##### 



FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

|                                         |  |                                                                                         
|---------------------------------------- |  | ----------------------------------------------------------------------------------------
|(Mark One)                               | 
|                                         |  |                                                                                         
|(X)                                      |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|                                         |  |                                                                                         
|For quarterly period ended June 30, 2002
|                                         |  |                                                                                         
|(  )                                     |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|                                         |  |                                                                                         
|                                         |  | For the transition period from  to .                                                    

COMMISSION FILE NUMBER 000-23733

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

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

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 July 31, 2002
was 27,886,731.

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CAPITAL AUTOMOTIVE REIT
FORM 10-Q
INDEX

|                                         |  |                                                                                                |  |                                                                                                                        |  |         
|---------------------------------------- |  | ---------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------- |  | --------
|                                         |  |                                                                                                |  |                                                                                                                        |  | Page No.
|                                         |  |                                                                                                |  |                                                                                                                        |  |         
|Part I  Financial Information           |  |                                                                                               
|                                         |  |                                                                                               
|                                         |  | Item 1  Financial Statements                                                                  |  |                                                                                                                       
|                                         |  |                                                                                               
|                                         |  |                                                                                                |  | Consolidated Balance Sheets  June 30, 2002 (unaudited) and
December 31, 2001.                                         |  | 3       
|                                         |  |                                                                                               
|                                         |  |                                                                                                |  | Consolidated Statements of Operations (unaudited)  three months and six
months ended June 30, 2002 and June 30, 2001. |  | 4       
|                                         |  |                                                                                               
|                                         |  |                                                                                                |  | Consolidated Statements of Cash Flows (unaudited)  three months and six
months ended June 30, 2002 and June 30, 2001. |  | 5       
|                                         |  |                                                                                               
|                                         |  |                                                                                                |  | Notes to Consolidated Financial Statements (unaudited)                                                                 |  | 6  14  
|                                         |  |                                                                                               
|                                         |  | Item 2  Managements Discussion and Analysis of Financial Condition
and Results of Operations |  | 15  27                                                                                                               
|                                         |  |                                                                                               
|                                         |  | Item 3  Quantitative and Qualitative Disclosures About Market Risk                            |  | 27  28                                                                                                               
|                                         |  |                                                                                               
|Part II  Other Information              |  |                                                                                               
|
|                                         |  |                                                                                               
|                                         |  |                                                                                               
|                                         |  | Item 2  Changes in Securities                                                                 |  | 29                                                                                                                    
|                                         |  |                                                                                               
|                                         |  | Item 3  Defaults Upon Senior Securities                                                       |  | 29                                                                                                                    
|                                         |  |                                                                                               
|                                         |  | Item 4  Submission of Matters to Vote to Security Holders                                     |  | 29  30                                                                                                               
|                                         |  |                                                                                               
|                                         |  | Item 5  Other Information                                                                     |  | 30                                                                                                                    
|                                         |  |                                                                                               
|                                         |  | Item 6  Exhibits and Reports on Form 8-K                                                      |  | 30  31                                                                                                               
|                                         |  |                                                                                               
|Signatures                               |  | 32                                                                                            
|                                         |  |                                                                                               
|Certification of Chief Executive Officer |  | 33                                                                                            
|                                         |  |                                                                                               
|Certification of Chief Financial Officer |  | 33                                                                                            

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##### 



PART I  FINANCIAL INFORMATION
ITEM I  FINANCIAL STATEMENTS
CAPITAL AUTOMOTIVE REIT
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

|                                                                                                                                                                                                          |                            |                   |                                            |         |             |           |              |         |           |           | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ----------------- | ------------------------------------------ | ------- | ----------- | --------- | ------------ | ------- | --------- | --------- | 
|                                                                                                                                                                                                          |                            |                   |                                            |         | June 30,    |           | December 31,
|                                                                                                                                                                                                          |                            |                   |                                            |         | 2002        |           | 2001        
|                                                                                                                                                                                                          |                            |                   |                                            |         |             |           |             
|                                                                                                                                                                                                          |                            |                   |                                            |         | (Unaudited) |           |              |         |          
|ASSETS                                                                                                                                                                                                    |                            |                   |                                            |         |             |           |              |        
|Real estate:                                                                                                                                                                                              |                            |                   |                                            |         |             |           |              |        
|                                                                                                                                                                                                          | Land                       |                   | $                                          | 553,109 |             |           | $            | 508,556 |          
|                                                                                                                                                                                                          | Buildings and improvements |                   |                                            | 798,048 |             |           |              | 721,138 |          
|                                                                                                                                                                                                          | Accumulated depreciation   |                   |                                            | (71,932 | )           |           |              | (59,789 | )        
|                                                                                                                                                                                                          |                            |                   |                                            |         |             |           |              |        
|                                                                                                                                                                                                          |                            |                   | 1,279,225                                  |         |             |           | 1,169,905    |        
|Cash and cash equivalents                                                                                                                                                                                 |                            |                   | 54,448                                     |         |             |           | 9,490        |        
|Other assets, net                                                                                                                                                                                         |                            |                   | 34,135                                     |         |             |           | 20,305       |        
|                                                                                                                                                                                                          |                            |                   |                                            |         |             |           |              |        
|                                                                                                                                                                                                          |                            | Total Assets      |                                            | $       | 1,367,808   |           |              | $       | 1,199,700 |          
|                                                                                                                                                                                                          |                            |                   |                                            |         |             |           |              |        
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                                      |                            |                   |                                            |         |             |           |              |        
|Liabilities:                                                                                                                                                                                              |                            |                   |                                            |         |             |           |              |        
|Mortgage debt                                                                                                                                                                                             |                            | $                 | 833,873                                    |         |             | $         | 637,656      |        
|Borrowings under credit facilities                                                                                                                                                                        |                            |                   | 5,000                                      |         |             |           | 63,508       |        
|Accounts payable and accrued expenses                                                                                                                                                                     |                            |                   | 15,980                                     |         |             |           | 14,661       |        
|Security deposits payable                                                                                                                                                                                 |                            |                   | 6,577                                      |         |             |           | 6,969        |        
|                                                                                                                                                                                                          |                            |                   |                                            |         |             |           |              |        
|                                                                                                                                                                                                          |                            | Total Liabilities |                                            |         | 861,430     |           |              |         | 722,794   |          
|                                                                                                                                                                                                          |                            |                   |                                            |         |             |           |              |        
|Minority Interest                                                                                                                                                                                         |                            |                   | 120,802                                    |         |             |           | 110,885      |        
|Shareholders Equity                                                                                                                                                                                      |                            |                   |                                            |         |             |           |              |        
|Preferred shares, par value $.01 per share; 20 million shares authorized,
no shares issued or outstanding                                                                                                 |                            |                   |                                           |         |             |           |             |        
|Common shares, par value $.01 per share; 100 million shares authorized,
27,787,592 shares issued and outstanding as of June 30, 2002 and
26,428,188 shares issued and outstanding as of December 31, 2001 |                            |                   | 278                                        |         |             |           | 264          |        
|Additional paid-in-capital                                                                                                                                                                                |                            |                   | 404,782                                    |         |             |           | 378,923      |        
|Accumulated other comprehensive income (loss)                                                                                                                                                             |                            |                   | (4,470                                     | )       |             |           | 2,249        |        
|Distributions in excess of accumulated earnings                                                                                                                                                           |                            |                   | (15,014                                    | )       |             |           | (15,415      | )      
|                                                                                                                                                                                                          |                            |                   |                                            |         |             |           |              |        
|                                                                                                                                                                                                          |                            |                   | Total Shareholders Equity                 |         |             | 385,576   |              |         |           | 366,021   | 
|                                                                                                                                                                                                          |                            |                   |                                            |         |             |           |              |        
|                                                                                                                                                                                                          |                            |                   | Total Liabilities and Shareholders Equity |         | $           | 1,367,808 |              |         | $         | 1,199,700 | 
|                                                                                                                                                                                                          |                            |                   |                                            |         |             |           |              |        

See accompanying Notes to Consolidated Financial Statements.

