CAPITAL AUTOMOTIVE REIT - 10-K Annual Report

Back to GetFilings.com

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

[X] ANNUAL REPORT PURSUANT TO THE SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

OR

[_] 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: 000-23733

CAPITAL AUTOMOTIVE REIT
---------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS DECLARATION OF TRUST)

MARYLAND 54-1870224
------------------------------- ----------------------------
(State or Other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) No.)

1420 SPRING HILL ROAD, SUITE 525, MCLEAN, VIRGINIA 22102
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)

(703) 288-3075
----------------------------------------------------
(Registrant's telephone number, including area code)

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

Common Shares of Beneficial Interest, $.01 par value per share
------------------------------------------------------------------
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities 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 [X] No [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]

The number of Registrant's common shares of beneficial interest outstanding on
March 10, 1999 was 21,607,415.

The aggregate market value of voting stock held by non-affiliates of the
Registrant, based upon the average sales price of the Registrant's common shares
of beneficial interest on March 10, 1999 was $240,344,653.*

* Excludes 2,756,854 common shares deemed to be held by trustees, officers and
greater than 10% holders of the common shares of beneficial interest
outstanding at March 10, 1999. Exclusion of common shares held by any person
should not be construed to indicate that such person possesses the power,
direct or indirect, to direct or cause the direction of the management or
policies of Capital Automotive REIT, or that such person is controlled by, or
under common control with, Capital Automotive REIT.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of Capital Automotive REIT's definitive Proxy Statement
filed with the Securities and Exchange Commission on March 19, 1999 are
incorporated by reference into Part III of this Annual Report on Form 10-K.
Certain exhibits to the Company's Quarterly Reports on Forms 10-Q for the
quarters ended March 31, 1998, June 30, 1998 and September 30, 1998 (File
No. 000-23733) and Current Reports on Form 8-K filed August 7, 1998, December 3,
1998 and December 7, 1998 (File No. 000-23733) and Registration Statement on
Form S-11 (File No. 333-41183), Registration Statement on Form S-3 (File
No. 333-73181) and Registration Statement on Form S-3 (File No. 333-73183) are
incorporated by reference into Part IV of this Annual Report on Form 10-K.

i

CAPITAL AUTOMOTIVE REIT
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED DECEMBER 31, 1998

TABLE OF CONTENTS

PAGE REFERENCE
FORM 10-K
---------

Part I
- ------

Item 1. Business 1
Item 2. Properties 11
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14

Part II
- -------

Item 5. Market for the Company's Common Equity and
Related Shareholder Matters 15
Item 6. Selected Financial Information 17
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 18
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 25
Item 8. Financial Statements and Supplementary Data 26
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure 44

Part III
- --------

Item 10. Trustees and Executive Officers of the Company 45
Item 11. Executive Compensation 45
Item 12. Security Ownership of Certain Beneficial Owners
and Management 45
Item 13. Certain Relationships and Related Transactions 45

Part IV
- -------

Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 46

ii

PART 1

ITEM 1. BUSINESS

COMPANY OVERVIEW

Capital Automotive REIT (the "Company") is a Maryland real estate investment
trust formed in October 1997. The Company owns its property interests through
Capital Automotive L.P. (the "Operating Partnership") and its subsidiaries. The
Company is the sole general partner of the Operating Partnership. The Company
completed its initial public offering of common shares and began generating
rental income in February 1998. Unless the context otherwise requires, the term
"Capital Automotive Group" refers to the Company and the Operating Partnership
and their subsidiaries. In this Annual Report on Form 10-K, the term
"subsidiary" of the Company or the Operating Partnership means a corporation,
partnership, limited liability company or similar entity if the Company or the
Operating Partnership, alone or together, directly or indirectly, own at least a
majority of the equity interests of the entity.

Capital Automotive Group's primary business purpose is to own and lease real
estate properties (land, buildings and other improvements) to operators of
franchised automobile dealerships, motor vehicle service, repair or parts
businesses and related businesses. In this Annual Report on Form 10-K, Capital
Automotive Group uses the term "dealerships" to refer to these types of
businesses that are operated on its properties.

As of February 1, 1999, Capital Automotive Group owned 131 properties located
in 18 states, making up approximately 760 acres of land and containing
approximately 4.8 million square feet of buildings and improvements. Capital
Automotive Group's lessees operate 203 motor vehicle franchises on these
properties, representing 36 brands of motor vehicles, including Acura, Audi,
BMW, Buick, Cadillac, Chevrolet, Chrysler, Dodge, Dodge Trucks, Ford,
Freightliner, GMC, Honda, Hyundai, Infiniti, Isuzu, Jaguar, Jeep, Kia, Land
Rover, Lexus, Lincoln-Mercury, Mazda, Mercedes-Benz, Mitsubishi, Nissan,
Oldsmobile, Plymouth, Pontiac, Porsche, Saab, Saturn, Subaru, Toyota, Volkswagen
and Volvo.

Capital Automotive Group focuses on buying properties from third parties that
have a long history of operating multi-site, multi-franchised dealerships. In
this Annual Report on Form 10-K, Capital Automotive Group uses the term "dealer
group" to refer to a group of related persons and companies who sell properties
to Capital Automotive Group. Capital Automotive Group also uses the term "dealer
group" or the term "lessee" to refer to the related persons and companies that
lease properties owned by Capital Automotive Group.

As of February 1, 1999, Capital Automotive Group had invested approximately
$565 million in properties. Most of the properties have been leased to lessees
who are related to the sellers of such properties. In certain cases, Capital
Automotive Group may lease property to, or assume an existing lease with, a
lessee that is not related to the seller from whom the property was purchased.

1

Capital Automotive Group purchases properties in exchange for cash, units of
limited partnership interest in the Operating Partnership ("Units"), the
assumption of debt, or a combination of all three. Capital Automotive Group
usually pays off any assumed debt in full at closing. In certain cases, Capital
Automotive Group assumes and does not pay off a dealer group's loan under an
existing mortgage as part of the purchase of real estate. At times, Capital
Automotive Group has agreed in advance to purchase property in the future only
after the dealership buildings have been constructed by the seller.

Capital Automotive Group generally leases properties to established,
creditworthy lessees, for a period of ten to 20 years, with options to renew
upon the same terms and conditions for one or more additional periods of five to
ten years each exercisable at the option of the lessee. The lessee typically
is required to pay all operating expenses of the property, including all real
estate taxes and assessments, utilities, insurance, repairs, maintenance and
other expenses. This type of lease is commonly known as a "triple-net" lease.

In evaluating dealer groups and potential properties for purchase, Capital
Automotive Group considers such factors as:

. the management and operating experience of the dealer group;

. the adequacy of a dealer group's historical, current and forecasted cash
flow to meet the operating needs of the business, expenses and lease
payments or debt service obligations;

. the type of franchises operated by the dealer group;

. the value of the land, buildings and other improvements as determined by
Capital Automotive Group and its consultants, but not by an independent
MAI appraisal;

. the construction quality, condition and design of the dealership
buildings and other improvements located on the property;

. the geographic area in which the property is located; and

. the environmental condition of the real estate.

Capital Automotive Group intends to acquire more properties. Those
transactions may be structured in ways that are similar or dissimilar to those
described above.

Capital Automotive Group has and will continue to borrow funds to buy
properties. As of February 20, 1999, Capital Automotive Group had mortgage
indebtedness totaling $162 million secured by 64 properties owned by
subsidiaries of the Operating Partnership. In February 1999, Capital Automotive
Group secured approval from a financial institution for a $50.0 million
revolving credit facility. The Company intends to increase the capacity under
this revolving facility through the inclusion

2

of additional financial institutions. Capital Automotive Group may also issue
debt securities, including senior or subordinated notes. These notes may be
secured by properties or leases. Capital Automotive Group has adopted a policy
to limit debt to approximately 50% of assets. This policy may be changed by the
Company's Board of Trustees at any time without shareholder approval.

As a real estate investment trust, the Company acquires properties through its
direct and indirect subsidiaries, including the Operating Partnership, and
manages its business in a manner that is intended to be consistent with the
requirements of the Internal Revenue Code (the "Code") and the regulations of
the Internal Revenue Service (the "IRS") that govern taxation of real estate
investment trusts. The Company has and expects to continue to pay regular cash
dividends to its shareholders; to provide its shareholders the opportunity for
increased dividends from increasing annual rental income; to preserve and
protect the investments of its shareholders; and to provide its shareholders
with the opportunity to increase the value of their investments.

The Company is self-administered and self-managed, meaning that its trustees,
officers and employees manage and administer Capital Automotive Group's
business. The Company's executive officers are Thomas D. Eckert, President and
Chief Executive Officer; Scott M. Stahr, Executive Vice President and Chief
Operating Officer; Donald L. Keithley, Executive Vice President of Business
Development; David S. Kay, Vice President and Chief Financial Officer; John M.
Weaver, Vice President, Secretary and General Counsel; and Peter C. Staaf, Vice
President and Treasurer.

STRATEGY

Capital Automotive Group's primary business strategy is to acquire a
diversified portfolio of real property and improvements throughout the United
States used by the operators of franchised automobile dealerships, motor vehicle
service, repair or parts businesses and related businesses. In addition,
Capital Automotive Group intends to commit to purchase properties under
construction, renovation or expansion upon completion of such construction,
renovation or expansion. Capital Automotive Group believes that its acquisition
strategy will provide dealer groups with an opportunity (1) to acquire
liquidity, while maintaining ownership and control of the operations of the
dealerships, (2) to diversify their investments, (3) to obtain funds to expand
operations or remodel the facilities of their dealerships, (4) to facilitate
their estate planning, and (5) to provide attractive tax deferral opportunities.

Capital Automotive Group believes that because the improvements used by
dealerships are usually single purpose structures, such properties are a major
and discrete sector of the national retail real estate industry. Industry
sources estimate that the real property and improvements associated with
franchised auto dealers represent in excess of $40 billion of real estate.
Capital Automotive Group believes that those properties present attractive
acquisition and financing opportunities because they have locations, with
frontage on, and visibility from, major thoroughfares, and zoning, which permits
a wide range of alternative uses. In the event that such properties can no
longer be leased to dealerships, Capital Automotive Group believes that they can
be redeveloped for other commercial uses.

3

Capital Automotive Group's primary objective is to own and lease properties
used by dealerships throughout the United States for the primary purpose of
generating rental income in order to provide Capital Automotive Group with long-
term, predictable streams of cash flow to maximize shareholder value. To achieve
these objectives, Capital Automotive Group is:

. Implementing an aggressive and disciplined acquisition program by
purchasing properties used by dealer groups that operate multi-site,
multi-franchised dealerships that have demonstrated historic growth,
are well managed, have been maintained in good condition, and whose
location and characteristics will be suitable for alternative use;

. Diversifying geographically by acquiring properties located
predominately in major metropolitan areas in order to minimize the
potential adverse impact of economic downturns in certain markets;

. Diversifying by franchise to minimize the potential adverse impact of
changes in consumer preferences and manufacturer fortunes;

. Leveraging the contacts and experience of Capital Automotive Group's
management to build and maintain long-term relationships with dealer
groups;

. Maintaining long-term working relationships with dealer groups, by
providing capital for multiple acquisitions of properties on a market-
by-market basis, thereby enhancing efficiency and value;

. Using the Company's "UPREIT" structure to acquire properties in
exchange for cash, Units, the assumption of debt, or a combination of
all three forms of consideration, thereby deferring some or all of a
seller's potential taxable gain. This structure enhances the ability
of Capital Automotive Group to consummate transactions and to
structure more competitive acquisitions than other real estate
companies in the market that lack Capital Automotive Group's access to
capital and the ability to acquire properties with Units;

. Leasing back properties to dealer groups on a triple-net basis,
thereby eliminating brokerage, re-leasing and similar costs, and the
risk of high lessee turnover due to the general historic long-term
operation of dealerships at property locations;

. Negotiating lease covenants designed to minimize the likelihood of
loss to Capital Automotive Group, by permitting Capital Automotive
Group to continually monitor the ability of the lessees to pay rent by
periodic submissions and review of financial data; and

. Utilizing a variety of financing sources, such as the issuance of
Units, or other equity securities or debt securities, or a combination
thereof.

4

THE PROPERTIES, LEASES, TYPICAL LEASE TERMS AND DEALERSHIPS

PROPERTIES

As of December 31, 1998, Capital Automotive Group owned 120 properties in
18 states. These properties are leased to 30 dealer groups which operate 196
motor vehicle franchises on the properties. See Item 2 of this Annual Report
on Form 10-K for a table listing certain information regarding the properties
purchased by Capital Automotive Group. Capital Automotive Group's interest in
each of the properties includes the land, buildings and improvements, related
easements and rights and fixtures. Capital Automotive Group does not own or
lease any significant amount of personal property, furniture or equipment at any
property.

The properties generally consist of the land or a leasehold interest in
land and one or more retail showrooms, office space (which may or may not be
contained in separate buildings), adjacent service and repair facilities, parts
and accessories departments, and in many cases, acreage set aside for used car
sales, body shops and parking for inventory. The 120 properties owned at
December 31, 1998 totaled 4.3 million square feet of buildings and improvements
on 708.8 acres of land. As of December 31, 1998, all of the properties were
subject to leases in full force and effect.

LEASES AND TYPICAL LEASE TERMS

Capital Automotive Group's properties are leased to dealer groups, persons
or entities related to the dealer groups or, in some cases, other third parties,
which operate dealerships on the properties. Although there are variations in
the specific terms of the Company's leases, the following is a summary
description of the general terms of the Company's leases. The Company expects to
seek similar terms with future lessees of properties. However, leases are
individually negotiated and do vary from one another and the terms summarized
below, at times in material ways.

General. Each lease is a "triple-net" lease, meaning that the lessee is
obligated to pay rent and, typically, all operating expenses of the property,
including, but not limited to, all taxes, assessments and other governmental
charges, insurance, utilities, service, repairs and maintenance. In addition,
the leases require the lessees to undertake and pay for additions, repairs,
renovations and improvements to the properties which, upon expiration or
termination of the leases, become the property of Capital Automotive Group.

Rent. During the initial term and any extensions, each lessee pays annual
base rent in monthly installments. Base rent is typically adjusted upward
periodically, usually based on a factor of the change in the consumer price
index ("CPI"). As of March 1, 1999, Capital Automotive Group had not sent any
lessee a default notice.

Term and Termination. The leases generally are for initial terms of ten to
20 years, with options to renew upon the same terms and conditions for one or
more additional periods of five to ten years each exercisable at the option of
the lessee. The lessee does not have the right to

5

terminate the lease and vacate the property before the end of the lease term,
except in extraordinary circumstances such as the taking or condemnation or
destruction of a substantial portion of the property. In the event of a default
by the lessee, among the legal remedies that could be available to Capital
Automotive Group is the eviction of the lessee, which could result in early
termination of the lease. Typically, all leases within a dealer group are cross-
guaranteed which helps to insure the stability of the rental income from the
respective lessee.

Insurance. The leases provide that the lessees will maintain insurance on
the properties of the type and in the amounts that are usual and customary.
Capital Automotive Group believes that its properties all are adequately covered
by insurance, including adequate commercial general liability, fire, flood and
extended loss insurance provided by reputable companies, with commercially
reasonable deductibles and limits. However, it is not possible to insure
against all risks, in all cases, due to the cost or the availability of certain
types of insurance. If a property suffers uninsured damage, the repair of the
property may depend on the dealer group's ability to pay those costs or Capital
Automotive Group may have to bear all or a portion of such costs.

Damage to, or Condemnation of, a Property. If all or a portion of a
property is totally or permanently condemned or taken by right of eminent
domain, or if there is damage to or destruction of the property which is covered
by insurance, rent may be abated or the lease may be terminated. In certain
circumstances, the lessee may be entitled to share in the condemnation award or
insurance proceeds.

