First Capital Realty Inc.
Annual Report 2009

Plain-text annual report

First Capital Realty Inc. 09 AnnuAl RepoRt Corporate Profile first Capital realty (TSX:fCr) is Canada’s leading owner, developer and operator of supermarket and drugstore-anchored neighbourhood and community shopping centres located predominantly in growing metropolitan areas. The Company currently owns interests in 176 properties, including three under development, totalling approximately 20.9 million square feet of gross leasable area and six land sites in the planning stage for future retail development. first capital realty has an enterprise value of over $4.5 billion and trades on the toronto stock exchange. property rental revenue ($ millions) Gross leasable Area (millions of sq. ft.) Debt to Aggregate Assets ($ billions) 442 410 377 326 265 20.2 20.8 19.4 18.2 15.7 % DeBt 4.1 4.0 3.6 3.2 2.6 54.2 55.4 56.6 53.5 50.3 05 06 07 08 09 05 06 07 08 09 05 06 07 08 09 Building Value (millions of dollars) enterprise value Debt to aggregate assets Debt to total market capitalization property rental revenue net operating income 2009 2008 $ 4,508 $ 4,111 50.3% 45.9% $ $ 442.1 $ 285.2 $ 53.5% 52.6% 410.2 261.0 2009 2008 2009 2008 $ millions per share funds from operations (ffO) – core operations ffO – non-recurring items (1) Total ffO Weighted average diluted shares for ffO $ 144.4 $ 133.3 $ 1.54 $ 7.6 12.6 0.08 $ 152.0 $ 145.9 $ 1.62 $ 93,869 87,260 Adjusted funds from operations (AffO) – core operations AffO – non-recurring items (1) Total AffO $ $ 143.4 $ 132.3 $ 1.40 $ 8.4 8.4 0.08 151.8 $ 140.7 $ 1.48 $ Weighted average diluted shares for AffO 102,935 95,587 1.53 0.14 1.67 1.38 0.09 1.47 (1) See management’s Discussion and Analysis. Funds From operations ($ millions) 16 Years of Dividends ($ per share) % pAyOuT rATiO 152 146 126 117 95 81 78 79 77 79 (1) 1.23 1.26 1.28 (2) 1.28 1.14 1.17 1.20 1.09 0.99 0.77 0.81 0.85 0.89 0.93 0.57 0.48 05 06 07 08 09 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 (1) excludes special dividend of $0.20 paid on April 6, 2005. (2) excludes Gazit America dividend-in-kind of $0.45 distributed on August 14, 2009. firST cApiTAl reAlTy AnnuAl repOrT 2009 1 A Growth Strategy ApplIeD to A StABle BuSIneSS 2009 operating Highlights • property rental revenue increased 8% to $442 million • net operating income increased 9% to $285 million • invested $285 million in development activities, property improvements and acquisitions • Average rent per occupied square foot increased by 3.6% to $15.71 Sustainable Cash Flow • 151 of 176 properties are supermarket- and/or drugstore-anchored • 20.9 million square feet of gross leasable area • Top 40 tenants provide 58.4% of annual rents and occupy 61.4% of the gross leasable area • 24 of the top 40 tenants have investment-grade • 6.8% same-property growth including expansion credit ratings and redevelopment space • Occupancy of 96.2% • Over 49.0% of all annual rents are from tenants with investment-grade credit ratings • Dense infill urban locations with strong demographics tenant profile • Supermarkets, drugstores and liquor stores 34% • national and discount retailers 16% • medical, gyms and other personal uses 13% • restaurants, fast food and coffee shops 11% • banks and governments 10% • Other retailers 16% • Over 90% Of Our renTS Are frOm urbAn mArkeTS • Over 90% Of Our renTS Are frOm SHOppinG cenTreS AncHOreD by SupermArkeTS AnD/Or DruGSTOreS % 90 2 firST cApiTAl reAlTy AnnuAl repOrT 2009 FoCuSSeD GRowtH StRAteGY • build a portfolio of neighbourhood and community shopping centres in growing urban markets in canada • Actively manage the portfolio to meet our tenant needs for upgrades, expansion and relocation • invest in redevelopment, renovation and expansion to enhance returns • Develop new properties in selective growth areas in our target markets to provide superior returns • All development projects are built to leeD standards (since may 2006) uRBAn MARKetS urban Markets + non- Discretionary Goods & Services = Defensive Asset Class our 7 target urban Markets 1. Greater vancouver Area 2. calgary 3. edmonton 4. Greater Toronto Area 5. Ottawa region 6. Greater montreal Area 7. Quebec city 3 2 1 7 6 5 4 firST cApiTAl reAlTy AnnuAl repOrT 2009 3 Message from the president my fellow Shareholders 2010 is an important milestone in our company’s history as we celebrate 10 years since this management team came aboard at first capital realty. To mark this anniversary, i thought it would be a good time to look back over the past decade to chart our prog- ress and to talk about the lessons we have learned that i believe will help us continue to grow and prosper in the years ahead. first, a report card on our accomplishments over the last 10 years: • We have grown our portfolio of income-producing properties from 40 in 2000 to where we now own and operate 176 properties of which approximately 90% of the rents are supermarket and drugstore anchored shopping centres well-located in growing urban markets across the country. • Over this same period our revenues have increased from $148 million to a record $442 million in 2009. • We have acquired, developed, redeveloped, expanded or repositioned 139 properties since 2000, with total investments in our growth exceeding $3.4 billion over this 10 year period. importantly, almost all of our acquisitions and developments were one-off transactions, an indication of our relentless focus on quality. • We have grown our portfolio from 6.2 million square feet to 20.8 million square feet at the end of 2009. furthermore, our average rents per square foot have improved from $12.10 in 2000 to $15.71 today. • We have become the industry leader in sustainable, environ- mentally-friendly development with all of our new properties since 2006 built or being built to leeD standards. “ …this management team has delivered to shareholders a total annual compounded return of 21% since we took over (10 years ago).” • With the increase in the size and scale of our business, our cash flow from operations has also risen, growing from $20 million in 2000 to approximately $150 million in 2009. This represents a more than sevenfold increase. • notwithstanding this significant growth, the company’s balance sheet has strengthened considerably, with our debt-to-aggregate assets ratio improving from 84.2% in 2000 to 50.3% in 2009. • most importantly, this management team has delivered to shareholders a total annual compounded return of 21% since we took over. 2009 was one of the most unpredictable years in my history in this business but it has only served to emphasize how predictable first capital's business is. We continued to deliver strong operating results in our core business while given the market turbulence, we proactively took action to bullet-proof our financial position which resulted in some increase in our cost of debt and equity capital. Our financial position remained very strong with a conservative capital structure and debt ratios, a well-balanced debt portfolio, $1.2 billion in unencumbered assets, and an enterprise value exceeding $4.5 billion. in 2009, we continued our selective acquisition, development and redevelopment activities, investing $285 million compared to $330 million in 2008. Significantly, we also completed the distribution of our indirect interest in equity One to our shareholders. With this transaction, first capital’s asset base is now fully in the canadian market, and we anticipate we will be a more attractive entity for foreign investors interested in canadian retail real estate. So what have we learned over the last decade, and how will these lessons help us to continue delivering value to us, the shareholders of first capital realty? first and foremost, we have built a company designed and structured to prosper in both good times and bad. Since the members of this management team entered the real estate business, we have all been through the numerous ups and downs of economic cycles, and have fortunately thrived in the boom periods and performed well in the down-turns. Our obligation is to run the company with a long-term view, ensuring our planning and our strategies are geared to manage risk appropriately and make us less sensitive to economic cycles. clearly, this focus and experience served us well in 2009. The second lesson we learned was to develop a tenant base that can also withstand the ups and downs of the economy 4 firST cApiTAl reAlTy AnnuAl repOrT 2009 over the long term. At first capital, our properties cater to the everyday needs of canadians. more than 80% of our revenues come from tenants such as supermarkets, drugstores, banks and financial institutions, liquor stores, doctors and medical practitioners, gyms, fast food and coffee shops, and many others that provide consumers with their daily necessities. importantly for our long-term success, our list of tenants reads like the Who’s Who of canadian retailing – strong and well-established brands familiar to consumers across the country and also complementary to each other’s respective businesses. To put it simply, when the tenant mix is good, the shopping centre works really well. Of our top-forty tenants, over three-quarters of rents have investment-grade credit ratings. Of all our total rents just under half are derived from investment-grade rated companies. The financial strength and retail dominance of our tenant base stood us well through 2009 as we suffered very little default while occupancies remained stable and average lease rates continued to grow. The third lesson learned over the last two decades is the importance of a strong balance sheet and flexible financial position. by having a well-balanced debt portfolio appropriately matched to lease terms with an extended average term to maturity, we take much of the financing risk out of our business. Our unencumbered assets provide a significant cushion and financial flexibility, a key reason first capital possesses invest- ment-grade credit ratings. All of these elements enable us to withstand difficult economic times while providing the resources to capitalize on growth opportunities as they present themselves. Above all, the greatest lesson learned is to build the best team of people, and at first capital we have the right people in the right places to properly and effectively manage our opera- tions and our growth across the country for years to come. Our property managers, leasing professionals, acquisition, develop- ment and construction people, our accounting and finance group and our senior management team are all on the ground, each and every working day, keeping close to our tenants, our com- munities, our competition and our industry to ensure we remain at the forefront of our business. This is one of our most important competitive advantages. Sylvie lachance, the company’s executive vice president and chief Operating Officer, is an excellent example of the professionalism and dedication of our team. Sylvie has been with me and first capital since the beginning and has made “ … at First Capital we have the right people in the right places to properly and effectively manage our operations and our growth across the country for years to come.” a significant contribution to our growth and success. Sylvie is leaving the company to pursue other interests, and she will not be easy to replace. We wish her all the best in her future endeavours. in short, over the last decade at first capital we believe we have learned how to provide our shareholders with a “balanced act.” We continue to prudently manage our risk, we are constantly looking for long-term growth opportunities and we continue to execute our proven value-enhancing strategies and business model, generating solid and stable long-term performance through all economic cycles. in closing, to my fellow co-workers who worked relentlessly to deliver a better future for all of us, i would like to express my appreciation. in addition, i would like to thank our tenants, service providers and partners for their support, our investors for their continued trust, and also our board of Directors, under the leadership of our chairman, chaim katzman, for their counsel and guidance. Sincerely, Dori J. Segal president and chief executive Officer firST cApiTAl reAlTy AnnuAl repOrT 2009 5  MD&A MANAGEMENT’S DISCUSSION AND ANALYSIS Contents Management’s Discussion and Analysis (MD&A) Introduction    7     7  Business Overview and Strategy  12  Summary Consolidated Information and Highlights  14  Business and Operations Review  23  Results of Operations 30  Capital Structure and Liquidity 37  Quarterly Financial Information  42  Outlook 42  Summary of Significant Accounting Estimates and Policies 44  Summary of Changes to Significant Accounting Policies 48  International Financial Reporting Standards (“IFRS”) 48  Controls and Procedures 49  Risks and Uncertainties 53  Share Price and Dividend History Consolidated Financial Statements 60  Management’s Responsibility  61  Auditors’ Report  62  Consolidated Balance Sheets  63  Consolidated Statements of Earnings 64  Consolidated Statements of Comprehensive Income 65  Consolidated Statements of Shareholders’ Equity  67  Consolidated Statements of Cash Flows 68  Notes to the Consolidated Financial Statements 6        FIRST CAPITAL REALTY ANNUAL REPORT 2009 Management’s Discussion and Analysis of Financial Position and Results of Operations The financial data has been prepared in accordance with Canadian Generally Accepted Accounting Principles (“GAAP”) and all amounts are in Canadian dollars, unless otherwise noted. Certain statements contained in the “Business Overview and Strategy”, “Business and Operations Review”, “Capital Structure and Liquidity”, “Outlook”, “Summary of Significant Accounting Estimates and Policies”, “Risks and Uncertainties” sections of this MD&A constitute forward-looking statements, and other statements concerning First Capital Realty’s objectives and strategies and Management’s beliefs, plans, estimates and intentions. Forward-looking statements can generally be identified by the expressions “anticipate”, “believe”, “plan”, “estimate”, “expect”, “intend”, “outlook”, “objective”, “may”, “will”, “should”, “continue” and similar expressions. The forward-looking statements are not historical facts but reflect the Company’s current expectations regarding future results or events and are based on information currently available to Management. Certain material factors and assumptions were applied in providing these forward-looking statements. All forward-looking statements in this MD&A are qualified by these cautionary statements. Management believes that the expectations reflected in forward-looking statements are based upon reasonable assumptions; however, Management can give no assurance that actual results will be consistent with these forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations, including the matters discussed under “Risks and Uncertainties”. Factors that could cause actual results or events to differ materially from those expressed, implied or projected by forward-looking statements in addition to those described in the “Risks and Uncertainties” section include, but are not limited to, general economic conditions, the availability of new competitive supply of retail properties which may become available either through construction or sublease, First Capital Realty’s ability to maintain occupancy and to lease or re-lease space at current or anticipated rents, tenant bankruptcies, the relative illiquidity of real property, unexpected costs or liabilities related to acquisitions, construction, environmental matters, legal matters, reliance on key personnel, tenant financial difficulties and defaults, changes in interest rates and credit spreads, changes in the US–Canadian foreign currency exchange rate, changes in operating costs, First Capital Realty’s ability to obtain insurance coverage at a reasonable cost and the availability of financing. The assumptions underlying the Company’s forward-looking statements contained in the “Outlook” section of this MD&A include that consumer demand will remain stable, demographic trends will continue and there will continue to be barriers to entry in the markets in which the Company operates. Readers, therefore, should not place undue reliance on any 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 obligation to publicly update any such statement or to reflect new information or the occurrence of future events or circumstances except as required by security laws. These forward-looking statements are made as of March 10, 2010. INTRODUCTION This Management’s Discussion and Analysis (“MD&A”) of the financial condition and results of operations for First Capital Realty Inc.  (“First Capital Realty” or the “Company”) should be read in conjunction with the Company’s audited Consolidated Financial Statements  and Notes for the years ended December 31, 2009 and 2008. Additional information, including the Company’s current Annual Information  Form, is available on SEDAR’s website at www.sedar.com and on the Company’s website at www.firstcapitalrealty.ca. Historical results  and percentage relationships contained in its interim and annual consolidated financial statements and MD&A, including trends which  might appear, should not be taken as indicative of its future operations. The information contained in this MD&A is based on  information available to Management as of March 10, 2010. BUSINESS OVERVIEW AND STRATEGY First Capital Realty (TSX:FCR) is Canada’s leading owner, developer and operator of supermarket and drugstore-anchored neighbourhood  and community shopping centres, located predominantly in growing metropolitan areas. As at December 31, 2009, the Company  owned interests in 175 properties, including three under development, totalling approximately 20.8 million square feet of gross leasable  area and six land sites in the planning stage for future retail development. First Capital Realty was incorporated in November 1993 and conducts its business directly and through subsidiaries. First Capital Realty’s primary strategy is the creation of value over the long term by generating sustainable cash flow and capital  appreciation of its shopping centre portfolio. To achieve its strategic objectives Management continues to: •  undertake selective development and redevelopment activities including land use intensification; •  be focussed and disciplined in acquiring income-producing properties; and •  proactively manage its existing shopping centre portfolio. FIRST CAPITAL REALTY ANNUAL REPORT 2009        7 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Urban Focus The Company targets specific urban markets with stable and/or growing populations despite, and because of, the high barriers to  entry. The Company intends to continue to operate primarily in and around its target urban markets of the Greater Toronto area  including the Golden Horseshoe area and London; the Calgary and Edmonton area; the Greater Vancouver area including Vancouver  Island; the Greater Montreal area; the Ottawa and Gatineau region and Quebec City. Over 90% of the Company’s annual minimum  rent is derived from these urban markets. Management believes that urban retail properties typically will generate sustainable returns  on investment, and over time, capital appreciation. Management believes that concentration on urban markets and shopping centres  that provide daily necessities also makes the Company’s portfolio less sensitive to economic cycles. The Company targets well-located properties in urban markets with strong demographics that Management expects will attract  quality tenants with long lease terms. Specifically, Management looks to own and operate properties that are well located within dense  urban areas that provide consumers with daily necessities including both products and services. Over 80% of the Company’s revenues  come from tenants providing these daily necessities which include supermarkets, drugstores, banks, liquor stores, national discount  retailers, quick service restaurants and medical and other personal services. In Management’s view, such tenants are somewhat less  sensitive to economic cycles due to the high component of consumer non-discretionary spending for such products and services,  making these tenants desirable for the Company’s type of properties. First Capital Realty actively acquires, develops, redevelops, expands and refurbishes its properties in its target markets across  Canada to generate accretive growth. The Company has critical mass in its target markets which helps generate economies of scale  and operating synergies, as well as real time market knowledge. The Company believes that a quality location is the single most important factor in acquiring, developing, redeveloping, owning   and operating a retail property over the long term. First Capital Realty assesses the quality of locations based on a number of factors   in the trade area of a property, including demographic trends, potential for competitive retail space and existing and potential tenants in  the market. Once the Company has acquired a property in a specific retail trade area it will look to acquire adjacent or nearby properties.   These additional properties allow the Company to provide maximum flexibility to its tenant base to meet their changing formats and  size requirements over the long term. Adjacent properties also allow the Company to essentially expand or integrate its existing  property, providing a better retail offering for consumers, Management believes that its adjacent sites acquisitions and strategies result  in a more stable cash flow over the long-term and better return on investment long-term. Management also believes that the Company’s shopping centres, along with its portfolio of adjacent sites, gives it unique intensification  opportunities, including not only expanded retail opportunities but also mixed use developments. The Company has proven development  and redevelopment capabilities across the country to enable it to capitalize on these opportunities. The land use intensification trend   in the Company’s target urban markets is driven by the costs of expanding infrastructure beyond existing urban boundaries, the desire  by municipalities to increase the tax base, environmental considerations and the migration of people to vibrant urban centres. This  provides the Company with an opportunity to use its existing platform to sustain and improve cash flows and realize capital appreciation  over the long term through its ownership and development and redevelopment activities. Income-Producing Portfolio The Company’s properties are summarized as follows: December 31  2009 2008   Gross Leasable % of Annual    Gross Leasable  % of Annual Number of Area Percent Minimal  Number of  Area(2)  Percent  Minimum Properties(1) (000’s sq. ft.) Occupied Rent  Properties(1)  (000’s sq. ft.)  Occupied  Rent Ontario  Quebec  Alberta  British Columbia  Other provinces  Total    67 57 29 20 2 175 9,316 5,424 4,298 1,684 90 20,812 98.2% 95.1% 95.1% 93.2% 81.1% 96.2% 46%  22%  22%  9%  1%  100%  66  56  27  19  3  171  8,943  5,317  4,103  1,647  156  20,166  98.2%  95.8%  94.4%  94.3%  90.3%  96.4%  47% 22% 21% 9% 1% 100% (1)  Includes three properties under development in 2009 and five in 2008. (2)  The Company has changed its method of recording GLA and occupied space. See the “Leasing and Occupancy” section of this MD&A. Grocery stores and/or drugstores anchor over 85% of these shopping centres. The average size of the shopping centres is approximately  120,000 square feet with sizes ranging from 20,000 to over 500,000 square feet. 8        FIRST CAPITAL REALTY ANNUAL REPORT 2009             In Management’s view, one measure of the quality of a shopping centre is the ability of the centre to attract and retain quality  tenants. The Company’s top ten tenants by percent of total annual minimum rent, and their respective credit ratings, portfolio presence  and average remaining lease terms at December 31, 2009 are listed in the table below: Tenant    1  Sobeys (including Western Cellars)    2  Shoppers Drug Mart    3  Loblaws    4  Metro    5  Zellers/Home Outfitters    6  Canadian Tire    7  TD Canada Trust    8  Royal Bank    9  Canada Safeway  10  Staples  DBRS  Credit Rating  Number  of Stores  Percent of   Percent of  Total Canadian  Total Canadian  Remaining  Gross Leasable  Annualized  Lease Term  Square Feet  Area  Minimum Rent  in Years BBB  A (LOW)  BBB  BBB  A (LOW)  AA  AA  BBB  49  62  28  29  20  21  38  35  7  12  301  1,673,000  880,000  1,436,000  1,103,000  1,755,000  805,000  204,000  182,000  345,000  262,000  8,645,000  8.0%  4.2%  6.9%  5.3%  8.4%  3.9%  1.0%  0.9%  1.7%  1.3%  41.6%  7.4%  6.6%  5.2%  4.3%  3.8%  3.4%  2.1%  1.6%  1.4%  1.1%  36.9%  10.3 9.5 8.7 11.6 7.4 8.8 6.3 5.4 7.2 6.6 9.0 At December 31, 2009, the Company’s top 40 tenants, including the top ten above, represented 58.4% of the Company’s annualized  minimum rents and 61.4% of the gross leasable area in the Company’s portfolio. More than 77.1% of those rents in the top 40 are from  tenants who have investment grade credit ratings and who represent many of Canada’s leading supermarket operators, drugstore  chains, discount retailers, banks and other familiar shopping destinations. Furthermore, over 49.0% of the Company’s total annualized  minimum rents are from tenants who have investment grade credit ratings. Development and Redevelopment The Company pursues selective development and redevelopment activities including land intensification projects, either alone or with  joint-venture partners, in order to actively participate in growth markets and to achieve a better return on its portfolio. Investments in  development and redevelopment activities generally comprise approximately 5–8% of the Company’s total asset value at any given  time. Redevelopment projects at existing properties are carefully managed to minimize tenant downtime. Generally, redevelopment of  existing properties carries a lower risk profile relative to the returns due to the existing tenant base and the intensification opportunities.  These properties continue to operate during the planning, zoning and leasing phases of the project. The intensification activities are  focussed primarily on increasing retail space on a property and to a lesser degree, mixed use density, including office uses and  residential (certain properties only). The Company expects intensification activities to increase over the next several years. New  “greenfield” shopping centres are developed after obtaining anchor tenant lease commitments. The Company will sometimes carry  vacant space for a planned future expansion of tenants or reconfiguration of a property. To facilitate its development activities the  Company will acquire greenfield land sites in addition to sites or properties adjacent to existing properties. The Company strategically  manages its development activities to reduce development risks. Corporate Sustainability In 2009, the Company released its first Corporate Sustainability Report which outlines First Capital’s environmental sustainability  initiatives. The report formalizes the Company’s commitment to corporate sustainability and over time Management will develop  guidelines and benchmarks to measure performance and accomplishments. This report is available on the Company’s website at   www.firstcapitalrealty.ca.  Development projects built according to LEED certification standards is the cornerstone of the Company’s sustainability initiatives. Since May 2006, the Company has 36 “Green” LEED development projects underway in the planning stage, in the final stage of  development or completed. The LEED rating system is the internationally accepted benchmark for the design, construction, and operation of high performance  green buildings. Achieving LEED certification is the leading way for organizations to demonstrate that their building project is  environmentally friendly. The certification promotes a whole building approach to sustainability by recognizing performance in five key  areas of human and environmental health: sustainable site development, water savings, energy efficiency, materials selection and  indoor environmental quality. FIRST CAPITAL REALTY ANNUAL REPORT 2009        9                               MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Acquisitions of Income-Producing Properties Management seeks to acquire well-located neighbourhood and community shopping centres in the Company’s target urban markets  that it believes will provide an appropriate return on investment over the long term. The Company typically makes acquisitions of  individual properties that enhance the quality of its portfolio by virtue of their location, demographics and tenant base or that also have  redevelopment opportunities. Through acquisitions, the Company expands its presence in its target urban markets in Canada, in order  to continue to generate greater economies of scale and leasing and operating synergies. The Company also looks to acquire adjacent  or nearby sites and/or properties in a retail trade area where it has established a presence. In addition to one-off property transactions,  Management will look for strategic or portfolio acquisitions, in both existing markets and markets where the Company does not yet  have a presence. Historically, such portfolio opportunities with properties of the same quality as the Company’s are rare. Proactive Management The Company views proactive management of its existing portfolio and newly acquired properties as an important part of its strategy.  Proactive management encompasses continued investment in properties to ensure they remain attractive to quality retail tenants and  their customers over the long term. Specifically, Management strives to create and maintain the highest standards in lighting, parking,  access and general appearance of its properties. The Company’s proactive management strategies have historically contributed to  improvement in occupancy levels and average lease rates throughout the portfolio. The Company is fully internalized and all value creation activities including development management, leasing, lease administration  and legal, construction management and tenant co-ordination functions are directly managed and executed by experienced real estate  professionals. Employees with these real estate capabilities are located in each of the Company’s offices in Toronto, Montreal, Calgary,  Edmonton and Vancouver in order to effectively serve the major urban markets where First Capital Realty operates. The Company has acquired the remaining 40% ownership interest in the joint venture (“FCB”) with Brookfield LePage Johnson  Controls Facility Management Services that provides property management services for its properties. The acquisition was effective  January 2010 with no expected material change in operations or operating margins from the acquisition of this remaining interest. The  Company incurred costs of $0.8 million related to this transaction and the internalization. With full internalization of the systems infrastructure in 2010, the Company will focus on improving the quality and efficiency of its  activities together with supporting its human capital. The Company is primarily focussed on continued implementation, upgrading and  enhancing of the systems infrastructure for property management, development project costing and purchasing, budgeting and  forecasting tool, lease activity manager and central electronic First Capital Realty portal. Company Key Performance Measures There are many factors that contribute to the successful operation of First Capital Realty’s business including rental rates, renewal  rates, occupancy rates, tenant quality, availability of properties and development sites that meet the Company’s acquisition criteria,  financing rates, tenant inducements, maintenance and general capital expenditure requirements, development costs and the broader  economic environment. The Company quantifies the collective results of all of these factors into key measures: funds from operations  and adjusted funds from operations (“FFO” and “AFFO” respectively) per diluted share and the overall leverage level. FFO and AFFO  are non-GAAP measures of operating performance which are defined and reconciled to relevant GAAP measures in the “Results of  Operations” section of this MD&A. Despite the challenging economic environment throughout much of 2009, the Company has  continued to improve its key performance measures. FFO and AFFO The Company’s FFO and AFFO from core operations have shown consistent growth, resulting primarily from growth in net operating  income. (See definition in “Results of Operations” section of this MD&A.) This has been achieved through: •  development and redevelopment coming on line; •  active portfolio management, which ultimately results in higher occupancy and rental rates; and •  focussed and disciplined acquisitions of income producing properties. The Company has also enhanced its operating platform in order to create the efficiencies required to grow the portfolio while keeping  the growth in operating costs to a minimum. During 2009, the Company completed a strategic initiative to distribute to shareholders through a dividend-in-kind, the Company’s  interest in Gazit America Inc., which is the Canadian company that indirectly owned the Company’s interest in Equity One. Following  this transaction, the Company no longer has any interest in Equity One. As a result the FFO and AFFO per share are presented for core real estate operations and the amounts for Equity One and other  non-recurring gains/losses and expenses are segregated. See the FFO and AFFO section and Other Gains/Losses and Expenses in  this MD&A for further explanation. 10        FIRST CAPITAL REALTY ANNUAL REPORT 2009 FFO per diluted share – Core operations (2)  FFO per diluted share – EQY and other non-recurring items  Total FFO per diluted share (3)  AFFO per diluted share – Core operations (2)  AFFO per diluted share – EQY and other non-recurring items  Total AFFO per diluted share (3)  2009 2008(1)  2007(1) $ $ $ $ 1.54  0.08  1.62  1.40  0.08  1.48  $  $  $  $  1.53  0.14  1.67  1.38  0.09  1.47  $  $  $  $  1.48 0.13 1.61 1.34 0.08 1.42 (1)  Prior year comparative figures have been restated for a change in accounting standards. See “Summary of Changes to Significant Accounting Policies”  section of this MD&A. (2)  Excludes the effects of the Investment in Equity One and one-time transactional gains and losses as described in the Reconciliation of Funds from  Operations in “Results of Operations” section of this MD&A. (3)  Excludes dilution gains/losses on Equity One investment and the Company’s share of non-cash impairment losses recorded by Equity One. Leverage The key leverage ratios demonstrate that the Company has continued to maintain a conservative balance sheet despite the growth in  the portfolio. Management believes that this will continue to provide the Company with financial flexibility which is critical against a  backdrop of changing debt and equity markets. Debt to aggregate assets  Debt to market capitalization  2009 50.3%  45.9%  2008(1)  2007(1) 53.5%  52.6%  56.6% 48.8% (1)  Prior year comparative figures have been restated for a change in accounting standards. See “Summary of Changes to Significant Accounting Policies”  section of this MD&A. 2009 Performance Management undertook and completed many strategic, operational and property management initiatives in order to continue to  improve the key performance measures: Same property net operating income (“NOI”) growth, taking into account maintaining high occupancy Same property NOI growth was 6.8% for the year. This primarily resulted from redevelopment and expansion of shopping centres,  increases in portfolio occupancy and increasing rental rates on new tenants and renewals. Same property NOI growth, excluding lease  terminations was 5.6% for the year. Without redevelopment and expansion activity and excluding lease termination fees, same  property NOI growth was 1.7% for the year. Occupancy was 96.2% as of December 31, 2009 compared to 96.4% as at December 31, 2008. Development and redevelopment activities In 2009, the Company invested $209 million in development activities and portfolio improvements, bringing $268.4 million of  development and redevelopment on line. The Company delivered 754,000 square feet of newly developed and redeveloped space that was 94.4% occupied with an average  rental rate of $22.79 per square foot in 2009. The Company invested in its existing properties, including facades, lighting, signage and parking lots at various properties. In addition, the Company continued to build under LEED certification and launched a broader corporate sustainability initiative. Selective acquisitions In 2009, the Company invested $76.2 million in the acquisition of five income-producing shopping centres comprising 225,000 square  feet, two properties adjacent to existing shopping centres totalling 31,000 square feet, one land site, and four land parcels adjacent to  existing properties comprising a total of 9.7 acres. Increasing efficiency and productivity of operations During the year, the Company developed and implemented a strategic plan for full internalization of property management and system  infrastructure which includes integration of property management functions into the Company’s business operations. Management also implemented system enhancements and upgrades, a new development project costing system, a central electronic  FCR portal and other efficiency and process improvements as part of the preparation for full internalization in 2010 of the property  management infrastructure. These enhancements will set the foundation for further efficiency and productivity improvements in 2010. FIRST CAPITAL REALTY ANNUAL REPORT 2009        11                                                     MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Careful capital allocation to decrease dependence on capital markets The Company distributed, via dividend-in-kind, its interest in Equity One and the term loans and credit facilities secured by it. Following  this transaction the Company’s activities are solely focussed in Canada. The Company utilized multiple sources of debt and equity capital to finance the investments in development activities and  acquisitions during the year. • Completed a three-year $450 million secured revolving credit facility with a syndicate of ten banks, as well as a three-year  $75 million secured revolving credit facility in the first quarter of 2009. • Completed 13 mortgage financing transactions for gross proceeds of $187.3 million with a weighted average interest rate of  6.21% and a weighted average term to maturity of 8.5 years. • In the second half of 2009, the state of capital markets improved and the Company completed the issuance of $125 million  principal amount senior unsecured debentures and a further $125 million principal amount subsequent to December 31, 2009. • Raised gross proceeds of $189.8 million in equity capital from the issuance of common shares, warrants and convertible  debentures, also in the second half of 2009. SUMMARY CONSOLIDATED INFORMATION AND HIGHLIGHTS As at December 31 (thousands of dollars, except per unit and other financial data)  2009 2008(1)  2007(1) Operations Information     Number of properties (2)      Gross leasable area (square feet) (3)      Development land pipeline, including development         underway (acreage) (4)      Portfolio occupancy (3)      Rate per occupied square foot      Gross leasable area brought on line for the year (square feet)      Same property net operating income (“NOI”)         – increase over same prior year      Same property NOI excluding expansion and redevelopment         – increase over same prior year      Same property NOI excluding one-time lease termination fees        and excluding expansion and redevelopment         – increase over same prior year  Financial Information     Gross shopping centre investments (5)      Land and shopping centres under development      Real property investments, net book value      Investment in Equity One, Inc.      