CAPITAL AUTOMOTIVE REIT
S-3, 2001-01-19
REAL ESTATE INVESTMENT TRUSTS
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<PAGE>   1

    AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 19, 2001
                                                    REGISTRATION NO. 333-_______
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                ----------------
                                    FORM S-3
                             REGISTRATION STATEMENT
                        UNDER THE SECURITIES ACT OF 1933

                                ----------------
                             CAPITAL AUTOMOTIVE REIT
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                                ----------------

<TABLE>
<S>                                          <C>                                            <C>
             MARYLAND                                    6798                                      54-1870224
   (State or other jurisdiction              (Primary Standard Industrial                       (I.R.S. Employer
        of incorporation or                   Classification Code Number)                    Identification Number)
           organization)
</TABLE>

<TABLE>
<S>                                                            <C>
                                                                                 THOMAS D. ECKERT
                                                                      PRESIDENT AND CHIEF EXECUTIVE OFFICER
             1420 SPRING HILL ROAD, SUITE 525                                CAPITAL AUTOMOTIVE REIT
                  MCLEAN, VIRGINIA 22102                                 1420 SPRING HILL ROAD, SUITE 525
                      (703) 288-3075                                          MCLEAN, VIRGINIA 22102
    (Address, including zip code, and telephone number,                           (703) 288-3075
 including area code, of registrant's principal executive       (Name, address, including zip code, and telephone
                         offices)                               number, including area code, of agent for service)
</TABLE>

                                 With a copy to:
                            SYLVIA M. MAHAFFEY, ESQ.
                                  SHAW PITTMAN
                               2300 N STREET, N.W.
                             WASHINGTON, D.C. 20037
                                 (202) 663-8000

                                ----------------

       Approximate date the registrant proposes to begin selling securities to
the public: From time to time after the effective date of this registration
statement.

       If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]

       If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered in connection with dividend or interest
reinvestment plans, check the following box. [X]

       If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

       If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

       If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]

                                ----------------

                         CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
=====================================================================================================================
                                                     PROPOSED MAXIMUM      PROPOSED MAXIMUM
    TITLE OF SECURITIES           AMOUNT TO           OFFERING PRICE          AGGREGATE              AMOUNT OF
     TO BE REGISTERED           BE REGISTERED          PER SHARE(1)       OFFERING PRICE(1)     REGISTRATION FEE(1)
---------------------------------------------------------------------------------------------------------------------
<S>                               <C>                   <C>                  <C>                      <C>
Common Shares of
Beneficial Interest, par
value $.01 per share.......       1,149,369             $14.21875            $16,342,591              $4,086
=====================================================================================================================
</TABLE>

(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) on the basis of the average of the high and low reported sales
prices for the registrant's common shares of beneficial interest, as reported on
The Nasdaq National Market on January 11, 2001.

       This registration statement relates to the possible offering and sale of
up to 1,149,369 common shares of Capital Automotive REIT upon the redemption of
certain units of limited partnership interest in Capital Automotive L.P. Of
these units, 2,566 were issued in transactions that closed January 8, 1999,
112,335 were issued in transactions that closed September 10, 1999, and
1,034,468 were issued in transactions that closed November 5, 1999. Of the
1,149,369 units, 2,566 became redeemable January 8, 2001 and 1,146,803 become
redeemable January 31, 2001.

       The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant files
a further amendment which specifically states that this registration statement
is to become effective in accordance with Section 8(a) of the Securities Act or
until the registration statement becomes effective on the date the SEC, acting
under Section 8(a), determines.
================================================================================

<PAGE>   2

--------------------------------------------------------------------------------
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
--------------------------------------------------------------------------------

                  SUBJECT TO COMPLETION, DATED JANUARY 19, 2001
PROSPECTUS

[LOGO]
                             CAPITAL AUTOMOTIVE REIT
                 1,149,369 COMMON SHARES OF BENEFICIAL INTEREST

       We may offer up to 1,149,369 common shares for redemption of units of
limited partnership interest issued by Capital Automotive L.P. Capital
Automotive L.P. issued 2,566 units in connection with acquisitions of real
estate properties that closed on January 8, 1999, 112,335 units in connection
with acquisitions of real estate properties that closed on September 10, 1999,
and 1,034,468 units in connection with real estate acquisitions that closed
November 5, 1999. Of the 1,149,369 units, 2,566 became redeemable January 8,
2001 and 1,146,803 become redeemable January 31, 2001, as more fully described
in our prospectus. Holders of units have the right to notify Capital Automotive
L.P. that they want their units redeemed. We have the right to assume the
obligations of Capital Automotive L.P. to redeem units. If a unitholder
exercises his right to have his units redeemed, we may issue common shares in
exchange for those units on the basis of one common share for each unit
redeemed. Our registration of our common shares does not mean that we will offer
or sell our common shares to unitholders, if and when unitholders redeem units.
We may choose not to assume the obligations of Capital Automotive L.P. or we may
choose to pay cash in exchange for the units. We will not receive any money from
the offer and sale of our common shares to unitholders.

       We are also registering the resale of our common shares by the
recipients. Our registration of our common shares for possible resale does not
mean that any person who receives common shares from us for his units will offer
and sell his shares. We will not receive any money from any offer and sale of
common shares by any selling shareholder. See "Use of Proceeds," "Selling
Shareholders" and "Plan of Distribution."

       Our common shares are quoted on the Nasdaq National Market under the
symbol "CARS." On January 18, 2001, the closing sales price of our common shares
as reported on the Nasdaq National Market was $14.75 per share.

       To maintain our qualification as a real estate investment trust, we limit
the transfer of our common shares. No person may own more than 9.9% of our
outstanding shares or 9.9% of our outstanding shares of preferred stock, as
determined under the attribution rules of the Internal Revenue Code, subject to
exceptions under the law and our right, subject to certain limitations, to grant
waivers of these limits.

       You should be aware that an investment in our common shares involves
various risks. See "Risk Factors" on Page 1 and in our Current Report on Form
8-K/A filed on January 19, 2001, which is incorporated into our prospectus by
reference.

       Holders of units should also realize that the redemption of a unit will
be treated as a taxable sale of the unit. As such, holders will recognize gain
or loss from the sale of the unit equal to the difference between the amount
considered realized for tax purposes and the holder's adjusted tax basis in the
unit.

     NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
          COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
                  DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
                COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
                                CRIMINAL OFFENSE.

                  THE DATE OF THIS PROSPECTUS IS              .
                                                 -------------

<PAGE>   3

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                         Page No.
                                                                                                         --------
<S>                                                                                                        <C>
About this Prospectus........................................................................................i
Risk Factors.................................................................................................1
Overview.....................................................................................................1
Use of Proceeds..............................................................................................2
Market Price of Common Shares................................................................................3
Description of Shares of Beneficial Interest.................................................................3
Description of Partnership Agreement........................................................................10
Redemption of Units.........................................................................................12
Comparison of the Company and the Partnership...............................................................14
Federal Income Tax Consequences.............................................................................19
Selling Shareholders........................................................................................37
Plan of Distribution........................................................................................37
Legal Matters...............................................................................................38
Experts.....................................................................................................38
Where You Can Find More Information.........................................................................38
</TABLE>

<PAGE>   4

                              ABOUT THIS PROSPECTUS

       This prospectus is part of a registration statement that we filed with
the Securities and Exchange Commission ("SEC") using a "shelf" registration
process. Under this shelf process, we may offer and sell common shares described
in our prospectus on redemption of units of limited partnership interest of
Capital Automotive L.P. in one or more offerings to persons who acquired their
units on January 8, 1999, September 10, 1999 and November 5, 1999. The person
who receives common shares from us may also resell those shares. Our prospectus
provides you with a general description of our common shares. If required, we
will deliver or provide our prospectus supplement if and when we offer and sell
any common shares, or when a selling shareholder offers and resells any common
shares that will contain specific information about all of the terms of that
offering. Our prospectus supplement may also add, update or change information
contained in this prospectus. You should read both our prospectus and any
prospectus supplement together with the additional information described under
the heading "Where You Can Find More Information."

       Capital Automotive REIT (the "Company") is a Maryland real estate
investment trust formed in October 1997. The Company owns interests in real
estate through Capital Automotive L.P. (the "Partnership") and its subsidiaries,
and as of December 31, 1999, owned approximately 71.5% of the units of limited
partnership interest and was the sole general partner of the Partnership.
References to "we," "us" or "our" refer to the Company or, if the context
requires, the Partnership and our business and operations conducted through the
Partnership and/or directly or indirectly owned subsidiaries. In the section
captioned "Federal Income Tax Consequences," the Partnership, the Company and
their subsidiaries are collectively referred to as the Capital Automotive Group.

                                     - i -
<PAGE>   5

                                  RISK FACTORS

       Our prospectus, including our documents incorporated herein by reference,
contains forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act of 1934, as
amended. Also, documents which we subsequently file with the SEC and are
incorporated herein by reference will contain forward-looking statements. When
we refer to forward-looking statements or information, sometimes we use words
such as "may," "will," "could," "should," "plans," "intends," "expects,"
"believes," "estimates," "anticipates" and "continues." In particular, the risk
factors included or incorporated by reference in our prospectus describe
forward-looking information. The risk factors are not all inclusive,
particularly with respect to possible future events. Other parts of, or
documents incorporated by reference into, our prospectus may also describe
forward-looking information. Many things can happen that can cause our actual
results to be very different than those described. These factors include:

       -      risks that our growth will be limited if we cannot obtain
              additional capital;

       -      risks of finanacing, such as the ability to meet existing
              financial covenants and our ability to consummate additional
              financings on terms which are acceptable to us;

       -      risks that the Company's tenants will not pay rent or that the
              Company's operating costs will be higher than expected;

       -      risks that additional acquisitions may not be consummated;

       -      risks related to the automotive industry, such as the ability of
              our tenants to compete effectively in the automotive retail
              industry and the ability of our tenants to perform their lease
              obligations as a result of changes in manufacturer's production,
              inventory, marketing or other practices;

       -      environmental and other risks associated with the acquisition and
              leasing of automotive properties; and

       -      risks related to the Company's status as a REIT for federal income
              tax purposes, such as the existence of complex regulations
              relating to the Company's status as a REIT, the effect of future
              changes in REIT requirements as a result of new legislation and
              the adverse consequences if the failure to qualify as a REIT.

       Given these uncertainties, readers are cautioned not to place undue
reliance on these forward-looking statements. We also make no promise to update
any of the forward-looking statements, or to publicly release the results if we
revise any of them. You should carefully review the risks and the risk factors
incorporated herein by reference from our Form 8-K/A filed on January 19, 2001,
as well as the other information in this prospectus or referred to in this
prospectus, before buying our common shares.

                                    OVERVIEW

       Our 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 our prospectus, we use the term dealerships to refer to these
types of businesses that are operated on our properties. Our strategy focuses on
acquiring real estate used by multi-site, multi-franchised dealerships located
primarily in major metropolitan areas throughout the United States.

       As of December 31, 2000, we had invested approximately $1.04 billion in
properties. As of December 31, 2000, we owned 244 properties located in 27
states, a total of approximately 1,518 acres of land containing approximately
8.9 million square feet of buildings and improvements. Our tenants operate 365
motor vehicle franchises on our properties, representing 39 brands of motor
vehicles, including Acura, Audi, BMW, Buick, Cadillac, Chevrolet, Chrysler,
Daewoo, Dodge, Dodge Trucks, Ford, Freightliner, GMC, GMC Truck, Honda, Hyundai,
Infiniti, Isuzu, Jaguar, Jeep, Kia, Land Rover, Lexus, Lincoln-Mercury, Mazda,
Mercedes-Benz, Mitsubishi, Nissan, Oldsmobile, Plymouth, Pontiac, Porsche, Saab,
Saturn, Subaru, Suzuki, Toyota, Volkswagen and Volvo.

       We focus on buying properties from third parties that have a long history
of operating multi-site, multi-franchised dealerships. In our prospectus, we use
the term dealer group to refer to a group of related persons and companies who
sell us properties. We also use the terms dealer group, tenant or lessee to
refer to the related persons and companies that lease our properties.

       We purchase properties in exchange for cash, units of limited partnership
interest in the Partnership, the assumption of existing debt, new debt, or a
combination of any of the four. We generally lease our properties to
established, creditworthy tenants, for a period of 10 to 20 years. We usually
give the tenant the option to renew the lease on the same terms and conditions
for one or more additional periods of five to 10 years each. We typically
require our tenants to pay all operating expenses of the property, including all
real estate taxes and assessments, utilities, insurance, repairs, maintenance
and other expenses. This type of lease is commonly known as a triple-net lease.

       When we evaluate dealer groups and potential properties for purchase, we
consider such factors as:

<PAGE>   6

       -      the management and operating experience of the dealer group;

       -      the adequacy of a dealer group's historical, current and
              forecasted financial position and cash flow;

       -      the value of the land, buildings and other improvements;

       -      the construction quality, condition and design of the dealership
              buildings and other improvements located on the property;

       -      the type of franchises operated by the dealer group;

       -      the geographic area in which the property is located; and

       -      the environmental condition of the real estate.

       We have, and will continue to, borrow funds to buy properties. As of
December 31, 2000, we had total debt outstanding of $585.7 million. Of this
debt, approximately $571.5 million (consisting of $481.9 million of fixed rate
indebtedness and $89.6 million of variable rate indebtedness) was mortgage
indebtedness secured by approximately 210 of our dealership properties. In
addition, we had $14.2 million outstanding on our variable rate revolving credit
facilities. We may issue equity or debt securities, including preferred equity
and senior or subordinated notes. These notes may be secured by properties or
leases. We have adopted a policy to limit debt to approximately 65% of our
assets (calculated as total assets plus accumulated depreciation). As of
December 31, 2000, our debt was approximately 55% of our assets. This policy may
be changed by our Board of Trustees at any time without shareholder approval. In
addition, to minimize interest rate risk, we currently intend to maintain at
least 85% of our total outstanding debt as long-term fixed rate debt or floating
rate debt that is substantially match-funded with our leases. Approximately 90%
of our debt outstanding as of December 31, 2000 is substantially match-funded,
non-recourse debt. This target may be changed by our Board of Trustees at any
time without shareholder approval.

       As a real estate investment trust, we acquire properties through our
direct and indirect subsidiaries, including the Partnership, and manage our
business in a manner that is intended to be consistent with the requirements of
the Internal Revenue Code of 1986, as amended (the "Code") and the regulations
of the Internal Revenue Service that govern taxation of real estate investment
trusts. We have paid, and expect to continue to pay, regular cash dividends to
our shareholders. It also is our objective to provide our shareholders the
opportunity for increased dividends from increasing annual rental income; to
preserve and protect the investments of our shareholders; and to provide our
shareholders with the opportunity to increase the value of their investments.

       We are a self-administered and self-managed real estate investment trust,
meaning that our trustees, officers and employees manage and administer our
business. Our executive officers are Thomas D. Eckert, President and Chief
Executive Officer; David S. Kay, Vice President and Chief Financial Officer;
John M. Weaver, Vice President, Secretary and General Counsel; Peter C. Staaf,
Vice President and Treasurer; and Jay M. Ferriero, Vice President - Director of
Acquisitions.

       Our principal executive office is located at 1420 Spring Hill Road, Suite
525, McLean, Virginia 22102. Our telephone number is (703) 288-3075.

                                 USE OF PROCEEDS

       We will not receive any proceeds from common shares offered and sold on
redemption of units. We will not receive any proceeds from common shares sold by
selling shareholders.

                                     - 2 -
<PAGE>   7

                          MARKET PRICE OF COMMON SHARES

       Our common shares have been trading on the Nasdaq National Market under
the symbol "CARS" since February 13, 1998. We list below the high and low sales
prices of our common shares as reported on the Nasdaq National Market and the
distributions declared by us for the periods indicated.

<TABLE>
<CAPTION>
                                                                    HIGH              LOW            DISTRIBUTION
                                                                    ----              ---            ------------
<S>                                                              <C>              <C>                    <C>
Fiscal year ending December 31, 1999

      First fiscal quarter                                        15 3/16            11 1/4              0.330
      Second fiscal quarter                                        13 3/4            11 3/8              0.340
      Third fiscal quarter                                         13 3/4                12              0.350
      Fourth fiscal quarter                                            14            11 5/8              0.360

Fiscal year ending December 31, 2000

      First fiscal quarter                                        13 1/16            10 5/8              0.365
      Second fiscal quarter                                       16 1/16            11 1/2              0.3725
      Third fiscal quarter                                         15 5/8                12              0.3775
      Fourth fiscal quarter                                     14 9/16          12 3/8                  0.385(1)

Fiscal year ending December 31, 2001

      First fiscal quarter (to January 18, 2001)                  14 3/4         12 7/8
</TABLE>

-------------
(1) The Board of Trustees has declared a distribution of $0.385 per share
    payable on January 31, 2001 to shareholders of record on December 31, 2000.

       On January 18, 2001, the last reported closing sales price on the Nasdaq
National Market was $14.75 per share and there were approximately 200 holders
of record of our common shares.

                  DESCRIPTION OF SHARES OF BENEFICIAL INTEREST

       We are a Maryland real estate investment trust. Your rights as a
shareholder are governed by the Code of Maryland, including Title 8 of the
Corporations and Associations Article, and our Declaration of Trust and Bylaws.
The following summary of the terms of our shares of beneficial interest is not
complete. You should read our Declaration of Trust and Bylaws for more complete
information.

AUTHORIZED SHARES

       Our Declaration of Trust allows us to issue up to 100 million common
shares of beneficial interest, par value $.01 per share, and 20 million
preferred shares of beneficial interest, par value $.01 per share. As of January
18, 2001, we had 21,313,621 common shares outstanding and no preferred shares
outstanding.

       AUTHORITY OF THE BOARD OF TRUSTEES. Our Declaration of Trust allows our
Board of Trustees to take the following actions without approval by you or other
shareholders:

       -      classify or reclassify any unissued common shares or preferred
              shares into one or more classes or series of shares of beneficial
              interest;

       -      set or change the preferences, conversion or other rights, voting
              powers, restrictions, limitations as to dividends or
              distributions, qualifications or terms or conditions of redemption
              of any class or series of shares of beneficial interest; and

       -      amend our Declaration of Trust to change the total number of
              shares of beneficial interest or the number of shares of any class
              or series of shares of beneficial interest that we have authority
              to issue.

                                     - 3 -
<PAGE>   8

       However, if there are any laws or stock exchange rules which require us
to obtain shareholder approval in order for us to take these actions, we will
contact our shareholders to solicit that approval.

       We believe that the power of our Board of Trustees to issue additional
shares of beneficial interest will provide us with greater flexibility in
structuring possible future financings and acquisitions and in meeting other
future needs. Although our Board of Trustees does not currently intend to do so,
our Board has the ability to issue a class or series of beneficial shares that
could have the effect of delaying or preventing a change of control that might
involve a premium price for holders of common shares or otherwise be favorable
to them.