3



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

|                                                                              |                |   |                    |        |                  |   |        |        |      |   |        |        |  |   |        |        | 
|----------------------------------------------------------------------------- | -------------- | - | ------------------ | ------ | ---------------- | - | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                                                              |                |   | Three Months Ended |        | Six Months Ended
|                                                                              |                |   | June 30,           |        | June 30,        
|                                                                              |                |   | 2002               |        | 2001             |   | 2002   |        | 2001
|                                                                              |                |   |                    |        |                  |   |        |        |     
|Revenue:                                                                      |                |   |                    |        |                  |   |        |        |      |   |        |        |  |   |        |       
|Rental                                                                        |                | $ | 34,264             |        |                  | $ | 28,389 |        |      | $ | 66,607 |        |  | $ | 56,388 |       
|Interest and other                                                            |                |   | 135                |        |                  |   | 32     |        |      |   | 264    |        |  |   | 93     |       
|                                                                              |                |   |                    |        |                  |   |        |        |      |   |        |        |  |   |        |       
|                                                                              | Total revenue  |   |                    | 34,399 |                  |   |        | 28,421 |      |   |        | 66,871 |  |   |        | 56,481 | 
|                                                                              |                |   |                    |        |                  |   |        |        |      |   |        |        |  |   |        |       
|Expenses:                                                                     |                |   |                    |        |                  |   |        |        |      |   |        |        |  |   |        |       
|Depreciation and amortization                                                 |                |   | 6,292              |        |                  |   | 5,120  |        |      |   | 12,251 |        |  |   | 10,155 |       
|General and administrative                                                    |                |   | 1,987              |        |                  |   | 1,726  |        |      |   | 4,110  |        |  |   | 3,445  |       
|Modification of debt                                                          |                |   | 265                |        |                  |   |       |        |      |   | 265    |        |  |   |       |       
|Interest                                                                      |                |   | 11,445             |        |                  |   | 11,621 |        |      |   | 21,705 |        |  |   | 23,495 |       
|                                                                              |                |   |                    |        |                  |   |        |        |      |   |        |        |  |   |        |       
|                                                                              | Total expenses |   |                    | 19,989 |                  |   |        | 18,467 |      |   |        | 38,331 |  |   |        | 37,095 | 
|                                                                              |                |   |                    |        |                  |   |        |        |      |   |        |        |  |   |        |       
|Net income before minority interest                                           |                |   | 14,410             |        |                  |   | 9,954  |        |      |   | 28,540 |        |  |   | 19,386 |       
|Minority interest                                                             |                |   | (3,496             | )      |                  |   | (2,825 | )      |      |   | (6,772 | )      |  |   | (5,449 | )     
|                                                                              |                |   |                    |        |                  |   |        |        |      |   |        |        |  |   |        |       
|Net income                                                                    |                | $ | 10,914             |        |                  | $ | 7,129  |        |      | $ | 21,768 |        |  | $ | 13,937 |       
|                                                                              |                |   |                    |        |                  |   |        |        |      |   |        |        |  |   |        |       
|Shares of common stock outstanding used to
compute basic earnings per share   |                |   | 27,393             |        |                  |   | 21,658 |        |      |   | 26,972 |        |  |   | 21,572 |       
|                                                                              |                |   |                    |        |                  |   |        |        |      |   |        |        |  |   |        |       
|Basic earnings per share                                                      |                | $ | 0.40               |        |                  | $ | 0.33   |        |      | $ | 0.81   |        |  | $ | 0.65   |       
|Shares of common stock outstanding used to
compute diluted earnings per share |                |   | 28,559             |        |                  |   | 22,541 |        |      |   | 28,198 |        |  |   | 22,203 |       
|                                                                              |                |   |                    |        |                  |   |        |        |      |   |        |        |  |   |        |       
|Diluted earnings per share                                                    |                | $ | 0.39               |        |                  | $ | 0.32   |        |      | $ | 0.78   |        |  | $ | 0.63   |       
|Dividends declared per share (See Note 8)                                     |                | $ | 0.3935             |        |                  | $ | 0.3860 |        |      | $ | 0.7825 |        |  | $ | 0.3860 |       

See accompanying Notes to Consolidated Financial Statements.

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

|                                                                                  |                                           |   |                           |          |      |   |         |         |  
|--------------------------------------------------------------------------------- | ----------------------------------------- | - | ------------------------- | -------- | ---- | - | ------- | ------- | -
|                                                                                  |                                           |   | Six Months Ended June 30,
|                                                                                  |                                           |   | 2002                      |          | 2001
|                                                                                  |                                           |   |                           |          |     
|Cash flows from operating activities:                                             |                                           |   |                           |          |      |   |         |        
|Net income                                                                        |                                           | $ | 21,768                    |          |      | $ | 13,937  |        
|Adjustments to reconcile net income to net cash
provided by operating activities: |                                           |   |                           |          |      |   |         |        
|Depreciation and amortization                                                     |                                           |   | 12,730                    |          |      |   | 10,692  |        
|Income applicable to minority interest                                            |                                           |   | 6,772                     |          |      |   | 5,449   |        
|Increase in other assets                                                          |                                           |   | (9,290                    | )        |      |   | (2,315  | )      
|Increase (decrease) in accounts payable and accrued expenses                      |                                           |   | 3,436                     |          |      |   | (6,393  | )      
|Increase (decrease) in security deposits payable                                  |                                           |   | (392                      | )        |      |   | 342     |        
|                                                                                  |                                           |   |                           |          |      |   |         |        
|                                                                                  | Net cash provided by operating activities |   |                           | 35,024   |      |   |         | 21,712  |  
|                                                                                  |                                           |   |                           |          |      |   |         |        
|Cash flows from investing activities:                                             |                                           |   |                           |          |      |   |         |        
|Purchase of furniture and equipment, net of disposals                             |                                           |   | (64                       | )        |      |   | (22     | )      
|Real estate acquisitions                                                          |                                           |   | (102,463                  | )        |      |   | (50,302 | )      
|                                                                                  |                                           |   |                           |          |      |   |         |        
|                                                                                  | Net cash used in investing activities     |   |                           | (102,527 | )    |   |         | (50,324 | )
|                                                                                  |                                           |   |                           |          |      |   |         |        
|Cash flows from financing activities:                                             |                                           |   |                           |          |      |   |         |        
|Proceeds from borrowings under credit facilities                                  |                                           |   | 105,718                   |          |      |   | 91,338  |        
|Proceeds from mortgage debt                                                       |                                           |   | 205,385                   |          |      |   | 661     |        
|Repayment of borrowings under credit facilities                                   |                                           |   | (164,226                  | )        |      |   | (43,398 | )      
|Mortgage principal payments                                                       |                                           |   | (9,168                    | )        |      |   | (7,473  | )      
|Payments for debt issuance costs                                                  |                                           |   | (7,311                    | )        |      |   | (104    | )      
|Payment of cash dividend                                                          |                                           |   | (21,273                   | )        |      |   | (16,553 | )      
|Distributions to minority partners                                                |                                           |   | (6,432                    | )        |      |   | (6,516  | )      
|Repurchase of common shares                                                       |                                           |   |                          |          |      |   | (142    | )      
|Payment for the purchase of outstanding warrants to purchase common shares        |                                           |   | (6,328                    | )        |      |   |        |        
|Redemption of units of limited partnership interest in the Partnership            |                                           |   | (153                      | )        |      |   |        |        
|Proceeds from issuance of other common shares, net of costs                       |                                           |   | 16,249                    |          |      |   | 6,224   |        
|                                                                                  |                                           |   |                           |          |      |   |         |        
|                                                                                  | Net cash provided by financing activities |   |                           | 112,461  |      |   |         | 24,037  |  
|                                                                                  |                                           |   |                           |          |      |   |         |        
|Net increase (decrease) in cash and cash equivalents                              |                                           |   | 44,958                    |          |      |   | (4,575  | )      
|Cash and cash equivalents at beginning of period                                  |                                           |   | 9,490                     |          |      |   | 6,298   |        
|                                                                                  |                                           |   |                           |          |      |   |         |        
|Cash and cash equivalents at end of period                                        |                                           | $ | 54,448                    |          |      | $ | 1,723   |        
|                                                                                  |                                           |   |                           |          |      |   |         |        
|Supplemental Data:                                                                |                                           |   |                           |          |      |   |         |        
|Real estate acquisitions in exchange for equity issuance                          |                                           | $ | 19,000                    |          |      | $ | 1,212   |        
|                                                                                  |                                           |   |                           |          |      |   |         |        
|Interest paid during the period                                                   |                                           | $ | 17,478                    |          |      | $ | 28,899  |        
|                                                                                  |                                           |   |                           |          |      |   |         |        

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 June 30, 2002, owned approximately 76.1% 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 provide facility improvement and expansion funding, construction
financing and takeout commitments in certain situations.

As of June 30, 2002, we had invested approximately $1.4 billion in 280
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 1,930 acres of land and containing
approximately 11.0 million square feet of buildings and improvements. Our
tenants operate 390 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 14.1 years and a
weighted average remaining lease term of approximately 11.7 years. The leases
typically have options to renew upon the same terms and conditions for one or
more additional periods of five to 10 years each, exercisable at the option of
the tenant (with renewal options ranging from a total of five to 40 years).

