##### 



FORM 10-Q
 SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For quarterly period ended September 30, 2005
 o
    
    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
  Maryland
(State of organization)
    
    54-1870224
(I.R.S. Employer Identification Number)
 
 
  þ o
  þ o
 o o




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##### 



CAPITAL AUTOMOTIVE REIT
FORM 10-Q
INDEX
 Page No.Part I  Financial InformationItem 1
 Financial Statements.Consolidated
Balance Sheets September 30, 2005 (unaudited) and
December 31, 2004
    
    
    3Consolidated
Statements of Operations (unaudited)  three months
and nine months ended September 30, 2005 and September 30, 2004
    
    
    4Consolidated
Statements of Comprehensive Income (unaudited)  three
months and nine months ended September 30, 2005 and September 30, 2004
    
    
    5Consolidated
Statements of Cash Flows (unaudited)  nine months ended
September 30, 2005 and September 30, 2004
    
    
    6Consolidated Statements of Changes in Shareholders Equity
(unaudited)  nine months ended September 30, 2005
    
    
    7Notes to Consolidated Financial Statements (unaudited)
    
    
    8Item 2
 Managements Discussion and Analysis of Financial Condition
and Results of Operations.
    
    
    28Item 3
 Quantitative and Qualitative Disclosures About Market Risk.
    
    
    49Item 4
 Controls and Procedures.
    
    
    50Part II  Other InformationItem 1
 Legal Proceedings.
    
    
    51Item 2
 Unregistered Sales of Equity Securities and Use of Proceeds.
    
    
    51Item 3
 Defaults Upon Senior Securities.
    
    
    51Item 4
 Submission of Matters to a Vote of Security Holders.
    
    
    51Item 5
 Other Information.
    
    
    51Item 6
 Exhibits.
    
    
    51Signatures
    
    
    52
 2




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##### 



PART I  FINANCIAL INFORMATION
ITEM I  FINANCIAL STATEMENTS
CAPITAL AUTOMOTIVE REIT
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 September 30,
    
    
    December 31,2005
    
    
    2004(unaudited)ASSETSReal estate:Land
    
    $
    896,594
    
    
    $
    866,480Buildings and improvements
    
    
    1,415,569
    
    
    
    1,330,843Accumulated depreciation
    
    
    (172,793
    )
    
    
    (143,886
    )2,139,370
    
    
    
    2,053,437Mortgages and other financing receivables
    
    
    219,424
    
    
    
    43,378Cash and cash equivalents
    
    
    4,507
    
    
    
    8,332Other assets, net
    
    
    58,304
    
    
    
    53,010Total Assets
    
    $
    2,421,605
    
    
    $
    2,158,157LIABILITIES AND SHAREHOLDERS EQUITYLiabilities:Mortgage debt
    
    $
    535,491
    
    
    $
    634,365Unsecured debt
    
    
    555,718
    
    
    
    381,592Borrowings under credit facilities
    
    
    118,000
    
    
    
    30,000Accounts payable and accrued expenses
    
    
    27,883
    
    
    
    23,731Security deposits payable
    
    
    10,306
    
    
    
    9,665Total Liabilities
    
    
    1,247,398
    
    
    
    1,079,353Minority Interest
    
    
    145,071
    
    
    
    144,877Shareholders EquityPreferred shares, par value $.01 per share; 20 million shares authorized,3,950,000 Series A Cumulative Redeemable Preferred Shares issued
and outstanding as of September 30, 2005 and December 31, 2004
    
    
    40
    
    
    
    402,600,000 Series B Cumulative Redeemable Preferred Shares issued
and outstanding as of September 30, 2005 and December 31, 2004
    
    
    26
    
    
    
    26Common shares, par value $.01 per share; 100 million shares authorized,
46,502,564 shares issued and outstanding as of September 30, 2005 and
43,406,280 shares issued and outstanding as of December 31, 2004
    
    
    465
    
    
    
    434Additional paid-in capital
    
    
    1,050,518
    
    
    
    957,938Deferred compensation
    
    
    (6,669
    )
    
    
    (3,816
    )Accumulated other comprehensive income
    
    
    230
    
    
    
    Distributions in excess of accumulated earnings
    
    
    (15,474
    )
    
    
    (20,695
    )Total Shareholders Equity
    
    
    1,029,136
    
    
    
    933,927Total Liabilities and Shareholders Equity
    
    $
    2,421,605
    
    
    $
    2,158,157
  3




---



##### 



CAPITAL AUTOMOTIVE REIT
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue:Rental
    
    $
    57,847
    
    
    $
    50,649
    
    
    $
    169,837
    
    
    $
    144,183Mortgage and other financing interest
    
    
    4,282
    
    
    
    332
    
    
    
    6,778
    
    
    
    1,453Interest and other
    
    
    277
    
    
    
    381
    
    
    
    1,035
    
    
    
    818Total revenue
    
    
    62,406
    
    
    
    51,362
    
    
    
    177,650
    
    
    
    146,454Expenses:Depreciation and amortization
    
    
    10,361
    
    
    
    9,059
    
    
    
    30,629
    
    
    
    26,313General and administrative
    
    
    5,537
    
    
    
    3,335
    
    
    
    12,241
    
    
    
    9,070Interest
    
    
    18,540
    
    
    
    16,418
    
    
    
    51,828
    
    
    
    49,095Debt extinguishment charge
    
    
    
    
    
    
    697
    
    
    
    
    
    
    
    9,409Total expenses
    
    
    34,438
    
    
    
    29,509
    
    
    
    94,698
    
    
    
    93,887Income from continuing operations before minority interest
    
    
    27,968
    
    
    
    21,853
    
    
    
    82,952
    
    
    
    52,567Minority interest
    
    
    (3,592
    )
    
    
    (3,327
    )
    
    
    (11,219
    )
    
    
    (8,095
    )Income from continuing operations
    
    
    24,376
    
    
    
    18,526
    
    
    
    71,733
    
    
    
    44,472Income from discontinued operations, net of minority interest
    
    
    10
    
    
    
    1,041
    
    
    
    488
    
    
    
    3,505Gain on sale of real estate, net of minority interest
    
    
    384
    
    
    
    2,274
    
    
    
    982
    
    
    
    3,486Total discontinued operations
    
    
    394
    
    
    
    3,315
    
    
    
    1,470
    
    
    
    6,991Net income
    
    
    24,770
    
    
    
    21,841
    
    
    
    73,203
    
    
    
    51,463Preferred share dividends
    
    
    (3,152
    )
    
    
    (3,152
    )
    
    
    (9,455
    )
    
    
    (7,780
    )Net income available to common shareholders  basic and diluted
    
    $
    21,618
    
    
    $
    18,689
    
    
    $
    63,748
    
    
    $
    43,683Common shares outstanding used to compute
basic earnings per common share
    
    
    45,974
    
    
    
    37,021
    
    
    
    44,410
    
    
    
    35,714Basic earnings per common share:Income from continuing operations
    
    $
    0.46
    
    
    $
    0.42
    
    
    $
    1.40
    
    
    $
    1.03Net income
    
    $
    0.47
    
    
    $
    0.50
    
    
    $
    1.44
    
    
    $
    1.22Common shares outstanding used to compute
diluted earnings per common share
    
    
    46,318
    
    
    
    37,393
    
    
    
    44,727
    
    
    
    36,193Diluted earnings per common share:Income from continuing operations
    
    $
    0.46
    
    
    $
    0.41
    
    
    $
    1.39
    
    
    $
    1.02Net income
    
    $
    0.47
    
    
    $
    0.50
    
    
    $
    1.43
    
    
    $
    1.21Dividends declared per common share
    
    $
    0.4460
    
    
    $
    0.4230
    
    
    $
    1.3145
    
    
    $
    1.2595
  4




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##### 



CAPITAL AUTOMOTIVE REIT
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income
    
    $
    24,770
    
    
    $
    21,841
    
    
    $
    73,203
    
    
    $
    51,463Other comprehensive income:Change in valuation of interest rate swap, net of minority interest
    
    
    
    
    
    
    (2,561
    )
    
    
    
    
    
    
    4,132Change in foreign currency translation, net of minority interest
    
    
    123
    
    
    
