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 June 30, 2001

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

1420 Spring Hill Road, Suite 525, 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 ___

Number of common shares of beneficial interest outstanding as of August 9, 2001
was 25,839,426.

1



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CAPITAL AUTOMOTIVE REIT
FORM 10-Q
INDEX

|                                                                     |  |          |         | 
|-------------------------------------------------------------------- |  | -------- | ------- | 
|                                                                     |  | Page No.
|Part I  Financial Information                                      
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Item 1  Financial Statements                                       
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Consolidated Balance Sheets  June 30, 2001 (unaudited) and         
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|December 31, 2000.                                                   |  |          | 3       | 
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Consolidated Statements of Operations (unaudited)  three months and
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|six months ended June 30, 2001 and June 30, 2000.                    |  |          | 4       | 
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Consolidated Statements of Cash Flows (unaudited)  six months      
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|ended June 30, 2001 and June 30, 2000.                               |  |          | 5       | 
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Notes to Consolidated Financial Statements (unaudited)               |  |          | 6  12  | 
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Item 2  Managements Discussion and Analysis of Financial Condition
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|and Results of Operations                                            |  |          | 13  20 | 
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Item 3  Quantitative and Qualitative Disclosures About Market Risk  |  |          | 21      | 
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Part II  Other Information                                         
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Item 1  Legal Proceedings                                           |  |          | 22      | 
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Item 2  Changes in Securities                                       |  |          | 22      | 
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Item 3  Defaults Upon Senior Securities                             |  |          | 22      | 
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|                                                                    
|                                                                    
|                                                                    
|Item 4  Submission of Matters to Vote to Security Holders           |  |          | 22  23 | 
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|                                                                    
|Item 5  Other Information                                           |  |          | 23      | 
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Item 6  Exhibits and Reports on Form 8-K                            |  |          | 23      | 
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Signatures                                                           |  |          | 24      | 

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)

|                                                                          |                            |                                                               |                                            |         |             |           |              |         |           |           | 
|------------------------------------------------------------------------- | -------------------------- | ------------------------------------------------------------- | ------------------------------------------ | ------- | ----------- | --------- | ------------ | ------- | --------- | --------- | 
|                                                                          |                            |                                                               |                                            |         | June 30,    |           | December 31,
|                                                                          |                            |                                                               |                                            |         | 2001        |           | 2000        
|                                                                          |                            |                                                               |                                            |         |             |           |             
|                                                                          |                            |                                                               |                                            |         | (Unaudited)
|ASSETS                                                                   
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Real estate:                                                             
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Land                       |                                                               | $                                          | 464,133 |             |           | $            | 446,418 |          
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Buildings and improvements |                                                               |                                            | 625,251 |             |           |              | 591,452 |          
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accumulated depreciation   |                                                               |                                            | (48,711 | )           |           |              | (38,644 | )        
|                                                                          |                            |                                                               |                                            |         |             |           |              |        
|                                                                          |                            |                                                               | 1,040,673                                  |         |             |           | 999,226      |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                            |                                                               |                                            |         |             |           |              |         |           |           | 
|Cash and cash equivalents                                                 |                            |                                                               | 1,723                                      |         |             |           | 6,298        |        
|                                                                          |                            |                                                               |                                            |         |             |           |              |         |           |           | 
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Other assets, net                                                         |                            |                                                               | 17,881                                     |         |             |           | 16,065       |        
|                                                                          |                            |                                                               |                                            |         |             |           |              |        
|                                                                          |                            | Total Assets                                                  |                                            | $       | 1,060,277   |           |              | $       | 1,021,589 |          
|                                                                          |                            |                                                               |                                            |         |             |           |              |        
|LIABILITIES AND SHAREHOLDERS EQUITY                                     
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Liabilities:                                                             
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Mortgage debt                                                             |                            | $                                                             | 564,707                                    |         |             | $         | 571,519      |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Borrowings under credit facilities                                        |                            |                                                               | 62,140                                     |         |             |           | 14,200       |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Accounts payable and accrued expenses                                     |                            |                                                               | 6,038                                      |         |             |           | 24,254       |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Security deposits payable                                                 |                            |                                                               | 6,197                                      |         |             |           | 5,855        |        
|                                                                          |                            |                                                               |                                            |         |             |           |              |        
|                                                                          |                            | Total Liabilities                                             |                                            |         | 639,082     |           |              |         | 615,828   |          
|                                                                          |                            |                                                               |                                            |         |             |           |              |        
|                                                                          |                            |                                                               |                                            |         |             |           |              |         |           |           | 
|Minority Interest                                                         |                            |                                                               | 118,687                                    |         |             |           | 115,728      |        
|                                                                          |                            |                                                               |                                            |         |             |           |              |         |           |           | 
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|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,  
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                            | 21,661,583 shares issued and outstanding at June 30, 2001 and
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                            | 21,185,240 shares issued and outstanding at December 31, 2000 |                                            |         | 217         |           |              |         | 212       |          
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Additional paid-in-capital                                                |                            |                                                               | 314,755                                    |         |             |           | 307,715      |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Accumulated deficit                                                       |                            |                                                               | (12,464                                    | )       |             |           | (17,894      | )      
|                                                                          |                            |                                                               |                                            |         |             |           |              |        
|                                                                          |                            |                                                               | Total Shareholders Equity                 |         |             | 302,508   |              |         |           | 290,033   | 
|                                                                          |                            |                                                               |                                            |         |             |           |              |        
|                                                                          |                            |                                                               | Total Liabilities and Shareholders Equity |         | $           | 1,060,277 |              |         | $         | 1,021,589 | 
|                                                                          |                            |                                                               |                                            |         |             |           |              |        

See accompanying Notes to Consolidated Financial Statements.

3



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

|                                           |                                    |                |        |                    |        |                  |        |        |        |      |        |        |        |   |        |        |        | 
|------------------------------------------ | ---------------------------------- | -------------- | ------ | ------------------ | ------ | ---------------- | ------ | ------ | ------ | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                           |                                    |                |        | Three Months Ended |        | Six Months Ended
|                                           |                                    |                |        | June 30,           |        | June 30,        
|                                           |                                    |                |        | 2001               |        | 2000             |        | 2001   |        | 2000
|                                           |                                    |                |        |                    |        |                  |        |        |        |     
|Revenue:                                  
|                                          
|                                          
|                                          
|                                          
|Rental                                     |                                    | $              | 28,389 |                    |        | $                | 25,048 |        |        | $    | 56,388 |        |        | $ | 49,766 |       
|                                          
|                                          
|                                          
|                                          
|Interest and other                         |                                    |                | 32     |                    |        |                  | 217    |        |        |      | 93     |        |        |   | 674    |       
|                                           |                                    |                |        |                    |        |                  |        |        |        |      |        |        |        |   |        |       
|                                           |                                    | Total revenue  |        |                    | 28,421 |                  |        |        | 25,265 |      |        |        | 56,481 |   |        |        | 50,440 | 
|                                           |                                    |                |        |                    |        |                  |        |        |        |      |        |        |        |   |        |       
|                                           |                                    |                |        |                    |        |                  |        |        |        |      |        |        |        |   |        |        |        | 
|Expenses:                                 
|                                          
|                                          
|                                          
|                                          
|Depreciation and amortization              |                                    |                | 5,120  |                    |        |                  | 4,343  |        |        |      | 10,155 |        |        |   | 8,654  |       
|                                          
|                                          
|                                          
|                                          
|General and administrative                 |                                    |                | 1,726  |                    |        |                  | 1,659  |        |        |      | 3,445  |        |        |   | 3,324  |       
|                                          
|                                          
|                                          
|                                          
|Interest                                   |                                    |                | 11,621 |                    |        |                  | 10,385 |        |        |      | 23,495 |        |        |   | 20,632 |       
|                                           |                                    |                |        |                    |        |                  |        |        |        |      |        |        |        |   |        |       
|                                           |                                    | Total expenses |        |                    | 18,467 |                  |        |        | 16,387 |      |        |        | 37,095 |   |        |        | 32,610 | 
|                                           |                                    |                |        |                    |        |                  |        |        |        |      |        |        |        |   |        |       
|                                           |                                    |                |        |                    |        |                  |        |        |        |      |        |        |        |   |        |        |        | 
|Net income before minority interest        |                                    |                | 9,954  |                    |        |                  | 8,878  |        |        |      | 19,386 |        |        |   | 17,830 |       
|                                          
|                                          
|                                          
|                                          
|Minority interest                          |                                    |                | (2,825 | )                  |        |                  | (2,533 | )      |        |      | (5,449 | )      |        |   | (5,092 | )     
|                                           |                                    |                |        |                    |        |                  |        |        |        |      |        |        |        |   |        |       
|                                           |                                    |                |        |                    |        |                  |        |        |        |      |        |        |        |   |        |        |        | 
|Net income                                 |                                    | $              | 7,129  |                    |        | $                | 6,345  |        |        | $    | 13,937 |        |        | $ | 12,738 |       
|                                           |                                    |                |        |                    |        |                  |        |        |        |      |        |        |        |   |        |       
|                                           |                                    |                |        |                    |        |                  |        |        |        |      |        |        |        |   |        |        |        | 
|Shares of common stock outstanding used to
|                                          
|                                          
|                                          
|                                          
|                                           | compute basic earnings per share   |                |        | 21,658             |        |                  |        | 20,721 |        |      |        | 21,572 |        |   |        | 20,896 |       
|                                           |                                    |                |        |                    |        |                  |        |        |        |      |        |        |        |   |        |       
|                                           |                                    |                |        |                    |        |                  |        |        |        |      |        |        |        |   |        |        |        | 
|Basic earnings per share                   |                                    | $              | 0.33   |                    |        | $                | 0.31   |        |        | $    | 0.65   |        |        | $ | 0.61   |       
|                                           |                                    |                |        |                    |        |                  |        |        |        |      |        |        |        |   |        |       
|                                           |                                    |                |        |                    |        |                  |        |        |        |      |        |        |        |   |        |        |        | 
|Shares of common stock outstanding used to
|                                          
|                                          
|                                          
|                                          
|                                           | compute diluted earnings per share |                |        | 22,541             |        |                  |        | 20,931 |        |      |        | 22,203 |        |   |        | 21,040 |       
|                                           |                                    |                |        |                    |        |                  |        |        |        |      |        |        |        |   |        |       
|                                           |                                    |                |        |                    |        |                  |        |        |        |      |        |        |        |   |        |        |        | 
|Diluted earnings per share                 |                                    | $              | 0.32   |                    |        | $                | 0.30   |        |        | $    | 0.63   |        |        | $ | 0.61   |       
|                                           |                                    |                |        |                    |        |                  |        |        |        |      |        |        |        |   |        |       