Basis of Presentation

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

6



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of normal recurring adjustments)
considered necessary for a fair presentation have been included. The
results of operations for the three months and six months ended June 30, 2002,
are not necessarily indicative of the results that may be expected for the full
year. These financial statements should be read in conjunction with our
audited consolidated financial statements and footnotes thereto, included in
the Companys Annual Report on Form 10-K for the fiscal year ended December 31,
2001.

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

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

Real Estate and Depreciation

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

Cash and Cash Equivalents

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

Deferred Loan Costs

Certain costs incurred in connection with obtaining our credit facilities and
issuance of mortgage debt are capitalized and generally amortized over the
terms of the respective credit facilities or debt using the effective interest
method or on a straight-line basis which approximates the effective interest
method. These costs, net of accumulated amortization, are included in other
assets and total approximately $14.0 million and $7.2 million as of June 30,
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 $1.2 million and $1.0 million as of
June 30, 2002 and December 31, 2001, respectively. Capitalized leasing costs
include employee compensation and payroll-related fringe benefits directly
related to time spent performing leasing-related activities. These activities
include evaluating the prospective tenants financial condition, evaluating and
recording guarantees, collateral and other security arrangements, negotiating
lease terms, preparing lease documents and closing the transaction.

Income Taxes

We are qualified as a real estate investment trust under the provisions of the
Internal Revenue Code of

7



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

Rental Revenue Recognition

We lease our real estate pursuant to long-term, triple-net leases, under which
the tenants typically pay all operating expenses of a property, including, but
not limited to, all real estate taxes, assessments and other government
charges, insurance, utilities, repairs and maintenance. All leases are
accounted for as operating leases and rental income attributable to the leases
is recorded monthly when due from tenants. Rental income attributable to the
majority of our leases is fixed by the lease agreement. However, under our
variable rate lease program, monthly base rent is calculated based on a spread
over an applicable index, typically LIBOR. As of June 30, 2002, approximately
$334 million of our approximately $1.4 billion real estate portfolio, or 25%,
was subject to variable rate leases. This compares to approximately $94
million of our approximately $1.1 billion real estate portfolio, or 9%, that
was subject to variable rate leases as of June 30, 2001. The majority of the
variable rate lease agreements contain minimum rates and fixed rate conversion
features, and none of these leases contains a maximum rate.

Our leases typically provide for upward periodic adjustments in base rent due
from our tenants, usually based on a factor of the change in the consumer price
index (CPI). Certain of our leases also 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 totaled approximately $9.5 million and $6.7 million as of June
30, 2002 and December 31, 2001, respectively.

Use of Estimates

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

3.     NEW ACCCOUNTING PRONOUNCEMENTS

In 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 through June 30, 2002.

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 a single accounting model be used for long-lived
assets to be disposed of by sale, whether the asset was previously held and
used or newly acquired, and broadens the presentation of discontinued
operations to include more disposition transactions. The adoption of SFAS No.
144 has not had any significant impact on our financial condition or results of
operations through June 30, 2002.

8



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##### 



4.     ACQUISITIONS

During the three months ended June 30, 2002, we completed approximately $34.1
million of property acquisitions, which included six properties, three of which
are operated by two new tenants, and several facility improvements and
construction fundings with existing tenants. We initially funded the majority
of the acquisitions with funds drawn down on our short-term credit facilities
and subsequently repaid these facilities with the net proceeds received from
the $325 million debt securitization completed at the end of the second
quarter, as discussed in Note 5 below. These acquisitions added approximately
262,000 square feet of buildings and improvements on approximately 31 acres of
land in five states (Indiana, New Jersey, Ohio, Tennessee and Texas). The
majority of the leases entered into during the quarter have been structured
using our variable rate lease program. The leases have initial lease terms
ranging from 12 to 21 years, with a weighted average initial lease term of 15.8
years. These leases have renewal options exercisable at the option of the
tenant ranging from a total of 10 to 20 years.

5.     MORTGAGE DEBT AND REVOLVING CREDIT FACILITIES

As of June 30, 2002, we had total debt outstanding of $838.9 million. Of this
debt, approximately $833.9 million (consisting of $524.6 million of fixed rate
and $309.3 million of variable rate debt) was mortgage debt secured by
approximately 250 of our properties. In addition, we had $5.0 million
outstanding on our revolving credit facilities.

9



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##### 



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

|                                                     |                                   |               |                |      |                    |       |                    |          |                    |   |         |         |  |  |      |      |   |                   |    |   | 
|---------------------------------------------------- | --------------------------------- | ------------- | -------------- | ---- | ------------------ | ----- | ------------------ | -------- | ------------------ | - | ------- | ------- |  |  | ---- | ---- | - | ----------------- | -- | - | 
|                                                     |                                   |               |                |      |                    |       | Principal Balance  |          | Principal Balance  |   |         |         |  |  |      |      |  
|                                                     |                                   | Original Debt | as of June 30, |      | as of December 31, |       | Effective Interest |          | Term/ Amortization
|Description of Debt                                  | Issued                            | 2002          |                | 2001 |                    | Rate* |                    | Schedule
|7.59% fixed rate debt due 12/1/08                    |                                   | $             | 38,050         |      |                    | $     | 35,238             |          |                    | $ | 35,886  |         |  |  | 8.01 | %    |   | 10 yr/17 yr      
|7.635% fixed rate debt due 10/1/14 (1)               |                                   |               | 111,950        |      |                    |       |                   |          |                    |   | 98,891  |         |  |  | 7.94 | %    |   |                   |    |  
|8.05% fixed rate debt due 10/1/14 (1)                |                                   |               | 85,000         |      |                    |       |                   |          |                    |   | 78,319  |         |  |  | 8.33 | %    |   |                   |    |  
|Triple Net Lease Mortgage Notes, Series 2002 (1)     |                                   |               | 325,000        |      |                    |       | 325,000            |          |                    |   |        |         |  |  | 7.70 | %    |   |                   | (1 | )
|7.54% fixed rate debt due 7/6/11                     |                                   |               | 100,000        |      |                    |       | 95,690             |          |                    |   | 96,132  |         |  |  | 7.71 | %    |   | 12 yr/25 yr      
|7.565% fixed rate debt due 11/12/12 (2)              |                                   |               | 28,500         |      |                    |       | 27,075             |          |                    |   |        |         |  |  | 7.66 | %    |   | 12 yr/25 yr      
|7.5975% fixed rate debt due 12/18/12 (2)             |                                   |               | 32,054         |      |                    |       | 30,633             |          |                    |   |        |         |  |  | 7.62 | %    |   | 12 yr/30 yr      
|7.50% fixed rate debt due 1/20/03                    |                                   |               | 12,000         |      |                    |       | 10,968             |          |                    |   | 11,108  |         |  |  | 7.76 | %    |   | 4.25 yr/20 yr    
|                                                     |                                   |               |                |      |                    |       |                    |          |                    |   |         |         |  |  |      |      |   |                   |    |  
|Total Mortgage Fixed Rate Debt                       |                                   |               |                |      |                    | $     | 524,604            |          |                    | $ | 320,336 |         |  |  | 7.91 | %    |   |                   |    |  
|                                                    
|Variable rate debt due 9/29/11 (3)                   |                                   | $             | 150,000        |      |                    | $     | 147,175            |          |                    |   | 149,419 |         |  |  | 4.14 | %    |   | 12 yr/25 yr      
|Variable rate debt due 8/10/13 (4)                   |                                   |               | 82,600         |      |                    |       | 80,535             |          |                    |   | 81,223  |         |  |  | 3.66 | %    |   | 12 yr/30 yr      
|Variable rate debt swapped to fixed rate debt (2)    |                                   |               | 60,554         |      |                    |       |                   |          |                    |   | 58,278  |         |  |  |      |      |   |                   |    |  
|Various variable rate debt (5)                       |                                   |               | 83,550         |      |                    |       | 81,559             |          |                    |   | 28,400  |         |  |  | 5.06 | %    |   | 10 to 11 yr/25 yr
|                                                     |                                   |               |                |      |                    |       |                    |          |                    |   |         |         |  |  |      |      |   |                   |    |  
|                                                     | Total Mortgage Variable Rate Debt |               |                |      |                    |       | $                  | 309,269  |                    |   | $       | 317,320 |  |  |      | 4.25 | % |                   |    |   | 
|                                                     |                                   |               |                |      |                    |       |                    |          |                    |   |         |         |  |  |      |      |   |                   |    |  
|TOTAL MORTGAGE DEBT                                  |                                   |               |                |      |                    | $     | 833,873            |          |                    | $ | 637,656 |         |  |  | 6.26 | %    |   |                   |    |  
|$50 million revolving partially secured facility
(6) |                                   |               |                |      |                    |       |                   |          |                    |   | 17,400  |         |  |  | 3.80 | %    |   |                   |    |  
|$60 million revolving unsecured facility (7)         |                                   |               |                |      |                    |       |                   |          |                    |   |        |         |  |  |      |      |   | 3 yr             
|$100 million revolving secured facility (8)          |                                   |               |                |      |                    |       | 5,000              |          |                    |   | 46,108  |         |  |  | 4.30 | %    |   | 1 yr             
|                                                     |                                   |               |                |      |                    |       |                    |          |                    |   |         |         |  |  |      |      |   |                   |    |  
|TOTAL CREDIT FACILITIES                              |                                   |               |                |      |                    | $     | 5,000              |          |                    | $ | 63,508  |         |  |  | 4.19 | %    |   |                   |    |  
|                                                     |                                   |               |                |      |                    |       |                    |          |                    |   |         |         |  |  |      |      |   |                   |    |  
|TOTAL DEBT OUTSTANDING                               |                                   |               |                |      |                    | $     | 838,873            |          |                    | $ | 701,164 |         |  |  | 6.07 | %    |   |                   |    |  
|                                                     |                                   |               |                |      |                    |       |                    |          |                    |   |         |         |  |  |      |      |   |                   |    |  



