First Capital Realty Inc. Annual Report 2001

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FY2001 Annual Report · First Capital Realty Inc.

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FIRST CAPITAL REALTY INC.

BCE PLACE, CANADA TRUST TOWER

161 BAY STREET, SUITE 2820, P.O. BOX 219

TORONTO, ONTARIO M5J 2S1

WWW.FIRSTCAPITALREALTY.CA

FIRST CAPITAL REALTY INC.

annual repor t 2001

C O R P O R AT E P R O F I L E

FIRST CAPITAL REALTY INC. (TSX:FCR)

is a growth-oriented, publicly traded real estate investment company
that concentrates on the ownership of neighbourhood and community
shopping centres in high-growth areas in Canada and the United States.

The Company’s primary investment objective is the creation of value
through long-term maximization of cash flow and capital appreciation
from its growing shopping centre portfolio. In Canada this objective
is achieved by proactively managing the existing shopping centre
portfolio, by seeking appropriate opportunistic acquisitions and by
undertaking selective development activities. In the United States
the Company is active through its holdings in Equity One, Inc., a publicly
traded real estate investment trust (NYSE:EQY). First Capital Realty is
managed by experienced real estate professionals who have a significant
interest in creating long-term value for all shareholders. First Capital's
common shares, convertible debentures, debentures and warrants
trade on The Toronto Stock Exchange.

TA B L E O F C O N T E N T S

Standing: Derek Hull, Director of Asset Management & Development; Monique Dubord,
Director of Leasing; Francois LeRouzes, Director of Asset Management & Development;
Chaim Katzman, Chairman; Ron Marek, Controller.
Seated: Frank Bucys, Chief Financial Officer; Sylvie Lachance, Executive Vice-President;
Dori Segal, President & C.E.O.; Alexandra Correia, Assistant Secretary.

FINANCIAL HIGHLIGHTS 1 / MESSAGE TO SHAREHOLDERS 2
CANADIAN OPERATIONS 4 / SHOPPING CENTRE PORTFOLIO 6
MANAGEMENT’S DISCUSSION & ANALYSIS 8
MANAGEMENT’S RESPONSIBILITY 20
CONSOLIDATED FINANCIAL STATEMENTS 21
CORPORATE INFORMATION 43 / SHAREHOLDER INFORMATION 44

C O R P O R AT E P R O F I L E

F I N A N C I A L H I G H L I G H T S

( I N T H O U S A N D S O F D O L L A R S E X C E P T P E R S H A R E A M O U N T S )

FIRST CAPITAL REALTY INC. (TSX:FCR)

TA B L E O F C O N T E N T S

FINANCIAL HIGHLIGHTS 1 / MESSAGE TO SHAREHOLDERS 2
CANADIAN OPERATIONS 4 / SHOPPING CENTRE PORTFOLIO 6
MANAGEMENT’S DISCUSSION & ANALYSIS 8
MANAGEMENT’S RESPONSIBILITY 20 / AUDITORS’ REPORT 21
CONSOLIDATED FINANCIAL STATEMENTS 22
CORPORATE INFORMATION 43 / SHAREHOLDER INFORMATION 44

INCOME STATEMENT
Gross rental income
Earnings (loss)

Per common share
Per diluted common share

Funds from operations before provision for/recovery of
previous management's incentive and other
fees and termination of advisory services

Per common share
Per diluted common share

Funds from operations
Per common share
Per diluted common share
Company’s share of Equity One’s
unremitted funds from operations
Dividends declared per common share

BALANCE SHEET
Total assets
Total liabilities
Shareholders’ equity

COMMON SHARES
Weighted average number outstanding
Outstanding at December 31

2001

2000

1999

1998

1997

$ 140,680
31,495
$
1.09
$
1.04
$

$ 147,893
$ (15,171)
(1.93)
$
(1.93)
$

$ 136,827
11,233
$
(0.17)
$
(0.17)
$

$ 112,599
16,662
$
0.45
$
0.45
$

$
$
$
$
$
$

$
$

37,905
2.46
1.31
46,443
3.02
1.57

1,293
0.99

$
$
$
$
$
$

$
$

43,260
2.85
1.48
(6,865)
(0.45)
(0.45)

----
0.93

$
$
$
$
$
$

$
$

44,923
3.10
1.57
18,073
1.25
0.77

----
0.89

$
$
$
$
$
$

$
$

36,589
2.62
1.46
36,589
2.62
1.46

----
0.85

$
$
$
$

$
$
$
$
$
$

$
$

71,798
10,020
0.47
0.47

21,311
1.59
1.22
21,311
1.59
1.22

----
0.81

$ 988,539
$ 578,968
$ 409,571

$1,137,516
$ 740,839
$ 396,677

$1,085,043
$ 663,505
$ 421,538

$1,008,847
$ 575,806
$ 433,041

$ 638,735
$ 422,463
$ 216,272

15,377,001
15,377,024

15,200,291
15,376,986

14,469,728
15,070,323

13,947,169
14,307,706

13,387,996
13,455,501

FUNDS FROM OPERATIONS
(in millions of dollars)

4
.
6
4
$

6
.
6
3
$

3
1
2
$

1
8
1
$

)
5
6
8
6
(
$

1997

1998

1999

2000

2001

(10)

TOTAL ASSETS
(in millions of dollars)

GROSS LEASABLE AREA - CANADA
(in millions of square feet)

1,500

1,200

900

600

300

9
0
0
1
$

5
8
0
1
$

8
3
1
1
$

9
8
9
$

9
3
6
$

1997

1998

1999

2000

2001

9
4

1
5

4
5

0
6

1997

1998

1999

2000

2001

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

M E S S A G E T O S H A R E H O L D E R S

FOR FIRST CAPITAL REALTY, 2001 WAS A YEAR OF TRANSITION. WE WERE

BUSY PRIMARILY MAKING THE COMPANY BETTER FOCUSED ON ITS CORE

BUSINESS. TODAY WE ARE A GROWTH-ORIENTED, CANADIAN PUBLIC REAL

ESTATE INVESTMENT COMPANY WITH A SIGNIFICANT STAKE IN A U.S. REIT.

During the year we completed the assembly of our new
management team. In the first full year of operations
under new management, the Company achieved some
significant milestones. We:

• Assessed and reevaluated our portfolio;
• Exchanged our U.S. portfolio of shopping centres

for a significant holding in Equity One;

• Obtained a US$70 million credit facility secured

against the Equity One shares;

• Resolved issues with former management;
• Invested approximately $170 million over the
past 15 months in properties, redevelopment and
land for development; and

• Generated funds from operations in 2001 totalling
$46.4 million, compared to an outflow of $6.9
million in the prior year.

I believe that we had solid progress in 2001, making
the Company much simpler for us to manage and for
you to understand and placing it on a firmer foundation
for growth. Our continuing objective is to maximize
long-term cash flow and capital appreciation from our
growing portfolio of shopping centres. We plan to
achieve this in three ways:

• Active management of our existing portfolio;
• A focused and disciplined acquisition strategy; and
• Selective development and redevelopment activities.

I would like to emphasize that we take a long-term
view of value creation, in our portfolio and ultimately
for our shareholders.

In 2001 we resolved issues with former management,
having settled the Fair Value Incentive dispute for
the $9.2 million amount previously advanced. In
September, we changed the Company’s name from
Centrefund Realty Corporation to First Capital Realty
Inc., to reflect our new identity. In addition to resolving
issues regarding former management, we were very
busy taking stock of our portfolio and completing some
interesting transactions. The most noteworthy for the
Company was the sale of its U.S. assets in exchange for
an interest in Equity One.

When the new management team was put in place in
late 2000, First Capital Realty had properties located
across Canada and the United States. After a thorough
examination of our assets, we decided to better focus
our resources in Canada and join forces with a local
management team south of the border. In September
2001, we completed the sale of Centrefund Realty
(U.S.) Corporation, which held our U.S. portfolio of
shopping centres, to Equity One, in exchange for 10.5
million common shares of Equity One, representing a
36% stake. Equity One is a publicly traded REIT, trading
on the New York Stock Exchange under the symbol
EQY, with a market capitalization of approximately
US $450 million. Today, we own 10.9 million shares
of Equity One and we are its largest single shareholder.

Our largest shareholder, the Gazit Group, is also a
principal investor in Equity One. As a result of this
transaction, we now participate in a bigger and more
diversified U.S. portfolio with a highly experienced
local management team.

Subsequent to the Equity One transaction, our U.S.
subsidiaries obtained a US$70 million credit facility
secured against the Equity One shares. This facility
has been used to pay down debt and fund acquisitions.
We believe that we are in a good position financially
to seek out and consider additional acquisition and
development opportunities.

We have completed a number of transactions this year.
We:

• Purchased Brampton Corners for $40.8 million;
• Acquired our partner’s 50 per cent interest in five
shopping centres and two development sites for
$25.5 million;

• Acquired University Plaza and Place Cite des

Jeunes for $11.6 million;

• Purchased $4.9 million of land for development;
• Spent $28.5 million on development and

redevelopment work; and

• Subsequent

to year-end, purchased

six
shopping centres in the Greater Montreal area
for $58 million.

We also recently announced that the Company has
entered into discussions with the Gazit Group, its
largest shareholder, to acquire Gazit’s Canadian shopping
centre business. This portfolio is comprised of six
neighbourhood and community centres and two free-
standing retail buildings, with approximately 800,000
square feet of gross leasable area. These properties are
all located in the Greater Montreal area, which will
further strengthen the Company’s presence in Quebec.

First and foremost, First Capital Realty is focused on
delivering shareholder value. We will continue to
focus on internal growth and seek out new acquisition
opportunities.

Part of our long-term growth strategy is to invest, as
necessary, in our centres to add value to our portfolio.
Tenants are becoming more sophisticated and we want
to ensure that their experience in a First Capital
Realty shopping centre is a positive one. We remain
optimistic about leasing opportunities in 2002.

We intend to selectively pursue development activities,
either alone or on a joint-venture basis. Development
and redevelopment remains an important aspect of our
overall business and we expect a number of these to
come online throughout the year.

The industry is consolidating and we intend to take
advantage of new opportunities. We have a very
focused acquisition strategy and maintain a disciplined
buying approach when evaluating potential shopping
centres. Since the Company is already well diversified
geographically, we will continue to expand in markets
where we currently operate to capitalize on local market
knowledge, economies of scale, existing anchor tenant
relationships, and on management and leasing synergies.

In conclusion, I would like to take this opportunity to
thank our tenants for their business, our employees
and the property manager’s employees for their hard
work and dedication, our Board of Directors for their
guidance and counsel, and our shareholders for their
confidence in the future of our Company.

I look forward to providing you with regular updates
on our progress throughout the year.

Sincerely,

Dori J. Segal
President and Chief Executive Officer

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

M E S S A G E T O S H A R E H O L D E R S

FOR FIRST CAPITAL REALTY, 2001 WAS A YEAR OF TRANSITION. WE WERE

BUSY PRIMARILY MAKING THE COMPANY BETTER FOCUSED ON ITS CORE

BUSINESS. TODAY WE ARE A GROWTH-ORIENTED, CANADIAN PUBLIC REAL

ESTATE INVESTMENT COMPANY WITH A SIGNIFICANT STAKE IN A U.S. REIT.

During the year we completed the assembly of our new
management team. In the first full year of operations
under new management, the Company achieved some
significant milestones. We:

• Assessed and reevaluated our portfolio;
• Exchanged our U.S. portfolio of shopping centres

for a significant holding in Equity One;

• Obtained a US$70 million credit facility secured

against the Equity One shares;

• Resolved issues with former management;
• Invested approximately $170 million over the
past 15 months in properties, redevelopment and
land for development; and

• Generated funds from operations in 2001 totalling
$46.4 million, compared to an outflow of $6.9
million in the prior year.

• Active management of our existing portfolio;
• A focused and disciplined acquisition strategy; and
• Selective development and redevelopment activities.

I would like to emphasize that we take a long-term
view of value creation, in our portfolio and ultimately
for our shareholders.

We have completed a number of transactions this year.
We:

• Purchased Brampton Corners for $40.8 million;
• Acquired our partner’s 50 per cent interest in five
shopping centres and two development sites for
$25.5 million;

• Acquired University Plaza and Place Cite des

Jeunes for $11.6 million;

• Purchased $4.9 million of land for development;
• Spent $28.5 million on development and

redevelopment work; and

• Subsequent

to year-end, purchased

six
shopping centres in the Greater Montreal area
for $58 million.

First and foremost, First Capital Realty is focused on
delivering shareholder value. We will continue to
focus on internal growth and seek out new acquisition
opportunities.

I look forward to providing you with regular updates
on our progress throughout the year.

Sincerely,

Dori J. Segal
President and Chief Executive Officer

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

C A N A D I A N O P E R AT I O N S

As at December 31, 2001, First Capital Realty’s Canadian income producing shopping centre portfolio consisted of 43
properties containing approximately 6,043,000 square feet of net leasable area. The Company’s Canadian shopping
centres average 141,000 square feet in size (2000 – 158,000 square feet) and have an average net book value of $112
per square foot (2000 – $106 per square foot). As at December 31, the portfolio is summarized as follows:

(As at December 31)

2001

2000

Location
Ontario
Western Canada
Quebec
Maritimes
Total

(1) Net of anchor-owned area

Number of
Properties
22
12
6
3
43

Square
Footage(1)
(thousands)
3,661
1,722
555
105
6,043

Number of
Properties
16
11
4
3
34

Square
Footage(1)
(thousands)
3,127
1,677
458
111
5,373

ACQUISITIONS AND DISPOSITIONS
First Capital Realty acquired interests in twelve properties
or sites in 2001. Brampton Corners, a 291,000 square foot
shopping centre was purchased in February. The centre
is anchored by Wal-Mart and Fortino’s (Loblaws) both
with long term leases.

In July the Company:

• Purchased the remaining 49.9% interest in five
of our operating joint venture centres (Steeple
Hill Shopping Centre, Towerhill Centre,
Wellington Corners, West Lethbridge Towne
Centre and Longueuil Plaza) and two development
sites, as part of the Centrefund Development
Group (“CDG”) wind-up. These properties are
neighbourhood centres that are well located in
their respective communities. All of the centres
are grocery store anchored, with one of these
being tenant owned.

• Acquired and begun to develop a 12,500 square
foot strip plaza with expansion potential of an
additional 13,000 square feet in Aylmer, Quebec.
• Exercised its option to acquire the freehold interest
in the lands of Les Galeries de Repentigny for
$2.8 million.

In August, a development site, located in Gatineau,
Quebec, was acquired and construction began on a
45,000 square foot IGA supermarket anchored shopping
centre, which was completed in March 2002. The site
has expansion potential for an additional 6,000 square
feet of gross leasable area.

Place Cite des Jeunes in Hull, Quebec was purchased
in November. This 55,000 square foot neighbourhood
centre is anchored by a Metro supermarket, with a
long term lease, that will be expanded in 2002.

In December, University Plaza, a 152,000 square foot
shopping centre, was purchased in Windsor, Ontario. The
centre is anchored by both a Canadian Tire and an A&P.

Subsequent to year end, we purchased an 800,000
square foot portfolio of shopping centres in the
Montreal area from Ivanhoe Cambridge for $58 million,
including closing costs. Ten year mortgage debt of $27.4
million on four of the properties has been completed
at 7.07%. The balance of the purchase price was paid
in cash. All six of these properties are grocery store
anchored. We expect these centres to add at least $6
million to net rental income on an annualized basis.
We will continue to look for acquisitions that meet
our investment criteria.

No properties were sold in 2001.

REDEVELOPMENT AND RENOVATION
A substantial portion of the redevelopment of
Northgate Centre in Edmonton was completed in
2001. Highlights of the renovation program completed
in 2001 include the 23,500 square foot expansion of
the Zellers (in the former K-Mart location) and
demolition of the former Zellers store to allow
construction of a new 55,000 square foot Safeway.
The demolition of the existing Safeway store made
way for a new Future Shop, Lammle’s, Sport Mart and

another 15,000 square feet of tenant space. The
Zellers expansion was completed in January, the new
Safeway store opened in July and the Future Shop store
opened in November. Remaining to be completed are
the construction of the commercial retail unit space
with direct exterior access in the location of the old
Safeway store and the renovation of the interior
commercial retail unit and food court area. We
anticipate the project will be completed by the end of
the third quarter in 2002.

Construction continues on Les Galeries de Lanaudiere
in Lachenaie, Quebec. This centre, when completed,
is expected to total approximately 260,000 square feet
of net leaseable area. As at December 31, 2001
approximately 67,000 square feet of tenant space,
including Business Depot, Winners, Addition-elle and
Danier, was occupied and construction was underway
on an additional 105,000 square feet of space where
leases have been signed. Construction on the remaining
88,000 square feet of space to be leased will be undertaken
as leases are signed.