See accompanying Notes to Consolidated Financial Statements.

4



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

|                                                         |                                   |                                                     |         |                           |         |      |         |   |         |  
|-------------------------------------------------------- | --------------------------------- | --------------------------------------------------- | ------- | ------------------------- | ------- | ---- | ------- | - | ------- | -
|                                                         |                                   |                                                     |         | Six Months Ended June 30,
|                                                         |                                   |                                                     |         | 2001                      |         | 2000
|                                                         |                                   |                                                     |         |                           |         |     
|Cash flows from operating activities:                   
|                                                        
|                                                        
|                                                        
|                                                        
|Net income                                               |                                   | $                                                   | 13,937  |                           |         | $    | 12,738  |  
|                                                        
|                                                        
|                                                        
|                                                        
|Adjustments to reconcile net income to net cash         
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | provided by operating activities:
|                                                        
|                                                        
|                                                        
|                                                        
|Depreciation and amortization                            |                                   |                                                     | 10,692  |                           |         |      | 9,191   |  
|                                                        
|                                                        
|                                                        
|                                                        
|Income applicable to minority interest                   |                                   |                                                     | 5,449   |                           |         |      | 5,092   |  
|                                                        
|                                                        
|                                                        
|                                                        
|Increase in other assets                                 |                                   |                                                     | (2,419  | )                         |         |      | (398    | )
|                                                        
|                                                        
|                                                        
|                                                        
|Decrease in accounts payable and accrued expenses        |                                   |                                                     | (6,393  | )                         |         |      | (3,245  | )
|                                                        
|                                                        
|                                                        
|                                                        
|Increase in security deposits payable                    |                                   |                                                     | 342     |                           |         |      | 244     |  
|                                                         |                                   |                                                     |         |                           |         |      |         |  
|                                                         |                                   | Net cash provided by operating activities           |         |                           | 21,608  |      |         |   | 23,622  |  
|                                                         |                                   |                                                     |         |                           |         |      |         |  
|                                                         |                                   |                                                     |         |                           |         |      |         |   |         |  
|Cash flows from investing activities:                   
|                                                        
|                                                        
|                                                        
|                                                        
|Purchase of furniture and equipment, net of disposals    |                                   |                                                     | (22     | )                         |         |      | (13     | )
|                                                        
|                                                        
|                                                        
|                                                        
|Real estate acquisitions                                 |                                   |                                                     | (50,302 | )                         |         |      | (20,634 | )
|                                                        
|                                                        
|                                                        
|                                                        
|Proceeds from the dispositions of real estate            |                                   |                                                     |        |                           |         |      | 4,775   |  
|                                                         |                                   |                                                     |         |                           |         |      |         |  
|                                                         |                                   | Net cash used in investing activities               |         |                           | (50,324 | )    |         |   | (15,872 | )
|                                                         |                                   |                                                     |         |                           |         |      |         |  
|                                                         |                                   |                                                     |         |                           |         |      |         |   |         |  
|Cash flows from financing activities:                   
|                                                        
|                                                        
|                                                        
|                                                        
|Proceeds from borrowings under credit facilities         |                                   |                                                     | 91,338  |                           |         |      | 14,200  |  
|                                                        
|                                                        
|                                                        
|                                                        
|Proceeds from mortgage debt                              |                                   |                                                     | 661     |                           |         |      | 12,400  |  
|                                                        
|                                                        
|                                                        
|                                                        
|Repayment of borrowings under credit facilities          |                                   |                                                     | (43,398 | )                         |         |      | (4,700  | )
|                                                        
|                                                        
|                                                        
|                                                        
|Mortgage principal payments                              |                                   |                                                     | (7,473  | )                         |         |      | (5,279  | )
|                                                        
|                                                        
|                                                        
|                                                        
|Payment of cash dividend                                 |                                   |                                                     | (16,553 | )                         |         |      | (15,365 | )
|                                                        
|                                                        
|                                                        
|                                                        
|Payment of partner distribution                          |                                   |                                                     | (6,516  | )                         |         |      | (6,033  | )
|                                                        
|                                                        
|                                                        
|                                                        
|Repurchase of common shares                              |                                   |                                                     | (142    | )                         |         |      | (9,863  | )
|                                                        
|                                                        
|                                                        
|                                                        
|Issuance of common shares, net of fees                   |                                   |                                                     | 6,224   |                           |         |      | 472     |  
|                                                         |                                   |                                                     |         |                           |         |      |         |  
|                                                         |                                   | Net cash provided by (used in) financing activities |         |                           | 24,141  |      |         |   | (14,168 | )
|                                                         |                                   |                                                     |         |                           |         |      |         |  
|                                                         |                                   |                                                     |         |                           |         |      |         |   |         |  
|Net decrease in cash and cash equivalents                |                                   |                                                     | (4,575  | )                         |         |      | (6,418  | )
|                                                         |                                   |                                                     |         |                           |         |      |         |   |         |  
|                                                        
|                                                        
|                                                        
|                                                        
|Cash and cash equivalents at beginning of period         |                                   |                                                     | 6,298   |                           |         |      | 11,886  |  
|                                                         |                                   |                                                     |         |                           |         |      |         |  
|                                                         |                                   |                                                     |         |                           |         |      |         |   |         |  
|Cash and cash equivalents at end of period               |                                   | $                                                   | 1,723   |                           |         | $    | 5,468   |  
|                                                         |                                   |                                                     |         |                           |         |      |         |  
|                                                         |                                   |                                                     |         |                           |         |      |         |   |         |  
|Supplemental Data:                                      
|                                                         |                                   |                                                     |         |                           |         |      |         |   |         |  
|                                                        
|                                                        
|                                                        
|                                                        
|Real estate acquisitions in exchange for equity issuance |                                   | $                                                   | 1,212   |                           |         | $    |        |  
|                                                         |                                   |                                                     |         |                           |         |      |         |  
|                                                         |                                   |                                                     |         |                           |         |      |         |   |         |  
|Interest paid during the period                          |                                   | $                                                   | 28,899  |                           |         | $    | 25,059  |  
|                                                         |                                   |                                                     |         |                           |         |      |         |  

See accompanying Notes to Consolidated Financial Statements.

