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Virginia firm to buy Lithia Motors land

Auto dealerships will pay rent on property and operate as before, says Lithia's CEO

A Virginia company is buying the land under Lithia Motors' six dealerships in Medford and Grants Pass.

Capital Automotive REIT, a publicly held real estate investment trust, will buy the 19.62 acres for $17.8 million in cash and then lease the land back to Lithia.

The sale, announced Monday, will have no visible effect on the dealerships, which Lithia Motors will continue to own and run.

There is nothing at Lithia changing, period, said Sid DeBoer, Lithia's chief executive officer.

The land is owned by Lithia Properties, a privately held affiliate of publicly traded Lithia Motors. DeBoer, the head of both companies, said the $17.8 million will be used to pay off the private company's debt on the property.

Lithia Properties has been the landlord of the Medford and Grants Pass dealerships since before Lithia Motors went public in 1996.

As part of the deal, Lithia Motors gets a 12-year lease on the properties with eight 5-year options after that.

We could be here 52 years at least, and that's the plan, DeBoer said.

The new lease arrangement will save Lithia Motors some $800,000 over the first 12 years alone, DeBoer estimated. The previous lease had a cost-of-living-based increase while the new one increases at a lower fixed rate.

DeBoer said selling the land has long been part of the company's plan. Lithia Properties will have very little real estate after the deal closes and could be phased out altogether.

The land that Lithia has acquired since it went public is held by Lithia Real Estate Inc., a part of the publicly held company. Lithia Motors has grown from five dealerships to 28 since going public.

Capital Automotive REIT owns 113 auto dealership properties in 18 states. The company closed $63.6 million in acquisitions of 17 other dealership properties on Monday. In addition to announcing the deal with Lithia, the company also announced a $55 million acquisition of 14 dealerships from Group — Automotive Inc.

Despite the heavy activity, there was little change in the stock price of either Capital Auto or Lithia on Monday. Lithia Motors (LMTR) finished down 12.5 cents per share at $15.125, while Capital Auto (CARS) finished up 12.5 per share at $13.625.

Lithia Motors has been mentioned as part of merger rumors in recent weeks, reports the company has steadfastly denied. The Wall Street Journal reported in its Heard on the Street column that Lithia was holding talks with New York-based United Auto Group.

DeBoer responded to the rumors late last week in a statement that said, No acquisition agreement exists nor are negotiations being held between the two companies.

The company has made it clear that it intends to be an acquirer of properties and has no intention of being acquired.

Lithia's fourth-quarter performance is expected to be strong, according to DeBoer's estimates. He said the company has more than $145 million available for acquisitions over the next two years.

Lithia is well-positioned to continue to successfully execute its plan of growing earnings per share by 20-25 percent per year over the coming five- to 10-year period, DeBoer said.