##### 



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 September 30, 2002    
|     |  |                                                  
|(  ) |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
|     |  | OF THE SECURITIES EXCHANGE ACT OF 1934           
|     |  |                                                  
|     |  | For the transition period from ______to ______   

COMMISSION FILE NUMBER 000-23733

CAPITAL AUTOMOTIVE REIT
(Exact name of registrant as specified in its charter)

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes X         No

Number of common shares of beneficial interest outstanding as of October 31,
2002 was 27,979,155.

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  September 30, 2002 (unaudited) and
December 31, 2001                                               |         |         | 3      | 
|                                                     |                                                                                                |                                                                                                                                  |         |        
|                                                     |                                                                                                | Consolidated Statements of Operations (unaudited)  three months and nine
months ended September 30, 2002 and September 30, 2001 |         |         | 4      | 
|                                                     |                                                                                                |                                                                                                                                  |         |        
|                                                     |                                                                                                | Consolidated Statements of Cash Flows (unaudited)  three months and nine
months ended September 30, 2002 and September 30, 2001 |         |         | 5      | 
|                                                     |                                                                                                |                                                                                                                                  |         |        
|                                                     |                                                                                                | Notes to Consolidated Financial Statements (unaudited)                                                                           |         |         | 6  16 | 
|                                                     |                                                                                                |                                                                                                                                  |         |        
|                                                     | Item 2  Managements Discussion and Analysis of Financial Condition
and Results of Operations |                                                                                                                                  |         | 17  31 |       
|                                                     |                                                                                                |                                                                                                                                  |         |        
|                                                     | Item 3  Quantitative and Qualitative Disclosures About Market Risk                            |                                                                                                                                  |         | 31  32 |       
|                                                     |                                                                                                |                                                                                                                                  |         |        
|                                                     | Item 4  Controls and Procedures                                                               |                                                                                                                                  |         | 32      |       
|                                                     |                                                                                                |                                                                                                                                  |         |        
|Part II  Other Information                          |                                                                                                |                                                                                                                                  |         |        
|                                                     |                                                                                                |                                                                                                                                  |         |        
|                                                     | Item 1  Legal Proceedings                                                                     |                                                                                                                                  |         | 33      |       
|                                                     |                                                                                                |                                                                                                                                  |         |        
|                                                     | Item 2  Changes in Securities                                                                 |                                                                                                                                  |         | 33      |       
|                                                     |                                                                                                |                                                                                                                                  |         |        
|                                                     | Item 3  Defaults Upon Senior Securities                                                       |                                                                                                                                  |         | 33      |       
|                                                     |                                                                                                |                                                                                                                                  |         |        
|                                                     | Item 4  Submission of Matters to Vote to Security Holders                                     |                                                                                                                                  |         | 33      |       
|                                                     |                                                                                                |                                                                                                                                  |         |        
|                                                     | Item 5  Other Information                                                                     |                                                                                                                                  |         | 33      |       
|                                                     |                                                                                                |                                                                                                                                  |         |        
|                                                     | Item 6  Exhibits and Reports on Form 8-K                                                      |                                                                                                                                  |         | 33      |       
|                                                     |                                                                                                |                                                                                                                                  |         |        
|Signatures                                           |                                                                                                |                                                                                                                                  | 34      |        
|                                                     |                                                                                                |                                                                                                                                  |         |        
|Certification of Chief Executive Officer             |                                                                                                |                                                                                                                                  | 35  36 |        
|                                                     |                                                                                                |                                                                                                                                  |         |        
|Certification of Chief Financial Officer             |                                                                                                |                                                                                                                                  | 37  38 |        
|                                                     |                                                                                                |                                                                                                                                  |         |        
|Section 906 Certification of Chief Executive Officer |                                                                                                |                                                                                                                                  | 39      |        
|                                                     |                                                                                                |                                                                                                                                  |         |        
|Section 906 Certification of Chief Financial Officer |                                                                                                |                                                                                                                                  | 39      |        

2



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##### 



PART I  FINANCIAL INFORMATION
ITEM I  FINANCIAL STATEMENTS
CAPITAL AUTOMOTIVE REIT
CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

|                                                                                                                                                                                                               |                            |                   |                                            |         |               |           |              |         |           |           | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ----------------- | ------------------------------------------ | ------- | ------------- | --------- | ------------ | ------- | --------- | --------- | 
|                                                                                                                                                                                                               |                            |                   |                                            |         | September 30, |           | December 31,
|                                                                                                                                                                                                               |                            |                   |                                            |         | 2002          |           | 2001        
|                                                                                                                                                                                                               |                            |                   |                                            |         |               |           |             
|                                                                                                                                                                                                               |                            |                   |                                            |         | (Unaudited)   |           |              |         |          
|ASSETS                                                                                                                                                                                                         |                            |                   |                                            |         |               |           |              |        
|Real estate:                                                                                                                                                                                                   |                            |                   |                                            |         |               |           |              |        
|                                                                                                                                                                                                               | Land                       |                   | $                                          | 616,428 |               |           | $            | 508,556 |          
|                                                                                                                                                                                                               | Buildings and improvements |                   |                                            | 904,909 |               |           |              | 721,138 |          
|                                                                                                                                                                                                               | Accumulated depreciation   |                   |                                            | (78,210 | )             |           |              | (59,789 | )        
|                                                                                                                                                                                                               |                            |                   |                                            |         |               |           |              |        
|                                                                                                                                                                                                               |                            |                   | 1,443,127                                  |         |               |           | 1,169,905    |        
|Cash and cash equivalents                                                                                                                                                                                      |                            |                   | 16,630                                     |         |               |           | 9,490        |        
|Other assets, net                                                                                                                                                                                              |                            |                   | 44,799                                     |         |               |           | 20,305       |        
|                                                                                                                                                                                                               |                            |                   |                                            |         |               |           |              |        
|                                                                                                                                                                                                               |                            | Total Assets      |                                            | $       | 1,504,556     |           |              | $       | 1,199,700 |          
|                                                                                                                                                                                                               |                            |                   |                                            |         |               |           |              |        
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                                           |                            |                   |                                            |         |               |           |              |        
|Liabilities:                                                                                                                                                                                                   |                            |                   |                                            |         |               |           |              |        
|Mortgage debt                                                                                                                                                                                                  |                            | $                 | 826,948                                    |         |               | $         | 637,656      |        
|Borrowings under credit facilities                                                                                                                                                                             |                            |                   | 146,000                                    |         |               |           | 63,508       |        
|Accounts payable and accrued expenses                                                                                                                                                                          |                            |                   | 29,199                                     |         |               |           | 14,661       |        
|Security deposits payable                                                                                                                                                                                      |                            |                   | 6,902                                      |         |               |           | 6,969        |        
|                                                                                                                                                                                                               |                            |                   |                                            |         |               |           |              |        
|                                                                                                                                                                                                               |                            | Total Liabilities |                                            |         | 1,009,049     |           |              |         | 722,794   |          
|                                                                                                                                                                                                               |                            |                   |                                            |         |               |           |              |        
|Minority Interest                                                                                                                                                                                              |                            |                   | 116,575                                    |         |               |           | 110,885      |        
|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,
27,953,365 shares issued and outstanding as of September 30, 2002 and
26,428,188 shares issued and outstanding as of December 31, 2001 |                            |                   | 280                                        |         |               |           | 264          |        
|Additional paid-in-capital                                                                                                                                                                                     |                            |                   | 410,165                                    |         |               |           | 378,923      |        
|Accumulated other comprehensive income (loss)                                                                                                                                                                  |                            |                   | (16,221                                    | )       |               |           | 2,249        |        
|Distributions in excess of accumulated earnings                                                                                                                                                                |                            |                   | (15,292                                    | )       |               |           | (15,415      | )      
|                                                                                                                                                                                                               |                            |                   |                                            |         |               |           |              |        
|                                                                                                                                                                                                               |                            |                   | Total Shareholders Equity                 |         |               | 378,932   |              |         |           | 366,021   | 
|                                                                                                                                                                                                               |                            |                   |                                            |         |               |           |              |        
|                                                                                                                                                                                                               |                            |                   | Total Liabilities and Shareholders Equity |         | $             | 1,504,556 |              |         | $         | 1,199,700 | 
|                                                                                                                                                                                                               |                            |                   |                                            |         |               |           |              |        

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 |        | Nine Months Ended
|                                                                                   |                                           |                               |        | September 30,      |        | September 30,    
|                                                                                   |                                           |                               |        |                    |        |                  
|                                                                                   |                                           |                               |        | 2002               |        | 2001              |        | 2002   |        | 2001
|                                                                                   |                                           |                               |        |                    |        |                   |        |        |        |     
|Revenue:                                                                           |                                           |                               |        |                    |        |                   |        |        |        |      |         |        |         |   |        |       
|Rental                                                                             |                                           | $                             | 36,116 |                    |        | $                 | 29,949 |        |        | $    | 102,390 |        |         | $ | 85,913 |       
|Interest and other                                                                 |                                           |                               | 241    |                    |        |                   | 182    |        |        |      | 505     |        |         |   | 275    |       
|                                                                                   |                                           |                               |        |                    |        |                   |        |        |        |      |         |        |         |   |        |       
|                                                                                   |                                           | Total revenue                 |        |                    | 36,357 |                   |        |        | 30,131 |      |         |        | 102,895 |   |        |        | 86,188 | 
|                                                                                   |                                           |                               |        |                    |        |                   |        |        |        |      |         |        |         |   |        |       
|Expenses:                                                                          |                                           |                               |        |                    |        |                   |        |        |        |      |         |        |         |   |        |       
|Depreciation and amortization                                                      |                                           |                               | 6,784  |                    |        |                   | 5,445  |        |        |      | 18,957  |        |         |   | 15,519 |       
|General and administrative                                                         |                                           |                               | 2,026  |                    |        |                   | 1,790  |        |        |      | 6,136   |        |         |   | 5,235  |       
|Modification of debt                                                               |                                           |                               |       |                    |        |                   |       |        |        |      | 265     |        |         |   |       |       
|Interest                                                                           |                                           |                               | 13,568 |                    |        |                   | 11,896 |        |        |      | 35,141  |        |         |   | 35,132 |       
|                                                                                   |                                           |                               |        |                    |        |                   |        |        |        |      |         |        |         |   |        |       
|                                                                                   |                                           | Total expenses                |        |                    | 22,378 |                   |        |        | 19,131 |      |         |        | 60,499  |   |        |        | 55,886 | 
|                                                                                   |                                           |                               |        |                    |        |                   |        |        |        |      |         |        |         |   |        |       
|Income from continuing operations before minority interest 
and extraordinary item |                                           |                               | 13,979 |                    |        |                   | 11,000 |        |        |      | 42,396  |        |         |   | 30,302 |       
|Minority interest                                                                  |                                           |                               | (3,293 | )                  |        |                   | (2,749 | )      |        |      | (10,036 | )      |         |   | (8,174 | )     
|                                                                                   |                                           |                               |        |                    |        |                   |        |        |        |      |         |        |         |   |        |       
|Income from continuing operations before extraordinary item                        |                                           |                               | 10,686 |                    |        |                   | 8,251  |        |        |      | 32,360  |        |         |   | 22,128 |       
|Income from discontinued operations                                                |                                           |                               | 16     |                    |        |                   | 42     |        |        |      | 110     |        |         |   | 102    |       
|Gain on sale of real estate                                                        |                                           |                               | 222    |                    |        |                   |       |        |        |      | 222     |        |         |   |       |       
|                                                                                   |                                           |                               |        |                    |        |                   |        |        |        |      |         |        |         |   |        |       
|                                                                                   |                                           | Total discontinued operations |        |                    | 238    |                   |        |        | 42     |      |         |        | 332     |   |        |        | 102    | 
|                                                                                   |                                           |                               |        |                    |        |                   |        |        |        |      |         |        |         |   |        |       
|Net income before extraordinary item                                               |                                           |                               | 10,924 |                    |        |                   | 8,293  |        |        |      | 32,692  |        |         |   | 22,230 |       
|Extraordinary item  Extinguishment of debt                                        |                                           |                               |       |                    |        |                   | (526   | )      |        |      |        |        |         |   | (526   | )     
|                                                                                   |                                           |                               |        |                    |        |                   |        |        |        |      |         |        |         |   |        |       
|Net income                                                                         |                                           | $                             | 10,924 |                    |        | $                 | 7,767  |        |        | $    | 32,692  |        |         | $ | 21,704 |       
|                                                                                   |                                           |                               |        |                    |        |                   |        |        |        |      |         |        |         |   |        |       
|Shares of common stock outstanding used to
compute basic earnings per share        |                                           |                               | 27,917 |                    |        |                   | 24,305 |        |        |      | 27,291  |        |         |   | 22,493 |       
|                                                                                   |                                           |                               |        |                    |        |                   |        |        |        |      |         |        |         |   |        |       
|Basic earnings per share:                                                          |                                           |                               |        |                    |        |                   |        |        |        |      |         |        |         |   |        |       
|Income from continuing operations before extraordinary item                        |                                           | $                             | 0.38   |                    |        | $                 | 0.34   |        |        | $    | 1.19    |        |         | $ | 0.98   |       
|Net income before extraordinary item                                               |                                           | $                             | 0.39   |                    |        | $                 | 0.34   |        |        | $    | 1.20    |        |         | $ | 0.99   |       
|Net income                                                                         |                                           | $                             | 0.39   |                    |        | $                 | 0.32   |        |        | $    | 1.20    |        |         | $ | 0.96   |       
|Shares of common stock outstanding used to
compute diluted earnings per share      |                                           |                               | 28,956 |                    |        |                   | 25,635 |        |        |      | 28,454  |        |         |   | 23,360 |       
|                                                                                   |                                           |                               |        |                    |        |                   |        |        |        |      |         |        |         |   |        |       
|Diluted earnings per share:                                                        |                                           |                               |        |                    |        |                   |        |        |        |      |         |        |         |   |        |       
|Income from continuing operations before extraordinary item                        |                                           | $                             | 0.37   |                    |        | $                 | 0.32   |        |        | $    | 1.15    |        |         | $ | 0.95   |       
|Net income before extraordinary item                                               |                                           | $                             | 0.38   |                    |        | $                 | 0.33   |        |        | $    | 1.16    |        |         | $ | 0.96   |       
|Net income                                                                         |                                           | $                             | 0.38   |                    |        | $                 | 0.31   |        |        | $    | 1.16    |        |         | $ | 0.94   |       
|                                                                                   | Dividends declared per share (See Note 9) |                               | $      | 0.3980             |        |                   | $      | 0.3870 |        |      | $       | 1.1805 |         |   | $      | 0.7730 |       

See accompanying Notes to Consolidated Financial Statements.

