<PAGE>
 
                                   FORM 10-Q


                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549


(Mark One)

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

For quarterly period ended March 31, 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 May 10, 1999
was 21,607,415.
<PAGE>
 
                            CAPITAL AUTOMOTIVE REIT
                                   FORM 10-Q
                                     INDEX


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

         Item 1 - Financial Statements

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

          Consolidated Statements of Operations (unaudited) - three months                        
           ended March 31, 1999 and March 31, 1998.                                            4

          Consolidated Statements of Cash Flows (unaudited) - three months
           ended March 31, 1999 and March 31, 1998.                                            5

          Notes to Consolidated Financial Statements (unaudited)                             6 - 10

         Item 2 - Management's Discussion and Analysis of Financial Condition
          and Results of Operations                                                         11 - 16

         Item 3 - Quantitative and Qualitative Disclosures About Market Risk                   16

Part II - Other Information                                                                    

         Item 1 - Legal Proceedings                                                            17

         Item 2 - Changes in Securities                                                        17

         Item 3 - Defaults Upon Senior Securities                                              18

         Item 4 - Submission of Matters to Vote of Security Holders                            18

         Item 5 - Other Information                                                            18

         Item 6 - Exhibits and Reports on Form 8-K                                             18

Signatures                                                                                     19
</TABLE>

                                       2
<PAGE>
 
                        PART I - FINANCIAL INFORMATION
                         ITEM 1 - FINANCIAL STATEMENTS
                            CAPITAL AUTOMOTIVE REIT
                          CONSOLIDATED BALANCE SHEETS
                       (in thousands, except share data)


<TABLE> 
<CAPTION> 
                                                                 MARCH 31,         DECEMBER 31,
                                                                   1999               1998
                                                              --------------      -------------- 
                                                               (UNAUDITED)        
<S>                                                           <C>                 <C> 
ASSETS                                                                            
Real estate:                                                                      
  Land                                                         $   275,549         $   238,970      
  Building and improvements                                        323,598             272,162
  Accumulated depreciation                                          (9,951)             (6,145)
                                                              --------------      -------------- 
                                                                   589,196             504,987
                                                                                  
Cash and cash equivalents                                            5,939              72,106
                                                                                  
Other assets, net                                                    6,622               6,118
                                                              --------------      -------------- 
    TOTAL ASSETS                                               $   601,757         $   583,211      
                                                              ==============      ============== 
                                                                                  
LIABILITIES AND SHAREHOLDERS' EQUITY                                              
LIABILITIES:                                                                      
Mortgage loans                                                 $   161,929         $   161,997
Borrowings under credit facilities                                  20,000                   -
Accounts payable and accrued expenses                                2,872              14,752
Security deposits payable                                            4,346               3,907
                                                              --------------      -------------- 
    TOTAL LIABILITIES                                              189,147             180,656
                                                              --------------      -------------- 
                                                                                  
Minority Interest                                                   99,373              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                                         346,096             345,905
Retained earnings (accumulated deficit)                                364              (4,025)
Less treasury shares at cost, 3,184,700 common shares              (33,471)            (33,471)
                                                              --------------      -------------- 
     TOTAL SHAREHOLDERS' EQUITY                                    313,237             308,657
                                                              --------------      -------------- 
     TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                $   601,757         $   583,211
                                                              ==============      ============== 
</TABLE> 

See accompanying notes to consolidated financial statements.

