<PAGE>   1


                                    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, 1999

(   )                   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                        OF THE SECURITIES EXCHANGE ACT OF 1934

                        For the transition period from            to         .
                                                       ----------    --------

                        COMMISSION FILE NUMBER 000-23733
                                               ---------

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

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

            1420 Spring Hill Road, Suite 525, McLean, Virginia 22102
             (Address of principal executive offices and zip code)

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



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

Yes   X     No
   -------    -------

Number of common shares of beneficial interest outstanding as of November 10,
1999 was 21,607,415.


<PAGE>   2

                             CAPITAL AUTOMOTIVE REIT
                                    FORM 10-Q
                                      INDEX


<TABLE>
<CAPTION>
                                                                                                                 Page No.
                                                                                                                 --------
<S>                                                                                                           <C>
Part I - Financial Information

              Item 1 - Financial Statements

                  Consolidated Balance Sheets - September 30, 1999 (unaudited) and
                      December 31, 1998.                                                                          3

                  Consolidated Statements of Operations (unaudited) - three months
                      and nine months ended September 30, 1999 and September 30, 1998.                            4

                  Consolidated Statements of Cash Flows (unaudited) - nine months
                      ended September 30, 1999 and September 30, 1998.                                            5

                  Notes to Consolidated Financial Statements (unaudited)                                        6 - 12

              Item 2 - Management's Discussion and Analysis of Financial Condition
                  and Results of Operations                                                                    13 - 22

              Item 3 - Quantitative and Qualitative Disclosures About Market Risk                                 22

Part II - Other Information

              Item 1 - Legal Proceedings                                                                          23

              Item 2 - Changes in Securities                                                                      23

              Item 3 - Defaults Upon Senior Securities                                                            23

              Item 4 - Submission of Matters to Vote to Security Holders                                          23

              Item 5 - Other Information                                                                          23

              Item 6 - Exhibits and Reports on Form 8-K                                                         23 - 24

Signatures                                                                                                        25
</TABLE>


                                       2
<PAGE>   3




                            PART I - FINANCIAL INFORMATION
                            ITEM 1 - FINANCIAL STATEMENTS
                               CAPITAL AUTOMOTIVE REIT
                             CONSOLIDATED BALANCE SHEETS
                          (IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                                          SEPTEMBER 30,       DECEMBER 31,
                                                              1999                1998
                                                           -----------        ------------
                                                           (UNAUDITED)
ASSETS
Real estate:
<S>                                                         <C>                <C>
  Land                                                      $ 387,097          $ 238,970
  Buildings and improvements                                  476,613            272,162
  Accumulated depreciation                                    (17,085)            (6,145)
                                                            ---------          ---------
                                                              846,625            504,987

Cash and cash equivalents                                      49,335             72,106

Other assets, net                                              22,539              6,118
                                                            ---------          ---------
    TOTAL ASSETS                                            $ 918,499          $ 583,211
                                                            =========          =========


LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Mortgage loans                                              $ 493,150          $ 161,997
Accounts payable and accrued expenses                           6,926             14,752
Security deposits payable                                       4,682              3,907
                                                            ---------          ---------
    TOTAL LIABILITIES                                         504,758            180,656
                                                            ---------          ---------

Minority Interest                                             104,345             93,898

SHAREHOLDERS' EQUITY
Preferred shares, $.01 par value; 20,000,000
    shares authorized; none outstanding                             -                  -
Common shares, $.01 par value; 100,000,000 shares
    authorized; 24,792,115 shares issued                          248                248
Additional paid-in-capital                                    345,609            345,905
Accumulated deficit                                            (2,990)            (4,025)
Less treasury shares at cost, 3,184,700 common shares         (33,471)           (33,471)
                                                            ---------          ---------
     TOTAL SHAREHOLDERS' EQUITY                               309,396            308,657
                                                            ---------          ---------

     TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY             $ 918,499          $ 583,211
                                                            =========          =========
</TABLE>


See accompanying notes to consolidated financial statements.

                                       3

<PAGE>   4
                             CAPITAL AUTOMOTIVE REIT
                 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)


<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED              NINE MONTHS ENDED
                                                       SEPTEMBER 30,                   SEPTEMBER 30,
                                                   1999            1998            1999            1998
                                                 --------        --------        --------        --------
<S>                                              <C>             <C>             <C>             <C>
Revenue:
Rental                                           $ 20,183        $  8,425        $ 50,380        $ 15,254
Interest and other                                    574           1,938           1,063           6,975
                                                 --------        --------        --------        --------
    Total revenue                                  20,757          10,363          51,443          22,229
                                                 --------        --------        --------        --------

Expenses:
Depreciation and amortization                       3,497           1,972          11,177           3,311
General and administrative                          1,603           1,630           5,230           3,992
Interest                                            7,401             159          14,400             328
                                                 --------        --------        --------        --------
    Total expenses                                 12,501           3,761          30,807           7,631
                                                 --------        --------        --------        --------

Net income before minority interest                 8,256           6,602          20,636          14,598
Minority interest                                  (2,074)         (1,381)         (5,100)         (2,928)
                                                 --------        --------        --------        --------

Net income                                       $  6,182        $  5,221        $ 15,536        $ 11,670
                                                 ========        ========        ========        ========


Shares of common stock outstanding used to
  compute basic earnings per share                 21,607          24,713          21,607          20,597
                                                 ========        ========        ========        ========

Basic earnings per share                         $   0.29        $   0.21        $   0.72        $   0.57
                                                 ========        ========        ========        ========

Shares of common stock outstanding used to
  compute diluted earnings per share               21,640          24,713          21,626          20,665
                                                 ========        ========        ========        ========

Diluted earnings per share                       $   0.29        $   0.21        $   0.72        $   0.56
                                                 ========        ========        ========        ========
</TABLE>


See accompanying notes to consolidated financial statements.



                                       4
<PAGE>   5


                                CAPITAL AUTOMOTIVE REIT
                    UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                     (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                               NINE MONTHS ENDED SEPT. 30,
                                                                 1999             1998
                                                               ---------        ---------
<S>                                                            <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                     $  15,536        $  11,670
Adjustments to reconcile net income to net cash
  provided by operating activities:
Depreciation and amortization                                     11,592            3,311
Income applicable to minority interest                             5,100            2,928
Increase in other assets                                         (16,892)          (4,717)
Increase in accounts payable and accrued expenses                  1,121            6,886
Increase in security deposits payable                                775            3,702
                                                               ---------        ---------
   Net cash provided by operating activities                      17,232           23,780
                                                               ---------        ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment                                  (68)            (263)
Real estate acquisitions, net of sales                          (342,885)        (317,987)
                                                               ---------        ---------
   Net cash used in investing activities                        (342,953)        (318,250)
                                                               ---------        ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings                                     62,000           13,000
Proceeds from mortgage loans                                     335,000                -
Repayment of bank and other borrowings                           (62,000)          (1,000)
Mortgage principal payments                                       (3,847)               -
Proceeds from issuance of initial public offering of
   common shares and underwriters' over-allotment
   option, net of issuance costs                                       -          317,285
Proceeds from issuance of private placement,
   net of issuance costs                                               -           25,000
Payment of cash dividend                                         (21,416)          (7,091)
Payment of partner distribution                                   (6,658)          (1,654)
Other fees                                                          (129)         (10,957)
                                                               ---------        ---------
   Net cash provided by financing activities                     302,950          334,583
                                                               ---------        ---------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS             (22,771)          40,113

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                  72,106               25
                                                               ---------        ---------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                     $  49,335        $  40,138
                                                               =========        =========


SUPPLEMENTAL DATA:

Real estate acquisitions in exchange for equity issuance       $   9,806        $  95,286
                                                               =========        =========

Interest paid during the period                                $   9,971        $     305
                                                               =========        =========
</TABLE>


See accompanying notes to consolidated financial statements.