5



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CAPITAL AUTOMOTIVE REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. ORGANIZATION AND BASIS OF PRESENTATION

Organization

Capital Automotive REIT (the Company) is a Maryland real estate investment
trust formed in October 1997. The Company owns interests in real estate
through Capital Automotive L.P. (the Operating Partnership) and its
subsidiaries. The Company is the sole general partner of the Operating
Partnership, and as of June 30, 2001 owned approximately 71.8% of the units of
limited partnership interest in the Operating Partnership (Units). The
Company completed its initial public offering of common shares and began
generating rental income in February 1998. References to we, us and our
refer to the Company or, if the context otherwise requires, the Operating
Partnership and our business and operations conducted through the Operating
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, parts or other
related businesses under long-term, triple-net leases. We focus on buying
properties from 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 also provide facility improvement and expansion
funding, construction financing and takeout commitments in certain situations.
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 term dealer
group, tenant, lessee or operators of dealerships to refer to the related
persons and companies that lease our properties.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared
by our management in accordance with U.S. generally accepted accounting
principles (GAAP) for interim financial information and in conformity with
the rules and regulations of the Securities and Exchange Commission (the
SEC). Accordingly, they do not 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 and six months ended June 30, 2001, 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,
2000.

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 are

6



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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 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 30 years for the buildings and improvements.

Cash and Cash Equivalents

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

Deferred Loan Costs

Certain costs incurred in connection with obtaining our revolving secured
credit facilities and issuance of mortgage notes are capitalized and generally
amortized over the terms of the respective credit facilities or notes on a
straight-line basis (which approximates the effective interest method).

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. These costs, net of accumulated amortization, are included
in other assets. Capitalized leasing costs include employee compensation and
payroll related fringe benefits directly related to time spent performing
leasing related activities. Such activities include evaluating the prospective
tenants financial condition, evaluating and recording guarantees, collateral
and other security arrangements, negotiating lease terms, preparing lease
documents and closing the transaction.

Income Taxes

We are qualified as a real estate investment trust under the provisions of the
Internal Revenue Code of 1986, as amended (the Code). As a real estate
investment trust, we are generally not subject to federal income tax to the
extent that we distribute annually at least 90% of our taxable income to our
shareholders and comply with certain other requirements.

Rental Revenue Recognition

We lease our real estate pursuant to long-term, triple-net leases that
typically require the tenants to pay substantially all operating expenses of a
property, including, but not limited to, real estate taxes, assessments and
other government charges, insurance, utilities, repairs, maintenance and other
expenses. All leases are accounted for as operating leases. Rental income
attributable to our leases is generally fixed per the lease agreement and
recorded monthly when due from tenants. However, under our variable rate lease
program, monthly base rent is calculated based on a fixed spread over an
applicable index, generally LIBOR, and is recorded monthly as rental income
when due from tenants.

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 (CPI). Certain of our leases also or alternatively provide for a fixed
minimum and/or maximum periodic adjustment 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

7



---



escalators are recorded as revenue in the period they are due from the tenants.
Straight-lined rents are included in other assets.

In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101,
Revenue Recognition in Financial Statements. This SAB summarizes certain
views in applying GAAP to revenue recognition in financial statements. We
adopted SAB 101 in the fourth quarter of 2000. The adoption and implementation
of the policies of SAB 101 has not had any impact on our revenue recognition
policies, financial condition or results of operations.

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.

3. ACQUISITIONS

During the three months ended June 30, 2001, we completed a total of
approximately $32.5 million of acquisitions in six separate transactions.
These acquisitions included three dealership properties, two of which are
operated by an existing tenant, and facility improvements and two construction
fundings with existing tenants. Consideration for the properties was
approximately $31.8 million from funds drawn down on our short-term credit
facilities and the issuance of approximately 44,000 Units valued at $0.7
million at the time of the acquisitions. These acquistions added approximately
181,000 square feet of buildings and improvements on approximately 24 acres of
land in five states (California, New Jersey, Oregon, Texas and Virginia). These
properties have initial lease terms ranging from 10 to 20 years, with a
weighted average initial lease term of 12.1 years. The leases, in general,
have renewal options exercisable at the option of the tenant ranging from a
total of 20 to 40 years.

As of June 30, 2001, we had invested approximately $1.1 billion in 251
properties located in 27 states, comprising approximately 1,644 acres of land
and containing approximately 9.2 million square feet of buildings and
improvements. Our tenants operate 376 motor vehicle franchises on our
properties, representing 39 brands of motor vehicles. The initial lease terms
generally range from 10 to 20 years, with a weighted average initial lease term
of approximately 13.6 years, and have options to renew under the same terms and
conditions for one or more additional periods of five to 10 years exercisable
at the option of the tenant (ranging from a total of five to 40 years).

4. MORTGAGE LOANS AND CREDIT FACILITIES

As of June 30, 2001, we had total debt outstanding of $626.8 million. Of this
debt, approximately $564.7 million (consisting of $476.3 million of fixed rate
and $88.4 million of variable rate debt) was mortgage debt secured by
approximately 210 of our properties. In addition, we had $62.1 million
outstanding on our revolving credit facilities.

8



---



The following is a summary of our total debt outstanding as of June 30, 2001
and December 31, 2000 (dollars in thousands):

|                                                     |                                |                                |         |               |        |                   |         |                    |        |           |         |                   |        |  |      |      |      |   |                |  |                                         | 
|---------------------------------------------------- | ------------------------------ | ------------------------------ | ------- | ------------- | ------ | ----------------- | ------- | ------------------ | ------ | --------- | ------- | ----------------- | ------ |  | ---- | ---- | ---- | - | -------------- |  | --------------------------------------- | 
|                                                     |                                |                                |         |               |        | Principal Balance |         | Principal Balance  |        | Effective
|                                                     |                                |                                |         | Original Debt |        | as of June 30,    |         | as of December 31, |        | Interest  |         | Term/Amortization
|Description of Debt                                  |                                | Issued                         |         | 2001          |        | 2000              |         | Rate*              |        | Schedule 
|                                                    
|7.59% fixed rate debt due 12/1/08                    |                                | $                              | 38,050  |               |        | $                 | 36,502  |                    |        | $         | 37,103  |                   |        |  | 7.99 | %    |      |   | 10 yr/17 yr    | 
|                                                    
|                                                    
|                                                    
|                                                    
|7.635% fixed rate debt due 10/1/14                   |                                |                                | 111,950 |               |        |                   | 101,646 |                    |        |           | 103,749 |                   |        |  | 7.93 | %    |      |   | 15 yr/15 yr    | 
|                                                    
|                                                    
|                                                    
|                                                    
|8.05% fixed rate debt due 10/1/14                    |                                |                                | 85,000  |               |        |                   | 79,964  |                    |        |           | 81,560  |                   |        |  | 8.33 | %    |      |   | 15 yr/15 yr    | 
|                                                    
|                                                    
|                                                    
|                                                    
|7.54% fixed rate debt due 7/6/11                     |                                |                                | 100,000 |               |        |                   | 96,915  |                    |        |           | 98,093  |                   |        |  | 7.71 | %    |      |   | 12 yr/25 yr    | 
|                                                    
|                                                    
|                                                    
|                                                    
|8.03% fixed rate debt due 9/29/11                    |                                |                                | 150,000 |               |        |                   | 150,000 |                    |        |           | 150,000 |                   |        |  | 8.08 | %    |      |   | 12 yr/25 yr(4)
|                                                    
|                                                    
|                                                    
|                                                    
|7.50% fixed rate debt due 1/20/03                    |                                |                                | 12,000  |               |        |                   | 11,264  |                    |        |           | 11,421  |                   |        |  | 7.76 | %    |      |   | 4.25 yr/20 yr  | 
|                                                     |                                |                                |         |               |        |                   |         |                    |        |           |         |                  
|                                                     | Total Mortgage Fixed Rate Debt |                                | $       | 497,000       |        |                   | $       | 476,291            |        |           | $       | 481,926           |        |  |      | 8.00 | %   
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                | Various variable rate debt (1) |         |               | 90,762 |                   |         |                    | 88,416 |           |         |                   | 89,593 |  |      |      | 7.12 | % |                |  | 10 to 12 yr/25 to 30yr, level principal | 
|                                                     |                                |                                |         |               |        |                   |         |                    |        |           |         |                  
|                                                     |                                |                                |         |               |        |                   |         |                    |        |           |         |                   |        |  |      |      |      |   |                |  |                                         | 
|TOTAL MORTGAGE DEBT                                  |                                | $                              | 587,762 |               |        | $                 | 564,707 |                    |        | $         | 571,519 |                   |        |  | 7.86 | %   
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                |                                |         |               |        |                   |         |                    |        |           |         |                   |        |  |      |      |      |   |                |  |                                         | 
|$50 million revolving partially secured facility (2) |                                |                                |         |               |        |                   | 26,500  |                    |        |           | 14,198  |                   |        |  | 6.95 | %    |      |   | 3 yr           | 
|                                                    
|                                                    
|                                                    
|                                                    
|$100 million revolving securedfacility (3)           |                                |                                |         |               |        |                   | 35,640  |                    |        |           | 2       |                   |        |  | 6.94 | %    |      |   | 1 yr           | 
|                                                     |                                |                                |         |               |        |                   |         |                    |        |           |         |                  
|TOTAL CREDIT FACILITIES                              |                                |                                |         |               |        | $                 | 62,140  |                    |        | $         | 14,200  |                   |        |  | 6.94 | %   
|                                                     |                                |                                |         |               |        |                   |         |                    |        |           |         |                  
|                                                     |                                |                                |         |               |        |                   |         |                    |        |           |         |                   |        |  |      |      |      |   |                |  |                                         | 
|TOTAL DEBT OUTSTANDING                               |                                |                                |         |               |        | $                 | 626,847 |                    |        | $         | 585,719 |                   |        |  | 7.81 | %   
|                                                     |                                |                                |         |               |        |                   |         |                    |        |           |         |                   |        |  |      |     