                                       3
<PAGE>
 
                            CAPITAL AUTOMOTIVE REIT
                UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
                     (in thousands, except per share data)


<TABLE> 
<CAPTION> 
                                                             THREE MONTHS ENDED
                                                                  MARCH 31,
                                                            1999             1998
                                                        ------------      -----------
<S>                                                     <C>               <C> 
Revenue:                                                                  
Rental                                                   $   14,572        $   1,731     
Interest and other                                              216            1,590
                                                        ------------      -----------
    Total revenue                                            14,788            3,321
                                                        ------------      -----------
                                                                          
Expenses:                                                                 
Depreciation and amortization                                 3,845              344
General and administrative                                    1,894              892
Interest                                                      3,275               41
                                                        ------------      -----------
    Total expenses                                            9,014            1,277
                                                        ------------      -----------
                                                                          
Net income before minority interest                           5,774            2,044
Minority interest                                            (1,385)            (341)
                                                        ------------      -----------
                                                                          
Net income                                               $    4,389        $   1,703    
                                                        ============      ===========
                                                                          
                                                                          
Shares of common stock outstanding used to                                
  compute basic earnings per share                           21,607           12,147
                                                        ============      ===========
                                                                          
Basic earnings per share                                 $     0.20        $    0.14
                                                        ============      ===========
                                                                          
Shares of common stock outstanding used to                                
  compute diluted earnings per share                         21,607           12,267
                                                        ============      ===========
                                                                          
Diluted earnings per share                               $     0.20        $    0.14
                                                        ============      ===========
</TABLE> 

                                                                          
See accompanying notes to consolidated financial statements.

                                       4
<PAGE>
 
                            CAPITAL AUTOMOTIVE REIT
                UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)


<TABLE>
<CAPTION>
                                                                                Three Months Ended March 31,
                                                                                    1999            1998      
                                                                                -----------     -----------
<S>                                                                             <C>             <C>
Cash flows from operating activities:
Net income                                                                       $  4,389         $  1,703
Adjustments to reconcile net income to net cash
  provided by operating activities:
Depreciation and amortization                                                       3,845              344
Income applicable to minority interest                                              1,385              341
Increase in other assets                                                              (76)          (1,135)
Increase/(decrease) in accounts payable and accrued expenses                       (2,932)             817    
Increase in security deposits payable                                                 439            1,140
                                                                                 --------         -------- 
   Net cash provided by operating activities                                        7,050            3,210
                                                                                 --------         -------- 

Cash flows from investing activities:
Purchase of furniture and equipment                                                   (21)            (172)
Real estate acquisitions                                                          (83,655)         (79,184)
                                                                                 --------         --------  
   Net cash used in investing activities                                          (83,676)         (79,356)
                                                                                 --------         --------   

Cash flows from financing activities:
Proceeds from bank borrowings                                                      20,000            5,100
Repayment of bank and other borrowings                                                 --           (1,000)    
Mortgage principal payments                                                           (68)              --
Payment of loan costs                                                                (430)              --
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                                                           (6,914)              --
Payment of partner distribution                                                    (2,059)              --
Other fees                                                                            (70)              -- 
                                                                                 --------         --------    
   Net cash provided by financing activities                                       10,459          346,385
                                                                                 --------         --------     

Net increase (decrease) in cash and cash equivalents                              (66,167)         270,239      

Cash and cash equivalents at beginning of period                                   72,106               25 
                                                                                 --------         --------      
Cash and cash equivalents at end of period                                       $  5,939         $270,264
                                                                                 ========         ========      
Supplemental Data:

Real estate acquisitions in exchange for equity issuance                         $  4,360         $ 74,421
                                                                                 ========         ========       
Interest paid during the period                                                  $  2,110         $     41
                                                                                 ========         ========       
</TABLE> 


See accompanying notes to consolidated financial statements.

                                       5
<PAGE>
 
                           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 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 three months
ended March 31, 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. All
intercompany balances and transactions have been eliminated in consolidation.



                                       6
<PAGE>
 
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 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.

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 under long-term triple-net leases which
require the lessees to pay substantially all expenses associated with the
operations, including taxes, utilities, insurance, repairs, maintenance and
other expenses.  All leases are accounted for as operating leases.