                                       5
<PAGE>   6


                             CAPITAL AUTOMOTIVE REIT
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)



1.    ORGANIZATION AND BASIS OF PRESENTATION

Organization

Capital Automotive REIT (the "Company") is a Maryland real estate investment
trust formed in October 1997. The Company owns its property interests and
conducts its operations through Capital Automotive L.P. (the "Operating
Partnership") and its subsidiaries. The Company is the sole general partner of
the Operating Partnership. The Company completed its initial public offering of
common shares and began generating rental income in February 1998. The term
"Capital Automotive Group" refers to the Company and the Operating Partnership
and their subsidiaries. In this Quarterly Report on Form 10-Q, the term
"subsidiary" of the Company or the Operating Partnership means a corporation,
partnership, limited liability company or similar entity if the Company or the
Operating Partnership, alone or together, directly or indirectly, own at least a
majority of the equity interests of the entity. Typically the Operating
Partnership forms a subsidiary limited liability company or limited partnership
to own properties acquired from a given dealership group. This structure is
intended to facilitate financing and transfers involving such properties.

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


Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared
by the Company's management in accordance with generally accepted accounting
principles ("GAAP") for interim financial information and in conformity with the
rules and regulations of the Securities and Exchange Commission. Accordingly,
they do not include all of the information and footnotes required by GAAP for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. The results of operations for the nine months
ended September 30, 1999, are not necessarily indicative of the results that may
be expected for the full year. These financial statements should be read in
conjunction with the Company's audited consolidated financial statements and
footnotes thereto, included in the Company's Annual Report on Form 10-K.


2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements have been prepared in
accordance with GAAP and include the accounts of Capital Automotive Group, net
of minority interest as defined in Note 8 herein.



                                       6
<PAGE>   7

All intercompany balances and transactions 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 based upon estimated market values at the time of acquisition.
Depreciation is computed using the straight-line method over an estimated useful
life of 20 to 30 years for the buildings and improvements.

During the third quarter, Capital Automotive Group reviewed the age and
remaining useful life of each of its properties in its real estate portfolio.
Based on the average age of the portfolio, Capital Automotive Group changed the
depreciable life on the majority of its buildings and improvements that were
currently being depreciated over a 20-year life to a 30-year life in order to
properly reflect the remaining useful lives. The change in depreciable life is
considered a change in an accounting estimate and has been recorded on a
prospective basis beginning in the third quarter of 1999. The impact of this
change added approximately $1.1 million to third quarter 1999 net income.

Cash and Cash Equivalents

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

Income Taxes

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

Rental Revenue Recognition

The Company leases its real estate pursuant to long-term triple-net leases which
typically require the tenants to pay substantially all expenses associated with
the operations of the real estate, including, but not limited to, taxes,
assessments and other government charges, insurance, utilities, service,
repairs, maintenance and other expenses. All leases are accounted for as
operating leases.

During the third quarter of 1999, Capital Automotive Group began, on a
prospective basis, straight-lining its rents for its leases with fixed minimum
escalators.

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.



                                       7
<PAGE>   8


3.     ACQUISITIONS

During the three months ended September 30, 1999, Capital Automotive Group
acquired 63 dealership properties in 13 states, representing 81 automotive
franchises, for a total purchase price, including closing costs, of
approximately $220.7 million. Details of significant acquisitions during the
third quarter of 1999 include:

-     MMR Holdings, L.L.C. and subsidiaries ("MMR")

      During the third quarter of 1999, Capital Automotive Group closed on the
      acquisition of MMR, an affiliate of Sonic Automotive, Inc. ("Sonic"). As a
      result of the acquisition of MMR, Capital Automotive Group acquired 57
      dealership properties valued at approximately $199 million, including
      closing costs, and following the acquisition of MMR, acquired two
      additional properties through MMR for approximately $8 million, including
      closing costs. These 59 properties are located in ten states (Alabama,
      Florida, Georgia, Maryland, North Carolina, Ohio, South Carolina,
      Tennessee, Texas and Virginia) and contain 76 automotive franchises
      including BMW, Chrysler, Ford and Toyota. The properties total
      approximately 1.9 million square feet of buildings and improvements on 354
      acres of land. In connection with the MMR acquisition, Capital Automotive
      Group assumed and amended a $150 million mortgage loan from Ford Motor
      Credit Company (see Note 5 - Mortgage Loans).

      In connection with the MMR acquisition, Capital Automotive Group, through
      MMR, entered into or continued 58 long-term leases of the 59 dealership
      properties. Pursuant to these leases, Capital Automotive Group receives
      rent from affiliates of Sonic (in the case of 49 leases) and six other
      tenants that operate motor vehicle related businesses (in the case of nine
      leases).

      The terms of the leases with Sonic affiliates are identical to each other
      except that the tenant, the amount of the rent and the expiration dates of
      the leases vary. The leases with Sonic affiliates are guaranteed by Sonic,
      and Sonic has agreed to renew leases representing at least 75% of the
      total rental payments due under the Sonic leases for an additional
      five-year term. During the terms of the leases with Sonic affiliates,
      Sonic may substitute replacement properties for leased properties with an
      aggregate original purchase price and allocated costs of up to an
      aggregate of $51 million. Any substituted property must be subject to a
      lease with a Sonic affiliate that is guaranteed by Sonic and have a value
      approximately equal to, but not less than, the purchase price and
      allocated costs of the original property. The substituted property must
      also satisfy the requirements of Ford Motor Credit Company for a
      replacement property.

      The leases of the properties leased to the other six tenants are
      triple-net leases with terms that are similar to those of Capital
      Automotive Group's remaining lease portfolio.

      In connection with the acquisition of MMR, Capital Automotive Group also
      issued a firm commitment to Sonic to purchase up to $75 million in
      additional dealership properties by the end of 1999 in conjunction with
      future acquisitions of dealership operations by Sonic.

-     Four additional dealership properties

      The acquisition of four dealership properties, representing five
      automotive franchises, for an aggregate purchase price of $13.8 million.
      The properties were acquired from various dealer groups including
      Auffenberg Enterprises of Illinois, Inc., two affiliates of Group 1
      Automotive, Inc., and Kelley Automotive Group. Consideration for the
      properties consisted of $1.4 million in



                                       8
<PAGE>   9

      Operating Partnership units ("Units") and the remainder in cash. The
      properties total approximately 133,000 square feet of buildings and
      improvements on 23 acres of land and are located in four states (Illinois,
      Indiana, New Mexico, and Texas). These properties have initial lease terms
      ranging from 14 to 15 years, and have renewal options (ranging from a
      total of 15 years to 25 years). The renewal options are exercisable at the
      option of the tenant.