Total assets      Total aggregate assets (6)      Mortgages, loans and credit facilities unsecured or secured        by Canadian properties      Loans and credit facilities secured by investment in       Equity One      Senior unsecured debentures payable       Convertible debentures payable       Shareholders’ equity  Capitalization and Leverage     Shares outstanding      Enterprise value (7)      Debt to aggregate assets (6)      Debt to market capitalization (6)  12        FIRST CAPITAL REALTY ANNUAL REPORT 2009 175  20,812,000  171    20,166,000  161   19,382,000 295  96.2%  15.71    754,000  $ 352  96.4%  15.17    835,300  $  394 95.3% 14.56   521,400 $  6.8%  3.8%  2.7%  2.1%  4.9% 3.4% 1.7%  2.1%  3.4% $ 3,725,023  $ 224,772  $ 3,540,358  $ —  $ 3,691,643  $ 4,105,827  $  3,394,729  $  281,959  $  3,350,410  $  227,259  $  3,707,625  $  4,034,366  $  3,071,159 $  284,077 $  3,107,489 $  191,536 $  3,399,106 $  3,640,724 $ 1,354,668  $  1,419,758  $  1,343,138 $ —  $ 717,040  $ 329,739  $ 1,095,843  $  153,772  $  593,288  $  218,247  $  1,095,146  $  127,976 $  595,376 $  217,030 $  950,759   96,045,394  $ 4,507,560  50.3%  45.9%  90,002,581  $  4,110,879  53.5%  52.6%    79,681,929 $  4,218,074 56.6% 48.8%                                                             Year ended December 31 (thousands of dollars, except per share amounts and other financial data)  2009 2008(1)  2007(1) Revenues and Income     Revenues      Net operating income (8)      Corporate expenses, excluding capital taxes and         non-cash compensation          As a percent of rental revenue          As a percent of gross total assets      Other (losses) gains and (expenses)      Net income      Basic and diluted earnings per share  Equity One (through August 14, 2009 – see “Equity One” section of this MD&A)     Equity income (Cdn$)      Dividends from Equity One (Cdn$)      Dividends from Equity One (US$)      Average exchange on dividends (US$ to Cdn$)  Dividends     Regular dividends      Dividend-in-kind (book value) (9)      Regular dividends per common share      Dividend-in-kind per common share (fair value) (9)      Dividends reinvested by shareholders   Funds from Operations (“FFO”) (10)     FFO       FFO per diluted share      Weighted average diluted shares – FFO  FFO – Core Operations (10)     FFO       FFO per diluted share  Adjusted Funds from Operations (“AFFO)” (10)     AFFO       AFFO per diluted share      Weighted average diluted shares – AFFO  AFFO – Core Operations (10)     AFFO       AFFO per diluted share  $ 447,743  $ 285,177  $  411,751  $  261,040  $  378,874 $  243,736 $ $ $ $ $ $ $ 17,491  4.0%  0.4%  (1,414)  41,913  0.45  7,066  12,452  10,514  1.18  $  $  $  $  $  $  $  16,490  4.0%  0.4%  7,281  37,341  0.43  8,716  18,193  16,809  1.08  $ 120,731  63,525  $ 1.28  $ 0.45  $ —  $ $  113,116  —  $  1.28  $  —  $  40,331  $  $  $  $  $  $  $  $  $  $  $  $  $  17,425 4.6% 0.5% 3,124 30,410 0.39 14,375 17,617 16,756 1.05 98,688 — 1.26 — 76,316 $ 151,320  1.61  $   93,868,815  $  141,345  1.62  $    87,260,224  $  126,204 1.61 $    78,427,583 $ 144,359  1.54  $ $  133,322  1.53  $  $  116,042 1.48 $  $ 151,831  $ 1.48  102,934,634  $  140,743  $  1.47  95,586,511  $  122,481 1.42 $    86,304,978 $ 143,464  1.40  $ $  132,382  1.38  $  $  115,669 1.34 $  (1)  Prior year comparative figures have been restated for a change in accounting standards. See “Summary of Changes to Significant Accounting Policies”  section of this MD&A. (2)  Includes properties currently under development. (3)  The Company has changed its method of recording GLA and occupied space. See the “Leasing and Occupancy” section of this MD&A. (4)  Net of partners’ interests. (5)  Gross shopping centre investments is comprised of the gross book value of shopping centres, deferred leasing costs and intangible assets less intangible  liabilities. (6)  Calculated in accordance with the unsecured debentures indenture definitions for the period. (7)   Enterprise value is a non-GAAP measure and is calculated as equity market capitalization plus the book value of mortgages and credit facilities, and the  principal amount of debentures and convertible debentures outstanding. (8)  Net operating income is a non-GAAP measure of operating performance. See definition of Net Operating Income in “Results of Operations” section of this  MD&A. (9)  See discussion of Dividend-in-kind in “Equity One, Inc.” section of this MD&A. (10)  FFO and AFFO are measures of operating performance that are not defined by GAAP. See Definition and Reconciliation of Funds From Operations in  “Results of Operations” section of this MD&A. FIRST CAPITAL REALTY ANNUAL REPORT 2009        13                           MANAGEMENT’S DISCUSSION AND ANALYSIS – continued BUSINESS AND OPERATIONS REVIEW Real Estate Investments A summary of the Company’s real estate investments is set out below. (millions of dollars)  December 31, 2009 December 31, 2008(1) Shopping centres  Deferred leasing costs  Intangible assets  Intangible liabilities  Land and shopping centres     under development  Real property investments  Investment in Equity One, Inc.(2)  Loans, mortgages and other     real estate assets  Real estate investments  Gross Book Accumulated Net Book  Gross Book  Accumulated  Value Amortization Value  Value  Amortization  $ $ 3,663 31 53 (22) 225   3,950 — 59 $ 4,009 $ 375 14 30 (9) — 410 — — 410 $ 3,288  17  23  (13)  $  3,339  27  54  (25)  $  225  3,540  —  282    3,677  227  59  $ 3,599  32  $  3,936  $  299  11  24  (8)  —  326  —  —  326  Net Book Value $  3,040 16 30 (17) 282   3,351 227 32 $  3,610 (1)  Prior year comparative figures have been restated for a change in accounting standards. (2)  See discussion of Dividend-in-kind in “Equity One, Inc.” section of this MD&A. The Company’s total investments in its acquisition, development and portfolio improvement activities is summarized as follows: (millions of dollars)  Gross real property investments, January 1  Acquisition of income-producing properties  Acquisition of additional interests in existing properties and land parcels  Acquisition of additional space and land parcels adjacent to existing properties    and properties held for development  Acquisition of land for development  Development activities and portfolio improvements  Disposition of real estate  Other    Gross real property investments, December 31  Gross shopping centre investments  Land and shopping centres under development  Gross real property investments, December 31  (1)  Prior year comparative figures have been restated for a change in accounting standards. 2009 3,677  60  —  16  —  209  (4)  (8)  3,950  3,725  225  3,950  $  $  $  $  2008(1) 3,355 52 2 16 6 258 (9) (3) 3,677 3,395 282 3,677 $ $ $ $ The Company’s operating activities are comprised of acquisitions of income-producing properties, acquisitions of additional space   and land parcels at or adjacent to existing income-producing properties, acquisitions of land sites for future development, capital  improvements and leasing at the Company’s properties. These operating activities for 2009 and 2008, along with the Company’s  interest in Equity One, are discussed below. Income-Producing Properties As at December 31, 2009, the Company had interests in 175 income-producing properties which were 96.2% occupied with a total  GLA of 20,812,000 square feet. This compares to 96.4% occupied and 20,166,000 square feet at December 31, 2008. The occupancy  in the portfolio is discussed in more detail under the “Leasing and Occupancy” section of this MD&A. 14        FIRST CAPITAL REALTY ANNUAL REPORT 2009                                                                                                                                                     2009 Acquisitions In 2009, the Company invested $60.5 million in the acquisition of five income-producing shopping centres, comprising 225,000 square  feet. Of these properties, four were anchored by supermarkets and one was anchored by a drugstore. These acquisitions are in the  Company’s target urban markets and demonstrate the Company’s continuing focus on these urban markets. The acquisitions, all of  which were completed on an individual basis, are summarized in the table below. Quarter  Supermarket-  Drugstore-  Leasable Area  Acquisition Cost  Gross  Property Name  City  Province  Acquired  Anchored  Anchored  (Square Feet)  (in millions) Danforth-Sobeys  St. Denis  Meadowbrook Centre  Langford Centre  Cranston Market  Total  Toronto  Montreal  Edmonton  Victoria  Calgary  ON  QC  AB  BC  AB  Q1  Q2  Q2  Q3  Q4  4  —  4  4  4  —  4  —  —  —  27,000  11,000  42,000  65,000  80,000  225,000  $  $  5.8 3.5 8.8 10.3 32.1 60.5 During the year, the Company also sold a 66,000 square foot retail property in Regina, Saskatchewan for cash proceeds of $1.5 million  and a vendor-take-back mortgage of $2.3 million, resulting in a gain of $0.5 million. Additional Space and Adjacent Land Parcels In 2009, the Company acquired additional space at two existing shopping centres and four land parcels adjacent to existing properties  adding 31,000 square feet of gross leasable area and 1.3 acres of commercial land. Total expenditures on these additional interests  and land parcels amounted to $8.0 million. These acquisitions are set out in the table below. Property Name  City  Province  Quarter  Acquired  Leasable Area  Acquisition Cost  Acreage  (Square Feet)  (in millions) Gross  Petro Canada Lands     (Bowmanville A&P)  4543 Kingston Road     (Morningside Crossing)  1100 King St. W     (Shops at King Liberty)  115 Laird (Leaside Village)  Danforth-Sobeys 2  Place Lucerne (Centre D’Achats     Ville Mont-Royal)  Total  Bowmanville  Toronto  Toronto  Toronto  Toronto  Mont Royal  ON  ON  ON  ON  ON  QC  Q1  Q1  Q4  Q4  Q4  Q4  0.4  0.3  0.5  0.1  —  —  1.3  —  —  —  —  4,000  27,000  31,000  $  0.4  1.0 1.3  0.8 0.9 3.6 8.0 $  2009 Acquisition of a Property held for Development During 2009, the Company invested $7.7 million in the acquisition of one property in Toronto, Ontario held for development, comprising  8.4 acres of commercial land for future development. Impact of 2009 Acquisitions on Continuing Operations Management will continue to be selective and take a highly disciplined approach to increasing the size and quality of the Company’s  property portfolio, seeking acquisitions that are both operationally and financially accretive over the long term. Management looks for  benefits from economies of scale and operating synergies in order to strengthen the Company’s competitive position in its target urban  markets. As well, Management seeks to enhance the tenant and geographic diversification of the portfolio. The 2009 acquisitions are in line with the Company’s business strategy based on their locations, tenancies and redevelopment or  expansion opportunities. Subsequent to December 31, 2009, the Company invested $61 million in the acquisition of one income-producing property totalling  66,000 square feet in Victoria, BC, one property adjacent to an existing shopping centre totalling 15,000 square feet, two properties  held for future development and two land parcels adjacent to existing properties comprising a total of 5.0 acres of commercial land for  future development. FIRST CAPITAL REALTY ANNUAL REPORT 2009        15                                                                       MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 2009 Development Activities Development is completed selectively, based on opportunities in the markets where the Company operates. Development activities are  comprised of greenfield development of new shopping centres, redevelopment and refurbishment of existing shopping centres and  expansion of space at existing shopping centres. All development activities are strategically managed to reduce risks and properties  are developed after obtaining anchor lease commitments. Development of 620,400 square feet was brought on line in 2009 with 578,300 square feet leased at an average rate of $22.82 per  square foot. The Company also reopened 133,600 square feet of redeveloped space at an average rate of $22.67 per square foot. Property Name  City  Province  Square Feet  Major Tenants  Development of new gross leasable area (1) Rutherford Marketplace (2)  Vaughan  ON  95,800  Towerlane Centre (2)  Hunt Club (2)  Derry Heights (2)  Morningside Crossing (2)  McKenzie Towne Centre (2)  Bowmanville  Olde Oakville (2)  Grimsby Square Shopping Centre (2)  Dickson Trail Crossing (2)  Carrefour St. Hubert (2)  King Liberty Village – Barrymore Building (2)  Sherwood Centre  Eagleson Place (2)  Thai House (2)  Place Kirkland  Carrefour St. David (2)  Other space – various properties  Airdrie  Ottawa  Milton  Toronto  AB  ON  ON  ON  AB  Calgary  ON  Bowmanville  ON  Oakville  ON  Grimsby  AB  Airdrie  QC  St. Hubert  Toronto  ON  Sherwood Park  AB  ON  Ottawa  Vancouver  BC  QC  Kirkland  QC  Quebec City   Longo’s, Shoppers Drug Mart, RBC,  Pathways Academy  Super Drug Mart, Gold’s Gym, Dollarama 61,100  60,800  T & T Supermarket 45,200  CIBC, RBC, Shoppers Drug Mart 35,600  LCBO, Westmarine  Shoeless Joe’s, Royal Lepage,  FCR Property Management 30,900  TD Canada Trust, Brewsters 22,700  Staples, The Beer Store 22,200  20,000  Canadian Tire (expansion), The Beer Store 18,400  Starbucks, Brewsters, Other CRU 18,300  McDonald’s 17,800  Altus Architecture 17,000  Shoppers Drug Mart 13,900  Westend Family Care Clinic 12,200  TD Canada Trust, Boston Pizza 12,100  10,400  Uniprix IGA (Expansion) 106,000 620,400 Redevelopment of existing gross leasable area Northgate Centre  Edmonton  AB  64,600   Capital Health Authority,   Edmonton Musculoskeletal Centre,   Labour Market, The X-Ray Clinic Centre Commercial Beaconsfield (2)  Coronation Mall  Sherwood Centre  Galeries Normandie  Other space – various properties  Total  Beaconsfield  Duncan  Edmonton  Montreal  QC  BC  AB  QC  19,100  Shoppers Drug Mart 18,500  Shoppers Drug Mart 9,900  Dollarama 6,000  Bank of Montreal 15,500 133,600 754,000 (1)  Includes new space created in redevelopment properties and greenfield developments. (2)  Constructed in accordance with Leadership in Energy and Environmental Design (LEED) certificate guidelines. 16        FIRST CAPITAL REALTY ANNUAL REPORT 2009                         The 2009 development of 754,000 square feet compares with 835,300 square feet developed in 2008. The developed space,  including redevelopment was 94.4% occupied when transferred to income-producing shopping centres at an average rental rate of  $22.79 per square foot. These successfully completed development projects illustrate the potential future value of investments in  ongoing development initiatives that are not yet generating income, but are expected to contribute to the growth of the Company. The Company’s development sites and properties as at December 31, 2009 are summarized as follows: Number of  Sites/Properties  Developable  Square Feet(1)  Acreage(1)  (in thousands)  Development properties under construction  Redevelopment projects underway  Expansion projects underway  Properties held for development  Land parcels adjacent to/part of existing properties  Land parcels adjacent to/part of existing properties available    for expansion  Other development related costs  Total  (1)  Net of partners’ interests. 3  8  6  10  22  12  —  61  21.9  21.5  5.0  125.9  94.6  26.4  —  295.3  204.6  467.8  53.9  1,155.0  1,039.5  251.7  —  3,172.5  Net  Book Value (in millions) $  39.4 47.7 8.9 60.5 58.5 — 9.8 $  224.8 As at December 31, 2009, 726,300 square feet of gross leasable area was under development, redevelopment or expansion on  48.4 acres of land sites or parcels of land adjacent to existing properties. Costs to complete these developments are estimated to   be approximately $120.2 million, the majority of which will be incurred in 2010 and the first quarter of 2011. In the management of   its development and expansion program, the Company utilizes dedicated internal professional staff. Direct and incremental costs   of development, including applicable salaries and other direct costs of internal staff, are capitalized to the cost of the property   under development. At December 31, 2009, six land sites included in properties held for development and land parcels adjacent to/part of existing  properties comprising the Company’s net interest of 89.2 acres and developable square feet totalling 759,000 square feet are in the  planning stage of development. In addition, the Company is actively planning future redevelopment and/or expansion at 20 additional  shopping centres. 2008 Acquisitions Income-Producing Properties In 2008, First Capital Realty expanded its portfolio through various acquisitions as set out below. Quarter  Supermarket-  Drugstore-  Leasable Area  Acquisition Cost  Gross  Property Name  City  Province  Acquired  Anchored  Anchored  (Square Feet)  (in millions) Derry Heights Plaza  Deer Valley Shopping Centre  216 Elgin Street  Gorge Shopping Centre  Total  Milton  Calgary  Ottawa  Victoria  ON  AB  ON  BC  Q1  Q3  Q3  Q4  —  4  —  —  —  4  —  4  49,000  196,000  12,100  35,000  292,100  $  $  4.1 31.6 5.9 10.6 52.2 During 2008, the Company also sold a 26,000 square foot retail property in Regina, Saskatchewan for cash proceeds of $3.6 million,  resulting in a gain of $1.6 million. FIRST CAPITAL REALTY ANNUAL REPORT 2009        17                                                           MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Additional Space and Adjacent Land Parcels In 2008, the Company acquired one land site adjacent to an existing property held for development and seven land parcels at or  adjacent to existing properties adding 12.5 acres of commercial land. Total expenditures on these additional interests and land parcels  amounted to $16.6 million. These acquisitions are set out in the table below. Property Name  Milton Land (Derry Heights Plaza)  395, 425, 435 St. Charles   (Marche du Vieux Longueuil)  Kanata Terry Fox (Eagleson Place)  Petro Canada (Hunt Club Place)  South Fraser Gate Lane   (South Fraser Gate)  437 Greber (Place Nelligan)  4411 Kingston Road   (Morningside Crossing)  Nanaimo Conference Centre  Total  City  Milton  Longueuil  Ottawa  Ottawa  Abbotsford  Gatineau  Toronto  Nanaimo  Province  Quarter  Acquired  Acquisition Cost  Acreage  (in millions) ON  QC  ON  ON  BC  QC  ON  BC  Q1  Q1  Q1  Q1  Q1  Q2  Q3  Q3  6.19  3.29  0.01  1.50  0.01  0.78  0.31  0.36  12.45  $  4.2 4.7 0.1 0.7 0.1 1.1 1.7 4.0 $  16.6 The Company sold four excess land parcels totalling 18.9 acres for gross proceeds of $11.0 million resulting in a total gain of  $3.9 million. In addition, in 2008 the Company acquired an additional 25% interest in an existing land parcel for future development   in exchange for $1.6 million. 2008 Acquisition of Properties Held for Development During 2008 the Company invested $5.7 million in the acquisition of two properties held for development, comprising 9.5 acres of  commercial land for future development, as set out in the table below. Property Name  City  Province  Bowmanville A&P  1475 Huron Church  Total  Bowmanville  Windsor  ON  ON  Quarter  Acquired  Q1  Q1  Acquisition Cost  Acreage  (in millions) 1.72  7.80  9.52  $  $  2.7 3.0 5.7 18        FIRST CAPITAL REALTY ANNUAL REPORT 2009                                             2008 Development Activities In 2008, the Company developed 835,300 square feet of retail space as detailed below. Property Name  City  Province  Square Feet  Major Tenants  Development of new gross leasable area (1) Morningside Crossing (2)  Westmount Shopping Centre  Carrefour St. Hubert (2)  Brantford Mall (2)  Barrymore Building (2)  Centre Commercial Beaconsfield (2)  Marche Du Vieux Longueuil (2)  McKenzie Towne Centre (2)  Shoppes On Dundas (2)  Grimsby Square Shopping Centre (2)  Strandherd Crossing  South Fraser Gate (2)  Towerlane Mall (2)  Carrefour St. David (2)  Other space – various properties  Toronto  ON  116,300   Shoppers Drug Mart, Food Basics,  GoodLife Fitness, LCBO Edmonton  Longueuil  Brantford  Toronto  Beaconsfield  Longueuil  Calgary  Oakville  Grimsby  Ottawa  Abbotsford  Airdrie  Quebec City  AB  QC  ON  ON  QC  QC  AB  ON  ON  ON  BC  AB  QC  87,000  Home Depot 78,800  Super C, SAQ, Remax, Purina Canada 67,100  Cineplex, LCBO 51,200  EMI Music Canada, West Elm 50,300  Metro, Royal Bank 39,000  Metro 29,400  GoodLife Fitness 28,100  Shoeless Joe’s 26,000  Shoppers Drug Mart, Mark’s Work Wearhouse 20,000  GoodLife Fitness 17,800  Shoppers Drug Mart 17,800  TD Bank 14,400  McDonald’s 97,600 740,800 Redevelopment of existing gross leasable area Langley Crossing Shopping Centre (2)  Langley  BC  19,000   Shoppers Home Health Care,  Long & McQuade Fairmount Shopping Centre  Steeple West Hill (2)  Westmount Shopping Centre  Airdrie Village Square (2)  Other space – various properties  Total  Calgary  Pickering  Edmonton  Airdrie  AB  ON  AB  AB  18,200  Sobeys 18,200  Allstate, Shoppers Drug Mart 17,900   Blockbuster, Smitty’s Restaurant,   Alberta Cancer Board 8,600 12,600 94,500 835,300 (1)  Includes new space created in redevelopment properties and greenfield developments. (2)  Constructed in accordance with Leadership in Energy and Environmental Design (LEED) certificate guidelines. The developed space, including redevelopment was 97.5% occupied when transferred to income-producing shopping centres at an  average rental rate of $19.70 per square foot. At December 31, 2008, the Company had 352 acres of land sites and parcels available  for development. Number of  Sites/Properties  Developable  Square Feet(1)  Acreage(1)  (in thousands)  Development properties under construction  Redevelopment projects underway  Expansion projects underway  Properties held for development  Land parcels adjacent to/part of existing properties  Land parcels adjacent to/part of existing properties available     for expansion  Other development related costs  Total  (1)  Net of partners’ interests. 5  7  3  8  25  11  —  59  51.9  54.4  7.9  108.8  103.1  25.6  —  351.7  303.8  305.9  90.4  1,012.5  991.2  244.5  —  2,948.3  Net  Book Value (in millions) $  79.3 59.3 10.8 45.7 70.2 — 16.7 $  282.0 FIRST CAPITAL REALTY ANNUAL REPORT 2009        19                                                 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Expenditures on Land and Shopping Centres under Development and Shopping Centres Revenue sustaining and enhancing expenditures are as follows: (thousands of dollars)  Expenditures on: Deferred leasing costs     Revenue sustaining      Revenue enhancing      Other items and adjustments  Shopping centres     Revenue sustaining      Revenue enhancing      Property repositioning      Expenditures recoverable from tenants (2)      Other items and adjustments  Land and shopping centres under development  Total     2009 2008(1) $ $  2,999  2,083  (60)  5,022  2,783 1,357 (107) 4,033 10,846  16,781  550  7,102  30  35,309    168,110  $ 208,441  9,083 11,675 1,004 4,397 460 26,619   227,775 $  258,427 (1)  Prior year comparative figures have been restated for a change in accounting standards. (2)  Expenditures recoverable from tenants were previously included in other assets. See the “Summary of Changes to Signifcant Accounting Policies” section  of this MD&A. Revenue sustaining capital expenditures are expenditures required for maintaining shopping centre infrastructure and revenues from  current leases. Typically, these expenditures range from $0.50 to $0.70 per square foot per annum over a longer term. Actual revenue  sustaining expenditures per square foot over the past three years are as follows: 2007 – $0.49; 2008 – $0.60 and 2009 – $0.68. During  each of 2008 and 2009, the Company increased its expenditures on roof and parking lot replacements at several of its centres which  will reduce its maintenance expenditures at these centres going forward. Revenue enhancing and repositioning are those expenditures which increase the revenue generating ability of the Company’s  shopping centres. Management considers the potential effects on occupancy and future rents per square foot, development activities,  the time leasable space has been vacant and other factors when assessing whether an expenditure is revenue enhancing or  sustaining. The Company’s active development and property improvement initiatives improve the physical structures and appearance of its  shopping centres. At December 31, 2009 the age of the Company’s portfolio was as follows: 5 years or newer  6 –10 years  11–15 years  16 – 20 years  Over 20 years 35%  28%  14%  9%  14% 20        FIRST CAPITAL REALTY ANNUAL REPORT 2009                                                                                                                         Leasing and Occupancy Changes in the Company’s gross leasable area and occupancy are set out below: Total  Square Feet  Occupied  Square Feet Under Redevelopment  Vacant  Rate Square Feet Square Feet  Per Occupied (thousands)  (thousands)  %  (thousands)  %  (thousands)  %  Square Foot December 31, 2008 (1) Tenant openings  Tenant closures  Closures for redevelopment  Net new leasing  Developments – coming on line  Redevelopments – coming on line  Demolitions  Dispositions  Reclassification  Total portfolio before acquisitions  Acquisitions  December 31, 2009   Renewals    Renewals – expired  Net increase per square foot from renewals  % Increase on renewal of expiring rents  20,166 —  —  —  —  620  —  (168)  (66)  3  20,555  257  20,812 —  —  19,448 493  (632)  (174)  (313)  578  134  —  (49)  (3)  19,795  238  20,033 1,246  (1,246)  96.4% 96.2% 1.4% 0.7% 274 —  —  174  174  —  (134)  (140)  —  (31)  143  —  143 —  —  2.2% 3.1% 444 (493)  632  —  139  42  —  (28)  (17)  37  617  19  636 —  —  $ 15.17   18.89   (16.37)   (16.34) —   22.82   22.67 — (4.04) —   15.53   21.52 $ 15.71 $  18.71   (16.54) 2.17 $    13.1% (1)  The Company has changed its method of recording GLA and occupied space to include tenants that are fixturing newly developed or redeveloped space  and are not yet open. The December 31, 2008 figures have been restated to include this change. For the year ended December 31, 2009, gross new leasing including development and redevelopment space totalled 1.2 million  square feet. Renewal leasing totalled 1.2 million square feet with a 13.1% increase over expiring lease rates. The average rate per occupied square foot at December 31, 2009 increased to $15.71. This compares to an average rate of  $15.17 per square foot at December 31, 2008 and $15.54 at September 30, 2009. Portfolio occupancy at December 31, 2009 of 96.2% compares to 96.0% at September 30, 2009 and 96.4% at December 31, 2008.  Closures for redevelopment totalled 174,000 square feet for 2009 providing potential for future income growth through leasing and  redevelopment activities. Equity One, Inc. (“Equity One”) (thousands of dollars, except per share and other data) (1)  % Ownership as at December 31  Investment in Equity One, Inc. (Cdn$) as at December 31  Funds from operations from Equity One, Inc. (Cdn$) (2)  Funds from operations from Equity One, Inc. (US$) (2)  Dividends from Equity One (Cdn$)  Dividends from Equity One (US$)  Average exchange on dividends (US$ to Cdn$)  Equity One dividends per common share (Cdn$)  Equity One dividends per common share (US$)  (1)  Current year amounts cover period to August 14, 2009. (2)  Excludes the Company’s share of Equity One’s non-cash impairment loss in 2008. 2009 2008 —  —  15,009  12,631  12,452  10,514  1.18  0.89  0.75  18.5% $  227,259 20,005 $  18,919 $  18,193 $  16,809 $  1.08 1.28 1.20 $  $  $ $ $ $ $ $ $ FIRST CAPITAL REALTY ANNUAL REPORT 2009        21                                                                                                                                                                                               MANAGEMENT’S DISCUSSION AND ANALYSIS – continued On August 14, 2009, First Capital Realty completed the dividend-in-kind of the Company’s interest in Gazit America Inc. (formerly  known as First Capital America Holding Corp.) (“Gazit America”). Gazit America is a Canadian company that, indirectly, owns shares   in Equity One (approximately 14.1 million shares), the debt secured by the Equity One shares (approximately US$100 million) and  certain other liabilities, including subordinated debt owing to First Capital Realty in the amount of approximately US$36 million. As a  result of this dividend-in-kind, First Capital Realty no longer has any ownership interest in Equity One. Equity One is a United States  REIT traded on the New York Stock Exchange (“NYSE”) under the ticker symbol EQY. Gazit America Inc. had an initial fair value of $41.5 million or $0.45 per First Capital Realty common share on August 14, 2009.  Under relevant accounting rules, the dividend has been recorded at the carrying value of the assets and liabilities transferred, adjusted  for accumulated other comprehensive income. Note 7 to the annual financial statements for 2009 contains a complete reconciliation of  the carrying amounts. The carrying value of the dividend was adjusted in the fourth quarter of 2009 when Equity One announced the  final taxable percentage of its dividends for 2009, and when the Company completed its final future income tax calculations for the year  ended December 31, 2009. Loans, mortgages and other real estate assets (thousands of dollars)  Non-revolving term loan receivable from Gazit America Inc. (a)  Investments in marketable securities (b)  Vendor-take-back mortgage (c)  Other loans receivable (d)  2009 37,836  7,979  2,300  11,105  59,220  $ $ 2008 — 22,788 — 9,692 32,480 $  $  (a)  The non-revolving unsecured term loan receivable from Gazit America Inc. in the amount of US$36.0 million, bears interest at  8.5% per annum calculated semi-annually, payable quarterly and is due June 19, 2014, subject to Gazit America Inc.’s option to  extend the maturity date for a further five-year period. The principal amount of the loan is prepayable from and after August 14, 2012. (b)  The Company invests from time to time in the securities of public real estate entities. These securities are recorded at market  value. Unrealized gains and losses on available-for-sale securities are recorded in other comprehensive income, while unrealized  gains and losses on securities held-for-trading are recorded in net income.   During the year ended December 31, 2009, the Company sold 3,233,200 units of Allied Properties REIT (“Allied”) and recorded  a gain on disposition of the units of $7.7 million. This gain includes the amount of the Allied distributions that were recorded as a  return of capital for accounting purposes of $2.5 million. The gain based upon the difference between the sale proceeds and the  original cost of the units was $5.2 million. Subsequent to year-end the Company has sold the remaining 220,000 units of Allied at a  weighted average selling price of $19.18 for gross proceeds of $4.2 million. (c)  The vendor-take-back mortgage obtained on the sale of a shopping centre bears interest at 7% per annum, payable monthly and  is due on January 1, 2011. (d)  Other loans receivable primarily consist of loans to co-owners on development properties, which bear a weighted average interest  rate of 6.9% at December 31, 2009 and are secured by the co-owners’ interest in the property. 22        FIRST CAPITAL REALTY ANNUAL REPORT 2009                                                         RESULTS OF OPERATIONS Funds from Operations and Adjusted Funds from Operations In Management’s view, funds from operations (“FFO”) and adjusted funds from operations (“AFFO”) are commonly accepted and meaningful indicators of financial performance in the real estate industry. First Capital Realty believes that financial analysts, investors and shareholders are better served when the clear presentation of comparable period operating results generated from FFO and AFFO disclosures supplement Canadian generally accepted accounting principles (“GAAP”) disclosure. These measures are the primary methods used in analyzing real estate organizations in Canada. The Company’s method of calculating FFO and AFFO may be different from methods used by other corporations or REITs (real estate investment trusts) and, accordingly, may not be comparable to such other corporations or REITs. FFO and AFFO are presented to assist investors in analyzing the Company’s performance. FFO and AFFO: (i) do not represent cash flow from operating activities as defined by GAAP, (ii) are not indicative of cash available to fund all liquidity requirements, including payment of dividends and capital for growth and (iii) are not to be considered as alternatives to GAAP net income for the purpose of evaluating operating performance. Funds from Operations (“FFO”) First Capital Realty calculates FFO in accordance with the recommendations of the Real Property Association of Canada (“RealPac”).  The definition is meant to standardize the calculation and disclosure of FFO across real estate entities in Canada, modelled on the  definition adopted by the National Association of Real Estate Investment Trusts (“NAREIT”) in the United States. FFO as defined by  RealPac differs in two respects from the definition adopted by NAREIT. Under the RealPac definition, future income taxes are excluded  from FFO, whereas under the NAREIT definition, they are included. In addition, impairment losses on depreciable assets are excluded  from the RealPac FFO definition, whereas the NAREIT definition includes them. As a result, when calculating FFO, the Company  adjusts the FFO reported by Equity One to comply with the RealPac definition, when appropriate. FFO is considered a meaningful additional measure of operating performance, as it excludes amortization of real estate assets.  Amortization expense assumes that the value of real estate assets diminishes predictably over time, which is clearly not a valid  assumption. FFO also adjusts for certain items included in GAAP net income that may not be the most appropriate determinants   of the long-term operating performance of the Company including gains and losses on depreciable real estate assets. Funds from Operations The Company’s GAAP net income is reconciled to funds from operations below: (thousands of dollars)  Net income for the year  Add (deduct):     Amortization of shopping centres, deferred leasing costs and intangible assets      Gain on disposition of income-producing shopping centres      Equity income from Equity One (2)      Funds from operations from Equity One (2)      Future income taxes  FFO     Add: the Company’s share of Equity One’s non-cash impairment loss  Add (deduct): dilution loss (gain) on Equity One investment  FFO excluding dilution loss on Equity One investment and the Company’s share of    Equity One’s non-cash impairment loss  2009 2008(1) $ 41,913  $  37,341 94,501  (737)  (7,066)  15,009  7,700    151,320  —  676  85,585 (1,631) (8,716) 12,502 16,264   141,345 7,503 (2,898) $ 151,996  $  145,950 (1)  Prior year comparative figures have been restated for a change in accounting standards. (2)  Current year amounts cover period to August 14, 2009. See discussion of dividend-in-kind in the “Equity One, Inc.” section of this MD&A. FIRST CAPITAL REALTY ANNUAL REPORT 2009        23                                                                                 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued The components of FFO are: (thousands of dollars)  Net operating income  Interest expense – Canadian operations  Interest expense – US operations  Corporate expense  Interest and other income  Other (losses) gains and (expenses) (2)  Funds from operations from Equity One (3)  Amortization of non-real estate assets  Current income taxes  FFO excluding Equity One’s non-cash    impairment loss and dilution (loss) gain    on Equity One investment  Add: the Company’s share of Equity One’s    non-cash impairment loss  Add: Dilution (loss) gain on Equity One    investment  FFO  FFO per diluted share excluding Equity One’s    non-cash impairment loss and dilution gain    on Equity One investment  Add: the Company’s share of Equity One’s    non-cash impairment loss  Add: Dilution (loss) gain on Equity One    investment  FFO per diluted share  2009 FFO –  EQY and  Other Non-  recurring Items 2008(1) FFO – EQY and Other Non- recurring  Items  Total FFO Total  FFO  FFO – Core  Operations  $ — — (5,364) — — (1,475) 15,009 — (533) $ 285,177  (120,101)  (5,364)  (22,122)  5,612  (1,475)  15,009  (4,207)  (533)  $  261,040   (105,541)  —    (21,577)  1,559  —  —  (2,159)  —  $  —  —  (8,144)  —  —  2,752    20,005  —  (1,985)  $  261,040  (105,541) (8,144)   (21,577) 1,559 2,752   20,005 (2,159) (1,985) FFO – Core Operations $ 285,177  (120,101) —   (22,122) 5,612 — — (4,207) —   144,359 7,637 151,996    133,322    12,628    145,950 — — —  —  (7,503)  (7,503) — $ 144,359 (676) 6,961 (676)  $ 151,320  —  $  133,322  2,898  8,023  2,898 $  141,345 $  $ $ 1.54 $ 0.08 $ 1.62  $  1.53  $  0.14  $  1.67 — — —  —  (0.09)  (0.09) — 1.54 $ (0.01) 0.07 $ (0.01)  1.61  $  —  1.53  $  0.04  0.09  $  0.04 1.62 $ Weighted average diluted shares – FFO   93,868,815 93,868,815 93,868,815   87,260,224   87,260,224   87,260,224 (1)  Prior year comparative figures have been restated for a change in accounting standards. (2)  Excludes gains on disposition of income-producing real estate. (3)  Current year amounts cover period to August 14, 2009. See discussion of dividend-in-kind in the “Equity One, Inc.” section of this MD&A. The Company’s funds from operations – core operations for the year ended December 31, 2009 totalled $144.4 million or $1.54 per  diluted common share which compares to $133.3 million or $1.53 per diluted common share for the year ended December 31, 2008.  