<PAGE> 1
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 September 30, 1999
( ) 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
---------
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
------- -------
Number of common shares of beneficial interest outstanding as of November 10,
1999 was 21,607,415.
<PAGE> 2
CAPITAL AUTOMOTIVE REIT
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets - September 30, 1999 (unaudited) and
December 31, 1998. 3
Consolidated Statements of Operations (unaudited) - three months
and nine months ended September 30, 1999 and September 30, 1998. 4
Consolidated Statements of Cash Flows (unaudited) - nine months
ended September 30, 1999 and September 30, 1998. 5
Notes to Consolidated Financial Statements (unaudited) 6 - 12
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 13 - 22
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 22
Part II - Other Information
Item 1 - Legal Proceedings 23
Item 2 - Changes in Securities 23
Item 3 - Defaults Upon Senior Securities 23
Item 4 - Submission of Matters to Vote to Security Holders 23
Item 5 - Other Information 23
Item 6 - Exhibits and Reports on Form 8-K 23 - 24
Signatures 25
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CAPITAL AUTOMOTIVE REIT
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
ASSETS
Real estate:
<S> <C> <C>
Land $ 387,097 $ 238,970
Buildings and improvements 476,613 272,162
Accumulated depreciation (17,085) (6,145)
--------- ---------
846,625 504,987
Cash and cash equivalents 49,335 72,106
Other assets, net 22,539 6,118
--------- ---------
TOTAL ASSETS $ 918,499 $ 583,211
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Mortgage loans $ 493,150 $ 161,997
Accounts payable and accrued expenses 6,926 14,752
Security deposits payable 4,682 3,907
--------- ---------
TOTAL LIABILITIES 504,758 180,656
--------- ---------
Minority Interest 104,345 93,898
SHAREHOLDERS' EQUITY
Preferred shares, $.01 par value; 20,000,000
shares authorized; none outstanding - -
Common shares, $.01 par value; 100,000,000 shares
authorized; 24,792,115 shares issued 248 248
Additional paid-in-capital 345,609 345,905
Accumulated deficit (2,990) (4,025)
Less treasury shares at cost, 3,184,700 common shares (33,471) (33,471)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 309,396 308,657
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 918,499 $ 583,211
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
CAPITAL AUTOMOTIVE REIT
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Rental $ 20,183 $ 8,425 $ 50,380 $ 15,254
Interest and other 574 1,938 1,063 6,975
-------- -------- -------- --------
Total revenue 20,757 10,363 51,443 22,229
-------- -------- -------- --------
Expenses:
Depreciation and amortization 3,497 1,972 11,177 3,311
General and administrative 1,603 1,630 5,230 3,992
Interest 7,401 159 14,400 328
-------- -------- -------- --------
Total expenses 12,501 3,761 30,807 7,631
-------- -------- -------- --------
Net income before minority interest 8,256 6,602 20,636 14,598
Minority interest (2,074) (1,381) (5,100) (2,928)
-------- -------- -------- --------
Net income $ 6,182 $ 5,221 $ 15,536 $ 11,670
======== ======== ======== ========
Shares of common stock outstanding used to
compute basic earnings per share 21,607 24,713 21,607 20,597
======== ======== ======== ========
Basic earnings per share $ 0.29 $ 0.21 $ 0.72 $ 0.57
======== ======== ======== ========
Shares of common stock outstanding used to
compute diluted earnings per share 21,640 24,713 21,626 20,665
======== ======== ======== ========
Diluted earnings per share $ 0.29 $ 0.21 $ 0.72 $ 0.56
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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CAPITAL AUTOMOTIVE REIT
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPT. 30,
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,536 $ 11,670
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 11,592 3,311
Income applicable to minority interest 5,100 2,928
Increase in other assets (16,892) (4,717)
Increase in accounts payable and accrued expenses 1,121 6,886
Increase in security deposits payable 775 3,702
--------- ---------
Net cash provided by operating activities 17,232 23,780
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment (68) (263)
Real estate acquisitions, net of sales (342,885) (317,987)
--------- ---------
Net cash used in investing activities (342,953) (318,250)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings 62,000 13,000
Proceeds from mortgage loans 335,000 -
Repayment of bank and other borrowings (62,000) (1,000)
Mortgage principal payments (3,847) -
Proceeds from issuance of initial public offering of
common shares and underwriters' over-allotment
option, net of issuance costs - 317,285
Proceeds from issuance of private placement,
net of issuance costs - 25,000
Payment of cash dividend (21,416) (7,091)
Payment of partner distribution (6,658) (1,654)
Other fees (129) (10,957)
--------- ---------
Net cash provided by financing activities 302,950 334,583
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (22,771) 40,113
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 72,106 25
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 49,335 $ 40,138
========= =========
SUPPLEMENTAL DATA:
Real estate acquisitions in exchange for equity issuance $ 9,806 $ 95,286
========= =========
Interest paid during the period $ 9,971 $ 305
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
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 its property interests and
conducts its operations through Capital Automotive L.P. (the "Operating
Partnership") and its subsidiaries. The Company is the sole general partner of
the Operating Partnership. The Company completed its initial public offering of
common shares and began generating rental income in February 1998. The term
"Capital Automotive Group" refers to the Company and the Operating Partnership
and their subsidiaries. In this Quarterly Report on Form 10-Q, the term
"subsidiary" of the Company or the Operating Partnership means a corporation,
partnership, limited liability company or similar entity if the Company or the
Operating Partnership, alone or together, directly or indirectly, own at least a
majority of the equity interests of the entity. Typically the Operating
Partnership forms a subsidiary limited liability company or limited partnership
to own properties acquired from a given dealership group. This structure is
intended to facilitate financing and transfers involving such properties.
Capital Automotive Group's primary business purpose is to own and lease real
estate properties (land, buildings and other improvements) to operators of
franchised automobile dealerships, motor vehicle service, repair or parts
businesses and related businesses. In this Quarterly Report on Form 10-Q,
Capital Automotive Group uses the term "dealerships" to refer to these types of
businesses that are operated on its properties.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
by the Company's management in accordance with 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 nine months
ended September 30, 1999, are not necessarily indicative of the results that may
be expected for the full year. These financial statements should be read in
conjunction with the Company's audited consolidated financial statements and
footnotes thereto, included in the Company's Annual Report on Form 10-K.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements have been prepared in
accordance with GAAP and include the accounts of Capital Automotive Group, net
of minority interest as defined in Note 8 herein.
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All intercompany balances and transactions have been eliminated in
consolidation.
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.
During the third quarter, Capital Automotive Group reviewed the age and
remaining useful life of each of its properties in its real estate portfolio.
Based on the average age of the portfolio, Capital Automotive Group changed the
depreciable life on the majority of its buildings and improvements that were
currently being depreciated over a 20-year life to a 30-year life in order to
properly reflect the remaining useful lives. The change in depreciable life is
considered a change in an accounting estimate and has been recorded on a
prospective basis beginning in the third quarter of 1999. The impact of this
change added approximately $1.1 million to third quarter 1999 net income.
Cash and Cash Equivalents
Cash and cash equivalents are comprised of highly liquid instruments purchased
with original maturities of three months or less.
Income Taxes
The Company is qualified as a real estate investment trust under the provisions
of the Internal Revenue Code of 1986, as amended. As a real estate investment
trust, the Company is generally not subject to federal income tax to the extent
that it distributes annually at least 95% of its taxable income to its
shareholders and complies with certain other requirements.
Rental Revenue Recognition
The Company leases its real estate pursuant to long-term triple-net leases which
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.
During the third quarter of 1999, Capital Automotive Group began, on a
prospective basis, straight-lining its rents for its leases with fixed minimum
escalators.
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.
7
<PAGE> 8
3. ACQUISITIONS
During the three months ended September 30, 1999, Capital Automotive Group
acquired 63 dealership properties in 13 states, representing 81 automotive
franchises, for a total purchase price, including closing costs, of
approximately $220.7 million. Details of significant acquisitions during the
third quarter of 1999 include:
- - MMR Holdings, L.L.C. and subsidiaries ("MMR")
During the third quarter of 1999, Capital Automotive Group closed on the
acquisition of MMR, an affiliate of Sonic Automotive, Inc. ("Sonic"). As a
result of the acquisition of MMR, Capital Automotive Group acquired 57
dealership properties valued at approximately $199 million, including
closing costs, and following the acquisition of MMR, acquired two
additional properties through MMR for approximately $8 million, including
closing costs. These 59 properties are located in ten states (Alabama,
Florida, Georgia, Maryland, North Carolina, Ohio, South Carolina,
Tennessee, Texas and Virginia) and contain 76 automotive franchises
including BMW, Chrysler, Ford and Toyota. The properties total
approximately 1.9 million square feet of buildings and improvements on 354
acres of land. In connection with the MMR acquisition, Capital Automotive
Group assumed and amended a $150 million mortgage loan from Ford Motor
Credit Company (see Note 5 - Mortgage Loans).
In connection with the MMR acquisition, Capital Automotive Group, through
MMR, entered into or continued 58 long-term leases of the 59 dealership
properties. Pursuant to these leases, Capital Automotive Group receives
rent from affiliates of Sonic (in the case of 49 leases) and six other
tenants that operate motor vehicle related businesses (in the case of nine
leases).
The terms of the leases with Sonic affiliates are identical to each other
except that the tenant, the amount of the rent and the expiration dates of
the leases vary. The leases with Sonic affiliates are guaranteed by Sonic,
and Sonic has agreed to renew leases representing at least 75% of the
total rental payments due under the Sonic leases for an additional
five-year term. During the terms of the leases with Sonic affiliates,
Sonic may substitute replacement properties for leased properties with an
aggregate original purchase price and allocated costs of up to an
aggregate of $51 million. Any substituted property must be subject to a
lease with a Sonic affiliate that is guaranteed by Sonic and have a value
approximately equal to, but not less than, the purchase price and
allocated costs of the original property. The substituted property must
also satisfy the requirements of Ford Motor Credit Company for a
replacement property.
The leases of the properties leased to the other six tenants are
triple-net leases with terms that are similar to those of Capital
Automotive Group's remaining lease portfolio.
In connection with the acquisition of MMR, Capital Automotive Group also
issued a firm commitment to Sonic to purchase up to $75 million in
additional dealership properties by the end of 1999 in conjunction with
future acquisitions of dealership operations by Sonic.
- - Four additional dealership properties
The acquisition of four dealership properties, representing five
automotive franchises, for an aggregate purchase price of $13.8 million.
The properties were acquired from various dealer groups including
Auffenberg Enterprises of Illinois, Inc., two affiliates of Group 1
Automotive, Inc., and Kelley Automotive Group. Consideration for the
properties consisted of $1.4 million in
8
<PAGE> 9
Operating Partnership units ("Units") and the remainder in cash. The
properties total approximately 133,000 square feet of buildings and
improvements on 23 acres of land and are located in four states (Illinois,
Indiana, New Mexico, and Texas). These properties have initial lease terms
ranging from 14 to 15 years, and have renewal options (ranging from a
total of 15 years to 25 years). The renewal options are exercisable at the
option of the tenant.
As of September 30, 1999, Capital Automotive Group had invested a total of
approximately $863.7 million in 216 properties. These properties represent 332
automotive franchises in 26 states and total approximately 7.4 million square
feet of buildings and improvements on 1,228 acres of land. The properties are
leased on long-term, triple-net leases with an average initial lease term of
13.2 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, options and warrants. For the three-months and
nine-months ended September 30, 1999, there were 33,000 and 19,000 dilutive
common equivalent shares outstanding, respectively. For the three-months ended
September 30, 1998 there were no dilutive common equivalent shares outstanding
and for the nine-months ended September 30, 1998, there were 68,000 dilutive
common equivalent shares outstanding.
5. MORTGAGE LOANS
As of September 30, 1999, Capital Automotive Group had mortgage indebtedness
totaling approximately $493.2 million secured by various dealership properties
owned by the Operating Partnership and certain subsidiaries of the Operating
Partnership. The total mortgage debt consisted of the following:
- - A $12 million mortgage note payable to a financial institution and assumed
by Capital Automotive Group in November 1998 as partial consideration for
the acquisition of four dealership properties. The note is secured by the
properties acquired. The mortgage note bears interest at 7.50% per annum
until maturity (7.75% per annum, including all closing costs). Principal
and interest are payable monthly. At September 30, 1999, the principal
amount outstanding was approximately $11.8 million. At maturity on January
20, 2003, a final payment of approximately $10.8 million will be required.
There are no financial covenants required under this note; however, there
are negative covenants relating to customary items such as operation and
maintenance of the properties securing the note and limitations on issuing
additional secured debt at the subsidiary level. As of September 30, 1999,
Capital Automotive Group was in compliance with the loan covenants.
- - A $150 million, non-recourse loan ("Permanent Loan"), evidenced by four
separate loans and notes, with Global Alliance Finance Company, L.L.C.
("GAFCO"), which closed in November 1998. The original terms of the
Permanent Loan required consecutive monthly payments of interest only for
two years. Thereafter, monthly payments of principal and interest were
required in an amount sufficient to amortize the Permanent Loan over a
25-year term (the "amortization period"). The term of the Permanent Loan
was ten years and incurred interest at a coupon rate of
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7.67% per annum until maturity on December 1, 2008. The Permanent Loan is
secured by mortgages on the 57 properties financed. The Operating
Partnership has provided a limited $35 million guaranty of the Permanent
Loan, which guaranty is contingent upon the occurrence of certain
circumstances. A majority of the loan proceeds was used to finance
acquisitions. There are no financial covenants required under the
Permanent Loan; however, there are negative covenants relating to
customary items such as operation and maintenance of the properties
securing the Permanent Loan and limitations on issuing additional secured
debt at the subsidiary level. As of September 30, 1999, Capital Automotive
Group was in compliance with the loan covenants.
During the first quarter of 1999, Capital Automotive Group and GAFCO
modified the terms of one of the loans (approximately $38.1 million of the
Permanent Loan) in order to provide GAFCO with more flexibility in
structuring a commercial mortgage backed security execution. The interest
rate on this note was reduced to 7.59% per annum (7.98% per annum,
including all closing costs), the period during which monthly
interest-only payments were payable were reduced to approximately one year
and the amortization period was reduced to approximately 17 years. The
term of the note remained at 10 years. As of September 30, 1999, the
principal amount outstanding on this portion of the Permanent Loan was
approximately $38.1 million. At maturity on December 1, 2008, a final
payment of approximately $24.5 million will be required. There were no
amendments to the loan covenants.
During the third quarter of 1999, Capital Automotive Group and German
American Capital Corporation ("GACC") (as successor-in-interest to GAFCO),
restructured the remaining three notes (approximately $112 million of the
Permanent Loan) in order to provide GACC with more flexibility in
structuring a commercial mortgage backed security execution. The
restructuring requires monthly principal and interest payments beginning
on October 1, 1999. In addition, the coupon rate was reduced to 7.635% per
annum (7.92% per annum, including all closing costs) and the term was
modified to 15 years, maturing on October 1, 2014, with a 15-year
amortization period. Also during the third quarter of 1999, Capital
Automotive Group repaid approximately $3.7 million of the Permanent Loan.
