exv99w1

EX-99.1 4 w66781exv99w1.htm REVISED DISCLOSURES exv99w1

Exhibit 99.1

Item 6. Selected Financial Information

(In Thousands, Except Per Share Data)


	For the Years Ended December 31,

	2001			2000			1999			1998			1997 (1)

Operating Data:
Total revenues	$	117,481		$	102,303		$	75,873		$	34,931		$	—
Depreciation and amortization expense	$	21,392		$	17,565		$	15,347		$	6,304		$	1
General and administrative expense	$	7,114		$	6,592		$	6,781		$	5,487		$	649
Interest expense	$	46,091		$	42,172		$	24,541		$	2,254		$	—
Income (loss) from continuing operations before minority interest and extraordinary item	$	42,884		$	35,974		$	29,204		$	20,886		$	(650	)
Minority interest (2)	$	(11,122	)	$	(10,280	)	$	(7,473	)	$	(4,395	)	$	—
Income (loss) from continuing operations before extraordinary item	$	31,762		$	25,694		$	21,731		$	16,491		$	(650	)
Income from discontinued operations	$	141		$	118		$	—		$	—		$	—
Income (loss) before extraordinary item	$	31,903		$	25,812		$	21,731		$	16,491		$	(650	)
Extraordinary item – extinguishment of debt (3)	$	(526	)	$	—		$	—		$	—		$	—
Net income (loss)	$	31,377		$	25,812		$	21,731		$	16,491		$	(650	)
Weighted average number of common shares outstanding – diluted		24,450			21,113			21,629			20,978			—
Diluted earnings per share:
Income from continuing operations before extraordinary item	$	1.31		$	1.22		$	1.01		$	0.79		$	—
Income before extraordinary item	$	1.32		$	1.22		$	1.01		$	0.79		$	—
Net income	$	1.30		$	1.22		$	1.01		$	0.79		$	—
Other Data:
FFO (4)	$	64,333		$	53,455		$	44,205		$	27,047		$	(650	)
AFFO (5)	$	60,906		$	51,096		$	43,243		$	27,047		$	(650	)
Weighted average number of common shares and units outstanding – diluted		32,726			29,476			28,796			26,228			—
Annual dividend per share (6)	$	1.55		$	1.50		$	1.38		$	0.876		$	—
Properties owned at end of period		260			244			230			120			—


	As of December 31,

	2001		2000		1999		1998		1997

Balance Sheet Data:
Real estate before accumulated depreciation	$	1,229,694	$	1,037,870	$	935,525	$	511,132	$	—
Total assets		1,199,700		1,021,589		942,559		583,211		1,011
Mortgage debt		637,656		571,519		501,510		161,997		—
Borrowings under credit facilities		63,508		14,200		—		—		1,000
Total other liabilities		21,630		30,109		26,066		18,659		661
Minority interest		110,885		115,728		115,384		93,898		—
Total shareholders’ equity (deficit)		366,021		290,033		299,599		308,657		(650	)

(1) For the period from October 20, 1997 (date of inception) to December 31, 1997.

(2) Minority interest represents income attributable to the units of the Partnership owned by limited partners (other than us) of the Partnership.

(3) During the third quarter of 2001, we converted the interest rate on $150 million of debt from fixed rate to variable rate. The conversion of the interest rate on the debt resulted in a significant modification of the debt.

In accordance with accounting principles generally accepted in the United States (“GAAP”), the significant modification should be treated as an extinguishment of debt. As a result, we wrote off the remaining deferred loan fees relating to the debt and classified the write-off as an extraordinary item.

(4) Prior to 2002, Funds From Operations (“FFO”) was defined under the revised definition adopted in October 1999 by the National Association of Real Estate Investment Trusts (NAREIT) as net income (loss) before minority interest and extraordinary item (computed in accordance with GAAP) excluding gains (or losses) from sales of property, plus depreciation and amortization of assets unique to the real estate industry, and after adjustments for unconsolidated partnerships and joint ventures. In April 2002, NAREIT revised its FFO definition as income (loss) from continuing operations before minority interest and extraordinary item (computed in accordance with GAAP) plus income from discontinued operations (including minority interest) and excluding gains (or losses) from sales of property reported as income (loss) from continuing operations, plus depreciation and amortization of assets unique to the real estate industry, and after adjustments for unconsolidated partnerships and joint ventures.

(5) Adjusted funds from operations (“AFFO”) is FFO excluding straight-lined rents.

(6) 2001 annual dividend represents first, second and third quarter dividends totaling $1.161 declared during 2001 and fourth quarter dividend totaling $0.389 declared on January 22, 2002.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing in Item 8 of this report. Historical results set forth in Selected Financial Information, the Financial Statements and Supplemental Data included in Item 6 and Item 8 and this section should not be taken as indicative of our future operations.

This Annual Report on Form 10-K, including our documents incorporated herein by reference, 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. Also, documents which we subsequently file with the SEC and are incorporated herein by reference 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, the risk factors included or incorporated by reference in our Annual Report on Form 10-K describe forward-looking information. The risk factors are not all inclusive, particularly with respect to possible future events. Other parts of, or documents incorporated by reference into, this Annual Report on Form 10-K 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, but are not limited to:

• 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. You should carefully review the risks and the risk factors incorporated herein by reference from our Form 8-K/A filed on January 22, 2002, as well as the other information in this Annual Report on Form 10-K or referred to in this Annual Report on Form 10-K, before buying our common shares.

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 buying properties from dealerships that have a long history of operating multi-site, multi-franchised dealerships, generally targeting the largest dealer groups in terms of revenues in the largest major metropolitan areas in the U.S. in terms of population. In addition, we also provide facility improvement and expansion funding, construction financing and takeout commitments in certain circumstances. As of December 31, 2001, we had invested more than $1.2 billion in 260 properties located in 27 states (Alabama, Arizona, California, Colorado, Connecticut, Florida, Georgia, Idaho, Illinois, Indiana, Louisiana, Maryland, Missouri, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah and Virginia), comprising approximately 1,800 acres of land and containing approximately 9.9 million square feet of buildings and improvements. Our tenants operate 365 motor vehicle franchises on our properties, representing nearly 40 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 13.9 years. The leases typically have options to renew upon the same terms and conditions for one or more additional periods of five to 10 years each exercisable at the option of the tenant (ranging from a total of five to 40 years).

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

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 9-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.

Recent Developments

During the three months ended December 31, 2001, we completed approximately $28.0 million of acquisitions. These acquisitions included the purchase of two dealership properties totaling approximately $22.1 million, five facility improvements and two construction fundings totaling approximately $5.9 million, all of which were leased to existing tenants. We funded the acquisitions with funds drawn down on our credit facilities and cash on hand. These acquisitions added approximately 224,000 square feet of buildings and improvements on approximately 37 acres of land and are located in seven states (Indiana, Louisiana, New Jersey, Ohio, Oklahoma, Texas and Virginia). These properties have initial lease terms ranging from 11 to 24 years, with a weighted average initial lease term of 20.5 years. The leases have renewal options exercisable at the option of the tenant ranging from a total of 10 to 30 years.

The following transactions occurred subsequent to December 31, 2001:

Debt

During February 2002, pursuant to an agreement with a third party, we extended the effective date for our existing interest rate swap on $81.2 million of variable rate debt from July 1, 2002 to November 1, 2002. All other terms and conditions of the swap remained the same. On November 1, 2002, the variable rate swapped to a 7.50% fixed rate.

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

During the first quarter of 2002, we renewed our $100 million revolving secured credit facility for an additional one-year period. Effective March 22, 2002, amounts borrowed under the facility will 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.

At the end of the first quarter of 2002, we closed on a $60 million revolving unsecured credit facility. The facility replaced the then existing $50 million revolving secured credit facility at the end of the second quarter of 2002. The facility provides for a three-year term with interest equal to either the Prime rate less 50 basis points or the 1-month, 2-month or 3-month LIBOR rate plus 200 basis points and requires the repayment of borrowings within 180 days.

Also at the end of the first quarter of 2002, we borrowed $48.6 million of long-term debt (which was subsequently increased by an additional approximately $5.0 million during the second quarter of 2002). The terms of the debt provide for a ten-year term with interest at a spread over the 30-day LIBOR rate.

At the end of the second quarter of 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 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 have a weighted average effective interest rate (including deferred fees amortized over the life of the Notes) of approximately 7.7%. The Notes are fully-amortizing and have terms ranging from 12 to 20 years, with a weighted average term of 14.2 years.

In October 2002, we issued approximately $80.9 million in debt pursuant to a bridge loan. The bridge loan has a six-month term and bears interest at a spread over the 30-day LIBOR rate and is convertible into a five-year term note at our discretion. The net proceeds of the loan were used to pay down borrowings outstanding on our short-term credit facilities.

Acquisitions

During 2002 through the date of this report, we completed approximately $305.6 million of property acquisitions, including 31 properties and several facility improvements and construction fundings.

Discontinued Operations

In August 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (effective for the Company on January 1, 2002). SFAS No. 144 requires that gains and losses from dispositions of properties and all operating earnings from these properties be reported as “discontinued operations”. This also requires that all past earnings applicable to a property disposed of subsequent to January 1, 2002 be reported as “discontinued operations”.

As a result, previously reported “income from continuing operations” will be updated each time a property is sold. This requirement is for presentation only and has no impact on net income. We adopted SFAS No. 144 on January 1, 2002.

During the third quarter of 2002, we sold three properties and received net proceeds of $7.5 million resulting in a combined gain of approximately $291,000. The earnings generated from these properties have been reported as “discontinued operations” in accordance with SFAS No. 144 and are presented net of minority interest for the years ending December 31, 2001 and 2000. The earnings generated from these properties were immaterial to the results of operations for the year ending December 31, 1999.

2001 Acquisitions

During the year ended December 31, 2001, we completed approximately $200.4 million of acquisitions, which included 20 dealership properties, facility improvements and expansions on 11 previously acquired properties and three construction fundings. We funded the acquisitions with net proceeds from our underwritten public equity offering that closed during the third quarter, the issuance of approximately 80,000 units of limited partnership interest in the Partnership (“Units”) (valued at approximately $1.2 million at the time of acquisition), the issuance of long-term debt, funds drawn down on our credit facilities and cash on hand. These acquisitions added approximately 1.1 million square feet of buildings and improvements on approximately 290 acres of land and are located in 15 states (Alabama, California, Florida, Georgia, Indiana, Louisiana, Maryland, New Jersey, Ohio, Oklahoma, Oregon, South Carolina, Tennessee, Texas and Virginia). These properties have initial lease terms generally ranging from 10 to 24 years, with a weighted average initial lease term of 15.7 years. The leases, in general, have renewal options exercisable at the option of the tenant ranging from a total of 10 to 40 years.

Results of Operations

Comparison of 2001 to 2000

Revenue

Rental. Rental revenue for the year ended December 31, 2001 increased 16% to $117.0 million, as compared to $101.3 million for 2000. 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 260 properties as of December 31, 2001, versus 244 properties as of December 31, 2000, although three of the properties owned as of December 31, 2001 and 2000 were sold during 2002 and reclassified from rental revenue to discontinued operations as discussed under “-Discontinued Operations” below. In addition, included in rental revenue for the years ended December 31, 2001 and 2000 were straight-lined rents totaling $3.4 million and $2.4 million, respectively.

The increase in rental revenue was partially offset by a decrease in lease rates on our variable rate leases. As of December 31, 2001, $314.2 million, of which $7.7 million is related to the three properties sold during 2002, of our $1.2 billion real estate portfolio, or 26%, was subject to variable rate leases. This compares to $78.8 million of our $1.04 billion real estate portfolio, or 8%, that was subject to variable rate leases as of December 31, 2000. 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 the leases is variable, and monthly base rent is calculated based on a spread over an applicable index, typically LIBOR. Of the total variable rate leases, the majority of the lease agreements contain minimum rates and fixed rate conversion features, and none of such leases contain a maximum rate. Of the total amount of variable rate lease additions during 2001, approximately $185.3 million related to properties leased to Sonic that were converted from fixed rate to variable rate during the third quarter of 2001 and the remaining $50.1 million was from acquisitions completed during the year. We also converted the interest rate on the underlying debt that is secured primarily by such properties from fixed rate to variable rate as discussed below.

Interest and Other. Interest and other income for the year ended December 31, 2001 decreased 54% to $479,000 from $1.1 million for 2000. The decrease was primarily due to a decrease in interest earned on temporary investments as well as a decrease in the gain on the sale of properties, which decreased 30% to $218,000 from $311,000 in 2000.

Expenses

Depreciation and Amortization. Depreciation and amortization for the year ended December 31, 2001 increased 22% to $21.4 million from $17.6 million for 2000 and consisted primarily of depreciation on buildings and improvements owned during those years. 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 year ended December 31, 2001 increased 8% to $7.1 million, as compared to $6.6 million for 2000. The increase in 2001 operating expenses from the prior year is due primarily to (1) an increase in payroll and related expenses primarily attributable to the issuance of additional stock-based compensation awarded to employees, an increase in bonuses awarded, as well as an increase in the number of employees; (2) an increase in state income taxes due to the growth of our real estate portfolio during 1999 and 2000; and (3) additional costs associated with our marketing and investor relations program. The increase from prior year was partially offset by a decrease in professional services and travel costs and a $300,000 write-down during the third quarter of 2000 of our investment in a start-up, on-line procurement solution company for the automotive retail industry. The investment was written off because they ceased operations due to their inability to secure the capital necessary to fund their business.

Interest. Interest expense for the year ended December 31, 2001 increased 9% to $46.1 million from $42.2 million for 2000. The increase was due to an increase in debt outstanding during that time period (including mortgage debt and borrowings under our credit facilities), which was obtained primarily to fund acquisitions. As discussed above, the increase was partially offset by a decrease in interest rates on our variable rate debt. Our variable rate debt totaled $380.8 million as of December 31, 2001 (including $81.2 million of variable rate debt that will become fixed rate debt effective July 1, 2002 pursuant to an interest rate swap arrangement, which has subsequently been extended to November 1, 2002 as described in the Recent Developments section herein). The effective interest rate on our debt, which includes deferred loan fees amortized over the life of the loans, decreased from 8.13% in 2000 to 7.36% in 2001. Debt outstanding as of December 31, 2001 was approximately $701.2 million (consisting of approximately $320.4 million of fixed rate and approximately $380.8 million of variable rate debt) compared to $585.7 million (consisting of approximately $481.9 million of fixed rate and approximately $103.8 million of variable rate debt) as of December 31, 2000.

Discontinued Operations

Beginning in 2002, SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” requires that gains and losses from dispositions of properties and all operating earnings from these properties be reported as “discontinued operations”. This also requires that all past earnings applicable to a property disposed of on or after January 1, 2002 be reported as “discontinued operations”. As a result, previously reported “income from continuing operations” will be updated each time a property is sold. This requirement is for presentation only and has no impact on net income. During the third quarter of 2002, we sold three properties and received net proceeds of $7.5 million resulting in a combined gain of $291,000. The earnings generated from these properties have been reported as “discontinued operations” in accordance with SFAS No. 144 and are presented net of minority interest. Revenue from the sold properties for the years ended December 31, 2001 and 2000 was $798,000 and $848,000, respectively. Income from discontinued operations for the years ended December 31, 2001 and 2000 was $141,000 and $118,000, respectively. The earnings generated from these properties were immaterial to the results of operations for the year ending December 31, 1999.

Extraordinary Item – Extinguishment of Debt

During the third quarter of 2001, we converted $150.0 million of fixed rate debt due September 29, 2011 to variable rate debt. The debt was converted in conjunction with our conversion from fixed rate to variable rate leases relating to approximately $185.3 million of property which Sonic leases, as discussed above. The new debt terms require monthly payments (including interest and principal), and provide for interest at the 30-day LIBOR rate plus 227 basis points versus a fixed rate of 8.03%. The conversion of the interest rate on the debt from fixed to variable resulted in a significant modification of the debt. In accordance with GAAP, the significant modification should be treated as an extinguishment of debt. As a result, we wrote off the remaining deferred loan fees related to the fixed rate debt and

classified the write-off as an extraordinary item on the Company’s consolidated statements of operations. The extraordinary item totaled $526,000, or $0.02 per basic and diluted share.

Comparison of 2000 to 1999

Revenue

Rental. Rental revenue for the year ended December 31, 2000 increased 36% to $101.3 million, as compared to $74.3 million for 1999. 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 244 properties as of December 31, 2000, although three of these properties were sold during 2002 and reclassified from rental revenue to discontinued operations as discussed under “-Discontinued Operations” below, versus 230 properties as of December 31, 1999 (77 of which were acquired in the second half of 1999). In addition, included in rental revenue for the years ended December 31, 2000 and 1999 were straight-lined rents totaling $2.4 million and $962,000, respectively. During the third quarter of 1999, we began, on a prospective basis, straight-lining our rents for our leases with fixed minimum escalators. Prior to the third quarter of 1999, we had assessed the impact of straight-lining our fixed minimum escalator rental income and determined that the amounts were not material to our financial statements. As a result, we did not straight-line the impact of fixed minimum escalator rental income, but rather recorded any increases to rental income from escalators when the increased amounts were due from tenants. During the third quarter of 1999, we determined that, due to our growth as a result of acquisitions and the increase in the number of leases that included fixed minimum escalators, the impact of not straight-lining the fixed minimum escalators would start to become material to our financial statements during the third quarter of 1999. As a result, we decided to change our policy and began straight-lining the impact of the fixed minimum escalators beginning with our third quarter 1999 financial statements. The impact of not straight-lining the rent for the year ended December 31, 1998 and for the six months ended June 30, 1999 was not material to those periods, nor was the effect of the change in policy material to fiscal year 1999. For these reasons, we accounted for the change in accounting policy on a prospective basis.

Interest and Other. Interest and other income for the year ended December 31, 2000 decreased 32% to $1.1 million from $1.5 million for 1999. The decrease was primarily due to a decrease in interest earned on temporary investments. There was a timing difference between when the funds were received on debt issued during 1999 and the closing of the acquisitions in which the funds were utilized, thereby causing excess cash on hand during part of the year. These net proceeds were fully used during 1999. Partially offsetting the decrease in interest income was an increase in the gain on the sale of properties, which increased 27% to $311,000 from $245,000 in 1999.

