First Capital Realty Inc.
Annual Report 2010

Plain-text annual report

First Capital realty inc. 10 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 179 properties, including three under development, totalling approximately 22.3 million square feet of gross leasable area and eight land sites in the planning stage for future retail development. first capital realty has an enterprise value of over $5.5 billion and trades on the toronto stock exchange. Property rental revenue ($ millions) for the year, Gross leasable Area (millions of sq. ft.) at December 31, Debt to Aggregate Assets ($ billions) at December 31, 485 442 410 377 326 20.2 20.8 21.6 19.4 18.2 % DeBT 4.6 4.0 4.1 3.6 3.2 55.4 56.6 53.5 50.3 52.2 06 07 08 09 10 06 07 08 09 10 06 07 08 09 10 Building Value ($ millions) enterprise value Debt to aggregate assets Debt to market capitalization property rental revenue net operating income (noi) 2010 2009 $ 5,253 $ 4,508 52.2% 45.8% $ $ 485.0 $ 316.1 $ 50.3% 45.9% 442.1 285.2 funds from operations (ffo) – core operations ffo – non-recurring items (1) total ffo 2010 2009 2010 2009 ($ millions) ($ per share) $ 154.7 $ 144.5 $ 0.97 $ 2.4 6.8 0.01 $ 157.1 $ 151.3 $ 0.98 $ 0.96 0.05 1.01 Weighted average diluted shares for ffo (thousands) 160,031 150,190 adjusted funds from operations (affo) – core operations affo – non-recurring items (1) total affo Weighted average diluted shares for affo (thousands) $ $ 156.2 $ 143.5 $ 0.87 $ 4.4 8.3 0.02 160.6 $ 151.8 $ 0.89 $ 0.87 0.05 0.92 180,917 164,695 (1) see Management’s Discussion and analysis. Funds From Operations ($ millions) 17 Years of Dividends ($ per share) % payout ratio (1) 157 (1) 152 146 126 117 78 79 77 79 82 0.36 0.30 0.48 0.51 0.53 0.56 0.58 0.62 (1) 0.88 0.68 0.71 0.73 0.13 0.77 0.79 0.80 (2) 1.08 0.28 0.80 06 07 08 09 10 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 (1) see Management’s Discussion and analysis for the year ended December 31, 2009. (1) includes special dividend of $0.13 paid on april 6, 2005. (2) includes Gazit america dividend-in-kind of $0.28 distributed on august 14, 2009. first capital realty annual report 2010 1 A Growth Strategy APPlieD TO A STABle BuSineSS 2010 Operating Highlights • property rental revenue increased 9.7% to $485 million • net operating income increased 10.8% to $316 million • invested $473 million in acquisitions, development activities and property improvements • average rent per occupied square foot increased by 4.1% to $16.35 Sustainable Cash Flow • 154 of 178 properties are supermarket and/or drugstore anchored • 21.6 million square feet of gross leasable area • top 40 tenants provide 57.3% of annual rents and occupy 60.7% of the gross leasable area • 25 of the top 40 tenants have investment-grade • 3.9% same property noi growth including expansion credit ratings and redevelopment space • occupancy of 96.4% • approximately 47% of all annual rents are from tenants with investment-grade credit ratings • Dense urban locations with strong demographics Tenant Profile • supermarkets, drugstores and liquor stores 34% • national and discount retailers 16% • Medical, gyms, daycare and other 13% personal uses • restaurants, fast food and coffee shops • banks and governments • other retailers 11% 10% 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 2010 FOCuSSeD GrOwTH STrATeGY • Grow a portfolio of neighbourhood and community shopping centres in urban markets in canada • actively manage the portfolio to meet our tenant’s needs for upgrades, expansion and relocation • acquire older urban shopping centres for repositioning and redevelopment • acquire properties and sites adjacent to the company’s existing properties for tenant expansion, increased retail offering and other density • acquire newer, high-quality properties where they complement or add value to the portfolio • 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 2010 3 Message from the President KeePinG FiT in last year’s annual report, i looked back over the first decade that our team has managed first capital realty. i outlined the transformation we have gone through from a small company to a large scale, well diversified organization with significant capabilities in the business of owning, developing and operating supermarket and drugstore anchored shopping centres in urban markets, while at the same time strengthening our balance sheet, financial position and risk profile. these were significant accom- plishments, and in 2010 we continued to build on the progress achieved over the prior ten years. in 2010, we invested $473 million in acquisitions of properties as well as in development, redevelopment and expansion activities, all 100% in line with our strategy and focus. the location of our properties and our proactive management style produced a 3.9% increase in same property net operating income in 2010, while funds from operations from our core operations increased 7.1% to $154.7 million. We were also very pleased to have announced in June 2010 that first capital realty’s common shares are now included in the s&p/tsX composite index. in addition to these strong operating results, we continued to maintain our conservative capital structure, debt ratios, and well-balanced debt portfolio. of note, at year-end we had approximately $1.52 billion in unencumbered assets, a key element of our financial strength, with a conservative debt to market capitalization ratio of 45.8% and interest coverage of 2.5 times. in my report this year i’d like to discuss where we are today, and what this means for the future. as i look ahead, i firmly believe we are where we want to be, with the right portfolio, the right tenants, the right people, the financial strength and the right strategies to continue delivering value to our shareholders over the mid-to long-term. • second, we wanted to grow to a sufficient size and critical mass where we could leverage the skills and expertise of our people across a broad base of properties and urban markets to generate economies of scale and operating synergies, as well as better position our value-creating activities to service national tenants across the country. i believe we have achieved these objectives. although the portfolio and our company are now large, they were built brick-by-brick, enabling us to know and understand each and every one of our properties. We live and breathe our locations every day – our people are on site and are familiar with each property’s operation, the tenants and the neighbourhoods in which we are situated. this knowledge of the risks and opportuni- ties for each of our markets and for each of our properties is a key factor in our success and our ability to build value going forward. The right Tenants from the outset, we built our property portfolio specifically to meet the needs of consumers who are “shopping for everyday life”®. by providing shoppers with essentially non-discretionary goods and services, we have positioned the company in a unique and highly stable asset class. over 90% of our rents are derived from centres anchored by a supermarket or drugstore, with more than 80% of rents coming from tenants providing daily necessities, including supermarkets and drugstores, banks and other financial institutions, national and discount retailers, liquor stores, medical clinics and gyms, fast food and coffee shops, as well as daycare centres and schools. this is a powerful value proposition for both consumers and our company. as the canadian retail landscape changes over the next few years with the arrival of large, well-capitalized and highly competitive participants from the united states and overseas, the unique defensive nature of our asset and tenant profile should serve us very well. The right Portfolio as of the year-end, our portfolio consisted of 178 properties well-located in seven targeted urban growth markets in Western, central and eastern canada totalling 21.6 million square feet of gross leaseable area. We also owned 287 acres of land either under development or held for future expansion. first capital’s portfolio has been assembled carefully and prudently over the last eleven years to meet two key goals: • first, we sought to diversify the portfolio geographically to ensure the stability and security of our cash flows; for example, almost 9% of our rents are derived from retail bank branches, a highly stable and secure business. on average, we have at least one or two financial institutions located in every one of our properties. in addition, our medical clinic and fitness centre tenants attract consumers to our centres and complement shopping in our grocery and drugstore anchors. our use of shop- ping centres for daycare and schools also enables us to occupy what may be less attractive space for retailers while at the same time bringing consumers to our centres where they can shop and dine while picking up their children. 4 first capital realty annual report 2010 The right People in addition to the right properties and the right tenants, at first capital we have built what we believe is one of the finest real estate professional teams in the business. We now have the right people in the right places to profitably manage our operations and our growth. our property managers, leasing, legal, construction, acquisition and development professionals and our senior management team possess decades of experience with the right level of skill, expertise and knowledge. in addition to our real estate expertise, many of our key executives also have significant experience in the north american retail space, a real advantage in understanding our tenants’ needs. our regional offices are also effectively located to ensure we remain close to our tenants, our communities and our competition, enabling us to remain at the forefront of our business. our people are our greatest asset, and we are proud of our accomplishments over the last eleven years. The right Financial Position With our accretive growth, we have worked hard to build and maintain a strong and conservative balance sheet and capital structure. We continue to hold solid credit ratings from Dbrs and Moody’s, our debt and coverage ratios remain conservative, and our significant portfolio of unencumbered assets underpins our financial strengths and capacity to tap different sources of debt capital. The right Strategies since we took control of first capital realty in 2000, a total of 169 properties have been acquired, developed or redeveloped. our disciplined acquisition and development program has driven our growth and success, and going forward we will continue to focus on prudently buying the right real estate in the right locations with the right demographics. looking ahead, we will target primarily the acquisition of older or financially distressed properties that are well-located and where we can add real value through our repositioning and re-development expertise. of course, we will always keep our eyes open for strategic acquisition opportunities that contribute to operating synergies and economies of scale across our portfolio. We will also continue to invest in properties adjacent to or near our current centres in order to fully capitalize on our local market knowledge. these investments not only improve the quality and offering of our properties but also generate higher returns with much less risk, as we already have deep and enduring relationships and knowledge of our tenants, neighbourhoods and trade area. in addition, we are pursuing intensification opportunities in many of our properties. for example, we could add a second storey or additional retail pads at specific locations, or include rental and condominium residential units above our retail space. all of these investments enhance the quality and value of our properties while increasing cash flows and return on investment. Physically Fit We are very pleased with where we are today, but our focus remains on continuing to grow and on enhancing our profitability. We will direct our efforts toward increasing the size, density and quality of our assets while capitalizing on our captive development pipeline to bring new, modern and state-of-the-art space on line. We will enhance the quality of our tenant mix, strengthening our current relationships and attracting new tenants that achieve the highest and best use for each of our properties. all of these strategies will ensure we generate consistent, reliable, stable and sustainable earnings and dividends, supported by a conservative balance sheet and highly liquid financial position. in short, we really are “physically fit” at first capital, and we will continue to “work out” to grow and fine-tune our business for the benefit of our shareholders over the long term. in closing, to my fellow co-workers who worked relentlessly to deliver a better company 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 March 22, 2011 first capital realty annual report 2010 5  MD&A MANAGEMENT’S DISCUSSION AND ANALYSIS Contents Management’s Discussion and Analysis (MD&A) Introduction    7     7  Forward-Looking Statement Advisory   8  Business Overview and Strategy 14  Summary Consolidated Information and Highlights 16  Business and Operations Review 25  Results of Operations 33  Capital Structure and Liquidity 42  Quarterly Financial Information 43  Fourth Quarter 2010 Operations and Results 52  Outlook 53  Summary of Significant Accounting Estimates and Policies 55  Summary of Changes to Significant Accounting Policies 58  Valuation of Investment Property Under IFRS 59  Controls and Procedures 60  Risks and Uncertainties 64  Share Price and Dividend History 65  Shopping Centre Portfolio Consolidated Financial Statements 71  Management’s Responsibility 72  Independent Auditor’s Report 73  Consolidated Balance Sheets 74  Consolidated Statements of Earnings 75  Consolidated Statements of Comprehensive Income 76  Consolidated Statements of Shareholders’ Equity 78  Consolidated Statements of Cash Flows 79  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 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, 2010 and 2009. Additional information, including the Company’s current Annual  Information Form and governance documents, is available on the SEDAR 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 2, 2011. 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. FORWARD-LOOKING STATEMENT ADVISORY Certain statements contained in the “Business Overview and Strategy”, “Business and Operations Review”, “Results of Operations”,  “Capital Structure and Liquidity”, “Outlook”, “Summary of Significant Accounting Estimates and Policies”, “Controls and Procedures”  and “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”, “project”, “expect”, “intend”, “outlook”, “objective”,  “may”, “will”, “should”, “continue” and similar expressions. The forward-looking statements are not historical facts but, rather, 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. Moreover, the assumptions  underlying the Company’s forward-looking statements contained in the “Outlook” section of this MD&A also 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. 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 factors 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, development and construction, environmental liability and compliance costs, 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 debt and equity financing. 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 applicable securities law. All forward-looking statements in this MD&A are made as of March 2, 2011 and are qualified by these cautionary statements. FIRST CAPITAL REALTY ANNUAL REPORT 2010      7 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 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, 2010,   the Company owned interests in 178 properties, including three under development, totalling approximately 21.6 million square feet   of gross leasable area and eight land sites in the planning stage for future retail development. 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: •  proactively manage its existing shopping centre portfolio; •  be focussed and disciplined in acquiring well-located properties, primarily older centres and adjacent sites to existing properties •  undertake selective development and redevelopment activities including land use intensification The Company’s property operations are solely focussed in Canada. Until August 14, 2009, the Company also owned an interest in  Equity One, Inc., a real estate investment trust based in the United States. On that date, the interest was distributed to the Company’s  shareholders by way of a special dividend-in-kind. First Capital Realty was incorporated in November 1993 and conducts its business directly and through subsidiaries. Urban Focus The Company targets specific urban markets with stable and/or growing populations. Specifically, 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. The Company has achieved critical mass in its target markets which helps generate economies of scale and operating synergies,  as well as real-time market knowledge of its properties, tenants, neighbourhoods and the markets in which it operates. Within each   of these markets the Company targets well-located properties with strong demographics that Management expects will attract quality  tenants with long lease terms. 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.  Specifically, Management looks to own and operate properties that provide consumers with products and services that are  considered to be daily necessities or non-discretionary expenditures. Currently, over 83% of the Company’s revenues come from  tenants providing these daily necessity products and services including supermarkets, drugstores, banks, liquor stores, national  discount retailers, quick service restaurants and medical and other personal services. In Management’s view, shopping centres located  in urban markets with such tenants are somewhat less sensitive to economic cycles. Income-Producing Portfolio The Company’s properties are summarized as follows: December 31  2010 2009   Gross Leasable % of Annual    Gross Leasable  % of Annual Number of Area Percent Minimal  Number of  Area  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    68 57 29 22 2 178 9,654 5,486 4,393 2,001 90 21,624 98.0% 95.5% 95.1% 95.5% 78.8% 96.4% 45%  21%  22%  11%  1%  100%  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% (1)  Includes three properties under development in 2010 and three in 2009. Grocery stores and/or drugstores anchor over 90% of the Company’s properties. 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 2010             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 percentage of total annual minimum rent, and their respective credit ratings, portfolio  presence and average remaining lease terms at December 31, 2010 are listed in the table below: Tenant    1  Sobeys    2  Shoppers Drug Mart    3  Loblaw Companies Limited    4  Metro    5  Zellers/Home Outfitters (2)    6  Canadian Tire    7  TD Canada Trust    8  Royal Bank    9  Canada Safeway  10  LCBO  DBRS  Credit Rating  Number  of Stores  Percent of  Percent of  Total  Total  Remaining  Gross Leasable  Annualized  Lease Term Square Feet  Area  Minimum Rent  in Years (1) BBB  A (LOW)  BBB  BBB  —  A (LOW)  AA  AA  BBB  AA (LOW)  50  66  29  30  21  21  41  36  7  20  321  1,663,000  963,000  1,465,000  1,170,000  1,809,000  788,000  221,000  197,000  345,000  181,000  8,802,000  7.7%  4.5%  6.8%  5.4%  8.4%  3.6%  1.0%  0.9%  1.6%  0.8%  40.7%  6.9%  6.8%  4.9%  4.3%  3.7%  3.2%  2.1%  1.6%  1.3%  1.2%  36.0%  9.5 9.6 7.9 10.7 5.0 7.8 5.5 4.9 6.2 9.1 8.3 (1)  Excludes tenant renewal options. (2)  Includes 18 Zellers locations and three Home Outfitters. See discussion in the “Leasing and Occupancy” section of this MD&A. At December 31, 2010, the Company’s top 40 tenants, including the top ten above, represented 57.3% of the Company’s annualized  minimum rents and 60.7% of the gross leasable area in the Company’s portfolio. More than 77% 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, approximately 47% of the Company’s total  annualized minimum rents are from tenants who have investment grade credit ratings. Acquisitions of Income-Producing Properties Management seeks to acquire well-located neighbourhood and community shopping centres in the Company’s target urban markets  focussing on older shopping centres for redevelopment and repositioning and, to a lesser degree, newer and more fully valued  properties. These newer properties are acquired where they complement or add value to the existing portfolio. Once the Company   has acquired a property in a specific retail trade area it will look to acquire adjacent or nearby properties. These additional adjacent  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 intensify its existing property, providing a  better retail offering for consumers. Management believes that its adjacent site acquisitions result in a better long term return on  investment with a lower level of risk. Through acquisitions, the Company expands its presence in its target urban markets in Canada, and continues to generate greater  economies of scale and leasing and operating synergies. 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 have been rare. 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 achieve a better return on its portfolio over the long term. The redevelopment activities are focused  on the older, run down centres that the Company owns and actively seeks to acquire. These properties are redeveloped and expanded,  over time, in conjunction with anchor tenant repositioning and changing retail environments. Redevelopment of existing properties  generally carries a lower risk profile due to the urban locations, existing tenant base and the intensification opportunities. Redevelopment  projects are carefully managed to minimize tenant downtime and they typically continue to operate during the planning, zoning and  leasing phases of the project. The Company will sometimes carry vacant space in a property for a planned future expansion of tenants  or reconfiguration of a property. FIRST CAPITAL REALTY ANNUAL REPORT 2010      9                           MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Management believes that the Company’s shopping centres, along with its portfolio of adjacent sites, gives it unique opportunity to  participate in urban intensification in its various markets. The land use intensification trend in the Company’s target urban markets is  driven by the costs for municipalities to expand infrastructure beyond existing urban boundaries, the desire by municipalities to increase  their tax base, environmental considerations and the migration of people to vibrant urban centres. The Company’s intensification  activities are focussed primarily on increasing retail space on a property and to a lesser degree, adding mixed use density, including  residential projects and office uses. The Company has proven development and redevelopment capabilities across the country to  enable it to capitalize on these opportunities and expects these intensification activities to increase over the next several years. The Company has two residential density projects underway at December 31, 2010 including one in the planning stage at a  redevelopment property in the Vancouver area and one which is an expansion of the King Liberty Village, Toronto, property on an  adjacent site. The residential density at King Liberty Village is currently being completed with a partner whose primary business is  residential development. To a lesser degree, the Company develops new properties on greenfield sites and typically has 2–3 greenfield development projects  in the planning stage or underway. New greenfield shopping centres are developed only after obtaining anchor tenant lease commitments  to reduce development risk. Investments in development and redevelopment activities generally range from 5–8% of the Company’s total asset value at any  given time. Development activities are strategically managed to reduce development risks by obtaining leasing commitments from  anchors and major tenants prior to commencing construction, using experts including architects, engineers and urban planning  consultants, and negotiating competitive fixed-price construction contracts. 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. Proactive Management The Company views proactive management of its existing portfolio and newly acquired properties as an important part of its strategy.  Proactive management means the Company is focussed on 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, property management,  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. In addition, a number of the Company’s management team members possess significant retail experience which contributes  to the Company’s in-depth knowledge of its tenants and market trends. Effective January 2010, the Company acquired the remaining 40% ownership interest in the joint venture (“FCB”) with Brookfield  LePage Johnson Controls Facility Management Services that provided property management services for its properties, with no  resulting material change in operations or operating margins. The full internalization allows the Company to continue to improve the  quality and efficiency of its activities together with supporting its human capital. This includes continuing to upgrade and enhance the  systems infrastructure, property management, development project costing and purchasing, budgeting and forecasting tools, lease  activity management and the central electronic First Capital Realty information portal. Corporate Sustainability In 2009, the Company released its first Corporate Sustainability Report which outlines First Capital’s environmental sustainability  initiatives including Global Reporting Initiatives (“GRI”) measurement and results. The report formalizes the Company’s commitment to  corporate sustainability. This report is available on the Company’s website at www.firstcapitalrealty.ca. In 2011 the Company will release  its next report showing progress in its Corporate Sustainability Initiatives. The GRI is a network based organization that developed the world’s most widely used sustainability reporting framework and has  been adopted by the Company for future sustainability reports. The Company builds all new development according to Leadership in Energy and Environmental Design (“LEED”) certification  standards. This is the cornerstone of the Company’s sustainability initiatives. Since May 2006, the Company has 39 “Green”  development projects underway, in the planning stage, in the final stage of development, or completed in accordance with LEED  certification standards. 10        FIRST CAPITAL REALTY ANNUAL REPORT 2010 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. Current Business Environment The business environment in which the Company currently operates is characterized by the following: •  Canada’s economy appears to have largely avoided the full impact of the recent global recession, but uncertainty still remains due  to ongoing sluggish growth in many of the world’s major economies; •  the level of financing activity by both financial institutions and in the capital markets has normalized; •  the level of transaction activity in commercial real estate has normalized; •  asset valuations are moving towards pre-financial crisis levels particularly in urban markets; and •  the entry into the Canadian retail landscape of several major U.S. brands, including Target, Marshalls and Dollar Tree is serving  as a catalyst for growth or repositioning of retail tenants and space in most of the Company’s markets. Despite the economic conditions of the past three years, the Company has been able to consistently deliver same property net  operating income (“NOI”) growth, growth in leasing and occupancy, and has continued to undertake selective development and  redevelopment activities, ultimately improving its ability to generate high-quality cash flow from operations. However, the challenging  capital market conditions during the economic downturn and credit crisis increased the cost of debt and equity financing in 2008 and  2009. This, coupled with Management’s cautious approach to maintaining liquidity and extending debt maturities has offset some of  the improvements in the Company’s funds from operations that otherwise would have resulted from the solid operating performance   of the Company’s property portfolio. With the return of reasonably priced debt and equity capital in 2010, Management expects that   the Company’s solid property operating metrics will result in higher funds from operations in 2011 and 2012 and, over the longer term,  stable cash flows. 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. The Company has continued to improve its key performance measures despite challenging  economic conditions. FFO and AFFO The Company’s FFO and AFFO from core operations have shown consistent performance, resulting primarily from growth in net  operating income. (See definitions in “Results of Operations” section of this MD&A.) This has been achieved through: •  development and redevelopment coming on line; •  focussed and disciplined acquisitions of income-producing properties; and •  active portfolio management, which ultimately results in higher occupancy and rental rates. 