    
    
    
    
    195
    
    
    
    Other comprehensive income
    
    
    123
    
    
    
    (2,561
    )
    
    
    195
    
    
    
    4,132Total comprehensive income
    
    $
    24,893
    
    
    $
    19,280
    
    
    $
    73,398
    
    
    $
    55,595
  5




---



##### 



CAPITAL AUTOMOTIVE REIT
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Nine Months Ended September 30,2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    73,203
    
    
    $
    51,463Adjustments to reconcile net income to net cash provided by operating activities:Gain on disposition of real estate net of minority interest
    
    
    (982
    )
    
    
    (3,486
    )Stock compensation expense
    
    
    1,731
    
    
    
    1,115Depreciation and amortization
    
    
    33,518
    
    
    
    29,287Write-off of deferred loan fees related to debt extinguishment
    
    
    
    
    
    
    3,194Minority interest expense including amounts attributable to discontinued operations
    
    
    11,309
    
    
    
    8,876Changes in assets and liabilities:Increase in other assets
    
    
    (4,074
    )
    
    
    (4,444
    )Increase in accounts payable and accrued expenses
    
    
    4,190
    
    
    
    7,060Increase (decrease) in security deposits payable
    
    
    641
    
    
    
    (1,719
    )Net cash provided by operating activities
    
    
    119,536
    
    
    
    91,346Cash flows from investing activities:Purchase of furniture and equipment, net of disposals
    
    
    (85
    )
    
    
    (69
    )Property acquisitions and improvements
    
    
    (127,088
    )
    
    
    (199,439
    )Investments in mortgages and other financing receivables
    
    
    (188,448
    )
    
    
    (14,958
    )Investments in joint venture
    
    
    (2,638
    )
    
    
    Proceeds from mortgages and other financing receivables
    
    
    17,518
    
    
    
    9,996Property dispositions
    
    
    6,639
    
    
    
    40,786Net cash used in investing activities
    
    
    (294,102
    )
    
    
    (163,684
    )Cash flows from financing activities:Proceeds from borrowings under credit facilities
    
    
    253,000
    
    
    
    221,000Proceeds from debt issuance
    
    
    175,000
    
    
    
    422,175Repayment of borrowings under credit facilities
    
    
    (165,000
    )
    
    
    (286,009
    )Repayment of debt
    
    
    (81,465
    )
    
    
    (423,700
    )Debt principal payments
    
    
    (17,409
    )
    
    
    (22,422
    )Payments for debt issuance costs
    
    
    (1,566
    )
    
    
    (10,580
    )(Increase) decrease in restricted cash
    
    
    (175
    )
    
    
    6,874Payment of common share dividends
    
    
    (46,798
    )
    
    
    (37,367
    )Payment of preferred share dividends
    
    
    (9,455
    )
    
    
    (6,091
    )Distributions to minority partners
    
    
    (10,502
    )
    
    
    (9,821
    )Series A Cumulative Redeemable Preferred Shares issuance costs
    
    
    
    
    
    
    (98
    )Net proceeds from issuance of Series B Cumulative Redeemable Preferred Shares
    
    
    
    
    
    
    63,158Net proceeds from issuances of common shares, net of forfeitures
    
    
    75,111
    
    
    
    149,916Net cash provided by financing activities
    
    
    170,741
    
    
    
    67,035Net decrease in cash and cash equivalents
    
    
    (3,825
    )
    
    
    (5,303
    )Cash and cash equivalents at beginning of period
    
    
    8,332
    
    
    
    13,352Cash and cash equivalents at end of period
    
    $
    4,507
    
    
    $
    8,049Supplemental Data:Real estate acquisitions in exchange for equity issuance
    
    $
    
    
    
    $
    10,057Real estate acquisitions in exchange for like-kind property
    
    $
    
    
    
    $
    14,968Interest paid during the period
    
    $
    45,201
    
    
    $
    42,486Dividends and distributions reinvested to purchase common shares
    
    $
    11,755
    
    
    $
    7,987Change in valuation of fair value swap
    
    $
    (874
    )
    
    $
    (3,437
    )
  6




---



##### 



CAPITAL AUTOMOTIVE REIT
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(in thousands, except share data)
 Distributions in
    
    
    
    
    
    
    AccumulatedPreferred Shares
    
    
    Common
    
    
    Additional
    
    
    Excess of
    
    
    
    
    
    
    OtherPreferred Shares
    
    
    Common
    
    
    Par Value
    
    
    Shares
    
    
    Paid-in
    
    
    Accumulated
    
    
    Deferred
    
    
    ComprehensiveSeries A
    
    
    Series B
    
    
    Shares
    
    
    Series A
    
    
    Series B
    
    
    Par Value
    
    
    Capital
    
    
    Earnings
    
    
    Compensation
    
    
    Income
    
    
    TotalBalance at December 31, 2004
    
    
    3,950,000
    
    
    
    2,600,000
    
    
    
    43,406,280
    
    
    $
    40
    
    
    $
    26
    
    
    $
    434
    
    
    $
    957,938
    
    
    $
    (20,695
    )
    
    $
    (3,816
    )
    
    $
    
    
    
    $
    933,927Reallocation of minority interest ownership in
Partnership
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,272
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,272
    )Net proceeds from follow-on offerings
    
    
    
    
    
    
    
    
    
    
    2,135,900
    
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    73,773
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73,794Issuance of common shares from dividend
reinvestment and share purchase plan, net of
costs
    
    
    
    
    
    
    
    
    
    
    365,872
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    12,403
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,407Issuance of restricted shares, net of forfeitures
    
    
    
    
    
    
    
    
    
    
    125,363
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    4,202
    
    
    
    
    
    
    
    (4,495
    )
    
    
    
    
    
    
    (292
    )Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,642
    
    
    
    
    
    
    
    1,642Issuance of phantom shares, net of forfeitures
    
    
    
    
    
    
    
    
    
    
    18,572
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    128
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    128Exercise of common share options
    
    
    
    
    
    
    
    
    
    
    68,054
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1,226
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,227Redemption of units of limited partnership
interest in the Partnership to common shares
    
    
    
    
    
    
    
    
    
    
    382,523
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    6,031
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,035Accrued compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89Change in foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    230
    
    
    
    230Preferred share dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,455
    )
    
    
    
    
    
    
    
    
    
    
    (9,455
    )Common share dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (58,527
    )
    
    
    
    
    
    
    
    
    
    
    (58,527
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73,203
    
    
    
    
    
    
    
    
    
    
    
    73,203Balance at September 30, 2005 (unaudited)
    
    
    3,950,000
    
    
    
    2,600,000
    
    
    
    46,502,564
    
    
    $
    40
    
    
    $
    26
    
    
    $
    465
    
    
    $
    1,050,518
    
    
    $
    (15,474
    )
    
    $
    (6,669
    )
    
    $
    230
    
    
    $
    1,029,136
  7




---



##### 



Organization
    8




---



##### 



Basis of Presentation
        9




---



##### 



Principles of Consolidation
  Real Estate and Depreciation
  10




---



##### 



Mortgages and Other Financing Receivables
   .
 Furniture, Fixtures and Equipment
  11




---



##### 



Cash and Cash Equivalents
  Restricted Cash
  Deferred Loan Costs
  Capitalized Leasing Costs
  12




---



##### 



Income Taxes
  Rental Revenue Recognition
   Interest Rate Swaps
   13




---



##### 



Foreign Currency Translation
  Share-Based Compensation
  14




---



##### 



For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income available to common
shareholders, as reported
    
    $
    21,618
    
    
    $
    18,689
    
    
    $
    63,748
    
    
    $
    43,683Add: Share-based compensation
expense included in reported net
income, net of minority interest
    
    
    495
    
    
    
    318
    
    
    
    1,467
    
    
    
    913Deduct: Total share-based
compensation expense determined
under the fair-value-based method
for all awards, net of minority
interest
    
    
    (529
    )
    
    
    (340
    )
    
    
    (1,576
    )
    
