##### 



FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(Mark One)

|    |  |                                                                                        
|--- |  | ---------------------------------------------------------------------------------------
|(X) |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For quarterly period ended March 31, 2003

|     |  |                                                                                         
|---- |  | ----------------------------------------------------------------------------------------
|(  ) |  | 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 charter)

|                        |  |                                        
|----------------------- |  | ---------------------------------------
|Maryland                |  | 54-1870224                             
|(State of organization) |  | (I.R.S. Employer Identification Number)

8270 Greensboro Drive, Suite 950, McLean, Virginia 22102
(Address of principal executive offices and zip code)

(703) 288-3075
(Registrants telephone Number, including area code)

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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes X    No

Number of common shares of beneficial interest outstanding as of April 30, 2003
was 31,301,719.

1



---



##### 



CAPITAL AUTOMOTIVE REIT
FORM 10-Q
INDEX

|                                                        |                                                                                                |                                                                                                                                           |         |          |        | 
|------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------- | ------- | -------- | ------ | 
|                                                        |                                                                                                |                                                                                                                                           |         | Page No.
|                                                        |                                                                                                |                                                                                                                                           |         |         
|Part I  Financial Information                          |                                                                                                |                                                                                                                                           |         |         
|                                                        | Item 1  Financial Statements                                                                  |                                                                                                                                           |         |          |       
|                                                        |                                                                                                | Consolidated Balance Sheets  March 31, 2003 (unaudited) and
December 31, 2002                                                            |         |          | 3      | 
|                                                        |                                                                                                | Consolidated Statements of Operations (unaudited)  three months
ended March 31, 2003 and March 31, 2002                                  |         |          | 4      | 
|                                                        |                                                                                                | Consolidated Statements of Cash Flows (unaudited)  three months ended
March 31, 2003 and March 31, 2002                                  |         |          | 5      | 
|                                                        |                                                                                                | Consolidated Statements of Changes in Shareholders Equity and Other
Comprehensive Income (unaudited)  three months ended
March 31, 2003 |         |          | 6      | 
|                                                        |                                                                                                | Notes to Consolidated Financial Statements (unaudited)                                                                                    |         |          | 7  17 | 
|                                                        | Item 2  Managements Discussion and Analysis of Financial Condition
and Results of Operations |                                                                                                                                           |         | 18  30  |       
|                                                        | Item 3  Quantitative and Qualitative Disclosures About Market Risk                            |                                                                                                                                           |         | 30  31  |       
|                                                        | Item 4  Controls and Procedures                                                               |                                                                                                                                           |         | 31  33  |       
|Part II  Other Information                             |                                                                                                |                                                                                                                                           |         |         
|                                                        | Item 1  Legal Proceedings                                                                     |                                                                                                                                           |         | 34       |       
|                                                        | Item 2  Changes in Securities                                                                 |                                                                                                                                           |         | 34       |       
|                                                        | Item 3  Defaults Upon Senior Securities                                                       |                                                                                                                                           |         | 34       |       
|                                                        | Item 4  Submission of Matters to Vote to Security Holders                                     |                                                                                                                                           |         | 34       |       
|                                                        | Item 5  Other Information                                                                     |                                                                                                                                           |         | 34       |       
|                                                        | Item 6  Exhibits and Reports on Form 8-K                                                      |                                                                                                                                           |         | 34       |       
|Signatures                                              |                                                                                                |                                                                                                                                           | 35      |         
|Rule 13a-14(a) Certification of Chief Executive Officer |                                                                                                |                                                                                                                                           | 36  37 |         
|Rule 13a-14(a) Certification of Chief Financial Officer |                                                                                                |                                                                                                                                           | 38  39 |         

2



---



##### 



PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
CAPITAL AUTOMOTIVE REIT
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

|                                                                                                                                                                                                           |                            |                   |                                            |         |             |           |              |         |           |           | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ----------------- | ------------------------------------------ | ------- | ----------- | --------- | ------------ | ------- | --------- | --------- | 
|                                                                                                                                                                                                           |                            |                   |                                            |         | March 31,   |           | December 31,
|                                                                                                                                                                                                           |                            |                   |                                            |         | 2003        |           | 2002        
|                                                                                                                                                                                                           |                            |                   |                                            |         |             |           |             
|                                                                                                                                                                                                           |                            |                   |                                            |         | (Unaudited) |           |              |         |          
|ASSETS                                                                                                                                                                                                     |                            |                   |                                            |         |             |           |              |        
|Real estate:                                                                                                                                                                                               |                            |                   |                                            |         |             |           |              |        
|                                                                                                                                                                                                           | Land                       |                   | $                                          | 641,751 |             |           | $            | 632,868 |          
|                                                                                                                                                                                                           | Buildings and improvements |                   |                                            | 948,360 |             |           |              | 941,285 |          
|                                                                                                                                                                                                           | Accumulated depreciation   |                   |                                            | (92,736 | )           |           |              | (85,523 | )        
|                                                                                                                                                                                                           |                            |                   |                                            |         |             |           |              |        
|                                                                                                                                                                                                           |                            |                   | 1,497,375                                  |         |             |           | 1,488,630    |        
|Cash and cash equivalents                                                                                                                                                                                  |                            |                   | 14,255                                     |         |             |           | 7,442        |        
|Other assets, net                                                                                                                                                                                          |                            |                   | 56,269                                     |         |             |           | 46,398       |        
|                                                                                                                                                                                                           |                            |                   |                                            |         |             |           |              |        
|                                                                                                                                                                                                           |                            | Total Assets      |                                            | $       | 1,567,899   |           |              | $       | 1,542,470 |          
|                                                                                                                                                                                                           |                            |                   |                                            |         |             |           |              |        
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                                       |                            |                   |                                            |         |             |           |              |        
|Liabilities:                                                                                                                                                                                               |                            |                   |                                            |         |             |           |              |        
|Mortgage debt                                                                                                                                                                                              |                            | $                 | 1,029,112                                  |         |             | $         | 898,733      |        
|Borrowings under credit facilities                                                                                                                                                                         |                            |                   | 2                                          |         |             |           | 111,096      |        
|Accounts payable and accrued expenses                                                                                                                                                                      |                            |                   | 30,674                                     |         |             |           | 29,022       |        
|Security deposits payable                                                                                                                                                                                  |                            |                   | 7,070                                      |         |             |           | 6,948        |        
|                                                                                                                                                                                                           |                            |                   |                                            |         |             |           |              |        
|                                                                                                                                                                                                           |                            | Total Liabilities |                                            |         | 1,066,858   |           |              |         | 1,045,799 |          
|                                                                                                                                                                                                           |                            |                   |                                            |         |             |           |              |        
|Minority Interest                                                                                                                                                                                          |                            |                   | 114,606                                    |         |             |           | 116,048      |        
|Shareholders Equity                                                                                                                                                                                       |                            |                   |                                            |         |             |           |              |        
|Preferred shares, par value $.01 per share; 20 million shares authorized,
no shares issued or outstanding                                                                                                  |                            |                   |                                           |         |             |           |             |        
|Common shares, par value $.01 per share; 100 million shares authorized,
28,798,092 shares issued and outstanding as of March 31, 2003 and
28,321,396 shares issued and outstanding as of December 31, 2002 |                            |                   | 288                                        |         |             |           | 283          |        
|Additional paid-in-capital                                                                                                                                                                                 |                            |                   | 421,462                                    |         |             |           | 413,688      |        
|Deferred compensation                                                                                                                                                                                      |                            |                   | (2,675                                     | )       |             |           | (1,550       | )      
|Accumulated other comprehensive income (loss)                                                                                                                                                              |                            |                   | (17,472                                    | )       |             |           | (16,274      | )      
|Distributions in excess of accumulated earnings                                                                                                                                                            |                            |                   | (15,168                                    | )       |             |           | (15,524      | )      
|                                                                                                                                                                                                           |                            |                   |                                            |         |             |           |              |        
|                                                                                                                                                                                                           |                            |                   | Total Shareholders Equity                 |         |             | 386,435   |              |         |           | 380,623   | 
|                                                                                                                                                                                                           |                            |                   |                                            |         |             |           |              |        
|                                                                                                                                                                                                           |                            |                   | Total Liabilities and Shareholders Equity |         | $           | 1,567,899 |              |         | $         | 1,542,470 | 
|                                                                                                                                                                                                           |                            |                   |                                            |         |             |           |              |        

See accompanying Notes to Consolidated Financial Statements.

3



---



##### 



CAPITAL AUTOMOTIVE REIT
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

|                                                                              |                              |                               |        |                    |        |      |        |        |        | 
|----------------------------------------------------------------------------- | ---------------------------- | ----------------------------- | ------ | ------------------ | ------ | ---- | ------ | ------ | ------ | 
|                                                                              |                              |                               |        | Three Months Ended
|                                                                              |                              |                               |        | March 31,         
|                                                                              |                              |                               |        | 2003               |        | 2002
|                                                                              |                              |                               |        |                    |        |     
|Revenue:                                                                      |                              |                               |        |                    |        |      |        |       
|Rental                                                                        |                              | $                             | 40,238 |                    |        | $    | 32,152 |       
|Interest and other                                                            |                              |                               | 223    |                    |        |      | 129    |       
|                                                                              |                              |                               |        |                    |        |      |        |       
|                                                                              |                              | Total revenue                 |        |                    | 40,461 |      |        |        | 32,281 | 
|                                                                              |                              |                               |        |                    |        |      |        |       
|Expenses:                                                                     |                              |                               |        |                    |        |      |        |       
|Depreciation and amortization                                                 |                              |                               | 7,426  |                    |        |      | 5,912  |       
|General and administrative                                                    |                              |                               | 2,233  |                    |        |      | 2,123  |       
|Interest                                                                      |                              |                               | 15,374 |                    |        |      | 10,184 |       
|                                                                              |                              |                               |        |                    |        |      |        |       
|                                                                              |                              | Total expenses                |        |                    | 25,033 |      |        |        | 18,219 | 
|                                                                              |                              |                               |        |                    |        |      |        |       
|Income from continuing operations before minority interest                    |                              |                               | 15,428 |                    |        |      | 14,062 |       
|Minority interest                                                             |                              |                               | (3,559 | )                  |        |      | (3,260 | )     
|                                                                              |                              |                               |        |                    |        |      |        |       
|Income from continuing operations                                             |                              |                               | 11,869 |                    |        |      | 10,802 |       
|                                                                             
|Income from discontinued operations                                           |                              |                               | 32     |                    |        |      | 52     |       
|Gain on sale of real estate                                                   |                              |                               | 35     |                    |        |      |       |       
|                                                                              |                              |                               |        |                    |        |      |        |       
|                                                                              |                              | Total discontinued operations |        |                    | 67     |      |        |        | 52     | 
|                                                                              |                              |                               |        |                    |        |      |        |       
|Net income                                                                    |                              | $                             | 11,936 |                    |        | $    | 10,854 |       
|                                                                              |                              |                               |        |                    |        |      |        |       
|                                                                             
|Shares of common stock outstanding used to
compute basic earnings per share   |                              |                               | 28,279 |                    |        |      | 26,547 |       
|                                                                              |                              |                               |        |                    |        |      |        |       
|Basic earning per share:                                                      |                              |                               |        |                    |        |      |        |       
|Income from continuing operations                                             |                              | $                             | 0.42   |                    |        | $    | 0.41   |       
|Net income                                                                    |                              | $                             | 0.42   |                    |        | $    | 0.41   |       
|                                                                             
|Shares of common stock outstanding used to
compute diluted earnings per share |                              |                               | 29,205 |                    |        |      | 27,834 |       
|                                                                              |                              |                               |        |                    |        |      |        |       
|Diluted earnings per share:                                                   |                              |                               |        |                    |        |      |        |       
|Income from continuing operations                                             |                              | $                             | 0.41   |                    |        | $    | 0.39   |       
|Net income                                                                    |                              | $                             | 0.41   |                    |        | $    | 0.39   |       
|                                                                             
|                                                                              | Dividends declared per share |                               | $      | 0.4065             |        |      | $      | 0.3890 |       

See accompanying Notes to Consolidated Financial Statements.

