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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended March 31, 2001
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
---------------- ----------------
COMMISSION FILE NUMBER 000-23733
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CAPITAL AUTOMOTIVE REIT
(Exact name of registrant as specified in its charter)
Maryland 54-1870224
(State of organization) (I.R.S. Employer Identification Number)
1420 Spring Hill Road, Suite 525, McLean, Virginia 22102
(Address of principal executive offices and zip code)
(703) 288-3075
(Registrant's telephone Number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Number of common shares of beneficial interest outstanding as of April 30, 2001
was 21,655,202.
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CAPITAL AUTOMOTIVE REIT
FORM 10-Q
INDEX
Page No.
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Part I - Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets - March 31, 2001 (unaudited) and
December 31, 2000. 3
Consolidated Statements of Operations (unaudited) - three months
ended March 31, 2001 and March 31, 2000. 4
Consolidated Statements of Cash Flows (unaudited) - three months
ended March 31, 2001 and March 31, 2000. 5
Notes to Consolidated Financial Statements (unaudited) 6 - 11
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 12 - 19
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 19
Part II - Other Information
Item 1 - Legal Proceedings 20
Item 2 - Changes in Securities 20
Item 3 - Defaults Upon Senior Securities 20
Item 4 - Submission of Matters to Vote to Security Holders 20
Item 5 - Other Information 20
Item 6 - Exhibits and Reports on Form 8-K 20
Signatures 21
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CAPITAL AUTOMOTIVE REIT
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31,
2001 2000
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(UNAUDITED)
ASSETS
Real estate:
Land $ 453,685 $ 446,418
Buildings and improvements 603,178 591,452
Accumulated depreciation (43,633) (38,644)
--------------------- ---------------------
1,013,230 999,226
Cash and cash equivalents 900 6,298
Other assets, net 17,060 16,065
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TOTAL ASSETS $ 1,031,190 $ 1,021,589
===================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Mortgage loans $ 568,178 $ 571,519
Borrowings under credit facilities 29,402 14,200
Accounts payable and accrued expenses 5,649 24,254
Security deposits payable 6,075 5,855
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TOTAL LIABILITIES 609,304 615,828
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Minority Interest 118,471 115,728
SHAREHOLDERS' EQUITY
Preferred shares, $.01 par value; 20,000,000 shares authorized;
none outstanding - -
Common shares, $.01 par value; 100,000,000 shares authorized;
21,653,622 shares issued and outstanding at March 31, 2001 and
21,185,240 shares issued and outstanding at December 31, 2000 217 212
Additional paid-in-capital 314,343 307,715
Accumulated deficit (11,145) (17,894)
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TOTAL SHAREHOLDERS' EQUITY 303,415 290,033
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,031,190 $ 1,021,589
===================== =====================
See accompanying Notes to Consolidated Financial Statements.
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CAPITAL AUTOMOTIVE REIT
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
MARCH 31,
2001 2000
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Revenue:
Rental $ 27,999 $ 24,718
Interest and other 61 457
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Total revenue 28,060 25,175
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Expenses:
Depreciation and amortization 5,035 4,311
General and administrative 1,719 1,665
Interest 11,874 10,247
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Total expenses 18,628 16,223
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Net income before minority interest 9,432 8,952
Minority interest (2,624) (2,559)
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Net income $ 6,808 $ 6,393
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Shares of common stock outstanding used to
compute basic earnings per share 21,485 21,070
=================== ====================
Basic earnings per share $ 0.32 $ 0.30
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Shares of common stock outstanding used to
compute diluted earnings per share 21,862 21,148
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Diluted earnings per share $ 0.31 $ 0.30
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See accompanying Notes to Consolidated Financial Statements.