Expenses

Depreciation and Amortization. Depreciation and amortization for the year ended December 31, 2000 increased 14% to $17.6 million from $15.3 million for 1999 and consisted primarily of depreciation on buildings and improvements owned during those years. The increase is attributable to the growth of our real estate portfolio, resulting in an increase in our depreciable assets. Partially offsetting the increase was a change in the depreciable life on the majority of our buildings and improvements that were acquired prior to 1999 and that were being depreciated over 20 years. During the first half of 1999, we began undertaking a review of the estimated useful lives we were using on our real estate portfolio. Our review was completed in the third quarter of 1999. Our business reasons for undertaking a review of the estimated remaining useful lives of our properties acquired prior to 1999 were as follows: (i) we began acquiring properties during 1998 and 1999 from publicly-traded automotive dealership groups and we investigated the depreciation policies of these publicly-traded dealership groups and determined that many were depreciating the types of buildings and improvements that we were acquiring over periods in excess of 30 years; and (ii) our tenants are continually remodeling and upgrading their dealerships to adhere to manufacturer specifications (for example, the appearance of the franchised automotive dealership) and we believed, and continue to believe, that the remodeling and upgrading of our properties by our tenants preserves the value of the properties to a greater extent than normal maintenance and, therefore, justifies a longer estimated useful life for the properties. This information provided us with better insight and improved judgment with respect to approximating the remaining useful lives of the properties included in our portfolio. Furthermore, as part of our due diligence process, we generally engage third parties to perform appraisals and/or structural reviews on each property. These reports generally provide the age and the remaining estimated useful life of the buildings and improvements. The information obtained from these reports further

supported our conclusion that a longer depreciable life was warranted. Based on this analysis, it was determined that the average remaining useful life of our buildings and improvements that were acquired prior to 1999 was approximately 30 years. Not all assets were found to have a remaining useful life of 30 years, however. As a result, we revised the depreciable lives on those properties whose remaining useful life approximated 30 years to 30 years and for those assets with a remaining useful life of less than 30 years, we continue to depreciate the buildings and improvements over 20 years. The change in depreciable life is considered a change in an accounting estimate and has been recorded on a prospective basis beginning in the third quarter of 1999. This change decreased depreciation expense on the assets acquired prior to 1999 by approximately $2.2 million for the year ended December 31, 2000, as compared to the same period in 1999.

General and Administrative. General and administrative expenses for the year ended December 31, 2000 decreased 3% to $6.6 million, as compared to $6.8 million for 1999. General and administrative expenses, excluding the write-off of our $300,000 investment in BBCN, a start-up on-line procurement company for the automotive retail industry, decreased by approximately $489,000, or 7%, from 1999. During 2000, we wrote off our investment in BBCN as they ceased operations due to their inability to secure the necessary capital to fund their business. Excluding the BBCN write-off, the decrease in general and administrative expenses was primarily due to a decrease in payroll and related expenses attributable to staffing reductions that occurred throughout 1999 and a reduction in marketing and advertising expenses.

Interest. Interest expense for the year ended December 31, 2000 increased to $42.2 million from $24.5 million for 1999. The increase was due to interest incurred for the entire year on debt issued in the second half of 1999 and interest incurred on our credit facilities and additional new debt issued in 2000 to fund acquisitions. In addition, as a result of rising interest rates on new debt issued during 2000, the effective interest rate (including deferred loan fees amortized over the life of the loans) of the Company’s outstanding debt rose from 8.0% in 1999 to 8.13% in 2000. Interest expense also increased because of the additional costs incurred to maintain properties in our borrowing base under our short-term credit facilities. Debt outstanding as of December 31, 2000 was approximately $585.7 million (consisting of approximately $481.9 million of fixed rate indebtedness and approximately $103.8 million of variable rate indebtedness) compared to $501.5 million (consisting of approximately $491.5 million of fixed rate indebtedness and approximately $10.0 million of variable rate indebtedness) as of December 31, 1999.

Discontinued Operations

See “Results of Operations – Comparison of 2001 to 2000” for a description of the reporting of discontinued operations.

Comparison of 1999 to 1998

Although we were formed prior to January 1, 1998, we did not complete our initial public offering (“IPO”) until February 19, 1998, at which time we purchased our initial properties and began generating rental income.

Revenue

Rental. Rental revenue for the year ended December 31, 1999 increased 175% to $74.3 million, as compared to $27.0 million for 1998. The increase was primarily attributable to the growth of our real estate portfolio and the timing of our property acquisitions (230 properties owned as of December 31, 1999, versus 120 properties as of December 31, 1998), from which we generate our rental income. In addition, during the third quarter of 1999, we began, on a prospective basis, straight-lining our rents for leases with fixed minimum escalators. See the “Results of Operations – Comparison of 2000 to 1999” for the basis for our change in policy. This increased rental revenue for the year ended December 31, 1999 by approximately $962,000.

Interest and Other. Interest and other income for the year ended December 31, 1999 decreased 81% to $1.5 million from $7.9 million for 1998. Interest and other income during the year ended December 31, 1998 was primarily generated from the investment of the excess of the net proceeds of a private placement offering and our IPO including the exercise of the underwriters’ over-allotment option (both of which were completed during the first quarter of 1998). These net proceeds were fully used during 1998 and therefore did not generate interest income during 1999. Interest

and other income during 1999 was primarily generated from the investment of the excess of debt issuance proceeds over the amount invested in properties and a $245,000 gain on the sale of properties during 1999.

Expenses

Depreciation and Amortization. Depreciation and amortization for the year ended December 31, 1999 increased 143% to $15.3 million from $6.3 million for 1998 and consisted primarily of depreciation on buildings and improvements owned during those years. The increase is attributable to the growth of our real estate portfolio, resulting in an increase in our depreciable assets. Partially offsetting the increase was a change in the depreciable life on the majority of our buildings and improvements that were acquired prior to 1999 that were being depreciated over 20 years. See the “Results of Operations – Comparison of 2000 to 1999” for a description of the change in the depreciable life. The impact of this change decreased depreciation and amortization expense by approximately $2.2 million for the year ended December 31, 1999.

General and Administrative. General and administrative expenses for the year ended December 31, 1999 increased 24% to $6.8 million, as compared to $5.5 million for 1998. The increase is primarily due to increased payroll and related benefits attributable to personnel additions throughout 1998 and severance payments made in connection with staffing reductions during the first quarter of 1999. Also contributing to the increase were increased marketing expenses as well as increased professional fees and other administrative costs associated with increased public reporting requirements. These increases were partially offset by the reduction in payroll and related expenses as a result of staffing reductions throughout 1999 and the closing of the Chicago office during the second quarter of 1999.

Interest. Interest expense for the year ended December 31, 1999 increased to $24.5 million from $2.3 million for 1998. The increase was due to interest charged on issued debt in late 1998 and throughout 1999 (including mortgage debt and borrowings under our credit facility). Debt outstanding as of December 31, 1999 was approximately $501.5 million (consisting of approximately $491.5 million of fixed rate indebtedness and approximately $10.0 of variable rate indebtedness) compared to $162.0 million (all of which was fixed rate indebtedness) as of December 31, 1998.

Liquidity and Capital Resources

Cash and cash equivalents were $9.5 million and $6.3 million at December 31, 2001 and December 31, 2000, respectively. The changes in cash and cash equivalents during the years ended December 31, 2001 and 2000 were attributable to operating, investing and financing activities, as described below.

Operating Activities

Cash provided by operating activities for the years ended December 31, 2001 and 2000 was $59.3 million and $56.0 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 years ended December 31, 2001 and 2000 was $190.7 million and $98.7 million, respectively, and primarily reflects the acquisition of dealership properties, facility improvement and expansion fundings and construction financings, net of sales of properties, during those years.

Financing Activities

Cash provided by financing activities for the years ended December 31, 2001 and 2000 was $134.5 million and $37.1 million, respectively. Cash provided by financing activities for the year ended December 31, 2001 primarily reflects:

• $192.3 million of proceeds received from borrowings on our revolving credit facilities;

• $83.3 million of proceeds received from mortgage debt incurred during the year;

• $61.3 million of proceeds received from our follow-on offering, net of costs, and

• $13.4 million of proceeds received from the issuance of other 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 $143.0 million;

• distributions made to shareholders and minority partners during the year totaling $49.7 million;

• payments of principal on outstanding mortgage debt totaling $17.1 million;

• payments made to purchase outstanding warrants to purchase common shares totaling $4.7 million;

• the redemption of Units totaling $1.0 million; and

• the repurchase of common shares pursuant to our Common Share Repurchase Program totaling $142,000.

Cash provided by financing activities for the year ended December 31, 2000 primarily reflects:

• $80.1 million of proceeds received from mortgage debt incurred during the year;

• $60.4 million of proceeds received from borrowings on our revolving credit facilities; and

• $6.1 million of proceeds received from the issuance of other 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 $46.2 million;

• payments of principal on outstanding mortgage debt totaling $10.1 million;

• distributions made to shareholders and minority partners during the year totaling $43.4 million; and

• the repurchase of common shares pursuant to our Common Share Repurchase Program totaling $9.9 million.

Mortgage Debt and Revolving Credit Facilities

As of December 31, 2001, we had total debt outstanding of $701.2 million. Of this debt, approximately $637.7 million (consisting of $320.4 million of fixed rate and $317.3 million of variable rate debt) was mortgage debt secured by approximately 220 of our properties. In addition, we had $63.5 million outstanding on our revolving credit facilities.

The following is a summary of our total debt outstanding as of December 31, 2001 and 2000 (dollars in thousands):


			Principal		Principal		2001
			Balance as of		Balance as of		Effective			Term/
	Original		December 31,		December 31,		Interest			Amortization
Description of Debt	Debt Issued		2001		2000		Rate*			Schedule

7.59% fixed rate debt due 12/1/08 (1)	$	38,050	$	35,886	$	37,103		8.00	%	10 yr/17 yr
7.635% fixed rate debt due 10/1/14 (2)		111,950		98,891		103,749		7.94	%	15 yr/15 yr
8.05% fixed rate debt due 10/1/14 (3)		85,000		78,319		81,560		8.33	%	15 yr/15 yr
7.54% fixed rate debt due 7/6/11 (4)		100,000		96,132		98,093		7.71	%	12 yr/25 yr
8.03% fixed rate debt due 9/29/11 (5)		150,000		—		150,000		8.08	%
7.50% fixed rate debt due 1/20/03 (6)		12,000		11,108		11,421		7.76	%	4.25 yr/20 yr

Total Mortgage Fixed Rate Debt	$	497,000	$	320,336	$	481,926		7.99	%
Variable rate debt due 9/29/11 (5)		150,000		149,419		—		5.18	%	12 yr/25 yr
Variable rate debt due 8/10/13 (7)		82,600		81,223		—		4.78	%	12 yr/30 yr
										10 to 12 yr/25 to
Various variable rate debt (8)		90,554		86,678		89,593		6.66	%	30 yr

Total Mortgage Variable Rate Debt	$	323,154	$	317,320	$	89,593		6.60	%

TOTAL MORTGAGE DEBT			$	637,656	$	571,519		7.28	%
$50 million revolving partially secured facility (9)				17,400		14,198		6.29	%	3 yr
$100 million revolving secured facility (10)				46,108		2		6.56	%	1 yr

TOTAL CREDIT FACILITIES			$	63,508	$	14,200		6.46	%

TOTAL DEBT OUTSTANDING			$	701,164	$	585,719		7.36	%

* Includes deferred loan fees amortized over the life of the loans.

(1) The loan requires monthly payments of principal and interest with a final payment at maturity of approximately $24.4 million. The loan is secured by mortgages on seven of our properties, which as of December 31, 2001 have an aggregate net book value of approximately $63.1 million. The Partnership has provided a guaranty limited to approximately $8.9 million of this loan, contingent upon the occurrence of certain circumstances.

(2) The loan requires monthly payments of principal and interest with a final payment at maturity of approximately $1.8 million. The loan is secured by mortgages on 49 of our properties, which as of December 31, 2001 have an aggregate net book value of approximately $177.1 million. The Partnership has provided a guaranty limited to approximately $26.1 million of this loan, contingent upon the occurrence of certain circumstances.

(3) The loan requires monthly payments of principal and interest with a final payment at maturity of approximately $2.9 million. The loan is secured by mortgages on 28 of our properties, which as of December 31, 2001 have an aggregate net book value of approximately $148.8 million. The loan described in footnote (2) and this loan are cross-collateralized.

(4) The loan requires quarterly payments of principal and interest with a final payment at maturity of approximately $73.3 million. The loan is secured by 48 of our properties, which as of December 31, 2001 have an aggregate net book value of approximately $169.4 million.

(5) 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 with a final payment at maturity of approximately $114.4 million. The loan is secured by 60 of our properties, which as of December 31, 2001 have an aggregate net book value of approximately $211.2 million.

(6) The loan requires monthly payments of principal and interest with a final payment at maturity of approximately $10.8 million. The note is secured by four of our properties, which as of December 31, 2001 have an aggregate net book value of approximately $22.6 million.

(7) The loan requires quarterly interest payments and level principal payments with a final payment at maturity of approximately $49.6 million. The note is secured by nine of our properties, which as of December 31, 2001 have an aggregate net book value of approximately $102.1 million. This loan bears interest equal to the 30-day LIBOR rate plus 175 basis points. At the end of the third quarter, the Company entered into an agreement with a third party to swap the variable rate to a 7.31% fixed rate, effective July 1, 2002, which has subsequently been extended to November 1, 2002 at a fixed rate of 7.50% as described in the Recent Developments section herein. See “Interest Rate Swap” below.

(8) These loans bear interest at variable rates ranging from 200 to 215 basis points per annum above the A1-P1 Commercial Paper Rate and have maturity dates ranging from December 22, 2009 to December 18, 2012. The terms of the various loans require quarterly interest payments and level principal payments until maturity, at which time the loans require final payments totaling approximately $51.3 million. Excluding $19.2 million of the variable rate debt, the loans are secured by 16 properties, which as of December 31, 2001 have an aggregate net book value of approximately $84.6 million. The remaining $19.2 million of the variable rate debt is secured by the same properties that secure the loan discussed in footnote (4).

(9) Amounts borrowed under the facility bear interest equal to the 30-day LIBOR rate plus 175 basis points. The loan requires the repayment of secured borrowings within 12 months and unsecured borrowings within 150 days. The facility matured on March 3, 2002 and has been extended until such time it is replaced by a new revolving unsecured credit facility. We have received a commitment for a $60 million revolving unsecured credit facility. The facility will be syndicated with five participating financial institutions including three funding sources that are new for us. The commitment 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. This facility is expected to close by the end of the first quarter of 2002 and will replace our existing $50 million revolving partially secured credit facility.

(10) Amounts borrowed under the facility bear interest equal to the 30-day LIBOR rate plus 225 basis points. The loan 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. Effective March 22, 2002, amounts borrowed under the facility will 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.

The more significant debt covenants related to our mortgage debt and credit facilities limit the Company’s debt to 65% of assets (calculated as total assets plus accumulated depreciation) and require the Company to comply with minimum debt service coverage and maximum debt to adjusted net worth ratios. Several of our loan agreements contain no financial covenants; however, there are negative covenants relating to customary items such as operation and maintenance of the properties securing the loans and limitations on issuing additional secured debt at those subsidiary levels. As of December 31, 2001, we were in compliance with all of the debt covenants related to our mortgage debt and credit facilities.

Interest Rate Swap

In June 1998, the Financial Accounting Standards Board (''FASB’’) issued Statement of Financial Accounting Standards (''SFAS’’) No. 133, ''Accounting for Derivative Instruments and Hedging Activities.’’ This statement was originally effective for all fiscal quarters of fiscal years beginning after June 15, 1999; however, during the second quarter of 1999 the FASB 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 has subsequently been extended to November 1, 2002 at a fixed rate of 7.50% as described in the Recent Developments section herein. Fixing the rate of this debt with an interest rate swap 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. The swap was 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 and the underlying terms of the debt, we determined that the derivative instrument is highly effective. Consequently, the unrealized gain or loss upon measuring the swap at its fair value is recorded as a component of accumulated other comprehensive income within shareholders’ equity on our consolidated balance sheets and statements of changes in shareholders’ equity and other comprehensive income, and, depending on the fair value of the swap, as either a derivative instrument asset or derivative instrument liability on our consolidated balance sheets. As of December 31, 2001, we had an unrealized gain on the swap of approximately $2.2 million, which is included in other assets on our consolidated balance sheets and accumulated other comprehensive income within our consolidated balance sheets and statements of changes in shareholders’ equity and other comprehensive income.

Liquidity Requirements

Short-term liquidity requirements consist primarily of normal recurring operating expenses, regular debt service requirements (including debt service relating to additional and replacement debt), recurring corporate expenditures, distributions to shareholders and holders of Units (“Unitholders”), and amounts required for additional property acquisitions, facility improvement and expansion fundings and construction financings. We expect to meet these requirements (other than amounts required for additional property acquisitions, facility improvement and expansion fundings and construction financings) through cash provided from operations and our existing 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 credit facilities. Acquisitions of properties, facility improvement and expansion fundings and construction financings will be made subject to our investment objectives and policies with the intention of maximizing both current income and long-term growth in income.

As of December 31, 2001, long-term liquidity requirements consisted primarily of maturities under our long-term debt. We anticipate that long-term liquidity requirements will also include amounts required for acquisitions of properties, facility improvement and expansion fundings and construction financings. We expect to meet long-term liquidity requirements through long-term secured and unsecured borrowings and other debt and equity financing alternatives. The availability and terms of any such financing will depend upon market and other conditions.

Aggregate annual principal maturities of mortgage debt as of December 31, 2001 are as follows (in thousands):


For the Year Ended December 31,
2002	$	18,754
2003		31,999
2004		22,298
2005		23,629
2006		24,975
Thereafter		516,001

Total	$	637,656

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. During the third quarter of 2001, we borrowed $82.6 million under this commitment to partially fund third quarter acquisitions and to repay amounts outstanding under our short-term credit facilities. As of December 31, 2001, we had $67.4 million available under this commitment.

On August 8, 2001, we sold 3,852,500 common shares (which includes the full exercise of the underwriters’ over-allotment option to purchase 502,500 common shares) in an underwritten public offering at a price to the public of $17.00 per share under our shelf registration statement filed with the SEC on March 2, 1999 (the “Shelf Registration Statement”). Net proceeds to the Company, after deducting the discounts and commissions to the underwriters and other expenses of this offering, totaled approximately $61.3 million. After the offering, $134.5 million remains available under the Shelf Registration Statement for the issuance of securities. The Company contributed the net proceeds of the offering to the Partnership in exchange for Units in the Partnership and the Partnership used the proceeds to fund a portion of the purchase price of third quarter acquisitions.

