Capital Automotive Reports Record Second Quarter
MCLEAN, Va., July 22 -- Capital Automotive REIT , the nation's leading specialty finance company for automotive retail real estate, today announced financial results for the second quarter ended June 30, 2003. The Company reported record second quarter revenues, net income and funds from operations (FFO).
Total revenues were $42.5 million for the quarter, a 24% increase from revenues of $34.2 million in the second quarter of 2002. Net income for the quarter increased 16% to $12.7 million as compared to $10.9 million in the same quarter last year. Net income per diluted share increased 5% to $0.40 per share from $0.39 per share in the same quarter last year. FFO for the quarter increased 15% to $23.8 million as compared to $20.7 million for the same quarter last year. FFO per diluted share increased 8% to $0.60 per share from $0.55 per share for the same quarter last year.
Total revenues for the six-month period ended June 30, 2003 were $82.9 million, a 25% increase from revenues of $66.4 million in the same period in 2002. Net income for the six-month period increased 13% to $24.6 million as compared to $21.8 million for the same period last year. Net income per diluted share increased 5% to $0.82 per share from $0.78 per share for the same period last year. FFO for the six-month period ended June 30, 2003 increased 14% to $46.7 million as compared to $40.8 million for the same period last year. FFO per diluted share increased 8% to $1.20 per share from $1.11 per share for the same period last year.
As previously announced, the Company's Board of Trustees declared a cash dividend of $0.4110 per share for the second quarter. The dividend is payable on August 19, 2003 to shareholders of record as of August 8, 2003. The second quarter dividend is the 22nd consecutive increase in the quarterly dividend and represents an annualized rate of $1.644 per share and a 5.6% yield based on Friday's closing stock price. The Company's dividend payout ratio for the second quarter of 2003 was approximately 70% of FFO. The Company reaffirms its 2003 annual dividend guidance of $1.65 per share, of which approximately 15% is estimated to be a return of capital, which is not taxed as ordinary income to its shareholders.
Acquisitions Recap
The Company completed approximately $89.1 million of acquisitions during the second quarter, bringing total acquisitions for the year to approximately $106.2 million. The second quarter acquisitions included two auto malls consisting of seven properties, six other properties and construction fundings. These acquisitions contain 17 automotive franchises located in six states and have a weighted average initial lease term of 14.4 years, with multiple renewal options exercisable at the option of the tenants. The acquisitions were funded from the net proceeds received from the Company's underwritten public equity offering that closed during the second quarter of 2003 as previously announced, cash on hand and borrowings on the Company's short-term credit facilities.
A summary of the acquisitions is as follows:
* Eight properties totaling approximately $54.3 million leased to
subsidiaries of UnitedAuto Group, Inc.
, (UnitedAuto) located
in Florida and Rhode Island. An auto mall, consisting of six properties
and located in Rhode Island, has nine franchises (Acura, Audi, Bentley,
BMW, Infiniti, Lexus, Mercedes-Benz, Porsche and Volvo). Capital
Automotive will also provide up to $20 million of improvement funding to
the existing dealerships located in the auto mall. The remaining
properties are located in Florida and include an auto mall with four
franchises (Chrysler, Jeep, Mazda and Nissan), and an adjacent property
with a Toyota franchise. UnitedAuto is one of the largest auto
retailers in the U.S. operating 138 franchises in the United States and
72 franchises internationally, primarily in the United Kingdom. As of
June 30, 2003, we leased 16 properties to subsidiaries of UnitedAuto,
representing approximately 11% of our total annualized rental revenue.
* Five properties totaling approximately $31.5 million leased to
subsidiaries of Asbury Automotive Group, Inc.
, (Asbury).
These properties are located in California, Florida, Georgia and North
Carolina. Three franchises (GMC, Mercedes-Benz and Pontiac) are
operated on three of the properties, and Honda and Lexus franchises will
be constructed on the remaining properties. The construction of these
new facilities will be funded by Capital Automotive. Asbury is one of
the largest auto retailers in the U.S. operating 92 automobile retail
stores, encompassing 132 franchises for the sale and servicing of 35
different brands of American, European and Asian automobiles. As of
June 30, 2003, we leased nine properties to subsidiaries of Asbury,
representing approximately 3% of our total annualized rental revenue.