       SHAREHOLDER LIABILITY. Under Maryland law, you will not be personally
liable for any of our obligations solely because you are a shareholder. Under
our Declaration of Trust you are not personally liable for our debts or
obligations and will not be subject to any personal liability, in tort, contract
or otherwise, to any person in connection with our property or affairs by reason
of being a shareholder.

COMMON SHARES

       All common shares offered through this prospectus will be duly
authorized, fully paid and nonassessable.

       As a shareholder, you will be entitled to receive distributions on the
shares you own if our Board of Trustees authorizes a distribution out of our
legally available assets. However, your right to receive these distributions may
be affected by the preferential rights of any other class or series of shares of
beneficial interest and the provisions of our Declaration of Trust regarding
restrictions on the transfer of shares of beneficial interest. For example, you
may not receive distributions if funds are not available for distribution after
we pay dividends to holders of preferred shares.

       You will also be entitled to receive distributions based on our assets
available for distribution to common shareholders if we liquidate, dissolve or
wind up our operations. The amount you, as an individual shareholder, would
receive in the distribution would be determined by your amount of beneficial
ownership of us in comparison with other beneficial owners. Assets will be
available for distribution to shareholders only after we have paid all our known
debts and liabilities and paid the holders of any preferred shares we may issue.

       VOTING RIGHTS. Each outstanding common share owned by a shareholder
entitles that holder to one vote on all matters submitted to a vote of
shareholders, including the election of trustees. The right to vote is subject
to the provisions of our Declaration of Trust regarding the restriction on the
transfer of shares of beneficial interest, which we describe under "Restrictions
on Ownership and Transfer," below. There is no cumulative voting in the election
of our trustees, which means that the holders of a majority of the outstanding
common shares can elect all of the trustees then standing for election, and the
holders of the remaining shares will not be able to elect any trustees.

       As a holder of a common share, you will not have any right to:

       -      convert your shares into any other security;

       -      have any funds set aside for future payments;

       -      require us to repurchase your shares; or

       -      purchase any of our securities, if other securities are offered
              for sale, other than as a member of the general public.

       Subject to the terms of our Declaration of Trust regarding the
restrictions on transfer of shares of beneficial interest, each common share has
the same dividend, distribution, liquidation and other rights as any other
common share.

       According to the terms of our Declaration of Trust and Bylaws, and
Maryland law, all matters submitted to the shareholders for approval, except for
those matters listed below, are approved if a majority of all the votes cast at
a meeting of shareholders duly called and at which a quorum is present are voted
in favor of approval. The following matters require approval other than by a
majority of all votes cast:

                                     - 4 -
<PAGE>   9

       -      intentional disqualification of us as a real estate investment
              trust or revocation of our election to be taxed as a real estate
              investment trust, which requires the affirmative vote of the
              holders of two-thirds of the number of common shares outstanding
              and entitled to vote on such a matter;

       -      the election of trustees, which requires a plurality of all the
              votes cast at a meeting of our shareholders at which a quorum is
              present;

       -      the removal of trustees, which requires the affirmative vote of
              the holders of two-thirds of the number of common shares
              outstanding and entitled to vote on such a matter;

       -      the amendment of our Declaration of Trust by shareholders, which
              requires the affirmative vote of a majority of votes entitled to
              be cast on the matter, except under certain circumstances
              specified in the Company's Declaration of Trust that require the
              affirmative vote of two-thirds of all the votes entitled to be
              cast on the matter;

       -      our dissolution, which requires the affirmative vote of two-thirds
              of all the votes entitled to be cast on the matter; and

       -      the merger or consolidation of us with another entity or sale of
              all or substantially all of our property, which requires the
              approval of the Board of Trustees and an affirmative vote of a
              majority of all the votes entitled to be cast on the matter.

       Our Declaration of Trust permits the trustees by a two-thirds vote to
amend our Declaration of Trust from time to time to qualify as a real estate
investment trust under Maryland law without the approval of you or other
shareholders. Our Declaration of Trust also permits our Board of Trustees to
amend the Declaration of Trust to change the total number of shares of
beneficial interest or the number of shares of any class of shares of beneficial
interest that we have authority to issue without approval by you or other
shareholders.

       Our common shares are traded on the Nasdaq National Market System under
the trading symbol "CARS."

PREFERRED SHARES

       Preferred shares may be offered and sold from time to time, in one or
more series, as authorized by our Board of Trustees. Our Board of Trustees is
required by Maryland law and our Declaration of Trust to set for each series the
terms, preferences, conversion or other rights, voting powers, restrictions,
limitations as to distributions, qualifications and terms or conditions of
redemption. Our Board of Trustees has the power to set preferences, powers and
rights, voting or other terms of preferred shares that are senior to, or better
than, the rights of holders of common shares or other classes or series of
preferred shares. The offer and sale of preferred shares could have the effect
of delaying or preventing a change of control of us that might involve a premium
price for holders of our common shares or otherwise be favorable to them. As of
the date of this prospectus, there are no preferred shares outstanding.

RESTRICTIONS ON OWNERSHIP AND TRANSFER

       Restrictions on ownership and transfer of shares are important to ensure
that we meet certain conditions under the Code to maintain our qualification as
a REIT. For example, the Code contains the following requirements:

       -      The 5/50 Rule, which provides that no more than 50% in value of a
              REIT's shares may be owned, actually or constructively, based on
              attribution rules in the Code, by 5 or fewer individuals during
              the last half of a taxable year or a proportionate part of a
              shorter taxable year. Under the Code, individuals include certain
              tax-exempt entities except that qualified domestic pension funds
              are not generally treated as individuals.

       -      If a REIT, or an owner of 10% or more of a REIT, is treated as
              owning 10% or more of a lessee of the REIT's property, the rent
              received by the REIT from the lessee will not be "qualifying
              income" for purposes of the REIT gross income tests of the Code.

                                     - 5 -
<PAGE>   10

       -      A REIT's stock or beneficial interests must be owned by 100 or
              more persons during at least 335 days of a taxable year of 12
              months or during a proportionate part of a shorter taxable year.

       Our Board of Trustees believes it is essential for us to continue to
qualify as a REIT. Therefore, our Declaration of Trust, subject to certain
exceptions described below, provides that no person may own, or be deemed to own
by virtue of the attribution provisions of the Code, more than 9.9% of the
outstanding common shares, preferred shares or any other series of capital
stock. In this prospectus, the term "ownership limitation" is used to describe
this provision of our Declaration of Trust.

       Any transfer of common or preferred shares will be null and void, and the
intended transferee will acquire no rights in such common shares or preferred
shares if, as a result of the transfer:

       -      any person would own, directly or indirectly, common shares or
              preferred shares in excess of the ownership limitation;

       -      the common shares and preferred shares would be owned by fewer
              than 100 persons, determined without reference to any rules of
              attribution;

       -      we would be closely held, within the meaning of Section 856(h) of
              the Code; or

       -      we would own, directly or constructively, 10% or more of the
              ownership interests in a tenant of our property, within the
              meaning of Section 856 (d) (2) (B) of the Code.

       AUTOMATIC TRANSFER OF SHARES TO TRUST. With certain exceptions described
below, the common shares or preferred shares will be designated as
shares-in-trust and transferred automatically to a trust, called the share
trust, if any transfer of common shares or preferred shares would violate any of
the four restrictions summarized above which cause the transfer to be null and
void. The transfer to the share trust is effective as of the end of the business
day before the purported transfer of such common shares or preferred shares. The
record holder of the common shares or preferred shares that are designated as
shares-in-trust is referred to as the prohibited owner, and must deliver those
shares to us for registration in the name of the share trust. We will designate
a share trustee who is not affiliated with us. The beneficiary of the share
trust will be one or more charitable organizations named by us.

       Any shares-in-trust remain issued and outstanding common shares or
preferred shares and are entitled to the same rights and privileges as all other
shares of the same class or series. The share trust receives all dividends and
distributions on the shares-in-trust and holds such dividends and distributions
in trust for the benefit of the beneficiary. The share trustee votes all
shares-in-trust. The share trustee may also designate a permitted transferee of
the shares-in-trust, subject to our right to purchase the shares-in-trust on the
terms described in the following paragraph. The permitted transferee must
purchase the shares-in-trust for valuable consideration and acquire the
shares-in-trust without resulting in the transfer being null and void.

       The shares-in-trust are deemed to be offered for sale to us, or our
designee, at a price per share equal to the lesser of (1) the price per share in
the transaction that created such shares-in-trust, or, in the case of a gift or
devise, the market price per share on the date of such transfer, or (2) the
market price per share on the date that we, or our designee, accept such offer.
We may accept such offer for a period of ninety days after the later of (1) the
date of the purported transfer which resulted in such shares-in-trust or (2) the
date we determine in good faith that a transfer resulting in such
shares-in-trust occurred.

       The prohibited owner with respect to shares-in-trust must pay the share
trust any dividends or distributions received by the prohibited owner if (1) the
dividends or distributions are attributable to any shares-in-trust and (2) the
record date for those dividends or distributions was on or after the date that
such shares became shares-in-trust. Upon sale or other disposition of the
shares-in-trust to a permitted transferee, the prohibited owner generally will
receive, from the share trustee, the lesser of:

       -      the price per share, if any, paid by the prohibited owner for the
              common shares or preferred shares, or if no amount was paid for
              such shares (e.g., if such shares were received through a

                                     - 6 -
<PAGE>   11

              gift or devise), the price per share equal to the market price
              (which is calculated as defined in our Declaration of Trust) on
              the date the shares were received; and

       -      the price per share received by the share trustee from the sale of
              such shares-in-trust.

       Any amounts received by the share trustee in excess of the amounts paid
to the prohibited owner will be distributed to the beneficiary. Unless sooner
sold to a permitted transferee, upon our liquidation, dissolution or winding up,
the prohibited owner generally will receive from the share trustee its share of
the liquidation proceeds but in no case more than the price per share paid by
the prohibited owner or, in the case of a gift or devise, the market price per
share on the date such shares were received.

       Any person who acquires or attempts to acquire common shares or preferred
shares which would be null and void under the restrictions described above, or
any person who owned common shares or preferred shares that were transferred to
a share trust, must (1) give immediate written notice to us of such event and
(2) provide us such other information as requested in order to determine the
effect, if any, of such transfer on our status as a REIT.

       If a shareholder owns more than 5% of our outstanding common shares and
preferred shares, then the shareholder must notify us of its share ownership by
January 30 of each year.

       The ownership limitation generally does not apply to the acquisition of
common shares or preferred shares by an underwriter that participates in a
public offering of our common shares. In addition, our Board of Trustees may
exempt a person from the ownership limitation under certain circumstances and
conditions. Our Board may not grant an exemption from the ownership limit to any
proposed transferee whose ownership, direct or indirect, of our shares of
beneficial interest in excess of the ownership limit would result in the
termination of our status as a REIT. The restrictions described above will
continue to apply until (1) our Board of Trustees determines that it is no
longer in our best interests to attempt to qualify, or to continue to qualify,
as a REIT, and (2) there is an affirmative vote of two-thirds of the votes
entitled to be cast on such matter at a regular or special meeting of our
shareholders.

       We have waived the ownership limitation with respect to Friedman,
Billings, Ramsey Group, Inc. and related persons to permit them to own our
common shares.

       The ownership limitation could have the effect of delaying, deferring or
preventing a transaction or a change in control of us that might involve a
premium price for our common shares or preferred shares or otherwise be in the
best interest of our shareholders. All certificates representing our common
shares or preferred shares will bear a legend referring to the restrictions
described above.

WARRANTS

       As of December 31, 2000, we had warrants outstanding to acquire a total
of 3,141,952 common shares. Warrants for a total of 2,941,952 common shares were
exercisable by the holders on that date. Warrants for the remaining 200,000
common shares will become exercisable for one-half of the common shares each
year over a two-year period beginning on January 5, 2002. We have issued the
warrants under written warrant agreements. The exercise price of our common
shares issuable under each outstanding warrant is $15.00 per common share.
Warrants for a total of 2,741,952 common shares, all of which are currently
exercisable, are for terms of five years. Warrants for a total of 400,000 common
shares, of which 200,000 are currently exercisable, are for terms of 10 years.
Under each warrant agreement, we are obligated to file a registration statement,
after the warrant has been exercised by the holder, to register the common
shares issued when the holder exercises the warrant if the holder so requests or
if we file a registration statement for our own shares.

REGISTRATION RIGHTS AGREEMENTS

       Under various agreements, including the Partnership's partnership
agreement, we have agreed to file registration statements that cover:

       -      the resale of our common shares upon exchange of units issued in
              private placements at the time of and since our formation; and

       -      the resale of common shares upon exercise of warrants.

                                     - 7 -
<PAGE>   12

       We must use our best efforts to maintain the effectiveness of these
registration statements. The exchange of outstanding securities for common
shares will increase the number of outstanding common shares and will increase
our percentage ownership interest in the Partnership.

CERTAIN PROVISIONS OF MARYLAND LAW AND THE DECLARATION OF TRUST AND BYLAWS

       The following summary of certain provisions of the Maryland General
Corporation Law and our Declaration of Trust and Bylaws is not complete. You
should read the Maryland General Corporation Law and our Declaration of Trust
and Bylaws for more complete information. The business combination provisions
and the control share acquisition provisions of Maryland law, both of which are
discussed below, could have the effect of delaying or preventing a change in
control. Also, the removal of trustees provision of our Declaration of Trust and
the advance notice provisions of our Bylaws could have the effect of delaying or
preventing a transaction or a change in control. These provisions could have the
effect of discouraging offers to acquire us and of increasing the difficulty of
consummating any such offer, even if the offer contains a premium price for
holders of our common shares or otherwise benefits shareholders.

       BUSINESS COMBINATIONS. Maryland General Corporation Law prohibits us from
entering into business combinations and other corporate transactions unless
special actions are taken. The business combinations that require such special
actions include a merger, consolidation, share exchange, or, in certain
circumstances, an asset transfer or issuance of equity securities when the
combination is between us and an interested shareholder, as defined below. An
interested shareholder is (1) any person who beneficially owns 10% or more of
the voting power of our shares or (2) any affiliate which beneficially owned 10%
or more of the voting power of our shares within two years prior to the date in
question. We may not engage in a business combination with an interested
shareholder or any of its affiliates for five years after the interested
shareholder becomes an interested shareholder. This prohibition does not apply
to business combinations involving us that are exempted by our Board of Trustees
before the interested shareholder becomes an interested shareholder.

       We may engage in business combinations with an interested shareholder if
at least five years have passed since the person became an interested
shareholder, but only if the transaction is:

       1.            recommended by our Board of Trustees; and

       2.            approved by at least

                     a.     80% of our outstanding shares entitled to vote, and

                     b.     two-thirds of our outstanding shares entitled to
                            vote that are not held by the interested
                            shareholder.

       Shareholder approval will not be required if our shareholders receive a
minimum price, as defined in the Maryland General Corporation Law, for their
shares and the shareholders receive cash or the same form of consideration as
the interested shareholder paid for its shares.

       CONTROL SHARE ACQUISITIONS. Our Declaration of Trust exempts acquisitions
of shares of beneficial interest by any person from control share acquisition
requirements discussed below. There is no assurance that such exemption will not
be amended or eliminated in the future. If the exemption were eliminated,
control share acquisitions would be subject to the following provisions.

         The Maryland General Corporation Law provides that control shares of a
Maryland real estate investment trust acquired in a control share acquisition
have no voting rights unless two-thirds of the shareholders, excluding shares
owned by the acquirer, officers and trustees who are our employees, approve
their voting rights.

       Control shares are shares that, if added with all other shares previously
acquired, would entitle that person to vote, in electing our trustees,

       -      10% or more but less than one-third of our shares;

       -      one-third or more but less than a majority of our shares; or

                                     - 8 -
<PAGE>   13

       -      a majority of our outstanding shares.

       Control shares do not include shares the acquiring person is entitled to
vote with shareholder approval. A control share acquisition means the
acquisition of control shares, subject to statutory exceptions.

       If this provision becomes applicable to us, a person who has made or
proposes to make a control share acquisition could, under certain circumstances,
compel our Board of Trustees to call a special meeting of shareholders to
consider the voting rights of the control shares. We could also present the
question at any shareholders meeting on our own.

       If this provision becomes applicable to us, subject to statutory
conditions and limitations, we would be able to redeem any or all control
shares. If voting rights for control shares were approved at a shareholders
meeting and the acquirer became entitled to vote a majority of the shares
entitled to vote, all other shareholders could exercise appraisal rights and
exchange their shares for a fair value, as defined by statute.

       LIMITATION OF LIABILITY OF TRUSTEES AND OFFICERS. Our Declaration of
Trust provides that, to the fullest extent that limitations on the liability of
our trustees and officers are permitted by the Maryland General Corporation Law,
no trustee or officer shall be liable to us or our shareholders for money
damages. The Maryland General Corporation Law provides that we may restrict or
limit the liability of our trustees or officers for money damages except

       -      to the extent anyone actually received an improper benefit or
              profit in money, property or services; or

       -      a judgment or other final adjudication adverse to the person is
              entered in a proceeding based on a finding that the person's
              action was material to the cause of action adjudicated and the
              action or failure to act was the result of bad faith or active and
              deliberate dishonesty.

       INDEMNIFICATION OF TRUSTEES AND OFFICERS. Our Declaration of Trust and
Bylaws permit us to indemnify any of our shareholders, trustees, officers,
employees or agents. Our Bylaws require us to indemnify each trustee or officer
who has been successful in defending any proceeding to which he or she is made a
party by reason of his or her service. We have also entered into separate
indemnification agreements with each of our trustees and certain of our
executive officers. The agreements require that we indemnify our trustees and
officers to the fullest extent permitted by Maryland General Corporation Law.
The agreements also require us to indemnify and advance all expenses incurred by
our trustees and officers seeking to enforce their indemnification agreements.
We must also cover trustees and officers under our trustees' and officers'
liability insurance. Although the existing indemnification agreements offer
substantially the same scope of coverage as our Declaration of Trust and Bylaws,
the agreements provide greater assurance to the trustees and officers that
indemnification will be available because, as a contract, they cannot be
modified unilaterally in the future by the Board of Trustees or by our
shareholders.

       The Maryland General Corporation Law provides that we may indemnify our
trustees and officers unless

       -      our trustee or officer actually received an improper benefit or
              profit in money property or services;

       -      the act or omission of our trustee or officer was material to the
              matter giving rise to the proceeding and was committed in bad
              faith or was the result of active and deliberate dishonesty; or

       -      in a criminal proceeding, our trustee or officer had reasonable
              cause to believe that the act or omission was unlawful.

