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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, 2002



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

For the transition period from
___________ to ___________.

COMMISSION FILE NUMBER
000-23733

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

|                                 |  |                                                   
|-------------------------------- |  | --------------------------------------------------
|Maryland
(State of organization) |  | 54-1870224
(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 April 30, 2002
was 27,501,494.

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CAPITAL AUTOMOTIVE REIT
FORM 10-Q
INDEX

|                               |                                                                                                |                                                                                                          |    |          |        | 
|------------------------------ | ---------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------- | -- | -------- | ------ | 
|                               |                                                                                                |                                                                                                          |    | Page No.
|                               |                                                                                                |                                                                                                          |    |         
|Part I  Financial Information |                                                                                                |                                                                                                          |    |         
|                               | Item 1  Financial Statements                                                                  |                                                                                                          |    |          |       
|                               |                                                                                                | Consolidated Balance Sheets  March 31, 2002 (unaudited) and
December 31, 2001                           |    |          | 3      | 
|                               |                                                                                                | Consolidated Statements of Operations (unaudited)  three months
ended March 31, 2002 and March 31, 2001 |    |          | 4      | 
|                               |                                                                                                | Consolidated Statements of Cash Flows (unaudited)  three months ended
March 31, 2002 and March 31, 2001 |    |          | 5      | 
|                               |                                                                                                | Notes to Consolidated Financial Statements (unaudited)                                                   |    |          | 6 - 13 | 
|                               | Item 2  Managements Discussion and Analysis of Financial Condition
and Results of Operations |                                                                                                          |    | 14 - 24  |       
|                               | Item 3  Quantitative and Qualitative Disclosures About Market Risk                            |                                                                                                          |    | 24 - 25  |       
|Part II  Other Information    |                                                                                                |                                                                                                          |    |         
|                               | Item 1  Legal Proceedings                                                                     |                                                                                                          |    | 26       |       
|                               | Item 2  Changes in Securities                                                                 |                                                                                                          |    | 26       |       
|                               | Item 3  Defaults Upon Senior Securities                                                       |                                                                                                          |    | 26       |       
|                               | Item 4  Submission of Matters to Vote to Security Holders                                     |                                                                                                          |    | 26       |       
|                               | Item 5  Other Information                                                                     |                                                                                                          |    | 26       |       
|                               | Item 6  Exhibits and Reports on Form 8-K                                                      |                                                                                                          |    | 26       |       
|Signatures                     |                                                                                                |                                                                                                          | 27 |         

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PART 1FINANCIAL
INFORMATION
ITEM 1FINANCIAL STATEMENTSCAPITAL AUTOMOTIVE REIT
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

|                                                                                                                                                                                                           |                            |                   |                                            |         |           |           |              |         |           |           | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ----------------- | ------------------------------------------ | ------- | --------- | --------- | ------------ | ------- | --------- | --------- | 
|                                                                                                                                                                                                           |                            |                   |                                            |         | March 31, |           | December 31,
|                                                                                                                                                                                                           |                            |                   |                                            |         | 2002      |           | 2001        
|                                                                                                                                                                                                           |                            |                   |                                            |         |           |           |             
|ASSETS                                                                                                                                                                                                     |                            |                   |                                            |         |           |           |              |        
|Real estate:                                                                                                                                                                                               |                            |                   |                                            |         |           |           |              |        
|                                                                                                                                                                                                           | Land                       |                   | $                                          | 542,868 |           |           | $            | 508,556 |          
|                                                                                                                                                                                                           | Buildings and improvements |                   |                                            | 773,959 |           |           |              | 721,138 |          
|                                                                                                                                                                                                           | Accumulated depreciation   |                   |                                            | (65,696 | )         |           |              | (59,789 | )        
|                                                                                                                                                                                                           |                            |                   |                                            |         |           |           |              |        
|                                                                                                                                                                                                           |                            |                   | 1,251,131                                  |         |           |           | 1,169,905    |        
|Cash and cash equivalents                                                                                                                                                                                  |                            |                   | 16,631                                     |         |           |           | 9,490        |        
|Other assets, net                                                                                                                                                                                          |                            |                   | 23,179                                     |         |           |           | 20,305       |        
|                                                                                                                                                                                                           |                            |                   |                                            |         |           |           |              |        
|                                                                                                                                                                                                           |                            | Total Assets      |                                            | $       | 1,290,941 |           |              | $       | 1,199,700 |          
|                                                                                                                                                                                                           |                            |                   |                                            |         |           |           |              |        
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                                       |                            |                   |                                            |         |           |           |              |        
|Liabilities:                                                                                                                                                                                               |                            |                   |                                            |         |           |           |              |        
|Mortgage debt                                                                                                                                                                                              |                            | $                 | 682,906                                    |         |           | $         | 637,656      |        
|Borrowings under credit facilities                                                                                                                                                                         |                            |                   | 87,686                                     |         |           |           | 63,508       |        
|Accounts payable and accrued expenses                                                                                                                                                                      |                            |                   | 12,477                                     |         |           |           | 14,661       |        
|Security deposits payable                                                                                                                                                                                  |                            |                   | 7,049                                      |         |           |           | 6,969        |        
|                                                                                                                                                                                                           |                            |                   |                                            |         |           |           |              |        
|                                                                                                                                                                                                           |                            | Total Liabilities |                                            |         | 790,118   |           |              |         | 722,794   |          
|                                                                                                                                                                                                           |                            |                   |                                            |         |           |           |              |        
|Minority Interest                                                                                                                                                                                          |                            |                   | 124,882                                    |         |           |           | 110,885      |        
|Shareholders Equity                                                                                                                                                                                       |                            |                   |                                            |         |           |           |              |        
|Preferred shares, par value $.01 per share; 20 million shares authorized,
no shares issued or outstanding                                                                                                  |                            |                   |                                           |         |           |           |             |        
|Common shares, par value $.01 per share; 100 million shares authorized,
26,718,506 shares issued and outstanding as of March 31, 2002 and
26,428,188 shares issued and outstanding as of December 31, 2001 |                            |                   | 267                                        |         |           |           | 264          |        
|Additional paid-in-capital                                                                                                                                                                                 |                            |                   | 387,771                                    |         |           |           | 378,923      |        
|Accumulated other comprehensive income                                                                                                                                                                     |                            |                   | 2,875                                      |         |           |           | 2,249        |        
|Distributions in excess of accumulated earnings                                                                                                                                                            |                            |                   | (14,972                                    | )       |           |           | (15,415      | )      
|                                                                                                                                                                                                           |                            |                   |                                            |         |           |           |              |        
|                                                                                                                                                                                                           |                            |                   | Total
Shareholders Equity                 |         |           | 375,941   |              |         |           | 366,021   | 
|                                                                                                                                                                                                           |                            |                   |                                            |         |           |           |              |        
|                                                                                                                                                                                                           |                            |                   | Total Liabilities and Shareholders Equity |         | $         | 1,290,941 |              |         | $         | 1,199,700 | 
|                                                                                                                                                                                                           |                            |                   |                                            |         |           |           |              |        

See accompanying Notes to Consolidated Financial Statements.

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

|                                                                              |                |   |                    |        |      |   |        |        | 
|----------------------------------------------------------------------------- | -------------- | - | ------------------ | ------ | ---- | - | ------ | ------ | 
|                                                                              |                |   | Three Months Ended
|                                                                              |                |   | March 31,         
|                                                                              |                |   |                   
|                                                                              |                |   | 2002               |        | 2001
|                                                                              |                |   |                    |        |     
|Revenue:                                                                      |                |   |                    |        |      |   |        |       
|Rental                                                                        |                | $ | 32,343             |        |      | $ | 27,999 |       
|Interest and other                                                            |                |   | 129                |        |      |   | 61     |       
|                                                                              |                |   |                    |        |      |   |        |       
|                                                                              | Total revenue  |   |                    | 32,472 |      |   |        | 28,060 | 
|                                                                              |                |   |                    |        |      |   |        |       
|Expenses:                                                                     |                |   |                    |        |      |   |        |       
|Depreciation and amortization                                                 |                |   | 5,959              |        |      |   | 5,035  |       
|General and administrative                                                    |                |   | 2,123              |        |      |   | 1,719  |       
|Interest                                                                      |                |   | 10,260             |        |      |   | 11,874 |       
|                                                                              |                |   |                    |        |      |   |        |       
|                                                                              | Total expenses |   |                    | 18,342 |      |   |        | 18,628 | 
|                                                                              |                |   |                    |        |      |   |        |       
|Net income before minority interest                                           |                |   | 14,130             |        |      |   | 9,432  |       
|Minority interest                                                             |                |   | (3,276             | )      |      |   | (2,624 | )     
|                                                                              |                |   |                    |        |      |   |        |       
|Net income                                                                    |                | $ | 10,854             |        |      | $ | 6,808  |       
|                                                                              |                |   |                    |        |      |   |        |       
|Shares of common stock outstanding used to
compute basic earnings per share   |                |   | 26,547             |        |      |   | 21,485 |       
|                                                                              |                |   |                    |        |      |   |        |       
|Basic earnings per share                                                      |                | $ | 0.41               |        |      | $ | 0.32   |       
|Shares of common stock outstanding used to
compute diluted earnings per share |                |   | 27,834             |        |      |   | 21,862 |       
|                                                                              |                |   |                    |        |      |   |        |       
|Diluted earnings per share                                                    |                | $ | 0.39               |        |      | $ | 0.31   |       

See accompanying Notes to Consolidated Financial Statements.