* Construction fundings, totaling approximately $3.3 million, all of which
were transacted with existing tenants.
Commenting on today's news, Thomas D. Eckert, President and Chief Executive Officer, stated, "We had an outstanding second quarter and first half of 2003. Our tenants continue to perform very well despite the continuing softness in the U.S. economy, the war in Iraq and ongoing threats of terrorism. Our unique business and asset class continue to provide stable and growing cash flows for our shareholders."
Financing Highlights
As previously announced, on April 25, 2003, the Company completed an underwritten public offering of 2,350,000 of its common shares priced at $26.00 per share. We also granted the underwriters a 15% over-allotment option. The net proceeds totaling $66.4 million were used to fund acquisitions, repay borrowings under our short-term credit facilities and for general corporate purposes.
In June 2003, the Company executed a $100 million revolving construction credit agreement with General Motors Acceptance Corporation. Proceeds will be used to fund construction and improvement financing for existing tenants. The one-year financing, renewable annually, will bear interest at a spread over LIBOR.
The Company recently signed a commitment for $40 million of secured mortgage financing from Bank of America. The Company will use the proceeds to fund additional acquisitions, repay borrowings on its short-term credit facilities and for general corporate purposes. Bank of America's commitment provides financing to the Company for up to five years at a spread over LIBOR.
Risk Management
As of June 30, 2003, Capital Automotive's portfolio was 100% occupied and, since its inception, there has never been a rental payment default. On a quarterly basis, the Company performs a credit review of virtually all tenants in its portfolio, utilizing their financial statements. The Company's rent coverage ratio, which is one of the primary metrics that the Company uses to define the stability of its tenants' cash flow remains high. As of March 31, 2003, the most recent quarter of analysis, the weighted average operating cash flow of the Company's tenants exceeded three times the amount of their rental payments. At the end of the second quarter, the Company held lease security deposits and letters of credit totaling approximately $13 million. Additionally, as of June 30, 2003, the Company had accumulated depreciation of approximately $100.4 million representing approximately 6.0% of its real estate portfolio. The weighted average remaining lease term of the portfolio is 11.4 years as of June 30, 2003 and the earliest meaningful lease expirations do not occur until 2008.
The Company's debt to assets (total assets plus accumulated depreciation) ratio was approximately 60% and debt to total market capitalization was approximately 48% as of June 30, 2003. Of the debt outstanding at June 30, 2003, approximately 92% was substantially match-funded with the related leases. Virtually all of the Company's long-term debt is secured financing which has a weighted average remaining term of 11.2 years. The Company's earliest significant long-term debt maturity is not until 2011. For the three months ended June 30, 2003, the Company's interest coverage and debt service coverage ratios were 2.4 and 1.6, respectively. For the trailing 12 months, the Company's interest coverage and debt service coverage ratios were 2.5 and 1.6, respectively.
Earnings Guidance
In light of the second quarter results, the Company's strong acquisition pace, and the current interest rate environment, the Company is raising its earnings guidance. The Company's new FFO per diluted share guidance for 2003 is $2.38, up from its previous guidance of $2.34 and a 6% increase over 2002. The Company's net income per diluted share guidance is $1.61, an increase of $0.04 per share from its previous guidance. The Company's revised 2003 guidance assumes LIBOR rises to 1.5% from current levels for the remainder of this year and additional property acquisitions of approximately $25 to $50 million, depending on the timing of closings.
The Company is also introducing its 2004 FFO guidance, which is a range of $2.45 to $2.50 per diluted share. The Company's net income per diluted share guidance is $1.65 to $1.69. In addition, the Company expects to pay its shareholders an annual dividend of $1.70 per share for 2004. The 2004 guidance assumes property acquisitions of approximately $125 million, depending on the timing of those acquisitions. The high end of the Company's earnings guidance assumes LIBOR remains at current levels, which is approximately 1.1%. The low end of the range assumes LIBOR rises ratably from current levels to 3% during 2004. If average LIBOR is greater than 3% for the entire year, the Company's results should fall within the guidance range.