4



---



##### 



CAPITAL AUTOMOTIVE REIT
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

|                                                                                  |                                                     |   |                              |         |      |   |         |         |  
|--------------------------------------------------------------------------------- | --------------------------------------------------- | - | ---------------------------- | ------- | ---- | - | ------- | ------- | -
|                                                                                  |                                                     |   | Three Months Ended March 31,
|                                                                                  |                                                     |   | 2003                         |         | 2002
|                                                                                  |                                                     |   |                              |         |     
|Cash flows from operating activities:                                             |                                                     |   |                              |         |      |   |         |        
|Net income                                                                        |                                                     | $ | 11,936                       |         |      | $ | 10,854  |        
|Adjustments to reconcile net income to net cash
provided by operating activities: |                                                     |   |                              |         |      |   |         |        
|Gain on disposition of real estate net of minority interest                       |                                                     |   | (35                          | )       |      |   |        |        
|Stock compensation expense                                                        |                                                     |   | 334                          |         |      |   | 281     |        
|Depreciation and amortization                                                     |                                                     |   | 7,951                        |         |      |   | 6,238   |        
|Income from continuing operations applicable to minority interest                 |                                                     |   | 3,559                        |         |      |   | 3,260   |        
|Income from discontinued operations applicable to minority interest               |                                                     |   | 10                           |         |      |   | 16      |        
|Increase in other assets                                                          |                                                     |   | (1,431                       | )       |      |   | (1,510  | )      
|Increase in accounts payable and accrued expenses                                 |                                                     |   | 590                          |         |      |   | 3,840   |        
|Increase in security deposits payable                                             |                                                     |   | 122                          |         |      |   | 80      |        
|                                                                                  |                                                     |   |                              |         |      |   |         |        
|                                                                                  | Net cash provided by operating activities           |   |                              | 23,036  |      |   |         | 23,059  |  
|                                                                                  |                                                     |   |                              |         |      |   |         |        
|Cash flows from investing activities:                                             |                                                     |   |                              |         |      |   |         |        
|Purchase of furniture and equipment                                               |                                                     |   | (20                          | )       |      |   | (55     | )      
|Real estate acquisitions                                                          |                                                     |   | (17,090                      | )       |      |   | (68,133 | )      
|Real estate dispositions                                                          |                                                     |   | 1,025                        |         |      |   |        |        
|                                                                                  |                                                     |   |                              |         |      |   |         |        
|                                                                                  | Net cash used in investing activities               |   |                              | (16,085 | )    |   |         | (68,188 | )
|                                                                                  |                                                     |   |                              |         |      |   |         |        
|Cash flows from financing activities:                                             |                                                     |   |                              |         |      |   |         |        
|Proceeds from borrowings under credit facilities                                  |                                                     |   |                             |         |      |   | 56,578  |        
|Proceeds from mortgage debt                                                       |                                                     |   | 228,000                      |         |      |   | 48,600  |        
|Repayment of borrowings under credit facilities                                   |                                                     |   | (111,093                     | )       |      |   | (32,400 | )      
|Repayment of mortgage debt                                                        |                                                     |   | (91,638                      | )       |      |   |        |        
|Mortgage principal payments                                                       |                                                     |   | (5,983                       | )       |      |   | (3,350  | )      
|Payments for debt issuance costs                                                  |                                                     |   | (5,760                       | )       |      |   | (910    | )      
|Increase in restricted cash                                                       |                                                     |   | (3,247                       | )       |      |   | (104    | )      
|Payment of cash dividend                                                          |                                                     |   | (10,046                      | )       |      |   | (10,367 | )      
|Distributions to minority partners                                                |                                                     |   | (3,453                       | )       |      |   | (3,114  | )      
|Payment for the purchase of outstanding warrants to purchase common shares        |                                                     |   |                             |         |      |   | (6,328  | )      
|Proceeds from issuance of other common shares, net of costs                       |                                                     |   | 3,082                        |         |      |   | 3,665   |        
|                                                                                  |                                                     |   |                              |         |      |   |         |        
|                                                                                  | Net cash (used in) provided by financing activities |   |                              | (138    | )    |   |         | 52,270  |  
|                                                                                  |                                                     |   |                              |         |      |   |         |        
|Net increase in cash and cash equivalents                                         |                                                     |   | 6,813                        |         |      |   | 7,141   |        
|Cash and cash equivalents at beginning of period                                  |                                                     |   | 7,442                        |         |      |   | 9,490   |        
|                                                                                  |                                                     |   |                              |         |      |   |         |        
|Cash and cash equivalents at end of period                                        |                                                     | $ | 14,255                       |         |      | $ | 16,631  |        
|                                                                                  |                                                     |   |                              |         |      |   |         |        
|Supplemental Data:                                                                |                                                     |   |                              |         |      |   |         |        
|Real estate acquisitions in exchange for equity issuance                          |                                                     | $ |                             |         |      | $ | 19,000  |        
|                                                                                  |                                                     |   |                              |         |      |   |         |        
|Interest paid during the period                                                   |                                                     | $ | 12,407                       |         |      | $ | 5,555   |        
|                                                                                  |                                                     |   |                              |         |      |   |         |        

See accompanying Notes to Consolidated Financial Statements.

5



---



##### 



CAPITAL AUTOMOTIVE REIT
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY AND OTHER COMPREHENSIVE INCOME
(in thousands, except share data)



|                                                                                           |  |               |            |            |  |             |     |          |  |               |         |               |  | Distributions in |         |               |  |       |        | Accumulated |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------------------------ |  | ------------- | ---------- | ---------- |  | ----------- | --- | -------- |  | ------------- | ------- | ------------- |  | ---------------- | ------- | ------------- |  | ----- | ------ | ----------- |  | - | ------- | - |  | - | ------- | -
|                                                                                           |  | Common Shares |            | Additional |  | Excess of   |     |          |  |               |         | Other         |  |                  |         |               |  | Other
|                                                                                           |  |               |            | Paid-in    |  | Accumulated |     | Deferred |  | Comprehensive |         |               |  |                  |         | Comprehensive
|                                                                                           |  | Shares        |            | Par Value  |  | Capital     |     | Earnings |  | Compensation  |         | Income (Loss) |  | Total            |         | Income       
|Balance at December 31, 2002 (audited)                                                     |  |               | 28,321,396 |            |  | $           | 283 |          |  | $             | 413,688 |               |  | $                | (15,524 | )             |  | $     | (1,550 | )           |  | $ | (16,274 | ) |  | $ | 380,623 |  
|Adjustment to reflect minority interest ownership in
Partnership                           |  |               |           |            |  |             |    |          |  |               | 215     |               |  |                  |        |               |  |       |       |             |  |   |        |   |  |   | 215     |  
|Issuance of common shares from dividend
reinvestment and share purchase plan, net of costs |  |               | 66,527     |            |  |             | 1   |          |  |               | 1,580   |               |  |                  |        |               |  |       |       |             |  |   |        |   |  |   | 1,581   |  
|Issuance of restricted shares                                                              |  |               | 61,699     |            |  |             | 1   |          |  |               | 1,416   |               |  |                  |        |               |  |       | (1,417 | )           |  |   |        |   |  |   |        |  
|Amortization of deferred compensation                                                      |  |               |           |            |  |             |    |          |  |               |        |               |  |                  |        |               |  |       | 292    |             |  |   |        |   |  |   | 292     |  
|Issuance of phantom shares, net of forfeitures                                             |  |               | 12,460     |            |  |             |    |          |  |               | 103     |               |  |                  |        |               |  |       |       |             |  |   |        |   |  |   | 103     |  
|Exercise of common stock options and warrants                                              |  |               | 232,451    |            |  |             | 2   |          |  |               | 3,065   |               |  |                  |        |               |  |       |       |             |  |   |        |   |  |   | 3,067   |  
|Redemption of units of limited partnership interest
in the Partnership to common shares    |  |               | 103,559    |            |  |             | 1   |          |  |               | 1,353   |               |  |                  |        |               |  |       |       |             |  |   |        |   |  |   | 1,354   |  
|Accrued compensation                                                                       |  |               |           |            |  |             |    |          |  |               | 42      |               |  |                  |        |               |  |       |       |             |  |   |        |   |  |   | 42      |  
|Change in valuation of interest rate swap                                                  |  |               |           |            |  |             |    |          |  |               |        |               |  |                  |        |               |  |       |       |             |  |   | (1,198  | ) |  |   | (1,198  | )
|Dividends declared                                                                         |  |               |           |            |  |             |    |          |  |               |        |               |  |                  | (11,580 | )             |  |       |       |             |  |   |        |   |  |   | (11,580 | )
|Net income                                                                                 |  |               |           |            |  |             |    |          |  |               |        |               |  |                  | 11,936  |               |  |       |       |             |  |   |        |   |  |   | 11,936  |  
|                                                                                           |  |               |            |            |  |             |     |          |  |               |         |               |  |                  |         |               |  |       |        |             |  |   |         |   |  |   |         |  
|Balance at March 31, 2003 (unaudited)                                                      |  |               | 28,798,092 |            |  | $           | 288 |          |  | $             | 421,462 |               |  | $                | (15,168 | )             |  | $     | (2,675 | )           |  | $ | (17,472 | ) |  | $ | 386,435 |  
|                                                                                           |  |               |            |            |  |             |     |          |  |               |         |               |  |                  |         |               |  |       |        |             |  |   |         |   |  |   |         |  

See accompanying Notes to Consolidated Financial Statements.

6



---



##### 



CAPITAL AUTOMOTIVE REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.     ORGANIZATION AND BASIS OF PRESENTATION

Organization

Capital Automotive REIT, which we refer to as the Company, is a Maryland real
estate investment trust formed in October 1997. We own interests in real
estate and conduct our operations, directly or indirectly, through Capital
Automotive L.P., which we refer to as the Partnership, and its subsidiaries.
We are the sole general partner of the Partnership and, as of March 31, 2003,
owned approximately 77.1% of the units of limited partnership interest in the
Partnership, which we refer to as Units. References to we, us and our
refer to the Company or, if the context requires, the Partnership and our
business and operations conducted through the Partnership and/or directly or
indirectly owned subsidiaries.

Our primary business strategy is to purchase real estate (land, buildings and
other improvements), which we simultaneously lease to operators of franchised
automobile dealerships and motor vehicle service, repair or parts businesses,
used vehicle businesses and other related businesses under long-term,
triple-net leases. Triple-net leases typically require the tenant to pay all
operating expenses of a property, including, but not limited to, all real
estate taxes, assessments and other government charges, insurance, utilities,
repairs and maintenance. We use (i) the term dealerships to refer to these
types of businesses that are operated on our properties, (ii) the term dealer
group to refer to a group of related persons and companies who sell us
properties, and (iii) the terms dealer group, tenant or operators of
dealerships to refer to the related persons and companies that lease our
properties. We focus on leasing properties to dealer groups that have a long
history of operating multi-site, multi-franchised dealerships, generally
targeting the largest dealer groups in terms of revenues in the largest
metropolitan areas in the U.S. in terms of population. In addition, we provide
facility improvement and expansion funding, construction financing and takeout
commitments in certain situations.

As of March 31, 2003, we had invested nearly $1.6 billion in 295 properties
located in 28 states (Alabama, Arizona, California, Colorado, Connecticut,
Florida, Georgia, Idaho, Illinois, Indiana, Louisiana, Maryland, Michigan,
Missouri, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio,
Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah and
Virginia), consisting of approximately 2,096 acres of land and containing
approximately 12.0 million square feet of buildings and improvements. Our
tenants operate 410 motor vehicle franchises on our properties, representing 43
brands of motor vehicles, which include all of the top selling brands in the
U.S. The initial lease terms generally range from 10 to 20 years (with a
weighted average initial lease term for leases entered into during the quarter
ended March 31, 2003 of 20 years), with our entire portfolio having a weighted
average initial lease term of approximately 14.4 years. As of March 31, 2003,
our portfolio had a weighted average remaining lease term of approximately 11.5
years. The leases typically have options to renew upon generally the same
terms and conditions for one or more additional periods of five to 10 years
each, exercisable at the option of the tenant (with renewal options ranging
from a total of five to 40 years).

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared
by management in accordance with accounting principles generally accepted in
the United States, commonly referred to as GAAP, for interim financial
information and in conformity with the rules and regulations of the Securities
and Exchange Commission, commonly referred to as the SEC. Accordingly, they do
not

7



---



##### 



include all of the information and footnotes required by GAAP for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. The results of operations for the three
months ended March 31, 2003, are not necessarily indicative of the results that
may be expected for the full year. These financial statements should be read
in conjunction with our audited consolidated financial statements and footnotes
thereto, included in the Companys Annual Report on Form 10-K for the fiscal
year ended December 31, 2002.

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements of the Company have been
prepared in accordance with GAAP and include the accounts of the Company, its
wholly owned subsidiaries, and other entities where the Company has a majority
ownership, all of which it controls. The equity interests of other investors
are reflected as minority interest. All significant intercompany transactions
and balances have been eliminated in consolidation.

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 and improvements 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 to 40 years for the buildings and improvements.
Real estate depreciation expense was approximately $7.4 million and $5.9
million for the three months ended March 31, 2003 and 2002, respectively.

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. Total depreciation expense related
to our furniture, fixtures and equipment was approximately $22,000 and $16,000
for the three months ended March 31, 2003 and 2002, respectively.

Cash and Cash Equivalents

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

Restricted Cash

Restricted cash consists primarily of cash reserved to fund debt service
payments and funds invested in cash collateral accounts. The purpose of the
cash collateral accounts is to hold funds, generally in the amount of the swap
valuations at any point in time, to protect lenders in case of an early
termination by us. The cash collateral accounts are controlled by the lenders,
however, we earn the interest on the funds held. Restricted cash is included
in other assets and totaled approximately $19.4 million and $16.1 million as of
March 31, 2003 and December 31, 2002, respectively.

Deferred Loan Costs

Certain costs incurred in connection with obtaining our credit facilities and
issuance of mortgage debt are capitalized and generally amortized over the
terms of the respective credit facilities or mortgage debt

8



---



##### 



using the effective interest method or on a straight-line basis which
approximates the effective interest method. Deferred loan costs include lender
fees and other third party costs. These costs, net of accumulated
amortization, are included in other assets and total approximately $18.7
million and $13.4 million as of March 31, 2003 and December 31, 2002,
respectively. Loan cost amortization expense was approximately $522,000 and
$279,000 for the three months ended March 31, 2003 and 2002, respectively.

Capitalized Leasing Costs

Certain initial direct costs incurred by us in negotiating and consummating a
successful lease are capitalized and generally amortized over the initial base
term of the lease. Capitalized leasing costs include employee compensation and
payroll-related fringe benefits directly related to time spent performing
leasing-related activities. These activities include evaluating the
prospective tenants financial condition, evaluating and recording guarantees,
collateral and other security arrangements, negotiating lease terms, preparing
lease documents and closing the transaction. These costs, net of accumulated
amortization, are included in other assets and total approximately $1.3 million
and $1.2 million as of March 31, 2003 and December 31, 2002, respectively.
Leasing cost amortization expense was approximately $41,000 and $36,000 for the
three months ended March 31, 2003 and 2002, respectively.

Income Taxes

We believe we are qualified and will continue to qualify as a real estate
investment trust, commonly referred to as a REIT, under the provisions of the
Internal Revenue Code of 1986, as amended, commonly referred to as the Code.
As a REIT, we are required to distribute at least 90% of our taxable income to
our shareholders and comply with certain other requirements. We generally will
not be subject to federal income tax on taxable income that we distribute to
our shareholders.