Assignment and Subletting. The leases generally provide that the lessees
may not, without the prior written consent of Capital Automotive Group (which
under certain circumstances may not be unreasonably withheld) or upon compliance
with conditions established by Capital Automotive Group, assign, mortgage,
encumber or otherwise transfer any lease or sublease any property, in whole or
in part, except to a related person. Generally, a change of control of the
lessee will be considered an assignment of the lease.

Events of Default. If there is an event of default under a lease, Capital
Automotive Group may terminate the lease, retain possession of the property
and/or lease the property to others. An event of default typically includes,
but is not limited to, a failure to pay rent, a failure to comply with the
provisions of the lease, the occurrence of certain events relating to
bankruptcy or insolvency of the lessee, or certain defaults under a franchise
or license agreement.

Indemnification. Generally, a lessee will be required to indemnify
Capital Automotive Group and its officers, trustees, employees, owners, agents
or affiliates from liabilities, costs and expenses arising from such things as,
(1) the use, condition, operation or occupancy of the property, (2) any breach,
violation or nonperformance of the lease or any law, (3) any injury or damage to
the person, property or business of the lessee or any customer of the lessee,
and (4) the violation of environmental laws.

Right of First Offer and Option to Purchase Property. Certain leases
provide the lessee with a right of first offer to purchase the property if
Capital Automotive Group decides to sell the property. Capital Automotive Group
will notify the lessee of its intention to sell the property and

6

the lessee will have a period of time to extend an offer, including specifying
the purchase price. Capital Automotive Group may in its discretion reject the
lessee's offer and sell the property to a third party on other terms if the
purchase price is higher or Capital Automotive Group reasonably believes such
terms are better than the terms proposed by the lessee. Under the terms of a
limited number of leases, the lessee has a period of 30 days, after receiving
notice from Capital Automotive Group of its intention to sell the property and
the proposed sales price for the property, to advise Capital Automotive Group
that it wishes to purchase the property at the specified price. If the lessee
does not exercise this right or if the lessee and Capital Automotive Group
cannot agree on the terms and conditions for the purchase of the property by the
lessee, Capital Automotive Group is free to offer and sell the property to a
third party. In addition, certain leases provide that, at the time of expiration
of the lease or renewal options, the lessee has an option to purchase the
property at a purchase price equal to the property's fair market value or the
greater of (1) the fair market value of the property or (2) the purchase price
as increased by a factor of CPI at the time the option is exercised.

Environmental Matters. The lessees are typically responsible for
compliance with material applicable environmental laws and for correcting
material adverse environmental conditions at or on the properties. Typically,
a lease will require the lessee to indemnify Capital Automotive Group for
liabilities and costs related to environmental matters.

DEALERSHIPS AND DEALER GROUPS

Each dealer group operates its dealerships under written franchise
agreements with motor vehicle manufacturers. Typically, each franchise
agreement specifies the locations at which the dealer group can sell motor
vehicles and related parts and products and perform certain approved services in
order to serve a specified market area. Manufacturers maintain control over the
designation of market areas and allocation of vehicles among dealer groups. The
manufacturer does not guaranty exclusivity within a specified territory.

Each franchise agreement typically grants the dealer group the non-
exclusive right to use and display the manufacturer's trademarks, service marks
and designs in the form and manner approved by the manufacturer and imposes a
variety of requirements on the dealer group concerning, for example, the
showrooms, the facilities and equipment for servicing vehicles, the maintenance
of vehicles and parts inventories, the maintenance of minimum net working
capital and the training of personnel. The franchise agreements usually require
the dealer groups to submit a monthly financial statement of operations. In
addition, the manufacturer's prior approval is required for changes in certain
members of management or transfers of ownership of the dealer group. Several
manufacturers include provisions in their franchise agreements that, unless the
manufacturer gives its consent, may restrict transfers of assets or real
property considered necessary for conducting the business of the dealership or
contain similar restrictions.

Most franchise agreements have a term of one to five years but the
manufacturer has the ability to terminate the franchise agreement earlier or
refuse to renew the agreement under certain circumstances such as when a dealer
group fails to meet financial covenants established by the

7

manufacturer. Capital Automotive Group believes that each dealer group generally
expects to renew any expiring agreements in the ordinary course of business.

In addition to selling new vehicles, many dealer groups lease new vehicles
and sell used vehicles. Dealer groups also provide service and parts primarily
for the vehicle makes and models that they sell or lease and perform both
warranty and non-warranty service work. In general, parts departments support
the sales and service divisions. Dealers may also sell factory-approved parts
at retail to their customers or at wholesale to independent repair shops.
Dealer groups also arrange third party financing for their customers, sell
vehicle service contracts and arrange selected types of credit insurance for
which they receive financing fees.

Affiliates of the Rosenthal Automotive Organization ("Rosenthal") accounted
for approximately 17.7% of Capital Automotive Group's total revenue for the
fiscal year ended December 31, 1998. Rosenthal accounted for 22.9% of Capital
Automotive Group's total rental revenue for the fiscal year ended December 31,
1998 and 13.5% of Capital Automotive Group's annualized rental revenue as of
December 31, 1998. The Rosenthal properties were acquired in February 1998. As
Capital Automotive Group's portfolio continues to grow and total rental revenue
increases, the percent of total rental revenue relating to Rosenthal will
decrease. For the fiscal year ended December 31, 1998, no other dealer group
contributed more than 10% of Capital Automotive Group's total revenue. See Item
2--Properties--Property and Lease Concentrations.

Capital Automotive Group invests in properties throughout the United
States. As of December 31, 1998, the properties were diversified across 18
states with a maximum "geographic concentration" in Texas equal to 26.7% of
Capital Automotive Group's total property investment. Properties located in
Virginia represented a concentration of 18.5%, with no other geographic
concentrations exceeding 10%.

As of December 31, 1998, 100 properties owned by Capital Automotive Group
were operated by franchised automobile dealerships. Properties that are not
dealerships, such as body shops or used vehicle lots, generally are not subject
to any franchise agreement. As of December 31, 1998, Capital Automotive Group
leased 15 properties that are operated as non-franchised dealerships or for
other motor vehicle uses. An additional five properties of raw land are leased
by various dealer groups.

GOVERNMENTAL REGULATIONS AFFECTING THE PROPERTIES

The lessees and Capital Automotive Group as property owners are subject to
a wide range of federal, state and local laws and regulations, such as local
licensing requirements, consumer protection laws and regulations relating to
gasoline storage, waste treatment and other environmental matters, including:

Environmental Laws. All real property and the operations conducted on real
property are subject to federal, state and local laws and regulations relating
to environmental protection and human health and safety. Certain of these laws
and regulations may impose joint and several liability on certain statutory
classes of persons, including lessees, owners (such as Capital Automotive Group)
or operators, for the costs of investigation or remediation of contaminated

8

properties, regardless of fault or the legality of the original disposal. These
laws and regulations apply to past and present business operations of the dealer
groups and the use, storage, handling and contracting for recycling or disposal
of hazardous or toxic substances or wastes.

Generally, dealer groups are obligated to comply with environmental laws
and remediation requirements. Capital Automotive Group's leases impose
obligations on the lessees to indemnify Capital Automotive Group from all or
most compliance costs it may experience as a result of the environmental
conditions on the properties. If a lessee fails to or cannot comply, Capital
Automotive Group could be forced to pay such costs. As of March 1, 1999,
Capital Automotive Group has not been notified by any governmental authority of
any material non-compliance, liability or other claim in connection with any of
its properties, and is not aware of any other environmental condition with
respect to any of the properties that management believes would have a material
adverse effect on the Company's business, financial condition or results of
operations. Capital Automotive Group, however, cannot predict whether new or
more stringent laws relating to the environment will be enacted in the future or
how such laws or the operations of the dealerships and other businesses on the
properties will impact the properties. Costs associated with an environmental
event could be substantial.

Americans With Disabilities Act of 1990. The properties, as commercial
facilities, are required to comply with Title III of the Americans with
Disabilities Act of 1990 (the "ADA"). Investigation of a property may reveal
non-compliance with the ADA. The lessees will have primary responsibility for
complying with the ADA but Capital Automotive Group may incur costs if the
lessee does not comply. As of March 1, 1999, Capital Automotive Group has not
been notified by any governmental authority of any material non-compliance with
the ADA.

Other Regulations. State and local fire, life-safety and similar
requirements regulate the use of the properties. The leases generally require
that each lessee comply with regulations, and failure to comply could result in
fines by governmental authorities, awards of damages to private litigants, or
restrictions on the ability to conduct business on such properties.

COMPETITION

Capital Automotive Group believes that it is the first publicly-traded real
estate investment trust to primarily focus on consolidating the properties
operated by dealerships under one ownership structure. At this time, Capital
Automotive Group is aware of an entity named Mar Mar Realty Trust that is
currently in registration to raise capital to pursue the acquisition of
properties used by motor vehicle dealerships. Mar Mar Realty Trust's portfolio
consists primarily of properties occupied by dealerships owned and operated by
Sonic Automotive Group. The chairman of Mar Mar Realty Trust is also the
chairman of Sonic Automotive, Inc.

Capital Automotive Group anticipates that the majority of its competition
will come from banks and other finance companies that are offering primarily
floating rate debt instruments, or may, in the future offer other types of debt
financing.

Other public or private entities may decide to pursue Capital Automotive
Group's strategy of acquiring and leasing back properties used by dealerships.
Current and future

9

competitors may have greater financial resources or general real estate
experience than Capital Automotive Group. Capital Automotive Group believes that
competition for properties will primarily be on the basis of acquisition price
and negotiation of rents and other lease terms. Dealer groups may own other
properties that may not be acquired by Capital Automotive Group.

EMPLOYEES

As of March 10, 1999, Capital Automotive Group had 24 employees. None of
the employees is represented by a collective bargaining unit. Capital
Automotive Group believes that its relationship with its employees is good.

BUSINESS RISKS

This Annual Report on Form 10-K, including the documents incorporated by
reference, contains forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934. When the Company refers to forward-
looking statements or information, sometimes the Company uses words such as
"may," "will," "could," "should," "plans," "intends," "expects," "believes,"
"estimates," "anticipates" and "continues." In particular, the following
summary of "Business Risks" describe forward-looking information. The Business
Risks that are described are not all inclusive, particularly with respect to
possible future events, and should be read together with other filings made by
the Company under the Securities Act of 1933 and the Securities Exchange Act of
1934. Other parts of this Annual Report on Form 10-K may also describe forward-
looking information. Things can happen that can cause actual results to be very
different than those described. The Company also makes no promise to update any
of the forward-looking statements, or to publicly release the results if the
Company revises any of them. Factors which may cause the actual results of
operations in future periods to differ materially from intended or expected
results include, but are not limited to:

* the availability and terms of additional capital or debt financing to fund
the acquisition of additional properties and for working capital purposes;

* a substantial increase in the number of outstanding common shares of the
Company through the exercise of options, warrants or other rights, or the
redemption of Units of the Operating Partnership for common shares, which
could be freely tradeable in the hands of non-affiliated parties or be
freely tradeable by being registered under the Securities Act of 1933
under rights granted to the holders, and could have the effect of
depressing the market price for the common shares;

* general market volatility and economic factors over which the Company has
no control that could cause wide fluctuations in or depress the market
price of the common shares;

* the failure of significant lessees of properties owned by Capital
Automotive Group to pay rent or perform the terms of their leases in any
material respects;

* the inability of Capital Automotive Group to acquire suitable properties
that conform to its business strategy;

* the termination or abandonment of the dealerships that occupy any property
owned by Capital Automotive Group;

10

* the inability of Capital Automotive Group to lease or re-lease any
property;

* general economic and business conditions, both nationally and in the
regions in which Capital Automotive Group owns property, including, but not
limited to, those conditions affecting real estate generally or
specifically; such as zoning changes or governmental regulations such as
environmental laws or laws relating to health and safety;

* changes to laws, rules and regulations affecting the Company's
qualification as a real estate investment trust or the Operating
Partnership's status as a partnership;

* competition for the acquisition of properties or competition for the
financing of real estate available to dealer groups or competition among
dealerships for the sale or lease of motor vehicles and related products;

* conflicts of interest of certain Trustees whose dealerships occupy
properties leased by the Capital Automotive Group to related dealer groups;

* changes in business strategy or policies established by the Board of
Trustees, including the policy regarding leverage;

* retention of the Company's executive officers and the ability of
Capital Automotive Group to attract and retain key personnel; and

* the impact on Capital Automotive Group of computer and related problems
that may arise from "Year 2000" issues.

ITEM 2. PROPERTIES

PROPERTIES

As of December 31, 1998, Capital Automotive Group owned 120 properties
leased to 30 dealer groups, which operate 196 motor vehicle franchises on the
properties. Investments in individual properties ranged from $308,000 to $23.8
million with a total investment (excluding accumulated depreciation) of
approximately $511.1 million. These properties are located in 18 states, and
total 4.3 million square feet of buildings and improvements on 708.8 acres of
land.

The properties are subject to leases with initial terms that range
generally from ten to 20 years, with the average initial term of approximately
13 years. The leases typically have options to renew upon the same terms and
conditions for one or more additional periods of five to ten years each
exercisable at the option of the lessee. The average remaining lease term
(excluding renewals) is approximately 12 years. As of December 31, 1998,
Capital Automotive Group's current lease expirations are as follows: one in
2003, one in 2006, two in 2007, 30 in 2008, six in 2009, seven in 2010, three in
2011, 54 in 2013, one in 2014, two in 2016, and one in 2018. With expected
continued investment activity, the Company anticipates that its exposure to
annual lease expirations will become more diversified. As of December 31, 1998,
all 120 properties were subject to leases which were performing.

All of the properties are owned on a fee simple basis, except that a small
portion of one property is occupied pursuant to a ground lease from the owner of
the property. As of December 31, 1998, 100 of the properties owned by Capital
Automotive Group were operated by franchised automobile dealerships. Properties

11

that are not dealerships, such as body shops or used vehicle lots, generally are
not subject to any franchise agreement. As of December 31, 1998, Capital
Automotive Group leased 15 properties that are operated as non-franchised
dealerships or for other motor vehicle uses. The remaining five properties of
raw land are leased by various dealer groups.

All the properties are leased under triple-net leases, under which the
lessees typically pay all operating expenses of a property, including, but not
limited to, all taxes, assessments and other government charges, insurance,
utilities, service, repairs and maintenance. The Company believes that its
properties are covered by adequate commercial general, fire, flood and extended
loss insurance provided by reputable companies, with commercially reasonable
deductibles and limits.

The following table sets forth certain information concerning the
properties as of December 31, 1998:

Buildings and
Improvements
Number of Total Purchase Square Footage Land
Dealer Groups Properties States Price (000) (000) Acres
- ------------- ---------- ----------- -------------- -------------- ------

Rosenthal Automotive Group 7 MD, VA $ 65,256 332 41.2
Kelley Automotive Group 12 GA, IN 48,398 482 72.8
Momentum Automotive 5 TX 37,048 211 27.5
Cross Continent Automotive 6 CO, NV, TX 36,750 505 55.0
Park Place Motorcars 3 TX 34,035 165 20.5
Pohanka Automotive Group 9 MD, VA 31,481 246 39.5
Roundtree Automotive Group 9 ID, LA 27,344 246 47.5
Gunn Automotive Group 5 TX 22,434 208 30.9
Gurley-Leep Automotive Group 4 IN 22,080 167 28.9
Group 1 Automotive, Inc.
and Sterling McCall 6 CO, TX 20,270 161 34.7
Sheehy Auto Stores 4 MD, PA, VA 14,071 103 22.2
Motorcars Automotive Group 3 OH 12,947 144 8.3
Warren Henry Automobiles 3 FL 12,704 70 10.9
Behlmann Automotive 3 MO 12,237 112 23.9
Hand Automotive Group 2 CA 10,680 40 6.3
O'Rielly Motor Company 1 AZ 9,836 110 8.6
Lynn Alexander Automotive Group 4 TX 9,678 136 19.4

12

Dealer's Auto Auction 1 OK 9,602 95 52.5
Fenton Motors Group 3 OK 9,049 118 18.8
Clearwater Toyota/Mitsubishi
(Sonic Automotive) 2 FL 8,699 65 10.9
Kline Automotive 2 VA 8,533 71 25.2
Town and Country Automotive 5 CT 7,647 80 11.3
Ken Dixon Automotive 1 MD 7,308 57 9.2
Cherner Automotive Group 1 VA 6,432 44 5.3
Crown Auto World 1 OK 6,332 64 8.2
Good News Automotive 7 MD 5,492 93 20.3
Orr Automotive 4 LA, TX 5,489 35 9.0
Jackson Automotive Group 5 TX 4,514 85 28.9
Freightliner of Dothan 1 AL 2,684 59 7.5
FirstAmerica Automotive 1 CA 2,102 - 3.6
--- -------- ----- -----
Total 120 $511,132 4,304 708.8

GENERAL DESCRIPTION OF PROPERTIES

As of December 31, 1998, Capital Automotive Group's properties conform
generally to the following specifications for size, cost and type of land,
buildings and other improvements.