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CAPITAL AUTOMOTIVE REIT
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED MARCH 31,
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,808 $ 6,393
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,394 4,597
Income applicable to minority interest 2,624 2,559
Increase in other assets (1,393) (90)
Decrease in accounts payable and accrued expenses (6,993) (5,630)
Increase (decrease) in security deposits payable 220 (422)
-------------------- --------------------
Net cash provided by operating activities 6,660 7,407
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment, net of disposals (8) (3)
Real estate acquisitions, net of sales (18,482) (8,342)
-------------------- --------------------
Net cash used in investing activities (18,490) (8,345)
-------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under credit facilities 39,800 8,600
Proceeds from mortgage loans 661 8,400
Repayment of borrowings under credit facilities (24,598) -
Mortgage principal payments (4,002) (2,691)
Payment of cash dividend (8,175) (7,779)
Payment of partner distribution (3,255) (2,996)
Repurchase of common shares (142) (9,863)
Issuance of common shares, net of fees 6,143 -
-------------------- --------------------
Net cash provided by (used in) financing activities 6,432 (6,329)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (5,398) (7,267)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,298 11,886
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 900 $ 4,619
==================== ====================
SUPPLEMENTAL DATA:
Real estate acquisitions in exchange for equity issuance $ 512 $ -
==================== ====================
Interest paid during the period $ 17,375 $ 14,920
==================== ====================
See accompanying Notes to Consolidated Financial Statements.
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CAPITAL AUTOMOTIVE REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
Capital Automotive REIT (the "Company") is a Maryland real estate investment
trust formed in October 1997. The Company owns interests in real estate through
Capital Automotive L.P. (the "Operating Partnership") and its subsidiaries. The
Company is the sole general partner of the Operating Partnership, and as of
March 31, 2001 owned approximately 71.9% of the units of limited partnership
interest in the Operating Partnership ("Units"). The Company completed its
initial public offering of common shares and began generating rental income in
February 1998. References to "we," "us" and "our" refer to the Company or, if
the context otherwise requires, the Operating Partnership and our business and
operations conducted through the Operating Partnership and/or the Company's and
the Operating Partnership's directly and indirectly owned subsidiaries.
Our primary business strategy is to invest in real estate (land, buildings and
other improvements) and at the same time enter into long-term, triple-net leases
with operators of franchised automobile dealerships, motor vehicle service,
repair or parts businesses and related businesses. We focus on acquiring real
estate used by multi-site, multi-franchised dealerships located primarily in
major metropolitan areas throughout the United States. In addition, we also
provide facility improvement and expansion funding, construction financing and
takeout commitments in certain situations. 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 operator of
dealerships to refer to the related persons and companies that lease our
properties.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
by our management in accordance with U.S. generally accepted accounting
principles ("GAAP") for interim financial information and in conformity with the
rules and regulations of the Securities and Exchange Commission. Accordingly,
they do not include all of the information and footnotes required by GAAP for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. The results of operations for the three months
ended March 31, 2001, are not necessarily indicative of the results that may be
expected for the full year. These financial statements should be read in
conjunction with our audited consolidated financial statements and footnotes
thereto, included in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements have been prepared in
accordance with GAAP and include our accounts, net of minority interest as
defined in Note 7 herein. All intercompany balances and transactions have been
eliminated in consolidation.
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Real Estate and Depreciation
Real estate assets are recorded at cost. External acquisition costs directly
related to each property are capitalized as a cost of the respective property.
The cost of real estate properties acquired is allocated between land and
buildings based upon estimated market values at the time of acquisition.
Depreciation is computed using the straight-line method over an estimated useful
life of 20 to 30 years for the buildings and improvements.
Cash and Cash Equivalents
Cash and cash equivalents are comprised of highly liquid instruments purchased
with original maturities of three months or less.
Deferred Loan Costs
Certain costs incurred in connection with obtaining our revolving secured credit
facilities and issuance of mortgage notes through March 31, 2001 are capitalized
and generally amortized over the terms of the respective credit facilities or
notes on a straight-line basis (which approximates the effective interest
method).
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. 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 that typically
require the tenants to pay substantially all expenses associated with the
operations of the real estate, including, but not limited to, taxes, assessments
and other government charges, insurance, utilities, service, repairs,
maintenance and other expenses. All leases are accounted for as operating
leases. Rental income attributable to leases is recorded when due from tenants.
Certain of the leases provide for fixed minimum escalators, which are recognized
on a straight-line basis over the initial term of the lease. Straight-lined
rents are included in other assets.