Rental Revenue Recognition

We lease our real estate pursuant to long-term, triple-net leases, under which
the tenants typically pay all operating expenses of a property, including, but
not limited to, all real estate taxes, assessments and other government
charges, insurance, utilities, repairs and maintenance. All leases are
accounted for as operating leases and rental income attributable to the leases
is recorded monthly when due from tenants. Rental income attributable to the
majority of our leases is fixed by the lease agreement. However, under our
variable rate lease program, monthly base rent is calculated based on a spread
over an applicable index, typically LIBOR. As of March 31, 2003, approximately
$384.1 million of our nearly $1.6 billion real estate portfolio, or 24%, was
subject to variable rate leases. This compares to approximately $320.5 million
of our approximately $1.3 billion real estate portfolio, or 24%, that was
subject to variable rate leases as of March 31, 2002. The vast majority of our
variable rate lease agreements contain minimum lease rates and fixed rate
conversion features, and none of these leases contains a maximum rate.

Our leases typically provide for upward periodic adjustments in base rent
due from our tenants, usually based on a factor of the change in the consumer
price index, commonly referred to as CPI. Certain of our leases also provide
for fixed minimum and/or maximum periodic adjustments during the initial lease
term, generally based on a fixed percentage of the base rent. We straight-line
the fixed minimum escalator rental income over the initial lease term. Any
rent adjustments above the fixed minimum escalators are recorded as revenue in
the period they are due from the tenants. Straight-lined rents are included in
other assets and totaled approximately $13.0 million and $11.8 million as of
March 31, 2003 and December 31, 2002, respectively. Straight-lined rental
revenue was approximately $1.2 million and $1.5 million for the three months
ended March 31, 2003 and 2002, respectively.

9



---



##### 



Derivative Instruments

To minimize interest rate risk, during 2002 and 2001, we entered into three
interest rate swap arrangements with third parties to fix the interest rate on
the underlying variable rate debt. These swaps were documented as cash flow
hedges and designated as highly effective at inception of the swap agreements,
therefore, in accordance with GAAP, the unrealized gain or loss upon measuring
the swaps at their fair value is recorded as a component of accumulated other
comprehensive income (loss) within shareholders equity on our consolidated
balance sheets. The fair value of the swaps is recorded as either a derivative
instrument asset or a derivative instrument liability on our consolidated
balance sheets.

Share-Based Compensation

The Capital Automotive Group 1998 Equity Incentive Plan (as amended in February
1999 and as restated and amended in February 2002), which we refer to as the
Plan, provides equity compensation to our employees, officers, non-employee
trustees and certain other service providers. At March 31, 2003, we accounted
for our Plan under the recognition and measurement principles of APB Opinion
No. 25, Accounting for Stock Issued to Employees, and related
Interpretations. No share-based compensation expense is reflected in net
income, as all options granted under this plan had an exercise price equal to
or greater than the market value of the underlying common stock on the date of
grant. The following table illustrates the effect on net income and earnings
per share if we had applied the fair value recognition provisions of the
Financial Accounting Standards Board, commonly referred to as FASB, Statement
of Financial Accounting Standards, commonly referred to as SFAS, No. 123,
Accounting for Stock-Based Compensation, and SFAS No. 148, Accounting For
Stock-Based Compensation  Transition and Disclosure, to share-based
compensation (in thousands, except per share data).

|                                                                                                                                     |             |   |                      |      |      |   |        |      | 
|------------------------------------------------------------------------------------------------------------------------------------ | ----------- | - | -------------------- | ---- | ---- | - | ------ | ---- | 
|                                                                                                                                     |             |   | For the Three Months
|                                                                                                                                     |             |   | Ended March 31,     
|                                                                                                                                     |             |   | 2003                 |      | 2002
|                                                                                                                                     |             |   |                      |      |     
|Net income, as reported                                                                                                              |             | $ | 11,936               |      |      | $ | 10,854 |     
|Add: Share-based compensation expense included
in reported net income, net of minority
interest                                      |             |   | 257                  |      |      |   | 216    |     
|Deduct: Total share-based compensation expense
determined under the fair value-based method
for all awards, net of minority interest |             |   | (303                 | )    |      |   | (417   | )   
|                                                                                                                                     |             |   |                      |      |      |   |        |     
|Pro forma net income                                                                                                                 |             | $ | 11,890               |      |      | $ | 10,653 |     
|Basic earnings per share:                                                                                                            |             |   |                      |      |      |   |        |     
|                                                                                                                                     | As reported |   | $                    | 0.42 |      |   | $      | 0.41 | 
|                                                                                                                                     | Pro forma   |   | $                    | 0.42 |      |   | $      | 0.40 | 
|Diluted earnings per share:                                                                                                          |             |   |                      |      |      |   |        |     
|                                                                                                                                     | As reported |   | $                    | 0.41 |      |   | $      | 0.39 | 
|                                                                                                                                     | Pro forma   |   | $                    | 0.41 |      |   | $      | 0.39 | 

Use of Estimates

The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.

10



---



##### 



Reclassifications

Certain amounts in the 2002 consolidated financial statements have been
reclassified to conform with the current year presentation.

3.     NEW ACCCOUNTING PRONOUNCEMENTS

In January 2003, the FASB issued FASB Interpretation No. 46, commonly referred
to as FIN 46, Consolidation of Variable Interest Entities. Under FIN 46,
companies will be required to determine if they are the primary beneficiary of
a variable interest entity, commonly referred to as a VIE. If they are the
primary beneficiary, the VIE must be consolidated. All companies with variable
interests in VIEs created after January 31, 2003 must apply the provisions of
FIN 46 immediately. Public companies with a variable interest in a VIE created
before February 1, 2003 shall apply the provisions of FIN 46 no later than the
beginning of the first interim or annual reporting period beginning after June
15, 2003. If it is reasonably possible that a company will consolidate or
disclose information about a VIE when FIN 46 becomes effective, certain
disclosures are required in all financial statements issued after January 31,
2003. FIN 46 has not had a significant impact on our financial condition or
results of operations.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
Among other items, SFAS No. 145 rescinds FASB Statement No. 4, Reporting of
Gains and Losses from Extinguishment of Debt and Extinguishments of Debt Made
to Satisfy Sinking-Fund Requirements. As a result, gains and losses from
extinguishment of debt should be classified as extraordinary items only if they
meet the criteria of APB Opinion No. 30, Reporting the Results of Operations 
Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual, and Infrequently Occurring Events and Transactions.
SFAS No. 145 is effective for fiscal years beginning after May 15, 2002.
Beginning with the filing of these interim financial statements, we have
implemented SFAS No. 145. As a result, we reclassified expenses related to an
extinguishment of debt during 2001 from an extraordinary item, totaling
$526,000 net of minority interest, to interest expense, totaling $702,000
before minority interest. This reclassification decreased our income from
continuing operations before minority interest for 2001, but had no impact on
our net income.

4.     ACQUISITIONS

During the three months ended March 31, 2003, we completed the acquisition of
four properties for a total of approximately $17.1 million. These properties
are leased to subsidiaries of Asbury Automotive Group, Inc. We paid for the
acquisitions with net proceeds received from the debt securitization completed
during the first quarter of 2003, as discussed in Note 6 below. These
acquisitions added approximately 56,000 square feet of buildings and
improvements on approximately 25 acres of land in two states (Florida and
Texas). The weighted average initial lease term of these properties is 20
years. Each lease has two, 10-year renewal options exercisable at the option
of the tenant. As of March 31, 2003, we leased four properties to subsidiaries
of Asbury Automotive Group, Inc., representing approximately 1% of our total
annualized rental revenue.

5.     DISCONTINUED OPERATIONS

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (effective for the Company on January 1, 2002).
SFAS No. 144 requires that gains and losses from dispositions of properties and
all operating earnings from these properties be reported as

11



---



##### 



discontinued
operations. This also requires that all past earnings applicable to a
property disposed of
subsequent to January 1, 2002 be reported as discontinued operations. As a
result, previously reported income from continuing operations will be updated
each time a property is sold. This requirement is for presentation only and
has no impact on net income.

During the three months ended March 31, 2003, we sold one property and received
net proceeds of approximately $1.0 million resulting in a gain of approximately
$46,000. The property had a carrying value on the date of sale of
approximately $979,000. The gain on the disposition of this property and the
earnings generated from this property have been reported as discontinued
operations in accordance with SFAS No. 144 and are presented net of minority
interest. Revenue from properties sold subsequent to January 1, 2002 (not
including the gain on the sale of the properties) for the three months ended
March 31, 2003 and 2002 was $48,000 and $191,000, respectively. Total
discontinued operations from properties sold subsequent to January 1, 2002 for
the three months ended March 31, 2003 and 2002 was $67,000 and $52,000,
respectively.

6.     MORTGAGE DEBT AND REVOLVING CREDIT FACILITIES

As of March 31, 2003, we had total debt outstanding of approximately $1.0
billion (consisting of approximately $806.5 million of fixed rate and
approximately $222.6 million of variable rate debt), which was mortgage debt
secured by approximately 265 of our properties. In addition, we had $2,000
outstanding on our revolving credit facilities.

12



---



##### 



The following is a summary of our total debt outstanding as of March 31, 2003
and December 31, 2002 (dollars in thousands):

|                                                   |                                   |                      |         |      |  |      |                   |         |                    |          |                    |         |                    |  |      |      |   |                   |     |   | 
|-------------------------------------------------- | --------------------------------- | -------------------- | ------- | ---- |  | ---- | ----------------- | ------- | ------------------ | -------- | ------------------ | ------- | ------------------ |  | ---- | ---- | - | ----------------- | --- | - | 
|                                                   |                                   |                      |         |      |  |      | Principal Balance |         | Principal Balance  |          |                    |         |                    |  |      |      |  
|                                                   |                                   |                      |         |      |  |      | as of March 31,   |         | as of December 31, |          | Effective Interest |         | Term/ Amortization
|Description of Debt                                |                                   | Original Debt Issued |         | 2003 |  | 2002 |                   | Rate*   |                    | Schedule
|                                                  
|7.50% fixed rate debt due 4/20/03 (1)              |                                   | $                    | 12,000  |      |  | $    |                  |         |                    | $        | 10,771             |         |                    |  | 4.34 | %    |   |                   | (1  | )
|7.59% fixed rate debt due 12/1/08 (2)              |                                   |                      | 38,050  |      |  |      | 34,218            |         |                    |          | 34,572             |         |                    |  | 7.94 | %    |   | 10 yr/17 yr      
|7.54% fixed rate debt due 7/6/11 (3)               |                                   |                      | 100,000 |      |  |      | 93,946            |         |                    |          | 94,413             |         |                    |  | 7.85 | %    |   | 12 yr/25 yr      
|7.565% fixed rate debt due 11/12/12 (4)            |                                   |                      | 28,500  |      |  |      | 26,220            |         |                    |          | 26,220             |         |                    |  | 7.68 | %    |   | 12 yr/25 yr      
|7.5975% fixed rate debt due 12/18/12 (4)           |                                   |                      | 32,054  |      |  |      | 29,781            |         |                    |          | 29,781             |         |                    |  | 7.64 | %    |   | 12 yr/30 yr      
|7.50% fixed rate debt due 8/10/13 (5)              |                                   |                      | 82,600  |      |  |      | 78,470            |         |                    |          | 79,158             |         |                    |  | 7.62 | %    |   | 12 yr/30 yr      
|Triple Net Lease Mortgage Notes, Series 2002 (6)   |                                   |                      | 325,000 |      |  |      | 315,853           |         |                    |          | 318,995            |         |                    |  | 7.70 | %    |   |                   | (6  | )
|Triple Net Lease Mortgage Notes, Series 2003-1
(7) |                                   |                      | 228,000 |      |  |      | 228,000           |         |                    |          |                   |         |                    |  | 5.86 | %    |   |                   | (7  | )
|                                                   |                                   |                      |         |      |  |      |                   |         |                    |          |                    |         |                    |  |      |      |   |                   |     |  
|                                                   | Total Mortgage Fixed Rate Debt    |                      |         |      |  |      | $                 | 806,488 |                    |          | $                  | 593,910 |                    |  |      | 7.62 | % |                   |     |   | 
|                                                  
|Variable rate debt due 9/29/11 (8)                 |                                   |                      | 150,000 |      |  |      | 142,842           |         |                    |          | 143,907            |         |                    |  | 3.70 | %    |   | 12 yr/25 yr      
|Various variable rate debt (9)                     |                                   |                      | 83,550  |      |  |      | 79,782            |         |                    |          | 80,049             |         |                    |  | 4.53 | %    |   | 10 to 11 yr/25 yr
|Short-term variable rate debt (10)                 |                                   |                      | 80,867  |      |  |      |                  |         |                    |          | 80,867             |         |                    |  | 4.47 | %    |   |                   | (10 | )
|                                                   |                                   |                      |         |      |  |      |                   |         |                    |          |                    |         |                    |  |      |      |   |                   |     |  
|                                                   | Total Mortgage Variable Rate Debt |                      |         |      |  | $    | 222,624           |         |                    | $        | 304,823            |         |                    |  | 4.12 | %    |   |                   |     |  
|                                                   |                                   |                      |         |      |  |      |                   |         |                    |          |                    |         |                    |  |      |      |   |                   |     |  
|TOTAL MORTGAGE DEBT                                |                                   |                      |         |      |  | $    | 1,029,112         |         |                    | $        | 898,733            |         |                    |  | 6.46 | %    |   |                   |     |  
|                                                  
|$100 million revolving secured facility (11)       |                                   |                      |         |      |  |      | 2                 |         |                    |          | 65,096             |         |                    |  | 4.44 | %    |   |                   | (11 | )
|$60 million revolving unsecured facility (12)      |                                   |                      |         |      |  |      |                  |         |                    |          | 46,000             |         |                    |  | 4.11 | %    |   |                   | (12 | )
|                                                   |                                   |                      |         |      |  |      |                   |         |                    |          |                    |         |                    |  |      |      |   |                   |     |  
|TOTAL CREDIT FACILITIES                            |                                   |                      |         |      |  | $    | 2                 |         |                    | $        | 111,096            |         |                    |  | 4.31 | %    |   |                   |     |  
|                                                   |                                   |                      |         |      |  |      |                   |         |                    |          |                    |         |                    |  |      |      |   |                   |     |  
|TOTAL DEBT OUTSTANDING                             |                                   |                      |         |      |  | $    | 1,029,114         |         |                    | $        | 1,009,829          |         |                    |  | 6.24 | %    |   |                   |     |  
|                                                   |                                   |                      |         |      |  |      |                   |         |                    |          |                    |         |                    |  |      |      |   |                   |     |  



| |  |  | For the quarter ended March 31, 2003. Includes deferred loan fees
amortized over the life of the loans.
| | - |  | -------------------------------------------------------------------------------------------------------



| | (1) |  | This loan was paid off on March 26, 2003 with the net proceeds from
the issuance of the Triple Net Lease Mortgage Notes, Series 2003-1 as
discussed in footnote (7) below.                                                                                                                                                                                                
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | The loan requires monthly payments of principal and interest with a
final payment at maturity of approximately $24.4 million. The
Partnership has provided a guaranty limited to approximately $8.9
million of this loan, contingent upon the occurrence of certain
circumstances.                                                                                        
|
| | (3) |  | The loan requires quarterly payments of principal and interest with a
final payment at maturity of approximately $72.4 million.                                                                                                                                                                                                                                           
|
| | (4) |  | These loans require quarterly interest and level principal payments
until maturity, at which time the loans require final payments totaling
approximately $33.5 million. These loans bear interest equal to the
30-day LIBOR rate plus 215 basis points. We have entered into interest
rate swap arrangements with a third party to fix the interest rates on
these loans.
|
| | (5) |  | This loan requires quarterly interest and level principal payments
with a final payment at maturity of approximately $49.6 million. This
loan bears interest equal to the 30-day LIBOR rate plus 175 basis
points. We have entered into                                                                                                                                   