       Our Bylaws require, as a condition to advancing expenses, (1) a written
affirmation by the trustee or officer of his good faith belief that he has met
the standard of conduct necessary for indemnification by us and (2) the written
agreement of the trustee or officer to repay the amount paid by us if it is
determined that the trustee or officer was not entitled to indemnification.

       MEETINGS OF SHAREHOLDERS. Our Bylaws provide for annual meetings of
shareholders to elect our board of trustees and transact such other business as
may properly be brought before the meeting. Special meetings of our

                                     - 9 -
<PAGE>   14

shareholders may be called by our President, our Board of Trustees or our
Chairman of the Board and will be called at the request in writing of the
holders of 50% or more of our outstanding shares of beneficial interest entitled
to vote.

       Our Bylaws provide that any action required or permitted to be taken at a
meeting of shareholders may be taken by unanimous written consent without a
meeting. The written consent must, among other items, specify the action to be
taken and be signed by each shareholder entitled to vote on the matter.

TRANSFER AGENT AND REGISTRAR

       Our transfer agent and registrar for the common shares is American Stock
Transfer & Trust Company.

                    DESCRIPTION OF THE PARTNERSHIP AGREEMENT

       The following summary of the Partnership Agreement of the Partnership, as
currently in effect, including the descriptions of certain provisions described
elsewhere in this prospectus, is qualified in its entirety by reference to the
Partnership Agreement. We have filed the Partnership Agreement as an exhibit to
this Registration Statement. You should read the Partnership Agreement for a
complete description of all its terms.

MANAGEMENT

       The Partnership was formed as a Delaware limited partnership in October
1997. We are the sole general partner and the holder of a majority of the units
of the Partnership. Under the Partnership Agreement, we have full, exclusive and
complete responsibility and discretion in the management and control of the
Partnership, subject to certain limited exceptions. The limited partners of the
Partnership generally have no authority to participate in or exercise control or
management power over the business and affairs of the Partnership.

INDEMNIFICATION

       The Partnership provides for indemnification of us, as general partner,
our officers and trustees and such other persons as we may designate, to the
same extent indemnification is provided in our Declaration of Trust. Our
liability and the liability of our officers and trustees to the Partnership are
limited to the same extent as under our Declaration of Trust.

TRANSFERABILITY OF INTERESTS

       The Partnership Agreement generally provides that we may not voluntarily
withdraw from the Partnership, or transfer or assign our interest in the
Partnership. The limited partners, on the other hand, may transfer their units
if the Partnership consents and the transfer does not violate federal and state
securities laws or REIT qualification rules under the Code. The limited partners
may also transfer units to a qualified transferee as described in the
Partnership Agreement. No transferee may become a substituted limited partner
without our consent.

EXTRAORDINARY TRANSACTIONS

       Except as permitted under the Partnership Agreement, we may not (1)
engage in any merger, consolidation or other combination, (2) sell all or
substantially all of our assets, or (3) reclassify, recapitalize or change our
outstanding common shares. These transactions are referred to as business
combinations.

       The Partnership Agreement permits us to participate in a business
combination if the holders of units will receive the same consideration per unit
or preferred unit, if any, as shareholders receive per common share or preferred
share, and no more than 75% of the equity securities of the acquiring person
will be owned by us or related persons. If there is an offer to purchase, tender
or exchange common shares, each holder of units will be able to exchange its
units for the greatest amount of cash, securities or property that a limited
partner would have received had he redeemed his units for common shares, and
then accepted the sale, tender or exchange offer for those shares.

       The Partnership Agreement also permits us to merge into or consolidate
with another person if, immediately after the merger or consolidation,
substantially all of the assets of the surviving entity are contributed to the

                                     - 10 -
<PAGE>   15

Partnership as a capital contribution in exchange for units and the surviving
entity agrees to assume the obligations of the general partner.

OFFERS AND SALES OF ADDITIONAL UNITS

       Since its formation, the Partnership has issued and will continue to
issue additional units. The Partnership may also issue additional units
representing general partnership interests, common limited partnership interests
or preferred limited partnership interests of any class or series, with such
rights, powers and preferences as the general partner sets.

CAPITAL CONTRIBUTIONS AND ADDITIONAL FUNDS

       If the Partnership requires additional funds at any time, then we, to the
extent consistent with our REIT status, may borrow such funds from a lender and
lend such funds to the Partnership on comparable loan terms. We may also give
the Partnership additional funds by making additional capital contributions in
return for units. If we sell additional securities, we will contribute the net
proceeds to the Partnership by making additional capital contributions. If we
contribute additional capital to the Partnership, our limited partnership
interest in the Partnership will increase on a proportionate basis based upon
the amount of the additional capital contributed. If the additional capital
contribution arises from the sale of securities, we will receive units of
limited partnership interest with rights comparable to the rights of the
securities that were sold by us. If our limited partnership interest increases,
the limited partnership interests of the limited partners will decrease
proportionately.

LIMITED PARTNER REDEMPTION RIGHTS

       Under the Partnership Agreement, each limited partner has the right to
require the Partnership to redeem part or all of his units for cash after a
specified holding period that is at least one year from the date such units were
first acquired by the limited partner. We may elect to assume the obligations of
the Partnership and may acquire the units for common shares on a one-for-one
basis. The number of common shares that could be issued to these holders of
units on redemption will be adjusted in the event of stock splits, stock
dividends, issuances of certain rights, certain extraordinary distributions and
similar events.

       The Partnership can refuse or delay a redemption if it would cause any
person to violate any ownership limitation or provision of our Declaration of
Trust or otherwise jeopardize our status as a REIT. See "Description of Shares
of Beneficial Interest -- Restrictions on Ownership and Transfer."

       The holders of units have been given registration rights requiring us to
register the re-sale of any common shares issued in exchange for units.

TAX MATTERS

       As provided in the Partnership Agreement, we are the tax matters partner
of the Partnership. Accordingly, we make whatever tax elections must be made
under the Code. The net income or net loss of the Partnership will generally be
allocated to us and the limited partners in accordance with priorities of
distribution. See "Federal Income Tax Consequences -- Tax Aspects of the
Company's Investments in the Partnership and Subsidiary Partnerships."

DISTRIBUTIONS

       Subject to the terms of any preferred units, the Partnership distributes
cash on a quarterly basis (or, if we elect, more frequently), to its limited
partners in accordance with their respective percentage interests in the
Partnership.

OPERATIONS

       The Partnership Agreement requires that the Partnership operate in a
manner that will enable us to satisfy the requirements for classification as a
REIT and to ensure that we will not be classified as a publicly traded
partnership under the Code. Under the Partnership Agreement, except as otherwise
provided, the Partnership will also as-

                                     - 11 -
<PAGE>   16

sume and pay when due, or reimburse us for payment of, all costs and expenses
relating to the ownership of interests and operation of the Partnership.

DUTIES AND CONFLICTS

       The Partnership Agreement provides generally that all of our business
activities must be conducted through the Partnership.

TERM

       The term of the Partnership continues until December 31, 2073, or until
sooner dissolved upon the occurrence of certain events.

                               REDEMPTION OF UNITS

TERMS OF REDEMPTION OF UNITS

       On January 8, 1999, September 10, 1999 and November 5, 1999, the
Partnership closed the sale of 5,133, 112,335 and 1,034,468 units, respectively,
to the prior owners of, or to persons related to the entities that owned,
certain properties. The Partnership issued these units as consideration for the
contribution of these properties to the Partnership. Information about the
properties, date of contribution, the date the units become exchangeable and the
number of units that were sold by the Partnership is set forth below:

<TABLE>
<CAPTION>
                                                                                                          Date First        Number
      Unitholder                       Dealership             Property          Contribution Date        Exchangeable      of Units
      ----------                       ----------             --------          -----------------        ------------      --------
<S>                          <C>                           <C>                  <C>                    <C>                 <C>
M.B. Holdings, L.P.          Park Place Motor Cars, Ltd.   Dallas, TX           January 8, 1999         January 8, 2000     2,567(1)
                                                                                                        January 8, 2001     2,566

Auffenberg Belleville, LLC   Auffenberg Ford               Belleville, IL       September 10, 1999     January 31, 2001     112,335
                             Lincoln/Mercury

Mark Miller Pontiac, Inc.    Mark Miller Pontiac           Salt Lake City, UT   November 5, 1999       January 31, 2001      70,658

Mark Miller                  Mark Miller Pontiac           Salt Lake City, UT   November 5, 1999       January 31, 2001     307,342

MarKat Company, LLC          Mark Miller Pontiac           Salt Lake City, UT   November 5, 1999       January 31, 2001      34,191
                             Mark Miller Toyota            Salt Lake City, UT   November 5, 1999       January 31, 2001     155,001

Harver Company Inc.          Mark Miller Toyota            Salt Lake City, UT   November 5, 1999       January 31, 2001     467,276
</TABLE>


---------------------------
(1) This prospectus and the underlying registration statement of which it forms
a part do not register the 2,567 common shares to be issued upon redemption of
the 2,567 units which became redeemable on January 8, 2000 or the subsequent
resale of such common shares. The issuance of such shares and the subsequent
resale thereof was previously registered on a registration statement (File No.
333-94943) filed with the SEC on January 19, 2000.

       Beginning on January 8, 2001, the holder of 2,566 units, and beginning on
January 31, 2001, the holders of 1,146,803 units, can cause the Partnership to
redeem the units for cash. We have the right to assume the obligations of the
Partnership to redeem units and may redeem the units for cash or may issue
common shares for units on a one-for-one basis, subject to adjustment. The
number of common shares that could be issued to these holders of units on
redemption will be adjusted in the event of stock splits, stock dividends,
issuances of certain rights, certain extraordinary distributions and similar
events.

                                     - 12 -
<PAGE>   17

       We will only issue our common shares if (1) a holder decides to redeem
his units, (2) we decide to assume the Partnership's redemption obligation, and
(3) we decide to offer and sell common shares. We are also now registering the
resale of such common shares for the recipients, if and when such shares are
offered and sold.

       A holder of units must deliver a notice of redemption to the Partnership.
That holder will have the right to receive an amount of cash from the
Partnership equal to the "cash amount," as defined in the Partnership Agreement.
The cash amount will be determined as of the date that the Partnership receives
the notice of redemption. If the common shares are then quoted on the Nasdaq
National Market or are listed on a national securities exchange, the cash amount
will be the average of the daily sale prices of common shares for the 20
consecutive trading days immediately preceding the five trading days prior to
the date that the Partnership received the notice of redemption. If we elect to
redeem the units for common shares, the holder will have no right to receive
cash.

       We will deliver duly authorized, validly issued, fully paid and
nonassessable common shares, free and clear of any pledge, lien, encumbrance or
restriction, other than those provided in the Declaration of Trust and Bylaws or
under applicable state and federal securities laws, on redemption of units. The
common shares that we deliver will be subject to the terms of the registration
rights that relate to those shares.

CERTAIN CONDITIONS TO THE EXCHANGE

       If we decide to assume the Partnership's obligation to redeem units and
to offer common shares in exchange for such units, we will issue those common
shares to a redeeming holder promptly upon receipt of a notice of redemption
unless:

       -      a redemption would cause a holder or any other person to violate
              the restrictions on ownership and transfer provisions of our
              Declaration of Trust;

       -      a redemption is for less than 1,000 units, or if the redeeming
              holder holds less than 1,000 units, the redemption is for less
              than all of the holder's units;

       -      the redeeming holder has delivered more than four notices of
              redemption during a calendar year; or

       -      a redemption would cause the Partnership to be a "publicly traded
              partnership" under Section 7704 of the Code.

       The redeeming holder will have no right to receive any Partnership
distribution on any units that have been tendered for redemption if the record
date for such distribution is on or after a date that is 30 days after the date
of the notice of redemption to the Partnership.

       Any attempted exchange in violation of any of the above conditions will
have no effect.

       We will not issue common shares in exchange for units if the issuance of
the common shares would:

       -      cause any person to own, directly or indirectly, common shares in
              excess of 9.9% of our outstanding common shares;

       -      cause our common shares to be owned by fewer than 100 persons,
              determined without reference to any rules of attribution;

       -      cause us to be closely held within the meaning of Section 856(h)
              of the Code;

       -      cause us to own, actually or constructively, 10% or more of the
              ownership interests in a tenant of our property, within the
              meaning of Section 856(d)(2)(B) of the Code;

       -      otherwise violate our Declaration of Trust or Bylaws; or

                                     - 13 -
<PAGE>   18

       -      be integrated with any other distribution of our shares of
              beneficial interest for purposes of complying with the
              registration provisions of the Securities Act of 1933, as amended.

                  COMPARISON OF THE COMPANY AND THE PARTNERSHIP

       Generally an investment in our common shares is economically equivalent
to an investment in the units of the Partnership. Currently, only our common
shares and units of the Partnership are outstanding. Holders of our common
shares and holders of units receive similar distributions.

       However, there are also differences between ownership of units and
ownership of our common shares, some of which may be material to investors. The
information below highlights a number of the significant differences between us
and the Partnership, including form of organization, management control, voting
rights, liquidity and federal income tax considerations. These comparisons are
intended to assist holders of units in understanding how their investment will
be changed if they receive our common shares on redemption of their units. This
discussion is only a summary and does not constitute a complete discussion of
these matters. Holders of units should carefully review the balance of our
prospectus and the registration statement of which this prospectus is a part for
additional important information.

FORM OF ORGANIZATION AND ASSETS OWNED

       The Partnership is organized as a Delaware limited partnership. The
Partnership owns interests in properties and its subsidiary partnerships and
limited liability companies. The Partnership's purpose is to conduct any
business that may be lawfully conducted by a limited partnership organized under
the Delaware Revised Uniform Limited Partnership Act. However, business must be
conducted in a manner that permits us to qualify as a REIT unless we otherwise
cease to qualify as a REIT.

       We are a Maryland real estate investment trust. We have elected and
intend to be taxed as a REIT under the Code, commencing with the taxable year
ended December 31, 1998. We intend to maintain our qualification as a REIT. Our
primary asset is our interest in the Partnership, the Partnership subsidiaries
and in our direct subsidiaries, which gives us an indirect investment in the
properties and subsidiaries of the Partnership. Under our Declaration of Trust,
we may engage in any lawful activity permitted under Maryland law in furtherance
of our purpose of performing any and all activities that are lawful for a
Maryland real estate investment trust. However, under the Partnership Agreement,
we, as general partner, have agreed that all of our business activities shall be
conducted, either directly or indirectly, through or for the benefit of the
Partnership.

ADDITIONAL EQUITY

       The Partnership may issue units (which are substantially equivalent to
our common shares), preferred units and other partnership interests (including
partnership interests of different series or classes that may be senior to
units) in exchange for additional capital contributions, on terms that we
determine, as the Partnership's sole general partner. In exchange for capital
contributions, the Partnership may issue units, preferred units and other
partnership interests to us, may issue units, preferred units and other
partnership interests to existing limited partners and others, and may admit
third parties as additional limited partners. As long as the Partnership is in
existence, the proceeds of all equity capital raised by us will be contributed
to the Partnership in exchange for units, preferred units or other partnership
units whose terms will mirror the terms of the securities that we sell to raise
such capital.

       Our Board of Trustees may, in its discretion, authorize the offer and
sale of additional common shares or preferred shares (including shares of
different series or classes that may be senior to common shares). Our Board may
authorize shares in any class and series and our Board or a committee thereof
may set the terms, preferences, rights and privileges of our shares. Our Board
or a committee thereof may also set the offering price for our shares. Our Board
is also permitted to increase the aggregate number of shares or the number of
shares of any class or series without any action by our shareholders.

       We may also raise capital by selling debt securities or entering into
loan or financing arrangements with third parties. Properties of Partnership
subsidiaries have been pledged, and other properties and assets of the
Partnership or its subsidiaries may also be pledged as security for such debt.
We will contribute any borrowed funds to the Partnership as a loan, except in
limited circumstances described in the Partnership Agreement. The terms of the
indebtedness of the Partnership will be equivalent to the terms of our debt.

                                     - 14 -
<PAGE>   19

MANAGEMENT CONTROL

       We exercise all management powers over the business and affairs of the
Partnership as the general partner. No limited partner of the Partnership has
any right to participate in or exercise control or management power over the
business and affairs of the Partnership. We cannot be removed as general partner
by the holders of units with or without cause.

       We are managed under the direction of our Board of Trustees. We are
required under our Declaration of Trust to hold an annual meeting for the
election of trustees. Our Board of Trustees may alter or eliminate business
policies without a vote of the shareholders. Accordingly, except for their vote
in the election of trustees, shareholders have no control over our policies.

VOTING RIGHTS

       GENERAL. We generally may amend the Partnership Agreement as we deem
necessary, without the consent of limited partners. As a limited partner, you
will have the right to vote on the following amendments to the Partnership
Agreement, which require the consent of limited partners, other than us in our
capacity as a limited partner, holding at least two-thirds of the equity
ownership of the Partnership:

       -      an amendment affecting the operation of the redemption right or
              conversion formula for units, except as provided in the
              Partnership Agreement, in a manner adverse to the limited
              partners;

       -      an amendment that would adversely affect the rights of the limited
              partners to receive the distributions payable to them, other than
              with respect to the issuance of additional units pursuant to
              Section 4.02 of the Partnership Agreement;

       -      an amendment that would alter the Partnership's allocations of
              profit and loss to the limited partners in a manner adverse to
              limited partners, other than with respect to the issuance of
              additional units pursuant to Section 4.02 of the Partnership
              Agreement;

       -      an amendment that would impose on the limited partners any
              obligation to make additional capital contributions to the
              Partnership;

       -      an amendment to Section 8.07 of the Partnership Agreement (which
              provides for certain registration rights) in a manner adverse to
              any limited partner; and

       -      an amendment to Article XI of the Partnership Agreement relating
              to when limited partner consent is required.

       Each outstanding common share owned by a shareholder entitles that holder
to one vote on all matters submitted to a vote of shareholders, including the
election of trustees. The right to vote is subject to the provisions of our
Declaration of Trust regarding the restrictions on transfer of shares of
beneficial interest, which are described under "Description of Shares of
Beneficial Ownership -- Restrictions on Ownership and Transfer." There is no
cumulative voting in the election of trustees, which means that the holders of a
majority of our outstanding common shares can elect all of the trustees then
standing for election, and the holders of the remaining shares will not be able
to elect any trustees.

       Under our Declaration of Trust and Bylaws and Maryland law, all matters
submitted to the shareholders for approval, except for those matters listed
below, are approved if a majority of all the votes cast on the matter at a
meeting of shareholders duly called and at which a quorum is present are voted
in favor of approval. The following matters require approval other than by a
majority of all votes cast on the matter:

       -      our intentional disqualification as a real estate investment trust
              or revocation of our election to be taxed as a real estate
              investment trust, which requires the affirmative vote of the
              holders of two-thirds of the number of common shares outstanding
              and entitled to vote on such a matter;

                                     - 15 -
<PAGE>   20

       -      the election of trustees, which requires a plurality of all the
              votes cast at a meeting of our shareholders at which a quorum is
              present;

       -      the removal of trustees, which requires the affirmative vote of
              the holders of two-thirds of the number of common shares
              outstanding and entitled to vote on such a matter; and

       -      the amendment of our Declaration of Trust by shareholders, which
              requires the affirmative vote of a majority of votes entitled to
              be cast on the matter, except under circumstances specified in our
              Declaration of Trust that require the affirmative vote of
              two-thirds of all the votes entitled to be cast on the matter.