During the fourth quarter of 2001, we received a commitment for a $60 million unsecured revolving credit facility. The facility will be syndicated with five participating financial institutions including three funding sources that are new for us. The commitment 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. This facility is expected to close by the end of the first quarter of 2002 and will replace our existing $50 million partially secured revolving credit facility.

We have adopted a policy to limit debt to approximately 65% of our assets (calculated as total assets plus accumulated depreciation). As of December 31, 2001, our debt was approximately 56% of our assets. This policy may be changed by our Board of Trustees at any time without shareholder approval. In addition, to minimize interest rate risk, we typically match the average term of our long-term leases with the average term of our debt as well as the type of leases with the type of debt (fixed or variable) in order to maintain an investment spread over the lease term. We describe this process as “match-funding.” We currently intend to match-fund at least 70% of our total outstanding long-term debt with long-term leases. We may change the 70% guideline at any time without shareholder approval. As of December 31, 2001, approximately 82% of our debt outstanding (including the $81.2 million of variable rate debt that will become fixed rate debt effective July 1, 2002 under an interest rate swap arrangement, which has subsequently been extended to November 1, 2002 as described in the Recent Developments section herein) was substantially match-funded, non-recourse debt. As of December 31, 2001, our long-term debt had a weighted average remaining term of 10.6 years, and our leases had a weighted average remaining term of 11.8 years.

We may offer our tenants the option of utilizing our variable rate lease program. Under this program, base rent changes monthly based upon a spread over an applicable index, typically LIBOR. In addition, the monthly base rent is typically adjusted upward periodically, usually based on a factor of the change in the CPI. As of December 31, 2001, $314.2 million of our $1.2 billion real estate portfolio, or 26%, was subject to variable rate leases. Of the total variable rate leases, the majority of the lease agreements contain minimum rates and fixed rate conversion features, and none of such leases contain a maximum rate. Upon conversion, the fixed base rent typically continues to be adjusted upward periodically based on a factor of the change in the CPI. These types of leases generally are or will be financed with long-term, variable rate debt, thereby fixing our investment spread. As of December 31, 2001, $380.8 million of our total outstanding debt was variable rate debt, which includes $81.2 million of variable rate debt that will become fixed rate debt effective July 1, 2002 under an interest rate swap arrangement, which has subsequently been extended to November 1, 2002 as described in the Recent Developments section herein. 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 2001, we repurchased 10,000 common shares at an average price of $14.19 per common share. During 2000, we repurchased 900,000 common shares at an average price of $10.96 per common share. From the inception of the common share repurchase program through December 31, 2001, 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, the Company 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 the Company or in open market or privately negotiated transactions, as we determine from time to time, to fulfill the requirements for the DRIP. We issued approximately 508,000 and 458,000 common shares under the DRIP and received approximately $7.4 and $5.9 million in proceeds for the years ended December 31, 2001 and 2000, respectively.

Purchase of Warrants Outstanding to Purchase Common Shares

During the fourth quarter of 2001, we completed the purchase of outstanding warrants to purchase approximately 2.8 million common shares for $3.90 per warrant. The purchase price 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 aggregate purchase price for the warrants was approximately $10.8 million, of which $4.7 million was paid in 2001 and the remainder was paid in January 2002, and was funded with debt and cash on hand. 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 December 31, 2001, we had warrants outstanding to acquire a total of 105,000 common shares, at an exercise price of $15.00 per share. All warrants outstanding as of December 31, 2001 are for terms of five years and expire no later than January 2004.

Funds from Operations

Prior to 2002, Funds From Operations (“FFO”) was defined under the revised definition adopted in October 1999 by the National Association of Real Estate Investment Trusts (NAREIT) as net income (loss) before minority interest and extraordinary item (computed in accordance with GAAP) excluding gains (or losses) from sales of property, plus depreciation and amortization of assets unique to the real estate industry, and after adjustments for unconsolidated partnerships and joint ventures. In April 2002, NAREIT revised its FFO definition as income (loss) from continuing operations before minority interest and extraordinary item (computed in accordance with GAAP) plus income from discontinued operations (including minority interest) and excluding gains (or losses) from sales of property reported as income (loss) from continuing operations, plus depreciation and amortization of assets unique to the real estate industry, and after adjustments for unconsolidated partnerships and joint ventures. Adjusted FFO (“AFFO”) is FFO less straight-lined rents.

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

FFO and AFFO for the years ended December 31, 2001 and 2000 is computed as follows (in thousands):


	2001			2000

Income from continuing operations before minority interest and extraordinary item	$	42,884		$	35,974
Real estate depreciation and amortization		21,477			17,626
Income from discontinued operations, net of minority interest		141			118
Minority interest related to income from discontinued operations		49			48
Gain on sale of real estate		(218	)		(311	)

FFO		64,333			53,455
Less: straight-lined rents		(3,427	)		(2,359	)

AFFO	$	60,906		$	51,096
Weighted average number of common shares and units used to compute basic FFO and AFFO per share		31,708			29,274
Weighted average number of common shares and units used to compute fully diluted FFO and AFFO per share		32,726			29,476

Item 8. Financial Statements and Supplementary Data

Index to Consolidated Financial Statements


	Page No.

Report of Independent Auditors – Ernst & Young LLP		18
Report of Independent Public Accountants – Arthur Andersen LLP		19
Consolidated Balance Sheets		20
Consolidated Statements of Operations		21
Consolidated Statements of Changes in Shareholders’ Equity and Other Comprehensive Income		22
Consolidated Statements of Cash Flows		23
Notes to Consolidated Financial Statements		24
Schedule III. Schedule of Real Estate and Accumulated Depreciation		44

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders of Capital Automotive REIT

We have audited the accompanying consolidated balance sheets of Capital Automotive REIT and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of income, shareholders’ equity, and cash flows for the years then ended. Our audits also included the financial statement schedule listed in the Index at Item 8. These consolidated financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. The financial statements of Capital Automotive REIT as of December 31, 1999, were audited by other auditors who have ceased operations and whose report dated January 25, 2002, expressed an unqualified opinion on those statements.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Capital Automotive REIT and subsidiaries at December 31, 2001 and 2000, and the consolidated results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 21 of the Notes to the consolidated financial statements, in 2002 the Company adopted the provisions of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Also, as discussed in Note 8 of the Notes to the consolidated financial statements, in 2001 the Company adopted Financial Accounting Standards No. 133 “Accounting for Derivative Instruments and Hedging Activities.”

/s/ ERNST & YOUNG LLP

McLean, Virginia
November 27, 2002

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of Capital Automotive REIT:

We have audited the accompanying consolidated balance sheets of Capital Automotive REIT (a Maryland real estate investment trust, the “Company”) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, changes in shareholders’ equity and other comprehensive income, and cash flows for each of the years in the three year period ended December 31, 2001. These consolidated financial statements and the schedule referred to below are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Capital Automotive REIT and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States.

Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The Schedule of Real Estate and Accumulated Depreciation is presented for purposes of complying with the rules of the Securities and Exchange Commission and is not a required part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole.

/s/ ARTHUR ANDERSEN LLP

Vienna, Virginia
January 25, 2002


*Note*:		As permitted by Rule 2-02(e) of Regulation S-X promulgated under the Securities Act, this is a copy of the audit report previously issued by Arthur Andersen LLP in connection with the filing of our Form 10-K for the fiscal year ended December 31, 2001. After reasonable efforts, we have been unable to have Arthur Andersen LLP reissue this audit report in connection with the filing of this Form 8-K. See “Item 5. Other Events” for a further discussion. The consolidated balance sheet as of December 31, 2001 and 2000, and the related consolidated statements of operations, changes in shareholders’ equity and other comprehensive income, and cash flows for the fiscal years ended December 31, 2001 and 2000 referred to in this report have not been included in the accompanying financial statements or schedule.

CAPITAL AUTOMOTIVE REIT

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share and Per Share Data)


			As of December 31,

			2001			2000

ASSETS
Real estate:
	Land		$	508,556		$	446,418
	Buildings and improvements			721,138			591,452
	Accumulated depreciation			(59,789	)		(38,644	)

				1,169,905			999,226
Cash and cash equivalents				9,490			6,298
Other assets, net				20,305			16,065

	TOTAL ASSETS		$	1,199,700		$	1,021,589

LIABILITIES AND SHAREHOLDERS’ EQUITY LIABILITIES:
Mortgage debt			$	637,656		$	571,519
Borrowings under credit facilities				63,508			14,200
Accounts payable and accrued expenses				14,661			24,254
Security deposits payable				6,969			5,855

	TOTAL LIABILITIES			722,794			615,828

Minority interest				110,885			115,728
SHAREHOLDERS’ EQUITY:
	Preferred shares, par value $.01 per share; 20 million shares authorized, no shares issued or outstanding			—			—
	Common shares, par value $.01 per share; 100 million shares authorized, 26,428,188 shares issued and outstanding as of December 31, 2001 and 21,185,240 shares issued and outstanding as of December 31, 2000			264			212
	Additional paid-in capital			378,923			307,715
	Accumulated other comprehensive income			2,249			—
	Distributions in excess of accumulated earnings			(15,415	)		(17,894	)

		TOTAL SHAREHOLDERS’ EQUITY		366,021			290,033

		TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,199,700		$	1,021,589

See accompanying Notes to Consolidated Financial Statements.

CAPITAL AUTOMOTIVE REIT

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Data)


			Years Ended December 31,

			2001			2000			1999

Revenue:
	Rental		$	117,002		$	101,253		$	74,339
	Interest and other			479			1,050			1,534

		Total revenue		117,481			102,303			75,873

Expenses:
	Depreciation and amortization			21,392			17,565			15,347
	General and administrative			7,114			6,592			6,781
	Interest			46,091			42,172			24,541

		Total expenses		74,597			66,329			46,669

Income from continuing operations before minority interest and extraordinary item				42,884			35,974			29,204
Minority interest				(11,122	)		(10,280	)		(7,473	)

Income from continuing operations before extraordinary item				31,762			25,694			21,731
Income from discontinued operations				141			118			—

Income before extraordinary item				31,903			25,812			21,731
Extraordinary item – extinguishment of debt				(526	)		—			—

Net income			$	31,377		$	25,812		$	21,731

Shares of common stock outstanding used to compute basic earnings per share				23,432			20,911			21,607

Basic earnings per share:
Income from continuing operations before extraordinary item			$	1.36		$	1.23		$	1.01
Income before extraordinary item			$	1.36		$	1.23		$	1.01
Net income			$	1.34		$	1.23		$	1.01

Shares of common stock outstanding used to compute diluted earnings per share				24,450			21,113			21,629

Diluted earnings per share:
Income from continuing operations before extraordinary item			$	1.31		$	1.22		$	1.01
Income before extraordinary item			$	1.32		$	1.22		$	1.01
Net income			$	1.30		$	1.22		$	1.01

Dividends declared per share			$	1.161		$	1.500		$	1.380

See accompanying Notes to Consolidated Financial Statements.

CAPITAL AUTOMOTIVE REIT

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY AND OTHER
COMPREHENSIVE INCOME

(In Thousands, Except Share Data)


	Common Shares
										Distributions			Accumulated
							Additional			In Excess of			Other					Other
							Paid-In			Accumulated			Comprehensive					Comprehensive
	Shares			Par Value			Capital			Earnings			Income		Total			Income

BALANCE AT DECEMBER 31, 1998		21,607,415		$	216		$	312,466		$	(4,025	)	$	—	$	308,657		$	—
Adjustment to reflect minority interest ownership in Partnership		—			—			(1,356	)		—			—		(1,356	)		—
Registration fees and other		—			—			432			—			—		432			—
Dividends declared		—			—			—			(29,865	)		—		(29,865	)		—
Net income		—			—			—			21,731			—		21,731			21,731

BALANCE AT DECEMBER 31, 1999		21,607,415		$	216		$	311,542		$	(12,159	)	$	—	$	299,599		$	21,731

Adjustment to reflect minority interest ownership in Partnership		—			—			(688	)		—			—		(688	)		—
Issuance of common shares from dividend reinvestment and share purchase plan, net of costs		457,835			5			5,870			—			—		5,875			—
Exercise of common stock options		19,990			—			280			—			—		280			—
Registration fees		—			—			(27	)		—			—		(27	)		—
Stock compensation expense		—			—			592			—			—		592			—
Repurchase of common shares		(900,000	)		(9	)		(9,854	)		—			—		(9,863	)		—
Dividends declared		—			—			—			(31,547	)		—		(31,547	)		—
Net income		—			—			—			25,812			—		25,812			25,812

BALANCE AT DECEMBER 31, 2000		21,185,240		$	212		$	307,715		$	(17,894	)	$	—	$	290,033		$	25,812

Adjustment to reflect minority interest ownership in Partnership		—			—			381			—			—		381			—
Proceeds from follow-on offering, net of costs		3,852,500			38			61,222			—			—		61,260			—
Issuance of common shares from dividend reinvestment and share purchase plan, net of costs		508,237			5			7,327			—			—		7,332			—
Exercise of common stock options and warrants		417,942			4			6,105			—			—		6,109			—
Redemption of units of limited partnership interest in the Partnership to common shares		474,269			5			6,104			—			—		6,109			—
Purchase of outstanding warrants to purchase common shares		—			—			(10,754	)		—			—		(10,754	)		—
Stock compensation expense		—			—			965			—			—		965			—
Repurchase of common shares		(10,000	)		—			(142	)		—			—		(142	)		—
Change in valuation of interest rate swap		—			—			—			—			2,249		2,249			2,249
Dividends declared		—			—			—			(28,898	)		—		(28,898	)		—
Net income		—			—			—			31,377			—		31,377			31,377

BALANCE AT DECEMBER 31, 2001		26,428,188		$	264		$	378,923		$	(15,415	)	$	2,249	$	366,021		$	33,626

See accompanying Notes to Consolidated Financial Statements.

CAPITAL AUTOMOTIVE REIT

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)


				Years Ended December 31,

				2001			2000				1999

CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income			$	31,377		$	25,812			$	21,731
	Adjustments to reconcile net income to net cash provided by operating activities:
		Extraordinary item			526			—				—
		Gain on disposition of real estate			(218	)		(311	)			(245	)
		Depreciation and amortization			22,824			18,844				16,042
		Income from continuing operations applicable to minority interest			11,122			10,280				7,473
		Income from discontinued operations applicable to minority interest			49			48				—
		Increase in other assets			(4,109	)		(1,443	)			(11,041	)
		Increase (decrease) in accounts payable and accrued expenses			(3,371	)		1,693				4,732
		Increase in security deposits payable			1,114			1,087				861

			Net cash provided by operating activities		59,314			56,010				39,553

CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchase of furniture and equipment, net of disposals				(47	)		(33	)			(61	)
	Real estate acquisitions				(199,286	)		(103,885	)			(407,905	)
	Real estate dispositions				8,675			5,244				7,020

			Net cash used in investing activities		(190,658	)		(98,674	)			(400,946	)

CASH FLOWS FROM FINANCING ACTIVITIES:
	Proceeds from borrowings under credit facilities				192,338			60,400				62,000
	Proceeds from mortgage debt				83,261			80,101				345,000
	Repayment of borrowings under credit facilities				(143,030	)		(46,200	)			(62,000	)
	Mortgage principal payments				(17,124	)		(10,093	)			(5,487	)
	Payment of cash dividend				(36,854	)		(31,065	)			(28,990	)
	Distributions to minority partners				(12,807	)		(12,309	)			(9,220	)
	Repurchase of common shares				(142	)		(9,863	)			—
	Purchase of outstanding warrants to purchase common shares				(4,719	)		—				—
	Redemption of units of limited partnership interest in the Partnership				(1,006	)		—				—
	Proceeds from follow-on offering, net of costs				61,260			—				—
	Proceeds from issuance of other common shares, net of costs				13,359			6,105				(130	)

			Net cash provided by financing activities		134,536			37,076				301,173

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS					3,192			(5,588	)			(60,220	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD					6,298			11,886				72,106

CASH AND CASH EQUIVALENTS AT END OF PERIOD				$	9,490		$	6,298			$	11,886

SUPPLEMENTAL DATA:
	Real estate acquisitions in exchange for equity issuance			$	1,212		$	1,897			$	23,376
	Fourth quarter distribution			$	—		$	11,411		(1)	$	10,786		(2)
	Interest paid during the period			$	51,179		$	40,778			$	17,353

(1) Declared in fourth quarter 2000, paid in January 2001.
(2) Declared in fourth quarter 1999, paid in January 2000.

See accompanying Notes to Consolidated Financial Statements.

CAPITAL AUTOMOTIVE REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. 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 December 31, 2001, owned approximately 76.7% 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 buying properties from dealer groups that have a long history of operating multi-site, multi-franchised dealerships, generally targeting the largest dealer groups in terms of revenues in the largest metropolitan areas in the U.S. in terms of population. In addition, we also provide facility improvement and expansion funding, construction financing and takeout commitments in certain situations.

As of December 31, 2001, we had invested more than $1.2 billion in 260 properties located in 27 states (Alabama, Arizona, California, Colorado, Connecticut, Florida, Georgia, Idaho, Illinois, Indiana, Louisiana, Maryland, Missouri, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah and Virginia), comprising approximately 1,800 acres of land and containing approximately 9.9 million square feet of buildings and improvements. Our tenants operate 365 motor vehicle franchises on our properties, representing nearly 40 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 13.9 years. The leases typically have options to renew upon the same terms and conditions for one or more additional periods of five to 10 years each exercisable at the option of the tenant (ranging from a total of five to 40 years).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“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.

During the first half of 1999, we began undertaking a review of the estimated useful lives we were using on our real estate portfolio. Our review was completed in the third quarter of 1999. Our business reasons for undertaking a review of the estimated remaining useful lives of our properties acquired prior to 1999 were as

CAPITAL AUTOMOTIVE REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

follows: (i) we began acquiring properties during 1998 and 1999 from publicly-traded automotive dealership groups and we investigated the depreciation policies of these publicly-traded dealership groups and determined that many were depreciating the types of buildings and improvements that we were acquiring over periods in excess of 30 years; and (ii) our tenants are continually remodeling and upgrading their dealerships to adhere to manufacturer specifications (for example, the appearance of the franchised automotive dealership) and we believed, and continue to believe, that the remodeling and upgrading of our properties by our tenants preserves the value of the properties to a greater extent than normal maintenance and, therefore, justifies a longer estimated useful life for the properties. This information provided us with better insight and improved judgment with respect to approximating the remaining useful lives of the properties included in our portfolio. Furthermore, as part of our due diligence process, we generally engage third parties to perform appraisals and/or structural reviews on each property. These reports generally provide the age and the remaining estimated useful life of the buildings and improvements. The information obtained from these reports further supported our conclusion that a longer depreciable life was warranted.