Harwood Plaza in Ajax is currently undergoing a major
renovation and expansion. The renovation program is
highlighted by the expansion of the Food Basic’s
(A&P) store and the relocation and expansion of the
Shoppers Drug Mart store. Both of these were
completed in late 2001. In addition, the entire facade
was renovated in 2001. In 2002, we expect a number of
pads will be developed and the complete restoration of
the parking facilities will occur at the centre.

Longueuil Plaza in Longueuil, Quebec, a 42,000 square
foot neighbourhood shopping centre, was completed
and fully leased in 2001. Major tenants in the centre
include Bank of Nova Scotia and Blockbuster.

2002, we will be upgrading the facades at Bridgeport
Plaza, University Plaza, Place Cite des Jeunes and La
Porte De Gatineau. We will continue to upgrade
facades and other aspects of our centres as needed in
order to ensure the long-term competitiveness of our
centres.

LEASING
Leasing activity in 2001 resulted in the completion of
net new leasing totalling 108,000 square feet of space.
This net new leasing will generate additional
minimum rent of approximately $1.7 million as
compared to $1.2 million from 2000 net new leasing
activities. In addition, lease renewals on 228,000
square feet were completed in 2001, as compared to
190,000 square feet of space in 2000. The 2001
renewals will generate annual minimum rent of almost
$3.5 million, representing an increase of 7.1% above
the pre-renewal net annual rent as compared to $2.9
million in minimum rent attributable to 2000
renewals, which represented a 0.6% increase over
pre-renewal rental rates. The occupancy level of
the portfolio, including projects currently under
redevelopment, was 93% of total net leasable area as
at December 31, 2001.

ANCHOR TENANT SALES
Anchor tenant sales are a good indicator of overall
shopping centre performance. We are pleased to report
that during 2001 our supermarket sales increased by
approximately 6% and our junior department store
sales increased by approximately 3%. The following
table outlines the average comparable anchor tenant
sales per square foot for reporting tenants by major use
category for the Company’s Canadian portfolio:

At La Porte de Gatineau the existing Future Shop is
being relocated and expanded. Construction began in
September 2001 and was completed in February 2002.

(Per Square Foot)
Food Supermarkets
Junior Department Stores

2001
$615
$216

2000
$578
$211

At Fairview Mall in St. Catharines, a new LCBO is
under construction, with completion anticipated in
the summer of 2002.

For the year ended December 31, 2001 the Company
earned $1.4 million (2000 – $1.0 million) in percentage
rent from its anchor tenants in Canada.

In addition to the ongoing redevelopment program, we
are also renovating the facades at a number of our other
centres. Facades were upgraded at Ambassador Plaza in
Windsor and Thickson Place in Whitby in 2001. In

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

C A N A D I A N O P E R AT I O N S

(As at December 31)

2001

2000

Location
Ontario
Western Canada
Quebec
Maritimes
Total

(1) Net of anchor-owned area

Number of
Properties
22
12
6
3
43

Square
Footage(1)
(thousands)
3,661
1,722
555
105
6,043

Number of
Properties
16
11
4
3
34

Square
Footage(1)
(thousands)
3,127
1,677
458
111
5,373

In July the Company:

In December, University Plaza, a 152,000 square foot
shopping centre, was purchased in Windsor, Ontario. The
centre is anchored by both a Canadian Tire and an A&P.

No properties were sold in 2001.

At La Porte de Gatineau the existing Future Shop is
being relocated and expanded. Construction began in
September 2001 and was completed in February 2002.

(Per Square Foot)
Food Supermarkets
Junior Department Stores

2001
$615
$216

2000
$578
$211

At Fairview Mall in St. Catharines, a new LCBO is
under construction, with completion anticipated in
the summer of 2002.

For the year ended December 31, 2001 the Company
earned $1.4 million (2000 – $1.0 million) in percentage
rent from its anchor tenants in Canada.

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

S H O P P I N G C E N T R E P O R T F O L I O
D E C E M B E R 3 1 , 2 0 0 1

Name and Location

ONTARIO

Cedarbrae Mall

Toronto, Ontario

Fairview Mall

St. Catharines, Ontario

Brantford Mall

Brantford, Ontario

Brampton Corners

Brampton, Ontario
Tillsonburg Town Centre
Tillsonburg, Ontario

Bridgeport Plaza

Waterloo, Ontario

Harwood Plaza
Ajax, Ontario
Queenston Place

Hamilton, Ontario

Parkway Centre

Peterborough, Ontario

Sheridan Plaza

Toronto, Ontario
Stanley Park Mall

Kitchener, Ontario

University Plaza

Windsor, Ontario
Ambassador Plaza
Windsor, Ontario
Festival Marketplace
Stratford, Ontario

Orleans Gardens

Ottawa, Ontario

Thickson Place

Whitby, Ontario

Eagleson Place

Ottawa, Ontario

Steeple Hill Shopping Centre

Pickering, Ontario

Northfield Centre

Waterloo, Ontario

Towerhill Centre

Peterborough, Ontario

Wellington Corners
London, Ontario

Delta Centre

Cambridge, Ontario

Year Built
or Acquired

Net Leasable
Area

First Capital
% Interest

First Capital
Net Interest

Major or Anchor Tenants

1996

1994

1995

2001

1994

1999

1995

1996

1997

2001

1994

1997

2000

1999

2001

1999

1998

470,000

377,000

296,000

291,000

244,000

211,000

185,000

172,000

168,000

167,000

152,000

137,000

126,000

111,000

93,000

75,000

66,000

52,000

49,000

38,000

9,000

100%

50%

100%

50%

100%

470,000

377,000

296,000

291,000

244,000

211,000

185,000

172,000

Zellers, Loblaws, Canadian Tire,
Toys 'R' Us, LCBO
Zellers, Zehrs (Loblaws), Cineplex,
A&P,
Chapters, Office Place, Kelsey’s,
Future Shop, Mark’s Work Warehouse
Wal-Mart, Zehrs (Loblaws),
Cineplex
Wal-Mart, Fortino’s (Loblaws)

Zellers, Valu-Mart (Loblaws),
Canadian Tire
Zellers, Sobeys

Food Basics (A&P),
Shoppers Drug Mart
Zellers, Office Place,
Mark’s Work Warehouse
Zellers, IGA (Sobeys)

168,000

Zellers, Food Basics (A&P)

167,000

Zellers, Zehrs (Loblaws), LCBO

152,000

137,000

A&P, Canadian Tire,
Shoppers Drug Mart
Zellers, LCBO

126,000

Zellers, Sears, Canadian Tire

55,500

Your Independent Grocer (Loblaws)

93,000

A&P, Toys 'R' Us

75,000

Loblaws

66,000

26,000

Price Chopper (Sobeys),
Shoppers Drug Mart
Sobeys, Pharma Plus

49,000

IGA (Sobeys)

38,000

Price Chopper (Sobeys)

9,000

Wendy’s

3,661,000

3,579,500

Name and Location

WESTERN CANADA

Northgate Centre

Edmonton, Alberta

South Park Centre

Edmonton, Alberta

Sherwood Towne Square
Sherwood Park, Alberta

The Village Market

Sherwood Park, Alberta

Red Deer Village

Red Deer, Alberta

Gateway Village

St. Albert, Alberta

West Lethbridge Towne Centre

Lethbridge, Alberta

Sherwood Centre

Sherwood Park, Alberta

London Place West
Calgary, Alberta

Regent Park Shopping Centre
Regina, Saskatchewan

Leduc Towne Square
Edmonton, Alberta
Registan Shopping Centre
Regina, Saskatchewan

QUEBEC

La Porte de Gatineau
Gatineau, Quebec
La Porte de Chateauguay
Chateauguay, Quebec
Les Galeries de Repentigny
Repentigny, Quebec
Les Promenades du Parc
St. Hubert, Quebec
Place Cite des Jeunes
Hull, Quebec
Longueuil Plaza

Longueuil, Quebec

MARITIMES

Cole Harbour Shopping Centre
Dartmouth, Nova Scotia

Ropewalk Lane

St. John's, Newfoundland

Highfield Park

Dartmouth, Nova Scotia

TOTAL CANADA

Year Built
or Acquired

Net Leasable
Area

First Capital
% Interest

First Capital
Net Interest

Major or Anchor Tenants

1997

1996

1997

1999

1994

1998

1997

1998

1999

1997

1999

1994

1995

1997

2001

2000

1997

517,000

378,000

135,000

113,000

109,000

107,000

78,000

76,000

71,000

66,000

46,000

26,000

100%

517,000

Zellers, Safeway, Future Shop

378,000

135,000

Zellers, Canadian Tire, Toys 'R' Us,
Office Depot, Linen’s ‘N’ Things,
Sport Chek
Zellers, Staples

113,000

Safeway, London Drugs

109,000

Mark's Work Wearhouse, Sportmart

107,000

Safeway

78,000

Safeway, Home Hardware

76,000

CIBC, Rogers Video

71,000

London Drugs

66,000

Safeway

46,000

Safeway, Canadian Tire

26,000

Safeway

1,722,000

151,000

132,000

119,000

56,000

55,000

42,000

555,000

52,000

40,000

13,000

105,000

6,043,000

100%

151,000

Loblaws, Toys 'R' Us, Future Shop

132,000

Zellers

119,000

Metro Richelieu, Pharmaprix

71.08%

39,800

IGA (Sobeys)

100%

55,000

Metro, Uniprix

42,000

Bank of Nova Scotia, Blockbuster

538,800

52,000

Sobeys, Canadian Tire

40,000

Dominion (Loblaws)

13,000

Tim Horton's, Ultramart

105,000

5,945,300

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

S H O P P I N G C E N T R E P O R T F O L I O
D E C E M B E R 3 1 , 2 0 0 1

Name and Location

ONTARIO

Cedarbrae Mall

Toronto, Ontario

Fairview Mall

St. Catharines, Ontario

Brantford Mall

Brantford, Ontario

Brampton Corners

Brampton, Ontario
Tillsonburg Town Centre
Tillsonburg, Ontario

Bridgeport Plaza

Waterloo, Ontario

Harwood Plaza
Ajax, Ontario
Queenston Place

Hamilton, Ontario

Parkway Centre

Peterborough, Ontario

Sheridan Plaza

Toronto, Ontario
Stanley Park Mall

Kitchener, Ontario

University Plaza

Windsor, Ontario
Ambassador Plaza
Windsor, Ontario
Festival Marketplace
Stratford, Ontario

Orleans Gardens

Ottawa, Ontario

Thickson Place

Whitby, Ontario

Eagleson Place

Ottawa, Ontario

Steeple Hill Shopping Centre

Pickering, Ontario

Northfield Centre

Waterloo, Ontario

Towerhill Centre

Peterborough, Ontario

Wellington Corners
London, Ontario

Delta Centre

Cambridge, Ontario

Year Built
or Acquired

Net Leasable
Area

First Capital
% Interest

First Capital
Net Interest

Major or Anchor Tenants

1996

1994

1995

2001

1994

1999

1995

1996

1997

2001

1994

1997

2000

1999

2001

1999

1998

470,000

377,000

296,000

291,000

244,000

211,000

185,000

172,000

168,000

167,000

152,000

137,000

126,000

111,000

93,000

75,000

66,000

52,000

49,000

38,000

9,000

100%

50%

100%

50%

100%

470,000

377,000

296,000

291,000

244,000

211,000

185,000

172,000

Zellers, Valu-Mart (Loblaws),
Canadian Tire
Zellers, Sobeys

Food Basics (A&P),
Shoppers Drug Mart
Zellers, Office Place,
Mark’s Work Warehouse
Zellers, IGA (Sobeys)

168,000

Zellers, Food Basics (A&P)

167,000

Zellers, Zehrs (Loblaws), LCBO

152,000

137,000

A&P, Canadian Tire,
Shoppers Drug Mart
Zellers, LCBO

126,000

Zellers, Sears, Canadian Tire

55,500

Your Independent Grocer (Loblaws)

93,000

A&P, Toys 'R' Us

75,000

Loblaws

66,000

26,000

Price Chopper (Sobeys),
Shoppers Drug Mart
Sobeys, Pharma Plus

49,000

IGA (Sobeys)

38,000

Price Chopper (Sobeys)

9,000

Wendy’s

3,661,000

3,579,500

Name and Location

WESTERN CANADA

Northgate Centre

Edmonton, Alberta

South Park Centre

Edmonton, Alberta

Sherwood Towne Square
Sherwood Park, Alberta

The Village Market

Sherwood Park, Alberta

Red Deer Village

Red Deer, Alberta

Gateway Village

St. Albert, Alberta

West Lethbridge Towne Centre

Lethbridge, Alberta

Sherwood Centre

Sherwood Park, Alberta

London Place West
Calgary, Alberta

Regent Park Shopping Centre
Regina, Saskatchewan

Leduc Towne Square
Edmonton, Alberta
Registan Shopping Centre
Regina, Saskatchewan

QUEBEC

Longueuil, Quebec

MARITIMES

Cole Harbour Shopping Centre
Dartmouth, Nova Scotia

Ropewalk Lane

St. John's, Newfoundland

Highfield Park

Dartmouth, Nova Scotia

TOTAL CANADA

Year Built
or Acquired

Net Leasable
Area

First Capital
% Interest

First Capital
Net Interest

Major or Anchor Tenants

1997

1996

1997

1999

1994

1998

1997

1998

1999

1997

1999

1994

1995

1997

2001

2000

1997

517,000

378,000

135,000

113,000

109,000

107,000

78,000

76,000

71,000

66,000

46,000

26,000

100%

517,000

Zellers, Safeway, Future Shop

378,000

135,000

Zellers, Canadian Tire, Toys 'R' Us,
Office Depot, Linen’s ‘N’ Things,
Sport Chek
Zellers, Staples

113,000

Safeway, London Drugs

109,000

Mark's Work Wearhouse, Sportmart

107,000

Safeway

78,000

Safeway, Home Hardware

76,000

CIBC, Rogers Video

71,000

London Drugs

66,000

Safeway

46,000

Safeway, Canadian Tire

26,000

Safeway

1,722,000

151,000

132,000

119,000

56,000

55,000

42,000

555,000

52,000

40,000

13,000

105,000

6,043,000

100%

151,000

Loblaws, Toys 'R' Us, Future Shop

132,000

Zellers

119,000

Metro Richelieu, Pharmaprix

71.08%

39,800

IGA (Sobeys)

100%

55,000

Metro, Uniprix

42,000

Bank of Nova Scotia, Blockbuster

538,800

52,000

Sobeys, Canadian Tire

40,000

Dominion (Loblaws)

13,000

Tim Horton's, Ultramart

105,000

5,945,300

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S O F

F I N A N C I A L C O N D I T I O N A N D R E S U LT S O F O P E R AT I O N S

BUSINESS OVERVIEW AND STRATEGY
First Capital Realty Inc. (formerly Centrefund Realty
Corporation) (“First Capital Realty”) was incorporated
under the laws of the Province of Ontario by articles
of incorporation dated November 10, 1993. The
Company, directly and through subsidiaries, invests in
community and neighbourhood shopping centres in
Canada. The Company also invests in the U.S.
through its share holding in Equity One, Inc.
(NYSE:EQY) (“Equity One”), a neighbourhood and
community shopping centre REIT that operates mainly in
Florida and Texas. The Company and Equity One are
each indirectly controlled subsidiaries of Gazit-Globe
(1982) Ltd. (“Gazit”), an Israeli corporation trading on the
Tel Aviv Stock Exchange.

The Company has experienced significant growth
through the acquisition of additional shopping centres.
Since the commencement of operations on March 29,
1994 the Company has expanded, through acquisition,
its initial portfolio of five shopping centres containing
approximately 933,000 square feet of gross leasable area to
46 properties in Canada including three under develop-
ment, with approximately six million square feet of
gross leasable area. Including properties held through
its 36% investment in Equity One, at December 31,
2001 the Company had interests in 132 properties
totalling approximately 14.6 million square feet of
gross leasable area. The Company’s growth has been
financed by mortgage and credit facility debt, three issues
of common stock and five issues of convertible debentures.

First Capital Realty owns and operates geographically
diversified neighbourhood and community-sized
shopping centres. The centres generally contain
necessities-oriented anchor tenants, such as grocery
stores, that in management’s view are less susceptible
to general economic swings. Management intends to
concentrate future acquisitions mainly on centres that
are food-anchored, in areas with high growth and in
which the Company is already active. Management
believes that there are significant synergies available
from concentrating on markets in which the Company
has a significant presence.

MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)

First Capital Realty’s primary investment objective is
the creation of value through long-term maximization
of cash flow and capital appreciation from its growing
shopping centre portfolio. This objective is achieved
by actively managing the existing shopping centre
portfolio, by a focused and disciplined acquisition
strategy and by undertaking selective development
and redevelopment activities.

On August 18, 2000, subsidiaries of Gazit purchased a
controlling interest in the Company, pursuant to the
terms of a take-over bid. In conjunction with the
change of control of the Company, a new management
team was put in place to lead the Company.