       Our Declaration of Trust permits our trustees by a two-thirds vote to
amend our Declaration of Trust from time to time to qualify as a real estate
investment trust under Maryland law without the approval of our shareholders.
Our Declaration of Trust permits our Board of Trustees to amend our Declaration
of Trust to change the total number of shares of beneficial interest or the
number of shares of any class of shares of beneficial interest that we have
authority to issue without approval by shareholders.

       VOTE REQUIRED TO DISSOLVE THE COMPANY OR THE PARTNERSHIP. Limited
Partners will have no right to vote to dissolve the Partnership. Under the
Partnership Agreement, the Partnership will dissolve upon any of the following
events:

       -      the bankruptcy of the general partner;

       -      90 days after the sale or disposition of all or substantially all
              of the assets of the Partnership;

       -      the redemption of all limited partnership interests; or

       -      our election, as general partner, to dissolve the Partnership.

       Under our Declaration of Trust, our shareholders may elect to terminate
our existence upon the affirmative vote of two-thirds of all votes entitled to
be cast on the matter.

       VOTE REQUIRED TO SELL ASSETS OR MERGE. Under the Partnership Agreement,
the disposition of all or substantially all of the Partnership's assets or
merger or consolidation of the Partnership requires the consent of limited
partners, including our approval in our capacity as a limited partner, holding
at least two-thirds of the equity ownership of the Partnership. The sale of less
than all or substantially all of the properties and assets of the Partnership
does not require the approval of the limited partners. We hold a majority of
limited partnership interests in the Partnership.

       Under our Declaration of Trust, the sale of all or substantially all of
our assets or a merger or consolidation requires the approval of our Board of
Trustees and the holders of a majority of all votes entitled to be cast on the
matter. The sale of less than 90% of our total assets within a 12-month period
does not require the approval of our shareholders.

DUTIES OF GENERAL PARTNER AND TRUSTEES

       Under Delaware law, we, as general partner, have a duty of care to the
Partnership and are accountable to the Partnership as a fiduciary. Consequently,
we are required to exercise good faith in all of our dealings with respect to
partnership affairs. However, under the Partnership Agreement, we, and our
officers and trustees, are not liable for monetary damages for losses sustained
or liabilities incurred by partners as a result of errors of judgment or acts or
omissions if we, or they, acted in good faith.

       Under our Declaration of Trust, our trustees must perform their duties in
good faith. Any determination made in good faith by our Board concerning its
powers and authority will be conclusive.

                                     - 16 -
<PAGE>   21

MANAGEMENT LIABILITY AND INDEMNIFICATION

       As a matter of Delaware law, we, as the general partner, have liability
for the payment of the obligations and debts of the Partnership unless
limitations upon such liability are stated in the document or instrument
evidencing the obligations. Under the Partnership Agreement, the Partnership has
agreed to indemnify us, certain other persons, and our officers and trustees,
for any and all losses, claims, damages, liabilities, joint or several;
expenses, including reasonable legal fees and expenses; judgments; fines;
settlements; and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or investigative,
that relate to the operations of the Partnership, unless it is established that:
(1) our act or omission, or the act or omission of any officer or trustee, was
material to the matter giving rise to the proceeding and either was committed in
bad faith or was the result of active and deliberate dishonesty; (2) we, or the
officer or trustee, actually received an improper personal benefit in money,
property or services; or (3) in the case of any criminal proceeding, we, or the
officer or trustee, had reasonable cause to believe that the act or omission was
unlawful. Any indemnification is payable only out of the assets of the
Partnership.

       The reasonable expenses incurred by an indemnitee may be reimbursed by
the Partnership before the final disposition of the proceeding. First, however,
the indemnitee must deliver to the Partnership an affirmation of his, her or its
good faith belief that the standard of conduct necessary for indemnification has
been met and an undertaking that the indemnitee shall repay the amount if it is
determined that such standard was not met.

       Our Declaration of Trust contains a provision which eliminates the
liability of our trustees and officers and shareholders to the fullest extent
permitted by Maryland law, as in effect from time to time. The Bylaws provide
indemnification to trustees and officers to the maximum extent permitted by
Maryland law, as in effect from time to time. This indemnification generally
operates to the same extent that the trustees and officers have indemnification
rights under the Partnership Agreement (in their capacity as officers and
trustees of the general partner of the Partnership) as described above.

       We and the Partnership may also indemnify costs and expenses of
shareholders, employees and agents to the maximum extent permitted by law and
authorized by our trustees.

ANTI-TAKEOVER PROVISIONS

       Except in limited circumstances (see "-- Voting Rights"), we have
exclusive management power over the business and affairs of the Partnership. We
may not be removed as general partner by the limited partners with or without
cause. A limited partner generally may not transfer its units without our
consent unless:

       -      the transfer is a result of the exercise of a redemption right;

       -      the transfer is to an affiliate, subsidiary or
              successor-in-interest of such limited partner organized as a
              corporation or other business entity; or

       -      the transfer is for donative purposes to an immediate family
              member or trust owned by the limited partner or his immediate
              family members.

       The limited partners may pledge units as collateral for any borrowing
from an institutional lender with our consent.

       Our Declaration of Trust and Bylaws contain a number of provisions that
may delay or discourage an unsolicited proposal for an acquisition involving us
and may prevent or delay the removal of incumbent trustees or management. These
provisions include:

       -      authorized shares that may be issued as preferred shares in the
              discretion of our Board of Trustees, with voting or other rights
              superior to the common shares;

       -      a requirement that trustees be removed only for cause, only at a
              meeting of shareholders and only by the affirmative vote of
              two-thirds of the aggregate number of votes then outstanding and
              entitled to vote generally in the election of our trustees; and

                                     - 17 -
<PAGE>   22

       -      provisions designed to avoid concentration of share ownership in a
              manner that would jeopardize our status as a REIT under the Code.
              See "Description of Shares of Beneficial Interest -- Restrictions
              on Ownership and Transfer."

       Maryland law also contains certain provisions which could delay, defer or
prevent a change of control or other transaction. See "Description of Share of
Beneficial Interest -- Certain Provisions of Maryland Law and the Declaration of
Trust and Bylaws."

COMPENSATION, FEES AND DISTRIBUTIONS

       We do not receive any compensation for our services as general partner of
the Partnership. As a partner in the Partnership, however, we have the same
right to receive pro rata allocations and distributions as other partners of the
Partnership. In addition, the Partnership generally will reimburse us for all
expenses incurred relating to our ongoing operation and business and any
offering of additional partnership interests in the Partnership. The Partnership
will also pay the compensation of our officers and employees providing services
to the Partnership.

       Our officers and outside trustees receive compensation for their
services.

LIABILITY OF LIMITED PARTNERS AND SHAREHOLDERS

       Under the Partnership Agreement and applicable Delaware law, a holder of
units or exchangeable preferred units generally is not liable for the
Partnership's debts and obligations unless the holder participates in the
control of the Partnership business. Any limited partner who receives
distributions that the limited partner knows have been made in violation of
applicable Delaware law is liable to the Partnership for the amount of the
distribution.

       Under our Declaration of Trust, our shareholders are not personally
liable for our debts or obligations and will not be subject to any personal
liability, in tort, contract or otherwise, to any person in connection with our
property or affairs by reason of being a shareholder.

LIQUIDITY

       We may not transfer or assign any of our general partnership interest or
withdraw as a general partner except as a result of certain extraordinary
transactions such as a merger, consolidation or other combination or sale of all
or substantially all Partnership assets (which requires the consent of limited
partners). We may not transfer our units except to a successor general partner
with the consent of limited partners (other than us, in our capacity as limited
partner) holding a majority in interest of the limited partners. We have agreed
that we will hold at least a 20% ownership interest in the Partnership at all
times.

       A limited partner may generally not transfer its units without our
consent unless:

       -      the transfer is a result of the exercise of a redemption right;

       -      the transfer is to an affiliate, subsidiary or
              successor-in-interest of such limited partner organized as a
              corporation or other business entity; or

       -      the transfer is for donative purposes to an immediate family
              member or trust owned by the limited partner or his immediate
              family members.

       The limited partners may pledge units as collateral for any borrowing
from an institutional lender with our consent.

       The common shares received by a unitholder on redemption will be freely
transferable as registered securities under the Securities Act, subject to
prospectus delivery and other requirements for registered securities under
federal or state law.

                                     - 18 -
<PAGE>   23

TAXES

       The Partnership is not subject to federal income taxes. Instead, each
holder of units includes his allocable share of the Partnership's taxable income
or loss in determining his individual federal income tax liability. The maximum
effective federal tax rate for individuals under current law is 39.6%.

       Income and loss from the Partnership generally are subject to the
"passive activity" limitations. Under the "passive activity" rules, income and
loss from the Partnership that is considered income and loss from a "passive
activity" generally can be offset only against income and loss from other
investments that constitute "passive activities," unless the Partnership is
considered a "publicly traded partnership," in which case income and loss from
the Partnership can be offset only against other income and loss from the
Partnership.

       Cash distributions from the Partnership are not taxable to a holder of
units except to the extent they exceed such holder's basis in his interest in
the Partnership, which includes such holder's allocable share of the
Partnership's debt.

       Each year, holders of units receive a Schedule K-1 tax form containing
detailed tax information for inclusion in preparing their federal income tax
returns.

       Holders of units are required, in some cases, to file state income tax
returns and/or pay state income taxes in the states in which the Partnership
owns property, even if they are not residents of those states.

       We have elected and intend to be taxed as a REIT. So long as we qualify
as a REIT, we will be permitted to deduct distributions paid to our
shareholders, which effectively will reduce the "double taxation" that typically
results when a corporation earns income and distributes that income to its
shareholders in the form of dividends.

       Distributions paid by us are treated as "portfolio" income and cannot be
offset with losses from "passive activities."

       Distributions made by us to our taxable domestic shareholders out of
current or accumulated earnings and profits are taken into account by them as
ordinary income. Distributions in excess of current or accumulated earnings and
profits that are not designated as capital gain dividends are treated as a
non-taxable return of basis to the extent of a shareholder's adjusted basis in
our common shares, with the excess taxed as capital gain. Distributions that are
designated as capital gain dividends generally are taxed as gains from the sale
or exchange of a capital asset held for more than one year, to the extent they
do not exceed our actual net capital gain for the taxable year. We may elect to
require our shareholders to include our undistributed net capital gains in their
income. If we so elect, shareholders would include their proportionate share of
such gains in their income and be deemed to have paid their share of the tax
paid by us on such gains. Each year, shareholders will receive Form 1099, the
form that is used by corporations to report dividends paid to their
shareholders. Shareholders who are individuals generally are not required to
file state income tax returns and/or pay state income taxes outside of their
state of residence with respect to our operations and distributions. We may be
required to pay state income taxes in certain states.

                         FEDERAL INCOME TAX CONSEQUENCES

       The following sections summarize the federal income tax issues that you,
as a redeeming limited partner and potential shareholder, may consider relevant.
Because this section is a summary, it does not address all of the tax issues
that may be important to you. In addition, this section does not address the tax
issues that may be important to certain types of shareholders that are subject
to special treatment under the federal income tax laws, such as insurance
companies, tax-exempt organizations (except to the extent discussed in
"--Taxation of Tax-Exempt U.S. Shareholders" below), financial institutions and
broker-dealers, and non-U.S. individuals and foreign corporations (except to the
extent discussed in "--Taxation of Non-U.S. Shareholders" below).

       The statements in this section are based on the current federal income
tax laws governing the Company's qualification as a REIT. The Company cannot
assure you that new laws, interpretations of laws or court decisions, any of
which may take effect retroactively, will not cause any statement in this
section to be inaccurate.

       The Company urges you to consult your own tax advisor regarding the
specific tax consequences to you of redeeming your units and of the Company's
election to be taxed as a REIT. Specifically, you should consult your

                                     - 19 -
<PAGE>   24

own tax advisor regarding the federal, state, local, foreign and other tax
consequences of such investment and election, and regarding potential changes in
applicable tax laws.

TAX CONSEQUENCES OF REDEMPTION

       The following discussion summarizes certain federal income tax
considerations that may be relevant to a limited partner who exercises his right
to require the Partnership to redeem his units.

       TAX TREATMENT OF REDEMPTION OF UNITS. If the Company assumes the
redemption obligation and purchases units from a limited partner, the
Partnership Agreement provides that the redemption will be treated by the
Company, the Partnership, and the redeeming limited partner as a sale of units
by the limited partner to the Company. The sale will be fully taxable to the
limited partner, and he will realize for tax purposes an amount equal to the sum
of the cash or the value of the common shares received in exchange for the
units, plus the amount of any partnership liabilities allocable to the redeemed
units at the time of the purchase.

       If the Company does not elect to assume the obligation to redeem a
limited partner's units, then the Partnership will redeem the units for cash. If
the Partnership redeems the units for cash contributed by the Company, the
redemption likely would be treated for tax purposes as a sale of such units in a
fully taxable transaction. In that event, the redeeming partner will realize an
amount equal to the sum of the cash received in connection with the redemption,
plus the amount of any partnership liabilities allocable to the redeemed units
at the time of the redemption. The determination of the amount of gain or loss
in the event of sale treatment is discussed more fully below.

       If the Partnership redeems units for cash that is not contributed by the
Company to effect the redemption, the tax consequences would be the same as
described in the previous paragraph, except that if the Partnership redeems less
than all of the units owned by a limited partner, the limited partner would not
be permitted to recognize any loss occurring on the transaction. The limited
partner would recognize taxable gain only to the extent that the sum of the cash
and the amount of any partnership liabilities allocable to the redeemed units
exceeds his adjusted basis in all of his units immediately before the
redemption.

       TAX TREATMENT OF DISPOSITION OF UNITS BY LIMITED PARTNER GENERALLY. If a
unit is redeemed in a manner that is treated as a sale of the unit, or if a
limited partner otherwise disposes of a unit (other than in a transaction that
is treated as a redemption for tax purposes), the determination of gain or loss
from such sale or other disposition will be based on the difference between the
amount realized for tax purposes and the tax basis in such unit. See "--Basis of
Units."

       Upon the sale of a unit, the "amount realized" will be measured by the
sum of the cash and fair market value of other property (e.g., common shares)
received, plus the amount of any partnership liabilities allocable to the unit
sold. To the extent that the amount realized exceeds the limited partner's basis
in the unit sold, the limited partner will recognize gain. The amount of gain
recognized, or the tax liability resulting from such gain, could exceed the
amount of cash and the value of any other property received during the sale.

       Except as described below, any gain recognized upon a sale or other
disposition of units will be treated as gain attributable to the sale or
disposition of a capital asset. However, the excess of (A) the amount realized
upon the sale of a unit that is attributable to a limited partner's share of the
Partnership's "unrealized receivables" (as defined in Section 751 of the Code)
over (B) the basis attributable to those assets will be ordinary income.
Unrealized receivables include, to the extent not previously included in the
Partnership's income, any rights to payment for services rendered or to be
rendered. Unrealized receivables also include amounts that would be subject to
recapture as ordinary income if the Partnership had sold its assets at their
fair market value at the time of the transfer of a unit.

       BASIS OF UNITS. In general, if a limited partner is treated as having
received units upon liquidation of a partnership, he will have an initial tax
basis in his units ("Initial Basis") equal to his basis in his interest in the
liquidated partnership. Similarly, in general, if a limited partner received his
units in exchange for a contribution of a partnership interest or other property
to Partnership, he will have an Initial Basis equal to his basis in the
contributed partnership interest or other property.

       A limited partner's Initial Basis generally is increased by (1) his share
of the Partnership's income and (2) increases in his share of the Partnership's
liabilities (including any increase in his share of liabilities occurring in
connection with the transactions resulting in the issuance of the units).

                                     - 20 -
<PAGE>   25

       Generally, a limited partner's basis in his units is decreased (but not
below zero) by (1) his share of the Partnership's distributions, (2) decreases
in his share of the Partnership's liabilities (including any decrease in his
share of liabilities occurring in connection with the transactions resulting in
the issuance of the units), (3) his share of the Partnership's losses and (4)
his share of the Partnership's nondeductible expenditures that are not
chargeable to capital.

       POTENTIAL APPLICATION OF DISGUISED SALE REGULATIONS TO A REDEMPTION OF
UNITS. There is a risk that a redemption of units may cause the limited
partner's original transfer of property to the Partnership in exchange for units
to be treated as a "disguised sale" of property.

       The Code and the related Treasury Regulations (the "Disguised Sale
Regulations") generally provide that, unless an exception applies, if (A) a
partner contributes property to a partnership and (B) a partnership at the same
time or afterwards transfers money or other consideration (including the
assumption of or taking subject to a liability) to the partner, then the
transaction will be presumed to be a sale, in whole or in part, of the property
by the partner to the partnership.

       The Disguised Sale Regulations provide generally that, in the absence of
an applicable exception, if money or other consideration is transferred by a
partnership to a partner within two years of the partner's contribution of
property to the partnership, the transactions will, when viewed together, be
presumed to be a sale of the contributed property unless the facts and
circumstances clearly establish that the transfers do not constitute a sale. The
Disguised Sale Regulations also provide that, if two years have passed between
the contribution of property and the transfer of money or other consideration
from the partnership to a partner, the transactions will be presumed not to be a
sale unless the facts and circumstances clearly establish that the transfers
constitute a sale. A Disguised Sale may exist in cases in which the transfers
are not made simultaneously only if based on all the facts and circumstances the
later transfer is not dependent on the entrepreneurial risks of partnership
operations.

       Accordingly, if the Partnership redeems a unit, the Internal Revenue
Service could argue that the Disguised Sale Regulations apply, because the
redeeming limited partner will receive cash or common shares after he has
contributed property to the Partnership. If the Internal Revenue Service were to
take such a position and sustain it in court, the original issuance of the units
could be taxable as a disguised sale under the Disguised Sale Regulations. Any
gain recognized thereby may be eligible for installment reporting under Section
453 of the Code, subject to certain limitations.

TAXATION OF THE COMPANY

       The Company elected to be taxed as a REIT under the federal income tax
laws when it filed its 1998 tax return. The Company has operated in a manner
intended to qualify as a REIT and it intends to continue to operate in that
manner. This section discusses the laws governing the federal income tax
treatment of a REIT and its shareholders. These laws are highly technical and
complex.