Based on this analysis, it was determined that the average remaining useful life of our buildings and improvements that were acquired prior to 1999 was approximately 30 years. Not all assets were found to have a remaining useful life of 30 years, however. As a result, we revised the depreciable lives on those properties whose remaining useful life approximated 30 years to 30 years and for those assets with a remaining useful life of less than 30 years, we continue to depreciate the buildings and improvements over 20 years. The change in depreciable life is considered a change in an accounting estimate and has been recorded on a prospective basis beginning in the third quarter of 1999. The impact of this change reduced depreciation expense on the assets acquired prior to 1999 by approximately $2.2 million, and thus, increased net income by approximately $2.2 million, for both years ended December 31, 2000 and December 31, 1999.

We periodically assess our real estate assets for possible permanent impairment when certain events or changes in circumstances indicate that the carrying amount of real estate may not be recoverable. Management considers current market conditions and tenant credit analysis in determining whether the recoverability of the carrying amount of an asset should be assessed. When an assessment is warranted, management determines if it is probable that the sum of the expected undiscounted future cash flows is less than the carrying amount of the property being assessed. If the undiscounted future cash flows are less, then an impairment loss is recognized equal to the difference between the fair value of the property and its carrying amount. No impairment losses have been recorded to our net property carrying values as of December 31, 2001.

Furniture, Fixtures and Equipment

Furniture, fixtures and equipment are recorded at cost. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets, ranging from three to five years.

Cash and Cash Equivalents

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

Deferred Loan Costs

Certain costs incurred in connection with obtaining our credit facilities and issuance of mortgage debt are capitalized and generally amortized over the terms of the respective credit facilities or debt on a straight-line basis (which approximates the effective interest method). These costs, net of accumulated amortization, are included in other assets and total approximately $7.2 million and $8.9 million as of December 31, 2001 and 2000, 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 $1.0 million and $831,000 as of December 31, 2001 and 2000,

CAPITAL AUTOMOTIVE REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

respectively. Capitalized leasing costs include employee compensation and payroll related fringe benefits directly related to time spent performing leasing related activities. Such activities include evaluating the prospective tenant’s financial condition, evaluating and recording guarantees, collateral and other security arrangements, negotiating lease terms, preparing lease documents and closing the transaction.

Income Taxes

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

Rental Revenue Recognition

We lease our real estate pursuant to long-term, triple-net leases, under which the tenants typically pay all operating expenses of a property, including, but not limited to, all real estate taxes, assessments and other government charges, insurance, utilities, repairs and maintenance. All leases are accounted for as operating leases and rental income attributable to the leases is recorded monthly when due from tenants. Rental income attributable to the majority of our leases is fixed per the lease agreement. However, under our variable rate lease program, rental income attributable to our leases is variable, and monthly base rent is calculated based on a spread over an applicable index, typically LIBOR. As of December 31, 2001, $314.2 million of our $1.2 billion real estate portfolio, or 26%, was subject to variable rate leases. This compares to $78.8 million of our $1.04 billion real estate portfolio, or 8%, that was subject to variable rate leases as of December 31, 2000. Of the total variable rate leases, the majority of the lease agreements contain minimum rates and fixed rate conversion features, and none of such leases contain a maximum rate.

Our leases typically provide for upward periodic adjustments in base rent due from our tenants, usually based on a factor of the change in the consumer price index (“CPI”). Certain of our leases also provide for a fixed minimum and/or maximum periodic adjustment during the initial lease term, generally based on a fixed percentage of the base rent. We straight-line the fixed minimum escalator rental income over the initial lease term. Any rent adjustments above the fixed minimum escalators are recorded as revenue in the period they are due from the tenants. Straight-lined rents are included in other assets and total approximately $6.7 million and $3.3 million as of December 31, 2001 and 2000, respectively.

During the third quarter of 1999, we began, on a prospective basis, straight-lining our rents for our leases with fixed minimum escalators. Prior to the third quarter of 1999, we had assessed the impact of straight-lining our fixed minimum escalator rental income and determined that the amounts were not material to our financial statements. As a result, we did not straight-line the impact of fixed minimum escalator rental income, but rather recorded any increases to rental income from escalators when the increased amounts were due from tenants. During the third quarter of 1999, we determined that, due to our growth as a result of acquisitions and the increase in the number of leases that included fixed minimum escalators, the impact of not straight-lining the fixed minimum escalators would start to become material to our financial statements during the third quarter of 1999. As a result, we decided to change our policy and began straight-lining the impact of the fixed minimum escalators beginning with our third quarter 1999 financial statements. The impact of not straight-lining the rent for the year ended 1998 and for the six months ended June 30, 1999 was not material to those periods, nor was the effect of the change in policy material to fiscal year 1999. For these reasons, we accounted for the change in accounting policy on a prospective basis.

In December 1999, the SEC issued Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements.” This SAB summarizes certain views in applying GAAP to revenue recognition in financial statements. We adopted SAB 101 in the fourth quarter of 2000. The adoption and implementation of the policies of SAB 101 has not had any impact on our revenue recognition policies, financial condition or results of operations.

CAPITAL AUTOMOTIVE REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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.

Fair Value of Financial Instruments

Management compares the carrying value and the estimated fair value of our financial instruments. Due to the highly liquid and short-term nature of our investments, the carrying value approximates the fair value. After determining fair value of long-term debt instruments by discounting future cash flows using current market rates, management believes there were no material differences in the carrying value and the fair value of our debt instruments as of December 31, 2001 and 2000. In addition, as of December 31, 2001, we had an interest rate swap outstanding, which we marked to market through other comprehensive income and carried as a derivative instrument asset on our balance sheet.

3. NEW ACCOUNTING PRONOUNCEMENTS

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

In April 2002, the FASB issued SFAS No. 145, “Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections”. Among other items, SFAS No. 145 rescinds FASB Statement No. 4, “Reporting of Gains and Losses from Extinguishment of Debt” and “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements”. As a result, gains and losses from extinguishment of debt should be classified as extraordinary items only if they meet the criteria of APB Opinion No. 30, “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual, and Infrequently Occurring Events and Transactions”. We are currently evaluating the full impact of the adoption of SFAS No. 145, however, the effects of this pronouncement may result in future gains and losses related to debt transactions to be classified in income from continuing operations. In addition, some extraordinary items related to debt transactions recorded in prior periods will need to be reclassified to income from continuing operations. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002.

4. ACQUISITIONS OF PROPERTIES

During the year ended December 31, 2001, we completed approximately $200.4 million of acquisitions, which included 20 dealership properties, facility improvements and expansions on 11 previously acquired properties and three construction fundings. We funded the acquisitions with net proceeds from our underwritten public equity offering that closed during the third quarter, the issuance of approximately 80,000 Units (valued at approximately $1.2 million at the time of acquisition), the issuance of long-term debt, funds drawn down on our credit facilities and cash on hand. These acquisitions added approximately 1.1 million square feet of buildings and improvements on approximately 290 acres of land and are located in 15 states (Alabama, California, Florida, Georgia, Indiana, Louisiana, Maryland, New Jersey, Ohio, Oklahoma, Oregon, South Carolina, Tennessee, Texas and Virginia). These properties have initial lease terms generally ranging from 10 to 24 years, with a weighted average initial lease term of 15.7 years. The leases, in general, have renewal options exercisable at the option of the tenant ranging from a total of 10 to 40 years.

CAPITAL AUTOMOTIVE REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5. RELATED PARTY TRANSACTIONS

As of December 31, 2001, we owned 24 properties that were leased to entities related to three members of our Board of Trustees and/or members of their families. In conjunction with the purchases of these properties, we entered into long-term, triple-net lease agreements with two 10-year renewal periods exercisable at the option of the tenant. The leases in the aggregate provide for annualized rental payments as of December 31, 2001 of approximately $12.2 million.

During 2001, two members of our Board of Trustees (including their affiliates) accepted our offer to purchase for $3.90 per share their warrants to purchase approximately 1.4 million of our common shares for an aggregate purchase price of approximately $5.5 million. The purchase was made pursuant to our purchase of outstanding warrants to purchase approximately 2.8 million common shares for $3.90 per warrant. The purchase price 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 for the common shares underlying the warrants was $15.00 and the warrants were to expire in February 2003.

6. OPERATING LEASES

Substantially all of our properties are leased under 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 leases have initial terms that range generally from 10 to 20 years and generally include multiple options to renew upon the same terms and conditions, exercisable at the option of the tenants. All leases are accounted for as operating leases and rental income attributable to the leases is recorded monthly when due from tenants. Rental income attributable to the majority of our leases is fixed per the lease agreement. However, under our variable rate lease program, rental income attributable to our leases is variable, and monthly base rent is calculated based on a spread over an applicable index, typically LIBOR. Of the total variable rate leases, the majority of the lease agreements contain minimum rates and fixed rate conversion features.

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 CPI. Certain of our leases also provide for a fixed minimum and/or maximum periodic adjustment during the initial lease term, generally based on a fixed percentage of the base rent. We straight-line the fixed minimum escalator rental income over the initial lease term. Any rent adjustments above the fixed minimum escalators are recorded as revenue in the period they are due from the tenants. A limited number of our leases offer tenant purchase options, generally at a pre-determined price or the greater of the fair market value of the property at the time of sale or our purchase price, which may be increased by a factor of CPI at the time the option is exercised.

Future minimum rental payments as of December 31, 2001 will be received as follows (in thousands):


For the Year Ended December 31,
2002	$	121,867
2003		122,589
2004		123,779
2005		124,802
2006		125,713
Thereafter		820,480

Total	$	1,439,230

As of December 31, 2001, there were two years and two months remaining on a six-year lease agreement for our current office space. The office lease is accounted for as an operating lease. Future minimum lease payments at December 31, 2001 are as follows:

CAPITAL AUTOMOTIVE REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


For the Year Ended December 31,
2002	$	219,523
2003		226,109
2004		37,869

Total	$	483,501

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 years ended December 31, 2001, 2000 and 1999 is as follows (in thousands, except per share data):

CAPITAL AUTOMOTIVE REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	Years Ended December 31,

	2001			2000			1999

Income from continuing operations before extraordinary item:
Earnings per share – basic	$	31,762		$	25,694		$	21,731
Adjustments (1)		306			—			—

Earnings per share – diluted	$	32,068		$	25,694		$	21,731

Income before extraordinary item:
Earnings per share – basic	$	31,903		$	25,812		$	21,731
Adjustments (1)		306			—			—

Earnings per share – diluted	$	32,209		$	25,812		$	21,731

Net income:
Earnings per share – basic	$	31,377		$	25,812		$	21,731
Adjustments (1)		306			—			—

Earnings per share — diluted	$	31,683		$	25,812		$	21,731

Weighted average shares:
Earnings per share – basic		23,432			20,911			21,607
Adjustments (1)		1,018			202			22

Earnings per share — diluted		24,450			21,113			21,629

Earnings per share from continuing operations before extraordinary item:
Earnings per share – basic	$	1.36		$	1.23		$	1.01
Adjustments (1)		(0.05	)		(0.01	)		—

Earnings per share — diluted	$	1.31		$	1.22		$	1.01

Earnings per share before extraordinary item:
Earnings per share – basic	$	1.36		$	1.23		$	1.01
Adjustments (1)		(0.04	)		(0.01	)		—

Earnings per share — diluted	$	1.32		$	1.22		$	1.01

Earnings per share:
Earnings per share – basic	$	1.34		$	1.23		$	1.01
Adjustments (1)		(0.04	)		(0.01	)		—

Earnings per share — diluted	$	1.30		$	1.22		$	1.01

(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. MORTGAGE DEBT AND REVOLVING CREDIT FACILITIES

CAPITAL AUTOMOTIVE REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following is a summary of our total debt outstanding as of December 31, 2001 and 2000 (dollars in thousands):


			Principal Balance		Principal Balance		2001
			as of December 31,		as of December 31,		Effective Interest			Term/ Amortization
Description of Debt	Original Debt Issued		2001		2000		Rate*			Schedule

7.59% fixed rate debt due 12/1/08 (1)	$	38,050	$	35,886	$	37,103		8.00	%	10 yr/17 yr
7.635% fixed rate debt due 10/1/14 (2)		111,950		98,891		103,749		7.94	%	15 yr/15 yr
8.05% fixed rate debt due 10/1/14 (3)		85,000		78,319		81,560		8.33	%	15 yr/15 yr
7.54% fixed rate debt due 7/6/11 (4)		100,000		96,132		98,093		7.71	%	12 yr/25 yr
8.03% fixed rate debt due 9/29/11 (5)		150,000		—		150,000		8.08	%
7.50% fixed rate debt due 1/20/03 (6)		12,000		11,108		11,421		7.76	%	4.25 yr/20 yr

Total Mortgage Fixed Rate Debt	$	497,000	$	320,336	$	481,926		7.99	%

Variable rate debt due 9/29/11 (5)		150,000		149,419		—		5.18	%	12 yr/25 yr
Variable rate debt due 8/10/13 (7)		82,600		81,223		—		4.78	%	12 yr/30 yr
Various variable rate debt (8)		90,554		86,678		89,593		6.66	%	10 to 12 yr/25 to 30 yr

Total Mortgage Variable Rate Debt	$	323,154	$	317,320	$	89,593		6.60	%

TOTAL MORTGAGE DEBT			$	637,656	$	571,519		7.28	%

$50 million revolving partially secured facility (9)				17,400		14,198		6.29	%	3 yr
$100 million revolving secured facility (10)				46,108		2		6.56	%	1 yr


TOTAL CREDIT FACILITIES			$	63,508	$	14,200		6.46	%


TOTAL DEBT OUTSTANDING			$	701,164	$	585,719		7.36	%

• Includes deferred loan fees amortized over the life of the loans.

CAPITAL AUTOMOTIVE REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(7) The loan requires quarterly interest payments and level principal payments with a final payment at maturity of approximately $49.6 million. The note is secured by nine of our properties, which as of December 31, 2001 have an aggregate net book value of approximately $102.1 million. This loan bears interest equal to the 30-day LIBOR rate plus 175 basis points. At the end of the third quarter, the Company entered into an agreement with a third party to swap the variable rate to a 7.31% fixed rate, effective July 1, 2002, which has subsequently been extended to November 1, 2002 at a fixed rate of 7.50% as described in the Subsequent Events footnote herein. See “Interest Rate Swap” below.

CAPITAL AUTOMOTIVE REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Aggregate annual principal maturities of mortgage debt as of December 31, 2001 are as follows (in thousands):


For the Year Ended December 31,
2002	$	18,754
2003		31,999
2004		22,298
2005		23,629
2006		24,975
Thereafter		516,001

Total	$	637,656

Interest Rate Swap

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

During the third quarter of 2001, we borrowed $82.6 million of long-term debt drawn under a $150 million commitment for secured financing from Toyota Financial Services. The terms of the debt provide for a 12-year term with interest at a spread over the one-month LIBOR rate. At the end of the third quarter, we entered into an agreement with a third party to swap the variable rate to a 7.31% fixed rate, effective July 1, 2002, which has subsequently been extended to November 1, 2002 at a fixed rate of 7.50% as described in the Subsequent Events footnote herein. Fixing the rate of this debt with an interest rate swap 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. The swap was 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 and the underlying terms of the debt, we determined that the derivative instrument is highly effective. Consequently, the unrealized gain or loss upon measuring the swap at its fair value is recorded as a component of accumulated other comprehensive income within shareholders’ equity on our consolidated balance sheets and statements of changes in shareholders’ equity and other comprehensive income, and, depending on the fair value of the swap, as either a derivative instrument asset or derivative instrument liability on our consolidated balance sheets. As of December 31, 2001, we had an unrealized gain on the swap of approximately $2.2 million, which is included in other assets on our consolidated balance sheets and accumulated other comprehensive income within our consolidated balance sheets and statements of changes in shareholders’ equity and other comprehensive income.

Extraordinary Item – Extinguishment of Debt

As noted in footnote (5) of the debt table herein, the interest rate on $150 million of debt was converted from fixed rate to variable rate during the third quarter of 2001. The conversion of the interest rate on the debt from fixed to variable resulted in a significant modification of the debt. In accordance with GAAP, the significant modification should be treated as an extinguishment of debt. As a result, we wrote off the remaining deferred loan fees relating to the fixed rate debt and classified the write-off as an extraordinary item on the consolidated statements of operations. The extraordinary item totaled $526,000, or $0.02 per basic and diluted share.

CAPITAL AUTOMOTIVE REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9. MINORITY INTEREST

Minority interest represents the units of the Partnership owned by limited partners (other than the Company) of the Partnership. Minority interest is calculated at approximately 23.3 percent and 28.5 percent of the Partnership’s partners’ capital as of December 31, 2001 and 2000, respectively. Minority interest is calculated at approximately 25.9 percent and 28.6 percent of the Partnership’s partners’ net income for the years ended December 31, 2001 and 2000, respectively. The ownership of the Partnership as of December 31, 2001 and 2000 is as follows (Units in thousands):


			December 31,

			2001					2000

			Units		Percent			Units		Percent

Partners’ capital:
	Limited Partners			8,006.3		23.3	%		8,453.3		28.5	%
	The Company			26,428.2		76.7	%		21,185.2		71.5	%

		Total		34,434.5		100.0	%		29,638.5		100.0	%

10. SHARE-BASED COMPENSATION

During 1998, we adopted the Capital Automotive Group 1998 Equity Incentive Plan (the “Plan”). Under the Plan, the Executive Compensation Committee of the Board of Trustees (the “Committee”) was authorized to grant up to approximately 2.8 million options to our employees, non-employee trustees and certain other service providers, to purchase common shares of the Company (“Share Options”) and/or Units of the Partnership (“Unit Options”). In February 1999, the Committee and the Board of Trustees approved amendments to the Plan and subsequently received shareholder approval on May 7, 1999 (the “Amended Plan”). The Amended Plan (i) eliminated Unit Options, (ii) provided that the Committee could make grants of restricted shares and/or phantom shares, and (iii) increased the number of shares the Committee may grant under the Amended Plan to approximately 3.8 million. The exchanged Share Options were granted at the same exercise price and on the same exercise schedule, terms and conditions on which the Unit Options were originally granted.