As of September 30, 1999, Capital Automotive Group had invested a total of
approximately $863.7 million in 216 properties. These properties represent 332
automotive franchises in 26 states and total approximately 7.4 million square
feet of buildings and improvements on 1,228 acres of land. The properties are
leased on long-term, triple-net leases with an average initial lease term of
13.2 years.


4.    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 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, options and warrants. For the three-months and
nine-months ended September 30, 1999, there were 33,000 and 19,000 dilutive
common equivalent shares outstanding, respectively. For the three-months ended
September 30, 1998 there were no dilutive common equivalent shares outstanding
and for the nine-months ended September 30, 1998, there were 68,000 dilutive
common equivalent shares outstanding.


5.    MORTGAGE LOANS

As of September 30, 1999, Capital Automotive Group had mortgage indebtedness
totaling approximately $493.2 million secured by various dealership properties
owned by the Operating Partnership and certain subsidiaries of the Operating
Partnership. The total mortgage debt consisted of the following:

-     A $12 million mortgage note payable to a financial institution and assumed
      by Capital Automotive Group in November 1998 as partial consideration for
      the acquisition of four dealership properties. The note is secured by the
      properties acquired. The mortgage note bears interest at 7.50% per annum
      until maturity (7.75% per annum, including all closing costs). Principal
      and interest are payable monthly. At September 30, 1999, the principal
      amount outstanding was approximately $11.8 million. At maturity on January
      20, 2003, a final payment of approximately $10.8 million will be required.
      There are no financial covenants required under this note; however, there
      are negative covenants relating to customary items such as operation and
      maintenance of the properties securing the note and limitations on issuing
      additional secured debt at the subsidiary level. As of September 30, 1999,
      Capital Automotive Group was in compliance with the loan covenants.

-     A $150 million, non-recourse loan ("Permanent Loan"), evidenced by four
      separate loans and notes, with Global Alliance Finance Company, L.L.C.
      ("GAFCO"), which closed in November 1998. The original terms of the
      Permanent Loan required consecutive monthly payments of interest only for
      two years. Thereafter, monthly payments of principal and interest were
      required in an amount sufficient to amortize the Permanent Loan over a
      25-year term (the "amortization period"). The term of the Permanent Loan
      was ten years and incurred interest at a coupon rate of




                                       9
<PAGE>   10

      7.67% per annum until maturity on December 1, 2008. The Permanent Loan is
      secured by mortgages on the 57 properties financed. The Operating
      Partnership has provided a limited $35 million guaranty of the Permanent
      Loan, which guaranty is contingent upon the occurrence of certain
      circumstances. A majority of the loan proceeds was used to finance
      acquisitions. There are no financial covenants required under the
      Permanent Loan; however, there are negative covenants relating to
      customary items such as operation and maintenance of the properties
      securing the Permanent Loan and limitations on issuing additional secured
      debt at the subsidiary level. As of September 30, 1999, Capital Automotive
      Group was in compliance with the loan covenants.

      During the first quarter of 1999, Capital Automotive Group and GAFCO
      modified the terms of one of the loans (approximately $38.1 million of the
      Permanent Loan) in order to provide GAFCO with more flexibility in
      structuring a commercial mortgage backed security execution. The interest
      rate on this note was reduced to 7.59% per annum (7.98% per annum,
      including all closing costs), the period during which monthly
      interest-only payments were payable were reduced to approximately one year
      and the amortization period was reduced to approximately 17 years. The
      term of the note remained at 10 years. As of September 30, 1999, the
      principal amount outstanding on this portion of the Permanent Loan was
      approximately $38.1 million. At maturity on December 1, 2008, a final
      payment of approximately $24.5 million will be required. There were no
      amendments to the loan covenants.

      During the third quarter of 1999, Capital Automotive Group and German
      American Capital Corporation ("GACC") (as successor-in-interest to GAFCO),
      restructured the remaining three notes (approximately $112 million of the
      Permanent Loan) in order to provide GACC with more flexibility in
      structuring a commercial mortgage backed security execution. The
      restructuring requires monthly principal and interest payments beginning
      on October 1, 1999. In addition, the coupon rate was reduced to 7.635% per
      annum (7.92% per annum, including all closing costs) and the term was
      modified to 15 years, maturing on October 1, 2014, with a 15-year
      amortization period. Also during the third quarter of 1999, Capital
      Automotive Group repaid approximately $3.7 million of the Permanent Loan.
      As of September 30, 1999, the principal amount outstanding on this portion
      of the Permanent Loan was approximately $108.3 million. At maturity a
      final payment of approximately $3.4 million will be required. There were
      no amendments to the loan covenants.

-     An $85 million, non-recourse loan with GACC, which was closed during
      September 1999. The note has a fixed coupon rate of 8.05% per annum (8.32%
      per annum, including all closing costs). The term of the note is 15 years
      with principal amortization based on a 15-year amortization schedule. The
      note requires monthly payments of interest and principal until maturity on
      October 1, 2014. The note is secured by mortgages on approximately 28
      dealership properties owned by certain subsidiaries of the Operating
      Partnership. Proceeds from the note were used to repay existing short-term
      debt, to finance property acquisitions and for general corporate purposes.
      As of September 30, 1999, the principal amount outstanding on this note
      was approximately $85 million. At maturity a final payment of
      approximately $2.9 million will be required. Debt covenants required under
      the note are consistent with the Permanent Loan and as of September 30,
      1999, Capital Automotive Group was in compliance with the loan covenants.
      The $85 million loan and the $108.3 million portion of the Permanent Loan
      are cross-collateralized.

-     A $100 million mortgage loan from Ford Motor Credit Company ("FMCC") which
      was closed during July 1999. The mortgage loan is secured by approximately
      48 dealership properties owned by the Operating Partnership and certain
      subsidiaries of the Operating Partnership. The term of



                                       10
<PAGE>   11

      the financing is 12 years with principal amortization based on a 25-year
      amortization schedule. The loan bears interest at a fixed rate equal to
      7.54% per annum (7.70% per annum, including all closing costs) until
      maturity. Principal and interest are payable quarterly. The majority of
      the proceeds were used to fund property acquisitions, to repay short-term
      borrowings under the Company's revolving credit facility and for general
      corporate purposes. At September 30, 1999, the principal amount
      outstanding was $100 million. This loan will require a final payment of
      approximately $73.3 million at maturity on July 6, 2011. There is one
      financial covenant limiting debt to 65% of assets, as defined in the FMCC
      loan agreement. There are negative covenants relating to customary items
      such as operation and maintenance of the properties securing the loan and
      limitations on issuing additional secured debt at the subsidiary level. As
      of September 30, 1999, Capital Automotive Group was in compliance with the
      loan covenants.

-     A $150 million mortgage note with FMCC, which was assumed and amended by
      Capital Automotive Group in connection with the MMR acquisition. The
      mortgage note is secured by substantially all of the properties acquired
      in connection with the MMR acquisition. The term of the note is 12 years.
      The mortgage note accrued interest from the closing date (August 13, 1999)
      through September 29, 1999 at variable rates ranging from 7.56% to 7.76%.
      Beginning September 30, 1999, the loan bears interest at a fixed rate
      equal to 8.03% per annum (8.07% per annum, including all closing costs)
      until maturity. The terms of the loan require quarterly interest-only
      payments for two years. Thereafter, payments of principal and interest
      will be made quarterly in an amount sufficient to amortize the loan over a
      25-year period. At September 30, 1999, the principal amount outstanding
      was $150 million. A final payment of approximately $124.6 million will be
      required at maturity on September 29, 2011. Debt covenants required under
      the note are consistent with the $100 million mortgage loan with FMCC. As
      of September 30, 1999, Capital Automotive Group was in compliance with the
      loan covenants.