|*   |  | Includes deferred loan fees amortized over the life of the loans.                                                                                                                                                                                                                                             
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |                                                                                                                                                                                                                                                                                                               
|   
|   
|   
|   
|(1) |  | These loans bear interest at variable rates ranging from 200 to 215
basis points per annum above the A1-P1 Commercial Paper Rate and have
maturity dates ranging from December 22, 2009 to December 18, 2012. The
terms of the various loans require quarterly interest payments and level
principal payments.
|   
|   
|   
|   
|(2) |  | This facility bears interest equal to the 30-day LIBOR rate plus 175
basis points and requires the repayment of secured borrowings within 12
months and unsecured borrowings within 150 days. The facility matures
on March 3, 2002.                                                                          
|   
|   
|   
|   
|(3) |  | This facility bears interest equal to the 30-day LIBOR rate plus 225
basis points and requires the repayment of principal within 150 days.
The facility has a one-year term, which terminates on March 21, 2002,
and is renewable annually.                                                                   
|   
|   
|   
|   
|(4) |  | Payments are interest only until January 2002.                                                                                                                                                                                                                                                                

As of June 30, 2001, we were in compliance with all of the loan covenants
related to our mortgage debt and credit facilities.

9



---



Aggregate annual principal maturities (which includes principal amortization)
of mortgage debt as of June 30, 2001 are as follows (in thousands):

|                                |  |   |         | 
|------------------------------- |  | - | ------- | 
|For the Year Ended December 31,
|2001                            |  | $ | 5,836   | 
|                               
|                               
|                               
|                               
|2002                            |  |   | 16,910  | 
|                               
|                               
|                               
|                               
|2003                            |  |   | 28,410  | 
|                               
|                               
|                               
|                               
|2004                            |  |   | 18,694  | 
|                               
|                               
|                               
|                               
|2005                            |  |   | 20,031  | 
|                               
|                               
|                               
|                               
|Thereafter                      |  |   | 474,826 | 
|                                |  |   |         | 
|Total                           |  | $ | 564,707 | 
|                                |  |   |         | 

5. NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board (''FASB) issued
Statement of Financial Accounting Standards (''SFAS) No. 133, ''Accounting
for Derivative Instruments and Hedging Activities. This statement was
originally effective for all fiscal quarters of fiscal years beginning after
June 15, 1999; however, during the second quarter of 1999 the FASB issued SFAS
No. 137, Accounting for Derivative Instruments and Hedging Activities 
Deferral of the Effective Date of FASB Statement No. 133, which deferred the
effective date until June 15, 2000. In June 2000, the FASB issued SFAS No.
138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an amendment to SFAS No. 133, which required that all companies be
in compliance with SFAS No. 133 as of January 1, 2001. SFAS No. 133 does not
require restatement of financial statements from prior periods. SFAS No. 133
requires an entity to recognize all derivatives as either assets or liabilities
in the statement of financial position and measure those instruments at fair
value. The adoption of SFAS No. 133 and its related amendments has not had a
significant impact on our consolidated financial position, results of
operations or cash flows as we currently do not maintain any derivative
instruments.

In June 2001, FASB issued SFAS No. 141, Business Combinations (effective July
1, 2001) and SFAS No. 142, Goodwill and Other Intangible Assets (effective
for the Company on January 1, 2002). SFAS No. 141 prohibits
pooling-of-interests accounting for acquisitions. SFAS No. 142 specifies that
goodwill and some intangible assets will no longer be amortized but instead
will be subject to periodic impairment testing. We do not expect the adoption
of SFAS No. 142 to have a significant impact on our financial condition or
results of operations.

10



---



6. MINORITY INTEREST

Minority interest represents the Units of the Operating Partnership owned by
limited partners (other than the Company) of the Operating Partnership.
Minority interest is calculated at approximately 28.2% of the Operating
Partnerships partners capital as of June 30, 2001 and approximately 28.4% of
the Operating Partnerships partners net income for the three months ended
June 30, 2001 and 28.1% for the six months ended June 30, 2001. The ownership
of the Operating Partnership as of June 30, 2001 is as follows (Units in
thousands):

|                   |                  |       |  |          |          |         |  |      |       |  
|------------------ | ---------------- | ----- |  | -------- | -------- | ------- |  | ---- | ----- | -
|                   |                  |       |  | Units    |          | Percent
|                   |                  |       |  |          |          |        
|Partners capital:
|                  
|                  
|                  
|                  
|                   | Limited Partners |       |  | 8,498.8  |          |         |  | 28.2 | %    
|                  
|                  
|                  
|                  
|                   | The Company      |       |  | 21,661.6 |          |         |  | 71.8 | %    
|                   |                  |       |  |          |          |         |  |     
|                   |                  |       |  |          |          |         |  |      |       |  
|                   |                  | Total |  |          | 30,160.3 |         |  |      | 100.0 | %
|                   |                  |       |  |          |          |         |  |     

7. EARNINGS PER SHARE

Basic earnings per share is computed as net income divided by the weighted
average common shares outstanding for the period. Diluted earnings per share
is computed as net income, adjusted to reflect the change in the Companys
share of income based on an ownership calculation that includes weighted
average common share equivalents, divided by the weighted average common shares
outstanding for the period plus the effect of dilutive common equivalent shares
outstanding for the period, based on the treasury stock method. Dilutive
common equivalent shares include restricted shares, restricted phantom shares,
options and warrants. A reconciliation of net income and weighted average
common shares used to calculate basic and diluted earnings per share for the
three months and six months ended June 30, 2001 and 2000 is as follows (in
thousands, except per share data):

|                            |                             |  |            |        |        |  |                    |        |            |  |        |      |                    |  |   |        |                  |  |  |        |  |  |   |      | 
|--------------------------- | --------------------------- |  | ---------- | ------ | ------ |  | ------------------ | ------ | ---------- |  | ------ | ---- | ------------------ |  | - | ------ | ---------------- |  |  | ------ |  |  | - | ---- | 
|                            |                             |  | 2001       |        | 2000  
|                            |                             |  |            |        |       
|                            |                             |  |            |        |        |  | Weighted Average   |        |            |  |        |      |                    |  |   |        | Weighted Average
|                            |                             |  | Net Income |        | Shares |  | Earnings Per Share |        | Net Income |  | Shares |      | Earnings Per Share
|                            |                             |  |            |        |        |  |                    |        |            |  |        |      |                   
|Three Months Ended June 30:
|                           
|                           
|                           
|                           
|                            | Earnings per share  basic  |  | $          | 7,129  |        |  |                    | 21,658 |            |  | $      | 0.33 |                    |  | $ | 6,345  |                  |  |  | 20,721 |  |  | $ | 0.31 | 
|                           
|                           
|                           
|                           
|                            | Adjustments (1)             |  |            | 112    |        |  |                    | 883    |            |  |        | 0.01 |                    |  |   |       |                  |  |  | 210    |  |  |   | 0.01 | 
|                            |                             |  |            |        |        |  |                    |        |            |  |        |      |                    |  |   |        |                  |  |  |        |  |  |   |     
|                            | Earnings per share diluted |  | $          | 7,241  |        |  |                    | 22,541 |            |  | $      | 0.32 |                    |  | $ | 6,345  |                  |  |  | 20,931 |  |  | $ | 0.30 | 
|                           
|                           
|                           
|                           
|Six Months Ended June 30:  
|                           
|                           
|                           
|                           
|                            | Earnings per share  basic  |  | $          | 13,937 |        |  |                    | 21,572 |            |  | $      | 0.65 |                    |  | $ | 12,738 |                  |  |  | 20,896 |  |  | $ | 0.61 | 
|                           
|                           
|                           
|                           
|                            | Adjustments (1)             |  |            | 112    |        |  |                    | 631    |            |  |        | 0.02 |                    |  |   |       |                  |  |  | 144    |  |  |   |     | 
|                            |                             |  |            |        |        |  |                    |        |            |  |        |      |                    |  |   |        |                  |  |  |        |  |  |   |     
|                            | Earnings per share diluted |  | $          | 14,049 |        |  |                    | 22,203 |            |  | $      | 0.63 |                    |  | $ | 12,738 |                  |  |  | 21,040 |  |  | $ | 0.61 | 



|(1) |  | Adjustment to net income reflects change in the Companys share of income
based on an ownership calculation including weighted average common share
equivalents. Adjustment to weighted average shares reflects the effect of
dilutive common equivalent shares outstanding for the period, based on the
treasury stock method.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