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. The growth in NOI has been partially offset, as discussed under “Current Business Environment”, by the increased costs of the  Company’s financing activities. FIRST CAPITAL REALTY ANNUAL REPORT 2010      11 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 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, Inc. (“EQY”  and “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”, “AFFO”, and “Other Gains/Losses and Expenses” in the “Results of Operations” section in  this MD&A for further explanation. Year ended December 31  FFO per diluted share – Core operations (1) (2)  FFO per diluted share – EQY and other non-recurring items (1)  Total FFO per diluted share (1)  AFFO per diluted share – Core operations (1) (2)  AFFO per diluted share – EQY and other non-recurring items (1)  Total AFFO per diluted share (1)  2010 2009  2008 $ $ $ $ 0.97  0.01  0.98  0.87  0.02  0.89  $  $  $  $  0.96  0.05  1.01  0.87  0.05  0.92  $  $  $  $  0.96 0.05 1.01 0.86 0.06 0.92 (1)  Prior years restated to reflect the May 2010, 3.2:2 stock split. See the “Capital Structure and Liquidity – Shareholders’ Equity” 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. 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. As at December 31  Debt to aggregate assets  Debt to market capitalization  2010 Performance 2010 52.2%  45.8%  2009  50.3%  45.9%  2008 53.5% 52.6% Management undertook and completed many strategic, operational and property management initiatives during 2010 in order to  continue to improve the key performance measures: Same property NOI growth, taking into account the high occupancy level of the portfolio Same property NOI growth was 3.9% for the year. The Company has maintained solid same property NOI growth primarily from  redevelopment and expansion of shopping centres and increasing rental rates on new tenants and renewals.  Year ended December 31  Same property NOI growth  Same property NOI growth, excluding expansion and redevelopment  Portfolio occupancy as at December 31  2010 3.9%  2.2%  96.4%  2009  6.8%  2.7%  96.2%  2008 3.8% 2.1% 96.4% Development and redevelopment activities The Company continued to invest in development and redevelopment of its existing properties as well as portfolio improvements  including facades, lighting, signage and parking lots. In addition, the Company continued to build according to LEED certification  standards and launched a broader corporate sustainability initiative. Year ended December 31  Investment in development activities and portfolio improvements (millions)  Completed development and redevelopment brought on line (1) (millions)  Gross leasable area of developed and redeveloped space       brought on line (square feet)        Occupancy rate of space brought on line        Average rental rate per square foot  (1)  Includes development property land allocation and capital expenditures. 2010 158.1  132.6  $  $  2009  208.4  268.4  $  $  2008 258.4 288.7 $  $    384,000  90.0% 21.43  $    754,000  94.4%  22.79  $    835,000 97.5% 19.70 $  12        FIRST CAPITAL REALTY ANNUAL REPORT 2010                                                                               Selective acquisitions In 2010, the Company invested $315 million in acquisitions compared to $76 million in each of the preceeding two years. The increase  reflects the increase in opportunities in the market to acquire properties that fit the Company’s criteria. Year ended December 31  Total investment in acquisitions (millions)  Income-producing properties     Number of properties      Square feet  Properties adjacent to existing shopping centres     Number of properties      Square feet  Additional interests in the existing portfolio     Number of additional interests      Square feet  Properties held for development     Number of properties      Acres  Additional space and adjacent land parcels     Number of land parcels      Acres  2010 2009  2008 $ 315.1  $  76.2  $  76.1 4  658,000  5    225,000  4   292,000 5    176,000  2  31,000  4  170,000  6  5.6  9  8.9  —  —  1  8.4  4  1.3  — — 1 51,000 2 9.5 8 12.5 Increasing efficiency and productivity of operations During the year, the Company completed the full internalization of property management and systems infrastructure which includes full  integration of property management functions into the Company’s business operations. Management continued to implement system  enhancements and upgrades which will set the foundation for further efficiency and productivity improvements. Careful capital allocation to decrease dependence on capital markets The Company utilized multiple sources of debt and equity capital to finance the investments in development activities and acquisitions  during the year.  Sources of Capital  Canadian credit facility net drawdowns    (repayments) (1)  Mortgages  Senior unsecured debentures  Convertible debentures  Equity (2)     Issuance of common shares      Payment of interest on convertible        debentures      Exercise of options and warrants      Dividends reinvested by common        shareholders  Total     2010 2009  2008 Amount (millions of dollars) Pricing  (weighted  Amount  (millions  average)  of dollars)  Pricing  (weighted  average)  Amount  (millions  of dollars)  Pricing (weighted average) $ (4.8) B.A.+ 2.50%  4.78%  5.50%  —    101.4   400.0 —  $  (179.8)    B.A.+ 3.50%    6.21%    5.95%    6.03%    187.3    125.0    125.0  $  6.1    154.7  —  —    B.A.+ 1.10%   5.55% — — 55.8 $ 14.39  83.2  $  10.40    153.9  $  14.14 19.3 51.8 $ 13.86  $ 11.47  12.6  0.6  $  10.21  9.07  $  12.9  3.0  $  13.41 8.36 $  — $ 623.5  $ —  —  $  353.9  $  —  60.0  $  390.6 $  13.96 (1)  Credit facility pricing at December 31. Facility in 2008 was unsecured. (2)  Prior years restated to reflect the May 2010, 3.2:2 stock split. See the “Capital Structure and Liquidity – Shareholders’ Equity” section of this MD&A. FIRST CAPITAL REALTY ANNUAL REPORT 2010      13                                                                                                                       MANAGEMENT’S DISCUSSION AND ANALYSIS – continued SUMMARY CONSOLIDATED INFORMATION AND HIGHLIGHTS As at December 31 (thousands of dollars, except per unit and other financial data)  2010 2009  2008 Operations Information     Number of properties (1)      Gross leasable area (square feet)      Development land pipeline (acreage) (2)     Available for development        Development underway      Portfolio occupancy      Average rate per occupied square foot      Gross leasable area developed brought on line for the year (square feet)      Same property net operating income (“NOI”)         – increase over prior year      Same property NOI excluding expansion and redevelopment         – increase over prior year  Financial Information     Gross shopping centre investments (3)      Land and shopping centres under development      Real property investments, net book value      Investment in Equity One, Inc.      Total assets      Total aggregate assets (4)      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 (5)      Enterprise value (6)      Debt to aggregate assets (4)      Debt to aggregate assets, quarter end average (4)      Debt to market capitalization (4)  178    21,624,000 175    20,812,000  171   20,166,000 253  34  96.4%  16.35  384,000  $ 247  48  96.2%  15.71    754,000  $  238 114 96.4% 15.17   835,000 $  3.9%  6.8%  2.2%  2.7%  3.8% 2.1% $ 4,104,311  $ 306,843  $ 3,909,916  —  $ $ 4,120,713  $ 4,602,300  $  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 $ 1,318,341  $  1,354,668  $  1,419,758 $ —  $ 1,114,031  $ 324,535  $ 1,133,914  $  —  $  717,040  $  329,739  $  1,095,843  $  153,772 $  593,288 $  218,247 $  1,095,146 163,455,753  $ 5,252,706  52.2%  51.4%  45.8%    153,672,609  $  4,507,560  50.3%  52.9%  45.9%    144,004,130 $  4,110,879 53.5% 54.1% 52.6% 14        FIRST CAPITAL REALTY ANNUAL REPORT 2010                                                                   As at December 31 (thousands of dollars, except per share amounts and other financial data)  2010 2009  2008 Revenues, Income and Cash Flow     Revenues      Net operating income (7)      Corporate expenses, excluding capital taxes and         non-cash compensation          As a percent of rental revenue          As a percent of gross total assets      Other gains (losses) and (expenses)      Net income      Basic and diluted earnings per share (5)      Cash flow from operating activities  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) (8)      Regular dividends per common share (5)      Dividend-in-kind per common share (fair value) (5) (8)      Dividends reinvested by shareholders (9)  Funds from Operations (“FFO”) (10)     FFO       FFO per diluted share (5)      Weighted average diluted shares – FFO (5)  FFO – Core Operations (10)     FFO       FFO per diluted share (5)  Adjusted Funds from Operations (“AFFO”) (10)     AFFO       AFFO per diluted share (5)      Weighted average diluted shares – AFFO (5)  AFFO – Core Operations (10)     AFFO       AFFO per diluted share (5)  $ 490,080  $ 316,066  $  447,743  $  285,177  $  411,751 $  261,040 $ 18,422  3.8%  0.5%  6,725  $ 41,338  $ 0.26  $ $ 176,285  $  17,491  4.0%  0.4%  (1,414)  $  41,913  $  0.28  $  $  148,628  $  16,490 4.0% 0.4% 7,281 $  37,341 $  0.27 $  $  147,519 $ $ $ —  —  —  —  $  $  $  7,066  12,452  10,514  1.18  $  $  $  8,716 18,193 16,809 1.08 $ 127,768  —  $ 0.80  $ —  $ —  $ $  120,731  63,525  $  0.80  $  0.28  $  —  $  $  113,116 — $  0.80 $  — $  40,331 $  $ 157,134  $ 0.98  160,030,988  $  151,320  1.01  $    150,190,104  $  141,345 1.01 $    139,616,358 $ 154,725  0.97  $ $  144,477  0.96  $  $  133,322 0.96 $  $ 160,578  $ 0.89  180,916,597  $  151,831  0.92  $    164,695,415  $  140,743 0.92 $    152,938,418 $ 156,215  0.87  $ $  143,464  0.87  $  $  132,382 0.86 $  (1)  Includes properties currently under development. (2)  Net of partners’ interests. (3)  Gross shopping centre investments is comprised of the gross book value of shopping centres, deferred leasing costs and intangible assets less  intangible liabilities. (4)  Calculated in accordance with the unsecured debentures indenture definitions for the period. (5)  Prior years restated to reflect the May 2010, 3.2:2 stock split. (6)   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. (7)  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. (8)  See discussion of Dividend-in-kind in “Result of Operations – Equity One” section of this MD&A. (9)   On August 7, 2008, the Company announced that the dividend reinvestment program was suspended, effective until further notice. (10)  FFO and AFFO are measures of operating performance that are not defined by GAAP. See Definition and Reconciliation of Funds From Operations  including “Core Operations” in “Results of Operations” section of this MD&A. FIRST CAPITAL REALTY ANNUAL REPORT 2010      15                           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)  2010 2009 Shopping centres  Deferred leasing costs  Intangible assets  Intangible liabilities  Land and shopping centres     under development  Real property investments  Loans, mortgages and other     real estate assets  Real estate investments  Gross Book Accumulated Net Book  Gross Book  Accumulated  Value Amortization Value  Value  Amortization  $ $ 4,039 37 59 (31) 307   4,411 78 $ 4,489 $ 461 17 35 (12) — 501 — 501 $ 3,578  20  24  (19)  $  3,663  31  53  (22)  $  307  3,910  225    3,950  78  $ 3,988  59  $  4,009  $  375  14  30  (9)  —  410  —  410  Net Book Value $  3,288 17 23 (13) 225   3,540 59 $  3,599 The Company’s total investment 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 space adjacent to existing properties  Acquisition of additional interests in existing properties  Acquisition of properties held for development  Acquisition of additional land parcels adjacent to existing properties  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  2010 3,950  188  38  33  38  18  158  (11)  (1)  4,411  4,104  307  4,411  $  $  $  $  2009 3,677 60 4 — 8 4 209 (4) (8) 3,950 3,725 225 3,950 $ $ $ $ The Company’s operating activities are comprised of acquisitions of income-producing properties, acquisitions of additional space and  land parcels 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 are discussed below. Income-Producing Properties As at December 31, 2010, the Company had interests in 178 income-producing properties which were 96.4% occupied with a total  GLA of 21,624,000 square feet. This compares to 96.2% occupied and 20,812,000 square feet at December 31, 2009. The occupancy  in the portfolio is discussed in more detail under “Leasing and Occupancy” in this section of the MD&A. 16        FIRST CAPITAL REALTY ANNUAL REPORT 2010                                                                                                                                                 2010 Acquisitions Income-Producing Properties In 2010, the Company invested $188.5 million in the acquisition of four income-producing shopping centres, comprising 658,000 square  feet. Of these properties, three are anchored by both a supermarket and 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, each of which were  acquired from different vendors, 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) Tuscany Village  Semiahmoo Shopping Centre  Newport Village  Parkway Mall  Total  Victoria  Surrey  Calgary  Toronto  BC  BC  AB  ON  Q1  Q2  Q2  Q4  4  4  —  4  4  4  —  4  66,000  293,000  42,000  257,000  658,000  $  26.9 84.7 15.1 61.8 $  188.5 During the third quarter of 2010 the Company sold a shopping centre in Lethbridge, Alberta for gross proceeds of $12.5 million  including the assumption of a mortgage of $7.6 million. A gain on disposition of $2.4 million was recorded. In 2010, the Company acquired the remaining interests in existing properties set out in the table below: Property Name  City  Province  Royal Oak Centre  Place Bordeaux  Place Nelligan  Dickson Trail  Total  Calgary  Gatineau  Gatineau  Airdrie  AB  QC  QC  AB  Interest  Acquired  Quarter-  Leasable Area  Acquisition Cost  Acquired  (Square Feet)  (in millions) Gross  40%  20%  25%  30%  Q1  Q2  Q2  Q4  134,400  5,600  14,200  15,600  169,800  $  $  22.8 2.0 2.5 6.0 33.3 Effective March 31, 2010, the Company settled its litigation with the former co-owner of the Royal Oak Shopping Centre in Calgary,  Alberta. (See the discussion in the “Commitments and Contingencies” section of the Company’s Management’s Discussion and  Analysis for the year ended December 31, 2009). As a result, the Company was able to complete the acquisition of the remaining 40%  of the shopping centre. The Company recorded a gain of $1.7 million in the three months ended March 31, 2010, which is included in  “Other gains (losses) and (expenses)” in the Consolidated Statement of Earnings. The gain consists of the benefit realized as a result  of the change in net assets since February 2007, which is essentially the collected net operating cash flow, after interest expense, from  40% of the property, less the additional cost of acquiring the property as a result of the settlement. The Company has included the  entire net operating cash flow after interest expense from 40% of the property up to the acquisition date in the calculation of AFFO. Subsequent to December 31, 2010, the Company acquired an 88,000 square foot retail property in Mississauga, Ontario, for  $22 million. The purchase price was satisfied in cash. FIRST CAPITAL REALTY ANNUAL REPORT 2010      17                                                                                 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Additional Space and Adjacent Land Parcels In 2010, the Company acquired additional space at five existing shopping centres and nine land parcels adjacent to existing properties  adding 175,800 square feet of gross leasable area and 8.9 acres of commercial land respectively. Total expenditures on these additional  interests and land parcels amount to $55.8 million. These acquisitions are set out in the tables below: Property Name  City  Province  Edmonton  Meadowbrook II (50% interest)    (Meadowbrook Centre)  Appleby Square    (Appleby Village)  Kingston Square    (Morningside Crossing)  Cedarbrae Mall – adjacent parcel  Plaza Beaconsfield    (Centre Commercial Beaconsfield)  Beaconsfield  Total   Toronto  Toronto  Burlington  AB  ON  ON  ON  QC  Quarter  Acquired  Q1  Q2  Q3  Q4  Q4  Gross  Leasable Area  (Square Feet)  Acquisition Cost  (in millions) 28,000  $  4.2 25,800  63,000  34,000  25,000  175,800  7.6 16.0 4.9 4.9 37.6 $  Property Name  City  Province  Quarter  Acquired  Acquisition Cost  Acreage  (in millions) 1859 Leslie Street    (York Mills Gardens)  43 Hanna Avenue    (Shops at King Liberty)  Esso Parcel    (Galeries Normandie)  Place Cite des Jeunes (pad)  West Highlands – Lot 4    (West Lethbridge Towne Centre)  Place Lucerne    (Centre d’achats VMR)  Sherwood Centre    (Sherwood Centre)  1100 King Street West (50% interest)    (Shops at King Liberty)  Broadmoor Lane    (Broadmoor Shopping Centre)  Total   Properties Held for Development Toronto  Toronto  Montreal  Gatineau  Lethbridge  Mount Royal  Sherwood Park  Toronto  Richmond  ON  ON  QC  QC  AB  QC  AB  ON  BC  Q1  Q1  Q2  Q3  Q3  Q4  Q4  Q4  Q4  1.4  0.3  0.3  0.5  2.6  0.3  0.7  2.7  0.1  8.9  $  5.8 2.7 0.7 0.9 1.6 2.1 1.1 2.7 0.6 18.2 $  During 2010, the Company invested $37.5 million in the acquisition of six properties held for development, comprising 5.6 acres of  commercial land for future development, as set out in the table below: Property Name  City  Province  Quarter  Acquired  Acquisition Cost  Acreage  (in millions) 5051-5061 Yonge Street  2255 Dundas Street West  St. Clair Avenue (Parcel 1)  Lakeshore Road  St. Clair Avenue (Parcel 2)  St. Clair Avenue (Parcel 3)  Total   Toronto  Mississauga  Toronto  Oakville  Toronto  Toronto  ON  ON  ON  ON  ON  ON  Q1  Q1  Q2  Q3  Q4  Q4  0.7  2.6  0.3  1.6  0.1  0.3  5.6  $  $  15.2 6.4 3.7 8.1 0.8 3.3 37.5 18        FIRST CAPITAL REALTY ANNUAL REPORT 2010                                                                                                                                               Impact of 2010 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 2010 acquisitions are in line with the Company’s business strategy based on their locations, tenancies and redevelopment or  expansion opportunities. 2010 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 272,400 square feet was brought on line in 2010 with 233,900 square feet leased at an average rate of $25.22 per  square foot. The Company also reopened 111,300 square feet of redeveloped space at an average rate of $13.45 per square foot. Property Name  City  Province  Square Feet  Major Tenants  Development of new gross leasable area (1) Carrefour Charlemagne (2)  Rutherford Marketplace (2)  Appleby Mall (2)  Hunt Club Place (2)  Derry Heights Plaza (2)  Dickson Trail Crossing (2)  Brooklin Town Centre (2)  The Village Market  Fairway Plaza (2)  Port Place Shopping Centre   Olde Oakville (2)  Fairview Mall  Loblaws Plaza (2)  Meadowbrook  Other space – various properties  Charlemagne   QC  Vaughan  ON  Burlington  ON  Ottawa  ON  Milton  ON  Airdrie  AB  ON  Whitby  Sherwood Park  AB  ON  Kitchener  BC  Nanaimo  ON  Oakville  ON  St. Catharines  ON  Ottawa  AB  Edmonton  Redevelopment of existing gross leasable area South Park Centre  Centre Commercial Beaconsfield (2)  Towerlane Centre  Plaza Actuel  Loblaws Plaza  Westmount Centre  Other space – various properties  Edmonton  Beaconsfield  Airdire  Longueuil  Ottawa  Edmonton  AB  QC  AB  QC  ON  AB  Total  (1)  Includes new space in redevelopment properties and greenfield developments. (2)  Constructed in accordance with LEED certification standards.  37,300   Metro  35,300   LCBO, Various CRU  28,100   Various CRU  21,600   TD Canada Trust, Various CRU  17,900   Sunlife, Various CRU  14,800   Various CRU  11,000   Various CRU  10,300   Various CRU  10,000   LCBO  9,600   Various CRU  8,900   Various CRU  6,200   Swiss Chalet  5,600   Royal Bank of Canada  5,000   Shoppers Drug Mart (expansion) 50,800 272,400  28,200   JYSK, Other CRU  19,200   Gold’s Gym  17,100   Sears  18,500   Bell, Energie Cardio  14,200   GoodLife Fitness, Other CRU  8,000   Shoppers Drug Mart 6,100 111,300 383,700 FIRST CAPITAL REALTY ANNUAL REPORT 2010      19                         MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Development and redevelopment of 383,700 square feet was completed in 2010 compared with 754,000 square feet developed   in 2009. The developed space, including redevelopment was 90.0% occupied when transferred to income-producing shopping centres  at an average rental rate of $21.43 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, 2010 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  6  3  14  36  12  —  74  16.8  15.0  1.7  99.0  126.7  27.4  —  286.6  113.7  235.4  30.2  1,165.3  1,630.7  213.0  —  3,388.3  Net  Book Value (in millions) $  23.8 54.0 9.1 90.8   117.6 — 11.5 $  306.8 Costs to complete the development, redevelopment and expansion activities underway are estimated to be approximately $126.6 million,  the majority of which will be incurred in 2011 and the first quarter of 2012. 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, 2010, eight land sites included in properties held for development and land parcels adjacent to/part of existing  properties comprising the Company’s net interest of 59.0 acres and developable square feet totalling 741,000 square feet are in the  planning stage of development. In addition, the Company is actively planning future redevelopment and/or expansion at 21 additional  shopping centres. 20        FIRST CAPITAL REALTY ANNUAL REPORT 2010                       2009 Acquisitions Income-Producing Properties In 2009, 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) 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 2009, the Company also sold a 66,000 square foot retail property in Regina, Saskatchewan for gross proceeds of $3.8 million  including a vendor-take-back mortgage of $2.3 million. A gain of $0.5 million was recorded. 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 and are set out in the table below: Property Name  City  Province  Quarter  Acquired  Gross  Leasable Area  Acquisition Cost  Acreage  (Square Feet)  (in millions) 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   Place Lucerne (Centre D’Achats     Ville Mont-Royal)  Total  Property Held for Development Bowmanville  ON  Toronto  Toronto  Toronto  Toronto  ON  ON  ON  ON  Mont Royal  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 $  During 2009, the Company invested $7.7 million in the acquisition of one property held for development in Toronto, Ontario, comprising  8.4 acres of commercial land for future development. FIRST CAPITAL REALTY ANNUAL REPORT 2010      21                                                                       MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 2009 Development Activities In 2009, the Company developed 754,000 square feet of retail space as detailed below: 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 (2)  Dickson Trail Crossing (2)  Carrefour St. Hubert (2)  King Liberty Village – Barrymore Building (2)  Sherwood Centre  Eagleson Place (2)  Time Marketplace (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  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 LEED certification standards. 22        FIRST CAPITAL REALTY ANNUAL REPORT 2010                         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. At December 31, 2009, the Company had 295 acres of land sites and parcels available  for development or underway. 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  Expenditures on Land and Shopping Centres under Development and Shopping Centres Revenue sustaining and enhancing expenditures are as follows: Net  Book Value (in millions) $  39.4 47.7 8.9 60.5 58.5 — 9.8 $  224.8 (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      Other items and adjustments  Land and shopping centres under development  Total     2010 2009 $ $  2,668  3,250  60  5,978  2,999 2,083 (60) 5,022 13,079  14,900  226  3,449  1,285  32,939    119,147  $ 158,064  10,846 16,781 550 7,102 30 35,309   168,110 $  208,441 Revenue sustaining capital expenditures are expenditures required for maintaining shopping centre infrastructure and revenues from  current leases. Typically, these expenditures range from $0.60 to $0.75 per square foot per annum over a longer term with a three-year  weighted average of $0.68 per square foot for the three years ended December 31, 2010. Actual revenue sustaining expenditures  per square foot over the past three years are as follows: 2008 – $0.60, 2009 – $0.68 and 2010 – $0.74. During 2010 and 2009, the  Company increased its expenditures on roof and parking lot replacements at several of its centres which will reduce its ongoing  maintenance expenditures at these centres going forward. Revenue enhancing and repositioning expenditures 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, 2010, 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 28%  33%  13%  10%  16% FIRST CAPITAL REALTY ANNUAL REPORT 2010      23                                                                                                                                                 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 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, 2009 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, 2010   Renewals    Renewals – expired  Net increase per square foot from renewals  % Increase on renewal of expiring rents  20,812 —  —  —  —  272  —  (154)  (54)  (89)  20,787  837  21,624 —  —  20,033 441  (409)  (148)  (116)  234  112  (5)  (54)  (151)  20,053  799  20,852 858  (858)  96.2% 96.4% 0.7% 0.6% 143 —  —  148  148  —  (112)  (112)  —  59  126  —  126 —  —  3.1% 3.0% 636 (441)  409  —  (32)  38  —  (37)  —  3  608  38  646 —  —  $ 15.71   19.34   (17.00)   (13.25)   25.22   13.45 —   (17.40) —   16.22   19.47 $ 16.35 $  19.94   (17.92) 2.02 $    11.3% For the year ended December 31, 2010, gross new leasing including development and redevelopment space totalled 787,000 square  feet. Renewal leasing totalled 858,000 square feet with an 11.3% increase over expiring lease rates. The weighted average rate per occupied square foot at December 31, 2010 increased to $16.35. This compares to a weighted  average rate of $15.71 per square foot at December 31, 2009 and $16.26 at September 30, 2010. Portfolio occupancy at December 31, 2010 of 96.4% is up from 96.2% at December 31, 2009. Included in the vacant amount is  126,000 square feet of space under redevelopment providing potential for future income growth. On January 13, 2011, Target announced its acquisition of up to 220 Zellers locations in Canada which is expected to be completed  in the latter half of 2011. The Company’s portfolio at December 31, 2010 included 18 Zellers locations representing 3.1% of total  annual minimum rent at December 31, 2010. These leases have a weighted average remaining lease term of approximately 4 years  under current options and an average rate per square foot of $6.46. A majority of these leases have extension options at fixed rates   in favour of Zellers. The lease at one of these centres expired at January 31, 2011 and was not extended. As of March 2, 2011, Target  has not yet disclosed which of these locations, if any, it will assume or when any such locations would begin to operate as Target  stores. Overall, Management expects that the presence of Target at its centres would have a positive impact. Average rental rate per occupied square foot for tenant openings and renewals during the year ended December 31 by region: (per occupied square foot)  2010    2009    Eastern  Region  Central  Region  Western Region  $  $  14.13  15.02  $  $  23.86  19.64  $  $  22.65  24.97  $  $  Total 20.20 20.00 24        FIRST CAPITAL REALTY ANNUAL REPORT 2010                                                                                                                                       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)  Other loans receivable (c)  2010 36,758  27,313  14,431  78,502  $ $ 2009 37,836 7,979 13,405 59,220 $  $  (a)  The non-revolving unsecured term loan receivable from Gazit America Inc., a subsidiary of the Company’s principal shareholder  Gazit-Globe Ltd. (“Gazit”), 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  at a fixed rate of 8.5%. The principal amount of the loan is prepayable from August 14, 2012. (b)  The Company invests from time to time in the securities of public entities in real estate and related industries. 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)  Other loans receivable consists of loans and mortgages receivable on certain properties. The loans are secured by interests in  shopping centres or development properties, bear interest at a weighted average rate of 9.0% (December 31, 2009 – 6.9%) and  their fair values approximate carrying values. RESULTS OF OPERATIONS Net Income (thousands of dollars, except per share amounts)  Net income  Earnings per share (diluted) (1)  Weighted average common shares – diluted (1)  (1)  Prior periods restated to reflect the May 2010, 3.2:2 stock split. 