Capital Automotive Reports First Quarter Results
* 19% Revenue Increase
* 23% Increase in Diluted Net Income Available to Common Shareholders
* 28% Increase in Diluted Funds From Operations ("FFO") Available to Common Shareholders
* Transacted Nearly $50 Million of Real Estate Investments
MCLEAN, Va., April 26 -- Capital Automotive REIT , the nation's leading specialty finance company for automotive retail real estate, today announced financial results for the first quarter ended March 31, 2005.
Total revenues were $56.7 million for the quarter, a 19% increase from revenues of $47.5 million in the first quarter of 2004.
Net income available to common shareholders on a diluted basis for the quarter increased 23% to $20.5 million as compared to $16.7 million for the same quarter last year. Net income on a diluted per share basis decreased 2% to $0.47 per share from $0.48 per share for the same quarter last year. Included in net income available to common shareholders on a diluted basis for the quarter ended March 31, 2004 were lease termination fees and a combined gain totaling $2.0 million, or $0.06 per diluted share, related to the sale of six auto retail locations. Included in net income available to common shareholders on a diluted basis for the quarter ended March 31, 2005 were a lease termination fee and a combined gain totaling $163,000, or less than $0.005 per diluted share, as further described below.
Funds From Operations (FFO) available to common shareholders on a diluted basis for the quarter increased 28% to $36.1 million as compared to $28.1 million for the same quarter last year. FFO on a diluted per share basis was $0.66 per share, consistent with the same quarter last year. Included in FFO for the quarter ended March 31, 2004 were lease termination fees totaling $1.2 million, or $0.03 per diluted share, related to the first quarter 2004 sales as noted above. Included in FFO for the quarter ended March 31, 2005 was a lease termination fee totaling $93,000, or less than $0.01 per diluted share, as further described below. 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.
As previously announced, the Company's Board of Trustees declared a cash dividend of $0.4380 per share for the first quarter. The dividend is payable on May 20, 2005 to shareholders of record as of May 10, 2005. The first quarter dividend is the 29th consecutive increase in the quarterly dividend and represents an annualized rate of $1.752 per share and a 5.3% yield based on Friday's closing stock price. The Company's dividend payout ratio for the first quarter of 2005 was approximately 66% of basic FFO available to common shareholders. The Company reaffirms its 2005 annual dividend guidance of $1.80 per share.
The Company's Board of Trustees also declared a dividend for the period commencing February 1, 2005 and ending on April 30, 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 May 16, 2005 to shareholders of record as of May 2, 2005. 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 7.6%, in each case based on Friday's closing preferred stock prices.
Real Estate Investments
During the first quarter, the Company increased its net real estate investments by approximately $36 million (consisting of $48 million in real estate investments, $12 million in property and mortgage dispositions and repayments of mortgage notes receivable and construction advances). These investments were located in eight states, including two auto retail properties, facility improvements, advances on one mortgage note receivable and construction advances. These transactions were completed with six existing tenants, the majority of which are public or private Top 100 dealer groups. The first quarter real estate investments contain five automotive franchises 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 cash on hand and the issuance of new long-term debt as further described below.
Commenting on today's news, Thomas D. Eckert, President and Chief Executive Officer, stated, "We are pleased with our first quarter operating results and remain very optimistic about 2005. Our pipeline of transactions continues to grow and we see nothing in the near term that would prevent us from achieving our annual guidance. We continue to deliver best of class service to our clients and strengthen our relationships with the top retailers in the industry as witnessed by the significant level of repeat transactions with existing customers. Our portfolio is performing extremely well and continues to get stronger with opportunistic asset sales and solid dealer financial performance."
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 first quarter, the Company sold one auto retail location and a mortgage note receivable for approximately $6.4 million in proceeds, net of commissions and other costs, and recognized approximately $100,000 of a previously deferred gain. The earnings generated from the real estate disposition, including the lease termination fee, and the gain related to the sale of the mortgage note receivable have been reported as discontinued operations.
Portfolio Highlights
As of March 31, 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 December 31, 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 first quarter, the Company held lease security deposits and letters of credit totaling approximately $15.4 million. As of March 31, 2005, the Company had accumulated depreciation of $154 million representing 6.9% of its real estate asset portfolio. The weighted average remaining lease term of the portfolio is 11.7 years as of March 31, 2005 and the earliest meaningful lease expirations do not occur until 2008.