Land sizes typically range from less than one acre to over 50 acres. The
improvements on the properties generally consist of one or more retail
showrooms, office space (which may or may not be contained in a separate
building), adjacent full service and repair facilities, parts and accessories
departments, and in many cases, acreage set aside for used car sales, body shops
and parking for inventory. The properties generally are zoned for a wide range
of commercial uses and typically have frontage on major transportation arteries
with high traffic patterns, high visibility, bright signage and ease of entrance
and exit.

PROPERTY AND LEASE CONCENTRATIONS

Capital Automotive Group invests in properties throughout the United
States. As of December 31, 1998, the properties were diversified across 18
states with a maximum "geographic concentration" in Texas equal to 26.7% of
Capital Automotive Group's total property investment. Properties located in
Virginia represented a concentration of 18.5%, with no other geographic
concentrations exceeding 10%.

As of December 31, 1998, the properties were leased to 30 different dealer
groups. Rosenthal accounted for approximately 17.7% of Capital Automotive
Group's total revenue for the fiscal year ended December 31, 1998. Rosenthal
accounted for 22.9% of Capital

13

Automotive Group's total rental revenue for the fiscal year ended December 31,
1998 and 13.5% of Capital Automotive Group's annualized rental revenue as of
December 31, 1998. The Rosenthal properties were acquired in February 1998. As
Capital Automotive Group's portfolio continues to grow and total rental revenue
increases, the percent of total rental revenue relating to Rosenthal will
decrease. For the fiscal year ended December 31, 1998, no other dealer group or
single property contributed more than 10% of Capital Automotive Group's total
revenue.

ITEM 3. LEGAL PROCEEDINGS

Capital Automotive Group is not a party to any legal proceedings. Under the
leases, the lessees are obligated to indemnify Capital Automotive Group from and
against all liabilities, costs and expenses imposed upon or asserted against
Capital Automotive Group (1) as owner of the properties on account of certain
matters relating to the operation of the properties by the lessee, and (2) where
appropriate, on account of certain matters relating to the ownership of the
properties prior to their acquisition by Capital Automotive Group. See "Item
1- Business--The Properties, Leases, Typical Lease Terms and Dealerships--Leases
and Typical Lease Terms--Indemnification."

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of shareholders during the fourth quarter
of the fiscal year ended December 31, 1998.

14

PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

(a) On December 7, 1998, the Operating Partnership issued 264,294 Units to
Security Holdings, Inc. as partial consideration for the acquisition of two
parcels of real property and improvements located in McAlester and Ada,
Oklahoma. The Units are redeemable beginning on January 31, 2000 by the
Partnership for cash, or at the option of the Company, common shares of the
Company, on a one-for-one basis, or cash. The offering and sale of the Units was
exempt from registration as a private placement under Section 4(2) of the
Securities Act.

As of December 30, 1998, the Company exchanged the warrant for 707,079
Units held by John J. Pohanka for the warrant exercisable for 707,079 common
shares at the same exercise price of $15.00 per share and on identical terms as
the warrant for Units. The warrant for Units has been cancelled. The offering
and exchange of the warrant was exempt from registration as a private placement
under Section 4(2) of the Securities Act.

As of December 31, 1998, the Company exchanged the warrant
exercisable for 50,000 Units held by Robert M. Rosenthal for the warrant
exercisable for 50,000 common shares. As of December 31, 1998, the Company
exchanged the warrant exercisable for 657,079 Units held by Rosenthal &
Daughters L.L.C. for the warrant exercisable for 657,079 common shares. The
warrants for common shares are exercisable at the same exercise price of $15.00
per share and have identical terms as the warrants for Units. The warrants for
Units have been cancelled. The offering and exchange of the warrants was exempt
from registration as a private placement under Section 4(2) of the Securities
Act.

On September 8, 1998, the Company announced that its Board of Trustees
authorized the repurchase of up to 3.0 million common shares. On October 21,
1998, the Company announced that its Board of Trustees authorized the repurchase
of up to 3.0 million additional common shares, bringing the total common share
repurchase program to 6.0 million. Purchases have been and will be made from
time to time in open market transactions at prevailing prices or in negotiated
private transactions at the discretion of the Company's management. The Company
repurchased 2,241,700 common shares at an average price of $10.04 per common
share, during the three-month period ended December 31, 1998. During the same
time period, the Operating Partnership redeemed an equivalent number of Units
from the Company for equivalent purchase prices.

(b) The common shares have been trading on the Nasdaq National Market under
the symbol "CARS" since February 13, 1998. The Company has listed below the high
and low sales prices of the common shares as reported on the Nasdaq National
Market and the distributions declared by the Company for the periods indicated.

15

HIGH LOW DISTRIBUTION
----- --- ------------

FISCAL YEAR ENDED DECEMBER 31, 1998

First fiscal quarter (from February 13, 1998) $19 3/4 $16 1/4 $0.076
Second fiscal quarter 19 3/8 13 1/8 0.210
Third fiscal quarter 15 3/4 10 7/8 0.270
Fourth fiscal quarter 14 7/8 8 13/16 0.320

On March 17, 1999, the reported closing sales price on the Nasdaq National
Market was $12.75 per share and there were approximately 34 holders of record of
the common shares of the Company. The Company believes the total number of
beneficial shareholders of the Company to be approximately 2,200 since certain
common shares are held by depositories, brokers and other nominees.

16

ITEM 6. SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

YEARS ENDED DECEMBER 31,
1998 1997
---------- -----------

Total Revenue $ 34,931 $ -
Net Income (Loss) 16,491 (650)
Diluted Earnings Per Share 0.79 -
Annual Cash Dividend Declared Per Share 0.876 -

AS OF DECEMBER 31,
1998 1997
---------- ----------

Real Estate Before Accumulated Depreciation $511,132 $ -
Total Assets 583,211 1,011
Total Debt 161,997 1,000
Minority Interest 93,898 -
Total Shareholders' Equity (Deficit) 308,657 (650)

17

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion and analysis of Capital Automotive REIT (the
"Company") should be read in conjunction with the consolidated financial
statements and the notes thereto which appear elsewhere in this annual report.

OVERVIEW

The Company was formed as a Maryland real estate investment trust on October
20, 1997 and was initially capitalized on such date through the sale of ten
common shares of beneficial interest, par value $.01 per share. The Company's
mission is to purchase and lease back, pursuant to long-term triple-net leases,
the real property and improvements used by multi-site, multi-franchised
automotive dealerships and related businesses located predominately in major
metropolitan areas throughout the United States, through its ownership interest
in Capital Automotive L.P. (the "Operating Partnership"). The Company is the
first publicly-traded real estate investment trust formed primarily to acquire
and lease back the real estate used by automotive dealers and automotive-related
businesses.

In February 1998, the Company completed an Initial Public Offering ("IPO") of
its common shares of beneficial interest, par value $.01 per share ("Common
Shares") whereby 20.0 million Common Shares were issued at $15 per Common
Share, resulting in net proceeds of approximately $275.4 million, after
underwriting discounts and commissions and other expenses of the IPO. In
addition, FBR Asset Investment Corporation, an affiliate of Friedman, Billings,
Ramsey & Co., Inc. ("FBR"), the representative of the underwriters in the IPO,
purchased 1,792,115 Common Shares of the Company at the IPO price in a private
placement offering, resulting in net proceeds of $25.0 million, net of
underwriting discounts (the "FBR Offering"). In March 1998, 3.0 million Common
Shares subject to the underwriters' over-allotment option were issued at $15
per Common Share, resulting in net proceeds of approximately $41.9 million,
after underwriting discounts and commissions. The Company contributed the net
proceeds of the IPO, over-allotment option and the FBR Offering to the Operating
Partnership in exchange for 24,792,115 units of limited partnership interests
("Units") in the Operating Partnership.

Typically the Operating Partnership forms a subsidiary limited liability
company or limited partnership to own properties acquired from a given
dealership group. This structure is intended to facilitate financings and
transfers involving such properties. As of December 31, 1998, the Company held
a 76.7% general partnership interest in the Operating Partnership. The
Operating Partnership and its subsidiaries collectively owned 120 properties as
of December 31, 1998.

Substantially all of the Company's revenues are derived from (1) rents
received under long-term triple-net leases; and (2) interest earned from the
temporary investment of funds in short-term investments.

The Company incurs operating and administrative expenses including
principally, compensation expense for its executive officers and other
employees, professional fees and various expenses incurred in the process of
acquiring additional properties. The Company is self-administered and managed
by its executive officers and staff, and does not engage a separate

18

advisor or pay advisory fees for services, although the Company will engage
legal, accounting, tax and financial advisors from time to time. The primary
non-cash expense of the Company is the depreciation of its properties. The
Company depreciates buildings and improvements on the properties currently
owned by it over a 40-year and 20-year period for tax and financial reporting
purposes, respectively. The Company does not own or lease any significant
personal property, furniture or equipment at any property currently owned by it.

ACQUISITIONS

As of December 31, 1998, the Company, through the Operating Partnership and
its subsidiaries, owned 120 dealership properties used by 30 motor vehicle
dealer groups ("Dealer Groups") with a total investment of approximately $511.1
million, consisting of $218.8 million in cash (including estimated closing costs
through December 31, 1998), $12.0 million in the assumption of mortgage debt,
$181.5 million in the assumption and repayment of mortgage debt and
approximately 6.6 million Units (valued at $98.8 million). These properties
total 708.8 acres of land, 4.3 million square feet of buildings and improvements
and are located in 18 states including, Alabama, Arizona, California, Colorado,
Connecticut, Florida, Georgia, Idaho, Indiana, Louisiana, Maryland, Missouri,
Nevada, Ohio, Oklahoma, Pennsylvania, Texas, and Virginia. The Company's
properties have initial lease terms generally ranging from ten to 20 years and
are operated by 196 automotive franchisees. The Company's portfolio weighted
average initial cap rate was 10.6%, which is calculated as the percentage of
the 1998 initial annual base rent over the purchase price paid to the sellers
for the related properties.

Subsequent to December 31, 1998, the Company closed on the acquisition of
11 dealership properties and renovations having an aggregate purchase price of
approximately $54.0 million, for substantially all cash. These properties total
approximately 51 acres, are located in three states and are operated by seven
automotive franchisees.

RESULTS OF OPERATIONS

The Company had no operations prior to October 20, 1997 (the date of
organization). Although the Company was formed prior to January 1, 1998, it did
not complete its IPO until February 19, 1998, at which time it began generating
rental income.

Rental revenue was $27.0 million for the year ended December 31, 1998. The
rental revenue was generated from the immediate lease back of 120 properties
purchased during the year ended December 31, 1998. Of the 120 properties, 35 of
the properties closed during the first quarter of 1998, 29 properties closed
during the second quarter of 1998, 31 properties closed during the third quarter
of 1998 and 25 closed during the fourth quarter of 1998.

Interest income was $7.9 million for the year ended December 31, 1998.
Interest income was primarily generated from the investment of the excess of the
net proceeds of the IPO, the FBR Offering, exercise of the underwriters' over-
allotment option and debt issued during the year over the amount invested in
properties.

Depreciation and amortization was $6.3 million for the year ended December
31, 1998 and consisted primarily of depreciation on the properties purchased
during the year.

19

General and administrative expenses were $5.5 million for the year ended
December 31, 1998 and consisted primarily of payroll and related benefits,
professional services and other administrative costs.

Interest expense was $2.3 million for the year ended December 31, 1998 and
consisted of interest charged on the Company's outstanding debt during the year.

LIQUIDITY AND CAPITAL RESOURCES

Upon the completion of the IPO, the FBR Offering and the underwriters'
over-allotment option, the Company received net proceeds of approximately $342.3
million, after underwriting discounts and commissions and other expenses of the
IPO.

In February 1999, the Company, through the Operating Partnership and its
subsidiaries, secured approval from a financial institution for a $50.0 million
revolving credit facility. Final terms and conditions are subject to further
negotiations. The credit facility will provide short-term funds for the
acquisition of automotive dealership properties and for general corporate
purposes. The current term is for three years, extendable annually at the
lender's discretion, and borrowings will bear interest at a rate equal to the
one month LIBOR plus 175 basis points. The borrowings will require quarterly
interest only payments in arrears. The Company intends to increase the capacity
under this revolving facility through the inclusion of additional financial
institutions.

On November 18, 1998, four newly-formed subsidiaries of the Company and
Operating Partnership closed on a $150.0 million, non-recourse loan (the
"Permanent Loan") with Global Alliance Finance Company, L.L.C. (the "Lender").
The Permanent Loan requires consecutive monthly payments of interest only for
two years. Thereafter, monthly payments of principal and interest will be
required in an amount sufficient to amortize the Permanent Loan over a 25-year
term. The term of the Permanent Loan is ten years and it bears interest at a
rate equal to 7.67% per annum until maturity on December 1, 2008. The weighted
average interest rate for 1998 for the Permanent Loan was approximately 8.06%.
The Permanent Loan is secured by mortgages on the properties financed. The
Operating Partnership has provided a limited $35 million guaranty of the
Permanent Loan, which guaranty is contingent upon the occurrence of certain
circumstances. A portion of the loan proceeds was used to pay off existing debt
and the balance used to finance acquisitions, working capital and for other
corporate purposes.

Subsequent to December 31, 1998, the Company and the Lender modified the
terms on approximately $38.0 million of the Permanent Loan in order for the
Lender to have more flexibility in structuring a commercial mortgage backed
security execution. The interest rate on this portion of the Permanent Loan was
reduced to 7.59% per annum, the monthly interest only payments were reduced to
one year and the amortization period was reduced to approximately 17 years.

On November 5, 1998 the Company assumed a mortgage note payable to a
financial institution in the principal amount of approximately $12.0 million.
The note was assumed as partial consideration for the acquisition of four
dealership properties. The note is secured by the properties acquired. The
mortgage note bears interest at a rate equal to 7.50% per annum until maturity
on January 20, 2003. The weighted average interest rate for 1998 for the
mortgage note

20

was approximately 7.61%. Principal and interest are payable monthly. Any
outstanding principal and interest shall be due and payable upon maturity.

On October 16, 1998, the Company, through the Operating Partnership,
entered into a $50.0 million bridge loan with the Lender to finance
acquisitions, working capital and for other corporate purposes ("Bridge Loan").
The Bridge Loan required monthly payments of interest only and incurred interest
at the rate equal to the one month LIBOR plus 200 basis points. The Bridge Loan
was repaid with a portion of the proceeds of the Permanent Loan on November 20,
1998.

In February 1998, the Company, through the Operating Partnership, entered
into a secured revolving line of credit from NationsBank, N.A. (the "Bank")
providing for a borrowing capacity of $10.0 million. Borrowings incurred
interest at a fluctuating rate equal to the one month LIBOR plus 150 basis
points. On August 14, 1998, the Company and the Bank amended and restated the
line of credit to increase the borrowing capacity to $13.5 million and extended
the expiration date to November 19, 1998. On September 8, 1998, the Company and
the Bank again amended and restated the line of credit to increase the borrowing
capacity to $19.1 million and on November 6, 1998 extended the expiration date
to December 19, 1998. The outstanding balance of $13.0 million was repaid on
November 20, 1998 with a portion of the proceeds of the Permanent Loan.