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

|                                                                                  |                                           |   |                              |         |      |   |         |         |  
|--------------------------------------------------------------------------------- | ----------------------------------------- | - | ---------------------------- | ------- | ---- | - | ------- | ------- | -
|                                                                                  |                                           |   | Three Months Ended March 31,
|                                                                                  |                                           |   |                             
|                                                                                  |                                           |   | 2002                         |         | 2001
|                                                                                  |                                           |   |                              |         |     
|Cash flows from operating activities:                                             |                                           |   |                              |         |      |   |         |        
|Net income                                                                        |                                           | $ | 10,854                       |         |      | $ | 6,808   |        
|Adjustments to reconcile net income to net cash
provided by operating activities: |                                           |   |                              |         |      |   |         |        
|Depreciation and amortization                                                     |                                           |   | 6,238                        |         |      |   | 5,394   |        
|Income applicable to minority interest                                            |                                           |   | 3,276                        |         |      |   | 2,624   |        
|Increase in other assets                                                          |                                           |   | (2,524                       | )       |      |   | (1,393  | )      
|Increase (decrease) in accounts payable and accrued expenses                      |                                           |   | 4,121                        |         |      |   | (6,993  | )      
|Increase in security deposits payable                                             |                                           |   | 80                           |         |      |   | 220     |        
|                                                                                  |                                           |   |                              |         |      |   |         |        
|                                                                                  | Net cash provided by operating activities |   |                              | 22,045  |      |   |         | 6,660   |  
|                                                                                  |                                           |   |                              |         |      |   |         |        
|Cash flows from investing activities:                                             |                                           |   |                              |         |      |   |         |        
|Purchase of furniture and equipment, net of disposals                             |                                           |   | (55                          | )       |      |   | (8      | )      
|Real estate acquisitions                                                          |                                           |   | (68,133                      | )       |      |   | (18,482 | )      
|                                                                                  |                                           |   |                              |         |      |   |         |        
|                                                                                  | Net cash used in investing activities     |   |                              | (68,188 | )    |   |         | (18,490 | )
|                                                                                  |                                           |   |                              |         |      |   |         |        
|Cash flows from financing activities:                                             |                                           |   |                              |         |      |   |         |        
|Proceeds from borrowings under credit facilities                                  |                                           |   | 56,578                       |         |      |   | 39,800  |        
|Proceeds from mortgage debt                                                       |                                           |   | 48,600                       |         |      |   | 661     |        
|Repayment of borrowings under credit facilities                                   |                                           |   | (32,400                      | )       |      |   | (24,598 | )      
|Mortgage principal payments                                                       |                                           |   | (3,350                       | )       |      |   | (4,002  | )      
|Payment of cash dividend                                                          |                                           |   | (10,367                      | )       |      |   | (8,175  | )      
|Distributions to minority partners                                                |                                           |   | (3,114                       | )       |      |   | (3,255  | )      
|Repurchase of common shares                                                       |                                           |   |                             |         |      |   | (142    | )      
|Payment for the purchase of outstanding warrants to purchase
common shares        |                                           |   | (6,328                       | )       |      |   |        |        
|Proceeds from issuance of common shares, net of costs                             |                                           |   | 3,665                        |         |      |   | 6,143   |        
|                                                                                  |                                           |   |                              |         |      |   |         |        
|                                                                                  | Net cash provided by financing activities |   |                              | 53,284  |      |   |         | 6,432   |  
|                                                                                  |                                           |   |                              |         |      |   |         |        
|Net increase (decrease) in cash and cash equivalents                              |                                           |   | 7,141                        |         |      |   | (5,398  | )      
|Cash and cash equivalents at beginning of period                                  |                                           |   | 9,490                        |         |      |   | 6,298   |        
|                                                                                  |                                           |   |                              |         |      |   |         |        
|Cash and cash equivalents at end of period                                        |                                           | $ | 16,631                       |         |      | $ | 900     |        
|                                                                                  |                                           |   |                              |         |      |   |         |        
|Supplemental Data:                                                                |                                           |   |                              |         |      |   |         |        
|Real estate acquisitions in exchange for equity issuance                          |                                           | $ | 19,000                       |         |      | $ | 512     |        
|                                                                                  |                                           |   |                              |         |      |   |         |        
|Interest paid during the period                                                   |                                           | $ | 5,555                        |         |      | $ | 17,375  |        
|                                                                                  |                                           |   |                              |         |      |   |         |        

See accompanying Notes to Consolidated Financial Statements.

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CAPITAL AUTOMOTIVE REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.     ORGANIZATION AND BASIS OF PRESENTATION

Organization

Capital Automotive REIT (the Company) is a Maryland real estate investment
trust formed in October 1997. We own interests in real estate and conduct our
operations, directly or indirectly, through Capital Automotive L.P. (the
Partnership) and its subsidiaries. We are the sole general partner of the
Partnership and, as of March 31, 2002, owned approximately 75.1% of the units
of limited partnership interest in the Partnership (Units). References to
we, us and our refer to the Company or, if the context requires, the
Partnership and our business and operations conducted through the Partnership
and/or directly or indirectly owned subsidiaries.

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

As of March 31, 2002, we had invested more than $1.3 billion in 274 properties
located in 28 states (Alabama, Arizona, California, Colorado, Connecticut,
Florida, Georgia, Idaho, Illinois, Indiana, Louisiana, Maryland, Michigan,
Missouri, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio,
Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah and
Virginia), comprising approximately 1,900 acres of land and containing
approximately 10.7 million square feet of buildings and improvements. Our
tenants operate 383 motor vehicle franchises on our properties, representing
nearly 45 brands of motor vehicles, which include all of the top selling brands
in the U.S. The initial lease terms generally range from 10 to 20 years, with
a weighted average initial lease term of approximately 14 years. The leases
typically have options to renew upon the same terms and conditions for one or
more additional periods of five to 10 years each exercisable at the option of
the tenant (ranging from a total of five to 40 years).

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared
by management in accordance with accounting principles generally accepted in
the United States (GAAP) for interim financial information and in conformity
with the rules and regulations of the Securities and Exchange Commission (the
SEC). Accordingly, they do not include all of the information and footnotes
required by GAAP for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. The

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results of operations for the three months ended March 31, 2002, are not necessarily
indicative of the results that may be expected for the full year. These
financial statements should be read in conjunction with our audited
consolidated financial statements and
footnotes thereto, included in the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2001.

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

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

Real Estate and Depreciation

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

Cash and Cash Equivalents

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

Deferred Loan Costs

Certain costs incurred in connection with obtaining our credit facilities and
issuance of mortgage debt are capitalized and generally amortized over the
terms of the respective credit facilities or debt on a straight-line basis
(which approximates the effective interest method). These costs, net of
accumulated amortization, are included in other assets and total approximately
$7.9 million and $7.2 million as of March 31, 2002 and December 31, 2001,
respectively.

Capitalized Leasing Costs

Certain initial direct costs incurred by us in negotiating and consummating a
successful lease are capitalized and generally amortized over the initial base
term of the lease. These costs, net of accumulated amortization, are included
in other assets and total approximately $1.1 million and $1.0 million as of
March 31, 2002 and December 31, 2001, respectively. Capitalized leasing costs
include employee compensation and payroll related fringe benefits directly
related to time spent performing leasing related activities. Such activities
include evaluating the prospective tenants financial condition, evaluating and
recording guarantees, collateral and other security arrangements, negotiating
lease terms, preparing lease documents and closing the transaction.

Income Taxes

We are qualified as a real estate investment trust under the provisions of the
Internal Revenue Code of 1986, as amended (the Code). As a real estate
investment trust, we are generally not subject to federal

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income tax to the
extent that we distribute annually at least 90% of our taxable income to our
shareholders and comply with certain other requirements.

Rental Revenue Recognition

We lease our real estate pursuant to long-term, triple-net leases, under which
the tenants typically pay all operating expenses of a property, including, but
not limited to, all real estate taxes, assessments and other government
charges, insurance, utilities, repairs and maintenance. All leases are
accounted for as operating leases and rental income attributable to the leases
is recorded monthly when due from tenants. Rental income attributable to the
majority of our leases is fixed per the lease agreement. However, under our
variable rate lease program, monthly base rent is calculated based on a spread
over an applicable index, typically LIBOR. As of March 31, 2002, $320.5
million of our $1.3 billion real estate portfolio, or 24%, was subject to
variable rate leases. This compares to $85 million of our $1.06 billion real
estate portfolio, or 8%, that was subject to variable rate leases as of March
31, 2001. Of the total variable rate leases, the majority of the lease
agreements contain minimum rates and fixed rate conversion features, and none
of such leases contain a maximum rate.

Our leases typically provide for upward periodic adjustments in base rent due
from our tenants, usually based on a factor of the change in the consumer price
index (CPI). Certain of our leases also or alternatively provide for a fixed
minimum and/or maximum periodic adjustment during the initial lease term,
generally based on a fixed percentage of the base rent. We straight-line the
fixed minimum escalator rental income over the initial lease term. Any rent
adjustments above the fixed minimum escalators are recorded as revenue in the
period they are due from the tenants. Straight-lined rents are included in
other assets and total approximately $8.2 million and $6.7 million as of March
31, 2002 and December 31, 2001, respectively.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.