    
    (1,008
    )Pro forma net income
    
    $
    21,584
    
    
    $
    18,667
    
    
    $
    63,639
    
    
    $
    43,588Basic earnings per common share:As reported
    
    $
    0.47
    
    
    $
    0.50
    
    
    $
    1.44
    
    
    $
    1.22Pro forma
    
    $
    0.47
    
    
    $
    0.50
    
    
    $
    1.43
    
    
    $
    1.22Diluted earnings per common share:As reported
    
    $
    0.47
    
    
    $
    0.50
    
    
    $
    1.43
    
    
    $
    1.21Pro forma
    
    $
    0.47
    
    
    $
    0.50
    
    
    $
    1.42
    
    
    $
    1.21
 Use of Estimates
  Reclassifications
  15




---



##### 



.
 16




---



##### 



For the three months
    
    
    For the nine monthsended September 30,
    
    
    ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue:Rental
    
    $
    28
    
    
    $
    577
    
    
    $
    488
    
    
    $
    3,419Other
    
    
    
    
    
    
    937
    
    
    
    343
    
    
    
    2,360Total revenue
    
    
    28
    
    
    
    1,514
    
    
    
    831
    
    
    
    5,779Expenses:Depreciation
    
    
    3
    
    
    
    131
    
    
    
    98
    
    
    
    683Interest
    
    
    13
    
    
    
    114
    
    
    
    155
    
    
    
    810Total expenses
    
    
    16
    
    
    
    245
    
    
    
    253
    
    
    
    1,493Income from discontinued operations before gain
on sale of real estate and minority interest
    
    
    12
    
    
    
    1,269
    
    
    
    578
    
    
    
    4,286Gain on sale of real estate
    
    
    449
    
    
    
    2,772
    
    
    
    1,158
    
    
    
    4,258Income related to discontinued operations
before minority interest
    
    
    461
    
    
    
    4,041
    
    
    
    1,736
    
    
    
    8,544Minority interest related to discontinued operations
    
    
    (67
    )
    
    
    (726
    )
    
    
    (266
    )
    
    
    (1,553
    )Total discontinued operations, net of
minority interest
    
    $
    394
    
    
    $
    3,315
    
    
    $
    1,470
    
    
    $
    6,991
    17




---



##### 



Principal Balance
    
    
    
    
    
    
    Principal Balance
    
    
    
    
    
    
    Effective
    
    Term/Original
    
    
    as of September 30,
    
    
    
    
    
    
    as of December 31,
    
    
    
    
    
    
    Interest
    
    AmortizationDescription of Debt
    
    Debt Issued
    
    
    2005
    
    
    
    
    
    
    2004
    
    
    
    
    
    
    Rate*
    
    Schedule7.59% fixed rate debt due 12/1/08 (1)
    
    $
    38,050
    
    
    $
    30,279
    
    
    
    
    
    
    $
    31,513
    
    
    
    
    
    
    
    
    
    
    10 yr/17 yr5.84% fixed rate debt due 2/1/14 (2)
    
    
    11,900
    
    
    
    11,567
    
    
    
    
    
    
    
    11,728
    
    
    
    
    
    
    
    
    
    
    10 yr/25 yrTriple Net Lease Mortgage Notes, Series
2002 (3)
    
    
    325,000
    
    
    
    281,574
    
    
    
    
    
    
    
    292,557
    
    
    
    
    
    
    
    
    
    
    
    (3)Triple Net Lease Mortgage Notes, Series
2003-1 (4)
    
    
    228,000
    
    
    
    212,071
    
    
    
    
    
    
    
    217,102
    
    
    
    
    
    
    
    
    
    
    
    (4)Various variable rate debt (5)
    
    
    91,320
    
    
    
    
    
    
    
    
    
    
    
    81,465
    
    
    
    
    
    
    
    
    
    
    
    (5)TOTAL MORTGAGE DEBT (6)
    
    
    
    
    
    $
    535,491
    
    
    
    
    
    
    $
    634,365
    
    
    
    
    
    
    
    6.95%Variable rate term loan due 8/20/09 (7)
    
    
    150,000
    
    
    
    150,000
    
    
    
    
    
    
    
    150,000
    
    
    
    
    
    
    
    
    
    
    
    (7)5.46% Senior Notes due 2/24/15 (8)
    
    
    175,000
    
    
    
    175,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8)6.75% Monthly Income Notes due 4/15/19 (9)
    
    
    125,000
    
    
    
    125,000
    
    
    
    (10
    )
    
    
    125,000
    
    
    
    (10
    )
    
    
    
    
    
    
    (9)6% Convertible Notes due 5/15/24 (11)
    
    
    110,000
    
    
    
    110,000
    
    
    
    
    
    
    
    110,000
    
    
    
    
    
    
    
    
    
    
    
    (11)TOTAL UNSECURED DEBT
    
    
    
    
    
    $
    560,000
    
    
    
    
    
    
    $
    385,000
    
    
    
    
    
    
    
    5.61%$250 million revolving unsecured facility (7)
    
    
    
    
    
    
    118,000
    
    
    
    
    
    
    
    30,000
    
    
    
    
    
    
    
    
    
    
    
    (7)TOTAL CREDIT FACILITIES
    
    
    
    
    
    $
    118,000
    
    
    
    
    
    
    $
    30,000
    
    
    
    
    
    
    
    5.17%TOTAL DEBT OUTSTANDING
    
    
    
    
    
    $
    1,213,491
    
    
    
    (10
    )
    
    $
    1,049,365
    
    
    
    (10
    )
    
    
    6.19%
 *
    
    For the quarter ended September 30, 2005. Includes deferred loan fees amortized over
the life of the loans. (1)
    
    
    This loan requires monthly payments of principal and interest with a final
payment at maturity of approximately $24.2 million. The Partnership has provided a
guaranty of collection limited to approximately $8.9 million of this loan, contingent
upon the lender first making written demand upon and proceeding against the borrower,
including obtaining judgment and foreclosing upon all collateral. All amounts
recovered from the borrower or collateral following a default reduce such guarantee.(2)
    
    
    This loan requires level monthly payments of principal and interest with a
final payment at maturity of approximately $9.2 million.
 18




---



##### 



(3)
    
    During 2002, we issued $325 million in four classes of Triple Net Lease
Mortgage Notes, Series 2002. 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 PrincipalClass
    
    Balance
    
    Balance
    
    Maturity DateA-1a
    
    $
    164,136
    
    
    $
    134,111
    
    
    
    8/15/14A-1b
    
    
    9,064
    
    
    
    9,064
    
    
    
    7/15/15A-2
    
    
    75,900
    
    
    
    62,499
    
    
    
    7/15/15A-3
    
    
    75,900
    
    
    
    75,900
    
    
    
    6/15/22
  (4)
    
    During 2003, we issued $228 million in two classes of Triple Net Lease Mortgage
Notes, Series 2003-1. 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 PrincipalClass
    
    Balance
    
    Balance
    
    Maturity DateA-1
    
    $
    109,000
    
    
    $
    93,071
    
    
    
    9/25/15A-2
    
    
    119,000
    
    
    
    119,000
    
    
    
    3/25/19
  (5)
    
    This represents debt that was outstanding with one lender, of which
approximately $81 million was repaid during the first quarter of 2005. Approximately
$73 million of the debt repaid had a spread over the 30-day LIBOR of 175 basis points
with a remaining maturity of approximately 8.6 years. We had previously entered into
an interest rate swap arrangement with a third party to fix the interest rate on this
loan to 7.5%. We terminated the swap arrangement during the fourth quarter of 2004 in
anticipation of the debt repayment during the first quarter of 2005. The remaining
debt repaid had a spread over the three-month LIBOR of 225 basis points with a
remaining maturity of approximately 9.6 years. The debt was repaid with borrowings on
our unsecured credit facility, which were subsequently repaid with the proceeds
received from the 5.46% senior unsecured note offering described in footnote (8).(6)
    
    Our mortgage debt is subject to prepayment penalties.(7)
    