4



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##### 



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

|                                                                                  |                                           |   |                                 |          |      |   |          |          |  
|--------------------------------------------------------------------------------- | ----------------------------------------- | - | ------------------------------- | -------- | ---- | - | -------- | -------- | -
|                                                                                  |                                           |   | Nine Months Ended September 30,
|                                                                                  |                                           |   |                                
|                                                                                  |                                           |   | 2002                            |          | 2001
|                                                                                  |                                           |   |                                 |          |     
|Cash flows from operating activities:                                             |                                           |   |                                 |          |      |   |          |         
|Net income                                                                        |                                           | $ | 32,692                          |          |      | $ | 21,704   |         
|Adjustments to reconcile net income to net cash
provided by operating activities: |                                           |   |                                 |          |      |   |          |         
|Extraordinary item                                                                |                                           |   |                                |          |      |   | 526      |         
|Gain on disposition of real estate net of minority interest                       |                                           |   | (222                            | )        |      |   | (125     | )       
|Depreciation and amortization                                                     |                                           |   | 20,077                          |          |      |   | 16,537   |         
|Income from continuing operations applicable to minority interest                 |                                           |   | 10,036                          |          |      |   | 8,174    |         
|Income from discontinued operations applicable to minority interest               |                                           |   | 34                              |          |      |   | 38       |         
|Increase in other assets                                                          |                                           |   | (20,552                         | )        |      |   | (2,980   | )       
|Increase in accounts payable and accrued expenses                                 |                                           |   | 5,198                           |          |      |   | 1,299    |         
|Increase (decrease) in security deposits payable                                  |                                           |   | (67                             | )        |      |   | 1,076    |         
|                                                                                  |                                           |   |                                 |          |      |   |          |         
|                                                                                  | Net cash provided by operating activities |   |                                 | 47,196   |      |   |          | 46,249   |  
|                                                                                  |                                           |   |                                 |          |      |   |          |         
|Cash flows from investing activities:                                             |                                           |   |                                 |          |      |   |          |         
|Purchase of furniture and equipment, net of disposals                             |                                           |   | (71                             | )        |      |   | (26      | )       
|Real estate acquisitions                                                          |                                           |   | (280,339                        | )        |      |   | (170,907 | )       
|Proceeds from the dispositions of real estate                                     |                                           |   | 7,524                           |          |      |   | 7,536    |         
|                                                                                  |                                           |   |                                 |          |      |   |          |         
|                                                                                  | Net cash used in investing activities     |   |                                 | (272,886 | )    |   |          | (163,397 | )
|                                                                                  |                                           |   |                                 |          |      |   |          |         
|Cash flows from financing activities:                                             |                                           |   |                                 |          |      |   |          |         
|Proceeds from borrowings under credit facilities                                  |                                           |   | 251,712                         |          |      |   | 121,238  |         
|Proceeds from mortgage debt                                                       |                                           |   | 205,385                         |          |      |   | 83,261   |         
|Repayment of borrowings under credit facilities                                   |                                           |   | (169,220                        | )        |      |   | (113,730 | )       
|Mortgage principal payments                                                       |                                           |   | (16,093                         | )        |      |   | (9,690   | )       
|Payments for debt issuance costs                                                  |                                           |   | (7,311                          | )        |      |   | (205     | )       
|Payment of cash dividend                                                          |                                           |   | (32,432                         | )        |      |   | (26,599  | )       
|Distributions to minority partners                                                |                                           |   | (9,862                          | )        |      |   | (9,680   | )       
|Repurchase of common shares                                                       |                                           |   |                                |          |      |   | (142     | )       
|Payment for the purchase of outstanding warrants to purchase common shares        |                                           |   | (6,328                          | )        |      |   |         |         
|Redemption of units of limited partnership interest in the Partnership            |                                           |   | (153                            | )        |      |   |         |         
|Proceeds from follow-on offering, net of costs                                    |                                           |   |                                |          |      |   | 61,264   |         
|Proceeds from issuance of other common shares, net of costs                       |                                           |   | 17,132                          |          |      |   | 6,673    |         
|                                                                                  |                                           |   |                                 |          |      |   |          |         
|                                                                                  | Net cash provided by financing activities |   |                                 | 232,830  |      |   |          | 112,390  |  
|                                                                                  |                                           |   |                                 |          |      |   |          |         
|Net increase (decrease) in cash and cash equivalents                              |                                           |   | 7,140                           |          |      |   | (4,758   | )       
|Cash and cash equivalents at beginning of period                                  |                                           |   | 9,490                           |          |      |   | 6,298    |         
|                                                                                  |                                           |   |                                 |          |      |   |          |         
|Cash and cash equivalents at end of period                                        |                                           | $ | 16,630                          |          |      | $ | 1,540    |         
|                                                                                  |                                           |   |                                 |          |      |   |          |         
|Supplemental Data:                                                                |                                           |   |                                 |          |      |   |          |         
|Real estate acquisitions in exchange for equity issuance                          |                                           | $ | 19,000                          |          |      | $ | 1,212    |         
|                                                                                  |                                           |   |                                 |          |      |   |          |         
|Interest paid during the period                                                   |                                           | $ | 29,465                          |          |      | $ | 33,737   |         
|                                                                                  |                                           |   |                                 |          |      |   |          |         

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. We own interests in real estate and conduct our
operations, directly or indirectly, through Capital Automotive L.P. (the
Partnership) and its subsidiaries. We are the sole general partner of the
Partnership and, as of September 30, 2002, owned approximately 76.5% of the
units of limited partnership interest in the Partnership (Units). References
to we, us and our refer to the Company or, if the context requires, the
Partnership and our business and operations conducted through the Partnership
and/or directly or indirectly owned subsidiaries.

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

As of September 30, 2002, we had invested more than $1.5 billion in 287
properties located in 28 states (Alabama, Arizona, California, Colorado,
Connecticut, Florida, Georgia, Idaho, Illinois, Indiana, Louisiana, Maryland,
Michigan, Missouri, Nevada, New Jersey, New Mexico, New York, North Carolina,
Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah
and Virginia), comprising approximately 2,024 acres of land and containing
approximately 11.6 million square feet of buildings and improvements. Our
tenants operate 406 motor vehicle franchises on our properties, representing
approximately 45 brands of motor vehicles, which include all of the top selling
brands in the U.S. The initial lease terms generally range from 10 to 20
years, with our portfolio having a weighted average initial lease term of
approximately 14.2 years. As of September 30, 2002, our portfolio had a
weighted average remaining lease term of approximately 11.7 years. The leases
typically have options to renew upon the same terms and conditions for one or
more additional periods of five to 10 years each, exercisable at the option of
the tenant (with renewal options ranging from a total of five to 40 years).

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared
by management in accordance with accounting principles generally accepted in
the United States (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

6



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of normal recurring adjustments) considered necessary for a fair presentation
have been included. The results of operations for the three months and nine
months ended September 30, 2002, 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, 2001.



|2. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- |  | ------------------------------------------

Principles of Consolidation

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

Real Estate and Depreciation

Real estate assets are recorded at cost. External acquisition costs directly
related to each property are capitalized as a cost of the respective property.
The cost of real estate properties acquired is allocated between land and
buildings and improvements based upon estimated market values at the time of
acquisition. Depreciation is computed using the straight-line method over an
estimated useful life of 20 to 40 years for the buildings and improvements.

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 credit facilities and
issuance of mortgage debt are capitalized and generally amortized over the
terms of the respective credit facilities or mortgage debt using the effective
interest method or on a straight-line basis which approximates the effective
interest method. These costs, net of accumulated amortization, are included in
other assets and total approximately $13.5 million and $7.2 million as of
September 30, 2002 and December 31, 2001, respectively. Deferred loan costs
include lender fees and other third party costs.

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 and total approximately $1.2 million and $1.0 million as of
September 30, 2002 and December 31, 2001, respectively. Capitalized leasing
costs include employee compensation and payroll-related fringe benefits
directly related to time spent performing leasing-related activities. These
activities include evaluating the prospective tenants financial condition,
evaluating and recording guarantees, collateral and other security
arrangements, negotiating lease terms, preparing lease documents and closing
the transaction.

7



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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, under which
the tenants typically pay all operating expenses of a property, including, but
not limited to, all real estate taxes, assessments and other government
charges, insurance, utilities, repairs and maintenance. All leases are
accounted for as operating leases and rental income attributable to the leases
is recorded monthly when due from tenants. Rental income attributable to the
majority of our leases is fixed by the lease agreement. However, under our
variable rate lease program, monthly base rent is calculated based on a spread
over an applicable index, typically LIBOR. As of September 30, 2002,
approximately $367.0 million of our more than $1.5 billion real estate
portfolio, or 24%, was subject to variable rate leases. This compares to
approximately $288.0 million of our approximately $1.2 billion real estate
portfolio, or 24%, that was subject to variable rate leases as of September 30,
2001. The vast majority of our variable rate lease agreements contain minimum
lease rates and fixed rate conversion features, and none of these leases
contains a maximum rate.

Our leases typically provide for upward periodic adjustments in base rent due
from our tenants, usually based on a factor of the change in the consumer price
index (CPI). Certain of our leases also 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 escalators are recorded as revenue in the period they
are due from the tenants. Straight-lined rents are included in other assets
and totaled approximately $10.6 million and $6.7 million as of September 30,
2002 and December 31, 2001, respectively.

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. |  | NEW ACCCOUNTING PRONOUNCEMENTS
|-- |  | ------------------------------

In April 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 145, Recission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections. Among other items, SFAS No. 145 rescinds FASB
Statement No. 4, Reporting of Gains and Losses from Extinguishment of Debt
and Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. As a
result, gains and losses from extinguishment of debt should be classified as
extraordinary items only if they meet the criteria of APB Opinion No. 30,
Reporting the Results of Operations  Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual, and Infrequently Occurring
Events and Transactions. We are currently evaluating the full impact of the
adoption of SFAS No. 145, however, the effects of this pronouncement may result
in future gains and losses related to debt transactions to be classified in
income from continuing operations. In addition, some extraordinary items
related to debt

8



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transactions recorded in prior periods will need to be reclassified to income
from continuing operations. SFAS No. 145 is effective for fiscal years
beginning after May 15, 2002.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities, which addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring). Among other provisions, SFAS No. 146 eliminates the
definition and requirements for recognition of exit costs in Issue 94-3 and
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred which can differ from the
commitment date of the plan. SFAS No. 146 also establishes that fair value is
the objective for initial measurement of the liability. The provisions of SFAS
No. 146 are effective for exit or disposal activities that are initiated after
December 31, 2002, with early application encouraged. We believe that SFAS No.
146 will not have a significant impact on our financial condition or results of
operations.