During August of 1999, Capital Automotive Group closed on a $55 million bridge
loan with a financial institution to partially fund the MMR acquisition. The
bridge loan was repaid with the proceeds of the $85 million loan from GACC
during the third quarter of 1999. The bridge loan required monthly interest-only
payments, at a rate equal to the one month LIBOR plus 200 basis points.


6.    SHORT-TERM FINANCING

As of September 30, 1999, Capital Automotive Group had a $50 million revolving
secured credit facility from a financial institution, under which no amounts
were outstanding. The facility has a three-year term and terminates on March 3,
2002. The facility bears interest equal to the one month LIBOR plus 175 basis
points. The facility contains financial covenants that Capital Automotive Group
must comply with annually. As of September 30, 1999, Capital Automotive Group
was in compliance with the loan covenants.

Capital Automotive Group is in the process of reviewing its short-term financing
alternatives, which include the continued negotiation of a secured syndicated
revolving credit facility or pursuing an unsecured revolving credit facility.
Capital Automotive Group is currently in negotiations with, and has commitments
from, four financial institutions for a secured, syndicated, revolving credit
facility, in the aggregate amount of $95 million. The syndicated credit facility
would have a three-year term, and borrowings would bear interest at a rate
anticipated to equal the one-month LIBOR plus 175 basis points. In addition,
Capital Automotive Group has had discussions with several financial institutions
to provide an unsecured revolving credit facility, the amount and terms of which
have not



                                       11
<PAGE>   12

been determined. Either facility would provide funds for the acquisition of
dealership properties and for general corporate purposes.


7.    NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement was originally effective for
all fiscal quarters of fiscal years beginning after June 15, 1999; however,
during the second quarter of 1999 the FASB deferred the effective date until
June 15, 2000. SFAS No. 133 does not require restatement of financial statements
from prior periods. SFAS No. 133 requires an entity to recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. The Company believes that the adoption
of SFAS 133 will not have a significant impact on the Company's consolidated
financial position, results of operations or cash flows.


8.    MINORITY INTEREST

Minority Interest is calculated at approximately 25.2 percent of the Operating
Partnership's partners' capital and net income as of September 30, 1999. The
ownership of the Operating Partnership as of September 30, 1999 is as follows
(Units in thousands):

<TABLE>
<CAPTION>
                                Units         Percent
                               --------      ---------

Partners' capital:
<S>                            <C>            <C>
      Limited Partners          7,287.2        25.2%
      The Company              21,607.4        74.8%
                               --------       -----

            Total              28,894.6       100.0%
                               ========       =====
</TABLE>


9.    401(K) PLAN

During 1998, the Company adopted the Capital Automotive L.P. Employee 401 (k)
Plan. Employees who are at least 21 years of age are eligible to participate in
the plan after three months of service. Participants may contribute up to 20% of
their earnings, on a pre-tax basis, subject to annual limitations imposed by the
Internal Revenue Code. The Company may make matching or discretionary
contributions to the plan at the discretion of management. Employer
contributions generally vest over five years. No matching or discretionary
contributions have been paid or declared for the nine months ended September 30,
1999.


10.   SUBSEQUENT EVENTS

Declaration of Dividend

On October 25, 1999, the Company declared a dividend of $0.35 per share, which
will be paid on November 19, 1999 to shareholders of record as of November 10,
1999.



                                       12
<PAGE>   13



                             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, 1999 AND SEPTEMBER 30, 1998


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

OVERVIEW

Capital Automotive REIT (the "Company") is a Maryland real estate investment
trust formed in October 1997. The Company owns its property interests through
Capital Automotive L.P. (the "Operating Partnership") and its subsidiaries. The
Company is the sole general partner of the Operating Partnership. The Company
completed its initial public offering of common shares and began generating
rental income in February 1998. The term "Capital Automotive Group" refers to
the Company and the Operating Partnership and their subsidiaries. In this
Quarterly Report on Form 10-Q, the term "subsidiary" of the Company or the
Operating Partnership means a corporation, partnership, limited liability
company or similar entity if the Company or the Operating Partnership, alone or
together, directly or indirectly, own at least a majority of the equity
interests of the entity. Typically the Operating Partnership forms a subsidiary
limited liability company or limited partnership to own properties acquired from
a given dealership group. This structure is intended to facilitate financing and
transfers involving such properties.

Capital Automotive Group's primary business purpose is to own and lease real
estate properties (land, buildings and other improvements) to operators of
franchised automobile dealerships, motor vehicle service, repair or parts
businesses and related businesses. In this Quarterly Report on Form 10-Q,
Capital Automotive Group uses the term "dealerships" to refer to these types of
businesses that are operated on its properties. Capital Automotive Group's
strategy focuses on acquiring real estate used by multi-site, multi-franchised
dealerships located predominately in major metropolitan areas throughout the
United States.

Substantially all properties are leased pursuant to long-term triple-net leases,
under which the tenants typically pay substantially all operating expenses of a
property, including, but not limited to, taxes, assessments and other government
charges, insurance, utilities, service, repairs, maintenance and other expenses.
The leases are generally for a period of ten to 20 years, with options to renew
upon the same terms and conditions for one or more additional periods of five to
ten years. The renewal options are exercisable at the option of the tenant.

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

Capital Automotive Group incurs general and administrative expenses including,
principally, compensation expense for its executive officers and other
employees, professional fees and various expenses incurred in the process of
identifying and acquiring additional properties. Capital Automotive Group is
self-administered and managed by its trustees, executive officers and staff. The
primary non-cash expense of Capital Automotive Group is the depreciation of its
properties. Capital Automotive Group depreciates buildings and improvements on
the properties currently owned by it over a 40-year period for tax purposes and
a 20-year to 30-year period for financial reporting



                                       13
<PAGE>   14

purposes. Capital Automotive Group does not own or lease any significant
personal property, furniture or equipment at any property currently owned by it.

ACQUISITIONS

During the three months ended September 30, 1999, Capital Automotive Group
acquired 63 dealership properties in 13 states, representing 81 automotive
franchises, for a total purchase price, including closing costs, of
approximately $220.7 million. Details of significant acquisitions during the
third quarter of 1999 include:

-     MMR Holdings, L.L.C. and subsidiaries ("MMR")

      During the third quarter of 1999, Capital Automotive Group closed on the
      acquisition of MMR, an affiliate of Sonic Automotive, Inc. ("Sonic"). As a
      result of the acquisition of MMR, Capital Automotive Group acquired 57
      dealership properties valued at approximately $199 million, including
      closing costs, and following the acquisition of MMR, acquired two
      additional properties through MMR for approximately $8 million, including
      closing costs. These 59 properties are located in ten states (Alabama,
      Florida, Georgia, Maryland, North Carolina, Ohio, South Carolina,
      Tennessee, Texas and Virginia) and contain 76 automotive franchises
      including BMW, Chrysler, Ford and Toyota. The properties total
      approximately 1.9 million square feet of buildings and improvements on 354
      acres of land. In connection with the MMR acquisition, Capital Automotive
      Group assumed and amended a $150 million mortgage loan from Ford Motor
      Credit Company (see Note 5 - Mortgage Loans).