    During 2004, we closed on a syndicated unsecured revolving credit and term loan
facility. The revolving credit portion of the facility is $250 million with an initial
three-year term and an option to extend the term for an additional one-year period.
The term loan portion of the facility is a $150 million five-year unsecured term loan
and requires interest-only payments until maturity, at which time the loan requires a
final payment totaling $150 million. The facility bears interest at a spread,
generally over LIBOR, and adjusts over time, based upon our debt rating or leverage. On
May 10, 2005, we entered into an amendment with the lender to reduce the interest rate
spread over LIBOR on the term loan portion of the facility from 95
basis points to 87.5 basis points based on our current credit ratings. The amendment
did not result in a significant modification of debt for GAAP purposes. As of
September 30, 2005, the borrowings under the term loan portion of the facility bear
interest, based upon our debt rating, equal to the 30-day LIBOR rate plus 87.5 basis
points. As of September 30, 2005, the borrowings under the revolving credit portion of
the facility bear interest, based upon our debt rating, equal to the 30-day LIBOR rate
plus 95 basis points.
 19




---



##### 



(8)
    
    On February 24, 2005, the Partnership entered into a note purchase agreement to
sell $175 million in aggregate principal amount of 5.46% senior unsecured notes in a
private offering to institutional accredited investors within the meaning of
Regulation D under the Securities Act of 1933. Pursuant to the agreement, the
Partnership issued $100 million of the notes on February 24, 2005 and an additional $75
million on March 30, 2005. The Company has guaranteed the Partnerships obligations
under the notes. Interest on the notes is payable semi-annually. The notes have a
10-year term. The Partnership may, at its option, prepay the notes, at any time, in
whole or, from time to time, in part, in an amount equal to at least $5 million of the
aggregate principal amount then outstanding, at 100% of the principal amount to be
prepaid, plus any make-whole amount due in connection with the prepayment. In
general, the make-whole amount is the amount by which the discounted value of the
remaining payments relating to the principal amount to be prepaid (determined in
accordance with the terms of the note purchase agreement) exceeds the principal amount
to be prepaid. The net proceeds to the Company, after deducting the expenses of the
offering, totaled approximately $174 million. A portion of the net proceeds were used
to repay borrowings outstanding on our syndicated unsecured credit facility and to fund
acquisitions. The remainder of the net proceeds were used to fund real estate
investments and for general corporate purposes.(9)
    
    During 2004, we closed on a public offering of $125 million 6.75% senior
unsecured monthly income notes at par. Interest on the notes is payable monthly. The
notes have a 15-year term and are redeemable at the Companys option after five years
at par. On March 18, 2004, which was the date the Company priced the notes, we entered
into an interest rate swap arrangement with a third party to cause the interest rate on
$100 million of the notes effectively to be at a floating rate of the three-month LIBOR
plus 162.4 basis points.The unrealized loss on our fair value hedge was approximately
$4.3 million and $3.4 million as of September 30, 2005 and December 31, 2004,
respectively, as further described in the Summary of Significant Accounting Policies 
Interest Rate Swaps footnote herein.(10)
    
    Although the principal balance of the $125 million 6.75% senior unsecured
monthly income notes was $125 million as of September 30, 2005 and December 31, 2004,
in accordance with GAAP, the carrying value of the debt on our balance sheet has been
reduced by $4.3 million and $3.4 million as of September 30, 2005 and December 31,
2004, respectively, representing the change in the fair value of the swap described in
footnote (9) and as more fully described in the Summary of Significant Accounting
Policies  Interest Rate Swaps footnote herein.(11)
    
    During 2004, we closed on a public offering of $110 million 6% convertible
notes. The notes have a 20-year term and are convertible, at the option of the holder,
into the Companys common shares under certain circumstances, at an initial conversion
price of $35.5679 per share, subject to certain adjustments. The initial price is
equivalent to a conversion rate of 28.1152 shares per $1,000 principal amount of notes
and was equivalent to a premium of 30% at the closing. The conversion rate will be
adjusted under certain circumstances, including common stock splits, common stock
issuances as dividends and increases in the dividend rate. The Company may, at its
option, redeem the notes for cash on or after May 15, 2009, at any time, in whole or,
from time to time, in part, at a redemption price equal to 100% of the principal amount
to be redeemed plus accrued and unpaid interest. The noteholders may require us to
repurchase all or part of the notes on May 15, 2009, May 15, 2014 and May 15, 2019, or
upon a change in control, at a price equal to 100% of the principal amount plus accrued
and unpaid interest. The notes require semi-annual interest payments. The deferred
loan fees associated with this debt are being amortized over a five-year period.
  20




---



##### 




    
    incur or guarantee additional debt;
    
    make certain distributions, investments and other restricted payments,
including distribution payments on our outstanding common and preferred shares;
    
    limit the ability of restricted subsidiaries to make payments to us;
    
    enter into transactions with certain affiliates;
    
    create certain liens; and
    
    consolidate, merge or sell our assets.
  
    
    relating to the maintenance of the property securing the debt;
    
    restricting our ability to sell, assign or further encumber the properties
securing the debt;
    
    restricting our ability to incur additional debt;
    
    restricting our ability to amend or modify existing leases; and
    
    relating to certain prepayment restrictions.
   
    
    limit the amount of debt to a certain percentage of total assets;
    
    limit the amount of secured debt to a certain percentage of total assets;
    
    maintain certain minimum interest and debt service coverage ratios; and
    
    maintain a certain level of unencumbered assets.
  21




---



##### 



For the Year Ended December 31,
 PrincipalAmortization
    
    
    Maturities
    
    
    Total2005
    
    $
    6,023
    
    
    $
    
    
    
    $
    6,0232006
    
    
    25,142
    
    
    
    
    
    
    
    25,1422007
    
    
    26,979
    
    
    
    
    
    
    
    26,9792008
    
    
    28,735
    
    
    
    24,211
    
    
    
    52,9462009
    
    
    28,810
    
    
    
    260,000
    
    
    
    288,810Thereafter
    
    
    315,594
    
    
    
    379,997
    
    
    
    695,591Total
    
    $
    431,283
    
    
    $
    664,208
    
    
    $
    1,095,491
     Series ofPreferred Share
    
    
    
    
    
    
    
    Annual
    
    Annual
    
    Earliestof Beneficial
    
    # of
    
    Month
    
    Dividend
    
    Dividend
    
    RedemptionInterest
    
    Shares Issued
    
    of Issuance
    
    Yield (1)
    
    Per Share
    
    DateSeries A
    
    
    3,950,000
    
    
    December 2003
    
    
    7.5
    %
    
    $
    1.875
    
    
    12/11/08Series B
    
    
    2,600,000
    
    
    April/May 2004
    
    
    8.0
    %
    
    
    2.000
    
    
    4/27/09
 (1)
    
    Yield computed based on $25.00 per share redemption price.
  
 22




---



##### 



23




---



##### 



24




---



##### 



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Income from continuing operations
    
    $
    24,376
    
    
    $
    18,526
    
    
    $
    71,733
    
    
    $
    44,472Preferred share dividends
    
    
    (3,152
    )
    
    
    (3,152
    )
    
    
    (9,455
    )
    
    
    (7,780
    )Income from continuing operations used
to calculate basic earnings per common
share
    
    
    21,224
    
    
    
    15,374
    
    
    
    62,278
    
    
    
    36,692Impact of dilutive securities
    
    
    22
    
    
    
    (7
    )
    
    
    68
    
    
    
    90Income from continuing operations used
to calculate diluted earnings per
common share
    
    $
    21,246
    
    
    $
    15,367
    
    
    $
    62,346
    
    
    $
    36,782Basic earnings per common share
    
    $
    0.46
    
    
    $
    0.42
    
    
    $
    1.40
    
    
    $
    1.03Diluted earnings per common share
    
    $
    0.46
    
    
    $
    0.41
    
    
    $
    1.39
    
    
    $
    1.02Net income available to common
shareholders
    
    $
    21,618
    
    
    $
    18,689
    
    
    $
    63,748
    
    
    $
    43,683Impact of dilutive securities
    
    
    24
    
    
    
    (4
    )
    
    
    69
    
    
    
    116Net income used to calculate diluted
earnings per common share
    
    $
    21,642
    
    
    $
    18,685
    
    
    $
    63,817
    
    
    $
    43,799Basic earnings per common share
    
    $
    0.47
    
    
    $
    0.50
    
    
    $
    1.44
    
    
    $
    1.22Diluted earnings per common share
    
    $
    0.47
    
    
    $
    0.50
    
    
    $
    1.43
    
    
    $
    1.21Weighted average shares:Common shares outstanding used to
compute basic earnings per common
share
    