| | *   |  | For the quarter ended June 30, 2002. Includes deferred loan fees
amortized over the life of the loans. The effective interest rates on
our total mortgage fixed rate debt and our total mortgage debt
outstanding as of June 30, 2002 were approximately 7.7% and 6.4%,
respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (1) |  | On June 28, 2002, we issued $325 million in four classes of Triple
Net Lease Mortgage Notes, Series 2002 (the Notes). The transaction
reflects approximately $152 million of new debt issued in classes under
current market terms (the New Notes) and a restructuring of a
securitization completed in 1999, that had a remaining balance of
approximately $173 million (the Modified Debt). The certificates
representing the Modified Debt have economic terms equivalent to the
prior transaction. The Notes are collateralized by 94 properties,
subject to long-term, triple-net leases, with a net book value of $430.5
million and an appraised value of $462.4 million as of June 30, 2002.
The New Notes have a weighted average effective interest rate (including
deferred fees amortized over the life of the New Notes) of approximately
7.0% and are fully-amortizing over 20 years. The Notes are
fully-amortizing and have terms ranging from 12 to 20 years, with a
weighted average term of 14.2 years. The Notes have a weighted average
effective interest rate (including deferred fees amortized over the life
of the Notes) of approximately 7.7%. The net proceeds from the issuance
of the New Notes were used to pay down our short-term credit facilities
and to fund

10



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| |     |  | acquisitions, and will be available to fund future
acquisitions. CARS Loan Servicer L.L.C., one of our subsidiaries,
will act as servicer of the Notes on behalf of the noteholders.                                                                                                                                                                                                                                                                                                                              
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | These loans bear interest equal to the 30-day LIBOR rate plus 215
basis points and require quarterly interest and level principal
payments until maturity. During the first quarter of 2002, we entered
into interest rate swap arrangements with a third party on these loans
to fix the interest rate. The new blended rate on the debt is
approximately 7.58%.                                                                                                                                                 
|
| | (3) |  | This loan was converted from fixed rate to variable rate during the
third quarter of 2001. Following the conversion, the loan bears
interest equal to the 30-day LIBOR rate plus 227 basis points and
requires monthly level payments of principal and interest until
maturity.                                                                                                                                                                                                                                   
|
| | (4) |  | This loan bears interest equal to the 30-day LIBOR rate plus 175
basis points and requires quarterly interest and level principal
payments until maturity. 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%.                                                                              
|
| | (5) |  | These loans bear interest at variable rates ranging from 200 to 357
basis points above the A1-P1 Commercial Paper Rate or the 30-day LIBOR
rate and have maturity dates ranging from December 22, 2009 to May 1,
2012. The terms of the various loans require either quarterly interest
and level principal payments or monthly level payments of principal and
interest until maturity.                                                                                                                          
|
| | (6) |  | The facility matured on March 3, 2002 and was extended until the end
of the second quarter at which time it was replaced by the new unsecured
revolving credit facility.                                                                                                                                                                                                                                                                                                                                          
|
| | (7) |  | At the end of the first quarter of 2002, we closed on this $60
million unsecured revolving credit facility. The facility 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.
The facility replaced the existing $50 million secured revolving credit
facility at the end of the second quarter of 2002.                                                                                                   
|
| | (8) |  | Amounts borrowed under this facility bear interest at market rates
determined at the time of each draw until such time as we and the lender
set an interest rate for any future amounts borrowed under the facility.
As of June 30, 2002, the borrowings under the facility bear interest
equal to the 30-day LIBOR rate plus 287 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 June 30, 2002, we were in compliance with all of the loan covenants
related to our mortgage debt and credit facilities.

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

|                                |  |   |         | 
|------------------------------- |  | - | ------- | 
|For the Year Ended December 31, |  |   |         | 
|2002                            |  | $ | 14,092  | 
|2003                            |  |   | 37,203  | 
|2004                            |  |   | 27,826  | 
|2005                            |  |   | 29,516  | 
|2006                            |  |   | 31,237  | 
|Thereafter                      |  |   | 693,999 | 
|                                |  |   |         | 
|Total                           |  | $ | 833,873 | 
|                                |  |   |         | 

$325 Million Securitization

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

11



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GAAP: (1) the unamortized issuance costs related to the original debt of
$3.9 million, plus $2.3 million of costs related to the Modified Debt that was
paid to the lender and capitalized, will be amortized over the remaining term
of the Modified Debt using the effective interest method; and (2) third-party
costs
totaling $265,000 incurred in connection with the Modified Debt were expensed.
In addition, we incurred approximately $6.2 million in debt issuance costs
associated with the issuance of the New Notes, which, in accordance with GAAP,
were capitalized and will be amortized over the term of the New Notes using the
effective interest method.

Interest Rate Swaps

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

During the third quarter of 2001, we borrowed $82.6 million of long-term 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 leases on approximately
$71.2 million of properties leased to Sonic Automotive and its affiliates
(Sonic) from variable rate to fixed rate. At the same time, we entered into
interest rate swap arrangements with a third party to fix the interest rate on
the debt secured primarily by such properties totaling approximately $58.3
million.

Fixing the rate on $140.9 million of debt with interest rate swap arrangements
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 (loss) within shareholders equity on our consolidated
balance sheets. The fair value of the swaps is recorded as either a derivative
instrument asset or derivative instrument liability on our consolidated balance
sheets. As of June 30, 2002, we had an unrealized loss on the swaps of
approximately $4.5 million, which is included in other liabilities and
accumulated other comprehensive income (loss) within our consolidated balance
sheets.

12



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##### 



6.     MINORITY INTEREST

Minority interest represents the Units of the Partnership owned by limited
partners (other than the Company). Minority interest is calculated at
approximately 23.9% of the Partnerships partners capital as of June 30, 2002
and approximately 24.3% of the Partnerships partners net income for the three
months ended June 30, 2002 and approximately 23.7% for the six months ended
June 30, 2002. The ownership of the Partnership as of June 30, 2002 is as
follows (Units in thousands):

|                   |                  |       |  |          |          |         |  |      |       |  
|------------------ | ---------------- | ----- |  | -------- | -------- | ------- |  | ---- | ----- | -
|                   |                  |       |  | Units    |          | Percent
|                   |                  |       |  |          |          |        
|Partners capital: |                  |       |  |          |          |         |  |     
|                   | Limited Partners |       |  | 8,705.9  |          |         |  | 23.9 | %    
|                   | The Company      |       |  | 27,787.6 |          |         |  | 76.1 | %    
|                   |                  |       |  |          |          |         |  |     
|                   |                  | Total |  |          | 36,493.5 |         |  |      | 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 and six
months ended June 30, 2002 and 2001 is as follows (in thousands, except per
share data):