         In the opinion of the Company's tax counsel, Shaw Pittman, (1) the
Company qualified as a REIT under section 856 through 859 of the Code with
respect to the Company's taxable years ended through December 31, 2000; and (2)
the Company is organized in conformity with the requirements for qualification
as a REIT under the Code and its current method of operation will enable it to
meet the requirements for qualification as a REIT for the current taxable year
and for future taxable years, provided that the Company has operated and
continues to operate in accordance with various assumptions and factual
representations made by the Company concerning its business, properties and
operations. The Company may not, however, have met or continue to meet such
requirements. You should be aware that opinions of counsel are not binding on
the IRS or any court. The Company's qualification as a REIT depends on its
ability to meet, on a continuing basis, certain qualification tests set forth in
the federal tax laws. Those qualification tests involve the percentage of income
that the Company earns from specified sources, the percentage of its assets that
fall within certain categories, the diversity of its share ownership, and the
percentage of its earnings that it distributes. We describe the REIT
qualification tests in more detail below. Shaw Pittman has relied on the
Company's representations regarding its operations and has not and will not
monitor the Company's compliance with the requirements for REIT qualification on
an ongoing basis. Accordingly, no assurance can be given that the Company's
actual operating results have satisfied or will satisfy the qualification tests.
For a discussion of the tax treatment of the Company and its shareholders if the
Company fails to qualify as a REIT, see "-- Failure to Qualify."

                                     - 21 -
<PAGE>   26

       If the Company qualifies as a REIT, it generally will not be subject to
federal income tax on the taxable income that it distributes to its
shareholders. The benefit of that tax treatment is that it avoids the "double
taxation" (i.e., at both the corporate and stockholder levels) that generally
results from owning stock in a corporation. However, the Company will be subject
to federal tax in the following circumstances:

       -      the Company will pay federal income tax on taxable income
              (including net capital gain) that it does not distribute to its
              shareholders during, or within a specified time period after, the
              calendar year in which the income is earned;

       -      the Company may be subject to the " alternative minimum tax" on
              any items of tax preference that it does not distribute or
              allocate to its shareholders;

       -      the Company will pay income tax at the highest corporate rate on
              (i) net income from the sale or other disposition of property
              acquired through foreclosure ("foreclosure property") that it
              holds primarily for sale to customers in the ordinary course of
              business and (ii) other non-qualifying income from foreclosure
              property;

       -      the Company will pay a 100% tax on net income from certain sales
              or other dispositions of property (other than foreclosure
              property) that it holds primarily for sale to customers in the
              ordinary course of business ("prohibited transactions");

       -      if the Company fails to satisfy the 75% gross income test or the
              95% gross income test (as described below under "--Requirements
              for Qualification -- Income Tests"), and nonetheless continues to
              qualify as a REIT because it meets certain other requirements, it
              will pay a 100% tax on (i) the gross income attributable to the
              greater of the amounts by which it fails the 75% and 95% gross
              income tests, multiplied by (ii) a fraction intended to reflect
              its profitability;

       -      if the Company fails to distribute during a calendar year at least
              the sum of (i) 85% of its REIT ordinary income for such year, (ii)
              95% of its REIT capital gain net income for such year, and (iii)
              any undistributed taxable income from prior periods, it will pay a
              4% excise tax on the excess of such required distribution over the
              amount it actually distributed;

       -      the Company may elect to retain and pay income tax on its net
              long-term capital gain; or

       -      if the Company acquires any asset from a C corporation (i.e., a
              corporation generally subject to full corporate-level tax) in a
              merger or other transaction in which it acquires a "carryover"
              basis in the asset (i.e., basis determined by reference to the C
              corporation's basis in the asset (or another asset)), it will pay
              tax at the highest regular corporate rate applicable if it
              recognizes gain on the sale or disposition of such asset during
              the 10-year period after it acquires such asset. The amount of
              gain on which it will pay tax is the lesser of (i) the amount of
              gain that it recognizes at the time of the sale or disposition and
              (ii) the amount of gain that it would have recognized if it had
              sold the asset at the time it acquired the asset. The rule
              described in this paragraph will apply assuming that the Company
              makes an election under Section 1.337(d) - 5T(b) of the Treasury
              Regulations upon its acquisition of an asset from a C corporation.

REQUIREMENTS FOR REIT QUALIFICATION

       In order to qualify as a REIT, the Company must be a corporation, trust
or association that meets the following requirements:

       1.            it is managed by one or more trustees or directors;

       2.            its beneficial ownership is evidenced by transferable
                     shares, or by transferable certificates of beneficial
                     interest;

                                     - 22 -
<PAGE>   27

       3.            it would be taxable as a domestic corporation, but for
                     sections 856 through 860 of the Code;

       4.            it is neither a financial institution nor an insurance
                     company subject to certain provisions of the Code;

       5.            at least 100 persons are beneficial owners of its shares or
                     ownership certificates;

       6.            not more than 50% in value of its outstanding shares or
                     ownership certificates is owned, directly or indirectly, by
                     five or fewer individuals (as defined in the Code to
                     include certain entities) during the last half of any
                     taxable year (the "5/50 Rule");

       7.            it elects to be a REIT (or has made such election for a
                     previous taxable year) and satisfies all relevant filing
                     and other administrative requirements established by the
                     Service that must be met to elect and maintain REIT status;

       8.            it uses a calendar year for federal income tax purposes and
                     complies with the record keeping requirements of the Code
                     and the related Treasury Regulations; and

       9.            it meets certain other qualification tests, described
                     below, regarding the nature of its income and assets.

       The Company must meet requirements 1 through 4 during its entire taxable
year and must meet requirement 5 during at least 335 days of a taxable year of
12 months, or during a proportionate part of a taxable year of less than 12
months. The Company was not required to meet requirements 5 and 6 during 1998.
If the Company complies with all the requirements for ascertaining the ownership
of its outstanding shares in a taxable year and has no reason to know that it
violated the 5/50 Rule, it will be deemed to have satisfied the 5/50 Rule for
such taxable year. For purposes of determining share ownership under the 5/50
Rule, an "individual" generally includes a supplemental unemployment
compensation benefits plan, a private foundation, or a portion of a trust
permanently set aside or used exclusively for charitable purposes. An
"individual," however, generally does not include a trust that is a qualified
employee pension or profit sharing trust under Code section 401(a), and
beneficiaries of such a trust will be treated as holding shares of the Company
in proportion to their actuarial interests in the trust for purposes of the 5/50
Rule.

       The Company believes it has issued sufficient common shares with
sufficient diversity of ownership to satisfy requirements 5 and 6 set forth
above. In addition, the Company's Declaration of Trust restricts the ownership
and transfer of the common shares so that the Company should continue to satisfy
requirements 5 and 6. The provisions of the Declaration of Trust restricting the
ownership and transfer of the common shares are described in "Description of
Shares of Beneficial Ownership -- Restrictions on Ownership and Transfer."

       The Company currently has several direct corporate subsidiaries and may
have additional corporate subsidiaries in the future. A corporation that is a
"qualified REIT subsidiary" is not treated as a corporation separate from its
parent REIT. All assets, liabilities, and items of income, deduction, and credit
of a qualified REIT subsidiary are treated as assets, liabilities, and items of
income, deduction, and credit of the REIT. A qualified REIT subsidiary is a
corporation, all of the capital stock of which is owned by the parent REIT.
Thus, in applying the requirements described herein, any qualified REIT
subsidiary of the Company will be ignored, and all assets, liabilities, and
items of income, deduction, and credit of such subsidiary will be treated as
assets, liabilities, and items of income, deduction, and credit of the Company.
The Company believes its direct corporate subsidiaries are qualified REIT
subsidiaries. Accordingly, they are not subject to federal corporate income
taxation, though they may be subject to state and local taxation.

       A REIT is treated as owning its proportionate share of the assets of any
partnership in which it is a partner and as earning its allocable share of the
gross income of the partnership for purposes of the applicable REIT
qualification tests. Thus, the Company's proportionate share of the assets,
liabilities and items of income of the Partnership and of any other partnership
(or limited liability company treated as a partnership) in which the Company has
acquired or will acquire an interest, directly or indirectly (a "Subsidiary
Partnership"), are treated as assets and gross income of the Company for
purposes of applying the various REIT qualification requirements.

                                     - 23 -
<PAGE>   28

INCOME TESTS

       The Company must satisfy two gross income tests annually to maintain its
qualification as a REIT:

       -      At least 75% of its gross income (excluding gross income from
              prohibited transactions) for each taxable year must consist of
              defined types of income that it derives, directly or indirectly,
              from investments relating to real property or mortgages on real
              property or temporary investment income (the "75% gross income
              test"). Qualifying income for purposes of the 75% gross income
              test includes "rents from real property," interest on debt secured
              by mortgages on real property or on interests in real property,
              and dividends or other distributions on and gain from the sale of
              shares in other REITs; and

       -      At least 95% of its gross income (excluding gross income from
              prohibited transactions) for each taxable year must consist of
              income that is qualifying income for purposes of the 75% gross
              income test, dividends, other types of interest, gain from the
              sale or disposition of stock or securities, or any combination of
              the foregoing (the "95% gross income test").

       The following paragraphs discuss the specific application of these tests
to the Company.

       RENTAL INCOME. The Partnership's primary source of income derives from
leasing properties to dealer groups. The leases generally are "triple-net"
leases, requiring tenants to pay substantially all expenses associated with the
operation of the properties, such as real estate taxes, insurance, utilities,
services, maintenance and other operating expenses and any ground lease
payments.

       Rents under the leases will constitute "rents from real property" only if
the leases are treated as true leases for federal income tax purposes and are
not treated as service contracts, joint ventures, financing arrangements or some
other type of arrangement. The determination of whether the leases are true
leases depends on an analysis of all surrounding facts and circumstances. In
making such a determination, courts have considered a variety of factors,
including the following: (1) the intent of the parties; (2) the form of the
agreement; (3) the degree of control over the property that is retained by the
property owner (e.g., whether the tenant has substantial control over the
operation of the property or whether the tenant was required simply to use its
best efforts to perform its obligations under the agreement); (4) the extent to
which the property owner retains the risk of loss with respect to the operation
of the property (e.g., whether the tenant bears the risks of increases in
operating expenses or the risk of damage to the property); and (5) the extent to
which the property owner retains the burdens and benefits of ownership of the
property.

       Capital Automotive Group believes that each lease will be treated as a
true lease for federal income tax purposes. Such belief is based, in part, on
the following facts:

       1.            Capital Automotive Group and the tenants intend for each
                     relationship between Capital Automotive Group and a tenant
                     to be that of a lessor and lessee and such relationship
                     will be documented by lease agreements;

       2.            the tenants have the right to exclusive possession and use
                     and quiet enjoyment of the properties during the term of
                     the leases;

       3.            the tenants bear the cost of, and are responsible for,
                     day-to-day maintenance and repair of the properties, and
                     will dictate how the properties are operated, maintained,
                     and improved;

       4.            the tenants bear all of the costs and expenses of operating
                     the properties during the terms of the leases;

       5.            the tenants benefit from any savings in the costs of
                     operating the properties during the terms of the leases;

       6.            the tenants generally are required to indemnify Capital
                     Automotive Group against all liabilities imposed on Capital
                     Automotive Group during the term of the leases by reason of
                     (a) injury to persons or damage to property occurring at
                     the properties, or (b) the tenants' use, management,
                     maintenance or repair of the properties;

                                     - 24 -
<PAGE>   29

       7.            the tenants are obligated to pay rent for the period of use
                     of the properties;

       8.            the tenants stand to reap substantial gains (or incur
                     substantial losses) depending on how successfully they
                     operate the properties;

       9.            the useful lives of the properties are significantly longer
                     than the terms of the leases; and

       10.           Capital Automotive Group will receive the benefit of
                     increases in value, and will bear the risk of decreases in
                     value, of the properties during the terms of the leases.

       If the IRS were to challenge successfully the characterization of the
leases as true leases, the Partnership would not be treated as the owner of the
property in question for federal income tax purposes and the Partnership would
lose tax depreciation and cost recovery deductions with respect to such
property, which in turn could cause the Company to fail to qualify as a REIT.
See "-- Distribution Requirements."

       Shareholders should be aware that there are no controlling Treasury
regulations, published rulings, or judicial decisions involving leases with
terms substantially similar to those contained in the leases that address
whether such leases constitute true leases for federal income tax purposes. If
the leases are recharacterized as financing arrangements or partnership
agreements, rather than true leases, part or all of the payments that the
Partnership receives from the tenants may not be considered rent or may not
otherwise satisfy the various requirements for qualification as "rents from real
property." In that case, the Company likely would not be able to satisfy either
the 75% or 95% gross income tests and, as a result, would lose REIT status.
Capital Automotive Group received an opinion of counsel at the time of its
initial public offering that the leases entered into at that time were true
leases. The Company has also received an opinion of Shaw Pittman that the leases
entered into as of the date hereof are true leases. Such opinions are not
binding on the IRS. Capital Automotive Group will use its best efforts to
structure any leasing transaction for properties acquired in the future such
that the lease will be characterized as a "true lease " and the Partnership will
be treated as the owner of the property in question for federal income tax
purposes and has generally entered into leases substantially similar to those
entered into at the time of the initial public offering. The Company will not
seek an advance ruling from the IRS and does not intend to seek an opinion of
counsel that it will be treated as the owner of any other leased properties for
federal income tax purposes, and thus there can be no assurance that future
leases will be treated as true leases for federal income tax purposes.

       In addition, rent that the Partnership receives from real property that
it owns and leases to tenants will qualify as "rents from real property" (which
is qualifying income for purposes of the 75% and 95% gross income tests) only if
several conditions are met under the REIT tax rules:

       -      The rent must not be based, in whole or in part, on the income or
              profits of any person although, generally, rent may be based on a
              fixed percentage or percentages of receipts or sales. The
              Partnership has not entered into any lease based in whole or part
              on the net income of any person and does not anticipate entering
              into such arrangements.

       -      Neither the Company nor someone who owns 10% or more of the
              Company's shares may own 10% or more of a lessee from whom the
              Partnership receives rent. The ownership of the Company and a
              tenant is determined based on direct, indirect and constructive
              ownership. The constructive ownership rules generally provide that
              if 10% or more in value of the shares of the Company are owned,
              directly or indirectly, by or for any person, the Company is
              considered as owning the shares owned, directly or indirectly, by
              or for such person. The applicable attribution rules, however, are
              highly complex and difficult to apply, and the Partnership may
              inadvertently enter into leases with tenants who, through
              application of such rules, will constitute "Related Party
              Tenants." In such event, rent paid by the Related Party Tenant
              will not qualify as "rents from real property," which may
              jeopardize the Company's status as a REIT. The Partnership will
              use its best efforts not to rent any property to a Related Party
              Tenant (taking into account the applicable constructive ownership
              rules), unless the Company determines in its discretion that the
              rent received from such Related Party Tenant is not material and
              will not jeopardize the Company's status as a REIT. The Company
              believes that the Partnership has not leased property to any
              Related Party Tenant.

                                     - 25 -
<PAGE>   30

       -      The rent attributable to any personal property leased in
              connection with a lease of property is no more than 15% of the
              total rent received under the lease. In general, the Partnership
              has not leased personal property under its current leases. If any
              incidental personal property has been leased, Capital Automotive
              Group believes that rent from the personal property would be less
              than 15% of total rent from that lease. If the Partnership were to
              lease personal property in connection with a future lease, Capital
              Automotive Group intends to satisfy the 15% test described above.

       -      Capital Automotive Group generally must not operate or manage its
              property or furnish or render services to its tenants, other than
              through an "independent contractor" who is adequately compensated
              and from whom Capital Automotive Group does not derive revenue.
              Capital Automotive Group may provide services directly, if the
              services are "usually or customarily rendered" in connection with
              the rental of space for occupancy only and are not otherwise
              considered "rendered to the occupant." In addition, Capital
              Automotive Group may render directly a de minimis amount of
              "non-customary" services to the tenants of a property without
              disqualifying the income as "rents from real property," as long as
              its income from the services does not exceed 1% of its income from
              the related property. Capital Automotive Group has not provided
              services to leased properties itself or through an independent
              contractor. In the future, Capital Automotive Group intends that
              any services provided will not cause rents to be disqualified as
              rents from real property.

         Based on the foregoing requirements, the Company believes that rent
from leases should qualify as "rents from real property" for purposes of the 75%
and 95% gross income tests. As described above, however, there can be no
complete assurance that the IRS will not assert successfully a contrary position
and, therefore, prevent the Company from qualifying as a REIT.

       On an ongoing basis, the Company will use its best efforts not to cause
the Partnership to:

       -      charge rent for any property that is based in whole or in part on
              the income or profits of any person (except by reason of being
              based on a percentage of receipts or sales, as described above);

       -      rent any property to a Related Party Tenant (taking into account
              the applicable constructive ownership rules), unless the Company
              determines in its discretion that the rent received from such
              Related Party Tenant is not material and will not jeopardize the
              Company's status as a REIT;

       -      derive rental income attributable to personal property (other than
              personal property leased in connection with the lease of real
              property, the amount of which is less than 15% of the total rent
              received under the lease); and

       -      perform services considered to be rendered to the occupant of the
              property, unless such services generate rents not in excess of 1%
              of all amounts received or accrued during the taxable year with
              respect to such property, other than through an independent
              contractor from whom the Company derives no revenue or if the
              provisions of such services will not jeopardize the Company's
              status as a REIT.

Because the Code provisions applicable to REITs are complex, however, the
Company may fail to meet one or more of the foregoing.

       INTEREST INCOME. Capital Automotive Group may offer financing to dealer
groups for the development of property used by dealerships and earn interest
with respect to such financings. For purposes of the 75% and 95% gross income
tests, amounts received or accrued (directly or indirectly), which are based in
whole or in part on the income or profits of any person are generally not
treated as interest. An amount received or accrued from such financing will
generally be treated as interest even if it is based (1) on a fixed percentage
or percentages of receipts or sales or (2) on the income or profits of such
borrower if the borrower derives substantially all of its gross income from the
related property through the leasing of substantially all of its interests in
the property, but only to the extent the amounts received by the borrower would
be characterized as "rents from real property" if received by a REIT.
Furthermore, to the extent that interest from a loan that is based on the cash
proceeds from the sale of the property

                                     - 26 -
<PAGE>   31

securing the loan constitutes a "shared appreciation provision" (as defined in
the Code), income attributable to such participation feature will be treated as
gain from the sale of the secured property, which generally is qualifying income
for purposes of the 75% and 95% gross income tests.

       Interest on obligations secured by mortgages on real property or on
interests in real property generally is qualifying income for purposes of the
75% gross income tests. However, if Capital Automotive Group receives interest
income with respect to a loan that is secured by both real property and other
property and the highest principal amount of the loan outstanding during a
taxable year exceeds the fair market value of the real property on the date
Capital Automotive Group acquired the loan, the interest income from the loan
will be apportioned between the real property and the other property. This
apportionment may cause the Company to recognize income that is not qualifying
income for purposes of the 75% gross income test. The Company intends to
structure any such financing arrangement such that it will continue to qualify
as a REIT.