    
    45,974
    
    
    
    37,021
    
    
    
    44,410
    
    
    
    35,714Impact of dilutive securities
    
    
    344
    
    
    
    372
    
    
    
    317
    
    
    
    479Common shares outstanding used to
compute diluted earnings per common
share
    
    
    46,318
    
    
    
    37,393
    
    
    
    44,727
    
    
    
    36,193
 
 25




---



##### 



Record Date
    
    Date Payable
    
    Per ShareCommon Shares:Fourth Quarter 2004
    
    February 7, 2005
    
    February 18, 2005
    
    $
    0.43050First Quarter 2005
    
    May 10, 2005
    
    May 20, 2005
    
    $
    0.43800Second Quarter 2005
    
    August 9, 2005
    
    August 19, 2005
    
    $
    0.44600Third Quarter 2005
    
    November 7, 2005
    
    November 18, 2005
    
    $
    0.45400Series A Preferred Shares:November 1,
2004  January 31, 2005
    
    February 1, 2005
    
    February 15, 2005
    
    $
    0.46875February 1,
2005  April 30, 2005
    
    May 2, 2005
    
    May 16, 2005
    
    $
    0.46875May 1,
2005  July 31, 2005
    
    August 1, 2005
    
    August 15, 2005
    
    $
    0.46875August 1, 2005  October 31, 2005
    
    November 1, 2005
    
    November 15, 2005
    
    $
    0.46875Series B Preferred Shares:November 1, 2004  January 31, 2005
    
    February 1, 2005
    
    February 15, 2005
    
    $
    0.50000February 1,
2005  April 30, 2005
    
    May 2, 2005
    
    May 16, 2005
    
    $
    0.50000May 1,
2005  July 31, 2005
    
    August 1, 2005
    
    August 15, 2005
    
    $
    0.50000August 1, 2005  October 31, 2005
    
    November 1, 2005
    
    November 15, 2005
    
    $
    0.50000
  Facility Improvements and Construction Financing
  Guarantee Commitments
  26




---



##### 



Contingencies
 Adams Family Trust et al. v.
Capital Automotive REIT et al.,
 27




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
      28




---



##### 



Proposed Merger Transaction
     29




---



##### 



Tender Offer
  Real Estate Investments
  30




---



##### 



Revenue
 Liquidity and Capital
Resources  Variable Rate Lease Program
 For the three months
    
    
    
    
    
    
    For the nine monthsended September 30,
    
    
    %
    
    
    ended September 30,
    
    
    %(dollars in thousands)
    
    2005
    
    
    2004
    
    
    Change
    
    
    2005
    
    
    2004
    
    
    ChangeRevenueRental
    
    $
    57,847
    
    
    $
    50,649
    
    
    
    14
    %
    
    $
    169,837
    
    
    $
    144,183
    
    
    
    18
    %Mortgage and other
financing interest
    
    
    4,282
    
    
    
    332
    
    
    
    1,190
    %
    
    
    6,778
    
    
    
    1,453
    
    
    
    366
    %Interest and other
    
    
    277
    
    
    
    381
    
    
    
    (27
    %)
    
    
    1,035
    
    
    
    818
    
    
    
    27
    %Total
    
    $
    62,406
    
    
    $
    51,362
    
    
    
    22
    %
    
    $
    177,650
    
    
    $
    146,454
    
    
    
    21
    %
 Rental. Discontinued Operations
 Real Estate beforeAccumulated
    
    
    
    
    
    
    
    
    
    Total SquareDepreciation (in
    
    Number of
    
    Total Land
    
    Footage (inAs of
    
    thousands)
    
    Properties
    
    Acreage
    
    millions)December 31, 2003
    
    $
    1,790,406
    
    
    
    300
    
    
    
    2,180
    
    
    
    12.9September 30, 2004
    
    
    2,040,321
    
    
    
    320
    
    
    
    2,456
    
    
    
    14.2December 31, 2004
    
    
    2,185,141
    
    
    
    339
    
    
    
    2,530
    
    
    
    14.8September 30, 2005
    
    
    2,312,163
    
    
    
    347
    
    
    
    2,727
    
    
    
    15.2
  Mortgage and Other Financing Interest.
 31




---



##### 



Interest and Other.
 Expenses
 For the three months
    
    
    
    
    
    
    For the nine monthsended September 30,
    
    
    %
    
    
    ended September 30,
    
    
    %(dollars in thousands)
    
    2005
    
    
    2004
    
    
    Change
    
    
    2005
    
    
    2004
    
    
    ChangeExpensesDepreciation and amortization
    
    $
    10,361
    
    
    $
    9,059
    
    
    
    14
    %
    
    $
    30,629
    
    
    $
    26,313
    
    
    
    16
    %General and administrative
    
    
    5,537
    
    
    
    3,335
    
    
    
    66
    %
    
    
    12,241
    
    
    
    9,070
    
    
    
    35
    %Interest
    
    
    18,540
    
    
    
    16,418
    
    
    
    13
    %
    
    
    51,828
    
    
    
    49,095
    
    
    
    6
    %Debt extinguishment charge
    
    
    
    
    
    
    697
    
    
    
    (100
    %)
    
    
    
    
    
    
    9,409
    
    
    
    (100
    %)Total
    
    $
    34,438
    
    
    $
    29,509
    
    
    
    17
    %
    
    $
    94,698
    
    
    $
    93,887
    
    
    
    1
    %
 Depreciation and Amortization. Revenue  Rental
 General and Administrative. Recent Developments
 §
    
    an increase in payroll and related expenses primarily attributable to an increase in
overall compensation and an increase in the number of employees;§
    
    an increase in state and local income and business taxes primarily due to the growth of
our real estate portfolio as well as changes in state tax laws;§
    
    an increase in professional fees related to information technology consultation
services;§
    
    a decrease in legal fees related to the litigation that was settled during the fourth
quarter of 2004;§
    
    a decrease in professional fees related to compliance with Section 404 of the
Sarbanes-Oxley Act of 2002; and§
    
    a decrease in costs related to financing transactions during 2004 that were not
consummated by us.
  32




---



##### 



Interest.
 Credit(in thousands)
    
    Fixed Rate
    
    
    Variable Rate
    
    
    Facilities
    
    
    TotalBalance as of:9/30/04
    
    $
    787,915
    
    
    $
    258,647
    
    
    $
    10,000
    
    
    $
    1,056,5629/30/05
    
    
    845,491
    
    
    
    250,000
    
    
    
    118,000
    
    
    
    1,213,491Effective Interest
Rate for the Three
Months Ended
September 30*2004
    
    
    6.97%
    
    
    
    3.85%
    
    
    
    4.38%
    
    
    
    6.16%2005
    
    
    6.60%
    
    
    
    5.15%
    
    
    
    5.17%
    
    
    
    6.19%Effective Interest
Rate for the Nine
Months Ended
September 30*2004
    
    
    7.05%
    
    
    
    3.75%
    
    
    
    4.30%
    
    
    
    6.22%2005
    
    
    6.68%
    
    
    
    4.70%
    
    
    
    4.76%
    
    
    
    6.13%
 
 *
    
    Includes deferred loan fees amortized over the life of the loans.  Discontinued Operations
 Debt Extinguishment Charges.
 33




---



##### 



Discontinued Operations
  Related
Party Transactions .
  For the three months
    
    
    For the nine monthsended September 30,
    
    
    ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue:Rental
    
    $
    28
    
    
    $
    577
    
    
    $
    488
    
    
    $
    3,419Other
    
    
    
    
    
    
    937
    
    
    
    343
    
    
    
    2,360Total revenue
    
    
    28
    
    
    
    1,514
    
    
    
    831
    
    
    
    5,779Expenses:Depreciation
    
    
    3
    
    
    
    131
    
    
    
    98
    
    
    
    683Interest
    
    
    13
    
    
    
    114
    
    
    
    155
    
    
    
    810Total expenses
    
    
    16
    
    
    
    245
    
    
    
    253
    
    
    
