Capital Automotive Reports Third Quarter Results and Introduces 2005 Earnings and Dividend Guidance
MCLEAN, Va., Oct. 21, 2004 -- 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, 2004.
Total revenues were $51.9 million for the quarter, a 25% increase from revenues of $41.5 million in the third quarter of 2003. Total revenues for the nine-month period ended September 30, 2004 were $148.2 million, a 22% increase from revenues of $121.1 million in the same period in 2003.
Included in the Company's third quarter and year-to-date results as set forth below is a debt extinguishment charge related to the debt repayment that occurred during the quarter, as more fully described in the Financing Highlights section below, and the balance sheet restructuring that occurred during the second quarter ended June 30, 2004, as previously reported. The debt extinguishment charge for the quarter ended September 30, 2004 totaled $697,000, or $0.02 per share for both net income available to common shareholders and Funds From Operations (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. The debt extinguishment charge for the nine months ended September 30, 2004 totaled $9.4 million, or $0.21 per share for both net income available to common shareholders and FFO available to common shareholders.
After giving effect to the debt extinguishment charge, net income available to common shareholders for the quarter increased 43% to $18.7 million as compared to $13.1 million in the same quarter last year. Net income on a diluted share basis increased 25% to $0.50 per share from $0.40 per share in the same quarter last year. Net income available to common shareholders for the nine-month period ended September 30, 2004 increased 16% to $43.7 million as compared to $37.7 million for the same period last year. Net income on a diluted share basis decreased 1% to $1.21 per share from $1.22 per share for the same period last year. Excluding the debt extinguishment charge, net income on a diluted share basis increased 28%, to $0.52 per share, for the quarter ended September 30, 2004 from the same quarter last year and increased 17%, to $1.42 per share, for the nine-month period ended September 30, 2004 from the same period last year.
FFO available to common shareholders for the quarter increased 20% to $29.1 million as compared to $24.3 million for the same quarter last year. FFO on a diluted per share basis increased 8% to $0.64 per share from $0.59 per share for the same quarter last year. FFO available to common shareholders for the nine-month period ended September 30, 2004 increased 7% to $76.0 million as compared to $70.9 million for the same period last year. FFO on a diluted per share basis decreased 4% to $1.72 per share from $1.79 per share for the same period last year. Excluding the debt extinguishment charge, FFO on a diluted share basis increased 11%, to $0.66 per share, for the quarter ended September 30, 2004 from the same quarter last year and increased 8%, to $1.94 per share, for the nine-month period ended September 30, 2004 from the same period last year.
As previously announced, the Company's Board of Trustees declared a cash dividend of $0.4265 per common share for the third quarter, payable on November 19, 2004 to shareholders of record as of November 8, 2004. This is the 27th consecutive increase in the quarterly dividend and represents an annualized rate of $1.706 per share and a 5.4% yield based on Tuesday's closing common stock price. The Company's dividend payout ratio (excluding the debt extinguishment charge) for the third quarter was approximately 66% of FFO available to common shareholders. The Company reaffirms its 2004 annual dividend guidance of $1.70 per share, of which approximately 10-20% is estimated to be a return of capital or capital gain, which is generally not taxed as ordinary income to its shareholders.
The Company's Board of Trustees also declared a dividend for the period commencing August 1, 2004 and ending on October 31, 2004 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 are payable on November 15, 2004 to shareholders of record as of November 1, 2004. The dividends represent annualized rates of $1.875 per Series A preferred share and a yield of 7.4% and $2.00 per Series B preferred share and a yield of 7.5%, in each case based on Tuesday's closing preferred stock prices.
REAL ESTATE INVESTMENTS
During the third quarter, the Company increased its net real estate investments by approximately $26.9 million (consisting of $46.6 million in real estate investments and $19.7 million in property dispositions), bringing its total net increase in real estate investments for the year to $171.2 million.
Real Estate Investments
During the third quarter, the Company completed approximately $46.6 million in real estate investments, including two auto retail properties totaling approximately $34.1 million, transacted with two existing tenants that are private, Top 100 dealer groups and approximately $12.5 million in construction and improvement fundings, transacted with four existing tenants. The third quarter real estate investments contain 15 automotive franchises located in six states (Georgia, New Jersey, Ohio, Pennsylvania, Rhode Island and Texas) and have a weighted average initial lease term of approximately 17.7 years, with multiple renewal options exercisable at the option of the tenants. The investments were funded with borrowings on the Company's short- term credit facilities and with cash on hand.