FFO – core operations, was positively affected by same property NOI growth and the effect of acquisitions and development coming  on line. This was partially offset by increased interest and amortization expense. The increase in interest and amortization expense is  primarily attributed to the increased cost of the new secured revolving credit facilities. The increased credit facility costs were only  partially offset by the effect of the reduced interest rate environment. In addition, the number of weighted average shares outstanding  increased by 7.6% over the prior year. FFO – EQY and other non-recurring items includes the effect of Equity One and its related interest expense, current income taxes  arising from the Company’s US operations and other gains and losses. For the year ended December 31, 2009, FFO – EQY and other  non-recurring items totalled $7.6 million or $0.08 per diluted common share which compares to $12.6 million or $0.14 per diluted  common share in the prior year. FFO – EQY and other non-recurring items included the results of Equity One up to August 14, 2009  compared to 2008 which included the results for the full year. 24        FIRST CAPITAL REALTY ANNUAL REPORT 2009                                                                                                                       Adjusted Funds from Operations (“AFFO”) Management views AFFO as an effective measure of cash generated from operations. AFFO for the year ended December 31, 2009  totalled $151.8 million or $1.48 per diluted common share compared to $140.7 million or $1.47 per diluted common share in the prior  year. AFFO is calculated by adjusting FFO for actual costs incurred for capital expenditures and leasing costs for maintaining shopping  centre infrastructure, current lease revenues, and non-cash items including straight-line and market rent adjustments, non-cash  compensation expenses, interest paid in shares, and gains or losses on debt and hedges. Land sales are excluded from AFFO. The  Company’s proportionate share of Equity One FFO is excluded and only the regular cash dividends received are included in AFFO.  The weighted average diluted shares outstanding for AFFO is adjusted to assume conversion of the outstanding convertible debentures.  Non-recurring AFFO items primarily consists of dividends from Equity One, net of the associated interest expense, realized gains on  marketable securities, cash severance costs and the costs associated with the acquisition of 40% of FCB that the Company did not  already own. (thousands of dollars, except per share amounts)  2009 AFFO –  EQY and  Other Non-  AFFO – Core recurring Operations Items Total  AFFO  AFFO – Core  Operations  2008(1) AFFO – EQY and Other Non- recurring  Items  Total AFFO FFO excluding dilution loss on Equity One     investment and the Company’s share of     Equity One’s non-cash impairment loss      Add/(deduct):     Interest expense payable in shares      Rental revenue recorded on a straight-line         basis and market rent adjustments      Non-cash compensation expense      Revenue sustaining capital expenditures         and leasing costs (3)      Funds from operations from Equity One         excluding non-cash impairment loss (2)      Dividends from Equity One (regular)      Return of capital portion of marketable        securities – net      Change in cumulative unrealized (gain) loss         on marketable securities      Loss (gain) on extinguishment of debt      Realized losses on termination of hedges      Unrealized losses on interest rate swaps not         designated as hedges      Gain on disposition of land  AFFO   AFFO per diluted share  $ 144,359 $ 7,637 $ 151,996  $  133,322  $  12,628  $  145,950   15,342 — 15,342    14,031  —    14,031 (7,376) 3,609 — 600 (7,376)  4,209  (7,627)  3,899  —  —  (7,627) 3,899 (12,171) — (12,171)    (11,866)  —    (11,866) — — (15,009) 12,452 (15,009)  12,452  —  —    (20,005)    18,193    (20,005)   18,193 (299) — (299)  623  —  623 — — — (1,952) 2,394 1,160 (1,952)  2,394  1,160  —  —  —  1,638  (438)  290  1,638 (438) 290 — — $ 143,464 $ 1.40 $ $ 1,203 (118) 8,367 1,203  (118)  $ 151,831  —  —  $  132,382  0.08 $ 1.48  $  1.38  —  (3,945)  8,361  — (3,945) $  140,743 0.09  $  1.47 $  $  Weighted average diluted shares – AFFO (4)   102,934,634 102,934,634 102,934,634    95,586,511    95,586,511    95,586,511 (1)  Prior year comparative figures have been restated for a change in accounting standards. (2)  Current year amounts cover period to August 14, 2009. See discussion of dividend-in-kind in the “Equity One Inc.” section of this MD&A. (3)  Estimated at $0.60 per square foot per annum on average gross leasable area for 2009 ($0.50 per square foot per annum in 2008). (4)  Includes the weighted average outstanding shares that would result from the conversion of the convertible debentures. FIRST CAPITAL REALTY ANNUAL REPORT 2009        25                                                                                                                 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued A reconciliation from cash provided by operating activities (a GAAP measure) to AFFO is presented below: (thousands of dollars)  Cash provided by operating activities      Realized gains (losses) on sale of marketable securities      Dividend income – return of capital portion      Deferred leasing costs      Net change in non-cash operating items  Amortization of other assets  Amortization of financing fees  Interest paid in excess of coupon interest on assumed mortgages  Debenture interest in excess of coupon  Other non-cash interest expense  Settlement of restricted share units  Settlement of deferred share units  Loss on foreign currency exchange  Realized losses on termination of hedges  Convertible debenture interest paid in common shares  Convertible debenture interest payable in common shares  Revenue sustaining capital expenditures and leasing costs  AFFO   2009 2008(1) $ 148,628  4,242  (299)  5,022  6,592  (2,005)  (2,202)  1,189  (984)  (2,769)  2,463  514  (278)  1,160  (12,613)  15,342  (12,171)  $ 151,831  $  147,519 (212) 623 4,033 1,994 (1,305) (854) 1,436 (864) (2,466) 1,275 — — 290 (12,891) 14,031 (11,866) $  140,743 (1)  Prior year comparative figures have been restated for a change in accounting standards. Net Operating Income (“NOI”) NOI is defined as property rental revenue less property operating costs. In Management’s opinion, NOI is useful in analyzing the  operating performance of the Company’s shopping centre portfolio. NOI is not a measure defined by GAAP and as such there is no  standard definition. As a result, NOI may not be comparable with similar measures presented by other entities. NOI is not to be construed  as an alternative to net income or cash flow from operating activities determined in accordance with GAAP. (thousands of dollars)  % increase  2009 2008(1) Same property NOI excluding expansion and redevelopment  Expansion and redevelopment space NOI  Same property NOI with expansion and redevelopment  Greenfield development  2009 Acquisitions  2008 Acquisitions  Rental revenue recognized on a straight-line basis  Market rent adjustments  Dispositions and other  NOI      Property rental revenue  Property operating costs  NOI      NOI Margin  2.7% 6.8% $ 239,834  22,125  261,959  10,774  1,668  3,374  5,053  2,323  26  $ 285,177  $ 442,131    156,954  $ 285,177  $  233,463 11,803   245,266 7,119 — 1,376 5,374 2,253 (348) $  261,040 $  410,192   149,152 $  261,040 64.5%  63.6% (1)  Prior year comparative figures have been restated for a change in accounting standards. Same properties in the table above refer to those shopping centres that were owned by the Company on January 1, 2008, and  throughout 2008 and 2009. Net operating income for the year ended December 31, 2009 totalled $285.2 million, compared to $261.0 million for the year ended  December 31, 2008, an increase of $24.2 million or 9.3%. Same property NOI increased by 6.8% in 2009, compared to the same   prior year period, generating NOI growth of $16.7 million, primarily attributed to redevelopment and expansion space coming on line,   lease termination payments and increases in lease rates and occupancy. Same property NOI for the year, excluding expansion or  redevelopment space, increased by $6.4 million or 2.7% over the same prior year period. 26        FIRST CAPITAL REALTY ANNUAL REPORT 2009                                                                                                                                                                                                                                                   Acquisitions completed in 2009 and 2008 contributed $5.0 million to NOI in 2009, while greenfield development activities contributed  a further $10.8 million in 2009. The lease termination fees for the year ended December 31, 2009 are from three tenants (two are non-retail tenants) at separate  locations where 94,500 square feet with an annualized NOI of $1.5 million was vacated. 20,200 square feet has been re-leased replacing  one half of the total NOI. A further 11,500 square feet was leased subsequent to year-end. The Company is currently negotiating the  lease up of the remaining space.  Equity One As discussed under “Equity One, Inc.” above, on August 14, 2009, First Capital Realty completed its dividend-in-kind of the Company’s  interest in Gazit America Inc. (formerly known as First Capital America Holding Corp.) (“Gazit America”). As a result of this dividend-in- kind, First Capital Realty no longer has an ownership interest in Equity One. First Capital Realty has a non-revolving term loan  receivable in the amount of US$36 million, bearing interest at 8.5% per annum calculated semi-annually, payable quarterly and due  June 19, 2014. During 2009, the Company recorded $1.2 million of interest income in respect of this loan. The Company recorded dividends from Equity One of US$10.5 million or US$0.75 per share in 2009 compared to US$16.8 million  or US$1.20 per share in the year ended December 31, 2008. The Canadian dollar equivalent of these dividends was $12.5 million and  $18.2 million in the comparative periods of 2009 and 2008, respectively through the dividend date of August 14, 2009. The Company’s share of Equity One’s net earnings, adjusted to Canadian GAAP, net of a provision for future tax on the  undistributed earnings of Equity One, is recorded as equity income. Equity One acquired a controlling interest in DIM N.V. during the  first quarter of 2009. During the year ended December 31, 2009, Equity One income included gains of US$12.4 million recorded on the  buyback. The Company’s share of the gains amounts to approximately US$2.2 million through the dividend date of August 14, 2009. During 2008 and 2009, Equity One issued additional common shares which reduced the Company’s interest in Equity One from  approximately 19% on January 1, 2008 to approximately 16% immediately before the dividend-in-kind on August 14, 2009. As a result,  the Company recorded a dilution loss of $0.7 million in 2009, and a dilution gain of $2.9 million in 2008. Interest and Other Income (thousands of dollars)  Interest income from non-revolving term loan receivable from Gazit America Inc.  Interest, dividend and distribution income from marketable securities and cash investments  Interest income from development loans  (1)  Prior year comparative figures have been restated for a change in accounting standards. 2009 1,247  3,788  577  5,612  $  $  2008(1) — 1,020 539 1,559 $ $ Interest and other income increased during 2009 due to distributions arising from the ownership of Allied REIT units described under  the “Loans, Mortgages and Other Real Estate Assets” section of this MD&A and the interest income from the term loan receivable from  Gazit America Inc. Other Gains (Losses) and (Expenses) (thousands of dollars)  Realized gains (losses) on sale of marketable securities  Change in cumulative unrealized gains (losses) on marketable securities held-for-trading   Dilution (loss) gain on investment in Equity One, Inc  (Loss) gain on settlement of debt (a)  Gain on disposition of shopping centres  Gains on disposition of land  Gain on termination of hedge previously held in other comprehensive income  Realized losses on interest rate swaps (b)  Unrealized losses on interest rate swaps not designated as hedges (c)  Loss on foreign currency exchange  Severance and termination costs  Costs related to acquisition of 40% interest in FCB  Other income  2009 4,242  1,952  (676)  (2,394)  737  118  290  (1,450)  (1,203)  (278)  (2,000)  (752)  —  (1,414)  $  $  2008 (212) (1,766) 2,898 438 1,631 3,945 — — — — — — 347 7,281 $ $ FIRST CAPITAL REALTY ANNUAL REPORT 2009        27                                                                                                                                                                         MANAGEMENT’S DISCUSSION AND ANALYSIS – continued (a)  During the three months ended March 31, 2009, the Company expensed $0.7 million of deferred financing costs related to its  $350 million senior unsecured revolving credit facility, which was replaced with a $450 million secured revolving credit facility.   On November 24, 2009, the Company reduced the availability of the secured revolving credit facility by $75 million to  $375 million. As a result, $0.5 million of unamortized deferred financing costs were recorded as a loss on settlement of debt.   On December 30, 2009, the Company further reduced the availability of the secured revolving credit facility by $90 million to  $285 million. As a result, $1.0 million of unamortized deferred financing costs were recorded as a loss on settlement of debt.   Subsequent to December 31, 2009, the Company further reduced the availability of the secured revolving credit facility by  $35 million to $250 million. As a result, $0.3 million of unamortized deferred financing costs will be recorded as a loss on  settlement of debt in 2010.   Also, subsequent to December 31, 2009, the Company reduced the $75 million secured revolving credit facility to $50 million  which resulted in $0.2 million of unamortized deferred financing costs being recorded as a loss on settlement of debt in 2010. (b)  The Company terminated $20 million notional amount of Canadian B.A. based interest rate swaps on December 22, 2009  resulting in a loss of $1.45 million. (c)  As a result of the Company substantially paying off its Canadian credit facilities, a loss of $1.2 million was recorded on its remaining  $100 million notional Canadian B.A. interest swaps reflecting the termination of the hedging relationship. Interest Expense (thousands of dollars)  Mortgages, loans and credit facilities   Canadian operations    Secured by investment in Equity One (1)  Senior unsecured debentures  Convertible debenture interest paid in common shares of the Company  Amortization of deferred financing and deferred issue costs  Interest capitalized to land and shopping centres under development  Total interest expense  2009 2008 $ 90,537  3,222  93,759  32,541  14,837  2,769  (18,441)  $ 125,465  $  78,658 7,765 86,423 31,887 13,632 2,466 (20,723) $  113,685 (1)  Current year amounts cover period to August 14, 2009. See discussion of dividend-in-kind in the “Equity One, Inc.” section of this MD&A. Interest expense on mortgages, loans and credit facilities increased by $7.3 million to $93.8 million in 2009 over the prior year primarily  due to: • The completion of the new $450 million secured credit facility in March 2009. The interest rate on the new credit facility is B.A.  plus 350 basis points compared to B.A. plus 110 basis points on the previous unsecured credit facility; and • Higher average levels of borrowings than the prior year to finance acquisition and development activities; offset by • The effect of the dividend-in-kind on August 14, 2009. After this date, the Company no longer has interest expense associated  with borrowings secured by the investment in Equity One. The increase in interest expense from Senior Unsecured Debentures is due to the issuance on November 20, 2009 of $125 million  aggregate principal amount of 5.95% Series G senior unsecured debentures. The increase in convertible debenture interest expense is due to the interest on the $75 million of par value 6.25% convertible  unsecured subordinated debentures issued on September 18, 2009. On February 18, 2010, the Company announced that it will pay the interest due on March 31, 2010 to holders of both classes of its  5.50% convertible unsecured subordinated debentures maturing September 30, 2017 and to holders of its 6.25% convertible unsecured  subordinated debentures maturing December 31, 2016 by the issuance of common shares. The number of common shares to be  issued per $1,000 principal amount of debentures will be calculated by dividing the dollar amount of interest payable by an amount  equal to 97% of the volume-weighted average trading price of the common shares of First Capital Realty on the Toronto Stock Exchange,  calculated for the 20 consecutive trading days ending on March 24, 2010. The interest payment due is approximately $8.7 million. It is the current intention of the Company to satisfy its obligations to pay principal and interest on its convertible debentures by   the issuance of common shares. Since issuance, all interest payments have been made using common shares. 28        FIRST CAPITAL REALTY ANNUAL REPORT 2009                                                                                       Corporate Expenses (thousands of dollars)  Salaries, wages and benefits  Non-cash compensation  Other general and administrative costs  Capital taxes, net of recoveries from tenants  Abandoned transaction costs  Amounts capitalized to properties under development and deferred leasing costs  (thousands of dollars)  Corporate expenses, excluding capital taxes and non-cash compensation      As a percent of rental revenue      As a percent of gross total assets  $ $ $ 2009 2008 $  $  $  16,559  3,609  8,112  1,022  1,072  (8,252)  22,122  2009 17,491  4.0%  0.4%  16,970 3,899 7,254 1,188 1,133 (8,867) 21,577 2008 16,490 4.0% 0.4% Non-cash compensation is recognized over the respective vesting periods for options, restricted share units and deferred share units.  These items are considered part of the total compensation for directors, senior management, other team members and periodically to  select service providers to the Company. The Company manages all of its acquisitions, development and redevelopment and leasing activities internally. Certain internal  costs directly related to development and initial leasing of the properties, including salaries and related costs, are capitalized in  accordance with GAAP to land and shopping centres under development, as incurred. Certain costs associated with the Company’s  internal leasing staff are capitalized to deferred leasing costs and amortized over the lives of the related leases. Amounts capitalized to  real estate investments for properties undergoing development or redevelopment and leasing costs (including leasing for development  projects) during the year ended December 31, 2009 totalled $8.3 million compared to $8.9 million in the prior year comparative period.  Amounts capitalized are based on specific leasing activities and development projects underway. The decrease in capitalized costs in  2009 compared to 2008 is due to gross corporate expenses being lower in 2009. Amortization Expense (thousands of dollars)  Shopping centres  Deferred leasing costs  Intangible assets  Amortization of real estate assets  Deferred financing fees  Other assets  Total amortization  2009 83,342  3,662  7,497  94,501  2,202  2,005  98,708  $ $ 2008(1) 74,406 3,396 7,783 85,585 854 1,305 87,744 $  $  (1)  Prior year comparative figures have been restated for a change in accounting standards. Amortization of real estate assets increased due to the amortization of newly acquired properties and development coming on line.  Amortization of deferred financing costs increased as a result of the Company’s secured $450 million credit facility which was  completed in March of 2009. Income Taxes (thousands of dollars)  Current income taxes  Future income taxes  Income taxes  2009 533  7,700  8,233  2008 1,985 16,264 18,249 $  $  $ $ The total income tax expense has decreased compared to 2008 primarily due to a decrease in net income before taxes and a change  in the substantively enacted future income tax rate. FIRST CAPITAL REALTY ANNUAL REPORT 2009        29                                                                                                                                                                                               MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Net Income (thousands of dollars, except per share amounts)  Net income  Earnings per share (diluted)  Weighted average common shares – diluted  2009 2008(1) 41,913  $ $ 0.45  93,868,815  $  $  37,341 0.43   87,260,224 (1)  Prior year comparative figures have been restated for a change in accounting standards. Net income for the year ended December 31, 2009 was $41.9 million or $0.45 per share (basic and diluted) compared to $37.3 million  or $0.43 per share (basic and diluted) for the year ended December 31, 2008. The increase in net income is primarily due to the increase  in NOI resulting from development projects coming on line and same property NOI growth, increased interest and other income, offset  by increased interest expense, increased amortization expense and decreased other gains (losses) and (expenses) and decreased  income from Equity One as a result of the dividend-in-kind. In addition, there was an increase in the basic and weighted average  diluted shares outstanding compared to the same prior year period. CAPITAL STRUCTURE AND LIQUIDITY Capital Employed (thousands of dollars)  Equity capitalization (end of year)     Common stock outstanding      Diluted common stock (1)  Mortgages, loans and credit facilities  Senior unsecured debentures (principal amount)  Convertible debentures (principal amount)  Equity market capitalization (common shares at market value,     based on closing share price of $21.66 (2008 – $18.97))  Total capital employed  Debt to aggregate assets (2)  Debt to total market capitalization (2)  Weighted average interest rate on fixed rate debt and     senior unsecured debentures  Weighted average maturity on mortgages, credit facilities and    senior unsecured debentures (years)  2009 2008 96,045,394  96,630,311  $ 1,354,668    720,799    351,750    90,002,581   90,549,743 $  1,573,530   597,000   233,000 2,080,343  $ 4,507,560    1,707,349 $  4,110,879 50.3%  45.9%  53.5% 52.6% 5.98%  5.92% 4.4  5.2 (1)  Includes effect of all dilutive securities except convertible debentures. (2)  Calculated, on a trailing basis, in accordance with the unsecured debentures indenture definitions for the year. The real estate business is capital-intensive by nature. The Company’s capital structure is key to financing growth and providing  sustainable cash dividends to shareholders. In the real estate industry, financial leverage is used to enhance rates of return on  invested capital. Management believes that First Capital Realty’s blend of debt, convertible debentures and equity in its capital base  provides stability and reduces risks, while generating an acceptable return on investment, taking into account the long-term business  strategy of the Company. In 2007, the Dominion Bond Rating Service Ltd. (“DBRS”) provided First Capital Realty with a credit rating upgrade to BBB with   a stable trend from the previous rating of BBB (low) with a stable trend relating to the senior unsecured debentures. The Company  received its initial credit rating of BBB- in May 2005, from DBRS. A credit rating in the BBB category is generally an indication of  adequate credit quality as defined by DBRS. In 2006, Moody’s Investor Services, Inc. (“Moody’s”) provided First Capital Realty with   a credit rating of Baa3, with a stable outlook relating to the senior unsecured debentures. As defined by Moody’s, a credit rating of  Baa3 denotes that these debentures are subject to moderate credit risk and are of medium grade and, as such, may possess certain  speculative characteristics. A rating outlook, expressed as positive, stable, negative or developing, provides the respective rating  agencies’ opinion regarding the outlook for the rating in question over the medium term. DBRS and Moodys have provided updates   in 2009 at these same investment grade ratings. The credit ratings assigned are not recommendations to purchase, hold or sell these  debentures. There can be no assurance that any rating will remain in effect for any given period of time or that any rating will not be  withdrawn or revised by either or both Moodys or DBRS at any time. 30        FIRST CAPITAL REALTY ANNUAL REPORT 2009                                                                                                       During the latter half of 2007 and throughout 2008 and first half of 2009, the unsecured credit markets were severely constrained.  Consequently, Management shifted the Company’s financing strategy to focus on secured financing. The Company’s substantial pool  of unencumbered assets and strong balance sheet enabled the Company to access the secured financing markets during this period.  Within the mortgage financing market, conditions were challenging during this period as well, with spreads widening significantly, and  the conduit market effectively closing down. The increased spreads were largely offset by decreases in the underlying Government of  Canada bond reference yields. In 2009, the Company completed $187.3 million of secured financing on 13 properties at a weighted average rate of 6.21% and a  weighted average term of 8.5 years. This compares to $154.7 million on eight properties in 2008 at a weighted average rate of 5.54%  and a weighted average term of 7.5 years. In the second half of 2009, the unsecured credit markets improved, and the Company completed the issuance of $125 million  principal amount senior unsecured debentures in November, and issued a further $125 million subsequent to December 31, 2009. On March 5, 2009, the Company closed on a three-year, $450 million secured revolving credit facility with a syndicate of ten banks  led by RBC Capital Markets, TD Securities and BMO Capital Markets maturing March 2012. The new facility was used to replace the  Company’s three-year $350 million senior unsecured revolving credit facility maturing March, 2010. The interest rate on the new secured  facility is at banker’s acceptances (“B.A.”) plus 350 basis points compared to B.A. plus 110 basis points on the previous unsecured  facility. On November 24, 2009, the Company reduced the secured revolving credit facility by $75 million and on December 30, 2009  further reduced the facility by $90 million.The Company also completed a three-year $75 million secured revolving credit facility with  the Bank of Nova Scotia with the same terms as the $450 million syndicated facility. During 2009 and in January 2010, the Company raised a total of $477.4 million from the issuance of senior unsecured debentures,  convertible debentures, common shares and warrants as described under the appropriate headings below. These financings along  with other financings currently underway, address substantially all of the contractual 2010 and 2011 debt maturities and contractual  committed costs to complete on current development projects. The Company will also continue to use its substantial pool of unencumbered assets to raise secured financing or unsecured  financing to fund its growth. Where it is deemed appropriate, the Company will use its equity as a source of financing and may  strategically sell non-core assets to best deploy capital and take advantage of opportunities in the market. Consolidated Debt and Principal Amortization Maturity Profile (thousands of dollars)  2010    2011    2012    2013    2014    2015    2016    2017    2018    2019    Thereafter  Add:  unamortized deferred financing costs  and premium and discounts, net  Mortgages  $  153,564  95,550    157,161    181,666    236,950    184,687  59,657  28,650  91,759    118,301  6,646  $  Cdn Credit  Facilities  —  —  42,636  —  —  —  —  —  —  —  —  Senior  Unsecured  Debentures(1)  $  —    198,799    100,000  97,000    200,000    125,000  —  —  —  —  —  Total  % Due $  153,564    294,349    299,797    278,666    436,950    309,687  59,657  28,650  91,759    118,301  6,646  7.4% 14.2% 14.4% 13.4% 21.0% 14.9% 2.9% 1.4% 4.4% 5.7% 0.3%  (2,559)  $  1,312,032  —  42,636  $  (3,759)  $  717,040  (6,318)  $  2,071,708  — 100.0% (1)  The covenants on the unsecured debentures include the requirement that unencumbered assets are equal to or greater than 1.30 times the gross book  value of the outstanding debentures. This pool of unencumbered assets provides the Company with financing flexibilities on maturity of the debentures. FIRST CAPITAL REALTY ANNUAL REPORT 2009        31                                                                           MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Mortgages, Loans and Credit Facilities The changes in the book value of the Company’s mortgages, loans and credit facilities during the year ended December 31, 2009 are  set out below: (thousands of dollars)  Balance, December 31, 2008 Additional borrowings, net of issue costs  Assumed mortgages on acquisition of     shopping centres  Vendor-take-back mortgage  Repayments  Replacement of unsecured facility with    secured facility  Principal instalment payments  Dividend-in-kind transaction  Effects of US dollar exchange rate and    other changes (1)  Balance, December 31, 2009   Weighted  Secured Term  Weighted  Unsecured  Weighted  Fixed  Rate  Mortgages  $ 1,210,568   188,878  Average  Interest  Rate  6.21% Loans and  Average  Revolving  Average  Credit  Interest  Credit  Interest  Facilities  Rate  Facilities  Rate  Total $ 153,772  326,305  5.31% $ 209,190  106,025  2.96% $ 1,573,530   621,208 7,378  500  (62,277)  —  (32,995)  —  —  —   (545,818)   237,380  (5,922)   (113,404)  —  —    (77,835)   (237,380)  —  —  7,378 500   (685,930) — (38,917)   (113,404) (20)  $ 1,312,032 6.18% (9,677)  $ 42,636 3.94% $ —  — (9,697) $ 1,354,668 —% (1)  Includes amortization of issue costs, premiums and discounts. At December 31, 2009, 96.9% (2008 – 84.0%) of the outstanding mortgage, loan and credit facility liabilities bore interest at fixed  interest rates. The fixed mortgage rates provide an effective matching for rental income from leases, which typically have fixed terms  ranging from five to ten years, and incremental contractual rent steps during the term of the lease. The Company had fixed rate mortgages outstanding, as at December 31, 2009, in the aggregate amount of $1.3 billion as compared  to $1.2 billion at the end of 2008. The increase in the outstanding balance is the net result of $0.2 million in new financings primarily  from new mortgage financing and top-up financing on existing properties with mortgages offset by $0.1 million in principal amortization  and repayments. The average remaining term of the mortgages outstanding has declined from 5.2 years at December 31, 2008 to  4.9 years at December 31, 2009. The Company has the flexibility under its secured credit facility to draw funds based on bank prime rates, bankers’ acceptances,  LIBOR-based advances or US prime for US dollar-denominated borrowings or Euro dollars. The bankers’ acceptances plus 350 basis  points currently provide the Company with the least costly means of borrowing under this credit facility. The credit facility is being used  primarily to finance acquisition, development and redevelopment activities and for general corporate purposes. Mortgage Maturity and Lender Type Profile Scheduled  Amortization  $  33,671  32,378  30,215  27,520  21,344  13,634  9,988  9,416  6,706  3,093  6,646  $  194,611  Payments  on  Maturity  $  119,893  63,172    126,946    154,146    215,606    171,053  49,669  19,234  85,053    115,208  —  $  1,119,980  Total  $  153,564  95,550    157,161    181,666    236,950    184,687  59,657  28,650  91,759    118,301  6,646  $  1,314,591  Breakdown of Mortgage Maturities  by Type of Lender Percent  with  Banks  17.4%  8.7%  1.5%  3.6%  6.9%  —  23.8%  7.0%  —  29.8%  —  8.6%  Percent  with  Percent with  Insurance  Co’s and  Conduits  Pension Funds 17.3%  66.5%  56.4%  45.6%  49.9%  46.3%  13.9%  —  —  —  —  35.6%  65.3% 24.8% 42.1% 50.8% 43.2% 53.7% 62.3% 93.0% 100.0% 70.2% — 55.8% Weighted  Average  Interest  Rate  5.74%  7.15%  6.71%  6.35%  6.30%  5.40%  5.52%  5.85%  6.20%  6.56%  6.20%  6.18%  (thousands of dollars)  2010    2011     2012    2013    2014    2015    2016    2017    2018    2019    Thereafter  Total     32        FIRST CAPITAL REALTY ANNUAL REPORT 2009                                                                                                                                                                   The Company’s strategy is to manage its long-term debt by staggering maturity dates in order to mitigate short-term volatility in   the debt markets. At December 31, 2009, the Company had mortgages, loans and credit facilities aggregating $153.6 million coming   due in 2010. Maturing amounts are comprised of $119.9 million of mortgages at an average interest rate of 5.74% and $33.7 million   of scheduled amortization of principal balances. Subsequent to December 31, 2009, $31.0 million of the mortgages were paid out   on maturity. Senior Unsecured Debentures (thousands of dollars) Series  Maturity Date  A  B  C  D  E  F  G  June 21, 2012  March 30, 2011  December 1, 2011  April 1, 2013  January 31, 2014  October 30, 2014  June 1, 2015  Interest Rate  Coupon  Effective  Term to  Maturity  5.08%  5.25%  5.49%  5.34%  5.36%  5.32%  5.95%  5.42%  5.29%  5.51%  5.67%  5.51%  5.52%  5.47%  6.12%  5.60%  2.5  1.2  1.9  3.3  4.1  4.8  5.4  3.4  Principal Outstanding $  100,000 98,899 99,900 97,000   100,000   100,000   125,000 $  720,799 On November 20, 2009, the Company issued $125 million principal amount of Series G senior unsecured debentures. These  debentures bear interest at the rate of 5.95% and mature on June 1, 2015. On issuance, these debentures were rated BBB with a  stable trend by DBRS and Baa3 (stable) by Moody’s Investors Service. On January 21, 2010, the Company completed the issuance of $125 million aggregate principal amount of Series H senior  unsecured debentures due January 31, 2017. The Debentures bear interest at a rate of 5.85% per annum payable semi-annually  commencing July 31, 2010. Convertible Debentures (thousands of dollars)  Interest Rate 2009 2008 Coupon  Effective  Maturity Date  Principal Liability Equity  Principal  Liability  Equity 5.50%  5.50%  5.50%  6.25%  5.70%  5.69%  6.45%  6.39%  6.61%  7.60%  6.91%  6.77%  September 30, 2017  September 30, 2017  September 30, 2017  December 31, 2016  June 30, 2017  $ 76,750  100,000   50,000   75,000   50,000 $ 351,750 $ 72,366 94,606 46,685 69,579 46,503 $ 329,739 $ 2,314  6,015  7,387  2,632  1,482  $ 19,830  $  83,000   100,000    50,000  —  —  $ 233,000  $  77,797    94,084    46,366  —  —  $ 218,247  $  2,503   6,015   7,387 — — $  15,905 The Company uses convertible debentures as a part of its overall capital structure. It is the Company’s current intention to continue   to satisfy its obligations of principal and interest payments on its convertible unsecured subordinated debentures by issuance of  common shares. On September 18, 2009, the Company issued $75 million aggregate principal amount of 6.25% convertible unsecured subordinated  debentures due December 31, 2016 (the “6.25% Debentures”). The 6.25% Debentures bear interest payable semi-annually commencing  March 31, 2010, and are convertible at the option of the holder into common shares of the Company at a conversion rate of 43.6681  common shares per $1,000 principal amount of 6.25% Debentures, which is equal to a conversion price of $22.90 per common share. On December 30, 2009, the Company issued $50 million aggregate principal amount of 5.70% convertible unsecured subordinated  debentures due June 30, 2017 (the “5.70% Debentures”). The 5.70% Debentures bear interest payable semi-annually commencing  September 30, 2010, and are convertible at the option of the holder into common shares of the Company at a conversion rate of  33.3333 common shares per $1,000 principal amount of 5.70% Debentures, which is equal to a conversion price of $30.00 per  common share. In 2009, 772,313 common shares (2008 – 600,661) were issued to pay interest to holders of convertible debentures. FIRST CAPITAL REALTY ANNUAL REPORT 2009        33                                                                   MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Shareholders’ Equity Shareholders’ equity amounted to $1,096 million as at December 31, 2009, as compared to $1,095 million at the end of 2008.  