On September 8, 1998, the Company announced that its Board of Trustees had
authorized the repurchase of up to 3.0 million Common Shares. On October 21,
1998, the Company announced that its Board of Trustees had authorized the
repurchase of up to 3.0 million additional Common Shares, bringing the total
Common Share repurchase program to 6.0 million. Purchases have been and will be
made from time-to-time in open market transactions at prevailing prices or in
negotiated private transactions at the discretion of the Company's management.
During 1998, the Company repurchased 3,184,700 Common Shares at an average price
of $10.51 per Common Share. During the same time period, the Operating
Partnership redeemed an equivalent number of Units from the Company for
equivalent purchase prices.

The Company anticipates that cash from operations and existing and future
short-term and long-term debt will provide adequate liquidity to acquire
additional properties, conduct its operations, fund administrative and operating
costs and interest payments, and allow distributions to shareholders in
accordance with the Internal Revenue Code of 1986, as amended (the "Code")
requirements for qualification as a real estate investment trust and to avoid
any corporate level federal income or excise tax for at least the next twelve
months.

In order to qualify as a real estate investment trust for federal income
tax purposes, the Company will be required to make substantial distributions to
its shareholders. The following factors, among others, will influence the
decisions of the Board of Trustees regarding distributions: (1) annual base rent
under the leases; and (2) returns from short-term investments. Although the
Company will receive most of its rental payments on a monthly basis, it intends
to make distributions quarterly. Amounts accumulated for distribution are
expected to be invested by the Company in short-term investments.

The Company also intends to borrow additional amounts in connection with
the acquisition of additional properties, the renovation or expansion of
properties, or, as necessary, to

21

meet certain distribution requirements imposed on a real estate investment trust
under the Code. The Company may raise additional long-term capital by issuing,
in public or private transactions, debt or other equity securities, but the
availability and terms of any such issuance will depend upon the market and
other conditions.

On October 20, 1998, the Board of Trustees approved a resolution providing
that the policy of the Company shall be to operate with a debt-to-asset ratio of
not more than approximately 50%. Prior to that date, the Company's policy on
the use of leverage was not more than 50% of total market capitalization.
Management believes that the revised policy is more in line with the Company's
overall business strategy.

The Company anticipates that as a result of its initially low ratio of
debt-to-assets and its policy to maintain such ratio at no more than
approximately 50%, it will be able to obtain additional financing for its long-
term capital needs.

Acquisitions will be made subject to the investment objectives and policies
of the Company to maximize both current income and long-term growth in income.
The Company's liquidity requirements with respect to future acquisitions may be
reduced to the extent the Company uses Units as consideration for such
purchases.

YEAR 2000 COMPLIANCE

Management of the Company has adopted a plan to confront year 2000 issues.
Under the plan, management is conducting an assessment of the potential material
effect of year 2000 issues on the Company's business, results of operations, and
financial condition and is determining ways to mitigate the issues.

The year 2000 issue exists because many date-sensitive computer systems and
applications use a two-digit number to recognize the year. When the year 2000
arrives, the computer system may recognize the year as 1900 or not at all.
Information technology and embedded technology that is not year 2000 compliant
may cause computer systems to process critical financial and operational
information incorrectly, which could lead to disruptions in the Company's
operations.

The Company's year 2000 plan has three focal points including: (1) the
Company's internal financial data and operating systems, (2) the Company's
property tenants' financial data and operating systems, and (3) significant
third parties with whom the Company or the Company's tenants have material
relationships. The plan is organized to assess the potential risk of year 2000
issues and provide ways to mitigate those risks.

The Company's Internal Financial Data and Operating Systems

The Company has completed an assessment of both its information technology
and the embedded technology of its computer systems and software applications
that could materially affect the Company's business and believes that they are
year 2000 compliant. The Company came to this conclusion after receiving
assurance of compliance from the manufacturers of the Company's network,
hardware and material software applications, as well as by running tests using
year 2000 data on the Company's accounting software applications. Although the

22

Company believes the computer systems and software applications are year 2000
compliant, there can be no assurance that coding errors or other defects will
not be discovered in the future.

The Company's Property Tenants' Financial Data and Operating Systems

The Company has had discussions with the management of several of the
Company's tenants regarding their year 2000 compliance. In addition, the
Company's tenants were sent questionnaires regarding the year 2000 compliance of
their financial data and operating systems. The questionnaire specifically
addresses areas which the Company believes may pose a material risk and requests
that each tenant characterize their year 2000 readiness. Tenants have been
asked to describe the steps they have taken to ensure year 2000 readiness and
when non-ready systems will be in compliance. The Company is currently waiting
for the tenants' responses and will, upon receipt, assess the risk and the need
of a contingency plan. The Company is currently not aware of any tenants who
are not year 2000 compliant.

Material Third Parties

There are significant third parties on which the Company's and the tenants'
operations are dependent. Included in the tenants' questionnaires are questions
relating to the tenants' significant third party dependencies. In addition, the
Company has requested and received written confirmation from its significant
third parties of their year 2000 compliance.

Overall, the Company believes that it will not incur significant costs in
modifying its existing software applications, replacing hardware or hiring
consultants in resolving year 2000 issues. Although the Company has not
incurred any material expenditures relating to year 2000 issues as of December
31, 1998, there can be no assurance as to the magnitude of future costs until
the Company's assessment is complete.

Failure to correct material year 2000 issues may result in the
interruption, or failure of, certain normal business activities or operations
and may adversely affect the Company's results of operations, liquidity and
financial condition. Management of the Company believes that continued progress
in implementing the year 2000 plan will significantly reduce the Company's
potential of a year 2000 operational interruption. As of December 31, 1998,
management of the Company had no knowledge of a year 2000 event or uncertainty
that is likely to materially affect the Company.

FUNDS FROM OPERATIONS

Funds From Operations ("FFO") is defined under the revised definition
adopted by the National Association of Real Estate Investment Trusts (NAREIT) as
net income (loss) (computed in accordance with generally accepted accounting
principles) excluding gains (or losses) from debt restructuring plus
depreciation/amortization of assets unique to the real estate industry.
Depreciation/amortization of assets not unique to the industry, such as
amortization of deferred financing costs and non-real estate assets, is not
added back. FFO does not represent cash flows from operating activities in
accordance with generally accepted accounting principles (which, unlike FFO,
generally reflects all cash effects of transactions and other events in the
determination of net income) and should not be considered an alternative to net
income as an indication of the Company's performance or to cash flow as a
measure of liquidity or ability to make distributions. The Company considers
FFO a meaningful, additional measure of operating

23

performance because it primarily excludes the assumption that the value of the
real estate assets diminishes predictably over time, and because industry
analysts have accepted it as a performance measure. Comparison of the Company's
presentation of FFO, using the NAREIT definition, to similarly titled measures
for other REITs may not necessarily be meaningful due to possible differences in
the application of the NAREIT definition used by such REITs.

FFO of the Operating Partnership for the year ended December 31, 1998 is
computed as follows (in thousands):

Net Income before Minority Interest $20,886

Real Estate Depreciation and Amortization 6,161
-------
Funds From Operations $27,047
=======

24

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to certain financial market risks, the most predominant
being fluctuations in interest rates. Interest rate fluctuations are monitored
by the Company's management as an integral part of the Company's overall risk
management program, which recognizes the unpredictability of financial markets
and seeks to reduce the potentially adverse effect on the Company's results of
operations.

Interest rate fluctuations will effect the fair value of the Company's fixed
rate debt instruments. If interest rates on the Company's fixed rate debt
instruments at December 31, 1998 had been one percent higher, the fair value of
those debt instruments on that date would have decreased by approximately $9.7
million. As of December 31, 1998, the Company does not have any variable rate
debt instruments, and therefore interest rate fluctuations would not have
effected the Company's annual interest costs for the year ended December 31,
1998.

25

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

Page No.
--------

Report of Independent Accountants - Arthur Andersen LLP ............. 27

Consolidated Balance Sheets ......................................... 28

Consolidated Statements of Operations ............................... 29

Consolidated Statements of Changes in Shareholders'
Equity (Deficit) ................................................. 30

Consolidated Statements of Cash Flows ............................... 31

Notes to Consolidated Financial Statements .......................... 32

26

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Capital Automotive REIT:

We have audited the accompanying consolidated balance sheets of Capital
Automotive REIT (a Maryland real estate investment trust, the "Company") and
subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, changes in shareholders' equity (deficit) and cash
flows for the year ended December 31, 1998 and the period from October 20, 1997
(date of organization) through December 31, 1997. These consolidated financial
statements and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Capital
Automotive REIT and subsidiaries as of December 31, 1998 and 1997 and the
results of their operations and their cash flows for the year ended December 31,
1998 and the period from October 20, 1997 (date of organization) through
December 31, 1997 in conformity with generally accepted accounting principles.

Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Schedule of Real Estate and
Accumulated Depreciation is presented for purposes of complying with the rules
of the Securities and Exchange Commission and is not a required part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.

/s/ ARTHUR ANDERSEN LLP

Washington, D.C.
January 29, 1999

27

CAPITAL AUTOMOTIVE REIT
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

AS OF DECEMBER 31,
1998 1997
---------- ---------

ASSETS
Real estate:
Land $ 238,970 $ -
Buildings and improvements 272,162 -
Accumulated depreciation (6,145) -
---------- ---------
504,987 -

Furniture, fixtures and equipment, net
of accumulated depreciation 251 29

Cash and cash equivalents 72,106 25

Other assets, net 5,867 957
---------- ---------
TOTAL ASSETS $ 583,211 $ 1,011
========== =========

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT):
LIABILITIES:
Mortgage loans $ 161,997 $ -
Borrowings under line of credit - 1,000
Accounts payable and accrued expenses 14,752 661
Security deposits payable 3,907 -
---------- ---------
TOTAL LIABILITIES 180,656 1,661
---------- ---------

Minority interest 93,898 -

SHAREHOLDERS' EQUITY (DEFICIT):
Preferred shares, $.01 par value; 20,000,000
shares authorized; none outstanding - -
Common shares, $.01 par value; 100,000,000
shares authorized; 24,792,115 and 10 shares issued 248 -
Additional paid-in-capital 345,905 -
Accumulated deficit (4,025) (650)
Less treasury shares at cost, 3,184,700 common shares (33,471) -
---------- ---------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) 308,657 (650)
---------- ---------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 583,211 $ 1,011
========== =========

See accompanying Notes to Consolidated Financial Statements.

28

CAPITAL AUTOMOTIVE REIT
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

YEARS ENDED DECEMBER 31,
1998 1997
------- -------

Revenue:
Rental $27,027 $ -
Interest and other 7,904 -
-------- --------
Total revenue 34,931 -
-------- --------

Expenses:
Depreciation and amortization 6,304 -
General and administrative 5,487 649
Interest 2,254 1
-------- --------
Total expenses 14,045 650
-------- --------

Net income (loss) before minority interest 20,886 (650)
Minority interest (4,395) -
-------- --------
Net income (loss) $16,491 $(650)
======== ========

Shares of common stock outstanding used to
compute basic earnings per share 20,927 -
======== ========

Basic earnings per share $0.79 $ -
======== ========

Shares of common stock outstanding used to
compute diluted earnings per share 20,978 -
======== ========

Diluted earnings per share $0.79 $ -
======== ========

See accompanying Notes to Consolidated Financial Statements.

29

CAPITAL AUTOMOTIVE REIT
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)

COMMON SHARES ADDITIONAL
----------------------- PAID-IN ACCUMULATED TREASURY
SHARES AMOUNT CAPITAL DEFICIT SHARES TOTAL
------------ -------- ---------- ----------- --------- --------

BALANCE AT OCTOBER 20, 1997 - $ - $ - $ - $ - $ -
Net loss - - - (650) - (650)
Capital contribution 10 - - - - -
------------ ------ ---------- ----------- --------- --------
BALANCE AT DECEMBER 31, 1997 10 - - (650) - (650)

Repurchase of initial shares (10) - - - - -
Proceeds from initial public offering 20,000,000 200 299,800 - - 300,000
Proceeds from exercise of underwriters'
over-allotment option 3,000,000 30 44,970 - - 45,000
Proceeds from private placement 1,792,115 18 24,982 - - 25,000
Payment of underwriting discounts, commissions
and other offering expenses - - (27,715) - - (27,715)
Adjustment to reflect minority interest
ownership in Operating Partnership - - 3,868 - - 3,868
Purchase of treasury shares (3,184,700) - - - (33,471) (33,471)
Dividend payment - - - (19,866) - (19,866)
Net income - - - 16,491 - 16,491
------------ ------ ---------- ----------- --------- --------
BALANCE AT DECEMBER 31, 1998 21,607,415 $ 248 $345,905 $ (4,025) $ (33,471) $308,657
============ ====== ========== =========== ========= ========

See accompanying Notes to Consolidated Financial Statements.

30

CAPITAL AUTOMOTIVE REIT
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
1998 1997
------------ ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 16,491 $ (650)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 6,304 -
Income applicable to minority interest 4,395 -
Increase in other assets (603) (957)
Increase in accounts payable and accrued expenses 5,118 661
Increase in security deposits payable 3,907 -
----------- ------------
Net cash provided by (used in) operating activities 35,612 (946)
----------- ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment (286) (29)
Real estate acquisitions (412,346) -
----------- ------------
Net cash used in investing activities (412,632) (29)
----------- ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings 63,000 1,000
Proceeds from mortgage loans 162,032 -
Repayment of bank borrowings (64,000) -
Mortgage principal payments (35) -
Payment of loan costs (4,401) -
Proceeds from issuance of initial public offering of
common shares and underwriters' over-allotment
option, net of issuance costs 317,285 -
Proceeds from issuance of private placement,
net of issuance costs 25,000 -
Payment of cash dividend (12,952) -
Payment of partner distribution (3,357) -
Purchase of treasury shares (33,471) -
----------- ------------
Net cash provided by financing activities 449,101 1,000
----------- ------------

NET INCREASE IN CASH AND CASH EQUIVALENTS 72,081 25

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 25 -
----------- ------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 72,106 $ 25
=========== ============

SUPPLEMENTAL DATA:

Real estate acquisitions in exchange for partnership units $ 98,786 $ -
=========== ============

Fourth quarter distribution declared in 1998, payable in
January 1999 $ 8,973 $ -
=========== ============

Interest paid during the period $ 2,177 $ -
=========== ============

See accompanying Notes to Consolidated Financial Statements.

31

CAPITAL AUTOMOTIVE REIT

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

Capital Automotive REIT (the "Company") was formed as a Maryland real
estate investment trust on October 20, 1997 and was initially capitalized on
such date through the sale of ten common shares of beneficial interest, par
value $.01 per share. The Company's mission is to purchase and lease back,
pursuant to long-term triple net leases, the real property and improvements used
by multi-site, multi-franchised automotive dealerships and related businesses
located predominately in major metropolitan areas throughout the United States,
through its ownership interest in Capital Automotive L.P. (the "Operating
Partnership").

In February 1998, the Company completed an Initial Public Offering ("IPO")
of its common shares of beneficial interest, par value $.01 per share (the
"Common Shares"), whereby 20.0 million Common Shares were issued at $15 per
Common Share, resulting in net proceeds of approximately $275.4 million, after
underwriting discounts and commissions and other expenses of the IPO. In
addition, FBR Asset Investment Corporation, an affiliate of Friedman, Billings,
Ramsey & Co., Inc. ("FBR"), the representative of the underwriters in the IPO,
purchased 1,792,115 Common Shares of the Company at the IPO price in a private
placement offering, resulting in net proceeds of $25 million, net of
underwriting discounts (the "FBR Offering"). In March 1998, 3.0 million Common
Shares subject to the underwriters' over-allotment option were issued at $15 per
Common Share, resulting in net proceeds of approximately $41.9 million, after
underwriting discounts and commissions. The Company contributed the net
proceeds of the IPO, over-allotment option and the FBR Offering to the Operating
Partnership in exchange for 24,792,115 units of limited partnership interest
("Units") in the Operating Partnership.