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.   ACQUISITION OF PROPERTIES

During the three months ended March 31, 1999, Capital Automotive Group closed on
the acquisition of 22 dealership properties, representing 19 automotive
franchises, for an aggregate purchase price of $88 million.  Consideration for
the properties consisted of approximately $64.3 million in cash, $19.3 million
in the assumption and repayment of debt and $4.4 million in equity issuance
(approximately $3.8 million in Operating Partnership units ("Units") and
approximately $600,000 allocated to warrants exercisable for common shares of
the Company).  The properties were acquired from various dealer groups,
including affiliates of Asbury Automotive Group, Craig Zinn Automotive Group,
FirstAmerica Automotive, Inc., Group 1 Automotive Inc. and its affiliates,
McCluskey Chevrolet, Mulkin Automotive Group, and Park Place Motorcars.  The
properties total approximately 700,000 square feet of buildings and improvements
on 81.9 acres of land and are located in five states, including California,
Florida, New York, Ohio and Texas.  These properties have initial lease terms
ranging from ten to 20 years, with an average initial term of 14.7 years, and
have multiple renewal options by the tenant.

                                       7
<PAGE>
 
As of March 31, 1999, Capital Automotive Group had invested approximately $600
million in properties.  Capital Automotive Group's portfolio included 142
properties, representing 215 automotive franchises in 19 states.  These
properties total approximately 5.0 million square feet of buildings and
improvements on 793 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

A reconciliation of net income and weighted average shares used to calculate
basic and diluted earnings per share for the three months ended March 31, 1999
and March 31, 1998 is as follows (in thousands, except per share data):

<TABLE>
<CAPTION>
                                        Net       Weighted     Earnings
                                      Income   Average Shares  Per Share
                                      -------  --------------  ---------
<S>                                   <C>      <C>             <C>
 
Three Months Ended March 31, 1999:
Earnings per share - basic            $4,389           21,607      $0.20
 
Adjustments (1)                            -                -          -
                                      ------           ------      -----
 
Earnings per share - diluted          $4,389           21,607      $0.20
                                      ======           ======      =====
 
Three Months Ended March 31, 1998:
Earnings per share - basic            $1,703           12,147      $0.14
 
Adjustments (1)                          (16)             120          -
                                      ------           ------      -----
 
Earnings per share - diluted          $1,687           12,267      $0.14
                                      ======           ======      =====
</TABLE>

(1)   Adjustment to net income reflects change in Minority Interest (as
      hereafter defined) share of income based on ownership calculation
      including common share equivalents. Adjustment to weighted average shares
      reflects exercise of dilutive options for shares assuming treasury stock
      method. There were no dilutive options during the three month period ended
      March 31, 1999.

5.   MORTGAGE LOANS

As of March 31, 1999, Capital Automotive Group had mortgage indebtedness
totaling $162 million secured by 64 properties owned by subsidiaries of the
Operating Partnership.  The $162 million consisted of the following:

 . A $150 million, non-recourse loan ("Permanent Loan") with Global Alliance
  Finance Company, L.L.C. (the "Lender") that closed in November 1998.  The
  original terms of the Permanent Loan 

                                       8
<PAGE>
 
  require consecutive monthly payments of interest only for two years.
  Thereafter, monthly payments of principal and interest will be required in an
  amount sufficient to amortize the Permanent Loan over a 25-year term. The term
  of the Permanent Loan is ten years and bears 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 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.

  On February 10, 1999, the Company and the Lender modified the terms on
  approximately $38 million of the Permanent Loan in order for the Lender to
  have more flexibility in structuring a commercial mortgage backed security
  execution.  The interest rate on this portion of the Permanent Loan was
  reduced to 7.59% per annum, the monthly interest only payments were reduced to
  approximately one year and the amortization period was reduced to
  approximately 17 years.

 . A $12 million mortgage note with a financial institution assumed by the
  Company 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 in January
  2003. Principal and interest are payable monthly. Any outstanding principal
  and interest shall be due and payable upon maturity.