3.     NEW ACCCOUNTING PRONOUNCEMENTS

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

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (effective for the Company on January 1, 2002).
SFAS No. 144 requires that one accounting model be used for long-lived assets
to be disposed of by sale, whether previously held and used or newly acquired,
and broadens the presentation of discontinued operations to include more
disposal transactions. The adoption of SFAS No. 144 has not had any
significant impact on our financial condition or results of operations.

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4.     ACQUISITIONS

During the three months ended March 31, 2002, we completed approximately $87.1
million of property acquisitions, which included 14 properties and several
facility improvements and construction fundings, all of which are leased to
existing tenants. We funded the acquisitions with the issuance of 869,167
Units (valued at $19 million at the time of the acquisition), the issuance of
$48.6 million of 10 year long-term variable rate debt with General Motors
Acceptance Corporation and the remainder with funds drawn down on our
short-term credit facilities. These acquisitions added approximately 786,000
square feet of buildings and improvements on
approximately 102 acres of land in 10 states (Colorado, Florida, Indiana,
Michigan, New Jersey, Nevada, North Carolina, Ohio, Tennessee and Texas). The
leases have been structured using our variable rate lease program and have
initial lease terms ranging from 12 to 21 years, with a weighted average
initial lease term of 15.7 years. These leases have renewal options
exercisable at the option of the tenant ranging from a total of 10 to 20 years.

Included in the first quarter acquisitions are 13 properties totaling $71.4
million leased under variable rate leases to Sonic Automotive, Inc. and its
affiliates (Sonic). Fourteen motor vehicle franchises are operated on these
properties, including Bentley, Cadillac, Honda, Oldsmobile, Rolls Royce, Saab,
and Volvo. These properties were acquired pursuant to an $80 million letter of
intent (LOI) issued to Sonic during the first quarter of 2002, of which $53
million of properties were acquired from the Don Massey Dealerships and $18.4
million of properties were acquired from Sonic. Remaining under the LOI are
two properties, totaling approximately $11 million, which contain two
franchises (Honda and Cadillac), which are subject to definitive purchase
agreements. The acquisition of these properties, which is expected to close
during the second quarter of 2002, is subject to completion of due diligence
and customary closing conditions. We currently lease 81 properties to Sonic,
representing approximately 26% of our total annualized rental revenue as of
March 31, 2002.

5.     MORTGAGE DEBT AND REVOLVING CREDIT FACILITIES

As of March 31, 2002, we had total debt outstanding of $770.6 million. Of this
debt, approximately $682.9 million (consisting of $376.2 million of fixed rate
and $306.7 million of variable rate debt) was mortgage debt secured by
approximately 230 of our properties. In addition, we had $87.7 million
outstanding on our revolving credit facilities.

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

|                                                     |                                   |                      |         |         |  |      |                   |         |                    |          |                    |         |                    |  |      |      |   |                   |   |  | 
|---------------------------------------------------- | --------------------------------- | -------------------- | ------- | ------- |  | ---- | ----------------- | ------- | ------------------ | -------- | ------------------ | ------- | ------------------ |  | ---- | ---- | - | ----------------- | - |  | 
|                                                     |                                   |                      |         |         |  |      | Principal Balance |         | Principal Balance  |          |                    |         |                    |  |      |      |  
|                                                     |                                   |                      |         |         |  |      | as of March 31,   |         | as of December 31, |          | Effective Interest |         | Term/ Amortization
|Description of Debt                                  |                                   | Original Debt Issued |         | 2002    |  | 2001 |                   | Rate*   |                    | Schedule
|7.59% fixed rate debt due 12/1/08                    |                                   | $                    | 38,050  |         |  | $    | 35,557            |         |                    | $        | 35,886             |         |                    |  | 8.00 | %    |   | 10 yr/17 yr      
|7.635% fixed rate debt due 10/1/14                   |                                   |                      | 111,950 |         |  |      | 97,713            |         |                    |          | 98,891             |         |                    |  | 7.91 | %    |   | 15 yr/15 yr      
|8.05% fixed rate debt due 10/1/14                    |                                   |                      | 85,000  |         |  |      | 77,446            |         |                    |          | 78,319             |         |                    |  | 8.33 | %    |   | 15 yr/15 yr      
|7.54% fixed rate debt due 7/6/11                     |                                   |                      | 100,000 |         |  |      | 96,132            |         |                    |          | 96,132             |         |                    |  | 7.71 | %    |   | 12 yr/25 yr      
|7.565% fixed rate debt due 11/12/12 (1)              |                                   |                      | 28,500  |         |  |      | 27,360            |         |                    |          |                   |         |                    |  | 7.67 | %    |   | 12 yr/25 yr      
|7.5975% fixed rate debt due 12/18/12 (1)             |                                   |                      | 32,054  |         |  |      | 30,918            |         |                    |          |                   |         |                    |  | 7.63 | %    |   | 12 yr/30 yr      
|7.50% fixed rate debt due 1/20/03                    |                                   |                      | 12,000  |         |  |      | 11,050            |         |                    |          | 11,108             |         |                    |  | 7.76 | %    |   | 4.25 yr/20 yr    
|                                                     |                                   |                      |         |         |  |      |                   |         |                    |          |                    |         |                    |  |      |      |   |                   |   | 
|Total Mortgage Fixed Rate Debt                       |                                   | $                    | 407,554 |         |  | $    | 376,176           |         |                    | $        | 320,336            |         |                    |  | 7.91 | %    |   |                   |   | 
|Variable rate debt due 9/29/11 (2)                   |                                   | $                    | 150,000 |         |  | $    | 148,507           |         |                    |          | 149,419            |         |                    |  | 4.16 | %    |   | 12 yr/25 yr      
|Variable rate debt due 8/10/13 (3)                   |                                   |                      | 82,600  |         |  |      | 81,223            |         |                    |          | 81,223             |         |                    |  | 3.67 | %    |   | 12 yr/30 yr      
|Variable rate debt swapped to fixed rate debt (1)    |                                   |                      | 60,554  |         |  |      |                  |         |                    |          | 58,278             |         |                    |  | 4.00 | %    |   |                   |  | 
|Various variable rate debt (4)                       |                                   |                      | 78,600  |         |  |      | 77,000            |         |                    |          | 28,400             |         |                    |  | 4.92 | %    |   | 10 to 11 yr/25 yr
|                                                     |                                   |                      |         |         |  |      |                   |         |                    |          |                    |         |                    |  |      |      |   |                   |   | 
|                                                     | Total Mortgage Variable Rate Debt |                      | $       | 371,754 |  |      | $                 | 306,730 |                    |          | $                  | 317,320 |                    |  |      | 4.00 | % |                   |   |  | 
|                                                     |                                   |                      |         |         |  |      |                   |         |                    |          |                    |         |                    |  |      |      |   |                   |   | 
|TOTAL MORTGAGE DEBT                                  |                                   |                      |         |         |  | $    | 682,906           |         |                    | $        | 637,656            |         |                    |  | 7.11 | %    |   |                   |   | 
|$50 million revolving partially secured facility (5) |                                   |                      |         |         |  |      | 9,578             |         |                    |          | 17,400             |         |                    |  | 3.76 | %    |   | 3 yr             
|$100 million revolving secured facility (6)          |                                   |                      |         |         |  |      | 78,108            |         |                    |          | 46,108             |         |                    |  | 4.19 | %    |   | 1 yr             
|                                                     |                                   |                      |         |         |  |      |                   |         |                    |          |                    |         |                    |  |      |      |   |                   |   | 
|TOTAL CREDIT FACILITIES                              |                                   |                      |         |         |  | $    | 87,686            |         |                    | $        | 63,508             |         |                    |  | 4.08 | %    |   |                   |   | 
|                                                     |                                   |                      |         |         |  |      |                   |         |                    |          |                    |         |                    |  |      |      |   |                   |   | 
|TOTAL DEBT OUTSTANDING                               |                                   |                      |         |         |  | $    | 770,592           |         |                    | $        | 701,164            |         |                    |  | 6.84 | %    |   |                   |   | 
|                                                     |                                   |                      |         |         |  |      |                   |         |                    |          |                    |         |                    |  |      |      |   |                   |   | 



---

|*   |  | For the quarter ended March 31, 2002. Includes deferred loan fees
amortized over the life of the loans.                                                                                                                                                                                                                                                                                                                             
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) |  | These loans bear interest equal to the 30-day LIBOR rate plus 215
basis points and require quarterly interest and level principal
payments until maturity. During the first quarter of 2002, we entered
into interest rate swap arrangements with a third party on these loans
to fix the interest rate. The new blended rate on the debt is
approximately 7.58%.                                                                   
|   
|(2) |  | This loan was converted from fixed rate to variable rate during the
third quarter of 2001. Following the conversion, the loan bears
interest equal to the 30-day LIBOR rate plus 227 basis points and
requires monthly level payments of principal and interest until
maturity.                                                                                                                                                     
|   
|(3) |  | This loan bears interest equal to the 30-day LIBOR rate plus 175
basis points and requires quarterly interest and level principal
payments until maturity. During the third quarter of 2001, we entered
into an agreement with a third party to swap the variable rate to a
7.31% fixed rate, effective July 1, 2002, which was subsequently
extended during the first quarter of 2002 to November 1, 2002 at a fixed
rate of 7.50%.
|   
|(4) |  | These loans bear interest at variable rates ranging from 200 to 357
basis points above the A1-P1 Commercial Paper Rate or the 30-day LIBOR
rate and have maturity dates ranging from December 22, 2009 to May 1,
2012. The terms of the various loans require either quarterly interest
and level principal payments or monthly level payments of principal and
interest until maturity.                                            