13



---



##### 





| |     |  | an interest rate swap arrangement with a
third party to fix the interest rate on this loan.                                                                                                                                                                                                                                                                                                                                                                                    
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (6) |  | During 2002, one of our subsidiaries issued $325 million in four
classes of Triple Net Lease Mortgage Notes, Series 2002. The notes have
a weighted average effective interest rate (including deferred fees
amortized over the life of the notes) of approximately 7.7%. CARS Loan
Servicer L.L.C., one of our subsidiaries, is servicer of the notes on
behalf of the noteholders. The following is a breakdown of the Triple
Net Lease Mortgage Notes, Series 2002 by class:

|      |  |         |                    |         |                   |               |         |  |  |  |         |  | 
|----- |  | ------- | ------------------ | ------- | ----------------- | ------------- | ------- |  |  |  | ------- |  | 
|      |  |         | Original Principal |         | Current Principal |               |         |  | 
|Class |  | Balance |                    | Balance |                   | Maturity Date
|A-1a  |  |         | 164,136            |         |                   |               | 157,835 |  |  |  | 8/15/14 | 
|A-1b  |  |         | 9,064              |         |                   |               | 9,064   |  |  |  | 7/15/15 | 
|A-2   |  |         | 75,900             |         |                   |               | 73,054  |  |  |  | 7/15/15 | 
|A-3   |  |         | 75,900             |         |                   |               | 75,900  |  |  |  | 6/15/22 | 



| |     |  | Classes A-1a and A-1b are fully-amortizing in succession over their
respective terms and Classes A-2 and A-3 are fully-amortizing in
succession over 20 years. The Partnership has provided a guaranty limited
to approximately $26.1 million of this loan, contingent upon the
occurrence of certain circumstances. In connection with the issuance of
this debt, in certain situations, the Company guarantees payments of
principal and interest and any unpaid debt. The term of the guaranty is
the same as the term of the debt.
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (7) |  | On March 26, 2003, one of our subsidiaries issued $228 million in two
classes of Triple Net Lease Mortgage Notes, Series 2003-1. The debt,
which is collateralized by 50 properties, is fixed rate. CARS Loan
Servicer L.L.C. is servicer of the notes on behalf of the noteholders.
The following is a breakdown of the Triple Net Lease Mortgage Notes,
Series 2003-1 by class:                                                                                                                                                     

|      |  |                    |         |                   |  |               |         |  |  |  |         | 
|----- |  | ------------------ | ------- | ----------------- |  | ------------- | ------- |  |  |  | ------- | 
|      |  | Original Principal |         | Current Principal |  |               |         | 
|Class |  | Balance            |         | Balance           |  | Maturity Date
|A-1   |  |                    | 109,000 |                   |  |               | 109,000 |  |  |  | 9/25/15 | 
|A-2   |  |                    | 119,000 |                   |  |               | 119,000 |  |  |  | 3/25/19 | 



| |      |  | The Class A-1 and Class A-2 notes have weighted average effective interest
rates (including deferred fees amortized over the life of the notes) of
approximately 5.4% and 6.3%, respectively. The notes amortize in
succession over a 20-year amortization schedule with the Class A-1 notes
fully-amortizing and the Class A-2 notes requiring a final payment at
maturity of approximately $70.8 million. Net proceeds were used to pay
down borrowings on the Companys short-term credit facilities totaling
approximately $111 million and to pay off approximately $92 million of
short-term variable rate mortgage debt due in April 2003. The remaining
net proceeds were used to fund acquisitions and for general corporate
purposes. In connection with the issuance of this debt, in certain
situations, the Company guarantees payments of principal and interest and
any unpaid debt. The term of the guaranty is the same as the term of the
debt.
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (8)  |  | The loan bears interest equal to the 30-day LIBOR rate plus 227 basis
points and requires monthly level payments of principal and interest
with a final payment at maturity of approximately $106.9 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | (9)  |  | These loans bear interest at variable rates ranging from 200 to 357
basis points above the A1/P1 Commercial Paper Rate or the 30-day LIBOR
rate and have maturity dates ranging from December 22, 2009 to May 1,
2012. The terms of the various loans require either quarterly interest
and level principal payments or monthly level payments of principal and
interest until maturity, at which time the loans require final payments
totaling approximately $62.3 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | (10) |  | This short-term loan was paid off on March 26, 2003 with the net
proceeds from the issuance of the Triple Net Lease Mortgage Notes,
Series 2003-1 as discussed in footnote (7) above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | (11) |  | Amounts borrowed under this facility bear interest at market rates
determined at the time of each draw until such time as the Company and
the lender set an interest rate for any future amounts borrowed under
the facility. As of March 31, 2003, the borrowings under the facility
bear interest equal to the 30-day LIBOR rate plus 305 basis points.
Properties are eligible within the borrowing base for 150 days, unless
extended by the Company and the lender. The facility has a one-year
term, which terminates on March 21, 2004, and is renewable annually.                                                                                                                                                                                                                                                                                                                                                                                        
|
| | (12) |  | The facility provides for a three-year term with interest determined,
at the Companys option, at either the Prime rate less 50 basis points
or the one-month, two-month or three-month LIBOR rate plus 200 basis
points. Properties are eligible within the borrowing base for 180 days,
unless extended by the Company and the lender.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

As of March 31, 2003, we were in compliance with all of the debt covenants
related to our mortgage debt and credit facilities.

14



---



##### 



Aggregate annual principal maturities (which includes principal amortization)
of mortgage debt as of March 31, 2003 are as follows (in thousands):

|                                |  |   |           | 
|------------------------------- |  | - | --------- | 
|For the Year Ended December 31, |  |   |           | 
|2003                            |  | $ | 25,950    | 
|2004                            |  |   | 33,894    | 
|2005                            |  |   | 35,963    | 
|2006                            |  |   | 38,087    | 
|2007                            |  |   | 40,365    | 
|Thereafter                      |  |   | 854,853   | 
|                                |  |   |           | 
|Total                           |  | $ | 1,029,112 | 
|                                |  |   |           | 

Interest Rate Swaps

To minimize interest rate risk, during 2002 and 2001, we entered into three
interest rate swap arrangements with third parties to fix the interest rate on
the underlying variable rate debt, totaling approximately $141 million. These
swaps were designed to mirror the underlying variable rate debt in terms of
index, spread, reset, amortization, compounding and maturity. Due to the
identical nature of the terms of the swap arrangements and the underlying terms
of the debt, these swaps were documented as cash flow hedges and designated as
highly effective at inception of the swap arrangements. Therefore, in
accordance with GAAP, the unrealized gain or loss upon measuring the swaps at
their fair value is recorded as a component of accumulated other comprehensive
income (loss) within shareholders equity on our consolidated balance sheets.
The fair value of the swaps is recorded as either a derivative instrument asset
or a derivative instrument liability on our consolidated balance sheets. In
addition, we are required to post collateral, generally in the amount of the
swap valuations at any point in time, to protect the lenders in case of an
early termination by us. The collateral posted by us, totaling approximately
$18.1 million and $258,000 as of March 31, 2003 and 2002, respectively, is
included in other assets on our consolidated balance sheets. Total
comprehensive income for the three months ended March 31, 2003 and 2002 was
$10.7 million and $11.5 million, respectively. The unrealized gain (loss) as
of December 31, 2002 and 2001 was as follows (in thousands):

|                                        |  |                 |         |      |  |   |       | 
|--------------------------------------- |  | --------------- | ------- | ---- |  | - | ----- | 
|                                        |  | As of March 31,
|                                        |  | 2003            |         | 2002
|                                        |  |                 |         |     
|Derivative instrument asset (liability) |  | $               | (17,472 | )    |  | $ | 2,875 | 

7.     MINORITY INTEREST

Assets and liabilities allocated to the limited partners (other than the
Company), which we describe as the Minority Interest, are based on their
ownership percentage of the Partnership at the end of the period. The
ownership percentage is determined by dividing the number of Units held by the
Minority Interest at the end of the period by the total Units outstanding at
the end of the period, excluding derivative securities. The Minority Interest
ownership percentage in assets and liabilities of the Partnership was 22.9% and
23.4% as of March 31, 2003 and December 31, 2002, respectively.

Income before minority interest is allocated to the limited partners based on
their weighted average ownership during the period. The ownership percentage
is determined by dividing the weighted average number of Units held by the
Minority Interest by the total weighted average number of Units outstanding
during the period, excluding derivative securities. The Minority Interest
ownership percentage in income

15



---



##### 



of the Partnership was 23.1% and 23.2% for the
three months ended March 31, 2003 and 2002, respectively.

Holders of Units, which we refer to as Unitholders, are entitled to quarterly
distributions which are equivalent to the quarterly dividend distributions
received by holders of common shares. There were 8.5 million and 8.6 million
limted partnership units in the Partnership, as of March 31, 2003 and December
31, 2002, respectively, not held by the Company, which were outstanding and
could be exchanged for common shares of the Company on a one-for-one basis in
specified circumstances. When a Unitholder converts Units to shares of common
stock, an adjustment is recorded to equity to reflect the change in the
Minority Interest ownership in the Partnership.

8.     EARNINGS PER SHARE

Basic earnings per share is computed as net income divided by the weighted
average common shares, excluding restricted shares, outstanding for the period.
Diluted earnings per share is computed as net income, adjusted to reflect the
change in the income allocated to minority interest calculated as if the
derivative securities were outstanding, divided by the weighted average common
shares outstanding for the period plus the effect of dilutive securities
outstanding for the period, based on the treasury stock method. Dilutive
securities include options, warrants, phantom shares and restricted shares. A
reconciliation of net income and weighted average common shares used to
calculate basic and diluted earnings per share for the three months ended March
31, 2003 and 2002 is as follows (in thousands, except per share data):

|                                                                               |                            |   |                    |      |      |   |        |      | 
|------------------------------------------------------------------------------ | -------------------------- | - | ------------------ | ---- | ---- | - | ------ | ---- | 
|                                                                               |                            |   | Three Months Ended
|                                                                               |                            |   | March 31,         
|                                                                               |                            |   |                   
|                                                                               |                            |   | 2003               |      | 2002
|                                                                               |                            |   |                    |      |     
|Income from continuing operations                                              |                            | $ | 11,869             |      |      | $ | 10,802 |     
|Adjustments (1)                                                                |                            |   | 88                 |      |      |   | 116    |     
|                                                                               |                            |   |                    |      |      |   |        |     
|Income from continuing operations used to calculate
diluted earnings per share |                            | $ | 11,957             |      |      | $ | 10,918 |     
|                                                                              
|                                                                               | Basic earnings per share   |   | $                  | 0.42 |      |   | $      | 0.41 | 
|                                                                               | Diluted earnings per share |   | $                  | 0.41 |      |   | $      | 0.39 | 
|                                                                              
|                                                                              
|Net income                                                                     |                            | $ | 11,936             |      |      | $ | 10,854 |     
|Adjustments (1)                                                                |                            |   | 89                 |      |      |   | 118    |     
|                                                                               |                            |   |                    |      |      |   |        |     
|Net income used to calculate diluted earnings per share                        |                            | $ | 12,025             |      |      | $ | 10,972 |     
|                                                                              
|                                                                               | Basic earnings per share   |   | $                  | 0.42 |      |   | $      | 0.41 | 
|                                                                               | Diluted earnings per share |   | $                  | 0.41 |      |   | $      | 0.39 | 
|                                                                              
|Weighted average shares:                                                       |                            |   |                    |      |      |   |        |     
|Common shares outstanding used to compute basic
earnings per share             |                            |   | 28,279             |      |      |   | 26,547 |     
|Adjustments (1)                                                                |                            |   | 926                |      |      |   | 1,287  |     
|                                                                               |                            |   |                    |      |      |   |        |     
|Common shares outstanding used to compute diluted
earnings per share           |                            |   | 29,205             |      |      |   | 27,834 |     

16



---



##### 



(1)  The adjustment to income reflects the change in the income allocated to
minority interest calculated as if the dilutive securities were outstanding.
The adjustment to weighted average shares reflects the effect of dilutive
securities outstanding for the period, using the treasury stock method.

9.     DIVIDENDS DECLARED PER SHARE

Dividends are generally declared a quarter in arrears. Dividends declared per
share for the three months ended March 31, 2003 and 2002 represent the fourth
quarter dividend for 2002 and 2001, respectively.

