Capital Automotive Reports Third Quarter Results

MCLEAN, Va., Oct. 27, 2005 -- Capital Automotive REIT , the nation's leading specialty finance company for automotive retail real estate, today announced financial results for the third quarter ended September 30, 2005.

Total revenues were $62.4 million for the quarter, a 22% increase from revenues of $51.4 million in the third quarter of 2004. Total revenues for the nine-month period ended September 30, 2005 were $177.7 million, a 21% increase from revenues of $146.5 million in the same period in 2004.

For the third quarter, net income available to common shareholders was $0.47 per diluted share and Funds From Operations (FFO) available to common shareholders was $0.65 per diluted share. Included in the Company's results for the quarter ended September 30, 2005 were expenses associated with the Company's previously announced plan of merger totaling approximately $2.3 million, or $0.04 per diluted share to both net income available to common shareholder and FFO available to common shareholders. A complete reconciliation of FFO and FFO per share to net income and net income per share, which are, respectively, the most directly comparable GAAP measures, is included in this release.

Net income available to common shareholders on a diluted basis for the quarter increased 16% to $21.6 million as compared to $18.7 million for the same quarter last year. Net income on a diluted per share basis decreased 6% to $0.47 per share from $0.50 per share for the same quarter last year. Net income available to common shareholders on a diluted basis for the nine-month period increased 46% to $63.7 million as compared to $43.7 million for the same period last year. Net income on a diluted per share basis increased 18% to $1.43 per share from $1.21 per share for the same period last year.

FFO available to common shareholders on a diluted basis for the quarter increased 27% to $37.0 million as compared to $29.1 million for the same quarter last year. FFO on a diluted per share basis increased 1% to $0.65 per share from $0.64 per share for the same quarter last year. FFO available to common shareholders on a diluted basis for the nine-month period ended September 30, 2005 increased 45% to $110.2 million as compared to $76.0 million for the same period last year. FFO on a diluted per share basis increased 14% to $1.97 per share from $1.72 per share for the same period last year.

Included in the Company's results for the quarter and the nine months ended September 30, 2004 were debt extinguishment charges totaling $697,000 and $9.4 million, respectively, which reduced both net income available to common shareholders and FFO available to common shareholders by those amounts, or $0.02 per diluted share and $0.21 per diluted share, respectively. There were no equivalent charges during the same periods of 2005.

As previously announced, the Company's Board of Trustees declared a cash dividend of $0.4540 per common share for the third quarter. The dividend is payable on November 18, 2005 to shareholders of record as of November 7, 2005.

The Company's Board of Trustees also declared a dividend for the period commencing August 1, 2005 and ending on October 31, 2005 of $0.46875 per Series A Cumulative Redeemable Preferred Share and a dividend for the same period of $0.50 per Series B Cumulative Redeemable Preferred Share. The preferred dividends will be paid on November 15, 2005 to shareholders of record as of November 1, 2005.

Real Estate Investments

During the third quarter, the Company increased its net real estate investments by approximately $58 million (consisting of approximately $62 million in real estate investments, approximately $2 million in property dispositions and approximately $2 million in repayments of mortgages), bringing the total net increase in investments for the year to approximately $291 million. The investments were funded with cash on hand and borrowings under the Company's unsecured revolving credit facility. The total real estate investments included the acquisition of three properties and facility improvements totaling approximately $57 million. The leases of these properties and improvements have a weighted average initial lease term of approximately 14.6 years, with multiple renewal options exercisable at the option of the tenants. The remaining $5 million in real estate investments consisted of advances on one mortgage loan and construction financing secured by two properties.

Real Estate Dispositions

The Company sells properties from time to time, generally when a tenant has indicated that a particular location no longer meets its operational needs. During the third quarter, the Company sold one property for approximately $2.0 million in proceeds, resulting in a gain of approximately $449,000 before minority interest. The earnings generated from the property, including the gain recognized as a result of the disposition, have been reported as discontinued operations.

