associated with the Steeple Street building and the Parcel 20 undeveloped land leased to Metropark pending its development.  At June 30, 2018 the Company had four tenants occupying 49 percent of the Steeple Street Building under short-term leasesCompany’s tenants were current in their lease payment obligations as of five years or less at an annual rentalMay 15, 2020.

The Company will continue to evaluate the collectibility of $95,000 andamounts due from all tenants in light of the Company reported as revenue tenant reimbursements for common area costs and real property taxes ineconomic uncertainty arising from the amount of $20,000 through June 30, 2018.COVID-19 pandemic.

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 for continuing operations which give rise to deferred tax assets and liabilities are as follows:

On February 10, 2017, the Company sold its petroleum storage facility and related assets (the “Terminal”) owned or controlled by the Company’s former subsidiaries, Capital Terminal Company and Dunellen, LLC to Sprague Operating Resources, LLC (“Sprague”) for $23 Million subject to certain adjustments. In accordance with ASC 205-20, Presentation of Financial Statements – Discontinued Operations, the sale of the Terminal is accounted for as a discontinued operation.  The liabilities associated with the discontinued operations are separately identified on the Company’s condensed consolidated balance sheets.  These liabilities were not assumed by Sprague and remain obligations of the Company until settled.  The Petroleum Segment discontinued operations is reported after income from continuing operations.     

Pursuant to the Sale Agreement, the Sale Price was reduced by $1,040,000, the estimated cost of a breasting dolphin to be constructed by Sprague adjacent to the Pier in order that the Pier can berth Panamax sized vessels; $1,725,000 of the Sale Price was placed in escrow to secure the Company’s indemnity obligations under the Sale Agreement and $441,000 in normal closing adjustments, transfer taxes, investment banking and other fees, other than federal and state income taxes.  The net proceeds delivered to the Company amounted to $19.8 Million.  In February 2019, the company received the remaining balance ($862,000) of the aforementioned escrow plus $23,000 of interest associated with these funds.

In accordance with the Sale Agreement, the Company has agreed to retain and pay for the environmental remediation costs associated with a 1994 storage tank fuel oil leak which allowed the escape of a small amount of fuel oil.  Since 1994, the Company and its consultants have continued to workedwork with the Rhode Island Department of Environmental Management (“RIDEM”) through the various phases of remediation and are now working to complete the final remediation plan. AtIn February 2020, the Company submitted its revised Remedial Action Work Plan (“RAWP”) to RIDEM and is waiting for final approval to proceed.  Based on revised remediation cost estimates associated with the revised RAWP submitted in February 2020, which incorporates design changes necessary to meet the requirements of applicable life safety codes, the remediation accrual was increased by $846,000 resulting in an accrual of $1,043,000 at December 31, 2017 the total accrual for the cost of remediation was $434,000.  In 2018,2019.  Through March 31, 2020, the Company incurred costs of $111,000 and increased$51,000 which decreased the amount accrued by $167,000 resulting in a remediation liability of $490,000 at December 31, 2018.  Through June 30, 2019, the Company incurred costs of $43,000 which reduced the total accrual to $447,000. Based upon the current remediation plan, the amount accrued was increased by $358,000 resulting in a remediation liability of $805,000 at June 30, 2019.$992,000.  Any subsequent increases or decreases to the expected cost of remediation will be recorded in gain (loss) on sale of discontinued operations, net of taxes.

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The Sale Agreement also contains a cost sharing provision for the breasting dolphin whereby any variance from the initial estimate of $1,040,000 will be borne equally by Sprague and the Company subject to certain limitations.  In May 2018 the Company received notice from Sprague that Sprague had received bids for the breasting dolphin and that the cost of the Projectconstruction was estimated at $1,923,284.  Sprague requested that the Company acknowledge that it was obligated to pay 50% of the cost in excess of $1,040,000, or $441,642. The Company replied that pursuant to the letter agreement between the Company and Sprague (the “Letter Agreement”) the Company’s obligation cannot exceed $104,000 assuming, among other things, that Sprague had been timely in securing bids for the breasting dolphin and the scope of the work as bid was consistent with the Letter Agreement. In AprilNovember 2019, Sprague notified the Company received a demand letter from Sprague asserting that construction change orders to datethey were within theowed $427,000, which amount represents 50% of the contract contingency originally includedactual costs incurred ($1,894,000) in the estimateexcess of $1,923,284.  At June 30, 2019 construction is substantially complete.$1,040,000.  The Company continues to assert that its obligation cannot exceed $104,000.   

In February 2019 and 2018,Subsequently, representatives from the Company received 50 percent ofand Sprague met to discuss the aforementioned escrow ($862,000 in each year), which amounts are included in gain (loss) on sale of discontinued operations, net of taxes. Interest income includes $23,000 related to these funds in 2019.claim but no agreement was reached.