2010 2009 $ $ 41,338  0.26    160,030,988  $  $  41,913 0.28   150,190,103 Net income for the year ended December 31, 2010 was $41.3 million or $0.26 per share (basic and diluted) compared to $41.9 million  or $0.28 per share (basic and diluted) for the year ended December 31, 2009. The decrease in net income is primarily due to increased  interest expense, increased amortization expense and future income taxes and decreased income from Equity One as a result of the  August 2009 dividend-in-kind. The effects of the decreases in net income were offset by increases in NOI resulting from new acquisitions,  development and redevelopment projects coming on line, same property NOI growth and increased straight-line rent revenue, as well  as increased other gains (losses) and (expenses). In addition, there was an increase in the weighted average basic and diluted shares  outstanding compared to the same prior year period. 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. FIRST CAPITAL REALTY ANNUAL REPORT 2010      25                                                                     MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 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 financial measure of operating performance, as it excludes amortization of real estate  assets. 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. 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 (1)      Funds from operations from Equity One (1)      Future income taxes  FFO     2010 2009 $ 41,338  $  41,913   100,465  (2,416)  —  —  17,747  $ 157,134  94,501 (737) (7,066) 15,009 7,700 $  151,320 (1)  2009 amounts cover the period to August 14, 2009. See discussion of dividend-in-kind in the “Results of Operations – Equity One” section of this MD&A. The components of FFO are: (thousands of dollars)  Net operating income  Interest expense   Corporate expenses  Interest and other income  Other gains (losses) and (expenses) (1)  Funds from operations from Equity One (2)  Amortization of non-real estate assets  Current income taxes  FFO  FFO per diluted share (3)  FFO – Core Operations $ 316,066 (143,333) (21,442) 5,064 1,900 — (3,530) — $ 154,725 $ 0.97 $ $ $ 2010 FFO –  EQY and  Other Non-  recurring Items 2009 FFO – EQY and Other Non- recurring  Items  Total  FFO  FFO – Core  Operations  — — — — 2,409 — — — 2,409 $ 316,066  (143,333)  (21,442)  5,064  4,309  —  (3,530)  —  $ 157,134  $  285,177   (120,101)    (22,122)  5,612  118  —  (4,207)  —  $  144,477  $  —  (5,364)  —  —  (2,269)    15,009  —  (533)  6,843  $  Total FFO $  285,177  (125,465)   (22,122) 5,612 (2,151)   15,009 (4,207) (533) $  151,320 0.01 $ 0.98  $  0.96  $  0.05  $  1.01 Weighted average diluted shares – FFO (3)  160,030,988 160,030,988 160,030,988   150,190,104   150,190,104   150,190,104 (1)  Excludes gains on disposition of income-producing real estate. (2)  2009 amounts cover period to August 14, 2009. See discussion of dividend-in-kind in the “Results of Operations – Equity One” section of this MD&A. (3)  Prior year restated to reflect the May 2010, 3.2:2 stock split. The Company’s funds from operations – core operations for the year ended December 31, 2010 totalled $154.7 million or $0.97 per  diluted common share which compares to $144.5 million or $0.96 per diluted common share for the year ended December 31, 2009.  The Company’s FFO – core operations for the year ended December 31, 2010, was positively affected by acquisitions and development  coming on line and same property NOI growth and increased straight-line rent revenue. This was offset by increased interest expense  due to the increase in total debt related to growth in the Company’s core operations. During 2010, the Company also carried undeployed  cash on its balance sheet. On a per share basis, FFO decreased due to an increase in the number of weighted average diluted shares  outstanding of 6.6% over the prior year as a result of equity issuances during the last two years. 26        FIRST CAPITAL REALTY ANNUAL REPORT 2010                                                                                                                                   FFO – EQY and other non-recurring items includes other gains (losses) and (expenses) and in the prior year period, the effect of  Equity One and its related interest expense and income taxes. The Equity One results are included in 2009 through August 14, the  effective date of the dividend-in-kind. For the year ended December 31, 2010, FFO – EQY and other non-recurring items totalled  $2.4 million or $0.01 per diluted common share compared to $6.8 million or $0.05 per diluted common share in the prior year period. Adjusted Funds from Operations (“AFFO”) Management views AFFO as an effective measure of cash generated from operations. AFFO for the year ended December 31, 2010  totalled $160.6 million or $0.89 per diluted common share compared to $151.8 million or $0.92 per diluted common share in the prior year.  AFFO is calculated by adjusting FFO for non-cash and other items including interest payable in shares, straight-line and market  rent adjustments, non-cash compensation expense, actual costs incurred for capital expenditures and leasing costs for maintaining  shopping centre infrastructures 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 the prior year’s AFFO.  The weighted average diluted shares outstanding for AFFO is adjusted to assume conversion of the outstanding convertible  debentures. Non-recurring AFFO items primarily consist of dividends from Equity One, net of the associated interest expense and  realized gains on marketable securities. (thousands of dollars, except per share amounts)  2010 AFFO –  EQY and  Other Non-  AFFO – Core recurring Operations Items Total  AFFO  AFFO – Core  Operations  2009 AFFO – EQY and Other Non- recurring  Items  Total AFFO FFO     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 (1)      Additional pre-settlement net cash from        property acquisitions      Funds from operations from Equity One (2)      Dividends from Equity One (regular)      Dilution loss on investment in Equity One      Return of capital portion of marketable        securities – net      Change in cumulative unrealized losses (gains)        on marketable securities      Losses on settlement of debt      Realized losses on termination of hedges      Unrealized (gains) losses on interest rate         swaps not designated as hedges      Gain on disposition of land  AFFO   $ 154,725 $ 2,409 $ 157,134  $  144,477  $  6,843  $  151,320   22,214 — 22,214    15,342  —    15,342 (11,786) 2,843 — (58) (11,786)  2,785  (7,376)  3,609  —  600  (7,376) 4,209 (13,291) — (13,291) (12,171)  —    (12,171) 1,605 — — 133 — — — — — — — 1,605  —  —  —  —  —  —  —    (15,009)    12,452  676  —   (15,009)   12,452 676 133  (299)  —  (299) (253) 1,215 1,588 (253)  1,215  1,588  —  —  —  (1,952)  2,394  1,160  (1,952) 2,394 1,160 — (228) $ 156,215 (538) — 4,363 (538)  (228)  $ 160,578  —  (118)  $  143,464  0.02 $ 0.89  $  0.87  1,203  —  8,367  1,203 (118) $  151,831 0.05  $  0.92 $  $  $ $ AFFO per diluted share (4)  $ 0.87 Weighted average diluted shares – AFFO (3) (4)  180,916,597 180,916,597 180,916,597   164,695,415   164,695,415   164,695,415 (1)  Estimated at $0.65 per square foot per annum on average gross leasable area for 2010 ($0.60 per square foot per annum in 2009). (2)  2009 amounts cover period to August 14, 2009. See discussion of dividend-in-kind in the “Results of Operations – Equity One” section of this MD&A. (3)  Includes the weighted average outstanding shares that would result from the conversion of the convertible debentures. (4)  Prior year restated to reflect the May 2010, 3.2:2 stock split. FIRST CAPITAL REALTY ANNUAL REPORT 2010      27                                                                                                                                         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 on sale of marketable securities  Dividend income – return of capital portion  Deferred leasing costs  Net change in non-cash operating items  Additional pre-settlement net cash from property acquisition  Amortization of other assets  Amortization of financing fees  Non-cash interest expense  Settlement of restricted share units  Settlement of deferred share units  Gains (losses) 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   Net Operating Income (“NOI”) 2010 2009 $ 176,285  4,361  133  5,978  (15,051)  1,605  (1,729)  (1,801)  (3,340)  2,899  —  2  1,588  (19,275)  22,214  (13,291)  $ 160,578  $  148,628 4,242 (299) 5,022 6,592 — (2,005) (2,202) (2,564) 2,463 514 (278) 1,160 (12,613) 15,342 (12,171) $  151,831 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)  Property rental revenue     Base rent (1)      Operating cost recoveries      Realty tax recoveries      Straight-line rent and market rent adjustments      Lease surrender fees      Percentage rent      Prior year operating cost and tax recovery adjustments      Temporary tenants, storage, parking and other  Total property rental revenue  Property operating costs     Recoverable operating expenses      Realty tax expenses      Prior year realty tax expenses      Other operating costs and adjustments  Total property operating costs  NOI      NOI Margin  Operating cost recovery percentage  Tax recovery percentage  (1)  Base rent includes annual minimum rents from gross and semi-gross leases. 28        FIRST CAPITAL REALTY ANNUAL REPORT 2010 2010 2009 $ 309,996   65,354   87,281   11,786   1,394   1,960  (538)  7,783     485,016   $  281,079 59,975 80,276  7,376 3,492 2,803 465 6,665   442,131 75,061   94,530   (960)  319   168,950   $ 316,066  70,129 87,090 (639) 374   156,954 $  285,177 65.2%  87.1%  92.3%  64.5% 85.5% 92.2%                                                                                                                                                                                                                                                                                             The Company experienced growth in base rent and recoveries from tenants as a result of growth in the portfolio due to acquisitions  and development coming on line, as well as increases in rental rates due to step ups and lease renewals. Operating costs and  property taxes similarly increased due to the increase in the portfolio size. These items are discussed in the “Business and Operations  Review” section of this MD&A above. Straight-line rent revenue increased to $9.3 million in the year ended December 31, 2010 from $5.1 million in the same prior year  period. The increase was partially due to a $2.7 million reduction in the fourth quarter in the allowance for doubtful accounts in respect  of straight-line rents recognized in prior years. The Company lowered its estimate of anticipated doubtful accounts as a result of the  level of write-offs actually experienced during the recent economic downturn, as well as the improvement in the outlook for Zellers  resulting from the announced Target acquisition. The remainder of the increase in straight-line rents primarily results from the timing  and number of free rent periods granted during 2009 and 2010. (thousands of dollars)  % Increase  2010 2009 Same property NOI excluding expansion and redevelopment  Expansion and redevelopment space NOI  Same property NOI with expansion and redevelopment  Greenfield development  2010 Acquisitions  2009 Acquisitions  Rental revenue recognized on a straight-line basis  Market rent adjustments  Dispositions and other  NOI      2.2% 3.9% $ 264,538  16,354  280,892  10,737  8,279  3,868  9,299  2,487  504  $ 316,066  $  258,854 11,481   270,335 5,480 — 908 5,053 2,323 1,078 $  285,177 Same properties in the table above refer to those shopping centres that were owned by the Company on January 1, 2009, and  throughout 2009 and 2010. Same property NOI increased by 3.9% in 2010, compared to the same prior year period, generating NOI growth of $10.6 million,  primarily attributed to redevelopment and expansion space coming on line and increases in lease rates and occupancy. Same property  NOI in 2010 includes $1.4 million of lease termination fees from 27 tenants at separate locations where 60,400 square feet with an  annualized NOI of $1.0 million was vacated. 43,772 square feet has been re-leased replacing $0.75 million of the total NOI. A further  16,599 square feet was leased subsequent to year-end. Same property NOI in 2009 included $3.5 million in lease termination fees,  which was primarily from three tenants at separate locations where 94,500 square feet was vacated. Same property NOI for the year, excluding expansion or redevelopment space, increased by $5.7 million or 2.2% over the same  prior year period. Acquisitions completed in 2010 and 2009 contributed $12.1 million to NOI in 2010, while greenfield development activities contributed  a further $10.7 million in 2010. 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 loans receivable  2010 3,148  1,252  664  5,064  $  $  2009 1,247 3,788 577 5,612 $ $ Interest and other income decreased during 2010 due to a reduction in dividend and distribution income from marketable securities,   as a result of a reduced level of investments. This was partially offset by the interest income from the term loan receivable from   Gazit America Inc. which is outstanding since August 14, 2009. FIRST CAPITAL REALTY ANNUAL REPORT 2010      29                                                                                                                     MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Other Gains (Losses) and (Expenses) (thousands of dollars)  Gains on disposition of land  Gain from settlement of the Royal Oak litigation (a)  Included in FFO – Core operations  Realized gains on sale of marketable securities  Change in cumulative unrealized gains on marketable     securities held-for-trading  Losses on purchase of convertible debentures (b)  Losses on settlement of debt  Realized losses on interest rate swaps (c)  Unrealized gains (losses) on interest rate swaps not    designated as hedges   Gains (losses) on foreign currency exchange  Severance and termination costs  Costs related to acquistion of 40% interest in FCB  Dilution loss on investment in Equity One, Inc.  Included in FFO – EQY and other non-recurring items  Gain on disposition of shopping centre (d)  $ $  2010 228  1,672  1,900  4,361  253  (767)  (448)  (1,588)  538  2  —  58  —  2,409  2,416  2009 118 — 118 4,242 1,952 — (2,394) (1,160) (1,203) (278) (2,000) (752) (676) (2,269) 737 $ 6,725  $  (1,414) (a)  During the first quarter of 2010, the Company settled its litigation with the former co-owner of the Royal Oak Shopping Centre in  Calgary, Alberta which resulted in the Company acquiring the remaining 40% interest in the Royal Oak Shopping Centre. See the  “Business and Operations Review – Acquisition Activities” section of this MD&A for further discussion. (b)  On August 6, 2010 the Toronto Stock Exchange (“TSX”) accepted First Capital Realty’s notice of intention to commence a normal  course issuer bid (“NCIB”) for each series of the convertible debentures. The NCIB commenced on August 10, 2010 and will  expire on August 9, 2011 or such earlier date as the Company completes its purchases pursuant to the NCIB. During the year  ended December 31, 2010, the Company purchased $7.1 million of principal amount of the 6.25% convertible debentures for  $7.6 million, resulting in a loss of $0.7 million, a reduction of contributed surplus in the amount of $60,000 and a reduction in  convertible debentures-equity component of $247,000. In the fourth quarter of 2010, the Company also purchased $0.9 million  principal amount of the 5.50% convertible debentures for $0.9 million, resulting in a loss of $27,000, an increase of contributed  surplus in the amount of $5,000 and a reduction in convertible debentures-equity component of $28,000. (c)  The Company terminated $90 million notional amount of Canadian bankers’ acceptance based interest rate swaps in the first  quarter of 2010 resulting in a loss of $1.6 million. (d)  During the year ended December 31, 2010, the Company sold a shopping centre in Lethbridge, Alberta for gross proceeds of  $12.5 million including the assumption of a mortgage of $7.6 million. A gain on disposition of $2.4 million was recorded. During the  year ended December 31, 2009, the Company sold a shopping centre in Regina, Saskatchewan for gross proceeds of $3.8 million  including a vendor-take-back mortgage of $2.3 million. A gain on disposition of $0.5 million was recorded. 30        FIRST CAPITAL REALTY ANNUAL REPORT 2010                                                                                                                                                                                                                 Interest Expense (thousands of dollars)  Mortgages, loans and credit facilities   Canadian operations    Secured by investment in Equity One (1)  Senior unsecured debentures  Convertible debentures      Coupon interest      Amortization of discount (2)      Amortization of deferred issue costs  Interest capitalized to land and shopping centres under development  Total interest expense  2010 2009 $ 82,437  — 82,437  54,613  $  91,705 3,416 95,121 33,442 19,886  1,357  971  22,214  (15,931)  $ 143,333  13,901 936 506 15,343 (18,441) $  125,465 (1)  2009 amounts cover period to August 14, 2009. See discussion of dividend-in-kind in the “Results of Operations – Equity One” section of this MD&A. (2)  Discount results from the bifurcation of the convertible debenture into the liability and equity components under GAAP on the date of issue, and consists  of amortization of the difference between the issue proceeds and the amount assigned to the liability component as a result of assigning value to the   equity component. Interest expense on mortgages, loans and credit facilities decreased in the year ended December 31, 2010 compared to the same  prior year period primarily due to the paydown of credit facilities from the proceeds of debenture and equity financings completed in   the second half of 2009 and in 2010 as well as the effect of the August 2009 dividend-in-kind. The increase in interest expense from senior unsecured debentures is due to the issuances of $400 million principal amount of  senior unsecured debentures in 2010 and issuances of $125 million principal amount in 2009 as described in the “Capital Structure  and Liquidity – Senior Unsecured Debentures” section of this MD&A. 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 and the interest on the $50 million of par value 5.70% convertible  unsecured subordinated debentures issued on December 30, 2009. Capitalized interest decreased by $2.5 million from 2009 to 2010 due to a decrease in the levels of assets under development  during 2010. On February 23, 2011, the Company announced that, consistent with past practice, it will pay the interest due on March 31, 2011 to  holders of its 5.50%, 6.25% and 5.70% convertible unsecured subordinated debentures 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, 2011. The interest payment due   is approximately $9.7 million. It is the current intention of the Company to continue 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. 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  Corporate expenses, excluding capital taxes and non-cash compensation      As a percent of rental revenue      As a percent of gross total assets  $ $ $ 2010 2009 $  $  $  17,775  2,802  8,947  255  828  30,607  (9,165)  21,442  18,422  3.8%  0.5%  16,559 3,609 8,112 1,022 1,072 30,374 (8,252) 22,122 17,491 4.0% 0.4% FIRST CAPITAL REALTY ANNUAL REPORT 2010      31                                                                                                                                                                                                                   MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Salaries, wages and benefits increased from the prior year primarily as a result of an increase in the staffing levels to accomodate  the completion of the internalization process and growth in the Company’s portfolio and to a lesser degree the additional incentive  compensation payable to the employees. 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 decrease in non-cash compensation results primarily from the effect of large stock option  grants in 2007 being fully amortized in 2010. Capital taxes have decreased due to ongoing reductions in capital tax rates in Ontario and Quebec during 2010. Capital taxes have  been eliminated in substantially all of the provinces in which the Company had properties as of December 31, 2010. 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, 2010 totalled $9.2 million compared to $8.3 million in the prior year comparative period. Amounts  capitalized are based on specific leasing activities and development projects underway. The increase in capitalized costs in 2010  compared to 2009 is primarily due to the increase in the level of development activity on developments scheduled for 2011 and the  increase in the amount of internally developed software and systems. Amortization Expense (thousands of dollars)  Shopping centres  Deferred leasing costs  Intangible assets  Amortization of real estate assets  Deferred financing fees  Other assets  Total amortization  2010 $ 90,949  3,998  5,518    100,465  1,801  1,729  $ 103,995  2009 83,342 3,662 7,497 94,501 2,202 2,005 98,708 $  $  Amortization of real estate assets increased due to the amortization of newly acquired properties and development coming on line.  Income Taxes (thousands of dollars)  Current income taxes  Future income taxes  Income taxes  2010 —  17,747  17,747  $  $ $  $  2009 533 7,700 8,233 Current income tax has decreased as a result of the August 2009 dividend-in-kind related to the Company’s interest in Equity One. Future income tax expense has increased compared to 2009 due to an increase in income before income taxes. Income tax  expense in 2009 also included the effect of substantively enacted rate reductions that took effect in 2009. 32        FIRST CAPITAL REALTY ANNUAL REPORT 2010                                                                                       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$) as at December 31  Funds from operations from Equity One, Inc. (Cdn$)  Funds from operations from Equity One, Inc. (US$)  Dividends from Equity One (Cdn$)  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)  2009 amounts cover period to August 14, 2009. 2009 — — 15,009 12,631  12,452  10,514  1.18  0.89 0.75 $  $  $  $  $  $  $  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 owned shares   in Equity One (approximately 14.1 million shares), and had 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 $0.28 per First Capital Realty common share on August 14, 2009   (per share amount restated to reflect the May 2010, 3.2:2 stock split). 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. CAPITAL STRUCTURE AND LIQUIDITY Capital Employed (thousands of dollars)  Equity capitalization     Common stock outstanding (1)      Diluted common stock (1) (2)  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 $15.11 (2009 – $13.54 (1))   Total capital employed, December 31  Debt to aggregate assets (3)  Debt to total market capitalization (3)  Weighted average interest rate on fixed rate debt and     senior unsecured debentures  Weighted average maturity on mortgages, term credit facilities and     senior unsecured debentures (years)  (1)  Prior year restated to reflect the May 2010, 3.2:2 stock split. (2)  Includes effect of all dilutive securities except convertible debentures. (3)  As at December 31, 2010. 2010 2009   163,455,753    153,672,609     165,062,316    154,608,498 $  1,354,668   720,799   351,750 $ 1,318,341    1,120,799    343,750    2,469,816  $ 5,252,706    2,080,343 $  4,507,560 52.2%  45.8%  50.3% 45.9% 5.89%  5.98% 4.4  4.4 FIRST CAPITAL REALTY ANNUAL REPORT 2010      33                                                                                                                                                           MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 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 composition 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  July 2010 and February 2011, respectively, 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. The Company seeks the lowest cost of debt capital over the long term. Where it is deemed appropriate, the Company will raise  equity as a source of financing and may strategically sell non-core assets to best redeploy capital and take advantage of opportunities  in the market.  During the first half of 2009 and in the prior 18 months of disrupted credit markets the Company utilized unencumbered properties  to access secured financing and then reentered the unsecured debenture market only after pricing was normalized.  In 2010, the Company completed $101.4 million of secured financing on three properties at a weighted average rate of 4.78% and  a weighted average term of 8.0 years. This compares to $187.3 million on 13 properties in 2009 at a weighted average rate of 6.21%  and a weighted average term of 8.5 years. The Company also completed in 2010 the issuance of $400 million principal amount of senior unsecured debentures and raised  $125.5 million from common shares issued. This compares to the issuance of $125 million principal amount of senior unsecured  debentures, $125 million principal amount of convertible debentures and $100.6 million from common shares issued in 2009.  Subsequent to December 31, 2010 the Company raised $150 million from the issuance of senior unsecured debentures as described  in the “Capital Structure and Liquidity – Senior Unsecured Debentures” section of this MD&A. These financings along with planned  financings and availability on existing credit facilities, address substantially all of the contractual 2011 debt maturities and contractual  committed costs to complete on current development projects. Consolidated Debt and Principal Amortization Maturity Profile (thousands of dollars)  2011    2012    2013    2014    2015    2016    2017    2018    2019    Thereafter  Add:  unamortized deferred financing costs  and premium and discounts, net  $  Mortgages  $  95,940    162,406    236,245    263,731    185,329  62,500  30,135  93,322    135,744  53,350  (361)  $  1,318,341  $  Cdn Credit  Facilities  Senior  Unsecured  Debentures(1)  $  198,799    100,000  97,000    200,000    125,000  —    250,000    150,000  —  —  Total  % Due $  294,739    262,406    333,245    463,731    310,329  62,500    280,135    243,322    135,744  53,350  12.1% 10.8% 13.7% 18.9% 12.6% 2.6% 11.5% 10.0% 5.6% 2.2% (6,768)  $  1,114,031  (7,129)  $  2,432,372  — 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. 34        FIRST CAPITAL REALTY ANNUAL REPORT 2010                                                               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, 2010   are set out below: (thousands of dollars)  Balance, December 31, 2009 Additional borrowings, net of issue costs  Assumed mortgages on acquisition of  shopping centres  Vendor-take-back mortgage  Repayments  Principal instalment payments  Effects of US dollar exchange rate and  other changes (1)  Balance, December 31, 2010 (1)  Includes amortization of issue costs, premiums and discounts.   Weighted  Secured Term  Weighted  Fixed  Rate  Mortgages  $ 1,312,032   108,158  66,795  11,275    (147,489)  (35,084)  2,654  $ 1,318,341 Average  Interest  Rate  6.18% 6.09% Loans and  Average  Credit  Interest  Facilities  Rate  $ 42,636   52,315  —  —    (95,806)  —  855  — $ 3.94% — Total $ 1,354,668   160,473 66,795 11,275 (243,295) (35,084) 3,509 $ 1,318,341 At December 31, 2010, 100% (2009 – 96.9%) 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, 2010 and 2009, in the aggregate amount of $1.3 billion.  In the year ended December 31, 2010, $186.2 million in new financings from new mortgage financing and assumed mortgages on  acquisitions of properties was offset by $182.6 million in principal amortization and repayments. The average remaining term of the  mortgages outstanding has declined from 4.9 years at December 31, 2009 to 4.6 years at December 31, 2010. Mortgage Maturity and Lender Type Profile Scheduled  Amortization  $  35,543  33,527  30,579  23,175  15,074  11,415  10,901  8,269  4,528  1,866  5,626  $  180,503  Payments  on  Maturity  $  60,397    128,879    205,666    240,556    170,255  51,085  19,234  85,053    131,216  45,858  —  $  1,138,199  Total  $  95,940    162,406    236,245    263,731    185,329  62,500  30,135  93,322    135,744  47,724  5,626  $  1,318,702  Breakdown of Mortgage Maturities  by Type of Lender Percent  with  Banks  17.8%  2.0%  21.5%  6.2%  —  23.2%  7.0%  —  26.2%  —  —  10.5%  Percent  with  Percent with  Insurance  Co’s and  Conduits  Pension Funds 57.2%  55.6%  34.2%  44.7%  46.0%  13.5%  —  —  —  —  —  32.5%  25.0% 42.4% 44.3% 49.1% 54.0% 63.3% 93.0% 100.0% 73.8% 100.0% — 57.0% Weighted  Average  Interest  Rate  6.71%  6.65%  6.02%  6.27%  5.43%  5.54%  5.85%  6.20%  6.41%  5.20%  6.20%  6.09%  (thousands of dollars)  2011     2012    2013    2014    2015    2016    2017    2018    2019    2020    Thereafter  Total     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, 2010, the Company had mortgages, loans and credit facilities aggregating $95.9 million coming due in 2011.  