      In connection with the MMR acquisition, Capital Automotive Group, through
      MMR, entered into or continued 58 long-term leases of the 59 dealership
      properties. Pursuant to these leases, Capital Automotive Group receives
      rent from affiliates of Sonic (in the case of 49 leases) and six other
      tenants that operate motor vehicle related businesses (in the case of nine
      leases).

      The terms of the leases with Sonic affiliates are identical to each other
      except that the tenant, the amount of the rent and the expiration dates of
      the leases vary. The leases with Sonic affiliates are guaranteed by Sonic,
      and Sonic has agreed to renew leases representing at least 75% of the
      total rental payments due under the Sonic leases for an additional
      five-year term. During the terms of the leases with Sonic affiliates,
      Sonic may substitute replacement properties for leased properties with an
      aggregate original purchase price and allocated costs of up to an
      aggregate of $51 million. Any substituted property must be subject to a
      lease with a Sonic affiliate that is guaranteed by Sonic and have a value
      approximately equal to, but not less than, the purchase price and
      allocated costs of the original property. The substituted property must
      also satisfy the requirements of Ford Motor Credit Company for a
      replacement property.

      The leases of the properties leased to the other six tenants are
      triple-net leases with terms that are similar to those of Capital
      Automotive Group's remaining lease portfolio.

      In connection with the acquisition of MMR, Capital Automotive Group also
      issued a firm commitment to Sonic to purchase up to $75 million in
      additional dealership properties by the end of 1999 in conjunction with
      future acquisitions of dealership operations by Sonic.

-     Four additional dealership properties

      The acquisition of four dealership properties, representing five
      automotive franchises, for an



                                       14
<PAGE>   15

      aggregate purchase price of $13.8 million. The properties were acquired
      from various dealer groups including Auffenberg Enterprises of Illinois,
      Inc., two affiliates of Group 1 Automotive, Inc., and Kelley Automotive
      Group. Consideration for the properties consisted of $1.4 million in
      Operating Partnership units ("Units") and the remainder in cash. The
      properties total approximately 133,000 square feet of buildings and
      improvements on 23 acres of land and are located in four states (Illinois,
      Indiana, New Mexico, and Texas). These properties have initial lease terms
      ranging from 14 to 15 years, and have renewal options (ranging from a
      total of 15 years to 25 years). The renewal options are exercisable at the
      option of the tenant.

As of September 30, 1999, Capital Automotive Group had invested a total of
approximately $863.7 million in 216 properties. These properties represent 332
automotive franchises in 26 states and total approximately 7.4 million square
feet of buildings and improvements on 1,228 acres of land. The properties are
leased on long-term, triple-net leases with an average initial lease term of
13.2 years. Capital Automotive Group's portfolio weighted average initial cap
rate at September 30, 1999 was 10.5%, which is calculated as the percentage of
the initial annual base rent over the purchase price paid to the sellers for the
related properties.


RESULTS OF OPERATIONS

Although the Company was formed prior to January 1, 1998, it did not complete
its initial public offering ("IPO") until February 19, 1998, at which time
Capital Automotive Group purchased its initial properties and began generating
rental income.

Rental revenue for the third quarter of 1999 rose 140% to $20.2 million from
$8.4 million in the same quarter of 1998. Rental revenue for the nine months
ended September 30, 1999 rose 230% to $50.4 million from $15.3 million for the
same period of 1998. The increase was attributable to the growth of Capital
Automotive Group's real estate portfolio (216 properties as of September 30,
1999 versus 96 properties as of September 30, 1998), from which Capital
Automotive Group generates its rental income. In addition, during the third
quarter of 1999, Capital Automotive Group began, on a prospective basis,
straight-lining its rents for leases with fixed minimum escalators. This
increased rental revenue for the third quarter of 1999 by approximately
$400,000.

Interest and other income for the third quarter decreased 70% to $574,000 from
$1.9 million in the same quarter of 1998. Interest and other income for the nine
months ended September 30, 1999 decreased 85% to $1.1 million from $7.0 million
for the same period of 1998. Interest and other income during the nine months
ended September 30, 1998 was primarily generated from the investment of the
excess of the net proceeds of a private placement offering and the Company's IPO
including the exercise of the underwriters' over-allotment option (both of which
were completed during the first quarter of 1998). These net proceeds were fully
invested during 1998 and therefore did not generate interest income during 1999.
Interest and other income during 1999 was primarily generated from the
investment of the excess of debt issuance proceeds over the amount invested in
properties and a $245,000 gain on the sale of properties during 1999.

Depreciation and amortization for the third quarter of 1999 increased 77% to
$3.5 million from $2.0 million in the same quarter of 1998. Depreciation and
amortization for the nine months ended September 30, 1999 increased 238% to
$11.2 million from $3.3 million for the same period of 1998 and consisted
primarily of depreciation on buildings and improvements owned during those
periods. The increase is attributable to the growth of Capital Automotive
Group's real estate portfolio, resulting in an increase in its depreciable
assets. Partially offsetting the increase was a change in the



                                       15
<PAGE>   16

depreciable life on the majority of Capital Automotive Group's buildings and
improvements that were being depreciated over 20 years. During the third
quarter, Capital Automotive Group reviewed the age and remaining useful life of
each of its properties in its real estate portfolio. Based on the average age of
the portfolio, Capital Automotive Group changed the depreciable life on the
majority of its buildings and improvements that were currently being depreciated
over a 20-year life to a 30-year life in order to properly reflect the remaining
useful lives. The change in depreciable life is considered a change in an
accounting estimate and has been recorded on a prospective basis beginning in
the third quarter of 1999. The impact of this change added approximately $1.1
million to third quarter 1999 net income.

Capital Automotive Group's general and administrative expenses for the third
quarter of 1999 totaled $1.6 million, consistent with the same quarter of 1998.
General and administrative expenses for the nine months ended September 30, 1999
increased 31% to $5.2 million from $4.0 million for the same period of 1998. The
increase during the nine month period ended September 30, 1999, compared to the
same period of 1998, was due primarily to increased payroll and related benefits
attributable to personnel additions throughout 1998, and severance payments due
to staffing reductions during the first quarter of 1999. Also contributing to
the increase were increased marketing expenses as well as increased professional
fees and other administrative costs associated with increased public reporting
requirements. These increases were partially offset by the reduction in payroll
and related expenses as a result of staffing reductions throughout 1999 and the
closing of the Chicago office during the second quarter of 1999.

Interest expense for the third quarter of 1999 increased to $7.4 million from
$159,000 for the same quarter of 1998. Interest expense for the nine-month
period ended September 30, 1999 increased to $14.4 million compared to $328,000
for the same period of 1998. The increase was due to an increase in Capital
Automotive Group's outstanding debt (including mortgage debt and borrowings
under its credit facility), which increased from $13 million as of September 30,
1998 to $493.2 million as of September 30, 1999.


LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents were $49.3 million and $72.1 million at September 30,
1999 and December 31, 1998, respectively. The changes in cash and cash
equivalents during the nine months ended September 30, 1999 and 1998 were
attributable to operating, investing and financing activities, as described
below.