Financing Highlights
The Company completed the following transactions during the first quarter:
* On January 27, 2005, as previously announced, the Company repaid $73.0
million of secured variable rate debt that had been formerly swapped
to fixed rate debt, bearing interest at 7.5%. The Company terminated
the swap on this debt during December 2004 in anticipation of a first
quarter payoff. The secured debt repaid had a spread over LIBOR of 175
basis points with a remaining maturity of 8.6 years. The debt was
repaid with borrowings on the Company's unsecured credit facility
(currently priced at a spread over LIBOR of 95 basis points);
* On February 24, 2005, as previously announced, Capital Automotive
L.P., the Company's operating partnership (the "Partnership") sold
$100 million aggregate principal amount of its senior notes in a
private offering to institutional "accredited investors" within the
meaning of Regulation D under the Securities Act of 1933. The notes
bear interest at a fixed rate of 5.46% per annum and mature on
February 24, 2015. Net proceeds were used to repay borrowings on its
unsecured credit facility. In addition, as part of the offering, on
March 30, 2005, the Partnership sold an additional $75 million
aggregate principal balance to the same institutional accredited
investors. The Company has guaranteed the notes. A portion of the net
proceeds were used to repay borrowings outstanding on the Company's
unsecured credit facility and to fund acquisitions. The remainder of
the net proceeds will be used to fund future real estate investments
and for general corporate purposes; and
* On March 24, 2005, the Company repaid $8.5 million of secured variable
rate debt. The secured debt repaid had a spread over LIBOR of 225
basis points with a remaining maturity of 9.6 years. The debt was
repaid with borrowings on the Company's unsecured credit facility,
which was subsequently repaid with the proceeds received from the
private placement transaction noted above.
As of March 31, 2005, the Company's real estate investments before accumulated depreciation totaled nearly $2.3 billion. Total long-term mortgage and unsecured debt was $1.11 billion and there were no draws outstanding under the Company's credit facility. The Company's debt to assets (total assets plus accumulated depreciation) ratio was approximately 47% and debt to total market capitalization ratio was approximately 37% as of March 31, 2005. As of March 31, 2005, the Company's mortgage and unsecured debt (excluding borrowings on its credit facility) had a weighted average remaining term of 9.8 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 March 31, 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 82% match-funded. As of March 31, 2005, the Company's total outstanding fixed rate debt equaled approximately 47% of its total real estate investments subject to fixed rate leases. The weighted average remaining term of its fixed rate leases was 12.1 years and the weighted average remaining term of its outstanding fixed rate debt was 10.3 years. As a result, the Company's fixed rate leases and fixed rate debt were 85% match-funded. The Company's total outstanding variable rate debt equaled approximately 62% of its total real estate investments subject to variable rate leases. The weighted average remaining term of its variable rate leases was 11.3 years and the weighted average remaining term of its outstanding variable rate debt was 8.3 years. As a result, variable rate leases and debt were 73% match-funded.
Earnings and Dividend Guidance
The Company is reaffirming its 2005 FFO guidance range of $2.72 to $2.74 per diluted share and its net income guidance range of $1.94 to $1.96 per diluted share. The Company's 2005 guidance assumes net real estate investments during 2005 totaling approximately $200 million and assumes LIBOR rises from 2.6% to 3.8% during 2005. Because of the nature of the Company's variable rate lease program, if LIBOR falls below 2.6% or rises above 3.8% during the year, the Company's results should either fall within or exceed the guidance range. 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.
David S. Kay, Senior Vice President, Chief Financial Officer and Treasurer added, "As a new investment grade issuer, we achieved excellent execution on our debut unsecured note transaction during the first quarter. We continue to reduce our cost of debt and improve our balance sheet and operating flexibility. We believe our credit statistics continue to strengthen and that our capital structure positions us well to achieve our goals."
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 March 31, 2005, the Company had invested nearly $2.3 billion in 343 properties, consisting of 505 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 73% 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 15.1 years.