As of September 30, 1999, the principal amount outstanding on this portion
of the Permanent Loan was approximately $108.3 million. At maturity a
final payment of approximately $3.4 million will be required. There were
no amendments to the loan covenants.
- - An $85 million, non-recourse loan with GACC, which was closed during
September 1999. The note has a fixed coupon rate of 8.05% per annum (8.32%
per annum, including all closing costs). The term of the note is 15 years
with principal amortization based on a 15-year amortization schedule. The
note requires monthly payments of interest and principal until maturity on
October 1, 2014. The note is secured by mortgages on approximately 28
dealership properties owned by certain subsidiaries of the Operating
Partnership. Proceeds from the note were used to repay existing short-term
debt, to finance property acquisitions and for general corporate purposes.
As of September 30, 1999, the principal amount outstanding on this note
was approximately $85 million. At maturity a final payment of
approximately $2.9 million will be required. Debt covenants required under
the note are consistent with the Permanent Loan and as of September 30,
1999, Capital Automotive Group was in compliance with the loan covenants.
The $85 million loan and the $108.3 million portion of the Permanent Loan
are cross-collateralized.
- - A $100 million mortgage loan from Ford Motor Credit Company ("FMCC") which
was closed during July 1999. The mortgage loan is secured by approximately
48 dealership properties owned by the Operating Partnership and certain
subsidiaries of the Operating Partnership. The term of
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the financing is 12 years with principal amortization based on a 25-year
amortization schedule. The loan bears interest at a fixed rate equal to
7.54% per annum (7.70% per annum, including all closing costs) until
maturity. Principal and interest are payable quarterly. The majority of
the proceeds were used to fund property acquisitions, to repay short-term
borrowings under the Company's revolving credit facility and for general
corporate purposes. At September 30, 1999, the principal amount
outstanding was $100 million. This loan will require a final payment of
approximately $73.3 million at maturity on July 6, 2011. There is one
financial covenant limiting debt to 65% of assets, as defined in the FMCC
loan agreement. There are negative covenants relating to customary items
such as operation and maintenance of the properties securing the loan and
limitations on issuing additional secured debt at the subsidiary level. As
of September 30, 1999, Capital Automotive Group was in compliance with the
loan covenants.
- - A $150 million mortgage note with FMCC, which was assumed and amended by
Capital Automotive Group in connection with the MMR acquisition. The
mortgage note is secured by substantially all of the properties acquired
in connection with the MMR acquisition. The term of the note is 12 years.
The mortgage note accrued interest from the closing date (August 13, 1999)
through September 29, 1999 at variable rates ranging from 7.56% to 7.76%.
Beginning September 30, 1999, the loan bears interest at a fixed rate
equal to 8.03% per annum (8.07% per annum, including all closing costs)
until maturity. The terms of the loan require quarterly interest-only
payments for two years. Thereafter, payments of principal and interest
will be made quarterly in an amount sufficient to amortize the loan over a
25-year period. At September 30, 1999, the principal amount outstanding
was $150 million. A final payment of approximately $124.6 million will be
required at maturity on September 29, 2011. Debt covenants required under
the note are consistent with the $100 million mortgage loan with FMCC. As
of September 30, 1999, Capital Automotive Group was in compliance with the
loan covenants.
During August of 1999, Capital Automotive Group closed on a $55 million bridge
loan with a financial institution to partially fund the MMR acquisition. The
bridge loan was repaid with the proceeds of the $85 million loan from GACC
during the third quarter of 1999. The bridge loan required monthly interest-only
payments, at a rate equal to the one month LIBOR plus 200 basis points.
6. SHORT-TERM FINANCING
As of September 30, 1999, Capital Automotive Group had a $50 million revolving
secured credit facility from a financial institution, under which no amounts
were outstanding. The facility has a three-year term and terminates on March 3,
2002. The facility bears interest equal to the one month LIBOR plus 175 basis
points. The facility contains financial covenants that Capital Automotive Group
must comply with annually. As of September 30, 1999, Capital Automotive Group
was in compliance with the loan covenants.
Capital Automotive Group is in the process of reviewing its short-term financing
alternatives, which include the continued negotiation of a secured syndicated
revolving credit facility or pursuing an unsecured revolving credit facility.
Capital Automotive Group is currently in negotiations with, and has commitments
from, four financial institutions for a secured, syndicated, revolving credit
facility, in the aggregate amount of $95 million. The syndicated credit facility
would have a three-year term, and borrowings would bear interest at a rate
anticipated to equal the one-month LIBOR plus 175 basis points. In addition,
Capital Automotive Group has had discussions with several financial institutions
to provide an unsecured revolving credit facility, the amount and terms of which
have not
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been determined. Either facility would provide funds for the acquisition of
dealership properties and for general corporate purposes.
7. 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 deferred the effective date until
June 15, 2000. 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 Company believes that the adoption
of SFAS 133 will not have a significant impact on the Company's consolidated
financial position, results of operations or cash flows.
8. MINORITY INTEREST
Minority Interest is calculated at approximately 25.2 percent of the Operating
Partnership's partners' capital and net income as of September 30, 1999. The
ownership of the Operating Partnership as of September 30, 1999 is as follows
(Units in thousands):
<TABLE>
<CAPTION>
Units Percent
-------- ---------
Partners' capital:
<S> <C> <C>
Limited Partners 7,287.2 25.2%
The Company 21,607.4 74.8%
-------- -----
Total 28,894.6 100.0%
======== =====
</TABLE>
9. 401(K) PLAN
During 1998, the Company adopted the Capital Automotive L.P. Employee 401 (k)
Plan. Employees who are at least 21 years of age are eligible to participate in
the plan after three months of service. Participants may contribute up to 20% of
their earnings, on a pre-tax basis, subject to annual limitations imposed by the
Internal Revenue Code. The Company may make matching or discretionary
contributions to the plan at the discretion of management. Employer
contributions generally vest over five years. No matching or discretionary
contributions have been paid or declared for the nine months ended September 30,
1999.
10. SUBSEQUENT EVENTS
Declaration of Dividend
On October 25, 1999, the Company declared a dividend of $0.35 per share, which
will be paid on November 19, 1999 to shareholders of record as of November 10,
1999.
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CAPITAL AUTOMOTIVE REIT
ITEM II - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - THREE MONTHS AND NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
The following discussion should be read in conjunction with the accompanying
unaudited consolidated financial statements and notes thereto.
OVERVIEW
Capital Automotive REIT (the "Company") is a Maryland real estate investment
trust formed in October 1997. The Company owns its property interests through
Capital Automotive L.P. (the "Operating Partnership") and its subsidiaries. The
Company is the sole general partner of the Operating Partnership. The Company
completed its initial public offering of common shares and began generating
rental income in February 1998. The term "Capital Automotive Group" refers to
the Company and the Operating Partnership and their subsidiaries. In this
Quarterly Report on Form 10-Q, the term "subsidiary" of the Company or the
Operating Partnership means a corporation, partnership, limited liability
company or similar entity if the Company or the Operating Partnership, alone or
together, directly or indirectly, own at least a majority of the equity
interests of the entity. Typically the Operating Partnership forms a subsidiary
limited liability company or limited partnership to own properties acquired from
a given dealership group. This structure is intended to facilitate financing and
transfers involving such properties.
Capital Automotive Group's primary business purpose is to own and lease real
estate properties (land, buildings and other improvements) to operators of
franchised automobile dealerships, motor vehicle service, repair or parts
businesses and related businesses. In this Quarterly Report on Form 10-Q,
Capital Automotive Group uses the term "dealerships" to refer to these types of
businesses that are operated on its properties. Capital Automotive Group's
strategy focuses on acquiring real estate used by multi-site, multi-franchised
dealerships located predominately in major metropolitan areas throughout the
United States.
Substantially all 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 leases are generally for a period of ten to 20 years, with options to renew
upon the same terms and conditions for one or more additional periods of five to
ten years. The renewal options are exercisable at the option of the tenant.
Substantially all of Capital Automotive Group's 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.
Capital Automotive Group incurs general and administrative expenses including,
principally, compensation expense for its executive officers and other
employees, professional fees and various expenses incurred in the process of
identifying and acquiring additional properties. Capital Automotive Group is
self-administered and managed by its trustees, executive officers and staff. The
primary non-cash expense of Capital Automotive Group is the depreciation of its
properties. Capital Automotive Group depreciates buildings and improvements on
the properties currently owned by it over a 40-year period for tax purposes and
a 20-year to 30-year period for financial reporting
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purposes. Capital Automotive Group does not own or lease any significant
personal property, furniture or equipment at any property currently owned by it.
ACQUISITIONS
During the three months ended September 30, 1999, Capital Automotive Group
acquired 63 dealership properties in 13 states, representing 81 automotive
franchises, for a total purchase price, including closing costs, of
approximately $220.7 million. Details of significant acquisitions during the
third quarter of 1999 include:
- - MMR Holdings, L.L.C. and subsidiaries ("MMR")
During the third quarter of 1999, Capital Automotive Group closed on the
acquisition of MMR, an affiliate of Sonic Automotive, Inc. ("Sonic"). As a
result of the acquisition of MMR, Capital Automotive Group acquired 57
dealership properties valued at approximately $199 million, including
closing costs, and following the acquisition of MMR, acquired two
additional properties through MMR for approximately $8 million, including
closing costs. These 59 properties are located in ten states (Alabama,
Florida, Georgia, Maryland, North Carolina, Ohio, South Carolina,
Tennessee, Texas and Virginia) and contain 76 automotive franchises
including BMW, Chrysler, Ford and Toyota. The properties total
approximately 1.9 million square feet of buildings and improvements on 354
acres of land. In connection with the MMR acquisition, Capital Automotive
Group assumed and amended a $150 million mortgage loan from Ford Motor
Credit Company (see Note 5 - Mortgage Loans).
In connection with the MMR acquisition, Capital Automotive Group, through
MMR, entered into or continued 58 long-term leases of the 59 dealership
properties. Pursuant to these leases, Capital Automotive Group receives
rent from affiliates of Sonic (in the case of 49 leases) and six other
tenants that operate motor vehicle related businesses (in the case of nine
leases).
The terms of the leases with Sonic affiliates are identical to each other
except that the tenant, the amount of the rent and the expiration dates of
the leases vary. The leases with Sonic affiliates are guaranteed by Sonic,
and Sonic has agreed to renew leases representing at least 75% of the
total rental payments due under the Sonic leases for an additional
five-year term. During the terms of the leases with Sonic affiliates,
Sonic may substitute replacement properties for leased properties with an
aggregate original purchase price and allocated costs of up to an
aggregate of $51 million. Any substituted property must be subject to a
lease with a Sonic affiliate that is guaranteed by Sonic and have a value
approximately equal to, but not less than, the purchase price and
allocated costs of the original property. The substituted property must
also satisfy the requirements of Ford Motor Credit Company for a
replacement property.
The leases of the properties leased to the other six tenants are
triple-net leases with terms that are similar to those of Capital
Automotive Group's remaining lease portfolio.
In connection with the acquisition of MMR, Capital Automotive Group also
issued a firm commitment to Sonic to purchase up to $75 million in
additional dealership properties by the end of 1999 in conjunction with
future acquisitions of dealership operations by Sonic.
- - Four additional dealership properties
The acquisition of four dealership properties, representing five
automotive franchises, for an
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<PAGE> 15
aggregate purchase price of $13.8 million. The properties were acquired
from various dealer groups including Auffenberg Enterprises of Illinois,
Inc., two affiliates of Group 1 Automotive, Inc., and Kelley Automotive
Group. Consideration for the properties consisted of $1.4 million in
Operating Partnership units ("Units") and the remainder in cash. The
properties total approximately 133,000 square feet of buildings and
improvements on 23 acres of land and are located in four states (Illinois,
Indiana, New Mexico, and Texas). These properties have initial lease terms
ranging from 14 to 15 years, and have renewal options (ranging from a
total of 15 years to 25 years). The renewal options are exercisable at the
option of the tenant.
As of September 30, 1999, Capital Automotive Group had invested a total of
approximately $863.7 million in 216 properties. These properties represent 332
automotive franchises in 26 states and total approximately 7.4 million square
feet of buildings and improvements on 1,228 acres of land. The properties are
leased on long-term, triple-net leases with an average initial lease term of
13.2 years. Capital Automotive Group's portfolio weighted average initial cap
rate at September 30, 1999 was 10.5%, which is calculated as the percentage of
the initial annual base rent over the purchase price paid to the sellers for the
related properties.
RESULTS OF OPERATIONS
Although the Company was formed prior to January 1, 1998, it did not complete
its initial public offering ("IPO") until February 19, 1998, at which time
Capital Automotive Group purchased its initial properties and began generating
rental income.
Rental revenue for the third quarter of 1999 rose 140% to $20.2 million from
$8.4 million in the same quarter of 1998. Rental revenue for the nine months
ended September 30, 1999 rose 230% to $50.4 million from $15.3 million for the
same period of 1998. The increase was attributable to the growth of Capital
Automotive Group's real estate portfolio (216 properties as of September 30,
1999 versus 96 properties as of September 30, 1998), from which Capital
Automotive Group generates its rental income. In addition, during the third
quarter of 1999, Capital Automotive Group began, on a prospective basis,
straight-lining its rents for leases with fixed minimum escalators. This
increased rental revenue for the third quarter of 1999 by approximately
$400,000.
Interest and other income for the third quarter decreased 70% to $574,000 from
$1.9 million in the same quarter of 1998. Interest and other income for the nine
months ended September 30, 1999 decreased 85% to $1.1 million from $7.0 million
for the same period of 1998. Interest and other income during the nine months
ended September 30, 1998 was primarily generated from the investment of the
excess of the net proceeds of a private placement offering and the Company's IPO
including the exercise of the underwriters' over-allotment option (both of which
were completed during the first quarter of 1998). These net proceeds were fully
invested during 1998 and therefore did not generate interest income during 1999.
Interest and other income during 1999 was primarily generated from the
investment of the excess of debt issuance proceeds over the amount invested in
properties and a $245,000 gain on the sale of properties during 1999.
Depreciation and amortization for the third quarter of 1999 increased 77% to
$3.5 million from $2.0 million in the same quarter of 1998. Depreciation and
amortization for the nine months ended September 30, 1999 increased 238% to
$11.2 million from $3.3 million for the same period of 1998 and consisted
primarily of depreciation on buildings and improvements owned during those
periods. The increase is attributable to the growth of Capital Automotive
Group's real estate portfolio, resulting in an increase in its depreciable
assets. Partially offsetting the increase was a change in the
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<PAGE> 16
depreciable life on the majority of Capital Automotive Group's buildings and
improvements that were being depreciated over 20 years. During the third
quarter, Capital Automotive Group reviewed the age and remaining useful life of
each of its properties in its real estate portfolio. Based on the average age of
the portfolio, Capital Automotive Group changed the depreciable life on the
majority of its buildings and improvements that were currently being depreciated
over a 20-year life to a 30-year life in order to properly reflect the remaining
useful lives. The change in depreciable life is considered a change in an
accounting estimate and has been recorded on a prospective basis beginning in
the third quarter of 1999. The impact of this change added approximately $1.1
million to third quarter 1999 net income.