David S. Kay, Senior Vice President and Chief Financial Officer added, "We are extremely pleased with our second quarter results. Our balance sheet has capacity that should enable us to grow our portfolio by nearly $300 million without accessing the equity markets. Approximately 24% of our portfolio, or $410 million, is subject to variable rate leases, which is matched with variable rate debt of $244 million. The investment spreads on our variable rate lease portfolio will change under certain LIBOR conditions. Our strategy of including minimum lease rates in our variable rate leases allows us to garner more investment spread during the current low interest rate environment. As LIBOR rises, our investment spreads will contract from current levels until LIBOR reaches 3.0 to 3.5%. At that time, our variable lease rates and variable debt rates will rise equally with LIBOR."
About Capital Automotive
Capital Automotive, headquartered in McLean, Virginia, is a self- administered, self-managed real estate investment trust that acquires 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 Web site at http://www.capitalautomotive.com/.
As of June 30, 2003, the Company had invested nearly $1.7 billion in 308 properties, consisting of 426 automotive franchises in 29 states. Approximately 76% of the Company's total real estate investments are located in the top 50 metropolitan areas in the U.S. in terms of population. Approximately 70% of the Company's portfolio is invested in properties leased to the "Top 100" dealer groups as published by Automotive News. The properties are leased under long-term, triple-net leases with a weighted average initial lease term of 14.4 years.
Certain matters discussed within this press release are forward-looking statements within the meaning of the federal securities laws. Although the Company believes that the expectations reflected in the forward-looking statements are based upon reasonable assumptions, the Company's future operations will depend on a number of factors that may differ, some materially, from the Company's assumptions. These factors, which could cause the Company's actual results to differ materially from those set forth in the forward-looking statements, include risks that our tenants will not pay rent; risks related to our reliance on a small number of tenants for a significant portion of our revenue; risks of financing, such as our ability to meet existing financial covenants and to consummate planned and additional financings on terms that are acceptable to us; risks that our growth will be limited if we cannot obtain additional capital; risks that planned and 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 any manufacturer's production, supply, vehicle financing, marketing or other practices or changes in the economy generally; risks generally incident to the ownership of real property, including adverse changes in economic conditions, changes in the investment climate for real estate, changes in real estate taxes and other operating expenses, adverse changes in governmental rules and fiscal policies and the relative illiquidity of real estate; environmental and other risks associated with the acquisition and leasing of automotive properties; 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; and those risks detailed from time to time in the Company's SEC reports, including its Form 8- K/A filed on February 12, 2003, its annual report on Form 10-K and its quarterly reports on Form 10-Q. The Company makes no promise to update any of the forward-looking statements or to publicly release the results if the Company revises any of them.