    1,493Income from discontinued operations before gain
on sale of real estate and minority interest
    
    
    12
    
    
    
    1,269
    
    
    
    578
    
    
    
    4,286Gain on sale of real estate
    
    
    449
    
    
    
    2,772
    
    
    
    1,158
    
    
    
    4,258Income related to discontinued operations
before minority interest
    
    
    461
    
    
    
    4,041
    
    
    
    1,736
    
    
    
    8,544Minority interest related to discontinued operations
    
    
    (67
    )
    
    
    (726
    )
    
    
    (266
    )
    
    
    (1,553
    )Total discontinued operations, net of
minority interest
    
    $
    394
    
    
    $
    3,315
    
    
    $
    1,470
    
    
    $
    6,991
 Preferred Share Dividends
 For the three months
    
    
    %
    
    
    For the nine months ended
    
    
    %ended September 30,
    
    
    Change
    
    
    September 30
    
    
    Change(dollars in thousands)
    
    2005
    
    
    2004
    
    
    
    
    
    
    2005
    
    
    2004Preferred share dividends
    
    $
    3,152
    
    
    $
    3,152
    
    
    
    0%
    
    
    $
    9,455
    
    
    $
    7,780
    
    
    
    22%
  34




---



##### 



Impact of Inflation
      Nine Months EndedSeptember 30,(dollars in thousands)
    
    2005
    
    
    2004Cash provided by operating activities
    
    $
    119,536
    
    
    $
    91,346Cash used in investing activities
    
    
    (294,102
    )
    
    
    (163,684
    )Cash provided by financing activities
    
    
    170,741
    
    
    
    67,035
 Operating Activities
  Investing Activities
  Financing Activities
  
    
    $253.0 million of proceeds received from borrowings on our revolving credit facility;
    
    $175.0 million of proceeds received from debt issuances during the period; and
    
    $75.1 million of proceeds received from the issuance of common shares, net of costs.
 35




---



##### 




    
    the repayment of borrowings on our revolving credit facility totaling $165.0 million;
    
    the repayment of debt totaling $81.5 million;
    
    distributions made to both common and preferred shareholders as well as minority
partners during the period totaling $66.8 million;
    
    payments of principal on outstanding debt totaling $17.4 million; and
    
    payments for debt issuance costs totaling $1.6 million.
  
    
    $422.2 million of proceeds received from debt issuances during the period;
    
    $221.0 million of proceeds received from borrowings on our revolving credit facilities;
    
    $149.9 million of proceeds received from the issuance of common shares, net of costs;
    
    $63.2 million of proceeds received from our offering of 8% Series B Cumulative
Redeemable Preferred Shares, net of costs; and
    
    the decrease in restricted cash totaling $6.9 million.
  
    
    the repayment of debt totaling $423.7 million;
    
    the repayment of borrowings on our revolving credit facilities totaling $286.0 million;
    
    distributions made to both common and preferred shareholders as well as minority
partners during the period totaling $53.3 million;
    
    payments of principal on outstanding debt totaling $22.4 million; and
    
    payments for debt issuance costs totaling $10.6 million.
 Financing Strategy
 Recent Developments
  36




---



##### 



Liquidity Requirements
 37




---



##### 



Variable Rate Lease Program
   Total Real
    
    Percentage of our
    
    
    
    
    
    Average One-
    
    Average One-Estate Subject
    
    Portfolio Subject
    
    Total Variable
    
    Month LIBOR
    
    Month LIBORto Variable
    
    to Variable Rate
    
    Rate Debt
    
    for the three
    
    for the ninePeriod
    
    Rate Leases
    
    Leases
    
    Outstanding (1)
    
    months ended
    
    months endedSept. 30, 2004
    
    $
    405,652
    
    
    
    20
    %
    
    $
    268,647
    
    
    
    1.60
    %
    
    
    1.29
    %Sept. 30, 2005
    
    
    399,041
    
    
    
    17
    %
    
    
    368,000
    
    
    
    3.60
    %
    
    
    3.13
    %
  (1)
    
    Includes amounts outstanding on our revolving credit facilities totaling $10.0 million and
$118.0 million as of September 30, 2004 and September 30, 2005, respectively. Financing Strategy
  38




---



##### 



Debt Outstanding
  Principal Balance
    
    Principal Balance
    
    Effective
    
    Term/Original
    
    as of September
    
    as of December
    
    Interest
    
    AmortizationDescription of Debt
    
    Debt Issued
    
    30, 2005
    
    31, 2004
    
    Rate*
    
    Schedule7.59% fixed rate debt due 12/1/08 (1)
    
    $
    38,050
    
    
    $
    30,279
    
    
    $
    31,513
    
    
    
    
    
    
    10 yr/17 yr5.84% fixed rate debt due 2/1/14 (2)
    
    
    11,900
    
    
    
    11,567
    
    
    
    11,728
    
    
    
    
    
    
    10 yr/25 yrTriple Net Lease Mortgage Notes, Series
2002 (3)
    
    
    325,000
    
    
    
    281,574
    
    
    
    292,557
    
    
    
    
    
    
    (3)Triple Net Lease Mortgage Notes, Series
2003-1 (4)
    
    
    228,000
    
    
    
    212,071
    
    
    
    217,102
    
    
    
    
    
    
    (4)Various variable rate debt (5)
    
    
    91,320
    
    
    
    
    
    
    
    81,465
    
    
    
    
    
    
    (5)TOTAL MORTGAGE DEBT (6)
    
    
    
    
    
    $
    535,491
    
    
    $
    634,365
    
    
    
    6.95
    %Variable rate term loan due 8/20/09 (7)
    
    
    150,000
    
    
    
    150,000
    
    
    
    150,000
    
    
    
    
    
    
    (7)5.46% Senior Notes due 2/24/15 (8)
    
    
    175,000
    
    
    
    175,000
    
    
    
    
    
    
    
    
    
    
    (8)6.75% Monthly Income Notes due 4/15/19 (9)
    
    
    125,000
    
    
    
    125,000
    (10)
    
    
    125,000
    (10)
    
    
    
    
    
    (9)6% Convertible Notes due 5/15/24 (11)
    
    
    110,000
    
    
    
    110,000
    
    
    
    110,000
    
    
    
    
    
    
    (11)TOTAL UNSECURED DEBT
    
    
    
    
    
    $
    560,000
    
    
    $
    385,000
    
    
    
    5.61
    %$250 million revolving unsecured facility (7)
    
    
    
    
    
    
    118,000
    
    
    
    30,000
    
    
    
    
    
    
    (7)TOTAL CREDIT FACILITIES
    
    
    
    
    
    $
    118,000
    
    
    $
    30,000
    
    
    
    5.17
    %TOTAL DEBT OUTSTANDING
    
    
    
    
    
    $
    1,213,491
    (10)
    
    $
    1,049,365
    (10)
    
    
    6.19
    %
  *
    
    For the quarter ended September 30, 2005. Includes deferred loan fees amortized over the
life of the loans.(1)
    
    This loan requires monthly payments of principal and interest with a final
payment at maturity of approximately $24.2 million. The Partnership has provided a
guaranty of collection limited to approximately $8.9 million of this loan, contingent
upon the lender first making written demand upon and proceeding against the borrower,
including obtaining judgment and foreclosing upon all collateral. All amounts recovered
from the borrower or collateral following a default reduce such guarantee.(2)
    
    This loan requires level monthly payments of principal and interest with a final
payment at maturity of approximately $9.2 million.(3)
    
    During 2002, we issued $325 million in four classes of Triple Net Lease Mortgage
Notes, Series 2002. 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: 39




---



##### 



Original Principal
    
    
    Current PrincipalClass
    
    Balance
    
    
    Balance
    
    
    Maturity DateA-1a
    
    $
    164,136
    
    
    $
    134,111
    
    
    
    8/15/14A-1b
    
    
    9,064
    
    
    
    9,064
    
    
    
    7/15/15A-2
    
    
    75,900
    
    
    
    62,499
    
    
    