Portfolio Highlights

As of September 30, 2005, Capital Automotive's portfolio was 100% occupied. On a quarterly basis, the Company performs a credit review of virtually all tenants in its portfolio. The Company's rent coverage ratio, which is one of the primary metrics the Company uses to define the stability of its tenants' cash flow, remains high. As of June 30, 2005, the weighted average operating cash flow of the Company's tenants exceeded 3.5 times the amount of their rental payments. At the end of the third quarter, the Company held lease security deposits and letters of credit totaling approximately $13.6 million. As of September 30, 2005, the Company had accumulated depreciation of $173 million representing 7.5% of its real estate asset portfolio. The weighted average remaining lease term of the portfolio was 11.3 years as of September 30, 2005, and the earliest meaningful lease expirations do not occur until 2008.

Financing Highlights

As of September 30, 2005, the Company's real estate investments before accumulated depreciation totaled more than $2.5 billion. Total long-term mortgage and unsecured debt was $1.1 billion and total draws outstanding under the Company's credit facility were $118.0 million. The Company's debt to assets (total assets plus accumulated depreciation) ratio was approximately 47% and its debt to total market capitalization ratio was approximately 35% as of September 30, 2005. As of September 30, 2005, the Company's mortgage and unsecured debt (excluding borrowings on its credit facility) had a weighted average remaining term of 9.3 years. The Company's earliest significant long- term debt maturity is not until 2009.

The Company uses a disciplined approach of matching the term and interest rate nature (fixed or variable rate) of its long-term debt to its leases. The Company uses this process, which it refers to as "match-funding," to substantially lock in its investment spreads during the initial lease term. As of September 30, 2005, the ratio of the remaining weighted average term of the Company's debt to the remaining weighted average initial term of its leases was approximately 76% match-funded. As of September 30, 2005, the Company's total outstanding fixed rate debt equaled approximately 44% of its total real estate investments subject to fixed rate leases. The weighted average remaining term of its fixed rate leases was 11.4 years and the weighted average remaining term of its outstanding fixed rate debt was 9.8 years. As a result, the Company's fixed rate leases and fixed rate debt were approximately 86% match-funded. The Company's total outstanding variable rate debt equaled approximately 92% of its total real estate investments subject to variable rate leases. The weighted average remaining term of its variable rate leases was 10.7 years and the weighted average remaining term of its outstanding variable rate debt was 5.9 years. As a result, variable rate leases and debt were approximately 55% match-funded.

Earnings Guidance

The Company is not providing earnings guidance this quarter due to its previously announced plan of merger with subsidiaries of Flag Fund V LLC, a Delaware limited liability company advised by DRA Advisors LLC.

About Capital Automotive

Capital Automotive, headquartered in McLean, Virginia, is a self- administered, self-managed real estate investment trust. The Company's primary strategy is to acquire real property and improvements used by operators of multi-site, multi-franchised automotive dealerships and related businesses. Additional information on Capital Automotive is available on the Company's website at http://www.capitalautomotive.com/.

As of September 30, 2005, the Company had real estate investments of more than $2.5 billion, primarily consisting of interests in 347 properties, consisting of 510 automotive franchises in 32 states. The properties are leased under long-term, triple-net leases with a weighted average initial lease term of approximately 15.1 years. Approximately 75% of the Company's real estate portfolio is located in the top 50 metropolitan areas in the U.S. in terms of population. Approximately 73% of the Company's real estate portfolio is invested in properties leased to the "Top 100" dealer groups as published by Automotive News.

Additional Information about the Merger and Where to Find It

On October 14, 2005, the Company filed preliminary proxy materials relating to its proposed merger with clients advised by DRA Advisors LLC with the Securities and Exchange Commission. These proxy materials and other relevant materials, including the definitive merger agreement, may be obtained free of charge at the Securities and Exchange Commission's website at http://www.sec.gov/. In addition, shareholders may obtain free copies of the documents that the Company files with the SEC by accessing the Company's website. SHAREHOLDERS OF THE COMPANY ARE URGED TO READ THESE MATERIALS AND TO READ THE DEFINITIVE PROXY MATERIALS WHEN THEY BECOME AVAILABLE BECAUSE THEY CONTAIN AND WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER AND RELATED ITEMS. Shareholders are urged to read the proxy statement and other relevant materials before making any voting or investment decisions with respect to the proposed merger.