CAPITAL AUTOMOTIVE REIT
UNAUDITED SUPPLEMENTAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
Statements of Operations:
Revenue:
Rental $ 42,083 $ 34,048 $ 82,296 $ 66,176
Interest and other 416 135 639 264
Total revenue 42,499 34,183 82,935 66,440
Expenses:
Depreciation and amortization 7,676 6,245 15,102 12,157
General and administrative 2,393 1,987 4,626 4,110
Interest 16,463 11,634 31,837 21,818
Total expenses 26,532 19,866 51,565 38,085
Income from continuing operations
before minority interest 15,967 14,317 31,370 28,355
Minority interest (3,399) (3,473) (6,952) (6,727)
Income from continuing operations 12,568 10,844 24,418 21,628
Income from discontinued operations 120 70 171 140
Gain on sale of real estate 23 - 58 -
Total discontinued operations 143 70 229 140
Net income $ 12,711 $ 10,914 $ 24,647 $ 21,768
Basic earning per share:
Income from continuing operations $ 0.41 $ 0.40 $ 0.83 $ 0.80
Net income $ 0.41 $ 0.40 $ 0.84 $ 0.81
Diluted earnings per share:
Income from continuing operations $ 0.40 $ 0.38 $ 0.81 $ 0.77
Net income $ 0.40 $ 0.39 $ 0.82 $ 0.78
Weighted average number of common
shares - basic 30,670 27,393 29,481 26,972
Weighted average number of common
shares - diluted 31,618 28,559 30,418 28,198
Funds From Operations (FFO):
Net income $ 12,711 $ 10,914 $ 24,647 $ 21,768
Adjustments:
Add: Real estate depreciation and
amortization 7,658 6,272 15,065 12,215
Add: Minority interest related to
income from continuing operations
and income from discontinued
operations 3,432 3,496 7,001 6,772
Less: Gain on sale of real estate (23) - (58) -
FFO (A) $ 23,778 $ 20,682 $ 46,655 $ 40,755
Basic FFO per share $ 0.61 $ 0.57 $ 1.23 $ 1.15
Diluted FFO per share $ 0.60 $ 0.55 $ 1.20 $ 1.11
Weighted average number of common
shares and units - basic 38,970 36,193 37,873 35,392
Weighted average number of common
shares and units - diluted 39,918 37,359 38,811 36,618
Other financial information:
Straight-lined rental income $1,290 $1,243 $2,485 $2,718
2003 and 2004 Earnings Guidance and Reconciliation of FFO to Net Income:
Projected Year Ended
December 31, December 31, 2004
2003 Low-End High-End
Net income $ 50,500 $ 54,200 $ 55,500
Adjustments:
Add: Real estate depreciation and
amortization 30,700 33,000 33,300
Add: Minority interest related to
income from continuing operations
and income from discontinued
operations 13,600 13,800 14,200
Less: Gain on sale of real estate (60) - -
FFO (A) $ 94,740 $ 101,000 $ 103,000
Weighted average number of common
shares used to compute fully
diluted earnings per share 31,400 32,900 32,900
Weighted average number of common
shares and units used to compute
fully diluted FFO per share 39,800 41,200 41,200
Net income per diluted share $ 1.61 $ 1.65 $ 1.69
FFO per diluted share $ 2.38 $ 2.45 $ 2.50
(A) The National Association of Real Estate Investment Trusts (NAREIT)
developed FFO as a relative non-GAAP financial 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 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.
Reconciliation of Interest Coverage and Debt Service Coverage Ratios:
Three months Twelve months
ended June 30, ended June 30,
2003 2003
Interest Coverage Ratio:
Net income before minority interest $ 16,143 $ 60,413
Interest Expense 16,463 60,716
Depreciation and amortization 7,676 29,274
Earnings Before Interest, Taxes,
Depreciation and Amortization
(EBITDA) $ 40,282 $ 150,403
Interest Coverage Ratio (EBITDA
divided by Interest Expense) 2.4 2.5
Debt Service Coverage Ratio (DSCR):
Interest Expense $ 16,463 $ 60,716
Principal amortization for the period 9,045 30,559
$ 25,508 $ 91,275
DSCR (EBITDA divided by Interest
Expense + Principal Amortization) 1.6 1.6
June 30, December 31,
2003 2002
Selected Balance Sheet Data (in thousands)
Real estate before accumulated
depreciation $1,678,174 $1,574,153
Cash and cash equivalents 9,654 7,442
Other assets 63,320 46,398
Total assets 1,650,796 1,542,470
Mortgage debt 1,026,650 898,733
Borrowings under credit facilities 17,552 111,096
Total other liabilities 42,009 35,970
Minority Interest 117,395 116,048
Total shareholders' equity 447,190 380,623
Total shares outstanding 31,728 28,321
Total shares and units outstanding 39,994 36,881
June 30, December 31,
Selected Portfolio Data (unaudited) 2003 2002
Properties 308 292
States 29 28
Land acres 2,207 2,076
Square footage of buildings (in millions) 12.6 11.9
Weighted average initial lease term
(in years) 14.4 14.3
Franchises 426 412
Contact Information:
David S. Kay
Senior Vice President and Chief Financial Officer
Capital Automotive REIT
703-394-1302