Typically the Operating Partnership forms a subsidiary limited liability
company or limited partnership to own properties acquired from a given
dealership group. This structure is intended to facilitate financings and
transfers involving such properties. As of December 31, 1998, the Company held a
76.7% general partnership interest in the Operating Partnership. The Operating
Partnership and its subsidiaries collectively owned 120 properties as of
December 31, 1998.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") and include
the accounts of the Company, the Operating Partnership and the Company's and
Operating Partnership's wholly-owned subsidiaries. All intercompany balances
and transactions have been eliminated in consolidation.

32

Real Estate and Depreciation

Real estate assets are recorded at cost. External acquisition costs
directly related to each property are capitalized as a cost of the respective
property. The cost of real estate properties acquired is allocated between land
and buildings based upon estimated market values at the time of acquisition.
Depreciation is computed using the straight-line method over an estimated useful
life of 20 years for the buildings and improvements.

The Company periodically assesses its real estate assets for possible
permanent impairment when certain events or changes in circumstances indicate
that the carrying amount of real estate may not be recoverable. A significant
decrease in the real estate's fair market value, an accumulation of costs
significantly exceeding amounts originally expected to acquire the asset or a
tenant's inability to perform its duties and pay rent under the terms of the
lease, may all effect the ability of the Company to recover the carrying amount
of the real property. Management considers current market conditions, tenant
credit analysis and third party valuations in determining the net realizable
value of the Company's rental properties. After completing this assessment,
management believes no impairment has occurred in its net property carrying
values as of December 31, 1998.

Furniture, Fixtures and Equipment

Furniture, fixtures and equipment are recorded at cost. Depreciation is
calculated on a straight-line basis over the estimated useful lives of the
assets, ranging from three to five years.

Cash and Cash Equivalents

Cash and cash equivalents are comprised of highly liquid instruments
purchased with original maturities of three months or less.

Deferred Loan Costs

Included in other assets are costs incurred in connection with the issuance
of mortgage notes during 1998, which costs are amortized over the terms of the
notes on a straight-line basis (which approximates the effective interest
method).

Capitalized Leasing Costs

Certain initial direct costs incurred by the Company in negotiating and
consummating a successful lease are capitalized and generally amortized over the
initial base term of the lease. These costs, net of accumulated amortization,
are included in other assets. Capitalized leasing costs include employee
compensation and payroll related fringe benefits directly related to time spent
performing leasing related activities. Such activities include evaluating the
prospective lessee's financial condition, evaluating and recording guarantees,
collateral and other security arrangements, negotiating contract terms,
preparing lease documents and closing the transaction.

Income Taxes

The Company is qualified as a real estate investment trust under the
provisions of the Internal Revenue Code of 1986, as amended. As a real estate
investment trust, the Company is generally not subject to federal income tax to
the extent that it distributes annually at least 95% of its taxable income to
its shareholders and complies with certain other requirements.

33

Rental Revenue Recognition

The Company leases its real estate under long-term triple net leases which
require the lessees to pay substantially all expenses associated with the
operations, including taxes, utilities, insurance, repairs, maintenance and
other expenses. All leases are accounted for as operating leases.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles 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 and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The Company compares the carrying value and the estimated fair value of its
financial instruments. Due to the highly liquid and short-term nature of the
Company's investments, the carrying value approximates the fair value. After
determining fair value of long-term debt instruments by discounting future cash
flows using current market rates, management believes there were no material
differences in the carrying value and the fair value of the Company's debt
instruments as of December 31, 1998 and 1997.

3. NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999 and does not
require restatement of financial statements from prior periods. SFAS No. 133
requires an entity to recognize all derivatives as either assets or liabilities
in the statement of financial position and measure those instruments at fair
value. The Company believes that the adoption of SFAS 133 will not have a
significant impact on the Company's consolidated financial position, results of
operations or cash flows.

In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure
about Pensions and Other Post Retirement Benefits." This statement is effective
for fiscal years beginning after December 15, 1997 and requires restatement of
disclosures for earlier periods for comparative purposes. SFAS No. 132
standardizes the disclosure requirements for pensions and other post retirement
benefits, requires additional information on changes in the benefit obligations
and fair values of plan assets and eliminates certain disclosures previously
required by SFAS No. 87. The adoption of SFAS No. 132 had no significant impact
on the Company's consolidated financial statements.

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for the reporting and display of
comprehensive income in the Company's financial statements. This statement is
effective for fiscal years beginning after December 15, 1997. The adoption of
SFAS No. 130 had no significant impact on the Company's consolidated financial
statements.

34

4. ACQUISITIONS OF PROPERTIES

As of December 31, 1998, the Company, through the Operating Partnership and
its subsidiaries, owned 120 dealership properties used by 30 motor vehicle
dealer groups ("Dealer Groups"), located in 18 states, operated by 196
automotive franchisees, totaling 4.3 million square feet of buildings and
improvements on 708.8 acres of land. The Company acquired the properties for an
aggregate purchase price of approximately $511.1 million, consisting of $218.8
million in cash (including estimated closing costs through December 31, 1998),
$12.0 million in the assumption of mortgage debt, $181.5 million in the
assumption and repayment of mortgage debt and approximately 6.6 million Units
(valued at $98.8 million). The following is a summary of acquisitions for 1998
(total purchase price includes estimated closing costs through December 31,
1998):

BUILDINGS AND TOTAL
NUMBER OF IMPROVEMENTS SQUARE LAND PURCHASE
DEALER GROUP NAME PROPERTIES FOOTAGE (in thousands) ACRES PRICE (in thousands)
- --------------------------------------------------- --------------- ---------------------- ------ --------------------

Rosenthal Automotive Group 7 332 41.2 $ 65,256
Kelley Automotive Group 12 482 72.8 48,398
Momentum Automotive 5 211 27.5 37,048
Cross Continent Automotive 6 505 55.0 36,750
Park Place Motorcars 3 165 20.5 34,035
Pohanka Automotive Group 9 246 39.5 31,481
Roundtree Automotive Group 9 246 47.5 27,344
Gunn Automotive Group 5 208 30.9 22,434
Gurley-Leep Automotive Group 4 167 28.9 22,080
Group 1 Automotive, Inc. and Sterling McCall 6 161 34.7 20,270
Sheehy Auto Stores 4 103 22.2 14,071
Motorcars Automotive Group 3 144 8.3 12,947
Warren Henry Automobiles 3 70 10.9 12,704
Behlmann Automotive 3 112 23.9 12,237
Hand Automotive Group 2 40 6.3 10,680
O'Rielly Motor Company 1 110 8.6 9,836
Lynn Alexander Automotive Group 4 136 19.4 9,678
Dealer's Auto Auction 1 95 52.5 9,602
Fenton Motors Group 3 118 18.8 9,049
Clearwater Toyota / Mitsubishi (Sonic Automotive) 2 65 10.9 8,699
Kline Automotive 2 71 25.2 8,533
Town and Country Automotive 5 80 11.3 7,647
Ken Dixon Automotive 1 57 9.2 7,308
Cherner Automotive Group 1 44 5.3 6,432
Crown Auto World 1 64 8.2 6,332
Good News Automotive 7 93 20.3 5,492
Orr Automotive 4 35 9.0 5,489
Jackson Automotive Group 5 85 28.9 4,514
Freightliner of Dothan 1 59 7.5 2,684
FirstAmerica Automotive 1 - 3.6 2,102
------------- ----------- -------- --------------------
Grand Total 120 4,304 708.8 $511,132

35

As of December 31, 1998, the Company had entered into definitive agreements
to acquire 18 properties from three Dealer Groups, located in three states, for
an aggregate purchase price of approximately $57.7 million. Definitive
agreements as of December 31, 1998 consisted of the following:

Definitive agreement to acquire three properties from McCluskey Chevrolet,
located in Cincinnati, Ohio, for a purchase price of approximately $5.5 million.
These properties were acquired subsequent to December 31, 1998.

Definitive agreement to acquire nine additional properties from Group 1
Automotive, Inc. and its affiliates, located in Round Rock, Houston, Austin, and
Elgin, Texas for a purchase price of approximately $34.2 million. Of these
properties, six were acquired subsequent to December 31, 1998 for a purchase
price of approximately $24.0 million.

Definitive agreement to acquire six properties from Lithia Properties,
L.L.C., an affiliate of Lithia Motors, Inc., located in Medford and Grants Pass,
Oregon, for a purchase price of approximately $18.0 million.

Automotive Realty Trust of America ("ARTA")

On July 23, 1998, the Company announced the execution of a definitive
agreement that would permit the Company to purchase certain properties then
under contract with ARTA. ARTA had contracted with 17 automotive dealer groups
to acquire 67 properties for an aggregate purchase price of $334.5 million.
ARTA had filed a registration statement on April 20, 1998 with the Securities
and Exchange Commission to pursue an initial public offering as a self-
administered, self-managed real estate investment trust. Under the terms of the
agreement with the Company, ARTA agreed to assign its purchase contracts to the
Company, subject to the approval of the respective selling Dealer Groups.
Closings on individual properties were subject to the revision of certain
purchase and lease terms and the satisfactory completion by the Company of
property level and financial due diligence. The Company agreed to compensate
ARTA on a pro rata basis upon the acquisition of the assets, as well as upon the
acquisition of ARTA's existing marketing network and its acquisition pipeline.

During the year ended December 31, 1998, the Company completed acquisitions
for approximately $96.1 million (including estimated closing costs through
December 31, 1998) in conjunction with the ARTA agreement. Consideration for
the acquisitions was substantially all cash. The acquisitions included 16
dealership properties from five Dealer Groups used by 27 automotive franchisees,
and totaled 79.7 acres. Subsequent to December 31, 1998, the Company completed
the acquisition of additional properties and renovations totaling approximately
$42.4 million (including estimated closing costs) in conjunction with the ARTA
agreement. Consideration for the acquisitions was substantially all cash. On
January 5, 1999, the parties to the ARTA agreement released each other from all
obligations and liability thereunder.

36

5. RELATED PARTY TRANSACTIONS

During 1998, the Company, through the Operating Partnership and its
subsidiaries, purchased 20 properties for an aggregate purchase price of
approximately $110.8 million from three Dealer Groups, three of the principals
of which are members of the Company's Board of Trustees. In conjunction with the
purchases, the Company entered into long-term triple net lease agreements with
two 10-year extensions exercisable at the option of the tenant. The leases in
the aggregate provide for initial annual base rental payments to the Company of
approximately $12.1 million.

6. OPERATING LEASES

In connection with the acquisitions listed in Note 4 above, the Company,
through the Operating Partnership and its subsidiaries, entered into long-term
triple net lease agreements (the "Leases") with the operators of the dealerships
(the "Lessees"). The Leases have initial terms generally ranging from ten to 20
years and generally include multiple options to renew upon the same terms and
conditions, exercisable at the option of the Lessees. Base rent is adjusted
upward periodically, usually based on a factor of the consumer price index
("CPI"). In general, the lease terms establish minimum and maximum periodic
adjustments. Several of the Company's Leases offer tenant purchase options at
various points throughout the Lease terms, generally based on fair market value
of the property, or the greater of fair market value of the property or the
Company's purchase price as increased by a factor of CPI at the time of the
option. Future minimum rental payments will be received as follows (in
thousands):

For the Year Ended December 31,

1999 $ 52,200
2000 52,323
2001 52,455
2002 52,589
2003 52,735
Thereafter 398,616
--------
Total $660,918
========

On March 1, 1998, the Company entered into a six-year lease agreement for
its current office space, accounted for as an operating lease. Future minimum
lease payments at December 31, 1998 are $199,920 per year for the next five
years and $33,320 thereafter, totaling approximately $1.0 million.

7. EARNINGS PER SHARE

A reconciliation of net income and weighted average shares used to
calculate basic and diluted earnings per share for the twelve months ended
December 31, 1998 is as follows (in thousands, except per share data):

Net Weighted Earnings
Income Average Shares Per Share
------ -------------- ---------

Earnings per share - basic $16,491 20,927 $0.79

37

Effect of dilutive securities:

Options (1) -- 51 --
------- ------ -----

Earnings per share - diluted $16,491 20,978 $0.79
======= ====== =====

- -----------------
(1) Adjustment to weighted average shares reflects exercise of dilutive options
for shares assuming treasury stock method.

8. MORTGAGE LOANS

On November 18, 1998, four newly-formed subsidiaries of the Company and
Operating Partnership closed on a $150.0 million, non-recourse loan (the
"Permanent Loan") with Global Alliance Finance Company, L.L.C. (the "Lender").
The Permanent Loan requires consecutive monthly payments of interest only for
two years. Thereafter, monthly payments of principal and interest will be
required in an amount sufficient to amortize the Permanent Loan over a 25-year
term. The term of the Permanent Loan is ten years and it bears interest at a
rate equal to 7.67% per annum until maturity on December 1, 2008. The weighted
average interest rate for 1998 for the Permanent Loan was approximately 8.06%.
The Permanent Loan is secured by mortgages on the properties financed, which as
of December 31, 1998 had an aggregate net book value of approximately $259.3
million. The Operating Partnership has provided a limited $35 million guaranty
of the Permanent Loan, which guaranty is contingent upon the occurrence of
certain circumstances. A portion of the loan proceeds was used to pay off
existing debt and the balance used to finance acquisitions, working capital and
for other corporate purposes. Annual principal maturities of the Permanent Loan
are as follows (in thousands):

For the Year Ended
December 31,

1999 $ 0
2000 0
2001 1,904
2002 2,058
2003 2,224
Thereafter 143,814
--------
Total $150,000
========

Subsequent to December 31, 1998, the Company and the Lender modified the
terms on approximately $38.0 million of the Permanent Loan in order for the
Lender to have more flexibility in structuring a commercial mortgage backed
security execution. The interest rate on this portion of the Permanent Loan was
reduced to 7.59% per annum, the monthly interest only payments were reduced to
one year and the amortization period was reduced to approximately 17 years.

On September 23, 1998, the Company, through the Operating Partnership,
entered into a forward rate lock agreement with the Lender, to effectively lock
in advance the fixed per annum

38

interest rate on the Permanent Loan. On the date thereof, the Company paid to
the Lender a hedge deposit totaling $3.0 million ("Hedge Deposit") to lock the
interest rate at 7.67% per annum for a period of sixty days from such date. The
Hedge Deposit was refunded to the Company in conjunction with the Permanent Loan
closing on November 20, 1998.

On October 16, 1998, the Company, through the Operating Partnership,
entered into a $50.0 million bridge loan with the Lender to finance
acquisitions, working capital and for other corporate purposes ("Bridge Loan").
The Bridge Loan required monthly payments of interest only and incurred interest
at the rate equal to the one month LIBOR plus 200 basis points. The Bridge Loan
was repaid with a portion of the proceeds of the Permanent Loan on November 20,
1998.

On November 5, 1998 the Company assumed a mortgage note payable to a
financial institution in the principal amount of approximately $12.0 million.
The note was assumed as partial consideration for the acquisition of four
dealership properties. The note is secured by the properties acquired, which as
of December 31, 1998 have an aggregate net book value of approximately $22.0
million. The mortgage note bears interest at a rate equal to 7.50% per annum
until maturity on January 20, 2003. The weighted average interest rate for 1998
for the mortgage note was approximately 7.61%. Principal and interest are
payable monthly. Any outstanding principal and interest shall be due and
payable upon maturity. Annual principal maturities of the mortgage note are as
follows (in thousands):

For the Year Ended
December 31,

1999 $ 267
2000 285
2001 311
2002 335
2003 10,799
-------
Total $11,997
=======

9. BORROWINGS UNDER LINE OF CREDIT

In October 1997, and amended as of January 30, 1998, Friedman, Billings,
Ramsey Group, Inc., an affiliate of FBR, issued to the Company a short-term
revolving line of credit in the amount of approximately $2.5 million. Draws on
the line of credit were used by the Company for organizational costs and
offering costs, and were repaid with the proceeds of the IPO.