The executive officers and trustees of the Company have interests in the proposed merger, some of which differ from, and are in addition to, those of the Company's shareholders generally. In addition, the Company and its executive officers and trustees may be participating or may be deemed to be participating in the solicitation of proxies from the security holders of the Company in connection with the proposed merger. Information about the executive officers and trustees of the Company, their relationship with the Company and their beneficial ownership of Company securities is set forth in the preliminary proxy materials filed with the Securities and Exchange Commission on October 14, 2005. Shareholders may obtain additional information regarding the direct and indirect interests of the Company and its executive officers and trustees in the proposed merger by reading the preliminary proxy materials and by reading the definitive proxy materials relating to the plan of merger when they become available.

This communication shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful under the securities laws of any such jurisdiction.

   

                         CAPITAL AUTOMOTIVE REIT
                  UNAUDITED SUPPLEMENTAL FINANCIAL DATA
                  (IN THOUSANDS, EXCEPT PER SHARE DATA)

                                    Three Months Ended    Nine Months Ended
                                      September 30,         September 30,
                                     2005        2004       2005      2004

   Statements of Operations:

   Revenue:
   Rental                           $57,847     $50,649  $169,837  $144,183
   Mortgage and other financing       4,282         332     6,778     1,453
   Interest and other                   277         381     1,035       818
       Total revenue                 62,406      51,362   177,650   146,454

   Expenses:
   Depreciation and amortization     10,361       9,059    30,629    26,313
   General and administrative         5,537       3,335    12,241     9,070
   Interest                          18,540      16,418    51,828    49,095
   Debt extinguishment charge           -           697       -       9,409
       Total expenses                34,438      29,509    94,698    93,887

   Income from continuing
    operations before minority
    interest                         27,968      21,853    82,952    52,567
   Minority interest                 (3,592)     (3,327)  (11,219)   (8,095)

   Income from continuing
    operations                       24,376      18,526    71,733    44,472

   Income from discontinued
    operations, net of minority
    interest                             10       1,041       488     3,505
   Gain on sale of real estate,
    net of minority interest            384       2,274       982     3,486
       Total discontinued
        operations                      394       3,315     1,470     6,991

   Net income                        24,770      21,841    73,203    51,463

   Preferred share dividends         (3,152)     (3,152)   (9,455)   (7,780)

   Net income available to common
    shareholders - basic and
    diluted                         $21,618     $18,689   $63,748   $43,683

   Basic earnings per common
    share:
   Income from continuing
    operations                        $0.46       $0.42     $1.40     $1.03
   Net income                         $0.47       $0.50     $1.44     $1.22

   Diluted earnings per common
    share (A):
   Income from continuing
    operations                        $0.46       $0.41     $1.39     $1.02
   Net income (B)                     $0.47       $0.50     $1.43     $1.21

   Weighted average number of
    common shares - basic            45,974      37,021    44,410    35,714

   Weighted average number of
    common shares - diluted          46,318      37,393    44,727    36,193

   Reconciliation of Net Income
    to Funds From Operations
    (FFO) and FFO Available to
    Common Shareholders:

   Net income                       $24,770     $21,841   $73,203   $51,463

   Adjustments:
   Add:  Real estate depreciation
    and amortization                 10,334       9,174    30,646    26,946
   Add:  Minority interest
    related to income from
    continuing operations and
    income from discontinued
    operations                        3,594       3,555    11,309     8,876
   Less: Gain on sale of real
    estate                             (384)     (2,274)     (982)   (3,486)

   FFO (C)                           38,314      32,296   114,176    83,799

   Less: Preferred share
    dividends                        (3,152)     (3,152)   (9,455)   (7,780)

   FFO available to common
    shareholders - basic            $35,162     $29,144  $104,721   $76,019

   Dilutive effect of convertible
    securities                        1,813         -       5,437       -