Shareholders’ equity as at December 31, 2009 included $19.8 million (2008 – $15.9 million) representing the equity component of  convertible debentures as discussed above. As at December 31, 2009, the Company had 96,045,394 (2008 – 90,002,581) issued and outstanding common shares with a   stated capital of $1.6 billion (2008 – $1.5 billion). During fiscal 2009, a total of 6,042,813 common shares were issued as follows:  1,431,108 shares in exchange for the units of Allied Properties REIT; 231,481 shares from the conversion of convertible debentures;  772,313 shares for interest payments on convertible debentures; 39,900 shares from the exercise of common share options and  warrants; 118,011 shares from a private placement and 3,450,000 shares from a public offering. As at March 10, 2010, 96,088,932 common shares were issued and outstanding. There were no material changes since  December 31, 2009, other than as described above in the amount of options, warrants or convertible debentures outstanding. The Company adopted a Dividend Reinstatement Plan “DRIP” in May 2005 enabling shareholders who qualified to elect to  participate in the DRIP, to reinvest in additional common shares at a discount of 2% of the weighted average trading price of the  common shares on the TSX for the five consecutive trading days preceding the dividend payment date. From the inception of the plan,  the quarterly participation rate in the DRIP averaged 76%. On August 7, 2008, the Company announced that it was suspending the  DRIP. Accordingly, any dividend payable to shareholders after that date, is not subject to the DRIP. The suspension is in effect unless  and until further notice is given. The Company may consider from time to time reinstating the DRIP. Shareholders’ equity as at December 31, 2009 included a deficit of $523.1 million (2008 – $380.7 million). The Company has historically  paid dividends at levels consistent with general industry practice based on cash flow from operations as opposed to net income. Share Purchase Options As of December 31, 2009, the Company issued and had outstanding 3,608,695 share purchase options, with an average exercise  price of $22.36. The options are exercisable by the holder at any time after vesting up to ten years from the date of grant. The options  have been issued at various times pursuant to the Company’s stock option plan to the employees, officers and directors of the Company  and certain third-party service providers. The options granted permit the holder to acquire shares at an exercise price equal to the  market price of such shares at the date the option is granted. The purpose of granting options is to encourage the holder to acquire   an ownership interest in the Company over a period of time which acts as a financial incentive for the holder to consider the long-term  interests of the Company and its shareholders. If all options outstanding at December 31, 2009 were exercised, 3,608,695 shares would be issued and the Company would  receive proceeds of approximately $80.7 million. This includes 2,199,981 options that were out-of-the-money at December 31, 2009. Liquidity (thousands of dollars)  Revolving credit facilities     Approved      Cash drawn and letters of credit, net of cash on hand  Unencumbered assets available as defined by debt covenants, less cash on hand  Other unencumbered real estate assets including properties under development  (thousands of dollars)  EBITA   EBITDA margin (2)  EBITDA interest coverage (2)  EBITDA interest coverage excluding capitalized interest on development (2)  2009 2008 $ 360,000  56,000  $ $ 1,084,000  $ 136,000  $  350,000 $  209,000 $  1,482,000 $  236,000 2009 2008(1) $ 279,342  61.4%  2.14  2.50  $  253,637 60.3% 2.10 2.54 (1)  Prior year comparative figures have been restated for a change in accounting standards. (2)  Calculated, on a trailing basis, in accordance with the unsecured debentures indenture definitions for the period, excluding non-cash compensation. Cash flow from operations is dependent on occupancy levels of properties, rental rates achieved, collections of rent and costs to  maintain or lease space. The Company’s strategy is to maintain debt in the range of 45% to 60% to market capitalization. At December 31, 2009, this debt ratio was 45.9% based on the Company’s calculation. Maturing debt is generally repaid from  proceeds refinancing such debt, primarily in the current credit markets by financing unencumbered properties and when available   at an acceptable cost, issuing convertible debentures or senior unsecured debentures. 34        FIRST CAPITAL REALTY ANNUAL REPORT 2009                                                                     Cash and cash equivalents were $4.5 million at December 31, 2009 (2008 – $7.3 million). At December 31, 2009, the Company   had undrawn credit facilities totalling $304 million and had approved credit facilities totalling $360 million. The Company also had  unencumbered assets with a gross book value of approximately $1.2 billion. During the year ended December 31, 2009, the Company  completed secured mortgages totalling $187.3 million; issued $125 million of convertible debentures in two transactions; issued  $125 million in senior unsecured debentures and issued 4.9 million common shares in two transactions for gross proceeds of  $80.5 million. These transactions demonstrate the Company’s access to capital and various sources of financing. Management  believes that it has sufficient resources to meet its operational and investing requirements in the near and longer term based on the  availability of capital in various markets. The Company historically used secured mortgages, term loans and revolving credit facilities, senior unsecured debentures,  convertible debentures and equity issues to finance its growth. The actual level and type of future borrowings will be determined based  on prevailing interest rates, various costs of debt and equity capital, capital market conditions and Management’s general view of the  required leverage in the business. Cash Flows (thousands of dollars)  Cash provided by operating activities  Cash used in investing activities  Cash provided by financing activities  Effect of currency rate movement  Decrease in cash and cash equivalents  2009 2008(1) $ 148,628    (232,860)  80,195  1,322  (2,715)  $ $  147,519 (311,279)   160,238 334 (3,188) $  (1)  Prior year comparative figures have been restated for a change in accounting standards. Operating Activities Cash provided by operating activities increased in 2009 primarily from cash flow generated by the growth in the income-producing  shopping centre portfolio from acquisitions and development coming on line. Investing Activities The Company continued to make significant investments in its shopping centre portfolio. The overall level of investing activity in 2009  is lower than the prior year. Details of the Company’s investments in acquisitions and developments are provided under the “Business  and Operations Review”, section of this MD&A. Financing Activities The cash flow provided by financing activities reflects the issuance of $125 million convertible debentures, the issuance of $125 million  senior unsecured debentures, the issuance of common shares and mortgage financing activities, offset by the paydown of credit  facilities. These activities are fully described in the “Capital Structure and Liquidity” section of this MD&A. Contractual Obligations (thousands of dollars)  Total  Payments Due by Period Year ended  December 31  2010  Years ended  December 31  2011 to 2012  Years ended  December 31  2013 to 2014  Mortgages     Scheduled amortization      Payments on maturity  Total mortgage obligations  Canadian revolving credit facilities  Senior unsecured debentures  Land leases  Contractual committed costs to complete     current development projects  Total contractual obligations  $  194,611    1,119,980    1,314,591  42,636    720,799  18,835  $  33,671    119,893    153,564  —  —  823  $  62,593    190,118    252,711  42,636    298,799  1,646  $  48,864    369,752    418,616  —    297,000  1,656  Thereafter $  49,483   440,217   489,700 —   125,000 14,710 37,976  $  2,134,837  31,321  $  185,708  6,655  $  602,447  —  $  717,272  — $  629,410 FIRST CAPITAL REALTY ANNUAL REPORT 2009        35                                                                                   MANAGEMENT’S DISCUSSION AND ANALYSIS – continued In addition, the Company has $22.4 million of outstanding letters of credit that have been issued by financial institutions primarily to  support certain of the Company’s obligations related to its development projects. The Company’s estimated costs to complete properties currently under development are $120.2 million of which $38.0 are  contractually committed. The balance of the costs to complete will only be committed once leases are signed and construction  activities are underway. These contractual and potential obligations primarily consist of construction contracts and additional planned  development expenditures and are expected to be funded from credit facilities as the work is completed. The Company is liable for minimum land-lease payments of $0.8 million on certain of its properties in each year from 2010 to 2014  and $14.7 million thereafter. Total minimum land-lease payments are $18.8 million. The leases expire between 2023 and 2052. Contingencies The Company is involved in litigation and claims which arise from time to time in the normal course of business. In the opinion of  Management, none of these, individually or in aggregate, would result in a liability that would have a significant adverse effect on the  financial position of the Company. On October 16, 2006, First Capital Realty and First Capital (Royal Oak) Corporation (a wholly owned nominee subsidiary of First  Capital Realty) were named as defendants in a lawsuit commenced by Rencor Developments Inc. and Rencor Developments (Royal  Oak) Inc. (collectively, “Rencor”). First Capital Realty and Rencor are joint-venture partners in the Royal Oak Shopping Centre located  in Calgary, Alberta, in which First Capital Realty owns a 60% undivided interest and Rencor owns the remaining 40% undivided  interest. The Statement of Claim seeks damages for alleged breaches by First Capital Realty of certain agreements relating to the  ownership and operation of the Royal Oak Shopping Centre. First Capital Realty believes the lawsuit to be frivolous and without merit  and intends to vigorously defend against the allegations made in the Statement of Claim. Accordingly, as of December 31, 2009, First  Capital Realty has not recorded any loss provision with respect to this claim in its financial statements. Regardless of the merits of the claim by Rencor, one of the consequences of this lawsuit is that First Capital Realty will not, pending  resolution of the lawsuit, be able to exercise its contractual option to acquire the 40% interest in the Royal Oak Shopping Centre that  First Capital Realty does not currently own. This option is on financial terms that are favourable to First Capital Realty (a capitalization  rate of 9.5%), and was expected to be exercised by First Capital Realty in January of 2007. The exercise by First Capital Realty of this  contractual option in January 2007 was expected to contribute approximately $900,000 annually to First Capital Realty’s FFO in 2007  and each year thereafter. The Company is contingently liable, jointly and severally, for approximately $51.1 million (2008 – $45.6 million) to various lenders in  connection with loans advanced to its joint-venture co-owners secured by the owners’ interest in the co-ownerships. Dividends The Company has maintained a policy of paying regular quarterly dividends to common shareholders since it commenced operations  as a public company in 1994. Dividends are set taking into consideration the Company’s capital requirements, its alternative sources of  capital and common industry cash distribution practices. Regular dividends paid per common share  Payout ratio calculated as a percentage of:      Funds from operations (1)      Adjusted funds from operations  2009 2008 $ 1.28  $  1.28 79.0%  86.5%  76.5% 87.1% (1)  FFO excludes Equity One’s non-cash impairment loss and dilution gains and losses on Equity One Investment. In addition, the Company distributed the $0.45 dividend-in-kind related to the Company’s interest in Equity One which is discussed in  the “Equity One, Inc.” section in this MD&A. 36        FIRST CAPITAL REALTY ANNUAL REPORT 2009                                       QUARTERLY FINANCIAL INFORMATION (thousands of dollars, except  per share and other data)  Q4 Q3 Q2 Q1  Q4(2)  Q3(2)  Q2(2)  Q1(2) Property rental revenue  113,232 108,829 109,727 110,343  105,695  100,830  101,905  101,762 2009 2008 Property operating costs  Net operating income  Equity income (loss) from    Equity One (4)  Net income  Basic earnings per share  Diluted earnings per share  Weighted average diluted    shares outstanding   39,524 73,708 37,217 71,612 38,170 71,557 42,043  68,300  (1,287) 14,736 $0.15 $0.15 954 9,002 $ 0.09 $ 0.09 3,369 9,093 $ 0.10 $ 0.10 4,030  9,082  $ 0.10  $ 0.10  37,784  67,911  1,405  10,574  $ 0.12  $ 0.12  35,375  65,455  (1,506)  8,227  $ 0.09  $ 0.09  37,530  64,375  5,007  10,158  $ 0.12  $ 0.12  38,463 63,299 3,810 8,382 $ 0.10 $ 0.10     – EPS  97,007,411 94,902,006 92,622,290 91,172,216  90,423,576  90,021,640  87,269,113  81,363,323 Funds from operations  Funds from operations/    share diluted  Cash provided by     operating activities  Weighted average diluted    shares outstanding   36,159 38,502 39,092(1) 38,243  37,974(1)  38,739(1)  34,702  34,535 $ 0.37 $ 0.41 $ 0.42(1) $ 0.42  $ 0.42(1)  $ 0.43(1)  $ 0.40  $ 0.42 50,436 38,261 35,801 24,130  58,134  43,132  24,405  21,848     – FFO  97,007,411 94,902,006 92,622,290 91,172,216  90,423,576  90,021,640  87,269,113  81,363,323 Available funds from    operations  Available funds from  38,694 37,456 38,779 36,902  37,679  36,470  34,993  31,601   operations/share diluted  $ 0.36 $ 0.36 $ 0.38 $ 0.37  $ 0.38  $ 0.37  $ 0.37  $ 0.35 Weighted average diluted    shares outstanding       – AFFO  Regular dividend  Dividend-in-kind  Total assets  Total mortgages, loans     and credit facilities  Shareholders’ equity  Other Data Number of properties  Gross leasable area (3)  Occupancy % (3)  108,946,987 103,879,309 101,020,439 99,552,226  99,053,205  98,648,017  95,898,743  89,989,640 $ 0.32 $ — $ 0.32 $ 0.45 $ 0.32 $ — $ 0.32  $ —  $ 0.32  $     —  $ 0.32  $     —  $ 0.32  $     —  $ 0.32 $     — 3,691,643 3,678,153 3,801,501 3,769,275  3,707,625  3,601,965  3,491,230  3,476,346 1,354,668 1,499,011 1,703,274 1,657,535  1,573,530  1,487,640  1,434,709  1,438,650 1,095,843 1,109,353 1,106,786 1,114,741  1,095,146  1,123,298  1,068,374  1,064,216 175 164 20,812,000 20,674,000 20,414,000 20,198,000  20,166,000(3)  19,611,000  19,326,000  19,344,000 171  168  171  172  174 175 96.2% 96.0% 96.1% 96.0%  96.4%(3)  95.8%  95.5%  95.5% (1)  Q2 of 2009 excludes a dilution loss on Equity One investment. Q3 and Q4 of 2008 exclude non-cash impairment losses recorded by Equity One and Q4  2008 excludes a dilution gain on Equity One investment. (2)  Prior year amounts have been restated for a change in accounting standards. (3)  The Company has changed its method of recording GLA and occupied space. Refer to the “Leasing and Occupancy” section of this MD&A. (4)  The Q3 2009 amounts cover the period to August 14, 2009. See discussion of dividend-in-kind in the “Equity One, Inc.” section of this MD&A. Refer to the MD&A and the Quarterly Financial Statements for discussion and analysis relating to the four quarters in 2008 and the first  three quarters in 2009. A discussion of the fourth quarter of 2009 follows. FIRST CAPITAL REALTY ANNUAL REPORT 2009        37       MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Fourth Quarter 2009 Operations and Results Acquisition and Development During the fourth quarter of 2009, the Company acquired an 80,000 square foot retail property in Calgary, Alberta. The acquisition  amount of $32.1 million, including closing costs was paid with new mortgage financing of $20 million and with the balance in cash. The  Company also invested $6.6 million in the acquisition of additional space adjacent to two existing properties comprising 31,000 square  feet and two land parcels adjacent to existing properties totalling 0.6 acres. In addition to acquisitions of income-producing properties and development assets, the Company invested $48.2 million during the  fourth quarter in its active development projects as well as in certain improvements to existing properties. Development of 145,900 square feet was brought on line in the fourth quarter of 2009, with 142,700 square feet leased at an  average rate of $23.39 per square foot. The Company also reopened 14,400 square feet of redeveloped space at an average rate of  $19.22 per square foot. Property Name  City  Province  Square Feet  Major Tenants  Development of new gross leasable area (1) Derry Heights (2)  Bowmanville  Rutherford Marketplace (2)  Old Oakville  Place Kirkland  Other space – various projects  Milton  ON  Bowmanville  ON  ON  Vaughan  ON  Oakville  QC  Kirkland  Redevelopment of existing gross leasable area South Park Centre  Centre Commercial Beaconsfield (2)  Place Kirkland  Northgate Centre  Edmonton  AB  Beaconsfield  QC  QC  Kirkland  AB  Edmonton  Total  Shoppers Drug Mart, CIBC, RBC Staples, The Beer Store Pathways Academy LCBO IGA (Expansion) 360 Theatre Systems Beaconsfield Dentist, Co-Operators CRU tenants The X-Ray Clinic 44,100  22,700  19,400  16,000  12,100  31,600 145,900 4,500  4,000  3,000  2,900  14,400 160,300 (1)  Includes new space created in redevelopment properties and greenfield developments. (2)  Constructed in accordance with Leadership in Energy and Environmental Design (LEED) certificate guidelines. Leasing and Occupancy Gross new leasing in the fourth quarter of 2009 totalled 265,600 square feet including development and redevelopment space   coming on line. The Company achieved a 17.7% increase on 382,200 square feet of renewal leases over the expiring rates. Portfolio  occupancy at December 31, 2009 increased to 96.2% from 96.0% at September 30, 2009. Properties acquired during the fourth  quarter had an average lease rate per square foot of $27.83 and occupancy of 91.2%. The average rate per occupied square foot at  December 31, 2009 increased to $15.71 from $15.54 at September 30, 2009. 38        FIRST CAPITAL REALTY ANNUAL REPORT 2009                         Funds from Operations The Company’s GAAP net income is reconciled to FFO below: (thousands of dollars)  Net income for the period  Add (deduct):     Amortization of shopping centres, deferred leasing costs and intangible assets      Gain on disposition of income-producing shopping centre      Equity loss (income) from Equity One      FFO from Equity One      Future income taxes  FFO     Add: the Company’s share of Equity One’s non-cash impairment loss  Deduct: Dilution gain on Equity One investment  FFO excluding Equity One’s non-cash impairment loss and dilution gain on   Equity One investment  The components of FFO are: Three months ended December 31, 2009 December 31, 2008(1) $ 14,736  $  10,574 23,022  (526)  1,287  —  (2,360)  36,159  —  —  21,537 (1,631) (1,405) 3,753 7,021 39,849 1,023 (2,898) $ 36,159  $  37,974 (thousands of dollars)  December 31, 2009 December 31, 2008(1) Three months ended Net operating income  Interest expense – Canadian operations  Interest expense – US operations  Corporate expense  Interest and other income  Other (losses) gains and (expenses) (2)  Funds from operations from Equity One  Amortization of non-real estate assets  Current income taxes  FFO excluding Equity One’s non-cash    impairment loss and dilution (loss) gain    on Equity One investment  Add: the Company’s share of Equity One’s    non-cash impairment loss  Add: Dilution gain on Equity One investment  FFO  FFO per diluted share excluding Equity One’s    non-cash impairment loss and dilution gain    on Equity One investment  Add: the Company’s share of Equity One’s    non-cash impairment loss  Add: Dilution gain on Equity One investment  FFO per diluted share  Weighted average diluted shares     – FFO  FFO –  EQY and  Other Non-  recurring Items Total  FFO  FFO – Core  Operations  FFO – EQY and Other Non- recurring  Items  Total FFO $ — — — — — (2,165) — — 1,662 $ 73,708  (32,343)  —  (5,801)  2,549  (2,165)  —  (1,451)  1,662  $  67,911    (26,177)  —  (5,614)  347  —  —  (592)  —  $  —  —  (2,444)  —  —  (613)  4,776  —  380  $  67,911   (26,177) (2,444) (5,614) 347 (613) 4,776 (592) 380 FFO – Core Operations $ 73,708   (32,343) — (5,801) 2,549 — — (1,451) —   36,662 (503) 36,159    35,875  2,099    37,974 — — $ 36,662 $ — — —  —  (503) $ 36,159  —  —  $  35,875  (1,023)  2,898  3,974  (1,023) 2,898 $  39,849 $  $ 0.38 $ (0.01) $ 0.37  $  0.40  $  0.02  $  0.42 — — 0.38 $ — — (0.01) $ —  —  0.37  $  —  —  0.40  $  (0.01)  0.03  0.04  $  (0.01) 0.03 0.44 $   97,007,411 97,007,411 97,007,411   90,423,576   90,423,576   90,423,576 (1)  Prior year comparative figures have been restated for a change in accounting standards. (2)  Excludes gains on disposition of income-producing real estate. FIRST CAPITAL REALTY ANNUAL REPORT 2009        39                                                                                                                                                                           MANAGEMENT’S DISCUSSION AND ANALYSIS – continued The Company’s funds from operations – core operations for the three months ended December 31, 2009 totalled $36.7 million or  $0.38 per diluted common share compared to $35.9 million or $0.40 per diluted common share in the same period in 2008. FFO – core  operations, was positively affected by same property NOI growth and the effect of acquisitions and development coming on line. This  was largely offset by increased interest and amortization expense. For the three months ended December 31, 2009, FFO – EQY and other non-recurring items consisted of a net loss of $0.5 million  or $0.01 per diluted common share which compares to a net gain of $2.1 million or $0.02 per diluted common share. FFO – EQY and  other non-recurring items included one-time items which consist of gains on marketable securities offset by losses on debt extinguishment,  losses on termination of hedges, one-time severance payment and one-time property management internalization costs. Adjusted Funds from Operations (thousands of dollars, except per share amounts)  December 31, 2009 December 31, 2008(1) Three months ended FFO excluding dilution loss on Equity One     Investment and the Company’s share of     Equity One’s non-cash impairment loss      Add/(deduct):     Interest expense payable in shares      Rental revenue recorded on a straight-line         basis and market rent adjustments      Non-cash compensation expense      Revenue sustaining capital expenditures         and leasing costs (2)      Funds from operations from Equity One         excluding non-cash impairment loss      Dividends from Equity One (regular)      Return of capital portion of marketable         securities, net      Change in cumulative unrealized (gain) loss         on marketable securities      Loss (gain) on extinguishment of debt      Realized losses on termination of hedges      Unrealized losses on interest rate swaps         not designated as hedges      Gain on disposition of land  AFFO   AFFO per diluted share  AFFO –  EQY and  Other Non-  AFFO – Core recurring Operations Items Total  AFFO  AFFO – Core  Operations  AFFO – EQY and Other Non- recurring  Items  Total AFFO $ 36,662 $ (503) $ 36,159  $  35,875  $  2,099  $  37,974 4,819 — 4,819  3,540  — 600 (2,731)  1,482  (1,461)  928  (3,329)  (4,779)  (2,731) 882 (3,329) — — (1,273) — — — — —  —  —  —  (4,776)  5,145  (1,273)  409  —  409 —  —  —  —  3,540 (1,461) 928 (4,779) (4,776) 5,145 — — — (314) 1,497 1,181 (314)  1,497  1,181  —  —  —  850  (438)  290  850 (438) 290 — — $ 35,030 $ 0.33 $ $ 1,203 — 3,664 1,203  —  $ 38,694  —  —  $  34,512  0.03 $ 0.36  $  0.35  —  (3)  3,167  — (3) $  37,679 0.03  $  0.38 $  $  Weighted average diluted shares for AFFO (3)    108,946,987 108,946,987 108,946,987    99,053,205    99,053,205    99,053,205 (1)  Prior year comparative figures have been restated for a change in accounting standards. (2)  Estimated at $0.60 per square foot per annum on average gross leasable area for 2009 ($0.50 per square foot per annum in 2008). (3)  Includes the weighted average outstanding shares that would result from the conversion of the convertible debentures. Non-recurring AFFO primarily consists of dividends from Equity One, net of the associated interest expense, realized gains on  marketable securities, cash severance costs and costs related to the acquisition of the 40% interest in FCB that the Company did   not already own. For the three months ended December 31, 2009, AFFO from core operations rose 1.4% to $35.0 million from $34.5 million in the  same period in 2008. 40        FIRST CAPITAL REALTY ANNUAL REPORT 2009                                                                                                                                       A reconciliation from cash provided by operating activities (a GAAP measure) to AFFO is presented below: (thousands of dollars)  Cash provided by operating activities      Realized losses (gains) on sale of marketable securities      Loss on termination of hedges      Dividend income – return of capital portion      Deferred leasing costs      Net change in non-cash operating items      Settlement of restricted share units      Settlement of deferred share units  Amortization of other assets  Amortization of financing fees  Interest paid in excess of coupon interest on assumed mortgages  Debenture interest in excess of coupon  Other non-cash interest expense  Loss on foreign currency exchange  Convertible debenture interest payable in common shares  Revenue sustaining capital expenditures and leasing costs  AFFO   Three months ended December 31, 2009 December 31, 2008(1) $ $ 50,436  3,340  1,181  (1,273)  1,517  (18,695)  2,463  514  (807)  (644)  294  (306)  (749)  (67)  4,819  (3,329)  38,694  $  $  58,134 (160) 290 409 1,021 (20,911) 1,275 — (366) (226) 294 (225) (617) — 3,540 (4,779) 37,679 (1)  Prior year comparative figures have been restated for a change in accounting standards. Net Income (thousands of dollars, except per share amounts)  December 31, 2009 December 31, 2008(1) Three months ended REVENUE Property rental revenue  Interest and other income  EXPENSES Property operating costs  Interest expense  Amortization  Corporate expenses  Income before undernoted items  Equity (loss) income from Equity One  Other (losses) gains and (expenses)  Income before income taxes  Income taxes (recovery):     Current      Future  Net income  Earnings per common share     Basic      Diluted  (1)  Prior year comparative figures have been restated for a change in accounting standards. $ 113,232  2,549    115,781  39,524  32,343  24,473  5,801    102,141  13,640  (1,287)  (1,639)  10,714  (1,662)  (2,360)  (4,022)  14,736  0.15  0.15  $ $ $ $  105,695 347   106,042 37,784 28,621 22,129 5,614 94,148 11,894 1,405 3,916 17,215 (380) 7,021 6,641 10,574 0.12 0.12 $  $  $  FIRST CAPITAL REALTY ANNUAL REPORT 2009        41                                                                                                                                                         MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Net operating income for the three months ended December 31, 2009 totalled $73.7 million, compared to $67.9 million in the fourth  quarter of 2008, an increase of $5.8 million or 8.5%. Same property NOI increased by 5.9% generating NOI growth of $3.7 million in  the fourth quarter 2009 over the fourth quarter of 2008, due primarily to redevelopment and expansion space and increases in lease  rates and occupancy. Same property NOI in the fourth quarter of 2009, excluding expansion or redevelopment space, increased by  $1.9 million or 3.2% over the same prior year period. OUTLOOK The forward-looking statements are not historical facts but reflect the Company’s current expectations regarding future results or events and are based on information currently available to Management. Certain material factors and assumptions were applied in providing these forward-looking statements. See our forward-looking statement disclaimer on the first page of this annual MD&A. 2010 Outlook Over the past several years First Capital Realty has made significant progress in growing its business and generating accretive growth  in funds from operations while enhancing the quality of its portfolio. The current environment remains competitive with little transaction activity. Both debt and equity markets are accessible but  continue to be challenging relative to pricing currently being asked by property vendors. The Company will continue to selectively  acquire properties that are well-located and of high quality, where they add strategic value and/or operating synergies provided they  will be accretive to FFO over the long term, and equity and debt capital can be priced and committed to maintain conservative leverage. Development and redevelopment activities continue to provide the Company with opportunities to grow within its existing portfolio   of assets. Once completed, these activities typically generate higher returns on investment. With respect to acquisitions of both income-producing and development properties, the Company will continue to focus on  maintaining the sustainability and growth potential of rental income to ensure that among other things, refinancing risk is minimized.  This is particularly important given the current cost of capital. Specifically, Management will focus on the following five areas to achieve its objectives in 2010: • same property net operating income growth, taking into account maintaining high occupancy; • development and redevelopment activities; • selective acquisitions; • increasing efficiency and productivity of operations; and • improving the cost of capital, for both debt and equity. Overall, Management is confident that the quality of the Company’s balance sheet, the defensive nature of its assets and operations  will continue to serve it well in the current environment. Guidance Readers should refer to the Company’s 2009 year-end press release dated March 11, 2010 as filed on SEDAR at www.sedar.com   for a discussion of the Company’s previously issued 2009 specific guidance as compared with actual results for 2009 and for 2010  specific guidance. The purpose of the Company’s guidance was to provide readers with Management’s view as to the expected financial performance  of the Company, using factors that are commonly accepted and viewed as meaningful indicators of financial performance in the real  estate industry. SUMMARY OF SIGNIFICANT ACCOUNTING ESTIMATES AND POLICIES Summary of Critical Accounting Estimates First Capital Realty’s significant accounting policies are described in Note 1 to the Consolidated Financial Statements. Management  believes the policies which are most subject to estimation and Management’s judgement are those outlined below. Fair Value Fair value is defined as the amount at which an item can be bought or sold between independent, knowledgeable parties under no  compulsion to act, as opposed to a forced or liquidation sale. Quoted market prices in active markets are usually the best evidence of fair value when they are available. Market prices are  usually available for marketable securities and other actively traded financial instruments owned by the Company. When quoted  market prices are not available, estimates of fair value are based on the best information available, including comparable market data  and other valuation techniques, including discounted cash flows and other models based on future cash flows. 42        FIRST CAPITAL REALTY ANNUAL REPORT 2009 Where the valuation method chosen is based on future cash flows, the Company would be required to make estimates that  incorporate assumptions of economic conditions, local market conditions, the potential uses of assets and other factors. As a result, the Company’s determination of fair value could vary under differing circumstances and result in different calculations. The most significant areas which are affected by fair value estimates in the Company’s financial statements are: • allocations of purchase price on property acquisitions; • estimates of fair value of assets when assessing potential impairments; • valuation of financial instruments both for disclosure and measurement purposes; and • valuation of stock options using the Binomial Method. Property Acquisitions For acquisitions subsequent to September 12, 2003, in accordance with the Canadian Institute of Chartered Accountants (“CICA”)  Handbook Sections 1581 and 3062, Management is required to allocate the purchase price to land, building, tenant improvements,  and intangibles such as the value of above-market and below-market leases, lease origination costs, tenant relationships and  mortgages, if any. Management uses estimates and judgements as well as third-party appraisals to determine the following: • The fair value of land as of the acquisition date. • The value of the depreciated replacement cost of buildings as of the acquisition date based on prevailing construction costs for  buildings of a similar class and age. • The value of the above- and below-market leases based on the present value of the difference between the rents payable under  the terms of the in-place leases and estimated market rents. • The value of deferred leasing costs, including tenant improvements, at depreciated replacement cost based on estimates of  prevailing construction costs, taking into account the condition of tenants’ premises and year of improvement. • The value of lease origination costs based on estimates of the costs that would be required for the existing leases to be put in  place under the same terms and conditions. These costs include leasing commissions, foregone rent and operating cost  recoveries during an estimated lease-up period. • The value of the tenant relationships, if any, based on the net costs avoided if the tenants were to renew their leases at the end   of the existing term, and the probability that the tenants will renew. • The fair value of debt assumed on acquisition by reference to prevailing market interest rates. Estimates of fair values and market rates used could vary and impact reported financial results. Impairment of Assets Under Canadian GAAP, Management is required to write down to fair value any long-lived asset that is determined to have been  permanently impaired. First Capital Realty’s long-lived assets consist of investments in income-producing properties and mortgages  receivable. The fair value of investments in income-producing properties is dependent upon anticipated future cash flows from  operations over the anticipated holding period. The review of anticipated cash flows involves subjective assumptions of estimated occupancy, rental rates and a residual value.   In addition to reviewing anticipated cash flows, Management assesses changes in business climates and other factors which may  affect the ultimate value of the property. These assumptions are subjective and may not be ultimately achieved. The fair value of mortgages receivable depends upon the financial covenant of the issuer and the economic value of the underlying  security. In the event these factors result in a carrying value that exceeds the sum of the undiscounted cash flows expected to result from  the direct use and eventual disposition of the property, an impairment would be recognized. The estimates of future cash flows and the impact of other factors could vary, and result in a different calculation of the impairment. In assessing impairment of the income producing shopping centres, Management makes use of the property appraisals completed  by both external appraisers and internally for the purposes of International Financial Reporting Standards. Amortization of Income Properties Amortization is recorded on buildings using a straight-line basis over the expected useful economic life of the building, which is  typically 40 years. A significant portion of the acquisition cost of each property is allocated to the building. The allocation of the  acquisition cost to the building and the determination of the useful life are based upon Management’s estimates. In the event the  allocation to the building is inappropriate or the estimated useful life of the building proves incorrect, the computation of amortization  will not be appropriately reflected over future periods. The Company’s total gross book value of buildings is $2.7 billion. If the useful   life estimate of the buildings changed by one year, the associated amortization expense would change by $1.7 million. FIRST CAPITAL REALTY ANNUAL REPORT 2009        43 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Fair Value of Financial Instruments The Company is required to determine the fair value of its mortgage debt, senior unsecured debentures, loans, mortgages and marketable  securities and its convertible debentures. In determining the fair value of the Company’s outstanding mortgages, Management uses  internally developed models, which incorporate estimated market rates. In determining market rates, Management adds a credit spread  to quoted rates on Canadian government bonds with similar maturity dates to the Company’s mortgages. A 1% change in the interest  rate used to determine the fair value of the mortgages payable would change the fair value of the mortgages payable by $52 million.  Similarly, a 1% change in the interest rate used to determine the fair value of the senior unsecured debentures would change the fair  value by $21 million. The fair value of the Company’s convertible debentures is based on current trading prices. Estimates of market  rates and the credit spread applicable to a specific property could vary and result in a different disclosed fair value. Income Taxes The Company exercises judgement in estimating future income tax assets and liabilities. Income tax laws are potentially subject to  different interpretations, and the income tax expense recorded by the Company reflects the Company’s interpretation of the relevant  tax laws. The Company is also required to estimate the timing of reversals of temporary differences between accounting and taxable  income in determining the appropriate rate to apply in calculating future income taxes. SUMMARY OF CHANGES TO SIGNIFICANT ACCOUNTING POLICIES (a) Current accounting policy changes Goodwill and Intangible Assets – CICA Section 3064 Effective January 1, 2009, the Company adopted on a retroactive basis with restatement of prior years CICA new accounting  standard: 3064 Goodwill and Intangible Assets which clarifies that costs can be capitalized only when they relate to an item that  meets the definition of an asset and related amendments to Section 1000, Financial Statement Concepts,. Section 3064 replaces  Section 3062 Goodwill and Other Intangible Assets and Section 3450 Research and Development Costs. As a result of applying  this standard, the Company will no longer defer recoverable costs and match the expense to the period over which the costs are  recovered from the tenants. The standard requires that the expenditure is either capitalized or expensed in the period it is incurred,  based upon the nature of the expenditure. Amounts that are capitalized are added to the balance of Shopping Centres. Amounts  that are expensed are charged to property operating costs.   