10



---



##### 



|(5) |  | Amounts borrowed under the facility bear interest equal to the 30-day
LIBOR rate plus 175 basis points and requires the repayment of secured
borrowings within 12 months and unsecured borrowings within 150 days.
The facility matured on March 3, 2002 and has been extended until such
time we elect to replace it with our new $60 million unsecured
revolving credit facility, which closed at the end of the first quarter
of 2002. The new facility provides for a three-year term with interest
equal to the 30-day LIBOR rate plus 200 basis points and requires the
repayment of borrowings within 180 days. We expect to replace the
existing $50 million secured revolving credit facility with this new
facility in the second quarter of 2002.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(6) |  | Amounts borrowed under this facility bear interest at market rates
determined at the time of each draw until such time as we and the lender
set an interest rate for any future amounts borrowed under the facility.
As of March 31, 2002, the borrowings under the facility bears interest
equal to the 30-day LIBOR rate plus 225 to 275 basis points. The
facility requires the repayment of principal within 150 days. The facility has a
one-year term, which terminates on March 21, 2003, and is renewable annually.                                                                                                                                                                                                                                 

As of March 31, 2002, we were in compliance with all of the loan covenants
related to our mortgage debt and credit facilities.

Aggregate annual principal maturities (which includes principal amortization)
of mortgage debt as of March 31, 2002 are as follows (in thousands):

|                                |  |   |         | 
|------------------------------- |  | - | ------- | 
|For the Year Ended December 31, |  |   |         | 
|2002                            |  | $ | 17,174  | 
|2003                            |  |   | 32,701  | 
|2004                            |  |   | 23,039  | 
|2005                            |  |   | 24,427  | 
|2006                            |  |   | 25,828  | 
|Thereafter                      |  |   | 559,737 | 
|                                |  |   |         | 
|Total                           |  | $ | 682,906 | 
|                                |  |   |         | 

Interest Rate Swap

In June 1998, the FASB issued SFAS No. 133, ''Accounting for Derivative
Instruments and Hedging Activities. This statement was originally effective
for all fiscal quarters of fiscal years beginning after June 15, 1999; however,
during the second quarter of 1999 the FASB issued SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities  Deferral of the Effective Date
of FASB Statement No. 133, which deferred the effective date until June 15,
2000. In June 2000, the FASB issued SFAS No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities, an amendment to SFAS
No. 133, which required that all companies be in compliance with SFAS No. 133
as of January 1, 2001. SFAS No. 133 does not require restatement of financial
statements from prior periods. SFAS No. 133 requires an entity to recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. We adopted SFAS No. 133
on January 1, 2001. There was no impact to our financial statements at the
time of adoption.

During the third quarter of 2001, we borrowed $82.6 million of long-term debt
drawn under a $150 million commitment for secured financing from Toyota
Financial Services. The terms of the debt provide for a 12-year term with
interest at a spread over the one-month LIBOR rate. At the end of the third
quarter, we entered into an agreement with a third party to swap the variable
rate to a 7.31% fixed rate, effective July 1, 2002, which was subsequently
extended during the first quarter of 2002 to November 1, 2002 at a fixed rate
of 7.50%. All other terms and conditions of the swap remain the same.

11



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##### 



During the first quarter of 2002, we converted the rent on approximately $71.2
million of property leased to Sonic from variable rate to fixed rate. At the
same time, we entered into interest rate swap arrangements with a third party
on approximately $58.3 million of variable rate debt that is secured primarily
by such properties to fix the interest rate. The terms of the debt provide for
a 12-year term with interest at a spread over the one-month LIBOR rate. The
new blended fixed rate on the debt is approximately 7.58%.

Fixing the rate on $140.9 million of debt with interest rate swap arrangements
and extending the effective date of the swap on the $82.6 million of debt,
continues our strategy of minimizing interest rate risk by substantially
match-funding our leases with debt in order to lock in our investment spread
over the lease term, and at the same time, potentially garnering more spread in
the short term.

These swaps were designed to mirror the underlying variable rate debt in terms
of index, spread, reset, amortization, compounding and maturity. Due to the
identical nature of the terms of the swap arrangements and the underlying terms
of the debt, we determined that these derivative instruments are highly
effective. Consequently, the unrealized gain or loss upon measuring the swaps
at their fair value is recorded as a component of accumulated other
comprehensive income within shareholders equity on our consolidated balance
sheets and statements of changes in shareholders equity and other
comprehensive income, and, depending on the fair value of the swaps, as either
a derivative instrument asset or derivative instrument liability on our
consolidated balance sheets. As of March 31, 2002, we had an unrealized gain
on the swaps of approximately $2.9 million, which is included in other assets
on our consolidated balance sheets and accumulated other comprehensive income
within our consolidated balance sheets and statements of changes in
shareholders equity and other comprehensive income.

6.     MINORITY INTEREST

Minority interest represents the Units of the Partnership owned by limited
partners (other than the Company) of the Partnership. Minority interest is
calculated at approximately 24.9% of the Partnerships partners capital as of
March 31, 2002 and approximately 23.2% of the Partnerships partners net
income for the three months ended March 31, 2002. The ownership of the
Partnership as of March 31, 2002 is as follows (Units in thousands):

|                   |                  |       |  |          |          |         |  |      |       |  
|------------------ | ---------------- | ----- |  | -------- | -------- | ------- |  | ---- | ----- | -
|                   |                  |       |  | Units    |          | Percent
|                   |                  |       |  |          |          |        
|Partners capital: |                  |       |  |          |          |         |  |     
|                   | Limited Partners |       |  | 8,875.5  |          |         |  | 24.9 | %    
|                   | The Company      |       |  | 26,718.5 |          |         |  | 75.1 | %    
|                   |                  |       |  |          |          |         |  |     
|                   |                  | Total |  |          | 35,594.0 |         |  |      | 100.0 | %
|                   |                  |       |  |          |          |         |  |     

7.     EARNINGS PER SHARE

Basic earnings per share is computed as net income divided by the weighted
average common shares outstanding for the period. Diluted earnings per share
is computed as net income, adjusted to reflect the change in our share of
income based on an ownership calculation that includes weighted average common
share equivalents, divided by the weighted average common shares outstanding
for the period plus the effect of dilutive common equivalent shares outstanding
for the period, based on the treasury stock method. Dilutive common equivalent
shares include restricted shares, phantom shares, options and warrants. A
reconciliation of net income and weighted average common shares used to
calculate basic and diluted earnings per share for the three months ended March
31, 2002 and 2001 is as follows (in

12



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##### 



thousands, except per share data):

|                             |  |                              |        |        |  |                    |        |            |  |        |       |                    |  |   |       |                  |  |  |        |  |  |   |       |  
|---------------------------- |  | ---------------------------- | ------ | ------ |  | ------------------ | ------ | ---------- |  | ------ | ----- | ------------------ |  | - | ----- | ---------------- |  |  | ------ |  |  | - | ----- | -
|                             |  | Three Months Ended March 31,
|                             |  |                             
|                             |  | 2002                         |        | 2001  
|                             |  |                              |        |       
|                             |  |                              |        |        |  | Weighted Average   |        |            |  |        |       |                    |  |   |       | Weighted Average |  |  |        | 
|                             |  | Net Income                   |        | Shares |  | Earnings Per Share |        | Net Income |  | Shares |       | Earnings Per Share
|                             |  |                              |        |        |  |                    |        |            |  |        |       |                   
|Earnings per share  basic   |  | $                            | 10,854 |        |  |                    | 26,547 |            |  | $      | 0.41  |                    |  | $ | 6,808 |                  |  |  | 21,485 |  |  | $ | 0.32  |  
|Adjustments (1)              |  |                              | 117    |        |  |                    | 1,287  |            |  |        | (0.02 | )                  |  |   |      |                  |  |  | 377    |  |  |   | (0.01 | )
|                             |  |                              |        |        |  |                    |        |            |  |        |       |                    |  |   |       |                  |  |  |        |  |  |   |       |  
|Earnings per share  diluted |  | $                            | 10,971 |        |  |                    | 27,834 |            |  | $      | 0.39  |                    |  | $ | 6,808 |                  |  |  | 21,862 |  |  | $ | 0.31  |  



---

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

8.     401(k) PLAN

During 1998, we adopted the Capital Automotive L.P. Employee 401(k) Plan (the
401(k) Plan). Employees who are at least 21 years of age are eligible to
participate in the 401(k) Plan after three months of service. Participants may
contribute up to 20% of their earnings, on a pre-tax basis, subject to annual
limitations imposed by the Code. We may make matching or discretionary
contributions to the 401(k) Plan. These contributions will vest ratably over
five years from each employees date of service. During December 2001, we
approved a 20% match of the participants elected deferral contribution during
2002 (subject to maximum limits).

9.     SUBSEQUENT EVENTS

Declaration of Dividend

On April 16, 2002, our Board of Trustees declared a cash dividend of $0.3935
per share, which will be paid on May 21, 2002 to shareholders of record as of
May 10, 2002.