Gain (loss) on sale of discontinued operations for the three and six months ended June 30,March 31, 2020 and 2019 and 2018 are as follows:

The Company believes that the fair values of its financial instruments, including cash and cash equivalents, receivables and payables, approximate their respective book values because of their short-term nature.  The fair values described herein were determined using significant other observable inputs (Level 2) as defined by GAAP.

At its July 30, 2019April 28, 2020 regularly scheduled quarterly Board meeting, the Board of Directors, after considering the uncertainty of the potential impact of the coronavirus (COVID-19) pandemic on the Company, voted to declare apass the quarterly dividend of $.07 per shareshare.   As of May 15, 2020, with the exception of Metropark, all of the Company’s tenants are current in terms of required monthly lease payments.  Metropark has not fully paid their lease obligation for shareholders of record on August 16, 2019, payable August 30, 2019. On July 16, 2019, Capital TerminalApril and May and the Company was dissolved.is currently in discussion with them concerning payment. The total rent arrearage is $87,000.  

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FORWARD LOOKING STATEMENTS

Certain portions of this report, and particularly the Management’s Discussion and Analysis of Financial Condition and Results of Operations, contain forward-looking statements within the meaning of Sections 27A of the Securities Act of 1933, as amended, and Sections 21E of the Securities Exchange 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 collectability of the accrued leasing revenues when due over the terms of the long-term land leases; the early termination of the Parcel 6C land lease; tenant default under one or more of the 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; the impact of the COVID-19 pandemic on the economy and the Company’s financial performance; and exposure to remediation costs associated with its former 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.

Critical accounting policies:

The Company believes that its revenue recognition policy for long-term leases with scheduled rent increases meets the definition of a critical accounting policy which is discussed in the Company’s Form 10-K for the year ended December 31, 2018.2019.  There have been no changes to the application of this accounting policy since December 31, 2018.2019.

Historically, the Company has had adequate liquidity to fund its operations.

Cash and cash commitments:

At June 30, 2019,March 31, 2020, the Company had cash and cash equivalents of $2,568,000.$1,590,000.  The Company and its subsidiary each maintain a checking and money market account in two banks, all of which accounts are insured by the Federal Deposit Insurance Corporation to a maximum of $250,000.  The Company periodically evaluates the financial stability of the financial institutions at which the Company’s funds are held.

The contractual rent for Parcel 2 was adjusted in May 2018 by a cost of living adjustment as provided in the lease agreement resulting in monthly rent increase of $4,000.

Effective July 1, 2019, the Parcel 6A, 6B, and 6C leases provideprovided for a cost of living adjustment of not less than 10%, the effect of which will bewas an aggregate monthly rent increase of $6,100.  

Through March 31, 2020 all lessees have paid their monthly rent in accordance with their lease agreements.  Rent for April and May 2020 has been paid by all tenants except for Metropark.  The Parcel 3S lease providescoronavirus (COVID-19) pandemic and Rhode Island’s stay-at-home order has had a significant adverse impact on Metropark, the lessee that operates public parking on the Company’s undeveloped parcels.  In mid-March, Metropark closed their lots as there were few parking customers given the stay-at-home order.   The Company expects Metropark’s operations to slowly return to normal over the next several months as the State has lifted the stay-at-home order and is gradually permitting certain businesses to resume operations. Metropark has availed itself of the stimulus created by the Coronavirus Aid, Relief and Economic Security Act (CARES Act) that was signed into law on March 27, 2020.  In May, the Company received $10,000 as partial payment of April and May’s rent.  The aggregate rent arrearage for an appraisal adjustment on October 1, 2019.  Based onMetropark is $87,000.  The Company is continuing its assessment of current market conditions,payment plan discussions with Metropark.  

Lamar contacted the Company and requested a rent reduction ranging from twenty to forty percent for all billboards for a twelve to twenty-four-month period, along with a request to remove several boards that they deem to be non-performing. The Company has rejected the Lamar proposal in its present form.  

The Company expects that the appraisal processrevenue from contingent rent in 2020 will not result in a rent adjustment.materially decline for both Metropark and Lamar.

On February 10, 2017, the Company sold the Terminal to Sprague and received $19,794,000 from the sale after giving effect to escrows, a credit to Sprague for the cost of constructing a breasting dolphin adjacent to the Pier, and other customary closing costs.  Pursuant to the Sale Agreement and related documentation, the Company is required, at its expense, to secure an approved remediation plan and to remediate contamination caused by a 1994 leak in a 25,000 barrel storage tank at the Terminal.  See Note 7 to the condensed consolidated financial statements.  At December 31, 2018,2019, the total accrual for the

cost of remediation was $490,000.  During 2019, remediation$1,043,000.  Through March 31, 2020, the Company incurred costs of $43,000 were incurred$51,000 which reduceddecreased the total accrualamount accrued to $447,000$992,000.  The Company anticipates that monitoring costs of approximately $250,000 of the amount accrued will be paid in 2021 and was increased by $358,000 resulting an accrual of $805,000 at June 30, 2019.beyond.  Any subsequent increases or decreases to the expected cost of remediation will be recorded in the Company’s condensed consolidated statements of income and shareholders’ equity as income or expense froma gain (loss) on sale of discontinued operations.

