Capital Automotive REIT, a specialty finance company for automotive retail real estate, on Oct. 21 announced financial results for the third quarter ended Sept. 30, 2003. The company reported record third quarter revenues, net income and funds from operations (FFO).

Total revenues were $43.2 million for the quarter, a 19 percent increase from revenues of $36.3 million in the third quarter of 2002. Net income for the quarter increased 20 percent to $13.1 million as compared to $10.9 million in the same quarter last year.

Net income per diluted share increased 5 percent to $0.40 per share from $0.38 per share in the same quarter last year. FFO for the quarter increased 17 percent to $24.3 million as compared to $20.8 million for the same quarter last year. FFO per diluted share increased 7 percent to $0.59 per share from $0.55 per share for the same quarter last year.

Total revenues for the nine-month period ended Sept. 30, 2003 were $126.1 million, a 23 percent increase from revenues of $102.7 million in the same period in 2002. Net income for the nine-month period increased 15 percent to $37.7 million as compared to $32.7 million for the same period last year. Net income per diluted share increased 5 percent to $1.22 per share from $1.16 per share for the same period last year.

FFO for the nine-month period ended Sept. 30, 2003 increased 15 percent to $70.9 million as compared to $61.5 million for the same period last year. FFO per diluted share increased 8 percent to $1.79 per share from $1.67 per share for the same period last year.

Acquisitions Recap

The company completed approximately $24.4 million of acquisitions during the third quarter, bringing total acquisitions for the year to approximately $130.8 million.

The third quarter acquisitions included one auto mall, four other auto retail properties and construction and improvement fundings. These acquisitions contain nine automotive franchises located in four states and have a weighted average initial lease term of 17.7 years, with multiple renewal options exercisable at the option of the tenants. The acquisitions were funded with cash on hand and borrowings on the company's short-term credit facilities.

A summary of the acquisitions is as follows:

• Two properties totaling approximately $8.7 million leased to affiliates of Sonic Automotive, Inc., located in Alabama. Included in the acquisition is a collision center and an auto mall that currently has three franchises (Audi, Land Rover and Porsche). Three additional

  franchises (BMW, Cadillac and Lexus) will be constructed on the auto mall during the next six months. The company has committed to fund approximately $18 million for the construction of these new dealerships upon satisfactory completion of each facility subject to due diligence and customary closing conditions. Sonic is one of the largest automotive retailers in the United States, operating 192 franchises and 42 collision repair centers. As of Sept. 30, 2003, the company leased 86 properties to affiliates of Sonic, representing approximately 23 percent of the company's total annualized rental revenue.

  
  

  
  

• One property totaling approximately $7.5 million leased to a subsidiary of UnitedAuto Group, Inc. (UAG), located in Arizona. A Ford franchise is operated on the property. UnitedAuto is one of the largest auto retailers in the United States, operating 134 franchises in the U.S. and 79 franchises internationally, primarily in the United Kingdom. As of Sept. 30, 2003, the company leased 17 properties to subsidiaries of UnitedAuto, representing approximately 11 percent of the company's total annualized rental revenue.

  
  

  
  

• Two properties totaling approximately $5.5 million leased to subsidiaries of Asbury Automotive Group, Inc., located in Georgia and Mississippi. Five franchises (Buick, Cadillac, Chevrolet, GMC and Pontiac) and a collision center are operated on these properties. Asbury is one of the largest auto retailers in the United States, operating 95 automobile retail stores, encompassing 138 franchises for the sale and servicing of 35 different brands of American, European and Asian automobiles. As of Sept.r 30, 2003, the company leased 11 properties to subsidiaries of Asbury, representing approximately 3 percent of the company's total annualized rental revenue.

  
  

  
  

• Construction and improvement fundings, totaling approximately $2.7 million, all of which were transacted with existing tenants.

  
  

  'Solid Growth'

  
  

  "Our third quarter results continue to demonstrate our ability to achieve solid growth as well as provide our shareholders with stable, predictable cash flows over the long-term," said Thomas D. Eckert, president and CEO.

  
  

  "We continue to execute our core strategy of partnering with high quality tenants and providing those tenants with timely, cost effective, value-added capital solutions for their real estate needs," Eckert said. "Both private and public dealer groups continue to perform very well, as witnessed by our high rent coverage ratios. In addition, our robust pipeline and opportunities in the market should allow us to continue our growth in the future."

  
  

  Risk Management

  
  

  As of Sept. 30, 2003, Capital Automotive's portfolio was 100 percent occupied and, since its inception, there has never been a rental payment default, according to the company.

  
  

  On a quarterly basis, the company performs a credit review of virtually all tenants in its portfolio, utilizing their financial statements. Capital said its rent coverage ratio, which is one of the primary metrics that the company uses to define the stability of its tenants' cash flow, remains high.

  
  

  As of June 30, 2003, the most recent quarter of analysis, the weighted average operating cash flow of the company's tenants exceeded 3.5 times the amount of their rental payments. At the end of the third quarter, Capital held lease security deposits and letters of credit totaling approximately $13 million.

  
  

  Additionally, as of Sept. 30, 2003, Capital had accumulated depreciation of approximately $108.1 million representing approximately 6.3 percent of its real estate portfolio. The weighted average remaining lease term of the portfolio is 11.2 years as of Sept. 30, 2003, and the earliest meaningful lease expirations do not occur until 2008.

