CAPITAL PROPERTIES INC /RI/ (CPTP) stock intrinsic value fair value estimate & owner earnings analysis

Capital Properties, Inc. owns land in and around Capital Center in downtown Providence, Rhode Island, and a set of permanent highway billboard sites in Rhode Island and Massachusetts. Apart from a small historic building on Parcel 20 with three commercial tenants, it does not develop or operate buildings. Developers lease its parcels under very long ground leases, build and own the buildings (offices, apartment and condominium towers, and a 330-space underground garage), pay the property taxes and insurance, and pay rent that steps up with the cost of living, periodic appraisals or fixed schedules. The ground leases end between 2087 and 2153 (Parcel 3S office in 2087, Parcel 9 office in 2153), several with long renewal options. Its subsidiary Tri-State Displays leases 23 billboard locations (44 faces) to Lamar Outdoor Advertising under a lease running to 2057 with 2.75% annual base-rent increases plus a share of billboard revenue. Undeveloped parcels (3E, 3W, 4E, 4W and part of Parcel 20) are rented to Metropark for public parking at $57,000 a month under a ten-year lease dated January 1, 2017, cancellable on 30 days' notice. The company has no borrowings (a $2 million bank line is unused), 6,599,912 shares that have not changed in over a decade, and pays out most of its cash as dividends, raised to $0.09 a quarter in January 2026. In 2025 revenue was $6.0 million: land rent $3.68 million, billboard rent $1.28 million, parking and short-term rent $0.95 million and interest $0.10 million. Five tenants supply about two-thirds of revenue, led by Lamar (21%). The company stopped filing reports with the SEC in February 2025 and now publishes its annual and quarterly reports through OTC Markets, where its shares continue to trade. The 2025 figures here come from that audited annual report; earlier years come from its SEC filings. Owner earnings. We start from operating cash flow of the continuing leasing business, remove working-capital timing swings, and deduct capital spending, which has been nil since 2018 because tenants own and maintain the buildings. There is no stock compensation. Owner earnings were $2.25 million in 2018, $2.51M in 2019, $2.00M in 2020 and $1.75M in 2021 (parking and percentage rents fell during the 2020-2021 shutdown), then $2.14M in 2022, $2.45M in 2023, $2.43M in 2024 and $2.83M in 2025, or $0.43 a share. Each year reconciles exactly to income plus depreciation and deferred taxes. Years before 2018 are excluded because the company then also ran a petroleum storage terminal, sold in 2017, and carried debt. We use the median of 2021-2025, $2.43 million or $0.37 a share, as the base level. Interest on the company's Treasury bills is taken out of the stream because that cash is counted separately below. Cleanup costs for a 1994 leak at the former terminal are paid outside operating cash flow ($1.5 million spent from 2019 to 2025), so we charge them as a liability rather than ignoring them. Growth. Owner earnings grew 16.5% in 2025. We start 2026 at about $2.69 million excluding interest, roughly 14% above the base level but slightly below 2025 itself, because the higher rents are already in force under signed leases: contractual land rent rose $235,000 in 2025 under existing leases, Parcel 8 received a cost-of-living increase in February 2025, Parcel 9 steps up in April 2026, and Lamar's base rent rises 2.75% each June. Beyond that we credit only what the contracts deliver: cost-of-living and appraisal resets on the ground leases (land rent rose from $3.20 million in 2023 to $3.56 million in 2025), Lamar's fixed increases to 2057, and costs rising with inflation. We give no value to developing the remaining parking parcels or Parcel 20. A 2017 ground lease of Parcel 20 collapsed and led to a $1.8 million write-down in 2018, a new ground lease signed in January 2024 never reached the stage of paying rent and is no longer described in the 2025 report, and the Parcel 6C lease was terminated early. New development is possible but not in hand. Because the leases run 60 to 125 more years and the land reverts to the company afterwards, each case runs 100 years. There is no separate end value. Base case ($9.23 a share). Land rent rises 2% a year, which is below its recent pace. Lamar base rent rises 2.75% a year to 2057 and then holds flat. Percentage rents hold at about $0.29 million. Metropark renews and parking stays at about $0.9 million with no increase. Operating and administrative costs of about $2.3 million rise 2% a year. Owner earnings reach about $3.1 million by 2036. The business is worth about $58.9 million. It owes nothing to lenders. Adding $2.4 million of cash and Treasuries beyond working needs and subtracting $0.4 million for the remaining environmental cleanup (the $530,000 accrual less its tax benefit) gives $60.9 million, or $9.23 a share. Bear case ($6.24 a share). We assume Providence parking demand repeats the 2020-2021 shutdown, when revenue fell 11% in a year. The Metropark lease expires at the end of 2026 and can be ended on 30 days' notice, so parking income falls to $0.35 million in 2027-2028 and settles at $0.5 million after a cheaper renewal. Percentage rents from land tenants and Lamar's revenue share are lost for those two years, as advertising and tenant revenues fell in 2009 and 2020. The Parcel 3S office ground lease resets by appraisal in 2029, and with downtown office values weak we assume it resets about $200,000 lower. Inflation is low, so land rents rise only 1% a year while costs rise 2%. Cleanup at the former terminal costs another $1 million before tax, which has happened before: the estimate was raised again in 2025 after system failures in 2023. Owner earnings fall to about $2.1 million in the downturn years, recover to about $2.4 million by 2036, and slowly fade after that. The business is worth about $40.0 million, it owes nothing, and with cash less the larger cleanup bill the shares are worth about $41.2 million, or $6.24. Bull case ($11.40 a share). Ground-lease cost-of-living and appraisal resets average 2.5% a year, which is still below the recent pace. Parking rises 2% a year under Metropark's adjustable rent. Percentage rents hold at their 2025 level of about $0.31 million. No new developments are assumed. The business is worth about $73.2 million. It owes nothing, and adding $2.0 million of net cash after cleanup gives $75.2 million, or $11.40 a share. The prior published figures were prepared on a different basis and are not comparable. Since then the business has changed in three ways: rents stepped up under existing leases in 2025, the dividend was raised from $0.07 to $0.09 a quarter, and the environmental cleanup estimate more than doubled to $530,000. Margin-of-safety price. We are fairly sure of the earnings level. About 80% of revenue comes from ground leases running past 2087 and a billboard lease running to 2057, rent is booked only as it is billed, and the business has no debt. The worst plausible outcome is losing most of the parking income while the parcels sit undeveloped, together with a downturn in office land values and a larger cleanup bill. That would cut owner earnings by a fifth to a quarter for a few years. With no lenders and land tenants whose buildings sit on the company's land, the company would come through intact. If we are wrong about parking, the 3S appraisal and inflation all at once, the shares are worth around $6. The shares trade over the counter, so the price assumes it could take five years for the price to reflect value. In the meantime the business earns about $0.40 a share and pays $0.36 in dividends. At $4.75 that is an 8% cash yield. From $4.75, the implied return is about 20% a year if the shares reach the bear-case value within about two years, or the base-case value, which rises about 2% a year as rents step up, within five years. Dividends are counted in both. A higher price would leave little room if both the parking income and the slow re-rating went against us. The margin-of-safety price is $4.75. Not reconciled: the 2025 annual report no longer mentions the January 2024 Parcel 20 ground lease, and we could not confirm whether it was terminated. It carries no value in any case. Parcel 20 advance rent of about $0.2 million received in 2019-2020 was classified by the company as investing cash and is excluded.