Prior to the acquisition of control, Dawsco Realty
Advisory Corporation (the “Advisor”), a private
Ontario corporation controlled by two of the
Company’s former directors, one of whom was the
Company’s Chairman, President and Chief Executive
Officer until August 18, 2000, provided services
through an advisory agreement (the “Advisory
Agreement”). The Advisor and property manager had
a number of incentives in place pursuant to advisory
and certain other agreements. On the acquisition of
control, in accordance with the terms of the Advisory
Agreement, all of the incentive fees became payable in
cash and the Advisory Agreement was terminated.

As outlined under “Previous Management’s Incentive
and Other Fees” below, current management disputed
the calculation of one of the incentives, the fair value
incentive amount. In August 2001, the fair value
incentive amount was settled at the $9.2 million
amount already advanced and this resulted in an $8.5
million reversal of the fair value incentive provision.

In 1997, the Company entered into an exclusive
partnership arrangement for the development of
neighbourhood and community shopping centres in
Canada and the United States. The partnership carried
on business under the name Centrefund Development
Group (“CDG”). On the change of control of First
Capital Realty, in accordance with the terms of the
original partnership agreement, First Capital Realty’s

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S O F

F I N A N C I A L C O N D I T I O N A N D R E S U LT S O F O P E R AT I O N S

MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)

joint venture partner in CDG had the right to acquire
CDG’s 33 optioned sites at cost. On August 18, 2000,
the 33 sites were purchased and the partnership
became non-exclusive. In July, 2001, the Company
wound-up the Canadian portion of this partnership by
acquiring its development partner’s interest in five
shopping centres and two development sites for total
consideration of $25.5 million. First Capital Realty
continues to seek out appropriate acquisition opportunities
and to develop and redevelop properties where financially
advantageous; either alone; or in the case of development
and redevelopment, with joint venture partners.

On January 31, 2002 the Company acquired a portfolio
of six neighbourhood and community shopping centres
in the greater Montreal area, with approximately
800,000 square feet of gross leaseable area. The $58
million purchase price was satisfied by ten-year mortgage
debt on four of the six centres totalling $27.4 million
at 7.07% with the balance paid in cash.

THE EQUITY ONE TRANSACTION
In September 2001, First Capital Realty completed the
sale of its wholly-owned U.S. subsidiary, Centrefund
Realty (U.S.) Corporation (“CEFUS”), to Equity One,
a self-administered and self-managed publicly traded
U.S. real estate investment trust. Equity One also
announced that it had completed its acquisition of
United Investors Realty Trust, a U.S. real estate
investment trust. As a result, First Capital Realty
became the largest single shareholder of Equity One,
owning approximately 36%, or 10.5 million common
shares.

Equity One principally acquires, renovates, develops
and manages community and neighbourhood shopping
centres anchored by national and regional supermarket
chains. As of December 31, 2001, Equity One’s portfolio
consisted of 86 shopping centres and other retail and
commercial properties. These properties are located
primarily in metropolitan areas of Florida and Texas
and contain an aggregate of approximately 8.6 million
square feet of gross leasable area.

At December 31, 2001 the Company owned 10.5 million
common shares of Equity One, approximately 36% of
its outstanding shares. At March 31, 2002 the
Company owned 10.9 million common shares of
Equity One, approximately 33% of its outstanding shares.

The transaction with Equity One serves to better focus
the Company’s resources in Canada while still allowing
it to participate in the U.S. market. In management’s
view, from a real estate perspective, the Company
exchanged a 100% ownership interest in 29 properties for
a 33% interest in 86 properties. First Capital Realty’s
United States portfolio required an experienced local
management team in order to grow and create value.
Equity One will be able to provide the appropriate
focus on these properties and the combined operation
should result in a greater realization of value from these
properties. Further, First Capital Realty will no longer
have the direct obligation to fund the capital
requirements, if any, of a U.S. portfolio.

The transaction was between parties under common
control and there was no substantive change in the
controlling interests of CEFUS. As a result, the
investment in Equity One was recorded using the
carrying amount of the Company’s net investment in
CEFUS and related transaction costs. The investment
is adjusted, under the equity basis of accounting, to
include the Company’s share of post-acquisition earnings
of Equity One and any additional contributions,
distributions or movements in the Canadian and
United States dollar exchange rate. The Company’s
share of Equity One’s unremitted funds from operations
using Canadian generally accepted accounting principles
(“GAAP”) and expressed in thousands of Canadian
dollars, which has not been included in the
Company’s funds from operations, totalled $1.3 million.

The closing price on the New York Stock Exchange of
Equity One’s common shares at December 31, 2001 was
US$13.74 per share. The book value per share of the
Company’s investment in Equity One at December 31,
2001 was US$11.41. At December 31, 2001, 28.8 million
shares of Equity One were outstanding, 10.5 million
shares of which were held by the Company.

Following the Equity One transaction, First Capital
Realty’s wholly-owned U.S. subsidiaries obtained a
US$70 million, five-year credit facility at LIBOR plus
150 basis points. The facility, which has been used to
pay down debt and fund acquisitions, is secured against
the Equity One shares.

RESULTS OF OPERATIONS
Since mid-1996, the Company has raised $360 million
through the issue of four series of convertible debentures.
As a result, as detailed in note 18 of the consolidated
financial statements, there are a substantial number of
common shares attached to the conversion rights of
the Company’s outstanding convertible debentures.
Accordingly, it is important when assessing the financial
performance of the Company to review the diluted per
share data.

The Company believes that, for public real estate
companies, funds from operations is a commonly
accepted and meaningful indicator of financial
performance. Funds from operations does not recognize
amortization as an operating expense or recognize
future income taxes until these are actually paid.

Funds from operations for the year ended December
31, 2001 totalled $46.4 million or $3.02 per common
share, compared to an outflow of $6.9 million or
$(0.45) per common share for fiscal 2000. On a diluted
basis, funds from operations were $1.57 per common
share for 2001, compared to $(0.45) in the prior year.
In 2001, funds from operations were increased by the
$8.5 million recovery of previous management’s
incentive and other fees. In the comparative year for
fiscal 2000, funds from operations were reduced by
previous management’s incentive and other fees
totalling $50.1 million. Excluding the effects of
previous management’s incentive and other fees,
funds from operations per share in 2001 were $2.46
basic and $1.31 diluted compared to $2.85 basic and
$1.48 diluted in 2000.

Net earnings for the year ended December 31, 2001
were $31.5 million, or $1.09 per share, basic and $1.04
diluted, compared to a loss of $15.2 million or a loss
per share of $1.93 per share, basic and diluted, in the
prior year.

The Company believes that the recovery of, and
provision for, previous management's incentive and
other fees described in note 16 to the consolidated
financial statements, should be considered separately,
as a non-recurring item, when evaluating the
Company's financial performance.

RENTAL INCOME
In Canada, net rental income (gross rental income net
of property operating costs) increased by $10.7 million
to $62.8 million. Canadian net rental income on a
same centre basis increased by $2.4 million or 5% over
the prior year. In Canada, the Company acquired one
property in the first quarter of 2001 for $40.8 million;
acquired its development partner’s 50% interest in five
shopping centres and two development sites for $25.5
million in the third quarter of 2001; and two other
properties in the fourth quarter of 2001 for $11.6 million.
These properties together with development and
redevelopment completed in the year contributed
$7.2 million to Canadian net rental income in 2001.
The year ended December 31, 2000 was one of transition
in which no properties were acquired. Due to their
acquisition and completion part way through the year,
the impact of the fiscal 2001 acquisitions and
developments will not be fully realized until 2002.

The Company’s business includes the redevelopment
and remerchandising of retail space. As a result, the
Company, in the normal course of operations, generates
income from payments received from tenants as
compensation for the cancellation of leases. In 2001,
the Company received Canadian net lease cancellation
payments of $2.1 million compared to $1.4 million
in 2000.

In the United States, net rental income decreased
from $40.8 million to $28.2 million, primarily as a
result of the Equity One transaction. After September
20, 2001, income from the Company’s investment in
Equity One was recorded under the caption Equity
Income from Equity One.

10 FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)

10 FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)

INTEREST, OTHER INCOME AND GAINS ON SALE
Interest, other income and gains on sale comprises the
following:

(in thousands of dollars)
Interest and other income
Gains on sale
Dividend income

2001
$ 6,022
8,070
185

2000
$ 5,306
1,326
804

Total

$ 14,277

$ 7,436

The Company earns interest income from funds
invested in three types of investments: short-term
bankers’ acceptances, advances made
the
Company’s development partner, and an investment
in a portfolio of short-term mortgages and other
receivables including a note due from a municipality.
The increase in interest and other income in 2001
results from gains of $1.5 million primarily on the
disposition of an investment in the common shares of
Revenue Properties Company Limited, a Toronto
Stock Exchange-listed company involved in the
ownership of shopping centres in Canada and the
United States, offset mainly by reduced income from
advances to its development partner in 2001 due to
the wind-up of CDG, its development joint venture.

The gains on sale in the year ended December 31,
2001 arose from the sale of the Harbour Financial
office building in Florida. In 2000, the net gains on
sale arose from the sale of two shopping centres as well
as gains generated from the sale of excess land held for
redevelopment.

Dividend income was primarily earned by the
Company on its investment in Revenue Properties
Company Limited shares prior to their disposition.

INTEREST EXPENSE ON MORTGAGES AND
CREDIT FACILITIES
Canadian interest expense on mortgages comprises the
following:

(in thousands of dollars)
Interest expensed
Interest capitalized
Total Canadian

mortgage interest

2001
$ 26,216
1,468

2000
$ 22,301
1,938

$ 27,684

$ 24,239

The increase of $3.4 million in Canadian interest on
mortgages and credit facilities in 2001 over 2000
substantially results from the increase in the level of
Canadian borrowing by the Company to fund acquisitions
and fees paid to previous management. In addition to
the $25.5 million net increase in Canadian borrowing
during 2001, the Company incurred a full year’s interest
on the mortgages financed in 2000. Partially offsetting
this was a decrease in the average interest rate paid on
the Company’s Canadian fixed rate borrowings, as
detailed on page 14 under the caption “Mortgages
Payable and Credit Facilities”, from 7.8% in 2000 to
7.6% in 2001.

United States interest expense on mortgages and credit
facilities comprises the following:

(in thousands of dollars)
Interest expensed
Interest capitalized
Total United States
mortgage interest

2001
$ 15,805
669

2000
$ 17,630
1,183

$ 16,474

$ 18,813

The reduction in interest incurred in 2001 is due
primarily to the sale of the Company’s U.S. portfolio
to Equity One in September 2001.

CORPORATE EXPENSES
Corporate expenses comprises the following:

(in thousands of dollars)
Base incentive fees paid
to former advisor

Salaries, wages and benefits
U.S. asset management fees
Capital taxes, net of

recoveries from tenants

Capitalized general and
administrative costs

Other general and

administrative costs

Total

2001

-
2,426
642

1,024

2000

$ 1,181
1,050
518

949

(776)

2,889
$ 6,981

2,367
$ 5,289

Base incentive fees paid to the Company’s Advisor
were terminated after the change in control of the
Company in 2000 and replaced by salaries and wages
of employees.

Under the terms of an asset management agreement
effective August 15, 2000, a wholly owned subsidiary
of Equity One was retained by the Company as an
asset manager of the Company’s entire United
States portfolio until November 30, 2000 and until
September 20, 2001 for the Texas portion of the portfolio.
The annualized asset management fee was 0.4% of the
book value of assets managed. Equity One earned $0.8
million in fiscal 2001 and $0.5 million in fiscal 2000
under the terms of the agreement.

In fiscal 2001, no corporate fees incurred were
capitalized to shopping centres under redevelopment
or land held for development as compared to
$0.8 million in 2000 capitalized before the change of
control.

General and administrative costs incurred in 2001
exceeded the level incurred in 2000 by $0.5 million as a
result of costs related to increased levels of acquisition
and development activity.

AMORTIZATION
Canadian asset amortization for the year ended
December 31, 2001 was $7.9 million, $1.4 million higher
than the prior year. This primarily results from
redevelopment of shopping centres in 2001 and 2000,
new acquisitions in 2001 and use of the sinking fund
method of depreciation under which amortization
expense on buildings increases by 5% per year.

U.S. asset amortization for the year ended December
31, 2001, at $5.2 million, was $0.7 million lower than
the prior year. The same factors that increased
Canadian asset amortization were more than offset by
the impact of the sale of the Company’s U.S. assets in
September 2001.

INTEREST ON DEBENTURES
Interest on the Company’s outstanding debentures
comprises the following:

(in thousands of dollars)
Interest expensed on

2001

2000

convertible debentures

$ 5,149

$ 5,821

Interest expensed
on debentures

Total debenture interest

2,859

2,862

expensed

8,008

8,683

Interest on equity component
of convertible debentures

Cash interest paid

21,663
$ 29,671

21,200
$ 29,883

Interest expensed on convertible debentures declined
in 2001 as a result of the reduction in the average liability
component of the Company’s outstanding convertible
debentures and the conversion in the prior year of $6.3
million of debentures into common shares of the
Company. This was partially offset by an increase in
interest on the equity component of the convertible
debentures.

PREVIOUS MANAGEMENT’S INCENTIVE
AND OTHER FEES
On August 18, 2000, the Gazit Group purchased a
controlling interest in the Company, pursuant to the
terms of a takeover bid (the “Offer”). Prior to this
change in control, the Advisor and Property Manager
had a number of incentives in place pursuant to advisory
and certain other agreements.

On the acquisition of control, in accordance with the
terms of the amended Advisory Agreement, all of the
incentive fees became payable in cash and the
Advisory Agreement was terminated. On termination
of the Advisory Agreement, in accordance with its
terms, the Advisor became entitled to receive a fair
value incentive amount.

Former management of the Company, which included
the Company’s former Chairman, President and Chief
Executive Officer, who also controlled the Advisor,
calculated and accrued the fair value incentive
amount to be $21.35 million. This amount was
recorded after an offer by the Gazit Group to acquire a
controlling interest in the Company in June 2000. At
December 31, 2000, $9.2 million of the fair value
incentive amount had been advanced. The fair value
incentive amount, as calculated by the Advisor, was
based on the Advisor’s estimate of the fair market
value of the Company’s shopping centre portfolio.

Current management of the Company disputed the
calculation of the fair value incentive amount. In
August 2001, the fair value incentive amount was
settled at the $9.2 million amount already advanced.
As a result, and after providing for certain Canadian
property management costs, a recovery of $8.5 million
was recorded.

The previous management’s incentive fees and certain
other costs, primarily associated with the Company’s

12 FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)

INTEREST, OTHER INCOME AND GAINS ON SALE
Interest, other income and gains on sale comprises the
following:

(in thousands of dollars)
Interest and other income
Gains on sale
Dividend income

2001
$ 6,022
8,070
185

2000
$ 5,306
1,326
804

Total

$ 14,277

$ 7,436

Dividend income was primarily earned by the
Company on its investment in Revenue Properties
Company Limited shares prior to their disposition.

INTEREST EXPENSE ON MORTGAGES AND
CREDIT FACILITIES
Canadian interest expense on mortgages comprises the
following:

(in thousands of dollars)
Interest expensed
Interest capitalized
Total Canadian

mortgage interest

2001
$ 26,216
1,468

2000
$ 22,301
1,938

$ 27,684

$ 24,239

United States interest expense on mortgages and credit
facilities comprises the following:

(in thousands of dollars)
Interest expensed
Interest capitalized
Total United States
mortgage interest

2001
$ 15,805
669

2000
$ 17,630
1,183

$ 16,474

$ 18,813

The reduction in interest incurred in 2001 is due
primarily to the sale of the Company’s U.S. portfolio
to Equity One in September 2001.

CORPORATE EXPENSES
Corporate expenses comprises the following:

(in thousands of dollars)
Base incentive fees paid
to former advisor

Salaries, wages and benefits
U.S. asset management fees
Capital taxes, net of

recoveries from tenants

Capitalized general and
administrative costs

Other general and

administrative costs

Total

2001

-
2,426
642

1,024

2000

$ 1,181
1,050
518

949

(776)

2,889
$ 6,981

2,367
$ 5,289

Base incentive fees paid to the Company’s Advisor
were terminated after the change in control of the
Company in 2000 and replaced by salaries and wages
of employees.

General and administrative costs incurred in 2001
exceeded the level incurred in 2000 by $0.5 million as a
result of costs related to increased levels of acquisition
and development activity.

INTEREST ON DEBENTURES
Interest on the Company’s outstanding debentures
comprises the following:

(in thousands of dollars)
Interest expensed on

2001

2000

convertible debentures

$ 5,149

$ 5,821

Interest expensed
on debentures

Total debenture interest

2,859

2,862

expensed

8,008

8,683

Interest on equity component
of convertible debentures

Cash interest paid

21,663
$ 29,671

21,200
$ 29,883

The previous management’s incentive fees and certain
other costs, primarily associated with the Company’s

12 FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)

consideration of the Offer, and the cost of cancelling
the property management contract for the Florida
property portfolio, in accordance with a settlement
agreement dated August 15, 2000, totalled $50.1
million, as disclosed in note 16 to the Company’s 2001
consolidated financial statements.