|                             |  |                             |        |        |  |                    |        |            |  |        |       |                    |  |   |       |                  |  |  |        |  |  |   |       |  
|---------------------------- |  | --------------------------- | ------ | ------ |  | ------------------ | ------ | ---------- |  | ------ | ----- | ------------------ |  | - | ----- | ---------------- |  |  | ------ |  |  | - | ----- | -
|                             |  | Three Months Ended June 30,
|                             |  |                            
|                             |  | 2002                        |        | 2001  
|                             |  |                             |        |       
|                             |  |                             |        |        |  | Weighted Average   |        |            |  |        |       |                    |  |   |       | Weighted Average |  |  |        | 
|                             |  | Net Income                  |        | Shares |  | Earnings Per Share |        | Net Income |  | Shares |       | Earnings Per Share
|                             |  |                             |        |        |  |                    |        |            |  |        |       |                   
|Earnings per share  basic   |  | $                           | 10,914 |        |  |                    | 27,393 |            |  | $      | 0.40  |                    |  | $ | 7,129 |                  |  |  | 21,658 |  |  | $ | 0.33  |  
|Adjustments (1)              |  |                             | 109    |        |  |                    | 1,166  |            |  |        | (0.01 | )                  |  |   | 112   |                  |  |  | 883    |  |  |   | (0.01 | )
|                             |  |                             |        |        |  |                    |        |            |  |        |       |                    |  |   |       |                  |  |  |        |  |  |   |       |  
|Earnings per share  diluted |  | $                           | 11,023 |        |  |                    | 28,559 |            |  | $      | 0.39  |                    |  | $ | 7,241 |                  |  |  | 22,541 |  |  | $ | 0.32  |  



|                             |  |                           |        |        |  |                    |        |            |  |        |       |                    |  |   |        |                  |  |  |        |  |  |   |       |  
|---------------------------- |  | ------------------------- | ------ | ------ |  | ------------------ | ------ | ---------- |  | ------ | ----- | ------------------ |  | - | ------ | ---------------- |  |  | ------ |  |  | - | ----- | -
|                             |  | Six Months Ended June 30,
|                             |  |                          
|                             |  | 2002                      |        | 2001  
|                             |  |                           |        |       
|                             |  |                           |        |        |  | Weighted Average   |        |            |  |        |       |                    |  |   |        | Weighted Average |  |  |        | 
|                             |  | Net Income                |        | Shares |  | Earnings Per Share |        | Net Income |  | Shares |       | Earnings Per Share
|                             |  |                           |        |        |  |                    |        |            |  |        |       |                   
|Earnings per share  basic   |  | $                         | 21,768 |        |  |                    | 26,972 |            |  | $      | 0.81  |                    |  | $ | 13,937 |                  |  |  | 21,572 |  |  | $ | 0.65  |  
|Adjustments (1)              |  |                           | 226    |        |  |                    | 1,226  |            |  |        | (0.03 | )                  |  |   | 112    |                  |  |  | 631    |  |  |   | (0.02 | )
|                             |  |                           |        |        |  |                    |        |            |  |        |       |                    |  |   |        |                  |  |  |        |  |  |   |       |  
|Earnings per share  diluted |  | $                         | 21,994 |        |  |                    | 28,198 |            |  | $      | 0.78  |                    |  | $ | 14,049 |                  |  |  | 22,203 |  |  | $ | 0.63  |  

13



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| |  | (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.     DIVIDENDS DECLARED PER SHARE

Dividends are generally declared a quarter in arrears. However, prior to 2001,
we declared our fourth quarter dividend during the quarter in order to comply
with REIT requirements during those
respective years. Dividends declared per share for the three months ended June
30, 2002 and 2001 represents the first quarter dividend for 2002 and 2001,
respectively. Dividends declared per share for the six months ended June 30,
2002 includes the first quarter dividend for 2002 and the fourth quarter
dividend for 2001. Dividends declared per share for the six months ended June
30, 2001 represents the first quarter dividend for 2001.

9.     SUBSEQUENT EVENTS

Declaration of Dividend

On July 17, 2002, our Board of Trustees declared a cash dividend of $0.398 per
share, which will be paid on August 20, 2002 to shareholders of record as of
August 9, 2002.

14



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##### 



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

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

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



| |  |  | risks that our tenants will not pay rent;                                                                                                                                                                                                                                                                                                    
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | risks that our growth will be limited if we cannot obtain additional capital;                                                                                                                                                                                                                                                                
|
| |  |  | risks of financing, such as our ability to
consummate planned and additional financings on terms which
are acceptable to us and our ability to meet existing
financial covenants;                                                                                                                                                            
|
| |  |  | risks that planned and additional acquisitions may not be consummated;                                                                                                                                                                                                                                                                       
|
| |  |  | risks that our operating costs will be higher than expected;                                                                                                                                                                                                                                                                                 
|
| |  |  | risks related to the automotive industry, such as
the ability of our tenants to compete effectively in the
automotive retail industry and the ability of our tenants
to perform their lease obligations as a result of changes
in any manufacturers production, inventory, marketing or
other practices 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.

15



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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 provide facility improvement and expansion
funding, construction financing and takeout commitments in certain
circumstances. As of June 30, 2002, we had invested approximately $1.4 billion
in 280 properties located in 28 states, comprising approximately 1,930 acres of
land and containing approximately 11.0 million square feet of buildings and
improvements. Our tenants operate 390 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 14.1 years and a
weighted average remaining lease term of approximately 11.7 years. The leases
typically have options to renew upon the same terms and conditions for one or
more additional periods of five to 10 years each, exercisable at the option of
the tenant (with renewal options ranging from a total of five to 40 years).

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

We incur general and administrative expenses including, principally,
compensation expense for our executive officers and other employees,
professional fees 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.

SECOND QUARTER ACQUISITIONS

During the three months ended June 30, 2002, we completed approximately $34.1
million of property acquisitions, which included six properties, three of which
are operated by two new tenants, and several facility improvements and
construction fundings with existing tenants. We initially funded the majority
of the acquisitions with funds drawn down on our short-term credit facilities
and subsequently repaid these facilities with the net proceeds received from
the $325 million debt securitization completed at the end of the second
quarter, as discussed in Liquidity and Capital Resources  Mortgage Debt and
Revolving Credit Facilities below. These acquisitions added approximately
262,000 square feet of buildings and improvements on approximately 31 acres of
land in five states (Indiana, New Jersey, Ohio, Tennessee and Texas). The
majority of the leases entered into during the quarter have been structured
using our variable rate lease program. The leases have initial lease terms
ranging from 12 to 21 years, with a weighted average initial lease term of 15.8
years. These leases have renewal options exercisable at the option of the
tenant ranging from a total of 10 to 20 years.

16



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##### 



RESULTS OF OPERATIONS

Revenue

Rental.Rental revenue for the three months ended June 30, 2002 increased 21%
to $34.3 million from $28.4 million for the same quarter in 2001. Rental
revenue for the six months ended June 30, 2002 increased 18% to $66.6 million
from $56.4 million for the same period in 2001. The increase was primarily
attributable to:



| |  | the growth of our real estate
portfolio and the timing of our
property acquisitions, from which we
generate our rental income. We owned
280 properties as of June 30, 2002
versus 251 properties as of June 30,
2001;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | during the first quarter of 2002, we
converted the leases on approximately
$71.2 million of properties leased to
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 the debt secured
primarily by such properties totaling
approximately $58.3 million. 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 and six
months ended June 30, 2002 totaled
$1.2 million and $2.7 million,
respectively, as compared to $858,000
and $1.6 million for the three months
and six months ended June 30, 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 June 30,
2002, $334 million of our $1.4 billion
real estate portfolio, or 25%, was
subject to variable rate leases. This
compares to $94 million of our $1.1
billion real estate portfolio, or 9%,
that was subject to variable rate
leases as of June 30, 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. The majority of the variable
rate lease agreements contain minimum
rates and fixed rate conversion
features, and none of these leases
contains a maximum rate; and
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | during the third quarter of 2001, we
converted the leases relating to
$185.3 million of properties leased to
Sonic from fixed rate to variable
rate, resulting in a decrease in
rental revenue. We also converted the
interest rate on approximately $150
million of debt that is primarily
secured by the properties subject to
these leases from fixed rate to
variable rate. Other terms of the
leases, including lease escalators,
remained unchanged.                                                                                                                                                                                                                                                                                                                                                                                            

Interest and Other.Interest and other income for the three months ended June
30, 2002 increased to $135,000 from $32,000 for the same quarter in 2001.
Interest and other income for the six months ended June 30, 2002 increased to
$264,000 from $93,000 for the same period in 2001. The increase was primarily
due to an increase in interest earned on temporary investments and other fee
income.

17



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##### 



Expenses

Depreciation and Amortization.Depreciation and amortization for the three
months ended June 30, 2002 increased 23% to $6.3 million from $5.1 million for
the same quarter in 2001. Depreciation and amortization for the six months
ended June 30, 2002 increased 21% to $12.3 million from $10.2 million for the
same period in 2001. Depreciation and amortization consisted primarily of
depreciation on buildings and improvements owned during those periods. The
increase is attributable to the growth of our real estate portfolio, resulting
in an increase in our depreciable assets.