  
  

  The company said its debt to assets (total assets plus accumulated depreciation) ratio was approximately 59 percent and debt to total market capitalization was approximately 46 percent as of Sept. 30, 2003. Of the debt outstanding at Sept. 30, 2003, approximately 91 percent was substantially match-funded with related leases.

  
  

  Capital said "virtually all" of its long-term debt is secured financing which has a weighted average remaining term of 10.9 years. The company's earliest significant long-term debt maturity is not until 2011.

  
  

  For the three months and the trailing 12 months ended Sept. 30, 2003, the company's interest coverage and debt service coverage ratios were 2.5 and 1.6, respectively.

  
  

  Earnings Guidance

  
  

  "In light of the third quarter results, the company's strong acquisition pace, and the current interest rate environment, the company is raising its 2003 earnings guidance," Capital said in a prepared statement.

  
  

  The company's new FFO per diluted share guidance for 2003 is $2.39, up from its previous guidance of $2.38 and a 6 percent increase over 2002. The company's net income per diluted share guidance is $1.62, an increase of $0.01 per share from its previous guidance.

  
  

  Capital's revised 2003 guidance assumes LIBOR rises to 1.25 percent from current levels for the remainder of this year and, additional property acquisitions of approximately $25 million.

  
  

  Capital is also raising its 2004 FFO and net income guidance. The company's new FFO guidance range is $2.47 to $2.52 per diluted share, up from its previous guidance range of $2.45 to $2.50 per diluted share. The company's new net income guidance range is $1.67 to $1.71 per diluted share, up from its previous guidance range of $1.65 to $1.69 per diluted share.

  
  

  The 2004 guidance assumes property acquisitions of approximately $150 million. The high end of the company's earnings guidance assumes LIBOR remains at current levels, which is approximately 1.1 percent. The low end of the range assumes LIBOR rises ratably from current levels to 3 percent during 2004.

  
  

  "Because of the nature of the cCompany's variable rate lease program, if LIBOR rises to greater than 3 percent for the year, the company's results should fall within the guidance range," Capital said.

  
  

  'Very Pleased'

  
  

  "We are very pleased with our operating results for the third quarter and remain confident in the execution of our 2003 and 2004 business plans," said David S. Kay, senior vice president, CFO and treasurer.

  
  

  "We believe that our current capital structure provides us with the flexibility to successfully execute on the many opportunities in our marketplace," Kay said. "In addition, we believe that our FFO and net income growth for 2005 and 2006 will be in excess of 6 percent per annum based on substantial internal growth during those periods."

  
  

  As previously announced, the company's Board of Trustees declared a cash dividend of $0.414 per share for the third quarter. The dividend is payable on Nov. 20, 2003 to shareholders of record as of Nov. 10, 2003.

  
  

  The third quarter dividend is the 23rd consecutive increase in the quarterly dividend and represents an annualized rate of $1.656 per share and a 5.2 percent yield based on Oct. 17's closing stock price. The company's dividend payout ratio for the third quarter of 2003 was approximately 70 percent of FFO.

  
  

  Capital estimates approximately 27 to 30 percent of its 2003 annual dividend will be a return of capital, which is not taxed as ordinary income to its shareholders. The company reaffirmed its 2004 annual dividend guidance of $1.70 per share.

  
  

  Management Appointments

  
  

  David Kay, the company's chief financial officer, has been named treasurer and will expand his role by directing the company's debt finance efforts. Kay has replaced Peter Staaf, who will retire effective Jan. 31, 2004.

  
  

  James Kahler, who has been employed by the company since October 1997 and has held several positions in acquisitions and portfolio management, will continue his role as assistant treasurer. "We have been transitioning the Treasury function to David and James over the past year," Eckert said. "I am very confident that these highly competent executives will continue to execute this critical function within our business."

  
  

  Capital has also appointed Lisa Clements to serve as chief accounting officer. Clements has served as the company's controller since joining Capital in January 1998. She will continue to be responsible for the company's financial reporting as well as compliance with new disclosure controls and accounting standards under the Sarbanes-Oxley Act.

  
  

  "Lisa has done an outstanding job at Capital Automotive," Eckert said. "Her knowledge and experience are essential to governing our company's financial reporting function as well as providing full transparency for our shareholders and other stakeholders."

  
  

  About Capital Automotive

  
  

  Capital Automotive, headquartered in McLean, Va., is a self- administered, self-managed real estate investment trust that acquires real property and improvements used by operators of multi-site, multi-franchised automotive dealerships and related businesses.

  
  

  Additional information on Capital Automotive is available on at www.capitalautomotive.com.

  
  

  As of Sept. 30, 2003, the company had invested more than $1.7 billion in 313 properties, consisting of 436 automotive franchises in 30 states. Approximately 76 percent of the company's total real estate investments are located in the top 50 metropolitan areas in the United States in terms of population.

  
  

  Approximately 73 percent of the company's portfolio is invested in properties leased to the "Top 100" dealer groups as published by Automotive News. The properties are leased under long-term, triple-net leases with a weighted average initial lease term of 14.4 years.