INCOME AND OTHER TAXES
Current taxes comprise the following:

(in thousands of dollars)
Canadian federal large
corporations tax

United States current income
and withholding taxes

Total

2001

2000

$ 1,600

$ 1,350

1,962
$ 3,562

495
$ 1,845

The increase in the Canadian federal large corporations
tax results from the increase in the size of the
Company’s capital base.

The United States current income and withholding
taxes of $2.0 million arises from income earned by the
Company’s U.S. subsidiaries. In 2000, prior year tax
losses were available to reduce the current portion of
income taxes in the United States. No further U.S tax
losses are available to offset current income tax in the
United States.

In fiscal 2001, the provision for future income taxes
amounted to $12.7 million, compared to a $2.7 million
recovery in 2000. These amounts are calculated based
on income or loss in the year. The recovery in 2000
was adversely affected by various federal and provincial
income tax rate reductions during the year, and an
impairment of certain tax losses available for carryforward.

CAPITAL STRUCTURE
The real estate business is capital-intensive by nature.
First Capital Realty focuses on its capital structure to
maintain stability and finance growth. In the real
estate industry, financial leverage tends to generate
competitive rates of return on equity. First Capital
Realty’s blend of debt and equity in its capital base
minimizes income taxes and generates acceptable
equity returns while taking into account the long-term
prospects of the Company.

MORTGAGES PAYABLE AND CREDIT FACILITIES
As at December 31, 2001 mortgages and credit facilities
payable represented 47.5% of the total book value of
the Company’s assets, excluding future income tax
assets, as compared to 53.4% in 2000. This decrease
was due to the sale of the Company’s U.S. assets to
Equity One and Equity One’s assumption of mortgages
relating to those assets.

At December 31, 2001, 81.6% of the outstanding
mortgage and credit facility liabilities bore interest at
fixed interest rates, compared to 84% in 2000. Of the
$84.9 million in floating rate financing, $80.5 million
represents financing at LIBOR plus 1.5% secured
against 10.5 million shares of Equity One.

In Canada, the Company had fixed rate mortgages
outstanding at year end totalling $359.6 million, bearing
interest at an average interest rate of 7.6% compared to
$283.0 million in outstanding mortgages with an
average interest rate of 7.8% at the end of 2000.
The increase in the outstanding balance is the net
result of $29.1 million in repayments and $105.7 million
in net new financing, primarily for acquisitions and
redevelopment.

The Company’s $190.8 million investment in Equity
One is financed, in part, by U.S.-dollar-denominated
credit facilities totalling Cdn$96.4 million. The debt
service requirements of these credit facilities are fully
funded by the cash flow generated by the dividend from
Equity One. This reduces the Company’s exposure to
fluctuations in foreign currency exchange rates.

The decrease from $259.9 million (US$173.3 million)
to $96.4 million (US$60.5 million) in the outstanding
balance of U.S. mortgages and credit facilities primarily
resulted from the assumption by Equity One of all
mortgages related to the Company’s U.S. portfolio of
assets offset by the new credit facility secured against
the Company’s investment in 10.5 million shares of
Equity One.

The Company also attempts to manage its long-term
debt by staggering maturity dates in order to mitigate
against short-term volatility in the debt markets. At

December 31, 2001, the Company had mortgages
aggregating $57.3 million maturing in 2002, of which
$39.4 million were fixed rate mortgages at an average
interest rate of 7.1%. The Company does not anticipate
any difficulty in replacing these mortgages at current
interest rates.

DEBENTURES PAYABLE
At December 31, 2001, $37.9 million of 7.5%
debentures that are not convertible into common
stock of the Company remain outstanding. These
debentures are direct subordinated obligations of the
Company that are secured by a floating charge on
four of the Company’s shopping centres and mature
on December 1, 2003.

CONVERTIBLE DEBENTURES
Long-term convertible debentures have been issued by
First Capital Realty as a tax-effective method of
financing a portion of the equity component of its
shopping centre portfolio expansion.

Accordingly, a large portion of the Company’s capital
is in the form of convertible debentures that mature
between 2006 and 2008. The debentures require
interest payable semi-annually at rates ranging from
7% to 8.5%.

After the 3.33% adjustment noted under “Issuance of
Warrants” below, holders of these debentures have the
right to convert them into an aggregate total of
18,271,786 common shares at share prices that range
from $14.98 to $24.40 per share on or before maturity.

If the holders of the debentures do not exercise their
conversion rights, the Company has the option of
repaying the debentures on maturity by way of the
issue of common shares at 95% of the then trading
price of the Company’s common stock.

The two $100 million issues of 7.0% and 7.25%
debentures completed in 1998 also provide the
Company with the option, subject to regulatory
approval, to pay semi-annual interest through the
issue of common stock.

In accordance with the recommendations of the
Canadian Institute of Chartered Accountants relating to
the presentation and disclosure of financial instruments,
each series of the Company’s convertible debentures is

presented in its debt and equity component parts,
measured at its respective issue dates, as more
thoroughly detailed in Note 1(g) to the Company’s
2001 consolidated financial statements. The details of
the Company’s outstanding convertible debentures
are summarized in Note 9 to the Company’s 2001
consolidated financial statements.

SHAREHOLDERS’ EQUITY
Shareholders’ equity amounted to $409.6 million as at
December 31, 2001, as compared to $396.7 million at the
end of 2000. Shareholders’ equity as at December 31,
2001 includes $309.7 million (2000 – $299.9 million)
which represents the equity component of convertible
debentures as discussed above.

As at December 31, 2001 the Company had
15,377,024 (2000 – 15,376,986) issued and outstanding
common shares with a stated capital of $154.5 million
(2000 – $154.5 million). During fiscal 2001, a total of
38 common shares (2000 – 573,263 common shares)
were issued in connection with the conversion of
convertible debentures. The issue of the shares in
2000 added $6.5 million to stated capital.

In addition, the Company purchased and cancelled
226,600 common shares in 2000 pursuant to its normal
course issuer bid resulting in a charge of $2.3 million
to stated capital.

Shareholders’ equity as at December 31, 2001 includes a
net cumulative unrealized currency translation adjust-
ment in the amount of $12.7 million (2000 – $11.2
million). This amount represents the difference
between the U.S. dollar exchange rate in effect at the
date of the acquisition of the Company’s U.S. net
assets, and the U.S. dollar exchange rate as at
December 31, 2001 and 2000, respectively. The U.S.
dollar exchange rate in effect at December 31, 2001
increased to US$1.00 = Cdn$1.59 from US$1.00 =
Cdn$1.50 as at December 31, 2000.

Shareholders’ equity as at December 31, 2001 includes
a deficit of $69.3 million (2000 – $70.9 million). The
Company has historically paid dividends, consistent
with general industry practice, based on cash flow
from operations as opposed to net income.

14 FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)

INCOME AND OTHER TAXES
Current taxes comprise the following:

(in thousands of dollars)
Canadian federal large
corporations tax

United States current income
and withholding taxes

Total

2001

2000

$ 1,600

$ 1,350

1,962
$ 3,562

495
$ 1,845

The increase in the Canadian federal large corporations
tax results from the increase in the size of the
Company’s capital base.

The Company also attempts to manage its long-term
debt by staggering maturity dates in order to mitigate
against short-term volatility in the debt markets. At

In addition, the Company purchased and cancelled
226,600 common shares in 2000 pursuant to its normal
course issuer bid resulting in a charge of $2.3 million
to stated capital.

14 FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)

ISSUANCE OF WARRANTS
On April 15, 2002 the Company announced the
issuance of 12,301,619 common share purchase warrants
entitling holders to acquire common shares at $11.80
per share. The warrants are exercisable during a three-
month period commencing on June 1 and ending on
August 31 in each year from 2002 to 2008, on and subject
to certain terms and conditions, and may be exercisable
in certain other limited circumstances. The issuance
of the warrants resulted in a 3.33% decrease in the
exercise price of the Company’s convertible debentures
and options.

The warrants were issued under a rights offering in
which the maximum number of warrants available
under the rights offering were subscribed by holders of
common shares. The warrants are listed for trading on
The Toronto Stock Exchange under the ticker symbol
FCR.WT.

The warrants represent an additional means of potentially
increasing the Company’s capital base over time without
incurring significant issue costs.

LIQUIDITY
Funds from operations before previous management’s
incentive and other fees totalled $37.9 million (2000
- $43.3 million). This amount was available to fund
payments on the equity portion of convertible
debentures totalling $21.7 million, pay regular debt
amortization of $10.1 million, dividends of $15.2 million
and tenant inducements of $3.3 million. The resulting net
use of cash of $12.4 million, together with the acquisition,
expansion and redevelopment of shopping centres, the
acquisition and development of land and advances to
the Company’s development partners were funded by
net mortgage refinancing, interim financing and the
Company’s credit facility, which is secured against
10.5 million common shares of Equity One.

Cash and cash equivalents were $44.0 million at
December 31, 2001 (2000 – $33.6 million).
Management believes that it has sufficient resources to
meet its operational and investing requirements in the
near and longer term.

Refinancing of projects in the coming year is expected to
add available cash. The actual level of future borrowings
will be determined based upon the level of liquidity

required, the prevailing interest rate and debt
market conditions.

DIVIDENDS
The Company has maintained a policy of paying regular
quarterly dividends to common shareholders since it
was formed in 1994. Dividends are set taking into
consideration the Company’s capital requirements and
its alternative sources of capital.

In 2001, the Company paid dividends of $0.99 per
common share (2000 - $0.93 per common share). The
dividends in 2001 represented 76% (2000 - 63%) of
the $1.31 (2000 - $1.48) the Company reported as
diluted funds from operations per share before the
recovery/ provision for previous management’s
incentive and other fees. The Company is currently
paying a quarterly dividend of $0.27 per common
share. The annual dividend has grown at a compound
rate of approximately 5% since the Company was
formed in March 1994.

RISK MANAGEMENT
First Capital Realty is exposed to numerous business
risks in the normal course of its business that can
impact both short and long-term performance. It is
the responsibility of management, under the supervision
of the Board of Directors, to identify and, to the extent
possible, mitigate or minimize the impact of all such
business risks. The major categories of risk First
Capital Realty encounters in conducting its business
and the manner in which it takes actions to minimize
their impact are outlined below.

Operating Risk
The Company’s most significant operating risk is the
potential for reductions in revenue resulting from an
inability to maintain acceptable levels of occupancy
and stable or increasing rental rates. First Capital
Realty focuses on securing retail tenants that provide
consumers with basic necessities and amenities as
distinct from those that cater to more discretionary
fashion demands. Management believes that this
makes the Company's revenues less susceptible to
general economic swings as, even during economic
downturns, consumers continue to purchase necessities
such as groceries and basic clothing.

LOCAL 14.0%

AVAILABLE 7.2%

ANCHOR,
NATIONAL AND
REGIONAL
TENANTS 78.8%

The financial success of First Capital Realty's tenants,
operating in well-located, properly maintained and
successfully merchandised and positioned properties,
will minimize the impact of this risk on the Company.
First Capital Realty seeks out tenants that are well
capitalized. First Capital Realty's lease arrangements
with many of its tenants provide for income protection
and growth through rent escalations and through a
participation in the tenants' sales success in the form of
percentage rents, which are payable in addition to
minimum rents. First Capital Realty's leases generally
also require tenants to be responsible for the payment
of realty taxes and the costs of operating and managing the
property within which they are located. As such, these
leases are considered to be net leases to the Company.

Nature of Tenancies
First Capital Realty seeks to lease a large portion of the
gross leasable area of each of its properties on a long-term
basis to successful anchor tenants such as food super-
markets, discount department stores and promotional
retailers. These tenants, in addition to creating a
stable source of long-term rental income, generate
customer traffic for the benefit of smaller retail and
service tenants. The nature and relationship of the
anchors to small shop tenants and the balance
between national and local retailers is a key ingredient
in establishing stable, sustainable revenue from each
of First Capital Realty's properties. As the pie chart
above illustrates, approximately 79% of First Capital
Realty's total gross leasable area is occupied by anchor,
national and regional retail tenants.

Lease Maturities
First Capital Realty’s lease maturities are staggered on
a property-by-property basis, which helps generate a
more stable flow of revenue and mitigate risks related

to changing market conditions. The Company's leasing
philosophy is directed at obtaining long-term tenancies
with contractual rent escalations, as well as participation
in sales success through leases with percentage rent
clauses. The Company has a very stable shopping centre
portfolio, with lease expirations in each of the next
five years ranging from 3.0% to 8.2% of the total
leased area in the First Capital Realty portfolio.

Geographic Diversification
As the chart below illustrates, the existing First
Capital Realty portfolio is geographically diversified,
with major concentrations in Ontario, Alberta and
Quebec. Further diversification is obtained through
our investment in Equity One. There is a trade-off
between operational efficiencies and market influence
that can be achieved by geographic concentration,
and vulnerability to local market influences that can
be avoided by geographic diversification. First Capital
Realty will seek to add properties in areas where it
currently owns shopping centres to take advantage of
local market knowledge, anchor tenant relationships
and synergies in both management and leasing. The
Company does this while taking into account local
market conditions that can affect occupancy rates and
rental income levels.

ONTARIO 53.2%

MARITIMES 1.5%

WESTERN
CANADA 25.0%

QUEBEC 20.3%

Financial Risk
To limit the Company's exposure to overall reductions
in credit availability in poor economic times, the
Company attempts to stagger its long-term debt maturities
and maintain an adequate level of cash or undrawn
credit capacity. First Capital Realty also attempts to

16 FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)

WESTERN
CANADA 25.0%

QUEBEC 20.3%

ONTARIO 53.2%

MARITIMES 1.5%

LOCAL 14.0%

AVAILABLE 7.2%

ANCHOR,
NATIONAL AND
REGIONAL
TENANTS 78.8%

Lease Maturities
First Capital Realty’s lease maturities are staggered on
a property-by-property basis, which helps generate a
more stable flow of revenue and mitigate risks related

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)

EFFECTS OF INFLATION
Inflation has remained relatively low since First
Capital Realty commenced operations in March 1994.
As a result, inflation has had a minimal impact on the
Company's operating performance to date. Nevertheless,
most of First Capital Realty's long-term leases contain
provisions designed to mitigate the adverse impact of
inflation. These provisions include a pass-through of
operating costs, including realty taxes and most
management expenses, which insulates the Company
from inflationary price increases. In addition, some
leases include clauses that allow the Company to
receive percentage rents based on tenants' gross sales,
which generally increase as prices rise. Many
Company's long-term leases include rent escalation
clauses, which increase rental rates over the term of the
lease at either pre-negotiated levels or levels determined
by reference to increases in the Consumer Price Index.
Many of the Company's non-anchor leases are for
terms of five years or less, providing the Company with
the opportunity to achieve rent increases on renewal
or when re-renting the space.

CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS.
including Management’s
This annual report,
Discussion and Analysis contained herein, contains
forward-looking statements relating to First Capital
Realty’s operations and the environment in which it
operates that are based on First Capital Realty’s
expectations, estimates, forecasts and projections.
These statements are not guarantees of future
performance and involve risks and uncertainties that
are difficult to control or predict. Therefore, actual
outcomes and results may differ materially from
those expressed in these forward-looking statements.
Readers, therefore, should not place undue reliance
on such forward-looking statements. Further, a
forward-looking statement speaks only as of the date
on which such statement is made. First Capital
Realty undertakes no obligations to publicly update
any such statement or to reflect new information or
the occurrence of future events or circumstances.

Environmental Risk
Management believes that shopping centres generally
pose minimal environmental risk as very few tenants
manufacture, process or store substances that would be
considered environmentally unsafe. The major exceptions
to this general rule can be gas stations situated on
out-parcels adjacent to shopping centre properties and
some dry cleaning establishments. The primary
responsibility for any environmental remediation rests
with the party responsible for creating the contamination,
although the Company may also be liable. First
Capital Realty maintains a program of periodically
reviewing and testing its properties to determine if
environmental problems exist and includes, as a
standard covenant in its leases, a prohibition against
environmentally unsound activities. The Company
undertakes a professionally conducted environmental
audit before it completes the acquisition of any property
in order to help mitigate environmental risk.

ECONOMIC CONDITIONS
The economic conditions in the markets in which the
Company operates can have a significant impact on
the Company's financial success. Adverse changes in
general or local economic conditions can result in
some retailers being unable to sustain viable businesses
and meet their lease obligations to the Company, and
may also limit the Company's ability to attract new or
replacement tenants. However, management believes
that First Capital Realty's shopping centres are generally
less susceptible to economic downturns, as they cater
to the basic needs of the retail customer by having
food supermarkets, drug stores, financial services,
discount department stores and promotional retailers
as tenants. In addition, the impact of economic conditions
on the overall First Capital Realty portfolio has been
mitigated through the long-term nature of its existing
leases and through geographic diversification.

arrange stand-alone, limited recourse project financing
to further mitigate the potential risk of a lack of
replacement financing. In addition, the Company
limits the amount of floating rate debt it will incur at
any one time in order to insulate itself from interest
rate volatility.