11



---



8. 401(K) PLAN

During 1998, we adopted the Capital Automotive L.P. Employee 401(k) Plan (the
401(k) Plan). Employees who are at least 21 years of age are eligible to
participate in the 401(k) Plan after three months of service. Participants may
contribute up to 20% of their earnings, on a pre-tax basis, subject to annual
limitations imposed by the Code. We may make matching or discretionary
contributions to the 401(k) Plan at the discretion of our management. These
contributions will vest ratably over five years from each employees date of
service. During December 2000, we approved a 20% match of the participants
elected deferral contribution during 2001 (subject to maximum limits).

9. COMMITMENTS

During the second quarter of 2001, we received a commitment for $150.0 million
of long-term secured 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 lenders
satisfaction with the loan documentation. We anticipate drawing upon this
commitment beginning in the third quarter of 2001 and expect to use the
proceeds from the commitment to fund a portion of the purchase price of the
pending acquisition as described in Note 10 herein, as well as future
acquisitions, and to repay amounts outstanding under our short-term credit
facilities.

10. SUBSEQUENT EVENTS

Declaration of Dividend

On July 17, 2001, our Board of Trustees declared a cash dividend of $0.3870 per
share, which will be paid on August 21, 2001 to shareholders of record as of
August 10, 2001.

On July 20, 2001, we entered into an agreement with a seller to purchase nine
automotive retail properties located in seven states for approximately $102.4
million (the Pending Acquisition). We expect to close on the Pending
Acquisition during the third quarter of 2001. We expect to fund the Pending
Acquisition with the net proceeds from our underwritten public equity offering
as described below and a draw down on our commitment from Toyota Financial
Services as described in Note 9 herein.

On August 8, 2001, we sold 3,852,500 common shares (which includes the full
exercise of the underwriters over-allotment option to purchase 502,500 common
shares) in an underwritten public offering at a price to the public of $17.00
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 $61.8 million. After the offering,
$134.5 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 a portion of the purchase price of the
Pending Acquisition. Pending their application, we will use the net proceeds
to temporarily reduce amounts outstanding under our short-term credit
facilities and invest the net proceeds in short-term, income-producing
investments.

12



---



CAPITAL AUTOMOTIVE REIT
ITEM II MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS  THREE MONTHS AND SIX MONTHSENDED JUNE
30, 2001 AND JUNE 30, 2000

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 (the Exchange
Act). Also, documents that we subsequently file with the Securities and
Exchange Commission (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 January 19, 2001. 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 very different than those described. These factors
include:



| |  |  | risks that our growth will be limited if we cannot obtain
additional capital;                                                                                                                                                                                                                                                                                
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | risks of financing, such as our ability to consummate
additional financings on terms which are acceptable to us and
the ability to meet existing financial covenants;                                                                                                                                                                                        
|
| |  |  | risks that acquisitions may not be consummated;                                                                                                                                                                                                                                                                                                              
|
| |  |  | risks that our tenants will not pay rent or that our
operating costs will be higher than expected;                                                                                                                                                                                                                                                           
|
| |  |  | 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 manufacturers
production, inventory, marketing or other practices;                                                        
|
| |  |  | environmental and other risks associated with the
acquisition and leasing of automotive properties; and                                                                                                                                                                                                                                                      
|
| |  |  | risks related to our status as a real estate investment
trust, commonly referred to 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 if we fail to qualify as a REIT.

Given these uncertainties, readers are cautioned not to place undue reliance on
these forward-looking 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, parts or other
related businesses under long-term, triple-net leases. We focus on buying
properties from 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

13



---



U.S. in terms of population. In addition, we also provide facility improvement and
expansion funding, construction financing and takeout commitments in certain
situations. As of June 30, 2001, we had invested approximately $1.1 billion in
251 properties located in 27 states, comprising approximately 1,644 acres of
land and containing approximately 9.2 million square feet of buildings and
improvements. Our tenants operate 376 motor vehicle franchises on our
properties, representing 39 brands of motor vehicles.

Substantially all of our properties are leased pursuant to long-term,
triple-net leases that typically require the tenants to pay substantially all
operating expenses of a property, including, but not limited to, real estate
taxes, assessments and other government charges, insurance, utilities, repairs,
maintenance and other expenses. The initial lease terms generally range from
10 to 20 years, with a weighted average initial lease term of approximately
13.6 years, and have options to renew under the same terms and conditions for
one or more additional periods of five to 10 years exercisable at the option of
the tenant (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; and (2) interest earned from the
temporary investment of funds in short-term investments.

We incur general and administrative expenses including, principally,
compensation expense for our executive officers and other employees,
professional fees and various expenses incurred in the process of identifying
and acquiring additional properties. We are self-administered and managed by
our trustees, executive officers and other employees. Our primary non-cash
expense is the depreciation of our properties. For tax purposes, we depreciate
buildings on our properties over a 40-year period and site improvements on our
properties over a 15-year period. We depreciate both buildings and
improvements over a 20-year to 30-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 EVENTS

On July 20, 2001, we entered into an agreement with a seller to purchase nine
automotive retail properties located in seven states for approximately $102.4
million (the Pending Acquisition). We expect to close on the Pending
Acquisition during the third quarter of 2001. We expect to fund the Pending
Acquisition with net proceeds from our underwritten public equity offering and
a draw down on our commitment from Toyota Financial Services as further
described in the Liquidity and Capital Resources section herein.

SECOND QUARTER ACQUISITIONS

During the three months ended June 30, 2001, we completed a total of
approximately $32.5 million of acquisitions in six separate transactions.
These acquisitions included three dealership properties, two of which are
operated by an existing tenant, and facility improvements and two construction
fundings with existing tenants. Consideration for the properties was
approximately $31.8 million from funds drawn down on our short-term credit
facilities and the issuance of approximately 44,000 Units valued at $0.7
million at the time of the acquisitions. These acquisitions added
approximately 181,000 square feet of buildings and improvements on
approximately 24 acres of land in five states (California, New Jersey, Oregon,
Texas and Virginia). These properties have initial lease terms ranging from 10
to 20 years, with a weighted average initial lease term of 12.1 years. The
leases, in general, have renewal options exercisable at the option of the
tenant ranging from a total of 20 to 40 years.

14



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RESULTS OF OPERATIONS

Rental revenue for the three months ended June 30, 2001 increased 13% to $28.4
million from $25.0 million for the same quarter in 2000. Rental revenue for
the six months ended June 30, 2001 increased 13% to $56.4 million from $49.8
million for the same period in 2000. The increase was primarily attributable
to the growth of our real estate portfolio and the timing of our property
acquisitions, from which we generate our rental income. We owned 251
properties as of June 30, 2001 versus 231 properties as of June 30, 2000. In
addition, included in rental revenue for the three months and six months ended
June 30, 2001 were straight-lined rents totaling $858,000 and $1.6 million,
respectively, as compared to straight-lined rents of $519,000 and $1.0 million,
respectively, for the three months and six months ended June 30, 2000.

Interest and other income for the three months ended June 30, 2001 decreased
85% to $32,000 from $217,000 for the same quarter in 2000. The decrease was
the result of a decrease in interest earned on temporary investments. Interest
and other income for the six months ended June 30, 2001 decreased 86% to
$93,000 from $674,000 for the same period in 2000. The decrease was the result
of no property dispositions in the first half of 2001 versus total gain on the
sale of properties of $311,000 in the same period of 2000, as well as a
decrease in interest earned on temporary investments.