   FFO available to common
    shareholders - diluted          $36,975     $29,144  $110,158   $76,019

   Basic FFO per common share         $0.65       $0.65     $2.00     $1.74

   Diluted FFO per common share
    (D) (E)                           $0.65       $0.64     $1.97     $1.72

   Weighted average number of
    common shares and units -
    basic                            53,775      45,133    52,411    43,598

   Weighted average number of
    common shares and units -
    diluted                          57,212      45,504    55,821    44,077

   Other financial information:
     Straight-lined rental
      revenue, including
      discontinued operations          $741        $957    $2,639    $3,145

(A) The impact of the if-converted method for the Company's contingently convertible securities on both income from continuing operations per diluted common share and net income per diluted common share is anti-dilutive. Therefore, the result of the potential conversion was not included in the calculations.

(B) The Company incurred merger costs totaling approximately $2.3 million, or $0.04 per share to net income available to common shareholders, during the three months and nine months ended September 30, 2005. These costs are included in general and administrative expenses on our consolidated statements of operations.

(C) The National Association of Real Estate Investment Trusts (NAREIT) developed FFO as a relative non-GAAP financial measure of performance of an equity REIT in order to recognize that income-producing real estate historically has not depreciated on the basis determined under generally accepted accounting principles (GAAP). FFO, as defined under the revised definition adopted in April 2002 by NAREIT and as presented by the Company, is net income (computed in accordance with GAAP) plus depreciation and amortization of assets unique to the real estate industry, plus minority interest related to income from continuing operations and income from discontinued operations, and excluding gains from sales of property, and after adjustments for unconsolidated partnerships and joint ventures. 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 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.

(D) The impact of the if-converted method for the Company's contingently convertible securities on diluted FFO per common share is dilutive for the three months and nine months ended September 30, 2005. Therefore, the calculation includes the effect of the potential conversion resulting in a reduction in interest expense totaling approximately $1.8 million and $5.4 million, respectively, as well as an additional 3.1 million common shares outstanding during both periods. The impact of the if-converted method for the Company's contingently convertible debt instrument on diluted FFO per common share is anti-dilutive for the three months and nine months ended September 30, 2004. Therefore, the calculation excludes the effect of the potential conversion for both periods.

(E) The Company incurred merger costs totaling approximately $2.3 million, or $0.04 per share to FFO available to common shareholders, during the three months and nine months ended September 30, 2005. These costs are included in general and administrative expenses on our consolidated statements of operations.

                                               September 30,  December 31,
                                                    2005         2004
   Selected Balance Sheet Data
    (in thousands)

   Real estate before accumulated depreciation   $2,312,163  $2,197,323
   Mortgages and other financing
    receivables                                     219,424      43,378
   Real estate investments, at cost               2,531,587   2,240,701
   Cash and cash equivalents                          4,507       8,332
   Other assets*                                     58,304      53,010
   Total assets                                   2,421,605   2,158,157
   Mortgage debt                                    535,491     634,365
   Unsecured debt**                                 555,718     381,592
   Borrowings under credit facilities               118,000      30,000
   Total other liabilities***                        38,189      33,396
   Minority interest                                145,071     144,877
   Total shareholders' equity                     1,029,136     933,927

   * Other assets includes:
         Straight-lined rents receivable             22,428      20,203
         Deferred loan fees, net                     21,685      22,725
         Restricted cash                              5,191       5,016
         Investment in joint venture                  2,936         -

   ** Net of fair value swap valuation totaling:     (4,282)     (3,408)

   *** Other liabilities includes:
        Security deposits                            10,306       9,665
        Derivative instrument liability               4,282       3,408

   Total shares outstanding                          46,503      43,406
   Total shares and units outstanding                54,235      51,522

                                               September 30,  December 31,
   Selected Portfolio Data                          2005        2004
    (unaudited)
   Properties                                           347         342
   States                                                32          31
   Land acres                                         2,727       2,584
   Square footage of buildings (in millions)           15.2        14.9
   Weighted average initial lease term
    (in years)                                         15.1        15.1
   Franchises                                           510         500