Capital Automotive Group's general and administrative expenses for the third
quarter of 1999 totaled $1.6 million, consistent with the same quarter of 1998.
General and administrative expenses for the nine months ended September 30, 1999
increased 31% to $5.2 million from $4.0 million for the same period of 1998. The
increase during the nine month period ended September 30, 1999, compared to the
same period of 1998, was due primarily to increased payroll and related benefits
attributable to personnel additions throughout 1998, and severance payments due
to staffing reductions during the first quarter of 1999. Also contributing to
the increase were increased marketing expenses as well as increased professional
fees and other administrative costs associated with increased public reporting
requirements. These increases were partially offset by the reduction in payroll
and related expenses as a result of staffing reductions throughout 1999 and the
closing of the Chicago office during the second quarter of 1999.
Interest expense for the third quarter of 1999 increased to $7.4 million from
$159,000 for the same quarter of 1998. Interest expense for the nine-month
period ended September 30, 1999 increased to $14.4 million compared to $328,000
for the same period of 1998. The increase was due to an increase in Capital
Automotive Group's outstanding debt (including mortgage debt and borrowings
under its credit facility), which increased from $13 million as of September 30,
1998 to $493.2 million as of September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $49.3 million and $72.1 million at September 30,
1999 and December 31, 1998, respectively. The changes in cash and cash
equivalents during the nine months ended September 30, 1999 and 1998 were
attributable to operating, investing and financing activities, as described
below.
Cash flow provided by operating activities for the nine months ended September
30, 1999 and 1998 was $17.2 million and $23.8 million, respectively, and
represents, in both periods, cash received 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. The Company's
net cash used in investing activities for the nine months ended September 30,
1999 and 1998 was $343 million and $318.3 million, respectively, and primarily
reflects the acquisition of dealership properties during those periods. Cash
flow from financing activities for the nine months ended September 30, 1999 and
1998 was $303 million and $334.6 million, respectively. Cash flow from financing
activities for the nine months ended September 30, 1999, primarily reflects $335
million of proceeds from mortgage loans closed during the period and $62 million
of proceeds from bank borrowings. This was partially offset by the repayment of
bank borrowings and distributions made to the Company's shareholders and the
Operating Partnership's limited partners during that period. Cash flow from
financing activities for the nine months ended September 30, 1998, primarily
reflects the proceeds of
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<PAGE> 17
a private placement offering and the Company's IPO including the exercise of the
underwriters' over-allotment option, partially offset by distributions made to
the Company's shareholders and the Operating Partnership's limited partners
during that period.
As of September 30, 1999, Capital Automotive Group had mortgage indebtedness
totaling approximately $493.2 million secured by various dealership properties
owned by the Operating Partnership and certain subsidiaries of the Operating
Partnership. The total mortgage debt consisted of the following:
- - A $12 million mortgage note payable to a financial institution and assumed
by Capital Automotive Group in November 1998 as partial consideration for
the acquisition of four dealership properties. The note is secured by the
properties acquired. The mortgage note bears interest at 7.50% per annum
until maturity (7.75% per annum, including all closing costs). Principal
and interest are payable monthly. At September 30, 1999, the principal
amount outstanding was approximately $11.8 million. At maturity on January
20, 2003, a final payment of approximately $10.8 million will be required.
There are no financial covenants required under this note; however, there
are negative covenants relating to customary items such as operation and
maintenance of the properties securing the note and limitations on issuing
additional secured debt at the subsidiary level. As of September 30, 1999,
Capital Automotive Group was in compliance with the loan covenants.
- - A $150 million, non-recourse loan ("Permanent Loan"), evidenced by four
separate loans and notes, with Global Alliance Finance Company, L.L.C.
("GAFCO"), which closed in November 1998. The original terms of the
Permanent Loan required consecutive monthly payments of interest only for
two years. Thereafter, monthly payments of principal and interest were
required in an amount sufficient to amortize the Permanent Loan over a
25-year term (the "amortization period"). The term of the Permanent Loan
was ten years and incurred interest at a coupon rate of 7.67% per annum
until maturity on December 1, 2008. The Permanent Loan is secured by
mortgages on the 57 properties financed. The Operating Partnership has
provided a limited $35 million guaranty of the Permanent Loan, which
guaranty is contingent upon the occurrence of certain circumstances. A
majority of the loan proceeds was used to finance acquisitions. There are
no financial covenants required under the Permanent Loan; however, there
are negative covenants relating to customary items such as operation and
maintenance of the properties securing the Permanent Loan and limitations
on issuing additional secured debt at the subsidiary level. As of
September 30, 1999, Capital Automotive Group was in compliance with the
loan covenants.
During the first quarter of 1999, Capital Automotive Group and GAFCO
modified the terms of one of the loans (approximately $38.1 million of the
Permanent Loan) in order to provide GAFCO with more flexibility in
structuring a commercial mortgage backed security execution. The interest
rate on this note was reduced to 7.59% per annum (7.98% per annum,
including all closing costs), the period during which monthly
interest-only payments were payable were reduced to approximately one year
and the amortization period was reduced to approximately 17 years. The
term of the note remained at 10 years. As of September 30, 1999, the
principal amount outstanding on this portion of the Permanent Loan was
approximately $38.1 million. At maturity on December 1, 2008, a final
payment of approximately $24.5 million will be required. There were no
amendments to the loan covenants.
During the third quarter of 1999, Capital Automotive Group and German
American Capital Corporation ("GACC") (as successor-in-interest to GAFCO),
restructured the remaining three
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notes (approximately $112 million of the Permanent Loan) in order to
provide GACC with more flexibility in structuring a commercial mortgage
backed security execution. The restructuring requires monthly principal
and interest payments beginning on October 1, 1999. In addition, the
coupon rate was reduced to 7.635% per annum (7.92% per annum, including
all closing costs) and the term was modified to 15 years, maturing on
October 1, 2014, with a 15-year amortization period. Also during the third
quarter of 1999, Capital Automotive Group repaid approximately $3.7
million of the Permanent Loan. As of September 30, 1999, the principal
amount outstanding on this portion of the Permanent Loan was approximately
$108.3 million. At maturity a final payment of approximately $3.4 million
will be required. There were no amendments to the loan covenants.
- - An $85 million, non-recourse loan with GACC, which was closed during
September 1999. The note has a fixed coupon rate of 8.05% per annum (8.32%
per annum, including all closing costs). The term of the note is 15 years
with principal amortization based on a 15-year amortization schedule. The
note requires monthly payments of interest and principal until maturity on
October 1, 2014. The note is secured by mortgages on approximately 28
dealership properties owned by certain subsidiaries of the Operating
Partnership. Proceeds from the note were used to repay existing short-term
debt, to finance property acquisitions and for general corporate purposes.
As of September 30, 1999, the principal amount outstanding on this note
was approximately $85 million. At maturity a final payment of
approximately $2.9 million will be required. Debt covenants required under
the note are consistent with the Permanent Loan and as of September 30,
1999, Capital Automotive Group was in compliance with the loan covenants.
The $85 million loan and the $108.3 million portion of the Permanent Loan
are cross-collateralized.
- - A $100 million mortgage loan from Ford Motor Credit Company ("FMCC") which
was closed during July 1999. The mortgage loan is secured by approximately
48 dealership properties owned by the Operating Partnership and certain
subsidiaries of the Operating Partnership. The term of the financing is 12
years with principal amortization based on a 25-year amortization
schedule. The loan bears interest at a fixed rate equal to 7.54% per annum
(7.70% per annum, including all closing costs) until maturity. Principal
and interest are payable quarterly. The majority of the proceeds were used
to fund property acquisitions, to repay short-term borrowings under the
Company's revolving credit facility and for general corporate purposes. At
September 30, 1999, the principal amount outstanding was $100 million.
This loan will require a final payment of approximately $73.3 million at
maturity on July 6, 2011. There is one financial covenant limiting debt to
65% of assets, as defined in the FMCC loan agreement. There are negative
covenants relating to customary items such as operation and maintenance of
the properties securing the loan and limitations on issuing additional
secured debt at the subsidiary level. As of September 30, 1999, Capital
Automotive Group was in compliance with the loan covenants.
- - A $150 million mortgage note with FMCC, which was assumed and amended by
Capital Automotive Group in connection with the MMR acquisition. The
mortgage note is secured by substantially all of the properties acquired
in connection with the MMR acquisition. The term of the note is 12 years.
The mortgage note accrued interest from the closing date (August 13, 1999)
through September 29, 1999 at variable rates ranging from 7.56% to 7.76%.
Beginning September 30, 1999, the loan bears interest at a fixed rate
equal to 8.03% per annum (8.07% per annum, including all closing costs)
until maturity. The terms of the loan require quarterly interest-only
payments for two years. Thereafter, payments of principal and interest
will be made quarterly in an amount sufficient to amortize the loan over a
25-year period. At September 30, 1999, the principal amount outstanding
was $150 million. A final payment of approximately $124.6 million will be
required at maturity on September 29, 2011. Debt covenants required
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under the note are consistent with the $100 million mortgage loan with
FMCC. As of September 30, 1999, Capital Automotive Group was in compliance
with the loan covenants.
During August of 1999, Capital Automotive Group closed on a $55 million bridge
loan with a financial institution to partially fund the MMR acquisition. The
bridge loan was repaid with the proceeds of the $85 million loan from GACC
during the third quarter of 1999. The bridge loan required monthly interest-only
payments, at a rate equal to the one month LIBOR plus 200 basis points.
As of September 30, 1999, Capital Automotive Group had a $50 million revolving
secured credit facility from a financial institution, under which no amounts
were outstanding. The facility has a three-year term and terminates on March 3,
2002. The facility bears interest equal to the one month LIBOR plus 175 basis
points. The facility contains financial covenants that Capital Automotive Group
must comply with annually. As of September 30, 1999, Capital Automotive Group
was in compliance with the loan covenants.
Capital Automotive Group is in the process of reviewing its short-term financing
alternatives, which include the continued negotiation of a secured syndicated
revolving credit facility or pursuing an unsecured revolving credit facility.
Capital Automotive Group is currently in negotiations with, and has commitments
from, four financial institutions for a secured, syndicated, revolving credit
facility, in the aggregate amount of $95 million. The syndicated credit facility
would have a three-year term, and borrowings would bear interest at a rate
anticipated to equal the one-month LIBOR plus 175 basis points. In addition,
Capital Automotive Group has had discussions with several financial institutions
to provide an unsecured revolving credit facility, the amount and terms of which
have not been determined. Either facility would provide funds for the
acquisition of dealership properties and for general corporate purposes.
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 capital expenditures,
distributions to shareholders and unitholders, and amounts required for
additional property acquisitions and renovations or expansion of properties. The
Company expects to meet these requirements (other than amounts required for
additional property acquisitions and renovations or expansion of properties)
through cash flow provided by operating activities. The Company anticipates that
any additional acquisition of properties, and renovation and expansion of
properties, during the next 12 months will be funded with cash on hand at
September 30, 1999 as well as with amounts available under Capital Automotive
Group's existing revolving secured credit facility, and future secured and
unsecured debt. Acquisitions will be made subject to the investment objectives
and policies of the Company to maximize both current income and long-term growth
in income.
As of September 30, 1999, long-term liquidity requirements consisted primarily
of maturities under Capital Automotive Group's long-term debt. The Company
anticipates that long-term liquidity requirements will also include amounts
required for acquisition of properties, and renovation and expansion of
properties. The Company expects 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.
The Company's liquidity requirements with respect to future acquisitions may be
reduced to the extent the Company uses Units as consideration for such
purchases.
During the second quarter of 1999, the Company's Board of Trustees approved a
resolution providing
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that the policy of the Company shall be to operate with a debt to asset ratio of
not more than approximately 65%. This policy may be changed by the Company's
Board of Trustees at any time without shareholder approval. As of September 30,
1999, the Company had a debt to asset ratio of approximately 52.7%.
With the Company's current debt to asset ratio policy of not more than
approximately 65%, the Company anticipates that it will be able to obtain
additional financing for its long-term capital needs. However, there can be no
assurance that additional financing or capital will be available, or that the
terms will be acceptable or advantageous to the Company.
YEAR 2000 READINESS DISCLOSURE
Management of Capital Automotive Group has adopted a plan to confront year 2000
issues. Under the plan, management is assessing the potential material effect of
year 2000 issues on the Company's business, results of operations, and financial
condition and is determining ways to mitigate those issues.
Capital Automotive Group has completed discussions with a sample of its tenants
regarding their year 2000 compliance. In addition, each of Capital Automotive
Group's tenants were sent questionnaires in the fourth quarter of 1998 and
during 1999, regarding the year 2000 compliance of their financial data and
operating systems. Capital Automotive Group is presently obtaining and reviewing
the questionnaires and to date has found no instances where a tenant is not
materially year 2000 compliant. Capital Automotive Group is currently not aware
of any tenants who are not materially year 2000 compliant and does not feel a
need for a contingency plan to mitigate year 2000 issues.
Overall, Capital Automotive Group believes that it will not incur significant
costs in modifying its existing software applications, replacing hardware or
hiring consultants in resolving year 2000 issues both internally and externally.
Although Capital Automotive Group has not incurred any material expenditures
relating to year 2000 issues as of September 30, 1999, there can be no assurance
as to the magnitude of future costs until Capital Automotive Group's assessment
is complete.
Failure to correct material year 2000 issues may result in the interruption, or
failure of, certain normal business activities or operations and may adversely
affect the Company's results of operations, liquidity and financial condition.
Management of Capital Automotive Group believes that continued progress in
implementing the year 2000 plan will significantly reduce Capital Automotive
Group's potential of a year 2000 operational interruption. As of September 30,
1999, management of Capital Automotive Group had no knowledge of a year 2000
event or uncertainty that is likely to materially affect Capital Automotive
Group.
FUNDS FROM OPERATIONS
Funds From Operations ("FFO") is defined under the revised definition adopted by
the National Association of Real Estate Investment Trusts (NAREIT) as net income
(loss) (computed in accordance with generally accepted accounting principles)
excluding gains (or losses) from debt restructuring or sales of property plus
depreciation/amortization of assets unique to the real estate industry.