Share Options

Share Options granted under the Amended Plan have exercise prices equal to or greater than the fair market value of a common share at the date of the grant and typically become exercisable at a rate of 25% per year over a four-year period, generally commencing on the first anniversary of the date of grant for employees, except for the initial grant of Share Options which commences on the first anniversary of the date of hire. For trustees, Share Options become exercisable in stages, one-third beginning six months after the date of grant, two-thirds beginning on the first anniversary of the date of grant and 100% beginning on the second anniversary of the date of grant. Share Options expire no later than the tenth anniversary of the date of grant or, if earlier, within certain time limits for employment termination.

Share Options — Exchange of Unit Options to Share Options
At the completion of the Company’s initial public offering in February 1998, certain employees and trustees were issued Unit Options in the Partnership under the Plan. The Units issuable upon exercise of the Unit Options gave the employee the right to “put” the newly acquired Units to the Partnership, which, under the partnership agreement, enables these Unitholders the right to receive either cash or, at our option, an equal number of the Company’s common shares. The Partnership’s partnership agreement defines the conversion ratio as one Unit for one common share. Each Unit has all the same economic rights of a common share including receiving the same dividend.

Due to a change in the tax law, it was determined that the employees and trustees no longer needed to be awarded Unit Options but instead could hold Share Options directly from the Company. As a result, we converted the Unit Options to Share Options (on a one-for-one basis) and treated such change as a minor modification, thus not triggering a new measurement date. All economic terms of the options remained the same, including exercise price,

CAPITAL AUTOMOTIVE REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

exercise schedule and term. The mechanics were simplified, however, because the employee no longer had to exercise the Unit Option and then put the Unit to the Partnership, as described above, in order to receive a common share. Instead, upon exercise of the Share Option, the employee would immediately get the common share. We concluded that the fair value of a Share Option approximated the fair value of a Unit Option and therefore the holders had the same economic position after the exchange.

The following is a summary of our Share Option activity for the years ended December 31, 2001 and 2000 (Share Options in thousands):


				Weighted

				Average

		Number of		Exercise

		Options		Price

Share Options outstanding at December 31, 1999			2,828	$	14.67
	Granted		447		11.75
	Forfeited		96		13.19
	Exercised or expired		20		14.02

Share Options outstanding at December 31, 2000			3,159		14.31
	Granted		2		15.31
	Forfeited		4		12.24
	Exercised or expired		138		13.84

Share Options outstanding at December 31, 2001			3,019	$	14.33

Share Options outstanding at December 31, 2001 have exercise prices between $11.59 and $18.69, with a weighted average exercise price of $14.33 and a weighted average remaining contractual life of 6.58 years. At December 31, 2001, there were approximately 2.5 million Share Options exercisable at a weighted average exercise price of $14.70 and a weighted average remaining contractual life of 6.37 years.

Restricted Shares

The following is a summary of our restricted share activity for the years ended December 31, 2001, 2000 and 1999 (in thousands, except share and per share data):


			Number of		Number of		Restricted Shares		Total Value
Grant	FMV Price on Date of		Restricted Shares		Restricted Shares		Outstanding as of		on Date of		Compensation Expense (5)
Date	Grant		Granted		Forfeited		12/31/01		Grant		2001		2000		1999

5/07/99 (1)	$	12.9375		37,091		7,762		29,329	$	479	$	129	$	158	$	99
1/17/00 (1)		11.5940		46,234		4,948		41,286		536		161		161		—
5/11/00 (2)		13.8750		77,500		—		77,500		1,075		358		239		—
1/24/01 (3)		14.5625		76,948		824		76,124		1,120		239		—		—
5/10/01 (4)		16.1000		1,000		—		1,000		16		3		—		—

(1) On May 7, 1999, the Committee approved the granting of Performance Accelerated Restricted Shares (“PARS”) to certain employees at a purchase price of $0.01 per share. The PARS were issued under the Amended Plan and are subject in all respects to the applicable provisions of the Amended Plan. The PARS originally had a vesting schedule of approximately seven years from the effective date of January 1, 1999 with the opportunity to accelerate the vesting if the Company achieved certain specified performance targets. On January 17, 2000, the Committee approved a change in the vesting period on all PARS granted on May 7, 1999 to reflect that one half (1/2) of such PARS would vest after approximately three years from the effective date of January 1, 1999 and the remainder, still subject to performance acceleration, would vest after seven years. Also on January 17, 2000, the Committee approved the granting of additional PARS

CAPITAL AUTOMOTIVE REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

to certain employees at a purchase price of $0.01 per share. On May 11, 2000, the Committee amended the vesting schedule on all PARS granted in 1999 and 2000 to eliminate the “performance accelerated” feature and to generally provide that all restricted shares vest on the third anniversary of the effective date of the grant.

(2) The restricted shares were granted at a purchase price of $0.01 per share. The restricted shares vest on the third anniversary from the effective date of the grant.

(3) The restricted shares were granted at a purchase price of $0.01 per share. The restricted shares vest as follows: Approximately 61,000 restricted shares granted to executive officers vest after 5 years; and 50% of approximately 16,000 restricted shares granted to other employees vest after 3 years and the remaining 50% vest after 5 years.

(4) The restricted shares were granted at a purchase price of $0.01 per share. 50% of the restricted shares vest after 3 years and the remaining 50% vest after 5 years.

(5) At the date of grant, both the number of the common shares and price to be paid by the employee was known, and the measurement date therefore coincided with the date of grant. The compensation expense was measured by the difference between the purchase price of the PARS or restricted shares, which equaled $0.01 per share, and the market price of the common shares on the date of the grant. The compensation expense and corresponding offset to shareholders’ equity is recognized ratably over the vesting period, which is generally three to five years from the effective date of the grant, except as noted below. For the May 7, 1999 grant, the compensation was initially recognized over the initial vesting period of seven years beginning on the effective date. When the vesting for one half of the PARS was reduced to three years on January 17, 2000, a cumulative adjustment totaling $37,000 was recorded to compensation expense during the fourth quarter of 1999 to properly reflect the revised vesting schedule for one half of the PARS to three years from the effective date. For the May 7, 1999 and January 17, 2000 grants, when the vesting schedule for the remaining one half of the PARS granted in 1999 and 2000 was reduced from seven years to three years on May 11, 2000, a cumulative adjustment totaling $57,000 was recorded to compensation expense during the second quarter of 2000.

Restricted Shares – Dividend Equivalents
A holder of our restricted shares has no voting rights, but receives dividend equivalents with respect to the restricted shares, which are equal to the value of any dividends paid with respect to our common shares. Certain employees may elect to receive the dividend equivalent payment with respect to the restricted shares held on the dividend record date in the form of cash or additional restricted shares. The additional restricted shares vest in accordance with the vesting schedule of the underlying restricted shares. If the employee terminates prior to the vesting date, the employee is entitled to the additional restricted shares, or to cash equal to the fair market value of the restricted shares on the termination date, at our option. The dividend equivalents related to the restricted shares are recorded as a dividend distribution under the shareholders’ equity section on the dividend record date.

Phantom Shares

In January 2000, we instituted a Phantom Share Purchase Program requiring mandatory, and authorizing voluntary, purchases of phantom shares upon the deferral of a portion of certain employees’ annual bonus. Under this program, unless the Committee determines otherwise, 20% of any annual bonus payable to an executive officer must be deferred, and the executive officer may elect to defer up to an additional 30% of any annual bonus payable to him. In addition, certain other employees may elect to defer up to 20% of their annual bonus. The phantom shares are purchased at a price equal to 80% of the fair market value of our common shares on the date of grant. The phantom shares awarded upon the deferral of a portion of annual bonuses generally vest on the third anniversary from the date of grant. If the employee terminates prior to the vesting date, the employee is entitled to the lesser of (i) the amount of the annual bonus deferred or (ii) an amount equal to the number of phantom shares multiplied by the fair market value of the phantom shares on the termination date. The following is a summary of phantom shares granted upon the deferral of 1999, 2000 and 2001 bonuses earned (in thousands, except share and per share data):

CAPITAL AUTOMOTIVE REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


			Total Amount of		Number of Phantom
Grant	Year Bonus		Bonuses Deferred		Shares		Market Price per		Purchase Price per		20% Discount		Compensation Expense (2)
Date	Earned		(1)		Granted		Share		Share		Value		2001		2000		1999

1/17/00		1999	$	410		44,208	$	11.5940	$	9.2752	$	103	$	34	$	34	$	—
1/24/01		2000		497		42,672		14.5625		11.6500		124		42		—		—
1/18/02		2001		708		42,396		20.8800		16.7040		177		—		—		—

(1) Included in the total bonuses deferred in 1999 was 100% of the Chief Executive Officer’s annual bonus, which deferral was approved by the Committee. Included in the total bonuses deferred in 2000 and 2001 was 100% of the Chief Executive Officer’s and another executive officer’s annual bonuses, which deferral was approved by the Committee.

(2) The compensation expense related to the phantom shares is measured by the difference between the purchase price of the phantom shares and the market price of the common shares on the date of grant. The compensation expense is recognized ratably over the vesting period, which is generally three years from the date of grant, and is included as an offset to shareholders’ equity.

Phantom Shares – Dividend Equivalents
A holder of our phantom shares has no voting rights, but receives dividend equivalents with respect to the phantom shares, which are equal to the value of any dividends paid with respect to our common shares. Certain employees may elect to receive the dividend equivalent payment with respect to the phantom shares held on the dividend record date in the form of cash or additional phantom shares. The additional phantom shares vest in accordance with the vesting schedule of the underlying phantom shares. If the employee terminates prior to the vesting date, the employee is entitled to an amount payable in cash equal to the number of such additional dividend equivalent phantom shares multiplied by the fair market value of the phantom shares on the termination date. The dividend equivalents related to the phantom shares are recorded as compensation expense on the dividend record date.

Summary

As of December 31, 2001, approximately 3.0 million Share Options, 237,000 restricted shares, and 97,000 phantom shares were outstanding under the Amended Plan, thus leaving approximately 260,000 shares available under the Amended Plan to be granted. On January 18, 2002, the Committee approved an additional grant of 50,621 restricted shares at a purchase price of $0.01 per share, of which 50% vest after three years and 50% vest after five years from the effective date of the grant, and an additional grant of phantom share as detailed in the above table. On February 12, 2002, the Board of Trustees approved an amendment and restatement of the Amended Plan (the “Restated Amended Plan”), which was approved by our shareholders on May 14, 2002. The Restated Amended Plan increased the number of shares available for grant from approximately 3.8 million to approximately 5.1 million and eliminated and amended several provisions of the Amended Plan to reflect current law and practice.

CAPITAL AUTOMOTIVE REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

We apply APB Opinion 25 in accounting for our share-based compensation and accordingly recognized no compensation expense related to the grant of Share Options during the years ended December 31, 2001, 2000 and 1999. Had compensation cost been determined using the fair value method of accounting prescribed by SFAS No. 123, “Accounting for Stock-Based Compensation,” our net income and earnings per share would have been changed to the following pro forma amounts (in thousands, except per share amounts) (unaudited):


For the Years Ended December 31,		2001		2000		1999

Net Income
	As reported	$	31,377	$	25,812	$	21,731
	Pro forma	$	30,048	$	24,430	$	20,521
Basic Net Income Per Share
	As reported	$	1.34	$	1.23	$	1.01
	Pro forma	$	1.28	$	1.17	$	0.95
Diluted Net Income Per Share
	As reported	$	1.30	$	1.22	$	1.01
	Pro forma	$	1.24	$	1.16	$	0.95

The Black-Scholes option pricing model has been used to estimate the value of all Share Options granted. For Share Options issued, the model uses the following assumptions:


Year Share Options	Risk-free									Expected Share
were Issued	Interest Rate			Dividend Growth			Stock Volatility			Option Life

2001		3.982	%		3.0	%		21.31	%		4.0
2000		4.825	%		5.0	%		41.07	%		4.0
1999		6.670	%		5.0	%		34.96	%		4.0
1998		4.625	%		10.0	%		21.75	%		4.0

11. WARRANTS TO PURCHASE COMMON SHARES

During 2001, a total of 279,446 warrants to purchase common shares were exercised at $15.00 per share. In addition, 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 purchase price 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 aggregate purchase price for the warrants was approximately $10.8 million, of which $4.7 million was paid in 2001 and the remainder was paid in January 2002, and was funded with debt and cash on hand. The purchase of the warrants was considered a retirement of an equity instrument and therefore recorded as a charge to shareholders’ equity. As of December 31, 2001, we had warrants outstanding to acquire a total of 105,000 common shares, all of which were exercisable by the holders on that date at an exercise price of $15.00 per share. All warrants outstanding as of December 31, 2001 are for terms of five years and expire no later than January 2004.

12. 401(k) PLAN

During 1998, we adopted the Capital Automotive L.P. Employee 401(k) Plan (the “401(k) Plan”). Employees who are at least 21 years of age are eligible to participate in the 401(k) Plan after three months of service. Participants may contribute up to 20% of their earnings, on a pre-tax basis, subject to annual limitations imposed by the Code. We may make matching or discretionary contributions to the 401(k) Plan. These contributions will vest ratably over five years from each employee’s date of service. During December 2000 and 2001, we approved a 20% match of the participant’s elected deferral contribution during those respective years (subject to maximum limits). For the years ended December 31, 2001 and 2000, we made matching contributions of approximately $27,000 and $25,000, respectively.

CAPITAL AUTOMOTIVE REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

13. COMMON SHARE REPURCHASE PROGRAM

14. DIVIDEND REINVESTMENT AND SHARE PURCHASE PLAN

During April 2000, the Company implemented a Dividend Reinvestment and Share Purchase Plan, which was subsequently amended in March 2001 (the “DRIP”). Under the DRIP, current shareholders and holders of Units (“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.

15. FOLLOW-ON EQUITY OFFERING

During the third quarter of 2001, we sold 3,852,500 common shares (which includes the full exercise of the underwriters’ over-allotment option to purchase 502,500 common shares) in an underwritten public offering at a price to the public of $17.00 per share under our shelf registration statement filed with the SEC on March 2, 1999 (the “Shelf Registration Statement”). Net proceeds to the Company, after deducting the discounts and commissions to the underwriters and other expenses of this offering, totaled approximately $61.3 million. After the offering, $134.5 million remains available under the Shelf Registration Statement for the issuance of securities. The Company contributed the net proceeds of the offering to the Partnership in exchange for Units in the Partnership and the Partnership used the proceeds to fund a portion of third quarter acquisitions.

16. DIVIDEND DECLARATION

On January 22, 2002, our Board of Trustees declared a cash dividend of $0.389 per share for the fourth quarter ended December 31, 2001 to shareholders of record as of February 11, 2002. The dividend was paid on February 20, 2002. Annual dividends for 2001 and 2000 totaled $1.55 per share and $1.50 per share, respectively. The annual dividends are different from total distributions calculated for tax purposes as detailed below.

CAPITAL AUTOMOTIVE REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Of the total dividends calculated for tax purposes, the amounts characterized as ordinary income and return of capital for 2001 and 2000 are as follows (unaudited):


2001

				Total Distribution		Taxable Ordinary
Record Date		Payment Date		Per Share		Income		Return of Capital

	11/09/01		11/20/01	$	0.3880	$	0.3208	$	0.0672
	08/10/01		08/21/01		0.3870		0.3199		0.0671
	05/10/01		05/18/01		0.3860		0.3191		0.0669
	12/31/00		01/31/01		0.3850		0.3183		0.0667

Totals for 2001						$	1.2781	$	0.2679


2000

				Total Distribution		Taxable Ordinary
Record Date		Payment Date		Per Share		Income		Return of Capital

	11/10/00		11/21/00	$	0.3775	$	0.3690	$	0.0085
	08/10/00		08/18/00		0.3725		0.3641		0.0084
	05/10/00		05/18/00		0.3650		0.3568		0.0082
	12/31/99		01/31/00*		0.3600		0.2102		0.0048

Totals for 2000						$	1.3000	$	0.0300

* The fourth quarter 1999 distribution, payable on January 31, 2000, was $0.36 per share and included a “spillover” distribution, with $0.145 per share taxable in 1999, $0.2102 per share taxable in 2000, and $0.0048 per share a return of capital in 2000.

CAPITAL AUTOMOTIVE REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Summarized quarterly financial data for the years ended December 31, 2001 and 2000 is as follows (in thousands, except per share amounts):


	Quarter Ended

	March 31		June 30		September 30		December 31

2001
Revenue	$	27,848	$	28,209	$	30,131	$	31,293
Income from continuing operations before extraordinary item	$	6,776	$	7,099	$	8,251	$	9,636
Income from discontinued operations	$	32	$	30	$	42	$	37
Income before extraordinary item	$	6,808	$	7,129	$	8,293	$	9,673
Extraordinary item – extinguishment of debt	$	—	$	—	$	526	$	—
Net income	$	6,808	$	7,129	$	7,767	$	9,673

Diluted earnings per share:
Income from continuing operations before extraordinary item	$	0.31	$	0.32	$	0.32	$	0.35
Income before extraordinary item	$	0.31	$	0.32	$	0.33	$	0.35
Net income	$	0.31	$	0.32	$	0.31	$	0.35

Weighted average number of shares—diluted		21,862		22,541		25,635		27,684

2000
Revenue	$	24,963	$	25,053	$	25,556	$	26,731
Income from continuing operations	$	6,363	$	6,315	$	6,458	$	6,558
Income from discontinued operations	$	30	$	30	$	29	$	29
Net income	$	6,393	$	6,345	$	6,487	$	6,587

Diluted earnings per share:
Income from continuing operations	$	0.30	$	0.30	$	0.31	$	0.31
Net income	$	0.30	$	0.30	$	0.31	$	0.31

Weighted average number of shares—diluted		21,148		20,931		21,096		21,268

18. SEGMENT INFORMATION

We adopted SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” during 1998. SFAS No. 131 provides standards for public companies relating to the reporting of financial and descriptive information about their operating segments in financial statements. Operating segments are defined as components of an enterprise for which separate financial information is available and is evaluated regularly by the chief operating decision maker or decision making group in deciding how to allocate resources and in assessing performance. Our management is our chief decision making group.