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The Sale Agreement also contains a cost sharing provision for the breasting dolphin whereby any variance from the initial estimate of $1,040,000 will be borne equally by Sprague and the Company subject to certain limitations.  In May 2018 the Company received notice from Sprague that Sprague had received bids for the breasting dolphin and that the cost was estimated at $1,923,284.  Sprague requested that the Company acknowledge that it was obligated to pay 50% of the cost in excess of $1,040,000, or $441,642. The Company replied that pursuant to the letter agreement between the Company and Sprague (the “Letter Agreement”), the Company’s obligation cannot exceed $104,000 assuming, among other things, that Sprague had been timely in securing bids for the breasting dolphin and the scope of the work as bid was consistent with the Letter Agreement. Sprague notifiedIn November 2019, the Company in mid-Aprilreceived a demand letter from Sprague asserting that construction change orders to datethey were within theowed $427,000, which amount represents 50% of the contract contingency amount originally includedactual costs incurred ($1,894,000) in excess of $1,040,000.  Representatives of the estimate of $1,923,284. At June 30, 2019, substantially all construction has been completed.Company and Sprague met to discuss the claim but were unable to come to an agreement.  The Company continues to assert that its obligation cannot exceed $104,000.

The declaration of future dividends will depend on future earnings and financial performance.

Three months ended June 30, 2019March 31, 2020 compared to three months ended June 30, 2018:March 31, 2019:

Leasing revenues increased $66,000 overdecreased $55,000 from the 20182019 level.  ContingentThe decrease is attributable to an $81,000 decrease in contingent rent on the billboards ($210,000) exceeded the 2018 amount by $110,000 which was offset by reductions due to the commencement of the Parcel 20 lease effective December 1, 2018 which transferred ownership of the Steeple Street Building to the lessee ($33,000) and a reduction in parking lease revenue associated with the Parcel 20 leaseparking lots offset by scheduled rent increases ($30,000)26,000). Interest income decreased $30,000 in 2020 principally because $23,000 of interest income in 2019 was received from Sprague as a result of escrowed funds but none was received in 2020.  The remaining difference is lower than 2019 due to lower interest rates on and balances in the money market accounts.

Operating expenses decreased $90,000$13,000 due principally to the elimination of operating costslower legal fees associated with the Steeple Street buildingtenant insurance compliance reviews ($6,000) and repair and maintenance costs ($6,000) as a result of the Parcel 20 lease.fewer snow storms.  

General and administrative expense decreased $181,000 principally$17,000 due to reduced payroll and related costs as a result of one less employee and lower than expected healthcare costs ($60,000), reduced professional fees associated with development opportunities and professional services ($131,000)17,000), reductions in various other net expenses ($3,000) offset by increased office rent expense ($10,000)3,000).

Six months ended June 30, 2019 compared to six months ended June 30, 2018:

Leasing revenues increased $40,000 over the 2018 level due principally to greater contingent rent on the billboards and parking revenue in 2019 ($110,000 and $35,000, respectively), the ground lease of Parcel 20 ($13,000) and scheduled rent increases ($17,000) which was offset by reductions due to the commencement of the Parcel 20 lease effective December 1, 2018 which transferred ownership of the Steeple Street Building to the lessee ($69,000) and a reduction in parking lease revenue associated with the Parcel 20 lease ($57,000).

Operating expenses decreased $239,000 due principally to the elimination of operating costs associated with the Steeple Street building as a result of the Parcel 20 lease ($163,000) and a reduction in legal costs associated with the review of tenant compliance with insurance requirements provided in the long-term leases ($56,000).

General and administrative expense decreased $221,000 principally due to reduced payroll and related costs as a result of one less employee and lower than expected healthcare costs ($119,000), reduced professional fees associated with development opportunities and professional services ($147,000) offset by increased office rent expense ($21,000).  

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As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this report.  This evaluation was carried out under the supervision and with the participation of the Company's management, including the Company's principal executive officer and the Company's principal financial officer.  Based upon that evaluation, the principal executive officer and the principal financial officer concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.

There was no significant change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to affect, the Company's internal control over financial reporting.  The Company continues to enhance its internal controls over financial reporting, primarily by evaluating and enhancing process and control documentation.  Management discusses with and discloses these matters to the Audit Committee of the Board of Directors and the Company's auditors.

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PART II – OTHER INFORMATION

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SIGNATURE

In accordance with the requirements of the Exchange Act, the Issuer caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

DATED: August 6, 2019May 15, 2020

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