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.
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3. ACQUISITIONS
During the three months ended March 31, 2001, we completed approximately $19.0
million of acquisitions, which included four dealership properties that are
leased to existing tenants. Consideration for the properties consisted of
approximately 37,000 Units (valued at approximately $512,000 at the time of the
acquisition) and the remainder from a combination of funds drawn down on the
Company's short-term credit facilities and cash on hand. We anticipate that the
funds drawn down on the Company's short-term credit facilities will be replaced
with permanent financing within the next six months. The properties acquired
added approximately 132,000 square feet of buildings and improvements on
approximately 103 acres of land and are located in four states (Louisiana, New
Jersey, Texas and Virginia). These properties have initial lease terms ranging
from 15 to 20 years (with a weighted average initial lease term of 17.4 years),
and have renewal options exercisable at the option of the tenant (ranging from a
total of 10 to 30 years).
As of March 31, 2001, we owned 248 dealership properties, representing 370
automotive franchises, with a total investment of approximately $1.06 billion.
These properties total approximately 9.0 million square feet of buildings and
improvements on approximately 1,621 acres of land and are located in 27 states.
The initial lease terms generally range from 10 to 20 years, with a weighted
average initial lease term of approximately 13.7 years, and have options to
renew under the same terms and conditions for one or more additional periods of
five to 10 years exercisable at the option of the tenant (ranging from a total
of five to 40 years).
4. EARNINGS PER SHARE
Basic earnings per share is computed as net income divided by the weighted
average common shares outstanding for the period. Diluted earnings per share is
computed as net income divided by the weighted average common shares outstanding
for the period plus the effect of dilutive common equivalent shares outstanding
for the period, based on the treasury stock method. Dilutive common equivalent
shares include restricted shares, restricted phantom shares, options and
warrants. The impact of dilution of common equivalent shares for the three
months ended March 31, 2001 and March 31, 2000 was approximately 377,000 and
78,000, respectively.
5. MORTGAGE LOANS AND CREDIT FACILITIES
As of March 31, 2001, we had total debt outstanding of $597.6 million. Of this
debt, approximately $568.2 million (consisting of $478.9 million of fixed rate
indebtedness and $89.3 million of variable rate indebtedness) was mortgage
indebtedness secured by approximately 210 of our dealership properties. In
addition, we had $29.4 million outstanding on our revolving credit facilities.
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The following is a summary of our total debt outstanding as of March 31, 2001
and December 31, 2000 (dollars in thousands):
PRINCIPAL PRINCIPAL BALANCE EFFECTIVE TERM/
ORIGINAL BALANCE AS OF AS OF DECEMBER INTEREST AMORTIZATION
DESCRIPTION OF DEBT DEBT ISSUED MARCH 31, 2001 31, 2000 RATE* SCHEDULE
7.59% fixed rate debt due 12/1/08 $ 38,050 $ 36,798 $ 37,103 7.99% 10 yr/17 yr
7.635% fixed rate debt due 10/1/14 111,950 102,686 103,749 7.93% 15 yr/15 yr
8.05% fixed rate debt due 10/1/14 85,000 80,752 81,560 8.32% 15 yr/15 yr
7.54% fixed rate debt due 7/6/11 100,000 97,315 98,093 7.71% 12 yr/25 yr
8.03% fixed rate debt due 9/29/11 150,000 150,000 150,000 8.08% 12 yr/25 yr (4)
7.50% fixed rate debt due 1/20/03 12,000 11,342 11,421 7.75% 4.25 yr/20 yr
------------- ----------------- -----------------
Total Mortgage Fixed Rate Debt $ 497,000 $ 478,893 $ 481,926 8.00%
10 to 12 yr/25 to
30 yr, level
Various variable rate debt (1) 90,762 89,285 89,593 8.76% principal
------------- ----------------- -----------------
TOTAL MORTGAGE DEBT $ 587,762 $ 568,178 $ 571,519 8.12%
$50 million revolving partially secured
facility (2) 20,900 14,198 8.23% 3 yr
$100 million revolving secured facility (3) 8,502 2 8.22% 1 yr
----------------- -----------------
TOTAL CREDIT FACILITIES $ 29,402 $ 14,200 8.23%
----------------- -----------------
TOTAL DEBT OUTSTANDING $ 597,580 $ 585,719 8.12%
================= ================= =====
* Includes deferred loan fees amortized over the life of the loans.