General and Administrative.General and administrative expenses for the three
months ended June 30, 2002 increased $261,000, or 15%, to $2.0 million from
$1.7 million for the same quarter in 2001. General and administrative
expenses for the six months ended June 30, 2002 increased 19% to $4.1 million
from $3.4 million for the same period in 2001. The increase in operating
expenses 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.

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

Interest.Interest expense for the three months ended June 30, 2002 decreased
2% to $11.4 million from $11.6 million for the same quarter in 2001. Interest
expense for the six months ended June 30, 2002 decreased 8% to $21.7 million
from $23.5 million for the same period in 2001. Since June 30, 2002, our
overall debt increased from $626.8 million ($476.3 million fixed rate debt and
$150.5 million variable rate debt) as of June 30, 2001 to $838.9 million
($524.6 million fixed rate debt and $314.3 million variable rate debt) as of
June 30, 2002, which debt was primarily obtained to directly or indirectly
finance acquisition of properties during that time period. Of the total debt
outstanding, approximately $152 million was issued on June 28, 2002 as noted in
Liquidity and Capital Resources  Mortgage Debt and Revolving Credit
Facilities below. Our overall debt increased as well as the mix of variable
rate debt to total debt increased from 24% to over 35%. The decreases in
interest expense over the prior periods were 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 7.81% in the second quarter of 2001 to 6.07% in the
second quarter of 2002 and from 7.96% in the first half of 2001 to 6.44% in the
first half of 2002. The decreases were 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

18



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##### 



conversion of the
leases on approximately $71.2 million of properties leased to Sonic from
variable rate to fixed rate, as described above.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents were $54.4 million and $1.7 million at June 30, 2002
and June 30, 2001, respectively. The changes in cash and cash equivalents
during the six months ended June 30, 2002 and 2001 were attributable to
operating, investing and financing activities, as described below.

Operating Activities
Cash provided by operating activities for the six months ended June 30, 2002
and 2001 was $35.0 million and $21.7 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 six months ended June 30, 2002 and
2001 was $102.5 million and $50.3 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 six months ended June 30, 2002
and 2001 was $112.5 million and $24.0 million, respectively. Cash provided by
financing activities for the six months ended June 30, 2002 primarily reflects:



| |  |  | $205.4 million of proceeds received from mortgage debt incurred
during the period;         
| | - |  | -------------------------------------------------------------------------------------------
|
| |  |  | $105.7 million of proceeds received from borrowings on our
revolving credit facilities; and
|
| |  |  | $16.2 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 $164.2 million;                                                                                                                                
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | distributions made to shareholders and minority partners during the
period totaling $27.7 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;
|
| |  |  | payments of principal on outstanding mortgage debt totaling $9.2 million;                                                                                                                                              
|
| |  |  | payments for debt issuance
costs totaling $7.3 million; and                                                                                                                                                            
|
| |  |  | the redemption of Units totaling $153,000.                                                                                                                                                                             

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



| |  |  | $91.3 million of proceeds received from borrowings on our revolving credit facilities;
| | - |  | --------------------------------------------------------------------------------------

19



---



##### 





| |  |  | $6.2 million of proceeds received from the issuance of common shares, net of costs; and
| | - |  | ---------------------------------------------------------------------------------------
|
| |  |  | $661,000 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 $43.4 million;            
| | - |  | --------------------------------------------------------------------------------------------------
|
| |  |  | distributions made to shareholders and minority partners during the
period totaling $23.1 million;
|
| |  |  | payments of principal on outstanding mortgage debt totaling $7.5 million;                         
|
| |  |  | payments for debt issuance costs totaling $104,000; and                                           
|
| |  |  | the repurchase of common shares pursuant to our common share
repurchase program totaling $142,000.

Mortgage Debt and Revolving Credit Facilities

As of June 30, 2002, we had total debt outstanding of $838.9 million. Of this
debt, approximately $833.9 million (consisting of $524.6 million of fixed rate
and $309.3 million of variable rate debt) was mortgage debt secured by
approximately 250 of our properties. In addition, we had $5.0 million
outstanding on our revolving credit facilities.

20



---



##### 



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

|                                                     |                                   |               |                |      |                    |       |                    |          |                    |   |         |         |  |  |      |      |   |                   |    |   | 
|---------------------------------------------------- | --------------------------------- | ------------- | -------------- | ---- | ------------------ | ----- | ------------------ | -------- | ------------------ | - | ------- | ------- |  |  | ---- | ---- | - | ----------------- | -- | - | 
|                                                     |                                   |               |                |      |                    |       | Principal Balance  |          | Principal Balance  |   |         |         |  |  |      |      |  
|                                                     |                                   | Original Debt | as of June 30, |      | as of December 31, |       | Effective Interest |          | Term/ Amortization
|Description of Debt                                  | Issued                            | 2002          |                | 2001 |                    | Rate* |                    | Schedule
|                                                     |                                   |               |                |      |                    |       |                   
|7.59% fixed rate debt due 12/1/08                    |                                   | $             | 38,050         |      |                    | $     | 35,238             |          |                    | $ | 35,886  |         |  |  | 8.01 | %    |   | 10 yr/17 yr      
|7.635% fixed rate debt due 10/1/14 (1)               |                                   |               | 111,950        |      |                    |       |                   |          |                    |   | 98,891  |         |  |  | 7.94 | %    |   |                   |    |  
|8.05% fixed rate debt due 10/1/14 (1)                |                                   |               | 85,000         |      |                    |       |                   |          |                    |   | 78,319  |         |  |  | 8.33 | %    |   |                   |    |  
|Triple Net Lease Mortgage Notes, Series 2002 (1)     |                                   |               | 325,000        |      |                    |       | 325,000            |          |                    |   |        |         |  |  | 7.70 | %    |   |                   | (1 | )
|7.54% fixed rate debt due 7/6/11                     |                                   |               | 100,000        |      |                    |       | 95,690             |          |                    |   | 96,132  |         |  |  | 7.71 | %    |   | 12 yr/25 yr      
|7.565% fixed rate debt due 11/12/12 (2)              |                                   |               | 28,500         |      |                    |       | 27,075             |          |                    |   |        |         |  |  | 7.66 | %    |   | 12 yr/25 yr      
|7.5975% fixed rate debt due 12/18/12 (2)             |                                   |               | 32,054         |      |                    |       | 30,633             |          |                    |   |        |         |  |  | 7.62 | %    |   | 12 yr/30 yr      
|7.50% fixed rate debt due 1/20/03                    |                                   |               | 12,000         |      |                    |       | 10,968             |          |                    |   | 11,108  |         |  |  | 7.76 | %    |   | 4.25 yr/20 yr    
|                                                     |                                   |               |                |      |                    |       |                    |          |                    |   |         |         |  |  |      |      |   |                   |    |  
|Total Mortgage Fixed Rate Debt                       |                                   |               |                |      |                    | $     | 524,604            |          |                    | $ | 320,336 |         |  |  | 7.91 | %    |   |                   |    |  
|                                                    
|Variable rate debt due 9/29/11 (3)                   |                                   | $             | 150,000        |      |                    | $     | 147,175            |          |                    |   | 149,419 |         |  |  | 4.14 | %    |   | 12 yr/25 yr      
|Variable rate debt due 8/10/13 (4)                   |                                   |               | 82,600         |      |                    |       | 80,535             |          |                    |   | 81,223  |         |  |  | 3.66 | %    |   | 12 yr/30 yr      
|Variable rate debt swapped to fixed rate debt (2)    |                                   |               | 60,554         |      |                    |       |                   |          |                    |   | 58,278  |         |  |  |      |      |   |                   |    |  
|Various variable rate debt (5)                       |                                   |               | 83,550         |      |                    |       | 81,559             |          |                    |   | 28,400  |         |  |  | 5.06 | %    |   | 10 to 11 yr/25 yr
|                                                     |                                   |               |                |      |                    |       |                    |          |                    |   |         |         |  |  |      |      |   |                   |    |  
|                                                     | Total Mortgage Variable Rate Debt |               |                |      |                    |       | $                  | 309,269  |                    |   | $       | 317,320 |  |  |      | 4.25 | % |                   |    |   | 
|                                                     |                                   |               |                |      |                    |       |                    |          |                    |   |         |         |  |  |      |      |   |                   |    |  
|TOTAL MORTGAGE DEBT                                  |                                   |               |                |      |                    | $     | 833,873            |          |                    | $ | 637,656 |         |  |  | 6.26 | %    |   |                   |    |  
|                                                    
|$50 million revolving partially secured facility
(6) |                                   |               |                |      |                    |       |                   |          |                    |   | 17,400  |         |  |  | 3.80 | %    |   |                   |    |  
|$60 million revolving unsecured facility (7)         |                                   |               |                |      |                    |       |                   |          |                    |   |        |         |  |  |      |      |   | 3 yr             
|$100 million revolving secured facility (8)          |                                   |               |                |      |                    |       | 5,000              |          |                    |   | 46,108  |         |  |  | 4.30 | %    |   | 1 yr             
|                                                     |                                   |               |                |      |                    |       |                    |          |                    |   |         |         |  |  |      |      |   |                   |    |  
|TOTAL CREDIT FACILITIES                              |                                   |               |                |      |                    | $     | 5,000              |          |                    | $ | 63,508  |         |  |  | 4.19 | %    |   |                   |    |  
|                                                     |                                   |               |                |      |                    |       |                    |          |                    |   |         |         |  |  |      |      |   |                   |    |  
|TOTAL DEBT OUTSTANDING                               |                                   |               |                |      |                    | $     | 838,873            |          |                    | $ | 701,164 |         |  |  | 6.07 | %    |   |                   |    |  
|                                                     |                                   |               |                |      |                    |       |                    |          |                    |   |         |         |  |  |      |      |   |                   |    |  