CAPITAL AUTOMOTIVE REIT
UNAUDITED SUPPLEMENTAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended
March 31,
2005 2004
Statements of Operations:
Revenue:
Rental $ 55,568 $ 46,505
Interest and other 1,087 970
Total revenue 56,655 47,475
Expenses:
Depreciation and amortization 10,133 8,575
General and administrative 3,284 2,741
Interest 15,976 17,005
Total expenses 29,393 28,321
Income from continuing operations before
minority interest 27,262 19,154
Minority interest (3,810) (3,215)
Income from continuing operations 23,452 15,939
Income from discontinued operations, net of
minority interest 88 1,654
Gain on sale of real estate, net of minority
interest 84 953
Total discontinued operations 172 2,607
Net income 23,624 18,546
Preferred share dividends (3,152) (1,852)
Net income available to common shareholders -
basic and diluted $ 20,472 $ 16,694
Basic earnings per common share:
Income from continuing operations $ 0.47 $ 0.41
Net income $ 0.47 $ 0.49
Diluted earnings per common share (A):
Income from continuing operations $ 0.47 $ 0.41
Net income $ 0.47 $ 0.48
Weighted average number of common
shares - basic 43,235 34,049
Weighted average number of common
shares - diluted 43,538 34,673
Reconciliation of Net Income to Funds From Operations (FFO) and FFO
Available to Common Shareholders:
Net income $ 23,624 $ 18,546
Adjustments:
Add: Real estate depreciation and amortization 10,105 8,805
Add: Minority interest related to income from
continuing operations and income from
discontinued operations 3,826 3,592
Less: Gain on sale of real estate (84) (953)
FFO (B) 37,471 29,990
Less: Preferred share dividends (3,152) (1,852)
FFO available to common shareholders - basic 34,319 28,138
Dilutive effect of convertible securities 1,811 -
FFO available to common shareholders - diluted 36,130 28,138
Basic FFO per common share $ 0.67 $ 0.67
Diluted FFO per common share (C) $ 0.66 $ 0.66
Weighted average number of common shares
and units - basic 51,350 41,823
Weighted average number of common shares
and units - diluted 54,747 42,447
Other financial information:
Straight-lined rental revenue, including
discontinued operations $ 939 $ 1,118
(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 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.
(C) 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 ended March 31, 2005. Therefore, the calculation
includes the effect of the potential conversion resulting in a
reduction in interest expense totaling approximately $1.8 million as
well as an additional 3.1 million common shares outstanding during the
period.
2005 Earnings Guidance and Reconciliation of Net Income to Funds From
Operations (FFO) and FFO Available to Common Shareholders:
Projected Year Ended
December 31, 2005
Low-End High-End
Net income $ 98,200 $ 98,900
Adjustments:
Add: Real estate depreciation and
amortization 42,100 42,500
Add: Minority interest related to income
from continuing operations and income from
discontinued operations 16,000 16,200
Less: Gain on sale of real estate (80) (80)
FFO 156,220 157,520
Less: Preferred share dividends (12,606) (12,606)
FFO available to common shareholders - basic $ 143,614 $ 144,914
Diluted effect of convertible securities 7,250 7,250
FFO available to common shareholders -
diluted $ 150,864 $ 152,164
Weighted average number of common shares
used to compute fully diluted earnings per
common share 44,100 44,100
Weighted average number of common shares
and units used to compute fully diluted
FFO per common share 55,500 55,500
Net income per diluted common share (A) $ 1.94 $ 1.96
FFO per diluted common share $ 2.72 $ 2.74
(A) The impact of the if-converted method for the Company's contingently
convertible securities on net income per diluted share is anti-
dilutive.
March 31, December 31,
2005 2004
Selected Balance Sheet Data (in thousands)
Real estate before accumulated depreciation $ 2,236,688 $ 2,197,323
Real estate investments, at cost 2,276,652 2,240,701
Cash and cash equivalents 40,816 8,332
Other assets* 96,579 96,388
Total assets 2,220,250 2,158,157
Mortgage debt 547,146 634,365
Unsecured debt** 555,148 381,592
Borrowings under credit facilities - 30,000
Total other liabilities*** 32,693 33,396
Minority Interest 145,428 144,877
Total shareholders' equity 939,835 933,927
* Other assets includes:
Straight-lined rents receivable 21,133 20,203
Deferred loan fees, net 23,212 22,725
Restricted cash 7,158 5,016
Mortgage notes receivable and
construction advances 39,964 43,378
** Net of fair value swap valuation totaling: (4,852) (3,408)
*** Other liabilities includes:
Security deposits 10,128 9,665
Derivative instrument liability 4,852 3,408
Total shares outstanding 43,683 43,406
Total shares and units outstanding 51,798 51,522
March 31, December 31,
Selected Portfolio Data (unaudited) 2005 2004
Properties 343 342
States 31 31
Land acres 2,594 2,584
Square footage of buildings (in millions) 15.0 14.9
Weighted average initial lease term (in years) 15.1 15.1
Franchises 505 500