All of our operations are derived from one operating segment. This operating segment engages in the purchase of 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 buying properties from dealerships that have a long history of operating multi-site, multi-franchised dealerships, generally targeting the largest dealer groups in terms of revenues in the largest major metropolitan areas in the U.S. in terms of population. In addition, we also provide facility improvement and expansion fundings, construction financing and takeout commitments in certain situations. We own interests in real estate and conduct our operations, directly or indirectly, through the Partnership and its subsidiaries.

CAPITAL AUTOMOTIVE REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

19. TENANT CONCENTRATION

Sonic Automotive, Inc. and its affiliates (“Sonic”) accounted for approximately 25% of our total rental revenue for the year ended December 31, 2001 and approximately 22% of our total annualized rental revenue as of December 31, 2001. If Sonic were to default on its lease obligations or declare bankruptcy, we could experience significantly reduced revenue until the properties Sonic leases could be leased to a new tenant or tenants. No other tenant accounted for 10% or more of our total rental revenue for the year ended December 31, 2001 or our total annualized rental revenue as of December 31, 2001. Sonic is a publicly-traded company that is required to file all necessary reports with the SEC. All relevant information regarding Sonic may be found at the SEC’s website www.sec.gov.

As of December 31, 2001, our properties were diversified across 27 states, with approximately 70% of our total real estate investments in the top 50 metropolitan areas in terms of population and approximately 97% of our total real estate investments in metropolitan areas, according to the most recent data (April 2000) published by the U.S. Census Bureau on metropolitan statistical areas (MSAs) and primary metropolitan statistical areas (PMSAs). The largest “geographic concentrations” of our properties were in the Washington, DC-MD-VA-WV MSA and the Houston, TX MSA, which accounted for approximately 13% and 12% of our total real estate investments, respectively, as of December 31, 2001. No other MSA’s concentration of properties exceeded 6% of our total real estate investments as of December 31, 2001. The Washington, DC-MD-VA-WV MSA and the Houston, TX MSA are both in the top 10 MSAs in terms of population, with the Washington, DC-MD-VA-WV MSA ranked fifth and the Houston, TX MSA ranked seventh. In addition, to minimize our geographic concentration risk in any given area, we generally require cross-guarantees (or guarantees by a parent) of all leases within a dealer group.

20. DIVIDENDS DECLARED PER SHARE

Dividends are generally declared a quarter in arrears. However, prior to 2001, we declared our fourth quarter dividend during the same quarter in order to comply with REIT requirements during those respective years. Dividends declared per share for 2001 include the first, second and third quarter dividends for 2001. Dividends declared per share for 2000 and 1999 include the first, second, third and fourth quarter dividends for 2000 and 1999, respectively.

21. SUBSEQUENT EVENTS

Debt

CAPITAL AUTOMOTIVE REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the 1-month, 2-month or 3-month LIBOR rate plus 200 basis points and requires the repayment of borrowings within 180 days.

Acquisitions

During 2002 through the date of this report, we completed approximately $305.6 million of property acquisitions, including 31 properties and several facility improvements and construction fundings.

Discontinued Operations

During the third quarter of 2002, we sold three properties and received net proceeds of $7.5 million resulting in a combined gain of approximately $291,000. The earnings generated from these properties have been reported as “discontinued operations” in accordance with SFAS No. 144 and are presented net of minority interest. Revenue from the sold properties for the years ended December 31, 2001 and 2000 was $798,000 and $848,000, respectively. Income from discontinued operations for the years ended December 31, 2001 and 2000 was $141,000 and $118,000, respectively. The earnings generated from these properties were immaterial to the results of operations for the year ending December 31, 1999.

SCHEDULE III
CAPITAL AUTOMOTIVE REIT
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2001

Gross Amount at December 31, 2001

Building and

Accumulated

Date

Depreciation

Dealer Group Name

Dealership

Location

Land

Improvements

Total

Depreciation

Acquired

Life

ABRA Auto Body & Glass LLC

Chattanooga, TN

452,668

1,490,413

1,943,081

117,996

8/13/99

30 years

ABRA Auto Body & Glass LLC Total

452,668

1,490,413

1,943,081

117,996

Auction Broadcasting Company

ABC Indianapolis

Indianapolis, IN

1,093,642

8,439,598

9,533,240

363,372

9/29/00

30 years

Auction Broadcasting Company

ABC Nashville

Nashville, TN

1,035,227

9,509,150

10,544,377

330,179

12/14/00

30 years

Auction Broadcasting Company

ABC Washington/Dulles

Sterling, VA

2,505,688

10,116,626

12,622,314

266,967

3/1/01

30 years

Auction Broadcasting Company Total

4,634,557

28,065,373

32,699,930

960,517

Auffenberg Automotive Group

St. Clair Auto Mall

O’Fallon, IL

5,672,561

7,595,913

13,268,473

643,543

6/30/99

30 years

Auffenberg Automotive Group

Auffenburg Ford North

O’Fallon, IL

1,816,149

2,310,324

4,126,473

195,736

6/30/99

30 years

Auffenberg Automotive Group

Auffenburg Ford

Belleville, IL

658,019

2,127,238

2,785,257

162,497

9/10/99

30 years

Auffenberg Automotive Group

Auffenberg Volkswagen

O’Fallon, IL

851,782

2,189,609

3,041,391

112,522

6/8/00

30 years

Auffenberg Automotive Group

Auffenberg Nissan-Kia

O’Fallon, IL

1,027,623

1,674,119

2,701,741

86,031

6/8/00

30 years

Auffenberg Automotive Group

Auffenberg Nationwide Rental Car

O’Fallon, IL

1,460,261

2,255,120

3,715,381

103,360

8/24/00

30 years

Auffenberg Automotive Group Total

11,486,395

18,152,322

29,638,717

1,303,688

AutoNation

Mercedes-Benz of Houston — Greenville

Houston,TX

9,086,654

10,719,435

19,806,090

1,305,491

9/28/98

30 years

AutoNation

Westgate Chevrolet, Inc.

Amarillo, TX

1,235,516

3,181,296

4,416,812

477,455

2/25/98

30 years

AutoNation

Desert Toyota

Las Vegas, NV

5,540,606

8,697,735

14,238,341

1,199,939

5/19/98

30 years

AutoNation

Plains Chevrolet, Inc.

Amarillo, TX

1,324,616

3,400,896

4,725,512

510,413

2/25/98

30 years

AutoNation

Midway Chevrolet, Inc.

Amarillo, TX

871,516

2,245,296

3,116,812

336,978

2/25/98

30 years

AutoNation

Quality Nissan

Amarillo, TX

283,516

733,295

1,016,811

110,054

2/25/98

30 years

AutoNation Total

18,342,424

28,977,953

47,320,377

3,940,331

Behlmann Automotive

Behlmann Pontiac-GMC (Main)

Hazelwood, MO

4,637,602

4,383,835

9,021,437

587,074

6/25/98

30 years

Behlmann Automotive

Behlmann Carnection

Florissant, MO

1,042,674

1,865,812

2,908,485

249,865

6/25/98

30 years

Behlmann Automotive

Behlmann Wholesale

Florissant, MO

104,005

203,620

307,625

27,268

6/25/98

30 years

Behlmann Automotive Total

5,784,281

6,453,267

12,237,548

864,208

CarMax

CarMax Dulles

Sterling, VA

5,743,642

10,423,334

16,166,976

97,719

8/10/01

40 years

CarMax

CarMax White Marsh

White Marsh, MD

4,112,138

9,303,360

13,415,498

87,219

8/10/01

40 years

CarMax

CarMax Nashville

Nashville, TN

4,914,086

7,748,510

12,662,596

72,642

8/10/01

40 years

CarMax

CarMax Duarte

Duarte, CA

8,016,660

9,448,336

17,464,996

88,578

8/10/01

40 years

CarMax

CarMax Greenville

Greenville, SC

5,417,274

7,546,222

12,963,496

70,746

8/10/01

40 years

CarMax

CarMax Laurel Toyota

Laurel, MD

2,661,577

5,682,919

8,344,496

53,277

8/10/01

40 years

CarMax

CarMax Houston — Cypress Fair

Houston, TX

1,091,437

3,383,459

4,474,896

31,720

8/10/01

40 years

CarMax

CarMax Plano

Plano, TX

3,081,791

3,400,604

6,482,396

31,881

8/10/01

40 years

CarMax

CarMax Clearwater

Clearwater, FL

4,113,894

6,633,002

10,746,896

62,184

8/10/01

40 years

CarMax Total

39,152,498

63,569,746

102,722,245

595,966

Cherner Automotive Group

Cherner Lincoln Mercury

Annandale, VA

4,026,275

2,405,880

6,432,155

361,079

2/19/98

30 years

Cherner Automotive Group Total

4,026,275

2,405,880

6,432,155

361,079

Craig Zinn Automotive Group

County Line Lexus

Hollywood, FL

2,061,645

1,314,700

3,376,345

122,340

3/5/99

30 years

Craig Zinn Automotive Group

Toyota of Hollywood

Hollywood, FL

3,014,998

2,592,184

5,607,183

241,217

3/5/99

30 years

Craig Zinn Automotive Group

Truck Center

Hollywood, FL

628,115

87,278

715,393

8,122

3/5/99

30 years

Craig Zinn Automotive Group

Quick Service Center

Hollywood, FL

423,054

92,339

515,393

8,593

3/5/99

30 years

Craig Zinn Automotive Group Total

6,127,812

4,086,501

10,214,313

380,272

Crown Auto World

Crown Motors BMW/Buick

Tulsa, OK

1,077,838

5,258,691

6,336,529

576,618

12/11/98

30 years

Crown Auto World Total

1,077,838

5,258,691

6,336,529

576,618

Dealer’s Auto Auction

Oklahoma City, OK

1,129,351

8,477,273

9,606,624

963,873

11/25/98

30 years

Dealer’s Auto Auction Total

1,129,351

8,477,273

9,606,624

963,873

Gross Amount at December 31, 2001

Building and

Accumulated

Date

Depreciation

Dealer Group Name

Dealership

Location

Land

Improvements

Total

Depreciation

Acquired

Life

Family Auto Group

Family Honda

Rancho Santa Marg., CA

5,131,082

4,419,551

9,550,634

79,787

6/1/01

30 years

Family Auto Group Total

5,131,082

4,419,551

9,550,634

79,787

Fenton Motor Group

Brad Fenton Motors

McAlester, OK

356,120

3,678,231

4,034,351

403,320

12/7/98

30 years

Fenton Motor Group

Ada Ford Lincoln-Mercury

Ada, OK

237,123

2,797,228

3,034,351

306,717

12/7/98

30 years

Fenton Motor Group

Brad Fenton Motors of Ardmore

Ardmore, OK

205,101

1,816,079

2,021,180

199,134

12/29/98

30 years

Fenton Motor Group Total

798,344

8,291,537

9,089,881

909,171

Freightliner of Dothan

Dothan, AL

490,443

2,193,587

2,684,030

284,892

7/23/98

30 years

Freightliner of Dothan Total

490,443

2,193,587

2,684,030

284,892

Group 1 Automotive, Inc.

Acura Southwest

Houston, TX

2,336,436

2,098,715

4,435,152

230,089

12/30/98

30 years

Group 1 Automotive, Inc.

AJ Foyt Honda/Isuzu

Houston, TX

1,496,005

2,538,835

4,034,841

278,337

12/30/98

30 years

Group 1 Automotive, Inc.

Luby Chevrolet

Lakewood, CO

2,737,284

4,299,889

7,037,174

471,439

12/30/98

30 years

Group 1 Automotive, Inc.

Maxwell Chrysler Five Pack

Taylor, TX

114,807

1,167,895

1,282,702

127,991

12/30/98

30 years

Group 1 Automotive, Inc.

Southwest Freeway Land

Houston, TX

1,132,586

12/30/98

Group 1 Automotive, Inc.

Sterling McCall Toyota — Club Creek

Houston, TX

1,236,831

1,218,208

2,455,040

133,540

12/30/98

30 years

Group 1 Automotive, Inc.

Sterling McCall Toyota

Houston, TX

4,100,143

5,557,985

9,658,129

548,065

1/6/99

30 years

Group 1 Automotive, Inc.

Toyota Body Shop

Houston, TX

216,378

951,547

1,167,925

93,813

1/6/99

30 years

Group 1 Automotive, Inc.

Sterling McCall Lexus Body Shop

Houston, TX

223,233

632,551

855,784

62,358

1/6/99

30 years

Group 1 Automotive, Inc.

Sterling McCall Lexus

Houston, TX

3,151,187

5,632,950

8,784,137

555,455

1/6/99

30 years

Group 1 Automotive, Inc.

Round Rock Nissan

Round Rock, TX

1,017,942

1,982,518

3,000,460

195,482

1/13/99

30 years

Group 1 Automotive, Inc.

Round Rock Nissan Land

Round Rock, TX

763,882

1/13/99

Group 1 Automotive, Inc.

Town North Nissan/Mitsubishi

Austin, TX

1,590,983

3,201,370

4,792,353

297,905

3/24/99

30 years

Group 1 Automotive, Inc.

Town North Nissan/Mitsubishi Land

Austin, TX

779,333

3/24/99

Group 1 Automotive, Inc.

Clear Lake Lexus

Houston, TX

1,219,635

4,531,450

5,751,085

358,740

8/25/99

30 years

Group 1 Automotive, Inc.

Don Bohn Ford & Training Ctr

Harvey, LA

5,187,029

4,397,058

9,584,087

311,458

11/12/99

30 years

Group 1 Automotive, Inc.

Bohn Brothers Toyota

Harvey, LA

2,951,396

2,387,074

5,338,470

169,084

11/12/99

30 years

Group 1 Automotive, Inc.

Casa Chevrolet

Albuquerque, NM

2,518,774

2,891,422

5,410,196

196,828

12/16/99

30 years

Group 1 Automotive, Inc.

Bohn Pontiac GMC Buick

Harvey, LA

1,076,066

2,542,908

3,618,974

67,105

3/27/01

30 years

Group 1 Automotive, Inc.