(1) 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.
(2) This facility bears interest equal to the 30-day LIBOR rate plus 175
basis points and requires the repayment of secured borrowings within
12 months and unsecured borrowings within 150 days. The facility
matures on March 3, 2002.
(3) This facility bears interest equal to the 30-day LIBOR rate plus 225
basis points and requires the repayment of principal within 150 days.
The facility has a one-year term, which terminates on March 21, 2002,
and is renewable annually.
(4) Payments are interest only until January 2002.
As of March 31, 2001, we were in compliance with all of the loan covenants
related to our mortgage indebtedness and credit facilities.
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Aggregate annual principal maturities (which includes principal amortization) of
mortgage indebtedness as of March 31, 2001 are as follows (in thousands):
FOR THE YEAR ENDED DECEMBER 31,
2001...................... $ 9,307
2002.................................. 16,910
2003.................................. 28,410
2004.................................. 18,694
2005.................................. 20,031
Thereafter............................ 474,826
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Total................................. $ 568,178
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6. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement was originally effective for
all fiscal quarters of fiscal years beginning after June 15, 1999; however,
during the second quarter of 1999 the FASB 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. The adoption of SFAS No.
133 and its related amendments has not had a significant impact on our
consolidated financial position, results of operations or cash flows as we
currently do not maintain any derivative instruments.
7. MINORITY INTEREST
Minority interest is calculated at approximately 28.1% of the Operating
Partnership's partners' capital as of March 31, 2001 and approximately 27.8% of
the Operating Partnership's partners' net income for the three months ended
March 31, 2001. The ownership of the Operating Partnership as of March 31, 2001
is as follows (Units in thousands):
Units Percent
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Partners' capital:
Limited Partners 8,454.8 28.1%
The Company 21,653.6 71.9%
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Total 30,108.4 100.0%
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8. 401(K) PLAN
During 1998, we adopted the Capital Automotive L.P. Employee 401(k) Plan (the
"401(k) Plan"). Employees who are at least 21 years of age are eligible to
participate in the 401(k) Plan after three months
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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 at the discretion of
our management. These contributions will vest ratably over five years from each
employee's date of service. During December 2000, we approved a 20% match of the
participant's elected deferral contribution during 2001 (subject to maximum
limits).
9. SUBSEQUENT EVENTS
Declaration of Dividend
On April 17, 2001, our Board of Trustees declared a cash dividend of $0.3860 per
share, which will be paid on May 18, 2001 to shareholders of record as of May
10, 2001.
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CAPITAL AUTOMOTIVE REIT
ITEM II - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - THREE MONTHS ENDED
MARCH 31, 2001 AND MARCH 31, 2000
The following discussion should be read in conjunction with the accompanying
unaudited consolidated financial statements and notes thereto.
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Also,
documents that we subsequently file with the Securities and Exchange Commission
will contain forward-looking statements. When we refer to forward-looking
statements or information, sometimes we use words such as "may," "will,"
"could," "should," "plans," "intends," "expects," "believes," "estimates,"
"anticipates" and "continues." In particular, Item II and Item III of Part I of
this Form 10-Q describe forward-looking information. The statements made herein
are not all inclusive, particularly with respect to possible future events, and
should be read together with other filings made by the Company under the
Securities Act and the Exchange Act, including the risks and other risk factors
contained in the Company's Form 8-K/A filed on January 19, 2001. Other parts of
this Form 10-Q may also describe forward-looking information. Many things can
happen that can cause our actual results to be very different than those
described. These factors include:
- risks that our growth will be limited if we cannot obtain additional
capital;
- risks of financing, such as the ability to meet existing financial
covenants and our ability to consummate additional financings on
terms that are acceptable to us;
- risks that the Company's tenants will not pay rent or that the
Company's operating costs will be higher than expected;
- risks that additional acquisitions may not be consummated;
- 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 manufacturer's production, inventory, marketing
or other practices;
- environmental and other risks associated with the acquisition and
leasing of automotive properties; and
- risks related to the Company's status as a REIT for federal income
tax purposes, such as the existence of complex regulations relating
to the Company's status as a REIT, the effect of future changes in
REIT requirements as a result of new legislation and the adverse
consequences of a 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.