|4. |  | ACQUISITIONS
|-- |  | ------------

During the three months ended September 30, 2002, we completed approximately
$177.8 million of property acquisitions, bringing total acquisitions for the
nine-month period ended September 30, 2002 to $299.3 million. The third
quarter acquisitions included 10 properties and several facility improvements
and construction fundings, containing 19 automotive franchises. The
acquisitions were funded with approximately $138 million drawn on our
short-term credit facilities and the remainder with cash on hand. These
acquisitions added approximately 823,000 square feet of buildings and
improvements on approximately 108 acres of land in eight states (Arizona,
California, Indiana, New Jersey, North Carolina, Ohio, Texas and Virginia).
The leases have initial lease terms ranging from 12 to 20 years, with a
weighted average initial lease term of 15.2 years. These leases have renewal
options exercisable at the option of the tenant ranging from a total of 10 to
40 years. A summary of the acquisitions is as follows:



| |  |  | One property totaling $100 million leased under a fixed rate lease
to an affiliate of UnitedAuto Group, Inc. located in North Scottsdale,
Arizona. The Chauncey Ranch property will consist of 11 franchises
including Acura, Aston Martin, Audi, BMW, Jaguar, Land Rover,
Lincoln-Mercury, MINI, Porsche, Volkswagen and Volvo. As of September
30, 2002, we lease five properties to affiliates of UnitedAuto Group,
Inc. (which leases are guaranteed by UnitedAuto Group, Inc.),
representing approximately 7% of our total annualized rental revenue.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Three properties totaling $37.6 million leased under fixed rate
leases to CarMax, Inc. The properties are located in three states
(California, Indiana and North Carolina). As of September, 30, 2002,
CarMax, Inc. is a tenant of 12 of our properties, representing
approximately 10% of our total annualized rental revenue.                                                                                                                                                                                                                           
|
| |  |  | Four properties totaling $27.4 million leased under variable rate
leases to affiliates of Sonic Automotive, Inc. (Sonic), located in
California and Texas. Five franchises are located on these properties,
including Acura, Chevrolet, Chrysler, Jeep and Mitsubishi. As of
September 30, 2002, we lease 82 properties to Sonic (which leases are
guaranteed by Sonic Automotive, Inc.), representing approximately 24%
of our total annualized rental revenue.                                                                                        
|
| |  |  | One property totaling $5.8 million leased under a variable rate
lease to the Paramount Automotive Group located in Houston, Texas. An
Infiniti franchise is operated on the property. As of September 30,
2002, members constituting the Paramount Automotive Group are tenants
of three of our properties, representing approximately 1% of our total
annualized rental revenue.                                                                                                                                                                         

9



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| |  |  | One property totaling $4.4 million leased under a variable rate
lease on real estate operated by Richmond Motorcars Ltd. located in
Houston, Texas. An Audi franchise is operated on the property.
Richmond Motorcars Ltd. is an affiliate of Momentum Motorcars Ltd. As
of September 30, 2002, affiliates of Richmond Motorcars Ltd. are
tenants of 11 of our properties, representing approximately 4% of our
total annualized rental revenue.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Facility improvements and construction fundings, totaling
approximately $2.6 million, all of which were transacted with existing
tenants.                                                                                                                                                                                                                                                                                                       



|5. |  | DISCONTINUED OPERATIONS
|-- |  | -----------------------

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (effective for the Company on January 1, 2002).
SFAS No. 144 requires that gains and losses from dispositions of properties and
all operating earnings from these properties be reported as discontinued
operations. This also requires that all past earnings applicable to a
property disposed of subsequent to January 1, 2002 be reported as discontinued
operations. As a result, previously reported income from continuing
operations will be updated each time a property is sold. This requirement is
for presentation only and has no impact on net income. We adopted SFAS No. 144
on January 1, 2002.

During the three months ended September 30, 2002, we sold three properties and
received net proceeds of $7.5 million resulting in a combined gain of
approximately $291,000. The properties had a carrying value on the date of
sale of approximately $7.2 million. The gain on the disposition of these
properties and the earnings generated from these properties have been reported
as discontinued operations in accordance with SFAS No. 144 and are presented
net of minority interest. Revenue from the sold properties for the three
months ended September 30, 2002 and 2001 was $56,000 and $206,000,
respectively, and for the nine months ended September 30, 2002 and 2001 was
$389,000 and $630,000, respectively. Total discontinued operations for the
three months ended September 30, 2002 and 2001 was $238,000 and $42,000,
respectively, and for the nine months ended September 30, 2002 and 2001 was
$332,000 and $102,000, respectively.



|6. |  | MORTGAGE DEBT AND REVOLVING CREDIT FACILITIES
|-- |  | ---------------------------------------------

As of September 30, 2002, we had total debt outstanding of $972.9 million. Of
this debt, approximately $826.9 million (consisting of $520.2 million of fixed
rate and $306.7 million of variable rate debt) was mortgage debt secured by
approximately 245 of our properties. In addition, we had $146.0 million
outstanding on our revolving credit facilities.

10



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The following is a summary of our total debt outstanding as of September 30,
2002 and December 31, 2001 (dollars in thousands):

|                                                     |                                   |        |          |      |                     |      |                    |         |           |          |              |         |  |  |      |      |   |                   |    |   | 
|---------------------------------------------------- | --------------------------------- | ------ | -------- | ---- | ------------------- | ---- | ------------------ | ------- | --------- | -------- | ------------ | ------- |  |  | ---- | ---- | - | ----------------- | -- | - | 
|                                                     |                                   |        | Original |      | Principal Balance   |      | Principal Balance  |         | Effective |          | Term/       
|                                                     |                                   |        | Debt     |      | as of September 30, |      | as of December 31, |         | Interest  |          | Amortization
|Description of Debt                                  |                                   | Issued |          | 2002 |                     | 2001 |                    | Rate*   |           | Schedule
|                                                     |                                   |        |          |      |                     |      |                    |         |           |          |              |         |  |  |      |      |   |                   |    |  
|7.59% fixed rate debt due 12/1/08                    |                                   | $      | 38,050   |      |                     | $    | 34,911             |         |           | $        | 35,886       |         |  |  | 7.94 | %    |   | 10 yr/17 yr      
|7.635% fixed rate debt due 10/1/14 (1)               |                                   |        | 111,950  |      |                     |      |                   |         |           |          | 98,891       |         |  |  |      |      |   |                   |    |  
|8.05% fixed rate debt due 10/1/14 (1)                |                                   |        | 85,000   |      |                     |      |                   |         |           |          | 78,319       |         |  |  |      |      |   |                   |    |  
|Triple Net Lease Mortgage Notes, Series 2002 (1)     |                                   |        | 325,000  |      |                     |      | 322,044            |         |           |          |             |         |  |  | 7.70 | %    |   |                   | (1 | )
|7.54% fixed rate debt due 7/6/11                     |                                   |        | 100,000  |      |                     |      | 95,259             |         |           |          | 96,132       |         |  |  | 7.71 | %    |   | 12 yr/25 yr      
|7.565% fixed rate debt due 11/12/12 (2)              |                                   |        | 28,500   |      |                     |      | 26,790             |         |           |          |             |         |  |  | 7.67 | %    |   | 12 yr/25 yr      
|7.5975% fixed rate debt due 12/18/12 (2)             |                                   |        | 32,054   |      |                     |      | 30,349             |         |           |          |             |         |  |  | 7.63 | %    |   | 12 yr/30 yr      
|7.50% fixed rate debt due 1/20/03                    |                                   |        | 12,000   |      |                     |      | 10,886             |         |           |          | 11,108       |         |  |  | 7.76 | %    |   | 4.25 yr/20 yr    
|                                                     |                                   |        |          |      |                     |      |                    |         |           |          |              |         |  |  |      |      |   |                   |    |  
|                                                     | Total Mortgage Fixed Rate Debt    |        |          |      |                     |      | $                  | 520,239 |           |          | $            | 320,336 |  |  |      | 7.71 | % |                   |    |   | 
|                                                     |                                   |        |          |      |                     |      |                    |         |           |          |              |         |  |  |      |      |   |                   |    |  
|Variable rate debt due 9/29/11 (3)                   |                                   | $      | 150,000  |      |                     | $    | 145,852            |         |           |          | 149,419      |         |  |  | 4.10 | %    |   | 12 yr/25 yr      
|Variable rate debt due 8/10/13 (4)                   |                                   |        | 82,600   |      |                     |      | 79,847             |         |           |          | 81,223       |         |  |  | 3.64 | %    |   | 12 yr/30 yr      
|Variable rate debt swapped to fixed rate debt (2)    |                                   |        | 60,554   |      |                     |      |                   |         |           |          | 58,278       |         |  |  |      |      |   |                   |    |  
|Various variable rate debt (5)                       |                                   |        | 83,550   |      |                     |      | 81,010             |         |           |          | 28,400       |         |  |  | 4.90 | %    |   | 10 to 11 yr/25 yr
|                                                     |                                   |        |          |      |                     |      |                    |         |           |          |              |         |  |  |      |      |   |                   |    |  
|                                                     | Total Mortgage Variable Rate Debt |        |          |      |                     |      | $                  | 306,709 |           |          | $            | 317,320 |  |  |      | 4.19 | % |                   |    |   | 
|                                                     |                                   |        |          |      |                     |      |                    |         |           |          |              |         |  |  |      |      |   |                   |    |  
|TOTAL MORTGAGE DEBT                                  |                                   |        |          |      |                     | $    | 826,948            |         |           | $        | 637,656      |         |  |  | 6.41 | %    |   |                   |    |  
|                                                     |                                   |        |          |      |                     |      |                    |         |           |          |              |         |  |  |      |      |   |                   |    |  
|$50 million revolving partially secured facility
(6) |                                   |        |          |      |                     |      |                   |         |           |          | 17,400       |         |  |  |      |      |   |                   |    |  
|$60 million revolving unsecured facility (7)         |                                   |        |          |      |                     |      | 46,000             |         |           |          |             |         |  |  | 5.06 | %    |   | 3 yr             
|$100 million revolving secured facility (8)          |                                   |        |          |      |                     |      | 100,000            |         |           |          | 46,108       |         |  |  | 4.98 | %    |   | 1 yr             
|                                                     |                                   |        |          |      |                     |      |                    |         |           |          |              |         |  |  |      |      |   |                   |    |  
|TOTAL CREDIT FACILITIES                              |                                   |        |          |      |                     | $    | 146,000            |         |           | $        | 63,508       |         |  |  | 4.99 | %    |   |                   |    |  
|                                                     |                                   |        |          |      |                     |      |                    |         |           |          |              |         |  |  |      |      |   |                   |    |  
|TOTAL DEBT OUTSTANDING                               |                                   |        |          |      |                     | $    | 972,948            |         |           | $        | 701,164      |         |  |  | 6.37 | %    |   |                   |    |  
|                                                     |                                   |        |          |      |                     |      |                    |         |           |          |              |         |  |  |      |      |   |                   |    |  



| | *   |  | For the quarter ended September 30, 2002. Includes deferred loan
fees amortized over the life of the loans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (1) |  | On June 28, 2002, we issued $325 million in four classes of Triple
Net Lease Mortgage Notes, Series 2002 (the Notes). The transaction
reflects approximately $152 million of new debt issued in classes under
current market terms (the New Notes) and a restructuring of a
securitization completed in 1999, that had a remaining balance of
approximately $173 million (the Modified Debt). The certificates
representing the Modified Debt have economic terms equivalent to the
prior transaction. The Notes are collateralized by 94 properties,
subject to long-term, triple-net leases, with a net book value of $430.5
million and an appraised value of $462.4 million as of the closing date.
The New Notes have a weighted average effective interest rate
(including deferred fees amortized over the life of the New Notes) of
approximately 7.0% and are fully-amortizing over 20 years. The Notes
are fully-amortizing and have terms ranging from 12 to 20 years, with a
weighted average term of 14.2 years. The Notes have a weighted average
effective interest rate (including deferred fees amortized over the life
of the Notes) of approximately 7.7%. The net proceeds from the issuance
of the New Notes were used to pay down our short-term credit facilities
and to fund acquisitions. CARS Loan Servicer L.L.C., one of our
subsidiaries, is servicer of the Notes on behalf of the noteholders.

11



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| | (2) |  | These loans bear interest equal to the 30-day LIBOR rate plus 215
basis points and require quarterly interest and level principal
payments until maturity. During the first quarter of 2002, we entered
into interest rate swap arrangements with a third party on these loans
to fix the interest rate. The new blended rate on the debt is
approximately 7.58%.                                                                                                                                                                                                                                                                                                                                                                                        
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (3) |  | This loan was converted from fixed rate to variable rate during the
third quarter of 2001. Following the conversion, the loan bears
interest equal to the 30-day LIBOR rate plus 227 basis points and
requires monthly level payments of principal and interest until
maturity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (4) |  | This loan bears interest equal to the 30-day LIBOR rate plus 175
basis points and requires quarterly interest and level principal
payments until maturity. On November 1, 2002, pursuant to an agreement
with a third party, the variable rate swapped to a 7.50% fixed rate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (5) |  | These loans bear interest at variable rates ranging from 200 to 357
basis points above the A1-P1 Commercial Paper Rate or the 30-day LIBOR
rate and have maturity dates ranging from December 22, 2009 to May 1,
2012. The terms of the various loans require either quarterly interest
and level principal payments or monthly level payments of principal and
interest until maturity.                                                                                                                                                                                                                                                                                                                                                                 
| | (6) |  | The facility matured on March 3, 2002 and was extended until the end
of the second quarter at which time it was replaced by the new unsecured
revolving credit facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (7) |  | At the end of the first quarter of 2002, we closed on this $60
million unsecured revolving credit facility. The facility replaced the
existing $50 million secured revolving credit facility at the end of the
second quarter of 2002. The facility provides for a three-year term
with interest equal to either the Prime rate less 50 basis points or the
1-month, 2-month or 3-month LIBOR rate plus 200 basis points and
requires the repayment of borrowings within 180 days. As of September
30, 2002, the borrowings under the facility bear interest equal to the
Prime rate less 50 basis points. These borrowings were subsequently
converted to bear interest equal to the 3-month LIBOR rate plus 200
basis points effective October 2, 2002.
| | (8) |  | Amounts borrowed under this facility bear interest at market rates
determined at the time of each draw until such time as we and the lender
set an interest rate for any future amounts borrowed under the facility.
As of September 30, 2002, the borrowings under the facility bear
interest equal to the 30-day LIBOR rate plus 300 basis points. The
facility requires the repayment of principal within 150 days. The
facility has a one-year term, which terminates on March 21, 2003, and is
renewable annually.                                                                                                                                                                                                                                  

As of September 30, 2002, we were in compliance with all of the loan covenants
related to our mortgage debt and credit facilities.