Depreciation/amortization of assets not unique to the industry, such as
amortization of deferred financing costs and non-real estate assets, is not
added back. 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
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net income) and should not be considered an alternative to net income as an
indication of the Company's performance or to cash flow as a measure of
liquidity or ability to make distributions. The Company considers 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 the Company's 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 of the Operating Partnership for the three months and nine months ended
September 30, 1999 and September 30, 1998 is computed as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ----------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Income before Minority Interest $ 8,256 $ 6,602 $ 20,636 $ 14,598
Real Estate Depreciation and Amortization 3,477 1,947 11,105 3,241
Straight-line Rental Income (404) - (404) -
Gain on Sale of Asset (81) - (245) -
-------- -------- -------- --------
Funds From Operations $ 11,248 $ 8,549 $ 31,092 $ 17,839
======== ======== ======== ========
</TABLE>
FORWARD LOOKING STATEMENTS
Certain statements in this Form 10-Q are "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended, which
are intended to be covered by the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Forward looking statements involve a
number of risks and uncertainties. The Company's actual operations may differ
significantly from the results discussed in the forward looking statements. Such
statements can be identified by the use of forward-looking terminology such as
"may," "will," "could," "should," "expect," "intends," "anticipate," "estimate,"
or "continue" or the negative thereof or other variations thereon or comparable
terminology. Certain factors that may cause the actual results of operations in
future periods to differ materially from forecast or anticipated results are set
forth in the Company's Current Report on Form 8-K, dated February 26, 1999 and
filed February 26, 1999, include, but are not limited to (i) the failure of
lessees of real property owned by Capital Automotive Group to pay rent or
otherwise perform the terms of their leases, (ii) increases in operating costs,
(iii) the availability and terms of additional capital to fund the acquisition
of additional properties, (iv) risks that new or pending acquisitions may not be
consummated, (v) the inability of the Company to identify and acquire suitable
real properties that conform to its business strategy, (vi) general economic and
business conditions, both nationally and in the regions in which the Company
owns real property, including, but not limited to, conditions affecting the
motor vehicle retail and related businesses specifically and real estate
generally, (vii) changes to laws, rules and governmental
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regulations affecting the Company, including the tax laws affecting real estate
investment trusts and zoning regulations affecting the operation of the
properties, (viii) risks that current or former operators of the properties fail
or have failed to comply with environmental laws and regulations, (ix) the
termination or abandonment of the dealerships or other motor vehicle related
businesses that occupy any real property owned by Capital Automotive Group, (x)
competition, (xi) the ability of the Company to retain its executive officers
and attract and retain additional key personnel, (xii) changes in business
strategy, (xiii) the ability to sell properties on suitable terms at such time
as the Company elects, (xiv) the impact on the Company of computer and related
problems that may arise from year 2000, and (xv) other risks described from time
to time in the registrant's filings with the Securities and Exchange Commission.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Capital Automotive Group is exposed to certain financial market risks, the most
predominant being fluctuations in interest rates. Interest rate fluctuations are
monitored by management as an integral part of Capital Automotive Group's
overall risk management program, which recognizes the unpredictability of
financial markets and seeks to reduce the potentially adverse effect on the
Company's results of operations.
Since December 31, 1998, there have been no material changes in the information
regarding market risk that was provided in the Company's Form 10-K for the year
ended December 31, 1998 except as described below.
During the nine months ended September 30, 1999, Capital Automotive Group's
fixed-rate debt increased from $162 million at December 31, 1998 to $493.2
million at September 30, 1999. Interest rate fluctuations will affect the fair
value of Capital Automotive Group's fixed rate debt instruments. If interest
rates on Capital Automotive Group's fixed rate debt instruments at September 30,
1999 had been one percent higher, the fair value of those debt instruments on
that date would have decreased by approximately $32 million. As of September 30,
1999, Capital Automotive Group does not have any variable rate debt instruments,
and therefore interest rate fluctuations would not have effected Capital
Automotive Group's interest costs for the nine months ended September 30, 1999.
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CAPITAL AUTOMOTIVE REIT
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
The Company has not sold any common shares of beneficial interest, par value
$.01 per share ("Common Shares"), during the nine-month period ended September
30, 1999.
On September 10, 1999, the Operating Partnership issued 112,335 Units to
Auffenberg Enterprises of Illinois, Inc., as partial consideration for the
acquisition of a parcel of real property and improvements located thereon in
Belleville, Illinois. The Units will be eligible for redemption beginning on
January 31, 2001 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:
10.46 Loan Agreement dated as of July 7, 1999, between CAR CZ L.L.C.,
CARS-FEN, L.L.C., CAR HDV L.L.C., CAR Alexander L.P., Capital
Automotive L.P., CAR MOT II, L.L.C., CAR MOT L.L.C., CAR AUF L.L.C.,
CAR I Jackson L.P., and CAR MUL L.L.C., as Borrower and Ford Motor
Credit Company as Lender (Incorporated by reference from the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1999) (File No. 000-23733).
10.47 Amended and restated loan agreement dated August 13, 1999, between MMR
Holdings, L.L.C., MMR Tennessee, L.L.C., MMR Viking Investment
Associates, L.P. and Ford Motor Credit Company.
27 Financial Data Schedule
The Registrant agrees to furnish to the Securities and Exchange Commission, upon
request, a copy of its long-term debt instruments not required to be filed as
exhibits to this report.
23
<PAGE> 24
(b) Reports on Form 8-K
(1) A current report on Form 8-K dated August 13, 1999 and filed with the
Securities and Exchange Commission on August 30, 1999 (File No.
000-23733), reporting under Item 2 of Form 8-K, the acquisition of MMR
Holdings, L.L.C., MMR Tennessee, L.L.C., MMR Viking Investment
Associates, L.P., and two dealership properties (the "MMR Acquisition").
(2) A current report on Form 8-K/A dated August 13, 1999 and filed with the
Securities and Exchange Commission on October 12, 1999 (File No.
000-23733). This Form 8-K/A amended the Form 8-K dated August 13, 1999 and
filed August 30, 1999, to include the financial statements required by Item
7 of Form 8-K in connection with the MMR Acquisition. The following
financial statements were filed:
- Pro Forma (Unaudited) Consolidated Balance Sheet of the Registrant as
of June 30, 1999,
- Pro Forma (Unaudited) Consolidated Statement of Operations of the
Registrant for the six months ended June 30, 1999, and
- Pro Forma (Unaudited) Consolidated Statement of Operations of the
Registrant for the year ended December 31, 1998.
24
<PAGE> 25
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: November 10, 1999
-----------------
25
<PAGE> 1
EXHIBIT 10.47
FIRST AMENDED AND RESTATED LOAN AGREEMENT
THIS FIRST AMENDED AND RESTATED LOAN AGREEMENT (this "Agreement") is
entered into as of August 13, 1999, by and between MMR HOLDINGS, L.L.C., a North
Carolina limited liability company ("MMR Holdings"), whose address is c/o
Capital Automotive L.P., 1420 Spring Hill Road, Suite 525, McLean, Virginia
22102, MMR TENNESSEE, L.L.C., a North Carolina limited liability company ("MMR
Tennessee"), whose address is c/o Capital Automotive L.P., 1420 Spring Hill
Road, Suite 525, McLean, Virginia 22102, MMR VIKING INVESTMENT ASSOCIATES, L.P.,
a Texas limited partnership ("Viking"), whose address is c/o Capital Automotive
L.P., 1420 Spring Hill Road, Suite 525, McLean, Virginia 22102 (collectively,
MMR Tennessee and Viking are referred to as "Guarantors"; collectively, MMR
Holdings and Guarantors are referred to as "Borrower"), and FORD MOTOR CREDIT
COMPANY, a Delaware corporation ("Lender"), whose address is 1000 Abernathy
Road, Building 400, Suite 180, Atlanta, Georgia 30328 ("Lender's Address").
RECITALS
A. On November 19, 1998, Lender made a credit line/mortgage loan to
MMR Holdings in an amount of up to $150,000,000.00 (the "Original Loan")
pursuant to that certain Loan Agreement dated November 19, 1998, between
Borrower, O. Bruton Smith ("Released Guarantor") and Lender (the "Original Loan
Agreement") to finance the acquisition of certain real property consisting of
various parcels of land (the "Land"), located in various cities and states, as
more particularly described in Schedule A attached hereto.
B. The Original Loan is evidenced by that certain Promissory Note
(the "Original Note") dated November 19, 1998, from MMR Holdings to the order of
Lender in the original principal amount of $150,000,000.00.
C. The Original Loan is guaranteed by Guarantor and Released
Guarantor, pursuant to guaranties dated November 19, 1998 (collectively, the
"Original Guaranties" and individually, an "Original Guaranty").
D. The Original Loan is secured by various deeds of trust and
mortgages (the "Original Deeds of Trust") from Borrower secured by the Property
(as defined herein).
E. The ownership interests in MMR Holdings have been transferred to
CAR MMR L.L.C., a Delaware limited liability company ("CAR MMR").
F. The ownership interests in MMR Tennessee owned by Released
Guarantor are being transferred to CAR MMR.
G. The ownership interests in Viking owned by Released Guarantor are
being transferred to CAR MMR.
<PAGE> 2
H. Borrower has requested and Lender has agreed to consent to such
transfer, provided the following documents are executed and the Original Loan is
amended in accordance with the terms of this Agreement (the "Loan"):
1. The First Amended and Restated Promissory Note (the
"Amended Note").
2. The First Amendments to Deeds of Trust (Mortgages) for each
of the Original Deeds of Trust (collectively, the "Amendments") for the
Properties identified on Schedule A.
3. The Deeds of Trust for the Properties to be mortgaged as of
the date hereof, identified on Schedule A.
4. The Assignment of Leases, Rents and Profits for each
Property.
5. The Subordination of Lease, Non-Disturbance and Attornment
Agreement and Acknowledgment of Assignment of Rents and Leases and Release of
Prior Subordination of Lease, Non-Disturbance and Attornment Agreement and
Acknowledgement of Assignment of Rents and Leases for each Property (except for
Property 11, Property 17, Property 23 and Property 49).
6. The Release of Subordination Agreement, releasing the
Subordination Agreement dated December 29, 1998, between Lender and Released
Guarantor.
7. The Guaranties from Guarantor.
8. Unsecured Indemnity Agreement from Borrower.
9. Such others documents requested by Lender which are
necessary to evidence or secure the Loan.
I. Borrower has requested and Lender has agreed to release Released
Guarantor from his obligations under the Original Guaranty.
J. Borrower has requested and Lender has agreed to release the
Pledged Stock (as defined in the Original Loan Agreement).
K. Borrower has requested and Lender has agreed to the payment in
full of the Subordinated Promissory Note from Borrower to Released Guarantor
dated December 29, 1998, in the original principal amount of $40,000,000.00.
L. Borrower has requested and Lender has agreed to release the
Pledged Ownership Interests (as defined in the Original Loan Agreement).
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<PAGE> 3
AGREEMENT
Borrower and Lender agree as follows:
A. Incorporation by Reference and Defined Terms. The parties hereby
incorporate the foregoing recitals (and the defined terms contained therein) in
this Agreement as though fully set forth herein, agreeing that such recitals are
material, true and correct.
B. Release of Released Guarantor. Lender hereby releases Released
Guarantor from his obligations under his Original Guaranty, pursuant to the
Release of Guaranty dated as of even date herewith.
C. Release of Pledged Stock. Lender hereby releases the Pledged
Stock, pursuant to the Release of Pledged Stock dated as of even date herewith.
D. Release of Pledged Ownership Interests. Lender hereby releases the
Pledged Ownership Interests, pursuant to the Release of Pledged Ownership
Interests dated as of even date herewith.
E. Principal Balance. Borrower and Lender hereby acknowledge that the
aggregate Principal Balance as of the date hereof under the Original Note is
$127,895,960.
F. Amendment to Original Note. The Original Note is hereby amended in
accordance with the Amended Note.
G. Amendment to Deeds of Trust. The Deeds of Trust are hereby amended
in accordance with the Amendments from Borrower and Lender dated as of even date
herewith.
H. Amendment to Original Loan Agreement. Borrower and Lender hereby
agree that the Original Loan Agreement is hereby amended and restated in its
entirety as follows:
1. Definitions. Any terms not otherwise specifically defined herein
shall have the meaning assigned to such terms in the Loan Documents. As used
herein, the following terms shall have the following meanings:
(a) Additional Properties. Any additional parcel of land and
the improvements located thereon, which Borrower proposes to mortgage to Lender
after the date hereof, as substitute or additional security for the Loan.
(b) Advance. Any advance of the proceeds of the Loan by Lender
to Borrower or on behalf of Borrower.
(c) Advance Termination Date. The last date on which Advances
may be made to Borrower under the Loan, which shall be September 30, 1999.
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<PAGE> 4
(d) Allocated Loan Value. The values designated for each
Property on Schedule A attached hereto and as such Schedule A is amended, from
time to time.
(e) Closing Date. The date for the closing of the Loan which
shall be mutually satisfactory to Borrower and Lender but in no event later than
September 30, 1999.
(f) Deeds of Trust. Collectively, or any one or each, of the
(Purchase Money) Deeds of Trust (Deed to Secure Debt) and Assignment of Leases
and Rents and Security Agreement (and Financing Statement and Fixture Filing)
and the (Open End) Mortgages and Assignment of Leases and Rents and Security
Agreement (and Financing Statement and Fixture Filing), executed in multiple
counterparts from any one or more Borrower, as grantor, or mortgagor, as the
case may be, to the trustees named therein, in trust for Lender, as beneficiary,
or to Lender, as mortgagee, as the case may be, dated November 19, 1998, January
13, 1999, March 4, 1999, March 31, 1999, April 23, 1999, May 25, 1999, June 30,
1999, August 3, 1999, and as of even date herewith and hereafter (if
applicable), as amended by the Amendments which will constitute a first priority
lien on the Properties, subject only to the Permitted Encumbrances. The term
"Deeds of Trust" shall include other deeds of trust and mortgages from any one
or more Borrower, as grantor or mortgagor, as the case may be, to the trustee
named therein in trust for Lender, as beneficiary, or to Lender as mortgagee, as
the case may be, hereafter granted in connection with the Loan.
(g) Guaranty. The guaranty, or collectively the guaranties,
dated as of even date herewith, executed by Guarantor guaranteeing the
obligations of MMR Holdings under this Agreement, the Deeds of Trust, the Note
and the other Loan Documents.
(h) Improvements. Any and all improvements to the Land,
consisting of full sales and service automobile dealership facilities and
related improvements thereto, and the improvements for: (i) Abra Auto Body and
Glass facility located on Property 23, and (ii) HMC Financial Company located on
Property 24 A, all as described in Schedule A attached hereto, explicitly
excluding therefrom any of the right, title and interest in and to the same of
any and all Tenants (as defined in the Deeds of Trust).
(i) Leases. Any and all leases, subleases, licenses,
concessions or grants of other possessory interests now or hereafter in force,
oral or written, and all amendments thereto, covering or affecting the Property,
or any part thereof, together with all rights, powers, privileges, options and
other benefits of Borrower thereunder.
(j) Liabilities. The principal of and interest on and all other
amounts, payments, premiums, advances and other indebtedness of Borrower to
Lender and any and all of the covenants, promises and other obligations of
Borrower to Lender under the Loan Documents, including any amendments,
modifications, renewals and extensions of any of the Loan Documents.
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<PAGE> 5
(k) Licenses. All certificates, permits, licenses and other
approvals, governmental or otherwise, necessary for the conduct of Borrower's
business at the Property, including, without limitation, the operation of the
Property pursuant to the Leases.
(l) Loan Documents. This Agreement, the Note, the Deeds of
Trust, the Unsecured Indemnity Agreement dated as of even date herewith from
Borrower to Lender, the Guaranty and any and all promissory notes, loan
agreements, guaranties, assignments, and other instruments from Borrower to
Lender evidencing the Loan and creating or securing the Liabilities, including
any amendments, modifications, renewals, increases and extensions thereof. Any
one of the foregoing documents may be referred to herein as a "Loan Document".
(m) Maturity Date. September 29, 2011.