| | *   |  | For the quarter ended June 30, 2002. Includes deferred loan fees
amortized over the life of the loans. The effective interest rates on
our total mortgage fixed rate debt and our total mortgage debt
outstanding as of June 30, 2002 were approximately 7.7% and 6.4%,
respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (1) |  | On June 28, 2002, we issued $325 million in four classes of Triple
Net Lease Mortgage Notes, Series 2002 (the Notes). The transaction
reflects approximately $152 million of new debt issued in classes under
current market terms (the New Notes) and a restructuring of a
securitization completed in 1999, that had a remaining balance of
approximately $173 million (the Modified Debt). The certificates
representing the Modified Debt have economic terms equivalent to the
prior transaction. The Notes are collateralized by 94 properties,
subject to long-term, triple-net leases, with a net book value of $430.5
million and an appraised value of $462.4 million as of June 30, 2002.
The New Notes have a weighted average effective interest rate (including
deferred fees amortized over the life of the New Notes) of approximately
7.0% and are fully-amortizing over 20 years. The Notes are
fully-amortizing and have terms ranging from 12 to 20 years, with a
weighted average term of 14.2 years. The Notes have a weighted average
effective interest rate (including deferred fees amortized over the life
of the Notes) of approximately 7.7%. The net proceeds from the issuance
of the New Notes were used to pay down our short-term credit facilities
and to fund

21



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##### 





| |     |  | acquisitions, and will be available to fund future
acquisitions. CARS Loan Servicer L.L.C., one of our subsidiaries,
will act as servicer of the Notes on behalf of the noteholders.                                                                                                                                                                                                                                                                                                                              
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | These loans bear interest equal to the 30-day LIBOR rate plus 215
basis points and require quarterly interest and level principal
payments until maturity. During the first quarter of 2002, we entered
into interest rate swap arrangements with a third party on these loans
to fix the interest rate. The new blended rate on the debt is
approximately 7.58%.                                                                                                                                                 
|
| | (3) |  | This loan was converted from fixed rate to variable rate during the
third quarter of 2001. Following the conversion, the loan bears
interest equal to the 30-day LIBOR rate plus 227 basis points and
requires monthly level payments of principal and interest until
maturity.                                                                                                                                                                                                                                   
|
| | (4) |  | This loan bears interest equal to the 30-day LIBOR rate plus 175
basis points and requires quarterly interest and level principal
payments until maturity. 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%.                                                                              
|
| | (5) |  | These loans bear interest at variable rates ranging from 200 to 357
basis points above the A1-P1 Commercial Paper Rate or the 30-day LIBOR
rate and have maturity dates ranging from December 22, 2009 to May 1,
2012. The terms of the various loans require either quarterly interest
and level principal payments or monthly level payments of principal and
interest until maturity.                                                                                                                          
|
| | (6) |  | The facility matured on March 3, 2002 and was extended until the end
of the second quarter at which time it was replaced by the new unsecured
revolving credit facility.                                                                                                                                                                                                                                                                                                                                          
|
| | (7) |  | At the end of the first quarter of 2002, we closed on this $60
million unsecured revolving credit facility. The facility 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.
The facility replaced the existing $50 million secured revolving credit
facility at the end of the second quarter of 2002.                                                                                                   
|
| | (8) |  | Amounts borrowed under this facility bear interest at market rates
determined at the time of each draw until such time as we and the lender
set an interest rate for any future amounts borrowed under the facility.
As of June 30, 2002, the borrowings under the facility bear interest
equal to the 30-day LIBOR rate plus 287 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 June 30, 2002, we were in compliance with all of the loan covenants
related to our mortgage debt and credit facilities.

$325 Million Securitization

As noted in footnote (1) of the debt table herein, we modified approximately
$173 million of debt during the second quarter. Because the terms of the
Modified Debt were virtually identical to the original debt, the modification
did not result in a significant modification of debt. Therefore, in accordance
with GAAP: (1) the unamortized issuance costs related to the original debt of
$3.9 million, plus $2.3 million of costs related to the Modified Debt that was
paid to the lender and capitalized, will be amortized over the remaining term
of the Modified Debt using the effective interest method; and (2) third-party
costs totaling $265,000 incurred in connection with the Modified Debt were
expensed. In addition, we incurred approximately $6.2 million in debt issuance
costs associated with the issuance of the New Notes, which, in accordance with
GAAP, were capitalized and will be amortized over the term of the New Notes
using the effective interest method.

Interest Rate Swaps

In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement was originally effective
for all fiscal quarters of fiscal years beginning after June 15, 1999; however,
during the second quarter of 1999 the FASB issued SFAS No. 137, Accounting

22



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##### 



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 leases on approximately
$71.2 million of properties leased to Sonic Automotive and its affiliates
(Sonic) from variable rate to fixed rate. At the same time, we entered into
interest rate swap arrangements with a third party to fix the interest rate on
the debt secured primarily by such properties totaling approximately $58.3
million.

Fixing the rate on $140.9 million of debt with interest rate swap arrangements
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 (loss) within shareholders equity on our consolidated
balance sheets. The fair value of the swaps is recorded as either a derivative
instrument asset or derivative instrument liability on our consolidated balance
sheets. As of June 30, 2002, we had an unrealized loss on the swaps of
approximately $4.5 million, which is included in other liabilities and
accumulated other comprehensive income (loss) within our consolidated balance
sheets.

Liquidity Requirements

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

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of maximizing both current income and long-term growth in income.

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

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

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

|                                |  |   |         | 
|------------------------------- |  | - | ------- | 
|For the Year Ended December 31, |  |   |         | 
|2002                            |  | $ | 14,092  | 
|2003                            |  |   | 37,203  | 
|2004                            |  |   | 27,826  | 
|2005                            |  |   | 29,516  | 
|2006                            |  |   | 31,237  | 
|Thereafter                      |  |   | 693,999 | 
|                                |  |   |         | 
|Total                           |  | $ | 833,873 | 
|                                |  |   |         | 

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 June 30, 2002, we had $67.4 million available under this commitment.

We have adopted a policy to limit debt to approximately 65% of our assets
(calculated as total assets plus accumulated depreciation). This policy may be
changed by our Board of Trustees at any time without shareholder approval. As
of June 30, 2002, our debt was approximately 58% of our assets. 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 June 30, 2002,
approximately 93% of our debt outstanding (including the $80.5 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 June 30, 2002, our long-term debt had a weighted
average remaining term of 11.2 years, and our leases had a weighted average
remaining term of 11.7 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 June 30, 2002, approximately $334 million of our
approximately $1.4 billion real estate portfolio, or 25%, was subject to
variable rate leases. The majority of the variable rate lease agreements
contain minimum rates and fixed rate conversion features, and none of these
leases contains a maximum

24



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rate. Upon conversion, the fixed base rent typically
continues to be adjusted upward periodically based on a factor of the change in
the CPI. The majority of the variable rate leases currently are financed with
long-term, variable rate debt, thereby fixing our investment spread. We expect
to finance the remaining variable rate leases with long-term, variable rate
debt as well. As of June 30, 2002, $233.7 million of our
total outstanding debt was variable rate debt, which excludes $80.5 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 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 and six months ended June 30, 2002, no common shares were
repurchased. From the inception of the common share repurchase program through
June 30, 2002, a total of 4,094,700 common shares have been repurchased at an
average price of $10.62 per common share. In conjunction with the common share
repurchases, the Partnership redeemed an equivalent number of Units from the
Company for equivalent purchase prices.