The effect of adopting this standard is summarized as follows: Effect on the balance sheet as at  Dec 31 Sept 30 June 30 March 31  March 31  June 30  Sept 30  Dec 31 (thousands of dollars)  Increase (decrease)  Increase (decrease) 2009 2008 $ 14,728 $ 10,491 $ 9,607 $ 10,958  $  7,683  $  7,809  $  8,099  $  10,818 $ (15,677) $ (11,675) $ (10,658) $ (11,661)  $  (8,233)  $  (8,369)  $  (8,681)  $ (11,478) $ (660) (949) $ (1,184) $ (1,051) $ (703)  $  (550)  $  (582)  $  (560)  $  Shopping centres  Other assets  Shareholders’ equity  Effect on the statement of earnings  for the three months ended (thousands of dollars,   except per share amounts)  $ $ $ $ Interest and other income  Property operating costs  Shopping centres     amortization  Net income  Earnings per common   $   share (basic and diluted)  Funds from operations (FFO)  $ $ FFO per diluted share  Adjusted funds from     operations (AFFO)  AFFO per diluted share  $ $ 44        FIRST CAPITAL REALTY ANNUAL REPORT 2009 2009 2008 Dec 31 Sept 30 Increase (decrease)  June 30 March 31  March 31  June 30  Sept 30  Dec 31 Increase (decrease) (249) $ (650) $ (172) $ (496) $ (150) $ (479) $ (193)  $  (472)  $  (132)  $  (359)  $  (128)  $  (334)  $  (157)  $  (377)  $  (165) (379) 159 $ 242 $ 457 $ (133) $ 676 $ (347) $ 322  $  (43)  $  206  $  21  $  216  $  (10)  $  242  $  (22)  $  292 (78) — $ 401 $ — $ — $ 324 $ — $ — $ 329 $ — $ —  $  279  $  —  $  —  $  227  $  —  $  —  $  206  $  —  $  —  $  220  $  —  $  401 $ — $ 324 $ — $ 329 $ — $ 279  $  —  $  227  $  —  $  206  $  —  $  220  $  —  $  — 214 — 214 —                 (b) Future accounting changes Future adoption of International Financial Reporting Standards (“IFRS”) in Canada Overview The Canadian Accounting Standards Board (“AcSB”) has mandated that all publicly accountable profit-oriented enterprises adopt  IFRS, which replaces Canadian GAAP, for interim and annual periods beginning on or after January 1, 2011. Comparative  information for 2010 will be presented under IFRS. Early adoption under certain circumstances is allowed.   The Company continues to evaluate the effect of the adoption of IFRS on its consolidated financial statements as new standards  are issued by the International Accounting Standards Board (“IASB”). However, Management expects that the consolidated  financial statements prepared under IFRS will have material differences from the current Canadian GAAP financial statements.  Also, both Realpac and the Company are assessing the effect of the adoption of IFRS on the definitions of FFO and AFFO.   The Company’s major shareholder, Gazit-Globe, has been reporting under IFRS for some time. As a result, Management has  been able to leverage its experience in preparing Canadian GAAP/IFRS reconciliations for Gazit-Globe. On that basis, many of the  major steps that are required for IFRS adoption have already taken place. These include: •   Identification and quantification of the differences between IFRS and Canadian GAAP that have a material impact on the  Company’s consolidated financial statements, based on Gazit Globe’s accounting policy choices; •   Establishing processes for the collection of data required to make the adjustments necessary under IFRS; •   Assessing resource requirements, as well as understanding the impact on the Company’s business groups and operations;  and •   Changes and additions to internal controls over financial reporting that are required. In addition, each quarter, the Company has disclosed the effect of valuing investment properties at fair value rather than cost less  accumulated amortization, which is the most significant IFRS/Canadian GAAP difference that affects the Company and the real  estate industry. This disclosure is included below in this MD&A.   The major steps that form part of the Company’s conversion plan for Canadian reporting purposes are set out below. IFRS Conversion Plan – Significant Elements Area Steps Financial Statement  Presentation and  Disclosure Identification of IFRS/Canadian GAAP  differences Progress Completed Evaluate and select accounting policy alternatives Evaluation complete, final selection in progress Quantify the effect of the differences based on  the accounting policy alternatives chosen Prepare opening IFRS balance sheet as at  January 1, 2010 Prepare IFRS balance sheet, statement of  income and cash flows at each quarter end in  2010 so that comparatives are ready for 2011 Substantially complete Substantially complete Will occur during 2010 at each quarter end Processes and  Systems Identify changes required to current information  systems Completed Implement changes to the information systems To be implemented in the second half of 2010 Identify data collection requirements and  implement processes to collect the data Determine valuation process for investment  properties, including frequency and the  proportion of appraisals to be completed  internally versus externally Completed Completed FIRST CAPITAL REALTY ANNUAL REPORT 2009        45                           MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Area Steps Progress Business impacts Review significant financial covenants and make  changes if required Review of financial covenants is complete and no  changes are required Review employee compensation plans and make  changes if required Changes to employee compensation plans will be  completed in conjunction with the 2011 business  plan process Identify required resources, including valuation  expertise as well as additional accounting  resources during the transition Completed Training Education of the Board of Directors, Audit  Committee and Senior Management on the effect  of IFRS Education sessions have taken place with the Board,  Audit Committee and Senior Management. Updates  take place as the IASB makes changes to standards Technical training of accounting and valuation  staff Communication to all other internal and external  stakeholders Senior accounting staff have all had technical  training. The training of the remainder of the  accounting staff will occur throughout 2010 Ongoing communication to external stakeholders  through MD&A each quarter. Internal stakeholders are  given status updates as required during the process Ensure the appropriate documentation of  processes and systems are in place Completed. The process documentation will continue  to be updated throughout 2010 Ensure appropriate changes to internal controls  are made according to the appropriate control  framework Substantially completed Assess the effectiveness of the controls Ongoing Internal controls over  financial reporting  and disclosure The conversion plan will continue to progress during 2010 based on changes in the accounting standards and the Company’s  ongoing implementation of its systems, processes and resources. Effect of Adoption of IFRS Adoption of IFRS requires retrospective application as at the transition date. The Company’s transition date for Canadian reporting  purposes is January 1, 2010, as the fiscal year 2010 results will be presented comparatively under IFRS when the Company  commences reporting under IFRS in 2011.   Under IFRS 1: “First-time Adoption of International Financial Reporting Standards (“IFRS 1”), the Company can elect to apply  prospective treatment under certain conditions to certain accounting standards. In addition, the IFRS 1 provides for exceptions and  optional exemptions for first-time adopters. The cumulative net income effect of the differences between IFRS and Canadian  GAAP as at January 1, 2010 will be recognized in retained earnings, in accordance with IFRS 1.   The key differences between IFRS and Canadian GAAP that affect the preparation of the Company’s consolidated financial  statements under IFRS, as well as the significant accounting policy choices and exemptions that the Company intends to apply  are set out in the table below: Item Current Canadian GAAP Treatment IFRS Treatment Basis of valuation   of investment  properties Cost less accumulated amortization. IFRS allows an entity to choose either a) fair value; or b) cost  less accumulated amortization. IFRS also allows entities to elect  to deem the transition date fair value as the “deemed cost” and  then apply the cost model from that date. Under the cost model,  an entity is still required to disclose the fair value of its  investment properties, at least annually. The Company intends to adopt the fair value model. The effect  of applying the fair value model to investment properties is  quantified in this MD&A in the IFRS section. 46        FIRST CAPITAL REALTY ANNUAL REPORT 2009         Item Current Canadian GAAP Treatment IFRS Treatment Recognition of  intangible assets   and liabilities Fair value as at the date of  acquisition of the related income- producing property, less accumulated  amortization. Transaction costs on  property acquisitions Capitalized as part of the cost of   the asset. Future income taxes Measured based on the Canadian  GAAP carrying values of assets   and liabilities. Income statement  classification of lease  incentive payments  to tenants Under Canadian GAAP, lease  incentive payments to tenants are  amortized to rental revenue as  opposed to be being amortized to  amortization expense. The Company  has no material amounts of payments  to tenants that meet the definition of a  lease incentive under Canadian GAAP. Separate recognition of intangible assets and liabilities on  acquisitions of investment property by the Company will no  longer be required under IFRS if the fair value model is selected. Under IFRS, transaction costs on a business combination   are expensed immediately, whereas the costs on an asset  acquisition are capitalized. The definition of a business  combination is broad under IFRS, and may capture investment  property acquisitions. The application of this standard to the  Company’s reporting in Canada under IFRS is still being  evaluated. Future income tax assets and liabilities will need to be adjusted  based upon the change in the carrying values of all other assets  and liabilities upon conversion to IFRS. The most significant of  these adjustments is the additional future tax liability as a result  of the re-valuation of investment properties to fair value. The  effect of this is quantified in this MD&A with the fair value of  investment properties in the IFRS section. Under IFRS, certain of the payments that the Company makes  to its tenants will be classified as lease incentives under IFRS  and therefore the amortization will be recorded as a reduction   of rental revenue rather than as an amortization of an asset. Capitalization of  interest and  incidental operations  to development  projects Interest costs and incidental  operations are capitalized during the  period of active development which  includes a lease-up period after the  asset is available for tenant  possession. Incidental operations are not capitalized either before or during  development. Also active development is deemed to cease  when an asset is ready for tenant possession. The Company  expects a reduction in capitalized costs including capitalized  interest under IFRS, which will be quantified and disclosed  during 2010. Other significant differences between Canadian GAAP and IFRS which have been considered by Management but are not  currently expected to be material to the Company’s financial statements are set out below: Straight-line Recognition of Rental Revenue Under Canadian GAAP, straight-line recognition of rental revenue was adopted January 1, 2004 and applied prospectively from  that date. Under IFRS, straight-line rent recognition is applied retroactively by all leases. The effect on the Company’s financial  statements for 2010 and subsequent years of this difference is not expected to be material. Asset Impairment There are differences between the method of determining the amount of impairment charges between Canadian GAAP and IFRS.  However, because the Company intends to adopt the fair value method of accounting for investment properties, this difference will  not have a material impact on the Company’s consolidated financial statements. Other Areas   Management has also considered differences and exemptions in the areas of employee future benefits, asset retirement obligations,  cumulative currency translation adjustments, re-designation of previously recognized financial instruments, share-based payments,  borrowing costs and variable interest entities. These differences do not have a material effect on the consolidated balance sheet   of the Company as at January 1, 2010 and are not expected to have a material effect in the future based upon the Company’s  current operations. FIRST CAPITAL REALTY ANNUAL REPORT 2009        47       MANAGEMENT’S DISCUSSION AND ANALYSIS – continued INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) The Company’s major shareholder reports certain financial information under IFRS. The most significant difference between IFRS and  Canadian generally accepted accounting principles (“Canadian GAAP”) for this purpose is that income-producing shopping centres  (“Shopping Centres”) and land and shopping centres under development (“Development Properties”) are presented at fair value under  IFRS as opposed to cost less accumulated amortization under Canadian GAAP. In addition, the values of deferred leasing costs,  straight-line rents receivable and intangible assets and liabilities related to Shopping Centres are not presented separately under IFRS  as their values are incorporated within the values of the Shopping Centres. Prior to January 1, 2009, Development Properties were  presented at cost under IFRS. In addition, First Capital Realty’s future income tax liability increases as a result of the change in value  of the Shopping Centres under IFRS. This information is set out in the table below: (millions of dollars)  IFRS value of Shopping Centres and Development Properties (1)  Canadian GAAP value of Shopping Centres and Development Properties (2)  Difference between IFRS value and Canadian GAAP value  Increase in future income taxes as a result of the difference in value  Difference in value, net of taxes  2009 4,159  3,572  587  (111)  476  $  $  2008 3,918 3,377 541 (98) 443 $ $ (1)  IFRS changed in the first quarter of 2009 such that development properties are now recorded at fair value. The December 31, 2008 IFRS value includes  development properties at cost. (2)  Includes the net book value of Shopping Centres, Development Properties, deferred leasing costs, straight-line rents receivable and intangible assets and  liabilities. The Canadian GAAP value at December 31, 2008 has been restated for a change in accounting standards. At December 31, 2009 approximately 42% (December 31, 2008 – 62%) of the total fair value was determined through independent  appraisals conducted by a nationally recognized appraisal firm. The properties were appraised on an individual basis, with no portfolio  effect considered. The remainder of the properties were appraised internally by Management. The appraisals were prepared to comply  with the fair value model described in the IAS 40 – Investment Property and the International Valuation Standard. The determination of which properties are externally appraised and which are internally appraised by Management is based on   a combination of factors, including: property size, the level of redevelopment and leasing activity, local market conditions as well as  ensuring that there is a representative sample of properties from each market in which the Company operates. In addition, Management  ensures that each property in the portfolio is externally appraised at least once every three years. In completing the internal appraisals,  Management used capitalization rate information obtained from the appraisals completed by the external appraisers for comparable  properties in the same markets. In addition, for the properties internally appraised, Management used the last external appraisal  completed for the property, and made updates based upon material leasing activity and material changes in local market conditions. The primary method of appraisal was the income approach, since purchasers typically focus on expected income. For each property,  the appraisers conducted and placed reliance upon a) a direct capitalization method, which is the appraiser’s estimate of the relationship  between value and stabilized income, normally in the first year and b) a discounted cash flow method, which is the appraiser’s estimate  of the present value of future cash flows over a specified horizon, including the potential proceeds from a deemed disposition. The  determination of these values required Management and the appraisers to make estimates and assumptions that affect the values  presented, and actual values in a sales transaction may differ from the values shown above. Based on these valuation methods, the aggregate weighted average stabilized capitalization rates on the Shopping Centres as at  December 31, 2009 and 2008 were 7.39% and 7.38%, respectively. CONTROLS AND PROCEDURES Disclosure Controls and Procedures First Capital Realty Management maintains appropriate information systems, procedures and controls to ensure that information used  internally and disclosed externally is complete, accurate, reliable and timely. The disclosure controls and procedures are designed to  provide reasonable assurance that information required to be disclosed in its various reports is recorded, processed, summarized and  reported accurately. The Chief Executive Officer and the Chief Financial Officer of the Company have evaluated or caused the evaluation of, under their  direct supervision, the effectiveness of the Company’s disclosure controls and procedures (as defined in National Instrument 52-109,  Certification of Disclosure in Issuers’ Annual and Interim Filings) as at December 31, 2009, and have concluded that such disclosure  controls and procedures were designed and operating effectively. 48        FIRST CAPITAL REALTY ANNUAL REPORT 2009                                             Internal Controls Over Financial Reporting Management is responsible for establishing and maintaining adequate internal controls over financial reporting to provide reasonable  assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance  with Generally Accepted Accounting Principles. Management evaluated the design and effectiveness of its internal controls and procedures over financial reporting as defined  under National Instrument 52-109 for the year ended December 31, 2009. This evaluation was performed by the Chief Executive  Officer and the Chief Financial Officer of the Company with the assistance of other Company Management and staff to the extent  deemed necessary. Based on this evaluation which was completed using the COSO framework published by the Committee of  Sponsoring Organizations of the Treadway Commission, the Chief Executive Officer and Chief Financial Officer concluded that the  internal controls and procedures over financial reporting were appropriately designed and operating effectively. The Company did not make any material changes to the design of internal controls over financial reporting during the year ended  December 31, 2009 that have had, or are reasonably likely to have a material effect on the Company’s internal controls over financial  reporting. On an ongoing basis, the Company will continue to analyze its controls and procedures for potential areas of improvement. In spite of its evaluation, Management does recognize that any controls and procedures, no matter how well designed and  operated, can only provide reasonable assurance and not absolute assurance of achieving the desired control objectives. In the  unforeseen event that lapses in the disclosure or internal controls and procedures occur and/or mistakes happen, the Company  intends to take whatever steps necessary to minimize the consequences thereof. RISKS AND UNCERTAINTIES First Capital Realty, as an owner of income-producing properties and development land, is exposed to numerous business risks in the  normal course of its business that can impact both short-and long-term performance. Income-producing and development properties  are affected by general economic conditions and local market conditions such as oversupply of similar properties or a reduction in  tenant demand. 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 the Company encounters in conducting  its business and the manner in which it takes action to minimize the impact of these risks are outlined below. The Company’s current  Annual Information Form provides a more detailed discussion of these and other risks and can be found on SEDAR at www.sedar.com  and the Company’s website at www.firstcapitalrealty.ca. Operating Risk All real property investments are subject to a degree of risk. They are affected by various factors including changes in general economic  conditions (such as the availability of long-term mortgage funds) and in local conditions (such as an oversupply of space or a reduction  in demand for real estate in the area), the attractiveness of the properties to tenants, competition from other available space, the ability  of the owner to provide adequate maintenance at an economic cost, and various other factors. In addition, fluctuations in interest   rates may affect the Company. The Company’s portfolio has major concentrations in Quebec, Ontario, Alberta and British Columbia.   As a result, economic and real estate conditions in these regions will significantly affect the Company’s revenues and the value of   its properties. The value of real property and any improvements thereto may also depend on the credit and financial stability of the tenants. The  Company’s income and funds available for distributions to shareholders would be adversely affected if a significant tenant or a number  of smaller tenants were to become unable or unwilling to meet their obligations to the Company or if the Company was unable to lease  a significant amount of available space in its properties on economically favourable lease terms. The Company is also subject to  competition from other developers, managers and owners in seeking tenants. FIRST CAPITAL REALTY ANNUAL REPORT 2009        49 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued The following chart summarizes the top 40 tenants of the Company, which together represent approximately 58.4% of the  Company’s annualized minimum rent from its Canadian portfolio as at December 31, 2009. Tenant  of Stores  Square Feet  Leasable Area  Minimum Rent  Credit Rating  Credit Rating  Credit Rating Number  Canadian Gross  Annualized   Organization  Organization  Organization  Percent of Total  Total Canadian  DBRS  S&P(1)  Moody’s Percent of  Top Forty Tenants   1  Sobeys   (including Western Cellars)    2  Shoppers Drug Mart    3  Loblaws    4  Metro    5  Zellers/Home Outfitters    6  Canadian Tire    7  TD Canada Trust    8  Royal Bank    9  Canada Safeway  10  Staples  11  LCBO  12  Wal-Mart  13  Bank of Nova Scotia  14  CIBC  15  H.Y. Louie Group (London Drugs)  16  Goodlife Fitness Club  17  Rona  18  Rexall  19  Dollarama  20  Bank of Montreal  21  SAQ  22  Cara Operations  23  Tim Hortons  24  Rogers  25  Blockbuster  26  Winners Merchants Inc.  27  Reitmans  28  Starbucks  29  Future Shop  30  Yum! Brands  31  Save on Foods  32  Longo’s  33  Pharmacie Jean Coutu  34  Home Depot  35  Subway  36  Bell Canada  37  McDonald’s  38  Forzani Group  39  Toys “R” Us (Canada) Ltd.  40  Michaels Arts & Crafts  Total: Top 40 Tenants 49  62  28  29  20  21  38  35  7  12  17  4  21  23  8  9  2  17  23  21  19  26  37  35  22  5  32  32  5  27  3  2  8  2  52  40  18  7  3  4  825 (1)  Standard and Poor’s 1,673,000  880,000  1,436,000  1,103,000  1,755,000  805,000  204,000  182,000  345,000  262,000  154,000  473,000  115,000  116,000  217,000  215,000  257,000  136,000  218,000  104,000  82,000  97,000  103,000  102,000  106,000  177,000  162,000  52,000  140,000  58,000  143,000  78,000  110,000  219,000  63,000  61,000  54,000  88,000  113,000  87,000  12,745,000 50        FIRST CAPITAL REALTY ANNUAL REPORT 2009 8.0%  4.2%  6.9%  5.3%  8.4%  3.9%  1.0%  0.9%  1.7%  1.3%  0.7%  2.3%  0.6%  0.6%  1.0%  1.0%  1.2%  0.7%  1.0%  0.5%  0.4%  0.5%  0.5%  0.5%  0.5%  0.9%  0.8%  0.2%  0.7%  0.3%  0.7%  0.4%  0.5%  1.1%  0.3%  0.3%  0.3%  0.4%  0.5%  0.4%  61.4% 7.4%  6.6%  5.2%  4.3%  3.8% 3.4%  2.1%  1.6%  1.4%  1.1%  1.1%  1.1%  1.1%  1.0%  1.0% 1.0% 1.0%  0.9% 0.9%  0.9%  0.8%  0.8%  0.8% 0.7%  0.7%  0.7%  0.7% 0.6%  0.6%  0.5%  0.5% 0.5% 0.5%  0.5%  0.5% 0.4%  0.4%  0.4% 0.4%  0.4%  58.4% BBB  A (LOW)  BBB  BBB  A (LOW)  AA  AA  BBB  AA (LOW)  AA  AA  AA  BBB- BBB+  BBB BBB BBB+ AA-  AA-  BBB  BBB  AA-  AA  AA-  A+  BBB  BBB- AA  A (High)  BBB  BB-  A+  A+  BBB  B-  A  BBB  BBB-  BBB-  A (LOW)  BBB+  BBB  BBB+  A  B  B-  Ba1 Aaa Aaa Baa2 Baa2 Aa1 Aa2 Aa1 Aa2 Ba1 Aa2 Aa2 Baa2 Caa2 A3 Baa3 Baa2 Baa3 B3 Baa1 Baa1 A3 B3 Caa2                                             Lease Maturities Upon the expiry of any lease, there can be no assurance that the lease will be renewed or the tenant replaced or, if renewed or  replaced, that rental increases will occur. There can also be no assurance that a tenant will be able to fulfill its existing commitments  under leases up to the expiry date. The failure to fulfil existing obligations under leases or to achieve renewals and/or rental increases  may have an adverse effect on the financial condition of First Capital Realty. First Capital Realty’s lease maturities are spread on a property-by-property basis, which helps to generate a more stable cash flow  and mitigate risks related to changing market conditions. Lease expirations in each of the next ten years range from 5.3% to 9.9% of  the annualized minimum rent in the Company’s portfolio. The Company’s lease maturity profile at December 31, 2009 is as follows: Date (1)  Month-to-month  2010    2011    2012    2013    2014    2015    2016    2017    2018    2019    2020    Thereafter  Total/Average Occupied  Percent of Total  Minimum Rent  Total Annualized  per Square Foot  Square Feet  Square Feet  at Expiration  Minimum Rent  at Expiration Annualized  Percent of  Minimum Rent  Average Annual  440,000  1,347,000  1,509,000  1,838,000  1,986,000  1,756,000  1,546,000  1,207,000  1,420,000  1,299,000  1,368,000  494,000  3,823,000  20,033,000 2.1%  6.5%  7.3%  8.8%  9.5%  8.4%  7.4%  5.8%  6.8%  6.2%  6.6%  2.4%  18.4%  96.2% $  6,906,000    23,449,000    23,933,000    33,033,000    33,271,000    31,020,000    23,135,000    17,825,000    21,192,000    23,167,000    25,549,000  9,478,000    63,309,000  $ 335,267,000 2.1%  7.0%  7.1%  9.9%  9.9%  9.3%  6.9%  5.3%  6.3%  6.9%  7.6%  2.8%  18.9%  100.0% $  15.70    17.41   15.86   17.97   16.75    17.67    14.97    14.76    14.93    17.84    18.67    19.18    16.56 $ 16.74 Number  of Stores  159  473  443  486  475  394  199  126  144  170  206  41  138  3,454 (1)  Excluding any contractual renewal options. Financing and Repayment of Indebtedness The Company has outstanding indebtedness in the form of mortgages, loans, credit facilities, senior unsecured debentures and  convertible debentures and, as such, is subject to the risks normally associated with debt financing, including the risk that the Company’s  cash flow will be insufficient to meet required payments of principal and interest. Debt service obligations reduce the funds available for operations, acquisitions, development activities and other business  opportunities. There is a possibility that the Company’s internally generated cash may not be sufficient to repay all of its outstanding  indebtedness. Upon the expiry of the term of the financing on any particular property owned by the Company, refinancing on a  conventional mortgage loan basis may not be available in the amount required or may be available only on terms less favourable to   the Company than the existing financing. The current credit environment is characterized by lenders that have suffered losses as well  as overall weakening of the economy. As a result, lenders may not have access to capital and may tighten their lending requirements,  making it more difficult for the Company, in turn, to access this capital. The current environment has increased the difficulty of refinancing  debt obligations. The Company may elect to repay certain indebtedness through the issuance of equity securities or the sale of assets,  where appropriate. The Company’s strategy of spreading the maturities of its debt is also helpful in mitigating its exposure to interest  rate fluctuations. Interest Rate Risk Interest represents a significant cost in the ownership of real property. The Company has a total of $608.8 million of fixed rate interest- bearing instruments outstanding including mortgages, senior unsecured debentures and convertible debentures maturing in the three  years ending December 31, 2012 at a weighted average interest rate of 5.86%. If these amounts were refinanced at an average  interest rate that was 100 basis points different from the existing rate, the Company’s interest cost would increase or decrease by  $6.1 million. FIRST CAPITAL REALTY ANNUAL REPORT 2009        51                         MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Credit Ratings Changes or anticipated changes in the credit rating assigned by DBRS or Moody’s to the Company’s senior unsecured debentures  may affect the Company’s access to financial markets and its cost of borrowing. Risk of Non-Collection of Straight-Line Rents Receivable A significant portion of the Company’s straight-line rent receivables will be payable by the tenants at dates up to 15 years in the future.  Because of the inherent uncertainty of predicting economic trends and changes, consumer trends and specific tenant conditions, some  or a significant portion of these straight-line rents receivable, which totalled $37.6 million at December 31, 2009, may not be collected.  Under Canadian GAAP, the Company records allowances for doubtful accounts on straight-line rents on a tenant-by-tenant basis,  using specific, known facts and circumstances that exist in its portfolio at the time of the analysis. At December 31, 2009 the allowance  for doubtful accounts related to straight-line rent receivables totalled $5.8 million. The current allowance for doubtful accounts may not  be adequate for future write-offs of these straight-line rents receivable. 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 and the opportunities which the market presents. First Capital Realty will continue to seek out acquisition,  expansion and selective development opportunities that offer acceptable risk adjusted rates of return, although the Company may   not succeed in identifying such opportunities or may not succeed in completing them. The Company competes for suitable real property investments with individuals, corporations, real estate investment companies,  trusts and other institutions (both Canadian and foreign) which may seek real property investments similar to those desired by the  Company. Many of these investors may also have financial resources, which are comparable to, or greater than, those of the Company.  An increase in the availability of investment funds, and an increase of interest in real property investments, increases competition for  real property investments, thereby increasing purchase prices and reducing the yield therefrom. The increasingly competitive real estate market has led to lower capitalization rates for new acquisitions in certain of the markets   in which the Company operates. Lower capitalization rates mean a smaller spread between the Company’s cost of capital and return  on acquisitions and may therefore have a negative impact on the Company’s earnings growth. Further, the Company’s development commitments are subject to those risks usually attributable to construction projects,   which include: (i) construction or other unforeseeable delays; (ii) cost overruns; (iii) the failure of tenants to occupy and pay rent   in accordance with existing lease agreements, some of which are conditional; and (iv) increase in interest rates during the life of   the development. Risks of Foreign and Domestic Equity Investments and Borrowings The Company may acquire investments in US or Canadian REITs or real estate investment vehicles from time to time. The value   of the Company’s investments of this nature is subject to the risks inherent in investments in equity securities, including the risk that  the financial condition of the issuers of the equity securities held by the Company may become impaired, or that the general condition  of the stock market may deteriorate. The investee companies are also subject to risks associated with real property ownership which  are similar to those described for the Company itself. Common stocks are also susceptible to general stock market fluctuations with  potentially volatile increases and decreases in value as market confidence in, and perceptions of, their issuers change. 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. 52        FIRST CAPITAL REALTY ANNUAL REPORT 2009 SHARE PRICE AND DIVIDEND HISTORY Average Closing Share Price 1st Quarter  2nd Quarter  3rd Quarter  4th Quarter  Closing price, end of year  Dividend History (per Common Share) 1st Quarter  2nd Quarter  August 14, 2009 dividend-in-kind  3rd Quarter  4th Quarter  Total    Total excluding dividend-in-kind  Dividend Yield on average closing price  (end of period annualized dividend) 2009  2008  2007  2006 $  16.18  $  16.34  $  18.07  $  20.29  $  21.66  $  $  $  $  $  $  $  0.32  0.32  0.45  0.32(1)  0.32  1.73  1.28  $  22.35  $  23.16  $  22.23  $  18.48  $  18.97  $  $  $  $  $  $  0.32  0.32  —  0.32  0.32  1.28  1.28  $  27.73  $  27.25  $  25.77  $  25.10  $  24.02  $  $  $  $  $  $  0.31  0.31  —  0.32  0.32  1.26  1.26  $  23.69 $  23.96 $  24.15 $  26.24 $  27.78 $  $  $  $  $  $  0.30 0.31 — 0.31 0.31 1.23 1.23   6.31%    6.93%    5.10%    4.73% (1)  Amount represents the regular dividend. A dividend-in-kind of $0.45 was distributed in addition to the regular dividend. See discussion of dividend-in-kind in  “Equity One, Inc,” section of this MD&A.. Quarterly Dividend The Company announced that it will pay a first quarter dividend of $0.32 per common share on April 13, 2010 to shareholders of record  on March 26, 2010. FIRST CAPITAL REALTY ANNUAL REPORT 2009        53         Shopping Centre Portfolio Property  ONTARIO Gross  Year Built  Leasable  Percent  Location  or Acquired  Area  Occupied  Anchors and Major Tenants 1842-1852 Queen Street West  216 Elgin  Adelaide Shoppers  Ambassador Plaza  Toronto  Ottawa  London  Windsor  2006  2008  2005  1994  14,000  12,000  19,000  151,000  38.2%  100.0%  100.0%  99.2%  Appleby Mall  Burlington  2004  171,000  100.0%  Bayview Lane Plaza  Bowmanville Mall  Markham  Bowmanville  2003  2005  44,000  146,000  85.9%  98.8%  Brampton Corners  Brampton  2001  302,000  99.6%  Brantford Mall Commons  Brantford  1995  296,000  100.0%  Bridgeport Plaza  Brooklin Towne Centre  Burlingwood Shopping Centre  Byron Village  Waterloo  Whitby  Burlington  London  1994  2003  2005  2002  219,000  98,000  99.1%  97.9%  67,000  89,000  91.4%  100.0%  Cedarbrae Mall  Toronto  1996  508,000  99.4%  Chartwell Shopping Centre  Toronto  2005  163,000  96.1%  Chemong Park Plaza  Peterborough  2001  68,000  97.6%  Clairfields Common  Guelph  2006  85,000  100.0%  College Square (3)  Ottawa  2005  388,000  100.0%  Credit Valley Town Plaza  Mississauga  2003  101,000  100.0%  Danforth Sobeys  Delta Centre  Toronto  Cambridge  2009  1998  27,000  79,000  100.0%  100.0%  Derry Heights Plaza  Milton  2008  95,000  100.0%  Dufferin Corners  Toronto  2003  74,000  89.8%  Eagleson Cope Drive  Eagleson Place  Ottawa  Ottawa  2003  2003  103,000  81,000  100.0%  98.2%  Fairview Mall  St. Catharines  1994  390,000  99.2%  Fairway Plaza  Kitchener  2005  246,000  98.1%  Gloucester City Centre  Ottawa  2003  345,000  96.3%  Starbucks, CIBC Harvey’s, Second Cup Shoppers Drug Mart, Wendy’s  CIBC, Scotiabank, Royal Bank of Canada, LCBO,   Rogers Video, Zellers  Fortinos (Loblaws), Pharma Plus, Bank of Montreal,   TD Canada Trust, LCBO, Beer Store, Home Hardware Bank of Montreal, Planet Organic  Metro, Shoppers Drug Mart, Staples, The Beer Store,  Dollarama, GoodLife Fitness  Fortinos (Loblaws), Wal-Mart, HSBC, National Bank,  Scotiabank, Kelsey’s, Chapters  Zehrs (Loblaws), Wal-Mart, LCBO, Cineplex,   Royal Bank of Canada, The Beer Store, Reitmans Sobeys, Zellers, Rogers Video, Tim Hortons, Bulk Barn  Price Chopper (Sobeys), Shoppers Drug Mart, Scotiabank,  Tim Hortons, LCBO No Frills (Loblaws), Pharma Plus, Tim Hortons  Metro, Pharma Plus, TD Canada Trust, Rogers Video,  LCBO  No Frills (Loblaws), CIBC, Scotia Bank, Burger King,   The Beer Store, Canadian Tire, Dollarama, Toys ’R’ Us,  Zellers, LCBO, Extreme Fitness  Price Chopper (Sobeys), Shoppers Drug Mart,   Bank of Montreal, CIBC  Sobeys, TD Canada Trust, Government of Canada,  Meridian Credit Union  Food Basics, Shoppers Drug Mart, TD Canada Trust,  Scotiabank, Starbucks  Loblaws, Pharma Plus, Bank of Montreal, The Beer Store,  LCBO, Tim Hortons, Home Depot, Reitmans, Rogers  No Frills (Loblaws), Pharma Plus, CIBC, TD Canada Trust,  Tim Hortons, Rogers Video Sobeys  Price Chopper (Sobeys), Shoppers Home Health Care,  Starbucks, Dollarama  Shoppers Drug Mart, CIBC, Royal Bank of Canada,   Tim Hortons, Pure Health and Fitness  Shoppers Drug Mart, TD Canada Trust,   Royal Bank of Canada Real Canadian Superstore (Loblaws)  Shoppers Drug Mart, Home Hardware, TD Canada Trust,  Starbucks, Rogers Video, The Beer Store  Food Basics (A&P), Zehrs (1) (Loblaws), CIBC, Scotiabank,  Costco, Future Shop, Mark’s Work Wearhouse, Office Depot,  Winners, Zellers, Sport Chek, LCBO  Food Basics (A&P), Starbucks, Dollarama, Home Sense,  Pier 1 Imports, Sport Chek, Winners, GoodLife Fitness,  Reitmans  Loblaws, Pharma Plus, CIBC, Scotiabank, Tim Hortons,  Zellers 54        FIRST CAPITAL REALTY ANNUAL REPORT 2009           Property  Location  or Acquired  Area  Occupied  Anchors and Major Tenants Gross  Year Built  Leasable  Percent  ONTARIO (cont’d) Grimsby Square Shopping Centre  Grimsby  2005  169,000  100.0%  Halton Hills Village  Harwood Plaza  Georgetown  Ajax  2007  1999  112,000  218,000  97.7%  99.1%  Humbertown Shopping Centre  Toronto  2006  139,000  94.9%  Hunt Club Place (8)  Hyde Park Plaza  Laurelwood Shopping Centre  Loblaws Plaza  Maple Grove Village  Ottawa  London  Waterloo  Ottawa  Oakville  2009  2006  2007  2005  2003  61,000  52,000  92,000  128,000  111,000  100.0%  96.1%  100.0%  92.2%  100.0%  McLaughlin Corners (3)  Brampton  2002  116,000  99.0%  Meadowvale Town Centre  Mississauga  2003  380,000  100.0%  Merchandise Building  Midland Lawrence Plaza  Toronto  Toronto  2004  2002  52,000  81,000  78.8%  100.0%  Morningside Crossing  Toronto  2007  201,000  98.7%  Norfolk Mall  Northfield Centre  Tillsonburg  Waterloo  2004  1999  88,000  52,000  100.0%  100.0%  Olde Oakville  Oakville  2006  116,000  100.0%  Orleans Gardens (3)  Ottawa  2005  110,000  91.2%  Parkway Centre  Peterborough  1996  264,000  99.2%  Queenston Place  Hamilton  1995  179,000  94.8%  Rutherford Marketplace  Vaughan  2009  96,000  100.0%  Queensway  Sheridan Plaza  Shoppes on Dundas  Toronto  Toronto  Oakville  2006  1995  2007  67,000  168,000  66,000  100.0%  100.0%  88.8%  Shops at King Liberty  Toronto  2004  268,000  97.7%  Stanley Park Mall  Kitchener  1997  190,000  99.3%  Steeple Hill Shopping Centre  Pickering  2000  93,000  98.9%  Stoneybrook Plaza  London  2006  55,000  100.0%   Sobeys, Shoppers Drug Mart, Royal Bank of Canada,  McDonald’s, Canadian Tire, Mark’s Work Wearhouse,   The Beer Store Metro, TD Canada Trust, LCBO, Tim Hortons  Food Basics (Metro), Shoppers Drug Mart, Scotiabank,   Tim Hortons, Blockbuster, Dollarama, GoodLife Fitness  Loblaws, Shoppers Drug Mart, Royal Bank of Canada,  Scotiabank, LCBO, Blockbuster T&T Supermarkets, Petro Canada Shoppers Drug Mart, Bank of Montreal, Starbucks Sobeys, TD Canada Trust, Starbucks, LCBO Loblaws, Royal Bank of Canada  Sobeys, Pharma Plus, CIBC, Tim Hortons, Rogers Video,  The Beer Store  Metro, Shoppers Drug Mart, Royal Bank of Canada,  Pizza Hut, Rogers Video  Metro, Shoppers Drug Mart, Bank of Montreal, CIBC,   TD Canada Trust, Tim Hortons, Blockbuster, Canadian Tire,  LCBO, Premier Fitness, The Beer Store Metro  Price Chopper (Sobeys), TD Bank,   Part Source (Canadian Tire)  Metro, Shoppers Drug Mart, Bank of Montreal, CIBC,   TD Canada Trust, Goodlife, Dollarama, Starbucks,  Blockbuster, Rogers, LCBO, Marks Work Wearhouse,   Pizza Hut Zehrs (Loblaws) (1), Dollarama, Wal-Mart  Sobeys, Pharma Plus, Royal Bank of Canada, Tim Hortons,  Rogers Video  Whole Foods, Shoppers Drug Mart, HSBC,   Royal Bank of Canada, Starbucks, Blockbuster, LCBO  Your Independent Grocer (Loblaws), Pharma Plus,  Rogers Video, Tim Hortons  Price Chopper (Sobeys), Zellers, Addition Elle, Dollarama,  Reitmans, Sport Mart, Winners  Zellers, Mark’s Work Wearhouse, Penningtons (Reitmans),  Aaron’s Electronics, Hamilton Produce  Longo’s Supermarket, Shoppers Drug Mart,  Royal Bank of Canada, LCBO, Second Cup  Panache Rotisseurs Food Basics (Metro), Zellers  Shoppers Drug Mart, TD Canada Trust, RBC Insurance,  Starbucks  Metro, LCBO, TD Canada Trust, Blockbuster,   Starbucks, Royal Bank of Canada, GoodLife Fitness,   First Capital Realty Inc., West Elm, Knoll  Zehrs (Loblaws), Zellers, Pharma Plus, TD Canada Trust,  LCBO  Price Chopper (Sobeys), Shoppers Drug Mart,   Royal Bank of Canada, Blockbuster Sobeys, Pharma Plus, TD Canada Trust, Home Depot FIRST CAPITAL REALTY ANNUAL REPORT 2009        55           SHOPPING CENTRE PORTFOLIO Property  Location  or Acquired  Area  Occupied  Anchors and Major Tenants Gross  Year Built  Leasable  Percent  ONTARIO (cont’d) Strandherd Crossing  Ottawa  2004  123,000  100.0%  Sunningdale Village  Thickson Place  Tillsonburg Town Centre (2)  London  Whitby  Tillsonburg  2006  1997  1994  73,000  93,000  281,000  100.0%  100.0%  94.4%  University Plaza  Windsor  2001  146,000  100.0%  Valley Creek Plaza  Waterloo Shoppers Drug Mart  Wellington Corners  Brampton  Waterloo  London  2008  2004  1999  18,000  15,000  81,000  92.5%  100.0%  97.6%  Westney Heights Plaza  Ajax  2002  157,000  100.0%  Yonge-Davis Centre  York Mills Gardens  Newmarket  Toronto  2003  2004  51,000  169,000  93.2%  97.5%  Total – ontario QUEBEC Carrefour Charlemagne  Carrefour des Forges  Centre D’Achats Ville Mont-Royal  Charlemagne  Drummondville  Mount Royal  Carrefour Don Quichotte  Carrefour du Plateau Grives  Carrefour du Versant  Carrefour Soumande  Carrefour St. David  Carrefour St. Hubert  Île Perrot  Gatineau  Gatineau  Québec City  Québec City  Longueuil  9,316,000 98.2% 2006  2005  2007  2004  2008  2003  2004  2006  2002  163,000  58,000  160,000  71,000  28,000  96,000  145,000  74,000  148,000  100.0%  100.0%  83.9%  86.4%  100.0%  100.0%  89.0%  100.0%  93.0%  Centre commercial Beaconsfield  Beaconsfield  2002  112,000  86.8%  Centre commercial Côte St. Luc  Côte St. Luc  2002  162,000  94.0%  Centre commercial Domaine  Montréal  2002  195,000  95.0%  Centre commercial Maisonneuve (2)  Montréal  2003  114,000  100.0%  Centre commercial Van Horne  Montréal  2002  79,000  100.0%  Centre commercial Wilderton  Montréal  2002  129,000  96.4%  Centre Kirkland/St. Charles  Centre Maxi Trois Rivières  Édifice Gordon  Édifice Hooper  Kirkland  Trois Rivières  Montréal  Sherbrooke  2006  2003  2005  2005  115,000  121,000  100.0%  98.5%  19,000  141,000  87.4%  91.5%  56        FIRST CAPITAL REALTY ANNUAL REPORT 2009  Metro, Shoppers Drug Mart, Royal Bank of Canada,   TD Canada Trust, Starbucks, Rogers Video,   Good Life Fitness No Frills, Shoppers Drug Mart, Starbucks Metro, CIBC, TD Canada Trust  Zellers, Shoppers Drug Mart, CIBC, TD Canada Trust,  Business Depot (Staples), Canadian Tire, LCBO,   Mark’s Work Wearhouse, Reitmans, Rogers Video,   The Souce (Bell) Electronics Inc.  