OVERVIEW
Our primary business strategy is to invest in real estate (land, buildings and
other improvements) and at the same time enter into long-term, triple-net leases
with operators of franchised automobile dealerships, motor vehicle service,
repair or parts businesses and related businesses. We focus on acquiring real
estate used by multi-site, multi-franchised dealerships located primarily in
major metropolitan areas throughout the United States. In addition, we also
provide facility improvement and expansion funding, construction
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financing and takeout commitments in certain situations. As of March 31, 2001,
we owned 248 dealership properties, representing 370 automotive franchises, with
a total investment of approximately $1.06 billion. These properties total
approximately 9.0 million square feet of buildings and improvements on
approximately 1,621 acres of land and are located in 27 states.
Substantially all of our properties are leased pursuant to long-term, triple-net
leases, under which the tenants typically pay substantially all operating
expenses of a property, including, but not limited to, taxes, assessments and
other government charges, insurance, utilities, service, repairs, maintenance
and other expenses. The initial lease terms generally range from 10 to 20 years,
with a weighted average initial lease term of approximately 13.7 years, and have
options to renew under the same terms and conditions for one or more additional
periods of five to 10 years 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 40-year period for tax purposes and a 20-year to
30-year period for financial reporting purposes. We do not own or lease any
significant personal property, furniture or equipment at any property we
currently own.
FIRST QUARTER ACQUISITIONS
During the three months ended March 31, 2001, we completed approximately $19.0
million of acquisitions, which included four dealership properties that are
leased to existing tenants. Consideration for the properties consisted of
approximately 37,000 Units (valued at approximately $512,000 at the time of the
acquisition) and the remainder from a combination of funds drawn down on the
Company's short-term credit facilities and cash on hand. We anticipate that the
funds drawn down on the Company's short-term credit facilities will be replaced
with permanent financing within the next six months. The properties acquired
added approximately 132,000 square feet of buildings and improvements on
approximately 103 acres of land and are located in four states (Louisiana, New
Jersey, Texas and Virginia). These properties have initial lease terms ranging
from 15 to 20 years (with a weighted average initial lease term of 17.4 years),
and have renewal options exercisable at the option of the tenant (ranging from a
total of 10 to 30 years).
RESULTS OF OPERATIONS
Rental revenue for the three months ended March 31, 2001 increased 13% to $28.0
million, as compared to $24.7 million for the same quarter in 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 248 properties as of March 31, 2001 versus 230 properties as of March
31, 2000. In addition, included in rental revenue for the three months ended
March 31, 2001 were straight-lined rents totaling $779,000, as compared to
straight-lined rents of $510,000 for the three months ended March 31, 2000.
Interest and other income for the three months ended March 31, 2001 decreased
87% to $61,000 from $457,000 for the same quarter in 2000. The decrease was the
result of no property dispositions in the first quarter of 2001 versus total
gain on the sale of properties of $294,000 in the same period of 2000, as well
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as a decrease in interest earned on temporary investments.
Depreciation and amortization for the three months ended March 31, 2001
increased 17% to $5.0 million from $4.3 million for the same quarter in 2000.
Depreciation and amortization consisted primarily of depreciation on buildings
and improvements owned during those periods. The increase is attributable to the
growth of our real estate portfolio, resulting in an increase in our depreciable
assets.
General and administrative expenses for the three months ended March 31, 2001
increased 3% to $1.72 million, as compared to $1.67 million for the same quarter
in 2000. The increase in general and administrative expenses was primarily due
to: (1) an increase in payroll and related expenses attributable to the issuance
of additional stock based compensation awarded to employees; (2) an increase in
state income taxes due to the growth in our real estate portfolio during 1999
and 2000; and (3) additional costs associated with our marketing and investor
relations program.