Sunshine Buick, Pontiac, GMC Truck

Albuquerque, NM

3,132,901

2,254,275

5,387,175

178,463

8/6/99

30 years

Group 1 Automotive, Inc. Total

36,982,832

48,286,652

85,269,484

4,276,152

Gunn Automotive Group

Gunn Chevrolet & Body Shop

San Antonio, TX

3,495,048

5,024,374

8,519,421

632,225

8/24/98

30 years

Gunn Automotive Group

Gunn Dodge

San Antonio, TX

1,964,831

2,051,398

4,016,229

258,131

8/24/98

30 years

Gunn Automotive Group

Gunn Pontiac-GMC

San Antonio, TX

2,239,624

3,326,606

5,566,230

418,592

8/24/98

30 years

Gunn Automotive Group

Gunn Nissan

San Antonio, TX

1,331,537

1,184,692

2,516,228

149,072

8/24/98

30 years

Gunn Automotive Group

Gunn Land Rover

San Antonio, TX

1,057,209

759,909

1,817,118

95,621

8/24/98

30 years

Gunn Automotive Group Total

10,088,248

12,346,979

22,435,227

1,553,639

Gurley-Leep Automotive Group

Gurley-Leep

Mishawaka, IN

5,191,365

7,608,289

12,799,654

812,080

11/5/98

30 years

Gurley-Leep Automotive Group

Gurley-Leep Olds-Cadillac & Saturn

Mishawaka, IN

2,961,641

4,066,152

7,027,793

417,300

11/5/98

30 years

Gurley-Leep Automotive Group

Gurley-Leep Imports

Elkhart, IN

396,639

1,471,628

1,868,267

127,807

11/5/98

30 years

Gurley-Leep Automotive Group

University Park Chrysler-Plymouth

Mishawaka, IN

1,478,543

920,201

2,398,745

104,624

11/5/98

30 years

Gurley-Leep Automotive Group Total

10,028,188

14,066,270

24,094,458

1,461,812

Hand Automotive Group

Saturn Airport Marina

Los Angeles, CA

2,341,054

1,502,527

3,843,580

195,141

7/22/98

30 years

Hand Automotive Group Total

2,341,054

1,502,527

3,843,580

195,141

Hoz de Vila Automotive

Dodge City

Burlington, NJ

636,471

1,795,592

2,432,063

162,102

4/7/99

30 years

Hoz de Vila Automotive

Sport Hyundai/Dodge

Pleasantville, NJ

1,297,432

1,258,745

2,556,177

113,637

4/7/99

30 years

Hoz de Vila Automotive

Hoz de Vila Raw Land

Burlington, NJ

2,540,418

2,833,905

5,374,323

1/22/01

Hoz de Vila Automotive Total

4,474,321

5,888,241

10,362,563

275,738

Jack Maxton Chevrolet

Worthingon, OH

1,896,153

5,929,240

7,825,393

49,410

9/17/01

35 years

Jack Maxton Chevrolet Total

1,896,153

5,929,240

7,825,393

49,410

Jackson Automotive Group

Jackson Cadillac-Oldsmobile-Pontiac,

Sulphur Springs, TX

266,308

1,121,394

1,387,702

132,036

10/23/98

30 years

Jackson Automotive Group

Jackson Mazda

Greenville, TX

111,264

549,476

660,739

64,697

10/23/98

30 years

Jackson Automotive Group

Jackson Autoplex-Used Cars

Greenville, TX

279,686

83,943

363,629

9,884

10/23/98

30 years

Gross Amount at December 31, 2001

Building and

Accumulated

Date

Depreciation

Dealer Group Name

Dealership

Location

Land

Improvements

Total

Depreciation

Acquired

Life

Jackson Automotive Group

Jackson Motor Company

Greenville, TX

54,129

581,612

635,741

93,300

10/23/98

20 years

Jackson Automotive Group Total

711,387

2,336,424

3,047,811

299,916

Kelley Automotive Group

Kelley Chevrolet

Fort Wayne, IN

1,499,957

5,211,666

6,711,623

697,935

6/17/98

30 years

Kelley Automotive Group

Courtesy Motors

Decatur, IN

1,207,661

1,826,458

3,034,119

244,595

6/17/98

30 years

Kelley Automotive Group

Northside Chevrolet

Evansville, IN

795,030

1,939,090

2,734,119

259,677

6/17/98

30 years

Kelley Automotive Group

Midwest Auto Parts

Fort Wayne, IN

385,416

1,508,703

1,894,119

267,166

6/17/98

20 years

Kelley Automotive Group

Kelley Buick Atlanta

Chamblee, GA

3,249,737

2,844,383

6,094,119

380,914

6/17/98

30 years

Kelley Automotive Group

Saturn of Gwinnett

Duluth, GA

3,050,226

1,243,894

4,294,119

166,580

6/17/98

30 years

Kelley Automotive Group

Tom Kelley Pontiac/GMC

Fort Wayne, IN

1,115,426

4,299,643

5,415,069

558,416

7/23/98

30 years

Kelley Automotive Group

Tom Kelley Buick

Fort Wayne, IN

1,226,261

3,588,808

4,815,069

466,097

7/23/98

30 years

Kelley Automotive Group

Tom Kelley Cadillac

Fort Wayne, IN

547,361

2,203,906

2,751,267

295,142

6/17/98

30 years

Kelley Automotive Group

Saturn of Fort Wayne — #1

Fort Wayne, IN

263,895

1,158,798

1,422,693

155,184

6/17/98

30 years

Kelley Automotive Group

TST Car/Van Wash

Fort Wayne, IN

345,079

863,130

1,208,208

73,126

6/9/99

30 years

Kelley Automotive Group

Saturn of Fort Wayne — #2

Fort Wayne, IN

634,218

2,585,702

3,219,921

104,146

8/9/99

30 years

Kelley Automotive Group Total

14,320,267

29,274,180

43,594,447

3,668,979

Ken Dixon Automotive

Ken Dixon Chevrolet

Waldorf, MD

3,329,652

3,978,480

7,308,132

548,871

5/22/98

30 years

Ken Dixon Automotive Total

3,329,652

3,978,480

7,308,132

548,871

Larry H. Miller Group

Denver Toyota

Denver, CO

1,993,036

7,243,001

9,236,037

1,057,798

3/31/98

30 years

Larry H. Miller Group Total

1,993,036

7,243,001

9,236,037

1,057,798

Lithia Motors

Lithia Toyota/Mazda

Medford, OR

2,102,213

3,130,794

5,233,007

265,248

6/22/99

30 years

Lithia Motors

Lithia Honda

Medford, OR

1,360,759

1,503,668

2,864,427

127,394

6/22/99

30 years

Lithia Motors

Lithia Saturn

Medford, OR

414,453

781,560

1,196,013

66,216

6/22/99

30 years

Lithia Motors

Lithia Dodge

Medford, OR

2,033,425

2,710,753

4,744,178

229,661

6/22/99

30 years

Lithia Motors

Lithia Isuzu-Suzuki

Medford, OR

1,182,429

557,500

1,739,929

47,233

6/22/99

30 years

Lithia Motors

Grants Pass Auto Mart

Grants Pass, OR

1,248,419

1,371,522

2,619,941

116,198

6/22/99

30 years

Lithia Motors

Roundtree Chevrolet-Lincoln

Boise, ID

2,588,238

7,227,467

9,815,705

997,101

5/6/98

30 years

Lithia Motors

Lithia BMW/Nissan

Medford, OR

1,377,149

4,338,136

5,715,285

90,378

5/3/01

30 years

Lithia Motors

Lithia Fresno Ford Mazda Suzuki

Fresno, CA

2,987,833

6,007,953

8,995,787

108,477

6/27/01

30 years

Lithia Motors Total

15,294,918

27,629,354

42,924,272

2,047,905

Lynn Alexander Automotive Group

All-American Chevrolet, Inc.

San Angelo, TX

1,597,006

2,672,092

4,269,097

325,427

9/11/98

30 years

Lynn Alexander Automotive Group

Dodge Lincoln-Mercury Nissan

San Angelo, TX

788,552

2,015,676

2,804,228

245,484

9/11/98

30 years

Lynn Alexander Automotive Group

Chrysler-Plymouth Jeep-Eagle

San Angelo, TX

282,954

1,267,274

1,550,228

154,338

9/11/98

30 years

Lynn Alexander Automotive Group

Fiesta Dodge Chrysler-Plymouth Jeep

Big Spring, TX

159,857

972,371

1,132,228

118,423

9/11/98

30 years

Lynn Alexander Automotive Group Total

2,828,369

6,927,412

9,755,781

843,671

Mark Miller Automotive Group

Mark Miller Toyota

Salt Lake City, UT

1,135,915

5,127,546

6,263,460

363,201

11/5/99

30 years

Mark Miller Automotive Group

Mark Miller Toyota-Used Cars

Salt Lake City, UT

3,078,497

1,434,963

4,513,460

101,643

11/5/99

30 years

Mark Miller Automotive Group

Mark Miller Pontiac

Salt Lake City, UT

3,439,460

1,549,000

4,988,460

109,721

11/5/99

30 years

Mark Miller Automotive Group

Undeveloped Lot Adjacent to Pontiac

Salt Lake City, UT

463,711

11/5/99

Mark Miller Automotive Group Total

8,117,582

8,111,509

16,229,091

574,565

McCluskey Chevrolet

McCluskey Chevrolet — 435 E. Galbraith

Cincinnati, OH

1,013,496

1,404,046

2,417,542

134,554

2/1/99

30 years

McCluskey Chevrolet

McCluskey Chevrolet —555 E. Galbraith

Cincinnati, OH

457,295

961,450

1,418,745

92,139

2/1/99

30 years

McCluskey Chevrolet

McCluskey Chevrolet — Reading Rd

Cincinnati, OH

515,525

1,201,554

1,717,078

115,149

2/1/99

30 years

McCluskey Chevrolet Total

1,986,316

3,567,050

5,553,366

341,842

Midwestern Auto Group

Dublin, OH

2,632,072

2,994,969

5,627,040

62,134

12/15/00

30 years

Midwestern Auto Group Total

2,632,072

2,994,969

5,627,040

62,134

Momentum Automotive Group

Momentum Jaguar/Porsche/Saab

Houston, TX

7,285,191

11,151,887

18,437,078

1,358,159

9/1/98

30 years

Momentum Automotive Group

Momentum Volvo

Houston, TX

1,385,877

3,282,423

4,668,299

399,758

9/1/98

30 years

Momentum Automotive Group

Momentum Paint & Body

Houston, TX

1,194,529

3,473,983

4,668,512

423,087

9/1/98

30 years

Momentum Automotive Group

Momentum Used Car Lot

Houston, TX

640,871

1,654,978

2,295,849

188,166

11/25/98

30 years

Momentum Automotive Group

Momentum BMW

Houston, TX

3,679,246

8,185,594

11,864,840

807,191

1/22/99

30 years

Momentum Automotive Group

Barney Garver Land Rover/VW

Houston, TX

1,065,719

1,455,407

2,521,126

127,348

5/17/99

30 years

Gross Amount at December 31, 2001

Building and

Accumulated

Date

Depreciation

Dealer Group Name

Dealership

Location

Land

Improvements

Total

Depreciation

Acquired

Life

Momentum Automotive Group

Momentum/Advantage BMW

League City, TX

1,665,071

1,856,924

3,521,995

90,267

7/27/00

30 years

Momentum Automotive Group

Momentum Volvo Parking Lot

Houston, TX

1,151,995

7/27/00

Momentum Automotive Group

Advantage BMW — Used

Houston, TX

2,154,689

571,686

2,726,375

7,146

8/28/01

30 years

Momentum Automotive Group Total

20,223,187

31,632,881

51,856,068

3,401,121

Motorcars Automotive Group

Motorcars Honda

Cleveland Heights, OH

818,578

4,279,543

5,098,121

503,884

10/28/98

30 years

Motorcars Automotive Group

Motorcars Oldsmobile-Pontiac

Cleveland Heights, OH

656,210

2,122,204

2,778,414

249,873

10/28/98

30 years

Motorcars Automotive Group Total

1,474,787

6,401,747

7,876,534

753,757

Nebco of Cleveland, Inc.

Toyota of Cleveland

Cleveland, TN

581,158

1,891,855

2,473,013

149,772

8/13/99

30 years

Nebco of Cleveland, Inc. Total

581,158

1,891,855

2,473,013

149,772

Noarus Auto Group

Airport Marina Ford

Los Angeles, CA

4,898,755

1,950,690

6,849,445

253,346

7/22/98

30 years

Noarus Auto Group Total

4,898,755

1,950,690

6,849,445

253,346

O’Rielly Motor Company

O’Rielly Chevrolet

Tucson, AZ

4,515,062

5,321,125

9,836,187

734,102

5/22/98

30 years

O’Rielly Motor Company Total

4,515,062

5,321,125

9,836,187

734,102

Orr Automotive Group

Orr BMW/Infiniti

Shreveport, LA

497,268

967,075

1,464,344

111,882

8/27/98

30 years

Orr Automotive Group

Orr Acura

Shreveport, LA

536,735

1,380,648

1,917,383

173,729

8/27/98

30 years

Orr Automotive Group

Orr Mitsubishi

Texarkana, TX

142,496

169,189

311,684

21,289

8/28/98

30 years

Orr Automotive Group

Orr Honda

Texarkana, TX

1,006,979

1,040,405

2,047,384

126,708

9/16/98

30 years

Orr Automotive Group

Performance Motors, Inc.

Atlanta, TX

459,509

2,571,824

3,031,333

217,891

6/30/99

30 years

Orr Automotive Group Total

2,642,987

6,129,141

8,772,128

651,500

Park Place Motorcars

Park Place Lexus

Plano, TX

7,318,505

6,483,194

13,801,699

789,571

9/28/98

30 years

Park Place Motorcars

PPM Specialists, Inc.

Dallas,TX

528,767

1,574,618

2,103,385

191,769

9/28/98

30 years

Park Place Motorcars

Park Place Motorcars Ltd.

Dallas,TX

6,373,615

13,932,975

20,306,590

1,293,952

1/8/99

30 years

Park Place Motorcars

Park Place Motorcars Mid-Cities

Bedford, TX

2,912,667

10,864,456

13,777,123

525,147

10/12/99

30 years

Park Place Motorcars Total

17,133,555

32,855,243

49,988,797

2,800,439

Pohanka Automotive Group

Good News Nissan

Salisbury, MD

220,415

230,757

451,172

34,633

2/27/98

30 years

Pohanka Automotive Group

Good News Body Shop

Salisbury, MD

1,122,544

166,184

1,288,728

32,198

2/27/98

20 years

Pohanka Automotive Group

Good News Olds-Cadillac-GMC

Salisbury, MD

634,419

197,652

832,071

29,664

2/27/98

30 years

Pohanka Automotive Group

Good News Honda

Salisbury, MD

428,563

159,768

588,331

23,978

2/27/98

30 years

Pohanka Automotive Group

Towne Toyota Mercedes-Benz

Salisbury, MD

406,556

163,715

570,271

24,571

2/27/98

30 years

Pohanka Automotive Group

Good News Mazda

Salisbury, MD

246,923

167,699

414,622

25,168

2/27/98

30 years

Pohanka Automotive Group

Pohanka Saturn, Isuzu, & Oldsmobile

Marlow Heights, MD

2,005,304

2,358,089

4,363,393

353,906

2/19/98

30 years

Pohanka Automotive Group

Pohanka Acura & Chevy

Chantilly, VA

3,367,127

4,308,211

7,675,338

646,584

2/19/98

30 years

Pohanka Automotive Group

Pohanka Saturn of Bowie

Bowie, MD

3,600,517

504,858

4,105,375

75,770

2/19/98

30 years

Pohanka Automotive Group

Pohanka Honda

Marlow Heights, MD

771,065

2,934,756

3,705,821

440,454

2/19/98

30 years

Pohanka Automotive Group

Pohanka Lexus

Chantilly, VA

2,017,383

1,422,902

3,440,285

213,552

2/19/98

30 years

Pohanka Automotive Group

Pohanka Cadillac/Hyundai/Nissan

Fredericksburg, VA

1,631,722

3,248,564

4,880,286

373,765

2/19/98

30 years

Pohanka Automotive Group

Pohanka Hyundai

Marlow Heights, MD

888,234

683,156

1,571,390

102,529

2/19/98

30 years

Pohanka Automotive Group

Pohanka Body Shop

Marlow Heights, MD

614,767

98,007

712,774

14,709

2/19/98

30 years

Pohanka Automotive Group

Pohanka Undeveloped Lot

Chantilly, VA

2,455,659

6,284

2,461,943

943

2/19/98

30 years

Pohanka Automotive Group Total

20,411,198

16,650,603

37,061,801

2,392,425

Priority Auto Group

Kline Undeveloped Lot

Chesapeake, VA

2,684,078

4,319,163

7,003,241

648,228

2/27/98

30 years

Priority Auto Group

Kline Toyota Greenbrier/ Kline

Chesapeake, VA

1,529,567

2/27/98

30 years

Priority Auto Group Total

4,213,645

4,319,163

8,532,807

648,228

Rosenthal Automotive Group

Rosenthal Infiniti-Mazda-Nissan

Tyson’s Corner, VA

19,396,815

4,446,289

23,843,104

667,307

2/19/98

30 years

Rosenthal Automotive Group

Rosenthal Nissan/Acura/Mazda/Isuzu

Gaithersburg, MD

6,810,506

4,998,589

11,809,095

750,198

2/19/98

30 years

Rosenthal Automotive Group

Rosenthal Honda/Jaguar

Tyson’s Corner, VA

7,959,348

1,856,371

9,815,719

278,609

2/19/98

30 years

Rosenthal Automotive Group

Rosenthal Honda (2-acre lot)

Tyson’s Corner, VA

1,322,023

311,358

1,633,381

46,729

2/19/98

30 years

Rosenthal Automotive Group

Rosenthal Chevrolet/Jeep/Eagle

Arlington, VA

2,964,623

1,054,998

4,019,621

120,891

2/19/98

30 years

Rosenthal Automotive Group

Rosenthal Chevrolet/Jeep/Eagle

Arlington, VA

2,044,650

728,438

2,773,088

146,770

2/19/98

30 years

Rosenthal Automotive Group

Rosenthal Mazda

Arlington, VA

4,317,933

433,571

4,751,504

65,071

2/19/98

30 years

Rosenthal Automotive Group

Rosenthal Mazda

Arlington, VA

556,743

59,680

616,423

8,957

2/19/98

30 years


			Gross Amount at December 31, 2001

					Building and				Accumulated		Date	Depreciation
Dealer Group Name	Dealership	Location	Land		Improvements		Total		Depreciation		Acquired	Life

Rosenthal Automotive Group	Rosenthal Storage Lot	Arlington, VA		4,894,106		15,114		4,909,220		2,268	2/19/98	30 years
Rosenthal Automotive Group	Rosenthal Body Shop	Tyson’s Corner, VA		665,989		419,089		1,085,078		62,898	2/19/98	30 years
Rosenthal Automotive Group Total				50,932,735		14,323,497		65,256,232		2,149,698

Roundtree Automotive Group	Champion Ford	Shreveport, LA		2,236,421		4,792,478		7,028,899		641,799	6/4/98	30 years
Roundtree Automotive Group	Roundtree Olds-Cadillac	Shreveport, LA		1,470,535		1,931,846		3,402,381		258,709	6/4/98	30 years
Roundtree Automotive Group	Roundtree Hyundai-Subaru	Shreveport, LA		364,792		251,726		616,518		44,577	6/4/98	20 years
Roundtree Automotive Group	Champion Mitsubishi	Shreveport, LA		876,554		1,286,720		2,163,274		153,069	6/4/98	30 years
Roundtree Automotive Group	Auto Trim Design (Roundtree)	Shreveport, LA		123,612		470,906		594,518		63,063	6/4/98	30 years
Roundtree Automotive Group	Roundtree-Car Central	Bossier City, LA		406,884		409,627		816,511		54,857	6/4/98	30 years
Roundtree Automotive Group Total				5,478,798		9,143,303		14,622,101		1,216,072

Saturn Retail Enterprises	Saturn of Plano	Plano, TX		2,331,099		2,139,854		4,470,953		199,125	3/25/99	30 years
Saturn Retail Enterprises	Saturn of Houston-Gulf Freeway	Houston, TX		2,094,123		2,469,920		4,564,043		229,840	3/25/99	30 years
Saturn Retail Enterprises	Saturn of the Avenues	Jacksonville, FL		1,154,281		2,116,261		3,270,543		196,930	3/25/99	30 years
Saturn Retail Enterprises	Saturn of Regency	Jacksonville, FL		860,346		1,678,422		2,538,768		118,888	11/15/99	30 years
Saturn Retail Enterprises	Saturn of Chattanooga	Chattanooga, TN		1,433,676		1,752,271		3,185,947		138,721	8/13/99	30 years
Saturn Retail Enterprises Total				7,873,526		10,156,728		18,030,254		883,505

Sheehy Auto Stores	Sheehy Ford of Springfield	Springfield, VA		4,221,356		2,107,330		6,328,686		316,272	2/19/98	30 years
Sheehy Auto Stores	Chapman Ford Sales	Philadelphia, PA		3,006,604		8,082		3,014,686		1,213	2/19/98	30 years
Sheehy Auto Stores	Sheehy Ford of Marlow Heights	Marlow Heights, MD		1,177,402		933,763		2,111,165		180,920	2/19/98	20 years
Sheehy Auto Stores Total				8,405,362		3,049,175		11,454,537		498,405