Maturing amounts are comprised of $60.4 million of mortgages at an average interest rate of 6.71% and $35.5 million of scheduled  amortization of principal balances. Subsequent to December 31, 2010, $5.5 million of the mortgages were paid out on maturity. Also, subsequent to December 31, 2010, the Company committed to $23 million in a secured financing transaction at an interest  rate of 5.108% and a term of 10 years. FIRST CAPITAL REALTY ANNUAL REPORT 2010      35                                                                                                                                                       MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Credit Facilities The Company has the flexibility under its secured credit facilities to draw funds based on bank prime rates, Canadian bankers’  acceptances, LIBOR-based advances or US prime for US dollar-denominated borrowings or Euro dollars. The bankers’ acceptances  currently provide the Company with the least costly means of borrowing under this credit facility. The secured credit facilities are being  used primarily to provide liquidity for financing acquisition, development and redevelopment activities and for general corporate purposes.  On March 5, 2009, the Company completed 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 replaced the Company’s  three-year $350 million senior unsecured revolving credit facility maturing March, 2010. The interest rate on the secured facility was  initially at bankers’ acceptances plus 350 basis points. 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. On January 21, 2010, 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 has been recorded as a loss on settlement of debt in the first quarter of 2010. 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 in January 2009. On January 21, 2010, 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 the first quarter of 2010. Effective April 9, 2010, the spread charged on the two existing bank facilities decreased to 250 basis points over the bankers’  acceptance rate. Senior Unsecured Debentures (thousands of dollars) Series  Date of Issue  Maturity Date  Coupon  Effective  Maturity (yrs)  Interest Rate  Term to  B  C  A  D  E  F  G  H  I  I  I  J  K  K  March 30, 2006  August 1, 2006  June 21, 2005  September 18, 2006  January 31, 2007  April 5, 2007  November 20, 2009  January 21, 2010  April 13, 2010  April 13, 2010  June 14, 2010  July 12, 2010  August 25, 2010  October 26, 2010  March 30, 2011  December 1, 2011  June 21, 2012  April 1, 2013  January 31, 2014  October 30, 2014  June 1, 2015  January 31, 2017  November 30, 2017  November 30, 2017  November 30, 2017  August 30, 2018  November 30, 2018  November 30, 2018  5.25%  5.49%  5.08%  5.34%  5.36%  5.32%  5.95%  5.85%  5.70%  5.70%  5.70%  5.25%  4.95%  4.95%  5.45%  5.51%  5.67%  5.29%  5.51%  5.52%  5.47%  6.13%  5.99%  5.85%  5.82%  5.70%  5.66%  5.30%  5.06%  5.63%  0.2  0.9  1.5  2.3  3.1  3.8  4.4  6.1  6.9  6.9  6.9  7.7  7.9  7.9  4.0  Principal Outstanding $  98,899 99,900   100,000 97,000   100,000   100,000   125,000   125,000 50,000 25,000 50,000 50,000 50,000 50,000 $  1,120,799 On January 21, 2011, the Company completed the issuance of $150 million principal amount of senior unsecured debentures,  Series L, due July 30, 2019. These debentures bear interest at a coupon rate of 5.48% per annum payable semi-annually commencing  July 30, 2011. On issuance, each series of debentures issued was rated BBB with a stable trend by DBRS and Baa3 (stable) by Moody’s  Investors Service. 36        FIRST CAPITAL REALTY ANNUAL REPORT 2010                                                           Convertible Debentures (thousands of dollars) Interest Rate  Principal at Coupon  Effective  Date of Issue  Maturity Date  Issue Date  Principal  Liability  Equity 5.50%  5.50%  5.50%  6.25%  5.70%  5.69%  6.45%  6.39%  6.61%  7.64%  6.88%  6.75%  December 19, 2005  November 30, 2006  June 29, 2007  September 18, 2009  December 30, 2009  September 30, 2017  September 30, 2017  September 30, 2017  December 31, 2016  June 30, 2017  $  100,000  $  75,808  $  71,927  $    100,000    50,000    67,942    50,000  2,286 6,015 7,387 2,385 1,482 $  375,000  $  343,750  $  324,535  $  19,555   100,000    50,000    75,000    50,000    95,165    47,025    63,478    46,940  For the year ended December 31, 2010, 1,390,495 common shares (year ended December 31, 2009 – 1,235,701 common shares (1))  were issued to pay interest to holders of the 5.50%, 6.25% and 5.70% convertible debentures. 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.  The TSX accepted First Capital Realty’s notice of intention to commence a normal course issuer bid (the “NCIB”) effective August 6,  2010 for each series of its convertible unsecured subordinated debentures. The NCIB commenced on August 10, 2010 and will expire  on August 9, 2011 or such earlier date as the Company completes its purchases pursuant to the NCIB. All purchases made under the  NCIB will be made in accordance with the rules of the TSX through the facilities of the TSX or other Canadian marketplaces at market  prices prevailing at the time of purchase and the timing of such purchases will be determined by First Capital Realty or, for purchases  under an automatic securities purchase plan, by the Company’s broker. The total amount of convertible debentures that may be  purchased under the NCIB cannot exceed the limits disclosed in the Company’s August 6, 2010 press release announcing its intention  to commence the NCIB. During the year ended December 31, 2010, the Company purchased $7.1 million principal amount of the 6.25% debentures for  $7.6 million, resulting in a loss of $0.7 million, a reduction of contributed surplus in the amount of $60,000 and a reduction in convertible  debentures equity component of $247,000. In the fourth quarter of 2010, the Company also purchased $0.9 million principal amount   of the 5.50% convertible debentures for $0.9 million, resulting in a loss of $27,000, an increase of contributed surplus in the amount   of $5,000 and a reduction in convertible debentures equity component of $28,000. Subsequent to December 31, 2010, on January 19, 2011, the Company announced that it had entered into an automatic securities  purchase plan with a broker in order to facilitate repurchases of its 5.50% Convertible Unsecured Subordinated Debentures due  September 30, 2017 (TSX: FCR.DB.A) (the “Debentures”) under the NCIB. Purchases under the automatic securities purchase plan  will be made by the Company’s broker based upon the parameters prescribed by the TSX, applicable Canadian securities laws and the  terms of the parties’ written agreement. This automatic securities purchase plan has been approved by the TSX and was implemented  effective January 20, 2011.  Under First Capital Realty’s automatic securities purchase plan, the Company’s broker may purchase Debentures under the normal  course issuer bid at times when First Capital Realty would ordinarily not be permitted to, due to its self-imposed regular quarterly  blackout period. This automatic securities purchase plan will terminate no later than 12:01 a.m. (Toronto time) on the third trading day  after the Company publicly disseminates its results for the year ended December 31, 2010. The Company anticipates, subject to  regulatory approval, entering into one or more automatic securities purchase plans from time to time during the course of the NCIB   to enable purchases of convertible debentures (series and classes of convertible debentures subject to an automatic plan may vary)  under the NCIB to be made during regular quarterly blackout periods. (1)  Prior year restated to reflect the May 2010, 3.2:2 stock split. See the “Capital Structure and Liquidity – Shareholders’ Equity” section of this MD&A. FIRST CAPITAL REALTY ANNUAL REPORT 2010      37               MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Shareholders’ Equity (1) Shareholders’ equity amounted to $1.134 billion as at December 31, 2010, as compared to $1.096 billion at December 31, 2009.  Shareholders’ equity as at December 31, 2010 included $19.6 million (December 31, 2009 – $19.8 million) representing the equity  component of convertible debentures as discussed above. As at December 31, 2010, the Company had 163,455,753 (December 31, 2009 – 153,672,609) issued and outstanding common  shares with a stated capital of $1.7 billion (December 31, 2009 – $1.6 billion). During the year ended December 31, 2010, a total   of 9,783,144 common shares for proceeds of $125.5 million were issued as follows: 1,390,495 shares for interest payments on  convertible debentures, 4,707,649 shares primarily from the exercise of common share warrants and options, and 3,685,000 shares  from a public offering. On May 27, 2010, the Company completed the subdivision of its common shares at a ratio of 3.2 common shares for each two  common shares. The common shares commenced trading on a post stock-split basis on the TSX effective May 25, 2010. No fractional  common shares were issuable as a result of the subdivision but, rather, a cash payment was made for such fractional interests  determined on the basis of the closing price of the common shares on the TSX on May 28, 2010. The Company’s quarterly dividend has effectively remained unchanged following the subdivision in that for a given number of  common shares on a pre-split basis and for the corresponding number of common shares on a post-split basis, the total dividend did  not change as a result of the subdivision. More specifically, the former quarterly dividend of $0.32 per share (on a pre-split basis) is  now $0.20 per share (on a post-split basis) so as to reflect the additional number of common shares outstanding as a result of the  subdivision.  As a result of and effective immediately following the subdivision, the exercise price of the Company’s outstanding warrants was  decreased by (multiplying by) a factor of 0.625 and the number of common shares for which each such warrant is exercisable was  increased by (multiplying by) a factor of 1.6 (with any fractional interests being rounded down to the nearest whole number without  payment of any consideration therefor). As a result of and effective immediately following the subdivision, the conversion price of   the Company’s convertible debentures outstanding (TSX:FCR.DB.A, FCR.DB.B, FCR.DB.C and FCR.DB.D) was decreased by  (multiplying by) a factor of 0.625. On June 29, 2010, the Company completed the sale of 3,485,000 common shares at a price of $14.35 per common share for total  gross proceeds of $50.0 million. On July 15, 2010, the underwriters exercised part of their over-allotment option and purchased an  additional 200,000 common shares at the offering price of $14.35 per common share for additional gross proceeds of $2.9 million. On February 17, 2009, the Company issued 2,289,773 shares at a book value of $10.21 per share in exchange for 1,766,800 units  of Allied Properties REIT at a ratio of 1.296 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. Each Unit consisted of: (i) 1.6 common shares of First Capital Realty (on a post split basis), and   (ii) two-thirds of a share purchase warrant.  The Company adopted a Dividend Reinstatement Plan (“DRIP”) in May 2005 enabling qualifying shareholders that elect to  participate in the DRIP to reinvest dividends on common shares of the Company 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, 2010 included a deficit of $609.5 million (December 31, 2009 – $523.1 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. As at March 1, 2011, 163,499,096 common shares were outstanding. There were no material changes in the aggregate principal  amount of convertible unsecured subordinated debentures from December 31, 2010 to March 1, 2011.  (1)  Prior year restated to reflect the May 2010, 3.2:2 stock split described in this section. 38        FIRST CAPITAL REALTY ANNUAL REPORT 2010 Share Purchase Options As of December 31, 2010, the Company had outstanding 5,463,038 share purchase options, with an average exercise price of $14.25.  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. The exercise price of all eligible options were adjusted by $0.28 in the third quarter of 2010 to reflect the capital distribution relating  to the August 2009 dividend-in-kind of the Company’s interest in Equity One.  If all options outstanding at December 31, 2010 were exercised, 5,463,038 shares would be issued and the Company would  receive proceeds of approximately $77.8 million. This includes 2,396,006 options for proceeds of approximately $39.7 million that   were out-of-the-money at December 31, 2010. Liquidity (thousands of dollars)  Revolving credit facilities     Approved      Cash drawn (balances) and letters of credit  Unencumbered assets available as defined by debt covenants, less cash on hand  Other unencumbered real estate assets including properties under development  (thousands of dollars)  EBITDA (1)  EBITDA margin (2)  EBITDA interest coverage (2)  EBITDA interest coverage excluding capitalized interest on development (2)  2010 2009 $ 300,000  $ (13,000)  $ 1,519,000  $ 217,000  $  360,000 $  56,000 $  1,084,000 $  136,000 2010 2009 $ 302,453  61.7%  2.21  2.50  $  279,342 61.4% 2.13 2.48 (1)  EBITDA is calculated as net income, adding back income tax expense, interest expense, amortization expense and excluding the impact of gains and  losses and other non-cash items. EBITDA is used in analyzing the Company’s compliance with the unsecured debentures indenture. EBITDA is not a  measure defined by GAAP and as such there is no standard definition. As a result, EBITDA may not be comparable with similar measures presented by  other entities. EBITDA is not to be construed as an alternative to net income or cash flow from operating activities determined in accordance with GAAP. (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, 2010,  this debt ratio was 45.8% based on the Company’s calculation. Maturing debt is generally repaid from proceeds from refinancing such  debt cost. Cash and cash equivalents were $31.6 million at December 31, 2010 (2009 – $4.5 million). At December 31, 2010, the Company   had undrawn credit facilities totalling $281.5 million and had approved credit facilities totalling $300 million. The Company also had  unencumbered assets with a gross book value of approximately $1.7 billion. During the year ended December 31, 2010, the Company  completed secured mortgages totalling $101.4 million; issued $400 million in senior unsecured debentures and issued 3,685,000  common shares in two transactions for gross proceeds of $52.9 million. As a result the Company also held average cash balances  from January 21, 2010, of $55.2 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. FIRST CAPITAL REALTY ANNUAL REPORT 2010      39                                                                     MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 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  Increase (decrease) in cash and cash equivalents  Operating Activities 2010 2009 $ 176,285    (396,301)    247,107  —  27,091  $ $  148,628   (232,860) 80,195 1,322 (2,715) $  Cash provided by operating activities increased in 2010 primarily from cash flow generated by the growth in net operating income from  the Company’s shopping centre portfolio as well as an increase in accounts payable due to the timing of payments on trade payables. Investing Activities The Company continues to acquire properties and make significant investments in its shopping centre portfolio. The overall level of  investing activity in 2010 is higher 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 includes the issuance of $400 million senior unsecured debentures, equity issuances  and mortgage financing activities, offset by the paydown of credit facilities. The increase in cash flow from financing activities is  consistent with the increase in investing activities. These activities are fully described in the “Capital Structure and Liquidity” section   of this MD&A. Contractual Obligations (thousands of dollars)  Mortgages     Scheduled amortization      Payments on maturity  Total mortgage obligations  Senior unsecured debentures  Land leases  Contractual committed costs to complete     current development projects  Other committed costs  Total contractual obligations  Payments Due by Period Year ended  December 31  2011  Years ended  December 31  2012 to 2013  Years ended  December 31  2014 to 2015  Thereafter  Total $  35,543  60,397  95,940    198,799  823  $  64,106    334,545    398,651    197,000  1,651  $  38,249    410,811    449,060    325,000  1,574  $  42,605    332,446    375,051    400,000  13,964  $  180,503   1,138,199   1,318,702   1,120,799 18,012 38,233  3,401  $  337,196  1,000  12,464  $  610,766  —  —  $  775,634  —  —  $  789,015  39,233 15,865 $  2,512,611 40        FIRST CAPITAL REALTY ANNUAL REPORT 2010                                                                               In addition, the Company has $18.5 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 $126.6 million of which $39.2 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. Other committed costs are with respect to the purchase of a property and a related tenant allowance. The Company is liable for minimum land-lease payments of $0.8 million on certain of its properties in each year from 2011 to 2015  and $14.0 million thereafter. Total minimum land-lease payments are $18.0 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 material adverse effect on the  financial position of the Company. The Company is contingently liable, jointly and severally, for approximately $36.3 million (December 31, 2009 – $51.1 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 paid 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 (1)  August 14, 2009 dividend-in-kind (1) (2)  Payout ratio calculated as a percentage of:      Funds from operations (1)      Adjusted funds from operations (1)  (1)  Prior year restated to reflect the May, 2010, 3.2:2 stock split. (2)  See discussion of dividend-in-kind in “Results of Operations – Equity One, Inc.” section of this MD&A. 2010 $ $ 0.80  —  $  $  81.6%  89.9%  2009 0.80 0.28 79.2% 85.3% FIRST CAPITAL REALTY ANNUAL REPORT 2010      41                                           MANAGEMENT’S DISCUSSION AND ANALYSIS – continued QUARTERLY FINANCIAL INFORMATION 2010 2009 (thousands of dollars, except  per share and other data)  Property rental revenue  Property operating costs  Net operating income  Equity income (loss) from    Equity One (1)  Net income  Basic earnings per share (2)  Diluted earnings per share (2)  Weighted average diluted    shares outstanding      – EPS (2)  Funds from operations  Funds from operations/    share diluted (2)  Cash provided by     operating activities  Weighted average diluted  Q4 Q3 Q2 Q1  Q4  Q3  Q2  Q1 130,676  44,185  86,491  119,092  40,119  78,973  117,135 41,208 75,927 118,113  43,438  74,675  113,232  39,524  73,708  108,829  37,217  71,612  109,727  38,170  71,557  110,343 42,043 68,300 —  10,983  $ 0.07  $ 0.07  —  11,083  $ 0.07  $ 0.07  — 9,503 $ 0.06 $ 0.06 — 9,769  $ 0.06  $ 0.06  (1,287)  14,736  $ 0.09  $ 0.09  954  9,002  $ 0.06  $ 0.06  3,369  9,093  $ 0.06  $ 0.06  4,030 9,082 $ 0.06 $ 0.06 164,235,206 162,157,130 157,835,090 155,676,589 155,211,858 151,843,209 148,195,664 145,875,546 38,243 44,975  38,494  37,346  36,159  38,502  36,319 38,416  $ 0.27  $ 0.24  $ 0.23 $ 0.24  $ 0.23  $ 0.25  $ 0.26  $ 0.26 52,640  45,599  46,336 31,710  50,436  38,261  35,801  24,130   shares outstanding       – FFO (2)  Adjusted funds from    operations  Adjusted funds from    operations/share diluted (2)  Weighted average diluted    shares outstanding       – AFFO (2)  Regular dividend (2)  Dividend-in-kind (2)  Total assets  Total mortgages, loans     and credit facilities  Shareholders’ equity  Other Data Number of properties  Gross leasable area   Occupancy %   164,235,206  162,157,130  157,835,090 155,676,589  155,211,858  151,843,209  148,195,664  145,875,546 43,347  39,667  36,648 40,916  38,822  37,456  38,734  36,819 $  0.23  $  0.22  $  0.20 $  0.23  $  0.22  $  0.23  $  0.24  $  0.23 185,487,382  183,759,780  179,547,106 177,395,934  174,315,179  166,206,894  161,632,702  159,283,562 $  0.20  —  4,120,713  $  0.20  —  4,059,565  $  0.20 $    — $  0.20  $    —  $  0.20  $      —  $  0.20  $  0.28  $  0.20  $      —  $  0.20 $      — 3,971,888 3,788,500  3,691,643  3,678,153  3,801,501  3,769,275 1,318,341  1,323,556  1,337,288 1,333,334  1,354,668  1,499,011  1,703,274  1,657,535 1,133,914  1,135,410  1,135,994 1,098,285  1,095,843  1,109,353  1,106,786  1,114,741 178  177  178 176  175  175  174  172 21,624,000  21,271,000  21,272,000 20,829,000  20,812,000  20,674,000  20,414,000  20,198,000 96.4%  96.4%  96.4% 96.3%  96.2%  96.0%  96.1%  96.0% (1)  The Q3 2009 amounts cover the period to August 14, 2009. See discussion of dividend-in-kind in the “Results of Operations – Equity One” section of this  MD&A.  (2)  Prior year periods restated to reflect the May 2010, 3.2:2 stock split. See the “Capital Structure and Liquidity – Shareholders’ Equity” section of this MD&A.  Refer to the applicable MD&A and the Quarterly Financial Statements for discussion and analysis relating to the four quarters in 2009  and the first three quarters in 2010. A discussion of the fourth quarter of 2010 follows. 42        FIRST CAPITAL REALTY ANNUAL REPORT 2010       FOURTH QUARTER 2010 OPERATIONS AND RESULTS Acquisitions and Development During the fourth quarter of 2010, the Company invested $68 million in the acquisition of one income-producing shopping centre and a  remaining interest in an existing shopping centre totalling 273,000 square feet. The Company also invested $9.8 million in the acquisition  of additional space adjacent to two existing properties comprising 59,000 square feet and two properties held for development and   four land parcels adjacent to existing properties for future development comprising a total of 4.2 acres. In addition to acquisitions of income-producing properties and development assets, the Company invested $50.6 million during the  fourth quarter in its active development projects as well as in certain improvements to existing properties. Development of 79,200 square feet was brought on line in the fourth quarter of 2010, with 76,600 square feet leased at an average  rate of $22.81 per square foot. The Company also reopened 41,600 square feet of redeveloped space at an average rate of $15.73 per  square foot. Property Name  City  Province  Square Feet  Major Tenants  Development of new gross leasable area (1) Carrrefour Charlemagne (2)  Appleby Mall (2)  Hunt Club Place (2)  The Village Market  Loblaws Plaza (2)  Meadowbrook  Other space – various projects  Charlemagne   QC  ON  Burlington  Ottawa  ON  Sherwood Park  AB  ON  Ottawa  AB  Edmonton  Redevelopment of existing gross leasable area South Park Centre  Centre Commercial Beaconsfield (2)  Loblaws Plaza  Other space – various projects  AB  Edmonton  Beaconsfield  QC  ON  Ottawa  Total  (1)  Includes new space created in redevelopment properties and greenfield developments. (2)  Constructed in accordance with LEED certification standards.  37,300   Metro Various CRU TD Canada Trust Various CRU Royal Bank of Canada Shoppers Drug Mart (expansion) Various CRU Gold’s Gym GoodLife Fitness, Other CRU  8,400    5,100    5,300    5,600    5,000   12,500 79,200  4,700    19,200    14,200    3,500 41,600 120,800 Development and redevelopment of 120,800 square feet was completed in the fourth quarter of 2010 compared with 160,300 square  feet developed in the fourth quarter of 2009. This new space was 97.9% occupied when transferred to income-producing shopping  centres at an average rental rate of $20.32 per square foot.  FIRST CAPITAL REALTY ANNUAL REPORT 2010      43                             MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Expenditures on Land and Shopping Centres under Development and Shopping Centres (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       Other items and adjustments  Land and shopping centres under development  Total   Three months ended December 31, 2010 December 31, 2009 $ $ 609  1,090  3  1,702  3,633  1,405  126  1,519  806  7,489  41,438  50,629  $  $  982 534 1 1,517 2,255 5,977 531 4,401 (278) 12,886 33,733 48,136 In the fourth quarter of 2010, revenue sustaining capital expenditures totalled $0.20 per square foot (2009 – $0.16 per square foot).  The increase of $0.04 per square foot is primarily due to the increase in roof replacement expenditures. 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 September 30, 2010 Tenant openings  Tenant closures  Closures for redevelopment  Net new leasing  Developments – coming on line  Redevelopments – coming on line  Demolitions  Reclassification  Total portfolio before acquisitions  Acquisitions  December 31, 2010   Renewals    Renewals – expired  Net increase per square foot from renewals  % Increase on renewal of expiring rents  21,271 —  —  —  —  79  —  (28)  (14)  21,308  316  21,624 —  —  20,511 57  (76)  (35)  (54)  77  42  —  (9)  20,567  285  20,852 224  (224)  96.4% 96.4% 0.6% 0.6% 127 —  —  35  35  —  (42)  (23)  29  126  —  126 —  —  3.0% 3.0% 633 (57)  76  —  19  2  —  (5)  (34)  615  31  646 —  —  $ 16.26   21.82   (20.15)   (18.89) —   22.81   15.73 — —   16.32   18.05 $ 16.35 $  20.39   (17.89) 2.50 $    14.0% 44        FIRST CAPITAL REALTY ANNUAL REPORT 2010                                                                                                                                                                                               In the fourth quarter of 2010, gross new leasing totalled 175,000 square feet including development and redevelopment space coming  on line compared to 266,000 square feet in the fourth quarter of 2009. This gross new leasing will generate additional annual minimum  rent of approximately $3.7 million. Renewal leasing totalled 224,000 square feet with a 14.0% increase over expiring lease rates. With the impact of leasing during the three months ended December 31, 2010 in the existing portfolio and development space,   new acquisitions and increases from contractual rent steps, the average rate per occupied square foot increased to $16.35 at  December 31, 2010. This compares to an average rate of $16.26 per square foot at September 30, 2010 and $15.71 per square foot   at December 31, 2009.  Closures for redevelopment totalled 35,000 square feet in the three months ended December 31, 2010, providing potential for  future income growth through leasing and redevelopment activities. Net Income (thousands of dollars, except per share amounts)  December 31, 2010 December 31, 2009 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 gains (losses) and (expenses)  Income before income taxes  Income taxes (recovery):     Current      Future  Net income  Earnings per common share, basic and diluted (1)  Weighted average common shares diluted (1)  (1)  Prior period restated to reflect the May 2010, 3.2:2 stock split. $ 130,676  1,516    132,192  44,185  37,193  26,999  6,628    115,005  17,187  —  1,743  18,930  —  7,947  7,947  10,983  0.07  $ $ $  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 0.09 $  $  164,235,206  155,211,858 Net income for the three months ended December 31, 2010 was $11.0 million or $0.07 per share (basic and diluted) compared to  $14.7 million or $0.09 per share (basic and diluted) for the prior year comparable period. The decrease in net income is primarily due  to increased interest expense, increased amortization expense and increased future income taxes. The effects of the decreases in   net income were offset by increases in NOI resulting from new acquisitions, development and redevelopment projects coming on line,  same property NOI growth and increased straight-line rent revenue as well as increased other gains (losses) and (expenses). In  addition, there was an increase in the weighted average basic and diluted shares outstanding compared to the same prior year period. FIRST CAPITAL REALTY ANNUAL REPORT 2010      45                                                                                       MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 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 from Equity One      Future income taxes (recovery)  FFO     Three months ended December 31, 2010 December 31, 2009 $ 10,983  $  14,736 26,037  8  —  7,947  44,975  $ 23,022 (526) 1,287 (2,360) 36,159 $  The components of FFO are: (thousands of dollars)  December 31, 2010 December 31, 2009 Three months ended Net operating income  Interest expense   Corporate expense  Interest and other income  Other gains (losses) and (expenses) (1)  Amortization of non-real estate assets  Current income taxes  FFO  FFO per diluted share (2)  Weighted average diluted shares     – FFO (2)  FFO –  EQY and  Other Non-  recurring Items Total  FFO  FFO – Core  Operations  FFO – EQY and Other Non- recurring  Items  Total FFO $ $ $ — — — — 1,751 — — 1,751 $ 86,491  (37,193)  (6,628)  1,516  1,751  (962)  —  $ 44,975  $  73,708    (32,343)  (5,801)  2,549  —  (1,451)  —  $  36,662  0.01 $ 0.27(3)  $  0.24  $  $  $  —  —  —  —  (2,165)  —  1,662  $  73,708   (32,343) (5,801) 2,549 (2,165) (1,451) 1,662 (503)  $  36,159 (0.01)  $  0.23 FFO – Core Operations $ 86,491 (37,193) (6,628) 1,516 — (962) — $ 43,224 $ 0.26 164,235,206 164,235,206 164,235,206(3) 155,211,858   155,211,858   155,211,858 (1)  Excludes gains on disposition of income-producing real estate. (2)  Prior periods restated to reflect the May 2010, 3.2:2 stock split. (3)  For the fourth quarter of 2010, the 5.50% convertible debentures are dilutive to FFO. The dilutive effect is calculated by adding back $3.5 million of interest  expense associated with these debentures to the numerator and 13.8 million shares issuable to the denominator. The effect would lower the FFO per share  by $0.0015 and therefore is not material. The Company’s funds from operations – core operations for the fourth quarter ended December 31, 2010 totalled $43.2 million or  $0.26 per diluted common share which compares to $36.7 million or $0.24 per diluted common share for the three months ended   December 31, 2009. FFO – core operations was positively affected by acquisitions and development coming on line, same property  NOI growth and increased straight-line rent revenue. This was partially offset by increased interest expense due to the increase in total  debt related to growth in the Company’s core operations. On a per share basis, FFO decreased due to an increase in the number of  weighted average diluted shares outstanding of 5.8% over the prior year period as a result of equity issuances during the twelve months  ended December 31, 2010. FFO – EQY and other non-recurring items includes other gains (losses) and (expenses). For the three months ended December 31,  2010, FFO – EQY and other non-recurring items totalled $1.8 million or $0.01 per diluted common share which compares to ($0.5) million  or ($0.01) per diluted common share in the prior year period.  