    7/15/15A-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 notes have a
weighted average effective interest rate (including deferred loan fees amortized over the
life of the notes) of approximately 7.7%. The Partnership has provided a guaranty of
collection limited to approximately $35 million of this loan, contingent upon the trustee
first making written demand upon and proceeding against the borrower, including obtaining
judgment and foreclosing upon all collateral. All amounts recovered from the borrower or
collateral following a default reduce such guarantee. In connection with the issuance of
this debt, the Company guarantees certain customary, non-recourse, carveout indemnities.
Additionally, in conjunction with the servicing of the debt, the Company guarantees CARS
Loan Servicer L.L.C.s obligations to make certain principal, interest and property
protection advances.(4)
    
    During 2003, we issued $228 million in two classes of Triple Net Lease Mortgage
Notes, Series 2003-1. 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 PrincipalClass
    
    Balance
    
    
    Balance
    
    
    Maturity DateA-1
    
    $
    109,000
    
    
    $
    93,071
    
    
    
    9/25/15A-2
    
    
    119,000
    
    
    
    119,000
    
    
    
    3/25/19
 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. The notes have a weighted average effective interest rate
(including deferred loan fees amortized over the life of the notes) of approximately
5.86%. In connection with the issuance of this debt, the Company guarantees certain
customary, non-recourse, carveout indemnities. Additionally, in conjunction with the
servicing of the debt, the Company guarantees CARS Loan Servicer L.L.C.s obligations to
make certain principal, interest and property protection advances.(5)
    
    This represents debt that was outstanding with one lender, of which approximately
$81 million was repaid during the first quarter of 2005. Approximately $73 million of
the debt repaid had a spread over the 30-day LIBOR of 175 basis points with a remaining
maturity of approximately 8.6 years. We had previously entered into an interest rate
swap arrangement with a third party to fix the interest rate on this loan to 7.5%. We
terminated the swap arrangement during the fourth quarter of 2004 in anticipation of the
debt repayment during the first quarter of 2005. The remaining debt repaid had a spread
over the three-month LIBOR of 225 basis points with a remaining maturity of
approximately 9.6 years. The debt was repaid with borrowings on our unsecured credit
facility, which were subsequently repaid with the proceeds received from the 5.46%
senior unsecured note offering described in footnote (8).(6)
    
    Our mortgage debt is subject to prepayment penalties.(7)
    
    During 2004, we closed on a syndicated unsecured revolving credit and term loan
facility. The revolving credit portion of the facility is $250 million with an initial
three-year term and an option to extend the term for an additional one-year period. The
term loan portion of the facility is a $150 million five-year unsecured term loan and
requires interest-only payments until maturity, at which time the loan requires a final
payment totaling $150 million. The facility bears interest at a spread, generally over
LIBOR, and adjusts over time, based upon our debt rating or leverage. On May 10, 2005,
we entered into an amendment with the lender to reduce the interest rate spread over
LIBOR on the term loan portion of the facility from 95 basis points to 87.5 basis points
based on our current credit ratings. The amendment did not result in a significant
modification of debt for GAAP purposes. As of September 30, 2005, the
borrowings under the term loan portion of the facility bear interest, based upon our
debt rating, equal to the 30-day LIBOR rate plus 87.5 basis points. As of September 30,
2005, the borrowings under the revolving credit portion of the facility bear interest,
based upon our debt rating, equal to the 30-day LIBOR rate plus 95 basis points. 40




---



##### 



(8)
    
    On February 24, 2005, the Partnership entered into a note purchase agreement to
sell $175 million in aggregate
principal amount of 5.46% senior unsecured notes in a private offering to institutional
accredited investors within the meaning of Regulation D under the Securities Act of
1933. Pursuant to the agreement, the Partnership issued $100 million of the notes on
February 24, 2005 and an additional $75 million on March 30, 2005. The Company has
guaranteed the Partnerships obligations under the notes. Interest on the notes is
payable semi-annually. The notes have a 10-year term. The Partnership may, at its
option, prepay the notes, at any time, in whole or, from time to time, in part, in an
amount equal to at least $5 million of the aggregate principal amount then outstanding,
at 100% of the principal amount to be prepaid, plus any make-whole amount due in
connection with the prepayment. In general, the make-whole amount is the amount by which
the discounted value of the remaining payments relating to the principal amount to be
prepaid (determined in accordance with the terms of the note purchase agreement) exceeds
the principal amount to be prepaid. The net proceeds to the Company, after deducting the
expenses of the offering, totaled approximately $174 million. A portion of the net
proceeds were used to repay borrowings outstanding on our syndicated unsecured credit
facility and to fund acquisitions. The remainder of the net proceeds were used to fund
real estate investments and for general corporate purposes.(9)
    
    During 2004, we closed on a public offering of $125 million 6.75% senior
unsecured monthly income notes at par. Interest on the notes is payable monthly. The
notes have a 15-year term and are redeemable at the Companys option after five years at
par. On March 18, 2004, which was the date the Company priced the notes, we entered
into an interest rate swap arrangement with a third party to cause the interest rate on
$100 million of the notes effectively to be at a floating rate of the three-month LIBOR
plus 162.4 basis points.The unrealized loss on our fair value hedge was approximately
$4.3 million and $3.4 million as of September 30, 2005 and December 31, 2004,
respectively, as further described in the Summary of Significant Accounting Policies 
Interest Rate Swaps footnote herein.(10)
    
    Although the principal balance of the $125 million 6.75% senior unsecured monthly
income notes was $125 million as of September 30, 2005 and December 31, 2004, in
accordance with GAAP, the carrying value of the debt on our balance sheet has been
reduced by $4.3 million and $3.4 million as of September 30, 2005 and December 31, 2004,
respectively, representing the change in the fair value of the swap described in
footnote (9) and as more fully described in the Summary of Significant Accounting
Policies  Interest Rate Swaps footnote herein.(11)
    
    During 2004, we closed on a public offering of $110 million 6% convertible notes.
The notes have a 20-year term and are convertible, at the option of the holder, into
the Companys common shares under certain circumstances, at an initial conversion price
of $35.5679 per share, subject to certain adjustments. The initial price is equivalent
to a conversion rate of 28.1152 shares per $1,000 principal amount of notes and was
equivalent to a premium of 30% at the closing. The conversion rate will be adjusted
under certain circumstances, including common stock splits, common stock issuances as
dividends and increases in the dividend rate. The Company may, at its option, redeem
the notes for cash on or after May 15, 2009, at any time, in whole or, from time to
time, in part, at a redemption price equal to 100% of the principal amount to be
redeemed plus accrued and unpaid interest. The noteholders may require us to repurchase
all or part of the notes on May 15, 2009, May 15, 2014 and May 15, 2019, or upon a
change in control, at a price equal to 100% of the principal amount plus accrued and
unpaid interest. The notes require semi-annual interest payments. The deferred loan
fees associated with this debt are being amortized over a five-year period.  41




---



##### 




    
    incur or guarantee additional debt;
    
    make certain distributions, investments and other restricted payments, including
distribution payments on our outstanding common and preferred shares;
    
    limit the ability of restricted subsidiaries to make payments to us;
    
    enter into transactions with certain affiliates;
    
    create certain liens; and
    
    consolidate, merge or sell our assets.
  
    
    relating to the maintenance of the property securing the debt;
    
    restricting our ability to sell, assign or further encumber the properties
securing the debt;
    
    restricting our ability to incur additional debt;
    
    restricting our ability to amend or modify existing leases; and
    
    relating to certain prepayment restrictions.
   
    
    limit the amount of debt to a certain percentage of total assets;
    
    limit the amount of secured debt to a certain percentage of total assets;
    
    maintain certain minimum interest and debt service coverage ratios; and
    
    maintain a certain level of unencumbered assets.
  Interest Rate Swaps
  42




---



##### 



Equity Offerings
  Liquidity Requirements
 Recent Developments
 43




---



##### 



For the Year Ended December 31,
 PrincipalAmortization
    
    
    Maturities
    
    
    Total2005
    
    $
    6,023
    
    
    $
    
    
    
    $
    6,0232006
    
    
    25,142
    
    
    
    
    
    
    
    25,1422007
    
    
    26,979
    
    
    
    
    
    
    
    26,9792008
    
    
    28,735
    
    
    
    24,211
    
    
    
    52,9462009
    
    
    28,810
    
    
    