Interest expense for the three months ended March 31, 2001 increased 16% to
$11.9 million, as compared to $10.2 million for the same quarter in 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 to finance the acquisition of properties. Debt outstanding as of March
31, 2001 was approximately $597.6 million (consisting of approximately $568.2
million of mortgage debt and approximately $29.4 million of borrowings under our
credit facilities) compared to approximately $515.8 million (consisting of
approximately $515.8 million of mortgage debt and no borrowings under our credit
facilities) as of March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $900,000 and $4.6 million at March 31, 2001 and
March 31, 2000, respectively. The changes in cash and cash equivalents during
the three months ended March 31, 2001 and 2000 were attributable to operating,
investing and financing activities, as described below.
Operating Activities
Cash provided by operating activities for the three months ended March 31, 2001
and March 31, 2000 was $6.7 million and $7.4 million, respectively, and
represents, in both years, cash received primarily from rents under long-term,
triple-net leases, plus interest and other income, less normal recurring general
and administrative expenses and interest payments on debt outstanding.
Investing Activities
Cash used in investing activities for the three months ended March 31, 2001 and
March 31, 2000 was $18.5 million and $8.3 million, respectively, and primarily
reflects the acquisition of dealership properties and facility improvements and
expansions, net of sales, during those periods.
Financing Activities
Cash provided by financing activities for the three months ended March 31, 2001
was $6.4 million and cash used in financing activities for the three months
ended March 31, 2000 was $6.3 million.
Cash provided by financing activities for the three months ended March 31, 2001
primarily reflects:
- $39.8 million of proceeds received from borrowings on our short-term
credit facilities;
- $661,000 of proceeds received from long-term mortgage loans closed
during the quarter; and
- $6.1 million of proceeds received from the issuance of common
shares, net of fees.
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The cash provided by financing activities was partially offset by:
- the repayment of borrowings on our short-term credit facilities
totaling $24.6 million;
- payments of principal on outstanding long-term mortgage loans
totaling $4.0 million;
- distributions made to shareholders and limited partners during the
quarter totaling $11.4 million; and
- the repurchase of common shares totaling $142,000.
Cash used in financing activities for the three months ended March 31, 2000
primarily reflects:
- payments of principal on outstanding long-term mortgage loans
totaling $2.7 million;
- distributions made to shareholders and limited partners during the
quarter totaling $10.8 million; and
- the repurchase of common shares totaling $9.9 million.
The cash used in financing activities was partially offset by:
- $8.6 million of proceeds received from borrowings on our short-term
credit facilities; and
- $8.4 million of proceeds received from long-term mortgage loans
closed during the quarter.
Mortgage Indebtedness and Credit Facilities
As of March 31, 2001, we had total debt outstanding of $597.6 million. Of this
debt, approximately $568.2 million (consisting of $478.9 million of fixed rate
indebtedness and $89.3 million of variable rate indebtedness) was mortgage
indebtedness secured by approximately 210 of our dealership properties. In
addition, we had $29.4 million outstanding on our revolving credit facilities.