Depreciation and amortization for the three months ended June 30, 2001
increased 18% to $5.1 million from $4.3 million for the same quarter in 2000.
Depreciation and amortization for the six months ended June 30, 2001 increased
17% to $10.2 million from $8.7 million for the same period in 2000.
Depreciation and amortization consisted primarily of depreciation on buildings
and improvements owned during those periods. The increase is attributable to
the growth of our real estate portfolio, resulting in an increase in our
depreciable assets.

General and administrative expenses for the three months ended June 30, 2001
increased 4% to $1.73 million from $1.66 million for the same quarter in 2000.
General and administrative expenses for the six months ended June 30, 2001
increased 4% to $3.4 million from $3.3 million for the same period in 2000. The
increase in general and administrative expenses was primarily due to: (1) an
increase in payroll and related expenses attributable to the issuance of
additional stock based compensation awarded to employees; (2) an increase in
state income taxes due to the growth in our real estate portfolio during 1999
and 2000; and (3) additional costs associated with our marketing and investor
relations program.
The increase was partially offset by a $150,000 write-down of our investment in
BBCN, a start-up, on-line procurement company for the automotive retail
industry, during the second quarter of 2000. During 2000, we wrote off our
investment in BBCN as they ceased operations due to their inability to secure
the necessary capital to fund their business.

Interest expense for the three months ended June 30, 2001 increased 12% to
$11.6 million from $10.4 million for the same quarter in 2000. Interest
expense for the six months ended June 30, 2001 increased 14% to $23.5 million
from $20.6 million for the same period in 2000. The increase was due to an
increase in debt outstanding during that time period (including mortgage debt
and borrowings under our credit facilities), which was obtained to finance the
acquisition of properties. Debt outstanding as of June 30, 2001 was
approximately $626.8 million (consisting of approximately $564.7 million of
mortgage debt and approximately $62.1 million of borrowings under our credit
facilities) compared to approximately $518.1 million (consisting of
approximately $508.6 million of mortgage debt and approximately $9.5 million of
borrowings under our credit facilities) as of June 30, 2000.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents were $1.7 million and $5.5 million at June 30, 2001
and June 30, 2000, respectively. The changes in cash and cash equivalents
during the six months ended June 30, 2001 and

15



---



2000 were attributable to operating, investing and financing activities, as
described below.

Operating Activities
Cash provided by operating activities for the six months ended June 30, 2001
and June 30, 2000 was $21.6 million and $23.6 million, respectively, and
represents, in both years, cash received primarily from rents under long-term,
triple-net leases, plus interest and other income, less normal recurring
general and administrative expenses and interest payments on debt outstanding.

Investing Activities


Cash used in investing activities for the six months ended June 30, 2001 and
June 30, 2000 was $50.3 million and $15.9 million, respectively, and primarily
reflects the acquisition of dealership properties and facility improvements and
expansions, net of sales, during those periods.

Financing Activities


Cash provided by financing activities for the six months ended June 30, 2001
was $24.1 million and cash used in financing activities for the six months
ended June 30, 2000 was $14.2 million.

Cash provided by financing activities for the six months ended June 30, 2001
primarily reflects:



| |  |  | $91.3 million of proceeds received from borrowings on our
short-term credit facilities;                                                     
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | $661,000 of proceeds received from long-term mortgage debt closed
during the period; and                                                    
|
| |  |  | $6.2 million of proceeds received from the issuance of common
shares through our Dividend Reinvestment and Share Purchase Plan, net
of fees.

The cash provided by financing activities was partially offset by:



| |  |  | the repayment of borrowings on our short-term credit facilities totaling $43.4 million;              
| | - |  | -----------------------------------------------------------------------------------------------------
|
| |  |  | payments of principal on outstanding long-term mortgage debt totaling $7.5 million;                  
|
| |  |  | distributions made to shareholders and limited partners during the
period totaling $23.1 million; and
|
| |  |  | the repurchase of common shares totaling $142,000.                                                   

Cash used in financing activities for the six months ended June 30, 2000 primarily reflects:



| |  |  | the repayment of borrowings on our short-term credit facilities totaling $4.7 million;               
| | - |  | -----------------------------------------------------------------------------------------------------
|
| |  |  | payments of principal on outstanding long-term mortgage debt totaling $5.3 million;                  
|
| |  |  | distributions made to shareholders and limited partners during the
period totaling $21.4 million; and
|
| |  |  | the repurchase of common shares totaling $9.9 million.                                               

The cash used in financing activities was partially offset by:

|
|
|

16



---





| |  |  | $12.4 million of proceeds received from long-term mortgage debt
closed during the period; and                                                                                                         
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | $472,000 of proceeds received from the issuance of common shares
through our Dividend Reinvestment and Share Purchase Plan and through
the exercise of share options by former employees, net of fees.

Mortgage Indebtedness and Credit Facilities


As of June 30, 2001, we had total debt outstanding of $626.8 million. Of this
debt, approximately $564.7 million (consisting of $476.3 million of fixed rate
and $88.4 million of variable rate debt) was mortgage debt secured by
approximately 210 of our properties. In addition, we had $62.1 million
outstanding on our revolving credit facilities.

The following is a summary of our total debt outstanding as of June 30, 2001
and December 31, 2000 (dollars in thousands):

|                                                     |                                |                                |         |               |        |                   |         |                    |        |           |         |                   |        |  |      |      |      |   |                |  |                                         | 
|---------------------------------------------------- | ------------------------------ | ------------------------------ | ------- | ------------- | ------ | ----------------- | ------- | ------------------ | ------ | --------- | ------- | ----------------- | ------ |  | ---- | ---- | ---- | - | -------------- |  | --------------------------------------- | 
|                                                     |                                |                                |         |               |        | Principal Balance |         | Principal Balance  |        | Effective
|                                                     |                                |                                |         | Original Debt |        | as of June 30,    |         | as of December 31, |        | Interest  |         | Term/Amortization
|Description of Debt                                  |                                | Issued                         |         | 2001          |        | 2000              |         | Rate*              |        | Schedule 
|                                                    
|7.59% fixed rate debt due 12/1/08                    |                                | $                              | 38,050  |               |        | $                 | 36,502  |                    |        | $         | 37,103  |                   |        |  | 7.99 | %    |      |   | 10 yr/17 yr    | 
|                                                    
|                                                    
|                                                    
|                                                    
|7.635% fixed rate debt due 10/1/14                   |                                |                                | 111,950 |               |        |                   | 101,646 |                    |        |           | 103,749 |                   |        |  | 7.93 | %    |      |   | 15 yr/15 yr    | 
|                                                    
|                                                    
|                                                    
|                                                    
|8.05% fixed rate debt due 10/1/14                    |                                |                                | 85,000  |               |        |                   | 79,964  |                    |        |           | 81,560  |                   |        |  | 8.33 | %    |      |   | 15 yr/15 yr    | 
|                                                    
|                                                    
|                                                    
|                                                    
|7.54% fixed rate debt due 7/6/11                     |                                |                                | 100,000 |               |        |                   | 96,915  |                    |        |           | 98,093  |                   |        |  | 7.71 | %    |      |   | 12 yr/25 yr    | 
|                                                    
|                                                    
|                                                    
|                                                    
|8.03% fixed rate debt due 9/29/11                    |                                |                                | 150,000 |               |        |                   | 150,000 |                    |        |           | 150,000 |                   |        |  | 8.08 | %    |      |   | 12 yr/25 yr(4)
|                                                    
|                                                    
|                                                    
|                                                    
|7.50% fixed rate debt due 1/20/03                    |                                |                                | 12,000  |               |        |                   | 11,264  |                    |        |           | 11,421  |                   |        |  | 7.76 | %    |      |   | 4.25 yr/20 yr  | 
|                                                     |                                |                                |         |               |        |                   |         |                    |        |           |         |                  
|                                                     | Total Mortgage Fixed Rate Debt |                                | $       | 497,000       |        |                   | $       | 476,291            |        |           | $       | 481,926           |        |  |      | 8.00 | %   
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                | Various variable rate debt (1) |         |               | 90,762 |                   |         |                    | 88,416 |           |         |                   | 89,593 |  |      |      | 7.12 | % |                |  | 10 to 12 yr/25 to 30yr, level principal | 
|                                                     |                                |                                |         |               |        |                   |         |                    |        |           |         |                  
|                                                     |                                |                                |         |               |        |                   |         |                    |        |           |         |                   |        |  |      |      |      |   |                |  |                                         | 
|TOTAL MORTGAGE DEBT                                  |                                | $                              | 587,762 |               |        | $                 | 564,707 |                    |        | $         | 571,519 |                   |        |  | 7.86 | %   
|                                                     |                                |                                |         |               |        |                   |         |                    |        |           |         |                   |        |  |      |      |      |   |                |  |                                         | 
|                                                    
|                                                    
|                                                    
|                                                    
|$50 million revolving partially secured facility (2) |                                |                                |         |               |        |                   | 26,500  |                    |        |           | 14,198  |                   |        |  | 6.95 | %    |      |   | 3 yr           | 
|                                                    
|                                                    
|                                                    
|                                                    
|$100 million revolving securedfacility (3)           |                                |                                |         |               |        |                   | 35,640  |                    |        |           | 2       |                   |        |  | 6.94 | %    |      |   | 1 yr           | 
|                                                     |                                |                                |         |               |        |                   |         |                    |        |           |         |                  
|                                                     |                                |                                |         |               |        |                   |         |                    |        |           |         |                   |        |  |      |      |      |   |                |  |                                         | 
|TOTAL CREDIT FACILITIES                              |                                |                                |         |               |        | $                 | 62,140  |                    |        | $         | 14,200  |                   |        |  | 6.94 | %   
|                                                     |                                |                                |         |               |        |                   |         |                    |        |           |         |                  
|                                                     |                                |                                |         |               |        |                   |         |                    |        |           |         |                   |        |  |      |      |      |   |                |  |                                         | 
|TOTAL DEBT OUTSTANDING                               |                                |                                |         |               |        | $                 | 626,847 |                    |        | $         | 585,719 |                   |        |  | 7.81 | %   
|                                                     |                                |                                |         |               |        |                   |         |                    |        |           |         |                   |        |  |     