(n) Non-Compliant Properties. Any Property(ies): (i) at which a
violation or asserted violation of any Restrictions, Licenses or Environmental
Laws materially adversely affects the ability of the Tenant of such Property to
conduct business in accordance with its Lease in the manner contemplated by this
Agreement and the other Loan Documents; or (ii) with respect to which the entry
into or the performance of this Agreement, the Loan Documents or any other
instrument executed by Borrower pursuant hereto or thereto will constitute a
violation of any statute, rule or regulation applicable to any Borrower or such
Property.
(o) Note. The Original Note, made by MMR Holdings to the order
of Lender, in the principal amount of $150,000,000.00, dated November 19, 1998,
as amended and restated by the Amended Note dated as of even date herewith,
together with all extensions, renewals, modifications and amendments thereof,
secured, in part, by the Deeds of Trust.
(p) Permitted Encumbrances. The encumbrances described, with
particularity, in Schedule B of the Deeds of Trust.
(q) Property(ies). The Land and the Improvements.
(r) Restrictions. All conditions, restrictions, reservations
(whether or not of record), statutes, regulations and ordinances affecting the
Property, including, without limitation, all pollution control, environmental
protection, zoning and land use regulations, building codes and all restrictions
and requirements imposed by the jurisdictions where the Property is located and
all other governmental entities with respect to the Property and the
contemplated uses of the Property.
2. The Loan. (a) Lender hereby agrees to make, and Borrower hereby
agrees to accept, the Loan under the terms and conditions set forth in this
Agreement and the other Loan Documents. The proceeds of the Loan are to be used
for the acquisition of the ownership interests of Borrower by CAR MMR and the
financing of the Property.
(b) The Loan shall be evidenced by the Note, and payment of the
Loan will be secured by the Loan Documents. Reference is hereby made to the Note
and the Loan
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<PAGE> 6
Documents for particulars relating to the Loan, which provisions are
incorporated herein by this reference.
(c) All payments of principal and interest on the Loan shall be
made without the right of set-off and without deduction of any present and
future taxes, levies, duties, imposts, deductions, charges or withholdings
imposed by any existing or future law, rule, regulation, treaty, directive or
requirement whether or not having the force of law, which amounts shall be paid
by Borrower. Borrower will pay the amounts necessary such that the gross amount
of the principal and interest received by Lender is not less than that required
by this Agreement and the Loan Documents. All stamp and documentary taxes shall
be paid by Borrower. If, notwithstanding the foregoing, Lender pays such taxes
(which Lender shall not do unless and until Borrower fails to do the same within
thirty (30) days after written notice from Lender), Borrower will reimburse
Lender for the amount paid, within five (5) days of Lender's demand for payment.
Upon Lender's written request from time to time, Borrower will furnish Lender
official tax receipts or other evidence of payment of all such amounts.
(d) Upon compliance by Borrower with all of the terms and
conditions of this Agreement, and so long as no Event of Default, or event which
with notice or lapse of time or both, would become an Event of Default, shall
have occurred and be continuing, Lender will make one or more Advances of the
Loan from time to time, up to and including the Advance Termination Date, upon
satisfaction of the conditions set forth in Section 4. In the event the Loan is
not fully funded on the Advance Termination Date, an Advance may be made, at
Borrower's request, equal to the undisbursed funds (the "Escrowed Funds"), to
Chicago Title Insurance Corporation, to be held in escrow, upon terms and
conditions satisfactory to Lender. The Escrowed Funds shall be disbursed upon
such time or times Borrower has satisfied the conditions required to add an
Additional Property(ies), as provided in Section 4 herein. If the Escrowed Funds
are not fully disbursed by June 30, 2000, then the Escrowed Funds shall be
applied to the principal balance of the Note, and shall be subject to the
payment of the Prepayment Consideration (as defined in the Note). If Borrower
elects not to advance the undisbursed funds on the Advance Termination Date,
Borrower shall immediately pay the Breakage Costs (as defined in Section 9(s)
herein) to Lender.
3. Representations and Warranties of Borrower. As of the date first
above written, Borrower hereby represents and warrants to Lender as follows:
(a) Organization; Existence. Borrower is validly existing under
the laws of its state of organization.
(b) Authority. Borrower has the power and authority to execute
and deliver this Agreement, the Loan Documents and all other documents and
instruments required hereunder to be executed by Borrower and to comply with the
terms hereof and thereof. All of such documents have been duly authorized,
executed and delivered by Borrower and constitute the legal, valid and binding
obligations of Borrower, enforceable in accordance with their respective terms,
except as the enforceability thereof may be limited by (i) bankruptcy,
insolvency, reorganization or other laws affecting the enforcement of creditors'
rights generally,
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<PAGE> 7
and (ii) general equitable principals (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(c) Title. On or before the Closing Date, each Borrower, as the
case may be, has, or will have, good and marketable (or, in the case of
Properties located in the State of Texas, indefeasible) title to the Properties,
subject only to the Permitted Encumbrances.
(d) Restrictions. Borrower is familiar with the "Restrictions",
and has obtained (to the best of Borrower's knowledge), or will be able to
obtain, or will cause the Tenants to obtain, all permits, approvals, consents
and other authorizations necessary under the Restrictions to enable business to
be conducted on the Property in accordance with the Leases and in the manner
contemplated by this Agreement and the other Loan Documents. As of the date
hereof, to the best of Borrower's knowledge, and except at Non-Compliant
Properties, there is no violation or asserted violation of any Restrictions or
the existing or contemplated use thereof. Borrower is not aware of any action or
proceeding pending or threatened before any court or governmental agency with
respect to the validity of any Restrictions or any permit, approval, consent or
other authorization necessary under or in connection therewith.
(e) Financial Statements. All financial statements delivered to
Lender by or on behalf of CAR MMR concerning Borrower fairly and accurately
present their financial condition and have been prepared in accordance with
generally accepted accounting principles, and there are no contingent
liabilities not disclosed thereby which would materially adversely affect the
financial condition of Borrower. No event has occurred, including, without
limitation, any litigation or administrative proceedings, and no condition
exists or, to the knowledge of Borrower, is threatened, which (i) might render
Borrower unable to perform its obligations hereunder or under the Loan Documents
or any other document contemplated herein or therein, (ii) constitutes or, after
notice or lapse of time or both, would constitute an Event of Default, or (iii)
might materially adversely affect the validity or priority of the lien of the
Deeds of Trust or the financial condition of Borrower.
(f) No Violation. To the best of Borrower's knowledge, Borrower
is not in violation of any agreement (which, together with all violated
agreements does not exceed in the aggregate $200,000) or instrument to which it
is a party or to which any of its property is subject or of any judgment,
decree, order, franchise or permit applicable to Borrower, nor has Borrower
received any written notice that it is in violation of any statute, rule or
regulation applicable to its Property. Neither the entry into nor the
performance of this Agreement, the Loan Documents or any other instrument
executed by Borrower pursuant hereto or thereto will: (i) result in any
violation of, or be in conflict with, or result in the creation of, any
mortgage, deed of trust, lien or encumbrance (other than those contemplated in
this Agreement) upon any of the properties or assets of Borrower pursuant to, or
constitute a default under, any mortgage, deed of trust, indenture, contract,
agreement, or instrument to which Borrower is a party or to which any of its
property is subject, or (ii) constitute a violation of any permit, judgment,
decree or order applicable to Borrower, or (iii) constitute a violation of the
articles of incorporation, articles of organization, limited partnership
certificate, bylaws, operating agreement, partnership
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<PAGE> 8
agreement, trust agreement or any other corporate governance document
applicable to any Borrower or its operations; or (iv) to the best of Borrower's
knowledge, and except with respect to Non-Compliant Properties and the
Borrowers owning such Properties, constitute a violation of any statute, rule
or regulation applicable to any Borrower or any Property.
(g) Condemnation. No taking of the Properties or any part
thereof through eminent domain, conveyance in lieu thereof, condemnation or
similar proceeding is pending or, to the knowledge of Borrower, threatened by
any governmental agency, except as shown on Schedule C attached hereto.
(h) Actions. There is no action, proceeding or investigation
pending or threatened (or any basis therefor) which questions, directly or
indirectly, the validity of the Agreement, the Loan Documents or any other
document pertaining to the Loan or any action taken or to be taken pursuant
hereto or thereto, or which affects Borrower or to the best of Borrower's
knowledge, the Property, or which could result in forfeiture of the Property.
(i) Legality. Borrower is engaged in no illegal activities and
the intended use of the proceeds of the Loan is for legally permitted uses.
(j) Brokers. Borrower and Lender have not dealt with any
person, firm or corporation who is or may be entitled to any finder's fee,
brokerage commission, loan commission or other sum in connection with the Loan.
Borrower and Lender hereby agree to indemnify and defend each other and hold
each other harmless against any and all loss, liability, cost or expense,
including reasonable attorneys' fees, which the other may suffer or sustain
should such warranty or representation prove inaccurate in whole or in part.
(k) Statements. Neither this Agreement, the Loan Documents nor
any document, certificate or statement furnished to Lender by or on behalf of
CAR MMR concerning Borrower, its agents or employees, in connection with the
Loan, Borrower or the Property, whether or not referred to herein, contains any
material misrepresentation or omits to state a material fact.
(l) Hazardous Materials. Except as disclosed in the
Environmental Audit Reports (as hereinafter defined), no release (a "Release")
of any Hazardous Materials has occurred which has not been remediated in
compliance with applicable law, on the Land, and Borrower has not received any
notice from any governmental agency or from any Tenant under a Lease or from any
other party with respect to any such Release. Except as disclosed in the
Environmental Audit Reports, and except for Non-Compliant Properties, each
Property complies with all laws, rules, regulations and orders relating to
industrial hygiene and/or environmental conditions, including soil and ground
water conditions, and all laws, rules, regulations and orders relating to the
use, generation and storage of Hazardous Materials on, under or about the
Property ("Environmental Laws"). Except as disclosed in the Environmental Audit
Reports, to the knowledge of Borrower, no Hazardous Materials are manufactured
or disposed on the Property, except in accordance with applicable law.
(m) Existing Leases and Contracts. Other than the leases listed
in Schedule A attached hereto, there are no leases, or, to the knowledge of
Borrower, subleases affecting
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<PAGE> 9
the Property. To the best of Borrower's knowledge, there are no contracts or
agreements to which Borrower is a party, affecting the use, operation or
maintenance of the Property other than (i) the management agreement(s) between
Borrower and Capital Automotive L.P., (ii) documents of record, (iii)
agreements to which Lender is a party, and those expressly referred to in this
Agreement.
(n) Non-Foreign Entity; Tax Identification Number. Section 1445
of the Internal Revenue Code of 1986, as amended (the "Code"), provides that a
transferee of a real property interest in the United States must withhold tax if
the transferor is a foreign person. To inform Lender that the withholding of tax
will not be required in the event of a disposition of the Property pursuant to
the terms of this Agreement and the Deeds of Trust, Borrower hereby certifies
that it is not a foreign person, foreign corporation, foreign partnership,
foreign trust or foreign estate (as such terms are defined in the Code and the
regulations promulgated thereunder) and that its principal place of business is
at the address set forth for notices to Borrower in the Deeds of Trust. The tax
identification number of each Borrower is listed in Schedule A attached hereto.
It is agreed that Lender may disclose the contents of this certification to the
Internal Revenue Service.
(o) Insurance. All insurance coverages required to be obtained
and maintained pursuant to the Leases have been obtained and are in full force
and effect, and such insurance satisfies the requirements as set forth in
Section 4 (h) hereof.
(p) Licenses. Borrower has obtained (to the best of Borrower's
knowledge), or will be able to obtain, or will cause the Tenants to obtain, all
Licenses necessary to enable business to be conducted on the Property in
accordance with the Leases and in the manner contemplated by this Agreement and
the other Loan Documents. As of the date hereof, to the best of Borrower's
knowledge, and except with respect to the Non-Compliant Properties, all Licenses
are in full force and effect and there is no violation or asserted violation of
any License.
(q) Allocated Loan Value of Non-Compliant Properties. The
aggregate Allocated Loan Value of all Non-Compliant Properties is less than
$15,000,000.00.
4. Conditions Precedent to Amending the Loan and Advancing Funds
under the Loan. Lender's obligation to amend the Loan and to advance funds under
the Loan, is subject to each of the following conditions being satisfied prior
to the Closing Date (or in the case of Additional Properties to be added or
substituted, to be satisfied as of the date such Additional Properties are added
or substituted):
(a) Amount of the Loan. The amount of the Loan (and the sums
advanced thereunder) shall be the lesser of $150,000,000.00 or the lesser of
72.42% of the Historical Cost or 89% of the Adjusted Value of the Properties.
The "Historical Cost" shall mean the most recent purchase price for a Property
in an unrelated arms-length transaction, as evidenced by documentation
satisfactory to Lender. The "Adjusted Value" shall mean the value of the
Properties, in instances where Lender has received M.A.I. appraisals (addressed
to Lender or
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<PAGE> 10
subject to a reliance letter from the appraiser), dated within one year of
submission of such appraisal(s) to Lender, and adjusted by Lender, in its sole
discretion, together with the value of the remaining Properties (in instances
where Lender has not received M.A.I. appraisals, as described above), equal to
85% of the purchase price of such Properties, when such Properties were
purchased by Borrower (as designated on Schedule A). The amount advanced under
the Loan shall be determined in accordance with the provisions set forth in the
Loan Documents and described herein.
(b) Loan Documents. Borrower shall have executed and delivered
to Lender this Agreement, the Amended Note, the Amendments, the Deeds of Trust
(for Properties to be mortgaged on the Closing Date, or thereafter, as the case
may be), in form and substance satisfactory to Lender and all other Loan
Documents required by Lender.
(c) Environmental Audit Report. Borrower shall have delivered
to Lender and Lender shall have approved a written report prepared by a
consultant or other person acceptable to Lender relating to the presence of
Hazardous Materials in, on or around the Property (the "Environmental Audit
Report"), and confirming that all Hazardous Materials described in such report
have been mitigated in accordance with the requirements of any applicable
government agency.
(d) Entity Documents. Borrower shall have delivered to Lender
and Lender shall have approved:
(i) Entity Documentation. Certified copies of Borrower's
amended and restated operational and organizational documents recorded in the
official records of the counties, if required, where the Property is located and
the Secretary of State (or equivalent authority) of organization and operation,
together with certified copies of any amendments thereto.
(ii) Authority. Copies of all necessary actions taken by
Borrower to authorize the execution, delivery and performance by Borrower of
this Agreement, the Note, the Amendments and all other Loan Documents.