10.     SUBSEQUENT EVENTS

Declaration of Dividend.On April 15, 2003, our Board of Trustees declared a
cash dividend of $0.4085 per share, which will be paid on May 20, 2003 to
shareholders of record as of May 9, 2003.

On April 25, 2003, we sold 2,350,000 common shares in an underwritten public
offering at an initial price to the public of $26.00 per share under our shelf
registration statement filed with the SEC on March 2, 1999 (the Shelf
Registration Statement). Net proceeds to the Company, after deducting the
discounts and commissions to the underwriters and other expenses of this
offering, totaled approximately $57.7 million. In addition, on May 2, 2003,
352,500 common shares subject to the underwriters over-allotment option were
issued at an initial price to the public of $26.00 per share, resulting in net
proceeds of approximately $8.7 million, after deducting the discounts and
commissions to the underwriters. After the offering, $64.2 million remains
available under the Shelf Registration Statement for the issuance of
securities. The Company contributed the net proceeds of the offering to the
Operating Partnership in exchange for Units in the Operating Partnership and
will use them to fund future acquisitions, repay borrowings under our
short-term credit facilities and for general corporate purposes.

17



---



##### 



CAPITAL AUTOMOTIVE REIT
ITEM II  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 
THREE MONTHS ENDED MARCH 31, 2003 AND MARCH 31, 2002

The following discussion should be read in conjunction with the accompanying
unaudited consolidated financial statements and notes thereto.

This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Also,
documents that we subsequently file with the SEC will contain forward-looking
statements. When we refer to forward-looking statements or information,
sometimes we use words such as may, will, could, should, plans,
intends, expects, believes, estimates, anticipates and continues.
In particular, Item II and Item III of Part I of this Form 10-Q describe
forward-looking information. The statements made herein 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 and
the Exchange Act, including the risks and other risk factors contained in the
Companys Form 8-K/A filed on February 12, 2003. Other parts of this Form 10-Q
may also describe forward-looking information. Many things can happen that can
cause our actual results to be different than those described. These factors
include, but are not limited to:



| |  |  | risks that our tenants will not pay rent;                                                                                                                                                                                                                                                                                                                    
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | risk related to our reliance on a small number of
tenants for a significant portion of our revenue;                                                                                                                                                                                                                                                          
|
| |  |  | risks of financing, such as our ability to
consummate planned and additional financings on terms that
are acceptable to us and our ability to meet existing
financial covenants;                                                                                                                                                                             
|
| |  |  | risks that our growth will be limited if we cannot obtain additional capital;                                                                                                                                                                                                                                                                                
|
| |  |  | risks that planned and additional acquisitions may not be consummated;                                                                                                                                                                                                                                                                                       
|
| |  |  | risks related to the automotive industry, such as
the ability of our tenants to compete effectively in the
automotive retail industry and the ability of our tenants
to perform their lease obligations as a result of changes
in any manufacturers production, supply, vehicle
financing, marketing or other practices or changes in the
economy generally;
|
| |  |  | risks generally incident to the ownership of real
property, including adverse changes in economic conditions,
changes in the investment climate for real estate, changes
in real estate taxes and other operating expenses, adverse
changes in governmental rules and fiscal policies and the
relative illiquidity of real estate;                           
|
| |  |  | environmental and other risks associated with the
acquisition and leasing of automotive properties; and                                                                                                                                                                                                                                                      
|
| |  |  | risks related to our status as a REIT for federal
income tax purposes, such as the existence of complex
regulations relating to our status as a REIT, the effect of
future changes in REIT requirements as a result of new
legislation and the adverse consequences of the failure to
qualify as a REIT.                                                     

Given these uncertainties, readers are cautioned not to place undue reliance on
these forward-looking

18



---



##### 



statements. We also make no promise to update any of the
forward-looking statements, or to publicly
release the results if we revise any of them.

OVERVIEW

Our primary business strategy is to purchase real estate (land, buildings and
other improvements), which we simultaneously lease to operators of franchised
automobile dealerships and motor vehicle service, repair or parts businesses,
used vehicle businesses and other related businesses under long-term,
triple-net leases. We focus on leasing properties to dealer groups that have a
long history of operating multi-site, multi-franchised dealerships, generally
targeting the largest dealer groups in terms of revenues in the largest
metropolitan areas in the U.S. in terms of population. In addition, we provide
facility improvement and expansion funding, construction financing and takeout
commitments in certain circumstances. As of March 31, 2003, we had invested
nearly $1.6 billion in 295 properties located in 28 states, consisting of
approximately 2,096 acres of land and containing approximately 12.0 million
square feet of buildings and improvements. Our tenants operate 410 motor
vehicle franchises on our properties, representing 43 brands of motor vehicles,
which include all of the top selling brands in the U.S.

Substantially all of our properties are leased pursuant to long-term,
triple-net leases, under which the tenants typically pay all operating expenses
of a property, including, but not limited to, all real estate taxes,
assessments and other government charges, insurance, utilities, repairs and
maintenance. The initial lease terms generally range from 10 to 20 years (with
a weighted average initial lease term for leases entered into during the
quarter ended March 31, 2003 of 20 years), with our entire portfolio having a
weighted average initial lease term of approximately 14.4 years. As of March
31, 2003, our portfolio had a weighted average remaining lease term of
approximately 11.5 years. The leases typically have options to renew upon
generally the same terms and conditions for one or more additional periods of
five to 10 years each, exercisable at the option of the tenant (with renewal
options ranging from a total of five to 40 years).

Substantially all of our revenues are derived from (1) rents received or
accrued under long-term, triple-net leases; (2) interest earned from the
temporary investment of funds in short-term investments; and (3) other fee
income.

We incur general and administrative expenses including, principally,
compensation expense for our executive officers and other employees,
professional fees, office administration expenses (including rent), business
taxes and insurance and various other expenses incurred in managing our
business. We are a self-administered and self-managed real estate company
operating as a real estate investment trust, or a REIT, for federal income tax
purposes. Our primary non-cash expense is the depreciation of our properties.
We depreciate buildings and improvements on our properties over a nine-year to
40-year period for tax purposes and a 20-year to 40-year period for financial
reporting purposes. We do not own or lease any significant personal property,
furniture or equipment at any property we currently own.

RECENT DEVELOPMENTS

On April 25, 2003, we sold 2,350,000 common shares in an underwritten public
offering at an initial price to the public of $26.00 per share under our shelf
registration statement filed with the SEC on March 2, 1999 (the Shelf
Registration Statement). Net proceeds to the Company, after deducting the
discounts and commissions to the underwriters and other expenses of this
offering, totaled approximately $57.7 million. In addition, on May 2, 2003,
352,500 common shares subject to the underwriters over-allotment option were
issued at an initial price to the public of $26.00 per share, resulting in net
proceeds of approximately $8.7 million, after deducting the discounts and
commissions to the underwriters. After the offering, $64.2 million remains
available under the Shelf Registration Statement for the issuance of
securities. The Company contributed the net proceeds of the offering to the
Operating Partnership in

19



---



##### 



exchange for Units in the Operating Partnership and
will use them to fund future acquisitions, repay
borrowings under our short-term credit facilities and for general corporate
purposes.

FIRST QUARTER ACQUISITIONS

During the three months ended March 31, 2003, we completed the acquisition of
four properties for a total of approximately $17.1 million. These properties
are leased to subsidiaries of Asbury Automotive Group, Inc. We paid for the
acquisitions with net proceeds received from the debt securitization completed
during the first quarter of 2003, as discussed in Liquidity and Capital
Resources  Mortgage Debt and Revolving Credit Facilitiesbelow. These
acquisitions added approximately 56,000 square feet of buildings and
improvements on approximately 25 acres of land in two states (Florida and
Texas). The weighted average initial lease term of these properties is 20
years. Each lease has two, 10-year renewal options exercisable at the option
of the tenant. As of March 31, 2003, we leased four properties to subsidiaries
of Asbury Automotive Group, Inc., representing approximately 1% of our total
annualized rental revenue.

RESULTS OF OPERATIONS

Revenue

Rental.Rental revenue for the three months ended March 31, 2003 increased 25%
to $40.2 million from $32.2 million for the same quarter in 2002. The increase
was primarily attributable to:



| |  | the growth of our real estate portfolio, the timing of our property
acquisitions and whether or not our leases have fixed minimum
escalators, from which we generate our rental income. We owned 295
properties as of March 31, 2003 versus 274 properties as of March 31,
2002, although four of the properties owned as of March 31, 2002 were
sold subsequent to March 31, 2002 and reclassified from rental revenue
to discontinued operations as discussed under "-Discontinued
Operationsbelow;
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | during the first quarter of 2002, we converted the leases on
approximately $71.2 million of properties leased to a tenant from
variable rate to fixed rate, resulting in an increase in rental
revenue. Other terms of the leases, including lease escalators,
remained unchanged; and                                                                                                                                                                                                                
| 
| |  | an increase from rent adjustments above the fixed minimum escalators,
which are recorded as revenue in the period they are due from the
tenants.                                                                                                                                                                                                                                                                                                                                                      

Interest and Other.Interest and other income for the three months ended March
31, 2003 increased 73% to $223,000 from $129,000 for the same quarter in 2002.
The increase was primarily due to an increase in interest earned on funds
invested in our cash collateral accounts, totaling $18.1 million and $258,000
as of March 31, 2003 and 2002, respectively, and an increase in other fee
income. The purpose of the cash collateral accounts is to hold funds,
generally in the amount of the swap valuations at any point in time, to protect
the lenders in case of an early termination by us. The cash collateral
accounts are controlled by the lenders, however, we earn interest on the funds
held.

Expenses

Depreciation and Amortization.Depreciation and amortization for the three
months ended March 31, 2003 increased 26% to $7.4 million from $5.9 million for
the same quarter in 2002. Depreciation and amortization consisted primarily of
depreciation on buildings and improvements owned during those

20



---



##### 



periods. The
increase is attributable to the growth of our real estate portfolio, resulting
in an increase in
our depreciable assets.

General and Administrative.General and administrative expenses for the three
months ended March 31, 2003 increased $110,000, or 5%, to $2.2 million from
$2.1 million for the same quarter in 2002. The increase in operating expenses
is due primarily to:



| |  | an increase in payroll and related expenses primarily attributable to an increase in base compensation, the award of
additional stock based compensation to employees, and an increase in the number of employees;
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | an increase in rent and occupancy costs due to the relocation of our offices during the fourth quarter of 2002;                                                                                                   
| 
| |  | an increase in directors and officers insurance due to an increase in market rates;                                                                                                                               
| 
| |  | the purchase of errors and omissions insurance which our subsidiary, CARS Loan Servicer L.L.C., is required to maintain as
a condition to servicing the debt securitizations that closed during 2002 and 2003;    
| 
| |  | an increase in fees paid for certain professional services; and                                                                                                                                                   
| 
| |  | an increase in costs associated with our Board of Trustees meetings.                                                                                                                                              

The increase in operating expenses from the same quarter last year was
partially offset by the following:



| |  | a decrease in information technology costs. During the first quarter
of 2002, we initiated several projects that related to the expansion
of our hardware infrastructure to improve security, reliability and
capacity. Partially offsetting this decrease was the cost of an
information technology study performed by an independent third party
during the first quarter of 2003. Included in the study was an
assessment of the integrity of our information technology systems,
including a review of the overall infrastructure and the controls
currently in place; and
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | a decrease in costs associated with public reporting requirements due
to additional costs incurred in conjunction with the printing of our
2001 annual report (due to an increase in the number of shareholders)
that were recorded during the first quarter of 2002.                                                                                                                                                                                                                                                                                                         

Interest.Interest expense for the three months ended March 31, 2003 increased
51% to $15.4 million from $10.2 million for the same quarter in 2002. The
increase in interest expense is primarily due to an increase in our overall
debt. Since March 31, 2002, our overall debt increased from approximately
$770.6 million (consisting of approximately $376.2 million fixed rate and
approximately $394.4 million variable rate debt) to approximately $1.0 billion
(consisting of approximately $806.5 million fixed rate and approximately $222.6
million variable rate debt) as of March 31, 2003, which debt was primarily
obtained to directly or indirectly finance acquisition of properties during
that time period. This increase was partially offset by the decrease in the
effective interest rate on our total debt. The effective interest rate on our
debt, which includes deferred loan fees amortized over the life of the loans,
decreased from 6.84% for the quarter ended March 31, 2002 to 6.24% for the
quarter ended March 31, 2003. In addition, during the first quarter of 2002,
we converted $58.3 million of variable rate debt to fixed rate debt through the
execution of interest rate swap arrangements with a third party resulting in an
increase in interest expense. The interest rate swap arrangements were
executed in conjunction with our conversion of the leases on approximately
$71.2 million of properties leased to a tenant from variable rate to fixed
rate, as described above.

21



---



##### 



Discontinued Operations. Effective in 2002, SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, requires that gains and losses
from dispositions of properties and all operating earnings from these
properties be reported as discontinued operations. This also requires that
all past earnings applicable to a property disposed of subsequent to January 1,
2002 be reported as discontinued operations. As a result, previously
reported income from continuing operations will be updated each time a
property is sold. This requirement is for presentation only and has no impact
on net income. During the three months ended March 31, 2003, we sold one
property and received net proceeds of approximately $1.0 million resulting in a
gain of $46,000. The gain on the disposition of this property and the earnings
generated from this property have been reported as discontinued operations in
accordance with SFAS No. 144 and are presented net of minority interest.
Revenue from properties sold subsequent to January 1, 2002 (not including the
gain on the sale of the properties) for the three months ended March 31, 2003
and 2002 was $48,000 and $191,000, respectively. Total discontinued operations
from properties sold subsequent to January 1, 2002 for the three months ended
March 31, 2003 and 2002 was $67,000 and $52,000, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents were $14.3 million and $16.6 million at March 31,
2003 and March 31, 2002, respectively. The changes in cash and cash
equivalents during the three months ended March 31, 2003 and 2002 were
attributable to operating, investing and financing activities, as described
below.

