Capital Automotive REIT Accepts $3.4 Billion Buyout

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By Terence O'Hara
Washington Post Staff Writer
Wednesday, September 7, 2005

Capital Automotive REIT, a real estate company founded seven years ago by a group of local car dealers as a way to turn the land under their lots into cash, has agreed to a $3.4 billion buyout offer from a group of private investors.

Robert M. Rosenthal and John J. Pohanka, the co-founders whose Washington area dealership properties were among the first assets of the company, will reap millions in the deal. Rosenthal's common stock is worth more than $105 million, and Pohanka's is worth more than $48 million, according to Securities and Exchange Commission filings. Rosenthal declined to comment, and Pohanka could not be reached yesterday.

Shareholders of the McLean-based company, which has expanded rapidly in recent years and now owns the land under more than 300 dealerships around the country, will receive $38.75 a share, or about $1.8 billion.

The buyers, a group of unidentified investors advised by New York real estate firm DRA Advisors LLC, will also assume preferred shares and more than $1 billion of debt, making the total deal value about $3.4 billion.

Analysts had been predicting Capital Automotive's growth rate would slow this year after two years of rapid acquisitions. The purchase price was more than a dollar less than its 52-week high of $40.42 set in July, and only 9 percent higher than Capital Automotive's closing price on Sept. 2. After the deal was announced yesterday, the stock closed at $38.45, up $2.91.

Friedman, Billings, Ramsey Group Inc. analyst Merrill Ross said the offer was "a bit low" but is unlikely to be topped by another bidder.

Citigroup real estate analyst Jonathan Litt said another bid was unlikely given a $40 million "breakup fee" should Capital Automotive decide to back out of the deal.

"We strongly believe that this transaction provides substantial value to our shareholders and is in their best interests," chief executive Thomas D. Eckert said in a written statement.

DRA officials declined to comment.

Eckert and four other senior executives agreed to sign new three-year employment agreements with the new owners. The top five officers stand to earn up to $14 million under the agreements. Also, Citigroup's Litt estimates that the company's management will get more than $20 million in payouts for restricted stock awarded as part of their incentive pay over the years.

Capital Automotive went public in February 1998. The company's business model is simple: Car dealers swap the properties under their dealerships for cash and Capital Automotive stock. The company then leases the property and buildings back to the dealer.

Capital Automotive provided cash for independent dealers as they struggled to compete with the growth of national auto dealership chains while still giving them the freedom to operate their own business. It proved a powerful sell to hundreds of dealers around the country. Capital Automotive has spent $2.5 billion to buy 345 properties in 32 states, with most of the dealerships in the southern half of the country. The company spent more than $200 million on new acquisitions in the second quarter alone.

While Capital Automotive is the only publicly traded real estate investor targeting car dealerships, competition in the space has been growing. Dallas real estate giant Staubach Co. formed a partnership last year, called AutoStar, to begin offering real estate financing to dealerships.


© 2005 The Washington Post Company

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