The Company’s U.S. investment is self-sustaining and
financed in part by U.S.-dollar-denominated credit
facilities, which are fully serviced by the cash flow
generated by the dividends from its U.S. investment.
This reduces the Company’s exposure to fluctuations
in foreign currency exchange rates. The Company has
not traditionally hedged its net U.S. dollar asset position.
The book value of U.S. dollar assets, net of U.S.-dollar-
denominated debt, is approximately US$61 million.
A 1% strengthening of the Canadian dollar against
the U.S. dollar would result in a $1.0 million decrease
in the net book value of the Company’s net assets in
the United States.

First Capital Realty limits its exposure to rising interest
rates by obtaining long-term fixed-rate financing,
when available, and attempting to avoid concentrations
of debt maturities. The combination of rising rents
and fixed-rate financing can significantly enhance the
value of a well-leased shopping centre portfolio.

Acquisition, Expansion and Development Risk
The key to the Company's ongoing success will be its
ability to create and enhance value through the skill,
creativity and energy of its management team. First
Capital Realty will continue to seek out acquisition,
expansion and selective development opportunities
that offer acceptable risk-adjusted rates of return. The
Company's acquisition criteria are stringent and its
due diligence procedures are rigorous. First Capital
Realty uses a team of trained professionals, including
lawyers, engineers, accountants and architects, to
thoroughly analyze each proposed acquisition prior to
its completion. No acquisition is completed without a
detailed analysis and a personal inspection by the most
senior officers of the Company’s management team.
First Capital Realty believes that acquisitions should
be undertaken only if there is the potential for meaningful
long-term growth in operating cash flow. Distressed
properties are acquired only if the Company is satisfied
that the property can become economically viable in a
short, predictable period of time.

18 FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)

18 FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

M A N A G E M E N T ’ S R E S P O N S I B I L I T Y

A U D I T O R S ’ R E P O R T

The accompanying consolidated financial statements are the responsibility of management and have been prepared
in accordance with generally accepted accounting principles appropriate for the real estate industry in Canada.

The preparation of financial statements necessarily involves the use of estimates based on management’s judgment,
particularly when transactions affecting the current accounting period cannot be finalized with certainty until future
periods. The consolidated financial statements have been properly prepared within reasonable limits of materiality
and in light of information available up to March 6, 2002.

Management is also responsible for the maintenance of financial and operating systems, which include effective controls
to provide reasonable assurance that the Company’s assets are safeguarded and that reliable financial information is
produced.

The Board of Directors is responsible for ensuring that management fulfills its responsibilities through its Audit
Committee whose members are not involved in day-to-day operations of the Company. Each quarter the Audit
Committee meets with management and, as necessary, with the independent auditors, Deloitte & Touche LLP, to
satisfy itself that management’s responsibilities are properly discharged and to review and report to the Board on the
consolidated financial statements.

In accordance with generally accepted auditing standards, the independent auditors conduct an examination each
year in order to express a professional opinion on the consolidated financial statements.

To the Shareholders of First Capital Realty Inc. (formerly Centrefund Realty Corporation)

We have audited the consolidated balance sheets of First Capital Realty Inc. (formerly Centrefund Realty
Corporation) as at December 31, 2001 and 2000 and the consolidated statements of operations, deficit, funds from
operations and cash flows for the years then ended. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements based on our
audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards
require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position
of the Company as at December 31, 2001 and 2000 and the results of its operations and its cash flows for the years
then ended in accordance with Canadian generally accepted accounting principles.

Dori J. Segal
President and Chief Executive Officer

Frank Bucys, C.A.
Chief Financial Officer

Chartered Accountants
Toronto, Ontario
March 6, 2002

20 FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

2001 CONSOLIDATED FINANCIAL STATEMENTS

A U D I T O R S ’ R E P O R T

To the Shareholders of First Capital Realty Inc. (formerly Centrefund Realty Corporation)

Chartered Accountants
Toronto, Ontario
March 6, 2002

22 FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

2001 CONSOLIDATED FINANCIAL STATEMENTS

C O N S O L I D A T E D B A L A N C E S H E E T S
D E C E M B E R 3 1 , 2 0 0 1 A N D 2 0 0 0
( I N T H O U S A N D S O F D O L L A R S )

ASSETS

Shopping centres (note 3)

Land and shopping centres under development and redevelopment (note 4)

Investment in Equity One, Inc. (notes 2 and 5)

Cash and cash equivalents

Amounts receivable (note 6)

Other assets (note 7)

Future income tax assets (note 17)

LIABILITIES

2001

2000

661,476

945,648

39,005

190,774

43,951

17,861

16,124

19,348

54,330

33,604

49,616

37,922

16,396

988,539

$ 1,137,516

Mortgages payable and credit facilities (note 8)

460,356

598,318

Accounts payable and accrued liabilities

Convertible debentures payable (note 9)

Debentures payable (note 10)

SHAREHOLDERS' EQUITY (note 11)

See accompanying notes to financial statements.

Approved by the Board of Directors:

31,350

49,396

37,866

47,870

56,485

38,166

578,968

740,839

409,571

396,677

988,539

$ 1,137,516

Chaim Katzman
Director

Dori J. Segal
Director

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

C O N S O L I D A T E D S T A T E M E N T S O F O P E R A T I O N S
Y E A R S E N D E D D E C E M B E R 3 1 , 2 0 0 1 A N D 2 0 0 0
( I N T H O U S A N D S O F D O L L A R S E X C E P T P E R S H A R E A M O U N T S )

C O N S O L I D A T E D S T A T E M E N T S O F D E F I C I T
Y E A R S E N D E D D E C E M B E R 3 1 , 2 0 0 1 A N D 2 0 0 0
( I N T H O U S A N D S O F D O L L A R S )

Gross rental income

Property operating costs

Rental income

Equity income from Equity One, Inc. (note 5)

Interest and other income

Interest expense:

Mortgages and credit facilities (note 12)

Debentures

Corporate expenses (note 13)

Operating income before the following items

Amortization

(Recovery of) previous management's incentive

and other fees (note 16)

Operating income (loss)

Gain (loss) on disposition of shopping centre (note 3)

Earnings (loss) before income and other taxes

Income and other taxes (note 17):

Current

Future

Net earnings (loss) for the year

Net earnings (loss) per common share (note 18)

Diluted net earnings (loss)

per common share (note 18)

See accompanying notes to financial statements.

2001

2000

140,680

147,893

49,684

90,996

4,080

6,207

54,985

92,908

7,551

101,283

100,459

42,021

8,008

50,029

6,981

44,273

13,096

(8,538)

39,715

8,070

47,785

3,562

12,728

16,290

31,495

1.09

39,931

8,683

48,614

5,289

46,556

12,339

50,125

(15,908)

(115)

(16,023)

1,845

(2,697)

(852)

(15,171)

(1.93)

1.04

(1.93)

Deficit, beginning of the year

Net earnings (loss) for the year

Interest and accretion on equity component of convertible
debentures (net of tax of $9,532; 2000 - $9,331)

Dividends

Deficit, end of the year

See accompanying notes to financial statements.

2001

2000

(70,921)

(27,347)

31,495

(15,171)

(14,675)

(15,223)

(14,221)

(14,182)

(69,324)

(70,921)

C O N S O L I D A T E D S T A T E M E N T S O F F U N D S
F R O M O P E R A T I O N S
Y E A R S E N D E D D E C E M B E R 3 1 , 2 0 0 1 A N D 2 0 0 0
( I N T H O U S A N D S O F D O L L A R S )

Net earnings (loss) for the year

31,495

(15,171)

2001

2000

Add (deduct):

Amortization

Gain on disposition of marketable securities

(Gain) loss on disposition of shopping centre

Equity income from Equity One, Inc.

Dividend income from Equity One, Inc.

Future income tax (recovery)

Funds from operations

Funds from operations per common share (note 18)

Basic

Diluted

See accompanying notes to financial statements.

11,340

(1,451)

(8,070)

(4,080)

4,481

12,728

10,888

115

(2,697)

46,443

(6,865)

3.02

1.57

(0.45)

24 FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

C O N S O L I D A T E D S T A T E M E N T S O F D E F I C I T
Y E A R S E N D E D D E C E M B E R 3 1 , 2 0 0 1 A N D 2 0 0 0
( I N T H O U S A N D S O F D O L L A R S )

Gross rental income

Property operating costs

Rental income

Equity income from Equity One, Inc. (note 5)

Interest and other income

Interest expense:

Mortgages and credit facilities (note 12)

Debentures

Corporate expenses (note 13)

Operating income before the following items

Amortization

(Recovery of) previous management's incentive

and other fees (note 16)

Operating income (loss)

Gain (loss) on disposition of shopping centre (note 3)

Earnings (loss) before income and other taxes

Income and other taxes (note 17):

Current

Future

Net earnings (loss) for the year

Net earnings (loss) per common share (note 18)

Diluted net earnings (loss)

per common share (note 18)

See accompanying notes to financial statements.

2001

2000

140,680

147,893

49,684

90,996

4,080

6,207

54,985

92,908

7,551

101,283

100,459

42,021

8,008

50,029

6,981

44,273

13,096

(8,538)

39,715

8,070

47,785

3,562

12,728

16,290

31,495

1.09

39,931

8,683

48,614

5,289

46,556

12,339

50,125

(15,908)

(115)

(16,023)

1,845

(2,697)

(852)

(15,171)

(1.93)

1.04

(1.93)

Deficit, beginning of the year

Net earnings (loss) for the year

Interest and accretion on equity component of convertible
debentures (net of tax of $9,532; 2000 - $9,331)

Dividends

Deficit, end of the year

See accompanying notes to financial statements.

2001

2000

(70,921)

(27,347)

31,495

(15,171)

(14,675)

(15,223)

(14,221)

(14,182)

(69,324)

(70,921)

C O N S O L I D A T E D S T A T E M E N T S O F F U N D S
F R O M O P E R A T I O N S
Y E A R S E N D E D D E C E M B E R 3 1 , 2 0 0 1 A N D 2 0 0 0
( I N T H O U S A N D S O F D O L L A R S )

Net earnings (loss) for the year

31,495

(15,171)

2001

2000

Add (deduct):

Amortization

Gain on disposition of marketable securities

(Gain) loss on disposition of shopping centre

Equity income from Equity One, Inc.

Dividend income from Equity One, Inc.

Future income tax (recovery)

Funds from operations

Funds from operations per common share (note 18)

Basic

Diluted

See accompanying notes to financial statements.

11,340

(1,451)

(8,070)

(4,080)

4,481

12,728

10,888

115

(2,697)

46,443

(6,865)

3.02

1.57

(0.45)

24 FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S
Y E A R S E N D E D D E C E M B E R 3 1 , 2 0 0 1 A N D 2 0 0 0
( I N T H O U S A N D S O F D O L L A R S )

N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
D E C E M B E R 3 1 , 2 0 0 1 A N D 2 0 0 0

OPERATING ACTIVITIES

Funds from operations

Net change in non-cash operating items

Cash provided by (used in) operating activities

INVESTING ACTIVITIES

Acquisition of shopping centres

Expansion and redevelopment of shopping centres

Proceeds on disposition of land and shopping centres

Acquisition and development of land

Equity One, Inc. transaction (note 2)

Advances to development partner

Reduction in mortgages receivable

Investment in marketable securities

Proceeds on disposition of marketable securities

2001

2000

46,443

(6,865)

(14,071)

32,372

(4,270)

(11,135)

(52,306)

(40,047)

34,960

(14,822)

(17,417)

(1,220)

1,834

(3,987)

18,394

(35,657)

27,092

(22,641)

(7,873)

4,458

204

Cash used in investing activities

(74,611)

(34,417)

FINANCING ACTIVITIES

Proceeds of mortgage financings and credit facilities

Principal repayments of mortgages payable

Debentures purchased and cancelled

Payments on convertible debentures, net of interest expensed

Common shares purchased and cancelled

Dividends

Cash provided by financing activities

Effect of currency rate movement on cash balances

Increase in cash and cash equivalents

Cash and cash equivalents, beginning of the year

Cash and cash equivalents, end of the year

SUPPLEMENTARY INFORMATION

Cash income taxes paid

Cash interest paid

See accompanying notes to financial statements.

256,346

216,232

(168,750)

(128,786)

(300)

(21,663)

(21,200)

(2,344)

(15,223)

(14,182)

50,410

2,176

10,347

33,604

49,720

967

5,135

28,469

43,951

33,604

2,118

73,371

1,932

72,481

1. SIGNIFICANT ACCOUNTING POLICIES

The Company was incorporated under the laws of Ontario to engage in the business of acquiring, expanding,
developing, redeveloping and owning neighbourhood and community shopping centres.

On September 7, 2001, at the annual and special meeting, the Company’s shareholders passed a resolution
changing the Company’s name from Centrefund Realty Corporation to First Capital Realty Inc.

The Company's financial statements are presented in accordance with Canadian generally accepted accounting
principles and are substantially in accordance with the recommendations of the Canadian Institute of Public and
Private Real Estate Companies. The Company's significant accounting policies are as follows:

(a) Principles of Consolidation

The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries,
trusts, and the Company's proportionate share of assets, liabilities, revenues and expenses of partnership and
limited liability corporate ventures, which are accounted for using the proportionate consolidation method.
Investments in which the Company has a significant influence are accounted for on the equity basis.

(b) Shopping Centres and Land and Shopping Centres Under Development and Redevelopment

Shopping centres are stated at the lower of cost less accumulated amortization and net recoverable amounts.
Shopping centres under development and redevelopment and land held for development are stated at the
lower of cost and net recoverable amounts. Cost includes all expenditures incurred in connection with the
acquisition, development, redevelopment and initial leasing of the properties. These expenditures include
acquisition costs, construction costs, initial leasing costs, other direct costs, building improvement costs and
carrying costs. Carrying costs (including property taxes and interest on both specific and general debt, net
of operating results) are capitalized to the cost of the properties until the accounting completion date (which
is based on achieving a satisfactory occupancy level within a predetermined time limit).

Net recoverable amounts represent the estimated future net cash flow expected to be received from the
ongoing use and residual worth of the properties. To arrive at this amount, the Company projects the cash
flow for each property on an undiscounted basis and reviews the current market value of its land holdings.
These projections take into account the specific business plan for each property and management's best
estimate of the most probable set of economic conditions anticipated to prevail in the market area.

Gross rental income includes rents earned from tenants under lease agreements, including percentage
participation rents, property tax and operating cost recoveries, and incidental income, including lease
cancellation payments.

(d) Amortization

The Company follows the sinking-fund method of amortizing its buildings and improvements. Under this
method, amortization is charged to income in increasing annual amounts consisting of fixed annual sums,
together with interest compounded at the rate of 5% per annum, so as to fully amortize the properties over
their estimated useful lives, which vary but do not exceed 40 years.

Leasing fees and tenant inducements incurred on securing leases, other than initial leases, are amortized over
the term of such leases on a straight-line basis.

26 FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S
Y E A R S E N D E D D E C E M B E R 3 1 , 2 0 0 1 A N D 2 0 0 0
( I N T H O U S A N D S O F D O L L A R S )

N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
D E C E M B E R 3 1 , 2 0 0 1 A N D 2 0 0 0

OPERATING ACTIVITIES

Funds from operations

Net change in non-cash operating items

Cash provided by (used in) operating activities

INVESTING ACTIVITIES

Acquisition of shopping centres

Expansion and redevelopment of shopping centres

Proceeds on disposition of land and shopping centres

Acquisition and development of land

Equity One, Inc. transaction (note 2)

Advances to development partner

Reduction in mortgages receivable

Investment in marketable securities

Proceeds on disposition of marketable securities

2001

2000

46,443

(6,865)

(14,071)

32,372

(4,270)

(11,135)

(52,306)

(40,047)

34,960

(14,822)

(17,417)

(1,220)

1,834

(3,987)

18,394

(35,657)

27,092

(22,641)

(7,873)

4,458

204

Cash used in investing activities

(74,611)

(34,417)

FINANCING ACTIVITIES

Proceeds of mortgage financings and credit facilities

Principal repayments of mortgages payable

Debentures purchased and cancelled

Payments on convertible debentures, net of interest expensed

Common shares purchased and cancelled

Dividends

Cash provided by financing activities

Effect of currency rate movement on cash balances

Increase in cash and cash equivalents

Cash and cash equivalents, beginning of the year

Cash and cash equivalents, end of the year

SUPPLEMENTARY INFORMATION

Cash income taxes paid

Cash interest paid

See accompanying notes to financial statements.