Aggregate annual principal maturities (which includes principal amortization)
of mortgage debt as of September 30, 2002 are as follows (in thousands):

|                                |  |   |         | 
|------------------------------- |  | - | ------- | 
|For the Year Ended December 31, |  |   |         | 
|2002                            |  | $ | 7,668   | 
|2003                            |  |   | 38,178  | 
|2004                            |  |   | 27,916  | 
|2005                            |  |   | 29,611  | 
|2006                            |  |   | 31,338  | 
|Thereafter                      |  |   | 692,237 | 
|                                |  |   |         | 
|Total                           |  | $ | 826,948 | 
|                                |  |   |         | 

$325 Million Debt Securitization

As noted in footnote (1) of the debt table herein, we modified approximately
$173 million of debt during the second quarter. Because the terms of the
Modified Debt were virtually identical to the original debt, the modification
did not result in a significant modification of debt under GAAP. Therefore, in

12



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accordance with GAAP: (1) the unamortized issuance costs related to the
original debt of $3.9 million, plus $2.3 million of costs related to the
Modified Debt that was paid to the lender and capitalized, will be amortized
over the remaining term of the Modified Debt using the effective interest
method; and (2) third-party costs totaling $265,000 incurred in connection with
the Modified Debt were expensed. In addition, we incurred approximately $6.3
million in debt issuance costs associated with the issuance of the New Notes,
which, in accordance with GAAP, were capitalized and will be amortized over the
term of the New Notes using the effective interest method.

Bridge Loan

In October 2002, we issued approximately $80.9 million in debt pursuant to a
bridge loan. The bridge loan has a six-month term and bears interest equal to
the 30-day LIBOR rate plus 300 basis points and is convertible into a five-year
term note at our discretion. The bridge loan is secured by one property,
subject to a long-term, triple-net lease. The net proceeds of the loan were
used to pay down borrowings outstanding on our short-term credit facilities.

Interest Rate Swaps

In June 1998, the FASB issued 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. We adopted SFAS No. 133
on January 1, 2001. There was no impact to our financial statements at the
time of adoption.

During the third quarter of 2001, we borrowed $82.6 million of long-term
variable rate debt drawn under a $150 million commitment for secured financing
from Toyota Financial Services. The terms of the debt provide for a 12-year
term with interest at a spread over the one-month LIBOR rate. On November 1,
2002, pursuant to an agreement with a third party, the variable rate swapped to
a 7.50% fixed rate.

During the first quarter of 2002, we converted the leases on approximately
$71.2 million of properties leased to a tenant from variable rate to fixed
rate. At the same time, we entered into interest rate swap arrangements with a
third party to fix the interest rate on the debt secured primarily by such
properties totaling approximately $58.3 million.

Fixing the rate on $140.9 million of debt with interest rate swap arrangements,
continues our strategy of minimizing interest rate risk by substantially
match-funding our debt with leases in order to lock in our investment spread
over the initial lease term.

These swaps were designed to mirror the underlying variable rate debt in terms
of index, spread, reset, amortization, compounding and maturity. Due to the
identical nature of the terms of the swap arrangements and the underlying terms
of the debt, we determined that these derivative instruments are highly
effective. Consequently, in accordance with GAAP, the unrealized gain or loss
upon measuring the swaps at their fair value is recorded as a component of
accumulated other comprehensive income (loss) within shareholders equity on
our consolidated balance sheets. The fair value of the swaps is

13



---



##### 



recorded as either a derivative instrument asset or a derivative instrument
liability on our consolidated balance sheets. As of September 30, 2002, we had
an unrealized loss on the swaps of approximately $16.2 million, which is
included in other liabilities and accumulated other comprehensive income (loss)
within our consolidated balance sheets.



|7. |  | MINORITY INTEREST
|-- |  | -----------------

Minority interest represents the Units of the Partnership owned by limited
partners (other than the Company). Minority interest is calculated at
approximately 23.5% of the Partnerships partners capital as of September 30,
2002 and approximately 23.6% of the Partnerships partners net income for the
three months ended September 30, 2002 and approximately 23.7% for the nine
months ended September 30, 2002. The ownership of the Partnership as of
September 30, 2002 is as follows (Units in thousands):

|                   |                  |       |  |          |          |         |  |      |       |  
|------------------ | ---------------- | ----- |  | -------- | -------- | ------- |  | ---- | ----- | -
|                   |                  |       |  | Units    |          | Percent
|                   |                  |       |  |          |          |        
|Partners capital: |                  |       |  |          |          |         |  |     
|                   | Limited Partners |       |  | 8,599.6  |          |         |  | 23.5 | %    
|                   | The Company      |       |  | 27,953.4 |          |         |  | 76.5 | %    
|                   |                  |       |  |          |          |         |  |     
|                   |                  |       |  |          |          |         |  |     
|                   |                  | Total |  |          | 36,553.0 |         |  |      | 100.0 | %
|                   |                  |       |  |          |          |         |  |     



|8. |  | 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 our 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, 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 nine
months ended September 30, 2002 and 2001 is as follows (in thousands, except
per share data):

14

|                                                             |                              |  |                                  |        |        |  |          |        |          |  |        |       |       |  |          |       |          |  |  |        |  |  |   |       |  
|------------------------------------------------------------ | ---------------------------- |  | -------------------------------- | ------ | ------ |  | -------- | ------ | -------- |  | ------ | ----- | ----- |  | -------- | ----- | -------- |  |  | ------ |  |  | - | ----- | -
|                                                             |                              |  | Three Months Ended September 30,
|                                                             |                              |  |                                 
|                                                             |                              |  | 2002                             |        | 2001  
|                                                             |                              |  |                                  |        |       
|                                                             |                              |  |                                  |        |        |  | Weighted |        | Earnings |  |        |       |       |  | Weighted |       | Earnings
|                                                             |                              |  |                                  |        |        |  | Average  |        | Per      |  |        |       |       |  | Average  |       | Per     
|                                                             |                              |  | Income                           |        | Shares |  | Share    |        | Income   |  | Shares |       | Share
|                                                             |                              |  |                                  |        |        |  |          |        |          |  |        |       |      
|Income from continuing
operations before
extraordinary item: |                              |  |                                  |        |        |  |          |        |          |  |        |       |       |  |          |       |          |  |  |        |  |  |   |      
|                                                             | Earnings per share  basic   |  | $                                | 10,686 |        |  |          | 27,917 |          |  | $      | 0.38  |       |  | $        | 8,251 |          |  |  | 24,305 |  |  | $ | 0.34  |  
|                                                             | Adjustments (1)              |  |                                  | 85     |        |  |          | 1,039  |          |  |        | (0.01 | )     |  |          | 80    |          |  |  | 1,330  |  |  |   | (0.02 | )
|                                                             |                              |  |                                  |        |        |  |          |        |          |  |        |       |       |  |          |       |          |  |  |        |  |  |   |      
|                                                             | Earnings per share  diluted |  | $                                | 10,771 |        |  |          | 28,956 |          |  | $      | 0.37  |       |  | $        | 8,331 |          |  |  | 25,635 |  |  | $ | 0.32  |  
|                                                             |                              |  |                                  |        |        |  |          |        |          |  |        |       |       |  |          |       |          |  |  |        |  |  |   |      
|Net income before
extraordinary item:                        |                              |  |                                  |        |        |  |          |        |          |  |        |       |       |  |          |       |          |  |  |        |  |  |   |      
|                                                             | Earnings per share  basic   |  | $                                | 10,924 |        |  |          | 27,917 |          |  | $      | 0.39  |       |  | $        | 8,293 |          |  |  | 24,305 |  |  | $ | 0.34  |  
|                                                             | Adjustments (1)              |  |                                  | 87     |        |  |          | 1,039  |          |  |        | (0.01 | )     |  |          | 108   |          |  |  | 1,330  |  |  |   | (0.01 | )
|                                                             |                              |  |                                  |        |        |  |          |        |          |  |        |       |       |  |          |       |          |  |  |        |  |  |   |      
|                                                             | Earnings per share  diluted |  | $                                | 11,011 |        |  |          | 28,956 |          |  | $      | 0.38  |       |  | $        | 8,401 |          |  |  | 25,635 |  |  | $ | 0.33  |  
|                                                             |                              |  |                                  |        |        |  |          |        |          |  |        |       |       |  |          |       |          |  |  |        |  |  |   |      
|Net income:                                                  |                              |  |                                  |        |        |  |          |        |          |  |        |       |       |  |          |       |          |  |  |        |  |  |   |      
|                                                             | Earnings per share  basic   |  | $                                | 10,924 |        |  |          | 27,917 |          |  | $      | 0.39  |       |  | $        | 7,767 |          |  |  | 24,305 |  |  | $ | 0.32  |  
|                                                             | Adjustments (1)              |  |                                  | 87     |        |  |          | 1,039  |          |  |        | (0.01 | )     |  |          | 108   |          |  |  | 1,330  |  |  |   | (0.01 | )
|                                                             |                              |  |                                  |        |        |  |          |        |          |  |        |       |       |  |          |       |          |  |  |        |  |  |   |      
|                                                             | Earnings per share  diluted |  | $                                | 11,011 |        |  |          | 28,956 |          |  | $      | 0.38  |       |  | $        | 7,875 |          |  |  | 25,635 |  |  | $ | 0.31  |  

|                                                             |                              |  |                                 |        |        |  |          |        |          |  |        |       |       |  |          |        |          |  |  |        |  |  |   |       |  
|------------------------------------------------------------ | ---------------------------- |  | ------------------------------- | ------ | ------ |  | -------- | ------ | -------- |  | ------ | ----- | ----- |  | -------- | ------ | -------- |  |  | ------ |  |  | - | ----- | -
|                                                             |                              |  | Nine Months Ended September 30,
|                                                             |                              |  |                                
|                                                             |                              |  | 2002                            |        | 2001  
|                                                             |                              |  |                                 |        |       
|                                                             |                              |  |                                 |        |        |  | Weighted |        | Earnings |  |        |       |       |  | Weighted |        | Earnings
|                                                             |                              |  |                                 |        |        |  | Average  |        | Per      |  |        |       |       |  | Average  |        | Per     
|                                                             |                              |  | Income                          |        | Shares |  | Share    |        | Income   |  | Shares |       | Share
|                                                             |                              |  |                                 |        |        |  |          |        |          |  |        |       |      
|Income from continuing
operations before
extraordinary item: |                              |  |                                 |        |        |  |          |        |          |  |        |       |       |  |          |        |          |  |  |        |  |  |   |      
|                                                             | Earnings per share  basic   |  | $                               | 32,360 |        |  |          | 27,291 |          |  | $      | 1.19  |       |  | $        | 22,128 |          |  |  | 22,493 |  |  | $ | 0.98  |  
|                                                             | Adjustments (1)              |  |                                 | 247    |        |  |          | 1,163  |          |  |        | (0.04 | )     |  |          | 130    |          |  |  | 867    |  |  |   | (0.03 | )
|                                                             |                              |  |                                 |        |        |  |          |        |          |  |        |       |       |  |          |        |          |  |  |        |  |  |   |      
|                                                             | Earnings per share  diluted |  | $                               | 32,607 |        |  |          | 28,454 |          |  | $      | 1.15  |       |  | $        | 22,258 |          |  |  | 23,360 |  |  | $ | 0.95  |  
|                                                             |                              |  |                                 |        |        |  |          |        |          |  |        |       |       |  |          |        |          |  |  |        |  |  |   |      
|Net income before
extraordinary item:                        |                              |  |                                 |        |        |  |          |        |          |  |        |       |       |  |          |        |          |  |  |        |  |  |   |      
|                                                             | Earnings per share  basic   |  | $                               | 32,692 |        |  |          | 27,291 |          |  | $      | 1.20  |       |  | $        | 22,230 |          |  |  | 22,493 |  |  | $ | 0.99  |  
|                                                             | Adjustments (1)              |  |                                 | 250    |        |  |          | 1,163  |          |  |        | (0.04 | )     |  |          | 220    |          |  |  | 867    |  |  |   | (0.03 | )
|                                                             |                              |  |                                 |        |        |  |          |        |          |  |        |       |       |  |          |        |          |  |  |        |  |  |   |      
|                                                             | Earnings per share  diluted |  | $                               | 32,942 |        |  |          | 28,454 |          |  | $      | 1.16  |       |  | $        | 22,450 |          |  |  | 23,360 |  |  | $ | 0.96  |  
|                                                             |                              |  |                                 |        |        |  |          |        |          |  |        |       |       |  |          |        |          |  |  |        |  |  |   |      
|Net income:                                                  |                              |  |                                 |        |        |  |          |        |          |  |        |       |       |  |          |        |          |  |  |        |  |  |   |      
|                                                             | Earnings per share  basic   |  | $                               | 32,692 |        |  |          | 27,291 |          |  | $      | 1.20  |       |  | $        | 21,704 |          |  |  | 22,493 |  |  | $ | 0.96  |  
|                                                             | Adjustments (1)              |  |                                 | 250    |        |  |          | 1,163  |          |  |        | (0.04 | )     |  |          | 220    |          |  |  | 867    |  |  |   | (0.02 | )
|                                                             |                              |  |                                 |        |        |  |          |        |          |  |        |       |       |  |          |        |          |  |  |        |  |  |   |      
|                                                             | Earnings per share  diluted |  | $                               | 32,942 |        |  |          | 28,454 |          |  | $      | 1.16  |       |  | $        | 21,924 |          |  |  | 23,360 |  |  | $ | 0.94  |  



| | (1) |  | Adjustment to net income reflects the change in our share of income based
on an ownership
| | --- |  | -----------------------------------------------------------------------------------------