Cash flow provided by operating activities for the nine months ended September
30, 1999 and 1998 was $17.2 million and $23.8 million, respectively, and
represents, in both periods, cash received 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. The Company's
net cash used in investing activities for the nine months ended September 30,
1999 and 1998 was $343 million and $318.3 million, respectively, and primarily
reflects the acquisition of dealership properties during those periods. Cash
flow from financing activities for the nine months ended September 30, 1999 and
1998 was $303 million and $334.6 million, respectively. Cash flow from financing
activities for the nine months ended September 30, 1999, primarily reflects $335
million of proceeds from mortgage loans closed during the period and $62 million
of proceeds from bank borrowings. This was partially offset by the repayment of
bank borrowings and distributions made to the Company's shareholders and the
Operating Partnership's limited partners during that period. Cash flow from
financing activities for the nine months ended September 30, 1998, primarily
reflects the proceeds of



                                       16
<PAGE>   17

a private placement offering and the Company's IPO including the exercise of the
underwriters' over-allotment option, partially offset by distributions made to
the Company's shareholders and the Operating Partnership's limited partners
during that period.

As of September 30, 1999, Capital Automotive Group had mortgage indebtedness
totaling approximately $493.2 million secured by various dealership properties
owned by the Operating Partnership and certain subsidiaries of the Operating
Partnership. The total mortgage debt consisted of the following:

-     A $12 million mortgage note payable to a financial institution and assumed
      by Capital Automotive Group in November 1998 as partial consideration for
      the acquisition of four dealership properties. The note is secured by the
      properties acquired. The mortgage note bears interest at 7.50% per annum
      until maturity (7.75% per annum, including all closing costs). Principal
      and interest are payable monthly. At September 30, 1999, the principal
      amount outstanding was approximately $11.8 million. At maturity on January
      20, 2003, a final payment of approximately $10.8 million will be required.
      There are no financial covenants required under this note; however, there
      are negative covenants relating to customary items such as operation and
      maintenance of the properties securing the note and limitations on issuing
      additional secured debt at the subsidiary level. As of September 30, 1999,
      Capital Automotive Group was in compliance with the loan covenants.

-     A $150 million, non-recourse loan ("Permanent Loan"), evidenced by four
      separate loans and notes, with Global Alliance Finance Company, L.L.C.
      ("GAFCO"), which closed in November 1998. The original terms of the
      Permanent Loan required consecutive monthly payments of interest only for
      two years. Thereafter, monthly payments of principal and interest were
      required in an amount sufficient to amortize the Permanent Loan over a
      25-year term (the "amortization period"). The term of the Permanent Loan
      was ten years and incurred interest at a coupon rate of 7.67% per annum
      until maturity on December 1, 2008. The Permanent Loan is secured by
      mortgages on the 57 properties financed. The Operating Partnership has
      provided a limited $35 million guaranty of the Permanent Loan, which
      guaranty is contingent upon the occurrence of certain circumstances. A
      majority of the loan proceeds was used to finance acquisitions. There are
      no financial covenants required under the Permanent Loan; however, there
      are negative covenants relating to customary items such as operation and
      maintenance of the properties securing the Permanent Loan and limitations
      on issuing additional secured debt at the subsidiary level. As of
      September 30, 1999, Capital Automotive Group was in compliance with the
      loan covenants.

      During the first quarter of 1999, Capital Automotive Group and GAFCO
      modified the terms of one of the loans (approximately $38.1 million of the
      Permanent Loan) in order to provide GAFCO with more flexibility in
      structuring a commercial mortgage backed security execution. The interest
      rate on this note was reduced to 7.59% per annum (7.98% per annum,
      including all closing costs), the period during which monthly
      interest-only payments were payable were reduced to approximately one year
      and the amortization period was reduced to approximately 17 years. The
      term of the note remained at 10 years. As of September 30, 1999, the
      principal amount outstanding on this portion of the Permanent Loan was
      approximately $38.1 million. At maturity on December 1, 2008, a final
      payment of approximately $24.5 million will be required. There were no
      amendments to the loan covenants.

      During the third quarter of 1999, Capital Automotive Group and German
      American Capital Corporation ("GACC") (as successor-in-interest to GAFCO),
      restructured the remaining three



                                       17
<PAGE>   18

      notes (approximately $112 million of the Permanent Loan) in order to
      provide GACC with more flexibility in structuring a commercial mortgage
      backed security execution. The restructuring requires monthly principal
      and interest payments beginning on October 1, 1999. In addition, the
      coupon rate was reduced to 7.635% per annum (7.92% per annum, including
      all closing costs) and the term was modified to 15 years, maturing on
      October 1, 2014, with a 15-year amortization period. Also during the third
      quarter of 1999, Capital Automotive Group repaid approximately $3.7
      million of the Permanent Loan. As of September 30, 1999, the principal
      amount outstanding on this portion of the Permanent Loan was approximately
      $108.3 million. At maturity a final payment of approximately $3.4 million
      will be required. There were no amendments to the loan covenants.

-     An $85 million, non-recourse loan with GACC, which was closed during
      September 1999. The note has a fixed coupon rate of 8.05% per annum (8.32%
      per annum, including all closing costs). The term of the note is 15 years
      with principal amortization based on a 15-year amortization schedule. The
      note requires monthly payments of interest and principal until maturity on
      October 1, 2014. The note is secured by mortgages on approximately 28
      dealership properties owned by certain subsidiaries of the Operating
      Partnership. Proceeds from the note were used to repay existing short-term
      debt, to finance property acquisitions and for general corporate purposes.
      As of September 30, 1999, the principal amount outstanding on this note
      was approximately $85 million. At maturity a final payment of
      approximately $2.9 million will be required. Debt covenants required under
      the note are consistent with the Permanent Loan and as of September 30,
      1999, Capital Automotive Group was in compliance with the loan covenants.
      The $85 million loan and the $108.3 million portion of the Permanent Loan
      are cross-collateralized.

-     A $100 million mortgage loan from Ford Motor Credit Company ("FMCC") which
      was closed during July 1999. The mortgage loan is secured by approximately
      48 dealership properties owned by the Operating Partnership and certain
      subsidiaries of the Operating Partnership. The term of the financing is 12
      years with principal amortization based on a 25-year amortization
      schedule. The loan bears interest at a fixed rate equal to 7.54% per annum
      (7.70% per annum, including all closing costs) until maturity. Principal
      and interest are payable quarterly. The majority of the proceeds were used
      to fund property acquisitions, to repay short-term borrowings under the
      Company's revolving credit facility and for general corporate purposes. At
      September 30, 1999, the principal amount outstanding was $100 million.
      This loan will require a final payment of approximately $73.3 million at
      maturity on July 6, 2011. There is one financial covenant limiting debt to
      65% of assets, as defined in the FMCC loan agreement. There are negative
      covenants relating to customary items such as operation and maintenance of
      the properties securing the loan and limitations on issuing additional
      secured debt at the subsidiary level. As of September 30, 1999, Capital
      Automotive Group was in compliance with the loan covenants.