In February 1998, the Company, through the Operating Partnership, entered
into a secured revolving line of credit from NationsBank, N.A. (the "Bank")
providing for a borrowing capacity of $10.0 million. Borrowings incurred
interest at a fluctuating rate equal to the one month LIBOR plus 150 basis
points. On August 14, 1998, the Company and the Bank amended and restated the
line of credit to increase the borrowing capacity to $13.5 million and extended
the expiration date to November 19, 1998. On September 8, 1998, the Company and
the Bank again amended and restated the line of credit to increase the borrowing
capacity to $19.1 million

39

and on November 6, 1998 extended the expiration date to December 19, 1998. The
outstanding balance of $13.0 million was repaid on November 20, 1998 with a
portion of the proceeds of the Permanent Loan.

10. MINORITY INTEREST

Minority interest is calculated at approximately 23.3 percent of the
Operating Partnership's partners' capital and net income. The ownership of the
Operating Partnership as of December 31, 1998 is as follows (Units in
thousands):

Units Percent
----- -------

Partners' capital:
Limited Partners 6,573.3 23.3%
The Company 21,607.4 76.7%
-------- -----

Total 28,180.7 100.0%
======== =====

11. STOCK OPTIONS

In February 1998, the Company adopted the Capital Automotive Group 1998
Equity Incentive Plan (the "Plan"). Under the Plan, the Executive Compensation
Committee of the Board of Trustees may grant up to approximately 2.8 million
options to employees of the Company or the Operating Partnership, outside
trustees and certain other service providers, to purchase common shares of
beneficial interest of the Company and/or units of limited partnership interest
in the Operating Partnership. Options granted under the Plan have exercise
prices equal to or greater than the fair market value of a Common Share at the
date of the grant and typically become exercisable at a rate of 25% per year
over a four-year period, generally commencing on the first anniversary of the
date of hire, for employees. For trustees, options become exercisable in
stages, one-third beginning six months after date of grant, two-thirds beginning
on the first anniversary of the date of grant and 100% beginning on the second
anniversary of the date of grant. Options expire no later than the tenth
anniversary of the date of grant or, if earlier, within certain time limits for
employment termination. As of December 31, 1998 all but approximately 69,000
options were granted under the Plan and 350,000 options were granted outside of
the Plan to officers hired during 1998.

The following is a summary of the Company's option activity for the year
ended December 31, 1998 (options in thousands):

Weighted
Average
Number of Exercise
Options Price
----------- ---------

Options outstanding at December 31, 1997 - -
Granted 3,124 $14.95
Forfeited 22 $15.34
Exercised or expired - -
----------- ---------
Options outstanding at December 31, 1998 3,102 $14.95
===== ======

40

Options outstanding at December 31, 1998 have exercise prices between
$13.75 and $18.69, with a weighted average exercise price of $14.95 and a
weighted average remaining contractual life of 9.21 years. At December 31, 1998
there were approximately 668,000 options exercisable at a weighted average
exercise price of $15.11 and a weighted average remaining contractual life of
9.14 years.

The Company applies APB Opinion 25 in accounting for its stock-based
compensation and accordingly recognized no compensation expense related to the
grant of options during the year ended December 31, 1998. Had the Company's
compensation cost been determined using the fair value method of accounting
prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation", the
Company's net income and earnings per share would have been changed to the
following pro-forma amounts (in thousands except per share amounts) (unaudited):

Net Income
As reported $16,491
Pro forma $15,312

Basic Net Income Per Share
As reported $ 0.79
Pro forma $ 0.73

Diluted Net Income Per Share
As reported $ 0.79
Pro forma $ 0.73

The Black-Scholes option pricing model has been used to estimate the value
of the options granted on the date granted using a risk-free interest rate of
4.625%, a dividend yield of 10.0%, stock volatility of 21.75% with an expected
option life of 4 years.

12. STOCK WARRANTS

Concurrent with the IPO, the Company issued warrants to two affiliates of
the Dealer Groups, representing the right to acquire approximately 1.4 million
Units in the Operating Partnership. In December 1998 such warrants for Units
were cancelled and exchanged for warrants representing the right to acquire
Common Shares of the Company on the same terms and conditions as the Unit
warrants. In addition, the Company issued warrants to Friedman, Billings,
Ramsey & Co., Inc., representing the right to acquire approximately 1.3 million
Common Shares of the Company. These warrants are exercisable on the effective
date of the IPO and for a period of five years thereafter, with an exercise
price equal to the IPO price of $15 per share.

13. 401(K) PLAN

Effective April 1, 1998, the Company adopted the Capital Automotive L.P.
Employee 401(K) Plan available to all employees hired prior to April 1, 1998 who
are at least 21 years of age. Employees hired subsequent to April 1, 1998 are
eligible to participate in the plan after three months of service. Participants
may contribute up to 20% of their earnings, on a pre-tax basis, subject to
annual limitations imposed by the Internal Revenue Code. The Company may

41

make matching or discretionary contributions to the plan at the discretion of
management. Employer contributions generally vest over five years. As of
December 31, 1998 no matching or discretionary contributions had been paid or
declared.

14. COMMON SHARE REPURCHASE PROGRAM

On September 8, 1998, the Company announced that its Board of Trustees had
authorized the repurchase of up to 3.0 million Common Shares. On October 21,
1998, the Company announced that its Board of Trustees had authorized the
repurchase of up to 3.0 million additional Common Shares, bringing the total
Common Share repurchase program to 6.0 million. Purchases have been and will be
made from time-to-time in open market transactions at prevailing prices or in
negotiated private transactions at the discretion of the Company's management.
During 1998 the Company repurchased 3,184,700 Common Shares at an average price
of $10.51 per Common Share. During the same time period, the Operating
Partnership redeemed an equivalent number of Units from the Company for
equivalent purchase prices.

15. DIVIDEND DECLARATION

On December 16, 1998 the Company's Board of Trustees declared a cash
dividend of $0.32 per share for the fourth quarter ended December 31, 1998, to
shareholders of record as of December 31, 1998. The dividend was paid on January
29, 1999. Dividends declared by the Company to its shareholders during 1998
totaled $0.876 per share, of which $0.861 per share is characterized as ordinary
income for 1998 tax purposes.

16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Summarized quarterly financial data for the year ended December 31, 1998 is
as follows (in thousands, except per share amounts):

42

Quarter Ended

March 31* June 30 September 30 December 31
--------- ------- ------------ -----------

Revenue $ 3,321 $ 8,545 $10,363 $12,702
Net Income $ 1,702 $ 4,747 $ 5,221 $ 4,821
Diluted Earnings Per Share* $ 0.14 $ 0.19 $ 0.21 $ 0.22
Weighted Average Number of Shares -
Diluted 12,267 24,876 24,713 21,907

*Although the Company was formed prior to January 1, 1998, it did not complete
its IPO until February 19, 1998, at which time it began generating rental
income. This resulted in a difference between the sum of each quarters diluted
earnings per share of $0.76 and the actual diluted earnings per share
calculation for 1998 of $0.79.

17. SEGMENT INFORMATION

The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The new rules establish revised standards
for public companies relating to the reporting of financial and descriptive
information about their operating segments in financial statements. Operating
segments are defined as components of an enterprise for which separate financial
information is available and is evaluated regularly by the chief operating
decision maker or decision making group, in deciding how to allocate resources
and in assessing performance. The Company's management is the Company's chief
decision making group.

All of the Company's operations are derived from one operating segment.
This operating segment engages in the purchase and lease back, pursuant to long-
term triple net leases, of the real property and improvements used by multi-
site, multi-franchised automotive dealerships and related businesses. These
automotive dealerships and related businesses are located predominately in major
metropolitan areas throughout the United States. The purchase and lease back is
performed through the Company's ownership interest in the Operating Partnership.
The adoption of SFAS No. 131 did not have a material impact on the Company's
consolidated financial statements or accompanying notes.

Tenant Concentration

The Rosenthal Automotive Organization ("Rosenthal"), accounted for
approximately 22.9% of the Company's total rental revenue for the year ended
December 31, 1998 and 13.5% of the Company's annualized rental revenue for the
year ended December 31, 1998. The Rosenthal properties were acquired in February
1998. As the Company's portfolio continues to grow and total rental revenue
increases, the percent of total rental revenue relating to Rosenthal will
decrease.

43

18. SUBSEQUENT EVENTS

Acquisitions

Subsequent to December 31, 1998, the Company closed on the acquisition of
11 dealership properties and renovations having an aggregate purchase price of
approximately $54.0 million, for substantially all cash. These properties total
approximately 51 acres, are located in three states and are operated by seven
automotive franchisees. Significant acquisitions include the following:

Six additional properties acquired from Group 1 Automotive, Inc. and its
affiliates, totaling 34.9 acres, located in Houston and Round Rock, Texas for an
aggregate purchase price of approximately $24.0 million (including estimated
closing costs). These properties are used by three automotive franchisees,
including Toyota, Lexus and Nissan. The lease term for these properties is 30
years with termination options by the tenant at years 15, 20 and 25.

One additional property acquired from Park Place Motor Cars Ltd., totaling
4.6 acres, located in Dallas, Texas for a purchase price of approximately $17.8
million (including estimated closing costs). This property is used by three
automotive franchisees, including Mercedes-Benz, Porsche and Audi. The lease
term is 15 years with two 10-year extensions exercisable at the option of the
tenant.

One property acquired from an unrelated third party and leased to
FirstAmerica Automotive, Inc. ("FirstAmerica"), totaling 4.0 acres, located in
San Rafael, California for a purchase price of approximately $3.1 million
(including estimated closing costs). The lease term is 20 years with two 10-year
extensions exercisable at the option of the tenant. The property is currently
being developed by FirstAmerica and when completed, FirstAmerica will operate a
Dodge franchise on the property.

Three properties acquired from McCluskey Chevrolet, totaling 7.5 acres,
located in Cincinnati, Ohio for an aggregate purchase price of approximately
$5.5 million. The lease term is ten years with one 10-year and four 5-year
extensions exercisable at the option of the tenant.

Commitment

In February 1999, the Company, through the Operating Partnership and its
subsidiaries, secured approval from a financial institution for a $50.0 million
revolving credit facility. Final terms and conditions are subject to further
negotiations. The credit facility will provide short-term funds for the
acquisition of automotive dealership properties and for general corporate
purposes. The current term is for three years, extendable annually at the
lender's discretion, and borrowings will bear interest at a rate equal to the
one month LIBOR plus 175 basis points. The borrowings will require quarterly
interest only payments in arrears.

44

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

45

PART III

Certain information required in Part III is omitted from this Report but is
incorporated herein by reference from the Company's Definitive Proxy Statement
for the Annual Meeting of Shareholders for fiscal year 1999 filed on March 19,
1999 (the "Proxy Statement") pursuant to Regulation 14A with the Securities and
Exchange Commission.

ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE COMPANY

The information contained in the Proxy Statement under the captions
"The Board of Trustees" appearing on pages 11 to 13 and "Executive Officers"
appearing on pages 14 to 15 of the Proxy Statement is incorporated herein by
reference.

ITEM 11. EXECUTIVE COMPENSATION

The information contained in the Proxy Statement under the captions "Executive
Compensation" appearing on pages 15 to 18 and "Executive Compensation Committee
Report on Executive Compensation" appearing on pages 18 to 20 of the Proxy
Statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information contained in the Proxy Statement under the caption "Share
Ownership" appearing on pages 9 to 10 of the Proxy Statement is incorporated
herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information contained in the Proxy Statement under the caption "Certain
Relationships and Related Transactions" appearing on pages 20 to 28 of the Proxy
Statement is incorporated herein by reference.

46

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1) See Index to Consolidated Financial Statements

(2) Financial Statement Schedules

Schedule III. Schedule of Real Estate and Accumulated Depreciation

(3) Exhibits

(a) Exhibits

Exhibit
-------
Number Description
------ -----------

3.1* Amended and Restated Declaration of Trust of Capital
Automotive REIT
3.2.. Amended and Restated Bylaws of Capital Automotive REIT
3.3.. Amendment No. 1 to Bylaws of Capital Automotive REIT
3.4.. Form of Share Warrant
4.1* Specimen Common Share certificate
10.1* Form of Agreement of Limited Partnership of Capital
Automotive L.P.
10.2* Form of Indemnification Agreement
10.3* Form of 1998 Equity Incentive Plan
10.4* Employment Agreement by and between the Company and
Thomas D. Eckert
10.5* Employment Agreement by and between the Company and
Scott M.Stahr
10.6* Employment Agreement by and between the Company and
Donald L. Keithley
10.7* Employment Agreement by and between the Company and
David S. Kay
10.8* Form of Option Agreement
10.9* Form of NationsBank, N.A. Credit Agreement
10.10* FBR Asset Investment Purchase Agreement
10.11* FBR Registration Rights Agreement
10.12* Pohanka Contribution Agreement dated as of November 21,
1997, as amemded
10.13* Rosenthal Contribution Agreement dated as of November
21, 1997, as amended
10.14* Sheehy Contribution Agreement dated as of November 24,
1997, as amended
10.15* Cherner Contribution Agreement dated as of November 24,
1997, as amended
10.16* Cross-Continent Auto Retailers, Inc. Purchase Agreement
dated as of December 31, 1997, as amended
10.17* Form of Pohanka Lease Agreement
10.18* Form of Rosenthal Lease Agreement
10.19* Form of Sheehy Lease Agreement
10.20* Form of Cherner Lease Agreement
10.21* Form of Cross-Continent Lease Agreement
10.22* Form of Underwriting Warrant
10.23* Form of Dealers' Warrant

47

10.24* Form of Guaranty Agreement with Affiliate of John J. Pohanka
10.25* Form of Guaranty Agreement with Affiliate of Robert M.
Rosenthal
10.26* Amendment No. 1 to Friedman, Billings, Ramsey Group, Inc.
Loan Agreement
10.27* Amendment No. 1 to Friedman, Billings, Ramsey Group, Inc.
Security Agreement
10.28* Form of Guaranty Agreement with Cross-Continent Auto
Retailers, Inc.
10.29* Meyers Family Limited Partnership L.P. (Good News) Purchase
Agreement dated as of January 10, 1998
10.30* Form of Good News Lease
10.31* Form of Guaranty Agreement with Good News Salisbury, Inc. and
Warren A. Price
10.32* Kline Purchase Agreement dated as of January 12, 1998
10.33* Form of Kline Lease Agreement
10.34* Form of Guaranty Agreement with Kline Imports Chesapeake,
Inc.
10.35* Amended and Restated Employment Agreement by and between
Capital Automotive L.P. and Thomas D. Eckert
10.36* Amended and Restated Employment Agreement by and between
Capital Automotive L.P. and Scott M. Stahr
10.37* Amended and Restated Employment Agreement by and between
Capital Automotive L.P. and Donald L. Keithley
10.38* Amended and Restated Employment Agreement by and between
Capital Automotive L.P. and David S. Kay
10.39* Meyers Family Limited Partnership (Good News) Purchase
Agreement dated as of January 10, 1998
10.40** First Amended and Restated Credit Agreement dated as of
August 14, 1998 to Credit Agreement dated February 19, 1998
between Capital Automotive L.P. and NationsBank, N.A.
10.41** Second Amended and Restated Credit Agreement dated as of
September 8, 1998 to Credit Agreement dated February 19, 1998
between Capital Automotive L.P. and NationsBank, N.A.
10.42** Employment Agreement by and between Capital Automotive L.P.
and John M. Weaver
10.43.. Second Amended and Restated Partnership Agreement of Capital
Automotive L.P.
21.2+ Subsidiaries of Company
23.1+ Consent of Arthur Andersen LLP
25.0+ Power of Attorney (included on signature page)
27.0+ Financial Data Schedule
99.1. Real Property Contribution and Purchase Agreement by and
between Capital Automotive L.P., Capital Automotive REIT,
Thomas W. Kelley, James E. Kelley and Midwest Auto Realty
Co., L.P. dated June 17, 1998

48

99.2. Amendment to Real Property Contribution and Purchase
Agreement by and among Capital Automotive L.P., Capital
Automotive REIT, Thomas W. Kelley, James E. Kelley and
Midwest Auto Realty Co., L.P.
99.3++ Loan Agreement dated as of November 18, 1998 between CARS -
DB1, L.L.C. as Borrower and Global Alliance Finance Company,
L.L.C. as Lender
99.4++ Loan Agreement dated as of November 18, 1998 between CARS -
DB2, L.L.C. as Borrower and Global Alliance Finance Company,
L.L.C. as Lender
99.5++ Loan Agreement dated as of November 18, 1998 between CARS -
DB3, L.P. as Borrower and Global Alliance Finance Company,
L.L.C. as Lender
99.6++ Loan Agreement dated as of November 18, 1998 between CARS -
DB4, L.P. as Borrower and Global Alliance Finance Company,
L.L.C. as Lender
99.7++ Text of Press Release dated November 23, 1998

- --------------
+ Filed herewith.