15



---



##### 





| |  |  | calculation including weighted average common share equivalents. The
adjustment to weighted average shares reflects the effect of dilutive common
share equivalents outstanding for the period, based on the treasury stock
method.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|9. |  | DIVIDENDS DECLARED PER SHARE
|-- |  | ----------------------------

Dividends are generally declared a quarter in arrears. However, prior to 2001,
we declared our fourth quarter dividend during the same quarter in order to
comply with REIT requirements during those respective years. Dividends
declared per share for the three months ended September 30, 2002 and 2001
represent the second quarter dividend for 2002 and 2001, respectively.
Dividends declared per share for the nine months ended September 30, 2002
include the first and second quarter dividends for 2002 and the fourth quarter
dividend for 2001. Dividends declared per share for the nine months ended
September 30, 2001 represent the first and second quarter dividends for 2001.



|10. |  | SUBSEQUENT EVENTS
|--- |  | -----------------

Declaration of Dividend.On October 15, 2002, our Board of Trustees declared a
cash dividend of $0.4020 per share, which will be paid on November 19, 2002 to
shareholders of record as of November 8, 2002.

16



---



##### 



CAPITAL AUTOMOTIVE REIT
ITEM II  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS  THREE MONTHS AND NINE MONTHS ENDED
SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001

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 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 22, 2002. 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 tenants will not pay rent;                                                                                                                                                                                                                                                                
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | risks that our growth will be limited if we cannot obtain additional capital;                                                                                                                                                                                                                            
|
| |  |  | risks of financing, such as our ability to
consummate planned and additional financings on terms which
are acceptable to us and our ability to meet existing
financial covenants;                                                                                                                        
|
| |  |  | risks that planned and additional acquisitions may not be consummated;                                                                                                                                                                                                                                   
|
| |  |  | risks 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 any 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 REIT for federal
income tax purposes, such as the existence of complex
regulations relating to our status as a REIT, the effect of
future changes in REIT requirements as a result of new
legislation and the adverse consequences of the failure to
qualify as a REIT. 

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

17



---



##### 



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 leasing
properties to dealer groups that have a long history of operating multi-site,
multi-franchised dealerships, generally targeting the largest dealer groups in
terms of revenues in the largest major metropolitan areas in the U.S. in terms
of population. In addition, we provide facility improvement and expansion
funding, construction financing and takeout commitments to our existing tenants
in certain circumstances. As of September 30, 2002, we had invested more than
$1.5 billion in 287 properties located in 28 states, comprising approximately
2,024 acres of land and containing approximately 11.6 million square feet of
buildings and improvements. Our tenants operate 406 motor vehicle franchises
on our properties, representing approximately 45 brands of motor vehicles,
which include all of the top selling brands in the U.S.

Substantially all of our properties are leased pursuant to long-term,
triple-net leases, under which the tenants typically pay all operating expenses
of a property, including, but not limited to, all real estate taxes,
assessments and other government charges, insurance, utilities, repairs and
maintenance. The initial lease terms generally range from 10 to 20 years, with
our portfolio having a weighted average initial lease term of approximately
14.2 years. As of September 30, 2002, our portfolio had a weighted average
remaining lease term of approximately 11.7 years. The leases typically have
options to renew upon the same terms and conditions for one or more additional
periods of five to 10 years each, exercisable at the option of the tenant (with
renewal options ranging from a total of five to 40 years).

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

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

THIRD QUARTER ACQUISITIONS

During the three months ended September 30, 2002, we completed approximately
$177.8 million of property acquisitions, bringing total acquisitions for the
nine-month period ended September 30, 2002 to $299.3 million. The third
quarter acquisitions included 10 properties and several facility improvements
and construction fundings, containing 19 automotive franchises. The
acquisitions were funded with approximately $138 million drawn on our
short-term credit facilities and the remainder with cash on hand. These
acquisitions added approximately 823,000 square feet of buildings and
improvements on approximately 108 acres of land in eight states (Arizona,
California, Indiana, New Jersey, North Carolina, Ohio, Texas and Virginia).
The leases have initial lease terms ranging from 12 to 20 years, with a
weighted average initial lease term of 15.2 years. These leases have renewal
options exercisable at the option of the tenant ranging from a total of 10 to
40 years. A summary of the acquisitions is as follows:



| |  |  | One property totaling $100 million leased under a fixed rate lease
to an affiliate of UnitedAuto Group, Inc. located in North Scottsdale,
Arizona. The Chauncey Ranch property will consist of
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

18



---



##### 





| |   |  | 11 franchises including Acura, Aston Martin, Audi, BMW, Jaguar, Land
Rover, Lincoln-Mercury, MINI, Porsche, Volkswagen and Volvo. As of
September 30, 2002, we lease five properties to affiliates of UnitedAuto
Group, Inc. (which leases are guaranteed by UnitedAuto Group, Inc.),
representing approximately 7% of our total annualized rental revenue.                                                                                     
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Three properties totaling $37.6 million leased under fixed rate
leases to CarMax, Inc. The properties are located in three states
(California, Indiana and North Carolina). As of September, 30, 2002,
CarMax, Inc. is a tenant of 12 of our properties, representing
approximately 10% of our total annualized rental revenue.                                                                                                                 
|
| |  |  | Four properties totaling $27.4 million leased under variable rate
leases to Sonic, located in California and Texas. Five franchises are
located on these properties, including Acura, Chevrolet, Chrysler, Jeep
and Mitsubishi. As of September 30, 2002, we lease 82 properties to
Sonic (which leases are guaranteed by Sonic Automotive, Inc.),
representing approximately 24% of our total annualized rental revenue.                       
|
| |  |  | One property totaling $5.8 million leased under a variable rate
lease to the Paramount Automotive Group located in Houston, Texas. An
Infiniti franchise is operated on the property. As of September 30,
2002, members constituting the Paramount Automotive Group are tenants
of three of our properties, representing approximately 1% of our total
annualized rental revenue.                                                               
|
| |  |  | One property totaling $4.4 million leased under a variable rate
lease on real estate operated by Richmond Motorcars Ltd. located in
Houston, Texas. An Audi franchise is operated on the property.
Richmond Motorcars Ltd. is an affiliate of Momentum Motorcars Ltd. As
of September 30, 2002, affiliates of Richmond Motorcars Ltd. are
tenants of 11 of our properties, representing approximately 4% of our
total annualized rental revenue.
|
| |  |  | Facility improvements and construction fundings, totaling
approximately $2.6 million, all of which were transacted with existing
tenants.                                                                                                                                                                                                                                                                                                       

RESULTS OF OPERATIONS

Revenue

Rental.Rental revenue for the three months ended September 30, 2002 increased
21% to $36.1 million from $29.9 million for the same quarter in 2001. Rental
revenue for the nine months ended September 30, 2002 increased 19% to $102.4
million from $85.9 million for the same period in 2001. 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
287 properties as of September 30,
2002 versus 260 properties as of
September 30, 2001;                                                   
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | during the first quarter of 2002, we
converted the leases on approximately
$71.2 million of properties leased to
a tenant from variable rate to fixed
rate, resulting in an increase in
rental revenue. Other terms of the
leases, including lease escalators,
remained unchanged;
| 
| |  | an increase in straight-lined rents,
which for the three months and nine
months ended September 30, 2002
totaled $1.2 million and $3.9 million,
respectively, as compared to $810,000
and $2.4 million for the three months
and nine months ended September 30,
2001; and         

19



---



##### 





| |  | an increase from rent adjustments
above the fixed minimum escalators,
which are recorded as revenue in the
period they are due from the tenants.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------

The increase in rental revenues was partially offset by the following:



| |  | at the end of the third quarter of
2001, we converted the leases relating
to $185.3 million of properties leased
to a tenant from fixed rate to
variable rate with a minimum lease
rate, resulting in a decrease in
rental revenue. We also converted the
interest rate on approximately $150
million of debt that is primarily
secured by the properties subject to
these leases from fixed rate to
variable rate. Other terms of the
leases, including lease escalators,
remained unchanged; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | a decrease in lease rates on our
variable rate leases. As of September
30, 2002, $367.0 million of our more
than $1.5 billion real estate
portfolio was subject to variable rate
leases (including the conversion of
leases relating to $185.3 million of
properties leased to a tenant from
fixed rate to variable rate as
discussed above), compared to $288.0
million of our approximately $1.2
billion real estate portfolio that was
subject to variable rate leases as of
September 30, 2001. Under our
variable rate lease program, rental
income attributable to our leases is
variable, and monthly base rent is
calculated based on a spread over an
applicable index, typically LIBOR.
The decrease in lease rates is due to
a decrease in the underlying indices
during the previous twelve-month
period. The vast majority of our
variable rate lease agreements contain
minimum lease rates, which have
partially mitigated the decrease in
lease rates, and none of these leases
contains a maximum rate. In addition,
the vast majority of our variable rate
lease agreements contain fixed rate
conversion features. We had a
corresponding decrease in interest
rates on our variable rate debt
resulting in reduced interest expense,
which is more fully described below.

Interest and Other.Interest and other income for the three months ended
September 30, 2002 increased to $241,000 from $182,000 for the same quarter in
2001. Interest and other income for the nine months ended September 30, 2002
increased to $505,000 from $275,000 for the same period in 2001. The increase
was primarily due to an increase in interest earned on temporary investments
and other fee income, partially offset by a gain on sale of properties,
totaling $125,000 included in interest and other income for the three months
ended September 30, 2001. Beginning in 2002, GAAP requires that the gains and
losses from dispositions of properties and all operating earnings from these
properties be reported as discontinued operations. This requires
reclassification of certain amounts from income from continuing operations to
discontinued operations which is more fully described below.

Expenses

Depreciation and Amortization.Depreciation and amortization for the three
months ended September 30, 2002 increased 25% to $6.8 million from $5.4 million
for the same quarter in 2001. Depreciation and amortization for the nine
months ended September 30, 2002 increased 22% to $19.0 million from $15.5
million for the same period in 2001. 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.General and administrative expenses for the three
months ended September 30, 2002 increased $236,000, or 13%, to $2.0 million
from $1.8 million for the same quarter in 2001. General and administrative
expenses for the nine months ended September 30, 2002 increased 17% to $6.1
million from $5.2 million for the same period in 2001. The increase in
operating expenses is due primarily to:

20



---



##### 





| |  | an increase in payroll and related expenses primarily attributable to an increase in base compensation, the award of
additional stock based compensation to employees, and an increase in the number of employees;                                                                               
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | an increase in office administration expenses as a result of an increase in staffing requirements;                                                                                                                                                                                               
| 
| |  | an increase in system administration fees for several projects initiated and completed during the first quarter of 2002
related to the expansion of our hardware infrastructure to improve security, reliability and capacity;                                                                   
| 
| |  | an increase in directors and officers insurance due to an increase in market rates;                                                                                                                                                                                                              
| 
| |  | the purchase of errors and omissions insurance which our servicing entity is required to maintain as a condition to
servicing the debt securitization that closed on June 28, 2002;                                                                                                              
| 
| |  | an increase in state income taxes due to the growth in our real estate portfolio during 2001 and 2002. This increase was
more than offset by a $125,000 credit recorded during the third quarter of 2002 relating to the reimbursement of business
and occupancy taxes by certain of our tenants.
| 
| |  | an increase in costs associated with our public reporting requirements due to an increase in the number of shareholders; and                                                                                                                                                                     
| 
| |  | an increase in professional fees for the three months ended September 30, 2002 associated with the servicing of our growing
portfolio.                                                                                                                                                           

Modification of Debt.On June 28, 2002, we issued $325 million in four classes
of Triple Net Lease Mortgage Notes, Series 2002, as further described in
Liquidity and Capital Resources  Mortgage Debt and Revolving Credit
Facilities below. The transaction reflects approximately $152 million of new
debt issued in classes under current market terms and a restructuring of a
securitization completed in 1999 that had a remaining balance of approximately
$173 million. The certificates representing the Modified Debt have economic
terms equivalent to the prior transaction. Because the terms of the Modified
Debt were virtually identical to the original debt, it did not result in a
significant modification of debt for GAAP purposes. Therefore, in accordance
with GAAP, third-party costs totaling $265,000 incurred in connection with the
Modified Debt were expensed. There were no such expenses incurred during the
quarter and nine months ended September 30, 2001.