-     A $150 million mortgage note with FMCC, which was assumed and amended by
      Capital Automotive Group in connection with the MMR acquisition. The
      mortgage note is secured by substantially all of the properties acquired
      in connection with the MMR acquisition. The term of the note is 12 years.
      The mortgage note accrued interest from the closing date (August 13, 1999)
      through September 29, 1999 at variable rates ranging from 7.56% to 7.76%.
      Beginning September 30, 1999, the loan bears interest at a fixed rate
      equal to 8.03% per annum (8.07% per annum, including all closing costs)
      until maturity. The terms of the loan require quarterly interest-only
      payments for two years. Thereafter, payments of principal and interest
      will be made quarterly in an amount sufficient to amortize the loan over a
      25-year period. At September 30, 1999, the principal amount outstanding
      was $150 million. A final payment of approximately $124.6 million will be
      required at maturity on September 29, 2011. Debt covenants required



                                       18
<PAGE>   19

      under the note are consistent with the $100 million mortgage loan with
      FMCC. As of September 30, 1999, Capital Automotive Group was in compliance
      with the loan covenants.

During August of 1999, Capital Automotive Group closed on a $55 million bridge
loan with a financial institution to partially fund the MMR acquisition. The
bridge loan was repaid with the proceeds of the $85 million loan from GACC
during the third quarter of 1999. The bridge loan required monthly interest-only
payments, at a rate equal to the one month LIBOR plus 200 basis points.

As of September 30, 1999, Capital Automotive Group had a $50 million revolving
secured credit facility from a financial institution, under which no amounts
were outstanding. The facility has a three-year term and terminates on March 3,
2002. The facility bears interest equal to the one month LIBOR plus 175 basis
points. The facility contains financial covenants that Capital Automotive Group
must comply with annually. As of September 30, 1999, Capital Automotive Group
was in compliance with the loan covenants.

Capital Automotive Group is in the process of reviewing its short-term financing
alternatives, which include the continued negotiation of a secured syndicated
revolving credit facility or pursuing an unsecured revolving credit facility.
Capital Automotive Group is currently in negotiations with, and has commitments
from, four financial institutions for a secured, syndicated, revolving credit
facility, in the aggregate amount of $95 million. The syndicated credit facility
would have a three-year term, and borrowings would bear interest at a rate
anticipated to equal the one-month LIBOR plus 175 basis points. In addition,
Capital Automotive Group has had discussions with several financial institutions
to provide an unsecured revolving credit facility, the amount and terms of which
have not been determined. Either facility would provide funds for the
acquisition of dealership properties and for general corporate purposes.

Short-term liquidity requirements consist primarily of normal recurring
operating expenses, regular debt service requirements (including debt service
relating to additional and replacement debt), recurring capital expenditures,
distributions to shareholders and unitholders, and amounts required for
additional property acquisitions and renovations or expansion of properties. The
Company expects to meet these requirements (other than amounts required for
additional property acquisitions and renovations or expansion of properties)
through cash flow provided by operating activities. The Company anticipates that
any additional acquisition of properties, and renovation and expansion of
properties, during the next 12 months will be funded with cash on hand at
September 30, 1999 as well as with amounts available under Capital Automotive
Group's existing revolving secured credit facility, and future secured and
unsecured debt. Acquisitions will be made subject to the investment objectives
and policies of the Company to maximize both current income and long-term growth
in income.

As of September 30, 1999, long-term liquidity requirements consisted primarily
of maturities under Capital Automotive Group's long-term debt. The Company
anticipates that long-term liquidity requirements will also include amounts
required for acquisition of properties, and renovation and expansion of
properties. The Company expects to meet long-term liquidity requirements
through long-term secured and unsecured borrowings and other debt and equity
financing alternatives. The availability and terms of any such financing will
depend upon market and other conditions.

The Company's liquidity requirements with respect to future acquisitions may be
reduced to the extent the Company uses Units as consideration for such
purchases.

During the second quarter of 1999, the Company's Board of Trustees approved a
resolution providing



                                       19
<PAGE>   20

that the policy of the Company shall be to operate with a debt to asset ratio of
not more than approximately 65%. This policy may be changed by the Company's
Board of Trustees at any time without shareholder approval. As of September 30,
1999, the Company had a debt to asset ratio of approximately 52.7%.

With the Company's current debt to asset ratio policy of not more than
approximately 65%, the Company anticipates that it will be able to obtain
additional financing for its long-term capital needs. However, there can be no
assurance that additional financing or capital will be available, or that the
terms will be acceptable or advantageous to the Company.


YEAR 2000 READINESS DISCLOSURE

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

Capital Automotive Group has completed discussions with a sample of its tenants
regarding their year 2000 compliance. In addition, each of Capital Automotive
Group's tenants were sent questionnaires in the fourth quarter of 1998 and
during 1999, regarding the year 2000 compliance of their financial data and
operating systems. Capital Automotive Group is presently obtaining and reviewing
the questionnaires and to date has found no instances where a tenant is not
materially year 2000 compliant. Capital Automotive Group is currently not aware
of any tenants who are not materially year 2000 compliant and does not feel a
need for a contingency plan to mitigate year 2000 issues.

Overall, Capital Automotive Group believes that it will not incur significant
costs in modifying its existing software applications, replacing hardware or
hiring consultants in resolving year 2000 issues both internally and externally.
Although Capital Automotive Group has not incurred any material expenditures
relating to year 2000 issues as of September 30, 1999, there can be no assurance
as to the magnitude of future costs until Capital Automotive Group's assessment
is complete.

Failure to correct material year 2000 issues may result in the interruption, or
failure of, certain normal business activities or operations and may adversely
affect the Company's results of operations, liquidity and financial condition.
Management of Capital Automotive Group believes that continued progress in
implementing the year 2000 plan will significantly reduce Capital Automotive
Group's potential of a year 2000 operational interruption. As of September 30,
1999, management of Capital Automotive Group had no knowledge of a year 2000
event or uncertainty that is likely to materially affect Capital Automotive
Group.


FUNDS FROM OPERATIONS

Funds From Operations ("FFO") is defined under the revised definition adopted by
the National Association of Real Estate Investment Trusts (NAREIT) as net income
(loss) (computed in accordance with generally accepted accounting principles)
excluding gains (or losses) from debt restructuring or sales of property plus
depreciation/amortization of assets unique to the real estate industry.
Depreciation/amortization of assets not unique to the industry, such as
amortization of deferred financing costs and non-real estate assets, is not
added back. FFO does not represent cash flows from operating activities in
accordance with generally accepted accounting principles (which, unlike FFO,
generally reflects all cash effects of transactions and other events in the
determination of



                                       20
<PAGE>   21

net income) and should not be considered an alternative to net income as an
indication of the Company's performance or to cash flow as a measure of
liquidity or ability to make distributions. The Company considers FFO a
meaningful, additional measure of operating performance because it primarily
excludes the assumption that the value of the real estate assets diminishes
predictably over time, and because industry analysts have accepted it as a
performance measure. Comparison of the Company's presentation of FFO, using the
NAREIT definition, to similarly titled measures for other REITs may not
necessarily be meaningful due to possible differences in the application of the
NAREIT definition used by such REITs.