|*   |  | Includes deferred loan fees amortized over the life of the loans.                                                                                                                                                                                                                                             
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |                                                                                                                                                                                                                                                                                                               
|   
|   
|   
|   
|(1) |  | These loans bear interest at variable rates ranging from 200 to 215
basis points per annum above the A1-P1 Commercial Paper Rate and have
maturity dates ranging from December 22, 2009 to December 18, 2012. The
terms of the various loans require quarterly interest payments and level
principal payments.
|   
|   
|   
|   
|(2) |  | This facility bears interest equal to the 30-day LIBOR rate plus 175
basis points and requires the repayment of secured borrowings within 12
months and unsecured borrowings within 150 days. The facility matures
on March 3, 2002.                                                                          
|   
|   
|   
|   
|(3) |  | This facility bears interest equal to the 30-day LIBOR rate plus 225
basis points and requires the repayment of principal within 150 days.
The facility has a one-year term, which terminates on March 21, 2002,
and is renewable annually.                                                                   

17



---



|(4) |  | Payments are interest only until January 2002.
|--- |  | ----------------------------------------------

As of June 30, 2001, we were in compliance with all of the loan covenants
related to our mortgage debt and credit facilities.

Liquidity Requirements


Short-term liquidity requirements consist primarily of normal recurring
operating expenses, regular debt service requirements (including debt service
relating to additional and replacement debt), recurring corporate expenditures,
distributions to shareholders and holders of Units (Unitholders), and amounts
required for additional property acquisitions and facility improvements and
expansions. We expect to meet these requirements (other than amounts required
for additional property acquisitions and facility improvements and expansions)
through cash provided by operating and financing activities. We anticipate
that any additional acquisition of properties or facility improvements and
expansions during the next 12 months will be funded with amounts available
under our existing credit facilities, existing long-term debt commitments,
future long-term secured and unsecured debt and the issuance of common or
preferred equity or Units. Acquisitions of property and facility improvements
and expansions will be made subject to our investment objectives and policies
with the intention of maximizing both current income and long-term growth in
income.

As of June 30, 2001, 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 acquisition of properties
and facility improvements and expansions. 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.

Our liquidity requirements with respect to future acquisitions of properties
and facility improvements and expansions may be reduced to the extent that we
use Units as consideration for such purchases.

During the second quarter of 2001, we received a commitment for $150.0 million
of long-term secured financing from Toyota Financial Services. The commitment
can be drawn down in multiple fundings under one or more debt agreements, and
each funding is subject to customary conditions precedent and lenders
satisfaction with the loan documentation. We anticipate drawing upon this
commitment beginning in the third quarter of 2001 and expect to use the
proceeds from the commitment to fund a portion of the purchase price of the
Pending Acquisition as described in the Recent Events section herein, as well
as future acquisitions, and to repay amounts outstanding under our short-term
credit facilities.

On August 8, 2001, we sold 3,852,500 common shares (which includes the full
exercise of the underwriters over-allotment option to purchase 502,500 common
shares) in an underwritten public offering at a price to the public of $17.00
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 $61.8 million. After the offering,
$134.5 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 a portion of the purchase price of the
Pending Acquisition as described in the Recent Events section herein. Pending
their application, we will use the net proceeds to temporarily reduce amounts
outstanding under our short-term credit facilities and invest the net proceeds
in short-term, income-producing investments.

We offer our tenants the option of utilizing our variable rate lease program.
Under this program, base rent changes monthly based upon a fixed spread over an
applicable index, generally LIBOR. In addition,

18



---



the monthly base rent is
typically adjusted upward periodically, usually based on a factor of the change
the CPI. The tenant has the ability to fix the base rent during the initial
lease term. The fixed base rent typically continues to be adjusted upward
periodically based on a factor of the change in the CPI. Such leases generally
are or will be financed with long-term, variable rate debt thereby fixing our
investment spread. As of June 30, 2001, approximately $94.4 million of our
total real estate investments were leased by tenants utilizing our variable
rate lease program.

We have adopted a policy to limit debt to approximately 65% of our assets
(calculated as total assets plus accumulated depreciation). As of June 30,
2001, our debt was approximately 56.5% of our assets. This policy may be
changed by our Board of Trustees at any time without shareholder approval. In
addition, to minimize interest rate risk, we generally match the term of our
long-term leases with that of our debt as well as the type of leases with the
type of debt (fixed or variable) in order to maintain an investment spread over
the lease term. We describe this process as match-funding. Our previous
intent was to substantially match-fund at least 85% of our total outstanding
debt with long-term leases. Due to the current divergence between interest
rates for fixed and floating rate debt, we have elected to reduce our
match-funding guideline to at least 70%. This reduction provides us with
additional flexibility. We may further change the guideline at any time
without shareholder approval. As of June 30, 2001, approximately 83% of our
debt outstanding was substantially match-funded and non-recourse to us. As of
June 30, 2001, our long-term debt had a weighted average remaining term of 10.9
years, and our leases had a weighted average remaining lease term of 11.4
years.

In light of our current balance sheet position, we believe that we are able to
obtain additional financing for our short-term and long-term capital needs
without exceeding our debt to asset ratio policy. 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.

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 our management. During
the three months ended June 30, 2001, we did not repurchase any common shares.
During the six months ended June 30, 2001, we repurchased 10,000 common shares
at an average price of $14.19 per common share. From the inception of the
share repurchase program through June 30, 2001, a total of 4,094,700 common
shares have been repurchased at an average price of $10.62 per share. In
conjunction with the common share repurchases, the Operating Partnership
redeemed an equivalent number of Units from the Company for equivalent purchase
prices.

Dividend Reinvestment and Share Purchase Plan


During April 2000, the Company implemented a Dividend Reinvestment and Share
Purchase Plan, which was subsequently amended in March 2001 (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 the Company or in open market or
privately negotiated transactions, as determined from time to time by the
Company, to fulfill the requirements for the DRIP.

19



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For the three months ended
June 30, 2001, we issued approximately 8,000 common shares under the
DRIP and received approximately $126,000 in net proceeds. For the six months
ended June 30, 2001, we issued approximately 451,000 common shares under the
DRIP and received approximately $6.3 million in net proceeds.

FUNDS FROM OPERATIONS

Funds From Operations (FFO) is defined under the revised definition adopted
in October 1999 by the National Association of Real Estate Investment Trusts
(NAREIT) as net income (loss) before minority interest (computed in accordance
with generally accepted accounting principles) excluding gains (or losses) from
sales of property plus depreciation and amortization of assets unique to the
real estate industry, and after adjustments for unconsolidated partnerships and
joint ventures.