Interest.Interest expense for the three months ended September 30, 2002
increased 14% to $13.6 million from $11.9 million for the same quarter in 2001.
Interest expense for the nine months ended September 30, 2002 was $35.1
million, consistent with the same period in 2001. Since September 30, 2001,
our overall debt increased from $666.8 million ($324.1 million fixed rate debt
and $342.7 million variable rate debt) to $972.9 million ($520.2 million fixed
rate debt and $452.7 million variable rate debt) as of September 30, 2002,
which debt was primarily obtained to directly or indirectly finance acquisition
of properties during that time period.

Although our overall debt has increased since September 30, 2001, our interest
expense did not increase proportionately due to the mix of variable rate debt
to total debt and the reduction of interest rates during that same time period.
The effective interest rate on our debt, which includes deferred loan fees
amortized over the life of the loans, decreased from 7.27% in the third quarter
of 2001 to 6.37% in the third quarter of 2002 and from 7.72% during the nine
months ended September 30, 2001 to 6.41% during the nine months ended September
30, 2002. The decreases were partially offset by: (1) the conversion of

21



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$58.3 million of variable rate debt to fixed rate debt during the first quarter
of 2002 through the execution of interest rate swap arrangements with a third
party. The interest rate swap arrangements were executed in conjunction with
our conversion of the leases on approximately $71.2 million of properties
leased to a tenant from variable rate to fixed rate, as described above; and
(2) the issuance of approximately $152 million of fixed rate debt on June 28,
2002, of which a portion was used to pay down borrowings outstanding on our
short-term credit facilities as noted in Liquidity and Capital Resources -
Mortgage Debt and Revolving Credit Facilities below.

Discontinued Operations. Beginning in 2002, SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, requires that gains and losses
from dispositions of properties and all operating earnings from these
properties be reported as discontinued operations. This also requires that
all past earnings applicable to a property disposed of subsequent to January 1,
2002 be reported as discontinued operations. As a result, previously
reported income from continuing operations will be updated each time a
property is sold. This requirement is for presentation only and has no impact
on net income. During the three months ended September 30, 2002, we sold three
properties and received net proceeds of $7.5 million resulting in a combined
gain of $291,000. The gain on the disposition of these properties and the
earnings generated from these properties have been reported as discontinued
operations in accordance with SFAS No. 144 and are presented net of minority
interest. Total discontinued operations for the three months ended September
30, 2002 and 2001 was $238,000 and $42,000, respectively, and for the nine
months ended September 30, 2002 and 2001 was $332,000 and $102,000,
respectively.

Extraordinary Item  Extinguishment of Debt.During the third
quarter of 2001, we amended $150.0 million of fixed rate debt due September 29,
2011 to variable rate debt. The debt was amended in conjunction with the
conversion of leases relating to $185.3 million of property from fixed rate to
variable rate as discussed above. The conversion of the interest rate on the
debt from fixed to variable resulted in a significant modification of the debt.
In accordance with GAAP, we wrote off the remaining deferred loan fees
relating to the debt and classified the write-off as an extraordinary item on
the statement of operations. The extraordinary item totaled $526,000, or $0.02
per basic and diluted share.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents were $16.6 million and $1.5 million at September 30,
2002 and September 30, 2001, respectively. The changes in cash and cash
equivalents during the nine months ended September 30, 2002 and 2001 were
attributable to operating, investing and financing activities, as described
below.

Operating Activities
Cash provided by operating activities for the nine months ended September 30,
2002 and 2001 was $47.2 million and $46.2 million, respectively, and
represents, in each year, 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 nine months ended September 30, 2002
and 2001 was $272.9 million and $163.4 million, respectively, and primarily
reflects the acquisition of dealership properties, facility improvements and
construction financings, net of sales, during those periods.

Financing Activities
Cash provided by financing activities for the nine months ended September 30,
2002 and 2001 was $232.8 million and $112.4 million, respectively. Cash
provided by financing activities for the nine months ended September 30, 2002
primarily reflects:

22



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| |  | $251.7 million of proceeds received from borrowings on our revolving credit facilities;
|- |  | ---------------------------------------------------------------------------------------
| 
| |  | $205.4 million of proceeds received from mortgage debt incurred during the period; and 
| 
| |  | $17.1 million of proceeds received from the issuance of common shares, net of costs.   

The cash provided by financing activities was partially offset by:



| |  | the repayment of borrowings on our revolving credit facilities totaling $169.2 million;                                                                                                                                    
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | distributions made to shareholders and minority partners during the
period totaling $42.3 million;                                                                                                                         
| 
| |  | payments of principal on outstanding mortgage debt totaling $16.1 million;                                                                                                                                                 
| 
| |  | payments for debt issuance costs totaling $7.3 million;                                                                                                                                                                    
| 
| |  | payments made during the first quarter of 2002 totaling $6.0
million and $293,000 to purchase outstanding warrants to purchase
common shares during the fourth quarter of 2001 and first quarter of
2002, respectively; and
| 
| |  | the redemption of Units totaling $153,000.                                                                                                                                                                                 

Cash provided by financing activities for the nine months ended September 30,
2001 primarily reflects:



| |  | $121.2 million of proceeds received from borrowings on our revolving credit facilities;
|- |  | ---------------------------------------------------------------------------------------
| 
| |  | $83.3 million of proceeds received from mortgage debt incurred during the period;      
| 
| |  | $61.3 million of proceeds received from our follow-on offering, net of costs; and      
| 
| |  | $6.7 million of proceeds received from the issuance of common shares, net of costs.    

The cash provided by financing activities was partially offset by:



| |  | the repayment of borrowings on our revolving credit facilities totaling $113.7 million;           
|- |  | --------------------------------------------------------------------------------------------------
| 
| |  | distributions made to shareholders and minority partners during the
period totaling $36.3 million;
| 
| |  | payments of principal on outstanding mortgage debt totaling $9.7 million;                         
| 
| |  | payments for debt issuance costs totaling $205,000; and                                           
| 
| |  | the repurchase of common shares pursuant to our common share
repurchase program totaling $142,000.

23



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Financing Strategy

To minimize interest rate risk, we typically match the average term of our
long-term debt with the average term of our leases as well as the type of debt
with the type of leases (fixed or variable) in order to maintain an investment
spread over the lease term. We describe this process as match-funding. We
currently intend to match-fund at least 70% of our total outstanding long-term
debt with long-term leases. We may change the 70% guideline at any time without
shareholder approval. As of September 30, 2002, approximately 79% of our debt
outstanding (including $79.8 million of variable rate debt that became fixed
rate debt effective November 1, 2002 under an interest rate swap arrangement)
was substantially match-funded, non-recourse debt. As of September 30, 2002,
our long-term debt had a weighted average remaining term of 11.0 years, and our
leases had a weighted average remaining term of 11.7 years.

In light of our current financial position, we believe that we will be able to
obtain additional financing for our short-term and long-term liquidity
requirements without exceeding our current debt to asset ratio policy as
described below. We have used and may continue to use interest rate swap
arrangements to minimize interest rate risk and to match-fund our long-term
debt with our long-term leases. However, there can be no assurance that
additional financing or capital will be available, or that the terms will be
acceptable or advantageous to us.

Variable Rate Lease Program

We may offer our current and prospective tenants the option of utilizing our
variable rate lease program. Under this program, base rent changes monthly
based upon a spread over an applicable index, typically LIBOR. In addition,
the monthly base rent is typically adjusted upward periodically, usually based
on a factor of the change in the CPI. As of September 30, 2002, approximately
$367.0 million of our more than $1.5 billion real estate portfolio, or 24%, was
subject to variable rate leases. The vast majority of our variable rate lease
agreements contain minimum lease rates and fixed rate conversion features, and
none of these leases contains a maximum rate. Upon conversion, the fixed base
rent typically continues to be adjusted upward periodically based on a factor
of the change in the CPI or other escalation provisions set forth in the lease.

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

Mortgage Debt and Revolving Credit Facilities

As of September 30, 2002, we had total debt outstanding of $972.9 million. Of
this debt, approximately $826.9 million (consisting of $520.2 million of fixed
rate and $306.7 million of variable rate debt) was mortgage debt secured by
approximately 245 of our properties. In addition, we had $146.0 million
outstanding on our revolving credit facilities.

24



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##### 



The following is a summary of our total debt outstanding as of September 30,
2002 and December 31, 2001 (dollars in thousands):

|                                                     |                                   |        |          |      |                     |      |                    |         |           |          |              |         |  |  |      |      |   |                   |    |   | 
|---------------------------------------------------- | --------------------------------- | ------ | -------- | ---- | ------------------- | ---- | ------------------ | ------- | --------- | -------- | ------------ | ------- |  |  | ---- | ---- | - | ----------------- | -- | - | 
|                                                     |                                   |        | Original |      | Principal Balance   |      | Principal Balance  |         | Effective |          | Term/       
|                                                     |                                   |        | Debt     |      | as of September 30, |      | as of December 31, |         | Interest  |          | Amortization
|Description of Debt                                  |                                   | Issued |          | 2002 |                     | 2001 |                    | Rate*   |           | Schedule
|                                                     |                                   |        |          |      |                     |      |                    |         |           |          |              |         |  |  |      |      |   |                   |    |  
|7.59% fixed rate debt due 12/1/08                    |                                   | $      | 38,050   |      |                     | $    | 34,911             |         |           | $        | 35,886       |         |  |  | 7.94 | %    |   | 10 yr/17 yr      
|7.635% fixed rate debt due 10/1/14 (1)               |                                   |        | 111,950  |      |                     |      |                   |         |           |          | 98,891       |         |  |  |      |      |   |                   |    |  
|8.05% fixed rate debt due 10/1/14 (1)                |                                   |        | 85,000   |      |                     |      |                   |         |           |          | 78,319       |         |  |  |      |      |   |                   |    |  
|Triple Net Lease Mortgage Notes, Series 2002 (1)     |                                   |        | 325,000  |      |                     |      | 322,044            |         |           |          |             |         |  |  | 7.70 | %    |   |                   | (1 | )
|7.54% fixed rate debt due 7/6/11                     |                                   |        | 100,000  |      |                     |      | 95,259             |         |           |          | 96,132       |         |  |  | 7.71 | %    |   | 12 yr/25 yr      
|7.565% fixed rate debt due 11/12/12 (2)              |                                   |        | 28,500   |      |                     |      | 26,790             |         |           |          |             |         |  |  | 7.67 | %    |   | 12 yr/25 yr      
|7.5975% fixed rate debt due 12/18/12 (2)             |                                   |        | 32,054   |      |                     |      | 30,349             |         |           |          |             |         |  |  | 7.63 | %    |   | 12 yr/30 yr      
|7.50% fixed rate debt due 1/20/03                    |                                   |        | 12,000   |      |                     |      | 10,886             |         |           |          | 11,108       |         |  |  | 7.76 | %    |   | 4.25 yr/20 yr    
|                                                     |                                   |        |          |      |                     |      |                    |         |           |          |              |         |  |  |      |      |   |                   |    |  
|Total Mortgage Fixed Rate Debt                       |                                   |        |          |      |                     | $    | 520,239            |         |           | $        | 320,336      |         |  |  | 7.71 | %    |   |                   |    |  
|                                                     |                                   |        |          |      |                     |      |                    |         |           |          |              |         |  |  |      |      |   |                   |    |  
|Variable rate debt due 9/29/11 (3)                   |                                   | $      | 150,000  |      |                     | $    | 145,852            |         |           |          | 149,419      |         |  |  | 4.10 | %    |   | 12 yr/25 yr      
|Variable rate debt due 8/10/13 (4)                   |                                   |        | 82,600   |      |                     |      | 79,847             |         |           |          | 81,223       |         |  |  | 3.64 | %    |   | 12 yr/30 yr      
|Variable rate debt swapped to fixed rate debt (2)    |                                   |        | 60,554   |      |                     |      |                   |         |           |          | 58,278       |         |  |  |      |      |   |                   |    |  
|Various variable rate debt (5)                       |                                   |        | 83,550   |      |                     |      | 81,010             |         |           |          | 28,400       |         |  |  | 4.90 | %    |   | 10 to 11 yr/25 yr
|                                                     |                                   |        |          |      |                     |      |                    |         |           |          |              |         |  |  |      |      |   |                   |    |  
|                                                     | Total Mortgage Variable Rate Debt |        |          |      |                     |      | $                  | 306,709 |           |          | $            | 317,320 |  |  |      | 4.19 | % |                   |    |   | 
|                                                     |                                   |        |          |      |                     |      |                    |         |           |          |              |         |  |  |      |      |   |                   |    |  
|TOTAL MORTGAGE DEBT                                  |                                   |        |          |      |                     | $    | 826,948            |         |           | $        | 637,656      |         |  |  | 6.41 | %    |   |                   |    |  
|                                                     |                                   |        |          |      |                     |      |                    |         |           |          |              |         |  |  |      |      |   |                   |    |  
|$50 million revolving partially secured facility
(6) |                                   |        |          |      |                     |      |                   |         |           |          | 17,400       |         |  |  |      |      |   |                   |    |  
|$60 million revolving unsecured facility (7)         |                                   |        |          |      |                     |      | 46,000             |         |           |          |             |         |  |  | 5.06 | %    |   | 3 yr             
|$100 million revolving secured facility (8)          |                                   |        |          |      |                     |      | 100,000            |         |           |          | 46,108       |         |  |  | 4.98 | %    |   | 1 yr             
|                                                     |                                   |        |          |      |                     |      |                    |         |           |          |              |         |  |  |      |      |   |                   |    |  
|TOTAL CREDIT FACILITIES                              |                                   |        |          |      |                     | $    | 146,000            |         |           | $        | 63,508       |         |  |  | 4.99 | %    |   |                   |    |  
|                                                     |                                   |        |          |      |                     |      |                    |         |           |          |              |         |  |  |      |      |   |                   |    |  
|                                                     |                                   |        |          |      |                     |      |                    |         |           |          |              |         |  |  |      |      |   |                   |    |  
|TOTAL DEBT OUTSTANDING                               |                                   |        |          |      |                     | $    | 972,948            |         |           | $        | 701,164      |         |  |  | 6.37 | %    |   |                   |    |  
|                                                     |                                   |        |          |      |                     |      |                    |         |           |          |              |         |  |  |      |      |   |                   |    |  