       TAX ON INCOME FROM PROPERTY ACQUIRED IN FORECLOSURE. The Company will be
subject to tax at the maximum corporate rate on any income from foreclosure
property (other than income that would be qualifying income for purposes of the
75% gross income test), less expenses directly connected to the production of
such income. "Foreclosure property" is any real property (including interests in
real property) and any personal property incident to such real property:

       -      that is acquired by a REIT at a foreclosure sale, or having
              otherwise become the owner or in possession of the property by
              agreement or process of law, after a default (or imminent default)
              on a lease of such property or on an indebtedness owed to the REIT
              secured by the property;

       -      for which the related loan was acquired by the REIT at a time when
              default was not imminent or anticipated; and

       -      for which the REIT makes a proper election to treat the property
              as foreclosure property.

A REIT will not be considered to have foreclosed on a property where it takes
control of the property as a mortgagee-in-possession and cannot receive any
profit or sustain any loss except as a creditor of the mortgagor. Generally,
property acquired as described above ceases to be foreclosure property on the
earlier of:

       -      the last day of the third taxable year following the taxable year
              in which the Partnership acquired the property (or longer if an
              extension is granted by the Secretary of the Treasury);

       -      the first day on which a lease is entered into with respect to
              such property that, by its terms, will give rise to income that
              does not qualify under the 75% gross income test or any amount is
              received or accrued, directly or indirectly, pursuant to a lease
              entered into on or after such day that will give rise to income
              that does not qualify under the 75% gross income test;

       -      the first day on which any construction takes place on such
              property (other than completion of a building, or any other
              improvement, where more than 10% of the construction of such
              building or other improvement was completed before default became
              imminent); or

       -      the first day that is more than 90 days after the day on which
              such property was acquired by the REIT and the property is used in
              a trade or business that is conducted by the REIT (other than
              through an independent contractor from whom the REIT itself does
              not derive or receive any income).

       TAX ON PROHIBITED TRANSACTIONS. A REIT will incur a 100% tax on net
income derived from any "prohibited transaction." A "prohibited transaction"
generally is a sale or other disposition of property (other than foreclosure
property) that the REIT holds primarily for sale to customers in the ordinary
course of a trade or business. Capital Automotive Group believes that none of
its assets is held for sale to customers and that a sale of any such asset would
not be in the ordinary course of its business. Whether a REIT holds an asset
"primarily for sale to customers in the ordinary course of a trade or business"
depends, however, on the facts and circumstances in effect from time to time,
including those related to a particular asset. If Capital Automotive Group
determines that an asset is held primarily for sale to customers in the ordinary
course of business, Capital Automotive Group will attempt to comply with the
terms of safe-harbor provisions in the Code prescribing when an asset sale will
not be characterized

                                     - 27 -
<PAGE>   32

as a prohibited transaction. Capital Automotive Group may fail to comply with
such safe-harbor provisions or may own property that could be characterized as
property held "primarily for sale to customers in the ordinary course of a trade
or business."

       RELIEF FROM CONSEQUENCES OF FAILING TO MEET INCOME TESTS. If the Company
fails to satisfy one or both of the 75% and 95% gross income tests for any
taxable year, it nevertheless may qualify as a REIT for such year if it
qualifies for relief under certain provisions of the Code. Those relief
provisions generally will be available if the Company's failure to meet such
tests is due to reasonable cause and not due to willful neglect, the Company
attaches a schedule of the sources of its income to its tax return, and any
incorrect information on the schedule was not due to fraud with intent to evade
tax. The Company may not qualify for the relief provisions in all circumstances.
In addition, as discussed above in "--Taxation of the Company," even if the
relief provisions apply, the Company would incur a 100% tax on gross income to
the extent it fails the 75% and 95% gross income tests (whichever amount is
greater), multiplied by a fraction intended to reflect its profitability.

ASSET TESTS

       To maintain its qualification as a REIT, the Company also must satisfy
two asset tests at the close of each quarter of each taxable year:

       -      At least 75% of the value of its total assets must consist of cash
              or cash items (including certain receivables), government
              securities, "real estate assets," or qualifying temporary
              investments (the "75% asset test").

              -      "Real estate assets" include interests in real property,
                     interests in mortgages on real property and stock in other
                     REITs. The Company believes that the properties qualify as
                     real estate assets.

              -      "Interests in real property" includes an interest in
                     mortgage loans or land and improvements thereon, such as
                     buildings or other inherently permanent structures
                     (including items that are structural components of such
                     buildings or structures), a leasehold of real property, and
                     an option to acquire real property (or a leasehold of real
                     property).

              -      Qualifying temporary investments are investments in stock
                     or debt instruments during the one-year period following
                     the Company's receipt of new capital that it raises through
                     equity or long-term (at least five-year) debt offerings.

       -      For investments not included in the 75% asset test, (A) the value
              of its interest in any one issuer's securities (which does not
              include its equity ownership of other REITs, the Partnership or
              any qualified REIT subsidiary) may not exceed 5% of the value of
              its total assets (the "5% asset test") and (B) the Company may not
              own more than 10% of any one issuer's outstanding voting
              securities which does not include its equity ownership in other
              REITs, the Partnership, any taxable REIT subsidiary or any
              qualified REIT subsidiary (the "10% asset test").

The Company intends to select future investments so as to comply with the asset
tests.

       If the Company failed to satisfy the asset tests at the end of a calendar
quarter, it would not lose its REIT status if (i) it satisfied the asset tests
at the close of the preceding calendar quarter and (ii) the discrepancy between
the value of its assets and the asset test requirements arose from changes in
the market values of its assets and was not wholly or partly caused by the
acquisition of one or more non-qualifying assets. If the Company did not satisfy
the condition described in clause (ii) of the preceding sentence, it still could
avoid disqualification as a REIT by eliminating any discrepancy within 30 days
after the close of the calendar quarter in which the discrepancy arose.

DISTRIBUTION REQUIREMENTS

Each taxable year, the Company must distribute dividends (other than capital
gain dividends and deemed distributions of retained capital gain) to its
shareholders in an aggregate amount at least equal to (1) the sum of 90% of (A)
its "REIT taxable income" (computed without regard to the dividends paid
deduction and its net capital gain or loss) and (B) its net income (after tax),
if any, from foreclosure property, minus (2) certain items of non-cash income.
The Company must pay such distributions in the taxable year to which they
relate, or in the following taxable year if

                                     - 28 -
<PAGE>   33

it declares the distribution before it timely files its federal income tax
return for such year and pays the distribution on or before the first regular
dividend payment date after such declaration.

       The Company will pay federal income tax on taxable income (including net
capital gain) that it does not distribute to shareholders. Furthermore, it will
incur a 4% nondeductible excise tax if it fails to distribute during a calendar
year (or, in the case of distributions with declaration and record dates falling
in the last three months of the calendar year, by the end of January following
such calendar year) at least the sum of (1) 85% of its REIT ordinary income for
such year, (2) 95% of its REIT capital gain income for such year, and (3) any
undistributed taxable income from prior periods. The excise tax is on the excess
of such required distribution over the amounts it actually distributed. The
Company may elect to retain and pay income tax on the net long-term capital gain
it receives in a taxable year. See "-- Taxation of Taxable U.S. Shareholders."
For purposes of the 4% excise tax, it will be treated as having distributed any
such retained amount. The Company has made, and the Company intends to continue
to make, timely distributions sufficient to satisfy the annual distribution
requirements.

       It is possible that, from time to time, the Company may experience timing
differences between (1) the actual receipt of income and actual payment of
deductible expenses and (2) the inclusion of that income and deduction of such
expenses in arriving at its REIT taxable income. For example, the Company may
not deduct recognized capital losses from its "REIT taxable income." Further, it
is possible that, from time to time, the Company may be allocated a share of net
capital gain attributable to the sale of depreciated property that exceeds its
allocable share of cash attributable to that sale. As a result of the foregoing,
the Company may have less cash than is necessary to distribute all of its
taxable income and thereby avoid corporate income tax and the excise tax imposed
on certain undistributed income. In such a situation, it may need to borrow
funds or issue preferred shares or additional common shares.

       The Company intends to calculate its "REIT taxable income" based upon the
conclusion that the Partnership is the owner for federal income tax purposes of
all of the properties. As a result, the Company expects that depreciation
deductions with respect to all such properties will reduce its "REIT taxable
income." If the IRS were to successfully challenge this position, the Company
might be deemed retroactively to have failed to meet the distribution
requirement and would have to rely on the payment of a "deficiency dividend" in
order to retain its REIT status.

       Under certain circumstances, the Company may be able to correct a failure
to meet the distribution requirement for a year by paying "deficiency dividends"
to its shareholders in a later year. The Company may include such deficiency
dividends in its deduction for dividends paid for the earlier year. Although the
Company may be able to avoid income tax on amounts distributed as deficiency
dividends, it will be required to pay interest to the IRS based upon the amount
of any deduction it takes for deficiency dividends.

PARTNERSHIP ANTI-ABUSE RULE

       The United States Treasury Department has issued a regulation (the
"Anti-Abuse Rule") under the partnership provisions of the Code that authorizes
the IRS, in certain "abusive" transactions involving partnerships, to disregard
the form of the transaction and recast it for federal tax purposes as the IRS
deems appropriate. The Anti-Abuse Rule applies where a partnership is formed or
utilized in connection with a transaction (or series of related transactions)
with a principal purpose of substantially reducing the present value of the
partners' aggregate federal tax liability in a manner inconsistent with the
intent of the partnership provisions. The Anti-Abuse Rule states that the
partnership provisions are intended to permit taxpayers to conduct joint
business (including investment) activities through a flexible economic
arrangement that accurately reflects the partners' economic agreement and
clearly reflects the partners' income without incurring any entity-level tax.
The purposes for structuring a transaction involving a partnership are
determined based on all of the facts and circumstances, including a comparison
of the purported business purpose for a transaction and the claimed tax benefits
resulting from the transaction. A reduction in the present value of the
partners' aggregate federal tax liability through the use of a partnership does
not, by itself, establish inconsistency with the intent of the partnership
provisions.

       The Anti-Abuse Rule contains an example in which a corporation that
elects to be treated as a REIT contributes substantially all of the proceeds
from a public offering to a partnership in exchange for a general partner
interest. The limited partners of the partnership contribute real property
assets to the partnership, subject to liabilities that exceed their respective
aggregate bases in such property. In addition, the limited partners have the
right, beginning one year after the formation of the partnership, to require the
redemption of their limited partnership interests in exchange for cash or REIT
shares (at the corporation's option) equal to the fair market value of their re-

                                     - 29 -
<PAGE>   34

spective interests in the partnership at the time of the redemption. The example
concludes that the use of the partnership is not inconsistent with the intent of
the partnership provisions and, thus, cannot be recast by the IRS. Based on the
foregoing, the Company believes that the Anti-Abuse Rule will not have any
adverse impact on the Company's ability to qualify as a REIT. However, the
Anti-Abuse Rule is extraordinarily broad in scope and is applied based on an
analysis of all of the facts and circumstances. As a result, there can be no
assurance that the Service will not attempt to apply the Anti-Abuse Rule to the
Partnership. If the conditions of the Anti-Abuse Rule are met, the IRS is
authorized to take appropriate enforcement action, including disregarding the
Partnership for federal tax purposes or treating one or more of its partners as
non-partners. Any such action potentially could jeopardize the Company's status
as a REIT.

RECORD-KEEPING REQUIREMENTS

       The Company must maintain certain records in order to qualify as a REIT.
In addition, to avoid a monetary penalty, it must request on an annual basis
certain information from its shareholders designed to disclose the actual
ownership of its outstanding stock. The Company has complied, and the Company
intends to continue to comply, with such requirements.

FAILURE TO QUALIFY

       If the Company failed to qualify as a REIT in any taxable year, and no
relief provision applied, it would be subject to federal income tax (including
any applicable alternative minimum tax) on its taxable income at regular
corporate rates. In calculating its taxable income in a year in which it failed
to qualify as a REIT, the Company would not be able to deduct amounts paid out
to shareholders. In fact, the Company would not be required to distribute any
amounts to shareholders in such year. In such event, to the extent of its
current and accumulated earnings and profits, all distributions to shareholders
would be taxable as ordinary income. Subject to certain limitations of the Code,
corporate shareholders might be eligible for the dividends received deduction.
Unless the Company qualified for relief under specific statutory provisions, it
also would be disqualified from taxation as a REIT for the four taxable years
following the year during which it ceased to qualify as a REIT. The Company
cannot predict whether in all circumstances it would qualify for such statutory
relief.

TAXATION OF TAXABLE U. S. SHAREHOLDERS

       As long as the Company qualifies as a REIT, a taxable "U.S. shareholder"
must take into account distributions out of the Company's current or accumulated
earnings and profits (and that it does not designate as capital gain dividends
or retained long-term capital gain) as ordinary income. A U.S. shareholder will
not qualify for the dividends received deduction generally available to
corporations. As used herein, the term "U.S. shareholder" means a holder of
common shares that for U.S. federal income tax purposes is

       -      a citizen or resident of the United States,

       -      a corporation, partnership, or other entity created or organized
              in or under the laws of the United States or of a political
              subdivision thereof,

       -      an estate whose income is subject to U.S. federal income taxation
              regardless of its source, or

       -      any trust with respect to which (A) a U.S. court is able to
              exercise primary supervision over the administration of such trust
              and (B) one or more U.S. persons have the authority to control all
              substantial decisions of the trust.

       A U.S. shareholder will recognize distributions that the Company
designates as capital gain dividends as long-term capital gain (to the extent
they do not exceed the Company's actual net capital gain for the taxable year)
without regard to the period for which the U.S. shareholder has held its common
shares. Subject to certain limitations, the Company will designate its capital
gain dividends as either 20% or 25% rate distributions. A corporate U.S.
shareholder, however, may be required to treat up to 20% of certain capital gain
dividends as ordinary income.

       The Company may elect to retain and pay income tax on the net long-term
capital gain that it receives in a taxable year. In that case, a U.S.
shareholder would be taxed on its proportionate share of the Company's
undistributed long-term capital gain. The U.S. shareholder would receive a
credit or refund for its proportionate share of the

                                     - 30 -
<PAGE>   35

tax the Company paid. The U.S. shareholder would increase the basis in its stock
by the amount of its proportionate share of the Company's undistributed
long-term capital gain, minus its share of the tax the Company paid.

       A U.S. shareholder will not incur tax on a distribution in excess of the
Company's current and accumulated earnings and profits if such distribution does
not exceed the adjusted basis of the U.S. shareholder's common shares. Instead,
such distribution will reduce the adjusted basis of such common shares. A U.S.
shareholder will recognize a distribution in excess of both the Company's
current and accumulated earnings and profits and the U.S. shareholder's adjusted
basis in its common shares as long-term capital gain (or short-term capital gain
if the common shares have been held for one year or less), assuming the common
shares are a capital asset in the hands of the U.S. shareholder. In addition, if
the Company declares a distribution in October, November, or December of any
year that is payable to a U.S. Stockholder of record on a specified date in any
such month, such distribution shall be treated as both paid by the Company and
received by the U.S. shareholder on December 31 of such year, provided that the
Company actually pays the distribution during January of the following calendar
year. The Company will notify U.S. shareholders after the close of its taxable
year as to the portions of the distributions attributable to that year that
constitute ordinary income or capital gain dividends.

       TAXATION OF U.S. SHAREHOLDERS ON THE DISPOSITION OF THE COMMON SHARES. In
general, a U.S. shareholder who is not a dealer in securities must treat any
gain or loss realized upon a taxable disposition of the common shares as
long-term capital gain or loss if the U.S. shareholder has held the common stock
for more than one year and otherwise as short-term capital gain or loss.
However, a U.S. shareholder must treat any loss upon a sale or exchange of
common shares held by such shareholder for six months or less (after applying
certain holding period rules) as a long-term capital loss to the extent of
capital gain dividends and other distributions from the Company that such U.S.
shareholder treats as long-term capital gain. All or a portion of any loss a
U.S. shareholder realizes upon a taxable disposition of the common shares may be
disallowed if the U.S. shareholder purchases additional common shares within 30
days before or after the disposition.

       CAPITAL GAINS AND LOSSES. A taxpayer generally must hold a capital asset
for more than one year for gain or loss derived from its sale or exchange to be
treated as long-term capital gain or loss. The highest marginal individual
income tax rate is 39.6%. The maximum tax rate on long-term capital gain
applicable to non-corporate taxpayers is 20% for sales and exchanges of assets
held for more than one year. The maximum tax rate on long-term capital gain from
the sale or exchange of "section 1250 property" (i.e., depreciable real
property) is 25% to the extent that such gain would have been treated as
ordinary income if the property were "section 1245 property." With respect to
distributions that the Company designates as capital gain dividends and any
retained capital gain that it is deemed to distribute, the Company may designate
(subject to certain limits) whether such a distribution is taxable to its
non-corporate shareholders at a 20% or 25% rate. Thus, the tax rate differential
between capital gain and ordinary income for non-corporate taxpayers may be
significant. A U.S. shareholder required to include retained long-term capital
gains in income will be deemed to have paid, in the taxable year of the
inclusion, its proportionate share of the tax paid by the Company in respect of
such undistributed net capital gains. U.S. shareholders subject to these rules
will be allowed a credit or a refund, as the case may be, for the tax deemed to
have been paid by such shareholders. U.S. shareholders will increase their basis
in their common shares by the difference between the amount of such includible
gains and the tax deemed paid by the U.S. shareholder in respect of such gains.
In addition, the characterization of income as capital gain or ordinary income
may affect the deductibility of capital losses. A non-corporate taxpayer may
deduct capital losses not offset by capital gains against its ordinary income
only up to a maximum annual amount of $3,000. A non-corporate taxpayer may carry
forward unused capital losses indefinitely. A corporate taxpayer must pay tax on
its net capital gain at ordinary corporate rates. A corporate taxpayer can
deduct capital losses only to the extent of capital gains, with unused losses
being carried back three years and forward five years.

       INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING. The Company
will report to its shareholders and to the IRS the amount of distributions it
pays during each calendar year, and the amount of tax it withholds, if any.
Under the backup withholding rules, a shareholder may be subject to backup
withholding at the rate of 31% with respect to distributions unless such holder
(1) is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact or (2) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with the applicable requirements of the backup withholding
rules. A shareholder who does not provide the Company with its correct taxpayer
identification number also may be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable

                                     - 31 -
<PAGE>   36

against the shareholder's income tax liability. In addition, the Company may be
required to withhold a portion of capital gain distributions to any shareholders
who fail to certify their non-foreign status to the Company.