256,346

216,232

(168,750)

(128,786)

(300)

(21,663)

(21,200)

(2,344)

(15,223)

(14,182)

50,410

2,176

10,347

33,604

49,720

967

5,135

28,469

43,951

33,604

2,118

73,371

1,932

72,481

1. SIGNIFICANT ACCOUNTING POLICIES

The Company was incorporated under the laws of Ontario to engage in the business of acquiring, expanding,
developing, redeveloping and owning neighbourhood and community shopping centres.

On September 7, 2001, at the annual and special meeting, the Company’s shareholders passed a resolution
changing the Company’s name from Centrefund Realty Corporation to First Capital Realty Inc.

(a) Principles of Consolidation

(b) Shopping Centres and Land and Shopping Centres Under Development and Redevelopment

(d) Amortization

Leasing fees and tenant inducements incurred on securing leases, other than initial leases, are amortized over
the term of such leases on a straight-line basis.

26 FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company amortizes commitment fees and other costs incurred in connection with debt financing over
the term of such financing on a straight-line basis.

Certain amounts receivable, other assets, accounts payable and accrued liabilities are assumed to have a fair
value that approximates their historical cost carrying amount due to their short-term nature.

(e) Investment in Marketable Securities

The Company's investment in marketable securities is stated at cost unless there is a decline in value,
which is considered to be other than temporary, in which case the investment is written down to estimated
realizable value.

(f) Foreign Currency

The Company carries on business in the United States through operationally and financially self-sustaining
entities.

Assets and liabilities denominated in United States dollars are translated into Canadian dollars at year-end
exchange rates. The resulting net gains or losses are accumulated as a separate component of shareholders'
equity. Revenues and expenses denominated in United States dollars are translated at the average exchange
rate for the year.

(g) Convertible Debentures

The Company presents its convertible debentures in their debt and equity component parts where applicable,
as follows:

(i) The debt component represents the value of the semi-annual interest obligations to be satisfied by cash,
discounted at the rate of interest that would have been applicable to a debt-only instrument of comparable
term and risk at the date of issue. As a result, a portion of the semi-annual interest payments has been
treated as a reduction of the debt component and the remainder as interest expense.

(ii) The equity component of the convertible debentures is presented under "Shareholders' Equity" in the
consolidated balance sheets. A value is ascribed to the equity component as a result of the Company’s
ability upon maturity to convert the debentures into common shares, and is increased over its term to
the full face value of the debentures by an annual charge to the deficit. In addition, debentures that
provide the Company with the ability to satisfy the interest payments through the issuance of common
shares are also included in the equity component of convertible debentures. A value is also ascribed to
the conversion right granted to the holder, which remains a fixed amount over the term of the debentures.

(iii) Debenture issue costs are proportionately allocated to their respective debt and equity components.
The debt component of the issue costs is classified as deferred financing costs, and is amortized over the
term of the debentures. The equity component of the issue costs reduces the carrying value of the equity
component of the convertible debentures.

(h) Income Taxes

Income taxes are accounted for using the liability method. Under this method, future income taxes are
recognized for the expected future tax consequences of differences between the carrying amount of balance
sheet items and their corresponding tax values. Future income taxes are computed using substantively
enacted corporate income tax rates for the years in which the differences are expected to reverse.

(i) Financial Instruments

The fair value of the Company's financial instruments is estimated based on the amount at which these
instruments could be exchanged in a transaction between knowledgeable and willing parties. Fair value is
estimated using market values where available or using present value techniques and assumptions concerning
the amount and the timing of expected future cash flows and discount rates which reflect the appropriate level of
risk of the instrument. The estimated fair values may differ from those which could be realized in an immediate
settlement of the instruments. The fair value of cash and cash equivalents approximates their carrying value.

The fair value of loans receivable, mortgages and credit facilities payable, and debentures payable has been
determined by discounting the cash flows of these financial obligations using market rates for debt of similar
corresponding term and risk.

The Company may periodically enter into interest rate swap transactions to fix interest rates on current or
future outstanding debt. The initial cost of entering into such transactions is recorded as interest expense
over the term of the debt. Any ongoing difference payable or receivable on such transactions is recorded as
an adjustment to interest expense.

(j) Stock-Based Compensation Plan

The Company has a stock-based compensation plan, which is described in note 11. Any consideration paid
on the exercise of stock options is credited to share capital.

(k) Statements of Cash Flows and Funds from Operations

As is common practice within the real estate industry, the Company has included statements of funds from
operations in its financial statements. This measurement, which is an important component of cash flow, is
considered a meaningful and useful indicator of real estate operating performance. Funds from operations is
the equivalent of income before extraordinary items adjusted for income and dividends received from
equity-accounted investments, future income taxes, amortization of capital items and any gain or loss on sale
of, or provision against, capital items. Funds from operations excludes unremitted funds from operations
from equity-accounted investments.

(l) Use of Estimates

The preparation of the Company's financial statements in conformity with Canadian generally accepted
accounting principles requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the balance sheet date
and the reported amounts of revenue and expenses during the reporting year. Actual results could differ from
such estimates.

2. EQUITY ONE, INC. TRANSACTION

Effective September 20, 2001, the Company sold all the outstanding shares of its wholly owned subsidiary,
Centrefund Realty (U.S.) Corporation (“CEFUS”), to Equity One, Inc. (“Equity One”) (NYSE:EQY), a
self-administered and self-managed real estate investment trust, in exchange for 10,500,000 shares of common
stock of Equity One. This resulted in the Company holding approximately 36% of the issued and outstanding
common stock of Equity One.

The Company and Equity One are each indirectly controlled subsidiaries of Gazit Globe (1982) Ltd. (“Gazit”),
an Israeli corporation trading on the Tel Aviv Stock Exchange.

The transaction was between parties under common control and there has not been a substantive change in the
controlling interests of CEFUS. As a result, the investment in Equity One has been recorded using the carrying
amount of the Company’s net investment in CEFUS and related transaction costs.

28 FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company amortizes commitment fees and other costs incurred in connection with debt financing over
the term of such financing on a straight-line basis.

(e) Investment in Marketable Securities

(f) Foreign Currency

The Company carries on business in the United States through operationally and financially self-sustaining
entities.

(g) Convertible Debentures

The Company presents its convertible debentures in their debt and equity component parts where applicable,
as follows:

(h) Income Taxes

(i) Financial Instruments

(j) Stock-Based Compensation Plan

The Company has a stock-based compensation plan, which is described in note 11. Any consideration paid
on the exercise of stock options is credited to share capital.

(k) Statements of Cash Flows and Funds from Operations

(l) Use of Estimates

2. EQUITY ONE, INC. TRANSACTION

The Company and Equity One are each indirectly controlled subsidiaries of Gazit Globe (1982) Ltd. (“Gazit”),
an Israeli corporation trading on the Tel Aviv Stock Exchange.

28 FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following is a summary of the Company’s net investment in CEFUS as at September 20, 2001, prior to the
Equity One transaction, and the Company’s corresponding investment in Equity One as at September 20, 2001,
expressed in thousands of dollars.

4. LAND AND SHOPPING CENTRES UNDER DEVELOPMENT AND REDEVELOPMENT

Land and shopping centres under development and redevelopment, expressed in thousands of dollars, consist of
the following:

Shopping centres
Land and shopping centres under development
Cash and cash equivalents
Amounts receivable
Other assets
Mortgages payable and credit facilities
Accounts payable and accrued liabilities
Future income tax liabilities
Net investment in CEFUS, September 20, 2001, prior to disposition
Transaction costs and other adjustments
Investment in Equity One, September 20, 2001

3. SHOPPING CENTRES

Shopping centres, expressed in thousands of dollars, consist of the following:

Land
Buildings and improvements
Deferred leasing costs

Accumulated amortization

Geographic Segmentation

Canada
United States

413,496
14,115
17,417
22,322
14,735
(268,883)
(13,472)
(10,093)
189,637
(154)
189,483

2000
165,915
791,573
21,814
979,302
(33,654)
945,648

557,834
387,814
945,648

2001
111,420
563,818
11,628
686,866
(25,390)
661,476

661,476
-
661,476

In February 2001, the Company purchased a shopping centre in Brampton, Canada, for $40.8 million, including
closing costs, financed in part by $30.1 million in mortgages with the balance paid in cash.

In July 2001, the Company acquired its development partner’s interest in five Canadian shopping centres for
total consideration of approximately $21.2 million. The acquisition was satisfied by the Company’s assumption of
third party debt secured against the properties, the assumption of certain other liabilities, and a reduction of the
development partner’s debt obligations to the Company.

In August 2001, CEFUS disposed of a shopping centre in Florida for $33.1 million (US$21.0 million), resulting in
a gain of $8.1 million (US$5.1 million). The gain recognized on the disposal of this property was contemplated
under the terms of the Equity One purchase and sale agreement.

Acquisition costs
Development costs
Interest costs

Geographic Segmentation

Canada
United States

2001
18,669
17,442
2,894
39,005

39,005
-
39,005

2000
34,320
14,388
5,622
54,330

27,370
26,960
54,330

In July 2001, the Company acquired its development partner’s interest in two development sites for total
consideration of approximately $4.3 million. The acquisition was satisfied by the Company’s assumption of
third party debt secured against the properties, the assumption of certain other liabilities, and a reduction of
the development partner’s debt obligations to the Company.

5. INVESTMENT IN EQUITY ONE, INC.

The Company’s investment in Equity One, expressed in thousands of dollars, consists of the following:

Investment in Equity One, September 20, 2001 (note 2)
Equity income for the period ended December 31, 2001
Less: Dividends received
Cumulative currency effect since September 20, 2001
Investment in Equity One, December 31, 2001

189,483
4,080
(4,481)
1,692
190,774

The investment is adjusted, under the equity basis of accounting, to include the Company’s share of post-acquisition
earnings of Equity One and any additional contributions, distributions or movements in the Canadian and United
States dollar exchange rate.

The closing price on the NYSE of Equity One’s common shares at December 31, 2001 was US $13.74 per share.
The book value per share of the Company’s investment in Equity One at December 31, 2001 is US$11.41. At
December 31, 2001, 28.6 million shares of Equity One were outstanding, 10.5 million shares of which were held
by the Company.

The Company’s share of Equity One’s unremitted funds from operations using Canadian generally accepted
accounting principles (“GAAP”) and expressed in thousands of Canadian dollars, which has not been included
in the Company’s funds from operations, is as follows:

Equity One's funds from operations, Canadian GAAP
Company's ownership percentage of Equity One
Company's share of Equity One's funds from operations
Less: dividends received by the Company
Company's share of Equity One's unremitted funds from operations

2001
16,113
36%
5,774
(4,481)
1,293

30 FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. LAND AND SHOPPING CENTRES UNDER DEVELOPMENT AND REDEVELOPMENT

Land and shopping centres under development and redevelopment, expressed in thousands of dollars, consist of
the following:

Acquisition costs
Development costs
Interest costs

Geographic Segmentation

Canada
United States

2001
18,669
17,442
2,894
39,005

39,005
-
39,005

2000
34,320
14,388
5,622
54,330

27,370
26,960
54,330

5. INVESTMENT IN EQUITY ONE, INC.

The Company’s investment in Equity One, expressed in thousands of dollars, consists of the following:

189,483
4,080
(4,481)
1,692
190,774

2001
16,113
36%
5,774
(4,481)
1,293

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. AMOUNTS RECEIVABLE

8. MORTGAGES PAYABLE AND CREDIT FACILITIES

Amounts receivable, expressed in thousands of dollars, consist of the following:

Accounts receivable
Cash flow loans and mortgages receivable (a)
Loan receivable from a municipality (b)
Loans receivable from development partners (c)
Canadian amounts receivable
Accounts receivable
Loans receivable from development partners (c)
Mortgage receivable
U.S. amounts receivable

2001
3,117
4,255
1,264
9,225
17,861
-
-
-
-
17,861

2000
3,639
6,103
1,291
14,125
25,158
5,489
18,312
657
24,458
49,616

(a) In connection with the 1997 acquisition of a portfolio of shopping centres, the Company acquired a 50%
interest in various cash flow loans and mortgages receivable. The loans and mortgages receivable bear interest
at varying rates generally ranging from 8.5% to 10% per annum and are generally due on demand.

(b) The loan receivable from a municipality bears interest at the rate of 8% per annum, calculated and

compounded quarterly, and is repayable quarterly over a 25-year period, maturing in December 2021.

(c) The Company has funded its partners’ share of certain development activities. The loans bear interest at
varying rates ranging from 9% to 10% per annum and are repayable from the development partner's share
of proceeds generated from refinancings or sales. The Company has taken assignments of the development
partners’ debt and equity interests in the development partnerships as security for the loans receivable.

The fair values of the loans and mortgages receivable at December 31, 2001 and 2000 approximate their carrying values.

The Company is exposed to credit risk to the extent that debtors fail to meet their obligations. This risk is
alleviated by minimizing the amount of exposure the Company has to any one tenant, ensuring a diversified
tenant mix and by the hypothecated properties.

7. OTHER ASSETS

Other assets, expressed in thousands of dollars, consist of the following:

Deferred financing, issue and interest rate hedge costs
Investment in marketable securities
Prepaid expenses and other assets
Canadian other assets
Deferred financing, issue and interest rate hedge costs
Investment in marketable securities
Prepaid expenses and other assets
U.S. other assets

2001
5,880
291
6,762
12,933
637
2,554
-
3,191
16,124

2000
6,231
15,809
2,706
24,746
7,828
-
5,348
13,176
37,922

Based on its publicly listed trading price, as at December 31, 2001 the market value of the Company's
investment in Canadian and United States marketable securities was $3.2 million (2000 – $15.6 million).

Mortgages payable and credit facilities, secured by shopping centres and the Equity One common shares,
presented by geographic location and expressed in thousands of dollars, consist of the following:

Fixed rate
Floating rate

Canada:

Canada
359,575
4,365
363,940

2001
U.S.
15,928
80,488
96,416

Total
375,503
84,853
460,356

2000
Total
500,487
97,831
598,318

Fixed rate financing bears interest at an average fixed rate of 7.6% (2000 – 7.8%) and matures in years ranging
from 2002 to 2019. Floating rate financing bears interest at floating rates determined by reference to Canadian
prime lending and bankers' acceptance rates and matures in 2002.

United States:

Fixed rate financing bears interest at an average fixed rate of 6.1% (2000 – 8.1%) and matures in 2006. Floating
rate financing bears interest at a floating rate determined by reference to the London Inter-Bank Offering Rate
and to the U.S. prime-lending rate and matures in 2007.
Floating rate financing of $15.9 million (US $10.0 million) has been capped at 7.0% for five years.

As at December 31, principal repayments of mortgages payable, expressed in thousands of dollars, are due as follows:

2002
2003
2004
2005
2006
Thereafter

Canada
52,393
14,723
12,233
9,712
33,316
241,563
363,940

2001
U.S.
4,900
4,817
4,817
4,817
4,817
72,248
96,416

Total
57,293
19,540
17,050
14,529
38,133
313,811
460,356

The fair values of mortgages payable at December 31, 2001 and 2000 approximate their carrying values.

The Company is exposed to financial risks arising from fluctuations in interest rates that could cause a variation
in earnings. The Company periodically enters into interest rate swap transactions to fix interest rates on current
or future outstanding debt.

As part of its risk management program, the Company endeavors to maintain an appropriate mix of fixed rate
and floating rate debt and strives to match the nature and timing of lease inflows to financing thereon.

Subsequent to the completion of the Equity One transaction, the Company, through U.S. subsidiaries, obtained
a $94.7 million (US $60.0 million), five-year credit facility at LIBOR plus 150 basis points. This facility was
subsequently increased to $111.5 million (US$70 million). The facility is for acquisitions, debt repayment, and
general corporate purposes and is secured by the Equity One shares. As at December 31, 2001, $96.4 million
(US $60.5 million) has been drawn on this facility.

32 FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. AMOUNTS RECEIVABLE

8. MORTGAGES PAYABLE AND CREDIT FACILITIES

Amounts receivable, expressed in thousands of dollars, consist of the following:

2001
3,117
4,255
1,264
9,225
17,861
-
-
-
-
17,861

2000
3,639
6,103
1,291
14,125
25,158
5,489
18,312
657
24,458
49,616

(b) The loan receivable from a municipality bears interest at the rate of 8% per annum, calculated and

compounded quarterly, and is repayable quarterly over a 25-year period, maturing in December 2021.

The fair values of the loans and mortgages receivable at December 31, 2001 and 2000 approximate their carrying values.