Metro, Shoppers Drug Mart, Bank of Montreal,   Canadian Tire, Dollarama Bank of Nova Scotia Shoppers Drug Mart  Price Chopper (Sobeys), Shoppers Drug Mart, Starbucks,  Montana’s  Sobeys, Shoppers Drug Mart, CIBC, Scotiabank,   TD Canada Trust, Starbucks, Rogers Video Sleep Country, Fitness Souce  Longo’s Supermarket, Shoppers Drug Mart, RBC,   TD Canada Trust, Kelsey’s, McDonald’s, Second Cup,   Pizza Hut, Wendy’s, Rogers Video, Shoeless Joe’s Rona, Sports Rousseau IGA (Sobeys), SAQ  Provigo, Pharamprix (Shoppers Drug Mart), Scotiabank,  Blockbuster Pharamprix (Shoppers Drug Mart), CIBC Jean Coutu, Royal Bank of Canada  IGA (Sobeys), Familiprix, Royal Bank of Canada,   TD Canada Trust, SAQ, Quiznos, Tim Hortons, Dollarama Fruiterie 440, SAQ, Toys ’R’ Us Metro, Uniprix, TD Canada Trust, Starbucks  Super C, Jean Coutu, CIBC, Dollarama, SAQ, Second Cup,  Quiznos, McDonald’s  Metro, Pharmaprix (Shoppers Drug Mart),   Royal Bank of Canada, SAQ, Tim Hortons  IGA (Sobeys), Jean Coutu, Royal Bank of Canada, SAQ,  Blockbuster, Dollarama, Reitmans  Metro (3), Uniprix, CIBC, Tim Hortons, Dollarama, Reitmans,  Rossy, Zellers  Provigo (Loblaws), Brunet, TD CanadaTrust,  Canadian Tire, SAQ  IGA (Sobeys), Pharmaprix (Shoppers Drug Mart),   Royal Bank of Canada, Scotiabank, Tim Hortons  Metro, Pharmaprix (Shoppers Drug Mart), Laurentian Bank,  Royal Bank of Canada, Dollarama, SAQ Uniprix, Bank of Montreal, CIBC, Dollarama, SAQ  Maxi (Loblaws), Jean Coutu, Bank of Montreal,   Tim Hortons, Blockbuster, Value Village Pharmaprix (Shoppers Drug Mart) IGA Extra (Sobeys), Familiprix, Desjardins           Property  Location  or Acquired  Area  Occupied  Anchors and Major Tenants Gross  Year Built  Leasable  Percent  QUEBEC (cont’d) Faubourg des Prairies  Galeries Brien  Galeries des Chesnaye  Galeries Normandie  Montréal  Repentigny  Lachenaie  Montréal  IGA Tremblant  La Porte de Châteauguay  La Porte de Gatineau  Mont-Tremblant  Châteauguay  Gatineau  2007  2002  2005  2002  2004  1995  1994  61,000  61,000  59,000  216,000  88.9%  100.0%  100.0%  100.0%  38,000  132,000  155,000  100.0%  100.0%  90.0%  Le Campanîle & Place  Montréal  2003  106,000  97.6%  Les Galeries de Lanaudière (3)  Lachenaie  2002  268,000  100.0%  Les Galeries de Repentigny  Repentigny  1997  121,000  100.0%  Les Promenades du Parc  Longueuil  1997  105,000  100.0%  Marche du Vieux Longueuil  Place Bordeaux (5)  Place Cité Des Jeunes  Place de la Colline  Place des Cormiers  Place Fleury  Place Kirkland  Place Lorraine  Place Michelet  Place Nelligan (4)  Place Panama  Place Pierre Boucher  Place Pointe-aux-Trembles  Place Provencher  Place Roland Therrien  Place Seigneuriale  Place Viau  Place Vilamont  Plaza Actuel  Plaza Delson  Longueuil  Gatineau  Gatineau  Chicoutimi  Sept-Îles  Montréal  Kirkland  Lorraine  Montréal  Gatineau  Brossard  Boucherville  Borough Montréal  Montréal  Longueuil  Québec City  Montréal  Laval  Longueuil  Delson  2008  2002  2001  2004  2004  2002  2006  2006  2005  2002  2006  2004  2002  2004  2000  2004  2002  2002  2006  2002  58,000  28,000  58,000  52,000  75,000  108,000  59,000  61,000  59,000  57,000  94,000  80,000  118,000  46,000  42,000  53,000  152,000  73,000  58,000  185,000  100.0%  75.0%  89.8%  100.0%  94.6%  100.0%  88.9%  90.8%  100.0%  100.0%  83.9%  88.8%  93.3%  100.0%  100.0%  90.3%  100.0%  94.0%  48.4%  92.6%  Plaza Don Quichotte  Île Perrot  2004  134,000  100.0%  Plaza Laval Élysée  Promenades Lévis  Queen Mary  St. Denis Pharmaprix  Toys ’R’ Us/Pier 1 Imports  Village des Valeurs  Total – quebec Laval  Lévis  Montréal  Montreal  Montréal  Laval  2004  63,000  90.8%  2004  163,000  96.8%  2006  2009  2002  2002  6,000  11,000  52,000  27,000  5,424,000 100.0%  100.0%  100.0%  100.0%  95.1% IGA (Sobeys), Familiprix, SAQ IGA (Sobeys), Uniprix IGA (Sobeys), Uniprix, Desjardins, Videotron, SAQ  IGA (Sobeys), Pharmaprix (Shoppers Drug Mart), Staples,  Bank of Montreal, Desjardins, Royal Bank of Canada,  Blockbuster, Dollarama, SAQ, Tim Hortons IGA (Sobeys) Tim Hortons, Blockbuster, Zellers  Maxi (Loblaws), CIBC, TD Canada Trust, Future Shop,   Lazy Boy Furniture, Toys ’R’ Us (1), SAQ  IGA (Sobeys), Jean Coutu, Pharmaprix (Shoppers Drug Mart),  Bank of Montreal de Commerce  TD Canada Trust, Bureau en Gros (Staples), Future Shop,  Home Depot (1), Pier 1 Imports, Reitmans, Sears, Winners  Super C (Metro), Pharmaprix (Shoppers Drug Mart),   Tim Hortons  IGA (Sobeys), Pharmaprix (Shoppers Drug Mart),  Laurentian Bank, National Bank, Tim Hortons, Blockbuster  Metro, Pharmaprix (Shoppers Drug Mart)  Pharmaprix (Shoppers Drug Mart), National Bank Metro, Uniprix Maxi (Loblaws), Uniprix, McDonald’s, Dollarama Provigo (Loblaws), Bureau en Gros (Staples), SAQ  Metro, Pharmaprix (Shoppers Drug Mart), Bank of Montreal,  Reitmans, SAQ IGA (Sobeys), CIBC Provigo (Loblaws), National Bank, SAQ  IGA Extra (Sobeys), TD Canada Trust, A&W,   Sherwin Williams, St. Hubert IGA (Sobeys), Citifinancial Loblaws (1) Maxi (Loblaws), Pharmaprix (Shoppers Drug Mart), SAQ,   Metro, Jean Coutu, Rossy  Pharmaprix (Shoppers Drug Mart), Bureau en Gros (Staples) Super C (Metro) (1), Scotiabank, Blockbuster Metro, Royal Bank of Canada, Nautilus Plus Zellers Provigo (Loblaws), Jean Coutu, Laurentian Bank Pizza Hut, Pontiac Buick, Rotisserie St-Hubert  Loblaws, Pharmaprix (Shoppers Drug Mart), National Bank,  Harveys, Tim Hortons, Hart, SAQ, Cineplex  IGA (Sobeys), SAQ, Caisse Populaire, Desjardins,  Laurentian Bank, Tim Hortons, Aubainerie, SAQ  Maxi, Pharmaprix (Shoppers Drug Mart), Laurentian Bank,  Tim Hortons  Metro, Bank of Montreal, Jean Coutu, McDonald’s,   Easy Home Tim Hortons, Couche Tard Pharmaprix Pier 1 Imports, Toys ’R’ Us Value Village FIRST CAPITAL REALTY ANNUAL REPORT 2009        57             SHOPPING CENTRE PORTFOLIO Property  ALBERTA 9630 Macleod Trail  Cochrane City Centre  Cranston Market  Deer Valley  Dickson Trail Crossing (7)  Eastview Shopping Centre  Fairmount Shopping Centre  Gateway Village  Kingsland Shopping Centre  Lakeview Plaza  London Place West  Gross  Year Built  Leasable  Percent  Location  or Acquired  Area  Occupied  Anchors and Major Tenants Calgary  Cochrane  Calgary  Calgary  Airdrie  Red Deer  Calgary  St. Albert  Calgary  Calgary  Calgary  2006  2006  2009  2008  2009  2004  2006  1994  2005  2005  1998  134,000  59,000  80,000  196,000  38,000  35,000  60,000  105,000  46,000  64,000  72,000  100.0%  86.0%  100.0%  97.3%  100.0%  100.0%  95.8%  99.0%  99.6%  98.6%  100.0%  McKenzie Towne Centre  Calgary  2003  174,000  99.4%  Meadowbrook Centre  Northgate Centre  Old Strathcona Shopping Centre  Red Deer Village  Edmonton  Edmonton  Edmonton  Red Deer  2009  1997  2003  1999  42,000  492,000  100.0%  96.2%  78,000  217,000  95.3%  98.0%  Richmond Square  Royal Oak Centre (6)  Calgary  Calgary  2006  2003  157,000  336,000  96.4%  98.7%  Sherwood Centre  Sherwood Park  1997  79,000  90.2%  Sherwood Towne Centre  Sherwood Park  1997  120,000  100.0%  South Park Centre  Edmonton  1996  365,000  86.5%  Staples Gateway  Towerlane Mall  TransCanada Centre  Tuscany Market  Uplands Common  Village Market  West Lethbridge Towne Centre  Edmonton  Airdrie  Calgary  Calgary  North Lethbridge  Sherwood Park  Lethbridge  2007  2005  2006  2003  2005  1997  1998  40,000  234,000  100.0%  90.5%  184,000  86,000  53,000  125,000  100,000  100.0%  100.0%  100.0%  100.0%  100.0%  Westmount Shopping Centre  Edmonton  2007  528,000  86.0%  Total – alberta 4,298,000 95.1% 58        FIRST CAPITAL REALTY ANNUAL REPORT 2009 Rona, Bank of Montreal Shoppers Drug Mart, Blockbuster, Starbucks Sobeys, Subway, Scotiabank  Calgary Co-op, Shoppers Drug Mart,   Royal Bank of Canada, Zellers Rexall, Starbucks, Snap Fitness, Brewsters Sobeys, Bank of Montreal, 7-Eleven Sobeys , Royal Bank of Canada, Tim Hortons  Safeway, Bank of Montreal, CIBC, Scotiabank, Tim Hortons Shoppers Drug Mart, Starbucks IGA (Sobeys), Super Drug Mart, Scotiabank  London Drugs, Bank of Montreal, Rogers Video,   Boston Pizza  Sobeys, GoodLife Fitness, Rexall, TD Canada Trust,  Blockbuster Sobeys, Blockbuster  Safeway, Royal Bank of Canada, Future Shop, Sport Mart,  Zellers Dollarama, Canada Post  Sobeys, Shoppers Drug Mart, HSBC, TD Canada Trust,  Starbucks, Canadian Tire, Mark’s Work Wearhouse,  Reitmans, Rogers Video, Sport Mart Home Outfitters, Canadian Tire (1), GoodLife Fitness  Sobeys, Wal-Mart, London Drugs, Royal Bank of Canada,  Blockbuster, Home Outfitters, Reitmans  Save-On-Foods (1), Shopper Drug Mart, Dollarama, CIBC,  Rogers Video  Royal Bank of Canada, Home Depot (1), Home Sense,  Mark’s Work Wearhouse, Michaels, Staples  Starbucks, Canadian Tire, Zellers, Toys ’R’ Us (1),  Sport Chek, Good Life Fitness, TD Canada Trust Mark’s Work Wearhouse, Staples, Home Depot  Safeway, Staples, Gold’s Gym, TD Canada Trust,  Starbucks, Blockbuster, The Source, Dollarama Safeway, Rexall, Scotiabank, Starbucks Sobeys, Rexall, Scotiabank, Starbucks Sobeys, Original Joe’s  Safeway, London Drugs, Scotiabank, Tim Hortons, Rogers  Safeway, Scotia Bank, McDonald’s, Starbucks, Blockbuster,  Home Hardware  Safeway, Shoppers Drug Mart, Bank of Montreal,   Scotia Bank, TD Canada Trust, Tim Hortons, Blockbuster,  Dollarama, Home Depot, Zellers, Gold’s Gym           Property  Location  or Acquired  Area  Occupied  Anchors and Major Tenants Gross  Year Built  Leasable  Percent  BRITISH COLUMBIA Broadmoor Shopping Centre  Coronation Mall  Richmond  Duncan  2005  2005  29,000  48,000  100.0%  78.5%  Gorge Shopping Centre  Victoria  2008  35,000  95.9%  Harbour Front Centre  Vancouver  2005  165,000  100.0%  Langford Centre  Langley Crossing Shopping Centre  Langford  Langley  2009  2005  65,000  127,000  88.8%  95.9%  Langley Mall  Langley  2005  132,000  96.6%  Longwood Station  Pemberton Plaza  Port Place Shopping Centre  Scott 72 Centre  South Fraser Gate  Staples Lougheed  Terminal Park  Terra Nova Shopping Centre  The Olive  Time Marketplace  Nanaimo  Vancouver  Nanaimo  Delta  Abbotsford  Burnaby  Nanaimo  Richmond  Vancouver  Vancouver  2007  2005  2006  2004  2008  2006  2006  2005  2006  2004  104,000  96,000  116,000  165,000  33,000  32,000  29,000  72,000  90.6%  99.0%  100.0%  92.3%  97.8%  100.0%  88.8%  92.6%  21,000  49,000  100.0%  100.0%  West Oaks Mall (3)  Abbotsford  2004  266,000  86.7%  Woodgrove Crossing  Woolridge Building  Total – british columbia OTHERS Nanaimo  Coquitlam  2006  2006  60,000  38,000  1,684,000 71.4%  100.0%  93.2% Cole Harbour Shopping Centre  Dartmouth, NS  1997  50,000  93.9%  Ropewalk Lane  Total – others TOTAL St. John’s, NF  1997  40,000  90,000 65.0%  81.1% 20,812,000 96.2% (1)  Tenant (or other) owned. (2)  Interest is leasehold. (3)  50% interest owned by First Capital Realty Inc. (4)  75% interest owned by First Capital Realty Inc. (5)  80% interest owned by First Capital Realty Inc. (6)  60% interest owned by First Capital Realty Inc. (7)  70% interest owned by First Capital Realty Inc. (8)  33% interest owned by First Capital Realty Inc. Safeway, Royal Bank of Canada, Coast Capital Savings  Shoppers Drug Mart, TD Canada Trust, Blockbuster,   BC Liquor Store  Shoppers Drug Mart, Starbucks, Subway, Bell, Rogers,   BC Liquor Store  Vancity, Kelsey’s, McDonald’s, Starbucks, Canadian Tire,  Mark’s Work Wearhouse, Michaels, PetSmart Western Foods, Starbucks, Subway  Shoppers Drug Mart, Citifinancial, Dollar Max,   Chuck E Cheese’s  IGA Marketplace (H. Y. Louie Group),   Shoppers Home Health Care, TD Canada Trust,   Army & Navy Thrifty Foods, TD Canada Trust, Boston Pizza Save-On-Foods, Vancity, Starbucks London Drugs, BC Liquor Store, CIBC, Thrifty Foods  London Drugs, Staples, TD Canada Trust, Starbucks,  Vancity, Little Gym Shoppers Drug Mart Staples Business Depot Bank of Montreal, BC Liquor Store, Save-On-Foods  Save-On-Foods, Royal Bank of Canada, Pizza Hut,  Starbucks Shoppers Drug Mart, Blenz  IGA Marketplace (H. Y. Louie Group), Shoppers Drug Mart,  Boston Pizza, TD Canada Trust  Save-On-Foods, London Drugs, Future Shop, Michaels,  Reitmans, CIBC, Pier 1 Imports, Sport Mart, Tim Hortons,  Starbucks Michaels, Sleep Country Home Outfitters  Sobeys (1), Canadian Tire (1), Shoppers Drug Mart,  TD Canada Trust Government of NFLD, Tim Hortons FIRST CAPITAL REALTY ANNUAL REPORT 2009        59           Management’s Responsibility The accompanying consolidated financial statements and Management’s Discussion and Analysis (“MD&A”) are the responsibility of  Management and have been prepared in accordance with Canadian generally accepted accounting principles. The preparation of financial statements and MD&A necessarily involves the use of estimates based on Management’s judgement,  particularly when transactions affecting the current accounting period cannot be finalized with certainty until future periods. In addition,  in preparing this financial information Management must make determinations as to the relevancy of information to be included, and  estimates and assumptions that affect the reported information. The MD&A also includes information regarding the impact of current  transactions and events, sources of liquidity and capital resources, operating trends, risks and uncertainties. Actual results in the future  may differ materially from the present assessment of this information because future events and circumstances may not occur as  expected. The consolidated financial statements have been properly prepared within reasonable limits of materiality and in light of  information available up to March 10, 2010. 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, transactions are property authorized and recorded, and that  reliable financial information is produced. PricewaterhouseCoopers LLP have been engaged to assist Management and the Audit  Committee in planning and conducting its annual internal audit plan. 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. As at December 31, 2009, our Chief Executive Officer and Chief Financial Officer evaluated, or caused the evaluation under their  direct supervision, the disclosure controls and procedures and the internal controls over financial reporting (as defined in National  Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings) and, based on that assessment, determined that  the disclosure controls and procedures and internal controls over financial reporting were designed and operating effectively. 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. Dori J. Segal  President and Chief Executive Officer Toronto, Ontario March 10, 2010 Karen H. Weaver, CPA Executive Vice President and Chief Financial Officer 60        FIRST CAPITAL REALTY ANNUAL REPORT 2009 Auditors’ Report To the Shareholders of First Capital Realty Inc. We have audited the consolidated balance sheets of First Capital Realty Inc. as at December 31, 2009 and 2008 and the  consolidated statements of earnings, comprehensive income, shareholders’ equity 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, 2009 and 2008 and the results of its operations and its cash flows for the years then ended in accordance with  Canadian generally accepted accounting principles. Toronto, Ontario  March 3, 2010   Chartered Accountants Licensed Public Accountants FIRST CAPITAL REALTY ANNUAL REPORT 2009        61 2009 2008 (restated-note 2) $ 3,288,759    224,772  17,471  22,549    3,553,551  —  59,220    3,612,771  28,726  45,598  4,548  $ 3,691,643  $ 1,354,668    137,658  13,193    717,040    329,739  43,502    2,595,800  1,095,843  $ 3,691,643  $  3,040,257   281,959 16,146 29,312   3,367,674   227,259 32,480   3,627,413 27,448 45,501 7,263 $  3,707,625 $  1,573,530   166,507 17,264   593,288   218,247 43,643   2,612,479   1,095,146 $  3,707,625 Consolidated Balance Sheets December 31 (thousands of dollars) ASSETS Real Estate Investments Shopping centres (note 3)  Land and shopping centres under development (note 4)  Deferred leasing costs (note 5)  Intangible assets (note 6)  Investment in Equity One, Inc. (note 7)  Loans, mortgages and other real estate assets (note 8)  Other assets (note 9)  Amounts receivable (notes 10 and 28)  Cash and cash equivalents (note 24(d))  LIABILITIES Mortgages, loans and credit facilities (note 12)  Accounts payable and other liabilities (note 13)  Intangible liabilities (note 6)  Senior unsecured debentures (note 14)  Convertible debentures (note 15)  Future income tax net liabilities (note 20)  SHAREHOLDERS’ EQUITY  See accompanying notes to the consolidated financial statements. Approved by the Board of Directors: Chaim Katzman  Chairman of the Board Dori J. Segal Director 62        FIRST CAPITAL REALTY ANNUAL REPORT 2009                                                                                                                                                                                           Consolidated Statements of Earnings Years ended December 31 (thousands of dollars, except per share amounts) REVENUE Property rental revenue  Interest and other income (note 17)  EXPENSES Property operating costs   Interest expense (note 18)   Amortization     Shopping centres      Deferred leasing costs      Intangible assets      Deferred financing fees      Other assets  Corporate expenses  Income before the undernoted items  Equity income from Equity One, Inc. (note 7)  Other (losses) gains and (expenses) (note 19)  Income before income taxes   Income taxes (note 20)     Current      Future  Net income   Earnings per common share, basic and diluted (note 21)   See accompanying notes to the consolidated financial statements. 2009 2008 (restated-note 2) $ 442,131  5,612    447,743  $  410,192 1,559   411,751   156,954    125,465    149,152   113,685 83,342  3,662  7,497  2,202  2,005  22,122    403,249  44,494  74,406 3,396 7,783 854 1,305 21,577   372,158 39,593 7,066  (1,414)  50,146  533  7,700  8,233  41,913  0.45  $  $  8,716 7,281 55,590 1,985 16,264 18,249 37,341 0.43 $ $ FIRST CAPITAL REALTY ANNUAL REPORT 2009        63                                                                                                                                                                                             Consolidated Statements of Comprehensive Income Years ended December 31 (thousands of dollars) NET INCOME   OTHER COMPREHENSIVE INCOME (LOSS) Unrealized foreign currency gains on translating self-sustaining foreign operations     (Losses) gains arising during the year      Reclassification adjustment for dilution loss (gain) on investment in Equity One, Inc.      Reclassification adjustment for dividend-in-kind (note 7)  Other comprehensive income (losses) of Equity One, Inc.     Gains (losses) arising during the year      Reclassification adjustment for dilution loss (gain) included in net income      Reclassification adjustment for dividend-in-kind (note 7)  Unrealized gains (losses) on cash flow hedges of interest rates      Unrealized gains (losses) arising during the year      Reclassification adjustment for losses included in net income      Reclassification adjustment for dividend-in-kind (note 7)  Change in cumulative unrealized gains (losses) on available-for-sale marketable securities      Unrealized gains (losses) arising during the year      Reclassification adjustments for (gains) losses included in net income  Other comprehensive income (loss) before income taxes  Future income tax expense (recovery) (note 23(a))  Other comprehensive income (loss)  2009 2008 $ 41,913  (restated-note 2) 37,341 $  (6,156)  1,669  17,288  12,801  4,346  29  (1,124)  3,251  10,182  2,621  4,407  17,210  13,687  (6,038)  7,649  40,911  6,202  34,709  12,043 (724) — 11,319 (1,933) (11) — (1,944) (16,443) — — (16,443) (6,645) 55 (6,590) (13,658) (5,832) (7,826) COMPREHENSIVE INCOME  $ 76,622  $  29,515 See accompanying notes to the consolidated financial statements. 64        FIRST CAPITAL REALTY ANNUAL REPORT 2009                                                                                                                                                                                                                     Consolidated Statements of Shareholders’ Equity (thousands of dollars)   Total Deficit and  Accumulated  Accumulated  Other  Other  Convertible  Debentures  Options,  Deferred    Comprehensive  Comprehensive  Share  Contributed  Equity  Share Units  Deficit  Income/(Loss)  Income/(Loss)  Capital  Surplus  Component  and Warrants  Total (restated-note 2) (note 23(b)) (note 16) (note 15) (note 16) Shareholders’ equity,    December 31, 2008  $ (380,728) $ (33,791) $ (414,519) $ 1,463,389 $ 19,513 $ 15,905 $ 10,858 $ 1,095,146 Changes during the year     Net income  41,913     Issuance of common         shares      Issuance of warrants  — —     Dividends    (120,731) — — — — 41,913 — — — (120,731) 83,187 — — — (63,525) — (63,525)     Dividend-in-kind         (note 7(c))      Payment of interest on        convertible debentures      Equity component on         issuance of convertible         debentures      Conversion of convertible         debentures      Exercise of warrants      Options vested      Exercise of options      Deferred share units       Exercise of deferred         share units      Restricted share units      Exercise of restricted         share units      Issue costs      Other comprehensive        income  Shareholders’ equity,   — — — — — — — — — — — — — — — — — — — — — — — — 12,613 — — — — — — — — — — — 6,056 135 — 444 — — — (1,796) 34,709 34,709 — — — — — — — — — — — — — — — — — — — — — — — — — — 1,821 41,913 83,187 1,821 — (120,731) — (63,525) — 12,613 4,114 — 4,114 (189) — — — — — — — — — — (12) 1,394 (8) 815 (514) 2,989 (2,718) — — 5,867 123 1,394 436 815 (514) 2,989 (2,718) (1,796) 34,709   December 31, 2009  $ (523,071) $ 918 $ (522,153) $ 1,564,028 $ 19,513 $ 19,830 $ 14,625 $ 1,095,843 See accompanying notes to the consolidated financial statements. FIRST CAPITAL REALTY ANNUAL REPORT 2009        65                                                         Consolidated Statements of Shareholders’ Equity (thousands of dollars)   Total Deficit and  Accumulated  Accumulated  Other  Other  Convertible  Debentures  Options,  Deferred    Comprehensive  Comprehensive  Share  Contributed  Equity  Share Units  Deficit  Income/(Loss)  Income/(Loss)  Capital  Surplus  Component  and Warrants  Total (restated-note 2) (note 23(b)) (note 16) (note 15) (note 16) Shareholders’ equity,    December 31, 2007  $  (304,953)  $  (25,965)  $  (330,918)  $ 1,238,286  $  19,513  $  15,905   $  7,974  $  950,760 Changes during the year     Net income  37,341      Issuance of common         shares      Dividends  —    (113,116)      Dividends reinvested in         common shares      Payment of interest on        convertible debentures      Exercise of warrants      Options vested      Exercise of options      Deferred share units       Restricted share units      Exercise of restricted         share units      Issue costs      Other comprehensive         loss  Shareholders’ equity,   —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  37,341  —  —    153,856    (113,116)  —  —  —  —  —  —  —  —  —  —  59,980  12,891  2,197  —  785  —  —  —  (4,606)  (7,826)  (7,826)  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  (139)  1,613  (29)  597  37,341   153,856   (113,116) 59,980 12,891 2,058 1,613 756 597 2,249  2,249 (1,407)  —  —  (1,407) (4,606) (7,826)   December 31, 2008  $  (380,728)  $  (33,791)  $  (414,519)  $ 1,463,389  $  19,513  $  15,905  $  10,858  $ 1,095,146 See accompanying notes to the consolidated financial statements. 66        FIRST CAPITAL REALTY ANNUAL REPORT 2009                                                                                                                                                                                                                               Consolidated Statements of Cash Flows Years ended December 31 (thousands of dollars) CASH FLOW PROVIDED BY (USED IN): OPERATING ACTIVITIES Net income  Items not affecting cash (note 24(a))  Deferred leasing costs  Dividends received from Equity One, Inc. (note 7)  Net change in non-cash operating items (note 24(b))  Cash provided by operating activities  INVESTING ACTIVITIES Acquisition of shopping centres (note 3)  Acquisition of land and shopping centres held for development (note 4)  Proceeds from disposition of shopping centre  Proceeds from disposition of land held for development  Expenditures on shopping centres  Expenditures on land and shopping centres under development (note 4)  Changes in accounts payable and accrued liabilities related to investing activities  Investment in common shares of Equity One, Inc. (note 7)  Changes in loans, mortgages and other real estate assets (note 24(c))  Cash used in investing activities  FINANCING ACTIVITIES Mortgage financings, loans and credit facilities     Borrowings, net of financing costs       Principal instalment payments      Other repayments on maturity  Purchases of senior unsecured debentures (note 14)  Issuance of senior unsecured debentures, net of issue costs  Issuance of convertible debentures, net of issue costs (note 15)  Issuance of common shares, net of issue costs  Issuance of warrants, net of issue costs  Cash balance included in dividend-in-kind (note 7)  Payment of dividends  Cash provided by financing activities  Effect of currency rate movement on cash balances  Decrease in cash and cash equivalents  Cash and cash equivalents, beginning of the year  Cash and cash equivalents, end of the year (note 24(d))  See accompanying notes to the consolidated financial statements. 2009 2008 (restated-note 2) $ 41,913    105,877  (5,022)  12,452  (6,592)    148,628  $  37,341 98,012 (4,033) 18,193 (1,994)   147,519 (59,039)  (10,273)  4,756  70  (35,309)  (168,110)  (15,595)  —  50,640    (232,860)  (56,704) (11,887) — 10,581 (26,619)   (227,775) 32,908 (1,263) (30,520) (311,279)   621,208  (38,917)    (685,930)  (1,145)    124,000    120,071  57,771  1,821  (492)  (118,192)  80,195  1,322  (2,715)  7,263  4,548  $   552,708 (38,139)   (452,273) (2,543) — —   149,797 — — (49,312)   160,238 334 (3,188) 10,451 7,263 $  FIRST CAPITAL REALTY ANNUAL REPORT 2009        67                                                                                                                                                                                                                                          Notes to the Consolidated Financial Statements December 31, 2009 and 2008 1. SIGNIFICANT ACCOUNTING POLICIES First Capital Realty Inc. (the “Company”) is incorporated under the laws of Ontario to engage in the business of acquiring, developing,  redeveloping, owning and operating neighbourhood and community shopping centres. The Company’s accounting policies and its  standards of financial disclosure are in accordance with Canadian generally accepted accounting principles. 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 and trusts, and the Company’s  proportionate share of assets, liabilities, revenues and expenses of partnership, co-ownership and limited liability corporate ventures,  which are accounted for using the proportionate consolidation method. The Company’s investment in Equity One, Inc. was accounted  for using the equity method as the Company exercised significant influence over this investment prior to the dividend-in-kind (note 7). (b) Shopping Centres Shopping centres are stated at cost less accumulated amortization. The purchase price of shopping centre properties is allocated to land, building, deferred leasing costs and intangibles including  lease origination costs associated with in-place leases, the value of above- and below-market leases, and the value of tenant  relationships, if any. Allocations of the purchase price are generally based on the following criteria:   (i)  Land is recorded at its estimated fair value.  (ii)  Buildings are recorded at depreciated replacement cost based on estimates of prevailing construction costs for buildings of a  similar class and age.  (iii)  Tenant improvements are recorded at depreciated replacement cost based on estimates of prevailing construction costs, taking  into account the condition of tenants’ premises.  (iv)  Lease origination costs are determined based on estimates of the costs that would be required for the existing leases to be put in  place under the same terms and conditions. These costs include leasing commissions, foregone rent and operating cost recoveries  during an estimated lease-up period.  (v)  Values ascribed to above- and below-market in-place leases are determined based on the present value of the difference between  the rents payable under the terms of the in-place leases and estimated market rents.  (vi)  Tenant relationship values are determined based on the net costs avoided if the tenants were to renew their leases at the end of  the existing term, adjusted for the estimated probability that the tenants will renew. For practical reasons, the purchase price allocation of property acquisitions which occur at or near year-end are estimated based on  the Company’s history and are subsequently evaluated and adjusted as necessary. (c) Land and Shopping Centres Under Development Land and shopping centres under development are stated at cost. 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, incremental direct internal costs and net operating results) are capitalized to the cost of  the properties until the accounting completion date (which is defined as the earlier of the completion of tenant improvements or one  year from the cessation of major construction activity). Upon completion, the properties are classified as shopping centres. (d) Deferred Leasing Costs Deferred leasing costs include leasing costs incurred through leasing activities. (e) Intangible Assets and Liabilities Intangible assets and liabilities include lease origination costs associated with in-place leases, the value of the above- and below-market  leases, and the value of customer relationships, allocated to existing tenants in acquired shopping centres. 68        FIRST CAPITAL REALTY ANNUAL REPORT 2009 (f) Impairment of Long-Lived Assets Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an  asset may not be recoverable. If it is determined that the net cumulative future cash flows of a long-lived asset are less than its carrying  value, the long-lived asset is written down to its fair value. Cumulative future cash flows represent the undiscounted estimated future  cash flow expected to be received from the long-lived asset. Assets reviewed for impairment under this policy include shopping centres,  land and shopping centres under development, intangible assets, and furniture, fixtures and equipment. (g) Furniture, Fixtures and Equipment Furniture, fixtures and equipment are recorded at cost less accumulated amortization. (h) Marketable Securities Marketable securities are classified as either held-to-maturity, held-for-trading, or available-for-sale. • Held-to-maturity investments are measured at amortized cost. Losses due to impairment are included in current period   net income. • Held-for-trading investments are measured at fair value. All gains and losses are included in net income in the period in which  they arise. • Available-for-sale investments are measured at fair value. Revaluation gains and losses are included in other comprehensive  income until the investment is sold or when a loss is deemed to be other than temporary and subsequently recorded on the  income statement. (i) Property Rental Revenue Property rental revenue 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. Property rental revenue also includes  the amortization of above- and below-market leases allocated on asset acquisitions. Tenant inducements are deducted from rental  revenue on a straight-line basis over the term of the tenant’s lease. Revenue recognition under a lease begins when the tenant takes  possession of, or controls, the physical use of the property subject to the lease. Generally this occurs on the lease commencement  date or, where the Company is required to make additions to the property in the form of tenant improvements, upon substantial  completion of those improvements. The Company uses the straight-line method of recognizing rental revenue whereby the total amount of rental revenue to be received  from leases is accounted for on a straight-line basis over the term of the lease. Accordingly, a deferred rent receivable is recorded from  the tenants for the current difference between the straight-line rent recognized as rental revenue and the rent that is contractually due  from the tenants. (j) Amortization Buildings and improvements are amortized on a straight-line basis, so as to fully amortize the properties over their estimated useful  lives, which vary, but do not exceed 40 years. Deferred leasing fees incurred on securing leases, other than initial leases on shopping centres under development, are amortized  over the term of such leases on a straight-line basis which typically range from 5 to 15 years in length. Tenant improvements are  amortized over the estimated useful lives of such improvements. Lease origination costs associated with in-place leases are amortized over the remaining lives of the associated leases. The value of tenant relationships is amortized over the expected term of the relationship. In the event a tenant vacates its leased  space prior to the contractual termination of the lease, and no rental payments are being made on the lease, any unamortized balance  relating to that lease is expensed immediately. Commitment fees and other costs incurred in connection with debt financing are amortized using the effective interest method of  amortization which is presented as non-cash interest expense. Furniture, fixtures and equipment are amortized on a straight-line basis over estimated useful lives ranging from three to ten years. FIRST CAPITAL REALTY ANNUAL REPORT 2009        69 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued (k) Cash and Cash Equivalents Cash and cash equivalents are comprised of cash and short-term deposits with original maturities of three months or less. (l) Foreign Currency The Company carried on business in the United States through operationally and financially self-sustaining entities up to August 14, 2009,  the date of the dividend-in-kind (note 7(c)). Assets and liabilities denominated in United States dollars were translated into Canadian dollars at period-end exchange rates.  