FFO of the Operating Partnership for the three months and nine months ended
September 30, 1999 and September 30, 1998 is computed as follows (in thousands):


<TABLE>
<CAPTION>
                                                  Three Months Ended                 Nine Months Ended
                                                     September 30,                     September 30,
                                                ------------------------       ----------------------------

                                                  1999            1998           1999                1998
                                                --------        --------       --------            --------
<S>                                             <C>             <C>            <C>                 <C>
Net Income before Minority Interest             $  8,256        $  6,602       $ 20,636            $ 14,598


Real Estate Depreciation and Amortization          3,477           1,947         11,105               3,241

Straight-line Rental Income                         (404)              -           (404)                  -

Gain on Sale of Asset                                (81)              -           (245)                  -
                                                --------        --------       --------            --------

Funds From Operations                           $ 11,248        $  8,549       $ 31,092            $ 17,839
                                                ========        ========       ========            ========
</TABLE>


FORWARD LOOKING STATEMENTS

Certain statements in this Form 10-Q are "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended, which
are intended to be covered by the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Forward looking statements involve a
number of risks and uncertainties. The Company's actual operations may differ
significantly from the results discussed in the forward looking statements. Such
statements can be identified by the use of forward-looking terminology such as
"may," "will," "could," "should," "expect," "intends," "anticipate," "estimate,"
or "continue" or the negative thereof or other variations thereon or comparable
terminology. Certain factors that may cause the actual results of operations in
future periods to differ materially from forecast or anticipated results are set
forth in the Company's Current Report on Form 8-K, dated February 26, 1999 and
filed February 26, 1999, include, but are not limited to (i) the failure of
lessees of real property owned by Capital Automotive Group to pay rent or
otherwise perform the terms of their leases, (ii) increases in operating costs,
(iii) the availability and terms of additional capital to fund the acquisition
of additional properties, (iv) risks that new or pending acquisitions may not be
consummated, (v) the inability of the Company to identify and acquire suitable
real properties that conform to its business strategy, (vi) general economic and
business conditions, both nationally and in the regions in which the Company
owns real property, including, but not limited to, conditions affecting the
motor vehicle retail and related businesses specifically and real estate
generally, (vii) changes to laws, rules and governmental




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<PAGE>   22

regulations affecting the Company, including the tax laws affecting real estate
investment trusts and zoning regulations affecting the operation of the
properties, (viii) risks that current or former operators of the properties fail
or have failed to comply with environmental laws and regulations, (ix) the
termination or abandonment of the dealerships or other motor vehicle related
businesses that occupy any real property owned by Capital Automotive Group, (x)
competition, (xi) the ability of the Company to retain its executive officers
and attract and retain additional key personnel, (xii) changes in business
strategy, (xiii) the ability to sell properties on suitable terms at such time
as the Company elects, (xiv) the impact on the Company of computer and related
problems that may arise from year 2000, and (xv) other risks described from time
to time in the registrant's filings with the Securities and Exchange Commission.


Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

Since December 31, 1998, there have been no material changes in the information
regarding market risk that was provided in the Company's Form 10-K for the year
ended December 31, 1998 except as described below.

During the nine months ended September 30, 1999, Capital Automotive Group's
fixed-rate debt increased from $162 million at December 31, 1998 to $493.2
million at September 30, 1999. Interest rate fluctuations will affect the fair
value of Capital Automotive Group's fixed rate debt instruments. If interest
rates on Capital Automotive Group's fixed rate debt instruments at September 30,
1999 had been one percent higher, the fair value of those debt instruments on
that date would have decreased by approximately $32 million. As of September 30,
1999, Capital Automotive Group does not have any variable rate debt instruments,
and therefore interest rate fluctuations would not have effected Capital
Automotive Group's interest costs for the nine months ended September 30, 1999.





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<PAGE>   23



                             CAPITAL AUTOMOTIVE REIT
                            PART II-OTHER INFORMATION



Item 1.  Legal Proceedings

Not applicable.

Item 2.  Changes in Securities

The Company has not sold any common shares of beneficial interest, par value
$.01 per share ("Common Shares"), during the nine-month period ended September
30, 1999.

On September 10, 1999, the Operating Partnership issued 112,335 Units to
Auffenberg Enterprises of Illinois, Inc., as partial consideration for the
acquisition of a parcel of real property and improvements located thereon in
Belleville, Illinois. The Units will be eligible for redemption beginning on
January 31, 2001 for cash by the Operating Partnership, or at the option of the
Company, Common Shares on a one for one basis. The issuance of such Units was
effected in reliance on an exemption from registration under Section 4(2) of the
Securities Act.

Item 3.  Defaults Upon Senior Securities

Not applicable.

Item 4.  Submission of Matters to Vote of Security Holders

Not applicable.

Item 5.  Other Information

Not applicable.

Item 6.  Exhibits and Reports on Form 8-K

 (a)    Exhibits:

10.46     Loan Agreement dated as of July 7, 1999, between CAR CZ L.L.C.,
          CARS-FEN, L.L.C., CAR HDV L.L.C., CAR Alexander L.P., Capital
          Automotive L.P., CAR MOT II, L.L.C., CAR MOT L.L.C., CAR AUF L.L.C.,
          CAR I Jackson L.P., and CAR MUL L.L.C., as Borrower and Ford Motor
          Credit Company as Lender (Incorporated by reference from the
          Registrant's Quarterly Report on Form 10-Q for the quarter ended June
          30, 1999) (File No. 000-23733).

10.47     Amended and restated loan agreement dated August 13, 1999, between MMR
          Holdings, L.L.C., MMR Tennessee, L.L.C., MMR Viking Investment
          Associates, L.P. and Ford Motor Credit Company.

27        Financial Data Schedule

The Registrant agrees to furnish to the Securities and Exchange Commission, upon
request, a copy of its long-term debt instruments not required to be filed as
exhibits to this report.


                                       23
<PAGE>   24

(b)  Reports on Form 8-K

(1)    A current report on Form 8-K dated August 13, 1999 and filed with the
       Securities and Exchange Commission on August 30, 1999 (File No.
       000-23733), reporting under Item 2 of Form 8-K, the acquisition of MMR
       Holdings, L.L.C., MMR Tennessee, L.L.C., MMR Viking Investment
       Associates, L.P., and two dealership properties (the "MMR Acquisition").

(2)  A current report on Form 8-K/A dated August 13, 1999 and filed with the
     Securities and Exchange Commission on October 12, 1999 (File No.
     000-23733). This Form 8-K/A amended the Form 8-K dated August 13, 1999 and
     filed August 30, 1999, to include the financial statements required by Item
     7 of Form 8-K in connection with the MMR Acquisition. The following
     financial statements were filed:

     -    Pro Forma (Unaudited) Consolidated Balance Sheet of the Registrant as
          of June 30, 1999,

     -    Pro Forma (Unaudited) Consolidated Statement of Operations of the
          Registrant for the six months ended June 30, 1999, and

     -    Pro Forma (Unaudited) Consolidated Statement of Operations of the
          Registrant for the year ended December 31, 1998.




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<PAGE>   25



                                   SIGNATURES


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


                     CAPITAL AUTOMOTIVE REIT
                     (Registrant)



                     BY:    /s/  Thomas D. Eckert
                           ----------------------------------------------
                           Thomas D. Eckert
                           President and Chief Executive Officer
                           (principal executive officer)



                     BY:   /s/  David S. Kay
                           ----------------------------------------------
                           David S. Kay
                           Vice President and Chief Financial Officer
                           (principal financial and accounting officer)


Dated:  November 10, 1999
        -----------------




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