(e) Recordation and Title Policy. (i) In connection with the
amendment to the Loan and the advancing of funds under the Loan on the Closing
Date, all Amendments (and in the cases where Lender is mortgaging a Property on
the Closing Date, the Deeds of Trust for such Properties) on the Property shall
have been duly executed and Lender shall have received the endorsements (and in
the cases where Lender is mortgaging a Property on the Closing Date, Lender
shall receive a title policy(ies) which comply with Section (ii) below) to its
title policies (or if such endorsements are unavailable, title policies),
insuring, as of the effective date of such endorsements (or title policies, as
the case may be) that fee simple title to the Property is vested in Borrower and
that the lien of the Deeds of Trust, as amended, are valid first priority liens
on the Property, subject only to the Permitted Encumbrances acceptable to Lender
in its sole discretion, and increasing the amount of coverage to the amount of
the Loan, with allocated value for each Property (based on 100% of the lesser of
the Historical Cost or
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<PAGE> 11
Adjusted Value for aggregated policies and 125% of the lesser of the Historical
Cost or Adjusted Value for non-aggregated policies), as determined by Lender in
its sole discretion, and such additional endorsements as may be reasonably
required by Lender.
(ii) In connection with the substitution or addition of
Additional Property in accordance with Section 5 herein (and in the cases where
Lender is mortgaging a Property on the Closing Date), all Deeds of Trust on the
Property shall have been duly executed by Borrower and Lender shall have
received the title policy or policies, or a marked commitment(s) in form and
substance acceptable to Lender evidencing the title Company's irrevocable
commitment to issue the insurance therein described, which must have a liability
in the amount of the Loan, with allocated loan value for each Property (based on
100% of the lesser of the Historical Cost or Adjusted Value for aggregated
policies and 125% of the lesser of the Historical Cost or Adjusted Value for
non-aggregated policies), as determined by Lender in its sole discretion,
insuring, as of the effective date of such title policy, that fee simple title
to the Property is vested in Borrower, and that the lien of such Deeds of Trust
are a valid first priority lien on the Property, subject only to the Permitted
Encumbrances acceptable to Lender in its sole discretion, and containing the
following endorsements, to the extent available by law in a given jurisdiction
(the "Endorsements"):
(A) Comprehensive Endorsement (form ALTA 9 or equivalent);
(B) ALTA form 3.1 Zoning Endorsement (or equivalent) (or
opinion of counsel or other evidence acceptable to Lender
in its sole discretion, in lieu thereof);
(C) Truth in Lending Endorsement;
(D) Usury Endorsement;
(E) Tie-in Endorsement;
(F) Survey Endorsement;
(G) Last Dollar Endorsement;
(H) Aggregation Endorsement;
(I) Tax Parcel Endorsement;
(J) Contiguity Endorsement;
(K) Endorsement eliminating the Creditor's Rights Exception;
(L) Access;
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<PAGE> 12
(M) Endorsement providing affirmative coverage over the Leases;
and
(N) Such additional endorsements as may be reasonably required
by Lender based upon its review of the title policy and survey (the "Title
Policy").
(f) UCC Filings. Lender shall have received and approved a
search of the records of the filing office in the state and county where each
Property is located and in the state where each Borrower is organized showing
all financing statements and fixture filings.
(g) Compliance With Loan Documents. All of the representations
and warranties of Borrower in Section 3 hereof shall be true and correct, and
Borrower shall be in compliance with all applicable covenants set forth in
Section 6 hereof, and Lender shall have received such documents and opinions as
it may request regarding the substance thereof. All documents and materials
required by Lender shall be satisfactory in form and substance to Lender.
(h) Insurance. Borrower shall have delivered to Lender, and
Lender shall have approved, insurance binders, policies or certificates
evidencing the obtaining and premium payment of all policies of insurance
required by the Deeds of Trust, and as follows:
(i) During the term of the Loan, the Improvements shall
be insured against physical damage under policies issued by companies
satisfactory to Lender containing endorsements naming Lender as mortgagee and
additional insured under a standard mortgagee clause acceptable to Lender and
insuring the replacement cost of the Improvements. Such policies shall be in
amounts not less than full replacement cost of the Improvements, full
replacement cost being the cost of replacing the Improvements exclusive of the
cost of excavation, foundations and footings below the lowest basement floor,
less physical depreciation of the Improvements, and subject to a maximum
deductible of $25,000 per occurrence.
(ii) Borrower shall obtain, or shall cause the Tenants to
obtain, liability coverage satisfactory to Lender, including public liability
coverage for the project in minimum amounts of $3,000,000.00.
(iii) If the Improvements are located in a flood-prone
area as designated by HUD, Borrower shall obtain and maintain, or shall cause
the Tenants to obtain and maintain, flood insurance in an amount equal to the
lesser of the principal amount of the Loan or the maximum limit of coverage
available for the Property under the National Flood Insurance Program.
(i) Financial Condition. Lender shall have given final approval
of the financial condition of Borrower.
(j) Commitment Fee. The commitment fee (the "Commitment Fee")
in the amount of $750,000.00 shall be paid by Borrower.
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<PAGE> 13
(k) Survey. Lender shall have received with respect to each
Additional Property (or a Property to be mortgaged on the Closing Date), an
ALTA (or equivalent) survey of the Land and Improvements prepared by a licensed
surveyor or civil engineer reasonably satisfactory to Lender and the Title
Company in conformance with the requirements set forth in the then-applicable
ALTA/ACSM (or equivalent) Minimum Standard Requirements, including Items 1-4,
6-11 and 13 of Table A, and including, but not limited to, whether the Property
is located in an area identified as a flood plain area as defined by the U.S.
Department of Housing and Urban Development pursuant to the Flood Disaster
Protection Act of 1973.
(l) Evidence of Compliance. Evidence of compliance with the
Restrictions, including, without limitation, evidence that (1) each parcel of
the Land is a legal and separate lot under any applicable subdivision acts and
for tax assessment purposes, and (2) Borrower has complied with all building and
zoning Restrictions.
(m) Leases. Borrower shall have delivered to Lender, and Lender
shall have approved copies of all Leases, as amended, of the Property (except
for Property 11, Property 17, Property 23 and Property 49), which Leases shall
be subordinated to the Lender's mortgage or deed of trust pursuant to
Subordination and Non-Disturbance Agreements satisfactory to Lender. Lender's
approval of the Leases and the Tenants under such Leases shall be in Lender's
sole and absolute discretion. For all Additional Properties and Properties to be
mortgaged on the Closing Date, Borrower shall deliver to Lender the following
documents for each Property, and with respect to each Tenant, to assist Lender
in its review of the Leases and Tenants:
(i) Certified statement from Borrower, setting forth the
purchase price of each Property, which shall be subject to verification by
Lender of Borrower's purchase agreements and all due diligence performed by
Borrower pursuant thereto;
(ii) Copies of Tenant's financial statements provided to
the Borrower, prepared as of (i) the end of the month or quarter, as the case
may be, immediately preceding the execution of the purchase agreement (the
"Purchase Agreement") by and between Borrower or its affiliate, as purchaser and
Tenant or its affiliate as seller, for the acquisition of the Property, and (ii)
the end of the year for the two years immediately preceding the execution of the
Purchase Agreement for the acquisition of the Property; and the Tenant's
statements of profit and loss for such periods; and
(iii) Such other financial or other statements respecting
the condition, operation and affairs of tenant and its property as Lender may
from time to time reasonably request and are provided for in the applicable
lease.
(n) Property Inspection Report. For each Additional Property
and for Properties to be mortgaged on the Closing Date, Borrower shall have
delivered to Lender, and Lender shall have approved, copies of the report(s)
addressed to Borrower (and subject to reliance letters from the inspector),
dated within one year of the Closing Date (or the date an
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<PAGE> 14
Additional Property is added as collateral to the Loan, as the case may be),
detailing the construction of the Improvements and the condition of the systems
located thereon, performed by an engineer acceptable to Lender, and identifying
all deferred maintenance and the cost to remediate such deferred maintenance.
(o) Inspection of Property by Lender. Subject to the terms of
the leases, Lender shall be allowed, at Lender's expense, to conduct an on-site
inspection of all Properties to be mortgaged as of the Closing Date (and all
Additional Properties prior to such Additional Properties being added as
security for the Loan), prior to the Closing Date and the results of such
inspections must be satisfactory to Lender in its sole and absolute discretion.
Borrower shall make all appointments for the inspections at mutually agreeable
times; and, at Borrower's expense, Borrower's representative shall accompany
Lender during such on-site inspections.
(p) No Damage. No part of the Improvements shall have been
materially injured or damaged by fire or other casualty unless Lender shall have
received insurance proceeds sufficient in its judgment to effect the
satisfactory restoration thereof.
(q) No Material Adverse Change. There shall have occurred no
material adverse change in the condition of Borrower or in the Property, and no
event shall have occurred which will give Lender reasonable cause to believe
that the Borrower cannot carry out the terms of this Agreement and the Loan
Documents.
(r) Compliance With Loan Documents. The representations and
warranties of Borrower set forth in Section 3 hereof shall be true and correct
in all respects, Borrower shall be in compliance with all applicable conditions
set forth in Section 4 and all applicable covenants set forth in Section 8
hereof and, if requested by Lender, Borrower shall have delivered a certificate
to such effect together with any corroborating materials as Lender shall
request. No Event of Default, or event which with notice or lapse of time or
both, would become an Event of Default, shall then exist.
(s) Legal Advance. The funding of the Loan on the Closing Date
and all Advances made thereafter, shall be legally permissible under the laws
and regulations to which Lender is subject and Borrower shall have delivered to
Lender such factual certificates or other evidence as Lender or its counsel may
reasonably request in order to establish compliance with this condition.
(t) Expenses. Borrower pays all of Lender's expenses, on the
Closing Date, related to the closing of the Loan including but not limited to
appraisal fees, escrow fees, recording fees and taxes, environmental reports,
legal fees and expenses and title insurance premiums; provided, however, that
legal fees and expenses of Lender in connection with the initial closing of the
Loan shall not exceed $150,000.00 in the aggregate.
(u) Conditions Solely for the Benefit of Lender. All conditions
of Lender's obligation to amend the Loan and advance funds under the Loan are
solely for the benefit of Lender, its successors and assigns. No other person
shall have standing to require satisfaction
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<PAGE> 15
of any condition, and no other person shall be deemed a beneficiary of any
condition or have any right to rely on any determination made by Lender, any
and all of which may be freely waived in whole or in part by Lender in Lender's
sole discretion.
(v) Other. Any other information or material relating to the
Property as reasonably requested by Lender.
5. Substitution and Release of Property. During the term of the Loan,
Lender will release its lien on any individual Property provided the following
conditions are met:
(a) Prior to such release, Borrower provides Lender 60 days
advance written notice of its request to have a certain Property released;
(b) Borrower pays a release fee, on the date on which the
Property is released, equal to .25% of the then allocated portion of the Loan
for the Property to be released;
(c) The original value of the released Property, together with
all other released Properties during the term of the Loan, shall not exceed (i)
$51,500,000 of the total "Original Purchase Price" (as designated on Schedule A)
with respect to Properties to be released pursuant to that certain agreement
entitled "Sonic Agreement" dated June 30, 1999, plus an additional (ii) 10% of
the total original Adjusted Value for all other Properties securing the Loan;
(d) Prior to such release, at Lender's request, Borrower shall
deliver to Lender supplemental information that addresses what effect the
requested release might have on the remaining Properties, the operations
thereon, or any uses thereof (including public utilities, public access roads
and the automobile dealerships), and Lender shall be reasonably satisfied that
the release will have no adverse effect on the remaining Properties;
(e) At the time of such partial release, Borrower shall deliver
to Lender an endorsement to the Title Policy insuring Lender's first lien
granted under the mortgage or deed of trust securing such Property, in form and
substance satisfactory to Lender, assuring that Lender's first lien remains in
full force and effect, subject only to the Permitted Encumbrances, and is in no
way adversely affected by such release, and remains in the full Loan amount;
(f) Prior to such partial release, Borrower shall provide
evidence reasonably acceptable and satisfactory to Lender demonstrating that the
requested release will not violate any local, state or other governmental plat
act or other governmental regulatory restriction, or any covenant, condition,
restriction, limitation, zoning or other requirement applicable to the Property
or any portion thereof;
(g) There exists no Event of Default under the Loan;
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<PAGE> 16
(h) Borrower shall pay Lender's out of pocket expenses related
to any such partial release, including but not limited to, escrow fees, legal
fees and expenses, appraisal fees, recording fees and endorsements to Lender's
title policy; and
(i) Borrower provides an Additional Property(ies) of greater or
equal value of the original Adjusted Value of the Property to be released which
meets all the criteria to qualify as a "Property" under the Loan, acceptable to
Lender in its sole discretion. Lender shall determine whether such Additional
Properties are acceptable, in its sole discretion. Borrower shall be required,
at its expense, to furnish to Lender all the items listed in Section 4, with
respect to the proposed Additional Property(ies), all of which shall be in form
and substance satisfactory to Lender. When (1) Lender has received all of the
foregoing, and any other items it reasonably requires, with respect to the
Additional Property(ies) and all conditions have been satisfied; (2) Lender has
determined, in its sole discretion that the Additional Property(ies) satisfy
all conditions herein, and (3) the Title Company is unconditionally obligated
to insure Lender's deed of trust on the Additional Property(ies) as a first
lien subject only to Permitted Encumbrances acceptable to Lender, each such
Additional Property shall be deemed a "Property" and a part of the "Properties"
under the terms of the Loan and the other Loan Documents. All covenants and
conditions contained in the Loan Documents relating to the Properties initially
mortgaged to secure the Loan shall apply to such Additional Properties. All
appraisal fees, reasonable legal fees, recording costs, taxes and documentary
stamps, abstracting and title insurance premiums and cost, survey charges, and
other costs incurred in connection with the adding of such Additional
Properties to the Properties shall be paid by Borrower as a condition of
Lender's acceptance of the Additional Property(ies) as Properties.
(j) If the Additional Property(ies) is accepted as a Property
under the Loan and the owner thereof is not a Borrower hereunder, such owner
shall become a Borrower hereunder by executing and delivering a Joinder
Agreement, in the form attached hereto as Schedule B.
6. Covenants of Borrower. In addition to the covenants contained
elsewhere in this Agreement and in the other Loan Documents, Borrower agrees as
follows:
(a) Additional Indebtedness. During the term of the Loan, the
entities comprising Borrower shall not create or permit to exist any
indebtedness, without the prior written consent of Lender.
(b) Restrictions of Management Fees. During the term of the
Loan, without the prior written consent of Lender, no Borrower shall (i) pay or
incur management fees in excess of 1% of rental income on each Property financed
by Lender under the Loan, which management fees shall be subordinated to Lender,
or (ii) enter into a management agreement for the management of the Properties.
(c) Minimum Debt Service Coverage Ratios. (i) From September
30, 1999, to and including September 30, 2001, Borrower shall maintain a Minimum
Aggregate Debt Service Coverage Ratio (as defined herein) for Properties
financed by Lender under the Loan
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<PAGE> 17
of 1.62:1 ("Minimum Aggregate Debt Service Coverage Ratio" shall mean total
annual rental income, less management fees, on Lender financed Properties
divided by total annual debt service on the Loan).
(ii) From October 1, 2001, to and including the Maturity
Date, Borrower shall maintain a Minimum Aggregate Debt Service Coverage Ratio
for Properties financed by Lender under the Loan of 1.42:1.
(d) Maximum Debt to Asset Ratio. During the term of the Loan,
Capital Automotive REIT, a Maryland real estate investment trust ("CARS") shall
maintain a maximum aggregate debt to asset ratio of 65% (total debt less
payables and accruals divided by the value of all real estate assets plus real
estate depreciation and amortization).