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The following is a summary of our total debt outstanding as of March 31, 2001
and December 31, 2000 (dollars in thousands):
PRINCIPAL PRINCIPAL BALANCE EFFECTIVE TERM/
ORIGINAL BALANCE AS OF AS OF DECEMBER INTEREST AMORTIZATION
DESCRIPTION OF DEBT DEBT ISSUED MARCH 31, 2001 31, 2000 RATE* SCHEDULE
7.59% fixed rate debt due 12/1/08 $ 38,050 $ 36,798 $ 37,103 7.99% 10 yr/17 yr
7.635% fixed rate debt due 10/1/14 111,950 102,686 103,749 7.93% 15 yr/15 yr
8.05% fixed rate debt due 10/1/14 85,000 80,752 81,560 8.32% 15 yr/15 yr
7.54% fixed rate debt due 7/6/11 100,000 97,315 98,093 7.71% 12 yr/25 yr
8.03% fixed rate debt due 9/29/11 150,000 150,000 150,000 8.08% 12 yr/25 yr (4)
7.50% fixed rate debt due 1/20/03 12,000 11,342 11,421 7.75% 4.25 yr/20 yr
------------- ----------------- -----------------
Total Mortgage Fixed Rate Debt $ 497,000 $ 478,893 $ 481,926 8.00%
10 to 12 yr/25 to
30 yr, level
Various variable rate debt (1) 90,762 89,285 89,593 8.76% principal
------------- ----------------- -----------------
TOTAL MORTGAGE DEBT $ 587,762 $ 568,178 $ 571,519 8.12%
$50 million revolving partially secured
facility (2) 20,900 14,198 8.23% 3 yr
$100 million revolving secured facility (3) 8,502 2 8.22% 1 yr
----------------- -----------------
TOTAL CREDIT FACILITIES $ 29,402 $ 14,200 8.23%
----------------- -----------------
TOTAL DEBT OUTSTANDING $ 597,580 $ 585,719 8.12%
================ ================= =====
* Includes deferred loan fees amortized over the life of the loans.
(1) 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.
(2) This facility bears interest equal to the 30-day LIBOR rate plus 175
basis points and requires the repayment of secured borrowings within
12 months and unsecured borrowings within 150 days. The facility
matures on March 3, 2002.
(3) This facility bears interest equal to the 30-day LIBOR rate plus 225
basis points and requires the repayment of principal within 150 days.
The facility has a one-year term, which terminates on March 21, 2002,
and is renewable annually.
(4) Payments are interest only until January 2002.
As of March 31, 2001, we were in compliance with all of the loan covenants
related to our mortgage indebtedness and credit facilities.
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 and facility
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improvements and expansions. We expect to meet these requirements (other than
amounts required for additional property acquisitions and facility improvements
and expansions) through cash provided by operating and financing activities. We
anticipate that any additional acquisition of properties or facility
improvements and expansions during the next 12 months will be funded with
amounts available under our existing credit facilities, future long-term secured
and unsecured debt and the issuance of common or preferred equity or Units.
Acquisitions of property and facility improvements and expansions will be made
subject to our investment objectives and policies with the intention of
maximizing both current income and long-term growth in income.
As of March 31, 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 acquisition of properties
and facility improvements and expansions. 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.
Our liquidity requirements with respect to future acquisitions of properties and
facility improvements and expansions may be reduced to the extent that we use
Units as consideration for such purchases.
We offer our tenants the option of utilizing our variable rate lease program.
Under this program, base rent payments change monthly based upon a fixed spread
over an applicable index, generally LIBOR. In addition, the rent is adjusted
upward periodically based on a factor of the change in the consumer price index
("CPI"). The tenant has the ability to fix the base rent during the initial
lease term. The fixed base rent typically continues to be adjusted upward
periodically based on a factor of the change in the CPI. Such leases generally
are or will be financed with long-term, variable rate debt thereby fixing our
investment spread. As of March 31, 2001, approximately $84.7 million of our
total portfolio utilized the variable rate lease program.
We have adopted a policy to limit debt to approximately 65% of our assets
(calculated as total assets plus accumulated depreciation). As of March 31,
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 generally match the term of the lease with
that of the debt as well as the type of lease with the type of debt (fixed or
variable) in order to maintain an investment spread over the lease term
("match-funding"). We currently intend to substantially match-fund at least 85%
of our total outstanding long-term debt with long-term leases. Approximately 88%
of our debt outstanding as of March 31, 2001 is substantially match-funded,
non-recourse debt. We may change the 85% target at any time without shareholder
approval.
In light of our current balance sheet position, we believe that we are able to
obtain additional financing for our short-term and long-term capital needs
without exceeding our debt to asset ratio policy. 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 our management. During the
three months ended March 31, 2001, we repurchased 10,000 common shares at an
average price of $14.19 per common share. From the inception of the share
repurchase program through March 31, 2001, a total of 4,094,700 shares have been
repurchased at an average price of $10.62 per share. In conjunction with the
common share repurchases, the Operating 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
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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 determined from time to time by the
Company, to fulfill the requirements for the DRIP. For the three months ended
March 31, 2001, we issued approximately 443,000 common shares under the DRIP and
received approximately $6.2 million in proceeds.