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

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

Common shares may be purchased directly from us or in open market or privately
negotiated transactions, as we determine from time to time, to fulfill the
requirements for the DRIP. For the three months ended June 30, 2002, we issued
approximately 4,700 common shares under the DRIP and received approximately
$109,000 in net proceeds. For the six months ended June 30, 2002, we issued
approximately 10,400 common shares under the DRIP and received approximately
$227,000 in net proceeds.

Purchase of Warrants Outstanding to Purchase Common Shares

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

25



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

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.

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

|                                                                                                        |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ---------------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                        |  | Three Months Ended |        | Six Months Ended
|                                                                                                        |  | June 30,           |        | June 30,        
|                                                                                                        |  |                    |        |                 
|                                                                                                        |  | 2002               |        | 2001             |  | 2002 |        | 2001
|                                                                                                        |  |                    |        |                  |  |      |        |     
|Net income before minority interest                                                                     |  | $                  | 14,410 |                  |  | $    | 9,954  |      |  | $ | 28,540 |   |  | $ | 19,386 |  
|Real estate depreciation and amortization                                                               |  |                    | 6,272  |                  |  |      | 5,104  |      |  |   | 12,215 |   |  |   | 10,120 |  
|Gain on sale of assets                                                                                  |  |                    |       |                  |  |      |       |      |  |   |       |   |  |   |       |  
|                                                                                                        |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        |  
|FFO                                                                                                     |  |                    | 20,682 |                  |  |      | 15,058 |      |  |   | 40,755 |   |  |   | 29,506 |  
|Less: straight-lined rents                                                                              |  |                    | (1,243 | )                |  |      | (858   | )    |  |   | (2,718 | ) |  |   | (1,637 | )
|                                                                                                        |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        |  
|AFFO                                                                                                    |  | $                  | 19,439 |                  |  | $    | 14,200 |      |  | $ | 38,037 |   |  | $ | 27,869 |  
|                                                                                                        |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        |  
|Weighted average number of common shares
and units used to compute basic FFO and
AFFO per share         |  |                    | 36,193 |                  |  |      | 30,135 |      |  |   | 35,392 |   |  |   | 30,042 |  
|                                                                                                        |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        |  
|Weighted average number of common shares
and units used to compute fully diluted
FFO and AFFO per share |  |                    | 37,359 |                  |  |      | 31,019 |      |  |   | 36,618 |   |  |   | 30,673 |  
|                                                                                                        |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        |  

ITEM III. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to certain financial market risks, the most predominant being
fluctuations in interest rates. Interest rate fluctuations are monitored by
our management as an integral part of our overall risk management program,
which recognizes the unpredictability of financial markets and seeks to reduce
the potentially adverse effect on our results of operations. In general, our
policy of substantially match-funding at least 70% of our long-term debt with
long-term leases reduces our exposure to interest rate fluctuations. We have
used and may continue to use interest rate swap arrangements to minimize
interest rate risk and to match-fund our long-term debt with our long-term
leases. We do not enter into interest rate swap arrangements for trading
purposes.

During the six months ended June 30, 2002, our fixed rate debt increased from
$320.3 million at December 31, 2001 to $524.6 million as of June 30, 2002.
Interest rate fluctuations may affect the fair value of our fixed rate debt
instruments. If interest rates on our fixed rate debt instruments at June 30,
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 $32 million.

During the six months ended June 30, 2002, our variable rate debt decreased
from $380.8 million as of December 31, 2001 to $314.3 million (including the
$80.5 million of variable rate debt that will become fixed rate debt effective
November 1, 2002 under an interest rate swap arrangement) as of June 30, 2002.
In addition, our real estate investments which are leased by tenants utilizing
our variable lease rate program increased from $314 million as of December 31,
2001 to $334 million as of June 30, 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-

27



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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 more than 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. Since our variable rate leases exceeded our variable rate debt by
approximately $20 million as of June 30, 2002, a change in interest rates would
have a net effect on the rental income received on that portion of our variable
rate leases. If interest rates on this portion of our variable rate leases had
been one percentage point higher or lower, our annual rental income relating to
those leases could have increased or decreased, respectively, by $200,000,
based on balances at June 30, 2002. It should be noted that the majority of
our variable rate lease agreements contain minimum rates designed to protect us
from a decrease in interest rates.

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CAPITAL AUTOMOTIVE REIT
PART II-OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable.

Item 2. Changes in Securities

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submission of Matters to Vote of Security Holders

The annual meeting of shareholders of Capital Automotive REIT (the Meeting)
was held on May 14, 2002. The matters voted upon at the meeting were: (1)
Election of Trustees; (2) Approval of amendments to the Capital Automotive
Group Amended 1998 Equity Incentive Plan; and (3) Ratification of the
appointment of the accounting firm of Arthur Andersen LLP to serve as
independent accountants for Capital Automotive REIT for the fiscal year ending
December 31, 2002. Proxies for the meeting were solicited pursuant to Section
14(a) of the Securities and Exchange Act of 1934, as amended, and the
regulations promulgated thereunder. There was no solicitation in opposition to
managements solicitations. All of managements nominees for the Board of
Trustees were elected. The following table sets forth the results of these
votes:

|                                                      |  |                |  |  |  |                     
|----------------------------------------------------- |  | -------------- |  |  |  | --------------------
|Proposal                                              |  | Results       
|                                                      |  |               
|(1) A proposal to
elect ten Board
of Trustee members: |  |                |  |  |  |                     
|John E. Anderson                                      |  | For:
Withheld: |  |  |  | 23,381,015
111,438  
|Thomas D. Eckert                                      |  | For:
Withheld: |  |  |  | 21,268,135
2,224,318
|Craig L. Fuller                                       |  | For:
Withheld: |  |  |  | 23,381,015
111,438  
|David Gladstone                                       |  | For:
Withheld: |  |  |  | 23,381,015
111,438  
|William E. Hoglund                                    |  | For:
Withheld: |  |  |  | 19,631,262
3,861,191
|R. Michael McCullough                                 |  | For:
Withheld: |  |  |  | 23,381,015
111,438  
|Lee P. Munder                                         |  | For:           |  |  |  | 23,381,015          

29



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|                    |  |                |  |  |  |                   
|------------------- |  | -------------- |  |  |  | ------------------
|                    |  | Withheld:      |  |  |  | 111,438           
|John J. Pohanka     |  | For:
Withheld: |  |  |  | 23,341,615
150,838
|Robert M. Rosenthal |  | For:
Withheld: |  |  |  | 23,341,615
150,838
|Vincent A. Sheehy   |  | For:
Withheld: |  |  |  | 23,341,615
150,838

(2)  Approval of amendments to the Capital Automotive Group Amended
1998 Equity Incentive Plan:

| |  |                 |  |  |  |           
| |  | --------------- |  |  |  | ----------
| |  | For:            |  |  |  | 22,280,088
| |  | Against:        |  |  |  | 1,131,046 
| |  | Abstain:        |  |  |  | 81,313    
| |  | Broker No Vote: |  |  |  | 6         

(3)  Ratification of the appointment of the accounting firm of Arthur
Andersen LLP to serve as independent accountants for Capital
Automotive REIT for the fiscal year ending December 31, 2002:

| |  |                 |  |  |  |           
| |  | --------------- |  |  |  | ----------
| |  | For:            |  |  |  | 22,186,646
| |  | Against:        |  |  |  | 1,236,976 
| |  | Abstain:        |  |  |  | 68,825    
| |  | Broker No Vote: |  |  |  | 6         

Item 5. Other Information

Not applicable.

Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits:



|10.8  |  | Capital Automotive Group Second Amended and Restated 1998 Equity
Incentive Plan (previously filed as Appendix A to the Proxy
Statement filed on March 25, 2002 with respect to the 2002 Annual
Meeting of Shareholders and incorporated herein by reference)
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |  |                                                                                                                                                                                                                                                             
|10.11 |  | Indenture dated June 28, 2002, among LaSalle Bank National
Association, as Trustee, and CARS DB4, L.P., as Issuer (filed
herewith)                                                                                                                          

(b)  Reports on Form 8-K

A current report on Form 8-K dated May 23, 2002 and filed with the Securities
and Exchange Commission on May 24, 2002 (File No. 000-23733), reporting under
Item 4 of Form 8-K, the dismissal

30



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##### 



of Arthur Andersen LLP as the Companys
principal independent accountant and the engagement of Ernst
& Young LLP to serve as the Companys principal independent accountant to audit
the Companys financial statements for the year ending December 31, 2002.

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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: August 13, 2002

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CERTIFICATION OF CHIEF EXECUTIVE OFFICER

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

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

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

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

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

CERTIFICATION OF CHIEF FINANCIAL OFFICER

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

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

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

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

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

33