NAREIT developed FFO as a relative 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 does
not represent cash flows from operating activities in accordance with generally
accepted accounting principles (which, unlike FFO, generally reflects all cash
effects of transactions and other events in the determination of net income)
and should not be considered an alternative to net income as an indication of
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.

FFO for the three months and six months ended June 30, 2001 and June 30, 2000
is computed as follows (in thousands):

|                                                                                               |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        |  
|---------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ---------------- |  | ---- | ------ | ---- |  | - | ------ |  |  | - | ------ | -
|                                                                                               |  | Three Months Ended |        | Six Months Ended
|                                                                                               |  | June 30,           |        | June 30,        
|                                                                                               |  |                    |        |                 
|                                                                                               |  | 2001               |        | 2000             |  | 2001 |        | 2000
|                                                                                               |  |                    |        |                  |  |      |        |     
|Net Income before Minority Interest                                                            |  | $                  | 9,954  |                  |  | $    | 8,878  |      |  | $ | 19,386 |  |  | $ | 17,830 |  
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Real Estate Depreciation and Amortization                                                      |  |                    | 5,104  |                  |  |      | 4,318  |      |  |   | 10,120 |  |  |   | 8,605  |  
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Gain on Sale of Assets                                                                         |  |                    |       |                  |  |      | (17    | )    |  |   |       |  |  |   | (311   | )
|                                                                                               |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        |  
|                                                                                               |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        |  
|Funds From Operations                                                                          |  | $                  | 15,058 |                  |  | $    | 13,179 |      |  | $ | 29,506 |  |  | $ | 26,124 |  
|                                                                                               |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        |  
|                                                                                               |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        |  
|Weighted Average Number of Common Shares
and Units Used to Compute Basic FFO per
Share         |  |                    | 30,135 |                  |  |      | 29,043 |      |  |   | 30,042 |  |  |   | 29,217 |  
|                                                                                               |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        |  
|                                                                                               |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        |  
|Weighted Average Number of Common Shares
and Units Used to Compute Fully Diluted
FFO per Share |  |                    | 31,019 |                  |  |      | 29,253 |      |  |   | 30,673 |  |  |   | 29,361 |  
|                                                                                               |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        |  

20



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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 management program,
which recognizes the unpredictability of financial markets and seeks to reduce
the potentially adverse effect on our results of operations.

Since December 31, 2000, there have been no material changes in the information
regarding market risk that was provided in the Companys Annual Report on Form
10-K for the year ended December 31, 2000.

During the six months ended June 30, 2001, our fixed rate debt decreased from
$481.9 million at December 31, 2000 to $476.3 million as of June 30, 2001.
Interest rate fluctuations may affect the fair value of our fixed rate debt
instruments. If interest rates on our fixed rate debt instruments at June 30,
2001 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 $27.5 million.

During the six months ended June 30, 2001, our variable rate debt increased
from $103.8 million as of December 31, 2000 to $150.6 million as of June 30,
2001. In addition, our real estate investments which are leased by tenants
utilizing our variable lease rate program increased from $78.8 million as of
December 31, 2000 to $94.4 million as of June 30, 2001. Interest rate
fluctuations may affect our annual interest expense on our variable rate debt
as well as our annual rental income on our variable rate leases. Because the
interest rates on our short-term and long-term variable rate debt and the base
rents on our variable rate leases are based on a spread over an applicable
index, the increase or decrease in interest expense as a result of a one
percentage point increase or decrease in the interest rate on our variable rate
debt would be substantially offset by the increase or decrease in the rental
income from our variable rate leases as a result of the increase or decrease in
the index used to calculate the base rent. Therefore, we exclude the $94.4
million from our total variable rate debt of $150.6 million in calculating the
effect of a change in interest rates on our variable rate debt. A change in
interest rates would, however, affect the interest due on our remaining $56.2
million of variable rate debt. If interest rates on this portion of our
variable rate debt had been one percentage point higher or lower, our annual
interest expense relating to those debt instruments would have increased or
decreased, respectively, by approximately $562,000, based on balances at June
30, 2001.

21



---



CAPITAL AUTOMOTIVE REIT
PART II-OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable.

Item 2. Changes in Securities

On May 3, 2001, the Operating Partnership issued 25,300 Units to James D.
Plummer, as partial consideration for the acquisition of a parcel of real
property and improvements located thereon in Medford, Oregon. The Units will
be eligible for redemption beginning on July 31, 2002 for cash by the Operating
Partnership, or at the option of the Company, common shares on a one for one
basis. The issuance of such Units was effected in reliance on an exemption
from registration under Section 4(2) of the Securities Act.

On June 1, 2001, the Operating Partnership issued 18,634 Units to the Spizzirri
Family Trust, established under that Declaration of Trust dated as of November
11, 1997, Marc J. Spizzirri and Candee C. Spizzirri, Trustees, as partial
consideration for the acquisition of a parcel of real property and improvements
located thereon in Rancho Santa Margarita, California. The Units will be
eligible for redemption beginning on July 31, 2002 for cash by the Operating
Partnership, or at the option of the Company, common shares on a one for one
basis. The issuance of such Units was effected in reliance on an exemption
from registration under Section 4(2) of the Securities Act.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submission of Matters to Vote of Security Holders

The annual meeting of shareholders of Capital Automotive REIT (the Meeting)
was held on May 10, 2001. The matters voted upon at the meeting were: (1)
Election of Trustees and (2) Ratification of the appointment of Arthur Andersen
LLP as Independent Public Accountants for 2001. Proxies for the meeting were
solicited pursuant to Section 14(a) of the Securities and Exchange Act of 1934,
as amended, and the regulations promulgated thereunder. There was no
solicitation in opposition to managements solicitations. All of managements
nominees for trust managers were elected. The following table sets forth the
results of these votes:

|                                                      |  |           |  |  |            | 
|----------------------------------------------------- |  | --------- |  |  | ---------- | 
|Proposal                                              |  | Results  
|                                                      |  |          
|(1) A proposal to elect ten Board of Trustee members:
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |  |           |  |  |            | 
|Thomas D. Eckert                                      |  | For:      |  |  | 18,594,442 | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |  | Withheld: |  |  | 607,458    | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |  |           |  |  |            | 
|Craig L. Fuller                                       |  | For:      |  |  | 19,010,760 | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |  | Withheld: |  |  | 191,140    | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |  |           |  |  |            | 
|David Gladstone                                       |  | For:      |  |  | 19,010,760 | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |  | Withheld: |  |  | 191,140    | 

22



---



|                                                                                              |  |                 |  |  |            | 
|--------------------------------------------------------------------------------------------- |  | --------------- |  |  | ---------- | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|William E. Hoglund                                                                            |  | For:            |  |  | 19,009,960 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |  | Withheld:       |  |  | 191,940    | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |  |                 |  |  |            | 
|R. Michael McCullough                                                                         |  | For:            |  |  | 19,010,760 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |  | Withheld:       |  |  | 191,140    | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |  |                 |  |  |            | 
|Lee P. Munder                                                                                 |  | For:            |  |  | 19,011,160 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |  | Withheld:       |  |  | 190,740    | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |  |                 |  |  |            | 
|John J. Pohanka                                                                               |  | For:            |  |  | 19,010,000 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |  | Withheld:       |  |  | 191,900    | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |  |                 |  |  |            | 
|John E. Reilly                                                                                |  | For:            |  |  | 19,009,100 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |  | Withheld:       |  |  | 192,800    | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |  |                 |  |  |            | 
|Robert M. Rosenthal                                                                           |  | For:            |  |  | 19,009,370 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |  | Withheld:       |  |  | 192,530    | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |  |                 |  |  |            | 
|Vincent A. Sheehy                                                                             |  | For:            |  |  | 19,011,160 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |  | Withheld:       |  |  | 190,740    | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|(2) Ratification of the Appointment of Arthur Andersen LLP as Independent Public
Accountants:
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |  |                 |  |  |            | 
|                                                                                              |  | For:            |  |  | 19,164,470 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |  | Against:        |  |  | 34,610     | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |  | Abstain:        |  |  | 2,819      | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |  | Broker No Vote: |  |  | 1          | 

Item 5. Other Information

Not applicable.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

Not applicable.

(b) Reports on Form 8-K

Not applicable.

23



---



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. Eckert

Thomas D. Eckert
President and Chief Executive Officer
(principal executive officer)           
|                      
|                       |  |  |  |  |  | BY:  /s/  David S. Kay

David S. Kay
Vice President and Chief Financial Officer
(principal financial and accounting officer)
|                      
|Dated: August 10, 2001 |  |  |  | 

24