* Previously filed as an Exhibit to Registration Statement on Form S-11
(File No. 333-41183) and incorporated herein by reference.

. Previously filed as an Exhibit to Current Report on Form 8-K filed on
August 7, 1998 (File No. 000-23733).

** Previously filed as an Exhibit to Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998 filed on November 12, 1998 (File No.
000-23733).

++ Previously filed as an Exhibit to Current Report on Form 8-K filed on
December 3, 1998 (File No. 000-23733)

.. Previously filed as an Exhibit to Registration Statement on Form S-3
(File No. 333-73183) filed on March 2, 1999.

(b) Reports on Form 8-K

Current Report on Form 8-K filed on August 7, 1998 (File No. 000-23733)

Current Report on Form 8-K filed on December 3, 1998 (File No. 000-23733)

Current Report on Form 8-K filed on December 7, 1998 (File No. 000-23733)

Current Report on Form 8-K filed on February 26, 1999 (File No.000-23733)

49

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned thereunto duly authorized this 17th day of March, 1999.

Capital Automotive REIT

By: /s/ Thomas D. Eckert
------------------------------
Thomas D. Eckert
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons in the
capacities indicated. Each person whose signature appears below hereby
constitutes and appoints each of Thomas D. Eckert and David S. Kay as his
attorney-in-fact and agent, with full power of substitution and resubstitution
for him in any and all capacities, to sign any or all amendments to this Report
and to file same, with exhibits thereto and other documents in connection
therewith, granting unto such attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
in connection with such matters and hereby ratifying and confirming all that
such attorney-in-fact and agent or his substitutes may do or cause to be done by
virtue hereof.

SIGNATURE TITLE DATE

/s/ Thomas D. Eckert President and Chief March 17, 1999
- ---------------------- Executive Officer and
Thomas D. Eckert Trustee (principal
executive officer)

/s/ David S. Kay Vice President and Chief March 17, 1999
- ---------------------- Financial Officer (principal
David S. Kay financial and accounting officer)

/s/ Craig L. Fuller Trustee March 17, 1999
- ----------------------
Craig L. Fuller

50

/s/ William E. Hoglund Trustee March 17, 1999
- -------------------------
William E. Hoglund

/s/ R. Michael McCullough Trustee March 17, 1999
- ----------------------------
R. Michael McCullough

/s/ Lee P. Munder Trustee March 17, 1999
- ----------------------------
Lee P. Munder

/s/ John J. Pohanka Chairman of the Board and March 17, 1999
- ---------------------------- Trustee
John J. Pohanka

/s/ John E. Reilly Trustee March 17, 1999
- ----------------------------
John E. Reilly

/s/ Robert M. Rosenthal Trustee March 17, 1999
- ----------------------------
Robert M. Rosenthal

/s/ Vincent A. Sheehy Trustee March 17, 1999
- ----------------------------
Vincent A. Sheehy

51

/s/ William R. Swanson Trustee March 17, 1999
- ----------------------------
William R. Swanson

52

SCHEDULE III
CAPITAL AUTOMOTIVE REIT
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998

Gross Amount at December 31, 1998 (1)
----------------------------------------
Building
and
Dealer Group Name Dealership Location Land Improvements Total (3)
- --------------------------- ---------------------------- --------------- ------------ ------------ ------------

Behlmann Automotive Behlmann Wholesale Florissant, MO $ 104,005 $ 203,620 $ 307,625
Behlmann Automotive Behlmann Carnection Florissant, MO 1,042,674 1,865,811 2,908,485
Behlmann Automotive Behlmann Pontiac-GMC (Main) Hazelwood, MO 4,637,230 4,383,835 9,021,065
Behlmann Automotive Total 5,783,909 6,453,266 12,237,175

Cherner Automotive Group Cherner Lincoln Mercury Annandale, VA 4,026,275 2,405,880 6,432,155
Cherner Automotive Group
Total 4,026,275 2,405,880 6,432,155

Clearwater Toyota /
Mitsubishi (Sonic
Automotive Clearwater Toyota & Clearwater, FL 4,136,031 3,915,854 8,051,885
Mitsubishi & Collison Ctr
Clearwater Toyota /
Mitsubishi (Sonic
Automotive) Clearwater Collision Center Clearwater, FL 331,082 316,218 647,300
Properties
Clearwater Toyota /
Mitsubishi (Sonic
Automotive) Total 4,467,113 4,232,072 8,699,185

Cross Continent Automotive Westgate Chevrolet, Inc. Amarillo, TX 1,235,516 3,181,296 4,416,812
Cross Continent Automotive Douglas Motors, Inc. Denver, CO 1,992,903 7,243,134 9,236,037
Cross Continent Automotive T-West Sales & Service, Inc. Las Vegas, NV 5,540,606 8,697,735 14,238,341
Cross Continent Automotive Plains Chevrolet, Inc. Amarillo, TX 1,324,616 3,400,896 4,725,512
Cross Continent Automotive Midway Chevrolet, Inc. Amarillo, TX 871,516 2,245,296 3,116,812
Cross Continent Automotive Quality Nissan, Inc. Amarillo, TX 283,516 733,296 1,016,812
Cross Continent Automotive
Total 11,248,673 25,501,653 36,750,326

Crown Auto World Crown Motors BMW/Buick Tulsa, OK 1,075,438 5,256,769 6,332,207
Crown Auto World Total 1,075,438 5,256,769 6,332,207

Dealer's Auto Auction Dealer's Auto Auction Oklahoma City, 1,126,333 8,475,530 9,601,863
OK
Dealer's Auto Auction Total 1,126,333 8,475,530 9,601,863

Fenton Motors Group Brad Fenton Motors McAlester, OK 353,263 3,667,548 4,020,811
Fenton Motors Group Ada Ford Lincoln-Mercury Ada, OK 234,387 2,786,424 3,020,811
Fenton Motors Group Brad Fenton Motors of Ardmore, OK 201,424 1,805,547 2,006,971
Ardmore
Fenton Motors Group Total 789,074 8,259,519 9,048,593

FirstAmerica Automotive Poway Honda Poway, CA 2,102,246 - 2,102,246
FirstAmerica Automotive
Total 2,102,246 - 2,102,246

Freightliner of Dothan Freightliner of Dothan Dothan, AL 490,443 2,193,587 2,684,030
Freightliner of Dothan
Total 490,443 2,193,587 2,684,030

Good News Automotive Price Buick Pontiac Salisbury, MD 649,804 696,793 1,346,597
Good News Automotive Good News Nissan Salisbury, MD 220,414 230,757 451,171
Good News Automotive Good News Body Shop Salisbury, MD 1,122,394 166,184 1,288,578
Good News Automotive Good News Olds-Cadillac-GMC Salisbury, MD 634,419 197,652 832,071
Good News Automotive Good News Honda Salisbury, MD 428,563 159,768 588,331
Good News Automotive Towne Toyota Mercedes-Benz Salisbury, MD 406,556 163,715 570,271
Good News Automotive Good News Mazda Salisbury, MD 247,072 167,699 414,771
Good News Automotive Total 3,709,222 1,782,568 5,491,790

Group 1 Automotive, Inc. AJ Foyt Honda/Isuzu Houston, TX 1,490,293 2,531,206 4,021,499
Group 1 Automotive, Inc. Acura Southwest Houston, TX 2,328,831 2,092,979 4,421,810
Group 1 Automotive, Inc. Southwest Freeway Houston, TX 1,119,244 - 1,119,244
Group 1 Automotive, Inc. Maxwell Chrysler Five Pack Taylor, TX 112,521 1,156,839 1,269,360
Group 1 Automotive, Inc. Luby Chevrolet Lakewood, CO 2,731,360 4,292,492 7,023,852
Sterling McCall Sterling McCall Toyota - Houston, TX 1,215,487 1,198,371 2,413,858
Club Creek Dr.
Group 1 Automotive, Inc.
and Sterling McCall Total 8,997,736 11,271,887 20,269,623

Gunn Automotive Group Gunn Land Rover San Antonio, TX 1,056,318 759,910 1,816,228
Gunn Automotive Group Gunn Nissan San Antonio, TX 1,331,536 1,184,692 2,516,228
Gunn Automotive Group Gunn Chevrolet San Antonio, TX 3,495,043 5,024,373 8,519,416
Gunn Automotive Group Gunn Dodge San Antonio, TX 1,964,831 2,051,399 4,016,230
Gunn Automotive Group Gunn Pontiac-GMC San Antonio, TX 2,239,624 3,326,606 5,566,230
Gunn Automotive Group Total 10,087,352 12,346,980 22,434,332

Gurley-Leep Automotive
Group University Park Mishawaka, IN 1,477,712 920,201 2,397,913
Chrysler-Plymouth
Gurley-Leep Automotive
Group Gurley-Leep Olds-Cadillac & Mishawaka, IN 2,960,810 3,670,103 6,630,913
Saturn of Michiana
Gurley-Leep Automotive
Group Gurley-Leep Mishawaka, IN 5,188,981 6,341,932 11,530,913
Buick-GMC-Mercedes-Dodge
Gurley-Leep Automotive
Group Gurley-Leep Imports Elkhart, IN 395,807 1,124,106 1,519,913
Gurley-Leep Automotive
Group Total 10,023,310 12,056,342 22,079,652

Hand Automotive Group Airport Marina Ford Los Angeles, CA 4,892,495 1,950,690 6,843,185
Hand Automotive Group Saturn Airport Marina Los Angeles, CA 2,333,960 1,502,527 3,836,487
Hand Automotive Group Total 7,226,455 3,453,217 10,679,672

Jackson Automotive Group Jackson Sulphur 264,345 1,121,394 1,385,739
Cadillac-Oldsmobile-Pontiac,
Inc. Springs, TX
Jackson Automotive Group Jackson Mazda Greenville, TX 111,265 549,476 660,741
Jackson Automotive Group Jackson Autoplex-Used Cars Greenville, TX 276,796 83,943 360,739
Jackson Automotive Group Jackson Motor Company Greenville, TX 667,899 802,840 1,470,739
Jackson Automotive Group Jackson Autoplex Commerce, TX 54,127 581,612 635,739
Jackson Automotive Group
Total 1,374,432 3,139,265 4,513,697

Accumulated Date Depreciation
Dealer Group Name Depreciation Acquired Life
- --------------------------- ------------ -------- ------------

Behlmann Automotive $ 5,515 6/25/98 20 years
Behlmann Automotive 50,532 6/25/98 20 years
Behlmann Automotive 118,729 6/25/98 20 years
Behlmann Automotive Total 174,776

Cherner Automotive Group 105,257 2/19/98 20 years
Cherner Automotive Group
Total 105,257

Clearwater Toyota /
Mitsubishi (Sonic
Automotive 57,106 9/18/98 20 years

Clearwater Toyota /
Mitsubishi (Sonic
Automotive) 4,612 9/18/98 20 years

Clearwater Toyota /
Mitsubishi (Sonic
Automotive) Total 61,718

Cross Continent Automotive 139,182 2/25/98 20 years
Cross Continent Automotive 286,707 3/31/98 20 years
Cross Continent Automotive 271,804 5/19/98 20 years
Cross Continent Automotive 148,789 2/25/98 20 years
Cross Continent Automotive 98,232 2/25/98 20 years
Cross Continent Automotive 32,082 2/25/98 20 years
Cross Continent Automotive
Total 976,796

Crown Auto World 10,952 12/11/98 20 years
Crown Auto World Total 10,952

Dealer's Auto Auction 52,972 11/25/98 20 years

Dealer's Auto Auction Total 52,972

Fenton Motors Group 7,641 12/7/98 20 years
Fenton Motors Group 5,805 12/7/98 20 years
Fenton Motors Group 3,762 12/29/98 20 years

Fenton Motors Group Total 17,208

FirstAmerica Automotive - 6/10/98 20 years
FirstAmerica Automotive
Total -

Freightliner of Dothan 50,270 7/23/98 20 years
Freightliner of Dothan
Total 50,270

Good News Automotive 30,485 2/27/98 20 years
Good News Automotive 10,096 2/27/98 20 years
Good News Automotive 7,271 2/27/98 20 years
Good News Automotive 8,647 2/27/98 20 years
Good News Automotive 6,990 2/27/98 20 years
Good News Automotive 7,163 2/27/98 20 years
Good News Automotive 7,337 2/27/98 20 years
Good News Automotive Total 77,989

Group 1 Automotive, Inc. 5,273 12/30/98 20 years
Group 1 Automotive, Inc. 4,360 12/30/98 20 years
Group 1 Automotive, Inc. - 12/30/98 20 years
Group 1 Automotive, Inc. 2,410 12/30/98 20 years
Group 1 Automotive, Inc. 8,943 12/30/98 20 years
Sterling McCall 2,497 12/30/98 20 years

Group 1 Automotive, Inc.
and Sterling McCall Total 23,483

Gunn Automotive Group 14,248 8/24/98 20 years
Gunn Automotive Group 22,213 8/24/98 20 years
Gunn Automotive Group 94,207 8/24/98 20 years
Gunn Automotive Group 38,464 8/24/98 20 years
Gunn Automotive Group 62,374 8/24/98 20 years
Gunn Automotive Group Total 231,506

Gurley-Leep Automotive
Group 5,751 11/5/98 20 years

Gurley-Leep Automotive
Group 22,938 11/5/98 20 years

Gurley-Leep Automotive
Group 39,637 11/5/98 20 years

Gurley-Leep Automotive
Group 7,026 11/5/98 20 years
Gurley-Leep Automotive
Group Total 75,352

Hand Automotive Group 44,703 7/22/98 20 years
Hand Automotive Group 34,433 7/22/98 20 years
Hand Automotive Group Total 79,136

Jackson Automotive Group 11,681 10/23/98 20 years

Jackson Automotive Group 5,724 10/23/98 20 years
Jackson Automotive Group 874 10/23/98 20 years
Jackson Automotive Group 8,363 10/23/98 20 years
Jackson Automotive Group 6,058 10/23/98 20 years
Jackson Automotive Group
Total 32,700

SCHEDULE III
CAPITAL AUTOMOTIVE REIT
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998

Gross Amount at December 31, 1998 (1)
---------------------------------------
Building
and
Dealer Group Name Dealership Location Land Improvements Total (3)
- --------------------------- ---------------------------- --------------- ------------ ------------ -----------