Operating Activities

Cash provided by operating activities for the three months ended March 31, 2003
and 2002 was $23.0 million and $23.1 million, respectively, and represents, in
each year, cash received primarily from rents under long-term, triple-net
leases, plus interest and other fee income, less normal recurring general and
administrative expenses and interest payments on debt outstanding.

Investing Activities

Cash used in investing activities for the three months ended March 31, 2003 and
2002 was $16.1 million and $68.2 million, respectively, and primarily reflects
the acquisition of dealership properties, facility improvements and
construction financings, net of sales, during those periods.

Financing Activities

Cash used in and provided by financing activities for the three months ended
March 31, 2003 and 2002 was $138,000 and $52.3 million, respectively. Cash
used in financing activities for the three months ended March 31, 2003
primarily reflects:



| |  |  | the repayment of borrowings on our revolving credit facilities totaling $111.1 million;           
| | - |  | --------------------------------------------------------------------------------------------------
|
| |  |  | the repayment of mortgage debt totaling $91.6 million;                                            
|
| |  |  | distributions made to shareholders and minority partners during the
period totaling $13.5 million;
|
| |  |  | payments of principal on outstanding mortgage debt totaling $6.0 million;                         
|
| |  |  | payments for debt issuance costs totaling $5.8 million; and                                       
|
| |  |  | the increase of restricted cash totaling $3.2 million.                                            

The cash used in financing activities was partially offset by:

22



---



##### 





| |  |  | $228.0 million of proceeds received from mortgage debt incurred during the period; and
| | - |  | --------------------------------------------------------------------------------------
|
| |  |  | $3.1 million of proceeds received from the issuance of common shares, net of costs.   

Cash provided by financing activities for the three months ended March 31, 2002
primarily reflects:



| |  |  | $56.6 million of proceeds received from borrowings on our revolving credit facilities;
| | - |  | --------------------------------------------------------------------------------------
|
| |  |  | $48.6 million of proceeds received from mortgage debt incurred during the period; and 
|
| |  |  | $3.7 million of proceeds received from the issuance of common shares, net of costs.   

The cash provided by financing activities was partially offset by:



| |  |  | the repayment of borrowings on our revolving credit facilities totaling $32.4 million;                                                                                                                                     
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | distributions made to shareholders and minority partners during the
period totaling $13.5 million;                                                                                                                         
|
| |  |  | payments made during the first quarter of 2002 totaling $6.0
million and $293,000 to purchase outstanding warrants to purchase
common shares during the fourth quarter of 2001 and first quarter of
2002, respectively; and
|
| |  |  | payments of principal on outstanding mortgage debt totaling $3.4 million;                                                                                                                                                  
|
| |  |  | payments for debt issuance costs totaling $910,000; and                                                                                                                                                                    
|
| |  |  | the increase of restricted cash totaling $104,000.                                                                                                                                                                         

Financing Strategy

To minimize interest rate risk, we typically match the average term of our
long-term debt with the average remaining term of our leases as well as the
type of debt with the type of leases (fixed or variable rate) in order to
maintain an investment spread over the lease term. We describe this process as
match-funding. We currently intend to match-fund at least 70% of our total
outstanding long-term debt with long-term leases. We may change the 70%
guideline at any time without shareholder approval. As of March 31, 2003,
approximately 94% of our debt outstanding was substantially match-funded debt.
As of March 31, 2003, our long-term debt had a weighted average remaining term
of 11.4 years and our leases had a weighted average remaining term of 11.5
years.

We have adopted a policy to limit debt to approximately 65% of our assets
(calculated as total assets plus accumulated depreciation). This policy may be
changed by our Board of Trustees at any time without shareholder approval. As
of March 31, 2003, our debt to assets ratio was approximately 62.0% and our
debt to total market capitalization was approximately 52.6%.

In light of our current financial position, we believe that we will be able to
obtain additional financing for our short-term and long-term liquidity
requirements as discussed in Liquidity Requirementsbelow. We have used and
may continue to use interest rate swap arrangements to minimize interest rate
risk and to match-fund our long-term debt with our long-term leases. However,
there can be no assurance that additional financing or capital will be
available, or that the terms will be acceptable or advantageous to us.

23



---



##### 



Variable Rate Lease Program

We may offer our current and prospective tenants the option of utilizing our
variable rate lease program. Under this program, base rent changes monthly
based upon a spread over an applicable index, typically LIBOR. In addition,
the monthly base rent is typically adjusted upward periodically, usually based
on a factor of the change in the consumer price index, commonly referred to as
CPI. As of March 31, 2003, approximately $384.1 million of our nearly $1.6
billion real estate portfolio, or 24%, was subject to variable rate leases.
The vast majority of our variable rate lease agreements contain minimum lease
rates and fixed rate conversion features, and none of these leases contains a
maximum rate. Upon conversion, the fixed base rent typically continues to be
adjusted upward periodically based on a factor of the change in the CPI or
other escalation provisions set forth in the lease.

We believe that the existing mix of variable rate leases and variable rate debt
improves our balance sheet flexibility, while continuing our policy of
minimizing interest rate risk.

Mortgage Debt and Revolving Credit Facilities

As of March 31, 2003, we had total debt outstanding of approximately $1.0
billion (consisting of approximately $806.5 million of fixed rate and
approximately $222.6 million of variable rate debt), which was mortgage debt
secured by approximately 265 of our properties. In addition, we had $2,000
outstanding on our revolving credit facilities.

24



---



##### 



The following is a summary of our total debt outstanding as of March 31, 2003
and December 31, 2002 (dollars in thousands):

|                                                   |                                   |             |          |                |               |      |                    |         |                   |          |              |         |       |  |      |      |   |                   |     |   | 
|-------------------------------------------------- | --------------------------------- | ----------- | -------- | -------------- | ------------- | ---- | ------------------ | ------- | ----------------- | -------- | ------------ | ------- | ----- |  | ---- | ---- | - | ----------------- | --- | - | 
|                                                   |                                   |             |          |                |               |      | Principal          |         | Principal Balance |          | Effective    |         | Term/
|                                                   |                                   |             | Original |                | Balance as of |      | as of December 31, |         | Interest          |          | Amortization
|Description of Debt                                |                                   | Debt Issued |          | March 31, 2003 |               | 2002 |                    | Rate*   |                   | Schedule
|                                                  
|7.50% fixed rate debt due 4/20/03 (1)              |                                   | $           | 12,000   |                |               | $    |                   |         |                   | $        | 10,771       |         |       |  | 4.34 | %    |   |                   | (1  | )
|7.59% fixed rate debt due 12/1/08 (2)              |                                   |             | 38,050   |                |               |      | 34,218             |         |                   |          | 34,572       |         |       |  | 7.94 | %    |   | 10 yr/17 yr      
|7.54% fixed rate debt due 7/6/11 (3)               |                                   |             | 100,000  |                |               |      | 93,946             |         |                   |          | 94,413       |         |       |  | 7.85 | %    |   | 12 yr/25 yr      
|7.565% fixed rate debt due 11/12/12 (4)            |                                   |             | 28,500   |                |               |      | 26,220             |         |                   |          | 26,220       |         |       |  | 7.68 | %    |   | 12 yr/25 yr      
|7.5975% fixed rate debt due 12/18/12 (4)           |                                   |             | 32,054   |                |               |      | 29,781             |         |                   |          | 29,781       |         |       |  | 7.64 | %    |   | 12 yr/30 yr      
|7.50% fixed rate debt due 8/10/13 (5)              |                                   |             | 82,600   |                |               |      | 78,470             |         |                   |          | 79,158       |         |       |  | 7.62 | %    |   | 12 yr/30 yr      
|Triple Net Lease Mortgage Notes, Series 2002 (6)   |                                   |             | 325,000  |                |               |      | 315,853            |         |                   |          | 318,995      |         |       |  | 7.70 | %    |   |                   | (6  | )
|Triple Net Lease Mortgage Notes, Series 2003-1
(7) |                                   |             | 228,000  |                |               |      | 228,000            |         |                   |          |             |         |       |  | 5.86 | %    |   |                   | (7  | )
|                                                   |                                   |             |          |                |               |      |                    |         |                   |          |              |         |       |  |      |      |   |                   |     |  
|                                                   | Total Mortgage Fixed Rate Debt    |             |          |                |               |      | $                  | 806,488 |                   |          | $            | 593,910 |       |  |      | 7.62 | % |                   |     |   | 
|                                                  
|Variable rate debt due 9/29/11 (8)                 |                                   |             | 150,000  |                |               |      | 142,842            |         |                   |          | 143,907      |         |       |  | 3.70 | %    |   | 12 yr/25 yr      
|Various variable rate debt (9)                     |                                   |             | 83,550   |                |               |      | 79,782             |         |                   |          | 80,049       |         |       |  | 4.53 | %    |   | 10 to 11 yr/25 yr
|Short-term variable rate debt (10)                 |                                   |             | 80,867   |                |               |      |                   |         |                   |          | 80,867       |         |       |  | 4.47 | %    |   |                   | (10 | )
|                                                   |                                   |             |          |                |               |      |                    |         |                   |          |              |         |       |  |      |      |   |                   |     |  
|                                                   | Total Mortgage Variable Rate Debt |             |          |                |               |      | $                  | 222,624 |                   |          | $            | 304,823 |       |  |      | 4.12 | % |                   |     |   | 
|                                                   |                                   |             |          |                |               |      |                    |         |                   |          |              |         |       |  |      |      |   |                   |     |  
|TOTAL MORTGAGE DEBT                                |                                   |             |          |                |               | $    | 1,029,112          |         |                   | $        | 898,733      |         |       |  | 6.46 | %    |   |                   |     |  
|                                                  
|$100 million revolving secured facility (11)       |                                   |             |          |                |               |      | 2                  |         |                   |          | 65,096       |         |       |  | 4.44 | %    |   |                   | (11 | )
|$60 million revolving unsecured facility (12)      |                                   |             |          |                |               |      |                   |         |                   |          | 46,000       |         |       |  | 4.11 | %    |   |                   | (12 | )
|                                                   |                                   |             |          |                |               |      |                    |         |                   |          |              |         |       |  |      |      |   |                   |     |  
|TOTAL CREDIT FACILITIES                            |                                   |             |          |                |               | $    | 2                  |         |                   | $        | 111,096      |         |       |  | 4.31 | %    |   |                   |     |  
|                                                   |                                   |             |          |                |               |      |                    |         |                   |          |              |         |       |  |      |      |   |                   |     |  
|TOTAL DEBT OUTSTANDING                             |                                   |             |          |                |               | $    | 1,029,114          |         |                   | $        | 1,009,829    |         |       |  | 6.24 | %    |   |                   |     |  
|                                                   |                                   |             |          |                |               |      |                    |         |                   |          |              |         |       |  |      |      |   |                   |     |  



| |  |  | For the quarter ended March 31, 2003. Includes deferred loan fees
amortized over the life of the loans.
| | - |  | -------------------------------------------------------------------------------------------------------



| | (1) |  | This loan was paid off on March 26, 2003 with the net proceeds from
the issuance of the Triple Net Lease Mortgage Notes, Series 2003-1 as
discussed in footnote (7) below.                                                                                                                                                                                                
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | The loan requires monthly payments of principal and interest with a
final payment at maturity of approximately $24.4 million. The
Partnership has provided a guaranty limited to approximately $8.9
million of this loan, contingent upon the occurrence of certain
circumstances.                                                                                        
|
| | (3) |  | The loan requires quarterly payments of principal and interest with a
final payment at maturity of approximately $72.4 million.                                                                                                                                                                                                                                           
|
| | (4) |  | These loans require quarterly interest and level principal payments
until maturity, at which time the loans require final payments totaling
approximately $33.5 million. These loans bear interest equal to the
30-day LIBOR rate plus 215 basis points. We have entered into interest
rate swap arrangements with a third party to fix the interest rates on
these loans.
|
| | (5) |  | This loan requires quarterly interest and level principal payments
with a final payment at maturity of approximately $49.6 million. This
loan bears interest equal to the 30-day LIBOR rate plus 175 basis
points. We have entered into                                                                                                                                   