(e) Junior Financing. During the term of the Loan, Borrower
shall not create or permit to exist any liens on or security interests in the
Property or any other property on which Lender has a lien to secure the Loan,
and shall not enter into a lease of all or any portion of the Property, which is
outside the leasing criteria to be agreed upon between Borrower and Lender,
without the prior written consent of Lender, provided, however, if a Lease
requires the consent of Borrower, subject to the prior written consent of
Lender, Tenants may mortgage their leasehold interest, provided such mortgages
do not require subordination of Borrower's fee interest in the Property.
Borrower shall not agree to any mortgage, hypothecation, pledge, encumbrance or
transfer by Tenant without Lender's consent, such consent not to be unreasonably
conditioned, withheld or delayed.
(f) Due on Sale. In the event of (i) any lease of one year or
longer (other than the Leases), sale, transfer, assignment, agreement for deed,
conveyance, hypothecation or encumbrance, whether voluntary or involuntary, of
all or any part of the Property or any interest therein, or (ii) without the
prior written consent of Lender (which consent shall not be unreasonably
withheld, conditioned or delayed), any sale, assignment, pledge, encumbrance or
transfer to a third party of more than 49% of the corporate voting stock of
Borrower, if such entity is a corporation, or more than 49% of the partnership
interests of Borrower, if such entity is a partnership, or more than 49% of the
ownership interests of Borrower, if such entity is a limited liability Company
or other form of ownership organization, or (iii) without the prior written
consent of Lender, CARS (or a wholly owned corporate subsidiary of CARS) shall
fail to be the sole General Partner of Capital Automotive L.P., a Delaware
limited partnership, or Capital Automotive L.P. (or a wholly owned subsidiary of
Capital Automotive L.P.) shall fail to be the general partner or manager of
Borrower, or the manager of the general partner or manager of Borrower, or (iv)
the seizure of the Property or attachment of any lien on the Property, whether
voluntary or involuntary, in an aggregate amount in excess of $3,500,000.00 for
all Properties, which has not been removed or bonded off to Lender's
satisfaction within 60 days of such attachment, then and in such event Lender
may, by written notice to Borrower, accelerate and declare the principal balance
of the Loan and interest accrued thereon immediately due and payable. Borrower
shall notify Lender promptly in writing of any transaction or event that may
give rise to a right of acceleration hereunder.
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<PAGE> 18
(g) Use of Property. If for any reason the Property ceases to
be used primarily as an automobile dealership facility for the sale and/or
service of both new and used automobiles, and the current use of the
improvements for: (i) the Abra Auto Body and Glass facility located on Property
23, and (ii) HMC Financial Company located on Property 24 A, or such other use
permitted by Lender as of the Closing Date ("Permitted Use"), immediately upon
Borrower receiving notice of such event, Borrower shall immediately provide
notice to Lender, and the following provisions shall govern:
(i) Lease not in Default. If no other default exists
under the Borrower's Lease, and so long as the aggregate debt service coverage
ratio with respect to the Loan is 1.3 to 1 or greater at all times during which
the Property ceases to be operated as a Permitted Use, the failure of the
Property to be so operated for a period not to exceed 24 months (and in the case
where a Property is non-conforming use, for a period not to exceed the period of
time allowed under the zoning regulations applicable thereto to maintain the use
variance for such Property) from the cessation of the Permitted Use, shall not
constitute an Event of Default hereunder. Subject to the foregoing conditions,
at the expiration of such 24 month period Borrower shall take one of the actions
in sub-paragraph (iii) below.
(ii) Lease in Default. If the Tenant for such Property is
in default under its Lease (other than a violation of the Permitted Use),
Borrower shall take one of the actions in sub-paragraph (iii) below.
(iii) Borrower's Action. Borrower shall take one of the
following actions, in the following order of preference: (A) re-let the Property
within 12 months, to a tenant and for a lawful use that does not diminish the
value of the Property, such tenant and use to be satisfactory to Lender in its
sole reasonable discretion, (B) substitute an Additional Property for the
Property in accordance with Section 5 (Section 5 (b) and 5 (c) herein shall not
be applicable to any such substitution hereunder), or (C) pay to the Lender, in
reduction of the principal balance of the Loan, an amount equal to the then
allocated portion of the Loan associated with such Property, plus any prepayment
consideration required pursuant to the Note.
(iv) Lender's Action. If Borrower fails to take any of
the actions in sub-paragraph (iii) above, Lender may, at its option, declare a
default under the Loan and declare the unpaid portion of the Loan immediately
due and payable.
(h) Insurance. (i) During the term of the Loan, the
Improvements shall be insured against physical damage under policies issued by
companies satisfactory to Lender containing endorsements naming Lender as
mortgagee and additional insured under a standard mortgagee clause acceptable to
Lender and insuring the replacement cost of the Improvements. Such policies
shall be in amounts not less than full replacement cost of the Improvements,
full replacement cost being the cost of replacing the Improvements exclusive of
the cost of excavation, foundations and footings below the lowest basement
floor, less physical depreciation of the Improvements, and subject to a maximum
deductible of $25,000 per occurrence.
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<PAGE> 19
(ii) Borrower shall obtain liability coverage
satisfactory to Lender, including public liability coverage for the Property in
minimum amounts of $3,000,000.00.
(iii) If the Improvements are located in a flood-prone
area as designated by HUD, Borrower shall obtain and maintain flood insurance in
an amount equal to the lesser of the principal amount of the Loan or the maximum
limit of coverage available for the Property under the National Flood Insurance
Program.
(i) Insurance and Condemnation Proceeds. The following
provisions shall apply to the application of insurance and condemnation proceeds
payable in respect of any Property:
(i) Insurance Proceeds.
(A) Lease Allows Termination. If the Lease allows
Borrower or Tenant to terminate the Lease upon occurrence of a casualty event,
and the Lease is terminated in accordance with its terms, Borrower at its sole
discretion may substitute an Additional Property, in accordance with Section 5
hereof (Section 5 (b) and 5 (c) herein shall not be applicable to any such
substitution hereunder), and if Borrower elects, not to substitute an Additional
Property, then, at Lender's sole option, (1) that portion of the insurance
proceeds equal to the Allocated Loan Value for the Property shall be used to
reduce the outstanding principal balance of the Loan (such payment shall not be
subject to the prepayment premium), with the balance being payable to Borrower
and such Property shall be released from the Deed of Trust, or (2) all insurance
proceeds shall be used to restore the Improvements. If insurance proceeds are
less than the Allocated Loan Value for the Property, Borrower shall pay to
Lender the difference between the amount of the insurance proceeds and the
Allocated Loan Value.
(B) Lease Requires Restoration. If the Lease requires
Tenant to restore the Improvements after a casualty, insurance proceeds will be
made available to Borrower, in accordance with Lender's then current
construction loan disbursement procedures.
(ii) Condemnation Proceeds.
(A) Full Condemnation. In the event of a full
condemnation of a Property, or partial condemnation which allows Borrower or
Tenant to terminate the Lease and the Lease is terminated in accordance with its
terms, at Borrower's option, (1) that portion of condemnation proceeds equal to
the Allocated Loan Value for the Property, shall be used to reduce the reduce
the outstanding principal balance of the Loan (such payment shall not be subject
to the prepayment premium) with the balance being payable to Borrower and such
Property shall be released from the Deed of Trust, or (2) all condemnation
proceeds shall be remitted to Borrower provided Borrower substitutes an
Additional Property in accordance with Section 5 herein (Section 5 (b) and 5 (c)
herein shall not be applicable to any such substitution hereunder). In the event
Borrower elects (1) above and condemnation proceeds are less than
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<PAGE> 20
the Allocated Loan Value for the Property, Borrower shall pay to Lender the
difference between the amount of the condemnation proceeds and the Allocated
Loan Value.
(B) Partial Condemnation. In the event of a partial
condemnation, where the value of the condemned portion of the Property is
finally determined to be $300,000.00 or less, and provided the aggregate of the
condemned portion of all Properties at any given time does not exceed
$3,000,000.00, and further provided such partial condemnation does not impair
the use of Improvements or ingress or egress to the Property, condemnation
proceeds shall be made available to Borrower for restoration of the
Improvements, if impaired.
(C) Partial Condemnation in Excess of the Amounts
Specified in Subparagraph (B). In the event of a partial condemnation, where the
value of the condemned Property is in excess of the limitation set forth in
subsection (B) above, and such partial condemnation does not impair the use of
the Improvements or ingress or egress to the Property, the condemnation proceeds
shall be made available to Borrower for restoration of the Improvements if
impaired, in accordance with Lender's then current construction loan
disbursement procedures.
(iii) Costs and Expenses. In addition to any amounts Borrower is
to pay under this Section 6 (i), Borrower shall reimburse Lender for Lender's
out of pocket expenses and reasonable attorneys' fees incurred in connection
with collecting the condemnation proceeds and insurance proceeds, and such
amount shall not reduce any amounts payable to Lender under this Section 6 (i).
(j) Financial Statements. During the term of the Loan, both
Borrower and CARS will maintain full and complete books of account and other
records reflecting the results of its operations (in conjunction with its other
operations as well as its operation of the Property), in accordance with
generally accepted accounting principles, and furnish or cause to be furnished
to Lender such financial data as Lender shall, from time to time, reasonably
request with respect to Borrower and the ownership and operation of the
Property, and Lender shall have the right, at reasonable times and with
reasonable notice, to audit Borrower's and CARS' books of account and records.
(k) Inspection; Books and Records. Borrower shall keep, at its
principal place of business or cause the Tenants under the Leases to keep, at
the Property, the records, books of accounting and all other documents, reports
and papers relating to the use and operation of the Improvements. Subject to the
terms of the Leases, Lender shall be entitled, at any reasonable time, to
inspect the Property (including, without limitation, inspections to determine
the existence of Hazardous Materials thereon and the compliance of the Property
and its use with any law, rule or regulation relating to industrial hygiene or
environmental conditions, including soil and ground water conditions and the
compliance of the Borrower and the Property with the conditions and covenants
set forth herein and the Loan Documents with respect to Hazardous Materials),
all records relating to the Property, and the books and other financial records
of Borrower and Borrower shall cooperate with Lender in enabling Lender to
accomplish such inspection and permit Lender to make such copies as Lender may
request.
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<PAGE> 21
This authority is for Lender's protection only and Lender shall not be deemed
to have assumed any responsibility to Borrower or any third party as a result
of any such action.
(l) Compliance with Restrictions, Laws and Contracts. The
Property shall be maintained in compliance in all material respects with all
applicable Restrictions. Borrower shall not violate any law of any nature that
could result in the forfeiture of all or any portion of the Property. Borrower
shall comply with the material terms of all contracts entered into by Borrower
relating to the Property and the use and operation of the Improvements
(collectively, "Contracts"). Borrower will not amend any of the Contracts
without the prior written consent of Lender and will not terminate any of the
Contracts or accept a surrender thereof or waive, excuse, condone or in any
manner release or discharge any party to any of the Contracts from the
obligations and agreements of such party to be performed thereunder without the
prior written consent of Lender.
(m) Title Exceptions. Borrower shall not impose any restrictive
covenants, easements, rights of way or encumbrances upon the Property without
the prior written consent of Lender. Notwithstanding the foregoing, Lender's
consent shall not be required for the imposition of any utility easements, or
other easements and encumbrances required by law or local authorities, or
necessary for the continued lawful use and operation of the Property, provided
such easements and encumbrances do not materially adversely affect the value of
the Property and do not contain any continuing maintenance or expense
obligations on the part of Borrower. Lender shall join in, and otherwise
reasonably cooperate with the imposition of any restrictions, the imposition of
which it approves or for which its approval is not required, at no cost to
Lender.
(n) Injunction Defense and Notice. If any proceedings are filed
seeking to enjoin or otherwise prevent or declare invalid or unlawful the
occupancy, maintenance or operation of the Property or any portion thereof,
Borrower, upon receiving written notice of the same, will give prompt written
notice thereof to Lender and will cause such proceedings to be vigorously
contested in good faith and, in the event of any adverse ruling or decision,
prosecute all allowable appeals.
(o) Publicity and Advertisement. Subject to the terms of the
Leases (and any other confidentiality agreements with the Tenants or their
affiliates) and Borrower's prior written consent (which consent shall not be
unreasonably withheld, conditioned or delayed), (i) Borrower shall permit Lender
to publicize its involvement in the Property, and (ii) Borrower shall consent to
the taking of photographs and the publication thereof.
(p) Further Assurances. Borrower will, at the request of
Lender, execute, deliver and furnish such documents or take such further action
as Lender may deem reasonably necessary or desirable to evidence the Loan,
perfect the security therefor, or otherwise carry out the terms of this
Agreement and any of the other documents delivered to Lender in connection
herewith.
-21-
<PAGE> 22
(q) No Further Liens. All equipment, personal property,
fixtures and other property subject to the lien of the security interest granted
to Lender in the Deeds of Trust shall be fully paid for by Borrower and no
security interest, lien or other encumbrance, other than that granted to Lender
and the Permitted Encumbrances, shall exist thereon.
(r) Removal of Liens. If at any time an encumbrance, lien or
charge is placed or claimed upon the Property, Borrower shall satisfy and remove
such encumbrance, lien or charge by bonding or by other method satisfactory to
Lender or cause the Title Company to provide affirmative coverage over such
liens, as Lender may require. In addition to all other rights and remedies of
Lender referred to in this Agreement, if such encumbrance, lien or charge is
not removed within sixty (60) days, Lender, at its sole discretion, may pay off
the same and Borrower shall reimburse Lender within five (5) days of Lender's
demand for payment.
(s) Notices Received. Borrower shall comply with and promptly
furnish to Lender true and complete copies of any notices pertaining to the
Property by any governmental authority of the United States, the state, cities,
counties, or any other political subdivision in which the Property is located or
which exercises jurisdiction over Borrower or the Property. Borrower shall
promptly notify Lender of any fire or other casualty or any notice of taking or
eminent domain proceeding affecting the Property of which it acquires notice.
Borrower shall promptly notify Lender of any action, proceeding or investigation
of the nature described in Section 3(h) above of which it acquires notice.
(t) Hazardous Materials and Environmental Indemnity. Borrower
shall not cause or permit (except (i) as disclosed in the Environmental Audit
Reports and (ii) with respect to Non-Compliant Properties) the violation of any
law relating to industrial hygiene or environmental conditions in connection
with the Property, including soil and ground water conditions; or use, generate,
manufacture, store or dispose of any Hazardous Materials on, under or about the
Property, except in accordance with all applicable laws. The term "Property"
shall include the groundwater in or under the Property. Borrower shall not
install underground storage tanks on the Land. Borrower shall indemnify and hold
Lender harmless from any loss, liability, cost, expense and/or claim (including
without limitation the cost of any fines, remedial action, damage to the
environment and cleanup and the fees of attorneys and other experts) arising
from (i) the use, Release or disposal of any Hazardous Materials on, under or
about the Property or the transport of any Hazardous Materials to or from the
Property; and (ii) the violation of any law relating to industrial hygiene or
environmental conditions in connection with the Property, including soil and
ground water conditions; and (iii) the breach of any of the representations,
warranties and covenants of Borrower with respect to Hazardous Materials set
forth in this Agreement or any other Loan Documents.