    260,000
    
    
    
    288,810Thereafter
    
    
    315,594
    
    
    
    379,997
    
    
    
    695,591Total
    
    $
    431,283
    
    
    $
    664,208
    
    
    $
    1,095,491
  44




---



##### 



Dividend Reinvestment and Share Purchase Plan
    Off-Balance Sheet Arrangements
   45




---



##### 



46




---



##### 



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income
    
    $
    24,770
    
    
    $
    21,841
    
    
    $
    73,203
    
    
    $
    51,463Real estate depreciation and amortization
    
    
    10,334
    
    
    
    9,174
    
    
    
    30,646
    
    
    
    26,946Minority interest related to income from
continuing operations and income from
discontinued operations
    
    
    3,594
    
    
    
    3,555
    
    
    
    11,309
    
    
    
    8,876Gain on sale of real estate
    
    
    (384
    )
    
    
    (2,274
    )
    
    
    (982
    )
    
    
    (3,486
    )FFO
    
    
    38,314
    
    
    
    32,296
    
    
    
    114,176
    
    
    
    83,799Preferred share dividends
    
    
    (3,152
    )
    
    
    (3,152
    )
    
    
    (9,455
    )
    
    
    (7,780
    )FFO
available to common shareholders  basic
    
    $
    35,162
    
    
    $
    29,144
    
    
    $
    104,721
    
    
    $
    76,019Dilutive effect of convertible securities
    
    
    1,813
    
    
    
    
    
    
    
    5,437
    
    
    
    FFO
available to common shareholders 
diluted
    
    $
    36,975
    
    
    $
    29,144
    
    
    $
    110,158
    
    
    $
    76,019Weighted average number of common shares
used to compute basic net income per
common share
    
    
    45,974
    
    
    
    37,021
    
    
    
    44,410
    
    
    
    35,714Weighted average number of common shares
used to compute fully diluted net income
per common share
    
    
    46,318
    
    
    
    37,393
    
    
    
    44,727
    
    
    
    36,193Weighted average number of common shares
and units used to compute basic FFO per
common share
    
    
    53,775
    
    
    
    45,133
    
    
    
    52,411
    
    
    
    43,598Weighted average number of common shares
and units used to compute fully diluted
FFO per common share
    
    
    57,212
    
    
    
    45,504
    
    
    
    55,821
    
    
    
    44,077Basic net income per common share
    
    $
    0.47
    
    
    $
    0.50
    
    
    $
    1.44
    
    
    $
    1.22Diluted net income per common share
    
    $
    0.47
    
    
    $
    0.50
    
    
    $
    1.43
    
    
    $
    1.21Basic FFO per common share
    
    $
    0.65
    
    
    $
    0.65
    
    
    $
    2.00
    
    
    $
    1.74Diluted FFO per common share (1)
    
    $
    0.65
    
    
    $
    0.64
    
    
    $
    1.97
    
    
    $
    1.72
 47




---



##### 



(1)
    
    The impact of the if-converted method, as further described in the Earnings Per Common
Share footnote to our consolidated financial statements, for the Companys contingently convertible
debt instrument, which was issued during the second quarter of 2004, on diluted FFO per common
share is
dilutive for the three months and nine months ended September 30, 2005. Therefore, the calculation
includes the effect of the potential conversion resulting in a reduction in interest expense
totaling approximately $1.8 million and $5.4 million for the three months and nine months ended
September 30, 2005, respectively, as well as an additional 3.1 million common shares outstanding
during both periods. The impact of the if-converted method for the Companys contingently
convertible debt instrument on diluted FFO per common share is anti-dilutive for the three months
and nine months ended September 30, 2004. Therefore, the calculation excludes the effect of the
potential conversion for both periods. Forward-Looking Statements
  
    
    risks that the proposed merger will not be consummated on the terms
disclosed in the merger agreement, or at all;
    
    risks resulting from the potential adverse effect on our business and
operations of the covenants we made in the merger agreement;
    
    risks resulting from the decrease in the amount of time and attention that
management can devote to our business while also devoting its attention to
completing the proposed merger;
    
    risks associated with the increases in operating costs resulting from the
additional expenses we have incurred and will continue to incur relating to the
proposed merger;
    
    risks that our tenants will not pay rent;
    
    risks related to the mortgage loans in our portfolio, such as the risk that
our borrowers will not pay the principal or interest or otherwise default, the
level of interest income generated by the mortgage loans, the market value of
the mortgage loans and of the properties securing the loans, and provisions of
federal, state and local law that may delay or limit our ability to enforce our
rights against a borrower or guarantor in the event of a default under a loan;
    
    risks related to our reliance on a small number of dealer groups for a
significant portion of our revenue;
    
    risks of financing, such as increases in interest rates and our ability to
meet existing financial covenants, to maintain our investment-grade senior
unsecured debt ratings and to consummate planned and additional financings on
terms that are acceptable to us;
    
    risks that our growth will be limited if we cannot obtain additional capital
or refinance our maturing debt;
 48




---



##### 




    
    risks that planned and additional real estate investments may not be
consummated;
    
    risks that competition for future real estate investments could result in
less favorable terms for the Company;
    
    risks relating to the automotive industry, such as the ability of our
tenants to compete effectively in the automotive retail industry or operate
profitably and the ability of our tenants to perform their lease obligations as
a result of changes in any manufacturers production, supply, vehicle
financing, incentives, warranty programs, 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;
    
    risks related to our financing of new construction and improvements;
    
    environmental and other risks associated with the acquisition and leasing of
automotive properties;
    
    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; and
    
    risks associated with the pending lawsuit against us and our trustees
relating to the proposed merger and with any other lawsuits that may arise out
of the proposed merger.
     49




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Liquidity and Capital Resources
   Evaluation of Disclosure Controls and Procedures.
 Changes in Internal Controls over Financial Reporting.
 50




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##### 



Adams Family Trust et al. v.
Capital Automotive REIT et al.,
          2.1
    
    Agreement and Plan of Merger dated as of September 2, 2005 by and among Capital Automotive
REIT, Capital Automotive L.P., Flag Fund V LLC, CA Acquisition REIT and CALP Merger L.P.
(filed as Exhibit 2.1 to the Companys Form 8-K, dated September 2, 2005 and filed on
September 6, 2005, and incorporated herein by reference)31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer (filed herewith)31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer (filed herewith)32.1
    
    Section 1350 Certification of Chief Executive Officer (filed herewith)32.2
    
    Section 1350 Certification of Chief Financial Officer (filed herewith)99.1
    
    Guaranty dated as of September 2, 2005 by DRA Growth & Income Fund V LLC in favor of Capital
Automotive REIT and Capital Automotive L.P. (filed as Exhibit 99.1 to the Companys Form
8-K, dated September 2, 2005 and filed on September 6, 2005, and incorporated herein by
reference)
 51




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##### 



SIGNATURES
  CAPITAL AUTOMOTIVE REIT
(Registrant)BY:
    

    /s/ Thomas D. EckertThomas D. EckertPresident and Chief Executive Officer
(principal executive officer)BY:
    

    /s/ David S. KayDavid S. KaySenior Vice President, Chief Financial Officer and Treasurer
(principal financial officer)  52




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##### 



ExhibitNo.
    
    Description2.1
    
    Agreement and Plan of Merger dated as of September 2, 2005 by and among Capital
Automotive REIT, Capital Automotive L.P., Flag Fund V LLC, CA Acquisition REIT
and CALP Merger L.P. (filed as Exhibit 2.1 to the Companys Form 8-K, dated
September 2, 2005 and filed on September 6, 2005, and incorporated herein by
reference)31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer (filed herewith)31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer (filed herewith)32.1
    
    Section 1350 Certification of Chief Executive Officer (filed herewith)32.2
    
    Section 1350 Certification of Chief Financial Officer (filed herewith)99.1
    
    Guaranty dated as of September 2, 2005 by DRA Growth & Income Fund V LLC in favor
of Capital Automotive REIT and Capital Automotive L.P. (filed as Exhibit 99.1 to
the Companys Form 8-K, dated September 2, 2005 and filed on September 6, 2005,
and incorporated herein by reference)
 53