Sonic Automotive, Inc.	Lexus of Marin	San Rafael, CA		2,867,234		3,492,409		6,359,643		181,896	1/14/99	20 years
Sonic Automotive, Inc.	Kramer Honda	Santa Monica, CA		3,833,129		2,885,258		6,718,388		204,375	11/10/99	30 years
Sonic Automotive, Inc.	Kramer Volvo	Santa Monica, CA		2,562,559		353,329		2,915,888		25,027	11/10/99	30 years
Sonic Automotive, Inc.	Clearwater Toyota & Mitsubishi	Clearwater, FL		4,136,070		3,915,854		8,051,924		476,901	9/18/98	30 years
Sonic Automotive, Inc.	Clearwater Collision Center	Clearwater, FL		331,082		316,218		647,300		38,511	9/18/98	30 years
Sonic Automotive, Inc.	Town & Country Ford	Charlotte, NC		6,119,289		5,082,461		11,201,750		402,362	8/13/99	30 years
Sonic Automotive, Inc.	Town & Country Ford RAC	Charlotte, NC		520,786		557,672		1,078,458		44,149	8/13/99	30 years
Sonic Automotive, Inc.	Town & Country Toyota	Charlotte, NC		2,999,555		3,435,802		6,435,357		255,076	8/13/99	30 years
Sonic Automotive, Inc.	Infiniti of Charlotte	Charlotte, NC		1,913,965		2,760,055		4,674,020		205,136	8/13/99	30 years
Sonic Automotive, Inc.	Lake Norman Chrysler-Plymouth #1	Cornelius, NC		1,723,276		3,000,786		4,724,062		237,562	8/13/99	30 years
Sonic Automotive, Inc.	Lake Norman C/P Dodge Used Cars	Cornelius, NC		1,096,004		1,104,671		2,200,675		87,453	8/13/99	30 years
Sonic Automotive, Inc.	Lake Norman Dodge #1	Cornelius, NC		1,010,854		2,535,582		3,546,437		200,733	8/13/99	30 years
Sonic Automotive, Inc.	Lake Norman Dodge #2	Cornelius, NC		537,636		653,550		1,191,186		51,739	8/13/99	30 years
Sonic Automotive, Inc.	Fitzgerald Chevrolet (Freedom)	Monroe, NC		1,095,932		2,666,403		3,762,335		211,090	8/13/99	30 years
Sonic Automotive, Inc.	Westside Dodge	Columbus, OH		2,092,735		3,808,952		5,901,687		301,542	8/13/99	30 years
Sonic Automotive, Inc.	Toyota West	Columbus, OH		1,470,122		3,253,940		4,724,062		257,604	8/13/99	30 years
Sonic Automotive, Inc.	Hatfield Hyundai	Columbus, OH		2,125,937		2,598,124		4,724,062		205,685	8/13/99	30 years
Sonic Automotive, Inc.	Hatfield Lincoln-Mercury	Columbus, OH		1,331,040		1,626,584		2,957,624		128,771	8/13/99	30 years
Sonic Automotive, Inc.	Hatfield VW-Jeep West	Columbus, OH		1,331,040		1,626,584		2,957,624		128,771	8/13/99	30 years
Sonic Automotive, Inc.	Ron Craft Chrysler-Plymouth-Jeep	Baytown, TX		974,936		1,099,469		2,074,405		87,041	8/13/99	30 years
Sonic Automotive, Inc.	Reading Buick, Pontiac, GMC	Baytown, TX		500,776		1,442,373		1,943,149		114,188	8/13/99	30 years
Sonic Automotive, Inc.	Lute Riley Honda	Richardson, TX		6,843,575		4,773,825		11,617,400		377,928	8/13/99	30 years
Sonic Automotive, Inc.	Lone Star Ford	Houston, TX		4,985,549		6,215,450		11,201,000		492,056	8/13/99	30 years
Sonic Automotive, Inc.	Lone Star Nissan Olds	The Meadows, TX		3,013,604		3,266,078		6,279,682		258,565	8/13/99	30 years
Sonic Automotive, Inc.	Higginbotham Mercedes	Daytona Beach, FL		922,825		1,262,355		2,185,180		99,936	8/13/99	30 years
Sonic Automotive, Inc.	Fred Bondenson	Deland, FL		1,248,734		2,705,218		3,953,952		214,163	8/13/99	30 years
Sonic Automotive, Inc.	Halifax Ford Used Cars	Edgewater, FL		304,620		424,103		728,723		33,575	8/13/99	30 years
Sonic Automotive, Inc.	Halifax Ford-Mercury	New Smyrna, FL		1,443,980		2,392,446		3,836,427		189,402	8/13/99	30 years
Sonic Automotive, Inc.	Halifax Body Shop-Parcel 12	New Smyrna, FL		336,834		505,236		842,070		39,998	8/13/99	30 years
Sonic Automotive, Inc.	Higginbotham Chevrolet-Oldsmobile	New Smyrna, FL		1,354,320		6,571,096		7,925,416		510,525	8/13/99	30 years
Sonic Automotive, Inc.	HMC Finance Office Building	Port Orange, FL		426,576		202,295		628,870		16,015	8/13/99	30 years
Sonic Automotive, Inc.	Shottenkirk Honda	Pensacola, FL		943,985		1,750,263		2,694,248		133,701	9/1/99	30 years
Sonic Automotive, Inc.	Dyer & Dyer Volvo	Duluth, GA		3,291,271		1,515,620		4,806,891		119,987	8/13/99	30 years
Sonic Automotive, Inc.	Global BMW	Atlanta, GA		4,761,991		10,544,019		15,306,011		574,119	8/13/99	30 years
Sonic Automotive, Inc.	Infiniti of Chattanooga	Chattanooga, TN		1,327,613		2,313,330		3,640,944		161,199	8/13/99	30 years
Sonic Automotive, Inc.	Infiniti of Chattanooga #2	Chattanooga, TN		455,171		-		455,171		-	8/13/99

Gross Amount at December 31, 2001

Building and Accumulated Date Depreciation

Dealer Group Name Dealership Location Land Improvements Total Depreciation Acquired Life

Sonic Automotive, Inc. BMW-Volvo of Chattanooga Chattanooga, TN 934,434 2,220,041 3,154,476 152,181
8/13/99

30 years

Sonic Automotive, Inc. VW-Kia of Chattanooga Chattanooga, TN 592,846 724,346 1,317,192 57,344
8/13/99

30 years

Sonic Automotive, Inc. Town & Country Ford Cleveland Cleveland, TN 953,129 1,953,718 2,906,847 126,177
8/13/99

30 years

Sonic Automotive, Inc. Town & Country Ford Cleveland #2 Cleveland, TN 403,661 493,120 896,780 39,039
8/13/99

30 years

Sonic Automotive, Inc. Cleveland Village Honda Cleveland, TN 687,598 840,154 1,527,752 66,512
8/13/99

30 years

Sonic Automotive, Inc. Volkswagon of Nashville Nashville, TN 655,378 800,774 1,456,152 63,395
8/13/99

30 years

Sonic Automotive, Inc. Superior Olds-Cadillac-GMC Cleveland, TN 858,566 1,892,706 2,751,271 149,839
8/13/99

30 years

Sonic Automotive, Inc. Tom Williams Buick Birmingham, AL 1,488,027 2,000,315 3,488,342 158,358
8/13/99

30 years

Sonic Automotive, Inc. Manhattan Nissan Jeep-Eagle Waldorf, MD 1,827,322 2,063,909 3,891,231 163,393
8/13/99

30 years

Sonic Automotive, Inc. North Charleston North Charleston, SC 4,273,963 952,326 5,226,289 75,392
8/17/99

30 years

Sonic Automotive, Inc. Century BMW Greenville, SC 1,664,632 2,470,617 4,135,249 195,591
8/13/99

30 years

Sonic Automotive, Inc. Newsome Chevrolet World Columbia, SC 1,351,718 2,287,864 3,639,582 181,123
8/13/99

30 years

Sonic Automotive, Inc. Newsome Automotive LLC Florence, SC 1,300,237 4,002,699 5,302,937 316,880
8/13/99

30 years

Sonic Automotive, Inc. Fort Mill Ford Fort Mill, SC 1,405,770 3,318,291 4,724,062 262,698
8/13/99

30 years

Sonic Automotive, Inc. Heritage Lincoln-Mercury Greenville, SC 1,684,188 1,409,824 3,094,013 111,611
8/13/99

30 years

Sonic Automotive, Inc. Manhattan BMW of Fairfax Fairfax, VA 2,062,679 2,421,474 4,484,153 191,700
8/13/99

30 years

Sonic Automotive, Inc. Manhattan BMW of Fairfax-Storage Fairfax, VA 963,849 2,830,499 3,794,348 79,441
8/13/99

30 years

Sonic Automotive, Inc. Freeland-Mercedes Ft. Myers, FL 4,277,225 1,873,800 6,151,025 132,727
11/4/99

30 years

Sonic Automotive, Inc. Freeland-BMW Nissan Ft. Myers, FL 2,745,372 1,272,879 4,018,251 90,162
11/4/99

30 years

Sonic Automotive, Inc. Freeland-Honda Ft. Myers, FL 1,550,567 1,467,684 3,018,251 103,961
11/4/99

30 years

Sonic Automotive, Inc. Blount Strange Ford Lincoln Mercury Montgomery, AL 2,642,944 3,230,264 5,873,208 192,919
3/3/00

30 years

Sonic Automotive, Inc. Cobb Pontiac Cadillac Montgomery, AL 2,460,559 3,182,925 5,643,483 190,091
3/3/00

30 years

Sonic Automotive, Inc. Lake Norman Body Shop Cornelius, NC 999,449 3,797,984 4,797,433 163,524
9/15/00

30 years

Sonic Automotive, Inc. Fort Myers Raw Land (Parking Lot) Fort Myers, FL 836,830 306,162 1,142,991 13,182
9/15/00

30 years

Sonic Automotive, Inc. Pensacola Raw Land Parcel Pensacola, FL 382,789 104,064 486,853 4,451
9/20/00

30 years

Sonic Automotive, Inc. Capital Chevrolet Montgomery, AL 2,847,664 3,231,794 6,079,458 124,239
9/28/00

30 years

Sonic Automotive, Inc. Volvo of Dallas Carrollton, TX 1,760,053 4,676,768 6,436,821 188,370
10/6/00

30 years

Sonic Automotive, Inc. Baytown Auto Mall Baytown, TX 2,105,575 14,301,756 16,407,331 496,589
12/19/00

30 years

Sonic Automotive, Inc. Fort Mill Auto Mall Fort Mill, SC 1,371,061 9,924,174 11,295,235 344,589
12/19/00

30 years

Sonic Automotive, Inc. McKinney Toyota Fort Worth, TX 1,153,524 2,204,966 3,358,490 70,436
1/23/01

30 years

Sonic Automotive, Inc. Boyd Chevrolet Oklahoma City, OK 1,500,463 5,508,876 7,009,339 32,791
10/16/01

35 years

Sonic Automotive, Inc. Lawrence Marshall Chevrolet Jersey Village, TX 5,444,693 9,600,526 15,045,219 50,003
10/31/01

40 years

Sonic Automotive, Inc. Total 127,421,371 190,024,711 317,446,082 11,655,491

Spurr Automotive Group Spurr Chevrolet Oldsmobile, Inc. Brockport, NY 356,033 2,164,438 2,520,471 201,413
3/25/99

30 years

Spurr Automotive Group Spurr Chevrolet Oldsmobile, Inc. Brockport, NY 30,639 26,769 57,407 2,491
3/25/99

30 years

Spurr Automotive Group Total 386,672 2,191,207 2,577,879 203,904

Sterling Collision Centers, Inc. JSI Collision Center — Bedford Bedford, OH 73,602 1,398,430 1,472,031 110,709
8/13/99

30 years

Sterling Collision Centers, Inc. JSI Collision Center — CF Cuyahoga Falls, OH 432,246 1,334,192 1,766,438 105,624
8/13/99

30 years

Sterling Collision Centers, Inc. JSI Collision Center — CL Cleveland, OH 448,136 1,023,895 1,472,031 81,058
8/13/99

30 years

Sterling Collision Centers, Inc. Total 953,984 3,756,517 4,710,500 297,391

The Price Organization Price Buick-Pontiac Salisbury, MD 649,805 696,792 1,346,597 104,576
2/27/98

30 years

The Price Organization Total 649,805 696,792 1,346,597 104,576

Town & Country Automotive Town & Country Lincoln-Mercury, Middletown, CT 542,904 1,238,415 1,781,319 165,846
6/9/98

30 years

Town & Country Automotive Town & Country Buick, Pontiac-GMC, Middletown, CT 453,096 1,484,057 1,937,153 262,802
6/9/98

20 years

Town & Country Automotive Town & Country Chrysler/Jeep Middletown, CT 697,975 765,319 1,463,294 102,490
6/9/98

30 years

Town & Country Automotive Town & Country Super Used Car Middletown, CT 177,770 1,081,524 1,259,294 144,835
6/9/98

30 years

Town & Country Automotive Town & Country Mazda Ivorytown, CT 302,977 905,317 1,208,294 121,238
6/9/98

30 years

Town & Country Automotive Total 2,174,721 5,474,632 7,649,352 797,211

United Auto Group Kelley Buick Roswell Roswell, GA 2,956,057 3,061,851 6,017,908 397,658
7/23/98

30 years

United Auto Group Motorcars West North Olmstead, OH 1,974,998 3,187,807 5,162,804 375,340
10/28/98

30 years

United Auto Group Citrus Chrysler-Plymouth Dodge Dade City, FL 548,395 1,088,504 1,636,899 86,173
8/13/99

30 years

United Auto Group Citrus Chrysler Used Car Lot Dade City, FL 247,301 - 247,301 -
8/13/99

United Auto Group Total 5,726,751 7,338,161 13,064,913 859,171

Gross Amount at December 31, 2001

Building and Accumulated Date Depreciation

Dealer Group Name Dealership Location Land Improvements Total Depreciation Acquired Life

Warren Henry Automobiles, Inc. Warren Henry Jaguar/Volvo Miami, FL 2,560,916 2,430,812 4,991,727 305,873
8/27/98

30 years

Warren Henry Automobiles, Inc. Warren Henry Infiniti Miami, FL 3,279,263 2,562,606 5,841,869 322,457
8/27/98

30 years

Warren Henry Automobiles, Inc. Warren Henry Land Rover Miami, FL 958,959 913,176 1,872,135 114,906
8/27/98

30 years

Warren Henry Automobiles, Inc. Total 6,799,138 5,906,593 12,705,731 743,236

Total $ 508,555,559 $ 721,138,145 $ 1,229,693,704 $ 59,789,321

	(1)		For the period from October 20, 1997 (date of inception) to December 31, 1997.

	(2)		Minority interest represents income attributable to the units of the Partnership owned by limited partners (other than us) of the Partnership.

	(3)		During the third quarter of 2001, we converted the interest rate on $150 million of debt from fixed rate to variable rate. The conversion of the interest rate on the debt resulted in a significant modification of the debt.

			In accordance with accounting principles generally accepted in the United States (“GAAP”), the significant modification should be treated as an extinguishment of debt. As a result, we wrote off the remaining deferred loan fees relating to the debt and classified the write-off as an extraordinary item.

	(4)		Prior to 2002, Funds From Operations (“FFO”) was defined under the revised definition adopted in October 1999 by the National Association of Real Estate Investment Trusts (NAREIT) as net income (loss) before minority interest and extraordinary item (computed in accordance with GAAP) excluding gains (or losses) from sales of property, plus depreciation and amortization of assets unique to the real estate industry, and after adjustments for unconsolidated partnerships and joint ventures. In April 2002, NAREIT revised its FFO definition as income (loss) from continuing operations before minority interest and extraordinary item (computed in accordance with GAAP) plus income from discontinued operations (including minority interest) and excluding gains (or losses) from sales of property reported as income (loss) from continuing operations, plus depreciation and amortization of assets unique to the real estate industry, and after adjustments for unconsolidated partnerships and joint ventures.

	(5)		Adjusted funds from operations (“AFFO”) is FFO excluding straight-lined rents.

	(6)		2001 annual dividend represents first, second and third quarter dividends totaling $1.161 declared during 2001 and fourth quarter dividend totaling $0.389 declared on January 22, 2002.

	•		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.

	•		$192.3 million of proceeds received from borrowings on our revolving credit facilities;

	•		$83.3 million of proceeds received from mortgage debt incurred during the year;

	•		$61.3 million of proceeds received from our follow-on offering, net of costs, and

	•		the repayment of borrowings on our revolving credit facilities totaling $143.0 million;

	•		distributions made to shareholders and minority partners during the year totaling $49.7 million;

	•		payments of principal on outstanding mortgage debt totaling $17.1 million;

	•		payments made to purchase outstanding warrants to purchase common shares totaling $4.7 million;

	•		the redemption of Units totaling $1.0 million; and

	•		the repurchase of common shares pursuant to our Common Share Repurchase Program totaling $142,000.

	•		$80.1 million of proceeds received from mortgage debt incurred during the year;

	•		$60.4 million of proceeds received from borrowings on our revolving credit facilities; and

	•		$6.1 million of proceeds received from the issuance of other common shares, net of costs.

			to certain employees at a purchase price of $0.01 per share. On May 11, 2000, the Committee amended the vesting schedule on all PARS granted in 1999 and 2000 to eliminate the “performance accelerated” feature and to generally provide that all restricted shares vest on the third anniversary of the effective date of the grant.

	(2)		The restricted shares were granted at a purchase price of $0.01 per share. The restricted shares vest on the third anniversary from the effective date of the grant.

	(3)		The restricted shares were granted at a purchase price of $0.01 per share. The restricted shares vest as follows: Approximately 61,000 restricted shares granted to executive officers vest after 5 years; and 50% of approximately 16,000 restricted shares granted to other employees vest after 3 years and the remaining 50% vest after 5 years.

	(4)		The restricted shares were granted at a purchase price of $0.01 per share. 50% of the restricted shares vest after 3 years and the remaining 50% vest after 5 years.

	(5)		At the date of grant, both the number of the common shares and price to be paid by the employee was known, and the measurement date therefore coincided with the date of grant. The compensation expense was measured by the difference between the purchase price of the PARS or restricted shares, which equaled $0.01 per share, and the market price of the common shares on the date of the grant. The compensation expense and corresponding offset to shareholders’ equity is recognized ratably over the vesting period, which is generally three to five years from the effective date of the grant, except as noted below. For the May 7, 1999 grant, the compensation was initially recognized over the initial vesting period of seven years beginning on the effective date. When the vesting for one half of the PARS was reduced to three years on January 17, 2000, a cumulative adjustment totaling $37,000 was recorded to compensation expense during the fourth quarter of 1999 to properly reflect the revised vesting schedule for one half of the PARS to three years from the effective date. For the May 7, 1999 and January 17, 2000 grants, when the vesting schedule for the remaining one half of the PARS granted in 1999 and 2000 was reduced from seven years to three years on May 11, 2000, a cumulative adjustment totaling $57,000 was recorded to compensation expense during the second quarter of 2000.

	(1)		Included in the total bonuses deferred in 1999 was 100% of the Chief Executive Officer’s annual bonus, which deferral was approved by the Committee. Included in the total bonuses deferred in 2000 and 2001 was 100% of the Chief Executive Officer’s and another executive officer’s annual bonuses, which deferral was approved by the Committee.

	(2)		The compensation expense related to the phantom shares is measured by the difference between the purchase price of the phantom shares and the market price of the common shares on the date of grant. The compensation expense is recognized ratably over the vesting period, which is generally three years from the date of grant, and is included as an offset to shareholders’ equity.