| | *   |  | For the quarter ended September 30, 2002. Includes deferred loan
fees amortized over the life of the loans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (1) |  | On June 28, 2002, we issued $325 million in four classes of Triple
Net Lease Mortgage Notes, Series 2002 (the Notes). The transaction
reflects approximately $152 million of new debt issued in classes under
current market terms (the New Notes) and a restructuring of a
securitization completed in 1999, that had a remaining balance of
approximately $173 million (the Modified Debt). The certificates
representing the Modified Debt have economic terms equivalent to the
prior transaction. The Notes are collateralized by 94 properties,
subject to long-term, triple-net leases, with a net book value of $430.5
million and an appraised value of $462.4 million as of the closing date.
The New Notes have a weighted average effective interest rate
(including deferred fees amortized over the life of the New Notes) of
approximately 7.0% and are fully-amortizing over 20 years. The Notes
are fully-amortizing and have terms ranging from 12 to 20 years, with a
weighted average term of 14.2 years. The Notes have a weighted average
effective interest rate (including deferred fees amortized over the life
of the Notes) of approximately 7.7%. The net proceeds from the issuance
of the New Notes were used to pay down our short-term credit facilities
and to fund acquisitions. CARS Loan Servicer L.L.C., one of our
subsidiaries, is servicer of the Notes on behalf of the noteholders.

25



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##### 





| | (2) |  | These loans bear interest equal to the 30-day LIBOR rate plus 215
basis points and require quarterly interest and level principal
payments until maturity. During the first quarter of 2002, we entered
into interest rate swap arrangements with a third party on these loans
to fix the interest rate. The new blended rate on the debt is
approximately 7.58%.                                                                                                                                                                                                                                                                                                                                                                                        
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (3) |  | This loan was converted from fixed rate to variable rate during the
third quarter of 2001. Following the conversion, the loan bears
interest equal to the 30-day LIBOR rate plus 227 basis points and
requires monthly level payments of principal and interest until
maturity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (4) |  | This loan bears interest equal to the 30-day LIBOR rate plus 175
basis points and requires quarterly interest and level principal
payments until maturity. On November 1, 2002, pursuant to an agreement
with a third party, the variable rate swapped to a 7.50% fixed rate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (5) |  | These loans bear interest at variable rates ranging from 200 to 357
basis points above the A1-P1 Commercial Paper Rate or the 30-day LIBOR
rate and have maturity dates ranging from December 22, 2009 to May 1,
2012. The terms of the various loans require either quarterly interest
and level principal payments or monthly level payments of principal and
interest until maturity.                                                                                                                                                                                                                                                                                                                                                                 
| | (6) |  | The facility matured on March 3, 2002 and was extended until the end
of the second quarter at which time it was replaced by the new unsecured
revolving credit facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (7) |  | At the end of the first quarter of 2002, we closed on this $60
million unsecured revolving credit facility. The facility replaced the
existing $50 million secured revolving credit facility at the end of the
second quarter of 2002. The facility provides for a three-year term
with interest equal to either the Prime rate less 50 basis points or the
1-month, 2-month or 3-month LIBOR rate plus 200 basis points and
requires the repayment of borrowings within 180 days. As of September
30, 2002, the borrowings under the facility bear interest equal to the
Prime rate less 50 basis points. These borrowings were subsequently
converted to bear interest equal to the 3-month LIBOR rate plus 200
basis points effective October 2, 2002.
| | (8) |  | Amounts borrowed under this facility bear interest at market rates
determined at the time of each draw until such time as we and the lender
set an interest rate for any future amounts borrowed under the facility.
As of September 30, 2002, the borrowings under the facility bear
interest equal to the 30-day LIBOR rate plus 300 basis points. The
facility requires the repayment of principal within 150 days. The
facility has a one-year term, which terminates on March 21, 2003, and is
renewable annually.                                                                                                                                                                                                                                  

For the quarter ended September 30, 2002, our interest coverage and debt
service coverage ratios were 2.5 and 1.7, respectively. For the trailing 12
months, our interest coverage and debt service coverage ratios were 2.7 and
1.8, respectively. As of September 30, 2002, we were in compliance with all of
the loan covenants related to our mortgage debt and credit facilities.

$325 Million Debt Securitization

As noted in footnote (1) of the debt table herein, we modified approximately
$173 million of debt during the second quarter. Because the terms of the
Modified Debt were virtually identical to the original debt, the modification
did not result in a significant modification of debt under GAAP. Therefore, in
accordance with GAAP: (1) the unamortized issuance costs related to the
original debt of $3.9 million, plus $2.3 million of costs related to the
Modified Debt that was paid to the lender and capitalized, will be amortized
over the remaining term of the Modified Debt using the effective interest
method; and (2) third-party costs totaling $265,000 incurred in connection with
the Modified Debt were expensed. In addition, we incurred approximately $6.3
million in debt issuance costs associated with the issuance of the New Notes,
which, in accordance with GAAP, were capitalized and will be amortized over the
term of the New Notes using the effective interest method.

26



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Bridge Loan

In October 2002, we issued approximately $80.9 million in debt pursuant to a
bridge loan. The bridge loan has a six-month term and bears interest equal to
the 30-day LIBOR rate plus 300 basis points and is convertible into a five-year
term note at our discretion. The bridge loan is secured by one property,
subject to a long-term, triple-net lease. The net proceeds of the loan were
used to pay down borrowings outstanding on our short-term credit facilities.

Interest Rate Swaps

In June 1998, the FASB issued 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. We adopted SFAS No. 133
on January 1, 2001. There was no impact to our financial statements at the
time of adoption.

During the third quarter of 2001, we borrowed $82.6 million of long-term
variable rate debt drawn under a $150 million commitment for secured financing
from Toyota Financial Services. The terms of the debt provide for a 12-year
term with interest at a spread over the one-month LIBOR rate. On November 1,
2002, pursuant to an agreement with a third party, the variable rate swapped to
a 7.50% fixed rate.

During the first quarter of 2002, we converted the leases on approximately
$71.2 million of properties leased to a tenant from variable rate to fixed
rate. At the same time, we entered into interest rate swap arrangements with a
third party to fix the interest rate on the debt secured primarily by such
properties totaling approximately $58.3 million.

Fixing the rate on $140.9 million of debt with interest rate swap arrangements,
continues our strategy of minimizing interest rate risk by substantially
match-funding our debt with leases in order to lock in our investment spread
over the initial lease term.

These swaps were designed to mirror the underlying variable rate debt in terms
of index, spread, reset, amortization, compounding and maturity. Due to the
identical nature of the terms of the swap arrangements and the underlying terms
of the debt, we determined that these derivative instruments are highly
effective. Consequently, in accordance with GAAP, the unrealized gain or loss
upon measuring the swaps at their fair value is recorded as a component of
accumulated other comprehensive income (loss) within shareholders equity on
our consolidated balance sheets. The fair value of the swaps is recorded as
either a derivative instrument asset or a derivative instrument liability on
our consolidated balance sheets. As of September 30, 2002, we had an
unrealized loss on the swaps of approximately $16.2 million, which is included
in other liabilities and accumulated other comprehensive income (loss) within
our consolidated balance sheets.

Liquidity Requirements

Short-term liquidity requirements consist primarily of normal recurring
operating expenses and capital

27



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##### 



expenditures, regular debt service requirements (including debt service
relating to additional and replacement debt), distributions to shareholders and
holders of Units (Unitholders), and amounts required for additional property
acquisitions, facility improvement and expansion fundings and construction
financings. We expect to meet these requirements (other than amounts required
for additional property acquisitions, facility improvement and expansion
fundings and construction financings) through cash provided from operations and
our existing revolving credit facilities. In addition, our short-term
liquidity requirements also include the repayment of debt totaling
approximately $91.7 million, which includes: (1) $10.8 million principal
payment due at maturity on our mortgage debt; and (2) $80.9 million repayment
of our outstanding bridge loan (both discussed in Mortgage Debt and Revolving
Credit Facilitiesabove). We anticipate repayment of this short-term debt as
well as our existing revolving credit facilities with the net proceeds received
from future long-term secured debt as described below. We anticipate that any
additional acquisitions of properties, facility improvement and expansion
fundings and construction financings during the next 12 months will be funded
with amounts available under our existing long-term debt commitments, future
long-term secured and unsecured debt and the issuance of common or preferred
equity or Units, each of which may be initially funded with our existing
revolving credit facilities. Acquisitions of properties, facility improvement
and expansion fundings and construction financings will be made subject to our
investment objectives and policies with the intention of maximizing both
current and long-term growth and income.

As of September 30, 2002, long-term liquidity requirements consisted primarily
of maturities under our long-term debt. We anticipate that long-term liquidity
requirements will also include amounts required for acquisitions of properties,
facility improvement and expansion fundings and construction financings. We
expect to meet long-term liquidity requirements through long-term secured and
unsecured borrowings and other debt and equity financing alternatives.

The availability and terms of any financing will depend upon market and other
conditions.

Aggregate annual principal maturities (which includes principal amortization)
of mortgage debt as of September 30, 2002 are as follows (in thousands):

|                                |  |   |         | 
|------------------------------- |  | - | ------- | 
|For the Year Ended December 31, |  |   |         | 
|2002                            |  | $ | 7,668   | 
|2003                            |  |   | 38,178  | 
|2004                            |  |   | 27,916  | 
|2005                            |  |   | 29,611  | 
|2006                            |  |   | 31,338  | 
|Thereafter                      |  |   | 692,237 | 
|                                |  |   |         | 
|Total                           |  | $ | 826,948 | 
|                                |  |   |         | 

During the second quarter of 2001, we received a commitment for $150.0 million
of secured long-term variable rate financing from Toyota Financial Services.
The commitment can be drawn down in multiple fundings under one or more debt
instruments, and each funding is subject to customary conditions precedent and
the lenders satisfaction with the loan documentation. The terms of the
commitment provide for a 12-year term with interest at a spread over the
one-month LIBOR rate. As of September 30, 2002, we had $67.4 million available
under this commitment.

We have adopted a policy to limit debt to approximately 65% of our assets
(calculated as total assets plus accumulated depreciation). This policy may be
changed by our Board of Trustees at any time without shareholder approval. As
of September 30, 2002, our debt to assets ratio was approximately 61.5% and our
debt to total market capitalization was approximately 51.6%. As of September
30, 2002, total long-

28



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term, non-recourse mortgage debt was $826.9 million and total borrowings
outstanding under our short-term credit facilities were $146 million. In
October 2002, approximately $80.7 million of the borrowings outstanding on our
short-term credit facilities were paid down using proceeds received from a
bridge loan, resulting in availability under our credit facilities of
approximately $94.7 million. The bridge loan has a six-month term and bears
interest equal to the 30-day LIBOR rate plus 300 basis points and is
convertible into a five-year term note at our discretion. The bridge loan is
secured by one property, subject to a long-term, triple-net lease. We
anticipate completing long-term debt financing in the first quarter of 2003.
We plan to use the net proceeds received to pay down our revolving credit
facilities and our bridge loan and to utilize the remaining net proceeds to
fund future acquisitions and corporate obligations.