Revenues and expenses denominated in United States dollars were translated at the weighted average daily exchange rate for the  periods being reported on. The resulting net gains or losses were accumulated and included in a separate component of shareholders’  equity described as Accumulated Other Comprehensive Income. Effective August 14, 2009, assets and liabilities denominated in United States dollars are translated at the rate of exchange  prevailing at year-end and revenues and expenses denominated in United States dollars are translated at the weighted average   daily exchange rate for the periods being reported on. Gains or losses on translation of these items are included in the consolidated  statements of earnings in Other Gains (Losses) and (Expenses). (m) Derivative Financial Instruments and Hedging Derivative financial instruments are utilized by the Company in the management of its interest rate exposures. Derivative instruments  are recorded on the balance sheet at fair value including those derivatives that are embedded in a financial instrument or other contract  but are not closely related to the host financial instrument or contract. Changes in the fair values of derivative instruments are recognized  in net income, except for derivatives that are designated as cash flow hedges. The fair value changes for the effective portion of such  cash flow hedges are recognized in Other Comprehensive Income (“OCI”). The Company has no significant derivative instruments  other than its interest rate swaps. The Company documents its eligibility for hedge accounting and assesses the effectiveness of these  relationships based on the degree of expected future offsetting cash flows. Interest rate swaps are recorded in the balance sheet at fair value. The change in fair value with respect to the swaps that have  been designated is recorded in OCI. The change in fair value with respect to swaps that are not designated as hedges, as well as the  ineffective portion of designated hedges, are recorded in net income in Other Gains (Losses) and (Expenses). The Company does not  utilize derivative financial instruments for trading or speculative purposes. (n) Convertible Debentures The Company presents its convertible debentures in their liability and equity component parts where applicable, as follows:   (i)  The liability component represents the present value of interest and principal obligations to be satisfied by cash or common  shares of the Company, where a variable number of common shares is required to settle the obligation, 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,  the interest payments are treated as a reduction of the liability component, and the interest expense, calculated using the discount  rate, is recorded as an increase in the liability component.  (ii)  The equity component of the convertible debentures is included in Shareholders’ Equity in the consolidated balance sheets. The  equity component consists of the value ascribed to the conversion right granted to the holder, which remains a fixed amount over  the term of the debentures unless there are conversions. (o) 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. (p) Stock-Based Compensation Plans The Company has stock-based compensation plans as described in note 16(d) and (e). The Company recognizes compensation  expense for stock-based compensation awards at the fair value as at the granting date, over the vesting period. 70        FIRST CAPITAL REALTY ANNUAL REPORT 2009 (q) Financial instruments   (i)  Recognition and measurement   Section 3855 of the Handbook establishes standards for recognizing and measuring financial assets, financial liabilities and  non-financial derivatives. All financial instruments are required to be measured at fair value on initial recognition, except for certain  related party transactions. Measurement in subsequent periods depends on whether the financial instrument has been classified  as held-for-trading, available-for-sale, held-to-maturity, loans and receivables or other liabilities.   Financial assets and financial liabilities classified as held-for-trading are required to be measured at fair value with gains and  losses recognized in net earnings. Transaction costs are capitalized on instruments classified as held-for-trading. The Company’s  cash and cash equivalents and certain marketable securities are classified as held-for-trading.   Financial assets classified as held-to-maturity, loans and receivables and financial liabilities (other than those held-for-trading)  are required to be measured at amortized cost using the effective interest method of amortization. For such financial instruments,  transaction costs are capitalized on initial recognition. The main categories of the Company’s financial assets and liabilities  measured at amortized cost using the effective interest method include: (i) amounts receivable and payable; (ii) mortgages and  loans receivable and mortgages payable; and (iii) debentures payable.   Available-for-sale financial assets are required to be measured at fair value with unrealized gains and losses recognized in  Other Comprehensive Income (“OCI”). The Company’s investment in Allied Properties REIT is classified as available-for-sale.  (ii)  Fair value   The fair value of a financial instrument is the amount of consideration that would be agreed upon in an arm’s-length transaction  between knowledgeable, willing parties who are under no compulsion to act. In certain circumstances, however, fair value may   be based on observable current market transactions or on a valuation technique using market based inputs. The Company’s  financial assets include cash and cash equivalents, accounts receivable, investments in common shares and mortgages and  loans receivable. The Company’s financial liabilities include accounts payable and other liabilities, mortgages payable and credit  facilities and debentures payable. Except as noted below, the carrying value of the Company’s financial assets and financial  liabilities approximate their fair values because of the short period until receipt or payment of cash. The fair values of mortgages,  debentures and designated hedging derivative instruments included in receivables and other assets and accounts payable and  other liabilities are estimated based on discounted future cash flows using discount rates that reflect current market conditions   for instruments with similar terms and risks. In determining fair values, the Company evaluates counterparty credit risks and makes adjustments to fair values and credit  spreads based upon changes in these risks.   Fair value measurements recognized in the balance sheet are categorized using a fair value hierarchy that reflects the  significance of inputs used in determining the fair values:   (i)  Level 1 Inputs – quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the  ability to access at the measurement date (the Company’s marketable securities and cash and cash equivalents are measured  using level 1 inputs);   (ii)  Level 2 Inputs – inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either  directly (i.e., as prices) or indirectly (i.e., derived from prices) (the Company’s interest rate swaps are measured using   level 2 inputs); and   (iii)  Level 3 Inputs – inputs for the asset or liability that are not based on observable market data (unobservable inputs). These  unobservable inputs reflect the entity’s own assumptions about the assumptions that market participants would use in pricing   the asset or liability, and are developed based on the best information available in the circumstances (which might include  the reporting entity’s own data). (r) 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. Significant estimates are required in the allocation of the purchase price of shopping centre  acquisitions, determining future cash flows when assessing assets for impairment, determining the useful lives of assets for amortization  purposes, determining the allocation of convertible debentures between debt and equity, future income taxes, assessing the allowance  for doubtful accounts on trade accounts receivable and straight-line rent, the determination of the fair value of stock-based compensation  and determining fair values of financial instruments for disclosure purposes. FIRST CAPITAL REALTY ANNUAL REPORT 2009        71                           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued 2. CHANGES IN ACCOUNTING POLICIES (a) Current accounting policy changes Goodwill and Intangible Assets – CICA Section 3064 Effective January 1, 2009, the Company adopted on a retroactive basis with restatement of prior years CICA new accounting  standard: 3064 Goodwill and Intangible Assets which clarifies that costs can be capitalized only when they relate to an item that  meets the definition of an asset and related amendments to Section 1000, Financial Statement Concepts. Section 3064 replaces  Section 3062 Goodwill and Other Intangible Assets and Section 3450 Research and Development Costs. As a result of applying  this standard, the Company will no longer defer recoverable costs and match the expense to the period over which the costs   are recovered from the tenants. The standard requires that the expenditure is either capitalized or expensed in the period it is  incurred, based upon the nature of the expenditure. Amounts that are capitalized are added to the balance of shopping centres.  Amounts that are expensed are charged to property operating costs.   The effect of adopting this standard is summarized as follows: Effect on the balance sheet as at December 31  (thousands of dollars)  Shopping centres  Other assets  Shareholders’ equity  Effect on the statement of earnings for the years ended December 31  (thousands of dollars)  Interest and other income  Property operating costs  Shopping centres amortization  Net income  Earnings per common share (basic and diluted)  (b) Future accounting policy changes 2009 2008 Increase (decrease) $ $ $ 14,728  (15,677)  (949)  $  $  $  10,818 (11,478) (660) 2009 2008 Increase (decrease) $ $ $ $ $ (764)  (2,097)  1,614  (281)  —  $  $  $  $  $  (582) (1,449) 956 (89) — Future adoption of International Financial Reporting Standards (“IFRS”) in Canada The Canadian Accounting Standards Board has confirmed that IFRS will replace Canadian GAAP effective for fiscal periods  beginning on or after January 1, 2011. The Canadian Securities Administrators have provided issuers with the option of early  adopting IFRS for Canadian reporting purposes. The Company does not intend to early adopt IFRS at this time. The Company   is currently implementing its changeover plan and continuing to evaluate the effect on its consolidated financial statements. The  Company also continues to revisit its implementation plan as the International Accounting Standards Board continues to issue  new standards. 3. SHOPPING CENTRES (thousands of dollars)  Land    Buildings and improvements  Accumulated amortization  72        FIRST CAPITAL REALTY ANNUAL REPORT 2009 2009 2008 $ 825,732    2,837,610    3,663,342    (374,583)  $ 3,288,759  (restated-note 2) $  756,244   2,582,920   3,339,164   (298,907) $  3,040,257                                                                                                 During the year the Company acquired interests in five (2008 – four) income-producing shopping centres as follows: (thousands of dollars)  Allocation of purchase price:     Shopping centres      Shopping centres under development      Intangible assets      Intangible liabilities  Total purchase price, including acquisition costs  Less mortgages assumed on acquisition and vendor-take-back mortgages  Difference between principal amount and fair value of assumed mortgage financing  Net cash outlay for acquisitions, funded from cash and credit facilities  2009 2008 $ $ 67,129  —  1,157  (1,869)  66,417  (7,378)  —  59,039  $  $  55,725 4,237 1,492 (2,057) 59,397 (2,850) 157 56,704 During the year ended December 31, 2009, the Company sold a shopping centre in Regina, Saskatchewan for cash proceeds of  $1.5 million and a vendor take-back mortgage of $2.3 million (note 8(c)) resulting in a gain on disposition of $0.5 million (note 19). During the year ended December 31, 2008, the Company sold a shopping centre in Regina, Saskatchewan for proceeds of  $3.6 million resulting in a gain on disposition of $1.6 million (note 19). An additional $0.2 million of contingent proceeds was recorded  in 2009. 4. LAND AND SHOPPING CENTRES UNDER DEVELOPMENT The Company acquired land and shopping centres under development as follows: (thousands of dollars)  Purchase price of land and shopping centres acquired for     development or redevelopment, including acquisition costs  Less mortgages assumed on acquisitions and vendor-take-back     mortgages  Difference between principal amount and fair value of assumed     mortgage financing  Net cash outlay for acquisitions, funded from cash and credit facilities  (millions of dollars)  Completed developments transferred to shopping centres  Shopping centres transferred to land and shopping centres     under development  Expenditures on development properties  Interest expense capitalized to development properties  Incremental direct internal costs capitalized to    development properties  2009 2008 $ 10,773  $  15,802 (500)  (4,024) —  10,273  109 11,887 $  2009 2008 268.4  $  288.7 34.7  168.2  18.4  $  $  $  44.2 227.8 20.7 4.6  $  6.0 $ $ $  $  $  $  The costs to complete projects currently under development include $38.0 million which are contractually committed at December 31, 2009. During the year ended December 31, 2008, the Company sold four land parcels totalling 18.9 acres for gross proceeds of $11.0 million,  resulting in a total net gain of $3.9 million (note 19). The Company also acquired an additional 25% interest in an existing land parcel  for future development located in Calgary, Alberta in exchange for $1.6 million. FIRST CAPITAL REALTY ANNUAL REPORT 2009        73                                                                                                                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued 5. DEFERRED LEASING COSTS (thousands of dollars)  Cost     Accumulated amoritization  Net book value  2009 2008 $ $ 31,304  (13,833)  17,471  $  (restated-note 2) 26,751 (10,605) 16,146 $  Incremental direct internal costs related to leasing activities totalling $3.7 million (2008 – $2.9 million) were capitalized during the year  ended December 31, 2009. 6. INTANGIBLE ASSETS AND LIABILITIES (thousands of dollars)  Intangible Assets Lease origination costs  Above-market in-place leases  Tenant relationships  Intangible Liabilities Below-market in-place leases  (thousands of dollars)  Intangible Assets Lease origination costs  Above-market in-place leases  Tenant relationships  Intangible Liabilities Below-market in-place leases  2009 Accumulated Cost Amortization Net Book Value $ $ 43,369 2,156 7,339 52,864 $ $ (26,010) (1,473) (2,832) (30,315) $ $ 17,359 683 4,507 22,549 $ 22,487 $ (9,294) $ 13,193 2008 Accumulated  Cost  Amortization  Net Book  Value $  $  44,051  2,235  7,518  53,804  $  $  (20,968)  (1,344)  (2,180)  (24,492)  $  $  23,083 891 5,338 29,312 $  24,990  $  (7,726)  $  17,264 Values ascribed to above- and below-market in-place leases are amortized to property rental revenue. 74        FIRST CAPITAL REALTY ANNUAL REPORT 2009                                                                   7. INVESTMENT IN EQUITY ONE, INC. (thousands of dollars)  Investment in Equity One, Inc., beginning of year  Equity income  Dividends received  Purchase of Equity One, Inc., common shares (a)  Other comprehensive income (losses) of Equity One, Inc.  Dilution adjustment (b)  Dividend-in-kind (c)  Cumulative currency effect  Investment in Equity One, Inc., end of year (c)  Ownership interest in Equity One, Inc., end of year  2009 2008 $ 227,259  7,066  (12,452)  —  4,375  669    (204,350)  (22,567)  —  $ $  191,536 8,716 (18,193) 1,263 (1,955) 2,359 — 43,533 $  227,259 —%  18.5% Equity One, Inc. (“Equity One”) (NYSE:EQY), is a self-administered and self-managed real estate investment trust in the United States.  The Company and Equity One are each indirectly controlled subsidiaries of Gazit-Globe Ltd. (“Gazit”), an Israeli corporation trading on  the Tel Aviv Stock Exchange. (a)  In 2008, the Company’s US subsidiaries acquired 96,500 common shares of Equity One at an average price of US$10.75 per  share. (b)  Equity One’s common shares outstanding increased from 76.2 million to 85.8 million during the six-month period ended June 30,  2009, resulting in a reduction of the Company’s ownership interest in Equity One from 18.5% at December 31, 2008 to 16.4%   at June 30, 2009. As a result, the Company has recorded a dilution gain of $1.0 million before tax ($0.7 million, net of tax) in the  Investment in Equity One offset by reclassification adjustments of realized losses from other comprehensive income in the amount  of $1.7 million for a net dilution loss of $0.7 million (note 19). In 2008, Equity One’s common shares outstanding increased from 73.3 million to 76.2 million, resulting in a reduction of the  Company’s ownership interest in Equity One from 19.1% at December 31, 2007 to 18.5% at December 31, 2008. As a result,   the Company has recorded a dilution gain of $2.9 million before tax ($1.6 million, net of tax) during the year ended December 31,  2008 (note 19). (c)  On August 14, 2009, First Capital Realty completed the dividend-in-kind of the Company’s interest in Gazit America Inc. (formerly  known as First Capital America Holding Corp.) (“Gazit America”). Gazit America is a Canadian company that, indirectly, owns shares  in Equity One (approximately 14.1 million shares), the debt secured by the Equity One shares (approximately US$100 million) and  certain other liabilities, including subordinated debt owing to First Capital Realty in the amount of approximately US$36 million.   As a result, First Capital Realty no longer has any ownership interest in Equity One. The transaction has been recorded under  relevant accounting rules as a non-reciprocal transfer to shareholders and is therefore recorded at its carrying value, as opposed  to fair value, which was $0.45 per common share of the Company.   The carrying value of the dividend-in-kind of $63.5 million at August 14, 2009 is set out below. The carrying value of the  dividend was adjusted in the fourth quarter of 2009 when Equity One announced the final taxable percentage of its dividends   for 2009. (thousands of dollars) Investment in Equity One common stock  Term loans and credit facilities  Loan due to First Capital Realty  Reclassification of cumulative currency translation adjustment     and other comprehensive income items  Other items, net  $  204,350 (113,404) (39,590) 19,429 (7,260) 63,525 $  FIRST CAPITAL REALTY ANNUAL REPORT 2009        75                                                                                                                                              NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued 8. LOANS, MORTGAGES AND OTHER REAL ESTATE ASSETS (thousands of dollars)  Non-revolving term loan receivable from Gazit America Inc. (a)  Investments in marketable securities (b)  Vendor-take-back mortgage (c)  Other loans receivable (d)  2009 37,836  7,979  2,300  11,105  59,220  $ $ 2008 — 22,788 — 9,692 32,480 $  $  (a)  The non-revolving unsecured term loan receivable from Gazit America Inc. in the amount of US$36.0 million, bears interest at  8.5% per annum calculated semi-annually, payable quarterly and is due June 19, 2014, subject to Gazit America Inc.’s option to  extend the maturity date for a further five-year period. The principal amount of the loan is prepayable from and after August 14, 2012. (b)  The Company invests from time to time in the securities of public real estate entities. These securities are recorded at market  value. Unrealized gains and losses on available-for-sale securities are recorded in other comprehensive income, while unrealized  gains and losses on securities held-for-trading are recorded in net income. (c)  The vendor-take-back mortgage obtained on the sale of a shopping centre bears interest at 7% per annum, payable monthly and  is due on January 1, 2011. Its fair value approximates its carrying value. (d)  The Company has funded its co-owners’ share of certain development activities. The loans bear interest at an average rate of 6.9%  (2008 – 7.1%) and are repayable from the co-owners’ share of proceeds generated from refinancings or sales. The Company has  taken assignments of the co-owners’ interests in the co-ownerships as security for the loans receivable. The fair values of the  Company’s loans and mortgages receivable approximate carrying values. 9. OTHER ASSETS (thousands of dollars)  Deferred financing costs on credit facilities     (net of accumulated amortization of $1.5 million (2008 – $1.3 million))  Prepaid expenses  Deposit in trust on sale of property  Deposits related to property operations  Deposits and costs on properties under option  Fixtures, equipment and computer hardware and software    (net of accumulated amortization of $3.2 million (2008 – $3.3 million))  10. AMOUNTS RECEIVABLE (thousands of dollars)  Trade receivables (net of allowances for doubtful accounts of $3.1 million     (2008 – $3.4 million))  Rent revenue recognized on a straight-line basis (net of allowances for    doubtful accounts of $5.8 million (2008 – $5.3 million))  Construction and development related chargebacks and receivables  Corporate and other amounts receivable  2009 2008 (restated-note 2) $ $  3,543  7,223  —  7,691  4,179  1,040 5,352 3,360 9,989 2,527 6,090  28,726  5,180 27,448 $  $ 2009 2008 $ 9,905  $  13,788 31,805  1,887  2,001  45,598  26,835 3,844 1,034 45,501 $  $ The Company determines its allowance for doubtful accounts on a tenant-by-tenant basis taking account of lease terms, industry  conditions, and the status of the tenant’s account, among other factors. Accounts are written off only when all collection efforts have  been exhausted. 76        FIRST CAPITAL REALTY ANNUAL REPORT 2009                                                                                                                                                           11. CAPITAL MANAGEMENT The Company manages its capital, taking into account the long-term business objectives of the Company, to provide stability and reduce  risk while generating an acceptable return on investment over the long term to shareholders. The Company’s capital structure currently  includes common shares, convertible debentures and secured and unsecured term financings and revolving credit facilities which  together provide the Company with financing flexibility to meet its capital needs. Primary uses of capital include development activities,  acquisitions, capital improvements, leasing costs, debt principal repayments and the payment of dividends to shareholders. The actual  level and type of future financings to fund these capital requirements will be determined based on prevailing interest rates, various  costs of debt and/or equity capital, capital market conditions and Management’s general view of the required leverage in the business. The components of the Company’s capital as at December 31, 2009 are set out in the table below: (millions of dollars)  Liabilities (principal amounts outstanding) Mortgages – Canada  Loans and credit facilities – Canadian dollars  Loans and credit facilities – US dollars  Mortgages and credit facilities  Senior unsecured debentures principal  Convertible debentures principal  Shareholders’ equity (based on closing share price of $21.66 (2008 – $18.97)) Common shares (at market value)  2009 2008 $ $  1,312  5  38  1,355  721  352  2,080  4,508  $  $ 1,211 185 178 1,574 597 233 1,707 4,111 The Company’s overall capital financing strategy includes maintaining debt in the range of 45% to 60% of total market capitalization.  The Company monitors a number of financial ratios in conjunction with its financial planning. These ratios are set out in the table below: Debt to total market capitalization  Debt to aggregate assets  EBITDA interest coverage excluding interest capitalized to development  Fixed charges coverage ratio based on EBITDA  Unencumbered asset value ratio  The above ratios include non-GAAP measures which are defined below: Guidelines  2009 2008 45-60%  <65%  >1.50  >1.30  (restated-note 2) 52.6% 53.5% 2.54 1.69 1.85 45.9%  50.3%  2.50  1.71  1.50   Debt consists of mortgages, loans, credit facilities and senior unsecured debentures, net of cash on hand. Debt excludes convertible  debentures if the Company pays interest in shares.  Aggregate assets consist of total assets plus accumulated amortization of shopping centres, deferred leasing costs and intangible  assets, less cash.  Total market capitalization consists of the market value of the Company’s common shares, the par value of senior unsecured  debentures and convertible debentures and mortgages, loans and credit facilities.  EBITDA is calculated as net income, adding back income tax expense, interest expense per the income statement, amortization  expense and excluding the impact of gains and losses and other non-cash items. Fixed charges include financing costs plus principal payments on debt.  Unencumbered assets include the gross book value of assets that have not been pledged as security under any credit agreement  or mortgage excluding land and shopping centres under development and future income tax assets. The unencumbered asset  value ratio is calculated as unencumbered assets divided by the principal amount of the unsecured debt. The Company’s strategy involves maintaining and improving the above ratios to allow continued access to capital at a reasonable  cost. The Company’s senior unsecured debentures are currently rated BBB with a stable trend by Dominion Bond Rating Services and  Baa(3) with a stable outlook by Moody’s Investor Services. FIRST CAPITAL REALTY ANNUAL REPORT 2009        77                                                                                                               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued The Company’s long term financial objectives remained substantially unchanged during the past five years. Since becoming an  investment grade rated company in May 2005, the Company has financed its growth through common shares and convertible debentures  for the equity component and primarily through unsecured debentures and credit facilities for the debt component. However, during the disruption of the credit and capital markets from the second half of 2007 through the first half of 2009, the  Company accessed the secured financing market both in the form of mortgages and bank credit facilities to finance its activities. Senior  unsecured financing was issued in the fourth quarter of 2009 and in January, 2010 as it has become available at a reasonable cost with  stability returning to the financial and credit markets. The Company’s long term financing strategy is based on maintaining maximum  flexibility in accessing various forms of debt and equity capital and includes maintaining a pool of unencumbered assets and investment  grade credit agency ratings. The Company periodically re-evaluates its overall financing and capital execution strategy to ensure the  best access to available capital at the lowest possible cost. The Company is subject to financial covenants in agreements governing its senior unsecured debentures and secured revolving  credit facilities. The Company is in compliance with all financial covenants. 12. MORTGAGES, LOANS AND CREDIT FACILITIES (thousands of dollars)  Fixed rate mortgages  Secured revolving credit facilities     Floating rate  (thousands of dollars)  Fixed rate mortgages  Secured term loans     Floating rate hedged (with interest rate swaps)      Floating rate  Secured revolving credit facilities     Floating rate  Unsecured revolving credit facilities     Floating rate hedged (with interest rate swaps)      Floating rate  2009 Canada $ 1,312,032 $ US — Total $ 1,312,032 4,800 $ 1,316,832 37,836 37,836 42,636 $ 1,354,668 $ 2008 Canada  $  1,210,568  $  US  —  Total $  1,210,568 —  —  —  60,764  62,558  60,764 62,558 30,450  30,450 50,000    134,586  $  1,395,154  —  24,604  $  178,376  50,000   159,190 $  1,573,530 Mortgages and revolving credit facilities are secured by shopping centres. At December 31, 2009, the Company had $303.6 million (2008 – $121.0 million) of undrawn credit facilities available for acquisitions,  development activities, and general corporate purposes. Of the gross book value of real estate assets of $3.9 billion as at December 31, 2009 (2008 – $3.7 billion), approximately $2.7 billion  (2008 – $2.0 billion) has been pledged as security under mortgages and the credit facilities. Real estate assets consist of shopping  centres, land and shopping centres under development, deferred leasing costs, intangible assets and intangible liabilities. On January 29, 2009, the Company closed on a three-year, $75 million secured revolving credit facility with a Canadian chartered bank. On March 5, 2009, the Company closed a three-year, $450 million secured revolving credit facility with a syndicate of ten banks.  The syndicate consists of seven Canadian banks and three Schedule III chartered banks. The new facility will be used to replace the  Company’s existing three-year $350 million Senior Unsecured Revolving Credit Facility. As a result, $0.7 million of unamortized  deferred financing costs were recorded as a loss on settlement of debt (note 19). On November 24, 2009, the Company reduced the $450 million secured revolving credit facility by $75 million to $375 million. As a  result, $0.5 million of unamortized deferred financing costs were recorded as a loss on settlement of debt (note 19). On December 30, 2009, the Company further reduced the secured revolving credit facility by $90 million to $285 million. As a result,  $1.0 million of unamortized deferred financing costs were recorded as a loss on settlement of debt (note 19). 78        FIRST CAPITAL REALTY ANNUAL REPORT 2009                                                   Subsequent to December 31, 2009, the Company further reduced the secured revolving credit facility by $35 million to $250 million.  As a result, $0.3 million of unamortized deferred financing costs will be recorded as a loss on settlement of debt in 2010. Also, subsequent to December 31, 2009, the Company reduced the $75 million secured revolving credit facility to $50 million which  resulted in $0.2 million of unamortized deferred financing costs being recorded as a loss on settlement of debt in 2010. Canada At December 31, 2009, the fair value of the Company’s mortgages, loans and credit facilities was approximately $1.4 billion (2008 –  $1.6 billion). Based on the amount of Canadian and US dollar denominated floating rate debt as of December 31, 2009, a 1% change in prevailing  interest rates would change annualized interest expense by approximately $0.4 million. Fixed rate mortgages bear interest at a weighted coupon interest rate of 6.18% at December 31, 2009 (2008 – 6.21%) and mature  in years ranging from 2010 to 2025. The weighted average effective interest rate on fixed rate financing at December 31, 2009 was  6.15% (2008 – 6.17%). Floating rate financing bears interest at floating rates determined by reference to Canadian prime lenders, bankers’ acceptance  rates or LIBOR rates ranging from 3.81% to 5.00% and matures in March 2012. Principal repayments of Canadian dollar mortgages and credit facilities outstanding as at December 31, 2009 are as follows: (thousands of dollars)  2010    2011     2012    2013    2014    Thereafter  Unamortized deferred financing costs     and premiums and discounts, net  United States Principal Instalment Payments $ 33,671 32,378 30,215 27,520 21,344 49,483   194,611 — $ 194,611 Balance Maturing Total Weighted Coupon Interest Rate $ 119,893 63,172 131,746 154,146 215,606 440,217 1,124,780 — $ 1,124,780 $ 153,564 95,550 161,961 181,666 236,950 489,700 1,319,391 (2,559) $ 1,316,832 5.74% 7.15% 5.57% 6.35% 6.30% 5.89% 6.05% Until August 14, 2009, the Company had US term loans and credit facilities outstanding with $96.6 million (US$87.8 million) bearing  interest at LIBOR plus 280 basis points maturing in 2010, $9.5 million (US$8.6 million) bearing interest at LIBOR plus 140 basis points  maturing in 2011 and $7.7 million (US$7.0 million) bearing interest at LIBOR plus 250 basis points maturing in 2010. These term loans  and credit facilities formed part of the dividend-in-kind (note 7(c)). The Company also makes drawings on its Canadian credit facilities in US dollars which bear interest at LIBOR plus 350 basis points.  At December 31, 2009 these drawings amounted to $37.8 million (US$36 million) (2008 – $24.6 million (US$20.2 million)). 13. ACCOUNTS PAYABLE AND OTHER LIABILITIES (thousands of dollars)  Trade payables and accruals  Construction and development payables and accruals  Interest payable  Dividends payable  Interest rate swaps at fair value (a)  Tenant deposits  Other liabilities  2009 2008 $ 42,309  30,450  19,310  30,734  1,204  9,819  3,832  $ 137,658  $  44,759 46,046 17,276 28,801 17,655 9,297 2,673 $  166,507 (a)  The balance at December 31, 2009 represents the notional amount of interest rate swaps which became unhedged in   December 2009. FIRST CAPITAL REALTY ANNUAL REPORT 2009        79                                                                                                       NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued 14. SENIOR UNSECURED DEBENTURES (thousands of dollars)  Series  Date of Issue  Maturity Date  A  B  C  D  E  F  G  June 21, 2005  March 30, 2006  August 1, 2006  September 18, 2006  January 31, 2007  April 5, 2007  November 20, 2009  June 21, 2012  March 30, 2011  December 1, 2011  April 1, 2013  January 31, 2014  October 30, 2014  June 1, 2015  2009 Activity Principal  Outstanding  $ 100,000    98,899    99,900    97,000   100,000   100,000   125,000  $ 720,799  2009 2008 Interest Rate Coupon  Effective 5.08%  5.25%  5.49%  5.34%  5.36%  5.32%  5.95%  5.42%  5.29%  5.51%  5.67%  5.51%  5.52%  5.47%  6.12%  5.60%  $ 99,430    98,589    99,585    96,520    99,476    99,424  124,016  $ 717,040  $  99,259   99,451   99,532   96,389   99,347   99,310 — $ 593,288 During the quarter ended June 30, 2009, the Company purchased $1.01 million of Series B 5.25% senior unsecured debentures for  $1.0 million and $0.1 million of the Series C 5.49% senior unsecured debentures for $0.1 million resulting in a total gain of $0.05 million  (note 19). On November 20, 2009, the Company issued $125 million aggregate principal amount of Series G senior unsecured debentures  due June 1, 2015 (the “Debentures”). The Debentures bear interest at a rate of 5.95% per annum payable semi-annually commencing  June 1, 2010. Subsequent to December 31, 2009, the Company issued Series H senior unsecured debentures which are discussed in “Subsequent  Events” (note 29 (a)). 2008 Activity On December 29, 2008, the Company purchased $3 million of the Series D 5.34% senior unsecured debentures for $2.5 million resulting  in a gain of $0.4 million (note 19). The fair value of the senior unsecured debentures is approximately $734 million at December 31, 2009 (2008 – $518 million) based  on closing bid spreads and current underlying Government of Canada bond yields. 15. CONVERTIBLE DEBENTURES (thousands of dollars)  2009 2008 Date of Issue  Maturity Date  Coupon  Effective  Principal Liability Equity  Principal  Liability  Equity Interest Rate September 30, 2017  December 19, 2005  September 30, 2017  November 30, 2006  June 29, 2007  September 30, 2017  September 18, 2009  December 31, 2016  December 30, 2009  June 30, 2017  5.50% Convertible Debentures 5.50%  6.45%  $ 76,750 $ 72,366 $ 2,314  $  83,000  $  77,797  $  2,503   6,015 5.50%  6.39%    7,387 5.50%  6.61%  — 6.25%  7.60%  5.70%  6.91%  — 5.69%  6.77%  $ 351,750 $ 329,739 $ 19,830  $ 233,000  $ 218,247  $  15,905 6,015  7,387  2,632  1,482   100,000   50,000   75,000   50,000 94,606 46,685 69,579 46,503  100,000    50,000  —  —    94,084    46,366  —  —  In 2009, 772,313 common shares (2008 – 600,661) were issued for $12.6 million (2008 – $12.9 million) to pay interest to holders of the  5.50% convertible debentures. The Company’s convertible debentures require interest payable semi-annually on March 31 and September 30. Holders of the  5.50% convertible debentures have the right to convert them into common shares. On August 14, 2009, the Company paid a dividend- in-kind which gave rise to an adjustment to the conversion price of the 5.50% convertible debentures. The conversion price in effect   to December 31, 2011 was adjusted from $27.00 to $26.28 and the conversion price in effect from January 1, 2012 to maturity was  adjusted from $28.00 to $27.25. 80        FIRST CAPITAL REALTY ANNUAL REPORT 2009                                       6.25% Convertible Debentures On September 18, 2009, the Company issued $75 million aggregate principal amount of 6.25% convertible unsecured subordinated  debentures due December 31, 2016. The 6.25% debentures bear interest at a rate of 6.25% per annum payable semi-annually  commencing March 31, 2010, and are convertible at the option of the holder into common shares of the Company at a conversion   rate of 43.6681 common shares per $1,000 principal amount of 6.25% debentures, which is equal to a conversion price of $22.90 per  common share. The 6.25% Debentures which are listed on the Toronto Stock Exchange under the symbol FCR.DB.C, were issued pursuant to the  Company’s trust indenture dated December 19, 2005, as supplemented, and rank pari passu with the Company’s outstanding 5.50%  and 5.70% convertible unsecured subordinated debentures (TSX:FCR.DB.A, FCR.DB.B and FCR.DB.D). 