13



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##### 



CAPITAL AUTOMOTIVE REIT
ITEM II  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS  THREE MONTHS ENDED MARCH 31, 2002 AND
MARCH 31, 2001

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

This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange
Act). Also, documents that we subsequently file with the Securities and
Exchange Commission (the SEC) will contain forward-looking statements. When
we refer to forward-looking statements or information, sometimes we use words
such as may, will, could, should, plans, intends, expects,
believes, estimates, anticipates and continues. In particular, Item
II and Item III of Part I of this Form 10-Q describe forward-looking
information. The statements made herein are not all inclusive, particularly
with respect to possible future events, and should be read together with other
filings made by the Company under the Securities Act and the Exchange Act,
including the risks and other risk factors contained in the Companys Form
8-K/A filed on January 22, 2002. Other parts of this Form 10-Q may also
describe forward-looking information. Many things can happen that can cause our
actual results to be very different than those described. These factors
include:



| |  |  | risks that our tenants will not pay rent;                                                                                                                                                                                                                                                                                                    
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | risks that our growth will be limited if we cannot obtain additional capital;                                                                                                                                                                                                                                                                
|
| |  |  | risks of financing, such as our ability to
consummate planned and additional financings on terms which
are acceptable to us and our ability to meet existing
financial covenants;                                                                                                                                                            
|
| |  |  | risks that planned and additional acquisitions may not be consummated;                                                                                                                                                                                                                                                                       
|
| |  |  | risks that our operating costs will be higher than expected;                                                                                                                                                                                                                                                                                 
|
| |  |  | risks related to the automotive industry, such as
the ability of our tenants to compete effectively in the
automotive retail industry and the ability of our tenants
to perform their lease obligations as a result of changes
in any manufacturers production, inventory, marketing or
other practices or changes in the economy generally;
|
| |  |  | environmental and other risks associated with the
acquisition and leasing of automotive properties; and                                                                                                                                                                                                                                      
|
| |  |  | risks related to our status as a REIT for federal
income tax purposes, such as the existence of complex
regulations relating to our status as a REIT, the effect of
future changes in REIT requirements as a result of new
legislation and the adverse consequences of the failure to
qualify as a REIT.                                     

Given these uncertainties, readers are cautioned not to place undue reliance on
these forward-looking statements. We also make no promise to update any of the
forward-looking statements, or to publicly release the results if we revise any
of them.

14



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##### 



OVERVIEW

Our primary business strategy is to purchase real estate (land, buildings and
other improvements), which we simultaneously lease to operators of franchised
automobile dealerships and motor vehicle service, repair, parts or other
related businesses under long-term, triple-net leases. We focus on leasing
properties to dealer groups that have a long history of operating multi-site,
multi-franchised dealerships, generally targeting the largest dealer groups in
terms of revenues in the largest major metropolitan areas in the U.S. in terms
of population. In addition, we also provide facility improvement and expansion
funding, construction financing and takeout commitments in certain
circumstances. As of March 31, 2002, we had invested more than $1.3 billion in
274 properties located in 28 states, comprising approximately 1,900 acres of
land and containing approximately 10.7 million square feet of buildings and
improvements. Our tenants operate 383 motor vehicle franchises on our
properties, representing nearly 45 brands of motor vehicles, which include all
of the top selling brands in the U.S.

Substantially all of our properties are leased pursuant to long-term,
triple-net leases, under which the tenants typically pay all operating expenses
of a property, including, but not limited to, all real estate taxes,
assessments and other government charges, insurance, utilities, repairs and
maintenance. The initial lease terms generally range from 10 to 20 years, with
a weighted average initial lease term of approximately 14 years. The leases
typically have options to renew upon the same terms and conditions for one or
more additional periods of five to 10 years each exercisable at the option of
the tenant (ranging from a total of five to 40 years).

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

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

FIRST QUARTER ACQUISITIONS

During the three months ended March 31, 2002, we completed approximately $87.1
million of property acquisitions, which included 14 properties and several
facility improvements and construction fundings, all of which are leased to
existing tenants. We funded the acquisitions with the issuance of 869,167
Units (valued at $19 million at the time of the acquisition), the issuance of
$48.6 million of 10 year long-term variable rate debt with General Motors
Acceptance Corporation and the remainder with funds drawn down on our
short-term credit facilities. These acquisitions added approximately 786,000
square feet of buildings and improvements on approximately 102 acres of land in
10 states (Colorado, Florida, Indiana, Michigan, New Jersey, Nevada, North
Carolina, Ohio, Tennessee and Texas). The leases have been structured using
our variable rate lease program and have initial lease terms ranging from 12 to
21 years, with a weighted average initial lease term of 15.7 years. These
leases have renewal options exercisable at the option of the tenant ranging
from a total of 10 to 20 years.

Included in the first quarter acquisitions are 13 properties totaling $71.4
million leased under variable rate leases to Sonic Automotive, Inc. and its
affiliates (Sonic). Fourteen motor vehicle franchises are

15



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##### 



operated on these
properties, including Bentley, Cadillac, Honda, Oldsmobile, Rolls Royce, Saab,
and Volvo. These properties were acquired pursuant to an $80 million letter of
intent (LOI) issued to Sonic during the first quarter of 2002, of which $53
million of properties were acquired from the Don Massey Dealerships and $18.4
million of properties
were acquired from Sonic. Remaining under the LOI are two properties, totaling
approximately $11 million, which contain two franchises (Honda and Cadillac),
which are subject to definitive purchase agreements. The acquisition of these
properties, which is expected to close during the second quarter of 2002, is
subject to completion of due diligence and customary closing conditions. We
currently lease 81 properties to Sonic, representing approximately 26% of our
total annualized rental revenue as of March 31, 2002.

RESULTS OF OPERATIONS

Revenue

Rental.Rental revenue for the three months ended March 31, 2002 increased 16%
to $32.3 million from $28.0 million for the same quarter in 2001. The increase
was primarily attributable to:



| |  | the growth of our real estate
portfolio and the timing of our
property acquisitions, from which we
generate our rental income. We owned
274 properties as of March 31, 2002
versus 248 properties as of March 31,
2001;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | during the first quarter of 2002, we
converted the leases on approximately
$71.2 million of property for Sonic
from variable rate to fixed rate,
resulting in an increase in rental
revenue. At the same time, we entered
into interest rate swap arrangements
with a third party to fix the interest
rate on approximately $58.3 million of
variable rate debt that is secured
primarily by such properties. Fixing
the underlying debt simultaneously
with the lease conversion continues
our strategy of minimizing interest
rate risk by substantially
match-funding our leases with debt in
order to lock in our investment spread
over the initial lease term. Other
terms of the leases, including lease
escalators, remained unchanged;
| 
| |  | an increase in straight-lined rents,
which for the three months ended March
31, 2002 totaled $1.5 million, as
compared to $779,000 for the three
months ended March 31, 2001; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| 
| |  | an increase from rent adjustments
above the fixed minimum escalators,
which are recorded as revenue in the
period they are due from the tenants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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



| |  | a decrease in lease rates on our
variable rate leases. As of March 31,
2002, $320.5 million of our $1.3
billion real estate portfolio, or 24%,
was subject to variable rate leases.
This compares to $85 million of our
$1.06 billion real estate portfolio,
or 8%, that was subject to variable
rate leases as of March 31, 2001. We
had a corresponding decrease in
interest rates on our variable rate
debt resulting in reduced interest
expense, which is more fully described
below. Under our variable rate lease
program, rental income attributable to
our leases is variable, and monthly
base rent is calculated based on a
spread over an applicable index,
typically LIBOR. Of the total
variable rate leases, the majority of
the lease agreements contain minimum
rates and fixed rate conversion
features, and none of such leases
contain a maximum rate; and
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16



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##### 





| |  |  during the third quarter of 2001, we
converted the leases relating to
$185.3 million of property leased to
Sonic from fixed rate to variable
rate, resulting in a decrease in
rental income. We also converted the
interest rate on approximately $150
million of debt that is primarily
secured by the properties subject to
these leases from fixed rate to
variable rate. Other terms of the
leases, including lease escalators,
remained unchanged.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Interest and Other.Interest and other income for the three months ended March
31, 2002 increased to $129,000 from $61,000 for the same quarter in 2001. The
increase was due to an increase in interest earned on
temporary investments and other fee income.

Expenses

Depreciation and Amortization.Depreciation and amortization for the three
months ended March 31, 2002 increased 18% to $6.0 million from $5.0 million for
the same quarter in 2001. Depreciation and amortization consisted primarily of
depreciation on buildings and improvements owned during those periods. The
increase is attributable to the growth of our real estate portfolio, resulting
in an increase in our depreciable assets.

General and Administrative.General and administrative expenses for the three
months ended March 31, 2002 increased $404,000, or 24%, to $2.1 million from
$1.7 million for the same quarter in 2001. The increase in the first quarter
operating expenses from the same quarter last year is due primarily to (1) an
increase in payroll and related expenses primarily attributable to an increase
in base compensation, the award of additional stock based compensation to
employees, and an increase in the number of employees; (2) an increase in
office administration expenses as a result of an increase in staffing
requirements; (3) an increase in system administration fees for several
projects initiated and completed during the first quarter of 2002 related to
the expansion of our hardware infrastructure to improve security, reliability
and capacity; (4) an increase in state income taxes due to the growth in our
real estate portfolio during 2001 and 2002; (5) an increase in directors and
officers insurance due to an increase in market rates; and (6) an increase in
costs associated with our public reporting requirements due to an increase in
the number of shareholders. The increase in general and administrative
expenses was partially offset by a decrease in professional service fees.