46        FIRST CAPITAL REALTY ANNUAL REPORT 2010                                                                                                     Adjusted Funds from Operations AFFO for the three months ended December 31, 2010 totalled $43.3 million or $0.23 per diluted common share compared to  $38.8 million or $0.22 per diluted common share in the prior year period. Non-recurring AFFO items primarily consist of realized   gains on marketable securities, losses on settlement of debt, realized losses on termination of hedges and unrealized losses on  interest rate swaps not designated as hedges. (thousands of dollars, except per share amounts)  December 31, 2010 December 31, 2009 Three months ended AFFO –  EQY and  Other Non-  recurring Items AFFO – Core Operations Total  AFFO  AFFO – Core  Operations  AFFO – EQY and Other Non- recurring  Items  Total AFFO $ 43,224 $ 1,751 $ 44,975  $  36,662  $  (503)  $  36,159 5,536 (4,849) 753 (3,370) 35 — — — — — — — — 701 160 — 5,536  4,819  —  4,819 (4,849)  753  (2,731)  882  (3,370)  (3,329)  35  (1,273)  —  600  —  —  701  160  —  —  —  —  (186)  1,497  1,181  (2,731) 1,482 (3,329) (1,273) (186) 1,497 1,181 FFO  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 (1)      Return of capital portion of marketable   securities – net      Change in cumulative unrealized losses (gains)   on marketable securities      Losses on settlement of debt      Realized losses on termination of hedges      Unrealized (gains) losses on interest rate swaps   not designated as hedges  AFFO   AFFO per diluted share (2)  — $ 41,329 $ 0.22 $ $ (594) 2,018 (594)  $ 43,347  —  $  35,030  0.01 $ 0.23  $  0.20  1,203  3,792  1,203 $  38,822 0.02  $  0.22 $  $  Weighted average diluted shares for AFFO (2) (3) 185,487,382 185,487,382 185,487,382    174,315,179   174,315,179   174,315,179 (1)  Estimated at $0.65 per square foot per annum on average gross leasable area for 2010 ($0.60 per square foot per annum in 2009). (2)  Prior period restated to reflect the May 2010, 3.2:2 stock split. (3)  Includes the weighted average outstanding shares that would result from the conversion of the convertible debentures. FIRST CAPITAL REALTY ANNUAL REPORT 2010      47                                                                                                                                             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 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  Non-cash interest expense  Loss on foreign currency exchange  Convertible debenture interest payable in common shares  Revenue sustaining capital expenditures and leasing costs  AFFO   Net Operating Income (thousands of dollars)  Property rental revenue     Base rent (1)      Operating cost recoveries      Realty tax recoveries      Straight-line rent and market rent adjustments      Lease surrender fees      Percentage rent      Prior year operating cost and tax recovery adjustments      Temporary tenants, storage, parking and other  Total property rental revenue  Property operating costs     Recoverable operating expenses      Realty tax expenses      Prior year realty tax expenses      Other operating costs and adjustments  Total property operating costs  NOI      NOI Margin  Three months ended December 31, 2010 December 31, 2009 $ $ 52,640  2,074  —  35  1,702  (15,073)  1,656  —  (512)  (450)  (835)  (56)  5,536  (3,370)  43,347  $  $  50,436 4,349 1,181 (1,273) 1,517 (19,576) 2,463 514 (807) (644) (761) (67) 4,819 (3,329) 38,822 Three months ended December 31, 2010 December 31, 2009 $ 81,667  18,592  23,259  4,849  88  761  (652)  2,112    130,676  20,914  25,129  (1,118)  (740)  44,185  86,491  66.2%  $  $  71,488 15,864 20,103 2,731 133 1,214 (49) 1,748   113,232 18,352 21,682 (276) (234) 39,524 73,708 65.1% $  (1)  Base rent includes annual minimum rents from gross and semi-gross leases.  The Company experienced growth in base rent and recoveries from tenants as a result of growth in the portfolio due to acquisitions  and development coming on line, as well as increases in rental rates due to step ups and lease renewals. Operating costs and  property taxes similarly increased due to the increase in the portfolio size. These items are discussed in the “Business and Operations  Review” section of this MD&A above.  48        FIRST CAPITAL REALTY ANNUAL REPORT 2010                                                                                                                            Straight-line rent and market rent adjustments increased to $4.8 million in the three months ended December 31, 2010 from  $2.7 million in the same prior year period. The increase was partially due to a $2.7 million reduction in the fourth quarter in the  allowance for doubtful accounts in respect of straight-line rents recognized in prior years. The Company lowered its estimate of  anticipated doubtful accounts as a result of the level of write-offs actually experienced during the recent economic downturn, as   well as the improvement in the outlook for Zellers resulting from the announced Target acquisitions. The remainder of the increase in  straight-line rents primarily results from the timing and the number of free rent periods granted during 2009 and 2010. (thousands of dollars)  Same property NOI excluding expansion and redevelopment  Expansion and redevelopment space NOI  Same property NOI with expansion and redevelopment  Greenfield development  2010 Acquisitions  2009 Acquisitions  Rental revenue recognized on a straight-line basis  Market rent adjustments  Dispositions and other  NOI      5.8% 7.3% Three months ended December 31, 2010 December 31, 2009 $ $ 69,457 4,413  73,870  3,174  3,989  582  4,192  657  27  86,491  $  $  65,624 3,214 68,838 1,538 — 323 2,153 578 278 73,708 Same properties in the table above refer to those shopping centres that were owned by the Company on October 1, 2009, and  throughout 2009 and the three months ended December 31, 2010, respectively. Same property NOI increased by 7.3% in the fourth quarter of 2010 compared to the same period in 2009, generating NOI growth  of $5.0 million, primarily attributed to redevelopment and expansion space coming on line and increases in lease rates and occupancy.  Acquisitions completed in 2010 and 2009 contributed $4.6 million to NOI in the three months ended December 31, 2010, while  greenfield development activities contributed a further $3.2 million in the three months ended December 31, 2010.  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 loans receivable  Three months ended December 31, 2010 December 31, 2009 $ 756  $  805 521  239  1,516  $ 1,593 151 2,549 $  Interest and other income decreased in the three months ended December 31, 2010 due to a reduction in dividend and distribution  income from marketable securities. FIRST CAPITAL REALTY ANNUAL REPORT 2010      49                                                                           MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Other Gains (Losses) and (Expenses) (thousands of dollars)  Realized gains on sale of marketable securities  Change in cumulative unrealized (losses) gains on marketable     securities held-for-trading  Losses on purchase of convertible debentures (a)  Losses on settlement of debt  Gain on termination of hedge previously held in other comprehensive income  Realized losses on interest rate swaps (b)  Unrealized gains (losses) on interest rate swaps not    designated as hedges (c)  Losses on foreign currency exchange  Costs related to acquisition of 40% interest in FCB  Severance and termination costs  Included in FFO – EQY and other non-recurring items  Gain on disposition of shopping centre (d)  Three months ended December 31, 2010 December 31, 2009 $ 2,074  $  4,349 (701)  (160) — —  —  594  (56)  —  —  1,751  (8)  1,743  $  186 — (1,497) 290 (1,471) (1,203) (67) (752) (2,000) (2,165) 526 (1,639) $  (a)  During the three months ended December 31, 2010, the Company purchased $1.3 million of the 6.25% debentures for $1.4 million,  resulting in a loss of $134,000, a reduction of contributed surplus in the amount of $20,000 and a reduction in convertible  debentures–equity component of $47,000. The Company also purchased $0.9 million of the 5.50% debentures for $0.9 million,  resulting in a loss of $27,000, an increase of contributed surplus in the amount of $5,000 and a reduction in convertible debentures– equity component of $28,000. (b)  The Company terminated $20 million notional amount of Canadian bankers’ acceptance loan interest rate swaps on December 22,  2009 resulting in a loss of $1.45 million. (c)  In the three months ended December 31, 2009, 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 swaps reflecting the termination of the   hedging relationship. (d)  During the quarter ended December 31, 2009, the Company sold a shopping centre in Regina, Saskatchewan for gross proceeds  of $3.8 million including a vendor-take-back mortgage of $2.3 million. A gain on disposition of $0.5 million was recorded. Interest Expense (thousands of dollars)  Mortgages, loans and credit facilities Senior unsecured debentures  Convertible debentures     Coupon interest      Amortization of discounts      Amortization of deferred issue costs  Interest capitalized to land and shopping centres under development  Interest expense  Three months ended December 31, 2010 December 31, 2009 $ 20,396 15,644  $  22,894 9,082 4,940  348  248  5,536  (4,383)  37,193 $ 4,340 294 185 4,819 (4,452) 32,343 $  Interest expense on mortgages, loans and credit facilities decreased in the three-month period ended December 31, 2010 primarily  due to the paydown of credit facilities from the proceeds of debenture and equity financings completed in the first nine months of 2010. The increase in interest expense from senior unsecured debentures is due to issuances of a total of $400 million principal amount  of senior unsecured debentures in 2010 as described in the “Capital Structure and Liquidity – Senior Unsecured Debentures” section  of this MD&A. The increase in convertible debenture interest expense is due to the interest on the $50 million of par value 5.70% convertible  unsecured subordinated debentures issued on December 30, 2009. 50        FIRST CAPITAL REALTY ANNUAL REPORT 2010                                                                                                 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 Corporate expenses, excluding capital taxes and non-cash compensation      As a percentage of rental revenue      As a percentage of gross total assets  Three months ended December 31, 2010 December 31, 2009 $ $ $ 5,524 753  2,535  48  253  9,113  (2,485)  6,628 5,864 4.5%  0.5%  $  $  $  4,327 882 2,345 274 11 7,839 (2,038) 5,801 4,645 4.1% 0.5% The increase in salaries, wages and benefits in the three months ended December 31, 2010 compared to the same prior year period  results primarily from an increase in the amount of incentive bonus payable to employees. The decrease in non-cash compensation results primarily from the effect of a large stock option grant in 2007 being fully amortized  in 2010. Capital taxes have decreased due to ongoing reductions in capital tax rates. Capital taxes have been eliminated in  substantially all of the provinces in which the Company had properties as of December 31, 2010. Amounts capitalized to real estate investments for properties undergoing development or redevelopment and leasing costs  (including leasing for development projects) during the three months ended December 31, 2010 totalled $2.5 million compared to  $2.0 million in the prior year comparative period. The increase in capitalized costs in the three months ended December 31, 2010  compared to the same period in 2009 is primarily due to the increase in the level of development activity on developments scheduled  for 2011 and the increase in the amount of internally developed software and systems. Amortization Expense (thousands of dollars)  Shopping centres  Deferred leasing costs  Intangible assets  Amortization of real estate assets  Deferred financing fees  Other assets  Total amortization  Three months ended December 31, 2010 December 31, 2009 $ $ 23,598  1,037  1,402  26,037  450  512  26,999 $  $  20,594 946 1,482 23,022 644 807 24,473 Amortization of real estate assets increased due to the amortization of newly acquired properties and development coming on line.  Income Taxes (thousands of dollars)  Current income tax (recovery)  Future income taxes (recovery)  Income taxes (recovery)  Three months ended December 31, 2010 December 31, 2009 $ $ —  7,947  7,947 $  $  (1,662) (2,360) (4,022) The fourth quarter current income tax recovery in 2009 resulted from an adjustment to the taxable portion of dividends from Equity One.  When the Company had an interest in Equity One, it was required to estimate the taxable percentage of dividends when reporting on  interim periods, and adjust it when the figure was announced by Equity One in the fourth quarter.  Future income tax expense increased as a result of an increase in net income before taxes as well as the effect of a decrease in  substantively enacted income tax rates, which was recognized in the fourth quarter of 2009. FIRST CAPITAL REALTY ANNUAL REPORT 2010      51                                                                                             MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Cash Flows (thousands of dollars)  Cash provided by operating activities  Cash used in investing activities  Cash provided by (used in) financing activities  Decrease in cash and cash equivalents  Operating Activities Three months ended December 31, 2010 December 31, 2009 $ $ 52,640  (130,811)  28,575  (49,596)  $  $  50,436 (64,439) (849) (14,852) Cash provided by operating activities increased in the fourth quarter of 2010 primarily from cash flow generated by the growth in net  operating income from the Company’s shopping centre portfolio. Investing Activities The Company continued to acquire properties and make significant investments in its shopping centre portfolio. The overall level of  investing activity in the three months ended December 31, 2010 is higher than the same period in 2009.  Financing Activities The cash flow provided by financing activities includes the issuance of $50 million senior unsecured debentures, equity issuances and  mortgage financing activities.  OUTLOOK The forward-looking statements contained in this section and elsewhere in this MD&A are not historical facts but, rather, 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 “Forward-Looking Statement Advisory” section on the first page of this MD&A. 2011 Outlook Over the past several years, First Capital Realty has made significant progress in growing its business across the country, generating  modest accretion in funds from operations while dramatically enhancing the quality of its portfolio. The current property acquisition environment remains competitive for assets with similar quality to those the Company owns,   with increasing transaction activity. Both equity and long-term debt and equity markets are accessible but continue to represent tight  spreads, (if at all) relative to pricing currently being asked by vendors of high quality, well-located urban properties. The Company   will continue to selectively acquire properties that are well-located and of high quality, when they add strategic value and/or operating  synergies, provided that they will be accretive to FFO over the long term, and provided that equity and long-term 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. These activities typically generate higher returns on investment over the long term. With respect to acquisitions of both income-producing and development properties, as well as in its existing portfolio, the Company  will continue to focus on the quality, sustainability and growth potential of rental income. Consistent with First Capital Realty’s past  practices and in the normal course of business, First Capital Realty is engaged in discussions, and has various agreements, with  respect to possible acquisitions of new properties and dispositions of existing properties in its portfolio. However, there can be no  assurance that these discussions or agreements will result in acquisitions or dispositions, or if they do, what the final terms or timing   of such acquisitions or dispositions would be. The Company expects to continue current discussions and actively pursue other  acquisition, investment and disposition opportunities. 52        FIRST CAPITAL REALTY ANNUAL REPORT 2010               With respect to financing activities, the Company will continue to focus on maintaining access to all sources of long-term capital   at the lowest possible price. In particular, the Company is focussed on both extending the term and staggering the maturity of its debt. Specifically, Management has identified the following six areas to achieve its objectives going forward into 2011 and 2012:  • continued focus on proactive management that results in higher rent growth;  • development, redevelopment and repositioning activities on existing and newly acquired properties;  • selective acquisitions of strategic assets and adjacent sites; • densification activities in the existing portfolio; • increasing efficiency and productivity of operations; and  • improving the cost of both debt and equity capital. Overall, Management is confident that the quality of the Company’s balance sheet and 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 2010 year-end press release dated March 3, 2011, as filed on SEDAR at www.sedar.com   for a discussion of the Company’s previously issued 2010 specific guidance as compared with actual results for 2010. The 2010 year-end press release dated March 3, 2011 includes information on the Company’s expected operating activity  assumptions and growth for 2011. The purpose of the Company’s guidance is 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. 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. FIRST CAPITAL REALTY ANNUAL REPORT 2010      53 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 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, land and  shopping centres under development 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 $3.0 billion. If the useful   life estimate of the buildings changed by one year, the associated amortization expense would change by $1.8 million. 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 $53 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 $39 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. 54        FIRST CAPITAL REALTY ANNUAL REPORT 2010 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 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, including a balance sheet as at January 1, 2010.  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. 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 Completed Quantify the effect of the differences based on   the accounting policy alternatives chosen Completed Prepare opening IFRS balance sheet as at  January 1, 2010 Completed, subject to any further changes in  accounting standards Prepare internal IFRS balance sheet, statement   of income and cash flows as at and for each  quarter ended in 2010 so that comparatives are  ready for 2011 Processes and  Systems Identify changes required to current information  systems Implement changes to information systems Identify data collection requirements and  implement processes to collect the data Determine valuation process for investment  properties, including frequency and the   percentage of appraisals to be completed  internally versus externally Ongoing Completed Completed Completed Completed 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 Identify required resources, including valuation  expertise as well as additional accounting  resources during the transition Completed Completed FIRST CAPITAL REALTY ANNUAL REPORT 2010      55 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Area Training Steps Progress Educate the Board of Directors, Audit Committee  and Senior Management on the effects of IFRS Technical training of accounting and   valuation staff Communication to all other internal and external  stakeholders Education sessions have taken place with the Board  of Directors, Audit Committee and Senior  Management. Updates take place as the IASB makes  changes to standards Completed and ongoing Ongoing communication to external stakeholders  through MD&A each quarter. Internal stakeholders are  given status updates as required during the process Internal controls over  financial reporting   and disclosure Ensure the appropriate documentation of   processes and systems are in place Ongoing Ensure appropriate changes to internal controls   are made according to the appropriate control  framework Substantially completed. The Company has not made,  and does not expect to make, material changes to  internal controls over financial reporting as a result   of the change to IFRS Assess the effectiveness of the controls Ongoing 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, IFRS 1 provides for exceptions and  optional exemptions for first-time adopters. The cumulative 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: Effect on Shareholders’ Equity at Transition Date Net Income FFO Will increase as  disclosed in this  MD&A. Will increase or   decrease as property  values increase or  decrease. No effect.   FFO excludes   fair value  adjustments. 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. 56        FIRST CAPITAL REALTY ANNUAL REPORT 2010 Current Canadian GAAP Treatment IFRS Treatment Recognition of intangible assets and liabilities Effect on Shareholders’ Equity at Transition Date Net Income FFO Fair value as at the   date of acquisition of   the related income- producing property,   less accumulated  amortization. Separate recognition of intangible assets  and liabilities on acquisitions of investment  property by the Company will no longer be  required under IFRS as the Company has  chosen the fair value method. Intangible assets  and liabilities are  reflected in the fair  value of investment  properties and not  separately recorded. Will depend on   whether the   investment property  values increase   or decrease. Will be reduced  by the amount  of amortization  of above   and below  market rents  previously  included in  rental income. 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. Under IFRS, transaction costs (land   transfer tax, legal, commissions, etc.)   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 captures certain  investment property acquisitions. Future income tax assets and liabilities will  need to be adjusted based on the change   in the carrying value of assets and   liabilities upon conversion to IFRS. The  most significant of these adjustments is   the additional future tax liability as a result  of the revaluation of investment properties  to fair value. This effect is quantified in the  “Valuation of Investment Properties under  IFRS” section of this MD&A. No effect.   Properties are  measured at   fair value. No effect on net   income. This only   affects the classification  between the fair value  adjustment and   operating expenses. No effect.  Transaction  costs are  excluded from  FFO. Will decrease,   as an additional  deferred income   tax liability will   be recorded. Liability increase or  decrease depending   on the movement of   the fair value of  investment properties. No effect as  future income  taxes are  excluded from  FFO. Income statement classification of tenant improvement allowances to tenants Under Canadian   GAAP, the Company’s  lease incentive   payments to tenants   are recorded as  amortization expense. Under IFRS, certain of the payments that  the Company makes to its tenants may be  classified as lease incentives under IFRS  and therefore the amortization would be  recorded as a reduction of rental revenue  rather than as an amortization of an asset. No effect. Development costs 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. No effect. Active development is deemed to cease  when an asset is ready for tenant  possession. Certain other development  costs currently capitalized under Canadian  GAAP will not be capitalized under IFRS.  The Company expects a reduction in  capitalized costs under IFRS. Incidental operations are not capitalized  either before or during development.  Incidental operations include items such as  temporary tenancies or parking revenue  during the period of development. No effect. No effect on net   income. Classification  difference between the  fair value adjustment   and rental revenue. No net effect as   this only affects   the classification  between the fair   value adjustment   and net operating  income. Expected to  decrease 2010  annual FFO by  1 to 2 cents  per share. FIRST CAPITAL REALTY ANNUAL REPORT 2010      57 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Current Canadian GAAP Treatment IFRS Treatment Straight-line recognition of rental revenue Effect on Shareholders’ Equity at Transition Date Net Income FFO 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 to lease inception. No effect. No net effect as   this only affects the  classification between  the fair value adjustment  and net operating  income. The effect is  not expected  to be material. 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: 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 and accounting for interests in joint ventures. These differences do not have a material  effect on the consolidated balance sheet of the Company as at January 1, 2010 (the IFRS transition date) and are not expected to  have a material effect in the future, based upon the Company’s current operations. VALUATION OF INVESTMENT PROPERTY UNDER IFRS The most significant difference between IFRS and Canadian generally accepted accounting principles (“Canadian GAAP”) 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. 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  Canadian GAAP value of Shopping Centres and Development Properties (1)  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  2010 4,833  3,952  881  (163)  718  $  $  2009 4,159 3,572 587 (111) 476 $ $ (1)  Includes the net book value of Shopping Centres, Development Properties, deferred leasing costs, straight-line rents receivable and intangible assets  and liabilities.  58        FIRST CAPITAL REALTY ANNUAL REPORT 2010                                             As at December 31, 2010 (millions of dollars)  IFRS value of Shopping Centres and     Development Properties  Canadian GAAP value of Shopping Centres and     Development Properties  Difference between IFRS value and Canadian GAAP value  As at December 31, 2009 (millions of dollars)  IFRS value of Shopping Centres and     Development Properties  Canadian GAAP value of Shopping Centres and     Development Properties  Difference between IFRS value and Canadian GAAP value  Eastern  Region  Central  Region  Western  Region  Total 917  $  2,287  $  1,629  $  4,833 733  184  $  1,882  405  $  1,337  292  $  3,952 881 Eastern  Region  Central  Region  Western  Region  Total 862  $  1,919  $  1,378  $  4,159 709  153  $  1,699  220  $  1,164  214  $  3,572 587 $  $  $  $  During 2010 approximately 39% (2009 – approximately 81%) of the total fair value of Shopping Centres and approximately 10%   (2009 – approximately 79%) of the total fair value of Development Properties 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 requirements of 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, and local market conditions, as  well as ensuring that a representative sample of properties from each market in which the Company operates are externally appraised.  