TAXATION OF TAX-EXEMPT U.S. SHAREHOLDERS

       Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts and annuities ("Exempt
Organizations"), generally are exempt from federal income taxation. However,
they are subject to taxation on their unrelated business taxable income
("UBTI"). While many investments in real estate generate UBTI, the IRS has
issued a published ruling that dividend distributions from a REIT to an exempt
employee pension trust do not constitute UBTI, provided that the exempt employee
pension trust does not otherwise use the shares of the REIT in an unrelated
trade or business of the pension trust. Based on that ruling, amounts that the
Company distributes to Exempt Organizations generally should not constitute
UBTI. However, if an Exempt Organization were to finance its acquisition of the
common shares with debt, a portion of the income that they receive from the
Company would constitute UBTI pursuant to the "debt-financed property" rules.
Furthermore, social clubs, voluntary employee benefit associations, supplemental
unemployment benefit trusts and qualified group legal services plans that are
exempt from taxation under paragraphs (7), (9), (17), and (20), respectively, of
Code section 501(c) are subject to different UBTI rules, which generally will
require them to characterize distributions that they receive from the Company as
UBTI. Finally, in certain circumstances, a qualified employee pension or profit
sharing trust that owns more than 10% of the Company's shares is required to
treat a percentage of the dividends that it receives from the Company as UBTI
(the "UBTI Percentage"). The UBTI Percentage is equal to the gross income the
Company derives from an unrelated trade or business (determined as if it were a
pension trust) divided by its total gross income for the year in which it pays
the dividends. The UBTI rule applies to a pension trust holding more than 10% of
the Company's shares only if:

       -      the UBTI Percentage is at least 5%;

       -      the Company qualifies as a REIT by reason of the modification of
              the 5/50 Rule that allows the beneficiaries of the pension trust
              to be treated as holding the Company's shares in proportion to
              their actuarial interests in the pension trust; and

       -      the Company is a "pension-held REIT" (i.e., either (1) one pension
              trust owns more than 25% of the value of its shares or (2) a group
              of pension trusts individually holding more than 10% of the value
              of its shares collectively owns more than 50% of the value of its
              shares).

       Tax-exempt entities will be subject to the rules described above, under
the heading "-- Taxation of Taxable U.S. Shareholders" concerning the inclusion
of the Company's designated undistributed net capital gains in the income of its
shareholders. Thus, such entities will, after satisfying filing requirements, be
allowed a credit or refund of the tax deemed paid by such entities in respect of
such includible gains.

TAXATION OF NON-U.S. SHAREHOLDERS

       The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
shareholders (collectively, "Non-U.S. shareholders") are complex. This section
is only a summary of such rules. We urge Non-U.S. shareholders to consult their
own tax advisors to determine the impact of federal, state, and local income tax
laws on ownership of common shares, including any reporting requirements.

       ORDINARY DIVIDENDS. A Non-U.S. shareholder that receives a distribution
that is not attributable to gain from the Company's sale or exchange of U.S.
real property interests (as defined below) and that the Company does not
designate as a capital gain dividend or retained capital gain will recognize
ordinary income to the extent that the Company pays such distribution out of its
current or accumulated earnings and profits. A withholding tax equal to 30% of
the gross amount of the distribution ordinarily will apply to such distribution
unless an applicable tax treaty reduces the tax. However, if a distribution is
treated as effectively connected with the Non-U.S. shareholder's conduct of a
U.S. trade or business, the Non-U.S. shareholder generally will be subject to
federal income tax on the distribution at graduated rates, in the same manner as
U.S. shareholders are taxed with respect to such distributions (and also may be
subject to the 30% branch profits tax in the case of a Non-U.S. shareholder that
is a non-U.S. corporation). The Company plans to withhold U.S. income tax at the
rate of 30% on the gross amount of any ordinary dividend paid to a Non-U.S.
shareholder unless (i) a lower treaty rate applies and the Non-U.S. shareholder
files IRS

                                     - 32 -
<PAGE>   37

Form W-8BEN with the Company evidencing eligibility for that reduced rate or
(ii) the Non-U.S. shareholder files an IRS Form W-8ECI with the Company claiming
that the distribution is effectively connected income.

       RETURN OF CAPITAL. A Non-U.S. shareholder will not incur tax on a
distribution in excess of the Company's current and accumulated earnings and
profits if such distribution does not exceed the adjusted basis of its common
shares. Instead, such a distribution will reduce the adjusted basis of such
common shares. A Non-U.S. shareholder will be subject to tax on a distribution
that exceeds both the Company's current and accumulated earnings and profits and
the adjusted basis of its common shares, if the Non-U.S. shareholder otherwise
would be subject to tax on gain from the sale or disposition of its common
shares, as described below. Because the Company generally cannot determine at
the time it makes a distribution whether or not the distribution will exceed its
current and accumulated earnings and profits, it normally will withhold tax on
the entire amount of any distribution at the same rate as it would withhold on a
dividend. However, a Non-U.S. shareholder may obtain a refund of amounts that
the Company withholds if it later determines that a distribution in fact
exceeded its current and accumulated earnings and profits.

       CAPITAL GAIN DIVIDENDS. For any year in which the Company qualifies as a
REIT, a Non-U.S. shareholder will incur tax on distributions that are
attributable to gain from its sale or exchange of "U.S. real property interests"
under the provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). The term "U.S. real property interests" includes certain interests
in real property and stock in corporations at least 50% of whose assets consists
of interests in real property, but excludes mortgage loans and mortgage-backed
securities. Under FIRPTA, a Non-U.S. shareholder is taxed on distributions
attributable to gain from sales of U.S. real property interests as if such gain
were effectively connected with a U.S. business of the Non-U.S. shareholder. A
Non-U.S. shareholder thus would be taxed on such a distribution at the normal
capital gain rates applicable to U.S. shareholders (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of a
nonresident alien individual). A non-U.S. corporate shareholder not entitled to
treaty relief or exemption also may be subject to the 30% branch profits tax on
distributions subject to FIRPTA. The Company must withhold 35% of any
distribution that it could designate as a capital gain dividend. However, if the
Company makes a distribution and later designates it as a capital gain dividend,
then (although such distribution may be taxable to a Non-U.S. shareholder) it is
not subject to withholding under FIRPTA. Instead, the Company must make up the
35% FIRPTA withholding from distributions made after the designation, until the
amount of distributions withheld at 35% equals the amount of the distribution
designated as a capital gain dividend. A Non-U.S. shareholder may receive a
credit against its FIRPTA tax liability for the amount the Company withholds.

       Distributions to a Non-U.S. shareholder that are designated by the
Company at the time of distribution as capital gain dividends which are not
attributable to or treated as attributable to the disposition by the Company of
a U.S. real property interest generally will not be subject to U.S. federal
income taxation, except as described below under "sale of shares."

       SALE OF SHARES. A Non-U.S. shareholder generally will not incur tax under
FIRPTA on gain from the sale of its common shares as long as the Company is a
"domestically controlled REIT." A "domestically controlled REIT" is a REIT in
which at all times during a specified testing period non-U.S. persons hold,
directly or indirectly, less than 50% in value of the stock. The Company
anticipates that it will continue to be a "domestically controlled REIT." In
addition, a Non-U.S. shareholder that owns, actually or constructively, 5% or
less of outstanding common shares at all times during a specified testing period
will not incur tax under FIRPTA if the common shares are "regularly traded" on
an established securities market. If neither of these exceptions were to apply,
the gain on the sale of the common shares would be taxed under FIRPTA, in which
case a Non-U.S. shareholder would be taxed in the same manner as U.S.
shareholders with respect to such gain (subject to applicable alternative
minimum tax, a special alternative minimum tax in the case of nonresident alien
individuals, and the possible application of the 30% branch profits tax in the
case of non-U.S. corporations).

       A Non-U.S. shareholder will incur tax on gain not subject to FIRPTA if
(1) the gain is effectively connected with the Non-U.S. shareholder's U.S. trade
or business, in which case the Non-U.S. shareholder will be subject to the same
treatment as U.S. shareholders with respect to such gain, or (2) the Non-U.S.
shareholder is a nonresident alien individual who was present in the U.S. for
183 days or more during the taxable year, in which case the Non-U.S. shareholder
will incur a 30% tax on his capital gains. Capital gains dividends not subject
to FIRPTA will be subject to similar rules.

       BACKUP WITHHOLDING. Backup withholding tax (which generally is
withholding tax imposed at the rate of 31% on certain payments to persons that
fail to furnish certain information under the United States information re-

                                     - 33 -
<PAGE>   38

porting requirements) and information reporting will generally not apply to
distributions to a Non-U.S. shareholder provided that the Non-U.S. shareholder
certifies under penalty of perjury that the shareholder is a Non-U.S.
shareholder, or otherwise establishes an exemption. As a general matter, backup
withholding and information reporting will not apply to a payment of the
proceeds of a sale of common shares effected at a foreign office of a foreign
broker. Information reporting (but not backup withholding) will apply, however,
to a payment of the proceeds of a sale of common shares by a foreign office of a
broker that (1) is a United States person, (2) derives 50% or more of its gross
income for a specified three year period from the conduct of a trade or business
in the United States, (3) is a "controlled foreign corporation" (generally, a
foreign corporation controlled by U.S. shareholders) for United States tax
purposes, or (4) that is a foreign partnership, if at any time during its tax
year 50% or more of its income or capital interest are held by United States
persons or if it is engaged in the conduct of a trade or business in the United
States, unless the broker has documentary evidence in its records that the
holder or beneficial owner is a Non-U.S. shareholder and certain other
conditions are met, or the shareholder otherwise establishes an exemption.
Payment of the proceeds of a sale of common shares effected at a United States
office of a broker is subject to both backup withholding and information
reporting unless the shareholder certifies under penalty of perjury that the
shareholder is a Non-U.S. shareholder, or otherwise establishes an exemption.
Backup withholding is not an additional tax. A Non-U.S. shareholder may obtain a
refund of excess amounts withheld under the backup withholding rules by filing
the appropriate claim for refund with the IRS.

OTHER TAX CONSEQUENCES

       STATE AND LOCAL TAXES. The Company and/or you may be subject to state and
local tax in various states and localities, including those states and
localities in which the Company or you transact business, own property or
reside. The state and local tax treatment in such jurisdictions may differ from
the federal income tax treatment described above. Consequently, you should
consult your own tax advisor regarding the effect of state and local tax laws
upon an investment in the common shares.

TAX ASPECTS OF THE COMPANY'S INVESTMENTS IN THE PARTNERSHIP AND SUBSIDIARY
PARTNERSHIPS

       The following discussion summarizes certain federal income tax
considerations applicable to the Company's direct or indirect investments in the
Partnership and its subsidiaries. The discussion does not cover state or local
tax laws or any federal tax laws other than income tax laws.

       CLASSIFICATION AS PARTNERSHIPS. The Company is entitled to include in its
income its distributive share of the Partnership's income and to deduct its
distributive share of the Partnership's losses only if the Partnership is
classified for federal income tax purposes as a partnership rather than as a
corporation or association taxable as a corporation. An organization will be
classified as a partnership, rather than as a corporation, for federal income
tax purposes if it (1) is treated as a partnership under Treasury Regulations,
effective January 1, 1997, relating to entity classification (the "Check-the-Box
Regulations") and (2) is not a "publicly traded" partnership.

       Under the Check-the-Box Regulations, an unincorporated entity with at
least two members may elect to be classified either as an association taxable as
a corporation or as a partnership. If such an entity fails to make an election,
it generally will be treated as a partnership for federal income tax purposes.
The Company believes that the Partnership and its subsidiaries are classified as
partnerships for federal income tax purposes.

       A publicly traded partnership is a partnership whose interests are traded
on an established securities market or are readily tradable on a secondary
market (or the substantial equivalent thereof). While the units will not be
traded on an established securities market, they could possibly be deemed to be
traded on a secondary market or its equivalent due to the redemption rights
enabling the limited partners to dispose of their units. A publicly traded
partnership will not, however, be treated as a corporation for any taxable year
if 90% or more of the partnership's gross income for such year consists of
certain passive-type income, including (as may be relevant here) real property
rents, gains from the sale or other disposition of real property, interest, and
dividends (the "90% Passive Income Exception").

       The U.S. Treasury has issued regulations (the "PTP Regulations") that
provide limited safe harbors from the definition of a publicly traded
partnership. Pursuant to one of those safe harbors (the "Private Placement
Exclusion"), interests in a partnership will not be treated as readily tradable
on a secondary market or the substantial equivalent thereof if (i) all interests
in the partnership were issued in a transaction (or transactions) that was not
required to be registered under the Securities Act of 1933, as amended, and (ii)
the partnership does not have more

                                     - 34 -
<PAGE>   39

than 100 partners at any time during the partnership's taxable year. In
determining the number of partners in a partnership, a person owning an interest
in a flow-through entity (i.e., a partnership, grantor trust, or S corporation)
that owns an interest in the partnership is treated as a partner in such
partnership only if (i) substantially all of the value of the owner's interest
in the flow-through entity is attributable to the flow-through entity's interest
(direct or indirect) in the partnership and (ii) a principal purpose of the use
of the flow-through entity is to permit the partnership to satisfy the
100-partner limitation.

       The Company believes that the Partnership qualified for the Private
Placement Exclusion in 1998,1999 and 2000 and intends to continue to qualify for
the Private Placement Exclusion or another exception. It is possible that in the
future the Partnership might not qualify for the Private Placement Exclusion.

       If the Partnership is considered a publicly traded partnership under the
PTP Regulations because it is deemed to have more than 100 partners, the
Partnership would need to qualify under another safe harbor in the PTP
Regulations or for the 90% Passive Income Exception. The Company believes that
the Partnership will qualify for another safe harbor in the PTP Regulations or
for the 90% Passive Income Exception. It is possible that in the future the
Partnership might not qualify for one of these exceptions.

       If, however, for any reason the Partnership were taxable as a
corporation, rather than as a partnership, for federal income tax purposes, the
Company would not be able to qualify as a REIT. See "-- Requirements for
Qualification -- Income Tests" and "-- Requirements for Annual Qualification --
Asset Tests." In addition, any change in the Partnership's status for tax
purposes might be treated as a taxable event, in which case the Company might
incur tax liability without any related cash distribution. See "--Requirements
for Qualification -- Distribution Requirements." Further, items of income and
deduction of the Partnership would not pass through to its partners, and its
partners would be treated as shareholders for tax purposes. Consequently, the
Partnership would be required to pay income tax at corporate tax rates on its
net income, and distributions to its partners would constitute dividends that
would not be deductible in computing such Partnership's taxable income.

       INCOME TAXATION OF THE PARTNERSHIP AND ITS PARTNERS. The partners of the
Partnership are subject to taxation. The Partnership itself is not a taxable
entity for federal income tax purposes. Rather, the Company is required to take
into account its allocable share of the Partnership's income, gains, losses,
deductions and credits for any taxable year of the Partnership ending during the
taxable year of the Company, without regard to whether the Company has received
or will receive any distribution from the Partnership.

       PARTNERSHIP ALLOCATIONS. Although a partnership agreement generally will
determine the allocation of income and losses among partners, such allocations
will be disregarded for tax purposes if they do not comply with the provisions
of section 704(b) of the Code and the Treasury regulations promulgated
thereunder. If an allocation is not recognized for federal income tax purposes,
the item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to such item. The Partnership's allocations of
taxable income, gain and loss are intended to comply with the requirements of
section 704(b) of the Code and the Treasury regulations promulgated thereunder.

       TAX ALLOCATIONS WITH RESPECT TO CONTRIBUTED PROPERTIES. Pursuant to
section 704(c) of the Code, income, gain, loss and deduction attributable to
appreciated or depreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated in a manner such
that the contributing partner is charged with, or benefits from, respectively,
the unrealized gain or unrealized loss associated with the property at the time
of the contribution. The amount of such unrealized gain or unrealized loss is
generally equal to the difference between the fair market value of contributed
property at the time of contribution and the adjusted tax basis of such property
at the time of contribution (a "Book-Tax Difference"). Such allocations are
solely for federal income tax purposes and do not affect the book capital
accounts or other economic or legal arrangements among the partners. The
Partnership was formed by way of contributions of appreciated property and has
received contributions of appreciated property since the Company's formation.
Consequently, the Partnership Agreement requires such allocations to be made in
a manner consistent with section 704(c) of the Code.

       In general, the partners who contribute property to the Partnership will
be allocated depreciation deductions for tax purposes which are lower than such
deductions would be if determined on a pro rata basis. In addition, in the event
of the disposition of any of the contributed assets (including the Properties)
which have a Book-Tax Difference, all income attributable to such Book-Tax
Difference will generally be allocated to the contributing partners

                                     - 35 -
<PAGE>   40

and the Company will generally be allocated only its share of capital gains
attributable to appreciation, if any, occurring after the closing of the
Offering. This will tend to eliminate the Book-Tax Difference over the life of
the Partnership. However, the special allocation rules of Section 704(c) do not
always entirely eliminate the Book-Tax Difference on an annual basis or with
respect to a specific taxable transaction such as a sale. Thus, the carryover
basis of the contributed assets in the hands of the Partnership will cause the
Company to be allocated lower depreciation and other deductions, and possibly an
amount of taxable income in the event of a sale of such contributed assets in
excess of the economic or book income allocated to it as a result of such sale.
This may cause the Company to recognize taxable income in excess of cash
proceeds, which might adversely affect the Company's ability to comply with the
REIT distribution requirements. See "-- Taxation of the Company -- Distribution
Requirements." The foregoing principles also apply in determining the earnings
and profits of the Company for purposes of determining the portion of
distributions taxable as dividend income. The application of these rules over
time may result in a higher portion of distributions being taxed as dividends
than would have occurred had the Company purchased the contributed assets at
their agreed values.

       The U.S. Treasury has issued regulations requiring partnerships to use a
"reasonable method" for allocating items affected by section 704(c) of the Code
and outlining several reasonable allocation methods. The general partner of the
Partnership has the discretion to determine which of the methods of accounting
for Book-Tax Differences (specifically approved in the Treasury Regulations)
will be elected with respect to any properties contributed to the Partnership.
The Partnership generally has elected to use the "traditional method with
ceiling rule" for allocating Code section 704(c) items with respect to the
properties that it acquires in exchange for units. The use of this method may
result in the Company being allocated less depreciation, and therefore more
taxable income in a given year than would be the case if a different method for
eliminating the Book-Tax Difference were chosen. If this occurred, a larger
portion of shareholder distributions would be taxable income as opposed to the
return of capital that might arise if another method were used. The Company has
not determined which method of accounting for Book-Tax Differences will be
elected for properties contributed to the Partnership in the future.