Interest.Interest expense for the three months ended March 31, 2002 decreased
14% to $10.3 million from $11.9 million for the same quarter in 2001. Our
overall debt increased from $597.6 million ($478.9 million fixed rate debt and
$118.7 million variable rate debt) as of March 31, 2001 to $770.6 million
($376.2 million fixed rate debt and $394.4 million variable rate debt) as of
March 31, 2002, which debt was primarily obtained to finance acquisition of
properties during that time period. Although our overall debt increased, the
mix of variable rate debt to total debt increased from 20% to over 50%. The
decrease in interest expense over the prior period was due to the shift from
fixed to variable rate debt and the reduction of interest rates. The effective
interest rate on our debt, which includes deferred loan fees amortized over the
life of the loans, decreased from 8.12% in the first quarter of 2001 to 6.84%
in the first quarter of 2002. The decrease was partially offset by the
conversion of $58.3 million of variable rate debt to fixed rate debt during the
first quarter of 2002 through the execution of swap arrangements with a third
party. The swap arrangements were executed in conjunction with our conversion
of $71.2 million of property which Sonic leases from variable rate to fixed
rate leases, as described above.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents were $16.6 million and $900,000 at March 31, 2002 and
March 31, 2001, respectively. The changes in cash and cash equivalents during
the three months ended March 31, 2002 and 2001 were attributable to operating,
investing and financing activities, as described below.

17



---



##### 



Operating Activities

Cash provided by operating activities for the three months ended March 31, 2002
and 2001 was $22.0 million and $6.7 million, respectively, and represents, in
each year, cash received primarily from rents under long-term, triple-net
leases, plus interest and other income, less normal recurring general and
administrative expenses and interest payments on debt outstanding.

Investing Activities

Cash used in investing activities for the three months ended March 31, 2002 and
2001 was $68.2 million and $18.5 million, respectively, and primarily reflects
the acquisition of dealership properties, facility improvements and
construction financings during those periods.

Financing Activities

Cash provided by financing activities for the three months ended March 31, 2002
and 2001 was $53.3 million and $6.4 million, respectively. Cash provided by
financing activities for the three months ended March 31, 2002 primarily
reflects:



| |  |  | $56.6 million of proceeds received from borrowings on our revolving credit facilities;
| | - |  | --------------------------------------------------------------------------------------
|
| |  |  | $48.6 million of proceeds received from mortgage debt incurred during the period; and 
|
| |  |  | $3.7 million of proceeds received from the issuance of common shares, net of costs.   

The cash provided by financing activities was partially offset by:



| |  |  | the repayment of borrowings on our revolving credit facilities totaling $32.4 million;                                                                                                                                     
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | distributions made to shareholders and minority partners during the
period totaling $13.5 million;                                                                                                                         
|
| |  |  | payments made during the first quarter of 2002 totaling $6.0
million and $293,000 to purchase outstanding warrants to purchase
common shares during the fourth quarter of 2001 and first quarter of
2002, respectively; and
|
| |  |  | payments of principal on outstanding mortgage debt totaling $3.4
million.                                                                                                                                                  

Cash provided by financing activities for the three months ended March 31, 2001
primarily reflects:



| |  |  | $39.8 million of proceeds received from borrowings on our revolving credit facilities; 
| | - |  | ---------------------------------------------------------------------------------------
|
| |  |  | $6.1 million of proceeds received from the issuance of common shares, net of costs; and
|
| |  |  | $661,000 million of proceeds received from mortgage debt incurred during the period.   

The cash provided by financing activities was partially offset by:



| |  |  | the repayment of borrowings on our revolving credit facilities totaling $24.6 million;            
| | - |  | --------------------------------------------------------------------------------------------------
|
| |  |  | distributions made to shareholders and minority partners during the
period totaling $11.4 million;
|
| |  |  | payments of principal on outstanding mortgage debt totaling $4.0
million; and                     

18



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##### 





| |  |  | the repurchase of common shares pursuant to our common share
repurchase program totaling $142,000.
| | - |  | --------------------------------------------------------------------------------------------------

Mortgage Debt and Revolving Credit Facilities

As of March 31, 2002, we had total debt outstanding of $770.6 million. Of this
debt, approximately $682.9 million (consisting of $376.2 million of fixed rate
and $306.7 million of variable rate debt) was mortgage debt secured by
approximately 230 of our properties. In addition, we had $87.7 million
outstanding on our revolving credit facilities.

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

|                                                     |                                   |                      |         |         |  |      |                   |         |                    |          |                    |         |                    |  |      |      |   |                   |   |  | 
|---------------------------------------------------- | --------------------------------- | -------------------- | ------- | ------- |  | ---- | ----------------- | ------- | ------------------ | -------- | ------------------ | ------- | ------------------ |  | ---- | ---- | - | ----------------- | - |  | 
|                                                     |                                   |                      |         |         |  |      | Principal Balance |         | Principal Balance  |          |                    |         |                    |  |      |      |  
|                                                     |                                   |                      |         |         |  |      | as of March 31,   |         | as of December 31, |          | Effective Interest |         | Term/ Amortization
|Description of Debt                                  |                                   | Original Debt Issued |         | 2002    |  | 2001 |                   | Rate*   |                    | Schedule
|7.59% fixed rate debt due 12/1/08                    |                                   | $                    | 38,050  |         |  | $    | 35,557            |         |                    | $        | 35,886             |         |                    |  | 8.00 | %    |   | 10 yr/17 yr      
|7.635% fixed rate debt due 10/1/14                   |                                   |                      | 111,950 |         |  |      | 97,713            |         |                    |          | 98,891             |         |                    |  | 7.91 | %    |   | 15 yr/15 yr      
|8.05% fixed rate debt due 10/1/14                    |                                   |                      | 85,000  |         |  |      | 77,446            |         |                    |          | 78,319             |         |                    |  | 8.33 | %    |   | 15 yr/15 yr      
|7.54% fixed rate debt due 7/6/11                     |                                   |                      | 100,000 |         |  |      | 96,132            |         |                    |          | 96,132             |         |                    |  | 7.71 | %    |   | 12 yr/25 yr      
|7.565% fixed rate debt due 11/12/12 (1)              |                                   |                      | 28,500  |         |  |      | 27,360            |         |                    |          |                   |         |                    |  | 7.67 | %    |   | 12 yr/25 yr      
|7.5975% fixed rate debt due 12/18/12 (1)             |                                   |                      | 32,054  |         |  |      | 30,918            |         |                    |          |                   |         |                    |  | 7.63 | %    |   | 12 yr/30 yr      
|7.50% fixed rate debt due 1/20/03                    |                                   |                      | 12,000  |         |  |      | 11,050            |         |                    |          | 11,108             |         |                    |  | 7.76 | %    |   | 4.25 yr/20 yr    
|                                                     |                                   |                      |         |         |  |      |                   |         |                    |          |                    |         |                    |  |      |      |   |                   |   | 
|Total Mortgage Fixed Rate Debt                       |                                   | $                    | 407,554 |         |  | $    | 376,176           |         |                    | $        | 320,336            |         |                    |  | 7.91 | %    |   |                   |   | 
|Variable rate debt due 9/29/11 (2)                   |                                   | $                    | 150,000 |         |  | $    | 148,507           |         |                    |          | 149,419            |         |                    |  | 4.16 | %    |   | 12 yr/25 yr      
|Variable rate debt due 8/10/13 (3)                   |                                   |                      | 82,600  |         |  |      | 81,223            |         |                    |          | 81,223             |         |                    |  | 3.67 | %    |   | 12 yr/30 yr      
|Variable rate debt swapped to fixed rate debt (1)    |                                   |                      | 60,554  |         |  |      |                  |         |                    |          | 58,278             |         |                    |  | 4.00 | %    |   |                   |  | 
|Various variable rate debt (4)                       |                                   |                      | 78,600  |         |  |      | 77,000            |         |                    |          | 28,400             |         |                    |  | 4.92 | %    |   | 10 to 11 yr/25 yr
|                                                     |                                   |                      |         |         |  |      |                   |         |                    |          |                    |         |                    |  |      |      |   |                   |   | 
|                                                     | Total Mortgage Variable Rate Debt |                      | $       | 371,754 |  |      | $                 | 306,730 |                    |          | $                  | 317,320 |                    |  |      | 4.00 | % |                   |   |  | 
|                                                     |                                   |                      |         |         |  |      |                   |         |                    |          |                    |         |                    |  |      |      |   |                   |   | 
|TOTAL MORTGAGE DEBT                                  |                                   |                      |         |         |  | $    | 682,906           |         |                    | $        | 637,656            |         |                    |  | 7.11 | %    |   |                   |   | 
|$50 million revolving partially secured facility (5) |                                   |                      |         |         |  |      | 9,578             |         |                    |          | 17,400             |         |                    |  | 3.76 | %    |   | 3 yr             
|$100 million revolving secured facility (6)          |                                   |                      |         |         |  |      | 78,108            |         |                    |          | 46,108             |         |                    |  | 4.19 | %    |   | 1 yr             
|                                                     |                                   |                      |         |         |  |      |                   |         |                    |          |                    |         |                    |  |      |      |   |                   |   | 
|TOTAL CREDIT FACILITIES                              |                                   |                      |         |         |  | $    | 87,686            |         |                    | $        | 63,508             |         |                    |  | 4.08 | %    |   |                   |   | 
|                                                     |                                   |                      |         |         |  |      |                   |         |                    |          |                    |         |                    |  |      |      |   |                   |   | 
|TOTAL DEBT OUTSTANDING                               |                                   |                      |         |         |  | $    | 770,592           |         |                    | $        | 701,164            |         |                    |  | 6.84 | %    |   |                   |   | 
|                                                     |                                   |                      |         |         |  |      |                   |         |                    |          |                    |         |                    |  |      |      |   |                   |   | 