(u) Insurance. Borrower shall, or shall cause the Tenants to,
pay all premiums on all insurance policies required from time to time under this
Agreement, and thirty (30) days prior to expiration of any such policies,
Borrower shall, or shall cause the Tenants to, furnish to Lender with premiums
prepaid, additional and renewal policies (or binders to be followed by policies
in due course) in form, and with companies, coverage, deductibles and
-22-
<PAGE> 23
amounts satisfactory to Lender. In the event of failure by Borrower to provide
such insurance, Lender may place insurance and treat the amounts expended
therefor as Advances.
(v) Notice of Breach. Borrower shall promptly give to Lender
notice of the occurrence of any event which does or would with the passage of
time or the giving of notice, or both, constitute a default under this
Agreement, any of the other Loan Documents, or have any adverse effect on any
security for the Loan or on Borrower's ability to perform its obligations
hereunder.
(w) Approvals, Consents, Authorizations and Restrictions and
Licenses. Subject to Section 6 (x) below, Borrower will keep, or cause the
Tenants to keep, in full force and effect during the Loan term: (i) all permits,
approvals, consents and other authorizations necessary under the Restrictions to
enable business to be conducted on the Property in accordance with the Leases
and in the manner contemplated by this Agreement and the other Loan Documents;
and (ii) all Licenses.
(x) Maximum Allocated Loan Value of Non-Compliant Properties.
During the term of the Loan, the maximum aggregate Allocated Loan Value of all
Non-Compliant Properties shall not at any one time exceed $15,000,000.00.
Borrower expressly acknowledges and agrees that the existence of any condition
at any Property, or the occurrence of any act or omission by Borrower or any
Tenant that renders a Property a Non-Compliant Property, shall in no way
constitute any acquiescence or approval by Lender of, or operate to place on
Lender any liability or responsibility for, any such condition, occurrence, act
or omission, and Borrower agrees that it shall: (i) at all times use
commercially reasonable efforts to cure or cause to be cured the existence of
any condition at any Property, or the occurrence of any act or omission by
Borrower or any Tenant, that renders a Property a Non-Compliant Property; and
(ii) indemnify and hold Lender harmless from any action, proceeding, claim,
cost, expense and other liability of whatever form and nature arising from or by
reason of the fact that a Property is a Non-Compliant Property.
(y) Tenant's Exercise of Right to Purchase. In the event a
Tenant exercises its right to purchase a Property, pursuant to the terms of its
Lease, Borrower, upon receiving notice from such Tenant of its election, agrees
to give immediate written notification to Lender. All proceeds to be paid to
Borrower from the purchase and sale of the Property ("Sale Proceeds") shall be
paid to Lender. Borrower shall then have the option to either (i) substitute the
Property in accordance with Section 5 herein, in which event Lender shall remit
the Sale Proceeds to Borrower, or (ii) apply the Sale Proceeds to the
Indebtedness in an amount equal to the Allocated Loan Value for such Property
(such payment shall be subject to the prepayment premium, as set forth in the
Note), with any excess Sale Proceeds remitted to Borrower.
7. Defaults by Borrower. An "Event of Default" shall be deemed to
have occurred under this Agreement as and when an "Event of Default" shall have
occurred under the Deeds of Trust.
-23-
<PAGE> 24
8. Remedies. (a) Upon the occurrence of any Event of Default, in
addition to those remedies provided in the Deeds of Trust, Lender shall be
entitled to declare all sums evidenced by the Note and secured by the other Loan
Documents to be immediately due and payable and to enforce all of its rights and
remedies contained in this Agreement, the Deeds of Trust and other Loan
Documents, or otherwise provided by law or equity. Each right and remedy
provided in this Agreement or the other Loan Documents is distinct and
cumulative to all other rights or remedies under this Agreement and the other
Loan Documents, or afforded by law or equity, and may be exercised concurrently,
independently, or successively, in any order whatsoever.
(b) Power of Attorney. Borrower hereby constitutes and appoints
Lender its true and lawful attorney in fact with the power and authority,
including full power of substitution, to, in its sole discretion to: (i)
prosecute and defend all actions and proceedings in connection with the
Property; and (ii) execute, acknowledge and deliver all instruments and
documents in the name of Borrower as Lender deems proper which may be necessary
or desirable, and to do any and every act with respect to the Property which
Borrower might do on its own behalf. This power of attorney is a power coupled
with an interest and cannot be revoked. Lender agrees that it shall not exercise
its rights under this Section 8 (b) unless and until an Event of Default has
occurred.
(c) Disclaimer. No advance of Loan funds by Lender will cure
any default of Borrower unless Lender agrees otherwise in writing. Whether or
not Lender elects to employ any or all of the remedies available to it, Lender
shall not be liable for payment of any expenses incurred in connection with the
exercise of any remedy available to Lender or for the performance or
non-performance of any obligation of Borrower.
9. Miscellaneous Provisions.
(a) Notice. Any notice given hereunder shall be given in the
manner prescribed in the Deeds of Trust.
(b) No Assignment. Borrower shall not assign any of its rights
under this Agreement without the prior written consent of Lender (which consent
shall not be unreasonably withheld, conditioned or delayed) and any purported
assignment in violation of this Section without such prior written consent shall
be void. Without limiting the generality of the foregoing provisions of this
Section 9 (b), it is expressly agreed that any sale, assignment, pledge,
encumbrance or transfer that does not require Lender's consent pursuant to
Section 6 (f) (ii) shall not be deemed an assignment of Borrower's rights under
this Agreement.
(c) Time. Time is of the essence hereunder.
(d) Headings. The captions and headings of various sections of
this Agreement are for convenience only and are not to be considered as defining
and limiting in any way the scope or intent of the provisions hereof.
-24-
<PAGE> 25
(e) Successors. This Agreement shall be binding upon and shall
inure to the benefit of all successors and permitted assigns of the parties.
(f) No Partnership; Indemnity. Lender shall not be deemed to be
a partner or joint venturer with Borrower in connection with the Loan or any
action taken under this Agreement and Borrower shall indemnify, hold Lender
harmless and defend Lender from and against any and all loss, cost, damage,
expense or liability, including reasonable attorneys' fees, arising out of or
resulting from such a construction of the parties and their relationship or
resulting from any actual or alleged defect in the construction of the
Improvements. None of the rights granted to Lender under the Loan Documents
shall be deemed to diminish or substitute for Borrower's management powers and
responsibilities with respect to the Property, and the existence of, and/or
Lender's exercise of such rights shall not constitute participation in
management by Lender. The provisions of this Section 9 (f) shall survive
payment of the Loan.
(g) Effectiveness. This Agreement shall continue in full force
and effect so long as Borrower remains obligated to Lender under the Loan.
(h) No Waiver. No failure on Lender's part at any time to
require the performance by Borrower of any term of this Agreement shall in any
way affect Lender's rights to subsequently enforce such term, nor shall any
omission on Lender's part to notify Borrower of any event which with notice or
the passage of time or both would constitute an Event of Default be construed as
a waiver of such Event of Default or any right or remedy of Lender, nor shall
any waiver by Lender of any term hereof be taken or held to be a waiver of any
other term hereof.
(i) Governing Law. This Agreement shall be interpreted and
enforced under the laws of the State of Michigan.
(j) WAIVER OF RIGHT TO TRIAL BY JURY. TO FACILITATE EACH
PARTY'S DESIRE TO RESOLVE DISPUTES IN AN EFFICIENT AND ECONOMICAL MANNER, EACH
PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF
ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENTS, OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS RELATED HERETO
OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
ARISING IN CONTRACT OR TORT OR OTHERWISE. EACH PARTY HEREBY AGREES AND CONSENTS
THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(k) Complete Agreement. The parties hereto hereby represent and
acknowledge that the Loan Documents are fully integrated and contain the
complete understanding and agreements of the parties with respect to the Loan
and all matters relative thereto and accurately reflect the intentions of the
parties. All prior agreements, negotiations,
-25-
<PAGE> 26
drafts and other extrinsic communications relating thereto have been
incorporated into or are superseded by the terms of the Loan Documents and have
no further significance or evidentiary effect.
(l) Counterparts. This Agreement may be executed in one or more
counterparts, each of which together shall constitute one and the same
instrument.
(m) Lender's Advances. All expenditures by Lender permitted
under this Agreement and any other Loan Documents shall be deemed to be an
advance under the Loan from the date made. In the event the total advances under
the Loan exceed the maximum amount of the Loan, Borrower and Lender acknowledge
and authorize that such excess amount shall be deemed an additional loan to
Borrower, payable within five (5) days of Lender's demand for payment, secured
by the Deeds of Trust and bearing interest at the Default Rate.
(n) Attorneys' Fees. In the event that an attorney be employed
or expenses be incurred to compel payment of the Loan or any portion thereof or
in connection with any default hereunder or under any other Loan Documents
whether or not any action or proceeding is commenced by Lender, Borrower
promises to pay all such expenses and reasonable attorneys' fees, including but
not limited to, reasonable attorneys' fees incurred in any bankruptcy
(including, without limitation, an action for relief from the automatic stay of
any bankruptcy proceeding) or judicial or non-judicial foreclosure proceedings.
(o) Severability. In the event any one or more of the
provisions contained in this Agreement, or in any of the other Loan Documents
shall for any reason be held to be invalid, illegal or unenforceable in any
respect by a court of competent jurisdiction, such invalidity, illegality or
unenforceability shall at the option of Lender, not affect any other provision
of this Agreement, or any such other Loan Documents, and this Agreement and any
such other Loan Documents shall be construed as if such invalid, illegal or
unenforceable provision had never been contained therein.
(p) Set-Off. Without limitation of any other right or remedy of
Lender hereunder or provided by law, any indebtedness now or hereafter owing to
Lender by Borrower (including, without limitation, any amounts on deposit in any
demand, time, savings, or like account maintained by Borrower with Lender) may
be offset and applied by Lender hereunder, or under the Note, the Deeds of Trust
or the other Loan Documents.
(q) No Violation. Notwithstanding anything in this Agreement or
to the contrary, Lender will not be required to make any advance or perform any
other act under this Agreement if as a result thereof, Lender will violate any
law, statute, ordinance, rule, regulation or judicial decision applicable
thereto.
(r) Stated Value of Properties. Borrower hereby acknowledges
and agrees that the stated values of each Property on Schedule A are agreed upon
values for said Properties for purposes of determining the documentary stamp
tax, intangible tax and title insurance premiums as between the various states
wherein the Properties are located, as
-26-
<PAGE> 27
applicable, and such stated values shall in no way impair, affect, prejudice,
or otherwise constitute a waiver or defense to the rights of Lender under the
Note, the Deeds of Trust, or any other Loan Documents relating to Borrower's
obligations to repay the Loan or perform any obligations under the Loan
Documents or otherwise with respect to the Loan secured thereby. Further,
Borrower absolutely, unconditionally and irrevocably waives any and all right
to assert any setoff, counterclaim or cross claim based in whole or in part
upon the allocation of stated values as set forth in Schedule A with respect to
the obligation of the Borrower to pay the Indebtedness and perform all non
monetary obligations in accordance with the Note, the Deeds of Trust and the
Loan Documents in any action or proceeding brought by the Lender to collect the
Indebtedness, or any portion thereof, or to enforce by foreclosure, and realize
upon the liens and security interests.
(s) Breakage Costs. In the event, except by default by Lender,
the Loan is not fully funded on or before September 30, 1999, Borrower agrees to
pay Lender's damages, losses, liabilities, costs, fees and expenses, including
breakage, unwind and similar costs, fees and expenses related to the amount not
advanced (collectively, the "Breakage Costs"). Borrower will be fully
responsible for all Breakage Costs, which are required to be paid, upon demand.
THIS LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
AGREEMENTS OF THE PARTIES.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURES FOLLOW ON SUCCEEDING PAGES]
-27-
<PAGE> 28
IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement,
under seal, as of the date first above written.
MMR HOLDINGS, L.L.C., a North Carolina limited
liability Company
By: CAR MMR L.L.C., a Delaware
limited liability Company, its
Managing Member
By: Capital Automotive L.P.,
a Delaware limited partnership,
its Managing Member
By: Capital Automotive REIT,
a Maryland real estate
investment trust, its
General Partner
By: /s/ Peter C. Staaf [SEAL]
----------------------------
Peter C. Staaf
Its: Vice President and
Treasurer
[SIGNATURE PAGE TO FIRST AMENDED AND RESTATED LOAN AGREEMENT]
[SIGNATURES CONTINUE ON FOLLOWING PAGES]
-28-
<PAGE> 29
IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement,
under seal, as of the date first above written.
MMR TENNESSEE, L.L.C., a North Carolina
limited liability company
By: CAR MMR L.L.C., a Delaware
limited liability company, its
Managing Member
By: Capital Automotive L.P.,
a Delaware limited partnership,
its Managing Member
By: Capital Automotive REIT,
a Maryland real estate
investment trust, its
General Partner
By: /s/ John M. Weaver [SEAL]
--------------------------
John M. Weaver
Its: Vice President
[SIGNATURE PAGE TO FIRST AMENDED AND RESTATED LOAN AGREEMENT]
[SIGNATURES CONTINUE ON FOLLOWING PAGES]
-29-
<PAGE> 30
IN WITNESS WHEREOF, Borrower and Lender have executed this
Agreement, under seal, as of the date first above written.
MMR VIKING INVESTMENT ASSOCIATES, L.P.,
a Texas limited partnership
By: CAR MMR L.L.C., a Delaware
limited liability company, its
Managing Member
By: Capital Automotive L.P.,
a Delaware limited partnership,
its Managing Member
By: Capital Automotive REIT,
a Maryland real estate
investment trust, its
General Partner
By: /s/ John M. Weaver [SEAL]
--------------------------
John M. Weaver
Its: Vice President
[SIGNATURE PAGE TO FIRST AMENDED AND RESTATED LOAN AGREEMENT]
[SIGNATURES CONTINUE ON FOLLOWING PAGES]
-30-
<PAGE> 31
IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement,
under seal, as of the date first above written.
FORD MOTOR CREDIT COMPANY, a
Delaware corporation
By: /s/ William J. Beck, IV .
-----------------------------------
William J. Beck, IV
Its: National Account Manager
[SIGNATURE PAGE TO FIRST AMENDED AND RESTATED LOAN AGREEMENT]
-31-
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 49,335
<SECURITIES> 0
<RECEIVABLES> 0
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<CURRENT-ASSETS> 22,293
<PP&E> 864,094
<DEPRECIATION> 17,223
<TOTAL-ASSETS> 918,499
<CURRENT-LIABILITIES> 6,926
<BONDS> 0
0
0
<COMMON> 248
<OTHER-SE> 309,148
<TOTAL-LIABILITY-AND-EQUITY> 918,499
<SALES> 0
<TOTAL-REVENUES> 51,443
<CGS> 0
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<OTHER-EXPENSES> 16,407
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,400
<INCOME-PRETAX> 15,536
<INCOME-TAX> 0
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