FUNDS FROM OPERATIONS
Funds From Operations ("FFO") is defined under the revised definition adopted in
October 1999 by the National Association of Real Estate Investment Trusts
(NAREIT) as net income (loss) before minority interest (computed in accordance
with generally accepted accounting principles) 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.
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 generally accepted
accounting principles (which, unlike FFO, generally reflects all cash effects of
transactions and other events in the determination of net income) and should not
be considered an alternative to net income as an indication of our performance
or to cash flow as a measure of liquidity or ability to make distributions. We
consider FFO a meaningful, additional measure of operating performance because
it primarily excludes the assumption that the value of the real estate assets
diminishes predictably over time, and because industry analysts have accepted it
as a performance measure. Comparison of our presentation of FFO, using the
NAREIT definition, to similarly titled measures for other REITs may not
necessarily be meaningful due to possible differences in the application of the
NAREIT definition used by such REITs.
FFO for the three months ended March 31, 2001 and March 31, 2000 is computed as
follows (in thousands):
Three Months Ended
March 31,
------------- --------------
2001 2000
---- ----
Net Income before Minority Interest $ 9,432 $ 8,952
Real Estate Depreciation and Amortization 5,016 4,287
Gain on Sale of Assets - (294)
---------- ----------
Funds From Operations $ 14,448 $ 12,945
========== ==========
Weighted Average Number of Common Shares and Units Used
to Compute Basic FFO per Share 29,946 29,392
========== ==========
Weighted Average Number of Common Shares and Units Used
to Compute Fully Diluted FFO per Share 30,323 29,469
========== ==========
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ITEM III. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain financial market risks, the most predominant being
fluctuations in interest rates. Interest rate fluctuations are monitored by our
management as an integral part of our overall risk management program, which
recognizes the unpredictability of financial markets and seeks to reduce the
potentially adverse effect on our results of operations.
Since December 31, 2000, there have been no material changes in the information
regarding market risk that was provided in the Company's Annual Report on Form
10-K for the year ended December 31, 2000.
During the three months ended March 31, 2001, our fixed-rate debt decreased from
$481.9 million at December 31, 2000 to $478.9 million as of March 31, 2001.
Interest rate fluctuations may affect the fair value of our fixed rate debt
instruments. If interest rates on our fixed rate debt instruments at March 31,
2001 had been one percentage point higher or lower, the fair value of those debt
instruments on that date would have decreased or increased, respectively, by
approximately $28.2 million. During the three months ended March 31, 2001, our
variable-rate debt increased from $103.8 million as of December 31, 2000 to
$118.7 million as of March 31, 2001. Interest rate fluctuations may affect our
annual interest expense on our variable rate debt. If interest rates on our
variable rate debt instruments outstanding at March 31, 2001 had been one
percentage point higher or lower, our annual interest expense relating to those
debt instruments would have increased or decreased, respectively, by
approximately $1.2 million, based on balances at March 31, 2001.
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CAPITAL AUTOMOTIVE REIT
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
On January 22, 2001, the Operating Partnership issued 36,540 Units to Carlos R.
Hoz de Vila, as partial consideration for the acquisition of a parcel of real
property and improvements located thereon in Burlington Township, New Jersey.
The Units will be eligible for redemption beginning on January 31, 2002 for cash
by the Operating Partnership, or at the option of the Company, common shares on
a one for one basis. The issuance of such Units was effected in reliance on an
exemption from registration under Section 4(2) of the Securities Act.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Not applicable.
(b) Reports on Form 8-K
Not applicable.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAPITAL AUTOMOTIVE REIT
(Registrant)
BY: /s/ Thomas D. Eckert
------------------------
Thomas D. Eckert
President and Chief Executive Officer
(principal executive officer)
BY: /s/ David S. Kay
-------------------
David S. Kay
Vice President and Chief Financial Officer
(principal financial and accounting officer)
Dated: May 11, 2001
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