25



---



##### 





| |     |  | an interest rate swap arrangement with a
third party to fix the interest rate on this loan.                                                                                                                                                                                                                                                                                                                                                                                    
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (6) |  | During 2002, one of our subsidiaries issued $325 million in four
classes of Triple Net Lease Mortgage Notes, Series 2002. The notes have
a weighted average effective interest rate (including deferred fees
amortized over the life of the notes) of approximately 7.7%. CARS Loan
Servicer L.L.C., one of our subsidiaries, is servicer of the notes on
behalf of the noteholders. The following is a breakdown of the Triple
Net Lease Mortgage Notes, Series 2002 by class:

|      |  |         |                    |         |                   |               |         |  |  |  |         |  | 
|----- |  | ------- | ------------------ | ------- | ----------------- | ------------- | ------- |  |  |  | ------- |  | 
|      |  |         | Original Principal |         | Current Principal |               |         |  | 
|Class |  | Balance |                    | Balance |                   | Maturity Date
|A-1a  |  |         | 164,136            |         |                   |               | 157,835 |  |  |  | 8/15/14 | 
|A-1b  |  |         | 9,064              |         |                   |               | 9,064   |  |  |  | 7/15/15 | 
|A-2   |  |         | 75,900             |         |                   |               | 73,054  |  |  |  | 7/15/15 | 
|A-3   |  |         | 75,900             |         |                   |               | 75,900  |  |  |  | 6/15/22 | 



| |     |  | Classes A-1a and A-1b are fully-amortizing in succession over their
respective terms and Classes A-2 and A-3 are fully-amortizing in
succession over 20 years. The Partnership has provided a guaranty limited
to approximately $26.1 million of this loan, contingent upon the
occurrence of certain circumstances. In connection with the issuance of
this debt, in certain situations, the Company guarantees payments of
principal and interest and any unpaid debt. The term of the guaranty is
the same as the term of the debt.
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (7) |  | On March 26, 2003, one of our subsidiaries issued $228 million in two
classes of Triple Net Lease Mortgage Notes, Series 2003-1. The debt,
which is collateralized by 50 properties, is fixed rate. CARS Loan
Servicer L.L.C. is servicer of the notes on behalf of the noteholders.
The following is a breakdown of the Triple Net Lease Mortgage Notes,
Series 2003-1 by class:                                                                                                                                                     

|      |  |                    |         |                   |  |               |         |  |  |  |         | 
|----- |  | ------------------ | ------- | ----------------- |  | ------------- | ------- |  |  |  | ------- | 
|      |  | Original Principal |         | Current Principal |  |               |         | 
|Class |  | Balance            |         | Balance           |  | Maturity Date
|A-1   |  |                    | 109,000 |                   |  |               | 109,000 |  |  |  | 9/25/15 | 
|A-2   |  |                    | 119,000 |                   |  |               | 119,000 |  |  |  | 3/25/19 | 



| |      |  | The Class A-1 and Class A-2 notes have weighted average effective interest
rates (including deferred fees amortized over the life of the notes) of
approximately 5.4% and 6.3%, respectively. The notes amortize in
succession based on a 20-year amortization schedule with the Class A-1
notes fully-amortizing and the Class A-2 notes requiring a final payment
at maturity of approximately $70.8 million. Net proceeds were used to pay
down borrowings on the Companys short-term credit facilities totaling
approximately $111 million and to pay off approximately $92 million of
short-term variable rate mortgage debt due in April 2003. The remaining
net proceeds were used to fund acquisitions and for general corporate
purposes. In connection with the issuance of this debt, in certain
situations, the Company guarantees payments of principal and interest and
any unpaid debt. The term of the guaranty is the same as the term of the
debt.
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (8)  |  | The loan bears interest equal to the 30-day LIBOR rate plus 227 basis
points and requires monthly level payments of principal and interest
with a final payment at maturity of approximately $106.9 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | (9)  |  | These loans bear interest at variable rates ranging from 200 to 357
basis points above the A1/P1 Commercial Paper Rate or the 30-day LIBOR
rate and have maturity dates ranging from December 22, 2009 to May 1,
2012. The terms of the various loans require either quarterly interest
and level principal payments or monthly level payments of principal and
interest until maturity, at which time the loans require final payments
totaling approximately $62.3 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | (10) |  | This short-term loan was paid off on March 26, 2003 with the net
proceeds from the issuance of the Triple Net Lease Mortgage Notes,
Series 2003-1 as discussed in footnote (7) above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | (11) |  | Amounts borrowed under this facility bear interest at market rates
determined at the time of each draw until such time as the Company and
the lender set an interest rate for any future amounts borrowed under
the facility. As of March 31, 2003, the borrowings under the facility
bear interest equal to the 30-day LIBOR rate plus 305 basis points.
Properties are eligible within the borrowing base for 150 days, unless
extended by the Company and the lender. The facility has a one-year
term, which terminates on March 21, 2004, and is renewable annually.                                                                                                                                                                                                                                                                                                                                                                                            
|
| | (12) |  | The facility provides for a three-year term with interest determined,
at the Companys option, at either the Prime rate less 50 basis points
or the one-month, two-month or three-month LIBOR rate plus 200 basis
points. Properties are eligible within the borrowing base for 180 days,
unless extended by the Company and the lender.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

26



---



##### 



For the quarter ended March 31, 2003, our interest coverage and debt service
coverage ratios were 2.5
and 1.7, respectively. For the trailing 12 months, our interest coverage and
debt service coverage ratios were 2.5 and 1.7, respectively. These ratios are
considered non-GAAP financial measures because they are calculated using EBIDA.
The ratios are presented because they provide useful information regarding our
ability to service debt. The ratios should not be considered an alternative
measure of operating results or cash flow from operations as determined in
accordance with GAAP. The following is a calculation of our interest coverage
ratio and our debt service coverage ratio for the three months and twelve
months ended March 31, 2003 (dollars in thousands). The calculation includes a
reconciliation of EBIDA to its most directly comparable GAAP measure, income
from continuing operations before minority interest.

|                                                                                 |  |                    |        |                     |  |   |         | 
|-------------------------------------------------------------------------------- |  | ------------------ | ------ | ------------------- |  | - | ------- | 
|                                                                                 |  | Three months ended |        | Twelve months ended
|                                                                                 |  | March 31, 2003     |        | March 31, 2003     
|Interest Coverage Ratio:                                                         |  |                    |        |                     |  |   |         | 
|Income from continuing operations
before minority interest
(Earnings)          |  | $                  | 15,428 |                     |  | $ | 58,298  | 
|Interest expense                                                                 |  |                    | 15,374 |                     |  |   | 55,607  | 
|Depreciation and amortization                                                    |  |                    | 7,426  |                     |  |   | 27,835  | 
|                                                                                 |  |                    |        |                     |  |   |         | 
|Earnings before interest,
depreciation and amortization
(EBIDA)                  |  | $                  | 38,228 |                     |  | $ | 141,740 | 
|Interest Coverage Ratio (EBIDA
divided by interest expense)                      |  |                    | 2.5    |                     |  |   | 2.5     | 
|                                                                                 |  |                    |        |                     |  |   |         | 
|Debt Service Coverage Ratio (DSCR):                                              |  |                    |        |                     |  |   |         | 
|Interest expense                                                                 |  | $                  | 15,374 |                     |  | $ | 55,607  | 
|Principal amortization for the period                                            |  |                    | 7,362  |                     |  |   | 26,784  | 
|                                                                                 |  |                    |        |                     |  |   |         | 
|                                                                                 |  | $                  | 22,736 |                     |  | $ | 82,391  | 
|DSCR (EBIDA divided by interest
expense + principal amortization for
the period) |  |                    | 1.7    |                     |  |   | 1.7     | 
|                                                                                 |  |                    |        |                     |  |   |         | 

As of March 31, 2003, we were in compliance with all of the debt covenants
related to our mortgage debt and credit facilities.

Interest Rate Swaps

To minimize interest rate risk, during 2002 and 2001, we entered into three
interest rate swap arrangements with third parties to fix the interest rate on
the underlying variable rate debt, totaling approximately $141 million. These
swaps were designed to mirror the underlying variable rate debt in terms of
index, spread, reset, amortization, compounding and maturity. Due to the
identical nature of the terms of the swap arrangements and the underlying terms
of the debt, these swaps were documented as cash flow hedges and designated as
highly effective at inception of the swap arrangements. Therefore, in
accordance with GAAP, the unrealized gain or loss upon measuring the swaps at
their fair value is recorded as a component of accumulated other comprehensive
income (loss) within shareholders equity on our consolidated balance sheets.
The fair value of the swaps is recorded as either a derivative instrument asset
or a derivative instrument liability on our consolidated balance sheets. In
addition, we are required to post collateral, generally in the amount of the
swap valuations at any point in time, to protect the lenders in case of an
early termination by us. The collateral posted by us, totaling approximately
$18.1 million and $258,000 as of March 31, 2003 and 2002, respectively, is
included in other assets on our consolidated balance sheets. Total
comprehensive income for the three months ended March 31, 2003 and 2002 was
$10.7 million and $11.5 million, respectively. The unrealized gain (loss) as
of December 31, 2002 and 2001 was as follows (in thousands):

27



---



##### 



|                                        |  |                 |         |      |  |   |       | 
|--------------------------------------- |  | --------------- | ------- | ---- |  | - | ----- | 
|                                        |  | As of March 31,
|                                        |  | 2003            |         | 2002
|                                        |  |                 |         |     
|Derivative instrument asset (liability) |  | $               | (17,472 | )    |  | $ | 2,875 | 

Liquidity Requirements

Short-term liquidity requirements consist primarily of normal recurring
operating expenses and capital expenditures, regular debt service requirements
(including debt service relating to additional and replacement debt),
distributions to shareholders and holders of Units, who we refer to as
Unitholders, and amounts required for additional property acquisitions,
facility improvement and expansion fundings and construction financings. We
expect to meet these requirements (other than amounts required for additional
property acquisitions, facility improvement and expansion fundings and
construction financings) through cash provided from operations and our existing
revolving credit facilities. We anticipate that any additional acquisitions of
properties, facility improvement and expansion fundings and construction
financings during the next 12 months will be funded with the net proceeds
received from our equity offering that closed on April 25 and May 2, 2003 as
further discussed below, amounts available under our existing long-term debt
commitments, future long-term secured and unsecured debt and the issuance of
common or preferred equity or Units, each of which may be initially funded with
our existing revolving credit facilities. Acquisitions of properties, facility
improvement and expansion fundings and construction financings will be made
subject to our investment objectives and policies with the intention of
maximizing both current and long-term growth and income.

As of March 31, 2003, long-term liquidity requirements consisted primarily of
maturities under our long-term debt. We anticipate that long-term liquidity
requirements will also include amounts required for acquisitions of properties,
facility improvement and expansion fundings and construction financings. We
expect to meet long-term liquidity requirements through long-term secured and
unsecured borrowings and other debt and equity financing alternatives. The
availability and terms of any such financing will depend upon market and other
conditions.

Aggregate annual principal maturities (which includes principal amortization)
of mortgage debt as of March 31, 2003 are as follows (in thousands):

|                                |  |   |           | 
|------------------------------- |  | - | --------- | 
|For the Year Ended December 31, |  |   |           | 
|2003                            |  | $ | 25,950    | 
|2004                            |  |   | 33,894    | 
|2005                            |  |   | 35,963    | 
|2006                            |  |   | 38,087    | 
|2007                            |  |   | 40,365    | 
|Thereafter                      |  |   | 854,853   | 
|                                |  |   |           | 
|Total                           |  | $ | 1,029,112 | 
|                                |  |   |           | 

During the second quarter of 2001, we received a commitment for $150.0 million
of secured long-term variable rate financing from Toyota Financial Services.
The commitment can be drawn down in multiple fundings under one or more debt
instruments, and each funding is subject to customary conditions precedent and
the lenders satisfaction with the loan documentation. The terms of the
commitment provide for a 12-year term with interest at a spread over the
one-month LIBOR rate. As of March 31, 2003, we had $67.4 million available
under this commitment.

28



---



##### 



On April 25, 2003, we sold 2,350,000 common shares in an underwritten public
offering at an initial price to the public of $26.00 per share under our shelf
registration statement filed with the SEC on March
2, 1999 (the Shelf Registration Statement). Net proceeds to the Company,
after deducting the discounts and commissions to the underwriters and other
expenses of this offering, totaled approximately $57.7 million. In addition, on
May 2, 2003, 352,500 common shares subject to the underwriters over-allotment
option were issued at an initial price to the public of $26.00 per share,
resulting in net proceeds of approximately $8.7 million, after deducting the
discounts and commissions to the underwriters. After the offering, $64.2
million remains available under the Shelf Registration Statement for the
issuance of securities. The Company contributed the net proceeds of the
offering to the Operating Partnership in exchange for Units in the Operating
Partnership and will use them to fund future acquisitions, repay borrowings
under our short-term credit facilities and for general corporate purposes.

Common Share Repurchase Program

During 1998, we announced that our Board of Trustees had authorized the
repurchase of up to 6.0 million common shares. 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 management. During the
three months ended March 31, 2003, no common shares were repurchased. From the
inception of the common share repurchase program through March 31, 2003, a
total of 4,094,700 common shares have been repurchased at an average price of
$10.62 per common share. In conjunction with the common share repurchases, the
Partnership redeemed an equivalent number of Units from the Company for
equivalent purchase prices.

Dividend Reinvestment and Share Purchase Plan

During April 2000, we implemented a Dividend Reinvestment and Share Purchase
Plan, which was subsequently amended in March 2001, which we refer to as the
DRIP. Under the DRIP, current shareholders and Unitholders are permitted to
elect to reinvest all, a portion or none of their cash dividends or
distributions to purchase common shares. The DRIP also allows both new
investors and existing shareholders and Unitholders to make optional cash
payments to purchase common shares.

The DRIP permits current shareholders, Unitholders and new investors to invest
a minimum of $500 up to a maximum of $10,000 in common shares per month. The
DRIP also allows us to raise additional capital by waiving the limitations on
the $10,000 maximum per month, as more fully described in the Prospectus
relating to the DRIP. Shares purchased under the DRIP through reinvestment of
dividends are purchased at a discount (currently 3%). Shares purchased under
the DRIP through optional cash payments of $10,000 or less are purchased at
market price.

Common shares may be purchased directly from us or in open market or privately
negotiated transactions, as we determine from time to time, to fulfill the
requirements for the DRIP. For the three months ended March 31, 2003, we
issued approximately 66,500 common shares under the DRIP, totaling
approximately $1.6 million.

FUNDS FROM OPERATIONS (FFO)

The National Association of Real Estate Investment Trusts (NAREIT) developed
FFO as a relative non-GAAP financial measure of performance and liquidity of an
equity REIT in order to recognize that income-producing real estate
historically has not depreciated on the basis determined under GAAP. FFO, as
defined under the revised definition adopted in April 2002 by NAREIT and as
presented by us, is net income, computed in accordance with GAAP, plus
depreciation and amortization of assets unique to the real estate industry,
plus minority interest related to income from continuing operations and income
from discontinued operations and extraordinary items, and excluding gains from
the sales of property, and

29



---



##### 



after adjustments for unconsolidated partnerships
and joint ventures. FFO does not represent cash flows from operating
activities in accordance with GAAP (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 our
performance or to cash flow as a measure of liquidity or ability to make
distributions. We consider FFO a meaningful, additional measure of operating
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 our
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.