Kelley Automotive Group Saturn of Gwinnett Duluth, GA 3,050,226 1,243,894 4,294,120
Kelley Automotive Group Tom Kelley Cadillac Fort Wayne, IN 547,361 2,203,906 2,751,267
Kelley Automotive Group Courtesy Motors Decatur, IN 1,207,662 1,826,458 3,034,120
Kelley Automotive Group Saturn of Chamblee Chamblee, GA 1,766,155 1,447,965 3,214,120
Kelley Automotive Group Kelley Buick Atlanta Chamblee, GA 3,249,737 2,844,383 6,094,120
Kelley Automotive Group Midwest Auto Parts Fort Wayne, IN 385,417 1,508,703 1,894,120
Kelley Automotive Group Northside Chevrolet Evansville, IN 795,030 1,939,090 2,734,120
Kelley Automotive Group Kelley Chevrolet Fort Wayne, IN 1,499,996 5,211,666 6,711,662
Kelley Automotive Group Saturn of Fort Wayne Fort Wayne, IN 263,895 1,158,798 1,422,693
Kelley Automotive Group Kelley Buick Roswell Roswell, GA 2,956,057 3,061,851 6,017,908
Kelley Automotive Group Tom Kelley Pontiac/GMC Fort Wayne, IN 1,115,426 4,299,643 5,415,069
Kelley Automotive Group Tom Kelley Buick Fort Wayne, IN 1,226,261 3,588,808 4,815,069
Kelley Automotive Group
Total 18,063,223 30,335,165 48,398,388

Ken Dixon Automotive Ken Dixon Chevrolet Waldorf, MD 3,329,652 3,978,480 7,308,132
Ken Dixon Automotive Total 3,329,652 3,978,480 7,308,132

Kline Automotive Kline Undeveloped Lot Chesapeake, VA 1,529,567 - 1,529,567
Kline Automotive Kline Toyota Greenbrier/ Chesapeake, VA 2,683,782 4,319,162 7,002,944
Kline Chevrolet
Kline Automotive Total 4,213,349 4,319,162 8,532,511

Lynn Alexander Automotive
Group All-American Chevrolet ,Inc. San Angelo, TX 1,588,551 2,660,064 4,248,615
Lynn Alexander Automotive
Group Dodge Lincoln-Mercury San Angelo, TX 783,148 2,001,868 2,785,016
Nissan (Autoplex)
Lynn Alexander Automotive
Group Chrysler-Plymouth San Angelo, TX 279,446 1,251,570 1,531,016
Jeep-Eagle (Autoplex)
Lynn Alexander Automotive
Group Fiesta Dodge Big Spring, TX 157,184 955,872 1,113,056
Chrysler-Plymouth Jeep Eagle
Lynn Alexander Automotive
Group Total 2,808,329 6,869,374 9,677,703

Momentum Automotive (2) Momentum Jaguar/Porsche/Saab Houston, TX 7,256,063 10,090,549 17,346,612
Momentum Automotive Momentum BMW Houston, TX 2,738,608 6,093,392 8,832,000
Momentum Automotive Momentum Volvo Houston, TX 1,363,935 3,231,697 4,595,632
Momentum Automotive Momentum Paint & Body Houston, TX 1,165,867 3,429,765 4,595,632
Momentum Automotive Momentum Used Car Lot Houston, TX 615,089 1,063,230 1,678,319
Momentum Automotive Total 13,139,562 23,908,633 37,048,195

Motorcars Automotive Group Motorcars West Bedford, OH 1,962,310 3,169,062 5,131,372
Motorcars Automotive Group Motorcars Honda Cleveland 813,739 4,254,115 5,067,854
Heights, OH
Motorcars Automotive Group Motorcars Oldsmobile-Pontiac Cleveland 648,898 2,099,057 2,747,955
Heights, OH
Motorcars Automotive Group
Total 3,424,947 9,522,234 12,947,181

O'Rielly Motor Company O'Rielly Chevrolet Tucson, AZ 4,515,063 5,321,124 9,836,187
O'Rielly Motor Company
Total 4,515,063 5,321,124 9,836,187

Orr Automotive Orr Acura Shreveport, LA 536,735 1,380,649 1,917,384
Orr Automotive Orr Mitsubishi Texarkana, TX 142,495 169,189 311,684
Orr Automotive Orr BMW/Infiniti Shreveport, LA 497,268 715,262 1,212,530
Orr Automotive Orr Honda Texarkana, TX 1,006,979 1,040,405 2,047,384
Orr Automotive Total 2,183,477 3,305,505 5,488,982

Park Place Motorcars Park Place Mercedes - Houston, TX 9,048,296 10,674,174 19,722,470
Houston
Park Place Motorcars Park Place Lexus Plano, TX 7,270,423 5,047,449 12,317,872
Park Place Motorcars PPM Specialists, Inc. Dallas, TX 507,805 1,486,711 1,994,516
Park Place Motorcars Total 16,826,524 17,208,334 34,034,858

Pohanka Automotive Group Pohanka Fredericksburg, VA 1,631,722 1,812,764 3,444,486
Cadillac/Hyundai/Nissan/Kia
Pohanka Automotive Group Pohanka Saturn & Isuzu Marlow 2,005,305 2,358,087 4,363,392
Heights, MD
Pohanka Automotive Group Pohanka Acura & Chevy-Geo Chantilly, VA 3,367,128 4,308,211 7,675,339
Pohanka Automotive Group Pohanka Lexus Chantilly, VA 2,017,384 1,422,902 3,440,286
Pohanka Automotive Group Pohanka Undeveloped Lot Chantilly, VA 2,455,659 6,284 2,461,943
Pohanka Automotive Group Pohanka Body Shop Marlow 614,766 98,007 712,773
Heights, MD
Pohanka Automotive Group Pohanka Hyundai-Subaru Marlow 888,236 683,156 1,571,392
Heights, MD
Pohanka Automotive Group Pohanka Honda Marlow 771,065 2,934,757 3,705,822
Heights, MD
Pohanka Automotive Group Pohanka Saturn of Bowie Bowie, MD 3,600,518 504,858 4,105,376
Pohanka Automotive Group
Total 17,351,783 14,129,026 31,480,809

Rosenthal Automotive Group Rosenthal Honda/Jaguar Tyson's 9,281,361 2,167,740 11,449,101
Corner, VA
Rosenthal Automotive Group Rosenthal Gaithersburg, 6,810,505 4,998,589 11,809,094
Nissan/Acura/Mazda/Isuzu MD
Rosenthal Automotive Group Rosenthal Arlington, VA 5,009,274 1,783,435 6,792,709
Chevrolet/Jeep/Eagle
Rosenthal Automotive Group Rosenthal Mazda Arlington, VA 4,874,677 493,250 5,367,927
Rosenthal Automotive Group Rosenthal Storage Lot Arlington, VA 4,894,105 15,114 4,909,219
Rosenthal Automotive Group Rosenthal Body Shop Tyson's 665,988 419,089 1,085,077
Corner, VA
Rosenthal Automotive Group Rosenthal Tyson's 19,396,815 4,446,289 23,843,104
Infiniti-Mazda-Nissan Corner, VA
Rosenthal Automotive Group
Total 50,932,725 14,323,506 65,256,231

Roundtree Automotive Group Roundtree Chevrolet-Lincoln Boise, ID 2,588,237 7,227,467 9,815,704
Roundtree Automotive Group Auto Trim Design (Roundtree) Shreveport, LA 123,611 470,906 594,517
Roundtree Automotive Group Champion Ford Shreveport, LA 2,236,420 4,792,478 7,028,898

Accumulated Date Depreciation
Dealer Group Name Depreciation Acquired Life
- --------------------------- ------------ -------- ------------

Kelley Automotive Group 33,689 6/17/98 20 years
Kelley Automotive Group 59,689 6/17/98 20 years
Kelley Automotive Group 49,467 6/17/98 20 years
Kelley Automotive Group 39,216 6/17/98 20 years
Kelley Automotive Group 77,035 6/17/98 20 years
Kelley Automotive Group 40,861 6/17/98 20 years
Kelley Automotive Group 52,517 6/17/98 20 years
Kelley Automotive Group 141,149 6/17/98 20 years
Kelley Automotive Group 31,384 6/17/98 20 years
Kelley Automotive Group 70,167 7/23/98 20 years
Kelley Automotive Group 98,533 7/23/98 20 years
Kelley Automotive Group 82,244 7/23/98 20 years
Kelley Automotive Group
Total 775,951

Ken Dixon Automotive 124,327 5/22/98 20 years
Ken Dixon Automotive Total 124,327

Kline Automotive 2/27/98 20 years
Kline Automotive 188,963 2/27/98 20 years

Kline Automotive Total 188,963

Lynn Alexander Automotive
Group 38,793 9/11/98 20 years
Lynn Alexander Automotive
Group 29,194 9/11/98 20 years

Lynn Alexander Automotive
Group 18,252 9/11/98 20 years

Lynn Alexander Automotive
Group 13,940 9/11/98 20 years

Lynn Alexander Automotive
Group Total 100,179

Momentum Automotive (2) 147,154 9/1/98 20 years
Momentum Automotive - 12/31/98 20 years
Momentum Automotive 47,129 9/1/98 20 years
Momentum Automotive 50,017 9/1/98 20 years
Momentum Automotive 6,645 11/25/98 20 years
Momentum Automotive Total 250,945

Motorcars Automotive Group 33,011 10/28/98 20 years
Motorcars Automotive Group 44,314 10/28/98 20 years

Motorcars Automotive Group 21,865 10/28/98 20 years

Motorcars Automotive Group
Total 99,190

O'Rielly Motor Company 166,285 5/22/98 20 years
O'Rielly Motor Company
Total 166,285

Orr Automotive 25,887 8/27/98 20 years
Orr Automotive 3,172 8/28/98 20 years
Orr Automotive 13,411 8/27/98 20 years
Orr Automotive 15,173 9/16/98 20 years
Orr Automotive Total 57,643

Park Place Motorcars 155,665 9/28/98 20 years

Park Place Motorcars 73,609 9/28/98 20 years
Park Place Motorcars 21,681 9/28/98 20 years
Park Place Motorcars Total 250,955

Pohanka Automotive Group 79,308 2/19/98 20 years

Pohanka Automotive Group 103,166 2/19/98 20 years

Pohanka Automotive Group 188,484 2/19/98 20 years
Pohanka Automotive Group 62,252 2/19/98 20 years
Pohanka Automotive Group 275 2/19/98 20 years
Pohanka Automotive Group 4,288 2/19/98 20 years

Pohanka Automotive Group 29,888 2/19/98 20 years

Pohanka Automotive Group 128,396 2/19/98 20 years

Pohanka Automotive Group 22,088 2/19/98 20 years
Pohanka Automotive Group
Total 618,145

Rosenthal Automotive Group 94,839 2/19/98 20 years

Rosenthal Automotive Group 218,688 2/19/98 20 years

Rosenthal Automotive Group 78,025 2/19/98 20 years

Rosenthal Automotive Group 21,580 2/19/98 20 years
Rosenthal Automotive Group 661 2/19/98 20 years
Rosenthal Automotive Group 18,335 2/19/98 20 years

Rosenthal Automotive Group 194,525 2/19/98 20 years

Rosenthal Automotive Group
Total 626,653

Roundtree Automotive Group 225,858 5/6/98 20 years
Roundtree Automotive Group 12,754 6/4/98 20 years
Roundtree Automotive Group 129,796 6/4/98 20 years

SCHEDULE III
CAPITAL AUTOMOTIVE REIT
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998

Gross Amount at December 31, 1998 (1)
-----------------------------------------
Building
and
Dealer Group Name Dealership Location Land Improvements Total (3)
- --------------------------- ---------------------------- -------------- ------------- ------------ ------------

Roundtree Automotive Group Brocks Service Facility Shreveport, LA 232,349 634,167 866,516
Roundtree Automotive Group Roundtree Olds-Cadillac Shreveport, LA 1,470,534 1,931,846 3,402,380
Roundtree Automotive Group Roundtree-Car Central Bossier City, 406,884 409,632 816,516
LA
Roundtree Automotive Group Champion Mitsubishi Shreveport, LA 876,553 1,139,964 2,016,517
Roundtree Automotive Group Roundtree Hyundai-Subaru Shreveport, LA 364,792 251,726 616,518
Roundtree Automotive Group Roundtree Lake Charles Land Lake Charles, 2,186,897 - 2,186,897
LA
Roundtree Automotive Group
Total 10,486,277 16,858,186 27,344,463

Sheehy Auto Stores Sheehy Ford of Springfield Springfield, VA 4,221,356 2,107,330 6,328,686
Sheehy Auto Stores Chapman Ford Sales Philadelphia, 3,006,604 8,082 3,014,686
PA
Sheehy Auto Stores Sheehy Woodbridge, VA 1,756,405 824,206 2,580,611
Lincoln-Mercury/Mitsubishi
Sheehy Auto Stores Sheehy Ford of Marlow Marlow 1,212,923 933,763 2,146,686
Heights Heights, MD
Sheehy Auto Stores Total 10,197,288 3,873,381 14,070,669

Town and Country Automotive Town & Country Super Used Middletown, CT 177,302 1,081,524 1,258,896
Car Store
Town and Country Automotive Town & Country Middletown, CT 542,436 1,238,415 1,780,851
Lincoln-Mercury, Mazda
Town and Country Automotive Town & Country Chrysler/Jeep Middletown, CT 697,507 765,319 1,462,826
Town and Country Automotive Town & Country Jeep/Mazda Ivorytown, CT 302,509 905,317 1,207,826
Town and Country Automotive Town & Country Buick, Middletown, CT 452,629 1,484,056 1,936,685
Pontiac-GMC, Olds, Cadillac
Town and Country
Automotive Total 2,172,383 5,474,631 7,647,084

Warren Henry Automobiles Warren Henry Infiniti Miami, FL 3,277,095 2,562,606 5,839,701
Warren Henry Automobiles Warren Henry Land Rover Miami, FL 958,959 913,175 1,872,134
Warren Henry Automobiles Warren Henry Jaguar/Volvo Miami, FL 2,560,915 2,430,812 4,991,727
Warren Henry Automobiles
Total 6,796,969 5,906,593 12,703,562
------------ ------------ ------------
Grand Total $238,969,562 $272,161,869 $511,131,501
============ ============ ============

Dealer Group Name Accumulated Date Depreciation
Depreciation Acquired Life
- --------------------------- ------------ -------- ------------

Roundtree Automotive Group 17,175 6/4/98 20 years
Roundtree Automotive Group 52,321 6/4/98 20 years
Roundtree Automotive Group 11,094 6/4/98 20 years

Roundtree Automotive Group 30,874 6/4/98 20 years
Roundtree Automotive Group 6,818 6/4/98 20 years
Roundtree Automotive Group - 9/1/98 20 years

Roundtree Automotive Group
Total 486,690

Sheehy Auto Stores 92,196 2/19/98 20 years
Sheehy Auto Stores 354 2/19/98 20 years

Sheehy Auto Stores 36,059 2/19/98 20 years

Sheehy Auto Stores 40,852 2/19/98 20 years

Sheehy Auto Stores Total 169,461

Town and Country Automotive 29,291 6/9/98 20 years
Town and Country Automotive 33,540 6/9/98 20 years
Town and Country Automotive 20,727 6/9/98 20 years
Town and Country Automotive 24,519 6/9/98 20 years
Town and Country Automotive 40,193 6/9/98 20 years
Town and Country
Automotive Total 148,270

Warren Henry Automobiles 48,049 8/28/98 20 years
Warren Henry Automobiles 17,122 8/28/98 20 years
Warren Henry Automobiles 45,578 8/28/98 20 years
Warren Henry Automobiles
Total 110,749
-----------
Grand Total $ 6,144,521
===========

Notes:
(1) Gross amount is equal to the initial cost to the Company except as noted in
Note (2).
(2) Total purchase price includes $1,700,000 of renovations subsequent to the
acquisition date.
(3) Included in the total purchase price are certain acquisition fees and
expenses (i.e consulting and attorney fees).
(4) Depreciation is computed using the straight-line method over an estimated
useful life of 20 years for buildings and improvements.