6.   CREDIT FACILITIES

As of March 31, 1999, Capital Automotive Group had commitments for short term,
revolving credit facilities, from financial institutions, in the aggregate
amount of $70 million ($50 million from Comerica Bank and $20 million from
United Bank), of which $20 million had been drawn down.  The committed credit
facilities will provide funds for the acquisition of dealership properties and
for general corporate purposes.  The committed credit facilities will have
three-year terms and borrowings will bear interest at a rate equal to the one
month LIBOR plus 175 basis points.


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 is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999 and 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 24.1 percent of the Operating
Partnership's partners' capital and net income.  The ownership of the Operating
Partnership as of March 31, 1999 is as follows (Units in thousands):

                                       9
<PAGE>
 
<TABLE>
<CAPTION>
 
                          Units   Percent
                          ------  --------
<S>                       <C>     <C>
 
Partners' capital:
      Limited Partners     6,855     24.1%
      The Company         21,607     75.9%
                          ------    -----
 
         Total            28,462    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 three months ended March 31,
1999.

10.  SUBSEQUENT EVENTS

Declaration of Dividend
-----------------------

On April 27, 1999, the Company declared a dividend of $0.33 per share which will
be paid on May 20, 1999 to shareholders of record as of May 10, 1999.

Commitment
----------

During April 1999, Capital Automotive Group entered into a commitment letter
with a financial institution for a $100 million permanent loan to be secured by
various properties owned by subsidiaries of the Operating Partnership.  The
commitment expires on July 15, 1999, unless otherwise extended.  The term of the
financing is 12 years based upon a 25-year amortization.  Principal and interest
will be payable quarterly.  The annual fixed interest rate will be based on a
spread of 250 basis points over the 10-year Treasury rate, which on April 9,
1999, was locked in at 7.54% per annum.  The proceeds will be used to acquire
additional properties and for general corporate purposes.

                                       10
<PAGE>
 
                            CAPITAL AUTOMOTIVE REIT
          ITEM II - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
           CONDITION AND RESULTS OF OPERATIONS - THREE MONTHS ENDED
                       MARCH 31, 1999 AND MARCH 31, 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.

All properties are leased under triple-net leases, under which the lessees
typically pay substantially all operating expenses of a property, including, but
not limited to, all taxes, assessments and other government charges, insurance,
utilities, service, repairs and maintenance.  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 exercisable
at the option of the lessee.

Substantially all of Capital Automotive Group's revenues are derived from (1)
rents received 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
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 and 20-year period for tax and
financial reporting purposes, respectively.  Capital Automotive Group does not
own or lease any significant personal property, furniture or equipment at any
property currently owned by it.

                                       11
<PAGE>
 
ACQUISITIONS

During the three months ended March 31, 1999, Capital Automotive Group closed on
the acquisition of 22 dealership properties, representing 19 automotive
franchises, for an aggregate purchase price of $88 million.  Consideration for
the properties consisted of approximately $64.3 million in cash, $19.3 million
in the assumption and repayment of debt and $4.4 million in equity issuance
(approximately $3.8 million in Operating Partnership units ("Units") and
approximately $600,000 allocated to warrants exercisable for common shares of
the Company).  The properties were acquired from various dealer groups,
including affiliates of Asbury Automotive Group, Craig Zinn Automotive Group,
FirstAmerica Automotive, Inc., Group 1 Automotive Inc. and its affiliates,
McCluskey Chevrolet, Mulkin Automotive Group, and Park Place Motorcars.  The
properties total approximately 700,000 square feet of buildings and improvements
on 81.9 acres of land and are located in five states, including California,
Florida, New York, Ohio and Texas.  These properties have initial lease terms
ranging from ten to 20 years, with an average initial term of 14.7 years, and
have multiple renewal options by the tenant.

As of March 31, 1999, Capital Automotive Group had invested approximately $600
million in properties.  Capital Automotive Group's portfolio included 142
properties, representing 215 automotive franchises in 19 states.  These
properties total approximately 5.0 million square feet of buildings and
improvements on 793 acres of land.  The properties are leased on long-term,
triple-net leases with an average initial lease term of 13.2 years.  The
Company's portfolio weighted average initial cap rate at March 31, 1999 was
10.6%, 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 it
began generating rental income.