7. OTHER ASSETS

Other assets, expressed in thousands of dollars, consist of the following:

2001
5,880
291
6,762
12,933
637
2,554
-
3,191
16,124

2000
6,231
15,809
2,706
24,746
7,828
-
5,348
13,176
37,922

Fixed rate
Floating rate

Canada:

Canada
359,575
4,365
363,940

2001
U.S.
15,928
80,488
96,416

Total
375,503
84,853
460,356

2000
Total
500,487
97,831
598,318

United States:

As at December 31, principal repayments of mortgages payable, expressed in thousands of dollars, are due as follows:

2002
2003
2004
2005
2006
Thereafter

Canada
52,393
14,723
12,233
9,712
33,316
241,563
363,940

2001
U.S.
4,900
4,817
4,817
4,817
4,817
72,248
96,416

Total
57,293
19,540
17,050
14,529
38,133
313,811
460,356

The fair values of mortgages payable at December 31, 2001 and 2000 approximate their carrying values.

32 FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company has entered into interest rate swap agreements with a notional amount of $15.9 million (US$10.0
million). Under the terms of these swap agreements, the Company pays a fixed rate of interest at the rate of
5.5% on the notional amount and receives a floating rate interest on the same notional amount based on LIBOR.
These swap agreements mature in September 2006.

At December 31, 2001, the Company has available undrawn lines of credit, which are secured by certain
shopping centres, amounting to $36.0 million.

9. CONVERTIBLE DEBENTURES

As at December 31, 2001, the Company has outstanding four series of convertible debentures. All of the debentures
are unsecured subordinated debentures, require interest payable semi-annually and are convertible into common
stock of the Company at the holders' option until the day prior to the redemption date. In addition, the
Company has the right to settle its obligations to repay principal upon redemption or maturity by issuing common
stock. If the Company chooses to issue common stock, it is to be valued at 95% of the weighted average trading
price for the 20 consecutive trading days ending five days prior to the redemption or maturity date, as may be
applicable. In the case of the 7.0% and the 7.25% series, the Company also has the option, subject to regulatory
approval, of settling interest due from time to time by way of the issue of common shares valued in the same fashion
as with respect to the repayment of principal on those debentures.

The other terms of the convertible debentures are summarized as follows:

Series
8.5% convertible debentures
7.875% convertible debentures
7.0% convertible debentures
7.25% convertible debentures

Conversion Price
$15.50 per common share
$17.00 per common share
$23.50 per common share
$25.25 per common share

Maturity
November 30, 2006
January 31, 2007
February 28, 2008
June 30, 2008

Earliest Redemption Date
November 30, 2002
January 31, 2003
February 28, 2004
June 30, 2004

The components of the convertible debentures, expressed in thousands of dollars, are classified as follows:

Series
8.5% convertible debentures
7.875% convertible debentures
7.0% convertible debentures
7.25% convertible debentures

Principal
57,441
97,522
99,999
100,000
354,962

2001
Liability
18,713
30,683
-
-
49,396

Equity
39,964
68,980
100,538
100,231
309,713

2000

Liability
21,391
35,094
-
-
56,485

Equity
36,694
63,835
99,823
99,547
299,899

Based on publicly listed trading prices, as at December 31, 2001, the market value of the principal amount of the
convertible debentures was $315.3 million (2000 – $257.6 million).

10.DEBENTURES PAYABLE

The Company’s 7.5% debentures, totaling $37.9 million (2000 - $38.2 million), mature on December 1, 2003
and bear interest at a rate of 7.5% per annum, payable semi-annually. These debentures are subordinated direct
obligations of the Company, secured by a floating charge on real and immoveable property comprising four of the
Company’s shopping centres.

Based on publicly listed trading prices, as at December 31, 2001, the market value of the 7.5% debentures was
$37.6 million (2000 – $32.2 million).

11.SHAREHOLDERS’ EQUITY

Shareholders’ equity, expressed in thousands of dollars, consists of the following:

Equity component of convertible debentures (note 9)
Share capital
Advisory warrants
Cumulative currency translation adjustment
Deficit

2001
309,713
154,499
2,000
12,683
(69,324)
409,571

2000
299,899
154,498
2,000
11,201
(70,921)
396,677

The Company has an unlimited number of authorized preference shares and common shares. The preference shares
may be issued from time to time in one or more series, each series comprising the number of shares, designations,
rights, privileges, restrictions and conditions which the Board of Directors determines by resolution; preference
shares are non-voting and rank in priority to the common shares with respect to dividends and distributions upon
dissolution. The common shares carry one vote each and participate equally in the earnings of the Company and
the net assets of the Company upon dissolution. Dividends are payable on the common shares as and when declared
by the Board of Directors.

The Company maintains its accounts in Canadian dollars. However, a portion of its operations are located in the
United States and therefore the Company is subject to foreign currency fluctuations which may, from time to time,
impact its financial position and results. The Company’s U.S. operations are financed in part by U.S.-dollar
denominated credit facilities, which are fully serviced by the cash flow generated by the Company’s dividends from
Equity One. This reduces the Company’s exposure to fluctuations in foreign currency exchange rates. The
Company has not hedged its U.S. dollar currency risk. As a result, a strengthening of the Canadian dollar would
result in a reduction in the carrying value of the Company’s net assets in the United States.

The cumulative currency translation adjustment represents the cumulative unrecognized exchange adjustment
on the net assets of the Company’s subsidiaries that operate in the United States. The change for the year reflects
the impact of the Equity One transaction and U.S. currency movements at December 31, 2001 relative to the
exchange rate in effect as at December 31, 2000 on these net assets.

The rate of exchange in effect on December 31, 2001 was US$1.00 = Cdn $1.59 (2000 – Cdn $1.50). The average
rate of exchange during 2001 was US$1.00 = Cdn $1.55 (2000 – Cdn $1.48).

The following table sets forth the particulars of the issued and outstanding shares of the Company:

Issued and outstanding at December 31, 1999
Issued in connection with convertible debenture conversions
Common shares purchased and cancelled
Issued and outstanding at December 31, 2000
Issued in connection with convertible debenture conversions
Issued and outstanding at December 31, 2001

Number of
Common Shares
15,070,323
573,263
(266,600)
15,376,986
38
15,377,024

Stated Capital
(thousands of dollars)
150,293
6,549
(2,344)
154,498
1
154,499

During fiscal 2001, no shares were purchased by the Company (2000 – 266,600 shares) under its normal course
issuer bid.

34 FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

At December 31, 2001, the Company has available undrawn lines of credit, which are secured by certain
shopping centres, amounting to $36.0 million.

9. CONVERTIBLE DEBENTURES

The other terms of the convertible debentures are summarized as follows:

Series
8.5% convertible debentures
7.875% convertible debentures
7.0% convertible debentures
7.25% convertible debentures

Conversion Price
$15.50 per common share
$17.00 per common share
$23.50 per common share
$25.25 per common share

Maturity
November 30, 2006
January 31, 2007
February 28, 2008
June 30, 2008

Earliest Redemption Date
November 30, 2002
January 31, 2003
February 28, 2004
June 30, 2004

The components of the convertible debentures, expressed in thousands of dollars, are classified as follows:

Series
8.5% convertible debentures
7.875% convertible debentures
7.0% convertible debentures
7.25% convertible debentures

Principal
57,441
97,522
99,999
100,000
354,962

2001
Liability
18,713
30,683
-
-
49,396

Equity
39,964
68,980
100,538
100,231
309,713

2000

Liability
21,391
35,094
-
-
56,485

Equity
36,694
63,835
99,823
99,547
299,899

Based on publicly listed trading prices, as at December 31, 2001, the market value of the principal amount of the
convertible debentures was $315.3 million (2000 – $257.6 million).

10.DEBENTURES PAYABLE

Based on publicly listed trading prices, as at December 31, 2001, the market value of the 7.5% debentures was
$37.6 million (2000 – $32.2 million).

11.SHAREHOLDERS’ EQUITY

Shareholders’ equity, expressed in thousands of dollars, consists of the following:

Equity component of convertible debentures (note 9)
Share capital
Advisory warrants
Cumulative currency translation adjustment
Deficit

2001
309,713
154,499
2,000
12,683
(69,324)
409,571

2000
299,899
154,498
2,000
11,201
(70,921)
396,677

The rate of exchange in effect on December 31, 2001 was US$1.00 = Cdn $1.59 (2000 – Cdn $1.50). The average
rate of exchange during 2001 was US$1.00 = Cdn $1.55 (2000 – Cdn $1.48).

The following table sets forth the particulars of the issued and outstanding shares of the Company:

Number of
Common Shares
15,070,323
573,263
(266,600)
15,376,986
38
15,377,024

Stated Capital
(thousands of dollars)
150,293
6,549
(2,344)
154,498
1
154,499

During fiscal 2001, no shares were purchased by the Company (2000 – 266,600 shares) under its normal course
issuer bid.

34 FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In October 1998, the Company received securities commission approval to issue 1,250,000 stock options to its
directors, officers and the management personnel of both the Advisor and the Property Manager (see note 14).
As at December 31, 2001, the Company had issued and outstanding, to its Property Manager’s employees, officers,
and directors, 480,000 outstanding stock options (2000 – 487,500) at an exercise price of $14.30 which vest 20%
annually and expire in October 2008. As at December 31, 2001, no stock options had yet been exercised. During
2001, 7,500 stock options were cancelled (2000 – 350,000). In January 2002, 5,000 options were cancelled and
774,500 options were issued to the Company’s officers and directors at an exercise price of $12.85, which generally
vest over three years and expire in 2012.

12.INTEREST EXPENSE ON MORTGAGES

Interest expense incurred on mortgages, expressed in thousands of dollars, consists of the following:

Total interest cost
Less interest capitalized:

Land and shopping centres under development

and redevelopment

13.CORPORATE EXPENSES

Corporate expenses, expressed in thousands of dollars, consist of the following:

Annual base incentive fees
Capital taxes
General and administrative

2001
44,158

(2,137)
42,021

2001
-
1,024
5,957
6,981

2000
43,052

(3,121)
39,931

2000
1,181
949
3,159
5,289

14.PROPERTY AND ASSET MANAGEMENT FEES

Centrecorp Management Services Limited (the "Property Manager"), a corporation formerly controlled by
two of the Company's former directors, acts as the Company's property manager pursuant to a Property
Management Agreement made February 15, 1994. The Property Management Agreement expires March 29,
2004. The Property Manager is responsible for all property management functions, including property
administration, maintenance and leasing.

The fees earned by the Property Manager, expressed in thousands of dollars, are summarized as follows:

Property and asset management fees
Construction supervision fees
Leasing fees
Overhead cost reimbursements

2001
2,894
665
1,466
811
5,836

2000
5,153
990
3,152
899
10,194

The Property Manager also received a portion of the incentive fees paid to Dawsco Realty Advisory Corp.
(see note 15), a private Ontario corporation controlled by two of the Company’s former directors, one of
whom was the Chairman, President and Chief Executive Officer of the Company until August 18, 2000.

For the year ended December 31, 2001, the Company's share of development overhead cost reimbursements
advanced to the Property Manager was nil (2000 – $2.0 million).

From August 15, 2000 until September 20, 2001, Equity One Realty & Management Inc. (“Equity One Realty”),
a wholly owned subsidiary of Equity One, was retained by the Company as an asset manager of the Company’s
United States portfolio. Equity One Realty earned an amount of $0.6 million in 2001 (2000 - $0.5 million)
under the terms of the agreement.

From November 30, 2000 until September 20, 2001, Equity One Realty was retained as property manager of the
majority of the Company’s Florida property. Equity One Realty earned $0.5 million in 2001 (2000 - $0.1 million)
under the terms of the agreement.

In December of 2001, the Company formed a joint venture with the Property Manager to provide property
management, operations, leasing and project management services in respect of shopping centre properties
located in the province of Quebec. Operations commenced on December 1, 2001, and each partner has a 50%
interest in the joint venture. During 2001, the Company earned $6,000 in income from the joint venture. The
joint venture agreement ends in March 2004.

During the year, the Company earned asset management fees from an entity controlled by Gazit in the amount
of $0.2 million (2000 - nil) with respect to Gazit’s shopping centre business in Quebec.

15.RELATED PARTY TRANSACTIONS – ADVISOR’S FEES

Dawsco Realty Advisory Corp. (the “Advisor”), a private Ontario corporation controlled by two of the
Company’s former directors, one of whom was the Chairman, President and Chief Executive Officer of the
Company until August 18, 2000, was responsible for managing and administering all the affairs of the Company,
pursuant to an Advisory Agreement dated February 15, 1994 (the “Advisory Agreement’) and subsequently
revised effective January 1, 2000. The Advisory Agreement was terminated in accordance with its terms on
August 18, 2000 (see note 16).

The fees paid, advanced or accrued to the Advisor, expressed in thousands of dollars, are summarized as follows:

Annual incentive fees (a)
(Recovery of) fair value incentive amount and other fees (note 16)
Annual base incentive fees (b)

2001
-
(9,150)
-
(9,150)

2000
1,519
37,386
1,181
40,086

(a) Annual Incentive Fees

Until August 17, 2000 (see note 16), the Advisor was entitled to earn an annual incentive fee equal to 20%
of the amount by which the aggregate net property cash flow and the aggregate net sale proceeds generated
by the Company’s shopping centre portfolio, and other related assets, exceed 10% of the aggregate equity
invested in such portfolio and other assets.

(b) Annual Base Incentive Fees

Until August 17, 2000, an annual base incentive fee of $2 million (increased by 10% calculated and
compounded annually commencing January 1, 2001) was to be paid under the Advisory Agreement.
An amount of $1.18 million was paid under this agreement in 2000. For the period up to the date of
termination of the Advisory Agreement, on the change of control (see note 16) under the terms of
the amended Advisory Agreement, the total amount payable to the end of the contract term was
accelerated and resulted in a further $8.84 million payment.

36 FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12.INTEREST EXPENSE ON MORTGAGES

Interest expense incurred on mortgages, expressed in thousands of dollars, consists of the following:

Total interest cost
Less interest capitalized:

Land and shopping centres under development

and redevelopment

13.CORPORATE EXPENSES

Corporate expenses, expressed in thousands of dollars, consist of the following:

Annual base incentive fees
Capital taxes
General and administrative

2001
44,158

(2,137)
42,021

2001
-
1,024
5,957
6,981

2000
43,052

(3,121)
39,931

2000
1,181
949
3,159
5,289

14.PROPERTY AND ASSET MANAGEMENT FEES

The fees earned by the Property Manager, expressed in thousands of dollars, are summarized as follows:

Property and asset management fees
Construction supervision fees
Leasing fees
Overhead cost reimbursements

2001
2,894
665
1,466
811
5,836

2000
5,153
990
3,152
899
10,194

For the year ended December 31, 2001, the Company's share of development overhead cost reimbursements
advanced to the Property Manager was nil (2000 – $2.0 million).

During the year, the Company earned asset management fees from an entity controlled by Gazit in the amount
of $0.2 million (2000 - nil) with respect to Gazit’s shopping centre business in Quebec.

15.RELATED PARTY TRANSACTIONS – ADVISOR’S FEES

The fees paid, advanced or accrued to the Advisor, expressed in thousands of dollars, are summarized as follows:

Annual incentive fees (a)
(Recovery of) fair value incentive amount and other fees (note 16)
Annual base incentive fees (b)

2001
-
(9,150)
-
(9,150)

2000
1,519
37,386
1,181
40,086

(a) Annual Incentive Fees

(b) Annual Base Incentive Fees

36 FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16.RECOVERY OF PREVIOUS MANAGEMENT’S INCENTIVE AND OTHER FEES

17.INCOME TAXES

On August 17, 2001, the Company settled the Fair Value Incentive Amount dispute with the Advisor. On
termination of the Advisory Agreement, which occurred on August 18, 2000, in accordance with its terms,
the Advisor became entitled to receive a Fair Value Incentive Amount equal to 20% of the excess of the fair
market value of the Company's shopping centre portfolio and other related assets over the aggregate of:

(a) the recorded cost of such portfolio and assets, determined at the termination date; and

(b) the aggregate amount required to have provided the Company since March 29, 1994 with a 10% compound,
cumulative annual return on the average aggregate equity allocable to such portfolio and assets, net of annual
incentive fees paid to the Advisor and after taking into consideration aggregate net property cash flow and
aggregate net sale proceeds received with respect to such portfolio and assets.

Former management of the Company, which included the Company’s former Chairman, President and Chief
Executive Officer, who also controlled the Advisor, calculated and accrued the Fair Value Incentive Amount to be
$21.35 million. This amount was recorded after an offer by the Gazit Group (the “Offer”) to acquire a controlling
interest in the Company in June 2000 and $9.2 million was advanced to the Advisor. Current management of the
Company disputed the calculation of the Fair Value Incentive Amount and other amounts, including amounts that
had been advanced.

The Fair Value Incentive Amount has been settled at the $9.2 million amount already advanced. A recovery of
expenses, before income taxes, of approximately $8.5 million (approximately $5.4 million net of income taxes)
has been recorded in 2001.