5.70% Convertible Debentures On December 30, 2009, the Company issued $50 million aggregate principal amount of 5.70% convertible unsecured subordinated  debentures due June 30, 2017. The 5.70% debentures bear interest at a rate of 5.70% per annum payable semi-annually commencing  September 30, 2010, and are convertible at the option of the holder into common shares of the Company at a conversion rate of  33.3333 common shares per $1,000 principal amount of 5.70% debentures, which is equal to a conversion price of $30.00 per  common share. The 5.70% debentures are listed on the Toronto Stock Exchange under the symbol FCR.DB.D, were issued pursuant to the Company’s  trust indenture dated December 19, 2005, as supplemented, and rank pari passu with the Company’s outstanding 5.50% and 6.25%  convertible unsecured subordinated debentures (TSX:FCR.DB.A, FCR.DB.B and FCR.DB.C). Other The Company has the option of repaying the debentures on maturity through the issuance of common shares at 97% of a weighted  average trading price of the Company’s common shares. The Company also has the option of paying the semi-annual interest through  the issuance of common shares valued in the same fashion. As at December 31, 2009, subsidiaries of the Company’s major shareholder, Gazit-Globe Ltd. (“Gazit”), owned $157.4 million  (December 31, 2008 – $123.6 million) principal amount of the 5.50% outstanding convertible debentures and $29,000 (December 31,  2008 – nil) principal amount of the outstanding 6.25% convertible debentures. Based on the Toronto Stock Exchange (“TSX”) closing bid prices, as at December 31, 2009, the market value of the principal  amount of the convertible debentures was $348 million (2008 – $186 million). 16. SHAREHOLDERS’ EQUITY (a) Share Capital 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. No preference shares have been issued. 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 following table sets forth the particulars of the issued and outstanding shares of the Company: Issued and outstanding at December 31, 2007 Issuance of common shares (b)  Payment of interest on convertible debentures (note 15)  Exercise of warrants (c)  Exercise of options (d)  Private placement of shares (b)  Dividends reinvested in common shares (f)  Issue costs  Tax effect on issue costs  Issued and outstanding at December 31, 2008 Number of  Stated Capital  Common Shares  (thousands of dollars) 79,681,929   6,740,000    600,661    174,484  48,500  71,959    2,685,048  —  —  90,002,581 $ 1,238,286   152,449 12,891 2,197 785 1,407 59,980 (6,775)  2,169 $ 1,463,389 FIRST CAPITAL REALTY ANNUAL REPORT 2009        81                                                           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued Issued and outstanding at December 31, 2008 Issuance of common shares (b)  Payment of interest on convertible debentures (note 15)  Conversion of convertible debentures (note 15)  Exercise of warrants (c)  Exercise of options (d)  Private placement of shares (b)  Issue costs  Tax effect on issue costs  Issued and outstanding at December 31, 2009 (b) Issuance of Common Shares 2009 Activity Number of  Stated Capital  Common Shares  (thousands of dollars) 90,002,581   4,881,108    772,313    231,481  7,400  32,500    118,011  —  —  96,045,394 $ 1,463,389 80,469 12,613 6,056 135 444 2,718 (2,369)  573 $ 1,564,028 On February 17, 2009, the Company issued 1,431,108 shares at a book value of $16.33 per share in exchange for 1,766,800 units of  Allied Properties REIT at a ratio of 0.81 First Capital Realty shares per unit. On August 5, 2009, the Company issued 3,450,000 units (the “Units”) at a price of $17.10 per Unit for total gross proceeds of  approximately $59 million, including exercise of the over-allotment option by the underwriters. Each Unit consists of: (i) one common  share of First Capital Realty (a “Common Share”), and (ii) two-thirds of a common share purchase warrant (a “Warrant”). The Common  Shares and the Warrants were separable immediately upon closing of the offering. Each whole Warrant will entitle the holder to acquire  at any time up to October 29, 2010, one Common Share of First Capital Realty at an exercise price equal to $17.53, subject to  adjustment. As part of the transaction, Gazit Canada Inc., an affiliate of the principal shareholder of First Capital Realty, purchased  600,000 units and a director of First Capital Realty purchased 15,000 Units at the offering price. On December 15, 2009, the Company issued 118,011 shares to five members of the Company’s management at a price of  $20.87 per share for gross proceeds of $2.5 million. 2008 Activity On March 26, 2008, the Company issued 4,900,000 shares at a price of $22.25 per share for gross proceeds of $109 million. On July 3, 2008, the Company issued 1,840,000 shares at a price of $23.60 per common share for gross proceeds of $43.4 million. On December 15, 2008, the Company issued 71,959 shares to two members of the Company’s management at a price of  $17.72 per share for gross proceeds of $1.3 million. (c) Warrants During 2009, a total of 7,400 share purchase warrants were exercised at $17.53 per share resulting in proceeds to the Company of  $0.1 million. The equity component of the warrants exercised totalling $12,000 was transferred to share capital. At December 31, 2009, there were 2,304,100 outstanding share purchase warrants with an exercise price of $17.53, expiring  October 29, 2010. During 2008, a total of 174,484 share purchase warrants were exercised at $11.80 per share resulting in proceeds to the Company  of $2.1 million. The equity component of the warrants exercised totalling $0.1 million was transferred to share capital. (d) Stock Options As of December 31, 2009, the Company is authorized to grant up to 7,025,000 (2008 – 7,025,000) common share options to the  employees, officers and directors of the Company and third-party service providers. As of December 31, 2009, 1,920,847 (2008 –  2,603,411) common share options are available to be granted. Options granted by the Company generally expire ten years from the  date of grant and vest over three to five years. The outstanding options have exercise prices ranging from $12.42 to $27.57. 82        FIRST CAPITAL REALTY ANNUAL REPORT 2009                                                             2009 Weighted Common Weighted Average Share Average Remaining Exercise Price Options Exercise Life Options Weighted  Average  Exercise  Price of  Options  2008   Weighted  Common  Weighted  Average  Share  Average  Remaining  Options  Exercise  Life  Options  Weighted  Average Exercise Price of Options Range Outstanding Price (years) Vested Exercisable  Outstanding  Price  (years)  Vested  Exercisable $12.42 — $17.30 1,024,912 $ 15.66 $19.11 — $22.27 906,266 $ 21.63 $24.75 — $27.57 1,677,517 $ 26.85 $12.42 — $27.57 3,608,695 $ 22.36 281,700 $ 15.52  544,650 $ 21.24  7.7 323,200  $  15.32  7.2 937,574  $  21.64  7.0 1,080,186 $ 26.45  1,697,857  $  26.85  7.2 1,906,536 $ 23.35  2,958,631  $  23.94  323,200  4.6  371,802  8.2  8.0  612,734  7.7  1,307,736  $  15.32 $  20.75 $  26.28 $  22.00 In 2009, $1.3 million (2008 – $1.6 million) was recorded as an expense due to the vesting of options. Outstanding, beginning of year  Granted  Exercised  Forfeited  Outstanding, end of year  Options vested, end of year  Weighted average remaining life (years)  2009 2008 Common Share Weighted Average  Common Share  Weighted Average Options Exercise Price  Options  Exercise Price 2,958,631 760,524 (32,500) (77,960) 3,608,695 1,906,536 7.2  $ $ $ $ $ $ 23.94  15.71  13.44  20.97  22.36  23.35  2,627,089  625,376  (48,500)  (245,334)  2,958,631  1,307,736  7.7 $  $  $  $  $  $  24.27 22.23 15.60 24.82 23.94 22.00 On March 23, 2009, the Company granted 750,524 options with a strike price of $15.69 and on August 14, 2009, the Company granted  10,000 options with a strike price of $17.30, which had a total value of approximately $0.8 million at the time of issue. On March 3, 2008, the Company granted 605,376 options with a strike price of $22.27 and on November 6, 2008, 20,000 options  with a strike price of $20.95, which had a total value of approximately $1.1 million at the time of issue. The fair value associated with the options issued was calculated using the Binomial Model for option valuation, assuming an  average volatility of 14% on the underlying shares, a ten-year term to expiry, and the ten-year weighted average risk-free interest rate  (typically, the ten-year Canada bond rate at the grant date). One third of the options vest on each of the three anniversary dates  following the grant date. (e) Share Unit Plans The Company’s share unit plans include a Directors Deferred Share Unit Plan, an Employee Restricted Share Unit Plan and a Chief  Executive Officer Restricted Share Unit Plan. Outstanding, beginning of year  Granted  Dividends declared  Exercised  Forfeited  Outstanding, end of year  Share units available to be granted based     on the current reserve  Expense recorded for the year  2009 2008 Deferred Share Units   105,342 34,020 11,712 (25,050) —   126,024 Restricted  Share Units  277,427  85,000  35,101  (118,011)  —  279,517  Deferred  Share Units  77,569  22,414  5,359  —  —    105,342  Restricted Share Units   242,725 87,500 19,161 (71,959) —   277,427   186,543 $ 438,000 287,128  $ 2,377,000    232,275  $  446,000    407,229 $  1,840,000 FIRST CAPITAL REALTY ANNUAL REPORT 2009        83                                                                           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued (f) Dividend Reinvestment Plan (“DRIP”) The Company adopted a “DRIP” in May 2005 enabling shareholders who qualified to elect to participate in the DRIP, to reinvest in  additional common shares at a discount of 2% of the weighted average trading price of the common shares on the TSX for the five  consecutive trading days preceding the dividend payment date. On August 7, 2008, the Company announced that it was suspending the DRIP. Accordingly, any dividend payable to shareholders  subsequent to that date is not subject to the DRIP. The suspension is in effect unless and until further notice is given. The Company  may consider from time to time reinstating the DRIP. 17. INTEREST AND OTHER INCOME (thousands of dollars)  Interest income from non-revolving term loan receivable  Interest, dividend and distribution income from marketable securities and     cash investments  Interest income from development loans  18. INTEREST EXPENSE (thousands of dollars)  Mortgage, loans and credit facilities  Senior unsecured debentures  Convertible debentures  Other non-cash interest expense  Interest expense  Convertible debenture interest paid in common shares (note 15)  Change in accrued interest  Effective interest rate in excess of coupon rate on senior unsecured and     convertible debentures  Interest paid in excess of coupon interest on assumed mortgages  Other non-cash interest expense  Interest capitalized to land and shopping centres under development (note 4)  Cash interest paid  19. OTHER GAINS (LOSSES) AND (EXPENSES) (thousands of dollars)  Realized gains (losses) on sale of marketable securities  Change in cumulative unrealized gains (losses) on marketable securities held-for-trading   Dilution (loss) gain on investment in Equity One, Inc (note 7(b))  (Loss) gain on settlement of debt (notes 12 and 14)  Gain on disposition of shopping centres (note 3)  Gains on disposition of land (note 4)  Gain on termination of hedge previously held in other comprehensive income  Realized losses on interest rate swaps (a)  Unrealized losses on interest rate swaps not designated as hedges (b)  Loss on foreign currency exchange  Severance and termination costs  Costs related to acquisition of 40% interest in First Capital Brookfield     (a property management subsidiary)  Other income  84        FIRST CAPITAL REALTY ANNUAL REPORT 2009 2009 2008 $ 1,247  (restated-note 2) — $  3,788  577  5,612  $  1,020 539 1,559 $ 2009 2008 $ 75,318  32,541  14,837  2,769    125,465  (12,613)  (2,034)  $  65,700 31,887 13,632 2,466   113,685 (12,891) 560 (984)  1,189  (2,769)  18,441  $ 126,695  (864) 1,436 (2,466) 20,723 $  120,183 2009 2008 $  (restated-note 2) (212) (1,766) 2,898 438 1,631 3,945 — — — — — — 347 7,281 $  4,242  1,952  (676)  (2,394)  737  118  290  (1,450)  (1,203)  (278)  (2,000)  (752)  —  (1,414)  $ $                                                                                                                                                                                                                                                   (a)  The Company terminated $20 million notional amount of Canadian B.A. based interest rate swaps on December 22, 2009  resulting in a loss of $1.45 million. (b)  As a result of the Company substantially paying off its Canadian credit facilities, a loss of $1.2 million was recorded on its remaining  $100 million notional Canadian B.A. interest swaps reflecting the termination of the hedging relationship. 20. INCOME TAXES The Company’s business activities are carried out directly and through operating subsidiaries, 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, partnership ventures, and the parent company. The following table summarizes the provision for income taxes: (thousands of dollars)  Provision for income taxes on income at the combined Canadian federal and provincial   income tax rate of 32.0% (2008 – 32.0%)  Increase (decrease) in the provision for income taxes due to the following items:     US operations      Non-deductible interest expense      Change in future income tax rate      Expenses not deductible for tax purposes      Other items  Income taxes  The Company’s future income tax net liabilities are summarized as follows: (thousands of dollars)  Losses available for carry-forward  Canadian and US minimum tax credits  Investments  Shopping centres  Other    2009 2008 $ 15,735  $  17,817 —  226  (7,497)  (92)  (139)  8,233  $  1,548 276 (2,515) 1,344 (221) 18,249 2009 2008 (19,657)  (915)  —  59,218  4,856  43,502  $  $  (11,636) (884) 13,880 43,676 (1,393) 43,643 $ $ $ At December 31, 2009, the Company has tax-loss carry-forwards for Canadian income tax purposes of approximately $79 million  (2008 – $41 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, 2010 and December 31, 2029. 21. PER SHARE CALCULATIONS The following table sets forth the computation of per share amounts: (thousands of dollars, except per share amounts)  Basic and diluted net income available to common shareholders  Denominator Weighted average shares outstanding for basic per share amounts:      Outstanding warrants      Outstanding options  Denominator for diluted net income available to common shareholders  Basic and diluted earnings per share  2009 2008 $ 41,913  (restated-note 2) 37,341 $    93,759,034  17,421  92,360  93,868,815    87,127,555 44,037 88,632   87,260,224 $ 0.45  $  0.43 FIRST CAPITAL REALTY ANNUAL REPORT 2009        85                                                                                                                                                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued The following securities were not included in the diluted per share calculation as the effect would have been anti-dilutive: Number of Shares if Converted or Exercised Exercise Price  2009 Exercise Price  2008 Common share options  Convertible debentures – 5.50%  Convertible debentures – 6.25%  Convertible debentures – 5.70%   $ 19.11 – $ 27.57  $ 26.28  $ 22.90  $ 30.00  2,583,783  8,628,234  3,275,109  1,666,667   $ 20.80 – $ 27.57  $ 27.00  —  —  2,625,431 8,629,630 — — 22. RISK MANAGEMENT In the normal course of its business, the Company is exposed to a number of risks that can affect its operating performance. These  risks, and the actions taken to manage them, are as follows: (a) Interest Rate Risk The Company attempts to structure its financings so as to stagger the maturities of its debt, thereby mitigating its exposure to interest  rate and other credit market fluctuations. A portion of the Company’s mortgages, loans and credit facilities are floating rate instruments.  From time to time, the Company may enter into interest rate swap contracts or other financial instruments to modify the interest rate  profile of its outstanding debt without an exchange of the underlying principal amount. The fair value of the Company’s interest rate  swaps (note 13) and other contracts is a negative value of approximately $1.2 million (2008 – negative value of $17.7 million) due to  changes in interest rates since the contracts were entered into. (b) Credit Risk Credit risk arises from the possibility that tenants and/or debtors may experience financial difficulty and be unable to fulfill their lease  commitments or loans. The Company mitigates the risk of credit loss by investing in well-located properties in urban markets that  attract quality tenants, ensuring that its tenant mix is diversified and by limiting its exposure to any one tenant. No one tenant represents  more than 7.4% of annualized minimum rent. A tenant’s success over the term of its lease and its ability to fulfill its lease obligations, is  subject to many factors. There can be no assurance that a tenant will be able to fullfill all of its existing commitments and leases up to  its expiry date. The Company’s maximum exposure to credit risk is limited to the carrying amounts of its financial assets. (c) Currency Risk The Company maintains its accounts in Canadian dollars. At December 31, 2009, the Company has a US$36 million non-revolving  loan receivable (note 8). The Company manages the currency risk by maintaining a natural hedge of debt denominated in US dollars  (note 12). However until August 14, 2009, a portion of its operations were located in the United States and therefore the Company was  subject to foreign currency fluctuations which could, from time to time, impact its financial position and results. The Company’s US  operations were financed in part by US dollar-denominated loans and credit facilities, which were serviced by the cash flow generated  by the Company’s dividends from Equity One. (d) Fair Values of Financial Instruments The fair values of the Company’s net working capital items approximate their recorded values at December 31, 2009 and 2008 due to  their short-term nature. The fair values of the Company’s other financial assets and liabilities are disclosed in notes 8, 12, 14 and 15. (e) Liquidity Risk Real estate investments are relatively illiquid. This will tend to limit the Company’s ability to sell components of its portfolio promptly in  response to changing economic or investment conditions. If the Company were required to quickly liquidate its assets, there is a risk  that it would realize sale proceeds of less than the current book value of its real estate investments. 86        FIRST CAPITAL REALTY ANNUAL REPORT 2009                       An analysis of the Company’s contractual maturities of its material financial liabilities and other contractual commitments is set   out below: (thousands of dollars)  Mortgages     Scheduled amortization      Payments on maturity  Total mortgage obligations  Canadian revolving credit facilities  Senior unsecured debentures  Land leases  Total contractual obligations  Payments Due by Period Total  2010  2011–2012  2013–2014  Thereafter $  194,611    1,119,980    1,314,591  42,636    720,799  18,835  $  2,096,861  $  33,671    119,893    153,564  —  —  823  $  154,387  $  62,593    190,118    252,711    42,636    298,799  1,646  $  595,792  $  48,864    369,752    418,616  —    297,000  1,656  $  717,272  $  49,483   440,217   489,700 —   125,000   14,710 $  629,410 In addition, the Company has contractual commitments with respect to its outstanding accounts payable and other liabilities (note 13)  and interest payments on outstanding debt (notes 12, 14 and 15). The Company manages its liquidity risk by staggering debt maturities; renegotiating expiring credit arrangements proactively; using  undrawn lines of credit; and issuing equity when considered appropriate. As at December 31, 2009, $42.6 million was drawn on the  Company’s Canadian revolving credit facility with a maturity of March 2012. In addition, at December 31, 2009 the Company has $22.4 million (2008 – $20.0 million) of outstanding letters of credit that have  been issued by financial institutions primarily to support certain of the Company’s obligations related to its development projects. 23. SUPPLEMENTAL OTHER COMPREHENSIVE INCOME INFORMATION (a) The tax effects relating to each component of other comprehensive income (loss) are as follows: (Years ended December 31)  2009 2008 (thousands of dollars)  Unrealized foreign currency gains on translating    self-sustaining foreign operations  Other comprehensive gains (losses) of     Equity One, Inc.  Unrealized gains (losses) on cash flow hedges     of interest rates  Change in cumulative unrealized gain (losses)     on available-for-sale marketable securities  Other comprehensive income (loss)  Before-tax Tax Net-of-tax  Before-tax  Tax  Amount (recovery) Amount  Amount  (recovery)  Net-of-tax Amount $ 12,801 $ — $ 12,801  $  11,319  $  —  $  11,319   3,251 — 3,251  (1,944)  —  (1,944)   17,210 5,038 12,172    (16,443)  (4,779)    (11,664)   7,649 $ 40,911 1,164 $ 6,202 6,485  $ 34,709  (6,590)  $  (13,658)  (1,053)  (5,832)  (5,537) (7,826) $  $  FIRST CAPITAL REALTY ANNUAL REPORT 2009        87                                       NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued (b) Accumulated Other Comprehensive Income (Loss) (Years ended December 31)  Opening Balance January 1 2009 Net Change Closing Balance Opening  Balance  2008 Net  Change  Closing Balance During December 31 January 1  During  December 31 (thousands of dollars)  2009 the Year 2009 2008  the Year  2008 Unrealized foreign currency     (loss) gain on translating     self-sustaining foreign operations  Other comprehensive losses of    Equity One, Inc.  Losses on cash flow hedges of    interest rates  Change in cumulative unrealized    gain (losses) on available-for-sale     marketable securities  Accumulated other comprehensive    income (loss)  $ (12,801) $ 12,801 $ —  $  (24,120)  $  11,319  $  (12,801) (3,251) 3,251   (12,172) 12,172 —  —  (1,307)  (1,944)  (3,251) (508)    (11,664)    (12,172) (5,567) 6,485 918  (30)  (5,537)  (5,567) $ (33,791) $ 34,709 $ 918  $  (25,965)  $  (7,826)  $  (33,791) The Company expects the balance of the Accumulated Other Comprehensive Income at December 31, 2009 to be reclassified to net  income in 2010. 24. SUPPLEMENTAL CASH FLOW INFORMATION (a) Items not affecting cash from operating activities (thousands of dollars)  Amortization  Amortization of above- and below-market leases  Rent revenue recognized on a straight-line basis  Gain on disposition of income producing property (note 19)  Gains on disposition of land (note 19)  Realized (gains) losses on sale of marketable securities (note 19)  Change in cumulative unrealized (gains) losses on marketable securities     held-for-trading (note 19)  Loss (gain) on settlement of debt (note 19)  Non-cash compensation expense      Less cash settlement of restricted share units      Less cash settlement of deferred share units  Interest paid in excess of effective interest on assumed mortgages (note 18)  Effective interest rate in excess of coupon rate on senior unsecured and     convertible debentures (note 18)  Convertible debenture interest paid in common shares (note 15)  Other non-cash interest expense (note 18)  Equity income from Equity One, Inc. (note 7)  Dilution loss (gain) on Equity One, Inc. investment (note 7(b))  Future income taxes  Loss on foreign currency exchange  Unrealized losses on interest rate swaps not designated as hedges  88        FIRST CAPITAL REALTY ANNUAL REPORT 2009 $ 2009 2008 98,708  (2,323)  (5,053)  (737)  (118)  (4,242)  $  (restated-note 2) 87,744 (2,253) (5,374) (1,631) (3,945) 212 (1,952)  2,394  4,209  (2,463)  (514)  (1,189)  984  12,613  2,769  (7,066)  676  7,700  278  1,203  $ 105,877  $  1,638 (438) 3,899 (1,275) — (1,436) 864 12,891 2,466 (8,716) (2,898) 16,264 — — 98,012                                                                                                                                                                                                         (b) Net change in non-cash operating items The net change in non-cash operating assets and liabilities consists of the following: (thousands of dollars)  2009 2008 Amounts receivable  Prepaid expenses  Trade payables and accruals  Tenant security and other deposits  Other working capital changes  (c) Changes in loans, mortgages and other real estate assets (thousands of dollars)  Increase in loans and mortgages receivable  Investment in marketable securities  Return of capital from investments in marketable securities  Proceeds from disposition of marketable securities  (d) Cash and cash equivalents (thousands of dollars)  Cash    Term deposits  (e) Interest and income taxes (thousands of dollars)  Cash income taxes paid  Cash interest paid (note 18)  25. SEGMENTED INFORMATION 5,112  (1,870)  322  2,691  (12,847)  (6,592)  $  (restated-note 2) (3,909) (3,789) 1,846 (332) 4,190 (1,994) $  2009 2008 (3,714)  (6,743)  2,030  59,067  50,640  2009 4,190  358  4,548  $  $  $  $  (1,507) (37,110) 623 7,474 (30,520) 2008 6,975 288 7,263 $ $ $ $ $ $ 2009 2008 $ 1,358  $ 126,695  $  2,251 $  120,183 The Company and its subsidiaries operated in the shopping centre segment of the real estate industry in both Canada and the  United States. Income by geographic segment for the year ended December 31, 2009, is summarized as follows: (thousands of dollars)  Property rental revenue  Property operating costs  Income before the undernoted items  Equity income from Equity One, Inc.  Interest and other income  Other (losses) gains and (expenses)  Interest expense  Corporate expenses  Income before amortization  Amortization  Income before income taxes  Canada US Total $ 442,131   156,954   285,177 — 5,606 (2,407)   120,101 21,792   146,483 98,654 47,829 $ $ $ — — — 7,066 6 993 5,364 330 2,371 54 2,317 $ 442,131 156,954 285,177 7,066 5,612 (1,414) 125,465 22,122 148,854 98,708 50,146 $ FIRST CAPITAL REALTY ANNUAL REPORT 2009        89                                                                                                                                                         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued Income by geographic segment for the year ended December 31, 2008, is summarized as follows: (thousands of dollars)  Canada  US  Total Property rental revenue  Property operating costs  Income before the undernoted items  Equity income from Equity One, Inc.  Interest and other income  Other gains and (expenses)  Interest expense  Corporate expenses  Income before amortization  Amortization  Income before income taxes  Canadian operations include the following: (restated-note 2) $  410,192    149,152    261,040  —  1,559  3,659    105,541  20,991    139,726  87,681  52,045  $  $  $  (restated-note 2) $  410,192   149,152   261,040 8,716 1,559 7,281   113,685 21,577   143,334 87,744 55,590 $  —  —  —  8,716  —  3,622  8,144  586  3,608  63  3,545  Year ended December 31, 2009  (thousands of dollars)  Property rental revenue  Property operating costs  Net operating income  Eastern Region(1) Central Region(1) Western Region(1) Subtotal Other(2) Total $ 101,288 $ 205,432 $ 128,686 $ 435,406 $ 41,540 59,748 $ 127,479 $ 77,953 41,848 86,838 $ 274,065 $ 161,341 $ 6,725 $ 442,131 (4,387) 156,954 11,112 $ 285,177 Year ended December 31, 2008  (thousands of dollars)  Eastern  Region(1)  Central  Region(1)  Western Region(1)  Subtotal  Other(2)  Total Property rental revenue  Property operating costs  Net operating income  $  $  94,988  $  191,853  $  116,820  $  403,661  $  40,408  54,580  $  118,284  $  37,933  78,887  $  251,751  $    151,910  73,569  (restated-note 2) 6,531  $  410,192   149,152 (2,758)  9,289  $  261,040 The net book value of real estate assets is as follows: December 31, 2009  (thousands of dollars)  Eastern Region(1) Central Region(1) Western Region(1) Subtotal Other Total Land and shopping centres     under development  Net book value of other real estate     assets (3)  Net book value of real estate assets  $ 43,177 $ 121,851 $ 59,744 $ 224,772 $ — $ 224,772   658,599 1,561,381 1,095,606 3,315,586 $ 701,776 $ 1,683,232 $ 1,155,350 $ 3,540,358 $ — 3,315,586 — $ 3,540,358 December 31, 2008  (thousands of dollars)  Eastern  Region(1)  Central  Region(1)  Western Region(1)  Subtotal  Other  Total (restated-note 2) Land and shopping centres     under development  Net book value of other real estate     assets (3)  Net book value of real estate assets  $  43,204  $  145,845  $  92,910  $  281,959  $  —  $  281,959   639,844    1,446,198    982,409    3,068,451  $  683,048  $  1,592,043  $  1,075,319  $  3,350,410  $  —    3,068,451 —  $  3,350,410 90        FIRST CAPITAL REALTY ANNUAL REPORT 2009                                                   Expenditures for additions to capital assets are as follows: Year ended December 31, 2009  (thousands of dollars)  Eastern Region(1) Central Region(1) Western Region(1) Subtotal Other Total Deferred leasing costs  Expenditures on shopping centres  Expenditures on shopping centres     under development  Total expenditures  $ 1,807 $ 1,876 $ 1,339 $ 5,022 $ 11,366 11,186 12,757 35,309 — $ — 5,022 35,309 18,967 32,140 $ 115,048 $ 101,986 47,157 61,253 $ 208,441 $ 168,110 $ 168,110 — — $ 208,441 Year ended December 31, 2008  (thousands of dollars)  Eastern  Region(1)  Central  Region(1)  Western Region(1)  Subtotal  Other  Total Deferred leasing costs  Expenditures on shopping centres  Expenditures on shopping centres     under development  Total expenditures  $  $  1,202  $  6,810  1,806  $  9,205  1,025  $  4,033  $  10,604  26,619  (restated-note 2) 4,033 26,619 —  $  —  57,198  65,210  $  113,214  $    102,203  68,374  80,003  $  258,427  $    227,775  —    227,775 —  $  258,427 (1)  Eastern region includes properties located in Quebec, Nova Scotia and Newfoundland.   Central region includes properties located in Ontario.   Western region includes properties located in Saskatchewan, Alberta and British Columbia. (2)  Other items are principally rental revenue recorded on a straight-line basis and market rent adjustments. (3)  Net book value of other real estate assets is comprised of the net book value of shopping centres, deferred leasing costs and intangible assets less  intangible liabilities. 26. PROPORTIONATE CONSOLIDATION The Company is a participant in 17 (2008 – 16) partnership, co-ownership and limited liability corporate ventures that own land,  shopping centres, and shopping centres under development (collectively the “joint ventures”). The Company’s participation in these  entities ranges from 33% to 80%. The following amounts are included in the consolidated financial statements and represent the Company’s proportionate interest   in the financial accounts of the joint ventures: (thousands of dollars)  Assets  Liabilities  Revenues  Expenses  Net income  Cash flows provided by (used in):     Operating activities      Investing activities      Financing activities  2009 2008 $ 183,431  93,012  $ 27,340  $ 20,252  7,088  $ (restated-note 2) $  176,801 93,235 $  26,272 $  19,977 6,295 $  $ $ $ 10,233  (21,345)  11,808  $  $  $  10,496 (15,939) 5,773 Cash and cash equivalents held pursuant to terms of joint-venture agreements amount to $5.1 million (2008 – $4.4 million) at  December 31, 2009. The Company is contingently liable for certain of the obligations of the joint ventures, and all of the net assets of the joint ventures  are available for the purpose of satisfying such obligations and guarantees (note 27 (c)). FIRST CAPITAL REALTY ANNUAL REPORT 2009        91                                                               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued 27. COMMITMENTS AND CONTINGENCIES (a)  The Company is involved in litigation and claims which arise from time to time in the normal course of business. None of these,  individually or in aggregate, would result in a liability that would have a significant adverse effect on the financial position of the Company. (b)  On October 16, 2006, First Capital Realty and First Capital (Royal Oak) Corporation (a wholly owned nominee subsidiary of First  Capital Realty) were named as defendants in a lawsuit commenced by Rencor Developments Inc. and Rencor Developments  (Royal Oak) Inc. (collectively, “Rencor”). First Capital Realty and Rencor are joint-venture partners in the Royal Oak Shopping  Centre located in Calgary, Alberta, in which First Capital Realty owns a 60% undivided interest and Rencor owns the remaining  40% undivided interest. The Statement of Claim seeks damages for alleged breaches by First Capital Realty of certain agreements  relating to the ownership and operation of the Royal Oak Shopping Centre. First Capital Realty believes the lawsuit to be frivolous  and without merit and intends to vigorously defend against the allegations made in the Statement of Claim. Accordingly, as of  December 31, 2009, First Capital Realty has not recorded any loss provision with respect to this claim in its financial statements. (c)  The Company is contingently liable, jointly and severally, for approximately $51.1 million (2008 – $45.6 million) to various lenders  in connection with loans advanced to its joint-venture partners secured by the partners’ interest in the co-ownerships. (d)  The Company is also contingently liable for letters of credit in the amount of $22.4 million (2008 – $20.0 million) issued in the  ordinary course of business. (e)  The Company has obligations as lessee under long-term leases for land. Annual commitments under these ground leases are  (f)  approximately $0.8 million (2008 – $0.8 million) with a total obligation of $18.8 million (2008 – $18.4 million). In two of the Company’s shopping centres, the grocery store anchor tenant has a right to purchase their premises on terms that  are potentially favourable to the tenants. 28. RELATED PARTY TRANSACTIONS (a)  Included in corporate and other amounts receivable are amounts due from subsidiaries of the Company’s majority shareholder  Gazit-Globe Ltd. (“Gazit”). Gazit reimburses the Company for certain accounting and administrative services provided by the  Company. The total amount recorded as reimbursements during 2009 was $2,315,000 (2008 – $1,171,000) which primarily  consists of appraisal and accounting costs related to preparation of financial reporting in accordance with International Financial  Reporting Standards $1,069,000 (2008 – $1,171,000) and interest on the loan receivable as per note 8(a) $1,246,000 (2008 – nil).  Gazit is also a tenant at a property owned by the Company. Total rental payments received during 2009 amounted to $231,450  (2008 – $89,000). At December 31, 2009, $1,406,500 due from Gazit was included in amounts receivable (2008 – $212,500) and  collected subsequent to year-end. In addition, subsidiary companies of Gazit subscribe to the Company’s convertible debentures as described in Note 15. (b)  Included in amounts receivable at December 31, 2009 are loans due from employees totalling $250,000 (2008 – $250,000).   The interest only loans bear interest at the rate prescribed by the Canada Revenue Agency for employee loans and are fully  secured against restricted share units and options to purchase common shares held by the employees. $150,000 of the loans  mature in 2010 and $100,000 in 2013. 29. SUBSEQUENT EVENTS (a) Senior Unsecured Debentures On January 21, 2010, the Company completed the issuance of $125 million aggregate principal amount of 5.85% Series H senior  unsecured debentures due January 31, 2017. The Debentures bear interest at a rate of 5.85% per annum payable semi-annually  commencing July 31, 2010. (b) Interest on Convertible Debentures On February 18, 2010, the Company announced that it will pay the interest due on March 31, 2010 to holders of both classes of its  5.50% convertible unsecured subordinated debentures, due September 30, 2017 and to holders of the 6.25% convertible unsecured  subordinated debentures, due December 31, 2016, by the issuance of common shares. The number of common shares to be issued  per $1,000 principal amount of debentures will be calculated by dividing the dollar amount of interest payable by an amount equal to  97% of the volume-weighted average trading price of the common shares of First Capital Realty on the Toronto Stock Exchange,  calculated for the 20 consecutive trading days ending on March 24, 2010. The interest payment due is approximately $8.7 million. It is the current intention of the Company to satisfy its obligations to pay principal and interest on its convertible debentures by   the issuance of common shares. Since issuance, all interest payments have been made using shares. 30. COMPARATIVE AMOUNTS Certain comparative amounts have been reclassified to reflect the presentation adopted in the current year. 92        FIRST CAPITAL REALTY ANNUAL REPORT 2009     Shareholder information Head Office King Liberty village toronto Stock exchange listings Directors common shares: chaim katzman 85 hanna avenue, suite 400 fcr Chairman, First Capital Realty Inc. toronto, ontario M6k 3s3 5.50% convertible cdn Debentures: North Miami Beach, Florida fcr.Db.a 5.50% convertible u.s. Debentures: fcr.Db.b 6.25% convertible Debentures: fcr.Db.c 5.70% convertible Debentures: fcr.Db.D Warrants: fcr.Wt.a Dori J. segal President and Chief Executive Officer, First Capital Realty Inc. Toronto, Ontario Jon hagan, c.a. Consultant, JN Hagan Consulting Toronto, Ontario nathan hetz, c.p.a. transfer Agent computershare trust company of canada Chief Executive Officer and Director, Alony Hetz Properties and Investments Ltd. 100 university avenue, 11th floor Ramat Gan, Israel susan J. Mcarthur Managing Director, Jacob & Company Securities Toronto, Ontario bernard McDonell Private Investor Montreal, Quebec steven k. ranson, c.a. President and Chief Executive Officer, Home Equity Income Trust Toronto, Ontario Moshe ronen Barrister and Solicitor Thornhill, Ontario toronto, ontario M5J 2y1 toll-free: 1 800 564 6253 legal Counsel torys llp toronto, ontario Davies Ward Phillips & vineberg LLP Montreal, Quebec Auditors Deloitte & touche llp toronto, ontario Officers Dori J. segal President and CEO karen h. Weaver Executive Vice President and Chief Financial Officer brian kozak Senior Vice President, Western Canada tel: 416 504 4114 fax: 416 941 1655 Montreal Office 2620 de salaberry, suite 201 Montreal, Quebec h3M 1l3 tel: 514 332 0031 fax: 514 332 5135 Morningside Crossing fcr property Management services 4525 kingston road, suite 2201 toronto, ontario M1e 2p1 tel: 416 724 5550 fax: 416 724 2666 Calgary Office trans canada centre unit 158, 1440-52nd street ne calgary, alberta t2a 4t8 tel: 403 257 6888 fax: 403 257 6899 Edmonton Office northgate centre, unit 2004 9499-137 avenue edmonton, alberta t5e 5r8 tel: 780 475 3695 fax: 780 478 6716 Vancouver Office Terra Nova village 3671 Westminster Hwy, Suite 240 richmond, British Columbia v7C 5v2 tel: 604 278 0056 fax: 604 278 3364 Annual Shareholders’ Meeting May 10, 2010 one king West hotel and residence 1 king street West the austin Gallery room, 12th floor at 11:00 a.m. www.firstcapitalrealty.ca first capital realty annual report 2009 7 85 Hanna Avenue, Suite 400, Toronto, Ontario m6k 3S3 T 416.504.4114 T 416.941.1655 www.firstcapitalrealty.ca 10% 

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