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 considers capitalization rate information obtained from the appraisals completed by the external  appraisers for comparable properties in the same markets, known precedent transactions and available market data. In addition, for  the properties internally appraised, Management considered the last external appraisal completed for the property, 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, 2010 and December 31, 2009 were 6.81% and 7.39%, 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 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, 2010, and have concluded that such disclosure  controls and procedures were operating effectively. FIRST CAPITAL REALTY ANNUAL REPORT 2010      59                     MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 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. The Chief Executive Officer and the Chief Financial Officer of the Company have evaluated, or caused the evaluation of, under their  supervision, the effectiveness of the Company’s internal controls over financial reporting (as defined in National Instrument 52-109,  Certification of Disclosure in Issuers’ Annual and Interim Filings) as at December 31, 2010, and have concluded that such internal  controls over financial reporting were operating effectively. The Company did not make any material changes to the design of internal controls over financial reporting during the period  beginning on October 1, 2010 and ended on December 31, 2010 that have materially affected, or are reasonably likely to materially  affect, 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 controls and procedures or internal controls over financial reporting occur and/or  mistakes happen, the Company intends to take reasonable steps 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 important risks and can be found on SEDAR at   www.sedar.com and the Company’s website at www.firstcapitalrealty.ca. Economic Conditions and Operating Risk Real property investments are affected by various factors including changes in general economic conditions (such as the availability   of long-term mortgage financings and fluctuations in interest rates) and in local market 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 real estate  developers, managers and owners in seeking tenants, the ability of the owner to provide adequate maintenance at an economic cost,  and various other factors. The economic conditions in the markets in which the Company operates can also have a significant impact  on the Company’s tenants and, in turn, 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. 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. Revenue from the Company’s properties depends primarily on the ability of the Company’s tenants to pay the full amount of rent  and other charges due under their leases on a timely basis. Leases comprise any agreements relating to the occupancy or use of the  Company’s real property. There can be no assurance that tenants and other parties will be willing or able to perform their obligations  under any such leases. If a significant tenant or a number of smaller tenants were to become unable or unwilling to meet their obligations  to the Company, the Company’s financial condition and results of operations would be adversely affected. In the event of default by a  tenant, the Company may experience delays and unexpected costs in enforcing its rights as landlord under lease terms, which may  also adversely affect the Company’s financial condition and results of operations. In addition, the value of real property and any improvements may depend on the success of its tenants’ operations as well as their  credit and financial stability. Anchor tenants generally occupy large amounts of square footage, pay a significant portion of the total  rents at a property and contribute to the success of other tenants by drawing significant numbers of customers to a property. The  closing of one or more anchor stores at a property could have a significant adverse effect on that property. The Company’s financial  position and results of operations would be adversely affected if tenants become unable to pay rent or other charges on a timely basis  or if the Company is unable to lease a significant amount of available space in its properties on economically favourable terms. 60        FIRST CAPITAL REALTY ANNUAL REPORT 2010 The following chart summarizes the top 40 tenants of the Company, which together represent 57.3% of the Company’s annualized  minimum rent from its portfolio as at December 31, 2010. Tenant  of Stores  Square Feet  Leasable Area  Minimum Rent  Credit Rating  Credit Rating  Credit Rating Number  Percent of  Total Gross  Total  DBRS  S&P(1)  Moody’s Annualized   Organization  Organization  Organization  Percent of  Top Forty Tenants   1  Sobeys     2  Shoppers Drug Mart    3  Loblaw Companies Limited    4  Metro    5  Zellers/Home Outfitters    6  Canadian Tire    7  TD Canada Trust    8  Royal Bank    9  Canada Safeway  10  LCBO  11  Wal-Mart  12  CIBC  13  Staples  14  H.Y. Louie Group (London Drugs)  15  Bank of Nova Scotia  16  Rexall  17  GoodLife Fitness Club  18  Dollarama  19  Rona  20  Bank of Montreal  21  Cara Operations  22  Blockbuster  23  SAQ  24  Save on Foods  25  Tim Hortons  26  Rogers  27  Winners Merchants Inc.  28  Starbucks  29  Reitmans  30  Future Shop  31  Yum! Brands  32  Pharmacie Jean Coutu  33  Subway  34  Longo’s  35  McDonald’s  36  Home Depot  37  Bell Canada  38  Toys “R” Us (Canada) Ltd.  39  Forzani Group  40  Uniprix  Total: Top 40 Tenants 50  66  29  30  21  21  41  36  7  20  4  26  13  8  22  18  10  24  2  21  31  24  19  4  41  33  5  35  31  5  29  8  55  2  21  2  39  3  6  7  869 (1)  Standard and Poor’s 1,663,000   963,000   1,465,000   1,170,000   1,809,000   788,000   221,000   197,000   345,000   181,000   473,000   137,000   276,000   217,000   118,000   149,000   226,000   224,000   257,000   101,000   101,000   117,000   82,000   196,000   108,000   95,000   177,000   57,000   152,000   140,000   60,000   115,000   66,000   78,000   64,000   236,000   57,000   113,000   80,000   72,000  13,146,000 7.7%  4.5%  6.8%  5.4%  8.4%  3.6%  1.0%  0.9%  1.6%  0.8%  2.2%  0.6%  1.3%  1.0%  0.5%  0.7%  1.0%  1.0%  1.2%  0.5%  0.5%  0.5%  0.4%  0.9%  0.5%  0.4%  0.8%  0.3%  0.7%  0.6%  0.3%  0.5%  0.3%  0.4%  0.3%  1.1%  0.3%  0.5%  0.4%  0.3%  60.7% BBB   A (LOW)  BBB  BBB  A (LOW)  AA  AA  BBB  AA (LOW)  AA  AA  BBB-  BBB+  BBB  BBB  BBB+  AA-  AA-  BBB  AA-  AA  A+  BBB  Aaa Aa1 Aa1 Aa2 Aa2 Baa2 AA  AA-  Aa1 BBB  AA  A(HIGH)  A(LOW)  BBB  A(LOW)   BBB  BBB-  A+  SD  A+  BBB  A  BBB+  BBB-  BBB-  A  BBB+  BBB+  B  Aa2 Aa2 Baa2 A3 Baa3 Baa2 Baa3 A2 Baa1 Baa1 B1 6.9%  6.8%  4.9%  4.3%  3.7%  3.2%  2.1%  1.6%  1.3%  1.2%  1.2%  1.2%  1.1%  1.1%  1.0%  1.0%  0.9%  0.9%  0.9%  0.8%  0.8%  0.8%  0.7%  0.7%  0.7%  0.7%  0.7%  0.6%  0.6%  0.6%  0.5%  0.5%  0.5%  0.5%  0.5%  0.4%  0.4%  0.4%  0.3%  0.3%  57.3% FIRST CAPITAL REALTY ANNUAL REPORT 2010      61                                                                                          MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 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. The failure to achieve renewals and/or rental increases may have an adverse effect on the financial  condition and results of operations of First Capital Realty. First Capital Realty’s lease maturities are staggered 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 4.3% to 11.0% of the annualized minimum rent  in the Company’s portfolio. The Company’s lease maturity profile at December 31, 2010 is as follows: Date (1)  Month-to-month  2011    2012    2013    2014    2015    2016    2017    2018    2019    2020    2021    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  13,000  2,635,000  1,943,000  2,067,000  1,889,000  2,349,000  874,000  1,455,000  1,313,000  1,288,000  947,000  593,000  3,486,000  20,852,000 0.1%  12.2%  9.0%  9.6%  8.7%  10.9%  4.0%  6.7%  6.1%  6.0%  4.4%  2.7%  16.0%  96.4% $  162,000    37,472,000    34,758,000    34,054,000    33,618,000    38,401,000    14,960,000    21,335,000    22,596,000    24,066,000    19,027,000    10,646,000    59,476,000  $ 350,571,000 0.1%  10.7%  9.9%  9.7%  9.6%  11.0%  4.3%  6.1%  6.4%  6.9%  5.4%  3.0%  16.9%  100.0% $  12.75   14.22   17.89   16.48   17.80   16.35   17.11   14.67   17.21   18.68   20.09   17.95   17.06 $ 16.81 Number  of Stores  11  721  521  530  458  467  132  154  177  178  157  41  133  3,680 (1)  Excluding any contractual renewal options. Future total gross rent from leases committed as of December 31, 2010 is estimated as follows: (millions of dollars)  Annual minimum rents  Cost recoveries (1)  Total gross rents  2011  323.2  162.6  485.8  $  $  2012  292.4  147.5  439.9  $  $  2013  263.8  133.1  396.9  2014  232.4  117.5  349.9  $  $  $  $  2015 and  Thereafter  Total $  $  1,109.8  567.7  1,677.5  $  $  2,221.6 1,128.4 3,350.0 (1)  Estimated based upon the percentage relationship to annual minimum rent. 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 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. 62        FIRST CAPITAL REALTY ANNUAL REPORT 2010                                                 Interest Rate Risk Interest represents a significant cost in the ownership of real property. The Company has a total of $790.7 million of fixed rate interest- bearing instruments outstanding including mortgages, senior unsecured debentures and convertible debentures maturing in the three  years ending December 31, 2013 at a weighted average interest rate of 5.81%. If these amounts were refinanced at an average  interest rate that was 100 basis points higher or lower than the existing rate, the Company’s interest cost would respectively increase  or decrease by $7.9 million. 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 $44.3 million at December 31, 2010, 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, 2010 the allowance  for doubtful accounts related to straight-line rent receivables totalled $2.7 million.  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 effectiveness   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. Joint Ventures Some of First Capital Realty’s properties are partially owned by non-affiliated partners through partnership, co-ownership and limited  liability corporate venture arrangements (collectively, “joint ventures”). As a result, the Company does not control all decisions regarding  those properties and may be required to take actions that are in the interest of the joint venture partners collectively, but not in the  Company’s sole best interests. Accordingly, First Capital Realty may not be able to favourably resolve any issues that arise with  respect to such decisions, or the Company may have to take legal action or provide financial or other inducements to joint venture  partners to obtain such resolution. 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. FIRST CAPITAL REALTY ANNUAL REPORT 2010      63 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued SHARE PRICE AND DIVIDEND HISTORY Average Closing Share Price (1) 1st Quarter  2nd Quarter  3rd Quarter  4th Quarter  Closing price, end of year  Dividend History (per Common Share) (1) 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) 2010  2009  2008  2007 $  13.43  $  13.98  $  14.42  $  15.37  $  15.11  $  $  $  $  $  $  $  0.20  0.20  —  0.20  0.20  0.80  0.80  $  10.11  $  10.21  $  11.29  $  12.68  $  13.54  $  $  $  $  $  $  $  0.20  0.20  0.28  0.20(2)  0.20  1.08  0.80  $  13.97  $  14.48  $  13.90  $  11.55  $  11.86  $  $  $  $  $  $  $  0.20  0.20  —  0.20  0.20  0.80  0.80  $  17.33 $  17.03 $  16.11 $  15.69 $  15.01 $  $  $  $  $  $  $  0.19 0.19 — 0.20 0.20 0.78 0.78   5.21%    6.31%    6.93%    5.10% (1)  Prior periods restated to reflect the May 2010, 3.2:2 stock split. (2)  Amount represents the regular dividend. A dividend-in-kind of $0.28 was distributed in addition to the regular dividend. See discussion of dividend-in-kind in  “Results of Operations – Equity One” section of this MD&A. Quarterly Dividend The Company announced that it will pay a first quarter dividend of $0.20 per common share on April 12, 2011 to shareholders of record  on March 30, 2011, which represents the regular quarterly dividend on a post split basis. 64        FIRST CAPITAL REALTY ANNUAL REPORT 2010   Shopping Centre Portfolio (at December 31, 2010)  Property  ONTARIO Gross  Year Built  Leasable  Percent  Location  or Acquired  Area  Occupied  Anchors and Major Tenants 1842-1852 Queen Street West  216 Elgin Street  Adelaide Shoppers  Ambassador Plaza  Toronto  Ottawa  London  Windsor  2006  2008  2005  1994  13,000  12,000  19,000  150,000  74.2%  100.0%  100.0%  97.2%  Appleby Mall  Burlington  2004  182,000  100.0%  Bayview Lane Plaza  Bowmanville Mall  Markham  Bowmanville  2003  2005  40,000  149,000  91.3%  99.6%  Brampton Corners  Brampton  2001  302,000  100.0%  Brantford Commons  Brantford  1995  296,000  100.0%  Bridgeport Plaza  Brooklin Towne Centre  Burlingwood Shopping Centre  Byron Village Plaza  Waterloo  Whitby  Burlington  London  1994  2003  2005  2002  223,000  109,000  98.4%  94.2%  67,000  89,000  89.3%  100.0%  Cedarbrae Mall  Toronto  1996  543,000  97.7%  Chartwell Shopping Centre  Toronto  2005  89,000  94.0%  Chemong Park Plaza  Peterborough  2001  68,000  100.0%  Clairfields Common  Guelph  2006  85,000  100.0%  College Square (3)  Ottawa  2005  388,000  100.0%  Credit Valley Town Plaza  Mississauga  2003  100,000  97.7%  Danforth Sobeys  Delta Centre  Toronto  Cambridge  2009  1998  31,000  79,000  96.8%  100.0%  Derry Heights Plaza  Milton  2008  99,000  100.0%  Dufferin Corners  Toronto  2003  74,000  94.6%  Eagleson Cope Drive  Eagleson Place  Ottawa  Ottawa  2003  2003  103,000  82,000  100.0%  100.0%  Fairview Mall  St. Catharines  1994  387,000  99.2%  Fairway Plaza  Kitchener  2005  249,000  100.0%  Gloucester City Centre  Ottawa  2003  345,000  95.5%  CIBC, Starbucks Harvey’s, Second Cup, Quizno’s Shoppers Drug Mart, Wendy’s  CIBC, Scotiabank, Royal Bank of Canada, LCBO,   Zellers  Fortinos (Loblaws), Pharma Plus, Bank of Montreal,   TD Canada Trust, LCBO, The Beer Store, Home Hardware Bank of Montreal, Dollarama  Metro, Shoppers Drug Mart, Staples, The Beer Store,  Dollarama, GoodLife Fitness  Fortinos (Loblaws), Wal-Mart, HSBC, National Bank,  Scotiabank, Kelsey’s, Chapters, Second Cup  Zehrs (Loblaws), Wal-Mart, LCBO, Cineplex,   Royal Bank of Canada, The Beer Store, Reitmans Sobeys, Zellers, Rogers Video, Tim Hortons, Bulk Barn  FreshCo (Sobeys), Shoppers Drug Mart, LCBO, Scotiabank,  Tim Hortons No Frills (Loblaws), Pharma Plus, Tim Hortons  Metro, Pharma Plus, TD Canada Trust, Rogers Video,  LCBO  No Frills (Loblaws), Shoppers Drug Mart, CIBC, Scotiabank,  Burger King, The Beer Store, Canadian Tire, Dollarama,  Toys ’R’ Us, Zellers, LCBO, Extreme Fitness, Staples  Price Chopper (Sobeys), Shoppers Drug Mart,   Bank of Montreal, CIBC  Sobeys, TD Canada Trust, Government of Canada,  Meridian Credit Union  Food Basics (Metro), 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, 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  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 (Metro), Zehrs (1) (Loblaws), CIBC, Scotiabank,  Costco, Future Shop, Mark’s Work Wearhouse,   Office Depot, Winners, Zellers, Sport Chek, LCBO  Food Basics (Metro), LCBO, Starbucks, Dollarama,   Home Sense, Pier 1 Imports, Sport Chek, Winners,  GoodLife Fitness, Reitmans  Loblaws, Pharma Plus, CIBC, Scotiabank, Tim Hortons,  Zellers FIRST CAPITAL REALTY ANNUAL REPORT 2010        65         SHOPPING CENTRE PORTFOLIO Property  Location  or Acquired  Area  Occupied  Anchors and Major Tenants Gross  Year Built  Leasable  Percent  ONTARIO (cont’d) Grimsby Square Shopping Centre  Grimsby  2005  162,000  100.0%  Halton Hills Village  Harwood Plaza  Georgetown  Ajax  2007  1999  112,000  216,000  100.0%  95.4%  Humbertown Shopping Centre  Toronto  2006  137,000  96.6%  Hunt Club Place (4)  Hyde Park Plaza  Laurelwood Shopping Centre  Loblaws Plaza  Maple Grove Village  Ottawa  London  Waterloo  Ottawa  Oakville  2009  2006  2007  2005  2003  87,000  52,000  92,000  134,000  111,000  100.0%  100.0%  100.0%  93.2%  98.8%  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  92.4%  93.3%  Morningside Crossing  Toronto  2007  261,000  100.0%  Norfolk Mall  Northfield Centre  Tillsonburg  Waterloo  2004  1999  88,000  52,000  100.0%  100.0%  Olde Oakville Market Place  Oakville  2006  126,000  95.3%  Orleans Gardens (3)  Ottawa  2005  110,000  91.2%  Parkway Centre  Peterborough  1996  264,000  100.0%  Parkway Mall  Toronto  2010  257,000  89.0%  Queenston Place  Rutherford Marketplace  Queensway  Sheridan Plaza  Shoppes on Dundas  Hamilton  Vaughan  Toronto  Toronto  Oakville  1995  2009  2006  1995  2007  174,000  135,000  96.8%  100.0%  67,000  168,000  66,000  100.0%  100.0%  96.4%  Shops at King Liberty  Toronto  2004  242,000  98.6%  Stanley Park Mall  Kitchener  1997  189,000  98.9%  Steeple Hill Shopping Centre  Pickering  2000  93,000  100.0%  66        FIRST CAPITAL REALTY ANNUAL REPORT 2010  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, TD Canada Trust Shoppers Drug Mart, Bank of Montreal, Starbucks Sobeys, TD Canada Trust, Starbucks, LCBO Loblaws, Royal Bank of Canada, GoodLife Fitness  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, No Frills, Shoppers Drug Mart, Bank of Montreal, CIBC,  TD Canada Trust, GoodLife Fitness, Dollarama, Starbucks,  Blockbuster, Rogers, LCBO, Marks Work Wearhouse,   Pizza Hut, Pharma Plus, Tim Hortons 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, Reitmans,  Sport Mart, Winners  Metro, Staples Business Depot, Shoppers Drug Mart,  CIBC, TD Canada Trust, LCBO, McDonalds, Second Cup,  Bank of Nova Scotia, Tim Hortons, Reitmans  Zellers, Mark’s Work Wearhouse, Penningtons (Reitmans)  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  FreshCo (Sobeys), Shoppers Drug Mart,   Royal Bank of Canada, Blockbuster           Property  Location  or Acquired  Area  Occupied  Anchors and Major Tenants Gross  Year Built  Leasable  Percent  ONTARIO (cont’d) Stoneybrook Plaza  Strandherd Crossing  Sunningdale Village  Thickson Place  Tillsonburg Town Centre (2)  London  Ottawa  London  Whitby  Tillsonburg  2006  2004  2006  1997  1994  55,000  123,000  100.0%  100.0%  73,000  93,000  281,000  100.0%  100.0%  94.9%  University Plaza  Windsor  2001  139,000  100.0%  Valley Creek Plaza  Waterloo Shoppers Drug Mart  Wellington Corners  Brampton  Waterloo  London  2008  2004  1999  23,000  15,000  77,000  83.0%  100.0%  100.0%  Westney Heights Plaza  Ajax  2002  157,000  99.2%  Yonge-Davis Centre  York Mills Gardens  Newmarket  Toronto  2003  2004  53,000  168,000  97.2%  95.7%  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  9,654,000 98.0% 2006  2005  2007  2004  2008  2003  2004  2006  2002  200,000  59,000  159,000  71,000  29,000  96,000  145,000  74,000  152,000  100.0%  100.0%  83.9%  79.5%  100.0%  100.0%  89.0%  100.0%  90.6%  Centre commercial Beaconsfield  Beaconsfield  2002  135,000  98.0%  Centre commercial Côte St. Luc  Côte St. Luc  2002  159,000  89.7%  Centre commercial Domaine  Montréal  2002  196,000  92.6%  Centre commercial Maisonneuve (2)  Montréal  2003  113,000  100.0%  Centre commercial Van Horne  Montréal  2002  79,000  98.9%  Centre commercial Wilderton  Montréal  2002  127,000  98.9%  Centre Kirkland/St. Charles  Centre Maxi Trois Rivières  Kirkland  Trois Rivières  2006  2003  115,000  121,000  100.0%  100.0%  Édifice Gordon  Montréal  2005  19,000  87.4%  Sobeys, Pharma Plus, TD Canada Trust, Home Depot (1)  Metro, Shoppers Drug Mart, Royal Bank of Canada,   TD Canada Trust, Starbucks, Rogers Video, GoodLife 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,   Royal Bank of Canada, TD Canada Trust, Kelsey’s,  McDonald’s, Second Cup, Pizza Hut, Wendy’s, Rogers  Video, Starbucks Rona, Sports Rousseau, Metro IGA (Sobeys), SAQ  Provigo, Pharamprix (Shoppers Drug Mart), Scotiabank,  Blockbuster, Starbucks 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, McDonald’s  Super C, Jean Coutu, CIBC, Dollarama, SAQ, Second Cup,  Quiznos, McDonald’s  Metro, Pharmaprix (Shoppers Drug Mart),   Royal Bank of Canada, SAQ, Tim Hortons, Gold’s Gym  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, Dollarama, Bank of Montreal,   Tim Hortons, Blockbuster, Value Village Pharmaprix (Shoppers Drug Mart) FIRST CAPITAL REALTY ANNUAL REPORT 2010        67           SHOPPING CENTRE PORTFOLIO Property  Location  or Acquired  Area  Occupied  Anchors and Major Tenants Gross  Year Built  Leasable  Percent  QUEBEC (cont’d) Édifice Hooper  Faubourg des Prairies  Galeries Brien  Galeries des Chesnaye  Galeries Normandie  Sherbrooke  Montréal  Repentigny  Lachenaie  Montréal  IGA Tremblant  La Porte de Châteauguay  La Porte de Gatineau  Mont-Tremblant  Châteauguay  Gatineau  2005  2007  2002  2005  2002  2004  1995  1994  142,000  60,000  61,000  59,000  216,000  91.6%  89.7%  98.7%  96.2%  95.4%  38,000  132,000  155,000  100.0%  100.0%  92.6%  Le Campanîle & Place du Commerce  Montréal  2003  107,000  97.4%  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  104,000  100.0%  Marche du Vieux Longueuil  Place Bordeaux   Place Cité Des Jeunes  Place de la Colline  Place des Cormiers  Place Fleury  Place Kirkland  Place Lorraine  Place Michelet  Place Nelligan  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  29,000  58,000  52,000  75,000  108,000  57,000  61,000  59,000  57,000  94,000  80,000  118,000  48,000  42,000  55,000  152,000  73,000  56,000  185,000  100.0%  75.9%  97.1%  100.0%  94.6%  99.4%  95.8%  86.8%  100.0%  91.3%  100.0%  92.7%  88.0%  100.0%  100.0%  90.5%  100.0%  94.0%  84.2%  90.1%  Plaza Don Quichotte  Île Perrot  2004  134,000  96.9%  Plaza Laval Élysée  Laval  2004  63,000  100.0%  Promenades Lévis  Queen Mary  St. Denis Pharmaprix  Toys ’R’ Us/Pier 1 Imports  Village des Valeurs  Total – quebec Lévis  Montréal  Montreal  Montréal  Laval  2004  2006  2009  2002  2002  164,000  6,000  11,000  52,000  27,000  5,486,000 96.1%  100.0%  100.0%  100.0%  100.0%  95.5% 68        FIRST CAPITAL REALTY ANNUAL REPORT 2010 IGA Extra (Sobeys), Familiprix, Desjardins 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,   La-Z-Boy Furniture, Toys ’R’ Us (1), SAQ  IGA (Sobeys), Jean Coutu, Pharmaprix (Shoppers Drug Mart),  Bank of Montreal, TD Canada Trust  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, SAQ, Cineplex  IGA (Sobeys), SAQ, Caisse Populaire, Desjardins,  Laurentian Bank, Tim Hortons, SAQ  Maxi, Pharmaprix (Shoppers Drug Mart), Laurentian Bank,  Tim Hortons  Metro, Bank of Montreal, Jean Coutu, McDonald’s, Tim Hortons, Couche Tard Pharmaprix Pier 1 Imports, Toys ’R’ Us Value Village             Gross  Year Built  Leasable  Percent  Location  or Acquired  Area  Occupied  Anchors and Major Tenants Property  ALBERTA 9630 Macleod Trail  Cochrane City Centre  Cranston Market  Deer Valley  Dickson Trail Crossing   Eastview Shopping Centre  Fairmount Shopping Centre  Gateway Village  Kingsland Shopping Centre  Lakeview Plaza  London Place West  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  84,000  197,000  52,000  35,000  60,000  105,000  46,000  64,000  77,000  100.0%  94.8%  100.0%  93.3%  85.1%  100.0%  97.5%  95.0%  99.6%  98.6%  100.0%  McKenzie Towne Centre  Calgary  2003  183,000  100.0%  Meadowbrook Centre (5)  Newport Village  Northgate Centre  Old Strathcona Shopping Centre  Red Deer Village  Edmonton  Calgary  Edmonton  Edmonton  Red Deer  2009  2010  1997  2003  1999  71,000  42,000  489,000  76,000  219,000  100.0%  91.7%  95.3%  94.0%  97.6%  Richmond Square  Royal Oak Centre   Calgary  Calgary  2006  2003  157,000  336,000  97.9%  95.0%  Sherwood Centre  Sherwood Park  1997  78,000  86.2%  Sherwood Towne Square  Sherwood Park  1997  120,000  100.0%  South Park Centre  Edmonton  1996  374,000  92.3%  Staples Gateway  Towerlane Centre  TransCanada Centre  Tuscany Market  Village Market  West Lethbridge Towne Centre  Edmonton  Airdrie  Calgary  Calgary  Sherwood Park  Lethbridge  2007  2005  2006  2003  1997  1998  40,000  247,000  100.0%  97.3%  184,000  85,000  131,000  103,000  100.0%  97.3%  95.0%  97.2%  Westmount Shopping Centre  Edmonton  2007  545,000  86.9%  Total – alberta 4,393,000 95.1% Rona, Bank of Montreal Shoppers Drug Mart, Starbucks, Blockbuster Sobeys, Scotiabank, Petro Canada  Calgary Co-op, Shoppers Drug Mart,   Royal Bank of Canada, Zellers Rexall, Starbucks, 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, Alberta Treasury Branch Sobeys, Blockbuster, Shoppers Drug Mart Starbucks, 7-Eleven  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  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, GoodLife Fitness, TD Canada Trust Mark’s Work Wearhouse, Staples, Home Depot (1)  Safeway, Staples, Gold’s Gym, TD Canada Trust,  Starbucks, Blockbuster, The Source (Bell), Dollarama, CIBC Safeway, Rexall, Scotiabank, Starbucks Sobeys, Rexall, Scotiabank, Starbucks  Safeway, London Drugs, Scotiabank, Tim Hortons, Rogers  Safeway, Scotiabank, McDonald’s, Starbucks, Blockbuster,  Home Hardware  Safeway, Shoppers Drug Mart, Bank of Montreal,   Scotiabank, TD Canada Trust, Tim Hortons, Blockbuster,  Dollarama, Home Depot, Zellers, Gold’s Gym FIRST CAPITAL REALTY ANNUAL REPORT 2010        69           SHOPPING CENTRE PORTFOLIO 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  17,000  49,000  100.0%  75.4%  Gorge Shopping Centre  Victoria  2008  35,000  91.6%  Harbour Front Centre  Vancouver  2005  166,000  100.0%  Langford Centre  Langley Crossing Shopping Centre  Langford  Langley  2009  2005  66,000  125,000  82.6%  95.9%  Langley Mall  Langley  2005  132,000  93.4%  Longwood Station  Pemberton Plaza  Port Place Shopping Centre  Semiahmoo Shopping Centre  Nanaimo  Vancouver  Nanaimo  Surrey  2007  2005  2006  2010  106,000  95,000  99,000  278,000  100.0%  97.5%  90.3%  94.7%  Scott 72 Centre  Delta  2004  165,000  94.0%  South Fraser Gate  Staples Lougheed  Terminal Park  Terra Nova Shopping Centre  The Olive  Time Marketplace  Tuscany Village  West Oaks Mall (3)  Woodgrove Crossing  Woolridge Building  Total – british columbia OTHERS Abbotsford  Burnaby  Nanaimo  Richmond  Vancouver  Vancouver  Victoria  Abbotsford  Nanaimo  Coquitlam  2008  2006  2006  2005  2006  2004  2010  2004  2006  2006  33,000  32,000  29,000  72,000  97.8%  100.0%  83.3%  92.6%  21,000  52,000  100.0%  95.8%  66,000  266,000  100.0%  99.7%  59,000  38,000  2,001,000 100.0%  100.0%  95.5% 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 (Sobeys), 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  Save-On-Foods, Shoppers Drug Mart, Zellers,  Royal Bank of Canada, CIBC, Rogers  London Drugs, Staples, TD Canada Trust, Starbucks,  Vancity, Little Gym Shoppers Drug Mart Staples Business Depot Save-On-Foods (1), Bank of Montreal, BC Liquor Store  Save-On-Foods, Royal Bank of Canada, Pizza Hut,  Starbucks Shoppers Drug Mart, Blenz  IGA Marketplace (Sobeys), Shoppers Drug Mart,   Boston Pizza, TD Canada Trust  Thrifty Foods (Sobeys), Subway, Starbucks, Blockbuster  Save-On-Foods, London Drugs, Michaels, Reitmans, CIBC,  Pier 1 Imports, Sport Mart, Tim Hortons, Starbucks Michaels, Sleep Country, Shoppers Drug Mart Home Outfitters Cole Harbour Shopping Centre  Dartmouth, NS  1997  50,000  91.9%  Ropewalk Lane  Total – others TOTAL St. John’s, NF  1997  40,000  90,000 62.5%  78.8% 21,624,000 96.4%  Sobeys (1), Canadian Tire (1), Shoppers Drug Mart,  TD Canada Trust Government of Newfoundland and Labrador, Tim Hortons (1)  Tenant (or other) owned. (2)  Interest is leasehold. (3)  50% interest owned. (4)  33% interest owned. (5)  A portion of Meadowbrook is 50% owned by First Capital Realty Inc. 70        FIRST CAPITAL REALTY ANNUAL REPORT 2010           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 2, 2011. 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 properly authorized and recorded, and that  reliable financial information is produced. PricewaterhouseCoopers LLP has 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, 2010, our Chief Executive Officer and Chief Financial Officer evaluated, or caused the evaluation of 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 appropriately designed and were 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 2, 2011 Karen H. Weaver, CPA Executive Vice President and Chief Financial Officer FIRST CAPITAL REALTY ANNUAL REPORT 2010        71 Independent Auditor’s Report To the Shareholders of First Capital Realty Inc. We have audited the accompanying consolidated financial statements of First Capital Realty Inc., which comprise the consolidated  balance sheets as at December 31, 2010 and December 31, 2009, and the consolidated statements of earnings, comprehensive  income, shareholders’ equity and cash flows for the years then ended, and a summary of significant accounting policies and other  explanatory information.  Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with  Canadian generally accepted accounting principles, and for such internal control as Management determines is necessary to enable  the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits  in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical  requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements  are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial  statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material  misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor  considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order  to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the  effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and  the reasonableness of accounting estimates made by Management, as well as evaluating the overall presentation of the  consolidated financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit  opinion.  Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of First Capital  Realty Inc. as at December 31, 2010 and December 31, 2009 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 2, 2011   Chartered Accountants Licensed Public Accountants 72        FIRST CAPITAL REALTY ANNUAL REPORT 2010 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)  Loans, mortgages and other real estate assets (note 7)  Other assets (note 8)  Amounts receivable (notes 9 and 28)  Cash and cash equivalents (note 24(d))  LIABILITIES Mortgages, loans and credit facilities (note 11)  Accounts payable and other liabilities (note 12)  Intangible liabilities (note 6)  Senior unsecured debentures (note 13)  Convertible debentures (note 14)  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 2010 2009 $ 3,578,960    306,843  19,431  23,683    3,928,917  78,502  4,007,419  29,933  51,722  31,639  $ 4,120,713  $ 1,318,341    149,824  19,001    1,114,031    324,535  61,067  2,986,799  1,133,914 $ 4,120,713  $  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 FIRST CAPITAL REALTY ANNUAL REPORT 2010        73                                                                                                                                                                                     Consolidated Statements of Earnings Years ended December 31 (thousands of dollars, except per share amounts) 2010 2009 $ 485,016  5,064    490,080  $  442,131 5,612   447,743   168,950    143,333    156,954   125,465 90,949  3,998  5,518  1,801  1,729  21,442    437,720  52,360  83,342 3,662 7,497 2,202 2,005 22,122   403,249 44,494 —  6,725  59,085  —  17,747  17,747  41,338  0.26  $ $ 7,066 (1,414) 50,146 533 7,700 8,233 41,913 0.28 $  $  REVENUE Property rental revenue  Interest and other income (note 16)  EXPENSES Property operating costs   Interest expense (note 17)   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.   Other gains (losses) and (expenses) (note 19)  Income before income taxes   Income taxes (note 20)     Current      Future  Net income   Earnings per common share, basic and diluted (1) (note 21)   (1) Prior year restated to reflect the May 2010, 3.2:2 stock split. See accompanying notes to the consolidated financial statements. 74        FIRST CAPITAL REALTY ANNUAL REPORT 2010                                                                                                                                                                                             Consolidated Statements of Comprehensive Income Years ended December 31 (thousands of dollars) NET INCOME   OTHER COMPREHENSIVE INCOME Unrealized foreign currency gains on translating self-sustaining foreign operations     Losses arising during the year      Reclassification adjustment for dilution loss on investment in Equity One, Inc.      Reclassification adjustment for dividend-in-kind (note 18)  Other comprehensive income (losses) of Equity One, Inc.     Gains arising during the year      Reclassification adjustment for dilution loss included in net income      Reclassification adjustment for dividend-in-kind (note 18)  Unrealized gains on cash flow hedges of interest rates      Unrealized gains arising during the year      Reclassification adjustment for losses included in net income      Reclassification adjustment for dividend-in-kind (note 18)  Change in cumulative unrealized gains on available-for-sale marketable securities     Unrealized gains arising during the year      Reclassification adjustments for gains included in net income  Other comprehensive income before income taxes  Future income tax expense (note 23(a))  Other comprehensive income  2010 2009 $ 41,338  $  41,913 —  —  —  —  —  —  —  —  —  —  —  —  3,144  (1,571)  1,573  1,573  252  1,321 (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 COMPREHENSIVE INCOME  $ 42,659  $ 76,622 See accompanying notes to the consolidated financial statements. FIRST CAPITAL REALTY ANNUAL REPORT 2010        75                                                                                                                                                                                                               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 (note 23(b)) (note 15) (note 14) (note 15) Shareholders’ equity,    December 31, 2009  $ (523,071) $ 918 $ (522,153) $ 1,564,028 $ 19,513 $ 19,830 $ 14,625 $ 1,095,843 Changes during the year     Net income  41,338     Issuance of common         shares      Dividends  —   (127,768)     Payment of interest on        convertible debentures      Purchase of convertible        debentures      Exercise of warrants      Options vested      Exercise of options      Deferred share units       Restricted share units      Exercise of restricted         share units      Issue costs, net of tax      Other comprehensive         income  Shareholders’ equity,   — — — — — — — — — — — — — — — — — — — — — — 41,338 — — 55,765 (127,768) — — — — — — — — — — 19,275 — 42,096 — 9,735 — — — (1,383) 1,321 1,321 — — — — — — — — — (55) (275) — — — — — — — — — — — — — — — — — — — — — 41,338 55,765 (127,768) 19,275 (330) (1,808) 40,288 1,032 (580) 659 1,733 (3,014) — — 1,032 9,155 659 1,733 (3,014) (1,383) 1,321   December 31, 2010  $ (609,501) $ 2,239 $ (607,262) $ 1,689,516 $ 19,458 $ 19,555 $ 12,647 $ 1,133,914 See accompanying notes to the consolidated financial statements. 76        FIRST CAPITAL REALTY ANNUAL REPORT 2010                                               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 (note 23(b)) (note 15) (note 14) (note 15) 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 18)      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, net of tax      Other comprehensive        income  Shareholders’ equity,     December 31, 2009  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  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  5,867 123 1,394 436 815 (514) 2,989 (2,718)  —  (2,718) (1,796) —    34,709 $  (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 2010        77                                                                                                                                                                                                                                                                                               Consolidated Statements of Cash Flows Years ended December 31 (thousands of dollars) 2010 2009 $ 41,338    125,874  (5,978)  —  15,051    176,285  $  41,913   105,877 (5,022) 12,452 (6,592)   148,628 (178,708)  (49,863)  12,644  (32,939)  (119,147)  (6,342)  (21,946)  (396,301)  (59,039) (10,273) 4,826 (35,309) (168,110) (15,595) 50,640   (232,860)   160,473  (35,084)    (243,295)    395,634  —  (60)  (8,570)    103,327  (55)  —  (125,263)    247,107  —  27,091  4,548  31,639  $   621,208 (38,917)   (685,930)   124,000 (1,145)   120,071 — 57,771 1,821 (492) (118,192) 80,195 1,322 (2,715) 7,263 4,548 $  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.  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)  Net proceeds from property dispositions  Expenditures on shopping centres  Expenditures on land and shopping centres under development (note 4)  Changes in working capital items related to investing activities  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  Issuance of senior unsecured debentures, net of issue costs (note 13)  Purchases of senior unsecured debentures  Issuance of convertible debentures, net of issue costs (note 14)  Purchase of convertible debentures (note 14)  Issuance of common shares, net of issue costs  Issuance of warrants, net of issue costs  Cash balance included in dividend-in-kind (note 18)  Payment of dividends  Cash provided by financing activities  Effect of currency rate movement on cash balances  Increase (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. 78        FIRST CAPITAL REALTY ANNUAL REPORT 2010                                                                                                                                                                                                                          Notes to the Consolidated Financial Statements December 31, 2010 and 2009 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 18). (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 facts available at that time and are subsequently evaluated and adjusted as necessary as additional information becomes available. (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. Deferred leasing costs consist of commissions, legal  and other direct costs. FIRST CAPITAL REALTY ANNUAL REPORT 2010        79 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued (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 tenant relationships, allocated to existing tenants in acquired shopping centres. (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 the assets  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) Fixtures, Equipment and Computer Hardware and Software Fixtures, equipment and computer hardware and software 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 consequently 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 and are presented as non-cash interest expense. Fixtures, equipment and computer hardware and software are amortized on a straight-line basis over estimated useful lives ranging  from three to ten years. 80        FIRST CAPITAL REALTY ANNUAL REPORT 2009 (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 18). 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, and 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 15(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. FIRST CAPITAL REALTY ANNUAL REPORT 2010        81 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued (q) Financial instruments   (i)  Recognition and measurement   Section 3855 Financial Instruments: Recognition and Measurement of the CICA 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 OCI.   (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 and its written loan  receivable option 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. During the year the Company changed its estimate of  allowances for doubtful accounts for straight-line rent (note 9). 82        FIRST CAPITAL REALTY ANNUAL REPORT 2009                                       2. 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 Company has adopted IFRS effective January 1, 2011.  3. SHOPPING CENTRES (thousands of dollars)  Land    Buildings and improvements  Accumulated amortization  2010 2009 $ 948,388    3,091,128    4,039,516    (460,556)  $ 3,578,960  $  825,732   2,837,610   3,663,342   (374,583) $  3,288,759 During the year the Company acquired interests in four (2009 – five) income-producing shopping centres and additional interests in  existing properties as follows: (thousands of dollars)  Allocation of purchase price:     Shopping centres      Intangible assets      Intangible liabilities      Other net liabilities  Total purchase price, 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/or credit facilities  2010 2009 $ 259,812  7,103  (8,725)  (9,579)    248,611  (66,795)  (3,108)  $ 178,708  $  $  67,129 1,157 (1,869) — 66,417 (7,378) — 59,039 During the year ended December 31, 2010, the Company sold a shopping centre in Lethbridge, Alberta for gross proceeds of  $12.5 million including the assumption of a mortgage of $7.6 million. A gain on disposition of $2.4 million (note 19) was recorded. During the year ended December 31, 2009, the Company sold a shopping centre in Regina, Saskatchewan for gross proceeds   of $3.8 million including a vendor-take-back mortgage of $2.3 million. A gain on disposition of $0.5 million (note 19) was recorded. 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/or credit facilities  (thousands 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  2010 2009 $ $ 61,062  (11,275)  76  49,863  $  $  10,773 (500) — 10,273 2010 2009 $  132,604  $  268,445 $  34,465  $  119,147  15,931  $  $  34,748 $  168,110 18,441 $  $  4,856  $  4,604 The costs to complete projects currently under development include $39.2 million which are contractually committed at December 31, 2010  (2009 – $38.0 million). FIRST CAPITAL REALTY ANNUAL REPORT 2010        83                                                                                                                                                           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued 5. DEFERRED LEASING COSTS (thousands of dollars)  Cost     Accumulated amortization  Net book value  2010 2009 $ $ 36,953  (17,522)  19,431  $  $  31,304 (13,833) 17,471 Incremental direct internal costs related to leasing activities totalling $4.6 million (2009 – $3.7 million) were capitalized during the year  ended December 31, 2010. 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  2010 Accumulated Cost Amortization Net Book Value $ $ 47,442 3,160 8,229 58,831 $ $ (29,933) (1,749) (3,466) (35,148) $ $ 17,509 1,411 4,763 23,683 $ 30,989 $ (11,988) $ 19,001 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 Values ascribed to above- and below-market in-place leases are amortized to property rental revenue. 7. 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)  Other loans receivable (c)  2010 36,758  27,313  14,431  78,502  2009 37,836 7,979 13,405 59,220 $  $  $ $ (a)  The non-revolving unsecured term loan receivable from Gazit America Inc., a subsidiary of the Company’s principal shareholder  Gazit-Globe Ltd. (“Gazit”), 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  at a fixed rate of 8.5%. The extension option is bifurcated from the non-revolving term loan to Gazit America Inc. and is accounted  for separately as a component of Other liabilities and is classified as a held-for-trading liability at fair value, with changes in fair  value recognized in income in the period of the change. At issuance of the non-revolving term loan to Gazit America Inc. the   84        FIRST CAPITAL REALTY ANNUAL REPORT 2010                                                                                                         fair value of the extension option was determined to be a liability of $1.4 million. An equal amount has been added to the principal   of the non-revolving term loan to Gazit America Inc., and will be amortized to interest income over the initial term of the term loan  using the effective interest rate method. The fair value of the option at December 31, 2010 is $0.8 million and has been estimated  using level 2 inputs. The principal amount of the loan is prepayable from August 14, 2012. (b)  The Company invests from time to time in the securities of public entities in real estate and related industries. 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. Included in marketable  securities are $13.3 million classified as available-for-sale and $14.0 million classified as held-for-trading. (c)  Other loans receivable include loans and mortgages receivable on certain properties. The loans are secured by interests in  shopping centres or development properties, bear interest at a weighted average rate of 9.0% (December 31, 2009 – 6.9%)   and their fair values approximate carrying values. 8. OTHER ASSETS (thousands of dollars)  Prepaid expenses  Deposits and costs on properties under option  Other deposits  Fixtures, equipment and computer hardware and software    (net of accumulated amortization of $4.1 million (2009 – $3.2 million))  Deferred financing costs on credit facilities     (net of accumulated amortization of $2.9 million (2009 – $1.5 million))  9. AMOUNTS RECEIVABLE (thousands of dollars)  Trade receivables (net of allowances for doubtful accounts of $3.3 million     (2009 – $3.1 million))  Rent revenue recognized on a straight-line basis (net of allowances for    doubtful accounts of $2.7 million (2009 – $5.8 million))  Construction and development related chargebacks and receivables  Corporate and other amounts receivable (note 28)  $  2010 7,289  4,243  10,025  $  2009 7,223 4,179 7,691 6,330  6,090 2,046  29,933  3,543 28,726 $  $  2010 2009 $ 8,518 $  9,905 41,602  950  652  51,722 $ 31,805 1,887 2,001 45,598 $  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 reasonable collection  efforts have been exhausted. During 2010, the Company changed its methodology for estimating its allowances for doubtful accounts in respect of straight-line  rent to reflect the current economic environment credit worthiness of its tenants. The impact of the change in estimate in the current  year was $2.7 million. It is impracticable to determine the impact of this change on future periods. 10. 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. FIRST CAPITAL REALTY ANNUAL REPORT 2010        85                                                                                                           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued The components of the Company’s capital as at December 31, 2010 are set out in the table below: (millions of dollars)  Liabilities (principal amounts outstanding) Mortgages  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 Common shares (based on closing share price of $15.11 (2009 – $13.54 (1)))  (1)  Prior year restated to reflect the May 2010, 3.2:2 stock split. 2010 2009 $ $  1,318  —  —  1,318  1,121  344  2,469  5,252  $  $ 1,312 5 38 1,355 721 352 2,080 4,508 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  45-60%  <65%  >1.50  >1.30  2010 45.8%  52.2%  2.50  1.89  1.36  2009 45.9% 50.3% 2.48 1.91 1.50  Debt consists of mortgages, loans, credit facilities and senior unsecured debentures, net of cash on hand.   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, amortization expense and excluding the  impact of gains and losses and other non-cash items.  Fixed charges include financing costs and capitalized interest in the calculation of interest expense and remove the amortization   of the discount on convertible debentures.  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. The Company’s long-term financial objectives remained substantially unchanged during the past six 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 through unsecured debentures, mortgages 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. With  stability returning to the credit markets, senior unsecured financing was issued in the fourth quarter of 2009 and in 2010 as debt capital  markets have become accessible at a more reasonable cost. The Company’s long-term financing strategy is based on maintaining  maximum flexibility in accessing various forms of debt and equity capital by maintaining a pool of unencumbered assets and investment  grade credit ratings from various rating agencies. 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 of its applicable financial covenants. 86        FIRST CAPITAL REALTY ANNUAL REPORT 2010                                                                                                               11. MORTGAGES, LOANS AND CREDIT FACILITIES (thousands of dollars)  Fixed rate mortgages  (thousands of dollars)  Fixed rate mortgages  Floating rate secured revolving credit facilities  2010 Canada $ 1,318,341 $ US — Total $ 1,318,341 2009 Canada  US  Total $  1,312,032  4,800  $  1,316,832  $  $  —  37,836  37,836  $  1,312,032 42,636 $  1,354,668 Mortgages and revolving credit facilities are secured by shopping centres. At December 31, 2010, the Company had $281.5 million (2009 – $303.6 million) of undrawn credit facilities available for acquisitions,  development activities, and general corporate purposes. Of the gross book value of real estate assets of $4.4 billion as at December 31, 2010 (2009 – $3.9 billion), approximately $2.7 billion  (2009 – $2.7 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. Fixed rate mortgages bear interest at a weighted coupon interest rate of 6.09% at December 31, 2010 (2009 – 6.18%) and mature  in years ranging from 2011 to 2025. The weighted average effective interest rate on fixed rate financing at December 31, 2010 is 6.00%  (2009 – 6.15%). 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 was used to replace the  Company’s existing three-year $350 million Senior Unsecured Revolving Credit Facility with a maturity date of March 2010. As a result,  $0.7 million of unamortized deferred financing costs were recorded as a loss on settlement of debt (note 19). During the remainder of 2009, the Company further reduced the $450 million facility by $165 million to $285 million. On January 21, 2010, 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 were recorded as a loss on settlement of debt (note 19). Also on January 21, 2010, the Company reduced the availability of 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 (note 19). At December 31, 2010, the fair value of the Company’s mortgages, loans and credit facilities was approximately $1.4 billion  (2009 – $1.4 billion). Principal repayments of Canadian dollar mortgages and credit facilities outstanding as at December 31, 2010 are as follows: (thousands of dollars)  2011     2012    2013    2014    2015    Thereafter  Unamortized deferred financing costs,     premiums and discounts, net  Principal Instalment Payments $  35,543 33,527 30,579 23,175 15,074 42,605 $  180,503 Balance Maturing Total Weighted Coupon Interest Rate $ 60,397 128,879 205,666 240,556 170,255 332,446 $ 1,138,199 $ 95,940 162,406 236,245 263,731 185,329 375,051 1,318,702 (361) $ 1,318,341 6.71% 6.65% 6.02% 6.27% 5.43% 6.02% 6.09% The Company also makes drawings on its Canadian credit facilities in US dollars which bear interest at LIBOR plus 250 basis points.  At December 31, 2010 no drawings (2009 – $37.8 million (US$36.0 million)) were outstanding. FIRST CAPITAL REALTY ANNUAL REPORT 2010        87                                                   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued 12. ACCOUNTS PAYABLE AND OTHER LIABILITIES (thousands of dollars)  Trade payables and accruals  Construction and development payables and accruals  Dividends payable  Interest payable  Tenant deposits  Other liabilities  Interest rate swaps at fair value  13. SENIOR UNSECURED DEBENTURES (thousands of dollars)  2010 2009 $ 42,719  33,098  32,691  24,234  10,944  5,265  873  $ 149,824  $  42,309 30,450 30,734 19,310 9,819 3,832 1,204 $  137,658 2010 2009 Series  Date of Issue  Maturity Date  Coupon  Effective  Outstanding  Liability  Liability Interest Rate  Principal B  C  A  D  E  F  G  H  I  I  I  J  K  K  March 30, 2006  August 1, 2006  June 21, 2005  September 18, 2006  January 31, 2007  April 5, 2007  November 20, 2009  January 21, 2010  April 13, 2010  April 13, 2010  June 14, 2010  July 12, 2010  August 25, 2010  October 26, 2010  March 30, 2011  December 1, 2011  June 21, 2012  April 1, 2013  January 31, 2014  October 30, 2014  June 1, 2015  January 31, 2017  November 30, 2017  November 30, 2017  November 30, 2017  August 30, 2018  November 30, 2018  November 30, 2018    5.25%    5.49%    5.08%    5.34%    5.36%    5.32%    5.95%    5.85%    5.70%    5.70%    5.70%    5.25%    4.95%    4.95%    5.45%  5.51%  5.67%  5.29%  5.51%  5.52%  5.47%  6.13%  5.99%  5.85%  5.82%  5.70%  5.66%  5.30%  5.06%  5.63%  $ 98,899 99,900 100,000 97,000 100,000 100,000 125,000 125,000 50,000 25,000 50,000 50,000 50,000 50,000 $ 1,120,799 $ 98,836  99,745  99,610  96,659  99,612  99,546  124,142  124,096  49,577  24,833  49,991  48,869  48,883 49,632 $ 1,114,031  $  98,589   99,585   99,430   96,520   99,476   99,424  124,016 — — — — — — — $  717,040 Interest on the senior unsecured debentures is payable semi-annually and principal is payable on maturity. The fair value of the senior unsecured debentures is approximately $1,160 million at December 31, 2010 (December 31, 2009 –  $734 million) based on closing bid spreads and current underlying Government of Canada bond yields. 14. CONVERTIBLE DEBENTURES (thousands of dollars)  2010 2009 Date of Issue  Maturity Date  Coupon  Effective  Principal Liability Equity  Principal  Liability  Equity Interest Rate 5.50%  6.45%  $ 75,808 $ 71,927 $ 2,286 $  76,750  $  72,366  $  2,314   6,015 5.50%  6.39%    7,387 5.50%  6.61%    2,632 6.25%  7.64%  5.70%  6.88%    1,482 5.69%  6.75%  $ 343,750 $ 324,535 $ 19,555 $ 351,750  $ 329,739  $  19,830  100,000    50,000    75,000    50,000  6,015  7,387  2,385  1,482   100,000   50,000   67,942   50,000   94,606    46,685    69,579    46,503  95,165 47,025 63,478 46,940 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  88        FIRST CAPITAL REALTY ANNUAL REPORT 2010                                                                                                                             The convertible unsecured subordinated debentures bear interest payable semi-annually and are convertible at the option of the  holders in the conversion periods into common shares of the Company at the conversion rate per $1,000 principal amount. Maturity Date September 30, 2017  December 31, 2016  June 30, 2017  Coupon Rate 5.50%  6.25%  5.70%  Toronto Stock Exchange Symbol (“TSX”) FCR.DB.A and FCR.DB.B  FCR.DB.C  FCR.DB.D  (1)  $17.031 from January 1, 2012 to maturity. Conversion Price $  $  $  16.425 (1) 14.313 18.750 The 5.50% convertible unsecured subordinated debentures were issued pursuant to the Company’s trust indenture dated December 19,  2005, as supplemented, and rank pari passu with the Company’s outstanding 6.25% and 5.70% convertible unsecured subordinated  debentures (TSX:FCR.DB.C and FCR.DB.D). The 6.25% convertible unsecured subordinated debentures 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). The 5.70% convertible unsecured subordinated debentures 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). On August 6, 2010 the TSX accepted First Capital Realty’s notice of intention to commence a normal course issuer bid (“NCIB”)   for each series of the convertible debentures. The NCIB commenced on August 10, 2010 and will expire on August 9, 2011 or such  earlier date as the Company completes its purchases pursuant to the NCIB. During the year ended December 31, 2010, the Company  purchased $7.1 million of principal amount of the 6.25% convertible debentures for $7.6 million, resulting in a loss of $0.7 million   (note 19), a reduction of contributed surplus in the amount of $60,000 and a reduction in convertible debenture-equity component   of $247,000. The Company also purchased $0.9 million of principal amount of the 5.50% convertible debentures for $0.9 million,  resulting in a loss of $27,000 (note 19), an increase of contributed surplus in the amount of $5,000 and a reduction in convertible  debenture-equity component of $28,000. 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. In addition, the Company has the option of repaying the debentures prior  to the maturity date under certain circumstances, either in cash or in common shares. The Company’s convertible debentures require interest payable semi-annually on March 31 and September 30.  During the year ended December 31, 2010, 1,390,495 common shares (year ended December 31, 2009 – 1,235,701 common  shares (1)) were issued for $19.3 million (year ended December 31, 2009 – $12.6 million) to pay interest to holders of convertible  debentures. As at December 31, 2010, subsidiaries of the Company’s major shareholder, Gazit-Globe Ltd. (“Gazit”), owned $157.4 million  (December 31, 2009 – $157.4 million) principal amount of the 5.50% outstanding convertible debentures and $0.6 million (December 31,  2009 – $29,000) principal amount of the outstanding 6.25% convertible debentures. Based on the TSX closing bid prices, as at December 31, 2010, the fair value of the principal amount of the convertible debentures  was $350 million (2009 – $348 million). (1)  Adjusted to reflect the May 2010, 3.2:2 stock split. The conversion price of the convertible debentures has been decreased by (multiplying by)  a factor of 0.625. 15. 