Commenting on today's news, Thomas D. Eckert, President and Chief Executive Officer, stated, "We have had a great first nine months of the year, completing nearly $215 million of new investments. Our pipeline of transactions continues to build and the strength of our portfolio remains the hallmark of our company. The combination of our strong industry relationships and flexible value-added solutions make us the leading specialty finance company for automotive real estate. We continue to execute our strategy and seek ways of enhancing shareholder value."
Real Estate Dispositions
The Company sells properties from time to time, generally when a tenant has indicated that a particular location no longer meets their operational needs. During the third quarter, the Company sold four auto retail locations, for approximately $20.1 million in net proceeds, to three dealer groups, resulting in a combined gain of approximately $2.8 million before minority interest. In exchange for early termination of the leases, the Company also received approximately $937,000 in lease termination fees, which were recorded during the third quarter.
The earnings generated from these real estate dispositions, including the combined gain recognized and the lease termination fees, have been reported as discontinued operations.
PORTFOLIO HIGHLIGHTS
As of September 30, 2004, Capital Automotive's portfolio was 100% occupied. 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 the Company uses to define the stability of its tenants' cash flow, remains high. As of June 30, 2004, 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 $11.1 million. As of September 30, 2004, the Company had accumulated depreciation of $135.2 million representing 6.6% of its real estate asset portfolio. The weighted average remaining lease term of the portfolio is 11.8 years as of September 30, 2004 and the earliest meaningful lease expirations do not occur until 2008.
FINANCING HIGHLIGHTS
To further our strategy of improving our capital structure, during the third quarter, we completed the following transactions:
* On August 20, 2004, the Company closed on an unsecured revolving credit
and term loan facility (Facility) to replace the credit facility the
Company terminated in April 2004 and to refinance certain of the
Company's existing secured debt. The Facility is syndicated with
fifteen participating financial institutions, many of which represent
new funding sources for the Company. The revolving credit portion of
the Facility is $250 million with an option to increase it to $350
million during the three-year term. The term loan portion of the
Facility is a $150 million five-year unsecured term loan. Pricing for
the Facility, which adjusts over time based on the Company's leverage
or its debt rating, if elected, is currently at 145 basis points over
LIBOR based on the Company's current leverage. At closing, the Company
received net proceeds totaling $197.4 million (representing the $150
million term loan portion and borrowings on the revolving credit
facility portion totaling $50 million) of which $183.8 million was used
to repay secured debt and borrowings on the Company's secured credit
facilities (as further described below) and the remainder was used to
fund acquisitions and for general corporate purposes;
* On August 27, 2004, the Company issued 1.7 million common shares in an
underwritten public offering (including 100,000 shares issued pursuant
to the exercise of the underwriter's over-allotment option) at an
initial price to the public of $28.95 per share. Of the $48.7 million
in net proceeds, $27.9 million was used to repay debt (as further
described below) and the remainder was used to repay borrowings
outstanding on the Company's credit facilities, to fund acquisitions
and for general corporate purposes; and
* As noted above, during August, the Company repaid $211.7 million of
variable rate debt (consisting of $113.4 million of secured debt, $4.3
million of unsecured debt and borrowings on the Company's secured
credit facilities totaling $94.0 million). The debt repaid (excluding
the borrowings on the Company's secured credit facilities) had a
weighted average spread over LIBOR of 278 basis points with a weighted
average maturity of 6.4 years. The borrowings on the Company's secured
credit facilities had spreads over LIBOR ranging from 285 to 323 basis
points. The Company has not terminated its secured credit facilities,
which are scheduled to mature in 2005. As a result of the repayment of
debt, the Company incurred a debt extinguishment charge totaling
approximately $697,000, or $0.02 per share to both FFO available to
common shareholders and net income available to common shareholders.
The debt extinguishment charge is related to the write-off of deferred
loan fees that were being amortized over the anticipated term of the
loans that were repaid in August.
As of September 30, 2004, the Company's real estate investments before accumulated depreciation totaled approximately $2.1 billion. Total long-term mortgage and unsecured debt was $1.05 billion and total draws outstanding under the Company's short-term credit facilities were $10.0 million. The Company's debt to assets (total assets plus accumulated depreciation) ratio was approximately 49% and debt to total market capitalization ratio was approximately 39% as of September 30, 2004. As of September 30, 2004, the Company's mortgage and unsecured debt (excluding borrowings on its credit facilities) had a weighted average remaining term of 10.2 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, 2004, the ratio of the remaining weighted average term of the Company's debt (including borrowings on its credit facilities) to the remaining weighted average initial term of its leases was 86% match-funded. As of September 30, 2004, the Company's total outstanding fixed rate debt equaled approximately 48% of its total real estate investments subject to fixed rate leases. The weighted average remaining term of its fixed rate leases was 11.8 years and the weighted average remaining term of its outstanding fixed rate debt was 10.6 years. As a result, the Company's fixed rate leases and fixed rate debt were 90% match-funded. The Company's total outstanding variable rate debt equaled approximately 63% of its total real estate investments subject to variable rate leases. The weighted average remaining term of its variable rate leases was 11.7 years and the weighted average remaining term of its outstanding variable rate debt was 8.6 years. As a result, variable rate leases and debt were 74% match-funded.