       BASIS IN PARTNERSHIP INTEREST. The Company's adjusted tax basis in its
partnership interest in the Partnership generally is equal to (1) the amount of
cash and the basis of any other property contributed to the Partnership by the
Company, (2) increased by (A) its allocable share of the Partnership's income
and (B) its allocable share of indebtedness of the Partnership, and (3) reduced,
but not below zero, by (A) the Company's allocable share of the Partnership's
loss, and (B) the amount of cash distributed to the Company, and (C)
constructive distributions resulting from a reduction in the Company's share of
indebtedness of the Partnership.

       If the allocation of the Company's distributive share of the
Partnership's loss would reduce the adjusted tax basis of the Company's
partnership interest in the Partnership below zero, the recognition of such loss
will be deferred until such time as the recognition of such loss would not
reduce the Company's adjusted tax basis below zero. To the extent that the
Partnership's distributions, or any decrease in the Company's share of the
indebtedness of the Partnership (such decrease being considered a constructive
cash distribution to the partners), would reduce the Company's adjusted tax
basis below zero, such distributions (including such constructive distributions)
would constitute taxable income to the Company. Such distributions and
constructive distributions normally will be characterized as capital gain, and,
if the Company's interest in the Partnership has been held for longer than the
long-term capital gain holding period (currently one year), the distributions
and constructive distributions will constitute long-term capital gain.

       SALE OF THE PARTNERSHIP'S PROPERTY. Generally, any gain realized by the
Partnership on the sale of property held by the Partnership for more than one
year will be long-term capital gain, except for any portion of such gain that is
treated as depreciation or cost recovery recapture. Any gain recognized by the
Partnership on the disposition of contributed properties will be allocated first
to the partners of the Partnership under section 704(c) of the Code to the
extent of their "built-in gain" on those properties for federal income tax
purposes. The partners' "built-in gain" on the contributed properties sold will
equal the excess of the partners' proportionate share of the book value of those
properties over the partners' tax basis allocable to those properties at the
time of the sale. Any remaining gain recognized by the Partnership on the
disposition of the contributed properties, and any gain recognized by the
Partnership on the disposition of the other properties, will be allocated among
the partners in accordance with their respective percentage interests in the
Partnership.

       The Company's share of any gain realized by the Partnership on the sale
of any property held by the Partnership as inventory or other property held
primarily for sale to customers in the ordinary course of the Partnership's

                                     - 36 -
<PAGE>   41

trade or business will be treated as income from a prohibited transaction that
is subject to a 100% penalty tax. Such prohibited transaction income also may
have an adverse effect upon the Company's ability to satisfy the income tests
for REIT status. See "-- Requirements for Qualification -- Income Tests." The
Company, however, does not presently intend to allow the Partnership to acquire
or hold any property that represents inventory or other property held primarily
for sale to customers in the ordinary course of the Company's or the
Partnership's trade or business.

                              SELLING SHAREHOLDERS

       The selling shareholders will have received any common shares they may
offer for sale under our prospectus by redeeming units received in connection
with the contribution of certain properties to the Partnership. Under the
Partnership Agreement, the holder of 5,133 units has the right to redeem 2,567
units beginning January 8, 2000 and the remaining 2,566 units beginning January
8, 2001, and the holders of 1,146,803 units have the right to redeem their units
beginning January 31, 2001. If one or more unitholders request redemption by the
Partnership, we may assume the obligation of the Partnership and may elect to
purchase the units with common shares or with cash.

       The following table lists the selling shareholders and the number of
common shares that would be issued and could be resold if the units they hold
were redeemed for common shares. We are registering our common shares under
registration rights granted to such holders in the Partnership Agreement.

<TABLE>
<CAPTION>
    SELLING SHAREHOLDER                                                                             SHARES (1)
----------------------------                                                                    --------------------
<S>                                                                                            <C>
Harver Company Inc.                                                                                   467,276(2)
Mark Miller                                                                                           307,342(2)
MarKat Company, LLC                                                                                   189,192(2)
Auffenberg Belleville, LLC                                                                            112,335(3)
Mark Miller Pontiac, Inc.                                                                              70,658(2)
M.B. Holdings, L.P.                                                                                     2,566(4)
                                                                                                --------------------
                                                                                                    1,149,369
</TABLE>

------------------
(1)    At our option, the units can be redeemed for common shares on a
       one-for-one basis, subject to adjustment. The number of common shares
       that could be issued to holders of units on redemption will be adjusted
       in the event of stock splits, stock dividends, issuance of certain
       rights, certain extraordinary transactions and similar events. 2,566 of
       the units became eligible for redemption on January 8, 2001. The
       remaining 1,146,803 units first become eligible for redemption on January
       31, 2001.
(2)    The units to which these common shares relate were issued on November 5,
       1999.
(3)    The units to which these common shares relate were issued on September
       10, 1999.
(4)    The units to which these common shares relate were issued on January 8,
       1999.

                              PLAN OF DISTRIBUTION

       This prospectus relates to our offering of up to 1,149,369 common shares
if, and to the extent that, holders of up to 1,149,369 units tender such units
for redemption. The registration of these common shares does not necessarily
mean that we will issue any of these shares, or, if issued, that the holders
will offer or sell the common shares.

       We have paid for all expenses in connection with the registration
statement. We will not pay any commissions or selling expenses in connection
with the offering and sale of the common shares covered by this registration or
the resale of those shares.

       We will not receive any proceeds from the offering and sale of our common
shares to holders on redemption of their units. We will acquire and own the
units that are redeemed for shares.

       The holders may resell any common shares on a negotiated or competitive
bid basis to or through one or more underwriters or dealers. Such shares may
also be sold directly to institutional investors or other purchasers or through
agents. To the extent required by law, any underwriter, dealer or agent involved
in the offer and sale of such shares, and any applicable commissions, discounts
and other items constituting compensation to such under-

                                     - 37 -
<PAGE>   42

writers, dealers or agents, will be identified in a prospectus supplement. Such
common shares may be distributed from time to time in one or more transactions
at a fixed price or prices (which may be changed) or at market prices prevailing
at the time of sale, at prices related to such prevailing market prices, or at
negotiated prices.

                                  LEGAL MATTERS

       Certain legal matters in connection with any offering of securities made
by this prospectus will be passed upon for us by Shaw Pittman, a law partnership
including professional corporations. In addition, the description of federal
income tax consequences contained in this prospectus under "Federal Income Tax
Consequences" is, to the extent that it constitutes matters of law, summaries of
legal matters or legal conclusions, the opinion of Shaw Pittman.

                                     EXPERTS

       Our financial statements and schedules incorporated by reference in our
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in giving said reports.

                       WHERE YOU CAN FIND MORE INFORMATION

       We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
SEC's website at http://www.sec.gov. You may also read and copy any document we
file at the SEC's public reference rooms at:

       -      Public Reference Section
              Securities and Exchange Commission
              Room 1024, Judiciary Plaza
              450 Fifth Street, N.W.
              Washington, D.C. 20549

       -      Midwest Regional Office:
              Citicorp Center
              500 West Madison Street
              Suite 1400
              Chicago, Illinois 60661-2511

       -      Northeast Regional Office:
              7 World Trade Center
              Suite 1300
              New York, New York 10048

       Please call the SEC at 1-800-SEC-0330 for further information on public
reference rooms.

       The SEC allows us to "incorporate by reference" the information we file
with them, which means we can disclose important information to you by referring
you to those documents. The information that we incorporate by reference is an
important part of our prospectus, and all information that we will later file
with the SEC will automatically update and supersede this information. We
incorporate by reference herein the documents listed below as well as any future
filings made with the SEC under Sections 13(a), 13(c), 12, or 15(d) of the
Securities Exchange Act of 1934 until we sell all of our common shares under our
prospectus.

       -      The Company's Annual Report on Form 10-K for the fiscal year ended
              December 31, 1999 (File No. 000-23733).

       -      The Company's Quarterly Report on Form 10-Q for the quarter ended
              March 31, 2000 (File No. 000-23733).

                                     - 38 -
<PAGE>   43

       -      The Company's Quarterly Report on Form 10-Q for the quarter ended
              June 30, 2000 (File No. 000-23733).

       -      The Company's Quarterly Report on Form 10-Q for the quarter ended
              September 30, 2000 (File No. 000-23733).

       -      The description of the common shares contained in the Registration
              Statement on Form 8-A filed with the SEC on February 5, 1998 (File
              No. 000-1049316).

       -      Current Reports on Form 8-K/A filed with the SEC on January 19,
              2001, amending a Form 8-K (File No. 000-23733).

       You may request a copy of these filings at no cost, by writing or
telephoning us. Those copies will not include exhibits to those documents unless
the exhibits are specifically incorporated by reference in the documents or
unless you specifically request them. You may also request copies of any
exhibits to the registration statement. Please direct your request to:

                     Ms. Lisa M. Clements
                     Capital Automotive REIT
                     1420 Spring Hill Road, Suite 525
                     McLean, Virginia 22102
                     (703) 288-3075.

       Our prospectus and any accompanying prospectus supplement do not contain
all of the information included in the registration statement. We have omitted
certain parts of the registration statement in accordance with the rules and
regulations of the SEC. For further information, we refer you to the
registration statement, including its exhibits and schedules. Statements
contained in our prospectus and any accompanying prospectus supplement about the
provisions or contents of any contract, agreement or any other document referred
to are not necessarily complete. Please refer to the actual exhibit for a more
complete description of the matters involved. You may get copies of the exhibits
by contacting the person named above.

       You should rely only on the information in our prospectus, any prospectus
supplement and the documents that are incorporated herein by reference. We have
not authorized anyone else to provide you with different information. We are not
offering these securities in any state where the offer is prohibited by law. You
should not assume that the information in our prospectus, any prospectus
supplement or any incorporated document is accurate as of any date other than
the date of the document.

                                     - 39 -
<PAGE>   44

                             CAPITAL AUTOMOTIVE REIT

                 1,149,369 COMMON SHARES OF BENEFICIAL INTEREST
                           ($0.01 PAR VALUE PER SHARE)

                                   PROSPECTUS

                    THE DATE OF THIS PROSPECTUS IS
                                                   ----------

                                     - 40 -
<PAGE>   45

                                     PART II
                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

       The following table itemizes the expenses incurred, or to be incurred, by
the Registrant in connection with the registration and issuance of the common
shares being registered hereunder. As indicated below, all amounts shown are
estimates except for the SEC registration fee.

<TABLE>
<CAPTION>
<S>                                                                           <C>
          Registration Fee -- SEC...........................................        $4,086
          Printing and Engraving Expenses...................................         5,000*
          Accounting Fees and Expenses......................................         3,000*
          Legal Fees and Expenses...........................................        20,000*
          Blue Sky Fees and Expenses........................................             0*
          Miscellaneous (including listing fees)............................        10,000*
                                                                              ---------------

                     Total..................................................       $42,086*
                                                                              ===============
          -------------
          * Estimate
</TABLE>

ITEM 15. INDEMNIFICATION OF TRUSTEES AND OFFICERS

       Our Declaration of Trust and Bylaws authorize us to indemnify our present
and former trustees and officers and to pay or reimburse expenses for such
individuals in advance of the final disposition of a proceeding to the maximum
extent permitted from time to time under Maryland law. The Maryland General
Corporation Law, as applicable to Maryland real estate investment trusts,
currently provides that indemnification of a person who is a party, or
threatened to be made a party, to legal proceedings by reason of the fact that
such a person is or was a trustee, officer, employee or agent of a corporation,
or is or was serving as a trustee, officer, employee or agent of a corporation
or other firm at the request of a corporation, against judgments, fines,
penalties, amounts paid in settlement and reasonable expenses, is mandatory in
certain circumstances and permissive in others, subject to authorization by the
board of trustees, a committee of the board of trustees consisting of two or
more trustees not parties to the proceeding (if there does not exist a majority
vote quorum of the board of trustees consisting of trustees not parties to the
proceeding), special legal counsel appointed by the board of trustees or such
committee of the board of trustees, or by the shareholders, so long as it is not
established that the act or omission of such person was material to the matter
giving rise to the proceedings and was committed in bad faith, was the result of
active and deliberate dishonesty, involved such person receiving an improper
personal benefit in money, property or services, or, in the case of criminal
proceedings, such person had reason to believe that his or her act or omission
was unlawful. Our officers and trustees are also indemnified pursuant to the
Partnership Agreement and their respective employment agreements, which
agreements are filed as exhibits hereto. We intend to purchase an insurance
policy which purports to insure our officers and trustees against certain
liabilities incurred by them in the discharge of their functions as such
officers and trustees, except for liabilities resulting from their own
malfeasance.

ITEM 16. EXHIBITS

  Number      Description

   3.1        Amended and Restated Declaration of Trust of Capital Automotive
              REIT (previously filed as Exhibit 3.1 to the Company's
              Registration Statement on Form S-11 filed with the SEC on November
              26, 1997, as subsequently amended (File No. 333-41183) (the
              "Registration Statement on Form S-11") and incorporated herein by
              reference)

   3.2        Amended and Restated Bylaws of Capital Automotive REIT, as amended
              (previously filed as Exhibit 3.2 to the Company's Annual Report on
              Form 10-K for the year ended December 31, 1999 (File No.
              000-23733) and incorporated herein by reference)

                                     - 41 -
<PAGE>   46

  Number      Description

   4.1        Specimen of certificate representing common shares of beneficial
              interest (previously filed as Exhibit 4.2 to the Registration
              Statement on Form S-11 and incorporated herein by reference)

   4.5        Form of Share Warrant (previously filed as Exhibit 3.2 to the
              Company's Registration Statement on Form S-3 filed with the SEC on
              March 2, 1999 (File No. 333-73183) (the "Unit Redemption
              Registration Statement on Form S-3") and incorporated herein by
              reference)

   5.1*       Opinion of Shaw Pittman regarding the validity of the Offered
              Securities being registered

   8.1*       Opinion of Shaw Pittman regarding certain federal income tax
              matters

  10.43       Second Amended and Restated Partnership Agreement of Capital
              Automotive L.P. (previously filed as Exhibit 10.43 to the Unit
              Redemption Registration Statement on Form S-3 and incorporated
              herein by reference)

  23.1*       Consent of Shaw Pittman (included as part of Exhibits 5.1 and 8.1)

  23.2*       Consent of Arthur Andersen LLP

  25          Power of Attorney (included on signature page)

-----------------
* Included with this filing.

ITEM 17. UNDERTAKINGS.

       (a)    The undersigned registrants hereby undertake:

              (1)    To file, during any period in which offers or sales are
       being made, a post-effective amendment to this registration statement:

                     (i)    To include any prospectus required by Section
              10(a)(3) of the Securities Act of 1933;

                     (ii)   To reflect in the prospectus any acts or events
              arising after the effective date of the registration statement (or
              the most recent post-effective amendment thereof) which,
              individually or in the aggregate, represent a fundamental change
              in the information set forth in the registration statement;
              notwithstanding the foregoing, any increase or decrease in volume
              of securities offered (if the total dollar value of securities
              offered would not exceed that which was registered) and any
              deviation from the low or high end of the estimated maximum
              offering range may be reflected in the form of prospectus filed
              with the SEC pursuant to Rule 424(b) if, in the aggregate, the
              changes in volume and price represent no more than a 20% change in
              the maximum aggregate offering price set forth in "Calculation of
              Registration Fee" table in the effective registration statement;
              and

                     (iii)  To include any material information with respect to
              the plan of distribution not previously disclosed in the
              registration statement or any material change to such information
              in the registration statement;

provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) herein do not apply
if the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished to the
SEC by the undersigned registrant(s) pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.

              (2)    That, for the purpose of determining any liability under
       the Securities Act of 1933, each such post-effective amendment shall be
       deemed to be a new registration statement relating to the securities

                                     - 42 -
<PAGE>   47

       offered therein, and the offering of such securities at that time shall
       be deemed to be the initial bona fide offering thereof.

              (3)    To remove from registration by means of a post-effective
       amendment any of the securities being registered which remain unsold at
       the termination of the offering.

       (b)    The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

       (c)    Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrants pursuant to the provisions described under Item 15
above, or otherwise, the registrant has been advised that in the opinion of the
SEC such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
respective registrant of expenses incurred or paid by a director, officer, or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, such registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.

                                     - 43 -
<PAGE>   48

                                   SIGNATURES

         Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the County of Fairfax, Commonwealth of Virginia, on January
19, 2001.

                                 CAPITAL AUTOMOTIVE REIT

                                 By:      /s/ Thomas D. Eckert
                                          -----------------------------------
                                          Thomas D. Eckert
                                          President and Chief Executive Officer

                                POWER OF ATTORNEY

       Each person whose signature appears below hereby constitutes and appoints
each of Thomas D. Eckert and David S. Kay as his attorney-in-fact and agent,
with full power of substitution and resubstitution for him in any and all
capacities, to sign any or all amendments or post-effective amendments to this
Registration Statement, or any Registration Statement for the same offering that
is to be effective upon filing pursuant to Rule 462(b) under the Securities Act
of 1933, and to file the same, with exhibits thereto and other documents in
connection therewith or in connection with the registration of the securities
under the Securities Act of 1934, as amended, with the Securities and Exchange
Commission, granting unto such attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
in connection with such matters and hereby ratifying and confirming all that
such attorney-in-fact and agent or his substitutes may do or cause to be done by
virtue hereof.

       Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities indicated.

<TABLE>
<CAPTION>

               SIGNATURE                                         TITLE                              DATE
<S>                                            <C>                                          <C>
/s/ Thomas D. Eckert                           President and Chief Executive                 January 19, 2001
-----------------------------------------      Officer and Trustee (principal
Thomas D. Eckert                               executive officer)

/s/ David S. Kay                               Vice President and Chief Financial            January 19, 2001
-----------------------------------------      Officer (principal financial and
David S. Kay                                   accounting officer)

/s/ Craig L. Fuller                            Trustee                                       January 19, 2001
-----------------------------------------
Craig L. Fuller

/s/ David Gladstone                            Trustee                                       January 19, 2001
-----------------------------------------
David Gladstone

/s/ William E. Hoglund                         Trustee                                       January 19, 2001
-----------------------------------------
William E. Hoglund

</TABLE>

                                     - 44 -
<PAGE>   49

<TABLE>
<S>                                            <C>                                            <C>
/s/ R. Michael McCullough                      Trustee                                        January 19, 2001
-----------------------------------------
R. Michael McCullough

/s/ Lee P. Munder                              Trustee                                        January 19, 2001
-----------------------------------------
Lee P. Munder

/s/ John J. Pohanka                            Trustee                                        January 19, 2001
-----------------------------------------
John J. Pohanka

/s/ John E. Reilly                             Trustee                                        January 19, 2001
-----------------------------------------
John E. Reilly

/s/ Robert M. Rosenthal                        Trustee                                        January 19, 2001
-----------------------------------------
Robert M. Rosenthal

/s/ Vincent A. Sheehy                          Trustee                                        January 19, 2001
-----------------------------------------
Vincent A. Sheehy

</TABLE>

                                     - 45 -


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