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. FIRST CAPITAL REALTY ANNUAL REPORT 2010        89 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued Effective May 27, 2010, the outstanding common shares were subdivided at a ratio of 3.2 common shares for each two common  shares. No fractional common shares were issuable as a result of the subdivision, but, rather, a cash payment was made for such  fractional interests determined on the basis of the closing price of the common shares on the TSX on May 28, 2010. The subdivision  did not dilute shareholders’ equity. All references to the number or price of common shares have been restated to reflect the  subdivision throughout the financial statements. The following table sets forth the particulars of the issued and outstanding shares of the Company: Issued and outstanding at December 31, 2008 Issuance of common shares (b)  Payment of interest on convertible debentures (note 14)  Conversion of convertible debentures  Exercise of warrants (c)  Exercise of options (d)  Issue costs  Tax effect of issue costs  Issued and outstanding at December 31, 2009 Issued and outstanding at December 31, 2009 Issuance of common shares (b)  Payment of interest on convertible debentures (note 14)  Exercise of warrants (c)  Exercise of options (d)  Issue costs  Tax effect of issue costs  Issued and outstanding at December 31, 2010 (1)  Prior year restated to reflect the May 2010, 3.2:2 stock split. (b) Issuance of Common Shares 2010 Activity Number of  Stated Capital  Common Shares(1)  (thousands of dollars) 144,004,130 7,998,590  1,235,701  370,370  11,818  52,000  —  —  153,672,609 $ 1,463,389 83,187 12,613 6,056 135 444 (2,369) 573 $ 1,564,028 Number of  Stated Capital  Common Shares(1)  (thousands of dollars) 153,672,609 3,874,349  1,390,495  3,681,424  836,876  —  —  163,455,753 $ 1,564,028 55,765 19,275 42,096 9,735 (1,819) 436 $ 1,689,516 On April 22, 2010, the Company issued 80,738 shares to a member of the Company’s management at a price of $13.79 per share for  gross proceeds of $1.1 million.  On June 29, 2010, the Company completed the sale of 3,485,000 common shares at a price of $14.35 per common share for total  gross proceeds of $50.0 million. On July 15, 2010 the underwriters exercised part of their over-allotment option and purchased an  additional 200,000 common shares at the offering price of $14.35 per common share for additional gross proceeds of $2.9 million. On December 15, 2010, the Company issued 108,611 shares to three members of the Company’s management at a price of  $15.25 per share for gross proceeds of $1.7 million. 2009 Activity On February 17, 2009, the Company issued 2,289,773 shares at a book value of $10.21 per share in exchange for 1,766,800 units   of Allied Properties REIT at a ratio of 1.296 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. Each Unit consisted of: (i) 1.6 common shares of First Capital Realty, and (ii) two-thirds of a share purchase  warrant. 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 188,817 shares to five members of the Company’s management at a price of  $13.04 per share for gross proceeds of $2.5 million. 90        FIRST CAPITAL REALTY ANNUAL REPORT 2010                                                                                                                 (c) Warrants 2010 Activity As a result of and effective immediately following the 3.2:2 stock split of common shares, the exercise price of First Capital Realty’s  outstanding warrants (TSX:FCR.WT.A) was decreased by (multiplying by) a factor of 0.625 (resulting in a post-split exercise price   of $10.96 per common share) and the number of common shares for which each such warrant was exercisable was increased by  (multiplying by) a factor of 1.6 (resulting in warrantholders being entitled to receive 1.6 common shares for each exercised warrant,  with any fractional interests being rounded down to the nearest whole number without payment of any consideration therefor).  During the year ended December 31, 2010, 898,532 share purchase warrants were exercised for 898,532 common shares at  $17.53 per common share prior to the stock split and 1,402,358 share purchase warrants were exercised for 2,243,772 common  shares at $10.96 per common share subsequent to the stock split, resulting in total proceeds to the Company of $40.3 million.   The equity component of the warrants exercised totalling $1.8 million was transferred to share capital. At December 31, 2010, there were no outstanding share purchase warrants. 2009 Activity During 2009, a total of 7,400 share purchase warrants were exercised at $17.53 per common share prior to the stock split 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. (d) Stock Options As a result of and effective immediately following the stock split, the exercise price per common share for First Capital Realty’s  outstanding stock options has been decreased by (multiplying by) a factor of 0.625 and the number of common shares issuable on  exercise of stock options outstanding has been increased by (multiplying by) a factor of 1.6 with any fractional interests being rounded  down to the nearest whole number without payment of any consideration thereof. As of December 31, 2010, the Company is authorized to grant up to 15,240,000 (December 31, 2009 – 11,240,000 (1)) common  share options to the employees, officers and directors of the Company and third-party service providers. As of December 31, 2010,  6,547,352 (December 31, 2009 – 3,073,355 (1)) 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 $7.76 to $16.95 and are comprised of the following: 2010 2009 Outstanding Options Vested Options Outstanding Options  Vested Options Weighted Average Weighted Weighted  Average  Weighted  Average  Weighted  Number of Exercise Average Number of Exercise  Number of  Exercise  Average  Number of  Common Price per Remaining Common Price per  Common  Price per  Remaining  Common  Exercise Price Shares Common Life Shares Common  Shares  Common  Life  Shares  Weighted  Average Exercise Price per Common Range Issuable Share (years) Issuable Share  Issuable (1)  Share (1)  (years)  Issuable (1)  Share (1) $ 7.76 — $10.81 1,022,249 $ 9.87 $11.94 — $14.26 2,044,783 $ 13.73 $15.47 — $16.95 (2) 2,396,006 $ 16.57 $ 7.76 — $16.95 (2) 5,463,038 $ 14.25 9.94 1,639,859  $  381,704 $ 7.2 9.79  7.6 878,181 $ 13.47 1,450,025  $  13.52  6.0 1,916,006 $ 16.48 2,684,028  $  16.78  6.8 3,175,891 $ 14.86 5,773,912  $  13.98  450,720  7.7  7.2  871,440  7.0  1,728,297  $  9.70 $  13.28 $  16.53 7.2  3,050,457  $  14.59 (1)  Prior year restated to reflect the May 2010, 3.2:2 stock split. (2)  The exercise prices of all eligible options were adjusted by $0.28 in the third quarter of 2010 to reflect the capital distribution relating to the August 2009  dividend-in-kind of the Company’s interest in Equity One, Inc. FIRST CAPITAL REALTY ANNUAL REPORT 2010        91                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued In 2010, $1.1 million (2009 – $1.3 million) was recorded as an expense related to stock options. 2010 2009 Number of  Number of Common Shares Weighted Average  Common Shares  Weighted Average Issuable Exercise Price  Issuable (1)  Exercise Price (1) Outstanding, beginning of period (1)  Granted  Exercised  Forfeited  Outstanding, end of period  Options vested, end of period  Weighted average remaining life (years)  (1)  Prior year restated to reflect the May 2010, 3.2:2 stock split. 2010 Activity 5,773,912 996,520 (836,878) (470,516) 5,463,038 3,175,891 6.8  $ $ $ $ $ $ 13.98  13.92  10.94  14.78  14.25  14.86  4,733,810  1,216,838  (52,000)  (124,736)  5,773,912  3,050,457  7.2 $  $  $  $  $  $  14.96 9.82 8.40 13.11 13.98 14.59 On March 24, 2010, the Company granted 951,520 common share options (594,700 common share options prior to stock split) with   an exercise price of $13.91 ($22.25 prior to stock-split), which had a total value of approximately $1.3 million at the time of issue. On August 16, 2010, the Company granted 45,000 common share options with an exercise price of $14.26, which had a total value  of approximately $54,000 at the time of issue. 2009 Activity On March 23, 2009, the Company granted 1,200,838 common share options (750,524 common share options prior to stock split)   with a strike price of $9.81 ($15.69 prior to stock split) and on August 14, 2009, the Company granted 16,000 common share options  (10,000 common share options prior to stock split) with a strike price of $10.81 ($17.30 prior to stock split), which had a total value   of approximately $0.8 million at the time of issue. The fair value associated with the options issued in 2010 and 2009 was calculated using the Binomial Model for option valuation,  assuming an average volatility of 15% 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. Under the plans, a participant is entitled to receive one common share, or equivalent  cash value, at the Company’s option, when the Deferred Share Unit (“DSU”) or Restricted Share Unit (“RSU”) vests. RSUs vest on  December 15 of the third calendar year following the year in respect of which the RSU is granted. DSUs vest when the holder ceases  to be a director of the Company. Holders of RSUs and DSUs receive dividends in the form of additional units when the Company  declares dividends on its common shares. Outstanding, beginning of year (1)  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  2010 2009 Deferred Share Units   201,639 33,531 12,094 — —   247,264 Restricted  Share Units  447,227  112,000  26,064 (200,411)  (9,561)  375,319  Deferred  Share Units (1)  Restricted Share Units (1)   168,547  54,432  18,739  (40,079)  —    201,639    443,883   136,000 56,161   (188,817) —   447,227   332,844 $ 389,000 730,901  $ 1,365,000    298,468  $  438,000    459,404 $  2,377,000 (1)  Prior year restated to reflect the May 2010, 3.2:2 stock split. 92        FIRST CAPITAL REALTY ANNUAL REPORT 2010                                                   (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. 16. INTEREST AND OTHER INCOME (thousands of dollars)  Interest income from non-revolving term loan receivable (note 7(a))  Interest, dividend and distribution income from marketable securities and     cash investments  Interest income from loans receivable  17. INTEREST EXPENSE (thousands of dollars)  Mortgage, loans and credit facilities  Senior unsecured debentures  Convertible debentures     Coupon interest      Amortization of discounts      Amortization of deferred issue costs  Interest expense  Convertible debenture interest paid in common shares (note 14)  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  18. EQUITY INCOME FROM EQUITY ONE, INC. 2010 2009 $ 3,148  $  1,247 1,252  664  5,064  $  3,788 577 5,612 $ 2010 $ 66,506  54,613  $  2009 76,680 33,442 19,886  1,357  971  22,214    143,333  (19,275)  (4,924)  13,901 936 506 15,343   125,465 (12,613) (2,034) (1,404)  1,628  (3,564)  15,931  $ 131,725  (984) 1,189 (2,769) 18,441 $  126,695 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, at August 14,  2009, owned shares in Equity One, Inc (“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 as a non-reciprocal transfer to shareholders and at its carrying value, as opposed to fair value, which was $0.28  ($0.45 prior to the stock split) per common share of the Company. FIRST CAPITAL REALTY ANNUAL REPORT 2010        93                                                                                                                                                       NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued The determination of the dividend-in-kind of $63.5 million at August 14, 2009 is set out below. 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  19. OTHER GAINS (LOSSES) AND (EXPENSES) (thousands of dollars)  Gain on disposition of shopping centres (note 3)  Gains on disposition of land  Realized gains on sale of marketable securities  Gain from settlement of Royal Oak litigation (a)  Change in cumulative unrealized gains on marketable securities held-for-trading  Losses on settlement of debt (notes 11 and 14)  Realized losses on interest rate swaps (b)  Unrealized gains (losses) on interest rate swaps not designated as hedges (c)  Gain on termination of hedge previously held in other comprehensive income  Gain (loss) on foreign currency exchange  Dilution loss on investment in Equity One, Inc  Severance and termination costs  Costs related to acquisition of 40% interest in First Capital Brookfield     (a property management subsidiary)  Other income  $  204,350 (113,404) (39,590) $  $  $ 2010 2,416  228  4,361  1,672  253  (1,215)  (1,588)  538  —  2  —  —  —  58  6,725  $  $ 19,429 (7,260) 63,525 2009 737 118 4,242 — 1,952 (2,394) (1,450) (1,203) 290 (278) (676) (2,000) (752) — (1,414) (a)  During the first quarter of 2010, the Company settled its litigation with the former co-owner of the Royal Oak Shopping Centre   in Calgary, Alberta which resulted in the Company acquiring the remaining 40% interest in the Royal Oak Shopping Centre.   The Company recorded a gain of $1.7 million, representing the benefit realized as a result of the change in net assets since  February 2007, less the Company’s costs of settling the litigation. (b)  The Company terminated $90 million notional amount of Canadian bankers’ acceptances based interest rate swaps in the first  quarter of 2010, resulting in a loss of $1.6 million. (c)  As a result of the Company substantially paying off its Canadian credit facilities in 2009, 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, prior to 2010, in 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. 94        FIRST CAPITAL REALTY ANNUAL REPORT 2010                                                                                                                                                                                                     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 30.06% (2009 – 31.38%)  Increase (decrease) in the provision for income taxes due to the following items:     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 minimum tax credits  Shopping centres  Other    2010 2009 $ 17,762  $  15,735 —  (2,030)  326  1,689  17,747  $  226 (7,497) (92) (139) 8,233 2010 2009 (25,414)  (1,077)  85,211  2,347  61,067 $  $  (19,657) (915) 59,218 4,856 43,502 $ $ $ At December 31, 2010, the Company has tax-loss carry-forwards for Canadian income tax purposes of approximately $100 million  (2009 – $79 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, 2014 and December 31, 2030. 21. PER SHARE CALCULATIONS The following table sets forth the computation of per share amounts: (thousands of dollars, except per share amounts)  2010 2009 Basic and diluted net income available to common shareholders  $  41,338  $  41,913 Denominator Weighted average shares outstanding for basic per share amounts (1)  Warrants (1)  Options (1)  Denominator for diluted per share amounts  Basic and diluted earnings per share (1)  (1)  Prior year restated to reflect the May 2010, 3.2:2 stock split.   159,113,924    150,014,454 27,873 147,776     160,030,988   150,190,103 451,022    466,042    $  0.26  $  0.28 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 (1) Exercise Price  2010 Exercise Price  2009 Common share options  Convertible debentures – 5.50%  Convertible debentures – 6.25%  Convertible debentures – 5.70%   $ 13.91 – $ 16.95 $ 16.425 $ 14.313 $ 18.750 3,338,926  13,747,793  4,747,039  2,666,667   $ 11.94 – $ 17.23  $ 16.425  $ 14.313  $ 18.750  4,134,052 13,805,174 5,240,174 2,666,667 (1)  Prior year restated to reflect the May 2010, 3.2:2 stock split. FIRST CAPITAL REALTY ANNUAL REPORT 2010        95                                                                                                                                             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued 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 12) and other contracts is a liability of $0.9 million (2009 – $1.2 million) due to changes in interest rates since the inception  of the contracts. (b) Credit Risk Credit risk arises from the possibility that tenants and/or debtors may experience financial difficulty and be unable or unwilling to   fulfill their lease commitments or loan obligations. 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 6.9% 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, 2010 and at December 31, 2009, the Company has a  US$36 million non-revolving loan receivable (note 7(a)). 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, 2010 and 2009 due   to their short-term nature. The fair values of the Company’s other financial assets and liabilities are disclosed in notes 7(b), 7(c), 11,   13 and 14. (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. 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  Senior unsecured debentures  Land leases  Total contractual obligations  Payments Due by Period 2011  2012–2013  2014–2015  Thereafter  Total $  35,543    60,397    95,940    198,799  823  $  295,562  $  64,106    334,545    398,651    197,000  1,651  $  597,302  $  38,249    410,811    449,060    325,000  1,574  $  775,634  $  42,605    332,446    375,051    400,000    13,964  $  789,015  $  180,503   1,138,199   1,318,702   1,120,799 18,012 $  2,457,513 96        FIRST CAPITAL REALTY ANNUAL REPORT 2010           In addition, the Company has contractual commitments with respect to its outstanding accounts payable and other liabilities  (note 12), land and shopping centres under development (note 4) and interest payments on outstanding debt (notes 11, 13 and 14)  and the Company has committed to purchase a property for $13.4 million, with an additional $2.5 million tenant allowance payable. 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, 2010 there were no amounts drawn on  the Company’s Canadian revolving credit facility with a maturity of March 2012. In addition, at December 31, 2010 the Company has $18.5 million (2009 – $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. 23. SUPPLEMENTAL OTHER COMPREHENSIVE INCOME INFORMATION (a) The tax effects relating to each component of other comprehensive income are as follows: Years ended December 31  2010 2009 (thousands of dollars)  Unrealized foreign currency gains on translating    self-sustaining foreign operations  Other comprehensive gains of     Equity One, Inc.  Unrealized gains on cash flow hedges     of interest rates  Change in cumulative unrealized gains     on available-for-sale marketable securities  Other comprehensive income  Before-tax Tax Net-of-tax  Before-tax  Tax  Amount Expense Amount  Amount  Expense  Net-of-tax Amount $ — $ — $ —  $  12,801  $  —  $  12,801 — — — — —    3,251  —    3,251 —    17,210    5,038    12,172   1,573 $ 1,573 $ 252 252 1,321  $ 1,321    7,649  $  40,911    1,164  $  6,202    6,485 $  34,709 (b) Accumulated Other Comprehensive Income (Loss) Years ended December 31  Opening Balance January 1 2010 Net Change Closing Balance Opening  Balance  2009 Net  Change  Closing Balance During December 31 January 1  During  December 31 (thousands of dollars)  2010 the Year 2010 2009  the Year  2009 Unrealized foreign currency     (loss) gain on translating     self-sustaining foreign operations  Other comprehensive losses (gains) of    Equity One, Inc.  (Losses) gains on cash flow hedges of    interest rates  Change in cumulative unrealized    gains (losses) on available-for-sale     marketable securities  Accumulated other comprehensive    income (loss)  $  — $ — $ —  $  (12,801)  $  12,801  $  — — — — —  (3,251)    3,251  —    (12,172)    12,172  — — — 918 1,321 2,239  (5,567)    6,485  918 $  918 $ 1,321 $ 2,239  $  (33,791)  $  34,709  $  918 The Company expects the balance of the Accumulated Other Comprehensive Income at December 31, 2010 to be reclassified to net  income in 2011. FIRST CAPITAL REALTY ANNUAL REPORT 2010        97                                   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued 24. SUPPLEMENTAL CASH FLOW INFORMATION (a) Items not affecting cash (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 on sale of marketable securities (note 19)  Change in cumulative unrealized gains on marketable securities     held-for-trading (note 19)  Losses on settlement of debt (note 19)  Non-cash compensation expense      Less cash settlement of restricted share units      Less cash settlement of deferred share units  Convertible debenture interest paid in common shares (note 14)  Non-cash interest expense (note 17)  Equity income from Equity One, Inc.  Dilution loss on Equity One, Inc. investment  Future income taxes  (Gains) losses on foreign currency exchange  Unrealized (gains) losses on interest rate swaps not designated as hedges  (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)  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  98        FIRST CAPITAL REALTY ANNUAL REPORT 2010 2010 2009 $ 103,995  (2,487)  (9,299)  (2,416)  (228)  (4,361)  (253)  1,215  2,785  (2,899)  —  19,275  3,340  —  —  17,747  (2)  (538)  $ 125,874  $  98,708 (2,323) (5,053) (737) (118) (4,242) (1,952) 2,394 4,209 (2,463) (514) 12,613 2,564 (7,066) 676 7,700 278 1,203 $  105,877 2010 2009 3,894  (49)  13,002  1,447  (3,243)  15,051  $  $  5,112 (1,870) 322 2,691 (12,847) (6,592) 2010 2009 (8,992)  (58,964)  553  45,457  (21,946)  $  $  (3,714) (6,743) 2,030 59,067 50,640 $ $ $ $                                                                                                                                                                                                                                                                   (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 17)  25. SEGMENTED INFORMATION 2010 31,266  373  31,639  $ $ $  $  2009 4,190 358 4,548 2010 2009 $ —  $ 131,725  $  1,358 $  126,695 The Company and its subsidiaries operated in the shopping centre segment of the real estate industry in both Canada and the  United States up to August 14, 2009. 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  Canadian operations include the following: 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 $ Year ended December 31, 2010  (thousands of dollars)  Property rental revenue  Property operating costs  Net operating income  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 $ 105,945 $ 220,590 $ 147,701 $ 474,236 $ 43,458 62,487 $ 136,936 $ 83,654 47,819 99,882 $ 299,305 $ 174,931 $ 10,780 $ 485,016 168,950 (5,981) 16,761 $ 316,066 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 FIRST CAPITAL REALTY ANNUAL REPORT 2010        99                                                             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued The net book value of real estate assets is as follows: December 31, 2010  (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  $ 49,072 $ 197,949 $ 59,822 $ 306,843 $ — $ 306,843   675,506 1,662,284 1,265,283 3,603,073 $ 724,578 $ 1,860,233 $ 1,325,105 $ 3,909,916 $ 3,603,073 — — $ 3,909,916 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 Expenditures for additions to capital assets are as follows: Year ended December 31, 2010  (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  $ 1,923 $ 12,083 1,141 $ 7,722 2,914 $ 5,978 $ 13,134 32,939 — $ — 5,978 32,939 17,037 31,043 $ 71,370 80,233 $ 30,740 46,788 $ 158,064 $ 119,147 $ — 119,147 — $ 158,064 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  $  11,366  1,876  $  11,186  1,339  $  5,022  $  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 (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 (to December 2009), 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. 100        FIRST CAPITAL REALTY ANNUAL REPORT 2010                     26. PROPORTIONATE CONSOLIDATION The Company is a participant in 13 (2009 – 17) 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 75%. 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  2010 2009 $ 140,083  68,040  $ 19,398  $ 11,701  7,697  $ $  183,431 93,012 $  27,340 $  20,252 7,088 $  $ $ $ 12,788  35,940  (51,584)  $  $  $  10,233 (21,345) 11,808 Cash and cash equivalents held pursuant to terms of joint-venture agreements amount to $2.2 million at December 31, 2010   (2009 – $5.1 million). 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 (b)). 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)  The Company is contingently liable, jointly and severally, for approximately $36.3 million (2009 – $51.1 million) to various lenders  in connection with loans advanced to its joint-venture partners secured by the partners’ interest in the co-ownerships. (c)  The Company is also contingently liable for letters of credit in the amount of $18.5 million (2009 – $22.4 million) issued in the  ordinary course of business. (d)  The Company has obligations as lessee under long-term leases for land. Annual commitments under these ground leases are  approximately $0.8 million (2009 – $0.8 million) with a total obligation of $18.0 million (2009 – $18.8 million). (e)  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 major 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 2010 was $3,336,000 (2009 – $2,316,000) which primarily  consists of interest on the loan receivable as per note 7(a) of $3,148,000 (2009 – $1,247,000) and appraisal and accounting   costs related to preparation of financial reporting in accordance with International Financial Reporting Standards of $46,000  (2009 – $1,069,000). Gazit is also a tenant at a property owned by the Company. Total rental payments received during 2010  amounted to $240,000 (2009 – $231,000). At December 31, 2010, $144,000 due from Gazit was included in amounts receivable  (2009 – $1,406,500) and collected subsequent to year-end. In addition, subsidiary companies of Gazit own convertible debentures of the Company as described in Note 14. (b)  Included in amounts receivable at December 31, 2010 is a loan due from an employee totalling $100,000 (2009 – $250,000).   The interest-only loan bears interest at the rate prescribed by the Canada Revenue Agency for employee loans and is fully  secured against restricted share units and options to purchase common shares held by the employee. The loan matures in 2013. FIRST CAPITAL REALTY ANNUAL REPORT 2010        101                                             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued 29. SUBSEQUENT EVENTS (a) Senior Unsecured Debentures On January 21, 2011, the Company completed the issuance of $150 million aggregate amount of Series L senior unsecured  debentures due July 30, 2019. The Debentures bear interest at a rate of 5.48% per annum payable semi-annually commencing  July 30, 2011. (b) Interest on Convertible Debentures On February 23, 2011, the Company announced that it will pay the interest due on March 31, 2011 to holders of its convertible  unsecured subordinated debentures, 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, 2011. The interest payment due is approximately $9.7 million. It is the current intention of the Company to continue to satisfy its obligations to pay principal and interest on its convertible  debentures by the issuance of common shares. Since issuance, all interest payments on the convertible debentures have been   made using shares. 30. COMPARATIVE AMOUNTS Certain comparative amounts have been reclassified to reflect the presentation adopted in the current year.  102        FIRST CAPITAL REALTY ANNUAL REPORT 2010 Shareholder information Head Office king liberty village 85 hanna avenue, suite 400 toronto, ontario M6k 3s3 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 Property Management Office Morningside crossing 4525 kingston road, suite 2201 toronto, ontario M1e 2p1 tel: 416 724 5550 fax: 416 724 2666 Calgary Office trans canada centre Toronto Stock exchange listings common shares: fcr legal Counsel torys llp toronto, ontario 5.50% convertible Debentures, class cdn: Davies Ward phillips & vineberg llp fcr.Db.a Montreal, Quebec 5.50% convertible Debentures, class u.s.: fcr.Db.b 6.25% convertible Debentures: fcr.Db.c 5.70% convertible Debentures: fcr.Db.D Auditors Deloitte & touche llp toronto, ontario Directors chaim katzman Transfer Agent computershare trust company of canada Chairman, First Capital Realty Inc. North Miami Beach, Florida 100 university avenue, 11th floor Dori J. segal toronto, ontario M5J 2y1 toll-free: 1 800 564 6253 Senior Management Team Dori J. segal President and Chief Executive Officer unit 158, 1440-52nd street ne karen h. Weaver, c.p.a. Executive Vice President and Chief Financial Officer brian kozak Senior Vice President, Western Canada Jamie chisholm Vice President, Central Canada Gregory J. Menzies Vice President, Eastern Canada roger J. chouinard General Counsel and Corporate Secretary John todd, c.a. Vice President and Chief Accounting Officer ralph huizinga Vice President, Acquisitions & Development, Western Canada Maryanne McDougald Vice President, Property Management 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 24, 2011 the Design exchange 234 bay street, toronto ontario at 1:00 pm www.firstcapitalrealty.ca 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. Chief Executive Officer and Director, Alony Hetz Properties and Investments Ltd. Ramat Gan, Israel susan J. Mcarthur Managing Director, Jacob & Company Securities Toronto, Ontario bernard McDonell Private Investor Apple Hill, Ontario steven k. ranson, c.a. President, Chief Executive Officer and Director, HOMEQ Corporation Toronto, Ontario Moshe ronen Barrister and Solicitor Thornhill, Ontario first capital realty annual report 2010 7 85 hanna avenue, suite 400, toronto, ontario M6k 3s3 t 416.504.4114 t 416.941.1655 www.firstcapitalrealty.ca XX% upDate 

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