EARNINGS GUIDANCE
As a result of rising short-term interest rates and the additional $0.02 per diluted share charge related to the debt extinguishment which occurred during the third quarter, the Company is revising its 2004 FFO guidance from a range of $2.38 to $2.40 per diluted share to $2.38 per diluted share and its net income guidance from a range of $1.57 to $1.59 per diluted share to $1.64 per diluted share. The Company's revised net income guidance includes combined gains from property dispositions during the nine months ended September 30, 2004 totaling $3.5 million, net of minority interest, which is not included in FFO. The Company's 2004 guidance assumes approximately $50 million in net real estate investments during the fourth quarter of 2004.
Excluding the debt extinguishment charge of approximately $9.4 million, or $0.21 per diluted share for the nine months ended September 30, 2004, the Company's 2004 FFO guidance would be $2.59 per diluted share, compared to our previous guidance range of $2.58 to $2.60 per diluted share. In addition, the Company's 2004 net income guidance would be $1.85 per diluted share, compared to our previous guidance range of 1.77 to $1.79 per diluted share.
The Company is also introducing its 2005 FFO guidance, which is a range of $2.69 to $2.71 per diluted share. The Company's net income per diluted share guidance is $1.86 to $1.88. In addition, the Company expects to pay its shareholders an annual dividend of $1.80 per share for 2005, an increase of 5.9% over 2004. The 2005 guidance assumes net real estate investments totaling approximately $150 million. The high end of the Company's earnings guidance assumes LIBOR is at 2% for the entire year. The low end of the range assumes LIBOR rises ratably from 2.3% to 3.5% during 2005. Because of the nature of the Company's variable rate lease program, if LIBOR falls below 2% or rises above 3.5% during the year, the Company's results should either fall within or exceed the guidance range.
David S. Kay, Senior Vice President, Chief Financial Officer and Treasurer added, "We continue to evaluate and improve our capital structure in order to create opportunities to lower our credit spreads and increase financial flexibility. The completion of our newly syndicated unsecured credit facility and term note is a significant milestone for the company. We have not only lowered our funding costs but have also significantly improved the speed and efficiency at which we transact business. We believe that our current balance sheet supports our acquisition strategy."
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 Website at http://www.capitalautomotive.com/.
As of September 30, 2004, the Company had invested nearly $2.1 billion in 327 properties, consisting of 489 automotive franchises in 31 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 74% 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 approximately 15.0 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 increases in interest rates, 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 or refinance our maturing debt; risks that planned and additional acquisitions may not be consummated; risks that competition for acquisitions could result in increased acquisition prices and costs as well as a reduction in capitalization rates; risks related to the automotive industry, such as the ability of our tenants to compete effectively in the automotive retail industry or operate profitably and the ability of our tenants to perform their lease obligations as a result of changes in any manufacturer's production, supply, vehicle financing, incentives, warranty programs, 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; risks related to our financing of new construction and improvements; environmental and other risks associated with the acquisition and leasing of automotive properties; risks that litigation judgments or settlements could have a material adverse effect on our results of operations and financial condition; 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 March 12, 2004, 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.