The previous management’s incentive fees and certain other costs, primarily associated with the Company’s
consideration of the Offer, and the cost of canceling the property management contract as it pertains to the
Florida property portfolio, in accordance with the settlement agreement dated August 15, 2000, expressed in
thousands of dollars, are summarized as follows:

(Recovery of) provision for fair value incentive amount
(Recovery of) provision for Canadian property

management agreement

Acceleration of annual base incentive fee
Fair value and annual incentive amendment fees

Termination of employment contract and other costs
Property management cancellation fees
Investment banking fees
Legal and other professional fees

2001
(8,150)

2000
17,350

(1,000)
(9,150)
-
-
(9,150)
-
-
-
612
(8,538)

4,000
21,350
8,836
7,200
37,386
4,351
1,850
4,439
2,099
50,125

2001

2000

20,154

(6,909)

1,600
1,962
3,562
353
-
(7,155)
(624)
(7,426)
16,290

1,350
495
1,845
2,584
2,064
(1,804)
1,368
4,212
(852)

2000

19,379
(20,155)
-
15,043
2,129
16,396

The Company's activities are carried out directly and through operating subsidiaries, and partnership ventures
and trusts in Canada and the United States. The income tax effect on operations depends on the tax legislation
in each country and the operating results of each subsidiary and partnership venture and the parent Company.

The provision for income and other taxes, expressed in thousands of dollars, is calculated as follows:

Provision for (recovery of) income taxes on income at the combined

Canadian federal and provincial income tax rates
Increase (decrease) in the provision for income taxes

due to the following items:
Large Corporations Tax
U.S. current income and withholding taxes

Reduction in future income tax rates
Impairment of tax losses
United States operations - other
Canadian operations - other

The Company's net future income tax assets, expressed in thousands of dollars, are as follows:

Net future income tax assets:

Losses available for carry-forward
Shopping centres
Investments
Other assets
Canadian and U.S. minimum tax credits

2001

16,436
5,776
(4,800)
1,584
352
19,348

At December 31, 2001, the Company has tax-loss carry-forwards for Canadian income tax purposes of
approximately $49.7 million, which have been recognized as future income tax assets and are available to
reduce future Canadian taxable income. These tax-loss carry-forwards expire at various dates between
December 31, 2003 and December 31, 2008.

18.PER SHARE INFORMATION

(i) Number of shares

Basic per share information for the year ended December 31, 2001 was calculated based on a weighted average
of 15,377,001 common shares outstanding during the year (December 31, 2000 – 15,200,291 common shares).

Diluted per share information for the year ended December 31, 2001 was calculated based on a weighted
average of 33,035,160 common shares (December 31, 2000 – 32,858,465 common shares), which reflects the
conversion of the convertible debentures. The diluted per share information for the year ended December
31, 2001 does not reflect the exercise of 1,000,000 outstanding warrants (2000 – 1,000,000 warrants) or
480,000 issued options (2000 – 487,500 options) as their conversion prices were higher than the average
price of the Company’s common shares during the year.

38 FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16.RECOVERY OF PREVIOUS MANAGEMENT’S INCENTIVE AND OTHER FEES

17.INCOME TAXES

(a) the recorded cost of such portfolio and assets, determined at the termination date; and

Former management of the Company, which included the Company’s former Chairman, President and Chief
Executive Officer, who also controlled the Advisor, calculated and accrued the Fair Value Incentive Amount to be
$21.35 million. This amount was recorded after an offer by the Gazit Group (the “Offer”) to acquire a controlling
interest in the Company in June 2000 and $9.2 million was advanced to the Advisor. Current management of the
Company disputed the calculation of the Fair Value Incentive Amount and other amounts, including amounts that
had been advanced.

(Recovery of) provision for fair value incentive amount
(Recovery of) provision for Canadian property

management agreement

Acceleration of annual base incentive fee
Fair value and annual incentive amendment fees

Termination of employment contract and other costs
Property management cancellation fees
Investment banking fees
Legal and other professional fees

2001
(8,150)

2000
17,350

(1,000)
(9,150)
-
-
(9,150)
-
-
-
612
(8,538)

4,000
21,350
8,836
7,200
37,386
4,351
1,850
4,439
2,099
50,125

2001

2000

20,154

(6,909)

1,600
1,962
3,562
353
-
(7,155)
(624)
(7,426)
16,290

1,350
495
1,845
2,584
2,064
(1,804)
1,368
4,212
(852)

2000

19,379
(20,155)
-
15,043
2,129
16,396

The provision for income and other taxes, expressed in thousands of dollars, is calculated as follows:

Provision for (recovery of) income taxes on income at the combined

Canadian federal and provincial income tax rates
Increase (decrease) in the provision for income taxes

due to the following items:
Large Corporations Tax
U.S. current income and withholding taxes

Reduction in future income tax rates
Impairment of tax losses
United States operations - other
Canadian operations - other

The Company's net future income tax assets, expressed in thousands of dollars, are as follows:

Net future income tax assets:

Losses available for carry-forward
Shopping centres
Investments
Other assets
Canadian and U.S. minimum tax credits

2001

16,436
5,776
(4,800)
1,584
352
19,348

18.PER SHARE INFORMATION

(i) Number of shares

38 FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ii) Funds from operations per common share

For the year ended December 31, 2001, funds from operations was increased by the recovery of previous
management’s incentive and other fees totaling $8.5 million (see note 16). In 2000, funds from operations
was decreased by the provision for previous management’s incentive and other fees totalling $50.1 million
(see note 16). These items, although part of operating income, are not considered by management to be a
normal or recurring part of operations.

Funds from operations per common share before the (recovery of) previous management’s incentive and
other fees was as follows:

Funds from operations per common share before

(recovery of) previous management's incentive
and other fees
Basic
Diluted

2001

2000

$
$

2.46
1.31

$
$

2.85
1.48

In accordance with Canadian GAAP, the determination of funds from operations per share excludes $21.7
million of cash interest paid relating to the convertible debentures, net of interest expensed.

In accordance with Canadian GAAP, the determination of funds from operations per share also excludes
$1.3 million relating to the Company’s share of Equity One’s unremitted funds from operations (see note 5).

19.SEGMENTED INFORMATION

The Company and its subsidiaries operate in the shopping centre segment of the real estate industry in both
Canada and the United States.

Operating income by geographic segment for the year ended December 31, 2001, expressed in thousands of
dollars, is summarized as follows:

Gross rental income
Property operating costs
Rental income
Equity Income from Equity One, Inc.
Interest and other income

Interest expense:

Mortgages and credit facilities
Debentures

Corporate expenses
Operating income before the following items

Amortization
Recovery of previous management's incentive

and other fees

Operating income

Canada
97,866
35,103
62,763
-
4,259
67,022

26,216
8,008
34,224
5,535
27,263
7,889

U.S.
42,814
14,581
28,233
4,080
1,948
34,261

15,805
-
15,805
1,446
17,010
5,207

Total
140,680
49,684
90,996
4,080
6,207
101,283

42,021
8,008
50,029
6,981
44,273
13,096

4,722
24,096

3,816
15,619

8,538
39,715

Operating income by geographic segment for the year ended December 31, 2000, expressed in thousands of
dollars, is summarized as follows:

Gross rental income
Property operating costs
Rental income
Interest and other income

Interest expense:
Mortgages
Debentures

Corporate expenses
Operating income before the following items

Amortization
Previous management's incentive and other fees

Operating loss

20.JOINT VENTURES

Canada
87,608
35,533
52,075
3,999
56,074

22,301
8,683
30,984
3,812
21,278
6,468
27,384
(12,574)

U.S.
60,285
19,452
40,833
3,552
44,385

17,630
-
17,630
1,477
25,278
5,871
22,741
(3,334)

Total
147,893
54,985
92,908
7,551
100,459

39,931
8,683
48,614
5,289
46,556
12,339
50,125
(15,908)

The Company participates in joint ventures that own land, shopping centres, and shopping centres under development.

The following amounts, expressed in thousands of dollars, are included in the consolidated financial statements
and represent the Company's proportionate interest in the financial accounts of the joint ventures:

Assets
Liabilities
Revenues
Expenses
Cash flow provided by (used in):

Operating activities
Financing activities
Investing activities

2001
44,534
20,796
5,326
4,144

2,836
3,627
(5,443)

$
$
$
$

$
$
$

2000
76,691
56,030
5,319
6,721

1,524
25,065
(26,880)

$
$
$
$

$
$
$

The Company is contingently liable for certain of the obligations of the partnership ventures and all of the net assets
of the partnership ventures are available for the purpose of satisfying such obligations and guarantees (see note 21(a)).

40 FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ii) Funds from operations per common share

Funds from operations per common share before the (recovery of) previous management’s incentive and
other fees was as follows:

Funds from operations per common share before

(recovery of) previous management's incentive
and other fees
Basic
Diluted

2001

2000

$
$

2.46
1.31

$
$

2.85
1.48

In accordance with Canadian GAAP, the determination of funds from operations per share excludes $21.7
million of cash interest paid relating to the convertible debentures, net of interest expensed.

19.SEGMENTED INFORMATION

The Company and its subsidiaries operate in the shopping centre segment of the real estate industry in both
Canada and the United States.

Operating income by geographic segment for the year ended December 31, 2001, expressed in thousands of
dollars, is summarized as follows:

Gross rental income
Property operating costs
Rental income
Equity Income from Equity One, Inc.
Interest and other income

Interest expense:

Mortgages and credit facilities
Debentures

Corporate expenses
Operating income before the following items

Amortization
Recovery of previous management's incentive

and other fees

Operating income

Canada
97,866
35,103
62,763
-
4,259
67,022

26,216
8,008
34,224
5,535
27,263
7,889

U.S.
42,814
14,581
28,233
4,080
1,948
34,261

15,805
-
15,805
1,446
17,010
5,207

Total
140,680
49,684
90,996
4,080
6,207
101,283

42,021
8,008
50,029
6,981
44,273
13,096

4,722
24,096

3,816
15,619

8,538
39,715

Operating income by geographic segment for the year ended December 31, 2000, expressed in thousands of
dollars, is summarized as follows:

Gross rental income
Property operating costs
Rental income
Interest and other income

Interest expense:
Mortgages
Debentures

Corporate expenses
Operating income before the following items

Amortization
Previous management's incentive and other fees

Operating loss

20.JOINT VENTURES

Canada
87,608
35,533
52,075
3,999
56,074

22,301
8,683
30,984
3,812
21,278
6,468
27,384
(12,574)

U.S.
60,285
19,452
40,833
3,552
44,385

17,630
-
17,630
1,477
25,278
5,871
22,741
(3,334)

Total
147,893
54,985
92,908
7,551
100,459

39,931
8,683
48,614
5,289
46,556
12,339
50,125
(15,908)

The Company participates in joint ventures that own land, shopping centres, and shopping centres under development.

Assets
Liabilities
Revenues
Expenses
Cash flow provided by (used in):

Operating activities
Financing activities
Investing activities

2001
44,534
20,796
5,326
4,144

2,836
3,627
(5,443)

$
$
$
$

$
$
$

2000
76,691
56,030
5,319
6,721

1,524
25,065
(26,880)

$
$
$
$

$
$
$

40 FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21.CONTINGENCIES

(a) The Company has provided guarantees for approximately $5.4 million (2000 – $60.1 million) to various

lenders in connection with loans advanced to its joint venture partners.

(b) The Company is also contingently liable for letters of credit in the amount of $6.9 million (2000 – $11.9 million)

issued in the ordinary course of business.

22.SUBSEQUENT EVENTS

On January 31, 2002, the Company acquired a portfolio of six shopping centres for a total purchase price of
approximately $58 million, which was satisfied by ten-year mortgage debt on four of the six centres totalling
approximately $27.4 million at 7.07% with the balance paid in cash. The portfolio consists of neighbourhood
and community supermarket-anchored shopping centres in the greater Montreal area with approximately
800,000 square feet of gross leasable area.

On February 1, 2002, the Company announced that it had entered into discussions with Gazit to acquire
Gazit’s Canadian shopping centre business. This portfolio is comprised of six neighbourhood and community
centres and two freestanding retail buildings, with approximately 800,000 square feet of gross leasable area.
These properties are all located in the greater Montreal area. These discussions are at a preliminary stage and
there can be no assurance that they will result in agreements or a transaction.

On February 27, 2002, the Company announced that it intends to offer all holders of its common shares rights
to subscribe for common share purchase warrants. Under the terms of the rights offering, each shareholder will
be entitled to one right for each common share held on the record date. A holder of rights will be entitled to
subscribe for one common share purchase warrant for each 1.25 rights held at a price of $0.05 per warrant. Each
warrant will entitle the holder to purchase one common share of First Capital Realty. The terms of the rights
offering remain subject to regulatory approval.

23.COMPARATIVE AMOUNTS

Certain comparative amounts have been reclassified to reflect the current year’s presentation.

C O R P O R AT E I N F O R M AT I O N

DIRECTORS

OFFICERS

Chaim Katzman
Chairman
First Capital Realty Inc.

Dori Segal
Vice-Chairman and President
First Capital Realty Inc.

Gary M. Samuel (1) (2)
Partner
Crown Realty Partners

Steven K. Ranson (1) (2)
President and Chief Executive Officer
Canadian Home Income Plan
Corporation

John Harris (1) (2)
Real Estate Investor

Nathan Hetz (1)
Chief Executive Officer
Alony Hetz Properties &
Investments Ltd.

Moshe Ronen (2)
Barrister & Solicitor

Richard J. Steinberg
Partner
Fasken Martineau DuMoulin LLP

Dori Segal
President and Chief Executive Officer

Sylvie Lachance
Executive Vice-President
Eastern Canada

Frank Bucys
Chief Financial Officer

Richard J. Steinberg
Secretary

LEGAL COUNSEL

Torys LLP
Toronto, Ontario

AUDITORS

Deloitte & Touche LLP
Toronto, Ontario

(1) Member of Audit Committee (2) Member of Corporate Governance Committee

42 FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21.CONTINGENCIES

(a) The Company has provided guarantees for approximately $5.4 million (2000 – $60.1 million) to various

lenders in connection with loans advanced to its joint venture partners.

(b) The Company is also contingently liable for letters of credit in the amount of $6.9 million (2000 – $11.9 million)

issued in the ordinary course of business.

22.SUBSEQUENT EVENTS

23.COMPARATIVE AMOUNTS

Certain comparative amounts have been reclassified to reflect the current year’s presentation.

C O R P O R AT E I N F O R M AT I O N

DIRECTORS

OFFICERS

Chaim Katzman
Chairman
First Capital Realty Inc.

Dori Segal
Vice-Chairman and President
First Capital Realty Inc.

Gary M. Samuel (1) (2)
Partner
Crown Realty Partners

Steven K. Ranson (1) (2)
President and Chief Executive Officer
Canadian Home Income Plan
Corporation

John Harris (1) (2)
Real Estate Investor

Nathan Hetz (1)
Chief Executive Officer
Alony Hetz Properties &
Investments Ltd.

Moshe Ronen (2)
Barrister & Solicitor

Richard J. Steinberg
Partner
Fasken Martineau DuMoulin LLP

Dori Segal
President and Chief Executive Officer

Sylvie Lachance
Executive Vice-President
Eastern Canada

Frank Bucys
Chief Financial Officer

Richard J. Steinberg
Secretary

LEGAL COUNSEL

Torys LLP
Toronto, Ontario

AUDITORS

Deloitte & Touche LLP
Toronto, Ontario

(1) Member of Audit Committee (2) Member of Corporate Governance Committee

42 FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

S H A R E H O L D E R I N F O R M AT I O N

HEAD OFFICE

TORONTO STOCK EXCHANGE LISTINGS

Common shares: FCR
7.5% debentures: FCR.DB
8.5% convertible debentures: FCR.DB.A
7.875% convertible debentures: FCR.DB.B
7% convertible debentures: FCR.DB.C
7.25% convertible debentures: FCR.DB.D
Warrants: FCR.WT

TRANSFER AGENT

Computershare Trust Company of Canada
100 University Avenue, 11th Floor
Toronto, Ontario M5J 2Y1
416.981.9633
Tel:
(Toll Free) 1.800.663.9097

BCE Place, Canada Trust Tower
161 Bay Street, Suite 2820, P.O. Box 219
Toronto, Ontario M5J 2S1
Tel:
Fax:

416.504.4114
416.941.1655

MONTREAL OFFICE

2620 De Salaberry Suite 201
Montreal, Quebec H3M 1L3
Tel:
Fax:

514.332.0031
514.332.5135

MIAMI OFFICE

1696 N.E. Miami Gardens Drive
North Miami Beach, FL 33179
305.947.1664
Tel:
305.947.1734
Fax:

www.firstcapitalrealty.ca

44 FIRST CAPITAL REALTY INC. ANNUAL REPORT 2001

FIRST CAPITAL REALTY INC.

BCE PLACE, CANADA TRUST TOWER

161 BAY STREET, SUITE 2820, P.O. BOX 219

TORONTO, ONTARIO M5J 2S1

WWW.FIRSTCAPITALREALTY.CA

FIRST CAPITAL REALTY INC.

annual repor t 2001