The following table reconciles FFO and FFO per share for the three months ended
March 31, 2003 and 2002 to their most directly comparable GAAP measures, net
income and net income per share (in thousands, except per share data):

|                                                                                                       |  |                    |        |      |  |   |        | 
|------------------------------------------------------------------------------------------------------ |  | ------------------ | ------ | ---- |  | - | ------ | 
|                                                                                                       |  | Three Months Ended
|                                                                                                       |  | March 31,         
|                                                                                                       |  |                   
|                                                                                                       |  | 2003               |        | 2002
|                                                                                                       |  |                    |        |     
|Net income                                                                                             |  | $                  | 11,936 |      |  | $ | 10,854 | 
|Real estate depreciation and amortization                                                              |  |                    | 7,407  |      |  |   | 5,943  | 
|Minority interest related to income from
continuing operations and income from
discontinued operations |  |                    | 3,569  |      |  |   | 3,276  | 
|Gain on sale of real estate                                                                            |  |                    | (35    | )    |  |   |       | 
|                                                                                                       |  |                    |        |      |  |   |        | 
|FFO                                                                                                    |  | $                  | 22,877 |      |  | $ | 20,073 | 
|                                                                                                       |  |                    |        |      |  |   |        | 
|Weighted average number of common shares used to
compute basic net income per share                    |  |                    | 28,279 |      |  |   | 26,547 | 
|                                                                                                       |  |                    |        |      |  |   |        | 
|Weighted average number of common shares used to
compute fully diluted net income per share            |  |                    | 29,205 |      |  |   | 27,834 | 
|                                                                                                       |  |                    |        |      |  |   |        | 
|Weighted average number of common shares and
units used to compute basic FFO per share                 |  |                    | 36,765 |      |  |   | 34,582 | 
|                                                                                                       |  |                    |        |      |  |   |        | 
|Weighted average number of common shares and
units used to compute fully diluted FFO per share         |  |                    | 37,691 |      |  |   | 35,869 | 
|                                                                                                       |  |                    |        |      |  |   |        | 
|Basic net income per share                                                                             |  | $                  | 0.42   |      |  | $ | 0.41   | 
|                                                                                                       |  |                    |        |      |  |   |        | 
|Diluted net income per share                                                                           |  | $                  | 0.41   |      |  | $ | 0.39   | 
|                                                                                                       |  |                    |        |      |  |   |        | 
|Basic FFO per share                                                                                    |  | $                  | 0.62   |      |  | $ | 0.58   | 
|                                                                                                       |  |                    |        |      |  |   |        | 
|Diluted FFO per share                                                                                  |  | $                  | 0.61   |      |  | $ | 0.56   | 
|                                                                                                       |  |                    |        |      |  |   |        | 

ITEM III. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to certain financial market risks, the most predominant being
fluctuations in interest rates. Interest rate fluctuations are monitored by
our management as an integral part of our overall risk

30



---



##### 



management program,
which recognizes the unpredictability of financial markets and seeks to reduce
the potentially adverse effect on our results of operations. In general, our
policy of substantially match-
funding at least 70% of our long-term debt with long-term leases reduces our
exposure to interest rate fluctuations. As of March 31, 2003, approximately
94% of our debt outstanding was substantially match-funded debt. We have used
and may continue to use interest rate swap arrangements to minimize interest
rate risk and to match-fund our long-term debt with our long-term leases. We
do not enter into interest rate swap arrangements for trading purposes.

During the three months ended March 31, 2003, our fixed rate debt increased
from $593.9 million as of December 31, 2002 to $806.5 million as of March 31,
2003. Interest rate fluctuations may affect the fair value of our fixed rate
debt instruments. If interest rates on our fixed rate debt instruments at
March 31, 2003 had been one percentage point higher or lower, the fair value of
those debt instruments on that date would have decreased or increased,
respectively, by approximately $55.8 million.

During the three months ended March 31, 2003, our variable rate debt decreased
from $415.9 million as of December 31, 2002 to $222.6 million as of March 31,
2003. In addition, our real estate investments which are leased by tenants
utilizing our variable lease rate program decreased from $418.2 million as of
December 31, 2002 to $384.1 million as of March 31, 2003.

Interest rate fluctuations may affect our annual interest expense on our
variable rate debt. If interest rates on our variable rate debt instruments
outstanding at March 31, 2003 had been 1% higher or lower, our annual interest
expense relating to those debt instruments would have increased or decreased,
respectively, by approximately $2.2 million, based on balances at March 31,
2003. The impact on net income as a result of an increase or decrease in
interest rates by 1% is partially reduced by the structure of our variable rate
leases. Interest rate fluctuations may affect our annual rental revenue on our
variable rate leases, because the lease rates on the base rents on our variable
rate leases are based on a spread over an applicable index, typically LIBOR.
As of March 31, 2003, the vast majority of our variable rate lease agreements
had minimum lease rates that were in effect. The majority of the minimum lease
rates range from 8.0% to 9.4%. These minimum lease rates are designed to
ensure minimum rental revenues if interest rates decline. If the underlying
index on our variable rate lease agreements outstanding at March 31, 2003 had
been 1% higher or lower, our annual rental revenue relating to those lease
agreements would have increased by approximately $492,000 or decreased by
approximately $393,000, respectively. Assuming the underlying index increased
to a level where none of our minimum lease rates were triggered, a 1% increase
or decrease in the underlying index would increase or decrease our rental
revenues by approximately $2.9 to $3.8 million.

ITEM IV. CONTROLS AND PROCEDURES

Quarterly Evaluation.Within the 90 days prior to the date of this Quarterly
Report on Form 10-Q, we evaluated the effectiveness of the design and operation
of our disclosure controls and procedures, which we refer to as our
disclosure controls, and our internal controls and procedures for financial
reporting, which we refer to as our internal controls. This evaluation was
done under the supervision and with the participation of management, including
our President and Chief Executive Officer and our Senior Vice President and
Chief Financial Officer. Rules adopted by the SEC require that we present the
conclusions of the President and Chief Executive Officer and our Senior Vice
President and Chief Financial Officer about the effectiveness of our disclosure
controls and internal controls based on and as of the date of the evaluation.

CEO and CFO Certifications.Appearing immediately after the Signatures section
of this Quarterly Report on Form 10-Q is a form of Certification of our
President and Chief Executive Officer and our Senior Vice President and Chief
Financial Officer. The form of Certification is required in accordance

31



---



##### 



with
Section 302 of the Sarbanes-Oxley Act of 2002. This section of the Quarterly
Report on Form 10-Q which you are currently reading is the information
concerning the evaluation referred to in the Section 302 certifications and
this information should be read in conjunction with the Section 302
certifications
for a more complete understanding of the topics presented.

Disclosure Controls and Internal Controls.Disclosure controls are procedures
that are designed with the objective of ensuring that information required to
be disclosed in our reports filed under the Exchange Act, such as this
Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and forms. Disclosure
controls are also designed with the objective of ensuring that such information
is accumulated and communicated to our management, including our President and
Chief Executive Officer and our Senior Vice President and Chief Financial
Officer, as appropriate to allow timely decisions regarding required
disclosure.

Internal controls are procedures which are designed with the objective of
providing reasonable assurance that:



| |  |  | our transactions are properly authorized,                           
| | - |  | --------------------------------------------------------------------
|
| |  |  | our assets are safeguarded against unauthorized or improper use, and
|
| |  |  | our transactions are properly recorded and reported,                

all to permit the preparation of our financial statements in conformity with
GAAP.

Limitations on the Effectiveness of Controls.Management, including our
President and Chief Executive Officer and our Senior Vice President and Chief
Financial Officer, do not expect that our disclosure controls or our internal
controls will prevent all error and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the
design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the company have been detected. These
inherent limitations include the realities that judgments in decision-making
can be faulty, and that breakdowns can occur because of simple error or
mistake. Additionally, controls can be circumvented by the individual acts of
some persons, by collusion of two or more people, or by managements override
of the control. The design of any system of controls also is based in part
upon certain assumptions about the likelihood of future events, and there can
be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions; over time, controls may become
inadequate because of changes in conditions, or the degree of compliance with
the policies or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or
fraud may occur and not be detected.

Scope of the Evaluation.The evaluation by our President and Chief Executive
Officer and our Senior Vice President and Chief Financial Officer of our
disclosure controls and our internal controls included a review of procedures
and discussions with our Disclosure Control Monitor and others in our
organization. In the course of the evaluation, we sought to identify data
errors, control problems or acts of fraud and to confirm that appropriate
corrective action, including process improvements, were being undertaken. This
type of evaluation is done on a quarterly basis so that the conclusions
concerning controls effectiveness can be reported in our Quarterly Reports on
Form 10-Q and Annual Report on Form 10-K.

Our internal controls are also evaluated on an ongoing basis by personnel in
our Accounting department and by our independent auditors in connection with
their audit and review activities. The overall goals of these various
evaluation activities are to monitor our disclosure controls and our internal

32



---



##### 



controls and to make modifications as necessary. Our intent in this regard is
that the disclosure controls and the internal controls will be maintained as
systems that change (including with improvements and corrections) as conditions
warrant. Among other matters, we sought in our evaluation to determine whether
there were any significant deficiencies or material weaknesses in our
internal controls, or whether we had
identified any acts of fraud involving personnel who have a significant role in
our internal controls. This information was important both for the evaluation
generally and because the Section 302 certifications require that our President
and Chief Executive Officer and our Senior Vice President and Chief Financial
Officer disclose that information to the Audit Committee of our Board of
Trustees and to our independent auditors and to report on related matters in
this section of the Quarterly Report on Form 10-Q. In the professional
auditing literature, significant deficiencies are referred to as reportable
conditions; these are control issues that could have a significant adverse
effect on the ability to record, process, summarize and report financial data
in the financial statements. A material weakness is defined in the auditing
literature as a particularly serious reportable condition where the internal
control does not reduce to a relatively low level the risk that misstatements
caused by error or fraud may occur in amounts that would be material in
relation to the financial statements and not be detected within a timely period
by employees in the normal course of performing their assigned functions. We
also sought to deal with other control matters in the evaluation, and in each
case if a problem was identified, we considered what revision, improvement
and/or correction was necessary to be made in accordance with our on-going
procedures.

In accordance with SEC requirements, our President and Chief Executive Officer
and our Senior Vice President and Chief Financial Officer note that, since the
date of the evaluation to the date of this Quarterly Report on Form 10-Q, there
have been no significant changes in internal controls or in other factors that
could significantly affect internal controls, including any corrective actions
with regard to significant deficiencies and material weaknesses.

Conclusions.Based upon the Evaluation, our President and Chief Executive
Officer and our Senior Vice President and Chief Financial Officer have
concluded that, subject to the limitations noted above, our disclosure controls
are effective to ensure that material information relating to us and our
consolidated subsidiaries is made known to management, including our President
and Chief Executive Officer and our Senior Vice President and Chief Financial
Officer, particularly during the period when our periodic reports are being
prepared, and that our internal controls are effective to provide reasonable
assurance that our financial statements are fairly presented in conformity with
GAAP.

33



---



##### 



CAPITAL AUTOMOTIVE REIT
PART II-OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable.

Item 2. Changes in Securities

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submission of Matters to Vote of Security Holders

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits:

|      |  |                                                                                                                                     
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------
|99.1  |  | Section 1350 Certifications of Chief Executive Officer and Chief
Financial Officer (filed herewith)                                 
|     
|10.15 |  | Indenture dated March 26, 2003, among LaSalle Bank National Association,
as Trustee, and CARS CNI-2 L.P., as Issuer (filed herewith)

(b)  Reports on Form 8-K

On February 12, 2003, we filed a Form 8-K/A under Item 5 amending our prior
Form 8-K/A dated February 26, 1999 and updated periodically to list certain
factors that may affect our operating results and, therefore, the accuracy of
our forward-looking statements.

34



---



##### 



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

| |                                      |                                                                                                                            
| | ------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------
| | CAPITAL AUTOMOTIVE REIT
(Registrant)
|
| | BY:                                  | /s/ Thomas D. EckertThomas D. Eckert
President and Chief Executive Officer
(principal executive officer)                   
|
| | BY:                                  | /s/ David S. KayDavid S. Kay
Senior Vice President and Chief Financial Officer
(principal financial and accounting officer)

|       |  |             
|------ |  | ------------
|Dated: |  | May 12, 2003

35



---



##### 



CERTIFICATION

I, Thomas D. Eckert, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Capital Automotive
REIT (the Company);                                                                                                                                                                                                                                
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Company as of, and for, the periods presented in this
quarterly report;                      
|  
|4. |  | The Companys other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and we
have:                                                                                                            



| | a) |  | designed such disclosure controls and procedures to
ensure that material information relating to the Company,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the Companys disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;                                                                                                                     



|5. |  | The Companys other certifying officer and I have disclosed, based on our
most recent evaluation, to the Companys auditors and the audit committee
of the Companys board of trustees:
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the Companys
ability to record, process, summarize and report financial data
and have identified for the Companys auditors any material
weakness in internal controls; and
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
Companys internal controls; and                                                                                                                                   



|6. |  | The Companys other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

36



---



##### 





| |  | significantly affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|      |  |              |  |  |     |                                                                           
|----- |  | ------------ |  |  | --- | --------------------------------------------------------------------------
|Date: |  | May 12, 2003 |  |  | BY: | /s/ Thomas D. EckertThomas D. Eckert
President and Chief Executive Officer

37



---



##### 



CERTIFICATION

I, David S. Kay, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Capital Automotive
REIT (the Company);                                                                                                                                                                                                                                
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Company as of, and for, the periods presented in this
quarterly report;                      
|  
|4. |  | The Companys other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and we
have:                                                                                                            



| | a) |  | designed such disclosure controls and procedures to
ensure that material information relating to the Company,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the Companys disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;                                                                                                                     



|5. |  | The Companys other certifying officer and I have disclosed, based on our
most recent evaluation, to the Companys auditors and the audit committee
of the Companys board of trustees:
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the Companys
ability to record, process, summarize and report financial data
and have identified for the Companys auditors any material
weakness in internal controls; and
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
Companys internal controls; and                                                                                                                                   



|6. |  | The Companys other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

38



---



##### 





| |  | significantly affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|      |  |              |  |  |     |                                                                               
|----- |  | ------------ |  |  | --- | ------------------------------------------------------------------------------
|Date: |  | May 12, 2003 |  |  | BY: | /s/ David S. KayDavid S. Kay
Senior Vice President and Chief Financial Officer

39