CAPITAL AUTOMOTIVE REIT
UNAUDITED SUPPLEMENTAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
Statements of Operations:
Revenue:
Rental $51,214 $41,340 $145,905 $120,304
Interest and other 713 144 2,271 780
Total revenue 51,927 41,484 148,176 121,084
Expenses:
Depreciation and amortization 9,184 7,481 26,690 21,872
General and administrative 3,335 2,546 9,070 7,172
Interest 16,524 15,826 49,479 46,674
Debt extinguishment charge 697 - 9,409 -
Total expenses 29,740 25,853 94,648 75,718
Income from continuing operations
before minority interest 22,187 15,631 53,528 45,366
Minority interest (3,387) (3,214) (8,268) (9,804)
Income from continuing operations 18,800 12,417 45,260 35,562
Income from discontinued operations,
net of minority interest 767 654 2,717 2,098
Gain on sale of real estate, net of
minority interest 2,274 - 3,486 58
Total discontinued operations 3,041 654 6,203 2,156
Net income 21,841 13,071 51,463 37,718
Preferred share dividends (3,152) - (7,780) -
Net income available to common
shareholders $18,689 $13,071 $43,683 $37,718
Basic earnings per common share:
Income from continuing operations $0.42 $0.39 $1.05 $1.17
Net income $0.50 $0.41 $1.22 $1.24
Diluted earnings per common share:
Income from continuing operations $0.42 $0.38 $1.04 $1.14
Net income $0.50 $0.40 $1.21 $1.22
Weighted average number of common
shares - basic 37,021 31,919 35,714 30,303
Weighted average number of common
shares - diluted 37,393 32,731 36,193 31,198
Reconciliation of Net Income to Funds
From Operations (FFO) and FFO
Available to Common Shareholders:
Net income $21,841 $13,071 $51,463 $37,718
Adjustments:
Add: Real estate depreciation and
amortization 9,174 7,817 26,946 22,882
Add: Minority interest related
to income from continuing
operations and income
from discontinued operations 3,555 3,383 8,876 10,384
Less: Gain on sale of real estate (2,274) - (3,486) (58)
FFO(A) 32,296 24,271 83,799 70,926
Less: Preferred share dividends (3,152) - (7,780) -
FFO available to common shareholders 29,144 24,271 76,019 70,926
Basic FFO per common share $0.65 $0.60 $1.74 $1.83
Diluted FFO per common share $0.64 $0.59 $1.72 $1.79
Weighted average number of common
shares and units - basic 45,133 40,185 43,598 38,652
Weighted average number of common
shares and units - diluted 45,504 40,997 44,077 39,547
Other financial information:
Straight-lined rental revenue $957 $1,212 $3,145 $3,697
2004 and 2005 Earnings Guidance and Reconciliation of Net Income to Funds
From Operations (FFO) and FFO Available to Common Shareholders:
Projected Year Ended
December 31, December 31,
2004 2005
Low-End High-End
Net income $71,700 $84,600 $85,200
Adjustments:
Add: Real estate depreciation and
amortization 36,500 40,000 40,000
Add: Minority interest related to
income from continuing operations
and income from discontinued
operations 12,600 15,450 15,625
Less: Gain on sale of real estate (3,485) - -
FFO(A) 117,315 140,050 140,825
Less: Preferred share dividends (10,931) (12,606) (12,606)
FFO available to common
shareholders $106,384 $127,444 $128,219
Weighted average number of common
shares used to compute fully diluted
earnings per common share 37,000 38,700 38,700
Weighted average number of common
shares and units used to compute
fully diluted FFO per common share 44,700 47,000 47,000
Net income per diluted common share
(B)/(C) $1.64 $1.86 $1.88
FFO per diluted common share(B)/(C) $2.38 $2.69 $2.71
(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.
(B) 2004 projection includes a debt extinguishment charge of approximately
$9.4 million, or $0.21 per diluted share, recorded during the nine-months
ended September 30, 2004.
(C) The 2004 and 2005 diluted net income and FFO per share calculations
include an estimate for the impact of the if-converted method for the
Company's contingently convertible securities.
September 30, December 31,
2004 2003
Selected Balance Sheet Data (in
thousands)
Real estate before accumulated
depreciation $2,060,794 $1,874,810
Real estate investments, at cost 2,076,773 1,905,327
Cash and cash equivalents 8,049 13,352
Other assets* 77,045 89,670
Total assets 2,010,645 1,861,585
Mortgage debt 661,562 1,066,084
Unsecured debt** 381,563 4,425
Borrowings under credit facilities 10,000 75,009
Total other liabilities*** 40,148 34,341
Minority Interest 132,207 112,452
Total shareholders' equity 785,165 569,274
* Other assets includes:
Straight-lined rents receivable 19,191 16,706
Deferred loan fees, net 23,492 18,113
Restricted cash 13,309 20,183
Secured notes 15,979 30,517
** Net of fair value swap valuation
totaling: (3,437) -
*** Other liabilities includes:
Security deposits 5,849 7,568
Derivative instrument liability 11,934 13,541
Total shares outstanding 38,391 33,033
Total shares and units outstanding 46,503 40,883
September 30, December 31,
Selected Portfolio Data (unaudited) 2004 2003
Properties 327 331
States 31 30
Land acres 2,532 2,323
Square footage of buildings (in
millions) 14.3 13.6
Weighted average initial lease term
(in years) 15.0 14.7
Franchises 489 445