Rental revenue for the first quarter of 1999 rose 742% to $14.6 million from
$1.7 million in the same comparable quarter of 1998.  The increase was
attributable to the growth of Capital Automotive Group's real estate portfolio
(142 properties as of March 31, 1999 versus 35 properties as of March 31, 1998),
from which the Company generates its rental income.  The Company began
generating revenue on February 19, 1998, the date of closing of the Company's
IPO and purchase of its initial properties.

Interest income for the first quarter decreased 86% to $216,000 from $1.6
million in the same comparable quarter of 1998.  Interest income during the
first quarter 1998 was primarily generated from the investment of the excess of
the net proceeds of the Company's IPO, a private placement offering and the
exercise of the underwriters' over-allotment option (all completed during the
first quarter of 1998).  These net proceeds were fully invested during 1998 and
therefore did not generate interest income during the first quarter of 1999.
Interest income generated in the first quarter of 1999 was primarily generated
from the investment of the excess of debt issuance proceeds over the amount
invested in properties.

Depreciation and amortization for the first quarter of 1999 increased to $3.8
million from $344,000 in the same comparable quarter 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.

                                       12
<PAGE>
 
Capital Automotive Group had general and administrative expenses of $1.9 million
for the first quarter of 1999 compared to $892,000 for the first quarter of
1998, representing an increase of 112%. The increase was due primarily to
increased payroll and related benefits attributable to personnel additions in
1998, and severance payments relating to the elimination of four employees
during the first quarter of 1999, or approximately 15% of the Company's total
staff. Also contributing to the increase was increased marketing expenses as
well as increased professional fees and other administration costs associated
with public reporting requirements.

Interest expense for the first quarter of 1999 increased to $3.3 million from
$41,000 for the first quarter of 1998.  The increase was due to interest charged
on the Company's outstanding debt (including mortgage debt and borrowings under
the credit facilities) issued in the later half of 1998 and the first quarter of
1999.

LIQUIDITY AND CAPITAL RESOURCES

During November 1998, Capital Automotive Group closed on a $150 million, non-
recourse loan ("Permanent Loan") with Global Alliance Finance Company, L.L.C.
(the "Lender"). The original terms of the Permanent Loan require consecutive
monthly payments of interest only for two years. Thereafter, monthly payments of
principal and interest will be required in an amount sufficient to amortize the
Permanent Loan over a 25-year term. The term of the Permanent Loan is ten years
and bears 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 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. On February 10, 1999, Capital Automotive Group and the Lender
modified the terms on approximately $38 million of the Permanent Loan in order
for the Lender to have more flexibility in structuring a commercial mortgage
backed security execution. The interest rate on this portion of the Permanent
Loan was reduced to 7.59% per annum, the monthly interest only payments were
reduced to approximately one year and the amortization period was reduced to
approximately 17 years.

As of March 31, 1999, Capital Automotive Group had commitments for short term,
revolving credit facilities, from financial institutions, in the aggregate
amount of $70 million ($50 million from Comerica Bank and $20 million from
United Bank), of which $20 million had been drawn down. The committed credit
facilities will provide funds for the acquisition of dealership properties and
for general corporate purposes. The committed credit facilities will have three-
year terms and borrowings will bear interest at a rate equal to the one month
LIBOR plus 175 basis points. Capital Automotive Group intends to increase the
capacity and term of the revolving credit facilities through the inclusion of
additional financial institutions.

During April 1999, Capital Automotive Group entered into a commitment letter
with a financial institution for a $100 million permanent loan to be secured by
various properties owned by subsidiaries of the Operating Partnership. The
commitment expires on July 15, 1999, unless otherwise extended. The term of the
financing is 12 years based upon a 25-year amortization. Principal and interest
will be payable quarterly. The annual fixed interest rate will be based on a
spread of 250 basis points over the 10-year Treasury rate, which on April 9,
1999, was locked in at 7.54% per annum. The proceeds will be used to acquire
additional properties and for general corporate purposes.