---

|*   |  | For the quarter ended March 31, 2002. Includes deferred loan fees
amortized over the life of the loans.                                                                                                                        
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) |  | These loans bear interest equal to the 30-day LIBOR rate plus 215
basis points and require quarterly interest and level principal
payments until maturity. During the first quarter of 2002, we entered
into interest rate swap

19



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##### 



|    |  | arrangements with a third party on these loans
to fix the interest rate. The new blended rate on the debt is
approximately 7.58%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | This loan was converted from fixed rate to variable rate during the
third quarter of 2001. Following the conversion, the loan bears
interest equal to the 30-day LIBOR rate plus 227 basis points and
requires monthly level payments of principal and interest until
maturity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(3) |  | This loan bears interest equal to the 30-day LIBOR rate plus 175
basis points and requires quarterly interest and level principal
payments until maturity. During the third quarter of 2001, we entered
into an agreement with a third party to swap the variable rate to a
7.31% fixed rate, effective July 1, 2002, which was subsequently
extended during the first quarter of 2002 to November 1, 2002 at a fixed
rate of 7.50%.                                                                                                                                                                                                                                                                                                                        
|   
|(4) |  | These loans bear interest at variable rates ranging from 200 to 357
basis points above the A1-P1 Commercial Paper Rate or the 30-day LIBOR
rate and have maturity dates ranging from December 22, 2009 to May 1,
2012. The terms of the various loans require either quarterly interest
and level principal payments or monthly level payments of principal and
interest until maturity.                                                                                                                                                                                                                                                                                                                                                                    
|   
|(5) |  | Amounts borrowed under the facility bear interest equal to the 30-day
LIBOR rate plus 175 basis points and requires the repayment of secured
borrowings within 12 months and unsecured borrowings within 150 days.
The facility matured on March 3, 2002 and has been extended until such
time we elect to replace it with our new $60 million unsecured
revolving credit facility, which closed at the end of the first quarter
of 2002. The new facility provides for a three-year term with interest
equal to the 30-day LIBOR rate plus 200 basis points and requires the
repayment of borrowings within 180 days. We expect to replace the
existing $50 million secured revolving credit facility with this new
facility in the second quarter of 2002.
|   
|(6) |  | Amounts borrowed under this facility bear interest at market rates
determined at the time of each draw until such time as we and the lender
set an interest rate for any future amounts borrowed under the facility.
As of March 31, 2002, the borrowings under the facility bears interest
equal to the 30-day LIBOR rate plus 225 to 275 basis points. The
facility requires the repayment of principal within 150 days. The
facility has a one-year term, which terminates on March 21, 2003, and is
renewable annually.                                                                                                                                                                                                                                 

As of March 31, 2002, we were in compliance with all of the loan covenants
related to our mortgage debt and credit facilities.

Interest Rate Swap

In June 1998, the FASB issued SFAS No. 133, ''Accounting for Derivative
Instruments and Hedging Activities. This statement was originally effective
for all fiscal quarters of fiscal years beginning after June 15, 1999; however,
during the second quarter of 1999 the FASB issued SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities  Deferral of the Effective Date
of FASB Statement No. 133, which deferred the effective date until June 15,
2000. In June 2000, the FASB issued SFAS No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities, an amendment to SFAS
No. 133, which required that all companies be in compliance with SFAS No. 133
as of January 1, 2001. SFAS No. 133 does not require restatement of financial
statements from prior periods. SFAS No. 133 requires an entity to recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. We adopted SFAS No. 133
on January 1, 2001. There was no impact to our financial statements at the
time of adoption.

During the third quarter of 2001, we borrowed $82.6 million of long-term debt
drawn under a $150 million commitment for secured financing from Toyota
Financial Services. The terms of the debt provide for a 12-year term with
interest at a spread over the one-month LIBOR rate. At the end of the third
quarter, we entered into an agreement with a third party to swap the variable
rate to a 7.31% fixed rate, effective July 1, 2002, which was subsequently
extended during the first quarter of 2002 to November 1, 2002 at a fixed rate
of 7.50%. All other terms and conditions of the swap remain the same.

During the first quarter of 2002, we converted the rent on approximately $71.2
million of property leased to Sonic from variable rate to fixed rate. At the
same time, we entered into interest rate swap

20



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##### 



arrangements with a third party
on approximately $58.3 million of variable rate debt that is secured primarily
by such properties to fix the interest rate. The terms of the debt provide for
a 12-year term with interest at a spread over the one-month LIBOR rate. The
new blended fixed rate on the debt is approximately 7.58%.

Fixing the rate on $140.9 million of debt with interest rate swap arrangements
and extending the effective date of the swap on the $82.6 million of debt,
continues our strategy of minimizing interest rate risk by substantially
match-funding our leases with debt in order to lock in our investment spread
over the lease term, and at the same time, potentially garnering more spread in
the short term.

These swaps were designed to mirror the underlying variable rate debt in terms
of index, spread, reset, amortization, compounding and maturity. Due to the
identical nature of the terms of the swap arrangements and the underlying terms
of the debt, we determined that these derivative instruments are highly
effective. Consequently, the unrealized gain or loss upon measuring the swaps
at their fair value is recorded as a
component of accumulated other comprehensive income within shareholders equity
on our consolidated balance sheets and statements of changes in shareholders
equity and other comprehensive income, and, depending on the fair value of the
swaps, as either a derivative instrument asset or derivative instrument
liability on our consolidated balance sheets. As of March 31, 2002, we had an
unrealized gain on the swaps of approximately $2.9 million, which is included
in other assets on our consolidated balance sheets and accumulated other
comprehensive income within our consolidated balance sheets and statements of
changes in shareholders equity and other comprehensive income.

Liquidity Requirements

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

As of March 31, 2002, long-term liquidity requirements consisted primarily of
maturities under our long-term debt. We anticipate that long-term liquidity
requirements will also include amounts required for acquisitions of properties,
facility improvement and expansion fundings and construction financings. We
expect to meet long-term liquidity requirements through long-term secured and
unsecured borrowings and other debt and equity financing alternatives. The
availability and terms of any such financing will depend upon market and other
conditions.

Aggregate annual principal maturities (which includes principal amortization)
of mortgage debt as of March 31, 2002 are as follows (in thousands):

21



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##### 



|                                |  |   |         | 
|------------------------------- |  | - | ------- | 
|For the Year Ended December 31, |  |   |         | 
|2002                            |  | $ | 17,174  | 
|2003                            |  |   | 32,701  | 
|2004                            |  |   | 23,039  | 
|2005                            |  |   | 24,427  | 
|2006                            |  |   | 25,828  | 
|Thereafter                      |  |   | 559,737 | 
|                                |  |   |         | 
|Total                           |  | $ | 682,906 | 
|                                |  |   |         | 

During the second quarter of 2001, we received a commitment for $150.0 million
of long-term secured financing from Toyota Financial Services. The commitment
can be drawn down in multiple fundings under one or more debt instruments, and
each funding is subject to customary conditions precedent and the lenders
satisfaction with the loan documentation. The terms of the commitment provide
for a 12-year term with interest at a spread over the one-month LIBOR rate. As
of March 31, 2002, we had $67.4 million available under this commitment.

At the end of the first quarter of 2002, we closed on a $60 million unsecured
revolving credit facility, for which Comerica Bank is the syndication agent
with four other participating financial institutions. The facility provides
for a three-year term with interest equal to the 30-day LIBOR rate plus 200
basis points and requires the repayment of borrowings within 180 days. We
expect to replace our existing $50 million secured revolving credit facility
with this new facility in the second quarter of 2002.

We have adopted a policy to limit debt to approximately 65% of our assets
(calculated as total assets plus accumulated depreciation). As of March 31,
2002, our debt was approximately 57% of our assets. This policy may be changed
by our Board of Trustees at any time without shareholder approval. In
addition, to minimize interest rate risk, we typically match the average term
of our long-term leases with the average term of our debt as well as the type
of leases with the type of debt (fixed or variable) in order to maintain an
investment spread over the lease term. We describe this process as
match-funding. We currently intend to match-fund at least 70% of our total
outstanding long-term debt with long-term leases. We may change the 70%
guideline at any time without shareholder approval. As of March 31, 2002,
approximately 81% of our debt outstanding (including the $81.2 million of
variable rate debt that will become fixed rate debt effective November 1, 2002
under an interest rate swap arrangement) was substantially match-funded,
non-recourse debt. As of March 31, 2002, our long-term debt had a weighted
average remaining term of 10.3 years, and our leases had a weighted average
remaining term of 11.8 years.