Common Share Repurchase Program

During 1998, we announced that our Board of Trustees had authorized the
repurchase of up to 6.0 million common shares. Purchases have been and will be
made from time to time in open market transactions at prevailing prices or in
negotiated private transactions at the discretion of management. During the
three months and nine months ended September 30, 2002, no common shares were
repurchased. From the inception of the common share repurchase program through
September 30, 2002, a total of 4,094,700 common shares have been repurchased at
an average price of $10.62 per common share. In conjunction with the common
share repurchases, the Partnership redeemed an equivalent number of Units from
the Company for equivalent purchase prices.

Dividend Reinvestment and Share Purchase Plan

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

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

Common shares may be purchased directly from us or in open market or privately
negotiated transactions, as we determine from time to time, to fulfill the
requirements for the DRIP. For the three months ended September 30, 2002, we
issued approximately 8,100 common shares under the DRIP and received
approximately $198,000 in net proceeds. For the nine months ended September
30, 2002, we issued approximately 18,500 common shares under the DRIP and
received approximately $425,000 in net proceeds.

Purchase of Warrants Outstanding to Purchase Common Shares

During the fourth quarter of 2001, we completed the purchase of outstanding
warrants to purchase approximately 2.8 million common shares for $3.90 per
warrant. The aggregate purchase price for the warrants was approximately $10.8
million, of which $4.7 million was paid in 2001 and the remainder was

29



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paid in January 2002, and was funded with debt and cash on hand. During the
first quarter of 2002, we completed the purchase of outstanding warrants to
purchase 50,000 common shares for $5.85 per warrant, which was funded with cash
on hand. The purchase price for all warrants was based on the time remaining
prior to exercise and the intrinsic value (meaning the difference between the
fair market value of the common shares and the exercise price of the warrants)
of the outstanding warrants at the time of the offer to purchase. The exercise
price per share for the common shares underlying the warrants was $15.00 and
substantially all warrants would have expired in February 2003. The purchase
of the warrants is considered a retirement of an equity instrument for GAAP
purposes and therefore recorded as a charge to shareholders equity. As of
September 30, 2002, we had warrants outstanding to acquire a total of 30,000
common shares, at an exercise price of $15.00 per share with expiration dates
ending no later than February 2003.

FUNDS FROM OPERATIONS

Prior to 2002, Funds From Operations (FFO) was 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 and
extraordinary item (computed in accordance with GAAP) 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. In April 2002, NAREIT revised its FFO
definition as income (loss) from continuing operations before minority interest
and extraordinary item (computed in accordance with GAAP) plus income from
discontinued operations (including minority interest) and depreciation and
amortization of assets unique to the real estate industry, and after
adjustments for unconsolidated partnerships and joint ventures. Adjusted FFO
(AFFO) is FFO less straight-lined rents.

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 GAAP
(which, unlike FFO, generally reflects all cash effects of transactions and
other events in the determination of net income) and should not be considered
an alternative to net income as an indication of our performance or to cash
flow as a measure of liquidity or ability to make distributions. We consider
FFO and AFFO meaningful, additional measures of operating performance because
they primarily exclude the assumption that the value of the real estate assets
diminishes predictably over time, and because industry analysts have accepted
them as performance measures. Comparison of our presentation of FFO, using the
NAREIT definition, and AFFO, 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.

30



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##### 



FFO and AFFO for the three months and nine months ended September 30, 2002 and
2001 is computed as follows (in thousands):

|                                                                                                        |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ----------------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                        |  | Three Months Ended |        | Nine Months Ended
|                                                                                                        |  | September 30,      |        | September 30,    
|                                                                                                        |  |                    |        |                  
|                                                                                                        |  | 2002               |        | 2001              |  | 2002 |        | 2001
|                                                                                                        |  |                    |        |                   |  |      |        |     
|Income from continuing operations before
minority interest and extraordinary item                       |  | $                  | 13,979 |                   |  | $    | 11,000 |      |  | $ | 42,396 |   |  | $ | 30,302 |  
|Real estate depreciation and amortization                                                               |  |                    | 6,777  |                   |  |      | 5,461  |      |  |   | 18,992 |   |  |   | 15,581 |  
|Income from discontinued operations, net
of minority interest                                           |  |                    | 16     |                   |  |      | 42     |      |  |   | 110    |   |  |   | 102    |  
|Minority interest related to income from
discontinued operations                                        |  |                    | 5      |                   |  |      | 14     |      |  |   | 34     |   |  |   | 38     |  
|Gain on sale of real estate                                                                             |  |                    |       |                   |  |      | (125   | )    |  |   |       |   |  |   | (125   | )
|                                                                                                        |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        |  
|FFO                                                                                                     |  |                    | 20,777 |                   |  |      | 16,392 |      |  |   | 61,532 |   |  |   | 45,898 |  
|Less: straight-lined rents                                                                              |  |                    | (1,157 | )                 |  |      | (810   | )    |  |   | (3,875 | ) |  |   | (2,447 | )
|                                                                                                        |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        |  
|AFFO                                                                                                    |  | $                  | 19,620 |                   |  | $    | 15,582 |      |  | $ | 57,657 |   |  | $ | 43,451 |  
|                                                                                                        |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        |  
|Weighted average number of common shares
and units used to compute basic FFO and
AFFO per share         |  |                    | 36,526 |                   |  |      | 32,433 |      |  |   | 35,774 |   |  |   | 30,847 |  
|                                                                                                        |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        |  
|Weighted average number of common shares
and units used to compute fully diluted
FFO and AFFO per share |  |                    | 37,565 |                   |  |      | 33,763 |      |  |   | 36,937 |   |  |   | 31,714 |  
|                                                                                                        |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        |  

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. In general, our
policy of substantially match-funding at least 70% of our long-term debt with
long-term leases reduces our exposure to interest rate fluctuations. We have
used and may continue to use interest rate swap arrangements to minimize
interest rate risk and to match-fund our long-term debt with our long-term
leases. We do not enter into interest rate swap arrangements for trading
purposes.

During the nine months ended September 30, 2002, our fixed rate debt increased
from $320.3 million at December 31, 2001 to $520.2 million as of September 30,
2002. Interest rate fluctuations may affect the fair value of our fixed rate
debt instruments. If interest rates on our fixed rate debt instruments at
September 30, 2002 had been 1% higher or lower, the fair value of those debt
instruments on that date would have decreased or increased, respectively, by
approximately $32 million.

During the nine months ended September 30, 2002, our variable rate debt
increased from $380.8 million

31



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as of December 31, 2001 to $452.7 million (including the $79.8 million of
variable rate debt that will become fixed rate debt effective November 1, 2002
under an interest rate swap arrangement) as of September 30, 2002. In
addition, our real estate investments which are leased by tenants utilizing our
variable lease rate program increased from $314.2 million as of December 31,
2001 to $367.0 million as of September 30, 2002.

Interest rate fluctuations may affect our annual interest expense on our
variable rate debt. If interest rates on our variable rate debt instruments
outstanding at September 30, 2002 had been 1% higher or lower, our annual
interest expense relating to those debt instruments would have increased or
decreased, respectively, by approximately $4.5 million, based on balances at
September 30, 2002. The impact on net income as a result of an increase or
decrease in interest rates by 1% is partially reduced by (1) the conversion of
the $79.8 million of variable rate debt that will become fixed rate debt
effective November 1, 2002, as noted above; and (2) the structure of our
variable rate leases. Interest rate fluctuations may affect our annual rental
revenue on our variable rate leases, because the lease rates on the base rents
on our variable rate leases are based on a spread over an applicable index,
typically LIBOR. As of September 30, 2002 under the vast majority of our
variable rate lease agreements, the minimum lease rates, ranging from 8.0% to
9.4%, were in effect. These minimum lease rates are designed to ensure minimum
rental revenues if interest rates decline. If the underlying index on our
variable rate lease agreements outstanding at September 30, 2002 had been 1%
higher or lower, our annual rental revenue relating to those lease agreements
would have increased by approximately $1.0 million or decreased by
approximately $400,000, respectively. Assuming the underlying index increased
or decreased to a level where none of our minimum lease rates were triggered, a
1% increase or decrease in the underlying index would increase or decrease our
rental revenue by approximately $3.7 million.

ITEM IV. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that
information, required to be disclosed in our reports filed under the Exchange
Act, is recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms, and that such information is
accumulated and communicated to our management, including our President and
Chief Executive Officer and our Senior Vice President and Chief Financial
Officer, as appropriate, to allow timely decisions regarding the required
disclosure based closely on the definition of disclosure controls and
procedures in Rule 13a-14(c) promulgated under the Exchange Act. In designing
and evaluating the disclosure controls and procedures, management recognized
that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives,
and management necessarily was required to apply judgment in evaluating the
cost-benefit relationship of possible controls and procedures.

Within 90 days prior to the date of this report, we carried out an evaluation,
under the supervision and with the participation of our management, including
our President and Chief Executive Officer and our Senior Vice President and
Chief Financial Officer, of the effectiveness of the design and operation of
our disclosure controls and procedures. Based on the foregoing, our President
and Chief Executive Officer and our Senior Vice President and Chief Financial
Officer concluded that our disclosure controls and procedures were effective.

There have been no significant changes in our internal controls or in other
factors that could significantly affect the internal controls subsequent to the
date we completed our evaluation.

32



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CAPITAL AUTOMOTIVE REIT
PART II-OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable.

Item 2. Changes in Securities

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submission of Matters to Vote of Security Holders

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits:



|99.7 |  | First Amendment to Revolving Credit Agreement dated as of May 1, 2002
among Comerica Bank, as Agent for the Lenders and Capital Automotive L.P.,
et al. (filed herewith)                  
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|99.8 |  | Guaranty dated as of March 29, 2002 made by Capital Automotive REIT in
favor of Comerica Bank, as Agent for the Lenders (filed herewith)                                                  
|    
|99.9 |  | First Amendment to Guaranty effective as of September 30, 2002 among
Capital Automotive REIT, Capital Automotive L.P., et al. and Comerica
Bank, as Agent for the Lenders (filed herewith)

(b)  Reports on Form 8-K

None.

33



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##### 



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
Senior Vice President and Chief Financial Officer
(principal financial and accounting officer)

Dated: November 13, 2002

34



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##### 



CERTIFICATION

I, Thomas D. Eckert, certify that:



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



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



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



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



|6. |  | The Companys other certifying officer and I have indicated in this
quarterly report whether or
|-- |  | -----------------------------------------------------------------------------------------------

35



---



##### 





| |  | not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |  |     |  |                                                       
|----------------------- |  | --- |  | ------------------------------------------------------
|Date: November 13, 2002 |  | BY: |  | /s/  Thomas D. Eckert                                 
|                        |  |     |  | Thomas D. Eckert
President and Chief Executive Officer

36



---



##### 



CERTIFICATION

I, David S. Kay, certify that:



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



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



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



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



|6. |  | The Companys other certifying officer and I have indicated in this
quarterly report whether or
|-- |  | -----------------------------------------------------------------------------------------------

37



---



##### 





| |  | not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|      |  |                   |  |     |  |                                                               
|----- |  | ----------------- |  | --- |  | --------------------------------------------------------------
|Date: |  | November 13, 2002 |  | BY: |  | /s/  David S. Kay                                             
|      |  |                   |  |     |  | David S. Kay
Senior Vice President and Chief Financial Officer

38



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##### 



CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, Thomas D. Eckert, the President and Chief Executive Officer of
Capital Automotive REIT (the Company), has executed this certification in
connection with the filing with the Securities and Exchange Commission of the
Companys Quarterly Report on Form 10-Q for the period ending September 30,
2002 (the Report). The undersigned hereby certifies that:

(1)  the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

(2)  the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

|                        |  |     |  |                                                                             
|----------------------- |  | --- |  | ----------------------------------------------------------------------------
|Date: November 13, 2002 |  | BY: |  | /s/  Thomas D. Eckert
Thomas D. Eckert
President and Chief Executive Officer

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, David S. Kay, the Senior Vice President and Chief Financial
Officer of Capital Automotive REIT (the Company), has executed this
certification in connection with the filing with the Securities and Exchange
Commission of the Companys Quarterly Report on Form 10-Q for the period ending
September 30, 2002 (the Report). The undersigned hereby certifies that:

(1)  the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

(2)  the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

|      |  |                   |  |     |  |                                                               
|----- |  | ----------------- |  | --- |  | --------------------------------------------------------------
|Date: |  | November 13, 2002 |  | BY: |  | /s/  David S. Kay                                             
|      |  |                   |  |     |  | David S. Kay
Senior Vice President and Chief Financial Officer

39