The Company anticipates that cash from operations and existing and future short-
term and long-term debt 

                                       13
<PAGE>
 
will provide adequate liquidity to acquire additional properties, conduct its
operations, fund administrative and operating costs and interest payments, and
allow distributions to shareholders in accordance with the Internal Revenue Code
of 1986, as amended (the "Code") requirements for qualification as a real
estate investment trust and to avoid any corporate level federal income or
excise tax for at least the next twelve months.

In order to qualify as a real estate investment trust for federal income tax
purposes, the Company will be required to make substantial distributions to its
shareholders. The following factors, among others, will influence the decisions
of the Board of Trustees regarding distributions: (1) annual base rent under the
leases; and (2) returns from short-term investments. Although the Company will
receive most of its rental payments on a monthly basis, it intends to make
distributions quarterly. Amounts accumulated for distribution are expected to be
invested by the Company in short-term investments.

Capital Automotive Group also intends to borrow additional amounts in connection
with the acquisition of additional properties, the renovation or expansion of
properties, or, as necessary, to meet certain distribution requirements imposed
on a real estate investment trust under the Code. Capital Automotive Group may
raise additional long-term capital by issuing, in public or private
transactions, debt or other equity securities, but the availability and terms of
any such issuance will depend upon the market and other conditions.

Capital Automotive Group has adopted a policy to limit debt to approximately 50%
of assets. This policy may be changed by the Company's Board of Directors at
anytime without shareholder approval.

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. 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.


YEAR 2000 COMPLIANCE

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 1998, 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 March 31, 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

                                       14
<PAGE>
 
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 March 31, 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 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 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 ended March 31, 1999 and
March 31, 1998 is computed as follows (in thousands):

<TABLE> 
<CAPTION> 
                                             Three Months      Three Months
                                                 Ended             Ended
                                             March 31, 1999    March 31, 1998
                                             --------------    --------------
<S>                                          <C>               <C>
Net Income before Minority Interest            $  5,774            $ 2,044
 
Real Estate Depreciation and Amortization         3,820                329
                                               --------            -------
 
Funds From Operations                          $  9,594            $ 2,373
                                               ========            =======
</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,"

                                       15
<PAGE>
 
"expect," "intends," "anticipate," "estimate," or "continue" or the negative
thereof or other variations thereon or comparable terminology. Factors which may
cause the actual results of operations in future periods to differ materially
from forecast or anticipated results include, but are not limited to (i) the
failure of any lessee of real property owned by Capital Automotive REIT to
perform the terms of its lease in any material respects, (ii) the inability of
the Company to acquire suitable real properties that conform to its business
strategy, (iii) the termination or abandonment of the dealerships or other motor
vehicle related businesses that occupy any real property owned by the Company,
(iv) the inability of the Company to release any real property, (v) general
economic and business conditions, both nationally and in the regions in which
the Company owns real property, including, but not limited to, those conditions
affecting real estate generally or the motor vehicle retail and related
businesses specifically, (vi) zoning changes in locations in which any such real
property is located, (vii) existing governmental regulations and changes in, or
the failure to comply with government regulations, (viii) changes to laws, rules
and regulations affecting the Company, including the tax laws affecting real
estate investment trusts, (ix) competition, (x) changes in business strategy,
(xi) divestiture of real property, (xii) retention of the Company's executive
officers, (xiii) the ability of the Company to attract and retain key personnel,
(xiv) the availability and terms of additional capital to fund the acquisition
of additional properties and for working capital purposes, (xv) the impact on
the Company of computer and related problems that may arise from year 2000,
(xvi) the ability of the Company to obtain additional financing and (xvii) other
risks described from time to time in the registrant's filings with the
Securities and Exchange Commission. Given these uncertainties, readers are
cautioned not to place undue reliance on such statements. The registrant
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect any future events
or circumstances.

