In a bid to form alliances with growing dealership chains, Capital Automotive REIT has agreed to buy $72.8 million in real estate from two publicly held dealership groups.
Group 1 Automotive Inc. and two dealers who sold out to the corporation have agreed to sell 14 dealership properties in Colorado, New Mexico and Texas to Capital Automotive REIT for $55 million in cash.
Lithia Properties LLC, which is owned by Sid DeBoer, chairman of Lithia Motors Inc., of Medford, Ore., has agreed to sell six dealership properties in Oregon to Capital Automotive for $17.8 million.
Capital Automotive REIT, a McLean, Va.-based real estate investment trust set up to acquire car dealership properties, will lease back the properties to Group 1 and Lithia.
The arrangements benefit both the REIT and the dealership groups.
Capital Automotive wants relationships with growth-oriented chains as a steady source of prime real estate. And public dealers often would rather lease than own property.
'We want to take the real estate off our balance sheet,' said Ben Hollingsworth, Group 1's chairman. We're much better off having the money to invest in more dealerships. We will get a much higher return.'
Lithia and Group 1 already have access to plenty of capital. Group 1 just obtained a $425 million credit line for acquisitions from a 12-bank syndicate. And Lithia has received a $75 million line of credit for acquisitions from Ford Motor Credit Co.
'It's not that these groups need the cash,' said David Kay, Capital Automotive's CFO. 'They just don't want to be in the business of owning real estate.'
Group 1 has negotiated 30-year leases on the properties with termination options at 15, 20 and 25 years. The Houston-based dealership group plans to use the proceeds to pay off $9.3 million in long-term debt and to fund future acquisitions.
The terms of Lithia's leases were undisclosed.
Group 1 holds 57 dealership franchises in 30 stores and owns 12 collision service centers in Colorado, Florida, Georgia, New Mexico, Oklahoma and Texas. Its pro forma annual revenue is $1.8 billion. Lithia holds 56 franchises in 28 stores in California, Oregon, Washington and Nevada. Its pro forma annual revenue is $820 million.
Although at least four real estate investment trusts buy car dealership real estate, Capital Automotive REIT, a publicly held trust, has been the most active in doing so. Capital Automotive owns 135 dealership properties in 18 states, excluding the real estate it is purchasing from Lithia and Group 1.