We may offer our tenants the option of utilizing our variable rate lease
program. Under this program, base rent changes monthly based upon a spread
over an applicable index, typically LIBOR. In addition, the monthly base rent
is typically adjusted upward periodically, usually based on a factor of the
change in the CPI. As of March 31, 2002, $320.5 million of our $1.3 billion
real estate portfolio, or 24%, was subject to variable rate leases. Of the
total variable rate leases, the majority of the lease agreements contain
minimum rates and fixed rate conversion features, and none of such leases
contain a maximum rate. Upon conversion, the fixed base rent typically
continues to be adjusted upward periodically based on a factor of the change in
the CPI. These types of leases generally are or will be financed with
long-term, variable rate debt, thereby fixing our investment spread. As of
March 31, 2002, $313.2 million of our total outstanding debt was variable rate
debt, which excludes $81.2 million of variable rate debt that will become fixed
rate debt effective November 1, 2002 under an interest rate swap arrangement.
We believe the existing mix of variable rate leases and variable rate debt
maintains our balance sheet flexibility, while continuing our policy of
minimizing interest rate risk.

In light of our current financial position, we believe that we will be able to
obtain additional financing for

22



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##### 



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

Common Share Repurchase Program

During 1998, we announced that our Board of Trustees had authorized the
repurchase of up to 6.0 million common shares. Purchases have been and will be
made from time to time in open market transactions at prevailing prices or in
negotiated private transactions at the discretion of management. During the
three months ended March 31, 2002, no common shares were repurchased. During
the three months ended March 31, 2001, we repurchased 10,000 common shares at
an average price of $14.19 per common share. From the inception of the common
share repurchase program through March 31, 2002, a total of 4,094,700 common
shares have been repurchased at an average price of $10.62 per common share.
In conjunction with the common share repurchases, the Partnership redeemed an
equivalent number of Units from the Company for equivalent purchase prices.

Dividend Reinvestment and Share Purchase Plan

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

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

Common shares may be purchased directly from us or in open market or privately
negotiated transactions, as we determine from time to time, to fulfill the
requirements for the DRIP. We issued approximately 5,700 and 443,000 common
shares under the DRIP and received approximately $118,000 and $6.2 million in
proceeds for the three months ended March 31, 2002 and 2001, respectively.

Purchase of Warrants Outstanding to Purchase Common Shares

During the fourth quarter of 2001, we completed the purchase of outstanding
warrants to purchase approximately 2.8 million common shares for $3.90 per
warrant. The aggregate purchase price for the warrants was approximately $10.8
million, of which $4.7 million was paid in 2001 and the remainder was paid in
January 2002, and was funded with debt and cash on hand. During the first
quarter of 2002, we completed the purchase of outstanding warrants to purchase
50,000 common shares for $5.85 per warrant, which was funded with cash on hand.
The purchase price for all warrants was based on the time remaining prior to
exercise and the intrinsic value (meaning the difference between the fair
market value of the common shares and the exercise price of the warrants) of
the outstanding warrants at the time of the offer to purchase. The exercise
price per share for the common shares underlying the warrants was $15.00 and
substantially all warrants would have expired in February 2003. The purchase
of the warrants is considered a retirement of an equity instrument for GAAP
purposes and therefore recorded as a charge to shareholders equity. As of
March 31, 2002, we had warrants outstanding to acquire a total of 52,500 common
shares, at an exercise price of $15.00 per share and will expire no later than
January 2003.

23



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##### 



FUNDS FROM OPERATIONS

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

NAREIT developed FFO as a relative measure of performance and liquidity of an
equity REIT in order to recognize that income-producing real estate
historically has not depreciated on the basis determined under GAAP. FFO does
not represent cash flows from operating activities in accordance with GAAP
(which, unlike FFO, generally reflects all cash effects of transactions and
other events in the determination of net income) and should not be considered
an alternative to net income as an indication of our performance or to cash
flow as a measure of liquidity or ability to make distributions. We consider
FFO and AFFO meaningful, additional measures of operating performance because
they primarily exclude the assumption that the value of the real estate assets
diminishes predictably over time, and because industry analysts have accepted
them as performance measures. Comparison of our presentation of FFO, using the
NAREIT definition, and AFFO, to similarly titled measures for other REITs may
not necessarily be meaningful due to possible differences in the application of
the NAREIT definition used by such REITs.

FFO and AFFO for the three months ended March 31, 2002 and 2001 is computed as
follows (in thousands):

|                                                                                                        |  |                    |        |      |  |   |        |  
|------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ---- |  | - | ------ | -
|                                                                                                        |  | Three Months Ended
|                                                                                                        |  | March 31,         
|                                                                                                        |  |                   
|                                                                                                        |  | 2002               |        | 2001
|                                                                                                        |  |                    |        |     
|Net income before minority interest                                                                     |  | $                  | 14,130 |      |  | $ | 9,432  |  
|Real estate depreciation and amortization                                                               |  |                    | 5,943  |      |  |   | 5,016  |  
|Gain on sale of assets                                                                                  |  |                    |       |      |  |   |       |  
|                                                                                                        |  |                    |        |      |  |   |        |  
|FFO                                                                                                     |  |                    | 20,073 |      |  |   | 14,448 |  
|Less: straight-lined rents                                                                              |  |                    | (1,475 | )    |  |   | (779   | )
|                                                                                                        |  |                    |        |      |  |   |        |  
|AFFO                                                                                                    |  | $                  | 18,598 |      |  | $ | 13,669 |  
|                                                                                                        |  |                    |        |      |  |   |        |  
|Weighted average number of common shares
and units used to compute basic FFO and
AFFO per share         |  |                    | 34,582 |      |  |   | 29,946 |  
|                                                                                                        |  |                    |        |      |  |   |        |  
|Weighted average number of common shares
and units used to compute fully diluted
FFO and AFFO per share |  |                    | 35,869 |      |  |   | 30,323 |  
|                                                                                                        |  |                    |        |      |  |   |        |  

ITEM III. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to certain financial market risks, the most predominant being
fluctuations in interest rates. Interest rate fluctuations are monitored by
our management as an integral part of our overall risk management program,
which recognizes the unpredictability of financial markets and seeks to reduce
the potentially adverse effect on our results of operations. In general, our
policy of substantially match-

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

During the three months ended March 31, 2002, our fixed rate debt increased
from $320.3 million at December 31, 2001 to $376.2 million as of March 31,
2002. Interest rate fluctuations may affect the fair value of our fixed rate
debt instruments. If interest rates on our fixed rate debt instruments at
March 31, 2002 had been one percentage point higher or lower, the fair value of
those debt instruments on that date would have decreased or increased,
respectively, by approximately $20 million.

During the three months ended March 31, 2002, our variable rate debt increased
from $380.8 million as of December 31, 2001 to $394.4 million as of March 31,
2002. In addition, our real estate investments which are leased by tenants
utilizing our variable lease rate program increased from $314.2 million as of
December 31, 2001 to $320.5 million as of March 31, 2002. Interest rate
fluctuations may affect our annual interest expense on our variable rate debt
as well as our annual rental income on our variable rate leases. Because the
interest rates on our short-term and long-term variable rate debt and the base
rents on our variable rate leases are based on a spread over an applicable
index, the increase or decrease in interest expense as a result of a one
percentage point increase or decrease in the interest rate on our variable rate
debt would be substantially offset by the increase or decrease in the rental
income from our variable rate leases as a result of the increase or decrease in
the index used to calculate the base rent. As a result, we believe that our
net income would not change
substantially as a result of changes in interest rates. Therefore, we exclude
the $320.5 million from our total variable rate debt of $394.4 million
(including the $81.2 million of variable rate debt that will become fixed rate
debt effective November 1, 2002 under an interest rate swap arrangement) in
calculating the effect of a change in interest rates on our variable rate debt.
It should also be noted that the majority of our variable rate lease
agreements contain minimum rates designed to protect us from a decrease in
interest rates. A change in interest rates would, however, affect the interest
due on our remaining $73.9 million of variable rate debt. If interest rates on
this portion of our variable rate debt had been one percentage point higher or
lower, our annual interest expense relating to those debt instruments would
have increased or decreased, respectively, by approximately $739,000, based on
balances at March 31, 2002.

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CAPITAL AUTOMOTIVE REIT
PART II-OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable.

Item 2. Changes in Securities

On March 29, 2002, the Partnership issued 704,483 Units to the Donald E. Massey
Revocable Trust and 164,684 Units to Capitol Cadillac Corporation, as partial
consideration for the acquisition of six parcels of real property and
improvements located in Colorado, Michigan and Tennessee. The Units will be
eligible for redemption beginning on July 31, 2003 for cash by the 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:

99.6 Revolving Credit Agreement dated as of March 29, 2002 among Comerica
Bank, as Agent for the Lenders and Capital Automotive, L.P., et al. (filed
herewith)

(b)  Reports on Form 8-K

none

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SIGNATURES

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

|                                                                                                                                  
|----------------------------------------------------------------------------------------------------------------------------------
|CAPITAL AUTOMOTIVE REIT
(Registrant)                                                                                              
|                                                                                                                                  
|BY:  /s/  Thomas D.
Eckert
Thomas D. Eckert
President and Chief Executive Officer
(principal executive officer)                   
|                                                                                                                                  
|BY:  /s/  David S. Kay
David S. Kay
Senior Vice President and Chief Financial Officer
(principal financial and accounting officer)

Dated: May 10, 2002

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