Item 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
          -----------------------------------------------------------

The Company is exposed to certain financial market risks, the most predominant
being fluctuations in interest rates. Interest rate fluctuations are monitored
by the Company's management as an integral part of the Company'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.

As of March 31, 1999, there have been no material changes in the Company's
financial market risk since December 31, 1998 as reported in the Company's
Annual Report on Form 10-K.

                                       16
<PAGE>
 
                            CAPITAL AUTOMOTIVE REIT
                           PART II-OTHER INFORMATION


Item 1.   Legal Proceedings

Not applicable.

Item 2.   Changes in Securities

CHANGES IN SECURITIES
---------------------

The Company has not sold any common shares of beneficial interest, par value
$.01 per share ("Common Shares"), during the three-month period ended March 31,
1999.

On January 5, 1999, the Company issued a warrant to purchase 133,333 Common
Shares of the Company to Jack I. Tompkins, a warrant to purchase 133,334 Common
Shares of the Company to Bert Wollen, and a warrant to purchase 133,333 Common
Shares of the Company to WS&B Auto REIT, LLC. These warrants were issued in
connection with the identification of certain properties acquired by Capital
Automotive Group. The warrants become exercisable at the rate of 25% per year
over a four year period beginning on January 5, 2000 at an exercise price of
$15.00 per Common Share, subject to anti-dilution protections. The warrants
expire December 31, 2008. The issuance of the warrants was effected in reliance
on an exemption from registration under Section 4(2) of the Securities Act.

On January 8, 1999, the Operating Partnership issued 5,133 Units to M.B.
Holdings, L.P. as partial consideration for the acquisition of one parcel of
real property and improvements located thereon in Dallas, Texas. 50% of the
Units will be eligible for redemption beginning on January 8, 2000 and 50% of
the Units will be eligible for redemption beginning on January 8, 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.

On January 22, 1999, the Company issued a warrant to purchase 50,000 Common
Shares of the Company to Diamante Properties, Ltd. as partial consideration for
the acquisition of one parcel of real property and improvements. The warrant is
exercisable during the period beginning on January 31, 2000 and ending on
January 22, 2004 at an exercise price of $15.00 per Common Share. The issuance
of the warrant was effected in reliance on an exemption from registration under
Section 4(2) of the Securities Act.

On February 1, 1999, the Operating Partnership issued 116,838 Units to McCluskey
Chevrolet, Inc. as partial consideration for the acquisition of three parcels of
real property and improvements located thereon in Cincinnati, Ohio. The Units
are redeemable beginning on July 31, 2000 for cash by the Operating Partnership,
or at the option of the Company, Common Shares on a one for one basis. The
issuance of such Units was effected in reliance on an exemption from
registration under Section 4(2) of the Securities Act.

On March 25, 1999, the Operating Partnership issued 106,388 Units to John W.
Mulkin, Jr. and 53,195 Units to Anthony Zappone, as partial consideration for
the acquisition of two parcels of real property and improvements located thereon
in Brockport, New York. The Units are redeemable beginning on July 31, 2000 for
cash by the Operating Partnership, or at the option of the Company, 

                                       17
<PAGE>
 
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:
     -------- 

10.44     Amendment to Loan Agreement dated as of February 10, 1999 between CARS
          - DB1, L.L.C. as Borrower and Global Alliance Finance Company, L.L.C.

10.45     Revolving Loan Agreement dated as of March 4, 1999 among Comerica Bank
          and Capital Automotive, L.P., et al.

27        Financial Data Schedule
 
(B)  REPORTS ON FORM 8-K
     -------------------

(1)       Current Report on Form 8-K filed on February 26, 1999 (File No.000-
          23733)

                                       18
<PAGE>
 
                                  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:  May 11, 1999
      --------------

                                      19